Jobs, Jobs, Jobs

Karl Smith points out today that, even during the depths of the Great Recession, we were wealthier than we were in the '90s; we consumed more than in the '90s; and we had more average net worth than in the '90s. So why do we all feel so crappy about things? Answer: because one thing we aren't is more secure in our jobs than in the '90s. A lot more of us are unemployed, a lot more of us are underemployed, and a lot more of us who still have jobs are afraid that we might be next:

Lack of jobs is why everyone feels bad, not because they have less or are poorer or the country isn’t producing or consuming as much. And, not to get too meta — in what I hope is an easily readable post — but an economy that makes lots of people feel bad is by definition a bad economy.

Moreover, the feeling that you have now about the economy is not the feeling of lack of value creation. It's not the feeling of socialism....[In a socialist economy] it's not that you are afraid of losing what you have or that budget constraints are pinching. It's that the stuff which is available to you sucks. It — in extreme cases — is a world where everyone has a job but where no grocery store has fresh milk. It’s a world where everyone gets a pay check but no one can find shoes that fit.

....The Great Recession: that’s a problem with jobs, with labor. And, it's very different in kind. When we think about what’s going wrong here and how to fix it, we have to keep that squarely in mind.

All true. But I'd point out one other thing that's worse than it was in the '90s: household debt. The chart on the right shows total household debt as a percentage of GDP, and as you can see, it's come down a bit since its peak in 2008. Still, it needs to drop by about a sixth just to get back to its long-term trend line, and it needs to drop by a full third to get back to the same absolute level as 1995. Even with interest rates low, that kind of debt overhang makes people feel very bad indeed, and puts a serious crimp in their ability to buy goods and services.

Still, point taken. There's not that much intrinsically wrong with the fundamentals of our economy. In the immediate term, we don't have big worries about inflation or government debt or technological stagnation. We need to deleverage, and once we do that people will start to spend again. Regardless of our longer-term prospects, we should be addressing this much more vigorously—and in the meantime, our focus should be on monetary and fiscal stimulus focused on getting people back to work. It's criminal that we aren't doing it.

Just for the record, I want to say that I love the headline atop the stock market story on the right. Not because the market is doing well, but because it says, simply, that stocks are up "3 percent."

Not that the Dow Jones was up 322 points. Or the S&P was up 38 points. Or Nasdaq was up 100 points. None of which means a thing to non-experts. Just a nice, simple "3 percent."

I'd like this to become the new standard for nonspecialist publications. On first reference, and in headlines, describe market ups and downs in percentage terms. Then provide the exact numbers later in the text. Everyone would get used to this really fast, and it would convey the rough magnitude of the change way better than raw numbers. Who's with me?

Obama's Books

The Obama family's book consumption is in the news. Obama's own vacation reading list is still highly classified, but:

It was unclear which books Obama ultimately purchased at Bunch of Grapes, but “Brave New World” was most likely for his 13-year-old daughter, Malia. The book is required reading for eighth-grade students at Sidwell Friends School, where she attends.

Huh. I'm trying to remember when I read Brave New World. Seems like it was my junior year in high school. But no. That can't be right. Junior year was American Lit. Must have been senior year.

Anyway: high school, at any rate. And it seems like a high school kind of book to me. But not anymore, I guess. Just goes to show how advanced kids are these days compared to the benighted era I grew up in.

In other news, I'm sort of shocked to see that I've read 8 of the 24 books that Obama is known to have read since he was inaugurated. I thought he had better taste than that. I remember once seeing a list of 50 or a hundred books that Bill Clinton had plowed through in the previous week (or whatever) and finding only one or two that I'd read. Obama is slumming.

Speaking of science, Brad Plumer points out today that scientists do change their minds from time to time. That's science! And they've been changing their collective minds on global warming recently too:

Much of the climate science that’s been published since 2007 appears to have strengthened the consensus, not weakened it. A report published last May by Britain’s Met Office, looking at more than 100 peer-reviewed post-IPCC studies, found that the case for human influence has been bolstered: “We can say with a very high significance level that the effects we see in the climate cannot be attributed to any other forcings.”

Similarly, at last year’s annual American Association for the Advancement of Science meeting, UC Santa Barbara’s William Freudenberg gave a presentation finding that, “New scientific findings are found to be more than twenty times as likely to indicate that global climate disruption is “worse than previously expected,” rather than “not as bad as previously expected.” ”

Anyone who reads this blog regularly already knows this, but as climate models have gotten better the consensus estimates of future warming have been going up, not down. A rise of 2°C over the next century is now a certainty, 4°C is pretty likely, and 6°C is hardly out of the question. And anyone who thinks 6°C isn't something to at least consider insuring against just isn't paying attention.

From former Clinton speechwriter Jeff Shesol, commenting on Barack Obama's continuing rhetorical dedication to postpartisanship:

To paraphrase Ronald Reagan, Obama declared war on partisanship in 2008, and partisanship won. 

Shesol thinks it's about time for Obama to acknowledge the reality of politics now and forever: "This election, like most elections, represents a clash of worldviews. It is time for the president to say so."

