June 22, 2011
Making jobs priority one
It is looking unlikely that there will be more stimulus from either fiscal policy or monetary policy. Former President Bill Clinton has called for suggestions for other policy options that might be helpful. Here are a few ideas along those lines.
Approve the Keystone Gulf Coast Expansion Project. I earlier highlighted the great need for an oil pipeline to transport low-cost crude from Canada and the U.S. Williston Basin to Gulf Coast refineries. TransCanada claims building the pipeline would generate 15,000 high-wage manufacturing and construction jobs directly from the construction itself, and I see huge benefits for U.S. oil producers, refiners, and consumers. It would cost the government nothing, and indeed would generate substantial new tax revenues for local, state, and federal governments. The only reason unemployed Americans aren't working on the project right now is because the U.S. State Department has been holding up approval of the pipeline.
Grant more permits for offshore oil drilling. Although some analysts had estimated that the offshore moratorium could cost tens of thousands of jobs (, ), the actual losses appear to have been substantially less than this. Nevertheless, we do know that three more rigs left the Gulf last week headed for other countries. Nearly a third of the deepwater rigs previously in the Gulf of Mexico will have ended up leaving due to the drilling stoppage that followed the spill in April 2010. The process of issuing new permits has been slow, and the Houston Chronicle reported on June 3:
The sheer size of the applications has made them difficult to manage, said George Morris, chief operating officer of Houston-based ATP Oil & Gas Corp. "We went from 39 pages to 3,900 pages on a permit," Morris said.
Develop Alaskan energy sources. Shell Oil Company claims that developing Alaskan offshore oil would create 50,000 jobs per year, and the company has invested more than $3.5 billion in leases and in supporting infrastructure. The latest roadblock is the ruling by the EPA's Environmental Appeals Board that Shell had not taken into consideration emissions from an ice-breaking vessel when calculating overall greenhouse gas emissions from the project, some 70 miles away from the nearest residents in remote Kaktovik, Alaska.
Apply sensible cost-benefit analysis. Here's a report from ABC news:
The sand dune lizard is a small reptile that has become the scourge of the Texas Oil industry, not because it is dangerous but because the threatened species could put land ripe for oil exploration off limits.
"As far as I am concerned, it is Godzilla," Texas land commissioner Jerry Paterson told ABC News. "[It's] the biggest threat facing the oil business in memory," said Ben Shepperd, president of the Permian Basin Petroleum Association. They believe the small tan-colored, insectivorous lizard could cost the oil industry and surrounding communities thousands of jobs....
The federal government said the sand lizard is on the verge of extinction, and is expected to place it on the endangered species list soon. If the species makes the list, its 800,000 acre habitat in the shinnery oak sand dune communities of southeastern New Mexico and southwestern Texas would receive protected status. That habitat happens to be right in the heart of Texas oil country.
Granted, the employment benefits possible from following the suggestions above would be a drop in the bucket as far as the millions of Americans still needing work. But I think they illustrate the possible benefits of a sweeping directive from the President to all administrative agencies that jobs really do come first. If such an announcement were made from the White House in conjunction with the four specific steps noted above, I could imagine an immediate boost to consumer sentiment and perhaps a noticeable drop in oil prices as well. My basis for the latter claim is the huge disparity in price between Brent and West Texas Intermediate, which suggests potentially significant effects of a commitment to produce more domestic crude and make sure it gets to refineries on the U.S. coasts.
May I also suggest that, in addition to providing a boost to the economy, such an initiative might prove helpful for the President's poll numbers.
Posted by James Hamilton at June 22, 2011 08:13 AMdigg this | reddit
"Grant more permits for offshore oil drilling."
I propose we call it the "Deepwater Horizon Memorial Jobs Initiative."
Posted by: mp at June 22, 2011 09:34 AM
And there is so much more: stop those pesky ATF agents from getting in the way of merchants selling machine guns to Mexican drug cartels!
Posted by: vak at June 22, 2011 09:48 AM
What? How about planting wind farms and having a government tax credit program for re-roofing all homes with solar panels? And if it is not windy enough we can hire thousands of unemployed people to blow as hard as they can toward the wind turbines. And if it is not sunny enough, we can employ thousands of unemployed people to blow toward the clouds in the sky to chase them off.
Don't we know that increased CO2 from fossil fuels will suffocate our crops and make it impossible to feed our country?
And if those who claim that earth's warming and cooling are natural cycles associated with solar activity and earth's orbital and axis changes, we can always go back and build the pipelines and power plants that our esteemed leadership wants to shut down. There will be millions of unemployed available for that.
