How CBO’s minimum wage analysis changes the debate

How CBO’s minimum wage analysis changes the debate

CBO’s intellectually solid new analysis concludes that the proposal, endorsed by President Obama, to raise the minimum wage to $10.10 an hour by 2016 would result in higher wages for some and destroy jobs for others. CBO’s most important conclusions are that this proposal would:

  • likely result in 500,000 fewer workers, with a range of roughly 0 to 1 million fewer;
  • increase wages for about 16.5 million workers who now have wages between $7.25/hour and $10.10, as well as for some others who now have wages a bit above $10.10.

I think CBO’s analysis is improving the minimum wage debate. President Obama and his allies have been selling this proposal as a free lunch, a policy that will raise pay for some with no costs for anyone: “Give America a raise.” Proponents of raising the minimum wage now must contend with a reputable nonpartisan analysis that the proposal has costs as well as benefits. Congress must decide whether higher wages for some are worth destroying jobs for others. Every responsible news story will now include a sentence like, “At the same time, the Congressional Budget Office projects the President’s proposal would result in lost jobs for half a million low-skill workers.”

I doubt the new numbers will change the minds of many proponents of a higher minimum wage. If you were previously inclined to support an increase, either for policy or political reasons, you can easily use CBO’s analysis to reinforce that conclusion: there are 16-31 times as many winners as losers.

The principal impact will come for a Member of Congress who thinks (knows?) that wage controls are bad policy and who opposes a higher minimum wage on policy grounds but was previously afraid to take the political risk to vote no. CBO has made it easier and more credible for this Member to explain to his or her constituents why he will vote no and why that’s good policy for those trying to enter the workforce. Here’s an example.

Q: Congressman, why do you oppose raising the minimum wage? Don’t you want to give Americans a raise?

A: You’ve heard the saying “There’s no such thing as a free lunch?” The President’s proposal to raise the minimum wage would put between half a million and a million low-skilled people out of work. Sure it would mean higher wages for some, but it would destroy jobs for others, and those others are the lowest wage, lowest skilled workers whom we should want in the workforce. It’s particularly important to have as many low-skill jobs available as employers want to offer so that people can grab the first rung of that ladder of opportunity and start to climb.

I appreciate that others may make a different judgment call, but when our biggest economic problem continues to be that not enough people are working, I want to make it easier for employers to hire people, not harder.

This Congressman or woman (probably a Republican) could have made this argument before CBO’s report, but now he has CBO to back up his numbers and his logic. That helps mostly with the press and also with some voters who are undecided on the merits. In the past Congressional Republicans who opposed a minimum wage increase would typically argue that it “hurts small businesses.” Now they can and should argue that it “will destroy jobs for low skill workers.”

In short, CBO’s analysis makes it easier for a free market member of Congress both to vote against expanding wage controls and to convincingly explain why doing so is motivated by a compassionate goal.

The Obama team had two options in choosing to react to the CBO report. They could have accepted CBO’s analysis, embraced the tradeoff between higher wages and fewer jobs, and used CBO’s numbers to support their judgment call on that tradeoff.

Instead they went the other way, sticking with their disingenuous “free lunch” logic and attacking CBO’s credibility. The path they chose was both intellectually and politically weaker. Now they’re fighting with CBO (rarely is there an upside to that), they’re indirectly highlighting CBO’s conclusions for the press, and they’re fighting what we all learned in first semester microeconomics, that when you raise the price of something people buy less of it. They are also making this not just a dispute about the measure of the costs and benefits, but whether there are any costs to their proposal. They will lose that fight, especially with CBO on the other side.

Team Obama could have argued “We agree with CBO that there are costs to raising the minimum wage, and we think those costs are worth it.” But if they had done this, they would be forced to acknowledge that opponents of raising the minimum wage have a point, that one can want to help poor, low-skilled people and just come to a different conclusion about whether this proposal does so. Had Team Obama granted this point they would have sacrificed their specious claim that opponents of a minimum wage increase hate the poor. This would then become a disagreement about judgment calls on a difficult policy tradeoff (which it is for many), not a battle between the forces of good and evil.

In a market economy prices play the central role in balancing supply and demand. Government should let market forces determine prices. In my view the only case where there’s even theoretical support for government intervention in the price mechanism is when there’s an externality, and even then I’d be cautious to make sure that a well-intentioned but poorly implemented government interference in a market price to address an externality doesn’t do more harm than good.

If you don’t like the results of how a free market allocates resources, then adjust the outcome through explicit after-the-fact transfers, not by interfering in the market mechanism that determines wages or prices. If you want to help the poor more now, expand the Earned Income Tax Credit and use taxpayer dollars to subsidize those lowest on the wage scale rather than forcing an employer to pay them more.

Policies that destroy jobs are bad. Let’s instead maximize the opportunities for people at all levels of education, skills and abilities to find work.

(photo credit: Maryland GovPics)

For every working American

I’ll let President Obama’s words and CBO’s analyses speak for themselves.

THE PRESIDENT: … that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.

I believe this is the defining challenge of our time: Making sure our economy works for every working American. It’s why I ran for President. It was at the center of last year’s campaign. It drives everything I do in this office.

Source: President Barack Obama, Remarks by the President on Economic Mobility (The ARC, Washington, DC, December 4, 2013.)


CBO: Once fully implemented in the second half of 2015, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.

Source: Congressional Budget Office, The Effects of a Minimum-Wage Increase on Employment and Family Income (February 18, 2014) Summary, page 1


CBO: The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers for about 2.0 million in 2017, rising to about 2.5 million in 2024.

Source: Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, Appendix C, “The Labor Market Effects of the Affordable Care Act: Updated Estimates” (February 2014) page 117.


CBO: About one-tenth of a percentage point is attributable to the incentives generated in 2013 by extensions of UI benefits (from the usual 26 weeks to as much as 99 weeks), primarily because the program’s rules led some people to remain in the labor force and to continue to search for work in order to remain eligible.

Source: Congressional Budget Office, The Slow Recovery of the Labor Market (February 2014) page 8.


THE PRESIDENT: So our job is to not only get the economy growing but also to reverse these trends and make sure that everybody can succeed. We’ve got to build an economy that works for everybody, not just the fortunate few.  Opportunity for all — that’s the essence of America.  No matter who you are, no matter where you come from, no matter how you start out, if you’re willing to work hard and take responsibility, you can succeed.

Source: President Barack Obama, Remarks by the President on Fuel Efficiency Standards of Medium and Heavy-Duty Vehicles (Safeway Distribution Center, Upper Marlboro, Maryland, February 18, 2014).

