If You Laid All the Economists…….
Published on: September 22, 2013
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  • Adam, I read the paper itself. You are quite right to be stunned. The authors literally pay no attention to the obvious culprits: automation and offshoring.

    I think that the migration of jobs overseas does not seem to be a big factor since most of the jobs that would be lost have already gone.

    These are balance-sheet recessions caused by the ‘reverse wealth effect’ due to the collapse in asset prices. Firms and household put off spending as they build their balance sheets. This plunges the economy into a recession. The Fed responds by cutting interest rates.

    This exacerbates job evaporation by incentivizing increasing capital intensity. Buoyed up by increasing stock valuations and with access to super-cheap debt, firms respond by replacing labor with capital. Moreover, a disproportionate share of capital gains goes to the very top since in a recession “assets return to their rightful owners.” [Andrew Mellon] This means that consumer spending, and employment with it, is slower to recover than GDP. Thus, the Fed’s policy might possibly be counter-productive.

    • Thanks for the value-added. Your observation about the counterproductive impact of “quantitative easing” for job creation has not escaped my own peregrinations, but I’ve never seen a persuasive empirical proof of it. It could very well be true all the same, seeing as how it’s far more logical than the study we’ve now both commented upon.

  • Yes, I think that’s been the standard, and almost certainly correct, economic evaluation of the devolution of the American jobs machine: automation as number one cause, and globalization as a secondary and more recent factor. The first “jobless recovery” wasn’t 2009, but 1991-94, then again in 2001-03, when these factors were already obviously at work.

    But there’s little doubt that misguided monetary policy plays a role as well. Artificially low interest rates encourage holders of capital (savers, institutions, banks) to put scarce capital to marginal uses (such building too many houses, which are absurdly considered “investments,” which they’re not, unless they’re rental properties). They also create a misimpression that capital less scarce than it really is and encourages its wasteful misuse generally.

    Quantitative easing compounds the damage by encouraging “yield chasing” as capital flows out of the country to seek better returns elsewhere.

    Overall, these monetary policies are based on the false idea that the “real” economy (goods and services, employment and real income) can be boosted by manipulating the “money” economy (finance) and inflating existing asset prices. There is almost no evidence for this, as the Fed’s own staff economists have demonstrated more than once.

  • I think your characterization is considerably off base. Here are a few examples.

    You mock Coibion and Gorodnichenko’s (CG) lack of discussion of “globalization” and “automation.” CG focus on the increasing “jobless” nature of business cycle recoveries. Do you think the effects of G&A are cyclical? That as a business cycle expansion increases, these effects lessen? And that such declining G&A effects, all else equal, led to the U.S. unemployment rate being below 4.5% in 1999-2000 and at 5% or below in 2005-2007? Or were G&A on vacation during those late business cycle stages?

    You write, “job growth will most likely continue to be detached from data on GDP growth.” Do you have difficulty believing that job growth in the current recovery has been terribly weak, all else equal, because GDP growth has also been weak? Or perhaps you think real GDP growth rates in the 1%-2% range in the early-to-middle stages of a recovery reflect robust growth? Do you feel that the intuition behind Okun’s Law is, like CG’s work, an idea that’s “so ridiculous that only other academics could possibly take [it] seriously”?

    For some reason you believe that, by “social trust,” the authors refer to “networks people use to find jobs.” That’s a curious interpretation, because they never make such a connection. To see what they mean by the “decline in trust” and its possible connection to the increasingly countercyclical nature of disability claims, it would be necessary to read the paper. On the other hand, perhaps you’re already convinced that G&A drive that cyclical behavior on the disability claims front.

    • Written like a true economist. Sorry, but any analysis of job creation relative to gross measures of economic activity that does not take into account changing capital/labor input ratios born of technology is not useful. There are many factors involved to be sure, but ignoring this one is lethal–and that’s what this study does. “Do you have difficulty” believing that?

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