Question of the day

by on September 4, 2015 at 1:53 pm in Economics | Permalink

This is reproduced verbatim from Scott Sumner:

What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?

Answer:  1

(March 1989, when it was 5.0%)

Come on discouraged workers, get out there and start looking!

1 Arjun September 4, 2015 at 1:58 pm

If most of the jobs out there are crappy McJobs, I don’t blame people for not being very enthusiastic about going out looking for work.

Instead of trying to push people into accepting alienating, low-wage drugery work, policies should try to make it easier for people to take entrepreneurial risks and set up their own, more fulfilling lines of work that can help address issues in their community. This worked out for places like Hong Kong and Taiwan and Singapore in the postwar era, where strong government-supported safety nets like housing subsidies and consumption subsidies allowed people to risk setting up businesses and community enterprises without fear of starvation or homelessness if things fell apart.

2 charlie September 4, 2015 at 2:02 pm

Why bother? Housing subsidies here are income limited. I’d rather be on disability anyway. If I made more I’d have to pay for medical insurance as well.

3 David Wright September 4, 2015 at 2:13 pm

+1. We have implemented a lot of employment disincentives since the 70s-80s.

4 ConfirmationBiasIsAFemaleDog September 4, 2015 at 10:38 pm

Yes, because there are lots of places where $2,663 a month (the maximum disability benefit) will give you a great lifestyle. You’ve also got to actually prove a disability (I’ve watched my amputee cousin get denied repeatedly so there’s certainly some folks not able to get it). But yeah, we’re disincentivizing work by making sure people aren’t dying in the streets. Being poor is SOOOO easy.

5 BFB September 5, 2015 at 1:03 am

People die in the streets anyway- in inner cities it’s often called “the Game,” and is made possible by the “War on Drugs.”

Benefit programs can be changed so the disincentive to work isn’t so strong- it’s not an “either/or” proposition, even though your tone seems to indicate otherwise.

6 Cliff September 5, 2015 at 1:02 pm

In spite of your hysteria, I don’t think there is any serious doubt that disability benefits disincentivize work. And disability rolls have surged

7 dsgntd_plyr September 5, 2015 at 2:21 pm

“Yes, because there are lots of places where $2,663 a month (the maximum disability benefit) will give you a great lifestyle.”

Um…in America? Yeah, there are many places where that’s more than enough to be middle class. http://www.forbes.com/places/in/indianapolis/; http://www.forbes.com/places/tx/waco/

8 Bill Kilgore September 4, 2015 at 2:27 pm

Honestly now, how many people do you think have the wherewithal to create enterprises that will be both successful and will “help address issues in their community” but are so limited in their abilities that they are concerned with not being able to feed themselves if their enterprise doesn’t work out?

In the US, what would you say the number is? More than six?

9 Andrew M September 4, 2015 at 3:07 pm

Starvation is unlikely, but homelessness is a very real threat. High property taxes in many places mean you always need a steady income coming in, even after the mortgage is paid off.

10 James Hartwick September 4, 2015 at 11:06 pm

Good point on the property taxes. For a long time I thought that the biggest dis-incentive to small-business entrepreneurship in the US was healthcare. My thinking was not with the childless 20-somethings who start their own businesses, but more the mid-career folks (say about 40 years old) who finally have the experience and contacts to strike out on their own. Why wouldn’t they? Because they wouldn’t want to leave their spouse and kids without healthcare.

But needing a steady income for other things, like property taxes, would be another dis-incentive.

11 Urstoff September 4, 2015 at 3:09 pm

Well you’re at the right place, because promoting entrepreneurship has long been a theme of MR (for example, Alex’s repeated posts on the harm of licensing laws).

12 JWatts September 4, 2015 at 3:44 pm

“Instead of trying to push people into accepting alienating, low-wage drugery work, policies should try to make it easier for people to take entrepreneurial risks and set up their own, more fulfilling lines of work that can help address issues in their community.”

Absolutely! Let’s cut down on the massive amount of governmental rules and regulations that impact even small businesses and are a major drain on productivity of medium to large businesses.