Ladder vs. Safety net

Ladder vs. Safety net

When designing economic policies there is often a trade-off between our desire to provide immediate financial assistance to those who have our sympathy and our desire to maximize the opportunities for their long run success. If you give financial assistance to someone in need but tell them you will take it away once they no longer need it, you water down the incentive they have to make the effort to improve their own condition. This diminished incentive has an effect on labor supply.

In other words, there’s a trade-off between the ladder and the safety net. The higher we make the safety net the less economic sense it makes for someone in that safety net to grab the bottom rungs of the ladder and begin to climb. Rather than becoming a net that protects us from hitting the hard ground, we get caught in it and cannot escape, not because we don’t want to, but because government policies financially discourage us from doing so.

Politicians, especially on the left, love to express/feign outrage when this point is made, and suggest that (a) it’s not true and (b) the person suggesting it is accusing people of being lazy. But while the magnitude of the incentive effect is often subject to debate, the existence and direction of those effects is most often not. CBO’s latest analysis of the labor supply effects of ObamaCare reinforces this point: if you make work less financially rewarding you’ll usually get less of it.

Poorly designed policies don’t change the motivations of people with modest income, they change the calculations people make about whether they should make short-term economic sacrifices for longer-term economic gain. Why pay $500 for a night course (and give up your evenings) to get a $1,000 annual raise if the government will “grab back” a significant portion of that extra $1,000 by reducing your benefits? You may be driven to advance yourself professionally but make the rational decision that it’s not worth the sacrifice because of the amount of government subsidies you receive and the way they’re designed to phase out as your income climbs. CBO’s labor supply conclusions assume people who cut back on paid work because of their big new health insurance subsidies are rational, not that they are lazy.

Let’s look at three examples.

1. Extended unemployment insurance: The academic evidence is pretty clear that extending unemployment insurance benefits increases the amount of unemployment. In some cases that’s driven by individuals, some of whom ramp up their job search only as their UI checks are running out. In other cases it’s driven by employers who temporarily lay off workers (like an auto manufacturer closing an assembly line) and keep the line closed until right before benefits run out. I’ve seen estimates that the current extended UI benefits add anywhere from 0.1 percentage points (CBO) up to 0.5 percentage points to the unemployment rate.

Does that mean UI benefits should not be extended? No, it simply means that there is a cost to do doing so that should be weighed against the benefits. Policymakers must balance the compassion benefits of helping those who don’t have jobs and are trying to find them, with the costs of providing taxpayer assistance to those who could find jobs but just aren’t looking, and the broader macroeconomic costs of slowing the pace of economic recovery. Reasonable people can disagree on where and how to draw this line based on how they value those conflicting goals. But it’s silly to suggest, as President Obama has done, that there isn’t a trade-off, or that it’s somehow offensive to suggest that extending UI benefits could hurt workers and economic growth. There is a trade-off, an unavoidable one, between helping those now unemployed pay their bills and getting the most people back to work as quickly as possible.

2. Minimum wage: If you’re now making $7.25 an hour and the minimum wage were increased to $9 an hour you would fall into one of three categories. If you still have your job after the minimum wage increase, then you’re better off. If your employer replaced you with a friendly robot that was cheaper than paying you $9/hour, then you’re worse off. If your employer cut back your hours, you may be better or worse off, depending on how much your hours were cut back and what else you can do with that time.

This then provokes a value-neutral analytic question and a values question. We ask the economists, “For any given proposed minimum wage, how many people will fall in each category?” Then we must ask if the benefits to those in category one are worth the costs paid by those in categories two and three.

Reasonable people can disagree on the values question, and depending on where policymakers fall, they tend to pick and choose the economic analyses for the analytic question that support their value choice. But if you listen to President Obama you’d conclude that raising the minimum wage has only benefits and that anyone who opposes a minimum wage increase is driven only by selfishness and malevolence toward low wage workers. That’s absurd. Increasing the minimum wage will reduce constrain the available labor supply and hurt some low-skilled workers. We can debate how much and whether it’s worth it, but there are unquestionably winners and losers.

3. ObamaCare: Providing low and moderate-income individuals and families with subsidies to buy health insurance outside of employment helps the bottom lines of those families. Phasing those subsidies out as income climbs allows taxpayer resources to be targeted based on economic need. But it also changes the incentives people have to work, to go to school, to get additional job training, and to try for a promotion. The bigger the subsidies and the sharper the slope of the phaseout, the bigger the disincentive created for people to try to make more money so they can get off these government subsidies and provide for themselves. This disincentive matters: CBO says ObamaCare will reduce hours worked by 1.5 to 2 percent, and that “the largest declines in labor supply will probably occur among lower-wage workers.” Fewer people will work, and others will work fewer hours. Total wages will decline by about one percent.

I am not arguing for no social safety net or for no unemployment insurance. I am instead arguing what should be obvious and shouldn’t need saying, but does: every time we raise the safety net, we provide immediate beneficial aid to many, and we make it less profitable for them to “climb onto the ladder of opportunity” and push themselves to earn more, and this calculation has an effect on people’s behavior. Ongoing UI checks help pay the bills but also relieve the pressure to find a job immediately. A higher minimum wage increases the wages of those low-skilled workers who still have jobs, but it also reduces the opportunities for an unskilled teenager to learn how to hold down a first job and learn basic professional skills. Subsidized health insurance helps the people who receive it. When those subsidies phase out as income increases, they also reduce both the number of hours worked and the number of people working. The reduced labor supply hurts the economy as a whole and is generally bad for those people receiving subsidies as well, because they are being pushed by government policies to forego economic opportunities that could help them even more in the long run than do the immediate benefits they are getting.

And these government programs and subsidized benefits stack. The cost-benefit calculation of short-term compassionate aid and long-term compassion to create opportunity depends on your starting point. Most everyone would say that some unemployment insurance is good, but it’s not surprising that there is disagreement about the costs and benefits of providing more than three years of UI benefits. Similarly, there are few who would say we shouldn’t subsidize health care for the poor, but when CBO says that a new law will reduce labor supply by 1.5 to 2 percent, that’s a really big cost. And it’s bigger because ObamaCare’s subsidies are layered on top of other programs that also have income phaseouts.

The costs of all three of these policies include higher structural unemployment and fewer people building additional skills to move up the income scale over time. When the U.S. economy eventually recovers fully, our unemployment rate should be in the low 5s. Because they keep layering on “protections” and “assistance,” France’s comparable rate is around 10 percent. Imagine if the U.S. steady-state unemployment rate were 10 percent. We’re not there yet, but all of President Obama’s policies push us toward a European-style model.

