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‘Clunkers,’ a classic government folly
By Jeff Jacoby, Globe Columnist September 1, 2010

IN THE market for a used car? Good luck finding a bargain: The price of “pre-owned’’ vehicles has climbed considerably over the past year. According to Edmunds.com, a website for car buyers, a three-year-old automobile today will set you back, on average, close to $20,000 — a spike of more than 10 percent since last summer. For some popular models, the increase has been much steeper. In July, a used Cadillac Escalade was going for around $35,000, or nearly 36 percent over last July’s price.

Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.

But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. “It’s going to drive prices up on some of the most affordable vehicles we have on the road,’’ he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.

To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. “Influencing the timing of consumers’ durable purchases is easy,’’ Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. “Creating new purchases is not.’’ Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.

Even on environmental grounds, Cash for Clunkers was an exorbitant dud. Researchers at the University of California-Davis calculated that the reduction of carbon dioxide attributable to the program cost no less than $237 per ton. In contrast, carbon emissions credits cost about $20 per ton in international markets.

Using Department of Transportation figures, the Associated Press calculated that replacing inefficient clunkers with new cars getting higher mileage would reduce CO2 emissions by around 700,000 tons a year — less than Americans emit in a single hour. Likewise, the projected reduction in gasoline use amounted to about as much as Americans go through in 4 hours. (And that’s only if you assume — contrary to historical experience — that fuel consumption decreases when fuel efficiency rises.)

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy. Other than that, it was a screaming success.

The Economist apie nelygybę ir visuomenės sveikatą

Spirit of the age

Sep 1st 2010, 10:56 by Buttonwood

INEQUALITY is a fascinating subject, with plenty of moral, economic and political implications. So it was remiss of me to take so long to read The "Spirit Level: Why Equality is Better for Everyone", a thought-provoking book published last year by Richard Wilkinson and Kate Pickett. But at least I have the excuse that the debate is still current: the Policy Exchange thinktank recently published a rebuttal (http://www.policyexchange.org.uk/images/publications/pdfs/Beware_False_Prophets_Jul_10.pdf) of its claims. My Bagehot colleague has also commented (http://www.economist.com/node/16844516?story_id=16844516) recently on the book.

"The Spirit Level" is really divided into three parts. The first is a statistical analysis of a number of social ills, from obesity through infant mortality to rates of imprisonment. These measures are then compared with income inequality in two ways; first across a range of industrialised countries and then against the individual US states. Time after time, it is shown that inequality makes these matters worse. Indeed, everyone suffers; even the better-off in unequal societies have more social problems than the better-off in more egalitarian ones.

The second part of the book suggests reasons for why the link exists. Here the statistical analysis is more sketchy; the authors cite some studies but a lot more work needs to be done. Broadly speaking, the authors suggest that man is a social animal whose self-respect is tied up with status; inequality has many practical implications (an inability to fund a desired lifestyle, a loss of control) that cause depression, and thus the adoption of bad behaviours such as overeating, drug use and criminality.

The third part of the book deals with the authors' solutions to the problem, which is a bit of a mish-mash of issues like global warming, worker-controlled companies, anti-consumerism and so on.

One can disagree with the authors' solutions but the book stands and falls on the quality of its data; if they are right, then there is a welfare case for much greater government efforts to redistribute wealth. This is where the Policy Exchange report mounts its attack. It states that the effects noted by Wilkinson and Pickett are largely the result of a few outliers (Japan for longevity, the US for murder rates, Scandinavia for most things) and that the relationship does not exist when these outliers are removed. Indeed, it does not exist if more countires are included. When it comes to the individual US states, Policy Exchange argues that the effects can be noted by the proportion of African-Americans within the population. In short, the effect is cultural, not economic.

Sweden and Japan, for example, have the income distributions they have because of the kinds of societies they are. They are not cohesive societies because their incomes are equally distributed; their incomes are equally distributed because they evolved as remarkably cohesive societies.

