April 12, 2003

How Deep Is the Current Recession?

The Economic Policy Institute has found a measure according to which the current recession is actually the deepest and most severe of post-WWII recessions. The measure? The percentage by which private employment is below its peak level two years after the recession began: "In the two years since the recession began in March 2001, total payrolls have fallen by 2.1 million and private sector payrolls are down by 2.6 million."

This is, of course, only part of the story: the current recession is very shallow insofar as production is concerned (in large part because of the rapid underlying productivity growth trend), moderate as far as the unemployment rate is concerned (in part because lots of people have dropped out of the labor force during this recession), and deep as far as private-sector employment is concerned.

Which is the "right" measure? Well, it depends on what you are interested in, of course. A balanced picture of the perhaps-still-ongoing recession needs to comprehend all three...

Posted by DeLong at April 12, 2003 09:19 AM | TrackBack


So by this defintion if after an historic temporary surge in employment above the trend line level the economy returns to the trend line, it's in a deep recession.

Well, like Coase said, if one tortures the data enough it will confess to anything.

Posted by: Jim Glass on April 12, 2003 09:57 AM

The interesting aspect of economics is that every recession seems to be just different enough to require some change of the model to actually see it in the data.

Posted by: JMC on April 12, 2003 10:16 AM

I'm always hesitant to opine amongst so many people who actually know what they're talking about, but:

Doesn't this just mean that the economy being driven largely by military spending?

Posted by: David on April 12, 2003 10:39 AM

Jim Glass --

I encourage you to say that to the millions of people who once had jobs and now don't. Better yet, say it to their face. Tell them they shouldn't mind being out of work or should just work at Wal-Mart or Taco Bell -- after all, they're hiring! A real political winner, that message. You must be president of the "I got mine" coalition.


Posted by: manny on April 12, 2003 10:44 AM

I'm sensing a troll here, but I can't help myself. The problem with your reasoning is that, while job growth has indeed returned to the historical trend line, productivity growth HAS NOT. This is the key to the jobless recovery. The challenge for the US is raising the growth rate enough to expand the labor force in spite of this accelerated productivity growth, a challenge our current administration has been singularly inept at meeting.

Posted by: David Benoff on April 12, 2003 12:40 PM

Gee whiz Manny, I'll have to tell that kid to hold my taco for a moment while I answer you on behalf of the coalition.

The question was: which recession has been "the deepest and most severe" based on employment data as of two years after the start of the recession?

I'll give the data for the last three recessions and you can choose for yourself, OK?

Let's look at both the unemployment rate, which shows how many people are looking for work but can't find it, and also the total civilian employment ratio, which gives the employed percentage of the entire civilian population including discouraged workers who have despaired even of getting a job here at the taco stand.

.......................unemp .... emp
....................... rate ....... ratio
July 1983 .......9.4% ..... 58.1%
July 1992 .......7.8% ..... 61.5%
March 2003.....5.8% ..... 62.3%

So take your pick, Manny, which recession do *you* think was the "deepest and most severe" employment-wise?

You might also recall that not so long ago Paul Krugman was saying the lowest sustainable unemployment rate was about 6% -- compared to today's 5.8% -- while being rather caustic about intellectual capabilities of those who thought it might be lower.

So is EPI really trying to find a way to twist the innocent numbers above into confessing that 2003 is the "deepest and most severe" of recessions employment-wise of the last 50 years? And does Human Rights Watch have a protocol against the torture of statistics for political ends?

Now, I want my taco before it gets cold!

Posted by: Jim Glass on April 12, 2003 01:20 PM

Two million four hundred thousand jobs lost in little more than two years, not to worry. As long as you are working and making lots and lots there is no recession and will be no recession, especially if there is compassionate conservatism in control.

Well, I think there has been a marked deterioration in the economy since compassionate conservatism came to be, and there is more damage in store from turning a surplus that would have insured our most important social programs to a fierce deficit that will set socal programs in danger for years to come.

Posted by: lise on April 12, 2003 02:01 PM


Here is a sampling of people who have lost their jobs, who do not matter to some.

Posted by: lise on April 12, 2003 02:21 PM


More remarks about people who have lost their jobs, and who do not seem to matter to some.

Posted by: lise on April 12, 2003 02:27 PM

Hmm... the employment ratio numbers are interesting, but does that include people under eighteen or over sixty-five? There's probably been fairly little change in the age structure of the U.S. between 1982 and 2003, but then again, the percentage differences between the employment ratios is small as well. Perhaps when that's taken into account, this recession might look more severe or even milder than the 1991 and 1982 recessions.

Also, one must consider that, say, a 1950 employment ratio number would look VERY low, since even though employment was high, most women were not in the labor force. How has the structure of the labor force changed in addition to differences in age brackets since 1982?

I really ought to be looking this stuff up myself, but I'm feeling lazy at the moment.

As Brad DeLong said, though, it depends on what you are interested in, of course. (That may sound like a big cop-out on Brad's part, but remember, the NBER is having a tough time figuring out what a recession is these days.)

Manny, one might make the same argument in the middle of the most prosperous boom, saying "look at the thousands of people who've lost their jobs recently! Recite the unemployment numbers to THEM!" Does that really do anything meaningful? I'm not saying there's no more concern for the economy than in mid-2000, but what's your point?

Posted by: Julian Elson on April 12, 2003 02:30 PM

David Benoff writes:

"...while job growth has indeed returned to the historical trend line, productivity growth HAS NOT. This is the key to the jobless recovery. The challenge for the US is raising the growth rate enough to expand the labor force in spite of this accelerated productivity growth, a challenge our current administration has been singularly inept at meeting."

