The Ryan Budget Is an Affront to Economics and American History

A few years ago, when the unemployment rate was near its peak, two Swedish economists, Stefan Eriksson and Dan-Olof Rooth, conducted an experiment. They wanted to find out just how hard it was to get a job if you’d been unemployed for a long time. They sent 8,466 fictitious job applications to employers across Sweden. They varied the number of months that each “applicant” had been unemployed. For some, it was a matter of days. For others, several months. Then they waited for the employers to call them back for interviews.

Overall, one out of every four job “applicants” received an interview. Unsurprisingly, it was higher for high-skill jobs and lower for low-skill jobs. What was more significant was the effect of unemployment on the fictitious resumes.

Eriksson and Rooth found that unemployment didn’t matter if it lasted less than six months. Applicants who had been unemployed for the past six months were just as likely to receive an interview as applicants who just quit their job yesterday. If they had been unemployed for nine months or more, however, they were 20 percent less likely to get an interview, even if they had the same work experience, education, and other qualifications as everyone else.

In the United States right now, over 3 million people have been looking for work for nine months or more — and that doesn’t include the millions more who gave up searching because they couldn’t find anything.

Eriksson and Rooth have mostly confirmed what we already knew, but their experiment adds more specific and more reliable evidence to the overwhelming conclusion that these people need our help. Fortunately, another paper, published alongside Eriksson and Rooth’s, proves that we can help them.

While Eriksson and Rooth were sending out job applications, Emi Nakamura and Jón Steinsson were reading military procurement forms.

Both economists at Columbia University, Nakamura and Steinsson were trying to figure out what effect the federal government has on the economy when it increases its spending. They found a database at the Pentagon that summed up all large military purchases in every state in the U.S. from 1966 to 2006. It wasn’t exactly an experiment, but it was close enough.

The danger in estimating the effects of government spending is that it’s hard to tell whether states had faster economic growth because they received more funding — or whether they received more funding because they happened to enjoy faster economic growth. With military purchases, Nakamura and Steinsson knew they didn’t have that problem. States don’t receive military contracts based on the state of their economy. The two are usually independent.

Nakamura and Steinsson compared military spending in each state with subsequent economic growth over the course of four decades, and they found that a 1 percent increase in government purchases resulted in a 1.5 percent increase in income per person in that state.

Then they calculated the effect on the national economy. When the Federal Reserve couldn’t lower interest rates any further — the situation we’re in now, known as the “zero lower bound” — Nakamura and Steinsson found that a 1 percent increase in government purchases resulted in at least a 1.7 percent increase in national income per person.

In other words, the federal government can stimulate the economy and create jobs, and the resulting increase in income will far exceed any cost to the taxpayers.

Budget ProposalsLike Eriksson and Rooth, Nakamura and Steinsson aren’t telling us something we don’t know, but they are giving us another valuable piece of evidence that our government is headed in the wrong direction.

At a time when the long-term unemployed need more support, our government is giving them less. The leadership of both parties have agreed to shrink the federal budget drastically over the coming decade, and now Paul Ryan, the Republican chair of the House Budget Committee, has issued a new proposal that will cut the budget even further, to the point where most programs that support the unemployed will be half the size that they were during the Reagan administration, relative to the size of the economy.

This is a cruel, counterproductive path we are on, and that is not a statement of mere opinion. It is the inescapable conclusion of data-driven, cutting-edge economic research based on real-world evidence and the accumulated lessons of American history.

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This op-ed was published in today’s South Florida Sun-Sentinel and Huffington Post.

Staying in Afghanistan Is a Recipe for More Terrorism

Global Opposition to U.S. Drone StrikesBarack Obama is daring the terrorists. He’s standing in their front yard. He’s calling them out.

