Josh Barro has thought deeply about bullying. I recommend reading his new post on the subject. 

Back in 1999, William Green and Joan Caplin wrote an article for Money on how former presidents come to amass great wealth, looking ahead to the Clintons’ economic future. Gerald Ford was particularly conspicuous for having used the prestige associated with having served as president to dramatically increase his personal wealth:

Gerald Ford was no millionaire when he replaced Richard Nixon in 1974. His net worth in late 1973 was $256,378. He had $1,282 in cash in the bank, he owned one stock, $3,240 worth of Central Telephone of Illinois, and he had $1,299 in the Stein Roe Farnum Balanced Fund.

In 1972, the year before he became Vice President, Ford grossed $68,000 as a congressman from Grand Rapids, Mich. So the presidential salary of $200,000 was a windfall. “Ford was a poor boy who made more by being President than he’d made in any other job he ever had,” says Robert Hartmann, his Chief of Staff when he was Vice President.

But it wasn’t until Ford left office in 1977 that the money really poured in. Ford hired an agent from the William Morris Agency who negotiated a sweet TV deal, with Ford earning a fat income for his appearances on NBC. Ford and his wife Betty agreed to write their memoirs, and they pulled in a $1 million advance for the two books.

Breaking with presidential tradition, Ford also joined the boards of a slew of companies, including Amax and Travelers Group, and he signed on as an “adviser” to American Express. The Los Angeles Times calculated that he hauled in $541,300 in 1986 as a corporate director and consultant. Bill Seidman, a friend and economic affairs assistant in the Ford Administration, says he remembers questioning Ford’s decision to become an American Express adviser: “I told him I didn’t think it was the right thing to do. He did it anyway…. He’d been an honest congressman for 25 years and he had four kids. He had not seen the sunny side of the street financially, and I don’t blame him for wanting to see it.”

And Ford continued to earn prodigious sums until shortly before his demise.

More recently, Al Gore has built a fortune as an investor and entrepreneur. Estimates of Gore’s net worth vary, but the consensus view is that he is a centimillionaire. Though Gore’s entrepreneurial ventures don’t have an unblemished record of success (Current TV’s troubles have been very much in the news), his brand was sufficiently valuable after his highly controversial defeat in the 2000 presidential election that he was given access to a number of lucrative investment opportunities in the technology world, thanks in part to his close relationship with John Doerr and other noted Silicon Valley venture capitalists. He is also chairman and co-founder of Generation Investment Management, among other ventures in the financial space. 

One gets the strong impression that Gore’s financial success has been closely related to his public prestige. Gore’s celebrated film An Inconvenient Truth and his subsequent Nobel Peace Prize greatly enhanced his global stature. Indeed, it is hardly surprising that he chose not to run for president in 2004, as a rematch would have had a tremendously high opportunity cost. And his decision to endorse Howard Dean helped further rehabilitate his cultural as well as his political brand. As late as the latter days of the Clinton administration, Gore was seen as belonging to the right of the Democratic party, having championed an idiosyncratic mix of cold war hawkishness, fiscal rigor, and environmentalism throughout his national career. He had been sharply critical of more left-leaning Democrats like Jesse Jackson and Michael Dukakis. During his 2000 presidential campaign, however, he established himself as a stalwart progressive profoundly concerned about inequality and related issues, thus earning him the allegiance and enthusiasm of many culturally influential and affluent voters. His affect, and his self-conscious celebration of intellect, helped him build a brand that connected him to the small but politically powerful coterie of women and men who had made sizable fortunes during the late 1990s in technology and finance. 

Though there is no question that Gore’s reinvention was political in orientation — that it was designed to help him secure the presidency, and to distance himself from the (seemingly) problematic legacy of President Bill Clinton — it proved in hindsight to be extremely savvy. 

Life is an iterative game, and it seems likely that the experience of Ford shaped the post-presidential careers of his successors, e.g., it is now expected that former presidents will give lucrative speeches. After Clinton and Gore, however, a new vista has opened up. Instead of merely leading a prosperous life, both men have demonstrated that one can retain considerable political and cultural influence through charitable efforts on a grand scale and through deep involvement in the corporate world.

Different individuals will, of course, have different preferences. Some will prefer to emphasize cultural prestige over the attainment of wealth. Or rather different individuals will choose different points along a complex continuum. One could choose to work in the oil and gas industry, recognizing that it will damage your cultural capital in some quarters while enhancing it in others. You get the basic idea.

I see Barack Obama’s decision-making over the past week through this lens. If we accept the story being offered by anonymous White House sources in Politico, the president fully intended to endorse same-sex marriage at some point before November. Yet Joe Biden “forced his hand,” thus causing considerable strain between the two men. 

Now, however, the president is capitalizing on the opportunity presented by his evolution. A fundraiser held the night after his announcement at the home of television and film actor George Clooney raised an extraordinary $15 million, per a report in the Los Angeles Times. This raises a number of interesting conceptual questions in itself, e.g., were there considered discussions of the relative value of crafting a policy position that would be less likely to alienate non-college-educated, culturally conservative swing voters in swing states in the Midwest versus one that would generate enthusiasm among affluent donors? If we believe that swing voters are relatively indifferent to policy nuance (anonymous White House sources have suggested that voters believed that the president supported same-sex civil marriage regardless of his stated position, so the electoral benefit of not explicitly doing so was minimal) but that television advertising and expensive, labor-intensive voter contact efforts do make a difference, it seems reasonable to emphasize fundraising. 

But let’s look beyond this strategic calculation from the perspective of the campaign and consider the strategic calculation from the perspective of the president’s own interests. Unlike Ford, Obama is a high-earner, as is his wife. Both are high human capital individuals with prestigious law degrees, and Michelle Obama has worked in the upper echelons on the non-profit sector. The president is also an accomplished author, who generated tremendous book sales during his unlikely rise to political prominence. It is easy to imagine that both of them will be extremely well-placed to earn large sums after leaving the White House, whether that is in 2013 or 2017. This doesn’t mean that the Obamas are immune to financial considerations. As Jim Geraghty has observed, Jodi Kantor’s book offers great insight:

Even the president made uncomfortable jokes about why his wife needed so many things. Behind the scenes, aides said, the Obamas were concerned about money: the president’s books could only sell so many copies, and it would be years until he could write more and the first lady could write her own. From vacation rental homes big enough to accommodate the Secret Service to all the personal entertaining they did at the White House, their lifestyle had grown fearsomely expensive.

This might sound ridiculous, but as we often hear, inequality is fractal. Many of the people the president encounters, including many of his subordinates, have far more money than he does. It is absolutely unimaginable that this keeps him up at night. He is at the top of a very steep hierarchy, and he is consuming a tremendous amount of prestige. But as the father of two young children who has long had a keen interest in finding the most demanding, strenuous, and visible work he can, he presumably gives at least some thought to his earning power. There is no question that he’ll be a wealthy and influential man. Yet he does have some say in terms of how wealthy and influential he will become, and how he might use this wealth and influence to achieve broader objectives.  