"Productivity growth?"

Isn't that just another word for what happens when the remaining five point four people do the same work they always did AND the work that their two point six "down-sized" co-workers used to do too?

Speaking of dismal things, am I the only one around here who reads all the way to "the bottom line" (?:

Tensions Build Ahead of G7 Finance Meeting

By Mark Egan and Glenn Somerville

WASHINGTON (Reuters) - Public quibbling among Group of Seven partners ahead of the war with Iraq has begun anew as talks turn to reconstruction, threatening to hamper efforts to prop up a feeble global recovery....

...U.S. Treasury Secretary John Snow, host of the G7 meeting on the fringes of the spring gatherings of the International Monetary Fund and World Bank, said on Thursday he wants only to shape a "framework" for Iraqi rebuilding, not a final plan...

...Snow said he wanted the G7 to discuss debt forgiveness for Iraq...

...The United States, which as the largest shareholder in both the IMF and World Bank and is often accused of using the lenders as instruments of its own foreign policy, is pushing for them to begin work on Iraq right away.

Nor is Iraq the only area where the United States is seen as working almost unilaterally.

The issue of how to deal with nations who cannot pay their debts was supposed to be the centerpiece of this week's IMF meetings. This weekend, the IMF's policy-setting board was set to vote on changes to the lender's constitution to set up a sort of international bankruptcy court.

The plan was conceived as a way to avoid messy debt defaults like those in Argentina and Russia in recent years.

But, just ahead of the meeting, the United States pulled the rug out from under the idea despite support for it from 70 percent of the lender's members, including Europe."


Activists Stunned by U.S. Debt Forgiveness Plan

Emad Mekay

"WASHINGTON, Apr 11 (IPS) - Finance ministers and development activists gathered here Friday for meetings to discuss the world economy, poverty and reform of the world's financial institutions were stunned when a U.S. official suggested that global creditors should forgive Iraqi debts....

..."It's clearly self-serving," said Soren Ambrose from the 50 Years is Enough network.

The U.S. government has steadfastly opposed cancelling debts in the rest of the world, he added, "even in cases as egregious as the apartheid government's debts in South Africa and Mobutu's debts in Zaire (known now as Congo)"...

...''For more than two decades, the IMF and the World Bank have imposed damaging economic austerity programmes emphasising free trade and private profit over basic human rights on indebted and impoverished countries,'' said Demba Dembele of the Forum for African Alternatives in Senegal.

The semi-annual gathering of the Bank and IMF were already under pressure from U.S. officials to push Iraq onto the agenda at the expense of development issues, a proposed debt restructuring mechanism, poverty and governance of the two organisations often targeted by civil society groups.

The Iraq issue was further complicated when Deputy U.S. Defence Secretary Paul Wolfowitz told Congress on Friday that France, Germany and Russia, countries that opposed the U.S.-led invasion of Iraq, could only assist in rebuilding the country if they forgave billons of dollars of debt owed to them...

...Among the main reasons why scores of activists will take to the streets here this weekend to protest the policies of the U.S. government, the Bank and IMF is that in much of Africa and other developing countries people are held hostage by suffocating debt burdens - spending far more on repayments than on health care and education.

Uganda's Finance Minister Gerald Ssendaula said Friday some African countries have to pay some 80 dollars towards debt on each 100 dollars generated locally. (END)


Posted by: Mike on April 12, 2003 02:31 PM

Mike wins the award for being off topic for his Iraq debt payments post.

Posted by: Dan on April 12, 2003 02:44 PM

I think Jim's right on this one as far as the comparison goes. The labor market situation under Bush looks especially bad when you compare it to Clinton. Poor Dubya, he should have followed Carter.

The quote from a 1996 article by Paul Krugman (long before the productivity boom materialized) is just Jim being disingenuous. Anybody who predicted 4.5% unemployment given the history of U.S. prodctivity up to 1996 should have had their intellect questioned. I don't know too many economists who didn't think the natural rate was in the 5.5%-6% range in 1996, but its possible the smart ones that Jim reads already were predicting a full percentage point (at least) fall in the natural rate way back then.

Posted by: achilles on April 12, 2003 02:52 PM

Golly, Dan...don't you think...don't you think the political-economy ABROAD has SOMETHING to do with the political-economy here at home?

I mean, we ARE all on this bubble together. Aren't we?

Are you thinking DEEPLY now, Dan ;?)


William Pfaff: Global domination carries grave risks

William Pfaff IHT
Saturday, April 12, 2003

Tipping the balance

PARIS Statements by both President George W. Bush and Secretary of State Colin Powell at the start of last week made it clear that the United States does not intend to give the United Nations a political role of any consequence in postwar Iraq.

Washington says that as the United States and Britain waged and won the war they will also manage the peace. The United Nations, a Pentagon official says, will have no role ‘‘in constructing a democratic Iraq.’’

The intellectual and political position of the administration and its supporters is that the United States, as sole superpower, legitimately defends international order because the United Nations has defaulted on this responsibility, having never enforced its resolutions demanding Saddam Hussein’s disarmament.

Unilateralism and preemptive war are said to be necessary to defend the United States, and to establish and maintain a democratic international order, which the United Nations cannot or will not do.

However, Iraq is not that simple. The Fourth Geneva Convention imposes on the military occupier full responsibility for the well-being of the civil population. It severely restricts the occupier’s right to make use of the occupied country’s resources.

