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Good news and bad news in May jobs report

510jobnumbers.jpg

A serious good news/bad news jobs report this month. The good news: The economy added 431,000 jobs in May, and the unemployment rate edged down from 9.9 percent to 9.7 percent. The bad news: About 411,000 of those jobs were temporary hires for the 2010 Census, and the unemployment rate declined in part because discouraged workers left the labor force.

If you focus in on private-sector jobs, things get downright depressing: The private sector added only 41,000 jobs in May. So though the top-line job numbers are good, they're demonstrating the power of public employment, not a broader economic recovery. If you're looking for bright spots, you might focus in on the fact that 343,000 workers who were unwillingly part-time got upgraded to full-time. But you really have to be looking.

By Ezra Klein  |  June 4, 2010; 9:08 AM ET
Categories:  Economy  
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Comments

And exactly where is the good news in this report?

Posted by: jdonner2 | June 4, 2010 9:24 AM | Report abuse

"And exactly where is the good news in this report?"

Our march towards European-style socialism, and it's attendant adjustment to high unemployment rates and a bloated public sector, is proceeding apace. That's the good news!

Posted by: Kevin_Willis | June 4, 2010 9:33 AM | Report abuse

Folks as long as the "anti-business" party has super majorities and is lead by a Big government liberal/progressive like Obama our Businesses won't expand......why should they?

The Democrats think they can attack where all our wealth comes from, Business, and think that they will hire and expand anyways......

Let's fix this mess in 2010 and 2012

America needs Mitt Romney.........now

Posted by: allenridge | June 4, 2010 9:33 AM | Report abuse

Change we can believe in!

Posted by: island1 | June 4, 2010 9:33 AM | Report abuse

Let me second jdonner2 (but not Kevin_Willis). I thought that millions of new jobs would be needed per month if we're ever to get out of this hole. A few hundred thousand seems like depressingly small change.

Posted by: Bertilak | June 4, 2010 9:34 AM | Report abuse

EZRA why do you keep "giving it away" to the White House for nothing. You could join the oldest profession and make some
real money. And buy some swell clothes. And wear bling.

Posted by: kurtmudgeon1 | June 4, 2010 9:36 AM | Report abuse

The "good news" is not that the unemployment rate dropped to 9.7%. That is like saying the good news is we discovered the hole at the bottom of the Gulf is only spewing 15,000 barrels a day.

No the good news is that a Chicago style politician with a gift for telling people what they want to hear with scant any management experience who completely lucked into the Presidency on a platform of campaign lies has not screwed things up even worse. In my opinion things are not as bad as I had expected.

Posted by: Easleycpa | June 4, 2010 9:37 AM | Report abuse

Do we have a sense of whether more of the slack is in consumption or in investment?

Posted by: jduptonma | June 4, 2010 9:56 AM | Report abuse

It's amusing, isn't it, to watch Ezra pant and wheeze in trying find the positive, any positive, in this absolute pile of fertilizer of a jobs report. In order to get out of this depression (and yes, it's a depression), we need at least 300K+ in new, PRIVATE SECTOR jobs created every month. I hate to break it to you, Ezra, but public sector jobs DON'T COUNT, because those people are paid with money taken out of the real economy in taxes, or borrowed from the real economy (with interest) and added to our already-ridiculous debt levels.

And Ezra, I know that you know that the decline in the official unemployment rate (itself a bunch of BS thanks to creative government accounting) is purely a factor of discouraged people leaving the workforce--in other words, giving up. The government may not be counting them, but they still DON'T HAVE JOBS! That you characterize this as good news makes you either dishonest, a hack for the administration, or both.

Posted by: Claudius2 | June 4, 2010 9:57 AM | Report abuse

Why doesn't Obama hold a press conference today and tell us how well we are doing?
Wall Street doesn't think so, but who cares about Wall Street? The answer is, the whole country cares about Wall Street and the stock market. We are invested in Wall Street with Pensions and College Savings. It is because of the Federal government and Affordable Housing that all this happened in the first place. If I knew that lending institutions were loaning my money to people who could not afford to repay the loan I would not have allowed them to loan the money to them. Who would other than a crazy person or a thief that was trying to get a commission on a sale?

Posted by: nychap44 | June 4, 2010 9:58 AM | Report abuse

The good news is we didn't LOSE private sector jobs instead or clawing our way forward, if by only a smidgeon.

The audacity to equate constitutional mandated census activity with socialism pure punditry in action.

Thank goodness jobless people can find work as census workers in this time of despair (which was not caused by the current admin).

We are better off today than when bush left office, and we'll continue to see improvement if we can keep the pundits and lobbyists at bay.

Posted by: Lomillialor | June 4, 2010 10:13 AM | Report abuse

Another bad news point, the drop in unemployment is related to 286,000 people leaving the labor force. Employment as measured by the household survey was -35,000 for May (although this number is typically volatile). If the labor force was unchanged, unemployment would likewise have been unchanged. If the labor force had grown by a decent amount, unemployment would have risen back to 10.0%.

http://www.bls.gov/news.release/empsit.a.htm

The headline payroll number definitely is good for the Democrat's V-shaped job chart, although they have to hope that when the census jobs go away the private sector is adding more than 41,000 jobs, or else they'll have a W-shaped chart on their hands heading into the November elections...

Posted by: justin84 | June 4, 2010 10:15 AM | Report abuse

Every public sector job created means bigger fedseral and state deficits. Obama hasn't a clue. What are we doing with a community organizer in the White House?

Posted by: ravitchn | June 4, 2010 10:23 AM | Report abuse

You all just wait until teachers and public sector state employees are laid off this coming fall, right about the time the census workers are through with their work.

People are going to start seeing the flaws in this recovery plan this fall and certainly they will be feeling pain in 2011.

Posted by: lancediverson | June 4, 2010 10:23 AM | Report abuse

There is scant good news in this report for the following reasons:

1. When the census is completed, there is going to be a huge increase of lost jobs (albeit temporary ones). What is that going to do the stats?

2. With the budget crises in the states and the huge deficits at the Federal level, looking to the public sector for job growth is ultimately unsustainable.

3. The continued loss of jobs in the construction industry indicates that there is not a lot of infrastructure work or private development going on, which is more of a leading indicator of economic activity/growth.

There have been some good things done to stabilize the economy since 9/08 but not much in the way of encouraging growth. So while I will give team Obama a good grade in terms of averting a worse crisis, they get a poor grade for getting us back on a growth track.

