When it comes to economic conditions, I’m generally a glass-three-quarters-full kind of guy. Take unemployment. Quick—what was the risk in 2008 that an American worker would experience at least one bout of unemployment? Chances are you thought that that risk was higher than one in eight.* But figures from government surveys indeed suggest that thirteen out of fifteen workers (or would-be workers) had not a single day unemployed during the first year of the “Great Recession”.** (Incidentally, the recessions of the mid-1970s and the early 1980s were also called the “Great Recession” by some commentators.)
The 2009 data won’t be out until later in the year, but if last year ends up comparable to the depths of the early 1980s recession, then the average worker will “only” have had a seven in nine chance of avoiding unemployment.*** But these figures overstate economic risk because some unemployment is voluntary and much of it is brief. According to the Congressional Budget Office, the chance that a worker experienced an unemployment spell lasting more than two weeks during the three years from 2001 to 2003 was just one in thirteen—a period covering the last recession.
So as I’ve been following the debate about unemployment insurance and whether it actually worsens the unemployment rate, I’ve actually been open to the idea that being able to receive benefits for up to two years might create perverse incentives. The research is not as uniformly dismissive of the idea as some liberal assessments have implied (go to NBER’s website and search the working papers for “unemployment” if you want to check this out yourself).
In particular, the idea that there were 5 people looking for work for every job opening struck me as sounding overly alarmist. So I started looking into the numbers to determine whether I thought they were reliable. The figures folks are using rely on a survey from the Bureau of Labor Statistics called the Job Openings and Labor Turnover Survey, which unfortunately only goes back to December of 2000. But the Conference Board has put out estimates of the number of help wanted ads since the 1950s. Through mid-2005, the estimates were based on print ads, as far as I can tell, but the Conference Board then switched to monitoring online ads. You can find the monthly figures for print ads here and the ones for online ads here. The JOLT and unemployment figures are relatively easy to find at BLS’s website.
When I graphed the two Conference Board series (which requires some indexing to make them consistent–the print ad series being an index pegged to 1987 while the online series gives the actual number of ads) against the number of unemployed, and then the JOLT series against the unemployed, here’s what I found:
I’ll just say I was shocked and that I am much more sympathetic to extension of unemployment insurance than I was yesterday.
* * *
*The post originally said one in ten, which was wrong (the result of mistakenly using a figure I had computed for an older age range). Technically, the the figure was 13.2%, or 1 in 7.6.
** The original post said nine out of ten.
*** The original post said that if it reaches the depths of the 1990s recession, then the average worker will have had a five in six chance of unemployment. I located data for the early 1980s recession, which is a better comparison to the current one.
Cross-posted at The Empiricist Strikes Back.
WillyP // Jul 15, 2010 at 2:02 pm
forgotn,
I lived in Canada for years as a student and was just there for a week vacationing, in Alberta. Your attitude, tone, and arguments are lame enough. You actually sound like a nationalist Canadian… and that’s even more lame.
There’s a strange habit among Canadians to bash the U.S. and brag about Canada. Well, we didn’t go down the fully socialist road with healthcare (some bright idea that was) and we don’t have a special, irrational affection for the British royal family.
There’s plenty to like about Canada, but socialism and unfounded sentiments of national greatness are not among them.
Nor, for that matter, are Canada’s increasingly alarming attacks on the free speech of its citizens… which Mark Steyn refers to as the “Maple Curtain.” Quite funny, actually. But you don’t seem to have much of a sense of humor.
WillyP // Jul 15, 2010 at 2:08 pm
lfc,
You apparently subscribe to the maxim that if you repeat a lie enough, it becomes true. A first rate hack who lacks historical perspective and the ability to see ideologies and their consequences clearly.
Look LFC – you elected this bumbling moron into office, you vote Democrat, and your party is presiding over the worst economy since the 1930s. And guess what? They’re making it WORSE! Yes! Worse! It’s getting WORSE, despite what the minions of the administration and Fed say!
Say whatever you like. Just be happy you’ve finally found someone who makes Republicans long for the fiscal austerity and foreign policy wisdom of Jimmy Carter. Obama will lose 49 states, and that’ll be the last word in this sorry chapter of American history.
LFC // Jul 15, 2010 at 2:18 pm
“The CRA never made any loans, or even guaranteed them. They instead stipulated, starting in 1995, that any mortgage lending institution must dramatically increase its sub-prime lending or face financial sanctions if the lender didn’t have an adequate ‘lending grade.”
Try this article to understand why JQ is so off the mark. He also did a great post on a CRA thought experiment to make things clearer for those still clinging to the ridiculous “CRA did it!” meme. He did the same thing for Fannie and Freddie.
And this is a good one that explains that the default rate is vastly hire for high-end and investment mortgages, not low-end mortgages.
