Another ignorant, know-nothing, ideologically motivated, partisan Republican heard from. In an interview on NPR All Things Considered this evening former Obama Administration senior economic advisor Austan Goolsbee, in response to a question about why companies holding cash rather than investing or hiring, responded: “Uncertainty”.
There were some other interresting things in the interview, too. For example, he said flatly that home construction and retail weren’t going to be the driving engines of the economy going forward.
The post-war period is over. This is something new.
Goolsbee talks a lot about uncertainty. He has talked about the uncertainty created by the debt ceiling debate. The uncertainty about the economy and demand. What did he say about uncertainty?
https://mninews.deutsche-boerse.com/content/text-whs-goolsbee-must-end-uncertainty-over-risk-default
http://blogs.wsj.com/economics/2010/10/07/secondary-sources-goolsbee-on-uncertainty-currency-war-unemployment-by-income/
This certainly makes sense. No one knows where the economy is going. There is good reason, based upon historical precedent, to believe that this will be a stagnant economy for a long time.
Steve
My point in this post is that Dr. Goolsbee could have responded “lack of aggregate demand”. He didn’t.
I think that the Manichean view of economic analysis of our present situation in which one side, the side that sees a lack of aggregate demand as our only problem, is right and the other side, which sees uncertainty as our only problem, is wrong is inadequate. It’s more complicated than that and and there are a number of real, actual, genuine problems that need to be addressed not just one unitary problem.
I’m skeptical of the aggregate demand theory on empirical grounds. I wish that its proponents would offer empirical evidence rather than just attacking their opponents. Further, I think that there are theoretical grounds on which to doubt it as a factor in this instance. IMO there is no output gap—what there is is an artifact of the housing bubble. No output gap implies that boosting aggregate demand by deficit-based stimulus spending will be less effective than it might be or not effective at all.
I’m skeptical of the uncertainty theory on empirical grounds. I wish that its proponents would offer empirical evidence rather than just attacking their opponents. I think that we continue to have a large inventory of real estate that needs to worked off. I think that we have major structural issues. (We had nearly ideal conditions for business in the 2000s, low taxes, deregulation, regulators who looked the other way, and all we got was a real estate bubble.) I think that we have been a debt financed economy for too many years. We are way beyond demand or supply, but demand is a major part of the problem, not the entire part, but a big part.
Steve
I think that characterizing a gentle and respectful request for evidence as an attack is a stretch.
Here is the dilemma. Many, many very bright, sincere people have presented evidence that there is a lack of demand. Many have presented evidence that we are undergoing structural unemployment. Cowen’s case for stagnation is compelling. There is evidence on the supply side, much of it pretty strong. Almost everyone has some evidence for their preferred explanation. Heck, there is even some evidence that uncertainty is a factor. The problem is that people reject evidence they do not want to believe. How do you choose?
When you look at disaster analysis, there is seldom one cause. Given the depth of our current problems, I think you do wrong to reject aggregate demand as a part of the explanation. (This assumes that you are doing this. You dont really seem to subscribe to just one cause, but you do seem to ready, IMO, to reject demand as any part of the problem.)
Steve
No. Exactly the opposite. I’m confidant that demand is part of the equation, particularly inadequate business demand. I’m skeptical that the measures we’ve been taking have been effective in increasing demand and I think that’s what the numbers over the last couple of years are telling us.
As I’ve been pointing out ad nauseam for the last couple of weeks, consumer demand is only one component of aggregate demand and I think that 75% of GDP is far too high for consumer demand already.
The evidence that I’m looking for is that 1) the stimulus spending that’s been done or being proposed has been or will be effective in increasing aggregate demand and 2) that the multiplier is non-zero (or even positive). If you’ve seen evidence of that sort I’m all ears. The actual empirical evidence I’ve seen on this is entirely on the other side, i.e. that what’s been done has not been effective in increasing aggregate demand. Borrowing more and spending more does not ipso facto increase aggregate demand.
1) I trust you saw these Mandel posts about consumer spending not making up 75% of GDP.
http://innovationandgrowth.wordpress.com/category/consumer-spending/
2) Gauging the effect of a response does not mean the diagnosis was wrong. Sometimes the antibiotics just dont work.
3) I have asked several economists from name blogs how you could judge your final question. There does not seem to be a good way to do what you want outside of parallel universe creation. Models are how this is usually measured, and everyone has favorite models and ones they do not like.
