We market monetarists believe that monetary shocks [are] the primary cause of business cycles, indeed almost the only cause of big swings in unemployment…
Most people don’t believe this; indeed it’s not even clear that most economists believe this. Instead the average person thinks recessions are caused by big real shocks, or financial shocks, of one sort or another. Asset bubbles bursting, 9/11, stock market crashes, devastating natural disasters, etc…
[W]hen you turn your attention to the labor market you can really see how little real shocks matter. Real shocks do not cause big jumps in unemployment. Period, end of story. Even I’m surprised by this fact, but it is evidently true. Recessions are caused by unstable NGDP [nominal GDP], which is in turn caused by unstable monetary policy (by definition, as stable NGDP growth is my definition of a stable monetary policy — and Ben Bernanke’s too.)
- Entitlement transfers — government payments of cash, goods and services to citizens — have been growing twice as fast as overall personal income.
- The burden of entitlement spending now amounts to over $7,400 per American man, woman and child.
- Entitlement programs account for nearly two-thirds of federal spending.
- Nearly half (49%) of Americans today live in homes receiving one or more government transfer benefits.
- The share of 30-somethings neither working nor looking for work appears to be higher in America than in practically any Western European economy.
- More than 12.4 million working-age Americans obtained disability income support from all government programs in 2011. That’s more than the total number of employees in the manufacturing sector of the economy.
See entire article on entitlement transfers by Nicholas Eberstadt.
Ezra Klein laments:
[T]he disappointment is more total than I can remember it being at any time since the debt-ceiling crisis. I literally have not had one conversation in the last 24 hours in which the person on the other side of the phone tilted positive on the deal.
Most of those conversations have been off-the-record. But you can see a similar level of frustration among liberal pundits. New York’s Jonathan Chait, who’s typically pretty friendly to the White House’s strategic thinking, says that “What we have now is a spectrum of outcomes that will play itself out over the next few months, ranging from ‘okay’ to ‘terrible.’” The New Republic’s Noam Scheiber says he’s “in the pessimistic camp.” Paul Krugman is relatively unbothered by the specifics of the deal, but is “despondent” over the way the president negotiated.
Meanwhile, the more strategic thinkers on the right are elated. Grover Norquist can barely contain his excitement. Yuval Levin says Republicans “probably couldn’t have done much better.” Ross Douthat takes the long view: “The lesson of these negotiations seems to be that Democrats are still skittish about anything that ever-so-remotely resembles a middle class tax increase, let alone the much larger tax increases (which would eventually have to hit people making well below $100,000 as well) that their philosophy of government ultimately demands.
Translation: Without middle class tax increases, the left can’t fund the welfare state.
Among the unemployed who had earned near minimum wage (shown in red in the chart), a majority had a job-acceptance penalty rate of at least 100 percent, meaning that accepting a job with the same pretax pay as they had before layoff would not increase their disposable income. If they were to accept such a job, all the compensation would go to the Treasury in additional personal income taxes, additional payroll taxes and reduced unemployment insurance benefits (under the stimulus, unemployment insurance benefits alone were more than half of the pretax pay from the previous job), and in some cases reduced benefits from the Supplemental Nutrition Assistance Program, known as SNAP, and Medicaid.
Only 18 percent of those earning near minimum wage had a job-acceptance penalty rate of less than 80 percent.
Casey Mulligan on fixed poverty rates vs. fewer incentives for the unemployed.