A Big, Giant, and Mostly Ignored Reason for Jobless Recoveries


Note: above graph from 2013 and is, thus, outdated.
FireShot Screen Capture #009 - 'FRED Graph - FRED - St_ Louis Fed' - research_stlouisfed_org_fred2_graph__g=4x6f

https://research.stlouisfed.org/fred2/graph/?g=4x6f

The decline of manufacturing! During the 1950s, a great deal of the job losses that occurred in recessions, as well as job gains that occurred following them, were either in the manufacturing sector or closely correlated with changes in manufacturing jobs, which tended to be created and re-created very quickly. In 2008, the non-manufacturing sectors were hit by far to the the hardest degree they ever were since the Great Depression, while the manufacturing sector was hit pretty normally.

Since the recession of 1990, there has also been an end to manufacturing recoveries leading the recovery in the rest of the job market. Manufacturing jobs lost due to temporary shocks to aggregate demand or supply are much easier to re-create than other types of jobs lost during recessions. However, since 1990, due to deindustrialization, they haven’t been being re-created; instead permanently vanishing from the pages of time (or moving to China).

The other part of the jobless recoveries, of course, has been a noncyclical decline in male (and, after 2000, female) labor force participation, as well as the demographic transition.

The Hilarity of the Polls

Democracy is Poll-ocracy. So what makes the election day polls so special? Tiny difference in timing can make an enormous difference in general election preferences. Democracy is not simply the tyranny of the four percent who actually decide the election, but the tyranny of the four percent who actually decide the election during a single day. Why not have an election day be every day, and simply allow people to change their votes for the candidate they desire at any point in the year? Why not make the telephone polls just as authoritative as going to the ballot box? And if elections are bad, primaries are a disaster. What makes caucuses a good idea in the first place? A presidential nominating caucus can easily get results far different from an open primary held on the same day and in the same state. And an open primary, which includes independents, can easily get results far different from those of a closed primary. Had the entire Democratic race been composed entirely of caucuses, Bernie would have already won. Had the entire Democratic race been composed of closed primaries, Bernie wouldn’t have won ten states. In any case, popularity has only a tenuous relation with justice. Most people are so misinformed as to think government-funded free preschool is a good idea.

In a democracy, the will of the people tends to prevail. But whether it should do so or not, it does so extremely imperfectly. There is too much ossification in democracy. Its present form should be challenged to further its improvement. To connect policymaking closer with the desires of the people, there should be far more direct referendums than there are today, and at least one house should have its members be selected randomly from the general populace. Whether that’s desirable or not remains to be seen.

Chart of the Day

Screenshot (291)
https://research.stlouisfed.org/fred2/graph/?g=4fD4
Also, maps of the day:

Screen Shot 2013-04-04 at 2.02.28 AM

Thus, this table of the day:

High Supply, High Demand (Nevada, Arizona, Florida, Delaware, small parts of California) Low Supply, High Demand (Massachusetts, most, but not all, of California)
High Supply, Low Demand (Utah, Colorado, Texas) Low Supply, Low Demand (Mississippi, Indiana)

Vermont leans toward Low Supply, High Demand. Indiana’s low demand problem seems to have become even worse after the Great Recession. Its home prices were always extraordinarily restrained, both before and after the crash. Its housing construction bust was dramatic, and it didn’t have much of a construction boom. It was just an open-access rust belt place suffering from the effects of globalization. Most of California was a closed-access New Economy place suffering from the effects of underdevelopment where it was needed. Overdevelopment where it eventually wasn’t needed did occur in small places with disproportionate shifts in house prices during the mid-2000s housing boom, like San Bernardino. As Kevin Erdmann says, except for areas such as this, the bizarre period of the U.S. housing market wasn’t between 2001 and 2006, but between 2006 and 2009. Just look at the High Supply, Low Demand areas. Why did demand crash there for no reason?

The Celtic Tiger is not in the PIGS

One of my favorite variables, all too often underused, is real GDP divided by the price level. It really only works as a useful measurement in large, populous single-currency areas, though -like the United States, China, or the Eurozone. Basically, it’s a measure of how efficiently a region is using its resources given its nominal GDP. For example, if a country enters a deflationary depression due solely to collapsing NGDP, its RGDP should suffer. But its RGDP should also fall at the same rate as its price level.

These are the real GDPs of Portugal, Italy, Greece, Spain, Germany, and Ireland:
Screenshot (268)
https://research.stlouisfed.org/fred2/graph/?g=3Qcy
And these are the price levels of the same countries:
Screenshot (267)
https://research.stlouisfed.org/fred2/graph/?g=3Qcv
At first glance, Ireland’s real GDP up to Q4 2014 seems in the same boat as that of Portugal, Italy, and Spain, except that Ireland had no double-dip recession.
But look at the real GDPs of the same countries divided by their price level:
Screenshot (266)
https://research.stlouisfed.org/fred2/graph/?g=3Qcx
Between Q1 1997 and Q4 2007, the largest improvements in real GDP divided by the price level were seen in Ireland, then Germany, then Greece, then Spain, then Portugal, then Italy. Between Q4 2007 and Q4 2014 (seven years of pain!) the smallest deteriorations in the same measure were seen in Ireland, then Germany, then Spain, then Portugal, then Italy, then, lastly, Greece.

