Age of firm rather than size matters for job creation in the US

Today, among other things, I have been analysing the fantastic dataset produced by the US Census bureau – Business Dynamics Statistics – which allows us to understand in much more detail, the underlying drivers of employment growth in the US by age and size of firm across sectors. I have done a lot of work on this topic in the past and this sort of dataset is a gold mine. It allows us, for example, to examine the veracity of the oft-repeated claims by conservative politicians and lobbyists that small business is the employment engine of the modern economies and all sorts of concessions and deregulation (mostly directed at underlying job security, wages and conditions for workers) are required to allow small business to do its work. The simple conclusion of today’s data analysis is that the age of the firm is more important in understanding net job creation in the US than the size of the firm. Here are some tentative results that may or may not be of interest.

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There is a class warfare and the workers are not winning

The Politics of Envy – that old chestnut from the neo-liberals – is bandied around every time there is any insinuation that the capitalist system produces distributional outcomes that are not remotely proportional to the effort put into production. Whenever governments challenge the distributional outcomes – for example, propose increasing taxes on the higher income recipients (note I don’t use the word “earners”) there is hell to cry and the defense put up always appeals to the old tags – “socialist class warriors undermining incentive”, “envy”, etc. In the 1980s, when privatisation formed the first wave of the neo-liberal onslaught, we all apparently became “capitalists” or “shareholders”. We were told that it was dinosauric to think in terms of the old class categories – labour and capital. That was just so “yesterday” and we should just get over it and realise that we all had a stake in a system where reduced regulation and oversight would produce unimaginable wealth, even if the first manifestations of this new “incentivised” economy channelled increasing shares of real income to the highest percentiles in the distribution. No worries, “trickle-down” would spread the largesse. We know better now – and increasingly the recognition, exemplified in 2006 by Warren Buffett’s suggestion that “There’s class warfare, all right … but it’s my class, the rich class, that’s making war, and we’re winning” (Source), is that class is alive and well and in prosecuting their demands for higher shares of real income, the elites have not only caused the crisis but are now, in recovery, reinstating the dynamics that will lead to the next crisis. The big changes in policy structures that have to be made to avoid another global crisis are not even remotely on the radar.

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The US government can buy as much of its own debt as it chooses

The hoopla over the US government voluntarily imposed debt ceiling is about to begin again with the US Treasury Secretary predicting that the government will run out of money in mid-October. He must have been listening to his President who told an audience at the State University of New York the other day, that in the face of rising demands for more government expenditure of education “At some point, the government’s going to run out of money” (Source). It is not the first time he has made that claim. Please read my blog – The US government has run short of money – for more discussion on this point. The debt ceiling is one of those ridiculous conventions that government introduce which from time to time provide some quaint, if not bizarre, theatre. But none of the conservatives will have the intestinal fortitude to really drive the US government artificially broke anyway. Anyway, all this was amusing me as I read the latest – US Federal Reserve Flow of Funds – data the other day. That data tells us that the US government can buy as much of its own debt as it chooses. Game over!

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Fiscal austerity damages growth – latest evidence

Republican Presidential (Bush) and Presidential hopeful (Romney) advisor and a principal deficit terrorist, Glenn Hubbard has once again re-cycled his obsession about the apparent necessity for the US to pass a balanced budget amendment which would require governments to eschew their fiscal responsibility and behave like automatums irrespective of the state of the cycle or the behaviour of the other sectors (external and private domestic). In his latest New York Times article (August 11, 2013) – Republicans and Democrats Both Miscalculated – (with T. Kane), we see a tired conservative hack, worn out from repeated failed attempts to push a balanced budget amendment into US law, wimpering about the need for another vote on this issue, but signifying a boring lameness that is being overtaken by the duration of time that has elapsed without the doomsday arriving and more recent evidence refuting the position outright.

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The spurious distinction between the short- and long-run

There was an interesting article in the Wall Street Journal (July 7, 2013) by US economist Alan S. Blinder – The Economy Needs More Spending Now . I am building a little database of what well-known economists said in 2008, 2009 and 2010 at the height of the crisis and in the early days of the fiscal and monetary interventions and what they are saying now. There is a lot of dodging and weaving I can tell you. Stories change, previous prognostications of certainty now appear highly qualified and nuanced and facts are denied. Alan Blinder was worried that the US Federal Reserve rapid building of reserves would have to be withdrawn quickly because otherwise banks would eventually lend them all out and inflation would accelerate. Of-course, banks don’t lend their reserves to customers and the predictions were not remotely accurate. In the article noted, Blinder continues to operate at what I am sure he thinks is the more reasonable end of mainstream macroeconomics. He is advocating more spending as a means of boosting higher economic growth. But when you appreciate the framework he is operating in, you realise that he is just part of the problem and part of the narrative that allows the IMF to talk about “growth friendly austerity” – the misnomer (or outright lie) of 2012-13.

