September 06, 2004

A Few Quotes on the Administration's February Employment Forecast

A few quotes on the Bush administration's February employment forecast that I don't want to forget:

  • “In reality, according to White House staff, the forecast - based on data available at the beginning of December - predicted job growth of 325,000 a month.” - Financial Times, 2/19/2004.

  • “The White House projections imply the creation of about 300,000 jobs a month this year, said Chris Varvares, president of Macroeconomic Advisers LLC, a forecasting firm in St. Louis.” - Wall Street Journal, 2/10/2004

  • “In the Economic Report of the President released this week, the White House projected that the level of payrolls would average 132.7 million in 2004. That projection was completed in early December, before two recent months of anemic growth data were released and before recent benchmark revisions to payroll data by the Bureau of Labor Statistics. Based on the data available at the time, that administration estimate corresponded to monthly payroll gains in excess of 300,000 throughout 2004.” - Wall Street Journal, 2/12/2004

And I am still amazed that none of these reporters has asked George W. Bush or his aides the following question: "What has gone wrong with the economy to leave us with an employment level 1.7 million below what you projected last February that it would be by now?"

Posted by DeLong at September 6, 2004 05:14 PM | TrackBack
Comments

And I am still amazed that none of these reporters has asked George W. Bush or his aides the following question: "What has gone wrong with the economy to leave us with an employment level 1.7 million below what you projected last February that it would be by now?"

Maybe they're just confused. 1.7M coincidentally is the exact figure Bush has been touting, in a different context:

Overall, we've added about 1.7 million new jobs since last August.

Posted by: NTodd at September 6, 2004 05:21 PM

Oh yeah, I forgot no html tags. Anyway, that 2nd graf was mine. And the Bush quote came from his latest radio address (http://tinyurl.com/3ozh6).

Posted by: NTodd at September 6, 2004 05:23 PM

Seems like the one thing we don't talk about in politics is a weak economy Brad. Even if it isn't an election year.

For the President to actually publicly acknowledge that the economy is weak would be like Greenspan saying, "Yes, of course there is a housing market bubble. You mean you just found it."

In either case there would be an instant market dislocation.

If Mr Bush caused a flight out of stocks and into bonds the interest rates we are paying to finance his war (assuming more bonds are issued)would be lower.

Posted by: zgveritas at September 6, 2004 05:28 PM

Repeatedly, I have heard and read how fine the August employment report was. The lull is over, the economy is going to soar, jobs are there, wages and benefits where we wish them. But, 150,000 jobs are needed each month simply to keep up with the supply of women and men added to the labor pool because of population growth.

The are a million fewer jobs now than in 2001. Wages and benefits for middle income workers are barely keeping up with inflation, and I would argue what inflation there is has hit such households relatively hard. Productivity growth is terrific, but middle and low income workers are not reaping fair benefits of their productivity.

Posted by: anne at September 6, 2004 05:35 PM

I've long since given up on the hope that reporters will do their jobs; however, what I'd like to know is this: why in heaven's name aren't the two Johns shouting this out at the tops of their lungs? Particularly in the rust-belt battleground states, the operative question (once again) is: Are you better off than you were 4 years ago?

Posted by: Stefan Keydel at September 6, 2004 05:39 PM

"Are you better off than you were 4 years ago?"

Suppose the answer for most middle income voters is "yes." American middle class asset wealth has been bouyed significantly by increases in home values. Even if households are spending down such asset wealth, middle class voters may feel they are better off.

Posted by: anne at September 6, 2004 05:44 PM

One could argue that Bush has actually helped the economy temporarily: Here's how.

By waging war in two nations he forced the Federal Reserve to maintain extraordinarily low interest rates.

Low rates have helped profits at many large companies. Think Ford, a bank posing as a car manufacturer.

Low rates have been a boon for the construction industry. Record new home starts and remodels due to low rates & home equity loans.

Low rates have caused housing prices to skyrocket. As a result of the wealth effect consumer spending continues to buoy the economy.

Low rates (and lower capital gains taxes) have kept the stock market artificially high. The resultant wealth effect has led to contined consumer spending.

Low rates have been a boon to banks, brokerages, and Fannie/Freddie. As an example, high equity indices are a boon to brokerages making margin loans. The higher individual's equity accounts stand the higher margin loan profits the brokerage stands to make.

One could argue that without Bush's helpful hand (vs. the invisible hand) we would have already met the financial day of reckoning because our speculative debt laden economy is unsustainable.

The two wars have been a boon to profits at defense & security related businesses.

Finally, energy related businesses are making a killing off of high petrol prices. With all the profits they'll be able to take on even the strongest environmental lobby to assure their continued profitability for years to come.

Posted by: zgveritas at September 6, 2004 06:13 PM

To state the obvious--for my own benefit, if not for anyone else's--news of this kind poses real problems for the challenger: voters who have yet to take the hit may be tempted to accredit their good luck to the person in office, and voters who've already taken the hit may wonder whether a new leader will only make things worse. To address this problem, the challenger has to bring a compelling lightness of heart to the discussion, convincing all and sundry that (a.) their misfortunes are irrational, (b.) someone did it to them, (c.) the one did it is running for office, (d.) the one who can fix it is also running for office, (e.) the one who can fix it doesn't currently hold office, and (f.) if voted into office, he can fix things, and fix them promptly. But lightness of heart is the key to success here, as we see with FDR in 1932, and Bill Clinton in 1992--masters of soothing and decisive speech about a complex proposition, giving rise to spontaneous optimism.