The ironic thing for Obama is that if he wants to make some of his initiatives a reality he needs a US economy that is growing at a strong pace. He really has the equation backwards, if the economy was growing he might have greater success at pushing his agenda.

Posted by: jwhit34 | June 4, 2010 10:25 AM | Report abuse

Agree with Lomillialor. Anyone who can't figure out why modest job growth is good news has amnesia and needs to look at the graph to refresh his or her memory about how far we have come in the past year in stabilizing the economy.

Seems to me that as the census work ends there ought to be massive job opportunities (thanks to BP) in the emerging sector of wiping oil off of individual blades of marsh grasses along the Gulf Coast. :-(

It is always worth remembering that the federal stimulus efforts have been virtually entirely offset by cuts at the state level, and so the overall net public sector effect has been flat. A second round of targeted stimulus would be highly beneficial to grow demand and create private sector jobs. Probably not politically feasible, and that's a shame.

Hoping that the House can revive Arne Duncan's proposal for funds targeted at reducing massive layoffs of public school teachers.

Posted by: Patrick_M | June 4, 2010 10:27 AM | Report abuse

And here's how it looks in comparison to the projection given by the administration at the time the Recovery Plan was passed:

http://michaelscomments.files.wordpress.com/2010/06/stimulus-vs-unemployment-may-dots.gif

Posted by: jnc4p | June 4, 2010 10:30 AM | Report abuse

i'm fascinated by the cognitive and reading difficulties so many of the right-wing commenters have here: our host isn't in the tank for anyone on this report. how many times do the words "depressing" have to appear for the right-wing children to understand this?

as to serious commentary: i'd like the people like claudius2 to explain whether they think jobs in the defense sector are public or private. in short, it's a frickin' ludicrous piece of commentary to claim that public sector jobs aren't "real" or don't "count" or anything of the sort, and it also betrays a complete ignorance of the multiplier effect (if i'm paid as a census worker, i've got more money to spend than if i'm unemployed and if i spend that money it may lead to someone else getting a job).

kevin willis at least makes sense (putting aside his simplistic europe-bashing): we can ask whether it's a good sign for the public sector to be growing while the private sector isn't, but in the absence of any meaningful increase in demand, the private sector isn't going to grow.

as for job growth in general, surely the right-wing children here all remember the fantastic job growth under bush, don't they? i don't have to taunt you further with reality, do i?

and then of course we've got the pathetic allenridge, who apparently didn't notice that the best growth and best job creation we've had in the last 40 years occured under Big government liberal/progressives, and you know what? business managed to expand very nicely under clinton, you twit. in short, if you're going to babble nonsense, doing it in the privacy of your neighborhood bar, not where people who know better can hear you and find out how little you know.

Posted by: howard16 | June 4, 2010 10:31 AM | Report abuse

Hey Patrik_M pass that joint over here I want to live in that imaginary World of yours too.

Posted by: Easleycpa | June 4, 2010 10:33 AM | Report abuse

Hey Patrick_M pass that joint over here I want to live in that imaginary World of yours too.

Posted by: Easleycpa | June 4, 2010 10:34 AM | Report abuse

jnc4p: you know how you can recognize an unserious commenter? because an unserious commenter keeps going back to the projections at the time the stimulus bill was passed and acting like the projections were pessimistic enough for the baseline. they weren't.

which was a serious error by the obama administration, no doubt, and an unforced error at that.

but the point is that if you don't think unemployment is going to fall as badly as it did, you aren't going to project the unemployment level sucessfully, and they didn't. but what they did project sucessfully was that the stimulus would add jobs and gdp growth, which, of course, it has.

btw, i'm sure you regularly noted the continuing failure of the bush administration's job growth forecasts associated with their tax cuts. i know, for example, that you really were on top of the fact that bush claimed the 2003 tax cut would create 5M new jobs between july 1, 2003 and december 31, 2004.

by december 31, 2008, those jobs finally existed....

you noted that regularly, didn't you?

Posted by: howard16 | June 4, 2010 10:43 AM | Report abuse

I'm curious, what job-growth policies would right wingers favor other than "just say no"?

Had bush and Obama listened to you all, monthly jobs would have been negative due to loss of millions of us auto industry related jobs.

Posted by: Lomillialor | June 4, 2010 10:50 AM | Report abuse

On balance, it's bad news, as the market response confirms, indicating that the public sector is crowding out private sector growth (albeit, Census jobs are temporary). Moreover, there are serious allegations that Census has been engaging in hiring and reporting practices to create the illusion of greater job "creation" in the official statistics than is warranted. See: http://www.realclearpolitics.com/video/2010/06/03/census_worker_claims_job_numbers_are_being_inflated.html .
All in all, further evidence of a failure of the basic government policy relying on Keynesian fiscal stimulus -- a policy approach supported by almost no historical evidence, resulting in unsustainable debt burdens, and accompanied by impending growth-killing tax increases.

Posted by: rboltuck | June 4, 2010 11:00 AM | Report abuse

What? What is going on? The only rational conclusion that may be made is that the evil, nefarious Cheney must still be working behind the scenes to destroy what would otherwise be a buccolic and Utopian land.

Posted by: nothiringanyone | June 4, 2010 11:14 AM | Report abuse

Obama's policies are not Keynesian. Keynesians demand significant more stimulus. Obama's stimulus was 30-40 percent tax cuts. Congress recently passed other payroll tax cuts. Obama's plan is a hybrid plan. Despite all this, we would be seeing several million more jobs lost without gvmt action by bush and Obama. The cbo said so,

Posted by: Lomillialor | June 4, 2010 11:16 AM | Report abuse

Lomillialor,

Permenantly lower the corporate income tax and offset the lost revenue with the increase from 35% to 39% at the highest imcome tax rate.

The key is to be business competitive with the rest of the world and our current corporate income tax rate puts our businesses and future business development at a competitive disadvantage with other nations.

Posted by: lancediverson | June 4, 2010 11:16 AM | Report abuse

howard16:

I could have used better phraseology in the original post, but let me pose this question in response--would Obama have preferred 411K private sector jobs to 411K public sector ones? I think so. But why? I mean, if public sector jobs are just as good in terms of the multiplier effect as private sector ones (as you seem to believe), then why does it matter? All else being equal, jobs are jobs, right, at least according to you and JM Keynes. Under that logic, the solution is to just put every unemployed adult on the government payroll.

