Analysis of current economic conditions and policy
The September Employment Situation
[This empty webpage brought to you courtesy of the House of Representatives]
35 thoughts on “The September Employment Situation”
Johannes
sense of humor
JBH
Menzie: Why have government websites been shut down when there is no cost to keep them running?
Ricardo
I love it. Menzie admits that his posts are funded by the government. See, the Democrat government shutdown does have its benefits. LOL! (Menzie, that’s a joke.)
It might be nice to see how much money this is saving us – oh, that’s right, congress is in the process of passing a bill to geve all the government employees back pay. Never mind.
And this comment is brought to you courtesy of the Senate:
Question of CNN reporter: “If you can help one child who has cancer, why wouldn’t you do it?”
Reply by Senate Majority Leader Harry Reid (D, NV): “Why would we want to do that?”
ottnott
JBH asks:
“Why have government websites been shut down when there is no cost to keep them running?”
Jeebers Cristo.
I won’t be asking you for an IT budget.
randomworker (at home)
I’m actually with Harry Reid on that one, Manfred. So now the model is every time a kid gets sick, their parents gin up the outrage so politicians have to carve out exceptions for them. Not a good model imo. We need the government back online for all sorts of reasons not just because one kid is sick with cancer.
jonathan
Why would the Democrats give the GOP victory? That’s the question. If the GOP gets to fund the things that stick out and bother people, then eventually the Democrats are pressured to cave in. Why would they do that?
For month the GOP has been saying they would shut the government down to defund Obamacare. They don’t want to own their choices.
In a sick way, I kind of respect the idea of going to an extreme for your position, but you have to own your choices and actions to retain that respect. All I’ve seen is stunts: sitting across from empty chairs in a conference room, etc.
To repeat, if you can’t own your choices and actions, then you really aren’t worth squat as a human being.
Brian
Cheer up, Menzie.
Last week you were critical of Eddie Lazaer and Scott Walker, and since then all you’ve done is lament the government shutdown.
Look on the bright side for a change. You woke up this morning in good health. Your dog was playful and wagging its tail. You’ve got a tenured position. Your wife made your favorite breakfast. You had hot water to shower with and clean clothes to put on.
At one point you had bemoaned the closure of the national parks. I can’t remember if it was Ricardo or Rick, but one of them pointed out that there are plenty of state parks right there in Wisconsin that are open. Go for a hike. It’ll clear your mind.
Ricardo, Stryker, Kopits, TJ, myself, and many others are here to help. Even Slugs is hoping for the best for you, though he just encourages your liberal addiction.
Keep your chin up, buddy.
BenAround
Perhaps the private sector will now step in to provide us with key economic statistics.
tj
Brian
+1
Manfred
randomworker:
“…so politicians have to carve out exceptions for them”.
Think about what you are saying.
Not that Harry Reid has carved exceptions for anybody. No, of course not – Harry Reid is squeaky clean in that regard. Not sure you can hear my sarcasm.
You will have to come up with something much better.
guy from private sector
BenAround,
They are bad. Too much capital tied up in govt debt instead of creating jobs.
-Private Sector.
Anonymous
Oh FFS. False equivalence even here, on Econbrowser? The “House of Representatives” did NOT bring us this empty page. There is no question there are enough votes in the house to pass a clean CR. Who is preventing that vote from reaching the floor? It is not the “House of Representatives.” [expletive deleted – mdc].
Anonymous
I dont think Brian gets it. While the government employees will probably get paid eventually, they are not now. They will have to spend less money now or borrow and that money is income to others. Is this really the way to run a government holding the gun to the democrats head so that people without health care coverage will be deprived. I notice that the conservative republican candidate is calling it hostage taking. If those opposed to the healthcare law don’t like it, they could try to convince the voters that that is the critical issue and elect candidates who support their view. Oh, I forgot, we already had that election.
Manfred
Anonymous at 10:13:
“Oh, I forgot, we already had that election.”
Yes, and so?
Once an election is done, things are set in cement? Like as if God comes down and gives us commandments on Mount Sinai?
No Anonymous, that’s not how it works; I think *you* are the one not getting it. Elections are part, but not all, of a republic. People have the right to fight back, even if elections are past, even if an issue was discussed. We do not live in Bolivarian Republic under Hugo Chavez. We live in republic, where people can fight a law, *even if* it was discussed a 1000 times in 1000 elections.
Let me finish with this: remember that Dem icon Hillary Clinton? There is a well known quote from her about being “sick and tired” of being called something when she diagreed with the Bush Administration.
Well, Anonymous, some of us, got sick and tired with *this* Administration, starting with the guy at the top and his self-righteous attitude.
anon2
Hey Manfred,
I appreciate that you are “sick and tired with *this* Administration, starting with the guy at the top and his self-righteous attitude.”
No problem. I’m not crazy for him myself.
But I see no justification in that for shutting down the government or threatening the full faith and credit of this great country. You harm all of us by doing that.
Talk, cut entitlements, raise taxes. Compromise. Break up the banks. (Now that would be something.) Whatever. There’s lot’s of productive things to do. You know like cut food stamps AND cut farm subsidies, or ethanol subsidies. The list is pretty much endless.
Or make your case with the public and win some elections and then change the laws.
If you do not think you can win elections, then your ideas fail and you are left with suicide bomber alternatives.
We saved the village by destroying it, is just not a sound path to walk down.
Manfred
anon2 at 11:46:
“Talk, cut entitlements, raise taxes. Compromise. …”
Anon, have you read the news lately?
CNN.com, of all people, had a headline yesterday, saying that Barack Obama would flatly *not negotiate”, not compromise, no nothing.
I am sorry, but yes, I am getting sick and tired, just like Hilary. Because on this one, the Repubs (some, not all) are right. They are waiting for Harry Reid and the Dems to pass SOME funding, and they would not.
Yes, there was an election.
But this is still a free republic, with the operating word being “free”.
Obama and Reid were not elected to run this country like a Roman Empire duumvirate, or a Bolivarian Republic like Venezuela.
Obama and Reid sent the Republicans to screw themselves. So, who is the one not wanting to negotiate and compromise?
The Dems have NO higher moral ground in claiming that “Republicans do not want to negotiate”. None, zero, null, empty set.
Ricardo
It just struck me.