Posted by: alabama at September 6, 2004 06:47 PM

This is off topic, but it does concern the Bush administration.

What does everyone have to say about steel tariffs and Bush's motivation behind them? I've heard the claim that he supported them to give himself greater leverage to pus through other free trade agreements. What does everyone think of that?

Posted by: Brian at September 6, 2004 06:53 PM

This gives me some hope:

http://www.slate.com/id/2106297/

Four years ago, I heard Larry Summers in Madison twice within a day--once at an academic function, and once at a political function. His politcal speech was brilliant, spelling out the five major economic achievements of the Clinton adminstration (including improved living conditions for the bottom quintile, expansion of the EITC and budget surplusses), and the five economic goals of a would-be Gore administration. It was crisp, clear and effective--had only Gore himself given the same speech, he might have won decisively.

Campaigns do need messages. I think the one Kerry hit on today--if you like things as they are (losing jobs, falling wages, social security endangered, an incompetantly fought war), vote for W--might work.

Posted by: Richard Green at September 6, 2004 07:21 PM

In a nutshell, the economy is producing more output with fewer inputs. That used to be called an increase in efficiency.

Posted by: Patrick R. Sullivan at September 6, 2004 08:07 PM

Perhaps a picture is really worth a thousand words:

http://data.bls.gov/servlet/SurveyOutputServlet

Posted by: Patrick R. Sullivan at September 6, 2004 08:10 PM

Mr. Sullivan,

There's only so much that can be squeezed out of each worker. And with corporate profits rising, eventually, companies will invest in themselves and begin hiring.

It's been an absurdly long recovery for jobs, and unforuntely, nobody seems to know why. Shouting out basic things about efficiency and productivity doesn't advance the debate.

Posted by: Brian at September 6, 2004 09:46 PM

You have all missed the real point: Brad's question is a girlie question and therefore not worthy of response. If a reporter asked it, then W could dismissively laugh and move on and claim that responded to such a girlie question would show weakness of resolve in the fight against terrorism.

Posted by: Cal at September 6, 2004 10:07 PM

Why do we have a million fewer jobs than what WE projected? Because we're more efficient.

Patrick, please, please, oh PRETTY please tell me that Bush will say exactly that in a debate.

Posted by: Corzine at September 6, 2004 10:14 PM

W did create those 1.7 million jobs unfortunately not in North America.

Posted by: Eunoia23 at September 6, 2004 11:05 PM

Why is it when a guy murders a bunch of family, goes out begging and living in a cardboard box then confesses to "hearing messages from God", they're called a shizophrenic psychopath and put into a mental institution;

But when a guy murders an entire country, and destroys his own country's economy in doing so, then confesses that "He was appointed by God", they're called "fearless leader" and "Commander in Chief" and a "compassionate conservative", and then the guy gets re-elected?!

Can someone explain that to me? Is it because the rest of the nuthouse inmates elected them, that they get a pass? Is this like a popularity contest of some kind? Do the mentally disabled persons recognize even more severely disabled persons as their "natural-born Texan" leader?

Bush's fiscal record looks a lot more like LBJ or Jimmy Carter then his deified Ronald Reagan.

What would Moliere have said about George Bush?
"He who establishes his argument by noise and command shows that his reason is weak."

Emmons? "Insanity destroys reason, but not wit."

Nietzsche? "In individuals, insanity is rare; but in groups, parties, nations, and epochs it is the rule."

Kierkegaard? (with apologies) "Old age realizes the dreams of youth: look at George Bush; in his governorship he built prisons for the criminals, in his presidency he became himself an inmate."

Posted by: Tante Aime at September 7, 2004 01:05 AM

> In a nutshell, the economy is producing more output with fewer inputs. That used to be called an increase in efficiency.

Of course, Paddywhack contributes nothing to this.

And 'wage slavery' is a much more accurate term.

Posted by: ahem at September 7, 2004 02:20 AM

And I am still amazed that none of these reporters has asked George W. Bush or his aides the following question: "What has gone wrong with the economy to leave us with an employment level 1.7 million below what you projected last February that it would be by now?"

Last time reporters got anywhere near President Bush was, I think, that bizarre men's room interview with the NYTimes where Bush was heavily supervised and the resulting article had a weird feel, as if they were given the questions they could ask beforehand.

Posted by: Bumiller at September 7, 2004 02:42 AM

Surely, we are more efficient producers and wish ever to be more efficient. But, it takes intelligent expansive monetary and fiscal policy to generate full employment and so take proper advantage of our efficiency. Efficiency with million of wishful workers with no proper jobs or benefits is not a healthy economic state.

Posted by: anne at September 7, 2004 05:26 AM

Odd. Professionals don't think the data were all that strong. From Norther Trust's review of the August employment report --

"The nation's unemployment rate overstates the strength in the labor market. In August, the participation rate ...dropped to 66.0% from 66.2%." "...the August gain in payroll employment is by no means a sign fo a robust labor market. From an historical perspective, payroll employment continues to rank in the bottom of the post-WWII cycles..."

Posted by: kharris at September 7, 2004 05:26 AM

Defense of fiscal policy that is not generating more job creation and wages and benefits that reflect productivity increases, is puzzling.

