Deinonychus antirrhopus

Kevin's Continuing (Mis)Adventures in Economics

This is a truly amazing display of ignorance. This post about the recession, unemployment, and taxes. I love it when Kevin makes these posts as it is like shooting fish in a barrel.

First off, it is the NBER that is thinking of moving the start date of the recession. There are some who think the recession may have started in the last three months of 2000. It isn't clear when or if the dating committee will be moving the start date. Further, the reason for the change has nothing to do with politics or the Bush Administration, but has everything to do with updated economic data from the government (which ironically Kevin holds up as the best we've got...but apparently isn't so good here...go figure).

NBER is a private, nonprofit economic research group. Zarnowitz, an economist with the Conference Board, another private research group, said the dating decision will be nonpolitical, based solely on recently revised government economic data.

"Presidents don't have so much to do, in my opinion, with when recessions start," Zarnowitz said. "Clearly the boom happened under Clinton, and the boom generates the bust. And no administration has the power to change that."

And to pre-empt the typical idiot response that the recession will be changed to benefit the Bush Administration; answer this: How come the NBER waited until after the election in 1992 to declare the recession over? It was clearly the issue Clinton won on. Yet, the recession was dated in December 22nd of 1992.

This Orwellian phrase is based on an absurd attempt to retroactively declare that the recession started in December 2000 (Clinton) instead of March 2001 (Bush), a 12-week change that obviously makes no difference to anything. But the interesting thing here isn't so much the technical arguments over the starting date of the recession as the fact that Republicans are now tacitly acknowledging that the economy isn't in great shape and are flinging some mud against the wall to see if they can blame it on somebody else.

The problem with this is just about every forecasting agency, group, company is forecasting strong growth for the next few years. The only problem is the "jobless" recovery. But as noted in this post, there are some reasons for this that are probably outside of any Presidents or policymakers hands.

Up until now, you see, their favored storyline has been to deny that there's really anything wrong. For months conservative commenters have been peddling an endless supply of theories designed to demonstrate that the official employment figures are wrong and the economy is really doing much better than anyone thinks. The official numbers, they said, don't pick up job gains from small firms; don't pick up job gains from the self-employed; don't pick up job gains from outsourcing; don't pick up job gains from aesthetic professions; don't pick up something. Two themes are common to most of these explanations: (a) goverment statisticians are idiots who haven't thought of any of this and (b) the authors provide exactly zero evidence for their pet theories aside from a bit of surface plausibility and a few anecdotes.

The problem with this is that Kevin is making exactly the same argument the Republicans are, but in the opposite direction. The "Truth" is probably somewhere in the middle. That is, the criticisms the people in the Bush Administration are bringing up are indeed valid, but they undoubtedly wont explain the poor performance of the labor market when compared to historically to previous recessions. This recovery just doesn't have much job growth. There might be more when the survey samples are updated, but not a whole lot more.

Folks like Brad DeLong and the EPI have been doing yeoman work demonstrating that none of these explanations hold water, and even Alan Greenspan, who has previously shown a convincing willingness to shill for the Bush administration, has thrown cold water on the notion that official statistics aren't picking up the wonders of a tax-cut driven Bush recovery.

As already noted in this post this recession seems to have had a much larger structural unemployment component and smaller cyclical component than in the past. This means two things,

1. With a small cyclical component when the business cycle moves into an expansionary phase there wont be a big decrease in unemployment.
2. With a small cyclical component there wont be as large an increase in unemployment.

With this last recession that is precisely what we have seen. This chart shows quite clearly that by historical standards unemployment did not rise all that much during the recession,

Now is it possible that one reason why the cyclical component was small was the fortuitous outcome that the Bush Administration enacted tax cuts shortly after the recession began? I think an honest person would have to say that this is indeed a possibility.

As for the idea that the economy is doing badly, just about every forecast out there has the economy booming along with solid growth for several years. Now they could all be wrong, but that doesn't sound like a "weak" economy. The only remaining issue is why is unemployment seemingly stuck in the mid 5% range? Maybe because there isn't much more room for a decrease. The picture above also shows that the unemployment situation during Clinton's last few years in office were extremely low. Even Brad DeLong has noted that is setting the bar too high,

But I do have one complaint. Asking that Bush leave "the job market no worse than he found it" is setting the bar too high by perhaps 2 million jobs or so. It would have been very hard for any set of economic policies to have sustainably kept the economy at the high-pressure state it was in in 2000.

Not that I expect any of these bits of information to change Kevin's mind. Kevin is the epitome of stone deaf.