Could someone help Thomas Nugent with his writing:
Obviously, the out-of-power Democrats on the committee see the glass as half full, so one would have expected them to focus on the less successful economic statistics that characterize this economy. They didn’t disappoint, although their rendering of economic data once again proved they have no idea what they’re talking about.
I always thought the pessimists saw the glass as half empty. While I might concede the premise that politicians often have strange views about the economy, does Mr. Nugent have any idea what he’s talking about? Let’s start with his discussion of the labor market:
In any economic environment, good or bad, there will always be pockets of weakness. For example, during the last national election, the Democrats complained about a slow recovery in employment. Today, with unemployment near record lows of 4.7 percent, they are complaining that “average” real wages haven’t increased over the past two years. But is this a valid measure of the progress of American workers? Democratic representatives Barney Frank and Carolyn Maloney stressed the stagnancy of “average” real wages over the last two years. But in this time the U.S. economy has also experienced a surge in employment with more than 2 million new jobs being added to the workforce. And what usually happens when new jobs are added to the workforce is that they tend to be at the lower end of the pay scale. So the important point is that when a large number of low-wage entrants are combined with established higher-wage earners, the “average” wage is lowered.
If Mr. Nugent was trying to attribute the fall in real wages during the 1970s to an outward shift of the labor supply curve, that would make sense given the fact that the labor force participation rate rose from around 60% to 64%. Over the past five years, however, employment growth has been very slow with one of the main reasons for today’s unemployment rate not being any higher (let’s recall that the unemployment rate was only 3.9% as of December 2000) comes from the decline in the labor force participation rate.
And it would see that Mr. Nugent learned his rightwing bastardization of Keynesian economics from a comedian:
economists admit that a budget deficit acts as a stimulus to economic growth and that a budget surplus acts as a constraint. Like tight or easy monetary policy, fiscal policy (i.e., government spending and taxing) can be stimulative or contractionary to an economy. How can politicians address this deficit problem? They can raise additional tax revenues and/or reduce spending. But if a policy to lower the budget deficit reduces economic activity, more people will lose their jobs, unemployment payments will rise, and national wealth will slow if not decline. Additional growth in today’s economy is in part attributable to the budget deficit, and it’s this growth that will provide for a higher level of national wealth that will benefit our children and their children. Given our history of large budget deficits coinciding with a rising standard of living and national wealth, I’m not sure politicians and economists should rush in to solve this problem. As an alternative, perhaps we could follow the advice of that well-known economist Dennis Miller who recently said of the budget deficit: “Hey, you can just not pay it!”
Could someone remind Mr. Nugent of the distinction between short-run aggregate demand management versus long-term growth considerations?
Lawrence Kudlow also praised Ben Bernanke. Mr. Kudlow does remember that unemployment was low at the end of Clinton’s term. Alas, he seems to be even less concerned about the deficit than Mr. Nugent and for some reason thinks that the Federal Reserve has a role in setting fiscal policy.