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US National Accounts – economy plodding along due to fiscal drag

Yesterday (July 31, 2013), the US Bureau of Economic Analysis – published the – US National Income and Product Accounts – for the June-quarter 2013 (the advanced estimates – subject to later revision). The US economy continues to grow but at a fairly sluggish pace. There will no significant incursions into the unemployment rate as a result of this performance. There was a slowdown in the contractionary impact of the fiscal drag coming from the government sector with the federal government’s negative contribution being reduced and a positive contribution to growth from State and local government spending (a rare event these days). There is still a huge output gap in the US (my estimate – around 10 per cent) and no signs of an inflationary surge. Combining that information with the parlous state of the labour market indicates that the US federal government should be increasing their net spending rather significantly at present.

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In a few minutes you do not learn much

There was an article in the New York Times at the weekend – Warren Mosler, a Deficit Lover With a Following – which seems to have attracted some attention. The attention has spanned from the vituperative personal attacks on the article’s subject, all of which would seem to be factually in error, to claims that proponents of Modern Monetary Theory (MMT) are “just nuts”. The latter assessment apparently was drawn after a few minutes consideration by a US economist. I don’t think one learns very much in a few minutes. But the output over the years of the particular economist quoted by the NYTs tells me he hasn’t learned much after presumably many hours of study. I suppose that if you are mindlessly locked into the mainstream macroeconomics textbook models then that is to be expected.

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Cutting unemployment benefits in the US will not decrease unemployment

Earlier this week I looked at the latest vacancy data for Australia released by the Australian Bureau of Statistics – Latest Australian vacancy data – its all down to deficient demand. I also took the time to update my data for the US Bureau of Labor Statistics – US JOLTS database, which provides detailed information about job openings and quit rates. The results for the US are similar to those found in Australia. But the data is apposite given the decision by the State of North Carolina to cut unemployment benefits – thinking that this act of cruelty will somehow reduce their appalling unemployment rate. It won’t.

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US government should look to France and increase its deficit

Yesterday (June 26, 2013), the – US Bureau of Economic Analysis – published the third estimates (revising the second estimates published in late April – US National Income and Product Accounts – for the March-quarter 2013. The substantive changes in the revisions are that the US economic growth rate has been revised down from 2.4 per cent to 1.8 per cent per annum once the more complete data has become available. Personal consumption spending has been revised downwards, and exports declined rather than the initial assessment of an increase. The second estimates revealed a slowing economy in the face of the fiscal drag coming from the government sector, principally the federal government. At the time of their publication, it was clear that the outlook was not optimistic given that this data seemed to exclude the impacts of the “sequester”. We considered that those impacts would manifest more clearly in the June-quarter data. The third estimates now confirm that the lag in the sequester impacts has been shorter than previously thought. The US economy clearly slowed quite sharply in the first-quarter 2013 under the weight of the fiscal drag. The output gap is now over 10 per cent with signs of deflation emerging. The danger is that the US will head towards zero growth as the sequester impacts become more pronounced. The US federal government should increase their net spending rather significantly at present to avoid this downward trend. The US just has to look across the Atlantic, where the data now shows the French economy is now back in recession as a direct result of fiscal austerity.

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US labour market – is this a switch point?

Last week (June 7, 2013), the – US Bureau of Labor Statistics – released their latest – Employment Situation – May 2013 – which showed that in seasonally adjusted terms, total payroll employment increased by 175,000 in May while the Household Labour Force Survey data showed that employment rose by 319 thousand. The essence to be extracted from the data is that total employment in the US is not even keeping up with the underlying population growth. As a result the level of and the labour force shrunk by a further 496,00 persons. The twin evils – falling jobs growth and the unemployment rate edged up a little with participation constant. The question that needs to be asked is whether this is a turning point with slower growth and rising unemployment ahead. Certainly, the conservatives who claim that the budget cuts under the so-called sequestration have done no harm are way off the mark. The major part of those cuts will hit soon and already the employment situation is looking very fragile. The Gross Flows data also tells us that the probability of an employed person becoming unemployed is rising again and the probability of a new entrant getting a job is falling. Those transitions are signally a switch point. The budget deficit is currently large enough to just maintain activity. It should be significantly larger to keep the growth momentum in the right direction. The politics, however, militate against that despite the shaman on the Republican side losing their greatest authority – those Excel spreadsheet geniuses.

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