Posted by: anne at September 7, 2004 05:28 AM

Notice the difference between robust corporate revenue streams and earnings growth, and minimal wage and benefits growth since the recession ended in November 2001. This is not a measure of a healthy labor market.

Posted by: anne at September 7, 2004 05:34 AM

I am no economist, but so far I haven't seen mainstream media mentioning this:

Is it possible that the contradictory number of 'raising productivity and corporate profit' vs high unemployment and falling wages.

are a direct result of massive outsourcing?

ie. the corporations are shifting their labor cost somewhere else, attaining higher profit at the cost of unemployment in the country. Maybe I am just mentionig the obvious.
but as I say, nobody puts out number in mainstream media yet.

Posted by: Buddy. at September 7, 2004 06:55 AM

By waging war in two nations he forced the Federal Reserve to maintain extraordinarily low interest rates. //

yeah, but that will also reduce saving and makes capital flee to other country with higher return (see below)

Low rates have helped profits at many large companies. Think Ford, a bank posing as a car manufacturer.//

where does all that profit go? is it invested back in US and providing job? or because of low return this profit is going somewhere else?

Low rates have been a boon for the construction industry. Record new home starts and remodels due to low rates & home equity loans.//

You can only build so many houses. It can't go on far ahead of natural housing growth forever. How is it helping the economy if everybody has 3 houses? It's a waste and an unproductive asset.

Posted by: Buddy at September 7, 2004 07:02 AM

I see the usual suspects are determined to remain in denial. The goal for an economy is OUTPUT, not input. Jobs are not a benefit, but a cost. This is elementary.

But, take a look at the graph from BLS, Labor Force participation isn't historically low.

Posted by: Patrick R. Sullivan at September 7, 2004 07:02 AM

Hey Patrick,

Machines don't vote. I do, no JOB, no VOTE. And I don't think that the person working 12 hours to do two jobs is going to join you celebrated efficiency. No share the GAIN, no VOTE.

Posted by: me at September 7, 2004 07:06 AM

One could argue that without Bush's helpful hand (vs. the invisible hand) we would have already met the financial day of reckoning because our speculative debt laden economy is unsustainable.//

I think the overall effect of Bush economic policy is it shift massive amount of money to unproductive activities. More and more money is going into smaller number of people who just shuffle around the money in one investment paper into another. It really doesn't go into 'real infrastructure and human capital' investment.

track the number of that massive tax cut? Where do all that money go? Imagine if we just scatter those money in inner city. It will pump up real economy considerably instead of the money just swirling around from one paper form to another.

Posted by: buddy at September 7, 2004 07:07 AM

I'm amazed that you're amazed, Brad, that reporters don't ask important questions!

Anne -- to a middle class home owner who lives in a area where growth picked up in the '70's and hasn't stopped, I can't imagine feeling sanguine about the soaring values. My home is paid-for shelter but it doesn't provide me with income. Thanks to the fact that this is a prosperous, growing region, it does cost me a 10% or more growth in property taxes annually which, for the retired in this area, is a real punishment, lowering after-tax incomes by a nasty chunk -- always with the knowledge that next year it will be even worse. For those over 60, add in medical costs which can rise as much as 30% in a year, depending on medications.) These people (a sizeable minority who tend to vote) aren't better off, they're worse off. "Value" doesn't always translate into gain! I don't know of a single homeowner in this area (a very pro-Bush area) who hasn't noticed this and who isn't shaken by the hit on their income.

Posted by: Bean at September 7, 2004 07:14 AM

"are a direct result of massive outsourcing?"

Buddy, you have swervered into something that will be realized too late. Corporations are doing everything they can to hide how many jobs are sent offshore.

I keep hearing Catherine Mann saying how cheap IT will create more jobs here. Funny thing, if you look at the numbers in her tables and plug in the updated numbers from the BLS you will find that from her December article until February's updated numbers HER theory lost over a million projected IT jobs. So much for the demand created by cheap overseas IT.

Posted by: me at September 7, 2004 07:14 AM

I see the usual suspects are determined to remain in denial. The goal for an economy is OUTPUT, not input. Jobs are not a benefit, but a cost. This is elementary.
Posted by Patrick R. Sullivan at September 7, 2004 07:02 AM //

taken to logical conclusion, we would have a completely automatic ultracheap robots that produce endless product while all earthlings are poor and miserable.

If that is the point of economy, we have some serious fundamental flaw.

Somebody somewhere should tell the smart economist to also include 'human misery' into the equation of supply and demand.

Posted by: joking around at September 7, 2004 07:15 AM

I'm a little late to the party here, so I may not be the first person to spot this, in the Corrections column of the NYT:

"A news analysis article in Business Day yesterday about the economy's lackluster rate of job creation misstated the pace of employment growth foreseen by the president's Council of Economic Advisers last December. To realize the council's forecast of the total number of jobs held by Americans in 2004, the economy would have to create more than 300,000 jobs a month this year, not 216,000."

Posted by: Enrico at September 7, 2004 07:23 AM

"The goal for an economy is OUTPUT, not input. Jobs are not a benefit, but a cost. This is elementary."

The goal of an economy is to improve the material well-being of the members of society. Losing one's job does not improve one's material well-being, but damages it. This is elementary.

Posted by: Bernard Yomtov at September 7, 2004 07:58 AM

Bean

An excellent comment. I understand and agree, yet there does not seem to be a widespread sense of asset based problems that concern us both. I must think more clearly about the issue of asset appreciation.

