In Much ado about Nothing by
Shakespeare the villain Don John fools the two loving couples and just about
destroys their relationships until Constable Dogberry uncovers the devious plot
and the two couples marry and live happily ever after. I am no Dogberry but I
have to say that Shakespeare’s ideas are once again being played out in front
of us. This time the context is the jobs report of last Friday.
If you were not on the last shuttle launch and have at least
one eye and one ear you heard/saw all the commotion after the US Labor
Department announced its employment numbers and unemployment rate. You might
have thought that Casey Anthony escaped from prison and robbed a 7/11 or
something. Imagine all you heard Friday about those numbers – numbers that were
close to what most people expected and numbers that relate to only one single
month and numbers that will be revised in another month.
Mr. Davidson – we have analyzed your blood and your
cholesterol count is above 203.7! CALL
IN THE TEAM OF HEART SURGEONS FROM BLOOMINGTON REGIONAL HOSPITAL! Geez guys,
everyone knows that my count has been above 200 ever since I discovered $8 per
pound rib-eyes at Sam’s Club. Everyone knows that my count was high last month.
Luckily my family isn’t like the locusts that rule the airwaves and Internet.
No hospital visit for me. Another dose of JD on the porch at sundown, the din
of the neighbor’s dog barking, and let’s wait and see what happens in six
months.
Let’s get back to the June Labor Department data release. There
was very little good information in the report. EVERYONE knows that this
recovery has been slow and threatens to continue to be slow. Is it really news
when another data point confirms that? President Obama says that he should have
warned us about this slow recovery a long time ago. No kidding. He should have.
But he didn’t despite the fact that many good economists were telling him that
from the very beginning. Why didn’t he listen o them? Because he wanted to be
the knight in shining armor and save the damsel in distress with his poorly
crafted and poorly executed stimulus programs. That’s why. Now he wants it both
ways. His stimulus leaves us a little less than where we should be after a huge
and devastating financial collapse. If his policies had actually addressed the
causes of collapse then we might be in a slightly different and better place
now. But don’t fool yourself. If it took 10-20 years for the financial problems
to develop – we weren’t going to solve them in two years!
So much for President Obama. The Republicans are not much
better. In closed doors they are giggling out of control and cannot restrain
their glee when they get in front of the cameras and chant over and over and
over – the economy is getting worse and Obama didn’t do a thing to make us
better! They see this as a great opportunity to gain political advantage. But what
did the Republicans do to clearly and forcefully deal with the causes of the
financial collapse? Their jollies or priorities have been pretty clear at the
national level during Obama’s rein – attack health care, rant about abortion,
spout about energy policy, and rail against higher taxes. While every one of
these issues deserves its day in court, the Republican emphasis on them reveals
very little work by either party to dig into the causes of our current malaise.
Friday’s exaggerated response to the jobs report brings out
another round of knee-jerk stupidity. Laura
Tyson, chair of the Council of Economic Advisors under President Clinton, wrote
in the FT last Friday that” Only Further Stimulus can tackle America’s jobless
wage-less recovery. “ President Obama
now wants to accelerate plans for a national infrastructure bank. Both Tyson
and the President have their causality reversed. Look Laura – there is blood
oozing out of that bullet wound, noted the President. Yes, sir, I will push the
blood back into the whole. Think of the logic:
·
B Blood coming out of a bullet wound is bad
·
So pushing the blood back into the body is good.
You say, Larry, what have you been drinking at 9 am in the morning?
I say, none of your business – but please note that the logic of Laura and Barack
are the same:
·
Employment worsening in the US is bad
·
So pushing employment higher is good.
Why are these two claims both wrong? Because in both cases
there is the famous missing X variable – THE
THING THAT CAUSED THE BLOOD TO COME OUT OF THE BODY AND THE THING THAT CAUSED THE EMPLOYMENT TO
FALL.
Someone aimed a gun and pulled the trigger. Then a bullet
entered the body. To solve that problem one should first deal with the bullet
and the damage it caused and then capture the shooter. That course of action
seems a bit more logical than pushing the blood back in.
