March 05, 2004

How Much Stimulus Is Enough?

The usually-reliable Noam Scheiber drifts off base. He argues that because Bush administration fiscal policies contributed perhaps 1.5% to growth last year, that the Bush administration managed to "do enough" and should not be blamed for stagnant employment:

The New Republic Online: Whack Job: ...Liberals in Congress and at places like the Economic Policy Institute complain that the Bushies should have targeted the bulk of their tax cuts toward the working poor and middle class, who were more likely to spend their tax savings than more affluent beneficiaries were. They also argue that more of the tax cut's benefits should have been delivered in the short-term rather than over five or ten years, and that the administration should have sent more help to the states, which were cutting spending and raising taxes even as the federal government was doing the opposite.

But, of these three criticisms, only the last one really holds water if the goal is stimulating the economy. For one thing, there is evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted. And, Democrats' complaints notwithstanding, the tax cuts provided plenty of stimulus when it counted. In all, according to Stephen Roach, Morgan Stanley's chief global economist, the tax cut provided about 1.5 percentage points of economic growth last year (which amounts to about $150 billion in a $10 trillion economy). Meanwhile, though the states did suck some of the stimulus out of the economy, that effect was probably far overshadowed by the effect of the war, which most liberals opposed. Roach estimates that war-related spending should probably be credited with another 1 percentage point of economic growth last year. (Though, as mentioned above, war-related anxiety probably hurt the economy prior to the invasion.)

The broader point is that almost no serious economist argues that the economy has lacked for stimulus during the last three years. Between the tax cuts, additional spending, the falling dollar (which makes U.S. exports more attractive abroad), and, perhaps most importantly, the Fed's historically low interest-rates, the concern, if anything, was that the Bushies and the Fed have done too much...

But why is 1.5% "enough stimulus"? Why isn't "enough stimulus" defined as "enough to get us back to full employment"? Why isn't "enough stimulus" defined as "enough to insure us by preventing the possibility that further bad shocks will leave the Federal Reserve powerless"? The usual and reasonable definition of "enough stimulus," in fact, is "enough so that people are about to start worrying that inflation will accelerate." By that yardstick we're far below "enough stimulus."

A fiscal policy that redirected tax-cut-for-the-rich money to the states, that compressed the deficit and delivered more short-term stimulus, and that did target more tax cuts at the non-rich would have had no trouble delivering twice as much stimulus. Why--given the lousy state of unemployment--wouldn't that have been a good thing?

This is an unwise and misleading form of argument too often found at The New Republic: set the bar for Republicans artificially low in some respect, and then argue that nobody should complain because they exceeded the bar.

Posted by DeLong at March 5, 2004 01:58 PM | TrackBack | | Other weblogs commenting on this post
Comments

The article is typical New Republic -- trying to be contrarian for the sake of it. Also, he says

>> the concern, if anything,
>> was that the Bushies and the
>> Fed have done too much...

So "too much" stimulus (relative to what?) and job growth is still pathetic. I guess TNR really wants to be the in-flight magazine of Air Force 1.

Posted by: P O'Neill on March 5, 2004 02:06 PM

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Sounds like fog and mirror argumentation. Here's a great misdirect:

"...there is evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted."

But that is not what the critics had argued about. Their point was that:
Affluent people spend a smaller proportion of their income than the less affluent people; NOT less that economic models, but less than their brethren !

Posted by: ch2 on March 5, 2004 02:11 PM

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that should read "less than their poorer brethren".

Posted by: ch2 on March 5, 2004 02:13 PM

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My attitude towards the current crop of TNR writers, even the best of them, is that they seem afflicted with the need to say things periodically that will continue to get them invited to the right Georgetown dinner parties....

Posted by: howard on March 5, 2004 02:17 PM

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These are curious times. The "Economist" and Morgan Stanley's Stephen Roach are pushing for the Federal Reserve to increase interest rates for fear that our homes may not be worth more than they think they should be worth. TNR is also worried that George Bush and Alan Greenspan have done too much.

These folks are part of the no pain-no gain school of economics. As long as the pain is not their own, the heck with the rest of us. Well, I have a problem with these folks. Does it matter really matter when month on month passes and there are no jobs for us?

http://www.nytimes.com/2004/02/28/nyregion/28employ.html

Nearly Half of Black Men Found Jobless
By JANNY SCOTT

It is well known that the unemployment rate in New York City rose sharply during the recent recession. It is also understood that the increase was worse for men than for women, and especially bad for black men. But a new study examining trends in joblessness in the city since 2000 suggests that by 2003, nearly one of every two black men between 16 and 64 was not working.