Wilkinson and Pickett have responded (http://liberalconspiracy.org/2010/07/08/spirit-level-authors-hit-back-at-policy-exchange-report/) to these attacks and there is a danger that we get bogged down in the minutiae of the data, about which outsiders find it difficult to comment.

But it did strike me on reading the book that culture must play a significant part. Read for example what the authors have to say about New England.

Because Vermont and New Hampshire are neighbouring New England states, the contrast between them is particularly striking. Vermont has the highest tax burden of any state in the union, while New Hampshire has the second lowest - beaten only by Alaska. Yet New Hampshire has the best performance of any state in the union on our index of health and social problems and is closely followed by Vermont, which is third best. They both also do well on equality: despite their radically different taxation, they are the fourth and sixth most equal states respectively.

Both states are ethnically quite homogeneous with much lower proportions of minorities (http://quickfacts.census.gov/qfd/states/33000.html) than the American average. Sweden and Japan are similar. There is an argument that social spending is seen as more "acceptable" when the recipients are "people like us". An alternative explanation is that ethnic minorities are unfairly excluded from economic opportunities by the majority population so that higher social ills may be associated with more diverse (less monocultural) populations.

A broader issue, to which Wilkinson and Pickett allude, is whether there is a "natural" level of inequality. Anyone who has studied history (or read Austen and Dickens) will note the vast gulf in wealth between the medieval aristocracy and the peasants or between the early industrialists and their workers. In that light, the period of the "Great compression" from the 1940s to the 1970s, when inequality fell sharply, seems an aberration. But our recorded history only spans a few thousand years, generally since the development of agriculture. For much of human existence, men were hunter-gatherers and such societies are much more equal. Wilkinson and Pickett argue that our brains developed in such conditions, explaining why inequality is so difficult to stomach.

As always with this issue, there will be some who think that any sympathetic treatment of the Wilkinson/Pickett arguments is "socialism" or a sign of The Economist abandoning its free market principles. But let me end this very long post with two final reasons why inequality should be a matter of general concern.

The first concerns the idea that we should focus on "equality of opportunity" not "equality of outcome". This seems a good principle to support. But unequal outcomes may lead to unequal opportunities; the US is a lot less socially mobile than it used to be, and a lot less mobile than individual Americans believe it to be. In particular, wealth can buy access to power and thus lock in the advantages of the wealthy via the political system; Simon Johnson's book, "13 Bankers", is an example of the thesis. Wealth also buys access to the best education, and education is the key to employment opportunities in a service-based economy.

The second issue is that the West is still democratic. Even if one thinks the unequal outcome of incomes is a fair reflection of individual talent and effort, the majority of the population is unlikely to feel that way. They may eventually reclaim that wealth by the ballot box, and possibly by electing some very unpleasant regimes.

Martin Wolf apie Obamą

Nepaprasti laikai reikalauja nepaprastų valdžios veiksmų. Tinka Lietuvai: kaip ne kartą sakiau, reikėjo drąsios daugiabučių renovacijos.

Obama was too cautious in fearful times
By Martin Wolf

Published: August 31 2010 22:48 Last updated: August 31 2010 22:48


Suppose that the US presidential election of 1932 had, in fact, taken place in 1930, at an early stage in the Great Depression. Suppose, too, that Franklin Delano Roosevelt had won then, though not by the landslide of 1932. How different subsequent events might have been. The president might have watched helplessly as output and employment collapsed. The decades of Democratic dominance might not have happened.

On such chances the wheel of history turns. But this time was different: the crisis brought Barack Obama to power close to the beginning of the economic collapse. I (among others) then argued that policy needed to be hugely aggressive. Alas, it was not. I noted on February 4 2009, at the beginning of the new presidency: “Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused.” A week later, I asked: “Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much.” This was right.

