For the essay I am writing on Edward Leamer, I have been re-reading Macroeconomic Patterns and Stories. He is really good at diving into data. Most academic macroeconomists think that actually studying the way that statistics are collected and looking for patterns would be beneath them.
For example, Leamer found the pattern of momentum in payroll employment growth. From that standpoint, the period from October 2011 through the September 2019 has been really uninteresting. There have been no sequences of three months of employment gains that were either well above or well below average. My rule of thumb is that less than 50,000 net jobs is a low-growth month and more than 350,000 is a high-growth month. Over the past eight years or so we have had only 3 low-growth months and one high-growth month (which barely made the cut at 355,000). So no real chance to test the momentum pattern, although I suppose that you count the persistence of middling numbers as “momentum.’
Anyway, I have the following thoughts, not all of which comes from Leamer.
1. The short-term fluctuations in GDP and net employment changes that we call recessions, even deep ones, are really small relative to: long-term growth; seasonal fluctuations (Leamer points out that real GDP on average drops at a 20 percent annual rate in the first quarter of the year, before the Commerce Department does its “seasonal adjustment” of the data. That is more than twice as much as the rate at which (seasonally-adjusted) real GDP falls during a bad recession.); secular shifts between sectors, e.g. employment rising in health care and education but declining in manufacturing; gross job flows, with 4 million workers leaving jobs and 4 million workers starting new jobs every month.
2. Can we say that the process for calculating real GDP in 2019 resembles the process in 2009? In 1999? In 1979? In 1959? In 1929? It would be an interesting exercise to go back to the raw data collected by the Commerce Department (or by Simon Kuznets prior to that) to estimate GDP. Fifty years ago, the government statisticians were calling manufacturing firms and getting counts of steel production or automobile assemblies or what have you. Now those figures are a much smaller fraction of GDP. How are the statisticians calculating the output of hospitals, of non-profit organizations, etc.? Academic economists don’t want to know how the statistical sausage gets made, but that seems to me to be a serious oversight.
3. Overall, I recommend being very wary of macroeconomic analysis that purports to give trends in productivity or to compare real income today with real income in past decades. The range of different answer that you can get using reasonable alternative methods for constructing the data far exceeds the variation in the phenomena that you are trying to assess.
We have not completely priced the civil war. We have another 50 years before the Nixon Shock wears off. I takes about 240 years for the tiny state of Vermont to go extinct but Wyoming is likely to be extinct first.
What if we discover the Constitution had a major blunder and have to revise 1787 with a blue bar then carry the losses forward? What if we find the very existence of the state of Maine was a nightmare of excess costs and it never paid. Can we write off the state and take the loss?
I generally agree with all of Kling’s points and arguments except the “serious oversight” part. I think it is important to state your assumptions and this is certainly an oversight in the analysis of historical data in many fields, however, it is not up to the researcher/analyst to prove each assumption before-hand. It is up to Kling (or someone else) to show that the assumptions were false and, therefore, a “serious” problem.
Academic economists did not know how to break the sausage until about 1974 when we worked out option pricing, then in 2003 or so when someone worked out double sided option pricing (no safe rate reference).
Hayek came closest to breaking the sausage but he could finish the job. Today economists break the sausage all the time, just no central planners. Here is an example of sausager breaking from Mish:
https://moneymaven.io/mishtalk/economics/who-absorbs-price-jumps-in-raw-materials-djQ77PyBNEeOXIkKYs3NEQ/
“A Fred, St. Louis Fed, article explores producer price increases at the various intermediate stages.”
The article fills in the Hayek triangle for oil deliveries, breaks up the sausage.
When I read your anti-Macro articles, I feel like “Marco is Dead, Long Live Maroeconomics.”
1) The main benefit of Macro is you have to measure the economy while GDP measurements will always have lots of holes to it in any era, you do have to measure the economy.
2) Measurements like inflation or unemployment have all kinds of issues with them, they are definitely the correct in general. Our HR cares all more about workers in our today than in 2010.
3) Probably the biggest change from 1970s to today is the global economy is slowing becoming the Krugman ‘UnCola’ economy. That the global economy is getting so big and oil price adjustments no longer lead big economic changes like the 1970s but the economy leads oil prices. Now changes in oil prices rises inflation rates to 3% for six months and the economy adjust.
4) I suspect a lot of the global economy consistency the relatively peace the world is today. There is lots Guirri protest sprouting up in what used to be the ‘Third World’ but not full Civil Wars. (Venezuela not in Civil War is amazing. The old ‘First World’ still feels lots angry voters leaving bad internet comments and electing taunting authoritarian Presidents.)
The civil war in South Sudan is confusing and disheartening and seems to defy Bush’s spread-freedom philosophy and Samantha Powers’ responsibility-to-protect philosophy. This weird modern exception is begging for a plausible underlying theory.
The world will probably never rid of all Civil Wars but think about how many there are today, Yemen, Libya, South Sudan and Syria, etc., each has with less populations of Teaxas. And yes Afghanistan collapses without the US involvement. Compare this to anytime before 1990 in terms of Civil Wars.
I remember growing up in the 1980s and a South American coup attempt in South America or Africa on the news was everyday reality.