Mike Konczal

Roosevelt Institute Fellow

Recent Posts by Mike Konczal

  • Is Short-Term Unemployment a Better Predictor of Inflation?

    Apr 8, 2014Mike Konczal

    Alan B. Krueger, Judd Cramer, and David Cho of Princeton recently released a Brookings paper on the state of the labor market titled "Are the Long-Term Unemployed on the Margins of the Labor Market?" Their big headline result is that the long-term unemployed are going to have trouble finding steady work, both as a historical matter and from what we've seen in the Great Recession. It's fascinating work we'll revisit here.

    But what does that mean for the job market right now, with its mix of short-term and long-term unemployed? The second takeaway is that if we only look at short-term unemployment, the economy makes more sense than if we look at total unemployment. As Tim Hartford wrote, this research shows that if "we replotted the Phillips curve['s mix of inflation and unemployment]... using statistics on short-term unemployment... it turns out that the old statistical relationships would work just fine." Some are arguing that we should just focus on short-term unemployment for the moment as an indicator of how the economy is doing.

    Is that the case? Not really. We should be careful with this argument now, because this is really a matter of 2009-2012. Back then, the question was why inflation was as steady as it was given very high unemployment. In 2014 the question is very different: why is inflation so low given high unemployment and the relationship of the past several years? We need to explain a different problem.

    Let's look at a key chart from the Krueger paper (green boxes my addition):

    This is the change in core inflation versus unemployment. (There's a similar dynamic with wage inflation in a different chart.) The left graphic is the change in core inflation versus overall unemployment, and the right graphic is the change versus short-term unemployment. As the paper's authors argue, it's a much tighter relationship if you just look at short-term unemployment. But there are three things to note here.

    First, as flagged in the green box in the left graphic, the outliers are the years 2009-2012. Looking at their wage inflation version of this in particular, the authors note that they get a higher R-squared and better predictive value using short-term unemployment. But replicating this chart (data), if you simply take out 2009-2011, you also end up with the higher R-squared and better predictive value.

    More importantly, as a second matter look at where we are now via the 2013 data point. The total unemployment number for 2013 is right on the line in the left graph. However, as we can see from the green circle on the right, using short-term unemployment shows inflation much lower than anticipated. This is not surprising; one of the more important economic stories of 2013 was the collapse of inflation. Note that if the labor market were actually getting much tighter, inflation should have been increasing during this time period. More broadly, if the problem were the preponderance of long-term unemployed in the general labor market, we wouldn't expect 2013 to go into freefall and hop over the trendline as it did.

    I'm very interested in why we didn't collapse into deflation from 2009 to 2011. I imagine the Fed has something to do with it. But as a third point I'd be a little cautious about using just short-term unemployment during that time as an important indicator about the labor market, as job separations collapsed during the crisis. A low short-term unemployment rate reflects people simply not leaving their jobs more than it reflects the idea that the economy was doing better than we'd expect.

    But this question is also a historical one. Krueger and his co-authors acknowledge this, using phrasing like "since 2009" as the basis of their paper. But other people might not catch this, and assume that the short-term unemployment rate is crucial for right now. But that doesn't reflect our current situation of low inflation, a falling rate of long-term unemployment, and an unemployment rate that is going to be stuck in the mid-6% range for some time. We shouldn't use a way of adjusting data to examine what was going on in 2010 to argue there's less slack than there actually is out here in 2014.

    Follow or contact the Rortybomb blog:

      

    Alan B. Krueger, Judd Cramer, and David Cho of Princeton recently released a Brookings paper on the state of the labor market titled "Are the Long-Term Unemployed on the Margins of the Labor Market?" Their big headline result is that the long-term unemployed are going to have trouble finding steady work, both as a historical matter and from what we've seen in the Great Recession. It's fascinating work we'll revisit here.

    But what does that mean for the job market right now, with its mix of short-term and long-term unemployed? The second takeaway is that if we only look at short-term unemployment, the economy makes more sense than if we look at total unemployment. As Tim Hartford wrote, this research shows that if "we replotted the Phillips curve['s mix of inflation and unemployment]... using statistics on short-term unemployment... it turns out that the old statistical relationships would work just fine." Some are arguing that we should just focus on short-term unemployment for the moment as an indicator of how the economy is doing.

    Is that the case? Not really. We should be careful with this argument now, because this is really a matter of 2009-2012. Back then, the question was why inflation was as steady as it was given very high unemployment. In 2014 the question is very different: why is inflation so low given high unemployment and the relationship of the past several years? We need to explain a different problem.