Can you imagine the hundreds of millions of hours saved if individuals and businesses paid a flat or nearly flat income tax with no deductions?

13 James Hartwick September 4, 2015 at 3:52 pm

Don’t make it flat, just eliminate a bunch of the deductions. That would still accomplish the goal of saving the millions of man hours while avoiding the regressive nature of a flat tax.

14 JWatts September 4, 2015 at 5:00 pm

I don’t disagree. And wasn’t even really thinking a flat tax in my own mind. But two or three tiers at most.

However, you can’t just eliminate a bunch of the deductions. If there any deductions, the incentive will be for every special interest group to get it’s pet deduction added. And if you have no deductions, then you eliminate the need for banks to report mortgages to the IRS, charities to file reports, etc.

An alternate is to just keep all the deductions, but put a hard cap on how much your total deductions can be (say $10,000). That would be far more politically palatable and would still drastically reduce the man hours needed to create an individual/household return. If you can quickly hit the maximum deduction by checking a box or two, you won’t need to hire a preparer to squeeze every last dollar out of the return.

15 James Hartwick September 4, 2015 at 11:09 pm

Using the phrase “eliminate a bunch of deductions” was a bad choice on my part because it implies I would only want to get rid of some but not all deductions. I agree that there should be no deductions.

Probably the only place we disagree is that I would want more two or three tiers of tax. But otherwise, even the hard cap idea (though it wouldn’t be top of my list), doesn’t sound bad.

16 Thomas September 4, 2015 at 8:26 pm

huehuehue, jajajaja,

No politician, Democrat or Republican, save those libertarian few, is ever going to support the elimination of deductions. Politicians bank on being able to exchange $100 in government spending for $5 in donations, campaign, political capital, or in-kind.

Believe me. I know a freshman Senator who is shocked to find out how Washington works.

17 James Hartwick September 4, 2015 at 11:10 pm

Concentrated benefits and distributed costs, amirite?

Any good stories from that Senator (which you can share)?

18 ConfirmationBiasIsAFemaleDog September 4, 2015 at 10:40 pm

The regressive nature of a flat tax is a feature, not a bug.

19 James Hartwick September 4, 2015 at 11:10 pm

True

20 Alexey September 5, 2015 at 10:48 am

The taxes are done by software anyway. Tax code should be simplified for that software instead of for manual filling.

21 chairman September 4, 2015 at 3:54 pm

The jobs available pay poorly, unless you have a specific technical skill along with a degree in it, which few people have (this is why there is high pay for those particular people). Any somewhat decent paying job will still be inundated with hundreds of capable applicants. The unemployment numbers are totally at odds with real experience.

22 Cliff September 4, 2015 at 10:30 pm

Real experience being anecdote? Plenty of trade jobs don’t require degrees.

23 Brett September 4, 2015 at 4:26 pm

The McJobs are just the first jobs to come back in a period of declining unemployment and improved growth, because they’re so cheap to add (and eliminate). The better jobs come later, as unemployment goes down further and you start getting some wage pressure (plus broader growth).

24 Brian B. Kim September 4, 2015 at 2:03 pm

Interesting – where can I read more about HK, Taiwan, and Singapore’s post-war policies that encouraged people to start businesses?

25 Arjun September 4, 2015 at 2:30 pm

I’d recommend Manuel Castells paper “Four Asian Tigers With A Dragon Head”, that analyzes the postwar development of East Asia and the factors behind their rapid growth. Lots of great insight here on the political economic history of that region.

26 Harun September 4, 2015 at 8:48 pm

Cite for the housing and consumption subsidies in Taiwan. They barely started setting up a safety net in the 90’s.

Reforms such as land reform I know about.

Consumption subsidies? Maybe you mean rice subsidies?

We have those in the USA and we also have EBT. So where are the start ups?

Of course, in 1975 Taiwan, you are the low cost supplier globally and have good growth domestically, its much easier to take a leap and buy a machine press or sewing machine or whatever.

27 Harun September 4, 2015 at 8:52 pm

Reading about Taiwan in that paper, housing subsidies are specifically absent for Taiwan.