Of course, that’s not how it’s reported. “U.S. ‘nowhere near’ decision to pull all troops out of Afghanistan,” was the understated Reuters headline. Under negotiation is an agreement keeping 8,000 to 10,000 American troops in Afghanistan “through 2024 and beyond.” Also on the table are night raids and drone strikes that Afghan President Hamid Karzai refuses to allow.

This is madness. “If the job is not done,” said the Russian ambassador to Kabul, “then several thousand troops…will not be able to do the job that 150,000 troops couldn’t do.”

The only thing worse than the hopelessness of this plan is the backwardness of it. In an effort to prevent terrorism, we are continuing the very thing that creates terrorism: our presence!

Al Qaeda “has been precise in telling America the reasons [it’s] waging war on us,” according to CIA analyst Michael Scheuer, who tracked Osama bin Laden from 1996 to 1999. “None of the reasons have anything to do with our freedom, liberty, and democracy, but have everything to do with U.S. policies and actions in the Muslim world.”

In his book Dying to Win: The Strategic Logic of Suicide Terrorism, political scientist Robert Pape analyzed every known case of suicide bombers from 1980 to 2005. He found that “what nearly all suicide terrorist attacks have in common is a specific secular and strategic goal: to compel modern democracies to withdraw military forces from territory that the terrorists consider to be their homeland.” Specifically, he discovered that “al Qaeda is today less a product of Islamic fundamentalism than of a simple strategic goal: to compel the United States and its Western allies to withdraw combat forces from the Arabian Peninsula and other Muslim countries.”

The Obama administration can’t pretend that it doesn’t know this fact. In 2004, the Pentagon concluded that “American direct involvement in the Muslim World has paradoxically elevated the stature of and support for radical Islamists, while diminishing support for the United States to single-digits in some Arab societies. Muslims do not ‘hate our freedom,’ but rather, they hate our policies. [In] the eyes of the Muslim world, American occupation of Afghanistan and Iraq has not led to democracy there, but only more chaos and suffering.”

Firsthand accounts confirm these conclusions. British journalist Johann Hari interviewed former Islamic militants who had since rejected jihad. He probed them, in independent interviews, about what made them join the cause in the first place. “Every one of them said the Bush administration’s response to 9/11 — from Guantanamo to Iraq — made jihadism seem more like an accurate description of the world.” One of them put it this way: “You’d see Bush on the television building torture camps and bombing Muslims and you think — anything is justified to stop this. What are we meant to do, just stand still and let him cut our throats?”

New York Times reporter David Rohde saw this attitude up close when the Taliban held him hostage for seven months. Looking back on his captors, he remembered, “Commanders fixated on the deaths of Afghan, Iraqi and Palestinian civilians in military airstrikes, as well as the American detention of Muslim prisoners who had been held for years without being charged.”

BBC journalist Owen Bennett-Jones found the same reaction in his research on the drone strike that killed Taliban leader Hakimullah Mehsud earlier this year. “Although many Pakistanis were happy that Mehsud was no long threatening them,” Bennett-Jones reports, “their relief was outweighed by the thought that the US’s use of drones in Pakistan was an unacceptable breach of sovereignty and a national humiliation.” The result was “a wave of sympathy in the country” for Mehsud and his fellow terrorists.

“As I travelled around the Middle East during the Arab Spring,” writes Bennett-Jones in this week’s London Review of Books, “the word that most often cropped up in the slogans in various capitals was not ‘freedom’ – the one the Western media recognised and highlighted – but ‘dignity.'”

These are the sad facts of a desperate region. We do not condone their violence, but we must understand their motives.

American troops, night raids, and drone strikes in Afghanistan will only make it easier for terrorists and insurgents to recruit angry young men to fight and die for their cause. By extending the occupation into perpetuity, we are not stopping terrorism at the source, as President Obama would have us believe. We are multiplying their ranks. We are taunting and humiliating them. We are endangering our nation.

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This op-ed was published in today’s South Florida Sun-Sentinel and Huffington Post.