I think movement in that direction is a huge mistake, but my point today is a more basic one. These trade-offs must be considered and debated openly, and the Obama Administration is doing a disservice by suggesting that no trade-offs exist, and that those who oppose these programs do so because they are mean. Extending unemployment insurance benefits, raising the minimum wage, and ObamaCare have long-term labor supply costs that must be weighed against their more immediate benefits. There is no free lunch here. Do you want a stronger ladder or a higher safety net?

(photo credit: Jonathan Khoo)

Two presidential errors on unemployment insurance

Two presidential errors on unemployment insurance

Last week President Obama said:

But there’s an economic case for [extending additional unemployment insurance benefits], as well. Independent economists have shown that extending emergency unemployment insurance actually helps the economy, actually creates new jobs.  When folks like Katherine have a little more to spend to turn up the heat in her house or buy a few extra groceries, that means more spending with businesses in her local community, which in turn may inspire that business to hire one more person — maybe Kathy.

By leaving out one word, President Obama got this exactly wrong. The missing word is temporarily.

The “helps the economy” case for increased government spending on additional unemployment benefits is a traditional fiscal stimulus argument: if the government increases spending, people will have more income. They will then spend some/most of it, generating more income for others, and so on. Depending on the type of spending, economists estimate/guess the fiscal multiplier of a dollar of increased government spending (or tax cuts!), then calculate the increase in GDP that will result. From this they estimate the increased employment that will flow from the government’s fiscal stimulus.

Economists like to argue about the size of multipliers for various types of fiscal stimulus. But as best I can tell, they don’t argue that a temporary fiscal stimulus results in temporary economic growth. Once government stops spending money, the beneficial growth effect, however big or small it may be, dissipates.

Now the hope of a traditional fiscal stimulus is that it jump-starts an economy stuck in a rut, providing a big enough temporary boost that the recovery becomes self-sustaining even after the stimulus is withdrawn. Think of it like a strong cup of coffee early in the morning. If all goes well, the initial jolt gets you going enough that you maintain a high energy level even after the caffeine hit has worn off.

It is quite difficult to make such an argument for such a small proposed policy change. An additional $25 B in government spending, in a $16.6 trillion economy, doesn’t come close. It would be like hoping that one sip of coffee will jump start your day. Qualitatively the argument can hold, but it’s not big enough to be credible (assuming you buy the assumed fiscal multipliers in the first place).

President Obama should have said “extending emergency unemployment insurance temporarily helps the economy.” But he didn’t say that because it’s a much weaker argument. By omitting this key word, he implied that this policy is unambiguously good for the economy as a whole, and not just for the recipients of the added benefits.

President Obama then doubled down on his flawed argument by adding:

That’s why, in the past, both parties have repeatedly put partisanship and ideology aside to offer some security for job-seekers with no strings attached.  It’s been done regardless of whether Democrats or Republicans were in the White House.  It’s been done regardless of whether Democrats or Republicans controlled Congress.  And, by the way, it’s been done multiple times when the unemployment rate was significantly lower than it is today.

In the current legislative context “with no strings attached” mostly means “without cutting other government spending, either now or in the future, so there is no net deficit increase.” President Obama wants to increase government spending by $6 B over the next three months (or $25 B over the next year when it inevitably gets extended) without any budget offsets. Deficits and debt would be higher if he gets his way.

His problem is that this turns his fiscal stimulus into a net economic loser over time. If you buy the Keynesian models, the initial positive bump to GDP from the fiscal stimulus is temporary, but in exchange for that you get a permanent increase in debt because you’re not offsetting the added government spending.

That added debt creates an additional fiscal burden (higher interest payments) and the higher budget deficits create an economic cost as well, as lower national saving leads to a smaller future capital stock, slower productivity growth, and lower future wages.

So, even in a CBO-scored view of the world, in which fiscal stimulus works and fiscal multipliers are big enough to matter, a temporary, not-offset increase in government spending like that proposed by the President, results in:

  • a temporary increase in economic growth and jobs;
  • a permanent increase in debt and net interest costs;
  • and a net decline in economic growth and income over time, as the short-term benefits dissipate and the long-term costs gradually accumulate.

This does not definitively mean you shouldn’t do the policy, by the way. You might conclude that a little added growth and job creation now is worth a bigger economic and fiscal downside in the future. Or you might think the compassionate benefit of helping the unemployed is worth the aggregate downsides of a policy that is a net fiscal and macro negative over a longer timeframe. The President said this yesterday when he said that helping some (unemployed) Americans is more important than economic growth for all Americans. Even if you agree with the President’s value choices, that does not excuse his flawed economic arguments.

If you limit your view to only the next year, then what President Obama said is true: the traditional macro models show increased economic and job growth from his proposed policy change. A more comprehensive, longer view allows you to see both the costs and benefits of the President’s policy, and you have to decide whether slamming a couple of Red Bulls now is worth the caffeine crash later.

Although, given the size of this policy, maybe this is more like taking a couple of sips of Red Bull. While the President got his economic arguments precisely backward because he ignored the out-year costs, this is a debate about a fairly small policy change. Relative to a $16+ trillion economy, this really isn’t big enough to matter much either way.

Still, that doesn’t excuse bad economic arguments.

(Official White House photo by Pete Souza)

Why stop at $9? A $90 minimum wage

Why stop at $9? A $90 minimum wage

Tonight President Obama proposed increasing the minimum wage from $7.25 per hour to $9.  Here is his argument from tonight’s State of the Union address (emphasis is mine):

We know our economy is stronger when we reward an honest day’s work with honest wages.  But today, a full-time worker making the minimum wage earns $14,500 a year.  Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line.  That’s wrong.  That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.

Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour.  This single step would raise the incomes of millions of working families.  It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.  For businesses across the country, it would mean customers with more money in their pockets.  In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher.  So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.

If raising the minimum wage is good economic policy, why stop at $9 per hour? Why not increase it to $90 per hour? By the President’s logic, doing so would dramatically increase the income of not just millions of working families, but tens of millions of working families, and indeed of almost all working Americans.

By the President’s logic, a $90 minimum wage would be good for American businesses because their customers would have more money in their pockets. A full-time worker making the minimum wage wouldn’t make $18,000 per year as the President proposes, but $180,000 per year.

