Consider the two graphs of employment data presented by Matt Yglesias. The first graph is of the change in the number of jobs over the period, confusingly oriented so that the vertical axis is centered on a loss of 350,000 jobs. It’s a graph of the first derivative and illustrates the change in the change. The second graph is of the number of jobs over the same period and illustrates the change in the number of jobs. If, as MY suggests, the administration had focused their attention on the first graph, my reaction was very much the same as Brad DeLong’s: that’s an awful lot of confidence in the second derivative. MY’s conclusion:
Note that these are just two different presentations of the same US private employment data. Both valid glances at the situation, and indeed to a trained eye they’re perfectly equivalent. But the affect associated with them is quite different. Everyone knows better than to just naively project that current trends will continue, but the human mind has trouble not implicitly seeing momentum in these visualizations. In the first chart, things are on the upswing. In the second chart, things have just bottomed out. The second chart was a much better guide to future action.
I think that’s a little too kind for a couple of reasons. First, those are charts derived from Bureau of Labor Statistics data and are so highly contrived I don’t know what sort of reasonable policy they could be used to support. Just to name one it was, is, and has been quite clear that there’s something terribly wrong with the birth/death model that the BLS is using.
But I think there’s a larger problem. Let’s assume, just for the sake of argument, that the pump priming fiscal stimulus that the administration did what it was intended to do (the empirical evidence for that is ambiguous). What would the stimulus operate on? I would be inclined to say that it operated on the number of jobs (the second graph) and operated on the rate of change in the number of jobs (the first graph) only indirectly. Did the administration’s other actions support the notion that they simply assumed that they were building up momentum?
I don’t think so. Since before he took office and right down to the present the president and his surrogates have been persistently talking the economy down in any number of ways. One of my clients put it this way: “Every time the guy opens his mouth the market goes down 100 points”. If you don’t believe me, go look at some of my posts from the end of 2008. I complained about this very thing at the time.
What policy would have operated on the second derivative? Not the one that was put into place unless they were assuming that animal spirits would buoy the economy back to robust growth and what were they doing to foster those animal spirits?
Contrariwise, I think that there was a faction, the political faction, in the White House that held on to the belief that there would be a V-shaped recession, i.e. a robust, sharp recovery and were determined not to let a crisis go to waste, as one of the members of that political faction put it.
I think that very early on the president made a number of missteps:
- Appointing Tim Geithner Secretary of the Treasury, signalling a continuation of the Wall Street-oriented Hank Paulson policies
- Appointing Rahm Emanuel chief of staff. Emanuel never had any interest in postpartisanship so his appointment was a signal that at best any moves in that direction would be stymied if they hadn’t been political posturing all along.
- Leaving Ben Bernanke in place and two board of governor positions unfilled.
- Talking the economy down.
The kindest interpretation is that it was over-confident. Or maybe, as the administration has contended, they were just plain wrong. Or maybe they were just stupid. Smart people can do stupid things.
You are a better man then me. The essential thrust of my problem with this guy for 3 years running…………in one essay.
“What would the stimulus operate on?”
Economic activity is enabled by flows of money (which is why Bastiat’s Broken Window Fallacy is incorrect). Stimulus simply increases those flows, putting more tokens of economic exchange (money) in the hands of consumers. More tokens, more exchanges. This is pretty much the only thing stimulus affects directly.
@Dave
We aren’t in a recession where consumer confidence matters much. Whether the economy gets talked up or down has no effect on the core problem: vast private debt draining demand as consumers deleverage, and until that debt is adequately reduced the economy will not improve. If talking up the economy were actually effective we’d just be reinflating the credit bubble that blew up in our faces because the consumer does not have sufficent income to spend and save at the same time without borrowing.
Dave,
I’m in agreement with you on all 4 points you made dealing with Obama’s missteps.
Ben –
I don’t know what you do for a living, but wrt “talking up or down” for businesses I can tell you you are flat damned wrong. I can’t speak to consumers so much, because my understanding of their motivations and my discussions pall in comparison to business owners.
I’ve been lying in the weeds a bit. We constantly hear (in the context of defending the unemployment situation) that “there is no demand” and “people are deleveraging.” Fine to a degree. But GDP is demand. The third quarter was about the long term average. There is demand. It ought to be greater, in my opinion, but don’t tell me there is no demand. GDP isn’t growing at zero. Yet unemployment stays stubbornly high? I’ve been preaching for years that the uncertainties of taxes, investment returns, regulations and therefore the general cost s to employ explain the difference. But no one with a leftist orientation want to hear it.
Just “there is no demand.”
Drew,
Demand isn’t a left-right issue, at least it isn’t to me. I see regulation and taxation as problems when they excessively interfere with the ability of businesses to meet consumer demand, and I’ll concede that there is currently an issue there. I personally think that it would be beneficial to enact another round of income and FICA tax cuts to both stimulate demand and accelerate deleveraging, and for government to state flatly that it is committed to stimulating demand and getting the private sector back on its feet(not that it has a chance in hell politically). That’s why from an economic standpoint I favor MMT: it is non-ideological and has aspects which appeal both to conservatives and liberals.
Howeverm I don’t see how business uncertainty over regulation/taxation in the medium – long term can ever be assuaged because both change continually regardless of who is running the government. Dave suggested in a previous post that creating a uniform regulatory code would be a big help, and I think his idea has potential.
@Dave Schuler
You list appointing Geithner and Bernanke as two serious mistakes the administration has made, and I agree. However, doing otherwise would require a massive break with the dominant neo-liberal economic orthodoxy. Do you really think there was ever much chance of that happening, with any president? My personal opinion is that a break is inevitable, but I just can’t imagine it happening in 2008 when the mainstream grip on economic thought was still so strong.
Easy to claim those as missteps now. Who were you pushing for Sec. of Treasury in 2009? Who did you want replacing Bernanke? Who could have possibly served as Chief of Staff and gotten a different response from the GOP? What political advantage has the GOP ever had with cooperating? (This is the one that makes the least amount of sense.)
Steve