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September 30, 2010

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Latest Posts from Economist's View


"The Ghost of Full Employment"

Posted: 30 Sep 2010 01:26 AM PDT

Should the government guarantee a job for anyone who wants one?:

The Ghost of Full Employment, by Jefferson Cowie, TAP: After nearly two years of bad economic news,... the ... government's direct response to the jobs and poverty crisis has ... drawn only from the narrow menu of economic fundamentalism -- tax cuts and stimulus. Now that gross domestic product is positive, the unemployment problem is mostly considered "structural" -- a skills mismatch -- and thus beyond our capacity to solve.
Yet not that long ago, in the midst of another long-term economic meltdown, politicians dared to think beyond the idea that growth alone would solve all problems. National leaders, including mainstream politicians in both parties, went so far as to propose a federally mandated and legally enforceable right to a job for every American.
That's right -- the federal guarantee of a job.
Their premise? That people's livelihoods are too important to be left to market mechanisms. ... In 1974, when the United States faced another period of double-digit unemployment and global economic crisis,... Sen. Hubert Humphrey and Rep. Augustus Hawkins ..., teamed up to advance a seductive idea: national planning that wouldn't simply promote growth, support Wall Street, or prop up consumption but ensure a job for every person. ...
Humphrey and Hawkins looked to revive Franklin Roosevelt's famous Economic Bill of Rights, the core of which was, as FDR explained in 1944, "the right to a useful and remunerative job in the industries or shops or farms or mines of the nation." The aggressive Keynesianism of the Humphrey-Hawkins Act was simple in concept: Federal policy should promote full employment..., and if that failed, government would then be triggered as the employer of last resort. ...
To contemporary ears, the idea of a federally guaranteed job sounds like crazy talk...
Today, as a similar economic malaise haunts the land, we ... need ... spirit and imagination. Despite its failure to deliver much of anything, the Humphrey-Hawkins Act serves as a striking example of national leaders thinking boldly about the collective economic well-being of the citizenry. ...
President Barack Obama's failure is not on specific policy grounds; it is in his more significant inability to help the nation reimagine a constructive role for the state. ...
The boldness of the Humphrey-Hawkins Act remains a forgotten artifact of a bygone political era, buried deep in the ideological layers of the post-Reagan world. Perhaps it's time to dig it up and ask ourselves if ... we actually have the courage and imagination to govern ourselves.

I can imagine how to do this in a large, one-shot, New Deal kind of way in times where there is a substantial amount of idle labor, but it's harder to imagine how to design a job guarantee program that would operate on an ongoing basis.

Depression Economics Needs to Become a Regular Part Macroeconomics

Posted: 30 Sep 2010 12:42 AM PDT

I have a new post at MoneyWatch:

Depression Economics Needs to Become a Regular Part Macroeconomics: ... In recent decades, people studying short-run stabilization policy have focused mainly on how monetary policy can be used to fine tune the economy during relatively normal times. Fiscal policy and "depression economics" were not part of the mainstream research agenda.

But how to manage the economy during severe recessions and depressions -- a time when fiscal policy is generally a key component of the policy response -- needs to be an integral part of the research agenda in macroeconomics, and a larger part of the curriculum at the graduate and undergraduate levels. ...

But will that happen?

Federal Reserve Board Nominations Confirmed

Posted: 30 Sep 2010 12:33 AM PDT

Brad DeLong reports:

Finally..., by Brad DeLong: At least one year late and many dollars short:

Nominations Confirmed: September 29: These nominees were confirmed by Voice Vote:

Sarah Bloom Raskin, of Maryland, to be a Member of the Board of Governors of the Federal Reserve System for the unexpired term of fourteen years from February 1, 2002

Janet L. Yellen, of California, to be a Member of the Board of Governors of the Federal Reserve System for a term of fourteen years from February 1, 2010

Janet L. Yellen, of California, to be Vice Chairman of the Board of Governors of the Federal Reserve System for a term of four years

We need a very different senate.

Will this change the balance of power enough to make a big difference? I hope so, but I'm not so sure that it will.

links for 2010-09-29

Posted: 29 Sep 2010 11:02 PM PDT

"Employers Aren’t Trying Hard to Hire"

Posted: 29 Sep 2010 12:19 PM PDT

Mark Whitehouse at Real Time Economics notes that if the unemployment problem is mainly structural rather than cyclical, hiring intensity ought to be going up, not down::

Employers Aren't Trying Hard to Hire, by Mark Whitehouse: Unemployed workers have a point when they complain that companies aren't really trying to fill open jobs, a new study suggests.
In recent months, policy makers have puzzled over the inadequate rate at which job searchers and job vacancies are coming together. ...
Explanations have tended to focus on workers. Extended unemployment benefits could make people less willing to take jobs that pay poorly or don't quite fit. Mortgage troubles and employed spouses could make it harder for people to move for work. People might not have the right qualifications for the jobs available.
A new paper, though, suggests employers themselves are at least part of the problem. The authors — Steven Davis of Chicago Booth School of Business, R. Jason Faberman of the Philadelphia Fed and John Haltiwanger of the University of Maryland — take a deep dive into Labor Department data and come up with an estimate of what they call "recruiting intensity," a measure of employers' vacancy-filling efforts including advertising, screening and wage offers.
Their finding: Employers haven't been trying as hard as they usually do. Estimates provided by Mr. Davis suggest that over the three months ending July, recruiting intensity was about 12% below the average for the seven years leading up to the recession. Their lack of effort probably accounts for about a quarter of the shortfall in the hiring rate.
Depressing as it might seem, the finding is in some ways encouraging. It suggests that the trouble with hiring might be more a "cyclical" function of low business confidence than a chronic, "structural" ailment that will last for years to come.

In other news, some members of the Fed are finally waking up:

Fed's Kocherlakota revises down forecast, by CalculatedRisk: Minneapolis Federal Reserve President Narayana Kocherlakota spoke in London today. He has been one of more optimistic Fed presidents, and he revised down his forecast today ...

Kocherlakota ... still seems too optimistic, but he is moving in the right direction.

And on the coming QE2:

My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them.

...It is interesting that certain Fed presidents are now revising down their overly optimistic forecasts - all but guaranteeing QE2 (even if he thinks it will have little impact).

If only they'd listen:

...presently the Fed does not feel the benefits [of further action]outweigh the costs, and it remains in "wait and see" mode.
My first question for the Fed would be this. To date, you have overestimated the strength of the recovery at every step. ... Given the forecasts to this point, all of which have been too rosy, I would place more weight on the downside, quite a bit more...
So, in my view, the Fed should drop its relatively rosy forecast for the recovery and take more account of the downside risks, the Fed should place more weight on the unemployment problem, and have less fear of inflation — the risk right now is in the other direction. Making these adjustments that would compel the Fed to action instead of "waiting and seeing," a policy that, to date, has kept the Fed from getting out in front of the economy's problem.
It's time for the Fed to stop playing catch-up as it waits and sees that its forecasts were wrong, and and take the steps needed to boost the economy. ...

and:

People need jobs, or more social support until jobs appear, and both the Congress and the Fed are failing to do all that they can do to help. Apparently, imagined fears of deficits and inflation are more important than the real struggles of the unemployed.

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