Posted by: anne at September 7, 2004 08:03 AM

"My home is paid-for shelter but it doesn't provide me with income. Thanks to the fact that this is a prosperous, growing region, it does cost me a 10% or more growth in property taxes annually which, for the retired in this area, is a real punishment, lowering after-tax incomes by a nasty chunk -- always with the knowledge that next year it will be even worse."

What appears to be happening is that people are using asset appreciation for income. People are taking money from homes for consumption as well as to pay more expensive debt and to a far lesser extent to invest. Alan Greenspan does not find this a problem, while Stephen Roach at Morgan Stanley does. The are any number of arguments about the historically low private saving level in America. I have yet reached no conclusions.

Posted by: anne at September 7, 2004 08:24 AM


WASHINGTON (AP) -- The Congressional Budget Office is projecting that this election-year's federal deficit will reach $422 billion, congressional aides said Tuesday, the highest ever, yet a smaller shortfall than analysts predicted earlier this year.
...
"Deficits are going down, jobs are going up, the economy continues to improve," said Sean Spicer, Republican spokesman for the House Budget panel.

!!!!!!!!!!

Deficits going down? Some friends of mine don't believe the Repubs could say things like this if it wasn't true.
Bush leading in polls? I am getting very nervous. I thought the last prez election was as bad as it could get but I may have been in error.

Posted by: cj at September 7, 2004 08:26 AM

Prescription drug costs are increasing far faster than the rate of inflation, and even with the Medicare drug coverage that begins in 2006 there will be significant gaps in coverage and problems for those not on Medicare. This takes us round to the issue of whether federal and state governments can begin to bargain directly with drug companies over prices. Another matter.

Posted by: anne at September 7, 2004 08:30 AM

I'm not an economist. Can an economist explain to me whether a rising national debt, a massive tax cut, and a diminishing labor force do (or don't) transform the social security system into a dedicated national debt-servicing instrument? Twenty years out, that money could be committed to paying anything but pension "benefits"--or so it seems to me. But there has to be something wrong with this common-sense (and underinformed) reading; I'd like to know what it is.

Posted by: alabama at September 7, 2004 08:35 AM

Buddy: Looks like you are on the right track.

Patrick Sullivan: Why not go further and say the goal of economic activity is to produce good-looking numbers and economic statistics? (They are the same as "OUTPUT" in the sense of being measured in money, are they not?)

Posted by: cm at September 7, 2004 08:40 AM

Patrick is right.

When I had a job it was one job too many. What I really aspire to, is to be a Republican and make my living, tax free, renting out my wealth from a beach chair. Damn my parents for being working class lucky duckies.

Kerry might help, but given what's stacked against him I don't think we'll escape our fate; making cheap widgets at subsistence wages for a wealthy Chinese middle class in about 10 years.

Posted by: dennisS at September 7, 2004 08:48 AM

joking around - I don't agree. The goal of an economy is, indeed, to produce as much output as possible with as little input as possible, including labor. The argument is how to distribute the output.

In your hypothetical of infinite output at zero input cost, I think society would evolve into a communist system in which output would be shared equally since noone would need to work.

In the mean time, ever increasing productivity should result in lower cost goods available to more people which in turn should create more employment for the more productive workers (eventually environmental considerations may limit output). Unfortunately this requires churning in the job market as low productivity workers try to move to higher productivity jobs, providing ample opportunity for demagogues.

Posted by: Robert Brown at September 7, 2004 08:50 AM

"Can an economist explain to me whether a rising national debt, a massive tax cut, and a diminishing labor force do (or don't) transform the social security system into a dedicated national debt-servicing instrument?"

Social Security was provided for easily through 2040 when Bill Clinton left office. There should still be no problem provided payroll tax receipts are not diverted from Social Security to support other govenment spending programs as was often the case in the late 1980s and early 1990s. A structural deficit that is continually growing is a problem, but not necessarily for Social Security. Diverting funds from payroll taxes to private accounts, could be a huge problem for Social Security. There would be a problem!

Posted by: anne at September 7, 2004 09:04 AM

Some Excellent Strategies for Progressives

Posted by: FunkyChickenHead at September 7, 2004 09:24 AM

http://www.turnspit.com/archives/week_2004_09_05.php#000302

Posted by: FunkyChickenHead at September 7, 2004 09:29 AM

Those reporters may be reluctant to revisit this issue and confirm or deny their earlier findings because their employers may be exercising editorial control.

Posted by: calmo at September 7, 2004 09:44 AM

"Social Security was provided for easily through 2040 when Bill Clinton left office"

Anne, I hate to tell you but Newt Gingrich agrees with you. I live in the speaker's old district and I attended a Town Hall Meeting. I will remember until the day I die an older person getting up and asking a question about the viability of Social Security. Newt truned to the entire audience and said do not worry, we have fixed it, and social security is on sound footing until 2038. That was when he was speaker.

I would like some of these that want to privatize social security to pull out their 401K statement fro when Bush took office and compare the price of the funds they were invested in. This would take out the effect of constant contributions. More likely than not they are lucky if their 401K is what it started out as 4 years ago. Now if this was the last five years before someone retired their investment grew not one penny in four years. Not a very good deal.

