Monday, November 22, 2010

A look at the New Deal and new deals

I spent the summer of 2010 attempting to run the final stretch of achieving my masters degree: writing my exit paper. This paper could be of any topic of my choosing, as long as I had a faculty member at Miami that was willing to advise along the way. I knew from the get go that I would like to do something which took an empirical look at a historical event; I figured that given my interest in history, a topic such as this would save me from begrudging doing the research and data aggregation which was usually required in writing a paper such as this one. After weeks of putting together a dataset, which I found was no small task - I now appreciate historians who make their living poring through reams of antiquated data and documents - I was able to begin the analysis. The question was: Was the New Deal effective in its efforts to reduce the suffering associated with the Great Depression?

I am a firm believer that researchers should not structure their studies with a desired outcome in mind. As certain climate scientists and political documentary creators have shown, it's quite simple to lie with facts, so long as you portray them in the right way, and are convincing and clever in telling your story. With that in mind, I did not want, nor did I let my political views or presuppositions influence the study. Given that I would consider myself an fiscal conservative, and an opponent of massive increases in government spending as a response to economic downturns, it would be a convenient story for me to tell that Franklin Roosevelt's New Deal had no effect in its stated goals of relief, recovery, and reform. But facts and the truth aren't always convenient ( I think I may be onto a good title here).

A study like this, while seemingly straightforward, becomes difficult for a few reasons. First of all, it differs from the more common question of did it contribute to RECOVERY. This question can be answered, or at least approached, by using readily available macroeconomic indicators such as the unemployment rate, inflation, GNP growth, etc. Relief however, is more difficult to measure. The study used infant mortality rates, the rate at which babies die in their first year of life, as a measure of economic suffering during this time. This wasn't my idea, but it's what many economists have used to measure socioeconomic outcomes, at least during this period.

Secondly, there's a problem of simultaneous causality. Meaning it's hard to measure a causal effect, because the causes are running in both directions. A good example of this is stock prices to economic conditions; it's hard to say how much deteriorating economic conditions cause falling stock prices, because low stock prices in and of themselves cause the economic situation to falter. In the same way, Relief spending in the Depression could have both caused better economic conditions, and was a response to poor economic conditions. IE, if in one state 99 out of every 100 babies were dying, the government in its infinite wisdom may direct more relief spending to that state. A simple analysis would now indicate that relief spending was CAUSING this high death rate. This mistake, while seemingly obvious, causes one to come to the exact wrong conclusion.

This concern is addressed by an econometric technique called instrumental variables regression, which I will not try to explain, for fear of loosing the attention of my daily 0.06 readers. In the end, I found that the New Deal was in fact causing relief throughout the country, to the extent that areas receiving more federal relief monies were seeing lower rates of infant mortality. I cannot therefore, stand up for the argument that the New Deal was a total waste, or as some say, hurting the country. Whether it was effective in causing the country to recover from the Great Depression is another matter, but I do believe that it helped babies who couldn't help themselves. A baby born which otherwise would have died most certainly has long term effects:  these were the future parents of baby boomers, Korean War veterans, wage earners and producers (and also Social Security recipients though.... yikes).

In context of our current situation, we should view its success by asking, what long term good are we creating? Is Obama's fiscal stimulus creating long term growth for the economy? OR is it just creating temporary government jobs and programs? Building a high speed railway from Cincinnati to Cleveland is all well and good, but once the rails are laid, the overpasses built, and the workers have gone home, have we created something of long term value, or just an underutilized money pit for the taxpayers to support for decades to come?

Let's always remember to ask these questions.

Wednesday, November 10, 2010

What you can't talk about at the dinner table

My current state of affairs lends itself to a lot of... introspective time. I have time to think a lot, read a lot, write a lot (hence this blog), and also play a lot of Tropico, the only computer game I brought to Denver. Call me a dweeb, but being the dictator of a small latin american island seems like it may be fun... in fact I may be changing the "objective" line on my resume before long.

