Brad DeLong seems to think he’s Nostradamus
Jim Glass sent me this Brad DeLong post from June 2008:
Unemployment Benefit Extension Blogging; Why Does George W. Bush Hate John McCain?
. . .
Calculated Risk writes:
Calculated Risk: Unemployment Benefits Extended: An extension of unemployment benefits for 13 weeks was included in the war funding bill signed by President Bush today. This extension covers workers who used all their unemployment benefits between November 2006 and March 2009…
The rule of thumb, IIRC, is that the average duration of an unemployment spell increases by 1/4 of the increase in the duration of unemployment benefits. Thus a 13-week increase in unemployment insurance duration should increase the average unemployment spell by 3 weeks. With current mean unemployment spell duration at 17 weeks, and with roughly 2/3 of the unemployed eligible for UI, this would produce a 3/17 * 2/3 * 5.5% = 0.6% increase in the measured unemployment rate.
It seems to me likely that-whatever happens to the economy-George W. Bush has just produced four bad unemployment-rate headlines on the Saturdays August 2, September 6, and October 4. This cannot be news that John McCain is happy to hear.
Give me a break! DeLong acts like it’s possible to forecast the unemployment rate down to the last tenth of a percent, based solely on the change in the UI program. Even worse, there seems to be a sort “blame the victim” subtext lurking in the background. I get uncomfortable when people start talking about unemployment as a sort of paid vacation.
So I googled a WSJ article from October 4, 2008, just so I could show my readers what a phony Brad Delong is.
BySUDEEP REDDY in Washington,KRIS MAHER in Pittsburgh andILAN BRAT in Chicago
Updated Oct. 4, 2008 12:01 a.m. ET
U.S. employers shed jobs last month at the fastest pace in five years, as weakness in the job market spread from the ailing manufacturing industry into services and even the public sector.
Nonfarm payrolls declined 159,000 in September, more than double the average pace throughout the year, the Labor Department reported. The unemployment rate, based on a separate survey of households, held at 6.1% after a sharp increase in August.
Oops . . .
PS. For years I’ve been saying about 0.5% of the roughly 5.0% jump in unemployment was due to extended UI (albeit by much more than 13 weeks by 2009.)
*********Attention courtesy enforcers! Everything in this post is meant as a joke. Every period and comma is supposed to be hilarious.**********
Even the disclaimer!!!
PPS. I just saw this in the WaPo, which is funnier than anything in this post:
In addition to partially replacing the sequester, the deal calls for another $25 billion in deficit reduction by extending a small part of the sequester into 2022 and 2023. That shift would primarily affect Medicare providers.
Thank God they are addressing the long run fiscal crisis!
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10. December 2013 at 15:02
“…just so I could show my readers what a phony Brad Delong is.”
Quick, somebody tweet this. Scott just called Brad DeLong a phony.
10. December 2013 at 15:07
Yikes! I forget that twitter takes things out of context.
10. December 2013 at 15:17
You two are like the Abbott and Costello of the 21st century American economics blogosphere.
10. December 2013 at 15:29
Scott,
To your pretty good joke I’d like to add the one just played by the Paul Ryan and Patty Murray. They are celebrating a budget agreement that adds $40 billion to discretionary spending. They claim this increase is “paid” for by new taxes on people who can supposedly pay them without noticing and spending cuts on programs used by people who supposedly will not notice.
I have one question: Why do they care about offsetting any spending increases? Does it really matter whether the budget deficit is $600 billion or $640 billion?
Politicians are funny.
10. December 2013 at 17:02
Thanks Brian.
Dan, I added an update.
10. December 2013 at 17:10
On CNBC, Larry Kudlow just hosted a fascinating debate where Alan Greenspan defended his monetary policy of 2002 to 2006 in a face-to-face debate with John Taylor.
I imagine there will be a lot of (mostly-uninformed) commentary about it…..