A Progressive closes down everyone’s service and then blames the Republicans.
Menzie really has this thing nailed better than I originally imagined. Thanks!!
anon2
Manfred,
Obama should not negotiate under threat. He stands in defense of America. He has agreed to negotiate after the threats are lifted. And he’s right. He may capitulate and that would be a sad day for America and a real Pyrrhic victory for the Republicans.
What is it about that you do not understand? Would you negotiate with a robber with a gun to your head or your children’s head?
My previous comments stand. There is nothing new here.
Steven Kopits
Manfred –
The Republicans are well within their rights to withhold their vote for the debt ceiling.
That’s not the issue. The issue is i) whether the holdout Republicans’ constituents support them; ii) the standing of Republicans in the country as a whole, and iii) the impact on ordinary people, including govt employees. All of these matter; they can be weighted differently.
The problem for the Republicans is that they seem to have chosen an issue too small or not communicated a large issue effectively. Is a one year delay in Obamacare worth shutting down the government? Is the gain proportional to the cost? If this win is such a big deal, it hasn’t been properly communicated.
To win this negotiation, the Republicans should have either i) chosen a low value target with little cost to the Democrats, and therefore easy to win; or ii) targeted a more strategic issue of similar gravity to shutting down the government. If you’re going to shut down the government, do it over something big and central to your party’s ideology. Ideally, one could tie it to repealing Obamacare, but it’s unlikely that a minority could achieve this goal.
Thus, the Republicans have chosen a target of high value to the Democrats, but representing a relatively minor win for Republicans. That’s a very difficult hand to play, and I don’t see how one wins it.
On the other hand, the FAA (as I have elsewhere described) meets both these conditions. It is low cost to the Democrats, as it gives them the debt ceiling, Obamacare and does not constrain any Democratic vote on any issue. And it doesn’t cost anything in the short run. (Recall the formula is 0.25% * change in GDP – change in debt. Thus, for 2013, it would be 0.25% * 2% (GDP growth) – 4.5% deficit, implying that the bonus pool would see a negative balance of about $1 bn for the year. No bonuses paid for 2013!) So it’s not a very high cost concession for the Democrats.
On the other hand, the FAA is critically important for Republicans for enshrining the principle that the primary objective of government is sustainable GDP growth, and that elected representatives should be paid for providing this. For Republicans, this would be a huge win. For the global economy, it would be a giant step towards the next level of democracy, call it Democracy 2.0.
anon2
Steven Kopits,
I searched to find what FAA was and could find nothing. What is it? Can you provide a link?
Thanks.
ps. Yes, you are correct. Republicans can withhold their votes to increase the debt ceiling. That is their right. But it is still an act that would burn the country down to save it. Really, really stupid. There are better alternatives. The Republicans should try actually working with the Democrats for the betterment of the county.
And likewise for the Democrats.
2slugbaits
JBH I’m not sure, but you may have missed Menzie’s point. The BLS website is not shutdown…or in FoxNoiseSpeak, “slimmed down.” Menzie’s point was that employment data was scheduled to come out this morning but did not because the economists at BLS and statisticians at Census have been furloughed. The four economists who assemble the GDP data have also been furloughed, so don’t expect GDP updates. And don’t expect any inflation data. Given the freeze on economic data, don’t expect the Fed to take any actions. Right now the Fed is flying blind.
BTW, there are some govt websites that are down. For example: http://governmentshutdown.noaa.gov/
Just in time for a potential hurricane in the Gulf and an outbreak of unexpected tornadoes in the midwest today. Manfred You have a short memory. Obama and the Democrats negotiated with Boehner and McConnell and came to a budget agreement last March. Boehner went back to his nutjob caucus and they revolted, so Boehner had to renege on the deal he made with Obama. Boehner was supposed to wrap things up by appointing House members to a conference committee under the regular rules. The Tea Party nuts threatened to remove him from his Speakership, so he reneged on the deal. You may not recall this, but several Tea Party nuts were upset with Boehner because a deal would upset their campaign promises to shut down the government. Obama understands that he can’t negotiate with Boehner because Boehner cannot deliver on his promises. If and when Boehner grows a pair, then this CR issue will be resolved. But Boehner is a moral coward and I don’t expect him to come around. He’s also a fool because he honestly believes that the Tea Party nuts won’t be dumping him regardless of what happens over the CR. Politically speaking John Boehner is a dead Speaker walking. He’s toast. Once he realizes that, then maybe he’ll set aside the Hastert Rule That Never Was.
Manfred
Steven:
“Is a one year delay in Obamacare worth shutting down the government? Is the gain proportional to the cost?”
One can turn around this question, and throw it to the Democrats.
Why doesn’t then Harry Reid push for a vote approving a one year delay? He could do it. And Obama could sign. Why don’t they?
Why is the blame on Republicans (in this case)? I completely reject the fact that the blame is only on Republicans in this issue.
Obama does not lead, votes “present” all the time, and Democrats are as much nutjobs and ideological as Republicans are. With one difference: This duumvirate of Obama/Reid was not elected to run this country in Bolivarian Hugo Chavez fashion. They were elected to lead. And they are not.
And Slugs, sorry, you may call the Tea Party people “nuts” and “nutjobs” etc. So are the Democrats who just cannot grow cajones and oppose the Bolivarian duumvirate, especially the guy at the top. It goes both ways, Slugs. But of course, you do not like to hear it. You dish it out, but you do not like to hear it.
Hans
http://droughtmonitor.unl.edu/monitor.html
It probably cost us more money to shudder the service than to keep it open…
BOCO, marketing stunt, just like closing all the monuments..
I wonder what happen to the Dr King monument?
” Politically speaking John Boehner is a dead Speaker walking.” Which website or source gave you this talking point.?
Occupier “slugbaits” once again distorting the record of the Tea Party…
Ricaardo
Menzie loves to compare Wisconsin with California. Here is a better comparison of California with Texas. This is a better comparison than to compare a historically disfunctional state trying to dig itself out with a disfunctional state getting worse.
benamery21
Hans: the drought monitor website isn’t shuttered, you just have a broken link, probably due to the recent redesign of the site. http://droughtmonitor.unl.edu still works and there was a new map released on 10/3.