And “cheap food” isn’t explained very well either.

28 John September 4, 2015 at 2:35 pm

I question whether the employment/population ratio has to be as high as it was at its peak. Everyone needing to work is actually less good than many not needing to.

(I wonder how many cash buyers of homes have “jobs” as measured.)

29 John September 4, 2015 at 2:36 pm

baby boom, blah blah, demographics, retirement

30 lilac-scented September 4, 2015 at 2:43 pm

Pretty rich coming from a tenured faculty member. Really calls out for a labor market reform in the academic setting. Let’s say that for an institution to be eligible for student loans, all faculty positions must be filled on a term-basis not to exceed 3 years with mandatory open global competition w/instant faculty work visas to all candidates. Win-win. Students get better faculty. Institutions compete for faculty and drive up salaries. Isn’t that the good old MR economic analysis? Pretty sure the elites wouldn’t enjoy what they urge on others: http://www.washingtonexaminer.com/foreign-born-women-gain-141000-jobs-u.s.-born-women-lose-90000/article/2571451 What we really need is some real economic growth driven by land reform. Time to bust up all the federal land holdings and raffle off 40 acre plots.

31 John September 4, 2015 at 2:59 pm

Federal lands are semi-parkland, which isn’t too bad. A clear distinction between national parks and private land would be OK too, if the parks were big enough.

32 James Hartwick September 4, 2015 at 3:24 pm

“Pretty rich coming from a tenured faculty member.”

This animus against tenure is misguided. There are a few people who abuse it, but in my experience they are so rare that “tenure abuse” is as much a false emergency as “voter fraud.” It’s rare.

On the other hand, the benefits of tenure are important. First, faculty can speak out on issues without fear of retribution. Yes, mainly that means faculty speaking out on leftist causes (e.g. Noam Chomsky), but that’s just because faculty tend to skew leftwards politically. (I’ve long felt that more libertarians and conservatives needed to pursue academic careers rather than demonize them.) But tenure also allows people like Tyler to speak their mind freely.

Second, you would NOT get better faculty if tenure were not there. Particularly in this day and age of “RateMyProfessor”-type students who think their prof had a bias against them if they got a B, faculty without tenure would be very susceptible to student pressure. Remember, faculty aren’t very well-paid on average, which means they probably don’t have a big financial cushion to fall back on, so without tenure they’d bow to every student whim.

Which bring me to my third point: overall, I have found faculty to be smart and hardworking (even the ideologically biased ones). Which means that if they played the corporate game, most of them would do very well (even the humanities profs, ha ha). If you got rid of tenure, a lot of those smart and hardworking profs would conclude that academia is not worth it, and would leave for greener pastures. I think that would be bad. I’d rather have these smart and hardworking people teaching students to having them be just another rich corporate lawyer.

33 collateral September 4, 2015 at 5:21 pm

“This animus against tenure is misguided. There are a few people who abuse it, but in my experience they are so rare that “tenure abuse” is as much a false emergency as “voter fraud.” It’s rare.”

Just look for a faculty member older than 60 (and there are lots since it was decided you couldn’t have a mandatory retirement age anymore) and you’ll find plenty of people that aren’t publishing anymore but are drawing among the highest salaries in their department. Not all of them by any means, but they aren’t bigfoot.

34 James Hartwick September 4, 2015 at 5:28 pm

“you’ll find plenty of people that aren’t publishing anymore”

This addresses a different question: Should tenure be given more for teaching or for research? Frankly, I would like to see tenure decisions give more weight to teaching. College education would be a lot better if tenured faculty had less pressure to publish and more pressure to teach well.

But the question of how much of the tenure decision should be based on teaching and how much on research is a different question from the question of whether or not tenure is a good thing. I still think it is.

35 collateral September 4, 2015 at 9:24 pm

It doesn’t address the question of the relative weight that should be give to teaching vs research in tenure review at all. Whatever the weights are, unless you zero out one of them, the job is still teaching & research. If you aren’t doing all three, but can’t be fired for your deficient performance because you are tenured, then you are abusing it. It might … might … be a different story if the deadwood started teaching a 4/4 schedule when they stopped publishing, but they somehow never do. No they make the most money in the department, don’t do any research and the 2/1 that begrudgingly teach ends up being two senior seminars in pet areas, and a mid sized sophomore class they memorized the lectures for 20 years ago.