Oh, wait. There already are millions of unemployed available for that.
Posted by: Bruce Hall at June 22, 2011 10:02 AM
Those all sound like reasonable, centrist ideas that would help stimulate the economy without damaging the nation's already precarious financial position. Unfortunately, the hard left won't even think about anything that increases fossil fuel usage, and, admittedly, some of my friends on the right will also object because a (moderate) Democrat mentioned them.
Posted by: Brian at June 22, 2011 10:23 AM
Dear Professor Hamilton,
Thank you for being a continuing breath of sanity.
Posted by: AS at June 22, 2011 10:49 AM
How about this:
* Have a 5 year hiatus on any new federal regulation - send the EPA, FDA, OSHA, etc home for 5 years with pay
* Make tort reform a priority, especially make class action law suits way, way, more difficult
* Repeal and bury ObamaCare
* Repeal and bury Dodd-Frank
All of these do not involve any garden variety fiscal or monetary policy, and are easily implemented. The economy would boom.
Posted by: Manfred at June 22, 2011 11:17 AM
Advice so sensible that the only sure thing is that it will be opposed by all members of the herd of independent minds in New York and Washington. Therefore, it cannot happen before 2013.
Posted by: Walter Sobchak at June 22, 2011 11:38 AM
I agree with the post.
Posted by: Steven Kopits at June 22, 2011 11:42 AM
"Making jobs priority one"
"Granted, the employment benefits possible from following the suggestions above would be a drop in the bucket as far as the millions of Americans still needing work."
Since most goods and services aren't in short supply, what about millions of Americans needing retirement?
Posted by: Get Rid of the Fed at June 22, 2011 12:34 PM
Great list Professor.
One small quibble.
Grant more permits for offshore oil drilling.
Granting more permits, under current requirements and regulations will not produce anything. Why not allow oil companies to exercise the permits they already have. Doesn't this make more sense than shutting down drilling in the Gulf?
Posted by: Ricardo at June 22, 2011 12:55 PM
Posted by: KevinM at June 22, 2011 01:19 PM
"But I think they illustrate the possible benefits of a sweeping directive from the President to all administrative agencies that jobs really do come first." No doubt jobs are important, but I fear that someday this will be an ironic elegy for our planet.
Posted by: edgolb at June 22, 2011 01:28 PM
I am an engineer, not an economist. Theoretically, we both deal in math and science. I've been consistent since 2009 in stating nothing will improve until late 2013. I once again, hold to that time line. Why? Well, 70% of the U.S. economy is based in consumption by the workforce. Going back 2 full decades, we began to remove the production of goods off shore. This was followed by exporting the service jobs in the last decade. The working class and lower middle class were told not to worry. The price of homes were up and they supplemented their traditional lifestyle with credit from an appreciating asset. So now here we are, those two classes have been fleeced via the death of the value of their homes and 401k's. Most do not understand what happened. Basically, their homes are down 30-40% and their 401k's took a 50% hit. I know that if you lose 50% and then the market goes up by 50%, you are still down 25%. Most hard working people do not get this and were just plain robbed. Many had to use what was left to survive and could not even recoup the 50%. They were promised by candidate Obama that the penalties for early withdrawal would be removed, they were not once he became the President. Now these good people are paying down their obligations and are not in any mood to go further into debt. Add in gas, which has risen from $1.78 to $4.00 and food which in some instances has risen 50% or more and you understand. I really do not need a computer that has fallen in price 50%, so call inflation tame if you want, but I know what the pain index is and the American middle is hurting in a bad way. The young are in even worse shape, our children are losing their future while they wait for employment that never comes, many are still at home and their faces show the hurt of having to rely on parents when thay are college educated and can't find work. Oh, did I mention they owe $40,000 in loans for an education that is becoming worthless and outdated! I lay this entire mess at the feet of those leaders from 1988 to the present. The have destroyed a once proud and vibrant people with their social experimentation. 2012 should put an end to the bogus economics of the last 20 years. We need to elect someone who will end employment taxes, income taxes and put the government on a very low budget. Most people in the classes mentioned will be coming out of the current DEPRESSION in 2013. However, it is one of those never again moments for them. This was generational theft, followed by economic slavery. The rich and powerful were bailed out, the poor are still poor, but the workers and the middle class were assaulted and left for dead. Do not expect them to simply buy STUFF to turn the economy over. It is not going to happen. However, watch for the rise of a Third Wave and see what good people of a like mind can accomplish. There is jail time for the likes of the financial criminals yet to come and their may even be justice for those who trusted those criminals with their live savings and their childrens futures.