Steven Kopits
Manfred –
Were I the President, I would not succumb to such extortion either if the situation were reversed. If the value of a win to your opponents is less than value of a win to yourself, then you hold out.
Now, politics is a strange thing, I grant you. Maybe public perception swings towards resistance. But I still don’t understand what the prize is. What have we really won by delaying Obamacare by a year? It’s not that I an unwilling to man the barricades, but it had better be worth the fight.
Steven Kopits
Anon2 –
The FAA (Fiscal Accountability Act) is simply a very basic, management consulting approach to institutional effectiveness. I am responsible for the specific approach, but pretty much any management consultant could do as much. It’s very, very basic.
So, if you have a dysfunctional institution, as a consultant, you will have within the first 15 minutes of the engagement three basic questions:
– what is the institution supposed to do? (Or what is its objective function?)
– does it have the tools and capabilities to achieve this function?
– are management’s incentives aligned with this function?
Now, there are three basic objective functions for government: egalitarian, liberal (fiscally conservative) and socially conservative. For any given policy, two of these objectives will conflict. So, if I want Obamacare, then that’s egalitarian and conceivably conservative (paternalistic), but not liberal, fiscally or otherwise.
When you have three conflicting, objective functions and a heterogeneous voter base, the politician has an incentive to pander to any particular objective function depending on the audience. (“How can you tell a politician is lying…”)
In such an event, we rapidly develop a principal-agent problem. In essence, the agent–the politician–can choose the objective function which best suits him at any given time. Thus, the agent comes to dominate the principal, the voter. Multiple objective functions imply a loss of political control for the voter, and voila!, Italy! It also implies a debt bias, because that’s always sometime later and permits both high spending and low taxes in the short run.
If you want to address this problem, you need to add a specific objective function. Thus, I would argue that general ideology is not enough–democracies need quantitative objective functions. I am proposing a liberal (fiscally conservative) one, which promotes growth and minimizes debt (to the extent the multiplier is less than one, after paying back the debt).
This objective function then forms the basis of the Bonus Pool Calculation.
The proposed formula is GDP growth minus the budget deficit, both in current dollars. It is simple formula with data reported regularly, well understood by most people with an interest in government, and reasonably transparent and neutral.
Then comes the payout coefficient for the pool. I have chosen 0.25%, which means that for every $100 of debt-free GDP that the country produces, the Congress and White House as a whole receive 25 cents. That’s well below private sector rates, which would be around 2-3% of profits (which is the corporate version of GDP growth). I would add that I personally would be willing to pay $2500 of my taxes yearly to achieve this goal, which is around 500 times the $5 / household / year cost that the program would actually run. So that’s a couple of measurement points.
In terms of incentive, I would like high enough a payout to tempt well-paid professionals to run for office. In my case, I’d have to take a pay cut to be a Congressman, risk a year on a potentially (in NJ, likely) losing campaign, and then work in a dysfunctional system in DC if elected. Yuck. On the other hand, if the bonuses were adequate, then that might change the calculus. I have set the bonuses thus to be material to members of Congress and potential “market entrants”. Remember, we’re trying to change the nature of governance, not just pass an incentive plan. In this plan, one percentage point of GDP growth over debt is worth about $500k / year / member of Congress. In a good year, a Congressman might see a $1.5 million bonus.
Another important aspect is the clawback. I have noted before the importance of sustainable growth. This means we want laws and programs which discourage short-termism and running up GDP with a crash to follow. Historically, the US has suffered recessions every five years. So any clawback at the five year horizon should be enough to convince Congressmen to take the long view, ie, that their programs will have to survive a recession. At the same time, a 20% payout (1/5th) is substantial enough to act as a meaningful incentive.
Let’s look at an example: Suppose you were five years into the program, with $1 m accrued bonus in a good year offset by a -$1 m bonus in bad year. (It would be almost -$2 m for 2013, by the way.) Assume three of the years were good, and two were recession. Thus, the bonus in Year 6 (covering Years 1-5) would be (20% x 3 x $1 m) + (20% x 2 x -$1 m), which equals a payout of $200,000 in Year 6. That’s how the clawback works.
Now, Menzie might argue (with some justification) that this will make the system too growth-oriented and encourage too little spending on social services. We’ll see, but it will clearly make all members of government interested in going after efficiencies. A Democratic Congressmen said on CNN a few days ago that there are at least 4% of GDP reserves in healthcare spending. Well, now we’ll go get them. That’s free money for everyone.
Similarly, let me disabuse my conservative friends that such a plan means low taxes. No, it means a low deficit, except to the extent such a deficit visibly generates growth. If I were a Republican Congressman, the easiest way to get the bonus plan into positive territory is to reduce the deficit, and guess what, that will include tax increases–at least in the short term (but these will also be accompanied by spending cuts). The plan is agnostic about the size of government or the level of taxes. It is merely about maximizing balanced growth.
Menzie may also argue that the deficit will be too small! It might, but now that argument will be converted from an ideological into a technical debate. The answer will not be pre-determined by ideological position, but by analysis and convincing both sides in Congress that it will generate a bonus. So that’s also another very important aspect of a defined objective function: to migrate the debate from ideological to technical terms. (And what a boon that will be to macroeconomists!) So in an important way, an objective function would professionalize governance.
Similarly then, such a methodology separates debates over the nature of incentive plans (strategy) from implementation of policy. The proper debate is over the specific, quantitative objectives of government and how much elected officials will be paid to achieve them. But implementation should be separate. Today, both objective functions and implementation are handled at the same level–hence the gridlock we see in Congress. When you separate incentive from implementation, implementation should become much easier. We will spend our time debating the incentive plan (as the specific manifestation of ideology), and much less over the mechanics of votes. In this, we would make the decision making process in Congress more similar to that of the corporate sector. Strategy is debated, but once settled, everyone in the company is motivated the same way.
By implementing an incentive plan, we would expect that Congressional approval ratings should rise, I would expect from the recent 20% level to perhaps 60% by year-end 2015.
And, of course, I have not even mentioned the impact of such a plan on more poorly governed countries.
Joseph
Steven Kopits: “the primary objective of government is sustainable GDP growth.”
Wow! Even leaving aside the debate whether GDP is an appropriate measure of social welfare, this is the policy of a true sociopath.
anon2
Steven Kopits,
FAA
In short get the politician’s incentives aligned with the betterment of the nation as a whole.
