Relevant and even prescient commentary on news, politics and the economy.

Welcome to the Dark Side, Mark Thoma

Here I thought I was fed up with the Empty Suit in the White House:

What it says to me is all that matters is Obama’s reelection (see, for example, the pivot to deficit reduction) — when the timing’s right for that, things will happen — but don’t keep your fingers crossed otherwise. If you are unemployed and struggling, the president will try to help if it also helps him get reelected, but helping because it’s the right thing to do? Not likely.

The late, not-quite-great Kenneth Koch—from whom Barry may well have taken a class—may be rolling over in his grave, having discovered that his 1960 play about Richard Nixon, “The Election,” has become all the more relevant about the sitting Democratic President.

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Bob Lefsetz Explains It All To You

In the midst of an essay on Louis C.K., Bob Lefsetz (chez Ritholtz) explains what the Lemieuxes and (now, sadly) Mannions of the world keep ignoring:

One of the reasons artists have lost power is they no longer lead.
It’s kind of like our President. He’s so busy appeasing people that
even his natural constituency is turned off.

There are other things that, at best, don’t help. But President Clinton survived “welfare reform“—even though the inevitable consequences were well-noted at the time—because he vetoed bills that were worse than doing nothing.

Clinton’s immediate successor threatened to veto bills that were not to his liking, and went five and one-half years before having to veto one.

Barack Obama often threatens to veto legislation, but no one takes that claim seriously. Indeed, he has done it twice so far, one a procedural play, the other (much to his credit) the Bottom-Fishing and Robo-Signing Retroactive Legality Act of 2010.

A record like makes it rather difficult to run on a “they’re keeping me from doing good things” platform.

UPDATE: Mark Thoma sums up the effect of the Obama negotiation/”leadership” strategy on voters:

I really don’t like that my choices in the upcoming election will be between one candidate who will betray the things I believe in, civil liberties, progressive taxation, etc., etc., etc., and a crazy person from the other side (take your pick) who will be even worse.

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What Brad DeLong Said.

The Obama Administration Is Making It Really Hard for Its Base to Mobilize.

Actually, the Obama Administration has been making it Really Effing Easy for Its Base to Mobilize since around the time Tim Geithner was appointed. That mobilization is just away from the voting booth and onto the streets.

Give You a Hint, Barry: When even Scott Lemieux, who will forgive you any inaction, takes you to the woodshed, you will deserve to lose.

That you’ll take the country down with you is not “collateral damage,” though.

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The Argument Against the "First Derivative Mistake" Excuse

Unless you’re really stupid, or bending over backwards to find excuses for the Obama Administration’s Geithnerian malfeasance, you should be less than impressed with Matt Yglesias’s attempt to argue that the Administration saw reason to be happy with overall employment (link to Brad DeLong).

If you’re Matt Yglesias, you should be even less impressed with your (own) argument.

Because Matt Yglesias was paying attention in 2010. He was paying much more attention to Barack Obama’s speeches than I was, so he would have heard the 27 January 2010 State of the Union, when Barack Obama said:

[O]ur efforts to prevent a second depression have added another $1 trillion to our national debt. That, too, is a fact.

I’m absolutely convinced that was the right thing to do. But families across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.

Starting in 2011, we are prepared to freeze government spending for three years. (Applause.) Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will. (Applause.) [emphases mine; laugh track in original]

And Matt Yglesias, who was paying attention then and has a memory now, would have known that “freezing government spending in 2011” means starting 1 October 2010 (when FY 2011 starts), which means that departments have to start planning and cutting…well, basically when the words leave Obama’s mouth.

And Matt Yglesias would have known that transfer payments such as Unemployment Insurance, Temporary Assistance for Needy Families, the Home Energy Assistance Program, and other programs that (at the least) enable “discretionary” spending on things such as food, clothing, and medicine are not on the list of programs that will be exempted from funding cuts. So—even ignoring any moral considerations about letting people freeze to death or starve—there’s a cut in consumption (and therefore GDP) coming. Which will impact employment.