    Let's look at a key chart from the Krueger paper (green boxes my addition):

    This is the change in core inflation versus unemployment. (There's a similar dynamic with wage inflation in a different chart.) The left graphic is the change in core inflation versus overall unemployment, and the right graphic is the change versus short-term unemployment. As the paper's authors argue, it's a much tighter relationship if you just look at short-term unemployment. But there are three things to note here.

    First, as flagged in the green box in the left graphic, the outliers are the years 2009-2012. Looking at their wage inflation version of this in particular, the authors note that they get a higher R-squared and better predictive value using short-term unemployment. But replicating this chart (data), if you simply take out 2009-2011, you also end up with the higher R-squared and better predictive value.

    More importantly, as a second matter look at where we are now via the 2013 data point. The total unemployment number for 2013 is right on the line in the left graph. However, as we can see from the green circle on the right, using short-term unemployment shows inflation much lower than anticipated. This is not surprising; one of the more important economic stories of 2013 was the collapse of inflation. Note that if the labor market were actually getting much tighter, inflation should have been increasing during this time period. More broadly, if the problem were the preponderance of long-term unemployed in the general labor market, we wouldn't expect 2013 to go into freefall and hop over the trendline as it did.

    I'm very interested in why we didn't collapse into deflation from 2009 to 2011. I imagine the Fed has something to do with it. But as a third point I'd be a little cautious about using just short-term unemployment during that time as an important indicator about the labor market, as job separations collapsed during the crisis. A low short-term unemployment rate reflects people simply not leaving their jobs more than it reflects the idea that the economy was doing better than we'd expect.

    But this question is also a historical one. Krueger and his co-authors acknowledge this, using phrasing like "since 2009" as the basis of their paper. But other people might not catch this, and assume that the short-term unemployment rate is crucial for right now. But that doesn't reflect our current situation of low inflation, a falling rate of long-term unemployment, and an unemployment rate that is going to be stuck in the mid-6% range for some time. We shouldn't use a way of adjusting data to examine what was going on in 2010 to argue there's less slack than there actually is out here in 2014.

    Follow or contact the Rortybomb blog:

      

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  • Money Issue of The New Inquiry is Out

    Apr 8, 2014Mike Konczal

    I helped edit (curate might be a better word) the latest New Inquiry issue on Money and Finance. Their editor Robert Horning wanted to get some of the vibe of the older financial blogs, when the thing was still a wild west, and so we got a ton of our favorite old-school finance writers like Steve Waldman, Izzy Kaminska, and the Epicurean Dealmaker to contribute. I also helped edit a good explainer of MMT from Rebecca Rojer, and a definitive "disgorge the cash" piece on the rentier takeover of the economy by JW Mason, both which are definitely worth your time. I have my own piece in the article, now also online, about buying the future.

    These pieces will eventually be rolled out and available online over the next month, but for now you can read it by subscribing. Hope you check it out!

    I helped edit (curate might be a better word) the latest New Inquiry issue on Money and Finance. Their editor Robert Horning wanted to get some of the vibe of the older financial blogs, when the thing was still a wild west, and so we got a ton of our favorite old-school finance writers like Steve Waldman, Izzy Kaminska, and the Epicurean Dealmaker to contribute. I also helped edit a good explainer of MMT from Rebecca Rojer, and a definitive "disgorge the cash" piece on the rentier takeover of the economy by JW Mason, both which are definitely worth your time. I have my own piece in the article, now also online, about buying the future.

    These pieces will eventually be rolled out and available online over the next month, but for now you can read it by subscribing. Hope you check it out!

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  • The Internet Responds to the Voluntarism Fantasy

    Apr 8, 2014Mike Konczal

    My recent Voluntarism Fantasy piece (pdf) for Democracy Journal has gotten a fair amount of coverage. So I'm going to use this post, which will be updated, to keep track of the links to other people engaging, if only so I can respond in the future.

    The piece was also reprinted at The Altantic Monthly.

    Reddit thread with comments.

    In favor of the piece:

    Michael Hiltzik covers the argument in the LA Times' opinion page and EJ Dionne in the Washington Post's opinion page.

    Matt Bruenig notes that the way we discuss this reflects a deep status quo bias at The Week.

    Elizabeth Stoker, channeling Niebuhr, makes the strong Christian case that charity and government social insurance go together at The Week.

    Sally Steenland of Center for America Progress also addresses the fantasy in this article.

    Erik Loomis makes an excellent point that in addition to the rest of the 19th century state, the "federally subsidized westward expansion was also part of this welfare state, as Republicans especially explicitly saw the frontier as a social safety net that would alleviate poverty without directly giving charity to people."

