Economists vs. Job Creation: Why the disconnect?

Tuesday, August 24, 2004 | 09:45 AM

Here's my most recent commentary. Its kinda big, so an excerpt is here, and the full piece is below.

"Slow Job Growth Puzzles Economists."

That was the headline of a WSJ article in March of this year, on the economy's anemic job creation. "Many economists admit they are 'stumped' by the question of why the expanding U.S. economy isn't churning out lots of new jobs, as it did so faithfully in the 1990s," the Journal noted.

Since then, their forecasting record has gone from bad to worse. With the June shortfall now clearly not a “one-off” courtesy of July’s disappointment, one question remains: Why have so many Economists gotten it so wrong? Observers are hard pressed to recall the last time the Dismal Scientists have been so consistently inaccurate, by such a large margin, and for so long a period.

It is easy to surmise that a combination of factors is to blame for the unusually slow job growth: Productivity enhancements have delayed the need for new hires in many businesses. And, during this expansion, jobs have been outsourced overseas (which, for obvious reasons, do not show up in the Bureau of Labor Statistic’s data). Last, we cannot underestimate the impact the tech/telecom/internet crash had on suppressing end demand. So much excess capacity was created by over-investment during the bubble era, that an extended delay in job creation – “Slack in the labor market,” as Chairman Greenspan likes to call it – is the natural result.

Yet all these issues have been well known and documented long before Economists started serving up their stink bombs. Did the entire profession suddenly become unhinged – or is some other, unknown factor at work? Since most economists I know are only mildly delusional (at least, they appear that way to a non-economist) we should consider another possibility: A major factor –unaccounted for by mainstream economists -- has contributed to the present recovery cycle’s unprecedented long delay in job creation.



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Tuesday, August 24, 2004 | 09:45 AM | Permalink | Comments (4) | TrackBack (10)
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» Why the Street Economists Are So Very Very Wrong from Barefoot And Naked
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» Economists vs. Job Creation: Why the disconnect? from BOPnews
Okay, you asked for it: I previously mentioned some of the economics stuff gets "wonky," and you people said "We don't care -- wonk us." Here's an excerpt; You can download the full article below. "Slow Job Growth Puzzles Economists."... [Read More]

Tracked on Aug 24, 2004 1:25:27 PM

» Economists vs. Job Creation: Why the disconnect? from BOPnews
Okay, you asked for it: I previously mentioned some of the economics stuff gets "wonky," and you people said "We don't care -- wonk us." Here's an excerpt; You can download the full article below. "Slow Job Growth Puzzles Economists."... [Read More]

Tracked on Aug 24, 2004 1:27:43 PM

» Economists vs. Job Creation: Why the disconnect? from BOPnews
Okay, you asked for it: I previously mentioned some of the economics stuff gets "wonky," and you people said "We don't care -- wonk us." Here's an excerpt; You can download the full article below.... [Read More]

Tracked on Aug 24, 2004 1:40:52 PM

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» Soylent Green is Made of People from Industry - The Joe Hill Dispatch - Journal of Business, Finance and Economics
My friend Barry Ritholtz has an interesting report [pdf] over at The Big Picture on why mainstream economists have been... [Read More]

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» Soylent Green is Made of People from Industry - The Joe Hill Dispatch - Journal of Business, Finance and Economics
My friend Barry Ritholtz has an interesting report [pdf] over at The Big Picture on why mainstream economists have been... [Read More]

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» Accelerated Depreciation of Capital Spending from The Big Picture
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong -- and by so much, and for so long -- about Job Growth? Or as the WSJ put it, why is "Slow Job Growth Puzzling Economists?" That quandry was [Read More]

Tracked on Sep 12, 2004 9:05:36 AM

» Accelerated Depreciation of Capital Spending from The Big Picture
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong -- and by so much, and for so long -- about Job Growth? Or as the WSJ put it, why is "Slow Job Growth Puzzling Economists?" That quandry was [Read More]

Tracked on Sep 12, 2004 9:07:41 AM

» Accelerated Depreciation of Capital Spending from The Big Picture
One of the questions which has been puzzling me for quite a while is this: Why have Economists been so wrong -- and by so much, and for so long -- about Job Growth? Or as the WSJ put it, why is "Slow Job Growth Puzzling Economists?" That quandry was [Read More]

Tracked on Sep 12, 2004 9:11:41 AM

Comments

An interesting piece and I agree with your analysis that the tax cuts would have done little to stimulate jobs growth in the short term. There may be another explanation to the economist failings however, their models don't work!

The traditional economic model is based on a credit cycle (hence all the misplaced obsession with the “indebted US consumer”), but all the evidence is consistent with a view that the "recession" was a simple business cycle inventory over-shoot, which resulted into a widespread pull back in output through 2001, 2002. The operationally geared hit to profits in 2001/2 reversed in 2003/4 and this is what the stock market spotted. It was about supply, not demand. The economists you cite were sitting patiently waiting for their credit cycle models to produce higher investment and higher jobs as a lead indicator to higher profits. And missed both the profits and the markets. A jobless recovery is great for profits! There was a sharp drop – and rebound - in temp labour, but the so-called puzzle about jobs reflects a denial that the model is mis-specified. They are also in denial about how having said that there would be a double dip and how no growth was possible without jobs growth and or income growth that the economy continued to do so. I detect not a small degree of petulance.

There are two more factors to consider. First that most economic commentary is driven out of the bond markets that thrive on forecasts of weak demand(especially if it can be tied in with a forecast of bad equity markets). In addition there is undoubtedly some political spin “jobs lost under Bush” and all that.

Posted by: Mark T | Aug 24, 2004 11:16:47 AM

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