Kevin Williamson says we liberals aren't as dedicated to science as we pretend:

If you want to see how dedicated a progressive is to dispassionate science, spend two minutes talking about the heritability of intelligence. You’ll be up to your neck in witchcraft and superstition and evasion in no time at all. (If you want to test a progressive’s faith in rigorous scholarship more broadly, ask him about gains from trade and comparative advantage, realities that are as solid as anything social science has to offer.)

Well, I'm a pretty conventional liberal, and I'd say that intelligence is roughly 50% heritable and that gains from trade are quite considerable. Of course, I'd also say that intelligence is roughly 50% due to environment and culture, and that the distribution of trade gains is a bigger issue than their mere existence. I don't often hear conservatives acknowledging either of those things in tones louder than a whisper.

But look: Williamson is right that we shouldn't worry about whether Rick Perry believes in evolution. As long as it affects only his personal life, who cares? But what we should care about is how this illuminates his public policy decisions. If he lobbies to have creationism taught in biology classes, that's a big problem. Ditto for climate change. Like it or not, presidents are routinely required to make decisions about issues where they have little personal expertise. It's practically the job description. So the question is whether President Perry would make his decisions based on the best scientific and economic evidence available or whether he'd ignore it and just do whatever he felt like. The former can still lead to a pretty broad spectrum of policy outcomes, but the latter is a recipe for disaster. Because let's face it: the actual existence of human involvement in warming the planet just isn't in any serious scientific doubt anymore. If you're not willing to accept this, what are you willing to accept?

So here's my question for Williamson. Forget about "liberals" generically. Limit yourself to recent Democratic presidential candidates — or, in a pinch, high profile Democratic leaders in general. Can you think of any analogs to widespread Republican disbelief in things like evolution and climate change, which are as firmly fixed in scientific evidence as anything can be? Are there similarly rock-solid scientific findings that high-profile Democrats routinely trash? Or scientific agencies that they disband simply because they produce inconvenient results, as Newt Gingrich did with the OTA? Or frequent cases of gleeful promotion of scientific know-nothingism as a handy culture war cudgel? I can't think of any.

UPDATE: Williamson replies here. He doesn't actually try to respond to my questions, but he does get snotty about my estimate that intelligence is roughly 50% heritable:

But, of course, it matters not one whit what Kevin Drum would say, since Kevin Drum knows not one thing about the subject. (Which is the point.) The current estimate, incidentally, is about 85 percent — Hey, it turns out wild guesses by uninformed amateurs are not scientifically sound. Who knew?

I know more than Williamson thinks, though I admit that I haven't kept up with this stuff religiously lately. Still, research over the past decade has muddied the IQ question considerably, suggesting that environmental factors may be more important for poor children than for middle-class children. In other words, heritability of intelligence varies. This is by no means settled science, and I'm fine with the possibility of overall values higher than 50%, but suggesting that a flat 85% is "the current estimate" just isn't right. And like any other bright person who doesn't simply throw up his hands and pretend that it's impossible for laymen to make judgments about these things, I'll modify my opinions as the scientific consensus changes.

Jon Chait points out that Bill Kristol has progressed from predicting Republican victory in 2012 to simply assuming that Obama is toast:

In 2013, we’ll need action on the order of 1933 or 1981. Hoover, Carter, and Obama will go down in the history books as failed one-term presidents. Will Obama’s Republican successor be remembered as acting on the scale of FDR and Reagan?

Actually, that's the least of Kristol's piece. You really should read the whole thing: it's a masterpiece of purple prose and florid historic hyperbole. On the other hand, there's a nontrivial chance that Kristol is right about this. Here's my nightmare scenario:

  1. Republicans run the country for eight years and produce a historic financial collapse that, per Rogoff and Reinhart, will take four or five years to fix even if we attack it vigorously.
  2. Obama is elected president in 2008.
  3. Republicans do everything in their power to prevent any kind of vigorous action,1 thus ensuring that recovery takes more like five or six years.
  4. Because of this, the economy sucks in 2012 and a Republican candidate wins.
  5. Right on schedule, the economy starts to recover around 2014 or so. By 2015 it's morning in America!

This is, sadly, not too far-fetched. And if it happens, Republicans will indeed get the credit. After all, Ronald Reagan widely gets the credit for the original morning in America, even though our recovery in 1983 was due much less to lower taxes than it was to falling oil prices, conventional Keynesian stimulus, and Paul Volcker's decision to ease up on the high interest rates that kicked off the 1981 recession in the first place.

But that's too complicated. In popular myth, (1) Reagan is elected, (2) he lowers taxes, and (3) the economy recovers. What more do you need to know?

1Yes, yes, Obama and his economic team should have done more too. But keep your eyes on the prize, people. Obama's timidity is but a single gnat compared to the locust swarm of Republican obstructionism over the past three years.

