19 thoughts on “Why Does the Recession Persist?”

  1. No.

    The recession persists because the stimulus was inadequate.

    This has been another edition of simple answers to simple questions.

  2. Who they $%!# cares with the Chicago school thinks about anything? Take it to the Heritage Foundation.

  3. That is quite possibly the stupidest article I’ve ever read on any topic. I give the article 1/10, its only redeeming quality is that it is fairly short, he could have written stupid things for a great many pages I’m sure, so I am thankful for that. The problem facing the US (and the world) is exactly what he brushes off in the first sentence of the second paragraph: capitalism will always self destruct.

    Have fun:
    http://www.youtube.com/watch?v=TZU3wfjtIJY

  4. What a bunch of predictable and discredited partisan talking points. I particularly liked his grave concern that those who make the economy happen were dissuaded from doing so by their abject terror of a vertiginous rise in their tax rates back to the stratospheric levels not seen since the late 1990s, tax rates that were obviously completely inconsistent with economic growth. When I want to know what a Chicago School economist will advise, all I have to do is put myself in the mindset of someone who already has a trillion dollars, is a complete sociopath, and has no capacity for long-term planning. That mindset usually manages to come up with the same policy prescriptions they do.

    I especially liked how this highly-esteemed, presumably serious economist managed to discuss the spending rise by the federal government since 2007. As if the decision to rescue Wall Street and Detroit, to massively boost spending on aid to the unemployed and the poor, and not to mention the stimulus, could not possibly be considered. There is a longer-term trend that economists of his ilk never seem to consider: over the last generation, the amount of income and of wealth controlled by the top 1% has roughly doubled; the top 0.1% has fared even better. Obviously, this doesn’t concern this dude in the slightest – but I’d like to know what he thinks of the trend, whether he thinks the accelerating march towards feudalism would ever be a cause for concern. I’m guessing not.

  5. There’s enough wiggle room in the terms that most people could agree if they felt so inclined. My answers are “yes” and “yes, probably, with enough qualification”. I mostly accept Milton Friedman’s analysis in __Money Mischief__ of the effects of money creation. I don’t believe that money creation stimulates economic activity, in the medium to long term. When it massively misallocates resources (which is usually), money creation is a drag. Subsidizing unemployment generates more unemployment. Subsidizing inefficient private-sector producers (GM, Chrysler) depresses the activity of more efficient producers (Ford, Toyota, Nissan, etc.). I’d add the regulatory blizzard after the ascention of the 2006 Congressional elections and the massive increase in the Federal minimum wage.

  6. Malcolm,
    Please provide evidence for the existence of said “regulatory blizzard”, presumably implemented by the administration one George W Bush – an administration that the workers of the Sago mine could inform you was not overly concerned with implementation of regulations.

    Also please provide evidence that raising the minimum wage has a significant downward effect on employment. You could start with debunking this study.

    Heck, forget all that, and make some attempt to defend your statement that:

    Subsidizing unemployment generates more unemployment

    Bonus points if you can do it without looking like a ghoul.

  7. Warren,
    Just one point, for brevity.
    Minimum wage: That’s basic economics.
    Usually, the weak relation between increases in the minimum wage and increases in the unemployment rate is due to the (usually small) incremental increase in the legally-mandated wage and the imprecise empirical measurement of “unemployment”. Try toss a pebble into the ocean and measure the wave-generating effect–during a hurricane with an altimeter from 10,000 feet. Guess what? Stones do not generate waves when tossed into water!
    Card/Kruger surveyed businesses before and after an increase in a State minimum wage. The criticism that other economists make of Card/Kruger amounts to this: survey people who played Russian roulette and you’ll find that Russian Roulette is never fatal. Obviously.
    Here’s an experiment: outline a 6″x6″ square ABCD on a 8 1/2″x11″ sheet of paper. Bisect each side. Connect midpoints of opposite sides. You have four smaller squares. Label upper-left square “Top-end Buyers” and lower-left square “Low-end Buyers”. Label upper-right square “Top-end Sellers” and lower-right square “Low-end Sellers”. Now imagine a law: “In ___ (your State) it shall be illegal to sell __X__ for less than __$Y__.” Let X be “new televisions” and Y be “$700.00”. Now ask yourself: “Who gains and who loses?”. Try again with X as “new cars” and Y as “$60,000.00”. Who gains and who loses?
    Why is the result any different when X is human labor and Y is $7.25/hr?

    Shorter answer: read the section on minimum wage in Sowell’s __Basic Economics__ and the section on minimum wage in Walter Williams’ __The State Against Blacks__.

  8. Remember that in 2009 conservative economists predicted inflation, not unemployment. Where is all the inflation that the conservatives and libertarians predicted?

    http://recessionreadyamerica.com/2009/09/we-are-living-in-a-hyperinflation-nation/

    These guys are never correct and that is no deterrent from making more stupid statements. There are no reflective moments where a conservative has examined why they were wrong or apologized. Always recalcitrant.

  9. So, according to Becker, the slowness of the recovery is entirely due to policies enacted or proposed after the crash, and has absolutely nothing to do with the causes of the crash. And the slow recovery in the US is due entirely to uniquely American factors, and shares no common causes with the slow recovery in Europe.

    Even more unlikely is Becker’s implicit claim that only Democrats and the government can cause uncertainty. Obscure proposals to change antitrust law or regulate executive pay are tremendous causes of uncertainty, but the House Republicans’ threat to force a default on the national debt or the malfeasance of the financial industry go unmentioned.