Here we return to the example of Al Gore. Had Al Gore served as president, he would have no doubt alienated many people in the course of trying to retain power. Instead, he’s remained a (relatively) untouched vessel for the hopes and aspirations of his admirers, and he has had the luxury of taking a number of stances that would have proven extremely problematic had he remained in electoral politics yet that have greatly enhanced his reputation in the elite circles in which he travels. It is not obvious that Gore’s (semi-) defeat in 2000 was the worst outcome for his personal well-being. Had Gore remained “political” during this period, or rather politic; had he been less willing to characterize those with whom he disagrees as enemies of enlightenment and progress, etc., it is likely that he would have sold fewer books and movie tickets, and also that he would have generated somewhat less enthusiasm in the right circles.

Let me emphasize that I don’t assume that these calculations are constant, self-conscious, or exact. Rather, I think that these shifting incentives color our interpretation of the choices before us. 

At his Los Angeles fundraiser, President Obama made the following remarks:

“Obviously yesterday we made some news,” Obama said to applause. “But the truth is it was a logical extension of what America is supposed to be. It grew directly out of this difference in visions. Are we a country that includes everybody and gives everybody a shot and treats everybody fairly and is that going to make us stronger? Are we welcoming to immigrants? Are we welcoming to people who aren’t like us — does that make us stronger? I believe it does. So that’s what’s at stake.”

In light of the fact that until relatively recently, Barack Obama had taken a very different view of same-sex civil marriage, this seems like an odd pronouncement. Yet there is no question that his remarks made a strong impression on the relevant audience. 

Had Barack Obama failed to change his position around now — had he been defeated this November and, say, signed a petition of cut a television advertisement in favor of same-sex civil marriage in 2013 — how might affluent, socially liberal individuals for whom same-sex civil marriage is an issue of vital importance have interpreted him? One assumes that they’d see him in mostly the same way, i.e., as a good and honorable man undone by an intransigent Republican opposition, with a certain level of ingenuousness about the unbelievable ruthlessness of his political opponents, etc. Now, however, he looks more like a man of courage and principle, willing to take the fight to people who (remarkably) don’t believe that America is “a country that includes everybody and gives everybody a shot and treats everybody fairly,” and who do not welcome immigrants or people who aren’t like us, etc. 

Having offered an empathetic and in many ways quite intelligent (if fundamentally unsound) characterization of working class white voters as people full of bitterness, who cling to guns and religion and antipathy to people who aren’t like them out of a profound sense of dislocation caused by rapid economic change and the deterioration of their labor market position, the president must recognize that his characterization of the central disagreements in the so-called culture wars will prove alienating to at least some people who would at least consider voting for him. 

Yet even the savviest politician isn’t simply governed by political calculation. We want to be esteemed by the people for whom we have great esteem. We value the opinions of the people we think of as intelligent and thoughtful, and we want them to think of us in the same way. When these people also serve as gatekeepers in the economic and cultural spheres, this is all the more important.

I don’t know if Barack Obama will want to go the Gore route or if he’d prefer to, say, take on a low-lift teaching position as a university professor at an elite U.S. university while running a vast charitable concern. Perhaps he’ll want to pursue some combination of both. I do think that his set of post-presidential options has become somewhat more attractive this week, even if he has suffered a slight political reversal. 

At Politico, David Rogers has a story on a legislative effort by House Republicans to shield defense spending from cuts by shifting resources from anti-poverty programs.

Walking away from the August debt accords, Republicans won House approval Thursday of their plan to shift tens of billions from poverty programs to protect the Pentagon from automatic cuts ordered for January under the Budget Control Act.

The 218-199 vote capped a day of often emotional debate and carries with it major implications for the November elections –and the fiscal crisis awaiting Congress at the end of this year.

Building on the House budget resolution in March, the 167-page bill continues an aggressive election-year rewrite of last summer’s agreements to shore up Pentagon spending without having to rely on new tax revenues. Non-defense appropriations already face $27 billion in cuts beyond what the budget law anticipated, and the new measure adds a second round of savings, culled from President Barack Obama’s signature initiatives as well as core benefit programs such as Medicaid, food stamps, and the child tax credit.

The long-term unemployed, who have swelled the food stamp rolls, are among the most vulnerable, together with single-mother households and working class immigrant families. Depressed swing states like Florida would feel the pinch, and some of the proposed cuts have been opposed in the past by that state’s young Republican political star, Sen. Marco Rubio, often mentioned as a potential running mate with Mitt Romney. [Emphasis added]

As an advocate of a greatly expanded child tax credit, along the lines of the proposals from Ramesh Ponnuru and Robert Stein, and as someone who believes that the defense budget can indeed be trimmed undermining national security, that last line caught my attention. 

But Rosalind Helderman of the Washington Post offers a somewhat different characterization of the plan:

Budget Committee Chairman Paul Ryan (R-Wis.) said national security would be harmed if the Pentagon lost $55 billion in funding in January. He told colleagues the House framework represented at attempt to deal with a looming problem through serious governing and would put only a small dent in the growth of rapidly expanding social programs.

“If we can’t have a civil debate about how to control the growth of spending around here, then we’ll never get this under control,” he said.

The far-reaching Republican proposal would impose new caps on medical malpractice suits, require federal employees to contribute more for their pensions and require those claiming the child tax credit to submit a social security number. 

It would also restrict eligibility for food stamps and reduce benefits that had been enhanced in the stimulus bill. And it would slice billions from Medicaid. [Emphasis added]

I’m struck by the difference between the descriptions of Rogers and Helderman. While one might conclude that Republicans are premature in reducing the eligibility expansions built into the fiscal stimulus law, and while it may well be an inconvenience for parents to submit Social Security numbers, these don’t seem like intrinsically unreasonable steps to take. Rogers, in contrast, offers a far more apocalyptic take, though one that does make a few substantive points, e.g.:

“There are only tough decisions left,” Rep. Rob Woodall (R-Ga.) answered McGovern. And Budget Committee Chairman Paul Ryan (R-Wis.) said the GOP should get credit for trying “to govern” rather than surrender to mechanical cuts.

“If we can’t have a civil debate about how to slow the growth of spending around here,” Ryan said, “Then we will never get this under control.”

“We have the highest poverty rates in a generation. These programs aren’t working,” he said. “Let’s fix them.”

But few of the savings really represent “fixes” of what are often complicated questions about who should be eligible for benefits. At the same time, the GOP’s single-minded focus on protecting defense is so great that the bill even exempts the Pentagon from a small sliver of $19 million in mandatory savings demanded by the sequester mechanism—while Medicare providers would still be impacted.

