Archives: January, 2010

Don’t Trust Economists

Sometimes a picture really does tell a thousand words. Here’s a chart, based on data from the Philadelphia Fed, showing actual economic results compared to the predictions of professional economists. As you can see, my profession does a wretched job. Comparisons based on predictions from the IMF, OECD, CBO, and OMB doubtlessly would generate equally embarrassing results. This does not mean economists are idiots (insert obvious joke here), but it is an additional reason why Keynesianism is misguided. If economists are unable to predict what’s going to happen with the economy in the near future, why should we expect anything positive when politicians tinker with short-run economic performance? That’s especially the case when they pass so-called stimulus legislation that increases the burden of government spending.

This doesn’t mean that economists - and others - are never accurate with predictions. But I am quite confident that we will never see an economic model that successfully predicts future economic fluctuations.

h/t: James Montier, via Paul Kedrosky, via Andrew Sullivan

Another Hero(ine) of Freedom Dies

Freya von Moltke, the last of the leading plotters against Hitler, has died. 

Reports the New York Times:

“He put the question to me explicitly — ‘The time is coming when something must be done,’ ” Freya von Moltke said. “ ‘I would like to have a hand in it, but I can only do so if you join in too,’ and I said, ‘Yes, it’s worth it.’ ”

So, with a wife’s assent, began a famous challenge to Hitler. At the height of the Nazi victories, Count Helmuth James von Moltke invited about two dozen foes of Nazism, many of them aristocrats like himself, to imagine a new, better postwar Germany.

For him, his wife’s participation was essential, as she remembered the conversation in “Courageous Hearts: Women and the Anti-Hitler Plot of 1944,” a 1997 book by Dorothee von Meding.

The dissidents met at the count’s ancestral estate, Kreisau, which Bismarck had given his legendary great-great-uncle, Field Marshal Helmuth von Moltke the Elder, for his victories over Austria and France.

It was a perilous act of resistance. As many as half of the dissidents were later executed, some for actively plotting to kill Hitler, others for thinking the unthinkable: they had marshaled logical, moral and religious arguments to question the legitimacy of the Third Reich. Their high-minded planning for a future without Nazis angered a regime that expected to endure 1,000 years.

Mrs. Moltke, who disdained the title of countess, was the last living active participant in the group. She died of a viral infection on Jan. 1 at her home in Norwich, Vt., her son Helmuth said. She was 98.

In his book “The Rise and Fall of the Third Reich” (1960), William L. Shirer said the Kreisau circle had provided “the intellectual, spiritual, ethical, philosophical and, to some extent, political ideas of the resistance to Hitler.”

It is easy to become frustrated with politics today, and grow weary of fighting for liberty.  But some people risk death when they take up the banner of freedom.  So it was with Freya von Moltke, whose husband, Count Helmuth James von Moltke, was executed by the Nazis, along with so many others.

Now, as then, “something must be done,” in Helmuth von Moltke’s words.  But we have a far easier task than did those opposing Hitler, many of whom paid with their lives.  We have no excuse for not carrying on.

Where Are the Jobs?

The Washington Post’s “Mega-Jobs” section, ballyhooed all week in radio ads and placards, turns out to be a pathetic six pages of classifieds. Not a great indication of recovery. At his December jobs summit, the president said, “I want to hear from CEOs about what’s holding back our business investment and how we can increase confidence and spur hiring.” Since then, and most recently in his Saturday radio address, he has promised to focus relentlessly on jobs.

But he refuses to take a serious look at the burdens he and his administration are placing on job creation. American businesses already face the highest corporate tax rate in the OECD. Labor Secretary Hilda Solis says her agency will seek to enact 90 rules and regulations this year to give more power to unions, and President Obama is appointing NLRB members who have said that that the NLRB could enact “card check” without congressional authorization. If Congress resists expensive “cap and trade” regulation, the EPA has announced that it can impose even costlier regulations on its own. The media blitz about state and local fiscal crises has employers worried that states will raise taxes and/or that the federal government will spend more to bail them out. The “health insurance excise tax” looks like a tax on hiring, especially for the biggest companies. Beyond any of these specific concerns is the general impact of uncertainty – employers and investors don’t know what might be coming down the pike, but none of the prospects look like making it cheaper or more profitable to hire new workers.

