Brad DeLong's Semi-Daily Journal (2004)

For the revised headline, did you mean to say "White House Sees 1.8 Million Jobs Created This Year" instead of "3.8 Million"? Otherwise the numbers don't add up. Well, of course, this administration's fantasy numbers never add up, but you know what I mean.

There was an interesting observation by Rex Nutting at CBS Marketwatch:

http://cbs.marketwatch.com/news/story.asp?guid=%7BF0542557%2D91DC%2D4D0C%2D8033%2DA1E9BBE67CC6%7D&siteid=mktw

Here is the short of it:

"Asked whether the administration was really forecasting 5 million new jobs in 2004, a senior administration official speaking on condition of anonymity told us to read Footnote One very carefully.

Footnote One explains that the White House forecast is based on information available to its economists on Dec. 2, a few days before the November jobs report was released.

Back then, the jobs picture looked quite a bit rosier than it does now.

If there had been steady job growth since October, the administration would have needed just 300,000 jobs a month to reach its goal. That would have brought total employment to 134.3 million by December and employment would average 132.7 million for the year."

Steven Roach also continues to point out the weak job market, but he seems fixated on using this to prove his theory that the "global labor arbitrage" is America's job-eating machine. This is starting to come off something like physicists vainly searching for the 5th force of nature: it's different this time and the usual economic forces don't hold anymore.

To me, the jobs numbers say that the tax cuts didn't contribute much economic activity and the money should have been spent on infrastructure projects.

But, hey, I'm not an economist.

Pete: Offshoring/labor arbitrage does have an impact in certain sectors, like high-tech -- software, semiconductor and other product design, and component manufacturing. High-tech is only part of the economy, and not all companies are affected (yet), so in relative terms it probably makes a rather small dent overall.

I heard a bunch of anecdotes from people who I actually know that work in real companies in Silicon Valley, that suggest that some venture capitalists are driving startups to outsource certain functions to Asia, virtually as a prerequisite to obtain follow-up financing. Also established companies, many of whom have Asian subsidiaries or partners from .com times, either created by their own or by acquisitions, shift activities there. And I have my own observations in this environment. (To some extent it is also a win-win for those Asian employees in the US who for various cultural and personal reasons wish to return to their home countries.) In line with what Roach is saying, this is facilitated by global high-performance telecommunication and data networks having become feasible around Y2K. He does not make this up. The shift is very gradual; reduced hiring locally, more hiring in Asia.

The net result is depressed job growth, more picky local hiring, and related pressure on compensation packages, for both new hires and existing staff.

Brad writes:
"I gather that the CEA no longer expects average payroll unemployment in 2004 to be 132.7 million, but instead something like 130.1 + 5.5 x 0.32 = 131.9 million."

Is there anyone left to mind the store?

Now all they will say in public is monthly jobs gains will be larger than 110,000. This rate would give a 2004 average of about 130.7 million:

Greg Mankiw Testimony before the House Budget Committee, February 3, 2004 (http://www.whitehouse.gov/cea/mankiw-20040203.html)

"The Labor Market

Boosted by strong demand and income growth, the labor market in 2004 and beyond is expected to build upon the favorable developments in the last five months of 2003. Nonfarm payroll employment fell an average of 50,000 workers per month in the first seven months of 2003, before increasing 35,000 in August, 99,000 in September, and an average of 48,000 per month in the fourth quarter ... Because the labor force is constantly expanding, employment must be growing moderately just to keep the unemployment rate steady. For example, if the labor force is growing at the same rate as the population (about 1 percent per year), employment would have to rise 110,000 a month just to keep the unemployment rate stable, and larger job gains would be necessary (and are expected) to induce a downward trend in the unemployment rate."

Mankiw's math doesn't work out.

1% of the employed work force is about 130,000, not 110,000.

Is he deliberately fudging he numbers to make it easier for the admin to reach its projections, or are other factors at work here?

Brad: The WSJ piece that you cite is exactly why I think you were wrong to correct yourself yesterday. The number published in the ERP is what matters -- if the CEA has altered its internal projections, it is the responsibility of the CEA to make that public knowledge to the world, so that the media and voters can get it right. Until that happens, we should stick with the presumption that they meant what they printed. Put another way, it is irrelevant if they've changed their internal job-creation goals, if they're still publicly telling the world that they expect average employment this year to be 132.7 m.

Couldn't we just take all those unemployed and put them to work fact-checking White House documents?

Couldn't we just take all those unemployed and put them to work fact-checking White House documents?

Couldn't we just take all those unemployed and put them to work fact-checking White House documents?

We have, it's called:

Blogging

"In an optimistic forecast, the White House expects the U.S. economy to create 2.6 million jobs this year. That would erase the entire loss of jobs since President Bush took office."

This notion does not take into account that fact that new people enter the potential labor pool every month--generally considered to be about 150,000 net (new minus retirees). That makes 1.8 million a year, and 5.4 million in 3 years. That means that 8 million jobs have to be added in order to erase the loss and give jobs to the people who have come of working age since Bush entered the White House. They have some ways to go.

Truth is a kind and gentle lie.

No cause is so right that one cannot find a fool following it.

We are as God made us, and often a great deal worse.