Considering how well our politicians do today, you might have to increase the bonus pool.
Thank you for the explanation.
Steven Kopits
What do you think the primary objective of government should be, Joseph?
Steven Kopits
Optimizing bonuses is always a tricky matter, Anon2. I can assure you, however, the metrics I have proposed will be adequate to reach the desired effect.
The betterment of the nation is more than GDP, just as Joseph points out. There are three objective functions–and this is why the government is indeed not exactly like a business. (Essentially, a business has only one objective function: profit maximization.)
Notwithstanding, everything else stems from sustainable prosperity. And my interest today is primarily in that area. However, both conservative and egalitarian ideologies will have their place in the objective function over time. But that’s the point: we should be arguing over the incentive plan–in quantitative terms–rather than the implementation of policy.
Joseph
What is the primary purpose of government? Well the Declaration of Independence has some nice aspirational stuff for government — life, liberty and the pursuit of happiness. Not a word about growing the GDP.
The U.S. Constitution requires an oath of the President, members of congress and the judiciary to protect and defend the Constitution of the United States. Nothing in there about growing the GDP.
In my career consulting for lots of Fortune 500 corporations I learned that you have to be very, very careful in the creation of performance incentives because, come hell or high water, you will get exactly what you asked for. That is why CEOs are willing to lie, cheat, break any law and take any risk in order to fulfill incentives to increase share price.
So we create an incentive in which “the primary objective of government is sustainable GDP growth.”
We could re-institute slavery. That would grow GDP.
We could invade other nations and appropriate their natural resources. That would increase GDP.
We could dump all of our sewers and industrial and radioactive waste in the nearest waterway. That would certainly increase GDP.
We could eliminate all power plant pollution rules. That would increase GDP.
We could clear-cut all of our national forests and parks and sell the lumber to Japan and China. That would increase GDP.
We could plow up New York’s Central Park and put up condominiums. That would increase GDP.
We could let everyone over the age of 65 starve rather than provide Social Security and Medicare. That would be a big boost to GDP.
And lest you think this is all absurd, many of those items are exactly what conservatives and many economists have argued, for example, that we must reduce benefits to the elderly that are crippling the growth of the economy. As I said, I have observed first hand the perverse effects of incentives in the corporate world. I don’t want to repeat them in public sphere.
Steven Kopits
Well, lets take your list, Joseph.
First, is 0% GDP growth and a 2% budget deficit acceptable to you? How about 2% growth and a 3-4% deficit, as the CBO is forecasting?
As for the rest:
“We could re-institute slavery.”
GDP growth values everyone as a resource. So it seeks to reach maximum human potential. I don’t see how that’s consistent with slavery.
“We could invade other nations and appropriate their natural resources.”
Did the invasion of Iraq and Afghanistan increase US GDP? It increased the deficit–a big no-no for the incentive plan. I think the opposite risk is more likely–that we spend too little on defense.
“We could dump all of our sewers and industrial and radioactive waste in the nearest waterway.”
Depends on how you count GDP. I think counting externalities is a good thing, but yes, such a system would tend to discount parts of GDP that aren’t measured properly (like stay-at-home moms). But again, remember, I have not constrained any vote by any party.
“We could clear-cut all of our national forests and parks and sell the lumber to Japan and China. That would increase GDP.”
Yes, this is a conservative value. A GDP driven approach would tend to take a more commercial view of such assets.
“We could plow up New York’s Central Park and put up condominiums. That would increase GDP.”
You clearly don’t live in Manhattan. But there are a lot of buildings in Manhattan which should be bulldozed. I can see them now from my window. And we could certainly use a couple more bridges and tunnels. I refer you to the history of Wollman Rink for the difference between public and private sector approaches. (http://en.wikipedia.org/wiki/Wollman_Rink)
“We could let everyone over the age of 65 starve rather than provide Social Security and Medicare.”
This is now an egalitarian concern. Yes, you will see greater pressure on self-reliance, almost certainly an increase in (or abolition of) the retirement age. But isn’t that exactly what economists are telling us we should do? I would add, also, that such a system does not abolish democracy. If enough people support Medicare and Social Security, then it will happen. If the majority of voters don’t support it, then I don’t see what your complaint is. But you’re right, a GDP based systems favors work over leisure.
Let me add a couple of my own items:
Prisons
I am deeply concerned that millions of people are rotting in US prisons to little benefit of anyone. The proposed system creates an incentive to i. keep people out of prison, ii. make prison sentences short, and iii. insure that people leaving prison become law-abiding and productive. To me, that’s a human rights issue. I think we can do better, and an incentive system would lead in that direction.
Education
Most inner city schools are dreadful. Republicans frankly don’t care, and Democrats are happy with whatever payoffs bring them votes. So we see the collapse of the black family, in particular, and no real interest in addressing the problem from either party.
With an incentive system, now creating prosperity in the cities is a source of value, not just a problem to ignore. I think this is important.
Efficiency
A Democratic–Democratic–Congressman said that we have at least 4% GDP reserves in our healthcare system. That’s as much as the defense budget! And why haven’t we moved to capture those reserves? Because no one cares enough, not Republicans, not Democrats. Under an incentive system, there would be a huge incentive to capture such efficiencies. That’s free money! How many other programs like this do we have? In Singapore, they can deliver our level of services at half the percent of GDP. The total reserves in spending could be a huge number.
We–you and I–are beginning to argue over what should be done, topic by topic, policy by policy, and how lawmakers should be incentivized for those goals. We are arguing about what should truly be included in GDP. To my mind, these are the arguments we should be having.
Further, such a system will de-politicize certain topics. On the right, we see things like “drug dealers should go to jail” and “three strikes and you’re out”. This is nice, and for a suburban homeowners quite comforting. But those in prison become invisible, a built-in but ignored cost to our lifestyle. It’s a huge waste of human potential. If we have an incentive to make at-risk youth productive, we have an incentive to examine the problem on its own merits, not by any ideological pre-disposition. It converts an ideological argument into a technical argument, which is profoundly important to me. I want progress, not endless arguments about why the other side is stupid.
