Archive for the ‘Economy’ Category

GOP Openly Wishes For Bad Economy

September 19, 2012 1 comment

After the Federal Reserve’s announcement to engage in more quantitative easing, the Republican Party neglected to hide its cynicism and now openly complains that the Ben Bernanke is trying to boost the economy. The GOP argues that the Fed Chairman shouldn’t be fulfilling the second half of his dual mandate to seek maximum employment because that might help Obama win reelection.

Sen. John Cornyn, R-Texas, said Bernanke is “trying to juice the economy” before the Nov. 6 election, and it “looks to be political,” notes the website This Week.

At the website Conservative HQ, George Rasley called the Fed a “taxpayer-funded super PAC that has so-far pumped something like $2 trillion into the economy to help re-elect President Obama.”


“It really is interesting that it is happening right now before an election,” Rep. Raul Labrador, an Idaho Republican, told The Hill prior to the Fed announcement. “It is going to sow some growth in the economy, and the Obama administration is going to claim credit.”

Paul Ryan denounced the monetary stimulus as a “bailout” of the economy. A Romney/Ryan fundraising letter criticized the Fed for its move “to prop up this administration’s jobless recovery.”

All these criticisms either implicitly or explicitly acknowledge that the Fed’s actions might improve the economy, yet they don’t want that to happen because it’d help the political prospects of their opponent. If anyone had any doubts, the GOP cares more about winning elections than helping the unemployed and struggling businesses.

Mitt Romney apparently believes that only tax cuts tilted toward the wealthiest Americans can really help the economy, everything else is “artificial and ineffective.” It’s tough to understand what the problem with “artificial” economic growth is. If it lowers unemployment and increases production those are tangible benefits in real people’s lives and businesses’ profits that we’re in no position to dismiss.

The conservative tradition in this country wasn’t always so purely cynical or married to the economic fringes. They once recognized that presidents and politicians weren’t the only determining factor for the state of the economy and that monetary policy may be the single most important policy tool for economic management. Today, the mainstream of the conservative movement regards cutting top marginal tax rates as the real and effective means to growth. Others -the ones that liberals favor – are imposters. If only it were as easy as cutting taxes; unfortunately, a complex global economic system doesn’t match up with the 1 dimensional fiction Republicans treat as textbook.  Turns out, tax cuts hardly matter at all in determining growth – especially when they’re already at historic lows.

At the level of taxes we’ve been at the last couple decades and the magnitude of the changes we’ve had, it’s hard to make the argument that tax rates have a big effect on economic growth,” Mr. [Donald] Marron [Tax Policy Center director and former Bush administration official] said. Similarly, a new report from the nonpartisan Congressional Research Service found that, over the past 65 years, changes in the top tax rate “do not appear correlated with economic growth.

The Fed has a duty to foster the conditions suitable for growth. Ben Bernanke doesn’t set tax policy, trade policy, or fiscal policy – he and his board of governors set monetary policy.  After 43 months of unemployment above 8 percent along with research showing that previous monetary easing created millions of jobs and with evidence-based theory suggesting that altering future expectations with an open-ended commitment to easy money improves growth, both parties should be encouraging the Fed to do whatever it can to get us back to full employment as soon as possible.

Whatever Happened to Uncertainty?

February 3, 2012 Leave a comment

Remember when the big conservative explanation for the lack of recovery was “policy uncertainty?” Funny you don’t hear that as much anymore… I wonder why?

Dow Jones Industrial Average



Categories: Economy

If the Problem is Weak Demand, Increasing Demand Helps

February 1, 2012 Leave a comment

A new report from the Federal Reserve Bank of San Francisco investigates “Why is Unemployment Duration So Long?” It turns out, just as mainstream economics predicts, demand for labor is weak.

We use the ratio of the number of unemployed individuals to the total number of job vacancies at the national level to measure labor market tightness or net demand. The higher the ratio, the weaker is the demand for labor relative to available supply.


The ratio of the total number of unemployed workers to job vacancies accounts for about 11.5 weeks of the 15.7 extra weeks of duration in 2010–11, explaining virtually all the increase in duration when workforce characteristics are also taken into account.

The trend seems to be moving in a positive direction, but it’s clearly still awful. Our July low-point is roughly equal to 1982’s peak. But as if we needed it, we now have more evidence that conservative bugaboos like unemployment insurance are not holding back much job growth. Instead, we need to increase aggregate demand and get people spending money.

