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November 24, 2008

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Nato

Considering that labor productivity makes a virtue of lower workforce participation, I think it's a rather dubious measure of growth. In fact, under Bush II we've seen the first significant, sustained drop in participation since ~1960. This isn't an unqualified evil, of course, nor does it automatically increase productivity but it certainly makes productivity growth easier because discouraged workers are also generally lower earning. Further, historical periods of lower productivity growth are highly correlated with periods of escalating participation.

Also, my statistics were taken directly from the BEA. I'll be happy to send the .csv if anyone likes, but I think we've actually been over this before. I almost tried to quote from memory, though I'm glad I didn't because Bush's record was slightly worse than I had recalled.

So anyway, Obama is going to take office at the height of an unsustainable equity bubble that's already bursting. In fact, everyone keeps wanting to tell us about how it'll be the worst since the Great Depression, which is pretty typical hyperbole. I do think it will be much sharper than we've seen in a long while because of the nature of the bursting bubble and the astonishingly loose monetary policy we've had throughout the Bush II years, but the real concern for me will be if Obama and his party use the crisis to impose a lot of new controls and penalties that will prevent a rapid and robust recovery. I'm already concerned at the props, and I disagree with Obama et al's apparent belief that letting Lehman go was a mistake. In fact, I think more firms should have been let go earlier so that the values of some of these assets could have been litigated out earlier. Then we wouldn't have had such a long period of festering uncertainty and invitations for government intervention.

At least they didn't give the US automakers anything. That was a huge relief.

Nathan Smith

re: "discouraged workers are also generally lower earning..."

Do we know that the decline in labor force participation is because of discouraged workers? It seems a bit odd that so many workers would become discouraged at a time when unemployment is pretty low. if people are dropping out of the labor force because they don't think they can find jobs, wouldn't you expect to have seen more of that in, say, the 1970s, or 1980s? Alternatively, social trends, such as more retirements and maybe some women thinking twice about trying to play the balancing-family-and-career game could reduce labor force participation. In which case you might not expect the non-workers to have been particularly lower-earning than those who stayed in.

I haven't looked around for evidence on why the labor force participation rate is declining. If there have been changes in labor quality as a result of changes in the composition of the labor force, that would, of course, make a difference. But until I see that evidence, my sense is that labor productivity reflects technology and capital investment and is the best sign of sustainable long-run growth.

Of course, you also have to remember that the Bush administration was fighting a war at a time when the economy didn't particularly need stimulus. That's another cost.

Nato

"if people are dropping out of the labor force because they don't think they can find jobs, wouldn't you expect to have seen more of that in, say, the 1970s, or 1980s"

The 1970s and 80s were a time when more and more women were trying to enter the workforce, and would thus have been classed as unemployed. Also, people don't necessarily drop out because they can't find any job; they also drop out because they can't find jobs that are worth it. Also, if there's a two-earner family in which one stops working or works less, it's usually the most poorly-remunerated hours that get cut first.

"...some women thinking twice about trying to play the balancing-family-and-career game..."

This is not entirely due to social trends. The Bush years have also been a pause in the general trend towards easing childcare costs and other such barriers to women participating in the workforce.

"you also have to remember that the Bush administration was fighting a war at a time when the economy didn't particularly need stimulus"

Trust that I'm quite unable to forget.

I do tend to agree that productivity growth does, ceteris paribus, imply increases in technology and capital investment. But the ceteris isn't very paribus. Instead of that productivity growth leading Bush to bequeath to his successor a strong, confident economy, it's imploding. Despite historically loose monetary policy, GDP growth on both a gross and per-capita basis has been quite weak in both terms - most likely weaker in the second term than the first.

Perhaps this is due to Iraq - indeed, I even think there's a great deal to be said for this line of argument - but that doesn't mean that Bush now doesn't own it. Quite the opposite, really.

Bush seems to do pretty well in productivity growth and unemployment, both of which can be helped by people deciding not to participate in the workforce, which they appear to have done. It seems the simplest answer to me, though not thereby necessarily the correct one.

Nathan Smith

Well, if the economy is underperforming because of the Iraq War, then of course Bush would have caused it. But that's rather different. That's not a case of bad economic management, it's a case of making a conscious sacrifice of a bit of our prosperity for what one regards, rightly or wrongly, as a greater cause. And anyway, we had to respond to 9/11. We could have done so differently, and less, but then, very likely, al-Qaeda would not be as beaten as it is today, and/or there would have been worse unintended consequences (e.g., a comprehensive identification of the US with the torturing dictatorships who would likely be our best allies in a "realist" war on terror).