Posted by: Steve at June 22, 2011 01:33 PM
Solution BTW, declaration of a Jubilee. All debt forgiven.
Posted by: Steve at June 22, 2011 01:35 PM
im with you on the keystone project, but im hesitant on the others...if you believe global oil resources are limited, then oil in the future will be worth more than oil in the present...
leaving it the ground is better than money in the bank...
Posted by: rjs at June 22, 2011 02:13 PM
Okay, I agree that some of these are probably good choices.
However, really, is ALL we could come up with for jobs is "Drill, baby, drill"?
Is that really ALL the US can do anymore?
Posted by: addicted44 at June 22, 2011 02:55 PM
Even better suggestion: get teahadis like Manfred to move to ACTUAL third-world countries instead of trying to turn the US into one.
Posted by: Matt at June 22, 2011 03:15 PM
So our best solution to unemployemnt is greater production and use of fossil fuels? I'd say we would do better with Pigou taxes on fossil fuels and job sharing.
Posted by: don at June 22, 2011 03:17 PM
I don't quite see how your conclusions follow from your premises. I agree about the Brent/WTI price spread...in fact, it's now even wider than when you first wrote about it. But the consensus view seems to be that it's due to problems in Libya and falling US demand for light sweet. So I can see how running a pipeline to New Orleans might help European motorists, I'm not seeing the big advantage to US motorists. In any event, investors seem to have concluded that the spread is transient, so why would they want to make big capital investments to mop up rents that may not be there a few days after one NATO cruise missile gets a lucky hit?
Shell Oil's claim about 54,700 jobs per year smells fishy. If you crunch the numbers in their report to Congress this works out to $280K per job per year. Really? I don't think so. At another point in their testimony they claim that the operation would only be active 3 months a year.
The fact is that all of these proposals are long term and would have next to no effect on today's AD. And what effect they would have would tend to be in states that don't have big unemployment problems...like North Dakota and Texas. The downside is that building pipelines and more offshore rigs is just an "enabler" of our oil addiction, which we really need to get under control. Instead of issuing permits for oil rigs I would rather Uncle Sam concentrate on issuing permits and underwriting insurance for modern nuclear power plants. How many more oil wars can we afford to fight? And how many more years can we keep kicking the can down the road on CO2 and (especially) methane emissions? It's hard to justify a lot of these ideas if they don't really do much to fix the current job problem. Over the long run the economy tends towards full-employment, so there's no jobs benefit over the long-run either.
Posted by: 2slugbaits at June 22, 2011 03:22 PM
How bout more productivity destroying stimulus like cash for clunkers? Here are a couple of ideas:
*Replace ATM's with an actual person who wanders the streets exchanging iou's for cash.
*Outlaw kiosks of any sort if they are not manned by a worker.
*Solve unemployment problem in home construction by replacing heavy equipment with shovels and manpower (or spoons and manpower, hat tip to Milton Friedman)
The quickest way to full employment in the short run is payroll tax breaks for employers. The best long run solution, contrary to the Pres Obama's view on productivity, is to incent capital expenditure. Moreover, as JDH highlights, energy is a great place to start.
I continue to be amazed at the progressives who fail to see that an increase in long run growth makes our problems so much more manageable. They would rather tax the bejeezus out of the owners of capital to push their wealth redistribution agenda. We need less ideology and more sanity.
Posted by: tj at June 22, 2011 03:38 PM
Professor, thanks, but I disagree. We are well past the time to get off of oil and onto other sources of energy. If we're going to spend some money and subsidize an energy source, let's deepen conservation instead of building a pipeline.
Posted by: ScottB at June 22, 2011 04:25 PM
"the EPA [said] that Shell had not taken into consideration emissions from an ice-breaking vessel when calculating overall greenhouse gas emissions from the project, some 70 miles away from the nearest residents in remote Kaktovik, Alaska."
hahaha that's funny, stupid EPA is worried that residents of a faraway town can be poisoned by greenhouse gases!!!!
oh wait. it's the wise expert economist who seems to think that. i wonder if that say something about the wise expert economist's eagerness to throw ecological concerns under the bus.
Posted by: hapa at June 22, 2011 04:49 PM
tj: The economic value of the product created in the projects I listed comes to many billions of dollars. All generate revenue for the Treasury.