The study, by the Community Service Society, a nonprofit group that serves the poor, is based on data from the federal Bureau of Labor Statistics and focuses on the so-called employment-population ratio - the fraction of the working-age population with a paid job - in addition to the more familiar unemployment rate, the percentage of the labor force actively looking for work.

Mark Levitan, the report's author, found that just 51.8 percent of black men ages 16 to 64 held jobs in New York City in 2003. The rate for white men was 75.7 percent; for Hispanic men, 65.7; and for black women, 57.1. The employment-population ratio for black men was the lowest for the period Mr. Levitan has studied, which goes back to 1979....

Posted by: Ari on March 5, 2004 02:19 PM

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Mr. Bush has given a tax cut to the wealthy but at what cost?? The federal debt has increased from $5.6 to $7 trillion. That is $1.4 Trillion in money that could have gone into "other investments" that is now owned by the US treasury. Yes some of that $1.4 trillion is owed to Social Security, but that means That the government now owns more bonds that could have been paid off.

In a $10 trillion economy, the "stimulus" due to revenue loss is over 4%. Losing 4% of revenue to get a 1.5% economic stimulus is not a good deal.

The easy availability of credit is likely to dampen the effect of tax cuts to any one, rich or poor. Many of the poor have gone into debt to purchase and a tax cut windfall will be parly spent, partly used to pay down debt. In a way the point Sheiber makes about money to the states is absolutely on target.

Economic growth has not returned to 90s levels, but no one thought that was sustainable. Economic growth has continued under Bush, and if one looks at a ten year average, growth is not terribly off course. Joblessness is another matter. The failure to address joblessness directly, the refusal to help the states, the failure to use surplus workers to build infrastructure are opportunities lost by the Bush administration.

I would not even argue that the economy is terrible right now. The economy is OK. Jobs are not. I think that is the criticism that the DEMS have leveled at Mr Bush, that he has not done enough to address the job loss.

"Meanwhile, though the states did suck some of the stimulus out of the economy, that effect was probably far overshadowed by the effect of the war, which most liberals opposed." This statement is way way off base. Money to the states would have mostly been spent locally by hiring people who live in the states. Much of the money for the war is a lot spent on subcontractors who live in Iraq, or Kuwait or Jordan or somewhere not in the US. There is a loss because many of the people in Iraq are getting paid less than they were in the US and spending their money overseas rather than at home.

Posted by: bakho on March 5, 2004 02:20 PM

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http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict

For minorities, the declines in participation rates are much larger: down 2.7 points for Hispanics and 2.6 points for African-Americans, with African-American men exhibiting a decline of -3.2 points. Interestingly, participation rate declines are larger for the more highly educated, underscoring the difficult job market for college graduates. Their labor force participation rate last month was 77.7%, down 1.6 points since the recession and the lowest level on record since BLS began publishing this series in 1994....

Posted by: anne on March 5, 2004 02:21 PM

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http://www.epinet.org/content.cfm/issuebriefs_ib198

• In 2003, 22.1% of all unemployed workers had been out of work for more than six months, an increase from 18.3% in 2002. This proportion is higher than at comparable points in the recovery periods of the four most recent recessions, and it is the highest annual rate of long-term unemployment since 1983.

• College graduates represent 15.3% of total unemployment, but 19.1% of long-term unemployment. Long-term unemployment among college-educated workers increased by 299.4% between 2000 and 2003, a much faster rate than the increase of 156.1% for workers with a high school degree or less.

• While long-term unemployment hit all age and occupational groups, more experienced jobless workers had a disproportionately difficult time getting back to work in 2003. Although job seekers age 45 and older made up 25.7% of the total unemployed population, the rate of long-term unemployment for this group was 35.4%.

Posted by: anne on March 5, 2004 02:23 PM

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The 2nd of the three arguments he lists is that it would be better to have more short-term fiscal stimulus and less long-term fiscal stimulus. He dismisses this argument out of hand. But it was the position of the moderates in the Senate in Oct. 2001 and it was the Clinton economic plan during his first term. Given all the discussions of what this plan might be good for investment while the Bush long-term fiscal stimulus plan is bad for investment, why does he dismiss this argument? I could not tell.