The point about “fixes” is fair — but one wonders if Ryan is getting a fair shake out of Rogers, given the tone. I’d be curious to hear a reaction from the House GOP.

My own view, to be clear, is that defense cuts are worth pursuing, provided they are measured and sensible.

I greatly profited from reading William Galston’s calm, judicious overview of the issues and constituencies that will determine the outcome of this year’s presidential election. 

Matt Yglesias makes a convincing case that the U.S. is leaving money on the table by not making it sufficiently easy for affluent foreign tourists to spend their disposable income on our shores.

Some years ago, when I first encountered the debate over same-sex civil marriage, I was intuitively drawn to the “deinstitutionalization” position, i.e., let’s dissolve the institution of civil marriage and create all-purpose civil unions that are bundles of various legal rights, thus “getting the state out of marriage.” This view still has some purchase among those of a libertarian bent, but I’ve since reached the conclusion that it is unworkable. As Josh Barro suggests, civil marriage is deeply woven into our system of government. While universal civil unions could serve the same purpose, universal civil unions that are marriage-like in their implications for taxes and immigration would be a merely rhetorical shift that would nevertheless lead to a lot of resentment and confusion. 

Part of the reason is that, as Ryan Anderson, a prominent critic of same-sex civil marriage, has argued, law serves a pedagogical function. We assign various legal rights, duties, and privileges to married couples as a way of affirming the marital bond. So even a rhetorical retreat to universal civil unions would be contentious. Moreover, it seems plausible that universal civil unions freed of the historical freight of marriage would prove less durable than civil marriage. 

Once we abandon the view that we can painlessly move from civil marriage to universal civil unions and avoid any thorny moral questions, we’re once again left with the question of whether or not it is appropriate to expand civil marriage to include same-sex couples. Peter Berkowitz’s brilliant essay on “The Court, the Constitution, and the Culture of Freedom” continues to offer the most convincing take on the subject:

Now, if you believe that the birth control pill, cohabitation before marriage, no-fault divorce, laxness concerning adultery, and the movement of women out of the home and into the workplace undermine marriage — as do many conservatives — and yet you are unwilling to support legislation to prohibit these practices because of the cost to individual freedom — an unwillingness many conservatives share — how in good faith can you single out same-sex marriage for legal prohibition?

One answer is that, in contrast to same-sex marriage, the aforementioned practices do not involve formal state approval, either symbolically or through the conferring of financial benefits. They call only for the state to mind its own business. In contrast, proponents of same-sex marriage seek both the financial benefits and the symbolic legitimation that the law confers through marriage.

In fact, in minding its own business with respect to all other aspects of intimate relations, the state makes a powerful statement of moral and political principle: The organization of intimate relations is a matter of personal choice. Now that bigotry against homosexuality is on the run, express legal liabilities have been lifted (with the notable exception of the military’s “don’t ask, don’t tell” policy), popular culture has increasingly embraced gays and lesbians, and the question of same-sex marriage has been brought out into the open and into focus by vigorous public debate, the speculative harms critics associate with same-sex marriage will, in more and more people’s minds, be outweighed by the commitment to toleration of choices that differ from one’s own — particularly in matters relating to love and the family, especially between consenting adults where physical harm is not an issue. While majorities in the United States may not yet be ready for same-sex marriage, larger majorities will oppose legislation that smacks of anti-same-sex animus.

That is where we find ourselves. Opposition to the redefinition of civil marriage has been successfully characterized by proponents of its redefinition as a manifestation of anti-same-sex animus. 

Opponents of same-sex civil marriage see this as entirely unfair, as Berkowitz explains. Yet he also explains why these objections fail to resonate with younger voters:

Unlike the prohibitions on interracial marriage properly struck down by the U.S. Supreme Court in 1967 in Loving v. Virginia, the prohibition on same-sex marriage, as the Massachusetts dissenters argued, is connected to valid policy questions. The color of one’s skin has no bearing on the essential purpose of marriage, but same-sex marriage raises concerns about parenting, child rearing, and the structure of the family, which lie at the very heart of marriage’s purpose.

And yet opponents of same-sex marriage must reckon with the fact that over the past 40 years the very meaning of marriage has undergone a substantial change. The sexual and cultural revolutions of the 1960s have pushed the bearing and rearing of children from the core of marriage’s social meaning. Ask twentysomethings and thirtysomethings what they hope for from marriage. They will, of course, tell you that they want love and that they definitely want companionship — indeed, that they expect their spouse to be their best friend. And obviously they want to share the pleasures of sex. Then ask them about children. Many will pause and say well, yes, certainly, they are thinking about children, and eventually, somewhere down the line, they expect to have one or two. But children, once at the center of marriage, have now become negotiable, and what used to be negotiable — love, companionship, sex — has moved to the center. Under these circumstances, legal recognition of same-sex marriage will not represent a change in the meaning of a venerable social institution through law, but rather an adaptation of law to a profound change in social meaning. 

A number of thinkers, including Anderson and his co-authors Robert P. George and Sherif Girgis, reject this revisionist view of marriage in favor of what they refer to as the historic or conjugal conception of marriage in their essay “What is Marriage?” 

Recently, a friend offered an alternative view that I found illuminating and he kindly allowed me to share it:

My argument on gay marriage starts from the assumption that the main thing we care about is the indirect effects it will have on far more numerous heterosexual unions, especially those with children. Thus I bracket religious liberty, material benefits to gay couples, symbolic affirmation to all gays, etc. From this perspective, I see the main argument against gay marriage as being that it will change the cultural meaning of marriage to deemphasize procreation and (further) play up the companionate aspect, as well as possible effects of making marriage less attractive to men who see marriage as a way to affirm their masculinity/heterosexuality. Note that men who feel this way are those already least likely to marry.

The first argument is broadly in tune with Anderson, George, and Girgis. The second, regarding the attractiveness of marriage, was invoked years ago by Megan McArdle in a discussion of the marginal marriage candidate, for whom the explicitly gendered nature of marriage might be significant. 

Countering this, the main argument for gay marriage (in terms of indirect effects on heterosexual unions) is less about it being better for straights than the c. 1990 status quo ante than it being less bad than the counterfactual future where it doesn’t happen. If the right somehow succeeded in defeating gay marriage or, as is more plausible, forestalling it another generation before it happens anyway, the likely outcome is not the c. 1990 status quo ante. Rather, it is almost certain that we would see a push for one of two things. (a) Domestic partnerships which are eventually extended to heterosexuals, or as I think of it “no fault” on steroids. (b) The complete deinstitutionalization of civil marriage. You often see this Solomonic, split-the-baby wisdom coming from libertarians as “why is the state involved in marriage in the first place?” This isn’t even counting the Brad Pitt effect, in which a substantial part of the country would come to see marriage as a discriminatory institution, sort of a family equivalent to the Augusta National Golf Club, and refuse to participate in it.

