Kevin Drum

Simon Johnson writes today about the scourge of banks that are too big to fail. Cyprus is the latest example of what happens when a megabank fails, and it's fresh on everyone's minds:

The good news at the end of last week was that the Senate unanimously decided that the United States should go in another direction, by ending the funding advantages of megabanks.

....But making last week even more decisive, [Ben] Bernanke’s language shifted significantly....saying in the clearest possible terms during a news conference on March 20: “Too big to fail is not solved and gone,” adding, “It’s still here.” And in case anyone did not fully grasp his message, Mr. Bernanke explained, “Too big to fail was a major source of the crisis, and we will not have successfully responded to the crisis if we do not address that successfully.”

Now that the policy consensus has shifted, how exactly policy plays out remains to be seen....

Hmmm. This seems optimistic. Has the policy consensus really shifted? I hope I'm wrong, but what we're seeing right now seems more like one of those little boomlets that crop up and then disappear regularly. Remember NGDP targeting? For a period of a few weeks when it got mentioned in a set of Fed minutes, the economics blogosphere couldn't get enough of it. But it was never going anywhere, and it never did.

But enough pessimism! If there's any movement at all toward going beyond Dodd-Frank to make banks safer, that's good news. I've always been skeptical, on both political and practical grounds, that big banks can literally be broken up or their size capped, but they can certainly be made safer by requiring much higher capital levels. And you could probably go a long way toward encouraging smaller banks by introducing a formula that set higher capital levels for bigger banks. Who knows what would happen if required capital was a minimum of 10 percent or, say, double your bank's assets as a percentage of U.S. GDP? If a bank the size of Citigroup had to hold twice the capital of a smaller bank, that would certainly provide a big incentive to break up.

I don't know how feasible this kind of thing is on a national basis, and further international action doesn't seem to be in the cards these days. But every little bit helps. We'll see if the coming months produce anything more than a purely symbolic vote on a nonbinding resolution by the Senate.

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The Washington Post reports on "possible common ground" between Obama and congressional Republicans on cutting Medicare costs:

In particular, participants say, the president told House Republicans that he was open to combining Medicare’s coverage for hospitals and doctor services....Representative Eric Cantor of Virginia, the No. 2 House Republican, proposed much the same in a speech in February.

....While Mr. Cantor’s proposal got little attention at the time, its echo by Mr. Obama hints at a new route toward compromise — in contrast with the budget that House Republicans passed this month that has no chance of Senate approval.

That sounds like a mighty small area of agreement to me. Any port in a storm, I suppose, but it's a little hard to see how this leads to any kind of larger bargain.

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Here is Matt Yglesias cruelly baiting Bob Somerby:

It really is a little shocking in retrospect how entrenched the Gore stuff has become.

Matt is reacting to a Republican ad that tries to pretend that Rep. Ed Markey is taking credit for inventing Google and satellite TV. You know, just like Al Gore invented the internet. Yuck yuck.

Gore aside, I've always found it sort of fascinating how obsessed conservatives get with some of their pet rocks. Last night I happened to surf by Sean Hannity's show for about ten seconds, and he was blathering on about the canceled White House tours. Jesus, I thought. They're still bellyaching about that? Hannity's designated liberal punching bag (sorry, didn't catch who it was) seemed to feel the same way. She mostly just rolled her eyes, unable to work up the energy to pretend to take this seriously.

Do we liberals have our own pet rocks like this? It's never quite seemed like it to me. Obviously we have ideological passions that we hammer on constantly, just like conservatives do, and it's true that putting up pictures of "Mission Accomplished" never gets old. But on the right, there seems to be a never-ending parade of these ridiculous little things that take on a life of their own and just never go away. When newer pet rocks come along, they just acquire elder statesman status and become part of right-wing lore. In the case of the White House tours, it's apparently all part of a Michele Bachmann-inspired conservative obsession with the curious notion that Obama lives like an emperor, complete with dancing girls dropping peeled grapes into his mouth during trips on Air Force One that he orders just because he wants to take advantage of the gourmet chefs on board and maybe get a nice view of the Potomac. Or something.

There's a million things like this, and only a few achieve mainstream status, like the birther nonsense. The rest just ripple endlessly in the primordial ooze of conservative websites, radio shows, and Fox News. I dunno. Maybe I just don't hang out enough on uber-lefty sites to see how much we do it too. But conservatives sure do seem to thrive on a continuing parade of weirdly invented, personality-driven scandalettes in a way that liberals don't.

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One of the longstanding arguments about our sluggish recovery from the Great Recession is whether it's mostly cyclical or mostly structural. If it's cyclical, that basically means it's a matter of depressed spending. If the Fed and Congress would just pump enough money into the economy to stimulate demand, that would kickstart us back into a stronger recovery.

But if it's structural, that won't work. A structural problem, for example, would be an economy that needs lots of computer programmers, but instead finds itself with too many construction workers thanks to the housing bubble. You can't easily train construction workers to be computer programmers, so even if you stimulate demand you're still going to have a big unemployment problem.

Neil Irwin points out today that it's been hard to find evidence for the story of structural problems. If certain occupations were in desperate need of workers they couldn't find, wages in those occupations would skyrocket. But they haven't. Likewise, if it were a matter of too many workers in, say, California, and too few in Texas, you'd expect wages in Texas to go up. But that hasn't happened either. With a few small exceptions, wages have stayed depressed in all occupations and all regions.

So now a team of Fed economists has taken a different approach to slicing and dicing the data: Maybe the problem is actually a broad mismatch between the supply and demand for workers who can do complex, nonroutine jobs. But they took a look, and their basic answer is no: the Great Recession has hit both routine and nonroutine occupations about the same.

I accept this. And yet, the data from the Fed study doesn't back up their theory completely. For example, here's a pair of charts showing the change in unemployment rates:

That's a little hard to read, though. Here's a rough re-charting of their data using equal units for the entire period from 2007 through 2012:

It's true that routine jobs have recovered a little better than nonroutine jobs, but they've still done worse overall. And their other charts show a similar trend: before the recession, there was no difference at all between routine and nonroutine jobs. Since then, a persistent gap has appeared. It's a small gap, but it's there.

And this is just a guess on my part, but I suspect that routine workers have dropped out of the workforce at a greater rate than nonroutine workers, which means they don't show up in unemployment statistics at all. Some of them go on disability, some of them stay home with the kids, some of them retire early, and some just plain give up and don't have any income.

For what it's worth, I also have some issues with their definitions of routine vs. nonroutine. But that's obviously a very tricky thing, and I certainly haven't taken a close look. So I'll set that aside for now.

Generally speaking, I think this study is valuable: it shows, more broadly than some previous studies, that the aftermath of the Great Recession is primarily cyclical, not structural. That means we could fix most of it if we quit obsessing over budget deficits in 2030 and instead focused on proper fiscal and monetary policy right now. My only caution is that I don't think this study shows that our problem is entirely cyclical. It really does look to me like the Great Recession opened up—or perhaps exposed—a structural gap that's a bit larger than it used to be. It's not a lot bigger, but it's there.

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