The direction of policy was not wrong: policymakers – though not all economists – had learnt a great deal from the 1930s. Sensible people knew that aggressive monetary and fiscal expansion was needed, together with reconstruction of the financial sector.

But, as Larry Summers, Mr Obama’s chief economic adviser, had said: “When markets overshoot, policymakers must overshoot too”. Unfortunately, the administration failed to follow his excellent advice. This has allowed opponents to claim that policy has been ineffective when it has merely been inadequate.

In consequence, the administration has lost credibility with the public and the chances of a renewed fiscal expansion have disappeared. With the Federal Reserve cautious, too, the likelihood of a lengthy period of weak growth and heavy joblessness is high. So, too, are the chances of domestic and global political friction.

True, the idea that the policies adopted in the last few months of the Bush administration and the first months of this one were far better than nothing is weirdly controversial in the US. A recent paper by Alan Blinder, former vice-chairman of the Fed, and Mark Zandi of Moody’s argues that such critics are wrong. They use a standard macro-economic model to assess what would have happened without any intervention, without the financial interventions (including monetary policy) and without the fiscal action. They conclude that the peak to trough decline in gross domestic product would have been close to 12 per cent with no policy response, compared to an actual decline of just 4 per cent (see chart). Similarly, the unemployment rate would have peaked at 16.5 per cent, instead of the actual 10 per cent. The bigger collapse would also have meant a fiscal deficit of $2,600bn in fiscal year 2011. The outcome is also disastrous with the modest fiscal response but no financial policy response. It is a little better the other way round.

The implication that the modest stimulus package of February 2009 – a mere 5.7 per cent of 2009 GDP, spread over several years – made a positive contribution is supported by the analysis of the Congressional Budget Office: it argues that in 2010, US GDP will be between 1.5 per cent and 4.1 per cent higher and the unemployment rate between 0.7 and 1.8 percentage points lower, as a result of the package.

Panglossians who believe the private economy is always in equilibrium, unless governments intervene, disagree. I wish there were some way to run this experiment without hurting hundreds of millions of people. But I find the idea that allowing the collapse of much of the financial system, avoiding unconventional monetary policy and struggling to close the fiscal deficit would have been consistent with a more rapid and sustained recovery quite bizarre.

A fascinating perspective does come, however, from comparisons with what happened in other advanced countries. The recession in US output (and so demand) has been relatively small, but the decline in employment has been exceptionally large, as a result of an extraordinary surge in US productivity (see charts). This contrast between what would happen to output and what would happen to employment was missed in the initial Congressional Budget Office analysis of the stimulus.

Since the US was the epicentre of the financial crisis, the relatively small decline in output is remarkable. Moreover, since fiscal and monetary stimuli bear directly on demand and output, not jobs, this is a policy success. At the same time, the enthusiasm with which US managers laid off workers is also extraordinary. No doubt, some of this is due to the collapse in construction. But some of it must be due to the ease with which US companies can lay off workers and the incentives for managers to maintain profits in a downturn at the expense of jobs.

Debate is emerging on how much of the surge in unemployment is structural. My answer, from European experience, is that one way to ensure it becomes structural is to let it linger. In the short run, the simplest way to prevent that from happening is to expand demand and so output. Since there is huge slack in the labour market, not the slightest threat of inflation – far more a risk of deflation – and no constraint from bond or foreign exchange markets on further monetary and fiscal stimulus, these are the policies that have to be pursued. Yet, alas, the Fed seems to have decided to fall asleep and the administration has lost the initiative.

