Let’s consider the big picture

The Obama administration favors extending unemployment benefits from the normal 26 weeks to an “emergency” level of 73 weeks maximum.  You might wonder if that makes sense right now. After all, some bloggers are claiming that we no longer have a demand shortfall.  Ah, but you aren’t looking at the “big picture.”  Let Joe Biden explain why we need emergency level extended unemployment benefits right now:

Let’s step back and consider the big picture. When we took office, our country was in the throes of the worst recession since the Great Depression. Millions of people were losing their jobs, homes, and retirement savings. Many middle-class Americans who had worked hard all their lives feared they would never recover.

To reverse the spiral, we enacted the Recovery Act, made historic investments in clean energy and infrastructure, unlocked critical lending to small businesses, and cut taxes for average American families. We rescued the iconic American auto industry, which has created over 460,000 jobs since 2009. We cut our deficit by more than half as a share of the economy, the most rapid reduction since the end of World War II. We enacted Wall Street reforms to prevent another crash on Main Street and provided millions of Americans access to affordable and secure health insurance.

Thanks to your strong leadership, and because of the grit and determination of the American people, we are growing again, and our competitive edge is sharper than ever. Businesses are hiring at historic rates, with 52 consecutive months of net private sector job growth. Manufacturing is back, with 668,000 new jobs in the past 52 months. Exports have increased to record-breaking levels for four straight years, reaching $2.3 trillion in 2013. We have the world’s most skilled and productive workers, the strongest intellectual property laws, the most affordable and reliable energy supply, and the finest research institutions.

The world has taken notice. According to A.T. Kearney’s annual survey of global business leaders, in 2013 the United States overtook China, India, and Brazil to be the world’s single most attractive location for foreign investment, for the first time since 2001. In 2014, the United States was again named number one, this time by the widest margin ever recorded. In every sector, from heavy industry to advanced manufacturing to energy to information services, America is rated the best.

But as the United States becomes an ever-more attractive place to invest and expand operations, how will employers find the skilled workers they need to compete?

Yes indeed, how will they find those workers?

Wait a minute.  I apologize.  I provided the wrong quotation.  I was trying to link to the article explaining why we needed emergency extended unemployment benefits, and I actually linked to the article explaining why 6 years into his administration Obama’s jobs policies should be viewed as a smashing success.  My mistake.

PS.  Today’s announcement of 284,000 new unemployment claims is a shockingly low number. As a share of the population it is the lowest figure since the 1960s. The 4 week moving average (302,000) is roughly tied with April 2000 for the lowest figure in 45 years.  Next week’s figures could easily push the average below the April 2000 low.

So we have three data points:

1.  Employment/population ratio is horrible.

2.  Unemployment rate is mediocre.

3.  New claims figures are great.

I believe the unemployment rate (6.1%) is the most informative.  There is still some slack, but far less than in 2009.  Unemployment has been falling at a very steady 0.1% per month for a year and a half.  That will continue. Meanwhile, productivity numbers are horrible and likely to stay that way. As I’ve been saying, get used to 3% NGDP growth as the new normal, 1.2% real and 1.8% deflator. That means lower than normal interest rates as far as the eye can see.




13 Responses to “Let’s consider the big picture”

  1. Gravatar of Don Don
    24. July 2014 at 09:25

    Why is it that productivity trajectory has changed? Is it permanent or just a generational thing? Is it real or just a measurement thing? Are we moving toward “Atlas Shrugged” or “Idiocracy”?

  2. Gravatar of Doug M Doug M
    24. July 2014 at 10:41

    When we started with the extension to 99 weeks, it made a little bit of sense as there was a one time shock, and people were going to need more time to find a job.

    If you have been out of work 26+ weeks, you lost your job in a period of expanding job creation. This is no special situation. To extend befits today is to say that this is the new normal.

  3. Gravatar of joel w joel w
    24. July 2014 at 11:14

    Scott, when you say this “Meanwhile, productivity numbers are horrible and likely to stay that way” what are you basing that on?

    Whenever I look at productivity data it looks basically noisy and countercyclical at best. Why is it better to assume we got way more productive in 2010 than we are now, rather than just to assume measurement errors?

    I don’t think ZMP workers are the answer, even if they are apparently so in the short term. In the short-term, most companies can probably get by w/o a number of marginal workers by squeezing more out of their employees, but in the long-term that doesn’t hold because the squeezed employees will leave the company for something better.

  4. Gravatar of TravisV TravisV
    24. July 2014 at 11:42

    “get used to 3% NGDP growth as the new normal, 1.2% real and 1.8% deflator. That means lower than normal interest rates as far as the eye can see.”

