Progress is coming - unless we stop it

Four years ago I wrote that destroying jobs is progress, in my post titled Destroying Jobs is Progress.

Now, Bryan Caplan says the same thing, but this time it's animated, and therefor, much more compelling.


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If you think unemployment is bad, look at this

I spent most of Wednesday driving to New Jersey and back with some friends from college. After all the reminiscing and sharing of what's going on in our life, the unemployment rate came up, along with President Obama's State of the Union address. One of my friends observed that we accidentally had a serious conversation.

Purely as a joke, I made an off-the-cuff argument against using the unemployment rate, because it only counts current job seekers. It does not count, I told them in the driest tone I could muster, people who go back to school, become homemakers or just drop out of the job market. I recommended the labor force participation rate as a better figure to follow.

The words I was saying to sound far too serious accidentally came from the heart, I realized, and the conversation got me curious about what's been happening with the labor force participation rate.

What I found, sadly, was this:

President Obama started this year's State of the Union by saying unemployment is at a 5 year low. I believe him, but it appears that some of those improvements came from Americans leaving the workforce. That problem is getting worse every year.

This is not a criticism of any of the president's policies, but a crucial revision on his framing of the issue. While the unemployment rate has fallen, it hasn't fallen to an acceptable level. We also have a big problem when potential workers are left idle, even if there are less idle workers then there were before.

I do have one caveat here: My idea of an ideal future does have a lower labor force participation rate. I share John Maynard Keynes' vision of people living like lilies of the field, who toil not, neither do they spin. I want people to work few hours and retire earlier in life. However, that future comes from technological innovation, not a recession.

As it stands now, we aren't seeing a short-term drop in labor force participation because of labor-saving breakthroughs. It's because of poverty. The current course points us towards a stagnant or falling standard of living when what we want is progress and rising standards of living to occur while more people get to retire.
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I saw this posted on Facebook today:

More jobs lost! Sikorsky Aircraft Corporation, maker of the military Black Hawk helicopter, became the latest defense contractor to announce that they will be cutting 570 jobs in Connecticut due to the defense budget cuts imposed by the Obama administration. "It’s a real blow to the community because they were a major employer," Chemung County, CT Executive Tom Santulli said. Are you concerned that defense spending cuts are cutting jobs and affecting the military as other countries are increasing their militaries?

A quick Google search showed the plant is actually in New York state, but the rest of the details line up.

The fallacy we're seeing here is the old ruse that because spending cuts always costs someone their job we should never issue then. It's the same bogus logic if the supposed victims are soliders or firefighters.

It's bogus to criticize President Barack Obama's policies for the destruction of obsolete or low-priority positions. However, President Obama only has himself to blame for pushing a mythical economic model where the economy is helped by using taxpayers money to keep people busy with worthless chores and creating jobs is a goal unto itself. His foolish critics are just spooning his own idiot porridge back to him.
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What recovery were you watching?

I've been looking through some of President Obama's various speeches and interviews, but I can't seem to find the one where he said  the country is too damaged for him to save, but he'll keep it from getting worse.

I hear the president's supporters speak about this concept all the time when they defend his first three years in office, but I can only find candidate Obama promising swift changes and improvements upon his election. They have even gone so far lately as to say the 2012 economy shows his policies have been a success.

Really? What nation are they talking about.

In all fairness, the president's role in determining the rate the economy chugs along is minor. President Obama did not ruin the economy, nor has he actively sabotaged it's recovery. But his defenders commit a fallacy when they point to any reduction in unemployment levels as proof that his policies work.

First of all, the improvements are incredibly modest when compared to what his administration projected with the stimulus bill. The Heritage Foundation was kind enough to plot the recorded unemployment rates on the most recent update of this famous chart:

We're doing nowhere near as well as President Obama said we would. We're actually doing worse than the projections for a hands-off approach. He also famously said that if the economy doesn't turn around in three years he will not expect voters to return him to office:

I am not saying his boast means voters are duty-bound to make his prophecy come true. I am simply showing that his policies were supposed to make big gains that never materialized.

There is a big Post Hoc fallacy in attributing the gains the economy has made over the last year to the president's policies. I don't think the average person understands that economists believe without Keynesian stimulus, an economy will still slowly recover. The public's view seems to be that once it falters, it stays there until someone can fix it with policy changes.

The economists' idea is that as people lose their jobs and buy less, raw materials will fall in price. They will be cheaper to purchase and you eventually get to a point (after a lot of misery) where they become cheap enough for people to start buying them and creating businesses. This is what solves recessions and depressions and the stimulus solution is a theoretical way to speed it up.

I am not arguing that the natural suffering model is a superior choice among two workable options. As someone who spent two years on unemployment during this crisis, I know exactly how miserable and hopeless it felt. Instead, I am saying a natural recovery is what's chipping away at unemployment, and the presidents supporters are making fools of themselves for trying to credit him with these minor gains.
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Great Depression comparisons always fall flat

Yesterday on NPR a non-economist guest was trying to compare the recent recession to the Great Depression, and as usual, he had to use faulty logic to make his point.

