Unemployment – Worse Than Reported

BLS reports:

Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent

Sandwichman observes:

The 663,000 job losses reported comes on top of a 86,000 downward revision in the January number, making the net loss 749,000. Moreover, the average monthly revision since September 2008 has been 158,000 jobs. There have been no upward revisions.

While the rise in the unemployment rate since September 2008 (6.2% to 8.5%) sounds bad, the fall in the employment to population ratio from 61.9% to 59.9% paints a worse picture. I’ve always been bothered by how BLS reports the unemployment rate in its first sentence leaving the reader to only learn that the participation rate also fell – as in from 66.0% as of September 2008 to the March 2009 level of 65.5%. This participation rate was 66.1% as of November 2007, so as BLS reports that the unemployment rate increased from 4.7% to 8.5%, what this really means is that the employment-population ratio fell from 63.0% to 59.9%.

For those of you who might be following the neo-Hooverite nonsense from the governor of South Carolina, it is interesting (or was that tragic) to know that the unemployment rate for this state reached 11.0% as February 2009.

The Counter-Narrative

by the Sandwichman

The problem with 'critique', as Emery Roe pointed out, is that in practice critique serves to intensify uncertainty because it doesn't offer a clear alternative. Thus critique may inadvertently increase pressure to hold onto familiar scenarios, no matter how discredited they may be. A counter-narrative conceives of a rival hypothesis and policy options.

The case I have been essaying in a pair of recent posts -- Not Working is Another Subject and Is Economic Man Parsimonious? -- is that the working time literature constitutes a counter-narrative to the standard 'story' that dominates economics. That standard story is not an analysis per se, a methodology or even a set of assumptions. It is more like a disposition -- an arrangement of scenic, character and action elements that renders the subsequent argument familiar and believable. The framing narrative determines whether a specific argument will seem reasonable or not. Thus it functions as effectively to exclude non-conforming arguments as to certify respectable ones.

The construct of Economic Man has been defended on grounds of 'simplicity' (or parsimony), even though it is only superficially simple. It has been critiqued to death... but to little avail. HESCI, or Persona parsimoniae, is at least as parsimonious as Economic Man.

Economic Man has a complete set of preferences and chooses rationally the most efficient means to maximize utility. Persona parsimoniae has two different kinds of preferences -- organic needs and aspirations for social distinction. The means for satisfying those desires are limited absolutely, not just transiently, by physical laws and/or social institutions. And utility is mostly a function of habit [and emulation] rather than calculation.

There you have it. The counter-narrative. Did the earth move for you? Or are you asking, "is that all there is?" Just in case it's the latter, I continue...

The characteristics I have just now ascribed to Persona parsimoniae are neither deductive nor arbitrary. They were transmitted culturally in a discourse tradition. That is to say they were told and retold from generation to generation. That doesn't make them 'true' any more than the telling and retelling of the features of Economic Man validates the truth of the latter's features. It does, however, suggest that they are both comprehensible and believable, at least to some audiences.

There are important corollaries to the main features of Persona p. that are specific to the issue of working time. For example, better rested workers are able to be more productive and also both wiser and more expansive in their consumption behaviors. That observation might suggest that Economic Man is more like a sub-species of Persona parsimoniae whose hours of labor have already optimized. Or to put it more panoramically, Economic Man is that lucky duck for whom the basic economic problem of subsistence is "no problem".

The narrative paths taken by Economic Man and Persona parsimoniae, respectively, differ in interesting ways. Each can be represented by a circular flow diagram relating the elements of accumulation/investment, production, income/consumption and leisure/disposable time. The standard story assigns priority to accumulation and investment, which enhances productivity leading to increased incomes and the potential choice of leisure. The counter-narrative posits leisure as the foundation for increased income and consumption, which thus drives productivity gains and, consequently, accumulation and investment.

Each path incorporates its own version of a digression from the circuit. In the standard story, leisure represents a sort of exit from the economic circuit. In the counter-narrative, accumulation beyond some natural limit leads to superfluity: waste, a crisis of over-production or the destruction of value through war or the proliferation of luxury consumption for parasitic functionaries and the idle rich.