Posted by: Harold McClure on March 5, 2004 02:23 PM

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Did anyone catch Don Evans' bluster today about how 'if you look at any economics textbook, it says that raising taxes stunts growth'? Perhaps he hasn't looked at Greg Mankiw's textbook, and the section on long-term deficits?

Posted by: ahem on March 5, 2004 02:27 PM

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http://www.epinet.org/content.cfm/webfeatures_snapshots

Increase in hi-tech investment obscures weakness in overall manufacturing

A closer look at how the growth in investment in the last half of 2003 was divided between hi-tech and the rest of the manufacturing industries reveals a less-than-encouraging picture for overall manufacturing investment.

Posted by: anne on March 5, 2004 02:38 PM

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OK, my understanding of economics is a bit limited, but is he arguing that a multi-trillion dollar tax cut was worth it because it added $150 billion to the economy?

Evenover 10 years, that's just $1.5 trillion. Aren't we missing a trillion or two dollars after all is said and done?

Posted by: Patrick Rogers on March 5, 2004 02:42 PM

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Patrick Rogers

Oops!

Posted by: anne on March 5, 2004 02:50 PM

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"For one thing, there is evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted."

It's a shame that this is treated as a throwaway line. How much higher? What are the numbers that traditional economic models predict? As I understand it, the argument that differently-targeted tax breaks would have done more to mitigate this recession (and therefore that the Bush administration must take some responsibility for our current state) rests on marginal propensity to consume data. Is Noam Scheiber right about this?

Posted by: msw on March 5, 2004 02:52 PM

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Low borrowing costs, cheap labor, who could ask for more? More profits for me and my friends. Yay! What's even better is the suckers will re-elect me again anyway. Gawd, they're stupid!

Posted by: W on March 5, 2004 03:07 PM

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What "lousy state of unemployment"? 5.6% isn't particularly bad in historical terms. We used to call this "full employment".

Sure, it would be nice to improve it by a point or so, and if current growth rates are maintained that surely will happen. But for an ecomomist to call 5.6% "lousy" simply looks like a case of partisanship triumphing over professionalism.

Posted by: ford on March 5, 2004 03:26 PM

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I don't even begin to say I understand economists. All I know is if you put 10 of them in a room, you will probably get 10 opinions, mostly based on some statistical model that is supposed to work, at least in theory.

I do know that if you want to stimulated the economy, you need "consumers", millions of people with jobs, making a decent living. Most of these people will spend the money, just look at today's consumerism.

As an entrepreneur, I have created many businesses and thus jobs, with gov't incentives.

In the early Eighties, Solar Enery jobs (Solar Tax credit). Mid Eighties, vending machine jobs, funded with small investors, using investment tax credits and accelerated depriciation.

In the mid Ninties, SBA loans, Grants, and Enterprise zones, that are based on job creation to start business, that have created hundreds of jobs, particularly in low income depressed areas.

So why does NOT the gov't use these PROVEN job creation and stimulus methods, that are target particular at small business and have worked to create jobs?

Posted by: Tim M on March 5, 2004 03:39 PM

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The best thing about the New Republic is that nobody reads it.

Posted by: SW on March 5, 2004 03:45 PM

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Ford:

Perhaps you should attend to the unemployment rate that actually includes "marginally attached workers"- (is that U-6?)- rather than the household survey generated rate of "official" unemployment- (is that U-3?).

As to the the issue of the "marginal propensity to consume" on the part of the wealthy, I don't see how this could be set at a fixed level, since wouldn't it precisely depend on the level of opportunities for real investment? Whereas, of course, it is fairly clear that for people with limited income and low savings/high relative personal debt any additional income from tax rebates would necessariy have to be spent on consumption needs or debt reduction.

Posted by: john c. halasz on March 5, 2004 03:49 PM

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Keep in mind that boosting aggregate demand is just a roundabout way for reducing real wages under cover of inflation. This is not a bad thing, especially if you want full employment But it requires a monetary component that has thus far been lacking.

Posted by: Luke Lea on March 5, 2004 04:15 PM

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Has anyone correlated the unusually large numbers of people who have stayed out of work for long periods of time with the recent trend to extend unemployment benefits into infinity?

