In the Times: “How a strong job market has proven the experts wrong”
An interesting half-admission at the Times:
…[T]here is a bigger lesson contained in the data, one that is important beyond any one month’s tally of the job numbers: that the American economy is capable of cranking at a higher level than conventional wisdom held as recently as a few years ago. As the economy continues to grow well above what once seemed like its potential, without inflation or other clear signs of overheating, it’s clearer that the old view of its potential was an extremely costly mistake.
The mainstream view of the economics profession — held by leaders of the Federal Reserve, the Congressional Budget Office, private forecasters and many in academia — was that the United States economy was at, or close to, full employment.
I say “half-admission” because there are some curious omissions there, all having to do with the influence of politics. Yes, experts are often wrong. But one of the many reasons (not the only one, but an important one) is that they let their prognostications be colored by politics. For example, the article doesn’t mention Trump, which seems a rather odd omission. Nor does it mention Obama except in a passing remark about forecasts during “the late Obama years.” It steers clear of Paul Krugman, too, who (at the Times, right after Trump’s election) wrote:
The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.
Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.
With track records like that, it’s no wonder that “experts” have been tuned out by most people.
Contrary to many predictions, the economy is generally going gang busters, but its also increasingly obvious that we are in the midst of Heinlein’s “Crazy Years.”
So, when you have a lot of money (and no common sense) you spend it on things like a banana duct taped to a wall, which, according to the TV report linked below, recently sold at a Miami “art” gallery for $120,000.
Perhaps some “art expert”–akin to a “financial expert,” perhaps?–suggested that this would be a good buy.
See https://miami.cbslocal.com/2019/12/06/banana-duct-taped-to-wall-maurizio-cattelan-sells-for-120k-at-art-basel/
Boy! Count me as someone who didn’t see Trump’s election as a buy signal on the stock market or the jobs market.
I didn’t believe it would be as bad as Krugman said, but Trump, or whatever vector sum of forces, shattered my expectations.
______________________________
Mr. Edit has almost been reliable of late.
Just think of what would happen to the economy if whatever crazy or demented individual the Democrats run wins in 2020.
In the WSJ this morning there was a discussion of the underground economy and that if it was factored in to the economic statistics would add at least one additional percentage point to the rate of growth in GDP. Economists are great at describing the past but their predictions of the future are no better than mine.
I suspect Trump (or someone he talked to in the past) noticed that the EU could be better described as a tariff union rather than a free-trade union. This gave him a reason to doubt the anti-tariff and pro-immigration dogma of conventional economics.
Here is a quick explanation of why the EU would be better described as a tariff union.
While it is economically true that abolishing all trade barriers between two countries helps both economies grow faster, the effect is biggest when the difference between the two countries is most extreme. Hence, if the EU countries really wanted to have a highly effective free-trade block, they should have signed free-trade agreements with, say, non-industrialized, low-labor-cost economies rather than other northern-european highly-industrialized economies. These northern-european economies are all so similar that there would be no major effect from this sort of “low-voltage” free trade. Once Europe’s elite had established the EU and so publicized how they were all in favor of free trade, it was then politically easy to place trade and immigration barriers against the world’s non-industrialized, low-labor-cost economies that — oh, too bad — just happen not to belong to the EU. This con worked like a charm until the EU tried to set up its own currency, the Euro, and the fall of the Soviet Union led to the immigration of low-cost labor from formerly communist eastern Europe. Trump recognized what had been going on during the EU’s salad days and how things went wrong for the EU in recent decades. He thus had every reason to discount the free-trade dogma of theoretical economics and advocate both tariffs and no more immigration as tonics for the US economy.
D. Cohen:
they should have signed free-trade agreements with, say, non-industrialized, low-labor-cost economies
If a Northern European nation had signed a free trade agreement with any non-industrialized, low-labor-cost economy (for which read 3rd World country), they would have instantly been accused of colonialism.
Can’t have that; their only option was to make agreements with each other.
Would the Asian-tiger economies which were just getting started then — so not yet very industrialized and with low labor costs — have been acceptable non-colonial, free-trade partners?
Remember the oft used term “the new normal”? I hated that. When have American citizens settled for less than what was in the past? We have striven to expand our borders from the Atlantic to the Pacific and we have “slipped the surly” bands of Earth, and climbed the highest peaks. Get used to an Obama “New Normal” was never going to stick with me and it took President Trump to turn that nasty phrase inside out.
The “mainstream view” is invariably what the left wants you to believe at the moment.