Revisionists

by the Sandwichman

March unemployment wasn't as bad as the BLS reported. It was worse. The 663,000 job losses reported comes on top of a 86,000 downward revision in the January number, making the net loss 749,000. Moreover, the average monthly revision since September 2008 has been 158,000 jobs. There have been no upward revisions. So it would come as no surprise if the revised number for March alone (that is excluding revisions of previous months) was closer to that 749,000 figure than to 663,000.

A Package for Labor

Behind the debate over whether GM and Chrysler should be bailed out or dispatched into bankruptcy is the curious history of the US labor movement. Unlike most other industrialized countries, where unions fought for and achieved a role in economy-wide institutions, the US fashioned its labor movement employer-by-employer and occasionally industry-by-industry. The result was, even in its heyday during the 1950s, a lopsided unionism that had great clout in a few sectors and regions and was virtually absent everywhere else. During the long decades of decline, the remaining union redoubts, like the top tier of auto manufacturing (final assembly and the top rung of suppliers), became islands in a sea of unbridled employer power. This is why the demand that the UAW run up the white flag as part of an auto bailout challenges what is left of the labor movement as a whole.

In fact, autos present us with a paradox. America desperately needs a revitalized labor movement, and smashing the union that has been at the heart of labor’s struggle ever since the sit-downs of the last depression is hardly the way to begin. The retiree benefits that have emerged as the main item of dispute—should the assets that fund them be converted into the funny money of common stock?—are the legacy of this struggle, guarantees that all workers should have but only a few were able to win. At the same time, it makes no economic sense at all for the auto industry to serve as a funding mechanism for a small piece of an otherwise absent welfare state. The sector needs to shrink, and it needs a clean financial slate that only big concessions from bondholders and workers can provide. So how to reconcile these two perspectives?



The only solution is for labor to be able to break out of its bunker mentality and gain a broad presence throughout the economy. There are two parts to this. First, a large portion of the legacy obligations of the auto producers and other unionized manufacturers should be socialized as part of a general reform of social insurance in the US. As Jamie Galbraith has eloquently argued, this is a time for expanding Social Security, not cutting it. And some form of universal health insurance, kickstarted by a fund like the one Obama has proposed, would address the health aspects of auto’s retiree overhang. In fact, this is what UAW pioneers like Walter Reuther wanted all along, but they had to fall back on collective bargaining when the political channel was shut down by resurgent Republicanism after WWII.

The second part has to do with active workers. The tragedy of UAW givebacks is that any other job these workers might find will be so much worse. This points us toward the solution: quick passage of the Employee Free Choice Act and a commitment to worker representation as a central feature of the next economy. The truth is, we are going to see a lot of restructuring once the economy recovers; this is a dreadful economic episode, but it is also a period of creative destruction. To speed up the recovery and accelerate the shift to an economically and environmentally sustainable future, we will need rapid disinvestment in some industries and the creation of new capacity in others. This will also have a geographical side; the new world is always built at some distance from the old. The only way to do this in a labor-friendly way is for workers to have a say everywhere, and this means systematic labor law reform. (The EFCA is just a beginning; there is a much larger agenda that reaches beyond the single mechanism of collective bargaining.)

Politically, we need a package deal: substantial abrogation of the UAW contract benefits combined with pro-labor reforms in labor law and the social safety net. I know this is tricky: you put it all on the table and run the risk that the benefits are eviscerated while none of the reforms go through. Nevertheless, this seems to me to be the only coherent way to think about the situation.

Ward Churchill and Alfred Chandler

How is that for a mixed pair? And what’s the connection?

Ward Churchill has been suing the University of Colorado, claiming that the academic misconduct for which he was fired was a dishonest pretext, and the real reason was to get rid of someone whose political views made the university’s top brass uncomfortable. The central criticism made of Churchill is that he ghost-wrote articles for other academics and then cited them/himself in his own work. The university said such practice is unconscionable, but Churchill says it’s done all the time.

