Casey Mulligan has been putting on a one-economist show in his NYT blog, arguing week and after week that the downturn is really a supply story and has little or nothing to do with the plunge in demand created by the collapse of the housing bubble. This week he sums up his evidence.
Most of it has to do with the fact that even in the downturn employers will hire better qualified workers over less qualified workers and lower paid workers over higher paid workers. He infers from this fact that if all workers were better qualified and/or lower paid that we would not have an unemployment problem.
This is more than a bit of a bizarre argument since it is producing evidence that does not in any way contradict anything argued by Keynes or his followers. Does anyone believe that employers stop caring about workers’ qualifications in a downturn? Or, alternatively, that they stop caring about wages?
Keynes’ point is that changes that could increase any individual’s chance of employment (e.g. improved education or accepting lower wages) would not necessarily lead to lower unemployment in general. In other words, if all workers could instantly get a college education then the main result would be that we would have more unemployed college grads.
This story would seem to be supported by two basic facts about the downturn. First, huge numbers of people who had the skills and desire to work before the collapse of the housing bubble, now do not have jobs. It seems difficult to explain the sudden loss of millions of jobs as a supply side phenomenon. The other basic fact is that unemployment has risen across the board in every major skills grouping and geographical location. This is very hard to explain as a supply side story.
I can’t imagine that any Keynesian would have thought that skills don’t matter for an individual’s employability nor that the wages they expect affects their likelihood of finding a job. So the evidence that Mulligan finds along these lines hardly seems much of refutation of Keynes.
Casey Mulligan has been putting on a one-economist show in his NYT blog, arguing week and after week that the downturn is really a supply story and has little or nothing to do with the plunge in demand created by the collapse of the housing bubble. This week he sums up his evidence.
Most of it has to do with the fact that even in the downturn employers will hire better qualified workers over less qualified workers and lower paid workers over higher paid workers. He infers from this fact that if all workers were better qualified and/or lower paid that we would not have an unemployment problem.
This is more than a bit of a bizarre argument since it is producing evidence that does not in any way contradict anything argued by Keynes or his followers. Does anyone believe that employers stop caring about workers’ qualifications in a downturn? Or, alternatively, that they stop caring about wages?
Keynes’ point is that changes that could increase any individual’s chance of employment (e.g. improved education or accepting lower wages) would not necessarily lead to lower unemployment in general. In other words, if all workers could instantly get a college education then the main result would be that we would have more unemployed college grads.
This story would seem to be supported by two basic facts about the downturn. First, huge numbers of people who had the skills and desire to work before the collapse of the housing bubble, now do not have jobs. It seems difficult to explain the sudden loss of millions of jobs as a supply side phenomenon. The other basic fact is that unemployment has risen across the board in every major skills grouping and geographical location. This is very hard to explain as a supply side story.
I can’t imagine that any Keynesian would have thought that skills don’t matter for an individual’s employability nor that the wages they expect affects their likelihood of finding a job. So the evidence that Mulligan finds along these lines hardly seems much of refutation of Keynes.
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The NYT has a front page piece touting the health of the Germany economy. While the piece notes employment protections in Germany that make it difficult for employers to lay off workers, it doesn’t explicit mention the country’s shortwork program. This program (noted today by columnist Joe Nocera) encourages companies to reduce work hours rather than lay off workers. Largely as a result of German policies promoting short work (which go beyond the official program), the unemployment rate in Germany is now a full percentage point lower than it was at the start of the downturn.
Germany’s extraordinary record on unemployment is almost entirely due to its labor market policy. Its record on growth since the start of the downturn is not especially impressive.
This article also should have used the OECD harmonized unemployment rates, which are calculated in a way similar to the U.S. measure, rather than the German government measures. While the German government measure shows an overall unemployment at 7.0 percent, the OECD measure shows German unemployment at 6.1 percent in June. Since almost no readers will be familiar with the distinction between the German government’s methodology and the U.S. methodology with which they are familiar (Germany counts some part-time workers as unemployed) there is no reason not to use the OECD measure.
