The Unemployment Prediction a Year Ago, Flashback to August 2009

[May 2011 update:  Well, fuck.  8.7%.  This blows.  Nate Silver fail.]

I remember reading a post from Nate Silver a year ago about the relationships between recessions and unemployment.  No doubt Nate is a statistical genius.  He predicted the 2008 election 49 out of 50 states, a popular vote within 1%.

I’m totally going to steal a chart and bandwidth from 538 now.  From:  http://www.fivethirtyeight.com/2009/08/why-unemployment-probably-wont-hit-10.html

People do not jump right back into the labor force the moment a recession is over. Oftentimes, indeed, they can’t, because they’ve made somewhat long-term commitments – good luck ditching the army because the local bank is having a hiring fair back at home in Topeka. These effects are fairly strongly lagged, probably by at least 3-9 months, and usually occur only once the jobs picture has gotten to the point where it’s actually pretty darn good – not just when it’s merely improving. Where we’ll see these effects is in, say, January of 2011, when the employment rate might not budge much even if a couple hundred thousand new jobs are created. But the unemployment rate should already be safely clear of 10 percent long before that… By the way, this model is decidedly more optimistic about the velocity of the jobs recovery than are most mainstream observers.

Here’s a monthly interactive unemployment map.  http://www.msnbc.msn.com/id/27913794/ While some states have notably surpassed 10%, the “national average” has not peaked 10% as of May.

I don’t know what math MSNBC used for that “national average” (probably by adding all the state averages and dividing them by 50 or something like that), but the U.S. Bureau of Labor Statistics shows something a little less rosy:  http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&tdim=true&dl=en&hl=en&q=current+unemployment+rate

Looks like Nate made the wrong call on this one.  Unemployment did pass 10% briefly for three months. 10.6% in January.  10.4% in February.  10.2% in March.  Looks like unemployment is about 1% higher than Nate predicted.  It’s currently 9.6%

I still have some faith in Nate.  My totally amateur and unprofessional prediction is that unemployment should be better by January 2011 and on a significant decline.  I’ll say 7.5%.  GDP is currently up a bit and it makes sense to me that unemployment rates should respond to that in 6-9 months.  I reserve the right to amend this number in 2 months depending on how the trends are looking.

I don’t think we’re going to have a double dip. But I did believe Paul Krugman in early 2009 when he said the stimulus was the size below what was needed for good Keyensian effect and that the economy was going to sputter along for 2 years.  His prediction seems to be coming true.  What this means for the 2012 elections, I’m not sure yet.

Andrew Sullivan shows GDP decline and growth over the last several quarters and a rundown of various persons’ analyses here.

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Fact Checking The National Inflation Association And its Hyperinflation Fear-Mongering.

This is a response to this youtube video with over a half million hits, posted by the mysterious The National Inflation Association:

http://www.youtube.com/watch?v=eb1n1X0Oqdw

First off, it’s always good to ask who is funding the organization and the video production.   From their website http://inflation.us/ (Ooh,  dot us. Flashy domain name. Very patriotic.) I can’t say for sure.

But here’s a good guess:

“One of our missions at the National Inflation Association is to discover and profile companies that we believe will prosper in an inflationary environment. Typically we will bring to you producing, profitable, Gold and Silver companies with strong balance sheets. We believe these stocks have a chance of becoming some of the best performers of the next decade.”  Most of their 22 companies on their stocks page are gold or silver companies.

Now I’m not going to bash Gold and Silver as a means to hedge long-term financial risk, because I’m not an economist.  But here’s an article that does:  http://www.huffingtonpost.com/alan-schram/is-gold-a-good-inflation_b_443927.html “Gold does not generate cash flow (indeed it has a carrying cost for storage, insurance etc.) and does not have any intrinsic value, and therefore it is of dubious value as a long term investment.”  The same thing that gives gold its value, faith, is the same thing that gives money its value.  Makes sense to me.

Onward to the youtube video.

Commentary:

I’m not going to fact check all the numbers, but a lot of the statistics in the video seem to be reasonable.  The video also cites some legitimate facts about the financial crisis and legitimate concerns about the US’s ability to pay for impending SS and Medicare.  But there are a lot of interpretations of these statistics and facts that are misleading, fear-mongering, and just plain wrong.

