In a country with almost 15 million people out of work, it is amazing that any economists still have jobs. This one is their fault first and foremost. Economists are supposed to know about the economy and provide advice on how to avoid disasters before they happen and help us recover from the bad things happen in spite of good advice.
The economics profession has not done well on this simple scorecard. Remarkably, rather than improve their game, economists are now busy dampening down expectations so that the public will not hold them responsible for the state of the economy.
Towards this end, a group of Fed economists recently put out a new studyclaiming that it was impossible for economists to recognize the $8 trillion housing bubble before it wrecked the economy. In effect, they argued that economists should not be blamed for this failure because:
"The state-of-the-art tools of economic science were not capable of predicting with any degree of certainty the collapse of U.S. house prices that started in 2006."
This raises the obvious question: if economists can't see an $8 trillion housing bubble, what can they see? This is bit like the firehouse where everyone sits around calmly sipping their coffee as the school across the street burns down. Completely missing the largest financial bubble in the history of the world is pretty inexcusable, even if economists continue to make excuses.
Having failed to prevent disaster, economists are now anxious to tell us that there is nothing that they can do to remedy the situation. The story they are pushing is the unemployment is structural, not cyclical. This means that people are not unemployed because of a lack of demand in the economy, but rather they are unemployed because there is a mismatch between the available jobs and the skills and location of the available workers.
Before examining the argument here more closely, it is worth noting that arguments about rising structural unemployment come around during every recession. When the economy fails to produce jobs fast enough to bring down the unemployment rate economists quickly turn to blaming the workers. The problem is not that economists came up with bad policies; the problem is that workers don't have the right skills or live in the right place. This happened after each of the last four recessions.
The story the economists tell is that we have jobs available but the workers who are unemployed don't have the skills to fill these jobs. The "structural unemployment" gang got a big boost last week when the Bureau of Labor Statistics reported an increase of 180,000 in the number of unfilled job openings for July.
There are some logical implications of the structural unemployment story that are easy to test. For example, if there are sectors of the economy where they is a substantial unmet demand for labor then we should expect to see wages rising rapidly in these sectors. This is a simple supply and demand story. If demand exceeds supply then we should expect to see wages rising as firms compete for workers.
There is no major sector in which wages are keeping pace with the overall rate of productivity growth. Wages have been rising pretty much at the rate of inflation in most sectors for the last year and a half. In fact, taken as a whole the wages of production/non-supervisory workers have been rising slightly more rapidly than the wages of all workers over the last year and a half. Since all of the less-skilled jobs fall in the production/non-supervisory group, this suggests that the premium for skills has actually fallen somewhat in the last year and a half, the direct opposite of the structural unemployment story.
In the same vein, if employers can't find enough skilled workers, then we would expect them to have their existing workforce put in more hours. So, there should be sectors of the economy where average weekly hours are increasing. The evidence refuses to cooperate here also. The biggest increase in average hours over the last year has been in mining and logging and manufacturing, industries that are not typically thought to be centers of new economy skills. On the whole, average weekly hours are far below their pre-recession level.
Oh yeah, and what about that big jump in job openings in July? With the July jump there are just over 3 million job openings being reportedwhich gives us a little more than 1 opening for every 5 unemployed workers. Furthermore, the current number of openings is down by roughly a third from its level in 2007, before the recession began. And, no one was talking about structural unemployment three years ago.
In short, there really is no evidence for a problem of structural unemployment. The problem is that because of bad policy we don't have enough demand in the economy. If there is a mismatch of jobs and skills it is between economist positions and the people who fill them.
Economists have been telling us for 30 years that lower wages equal higher living standards as well! Why should we be surprised when the Herbert Hoover wannabees duck out on responsibility for the Great Recession?
I sold my house in the fall of 2000 after it had doubled in "value" bailing out of a market that I saw was clearly headed towards disaster.
It wasn't a math problem. It was a logic problem. Anybody could play. I was writing about the collapse of consumer credit on Counterpunch before any of it happened, and I can't calculate a 15% tip on a dollar check.
What really happened had nothing to do with whether this situation was predictable -- it was entirely predictable, and predicted -- but had everything to do with economists being paid to shut up and agree with Wall Street. The ones that didn't shut up were jeered at and marginalized.
I find it incredible that the economists who got it right are still being jeered at and marginalized today. Especially when they're warning us of even rougher waters ahead.
That is what I consider to be the main danger of adopting an ideology; it leaves you trying to make your way down a very narrow hall. The real world is much wider than that!
