October 02, 2003

Brie and Wine Speculations, No. XVIII

"Suppose you were to try to construct a scenario according to which the U.S. unemployment rate would decline to below 5.5% by the late summer of 2004. How would you do it?"

"Well, the first thing I would do would be to assert that the recent spike in productivity growth was a cyclical phenomenon--that the U.S. economy has changed from one in which periods of slow-output growth are periods of slow productivity growth (as many firms keep valued workers on their payroll even though they do not currently have work form them to do) to periods of rapid productivity growth (as firms that are not sure that production will increase rapidly hunker down, cut costs, and work their remaining work forces harder.

"I would then say that, as output growth accelerates in the current fall and winter, firms will become more confident that a strong recovery is really here. They will become eager to increase their labor forces to gain the capability to satisfy expanded demand. And they will also become eager to step the pace of work back down to a more normal level--and will in fact have no choice, as a falling unemployment rate would diminish firms' bargaining power.

"Thus I would say that rapid productivity growth in the past couple of years tells us that the cyclical pattern of productivity growth has reversed itself, and that a period of faster output growth like we are now looking forward to will be a period of relatively slow productivity growth, of rapidly rising employment, and of a falling unemployment rate."

"And?"

"And?"

"Do you think this is what is going on?"

"No. It seems significantly more likely that the ongoing boost in productivity is a structural and not a cyclical phenomenon."

"But we will know by next summer."

"Yes we will."

Posted by DeLong at October 2, 2003 08:45 PM | TrackBack

Comments

My scenario for how unemployment falls to 5.5% by August 2004 goes like this:

1) Everything you see today continues on the same trend it is now. And then either (2a) or (2b) occurs:

2a) Somebody in the administration gets the Labor Department to tweak the numbers that get reported.


2b) Somebody in the administration gets them to change the interview question used with households to "So since you've been out of work, you really haven't really been looking for a job very hard, have you?" And then when they respond "no" to the tag question, you chalk 'em up as discouraged workeres.

3) Profit!

Posted by: Jonathan King on October 2, 2003 09:39 PM

Ok. But this misses the whole point. The economy affects voters not through logic or intellectual arguments. The economy affects voters by the way they and their friends and acquaintances EXPERIENCE the economy. ARGUMENTS don't cut it with voters. It is pure GESTALT!

My boss is not giving me a pay raise because he knows I can't go work elsewhere. My son cannot find a job and he is living at home and irritating me. This Bush clown is giving me headaches. He needs to retire! This is what the voters are EXPERIENCING. Abstract thoughts do not get the jobless son out of the house and into the economy!@!!!

This is a stupid argument. It's the economy stupid!!!!!

Posted by: bakho on October 2, 2003 09:42 PM

bakho, I think that Jonathon is making a joke, that the administration could produce the numbers (not the reality, just the numbers).

The scenario given in is weakest in the third paragraph. Not only does the labor market have to radically change in less than a year, but management's worldview has to change, and be converted into actions. I think that it took several years for employers to realize that the late 90's job market was not the early/mid 90's job market. There's no reason for them to learn any faster this time.

Posted by: Barry on October 3, 2003 05:49 AM

In case anybody decides to take the notion of BLS tweaking the data seriously, it is worth noting that the BLS commissioner was recently asked about the divergence between household and establishment job counts. The answer was to take the establishments count more seriously. In other words, given the chance to choose between a weaker and a less weak series, the commissioner chose the weaker as more important. That is a pretty stand-up response.

Posted by: K Harris on October 3, 2003 06:58 AM

bakho,

I think you are right in how consumer confidence works, but your anecdote is just that. I just got hired, my friends that are not employed are weighing between different job offers, and all of my (3) siblings not in college are employed.

My anecdotal view of the current state of job marked is different from yours. What is the truth nationwide? I have no idea, but probably will this time next year.

Oh - try charging your son rent.

Posted by: jason on October 3, 2003 10:09 AM

bakho,

I think you are right in how consumer confidence works, but your anecdote is just that. I just got hired, my friends that are not employed are weighing between different job offers, and all of my (3) siblings not in college are employed.

My anecdotal view of the current state of job marked is different from yours. What is the truth nationwide? I have no idea, but probably will this time next year.

Oh - try charging your son rent.

Posted by: jason on October 3, 2003 10:13 AM

bakho,

I think you are right in how consumer confidence works, but your anecdote is just that. I just got hired, my friends that are not employed are weighing between different job offers, and all of my (3) siblings not in college are employed.

My anecdotal view of the current state of job marked is different from yours. What is the truth nationwide? I have no idea, but probably will this time next year.

Oh - try charging your son rent.

Posted by: jason on October 3, 2003 10:13 AM

Barry writes:
> bakho, I think that Jonathan is making a joke, that the
> administration could produce the numbers (not the
> reality, just the numbers).

Yeah, it was a joke. Apparently, not a very funny one. I obviously agree with Bakho that you cannot constuct a crisp deductive argument whereby somebody who feels the country is "headed in the wrong direction" can suddently be convinced that everything is fine and dandy. This is *exactly* where Bush 41 got caught.

Similarly, Arnold Schwartznegger is going to be elected the next governor of California not because he has the foggiest notion of how to solve the state's problems, but because people enjoy watching him perform. I do have to admit he's about 50,000 times more entertaining than Gray Davis. So, in her own way, is the porn star who is running. It's pretty amusing to me that the one can become an establishment candidate while the other is still a running joke.

Posted by: Jonathan King on October 3, 2003 10:14 AM

sorry about the triple post.

Posted by: Jason on October 3, 2003 11:43 AM

On a more important issue, how's the brie?

Bristol Farms has been carrying much better brie than it used to, but I can't find any that hasn't been pasteurized and it's just not nearly as good as that found in France.

(Do you know that the French don't have a word for "Pasteurize"? [sorry, couldn't resist].)

Posted by: FDL on October 3, 2003 02:36 PM
Post a comment