But if JQ is really hot to trot on this argument, Barry Ritholtz has offered to debate anybody for any amount from $10K to $100K, with the winner of the debate to be selected by a jury. There ya’ go, man! $100K in the bank. (FYI, nobody took him up on it.)
Finally, since JQ doesn’t seem to understand the stratospheric multiplier effect created by unregulated derivatives as compared to the actual debt they were supposedly based upon, here’s some good reading to help him understand it.
LFC // Jul 15, 2010 at 2:20 pm
WillyP, after you’ve been b****-slapped with so many facts from so many people, and answering none of them with anything other than spittle, do you really think it’s a good idea to double down on rant?
Go back to the RedState cocoon. I’m sure that audience will gladly nod their heads with their mouths open at your factless diatribe.
LFC // Jul 15, 2010 at 2:30 pm
From the Cleveland Fed:
The graph can be found here.
I hope thoughtful people here will finally grasp that the CRA and Fannie/Freddie memes don’t hold up under scrutiny of actual figures.
Joel // Jul 15, 2010 at 2:35 pm
LFC:
Facts and figures will mean nothing to Willy, because in the end he’ll stomp his feet, tell people that they are morons and shout in all caps about how Hayek shows that it is tyranny.
WillyP // Jul 15, 2010 at 2:41 pm
Meh. I am living in the Twilight Zone, where there is precisely 1 conservative posting on a purportedly conservative site. I’ve listed facts, figures, statistics in dozens of blog posts. I’ve explained theory and showed historical examples. I’ve detailed intellectual history and explained how it plays out in political history. Ditto for economics.
Why anyone thinks I have the time to write fully formed, linked rebuttals to a liberal choir of soon-to-be big losers this election season, I don’t know. Suffice to say that my defense is summed up in your falling poll numbers, so there .
A small part of me is happy Obama won, just so we can forever point to the ultimate failure of modern liberalism to fix things. I have nothing else to say right now. The voters will do my talking in November.
As for you Joel, why don’t you retake 5th grade American history.
Joel // Jul 15, 2010 at 2:50 pm
I see a lot of facts against you listed above, and all I hear out of you is silly invective and slogan spouting.
Yes, I’m impressed. Go stomp your feet some more.
WillyP // Jul 15, 2010 at 3:12 pm
lfc,
“I hope thoughtful people here will finally grasp that the CRA and Fannie/Freddie memes don’t hold up under scrutiny of actual figures.”
Excuse me? Fannie and Freddie are bankrupt. That provides all the context needed. Period.
Is this due to performing loans? No; they are bankrupt because they made bad loans that people could not repay.
“The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history,” Bloomberg explained.”
http://www.thenewamerican.com/index.php/economy/markets-mainmenu-45/3779-fanniefreddie-bailout-may-reach-1-trillion
LFC // Jul 15, 2010 at 3:36 pm
Fannie and Freddie are bankrupt. That provides all the context needed. Period.
Uh, the fact that you honestly believe that it “provides all the context needed” goes a long way to explaining why you really don’t grasp the concept of cause and effect.
Fannie and Freddie f***ed up royally, but they were burnt by the collapse, they didn’t cause it.
I’m still fascinate by the fact that those clinging so desperately to the “CRA and/or Fannie & Freddie caused the collapse” memes just can’t grasp really, really, really simple math. The derivatives market was “valued” at 8X the debt that it was based upon. Add to that the fact that private lenders ignored all rules and guidelines to create debt to feed the derivatives market, and it’s blatantly simple to grasp that the lack of regulation of the PRIVATE firms to create the conditions that caused the collapse.
Roll that around in your feeble little brain, Willy. $8T in debt was valued at over $60T when converted to derivatives. Are you really so entrenched in your cocoon that you can’t grasp the fact that private industry created over $50T of “funny money”? Really?
LFC // Jul 15, 2010 at 3:40 pm
From WillyP’s link, showing that he doesn’t understand that 2009 was after the damage was already done (bold mine)…
Man, buy a frickin’ calendar.
WillyP // Jul 15, 2010 at 3:56 pm
lfc,
The value associated with a voluntary contract is not money, just as houses, cars, and horses are not money.
Funny MONEYcomes from 2 places: Fractional Reserve Banking and the Federal Reserve System.
You cannot get your basic concepts correct, for instance, the difference between money (defined as the most commonly accepted commodity) and paper value. And last time I checked, contracts were perfectly legal forms of trade. So if they were mispriced (i.e., in terms of MONEY) we can blame that on the distortion introduced by the “funny money,” i.e. counterfeiting, and the subsequent credit expansion. The only reason that those derivatives had ANY value is because of the housing bubble, which was caused by credit expansion – that is, the inflation of the money supply, first by the Federal Reserve System, and second by private banks’ practice of fractional reserve banking.