In the case of employment we need to understand what caused
the employment level to go down in the first place. Was it because firms
decided in 2008 that it would be great fun to layoff a bunch of workers? Was it
because workers decided that 2008 was a great time to take an extended holiday?
Was it because we had a major drop-off in bridge construction? Was it because
workers were paying too much tax into the social security system? I don’t think
so. Was it because we had a major
financial collapse based on too much leverage generated by a housing and
financial bubble? Hmmm – that sounds a little more plausible.
Cause and effect usually seem so obvious to us. If we drink
too much JD at 2 am while dancing the boogaloo to the tunes of Jerry Lee Lewis
we know what the result is going to be the next morning. The solution is pretty simple. If we try to
tweet while smoking a Marlboro, eating a double burger with lots of ketchup,
and drinking an orange slurpy, then we might not be able to avoid that deer in
the road. The solution is pretty obvious.
So why is it so hard to apply these same principles when it
comes to our economic problems? I have a few guesses. First, members of our D
party see economics as primarily a war between workers and owners. Their
solution for just about everything is to emasculate rich owners and give the
proceeds to poor workers. So if the employment level goes down the D thinks it
is time to use whatever possible weapons you have to aid the worker. Second,
members of our D party think that government is the answer to many of our
problems and government spending is one way to create a better world. The list
of possible good projects is as long as Pinocchio’s’ nose. Thus it is no
surprise that we got the original stimulus packages, followed by calls for more
stimulus, and now the President’s proposal for an infrastructure bank. Third,
Rs get sucked into familiar issues relating to less government and simply have
not shown any understanding of or real leadership when it comes to policy to
address the financial crisis. Evidence is that the American Public – who will
be ones voting in 2012 – show very little understanding of the most important
financial issues. It was seen as a great victory, for example, when it was
recently announced that unemployed persons will have yet another year of
release from financial responsibility for the housing payments they owe on
their property. It sounds like a humane policy for unemployed persons but it
clearly flies in the face of a financial remedy. Note:
·
Financial problems caused employment to worsen
·
Remediation of financial problems will cause
employment to improve.
Now that’s not so hard. Is it?
Summary – There was nothing to panic about in the June
employment report. The June report told us what we already know – it will take
a while for the economy to recover and as it does it will experience ups and
downs. Wild attempts to invigorate employment in the short-run or add billions
to spending in the long-run are counterproductive. Doing nothing would be
better. But even better would be to fashion policies to focus on the causes of
the financial crisis.
I apologize about some of the formatting errors -- Google changed the edit function and my meager skills are insufficient to make bullet points look like bullet points.
ReplyDeleteToo many in the federal government, nay in the U.S. population, believe that not only is the government an answer, it is THE answer. Notice that I made no distinction between Ds and Rs....and Is, for that matter. They all talk a good game, but when crunch time comes, they all hang up their Wieners and head for the bar. There's way too much of the Keynes virus infecting DC, and even the Rs have a serious case. Money is still power, and he who doles out the most has the most power. I really want one of $278,000 government-created jobs! McCain was right in there with that $800B stimulus package. My Lord! Was he the best they had?
ReplyDelete9.2% unemployment is good! Why? It's less than 10% unemployment. But figures lie and liars figure. If only that were the REAL unemployment rate! I've heard that the real one is closer to 15% to 18%, but that depends on where the little light on your radio stops when you push the channel selector. The media would never publish the real number because the Feds would be on them like a duck on a June bug, and the Soros-funded Media Matters would begin to spout like Mt Vesuvius after an earthquake.
To use your bullet analogy, nobody in DC really wants to address that the patient is bleeding to death even as blood gushes from the wound. They just want to keep treating the anemia by shoving more blood in while it's still pouring out of the massive bullet hole that needs to be stitched up. We are idiots because we continue to allow it to happen with our "gore your own ox but don't gore mine" attitude.
