16 December 2009

The Worst Since...

The Obama Administration and its supporters continually describe the current crisis/recession as "the Worst Since the Great Depression." They also ceaselessly declaim the mess they were left with by the prior administration. I was and am no fan of George W. Bush or his administration, but these claims are faithless on several counts.

First of all, no one man is responsible for the current mess. The old adage about success having many fathers and failure being an orphan applies. Yes, the Bush administration did support many housing initiatives, stating that "homeownership is good." A mindless sentiment of the sort that should never, though usually does, drive policy decisions. But Bush also pushed for more oversight of Fannie Mae/Freddie Mac that was decried as "racist" by those who stood to benefit most by fiddling while those organizations burned through money like Grant took Richmond (I know, a terribly mixed metaphor, but it's early).

Alan Greenspan led the Fed and kept interest rates too low for too long. Was this because he was an Objectivist friend of Ayn Rand who hated the government? A tool in the pocket of banking and Wall Street "fat cats?" Or was he merely unable to see that we were in a bubble? Like just about everyone else.

Anyway, as to the original point, it is in the interest of the Obama administration to make the situation look as bad as it possibly can because it will then get credit for the inevitable recovery. And the worse it can be made to look at Point A, then so much the rosier Point B will look.

Here is a case in point, in this piece Paul Krugman, advocating for a second, larger Obama stimulus "jobs program" writes "the average duration of unemployment — the time the average job-seeker has spent looking for work — is more than six months, the highest level since the 1930s." This feeds into the "Worst Since the Great Depression" meme and ignores that unemployment, now at 10.2%, was worse during the early 80s recession (10.8% in 1982 when the Volcker Fed actively sought to reduce inflation, the Volcker Disinflation).

Krugman completely ignores the implications of frictional unemployment and the increase in the quality and duration of unemployment compensation which is in place to help people (and society) find not just a job, but a job that will lead to more efficient outcomes, matching the unemployed worker with the most appropriate job or allowing the person to acquire new training or education to be more productive in another line of work. And Congress has kept extending the number of weeks that people can collect unemployment compensation. (I will leave for now that, despite the national macroeconomic implications, unemployment compensation should be funded and administered strictly through state or local governments via wage taxation and should not be a concern of Washington.)

Krugman's piece , regarding the government creating jobs, also reminds of the engineer who was on a trip to China. He comes across a work site where a dam is being built. He sees the workers using shovels, picks and wheelbarrows. He tells the supervisor that there is equipment that could cut the amount of time and effort by 80%. "Oh, no," the supervisor tells him, "that would reduce the number of jobs for the men." "I see," the engineer says, "I thought you were trying to build a dam. If it's jobs you want, why not give them spoons instead?"