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Those Who Think the "Left of Center" is Too Tough on N. Gregory Mankiw

should read Sensible Centrist J. Bradford DeLong on the difference in forecasting between the current Administration and the CEA under N. Gregory Mankiw.

Romer/Bernstein/Kreuger et al., 2008-9 edition:

As I understand matters, last December the median private-sector forecast had the unemployment rate topping out at 9% in the second half of 2009. The incoming Obama administration simply adopted that forecast. At the time I thought that was a mistake: (I thought that was a mistake: I thought they should have made a bifurcated forecast with a “good case” 80th-percentile scenario and a “bad case” 20th-percentile scenario; they should then have stressed that in the bad case we would need a large stimulus indeed to prevent high unemployment, and that in the good case we could restrain inflation via monetary policy.)

Mankiw et al., 2003 edition:

it would make it extremely difficult for things to happen like what happened to the Mankiw CEA over the winter of 2003-2004, when high politics appears to have reached down into the forecast, changed the table for payroll employment (and only payroll employment: the rest of the forecast is not out of line with contemporary professional forecasts), and produced an estimate for December 2004 (a) inconsistent with the rest of the forecast, and (b) high by 2.3 million in its estimate of payroll employment–all because Karl Rove and company thought it important to avoid headlines like “Bush administration forecasts 2004 payroll employment to be less than when Bush took office.” (link from original)

The positive-spin version is that Mankiw plays politics better than the Obama Team.

UPDATE: Kauffman Foundation invitee Mark Thoma adds to the fun.

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UnReal Business Cycle

Via Dr. Black, those RBC models may be missing a variable or two:

In April, the rate in the United States rose to 8.9 percent. When the European figures are compiled, it seems likely that the American rate will be higher for the first time since Eurostat began compiling the numbers in 1993….

First, it appears that the safety nets in many Western European economies made it easier for people to keep their jobs as the economy declined. In Germany, programs allow companies to get government help in paying workers, for example, keeping them employed. If the recession becomes severe enough and long enough, of course, it could turn out those programs do not so much avoid the pain as defer it.

Because the alternatives are either direct government unemployment benefits on top of a decrease in GDP or a decline in social welfare with generational implications.

Another factor may be the lack of an economic boom in many European countries, which has left them less vulnerable to recession-related cutbacks.

Ah, pure RBC theory: the seeds of the next recession are sown in the economic growth that preceded it, even if that growth was somewhat enhanced by long-term liabilities:

Interesting, not unrelated, notes:

Then, the United States had an unemployment rate of 4.7 percent, lower than all but three of the 15 European Union countries — Denmark, the Netherlands and Ireland — and equal to that of a fourth, Luxembourg.

As the graphic shows, the March rate for the United States was higher than the rates of 11 of the 15. The exceptions were Portugal, which has the same rate, and Spain, Ireland and France.

The Irish story was truly a country-wide “miracle,” now featuring both higher highs and lower lows than even the U.S.

Spain and Ireland, two of the highest unemployment countries in Western Europe, suffered housing booms and busts that were comparable to the cycle in the United States.

Spanish banks hit the news earlier this week. U.S. banks are evermore heavily subsidized by the U.S. taxpayer (or that taxpayer’s debt; see above). Or, as Robert Lucas told Arjo Klamer in May of 1982:

But I don’t think unemployment is at the center of the story [of the Great Depression]. For those who do think it is the center, I can see why they don’t look to me for enlightment.

What a difference 27 years makes.

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Nonfarm payroll employment fell sharply in January (-598,000) and the unem-
ployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of
the U.S. Department of Labor reported today. Payroll employment has declined
by 3.6 million since the start of the recession in December 2007; about one-
half of this decline occurred in the past 3 months. In January, job losses
were large and widespread across nearly all major industry sectors.

…a bit worse than what I heard was the expectation for headline unemployment (7.5 percent); the December drop in payrolls (cf.) was revised from 524,000 to 577,000.

Added: The current employment situation release reflects the latest benchmark revisions and associated updates of the net birth/death model. Not too surprisingly, on balance this makes a bad situation look somewhat worse.

   |Table B.  Revisions in total nonfarm employment, January-December 2008,     |
|seasonally adjusted |
| |
|(In thousands) |
| | | |
| | Levels | Over-the-month changes |
| Year |-----------------------|-------------------------------------|
| and | As | | As | | |
| month | previously | As | previously | As | Difference |
| | published | revised | published | revised | |
| | | | | | |
| 2008 | | | | | |
| | | | | | |
|January ......| 138,002 | 138,080 | -76 | -72 | 4 |
|February .....| 137,919 | 137,936 | -83 | -144 | -61 |
|March ........| 137,831 | 137,814 | -88 | -122 | -34 |
|April ........| 137,764 | 137,654 | -67 | -160 | -93 |
|May ..........| 137,717 | 137,517 | -47 | -137 | -90 |
|June .........| 137,617 | 137,356 | -100 | -161 | -61 |
|July .........| 137,550 | 137,228 | -67 | -128 | -61 |
|August .......| 137,423 | 137,053 | -127 | -175 | -48 |
|September ....| 137,020 | 136,732 | -403 | -321 | 82 |
|October ......| 136,597 | 136,352 | -423 | -380 | 43 |
|November .....| 136,013 | 135,755 | -584 | -597 | -13 |
|December (p)..| 135,489 | 135,178 | -524 | -577 | -53 |

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Unemployed Populace Threatening to Break the Cell Size

Unemployed persons (seasonally adjusted) appears to be approaching 10,000,000.

The other interesting thing about the table is that December 2007 now looks as if it was much worse than was reported at the time: another piece of data that might indicate that we have been in a recession since Q4 2007.

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Working In The Coal Mine

Here’s an oddity from the McCain economic plan — McCain found some jobs that have gone away and that does want to bring back:

The development of clean coal technology will revitalize coal mining and return jobs to some of America’s most economically disadvantaged areas.

U.S. coal production was 1.146 billion (short) tons in 2007, just short of the record 1.163 billion tons in 2006. There are three major features of coal production history: a long secular increase from the early sixties, a shift from underground to surface (a/k/a strip) mining as the dominant production mode, and great increases in productivity in both modes from the 1980s onward. In 1987, an hour of mining labor extracted 2.2 tons of coal in an underground mine, and 4.98 tons in a surface mine. By 2007, those figures had increased to 3.26 and 10.23 tons/hour, respectively.

So why is John McCain against labor productivity?

And why am I reminded of Dana Carvey’s Grumpy Old Man character? “In my day, we mined coal with our fingernails, got black lung, and that’s the way it was, and we LIKED IT!!”

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