In which I apologize yet again...

I know things have been quiet here lately. I do have a few things in the hopper, so stay tuned...

MLK Day Every Day

Today, in what has become an annual tradition, I am reposting an essay I wrote in 2012 on the occasion of Martin Luther King Day. 

MLK Day Every Day

Today, our nation honors its single greatest citizen, Dr Martin Luther King, Jr. Dr King seized upon the ideals of the founders and sought to bring intellectual honesty to the precept, "Justice for all." Like so many people of beneficent conscience, he sought to remake the world in the image of what it could be. Unlike so many before or since, he succeeded, at least in moving our society toward that goal, chiefly through the relentless courage of his convictions.

In the immediate aftermath of the Second World War, black Americans who'd served overseas began to agitate for the sort of equality to which they'd been exposed in Europe. They came to realize that, if they were to fight and die for the American cause, perhaps that cause ought to include their interests. From this burgeoning movement emerged Martin Luther King. A young minister with a degree in divinity, he was radicalized by the rampant culture of abuse inflicted upon American blacks, particularly in the south. His expansive philosophical interest led him to, among others, Henry Thoreau, whose views on the tyranny of the majority were the intellectual foundation of Dr King's interpretation of the problem faced by black Americans, and Mohandas Gandhi, whose philosophy of non-violence was the inspiration for Dr King's solution.

The importance of the cultural shift under way in the 1950s to the effectiveness of Dr King's message cannot be overstated. In the years after the Second World War, Americans collectively enjoyed a growth in prosperity previously unseen. As more and more white Americans escaped poverty and enjoyed President Roosevelt's "freedom from want," it became increasingly clear to non-whites that they were not to be included. The expansion of radio and the advent of television hammered home the point that economic security and middle class luxury in 1950s America were monochromatic. Radio and television also provided the viscerally powerful orator an audience wider than that enjoyed by earlier prophets.

In 1965, Dr King's focus on social improvement expanded to include the economically disadvantaged, regardless of race. The escalation of the war in Vietnam struck at the heart of Dr King's fervent belief in non-violence. He also came to see conscription, as practiced in 1960s America, as an unfair burden upon the less fortunate, and blacks in particular. His inclusion of poor whites in the pantheon of the dispossessed whose lot he sought to improve posed a particular threat to the political and economic establishment because then, as is still so sadly the case now, this establishment relies upon poor whites as their agents of oppression, forming a bulwark against the political and economic gains of poor minorities.

That Dr King was killed before his job was done is not to be mourned. It is not appropriate, either, to draw primary inspiration from his tragedy. It is a disservice to his legacy to focus our attention too greatly on any aspect of his story beyond his message. Dr King was no utopian; he lived in, and was of, our time. He did not advocate equality of result, merely equality of opportunity. Much of the last forty years has seen the rise of philosophies committed to the maintenance of the status quo, such as free-market fundamentalism. While this would surely sadden Dr King, it is important to take a long view, as Dr King acknowledged when he observed that “The arc of the moral universe is long, but it bends toward justice." To recognize that our society has come so far in furtherance of the betterment Dr King envisioned is not to blindly settle for what progress has been made, but rather to understand how much more is possible.

The holiday in honor of Dr Martin Luther King, Jr comes once a year, in January. Every day that we consider the plight of the poor and of the disadvantaged and work toward improving our shared prosperity, however, is Martin Luther King Day.

"True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring."

Measuring Employer Market Power

In a recent post, I looked at one measure of current job market slack. I've reproduced the graphic from that post below. It shows the difference between the number of unemployed persons and the number of job openings.

Unemployed minus Job Openings since 2008 (in millions)

What this shows is that there are still over seven million more unemployed than there are job openings, down from a peak of around 13 million at the end of 2009. To get some perspective on this number, I extended the line as far out as the data allow. The graphic below is the same measure from 2001 to present.

         Unemployed minus Job Openings since 2001 (in millions)

In this graphic, we can see the recovery after the 2001 recession. There is no demographic story here. No "baby-boomers exiting the workforce" explanation is possible here. Neither is there a population growth story here. For population to explain this difference, for example, the US population would have to be roughly twice the level it was ten years ago.

To really show what I and others mean by "slack," we have one other measure to observe. The chart below is total unemployed persons divided by total job openings. 

Unemployed Persons per Job Opening since 2008

What we see here is that there are still three unemployed persons for each job opening. This is what I mean when I say that employers enjoy market power in the labor market. This is why, for example, wages are under no upward pressure. Who would dare ask for a raise under these conditions?

Another notable observation, regarding the "great vacation" theory of unemployment: What do you suppose happened in early 2008? Either the jobs were pulled out from under the workers (decrease in job openings), or many more people began to look for work (the exact opposite of the "great vacation" theory).

We can also put the Employer Market Power Ratio in perspective as well. For these data, we can all the way back to 2001 as well.