The NYT has a front page piece touting the health of the Germany economy. While the piece notes employment protections in Germany that make it difficult for employers to lay off workers, it doesn’t explicit mention the country’s shortwork program. This program (noted today by columnist Joe Nocera) encourages companies to reduce work hours rather than lay off workers. Largely as a result of German policies promoting short work (which go beyond the official program), the unemployment rate in Germany is now a full percentage point lower than it was at the start of the downturn.
Germany’s extraordinary record on unemployment is almost entirely due to its labor market policy. Its record on growth since the start of the downturn is not especially impressive.
This article also should have used the OECD harmonized unemployment rates, which are calculated in a way similar to the U.S. measure, rather than the German government measures. While the German government measure shows an overall unemployment at 7.0 percent, the OECD measure shows German unemployment at 6.1 percent in June. Since almost no readers will be familiar with the distinction between the German government’s methodology and the U.S. methodology with which they are familiar (Germany counts some part-time workers as unemployed) there is no reason not to use the OECD measure.
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After getting my numbers wrong last time, I thought I would take one more look. Folks love to look at per capita GDP growth as a measure of economic progress. It’s certainly not everything, but it does tell you something.
So how does Texas look under Governor Perry compared to his predecessors? Using data from the Bureau of Economic Analysis (I had to chain these two series), I get that in the years 1987-2000 per capita GDP growth averaged 2.2 percent in the U.S. as a whole. In Texas it averaged 2.8 percent, a 0.6 percentage point gap. However, in the years 2000-2010 the gap goes the other way. Per capita GDP in the U.S. as a whole grew at an average rate of 0.6 percent, while it grew at a 0.5 percent rate in Texas, a difference of 0.1 percentage point in favor of the U.S.
Source: Bureau of Economic Analysis.
What does this say about Governor Perry’s success as the steward of the Texas economy? It doesn’t tell us much. There are all sorts of reasons that Texas’s per capita GDP growth might have slowed relative to the rest of the country that have nothing to do with the effectiveness of Perry’s policies. However, if we are looking for quick comparisons, per capita GDP growth is a common one, and it goes the wrong way for the Perry economic miracle story.
After getting my numbers wrong last time, I thought I would take one more look. Folks love to look at per capita GDP growth as a measure of economic progress. It’s certainly not everything, but it does tell you something.
So how does Texas look under Governor Perry compared to his predecessors? Using data from the Bureau of Economic Analysis (I had to chain these two series), I get that in the years 1987-2000 per capita GDP growth averaged 2.2 percent in the U.S. as a whole. In Texas it averaged 2.8 percent, a 0.6 percentage point gap. However, in the years 2000-2010 the gap goes the other way. Per capita GDP in the U.S. as a whole grew at an average rate of 0.6 percent, while it grew at a 0.5 percent rate in Texas, a difference of 0.1 percentage point in favor of the U.S.
Source: Bureau of Economic Analysis.
What does this say about Governor Perry’s success as the steward of the Texas economy? It doesn’t tell us much. There are all sorts of reasons that Texas’s per capita GDP growth might have slowed relative to the rest of the country that have nothing to do with the effectiveness of Perry’s policies. However, if we are looking for quick comparisons, per capita GDP growth is a common one, and it goes the wrong way for the Perry economic miracle story.
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One of the bizarre statements that is routinely repeated by people who should know better is that consumers are not spending and that is one of the reasons that the recovery has been so weak. The NYT has a piece along these lines this morning. The reason why this argument is bizarre is that consumption is still unusually high, not low.
The saving rate out of disposable income has been averaging just over 5 percent for the last 3 years. This is above the near zero rate at the peak of the housing bubble, but still well below the 8.0 percent average that households averaged for most of the post-war period prior to the growth of the stock bubble in the 90s and the housing bubble in the last decade. (Due to measurement issues, specifically capital gains showing up as income in the national income accounts, the official data likely understate the drop in savings at the peak of the bubbles and the subsequent rise since the crash.)
The predicted result of the ephemeral wealth created by these bubbles would be a surge in consumption, which implies a drop in the saving rate. Now that both bubbles have deflated we should expect the saving rate to return to normal levels or perhaps even somewhat higher as households must make up for the years when they did not save adequately.