The NYT admits the economy is restricted from being 9% bigger due to restrictive land use regulations alone. Reason magazine suggests we could be 600% richer!
Susanamantha,
I agree. The econ hotshot that bugged me the most by spouting “The New Normal” was Mohamed El-Erian. He earned his econ cred in the past by being the, or one of the, head managers of the Harvard endowment fund, and multiplying its wealth greatly.
“The New Normal” is a game of lowered expectations. One can only expect 1 or 2% growth rates for a mature economy like the USA or the Eurozone. (false) So Obama is doing a terrific job if we hit 1.5 or 2%. We won’t discuss the fact that those growth rates were achieved with an unprecedented and extremely long period of zero on the Fed funds rate.
The other guy who has no credibility in my book is Mark Zandi. He’s the head economist at Moody’s and was a complete shill for whatever team Obama was selling that week. Doesn’t speak too well of Moody’s.
Standard and Poors, on the other hand, had real independence and unlike Moody’s downgraded US Treasury debt under Obama below AAA for the first time. That little kerfuffle earned S&P a federal lawsuit over their rating of mortgage securities, even though there wasn’t much difference between Moody’s and S&P concerning mortgage securities.
In defense of accurate history, there has been a long debate in economics about the “natural rate of unemployment”, below which inflation (of the wage-push variety) would take over and distort things. As I recall there was a lot of talk about this during both the Clinton and Bush administrations. Both free market and interventionist economists accepted this idea, with the natural rate of unemployment appearing to be around 5%. Later, the debate shifted to whether the American economic engine would ever generate more than about 2% annual growth, with evidence being taken from the anemic Obama recovery.
Well, it is too soon to tell, but the Trump prescription of relatively flat personal tax rates, globally competitive corporate tax rates, and reductions in the stranglehold of regulation have resulted in a lot of surprising economic gains. In fairness, this is while global interest rates are rock-bottom and thanks to Washington political wars, the national budgeting process has atrophied: we are financed by continuing resolutions that include a lot of annual stimulus spending left over from the Obama years.
Everyone should be confused. Those that say they are not are lying.
The “experts” of the “brain trust” prolonged the Depression.
“With track records like that, it’s no wonder that “experts” have been tuned out by most people.” – Neo
True in every subjective area, not just economics.
Henry David on December 7, 2019 at 8:13 pm said:
The “experts” of the “brain trust” prolonged the Depression.
* * *
https://www.thenewneo.com/2019/12/06/the-economy-rolls-along/#comment-2469352
Mike K on December 6, 2019 at 10:01 pm said:
What we are seeing is the recovery we should have had after 2008. It is just 10 years late because Obama did what Roosevelt did in 1933. History is written by leftists almost exclusively. Amity Schlaes is the only one writing revisionist history. Her “The Forgotten Man” should be mandatory in any business course. I am now starting her “Great Society.”
Snow on Pine on December 7, 2019 at 2:54 pm said:
Contrary to many predictions, the economy is generally going gang busters, but its also increasingly obvious that we are in the midst of Heinlein’s “Crazy Years.”
So, when you have a lot of money (and no common sense) you spend it on things like a banana duct taped to a wall, which, according to the TV report linked below, recently sold at a Miami “art” gallery for $120,000.
Perhaps some “art expert”–akin to a “financial expert,” perhaps?–suggested that this would be a good buy.
See https://miami.cbslocal.com/2019/12/06/banana-duct-taped-to-wall-maurizio-cattelan-sells-for-120k-at-art-basel/
* * *
https://libertyunyielding.com/2019/12/07/miami-beach-arts-fest-120000-art-banana-installation-eaten-by-performance-artist/
Funny..
but remember…
Trump has the same degree as Reagan, but from a better school (Excelsior)
Keynes was a progressive
so the idea is to make us all fail and move to rations
just like in the movie soylent green..
you can see the seen of guaranteed salary in that movie as they ask a lady if she wants a ration or cash… but then again, they claimed ny would have 40 million people… its this kind of thing that drives our imaginations now..
which is why its kind of bizzare for youngins to see leonard nimoy do a coming ice age science when they thought that was what it was going to do, before they went warming
Remember: Ice Age is Coming 1978 Science Facts
https://www.youtube.com/watch?v=zSDLRm3jhc8
Ted Talk…
The dirty secret of capitalism — and a new way forward | Nick Hanauer
https://www.youtube.com/watch?v=th3KE_H27bs
of course its all evil… sort of…
Huxley: Had you been listening to Larry Kudlow’s weekend radio shows during the years up to the election of Trump you would not at all be surprised. His Mantra, repeated every week was…Lower Taxes, Lower Regulations, Stop the War on Business and these actions would “free the animal spirits ” of the markets. Trump was elected president and we are where we are in spite of what the doomsayers on the left predicted.