Mr. LSD, your comment regarding the 20-year origin of the financial crisis and that immediate short-term fixes are impracticable is practical – me thinks – well, sort of. Excusing my intentional omission of my belief of the causes of the crisis – but saying the current problem is one of spending not revenue – I favor the obvious short-term solution of reduced spending; period, and no extension/increase of the debt ceiling – but some would say that is impracticable. They say it would exacerbate/retard the frustrated “recovery” and cause havoc with U.S. credit rating, cause higher interest rates, etc. Maybe so in the short-term, but it addresses the long-term cause, which is profligate and wasteful spending – both Ds and Rs. The U.S. needs to suck it up – yes there will be further personal economic disruptions until jobs return and provide revenue (without marginal tax rate increases) – doable by revising the tax code (short-term) to reduce credit/loopholes and expand the tax base in conjunction with an economic resurgence.
ReplyDeleteI infer your statement “remediation of financial problems will cause employment to improve” is more long-term than short unless it includes immediate reduced spending and revision of the tax code. I think that would do much to lower the biz community’s uncertainty which – according to recent polls – is constraining job creation – not access to credit/capital.
I concur fully with you big Al. I did see several mentions in the media of the full underemployment rate and it was around 15%. If one is to make comparisons over time it is good to stick with only one rate. But this is too quantitative. We all know that the employment situation stinks. Both indicators confirm that.
ReplyDeleteCharles,
ReplyDeleteRemediation of the financial crisis would most likely slow the economy in the short-run because banks would have to start acting like banks and start lending to people who have some actual chance of repaying them. They would also have to engage in faster write-downs and hold more capital. As with your suggestion to cut spending now, the likely impact is to slow the economy. But guess what -- I believe solutions that do not address spending or the financial issues are going to quickly fail and will lead to even bigger problems for us -- a la Greece. We will not get out of this thing without some further suffering.
Mr. LSD. Remediation pursuant to the housing/lending arena is but one issue . . . . and credit-worthy borrowers who can put 20% down or more or pay cash are not the constraint in the housing market . . . and write-downs would certainly free up excess housing inventory . . . but having to hold more capital because so is counter-balanced by excess capital already on banks’ balance sheets by EQ1 and EQ2. That argument doesn’t wash. Folks with sufficient cash and/or credit can now buy up excess houses – should they deem the values attractive – just as cash-flush Asians are now doing in Las Vegas, Miami, etc. No, the constraint is uncertainty which resides in D.C. The problem is not housing market-based, not banks’ balance sheets, nor European – it is D.C. politicts causing uncertainty that is freezing all economic activity. The Ds want to spend more – still – and the Rs want to spend less and tax less. Terrence, this is stupid stuff and the solution is so simple – don’t write checks that your body can’t cash.
ReplyDeleteCharles,
ReplyDeleteYou are making one error that a lot of people make. Bank liquidity and bank capital are not the same thing. Despite an abundance of liquidity new regulations that raise capital requirements are costly to firms and could lead to reductions in bank profitability and an increase in the price of credit. Aside from that, you are free to decide whether policy uncertainty or financial/housing issues are the bigger problem. I agree that both are problems. But even with a budget solution I think you will see that markets will not work very well until the financial/housing problem is greatly improved. The data are very clear in showing the relationship between declines in private sector wealth and a resumption of spending that would be beneficial to employment.
And my analysis, along with my son-in-law who once worked as a manager at Freddy Mac, is that the housing ship (with a "p") will not be righted for at least 5 more years. Why? Because the Feds are still trying to save the 9% who are underwater and/or can't make their mortgages. That's right folks! 91% of us are doing all we can to meet our commitments while bailing out the other 9% who can't/won't because they bit off more than they could chew. Private sector wealth is declining because the federal bureaucrats keep sucking up all of the cash and credit to finance whatever will keep them in orifice.....a Barney Frankism.
ReplyDeleteAnd when Moody's downgrades our credit the cost of doing that is going to go through the roof. I always thought that being between a rock and a hard place was bad. Our government is going to put us under the rock very soon!
ReplyDeleteUnder a rock! Reminds me of a GEICO commercial.
ReplyDeleteNow a catastrophe even worse than the collapse of the debt ceiling! Georgia Tech is on 4 years of probation for infractions in its football program! Bobby Dodd is turning flips about now.
ReplyDeleteWhat a bummer!
ReplyDelete