Posted by: tbrosz on March 5, 2004 04:26 PM

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Remember the Bush Administration is modeled on that of William McKinley. In the McKinley-Guilded Age,(1897-1901) Washington was ruled by business,railroads and public utilities. During that time American democracy atrophied primarily as a result of skewed income disrtibution of the time. Are we far away now?
At the time McKinley had his Karl Rove ,Mark Hanna, who essentially puppeted McKinley.

Posted by: NM PUFF on March 5, 2004 04:42 PM

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do you really believe that 5.6% figure is even close to reality? what other data supports it? job growth vs. the change in the working population. come on folks....these numbers are crap...

as an aside...I flew into San Jose recently and it looked like half the parking lots in Silicon Valley were vacant and the rest were pretty sparsely occupied. Same sdame for a lot of other metro areas

Posted by: rtalcott on March 5, 2004 04:57 PM

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Unemployment numbers are so subject to political tampering that they are nearly meaningless. And they do nothing to measure the quality of work - Wal-Mart McJobs versus real professional jobs. If unemployment were truly below 6% as the administration claims, why are middle-class salaries continuing to stagnate and why are so many Americans stuck in crappy, low-paying jobs?

Posted by: Firebug on March 5, 2004 04:58 PM

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I agree that the unemployment rate is not the only indicator that should be considered. A person has to make several decision about whether it is worth the trouble to even look before s/he can even be counted as unemployed. So things like total employment and emplyment ratio, expanded definitions of unemployment such as the U-6 mentioned here.

Regarding the issue of people just staying on unemployment insurance payments for infinity, I think we will soon find out about that. Over the last several quarters, very large numbers of unemployed have run through their benefits. Not all states have gotten the extension. So over the last several months the numbes losing the benefit has reach a high plateau. I wish I knew the link, but it was a report anne linked to at the EPI or NBER or something. I think is said that we will soon set a postwar record for number of long term unemployed losing benefits.

Posted by: jml on March 5, 2004 05:15 PM

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Firebug, jml
UI numbers "subject to political tampering... are nearly meaningless". Come on, the BLS is working hard on our behalf to measure this as accurately as they can.
It ain't them --it's the press.
john ( jml too) has it right: all we do is read the relevant stat --the payroll numbers to give us the right picture.
I like the actual numbers: 2.3M ( or larger)fewer payroll jobs since GWB took office. This is the political sledge hammer view against which this "enough stimulus" talk looks pretty feeble.
Most of us get it: that the household numbers, although cheerier, don't supply the tax revenues.
As for being "stuck in low-paying jobs" , remember those telephone-soliciting jobs are still being offshored. So it's a good thing to be stuck and not sliding to an even poorer paying job.
Look on the bright side: you could be part of the $200M re-election campaign. And have to face the consequences if it succeeded.

Posted by: calmo on March 5, 2004 06:00 PM

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"If unemployment were truly below 6% as the administration claims, why are middle-class salaries continuing to stagnate and why are so many Americans stuck in crappy, low-paying jobs?"

Do you have statistical evidence of this stagnation, other than media sweeps for anecdotes?

The technique of simply dismissing numbers you don't like is a bit lame. If the unemployment rate had gone up last month to 6 percent, the number would have been treated as solid gold. Hell, I could make an equally plausible case (i.e. not plausible at all) that the BLS is deliberately underreporting jobs to make Bush look bad.

Posted by: tbrosz on March 5, 2004 06:59 PM

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What is full employment? The rate I mean, what rate equals full employment.

Posted by: John M. K. on March 5, 2004 07:08 PM

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whew, calmo, for a moment I thought you were accusing me of saying the BLS numbers are doctored. I would find it hard to believe that any large government survey can be doctored. These are usually very big, very organized and meticulously run deals. The if you go click on the intenert pages of these organizations -BLS, CDC, census, you can read all the reports about survey design, methodology, how stats are caclulated, how the sampling is adjusted as the non-response rate of the survey developes over time, and lotsa other stuff too. And hundreds, maybe thousands of people use these data, so any fiddling or serious statistical incompetence would show up sooner or later -probably sooner. It is very difficult to tamper with this kind of thing without leaving footprints.
I've worked with these surveys, and if one is goofed up in any way, it shows very quickly when you look at the numbers, especially over time.
So don't believe (mostly liberal?) stories about political tampering unles the person is willing to show you some numbers. And don't believe (mostly conservative?) stories that these surveys are worthless junk produced by gummint liberals wandering around knocking on doors at random.
It will be very interesting to see why the unemployment rate is so low. Maybe the initial recession was mild -more like a financial panic than a real recession. If the job problem unfolded gradually as a result of bad fiscal policy, maybe people had time to make adjustments in time to avoid unemployment if there were better deals around. Like maybe the newest automatic fiscal stabilizer -long term disability.