10. December 2013 at 19:15
TravisV,
My understanding of Greenspan’s ethos (of free markets) is that everyone is mostly uninformed about the world in which he lives and that this is what makes it work! As explained by Joseph Stiglitz at Econlib.org:
“A much better approach, wrote Hayek, is to assume the world we have, one in which everyone has only a little information. The great virtue of free markets, he wrote, is that they allow each person to efficiently use his own information, and do not require that anyone have all the information. In this sense, Hayek noted, government planning requires the impossible””that a small body of officials have all this information.”
The funny thing about Greenspan is not that he was wrong about free markets. It is that he forgets his own violation of them! In 1998 the Fed Bank of New York intervened to bail out LTCM after the firm rejected a low ball offer from Warren Buffet. So why would Greenspan be surprised that money managers would take away from that experience the lesson that they could assume great risks, like LTCM, pocket great profits, like LTCM, and then get bailed out by the Federal Reserve, like LTCM? And you know what? The money managers not only made the right assumption but the survivors got an even better bailout than did LTCM!
10. December 2013 at 20:03
“Watching krugman try to marginalize sumner by promoting bartlett barro et al is his intellectual white flag.”
https://twitter.com/morganwarstler/status/410594727507943424
Right on, Morgan Warstler!
11. December 2013 at 01:44
Sorry for being somewhat off-topic, but this does relate to a number of things normally discussed here.
On Britain’s “austerity”, as reported in the NYT:
“The strength of the recovery probably owes something to the fact that fiscal tightening almost stopped this year and last,” said Simon Wren-Lewis, a professor of economics at Oxford University. The Office for Budget Responsibility calculated that the amount by which the government overspent its revenue “” its primary deficit “” hardly fell over the past two years when adjusted for the economic cycle.
The recovery has come about, in other words, “partly because austerity was put on hold,” Mr. Wren-Lewis said.
http://www.nytimes.com/2013/12/11/world/europe/vindication-of-sorts-for-austerity-in-britain.html/?ref=international-home
So, the key to economic recovery is to continue “austerity”, but at a reduced pace. What kind of argument is that for proponents of fiscal stimulus?
And, not a word about monetary policy in the entire piece.
11. December 2013 at 05:22
Vivian, Yes and when they were claiming austerity is the problem in 2011 and 2012 they said don’t look at the budget deficit (which was massive at the time.) Now they say look at the budget deficit? I’m suspicious of that claim, although I’d have to see all the evidence.
We’ve seen in the US this year that even massive changes in the deficit have almost no impact on growth. What does Mr. Wren-Lewis say about that?
11. December 2013 at 05:29
Why not engage in some actual, bona fide DeLong bashing?
For instance, take this post from equitablog trying to rebut David Beckworth:
“What David Beckworth misses is that if quantitative easing is used to fund expansionary fiscal policy-if the government buys not long-term Treasury bonds but, rather, bridges and NIH research and the human capital of twelve-year olds-then those asset purchases are going to be permanent: you cannot unwind those transactions. Hence, by Beckworth’s logic, that policy will be effective.”
http://equitablegrowth.org/2013/12/09/1123/why-i-am-more-optimistic-about-money-financed-expansionary-fiscal-policy-than-about-quantative-easing
Isn’t this obviously wrong? The Fed doesn’t need to sell any specific assets in order to contract the economy. It has more than enough assets in its portfolio do offset the expansionary effect of any money spend on bridges, research, or education.
Delong concludes:
“As I see it, some economists are dubious about quantitative easing but enthusiastic about expansionary fiscal policy. Others believe that expansionary fiscal policy is vulnerable to various forms of crowding-out but see quantitative easing as a magic bullet. Few are pessimistic about both. So why not do both? The good part does good, and the not-good part does little harm in both conceptual universes. And doing both is a monetary expansion-financed fiscal stimulus…”
How does someone as smart as Brad Delong not see that fiscal stimulus is neither necessary nor sufficient to increase nominal spending in the economy, and that monetary expansion is both necessary and sufficient to increase nominal spending? Hasn’t 2013 conclusively shown that even when interest rates are zero, the Fed is still offsetting contractionary fiscal policy?
