It’s up to 10.2%. Trouble ahead. Trouble behind. The politics is going to be very tough. More pressure to “fix” the economy. The possibility that we are in the mess we are in because of past attempts to fix the economy is very alien to most politicians and most economists. Remember your Hayek:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
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If Congress really wanted to help the economy they would go into recess for a very long time.
Since Congress is inept, we the people have to face joblessness with our own ingenuity:
http://bit.ly/ozqT6
(satire)
“The possibility that we are in the mess we are in because of past attempts to fix the economy is very alien to most politicians and most economists.”
RR
Yes, its also conjecture impossible to prove. Had we took a libertarian approach to the recovery do you really think unemployment numbers would be better then they are now?
I don’t buy the re-writes of history and Hoovers so-called interventions.
Think of the song from Annie… We’d Like to Thank You Herbert Hoover… I think the obvious sentiment of the day was that Hoover did nothing and the results were>20% unemployment.
The problems with planning and policy seem to be more one of process then of possibility. I think we know plenty about the economy and we have a good idea which policies work in spite of Hayek’s good warning. There’s little evidence to suggest the best policy is to do nothing. The problem IMO is more the mangled policy.. the sausage as they say… that comes out of the political process is often diluted and far more complex then it should be.
“The problem IMO is more the mangled policy.. ”
Yes of course. If only the best and brightest were allowed to craft that REALLY GOOD POLICY!!!
“Had we took a libertarian approach to the recovery do you really think unemployment numbers would be better then they are now?”
Yes. Regime Uncertainty. No one is going to start hiring while the Democratic regime continues to legislate penalties on employers. Only after the full scope of these penalties is known can they plan accordingly.
Wrong Randy. No one is hiring because no one is investing because no one is lending because the system has been blown apart by the uncertainty of complex financial instruments AND because the demand engine of the middle class has been busted by the previous affairs of the last 30 years.
Allowing capital to flow across borders like we have means the jobs will flow when the average American worker has similar rights and wages as those working in China.
We are in for a long slog not because of anything the current administration is doing… more from what they are not doing and the problems created over the last 30 years.
Basically, Obama is causing unemployment to go up – he is president. That is the exact logic you would use if Bush was President – you would blame him. Why can’t you even be consistent?
Note: I dislike Bush and Obama.
Credit dried up because of past political errors, true, another type of mistake that a libertarian regime would not have made. But that is a sunk cost. The reason that a libertarian regime would have lower unemployment now than we currently have now is because of the regime uncertainty being generated by the proposed punitive legislative actions of the Democratic regime, something that a libertarian regime would not do.
“No one is hiring because no one is investing because no one is lending because the system has been blown apart by the uncertainty of complex financial instruments blah blah blah…I have no idea what I’m babbling about but I won’t let that stop me.”
Oh yeah. It’s that busted demand engine alright. We want people to be overlevered. Oh no, we don’t. Oh yes we do. Oh no we don’t. Oh no, wait. It’s all about capital flows which we must stop. That’s the ticket.
Although I do agree we’re in for a long downward slog. And by “me” I obviously mean “you” because I’ll just buy a politician or two. Which party is in power? Democrats? I’ll have two, please. Thank God we have such a strong government so that rich people can’t concentrate power.
muirbot likes to think he understands how macroeconomics works. He doesn’t understand a shit about regime uncertainty and how that was the single driving force in the Great Depression.
“I don’t buy the re-writes of history and Hoovers so-called interventions. Think of the song from Annie… We’d Like to Thank You Herbert Hoover… I think the obvious sentiment of the day was that Hoover did nothing and the results were >20% unemployment. “
Yeah, Hoover only shut down global trade with his Republican-backed Smooth-Hawley Tariff. He did WORSE than nothing. So did the Fed, who stood in the way of the private mechanisms that prevented total collapse after past bank panics: the clearing house system. Had the money supply expanded to keep solvent banks from collapse amid panic and global trade remained open, it’s quite possible that Hoover’s other bad ideas (propping up wages) would have been swamped by the quick recovery.
We have history. We have the rapid recovery from the depression of 1920/21 and similarly quick recoveries of the pre-keynesian America. The Great Depression just happened to be the first downturn where the Fed was fully in control and progressive/keynesian/“efficiency” ideology was being tried in full force.
That’s the history and there’s nothing revisionist about it.
As for conjecture, lets talk about the Stimulus supporters like Brad DeLong and Paul Krugman who are now claiming that, despite the stimulus failing every benchmark set ex ante, the ex post story is that things would have been worse. This is based on a comparison of reality to their back-dated models. But their modeling techniques were surely being used to predict the impact of the stimulus in March.