    James Kwak agrees that there's "No Substitute for the Government" here.

    Jordan Weissmann argues that "Charity Can’t Replace the Safety Net" over at Slate.

    I discuss the piece on the Majority Report with Sam Seder (also in-studio video here).

    Less in favor:

    Marvin Olasky, author of the Tragedy of American Compassion (which is one focal point of the article), responds in World.

    Philathrophy Daily ran two articles critical of the piece, both at the forefront of the voluntarism fantasy's worldview. The first is from Hans Zeiger and the second from Martin Morse Wooster, who breaks out the paralipsis "I could argue that Mike Konczal and the Roosevelt Institute has a hidden agenda: to force the U.S. to accept Soviet-style communism ... I won’t make that argument because I know it isn’t true."

    Rich Tucker at Townhall says that I do "a better job than Barack Obama did explaining the president’s 'You didn’t build that' philosophy," which I'll take as a compliment.

    Reihan Salam has a set of responses at The Agenda.

    Howard Husock argues that  charitably-funded, non-governmental programs are better than government at helping help individuals thrive at Forbes.

    Don Watkins at the Ayn Rand Institute has a five part (!) critical response; you can work backwards from the fifth part here.

    Anarchist Kevin Carson sees "the welfare state nevertheless as an evil necessitated by the state-enforced model of capitalism, and ultimately destined to wither away along with economic privilege and exploitation" in his response.

    I'll add any more as they happen. (Last updated April 11th.)

    My recent Voluntarism Fantasy piece (pdf) for Democracy Journal has gotten a fair amount of coverage. So I'm going to use this post, which will be updated, to keep track of the links to other people engaging, if only so I can respond in the future.

    The piece was also reprinted at The Altantic Monthly.

    Reddit thread with comments.

    In favor of the piece:

    Michael Hiltzik covers the argument in the LA Times' opinion page and EJ Dionne in the Washington Post's opinion page.

    Matt Bruenig notes that the way we discuss this reflects a deep status quo bias at The Week.

    Elizabeth Stoker, channeling Niebuhr, makes the strong Christian case that charity and government social insurance go together at The Week.

    Sally Steenland of Center for America Progress also addresses the fantasy in this article.

    Erik Loomis makes an excellent point that in addition to the rest of the 19th century state, the "federally subsidized westward expansion was also part of this welfare state, as Republicans especially explicitly saw the frontier as a social safety net that would alleviate poverty without directly giving charity to people."

    James Kwak agrees that there's "No Substitute for the Government" here.

    Jordan Weissmann argues that "Charity Can’t Replace the Safety Net" over at Slate.

    I discuss the piece on the Majority Report with Sam Seder (also in-studio video here).

    Less in favor:

    Marvin Olasky, author of the Tragedy of American Compassion (which is one focal point of the article), responds in World.

    Philathrophy Daily ran two articles critical of the piece, both at the forefront of the voluntarism fantasy's worldview. The first is from Hans Zeiger and the second from Martin Morse Wooster, who breaks out the paralipsis "I could argue that Mike Konczal and the Roosevelt Institute has a hidden agenda: to force the U.S. to accept Soviet-style communism ... I won’t make that argument because I know it isn’t true."

    Rich Tucker at Townhall says that I do "a better job than Barack Obama did explaining the president’s 'You didn’t build that' philosophy," which I'll take as a compliment.

    Reihan Salam has a set of responses at The Agenda.

    Howard Husock argues that  charitably-funded, non-governmental programs are better than government at helping help individuals thrive at Forbes.

    Don Watkins at the Ayn Rand Institute has a five part (!) critical response; you can work backwards from the fifth part here.

    Anarchist Kevin Carson sees "the welfare state nevertheless as an evil necessitated by the state-enforced model of capitalism, and ultimately destined to wither away along with economic privilege and exploitation" in his response.

    I'll add any more as they happen. (Last updated April 11th.)

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  • Tea Party and Wall Street, on Policy and Ideology

    Mar 21, 2014Mike Konczal

    I have a piece on the Tea Party and Wall Street up at the New Republic. The Tea Party's theory of the financial crisis has absolved Wall Street completely, and this has serious implications for how the policy framework will evolve if the Tea Party gains in power in 2014 and 2016. I also got a chance to reference two pieces explaining various theories of the crisis which I recommend: Dean Starkman on the falsehood that Everyone Is To Blame and Adam Levitin's review of recent financial crisis books.

    I hope you check out the new piece.

