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Home Publications Blogs Beat the Press Brooks and Marcus on PBS News: Getting Just About Everything Wrong on the Economy (see correction)

Brooks and Marcus on PBS News: Getting Just About Everything Wrong on the Economy (see correction)

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Saturday, 03 August 2013 05:35

The PBS Newshour won the gold medal for journalistic malpractice on Friday by having David Brooks and Ruth Marcus tell the country what the Friday jobs report means. Brooks and Marcus got just about everything they said completely wrong.

Starting at the beginning, Brooks noted the slower than projected job growth and told listeners:

"Yes, I think there's a consensus growing both on left and right that we -- the structural problems are becoming super obvious.

"So when the -- this recession started a number of years ago, you had 63, something like that, out of 100 Americans in the labor force. Now we're down, fewer than in [the employment to population ratio is now 58.7 percent] -- than when the recession started. And so that suggests we have got some deep structural problems. It probably has a lot to do with technological change. People are not hiring -- companies are not hiring human beings. They're hire machines."

It's hard to know what on earth Brooks thinks he is talking about. There is nothing close to a consensus on either the left or right that the economy's problems are structural, as opposed to a simple lack of demand (i.e. people spending money). This is shown clearly by the overwhelming support on the Federal Reserve Board for its policy of quantitative easing. This policy is about trying to boost demand. A policy that the Republican Chairman, Ben Bernanke, has repeatedly advocated to Congress as well. This policy would not make sense if they viewed the weak demand for labor in the economy as being the result of structural problems. So clearly Brooks' consensus excludes the Fed.

It also is worth noting the other part of Brooks' story, that instead of hiring workers firms "hire machines," is completely contradicted by the data. Investment has actually slowed in the last couples of years. (Non-residential investment is up by just 2.4 percent from its year ago level.) This means that firms are not hiring machines, or at least not as rapidly as they had in prior years. Also the rate of productivity growth has slowed sharply from the pre-recession period. In the last three years productivity growth has averaged less than 1.0 percent a year. This compares to more than 2.5 percent a year from 1995 until the recession in 2007. This means that machines are displacing workers much less rapidly than in a decade when we had much lower unemployment.

 Productivity in the Non-Farm Business Sector, 1995-2013

 

productivity

                                            Source: Bureau of Labor Statistics.

Brooks continues:

"It [weak job growth] probably has to do with a skills shortage, that as technology increases, skills have got to keep up and skills are just not keeping up. ...

"And so these are deep structural changes. And I think there's a consensus growing that something really fundamental has shifted in the economy. And I wouldn't say anybody in the political arena has much of a set of solutions the way they did in the progressive era, the New Deal era, even the Reagan era, that are commensurate with the size of this problem."

If this claim were true it would mean that there are substantial segments of the labor market where we are seeing labor shortages. That would mean that workers in some occupations would be seeing rapidly rising wages. We should also see industries or occupations where the length of the average workweek is increasing rapidly. Employers would be trying to get the workers they have to put in more hours, since they can't find additional workers. In these industries/occupations we should also see a high ratio of job openings to unemployed workers. There are no major areas of the labor market where we see this evidence of labor shortages. In other words, Brooks is just making this up out of thin air.

Ironically there were some people earlier in the downturn who were making Brooks' argument, most notably Minneapolis Federal Reserve Bank President Narayana Kocherlakota. Kocherlakota predicted, based on this structural view, that the quantitative easing policy being pursued by the Fed would lead to an explosion of inflation. Now that this prediction has been shown clearly wrong, Kocherlakota has reversed his view and is now a strong advocate of more stimulus.

Brooks could have pointed to far more support within the economic profession for the sort of view he laid out two or three years ago. As a growing mountain of evidence has shown this position wrong, there is a growing consensus in the opposite direction. The economy's problem is simply that it needs a large source of demand to replace the demand lost when the housing bubble collapsed. 

Marcus then chimed in, reinforcing Brooks' assertions:

" ... And so that just gives you a measure of the dauntingness. And you look not just at -- everybody looks at 7.2 percent [the actual rate is 7.4 percent], the new unemployment figure. It is down a little bit. But let's take a look at the total unemployment picture, the discouraged workers, the less -- or the people who have just stopped looking for work, the people who aren't working as hard as they would like to, as many hours as they'd like to.

"That's 14 percent of the labor force. I think David's totally right when he talks about how we need to sort of get to some really structural solutions. And the thing that's so disappointing is that we're looking at a political system that doesn't seem capable of achieving that."

This prompted Judy Woodruff, the moderator to say:

"Well, how do you get to structural solutions? The president had a recommendation this week for changing the corporate tax rate. He said this could -- this was one way to create jobs for the middle class."

