This is a meta-analysis of my blogging.
Adverse economic shocks seem to be distributed somewhat randomly. A priori, you’d expect them to occasionally occur in close proximity, especially if one problem might help trigger another. When we have the bad luck of seeing two or three big adverse shocks back to back, we can get a major economic disaster.
My research on the Great Depression convinced me that it was two depressions, occurring one right after the other. A demand-side recession that began around September 1929, and a supply-side depression that began in July 21, 1933 (with another demand shock in late 1937.) Because they occurred back-to-back, most saw them as one “Great” Depression, and looked for explanations of what caused “the” Great Depression. No mono-causal theory has proved plausible.
I thought of this recently because of my posts arguing the housing vacancy “problem” is actually two problems, or maybe three. First, we built too many houses in 2002-06, perhaps due to bad regulation, or maybe bad private sector decisions. Two other factors increased house prices; low interest rates caused by the tech crash (not easy money), and rapid immigration. Those two reasons are “good” reasons for a housing boom. So the housing boom was not good or bad, but partly good and partly bad.
The vacancy problem is also multifaceted. Partly it was the bursting of the housing bubble. Partly it was the slowdown in immigration. And a big part was the huge drop in NGDP relative to trend, which drove unemployment much higher for young first-time home buyers.
And then I realized that my other blogging has a similar pattern. The financial crisis was really two crises. The first was caused by lots of foolish sub-prime lending, and led to a bailout of Bear Stearns. The second was caused by a sharp fall in NGDP after June 2009 [Update: I meant 2008], and led to the failure of Lehman.
The recession itself is complex. The initial part of the recession (after December 2007) was caused by both a drop in housing construction, and a drop in auto output as a result of soaring gas prices. It caused RGDP to be flat in the first half of 2009. Then a completely different problem occurred in late 2008, when tight money drove NGDP and RGDP much lower. Even the recovery is complex, with the slow recovery being mostly attributable to weak NGDP growth, but also to unusually pronounced wage rigidity triggered by 99 week UI and a 40% minimum wage rise.
So that’s my shtick.
When I read others I often see what looks to me like overly simplistic views of these problems; “the” Great Depression, “the” financial crisis, “the” housing glut, “the” Great Recession, etc., etc. But here’s the great irony. I think others see me as the guy with the one-size-fits-all mono-causal explanation for everything. Mr. NGDP. Here’s Tyler Cowen, expressing what I think is the prevailing view of my blog:
I believe that the prominence and persistence of “demand-only” theorists in the blogosphere (DeLong, Krugman, Sumner, and others) give blog readers quite a skewed picture of the actual debate.
I see supply-side labor market problems as being a bit more important in this recession than Krugman and DeLong. But on the other hand my view of the cause of the drop in NGDP is probably much more focused on monetary policy, whereas they’d give more weight to financial distress, fiscal policy, etc. That’s what makes me seem so mono-causal, I view monetary policy as being “the” determinant of NGDP growth, more so than almost anyone else.
BTW, when I said that I often see others as offering mono-causal explanations for big problems, I’m excluding most of the best bloggers—especially Tyler Cowen, who is quite open to multiple perspectives.
Part 2: Immigration
Speaking of multiple problems, Adam Ozimek sent me a post and an article where he discusses how immigration could improve the job market, and indicated Matt Yglesias had done similar posts. Last year I argued that the immigration crackdown in 2007 might have contributed to the housing slump, but didn’t have much to say about policy implications.
I don’t think it’s realistic to have housing needs drive our immigration policy, but I agree with Ozimek and Yglesias that more immigration would help. My general view of immigration is that it’s a good thing; indeed I agree with Will Wilkinson that it’s the best anti-poverty program out there. (It’s ironic that the 1965 immigration bill isn’t usually considered part of LBJ’s “War on Poverty,” given that it was just about the only part of the war that was highly effective, maybe more so than all the rest combined.)
FWIW, I’d recommend increasing immigration enough to raise our population growth rate to Australian levels (2% per year), and I’d diversify to match the world’s population distribution. That means more Africans and especially Asians, and fewer Mexicans. I have nothing against Mexicans, and indeed personally I’d benefit more from half of our immigrants coming from Mexico, than a huge upsurge from Asia. I’ll retire in LA where low-cost Mexican labor raises living standards for upper-middle class people like me. In contrast, at the recent AEA meetings most of the job candidates we interviewed were Asians. So they compete with US-born econ professors.
I see two advantages to diversifying immigration:
a. There will be more political support as it will be seen as fairer–less focused on groups that directly compete with America’s unskilled workers.
b. It will create more cultural diversity. Many conservatives worry about a dual culture (Anglo/Latino) creating friction, and eroding America’s traditional culture. Many Asians (and some Africans) get well-paying professional jobs, and blend into American culture pretty well. I’m not saying Latinos don’t eventually do so, but the large concentration of Mexican immigrants in certain areas frightens cultural conservatives.
If we are to have a big increase in immigration we’ll have to deal with the opposition of low wage workers and cultural conservatives, and this is one way.