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September 02, 2010

Romer Scuttles While the Job Market Burns

My GDP-jobs correlation is crap? Run away!!
The national unemployment rate for August will be released tomorrow. Although it's become useless in a technical sense, it has still retained its political clout. For example, since various oddities in the labor market have kept the unemployment rate under 10% for the past 6 months, the Obama administration has narrowly avoided being drawn and quartered by the public and the press. It's been a miraculous escape, particularly when we find the exiting head of the Council of Economic advisors, Christina Romer, finally admitting that the Stimulus failed.

In fact, she admitted more than that - she finally 'fessed up to what we'd been telling her since the Inauguration: she and her cronies didn't have a clue as to what they were doing.

...we, like virtually every other forecaster, failed to anticipate how violent the recession would be in the absence of policy, and the degree to which the usual relationship between GDP and unemployment would break down
I emphasized the last part because all of their predictions, and all of their claims of jobs saved, have been based on the assumption that the old relationships between GDP and unemployment still hold.

In fact, do you remember last month's CBO report? The one that said that ARRA spending may have saved up to 3.3 million jobs? Same frickin' methodology:

...the effect of the change in the [GDP] output gap on the unemployment rate was estimated using the historical relationship between those two measures.
Which brings us back to tomorrow's unemployment rate release. It's probably going up (nice timing on the getaway, Dr. Romer) simply based on what we've been seeing in the weekly unemployment claims. The weekly unemployment claims were updated this morning, with an estimated 472,000 claims filed last week.


Back in the bad old days of the Bush administration, we were at a nice state of equilibrium in the 300K - 350K range. Obama's new equilibrium is in the 450K - 500K range, meaning that every month, 600,000 more claims are filed than we'd like. And it's been that way since November '09, despite ramping up spending, despite the "Recovery Summer," and despite all the rosy pronouncements of the Obama administration.

We obviously didn't need Dr. Romer's admission to know that she didn't have a clue - the data already told us that - but her belated honesty was refreshing.

H/T: Instapundit & Hot Air

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posted by Geoff at 11:09 AM

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