The G7 are meeting in Huntsville this weekend, about an hour's drive up Highway 11 from my home town. There's been a certain amount of pre-summit jockeying about what would be on the agenda, but it's hard to see how there's going to be a consensus on the issue of the fiscal 'exit strategy' back toward balanced budgets. Here's why (data are quarterly, taken from the OECD):
As far as the US is concerned, an exit strategy has to be conditional on exiting the recession. And they're a long, long way away from that stage.
Worthwhile Canadian Initiative 
Meanwhile, the view from the U.S. (or the Washington Post at least), “But over the past year, the world has rallied behind resilient U.S. financial institutions and the American approach to economic management. Much of the necessary repair work has been done, with one nagging exception — the lack of a credible long-term plan to control the deficit.”
Dreadful. The Fed pulled out all the stops for the banks, but when it comes to unemployment … not so much. Why not print some money and send it directly to households? Wasn’t the Friedman’s prescription for this kind of mess?
Ha! Currently visiting a relative in Oro Station, about 20 km south of Orillia (Sunshine sketches of a little town) Two choppers passed overhead around 10:30 a.m. Maybe the Big “O”.
Why is it that all of the neighbours appear to be employed by the OPP (HQ in Orillia) or are relatively youngish retired Ontario teachers, +/- 55, who long for a daily weed to castrate, for excitement?
Come home, soon! Les dents de lion beckon.
The Fed pulled out all the stops for the banksThe Fed pulled burned all its political capital helping the administration subsidize the housing market. Or in the words of the NYFED regarding the past year of monetary policy: “The program … was intended to reduce the cost and increase the availability of credit for the purchase of homes.”
Hopefully, if there is one thing we can decisively say now, it’s that fiscal stimulus does not work.
I’ve lived in Orillia virtually all my life (now I go to school in Massachusetts) and I must say, it’s nice to see someone intellectual and influential come out of this town.
I notice that the vertical axis on the chart is “down from peak”. I suspect there might be problems comparing the reported numbers for either employment or unemployment from different countries, due to differences in cultures and reporting.
Even so, this chart then hides the absolute values. I’d still be interested in the absolute numbers, to see if it appears as if the U.S. is dropping towards the consistent levesl of the other countries.
So, here’s the scary question. What if what the U.S. is calling a recession is actually a permanent structural shift in employment patterns?
Chris S, that is a really good and important point.
Up until the last decade or so “full-employment” in the US was generally thought to be around 6% (a bit less I guess). Then there is a decade where it’s just over 4% without any inflation and 4% is roughly where this graph anchors for the US (it the current 9.7% is down nearly 6% from peak).
If 6% is the right number, and I think it pretty obviously is, then the US is only 4% below their full-employment level and they really don’t look so much worse than anyone else.
PS: the US would still look like the worst performer but I’d argue that this, in general, reflects a strength of the US economy as it more forcefully re-allocates labour. Of course the lack of demand in the growing industries is a huge problem here but that is a for the most part a problem with monetary policy. My point is that what you want from a flexible, liquid, labour market is a sharp fall in employment followed by a sharp rebound. It’s the rebound that’s missing because Ben has suddenly turned timid.
I’ve lived in Orillia virtually all my life (now I go to school in Massachusetts) and I must say, it’s nice to see someone intellectual and influential come out of this town.
Yes, it was high corporate taxes that ended the reign of the Tudhope Carriage Company, a lesson not lost on young Stevie Gordon – and the inspiration for Lightfoot’s Railroad Trilogy.
I suspect there might be problems comparing the reported numbers for either employment or unemployment from different countries, due to differences in cultures and reporting.
I think that’s more of an issue for unemployment, which is why I didn’t plot unemployment rates. And I used the OECD data in the hope that they would have corrected any statistical idiosyncrasies.
Winston: I try to make it back every summer and swim in Lake Couchiching. And if you start feeling homesick, just watch this.
I hear you can’t fight city hall in Orillia.
Changing a big bureaucracy’s outdated policies? That’s another matter: The Korean CBC (Criminal Background Check) Shuffle
Which raises the question; Why has the US done so much worse?
Two thoughts:
1. It’s worse when you look at employment, but not worse (or not as worse) when you look at GDP. Okun’s Law (the % change in output is about 2.5 times the % change in employment) seems to have failed for the US in this recession, IIRC. This observation leads to some variant of the “recalculation” theory interpretation — that the US economy had a bigger relative shock across sectors, so some of those jobs aren’t coming back in the same places, and employers know this, so aren’t hoarding labour for the recovery, as they normally do.
2. The US dollar is the reserve currency par excellence. (And the Euro’s recent troubles have only magnified this.) The US dollar should have depreciated when lending to US homeowners (etc.) suddenly looked riskier than it used to, and so desired capital inflows into the US should have fallen. But instead the liquidity crisis caused a rush into the US dollar, which is the most liquid of all assets. So the US dollar appreciated (or failed to depreciate as much as it should have). This leads to a global monetarist interpretation of Stephen’s graph.
Thoughts?
A variation on the same theme that I’ve heard: the US had to shift resources out of the construction sector to the export-producing goods sector (consumers were already over-stretched). The first part is done (hence the unemployment), but not the second – and the inability of the USD to depreciate isn’t helping.
Steve, I wonder what this graph would look like if you broke it down by gender and education and possibly race. What strikes me sitting here in California is how much employment there is – going to Universal Studios yesterday there were dozens of people whose job seemed to consist of nothing more than waving people onwards. Jobs that wouldn’t exist in everything-self-service Canada.
Apparently California has been relatively hard hit (and Universal Studios was less busy than I expected) so I wonder what it was like before the downturn.
Nick,
The unusually high number of people who are working “part time for economic reasons” in the US suggests that employers are hoarding labor (or at least hoarding workers, which isn’t quite the same thing).
One way to restate the discrepancy that you cite is to say that productivity has grown more rapidly in the US. I don’t know offhand if the growth in productivity has been rapid in particular industries, but perhaps part of it is a composition effect, as the US reallocates away from less efficient industries.
Jon, I don’t think we can say anything of the sort : http://cboblog.cbo.gov/?p=474.
I don’t think it’s fair to put Japan in against the other countries, since Japan was already in a lost decade before this crisis struck.
Also, I can add to Nick’s two points:
3. The US has a huge trade deficit, and China is fiddling its currency.
The solution for this graphic is, of course, to make it easier for the other G7 countries to fire workers; that way, they can all join the US in dropping more workers at a point when true macro would indicate that you need to increase AD.
Oh yeah, and:
4. Of the G7, the main origins of the crisis lie in the US. Try putting the US up against Spain and Ireland for instance.
Perhaps there’s other things going on too, like:
5. Worse labour laws, making it easier to fire workers?