Barack Obama Is Not the “Ice Cream President”

There’s an email making the rounds that tells a story about two little girls who run for class president in grade school. One girl works hard, runs a good campaign, and promises to do her best if elected. The other girl promises to give everyone ice cream. The teacher asks the children how they’ll pay for the ice cream. They have no idea, but they vote for the ice cream girl anyway.

That, says the email, is how Barack Obama won the election. He promised to give away free stuff that we can’t afford.

Bill O’Reilly got the ball rolling on this theory when he said, “It’s not a traditional America anymore, and there are 50 percent of the voting public who want stuff. They want things. And who is going to give them things? President Obama.”

Earlier that day, a Romney supporter told me that he expected his candidate to lose because Obama “bought” votes by “giving away” food stamps and welfare.

We have such short memories.

It was the Republican president George W. Bush who expanded eligibility for food stamps in the 2002 farm bill. It was 99 Republican representatives who voted to expand the program further in the 2008 farm bill. And it was that same Republican president who waived one of the work requirements for 32 states in November 2008.

That’s why the food stamp program added more recipients under Bush than it did under Obama.

The welfare claim is even more ridiculous. We may not remember the food stamp expansion under Bush, but surely we remember welfare reform under Bill Clinton. In 1996, Congress ended “welfare as we know it” and replaced it with “Temporary Assistance for Needy Families” (TANF), a program whose budget hasn’t changed in 16 years. It was $16.6 billion in 1996, and it’s $16.6 billion today.

In the year before welfare reform, 4.7 million Americans received assistance from the program. Today, only 2 million receive assistance from TANF.

When TANF was created, 68 percent of families with children in poverty received welfare. Today, only 27 percent get it.

Low-income entitlement spending has increased, but it would’ve increased under any president. Most of it is what economists call “automatic stabilizers” because they automatically increase during recessions. More people become unemployed. More people fall into poverty. More people lose their health insurance. So more people qualify for unemployment insurance and food stamps and Medicaid.

Since the end of the recession, low-income entitlement spending has been falling. In the next decade, the Congressional Budget Office says that it will return to the same level it’s been for the last forty years: a little more than 1 percent of our nation’s income. If you exclude health care, where costs are rising for completely separate reasons, the CBO expects low-income entitlement spending to fall below its forty-year average in coming years.

The CBO is making these projections, of course, based on the Obama administration’s budget. The president who is supposedly giving away free stuff, it turns out, is actually planning to reduce low-income entitlements.

What’s particularly galling about the Republicans’ argument is that Romney was the candidate who couldn’t explain how he’d pay for everything he was promising. Romney was the candidate who wanted to add a $480 billion tax cut to a $1.3 trillion deficit. Romney was the candidate who wanted to add $200 billion in new Pentagon spending every year.

It was the Republican president George W. Bush who turned a surplus into a deficit. It was Bush who took the nation into two wars while passing two massive tax cuts. It was Bush who signed Medicare Part D without figuring out how to pay for it.

Are we all suffering from a collective bout of amnesia?

The Romney camp’s explanation for their electoral loss fits right in with the broader picture they tried to paint of the Obama presidency. In their world, Barack Obama “has fundamentally changed the relationship between government and the people of this country,” as Jon Stewart put it in his debate with O’Reilly.

But it’s simply not true.

And the truth matters. Obama didn’t win the election because he’s giving away free stuff, and perpetrating such a myth only serves to obscure what’s really going on and what really needs to be done in Washington.

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This op-ed was published in today’s South Florida Sun-Sentinel.

The Fault Lies Not in the Stars But in Our Politicians

As I predicted on this page at the beginning of the year, the housing market has turned the corner.

The Zillow Home Value Index experienced the first year-over-year increase since 2007, the fourth consecutive month of increasing value. The Federal Housing Finance Agency also reported the fourth straight month of rising home prices in May.

