Growth, Sure…But How Much?

June 9th, 2011 at 11:35 pm

Jackie Calmes had a slightly hopeful piece in the NYT today, noting how policy makers are recognizing that they might need to pivot a bit from the budget deficit to the jobs deficit:

“Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.”

A couple of economists toward the end of the piece, however, suggest that growth is percolating along right now, so no need to do anything more, at least for now.  A related point you hear some folks make is that sure, we had a bad jobs month.  But the month before was OK, and you shouldn’t lurch based on one bad month.

I agree re the “don’t lurch based on one month” point, but as I show here (see the figure), averaging out, or smoothing, over the past few months doesn’t change the fundamental story.  As I noted then, “smooth all you want, fact is that job growth is just too slow to provide working families with the job and income opportunities they need.”

Same with GDP.  It has, as economist Doug Holtz-Eakin says at the end of the Times piece, “…been growing for a long time.”  For almost two years, in fact.  But over the last year the growth rate has averaged 2.3%.  That’s just below what economists call the trend growth rate—the basic rate of growth you’d expect to clock in at in the midst of a normal expansion.

But a) we are, sadly, not in that midst, and b) what needs to happen are some solidly above-trend quarters to move the unemployment rate off of its nine percent perch.  And regarding point b, the rule of thumb is that for every point real GDP growth is above trend, the unemployment rate falls by around half a point.  Stay up a 3.5% for a year, and you should find the jobless rate coming down half a point over that year.

In other words, “the trend is fine, if you’re ok with nine.”


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7 comments in reply to "Growth, Sure…But How Much?"

  1. Kevin Rica says:

    And yet, if we change the topic to immigration, the Administration would still claim that we need Gastarbeiter because America has a “labor shortage” – the diametric and mutually exclusive opposite of unemployment. (And so will EPI.)

  2. fausto412 says:

    all i want to know is why is austerity believable…it hasn’t worked else where.

  3. John says:

    In my opinion, any discussion that involves this “unemployment rate” statistic is, as we say in computer science, “garbage in, garbage out.”

    I have no idea how many people are really unemployed or underemployed, but what I do know is that I’m one of them, and that this statistic has _never_ included me. Why? Because I’ve _never_ applied for unemployment compensation, except for COBRA, which I’ve had 4 times now.

    Two reasons for that in my case. First, I’m an LLC. I was originally not eligible for it anyway. Second, I last had enough money that I didn’t need it. I’m not opposed to accepting the help, but for moral and ethical reasons I didn’t want to be a burden on the system if I could support myself (which I’ve done now without income for the past 22 months). The trouble is that the ways the rules are written, I’m no longer eligible at all – it’s been too long since I was last “employed.”

    Estimates I’ve seen for the actual unemployment rate go as high as 25%. Look at the employment to population ratio, which is currently below 60% (off the top of my head). My point is that the real unemployment rate doesn’t seem to be of enough interest for anyone to actually measure it.

    The current 9.1% figure can’t even be stated without an implicit “*” beside it, like home run records in baseball – it’s just not the truth of the matter, and everyday it’s less truthful.

    Lies, d*mned lies, and statistics… Sigh.

    I’m waiting for someone to step up and say, “Hey, it bothers me that we’re not even trying to capture the truth here. Let’s get at the real number and report it additionally, or instead of, this nonsense figure we’ve been using!”

    I had a personal email conversation with a theologian a few years ago, who had asked on his blog about the GDP statistic, having noted that it speaks only about business output and says nothing about “what Jesus would measure.” So he asked, what would Jesus measure instead of GDP? My suggestion to him was that the standard being “that which you do for the least of these, you do also for me,” the standard would be minimum sustained short-term income. Of course, there is no short measure, but there doesn’t need to be since the value is well-known in our society: $0. Yes, we have people that live on nothing. They live in boxes on the street. And there are lots of them. I don’t count myself that far down, but if my savings are excluded, I’ve been there for 22 months now. And things are not looking up, despite my considerable education and experience – heck, it seems _because_ of my considerable education and experience, which also reflect my age.

    This is one of the many ways I think economists have no ethical foundation. What they even attempt to measure only reflects the interests of the already wealthy, not the average among us, and certainly not “the least of these’ among our brothers and sisters.

    Look over history and consider how many people who have most contributed greatly to the advancement of humankind, have died impoverished. I’d be willing to bet that that number is more than a few percent of them, if not more than 9.1% of them, in fact. And many of those were impoverished as a result of their principles, i.e., because of the very principles that were the basis of their contributions. Jesus among them, by the way. Being among the least doesn’t mean being of no value as human beings. Far from it.

    If we continue to value only the most wealthy among us, their morality and ethics as a species becomes our morality and ethics. Do we really want that?

    • John says:

      Forgive the typos and grammatical errors. My hands shake when I type this stuff anymore – too much emotion – so I don’t review like I should.

    • John says:

      Let me restate that measure, which I bungled: “the statistic would be minimum per-capita income as sustained over the short term, e.g., weeks or months.”

      It’s zero, but for how long and for how many should be of interest. Apparently someone has managed to measure the average time spent unemployed, since it’s getting stated as now pushing 40 weeks.