Posted by: jml on March 5, 2004 07:09 PM

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tbrosz,
I don't think many people here are saying that the unemployment rate should be dismissed. Simply that it should be considered with other numbers as well, and all the numbers compared to put the total situation in perspective.
The fact is that there can be a lot of people who want a job, and be very upset about the job market, but not currently defined as unemployed. Or maybe there are things under the radar that are looking up, and there are really lots of newly self-employed ex-wage slaves who are happy as clams. We can't find out for sure right now, but when you take all the numbers together, think that the former is more likely than that latter.
If the economists cannot get things figured out soon, the election results might be one clue. If nothing else pops up to cloud the picture.

Posted by: jml on March 5, 2004 07:18 PM

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Oops....
"And don't believe (mostly conservative?) stories that these surveys are worthless junk produced by gummint liberals wandering around knocking on doors at *haphazardly in a disorganized fashion*" (actually, they do pick them at random)

Posted by: jml on March 5, 2004 07:22 PM

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"Low borrowing costs, cheap labor, who could ask for more? More profits for me and my friends. Yay! What's even better is the suckers will re-elect me again anyway. Gawd, they're stupid!"

Profits up, markets up, everyone out of a job. It's a Republican Dream Recovery!

Posted by: leo on March 5, 2004 08:51 PM

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bakho
"The economy is OK. Jobs are not."
So what guages are telling you that things are OK? I read the housing sector (starts, median prices, mortgage volumes, re-fi rates, forclosures, etc). This is, at best, stable. And the auto industry ( volume, market share, incentives, financing) which is grim and getting grimmer. If the jobs aren't OK how could the economy possibly be OK? Fewer healthy consumers with discretionary income means fewer goods and services moving off the shelves, no? (Or am I missing a shipment of soybeans to China?) Maybe exports have picked up, but it seems to me those container-ships heading out are sitting pretty high in the water.
The stock market looks rosy compared to my view of the economy.
Nah, I can't even bring myself to say that the market is OK. I can't imagine where you saw the acceptable part of the economy? Defence sector? Real estate? Litigation?
Ah. It was the Media and the current multi-million cash infusion, right?

Posted by: calmo on March 6, 2004 12:23 AM

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rtalcott: "I flew into San Jose recently and it looked like half the parking lots in Silicon Valley were vacant and the rest were pretty sparsely occupied."

I live in that area, and if I were facetious I could ask in which places only 1/2 of the parking lots were empty. But more seriously, business occupancies are down quite a bit, and there are some business zones that I see daily that are virtually swept clean, and hold only a half-dozen or so companies with full parking lots when they would previously burst at the seams (up until 2000 and parts of 2001).

"Available" signs are popping up every week (albeit at a slower rate), stores close and stay unrented, but interestingly the housing market is still (or perhaps again) a seller's market. Nobody can make sense of it.

In my company I have been seeing signs of cautious net _domestic_ hiring but have yet to see whether it is sustained; it may be pent-up demand from the previous end-of-year where usually little of that sort happens.

Posted by: cm on March 6, 2004 01:19 AM

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Patrick Rogers writes:
"OK, my understanding of economics is a bit limited..."

Your understanding of economics is as good as that of any "professional" economist. Economics is a pseudo science, collection of factoids with some theoretical models that work only on paper. It has no predictive power, in that it resembles alchemy much more than a real science like chemistry.

Posted by: Mik on March 6, 2004 01:23 AM

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There are times when one appreciates Lenin's command of language. Can anybody around this joint spell "reserve army of the unemployed"?

Posted by: David Lloyd-Jones on March 6, 2004 05:32 AM

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"Has anyone correlated the unusually large numbers of people who have stayed out of work for long periods of time with the recent trend to extend unemployment benefits into infinity?"

tbroz, sometimes you're just a total ass.

Two years ago I received one 3 month extension of this fabulous benefit, the entire sum of which amounted to less than 10% of my former income. I'm still looking, without benefits, and I'm not asking for anything close to what I used to make as unemployed programmmers are now a dime a dozen in this economy, and moving to India is not an option.

Posted by: dennisS on March 6, 2004 05:35 AM

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dennisS, you're flat-out wrong.
tbroz is not sometimes a total ass.

