Brad Delong, in denouncing unexciting alternatives, promotes the same unexciting alternatives...

Brad posts about the Obama administration's apparent lack of exciting ideas. 

In it, he promotes 4 ways the administration could have (could still) improved employment:

1. Expansionary fiscal policy: convince congress to appropriate more money and borrow-and-spend.
2. Expansionary monetary policy: staff up the Federal Reserve with governors who believed that large-scale quantitative easing and inflation, price level, and nominal GDP targeting were worth attempting.
3. Use the TARP and the Treasury's powers to offer bank guarantees to engage in large-scale quantitative easing by the executive branch.
4. Focus on putting into place long-run policies to balance the federal budget, and hope that their passage induces the confidence fairy to show up.

Maybe I'm daft, but didn't the Bush and Obama (combined) administrations do all 4 already?  They did the fiscal policy (ARRA), the Fed has been aggressively using non-traditional monetary tools, they already have been supporting banks and given bank profits recently I don't think bank lending is the crux of the problem anymore anyway, and hasn't Obama already touted his long-run sense of balance?

Delong offers up no exciting alternatives - he's no different than Obama.  

I may disagree with them, but you can't deny some post-Keynesian's alternative of direct government hiring of unemployed persons - it's an exciting idea.   What about mandating a temporary national wage re-structuring to try and get the invisible hand working again?  What about taking the money out of China that they stole from the US through their deceptive currency policies?   What about taking the unused ARRA / TARP monies and using it to fund appropriate (re)education programs to help with some of the potential structural unemployment potentially underlying our present problem.   

I don't necessarily support all the above ideas - in fact, some of them may be bad ideas - but they are different - they are exciting.   Obama, Delong, Krugman - they all just want the same old kindergarten Keynesian spending.  And while I may have even been somewhat sympathetic to that in the past, I've learned since this recession, that the government not only shouldn't but literally CAN'T simply rely on the Keynesian multiplier to lead us out of the depths - our government simply isn't set up to do that correctly.  It is too beholden to interests and lobbyists, it is too inefficient, it is too slow....

Is Education the Key?

Hunter Richards recently asked me to comment on an article post entitled "Technology, Unemployment and Our Children's Future" on the blog Software Advice of which he is a contributor.  I actually find the site interesting for reasons completely unrelated with my econ-geekiness, and that is my Microsoft Dynamics CRM-geekiness, which they post often about. This particular post though enters a bit more into the philosophical / subjective realm of macroeconomics.

The main point of the blog article is that, technology is growing - and the demand for it will continue to grow.  IE, our national economy is now entirely led by changes in technology and new discovery, and unless we fix our educational system to match that demand for highly skilled technological knowledge, we will continue to flounder well below our potential.

I agree entirely.  Education systems are not a problem.  They are the problem.  Health care issues are spit-drops into an empty bucket - education is the water that is missing.   Other more eastern countries (China comes to mind) take education, particularly in math and science, more seriously.  They go to school many more days out of the year than we in the US do.  Many eastern children are, arguably, more strictly coached on its importance, than we are.

Economists debate the degree to which structural unemployment vs. cyclical unemployment is the real problem in our present economic climate.  I've posted before that I believe it to be a good degree of both - and research seems to be bearing that out.  But to the degree that it is more than just weak demand that is at fault, to the degree that we are undergoing a significant structural realignment away from low-skilled manufacturing and construction to high-tech manufacturing, life-science, etc., then we are going to need to re-design our educational system as well to meet these needs.

Some states, like my own perhaps, already sees this need.  Our Governor in the State of Indiana, Mitch Daniels, is making it his number one priority before he leaves office, saying in part at the recent State of the State address:

"Already, I have ordered our Board of Education to peel away unnecessary requirements that consume time and money without really contributing to learning. We are asking this Assembly to repeal other mandates that, whatever their good intentions, ought to be left to local control. I am a supporter of organ donation, and cancer awareness, and preventing mosquito-borne disease, but if a local superintendent or school board thinks time spent on these mandated courses interferes with the teaching of math, or English, or science, it should be their right to eliminate them from a crowded school day."

But individual states can only do so much.  In a nation polarized by ideology, focused on health care issues, green issues, retirement issues, education often gets left behind - along with the children of the US.

I don't necessarily agree with every causal link made in Mr. Richards article - correlation does not equal causation.  For example, I don't believe corporate profits are a 1:1 byproduct of technological growth / productivity growth.  For my money we have other worrying concerns about the formation of demand-led bubbles and the state of our financial system (along with our education system) which we need to also focus on to help address some of the disparities of income distribution in this country.   But, I do believe education is the single most important, most ignored issue facing the United States in this global economy, and one that, if President Obama continues to push off as a lower priority, I feel may not improve our chances against our emerging global competitors.

We don't have to be like China - we don't have to be a nation of cold-hearted 'tiger moms' whose children commit suicide because of all the drilling and lack of having a real life - but we do need to find a better balance - and we need to get our priorities straight.

Strange Comment from the AP about Unemployment % Calculation

I was reading along about the recent reduction in unemployment to 9.4% (which one must take with a grain of salt due to the holidays).

And then I get to this:

Another key reason for the drop in the December unemployment rate was that the government no longer counts people as unemployed when they stop looking for work.