I see no honest reason to believe the stimulus-peddlers given the way this is unfolding. I see much more reason to believe that the real problem is an unprecedented level of uncertainty amid haphazard and selective bailouts, illegal sham bankruptcies, and massive “reform” legislation moving through Congress.
Keynes appreciated the danger of uncertainty. What he failed to appreciate is that politicians and bureaucrats have no better means of seeing through the fog than anyone else. His solution was the socialization of investment and replacing natural uncertainty with force-based dictate. As we’ve seen in the Soviet union, though, force-based dictate does not a certain future make. Only a rigid and rent-seeking coated present.
“We have history. We have the rapid recovery from the depression of 1920/21 and similarly quick recoveries of the pre-keynesian America”
Wrong… pre-FDR recession were more frequent and of longer duration.
http://wwwdev.nber.org/cycles/cyclesmain.html
A good rebuttal, muirgeo. But the fact remains that there is historical counter evidence that suggests we could have been better off without any stimulus.
As for the post-keynesian period, the thing you should take into account is the rate of inflation and its redistributive effects and the rate of global financial panics which resulted in large systemic losses. That NBER data doesn’t show those things or the misery they induce.
RE: “We have history. We have the rapid recovery from the depression of 1920/21 and similarly quick recoveries of the pre-keynesian America.”
1920/21 was characterized by (1.) high consumer price inflation and (2.) relatively high interest rates going into the crisis, to which the proper response was raising interest rates to kill the inflation (which the Fed did), and thereby sending the economy into a quick recession. This sort of recession has always been quick. Another good example of this is 1981. It bears no resemblance to the Great Depression or to 2008 where EXACTLY THE OPPOSITE conditions were in place – consumer price inflation was extremely low, and interest rates were at all time lows. It was an entirely different problem that called for an entirely different solution. Keynes remarked to Hayek over dinner once that his policy recommendations only applied to a deflationary depression. A Keynesian response to 1921 would have been exactly what they did – jack up interest rates and ride it out. This 1921 red herring is getting tiring.
RE: “The Great Depression just happened to be the first downturn where the Fed was fully in control and progressive/keynesian/“efficiency” ideology was being tried in full force.”
Full force? We didn’t run a budget deficit until 1931, and that deficit was puny. It didn’t go above 5% of GDP until 1934, and it didn’t go above 10% of GDP until 1942. In what universe can that be considered “full force” Keynesianism? The same arguments apply to the paltry monetary response.
History is always rewritten. What people are taught is never exactly, and often not even clos, to what happened.
“More pressure to “fix” the economy.”
That’s exactly right. And it’s scary.
Let’s fix healthcare and tax incentives in one shot. Here’s a tweak on your January forbes piece, Russ:
Eliminate the payroll tax. Eliminate the employer-provided healthcare exemption to pay for it.
I don’t know if those numbers add up and frankly don’t care. Both are the right thing to do.
One thing has become more likely, that the Democrats will lose at least one branch of Congress in 2010.
Is that supposed to be a good thing or a bad thing? Considering Republicans pretty much held power leading right up into the disastrous crash? Or maybe you think the crash was the fault of the Democratic house takeover in 2006??
The economy does far better under Democratic policies then Republican.
http://www.nytimes.com/interactive/2008/10/14/opinion/20081014_OPCHART.html
That graph does nothing to reveal what policies were in place at the time.
It doesn’t – you can’t really say anything definitive from it. But what you can do is definitively refute the demonization of Democrats.
How does it show that? Because the stock market went up when a Democrat was President? How do Democrats get credit for that when there are trillions of transactions that took place during those years that happened regardless of who was in office?
There are plenty of reasons to demonize Democrats actually. Farm subsidies, support for the drug war, etc.
Disingenous Kuehn – don’t you realize that at least 2 percentage points of that unemployment is due to business uncertainty because of the skyrocketing deficits created by Obama and the Dems?
It just is. I’m neither a Democrat or a Republican. Although I guess I would like the potential for “gridlock.”
I think the “crash” was the result of years of bi-partisan policy making and lobbying by large firms as well as a don’t rock the boat mentality by bureaucrats.
It’s obvious that at least half the “crash” was an overreaction. The Dow is back at 10,000.
I think the Fed more than Congress caused the 2008-2009 recession. In 2005, John Makin presented arguments that the Federal Reserve created both the tech bubble at the close of the 20th century and the housing bubble at the opening of the 21st. Since each bubble would need to eventualy be deflated, I think the Federal Reserve deserves much blame for the past two recessions.