I'm not much moved by the points you make about labor force participation, partly because you seem to be speculating (nothing wrong with that) rather than relying on hard data, but mostly because I don't really have any preferences about the level of labor force participation, as opposed to unemployment. Wages even at the low end are high enough by world or historical standards, so if some young people don't think they're "worth it," that just shows they don't need the money that badly. Fine. I'm also not sure it's a good idea to "ease childcare costs" in order to reduce the "barriers to women working." Easing childcare costs can basically only mean (a) providing subsidies, or (b) paying really low wages to childcare workers, and both of those seem like bad things.

At the end of the day, unemployment to me is a moral issue: people who want to work ought to be able to do it. But they ought to want to work badly enough to keep searching, and thus to stay in the labor force statistics, at least at a time when unemployment is as low as 5-6% so that it's hard to see why anyone should regard their employment prospects as terribly bleak. I guess a partial exception might be if unemployment is regionally concentrated and/or the labor market is extremely segmented by skill, so that some would-be workers really had hardly any prospects despite low overall unemployment. But I just haven't seen evidence for any of these hypotheticals.

The bottom line is that if productivity growth is strong and unemployment is low, I'm satisfied with the economy, and I am not sympathetic to people who whine about it. Of course, if the current financial crisis turns out somehow to have been Bush's doing-- as Nato seems to imply-- that will call for a major reappraisal of Bush's economic record (or rather, it will retrospectively justify the currently-prevailing low appraisal of Bush's economic management which so far has been unwarranted to the point of being delusional). But I haven't heard many stories that link the financial crisis to Bush's policies. If cheap money is the problem, it's Greenspan's fault. If banking deregulation is the problem, it's Clinton's and the 1990s GOP Congress's fault. If it's income inequality (and I'm aware of no stories that would link income inequality to the financial crisis), that's been rising since the late 1970s, and rose faster under Clinton than under Bush. If it's the deficit, that might be Bush's fault-- but then, everybody's now calling for the deficit to be *bigger,* not smaller.

It's easier to see how *the failure to implement Bush's second-term agenda* could explain the financial crisis. By not passing Social Security reform we missed a chance to boost the savings rate and provide an anchor for stock prices. By not passing immigration reform we reduced demand for housing and thus helped trigger the current housing slump. Generally, though, it seems that the problems that are currently blowing up have been a long time a-building and were foreseen by very few (and they may just have gotten lucky).

Tom

I haven't read many articles that cite Bush's policies as the cause of the current financial crisis; this crisis might have happened under any presidency. Expensive wars and deep tax cuts certainly hurt the government's bottom line, but that seems unrelated to what we're currently experiencing. If Bush had gotten his immigration amnesty passed by his own team (the Republican congressional majorities), then he might have been able to delay this inevitable subprime fiasco until the next administration came to power. In a large way, Bush's own party sabotaged what could have been a decent presidency by expanding entitlements more than any congress since the 40's, not reforming immigration laws, not reforming Social Security, not reducing pork barrel spending, not properly vetting his appointments, not reforming the department of education, and not making a formal declaration of war (which may have preempted much of the torture and detainee status scandals). Did the congress do anything right while Bush was in office? Aside from the social issues, and those issues are pretty important to me, I rather liked Bush's policy positions, even the Iraq War. But the Republican party let him down, and they let us down as well, and now we'll see if the Democrats can do any better.

Nathan Smith

"expanding entitlements more than any congress since the 40's"

That's a sort of melodramatic way of saying they passed the Medicare prescription drug plan. But Congresses in the 1960s and 1970s passed Medicare and expanded Social Security, so this seems wrong to me. It's probably true in some meaningless sense, e.g., the dollar value of entitlements increased by the most or something. And Gore proposed a prescription drug plan too. And the Democrats haven't planned to repeal it.

"not reforming immigration laws"

But left Democrats are to blame here, too, because they also opposed the latest amnesty.

"not reforming Social Security"

I don't get it. Does Tom not know that it was the fierce opposition of the Democrats, who refused even to *talk to* Bush about this, that blocked Social Security reform? Or what?

re: "now we'll see if the Democrats can do any better."

They're likely to do 'better' by their own lights, which is worse by the standards of a small-government conservative free-marketeer. It just doesn't make any sense to be upset with the Republicans on the grounds of expanding entitlements or failure to pass Social Security reform, and then to support the Democrats instead.

That's the ominous thing right now: a lot of people are supporting Obama and the Democrats who should know better. There seems to be a widespread collapse of means-ends rationality, especially among libertarians.

Tom

Why don't I blame the Democrats? Because they did not lie to America about their agenda. The Republicans did, and the Republicans were put in power by the people based on that lie. The Republicans had control of most of the country, both at the national and state level. They had enough power in congress to implement Bush's agenda, but they faltered. You can complain that the Democrats also didn't help Bush, but that's why they were elected, because they opposed that agenda; that's the promise they made with their constituents. The Republicans, for all of their unity rhetoric, were somehow not able to push through their agenda, and instead pushed through some things that were contra the party's agenda and platform. Bush could not get his own party to live up to their supposed ideals. For this they have been punished by the electorate severely.