But all things aren't equal, especially given the staggering government debt load, and the private sector workforce has a much greater multiplier effect than the public sector workforce. That's because the public sector employees are paid with dollars that are 1) extracted from the private economy through taxes, 2) extracted from future private economy earnings through borrowing, or 3) printed money.

Does that mean I hate government and public sector employees? No. And, contrary to your assumption, I'm not right-wing and I voted for Obama. I believe the private sector workers who work for government contractors (cough-defense industry-cough are de facto public employees, and that federal spending in many areas (including defense) is totally unsustainable and needs to be dramatically reduced. Wealth and prosperity aren't created by government.


Posted by: Claudius2 | June 4, 2010 11:17 AM | Report abuse

Obama's policies are not Keynesian. Keynesians demand significant more stimulus. Obama's stimulus was 30-40 percent tax cuts. Congress recently passed other payroll tax cuts. Obama's plan is a hybrid plan. Despite all this, we would be seeing several million more jobs lost without gvmt action by bush and Obama. The cbo said so,

Posted by: Lomillialor | June 4, 2010 11:18 AM | Report abuse

I suggest a new monthly statistic, the number of jobs created by American companies in China, India and Mexico.

Posted by: rkerg | June 4, 2010 11:41 AM | Report abuse

rboltuck: crowding out? you don't even understand the words you're throwing around. try to learn something before you comment.

claudius2, i apologize for assuming that you were a right-winger. that said, let's separate out the issues at hand.

one issue is private sector growth. the simple fact is, in the modern economy, private sector job growth really lags. as i've already noted, it took years during the '90s for private sector growth to take off, and it never really took off during the '00s growth years. this appears, in short, to be a long-term trend, probably related to the collapse of the lifetime employment approach of large corporations and the very, very strong disinclination on the part of small business in particular to take on overhead burdens, and isn't likely to change dramatically over the next few years (or, perhaps, ever).

so of course it would be great to see 400K private sector jobs created, but it's not like that's a realistic possibility.

in the absence of realistic hopes of substantial private sector job growth, we get to the public sector, and yes, it's much better to have 400K temporary public sector jobs than to not have them. no one should be confused that it reflects a change in the underlying trend, but the multiplier benefits are nonetheless real and important.

but then we get to the third element: there is no private sector without a public sector to enforce contracts, provide roads, maintain (more or less) a banking system, and so on. public investment contributes to private sector job growth (defense, road-building, fundamental research).

in short, maybe you're not a right-winger, but when you start saying "wealth and prosperity aren't created by government," you edge awful close: wealth and prosperity are created by individual actors within a governed society. otherwise, wealth and prosperity is a simple matter of warlordism....

Posted by: howard16 | June 4, 2010 11:43 AM | Report abuse

Patrick,

Sure it is better to be gaining jobs rather than losing them, but the economy has always recovered from shocks, and largely on its own accord. The 1920-1921 depression was far more severe than what we just endured in terms of total lost output, increased unemployment and deflation, but by 1923 we were back at full employment (which in those days was 2-3% unemployment) despite the federal government maintaining a surplus through the depression. I don't think even the most optimistic economist today is expecting unemployment down to even 6% by the end of 2011.

Howard,

A dollar given to you as a census worker takes away a dollar of spending power from someone else. The net macroeconomic effect isn't possible to determine as we do not know the counterfactual. This doesn't mean the census shouldn't be done - it has its own inherent value - but it's not clear whether the economy is better off. It's entirely possible that we're paying census workers by borrowing money from China that the Chinese otherwise would be using to buy our exports or buying dollar denominated assets and increasing the perceived wealth of those holding such assets, leading to higher spending.

For another example, consider unemployment benefits. These, we are told, will lead to increased spending and through the multiplier effect higher GDP and employment. However, consider the well documented fact that many people on unemployment actively avoid taking low paying jobs while on unemployment. If you give someone $350/wk to be unemployed and he decides not to take a job paying $350/wk because of it, then GDP is smaller than it otherwise would have been. Without unemployment benefits, the taxpayer/lender who provided the $350/wk would be able to use it for their own ends, while the person in the low paying job would be creating the wealth which provides for their $350/wk. That sucks for the person in question, but they can keep going to monster.com while they are home from work.

This isn't to say unemployment assistance is categorically bad - many people care more about financial security than output/wealth maximization - but that it isn't obvious that the macroeconomy is stronger. It could well be worse off.

Posted by: justin84 | June 4, 2010 11:53 AM | Report abuse

@howard16: "kevin willis at least makes sense (putting aside his simplistic europe-bashing):"

It wasn't meant to be a deep comment. ;)

Actually, it's not technically Eurobashing. European countries generally have a more robust public sector, better public transportation, better public services. The cost tends to be higher unemployment, less money over all (thus less economic growth) but also less income inequality.

As America moves forward to a more robust public sector, there will be necessary trade-offs. "Jobless" recoveries will be one of those things.

Posted by: Kevin_Willis | June 4, 2010 12:01 PM | Report abuse

howard 16 wrote: "rboltuck: crowding out? you don't even understand the words you're throwing around. try to learn something before you comment."

howard 16, you need to explain your point analytically and politely rather than rely on an ad hominem assertion of ignorance on my part unsupported by any reasoning whatever.

Extending you the benefit of the doubt, some have argued that crowding out doesn't occur under conditions of excess capacity and low interest rates. I disagree with respect to current conditions. Let me explain why.

While Federal reserve short rates are low, interest rates are much higher and credit availability more limited currently to private borrowers. Moreover, measured excess capacity reflects the fixed capital of the "old" economy -- the one that imploded in 2008 and 2009 -- including all the capital of the construction and upstream support industries that was far overbuilt during the bubble period. That capital won't be fully utilized for years.

In the meantime, private investment is needed to build a sustainable and prosperous "new normal" economy. With the Fed effectively monetizing growing Federal borrowing to finance increasing Federal spending (some of which may be temporary, but much of which is structural or permanent), credit is being funneled to the public sector and displacing credit that otherwise would be available to encourage investors to build the new private-sector needed to assure future prosperity.

That's "crowding out". I'm sorry if you misunderstood -- but I really couldn't tell what was behind your throw-away challenge.

Posted by: rboltuck | June 4, 2010 12:07 PM | Report abuse

rboltuck, dude, that's not what's happening. You don't need to go any deeper than the massive excess reserves kept on hand by banks to see that there is a failure in the private sector to utilize capital. Plus, non-T-Bill rates are incredibly low and the prime rate's bumping against 0%. You're right that a degree of excess capacity can be discounted as a frictional loss, but I've seen no evidence showing that the now inefficient "old economy" assets are a significant amount.