I know too many people that lost their pension due to the switch to cash balance and retirement is not even in their plans. But once you lose that job you have you can forget about finding another one.

Posted by: me at September 7, 2004 10:14 AM

What Patrick Sullivan has failed to realize is that in most economic calculations, there *must* be a discussion of efficiency versus equity. Sullivan's assertion that an increase in output is the goal is correct, but only if qualified with "at the same degree of equity, holding all inputs constant".

The biggest problem as I see it is that while productivity is rising, and output is increasing, the number of inputs is actually *dropping* -- good for an individual firm, but bad for the economy as a whole. The workers who remain will earn higher salaries, and as we know, those with higher incomes consume less (marginal propensity to consumer decreases), contributing a negative feedback loop into the calculation. Were all workers to remain, rather than a few, the wage level for the firm would increase beyond its original level (due to the productivity increase, more can be produced, and workers should be employed at the value of their marginal products) but the overall level of consumption would be higher than in the first case (with some workers laid off), and thus demand would be higher, driving the economy further still.

Of course, there is also some concept of fairness and economic equity to be discussed, but as this is a sticky matter, open to much heated debate (what is equity? what level should we expect? etc.) and most Republicans believe that equity holds no place at an economic discussion, I will not attempt to address it here. I will merely say that it is a factor that is critical to the discussion of economic performance. I would be seriously shocked if the Lorenz curve for the US had not moved away from the diagonal in the past four years.

Posted by: DM at September 7, 2004 10:19 AM

I heard somewhere an economist say that we have overaccumulation at the top, undercomsumption at the bottom.
Sounded right to me.

Posted by: la at September 7, 2004 10:37 AM

Anne:

***“Social Security was provided for easily through 2040 when Bill Clinton left office.”

During the next decade we must begin paying SS benefits partially from general revenue which will require higher taxes and/or less spending on other items….may or may not be “easy”.

***“There should still be no problem provided payroll tax receipts are not diverted from Social Security to support other govenment spending programs as was often the case in the late 1980s and early 1990s.”

SS projections are that there will not be enough workers to support the retired population after the “SS trust fund” is exhausted. The federal government has no legal choice but to borrow the surplus payroll tax being collected today and use it for general obligations.

***“A structural deficit that is continually growing is a problem, but not necessarily for Social Security.

A structural deficit is a problem for SS because it makes it more difficult to pay SS benefits from general revenue next decade.

***“Diverting funds from payroll taxes to private accounts, could be a huge problem for Social Security. There would be a problem!

Private accounts or allowing the Fed. To invest in real assets has the advantage over the long term of linking retirement benefits to current earnings, reducing the influence of future demographics. The transition costs in the near term are huge.

Posted by: Robert Brown at September 7, 2004 10:39 AM

I think that Patrick R. is correct if you consider it a reducio ad absurdum of economic science. In order to say that high unemployment and immiserization of the propertyless is a bad thing, you have to go outside economics into political economy, political theory, ethics, etc.

I high proportion of the fanatical free-marketers I know take economics as an adequate and complete description of human life. That's why I'm so boggled to see people like Luskin become econo-knownothings in their attempt to support Bush. We've actually produced something worse than Milton Friedman.

I recently read Amartya Sen's Nobel essay and another essay of his (on rationality and on welfare econmics respectively). He plays an orthodox game and uses lots of nice math, but the gist of what he seems to be saying is that welfare and rationality cannot be described that way.

Posted by: zizka / John Emerson at September 7, 2004 12:51 PM

Let's take an even longer term look at LFP rates:

http://data.bls.gov/servlet/SurveyOutputServlet

Anyone want take a guess at what the "correct" or "normal" % should be?

Posted by: Patrick R. Sullivan at September 7, 2004 01:08 PM

ME and Robert Brown

Thanks.

The problem of fewer workers in the generation following the baby boomers should be easily resolved by continuing productivity increases and accompanying wages increases. There is another population ripple following after. Population losses as baby boomers retire should not worry us. Privatizing Social Security should worry us.

Also, I want to emphasize the general budget deficit problem is that given current fiscal policy the deficit will continue to grow out of proportion to general growth. There is the rub.

Posted by: anne at September 7, 2004 01:12 PM

There is a little bit of liguistic leakage that is behind some of the debate here. Economies don't have goals. People do. Not everyone has the same goal. When some of us argue for higher output, without regard to distribution (in this economy, one's share of the distribution is directly related to earning a wage for a good many folks), and other argue that employment is a good, it is mostly a repetition of a political-economic point of view, rather than a normative economic statement. By saying things like "the goal of an economy..." we can hide the fact that we are really talking about politics, even though we don't hide it very well.

Posted by: kharris at September 7, 2004 01:14 PM

Patrick, did Bush, or did he not, promise 5.5M new jobs between July 1, 2003 and December 31, 2004 if only we passed his so-called stimulus program?

Did Bush, or did he not, promise 1.7M more new jobs by now than we have?

Has the rate of GDP growth, or has it not, fallen for 3 consecutive quarters?

In isolation, of course productivity growth is a good thing, but as it happens, productivity growth fell off during Q2, nor is the productivity boom a secret that bush et al weren't aware of when making their ludicrous claims for job growth.

Talk about changing your goal posts....

Posted by: howard at September 7, 2004 01:21 PM

KHarris

- By saying things like "the goal of an economy..." we can hide the fact that we are really talking about politics, even though we don't hide it very well. -

Nicely expressed.

