October 31, 2003

Max Sawicky Announces "Miserable Failure Week"

Max Sawicky announces that next week on his weblog will be "Miserable Failure Week"--focusing on the lousy state of the labor market, the remarkable and unique nature of the current job-loss recovery, and the responsibility that George W. Bush bears not for everything that goes wrong with the economy but rather with his failure to "make a serious, credible effort" to devise good macroeconomic policies that will generate high employment and rapid wage and salary growth:

Weblog Entry - 10/31/2003: "IT'S THE JOBS, STUPID": ...On Level Zero of public economic discourse, the new GDP growth number is being subjected to the usual ignorant banter. Among Bush toadies, we hear huzzahs because the ship of economic growth has come in. Now they are finally ready to say it's Bush's economy, not Clinton's. When the delicate matter of jobs is raised, the right responds, Ha! you are only abandoning this metric (GDP growth; they don't actually use that term) because it doesn't work for you. Well, we remember that before the GDP number came out, the right was venting about the wonderful leading indicators that showed prosperity was just around the corner. Or about low interest rates and other "fundamentals" that either bespeak economic stagnation, or that are irrelevant to family incomes.

That some evidence suggests the recovery is fragile... is... a secondary matter. Economic stimulus is in part an exercise in shifting future spending to the present. The danger is that you can go too far... creating future spending shortfalls. An example is the stimulus given to auto sales by low interest rates....

Here we have been consistent, focusing on employment. That's the source of most incomes. (Their modest investment income derives from savings out of wages.) When the Bushists produced dishonest, laughable predictions of job growth resulting from tax cuts, back in July we began to keep score. Next week we'll get the report for October. It will be very hard for the numbers to match the promises that were made by the President.... We have also warned that without doubt, the job numbers will turn positive and even be high, sooner or later. (If not, we're in a whole different ball game.) Indeed, the previous report showed a small increase in employment for September. The Bushies will say this means we are on the right track, and none too soon. But it merely means that we have reached a point in the business cycle congenial to their political rhetoric.

The president's commitment of 1.4 million new jobs by the end of next year (on top of previous job growth promises) is as improbable as ever. The huge trough in employment since 2001 means the President's economic policies are already a miserable failure, to coin a phrase. If you suffered from a curable, debilitating disease, you would not approve of a physician who prolonged the period of your suffering, with attendant, permanent damage to your long-term health, simply by virtue of getting well eventually. Next week we will delve into the consequences of malign neglect in fiscal policy.

Can presidents steer the economy at will? No. What they can do is make a serious, credible effort, something this President has not done. I want to note that in 1993, President Clinton was faced with a roughly similar situation and was less than aggressive on the stimulus front. The early Clinton years were not great for job growth either. The difference for Clinton was a responsible approach to deficit reduction.... I do not cotton to some arguments that liken this recovery -- such as it is -- to opportunistic "hot check" writing.... Hot checks are exactly what the government should be writing to stave off recessions. The problem with these hot checks -- deficit-financed tax cuts -- is that they were not hot enough, in the sense of being targeted to those with the highest propensity to spend the proceeds.

Next week on MaxSpeak, "Miserable Failure Week." (I know, the joke is obvous; that would be like every week here, but now you can't make it because I already have.)

And it's all twue! It's all twue!!

Posted by DeLong at October 31, 2003 11:15 AM | TrackBack

Comments

Interesting aside on the real GDP news. Lawrence Kudlow trumpets it of course but then he suggests the news is really better when you look at nominal GDP growth - as if inflation is a good thing?

Posted by: Hal McClure on October 31, 2003 12:02 PM

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Interesting aside on the real GDP news. Lawrence Kudlow trumpets it of course but then he suggests the news is really better when you look at nominal GDP growth - as if inflation is a good thing?

Posted by: Hal McClure on October 31, 2003 12:05 PM

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There's an interesting homomorphism between GW Bush's handling of the economy and the tackling of global warming.

First there's denial (things aren't really that bad, it's just the whiners and doom-mongers making a racket)

Then there's acknowledgement that a problem exists (yes, GWB has made some wrong decisions, yes, the planet is heating up) but disavowal that Our Team has done any real damage -

The economic difficulties are so big that GWB's influence on them is minimal;
The global warming is of too great a magnitude to have been caused by little old us.

