Who Wrote That?
Here are some snips from a past economic analysis on unemployment:
The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.
[...]
Unemployment insurance also extends the time a person stays off the job. Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.
[...]
Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions. To put this in perspective, 1.2 percentage points is about 60 percent of the increase in normal unemployment between 1970 and 1985.
No, these aren’t the words of some crank libertarian or Austrian economist. This is White House chief economist and former Treasury Secretary, Lawrence Summers.
Now, to be fair, the article barely deals with the issue of welfare payments in the context of a credit driven recession, such as this one, although he does infer that monetary policy is a better prescriptive measure than other alternatives. I should also note that we have heard almost nothing from Summers on the past and proposed extensions of unemployment benefits or the White House support of unions.
But I guess that absence is my point as is Christina Romer’s walk away from her life’s work in support of a new, bastardized, economics that neither closely conforms to Keynes or Say’s Law. They have embraced what Arnold Kling refers to as “folk-Keynesian” economics. An economics which I think is better termed “nonsense.” But that’s just me.
Last, lest I be accused of puppy eating, I understand that there are legitimate arguments for compassion toward those who are unemployed manifested by the call for increased welfare payments. I’m neither making a moral or economic argument here. That argument can’t and shouldn’t be made in a vacuum without looking at other government interventions and externalities.
I think we can agree that antidotes to downward pressure on wages, such as unions and benefits, diminish the share of the wealth produced by an employee that is available to the employer.
I believe that we should limit employer alternatives by making union formation easier, mandating safe work conditions, and offering gold tie-tacks (as opposed to gold parachutes) such as unemployment benefits to displaced workers. Universal health care would also diminish employer power over workers.
But employers have the option of outsourcing, and this empowers them beyond reason. Hence, trade barriers that equalize the wage factor to prevent employers from aiding and abetting the race to the bottom.
Bravo, Mark! You’ve, again, missed the point.
Surely you know – how can you NOT know – of the split in the Democrat party between progressives and conservatives, aka “Clintonites” or “DLC’ers”? If I missed a gust of wind, you’re missing a tornado – Summers is a Clintonite, and essentially agrees with Republicans on economic issues. So we’re screwed by either party.
Honestly – how can you not know this!
Still missing the point. And, yes, I knew that.
So take it home, Grasshopper – you’re all about “externalities” and such … you know, that anytime governmetn attempts to achieve something good, something bad happens? Which is why you use the word “nonsense?
If that is the point I missed, then go back to my comment above, the first one. Didn’t miss it after all!
And if you are a man for all parties understand of all, why did you make such a point of Summers being … not some crank libertarian or Austrian economist… bit rather this is White House chief economist and former Treasury Secretary …?”
So what? Nonsense economics that happens to serve the interests f the owning class knows no party. No matter which way we turn, there they are.
I get it now … I missed the point because there was no cogent point.
No, Mark, the point was made pretty obvious. That Summers and Romer have walked away from their life’s work in service to something else. Pretty clear and pretty cogent. Why are they there?
And just to correct you on an obvious misunderstanding – externalities have little to do with unintended consequences beyond that they are not fully considered in an economic analysis. Externalities are, rather, considerations outside of the hypothesis being tested such as, in this case, monetary, tax, trade, currency, regulatory, etc., policy considerations.
And what I mean buy “nonsense” is that the current “use” of Keynes as an economic rational materially violates what Keynes said. That’s why it’s nonsense regardless of the mistakes that Keynes, or Say for that matter, made in their economic hypotheses.
Your point is what exactly, slavery works better than a government regulated wage? Federal minimum wage won’t sustain a worker or a worker’s family. You argue that’s too high, distorts the labor market, and any government relief when the pink slip comes is bad economics. I suppose there’s always the option of working off-the-books in some black market, like extortion, fraud, theft, drugs, prostitution, or a variety of other “free market” activities that might eventually land one in jail. Then, government can care for the unemployed 24/7. Great plan.
I didn’t argue anything of the sort here although I do think that minimum wage policy is bad on both moral and economic grounds. But I’m not going to argue that now and which wasn’t even close to my point. I’ve made my point a couple of times now.