Susanamantha: The “New Normal” term to describe the Economy also stuck in my craw. Total bunk! I suppose that is another reason our betters detest Trump. He proved them totally wrong.
D. Cohen: I think you have overlooked the weaker economies of Spain, Italy and Greece in your analysis. “While it is economically true that abolishing all trade barriers between two countries helps both economies grow faster, the effect is biggest when the difference between the two countries is most extreme.” How would you explain the case of Greece not benefiting in a significant way?
Had you been listening to Larry Kudlow’s weekend radio shows during the years up to the election of Trump you would not at all be surprised. His Mantra, repeated every week was…Lower Taxes, Lower Regulations, Stop the War on Business and these actions would “free the animal spirits ” of the markets. Trump was elected president and we are where we are in spite of what the doomsayers on the left predicted.
Xylourgos: I was getting Kudlow second-hand from a friend, so I take your point.
However, Kudlow notwithstanding, one might expect the economy to begin turning around, but that wouldn’t necessarily guarantee the Dow to gain 50% in three years plus all the yuge employment gains.
Furthermore, I expected the full-court press to sabotage Trump and I expected that to include sabotaging the economy. Which I think happened to some extent, but not enough.
Of course, it’s taken me some time to trust Trump wasn’t an impulsive buffoon who might mean well economically, but would ignite crises which would hurt the economy.
Deregulation x lower taxes + bilateral trade negotiations = growth. This is not hard to understand. The nay sayer experts are furious because it does not support the agenda of their globalist masters.
Huxley: Do not underestimate the power of the “animal spirits” when evaluating the movement of the stock market. Hard to quantify but very powerful nonetheless. I do agree fully with your point regarding the full-court press to sabotage Trump.
I think Parker has the correct read on things:
“Yes, when it all come down to dust and votes, it is the economy stupid. But with the exception of those with TDS. They want a deep recession as soon as possible to defeat orangemanbad. What they are saying is we don’t care if the middle class experiences a 50 or 60% decline in their investments. Elites care only for elitists. That is the story of Obama.”
I expect a lot of volatility in the stock market as we get closer to the election. Mythx makes the valid point that interest rates are historically too low. He is correct to point out that when the next recession comes the Fed will have little in its armory to combat it.
Charles, you can count on a decline coming. When or how large, nobody can predict. However take steps now to diversify and to protect your investments.
This is almost a complete misinterpretation of the Times’ article / opinion piece.
The author is saying that the the Hawks were wrong. Hawks, deficit hawks in particular, are generally associated with the American Right Wing. Their monetary equivalent, interest-rate hawks, control the levers of power and are also associated with Neo-liberals.
Paul Krugman is a critic of the Hawks. He, at least on this issue, has been proven right. He wrote extensively about how wrong the hawks were during the late Obama years.
I’ll elaborate on the basic econ of this later. But suffice to say this is not an admission of failure by the Times at all.
AesopFan said: It is just 10 years late because Obama did what Roosevelt did in 1933.
See, this is why I reject the idea that we’ve had “the longest expansion in history” and are therefore due for a massive correction.
Really, we had 8 years of stagnation that was statistically massaged into notional “growth”, so I don’t think it counts toward the duration of the current growth phase of the business cycle.
The “experts” of the “brain trust” prolonged the Depression.
They didn’t. The country’s economy grew quite rapidly throughout the period running from 1933 to 1945 bar a period in 1937 and 1938 lasting about a year and a half.
The country’s labor market was in wretched condition during that time. Not sure what Roosevelt’s brain trust was telling him, but it is true that both Roosevelt and Hoover were sympathetic to measures which inhibited reductions in nominal employee compensation. A series of measures enacted in 1933, 1935, and 1938 rendered the labor market more sclerotic. The last was a minimum wage law which sought to enforce a compensation floor which was contextually silly (roughly equivalent to a $25 an hour minimum wage in our own time). Not sure whether to attribute that to a panel of experts or to attribute that to politicians and labor meatheads.
Really, we had 8 years of stagnation that was statistically massaged into notional “growth”, so I don’t think it counts toward the duration of the current growth phase of the business cycle.