There is no crowding out, but there is a massive demand shortage. Everyone agrees that they would prefer the private sector to pick up the slack, but in the meantime, the federal government is the only entity with a mandate for growth and an ability to spend on the necessary level.

What we're seeing is what most economists told us a year ago: the stimulus bill was way too small. Given that Congress is unwilling/unable to act again, all we can do right now is hope for the best.

Posted by: etdean1 | June 4, 2010 12:26 PM | Report abuse

Howard16--

With due respect, I think you know what I meant by my "wealth and prosperity aren't created by government" comment. I fully recognize and accept that an effective government and its accompanying public sector staff are needed to maintain the framework, both legal and otherwise, that is necessary for the private economy to thrive. But government and the public sector do not create the wealth that is needed to, in turn, fund the public sector.

It's a balancing act. Right now I think we're imbalanced in many ways, economically, and one of those ways is the amount of wealth being taxed or borrowed to fund government. Like I said earlier, all else being equal, turning to the public sector for job growth is a good solution during a downturn. But it is not a long-term solution, and given our existing deficits and debt, I'm not sure it's a short-term one, either. That's why we're not seeing (at least so far) any administration higher-ups holding celebratory press conferences about this jobs report.

Posted by: Claudius2 | June 4, 2010 12:28 PM | Report abuse

Claudius2,

With interest rates low, inflation nonexistent, and private sector job creation pitiful, why isn't public sector stimulus a good short term measure? I agree with you in the long run, although I think my ideal balance would have a larger federal presence than yours.

Posted by: etdean1 | June 4, 2010 12:42 PM | Report abuse

Patrick,

I'm sorry but at some point the jobs had to bottom out. Obama is sitting pretty that he can still blame Bush for the bad things while saying its getting better (or not getting worse) but at some point it had to bottom out no?

Let's see a steady improvement (not related to government workers) and then I'll be happier. Again remember we need 100k+ jobs per month just to break even with immigration factored in. Sure this is better than losing jobs but it doesn't mean its good.

How long before they factor Gulf of Mexico clean-up workers into the equation?

Posted by: visionbrkr | June 4, 2010 12:47 PM | Report abuse

Bush had Katrina workers factored in and still the jobs went south during his admin.

We don't know what will happen next month or the following months.

But we do know what happened during bush's 8 years of unbridled capitalism: a great recession and an oil disaster easily attributed deregulation and big business corruption of gvmt.

If the Obama haters can spend 8 years praising bush despite the signs of his incompetence and ideology, the same people should have the decency at least to shut up mow. The job numbers since Jan 2009 are a good, if not perfect start to a turn around.

Things would be several million jobs worse right now if Obama had completely listened to the GOP or the tea party. He has followed a hybrid stimulus approach and instead if getting credit from the GOP for billions of tax breaks, he gets lies.

If things get worse from here out, Obama will clearly respond accordingly. If bush or McCain were prez instead, what we'd get are more of the same as what caused this mess in the first place.

Posted by: Lomillialor | June 4, 2010 1:19 PM | Report abuse

The argument taking place here is sadly familiar. The right argues that the stimulus has either failed, or that it has made no difference, and gives Obama's policies no credit for the progress that has taken place during the past year. Somehow progress happened in spite of bad policy rather than because of good policy.

The left looks at the graph and sees what it shows: steady progress since ARRA, leading to current modest growth, and the left argues that a bigger ARRA would have stimulated bigger growth.

visionbrkr, I don't know at what point unemployment would have "bottomed out" had nothing been done to address it, and you don't either. I suspect it would have gotten much worse and cointinued for a long time to come, with a continuing spiral of deflation, declining demand and increased numbers of jobless workers. You think that the bottom that you see on that graph was simply coincidental to the stimulus, Obama's salvaging the American auto industry, etc. Whatever.

justin84, you've adopted the current neo-Hoover talking point that Harding's hands- off laissez faire policies ended the downturn of 1920 in 18 months. However, anyone who cares to investigate that recesssion knows that the circumstances after WWI leading to the crash were very different than what happened in 2008, and that Harding took all kinds of measures (including massive tax reductions) to kickstart the economy into the "Roaring 20's," which then precipitated the Great Depression.

The year to be looking at here is 1937, not 1921.

"Let's see a steady improvement (not related to government workers) and then I'll be happier." I will be happier then too -- that's the whole object of counter-cyclical government stimulus.

Posted by: Patrick_M | June 4, 2010 1:28 PM | Report abuse

Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault, Bush's fault ..

Until Nov. 7, 2012.

Then -- OWE-BAMA'S RETIRED!

Posted by: russpoter | June 4, 2010 1:36 PM | Report abuse

More cases of cognitive short term memory exhibited in the blog posts in here by my right wing friends.

Lest any of us forget, we were on the doorstep of another Great Depression when Obama took over from the dysfunctional GWB Administration that caused all of this mess!

Posted by: dc1020008 | June 4, 2010 1:41 PM | Report abuse

Nearly half a million Americans now have jobs who didn't have them last month, and all the right-wing do-nothingers can do is complain and whine - "Obama's a Socialist, Whaaah, Whaaah, Whaaah."

Nevermind that it was their team - with all of their tax cuts and deregulation and crap oversight - that created this mess and left town as the economy was LOSING 750,000 jobs a month. Guys, get a grip, and for once, why don't you actually root for our country to succeed.

Posted by: jbentley4 | June 4, 2010 1:45 PM | Report abuse

etdean1 wrote: "rboltuck, dude, that's not what's happening. You don't need to go any deeper than the massive excess reserves kept on hand by banks to see that there is a failure in the private sector to utilize capital."

Bernanke's creditism theory blames vapor lock in the undercapitalized financial system for the lack of private-sector credit.

Here's an alternative and more persuasive interpretation. It used to be that bank reserves sat idle as vault cash or on deposit with the Fed. But when the Fed began paying interest on reserves a few months ago, reserves grew substantially (and not coincidentally, most monetary aggregates have been declining over the past several months). I would interpret this as part of the channeling of credit to the government and away from funds loaned to private borrowers, rather than as a consequence of a lack of demand. The real evidence is the significantly increased premium over Treasury borrowing rates for interest rates on private loans, which indicates short supply of loanable funds rather than short demand.