I don’t know about all the time, but I do know about one very significant time. One of classics of business history, My Years at General Motors, supposedly written by long-time CEO Alfred Sloan, was actually ghost-written by journalist John McDonald. McDonald’s research assistant was Alfred Chandler, then a young (but very well-connected) business historian. Chandler, of course, knew all about the ghosting process, and as the team member with serious academic expertise, he probably had a major impact on the final product.

Chandler went on to write under his own name, becoming the pre-eminent scholar in his field, very well worth reading by anyone who cares about the role large productive organizations in our moment in history. Beginning with Strategy and Structure (1962), Chandler made GM one of his key case studies, drawing on the (unmentionable) research he had done for the Sloan book. Interestingly, his first book was published even before Sloan’s, suggesting that his theoretical work may have influenced the content of the published “evidence” for it, in the form of the Sloan memoir. In any case, Chandler continued to cite “Sloan” in several more pathbreaking works, with never a hint that there was something circular about this.

It’s a good thing for his career that Chandler stayed away from smallpox blankets and “little Eichmann’s”.

Paul Ryan on the Borrow-and-Spend Philosophy

If you expected a GOP budget today, Steve Benen says they have played an April’s Fool joke on us as all we seem to have so far is this WSJ op-ed:

The plan works to accomplish four main goals: 1) fulfill the mission of health and retirement security; 2) control our nation's debts; 3) put the economy on a path of growth and leadership in the global economy; and 4) preserve the American legacy of leaving the next generation better off. Under the president's plan, spending will top $4 trillion this year alone, and consume 28.5% of our nation's economy ... Instead of doubling the debt in five years, and tripling it in 10, the Republican budget curbs the explosion in spending called for by the president and his party. Our plan halts the borrow-and-spend philosophy that brought about today's economic problems.

Ryan provides a chart that claims that the spending to GDP ratio will exceed 40% in 50 years under “Democratic Budgets” while this ratio will fall below 20% under the “Republican Alternative”. Steve response to this op-ed included:

In reality, the "borrow-and-spend philosophy" did not create the crisis, so Ryan's prescription is automatically based on a misdiagnosis. But even if we put that aside, the alternative budget reflects a political party that embraced a breathtakingly radical worldview. In a nutshell, Ryan proposes a massive tax cut, totaling, by some estimates, around $4 trillion -- on top of the Bush/Cheney cuts, which would remain place. The Republicans plan would voucherize Medicare, and, best of all, impose a five-year spending freeze on non-defense discretionary spending

In my view, Steve is getting Congressman Ryan and the Republicans too much credit. I say this for a couple of reasons. This so-called borrow-and-spend philosophy was the actual fiscal stance of President Reagan and Bush43. Both of these Administrations promised us permanent tax cuts by claiming that they would reduce the ratio of Federal spending to GDP. Under Reagan, this ratio did not fall. Under Bush43, it rose.

We can also take a look at an analysis from the Center on Budget and Policy Priorities entitled Obama Budget Reduces Deficit by $900 Billion Compared to Current Budget Policies:

Contrary to some claims, President Obama’s 2010 budget would reduce federal deficits by about $900 billion over the next ten years compared to current budget policies. The $900 billion is the difference between deficits over the next decade under the President’s budget, as estimated by the Congressional Budget Office (CBO), and projected deficits under a realistic assessment of current budget policies … Some critics charge that Obama’s budget is fiscally irresponsible, and they cite CBO’s estimate that, under it, deficits would total $9.3 trillion over the next decade. They fail to note, however, that these future deficits result from the existing budget policies that Obama inherited — not those that he is proposing … Budget experts have been saying for a number of years that the official baseline departs sharply from reality.

While CBPP rightfully complains about how the official baseline departs from reality, I suspect it is closer to reality that the numbers that Congressman Ryan is using to draw his graphs. But I guess we’ll need to wait until the GOP actually bother to provide us with some actual numbers for their “budget”.

Will Deferring Social Security Taxes Encourage More Current Consumption?