36 Thomas September 4, 2015 at 8:34 pm

Libertarians and conservatives are actively discriminated against in higher education. They are discriminated against as undergraduates. They are discriminated against as graduate students. They are discriminated against if their thesis supports a conservative or libertarian viewpoint. They are discriminated against in hiring comittees. They are discriminated against on tenure. They are discriminated against for publication.

You’d be hard pressed to find a group more discriminated against in higher education.

37 Anon September 4, 2015 at 9:37 pm

…and yet its a miraclethat they end up ruling most of the Buisness and Political world of the US.

38 Cliff September 4, 2015 at 10:32 pm

We’re talking about academia not the real world

39 Nathan W September 5, 2015 at 7:43 am

Interesting theory. I don’t buy it for a second.

Maybe they aren’t very good about arguing their points. In university, it is the quality of writing and argumentation, not the conclusion that gets you marks.

“But God really created everything. It’s really, really, really true” is going to fail ever ytime. It’s not an argument. It’s ideology.

40 Noumenon72 September 5, 2015 at 9:43 am

Would you accept this quality of argument against something you believed in? If you said “Women are discriminated against in Afghanistan,” would you listen to someone saying “Maybe the women just aren’t well educated there. ‘I’m a delicate flower’ is going to fail every time”? Either provide some evidence that conservative professors actually have poor writing and are creationists, or keep your bias to yourself.

41 CD September 4, 2015 at 7:42 pm

We have long had “open global competition” for full-time faculty positions.

And FWIW, lecturer ranks are growing, which are typically renewable positions with contract lengths of at most 5 years.

42 Brian Donohue September 4, 2015 at 9:35 pm

I may be mistaken, but isn’t Sumner giving up his tenured position at Bentley?

43 Nathan W September 5, 2015 at 7:39 am

It would make it too easy to fire teachers who do research in politically inconvenient areas. Academics need job protection.

44 derek September 4, 2015 at 3:15 pm

A scientist would first check whether the measurements were correct.

45 ZZZ September 4, 2015 at 3:39 pm

Why would you check if the measurement was correct if you got the answer you were looking for?

https://en.wikipedia.org/wiki/Oil_drop_experiment#Millikan.27s_experiment_as_an_example_of_psychological_effects_in_scientific_methodology

46 marcus nunes September 4, 2015 at 3:16 pm
47 spencer September 4, 2015 at 3:18 pm

Scott is just plain misleading . Don’t you libertarians ever actually look at the data rather than unquestionably accepting anything that agrees with your priors.

From 1948 to 1970 the unemployment was below 5% over half the time.

Yes, I know he deliberately cherry picked data to excluded those observations in his statement– but why should we?

48 James Hartwick September 4, 2015 at 3:25 pm

Because more recent data is more relevant.

49 spencer September 4, 2015 at 3:25 pm

Maybe rather than looking at discouraged workers you should look at the fed funds rate which has started rising every time the unemployment rate approached that level.

50 JWatts September 4, 2015 at 3:41 pm

“What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?”

What’s the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton when the Labor Force Participation was lower than today? Answer: 10 months (all during 1977)

51 JWatts September 4, 2015 at 3:50 pm

This is what Summers was referring to by the way. It was just confusing without context.

52 John Mansfield September 4, 2015 at 3:54 pm

When did doing better than the Ford, Carter, and early Reagan years ever count for anything?

53 libert September 6, 2015 at 11:25 pm

Reagan = Heaven. Today > Reagan. Therefore, Today > Heaven.

54 Brett September 4, 2015 at 4:28 pm

It’s good, but not quite good enough – I think the US could do 4% unemployment without serious inflationary pressure. We’re an incredibly flexible economy, with good labor laws, lots of money for investment, lots of access to technology, and lots of immigrants. That would also get us some upward wage growth.

