Charlie Arlinghaus

January 9, 2013

As originally published in the New Hampshire Union Leader

The music for the Washington fiscal cliff debate ought to be that written by Sergei Prokofiev for his “Tale of the Buffoon who Outwits Seven Other Buffoons.” Hard to believe he hadn’t of the fiscal cliff when he wrote it.

It’s easy to mock what passes for debate in Washington because we know it will recur again and again for months to come. The problem in short is that success is not possible because politicians in Washington have been released from the rules most politicians follow. What results is what would happen if gravity were similar repealed: a bunch of confused people floating about with no defined purpose.

Gravity in this case is some sort of incentive or requirement that something be accomplished. In the case of almost all local and state governments, gravity is represented by the requirement that the budget be balanced. Various factions can disagree but at the end, a deal of some sort must happen because the budget must be balanced.

The Washington problem is worse. The fiscal cliff of last week (and we have another one coming in two months) wasn’t a hard and fast thing. Not making a deal was legal. It wasn’t as if the budget had to be passed by a date certain. In fact, Washington doesn’t pass budgets anymore. They sort of want to. They all think it would be a good idea everything else being equal. But it isn’t a requirement so getting to agreement on one is difficult.

Even were they to shock those of us on the human being side of the Washington-reality divide and pass a budget, there are few requirements on that budget. Notably it doesn’t have to be balanced so it isn’t.

I’d applaud state legislators here for providing a good contrast by balancing their budget but the real contrast is that they have no other choice. They have to pass a balanced budget by June 30 – no later – and they may not spend more than they raise. They can’t disagree about how much deficit reduction is good or bad, they have to reduce it to zero.

In Washington, they can and do disagree. The budget doesn’t have to be balanced. Balancing it is difficult. So no one proposes actually balancing the budget.

One possible incentive would be a balanced budget amendment. Change the rules so Washington can do what it wants within certain guidelines but the chief guideline is that spending and revenue must match. In a perfect world, our representatives would decide when to balance and when to pay for a few large projects over time and run a small deficit.

But Congress has demonstrated that they are fairly close to the inverse of a perfect world.

Our own Senator Kelly Ayotte’s reaction to the budget debate contains the seed that might bring responsibility to her juvenile colleagues.

In the midst of the debate over record deficits, the president nonetheless signed an executive order granted federal employees and members of congress a pay increase. Sen. Ayotte quite sensibly saw this as ridiculous and introduced a bill to rescind the pay hike. The final deal included her sensible advice.

Congress can’t be expected to balance the budget if they continue to get raises for dereliction of duty. Ayotte is also a sponsor of the No Budget, No Pay bill which would keep Congress from being paid if it doesn’t pass an actual budget.

For some congressmen, actually denying them their whole paycheck should their colleagues do something they routinely do might seem too risky. Getting a majority of them to pass a rule that makes their life more difficult is a tall order but I think a variation might be possible and still provide an incentive.

Congressmen respond to their own pocketbook. A modest step would be one that provided a financial penalty but that is less severe so as to attract a few more supporters. We should reduce their salary by 5% each year that the budget isn’t balanced. For the first few years of implementation, we can set gradually reducing targets to get to zero in five or six years. Does anyone doubt that their incentives would change?

Many incentive systems like sequestration create automatic penalties for other people when Congress doesn’t get its job done. That incentive is not quite right. They might take things a bit more seriously if we penalize them for their own failures.

Joshua Elliott-Traficante

Today the Bureau of Labor Statistics released its monthly jobs report for December, which showed that the unemployment rate remained unchanged at 7.8%. The BLS also revised the November rate upwards to 7.8% from 7.7%. Establishment Survey (i.e. employer) data showed that roughly 155,000 jobs were created. As we do every month, we delve deeper in the unemployment data to gain a better understanding of the labor market.