Posted by: anne at September 7, 2004 01:55 PM

The biggest problem as I see it is that while productivity is rising, and output is increasing, the number of inputs is actually *dropping* -- good for an individual firm, but bad for the economy as a whole. The workers who remain will earn higher salaries, and as we know, those with higher incomes consume less (marginal propensity to consumer decreases), contributing a negative feedback loop into the calculation. Were all workers to remain, rather than a few, the wage level for the firm would increase beyond its original level (due to the productivity increase, more can be produced, and workers should be employed at the value of their marginal products) but the overall level of consumption would be higher than in the first case (with some workers laid off), and thus demand would be higher, driving the economy further still.
Posted by DM at September 7, 2004 10:19 AM //

It's the Japanese deflation trap!
Would we have a somewhat more socialist government like Japan, Bush would toss out massive amount of money in infrastructure and equipment to produce even MORE products that the world can't absorb. Worker get scared, and mass spending grind to a halt reducing demand considerably. But our case is different.

Instead of trade war that stunt initial demand, we have flattening domestic demand because of various geopolitical reason which put mild pressure to corporation to maintain bottom line by looking for alternative labor source. This cycle plus the energy cost lead to even weaker demand and worker insecurity.

Notice Ford and intel already reduce projection.

It's a vicious cycle to maintain economic number by corporation. It's only logical from corporate point of view. And Bush fails to adopt policy to counter this trend.

Posted by: buddy at September 7, 2004 02:03 PM

Anne: "Using asset appreciation for income" isn't a no-no when the economy is solid, we aren't in deficit (personally or as a country), and we are pretty damn sure that our income producing assets (including our jobs) are secure and not dropping in value. I'm not an economist -- that's for sure! It's simply something I've learned from being an earner and a spender for a lot of years! I agree with you completely about the slippery misuse of the Social Security funds.

But as for the prescription drug matter, the scam problems are wide and deep as indeed they are within our entire medical system, perhaps more noticeable to someone like myself who spent a long time out of the country. I see Marcia Angell's muckraking book on this subject got a solid review from Janet Maslin in yesterday's NYTimes. Maybe it will help to stir things up a bit.

There is a move in parts of Texas (at least) to mandate caps on property taxes for seniors. Of course, this simply displaces the burden onto younger people with kids who are, to say the least, worried and resentful at the prospect of paying even more. And so the solution is... maybe...

Tighten up our financial habits,from the personal level to the national level. Less debt all the way around. Strict controls on necessary social services; replace third-rate, corrupt healthcare system.

Posted by: Bean at September 7, 2004 04:23 PM

Bean

Thanks again. I made a note to read Marcia Angell's book, when I return from vacation. The rest of your points trouble me and others and I will comment further as I think them through. Remember, as the country ages there will be a most powerful voting block that will not be denied benefits. The Texas property cap initiative for older homeowners will not be the last such initiative. Social Security and Medicare are vulnerable for a while, but just wait.

Posted by: anne at September 7, 2004 04:57 PM

September 6, 2004

Indicting the Drug Industry's Practices
By JANET MASLIN - New York Times

Dr. Marcia Angell is a former editor in chief of The New England Journal of Medicine and spent two decades on the staff of that publication. If much of that time was devoted to reviewing papers on pharmacological research, it must have been spent in a state of near-apoplexy.

Her new book is a scorching indictment of drug companies and their research and business practices. "Despite all its excesses, this is an important industry that should be saved - mainly from itself," she writes.

This turns out to be one of her book's more forgiving pronouncements, since the rest of it is devoted to assertions of shady, misleading corporate behavior. If she is accurate in her assumptions about big drug companies' feistiness and tenacity, Dr. Angell is likely to be on the receiving end of angry rebuttals. She is sometimes vague enough to leave room for such attacks. ("I have heard that morale in some parts of the F.D.A. is extremely low, and I can certainly understand why it might be.")

But over all, Dr. Angell's case is tough, persuasive and troubling. Arguing that in 1980 drug manufacturing changed from a good business into "a stupendous one," thanks to changes in government regulations. She adds, "Of the many events that contributed to their sudden great and good fortune, none had to do with the quality of the drugs the companies were selling."

In the past, drug discoveries made through government research remained in the public domain. Beginning in 1980 those breakthroughs could be patented, even if their research was sponsored by the National Institutes of Health. As a consequence, Dr. Angell says, patent shenanigans have reshaped the drug business, as have the recent government regulations that expedite direct-to-consumer drug advertising. "Once upon a time, drug companies promoted drugs to treat diseases," Dr. Angell writes. "Now it is often the opposite. They promote diseases to fit their drugs."

Consider the consumer who exclaims, in Dr. Angell's words, "Omigosh, this Clarinex ad makes me realize I have hay fever!" According to her book, this individual is being snookered in several ways. First of all, there is the drug itself: she calls Schering-Plough's Clarinex a "me too" variant of the same company's popular allergy drug Claritin. But Claritin's patent expired in 2002, so the new version has been heavily marketed.

Dr. Angell maintains that while Claritin was approved as a hay fever remedy, Clarinex is an improvement only because it has been approved for the treatment of both indoor and outdoor allergies. "It was approved for the additional use only because the company decided to test it for that use," she says.