One of the proposals to encourage aggregate demand is to reduce payroll taxes. One might ask – how would one cover the lost revenue from such a proposal. Greg Mankiw has one answer:

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

Amitai Etzioni proposes another:

The government should not collect Social Security taxes for one month — as long as the Obama administration commits the government to collect it for a 13th month once the economy is growing again at a fair pace … Last but not least, the Social Security tax is famously regressive. Hence, cutting it would put proportionally more money into the pockets of people most likely to spend it all in short order, a key goal for any stimulus.

Both proposals have no effect on after-tax lifetime income so if one is a proponent of Friedman’s permanent income hypothesis or the Ando-Modigliani lifecycle view of consumption or the Barro reformulation of Ricardian Equivalence – then deferring taxation would not be seen as encouraging more current consumption according to this theory. Then again - Mark Thoma reminds us that this theory may not work so well in practice.

Misleading Cato Petition Ad On Climate

In today's Washington Post (and I think some other papers) a paid ad appeared from the Cato Institute that has a bunch of signatures by various climate scientists, directed at President Obama "with all due respect" questioning that global warming is happening and asserting that after accounting for population and property value growth, there has been no increase in damage due to climate disasters over time. Citations are provided for some of these assertions.

I shall only note that this last one is rather problematic. A source is claimed to be an article from 2005 in the Bulletin of the American Meteorological Society by Pielke et al. I googled and found no such article, but did find some statement by him addressed to "Stern Review." In that he says that while climate is a factor in rising disasters, they could not necessarily be tied to global warming, and that in the future they might be offset by rising population and property values, hardly what is claimed the petition/ad.

I did some further checking and found a figure showing natural hydro-meterological disasters over time. While 2008 is back down to about 350, about the same as 1998, that is still more than any year prior to then, with such numbers being below 200 mostly in the past, although getting over 500 in 2000 and 2002 and equaling 500 in 2005. In any case, not at all supporting the reported claims by Pielke. This figure is from a chapter by D. Guha-Sapir and F. Vos in a book out from Springer this year, and it can be found down a ways on the right with the full citation on a blog post by Andrew C. Revkin of the New York Times.

Will The SDR Replace The Dollar?

The head of the Peoples' Bank of China has made headlines recently proposing that the IMF's Special Drawing Rights (SDR) replace the dollar as a world reserve currency. An excellent discussion of this issue has been put up by Brad Setser at http://blogs.cfr.org/setser. There are some reasons why it is unlikely without some other very big changes, and that indeed the idea rather conflicts with what has been Chinese currency policy.

The main problem is that despite being created to replace gold as "paper gold," the SDR is not a currency at all. It is strictly a unit of account used by the IMF, currently with a value based on a basket of the US dollar, the euro, the British pound, and the Japanese yen, with the German mark and French franc preceding the euro before it replaced them. Presumably an altered SDR that brought in some other currencies, presumably including at least the Chinese yuan/renmimbi, could serve as a better measure of global value, but unless the IMF starts actually issuing actual SDRs, there is no way it will serve as a reserve currency. As it is, even the reserves of the IMF in other currencies, measured in SDRs, is only $200 billion, likely to be inadequate for dealing with the emerging financial crises in various Eastern European and other "peripheral" countries.

The problem for China is that they have been pegging to the US dollar. They are becoming uneasy about the value of their dollar holdings, but a decline of the dollar would keep their exports competitive with other countries (besides the US), which seems to be a major concern of theirs. If they were to peg to the SDR, whatever is in its basket, they could damage their export competitiveness. As it is, while some countries used to peg to the SDR, very few do anymore, with one of the most recent to abandon doing so being Latvia, which switched to pegging to the euro, big surprise.

A quiz for the idle unemployed.

Who said the following?

"There is no doubt in my mind that this is the greatest problem confronting mankind at this time and that it has reached the level of a state of emergency”

Dr ?

“[inserting global dimming sulphur into the stratosphere] would change the colour of the sky. It's the last resort that we have, it's the last barrier to a climate collapse. We need to be ready to start doing it in perhaps five years time if we fail to achieve what we're trying to achieve…The consequences of doing that are unknown …"

Professor ?