    Follow or contact the Rortybomb blog:

      

    I have a piece on the Tea Party and Wall Street up at the New Republic. The Tea Party's theory of the financial crisis has absolved Wall Street completely, and this has serious implications for how the policy framework will evolve if the Tea Party gains in power in 2014 and 2016. I also got a chance to reference two pieces explaining various theories of the crisis which I recommend: Dean Starkman on the falsehood that Everyone Is To Blame and Adam Levitin's review of recent financial crisis books.

    I hope you check out the new piece.

    Follow or contact the Rortybomb blog:

      

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  • Reed, Obama and FDR

    Mar 20, 2014Mike Konczal

    I had a piece at The New Republic last week I haven't share here yet. It's a response to Adolph Reed’s long Harper’s piece about liberalism at this moment. You should check it out.

    I wanted to clarify one thing because several historically-minded people asked me about it. I have a general rule that after I write something I should immediately delete the most “clever” thing I included, or at least go back and carefully edit it. In this piece I didn’t do that or make my point clear, and the glib results caused some confusion.

    I opened the piece with a New Republic essay from 1940 criticizing Franklin Roosevelt from the left for leaving the economic problem unresolved. I had just read the essay in the (excellent, recommended) collection of New Deal Thought by Howard Zinn from the 1960s, and really thought it would be clever to include it in a current New Republic piece. What I ideally wanted the piece to reference was (i) pointing out that Reed's golden period of the late 1930s, where he has things working out well for the left, was more problematic at the time than he lets on, and in ways similar to where we are now.

    But also (ii) point out that historical shifts often happen even when Presidents are floundering, as the “second New Deal” was formalizing an order that would reign for 40 years even though Franklin Roosevelt was making a mess of the late 1930s with his disastrous turn to austerity. As a result we can’t answer the most important question about President Obama - is he the beginning of a longer-term shift, or someone that forecloses the potential of that longer-term shift - by pointing to individual actions by him, which is the core of Reed’s argument. Also (iii) to reference the 1940 piece at the end of mine, with their smart observation about self-enforcing reform and the open question over whether Obamacare, etc. will ever have those dynamics.

    [And as a personal fun point, I also like (iv) pointing out that the New Republic was pretty lefty back when within its own online pages.]

    However I botched the intro, cutting for space, and wrote it in a glib manner that referenced it to dismiss valid criticism now and then. Some thought I was excusing the screwups of 1937, others comparing President Obama to FDR. And since it introduced the piece, it hung over the rest (which I’m pretty happy with). I’ll try better next time.

    Richard Eskow had a nice response to the piece; I believe Reed will be on the next Belabored podcast as well, a great podcast you should be checking out.

    I had a piece at The New Republic last week I haven't share here yet. It's a response to Adolph Reed’s long Harper’s piece about liberalism at this moment. You should check it out.

    I wanted to clarify one thing because several historically-minded people asked me about it. I have a general rule that after I write something I should immediately delete the most “clever” thing I included, or at least go back and carefully edit it. In this piece I didn’t do that or make my point clear, and the glib results caused some confusion.

    I opened the piece with a New Republic essay from 1940 criticizing Franklin Roosevelt from the left for leaving the economic problem unresolved. I had just read the essay in the (excellent, recommended) collection of New Deal Thought by Howard Zinn from the 1960s, and really thought it would be clever to include it in a current New Republic piece. What I ideally wanted the piece to reference was (i) pointing out that Reed's golden period of the late 1930s, where he has things working out well for the left, was more problematic at the time than he lets on, and in ways similar to where we are now.

    But also (ii) point out that historical shifts often happen even when Presidents are floundering, as the “second New Deal” was formalizing an order that would reign for 40 years even though Franklin Roosevelt was making a mess of the late 1930s with his disastrous turn to austerity. As a result we can’t answer the most important question about President Obama - is he the beginning of a longer-term shift, or someone that forecloses the potential of that longer-term shift - by pointing to individual actions by him, which is the core of Reed’s argument. Also (iii) to reference the 1940 piece at the end of mine, with their smart observation about self-enforcing reform and the open question over whether Obamacare, etc. will ever have those dynamics.

    [And as a personal fun point, I also like (iv) pointing out that the New Republic was pretty lefty back when within its own online pages.]

    However I botched the intro, cutting for space, and wrote it in a glib manner that referenced it to dismiss valid criticism now and then. Some thought I was excusing the screwups of 1937, others comparing President Obama to FDR. And since it introduced the piece, it hung over the rest (which I’m pretty happy with). I’ll try better next time.

    Richard Eskow had a nice response to the piece; I believe Reed will be on the next Belabored podcast as well, a great podcast you should be checking out.

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