10 responses to “November Unemployment Numbers”

1. 

   odograph

   December 5, 2008 at 12:40 pm

   I thought this paragraph from Marginal Revolution was interesting:

   It will be interesting to see if the Keynesian multiplier becomes the Democratic Party economist equivalent of the Laffer Curve, namely a “free lunch” claim used to justify many kinds of preferred policies. Have I mentioned that having their party in power was very bad for Republican economists too?

   My criticism of Economics has been that it isn’t producing an answer to this mess, just continued debate and hobby-horses.

   For Tyler to speak of “Democratic Party economist[s]” and “Republican economists” reinforces that a bit.

   It would be nice if the discipline, self-described as a science, could produce a little more engineering and a little less of their own internal politics.
2. 

   Dave Schuler

   December 5, 2008 at 12:44 pm

   The job losses isn’t the only concern. Job creation other than in government, education, health care, and construction has been quite phlegmatic for the last eight years. I doubt that construction will be the engine of the economy for the next several years if ever.

   I also doubt that we can build a robust economy based on job growth in government, education, and health care, all of which are dependent on tax dollars. The taxes need to come from somewhere.

   Losing the jobs is one thing but losing them for good is even more concerning.
3. 

   odograph

   December 5, 2008 at 12:44 pm

   BTW, I could do a few paragraphs on what I like about economics, as an observational tool. It is the hubris and folly in … what is it, macroeconomic prescription? … that is good for a few rotten tomatoes here in December 2008.
4. 

   Steve Verdon

   December 5, 2008 at 1:49 pm

   It would be nice if the discipline, self-described as a science, could produce a little more engineering and a little less of their own internal politics.

   Economics is not engineering, this is where you go off the rails.

   And in reading both Cowen and Rodrik I can see why Cowen is not happy. Rodrik is treating his economic model as if it is always true and that people, firms, etc. in the economy don’t respond to changes in policy (i.e. he is failing to consider the Lucas Critique of macro-econometric models and macro-economic models in general). That is, if we put a ban on imports in place what are firms going to do? Increase production…or simply increase prices now that they face less competition?

   Keep in mind that a firm that sees an increase in its monopoly/price setting power is actually likely to decrease output. This is actually a pretty uncontroversial result of micro-economic theory (which indicates another mistake on the part of guys like Rodrik, they seem to fail to appreciation grounding their models on micro-foundations a problem pointed out about Keynesian models in the 1970’s).

   And Odograph is demonstrating ignorance yet again. Macroeconomics is one of the areas of economics that is…not well understood. There are competing models of how the economy works. For example, just off the top of my head here are several “schools of thought”

   1. Real business cycle theory
   2. New classical
   3. New Keynesians
   4. Neo Keynesians
   5. Monetarists

   Each one has its own assumptions about the economy and as a result conclusions about how to stimulate the economy. For example, the New Classical school holds that only non-systematic monetary policy has an impact on the economy.

   In looking at the New Keynesian models we have the assumption of “menu costs” that changing prices is costly to firms, hence they only change them intermittently and thus prices are not always set to clear markets. This stickiness in prices (including wages) is what causes monetary policy to be effective.

   Now, the issue is…is the current crisis the result of menu costs? Seems unlikely, to me. The narrative supplied by most of the schools of thought for macro theory just don’t seem to fit the current situation. The problem actually fits more with a micro-theory explanation…that we had problems with asymmetric information. That in financial and real estate markets there were issues with moral hazard, adverse selection, hidden information, unverifiability, etc. But that only explains the origin of the problem, it doesn’t provide a nice neat tiddy answer as to what should be done at a macro level to address the problem.

   It isn’t that economists don’t want to be able to say, “Pursue policy X, that will work.” It is that there is no unified macro-economic theory like at the micro-economic theory level.

   This is your problem Odograph, your expectations are completely and totally unrealistic.
5. 

   odograph

   December 5, 2008 at 2:32 pm

   And Odograph is demonstrating ignorance yet again. Macroeconomics is one of the areas of economics that is…not well understood. There are competing models of how the economy works. For example, just off the top of my head here are several “schools of thought”

   You are so funny, that you like to agree with me and insult me at the same time.

   You are agreeing, that after decades of promises that they knew how to “manage” the economy, the economic architects are coming up empty.

   You remember “the great moderation”, right?

   Maybe your hostility comes from the fact that you think I’m right, and don’t want to agree with me at the same time?
6. 

   odograph

   December 5, 2008 at 2:36 pm

   Bernanke speaking:

   Conclusion

   The Great Moderation, the substantial decline in macroeconomic volatility over the past twenty years, is a striking economic development. Whether the dominant cause of the Great Moderation is structural change, improved monetary policy, or simply good luck is an important question about which no consensus has yet formed. I have argued today that improved monetary policy has likely made an important contribution not only to the reduced volatility of inflation (which is not particularly controversial) but to the reduced volatility of output as well. Moreover, because a change in the monetary policy regime has pervasive effects, I have suggested that some of the effects of improved monetary policies may have been misidentified as exogenous changes in economic structure or in the distribution of economic shocks. This conclusion on my part makes me optimistic for the future, because I am confident that monetary policymakers will not forget the lessons of the 1970s.