No one is going to stop Washington from doing what it pleases in Iraq, but if it goes against international law it will have to pay and stay. The Bush administration would prefer to have the international community pay for reconstruction and have other countries’ forces do the peacekeeping.

Otherwise some kind of deal will have to be struck with the members of the self-proclaimed ‘‘peace camp’’ in the Security Council, and with the European Union, the principal potential international source of reconstruction aid.

This confronts the United States with a problem the Bush administration is unwilling to acknowledge.

The Iraq intervention destroyed ‘‘the reputation the United States has enjoyed for so long as a benevolent power,’’ to quote Robert Pape of the University of Chicago, writing in The Boston Globe.

Pape says that the United States broke the rule ‘‘that democracies do not wage preventive wars’’ by doing what no other democratic state has done in the more than 200 years of the American nation’s existence.

The government of George W. Bush has made it American security policy to prevent any other nation from attempting to equal the United States in military strength. This is unprecedented.

It has inevitably produced a fundamental change in how other nations see the United States. It has caused some other democracies to resort to classic countermeasures against a government newly perceived as a potential threat.

These measures are not military but diplomatic and economic, which are more relevant, and to which Washington is more vulnerable. Thus France, Russia, Germany, Belgium and China used diplomatic methods to isolate the United States on Iraq.

The same methods may be used again in the developing controversy over a UN role in Iraq and over the contribution of the international aid community to war reconstruction.

Pape notes that the European Union is now a more powerful economic and trading power than the United States and argues that if there were a concerted effort to require oil suppliers to bill in euros rather than dollars, this would undermine the position of the dollar as a reserve currency.

A move out of dollars by Asian or European investors would contribute to making it impossible for the Bush government to continue to run its enormous budget deficit. The University of Chicago political scientist estimates that a fall of 1 percent or more in U.S. gross national product could result.

By renouncing America’s traditional foreign policy and adopting one of global military domination, the Bush administration has made a fundamental change in the international balance.

It seems proud to have done so. It seems not to understand that this has been to its own potential disadvantage and to the American nation’s future risk.


Posted by: Mike on April 12, 2003 03:11 PM

Achilles, I think what is relevant about what Jim illustrated in Krugman's past is the utter fatuity of someone in the profession of economics adopting an arrogant attitude towards others' opinions. Economics is an important and fascinating area of study, but for anyone to adopt the conceit that is a precise field of study, therefore allowing for a contemptuous attitude towards those who disagree on matters which are, in large measure, beyond precise measurement, in really quite silly. One may as well be arrogantly contemptuous regarding a difference of opinion among meteoroligists pertaining to a 5 degree range of next Friday's high temperature. For some reason, meteoroligists have a much more realistic view of their abilities than economists; perhaps it comes from the more unforgiving nature of the hard sciences. In any case, few things are more unintentionally amusing than the economist who is absolutely certain that those with whom he disagrees are utter fools.

Posted by: Will Allen on April 12, 2003 03:56 PM

Given that the economy is certainly weak, I will pose a question asked on a related thread: EX-tax cuts, what should be done?

Besides voting Democratic in 2004, that is. :)

Posted by: Bucky Dent on April 12, 2003 03:58 PM

SOME "things economic" ARE pretty clear (and predictable), Will.

Like, for instance, concentration(s) immense of wealth (and thus political power) in the hands of an unaccountable few, like those which accompanied (and followed on) the Industrial Revolution/Civil War here in America AND the days of Empire Building in Europe are BAD "news" for the body politic: in many obvious and not so obvious ways...

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."

--Abraham Lincoln, Nov. 21, 1864
(letter to Col. William F. Elkins)

("Honest" Abe was QUITE a prognosticator. Wasn't he, Will ;?)

Posted by: Mike on April 12, 2003 04:21 PM

Generals always prepare for the last war and economists always prepare for the last recession. But every recession seems to pose a new issue. In the 1970's we discovered inflation and low growth (How could that be?!). The early 80's being the exception where a recession was created in order to crush inflation. The early 90's brought us the issue of consumer confidence. The important part of the initial post is that we are discovering what our new problem is. Our good friend productivity has become so strong that he is squeezing out private sector employment and lowering wages. That poses some very serious questions.

From a starting point we should be able to concede that the answer to problematically high productivity is not supply-side stimulus. So, progressive tax cuts, as opposed to regressive tax cuts, would be a good place to start. Maybe cut the payroll tax and local sales taxes. After all, the gains of high productivity are not going to employees so where are they going? Can they be redirected in a more efficient manner? Would that lead to too much government power? If more government power makes us a more prosperous nation is that a bad thing? Funding states to provide basic services would help those who are hurting. Environmental controls may slow productivity, create jobs in new technologies, and clean our environment. There is lots of discussion to be had. Just as there was in 1991 when people first started paying real attention to consumer confidence.

Posted by: Dan on April 12, 2003 04:25 PM

> If more government power makes us a more prosperous nation is that a bad thing?

We can recite all the historical side-by-sides again, if that'll help: the Berlins, the Koreas, Hong Kong vs. the mainland, etc. In all cases, prosperity was INVERSELY related to government power.

Posted by: Bucky Dent on April 12, 2003 04:49 PM

>Given that the economy is certainly weak, I
>will pose a question asked on a related thread: >EX-tax cuts, what should be done?
>Besides voting Democratic in 2004, that is. :)

Bucky! I always thought you were a fan of Occam's Razor. Why look for alternate solutions, when you can simply vote for fiscally responsible government :)

Posted by: achilles on April 12, 2003 05:08 PM

While I am always willing to defend Krugman, I won't stoop to arguing that he's not arrogant.

