I have taken merely two measurements -- -0.047 (the log change in aggregate work hours from end of 2007 to end of 2008) and +0.009 (an estimate of the log change in labor productivity over the same time frame) -- and the Cobb-Douglas derived demand function, and arrived at SEVEN conclusions:
- There is not downward pressure on wages.
- This recession is fundamentally different than previous ones.
- This recession is the opposite of a real business cycle.
- "Flight to quality" is a symptom, not a cause of this recession.
- This recession comes from a reduced willingness to work, or a labor market distortion, rather than a reduction in demand.
- Labor demand shifts explain no more than 10 percent of what has happened in this recession.
- A fiscal stimulus will be even less potent now than it would have been in previous recessions.
Is there ANY other framework that is even HALF that powerful? Game theory? Behavioral economics? Commenters -- give it your best shot!!
No methodology can be stronger than the data to which it is applied. I am watching the Q4 productivity number closely. I (and, implicitly, the GDP forecasters) do not anticipate a huge productivity decline. But if productivity did decline at a 10 percent annual rate Q3-Q4 or a 5 percent annual rate Q3-Q1 (that's a LOT), then this recession would look more like the previous ones, although even in that case the productivity decline would have come surprisingly late.
36 comments:
Why people suddenly decided to work less?
Does the low interest rate has something to do with it?
Is there ANY other framework that is even HALF that powerful? Game theory? Behavioral economics? Commenters -- give it your best shot!!
Obviously supply and demand is an extremely powerful framework, but you grossly exaggerate the strength of what you can conclude from just it and so little other data and analysis.
I realize that you can publish your way to tenure at an Ivy league school pretending that simple models and their super unrealistic assumptions are exactly true in the real world -- in fact, you're probably more likely to get tenure this way because you don't spend a lot of time thinking about what it really means for the real world, and so you can publish more -- but you're going to come to some extremely unrealistic conclusions and you're going to give some very bad and dangerous advice.
I think an interesting theory or idea that merits further study and public debate is that however "bad" the current recession is it appears that at least one of the changes for the forseeable future will be tougher consumer credit standards which will presumably lead to a decrease in consumer spending and perhaps corporate expenditures as well. Will a decrease in consumer and other spending lead to a decrease or at the least a slower growing GDP? I think we may be entering a period of a decrease in the supply of credit and also a decrease in consumer demand. Maybe the average family will have 1 less car and 2 less TV's?
BTW I find Mr. Serlin's comments astounding. You spend more time and energy criticizing Mr. Mulligan for earning his PhD from an Ivy League school then actually challenging his position. Your comment is clearly agenda-driven which carries no counter argument.
This author has something relevant to say, in case you're not following him, Professor: What Happened to the 1,911,000 Lost Jobs?.
Of course, one can always criticize these data sources w.r.t. measurement error and strategic reporting/accounting/registering of quits vs. fires, but we have little reason to believe that the data used in this post is not equally subject to measurement error and whatnot.
Also, for some reason it feels like I should say this, my comments here have always been in good faith; and I also think there's little to gain from a confrontational approach.
Is there ANY other framework that is even HALF that powerful? Game theory? Behavioral economics? Commenters -- give it your best shot!!
Ok, let me put it more clearly and directly. If you did actually have the true supply and demand curves, then yes that would be extremely powerful. But your estimates of the supply and demand curves come from a tiny portion of the relevant data and extremely unrealistic assumptions. I could conclude anything I want, with ooh and ah graphs and equations, if I make extremely unrealistic assumptions to fit it coupled with a tiny sliver of the relevant data.
Here's my attempt at a framework that's "HALF that powerful" at least, I hope: 2 Pages of NAIRU Keynesianism.
...A fiscal stimulus will be even less potent now than it would have been in previous recessions....
A headline article in the Financial Times this morning reports IMF is saying much the same thing:
"Across-the-board tax cuts or bailouts of troubled industries such as the automotive sector are likely to waste government money while doing little to stimulate the global economy, the International Monetary Fund warned yesterday."
Angry at the Margin,
I read the two pages. I see nothing there that explains the data presented: big reduction in labor quantity coupled with substantial INCREASE in productivity.
In fact, everything you present is generic to recessions. But Mulligan's point is that we're seeing something here (the productivity spike) that we DON'T see in past recessions.
If we're trying to explain the data, it seems the simple S-D model presented by Mulligan is much more potent that you're giving it credit for.
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