Basically, you can see marriage almost as a patient where the heterosexual/procreative nature of the institution is a limb that’s developed gangrene which we lack the capacity to treat. You might wish that the gangrene had never set in, but given that it has, your choices are to amputate the limb or watch the patient die. Even if we assume gay marriage is undesirable, it is certainly much less bad to take marriage as it existed c. 1990 and extend it to gays and lesbians than it would be to watch marriage get de-institutionalized entirely or dumbed-down to ephemeral domestic partnerships. The longer we let this fight drag on, the more likely it is that we’ll see a frontal assault on the basic institution. As such, even if one lacks enthusiasm for gay marriage and wish the subject had never been broached, at this point the best thing is to just accept it as less damaging than the fallout from it not happening.

My sense is that Anderson, George, and Girgis would not embrace this view, presumably because they believe that the scenario my correspondent lays out can be avoided and that a cultural consensus around the conjugal conception of marriage can be rebuilt. But it strikes me as a fairly strong argument against the strongest argument against permitting same-sex civil marriage. 

After the president announced his support for same-sex civil marriage, a number of left-of-center critics noted that he continued to embrace the view that issue should be handled on a state-by-state basis. A post at Gawker is representative:

ABC News has only released one brief clip of Obama’s conversation about gay marriage today, but it seems fairly clear from the network’s coverage that his announcement amounts to much less than meets the eye. He now believes that gay couples should be able to marry. He doesn’t believe they have a right to do so. This is like saying that black children and white children ought to attend the same schools, but if the people of Alabama reject that notion—what are you gonna do?

To the author of the post in question, this stance is a moral outrage. (To understand why, I recommend Ross Douthat’s post on the success of the same-sex marriage movement.) It is worth noting, however, that this is not quite President Obama’s view. While many Americans support something like the status quo — state governments should be allowed to issue marriage licenses to state couples, but states that don’t permit same-sex civil marriages shouldn’t be forced to recognize same-sex civil marriage licenses issued in other states — it’s not clear that the status quo can be sustained or that the president actually favors the status quo. Josh Barro writes the following:

The federal government has special tax rules for married people. It gives spouses rights and responsibilities under programs like Social Security. It offers benefits to the spouses of its several million employees. And it confers citizenship on foreigners based on their marriages to U.S. citizens.

President Obama has refused to defend Section 3 of the Defense of Marriage Act, which states that the federal government does not recognize same-sex marriages, against constitutional challenges. So it’s clear that he thinks the federal government should treat married gays as married if they live in jurisdictions that allow gay marriage.

But what about gays who live in states that don’t have gay marriage? Should North Carolina be able to decide that its gay residents don’t get to file joint federal income tax returns, even if they are legally married by another state? Should gay federal workers get spousal benefits only if they work in gay marriage states? Or should the federal government treat gay couples as married no matter where they move?

And there are a number of other related questions that Josh raises, e.g., immigration policy, joint federal-state programs, etc. Chris Geidner has more in an extensive post:

If the administration were still defending DOMA and had taken no position on the level of scrutiny to be applied to sexual orientation classifications, then Obama’s statement might mean that his view is that states have unfettered rights to legislate as they they wish on marriage.

But, that is not the circumstances in which he makes these comments. Instead, Obama’s position now is three-fold: (1) he personally supports same-sex marriage; (2) he believes as a policy matter that state, and not federal, law should define marriages, as it always has been in this country; and (3) he believes that there are federal constitutional limitations on those state decisions. …

Lawyers working on and judges considering these cases already have acknowledged the importance of the DOJ position on DOMA in state-law cases. The day that the DOJ decision was announced in February 2011, lawyers for the plaintiffs challenging Proposition 8 told the judge that the DOJ’s decision represented a “material,” or significant, development.

As the lawyers then wrote, “The conclusion of the United States that heightened scrutiny applies to classifications based on sexual orientation is unquestionably correct. Proposition 8 cannot survive the requirements of heightened scrutiny because its invidious discrimination against gay men and lesbians could not conceivably further an important government interest.”

As that brief — filed by Ted Olson, David Boies and the other lawyers representing those plaintiffs — makes clear, Obama’s legal, policy and personal views are not in any way contradictory and present a clear path forward toward the advancement of marriage equality across the country.

That is, the Obama White House has made it more rather than less likely that federal courts, and not state legislatures or state-level referendums, will settle the same-sex marriage question. This strikes me as unfortunate. It also raises questions for the Obama administration.

Same-sex civil marriage is a fairly low salience issue. The Pew Research Center found that 28% of voter consider it “very important” in a survey released early last month. I doubt that the distance between the view President Obama seems to now hold (same-sex civil marriage should be decided on a state-by-state basis, and I’m for it) and the view he effectively holds (restrictions on same-sex civil marriage should be subjected to heightened scrutiny by the federal courts, which means that it’s not really going to be decided on a state-by-state basis as such) will make much of a difference. But it’s actually not trivial.   

Before we decide that the 2012 election should be decided on social issues, it’s worth revisiting a recent update from the Pew Fiscal Analysis Initiative on the long-term unemployed:

In the first quarter of 2012 (the 3-month period from January to March), approximately 29.5 percent of the nearly 13.3 million Americans who were unemployed had been jobless for a year or more, according to data released by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS). That percentage translates into 3.9 million workers, slightly more than the population of Oregon.

In a similar vein, Andrew Biggs has recently discussed the wage-scarring impact of long-term youth unemployment.

Recently, John Ellis of Buzzfeed and Shawn Tully of Fortune both published columns on domestic energy production. Ellis focuses on the political dimension:

The next great boom will be powered (in this case quite literally) by the technological revolution that is happening, right now, in America’s energy industry. New extractive technologies — “fracking” being the most discussed — will make us richer than we ever imagined possible. Energy genomics — biology doing for energy what it did for agriculture — will make us richer still. About this, Team Obama has nothing to say, in large measure because it has spent much of the last three years trying to forestall the technological revolution that is transforming the energy business here in North America and around the world. Clinging to its dream of a green energy future, Team Obama sees brown energy not as a locomotive, but as a threat.

Therein lies Mitt Romney’s opportunity. If he can make the case that a Romney Administration would shift American energy policy away from Team Obama’s naïve and sometimes embarrassing (Solyndra) attachment to green power and do everything in its power to accelerate brown power (natural gas, basically), then he will own the high ground on economic growth. Own the issue of economic growth and the electoral betting line turns abruptly against the president.

Ellis believes that Romney needs to make the Keystone energy pipeline central to his campaign narrative. My strong suspicion, however, is that the Obama White House will cave on Keystone, sensing its political vulnerability. But another potential wedge is the expensing of intangible drilling costs, a provision that the president has repeatedly attacked yet that is important to encouraging the exploitation of shale gas.

