April jobs number: Bye Bye Keynesian multiplier

Well you guys had a nice little run, but it’s all over now.  Monetary offset stands triumphant.

PS.  I should clarify that the big story is the revisions.  We are adding 196,000 jobs per month this year, which is actually more than last year, despite the austerity.


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34 Responses to “April jobs number: Bye Bye Keynesian multiplier”

  1. Gravatar of Dan S Dan S
    3. May 2013 at 04:37

    Now everyone is gonna say “look how bad this month was compared to last month.. Sequester in action!

  2. Gravatar of W. Peden W. Peden
    3. May 2013 at 04:47

    Taking into account the growth in jobs, fiscal policy is very expansionary in the US right now: record job growth and big deficits = fiscal stimulus.

  3. Gravatar of SG SG
    3. May 2013 at 04:48

    Dan S,

    Not so, the numbers from February and March were revised upward quite a bit.

    Don’t hold your breath waiting for retractions from Konzcal, Krugman, et al.

  4. Gravatar of John Thacker John Thacker
    3. May 2013 at 05:20

    In fairness, I think it’s still too soon to tell (even though, or especially as, I think it’s an issue of whether the Fed will *choose* to act, rather than whether it can). But Krugman et al. were hardly being fair when they jumped on a single number before.

  5. Gravatar of Neal Neal
    3. May 2013 at 05:29

    168,000/mo for the first quarter of this year and 209,000/mo for last quarter of last year: http://www.nytimes.com/2013/05/04/business/economy/us-adds-165000-jobs-in-april.html?_r=0

  6. Gravatar of Paul Andrews Paul Andrews
    3. May 2013 at 05:34

    The tendency of Monetarists and Keynesians to run victory laps at the drop of a hat indicates that both camps have extreme confirmation bias.

  7. Gravatar of Laurent Laurent
    3. May 2013 at 05:48

    “Employment in other major industries, including mining and logging,
    wholesale trade, transportation and warehousing, financial activities,
    and government, showed little change over the month.”

    US governments, as a whole, were not a direct drag on employment. That’s a lot better than in previous years, when state and local govs were reducing employment.

    In some sense, this does fit in the Keynesian picture (which does not make Prof Sumner’s point invalid, of course).

  8. Gravatar of Scott Scott
    3. May 2013 at 05:55

    I might suggest holding off on the victory lap for just squeaking above the population growth requirements in growth of jobs. The February number was above 300k in the revision. Give me two more months (don’t have to be consecutive) of that kind of growth, and then I think you can take your victory laps. Neither case is very well proven at this point.

  9. Gravatar of Gene Callahan Gene Callahan
    3. May 2013 at 06:16

    If all other facts about the world had been held constant, this report certainly would be cause for this claim.

  10. Gravatar of Suvy Suvy
    3. May 2013 at 06:19

    Where is the fiscal austerity from state and local governments in your calculations? If I’m correct, state and local governments aren’t undergoing the kind of austerity that they have been for the past few years. I’d also add that state and local governments probably spend a lot more money on capital spending than the federal government(which is mostly consumption) and capital spending has a much higher multiplier as well–which isn’t factored into your calculations.

    Also, the federal level cuts that we saw were tiny($150-200 billion on the high end). The total federal level cuts amounted to less than 1.5% of GDP while the Fed prints that same amount every 2 months.

  11. Gravatar of Suvy Suvy
    3. May 2013 at 06:20

    By the way, how are we even able to distinguish the noise from the signal when the cuts passed are only a few months old? You can’t use 2 months of data to prove your point when the error in these studies is large enough to turn the argument from one direction or the other. That’s statistics 101.

  12. Gravatar of Pemakin Pemakin
    3. May 2013 at 06:22

    While I completely agree with Scott, let me channel Delong and Krugman for fun:

    “Sequestration is a unique form of austerity in that government agencies, defence contractors etc. act as if its temporary and therefore often use furloughs rather than terminations to cut costs. Employment isn’t hurt directly even as AD is (a bit). Employees expect it also to be temporary so don’t adjust their consumption down much. However, this will get worse as both groups come to realize that its going to be there for a long time.”