It’s all so technical, isn’t it? Go read a book on economics. Here, let me recommend one:
http://mises.org/resources/681
LFC // Jul 15, 2010 at 4:17 pm
The only reason that those derivatives had ANY value is because of the housing bubble…
Oh great economic sage, since you ignored EVERY other fact I’ve handed you, try explaining how the housing bubble caused an 8X multiplier in the derivatives value rather than the unregulated derivatives market driving a demand for more debt and hence pushing the housing bubble up further. (This should be amusing.)
WillyP // Jul 15, 2010 at 4:27 pm
That’s an impossible task, as these are not monocausal events. The bubble led to the creation of derivatives, which in turn further inflated the bubble.
You truly misconceive the nature of the problem. The derivative market was invented to serve as a hedge against a housing bubble; if we were to remove even the possibility of the bubble, we would remove the need for a hedge (i.e., the derivative market you hate so much).
Now, once the derivatives EXISTED, they were regarded almost as insurance. People with insurance act riskier than those without insurance, which explains why they cascaded the ALREADY EXISTING debt problems.
It isn’t my fault you fail to grasp that the original sin of the entire thing is money creation, not derivative (i.e., voluntary contract) creation. You want to regulate derivatives? Fine, but that alone isn’t going to prevent a huge bubble or the subsequent bust.
Only 100% reserve requirements and commodity money will do that.
LFC // Jul 15, 2010 at 5:02 pm
The bubble led to the creation of derivatives, which in turn further inflated the bubble.
Really? Then how come this didn’t occur in the other real estate bubbles that we’ve had in the past several decades? (Read below to grasp your fundamental misunderstanding of the recent derivatives market vs. previous ones.)
You truly misconceive the nature of the problem. The derivative market was invented to serve as a hedge against a housing bubble;
You truly misconceive the difference between a properly crafted hedge and the derivatives that were recently created and misrepresented. You are speaking of things like simple CMOs, but this does not apply here. The complexity of the derivatives created were inexplicable and could not be valued accurately. This wasn’t a hedge. It was a pure snake oil sales job.
if we were to remove even the possibility of the bubble, we would remove the need for a hedge (i.e., the derivative market you hate so much).
Again, not true. The derivatives market I hate so much aren’t basic hedges like CMOs and CDOs, they are instruments made intentionally overly complex and then sold, sold, sold! Brokers falsely told institutions that B-rated debt packaged into a derivative magically became AAA. That’s not a hedge, that’s a revenue generating lie … and the credit rating agencies went right along with it. Had these lies been illegal, we would have had at worst a really bad real estate bubble which we’ve seen and weathered before.
Repeat “8X multiplier” to yourself over and over until you grasp that it was the false valuation of the derivatives that crushed us, and accelerated the real estate bubble way past where it ever went before. And if you don’t believe we shot past previous real estate bubbles, take a look at the Case-Schiller index.
Now, once the derivatives EXISTED, they were regarded almost as insurance. People with insurance act riskier than those without insurance, which explains why they cascaded the ALREADY EXISTING debt problems.
And why were they regarded almost as insurance? Because their value was misstated by the ratings agencies, and there were no regulations that stopped them from doing it. It’s the same as buying insurance from an insurance company that has practically no underwriting, except that it’s illegal to sell that type of insurance. This is really basic regulatory stuff that you don’t seem to get.
It isn’t my fault you fail to grasp that the original sin of the entire thing is money creation, not derivative (i.e., voluntary contract) creation.
And it isn’t my fault that you think every derivative is the same as every other derivative, but it goes a long way in explaining your confusion.
You want to regulate derivatives? Fine, but that alone isn’t going to prevent a huge bubble or the subsequent bust.
Actually, it will. It will prevent a huge DERIVATIVES bubble and the subsequent burst.
In my adult lifetime we’ve had several real estate bubbles, a bio-tech bubble, an internet bubble, a baseball card bubble, a Barbie doll bubble, and on and on. Not one of these caused a historically massive economic collapse. Nope, only this one.
Bubbles will come and bubbles will go, but when a bubble like the derivatives bubble exceeds GDP by 4X then maybe, just maybe, it’s not like any other bubble we’ve ever seen … ya’ think?
And if you want some credibility, you really need to quote facts rather than just producing verbiage without any factual backing.
WillyP // Jul 15, 2010 at 5:20 pm
LFC,
So you’re telling me, basically, that Wall St. just learned how to lie with this bubble. rigggghhht….
And if this bubble was “worse,” that’s for 3 primary reasons:
1) it was BIGGER
2) it was on the heels of another bubble
3) recovery has been sabotaged