At their current rate, new home sales are on track to beat last year’s numbers by 17 percent. Compared to a year earlier, the inventory of unsold existing homes has been declining for sixteen consecutive months. In fact, this month we saw the biggest drop in inventory ever reported.

Last month, housing starts reached their highest level since October 2008. This month, home builder confidence reached the highest level since March 2007. Foreclosures in distressed markets like California have reached their lowest level since 2007.

In other words, our long national nightmare is over.

And yet, our malaise has only deepened. Output growth is weak, unemployment remains stuck at 8.2 percent, and the twin engines of growth — exports and manufacturing — have stalled. If the cause of our discontent has reversed course, what fresh hell is holding us back?

Some of the blame belongs to the European Union, whose weakness has driven the euro down, making the U.S. dollar more expensive. As a result, exports have flatlined, along with the manufacturing sector that depends on them.

But the real sand in the wheels has been the cutbacks in Washington.

No, that’s not a typo. Despite all the news you’ve heard about the big bad budget deficit, the truth is that the government has been retreating, leaving the private sector to fend for itself.

In the two and a half years since the end of the recession, government spending, adjusted for inflation, has fallen by 2.6 percent. Government purchases have also fallen by 2.6 percent. Government employment has fallen by 2.7 percent.

Compare that to the two and a half years after the end of the 1982 recession, over which Ronald Reagan presided. By this point in Reagan’s term, government spending had increased by 10.2 percent, government purchases had increased by 11.6 percent, and government employment had increased by 3.1 percent.

Or we could compare to George W. Bush. From 2000 to 2007, government spending grew faster than it has from 2007 to 2011.

Any way you measure it, government spending growth has been very weak.

From 1980 to 1984, real government spending increased over 14 percent. From 2008 to 2012, in contrast, it has increased only 6 percent. And, since the beginning of last year, it has turned negative. In fact, this year, real government spending per capita is falling faster than it has since the aftermath of the Korean War.

But the real bloodbath is yet to come. On January 1st, $110 billion in automatic spending cuts are scheduled to kick in, followed by over $1 trillion more in spending cuts and tax increases over the next decade — unless, of course, Congress enacts a new law to postpone them.

Republicans are particularly concerned about this so-called “fiscal cliff,” not only because they abhor tax increases, but especially because half of the spending cuts will come from the Pentagon. Democrats are equally concerned about the possible extension of the Bush tax cuts for the rich, which are scheduled to expire at the end of the year.

So Democratic Senator Patty Murray made them an offer: We will agree to postpone the “fiscal cliff” if you will agree not to extend the Bush tax cuts for household incomes above $250,000.

Senate Democrats held up their end of the bargain on Wednesday, passing a bill to extend all the Bush tax cuts below $250,000. But Washington insiders say that the bill is as good as dead in the Republican-controlled House.

House Republicans, it seems, are determined to hold the economy hostage to the selfish interests of the rich — yet again.

But it doesn’t have to go down like this. Weak economic growth is not a fait accompli. The fundamentals of our economy are improving. The recovery will accelerate…if the government steps up like it did in previous recoveries.

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This op-ed was published in today’s South Florida Sun-Sentinel.

Staying in Afghanistan Is a Recipe for More Terrorism

Barack Obama is daring the terrorists. He’s standing in their front yard. He’s calling them out.

Of course, that’s not how it’s reported. “US troops may stay in Afghanistan until 2024,” was the understated headline in The Telegraph. Under negotiation is an agreement keeping 25,000 American troops in Afghanistan a full decade after the current withdrawal deadline. Also on the table are military bases that the United States doesn’t want to give up…ever.

This is madness. “If the job is not done,” said the Russian ambassador to Kabul, “then several thousand troops…will not be able to do the job that 150,000 troops couldn’t do.”

The only thing worse than the hopelessness of this plan is the backwardness of it. In an effort to prevent terrorism, we are continuing the very thing that creates terrorism: our presence!   Continue reading “Staying in Afghanistan Is a Recipe for More Terrorism”