He's *always* a total ass.

Posted by: Barry on March 6, 2004 06:42 AM

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"Sure, it would be nice to improve it by a point or so, and if current growth rates are maintained that surely will happen. But for an ecomomist to call 5.6% "lousy" simply looks like a case of partisanship triumphing over professionalism."

Posted by: ford on March 5, 2004 03:26 PM

BZZZZZZZZZZZT! The correct answer is 'labor force participation rates have declined sharply, and the official government statistics estimate that 2.3 million jobs have been lost. Because of the definition of 'unemployed' in the numerator of the 'unemployment rate', it is quite possible for there to be small changes in the unemployment rate, even while the number of unemployed people increases.'.

As a consolation prize, you have been placed on the applicant list for a columnist position at TNR, the Weekly Standard, The National Review, the Wall Street Journal, Faux News, and the New York Times (Brooks/Safire/Kristoff/Friedman division).

Posted by: Barry on March 6, 2004 06:51 AM

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"A fiscal policy that redirected tax-cut-for-the-rich money to the states, that compressed the deficit and delivered more short-term stimulus, and that did target more tax cuts at the non-rich would have had no trouble delivering twice as much stimulus. Why--given the lousy state of unemployment--wouldn't that have been a good thing?"

Bush has been going around the country saying he does not hear any new ideas about the economy from Democrats. Isn't it important that Kerry start talking about concrete proposals like the above as soon as possible?

Posted by: Bob H on March 6, 2004 06:52 AM

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This is anecdotal, but just last night I saw something I haven't seen in 30+ years. My alma mater, Carnegie Mellon, sent around an email looking for help because the BS graduates in engineering are not finding jobs. This is from an engineering school in the top five.

Posted by: Tim H. on March 6, 2004 07:04 AM

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The author confuses the average and marginal propensity to consume and thereby goes wrong on the fiscal stimulus.

But he is just a journalist, so you have to cut him some slack. The bigger point here, I think, is that Dr. Delong is not really being forthright with us. Unless you believe that America is in a liquidity trap and/or think that the Fed will systematically under-react to fiscal policy, then you must accept that the level of aggregate demand in the US economy is set by the Federal Reserve, not the Treasury & Congress. At least this is the case at any horizon extending beyond six months or so.

Paul Krugman, whom Delong admires, has made this point on several occasions while criticizing fiscal policy as a tool of aggregate demand management (except in liquidity trap). I presume he is right. More importantly, I suspect Dr. Delong agrees.

I agree with you folks that the President is a menace and that the case for getting rid of him is very strong. But the case for intellectuals staying honest is just as strong.

To blame Bush for insufficient demand is a bit like blaming the filling station attendant when your car runs out of gas.


Posted by: Gerard MacDonell on March 6, 2004 08:08 AM

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The author confuses the average and marginal propensity to consume and thereby goes wrong on the fiscal stimulus.

But he is just a journalist, so you have to cut him some slack. The bigger point here, I think, is that Dr. Delong is not really being forthright with us. Unless you believe that America is in a liquidity trap and/or think that the Fed will systematically under-react to fiscal policy, then you must accept that the level of aggregate demand in the US economy is set by the Federal Reserve, not the Treasury & Congress. At least this is the case at any horizon extending beyond six months or so.

Paul Krugman, whom Delong admires, has made this point on several occasions while criticizing fiscal policy as a tool of aggregate demand management (except in liquidity trap). I presume he is right. More importantly, I suspect Dr. Delong agrees.

I agree with you folks that the President is a menace and that the case for getting rid of him is very strong. But the case for intellectuals staying honest is just as strong.

To blame Bush for insufficient demand is a bit like blaming the filling station attendant when your car runs out of gas.


Posted by: Gerard MacDonell on March 6, 2004 08:08 AM

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"To blame Bush for insufficient demand is a bit like blaming the filling station attendant when your car runs out of gas."

Fiscal policy and George Bush are precisely the problem. The tax cuts have been wastefully deigned and have spurred far too little demand. Fiscal policy could not be more poorly designed by George Bush.

Posted by: anne on March 6, 2004 09:05 AM

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I went to the BLS site to find some figures on unemployment since 1980 (very cool site by the way - it will build custom tables for you). And my question is this. I vaguely understand the theory behind tax cuts creating jobs and tax increases choking job growth. What I don't understand is why the numbers don't seem to report it.