Maybe I'm missing something, but that is not anything new.  The government has always (or at least as long as I've been alive), excluded those people who weren't looking for a job from unemployment calculations.

???

UPDATE:
On the power of words.....
I read the article as if there was some technical BLS change.  As it happens, and as I reread this 10 times to figure out what was going on, it appears they meant :

"Another key reason for the drop in the December unemployment rate was that the government stops counting no longer counts people as unemployed when they stop looking for work."

The original wording, while technically correct I suppose when read the way they meant, could easily be misinterpreted to mean the government has changed its methodology.  As I've read user comments regarding this widely distributed article, it seems I'm not the only one who misread this.  That's unfortunate because I think that futher erodes economic education of the masses.

Or, maybe it's just me and I'm having a bad day at reading comprehension ;)

UPDATE 2:
Somewhat to my shock, MSNBC has quickly responded to my inquiry and has agreed the wording is "awkward."  They have since changed to :

"However, the drop in the unemployment rate for December can partly be explained by a drop in the number of people considered to be in the labor force. That could be because some people gave up on finding a job. A person is no longer counted as unemployed if they are no longer looking for work."

That's one news organization---but that language was copied widely (which is what made me think it was AP).  Kudos to MSNBC though for that, and for the great reader service.

A reason for sticky prices

Menu costs, yadadada.  I've always thought that was a rather weak explanation for sticky prices.  I think a better one, and one that I don't think has been researched much (anyone know of anything?) is the private industry decision to cut product size and keep price roughly the same.

How many of you, when you go grocery shopping, check the prices of the things you buy?  I bet about 100% of you 100% of the time.  How many of you, on those same trips to the store, check the size/volume of the things you buy?  I bet roughly none of you.  I know I don't usually unless it's glaring.  

All a company has to do is reshape a plastic mold here or resize a box there and voila, instant  volume reduction.  And due to the asymmetric information whereby the company knows what is changed and the consumer doesn't, huge inefficiencies are created - goods are purchased out of habit and the reduction in the amount of product for the same price is missed by the consumer.  All this affords a company to gain roughly the same amount of revenue at a lower cost of production - which is great in down economic times.

Dream Turns into a Nightmare

Obama's Dream Act would have been a good one - and something that makes sense economically to provide an incentive for the youngest and smartest of the immigrants to this country to want to remain in this country and aid in its growth.  Instead, Republicans wanted to remain ideologues and politicians as is their norm.

More on Deirdre McCloskey and thinking about economics (without equations)

I've taken to reading her book, "How to be Human *Though an Economist."
It's amazing, and I find myself agreeing with much of her sentiment.  In the book she offers up a letter she wrote to a graduate student that was quickly becoming disillusioned with the profession.   McCloskey's basic answer is to 'buck up and bare it, and then when you graduate, change the profession.'

I've been thinking on this.  Given the economics (mainstream) profession is in complete disarray and destined for futility in its general form, which sadly I think it is, how can we change this - how can we alter its future?


The fact that there might not be an answer scares me.  The fact that there might not be an answer is why I haven't and don't intend to pursue a Phd. in Economics.  McCloskey doesn't have the answer - she has the hope, but not the answer.

Consider:
let's say I, or some disillusioned grad student, make it through Phd dissertations etc. and become a full-time faculty-tenure-track economist.  That is not the answer.  Because now, with few exception, my bosses are 'let's run this equation to fix the world despite not knowing what the world is about'-style economists.   The vast majority of schools around the world, and particularly in the US have this problem.  Coupled with academia's 'boy's club' way of being able to publish research - this does not lend itself to true, useful, meaningful, what McCloskey would call "ethical" scientific analysis.

So, the individual person can't change the profession - the barriers to change are too great.  The institutions themselves are unlikely to change.  Why?  One, again since its all one big boy's club, it's best to not rock the boat.  But more importantly, economics has become largely invaded by ideologues who form opinions first and then conduct analysis regardless of the real world.  Part of that ideology is to 'support' the business class no matter the theory.  It's a simple equation really.  unethical, pandering economic analysis today + money and other non-pecuniary support from the business elite = unethical, pandering economic analysis tomorrow.

So, you may ask if individual students, professors and institutions can't change economics, perhaps the business community can?  But why?  Quid pro quo Clarisse.

Who then, what then, is left?

The government?  Doubtful.  The lay-person?  Hardly.

I fear my friends we are in a catch-22.  I can't see the light.  More importantly, I can't see a WAY to find the light.

I invite your opinions - and if you are of the opinion that the mainstream economics profession is on sound solid ground - then I'm afraid you are delusional.

Amen Deirdre McCloskey

Interview from "National Review"

"In college you got the claim that Greed is Good, and anyway people are Max U sociopaths, regardless of what all the scientific evidence gathered on the point says to the contrary. I would advise them, of course, to read my book How to Be Human*: *Though an Economist, which is advice to young economists about maintaining morale and integrity — and getting the scientific task done while retaining common sense. Beyond that, Educate thyself. Read widely, having acquired somewhere a deep knowledge of an economics of some sort. We have enough amoral idiot savants in the study of the economy. We need some fully educated humans. We need a humanomics, not more freakonomics."