So what is going to happen? I assume that, after the midterm elections, resurgent Republicans will offer new tax cuts and ignore the fiscal deficits. They will pretend that this has nothing to do with any reviled stimulus, though it is much the same thing – increasing fiscal deficits, thereby offsetting private frugality. That would put the administration on the spot. It would have to choose between vetoing the tax cuts and accepting them, so allowing the Republicans to get the credit for their “yacht and mansion-led” recovery. Any recovery is better than none. But it could have been much better than this. Those who were cautious when they should have been bold will pay a big price.

martin.wolf@ft.com

Premjeras Balsiuose

Premjeras, nenorintis įteisinti kaštų ir naudos analizės, rugsėjo pirmąją lankėsi Balsių mokykloje. Simboliška:)

Kontrolierius: vilniečiai už Balsių mokyklą permokės 82 mln. litų
Atnaujinta liepos 21 d. 10.45 val., Ieva Urbonaitė, www.DELFI.lt
2010 liepos mėn. 20 d. 16:28
http://www.delfi.lt/archive/article.php?id=34663617

Vilniaus miesto savivaldybės kontrolieriaus Šarūno Skučo skaičiavimais, už pradėtą statyti Balsių mokyklą vilniečiai per 25 metus permokės 82 mln. litų arba ši suma sudarys konkurso laimėtojų viršpelnį. Vilniaus miesto savivaldybės specialistų teigimu, mokyklos statybos ir priežiūros kaina yra optimali, o skaičiavimai, kuriuos pateikia kontrolierius - spekuliatyvūs ir tendencingai interpretuojami.

Pagrįsdamas savo teiginį, kontrolierius pateikė skaičiavimus. Š. Skučo duomenimis, UAB „Merko statyba“ ir E.L.L. Kinnisvara AS konsorciumas savivaldybei pasiūlė daugiau nei 8 mln. litų mokyklos statybos kainą, pabrėždamas, jog minėta suma turi būti mokama kiekvienais metais, 25 metus, todėl visa mokyklos kaina viršys 202,3 mln. litų.

„Į šią sumą įeina ne vien statybų kaina, bet ir viso gerbūvio, mokymo priemonių, komunalinių paslaugų ir kt. išlaidos. Tarp jų daugiau nei 3,7 mln. litų be PVM kapitalo (projekto finansavimo) kaštai (beveik 4,532 mln. litų su PVM), tik keista, kad finansavimo kaštams dar turėsime mokėti ir PVM), t.y. šie kaštai sudaro daugiau nei pusę viso projekto kainos“, - pabrėžia kontrolierius.

Pasak jo, minėti beveik 4,532 mln. litų yra procentas nuo tos sumos, kurią įmonė iš karto investuos į statybas bei gerbūvį, ir kuri bus Savivaldybės išmokėta tik vėliau.

Š. Skučo žodžiais, tai kaina, kurią turime sumokėti už tai, kad ne iš savo ar pačios pasiskolintų lėšų Savivaldybė stato šį projektą: konkursą laimėjęs konsorciumas pats pritraukia lėšas mokyklos statybai, o Savivaldybė apmoka jo patiriamas išlaidas dėl šių lėšų pritraukimo ar akcininkų nuosavybės panaudojimo statyboms.

Įspūdingi procentai

„Nuo kitų prekių ar paslaugų suteikimo nereikia skaičiuoti finansavimo kaštų, kadangi šios išlaidos patiriamos ne iš karto, o kiekvienais metais, ir joms sukurti patirti kaštai nėra ilgalaikė investicija. Pagal Sutartį statybos ir įrengimo kaina nurodyta 1 273 893 93 lito be PVM kasmet 25 metus, todėl visa statybos kaina yra 31 847 348,25 lito be PVM, arba 38 535 291,38 lito su PVM. Tokiu būdu finansavimo kaštai sudaro apie 12 nuošimčių nuo investicijų“, - aiškino Š. Skučas, pridurdamas, jog tai dar ne viskas.

Anot savivaldybės kontrolės ir audito tarnybos vadovo, visi žinome, kad kreditorius palūkanas skaičiuoja tik nuo likusio negražinto likučio, kuris sugrąžinus dalį paskolos mažėja.

