Wednesday, July 11, 2012

The Obama economy?


One of the most maddening things in our political discourse is the indeterminacy of macro-economic arguments, i.e., the nature and extent of government policy on the economy. One of the dumbest things we do is to assume that the President (or a Governor) has the ability to control - and, therefore, to "run" the economy.

This doesn't mean that public policy doesn't affect the economy, only that the impact is more attenuated and confounded than we think.

So what are we to make of this chart, posted by Harvard economist Greg Manikw, showing labor force participation?

One thing we can say is that there seems to be little support for the notion that Bush era tax cuts tanked the economy. The onset of the recession seems to have been well after they went into effect and, in fact, the years following their implementation were marked by rising employment. Maybe you can argue that the recession was the result of cumulative deficits caused by lower tax rates and increased spending (Bush 43 was a spender), but you'd need to find your support elsewhere.

But conservatives and liberals will read the chart differently with respect to Obama administration policies. Conservatives - and I admit this is my view - will find evidence that Obaman stimuli didn't work. The recovery has been historically anemic and it looks like Obama spent huge sums of money for shovel ready projects that did not exist and stimuli that did not stimulate.

Defenders of the President can take two approaches. The first is to say that it stopped the decline. The chart provides some superficial evidence for that but there are at least two problems. One is that it would be necessary to know how much of the 2009 stimulus package was spent in that year - before the decline abated. The other is that downturns inevitably bottom out. The administration did not expect the package to stabilize employment but to increase it. That did not happen to any material degree.

The second ploy is to criticize the President from the left - an attack that is unlikely to drive voters into the arms of Romney. On this view, the problem is that the stimulus - as humongous as it was - needed to be larger. The only problem with what didn't work is that we needed more of it.

If both of these arguments seem like matters of faith - susceptible of neither proof or disproof - it's because they are. Both seem implausible to me but I don't think I could prove them to be wrong.

What I do know is that - fairly or not - this is a tough record on which to run for re-election. If Obama is re-elected, it will be historic. Presidents tend not to be re-elected with numbers that look like this.

Cross posted at Purple Wisconsin

28 comments:

jp said...

Public policy confoundedness is anathema to economic growth.

Orlando Attorneys & Lawyers said...

I agree 100%. It will be interesting to see the outcome of this presidential race.

Anonymous said...

"One of the dumbest things we do is to assume that the President (or a Governor) has the ability to control - and, therefore, to "run" the economy."

Yet, ironically, the professor makes
a case through inferences that Obama is doing just that..."running" the economy "into the ground". This post reminds me of P-Mac in his heydey...the "while I'm not saying it, I'm saying it"
approach.

More importantly, if the professor does believe in this premise, the professor ought to take to task his conservative brethren when they make such pronouncements, lest he be a hypocrite.

Anonymous said...

Mankiw's chart is misleading, if it is taken as a proxy for economic growth. It's a chart comparing civilian employment to the overall population. Charts showing GDP growth would show a negative 8.90% in the fourth quarter of 2008, and positive GDP growth beginning in the third quarter of 2009 (1.7%) and continuing thereafter in every quarter since. A chart comparing US economic performance to that of Britain and the Eurozone during the Obama years would show that we've done significantly better than they have, especially since the 2010 election of David Cameron in Britain and the adoption of deficit-reduction policies (like those Romney would adopt). Austerity has been disastrous for Britain and the Eurozone.

So why are fewer people participating in the US work force? Demographic factors are the biggest reason. Members of the "baby boom," the generation born between 1946 and 1960, are now between 52 and 66 years old. They're retiring. Some of them are retiring early -- public sector employees, particularly (often because they are afraid that if they don't do so now, Republican politicians will slash their pension benefits). And people are living longer. The total number of Social Security beneficiaries, retirees, survivors, and the disabled, has increased by 10 million -- from 45 million to 55 million -- since 2000.

Unemployment is a factor, too. With high unemployment, fewer women are joining the labor market; more people are electing to be stay-at-home parents. Young people are staying in school.

But, again, Mankiw's chart doesn't show how the economy is doing. If every American magically became a billionaire overnight, and we could all afford to retire and hire foreigners to wash our Bentleys, clean our mansions, and cook for us, the civilian employment/population ratio would be even lower. Wouldn't mean we'd be worse off.

jp said...

Anon 12:21 PM

The President has power to inspire optimism in business leaders resulting in increased economic activity or …suppress in Obamas case.

Anonymous said...

"Conservatives - and I admit this is my view - will find evidence that Obaman stimuli didn't work. "

Well duh, that's because confirmation bias causes you to not want to admit it worked.

It worked. Did it achieve the results the administration said it would? No, it did not. We don't really know why. We know the economy was in much worse shape than they thought it was when it was passed; had they known the true state of the economy at the time, perhaps their forecasts would have been different or perhaps the stimulus would have been bigger.

A survey of economists at the University of Chicago - not exactly known as a hotbed of left-leaning academia - shows people who know a lot more about this than you or I think it worked (http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw5O9LNJL1oz4Xi ). Plenty of other conservative economists have said the stimulus worked to some degree.