2slugbaits: The pipeline construction could begin very quickly. I believe it's pretty shovel ready.
ScottB: The proposal is to collect taxes from the pipeline, not to subsidize it.
Posted by: JDH at June 22, 2011 05:52 PM
JDH The pipeline construction could begin very quickly
That's probably right. And as a public works project I could probably support it; but I'm skeptical about it's value in terms of closing the Brent/WTI gap. My bet would be that the gap will be long gone before the pipeline is even 25% done. Afterall, Conoco could pretty much kill it in the cradle all on their own. The rationale for the pipeline only makes long-run economic sense if you plan to use it to move Canadian oil sands & shale, and building the pipeline gives us kind of a white elephant. There will be a lot of pressure to exploit sands & shale once the pipeline is built...in other words, there will be a lot of pressure to let a sunk cost force us into bad environmental decisions.
tj I continue to be amazed at the progressives who fail to see that an increase in long run growth makes our problems so much more manageable. They would rather tax the bejeezus out of the owners of capital to push their wealth redistribution agenda.
Why do you assume that energy and capital are complements? That's old school. Most of the KLEM translog studies that I've seen find that energy and capital are substitutes. For example, according to one very large Bureau of Economic Analysis study a 1% increase in the price of energy results in a 3.59% increase in the capital/energy ratio (Morishima elasticities) and a similar impact on the labor/energy ratio. Other KLEM studies have found similar impacts.
Posted by: 2slugbaits at June 22, 2011 06:44 PM
""We went from 39 pages to 3,900 pages on a permit," Morris said."
Prove it. Or even that the change was within an order of magnitude of that.
It's strange how the Texans all talk about the evils of regulating their oil exploration, while boasting that blowing up their Savings and Loans--oh, sorry, putting in restrictions on lending ca. 1989, which was certainly just coincidence--is the reason they weren't so harmed by the housing boom.
(And that's eliding that many of those S&L loans were made based on the collateral value of oil-rich land--for wildcatting, which when unsuccessful would produce a bankrupt shell company and the bank owning land whose value matched the rest of the "desert with no water table within 50 miles" land.)
Posted by: Ken Houghton at June 22, 2011 06:52 PM
Excellent post, Prof. Hamilton.
One small quibble. So regulated & bureaucratic has our country become, that virtually nothing is 'shovel ready'. That is a big part of our problem.
Posted by: Bryce at June 22, 2011 08:10 PM
Are serious wasting a whole webpost on ideas for creating 65,000+ jobs when there are over 13,000,000 unemployed? Time to chuck your textbook on time series analysis.
Posted by: Mark A. Sadowski at June 22, 2011 09:52 PM
Great article James.
My idea: Put solar panels on dogs. Dogs love the sun. Everyone loves dogs.
Great talking to you all.
Posted by: agg9 at June 22, 2011 10:37 PM
Not fiscal policy or monetary policy, but within the executive's prerogative and massively stimulatory. Use Fannie and Freddie to juice residential investment in energy efficiency. Statutory authority already exists, the debt is private, and the debt guarantee is off the books. All we have to do is relax/simplify qualifications (5, 10, and 25K loans in 15 minutes with a certified energy audit). The best part is it would actually help Fannie and Freddie by improving the cashflow of the households (reduced utility payments equals fewer defaults).
Posted by: benamery21 at June 22, 2011 11:05 PM
In order to make profits beyond the growth in money supply, productivity needs to increase. Since profit will be constrained by income, that means the relative cost of inputs needs to fall continuously.
'Til we get back to that dynamic, high costs and low marginal profits mean lots of risk and uncertainty.
Posted by: aaron at June 23, 2011 04:41 AM
At some point of time,one may be entitled to conclude that central banks do not create jobs,central banks do not lift IS/LM.
One may reread their scopes of duties as ascribed by the legislators.One may as well conclude that their duties so precisely defined is supported by an historical documented learning.
Jobs promises are the routine vocal performances of the (politicians}.
One may remember that during the great crisis,employment was the same preoccupation,J Ford called the entrepreneurs to get back to their plants and factories,but they were busy playing the markets untill they were not.
Posted by: ppcm at June 23, 2011 05:39 AM
"Even better suggestion: get teahadis like Manfred to move to ACTUAL third-world countries instead of trying to turn the US into one."
You know what Matt? I was BORN and GREW UP in a Third World Country, and left that country at age 28. Thus, I have a very well developed feeling and intuition when a certain political class or a certain politician leads a country down the road to the Third World.