„Vietoje per 25 metus susidarysiančių 113 mln. litų finansavimo kaštų, bankas paskaičiuotų tik apie 60 mln. litų palūkanų. Tokiu būdu turime jau ne 12 nuošimčių finansavimo kaštus, tačiau pakankamai įspūdingus net ir krizės laikais beveik 23 nuošimčius, - atkreipė dėmesį kontrolierius. - Be abejo, kaip savivaldybei, tai yra tikrai labai daug, nes ji galėtų pasiskolinti tokias lėšas gal būt už 3 proc. metinių palūkanų, t. y. apie 3,4 mln. litų kasmet pigiau, nei turėsime mokėti pagal sutartį“.

Mokykla gali „pakibti ore“

Š. Skučas identifikavo dar vieną pasislėpusią galimą problemą: kas bus, jei konsorciumo dalyviai įkeis mokyklą, pasiskolins jos statybai pinigų, o per 25 metų laikotarpį nespės padengti paskolos ir mokykla liks įkeista?

Pasak jo, remiantis sutartimi, gali būti įkeistas tiek sklypas, tiek mokykla, tiek turto nuosavybės teisę turinčios įmonės akcijos, tiek ir visi būsimi mokėjimai pagal šią sutartį.

„Jei susidarys minėta situacija, visa mokykla „pakibs ore“, Savivaldybė negalės perimti teisių į ją, o kreditoriai reikalaus arba Savivaldybei padengti trūkstamą paskolos dalį, arba mokykla turėtų būti parduodama. Bet tai tik teorinė galimybė, jei konsorciumo dalyviai piktybiškai nevykdytų įsipareigojimų kreditoriui, arba jei nebeturėtų tam finansinių galimybių“, - sakė kontrolierius.

Racionaliau nuomoti

Pastato naudotojai (nuomininkai) nesuka galvos, iš kokių pinigų pastato savininkas jį pastatė bei įrengė, ir kokia tų pinigų kaina. Nuomininką domina tik jo kas mėnesį sumokamos nuomos kaina.

Š. Skučo nuomone, tai galėtų būti analogas ir Balsių mokyklos projekto atvejui. Mokyklą galėtų statyti privatūs verslininkai iš nuosavų lėšų, o Savivaldybė ją nuomotųsi.

„Tarkime mokykla sudarytų 10 000 kvadratinių metrų, o vieno nuomos kaina sudarytų 30 litų per mėnesį su PVM. Tokiu būdu mokykla miestui kainuotų 3,6 mln. litų per metus, dar papildomai tektų pirktis aptarnavimo paslaugas bei susimokėti komunalinius mokesčius. Ir viskas. Dabar gi statytojai nurodo ūkio priežiūros ir administravimo išlaidas 999 986,70 lito be PVM, arba apie 1,2 mln. litų su PVM. Taigi nuomos atveju, metinė mokyklos pastato naudojimo kaina Savivaldybei sudarytų kaip nuomos mokesčio bei ūkio priežiūros ir administravimo sąnaudų suma, o būtent viso labo tik apie 4,8 mln. litų vietoj dabartinių beveik 8,1 mln. Litų“, - skaičiavo kontrolierius.

Pigesnių variantų nerado

Apie vilniečiams brangiai kainuosiantį projektą prabilęs kontrolierius priminė, jog šiandieninėje situacijoje Savivaldybė skolintis Balsių mokyklos statybai negali, o konkurso laimėtojas pasiūlė mažiausią kaina.

„Todėl ko gera kitų pasirinkimų Savivaldybės taryba ir neturėjo, kaip tik dabartinį priimtą sprendimą, tačiau tokia situacija padiktavo tai, kad mes visi turėsime susimokėti minėtą apie 82 mln. litų „baudą“, - konstatavo Š.Skučas.