Tully, meanwhile, argues that domestic energy policies really could have a material impact on the global oil prices:

So how much new oil must the U.S. must produce to substantially lower the world price? A lot. By Kreutzer’s reckoning, an additional 1% increase in world output lowers the global price by between 2% and 3%. Today, the U.S. makes produces 6 million barrels a day of crude. So what would happen if the U.S. were able to produce an additional 2 million barrels a day? That’s 2.3% of world supply, so that prices –– all other things being equal –– would fall between 4.6% and 6.9%. We’re talking about a decline of between $4.70 to $7.10 a barrel, based on today’s prices.

But is an increase on that scale conceivable? Today, shale oil flowing from such booming fields as Bakken in North Dakota, Eagle Ford in Texas and Marcellus in Pennsylvania are pumping around 400,000 barrels per day. According to a study by energy consulting firm Purvin & Gertz, that number could rise to 1.3 million barrels by 2020. Reaching the 2 million mark would require a shift in regulatory policy in favor of far more drilling.

For example, the administration has rescinded drilling permits for the Chukchi Sea in Alaska and left the Atlantic and Pacific coasts off-limits to production under the Outer Continental Shelf Oil and Gas Leasing Program. Those two areas boast reserves equivalent to almost 40 billion barrels. Getting an extra 1 million or more barrels a day from domestic sources is indeed feasible: Since 2007, crude production has already jumped about 1 million barrels per day, or 20%.

One can imagine a scenario in which the Romney campaign emphasizes job creation, domestic energy production, and other economic issues while the Obama campaign focuses on social issues. 

So how should we understand the president’s decision to endorse the legal recognition of same-sex civil marriage?

Ross Douthat has an excellent new Campaign Stops column on the politics of same-sex marriage. He notes that opinion polls seem to consistently overstate the extent of popular support for same-sex marriage, which could be why the size of the majority in favor of Amendment 1 in North Carolina proved surprising to many outside observers. This could be why the president has been so reluctant to endorse the legalization of same-sex marriage. At the same time, however, a vocal and influential segment of his base has seen this as a profoundly problematic stance, as Ross makes clear:

Supporters of same-sex marriage have worked very hard to frame their issue, not as an ordinary political conflict, but as an all-or-nothing question that pits enlightenment and progress against reaction, bigotry and hate. I don’t accept that framing, but I accept that its architects genuinely believe in it, and see the conflict over same-sex unions as a clear-cut struggle between good and evil, with no possibility of middle ground.

If same-sex marriage isn’t an issue where people can disagree in good faith, though, then the president’s evasions and obfuscations can’t be treated as ordinary political maneuverings, and excused as just so much politics-as-usual. If the debate is as black and white as many supporters of same-sex marriage argue, then they should be much harder on political leaders who pretend that it’s a gray area.

Indeed, if you accept the framing of the debate that many liberals (and many journalists) embrace, then you have to acknowledge that President Obama has spent the last four years lying to the American people about his convictions on one of the defining civil rights issues of our time, and giving aid and comfort to pure bigotry in the service of his other political priorities.

But there is another dimension to the president’s decision-making which most analysts haven’t fully taken in. Peter Wallsten and Dan Eggen of the Washington Post reported the following on Monday:

About one in six of Obama’s top campaign “bundlers” are gay, according to a Washington Post review of donor lists, making it difficult for the president to defer the matter.

In light of recent news reports that the Obama presidential campaign has a very high burn rate, i.e., it is spending the money it is raising at a rapid clip, this is clearly an important consideration. President Obama’s decision to endorse same-sex marriage will prove a tremendous boon to his fundraising efforts. 

So is this necessarily good news for Mitt Romney? It’s not clear. Romney might make gains among culturally conservative opponents of same-sex marriage in Ohio and other Midwestern states, yet GOP campaigning on cultural issues might strengthen the president’s position with college-educated upper-middle-class voters. Drawing a sharp contrast on social issues reinforces the president’s claim to be the candidate of “enlightenment and progress” against “reaction, bigotry, and hate.” This is the kind of campaign — focused on broad generalities rather than detailed questions concerning the state of the economy, debt and deficits, etc. — that the president wants to run, and it is easy to see why. 

And the president seems to have concluded that he won’t suffer any erosion among African American voters, which is reasonable enough. The fact that President Bush increased his margins among culturally conservative black voters in Ohio from 2000 to 2004 made a significant difference, but he was running against John Kerry, not Barack Obama.

I’ve said this again and again, but the notion that Richard Mourdock and Dan Liljenquist are deranged ideologues while Dick Lugar and Orrin Hatch are paragons of virtue is flatly absurd. Liljenquist is one of the most impressive elected officials in the country. He is, in my view, the model of the kind of legislator we want in a “safe seat” — i.e., the kind of person who will invest in building expertise, in crafting ambitious and durable reforms, etc. Mourdock hasn’t proven himself to the same extent, but he is well within Indiana’s ideological mainstream.

Regardless, I keep reading about Lugar as a noble statesman, etc., for having backed a number of sensible foreign policy measures since he first entered the U.S. Senate in … 1977. Though I don’t support formal term limits, it seems entirely reasonable that Indiana Republicans decided that Lugar had served long enough.

Finally, I think that some of Lugar’s non-Republican admirers should note his support for replacing the progressive income tax with a national tax on retail sales. 

Edward Glaeser has a characteristically subtle take on the notion that high-cost metropolitan areas are doomed. He observes that population growth has increased more in regions with less per-capita productivity growth, like Atlanta and Houston, than in regions with more per-capita productivity growth, like Boston and the Bay Area. The danger facing the Atlantas and Houstons, however, is that cities with lower levels of educational attainment tend to be less resilient in the face of economic shocks. 

On one level, the divergence between population and income growth reminds us of the diversity of America. Boston thrives with high education and income and little new housing construction. Houston thrives, with lower incomes, by providing abundant affordable homes. Neither urban model appears to be headed for the trash heap of history.

Yet there are still lessons from recent urban history, and there are some places that face dramatic danger. Cities such as New York, Boston and San Francisco, where prices have stayed reasonably high, despite the crash, should do more to promote affordable housing, especially by eliminating the barriers to new construction. There is demand in these areas, and they would grow, if only they could build more homes. Their public sectors are expensive, and future leaders will have to adjust to far more austerity than in the recent past. Cities such as Dallas and Houston are doing well with their low-cost pro-business model, but history has been less kind to less-educated places. They should be investing more in education and in urban amenities that will attract the more skilled.