You are right that it is difficult to make the claim that, "things aren't great, but they're better than they could be". Part of the reason it's difficult is because our two parties, all the hacks who belong to them, and our slackjawed population generally don't do well with complex issues and explanations. They want simple answers and someone to blame, NOW!

Remember this post when in a couple of years Scott Walker is up for re-election. He is not going to make it to his 250,000 jobs pledge, but I seriously doubt you or people like you will be doing anything but saying "well, it's still better than it could have been" while also, I am sure, blaming President Obama as if our problems are all his fault.

FTR, not many people I know blame Bush for the economy per se. They do blame him and your party - and rightly so - for the Country's fiscal crisis. Had they not screwed things up with unfunded wars and entitlement expansions when things were going fairly well, the federal government would have additional resources at its disposal to help on the demand side.

Anonymous said...

Oh and Rick, on the topic of economic forecasts used to help sell policy that turned out to be laughably inaccurate, Google "Heritage Foundation forecasts 2001 Bush Tax Cuts".

Brew City Brawler said...

EPOP fell faster under Bush than under Obama!
http://www.angrybearblog.com/2012/04/greg-mankiw-on-employment-population.html

Job growth better than after 2001 recession!
http://www.epi.org/blog/worst-recession-70-years/

EPOP follows same trend line as after 2001 recession!
http://www.epi.org/blog/recovery-recessions-epop-greg-mankiw/

Rick Esenberg, real man of economic genius

Dad29 said...

Anony 12:43

You're wrong.

Additionally the number of people age 55 to 64 years who entered not in the labor force from December to January was 300,000 or 39% of the civilian non-institutional population increase for this age group, which also includes the population controls. Yet the January labor participation rate for ages 55 to 64 is 63.9%, not seasonally adjusted....

...The labor participation rate for those 65 years of age and older is 18%. How could possibly the labor participation rate for just the population adjustments be 17.1% then? The answer is due to the sharp decline in employed for ages 25-54. The labor participation rate for just the population controls was -137%

...don't let anyone claim people are not dropping out of the labor force due to not being able to find a job and aren't being counted any longer. You cannot blame an aging population or education on the below declining labor participation rates for those between 25 and 54 years of age.


See: http://www.economicpopulist.org/content/about-those-1252-million-people-who-dropped-out-labor-force

But nice try!

Dad29 said...

And..for both the Barrister and Anony 9:05 PM....

Bush was a spender, yes.

But the match for his kerosene was the (D) Congress of his last 2 years.

It was StupidSquared.

Anonymous said...

Dad, your response is pathetic.

On-budget expenditures rose on a year-over-year percentage basis, when adjusted for inflation, as follows:

2002: 9.2%
2003: 8.6%
2004: 6.5%
2005: 8.2%
2006: 7.9%
2007: 1.9%
2008: 10.2%

That 1.9% increase in '07 disproves your point. Yeah, 2008, ok. But look at 2002-2006.

A Dem Congress didn't pass debt-finance entitlement expansion, the pork-laden farm bill of '02, or a lot of other stuff.

Nice effort, but fail. You have no credibility at all. You simply respond in a pavlovian manner.

Dad29 said...

Umnnnhhh...really?

Bush had NOTHING to do with the '02 budget (just as Obama had almost* nothing to do with the '09).

And there was this "war" thing, as you might recall. Are you telling us that in your esteemed opinion, Bush should have cut all other spending to balance war expense, dollar-for-dollar?

If that's the case, then you undoubtedly were screeching about the LBJ budgets, too.

....or maybe not....

Try again.

*Obama had the option to spend a bunch more TARP money in '09--and he did.

Anonymous said...

Dad29: Yargle bargle bargh. What you cite is unintelligible.

Anonymous said...

Dad29: Actually, to the limited extent one can understand Robert Oak, he supports what I said. Demographic factors explain a lot of the decline in that portion of the population that is in the work force. Oak points out that the civilian non-institutionalized population aged 25-54 actually declined as a result of the 2010 census. Demographics; births went down after the baby boom. He points out that the civilian noninstitutionalized population of those 55 and over went up significantly. To quote him: "In other words, one of the reasons the not in the labor force increase is legitimate, was a disproportionate increase in population of those 65 years and older. Blame the boomers." Again, demographics. (Population of 65-plus-year-olds increased from 32.5 million in 1999 to 41.5 million in 2012, per Oak.)

Unemployment is a factor, too, like I said. Oak says 80.6% of those 16 to 24 are not in the work force. Kids are staying in school (like I said). And fewer of those who are in the prime working years, 25-54, are participating in the labor force: 81.5% in 2011 compared to 84.5% in 1999. Fewer women are joining the labor force; more folks are stay-at-home parents. Like I said.

So Mr. Oak's barely intelligible discussion basically says what I said.

But the point is, Mankiw's chart shows labor force participation, not the economy. Since 2000, labor force participation has declined. While this can have negative impacts over time, as fewer and fewer workers are paying into Social Security, etc., labor force participation is not the same thing as economic growth (or recession). To present a chart of labor force participation and label it the "economy" is misleading.

Dad29 said...

