The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
Grasping Reality with Both Hands The Semi-Daily Journal of Economist Brad DeLong: A Fair, Balanced, Reality-Based, and More than Two-Handed Look at the World J. Bradford DeLong, Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.
About This Website | About Brad DeLong | This Weblog | Weblog RSS feed | Brad DeLong's Egregious Moderation | Order of the Shrill | Office Hours: Evans 601, W10-12, 2-3, and by appointment, email delong@econ.berkeley.edu | Macroeconomic Policy Lectures | Economic History Lectures | Academic C.V. | John Yoo and the Torture Memo | Audio and Video Read the comment policy: no drive-bys, and if you bring information and humor you will be fine... Obama Economic Recession Here’s Obama’s REAL plan to turn the economy around. MoneyMorning.com/economic_recovery
Weblog Home Page Weblog Archives Subscribe to RSS Dynamic Blogroll Berkeley Economics Department NBER Brad DeLong's Egregious Moderation Hot on Google Blogsearch Hot on Google Berkeley Political Economy July 10, 2009
The Changing Nature of the American Business Cycle Macroeconomic Advisers writes: Please find "Q2-2009... GDP Tracking 0.2 percent", which has been updated. Exports were stronger than expected, and imports were much weaker than expected, suggesting a large upward revision to our estimate of second quarter net exports. Therefore, we raised our tracking estimate of [the annual] GDP growth [rate] in the second quarter by 1.8 http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 1 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
exports. Therefore, we raised our tracking estimate of [the annual] GDP growth [rate] in the second quarter by 1.8 percentage points to +0.2% [growth in GDP per year]. With labor input falling at a rate of 6% per year in the second quarter, that suggests a productivity growth rate in the economy as a whole of some 6.2%--which is really weird. It used to be the case that businesses hoarded labor in recessions because they did not want their skilled workers to wander off and to have to train new ones.... Now it is really beginning to look as though businesses take recessions as opportunities to greatly slim down their workforces without making the workers they retain too angry and depressed. We saw this in 2002-2003. We saw it before in 1992-1993. The fact that productivity is no longer strongly procyclical countercyclical in recessions is good news in the long run--it means that our average long-run rate of productivity growth is higher than we used to think. But it also means that there is more headroom for expansionary policy, and more need. Thus statements like this one from the very sharp Allan Sinai: Phil Izzo reports:: "The mother of all jobless recoveries is coming down the pike," said Allen Sinai of Decision Economics. But he doesn't favor more stimulus now, saying "lags in monetary and fiscal policy actions" should be allowed to "work through the system..." make me pound my head against the wall. If as the policies we have now in train to support the economy work their way through the system we find that we still have "the mother of all jobless recoveries," then we should be acting now to provide additional government support. A jobless recovery is not a good thing. And we should avoid it if we can figure out how in time. RECOMMENDED (5.0) by 5 people like you [How? ] You might like:
The Mother Of All Jobless Recoveries (@The Daily Dish) Second Stimulus Program... (@this site) 2 more recommended posts Âť Brad DeLong on July 10, 2009 at 08:58 AM in Economics, Economics: Labor, Economics: Macro, Obama Administration | Permalink TrackBack TrackBack URL for this entry: http://www.typepad.com/services/trackback/6a00e551f080038834011570f9af83970c Listed below are links to weblogs that reference The Changing Nature of the American Business Cycle:
Comments You can follow this conversation by subscribing to the comment feed for this post. "A jobless recovery is not a good thing." That's only for people with hearts and ethics. There's plenty of business owners who think cheaper, more desperate labor is a Good Thing. Posted by: The Raven | July 10, 2009 at 09:24 AM "Doing more with less" often means more off-shoring of jobs. It seems that there is no good way is disentangling this element from the numbers. The competitive pressures on business are forcing the use of cheaper components and labor, accelerating the shifting or work to lower cost places. People who resisted this trend are forced to do so for the sake of survival. http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 2 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