Steve
“In an interview on NPR All Things Considered this evening former Obama Administration senior economic advisor Austan Goolsbee, in response to a question about why companies holding cash rather than investing or hiring, responded: “Uncertaintyâ€.”
That idiot teabagger. Probably a racist, too.
I’ve just returned from Minneapolis – probably much the same route you took last week, Dave. Nice drive. I’m tired, but wired from the 6 hour drive. Some points:
I think I’ve been sloppy in my invocation of uncertainty and Obama, as if it was the only issue. My bad. We have obvious environmental issues like housing and household leverage etc. We have demand uncertainty.
But demand uncertainty is overstated. Demand uncertainty is always with us. And demand uncertainty sometimes is a self fulfilling prophecy under business adversarial political regimes. But I posted some real live data, as did Verdon and Dave. There’s been plenty of demand the past 3 years. Plenty. And yet nil hiring. Its only now, and I mean real time, that we may be seeing flagging demand. The reasons for that can be debated. But if it is so, we, and Obama’s Presidency, are in deep stuff trouble. Can you say 12% unemployment?
But people who deny Obama’s (and Reid and Pelosi’s) rhetoric, which basically is “we are going to screw your ass, Mr. Rich Businessman” and give it to private sector union contributors, and my other favored buds like Wall Street campaign contributors, the public employee campaign contributors” – have their heads squarely in the sand. Further, they seem to be doubling down: “If you think ObamaCare was bad, wait till we get finished with your asses.”
Only an idiot businessman wouldn’t say – in response – “about that capex project, Joe. Let’s hold off on that for now.”
Obama appears to be a rigid and completely inexperienced leftist ideologue who has no clue – none – how the real live world of businessmen and investors work. Castigating jet owners might have worked with his limited audiences when he was shaking down banks and local businesses, doing adolescent bull sessions with Ayers etc. Its just stupid red meat. Not now. And the teleprompter won’t help him. Smoothly delivered lines do not equal substantial and productive policy.
Mandel doesn’t like the definition of consumer spending so he’s making up a definition that he does like. Healthcare spending is obviously consumer spending.
I think that the uncertainty problem has a directional component. If the direction were reversed and a governing paradigm was established that, say 5% of blocking regulations are going to be dropped next year but it wasn’t quite clear which ones, projects that make sense now should end up getting done now and as the regulatory climate improves, more projects would start making sense. The uncertainty would still be there but it would be a hopeful uncertainty.
“Smoothly delivered lines do not equal substantial and productive policy.”
Which would be what?
Steve
Steve: “Goolsbee talks a lot about uncertainty.”
Dave: “Dr. Goolsbee could have responded “lack of aggregate demandâ€. He didn’t.”
That’s why I don’t come here anymore, in a nutshell.
Uncertainty is not the same as Regime Uncertainty, something else I suspect Mr. Goolsbee did not say.
On that uncertainty stuff (h/t Ritholtz):
Paul Kasriel, U.S. Businesses Appear to Have Selective Uncertainty:
My problem with the uncertainty thing is that it’s a convenient club to beat Obama over the head with. I know, I know. It doesn’t matter if the feeling reflects an actual state of affairs — if it’s really, really addressing something out there, as opposed to an eructation of the wounded and fearful fifis of its proponents. If it’s retarding recovery, the reality doesn’t matter. Reminds me of something attributed to Oscar Levant, notorious for his hypochondria. Someone said, “But Oscar, it’s all in your head.” Levant, “Yeah., but what a terrible place for it to be.”
Regime uncertainty,
Link 1
Investors fear government more than inflation, terrorism.
SMALL BIZ, BANKS MY [sic] SPURN OBAMA’S $30 BILLION PROGRAM
Waning Economic Recovery Fuels Global Uncertainty
Also, there is real PCE data. PCE peaked in Dec. 2007 and hit bottom in April 2009. From there the growth rate in PCE was roughly what it was prior to the recession. And when you look at things like real fixed nonresidential private investment you see that is still well below its previous peak.
Of course, this doesn’t mean that there isn’t an issue with aggregate demand. But I think it is silly to think it is either/or. The uncertainty many firms are facing, both via the government and demand for their products are at work and maybe influencing each other. Firms are reluctant to invest due to uncertainty both as a result of both demand (the recession) and the governments response to that could both prolong and deepen the recession which in turn increases pressure on politicians to “do something” which certainly doesn’t help with firms issues with regime uncertainty.
Fascinating to see the pundit driven commenters vs the business owner commenters.
Why listen to the horse, when you can listen to the horse interpreters? (snicker)