Here’s my most recent commentary. Its kinda big, so an excerpt is here, and the full piece is below.
“Slow Job Growth Puzzles Economists.”
That was the headline of a WSJ article in March of this year, on the economy’s anemic job creation. “Many economists admit they are ‘stumped’ by the question of why the expanding U.S. economy isn’t churning out lots of new jobs, as it did so faithfully in the 1990s,” the Journal noted.Since then, their forecasting record has gone from bad to worse. With the June shortfall now clearly not a “one-off” courtesy of July’s disappointment, one question remains: Why have so many Economists gotten it so wrong? Observers are hard pressed to recall the last time the Dismal Scientists have been so consistently inaccurate, by such a large margin, and for so long a period.
It is easy to surmise that a combination of factors is to blame for the unusually slow job growth: Productivity enhancements have delayed the need for new hires in many businesses. And, during this expansion, jobs have been outsourced overseas (which, for obvious reasons, do not show up in the Bureau of Labor Statistic’s data). Last, we cannot underestimate the impact the tech/telecom/internet crash had on suppressing end demand. So much excess capacity was created by over-investment during the bubble era, that an extended delay in job creation – “Slack in the labor market,” as Chairman Greenspan likes to call it – is the natural result.
Yet all these issues have been well known and documented long before Economists started serving up their stink bombs. Did the entire profession suddenly become unhinged – or is some other, unknown factor at work? Since most economists I know are only mildly delusional (at least, they appear that way to a non-economist) we should consider another possibility: A major factor –unaccounted for by mainstream economists — has contributed to the present recovery cycle’s unprecedented long delay in job creation.
Pick your flavor:
Word Doc: Download Economists vs. Job Creation.doc
Adobe PDF: Download Economists vs. Job Creations.pdf
An interesting piece and I agree with your analysis that the tax cuts would have done little to stimulate jobs growth in the short term. There may be another explanation to the economist failings however, their models don’t work!
The traditional economic model is based on a credit cycle (hence all the misplaced obsession with the “indebted US consumer”), but all the evidence is consistent with a view that the “recession” was a simple business cycle inventory over-shoot, which resulted into a widespread pull back in output through 2001, 2002. The operationally geared hit to profits in 2001/2 reversed in 2003/4 and this is what the stock market spotted. It was about supply, not demand. The economists you cite were sitting patiently waiting for their credit cycle models to produce higher investment and higher jobs as a lead indicator to higher profits. And missed both the profits and the markets. A jobless recovery is great for profits! There was a sharp drop – and rebound – in temp labour, but the so-called puzzle about jobs reflects a denial that the model is mis-specified. They are also in denial about how having said that there would be a double dip and how no growth was possible without jobs growth and or income growth that the economy continued to do so. I detect not a small degree of petulance.
There are two more factors to consider. First that most economic commentary is driven out of the bond markets that thrive on forecasts of weak demand(especially if it can be tied in with a forecast of bad equity markets). In addition there is undoubtedly some political spin “jobs lost under Bush” and all that.
Why the Street Economists Are So Very Very Wrong
Shorter Barry: The old models no longer apply because the ceteris ain’t paribus. Barry at Big Picture has a nice post that sheds some light on the “rob from the poor and give to the rich” tax cuts of the…
Is it also possible that tax code changes made it more appealing to take profits than to reinvest them into expanding a business? Or am I reversing cause and effect, with weaker-than-expected consumer demand damping enthusiasm for business expansion (and thus job growth)?
Undoubtedly, many factors affect job growth outcome. The question is, why does decent GDP growth not translate into a stronger market for labor? Productivity gains and 5-year-old technology (and I’m a tech guy myself, so I know of what I speak in at least this regard; tech infrastructure becomes obsolete rather quickly) only go so far to explain it.
Economists vs. Job Creation: Why the disconnect?
Okay, you asked for it: I previously mentioned some of the economics stuff gets “wonky,” and you people said “We don’t care — wonk us.” Here’s an excerpt; You can download the full article below. “Slow Job Growth Puzzles Economists.”…
Economists vs. Job Creation: Why the disconnect?
Okay, you asked for it: I previously mentioned some of the economics stuff gets “wonky,” and you people said “We don’t care — wonk us.” Here’s an excerpt; You can download the full article below. “Slow Job Growth Puzzles Economists.”…
Economists vs. Job Creation: Why the disconnect?
Okay, you asked for it: I previously mentioned some of the economics stuff gets “wonky,” and you people said “We don’t care — wonk us.” Here’s an excerpt; You can download the full article below….
I only skimmed the linked article, so my comments don’t directly pertain to it (tax effects). My take is not necessarily that Okun’s Law is broken in the relationship of GDP to (un)employment. I think that the GDP numbers are so fudged (via hedonics etc) that they are virtually meaningless. It is in the best interest of the gov’t statisticians to inflate that GDP number because everything else is compared to it (like deficits, for example). Pumping up the GDP is essential if you don’t want everyone to start freaking out over those deficit numbers.
Unfortunately, it’s a lot easier to massage the GDP data than it is to massage the job numbers. I think they do that as well, via the Birth/Death modeling, but it’s a lot more difficult for them to pump it up like they do with the GDP numbers.
If you back the GDP down, then Okun’s Law regains a lot more of it’s predictive power and the failure to create more jobs makes sense. In a few short years, I think a lot more folks will realize just how misleading the GDP numbers are (as well as how the B/D modeling even overstates job numbers).
I’m such an optimist.
Soylent Green is Made of People
My friend Barry Ritholtz has an interesting report [pdf] over at The Big Picture on why mainstream economists have been…
Soylent Green is Made of People
My friend Barry Ritholtz has an interesting report [pdf] over at The Big Picture on why mainstream economists have been…
Soylent Green is Made of People
My friend Barry Ritholtz has an interesting report [pdf] over at The Big Picture on why mainstream economists have been…
Here is an article that supports what I was saying above:
http://www.gillespieresearch.com/cgi-bin/s/article/id=264
Pretty interesting. Here is a snippet:
“As a result of the systemic manipulations, if the GDP methodology of 1980 were applied to today’s data, the second quarter’s annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below). In like manner, current annual CPI inflation is understated by about 2.7% against the pre-Clinton CPI methodology (would be about 5.7%), and the unemployment rate is understated by about seven percent against its original design and what many people would consider to be actual unemployment (would be about 12.5%).”
Accelerated Depreciation of Capital Spending
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong — and by so much, and for so long — about Job Growth? Or as the WSJ put it, why is “Slow Job Growth Puzzling Economists?” That quandry was
Accelerated Depreciation of Capital Spending
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong — and by so much, and for so long — about Job Growth? Or as the WSJ put it, why is “Slow Job Growth Puzzling Economists?” That quandry was
Accelerated Depreciation of Capital Spending
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong — and by so much, and for so long — about Job Growth? Or as the WSJ put it, why is “Slow Job Growth Puzzling Economists?” That quandry was