Posted by: Neal | July 10, 2009 at 09:26 AM We have two camps of economists. Those who bet the short term boost of a stimulus and those who bet the long term trend in government deficits. Let's say the yield drops so the short term stimulus bets appear cheaper, and some fraction of long term deficit betters join the short term group; and we get another stimulus. Then, I believe that Brad has proved we get a symmetrical Treasury bubble. That is, unless we have some understanding about asymmetry the result will be a secondary drop in output equal to the primary gain in output. What good news does Brad know about asymmetry which would give a better result than the news Brad knows about symmetry Posted by: Mattyoung | July 10, 2009 at 09:44 AM I have a hard time picturing the mechanism that raises productivity in a recession. After all, business fixed investment falls, since there is little reason to replace or upgrade capital when operating well below capacity. My sense is that improved capital (newer vintage) is a significant source of improving productivity. Is it some selection effect? The least efficient workers are the ones who become unemployed and the least efficient businesses all exit their industries? Posted by: John Howard Brown | July 10, 2009 at 09:56 AM Brad: "With labor input falling at a rate of 6% per year in the second quarter, that suggests a productivity growth rate in the economy as a whole of some 6.2%--which is really weird. It used to be the case that businesses hoarded labor in recessions because they did not want their skilled workers to wander off and to have to train new ones...." Brad, you *know* that this system died in the early 1990's at the latest, which is now just under 20 years ago. It might have died in the early 80's double-dip, which would mean that it was dead for almost 30 years. John - first, get rid of those workers whom you'd most like to get rid of. That'll raise the productivity. Transfer their work to other workers, for no more hours (if they're white collar - no more *official* hours). That'll raise productivity more. Then, skimp on maintenance and replacement of equipment; work what you have into the ground. It looks good short-term. Posted by: Barry | July 10, 2009 at 10:55 AM john, since people already responded to your question, let me pick up a fine point that barry mentions: there is no useful mechanism by which to pick up white-collar overtime. anecdotally, we all have reason to believe that many companies are prepared to live with being understaffed by 10 - 20%, counting on uncompensated overtime to fill the gap. so if someone is laid off and his or her work is transferred to you and somehow, by working extra hours without compensation you get the work done on time, then productivity has been enhanced as far as the statistics can figure out. another related fine point that no one has mentioned is that in a time of labor surplus, many workers get scared and make subtle adjustments: they eat lunch at their desk rather than go out for lunch. they arrive a little earlier or stay a little later to impress the boss. they spend less time at the water cooler and more time with their heads down. and part of that makes its way into enhanced productivity as well. Posted by: howard | July 10, 2009 at 11:11 AM Er? Net exports are ~$4 billion better than the consensus, and they revise their Q2 GDP estimate up 1.8%? Methinks Macroeconomic Advisors is a bit over-optimistic. I can only imagine what they're forecasting for June trade. Posted by: TL | July 10, 2009 at 11:23 AM Brad says that the productivity growth rate has increase to 6.2%, but then says "The fact that productivity is no longer strongly countercyclical in recessions is good news in the long run." I don't think I understand. Isn't such a growth rate strongly countercyclical? Please explain. Posted by: jps | July 10, 2009 at 11:44 AM
http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 3 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
People who are hoarding the assets don't care about unemployment. Posted by: Nancy Kirsch | July 10, 2009 at 11:46 AM People like Allen Sinai should be fired. He sounds like he's happy about the prospect of a jobless recovery. Are these the kind of crappy things that he says at Decision Economics? I can't believe that he has anyone's interests at heart except his own and if he represents the company they are all the same. These are the kind of people we have running our economy and running our country and they are all running it into the ground. Posted by: Nancy Kirsch | July 10, 2009 at 12:25 PM (I repeat) Work less or jobless... The "jobless recovery" is an oxymoron, Brad. It also stands the lump-of-labor fallacy on its head. Instead of a "fixed amount of work to be done" there is a growing amount of work to be done by a fixed number of workers. Well, the remedy is obvious -- or would be obvious but for the precision-engineered blinkers worn by almost all economists these days: "So long as there is one man who seeks unemployment and cannot find it, the hours of work are too long." Who said that? Why the great Keynesian himself, John Maynard! Wait! No! That was Samuel Gompers. What Keynes said was: "The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result