9:45  “The average American might have to eat less and stop air conditioning and heating their home just to afford gas for their car.”

I like the word ‘might’.  And aren’t we obese and energy-hungry anyway?   Doesn’t a third to a half of our food go into the garbage and not into our mouths and out our ass?   Maybe we shouldn’t have killed the electric car, before the lithium ion battery took off.

10:40  Peter “Dr. Doom” Schiff calls Social Security a Ponzi scheme.

While there are parallels between the concepts, it’s not fundamentally true, because technological advancements have exponentially increased economic output over the last century.   According to Michael Mandel of Business Week:   “The U.S. population has more than tripled since the early 1900s, while the U.S. economic output has gone up by more than 20 times… Assuming that technological progress continues over the next 70 years, and output productivity growth continues over the next 70 years, the finances of Social Security are relatively easy to fix. A fairly minor cut in benefits, combined with a relatively small increase in taxes, will bring the system back into balance again. (the latest Social Security report projects a 75-year deficit of $4.3 trillion. That sounds like a lot of money, but over 75 years it’s roughly $60 billion a year…not chicken feed, but not overwhelming).“

13:18  “The only way our economy can truly recover [from the crisis caused by trillion dollar deficit] is for the government to dramatically slash spending across the board and eliminate unnecessary departments like the Department of Energy… and the Department of Education.”

The video tries to link the rise in private tuition costs to the rise in Dept of Ed. Spending.  I don’t get it.  It also fails to mention that the Dept. of Ed only has 5,000 employees and that most of the increase in spending was because of Bush’s No Child Left Behind.  And Dept of Energy?  Um, isn’t the one that deals with our nuclear waste?

15:42  They try to bash breastfeeding protection laws.  Fail.

16:55  They claim a Republican administration would have supported the health care bill.  Um, no?  From what I remember, the health care bill had to go through extensive Senate reconciliation after the Dems lost their supermajority with Massachusetts.

24:15 “We conservatively believe the real rate of inflation to be 3-4% higher than what is indicated by the CPI.”  Thanks for giving us the formula for how you calculated that.

25:34 Suggestion for fed funds rate to increase to 5.31%  Again, no math evidence.

25:05:  FIRST GOLD PITCH HERE

I skimmed through the next 10 minutes. It was Gold Gold Gold Gold Gold.

37:45  Selective statistics about debt.  You can see the full debt story in chart form here: http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

Post-WWII our deficit was briefly over 100% relative to GDP.   In the last 30 years, it went up with Reagan and HW Bush and lowered with Clinton.  Obama inherited an 83.4% rate from Bush and it is currently rising.

42:10  The video suggests we “go back to our roots” to fix our economy.  I love 12 hour work days, child labor, sub-minimum wage, and sweatshops.

The rest of the movie was more OMG DEFICIT and Gold Gold Gold Gold Gold.

50:15  I love how the movie links inflation to the “destruction of family values.”  Inflation will soon make a $20 bill worth more as an implement to snort coke out of a hookers ass than its value!

50:38  Somehow the government is “transferring money to Wall Street through inflation.”  Really? I thought it was the deregulation (by the ironically Democratic senate) in the late 90s and early 2000s causing Wall Street to systematically restructure itself into unsustainable pyramid schemes.

The entire movie seems to forget a basic Econ lesson:  Businesses don’t look at national debt and think, “Let’s raise prices!”  Growing economies and demand make prices go up.  A recession—like what’s happening now—makes selling stuff harder, so prices go down.  That’s why inflation is down.

The deficit needs to take a backseat right now to the higher goal of economic growth.  And it’s noteworthy that we borrow from China because they have relatively low lending rates.  Really, what’s China going to do; invade us if we default?  The US and China are economically co-dependent, which is not a great place to be, but safe for the moment.  Right now the Obama administration is attempting to do what it needs to do, focusing on unemployment and GDP growth.  Whether it’s succeeding or not is another post for another day.

[edit]: I wrote a Follow Up Post in response to some of the comments on this page.  Less Sarcasm.  More go suck it, Austrian school of economics:  https://scandalousmuffin.wordpress.com/2011/05/25/nia-article-comment-reax/