Workforce Data:

1.      Workforce Participation Rate Remained at 63.6%

As noted out in earlier jobs numbers analyses, this number is a critical indicator as to whether or not a recovery is truly underway. One of the hallmarks of this recession has been the number of people leaving the workforce entirely due to a lack of job prospects. The official unemployment rate does not count these people as being unemployed (or at all for that matter) leading some critics to question both the accuracy and motives of the BLS. However, the Workforce Participation Rate measures the total number of people considered to be part of the workforce, allowing the people who left the workforce to be quantified.

As the recession wore on, the Workforce Participation Rate fell quickly and has essentially stayed right around 63.5% for all of 2012, despite the drop in the unemployment rate. So while ground is not being lost in terms of employment, it is has not improved nearly as much as the unemployment rate would suggest. Were the economy in full recovery mode, this figure would climb rapidly as those who left the workforce return.

2.      In 2012, the Number of People not in the Workforce Grew by 1 Million

Certainly not all of the 1 million not in the workforce are due to economic reasons. Looking at historical trends, population growth probably accounts for most of the growth over the course of the year. While some argue that retirements or continuing education are reasons for the steep increase over the past few years, their impact is greatly over stated. Neither demographic nor employment data support the idea that this increase is due to a baby boomer wave of retirements. In fact, the data shows more older Americans are working than ever before. Likewise, for schooling, enrollment data does not support the theory that most of these people are returning to college. Regardless of the cause, in a recovery this number would be dropping, not growing.

3.      Alternative Measures of Unemployment Mixed

The U-3 or Official Rate remained level at 7.8%, U-4 increased from 8.3% to 8.5%, U-5 increased from 9.2% to 9.4% and U-6 remained unchanged at 14.4%. For a discussion of the different rates, click here.


The Revised Rate: (Methodology)

Taking into account workers no longer in the work force, but would like a job, the adjusted unemployment rate for December would be 9%, the same as it was in both October and November.


Establishment Data:

In addition to workforce surveys, the BLS also surveys employers, referred to as ‘Establishment Data.’ Generally speaking when it comes to job creation statistics, it establishment data is cited rather than workforce data simply because establishment data tends to be more accurate.

1.      155,000 Jobs Created in December:

While any job creation is better than job losses, the number created last month did little for improving the employment situation. Economists estimate that between 150,000 and 160,000 jobs need to be created every month just to keep up with natural population growth.

2.      2011 and 2012 Monthly Average: 153,000

153,000 jobs were created, on average, every month for 2012, which was the same as in 2011. This means that while job creation has kept up with population growth, little progress has been made in regaining lost jobs.


Looking Forward to 2013:

Taken as a whole, what does it all mean? The employment situation is not getting worse, as we have seen some job creation the data for December and indeed for all of 2012. However, the level of creation is only keeping up with natural population growth; it is not nearly enough needed to bring down unemployment in any meaningful way. Regrettably, there are no indicators in the employment data to suggest that this stasis is changing.

Charlie Arlinghaus

January 2, 2013

As originally published in the New Hampshire Union Leader


As Gov. Maggie Hassan takes over the ship of state, many of the management efforts of Gov. John Lynch’s four terms hold practical lessons for her, especially for her next six months in office.

Gov. Lynch is the most recent man to serve four terms as the state’s chief executive (By the way, the first four-termer in the state’s history? My friend Josiah Bartlett).

In New Hampshire, the role of the governor can be divided into two segments: on one side, the governor is an administrator, a sort of city manager for state government. This area is often seen as Lynch’s greatest strength. His approach to administrative management is one that the incoming governor can emulate.

Because New Hampshire’s executive branch is independent of the governor in many ways (as opposed to a cabinet-style executive branch common in most states), the governor’s ability to select managers is limited. In Hassan’s case, many of her most critical department heads aren’t up for appointment for years, in some cases for another three years.

Lynch, over time, changed every department head, but the way he did it provides a good lesson. None of his appointments involved anyone seen as having a political future or as being rewarded for long service to Lynch’s political party. Few appointments were controversial because most had experience in the field they were being appointed to and were seen as competent managers rather than politicians.