   I have put my case for better monetary policy rather forcefully today, because I think it likely that the policy explanation for the Great Moderation deserves more credit than it has received in the literature. However, let me close by emphasizing that the debate remains very much open. Although I have focused on its strengths, the monetary policy hypothesis has potential deficiencies as well. For example, although I pointed out the difficulty that the structural change and good-luck explanations have in accounting for the rather sharp decline in volatility after 1984, one might also question whether the change in monetary policy regime was sufficiently sharp to have had the effects I have attributed to it.15 The consistency of the monetary policy explanation with the experience of the 1950s, a period of stable inflation during which output volatility declined but was high in absolute terms, deserves further investigation. Moreover, several of the channels by which monetary policy may have affected volatility that I have mentioned today remain largely theoretical possibilities and have not received much in the way of rigorous empirical testing. One of my goals today was to stimulate further research on this question. Clearly, the sources of the Great Moderation will continue to be an area for fruitful analysis and debate.
7. 

   charles austin

   December 5, 2008 at 2:47 pm

   Maybe your hostility comes from the fact that you think I’m right, and don’t want to agree with me at the same time?

   Steve, this is excellent practice for being told what you really mean vis-a-vis intentionalism and controlling the narrative. I think there will be a lot of that in the coming years.
8. 

   Steve Verdon

   December 5, 2008 at 3:16 pm

   You are agreeing, that after decades of promises that they knew how to “manage” the economy, the economic architects are coming up empty.

   Really who has made such promises?

   You remember “the great moderation”, right?

   Nope. And in reading that long quote I don’t see support for your assertion. Even Bernanke himself points out that the debate is (was) still very much open.

   Maybe your hostility comes from the fact that you think I’m right, and don’t want to agree with me at the same time?

   No, I think you are an ignoramus who doesn’t know what he is talking about. On one hand you think the following:

   Economists should be more like engineers and come up with a solution. Simple.

   Then on the other hand you agree with me that economics is not like engineering and that there is no unifying macro theory on which to base this engineering like approach.

   And finally you insist that politics is a non-issue if the magic cure-all could be found by economists. Nevermind all the evidence suggesting the exact opposite…that politicians will use crisis to expand their power. Nope with the cure-all in hand if necessary the politicians will kill thier political careers if necessary and not expand the size and power of government.

   You make it sound like, this problem isn’t a political problem as well as economic problem. It is both. And as such, the idea that economics is going to provide valuable insight is limited even if a unified macro theory were present.

   Oh…and the great moderation…yeah it was real. Volatility did decline for the period Bernanke mentioned. The issue is why? Was it structural, policy, luck or maybe a combination of all of the above? You seem to be confused between the fact of the Great Moderation and the hypotheses people have put forward to explain it.
9. 

   odograph

   December 5, 2008 at 4:09 pm

   Steve, you are a great one for arguing positions I never had or wrote.

   Economists should be more like engineers and come up with a solution. Simple.

   Nope, but if conomists offer, or criticize, “engineered” solutions there might be a conflict. If they don’t know the answer, they should pretty much start with that humility in every essay they write.

   Then on the other hand you agree with me that economics is not like engineering and that there is no unifying macro theory on which to base this engineering like approach.

   Never said that.

   And finally you insist that politics is a non-issue if the magic cure-all could be found by economists. Nevermind all the evidence suggesting the exact opposite…that politicians will use crisis to expand their power. Nope with the cure-all in hand if necessary the politicians will kill thier political careers if necessary and not expand the size and power of government.

   I never said politics was a non-issue. What I asked was, before you complain about politics make clear your alternative.

   You can’t blame it on politicians ignorance of economics when the economists themselves cannot agree.

   You make it sound like, this problem isn’t a political problem as well as economic problem. It is both. And as such, the idea that economics is going to provide valuable insight is limited even if a unified macro theory were present.

   Again no. I’m saying if you are going to decry politics you should have an alternative.

   Oh…and the great moderation…yeah it was real. Volatility did decline for the period Bernanke mentioned. The issue is why? Was it structural, policy, luck or maybe a combination of all of the above? You seem to be confused between the fact of the Great Moderation and the hypotheses people have put forward to explain it.

   I will dig up some quotes when I have the time, but it frankly astonishes me that you didn’t hear the same claims that we would not get in this spot again.

   Finally, as a bottom line … if you agree with me that economics is not science, and cannot fix this mess, why are you so angry and pompous?

   Shouldn’t you be humble about the limits of your discipline?
10. 

    odograph

    December 5, 2008 at 4:36 pm

    You are agreeing, that after decades of promises that they knew how to “manage” the economy, the economic architects are coming up empty.

    Really who has made such promises?

    Here’s the kind of thing I was picking up on, from America.gov

    In time of recession, the Fed can inject more money into the economy, and thereby stimulate it, by lowering interest rates. In times of inflation or asset-price bubbles, it can raise interest rates and adopt other measures with the effect of taming inflation and protecting the integrity of the financial system.

    The Fed alone cannot dictate the course of the economy over the long term, but it can smooth out the peaks and valleys of the business cycle.

    (emphasis mine)

    I also seem to remember something about replacing the fed with a notebook computer, monetary policy and money supply being so easy … I can’t google that though … too many notebook computers for sale.