This is one of the reasons that competent economists saw these bubbles as so dangerous. Once the economy gets on a specific growth path it is difficult to change courses. Specifically, it is not easy to find a source of demand to replace $600 billion or so in lost consumption coupled with $600 billion in lost bubble-driven construction demand.
Click for Larger Image.
Source: Bureau of Economic Analysis.
One of the bizarre statements that is routinely repeated by people who should know better is that consumers are not spending and that is one of the reasons that the recovery has been so weak. The NYT has a piece along these lines this morning. The reason why this argument is bizarre is that consumption is still unusually high, not low.
The saving rate out of disposable income has been averaging just over 5 percent for the last 3 years. This is above the near zero rate at the peak of the housing bubble, but still well below the 8.0 percent average that households averaged for most of the post-war period prior to the growth of the stock bubble in the 90s and the housing bubble in the last decade. (Due to measurement issues, specifically capital gains showing up as income in the national income accounts, the official data likely understate the drop in savings at the peak of the bubbles and the subsequent rise since the crash.)
The predicted result of the ephemeral wealth created by these bubbles would be a surge in consumption, which implies a drop in the saving rate. Now that both bubbles have deflated we should expect the saving rate to return to normal levels or perhaps even somewhat higher as households must make up for the years when they did not save adequately.
This is one of the reasons that competent economists saw these bubbles as so dangerous. Once the economy gets on a specific growth path it is difficult to change courses. Specifically, it is not easy to find a source of demand to replace $600 billion or so in lost consumption coupled with $600 billion in lost bubble-driven construction demand.
Click for Larger Image.
Source: Bureau of Economic Analysis.
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A front page Washington Post piece was headlined, “Geithner, Bernanke Have Little in Arsenal to Fight New Crisis.” This piece should have made it clear to readers that the obstacles to additional action are political not economic. All the obstacles noted in the piece are political in nature. The one possible exception is the S&P downgrade of U.S. government debt, which does not appear to be an obstacle at all. The markets laughed off this downgrade, sending U.S. bond prices soaring on the first trading day after the announcement.
A better headline for this piece would have been, “Political Obstacles Obstruct Response to Economic Crisis.”
A front page Washington Post piece was headlined, “Geithner, Bernanke Have Little in Arsenal to Fight New Crisis.” This piece should have made it clear to readers that the obstacles to additional action are political not economic. All the obstacles noted in the piece are political in nature. The one possible exception is the S&P downgrade of U.S. government debt, which does not appear to be an obstacle at all. The markets laughed off this downgrade, sending U.S. bond prices soaring on the first trading day after the announcement.
A better headline for this piece would have been, “Political Obstacles Obstruct Response to Economic Crisis.”
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It’s always fun to read Robert Samuelson’s column on Monday morning to see what silliness he is pushing to justify cuts to Social Security and Medicare. Today he has his plan for balancing the budget over the next decade (the country’s most important problem for people who never heard about unemployment).
As part of his argument for cutting benefits for the elderly Samuelson tells us that, “in 2008, the median net worth of married elderly couples was $385,000.” (Actually, if we check his source, it looks like the year is 2007.)
Okay boys and girls, can anyone think of anything that might have affected the net worth of the elderly between 2007 and today? Apparently no one at the Post has noticed anything or they might have suggested that Samuelson try to use more recent data in his column.
Naturally, Samuelson doesn’t suggest doing anything about the real cause of his deficit crisis story, exploding private sector health care costs. Nor does he consider any measures that might hurt the Wall Street folks that helped inflate the housing bubble that wrecked the economy. But who would expect more from Samuelson or Fox on 15th Street?
It’s always fun to read Robert Samuelson’s column on Monday morning to see what silliness he is pushing to justify cuts to Social Security and Medicare. Today he has his plan for balancing the budget over the next decade (the country’s most important problem for people who never heard about unemployment).
As part of his argument for cutting benefits for the elderly Samuelson tells us that, “in 2008, the median net worth of married elderly couples was $385,000.” (Actually, if we check his source, it looks like the year is 2007.)
Okay boys and girls, can anyone think of anything that might have affected the net worth of the elderly between 2007 and today? Apparently no one at the Post has noticed anything or they might have suggested that Samuelson try to use more recent data in his column.