11. December 2013 at 05:37
I suppose, to play the devil’s advocate and to be charitable to Wren-Lewis, he may be arguing that *past* ‘austerity” reduced GDP and hence the baseline for calculating *future* UK growth. In other words, when you put the brakes on hard, the car slows down significantly, and when you let up on the brakes somewhat, the car gains speed. The only thing missing is: what about the gas? Does a car accelerate after you brake hard if you don’t give it gas? If the gas is not fiscal stimulus, it must be something else.
One of the difficulties I have about economics generally and the whole fiscal “stimulus” versus “austerity” debate specifically, is that it is somewhat like a clock. One side or the other is going to be right, depending on what time of day it is.
11. December 2013 at 06:04
I don’t see the equivalence of purchasing a Treasury bond and a “bridge”.
Sure, you can always assume the bridge is a good infrastructure investment and if so, why not? We should make good investments whether in a recession or not.
But quite a few of those are “bridges to nowhere” (in which case we should all wish for an “unwind”). That’s experience and reality, especially with hurried projects heavily influenced by political considerations (AKA “political investments”).
On the other hand, is purchasing a Treasury bond by a more or less apolitical actor ever a bad investment in the same sense or the same degree as a “bridge to nowhere”? Is it subject to the same pernicious influence of politics to the same degree?
The issue is not “why not do both”, but “why not do the best”.
11. December 2013 at 06:22
@Vivian
But the question is not the different immediate impacts of the Fed “purchasing” a treasury bond vs “purchasing” a bridge. The question is whether one of those actions is necessarily permanent and the other is not.
My point (someone correct me if I’m wrong) is that it’s incorrect to claim that money-financed infrastructure spending (or research spending, or education spending) is necessarily permanent, because the fed could easily “buy” $1 trillion of bridges and hospitals today, sell off $1 trillion of its current portfolio tomorrow, and leave the US economy with exactly the same number of dollars in it. I maintain this is true even assuming (contra your point above) that there has been no waste involved in the infrastructure spending.
If the fed can offset the economic impact of its (or Congress’s) infrastructure spending, then DeLong’s argument fails.
11. December 2013 at 06:38
SG,
You may be right, but *my* point is simply whether one or the other is the better policy. You say “the question”, but I say there are many. In making such a policy choice, why limit yourself to one consideration? One of those relevant factors is the effect on future expectations, to be sure, but it is not the only one. DeLong himself seems to argue that beyond expectations, buying “stuff” would be superior to buying bonds. I disagree. Further to your point, while the Fed may be able to reverse the monetary effect of a helicopter drop through other measures, it can never reverse the effects of a bad investment.
11. December 2013 at 06:43
I should have written “offset” instead of “reverse” in the prior comment. I think the difference between the two is important conceptually and practically.
11. December 2013 at 09:30
The best way address the long term fiscal crisis is admit there is no crisis. The deficit is already down 60% from 2010 which is not advisable anyway during this slow recovery.
11. December 2013 at 13:34
The best way of solving the fiscal crisis is to monetize the current debt and then just stop having a government.In the same fashion the best way to stop customers from stealing merchandise from your retail store is to close it.
Any time we discuss complex preferences, it is very easy to forget that, along with what we say is our primary objective, there’s a bunch of other things that we don’t talk about and take for granted. Often, different people don’t share those hidden preferences, and what appears to be an easy discussion becomes a very real problem.
We have the same problem when we talk about how the government is too big. It’s easy to find people that agree with that statement, but would be unable to agree on cutting absolutely anything.
11. December 2013 at 18:57
Vivian, But when was this past British austerity? I don’t see it.
11. December 2013 at 20:53
OT: Noah Smith shows up right under you at the Atlantic.
http://www.theatlantic.com/business/archive/2013/12/the-most-important-economic-stories-of-2013-in-43-graphs/282193/
His most important graph of the year is from when 1 month treasuries lost 0.03% of their value for a week in October…..”Never Forget.”
12. December 2013 at 06:32
kebko, Interesting. I got my graph from David Beckworth, I wish they had credited him.
14. April 2017 at 03:32
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