                  Unemployed Persons per Job Opening since 2001

What we see here is that the ~3 persons per opening of today is roughly equal to the worst time after 2001.

The elephant in the room in this analysis is that all of these metrics use Total Unemployed Persons, which is an entirely inadequate measure, but it's all we've got for now. If we were to include discouraged workers in these calculations, the picture would likely be far worse.

Links of the Week - 17 January 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Microfoundations we like vs microfoundations we can solve
Nick Rowe

Uber’s surge pricing is totally logical and fair. So why do people hate it so much?
Neil Irwin

Whining about price gouging
Noah Smith

Uber and the Macro Wars
Paul Krugman

The Downside of the Fed’s Increasingly Complicated Expectations Game
Justin Fox

Top of the charts (charts of the year)
Shane Ferro

Four missing ingredients in macroeconomic models
Antonio Fatas

Let Me 110% Endorse Antonio Fatas’s Mini-Macroeconomic Manifesto…
Brad DeLong

Alan Greenspan Is Still Trying to Justify His Bad Decisions: What the maestro doesn't understand
Robert Solow

New versus traditional Phillips curves and the Great Recession
Simon Wren-Lewis

A causal fetish
London Economist

The Miracle of “Anchoring”
Barry Schwartz

Links of the Week - 10 January 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Gingrich vs. the Right on Apartheid: 'What Would You Have Done?'
Ta-Nehisi Coates

Why I want Bitcoin to die in a fire
Charlie Stross

Being Smart Isn't Always Enough to Make it in America
Kevin Drum

Microfoundations - the illusion of necessary superiority
Simon Wren-Lewis

Conservative Wonks, Conservative Politicians, and Recessions
Paul Krugman

Risk premia or behavioral craziness?
Noah Smith

More on the illusion of superiority
Simon Wren-Lewis

Full employment gives people jobs. But it also gives them power.
Ezra Klein

Freshwater Macroeconomics Has Failed the Market Test
Matthew Yglesias

Macroeconomic Forecasting and Macroeconomic Methodology
Brad DeLong

Microfoundations and the Parting of the Waters
Paul Krugman

More Paleo-Keynesianism
Paul Krugman

Links of the Week - 3 January 2014

A weekly collection of links from the Conscience Warrior Newsfeed


Young Stanley Fischer and the Keynesian Counterrevolution
Binyamin Appelbaum

Inequality and Incomes, Continued
Paul Krugman

The Neo-paleo-Keynesian Counter-counter-counterrevolution
Paul Krugman

Why did we go to war in Iraq? An interview with Peter Baker
Ezra Klein

Microfoundations (aka Macroeconomic Reductionism) Redux
David Glasner

“Microfoundations”: I Do Not Think That Word Means What You Think It Means
Brad DeLong

Sam Wyche at play in the fields of chaos
Allen St. John and Ainissa G. Ramirez

Less Need to Worry About Inflation
Jared Bernstein

The Stage is Set
David Warsh

What is the best way to measure inflation?
Mark Thoma

Megyn Kelly and the arc of history
Mark Kleiman

Dividends Are Evil
Matthew Yglesias

Links of the Week - 27 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


On the inevitability of justice
Ryan Avent

Inflationistas at Bayes
Paul Krugman

Why I Haven't Changed My Mind About Bitcoin
Matthew Yglesias

The Unemployment Rate at Full Employment: How Low Can You Go?
Jared Bernstein and Dean Baker

The Minimum Wage and the Laws of Economics
Jared Bernstein

Not even past: A battle over bronze and over memory
London Economist

Dumb and Dumber, NFL Edition
Brian Burke

Is inequality bad for economic growth?
Brad Plumer

Raise the Gas Tax!
Matthew Yglesias

What the Volcker Rule Really Does
Matthew Yglesias

There are six big arguments against the Volcker Rule. Here’s why they’re wrong
Mike Konczal

The Argument for the Volcker Rule
Evan Soltas

Links of the Week - 20 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


James Baldwin debates William F Buckley Jr
via Brad DeLong

The shakeup at the Minneapolis Fed is a battle for the soul of macroeconomics—again
Miles Kimball and Noah Smith

[and Mark Thoma's take]

[and Brad DeLong gives us everyone else's take]

On the Importance of Little Arrows (Wonkish)
Paul Krugman

New Thinking and Old Books Revisited
Paul Krugman

Colleges are teaching economics backwards
Mike Konczal

Racism isn’t over. But policymakers from both parties like to pretend it is
Ezra Klein

Paths to Full Employment
Jared Berstein

What If Rich People Got More Votes?
Dave Gibson

Reagan and the role of the past in shaping the future

My colleague Ziyi Mai writes that critics of today's slow economic recovery should not look to the policies of the Reagan administration for any explanations. He cites the similar (or better) unemployment and inflation numbers of the late 1970s and early- to mid 1980s, and says that the policies of the second Bush administration have more to do with today's lackluster recovery than those of the Reagan administration. He also claims that consumption inequality, which is lower than income inequality, is a better measure of economic equality.