Reagan gets his tax cut on July 29, 1981. Unemployment at 7.5%. I hear economists suggest you need 18 months to be seeing the effects of such things. Dec 1982 - unemployment at 10.8%. Give it time. 1983 - unemployment slowly goes from 10.4% to 8.3% at years end. Indeed it was not until May 1984 that Reagan got back to his starting point. And never got the rate below 5.7% until April of 1988.

In 1992 Bill Clinton. Unemployment at 7.4%. He pushes through a huge tax increase. What happens 18 months in Dec 1993 6.5% and the start of a steady trend month in and month out improvement in employment until the rate hit 3.9% in Dec 1999.

Year 2000, unemployment at 3.8% in April, the lowest over the nineteen year span. Bush gets his tax cut, and unemployment numbers start their clear increase to the 6.3% we say in June 2003.

At some point you got to say "Where's the beef?". Are there any real numbers to this so-called positive impact on jobs, or is this just a different scam like the "Social Security Crisis" discussed over the last few days.

Posted by: Bruce Webb on March 6, 2004 11:22 AM

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I agree with what MacDonnell says, except that I think he overstates the implications. Anne is correct. If the sharp increase in producivity growth is real, and that monetary policy has been accomadative, and it is fiscal policy that is at fault, then we can say in this situation, it is fiscal policy that is the problem.

Anyway, periodically it has looked like we are in a near liquidity trap situation.

But gosh, more and more people asking for alternative scenarios of what would happen with a better fiscal policy. Some one must be doing this, but I haven't seen it. The mainstream modreate to liberal macro types have called the employment situation far more accurately than anyone else. So why should they be shy of constructing some scenarios? If anyone knows of anything let me know.

Posted by: jml on March 6, 2004 11:22 AM

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Tim H: "This is anecdotal, but just last night I saw something I haven't seen in 30+ years. My alma mater, Carnegie Mellon, sent around an email looking for help because the BS graduates in engineering are not finding jobs. This is from an engineering school in the top five."

Wow. But maybe before .com they didn't have or wouldn't use email, and sending out letters was more expensive? But then professors would perhaps have contacted their previous graduates or referred new graduates in a more targeted manner.

Still, it may be a sign of growing desperation. But then there has always been a lot of reliance on alumni networks.

Posted by: cm on March 6, 2004 11:24 AM

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Anne:

-- Under normal circumstances, monetary policy is a more potent and useful tool for stabilization than is fiscal policy.

So wrote Brad Delong is his useful review of what he describes as the Monetarist/NeoKeynesian consensus. My comments about thelabor market are just an application of that thought.

If you disagree with my argument, please feel free to explain why. But so far as I can tell, you have not addressed the argument. Do you really believe we are already in a liquidity trap and that the Fed has therefore lost its ability to regulate demand? If not, then just concede my point.

Professor Delong, meanwhile, writes as though the weak labor market is proof that Bush's fiscal policy is a failure. Instead, it is evidence only that monetary policy has failed to provide sufficient stimulus GIVEN the pace of productivity growth and GIVEN all other influences on demand, including fiscal policy.

To be clear, I do think Bush's fiscal policy is a failure, mainly because I think it is destabilizing in the long run and has distributional consequences that are not to my taste. But that has nothing to do with the 12-month rate of change of payroll employment, which is mostly up to the Fed to manage. I know you folks know this. Admitting it will not get Bush re-elected. Relax.

Posted by: Gerard MacDonell on March 6, 2004 03:40 PM

____

I agree that

-- Under *normal* circumstances, monetary policy is a more potent and useful tool for stabilization than is fiscal policy.

But are these normal circumstances? And to say that monetary policy is more potent and useful, doesn't mean that it is sufficient. With increase in productivity growth, negative shocks to demand (9/11 and Iraq war), local state govt fiscal constraints, stock bubble burst, the inefficient federal fiscal policy may be close to no net positive fiscal stimulus at all -for people who spend most of their money on consumption.

So, yeah, maybe we have been in situation where periodically we have been close to a liquidity trap situation. Is there something wrong with that view? Obviously it is not the extreme Old-Keynesian liquidity trap where monetary policy has zero effect, just not enough to start a robust recovery. But I am not a macro guy, so if I am missing something, let me know.

Posted by: jml on March 6, 2004 04:20 PM

____

Re: "Do you really believe we are already in a liquidity trap and that the Fed has therefore lost its ability to regulate demand?"