I understand that our priorities are different. You like a consumption bias, I like an investment bias. You prefer the present, I prefer the future. I get that. And I get that government has multiple objective functions–it is that central insight which is my contribution to the issue. But it’s a mistake to consider the current system optimal. You think it’s the best possible. I think it’s pretty bad. So I think a GDP-based incentive system would be a huge step up from where we are now.
sense of humor
Menzie: Why have government websites been shut down when there is no cost to keep them running?
I love it. Menzie admits that his posts are funded by the government. See, the Democrat government shutdown does have its benefits. LOL! (Menzie, that’s a joke.)
It might be nice to see how much money this is saving us – oh, that’s right, congress is in the process of passing a bill to geve all the government employees back pay. Never mind.
A little perspective concerning government shutdown by Peter Klein. I guess Menzie is in the 18%.
And this comment is brought to you courtesy of the Senate:
Question of CNN reporter: “If you can help one child who has cancer, why wouldn’t you do it?”
Reply by Senate Majority Leader Harry Reid (D, NV): “Why would we want to do that?”
JBH asks:
“Why have government websites been shut down when there is no cost to keep them running?”
Jeebers Cristo.
I won’t be asking you for an IT budget.
I’m actually with Harry Reid on that one, Manfred. So now the model is every time a kid gets sick, their parents gin up the outrage so politicians have to carve out exceptions for them. Not a good model imo. We need the government back online for all sorts of reasons not just because one kid is sick with cancer.
Why would the Democrats give the GOP victory? That’s the question. If the GOP gets to fund the things that stick out and bother people, then eventually the Democrats are pressured to cave in. Why would they do that?
For month the GOP has been saying they would shut the government down to defund Obamacare. They don’t want to own their choices.
In a sick way, I kind of respect the idea of going to an extreme for your position, but you have to own your choices and actions to retain that respect. All I’ve seen is stunts: sitting across from empty chairs in a conference room, etc.
To repeat, if you can’t own your choices and actions, then you really aren’t worth squat as a human being.
Cheer up, Menzie.
Last week you were critical of Eddie Lazaer and Scott Walker, and since then all you’ve done is lament the government shutdown.
Look on the bright side for a change. You woke up this morning in good health. Your dog was playful and wagging its tail. You’ve got a tenured position. Your wife made your favorite breakfast. You had hot water to shower with and clean clothes to put on.
At one point you had bemoaned the closure of the national parks. I can’t remember if it was Ricardo or Rick, but one of them pointed out that there are plenty of state parks right there in Wisconsin that are open. Go for a hike. It’ll clear your mind.
Ricardo, Stryker, Kopits, TJ, myself, and many others are here to help. Even Slugs is hoping for the best for you, though he just encourages your liberal addiction.
Keep your chin up, buddy.
Perhaps the private sector will now step in to provide us with key economic statistics.
Brian
+1
randomworker:
“…so politicians have to carve out exceptions for them”.
Think about what you are saying.
Not that Harry Reid has carved exceptions for anybody. No, of course not – Harry Reid is squeaky clean in that regard. Not sure you can hear my sarcasm.
You will have to come up with something much better.
BenAround,
They are bad. Too much capital tied up in govt debt instead of creating jobs.
-Private Sector.
Oh FFS. False equivalence even here, on Econbrowser? The “House of Representatives” did NOT bring us this empty page. There is no question there are enough votes in the house to pass a clean CR. Who is preventing that vote from reaching the floor? It is not the “House of Representatives.” [expletive deleted – mdc].
I dont think Brian gets it. While the government employees will probably get paid eventually, they are not now. They will have to spend less money now or borrow and that money is income to others. Is this really the way to run a government holding the gun to the democrats head so that people without health care coverage will be deprived. I notice that the conservative republican candidate is calling it hostage taking. If those opposed to the healthcare law don’t like it, they could try to convince the voters that that is the critical issue and elect candidates who support their view. Oh, I forgot, we already had that election.
Anonymous at 10:13:
“Oh, I forgot, we already had that election.”
Yes, and so?
Once an election is done, things are set in cement? Like as if God comes down and gives us commandments on Mount Sinai?
No Anonymous, that’s not how it works; I think *you* are the one not getting it. Elections are part, but not all, of a republic. People have the right to fight back, even if elections are past, even if an issue was discussed. We do not live in Bolivarian Republic under Hugo Chavez. We live in republic, where people can fight a law, *even if* it was discussed a 1000 times in 1000 elections.
Let me finish with this: remember that Dem icon Hillary Clinton? There is a well known quote from her about being “sick and tired” of being called something when she diagreed with the Bush Administration.
Well, Anonymous, some of us, got sick and tired with *this* Administration, starting with the guy at the top and his self-righteous attitude.
Hey Manfred,
I appreciate that you are “sick and tired with *this* Administration, starting with the guy at the top and his self-righteous attitude.”
No problem. I’m not crazy for him myself.
But I see no justification in that for shutting down the government or threatening the full faith and credit of this great country. You harm all of us by doing that.
Talk, cut entitlements, raise taxes. Compromise. Break up the banks. (Now that would be something.) Whatever. There’s lot’s of productive things to do. You know like cut food stamps AND cut farm subsidies, or ethanol subsidies. The list is pretty much endless.
Or make your case with the public and win some elections and then change the laws.
If you do not think you can win elections, then your ideas fail and you are left with suicide bomber alternatives.
We saved the village by destroying it, is just not a sound path to walk down.
anon2 at 11:46:
“Talk, cut entitlements, raise taxes. Compromise. …”
Anon, have you read the news lately?
CNN.com, of all people, had a headline yesterday, saying that Barack Obama would flatly *not negotiate”, not compromise, no nothing.
I am sorry, but yes, I am getting sick and tired, just like Hilary. Because on this one, the Repubs (some, not all) are right. They are waiting for Harry Reid and the Dems to pass SOME funding, and they would not.
Yes, there was an election.
But this is still a free republic, with the operating word being “free”.
Obama and Reid were not elected to run this country like a Roman Empire duumvirate, or a Bolivarian Republic like Venezuela.
Obama and Reid sent the Republicans to screw themselves. So, who is the one not wanting to negotiate and compromise?
The Dems have NO higher moral ground in claiming that “Republicans do not want to negotiate”. None, zero, null, empty set.
It just struck me.