In Yoram Buaman's newest book, he lists the Great Depression as having a 27 percent decline in real GDP, compared to a 5 percent decline in the last recession. World trade went down by 36 percent, compared to 20 percent today. There were 43 months without economic growth, compared to 18 this time around. Most importantly, unemployment peaked at 25 percent during the Great Depression, while the not-great recession peaked at 10 percent.

The NPR guest's response was that there are poor communities that have 25 percent unemployment rates today, so in some ways, the recession was on par with the Great Depression.

This is nonsense.


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Who's allowed to oppose government support?

There's a brand of Ad Hominem dismissals against welfare state opponents that keeps coming up. It simply says the target's opinion is invalid because they belong to the wrong group, no matter how well-informed they are on the subject. Here's a typical example:

"Of course we should extend unemployment benefits. You have no idea what its like to be unemployed and poor so your position is irrelevant."

Now if the target is indeed outside the group the policy is supposed to help, the position stands. However, if the target reveals himself to be a member of the intended group, in this case the unemployed and poor, there is a quick follow-up: They are simply called a hypocrite.

I've gone over this one before, that it's logical for someone to oppose a scheme, be forced into it, but accept the rewards when offered them.

Imagine being forced to buy a lottery ticket. Say the ticket costs $5, the jackpot is exactly $100 but the chances of winning are a paltry one in 1,000. I would never choose to buy that ticket, but if I was forced to by the government, would it make sense to refuse to cash in a winning ticket? No it would not. I'm still opposed to the system and its misplacement of incentives.

To the opposition's credit, some of them stop there. However, some keep pushing. For example, I had one person tell me only the unemployed have the right to oppose unemployment benefits. I revealed myself to be one of them, and was then asked if I had any children. I do not, so in a very obvious move the goalpost was moved to say only unemployed parents can be in opposition.

But say someone is opposed to unemployment benefits becomes unemployed and changes there position to support the payments. They aren't a hypocrite anymore, but they are marginalized as an ignorant dimwit.

Anyone who is unemployed, opposes unemployment benefits and does not accept the payments would probably not be admired either. They would be dismissed as irrelevant because they had some other access to money, such as savings or a spouse, that separates them from most of the unemployed.

So please tell me, what group of people is allowed to oppose the social safety net?
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Is it hypocritical to use a program you oppose?

Not always.

As Greg Mankiw wrote this week, it wasn't illogical for Republican congressman to oppose the federal stimulus and then irrigate some of it into their own districts. This flawed criticism is one of the talking points Obama is repeating this week as we reach the one-year mark of the stimulus plan.

As Mankiw said:

I don't know the facts of the case, but the logic of the Democratic position baffles me. It seems perfectly reasonable to believe (1) that increasing government spending is not the best way to promote economic growth in a depressed economy, and (2) that if the government is going to spend gobs of money, those on whom it is spent will benefit. In this case, the right thing for a congressman to do is to oppose the spending plans, but once the spending is inevitable, to try to ensure that the constituents he represents get their share. So what exactly is the problem?

I have a very personal stake in the principle at hand. I am opposed to the extension in unemployment benefits that the Bush administration endorsed, as well as the increases the Obama administration encouraged. Despite that, when I was laid off I signed up for unemployment. Why isn't that hypocrisy?

For one, it would be a completely irrational course of action. Imagine being forced to buy a lottery ticket. Say the ticket costs $5, the jackpot is exactly $100 but the chances of winning are a paltry one in 1,000. I would never choose to buy that ticket, but if I was forced to by the government, would it make sense to refuse to cash in a winning ticket? No it would not. I'm still opposed to the system and its misplacement of incentives.

Granted, my view on the welfare system didn't survive my unemployment experience. My position had been that social programs like welfare, unemployment and disability benefit too many scammers. Not only do we have to pay for these people, but we also lose the taxes that they would otherwise pay.

I still believe that, but I was wrong to think there most of these people are gaming the public system. That's not the right way to look at this problem, because it assumes people are on welfare systems for the wrong reason. People are not on welfare because they are lazy; they are on it because they are smart.

As Milton Friedman explained on his Free To Choose miniseries, when you get a weekly paycheck for not working, it's irrational to take a job that pays less than that free paycheck. If you work, you lose the government assistance. Even a job that pays the same amount is off limits, because you'd be working for free.

But that doesn't mean any job that pays more than the government benefits is worth taking.

Let's say a person gets $300 a week for not working, and is offered a job that pays $400 and requires 40 hours a week.

Normally, we would say that job pays $10 an hour. However, because the cost of something is what you give up to have it, the wage of our subject is really $2.50 an hour. They will lose the $300 weekly government paycheck that required zero hours of work a week. In addition, they also have commute times and transportation costs like gasoline to factor in.

It's easy to see why someone with a lengthy promise of unemployment benefits would be encouraged to stay on it when faced with such an equation. If that person opposes the government program but still accepts the money offered, it doesn't mean they're hypocritical or lazy. It means they're smart.

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