A small number of his fellow Democrats were even critical of the governor for not doing enough to reward the party faithful. This sort of partisan griping generally speaks well of a governor. Early in her tenure, the incoming governor will have a chance to demonstrate her administrative mindset. The position of commissioner of resources and economic development is vacant, and under the commissioner the director of economic development is also vacant. After the budget, doing something about economic development is probably the most important task in the first weeks of the governor’s term.

The second half of the governor’s job is not administrative but might be described as policy and leadership. This half of the job was less dear to Lynch’s heart and might be an area in which the new governor will chart a different course.

Lynch always seemed comfortable as a manager, doing things such as checking on road projects after flooding or worrying about administrative qualifications. On policy, he seemed much more content to let the Legislature, whether it had a Republican or Democratic majority, play itself out before he offered an opinion.

Lynch was often seen as having been done with the budget after he delivered his budget address. We think of Rep. Marjorie Smith or Sen. Chuck Morse, Rep. Ken Weyler or Sen. Lou D’Allesandro as prime movers on the last four budgets. On many other issues, Gov. Lynch’s opinion was reserved while he studied the issue and waited to see how legislative deliberations went.

That detachment may have been possible for John Lynch when one party or the other had control of both legislative houses and was likely to chart its own course anyway. It would be a huge mistake for Hassan to be similarly disengaged. It may also be impossible.

Today, one party controls the House and the other party controls the Senate. They have very different ideas on how to govern. On many issues, the status quo will prevail because the Senate and House will be unable to agree on any change. But budgets are somewhat different.

A budget of some sort has to be passed. This isn’t Washington, which can go without a budget for four or five years at a time. In New Hampshire, the budget must be balanced and passed. That will almost certainly require a new governor spending political capital and engaging with the Legislature to find compromises.

This should be easier for Hassan. Her political experience is legislative. She comes to the State House as an insider. She served in the Senate with many of the people who are there now, worked on budgets, and saw the good, the bad and the ugly in the halls of the legislative building at midnight the night a budget was due.

Hassan will ultimately form her own executive personality, but Lynch’s term provides important lessons, both good and bad.

Charlie Arlinghaus

December 19, 2012

As originally published in the New Hampshire Union Leader

Much of the debate in the Legislature will devolve into predictable patterns reminiscent of the “infotainment” shows on what are generously called cable news channels: my party good, your party bad. This dynamic helps most of us tune out and ignore whatever silly thing they’re up to in Concord or Washington this month.

Our boredom with the predictability (and superficiality) of the debate leaves the real discussion to a fairly small group of people. What we notice about most policy issues are only the fairly broad brush-strokes: in the budget, did we cut spending too much or raise it too much? Did taxes go up or down? There tends to be less discussion about the detail (which spending went up or down? How does that compare to four years ago or 10? Are those the right priorities, but the wrong amounts, or were the priorities reversed?)

This year, the Legislature will consider a few issues where details matter a great deal. The first of these is the establishment of the health care exchange that is the central mechanism under the federal health care law.

A health care “exchange” is the term used for the government-run structure anticipated to be set up to implement the rules, regulations, subsidies and penalties required by the federal health care law (Obamacare). The authors of the law envisioned the 50 states each running and, most importantly, paying for the exchange. The plan was envisioned as a partnership: the federal government would set all the rules and regulations and the states would pay for them (and add additional rules if they so chose).

States are naturally skittish, and only 16 have agreed to run an exchange. Many Legislatures, like New Hampshire’s did last year, have actually prohibited the state from running a state exchange. To get around those prohibitions, some states are considering setting up partnership exchanges jointly with the federal government. The exact nature of the partnership isn’t yet clear, but our governor-elect is said to be leaning in that direction.

State law still prohibits our running an exchange, and that would prohibit our running bits of an exchange too or paying for it with state-imposed taxes (which would have to pass the Legislature). Imposing some sort of hybrid exchange by executive fiat would seem to be prohibited, but this will be a big subject of debate in the coming months.