Suggestion: why don't you go to any Third World Country (say Bolivia, or Ecuador or Togo), settle there, and live there for 10 years, say? And then come back. And then compare.
Posted by: Manfred at June 23, 2011 05:56 AM
Slug - Thanks, you are such comic relief.
Mark Sadowski wrote:
Are serious wasting a whole webpost on ideas for creating 65,000+ jobs when there are over 13,000,000 unemployed?
I just don't believe that you are so thick that you cannot see the jobs that would be created from an abundant flow of oil. You are not serious are you?
Posted by: Ricardo at June 23, 2011 05:58 AM
Regarding the Dunes Sagebrush Lizard, Sceloporus arenicolus: most of what you read about it in the media, is propaganda. Experts say that the impact of listing it an endangered species would be far less than what has been reported.
Posted by: Joseph Yaroch at June 23, 2011 06:48 AM
I'm on CBS Evening News tonight, talking about the SPR release.
Posted by: Steven Kopits at June 23, 2011 12:23 PM
Amen and Amen !!!
Posted by: David Penwell at June 23, 2011 01:20 PM
And, if the President can signal that he believes alternatives will soon become viable, prices have peaked, and we would be woefully neglectful not to take advantage of our resources now, we might break this type dynamic I believe we've become trapped in: web.mit.edu/krugman/www/opec.html.
Posted by: aaron at June 23, 2011 01:47 PM
Ricardo the jobs that would be created from an abundant flow of oil.
Saudi Arabia has abundant oil, so why do they have a 10.8% unemployment rate?
You think like a Marxist. Isoquants are not generally rectangular. The long run effect of cheap and abundant oil is to move along an isoquant to a different capital/labor/energy/materials trade-off. The income effect of is transient; the substitution effect, not so much. And don't forget that cheap oil would make oil exporters poorer, which would eventually affect domestic income.
Look, the real problem with cheap oil is the same as cheap cocaine; it further enables our dependence. One thing we should have learned by now is that oil markets are prone to sudden shocks that result in supply shocks throughout the economy. The more dependent we are on cheap oil the deeper those supply shocks. We need to think seriously about flattening those isoquants so that our industrial base can easily substitute to whatever energy source is most abundant at the moment. Instead or restricting our choices, which is what cheap oil today does, we should be looking long term at expanding our menu of energy sources. You may not be around to see it, but in the not-too-distant future the reality of global warming is going to hit us like a wet fish, and the adjustment shock will doom a generation of workers if we don't start addressing things today. There's no such thing as cheap oil over the long run.
Posted by: 2slugbaits at June 23, 2011 02:57 PM
Of course I'm serious. US production of oil represents less than 4% of global energy consumption and is in steep decline. By the most outrageously optimistic predictions bumping this up will have an inconsequential effect on energy prices and our economy. This is just muddled oilhead nonsense.
Posted by: Mark A. Sadowski at June 23, 2011 03:39 PM
We must make investments in real productive infrastructure and equipment. This should include the North American Water and Power Alliance, which would bring massive amounts of water from Alaska and the Yukon Territory to the great plains of Canada and the US, the Great Lakes, the intermountain west and southern California, Arizona and New Mexico. This project was engineered by Ralph M. Parsons Company in the 1960's. It would require the work of millions of people building dams, canals, power stations, pumping plants, rail lines and new cities. What will not work is the democratic plan to run our industrial civilization on solar power and windmills; nor will the republican plan to cut taxes and cut government spending. We must take an FDR type approach updated for the 21st century. The only reason we are here today is because our fathers and grandfathers had the vision and tenacity to build great infrastructure projects for the benefit of all the people. We need to follow in their footsteps.
Posted by: tpinlb at June 23, 2011 04:43 PM
The North American Water and Power Alliance needs to be studies more carefully. I agree it could have enourmous implications for the US economically but what about Canadian resistance to water exports and, moreover, the enourmous environmental impact?
Moreover this sounds like LaRouchite economics run wild. Here is more for those who are interested:
Posted by: Mark A. Sadowski at June 23, 2011 08:16 PM
Here's another idea that would create thousands of jobs. Make every federal worker that can eligible to telecommute. On government holidays, the traffic is reduced 15%. Imagine the reduction in fuel costs and pollution and carbon emissions. Wow! The government should develop a program and mandate complete with tax incentives that encourages businesses to allow workers to telecommute. Imagine the consumer savings from not having to trade in the car every 5 or 6 years, or not buying lunch every day. Insurance companies would really make money due to the incredible drop in miles traveled by the insured. Imagine the reduction in the trade deficit as demand for two of three biggest contributors, oil and auto, falls off a cliff.