Paviešindamas abejones kontrolierius pabrėžė, kad jo kritika nėra skirta Vilniaus miesto tarybos sprendimui pasirašyti Balsių mokyklos statybos, ūkio priežiūros ir administravimo sutartį, nes „ši mokykla turbūt yra būtina, o viešojo pirkimo laimėtojas atrinktas kaip pasiūlęs mažiausią kainą, todėl pigesnių alternatyvų Savivaldybė ko gera šiuo metu ir neturėjo“.

V. Navickas: pasirinktas racionaliausias sprendimas

DELFI komentuodamas kontrolieriaus skaičiavimus, Vilniaus meras Vilius Navickas priminė, jog Balsių mokyklos statybos vietos bendruomenė laukia daugiau nei 10 metų.

Savivaldybės vadovo nuomone, miesto taryba priėmė racionaliausią sprendimą, nes mokyklai nuomojant jau pastatytas patalpas 1 kvadratinis metras kainuotų ne 30 litų, o dvigubai daugiau, nes dar 30 litų tektų mokėti už kiekvieno kvadratinio metro įrangą ir šildymą. Tai, V. Navicko teigimu, per didelė kaina.

Bankai nepanoro dalytis rizika

„Į Balsių mokyklos kainą – apie 50 Lt per mėnesį už kvadratinį metrą – įskaičiuotos visos įmanomos mokyklos statybos ir priežiūros išlaidos: pastato ir aplinkos pilnas įrengimas ir priežiūros darbai visą sutarties laikotarpį, baldai ir kitas ugdymui būtinas inventorius, bibliotekos, valgyklos įrengimas, sporto ir poilsio erdvių statyba, visi komunaliniai mokesčiai, apsauga, draudimas ir kiti kaštai. Savivaldybė bus atsakinga tik už ugdymo organizavimą“, - sakė Savivaldybės Investicinių projektų skyriaus vedėja Rasa Cibulskienė.

Specialistės teigimu, su konkurso laimėtoju suderėta kaina nėra maža, nes bankai ar kitos kredito institucijos nepanoro su investuotojais dalintis rizika, o projekto finansavimui bus panaudotos UAB „Merko statyba“ kompanijos lėšos.

Balsių mokykla bus pirmoji Lietuvoje švietimo įstaiga, pastatyta pagal viešojo ir privataus sektoriaus bendradarbiavimo principus, ir pirmoji nuo nepriklausomybės atkūrimo Vilniuje pastatyta nauja mokykla.

Pasak savivaldybės, lyginant šio konkurso metu gautus pasiūlymus su pasiūlymais, gautais 2008 metais, projekto kaina sumažėjo per pusę.

Klasikai durniuoja...

Klasikai toliau varo nesamones. Čia pirmosios reakcijos.

The Folly of Subsidizing Unemployment
My calculations suggest the jobless rate could be as low as 6.8%, instead of 9.5%, if jobless benefits hadn't been extended to 99 weeks.

By ROBERT BARRO
http://www.wsj.com/, 30 August, 2010

Congressman John Boehner recently suggested that President Obama replace his top economic advisers. I think he may have a point. The economic "recovery" has been disappointing, to put it mildly, and it has become increasingly clear that the blame lies with the policies of the Obama administration, not with those of its predecessor.

In general, the current administration has been too focused on expanding government, redistributing more from rich to poor, and stimulating aggregate demand. I have previously criticized the stimulus package as cost-ineffective. In particular, whatever tax reductions were in the package did not involve the cuts in marginal income tax rates that encourage investment, work effort and productivity growth.

Now the administration wants to kill the 2003 income-tax cuts, at least the parts that reduced marginal income tax rates for high-income earners and for all recipients of dividend income. This proposal is particularly disturbing because the 2003 law was George W. Bush's main economic achievement; unlike most of Mr. Bush's policies, this one was well-conceived and effective.

I want to focus here on another dimension of the Obama administration's policies: the expansion of unemployment-insurance eligibility to as much as 99 weeks from the standard 26 weeks.

The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.