And Matt Yglesias would have known that freezing Federal spending—which is what Obama really means, since he doesn’t control the States’s spending directly—means that the States that are at best just starting to recover, and that have to balance their budget somehow, and only did it for the then-current fiscal year with the help of a lot of stimulus that won’t be coming from a frozen government budget. So there will be cuts in civil servants, and more cuts in consumption.

And Matt Yglesias would have known that freezing the Federal budget in the midst of a slow recovery (because even Matt’s first graphic doesn’t come close to the stable-unemployment rate of 110-150,000 new jobs a month at the time of the SotU, and only approaches it later because it includes temporary census hiring) means that there will have to be layoffs at the Federal level as well, even if there is no one (contrary to economic theory) who leaves for the private sector.

And Matt Yglesias—who isn’t as dumb as his post makes him seem—would know that an Administration that says something that stupid in 2010 isn’t looking at his second (more clearly understandable) graphic, or even his first (census-enhanced) graphic, but rather so mythological construct where all those government workers and increasingly-impoverished unemployed people magically Create Jobs.

And Matt Yglesias—not to mention Brad DeLong—would not be at all surprised when the result of those early 2010 policies came home to roost:

Indeed, the reaction might well be that the recovery went even better than should have been expected, and to wonder why.

And Matt Yglesias would, instead of making excuses for them, wonder aloud why any capable economist (or even one of the Administration’s policy guru) would have been stupid enough to take the first chart he presented seriously as a roadmap, since the Administration changed the territory—for the worst, from an employment perspective—from the previous model. He would be asking if Austan Goolsbee—who is smarter than both Matt and myself, and possibly the two of us combined—was just sleeping through the entire Administration.

But Matt Yglesias didn’t do any of those things. Why, oh why, can’t we have a better press corps?(tm, Brad DeLong)

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Admitting You’re a Tool Doesn’t Make You Less of One

Matt (Dalton, Harvard) Yglesias, via Aaron Carroll’s note that he should move into another line of work), accidentally gives the Education game away:

the Dread Evil Neoliberal School Reformer Barack Obama And His Lackeys At The Center For American Progress

Yep, Matt has been doing great things for education.

As, of course, has CAP, in spades.

As for Barack “Also Never Attended a Public School, But I Know All About Them” Obama, all that needs to be said was said by Dean Baker on Saturday:

Emanuel’s predecessor as mayor, Richard Daley, also placed an emphasis on reforming Chicago’s schools. From 2001 to 2009 he installed Arne Duncan, currently President Obama’s Secretary of Education, as head of the Chicago school system. If Friedman and Emanuel’s complaints about the current state of Chicago’s schools are accurate, this would imply that Duncan must not have been very successful in his tenure even though he was widely acclaimed as a reformer at the time.

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Uh, Brad, This is How You Do It

If your question—correctly—is “why Axelrod and Plouffe were satisfied,” then you have to think like people whose vote support came, in some significant numbers, from people who were just entering the workforce in 2008 (and who did not show up in 2010 because, having entered, they found they were unwelcome).

Which means, if you’re any good at your political job at all, you’re looking at that graph this way:

To see if your “maybe going to be lifetime supporters” are getting into the workforce or about to have a very short lifetime.

(Note that I have been very generous—that is, in the Administration’s favor—with the assumption of a 120K/month “assimilation rate.” YMMV, but is unlikely to put that bar lower.)

You know I disagree with BarryO’s idiotic acceptance of (1)-(7), most especially (2)and (4). I’ve been using the phrase “cursive-Z recession” since at least December of 2009; the only person outside of the Administration who expected a “V-shaped” employment recovery was Bryan Caplan, and he was only willing to bet $100 on it, with a much longer time frame. The Administration has produced a result where the only way Obama makes it to the November 2012 election as the odds-on favorite—even against the current array of Luddites and doofuses—is if he has Timmeh gutted and flayed very publicly, and then walks through Zuccotti Park with his head on a pike,* and even then I’m not certain that’s the way to bet. (In fact, I’ve bet Lance Mannion the other way.)

