Arnold Kling  

Kevin Murphy Interviewed

Why Bernanke Should Be Canned... The Political Economy of Geoen...

Definitely worth reading, with a variety of topics covered. On one topic, he says

It's difficult to look at, for example, the very low unemployment rates we saw in the early 2000s and say that represented an economy in which everyone was working. Unemployment rates were at roughly the same level that they were in the late 1960s, but if you look at prime-age males, the fraction actually working who were, say, 30 to 40 years old was quite a bit lower in 2001 because there was a big increase in the number who were out of the labor force in that age category.

See also my essay from 2003.

The reason that this is important is that the Taylor Rule, which supposedly measures whether monetary policy is too loose or too tight, typically uses the unemployment rate. However, the unemployment rate understated the slack in the labor market in 2001-2003, when Taylor and others claim that monetary policy was too expansionary.

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CATEGORIES: Labor Market

COMMENTS (6 to date)
Bill Hocter writes:

What a brilliant guy. I remember seeing him speak earlier this year on a podcast about the financial crisis and found him extremely impressive.

However, I do believe that the idea of limiting family size in order to maximize capital investment in the individual needs to run a couple of cycles through the law of unintended consequences. From a solely economic standpoint it makes sense of course. If you make people scarce relative to capital, the cost of capital should decrease and individual income should rise. The Maronites in Lebanon adopted this solution and, while wealthy, have found themselves outnumbered and vulnerable.Other examples exist-the columnist Spengler from the Asia Times has written extensively about this. Limiting family size only works if one holds ethnic tranquility and governmental stability as constants. Unfortunately, they are variables.

Having fewer children may also make some kinds of investments more difficult, such as letting your children go (with equanimity)into the military or sons enter the priesthood. I suppose our having 9 children makes this easier. It certainly makes Sundays lively and pleasant.

Troy Camplin writes:

And then there's the fact that I'm unemployed, but I'm not listed as unemployed, because I don't get unemployement insurance. How many others are out there like me?

Mike writes:


I think your use of LUCY is excellent. Why don't you make a note to do the same calculation for our current recession and give us an update from time to time on how we are doing. Their seems to be so much self-serving arguments (surprise! surprise!) about how the stimulus is saving jobs that we need a little cold water of reality thrown on us.

Patri Friedman writes:

I'm a bit skeptical of claims like: "By the time we get to the late 1990s, that number is more like 1.7, meaning that by the late 1990s, the average college graduate earned 70 percent more than the average high school graduate. Thus, between the late ’70s and the late ’90s, the return to going to college roughly doubled. "

If the job mix and/or population in question have changed during that time (as they surely did), then this doesn't prove that the income difference is due to benefits of going to school. (And if we believe the signaling model of education, it surely isn't). It seems like a pretty questionable retrospective claim, unless he has a natural source of randomness to use.

Patri Friedman writes:

The section about cost containment and health research, and how a system which measures cost against value is one where research is much more valuable than one that blindly implements treatments, is awesome.

Garrett Schmitt writes:

Troy Camplin,

Total estimated unemployment in the US in May 2009 (not seasonally adjusted):


Total insured unemployment (persons receiving unemployment insurance benefits) in the US for the week ending May 16th (not seasonally adjusted, 2nd revision):


You still may not be officially defined as unemployed, but that has no bearing on your unemployment insurance eligibility. The two concepts are seperate in US estimates.

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