Categories: Economy Tags:

Benefits and Disincentives

December 14, 2011 Leave a comment

Congress is once again debating an extension of unemployment benefits amidst our non-recovery from the recession. Economist Scott Sumner pleads with progressive bloggers to remember that whether UI benefits have disincentive effects (i.e. encourage them not to get jobs) or not is an empirical question. He’s right and it’s absurd to think that extending UI would have no effect on employment:

The statistical evidence on UI is overwhelming significant.  When the UI benefits maxed out at 26 weeks, there was a spike in the number re-employed right after the benefits ran out.  That’s not to say the benefits are necessarily inefficient, if the spike was due to the income effect then UI might actually make the job market more efficient.  But it’s hard to dispute the fact that UI insurance does have some effect on labor supply.

Whether or not progressives on the whole acknowledge this enough or not, I’m not sure, but anyone interested in helping the most people are right to focus on more important figures. There is no evidence that extending UI benefits is significantly reducing the labor supply.

These aren’t perfect proxies but, as you can see, unemployment duration among people ineligible for UI (blue line) is roughly the same for those eligible (red line). Furthermore, even if you were to completely eliminate UI benefits, there just aren’t enough job openings for the unemployed to fill.

(via Jared Bernstein)

Too many conservatives seemingly believe that we need to make a moral statement rather than helping the unemployed. Even if removing benefits would knock half a point off the unemployment rate as some studies have found and the multiplier effect of giving cash to likely spenders isn’t as powerful as other studies have found, we’d be hurting the vast majority of the unemployed. They’d be stuck without jobs or vital benefits.

Just to preempt some people who might wonder why 3.4 million unemployed haven’t filled those job openings, it’s important to remember that many of those job openings do get filled. A large portion of the openings are part of the normal churn of openings and fillings. Another portion is due to skills-mismatch (an unemployed construction worker isn’t about to fill a job opening for a hedge fund manager). And some jobs are open because policies like the mortgage interest deduction distorted the market away from renting, which sometimes traps people from being able to move to where the jobs are available.

Job openings are usually higher in healthier economies:

Categories: Economy Tags:

Uncertain Examples

September 6, 2011 Leave a comment

In my Quixotic quest to find evidence for “policy uncertainty” holding back our recovery, the closest thing I’ve heard to a reasonable and measurable indicator is low “US fixed capital investment.” Alan Greenspan has been trumpeting this metric for at least over a year now. He also uses this example to question the wisdom of the stimulus package. But looking at fixed investment, it’s not apparent that it’s being held back by any change in regulation or fear of future taxes as Greenspan argues.

It’s obvious that investment levels aren’t back to pre-recession heights, yet the trend is clearly recovering from the depths of the recession. In contrast, we have this chart from Jared Bernstein that shows that the stimulus package certainly wasn’t inconsistent with economic growth.

Notice that as fiscal and monetary stimulus begin to run down close to the present we see weaker growth. This correlation isn’t proof, but I’m still waiting on a believable counter-explanation for this data.

Question Answered

Questioning a claim is often the best way to establish its truth. Arnold Kling thinks this David Leonhardt claim is a sentence that should be questioned.

we know that a market economy with a significant government role is the only proven model of success

So what’s the counterexample that Kling advances?

The internet. Now, I know I sometimes feel like I live online, but if a computer network is the best counterexample of a successful market economy without “a significant government role” you may have just proven Leonhardt’s point.

Testing Uncertainty

July 18, 2011 11 comments

Steven Davis, economics professor at the University of Chicago, writes in Bloomberg why he thinks “Employers Are Slow to Fill Jobs.” Davis goes through a number of different theories and all probably play some role, but this paragraph caught my attention.

Another part of the explanation involves broader economic conditions. The same concerns about weak sales and an uncertain economic outlook that depress job creation also undercut the desire to fill openings. We live in a time of extraordinary uncertainty about government policy with respect to taxes, health care, financial regulation, monetary issues, environmental regulation, and other areas. The political impasse over the federal debt ceiling further muddles the outlook. Policy uncertainty discourages investment, job creation and hiring.

As I’ve discussed, most of the evidence seems to point to “weak sales” as the most direct reason businesses aren’t hiring more workers. But, we keep seeing this focus on “policy uncertainty” from right of center commentators – a topic I’ve discussed frequently. Tying political uncertainty to the debt ceiling is interesting for this ongoing argument for a number of reasons.