I am, of course, joking, and in doing so I’m trying to demonstrate the flawed logic of a minimum wage increase of any size. In my example a typical worker whose labor is worth $20 per hour to his employer would not suddenly find himself being paid $90 per hour. He would find himself laid off because his employer would choose not to employ him rather than to pay a wage more than the value the worker produces for the firm. Since almost all Americans produce less than $180,000 of value per year for their employer, layoffs would skyrocket. Customers of American businesses would not have more money to spend, they’d have much less because they’d be unemployed.

The same logic holds, just to a much lesser degree, for a minimum wage increase of any size, including the increase to $9 proposed tonight by the President.  A minimum wage increase precludes employers from hiring, or from continuing to employ, those workers whose productive value to the firm is worth less than the new minimum wage. Like any price ceiling or price floor a minimum wage restricts supply, and an increase in the minimum wage restricts supply more. Raise the minimum wage and you will eliminate jobs for the lowest-skilled workers in America.

Who are the lowest-skilled workers? Many of them are teenagers, new immigrants, and high school dropouts. They would be the most harmed by a minimum wage increase.

Minimum wage increases are politically attractive because they sound like they’re going to help poor people and because the economic argument against it takes a little time and effort to explain. When pressed, proponents of raising the minimum wage argue that it wouldn’t reduce the number of available jobs that much because even the lowest-skilled workers are worth more than the proposed higher minimum wage. Or they argue that when the minimum wage has been increased in the past, they couldn’t find evidence that employment declined. It’s absurd to argue that a policy is good because “we don’t think it will do much harm,” or “we couldn’t find evidence of harm when we did this policy before.”

Another version of this argument is that because the minimum wage is not indexed to inflation, the real (inflation-adjusted) minimum wage declines over time without new legislation to raise it. But if the real minimum wage does decline, then a few more of the even lowest-skilled workers will now have job opportunities available to them.

No matter how hard they try, Congress can’t outlaw economics any more than they can outlaw gravity. Congress should reject the President’s proposal and in doing so maximize job opportunities for teenagers, high school dropouts, new immigrants and other low-skilled workers.

(photo credit: Ed Yourdon)

 

How to avoid shafting future retirees & creating another bailout

How to avoid shafting future retirees & creating another bailout

Congress will soon vote on a final version of a two-year highway spending bill.  Press reports suggest the just-concluded agreement includes a “pension funding stabilization” provision from the Senate version of the bill. This means that any Member of Congress who votes for the final bill will be (a) shafting some future retirees in defined benefit pension plans and (b) increasing the risk of a future taxpayer bailout of a government-run corporation that insures pension plans. Congress can avoid both these bad things simply by removing this provision from the final version of the bill.

In a defined benefit (DB) pension plan firm managers set aside cash now to pay benefits later.  The firm then invests that cash and hopes that future cash contributions, plus the investment returns on the assets, will be sufficient to pay these benefit promises in full. It’s a bit tricky to project future pension benefits, but the principal challenge is estimating the rate of return on investing the assets in the pension fund. If a firm manager assumes a high rate of return, then he doesn’t need to set aside a lot of cash now to pay future benefits and he can use that cash for other purposes now.

Of course if the investment returns fall short of his overly optimistic assumptions then the pension plan will be underfunded. There won’t be enough in the plan to pay future benefits. That becomes a huge problem if the firm goes bankrupt. Then the firm hands the plan assets and benefit promises over to a government-run insurance company, the Pension Benefit Guaranty Corporation (PBGC), whose sole purpose is to insure DB pension plans of firms that go bankrupt.

PBGC then takes those (insufficient) pension fund assets and distributes them among the firm’s retirees. Since the plan is underfunded, retirees have to take a “haircut” on their pension benefits.  Someone who spent decades of his life working for a firm finds, in retirement, that the pension promise upon which he has relied is now broken.

If the assets are insufficient to pay full benefits, PBGC will fill in the gap in a retiree’s pension promise, but only up to a specified amount (about $56K/year in 2012). Above that the retiree is shafted. That is problem #1.  Firm managers benefit while they are underfunding the pension plan.  They have more cash on hand to use for other purposes:  investing in plant and equipment, hiring workers or paying them more, paying themselves more, or paying dividends to the firm’s owners.  Future retirees lose by bearing some of the risk of the firm going bankrupt and then short-changing the promised pension benefits.

Problem #2 is that the PBGC insurance plan for DB plans is also underfunded. Firms with DB pension plans must pay premiums to PBGC, and those premiums are set by statute. These same firm managers and their lobbyists persuade Congress not to raise the premiums, creating the PBGC underfunding problem.

What happens, then, if in the future a firm with a DB plan goes bankrupt, and PBGC doesn’t have the money to fill in the benefit gaps as it is required to do?  Current law provides no answer, leaving two possibilities:

  1. That firm’s retirees with pensions below the cap ($56K today) will not be paid full benefits;
  2. Or more likely, there will be intense pressure on Congress to bail out PBGC so these retirees’ benefits can be paid by taxpayers.

To their credit, the new highway bill negotiators increased legislated PBGC premiums, but they allowed firms to underfund their plans more. While future retirees bear some of the risk of today’s underfunding, taxpayers bear the rest of it.

Here is how the scam works:

  • Some irresponsible firm managers contribute to their DB pension plan the minimum amount required by law, even when their pension plan is underfunded.
  • When asked about the underfunding, they say “We’re doing what the law requires,” even though the law does not require them to fully fund the promises they have previously made to their employees.
  • Whenever they can, these same firms lobby Congress to increase the investment return they are allowed to assume, making their pension plan look healthier than it actually is and requiring them to contribute less cash.
  • If Congress won’t change the allowed investment assumptions, then these firms lobby for legislated “contribution relief” that allows them to reduce or delay the rate at which they contribute cash to reduce their plan’s underfunding.
  • They also lobby Congress not to raise the premiums they must pay to PBGC, even though PBGC doesn’t have enough cash on hand to cover its contingencies.
  • If (when) one of these firms goes bankrupt, firm managers “dump” the pension plan on PBGC and wash their hands of it.
  • Whatever underfunding exists in the plan falls on retirees above the PBGC cap, who see their promised pension benefits cut.
  • If (when) someday in the future PBGC doesn’t have enough cash on hand to fill in benefits up to the cap, then firm managers and their retirees will demand a taxpayer bailout from Congress.
  • At that point Congress will have to choose between (a) shafting taxpayers and (b) allowing the government to default on its promise to backup the pension promises of these low and moderate-wage retirees (after their former employer has already failed to fulfill their original promise).

