Wednesday, January 23, 2013

Less Hope, More Change?

A lot of ink has been spilled over the past few weeks describing President Obama's new approach in Washington.  His second inaugural address was certainly less conciliatory than the President we saw cave to Republicans repeatedly in the first term.  I think what we see is the Obama team coming to grips with the reality of American, and frankly, most politics. There are very few leaders that can work effectively across party lines by being seen as giving in to their opponents.  When Presidents and other leaders work well with others it is generally because the leaders on the other side are seen as coming to them.  President Clinton's success in the 2nd term of his presidency came after he broke the back of Newt Gingrich's Congress over the government shutdown.  President Bush worked with Ted Kennedy on No Child Left Behind because Kennedy bought into the test first, right-wing approach Bush made famous in Texas. What I think Obama learned after having to scale back the stimulus and health care reform and being boxed into a corner on the debt ceiling, is that offering to move to the centre doesn't work politically.  Politicians, like sharks, can smell blood when a President blinks first.  They'll keep pushing for more and more.

The new approach seen on the fiscal cliff, the debt ceiling and now in the inaugural address is one that is far more confrontational.  Gone is the Illinois state-senator willing to reach across party lines.  The new Obama is going to stand on principle and win or lose on those grounds.  The results so far have been promising.  Republicans caved on the fiscal cliff saying that they would use their leverage on the debt ceiling.  Now they've abandoned the debt ceiling and say they're going to use the sequester and budget as their point of leverage.  Most retreating armies won't admit that they're in full retreat.  To my knowledge President Obama has never even come close to vetoing a bill.  The Democratic controlled Senate helps with that.  However, the threat of the veto, was barely used in his first term.  Now, he seems keen to let the Republicans hang themselves.  If they do something too dangerous, he can always block it with a veto or other executive action.  It may be more cynical, but on issues like immigration and tax reform, the less conciliatory more aggressive Obama may actually have more success than his first term doppelganger.

In the long run, the inaugural address signaled Obama's faith that his electoral victory is a long-term game plan.  He believes that by running to the left on things like gay marriage, gun control and immigration he can give the Democratic party a much stronger base for future elections.  Marco Rubio may be a key figure on immigration reform when it happens but it will be the President and his party who will get the lion's share of the credit in 2016.  The electoral coalition that Obama built will be tested in 2016, if he can deliver for his base in his second term, the odds of a third consecutive Democratic victory for the first time since FDR and Harry Truman becomes a lot more likely.

Saturday, January 05, 2013

Employment v. Unemployment

If you haven't already noticed, I'm a bit of a numbers geek, so I love looking at Statistics Canada when it comes out.  One of the more interesting monthly reports is of course the Labour Force Survey that comes out on the first Friday of each month.  The more I read through the tables, the more I'm convinced that we use the wrong number to describe the health of the job market.  The unemployment rate which is the headline grabbing number is kind of a silly number.  It's taken as a percentage of the labour force and this means it only counts people who are considered to be "actively looking for work."  What is really important for a society isn't so much how many people are "actively looking for work" but how many people are actually working.  The Employment Rate also called the Employment-Population Ratio (by the Bureau of Labor Statistics in the US for example), tells you what percentage of the working-age population is actually working.  After all, it is the people working that pay the taxes.  The more people working the more easily governments can provide services to those who aren't working and the fewer people who may have to rely on government assistance.

December provides a particularly good example of this when you compare Canada's job market to the one south of the border.  Even allowing for slightly different methodologies, the unemployment rate really fails to illustrate the difference between the two economies.  The American unemployment rate is 7.8% and the Canadian unemployment rate 7.1%.  That alone would give you the idea that the two job markets are pretty similar.  The employment rate for Canada in December was 62.1% or 61.7% depending on whether or not you adjust for seasonal differences.  In the US the Employment Rate was 58.6%.  All of a sudden you can see that the 0.7% gap in the unemployment rate is hiding the real story.  Even with the unemployment rate dropping over the last couple of years, the employment rate in the US hasn't really come off of recession lows.  Take a look at the chart below:
Employment Rate at Year End

2006 2007 2008 2009 2010 2011 2012
Canada 62.7 63.2 62.7 61.1 61.4 61.4 61.7
US 63.4 62.7 61 58.3 58.3 58.6 58.6
Data retrieved from Statistics Canada and the Bureau for Labor Statistics for Canada and US respectively

As you can see, Canada never really suffered the job losses that the US did, and has recovered much closer to pre-recession highs.  The unemployment rate just doesn't show this kind of weakness.  The reason is pretty simple: people dropped out of the job market.  Part of this is demographic.  However, demographics should be impacting Canada and the US relatively evenly.  After all, we both had baby booms after World War II and we both still actively allow immigrants into our countries in large amounts.  Birth rates are also fairly comparable.  So while we may ascribe part of the decline to demographics, most of the decline is purely economics.  This is shown in greater detail when you look at the provincial breakdowns:

Employment Rate for December 2012
Newfoundland and Labrador 54.2
Prince Edward Island 59.5
Nova Scotia 57.4
New Brunswick 55.3
Quebec 60.0
Ontario 61.5
Manitoba 65.6
Saskatchewan 66.0
Alberta 69.4
British Columbia 60.1

As you can see, there's a huge gap between top and bottom.  Job markets that are going full tilt like Alberta can have an employment rate of almost 70% even with the demographic pressures at play.  That's why I don't buy a demographic argument for the steep decline in the US.  I think this is a much more revealing picture of the state of the North American job market than the Unemployment Rate you'll read about elsewhere.
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