A Progressive closes down everyone’s service and then blames the Republicans.
Menzie really has this thing nailed better than I originally imagined. Thanks!!
Manfred,
Obama should not negotiate under threat. He stands in defense of America. He has agreed to negotiate after the threats are lifted. And he’s right. He may capitulate and that would be a sad day for America and a real Pyrrhic victory for the Republicans.
What is it about that you do not understand? Would you negotiate with a robber with a gun to your head or your children’s head?
My previous comments stand. There is nothing new here.
Manfred –
The Republicans are well within their rights to withhold their vote for the debt ceiling.
That’s not the issue. The issue is i) whether the holdout Republicans’ constituents support them; ii) the standing of Republicans in the country as a whole, and iii) the impact on ordinary people, including govt employees. All of these matter; they can be weighted differently.
The problem for the Republicans is that they seem to have chosen an issue too small or not communicated a large issue effectively. Is a one year delay in Obamacare worth shutting down the government? Is the gain proportional to the cost? If this win is such a big deal, it hasn’t been properly communicated.
To win this negotiation, the Republicans should have either i) chosen a low value target with little cost to the Democrats, and therefore easy to win; or ii) targeted a more strategic issue of similar gravity to shutting down the government. If you’re going to shut down the government, do it over something big and central to your party’s ideology. Ideally, one could tie it to repealing Obamacare, but it’s unlikely that a minority could achieve this goal.
Thus, the Republicans have chosen a target of high value to the Democrats, but representing a relatively minor win for Republicans. That’s a very difficult hand to play, and I don’t see how one wins it.
On the other hand, the FAA (as I have elsewhere described) meets both these conditions. It is low cost to the Democrats, as it gives them the debt ceiling, Obamacare and does not constrain any Democratic vote on any issue. And it doesn’t cost anything in the short run. (Recall the formula is 0.25% * change in GDP – change in debt. Thus, for 2013, it would be 0.25% * 2% (GDP growth) – 4.5% deficit, implying that the bonus pool would see a negative balance of about $1 bn for the year. No bonuses paid for 2013!) So it’s not a very high cost concession for the Democrats.
On the other hand, the FAA is critically important for Republicans for enshrining the principle that the primary objective of government is sustainable GDP growth, and that elected representatives should be paid for providing this. For Republicans, this would be a huge win. For the global economy, it would be a giant step towards the next level of democracy, call it Democracy 2.0.
Steven Kopits,
I searched to find what FAA was and could find nothing. What is it? Can you provide a link?
Thanks.
ps. Yes, you are correct. Republicans can withhold their votes to increase the debt ceiling. That is their right. But it is still an act that would burn the country down to save it. Really, really stupid. There are better alternatives. The Republicans should try actually working with the Democrats for the betterment of the county.
And likewise for the Democrats.
JBH I’m not sure, but you may have missed Menzie’s point. The BLS website is not shutdown…or in FoxNoiseSpeak, “slimmed down.” Menzie’s point was that employment data was scheduled to come out this morning but did not because the economists at BLS and statisticians at Census have been furloughed. The four economists who assemble the GDP data have also been furloughed, so don’t expect GDP updates. And don’t expect any inflation data. Given the freeze on economic data, don’t expect the Fed to take any actions. Right now the Fed is flying blind.
BTW, there are some govt websites that are down. For example:
http://governmentshutdown.noaa.gov/
Just in time for a potential hurricane in the Gulf and an outbreak of unexpected tornadoes in the midwest today.
Manfred You have a short memory. Obama and the Democrats negotiated with Boehner and McConnell and came to a budget agreement last March. Boehner went back to his nutjob caucus and they revolted, so Boehner had to renege on the deal he made with Obama. Boehner was supposed to wrap things up by appointing House members to a conference committee under the regular rules. The Tea Party nuts threatened to remove him from his Speakership, so he reneged on the deal. You may not recall this, but several Tea Party nuts were upset with Boehner because a deal would upset their campaign promises to shut down the government. Obama understands that he can’t negotiate with Boehner because Boehner cannot deliver on his promises. If and when Boehner grows a pair, then this CR issue will be resolved. But Boehner is a moral coward and I don’t expect him to come around. He’s also a fool because he honestly believes that the Tea Party nuts won’t be dumping him regardless of what happens over the CR. Politically speaking John Boehner is a dead Speaker walking. He’s toast. Once he realizes that, then maybe he’ll set aside the Hastert Rule That Never Was.
Steven:
“Is a one year delay in Obamacare worth shutting down the government? Is the gain proportional to the cost?”
One can turn around this question, and throw it to the Democrats.
Why doesn’t then Harry Reid push for a vote approving a one year delay? He could do it. And Obama could sign. Why don’t they?
Why is the blame on Republicans (in this case)? I completely reject the fact that the blame is only on Republicans in this issue.
Obama does not lead, votes “present” all the time, and Democrats are as much nutjobs and ideological as Republicans are. With one difference: This duumvirate of Obama/Reid was not elected to run this country in Bolivarian Hugo Chavez fashion. They were elected to lead. And they are not.
And Slugs, sorry, you may call the Tea Party people “nuts” and “nutjobs” etc. So are the Democrats who just cannot grow cajones and oppose the Bolivarian duumvirate, especially the guy at the top. It goes both ways, Slugs. But of course, you do not like to hear it. You dish it out, but you do not like to hear it.
http://droughtmonitor.unl.edu/monitor.html
It probably cost us more money to shudder the service than to keep it open…
BOCO, marketing stunt, just like closing all the monuments..
I wonder what happen to the Dr King monument?
” Politically speaking John Boehner is a dead Speaker walking.” Which website or source gave you this talking point.?
Occupier “slugbaits” once again distorting the record of the Tea Party…
Menzie loves to compare Wisconsin with California. Here is a better comparison of California with Texas. This is a better comparison than to compare a historically disfunctional state trying to dig itself out with a disfunctional state getting worse.
Hans: the drought monitor website isn’t shuttered, you just have a broken link, probably due to the recent redesign of the site.
http://droughtmonitor.unl.edu still works and there was a new map released on 10/3.
Manfred –
Were I the President, I would not succumb to such extortion either if the situation were reversed. If the value of a win to your opponents is less than value of a win to yourself, then you hold out.