And why all the advertising? "If prescription drugs are so good, why do they need to be pushed so hard?" she asks, citing Nexium, Lipitor and Paxil as other me-too products with whopping ad campaigns. As for Nexium, the new purple heartburn pill meant to replace Prilosec (which went off patent in 2001), Dr. Angell proposes a "big bang theory of Mom's cooking." She invites the reader to imagine a single, protean meal that has spun off "a seemingly inexhaustible supply of leftovers" in the form of renamed and repackaged versions of established drugs. "It wouldn't have done to call it 'Half-o'-Prilosec,' but that is what it was," she says about Nexium.

Posted by: anne at September 7, 2004 05:02 PM

cheney, allegedly to o'neill:
"Deficits don't matter...."

http://redirx.com/?gjmk

Posted by: ian at September 7, 2004 05:05 PM

Kharris:

**“There is a little bit of liguistic leakage that is behind some of the debate here. Economies don't have goals. People do.”

I think economic analysis should be kept separate from politics. The best economy should the one that produces the most goods and services at the lowest input cost regardless of the distribution of the goods and services. Government force should then be applied to that economy to achieve goals that do not naturally flow from the economy, perhaps sacrificing productivity for higher employment, redistributing income, nationalizing industries, whatever.

There are enough variables in economic analysis to add shifting political goals to the mix.

Posted by: Robert Brown at September 7, 2004 07:02 PM

DM:

***”The biggest problem as I see it is that while productivity is rising, and output is increasing, the number of inputs is actually *dropping* -- good for an individual firm, but bad for the economy as a whole. The workers who remain will earn higher salaries, and as we know, those with higher incomes consume less (marginal propensity to consumer decreases), contributing a negative feedback loop into the calculation. Were all workers to remain, rather than a few, the wage level for the firm would increase beyond its original level (due to the productivity increase, more can be produced, and workers should be employed at the value of their marginal products) but the overall level of consumption would be higher than in the first case (with some workers laid off), and thus demand would be higher, driving the economy further still.”

Wow, what a convoluted argument! I don’t agree.

Suppose a firm buys a machine that can do the work of 10 employees and requires one operator. You suggest that it would be bad for the economy to lay off 9 employees because the operator (and perhaps other employees) would make more money than she would spend. Rather ,the 9 employees should be kept on the payroll and paid slightly more from the added revenue the firm could generate from added production from the new machine.

This presumes that the firm is able to substantially increase its sales. Assuming the firm is operating in a competitive economy in a saturated market, they will likely lower their price to stimulate more demand, but it is unlikely they could increase sales 10 times to employ the retained workers in their old jobs (with investment in more machines). I think it is much better for the economy if the 9 surplus employees are released into the general labor pool to find employment at another firm that could productively employ them.

Of course it is much more convenient for the 9 workers to not have to look for another job and they will look to labor unions or government policy to guarantee job security, but from an economic standpoint, it is better that they find other employment.

Posted by: Robert Brown at September 7, 2004 07:50 PM

Mr. Brown:
This **presumes** that the firm is able to substantially increase its sales. **Assuming** the firm is operating in a competitive economy in a **saturated market** [emphasis added, Ed.]

Those are strong assumptions. You would make a good economist, in that respect.

The problem is that an increase in productivity growth does the same thing for most of the firms in the economy at the same time. If that is the case then the assumption that all these firms will make the right calculatons, lower the price real quick or layoff the right amount of people that is consistent with other firms planned hiring for more -well these all become very strong assumptions indeed. Especially problematic if most firms are able to produce more with less and they decide to let employees go, who is going to hire them right away?

Of course, in the long run, it will all work out we will be back to full employment. But how long until the long run comes, and what do we do in between? In the long run, we are all dead, as Keynes said.

The above is why Patrick Sullivan is completely wrong when he says that an increase in productivity growth is just another word for efficiency. It is a simultaneous increase in efficiency for all firms, and there is no set of signals in the economy that give individual firms the information they need to all make decisions that will quickly lead back to full employment.

Patrick Sullivan was either too vague or wrong, or both, about the E/P rato not being at historical lows. If he is referring to 1948-1970s, you have to factor in rising labor market participation rate. It looks like the E/P ratio shifted upward after the mid70s and DeLong is trying to guess at the new averae level. It was lower in 1991-2 but at that time there was a quick rebound. Now the E/P has seems to have found a nice bottom and is staying there.

And the decline right after the *mild* *2001* recession was very sharp like all previous drops, but then it did not go up. The previous sudden drops were due to the business cycle. What evidence does anyone have the the equally sudden initial drop was due to generational factors? Of did mysterious generational factors suddenly kick in in 1992 when the E/P didn't rebound at all?

What explanation does anyone have other than involuntary unemployment? If you think that the late 90s boom was all bubble, then that means the last half of the Reagan boom was also bubble. If you think, as many due, that the increasing E/P after the 1970s was caused by households compensating for the stagnation in real median compensation, why would more stagnation for the median household suddenly cause the E/P to go down?

Posted by: jml at September 7, 2004 11:08 PM

Jml

***”The problem is that an increase in productivity growth does the same thing for most of the firms in the economy at the same time. If that is the case then the assumption that all these firms will make the right calculatons, lower the price real quick or layoff the right amount of people that is consistent with other firms planned hiring for more -well these all become very strong assumptions indeed. Especially problematic if most firms are able to produce more with less and they decide to let employees go, who is going to hire them right away?”