(p.s. the latter brings to mind a quote in NY Times from years ago - "Climate is an angry beast, and we are poking it with sharp sticks")

Posted by: anna on October 31, 2003 12:45 PM

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Dr. Brad,

I apologize for the multiple trackback pings.

At my end, I was getting a timeout error, so I kept sending.

Keep up the good work.

Posted by: Retrogrouch on October 31, 2003 12:57 PM

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Anna -

`I'm sure I'll take you with pleasure!' the Queen said. `Twopence a week and jam every other day.'

Alice couldn't help laughing, as she said `I don't want you to hire me -- and I don't care for jam.'

`It's very good jam,' said the Queen.

`Well, I don't want any to-day, at any rate.'

`You couldn't have it if you did want it,' the Queen said. `The rule is, jam to-morrow and jam yesterday -- but never jam to-day.'

`It must come sometimes to "jam to-day",' Alice objected.

`No, it ca'n't, said the Queen. `It's jam every other day: to-day isn't any other day, you know.'

`I don't understand you,' said Alice. `It's dreadfully confusing!'

`That's the effect of living backwards,' the Queen said kindly: `it always makes one a little giddy at first --'

`Living backwards!' Alice repeated in great astonishment. `I never heard of such a thing!'

`-- but there's one great advantage in it, that one's memory works both ways.'

`I'm sure mine only works one way,' Alice remarked. `I can't remember things before they happen.'

`It's a poor sort of memory that only works backwards,' the Queen remarked.

Posted by: Anne on October 31, 2003 01:09 PM

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It will be interesting to see if the employment numbers increase from more job creation or less job loss. The job loss has slowed a bit suggesting that rapid economic restructuring may be slowing.

As for Mr. Bush talking about the employment problem, when employment was not improving, he did not talk about it. Now that it might be improving, he is talking about it so he can claim responsibility for the improvement.

If jobs are recovering, then it is too late for fiscal stimulus/ aid to the states, etc. because their fiscal picture will improve drastically with greater employment. My worry is Bush will fail to collect enough revenue on the up side. There are two ways to slow inflation. One is to raise interest rates, the other is to collect more tax dollars.

Interestingly, Bruce Bartlett writes about TAX INCREASES under Reagan.

http://www.townhall.com/columnists/brucebartlett/bb20031028.shtml

I guess Bruce got tired of all the spin about Reagan tax cuts.

Posted by: bakho on October 31, 2003 02:01 PM

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>

It seems to me that liberal economists are continually suggesting or implying that dollars which are not handed to a clerk in some retail store at the mall somehow do not make their way into the economy. As if the tax dollars returned to the "rich" who have disposable income will be stashed under a mattress or burned for fun in the fireplace. Yet common sense would suggest that these dollars also directly enter the economy, in the form of investments, savings accounts, etc, where they have the opportunity to be reused in the private sector, earning profits which will then be taxed. So, is this preference for mall *spending* an economic value or a social(ist) value?

Posted by: Roger Landers on October 31, 2003 02:47 PM

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>

It seems to me that liberal economists are continually suggesting or implying that dollars which are not handed to a clerk in some retail store at the mall somehow do not make their way into the economy. As if the tax dollars returned to the "rich" who have disposable income will be stashed under a mattress or burned for fun in the fireplace. Yet common sense would suggest that these dollars also directly enter the economy, in the form of investments, savings accounts, etc, where they have the opportunity to be reused in the private sector, earning profits which will then be taxed. So, is this preference for mall *spending* an economic value or a social(ist) value?

Posted by: Roger Landers on October 31, 2003 02:52 PM

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An example of a non-stimulus tax-cut:

On Monday I give Bill Gates $200 Billion in tax relief.

On Tuesday Bill Gates buys $200 Billion in US Treasuries.

All Government spending both takes money out of and puts it into the economy. If you don't tax, you must borrow. (Unless you are printing money...) The stimulus related to a tax cut can only come because the money bounces around a lot before it comes back to the government. Think of it as a game of pinball; the interest on the debt (the quarter) is only worth it if the ball stays in play long enough. If you pull back the plunger and the ball heads up and drops straight down through the middle of the paddles you would have been better off not playing.

