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Most people know that the deficit whiners live largely in a fact free zone, but every now and then it is worth trying to throw a few in their direction in the quest for intelligent life. The immediate motivation is Joe Scarborough’s latest tirade after having Paul Krugman as a guest on his show.
Scarborough is of the view that if stimulus was the answer the economy would have already recovered by now. In this context, we might ask what the stimulus was designed to do relative to the size of the problem.
The best evidence here is the assessment of the Congressional Budget Office (CBO) from March of 2009. The reason this analysis is useful is that it is a look at what the economy was expected to do and the impact of stimulus at the time it was passed. CBO was looking at the actual stimulus as passed. It also in an independent agency with no motive to cook the books.
Here’s the picture that CBO drew compared to what actually happened.
Source: Congressional Budget Office.
There are two points which should jump out at anyone. First, even as late as March of 2009 CBO hugely underestimated the severity of the downturn. The actual drop in employment from 2008 to 2009 was 5.5 million. The predicted drop was just 3.8 million. In other words, CBO underestimated the initial hit from the downturn by 1.7 million jobs, even after it was already well underway.
If anyone wants to blame the greater severity of the downturn on the stimulus they would have a hard story to tell. Most of the hit was before a dollar of the stimulus was spent. Employment in March of 2009 was 5.4 million before its year ago level.
Of course CBO was overly optimistic about the pace of the turnaround. It predicted that employment would rise by 1.7 million in 2010 even if we did nothing. Someone may have a story about how this increase would have happened had it not been for the stimulus (lower interest rates?), but it is difficult to envision what that story would look like.
The other point that this chart makes nicely is that the predicted gains from the stimulus were small relative to the size of the downturn. CBO predicted that the maximum benefit from the stimulus would be in 2010 when employment would be 2.4 million higher than without the stimulus. This needs to be repeated a few hundred thousand times the stimulus was only projected to create 2.4 million jobs.
That is not rewriting history or making it up as we go along. This is a projection from an independent agency made at the time the stimulus was passed. The economy ended up losing over 7 million jobs. At its peak impact, the stimulus was only projected to replace 2.4 million of these jobs. And after 2010 the stimulus’ impact quickly went to zero as the spending and tax cuts came to an end.
How can anyone be surprised that the stimulus did not bring the economy back to full employment? No one expected it to be large enough to reverse the impact of a slump of this magnitude.
President Obama and his team deserve lots of criticism for failing to recognize the severity of the downturn. They deserve even more blame for not acknowledging this fact, and that their stimulus was inadequate for the task at hand.
But their errors do not change the reality. The stimulus was not designed to create 7 million jobs. Why would Joe Scarborough or anyone else be surprised to see that it didn’t?
Most people know that the deficit whiners live largely in a fact free zone, but every now and then it is worth trying to throw a few in their direction in the quest for intelligent life. The immediate motivation is Joe Scarborough’s latest tirade after having Paul Krugman as a guest on his show.
Scarborough is of the view that if stimulus was the answer the economy would have already recovered by now. In this context, we might ask what the stimulus was designed to do relative to the size of the problem.
The best evidence here is the assessment of the Congressional Budget Office (CBO) from March of 2009. The reason this analysis is useful is that it is a look at what the economy was expected to do and the impact of stimulus at the time it was passed. CBO was looking at the actual stimulus as passed. It also in an independent agency with no motive to cook the books.
Here’s the picture that CBO drew compared to what actually happened.
Source: Congressional Budget Office.
There are two points which should jump out at anyone. First, even as late as March of 2009 CBO hugely underestimated the severity of the downturn. The actual drop in employment from 2008 to 2009 was 5.5 million. The predicted drop was just 3.8 million. In other words, CBO underestimated the initial hit from the downturn by 1.7 million jobs, even after it was already well underway.
If anyone wants to blame the greater severity of the downturn on the stimulus they would have a hard story to tell. Most of the hit was before a dollar of the stimulus was spent. Employment in March of 2009 was 5.4 million before its year ago level.
Of course CBO was overly optimistic about the pace of the turnaround. It predicted that employment would rise by 1.7 million in 2010 even if we did nothing. Someone may have a story about how this increase would have happened had it not been for the stimulus (lower interest rates?), but it is difficult to envision what that story would look like.