If you’re talking political calculations, we’ve been hearing for three years how great Alexrod and Plouffe are at their jobs, mainly because they could beat an old man and The Quitter who wanted to continue the policies of the previous eight years, only moreso. (Oh, and that they weren’t Mark Penn, which seems to be the motivating factor for Scott “play the manager, not the player or the ball” Lemieux.) And for three years, they have gotten their arses handed to them, in large part because they are stupider than the Cheney team, and thought that kicking their base would be “motivational” for someone other than Mitch McConnell.

Maybe they can’t read the above graphic; maybe they’re thinking of it the same way you drew it. But I’ll give you odds the voters aren’t. They’re thinking more about the graphic in the upper-right corner of your website. You know, this one:

And they’ve been hearing “prosperity is just around the corner” from that crack political team for so long that, as Michael J. Fox’s character once mouthed Aaron Sorkin’s words said, “in the absence of genuine leadership, they’ll listen to anyone who steps up to the microphone….They’re so thirsty for it they’ll crawl through the desert toward a mirage, and when they discover there’s no water, they’ll drink the sand.”

Welcome to the Sands of Romney-Rubio-Perry-Christie, Brad. Because the people you talk with read the graph you drew, not the one I’m showing. And may your G-d have mercy on their souls for it.

*Yes, I mean this literally, and, no, I am not advocating it. As I said on Twitter, describing Tim Geithner as a “career regulator” is like describing Willie Sutton as a “career bank manager.”

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The ATM Myth

Brad DeLong cited this passage from Ron Suskind’s latest book on Monday:

Both [Christina Romer and Larry Summers], in fact, were concerned by something the president had said in a morning briefing: that he thought that high unemployment was due to productivity gains in the economy.

The same meme spread across the economics spectrum: Scott Sumner was horrified. Mike Konczal’s reaction (on Twitter) was restrained (“This is…depressing”) by comparison.

In the context of Suskind’s book, we might just assume that Obama was, as usual, being gulled by his handler Rahm and his Svengali, Timmeh Geithner. However, via Karl Smith, we can set to rest any doubt that Barack Obama is just being misled. Matt Yglesias catches a lazy piece of  “thinking” from the President—who has had Austan Goolsbee, Larry Summers, Peter Orszag, Alan Kreuger, Jason Furman, Jason Bernstein, and several others (even dissing Christina Romer, as the Now-Sainted-by-the-Press-for-his-Fairness-to-Women Obama explicitly did) to correct him:

In a June interview with Fox News, President Obama appeared to argue that the country is suffering from high unemployment because productivity enhancing technologies such at ATMs have reduced the need for work.  It wasn’t clear to me at the time if the president really meant that or if it was just a bad moment in an interview,  . . .

Team Obama has, I think, landed on a more sophisticated version of this theory, and that explains some of the reason why Romer & Summers aren’t in the administration anymore and haven’t been replaced by like-minded people. [link in original]

Now, Barack Obama “might not be particularly well-informed about economics” (Sumner), but I never would have thought he was that obtuse.

Let me talk for a moment about our shared experience. Obama was a year behind me in college. As a transfer student, he didn’t start with on-campus housing; he got a room in a flat in the mid-100s.  So he walked to school—past several banks, one of which was undoubtedly more than happy to open an account for a never-attended-public-school Ivy Leaguer who, even then, knew how to manage up. (Heck, they opened one for me, and I fail miserably at most of that description.)

And the one thing you got—whether it was Chase (back before Manny Hanny acquired it) or Citibank (before it became The Big C)—as a student, no minimum balance required, was an ATM card, usable (in the case of Chase) virtually any time in one of the three (3) enclosed ATMs.  They dispensed $5 and $10 bills.

(The “enclosed” is essential, not just for nighttime safety, but also for days of rain and snowses. Years later, in MBA school, we attended the presentation of a guest speaker, a prominent Georgian who had founded an “Internet bank.” He freely stated that he didn’t understand why some companies enclosed their ATMs; I put the now-bankrupt company on my “short” list immediately.)