Neoliberalism works! The Celtic Tiger lives! The only thing that’s missing is the aggregate demand (and even that’s coming back)! Meanwhile, anti-neoliberal Greece and Italy remain in their own boat of awful, which even the greatest quantity of monetary stimulus can’t fix. Italy had virtually the same inflation as Germany from 2007 onwards, yet it had a severe double-dip recession while Germany didn’t. Ireland remains a classic case of economic convergence, while Italy and Greece may soon be known as classic cases of economic divergence.

The Ascent of the Second World: U.S. South Edition

See my post The Ascent of the Second World for international examples. In 1929, the U.S. South (as well as North Dakota and surrounding states) was very relatively poor, while the U.S. North (especially New York and Illinois) was very relatively rich. The four richest states in the country were New York, Illinois, Delaware, and California, with the exception of Delaware, all home to the largest cities of America. Today, things are very different. Due to greater mobility of labor and capital and institutional convergence of the U.S. South and North (at least partly due to Federal legislation), the U.S. is a much more regionally equal country than it was in 1929, or even 1979. As I discussed in the Ascent of the Second World post, Puerto Rico is also much closer to U.S. income levels than it was in 1950.

Lighter states are richer. In 1929, regional inequality in the United States was at a point unimaginable today. South Carolina and Mississippi, the poorest states in the Union, had less than 40% of the U.S. average per capita income. Today, no state has a per capita income of less than 70% of the U.S. average.

PNGs (bummer WordPress does not allow SVGs):
1929:
Blank_US_Map1929
2014:
2014map

Animated GIF:
Blank_US_Map1929

I did not enter the data I used to make the maps into a spreadsheet (I got it all from FRED2), but might do so a few days from now.

Kasich’s Jobs Record Completely Ordinary

Kasich did not have an excellent jobs record.

Marginal Counterrevolution

Kasich often touts his jobs record as some kind of evidence of his administration’s success. Well, here are the unemployment rates of the great states of Florida, Michigan, and Ohio relative to that of the United States:

Screenshot (249)
https://research.stlouisfed.org/fred2/graph/?g=3NfI

As of January 2016, Michigan and Ohio had unemployment rates exactly the same as the national one, and Florida had one a tad bit higher, but not by a significant number. Ohio under Kasich shows no sign of any sort of extraordinary jobs improvement. Unemployment was roughly the national rate when he came into power as Governor and remains roughly the national rate now. Granholm (second term), as well as Snyder (second term), however, do show extraordinary unemployment rate improvement, though Granholm’s second term did not go far enough in fixing the economic disaster of her first term, and Snyder’s first term was pretty meh. Florida also had some improvement since…

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Why is Russia Reducing its Troop Numbers in Syria?

News has arrived that Russia is planning to reduce its troop numbers in Syria. To understand this important development, one must first dispense with ridiculous ideas. New York Times commenters’ claims that this is a result of excessive cost, the wisdom of the re-creator of the Islamic State (Obama), or Syria being a quagmire for Russia (LOL) are all squarely ridiculous on their face and are completely wrong. Russia is not withdrawing from the Syrian conflict completely (just the contrary, it will continue airstrikes for as long as needed), the Syrian conflict is not a drain on Russia’s resources (just the contrary, it is estimated to be very cheap), Syria is not a quagmire for Russia (just the contrary, it has accomplished large gains in a fairly short time), and, as I say, sometimes, the world does not revolve around Washington. Sometimes, the world revolves around Moscow.

So why is Russia reducing its troop numbers in Syria? The answer is that this is an inevitable result of Russia’s accomplishment of four of its war aims:

1. Save Latakia from being overrun by the rebels. This is the most obvious explanation for the reduction of troop numbers, as many Russian troops were required to prevent the remote, but potentially catastrophic possibility of this occurring. As Latakia is now almost all regime-held, these troops are no longer needed.

2. Close the Azaz corridor. This prevents supplies from getting through to Aleppo via Azaz, Turkey, and allows the Syrian government to prepare for its eventual closing of the routes to East Aleppo. This can only be accomplished once; the planes used to launch these airstrikes are now less useful than before the closing.

3. A cessation of hostilities across most of the rebel-regime nominal conflict area (Latakia, IS-held areas, Nusra-held areas, and Aleppo mostly excepted). This reduces the need for a very large number of airstrikes on Syrian territory, thus making the present very large number of Russian troops and planes in Syria needless. This also allows for a more concentrated emphasis of Russian assets in Syria on the Islamic State, rather than on other Syrian rebels.

4. Train and equip the Syrian army. Lots of equipment has arrived from Russia to the Syrian army, and numerous Russian forces were temporarily needed to train the Syrian army how to use this equipment. These troops are no longer necessary, either, as the equipment is now being used in battle.