Now for the kicker: in many cases the labor leaders who represent the firms’ employees cooperate in this effort. Management and labor leaders team up, both to underfund the DB pension plan and to lobby Congress to allow them to do so. This frees up immediate cash in the firm, which management and labor then wrestle over. When they do this, labor leaders are prioritizing current wages and current benefits over future pension benefits, and at the same time shifting some of the risk associated with paying those future pension benefits to taxpayers.

The firm managers lobby Republicans in Congress and the labor leaders lobby Democrats. “Give us pension funding relief,” they argue. Members of Congress and staff, who are used to management and labor doing battle, are happy to see that at least on this issue they agree. There is then a strong bipartisan push for a legislative “fix” for pension funding “relief” which allows the continued underfunding of both the DB plans and the PBGC to continue.

No one lobbies on behalf of future retirees who face increased risk of having their pension benefits cut when their employer goes bankrupt. No one lobbies on behalf of the taxpayer who faces increased risk of paying for a future PBGC bailout.

The details and justification of the particular proposed legislative change, including the one now in play, are unimportant. This is a world of actuarial assumptions and accounting conventions that is at best complex and at worst obtuse and intentionally obfuscated by those trying to behave irresponsibly.  The big picture is always the same: management and labor team up to change the legislated rules to allow the firm to pay less cash now to an underfunded DB pension plan.  Future retirees and taxpayers bear the increased risk and cost of Congress allowing irresponsible behavior now by firm managers and labor leaders.

The lobbyists play a clever game depending on the financial environment.  When financial markets are performing well they say “Look at what great investment returns we have been getting! Congress should change the law to allow us to assume these great returns continue, meaning our plans are no longer underfunded and we don’t have to contribute any more cash.”

When markets perform poorly, the lobbyists cry poverty. “Our firms are hurting. Yes, our investment returns have been poor, and yes, our pension plan is severely underfunded. But every dollar we put into our underfunded pension plan is a dollar we cannot spend to hire a worker or invest in plant and equipment.  Congress should change the law to allow us to contribute less cash to our pension plans in the short run. Then when the economy has come back we’ll have more cash on hand to fill in the underfunding.”

In the past the preferred tactic was to legislatively change the rules for calculating the amount of underfunding. This is legislated lying — firms were allowed to make unreasonable assumptions and falsely show that their plans are not underfunded. Based on these spurious calculations they then had to contribute less cash. It also allowed them to tell their employees, “Based on the government’s rules for calculating pension plan funding, your plan is healthy.”

In 2006 the Bush Administration worked with a few responsible Members of Congress (most notably Speaker Boehner and Senators Baucus and Grassley) to change the law to bring more honest accounting to DB pension plans.  We were largely but not completely successful.  It is harder to lie about your plan’s underfunding than it used to be.

The pension provision in the Senate version of the highway bill does not change the way pensions are measured. It instead changes the method for calculating the required minimum cash contribution to a pension plan. If this becomes law it will allow those firms with the most underfunded pension plans to contribute even less cash toward closing their funding gaps. Congress will once again be complicit in allowing firm and labor leaders to violate promises made to workers.

Everyone says they hate taxpayer bailouts. The best way to stop taxpayer bailouts is not to block the bailout after the catastrophe has occurred, it’s to avoid creating the catastrophe in the first place.  By stripping this provision (which was Section 40312 of the Senate bill) from the final highway bill, Congress can avoid making it easier for irresponsible firm managers and labor leaders to shaft future retirees. They can also avoid increasing the risk of a future taxpayer bailout of PBGC.

Some day in the future firms with defined benefit pension plans will go bankrupt, their retirees will be shafted, and Congress will be pressured to make taxpayers finance a PBGC bailout. Members of Congress will give angry speeches and everyone will ask how this could have happened. The answer will be in part that Members of Congress voted for and the President signed this highway bill containing this “pension funding stabilization provision.”

Congress, you have been warned.

The 10 most important American economic policy issues of 2010

Here is my view of the 10 most important American economic policy issues of 2010.

1.  The weak U.S. macroeconomy

In 2010 a weak macroeconomy once again swamped in importance all other economic policy issues.  Forecasters had predicted a tough year — the 9.7% average unemployment rate for the first 11 months of the year is not far above the Administration’s 9.3% forecast for the year.

In 2011 the most important metric will once again be the unemployment rate.  Economically as well as politically the focus will once again be almost entirely on job creation.  We need the economy to be generating hundreds of thousands of net new jobs each month.  That is unlikely but not impossible.

Most forecasters project a stronger U.S. economic growth path in 2011 than 2010, but few are projecting that growth will be robust enough to bring the unemployment rate down rapidly.  While this week’s unemployment claims took a turn for the better, that’s a volatile data set, and the labor picture over the past few months has been weak.  If the forecasts hold up, things will be bad but improving throughout 2011.  You decide whether the politics and press will focus on the bad or the improving part.

Please remember not to lean too heavily on economic projections.  My rule of thumb is that the best macroeconomic forecasts get unreliable six months out and are not much more than guesses beyond a year.

2.  The failure of fiscal stimulus

This trend began in 2009 and solidified in 2010.  The fiscal stimulus debate camps and arguments are well established, and because the debate relies on comparison to a counterfactual it may never be provably resolved, allowing economists to argue ad nauseam.

Whatever your view on the policy question, as a political matter the stimulus failed miserably.  There are a few easily identifiable errors.

  • The President repeatedly took too optimistic of a tone relative to what his experts projected on something that was largely beyond his control.
  • Team Obama gambled and lost by creating an unverifiable “jobs saved or lost” metric.  Sometimes the unverifiability worked for them, but ultimately it broke against them because a job saved by policy is neither provable nor visible.
  • The policy path the President chose in early 2009 (more accurately, the path to which he acquiesced when Congress chose it) set up countless “waste, fraud, and inefficiency” stories throughout 2010.
  • After February 2009, every time the President signed another bill “to create jobs,” he reinforced the message that his first stimulus law was failing or at best insufficient.

3.  The stimulus vs. austerity debate

The U.S. is now left of Germany and the U.K. on fiscal policy in rhetoric if not result.  That is both weird and disturbing.

4.  (Temporary?) enactment of the health care laws

The President and his allies had a huge policy victory here.  I think these laws are an unmitigated disaster, the largest economic policy mistake in a long time.  The President and his allies created a massive new entitlement, spent budget offsets needed to address our long-term spending problem and therefore made future middle class tax increases a near certainty, and turned health insurance into a regulated utility.

