And that’s all the time we should spend forecasting these volatile monthly numbers.  More interesting, I think, is the question of why everyone gets so wrapped up in the monthly numbers when the actual signal-to-noise ratio they yield is not that high.  The 90% confidence interval around the payroll number, for example, is about 100,000, meaning there’s a 90% chance that the actual change in payrolls in a given month is that much higher or lower than the reported change.  So, given last month’s initial print of 88,000, we can’t rule out the possibility we actually lost jobs.

Well, one reason for all the attention, courtesy of GS analysts, is that the jobs report doesn’t just move markets.  It moves markets far more than any other economic indicator.  The figure below plots how equity futures and the yield on the 10-year T-bill respond to upside surprises in the various indicators we all pour over.

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It’s not just that rich kids do better in school than poor kids.  That’s an old problem.

What is news is that in the United States over the last few decades these differences in educational success between high- and lower-income students have grown substantially.

Moreover, these growing differences show up in college access and completion.

…the proportion of students from upper-income families who earn a bachelor’s degree has increased by 18 percentage points over a 20-year period, while the completion rate of poor students has grown by only 4 points.

…15 percent of high-income students from the high school class of 2004 enrolled in a highly selective college or university, while fewer than 5 percent of middle-income and 2 percent of low-income students did.

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But only slightly beneath the surface, the report showed continuing weaknesses in the US economy and, consistent with the unexpectedly weak March jobs report, hints at another softening of demand in recent months.  Expectations were for growth above 3% but disposable income, a critical driver of growth in our 70% consumption economy, fell sharply, down 5% in real terms, partly due the loss of the payroll tax break.

The two main factors propelling the economy forward last quarter were firms restocking their shelves (inventory build-up adds to GDP growth) and strong spending by the stalwart American consumer, drawing not on their income but on their savings.  Since the inventory component is both highly volatile and less indicative of current demand, it’s useful to look at final demand, essentially GDP without the inventory build-up.  This measure grew 1.5% in real terms in the first quarter, down from 1.9% in the last quarter.  Again, this less volatile measure tracks demand more closely than the headline number.

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In a nation like ours, where the flow of money into politics keeps getting stronger, one way this occurs is through the political preferences of the wealthy.  Of course, at any point in our history, the disproportionate policy influence of the wealthy has been a serious problem for our democracy.  But in today’s America, two factors intensify this threat: the increased concentration of economic resources, and the increased access those resources have to the political system.

There’s yet another piece to this puzzle, however, kind of a riff off the old F. Scott Fitzgerald line about the rich being different from the rest of us (i.e., besides “they’ve got more money”).  What are the political preferences of the wealth and how do they differ from those of the rest of us?

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It’s a fair question, and I should expand on the too glib remarks from my post:

So the answer is to only accept peer-reviewed work as economic knowledge, right?  Nope.  That would be a) too limiting, and b) wouldn’t advance the epistemological cause as much as you think.  Peers have their own sets of biases, particularly as gate keepers.

First, had R&R gone through the peer-review process, I’m fairly confident that a) the spreadsheet error would NOT have been found, but b) the paper would have been sent back to them for failing to provide even a cursory analysis of the possibility of reverse causality (slower growth leading to higher debt/GDP ratios vs. the R&R claim of the opposite).  Re “a,” peer reviewers do not routinely replicate findings, though they should when possible (more work these days is with proprietary data sets which cannot legally be shared).

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First, you’ve got the Reinhart/Rogoff (R&R) dustup which is generating lots of ink in the AMs papers—more on that in a moment.  Second, indicators once again show that the ongoing expansion in American economy continues to underperform, with weak readings on jobs, retail sales, and inflation.

The connective tissue here is contractionary fiscal policy.  And while no one or two individuals gets the blame for that, R&R’s work, with its arbitrary threshold (remember, they’re the ones purveying the debt/GDP-above-90%-slows-growth thesis), non-contextualized broad averages across countries, and data errors, is a  good example of how economists have misled the debate.

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Anyway, initial responses ranged from the incoherent—”I don’t see this as fundamental entitlement reform as much as clarifying a statistic which does happen to save money” (Paul Ryan)—to the opportunistic “Let’s set aside our differences and come together on things we can agree on” (Eric Cantor saying let’s do CPI but not the higher tax revenues in the budget)—to the faux-outraged House GOP campaign chair Greg Walden who labeled the President’s budget a “shocking attack on seniors.”