  10. What perplexes me the most about the Becker crews’ attitude is that they don’t seem to have the slightest care about how their shoddy time traveler arguments look to their fellow economists. There appears to be no pride in being correct on the facts. How can this be? It is, on its face, evidence for a fully corrupted profession.

    I’d like to know where Matthew Kahn comes down on this situation. Silence is complicity.

  11. Malcolm, your response is typically incoherent and typically nonresponsive. I may steal the line about Russian Roulette, which is a good one, but is completely inappropriate to the circumstances, as the data were not collected in a way likely to subject them to this criticism.
    It is certainly true that, simply on Supply And Demand, some individual jobs will be lost in response to a minimum wage hike. The question is whether there will be an overall job loss; you’d think the people who take The Laffer Curve as an article of faith might understand the general concept of how this question works. The data suggest that significant job losses do not in fact result.
    I am, however, amused that you managed to cite two books written by accredited economists who also happen to be famous and frequently derided nutball political columnists – one of them managing to hold a named chair endowed by a far-right foundation in a department funded by a (different) far-right foundation in a university infamous for its far-right ideological slant, which would be a trifecta if the last two weren’t somewhat redundant with each other. Going to these people for instruction on economics is like going to Newt Gingrich for instruction on history: they’re techinically qualified, but you’ll learn mostly about their ideology, not the subject at hand.

  12. Should I have less respect for Nobel Prize winners now? I assume he won as part of a team? (meee-owwwww)

    Well, I’m sure he’s good at math.

    I would pose an alternate theory: people who make oodles and oodles of money for non-productive labor secretly know they don’t deserve it, and that’s why they imagine things like that an extremely centrist president is anti-business.

  13. @Malcolm Kirkpatrick

    In one comment, the increase in the minimum wage is “massive”, and in the next, it is a pebble tossed in the ocean. I’m reasonably sure you are just arguing mindlessly, but I thought I would throw in a corrective comment for the benefit of others.

    It may be “basic economics”, but your account of the effect of the minimum wage is wrong. It is wrong, as microeconomics — that is, as a Marshallian account of partial equilibrium responses; and, it is wrong as macroeconomics.

    An honest economist, when asked about the effect of a minimum wage, would first ask, “how high a minimum wage?” The theory of market price theory does not tell us, a priori, what the effect of a rise in a floor price will be on demand or supply. It tells us, only, that it depends, and tries to identify the variables on which it depends. The insistence of conservatives that any minimum wage will depress employment and be “a bad thing”, and that evidence never matters, is an important clue that they are rejecting economics, not employing it, in their argument.

    The “basic economics,” as you call it, of wages, is that the wage-rate will be equal to the marginal product of labor. The marginal product of labor is not fixed, and it is certainly not (again, contra many conservatives claiming, falsely, to make an economic argument) a property of the worker (you make this error, implicitly, with your cars).

    Textbook reasoning about the case under conditions of constant returns and complete information can leave a mis-impression. In that case, there’s no looking for a job, and no bargaining over wages, and no management or supervision in the workplace, no precautionary idleness or error or waste, no economic profit, no business strategy. There’s just a single, optimal outcome: labor services are used to expand output right up to a single, optimal point.

    Under conditions of uncertainty and incomplete and frequently asymmetric information, however — the conditions under which we live — the actual case is quite different. Workers are searching for employment; firms are searching for employees. The firm’s cost structure is typically that of monopolistic competition, with increasing returns — the market for the firm’s product may not have a true market-clearing price; in any case, it certainly will not be a competitive price, because the firm acts strategically. There’s a theoretical case to be made that the wage remains the marginal product of labor, but there’s no single equilibrium; the wage remains the marginal product, because the firm’s management has an incentive to make it so, but this marginal product is a variable under the control of management.

    In these realistic circumstances, economic theory, as you call it, can suggest a variety of ways in which a minimum wage could be welfare-enhancing. The theory of efficiency-wages treats some of these. But, even “basic economics”, as you call it, can suggest a couple, which are, tellingly, overlooked by stubbornly stupid conservatives. Even in “basic economics”, when it is used honestly and not as a fixed dogma, there’s an elasticity of demand. A higher minimum wage might mean that minimum-wage workers work fewer hours, but earn higher incomes; that’s a logical possibility, and for the minimum-wage worker, that’s certainly a welfare-enhancing outcome.

    As for the macroeconomics, the economy is depressed, as you say, by an excess of money creation.

  14. (Bruce): “In one comment, the increase in the minimum wage is ‘massive’, and in the next, it is a pebble tossed in the ocean. I’m reasonably sure you are just arguing mindlessly, but I thought I would throw in a corrective comment for the benefit of others.
    “Massive” referred to the increase mandated in 2007 and phased in over four years. The “pebble” referred to increases which generated no “significant” increase in unemployment in some studies.
    (Bruce): “An honest economist, when asked about the effect of a minimum wage, would first ask, ‘how high a minimum wage?’
    Right. A dishonest critic would falsely claim that someone who writes that magnitudes matter claims otherwise.

  15. That is so very sad. Becker once had a few very interesting insights, even if they turned out to be almost completely wrong. But this is just gobbledigook on a greenspan scale.

  16. Come now. This will be passed around in executive offices. And Faux News. And in country clubs. That is all that matters.

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