The ongoing pushback from Republicans, even after enactment, was a wonderful surprise from a party that had for too long been afraid to debate health policy.  Democrats had to delay implementation of the most expensive provisions for a few years, allowing Republicans time to mount a repeal campaign that continues to build steam.  My first big blog mistake of the year was prematurely declaring the legislation dead after Scott Brown’s surprise victory in Massachusetts.  My second (unpublished) mistake was assuming that the President’s signature was the endgame.  It appears the 2012 Presidential election will be in part a referendum on these laws.

5.  Enactment of financial services reform (Dodd-Frank)

This is another big policy win from the Administration’s perspective.  I have mixed feelings on the law.  Some parts (like creating resolution authority for regulators to shut down too-big-to-fail firms) are essential, others (like the Consumer Financial Protection Bureau) are harmful, and still others (like the long-term resolution of Fannie Mae and Freddie Mac) are unresolved.

Many policymakers appear to have convinced themselves that new policies and structures are (or, in a few years when the regs are complete, will be) in place to prevent large institutions from failing.  I worry that we still don’t have a good solution for the next Black Swan event when (not if) one or more of those huge institutions do fail in spite of the new, better informed, and more powerful regulators.

6.  Carbon pricing implosion

In less than four years carbon pricing has gone from front burner to burnt toast.  The Climategate data fudging scandal undermined a previously strong positive public perception of climate scientists and their advocacy.  In Copenhagen the global negotiations imploded after confronting the problem of the China-India hole in the U.S./green strategy.  A Democratic House and Senate could not agree to carbon pricing legislation, demonstrating that regional economic perspectives are at least as important as policy philosophy.  The President walked a tightrope between demonstrating to greens that he was with them and allowing himself an exit strategy when legislation inevitably failed.  West Virginia Governor (and now Senator) Joe Manchin erased any doubt by literally shooting the Waxman-Markey bill in a campaign ad.

We now appear headed down the worst possible policy path.  Congress will not enact legislation but the Environmental Protection Agency will start regulating greenhouse gas emissions and allowing/encouraging States to do so.  This is the most economically burdensome way to regulate carbon emissions.  It will be large enough to impose significant constraints on domestic power production and heavy manufacturing now, and maybe on other sectors later.  Yet any reductions in U.S. emissions will be small relative to uncapped increases from China and India.  EPA’s rules and Congressional efforts to block them will create policy uncertainty, deterring needed investment in the expansion of U.S. power production and slowing long-term economic growth.  EPA’s regulatory authority always served two purposes to those who want to price carbon:  as a threat to try to force legislative action, and as a costly fallback if legislation failed.  The fallback option never made sense.  It should but probably won’t be abandoned.

7.  The Democratic Congress’ budget failures

From the perspective of Congressional Democrats, the health care and financial services victories counterbalance their two fiscal policy failures in 2010.  Tax rates on income and capital will not increase during President Obama’s first/only term.  They failed to enact full-year appropriations bills to fund the government, resorting instead to short-term continuing resolutions.  The new Congress will have to complete the leftover appropriations work in early 2011.  Many of the President’s spending goals will be unmet as he wrestles with a Republican House majority with very different priorities.  I am pleased with both outcomes, which exceeded my initial expectations.

Both results can be traced directly to decisions by Speaker Pelosi, Senate Majority Leader Reid, and their respective Budget, Tax, and Appropriations Chairmen.  They failed because they didn’t even try to govern.  They never tried to pass a budget resolution, they delayed action on taxes until the last possible minute when Republicans were strongest, and they never tried to pass appropriations bills in the Senate.  They missed an opportunity to create a reconciliation bill that would have allowed them (and the President) to win the tax extension debate.  In each case these were unforced errors by Democratic Congressional leaders that significantly affected the fiscal policy outcomes of 2010.

8.  Rise of the Tea Party

I have not much to add here other than to recognize that the small government impetus began with the early 2009 Santelli rant and exploded into summer 2009 Town Hall opposition to Obamacare.  I now think of it not as a political party, but instead as a strong and deep anti-TARP-autos-bailout-stimulus-Obamacare-cap-and-trade-government-spending-earmarks-deficits sentiment.  In simpler terms it’s a powerful populist pushback against the expansion of government.  Over the next two years Republicans can succeed to the extent they respect this sentiment and push for smaller government and a bigger private sector.

9.  Increasing awareness of medium-term fiscal problems

The bad news is America’s long-term fiscal problems are now medium-term fiscal problems.  The good news is that Americans are increasingly aware of those problems, and pressure is building on elected officials to solve them.  While nothing transformative on this front happened in 2010, several trends are important to note.

  • The shift from long-term to medium-term is a result of two factors: (1) inaction on entitlement spending over time by both parties; (2) enormous short-term deficits that are wiping out a projected temporary deficit trough before the Baby Boom spending wave hits.  Those enormous short-term deficits result from (1) the weak economy; (2) actions taken to recover from the weak economy; and (3) a generic expansion of government spending unrelated to economic stimulus.
  • In February the President’s budget launched this round of fiscal debate by intentionally leaving a large deficit hole to be plugged by recommendations from a new Presidential fiscal commission.  The President’s goals for that commission were too focused on the short run, and it’s unclear whether he intended the commission to solve the problem, provide him with cover for a proposal in early 2011, or just to buy him time through a mid-term election year.  Nevertheless, the commission reported in December with a bipartisan package of spending reforms and tax increases, teeing the issue up nicely for 2011.
  • Enormous 2009 and 2010 deficits and massive spending increases in those years raised the prominence of both the size of government and fiscal imbalance as important policy issues.
  • Fiscal crises in Europe and looming fiscal crises in various U.S. States focus attention on the U.S. federal fiscal problem.

It’s always safe to bet against a big painful fiscal policy change, but if it’s ever going to happen, 2011 seems like as good a year as any.  The 1997 budget deal was done by President Clinton, Speaker Gingrich, and Majority Leader Lott, a D-R-R alignment.  This time we have a D-R-D alignment.

10.  Round 2 of the Obama economic team

Three of the four key Obama economic advisor slots will be manned by different personnel in 2011 than a year earlier.

Out (voluntarily):  Larry Summers (NEC), Peter Orszag (Budget), and Christina Romer (CEA)

In:  Jack Lew (Budget), Austan Goolsbee (CEA), ??? (NEC)

  • The departure of WH COS Rahm Emanuel and upcoming departure of Senior Advisor David Axelrod will also have a big effect on economic (as well as other) policy.  My sources say they were heavily involved in almost all major economic decisions, sometimes operating as a separate decision-making layer between the economic team and the President.
  • Treasury Secretary Geithner and NEC Deputy Jason Furman are now the institutional memory of the Obama economic team.
  • Both Lew and Goolsbee are insiders who were promoted.
  • The President should have filled (or at least announced) Summers’ successor at NEC weeks ago.  The fall is policy development time in the White House, and the President hurt himself by not having in place a successor to his top White House economic advisor.