Now I think I get it. You neither support the old position taken by Summers and Romer, nor the new (silent) “nonsense” policy. And here I thought you might hold some personal affinity to the rather lenghty quotes you selected on past economic analysis on unemployment. Talk about hyper-intellectual, hallucinated nonsense.
Nope. You just want to have an argument that I’m not making here. Who’s hallucinating? This is about Summers and. to a lesser extent, Romer.
Now, I’ve made my point three times.
Right, just the facts. The ever thoughtful observer. Make mine snow blindness.
Geez, does anyone read anymore? Mark T.’s reading comprehension has always been zero, but now ladybug comes along and adopts his nonsense instead of reading what you posted.
Keep trying, there is no reason to let these two take over with nonsense.
Sorry to leave the thread. Budge is hard to deal with as he wants to discuss a very fine point and gets rather condescending if we stray. It’s not a tactic, as I have come to learn – it’s just the way he processes.
So I accept your fine point.
Here’s where I add something that is off-point and drives you to distraction – economics is political science – that is, it supports your way of thinking, and ours too. It’s beautiful, in that people can behave in a supportive environment in a supportive manner, or in a selfish environment in a selfish manner, and each can yield statistics that support one case or the other, depending on which you choose to focus on.
So it is not a science – it does not lead to peer-reviewed duplicated-results that exclude alternative theories. It lets it all in. So the guy who can obscure with the best sincerity usually carries the day.
So screw it all. Follow the money.
I object to the oft stated meme that economics is not science. Instead, like psychiatry, it’s both a very young science and very complicated science. Like climate science, it’s nearly impossible to test a hypothesis against a control group. But the work is peer reviewed to the extent that it can be – i.e. base assumptions, data normalization, proxy data assumptions, etc. But the bigger problem is that economics is not “political science” but behavioral science and behavior is not static at any level of human study from the individual to the entire population. Just look to the current debate about rational choice and you’ll see significant evolution in current economics. This is not Adam Smith’s college of thought. These are people asking the next question like when Krugman asked if Ricardo’s comparative advantage theory makes so much sense why do countries act in contradictory ways to it to their economic disadvantage (the only real area where Krugman is an expert.)
When we look at economics we are, in fact, following the money. You assuming that we simply choose an economic construct that conforms with our ideology may be true for people who really don’t study economics, but most of us who do eagerly await the next development of ideas.
I do have to say that it’s pretty presumptuous of you to take a simple argument – a “fine point” as you call it – and assume anything else. You proclivity is to look any subject where the word economics is mentioned and make it an argument about economics is a waste of time. In this case there was absolutely no economic argument being made. It was only about the intellectual integrity of Summers and Romer. Why is it my fault that you and ladybug missed that point and tried to pick an argument? It’s not the way I process anything. It’s the way rational debate is made.
I did not mean to slight you in that manner, but you do make fine points in a non-classroom environment. We are not your students, each of us have life experiences that pollute our thinking and confound your reasoning process.
But to impugn intellectual integrity of selected role players on the national stage is a bit of a daunting undertaking – where do you start, where do you end? I am turned off on economics because the money supports research that validates the owning classes, and my point is this: If the non-owning classes had money and think tanks, economics would lead us to different policies.
So to impugn Summers, whose job is to justify top-down policies, as dishonest, is not only a fine point, but one that is waaaaay too fine.
The inability to test hypotheses against control groups is what makes me think of it as a discredited science, because even lacking this ability, we have people who are sure of things that we cannot be sure of, and who advise presidents. Summers is my point too, and not a fine one. He’s prototypical.
Mark, the vast majority of economics research is done by universities and not by corporate interests or think tanks. Yes, of course corporations have their own economists but they do forecasting, not research. If you look through the archives of the National Bureau of Economic Research you’ll find that almost all of the research papers come from academia with the exception of a few studies done by the various Fed branches. (and let me give you a heads up, most university econ departments are not staffed with conservatives or libertarians.)
It also doesn’t seem such a daunting task to impugn “selected role players.” All that is required is to use their own words against them.
And if you’re going to discredit economics as a science for lack of the reasons you state above then I guess climate science must be discredited as well. I know of no other globe for us to use as a global control group. Do you?