Of course borrowing demand was initially off during the recession, but we are now in the recovery period and with opportunities available in a restructured economy, yet the funds are not available to finance it robustly. To deny the relationship of that to galloping Federal growth is simply to close one's eyes.

Posted by: rboltuck | June 4, 2010 1:49 PM | Report abuse

etdean1 wrote: "rboltuck, dude, that's not what's happening. You don't need to go any deeper than the massive excess reserves kept on hand by banks to see that there is a failure in the private sector to utilize capital."

Bernanke's creditism theory blames vapor lock in the undercapitalized financial system for the lack of private-sector credit.

Here's an alternative and more persuasive interpretation. It used to be that bank reserves sat idle earning nothing as vault cash or on deposit with the Fed. But when the Fed began paying interest on reserves a few months ago, reserves grew substantially (and not coincidentally, most monetary aggregates have been declining over the past several months).

I would interpret the effects of the Fed's policy to attract reserves as part of the channeling of credit to the government and away from funds loaned to private borrowers, rather than as a consequence of a lack of demand by private borrowers. The real evidence is the significantly increased premium over Treasury borrowing rates for interest rates on private loans, which indicates short supply of loanable funds rather than short demand.

Of course borrowing demand was initially off during the recession, but we are now in the recovery period and with opportunities available in a restructured economy, yet the funds are not available to finance it robustly. To deny the relationship of that to galloping Federal growth is simply to close one's eyes.

Posted by: rboltuck | June 4, 2010 1:51 PM | Report abuse

Patrick,

It's hardly Neo-Hooverian. Hoover was a strong proponent of government intervention during a downturn. To the degree that government was involved in the 1920 downturn, Hoover was the guy leading the charge.

The downturn was caused by 'different factors', although the 1920 downturn quickly became more severe. If stimulus was required in 2009, then it should have been even more necessary in 1921. Even without a banking crisis, you had insane deflation and massive job losses. One estimate has unemployment going from 1.4% in 1919 to 11.7% in 1921. Those are annual estimates, so if they're ball park, in all likelihood unemployment cleared 12-13% sometime in 1921.

I'm aware that Harding cut taxes - he also cut government spending, and maintained a budget surplus throughout. I'm not sure how that supports stimulus spending today, because Harding cut spending enough to run a surplus of about 1% of GDP the whole way through the downturn. It would be like Obama getting rid of FICA and still maintaining a surplus of $145 billion.

As for 'precipitating' the Great Depression, no serious economist holds that the Depression occurred because things were too good or taxes too low in the 1920s. Nearly all economists attribute the severity of the Depression to government policy errors - unit banking laws, tight money, uncertainty, job killing wage hikes, etc.

Anyway, let's look at 1937.

If you look at 1936-1938, you see the deficit only fell from 4.76% of GDP to 1.42% of GDP. That's hardly enough of a shock to put an economy into a severe slump by itself. It isn't all that far from the rate of change that occured during the middle of the Clinton years (1995-1997 had a deficit of 2.21% reduced to 0.26%). The 1937 recession was driven by two factors - unionization drives in manufacturing following passage of the Wagner Act, and a monetary shock when people began holding gold in fear of imminent dollar devaluation. Unionization pushed up money wages which froze industrial production growth in early 1937, and then the dollar panic pushed real wages higher as good prices fell. As Keynes will tell you, persistent unemployment is the result of sticky wages. The 1920-1921 experience had a quick and powerful recovery primarily because prices were much more free to adjust than in the 1930s or today.

Posted by: justin84 | June 4, 2010 2:27 PM | Report abuse

By the way, there is pretty aggressive use of the post-hoc fallacy on this site.

Yes, the economy bottomed out after Obama was elected, and there has been a mild recovery since then, but we know that economies recover from downturns on their own. Where government does have effect in influencing timing, it is primarily monetary policy, and outside of that effects are largely negative especially over the long run. Anyway, it's largely a timing issue on when the economic recalculation gets underway and sometimes the timing benefits incumbent politicians.

Quarterly GDP growth averaged 1.4% from 2000Q3 to 2003Q2. Unemployment rose from 3.8% to 6.3%. After the 2003 Bush tax cuts, GDP grew by an average rate of 3.4%, and unemployment fell from 6.3% to 4.6% from 2003Q3 to 2006Q2.

The argument taking place here is sadly familiar. The left argues that the tax cuts have either failed, or that it does little while benefiting the rich, and gives Bush's policies no credit for the progress that has taken place during 2003-2006. Somehow progress happened in spite of bad policy rather than because of good policy.

The right looks at the graph and sees what it shows: steady progress since the 2003 Bush tax cuts, leading to current modest growth, and the right argues that a bigger tax cut would have stimulated bigger growth.

How seriously do you take THAT argument?

Posted by: justin84 | June 4, 2010 3:13 PM | Report abuse

"By the way, there is pretty aggressive use of the post-hoc fallacy on this site."

On that point we are in complete agreement.

"...steady progress since the 2003 Bush tax cuts..."

seriously?

Posted by: Patrick_M | June 4, 2010 3:22 PM | Report abuse

Remember the comment on lack of demand? How can we have increased demand with so many folks being up to their ears in debt and with their wages gradually declining in real terms. People are appropriately scared to death.

The result... don't buy anything unless you have to, buy as economically as possible when you have to buy, and pay off all the debt you can on than chance you'll lose your job tomorrow.

Then, a couple of other factors. Jobs keep moving abroad, and for reasons I've never been able to understand, economists of every stripe seem to think this is wonderful as from their perspective, global interests trump national interests. Then, we've convinced ourselves that our children will be just peachy keen fine if they can just get a college education at a name school, and isn't education the perfect key to guaranteed good employment? Look at the funds going into that sinkhole rather than increasing demand. Look at the articles about the great students who graduated two years ago and still lack employment.

We are at a unique point in time. The old rules aren't working and won't resume being operative. I don't have a solution, but I am convinced that until we abandon old preconceptions and forgo old time economic religion, things are likely to get worse. I expect gains and losses, but in the long term I anticipate continued economic decline.