  13. Gravatar of ssumner ssumner
    3. May 2013 at 06:39

    John, It’s not too soon to point out that the tax increases enacted at the end of 2012 did not slow jobs growth. I agree it’s too soon to know how the sequester will affect growth. I expect Q2 to be a bit slower.

    Neal, You said;

    “168,000/mo for the first quarter of this year and 209,000/mo for last quarter of last year:”

    Nope, 204,000/month in the first quarter. I am also amused to see the same people who complained QE3 had “failed” because 2012:4 was so weak, now claim fiscal austerity hurts because growth has slowed from the red hot pace of 2012:4

    Scott, You said;

    “Give me two more months (don’t have to be consecutive) of that kind of growth, and then I think you can take your victory laps. Neither case is very well proven at this point.”

    Would you agree that if jobs growth over the next two months is very weak, I will still have been right for the first 6 months, and the Keynesians will have been wrong? If not, why not? I predicted 2013 would look roughly like 2012, and they said RGDP growth would slow by 1.5% to 2.0%.

    Suvy, You said;

    “The total federal level cuts amounted to less than 1.5% of GDP while the Fed prints that same amount every 2 months.”

    Isn’t that exactly my point?

    And we are talking about the tax increases here, not the sequester.

    Pemakin, The key is not what they might say now, but rather what were people saying at the beginning of the year? Remember all the predictions of 1.5% to 2.0% less RGDP growth? Does that mean RGDP will grow by 0.0% to 0.5% this year?

  14. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 06:43

    Look I hope we can average 196,000 all year. It still doesn’t convince me that the sequester is good.

    The other day you wrote this:

    “Some have argued that fiscal austerity is slowing the recovery. Indeed the Fed has argued that fiscal austerity is slowing the recovery. And that’s because fiscal austerity is slowing the recovery. RGDP growth in Q2 will likely be lower than if the sequester had not taken effect. So why do I keep prattling on about ”zero fiscal multiplier?”

    http://www.themoneyillusion.com/?p=20971

    Do you now believe you were mistaken?

    I also see your now claiming that the U.S. did more austerity than Europe

    “the US is doing more fiscal austerity that Europe”

    http://www.themoneyillusion.com/?p=21008&cpage=1#comment-245756

    What is the basis for that claim?

  15. Gravatar of marcus nunes marcus nunes
    3. May 2013 at 07:27

    As Ryan Avent aptly called it: “Steady Path to Disappointment”:
    http://thefaintofheart.wordpress.com/2013/05/03/the-other-mandate-needs-looking-after/

  16. Gravatar of Vivian Darkbloom Vivian Darkbloom
    3. May 2013 at 07:43

    I’d bet that monetary policy has had a significant effect on the improving jobs situation; however, I wonder what the effect of fiscal policy has been with respect to the following:

    1) the reduction to 73 weeks from 99 as the maximum duration for unemployment benefits effective in early 2012; 2) the effect of the sequestration reducing the unemployment benefit check amounts for remaining federal benefits which took effect March 1, 2003; 3) the fact that under our overly-complex federal unemployment benefit rules, the maximum duration of benefits is generally tied to the unemployment rate in a particular state–as the unemployment falls in a state (for whatever reason) so generally does the maximum duration for federally-funded extended benefits; and 4) the proposed increase in the minimum wage appears to now be dead in Congress.

    Additional time may give us a better view of whether this supports the view that fiscal policy (of a particular sort) can have beneficial employment consequences and whether incentives do matter.

  17. Gravatar of TallDave TallDave
    3. May 2013 at 07:55

    I thought it was very interesting that Obama responded to the sequester (a $43B cut in a $3.8T budget, basically a rounding error) by refusing additional authority to cut spending appropriately and instead trying to make the cuts as painful as possible.

    Why is this particularly interesting? Because this is the real-life occurrence of what Krugman and DeLong constantly accuse Republicans of doing.