“We have far less time to minimize dangerous anthropogenic climate change than previously thought. Observations of the climate system indicate that the impacts of atmospheric warming are at the upper end of the range predicted by the IPCC. This puts us in an extremely precarious and urgent situation that compels immediate action”

Professor ?

[Current CO2 levels are 387 ppm] "...leading toward conditions which existed on Earth about 3 million years (Ma) ago (mid-Pliocene), when CO2 levels rose to about 400 ppm, temperatures to about 2–3 degrees C and sea levels by about 25 +/- 12 metres."

Dr ?

Surprisingly everyone who had known the people in the carbon lobby said that they were all polite, kind and intelligent.

Hoover Economics – Czech Style

Is Czech prime minister Mirek Topolánek looking to write for the National Review? While he acknowledges the global recession, he also writes:

Even high-quality medicine, if administered in excessive doses, can be harmful or, if used permanently, cause unhealthy addiction. That's why I have been repeatedly calling on countries, within as well as outside the EU, to be prudent. I used the rather hyperbolic simile of the “road to hell” in my speech to the European Parliament last week to warn against the danger of temporary measures - such as excessively increasing public borrowing, nationalising or subsidising banks and industries, putting up protectionist barriers or enforcing “buy American” clauses - becoming permanent. It was in this context that I referred to the adverse experience of protectionism and state intervention in the US in the 1930s ... I do not need to explain that the welfare states of Europe act as “automatic stabilisers”, sustaining consumer spending even in a slump. This means that Europe does not need such a large fiscal stimulus compared with the US, which does not have such a system of social support. I also believe that as the President of the European Council I do not need to explain that the situation in the EU is different from that in the US in a further way - the EU cannot choose to apply a wide-scale financial stimulus. Even though the Czech Republic is not a member of the eurozone, I do not need to explain the vital importance of the rules of the Stability and Growth Pact that restrict the size of a country's budget deficit and national debt. Or do I?

While I am not in favor of using trade protection to bolster U.S. net exports (something about the prospect beggar thy neighbor retaliation), Smoot Hartley was not the cause of the Great Depression. Nor was the New Deal. As far as a potential defense of the Buy American provisions that Topolánek criticizes, let’s turn the microphone over to Paul Krugman:

And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole. And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.

Topolánek now advocates the lack of fiscal stimulus that worried Paul. If the European economy were currently facing excess aggregate demand, this call to adhere to the Stability and Growth Pact would make sense. Otherwise, it is the kind of Hoover economics that Republicans in Washington are also advocating.

Update: Paul Krugman has more:

Like many other economists, I’ve been revisiting the Great Depression, looking for lessons that might help us avoid a repeat performance. And one thing that stands out from the history of the early 1930s is the extent to which the world’s response to crisis was crippled by the inability of the world’s major economies to cooperate. The details of our current crisis are very different, but the need for cooperation is no less. President Obama got it exactly right last week when he declared: “All of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts and other countries aren’t.” Yet that is exactly the situation we’re in. I don’t believe that even America’s economic efforts are adequate, but they’re far more than most other wealthy countries have been willing to undertake. And by rights this week’s G-20 summit ought to be an occasion for Mr. Obama to chide and chivy European leaders, in particular, into pulling their weight. But these days foreign leaders are in no mood to be lectured by American officials, even when — as in this case — the Americans are right.

Ian Traynor reports that the European leaders are likely not going to listen to President Obama:

The case pushed by Merkel repeatedly in recent weeks, and echoed by France and the European commission, is that there is no point now in more tax cuts and deficit spending to boost demand since it is not yet clear whether the huge fiscal stimuli packages already launched are actually going to work … the European leaders are indeed worried that Obama's huge public spending programmes could fuel hyper-inflation and leave Europe struggling to refinance colossal levels of state debt if they followed suit.

Work Time Regulation as Sustainable Full Employment Strategy

by the Sandwichman

Bob LaJeunesse's book, Work Time Regulation as Sustainable Full Employment Strategy has been published by Routledge. A 30-page preview is available online. I tried to paste the widget for the preview on EconoSpeak but couldn't figure out how it worked.