It’s that last part where things got weird today.  As the WaPo reports, Boehner and Cantor are distancing themselves from Walden, since they want these cuts.  And the very conservative Club for Growth…

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The difference is pretty well known by now: the underemployment rate includes various groups of underutilized workers or job seekers who are left out of the official rate.  The largest difference is the inclusion of part-time workers who would rather have full-time jobs.  Most recently, there were about 8 million such folks, elevating this measure of underutilization to around 14 percent compared to about 8 percent for unemployment (2013Q1).  Other components of this rate include discouraged workers who’ve recently looked for work but given up, and some other smaller groups that are neither working nor looking for work but remain marginally attached to the job market.

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Though I name names in recent testimony on the topic, I’m sympathetic.  Your loophole is my treasured job-creation program without which the economy will collapse.

So we need some criteria by which to judge what should stay and what should go.  In the link above, I argue for a 3-step test involving revenue forgone, efficiency, and fairness.  Someone suggested adding political feasibility, which makes sense, though given the state of Congressional gridlock, that could shut down the whole enterprise.

Anyway, these thoughts came to mind when I saw the graph below from my CBPP colleague Will Fischer (here’s the post from which I plucked it).  It’s about the mortgage interest deduction (MID), and to my eyes, it’s a picture of an expensive, inefficient, and unfair tax break.

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Why do this? Easy: because so much research shows how important it is, especially for kids from less-advantaged households, to get the cognitive boost that quality early-learning programs provide.  For a readable review of a broad literature in support of that claim, see here.  But I can assure you that experts from left, right and middle agree on this.

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So, I’m doing a radio interview last night, and moderately impressed with myself for being able to speak coherently about four different budgets: Ryan’s, Senate’s, POTUS (not out yet, but we can guess at the mix), and the CPC.  Then I got asked a question which threw me a bit: why are Paul Ryan and his budget taken so seriously?

It wasn’t a snarky question.  It’s just that I’d been discussing the absolute non-reality of his proposal—how the numbers don’t begin to add up, the unrealistic budget cuts, the plethora of magic asterisks in the absence of actual proposals (the most egregious of which is: I’ll cuts taxes by $6-7 trillion over the next decade and offset the revenue losses with…um…sorry, gotta run).  And the interviewer was like, “OK…but if you’re right, why is his budget front page news such that he’s driving the debate?”

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Repeal Obamacare and financial reform (Dodd-Frank), voucherize Medicare (after 10 years), cut spending on food stamps and Medicaid by shifting them over to the states. I call those block grants, where you give states a fixed amount regardless of need (so your safety net is no longer countercyclical), but Ryan calls it giving “states flexibility so they can tailor programs like Medicaid and food stamps to their people’s needs” (as long as those needs don’t increase…).

Then there’s “comprehensive tax reform” by “closing loopholes and consolidating tax rates” down to two brackets: 10 percent and 25 percent. Again, no details yet but I’ll be shocked if any actual loopholes get mentioned, much less closed (and since taxes are a bit higher now than last year, he’ll have to offset more lost revenue).

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The figure below comes from wealth scholar Ed Wolff through EPI’s State of Working America (you should really just read their wealth chapter—one stop shopping for this info).  It shows who owns stock market wealth over time.  The little smudge at the bottom is the bottom 40% of households, and the middle fifth doesn’t do much better.  The top 1% holds over a third of equity market wealth and the top 10% holds about 80%.

What does that mean in dollar terms?  In 2010, according to Wolff’s analysis, the stock holdings of the middle fifth were worth about $9,000.  The holdings of the top 10% were worth $500,000, and those of the top 1%: $3.5 million.

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Whether the better-than-expected results signal a faster underlying trend in job growth, and whether it can withstand the fiscal drag from the sequester, is yet to be seen, a point I return to below.

Since we want to avoid reading too much into any one month in these volatile data, the smart move is to average the last few months of payroll gains to smooth out the noise.  Doing so reveals some acceleration in hiring: over the past three months, average monthly gains were 191K; over the prior three months, 182K; and over the three months before that, 135K.

