Arnold Kling  

Two Follow-ups

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1. On the current state of the economy, Mark Thoma highlights the employment-to-population ratio. Here is his chart:


I think he is right to push this, because I find it a more reliable indicator than the unemployment rate. The graph suggests to me (probably not to Mark) that the stimulus has not worked. Of course, proponents can always argue that it would have been much worse without the stimulus, but one should not ignore the visible reality.

I would also note that if you look at the period from 2002 through 2004, the economy hardly seems overheated by this measure. That is a big reason why I continue to place little blame on monetary policy in that period, notwithstanding continued pushback from David Beckworth.

2. On the issue of social affiliation and politics, read Jennifer Rubin on how Jews react to Sarah Palin.


Palin's anti-elitism and her embrace of social conservatism, which are now integral to her persona, will in all likelihood continue to make her unpopular with the great majority of Jews. She is not about to change her appearance, her stance on abortion, or her disdain for media elites. And Jews are not about to cast aside their preference for those leaders whom they perceive as intellectually worthy--and socially compatible.

I was at an event where Rubin spoke a couple of months ago, and she gave a cheery outlook for the Republican Party. During the question period, I suggested that it would be difficult to attract Jewish voters to the anti-elitist strain of the Republican Party, and to Palin in particular. She told me to wait until I saw her forthcoming article, which led me to believe that she would have a counter to my thesis. Instead, she seemed to reinforce it. Read the whole article.

If Sarah Palin, as she currently is perceived, were elected President, that would represent an utter repudiation of intellectual elitism in government. Many Jews instinctively think that would be a bad thing. But right now, as far as kicking the intellectual elites out of Washington goes, I'm not seeing the down side...


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COMMENTS (23 to date)
John Thacker writes:

Is employment to population more important than the percentage of the labor force? Over the years, there's been a trend of people living longer, so some of that employment to population ratio issue is more retirees.

I guess both are useful for different questions and discussions.

PeterW writes:

Problem is, elites have power. Elections are a reflection of that power; the outcome of elections rarely changes that power.

Ano writes:

The graph suggests to me (probably not to Mark) that the stimulus has not worked. Of course, proponents can always argue that it would have been much worse without the stimulus, but one should not ignore the visible reality.

Since this implies you think that fiscal expansion does not affect employment, I ask you: could we significantly cut spending and raise taxes right now without harming the labor market? (Let's say we did this roughly by applying the stimulus package times negative one: 40% income tax hikes, 60% spending cuts.)

spencer writes:

Not just yours, but the standard libertarian position seems to be that stimulous in the form of an expanding deficit has little or no impact. However, contractionary policy in the form of deficit reduction has a very large impact.

This is especially true of the 1930s where libertarians seems to belief that FDR's spending from 1933 to 1936 played no role in the economic rebound. But the deficit reduction in 1937 was solely to blame for the 1937-38 recession.

This would suggest an econometric model where expanding deficits has a very, very small coefficient while contracting deficits would have a very large coefficient. Such econometric results are quite possible, but I have never seen
it -- especially for the 1930s.

Have you?

SydB writes:

"But right now, as far as kicking the intellectual elites out of Washington goes, I'm not seeing the down side..."

You've obviously learned nothing from the fumbling mess that is George W Bush, his supporters, and the damage that their power-obsessed, uneducated, juvenile, mindless, and cronyistic ways have inflicted on the GOP.

The downside is obvious: GOP and libertarians will be further marginalized.

John Thacker writes:

Since this implies you think that fiscal expansion does not affect employment, I ask you: could we significantly cut spending and raise taxes right now without harming the labor market?

Some taxes and spending are worse than others. While even a very stupid stimulus provides some short-run good, it may be a long run negative, and certainly should be considered negative compared to a more optimal bill.

I think that the Republican alternative bill would have cost half as much, spend more now, and been more effective stimulus (with more of a payroll tax cut) than what was adopted. So criticism of the stimulus as enacted as ineffective is perfectly reasonable in my mind.

Taimyoboi writes:

"During the question period, I suggested that it would be difficult to attract Jewish voters to the anti-elitist strain of the Republican Party, and to Palin in particular."

Professor Kling,

Do you view this as a short-coming of prevailing Jewish culture, or of teh Republican Party to pursue a relationship with anti-elitists?

Nick writes:

1. I think John Taylor makes a good point with his analysis that the housing bubble was not restricted to the US alone. Other countries followed our monetary policies and had similar results. I think that casts a lot of doubt on the significance of impact of the fiscal policies that many conservatives point to.

2. There is a difference between anti-elitism and anti-intellectualism . Palin is an anti-intellectual. She is willing to reject science in favor of 2,000 year old superstition. Excepting the Hasidim the Jewish tradition favors study, questioning, and consideration of intellectual argument when it comes to interpreting the Torah. The Christian tradition seems to me ( as an outsider) to have a larger emphasis on faith and accepting the word of the Bible literally without any interpretation or consideration.

Joe Calhoun writes:

spencer,

The expansion from 33-37 and the subsequent secondary depression were, in my view, more a function of monetary policy. Even if you believe in a fiscal multiplier it seems highly unlikely that the small fiscal expansion of the time was responsible for the GDP gains of 33-37. Devaluing the dollar against gold is a much better explanation. Raising bank reserve requirements probably had the bigger effect in 37.