      Prof. Krugman has lately been moving toward my larger point, which is that it matters whose perspective one takes when one even reports various statistics, since they invariably don’t speak to universal issues. Statistics which favor the wealthiest 1% but put the other 99% of the population at a disadvantage should be viewed as measuring something negative, not positive, and that’s pretty much how GDP goes these days. And it’s not alone in that respect. I.e., the question should not be growth, nor even growth for whom, until we know what we as a society value qualitatively, and thus what we wish to measure quantitatively.

      Anyone who thinks economics is amoral or is independent of ethical considerations, just isn’t looking very closely. And that, likely, because they don’t need to look very closely. Psychologists call that kind of filter “projection.” It’s anything but objective.

      I post these kinds of comments to the blogs of left-leaning economists, because I hold out some hope of influencing you folks; I believe people like you, Bernstein, have good hearts and rational minds but just a narrow perspective, a perspective that might be broadened. I don’t have the emotional werewithal to even think about the right-wing crazies among your ranks. I’m hoping that once you broaden your perspective, you folks can then deal more effectively with them yourselves.

      How many of us have been at that zero income level and for how long? Apparently, 50% – 50%!!! of the US population couldn’t come up with $2000 short term, and that’s one number I’m not counted in, since I still have more well savings than that with no debt. Reality, it seems, is far removed from what economists generally measure as informative and valuable – to their own interests.

  4. John says:

    If you’ll allow me, sir, this may seem a bit off topic, but it’s not, from where I sit.

    First, regarding your notion of “should” vs. “could,” with which I stronly disagree. From John Lennon (saw this yesterday on a Playing For Change video):

    “A dream you dream alone is only a dream.
    A dream you dream together is a reality.”

    That’s the whole point of what’s called “politics,” it seems to me.

    Second, from Langston Hughes, who was persecuted in this country not just like the rest of the African-Americans of his day just for being an African-American (it still happens – that’s why I don’t have a job right now), and additionally – ahem – for not being a loyal capitalist:

    Let America Be America Again
    by Langston Hughes

    Let America be America again.
    Let it be the dream it used to be.
    Let it be the pioneer on the plain
    Seeking a home where he himself is free.

    (America never was America to me.)

    Let America be the dream the dreamers dreamed–
    Let it be that great strong land of love
    Where never kings connive nor tyrants scheme
    That any man be crushed by one above.

    (It never was America to me.)

    O, let my land be a land where Liberty
    Is crowned with no false patriotic wreath,
    But opportunity is real, and life is free,
    Equality is in the air we breathe.

    (There’s never been equality for me,
    Nor freedom in this “homeland of the free.”)

    Say, who are you that mumbles in the dark?
    And who are you that draws your veil across the stars?

    I am the poor white, fooled and pushed apart,
    I am the Negro bearing slavery’s scars.
    I am the red man driven from the land,
    I am the immigrant clutching the hope I seek–
    And finding only the same old stupid plan
    Of dog eat dog, of mighty crush the weak.

    I am the young man, full of strength and hope,
    Tangled in that ancient endless chain
    Of profit, power, gain, of grab the land!
    Of grab the gold! Of grab the ways of satisfying need!
    Of work the men! Of take the pay!
    Of owning everything for one’s own greed!

    I am the farmer, bondsman to the soil.
    I am the worker sold to the machine.
    I am the Negro, servant to you all.
    I am the people, humble, hungry, mean–
    Hungry yet today despite the dream.
    Beaten yet today–O, Pioneers!
    I am the man who never got ahead,
    The poorest worker bartered through the years.

    Yet I’m the one who dreamt our basic dream
    In the Old World while still a serf of kings,
    Who dreamt a dream so strong, so brave, so true,
    That even yet its mighty daring sings
    In every brick and stone, in every furrow turned
    That’s made America the land it has become.
    O, I’m the man who sailed those early seas
    In search of what I meant to be my home–
    For I’m the one who left dark Ireland’s shore,
    And Poland’s plain, and England’s grassy lea,
    And torn from Black Africa’s strand I came
    To build a “homeland of the free.”

    The free?

    Who said the free? Not me?
    Surely not me? The millions on relief today?
    The millions shot down when we strike?
    The millions who have nothing for our pay?
    For all the dreams we’ve dreamed
    And all the songs we’ve sung
    And all the hopes we’ve held
    And all the flags we’ve hung,
    The millions who have nothing for our pay–
    Except the dream that’s almost dead today.

    O, let America be America again–
    The land that never has been yet–
    And yet must be–the land where every man is free.
    The land that’s mine–the poor man’s, Indian’s, Negro’s, ME–
    Who made America,
    Whose sweat and blood, whose faith and pain,
    Whose hand at the foundry, whose plow in the rain,
    Must bring back our mighty dream again.

    Sure, call me any ugly name you choose–
    The steel of freedom does not stain.
    From those who live like leeches on the people’s lives,
    We must take back our land again,

    O, yes,
    I say it plain,
    America never was America to me,
    And yet I swear this oath–
    America will be!

    Out of the rack and ruin of our gangster death,
    The rape and rot of graft, and stealth, and lies,
    We, the people, must redeem
    The land, the mines, the plants, the rivers.
    The mountains and the endless plain–
    All, all the stretch of these great green states–
    And make America again!

  5. Jeff H says:

    Just wondering, since you were inside the administration, they (the Obama Administration) do know that it is the Rs plan to keep unemployment high until after the election?

    Don’t they?