That was thirty (30) years ago. Putting this as politely as possible, that’s a heckuva long time for “structural change” in employment to take effect.  To put it in context, I know hot type setters who have been out of that business for less time.

It would take someone who was completely unaware of the world around him to point to the ATM as a ca.-2007 cause of structural unemployment in the United States.

Now, you may, correctly, note that there are Many More ATMs in 2011 than there were when Barack H. Obama moved to Morningside Heights in 1981.  And I will certainly agree with you: after all, if you spend 25 years privileging capital investment over labor—not to mention thirty attacking labor—you should expect capital growth.

But that doesn’t mean that capital growth is welfare-enhancing, or even necessarily has a positive ROI.

At Bear Stearns’s main building, 383 Madison, there were two Chase ATMs on the second floor. Those who know NYC will note that there are not one but two Chase branches across the street, but traders and senior executives require convenience, not crossing a NYC street (which they only did to cash/deposit their bonus checks) or, especially, standing in a queue behind people whose time is much less valuable.

(Tone notwithstanding, the last part of that is rather serious: if being away means you or your firm might take a loss in the mid-five or low-six figure range, your work time is more valuable than that of a Claire’s Stores saleswoman. Much better when the worst-case scenario is to be stuck behind one or two of your fellow traders, who wouldn’t waste their time not knowing exactly what they intend to do before getting to the machine.)

And, since the traders and executives weren’t willing to be personally ripped off, the ATMs were no-fee, even for non-Chase cards.

And here is where an alert economist will say cui bono? The answer is: the firm paid $1.2MM ($1,200,000; $600,000 per machine) for those two machines to be there, be maintained, and be fee-free.

So when you point to those ATMs in the grocery store, I point to the 99 cent ($0.99) fee for a $40 withdrawal and say glibly, “Yes, usury is alive and well; you don’t even need to be in a counting house.” 

How many jobs does that ATM destroy?

And—again, if you’re able to think about it, the way some economists (mostly health economists and econometricians, it seems) are able to do—you look at the proliferation of ATMs and realize that each of them needed to be stocked with bills (now $20s and $50s), have their network connections maintained, be repaired, have (a portion of) a staff member available to deal with customer complaints and issues, and be installed based on an initial capital outlay/agreement that covers all of those costs.

If we treat the Bear Stearns arrangement—and Bear and Chase were tight even before the latter “paid the two dollars”—as a benchmark, a semi-full service (as with the ATMs in most grocery stores and Duane Reades, they didn’t take deposits) ATM costs a lot more to run than a bank teller does. As a ballpark, it may be an order of magnitude more, and that’s rounding the ATM costs down (ca. $500K) and the teller expenses up ($50K).

All of the above is even ignoring The Baumol Problem.  You can provide most of your services through an ATM, or a group of ATMs, if it/they work(s) perfectly, but you cannot eliminate the “teller” role completely. You can redefine it: a bonded employee to restock the bills being dispensed is needed, so you can take a teller away from a “window” for an hour a day: seven hours as a teller, one in service of the ATM. And you can move new bank branches into slightly smaller spaces (based on not needing so many tellers), but you’re more likely to convert some of that space in old branches to space for HNW banking efforts, concentrating on areas that require greater customer service.

So the specific, limited job of “bank teller” might have been reduced (assuming bank branches remained constant; anecdotally, I would suggest they expanded significantly)—unlike hot type, it didn’t go away. But the skillset required for tellers is mostly transferrable: excepting any specific licensing/bonding requirements, if you can be a teller, you can be a cashier or a customer service representative or a sales assistant or a realtor.  It’s not like hot type in that respect—the initial skillset is transferrable.

Add the jobs that become available—network engineers, security people, drivers, system administrators, and people to build all of that equipment—when an ATM is installed and reduce that by a fraction of the tellers who won’t get hired.  Throw in an adjustment for the deadweight loss that is added to the economy via the ATM fees (which is at least partially balanced by the expansion of the ATMs themselves), and overall you have to conclude that the ATM increased the number of jobs available.