And in response to all this, the only idea President Obama and congressional Democrats put forward is to spend more money. There may be arguments for Keynesian stimulus. But it’s hard to imagine that the economy will benefit from a deficit larger than the currently projected $1.5 trillion, which is already a trillion dollars more than any previous deficit except for 2009. If $3 trillion in deficits in two years hasn’t stimulated the economy, it might be time to think about different strategies – like lifting the burdens on entrepreneurship, investment, and job creation.

Cross-posted at Politico Arena.

No, the ‘Real’ Unemployment Rate Isn’t 17.3%

Nearly every economic commentator from Fox News (on the fair and balanced side) to Paul Krugman (on the unfair and unbalanced side) is eager to tell you that the “real” unemployment rate is not 10% but 17.3%.  The latter figure is the largest of six offered by the Bureau of Labor Statistics.   But that does not make it more meaningful.

Many people believe (incorrectly) that unemployment is a measure of how many jobs were lost.   But people can also be unemployed because they quit their job, or because they never worked before, or haven’t worked in a long time.  Job losers accounted for 63.7% of the unemployed in December, down from 66.1% in September.  If we counted only those who were unemployed because they lost their jobs, that measure of unemployment was 6.3% in December — down from 6.7% in October.

The 17.3% figure, by contrast, starts with those looking for jobs during the past month and adds “all marginally attached workers, plus total employed part time for economic reasons.”   That phrase “marginally attached” means people who looked for work at some point during the past year, but not lately. Contrary to press reports, relatively few of the “marginally attached” are those discouraged about job prospects.  Adding discouraged workers would only push the unemployment rate up by half a percentage point, to 10.5%.   And even that small number of discouraged workers is not simply those who could not find work, but those who simply “think” no work is available, or think they are too young, too old, or that they lack the necessary schooling or training.

The rest of the “marginally attached” don’t even think they can’t find work.  Instead, they are not looking for work “for such reasons as school or family responsibilities, ill health, and transportation problems.”  To describe such people who are not available for work as “underemployed” (much less unemployed) is an abuse of the language.

As for those “working part-time for economic reasons,” only a fourth say they could only find part-time work.   Those who normally work a 9-to-5 schedule (35 hours a week) are counted as working part-time for economic reasons if they miss even one hour “for reasons such as holidays, illness and bad weather.”   That isn’t really underemployment, much less “real” unemployment.

What is unique about last year’s unemployment was its typical duration — doubling the number of weeks people remain on the dole.   Because those who have been unemployed 12–18 months do not leave the ranks of the unemployed until their benefits are about to run out (after an unprecedented 79 weeks or more), it doesn’t take many newly unemployed to push the rate above 10%.  Congress tripled the number of weeks people collect unemployment benefits (describing that and other transfer payments as a  “stimulus”) and now wonders why so many people take so long to accept a suitable job offer.   If you subsidize something, you get more of it — and that applies to unemployment too.   Many of those same clueless  legislators may be equally surprised to find themselves out of a job next November.

The Department of Sneak-a-Peek

Big_Sis_PeakThe Drudge Report’s provocative banner this afternoon combines with other news to suggest a homeland security trend: sneakin’ a peek.

The other story is the question whether the nominee to head the Transportation Security Admnistration violated federal privacy laws as an FBI agent, then omitted key information in reporting it to Congress. Robert O’Harrow of the Washington Post (returning to the privacy beat!) reports that Erroll Southers, a former FBI agent, made inconsistent statements to Congress about wrongly accessing confidential criminal records about his estranged wife’s new boyfriend. (More here.)

That was 20 years ago. Being fully transparent about it today would almost certainly have prevented it from being disqualifying. But over the last 20 years, data collection has grown massively, and federal access to personal data has grown — including access by the TSA. Data about the appearance of your naked body may be on the very near horizon.

Southers’ problem with sneaking a peek at confidential records — and whatever cover-up or oversight in his reporting of it to Congress — signal precisely the wrong thing at a time when people rightly want their security not to be the undoing of privacy.

Retiring Sen. Dorgan Was Mad about Trade

When Sen. Byron Dorgan, D-ND, announced this week that he would not be running for re-election in November, he explained that he wanted to pursue other interests such as teaching and writing more books.

As a senator, Dorgan opposed almost all efforts to liberalize trade unless it involved Cuba or the re-importation of price-controlled drugs. He holds the distinction of being the second most frequently mentioned politician (behind only Barack Obama) in my Cato book, Mad about Trade, something that I’m sure the senator would consider a badge of honor.

Here is my critical but eminently fair review of his 2006 book, Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics Are Selling Out America.