Now, politics is a strange thing, I grant you. Maybe public perception swings towards resistance. But I still don’t understand what the prize is. What have we really won by delaying Obamacare by a year? It’s not that I an unwilling to man the barricades, but it had better be worth the fight.
Anon2 –
The FAA (Fiscal Accountability Act) is simply a very basic, management consulting approach to institutional effectiveness. I am responsible for the specific approach, but pretty much any management consultant could do as much. It’s very, very basic.
So, if you have a dysfunctional institution, as a consultant, you will have within the first 15 minutes of the engagement three basic questions:
– what is the institution supposed to do? (Or what is its objective function?)
– does it have the tools and capabilities to achieve this function?
– are management’s incentives aligned with this function?
Now, there are three basic objective functions for government: egalitarian, liberal (fiscally conservative) and socially conservative. For any given policy, two of these objectives will conflict. So, if I want Obamacare, then that’s egalitarian and conceivably conservative (paternalistic), but not liberal, fiscally or otherwise.
When you have three conflicting, objective functions and a heterogeneous voter base, the politician has an incentive to pander to any particular objective function depending on the audience. (“How can you tell a politician is lying…”)
In such an event, we rapidly develop a principal-agent problem. In essence, the agent–the politician–can choose the objective function which best suits him at any given time. Thus, the agent comes to dominate the principal, the voter. Multiple objective functions imply a loss of political control for the voter, and voila!, Italy! It also implies a debt bias, because that’s always sometime later and permits both high spending and low taxes in the short run.
If you want to address this problem, you need to add a specific objective function. Thus, I would argue that general ideology is not enough–democracies need quantitative objective functions. I am proposing a liberal (fiscally conservative) one, which promotes growth and minimizes debt (to the extent the multiplier is less than one, after paying back the debt).
This objective function then forms the basis of the Bonus Pool Calculation.
The proposed formula is GDP growth minus the budget deficit, both in current dollars. It is simple formula with data reported regularly, well understood by most people with an interest in government, and reasonably transparent and neutral.
Then comes the payout coefficient for the pool. I have chosen 0.25%, which means that for every $100 of debt-free GDP that the country produces, the Congress and White House as a whole receive 25 cents. That’s well below private sector rates, which would be around 2-3% of profits (which is the corporate version of GDP growth). I would add that I personally would be willing to pay $2500 of my taxes yearly to achieve this goal, which is around 500 times the $5 / household / year cost that the program would actually run. So that’s a couple of measurement points.
In terms of incentive, I would like high enough a payout to tempt well-paid professionals to run for office. In my case, I’d have to take a pay cut to be a Congressman, risk a year on a potentially (in NJ, likely) losing campaign, and then work in a dysfunctional system in DC if elected. Yuck. On the other hand, if the bonuses were adequate, then that might change the calculus. I have set the bonuses thus to be material to members of Congress and potential “market entrants”. Remember, we’re trying to change the nature of governance, not just pass an incentive plan. In this plan, one percentage point of GDP growth over debt is worth about $500k / year / member of Congress. In a good year, a Congressman might see a $1.5 million bonus.
Another important aspect is the clawback. I have noted before the importance of sustainable growth. This means we want laws and programs which discourage short-termism and running up GDP with a crash to follow. Historically, the US has suffered recessions every five years. So any clawback at the five year horizon should be enough to convince Congressmen to take the long view, ie, that their programs will have to survive a recession. At the same time, a 20% payout (1/5th) is substantial enough to act as a meaningful incentive.
Let’s look at an example: Suppose you were five years into the program, with $1 m accrued bonus in a good year offset by a -$1 m bonus in bad year. (It would be almost -$2 m for 2013, by the way.) Assume three of the years were good, and two were recession. Thus, the bonus in Year 6 (covering Years 1-5) would be (20% x 3 x $1 m) + (20% x 2 x -$1 m), which equals a payout of $200,000 in Year 6. That’s how the clawback works.
Now, Menzie might argue (with some justification) that this will make the system too growth-oriented and encourage too little spending on social services. We’ll see, but it will clearly make all members of government interested in going after efficiencies. A Democratic Congressmen said on CNN a few days ago that there are at least 4% of GDP reserves in healthcare spending. Well, now we’ll go get them. That’s free money for everyone.
Similarly, let me disabuse my conservative friends that such a plan means low taxes. No, it means a low deficit, except to the extent such a deficit visibly generates growth. If I were a Republican Congressman, the easiest way to get the bonus plan into positive territory is to reduce the deficit, and guess what, that will include tax increases–at least in the short term (but these will also be accompanied by spending cuts). The plan is agnostic about the size of government or the level of taxes. It is merely about maximizing balanced growth.
Menzie may also argue that the deficit will be too small! It might, but now that argument will be converted from an ideological into a technical debate. The answer will not be pre-determined by ideological position, but by analysis and convincing both sides in Congress that it will generate a bonus. So that’s also another very important aspect of a defined objective function: to migrate the debate from ideological to technical terms. (And what a boon that will be to macroeconomists!) So in an important way, an objective function would professionalize governance.
Similarly then, such a methodology separates debates over the nature of incentive plans (strategy) from implementation of policy. The proper debate is over the specific, quantitative objectives of government and how much elected officials will be paid to achieve them. But implementation should be separate. Today, both objective functions and implementation are handled at the same level–hence the gridlock we see in Congress. When you separate incentive from implementation, implementation should become much easier. We will spend our time debating the incentive plan (as the specific manifestation of ideology), and much less over the mechanics of votes. In this, we would make the decision making process in Congress more similar to that of the corporate sector. Strategy is debated, but once settled, everyone in the company is motivated the same way.
By implementing an incentive plan, we would expect that Congressional approval ratings should rise, I would expect from the recent 20% level to perhaps 60% by year-end 2015.
And, of course, I have not even mentioned the impact of such a plan on more poorly governed countries.
Steven Kopits: “the primary objective of government is sustainable GDP growth.”
Wow! Even leaving aside the debate whether GDP is an appropriate measure of social welfare, this is the policy of a true sociopath.
Steven Kopits,
FAA
In short get the politician’s incentives aligned with the betterment of the nation as a whole.
Considering how well our politicians do today, you might have to increase the bonus pool.
Thank you for the explanation.
