Liberal Forum

Silverfox » 18 Feb 2014 4:34 am » wrote:
You don't need to change the entire methodology to change the result. I believe the concept of "discouraged" workers was introduced under Reagan. The inclusion of the military was under Reagan. The number of hours work required before someone is deemed "fully employed" was reduced. There were also changes to the CPS calculations in 82, 83, 85 and 86.

Incorrect of a couple of counts.

No one said you needed to change the entire methodology, but there were no changes in the methodology at all. The unemployment rate is calculated the same way it has always been, so you are wrong when you claim that Reagan changed the way the unemployment rate was calculated. The inclusion of the military was based on a presidential commission, that has concluded that active military in specific bases should be part of the labour force. As a result, this dropped the unemployment rate by one-tenth of one percent. That's one basis point. Hardly anything dramatic or game changing. Today, we still count the civilian unemployment rate, so you are also wrong when you suggest that these changes benefits future presidents.

I also don't see how the part-time effects the unemployment rate, since the unemployment is merely the number of unemployed / total labour force. If you are talking about some other subset of unemployment, that's fine, but I don't believe anyone address any other unemployment rate besides the headline number.

Also, what proof do you have that changes were made to the household survey in all of those years. The only notable change in the that would made adjustments to the unemployment rate occurred in 1983, which was the inclusion of the military in the labour force, as I discussed. No other changes were made to the CPS, or the unemployment rate. This can easily be shown using FRED Archival Economic Database, which keeps records of vintage statistical methodologies.



Notice the unemployment rate is in lock step before 1983, and then the different in the unemployment rate by one basis point. That one basis point is the result of the only change that occur during the Reagan Administration. Whatever changes you believed happened under this administration had close to zero effect on the unemployment rate.

Does any of that change what Volcker and Carter did and how it benefited Reagan? You know - the thing we were discussing.

We were discussing how Carter's economy is supposedly better than the Reagan economy. And what exactly did Carter do? All he did was increase government spending and introduced a voluntary wage, both of which were largely unsuccessful. He didn't even try to eliminate the prices controls implemented by his predecessor. His only useful attribute was deregulating heavily regulated industries, which would have most likely been unregulated by his successor anyway.

How did Reagan benefit from anything Carter did? The only thing he really did was appoint Paul Volcker. So I guess Carter deserves brownie points for recognising someone who knew what he was doing...

Yes, the dollar became much stronger under Reagan, having spent the previous decade weakening (so he inherited a weak dollar, as I said). In fact, the strengthening of the dollar became a problem - hence the Plaza Accord. Because he ran up high deficits (due to the military buildup and tax cuts) and because of what Volcker was doing, interest rates were high. The value of the dollar rose accordingly.

Check the DXY when he came to power. http://www.tradingeconomics.com/charts/united-states-currency.png?s=dxy&d1=19700101&d2=19891231

No, you said he benefited from a weak dollar. Now that we've established that we are not talking about the GBP/USD, if you wouldn't mind answering the questions:

1) What weak dollar? The dollar index was already in the 90's and was above the historical average when Reagan entered the office.

2) First, you were implying that his economic success is only attributed to a weak dollar. Now you are suggesting that the strengthening of the dollar was a problem...

Which is it?

You appear very confident in that multiplier. It seems high to me. Don't they vary depending on circumstances (e.g recession vs expansion) and on the type of investment? Either way, there is a lot of debate around the multiplier for military spending but few would argue that it has no impact on the economy, as you appear to be doing.

It isn't about federal salaries. That money has to go somewhere. It gets spent. Businesses supply the military and other businesses supply them. These businesses employ people. They also buy raw materials. They develop technologies and do research. There is a whole industrial complex that wants feeding. Does this industry have no impact on the economy? Please explain why.

I don't have confidence in the multiplier. I've only stated that it is a generally assumed that the defense spending multiplier is greater than the general spending multiplier. Your ripple effect argument ignores the fact that resources freed from defence and military spending become available in private businesses and households. There have also be empirical studies that shows defence spending has had a spending multiplier of less than one, which means that you will increase overall GDP, but not enough to maintain the private sector portions of GDP, which has a crowding out effect when government purchases increases.

As already explained to Cannonpointer, the effects are near nil.