Economists often call it “creative destruction,” and you would think that the Goolsbees and Summerses of the world would have explained it to Obama.  In fact, you would think it would be something about which a community organizer would have heard, since much of the effort required there is making it possible for your clients to find retraining opportunities.

That he would speak so absurdly so recently reflects poorly on the economists who advised him (not to mention those who still believe his explanation),

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Private-Sector Employment in Jobless Recoveries

I still think Obama is toast—a result of his own making, since he’s really the apotheosis of a government-hating Republican who never tries to do anything because he’s afraid it would succeed.  He’s basically Jon Huntsman, economic policy and all, with a slightly better social policy—or at least a willingness not to try to compete globally in the 21st century using employment policies that were outdated in the 19th. (Short version: you might be able, in general, to exclude 55% of your potential workforce—women and gay men—if you have the population of an India or a China. You can’t do it when you have 1/3 or less of their population; you need a market that is open to everyone, which means you need social policies to match.)

But there are way in which he is a Bad Republican (traditional definition—think Gerald Ford’s Presidency), and those, as much as anything else,are what has destroyed his re-election chances.  Not to mention U.S. employment data.

I’d like to think I’m wrong, but let’s look at the data, comparing the last three recessions: the ones with so-called “jobless recoveries.”  In the grand tradition of Mitt Romney, let’s look at job growth over the following 24 months.*  First, the Private Sector:

joblessrecoveries001Private

The first thing we notice is that The George W. Bush-Mankiw-Hubbard “Recovery” Really Massively Sucked for U.S. Private Sector Employment.** Two-thirds of those post-recession months were negative, and the negatives were more than 1/3 again worse than the gains.  Even the 24 months that follow the 1980 recession—half of which were the first 3/4 of the 1982 recession—show a net positive gain in Private Sector Employment.

But the second thing is that the Obama Administration really isn’t doing that poorly in Private Sector Employment. It’s rather similar to the George H. W. Bush Administration.***  The loss months are slightly more severe than the gain months (about 5%), but there are 2 gain-months for every loss-month.  It’s still a “jobless recovery”—as was the post-1991 era—in that producing slightly over 1,000,000 jobs in a 24 month period is falling behind the growth in available workers, but it’s not a disaster, if the criterion is the recovery of private-sector hiring.

Sadly for BarryO—again, I consider this what the tennis-playing Brad DeLong calls an “unforced error,” a direct result of the errors of his priors—there is also employment in the non-private sector.  Which both Bushes knew that, the “small government Democrat” appears not to:

joblessrecoveries002Public

On a proportionate basis, George H. W. Bush oversaw as large a post-recession expansion of Government workers as Barack H. Obama has overseen a reduction in those workers.  This is even before one considers that at least three of those six positive months—a figured dwarfed by W’s 15 months of public-sector worker increase, let alone his father’s 19 months—are due to temporary hiring of U.S. Census workers. March, April, and May of 2010 show net gains because of Federal hiring that is more than completely reversed by September.  Great “Recovery Summer,” that was!

But if we really want to be fair to Barack Obama, we would have to break this down further.  After all,while the data is national, the breakdowns are not always so:

joblessrecoveries003PublicBreakdown

Federal government employment—now including the ever-expanding Department of Homeland Security, and with a military that continues to fight (at least) three wars—has been essentially flat during the “recovery”period.  The damage has been done extensively at the State and, especially, Local levels.

Part of this is simply that the 2007-2009 recession was longer and deeper than the other two (18 months long v. 8 for each of the previous two; more than 7.5 million private-sector jobs compared to just over 1 million in 1991 and just under 2 million in 2001).  That’s a lot more time and a lot less money flowing into taxes and budget-balancing requirements.