But what do you expect from people who believe tax cuts reduce deficits?
Bush Sr had it right, it's "voodoo economics".
I call it "faith-based" economics.
Larry Kudlow even has a prayer: "I believe free market capitalism is the surest path to prosperity"
Note that he doesn't say WHO'S prosperity. Stockholders, the rich, not yours.
I had six over my work life.
Exactly I remember going back to school in the late nineties to reskill myself because of an workplace accident that left me unable to do heavy manual labor. After investing that time and energy I found that my new skills: computer graphics were being outsourced heavily to India and Indonesia, they were no longer in demand in the US. I was advised that perhaps I should retrain in realestate. I am glad I didn't bother. Should we all become "economists" is that the only safe occupation today?
Gunsmiths will be needed to repair and make new guns...
The Obama administration is using another treaty, CIFTA, to circumvent the Second Amendment:
http://www.gunlaws.com/GunLawUpdate5-CIFTA.htm
Gun Law Update - CIFTA Treaty
http://www.oas.org/juridico/English/treaties/a-63.html
INTER-AMERICAN CONVENTION AGAINST THE ILLICIT MANUFACTURING OF AND TRAFFICKING IN FIREARMS, AMMUNITION, EXPLOSIVES, AND OTHER RELATED MATERIALS
Attorney General Eric Holder's view of the Second Amendment:
http://www.independent.org/issues/article.asp?id=2411
On the Nomination of Eric H. Holder, Jr., for Attorney General of the United States: The Independent Institute
1) Penalize corps who move jobs or HQ overseas...maybe tax them double
2) Tax Churches
3) Stop paying subsidies of any kind to any company
4) Triple fines (and enforce them) on companies that hire undocumented workers
5) Require a living wage be paid to all U.S. workers
6) Make all Corps pay a flat 25% (no exemptions, no loopholes) on earnings over $250k
7) Tie unemployment benefits to education or skills training
8) Make an SBA loan as easy to get as a student loan
9) Legalize (and TAX) Marijuana
10) Eliminate special benefits to Congress (Rolls Royce Health care plan...lifetime salary...etc) This is really more symbolic...why do they need a salary and bennies anyway??? They spend $30-50mil to get a $200k/year job...its obviously not about the money
What appalled me was the lack of understanding from the texts, readings, lectures and discussions of how the world operates. These are not people you would want to trust with a stock tip. I turned many discussions into impatient pleas that no one was paying attention to the housing bubble, rising productivity with tepid employment gains, the growing income divide, and the export of "exportable" industry overseas. I had already sold my home and pulled my money out of the markets and was waiting tight for a crash (this was in 2007). Couldn't my professors see the dangerous circus?
Well, the short answer is no. Why? .
This is important: THERE IS NO ROOM FOR DISSENT IN ECONOMICS
It is forbidden and professional suicide. Their jobs depend upon telling people what they want to hear, period. A bank, a business, a government: all want to hear their predetermined agenda confirmed. An economist who says that "free trade" -- if it has any historical foundation at all -- has been nothing but a disaster, that businesses become irresponsible when they have free capital to play with and no rules to follow, is quickly out of a job.
I agree that the structural unemployment argument is rot, and I would like to add that while straight wages may be just barely keeping pace with inflation, the cost of benefits is rising so fast that workers can't keep up, whittling away at paychecks.
I'm out of work. But for eight years running I watched my paycheck shrink as the cost of my health insurance increased annually by double digits while coverages shrank. Now, imagine getting sick--immediately you get hit with out-of-pocket expenses that can total as much as half of your annual wages, depending on your plan. And they want it NOW.
This year my husband's plan (he has to cover us both for now) will go up 14% and employees will absorb all of it. You don't have to look very hard to see why people are being crushed, but few economists or pundits are looking very hard. Thank you for this essay, it's excellent.
The way to get special interest groups out of government is to stop giving the government power to do them favors, and neither the liberals nor the conservatives want to do that.
To me, the "Chicago School" always seemed to treat the market as a magical force that corrected for everything. But they've never been able to explain unemployment, except to say that the people are just choosing to be unemployed because they aren't being offered enough money to work.
In reality, there are many working, academic economists from both schools who are using lots of facts to make their arguments. The problem is that the loud, visible economists usually aren't doing research anymore, and they tend to drift away from data-driven conclusions into politics. So we get people arguing in favor of tax cuts for the wealthy, despite the fact that every serious economist says that it is the worst possible way to stimulate economic growth right now.