George Bernard Shaw once quipped that “if you laid all the economists in the world end to end they still would not reach a conclusion.” If Shaw were still around he might amend his observation with “except when they do and it’s wrong.” Or, reading a certain article in Friday’s Washington Post, he might opt instead for “except for when academic economists manage to embarrass themselves by indulging in research studies so ridiculous that only other academics could possibly take them seriously.”
Yes, folks, you won’t believe your eyes when you read Jim Tankersley’s “Study warns of more jobless recoveries.” It tells of a “major new study” from economists at the University of Texas at Austin and University of California at Berkeley (Olivier Coibion and Yuriy Gorodnichenko, respectively) that, after a range of tests, “still can’t explain what has gone wrong” when U.S. recoveries from recessions don’t produce proportional job growth.
You have to read the whole thing for yourself to grasp how bizarre this study appears to be, or how incompetent the description of it is—it’s not clear which is which (maybe it’s both). But the gist of the study is that, first, Federal policy has not been sufficiently stimulative. The second concerns social trust: The decline in social trust destroys networks people use to find jobs. Ah, but the researchers note an offsetting factor: In older demographic cohorts people may stop looking for jobs after they are laid off, preferring early retirement instead, which keeps unemployment statistics from looking worse than they might. So withal, despite all that research, they can’t answer their own question.
But, according to Coibion and Gorodnichenko, “We were able to rule out a number of potential explanations, including some prominent ones, so we view this as making some progress toward resolving the riddle.” There is no mention, however, of which of these prominent potential explanations were ruled out, or how. That’s curious in this case because the words “globalization” and “automation” are never mentioned in the article, by the two economists or by Tankersley. This omission spites an avalanche of significant studies in recent years focusing on major shifts in global labor markets and the role of information technology in causing changes in the relative returns to capital and labor (favoring the former), and the impact of both on measures of growing inequality. If these are the political economy factors that Coibiton and Gorodnichenko have “ruled out”, someone owes us an explanation of how they could possibly have done so.
Juxtaposition is sometimes synonymous with serendipity. On the same day—yes, Friday, September 20—the front page of the New York Times carried a major feature, by Stephanie Clifford, called “Textile Plants Humming, But Not With Workers.” It is a vivid case study of how automation is enabling some industry to return to the United States from abroad and thrive. It validates work that TAI board member Tyler Cowen has been doing, some of which has appeared in TAI(“What Export-Oriented America Means”). Cowen points out that labor costs in places like China are rising relative to other, later-developing Asian economies but, more important, that the overall significance of labor costs in many manufacturing processes is dropping, making that entire metric less consequential in business planning decisions and giving capital- and technology-rich America a significant comparative advantage.
It remains to be seen how much manufacturing will return to the United States from abroad; some experts are more optimistic than others. Either way, job growth will most likely continue to be detached from data on GDP growth and corporate profits, and that poses huge social policy puzzles. As I argued in Broken: American Political Dysfunction and How to Fix It, generating middle-class-sustaining jobs is the key challenge of the future. Before it comes the huge issue of education reform, which we’re failing miserably at, and after it comes the impact of a withering middle class on our egalitarian-minded democracy, which is indeed portentous in the longer run. The data on inequality is often misread, but that doesn’t mean the phenomenon isn’t real and isn’t very, very significant.
For credentialed economists like Coibion and Gorodnichenko to be focused on second- and third-order variables like fiscal policy, social trust networks and early retirement effects is astonishing. For the Post to report this story entirely bereft of its proper broader context would have been astonishing, too, a quarter century ago. But now it’s par for the journalistic course in these days of collapsing narrativity, where news no longer need be placed in any past-present causal sequence in order to qualify as news. I wonder what G.B. Shaw would say about that?
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