While it is true, as Mai writes, that unemployment has remained persistently high for a longer period after the 2008-09 recession than after the 1982 recession, much of this persistence is attributable to the different dynamics of recovery from financial panics. Political intransigence has also led to contractionary fiscal policy in direct contradiction to textbook macroeconomics. Had the Congress taken up the monetary 'slack' provided by unconventional monetary policy over the last five years, it is likely that unemployment would be significantly lower today. It is worth noting, as well, that this intransigence has its roots in the political style of Mr Reagan, whose language of class warfare and racially incendiary rhetoric and actions sought to undermine the value of government as an institution, and whose fruits are borne today.

None of this, however, is related to the criticism that Mai seeks to address, which is that income inequality has inhibited this recovery. It is clear that income inequality has skyrocketed since 1980. It doesn't seem as if Mai would disagree with this; but he would rather talk about consumption inequality. That's fine; there are plenty of good reasons to do that. The best reason is that the ultimate purpose of income is to spend it. Various macro models address the utility of bequeathment, and the concept of discounting future consumption is at the heart of any dynamic macro model, but it is safe to say that we seek income so that we (or our heirs) may spend (today, tomorrow, whenever).

So, why not focus on consumption inequality? I think the best reason is that, contrary to Mai's assertion, consumption inequality has risen right alongside income inequality. The argument implicit in the focus on consumption inequality is that "if people can spend, it doesn't matter if they cannot save." This has unfortunate consequences both individually and macroeconomically. Households that are income-constrained, and which therefore must spend to their limits rather than save, face tremendous financial uncertainty. The rise in bankruptcies due to medical emergencies demonstrates this clearly. As Mai cites, the decrease in the national saving rate, while beneficial in the short-run during the recovery, will eventually have dire ramifications in terms of private investment.

There is, of course, a mechanism by which consumption equality could persist in the face of rising income inequality. The trend toward "cash-out refinancing," an equity-draining loan option popular during the housing boom of the early 2000s, allowed the income-constrained to treat their homes like ATMs in order to boost consumption. This was made possible by the outsized demand for collateralized debt obligations, the mortgage bonds whose bubble most directly led to the financial panic of 2007-08.

Mai is right that we cannot look solely to the past to explain our current economic trouble. He is too quick, however, to absolve Mr Reagan and his political descendants of blame for their role in setting the table for the rotten meal we're all staring at now.

Links of the Week - 13 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


Yes, the government should spend more each year
Mike Konczal

Structural Problems With Economese
Paul Krugman

The central banker who changed his mind
John Aziz

When Someone Claims the War on Drugs Is a War on Minorities…
Mike the Mad Biologist

[John Derbyshire] Hasn’t Seen ’12 Years A Slave,’ But He’s Sure It’s Too Hard On Slavery
Alyssa Rosenberg

Why guru ETFs beat human gurus
Felix Salmon

Does your job create real value?
Noah Smith

The Answer to the Crisis in Democracy Is More Democracy
Ta-Nehisi Coates

Twenty tips for interpreting scientific claims
William J. Sutherland, David Spiegelhalter, and Mark Burgman

The GOP’s Obamacare Playbook Has One Football Play, and It Makes No Sense
Jonathan Chait

A brief note on unemployment

This graph shows the gap between the number of unemployed and the number of job openings, measured in millions. This is about the best indication there is that the time for stimulus (monetary, but especially fiscal) is not over. The good news, of course, is that the gap is shrinking, but 7.5 million more unemployed than job openings is staggering. At the current rate, we should be back to the previous high (~6 million) in about 12-18 months. What this says above all is that the assertion that we can reduce unemployment by cutting unemployment benefits, a dubious notion in the best of times, is downright insane right now.

Links of the Week - 6 December 2013

A weekly collection of links from the Conscience Warrior Newsfeed


Washington Center for Equitable Growth Launch Event: Robert Solow Introductory Video
via Brad DeLong

Explainer: How does the Fed stimulate the economy?
Mark Thoma

There is no such thing as redistribution
Matt Bruenig

Brad Plumer’s Redistribution Blindspot
Matt Bruenig

Given the Myth of Ownership, is the Idea of Redistribution Coherent?
Mike Konczal

The Power of Two (Extra Wonkish)
Paul Krugman

Political Questions About the Jobs Report
Nelson D Schwartz

This is why you shouldn’t pay attention to consumer confidence indicators
Neil Irwin

Dick Cheney lied about more than Iraqi WMDs
Barney Frank

The ‘economic justice’ wing of the Democratic Party: A monetary policy menu
Ryan Cooper