Does the Economy Need More Stimulus
I'm surprised by two things:
1) The upbeat tone of the news reports about the employment report.
2) The folks who are downbeat thinking that we need more fiscal stimulus.
First, let's turn to the data. The news reports say that April's employment report suggests that we may be nearing the bottom. Here are the data:
As a forecaster, I expect the economy to hit bottom soon. However, as an observer of recent data, I do not find this report comforting. The total number of employed people continues to decline. A smaller decline is better than a larger decline, but it's still a decline. The hard data don't tell us we've hit bottom until the job losses are over. In terms of the chart, when the bars stop falling below the horizontal axis.
Regarding the second point, the need for more stimulus, the doom and gloom crowd (notably Brad DeLong and Paul Krugman) want more stimulus. So let's look at how much stimulus we've actually had:
Wow, the big gain in federal spending came before the election. We had a fast rise in spending, which should have been stimulative, but was not. That kind of history is one reason I'm skeptical of the size and permanence of Keynesian fiscal policy. The stimulus of President Obama is in the pipeline, it's coming, but it cannot arrive instantly. So calls for more stimulus seem naive in their ignorance that we haven't actually implemented the new stimulus. However, they might be more sophisticated in that they forecast inadequate stimulus. They could be developing a forecast for the coming years that incorporates the current stimulus and finds that more stimulus would be better. But the sort of offhand, "this is obvious" comment along the lines of the DeLong link above don't sound sophisticated to me.
By the way, federal transfer payments are not included in the chart above; here they are:
Most of that the big gain was due to automatic increases in benefits as unemployment worsens rather than any program changes.
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The Business As Usual Restaurant: “We have met the Enemy…and they is us”
I was having lunch at the ‘Business As Usual’ restaurant yesterday. On Wednesdays they have a pretty decent buffet. I also like to eavesdrop on some of the conversations being had by some of my fellow patrons…
As I was walking back from the buffet bar, I overheard some interesting lines…
At one table, there was a well dressed man, who was talking about his new car. ..
“Its made by one of the ‘Big Three’ – its a Toyota!!”
His friend nodded in acknowledgement
As I passed another table, I saw a man sitting with a woman. He was telling her about how his unemployment check barely covered rent. Moreover, he was pissed that he had a college degree, but couldnt find any work:
“Its the Outsourcing. Every year companies in my business send more jobs overseas. Nowadays, the term ‘offshore’ is fashionable. What I’d like to know is how many companies domaciled in foreign countries are ‘Outsourcing’ to the US of A ? I mean, where’s the ‘Quo’ in the Quid Pro Quo?”
Table after table, same story, different industry. At one of the tables was the CEO of a major Financial firm – his company had just received millions in Bailout money, and he was detailing how his company planned to increase the ‘offshore presence’ by 25% in 2009.”The Bailout money will help us with Liquidity as we increase our offshore presence”
Just before I got to my table, I saw our state’s governor…he was explaining to his staff that he would have to raise taxes to compensate for a shortfall of taxes..
When I finally got to my table, it occurred to me what I had just witnessed….the ‘Snowball Effect’. Company A sends two jobs overseas, laid off employees at Company A stop purchasing from Company B because they dont have jobs, Company B lays off employees or creates an ‘offshore’ team to minimize costs…eventually the overall effect comes full circle to Company A….Its a vicious cycle that feeds on itself. I dont know which came first, the chicken or the egg. I do know that if the cycle isnt broken, the feeding frenzy will continue untill there is nothing left.
I have a picture in my head of a bunch of folks rearranging furniture in the room to address the abscence of space – it sometimes seems as though I’m the only person willing to acknowledge that there’s an elephant in the middle of the room…
There’s an old saying — “No matter how far you’ve gone down the wrong road….turn back!”
There’s a fair chance that Obama’s package wont work.. It will be an uphill climb , if things continue to be done as they always are, at the’Business As Usual’ restaurant.