The Cost of Policy Continuity
Well, It Depends What "Nearly" Means, Doesn't It?

Department of "Huh?!" ("When the Economy Started to Falter" Edition


Methinks David Leonhardt is in danger of becoming a Very Serious Person. For he writes:

Was That a Plea From Bernanke?: Imagine if [Bernanke] had given a speech earlier this year, as the economy started to falter...

If you simply look at the graph of employment and of the population growth-driven trend, you see that the economy could not "start to falter" "earlier this year" because the economy has been faltering nonstop since late 2007. There is a temporary blip in employment from temporary census hiring. That is it. Otherwise the economy had faltered, was faltering, is faltering, and in all likelihood will continue to falter.

It is not that there was a normal "recovery" that then, unexpectedly, turned into a jobless recovery. It is that there never was a "normal" recovery in the first place.

And I, at least, could never see the logic behind forecasting models that were predicting a "normal" recovery. The Recovery Act federal stimulus was timed to start to ebb in the summer of 2000. State-level fiscal contraction was in train.

The problem was--as my daughter said at the time--that Bernanke and company were placing excessive weight on the second derivative. "Getting worse more slowly" is not the same thing as "better," and nobody should ever fit a quadratic to any time series and trust the forecast without a good warrant for doing so.

Resist the call of the Dark Side, David!