Economics is an imprecise science, but without underlying productivity growth (or very high labor force growth) economic growth for the United States in the 3.5%-4% rate is not sutainable. It doesn't matter whether an economist is unable to tell you whether growth will be 1.6% this year or 2.2% with any degree of accuracy, in the United States, unless there is clear evidence of a permanent productivity boom the same economist can tell you with absolutely certainty that long run growth would not be 3.5%-4%. Anyone who claims long run growth to be that high with no tangible proof of a productivity boom should have their intelligence questioned by even a humble know nothing done nothing like me ;)

Anyway, as I said I agree with Jim's main point, this recession is not particularly severe by most measures: it is noticeable for lingering on uncomfortably long with a mild beginning that has gotten a little worse overtime. It is different from the usual short sharp recessions we have gotten used to.

But Brad's and David Benoff's (and once you cut through the hyperbole the EPI's) point is still very valid. A trend in unemployment can only be defined relative to productivity levels (and to labor market institutions). When productivity is higher, trend unemployment should be lower (and was during the Clinton era). To claim that unemployment has merely returned to a value consistent with our historical experience, completely ignores the fact that the old trend is based on a lower level of productivity.

Given the higher productivity, unemployment should be lower; the fact that it is not means that we are leaving millions of potential jobs unfilled because of lack of demand, and yes some of those jobs do belong to the guy who makes tacos for Jim Glass ;)

Posted by: achilles on April 12, 2003 05:26 PM

I'm worried that so many people are refinancing their houses to get money to buy things.

It seems that any good news (retail sales) is coming from increases in debt rather than the results of clearing of debt.

Posted by: IssuesGuy on April 12, 2003 05:32 PM

Wow Bucky, make a statement in favor of environmental controls, progressive tax cuts, and funding state programs and you get compared to Hitler, Kim Jong Il, & Chairman Mao. Let's try a more moderate approach (difficult for idealogues I understand).

Let's compare America before the New Deal and after the New Deal. More government power and more prosperity. Where does that fit into your dogma?

Posted by: Dan on April 12, 2003 05:34 PM

Am I the only one who is hearing the ghost of Rosa Luxemburg in all this ?

We appear to have a pretty classic crisis of overproduction, supercharged by the rapid industrialisation of China at the bottom end (the phrase "colonial competition" comes to mind).

The alleged "iron law of wages" appears to be asserting itself, with the reduction in manufacturing workforces related to moves to lower-cost production centers.

How do we fix it ? Dunno ... but I suspect you'd get more of a economic stimulus from bailing out State governments, rather than from giving tax cuts.

Ian Whitchurch

Posted by: Ian Whitchurch on April 12, 2003 05:35 PM

>Let's compare America before the New Deal and after the New Deal.

Alas, teasing out the impact of WW2 makes that rather difficult.

And I was not comparing you to moral monsters, but pointing out that as a matter of historical fact, prosperity and freedom are inversely related to govt power.

Posted by: Bucky Dent on April 12, 2003 05:54 PM

'So take your pick, Manny, which recession do *you* think was the "deepest and most severe" employment-wise?'

Jim, I'd say "how bad a recession is" is how far off the "steady growth path" everything gets thrown. Using that definition, more or less, this is the worst post-war recession.

Posted by: Jason McCullough on April 12, 2003 06:43 PM

"as a matter of historical fact, prosperity and freedom are inversely related to govt power."

Is that so Bucky? Then we should all be anarchists.

If you don't like the New Deal as an example, then how about The Fed. Or how about post Civil War America versus pre Civil War America.

The element you ignore is corporate power. A little government power used to curb corporate power actually brings more freedom and prosperity to the people. The excessiveness of your examples shows nothing except that tyrants suck. Earthshattering news Bucky.

Posted by: Dan on April 12, 2003 08:49 PM

Has anyone in the Krugman part of this thread pointed out that NAIRU estimates aside, Krugman's central argument (we don't need looser monetary policy as of 1996) was exactly right? Or would Jim Glass have preferred a harder fall and more overcapacity?

Posted by: Henry on April 12, 2003 10:02 PM

If you're trying to gauge the depth of a recession rather than its length, why would you choose for your metric the relative drop in employment at the end of an arbitrarily chosen two-year span, rather than measuring it at the trough?

Posted by: Paul Zrimsek on April 12, 2003 10:33 PM

Looks like they choose two years because right now is two years since the recession started.

Posted by: Jason McCullough on April 12, 2003 11:07 PM

Kudos to Ian!! Bailing out the states would indeed do far more than tax cuts to end the economic doldrums. Unlike Fed budgets, States have to be in balance. To balance, the first cuts states make are on projects: infrastructure: bridges, roads buildings. What does this do to the private payrolls?? Here I will admit conflict of interest. My wife's cousin bids on contracts for hanging doors. He might hang several thousand doors in a single government building. Cancel the project and people on private payroll are out of work. Now multiply this by thousands of projects and hundreds of states and you can make a major dent in private employment.

The problem with this recession is that it started just as a group of ideologue know nothings came into power. Following their ideology rather than economic expertise, they have managed to damage the employment prospects of many Americans. They deserve to be voted out of office for their stupidity, incompetence and reliance on ideology above a true concern for the welfare of the country.

Posted by: bakho on April 12, 2003 11:52 PM

good website

Posted by: http://www.meki.8m.com on April 13, 2003 03:40 AM

>The element you ignore is corporate power. A little government power used to curb corporate power...