Brooks jumped in:

"Well, that's a good thing. I mean, changing the corporate tax rate -- our corporate taxes are too high. They're unrealistic. They're internationally uncompetitive. We should change them. And he wants to take some of the money that would be produced by cutting those taxes and shift it over to infrastructure, and that's also needed."

Actually the share of corporate profits paid in taxes in the United States is below the average for the OECD, even though our marginal tax rates are the highest. (Loopholes allow companies to evade taxes.) President Obama actually did not propose to raise revenue from cutting tax rates as Brooks implies. He proposed a revenue neutral tax reform. Any spending to create jobs would mean a larger deficit.

Marcus added:

"A lot of it [President Obama's latest economic proposal] was recycled from proposals he had previously done, but it offered something that Republicans in a rational world ought to have accepted, a lower corporate tax rate, which would be terrific for business and the economy and for job creation, and some short-term spending."

There is actually no evidence that this plan "would be terrific for business and the economy and for job creation." There are studies that show that a tax reform that eliminated distortions created by the tax code would have a modest positive long-term effect, but there is no research showing that it would lead to the sort of boom that Marcus' comment implies.

Both Brooks and Marcus then discussed the importance of entitlement reform, by which they mean cuts to Social Security, Medicare, and Medicaid. Apparently Brooks and Marcus have not been paying attention to the slowdown in health care costs that has been widely discussed in the news.

As a result of the slower projected health care cost growth, entitlements are now projected to be a far smaller share of the budget than had previously been the case. For example, in their 1999 long-term budget projections CBO projected that Medicare and Medicaid spending would be 7.7 percent of GDP in 2023 (Table 1). In the most recent Budget and Economic Outlook CBO projected that these programs would cost just 5.7 percent of GDP in 2023.

It is difficult to envision a "entitlement reform" that would have produced larger cuts than the 2.0 percentage points of GDP ($320 billion a year in today's economy or more than $4000 for an average family of four) that has resulted from the projection of slower health care cost growth. In other words, if Brooks and Marcus interest in entitlement reform was in reducing government spending, we have already seen larger projected reductions in spending than they likely could have accomplished with their ideal reforms.

This might lead some observers to conclude that Brooks and Marcus believe that cutting Social Security and Medicare is an end in itself as opposed to something that needs to be done to benefit the economy. In any case they certainly have no evidence to support their assertions on this topic.

It really is amazing that the PBS Newshour would rely exclusively on two people who obviously have no economic knowledge whatsoever to discuss the state of the economy and relate the meaning of the new employment report to its viewers. If they insist on having people like Brooks and Marcus on panels discussing economic issues they should at least make sure that the panel includes someone with knows economics.

 

Correction: Obama is proposing that he will have increased revenue from his tax cut in the short-term, even though it will be revenue neutral in the long-term. He wants to use the short-term revenue to pay for jobs programs, so Brooks is right on this one. Thanks to Robert Salzberg for pointing this out to me.

 

Comments (21)Add Comment
Brooks sure seems to like the taste of his own feet!
written by Xelcho, August 03, 2013 9:16
Thank you for pointing out yet another installment of the David Brooks' How to put your feet in your mouth series. It is seriously upsetting to think that many "educated" Americans rely on this swill to form their world view.

It has been some time since I could listen to NPR or PBS and not become enraged at the number of false facts, unchallenged assumptions and to the out and out ineptitude of the hosts. If one were to accept their spoon-fed version of the world it would be: Wild flailing as to no idea of what's coming next with uninvestigated difficulties originating with the 99%'s laziness, while simultaneously congratulating the elite thieves of the 1% for all their "hard work".
Quantitative easing has little to do with increasing demand, Low-rated comment [Show]
...
written by skeptonomist, August 03, 2013 9:38
"quantitative easing...is about trying to boost demand." Really? I think Dean and many other economists have a strange misconception about what monetary policy does. By lowering interest rates and increasing the amount of money available to banks to lend the current policy is really intended to increase investment - in other words it is supposed to operate on the supply side, not the demand side - and that's why it has little effect. Consumer credit is important in housing, but I know that Dean disapproves of boosting housing at the moment.

A helicopter drop would boost demand, but although Bernanke promised to do it there is certainly no consensus on the Federal Reserve Board for anything like that. Bernanke by the way has effectively admitted that the Fed can do little and now puts the onus on Congress to spend more.
Not Amazing at All
written by Paul Mathis , August 03, 2013 9:43
PBS, which relies heavily on corporate funding, promotes the Washington Power Elite view that unemployment is a "structural" problem that cannot be solved by government intervention, i.e., stimulus programs. So "its not our fault those people are unemployed" because their own lack of education and skills have doomed them to their fate.