The governor will be asked not to say yes or no, but to explain operational and financial details in ways that don’t lend themselves to 30-second blurbs.

Similar to exchanges, gambling will require longer explanations. Through much of the past, one either supported “gaming” or opposed “gambling.” There was no middle ground. Even the word you used gave a superficial clue to your locked-in position. Today, with the first pro-gambling governor in modern history, details are starting to be considered.

Gambling used to be unlikely because of New Hampshire’s natural tendency to avoid anything new. Today, an expansion of gambling (we have lotteries and charitable gaming now) is still an uphill climb because no one is quite sure about the details.

Some oppose any expansion, others support some options but oppose some others. Some who are open to gambling worry about the relative unpredictability of the revenue streams and are nervous about using it in the operating part of the budget (general fund) to support ongoing expenses. They would instead dedicate revenue to one-time expenses that are easily ratcheted up or down, such as paving roads and fixing old bridges, a fairly pressing but not very glamorous need of the state.

Others don’t generally support gambling but would only if the money were dedicated to operating expenses that would receive no or little funding without that additional revenue. New Hampshire passed the first modern state sweepstakes in the 1963 by this method. Nervous lawmakers were told the money would be dedicated to education aid, which there was no money to support otherwise.

It is often said that the devil is in the details. In governing, too often we ignore the details. These are two issues that will pass or fail on the basis of careful negotiation over details. We should all pay attention.

November saw New Hampshire’s foreclosure filings drop to 578. This reverses last month’s spike to 739. From the data it is not clear what caused the jump in October, but whatever the cause, it was only temporary.

Of the 578 properties in question, roughly half were headed to the auction block, while the other half reverted to bank ownership.

On the sales side, foreclosure sales dropped sharply with November sales only 1/3 of those in October.

Currently there are 3864 properties in foreclosure state wide while one in 1064 properties received a filing notice last month. In comparison, the national average was one in 728. At the other end of the spectrum is Florida with one in every 304 properties receiving a notice.

Last week, the November job report was released, which showed that unemployment had dropped to 7.7%, the second month in a row of .2 percentage point decline. Despite fears that super storm Sandy would impact the data, the Bureau reported that data from the affected areas were within the normal ranges.

As we do every month, we dig deeper into the data to get a better sense of the national employment situation.

1)       Workforce Participation Rate Drops back to 63.6%

After 3 months of positive gains in this all too crucial statistic, November saw the participation rate drop by .2 percentage points. As mentioned last month, the rate has fluctuated between 63.5 and 63.9 for all of 2012. With the exception of earlier this year when the rate hit 63.6%, the last time that workforce participation rate was this low was 1981. Given the depth and duration of the current economic malaise, some of the initial signs of recovery will be found in this data point. As people who have left the workforce, believing there are no jobs become more optimistic about their job prospects, rejoin it, driving the rate higher. After this month’s drop, there is not data to suggest that this is the case yet.

2)      The number of people unemployed dropped but more than 200,000, but….

The drop of just over 200,000 from the ranks of those considered unemployed is in part, what caused the unemployment rate to fall to 7.7%. However, as is with most of these data points, there is a caveat. While some certainly found employment, (household data shows a loss of 100k jobs while the more accurate establishment data shows 140k created), the civilian labor force shrank by 350k and those not in the labor force but seeking employment rose by 230k. Did those 200k get jobs or did they just drop out of the workforce? It is impossible to say with any certainty which it is, but the drop in the civilian labor force lends support to the idea that a good portion left the workforce.

3)      U-4 to U-6 Rates are mirroring the official rate decreases

While this is an encouraging move, as noted in an earlier piece, there has been a massive disconnect between the wider measures of unemployment and the official rate. Were a recovery fully underway, the U-4, U-5, and U-6 rates would be falling at a rate faster than the official rate to return to pre-recession norms rather than just mirroring the decrease.