But if I were Barack H. Obama, and if I really wanted to be re-elected, the speech I would be giving tonight wouldn’t be about extending tax credits or capital amortization credits—with or without the idiocy of budgetary offsets—but direct state aid. Billions of dollars of it.  Without offsets. The speech would run something like this:

The latest few years have been difficult for you.  Almost every state in the Union has to balance their budgets, and with record levels of unemployment and job losses, that’s not easy to do.  So they made decisions that affected you, your children, and your friends. They laid off police officers, firefighters, teachers, librarians, surveyors, road repair personnel, and trash collectors. They’ve cut back hours at the DMV, Social Security, and Employment Offices.  They’ve made it more difficult to get an appointment to get health insurance for your children, support to buy healthy food for you and your children.  Your classrooms are more crowded, your property taxes are higher, and you’re getting less for your money while you have to put in more effort.

The Federal Government doesn’t have to balance its budget, and the bond market has given us a rare opportunity to borrow money for less than it will cost us.  I plan to take full advantage of that now, so that your children will have food, your streets will be safer, your opportunities for education will be greater, and the services for which you pay will be more available.

The private sector is rebuilding and restaffing, but that will—as it has in the past, as it almost always does—take time.  But they cannot rebuild if there is no demand, and you cannot demand things if you cannot pay for them. So, along with $1T in infrastructure improvements to be made over the next 15 years, I will tomorrow send a bill to Congress to triple the total of the two previous grants-in-aid to the States that were made as part of the ARRA.

Now you have heard many people—and to my shame, I am one of them—who live in fear of deficits. They pretend that the government “has to be like a family”—a family that never takes out a mortgage, never borrows to buy a car, never needs a loan to pay for schooling or training, and never uses a credit card.  I’ve seen families like that. They live on the streets of Honolulu and New York City and Chicago and Washington, D.C., and Richmond, Virginia, and Cincinnati, Ohio, and Detroit, Michigan, and Paint Creek, Texas.  They’re impoverished.

The United States is not impoverished, and I will not allow it to become so. We will rebuild opportunity now and build our superhighways—information and otherwise—for life in the 21st and 22nd Centuries.  The bankers—grateful for the bailouts that have been heaped upon them by my predecessor and myself—are willing to loan us money for less than the cost of inflation. We would be foolish not to borrow.  Even as those of you who can are refinancing your houses, the U.S. government will—as families do and should—borrow now to make a better life for our children and their children.

We have a unique opportunity. We have massive unemployment because the states do not have the money to employ and hire workers—workers who help keep our streets and homes safe, who keep our roads in good condition, who educate our children, who find us opportunities for work and ways to keep us healthy so that we can do that work.  And the bankers are telling us, “We will give you that money for free!”  And some people are telling you that we should not take that money.

We have given the bankers enough.  Now, they are willing to Pay It Forward, to give some small portion of that money back to us for less than it will cost them to do it. I intend to take that money and use it to make a better present—and the chance for a better future—for the American family.

Yeah, I want a pony, too.

*All data following derived from FRED(R).
**Let us leave aside whether this was a feature or a bug of that Administration
***It is left as an exercise that GHWB was a one-term president.

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2012 = 2006?

It’s not just that you make a mistake; it’s that you cling desperately to that mistake and let it define you.

Katrina revealed George W. Bush’s basic incompetence in a way that 9/11, Afghanistan, and Iraq had not. So he was weak going into the 2006 midterms. There were going to be losses. No one who wasn’t being paid to say otherwise thought there were not going to be some losses.

And you have to assume that some people thought those losses would be smaller: they got rid of “Brownie,” made a lot of noise about “Katrina and Rita,” put Hayley Barbour on television as often as they could, talking about how Mississippi was rebuilt.

Damage control.

The problem was that one failure got people to look at other failures. And the sacrifices didn’t come from there.



After the 2006 election, Donald Rumsfeld resigned. There were rumors it might happen before then, but it didn’t.

A few weeks ago, going into the Wisconsin recall elections, there were rumors that Tim Geithner would resign.

That’s not going to be true now. So Barack Obama is going to go into a re-election campaign running what John Hempton astutely described as “the cravenly pro-finance Obama administration.”

Not pro-economy: that would involve employment and GDP growth, neither of which has been happening for so long that Sensible Centrist Brad DeLong is sounding more and more and more like me.

The center isn’t holding. Every pictures tells the same story.





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