    This ins’t like the policy disputes where K/DL accuse people they disagree with of being dishonorable merely on the basis of disagreeing with their exalted Krugtronic wisdom. In this case Obama is deliberately damaging the economy in hopes the GOP will be blamed. I don’t think anyone can even deny that’s the case.

  18. Gravatar of Doug M Doug M
    3. May 2013 at 07:57

    People are having a tough time comming to terms with the “new normal.”

    The recession is over. The economy is expanding. It has been over for a while now. We have added 2 million jobs in the last year. But, it still feels depressed.

    This is it. These are the good times. The times for “extrodinary measures” to stimulate the economy have passed.

    Yah, I don’t feel like throwing any parties, either.

  19. Gravatar of Mike Sax Mike Sax
    3. May 2013 at 08:12

    Doug I’m very skeptical about such “pessimism”-what reason do we have to believe that there’s no slack left in the economy and that 7.5% is the “natural rate of umeployment?”

    People who are oppposed to stimulus love the structural argument.

    As to today’s numbers unless you believe they would be worse today if we hadn’t had the sequester-which nobody believes-why the victory lap?

    http://diaryofarepublicanhater.blogspot.com/2013/05/dow-crosses-15000-for-first-time-with.html

  20. Gravatar of ssumner ssumner
    3. May 2013 at 08:16

    Mike Sax, No, I don’t think I was mistaken. I’d suggest re-reading the earlier post, I think you missed the entire point.

    Vivian, Those are good points. They helped at the margin.

    TallDave, Good point.

    Doug, No. the recession is far from over.

  21. Gravatar of Ashok Rao Ashok Rao
    3. May 2013 at 09:36

    Scott, I know many anti-austerians have done the same, but this isn’t an argument. You’d have to measure jobs now against the counterfactual. Just to say “jobs growth has accelerated” isn’t enough. The acceleration might have slowed down, but we can’t know that.

    TallDave, you get that if anything Obama will be blamed for vis-a-vis the sequester it’s not the “jobs” or “multiplier” effect of the cut, but the actual goods and services we’ve surrendered? Obviously, the second the going got rough for our pampered Congressmen they quickly fixed the airports.

    Both Obama and the Republicans SHOULD be getting their ass roasted for the poor who aren’t getting food, shelter, vaccinations, and immediate medical care. And even if you think the market does this stuff better, it needs time to react and the sequester should have been anticipated. It wasn’t.

    Anyone who thinks that the problem with the sequester was the magnitude of spending cuts is wrong (Keynesians to blame, too). It’s the really important services for the poor that are getting cut. Of course, we learned for a fact how self-interested Congressmen are about getting home for dinner on time. They’ll go through hell to pass that.

    Which brings me to my next point. Instead of having Sequesters or whatever that hurt Americans, if Congress ever needs a “suicide” measure again, it should be a 100% levy on all their savings with a complimentary restraining order from their families. I bet you we’d have a “bipartisan” bill in no time.

    I seriously wish people would stop talking about the sequester wrt. Keynes or multipliers or what have you.

  22. Gravatar of jason11 jason11
    3. May 2013 at 09:40

    The Summner ‘monetary’ recovery of 196k/month blows. Youre not winning, were all losing.

  23. Gravatar of John Thacker John Thacker
    3. May 2013 at 10:59

    “You’d have to measure jobs now against the counterfactual.”

    The lack of counterfactuals that do anything other than simply beg the question (“Assume that the fiscal multiplier was high. Therefore, the tax increases and sequester lowered GDP by 1.5%”) or make heavily debated comparisons to other countries makes this difficult.

    “The Summner ‘monetary’ recovery of 196k/month blows. Youre not winning, were all losing.”

    OTOH, it’s no worse than the fiscal stimulus periods or the no tax increases nor spending cuts periods. Sure, it’s possible to argue that the counterfactual would be a sudden increase in jobs right now compared to 2009-2012, but it’s pretty difficult to demonstrate that.

