David R. Henderson  

Reynolds: No Evidence for Double Dip Recession

Free Richter... If I Had More Time...
After talking to me about those figures, CNNMoney reporter Tami Luhby wrote, "Though Labor Department statistics say there are 5.5 job seekers for every opening, Reynolds said there is work available if people are willing to relocate or take jobs in a different field." What I actually told her was that it is completely untrue that BLS statistics "say there are 5.5 job seekers for every job opening." I also remarked, with less emphasis, that making 79-99 weeks of unemployment benefits available only in states with the highest unemployment rates has the perverse effect of punishing people for moving to the 14 states where unemployment ranges from 4% to 7%.
This is from Alan Reynolds, "Don't Believe the Double-Dippers," in tomorrow's Wall Street Journal.

The whole piece is worthwhile. He shows how weak a measure the U-6 unemployment rate and points out that both right and left seem to be claiming there's a double dip because both have an agenda.

Great closing:

Those who want to know what is going on must sift through all of this bipartisan gloom to distinguish between (1) agenda-driven dire warnings and (2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation.

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COMMENTS (13 to date)
Vangel writes:

Those who want to know what is going on must sift through all of this bipartisan gloom to distinguish between (1) agenda-driven dire warnings and (2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation.

I have trouble with the analysis because Mr. Reynolds seems to dismiss some very valid observations and the entire economic reality.

No matter what narrative Mr. Reynolds tries to spin it is clear that the US job market is very poor. There are far too many people unemployed (and underemployed), too many people that hold too much debt, and too many people who owe more money on their homes than their homes are worth.

It is also clear that the two foreign wars plus a number of other foreign commitments have placed a huge burden on federal financing at a time when revenues are in a state of collapse and domestic spending is exploding. While the US may be able to postpone a contraction for a while, until the problems are resolved by allowing the market to liquidate malinvestments the economy will remain vulnerable to further contraction.

If I were forced to make a bet I would place one against the USD and US Treasuries because of the risks in the system. The way I see it, the Fed is in a bind and cannot permit a contraction of the money supply. We are stuck in a cycle that requires ever increasing liquidity additions that would prevent the predicted deflation that is popular in some circles. I fear that Mr. Reynolds is a lot further from the truth than he imagines and that if we do not see a contraction in the real economy over the next few months, we will see it within the year.

Andrew_M_Garland writes:

"the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation."

That boring reality should be enough to create a double-dip recession, all by itself.

Obama is dedicated to the philosophy that anyone making money is stealing profits from the pockets of the consumer and the "worker". He will raise taxes and regulate until the end. He will stay the course of his ideology.

MernaMoose writes:

Labor Department statistics say there are 5.5 job seekers for every opening

And I say that 8 out of 10 people have never been surveyed.

Which has nothing to do with the semi-permanent fog bank that ObamaCare brought to the US, because nobody knows yet what it's really going to cost or how it's really going to work. It seems the cost will be whatever the Democrats want it to be, and there is no bounding their want.

Then there's the question of whether or not the Dems will bring us a Carbon Tax, under whatever guise. And how could a VAT hurt anything, when after all it would only make us just like Europe (only worse).

None of this has anything to do with unemployment. Unemployment is a Force of Nature.

Wow, isn't Nature a Big Meanie. Someone should pass a law against that.

mulp writes:
the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation.

Yep, 64.5% of the population over age 16 were punished by the punitive taxes into working, while today, the less punitive taxes have relieved 6% of the punishment of work, with employment at only 58.5%

The employment rate trend was up under the punitive Clinton taxes and onerous regulation, and trending down as taxes were cut and more and more deregulation occurred.

After all, the tax cuts expire and mostly return to the levels of the 90s when the economy and employment grew steadily, and the regulation proposed allows and regulates activity that was illegal in the 90s.

Mercer writes:

"(1) agenda-driven dire warnings and (2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation"

So he does not like agenda-driven warnings and then says the economy is sluggish because taxes might return to the level they were in the booming 1990s.

Rebecca Burlingame writes:

I have to add a bit more news "from the ground". Once a person is in their fifties, mobility issues start to take a real hit. The factors are numerous. What if a person's parents (or other relatives who will offer shelter) live in an area where extra jobs simply don't exist? Also, if a person's partner depends on disability, is it safe to move to a state where doctors might not take on more Medicare patients, especially now that state's budgets are going into year 2011? What if a person strongly desires to keep working but takes risks with health just by doing so? And what if a person cannot sell their property because an ex wants to game the system and refuses to negotiate? Last but not least, what if an individual cannot sell their business because everyone else has tried to sell the same said business for the past two decades? I do wish I had better news from the ground but we have certainly not given up.