We can agree that LFP and "the economy" are not the same at all.

We also agree that LFP decline is a serious issue. You posit that it is an "over time" problem; I agree with that, AND raise you one: it's a "right now" problem, too.

At the very least, they are not paying income taxes, and presumably are paying less in sales/use taxes. They are certainly not consuming lotsa stuff, either--meaning that aggregate demand is reduced.

By the way, I know a number of 55+ (and 65+) people who have retired, but are still in the workforce, full- and part- time. They may not be statistically significant, but they're there.

John Foust said...

For anyone who thought that clicking on the scary graph would make the image bigger so you can see the fine print, it says "Civilian Employment-Population Ratio (EMRATIO) Source: US Dept. of Labor: Bureau of Labor Statistics. The left side of the graph ranges from 64% to 58%. The gray shaded region represents perhaps December 2007 to April 2009.

The Profess'r is linking to Greg Mankiw's blog , who posted the image without comment. Maybe that's where the Profess'r got the idea to lead you to an unstated conclusion in a direction he'd like. Mankiw probably used this dynamic page to make his graph. You can visit it to get a bigger picture.

Obama was sworn as President in January 2008 and signed the American Recovery and Reinvestment Act of 2009 on February 17, 2009.

Ask the man on the street: What caused the recession of 2008?

(And Dad29 - what's your definition of "retired"? You left one job, but started another? So it's kind of like "virgin"? If I've left my first job, then I'm retired?)

John Foust said...

Whoops, of course Obama was inaugurated on January 20, 2009.

Anonymous said...

Thanks to John Foust for linking to a chart with a longer historical overview, and helping to remind us that, even with labor force participation at 58%, down from its all-time peak around the millennium, labor force participation is still higher than at any time between 1946 and 1976. (Why? More women are working.) Those three decades saw dramatic postwar economic growth and improvements in living standards in the United States.

So the chart is a poor proxy indeed for economic growth. But it trends down, obviously.

Profs. Mankiw and Esenberg are both guilty of some sleight of hand here, in suggesting the chart shows the Obama economy. What else has declined precipitously? Lard consumption? Sales of used Geo Metros? Show those charts, too, while you're at it.

John Foust said...

Extra credit: If demand dropped for the products and services produced by USAians, what happens to EMRATIO?

Or as Mutt said the other day, if my restaurant isn't full now, how does a tax break motivate me to hire more waiters?

Anonymous said...

And it looks like my 12:21 p.m. post (the third one) rings true! Good stuff, Mr. Foust.

Anonymous said...

Dad29 said,

"Bush had NOTHING to do with the '02 budget"

Um, yes he did: he proposed the FY 2002 budget in the spring of 2001.

If you can't even get that right, well...

jp said...

John Foust said…

Or as Mutt said the other day, if my restaurant isn't full now, how does a tax break motivate me to hire more waiters?


It gives me $$$ to invest. Renew building on the outside and inside. Upgrade equipment and fixtures.
This leads to productive job creation in many sectors.
And so the cycle starts.

John Foust said...

JP, you must have a great deal of experience with the restaurant industry. They're known for quickly doubling the money of almost all investors in that field, right? If the restaurant isn't full now, will spending money on fixtures solve that problem?

The fantasies about job creation are always in the positive direction. It's an odd form of mental masturbation. What creates a job? Is it just newfound cash? If you say you're creating jobs, do you mean to say you're creating demand? Sounds rather non-capitalistic when you put it that way. When a politician hands out pork and someone's hired with that money, the demand didn't come from the market, but did they "create a job"? Do the window repair jobs count?

jp said...

Dear John;

I recommend you not invest your time or money in the restaurant business.

You are better off in the internet cloud

jp said...

Dear John;

Please see Journal(July 17) business page 3D.

Two articles regarding restaurants.

Note: re-creating and space being redecorated.

No public funds mentioned.

Anonymous said...

I'm curious to find out what blog system you happen to be utilizing? I'm having ѕome small security issues with my
latеst site and I'd like to find something more safe. Do you have any suggestions?

Feel free to visit my homepage ... the tao of badass

Anonymous said...

I ԁrop a cοmment whenever I аppreciate a artiсle on a website or if I have something to contribute to the disсussіon.
It's caused by the fire displayed in the article I browsed. And on this article "The Obama economy?". I was actually moved enough to drop a comment :) I actually do have a few questions for you if you don't mind.
Is it simply me or do а few of these гemarks appeаr likе left by brain dead indіvidualѕ?
:-P And, if you arе writing on additiοnal sіtes, I would lіke to
follow you. Would you maκe a liѕt eѵery one of your communal pages
likе your tωitter feеd, Facеbook page
or linkedin profile?

Аlso νisit my homepage; destroy the distance

Anonymous said...

Write mοrе, thats all I have to say. Lіterallу, it seems as though
уοu гelied on the vіdеo to make your point.
You definitely know what youre talkіng аbout, why waste уour іntellіgеncе on just ροsting videos tο your site when you coulԁ be
gіvіng us somethіng еnlightenіng
tо read?

my webѕite: pure leverage autoresponder