Posted by: billsecure | June 4, 2010 3:23 PM | Report abuse

rboltuck, what i meant was very simple: crowding out can be seen when interest rates rise. that's the living definition of crowding out, that funding the government's financing needs keeps capital from flowing to private requirements.

but that's absolutely, positively not what's happening: there is no sign of crowding out showing up in the bond market.

indeed, the atlanta fed recently ran a study about why small businesses aren't accessing credit (don't have the time to find it right now, but it appeared recently), and the key factor was...lack of demand to justify investment.

the fact that most of the new jobs this month were public sector jobs is in no way a demonstration that crowding out is occurring, which is why your terms make no sense.

justin84: i realize the right wingers want to pretend that the 2001 tax cut didn't take place, but it did.

more to the point, you do realize, don't you, that when the 2003 tax cut passed, bush said it meant that we would create 5M new jobs between july 1, 2003 and december 31, 2004. in fact, we didn't create that many jobs aggregate until some point in 2008. (btw, the unemployment rate, as we need to remind people over and over, isn't a good metric, because it excludes so-called discouraged workers. the best metric is jobs to adult population, and that number declined over the bush years, and, of course, is even lower now.)

which is to say, by its very own metric, even the second bush tax cut failed (the first one failed by its own metric too, in that its metric was that we could exercise that tax cut and maintain at least a general fund balance, and of course we didn't do that, not one single year).

meanwhile, by way of comparison, the clinton 1993 tax hike - which the right wingers assured us would tank the economy - was followed by years of good growth, job creation, fiscal rectitude, and income increases at all levels.

so yes, the discussion is old, but one side lies about the outcome and the other side doesn't need to lie.

claudius2, what can i say, you want to make a sloppy argument, people are going to call you on it. as for your core point, the fact is the bond market is giving money to the U.S. this is exactly the time we should be running a deficit....

Posted by: howard16 | June 4, 2010 4:03 PM | Report abuse

This economy has been overheated since the early Bush/Greenspan days when the dot com bubble was not allowed to entirely deflate. To keep things going on his watch, Bush engaged in monetary and fiscal stimulus - cutting taxes and growing the federal government (both through [a larger] war, Medicare Part D, etc.). This economy was going full tilt since 2001, and the housing bubble, with enablers such as Fannie and Freddie, finally resulted in both the private sector (banks) and public sector (Fannie/Freddie) going under water. As a conservative, I hate to say it, but the growth experienced in the Bush years, as measured by GDP or employment, was mainly due to too much credit and an expanding government. It was populism on crack.

Posted by: dnara | June 4, 2010 4:08 PM | Report abuse

Howard16 wrote: rboltuck, what i meant was very simple: crowding out can be seen when interest rates rise. that's the living definition of crowding out, that funding the government's financing needs keeps capital from flowing to private requirements.

but that's absolutely, positively not what's happening: there is no sign of crowding out showing up in the bond market.
************
Howard, I think he's referring to the interest being paid by the Fed on reserves. Why would banks engage in traditional lending, which involves risk, when the Fed will pay them an interest rate just to keep their reserves on hold? It's a no brainer, and a real tragedy the average American looking for a small business loan doesn't know exactly why there's no credit. Whether attractive bond market rates divert credit from private sector borrowers, or if the Fed offers another low (or no) risk vehicle (paying interest on reserves), it still diverts available credit.

Posted by: dnara | June 4, 2010 4:16 PM | Report abuse

dnara, crowding out means that credit-worthy private businesses can't access funds because they aren't available to be had.

until that moment, we don't have crowding out, and we aren't at that moment: it is not lack of access to credit that is the problem, it's lack of sufficient demand to justify borrowing (not to mention the needs to deleverage and increase capital reserves).

meanwhile, though, surely you jest: there have always been risk-free investments available to banks for their capital and they have always declined the honor of only keeping their funds in such vehicles on the expectation that their risk assessment would let them determine an adequate rate of return to take on the risk.

now, we can certainly all agree that banking risk management fell apart, and we can probably even agree that banks are now being extra-cautious as a result, but that still doesn't take us to a condition of crowding out.

Posted by: howard16 | June 4, 2010 4:31 PM | Report abuse

The best research on crowding out is by leading macro-economist Robert Barro. He explains empirical estimates are necessarily limited to defense spending, for reasons explained in his paper discussed here -- so analysis of those data remains the best information out there, as imperfect as it might be: http://www.capitalgainsandgames.com/blog/bruce-bartlett/1112/barro-taxes-and-multipliers

Barro's paper, linked above, is well worth reading on this topic. Here is the abstract:

"Abstract: For U.S. annual data that include WWII, the estimated multiplier for defense spending is 0.6-0.7 at the median unemployment rate. There is some evidence that this multiplier rises with the extent of economic slack and reaches 1.0 when the unemployment rate is around 12%. Multipliers for non-defense purchases cannot be reliably estimated because of the lack of good instruments. For samples that begin in 1950, increases in average marginal income-tax rates (measured by a newly constructed time series) have a significantly negative effect on real GDP. Increases in taxes seem to reduce real GDP with mainly a one-year lag due to income effects and mostly a two-year lag due to substitution (tax-rate) effects. Since the defense-spending multiplier is typically less than one, greater spending tends to crowd out other components of GDP. The largest effects are on private investment, but non-defense purchases and net exports tend also to fall. The response of private consumer expenditure differs insignificantly from zero."

Posted by: rboltuck | June 4, 2010 4:39 PM | Report abuse

rboltuck, putting aside methodological and analytical considerations (the way he treats ww ii, the fact that we increased marginal tax rates in 1993 and there wasn't a lag in growth until 2000), you realize this isn't about the discussion we've been having. this is a completely idiosyncratic use of "crowding out."

here, for example, is forbes' investopedia definition (i skipped the wikipedia one because it has one of those exclamation points that content needs to be improved, but it says the same basic thing), which i'll use as representative of standard definitions:

Investopedia explains Crowding Out Effect
Governments often borrow money (by issuing bonds) to fund additional spending. The problem occurs when government debt 'crowds out' private companies and individuals from the lending market.

Increased government borrowing tends to increase market interest rates. The problem is that the government can always pay the market interest rate, but there comes a point when corporations and individuals can no longer afford to borrow.

http://www.investopedia.com/terms/c/crowdingouteffect.asp

so we'll know crowding out when we see it in the bond market, as i've said all along, and right now, we're not seeing it in the bond market.

that all said, i don't disagree with the heart of his comment: there is a deadweight loss associated with defense spending that has a distorting impact on the economy.