Isn't govt spending a multiple of total corporate profits? And last I checked, only governments can compel folks to do things.

See: slippery slope, salami tactics.

Posted by: Bucky Dent on April 13, 2003 05:45 AM

>Bailing out the states would indeed do far more than tax cuts to end the economic doldrums.

Are you unfamiliar with the concept of moral hazard?

Posted by: Bucky Dent on April 13, 2003 05:48 AM

"Isn't govt spending a multiple of total corporate profits?" Only if you ignore sole proprietorships, partnerships, LLC's, and all their employess, the use of fines to extract revenues, property taxes, fees charged to individuals, and of course govt spending that IS corporate proftis. That also ignores small corporations that are not part of the corporate power problem and which drive most of the business of this country. Not all corporations are the same.

"And last I checked, only governments can compel folks to do things" Corporate power manifests in two ways. 1)Using government to do its wishes - the compulsion aspect of which conservatives seem very friendly. 2)Controlling resources and directing them as they desire. No compulsion required.

"See: slippery slope" Yes, Medicare today, Gulags tomorrow. Your arguments are weak like the brain of a child.

Posted by: Dan on April 13, 2003 06:00 AM

>...Only if you ignore sole proprietorships...

So your beef is with the private sector, not just large corporations, as you originally indicated.

If you feel more oppressed by the private than the public sector, you must have a different employment/tax profile than me. :)

>...how about post Civil War America...

The destruction and plundering of the sourth, including the majority of folks who didn't own slaves, is STILL a hot-button issue down there, believe it or not.

Though I am pleased you praised a Republican president. :)

Posted by: Bucky Dent on April 13, 2003 06:09 AM

No, my beef is with large, power wielding corporations. I'm sorry you couldn't comprehend my post.

Dan <--Proud his great^3 grandfather served under General Sherman who preserved the Union, destroyed traitors to America, and began ending the tyranny wielded over the minority in the South through the force of government.

Lincoln was a great president!

Posted by: Dan on April 13, 2003 06:38 AM

You're a funny guy "No, my beef is with large, power wielding corporations....", Dan.

"Large, power wielding corporations"--to the extent that they are really just public "fig leaves" covering up a nasty, brutish (and teeny-weeny ;-) bunch of apes who happen to have inherited more money than sense

[See: http://www.davidchandler.com/lcurve/index.htm for an overview of the problem.

See: http://www.divinerightofcapital.com/ for a practical approach to the solution.]

--are destined, along with theocracies, monarchies, plutocracracies, autocracies and other undemocratic forms of government for the trash heap of history. It's only a question of time. And the ONLY important question for the OTHER 6 billion (or so) of us is:

How many of US (and our children) will THEY take to the landfill with them?

If you REALLY want to improve the long term US (and world) economic "outlook" Dan, I can think of a lot worse places to start than right here:

Tax the Wealthy: Why America needs the estate tax

William H. Gates Sr. and Chuck Collins

"For more than a decade, a powerful group of special-interest organizations has waged a multimillion-dollar campaign to turn public opinion against a tax that falls on the wealthiest 2 percent of the population. It worked. The "death tax," many Americans now believe, afflicts family farmers and small-business owners, robbing them of the opportunity to bequeath their lives' fortunes to their children.

The people pushing this line include the heirs to the Gallo wine and Mars candy fortunes, along with an organized association of more than 100 independent newspaper owners. Together with a veritable antitax industry of think tanks and lobbying firms in Washington, these groups have formed a potent "death tax elimination" lobby.

Of course, the vast majority of family farmers will never owe an estate tax. Rather, the windfall of estate tax repeal will shower upon the heirs and heiresses of the 3,000 wealthiest estates. This elite group will inherit billions in appreciated stock and real estate -- significant capital gains, many of which have never been subject to taxation...."


'Course our neglected transport, sanitation, public education, healthcare & etc.
"infrastructures" offer tempting "pump priming" opportunities, too. If laying "high-speed" track and stuff like that isn't technically challenging and/or innovative enough for you, you COULD tackle our insane and self-destructively short-sighted dependence on fossil fuels--photo-voltaically electrolytically.

But if (as I suspect ;-) you're one of those people who just likes to fight (AND cut taxes, of course ;!), there's always the problem of our ridiculously high military budgets. Then there's a WHOLE ("third") world of under "priviledged" , underpaid, over-worked, ill-fed, ill-housed, ill-served POTENTIAL customers out there DYING (literally, in many cases) for another "Marshall" to come along with a "Plan" for THEM too...

(You wouldn't happen to have access to a white horse, would you, Dan ;?)

Posted by: Mike on April 13, 2003 09:00 AM

"(You wouldn't happen to have access to a white horse, would you, Dan ;?)"

Actually I do. His name is Howard Dean.

As for the rest of your post, if it was directed towards me then you should re-read my posts above.

Posted by: Dan on April 13, 2003 09:41 AM


Ah yes. When it comes to arrogance there is no economist, none none none, of our dear compassionately conservative economists who have an arrogant bone in them. The dears just can not abide other than the rich. Paul Krugman of course is arrogant from bone to bone since the presumptuous columnist is not intimidated by our compassionate dears.

Imagine how fearful Paul Krugman has become to the gentle right right right of the field. Arrogant enough?

Posted by: lise on April 13, 2003 11:35 AM

Golly gee, one makes a comment regarding the imprecision of economics, which reveals as fools those who pretend otherwise, ironically out of their need to label those with whom they disagree as fools, and a torrent of nonsense is unleashed, about "conservatives", among other things. Oh well.