Have a Happy New Year.

(photo credit: Takras)

 

No such thing as shovel-ready projects

No such thing as shovel-ready projects

On September 27th the President told Peter Baker of The New York Times:

He realized too late that “there’s no such thing as shovel-ready projects” when it comes to public works.

Yet just three weeks earlier, in a speech to the LaborFest in Milwaukee, the President said:

So, that’s why, Milwaukee, today, I am announcing a new plan for rebuilding and modernizing America’s roads and rails and runways for the long term.

… But the bottom line is this, Milwaukee — this will not only create jobs immediately, it’s also going to make our economy hum over the long haul.

Q1 for Team Obama: If there’s no such thing as shovel-ready projects, how will the $50 B of new infrastructure spending create jobs immediately?

Q2: If shovel-ready projects do exist and are queued up to create jobs immediately, shouldn’t they have been funded already by the stimulus law enacted in early 2009, leaving only the slower-spending projects left to be funded with the new money?

Q3: Given the President’s admission, isn’t the President’s proposal simply a deficit-financed increase in government spending with no immediate macroeconomic benefit?

Election season should not excuse the Administration from justifying its proposals as sound policy.

(photo credit: Office of Governor Patrick)

President Obama vs. the Christie Principle of Shared Sacrifice

President Obama vs. the Christie Principle of Shared Sacrifice

President Obama and New Jersey Governor Chris Christie are providing a phenomenal case study of the intersection between economics and political argument.

The President and Governor each make their case about how much government should spend on salaries of teachers and other government employees in a recession. The debate is fascinating because the traditional arguments are inverted. The Democrat is arguing growth, while the Republican is arguing equity.

First here’s the President on Monday in Fairfax, Virginia:

PRESIDENT OBAMA: Now, the challenge we have is, ironically, that if you start laying off a whole bunch of teachers, or a whole bunch of police officers or firefighters, now they don’t have a job, which means they spend less, which means that there’s less tax revenue. And you start getting into a vicious, downward spiral.

Now, here’s Governor Christie, speaking at a Town Hall meeting last week:

GOVERNOR CHRISTIE: Ask the people in the private sector in the state of New Jersey, when the last time was they got a raise. Yet the average teacher contracts, before I became Governor, had 4.9 percent annual increases, when we had zero or one percent inflation. Now that can’t be justified any longer.

I’ll label this the Christie Principle of Shared SacrificeAt all times, and especially during a difficult economy, it is unfair for those who run government, and those who receive paychecks from government, to exempt themselves from the difficult financial decisions that other private citizens are required to make.

Usually Republicans argue growth/efficiency, and Democrats argue equity. It is surprising and refreshing to hear a Republican effectively make this case.

Gov. Christie uses another equity argument to explain why New Jersey teachers should be required to contribute toward the cost of their health insurance:

The federal government for federal employees pays 66 percent of the cost of the health benefits for their employees. The state of New York pays 83 percent of the health costs for their employees. In the state of New Jersey, overall for all employees across the board, we pay 92 percent of the costs of the health insurance for every one of our public employees. And, among teachers, the overwhelming majority of teachers in the state of New Jersey, pay nothing towards their health insurance premiums, for full family medical, dental, and vision coverage, and, for benefits that do not just continue during employment, but if they stay employed long enough, for benefits that continue for life.

President Obama is arguing growth to justify more government spending, and Governor Christie is arguing equity to justify less. The political debate about economic policy has inverted.

You can see Governor Christie’s entire answer here:

 

(photo credit: Bernard Pollack)

No sale to the press corps on unemployment insurance

No sale to the press corps on unemployment insurance

While I was drafting yesterday’s skeptical post on the President’s partisan attack on unemployment insurance, I should have been watching White House Press Secretary Robert Gibbs in the daily press briefing. From their questions it appears the White House press corps drew conclusions quite similar to mine.

Within hours the Senate will vote to invoke cloture on H.R. 4213, a “tax extenders bill” already passed by the House. I’ll gloss over some tricky process details, but the key substance is an amendment by Senator Reid.

The Reid amendment

Here are some details of the pending Reid amendment, courtesy of Senator John Thune’s staff on the Senate Republican Policy Committee and Senator Judd Gregg’s Budget Committee staff.

  • The Reid amendment extends unemployment insurance benefits through November 30, 2010. These benefits would be retroactive to June 2, 2010, when the last law expired. No UI benefits under this law would be payable after April 30, 2011.
  • The February 2009 stimulus law created a supplemental $25 per week UI benefit. The Reid amendment would not extend that provision.
  • The $34 B of additional unemployment spending over the next decade would be designated as an emergency, meaning it would not be subject to paygo requirements and therefore does not need to be offset with other spending cuts or tax increases to avoid a 60-vote point of order.
  • Despite intense lobbying from the States, the Reid amendment does not extend the higher federal match rate for Medicaid expenditures. If this Medicaid money doesn’t make it into this bill, it probably won’t happen as there are few other legislative trains leaving the station this year.
  • The Reid amendment also contains a homebuyer tax credit provision that was separately enacted into law right before the Independence Day recess.

Assuming cloture is invoked this afternoon, Senator Reid will be able to offer amendments to modify his amendment with a majority vote. I expect he will strike the duplicative homebuyer tax credit provision. We will see if he tries to make other more significant changes.

The November 30 expiration date means Congress will wrestle with this question again in a post-election lame duck session in November/December.

Recent UI history

Courtesy of the staff of House Ways & Means Committee ranking Republican Dave Camp, here are the total Unemployment Insurance costs of seven laws and the new pending bill over the past recession and recent recovery period:

Date Law/Bill CBO score ($ B)
1 July 2008 H.R. 2642 13
2 Nov 2008 H.R. 6867 6
3 Feb 2009 H.R. 1 (stimulus) 39
4 Nov 2009 H.R. 3548 (offset) 2
5 Dec 2009 H.R. 3326 11
6 Mar 2010 H.R. 4691 7
7 Apr 2010 H.R. 4851 13
8 July 2010 H.R. 5618 / H.R. 4213
(proposed)
34
Total spending $125 B
Total offset $2 B
Total deficit increases $123 B

From this table I draw a few conclusions:

  • Assuming this new bill becomes law, Congress will have spent or committed $125 B for additional Unemployment Insurance benefits since the beginning of the recession. That’s not total UI spending, but the increment resulting from legislative action.
  • Of this amount only $2 B was offset. The other $123 B increases the deficit and debt.
  • This cuts both ways. Democrats can argue precedent, while Republicans can argue that past deficit spending makes offsets now even more necessary.