Glaeser is right to push back against Joel Kotkin and others who are proclaiming the death of the “luxury city,” if only because the problems facing our “luxury cities” would be easier to solve if they really were in the kind of death spiral that concentrates the mind of civic leaders. New York, Boston, and San Francisco can “afford” not to promote affordable housing, etc., because they have extremely valuable fixed amenities that attract affluent residents, many of whom are migrants from other regions who displace middle class natives, and the cost of inefficient public service delivery is borne largely by less affluent people who are less politically influential than the coalition of public employees and affluent NIMBYs. One hopes that we can change this dynamic before we hit some kind of crisis point. 

In his latest Bloomberg View column, Peter Orszag references a familiar phenomenon: the volatility of incomes at the top of the distribution. My Economics 21 Chris Papagianis has discussed this volatility on a number of occasions.

One implication of this volatility is that jurisdictions that depend on steeply progressive tax codes experience considerable revenue volatility, a subject we’ve addressed in this space. Last year, Robert Frank of the Wall Street Journal wrote an article on the fiscal consequences of a heavy reliance on high-earners:

The working class may be taking a beating from spending cuts used to close a cavernous deficit, Mr. [Brad] Williams said, but the root of California’s woes is its reliance on taxing the wealthy.

Nearly half of California’s income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population’s during the recession. When they crashed, they took California’s finances down with them.

Mr. Williams, a former economic forecaster for the state, spent more than a decade warning state leaders about California’s over-dependence on the rich. “We created a revenue cliff,” he said. “We built a large part of our government on the state’s most unstable income group.”

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.

Arriving at a time of greatly increased public spending, this reversal highlights the dependence of the states on the outsize incomes of the wealthy. The result for state finances and budgets has been extreme volatility.

In New York before the recession, the top 1% of earners, who made more than $580,000 a year, paid 41% of the state’s income taxes in 2007, up from 25% in 1994, according to state tax data. The top 1% of taxpayers paid 40% or more of state income taxes in New Jersey and Connecticut. In Illinois, which has a flat income-tax rate of 5%, the top 15% paid more than half the state’s income taxes.

Yet Orszag draws an entirely different conclusion:

[O]ne of the best ways to damp income volatility is to make the tax code more progressive, cushioning the blow from declines in income, while limiting some of the upside from gains. The tax system in the U.S. is highly progressive at the bottom of the income distribution — which is why the betas on after-tax income for families at the bottom are substantially smaller than those on pretax income.

This might indeed be an excellent way to damp the volatility of taxable income. Individuals who achieve windfalls in any given year will presumably go to considerable lengths to increase deductible consumption or to engage in other forms of tax arbitrage. What a more steeply progressive tax code certainly won’t do is make the revenue base less volatile. Rather, it will do the opposite. 

Moreover, it’s not clear why we would want to damp income volatility at the top, if making the revenue base more stable is not at issue. Earlier in the piece, Orszag quotes Erik Hurst:

Erik Hurst, an economist at the University of Chicago, says higher incomes could even be viewed as compensation for the additional volatility: “Households with very high incomes may have anticipated the increase in risk,” he writes, “and if so one would expect them to have demanded compensation for bearing that risk.”

This seems like an entirely reasonable outcome. Given that high-earners are well-equipped — due to their relative financial sophistication, etc. — to manage income shocks both positive and negative, it’s not obvious why we’d want public policies aimed at protecting high-earners from these shocks. Peter Orszag may well have devised the strangest argument for a more steeply progressive tax code, i.e., that it will damp income volatility for the rich. 

In fairness to Orszag, it could be that he is more concerned about using the tax code to damp income volatility for the non-rich, in which case it might make more sense to consider a return to “income averaging,” a provision of the tax code that is still used for farmers and commercial fishermen. I wouldn’t recommend that course of action, but it does directly address the underlying concern. 

If we accept that volatility of high incomes is not intrinsically problematic, particularly if state and local governments turn to taxes bases that are more stable, the rest of Orszag’s column seems a bit unusual:

For the very top of the income distribution, however, the tax code is not progressive. In 2009, taxes rose as a share of income up to about $1 million or so. At that point, according to Internal Revenue Service data, the effective income-tax rate stabilized before declining a bit for families with incomes of more than $10 million. Introducing more progressivity into the tax code above $1 million would help to reduce after-tax income volatility at the very top.

Again, why would this be a high priority? It makes perfect sense for the federal government to protect non-rich households against severe negative income shocks. But it seems perfectly sensible to leave high-end income smoothing to high-earners themselves, and to focus our tax reform efforts on encouraging growth and meeting revenue goals.

Finally, if anything, high-earning households should be the ones most in favor of aggressively boosting the economy in the short run — and not just out of benevolence. Yet I suspect, without definitive proof, that support for additional stimulus declines as one moves up the income scale.

Essentially, Orszag is asking, “What’s the matter with Greenwich, Connecticut?” That is, why aren’t high-earning households supporting fiscal stimulus measures that will boost short-term growth? One obvious possibility is that these voters, like many voters earning more modest incomes, are engaging in “sociotropic voting,” i.e., they are more sensitive to aggregate outcomes than to personal outcomes. At least some affluent voters may have concluded that while fiscal stimulus can contribute to the buoyancy of financial markets, etc., in the short-term, thus increasing their incomes, the long-term growth prospects of the U.S. depend on a credible commitment to fiscal consolidation and that the champions of fiscal stimulus have not demonstrated a credible commitment. This view isn’t necessarily right, but it is certainly coherent. 

I imagine it is true, however, that high-earning incumbent firms have been enthusiastic about fiscal stimulus, particularly firms that depend heavily on sales to and subsidies from the public sector.

Back in February, Gabriel Rossman referenced Barry Kernfeld’s Pop Song Piracy in this space:

As Kernfeld notes in Pop Music Piracy, this is a very old pattern. Basically, producers create some kind of format at a high price point and consumers buy it until a pirate comes along and both undercuts them on price and introduces format innovations. At this point the incumbents try for awhile to suppress it, before giving up by adopting the pirate’s format innovations and dropping their price point. That is, the incumbents ultimately realize that the only way to deal with piracy is a “convenient format at a reasonable price.” Kernfeld emphasizes mid-20th century pirated songbooks as competition for legitimate individual pieces of sheet music but he also applies it to the more familiar case that the music industry only gave in to low price (and eventually DRM free) digital singles to replace high price CDs as a desperate rearguard action against music file-sharing.

Recorded music revenues have dropped precipitously since the late 1990s but only a minority of this was the direct result of sales substituted by piracy. Rather the great bulk of the drop was from the shift from CD albums at a price point of $15 to digital singles at a price point of $1. We have in fact seen a large increase in units shipped, but mostly in digital singles at the low price point. You can see this clearly by looking at Census Statistical Abstract table 1140 and contrasting the unit sales in the top half with the dollar value in the bottom half. To fully make up retail sales we would’ve needed a 15-fold increase in volume and this has not happened. Even if we appreciate that digital implies lower costs (no inventory) and think about wholesale rather than retail, we’d still need something like a 5-fold increase in sales to make up for lower revenues. [Emphasis added]

Can we imagine something similar happening to education, if we understood the traditional degree as an album — that is, a bundle of the content we want (the courses that contribute most directly to our objectives) and content that we don’t want, or don’t want as much?