Naturally, Samuelson doesn’t suggest doing anything about the real cause of his deficit crisis story, exploding private sector health care costs. Nor does he consider any measures that might hurt the Wall Street folks that helped inflate the housing bubble that wrecked the economy. But who would expect more from Samuelson or Fox on 15th Street?
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The NYT did a nice job outlining the issues in an assessment of the economic performance of Texas under Governor Perry. The piece is not an exhaustive (no short news story could be), but it touched the main points at issue.
The NYT did a nice job outlining the issues in an assessment of the economic performance of Texas under Governor Perry. The piece is not an exhaustive (no short news story could be), but it touched the main points at issue.
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Roger Cohen has an interesting column touting the performance of Germany compared to the United States in the years since the onset of the crisis. He concludes by suggesting that Germany can save the United States with its ideas as to how to manage an economy and society.
While Cohen mentions several important differences between the United States and Germany, remarkably he did not mention Germany’s work sharing system. Even though growth in Germany and the United States has been comparable since the beginning of the downturn, Germany has actually seen a decline in its unemployment rate of more than half a percentage point from the pre-recession level.
This is due to the fact that Germany encourages firms to reduce work hours rather than lay people off. In a standard arrangement, workers may put in 20 percent fewer hours and end up taking home 4 percent less pay. Most of the difference comes from a government unemployment benefit that is converted to a subsidy for short-time work. The company is also expected to make up some of the pay. This system is very popular across the political spectrum in Germany. It has been embraced by the conservative government although it was originally put forward by a Social Democratic minister in the previous unity government.
Roger Cohen has an interesting column touting the performance of Germany compared to the United States in the years since the onset of the crisis. He concludes by suggesting that Germany can save the United States with its ideas as to how to manage an economy and society.
While Cohen mentions several important differences between the United States and Germany, remarkably he did not mention Germany’s work sharing system. Even though growth in Germany and the United States has been comparable since the beginning of the downturn, Germany has actually seen a decline in its unemployment rate of more than half a percentage point from the pre-recession level.
This is due to the fact that Germany encourages firms to reduce work hours rather than lay people off. In a standard arrangement, workers may put in 20 percent fewer hours and end up taking home 4 percent less pay. Most of the difference comes from a government unemployment benefit that is converted to a subsidy for short-time work. The company is also expected to make up some of the pay. This system is very popular across the political spectrum in Germany. It has been embraced by the conservative government although it was originally put forward by a Social Democratic minister in the previous unity government.
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More journalism 101 for the Washington Post. It told readers in a front page story that tax increases on the wealthy
“are considered ‘job-killing’ and off-limits by many Republicans.”
Of course Republicans call tax increases job killers, but politicians often say things that they do not believe to be true. Many members of Congress are old enough to remember the 90s when the economy created 3 million jobs a year even though the higher Clinton era tax rates were in effect.
The Post should restrain itself to telling readers what politicians say and do; it does not know what they actually think.
More journalism 101 for the Washington Post. It told readers in a front page story that tax increases on the wealthy
“are considered ‘job-killing’ and off-limits by many Republicans.”
Of course Republicans call tax increases job killers, but politicians often say things that they do not believe to be true. Many members of Congress are old enough to remember the 90s when the economy created 3 million jobs a year even though the higher Clinton era tax rates were in effect.
The Post should restrain itself to telling readers what politicians say and do; it does not know what they actually think.
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The Post featured an Outlook piece by Liaquat Ahmat that made the obvious point that Standard and Poor’s downgrade could not plausibly be blamed for the stock market plunge. The downgrade most immediately was an assessment of the creditworthiness of U.S. government bonds. These soared in price. The most obvious basis for the plunge in stock prices was the fear of the break-up of the euro and a financial freeze-up of the type that followed the bankruptcy of Lehman in the fall of 2008.
The Post featured an Outlook piece by Liaquat Ahmat that made the obvious point that Standard and Poor’s downgrade could not plausibly be blamed for the stock market plunge. The downgrade most immediately was an assessment of the creditworthiness of U.S. government bonds. These soared in price. The most obvious basis for the plunge in stock prices was the fear of the break-up of the euro and a financial freeze-up of the type that followed the bankruptcy of Lehman in the fall of 2008.
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