Team Obama’s intellectual inconsistencies on unemployment insurance

  1. The Obama Administration has previously supported offsetting the cost of extended UI benefits. In support of the November 2009 law (H.R. 3548) which offset $2 B of unemployment insurance spending, Team Obama’s Statement of Administration Policy said: “The Administration supports the fiscally responsible approach to expanding unemployment benefits embodied in the bill.” At the time the unemployment rate was 9.8%, higher than it is now.
  2. The President attacked Republicans for opposing deficit-increasing unemployment insurance extensions while supporting deficit-increasing extensions of tax relief. But the President has proposed extending much of that same tax relief without any offset.
  3. The President attacked Republicans for opposing extensions of UI benefits, while the Senate Republican Leader has explicitly supported such an extension on Sunday. The actual dispute is instead over whether the costs should be offset.
  4. White House Press Secretary Robert Gibbs argued the bill should be passed without offsets to avoid legislative delay. But as a reporter’s question suggests below, that delay results from a disagreement between the two parties, and either side could have instantly resolved it by conceding on the offset dispute. The delay is the result of both sides prioritizing the budget offset question over immediate action.

A skeptical White House press corps

The White House press corps exceeded themselves yesterday in their questions of Mr. Gibbs after the President’s Rose Garden attack. The transcript does not identify specific reporters so we lose something by stringing all the questions together in sequence like this. As best I can tell, at least half a dozen reporters are responsible for the questions below.

You can see Mr. Gibbs’ answers in the full transcript. I find looking at just the questions interesting because it effectively conveys Team Obama’s message failure yesterday.

While the President will soon sign into law an extension of unemployment insurance, he failed to convince the White House press corps with his Rose Garden remarks.

Q: On unemployment, on the extension of the benefits, it looks like the Democrats will certainly have the 60 votes they need tomorrow to get past filibuster and move this into law. So with that being known, I’m trying to understand why the President did what he did today. What’s the point of calling out the Republicans if you know you’re going to have the votes?

Q: But does giving a statement like this in the Rose Garden, is it intended in any way to actually try to win one of the lawmakers’ support?

Q: Well, I guess that’s — just to wrap up on this point — I guess that’s my point, is that it seemed extremely clear what the President’s view is on this. He talked about it over the weekend, he’s talked about it in the past –

Q: So you don’t see this as the kind of political theater, the back-and-forth that the President was elected to stop?

Q: The President said Republican leaders in the Senate were advancing the misguided notion that the unemployment benefits discourage people from looking for a job, but the Republican leaders from Mitch McConnell on down have said that they are in favor of extending unemployment benefits but that they want the cost of that extension to be paid for with cuts to other programs. What’s wrong with that?

Q: But couldn’t Democrats have solved this instantly by simply saying, we’re going to extend unemployment benefits and we’re going to pay for it with offsetting cuts?

Q: But “pay as you go” is the very principle the President has put forward himself. They’re saying that now because of big deficits we need to pay our way.

Q: And let me just ask you one other thing on this. The so called “99ers,” people who have been unemployed for 99 weeks or more, their benefits are not going to be extended under this. Is the President aware of their plight? And does the President favor doing something to help them out?

Q: So you say that we ought not to be playing politics, and yet it seems that the President himself was suggesting that the Republicans were playing politics. He said, it was time to look past the election out there this morning. And yet when everybody knows this is going to pass tomorrow, how can you say that the President is not indulging in a little politics?

Q: But it’s not political to talk about it for the last four days knowing that you’re going to get it anyway?

Q: Quickly on unemployment, is there a line, once we drop below 9 percent the administration is not going to push for extending unemployment? When do you stop extending unemployment benefits? I mean, where’s that line?

Q: Do you anticipate in three months you’re going to be asking for another extension?

Q: Robert, if the President pushed for the reinstatement of “pay as you go,” what point was it if he is going to allow or go along with exemptions or exceptions for something like unemployment?

Q: But it’s spending. It goes on the deficit and in the debt.

Q: Could you apply PAYGO to unemployment benefits as quickly as not? Or are you saying it would take much longer?

Q: A follow-up again. Last month, when the issue came up in the Senate, the Republicans pointed to $50 billion in un-obligated stimulus money to pay for it, but Senator Reid objected. What would be wrong with taking that un-obligated money?

Q: I just want to make sure I understood what you were saying to Chuck about unemployment. You — the team essentially assumes right now — things could change — that unemployment is likely to be at 9 percent or higher by the end of this year?

Q: I threw that out to you — I said, is 9 percent the line with which you guys would stop asking for extensions? You said, it might be the line where we would stop, and then –

Q: And it is still an open question whether at the end of this year, at the end of November 30th, when these, if you get them, are due to expire, if you get them again?

Q: And just to follow up on Jonathan’s question, to Republicans who argue, yes, historically we have paid for these through deficit spending but we’ve never before had $13 trillion in the debt, we’ve never had a fiscal year situation except for last year where nine months into the fiscal year we’re already at a deficit of $1 trillion — conditions have changed and they require a different look and a different approach — to that you would say what?

Q: Coming at this from another direction, you described the unemployment situation as an emergency. Most economists don’t think we’re going to come rebounding out of this recession very quickly. Is there a point at which this relatively high level of unemployment becomes more of a chronic condition and therefore does in fact have to be paid for out of a regular budgeting process?

Q: Could they envision a time coming where they do, in fact, start –

Q: I’m wondering if it’s — and I understand what you’re saying, in the past it’s always been understood that in this kind of a recession it’s okay to add to the deficit for something like unemployment insurance. But if you can’t find $35 billion, how can the American people be confident that when it comes time to really solving the deficit and debt problem you’ll be able to find what you need?

Q: Are you talking about patching the roof with borrowed money or cash? That’s all. We’re not questioning whether you should patch the roof. It’s just how are you going to pay for it — with a credit card or with cash?

Q: You’re saying there’s no alternative to borrowing?

Q: But do you think it’s possible that even people on Capitol Hill who are being hypocritical have the support of the public in this because the public has this … feeling about the deficit?

While the President will win the vote, he lost the debate.

(photo credit: Jeremy Brooks)

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