The stark reality is that the 9 employees in my example will likely need to move to other industries that can use their skills or learn new skills sooner or later. The sooner they get on with it the better for the over all economy.

DM’s conjecture that it is better for the economy if the obsolete workers be kept on the payroll so that they will continue to consume is completely wrong in my opinion. Better that they are laid off and enter the available labor pool where they have the incentive to find more productive employment.

Of course, I am speaking from and economic point of view. From the employees point of view, they, naturally, would prefer to remain employed even if they are unproductively employed. That is what labor unions and laws that make layoffs difficult are for.

Posted by: Robert Brown at September 8, 2004 06:13 AM

"Patrick Sullivan was either too vague or wrong, or both, about the E/P rato not being at historical lows. If he is referring to 1948-1970s, you have to factor in rising labor market participation rate."

That may be the single most (unintentionally) hilarious statement ever posted here.

" It looks like the E/P ratio shifted upward after the mid70s and DeLong is trying to guess at the new averae level."

And not even attempting an educated guess. When it began to rise was about when the baby boomers were old enough to enter the workforce. They're now (the first of them, anyway) just about old enough to retire.

"It was lower in 1991-2 but at that time there was a quick rebound. Now the E/P has seems to have found a nice bottom and is staying there."

It's about 97% of what it was during the dot com bubble. When ex-convicts, high school drop-outs, and retired people were recruited by employers. There were stories in the papers all the time about firms allowing people to bring their infant children and their dogs to the office.

The evidence all points to our being at full employment.

Posted by: Patrick R. Sullivan at September 8, 2004 07:26 AM

"This presumes that the firm is able to substantially increase its sales. Assuming the firm is operating in a competitive economy in a saturated market, they will likely lower their price to stimulate more demand, but it is unlikely they could increase sales 10 times to employ the retained workers in their old jobs (with investment in more machines). I think it is much better for the economy if the 9 surplus employees are released into the general labor pool to find employment at another firm that could productively employ them."
Posted by Robert Brown at September 7, 2004 07:50 PM

I think that you are ignoring the fact that the innovation is most likely industry-wide -- in a perfectly competetive economy (and that is what we must use in our discussion, as any other assumption (besides monopoly, which would not be interesting here) vastly complicates things) the technological innovation you refer to is likely to happen to every firm in this economy. Therefore what we are really looking at is a change in the ideal labor/capital mix due to a technological change for this industry.

Assuming the rental to the capital is equal to or smaller than the combined wages of the 9 dismissed workers, the firm does indeed come out better from this exchange, but for the economy as a whole the implication is, I think, unclear. You make the argument that now-unemployed workers should be free to seek employment elsewhere in the economy, but that may not be easy. Certainly in an economy anything like today's, finding a job with the skills this hypothetical worker has may not be easy -- given the industry-wide technological advancement, this worker is unlikely to find a job doing what he did before he was fired. Job training is not a trivially small cost, and it would most likely enter into the equation. Also entering the equation are the sudden new burden of frictionally unemployed workers on services such as unemployment insurance. In the short run, these effects may be enormous and may well outweigh the monetary profits to the industry of one particular innovation. Note also that these workers who are now unemployed are not adding *anything* to the economy -- they are spending checks from unemployment insurance, but that insurance money is not a salary or wage; that is, nothing is being produced, and the insurance payment is merely a transfer.

In the long run, of course, it is possible for these laid-off workers to find different employment -- whether or not they will produce at the previous level is irrelevant, given that the machines employed by the workers' previous industry are taking up the slack and therefore the level of the economy will be higher than it was previously. But who knows how long the long run is? I won't bother repeating the Keynes quote from above, but it may bear consideration. And, of course, the short run is what people care about, and what politicians in particular care about, because election cycles almost certainly take place in the short run.

A long-winded way of saying "you're right, but only partially, and not really in the case I was talking about". In the case I discussed, the productivity increase was such that individual workers could produce more at every level of time -- not a single mechanical innovation that caused one person's productivity to leap hugely while using a particular machine. So in your case you're mostly right (with the short-run exception I proposed), but I still hold that my case has merit.

Posted by: DM at September 8, 2004 10:29 AM

Typical Patrick argument: no, Patrick, the evidence points to the conditions of 1999 as being full employment. These are not the conditinos of 2004.

And you haven't answered the question: if this is the best of all worlds, then why did the bush administration forecast 1.7M more jobs by now? And why did Bush claim that his tax cuts last year would produce 5.5M new jobs between July 1, 2003 and December 31, 2004?

Posted by: howard at September 8, 2004 01:11 PM

Patrick Sullivan: I don't get my own joke, so you'll need to explain it to me. You have a refined and subtle sense of humor. You are saying that there is evidence (independent of theories about why the E/P ratio is what it is) that a large percentage of women did not enter the labor market some time between the end of the 60s and the early 80s? You need to be more long winded on this topic.

Robert Brown: OK, I guess we both half agree. But I see explicit and implicit assumptions in your argument that even if most firms are in the same situation of wanting to lay off workers because they can make more with less, that there will be no problem for those laidoff finding jobs. So I think that makes you over optimistic in the short run. And if you want to conclude that there will be no transition costs at all, and all these workers will get a new gig immediately, then I think you risk inconsistency. And, hey, we've both been long winded on this. That part of your comment is no fair!

Posted by: jml at September 8, 2004 06:49 PM