Jon Fasman joins the throngs of people wondering just what it is that older white conservatives are really nostalgic for:

Nostalgia for mid-century America and racism are not synonymous. But what exactly do these voters want? Do older white conservatives miss the high taxes and powerful unions of mid-century America? Dismissing Soviet power is easy today; then it was not....It's true that America today is in some ways profoundly different from the one into which John Boehner was born in 1949. And I am willing to concede that life may well have been better for Mr Boehner, and for many other white, Christian heterosexual Americans back then (although I wonder what chance a 60-year-old Catholic son of a bartender from Reading, Ohio would have had at becoming Speaker of the House in 1949). Quotas kept immigration from Asia, Latin America and Africa low, and of course blacks, Jews, Catholics, women and gays knew their place. Is that what older white conservatives miss? And if not, what, exactly, do they want their politicians to "champion"?

There's something about this conversation that irks me. You want to know what older white conservatives miss about the America of half a century ago? It's just not that hard. They look back nostalgically on an era when TV was universally wholesome and family friendly. When everyone went to church. When the police kept order without having to worry about the ACLU and Miranda rights. When no one had to wear seat belts or bike helmets. When you could put up a shed in your backyard without worrying about building permits or EPA regulations. When the Big Three were really the Big Three. When universities were places that taught you to be part of the establishment. When kids said prayers every day in school. When women raised the children and didn't expect men to help around the house. When there was no such thing as a crack epidemic. When you didn't have to worry about global warming or recycling or energy conservation. When you could tell an ethnic joke without looking around nervously first. When children went outside and played stickball instead of huddling glassy-eyed around a computer monitor playing lurid video games. When immigrants didn't march on the street demanding their "rights." When pornography was carefully hidden away in brown paper wrappers. When shiny new middle-class suburbs were springing up every day, filled with affordable houses financed via GI loans. When Europe was still grateful to us for winning World War II. When you weren't faced on a weekly basis with yet another electronic gadget that you had to try to figure out. When you weren't surrounded by gays and lesbians who insisted on carrying on in public. When you didn't have to worry about the government taking away your guns.


None of this is really my cup of tea, and as you'll note, lots of it is indeed bound up with racial, ethnic, and gender fears. But then again, lots of it isn't. And why not? The world is a complicated place and there's no reason answers have to be simple. There's nothing beyond the pale in suggesting that a certain amount of tea party sentiment is driven by (usually) unvoiced race/gender/ethnic grievances. There's plenty of research to back this up, and plenty of common sense too. At the same time, there are lots of other things that drive tea party sentiment that have nothing at all to do with this stuff.

Again: the world is a complicated place. People have lots of motivations for the things they do, some of them shabby, some of them honorable, some of them merely personal preferences or products of self-interest. Focusing only on the shabby motivations is as unfair as pretending that they're mere inventions of your opponents' febrile imaginations. It's all there, it's all always been there, and it's all open for discussion.

The world is a complicated place.

Losers Are Easy to Spot

A new NBER paper suggests that you can make a lot of money by following the crowd:

We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the "CAPS" website run by the Motley Fool company ( These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period.

But wait. Negative and positive recommendations are asymmetrical:

These results are mostly driven by the fact that negative picks on the site strongly predict future stock price declines; positive picks on the site produce returns that are statistically indistinguishable from the market. A Fama French decomposition suggests that these results are largely due to stock-picking rather than style factors or market timing.

Take this for what it's worth. Which is to say, probably nothing now that it's been written up. Still, it's interesting stuff: apparently amateur stock pickers aren't that great at picking winners, but they sure know a loser when they see one.

(Via Matthew Kahn.)

Obama's Missed Chance

There's a decent case to be made that President Obama has done about as well as he realistically could have on the economy. Sure, he underestimated the depth of the Great Recession, but it didn't matter that much. Congress was never going to pass a much larger stimulus than it did, it was never going to pass cramdown, bailing out the banks was ugly but necessary, etc. etc. Given the political realities, what more of any significance could he have done?

Today Brad DeLong produces about the best answer I've seen yet:

  1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
  2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
  3. Have a real HAMP to refinance mortgages.
  4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
  5. Announce that a weaker dollar is in America's interest.
  6. Nominate a Fed Chair who takes the Fed's dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
  7. Appoint Fed governors who take the Fed's dual mandate seriously and support policies to stabilize the growth of nominal GDP.
  8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
  9. Use Reconciliation to pass an infrastructure bank.
  10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.

My own guess is that #6 and #7, though desirable, probably wouldn't have made too much difference. And #1 and #9 both would have required reconciliation instructions to be written by April 2009. That was only a couple of months after the stimulus bill had passed, and at the time the House and Senate were willing to include reconciliation instructions in the budget resolution only for healthcare and education funding. Perhaps Obama should have pushed harder for open-ended instructions, but at the time the administration and Congress both thought the 2009 stimulus would be enough. Obviously that was a mistake, but broadly speaking, that was the mistake, not all the subsequent details that resulted from that original misjudgment.

Still, even if my understanding of the reconciliation process is right — and I'll accept correction from anyone who's an expert — that leaves six strong ideas plus two more that would have been worthwhile even if their effect would have been modest. Not bad.