On a non-hysterical note, Dan, some of your points are well taken. Personally, I would favor a total repeal of payroll taxes, along with some degree of means-testing for retirement benefits.

Posted by: Will Allen on April 13, 2003 12:28 PM

Hmm.. I hate to perpetuate this off topic discussion, but regarding the U.S.'s plan to make the Iraqis repudiate their debt, I wonder if the idea is to intimidate financial markets into not funding the enemies of the U.S. that are possibly under threat of invasion. If we make the Iraqis repudiate the debts incurred under Saddam Hussein, would you buy Iranian bonds now?

Do you think that's the strategy here, or am I way off?

Posted by: Julian Elson on April 13, 2003 02:03 PM

"Golly gee...a torrent of nonsense is unleashed, about "conservatives"...On a non-hysterical note...Personally, I would favor a total repeal of payroll taxes..."

Let me guess, Will: You're against death too.

Am I right? I AM! I am right. Aren't I, Will?

(How do you feel about gravity and fluoridated water, bubba ;?)

Posted by: Mike on April 13, 2003 02:24 PM

Uh Oh. Bad news for the P.T. Barnum wing of the wing-nut faction of the Chicken Hawk party....

AP Poll: Public Opposes More Tax Cuts

WASHINGTON (AP) -- Six in 10 Americans say they are against more tax cuts when the country is at war and already faces budget deficits, according to an Associated Press poll. Still, half of all Americans say their taxes are too high.

The poll, taken in the days before Tuesday's tax deadline, found that 61 percent say it would be better to hold off on additional tax cuts right now to avoid making budget deficits worse and ensure there is adequate money to pay for the war..."


Posted by: Mike on April 13, 2003 03:59 PM

Bucky Dent wrote:
>[somebody else wrote, but jking doesn't know who:]
>>Bailing out the states would indeed do far more than
>>tax cuts to end the economic doldrums.
>Are you unfamiliar with the concept of moral hazard?

Not sure about the first poster, but I am aware of it. I'm not sure it applies in this case to the extent that you think it does. In slack times, tax collections go down for reasons that are perfectly obvious and relatively independent of the actions of any state. At the same time, potential expenses increase, and so states generally face extreme revenue/outlay mismatches during economic downturns, which leads them to take anti-stimulatory actions like raising taxes and/or cutting spending. This is the problem we would like to solve, and there are at least 3 approaches.

The first approach is to insist that state governments adopt revenue and spending policies that build up significiant surpluses in good times with the plan to spend them down during temporary downturns. Frankly, this isn't a bad approach at all, except that it can be extremely difficult to achieve politically. (Running a "lower the taxes" campaign against an administration that does run surpluses is really easy.) Another difficulty is that big reserve funds at the state level do not arguably generate as high a return as the same money in the hands of people who spend and invest it.

A second approach would be to change (in a drastic way)
the kinds and level of services that people expect states to provide. Some things could be federalized, while others
might be dropped entirely. One could argue that some of this already happens, in that levels of state spending differ substantially from state to state. The problem is that the change could well be drastic (and potentially unpopular) while I see little evidence that states which have lower overall spending have larger or faster growing economies than others.

A third approach would be for states to receive, from the federal government, supplemental aid of some kind during economic downturns to cover a predictable *share*
of the additional expenses such events cause. I think this is what some people have in mind when they talk about a "bail-out", but I think that term has additional and inaccurate connotations in many cases.

Now, there is an independent idea one could have about how to fund this. It is well-known that there are states that are "net donors" to the federal budget in the sense that they produce more tax money than they consume in spending. Not coincidentally (I don't think), these are the states whose budgets are hit hardest during economic downturns. I think you could really drain most of the rest of the "moral hazard" argument out of any federal aid to the states program by tying the amount of the aid given to each state to its historically recent "tax donation" (taxes given in excess of spending). Indeed, I think you could see this as a way to help correct the current situation where richer states subsidize the poorer ones, which, alas, seldom climb out of the moral quagmire caused by their dependence on disproportionate federal spending.

Posted by: Jonathan King on April 13, 2003 10:38 PM

Jonathan King, I don't know how good an idea that is as a countercyclical fiscal policy, but my sense of social justice objects to it! The net donor states are, generally speaking, richer than the net receiver states. While I don't support transfers from rich regions to poor regions on principle, I do support transfers from rich people to poor people, and since richer people tend to live in richer regions, and poorer people tend to live in poorer regions (the law of averages has to come in somewhere!), poorer regions would receive more federal spending, pork like agriculture subsidies aside. What you're proposing is that we temporarily increase transfers to richer states during a recession. In a recession, though, income for a region might be 5% below expected trendline income. Let's assume that the poorer, net receiver states stay on trend, and that the richer, net donor states drop 10% below trend. As it turns out, though, the rich regions can be twice as rich as poor regions (I think New Jersey's about twice as rich per capita as Mississippi). If Mississippians make $1 for every $2 New Jerseyans make, then when NJ's income in a recession drops 10% below trendline, New Jerseyans make $1.80 for every $1 that Mississippians make. Then, the proposal is, to give special recession subsidies to New Jersey?

Of course, there are rich regions with poor people and poor regions with rich people, but still, on average, we're helping richer people when we give money to richer regions.

If that's really fantastic countercyclical policy, then I suppose I'd support it to make recessions shorter, but as a matter of social justice, I can't help but feel some discomfort.