as well by consuming more or working less. Personally I regard the investment policy as first aid... Less work is the ultimate solution." So, Brad, the first Obama stimulus was first aid. Let's assume the patient is stabilized. The economy is no longer "falling off a cliff". WHAT WOULD KEYNES DO? Posted by: Sandwichman | July 10, 2009 at 12:25 PM It is perfectly normal for firms to try to squeeze a maximum output from workers for minimum pay. It is the logic of capitalism and not the least novel. If you don't like the distributional effects of that system, then go ahead and argue for a steeper marginal tax schedule to spread the wealth around. I would happen to support you on that, not that my support would matter. But it looks REALLY childish of some posters here to demonize firms for maximizing profits. That is what they do. And it is probably what they should do. Posted by: Gerard | July 10, 2009 at 12:25 PM If anybody with an open mind wants to really know what the hell is going on they should ask Brad DeLong. There's a lot he's not saying. Posted by: Nancy Kirsch | July 10, 2009 at 12:28 PM I gather that moneterists would argue that stimulus is a path not from a jobless recovery to a normal recovery but from a jobless recovery to stagflation. Is there a simple counter argument to that? Posted by: Michael Carroll | July 10, 2009 at 12:51 PM Whoa, wait. If we are looking at (based on Macro-Advisor's estimate) a 6.2% pace of productivity rise in Q2, why do we then tack on Sinai's view that a jobless recovery is coming? Aren't the two inconsistent? Can we afford to just accept that both projections are likely to be true, no matter how hard they are to reconcile? If firms maintain a high pace of productivity growth through the recession, then there is less room for productivity gain after the recession. For any given pace of output growth, we should expect more rapid employment growth during the expansion than would have been the case if productivity fell during the recession. The problem for hiring, then, will be slow output growth. We will have a jobless recovery if we have a growthless recovery. It is quite common to have a brief spurt of productivity at the beginning of an expansion, as firms hesitate to hire, use the hoarded labor they have, or are surprised by demand. If that happens in Q2, there is no reason to think it will persist. The one hitch to my argument is that the workweek is very short. Lengthening the workweek would slow hiring, but that only works to the extent that workers are in the right place, working short hours, to accommodate a rise in demand. Assuming that there is a little http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 4 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
the extent that workers are in the right place, working short hours, to accommodate a rise in demand. Assuming that there is a little of both, we'll see slow job growth early in the expansion, but it doesn't need to be like after 2001. Posted by: kharris | July 10, 2009 at 12:53 PM According to the WSJ link, "Just eight of 51 economists in The Wall Street Journal's latest forecasting survey said more stimulus is necessary..." so Professors DeLong and Krugman are apparently part of the minority. Allen Sinai's remarks reflect conventional wisdom. DeLong's rule appears to be as follows: "Absent liquidity traps, let automatic stabilizers and the Fed take care of recessions. Otherwise, the Federal government should err on the side of too much stimulus, as inflation can always be curbed by timely monetary tightening." 43 out of 51 economic forecasters surveyed apparently disagree. I should like to know their arguments. Might Allen Sinai agree to guest blog somewhere? Posted by: Measure for Measure | July 10, 2009 at 01:05 PM Your post about the stimulus, while informative, ignores a fundamental aspect of capitalism: market signals are necessary for a efficient allocation of resources. My only fear, with government mandated stimulus spending, is spending the money on political concerns and feel good behavior, not where the market demands it. This dooms spending to be not very effective in either the medium or long term. Posted by: foo | July 10, 2009 at 03:10 PM We continue to shed production jobs. Even under Clinton and his stellar creation of net jobs, we lost mfg jobs. This suggests an economic transformation on the order of the transformation caused by mechanization of agriculture in the 1920s and 30 that displaced millions of workers. Mechanization of mfg is displacing millions of workers. Production that cannot be mechanized is being sent off shore. This process accelerates during recessions. Closing down shops with low productivity boosts overall productivity. This creates a big problem with trying to use tax cuts to boost employment. If tax cuts are too "leaky"- they go to investors who invest in more productive capital equipment or offshore- then tax cuts