In a recession, it is more likely that individual unemployment reflects weak economic conditions, rather than individual decisions to choose leisure over work. Therefore, it is reasonable during a recession to adopt a more generous unemployment-insurance program. In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person's state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries.

The administration has argued that the more generous unemployment-insurance program could not have had much impact on the unemployment rate because the recession is so severe that jobs are unavailable for many people. This perspective is odd on its face because, even at the worst of the downturn, the U.S. labor market featured a tremendous amount of turnover in the form of large numbers of persons hired and separated every month.

For example, the Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.

Moreover, although the peak unemployment rate (thus far) of 10.1% in October 2009 is very disturbing, the rate was even higher in the 1982 recession (10.8% in November-December 1982). Thus, there is no reason to think that the United States is in a new world in which incentives provided by more generous unemployment-insurance programs do not matter much for unemployment.

Another reason to be skeptical about the administration's stance is that generous unemployment-insurance programs have been found to raise unemployment in many Western European countries in which unemployment rates have been far higher than the current U.S. rate. In Europe, the influence has worked particularly through increases in long-term unemployment. So the key question is what happened to long-term unemployment in the United States during the current recession?

To begin with a historical perspective, in the 1982 recession the peak unemployment rate of 10.8% in November-December 1982 corresponded to a mean duration of unemployment of 17.6 weeks and a share of long-term unemployment (those unemployed more than 26 weeks) of 20.4%. Long-term unemployment peaked later, in July 1983, when the unemployment rate had fallen to 9.4%. At that point, the mean duration of unemployment reached 21.2 weeks and the share of long-term unemployment was 24.5%. These numbers are the highest observed in the post-World War II period until recently. Thus, we can think of previous recessions (including those in 2001, 1990-91 and before 1982) as featuring a mean duration of unemployment of less than 21 weeks and a share of long-term unemployment of less than 25%.

These numbers provide a stark contrast with joblessness today. The peak unemployment rate of 10.1% in October 2009 corresponded to a mean duration of unemployment of 27.2 weeks and a share of long-term unemployment of 36%. The duration of unemployment peaked (thus far) at 35.2 weeks in June 2010, when the share of long-term unemployment in the total reached a remarkable 46.2%. These numbers are way above the ceilings of 21 weeks and 25% share applicable to previous post-World War II recessions. The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.

To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.

Consider how the prospects for Democrats in the November elections would look if the unemployment rate were now only 6.8%. Obviously, this change would make all the difference, and President Obama can reasonably blame his economic advisers. They should have protected their boss by standing firm and arguing that a reckless expansion of unemployment-insurance coverage to 99 weeks was unwise economically and politically. Congressman Boehner's advice to Mr. Obama seems correct, though possibly too late to matter.

Mr. Barro is an economics professor at Harvard University and a senior fellow at Stanford University's Hoover Institution.

Proto balsas iš Lauros Tyson

Komentaras The New York Times (2010.08.28) (akcentuojantis cost-benefit analysis reikšmę):

Why We Need a Second Stimulus

By LAURA TYSON
Berkeley, Calif.

OUR national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. By focusing on the wrong things, we are in serious danger of failing to do the right things to help the economy recover from its worst labor market crisis since the Great Depression.

The primary cause of the labor market crisis is a collapse in private demand — the same problem that bedeviled the economy in the 1930s. In the wake of the financial shocks at the end of 2008, spending by American households and businesses plummeted, and companies responded by curbing production and shedding workers. By late 2009, in response to unprecedented fiscal and monetary stimulus, household and business spending began to recover. But by the second quarter of this year, economic growth had slowed to 1.6 percent, according to a government estimate issued Friday. Clearly, the pace of recovery is far slower than what is needed to restore the millions of jobs that have been lost.

Households and businesses are on a saving spree to rebuild their balance sheets. Their spending relative to income has fallen more than at any time since the end of World War II. So there is now a substantial gap between the supply of goods and services the economy is capable of producing and the demand for them. This gap is starkly reflected by the 23 million Americans who are looking for full-time jobs and the millions more who have left the labor force because they could not find one.

