Getting used to high unemployment
Political Correction had an amusing item yesterday noting that Sen. Mark Kirk has gone from touting economist Mark Zandi's support for extending the Bush tax cuts to dismissing his concerns about short-term spending cuts by calling him "a fairly discredited person" who "predicted that unemployment would top out at 8 percent if the stimulus was passed." Notably, Zandi made his unemployment predictions about two years before Kirk brandished him as a respected expert in the tax-cut debate. What appears to have discredited him is his subsequent disagreement with the likely effect of Kirk's preferred policies. That's politics, I guess.
But the issue of the unemployment projections that reigned in the days when the stimulus law was being written is worth exploring further. That eight percent prediction is, without doubt, one of the costliest errors the administration made. At the moment they made it, real unemployment was vastly higher than their preliminary data said it was. But in making a prediction at all, they set a flawed benchmark by which the stimulus was later judged -- and judged harshly.
The administration has long protested that the prediction they used was based on the consensus of respected private-sector forecasters -- forecasters like Zandi. So yesterday, when I spoke to Zandi for a piece outlining the two poles in the stimulus debate, I also asked him about the early unemployment predictions he and other forecasters had made. Why had they been so far off the mark?
"In late 2008," he told me, "the economy was falling apart, but no one knew to what degree. We didn't yet know we were losing three-quarters of a million jobs a month. We just didn't have that data yet." So far, you'll recognize his response as fairly standard: Good forecasting requires good data, and good data about the economy was hard to come by in November of 2008. But what Zandi said next chilled me a little, as it's a stark reminder of not only how far we've fallen, but how complacent we've become.
"Nowadays," he continued, "nine or 10 percent unemployment sounds normal. But we'd had so many years of around five percent unemployment that we just couldn't believe it would go that high." In other words, the unemployment we're experiencing now was so hard to imagine in 2008 that most forecasters didn't even consider it as a serious possibility until they actually saw it happening to the economy. But three years later, we don't like nine percent unemployment, but fairly few people have their hair on fire about it. The Obama administration is talking about winning the future; John Boehner is saying that if his policies cause further job loss, then "so be it." We've acclimated. We're moving onto other issues. And that's a bad thing.
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