Posted by: Julian Elson on April 13, 2003 10:55 PM

Gee whiz, Mike, I know it is now politically unacceptable to alter the way in which poorer, younger, people subsidize the retirement of older, richer, people. I just don't think the practice is a good idea, and I agreed with Dan's point about cutting regressive taxes. As to death and flouridation, well, nobody's gettin' out of here alive, with or without their teeth, so I don't think about either very much.

Posted by: Will Allen on April 14, 2003 07:25 AM


I’m not so sure about your “should” in “Given higher productivity, unemployment should be lower.” It would be lower if growth were faster, which is your point, I think, but that is true for any pace of productivity growth. The “should be” seems the right answer from a simple micro point of view (more productivity means lower costs, so higher market share, so more hiring for the more productive firm), but assuming a new, permanently higher pace of productivity growth, it is only the Goldilocks story of higher productivity leading to lower inflation, higher real wages and profit margins, that drives the assumption of lower unemployment with higher productivity. Goldilocks is no longer with us. What story do we tell now to argue that higher trend productivity growth “should” mean lower unemployment all around?


Exactly right. Zero has many magical qualities, but it is a rotten point around which to judge economic success or failure.

By the way, does anybody else think the EPI chart suggests a trend toward bigger job losses in recent recessions (I need you to put your thumb over the 1973 bar)? Seems to be we’ve pretty clearly gone from modest jobs growth during recession, on average, in the 1950s and 1960s to an ever increasing job loss starting in the 1970s. Again, if 1973 is an oddball, then is it growing labor market “flexibility” (as we like to call it) that explains the trend, assuming there really is one? Is this a reason to make automatic stabilizers a bigger part of the budget (federal and state)?

Posted by: K Harris on April 14, 2003 07:35 AM

>Jonathan King, I don't know how good an idea that is as a
>countercyclical fiscal policy, but my sense of social justice
>objects to it! The net donor states are, generally speaking,
>richer than the net receiver states. While I don't support
>transfers from rich regions to poor regions on principle, I
>do support transfers from rich people to poor people, and
>since richer people tend to live in richer regions, and
>poorer people tend to live in poorer regions (the law of
>averages has to come in somewhere!), poorer regions
>would receive more federal spending, pork like
>agriculture subsidies aside.

If social justice is what bothers you, remember that economic downturns disproportionately affect the poor everywhere. The programs that need increased spending during recessions are those that aid the poor or the newly (and hopefully transiently) less fortunate who lost jobs. Providing more aid to states for those causes then does what you would like, and, further, would tend to reward states that provide a higher level of support for such people. Moreover, the effect of this would not be to make states like Mississippi into donor states, only to make New Jersey less of a donor when its own residents need help.

Considering the role of social justice at a larger level, moreover, I would argue that the richer states can only stay richer by providing a better overall environment than others, and that part of that better environment is their superior decision-making on a variety of issues, social and otherwise. Mississippi didn't become (or remain) Mississippi due to some freak accident; they have aggressively pursued some policies that we can now see are guaranteed losers, and hoped that porkbarrel spending would make everything okay in the end. It doesn't.

I do have to admit that the idea of using net donor status to justify this kind of federal spending has a rhetorical angle as well. I think that the recent *lack* of federal effort to provide more aid to the states in the face of demonstrated acute need relies on some BS arguments about self-reliance which would be exposed for what they are if this policy were seriously looked at.

In any case, I think it is better to turn the argument into one about what kind of acute aid would be useful in what places under what conditions rather than to dismiss the whole thing by shouting "moral hazard" when the current situation exists *because* we're willing to put up with substantial moral hazard.

Posted by: Jonathan King on April 14, 2003 07:45 AM

K Harris,

It may be that we are seeing greater labor market flexibility. But since the EPI numbers are looking at the picture two years after the recession starts, and not at total recessionary private sector unemployment (I have no idea how you would calculate that), it could just be that we are seeing a longer business cycle. The effects of the recession now persist longer, but the expansions and booms also last longer.

Alternatively, as David noted, since these numbers are for the private sector only, it implies that public sector jobs are now more secure, if not actually expanding. If we assume that total unemployment in a recession can't get too high (due to political pressures, etc.), then higher private unemployment must be trading off with lower public unemployment.

We just federalized tens of thousands of airport screeners, and called up tens of thousands of reservists. I wonder how do those shifts in employment affect these numbers.

Posted by: Ethan on April 14, 2003 08:17 AM

K Harris

Empirically, I think Okun's law is pretty robust (Brad or someone more knowledgeable can correct me if I am wrong). And as long as Okun's law is robust then a permanent productivity shock, which leads to permanetly higher trend output should lead to permanently lower unemployment.

Posted by: achilles on April 14, 2003 10:02 AM


Point taken. There is the ever-present fear that, just when we begin to think an economic relationship is inherently stable, the wheels come off (nefarious M2 velocity, for instance). Okun has to do with the jobless rate. I haven't done any serious looking to see if the rate has come badly unglued from private employment. (Ethan, EPI confirms in the same report that government employment has, until March, taken up some of the slack.)

Thinking about the EPI picture a bit more (sorry to get back on subject again), if there is an increase in sensitivity of the labor market to economic downturns, is seems roughly to correspond to the reduced volatility of a bunch of other big economic indicators, like inflation, industrial production and GDP. The break in volatility, if I recall correctly, is usually put in the early 1980s. Any chance that labor hoarding was making recessions worse back then, and that less hoarding makes other data series look better now, by reduced pressure on firms' balance sheets during slack periods?

Ethan is right. I need to look at total employment to see if there is something shielding demand from the worsening slides in private employment.

