Ohanian the Onanian

by the Sandwichman

Brad DeLong takes the exact wrong tack by quibbling with Professor Lee E. Ohanian (Hoover's pro-labor stance helped cause Great Depression, UCLA economist says) instead of simply reading his silly paper and noting the cherry-picked piles of dog shit posing therein as empirical evidence.

It says in the news release, "...the latest UCLA study uses modern economic tools to quantify the impact of the president's wage freeze and job-sharing policies..."

Do modern economic tools include generalizing from a single Canadian firm in the 1990s that went from a five 8-hour days to four 9-hour day compressed work week? "...there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek also reduces output per hour..." Yup. Never mind that there are piles of historical evidence (and actual economic theory!) suggesting otherwise. What was that about a swallow and a summer?

To evaluate the quantitative impact of Hoover's program, I calculate the equilibrium of a model economy with firms paying the observed real wage in the industrial sector and following the observed workweek. I find that Hoover's program substantially depressed the economy, reducing aggregate output and hours worked by about 20 percent.

Ohanian compares his latest general equilibrium fantasy with a benchmark model from an earlier study in which (lo and behold) he and Harold Cole found, "that wage shocks and banking shocks account for a small fraction of the Great Depression..."

To shed further light on the permanent impact of the policy on the economy, I compare these findings to those of Cole and Ohanian, Table 9, who studied the impact of the same real manufacturing wage sequence in a similar economy, but assuming that the wage distortion was transitory, rather than permanent, and with no workweek restriction.

Got that? Professor Ohanian compared estimations from one general equilibrium model, that relied on a sweeping generalization from a single 1990s Canadian firm with estimations from another general equilibrium model that had been used to find that wage shocks accounted for only a small fraction of the Great Depression to find that Hoover's pro-labor policies accounted for TWO-THIRDS of the economic decline after the stock market crash 1929. I didn't think so.