    Great stuff, thanks! Remarkable that with NGDP growth expectations so low, the S&P 500 is at 1,988!

    This is the natural rate hypothesis in action……

  5. Gravatar of TravisV TravisV
    24. July 2014 at 11:55

    Interesting interview by David Andolfatto of Michael Woodford. Woodford is skeptical of QE.


  6. Gravatar of Brian Donohue Brian Donohue
    24. July 2014 at 14:49

    Well played Scott.

    What does Obama mean by this:

    “Rather than invest in working families getting ahead, they actually voted to give another massive tax cut to the wealthiest Americans.”

    I wanna like House Republicans, but is one-year of sorta grown-up fiscal policy enough?

  7. Gravatar of Don Geddis Don Geddis
    24. July 2014 at 15:27

    @TravisV: Woodford seems to only be comparing “conventional” monetary policy (doing OMOs to change the interest rate — which is subject to Krugman’s ZLB), vs. a kind of “QE” with the objective of purchasing risky assets (MBS, etc.) and “taking them out” of the economy. Woodford is skeptical that the Fed can adjust overall economic risk with such purchases.

    It’s a shame that he doesn’t seem to consider “unconventional” monetary policy which simply engages in the usual OMOs, but to expand the monetary base, not to change interest rates (and thus no ZLB).

    And then, again sad (and probably as a consequence of his “risk” framework instead of an MB framework), he strongly supports fiscal policy at the end. Oh well.

  8. Gravatar of Benjamin Cole Benjamin Cole
    24. July 2014 at 20:46

    The other number so large it has macroeconomic impact: The number of Americans collecting SSDI and VA “disability” benefits.

    There are 3.7 million vets and more than 8 million civilians collecting disability. (No, I am not dumping on vets injured in battle. That number is 200k at most). BTW, the average vet on disability was collecting more than $12k, and that was two years ago.

    Somehow, the gigantic disability population slips off the radar, while the 2.6 million Americans temporarily collecting unemployment is much-discussed.

    I think this is just economist ossification, but it might be PC thinking too. Vets are sacred, and left-wingers do not want to think SSDI houses a bunch of lazy freeloaders.

    There are huge pools of labor to be tapped in America. The pools are expandable.

    The Fed can put the pedal to the metal for a long, long time–and maybe even then it won’t matter much. America has a globalized supply side–can the marginally increased demand from one nation really cause global prices to spike?

    Shrinking “disability” programs could easily throw millions more back into the labor pool.

    Cut unemployment benefits too.

  9. Gravatar of B.B. B.B.
    25. July 2014 at 06:49

    The US has low labor market dynamism.

    From the JOLTS survey, the discharge rate is a record low. Challenger layoff announcements are very low. Initial jobless claims are very low.

    But the quit rate from the JOLTS survey is pretty low also.

    Finally, the hiring rate, after five years of “recovery,” is just getting up to the low point of the prior cycle.

    And the participation rate for those in the prime working years has seen essentially no recovery.

    Businesses are holding on to the labor they have. Workers are not leaving much voluntarily. And businesses are slow to hire. Low dynamism.

    Low dynamism helps explain both mediocre productivity growth and low wage growth.

    Low interest rates may have a role in boosting dynamism, but probably not much.

    The Fed may be able to boost inflation, but I doubt it can boost labor market dynamism. Unless inflation itself boosts dynamism, perhaps by reducing real wages.

  10. Gravatar of ssumner ssumner
    25. July 2014 at 07:12

    Don, I don’t know.

    Joel, I certainly don’t accept the ZMP worker hypothesis. The productivity slowdown has gone on long enough that I think it clearly is not just noise. And of course it’s worldwide.

    Brian, I can’t imagine why anyone would “wanna like House Republicans.”

    Ben, Yup, disability is part of the story. But no, more nominal spending will not get people off disability. They tend to stay on for life.

    BB, Good points.

  11. Gravatar of TravisV TravisV
    25. July 2014 at 08:05

    Jim Chanos on China (to Charlie Rose): “I’m still bearish four years later…….not much has changed except the credit bubble has gotten bigger……everything we talked about in 2010 is just basically doubled.”


    I disagree with Chanos and agree with David Glasner, who points out that a perpetual expansion of debt is very feasible……



  12. Gravatar of Kevin Erdmann Kevin Erdmann
    25. July 2014 at 18:34

    BB, a lot of that is demographic. Older workers, of which we have many, tend to have lower turnover. I estimate it’s enough to move something like the quits rate by at least a couple tenths.

  13. Gravatar of ssumner ssumner
    26. July 2014 at 07:37

    Travis, The China bears have been wrong for decades. Some day China will have a recession, and they’ll claim they were right all along. That’s what most annoys me about the China bears.

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