The Revised Rate: (Methodology)

Taking into account workers no longer in the work force, but would like a job, the unemployment rate for November would be: 9%, the same it was in October.

Charlie Arlinghaus

December 5, 2012

As originally published in the New Hampshire Union Leader

The memorial service for the late former Sen. Warren Rudman served to remind us of a great public servant but it also gave us a chance to go back and read some of his speeches and reflect that in the twenty years since he retired from office, things have gotten worse not better; his more outlandish predictions are commonplace, and no serious effort to address the deficit has occurred since. The pathetic debate in Washington over the deficit sounds like a satire constructed to make a point but is actually just a sad reality.

Warren Rudman served in the U.S. Senate from 1980-1992 in the seat now filled by Sen. Kelly Ayotte (something about the seat itself apparently makes one a deficit hawk). He was known for many things during his time in the Senate but we remember him best today for an unflinching attack on the federal deficit. The Gramm-Rudman deficit reduction law is a model for today’s weak-kneed politicians to force discipline on themselves.

The people we as a nation had the poor sense to elect to supposedly represent us in Washington amount to a 435 member bowl of jelly wibbling and wobbling about. Occasionally, they lurch into action and do something but those incidents are rare.

Reading some comments from Sen. Rudman’s retirement speech remind how far we haven’t come. Keep in mind that Rudman announced his retirement in March of 1992, more than 20 years ago. Somethings haven’t changed a bit since then. Rudman’s concern was a ridiculously high deficit and inability of lawmakers to address it.

After the Gramm-Rudman law had reduced the annual deficit from 29% of revenues to 15% of revenues but was repealed largely because lawmakers preferred “flexibility” to actual discipline. The budget deficit began to rise and would almost double in three years –from $152 billion in 1989, the last year of Gramm-Rudman, to $290 billion in 1992 when Rudman retired.

Rudman’s warning resonates today. In his retirement speech, he warned about growing deficits: “with a Federal budget deficit reaching $400 billion, with a country in economic disarray; how can we responsibly stand on this floor and talk about doing anything that has even the slightest chance of adding, not a dime, but a penny to a budget deficit?”

Rudman would leave the senate and together with former Sen. Paul Tsongas would pressure lawmakers from the right and left to focus on the deficit and what he considered an achievable goal of a balanced budget.

Those without short memories will remember that the debate in the middle 1990s was not over whether or not to balance the budget. It was a question of timing. As the economy started to boom, both parties wanted to use the economic growth to balance the budget. Republicans, taking their cues largely from Rudman in this respect, attacked President Clinton for not acting fast enough because he was willing to take ten years to balance the budget. They insisted it happen in five lest the economic growth not be directed to achieving responsibility.

An election landslide for the republicans in 1994 came after a campaign based in part on balancing the budget in five years. That landslide created the impetus for both parties to support balance as a goal. They disagreed bitterly on many things but the budget was balanced in just four years by a Republican Congress and a Democratic President.

Today we have a similar divided government (although Congress itself is divided this time). Deficits are ridiculous by Rudman’s standards: The deficit isn’t $290 billion, it’s almost $1.2 trillion. It isn’t a completely ridiculous 29% of revenue, it’s nearly 50% of revenue.

And yet the debate in Washington is completely unfocused. Lawmakers are proposing talking about this or that (closing tax loopholes, raising tax rates, caps on discretionary spending, serious entitlement reform perhaps) but no one is suggesting it is possible to balance the budget. All lawmakers are being asked to sacrifice political principle in the goal of making things not quite as bad.

That’s pathetic. You can’s balance a budget if you don’t set a goal of balancing the budget. You can’t ask politicians to give way on deeply held political principles to make things somewhat less bad.

Someone in the malarial swamp on the north bank of the Potomac needs to set a goal of actually balancing the budget in a set number of years (I’d suggest five). You can’t reach a goal if you don’t set a goal. Set a goal, balance the budget, do something for a change.