Posted by: Craig Jackson at June 23, 2011 08:39 PM
2slugs can make some amazing economic statements. Saying this: "The more dependent we are on cheap oil the deeper those supply shocks. We need to think seriously about flattening those isoquants so that our industrial base can easily substitute to whatever energy source is most abundant at the moment. Instead or restricting our choices, which is what cheap oil today does, we should be looking long term at expanding our menu of energy sources."
Amazing liberal think! Limiting production (OPEC, Democratic energy policy, Democratic environmental policies, etc.) creates the situation where AS~AD for oil where supply impacts are maximized. It does not create AS > AD where supply shortages are actually minimized. Moreover, AS > AD also creates that ole "cheap" pricing situation. How wrong can you be about basic economics?
But his overall argument about "expanding our energy menu" is misguided, since his goal with that is to protect mankind (or is it the planet) from mankind. Y'ano that ole Global Warming (GW) argument. GW is a political movement and not a which is quickly losing world-wide support with catastrophic predictions based upon shaky scientific evidence.
There are so many other ways to pick apart the 2slugs'/liberal/democratic energy policies as indicated with his misguided comment. I think I've seen on this blog, several times now, a comment regarding others' understanding of Aggregate Supply and Aggregate Demand. How much ignorance/ignoring of oil's AS impacting price do we see in 2slugs' comment?
Don Quixote, oh Don Quixote, we have a very high cost windmill (or is it a solar farm) with which you may joust. 2slugs, because of your ideological blinders, you've been fumbling some basic concepts lately. That comment is worth a huge Sheesh, 2slugs.
Posted by: CoRev at June 24, 2011 04:49 AM
CoRev: Point of information: "AS ~ AD for oil...". What the heck does that mean? Inquiring minds want to know (equations would help!).
Posted by: Menzie Chinn at June 24, 2011 02:45 PM
CoRev Limiting production (OPEC, Democratic energy policy, Democratic environmental policies, etc.) creates the situation where AS~AD for oil where supply impacts are maximized. It does not create AS > AD where supply shortages are actually minimized. Moreover, AS > AD also creates that ole "cheap" pricing situation.
This is gibberish and pretty clearly demonstrates that you do not understand the concepts of AD and AS. Talking about "AS~AD for oil" has no meaning at all. You can talk about S~D for oil, but you cannot talk about AS~AD for oil. Do you understand how to derive an AD curve even in a simple Hicksian IS-LM model, nevermind a New Keynesian model? I'm guessing not.
his overall argument about "expanding our energy menu" is misguided
It's only misguided if you're a closet Marxist who believes in right-angled isoquants and fixed production inputs. The rest of us believe in diminishing marginal productivity. I was talking about a menu of energy choices in order to flatten the isoquants that producers face. That sounds like a thinking man's understanding of supply side economics.
GW is a political movement and not a which is quickly losing world-wide support with catastrophic predictions based upon shaky scientific evidence.
Given that lawyers for two of the "Hockey Stick heroes" of the GW skeptics community are currently trying to negotiate a plea deal to keep them out of orange jumpsuits and guests of federal corrections, this seems like a strange statement to make. And to think that those two cowards are now trying to blame it all on some unfortunate grad student.
Posted by: 2slugbaits at June 24, 2011 03:31 PM
Menzie "AS ~ AD for oil...". What the heck does that mean?
Yep. As you can see, I had exactly the same question. It's completely meaningless. Might as well talk about chocolate colored blueness.
Maybe you should have an "IS-LM to AD Curve for Dummies" post so that folks can at least catch up on the standard undergraduate pedagogical derivation derivation of the AD curve.
Posted by: 2slugbaits at June 24, 2011 05:37 PM
The US has not created a net new full-time private sector payroll job since the mid-'90s, and none since the late '80s to early '90s after "health care" and "education" payroll growth.
Wage and salary accruals to GDP and to corporate profits after tax (returns to labor vs. capital) are at post-WW II lows and plumbing the levels of the Great Depression and the 1890s.
US payroll job creation occurs primarily as a result of growth of NEW small businesses, which follows the demographic cycle, i.e., rate of change of increase of people age 34-44 to 54, with (two) married men twice as likely to start businesses than women; two-thirds of business starters having attained an "education" of less than a college degree; half of business starters earning household incomes of $21,000-$60,000, and three-quarters of business starters earning $80,000 or less; 60% with a household net wealth of $100,000 or less and 75% with $200,000 or less (including negative net wealth); and more than half of businesses being started in construction, mfg., wholesale and retail trade, and professional, scientific, and technical services.