No, we had 8 years of slow growth in per capita product. Could have been worse. Not sure it would have been much better had some other person been sitting in that chair. The Democrats enacted policy measures (delineated by Casey Mulligan on his blog) which inhibited labor market recovery and it’s a reasonable wager the Republicans would not have done those things, as well as other things which generated regime uncertainty (such as the rape of Chrysler’s secured creditors in order to pay off Democratic Party clients in the auto industry rescue).
The stock market is due for a correction because equity prices have been outrunning the growth in corporate earnings.
Paul Krugman is a critic of the Hawks. He, at least on this issue, has been proven right.
Proven right about what, Manju?
AesopFan–I note that, per your link above after, very appropriately, a “performance artist” ate the banana, the director of museum relations for the gallery said that you can replace the banana (the “artwork” comes with a COA by the way), and that it is the “idea of the banana” that is the essence of (and the value in) the $120,000 “art work.”
Somehow I think that there is some sort of economic metaphor there.
People who know some basics about nonlinear dynamics (very few actually do) know also that such systems behavior is unpredictable in principle. So there are no real experts in economics, climate change, earthquakes timing and many other things. They all are charlatans, do they know it or not.
They all are charlatans, do they know it or not.
Well, you know, Sergey, we often don’t see ourselves as others do.
Paul Krugman is my go-to example of an intelligent man undone by both ideology and the ego rewards of popularity
O wad some Power the giftie gie us
To see oursels as ithers see us!
–Robert Burns
Krugman knows a lot about some things. Unfortunately for him, the things he knows a lot about are not the things he usually writes about in his NYT column.
International trade, he gets. In macroeconomics, microeconomics, and politics, my opinions are as well-informed as his. For that matter, so are your mother’s. Would you read my columns and think I knew anything special? Only if you were a fool. How about your mom? Krugman’s columns are no better.
in projections three years ago, the consensus view of its leaders was that the unemployment rate would average 4.5 percent in the final months of 2019. If that forecast had materialized, 1.6 million more Americans would currently be unemployed than actually are.
I usually don’t read NYT, but for Manju’s maybe good comment, I did. He points out that NYT is complaining about “deficit hawks”, and how they’re complaining:
If we knew then what we know now, it would have had big implications for what seemed like sensible policy. The United States probably didn’t need to reduce budget deficits the way it did between 2013 and 2016, now that we know how much untapped growth potential there was. The Fed probably didn’t need to raise rates as quickly or as much as it did.
So the NYT claim is that budget deficits could have been bigger – MORE fed spending, than the (Rep dominated) Congress allowed Obama. Because the Reps historically have been anti-deficits. Obama made huge deficits, and so is Trump; not so many Dems are yet complaining about Trump’s deficits.
Manju is correctly claiming that the NYT is saying the (unnamed Rep) hawks against massive gov’t spending were wrong to push for lower deficits.
What is NOT mentioned is that good investment by the gov’t is OK, but bad investment by the gov’t, like boondoggle Solyndra, is terrible. The Dems wanted higher taxes and much higher gov’t chosen spending, which would be worse. The Reps were RIGHT to oppose boondoggle spending.
Trump continued high (too high?) spending, but with tax cuts increased the deficit (less % going to gov’t) by letting businesses invest in what the businesses thought would give the best Return On Investment. Getting high ROI is what rich folk are almost always all about. The gov’t investment is lousy on this (tho road building is often positive, most gov’t investment has negative ROI – a stadium worth $50 million costs $100 million of gov’t cash to build). Under Trump, $$ revenue going to the gov’t went UP, not down, after tax cuts – thanks to econ growth. (Laffer Curve, possibly more due to less regulations).
Paul Krugman (Nobel winning Dem attack dog at the NYT) has been consistently wrong in his predictions about the economy under Trump. He wrote good stuff on trade before and in order to win the Prize, but he’s been terrible since Trump won, tho long a Dem partisan.