The other point that this chart makes nicely is that the predicted gains from the stimulus were small relative to the size of the downturn. CBO predicted that the maximum benefit from the stimulus would be in 2010 when employment would be 2.4 million higher than without the stimulus. This needs to be repeated a few hundred thousand times the stimulus was only projected to create 2.4 million jobs.
That is not rewriting history or making it up as we go along. This is a projection from an independent agency made at the time the stimulus was passed. The economy ended up losing over 7 million jobs. At its peak impact, the stimulus was only projected to replace 2.4 million of these jobs. And after 2010 the stimulus’ impact quickly went to zero as the spending and tax cuts came to an end.
How can anyone be surprised that the stimulus did not bring the economy back to full employment? No one expected it to be large enough to reverse the impact of a slump of this magnitude.
President Obama and his team deserve lots of criticism for failing to recognize the severity of the downturn. They deserve even more blame for not acknowledging this fact, and that their stimulus was inadequate for the task at hand.
But their errors do not change the reality. The stimulus was not designed to create 7 million jobs. Why would Joe Scarborough or anyone else be surprised to see that it didn’t?
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David Brooks makes the case for immigration reform in his column today. Surprisingly, there is not much to dispute here. However, the story of more immigration is not quite the picture where everyone wins that he implies.
Brooks cites research by my friend Heidi Shierholz showing that wages of native born workers of all education levels increased as a result of the immigration from 1994 to 2007. The essential story here is that it models a situation where immigrants and native born workers largely fill different jobs. In this way, immigrants are not seen as competing with native born workers, but in effect providing a lower cost input into production in the same way that lower energy prices provide a lower cost input.
One can certainly point to industries and occupations where this story would seem to hold. Cab drivers in Washington, DC are almost exclusively immigrants, as are many of the people working in restaurant kitchens, as are custodians in offices and hotels. In these sectors, more immigrants would not have much impact on the wages of native born workers. (The impact of these sectors coming to be dominated by immigrants initially is another question.)
However more immigrants would be expected to have an impact on the immigrant workers in these sectors. Imagine the impact on the earnings of immigrant cab drivers in DC if we doubled the number of people driving cabs.
Sheirholz’s mid-point estimate of the effect of the 1994-2007 immigration on the wages of immigrant workers is -4.6 percent. For a worker earning $30,000 a year this is a hit of $1,380. Her high-end estimate is 6.0 percent, implying a hit of $1,800. (Interestingly, by education group she finds that college educated immigrants would be most adversely affected by more immigrants.)
Anyhow, these numbers are worth keeping in mind in designing the shape of immigration reform. It may be the case that more immigration will in general be a positive (albeit a small positive) for the wages of most native born workers, but if we want to see recent immigrants have an opportunity to quickly improve their living standards and earn wages that are closer to those of native born workers, then more immigration is not always better. (See John Schmitt’s paper on this topic.)
David Brooks makes the case for immigration reform in his column today. Surprisingly, there is not much to dispute here. However, the story of more immigration is not quite the picture where everyone wins that he implies.
Brooks cites research by my friend Heidi Shierholz showing that wages of native born workers of all education levels increased as a result of the immigration from 1994 to 2007. The essential story here is that it models a situation where immigrants and native born workers largely fill different jobs. In this way, immigrants are not seen as competing with native born workers, but in effect providing a lower cost input into production in the same way that lower energy prices provide a lower cost input.
One can certainly point to industries and occupations where this story would seem to hold. Cab drivers in Washington, DC are almost exclusively immigrants, as are many of the people working in restaurant kitchens, as are custodians in offices and hotels. In these sectors, more immigrants would not have much impact on the wages of native born workers. (The impact of these sectors coming to be dominated by immigrants initially is another question.)
However more immigrants would be expected to have an impact on the immigrant workers in these sectors. Imagine the impact on the earnings of immigrant cab drivers in DC if we doubled the number of people driving cabs.
Sheirholz’s mid-point estimate of the effect of the 1994-2007 immigration on the wages of immigrant workers is -4.6 percent. For a worker earning $30,000 a year this is a hit of $1,380. Her high-end estimate is 6.0 percent, implying a hit of $1,800. (Interestingly, by education group she finds that college educated immigrants would be most adversely affected by more immigrants.)