Of course, there could be some other reason for the troop reduction which has not been revealed by the Russian government and I am not familiar with. But these are the most obvious explanations for the reduction of Russian troop numbers in Syria. Ridiculous explanations should not be on the table.

I Was Right (America and Kurdish Expansionism)

Three months and one day ago, on November 26, I predicted U.S.-backed Kurdish expansionism in Syria to exactly the areas where it happened.
My predictions then:
Screenshot (98)
The situation now:
Screenshot (213)
And more evidence has come out since that the U.S. is directly promoting Syrian Kurdish expansionism.

Meanwhile, Turkey, which must be destroyed, is stark flaming mad about the Kurdish expansionism that is going on in its front yard, and its President has explicitly claimed he sees no problem with al-Qaeda. Sometimes, the Daily Scimitar is all too prescient.

My analysis on November 26 remains accurate and unchanged.

NGDP is no Cure-All for the Eurozone

An unsophisticated observer might see this clear correlation:
Screenshot (203)
https://research.stlouisfed.org/fred2/graph/?g=3wC7
and conclude that all that is needed to stop the Eurozone’s gradual economic descent relative to the U.S. is to boost its nominal GDP.

Then, he might begin to see to see some flaws in this logic. For example, other major countries that have had much faster NGDP growth than the U.S. over the past five years have not had much faster RGDP growth:

Screenshot (200)
https://research.stlouisfed.org/fred2/graph/?g=3wyW

“Ah.”, but our observer might say, “Brazil may require a faster NGDP growth rate than the U.S. to get the same level of RGDP growth, but Brazil’s NGDP and RGDP growth rates relative to those of the United States are still highly correlated“.

Screenshot (199)
https://research.stlouisfed.org/fred2/graph/?g=3wyU

“The correlation might not be as strong with Russia (especially during the 2004-2007 and 2013-14 periods), but it’s still pretty clear that even there a firm correlation generally exists between NGDP growth relative to the United States and RGDP growth relative to the United States”.

But, then, he might also notice that Japan seems to be a shining demonstration that NGDP growth far weaker than that in the U.S. need not lead to anywhere near similarly weak RGDP growth, and that in Q3 2014, Japan at last fell into the Russian and Brazilian pattern of having a higher year-over-year GDP deflator growth rate than the U.S., while having a year-over-year RGDP growth rate three percentage points lower than the U.S.:

Screenshot (201)
https://research.stlouisfed.org/fred2/graph/?g=3wz7
Screenshot (205)
https://research.stlouisfed.org/fred2/graph/?g=3wCD

And, at last, he may come across this extraordinarily clear case showing that higher NGDP growth is no cure-all for weak real GDP: the 1970s U.K.:
Screenshot (202)
https://research.stlouisfed.org/fred2/graph/?g=3wyx
Screenshot (207)
https://research.stlouisfed.org/fred2/graph/?g=3wDu

At last, our unsophisticated observer sees the light and comes to the correct conclusion: in our lifetimes, we’re always in the long run.

That is, though unusually weak NGDP growth might always result in unusually weak RGDP growth, the reverse is by no means always true. Or, an NGDP level target (even a 0% one, as seemed to have unofficially existed in Japan, 1999-2006 and 2009-2012) is an excellent thing in the short run, but an ever-higher-shifting GDP deflator target is not.

Deutschland Thrives, Italia Withers

Screenshot (187)
https://research.stlouisfed.org/fred2/graph/?g=3uVB
Screenshot (188)
https://research.stlouisfed.org/fred2/graph/?g=3uVA

Blue is real GDP as a percentage of Euro area real GDP (indexed at Q4 2007=100), red is nominal GDP as a percentage of Euro area nominal GDP (indexed at Q4 2007=100). Note that, for Italy, nominal GDP was consistently stronger in relative growth than real GDP, especially before 2004, while in Germany, nominal GDP was consistently much weaker in relation to the rest of the Euro area than real GDP until the 2008 financial crisis, after which they both became tightly linked. In fact, for Italy, nominal GDP was so strong that as a share of Euro area nominal GDP, it continued rising until 2004, while for Germany, real GDP was so strong that it grew as a percentage of Euro area real GDP from 2005 to 2008, and continued growing at this same trend (with the exception of the Great Recession, which impacted German real GDP unusually strongly) until the end of the graph, while German nominal GDP as a share of Euro area nominal GDP actually shrunk between 2005 and 2008. This, my friends, is the supply side in action! You can’t realistically hope to see it much more clearly than that. Italy is sclerotic and did terribly even when its demand side was good; Germany is resilient and did surprisingly well when its nominal income performed terribly. In fact, even though its nominal GDP as a percentage of Euro area nominal GDP in late 2013 was far lower than the same in 1999, its real GDP as a percentage of Euro area real GDP was even higher than in late 2013 than in early 1999!

Thanks to Marcus Nunes for inspiration.

BTW, more graphs.

In conclusion, have a free labor market, kids.