The financial media, academe, and business publishing industry portray entrepreneurship in the US by highlighting multi-millionaire and billionaire success stories, IPOs, VCs, and the like; however, the reality of business and job creation in the US is a thoroughly working-class reality that the overwhelming majority of academics, financial media pundits, and politicians appear to have no clue about.
The costs of starting and growing a small business or sole proprietorship in the US is prohibitive, including payroll taxes (14.5% right of the top of labor in Social Security and Medicare taxes), regulations, medical insurance costs, etc. Businesses do not pay income taxes and benefits; rather, workers and customers pay as business owners pass on the costs of taxes or go out of business.
Taxing self-employment income, production, labor, savings, and capital accumulation is utterly counterproductive and discourages labor product, production, and capital accumulation among the working class and lower professional middle class, the "actual" source of new business creation, payrolls, and actual wealth accumulation (as opposed to non-productive, speculative, rentier activities).
But then Marx wrote about this tendency of capitalism nearly 170 years ago.
If anyone is truly serious about entrepreneurship and job creation in the US, which I doubt, then eliminating all taxes on labor, production/investment, savings, and capital accumulation and shifting taxation to speculative rentier and land resource and place-value rents (George's "Single Tax") is the only viable solution.
But the rentier parasites who own the US gov't and their surrogates in DC and the financial media will resist such a tax scheme to the bloody end.
Therefore, one cannot be optimistic about US job and income growth hereafter, especially with peak global oil production and US net energy per capita falling at 3%/yr.
Posted by: Bruce at June 24, 2011 05:45 PM
Menzie, AS for oil was meant to mean aggregate- "An aggregate is a collection of items that are gathered together to form a total quantity". Supply - "The amount of any given commodity available for sale at a given time." For oil was used to indicate it was non-traditional use of the terms. The tilde was used in its general form - equivalent "equal in value, measure, force, effect, significance." Hope that helps explain the plain/political language versus the specialized/economics use.
For way too many reasons to list here, it is really, really hard to separate politics from economics. So, your attempted gotcha is a little weak, but I do have to agree I was responsible for the confusion.
Posted by: CoRev at June 24, 2011 05:50 PM
2slugs, see my response to Menzie. I should have used plain language. Then we would be having a totally different discussion.
After all you did understand my meaning. You said: "You can talk about S~D for oil, but you cannot talk about AS~AD for oil." And I am positive you understand the price implications.
This commen: "Given that lawyers for two of the "Hockey Stick heroes" of the GW skeptics community are currently trying to negotiate a plea deal to keep them out of orange jumpsuits and guests of federal corrections, this seems like a strange statement to make. And to think that those two cowards are now trying to blame it all on some unfortunate grad student. " is again a measure of how badly you are fumbling simple concepts, such as plagiarism. You seem to be oblivious of the actual issues surrounding those "Hockey Stick heroes".
Since you claim there is a plea negotiation there obviously must be a charge. Care to point it out? The only ongoing actual legal investigation of a "Hockey Stick hero" is Virginia Attorney General, Ken Cucinelli's, into Michael Mann's UVA activities. That the one you meant? Even that has not yet gone to a grand jury.
Another sheesh, 2slugs.
Posted by: CoRev at June 24, 2011 06:19 PM
CoRev There are four outstanding charges of plagiarism against Wegman and one against Said. But those are just academic issues. The legal charge has to do with the manipulating of someone else's graph and words to make it appear that they said something different. This graph was submitted into congressional testimony. And yes, Wegman and Said are all lawyered up and have been negotiating. They blame the graph faking on a grad student, but given that Wegman's academic career is now in shambles, it probably doesn't matter anyway. He's got one foot in the grave as it is. Too bad Said's academic career went down in dust because I suspect she really didn't know anything about it.
Yes, I believe I understood what you meant by AS~AD. The problem is that I don't think you actually know the difference between aggregate demand in a macro sense and market demand in a micro sense. They are qualitatively different. But what's much worse is that I don't think you understand what isoquants are, and that was my main point.
You said: Hope that helps explain the plain/political language versus the specialized/economics use.
So let me see if I've got this right. We were talking about an economic issue and you wanted to use "plain/political language." So why not just use plain language...such as "market supply curve" instead of referring to aggregate supply?
