If I hear one more discussion of the mysterious lack of jobs I’ll explode. The new GDP numbers are the final nail in the coffin. For years I’ve been saying there is no jobs mystery. That any deviation from Okun’s Law was minor compared to the scale of the output collapse. With the new RGDP figures we now know I was right, there isn’t and never was any mystery as to why there are so few jobs. RGDP is very low. Period. End of story.
I also argued that there was no mystery as to the low level of RGDP. The new GDP reports shows the NGDP collapse, already the worst since 1938, was even worse than we thought. Show 100 economists in mid-2007 the NGDP path over the next 4 years, and all but the kookiest RBC-types will tell you a severe recession is ahead. At least 97 out of 100 will make that prediction. Check out the graph in this Stephen Gordon post.
And then we have none other than Ben Bernanke telling is that the Fed can do more stimulus, he just doesn’t feel it’s necessary. How do our elite economists react to the following facts?
1. Unemployment is unambiguously caused by RGDP collapse.
2. RGDP collapse is almost certainly caused or greatly worsened by the NGDP collapse.
3. Bernanke says the Fed drives NGDP.
They react by pretending the Fed has no role in the crisis. The conservatives say it’s structural. And then we have one famous liberal economist after another issuing calls for more stimulus, which either ignore the Fed entirely (Larry Summers, Robert Shiller) or suggest that the Fed claims it’s out of ammunition (Alan Blinder), which is wrong.
I don’t find it hard to connect the dots between jobs, RGDP, NGDP and the Fed. I can’t understand why so few other economists see things the way I do.
A subscriber to the publication Consensus Forecasts passed along to me this summary of a survey of economic forecasters they conducted earlier this month:
Percentage of respondents in each country who consider current monetary policy
too tight / about right / too stimulative
US: 4 / 88 / 8
Japan: 15 / 85 / 0
Euro area (German respondents): 0 / 18 / 82
Euro area (French respondents): 9 / 55 / 36
Euro area (Italian respondents): 0 / 100 / 0
UK: 0 / 25 / 75
Unfortunately, there is no link. Yes, the sample looks rather small (based on the percentages), but it’s consistent with other surveys I’ve seen. If the public of the developing world actually understood the role of economists in this crisis, we’d all be lynched. They think we failed to predict it. But since monetary policy generally reflects the establishment view of the economics profession, it would be more accurate to say we caused the Great Recession.
Check out the always excellent Marcus Nunes on the new NGDP numbers. This post compares RGDP, NGDP, and jobs in the 1982 and 2009 recessions. The graphs are quite suggestive. He also provided the Shiller link. David Glasner is the go-to-guy on interwar monetary history, at least among us quasi-monetarists. He has a good post comparing 1932 and 2011.