Posted by: K Harris on April 14, 2003 12:11 PM

Have you considered what will happen when you cut the dividend tax with regards to state and city bonds? Cost of capital increases will translate into higher local and state taxes with no offsetting stimulus.


Posted by: MattS on April 14, 2003 05:52 PM

Munis and stocks are radically different asset classes, with very different volatility, risk and yield profiles. Eliminating taxation on equity dividends is therefore not likely to materially dampen muni demand.

As for there being no offsetting stimulus, that ignores the "cash in pockets" effect on households with dividend income, and the structural efficiencies of bringing debt and equity financing costs into line at the corporate level.

The "progressivity" argument, for those so inclined, is a more logical anti-dividend tax cut argument.

Posted by: George Zachar on April 15, 2003 08:33 AM


GROWING JOB JITTERS might seem misplaced, since the unemployment rate has held steady. March's rate of 5.8% was the same as in February, and the first-quarter average was barely higher than it was a year ago.

But the jobless rate very likely understates the weakness in the labor markets. Since the recession began two years ago, the percentage of the working-age population that is in the labor force has shrunk from 67.1% to 66.2% (chart). The decline is from the post-World War II highs hit during the late 1990s, when changes to welfare programs and the overall boom in the economy drew many otherwise marginal workers into the labor force. A drop of about 1% represents 2 million people who have dropped out of the workforce, presumably because they do not think a job is available. If these people were still seeking work, the jobless rate in March would have hit a 10-year high of 7.1%.

Once the war ends and companies begin hiring again, many of these people may return, perhaps rapidly, to the labor force to start looking for work. That suggests the unemployment rate could pop up over 6% later this year, even as the recovery shifts into a higher gear.

Posted by: kenny on April 15, 2003 06:46 PM

"Our good friend productivity has become so strong that he is squeezing out private sector employment and lowering wages. That poses some very serious questions. "

Yes, it does. Such as "what do we do when productivity is so high that our current workforce is capable of producing signficiantly more of today's products than consumers could possibly want?".

The answer, of course, is for part of that workforce to switch to producing brand-new products. Consumers satisfied with the quantity of existing products can be enticed by the right new product (or former luxury product made with a new, cheaper process). Of course, the easier that it is to get brand-new products to market, the more rapidly this switch can take place, and the sooner that superfluous workers can be useful again.

In several broad categories, new products are introduced with difficulty, for regulatory reasons. One notable exception has been the computer hardware and software industry, where new products can be introduced with impunity without having to be blessed by any agency, no one needs permission to buy or sell products, and the quality and price of products have improved at astounding speeds while generating lots of high-paying jobs. Unfortunately, new computer products won't keep the consumers enticed forever; it's time for our government to note the success story and the reasons behind it, and open other industries and allow them to experience the same process.

There may be some loopholes left unexploited; our next boom will probably come in an area that no one (including legislators) has paid much attention to. But that won't get us our flying cars, our old-age cures, or our trips to the moon - those boons are already tied down under miles of red tape.

"Let's compare America before the New Deal and after the New Deal. "

Well, until WWII, America after the New Deal sucked at least as bad as immediately before the New Deal, and far worse than America just a few years before the New Deal.

Today, of course, we are materially better off than we were before the New Deal. That simply demonstrates that the New Deal didn't manage to completely halt the march of human progress throughout the last several decades. That doesn't tell us whether or not we'd be better off still if the New Deal had never happened; I strongly suspect that we would.

"Unlike Fed budgets, States have to be in balance. "

Fine. Remove all mandatory State spending imposed by the Feds. Problem solved.

If the states want to keep up services, they can collect the money themselves. If a state's citizens don't consider a service worth paying for, that's hardly a worthy argument for hitting up the residents of the other 49 states to pay for it in their stead.

Posted by: Ken on April 15, 2003 07:37 PM

Munis and stocks are radically different asset classes, with very different volatility, risk and yield profiles. Eliminating taxation on equity dividends is therefore not likely to materially dampen muni demand.

Um, this is not true. Raising the return on one asset class via the tax code makes other asset classes less appealing.

As for there being no offsetting stimulus, that ignores the "cash in pockets" effect on households with dividend income, and the structural efficiencies of bringing debt and equity financing costs into line at the corporate level.

Um, the $550 billion tax cut plan I heard bandied about actually delays the dividend tax cut a few years out. A full dividend tax cut now would cost $780 billion, but that seems off the table.

Structural efficiency is a good thing in capital markets, but that's a supply side argument, not a demand side one, and therefore stimulus doesn't play into it.

The "progressivity" argument, for those so inclined, is a more logical anti-dividend tax cut argument.

I'm actually for a dividend tax-cut, though I'd prefer it were done at the corporate level, and that marginal tax rates for higher brackets were raised to make this revenue-neutral. But then, I'm just a damn commie I guess.

Posted by: MattS on April 15, 2003 09:04 PM

That last post had tags removed. Sorry if it's hard to understand.

Posted by: MattS on April 15, 2003 09:06 PM

>Raising the return on one asset class via the tax code makes other asset classes less appealing.

I hedged by saying "materially". :)

Stock dividends, even tax free, are way below long duration muni-yields. And stocks are far more volatile, and likely to suspend payments, than munis.

Would taking the after-tax yield on GE stock all the way up to its nominal 2.73% make the equity a competitor with 5% California GOs? Not likely, when you consider CA long munis have only one third the price risk/volatility of GE stock.

Posted by: George Zachar on April 17, 2003 05:54 AM
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