Posted by: chris bond on October 31, 2003 03:11 PM

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Brad,

You're not as partisan as Sawicky, and I realize that you're excerpting his post to appeal to your left-of-center audience, but I have to ask, when are liberals going to admit that the recession and many of the jobs lost under Bush are tied to things Bush had little control over -- the collapse of the overheated tech economy in 2000 and the contraction of global trade in 1999-2000?

Yes, Bush deserves to be hit for his deficit management (or lack thereof), but absent the twin booms in trade and technology that fueled tax revenue growth in the mid-1990s, Bush's situation is simply not analogous to Clinton's economic expansion.

P.S. It also goes unmentioned by Sawicky that Clinton's deficit reduction was also accomplished via major entitlement reform, and I'm ashamed as a Republican that Bush has been too cowardly to continue work started by Clinton and Gingrich. I shudder to think of the cost of the new prescription drug entitlement, absent Medicare reforms.

Posted by: Matthew Stinson on October 31, 2003 06:03 PM

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Matthew- Yes Bush is not responsible for the recession or the job losses. These are structural changes in the economy. When workers are unemployed, the states can pay unemployment benefits or the government can put them to work building infrastructure. In case you have not noticed there is a considerable shortfall in funding our infrastructure. Not only did Bush not do anything to help unemployment or build infrastructure, he took our Social Security taxes and gave his wealthy campaign donors income tax cuts.

As for welfare reform, yes Clinton did it, but under conditions where unemployment was at 4%, money was put in place for child care and workers benefitted from increases in the EITC. When Clinton was running surplusses, we were collectin OVER 20% of GDP in Revenue. Mr. Bush is collecting only about 16% of GDP in revenue and he has pushed spending over 20% of GDP.

As for prescription drugs, the drug companies need to make back their investment costs Plus profit. They can do it by charging megabucks for a few prescriptions or charge lesser amounts for megaprescriptions. The key is cutting a volume deal with the pharmaceuticals so that they can make a more profit than they do now, but more people are covered.

Posted by: bakho on October 31, 2003 07:45 PM

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>>when are liberals going to admit that the recession and many of the jobs lost under Bush are tied to things Bush had little control over...?<<

Well...

http://www.j-bradford-delong.net/movable_type/2003_archives/002609.html

Posted by: Brad DeLong on October 31, 2003 08:17 PM

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Partisan? Moi? LOL. I haven't voted for a Democrat for president since 1992. I check 'Kicking Ass' every day, in search of things for which to kick their ass.

That's almost as funny as the idea of Brad quoting me to enhance his popularity. Good thing I only use my Power for good, rather than Evil.

Mr. Stinson, those in the know will tell you that the contribution of 1990s legislation to deficit reduction is much less than typically cracked up to be. The 1993 budget, passed with zero Republican votes if memory serves, was key in turning around the trend. The 1997 'entitlement reform' was relatively small potatoes. From 95 to 00, the economy did most of the work.

If you had read more carefully, I never blamed Bush for the onset of recession. I criticized his response. As for whether now is analogous to 1992, the words I used were "roughly similar." Big deficits, sluggish employment, hello?

As far as spending goes, bakho, welfare reform arguably increased spending. Without the block grant, the caseload drop would have caused benefit reductions. The Urban Institute has a paper on this.

This bit from Mr. Landers about money going back into the economy, regardless of what the government does with it, proves he has never cracked an intro to economics text. "Jane Galt," claims to expertise notwithstanding, is another standout in this vein. There is this thingy called an expenditure multiplier. Now you can doubt its value as a theoretical construct, but when somebody says the money goes back into the economy regardless of spending v. saving behavior, it nearly proves they never heard about it to begin with.

Brad explains it all by talking about a snail and a bunny rabbit.

Posted by: Max Sawicky on October 31, 2003 08:33 PM

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@Roger:
"Yet common sense would suggest that these dollars also directly enter the economy, in the form of investments, savings accounts, etc, where they have the opportunity to be reused in the private sector..."
Indeed, the dollars have the "opportunity" to do so, but will they jump at the chance? Over the course of the last 20 years, the U.S. has become a financialized economy - with the banking and Wall Street sector generating 40% of economy-wide profits, instead of 10% in the past. Ultimately, this trend is not sustainable. It is an asset buildup which, if it went on uncorrected, would end in yet another episode of asset meltdowns. If the U.S. generated, e.g., more pharmaceutical innovations than the rest of the world, yet continued to increase the percentage of its population without health insurance coverage, only expanding the duration of patent protection would guarantee the long-term profitability of the pharmaceutical industry. Similarly, financial assets can only continue to become more profitable at rising levels of risk. Until the risks turn into losses, of course.