  • It provides a seemingly clear and dramatic case of policy uncertainty, but if the debt ceiling is raised we’ll have a distinct before-and-after. Are proponents of the political uncertainty argument willing to predict how big an effect this will have on job creation? I’m not willing to say it’s zero, but if I had to guess it’s probably very low at best. If they’re not willing to forecast a noticeable upward shift in the trend of hiring after this uncertainty is resolved, why do they continue to devote so much energy to the argument?
  • It demonstrates the emptiness of Republican lawmakers that pushed the “policy uncertainty” theory. If they really believed their claim, why would they be so willing to create more uncertainty?
  • I realize I may be contradicting my first point a bit, but what counts as evidence for policy uncertainty? Proponents of this theory love to claim that employers are deterred by uncertainty, but the bond markets haven’t even begun showing signs of concern. If investors aren’t changing their activity much, what makes anyone think employers are?

It’d be easy for me to use Davis’s argument to hammer the GOP as harming job creation by causing uncertainty over the debt ceiling, but I don’t see any evidence for it. The real danger is what happens if the debt ceiling isn’t raised, when policy uncertainty turns into market panic. Once that happens we won’t be talking about why business are slow to fill jobs, but how stupid we were to push ourselves back into recession.

The Lab Results Are In

One of the beauties of federalism is that different states can try individual approaches to problems and see which works the best. Since the recession two general policies have been advocated: some argue that we should increase spending, the other side thinks we should make cuts. In America, we generally get to observe a sample size of 50 – generating sufficient statistical power to make strong inferences on the correct approach.

The data is clear.

Adam Hersh of the Center for American Progress explains the findings:

Relative to national economic trends, states that increased spending enjoyed on average:

  • 0.2 percentage point decrease in the unemployment rate
  • 1.4 percent increase in private employment
  • 0.5 percent real economic growth since the start of the recession

In contrast, states that cut spending saw on average

  • 1 percentage point increase in the unemployment rate
  • 2.1 percent loss of private employment
  • 2.9 percent real economic contraction relative to the national economic trend
Obviously in light of these results, the GOP will stop pushing for short-term cuts. Right?

Growth Domestic Prosperity

June 23, 2011 5 comments

I’m always happy to gain new readers, even the ones that challenge me. In a way, the dissenters are the most useful; recently, Lauren Sheil questioned one of my premises.

“Why does everyone assume the perpetual economic growth is not only possible but even a good thing?”

I tried to answer that under the original post, but our short back-and-forth in the comments got me thinking further about what economic growth means and how that applies to today’s policy disputes. Many of my posts focus on the problems our world faces, but our discussion reminded me of the importance of stepping back and noticing just how good we actually have it. Let’s take a look at some graphs that provide some perspective on our current situation.


Even if you conclude that most of this growth went to the richest Americans that doesn’t mean everyone wasn’t gaining from this remarkable increase in wealth. For example, as Matt Ridley explains in The Rational Optimist, even today’s poor are substantially better off from even a short time ago.

Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these. Even in 1970 only 36 per cent of all Americans had air conditioning: in 2005 79 per cent of poor households did.

Someone might counter that this all well and good for fat-cat Americans, but what about the rest of the world: how has economic growth benefited them? Let’s take a look at another graph.

Today, more than half the world is middle class. Economic growth made this possible. With economic growth comes better health, longer lives, more choices, more happiness, and much more. Expressing cheerfulness at our relative prosperity to ages past doesn’t mean we can ignore the pernicious effects of inequality, contemporary poverty, or any other problems still with us. It should remind us exactly why economic policy should focus on growth. People are suffering economically now precisely because growth is weak. Here’s the GDP data I grabbed from the St. Louis Fed.

FRED Graph

Growth has mostly been trending below 2.5%. In other words, all those unemployed people aren’t making new things like air conditioners or better homes and aren’t providing services that make our lives more comfortable. As policymakers lose focus on getting the unemployed back to work they aren’t just failing those individuals, they’re depriving everyone of more wealth and better lives. A stagnant economy that doesn’t produce more things means less for everyone – today’s growth is hardly enough to keep up with the population increase. If we hope to look back with memories of how only 65% of Americans had broadband access or any other good someone enjoys today remember that we need to grow to prosperity.

Categories: Economy Tags: , ,

First A Tragedy Then A Farce

August 12, 2010 5 comments
One of my valued and welcome adversarial readers commented recently that the “stimulus packages were farceful [sic] and pork-laden.” After looking at this graph I wonder if anyone else thinks a farce is better than a tragedy any day.
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