The Fed didn’t raise rates much, but didn’t need to raise them at all. For more on Negative Interest rates, see Miles Kimball:
https://blog.supplysideliberal.com/post/2019/12/5/miless-presentation-on-negative-interest-rate-policy-to-the-national-association-of-business-economists
I like Miles, but still don’t like negative rates, tho in small amounts they work like any other: Rate cuts work in every corner of the economy to encourage investment and consumption spending both
Sergey is correct that no “experts” on economics are good at predicting what the world or the US economy is going to do with much accuracy. (I studied econ, and know the famous Random Walk theory book: https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street )
For the last 3 years, Trump has been a better economy predictor than any Nobel winner I’ve been hearing about. He’s been favoring lower taxes (good), less regulation (very good), and high gov’t spending (questionable – but effective). Two out of three of my ideal — but his results following his ideas are better than the results of less gov’t spending. There might come a time in the next 1, 5, 10 years when this clearly changes, which will be another “black swan” recession for some reason. But that also might not happen.
There are still lots of regulations to get rid of which can unleash even more American dynamism. Plus the huge fracking / oil independence, which Dems and Obama were and are against, is helping more than is being given credit.
Trump gets reelected without a recession. The Dems want a recession.
Manju:
As usual, you either misunderstood my post or pretended to.
I did not say that the Times was admitting that the Times itself was wrong in its predictions. I said that the Times was admitting that certain “experts” were wrong in a particular set of economic/financial predictions.
I also said that the Times omitted the influence of politics in wrong predictions.
And then I said that the Times had omitted discussion of another “expert” who had been wrong in a major prediction he made, and I quoted the wrong prediction he had made. And that “expert” (Krugman) was the Times’ own expert.
I never said that Krugman was wrong about the same thing the other “experts” discussed by the Times earlier in the article were wrong about. My post was about the general topic of “experts” being wrong, and why they are so often wrong, and how the Times admitted that some had been wrong but didn’t want to discuss how its own “expert” (Krugman) had been so very wrong about the stock market under Trump.
Remember: Ice Age is Coming 1978 Science Facts
From cooling to warming to change. They were right.
Paul Krugman
Paul Krugman is an agenda-spouting quack and a charlatan.
Yes, he has a Nobel Prize. So does Obama.
The man has been noted not once but TWICE expressing support for a known fallacy, the “Broken Window Fallacy”.
This fallacy is not some obscure or questionable piece of information, but a widely-known economic principle since 1850. Yes, **eighteen** fifty.
It is also basic enough that any bonehead can understand it. Even a Nobel Prize winning economist.
That Which is Seen, and That Which is Not Seen
Frédéric Bastiat
http://bastiat.org/en/twisatwins.html
Example 1:
https://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.
Example 2:
https://www.aei.org/economics/us-economy/paul-krugman-a-broken-window-equals-economic-strength/
Krugman is a two-bit cut rate shill for PostModern Liberals. He no longer cares a whit about The Truth, but only The Agenda.
Manju, How old are you? What part of the country do you live in? What do you do for a living, or if you are still a student, what is your field?
Most of us in this comment community have shared such details over time. I would like to know whether you really want to be part of this community, or whether you are just a troublemaker (which is what it looks like). While your comments are always troll-like, once in a while someone sounds that way just because they are very young and/or out of their depth. I’ve seen trolls that seem to be negatively motivated, based on their comments, who over time turn out to be just wayward liberals who want to hang out with the smart kids on blogs like this one. I am curious whether you fit that pattern — doesn’t seem like it, based on the tone of your comments, but I like to give people the benefit of the doubt.
OBloodyHell,
I love that treatise by Bastiat. I first encountered a section of it in “The Libertarian Reader” by Mr. Boaz, and later read the whole thing. The trickier or more contentious section is the one called “Intermediates.” Do middle men have value, or are they a pure economic waste?
I’ve read a few other things he’d written by digging them up on the free download sites. Some seemed so elementary I’d wondered why he bothered to write them. The answer, in part, was that his articles were a response to articles written by Proudhon, one the founding fathers of the anarcho-syndicalist movement.
If I recall correctly, the years after 2008 were full of pontifications about how we would have to get used to European-style sorry economic growth. Because that’s the cost of a bigger welfare state. Uh, so not so much.
I like Miles, but still don’t like negative rates, tho in small amounts they work like any other: Rate cuts work in every corner of the economy to encourage investment and consumption spending both [TomGrey]
And that is why Europe, where negative rates dominate, is outgrowing the rest of the world?
Negative rates send the message that the financial system is badly screwed up. Since they mean the banks are taking a piece of your savings, they are anti-capital formation. That is also anti-growth. If negative rates worked, they would have worked. I don’t believe that charging lenders and giving the interest-rate return to the borrower is a great new idea that has finally been invented after 5,000 years of history that we know of. I think it’s an unmistakable sign of desperation and an extreme on an order we have never seen before. That last is a factual statement, of course.