Posted by: howard16 | June 4, 2010 4:54 PM | Report abuse

Howard: sure there have been less risky (I'll never say risk free) vehicles for banks to put deposits, but in this economy, when the Fed was taking on toxic assets to their balance sheet, they needed to raise capital to keep interest rates low. If they didn't, successful bond auctions would require higher rates of return. Higher interest rates could not happen, as low interest rates heled keep mortgage rates at low to attract at least some buyer. If interst and mortgage rates were to rise, the housing market would have dried up completely.

So the best method the Fed had was to attract capital via bank deposits by paying them interest. I disagree that there is a lack of demand for credit-worthy private sector borrowers. In fact, the clamor from the small business community has been pretty strong and persistent that there is no access to capital. Surely, you don't really believe that there is NO demand for borrowing?? The problem is there is no money to be had, because it's all locked up with the Fed. That is crowding out. Can't you understand that?

Posted by: dnara | June 4, 2010 4:58 PM | Report abuse

Howard: I take back my last line - you're right. We don't have traditional crowding out in the sense of rising rates. But what would you call the current situation (a form of a liquidity trap?), where private sector borrowers find no credit available since the Fed is offering a better deal for depositors' capital?

Posted by: dnara | June 4, 2010 5:06 PM | Report abuse

There is always crowding out, it's just a matter of degree.

Whenever the federal government borrows, it will use loanable funds that would be available for another use.

Let's go ahead and assume that in 2000 Al Gore was elected President and he ran a more prudent fiscal policy. There was a small deficit in 2002 related to the recession but for the most part the aughts saw surpluses, with the surplus at 3% of GDP in 2007 and the public debt amounting to just 17.5% of GDP. Let's then assume that between stimulus and lower revenues the 3% surplus turns into a 4% deficit. The housing bust happened despite the best intentions and efforts of the Gore Administration, and the economy and unemployment are equally weak today in this hypothetical. The Fed is sitting near zero, and is paying interest on reserves.

In this scenario, what would you expect the rate on long-term government debt to be? At today's rate? Higher than today's rate? Lower than today's rate? If not lower than today's rate, then why not? If investors only want to own safe assets, then far fewer safe assets means lower interest rates.

So there is always crowding out, it's just the question as to the extent of it. I'll agree that crowding out right now is a small problem because in the absolute sense rates are low and mediocre private borrowers are being denied credit at any price as the banks repair their balance sheets. In this environment, it probably does make sense to borrow and make investments that would make sense apart from the idea of stimulating the economy. The economy might well see a boost if aggregate money demand falls, but in my view the last mover is the Fed. The Fed won't let aggregate demand increase so much that it puts inflation well beyond it's target. Ben Bernanke has explicitly said this many times now.

So if we need a lot of infrastructure repair, well then yes, let's go do it. Lots of unemployed construction workers that could in theory (apart for legal/political constraints) be hired on the cheap and low interest on the debt. Investments, however, should be made on their own merits.

Posted by: justin84 | June 4, 2010 5:57 PM | Report abuse

Howard,

"I realize the right wingers want to pretend that the 2001 tax cut didn't take place, but it did."

It did. If I recall, the 2001 recession was the most mild in American history in terms of lost output. That said, I largely attribute that to monetary policy. Tighter monetary policy during 2001-2003 probably would have led to some deflation and a deeper recession.

In any case, my point was that sometimes policy interventions can be conveniently timed so that they look great in terms of subsequent economic data. The economy kicked into high gear immediately after the 2003 tax cut. I'm not actually giving the tax cuts credit for this, I think the housing bubble and the end of war-related uncertainly did more, but I just wanted to point out that things look good if you look at the chart from a before/after perspective.

"More to the point, you do realize, don't you, that when the 2003 tax cut passed, bush said it meant that we would create 5M new jobs between july 1, 2003 and december 31, 2004."

When ARRA passed, the Obama administration said that unemployment wouldn't get past 8%. Without ARRA, they expected 9%. Today we're talking about a report that unemployment fell to 9.7%. Okay, Bush was wrong and Obama was wrong.

I'm guessing the Bush team's embarrassment with the 5 million job number is why today they are saying 'created or saved'. You can resort to models which give you the outputs you like (or more precisely, use the assumptions you like). It's also why I'm guessing the estimated 'saved' jobs number is just 3 million on $800 billion of stimulus. That sounds relatively unimpressive but it becomes hard to defend larger and larger numbers when over a year later there are still far fewer jobs than when the bill was passed.

"In fact, we didn't create that many jobs aggregate until some point in 2008."

I'll agree that it took awhile for payrolls to expand by 5 million, although it was before 2008 because employment peaked in December 2007. Using the household survey (which actually looks better for Obama as well), which is more volatile but includes a broader set of workers, 10.782 million net jobs were created peak to peak during the 2000s expansion, about 9 million of them after the 2003 tax cuts.

Posted by: justin84 | June 4, 2010 6:20 PM | Report abuse

"(btw, the unemployment rate, as we need to remind people over and over, isn't a good metric, because it excludes so-called discouraged workers. the best metric is jobs to adult population, and that number declined over the bush years, and, of course, is even lower now.)"

Actually, the employment to population ratio was largely unchanged between the mid 1990s and the mid 2000s except for one demographic - teenagers. Teenagers for whatever reason bailed out of the labor force. Maybe it was allowances but who knows.

Anyway, if you look at women age 20+, the employment to population ratio was 58.3% on December 1998, and it was 58.3% on October 2006.

Men didn't do quite as well, on those same dates they employment to population ratio was 74.0% to 73.1%. However, look back at April 1996 - not a weak time for the labor market - and the ratio was 72.9%. Then again, the male employment to population ratio has been declining for a long time. It was over 80% during the Nixon days, over 75% under (most of) the Carter Administration, and got nearly back to 75% under Bush I.

Posted by: justin84 | June 4, 2010 6:21 PM | Report abuse

Patrick,

WRT this part
---
"...steady progress since the 2003 Bush tax cuts..."

seriously?

--

It's pretty much undebatable that the economy turned a much better performance from Jun03-Jun04 than Feb09-Feb10. I basically quoted you word for word on your description of the economy since ARRA, but just changed a few words so that it fits the Bush tax cuts rather than ARRA.

I'm not trying to say the Bush tax cuts were responsible for the surge in growth - I'm just trying to say from a timing perspective it looked like a home run (if you want someone saying that with a straight face, watch Kudlow & Co). Just looking at a graph and noting improvement afterwards isn't persuasive. That is all I am saying here.

Posted by: justin84 | June 4, 2010 6:30 PM | Report abuse

Howard, I think the dialectic here has finally exposed what you really meant when you first said to me in your 11:43 am comment, "rboltuck: crowding out? you don't even understand the words you're throwing around. try to learn something before you comment."