New Hampshire saw a spike in foreclosure filings in October according to the foreclosure tracking firm Realtytrac. The month saw a total of 739 filings, versus only 423 the previous month. This follows a general falling trend for the year as a whole. However, as shown in the chart below, the spike is comparable to the filing volume seen in April, May and June of this year.

Statewide one in 832 dwellings received a filing, compared to a national average of one in 706. There are currently 3932 homes in some stage of foreclosure.

Looking at the county level, Hillsborough and Merrimack Counties led the way in terms of total number of filings, which speaks more to the concentration of the state’s population in those two counties than any weaknesses in those two housing markets.

October also saw healthy foreclosure sales, with 300 being sold, a record high for the year.

Today the Bureau of Labor Statistics released the October Unemployment Report, the last report before the general election on November 6th. The report showed an uptick in the overall rate from 7.8% to 7.9%. As with every month, we delve into the numbers not commonly reported in the media, to get a better understanding of the employment situation.

1)      Workforce Participation Rate edges up .2 to 63.8%

There are two ways to read this data point, the first of which is that the rate has fluctuated between 63.5 and 63.9 for all of 2012. So while edging up slightly is a good thing in terms of the economy at large, it doesn’t show any really improvement. Essentially the labor market is in neutral.

The other way to read it, is that it is a sign of improvement as this is the second month in a row that the Participation Rate has increased. While it is certainly possible that this is an indicator that a recovery is starting, there are two points that are cause for concern. Early 2010 saw the same magnitude of growth, albeit over 3 months with a plateau in the middle. This slight improvement however was followed a slide that continued until this year. In addition, as mentioned above, 63.8% is still within the range seen for all of 2012.

There is too little data to make the argument that the job market is recovering, based on this data point alone. Were it to move 64.0 and experience sustained growth getting there, then the argument could be made, but with the available data it cannot.


2)      Household Data shows number of Unemployed Increased by 200,000,

Despite the number of jobs added to the economy, the number of people considered to be unemployed actually jumped by 200,000, although this number seems to be related to some discouraged workers re-entering the labor force. Coincidentally the number of people not in the labor force, but would like a job also dropped by 200,000. While it is improbable that these groups of 200,000 are completely one in the same, it stands to reason that there is at least some amount of overlap.


3)      Household Data shows number employed increased by 400,000 but Establishment Data shows 171,000 jobs created. What is the disconnect?

Last month the Bureau of Labor Statistics came under fire for reporting that the number of employed had jumped by nearly 800,000, an unrealistic number given the state of the economy. While some have charged that it was politically motivated, the more likely answer was a statistical fluke in the data. Fluke or not, it is indirectly used to calculate the unemployment rate, which resulted in the surprise drop in September.

Likewise for October, it seems unlikely that 400,000 were added, given the state of the economy. Putting that figure into question even more so is the disconnect with the Establishment Data, which showed an increase of 171,000 jobs. The cause of the gap is two-fold, one is that the Household data is a smaller sample, resulting in a higher margin of error and that the number employed also counts part-time, non-benefit providing jobs. For these reasons it is the Establishment Data number cited in media reports for total jobs numbers.


The Revised Rate: (Methodology)

Taking into account workers no longer in the work force, but would like a job, the unemployment rate would be: 9%, down from 9.1% in September.

According to the foreclosure tracking firm Realtytrac, the number foreclosure filings in New Hampshire fell sharply to 423.  240 are headed for the auction block, while the balance were taken over by the lenders.

With only 423 filings statewide, September saw the fewest monthly foreclosures in the 12 months, continuing the general downward trend that began in April.

This gives New Hampshire a ratio of 1 foreclosure for every 1,453 houses. In comparison that national average is 1 in 730. The lowest ratio, meaning the most foreclosures, was Florida, with a rate of 1 in every 318.

The number of foreclosed homes sold also fell sharply with 116 units sold statewide. In comparison, August saw 366 homes in foreclosure sold. As of the end of September, New Hampshire had just shy of 4,000 homes in foreclosure.