I think that the Fed doesn't know, but doesn't especially want to have to find out by lowering interest rates further or resorting to "non standard measures." I think that a more effective fiscal stimulus right now would be very welcome--and that we are on a branch of the strategy tree that should have been foreseen when Bush fiscal planning was done in the fall of 2002.

Posted by: Brad DeLong on March 6, 2004 07:16 PM

____

" BZZZZZZZZZZZT! The correct answer is 'labor force participation rates have declined sharply, and the official government statistics estimate that 2.3 million jobs have been lost."

Only for those aged 16-24. People older than that are at the same 67% rate they were at the end of the Clinton years. The jobs lost are mostly those of people in their prime school years.

Posted by: Patrick R. Sullivan on March 8, 2004 08:49 AM

____

Reality is not affected by our apprehension of it.

Posted by: Shagan Jillian on March 17, 2004 05:13 PM

____

PATRICIA SAVIMBI.
204 line street santon
johannesbuge southafrica,
Email:p_savimbi2004@hotmail.com


ATTN ;,

I know you will be surprise to read a letter from me,
but please, consider this as a request from a family
in dire need of assistance.

I am Mrs. patricia savimbi, the wife of late Brigadier
[francis savimbi] from Angola. I am writing to yu from
Government Reserved Area (GRA) South Africa.

I got your contact information from a business
directory in Johannesburg Chambers of Commerce and
Industry. And I, on behalf of my late husband and my
only son, [tony] decided to solicit for your
assistance to transfer the sum of US$19.4 Million
(Nineteen Million Four Hundred Thousand United States
Dollars) inherited from my late husband into your
company or private bank account.

Before the death of my husband, he was Brigadier in
charge of Arms and ammunition procurement for the
Angola Army. In his will, he specifically drew me
attention to the sum of US$19.4 Million, which
he had deposited in a safe box of a private Security
Company in Johannesburg, South Africa. In fact, he
said and I quote:" My beloved son, I wish to draw your
attention to the sum of US$19.4 million.
I deposited the said box containing the fund in a
security Company in Johannesburg, South Africa. During
the war, I was very dedicated and committed to winning
the war against the rebels until when I
found out that some senior army officers and
government functionaries were busy helping themselves
with government funds and properties, sending them to
foreign countries. Due to this, when I and former
special adviser to the President were assigned by the
President (Jose Eduardo Santos) to purchase arms in
South Africa, we saw this as an opportunity to divert
the money for our personal use.
When we divided the money, my share was US$19.4
Million. I did this in case of my absence due to death
so that you, EMMANUEL, your two sisters and your
mother wouldn't suffer. You should solicit for
assistance of a reliable and sincere foreign partner
to assist you to transfer this money out of South
Africa for investment. I deposit the box in your name
and you alone with the deposit code can claim it. Your
mother is with all the documents, take good care of
your mother and two sisters. Do not disappoint me.
Goodbye".

From this words of my late husband, you will
understand that the lives and future of my family
depends on this fund as such I will be grateful If you
can assist us. Now what I want you to do for us as an
international partner is to help us clear this sum
from the Security Company using your name as the
beneficiary of the fund. You can contact my son (tony
savimbi) who is now in South Africa
on his telephone number, 27-83-96-33-294,

We have agreed to give you 20% of the total sum for
your assistance and 5% for the expenses that might be
incurred in the course of the transfer and the
remaining 75% for the family's investment abroad which
you will also assist us materialize. Further
information and discussion about this transaction will
commence as soon as you give us the assurance and
confidence that this money will be safe when
transferred to your account and please treat this
matter with urgency.

Thanks and God bless.

Regards,

Mrs patricia SAVIMBI.

Posted by: Patricia savimbi on March 27, 2004 02:04 AM

____

There's a fine line between genius and insanity. I have erased this line.

Posted by: Robichaud Sarah Wolfman on May 2, 2004 12:32 PM

____

We are the master of

Posted by: LaPierre George on May 3, 2004 12:23 AM

____

Without friends no one would choose to live, though he had all other goods.

Posted by: Ong Brandon on May 20, 2004 02:06 AM

____

Underestimation is a two-way street.

Posted by: Klavans Judith on June 2, 2004 08:40 PM

____

A person never tells you anything until contradicted.

Posted by: Wacker Leslie on June 30, 2004 05:52 AM

____

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