55 chuck martel September 5, 2015 at 9:09 am

Once again, please prove that low unemployment produces inflation but high common stock prices do not.

56 dearieme September 4, 2015 at 5:07 pm

Unless the definitions have been unchanged, the datum quoted is likely to be worthless.

57 Todd September 4, 2015 at 6:21 pm

Gosh, judging from the comments, this all seems like terrible news.

58 FC September 4, 2015 at 6:48 pm

Today a door-to-door recruiter from a Fortune 500 company came begging for a look at my CV and promising to find me a situation suitable to my skills and experience. I told him to go away lest I give him a taste o’ the back o’ me ‘and.

59 YetAnotherTom September 4, 2015 at 7:32 pm

My guess on discouraged workers is that it that some are men who don’t particularly want the service sector jobs that are opening up. There are many lines of work that are too submissive or feminine oriented for men to apply: Elder care and customer service are big openings. Some men can adapt to “how I can help you?” Some feel miserable in that setting.

60 James Hartwick September 4, 2015 at 11:20 pm

Very interesting point. Any ideas?

What should the country do to get these men back in the labor force?

If the country does nothing (which is the most likely scenario), what do you think these men should do?

61 BFB September 5, 2015 at 12:52 am

^^^It’s not just the jobs, but the terms of them- hourly, not salaried, part-time, no benefits or health insurance (which everyone has to have now). I’ve had customer service positions, sales with and out commisions (including 2 years as a telemarketer)- I’m not too proud to shun them. Full-time middle-class salaried positions with benefits in the private sector are becoming rarer, and finding enough part-time jobs to compensate for that is extremely difficult.

If someone had told me before I started grad school that nearly 2 years after getting a Master’s in Economics that I would still be looking for a job…

::sigh::

62 Peldrigal September 5, 2015 at 9:08 am

I have an MBA and work in a customer service position, because of my language skills. The trainer described it as the position from hell: of the previous class, within 3 months there had been a 50% attrition rate. For our class is still 0. Everyone is latin-american or of latino descent. My conclusion is: anglo machism have very poor social skills. I rephrased that sentence three times, the other versions were far less flattering.

63 Noumenon72 September 5, 2015 at 9:48 am

So every class before yours was composed of white men? Have you heard stories about their social skills or why they left? Maybe their social skills were so amazing that they left to become public relations managers.

64 Peldrigal September 6, 2015 at 2:03 pm

I was joking, and you might actually be right: customer service is the ghetto, most workers are minorities, and most managers are women, in the only division that has a black woman as a CEO. I have to get out as soon as possible.

65 jdgalt September 4, 2015 at 8:10 pm

The real “unemployment rate” you should be looking at is workforce participation. That 5% number is hooey.

I’m astounded that none of the Republican candidates has called the government on that deception yet.

66 Cliff September 4, 2015 at 10:34 pm

That’s actually what Sumner’s is getting at

67 dsgntd_plyr September 5, 2015 at 2:32 pm

Trump has been talking about this for weeks. I just say him on TV yesterday talking about this. But he’s “a carnival side-show,” so we plebes aren’t supposed to take him seriously like ¡Yeb! or Grandma.

68 libert September 6, 2015 at 11:30 pm

Right. If the data don’t conform to my ideology, they must be fake!

69 libert September 6, 2015 at 11:37 pm

Workforce participation is down because baby boomers are retiring. For each age group, the participation rate is basically the same as it was 20+ years ago: http://www.bls.gov/emp/ep_table_303.htm

70 Minority Bolshevism September 4, 2015 at 8:10 pm

These days there are many more competing options besides unemployment, that may be more attractive, more profitable ways of getting paid by the government while not working.

We could use a “Markets in everything” analysis on the supply and demand dynamics of the welfare payments marketplace.

71 Alan September 5, 2015 at 1:17 am

This shows the evil of Obama: he is increasing the cost of doing business by reducing the supply of labor.

72 A B September 5, 2015 at 6:57 am

People, he’s making a joke about how the unemployment rate is calculated!

Hint– what will (ok, might) happen to the reported unemployment rate if the discouraged workers start looking for work?

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