Tom

"That's the ominous thing right now: a lot of people are supporting Obama and the Democrats who should know better. There seems to be a widespread collapse of means-ends rationality, especially among libertarians."

If you're referring to me, I hate to disappoint you, but I voted for a 3rd-party candidate (when I could) in every single race. I don't think it's irrational to fire someone for not doing the job you hired them to do. In this country, when you fire the party in charge, you can only ever elect the other party (unless you vote 3rd-party, like mean-ends libertarians tend to do).

Nathan Smith

The word "lie" is certainly not appropriate here: (most) Republicans wanted to pass Social Security reform, but they weren't willing to make such a major social change in the social contract on a purely partisan basis, and the netroots thuggishly enforced party unity on the Democrats while there were some Republicans who broke with the crowd.

That Republicans were punished for *not* implementing their agenda is hardly a consensus view. A lot of people seem to think the Republicans were punished for implementing an agenda that the electorate didn't like. The people who won the election tend to buy into the latter account. The people who helped them win the election even though they agree with the small-government philosophy that the Republicans represent in an intermittent and moderate way are, not to put too fine a point on it, likely to be about to be played for fools.

Nato

"if the current financial crisis turns out somehow to have been Bush's doing-- as Nato seems to imply."

Actually, I don't generally think it was Bush's fault, though I didn't really feel he helped any, either. He wasn't able to push through his better ideas but the worse ones sailed through Congress. Meanwhile his party seemed able to do all the stupid things they wanted to do while being unable to get any of the good things past the Dems.

That said, my opinion on Bush's foreign policy is clear, and I think it has done us a variety of different kinds of fiscal damage as well. I would have expected an average performance from his economic policy if not for the Iraq war, which really kicked it into the gutter. I get upset at the low fed rates, but not for their own sake so much as a lack of response to what I think they signaled: that we were close to the wall on monetary policy, so we had best get the dibs in tune otherwise. But, we didn't. Is that Bush's fault? Not any more that Congress', of course, but that kind of blame isn't zero sum.

Nato

"The people who helped them win the election even though they agree with the small-government philosophy that the Republicans represent in an intermittent and moderate way are, not to put too fine a point on it, likely to be about to be played for fools."

The biggest issue for me isn't that the Republicans are too moderate, or even that they're intermittent. It's that they've been incompetent and incoherent. Not (only) on an individual basis, but as a party. Basically, they gave away all the wrong issues in the quest to maintain political power., making me think that the party is either amoral or foolish. And I tend toward the latter. I also feel the same way about the Democrats' economic policy, of course, but that's just what I expect from them. If I get a moderate like Obama appears to be, then I'm pleasantly surprised. Do I expect him to have, on average, better economic policies that Bush? Probably not, but I bet they will at least be more tightly coordinated. And, critically for me, his foreign and social policies are far more to my taste. So far, I feel the opposite of being played for a fool. I actually expected more buyer's remorse than I've experienced so far. Of course, we'll have to see how long that lasts after Obama starts negotiating with his Congress...

Tom

"That Republicans were punished for *not* implementing their agenda is hardly a consensus view. A lot of people seem to think the Republicans were punished for implementing an agenda that the electorate didn't like."

There is such a thing as swing voters and independents. Supposedly, lunatic-fringe base supports never jump ship. So if one party gains power over the other, it's because of the people in the middle. Clearly, the middle went Republican during the Bush years for some reason; maybe it was because of the "deal with America" during the Clinton years. The Republicans during the Bush years did not live up to that deal by a long shot, and so the swing voters swung. I look at it more as a protest vote than anything, a sort of "the enemy of my enemy is my friend" vote. We'll see how that strategy works out.

Regardless, small-government types of all colors couldn't possibly feel better voting Republican over Democrat after what happened these past 8 years.

Nathan Smith

re: "I would have expected an average performance from his economic policy if not for the Iraq war, which really kicked it into the gutter."

Except, it wasn't in the gutter. In terms of unemployment and productivity growth, it was, along with Clinton's second term, the best economy since the 1970s. Asset values were rising fast. Considering that the economy was also weathering a huge spike in oil prices, and also that after the Clinton boom the base from which it had to grow was quite high, it has been-- at least, until this fall-- gratifyingly resilient.

Nato

"In terms of unemployment and productivity growth, it was, along with Clinton's second term, the best economy since the 1970s"

So were Reagan's booming 80s not really all that booming? That seems an odd claim to make.

Nathan Smith

The Reagan economy wasn't as good as the Bush economy. People were just less spoiled back then. They may be about to learn a lesson in scarcity that they've forgotten. Of course, I hope not. But if we do get a reprise of the 1970s, or 1930s, ,or heck, even 1980s (with productivity growth of 1.5% and unemployment above 7%), the complaints about the "bad" Bush economy will look pretty silly in retrospect.

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