I’d agree, but I see two primary sources of monetary expansion – money from the Fed and money from Asia. Do you have a particular reason for emphasizing one? There’s no doubt after 2001 they went off of prudent monetary targeting policy. How much of the bubble that explains, I don’t know and I’m not sure if anyone really knows at this point.
It’s obvious that at least half the “crash” was an overreaction. The Dow is back at 10,000.
I don’t think it’s at all obvious.
I don’t have any special knowledge of where the Dow should be. However, I wouldn’t be so quick to read the bounce in the stock market as a correction to any downside overreaction.
The bounce itself could be an upward overreaction.
P/E ratios for the stock market are at the highest end of the historical range. New SEC regulations and trading restrictions have created a large upward bias in the stock market.
And…..the Fed has pushed the Fed Funds rates to a historic low and is keeping it there.
I don’t think we should get too comfortable with the idea that the securities markets are necessarily pointing to a recovery rather than another bubble.
That chart is about as misleading and partisan as one could derive. Here’s why:1. Few federal government policies significantly affect short to mediaum term equity returns. Factors such as oil embargoes, foreign competition, terrorist bombings can easily overwhelm any government impact.2. The chart shows nominal and not real returns. The 6.9% “growth” during the Carter presidency likely represents a negative real return. 3. Though Republicans may have occupied the White House during the years shown, they did not control Congress during all those years. Likewise, democrats did not control Congress during all the years credited to them.4. Policies most damaging to equity growth – such as LBJ’s Great Society programs and Roosevelt’s New Deal programs – did their greatest harm years after enaction.5. Federal Reserve action has had much larger short term impact on equity markets. The president cannot control the actions of the Federal Reserve Board.6. Even if one stubbornly clings to the the argument that the presidency can control equity returns, the chart is still flawed. It shows the actual dates each president was in office rather than the dates of the fiscal years which each controlled. For example, fiscal policy of the Clinton government was in effect through September of 2001.
“their greatest harm years after enaction”
True, and their greatest harm is still to come. My belief is that this recession is entirely fallout from the New Deal.
Two current news stories that are in the news today:
1) Unemployment reaches double digits.
2) President signs extension of Unemployment Insurance benefits
Isn’t it amazing how these two items are never linked when they are reported in the press. As if the first one has nothing to do with the second one.
What gets me is that no one seems to be linking the climbing unemployment rate to the draconian legislative proposals being considered by the Congress.
10.2
The stimulus must be working.
Otherwise we’d be at 25.
No doubt. You know the most breathtaking hypocrisy from the left today? They cite the 3.5% GDP growth figure as somehow proof that unemployment doesn’t matter! However, when it was the Bush years(pre 2007 recession) and the GDP was growing, but unemployment was static or slightly increasing they said “TO HELL WITH GDP, ONLY EMPLOYMENT MATTERS”. I feel like it’s 1984 every day with these folks – down the memory hole INCONVENIENT MEMORIES!
Yes, but we’ve created or saved 27 trillion jobs. Do not listen to the negative, greedy Wall Streeters whining about their unemployment.
And do not annoy the central scrutinizer…..
Not just the stock market – job growth, GDP, other indicators too. You’re missing my whole point. I’m not trying to credit them with anything. All I’m saying is that you look at the data and what you can do is refute the “Democrats screw the economy up” mantra that a lot of people live by. That’s different from me trying to credit them with something.
I think most of the posters here lump Democrats and Republicans together – and believe they both screw up the economy. Wouldn’t it be interesting to see how much growth in GDP, jobs, and other indicators would have occured if taxes weren’t constantly tweaked, there was no minimum wage, and different social and corporate welfare programs were cut off (ie government policy that has interfered with normal economic activity)?
Of course they’re horrible for the economy. Command and control types always are.
Disingenious kuehn – Jimmy Carter and the Dems sure did screw up the economy in the late 70s. It took Reagan and Senate GOP policies to finally break that recession after 2 years. What policies is Obama initiating that will break this already 2 year recession/depression?
Well, that’s reason to oppose politicians in Washington in general. I wouldn’t demonize Democrats specifically over that. But this is all besides that point. Yes, that’s ample ammunition.
So many reasons, so little time.
Cap-n-trade.
Health care takeover.
“Wildly Popular” Cash for Klunkers.
Stimulus Program.
The idea of Stimulus II.
Employee “Free Choice” Act
GM takeover.
Community Reinvestment Act
Jimmy Carter in general.
Barney Frank ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” NYT
http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html?pagewanted=2
Speaking of farm subsidies Cato had a nice panel on sugar subsidies on Halloween. I had no idea how much our sugar subsidy was pushing U.S. employers into Canada.
