Really, that’s all you got?

Over at the American Enterprise Institute blog, James Pethokoukis responds to my recent paper, Regulatory uncertainty: A phony explanation for our jobs problem, and blog post. I presented evidence that trends in investment, private-sector job growth, unemployment, and work hours were not inferior in this recovery compared to other recent job-challenged recoveries. That is, I noted that this recovery fares well relative to the recoveries under George W. Bush and George H. W. Bush. If you look at what employers are doing rather than what trade associations are saying, you would see that uncertainty about regulations and taxation has not impeded job growth. What we are seeing is what you expect given the slow growth in GDP.

What was especially curious to me is that Pethokoukis has no counter-argument or data other than, “But go ahead and contrast the Obama recovery, instead, to the Reagan recovery where private sector jobs grew 9.9 percent during its first two years.” Really, that’s it. The whole evidence that uncertainty is holding back jobs is that job growth in the Reagan recovery was a “V” recovery. Actually, the first two years of the recovery starting in Nov. 1982 was 9.4 percent, but what’s 0.5 percent job growth between friends? How does 7.2 percent private-sector job growth in the Gerald Ford-Jimmy Carter recovery fit into his story?

Pethokoukis is scrupulous enough to note that I do provide a good reason for the better job-performance in the Ronald Reagan recovery – that recession began with the short-term policy rates controlled by the Federal Reserve at 19 percent! There was plenty of room to use conventional monetary policy to get the economy moving. This time, the economy entered recession with these rates just over 4 percent. Oh, and the fact that this recession was caused by a financial crisis – something that research has shown again and again produces much slower recoveries.

Anyway, this just seems to confirm to me that there is no “there there” in the economic case that uncertainty about regulation and taxation is holding back job growth. I looked for any analysis that those articulating this view could point to and did not find any. I guess they do not have any over there at AEI.


  • Visdorian

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  • Anonymous

    Something else to point out to people who talk about the Reagan V shaped recovery is there was a V shaped recovery after the Jan 1980 – June 1980 recession as well. real GDP in Q4 1980 grew 7.6% and in Q1 1981, real gdp growth was 8.6%.

    It’s also worth noting that residential real estate investment grew 41.4% in 1983 after the Fed cut interest rates.

    A comparison between non-farm payroll job growth between Carter and Reagan is also informative.

    nonfarm payroll job growth
    Jan 1977 80692
    Jan 1981 91031     3.06% a year under Carter
    Jan 1989 107133   2.05% a year under Reagan

    Excluding  Fed tightening years (80-82)
    Jan 1983 – Jan 1989
    88981         107133  —– 3.1% a year

    Jan 1977 – Jan 1980
     80692        90800    —– 4.01% a year

  • Abc

    The neoclassical economics is bancrupt. I am an economic layman, but I have realized that low interest rates do not stimulate investments, and that money velocity is not constant. Keynesian analysis explains what is happening. Instead of recognizing reality, the neoclassicists/”conservatives” invented “regulatory uncertianty”, which enables them to blame their favorite scapegoat – the government. This amounts to a curious theory that the free market works, but only if there is no government and zero jobkilling taxes.

    But even if it were true that “regulatory uncertainty” is the cause of the low level of investments, how does it follow that austerity and tight money will make the situation any better?