Relating Politics and Fiscal Policy…Textbooks and TV

This week, America went to the polls. We voted. And voted for another 4 years with Obama as our leader. Beyond his leadership, we also voted for his fiscal policy…whether we as voters understood/understand that or not. For my entry this election week, I am reflecting on the election and how America understands (or dosen't) fiscal policy when making their choice.

I have always known that I did not understand even a surface scratch about what fiscal policy really meant. I knew it was taxes and government spending, both something that I personally support, but do I really understand why I support these things? Or what they really do? Nope. Taking economics again is opening my eyes to a much larger view of fiscal policy, and what my high level beliefs really do mean in the fiscal policy spectrum…and how hard it is for the average voter to dissect the thinking behind these approaches.

It has been said, over and over for months now, that the #1 issue for voters was the economy, and how our government is either hindering or helping it to recover. This week we covered some very interesting, very basic sets of economic principles that discuss how government spending, taxes, GDP and employment are related. Bottom line, government spending can drive increased aggregate demand which will push the unemployment rate back to a level of higher (and possibly full) employment for the country. Seeing how these ideas relate, and impact each other, show me that my beliefs that taxing and spending are a good thing, even if it raises national debt, and are helping us to avoid another economic collapse.

 

Changes in government spending, changes in tax levels and changes in transfer payments through programs like social security, all impact income and employment levels, as well as inflation rates. Clearly, with stagnant incomes and a high rate of unemployment, the government should be targeting a fiscal policy that will bring those both up. Expansionary policy, that invests heavily to induce full employment, cannot happen without implementing less popular political moves like raising taxes and borrowing money (debt).

A high level summary of President Obama’s fiscal policy (according to this National Journalreport): Economic stimulus now, deficit reduction over the long term. Tax the wealthy to raise additional revenues. Trim military spending, Medicare, federal pensions, and farm subsidies.

Clearly, this approach is a mix of the three main components discussed above. Both economic stimulus (government spending) is the expansionary policy in action, and the increased tax on the wealthy is the funding source. Another component of boosting up the economy in expansionary fiscal policy is increasing transfer payments, which is not reflected in Obama’s plan to reduce the transfer payment streams listed above.

There are opinions that oppose this expansionary approach with a preference to lower taxes, and lower spending to allow private investment in the market to flourish. However, historical data shows that even in times of reduced taxation, the private investment does not dramatically increase (this articlecited in Norm’s blog expands on the idea further). Through that was what Mitt Romney was promoting for his fiscal policy reasoning.

Through this election, I am curious how much the average voter even understood why the candidate’s policies differed. What is presented to the public are two sentence sound bites to what is a large and complex issue…and dramatically shapes an administration far more than their laundry list of issues. Right now we are in need of dramatic change, and it seems to me that government investment, paid for by us, the people, is the way to move forward. I wonder how the US electorate would vote after everyone took a semester of macroeconomics.

Job Creation and Unemployment

On Friday, the Bureau of Labor Statistics released its monthly unemployment numbers. “Both the unemployment rate (7.9 percent) and the number of unemployed persons (12.3 million) were essentially unchanged in October, following declines in September.” This was based on household survey data from the US. This number only accounts for persons who are still actively looking for work. It does not count people who worked odd jobs for pay, are underemployed or have become discouraged and stopped looking for work. My sense is that the actual “unemployment rate” would look far worse if we adjusted our metrics to really include the full picture of the working family in America.

We focused on understanding the three main components of unemployment: cyclical unemployment, is due to lack of demand for labor; frictional, which reflects the time it takes to match job seekers with those looking to hire; and structural unemployment, which is a mismatch between the skills in the labor force and the skills needed by firms. In Norm’s blog, he discusses the political arguments that both parties make to force our unemployment numbers to fit more cleanly into one of these categories to assign blame on why unemployment is so high.

So how does this relate back to coal export terminals? Last week’s initial search yielded not a financial statement from Millennium, but rather an economic report published by the company to show its projected positive future impact based on this terminal development. It included many tables and graphs illustrating many variables, including education, current income levels, population statistics, and fiscal expenditures for Cowlitz County. I thought that this document would be interesting to review this week with our economic focus on unemployment, as well as relate to our discussions of environmental justice.

The Millennium terminal in Cowlitz County is a great example of how industrial and environmentally burdensome projects can move into a community, with many local community supporters. According to the report, here are a few key statistics about Cowlitz County.

• Cowlitz County has a population of 102,410

• The largest employment sector in the county is manufacturing, which employs about 20% of the total workforce; construction comprises 8% of total county employment

• In 2010, the county had an unemployment rate of 11.1% and a median household income of $41,000 (in 2012 it was up to 12%)

• County general tax revenues have been hard hit by the recession.  Adjusted for inflation, revenues have declined both in total and on a per capita basis since 2006

• About 52% of workers living in the county are employed within the county; the County has a net job outflow of more than 8,000 jobs

Clearly, the county needs jobs, and the local workforce is skilled for industrial type work. With an unemployment rate higher than the national average, this could be an appealing proposal. A company coming in promising that “state and local benefits will include new and significant jobs, wages, output, and tax revenue. It is also expected that the majority of the positions would be filled from the local labor pool.” What especially when the first publicly published information is about initial jobs: Construction activity is estimated to support 1,350 temporary direct jobs, with an additional 1,300 additional jobs in the related community. However, this rosy and significant number drops significantly after construction stops. The long term estimate of the job creation from this $643M project is 135 direct jobs, and 165 subsequent secondary (indirect and induced) jobs. For a population of over 100,000, that is not a very significant unemployment solution.

For some sections of the community, this proposal’s positive benefits far outweigh the environmental risks. They are focusing on the positive impacts this development could bring, including the cleanup of the brownfield site, more jobs and economicstimulus. “I could see us hiring another large group of workers to come in for good family-wage jobs with benefits,” he said. “That trickles down through the economy. It’s not only a benefit to us, but to local businesses, schools and the tax base.”

For the moment, these two sides are at odds, and working through the NEPA, SEPA and public comment process before any plans are finalized. What jobs will roll out of the final decision will wait to be seen.