Patrick R. Sullivan writes:

SydB, you do realize that W. had a Harvard MBA and Cheney was once a Phd candidate and contemplating an academic career?

Nick writes:

Mr Sullivan,

You don't Bush's rich and powerful family might of had some influence in his acceptance to Harvard?

Taras Smereka writes:

@ SydB I think you got confused by Bush's accent, he was an ivy league boy too, Yale to be precise. Was a big fan of Latin literature from what I understand.

Nick writes:

Mr. Smereka

Though the popular view of Bush's lack of intelligence may be exadgerated somewhat he does not strike me as much of a deep thinker. Note that when asked about his biggest regrets/mistakes as president he cites what amount to public relations blunders (Mission Accomplished banner, not appearing for a photo op in New Orleans, etc..) instead of actual policy blunders. The implication is that either he believes all of his decisions were correct (scary!) or he is shallow enough to conflate PR with policy.

Pietro Poggi-Corradini writes:

Why exactly is the employment/population ratio a better indicator? Would one have to worry about "income effects"?

Sara writes:

"But right now, as far as kicking the intellectual elites out of Washington goes, I'm not seeing the down side..."
The elites are convinced that only very high intellect and special training qualify one to micromanage the economy and every aspect of other people's lives. Unfortunately, a very large fraction of the anti-elites believes that only common sense and "real-world" experience qualify one for the same. Very few people actually believe EVERYONE, even themselves and own their tribe, to be unqualified.
In other words, the anti-elites are upset that their tribe isn't in charge.

Laurent GUERBY writes:

For 1948-2008 a revealing graph on "a more reliable indicator than the unemployment rate":

http://guerby.org/blog/index.php/2009/01/24/193-l-inexorable-ascension-de-la-population-sans-emploi-aux-usa

Identical unemployment do map to very different employment and there's a clear trend...

Jim Glass writes:

if you look at the period from 2002 through 2004, the economy hardly seems overheated by this measure. That is a big reason why I continue to place little blame on monetary policy in that period, notwithstanding continued pushback from David Beckworth.
~~

As to people like Beckwith who insist that Greenspan's low interest rates caused the housing bubble, I have yet to see any of them explain how US domestic interest rates created a housing bubble all around the world -- and in many countries a much bigger one than in the US.

Was Greenspan really that powerful?

Joe Calhoun writes:

How do we know this is a bad thing? The rate rose from the mid 70s but that was due to women entering the labor force. Was the economy awful when the ratio was much lower in the 50s, 60s and 70s? Is it possible that some of the drop is because people are discovering that the income from a spouse working faces a steep marginal tax rate? Is it possible that people are discovering that there are other costs associated with having both parents work (increased child care expenses, etc.) which further raises the marginal cost of taking the job? Is it possible that people are discovering they don't necessarily gain anything from that second income? Indeed might they be discovering that they actually lose quite a bit when factoring in the effects on their family?

As a country it isn't even clear this is bad news for the economy. Productivity is soaring because output has almost recovered while employment has not. Isn't a more efficient economy a good thing? Isn't that what we're trying to accomplish? Shouldn't we be striving to increase quality of life rather than just worrying about the absolute quantity of jobs or income?

And lastly, how much of this is due to policies that reduce the incentive to work? Extended unemployment benefits seem the compassionate thing to do, but there has to be some disincentive effect. What about other programs that are phased out as income rises? Don't mortgage modification programs phase out as income rises? That would also seem to provide some disincentive to finding a job.

On its face this looks like bad news but I'm not sure it means as much as Thoma thinks. It seems far from clear cut that this is a bad thing.

Douglass Holmes writes:

I'm with Sara. The reason we want less government is that EVERYONE is unqualified to make the kinds of decisions that are required as the government expands more into our lives and businesses.

The market may not allocate things the way I want them, but I do not trust any government to allocate them better. Markets aren't perfect. Government isn't either, even if the president has two ivy-league degrees (which both W and O have).

Mr. Econotarian writes:

I know several women who had or are planning to have children discus their high (and soon to be higher) marginal tax rate when making a decision to keep their job or leave their job when they have children. I suspect more women are deciding there is little financial benefit to staying at work when they have a child now.

Of course if you are near the poverty line, things are opposite. The EITC encourages you to have children and then stay at your job,

Nick writes:

Jim Glass,

I would refer you to this paper by John Taylor regarding central banks mirroring each others policies during the 00's.

Jim Glass writes:

...this paper by John Taylor regarding central banks mirroring each others policies...

Well, sure, but obviously the problem then isn't "Greenspan" or even "US monetary policy" but something much larger -- such as the (apparently mistaken) understanding of how the economy worked on the part of central banks around the world generally.

One can hardly blame Greenspan for that. (Even if "too easy money" did cause the "bubble", which is far from self-evident to me.) If there was such a consensus mis-belief around the world, what was it? Where did it come from?

The whole "Greenspan did it" thing smacks a lot of the psychology of Monday morning quarterbacking to me -- righteous blame throwing after the fact assuming a lot of assertions yet to be proven.

As an example of other possible ways to look at things, consider Sumner's latest provocation: "Tight Money Causes Bubbles".

Larry Doffman writes:

The ONLY friends Jews have in the world are Evangelical Christians. I've always wandered why they insist on voting for liberals who hate them and stab them in the back every chance they get(?)

Is there a link for the article written by Palin?

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