The situation would be even worse without the $787 billion fiscal stimulus package passed in 2009. The conventional wisdom about the stimulus package is wrong: it has not failed. It is working as intended. Its spending increases and tax cuts have boosted demand and added about three million more jobs than the economy otherwise would have. Without it, the unemployment rate would be about 11.5 percent. Because about 36 percent of the money remains to be spent, more jobs will be created — about 500,000 by the end of the year.

But by next year, the stimulus will end, and the flip from fiscal support to fiscal contraction could shave one to two percentage points off the growth rate at a time when the unemployment rate is still well above 9 percent. Under these circumstances, the economic case for additional government spending and tax relief is compelling. Sadly, polls indicate that the political case is not.

Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments. The federal government should pledge generous financing increases for both programs through 2011.

Federal aid to the states is especially important because they finance education. Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch between the education of the work force and the education required for jobs in today’s economy. Consider how the unemployment rate varies by education level: it’s more than 14 percent for those without a high school degree, under 10 percent for those with one, only about 5 percent for those with a college degree and even lower for those with advanced degrees. The supply of college graduates is not keeping pace with demand. Therefore, more investment in education could reduce both the cyclical unemployment rate, as more Americans stay in school, and the structural unemployment rate, as they graduate into the job market.

An increase in government investment in roads, airports and other kinds of public infrastructure would be cost-effective, too, as measured by the number of jobs created per dollar of spending. And it would help reduce the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business. The American Society of Engineers has identified more than $2.2 trillion in public infrastructure needs nationwide, and a 2008 study by the Congressional Budget Office found that, on strict cost-benefit grounds, it would make sense to increase annual spending on transportation projects alone by 74 percent.

Over the next five years, the federal government should work with state and local governments and the private sector to finance $1 trillion worth of additional investment in infrastructure. It should extend the Build America Bonds stimulus program, which in the past year has helped states finance $120 billion in infrastructure improvement.

The federal government should also create and capitalize a National Infrastructure Bank that would provide greater certainty about the level of infrastructure financing over several years, select projects based on rigorous cost-benefit analysis, invest in things like interstate high-speed rail that require coordination among states and attract private co-investors in projects like toll roads and airports that generate dedicated future revenue streams.

But can the government afford this additional spending? The answer is yes. Despite the large federal deficit, global savers, including savings-hungry American households, are snapping up United States government securities at very low interest rates. And they will continue to do so as long as there is ample slack in the economy and inflation remains subdued. Over the next few years, there is little risk that federal deficits will crowd out private investment or precipitate a crisis of confidence in the American government, a spike in American interest rates or a sudden drop in the dollar.

On the other hand, as long as private demand remains weak, the risk is uncomfortably high that trying to reduce the deficit — by cutting spending or increasing taxes — will tip the economy back into recession or condemn it to years of faltering growth and debilitating unemployment. In fact, either outcome would depress tax revenue and could mean larger deficits.

Faced with these risks, as long as the economy is operating far below potential, policy makers should do two seemingly contradictory things. First, they should provide additional fiscal support for job creation and growth. And, second, they should enact a credible multiyear plan now to stabilize the ratio of federal debt to gross domestic product gradually as the economy recovers.

By easing capital market concerns about the government’s future borrowing needs, such a plan would permit larger deficits and slower debt reduction while unemployment is still high. The long-run debt problem — the result of imprudent fiscal decisions before the recession, escalating health care costs and an aging population — must be addressed once the economy has recovered. But for now the priorities of fiscal policy should be jobs and investment.

Laura Tyson, a professor at the Haas School of Business at the University of California, Berkeley, was chairwoman of the Council of Economic Advisers and the National Economic Council in the Clinton administration. She is a member of President Obama’s Economic Recovery Advisory Board.