Anyhow, these numbers are worth keeping in mind in designing the shape of immigration reform. It may be the case that more immigration will in general be a positive (albeit a small positive) for the wages of most native born workers, but if we want to see recent immigrants have an opportunity to quickly improve their living standards and earn wages that are closer to those of native born workers, then more immigration is not always better. (See John Schmitt’s paper on this topic.)
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The data has not been kind to the economists and reporters who were hyping the line that uncertainties over the fiscal cliff were slowing growth last year. Strong consumption data, capped by a jump in retail sales in December seemed to dispel the idea that consumers were being cautious due to cliff concerns. Durable goods orders, led by a big jump in capital goods orders in November, suggested that businesses were acting as though the outcome of the standoff would not have a big impact on the economy.
Yesterday’s release of data on 4th quarter GDP should have been the final death knell for the fiscal cliff economic drag story. There was strong growth in both equipment and software investment by businesses and purchases of durable goods by consumers. Obviously these folks didn’t get the memo about being cautious.
But Joel Naroff, an economist with his own consulting firm, was not giving up so easily. On the PBS NewsHour last night he told viewers:
“Well, I think really what happened was that businesses were really cautious, uncertain about whether or not we’d wind up going off the fiscal cliff.
“And they made some very short-term decisions. It’s easy just to keep the warehouses essentially empty. If we don’t go off the cliff, they can refill them quickly. And so I think what happened during the end of the year was they just ran things very, very close to the vest, and now I think we will see in the first part of this year that they will have to rebuild it, and that will add to growth.”
If Naroff is looking for empty warehouses he better look at the data again. Businesses did not “keep the warehouses essentially empty” in the 4th quarter. Businesses increased non-farm inventories at a $43.8 billion annual rate in the fourth quarter, a pretty health rate. This was a drag on growth because they reportedly increased inventories at an extraordinary $88.2 billion annual rate in the third quarter. In other words, businesses went from adding inventories at a very rapid pace to adding them at a more normal pace. They were not letting their warehouses sit empty. Since GDP is measuring the change in the rate of change, a slower rate of accumulation is a drag on growth.
Call that one strike three for the fiscal cliff fearmongers.
Addendum:
Morning Edition committed the same sin: intro econ textbooks all around. Is our economists learning?
The data has not been kind to the economists and reporters who were hyping the line that uncertainties over the fiscal cliff were slowing growth last year. Strong consumption data, capped by a jump in retail sales in December seemed to dispel the idea that consumers were being cautious due to cliff concerns. Durable goods orders, led by a big jump in capital goods orders in November, suggested that businesses were acting as though the outcome of the standoff would not have a big impact on the economy.
Yesterday’s release of data on 4th quarter GDP should have been the final death knell for the fiscal cliff economic drag story. There was strong growth in both equipment and software investment by businesses and purchases of durable goods by consumers. Obviously these folks didn’t get the memo about being cautious.
But Joel Naroff, an economist with his own consulting firm, was not giving up so easily. On the PBS NewsHour last night he told viewers:
“Well, I think really what happened was that businesses were really cautious, uncertain about whether or not we’d wind up going off the fiscal cliff.
“And they made some very short-term decisions. It’s easy just to keep the warehouses essentially empty. If we don’t go off the cliff, they can refill them quickly. And so I think what happened during the end of the year was they just ran things very, very close to the vest, and now I think we will see in the first part of this year that they will have to rebuild it, and that will add to growth.”
If Naroff is looking for empty warehouses he better look at the data again. Businesses did not “keep the warehouses essentially empty” in the 4th quarter. Businesses increased non-farm inventories at a $43.8 billion annual rate in the fourth quarter, a pretty health rate. This was a drag on growth because they reportedly increased inventories at an extraordinary $88.2 billion annual rate in the third quarter. In other words, businesses went from adding inventories at a very rapid pace to adding them at a more normal pace. They were not letting their warehouses sit empty. Since GDP is measuring the change in the rate of change, a slower rate of accumulation is a drag on growth.
Call that one strike three for the fiscal cliff fearmongers.
Addendum:
Morning Edition committed the same sin: intro econ textbooks all around. Is our economists learning?