And then you immediately followed it up with:
For way too many reasons to list here, it is really, really hard to separate politics from economics.
So you want to mix politics and economics??? If not, then why use "plain/political language" to talk about a purely economic issue?
You were wrong when you said:
I think I've seen on this blog, several times now, a comment regarding others' understanding of Aggregate Supply and Aggregate Demand. How much ignorance/ignoring of oil's AS impacting price do we see in 2slugs' comment?
In fact, this little exchange proves my point. People really don't understand the concepts of AD and AS.
Posted by: 2slugbaits at June 24, 2011 10:25 PM
CoRev Since I think I may have left you in the lurch, let me wrap things up. In general, an increase in the price of imported oil has immediate two effects: (1) it reduces incomes (leftward shift in the AD curve) through import leakages and a higher price level, and (2) it increases the costs of production, shifting the AS curve upward. Output is reduced. That's bad. Eventually sectors adjust and move along their isoquants to different mixes of energy, capital and labor. The more curvature in the isoquant the more difficult the adjustment. I want to flatten those curves.
But currently we're in a liquidity trap and while higher import prices would hurt incomes and contract AD, you also need to keep in mind that a zero interest rate with large debt overhang implies an upward sloping AD curve. The effect of higher oil prices in a liquidity trap would still shift the AS curve upward just as in the normal case, but in a liquidity trap an upward shift in the AS curve can actually increase output. This is the Tobin argument, and recently the Krugman argument. The net effect on output is therefore ambiguous. A contracting AD curve reduces output, but an upward shift in the AS curve increases output in a liquidity trap.
Returning to the micro world, if capital and labor are both substitutes for energy inputs rather than complements, then over the long run a rise in energy prices should increase the demand for both labor and capital. If isoquants were perfectly linear (i.e., infinitely elastic), then the adjustment would be immediate and there would be no supply side induced recessionary shock.
Posted by: 2slugbaits at June 25, 2011 07:00 AM
2slugs, no point in discussing the economic issues. We probably agree when we get to the bottom line re: language.
As for Wegman, you were asked to find the reference for criminal charges, for which you have claimed are underway with the negotiate a plea deal to keep them out of orange jumpsuits. You can not and we both know it.
Is Wegman's career ruined? Perhaps yes or no. What the current issue is the plagiarism complaint re: his "published" article. Not his testimony to Congress. In most circles it is much to do about nothing, since the portion of the article was not relevant to the core of his testimony re: Mann's statistical methodology.
Perhaps the most telling factor in this whole trumped up issue is that GMU has not yet passed judgement on the original plagiarism charge. They have long passed their own deadline.
BTW, if you really feel strongly about the Congressional testimony issue, consider the impacts on your own efforts in your own testifying or creation of material for your superiors. Footnotes, footnotes, footnotes for every piece of outside material.
Keep fumbling along.
Posted by: CoRev at June 25, 2011 07:02 AM
CoRev: I think most people use the adjective "total" to modify "demand" in order to denote total demand that is a function of relative price, which is concept you were referring to. For better or for worse, for the past 60 or so years, we have used the adjective "aggregate" to denote demand or supply a function of relative price, in an economics context, and this being an economics blog, it would seem reasonable to hew to such conventions in order to minimize confusion.
Posted by: Menzie Chinn at June 25, 2011 10:41 AM
Menzie we have definitely gone off into the weeds. Consider me chastised for not "hewing" to traditional language meanings.
For example: Synonyms for aggregate (ADJECTIVE)
Synonyms: collective, total, combined, cumulative, amassed, summative, comprehensive
Synonyms for hew (VERB)
Synonyms: cut, chop, fell, cleave, ax, hack, slash
As I've already said, kinda weak Got'cha!
Posted by: CoRev at June 26, 2011 04:14 AM
The reality is that government will be the largest employer both at the local,state and Federal level. The question is really how to change or economic thinking from private profits to community living. Our unemployment problem is in fact social and can be quickly solved by hiring teachers so that class sizes are no larger then 15,police,fire,forest rangers,environmental cleanup, city and town clean up all will require large number of reasonably paid employee's the question is when the U.S. will grow up!
Posted by: Ron at August 31, 2011 10:01 AM
I'm stunned. The emissions outcome for these allegedly centrist suggestions would be catastrophic in every conceivable way, including long term damage to the economy.How can this not even be considered by our esteemed poster?
Posted by: reed at September 3, 2011 07:31 AM