David Blake, founder of Degreed, argued that this will happen, and indeed that his start-up will lead the way. 

Clayton Christensen predicts, “I bet what happens as [higher education] becomes more modular is that accreditation occurs at the level of the course, not the university; so they can then offer degrees as collection of the best courses taught in the world. A barrier that historically kept people out of university [is] blown away by the modularization and the change in [course-by-course] accreditation.” …

Why buy a whole album when I only value a few songs enough to purchase? Why am I required to finance an entire degree only to be forced to take courses that I do not value? By bundling education into its most popular format, the four-year degree, we are inevitably adding low-utility courses that the consumer should be enabled to avoid.

Seth Godin writes, “Transparency in… school might destroy it. If we told the truth about the irrelevance of various courses, about the relative quality of some teachers, about the power of choice… could the school as we know it survive?”

To be explicit, in seeking to evolve beyond the four-year degree we need not be anti-college. iTunes didn’t render the musician irrelevant just the album. But just as Napster, YouTube, iTunes and Spotify evolved the paths, careers, and distribution of musicians and their music, the role that the university plays will evolve dramatically.

For obvious reasons, Blake isn’t being explicit enough: yes, we needn’t be anti-college as such. But we will be undermining the privileged position of incumbent institutions, just as the rise of the digital single undermined the privileged position of incumbent recording companies. So it is hardly surprising that incumbents will resist these trends, and that they will rally their allies to the extent possible. 

Kevin Carey, who I’m happy to see was cited (indirectly) in Blake’s essay, is one of the most important chroniclers and drivers of the effort to disrupt credentialing. In a March TNR essay, he wrote the following:

College credentials are a fantastic product to be selling in the twenty-first century. They’re pure intellectual property with a very low marginal cost of production and becoming more valuable all the time, as the economy continually reorganizes itself in a way that values the possession of deep knowledge and complex cognitive skills. They are universally recognized and never expire, golden keys to the parts of the labor market most worth entering.

Traditional colleges and universities exploit their monopoly over this market by overcharging students in order to generate revenue to support things that are important to them. Those things include producing academic scholarship, fielding cash-hemorrhaging professional sports teams, engaging in positional status competition with rival colleges, and avoiding the difficult work of overhauling inefficient administrative and organizational structures in which too many people get paid too much money. Online for-profit colleges haven’t disrupted the industry because while their business methods are different, their product—traditional credentials in the form of a degree—is not.

That’s why the recent emergence of new credentials is so significant. Companies like Udacity and Straighterline can operate without government subsidies and regulatory protections because their method of service delivery is phenomenally cheap at scale. The cost of serving 200 students isn’t that much less than serving 200,000. The predominant higher education business model of the future may be one where the education itself costs students nothing—the availability of free open educational resources is constantly growing—and students only pay small fees to cover the cost of assessing their learning.

The number of organizations offering outside-the-system credentials will only grow.

The higher education industry is responding very much as the recording companies did, yet it is arguably more politically powerful and entrenched. It’s influence derives from much more than campaign contributions, and it’s cultural capital is more potent, or at least more pervasive, than that of the entertainment industry in the corridors of power.

Matt Yglesias writes on “the bitter politics of stagnation”:

Steep recessions and sluggish subsequent growth have a really negative impact on the wealth and incomes of a wide range of people. That includes wealthy finance guys and jobless young people and underwater middle class homeowners and everyone. And the natural human instinct when you wind up with less pie than you thought you could reasonably expect is to assume that the people in charge gave your pie to someone else. So Wall Street feels that run-amok populism has impoverished them (relative to expectations) for roughly the same reasons that Obama’s liberal critics feel that his constant succor of the banksters has impoverished them—everyone is poorer than they thought they were going to be. Instead of a politics dominated by divvying up the gains of economic growth we’ve had a politics dominated by allocating massive losses of wealth. Nobody is a sufficiently skilled politician to play that game without alienating lots of people.

This reminded me of Jay Cost’s recent essay on “The Politics of Loss” in National Affairs:

For generations after World War II, both parties agreed implicitly upon a great American share-out: The fantastic growth of the American economy gave politicians in both parties the enviable task of deciding how the annual surplus would be divided, meaning that everybody could be a winner. Republicans could cut taxes and dabble in generous social-welfare benefits; Democrats could distribute generous social-welfare benefits and dabble in tax cuts; both parties could push for an overpowering military; and all the while the annual budget deficit stayed more or less within a tolerable range. It was a true win-win, with political disagreements largely fought over which side would win more.

Even as the balance of power in Washington shifted back and forth after World War II, the share-out endured. And this durability helps explain why the domestic policies of presidents from Dwight Eisenhower to George W. Bush have often seemed interchangeable, regardless of party. John Kennedy, Lyndon Johnson, and Bill Clinton all cut taxes; Eisenhower, Richard Nixon, and Bush all expanded the social-welfare state. The purists at the two ends of the ideological spectrum were usually unhappy, but the broad middle of the country — where elections are always won or lost — was pleased. Thus a political equilibrium was reached and preserved, more or less, for 50 years.

In our time, however, this balance has been upset not only by the severity of the most recent recession, but also by the weakness of the recoveries that have followed the downturns of the past decade. Evidence would suggest that the great American growth machine is sputtering, with forecasts auguring middling growth next year (around 2%), essentially continuing the unimpressive trend of the past decade. And this economic torpor strikes at the worst possible moment: The Baby Boomers — an outsized generation that came about because of the post-war era’s unparalleled prosperity — are now starting to collect on the generous promises that politicians made when they were just children.

The days when lawmakers could give to some Americans without shortchanging others are over; the politics of deciding who loses what, and when and how, is upon us. Neither party yet fully understands the implications of this shift, which means both parties risk being caught unprepared when the economic slowdown forces profound changes in American politics. The great American share-out is coming to an end — and, with it, the rules and norms of our politics that several generations have taken for granted.

In Cost’s view, the end of the share-out contributes to a number of phenomena, including the intensification of ideological polarization and the broader coarsening of our politics. There was a time when robust economic growth allowed for public social expenditures to grow while taxes remained relatively low. Those days are over, at least for now. This means that keeping taxes low will require either a profound rethinking and restructuring of public social expenditures. Leaving public social expenditures to grow on more or less their current trajectory will entail steep tax increases. Finding some halfway point will be extremely difficult, as the incentives to engage in compromise are weak if egalitarian liberals and market conservatives both think they can “run the table,” i.e., if they both think they can control the levers of power.