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That’s a cheap shot derived from the information that the NYT gave us at the end of Thomas Friedman’s column: “Maureen Dowd is off today.” Nonetheless it seems an appropriate response to a piece that tells real wages for most workers are stagnating because:
“In 2004, I wrote a book, called ‘The World Is Flat,’ about how the world was getting digitally connected so more people could compete, connect and collaborate from anywhere. When I wrote that book, Facebook, Twitter, cloud computing, LinkedIn, 4G wireless, ultra-high-speed bandwidth, big data, Skype, system-on-a-chip (SOC) circuits, iPhones, iPods, iPads and cellphone apps didn’t exist, or were in their infancy.
Today, not only do all these things exist, but, in combination, they’ve taken us from connected to hyperconnected.”
So Facebook and Twitter are the cause of wage inequality? I knew there was some reason Mark Zuckerberg rubbed me the wrong way.
Friedman also tells us:
“we have record productivity, wealth and innovation, yet median incomes are falling, inequality is rising and high unemployment remains persistent.”
Well the first part of this statement is almost always true. Except for short periods at the start of recessions, productivity always rises, implying greater wealth and presumably record innovation (not sure how that is measured).
Anyhow, it is not clear why Friedman finds anything surprising about this coinciding with high unemployment. Those of us who follow the economy would point to the fact that nothing has replaced the $1.2 trillion in annual construction and consumption demand that we lost when the housing bubble collapsed. And when we get more demand employment would grow, labor markets would tighten and we would see most workers in a position to get higher wages. There is no mystery here to folks who know basic economics and a bit of arithmetic.
Friedman wants people to have:
“more P.Q. (passion quotient) and C.Q. (curiosity quotient) to leverage all the new digital tools to not just find a job, but to invent one or reinvent one, and to not just learn but to relearn for a lifetime.”
Yeah, it would be great if people had more passion, curiousity and learned more, but it’s not clear that this would affect wages much for the 14.9 million people working in retail, the 10 million people employed in restauarants and the 1.8 million employed in hotels. In other words, even in Friedman’s hyperconnected world, a very high percentage of jobs still do not offer many opportunities for passion, curiousity, and learning.
The reason that these people are not sharing in the benefits of productivity growth, as they did in the period from 1945 to 1973 is that the folks controlling economic policy lack passion, curiousity and an interest in learning. They think it’s just fine that we waste $1 trillion a year due to an economy that is below full employment and that 15 million people are unemployed and underemployed.
Anyhow, maybe we can get the NYT to fix that line about Maureen Dowd.
That’s a cheap shot derived from the information that the NYT gave us at the end of Thomas Friedman’s column: “Maureen Dowd is off today.” Nonetheless it seems an appropriate response to a piece that tells real wages for most workers are stagnating because:
“In 2004, I wrote a book, called ‘The World Is Flat,’ about how the world was getting digitally connected so more people could compete, connect and collaborate from anywhere. When I wrote that book, Facebook, Twitter, cloud computing, LinkedIn, 4G wireless, ultra-high-speed bandwidth, big data, Skype, system-on-a-chip (SOC) circuits, iPhones, iPods, iPads and cellphone apps didn’t exist, or were in their infancy.
Today, not only do all these things exist, but, in combination, they’ve taken us from connected to hyperconnected.”
So Facebook and Twitter are the cause of wage inequality? I knew there was some reason Mark Zuckerberg rubbed me the wrong way.
Friedman also tells us:
“we have record productivity, wealth and innovation, yet median incomes are falling, inequality is rising and high unemployment remains persistent.”
Well the first part of this statement is almost always true. Except for short periods at the start of recessions, productivity always rises, implying greater wealth and presumably record innovation (not sure how that is measured).
Anyhow, it is not clear why Friedman finds anything surprising about this coinciding with high unemployment. Those of us who follow the economy would point to the fact that nothing has replaced the $1.2 trillion in annual construction and consumption demand that we lost when the housing bubble collapsed. And when we get more demand employment would grow, labor markets would tighten and we would see most workers in a position to get higher wages. There is no mystery here to folks who know basic economics and a bit of arithmetic.
Friedman wants people to have:
“more P.Q. (passion quotient) and C.Q. (curiosity quotient) to leverage all the new digital tools to not just find a job, but to invent one or reinvent one, and to not just learn but to relearn for a lifetime.”
Yeah, it would be great if people had more passion, curiousity and learned more, but it’s not clear that this would affect wages much for the 14.9 million people working in retail, the 10 million people employed in restauarants and the 1.8 million employed in hotels. In other words, even in Friedman’s hyperconnected world, a very high percentage of jobs still do not offer many opportunities for passion, curiousity, and learning.