Boonton writes:

How about a fusion policy: Stimulus with better labor market adjustment. If someone is long term unemployed and live in a state with unemployment well above the national average instead of more unemployment extensions they can opt to receive a one time $7500 'relocation grant'. They can use the money for anything they want, move, start a business, or just hunker down and wait for their state to pull out of recession.

Pingry writes:

Pffff....Don't take anything Alan Reynolds says seriously. This is the same guy who denied that there was a housing bubble and referred to the prospect of a recession as a "fairy tale":

"No Housing Bubble Trouble,"Washington Times (January 8, 2005):

"In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is."


"Recession Fairy Tales," Townhall (October 5, 2006):

"When it comes to homes . . . many people have spent the last four years fretting that the 'housing bubble' might end. That is, they worried that overpriced homes might become more affordable. This is not quite as nonsensical as worrying the price of oil might fall too much, but it's close."


Wow, good call.


Andrew Benson writes:

There are many key indicators to look to get a relative handle on the strength of the economic recovery, but the worst and least insightful is unemployment. It is better to consult United States Industrial Production, the Purchasing Managers Index, the United States Leading Indicator, Retail Sales, New Orders and a few others. They provide, in many cases, a pretty clear picture of where the economy is and where it is going.

Unemployment, on the other hand, often lags the macroeconomy. In some cases it has lagged through recessionary lows by as much as 10 months. Other historical examples show it bouncing back immediately. Nonetheless it is a horrible indicator of where the economy is heading. I would never base business decisions or forecasting decisions on the current unemployment numbers.

Productivity can increase with high unemployment. During economic downturns, business owners are often slow to hire because of the uncertainties about the future. Employers seek to squeeze higher productivity out of fewer people. Hiring additional people is an expense some employers are unwilling to bear during recessions.

jnp writes:

fairly obviously, high levels of negative equity (24% of US homeowners in 1Q10, according to CoreLogic) reduce labour market mobility.

Ted writes:

I couldn't take that article seriously after I read this paragraph ...

"The only double-dip recession in modern times began during the election year of 1980, when President Jimmy Carter's newly appointed Fed Chairman Paul Volcker slashed the federal-funds rate to 9% that April from 17.5% in July. Inflation returned with a vengeance, so the Fed gradually reversed course by pushing the fed-funds rate above 19% by the time Ronald Reagan took office in January 1981. Are those currently predicting a double-dip recession expecting the Fed to raise interest rates to 19%? "

Oh yes, as if the only way to create a double dip is for the Federal Reserve to raise interest rates - uh, no. Monetary policy is contractionary if the federal reserve doesn't meet the public's demand and their inflation (or NGDP if you prefer) expectations begin to fall. Looking at the appreciating exchange rate coupled with falling equity and commodity prices, as well as TIPS spreads (though those are harder to read because of the continued rush to safe liquidity) and you are left with the conclusion that monetary policy is way too tight right now. This doesn't nessecarily mean that we are going to have a double dip, in fact, I don't think Bernanke would let it happen - but the point is that it's at least a somewhat real possibility given that monetary policy is too tight. It's simply just hilarious Reynolds doesn't even know this and thinks that "low interest rates" means easy money and that only a double dip can happen if rates are raised.

Also, this article is pointless because nobody should take anyone seriously who uses monthly employment figures as an indicator variable.

Boonton writes:

Without reading the article (and I know I probably should before commenting), what is the argument against a double dip recession? That such a thing has never happened? We have maybe a sample of ten or so recessions since WWII ended. Is that a good basis?

That one happened in 1980 due to interest rate hikes that are unlikely to be repeated? The theory there seems to be that double dips can only be caused by one factor and if you control for that one factor a double dip becomes impossible. That's fine but what supports this theory?

That there are 5.5 openings for every unemployed person? OK but whats the context behind that? What are the historical averages of openings to unemployed people? It certainly seems possible that there needs to be multiple openings per unemployed person to bring down unemployment. There's no guarantee unemployed workers will have the skills needed to fill openings (unemployed home builders can't become nurses or doctors overnight). Openings likewise may not be as solid as they seem. Employers may post openings to test the waters of the market but are not in a rush to hire anyone because the job is getting done by current employees.

If you told me there were 5 home shoppers for every 1 house on the market I wouldn't automatically take that to be a bullish sign on real estate. I would want to know the historical ratio. I would also want to know something about the demand power of these buyers (are they willing to pay full price or are they bottom shoppers attracted to the firesale prices where you could pick up $200K condos for $40K). Likewise what about supply? Are there millions of homeowners just waiting for the first uptick in house prices to put the for sale sign out? In the case of unemployment, are there a few million 'discouraged workers' who will pounce back into the labor force the moment it seems that jobs are growing again?

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