Ironically, these same Power Elite always want the government to intervene in some foreign war by spending billions of dollars we supposedly don't have for stimulus programs here at home.
The Warped Fetish for Supply Side Shock and Structural Unemployment: Ask the Right Question
written by Last Mover, August 03, 2013 9:56

Instead of the burst housing bubble and subsequent deep recession, imagine it was a natural disaster like a massive earthquake or hurricane that resulted in millions of long term unemployed.

Then it could make sense to go on and on about how it's a structural problem, because it would be a supply side shock that caused injury to millions, enough to prevent them from resuming employment held before the disaster.

This is the mindset of the likes of David Brooks et al. Never acknowledged is the huge hole in aggregate demand that is still there, because a demand shock is implied to have already cured itself long ago through adjustments in relative prices.

If any unemployment exists afterward says Brooks in effect, it can only come from the supply side in terms of failure of prices to adjust, and that failure is deemed to manifest as a structural mismatch between supply and demand.

Thus the usual absurd recommendations to learn new skills and get more education, which is about as stupid as saying one should go to vocational school and learn blacksmithing skills to forge handmade farm tools because there's so many unfilled jobs in that field.

On way to confront this insanity is to force the lies through questions consistent with them, as in:

"What is your take on the recent jobs report, given the massive supply side shock from earthquakes and hurricanes that wiped out millions of jobs in 2009? Are these people still having trouble finding jobs like the ones they had before the disaster? Really? How did that happen? Did they get crowded out or what?"
Investment: Reply To Skepto
written by Jeffrey Stewart, August 03, 2013 9:56
Principles textbooks define investment spending (I) as spending on newly produced plant and equipment plus spending by households on new homes. I initially increases aggregate demand [AD = C+I+G+(X-IM)]and then over time increases aggregate supply as new buildings, houses, equipment and machines are built and become functional. Thus, the short run effect of increased investment is on the aggregate demand side.
Dean, it's a Dirty Job, but someone's got to do it
written by Scott Supak, August 03, 2013 11:07
So, Mike Rowe, a generally likable guy for a Romney voter, has been doing the rounds, including Real Time with Bill Maher, complaining about the "skills gap." A lot of liberals buy it, which is why I tell everyone to read you. Using these basic ECON facts you've reminded me of, I've been bad mouthing Rowe for a while now by pointing out if the businesses he's talking about really need more highly trained workers, then they'd raise their wages or increase the hours of the existing trained workers. Since they are not, then they're either bullshitting about a "skills gap" or they're just cheap bastards who don't understand basic economics.

He throws some extra crap in there, like how a heavy equipment operator can start around 40K a year, and in a few years work up to 120k a year. Since the median wage for a heavy equipment operator is, in fact, right around what he claims is the starting wage, I imagine the number of bulldozer operators making 120k a year is near 0.

---

http://work.chron.com/average-salary-certified-heavy-equipment-operator-19825.html

"The U.S. Bureau of Labor Statistics reports the median wage for heavy equipment operators in the United States is $41,870, an hourly wage of $20.13 per hour, as of May 2012. The average nationwide for those who operate bulldozers, backhoes, cranes and road grading machinery is slightly higher than the median, at $46,270 per year, or $22.24 per hour."
This is why I have also stopped listening to NPR
written by Tom Stickler, August 03, 2013 2:17
It was hard to stay straight on the road while listening to this yesterday. More and more frequently I find myself stabbing the OFF button on the car radio while listening to NPR.
Does PBS no the internet exists?
written by dave, August 03, 2013 7:11
You know, there's this thing called the internet. You can read blogs by people like Dean Baker, Krugman, Thoma, Rajiz Sethi, the folks at FT Alphaville, etc.

These people actually have some pertinent economic knowledge. And we get two hacks like Marcus and Brooks on our national public television station?????

That's like picking a basketball team and choosing me (5 8, mediocre jump shot) over LeBron James.
...
written by fuller schmidt, August 03, 2013 8:40
Brooks is clearly has gotten Economics Night At The Improv up and running.
...
written by watermelonpunch, August 03, 2013 8:53
Do these people actually talk to anyone?

Because if you get out once in awhile, you can't help but come across people who are highly qualified, working jobs that don't require anywhere near their amount of qualifications, education, and experience. Not to mention qualified people who can't manage to get any job.

And then there's the occasional person who has a job they're clearly not qualified to do, but seem to manage to stay employed anyway.