Since you reject Robert Barro's use of the concept of "crowding out", claiming his is a "completely idiosyncratic use of 'crowding out'", your really meant, equivalently, that Robert Barro doesn't "even under the words". So it is Howard on one side, with a highly simplified exposition of the notion from Investopedia, and Robert Barro on the other. (Barro's CV here: www.economics.harvard.edu/faculty/barro/cv/vita%2001-09.pdf) I guess I'll take that match up.

Barro argues that the multiplier on government spending, where measurable (military spending, which actually does require factory jobs) is far less than one, and points out, I should think uncontroversially, that that implies that a dollar increase in government expenditure reflected in the GDP is offset by more than a dollar reduction in other spending. He identified the largest component of that offset in private investment.

Surely, as you and Investopedia indicate, one means of crowding out is through conventional interest rate adjustment in a well-functioning credit market. To read Investopedia's simplified illustration as a definitional restriction on "crowding out" is, I would argue, simplistic. (As Einstein pointed out, "Make things as simple as possible, but not simpler.")

When the structure of the credit market is itself changing to channel loanable funds to the government in this era of quantitative easing, interest on reserves, and other extraordinary innovations, it is easy to suppose that crowding out might operate through other channels as well, including simply rejecting loan applications under tighter lending standards to private borrowers.

Posted by: rboltuck | June 4, 2010 6:48 PM | Report abuse

justin84:

"Just looking at a graph and noting improvement afterwards isn't persuasive. That is all I am saying here."

Your original quote refers to "steady" growth in gdp since the Bush tax cuts. There was a rather enormous hiccup in the "steady" growth in the form of the Great Recession, both for gdp and employment.

Conversely, if you look at the graph of employment you see a very symmetrical V shape down and up, with only a couple of minor monthly stutters.

Extrapolate whatever bad news you want, blame employment reversal in 1937 on the Wagner Act and Unions, or perhaps claim that 9-11 was an inside job, but common sense interpretation of the data still dictates that after a terrible plunge, employment has been steadily recovering since passage of the modest ARRA stimulus.

We live in a free country, so engage in whatever magical thinking you please, but the employment stats over the past three years are what they are.

Posted by: Patrick_M | June 4, 2010 11:28 PM | Report abuse

Patrick,

Right now you seem unable to shake your conviction that I am defending Bush. Let me set the record straight - I am not pro Bush. Check out this link. I think it will help.
http://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc

Anyway, yes, the chart looks very nice. But the GDP/unemployment chart looks great for the Bush tax cuts, especially if you only look a year out (as we are limited to now with ARRA). GDP growth was just 0.1% in 2002Q4 and 1.6% in 2003Q1. JGRRTA was passed in 2003Q2, and GDP growth was 3.2%. In 2003Q3, GDP growth soared to 6.9% - the best we saw in the Bush years - and averaged 3.4% for next several years. Unemployment, which had been rising from late in the Clinton Administration and hit 6.3% in June 2003 started falling as if on cue.

If you are going to blame the '03 (and or '01) tax cuts for the 2008 recession, then I think it is equally fair to blame ARRA for the next recession. After all, your beautiful V shaped chart will have a rather enormous hiccups of its own! In fact, unless the private economy starts producing 300-400k jobs soon, we'll be back to some job losses as the census folks go home. Blaming the Bush 01/03 tax cuts for the 2008 recession is like blaming the Clinton tax hikes of 1993 for the 2001 recession.

Patrick, you are simply overly biased towards Democrats. You say a short term pattern that favors a Democratic president means that his policies were the cause. You then dispute what would be a very similar chart that Bush could point to showing the success of the 2003 tax cut, saying that half a decade later a financial panic (which no serious analyst blames on tax cuts) showed the tax cuts to be failures. Were Clintonian economic policies a failure because unemployment started rising the 2nd half of 2000? Or was that just a cyclical downturn? Or maybe the economy magically anticipated that Bush was going to take office and decided to turn down preemptively?

At the end of the day, economies always always always can recover on their own if left to their own devices. Downturns are always followed by rebounds. That the severe 2008 recession began abating near the beginning of Obama's term is probably as much due to luck as the surge in growth under Bush occurred right after the '03 tax cuts.

Finally, I find it somewhat perplexing that you claim standard economics (sharp increases in real wages reduce output and employment, and unionization/dollar panic combined to drive sharp real wage increases in 1937) to be 'magical thinking'. High (and sticky) wages are one of the primary Keynesian explanations for high (and persistent) unemployment. You actually think it is more likely a 1.5%/yr cut in the deficit in the mid 1930s had more to do with the 1937 recession than soaring real wages? That my friend is magical thinking.

Posted by: justin84 | June 5, 2010 6:54 PM | Report abuse

howard16 and others, re: crowding out discussion. I just took a moment to examine the Atlanta Fed discussion that you referenced in your 6/4 4:03 pm comment.

I believe you were referring to this entry in the Atlanta Fed's "Macroblog": http://macroblog.typepad.com/macroblog/2010/05/how-discouraged-are-small-businesses-insights-from-an-atlanta-fed-small-business-lending-survey.html .

Paula Tkak, a senior economist at the Fed, indicates that "the results of our April 2010 survey suggest that demand-side factors may be the driving force behind lower levels of small business credit."

I would note that the survey was limited to a modest sample of 191 firms in just one Fed district, and all were small businesses (whereas crowding out affects all businesses). The constricted nature of the sample limits its obvious applicability to the national credit market, even if the firms were selected randomly.

Moreover, the reasoning leading to Ms. Tkak's inference has not been published in any journal or subjected to peer review. I doubt it would survive well if it were. At its core, Ms. Tkak notes that 11 percent of the firms sampled (apparently a normalized proportion, since her chart shows 16 percent) cited "banks' unwillingness to lend" as a reason they did not seek credit, whereas a larger proportion cited ostensibly demand-related reasons (there were more such reasons on offer to respondents than the single supply-related reason).

What does this prove? The question was put to firms that did NOT seek credit. What share of such firms, reflecting how much potential demand, did not seek credit because of a belief that it would not be approved in other survey periods when demand was assumed to be greater? From Ms. Tkak's discussion of her methodology, we have no idea.

All in all, I find Barro's work much more persuasive.

Posted by: rboltuck | June 7, 2010 5:18 PM | Report abuse

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