It used to be that consumerism was very successfully being highlighted as the quick route towards an appreciation of the market mechanism. It certainly was perceived that way by poverty-stricken victims of socialism. Frugality will not endear the U.S. to the rest of the world - which mostly hasnīt had a chance yet to experience the degree of consumer satisfaction Americans are accustomed to.

Posted by: Joerg Wenck on November 1, 2003 03:21 AM

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Max, by 'partisan', a right-winger means 'critical of Bush'. By 'Bush hater', a right-winger means 'critical of Bush'.
By 'shrill', a right-winger means 'telling uncomfortable truths'. Actually, 'telling the truth at all', since truth itself is not friendly to Bush.

Posted by: Barry on November 1, 2003 05:28 AM

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uh... "homeomorphic", not "homomorphic"

and Barry -
you forgot "whining" and "gloating"

Posted by: anna on November 1, 2003 12:25 PM

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I wrote this game quite a while ago:

There's all sorts of abstractions here that are extremely simplified. The monetary sector isn't how the real world works. The model doesn't allow for tax cuts to have varying impact depending on how progressive or regressive they are.

And I set the initial conditions - a large downward shock - and the worst final message - a comparison to Hoover - long before Bush was elected.

Posted by: Robert Vienneau on November 1, 2003 12:26 PM

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The following URL should have been in the previous post:

http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Keynes.html

Let's see if the following is clickable:

http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Keynes.html

Posted by: Robert Vienneau on November 1, 2003 12:32 PM

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Once (at least), when asked about the current account deficit, Greenspan answered that he used the direction of the dollar as rule-of-thumb guide to whether the deficit was driven by foreign investment flows or by US demand for imports. I wonder if Landers' objection to the lack of discrimination between investment and consumption cannot be addressed in the same way. When firm's pricing power is lacking, when inflation is low, then what we face is a lack of demand for consumer goods. When firms have pricing power and bottlenecks are observed, then what we have is too little capital investment. While consumer demand growth was tremendous during Q3, that does not mean consumer demand growth through the period of Bush's presidency has been sufficient to drive demand for capital goods, to overcome disinflationary forces or to create create jobs. So no, a dollar available to spend on investment is not the same as a dollar available to spend on consumption. Investment demand is derived from consumer demand and consumer demand has not grown fast enough during the period in question to get get growth in real demand for capital goods to the levels normally seen at this point in an expansion. First things first.

Notably, it is Q3 in which overall demand went through the roof, and it was pretty clearly stimulated by tax rebates, which were distributed (among the middle and upper classes) according to fertility, rather than income.

Posted by: K Harris on November 3, 2003 09:36 AM

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Miserable Failure

Posted by: miserable failure on December 7, 2003 04:42 PM

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Bush is a miserable failure but he is also a war criminal.

Posted by: Sick of Bush on December 8, 2003 05:07 PM

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This guys mother should go to jail for being such a Miserable Failure. America could do better with out him. Common man he embarasses us all with his shanangans

Posted by: Miserable Failure on December 11, 2003 05:32 PM

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This guys mother should go to jail for being such a Miserable Failure. America could do better with out him. Common man he embarasses us all with his shanangans

Posted by: Miserable Failure on December 11, 2003 05:32 PM

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This guys mother should go to jail for being such a Miserable Failure. America could do better with out him. Common man he embarasses us all with his shanangans

Posted by: Miserable Failure on December 11, 2003 05:32 PM

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This guys mother should go to jail for being such a Miserable Failure. America could do better with out him. Common man he embarasses us all with his shananagans

Posted by: Miserable Failure on December 11, 2003 05:33 PM

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FLUSH bUSH 2004 Right down the toilet where the little bushshit belongs!

Posted by: no bushshit on December 12, 2003 01:36 AM

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FLUSH bUSH 2004 right down the toilet where the little bushshit belongs!

Posted by: no bushshit on December 12, 2003 01:38 AM

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FLUSH bUSH 2004 right down the toilet where the little bushshit belongs!

Posted by: no bushshit on December 12, 2003 01:39 AM

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