may exacerbate job loss. During recessions, job creation in non-production areas is not sufficient to offset the loss of production jobs. Clinton had net job gain because increases in tech jobs and service jobs more than offset the loss of mfg jobs. After 911, Bush enacted policies that discouraged foreign owned business in the US, discouraged the best and brightest international students from going to college in the US and did everything he could to block emerging new technologies from alternate energy to stem cells to broadband access. To counter the loss of mfg jobs, Greenspan engineered a housing boom that was unsustainable, bubbled and collapsed. We need to reconnect with our innovation mojo that drove job creation in the 90s. In the meantime, we need a jobs program. Posted by: bakho | July 10, 2009 at 04:46 PM "In the meantime, we need a jobs program." What's a "jobs program"? Posted by: Sandwichman | July 10, 2009 at 05:51 PM Jobs program = targeted spending on projects that require a lot of labor, instead of leaky tax cuts. It could also include money to state to keep projects from being cut or employees laid off. $200 Billion would buy 4 million jobs @ $50K wages and benefits. Plus we could recover about $30 billion in income tax revenue, substantial reduction in unemployment costs plus state taxes..... How much have we been paying for so called stimulus? Posted by: bakho | July 10, 2009 at 06:46 PM But, but, if this data were true, he spluttered, then all those people who have written about "neoliberalism" and the post-Fordist mode of flexible accumulation that sets in around the mid-seventies and is based on taking every opportunity — especially crises! — to http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 5 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
of flexible accumulation that sets in around the mid-seventies and is based on taking every opportunity — especially crises! — to decrease permanent labor, especially those with higher pay and benefits...well their description of the structure of "late capitalism" would be exactly accurate! And predictive! They would be, to get all technical...right! But that can't be true, because Brad doesn't like them — there must be some other explanation! Posted by: jane | July 10, 2009 at 07:38 PM Raven, H Ford said that if my workers can't buy my cars I will have a small market (don't know where I read this). He also was suffering from at least 300 percent labor turnover at the time. The business community thought him a communist for the 5 dollar per day wage. As they say: What goes around comes around. Posted by: dilbert dogbert | July 10, 2009 at 08:25 PM The economy balanced in WW1 and then it balanced again in WW2. Brad DeLong knows that it is getting ready to balance again. By one means or another it will be balanced. Posted by: Nancy Kirsch | July 10, 2009 at 09:26 PM "I am the Way, the Truth, and the Life." -Brad DeLong Posted by: Nancy Kirsch | July 10, 2009 at 10:04 PM Productivity is countercyclical. I hadn't heard anyone cite any actual numbers and suggest that as a serious theory before, but it's something I've long suspected. If you'd like to know why, go read Dilbert. Boom times create a lot of big, fat, bloated bureaucracies, producing negative value, and they only get the much-needed axe when crunch time comes. Posted by: Bram Cohen | July 10, 2009 at 11:08 PM Didn't a couple of guys you know once write a paper pretty much predicting that ? Did anyone ever claim that, in the USA, firms don't hoard labor when the unemployment rate is high. Is it maybe time to take another look at that question ? http://ideas.repec.org/a/fip/fedfer/y1997p33-52n1.html Posted by: robert waldmann | July 11, 2009 at 05:34 AM oops "So long as there is one man who seeks unemployment and cannot find it, the hours of work are too long." above, should have been: "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." Posted by: Sandwichman | July 11, 2009 at 11:26 AM
Verify your Comment Previewing your Comment Posted by: | This is only a preview. Your comment has not yet been posted. Post
Edit
Your comment could not be posted. Error type: Your comment has been posted. Post another comment The letters and numbers you entered did not match the image. Please try again. As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments. Having trouble reading this image? View an alternate.
http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 6 of 7
The Changing Nature of the American Business Cycle
7/12/09 2:33 PM
Continue
Me:
Economists: Paul Krugman Mark Thoma Cowen and Tabarrok Chinn and Hamilton Brad Setser
Juicebox Mafia: Moral Ezra Klein Philosophers: Matthew Yglesias Hilzoy and Spencer Friends Ackerman Crooked Timber Dana Goldstein of Humanity Dan Froomkin Mark Kleiman and Friends Eric Rauchway and Friends John Holbo and Friends
http://delong.typepad.com/sdj/2009/07/the-changing-nature-of-the-american-business-cycle.html
Page 7 of 7