Unemployment is also down from 8.3% a year ago to 7.7% last month, as noted.

I’ll work up the details throughout the day* but for now, let’s think a bit about what this report may be telling us:

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A central reason we’re heading into the self-inflicted wound known as sequestration is because R’s refuse to budge on any new revenues in a deficit reduction deal to offset the $85 billion in auto-cuts about to hit our already wobbly economy.  The problem, they say, is on the spending side, not the revenue side.  D’s insist on balance—the solution must include both spending cuts and revenue increases, they maintain.

But what if I offered you–them–a solution that scratched both of those itches at once…a way to simultaneously both cut spending and raise revenues?  That would be irresistible, right?

Well, I’ve got exactly that.  I’m working up testimony on this for the Senate next week but the solution is so damn compelling—and the sequestration deadline only hours away—it would be downright unpatriotic to keep it to myself a second longer.

So, are you ready?

It’s tax expenditures!

Wait a minute…where’re you going?  Get back here right now!  I’m telling you, this should work.

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• The sequester was part of the Budget Control Act, passed in 2011 with bipartisan support. In fact, a larger share of House R’s voted for the bill than D’s: 174 (73 percent) voted for it and 66 against, while D's were split 95-95. In the Senate, 28 R's voted for it and 19 against, while D’s supported it 45-6.

• Voting in support of the bill that contained the sequester were Reps. Boehner, Ryan, Cantor and Sen. McConnell.

• Speaker Boehner said of the bill including the sequester: “I got 98 percent of what I wanted.” Given their highly amped-up disdain of the sequester now, I find it hard to believe that this was the 2 percent he didn’t want.

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My first reaction was “really??…another new plan??…we need that!??”  My second was “why $2.4 trillion?”  We at CBPP have argued that our first order goal should be to stabilize the debt over the decade, and to do so would take about another $1.5 trillion in deficit reduction ($1.3 trillion in policy savings and the rest in interest savings).  My third reaction was, “Why did the White House elevate these guys and was that a mistake?”

Re reaction #1 (do we need another plan?) these two dudes are deeply ensconced in this debate—and quite passionate about it—and there’s no stopping them from weighing in.  Among the minority that’s actually looked closely at what they’ve proposed, you won’t find anyone who agrees with all of their ideas, as they’d be the first to admit.  But they certainly have very high standing on the issue of the national debt.

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Clearly, in an economy where for decades growth has failed to reach our lowest wage workers, it’s time to raise the wage floor to ensure that low-wage workers have a decent shot at a fair wage.

From the WH fact sheet:

Raising the minimum wage mostly benefits adults, and especially working women: Around 60 percent of workers benefiting from a higher minimum wage are women, and few are teenagers – less than 20 percent.

Raising the minimum wage helps parents: The average worker who would benefit from a rise in the minimum wage to $9 an hour brought home 46 percent of his or her household’s total wage and salary income in 2011, according to the Current Population Survey.

For a working family earning $20,000 – $30,000, the extra $3,500 per year from raising the minimum wage would cover:

* The family’s spending on groceries for a year; or

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First off, “stabilizing the debt” means to stop the debt ratio—debt/GDP—from rising (where “debt” means debt held by the public—that’s what matters for all that follows).  For our debt to grow more slowly than our GDP, our deficits don’t have to be zero, but they do have to be below 3% of GDP.*  Why is that a good thing?

Well, in fact, it’s not always a good thing.  In times of crisis—recessions, depressions, war—the ratio goes up for good reasons.   Our borrowing temporarily outpaces our growth in order to offset some disaster.

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CBO estimates that economic growth in 2013 would be roughly 1½ percentage points faster than the agency now projects [i.e., 1.4%] if not for the fiscal tightening.

By Okun’s rule, this suggests unemployment will stick at about 8% this year — about where it is — instead of a number a lot closer to 7%. (Okun’s rule turns that 1.5% faster GDP growth into about 0.75 of a percentage point [ppt] lower unemployment.) In fact, the CBO predicts that the unemployment rate this year will move from all of 7.9% in the first half of the year to 8% in the second half. Thanks, dudes.

Actually, we should thank them for the warning — and even R’s are sounding Keynesian (OK, military Keynesianism, but still …) right now.

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