What do you think the primary objective of government should be, Joseph?
Optimizing bonuses is always a tricky matter, Anon2. I can assure you, however, the metrics I have proposed will be adequate to reach the desired effect.
The betterment of the nation is more than GDP, just as Joseph points out. There are three objective functions–and this is why the government is indeed not exactly like a business. (Essentially, a business has only one objective function: profit maximization.)
Notwithstanding, everything else stems from sustainable prosperity. And my interest today is primarily in that area. However, both conservative and egalitarian ideologies will have their place in the objective function over time. But that’s the point: we should be arguing over the incentive plan–in quantitative terms–rather than the implementation of policy.
What is the primary purpose of government? Well the Declaration of Independence has some nice aspirational stuff for government — life, liberty and the pursuit of happiness. Not a word about growing the GDP.
The U.S. Constitution requires an oath of the President, members of congress and the judiciary to protect and defend the Constitution of the United States. Nothing in there about growing the GDP.
In my career consulting for lots of Fortune 500 corporations I learned that you have to be very, very careful in the creation of performance incentives because, come hell or high water, you will get exactly what you asked for. That is why CEOs are willing to lie, cheat, break any law and take any risk in order to fulfill incentives to increase share price.
So we create an incentive in which “the primary objective of government is sustainable GDP growth.”
We could re-institute slavery. That would grow GDP.
We could invade other nations and appropriate their natural resources. That would increase GDP.
We could dump all of our sewers and industrial and radioactive waste in the nearest waterway. That would certainly increase GDP.
We could eliminate all power plant pollution rules. That would increase GDP.
We could clear-cut all of our national forests and parks and sell the lumber to Japan and China. That would increase GDP.
We could plow up New York’s Central Park and put up condominiums. That would increase GDP.
We could let everyone over the age of 65 starve rather than provide Social Security and Medicare. That would be a big boost to GDP.
And lest you think this is all absurd, many of those items are exactly what conservatives and many economists have argued, for example, that we must reduce benefits to the elderly that are crippling the growth of the economy. As I said, I have observed first hand the perverse effects of incentives in the corporate world. I don’t want to repeat them in public sphere.
Well, lets take your list, Joseph.
First, is 0% GDP growth and a 2% budget deficit acceptable to you? How about 2% growth and a 3-4% deficit, as the CBO is forecasting?
As for the rest:
“We could re-institute slavery.”
GDP growth values everyone as a resource. So it seeks to reach maximum human potential. I don’t see how that’s consistent with slavery.
“We could invade other nations and appropriate their natural resources.”
Did the invasion of Iraq and Afghanistan increase US GDP? It increased the deficit–a big no-no for the incentive plan. I think the opposite risk is more likely–that we spend too little on defense.
“We could dump all of our sewers and industrial and radioactive waste in the nearest waterway.”
Depends on how you count GDP. I think counting externalities is a good thing, but yes, such a system would tend to discount parts of GDP that aren’t measured properly (like stay-at-home moms). But again, remember, I have not constrained any vote by any party.
“We could clear-cut all of our national forests and parks and sell the lumber to Japan and China. That would increase GDP.”
Yes, this is a conservative value. A GDP driven approach would tend to take a more commercial view of such assets.
“We could plow up New York’s Central Park and put up condominiums. That would increase GDP.”
You clearly don’t live in Manhattan. But there are a lot of buildings in Manhattan which should be bulldozed. I can see them now from my window. And we could certainly use a couple more bridges and tunnels. I refer you to the history of Wollman Rink for the difference between public and private sector approaches. (http://en.wikipedia.org/wiki/Wollman_Rink)
“We could let everyone over the age of 65 starve rather than provide Social Security and Medicare.”
This is now an egalitarian concern. Yes, you will see greater pressure on self-reliance, almost certainly an increase in (or abolition of) the retirement age. But isn’t that exactly what economists are telling us we should do? I would add, also, that such a system does not abolish democracy. If enough people support Medicare and Social Security, then it will happen. If the majority of voters don’t support it, then I don’t see what your complaint is. But you’re right, a GDP based systems favors work over leisure.
Let me add a couple of my own items:
Prisons
I am deeply concerned that millions of people are rotting in US prisons to little benefit of anyone. The proposed system creates an incentive to i. keep people out of prison, ii. make prison sentences short, and iii. insure that people leaving prison become law-abiding and productive. To me, that’s a human rights issue. I think we can do better, and an incentive system would lead in that direction.
Education
Most inner city schools are dreadful. Republicans frankly don’t care, and Democrats are happy with whatever payoffs bring them votes. So we see the collapse of the black family, in particular, and no real interest in addressing the problem from either party.
With an incentive system, now creating prosperity in the cities is a source of value, not just a problem to ignore. I think this is important.
Efficiency
A Democratic–Democratic–Congressman said that we have at least 4% GDP reserves in our healthcare system. That’s as much as the defense budget! And why haven’t we moved to capture those reserves? Because no one cares enough, not Republicans, not Democrats. Under an incentive system, there would be a huge incentive to capture such efficiencies. That’s free money! How many other programs like this do we have? In Singapore, they can deliver our level of services at half the percent of GDP. The total reserves in spending could be a huge number.
We–you and I–are beginning to argue over what should be done, topic by topic, policy by policy, and how lawmakers should be incentivized for those goals. We are arguing about what should truly be included in GDP. To my mind, these are the arguments we should be having.
Further, such a system will de-politicize certain topics. On the right, we see things like “drug dealers should go to jail” and “three strikes and you’re out”. This is nice, and for a suburban homeowners quite comforting. But those in prison become invisible, a built-in but ignored cost to our lifestyle. It’s a huge waste of human potential. If we have an incentive to make at-risk youth productive, we have an incentive to examine the problem on its own merits, not by any ideological pre-disposition. It converts an ideological argument into a technical argument, which is profoundly important to me. I want progress, not endless arguments about why the other side is stupid.
I understand that our priorities are different. You like a consumption bias, I like an investment bias. You prefer the present, I prefer the future. I get that. And I get that government has multiple objective functions–it is that central insight which is my contribution to the issue. But it’s a mistake to consider the current system optimal. You think it’s the best possible. I think it’s pretty bad. So I think a GDP-based incentive system would be a huge step up from where we are now.