The reason that these people are not sharing in the benefits of productivity growth, as they did in the period from 1945 to 1973 is that the folks controlling economic policy lack passion, curiousity and an interest in learning. They think it’s just fine that we waste $1 trillion a year due to an economy that is below full employment and that 15 million people are unemployed and underemployed.
Anyhow, maybe we can get the NYT to fix that line about Maureen Dowd.
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Floyd Norris is worried about a sharp drop in consumer confidence. He shouldn’t be.
The cause of the drop is a fall in consumer expectations about the future. Expectations jump around because most people aren’t in the business of sitting down and thinking about where the economy will be in 6 months. For the most part, people answer this question based on what they hear in the news. Since news reporting on the economy is very fickle, people’s views about the future are very fickle.
Fortunately, expectations have very little impact on people’s consumption decisions. Their consumption is far more stable, indicating that people rely on their current economic situation — wages, job security, housing equity — in making their consumption decisions and they largely ignore the folks seen and heard pontificating in the media.
Floyd Norris is worried about a sharp drop in consumer confidence. He shouldn’t be.
The cause of the drop is a fall in consumer expectations about the future. Expectations jump around because most people aren’t in the business of sitting down and thinking about where the economy will be in 6 months. For the most part, people answer this question based on what they hear in the news. Since news reporting on the economy is very fickle, people’s views about the future are very fickle.
Fortunately, expectations have very little impact on people’s consumption decisions. Their consumption is far more stable, indicating that people rely on their current economic situation — wages, job security, housing equity — in making their consumption decisions and they largely ignore the folks seen and heard pontificating in the media.
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This is yet another case where the free market fundamentalists are using big government to fatten their profits. Associated Press has a nice piece on how several states are paying their unemployment insurance benefits through electronic cards issued by banks rather than checks or direct deposits. The banks place various fees on these cards that people with bank accounts, who are most of the unemployed, would not otherwise see. Needless to say, these banks are very happy with big government and would be very much opposed to an efficient more market based mechanism for paying benefits.
This is yet another case where the free market fundamentalists are using big government to fatten their profits. Associated Press has a nice piece on how several states are paying their unemployment insurance benefits through electronic cards issued by banks rather than checks or direct deposits. The banks place various fees on these cards that people with bank accounts, who are most of the unemployed, would not otherwise see. Needless to say, these banks are very happy with big government and would be very much opposed to an efficient more market based mechanism for paying benefits.
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When the Post ran a piece on the lessons that Harley-Davidson teaches us about the economy readers naturally assumed that it would mention it as an example of successful protectionism. In 1982, in the middle of a steep recession, President Reagan imposed tariffs on imported motorcycles. This gave Harley-Davidson the breathing room it needed to survive the recession and modernize its operations. It continues to be a healthy profitable company.
Anyhow, this history didn’t make the Post’s list, but the other items are nonetheless interesting.
When the Post ran a piece on the lessons that Harley-Davidson teaches us about the economy readers naturally assumed that it would mention it as an example of successful protectionism. In 1982, in the middle of a steep recession, President Reagan imposed tariffs on imported motorcycles. This gave Harley-Davidson the breathing room it needed to survive the recession and modernize its operations. It continues to be a healthy profitable company.
Anyhow, this history didn’t make the Post’s list, but the other items are nonetheless interesting.
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That’s what listeners to a segment this morning on households’ lack of adequate savings probably concluded. The piece noted that many households lack the savings needed to support themselves through a period of unemployment or illness. It then talked about various efforts to promote savings.
While it would be beneficial for most people to save more (although it would hurt the economy in the short-run), a major problem is the large fees charged by financial institutions. Fees can eat up as much as one-third of the money in 401(k)-type accounts. It would have been worth at least mentioning the problem of high bank fees as an issue in this discussion.
That’s what listeners to a segment this morning on households’ lack of adequate savings probably concluded. The piece noted that many households lack the savings needed to support themselves through a period of unemployment or illness. It then talked about various efforts to promote savings.
While it would be beneficial for most people to save more (although it would hurt the economy in the short-run), a major problem is the large fees charged by financial institutions. Fees can eat up as much as one-third of the money in 401(k)-type accounts. It would have been worth at least mentioning the problem of high bank fees as an issue in this discussion.
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