Table of Contents: Introduction 1. The Origins of the Work and Growth Fetish 2. Rethinking the Work Fetish and the Growth Consensus 3. Work Time Regulation as a Macroeconomic Policy Tool 4. The Ecological and Social Sustainability of Work Time Regulation 5. The Employment Effects of Work Time Reduction 6. A Proposal for Reform 7. Conclusion

A Sign of the Times

New York Times "Room for Debate" blog: Europe’s Solution: Take More Time Off

While many European companies have long turned to shorter workweeks and mandatory time off in economic downturns, the idea has never really caught on in the United States. Despite reports of unpaid furloughs and wage cuts, American companies continue to rely heavily on layoffs to control labor costs...

Is Economic Man Parsimonious?

by the Sandwichman

"Of course we know that this is not so... but we assume it for simplicity’s sake, as an hypothesis."

But of course... For simplicity's sake...

In Narrative Policy Analysis, Emery Roe argued that a counter-narrative must be "as parsimonious" as the policy narrative that it challenges. That word, parsimonious, appeared also in Joseph Persky's 1995 JEP retrospective on "The Ethology of Homo Economicus": "to compete successfully against Economic Man, a new ethology must be parsimonious..." (Nemo contra deum nisi deus ipse!)

Roe and Persky were, of course, referring to Occam's Razor -- the principle that the fewest possible assumptions should be made when explaining a thing. Such theoretical economizing by economists is not to be confused with the economizing done by Economic Man. Or is it? Could there be a strange, self-referential loop that fancies itself parsimonious about parsimony?

There's one way to find out. Build the equally parsimonious counter-narrative that, so to speak, unmans Economic Man.

Doctor Frankenstein's got nothing on the Sandwichman, who has been disposing of his spare time for several weeks constructing the definitive counter-narrative to Economic Man. In an earlier post, I proposed the name Hesci for my creature. Another possibility would be Persona Parsimoniae. Or how about both: "HESCI, Persona Parsimoniae"?

Heschi is a spreadsheet that summarizes the characteristics of an implied economic subject from (so far) 19 texts from the working time literature, spanning 237 years. The idea is to relate those characteristics to the presumed characteristics of Economic Man, i.e., utility maximization, rationality and independent preferences. Inevitably, there is overlap between the working time literature and the 'classics' of political economy and economics with, for example, Adam Smith, J.S. Mill, Marx, Lionel Robbins and J.M. Keynes being represented in both.

Some of the statements don't so much contradict the assumptions of Economic Man as complicate them. Others do contradict them flatly. What I believe the exercise shows is that not only are the assumptions about Economic Man, in the words of Walter Bagehot, trivially "not so" but they are also, more importantly, not so simple. Assuming them "for simplicity's sake" is thus disingenuous, a strategy for deferring, deflecting or evading reasoned analysis rather than for facilitating it.

Reveal Rejects?

Over on Overcoming Bias, Robin Hanson has proposed that journals report the papers that they reject, including names of authors and dates of rejections, possibly even with the referee letters. He argues that this might improve the efficiency of the economics journal publishing process by "raising the bar" so that people will not send papers to journals that they are unlikely to get their papers accepted in.

As a journal editor I disagreed, noting that this would be very humiliating for many would-be authors, with some I know having a hard enough time submitting papers given their fears and unhappiness about rejections and nasty comments by refererees. I also noted that there are other proposals out there along similar "efficiency" lines, but that they go against practices and trends in the hard sciences. Thus one says that lengthening the times to first responses from journals (which has been a trend) would achieve this result also, and there are journals that charge very high submission fees, but then return them if papers are accepted (last time I checked, $650 at the Journal of Financial Economics, with the Journal of Monetary Economics not far behind). As it is, in the hard sciences, very rapid turnaround and publishing times are emphasized, and rather than punishing submitters who get rejected and rewarding those who are accepted, many hard science journals have no submission fees, but make authors pay for pages of papers that are being published, something I am unaware of any economics journal doing, whatever one thinks of that. But it is certainly the opposite of the practice of the J. Fin. Econ. and the J. Mon. Econ.