I can see which category these guys would fit in. :/
QE
written by Cranky, August 03, 2013 11:05
From the monetary view, the Fed has decided to serve as dealer of last resort , keeping the market-based financial system liquid. There's still some spots to mop on balance sheets. Demand is a secondary concern, most likely. And it proves that trickle-down is just that: a trickle.
Babbling Brooks
written by Dryly 41, August 04, 2013 7:49
Babbling Brooks has a problem. Thinking. He doesn't do it well.
When, if not already, does hysteresis kick in?
written by WNY-WJ, August 04, 2013 8:07
One point not yet part of the debate is hysteresis: when factors of production deteriorate thru disuse. While lack of demand initially served to keep both labor and capital idle, at some point some economists recognize that production factors will begin to "rust" if left unused/underutilized. It would be interesting to hear from economists - especially those who acknowledge this possibility - when such a process would kick in. We are now into 5+ years of repressed economic conditions, so at some point one, if one accepts the possibility of hysteresis, one has to begin to wonder if production factors have indeed started to deteriorate, generating a lower potential for output.

Hysteresis is not a pleasant thought, nor is it particularly supportive of progressive politics (e.g., stimulus supported by concluding that the economy exhibits a lot of "slack"), but economists should consider this possibility, or risk further accusations that the discipline suffers from naked partisanship.

http://wnywj.wordpress.com/2013/06/02/hysteresis-and-the-self-fulfilling-prophecy-of-limiting-horizons/
Not to Mention the Attempt to Lower the Per Capita GDP
written by Noy My Real Fake Name, August 04, 2013 10:12
Dean, you left out this nugget ...

"DAVID BROOKS: Well, just to continue a theme, the single biggest growth item in Washington right now is the immigration bill.

The immigration bill, according to the Congressional Budget Office, according to Doug Holtz-Eakin, a prominent Republican economist, would produce gigantic, significant increases both in revenue, in growth, in job creation. And so that is the biggest thing we have out in front of us."

The CBO scores the proposed bill as lowering the per capita GDP, making the US a poorer nation, more like Mexico and less like Canada, which by the way currently has a far higher median household wealth than the US.

The increases to the economy, although large numbers, are a rounding errors given the size of the US economy.

Also, the bill will lower wagesin the US, at least for the remaining working years of the Baby Boom and Gen X-ers.
Not really an either/or situation
written by mrob, August 04, 2013 10:41
I think there is a grain of truth in Brooks structural argument. We've had substantial job loss due to automation. This is not "machines". It is relatively inexpensive use of reusable internet capabilities. Very, very efficient and probably not measured at all as part of productivity. However, this cannot be solved with training, because, so far, it has not created a need for technology jobs. One internet programmer creates a reusable storefront app - and 10,000 stores use it. This phenomenon has only taken hold in the last 10 years. I do not see a solution to this, myself.

This in no way takes away from the obvious benefit to spending public money on public infrastructure. That's just a no-brainer. This would redeploy blue collar workers and be very stimulative. Raising the minimum wage would also help quite a bit.
Ruth Marcus is useless
written by John Howard, August 05, 2013 12:43
Not sure why all the comments are beating up on Brooks. He's supposed to represent the 'conservative' side of the debate. Ruth Marcus, on the other hand, is a complete nitwit and the most annoying fake liberal this side of Richard Cohen.

I almost never watch the NewsHour anymore, but happened to walk in the room last week while my Dad was watching Shields & Brooks. I thought the discussion was pretty good. But without Shields to keep him honest, Brooks tends to veer off into neocon fantasyland. Marcus is simply not up to the job.
Skepto: QE and demand
written by pjm, August 05, 2013 1:11
S, The point is, regardless of the mechanism (supply v demand) QE is an attempt to address cyclical (the "insufficient demand" story) rather than structural (robots with skills mismatch) unemployment. There is the issue of whether it will work or not.
NPR and Power Elite
written by pjm, August 05, 2013 1:16
I am don't think you have to invoke corporate funding (though that can't be good).
1) The ideology of journalists has always tended toward socially liberal, economically conservative
2) Not that many journalists (close to none?) have enough background in economics to apply the occasional sniff test.
Minor quibble...
written by KnotRP, August 05, 2013 2:54
> The economy's problem is simply that it needs a large
> source of demand to replace the demand lost when the
> housing bubble collapsed.

This won't help the US laborer, as our first
world overhead costs are still too high to
compete with the 2+ billion laborers who work
in conditions we outlawed decades ago. The
jobs will continue to flow to these locations,
no matter how hard the US government "pushes
the demand string". US lifestyles have dropped,
and will continue to drop...we aren't prepared
for how low they need to go to equalize labor
pressures.
...
written by Chris Gilbert, August 06, 2013 1:01
Thanks for covering David Brooks. Someone has to do it.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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