But you demonize the Republicans.
Humans love bubbles. It’s what we’re best at.
“The bounce itself could be an upward overreaction.”
True. Perhaps I’m being optimistic because I’m close to retirement and I need to be optimistic.
The money from Asia is fast running out. There will reach a day when China stops buying our worthless treasuries and then what will Obama do? Print money like it’s 1920s Germany. Hyperinflation here we come!
They have to be tweaked to continue appeasing their favored constituencies, which somehow I never am part of.
I was refering to the money from Asia that went to an unprecedented growth in private borrowing, not the money from Asia that went to a quite reasonable and historically precedented (albeit probably still ill-advised) level of public borrowing over the last several decades.
Although I agree, the Treasury won’t be able to take Asia for granted from now on.
Wow.
OK, let me spell this out. I never said it’s not possible for a Democrat to screw up the economy. I’m saying there is nothing inherent about Democrats in power that is bad for the economy.
Do I? Explain.
Nothing? I voted for a Republican on Tuesday, so I’d hate for him to stumble on this blog and actually find out that I demonize him… so if you’ve discovered where I demonize Republicans, please let us know so I can address it.
Really? The Dems got back in charge of the Congress in Jan 2007. The recession started 6 months later and has gotten worse every single month. Interesting that the last surplus we had was back when we had a GOP Congress.
“I never said it’s not possible for a Democrat to screw up the economy. I’m saying there is nothing inherent about Democrats in power that is bad for the economy.”
“I never said…” Another classic Kuehnism! Backing away from earlier statements.
Spoken like a true politician. Run for office, Dan! You create your own plausible deniability!
yah…um, that depends if you’re talking about a JFK Democrat or an Obama Democrat. Just as when talking about the GOP it matters if you’re talking about a Bush or a Reagan GOP.
The current Democrats are dangerous as hell.
A GOP Congress… and a Democratic president. You can slice this a million ways, Arrowsmith. You aren’t seriously arguing that a Democratic congress that came into office in 2007 is responsible for the crash, are you? The point is that neither Republicans nor Democrats are inherently economic poison. People who talk like that are deluding themselves.
“I was refering to the money from Asia that went to an unprecedented growth in private borrowing, not the money from Asia that went to a quite reasonable and historically precedented (albeit probably still ill-advised) level of public borrowing over the last several decades.”
More typical Kuehn. His own lack of specificity allows him the chance to correct you. Charming.
“You aren’t seriously arguing that a Democratic congress that came into office in 2007 is responsible for the crash, are you?”
DK
No actually he was/is. And he is NOT being disingenuous Kuehn!
It’s the squirminess of reality smacking up with ideology… they’ll say whatever it takes to maintain the cognitive dissonance.
That 2 percentage points was data obtained objectively using his trade marked Unemployometer. It’s accurate to with in 0.00000001%.
Yes, it’s uncertainty about the Democrats and the deficits (which everyone still seems perfectly happy to finance) that’s spooking business. It couldn’t possibly be the recession.
I know this is going to blow your mind… but a lot of the business community recognizes that deficit spending is necessary for macroeconomic stabilization right now. The business community isn’t Austrian and it isn’t libertarian.
I’m curious how you got to that 2% figure. It’s surprisingly precise for such an abstract concern.
*And a note to anyone that wants to make that statement black and white or absolutist – OF COURSE I know there are some skeptics of the stimulus plan and the administration in the business community. I usually don’t append that because IT GOES WITHOUT SAYING.
And what I don’t understand is that that ideology and squirminess of reality isn’t even necessary for a respectable libertarianism. I’m not sure why they do it. Maybe because they’ve committed and they feel like they can’t back out now? I don’t know.
And I should say to you, muirgeo, that talking as if Republicans are economic poison is ridiculous as well. Just something to keep in mind. Some Republicans can be just like some Democrats can be, but there’s nothing about the party that is inherently dangerous for the economy.
The only squirminess is in Yasafi’s brain (and yours by proxy, if you agree with his assessment).
I may be the only registered Republican who is a regular at this Cafe, and about the only policies of Bush’s that I’ve defended were income tax rate cuts, and on the necessity of combating Islamo-fascism. Other than those two policies, GW Bush was much more in line with Lyndon Johnson than with Ronald Reagan.
Yasafi only sees party affiliation. Yasafi sees the president as a King. Had Joe Lieberman been president for the past eight years, we’d have had virtually the same domestic and foreign policy, and Yasafi would be blaming the current recession on GHW Bush.