Yet Cost warns that “the bitter politics of stagnation,” in Yglesias’s words, are particularly problematic for the political right. When a rising tide lifts all boats, egalitarian appeals tend not to resonate. When it does not, or when it does not to a sufficient degree, economic populism is aligned with loss aversion in a powerful combination:

When prosperity is lacking, however, liberal Democrats have the upper hand. For instance, in examining the presidential election of 1948, the typical political-science model attributes Harry Truman’s victory over Thomas Dewey to the strength of the post-war economy. But the real story is much more complicated. In fact, the farm economy was struggling in 1948; farm wages had flattened and net farm income had actually declined. But though their lot had worsened under Truman, Midwestern farmers — despite historic ties to the GOP that traced back to the 1850s — actually supported the incumbent. Why? The president seized upon the efforts of congressional Republicans to cut federal farm subsidies, and traveled all over the Midwest warning that, when the next recession hit, farmers would need the heirs of F.D.R. to protect them from vicious, Hooveresque Republicans. The strategy worked: Truman did markedly better in the Midwest than F.D.R. had four years earlier, winning Colorado, Iowa, Ohio, Wisconsin, and Wyoming — all of which Roosevelt had lost in 1944.

There is a lesson here for conservatives. The GOP’s emphasis on free markets inevitably tilts fiscal policy toward capital owners, at least in the short term. This is not because the Republicans have always been “the party of special interests,” as the fiery Truman once put it, but because Republicans believe that the private sector’s allocation of capital is the most progressive force in the world — and that it will produce broad prosperity if given enough time. If that widespread prosperity is not forthcoming, however, the political appeal of the conservative argument collapses, and Republicans suddenly appear to be a party of plutocrats, robbing the poor to pay the rich.

Cost’s concern is that the resulting increase in clientelism and dependency will undermine republican government, and so he ends his essay by arguing (uncontroversially) that restoring growth is of vital importance, particularly to the right. 

One wonders if Cost’s line of thinking will spark or renew interest in market monetarism among conservatives and libertarians. 

Brad Plumer has a good post on labor force participation; the only change I’d make is that I’d have made reference to SSDI.

And though Brad offers a good discussion of the demographic drivers of shrinking labor force participation, I find argument from demographics at best incomplete. The population has certainly aged, yet healthy lifespan has increased. Older workers are leaving the labor force in part because, as Andrew Biggs has argued, the Social Security payroll tax is a much stronger work disincentive for the old than it is for the young. Low levels of labor force participation stem from long-term policy failures that can’t be attributed exclusively to President Obama or President Bush. Highly inefficient human capital expenditures have led to a sharp slowdown in the improvement of the skill level of the workforce and a poorly structured Social Security system discourages labor force participation on the part of older workers and secondary earners. 

In light of our recent discussion of BIG PAP, I wonder: when we see restraint in direct public sector hiring, do we see similar restraint in the expansion of employment in public administrative proxies? Health sector employment, for example, has continued to expand robustly in recent years, and of course the health sector is a key element of BIG PAP. I’m not sure of the answer here; there are forces pushing in both directions. 

A number of observers have (rightly) observed that public sector employment has been shrinking as a share of total employment in the post-recession period, and this has contributed to weak job growth. Calculated Risk observed the following back in March:

A big difference between Mr. Bush’s first term and Mr. Obama’s presidency has been public sector employment. The public sector grew during Mr. Bush’s term (up 900,000 jobs), but the public sector has declined since Obama took office (down 590,000 jobs). These job losses are at the state and local level, but they are still a significant drag on overall employment.

My crude sense is that part of the story during the Bush years was that the polarization of the private sector labor market. While private sector job growth was relatively weak during this period, particularly for less-skilled and mid-skilled workers, impressive productivity gains in knowledge-intensive services, which were tied to investments in organizational capital, led to higher wages in those sectors. This may have contributed to revenue increases that were then translated into public sector hiring in politically popular domains like K-12. At the same time, a large number of less-skilled workers exited the workforce during this period, partly because these workers weren’t really eligible for public sector work and their private sector options weren’t substantially more attractive than going on disability or off-the-books. 

Cutting public sector jobs in a weak economic climate is indeed pro-cyclical. The difficulty, however, is that it is very difficult to cut jobs in a healthier economic climate, as the pressure for spending discipline in the public sector weakens when there isn’t a cash crunch. (Indeed, it weakens in the private sector as well.) If we accept that state and local governments (a) have more employees than they need or (b) have the wrong mix of employees or (c) are severely constrained in their ability to redeploy employees across job functions to deliver public services more effectively or some combination of all of these, it is easy to see why some degree of churn can be useful. But again, there are structural forces that make churning of this kind more difficult in the public sector than in the private sector. 

This doesn’t change the fact that we usually do see an increase in public sector employment in the aftermath of recessions, so the period we’re in really does represent an exception (rooted, perhaps, in the notion that state and local workforces have grown unsustainably expensive). 

Back in 2007, Vincenzo Quadrini and Antonella Trigari released a working paper on public employment and the business cycle.

Starting from the calibrated model we ask how the presence of the public sector affects the business cycle properties of the economy. The main finding shows that the presence of the public sector increases the volatility of total employment by a factor of two or four, depending on the sample period: before or after 1970.

The key feature of the government policy that generates this result is the low cyclicality of public wages and employment, coupled with a premium paid on average to public workers. After a negative productivity shock, public jobs become more attractive for two reasons: lower creation of jobs in the private sector and higher public wage premium (due to the fall in private wages). Therefore, during a recession, public jobs become more attractive and more workers will search in the public sector. This reduces the probability of filling a vacancy in the private sector, which further decreases the creation of new jobs. In this way the presence of the public sector amplifies the macroeconomic impact of aggregate shocks.

A further question we address is whether the volatility of employment (and output) is reduced when the government actively pursues a pro-cyclical employment policy, that is, it hires more workers during expansions and less workers during recessions. Because of the large crowding out effect of public employment on private employment, pro-cyclical employment policies reduce the business cycle volatility. The cyclical properties of public wages are also central to the business cycle properties of the economy. In particular, the macroeconomic volatility is greatly reduced when public wages follow private wages. By adjusting the compensation of public workers to the compensation received in the private sector, fewer workers switch searching from one sector to the other after a negative productivity shock. [Emphasis added]

I think it’s safe to say that not everyone will embrace the model advanced by Quadrini and Trigari. One of its potential implications, however, is that it might be useful for managers in the public sector to have the freedom to adjust compensation levels in response to a revenue shortfall rather than turn immediately to layoffs. Collective bargaining presumably makes this somewhat more difficult. 

This is all very provisional, and these are all subjects to which we’ll return.

David Wessel and Stephanie Banchero recently touched on the American education slowdown, a subject we’ve fixated on for some time.