  24. Gravatar of Doug M Doug M
    3. May 2013 at 11:06

    31 consecutive months of employment gains. That is unusual. The recovery is well underway. We are likley closer to the next recession than we are distant from the last one.

  25. Gravatar of TallDave TallDave
    3. May 2013 at 11:09

    Ashok — I don’t know if Obama will be blamed. Clearly he didn’t think so when he deliberately caused the reductions in goods and services by implementing the sequester more painfully than necessary.

    You do understand it was Obama causing the airport problems, not Congress?

    I don’t what this nonsense is about poor people not getting vaccinations because of the sequester. The other $3.8T in the budget can’t cover that? Really?

  26. Gravatar of Ashok Rao Ashok Rao
    3. May 2013 at 11:39

    “I don’t what this nonsense is about poor people not getting vaccinations because of the sequester. The other $3.8T in the budget can’t cover that? Really?”

    It can. Whole point of the Sequester was for it to suck. Unless you’re a congressman in which case there’s a work around. I think the airport problems should have stayed unfixed, actually. Obama should have vetoed that bill.

  27. Gravatar of ssumner ssumner
    3. May 2013 at 12:19

    Jason11, You said;

    “The Summner ‘monetary’ recovery of 196k/month blows. Youre not winning, were all losing.”

    I strongly agree.

  28. Gravatar of John Thacker John Thacker
    3. May 2013 at 16:24

    I don’t what this nonsense is about poor people not getting vaccinations because of the sequester.

    There’s a program in the federal budget that does vaccinations, and it was pointed to as a chief victim of the sequester. It received a budget cut, like everything else, with the sequester. However, an interesting fact (which Rep. Andy Harris of Maryland brought up in the hearing with the CDC chief) is that the post-sequester budget was actually larger than the Obama Administration budget request for the program for the fiscal year.

    The sequester is a cut against the FY2012 budget carried forward into 2013, whereas the Obama Administration made a separate FY2013 budget proposal that moved funds around more than simply carrying everything over. Hence how that could happen.

    The Obama Administration was left in the strange position of arguing that cutting funds from 2012 to 2013 by a smaller amount than they requested was harmful and prevented vaccinations, even though they had called for an even larger budget cut.

    Whole point of the Sequester was for it to suck.

    The whole point of the sequester was for it to suck, so that it would be replaced by a smarter way to lower the deficit. Bills that allow agencies like the FAA to move funds from less useful to more useful places are upholding the spirit of the sequester agreement. It was never the point to simply have pain.

    Incidentally, the same budget issue occurred here. The Administration FY2013 budget request for the FAA was lower than what the FAA is getting post-sequester.

  29. Gravatar of TallDave TallDave
    3. May 2013 at 18:02

    John — thanks, I think I heard that story a while back.

    Anyways, regardless of whether the sequester was a good idea, I just thought it was interesting that Obama is openly doing what Krugman and DeLong have been long accused the GOP of secretly doing: deliberately sabotaging the economy for political gain.

  30. Gravatar of Saturos Saturos
    4. May 2013 at 00:05

    Hold on – why can’t Keynesians just say that austerity was offset by the natural eventual recovery, rather than monetary policy?

    And I’m a MMer, but I kind of think Paul Andrews has a point.

  31. Gravatar of Mike Sax Mike Sax
    4. May 2013 at 03:31

    Thankityou Saturos. As usual your the voice of reason. Actually for me I could buy that QE Infinity may have partly offset fiscal contraction.

    However, unless you can convince me that we would have fewer jobs created yesterday without the sequester why do Keynesians have to concede anything?

    I’m happy about the numbers-unlike Republicans I don’t cheer bad news for a partisan agenda. But I think to declare total victory is a little rash

  32. Gravatar of ssumner ssumner
    4. May 2013 at 05:46

    Saturos, You said;

    “Why can’t Keynesians just say that austerity was offset by the natural eventual recovery”

    1. Too late, they are already on record with RGDP predictions.
    2. That makes the model devoid of all explanatory power. Literally anything that happens could be explained away.

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