My main passions of late as far as reading goes, have been unfortunately the two things you're not allowed to talk about at the dinner table: religion and politics. There has been a seemingly more and more talk of late about church and state, especially with recently defeated senatorial candidate being blasted for her apparent ignorance of it appearing in the constitution... which by the way, she got an unfair shake on, and the media forgot to report that her opponent couldn't even name the freedoms protected in the first amendment a few seconds later. A good point made by a friend is that the founders clearly intended for a division of church and state in our country, they made no mention, and in fact seemingly outright opposed, the separation of GOD and state.

Today, many would have us believe that to even mention God in the context of a political decision or our government is tantamount to Sharia Law in Iran, and is religious fanaticism. Many claim that mentioning God is an affront to atheists, and is in essence an unfair imposition of our belief on theirs. As the founder clearly intended that God be the guiding force in the creation of our country, I propose that those that hold this belief should call a constitutional convention to have the thing rewritten, making it clear that all that "endowed by their creator" and "station which Nature's God entitled them" nonsense in the Declaration was simply Jeffersonian poetic wordplay, and had/has no real meaning. If there is not popular support for this convention, I then propose that those that hold this belief accept the reality that our founders did not intend for a separation of God and state in our country.

Where frustrations come, understandably, is where one group or party claims that they have God's vote. I have not read the entire Bible, but I'm relatively certain that God has never voted in an election, he does not hold a particular party, and hasn't even made any campaign contributions lately. Religion in our country becomes extremely divisive when one party claims that God votes with them.

A good article by Jim Wallace i read recently begins with the following:

"Abraham Lincoln had it right. The task of Christians should not be to invoke religion and the name of God by claiming God’s blessing and endorsement for all their national policies and practices—saying, in effect, that God is on their side. Rather, Lincoln said, believers should pray and worry earnestly whether they are on God’s side."

(the link for the article - )

God doesn't endorse politicians or policies, and no, Sarah Palin does not carry God's proxy vote, as much as she may wish that be the case. We're also forgetting the small fact that if God were here, He would not vote, and we would not vote, because He would be the dictator or His altogether perfect plan for us and the world (see the book of Revelation).

So the main takeaways here: God is not a Republican or a Democrat, and probably not even a member of the Green Party. Mixing politics and religion too much can damage your witness, and can drive people away from the faith AND your political views, it's kind of like a silver bullet for creating divisiveness. Politics is very personal. Religion is very personal. Jesus is even more personal - but we shouldn't be marginalizing him by claiming He endorses our party. That being said, God should not take a back seat when it comes to our personal political decisions, and we should never be ashamed of the founding fathers' intent and invoking of His name in the creation of our country, which has a logical and clear application to the governance of our country today.

Tuesday, November 9, 2010

The Great Recession in the long run

About two years ago I can recall sitting in the back of my econ 417 class. It was a class which focused on business cycles; what they're caused by, their effects, etc. I remember that this particular day, my professor had been thinking on the topic, and advised that given the recent cataclysmic economic collapse of our country, all of us students should probably just attend Miami's masters in economics program. Simply put, acquiring more human capital is never a bad thing, and entering the job market in days such as those could certainly be a bad thing. At the time of the first semester of my senior year, unemployment was around 6%, up from 4.5% just a year earlier, and who knew what the future may hold. As a student, I had mixed feeling as to whether or not I thought yet more schooling was a good idea. I loved my school, my teachers and economics, but getting that first job and no more exams sure sounded a sweet deal too.

I decided to keep that advice in the back of my mind, and try my hand at the job search before jumping to any conclusions about the market; 6% isn't so bad right? 100 handshakes, 50 resumes, and a few phone interviews later, I was signing up for grad school. I'm not sure if it was my discouragement, or my true desire to study economics at the graduate level that caused me to make that decision... I'm sure a mixture of both.

Two years later, I have now graduated... twice, from that school, and have been given no choice to enter the job market, only now with an unemployment rate of 9.8%. Yes, I have more "human capital," but now I'm overqualified for most part time work, and under qualified for most of the work that I'd love to do because of lack of experience. My goal here is not to complain... I am confident that the Lord has a plan for my life, and if I were expect that I deserve better or differently at this or any point in my life, that would be to say that I know better than Him, which I'm certain isn't the case. No, so I don't want to complain... the situation just causes me to wonder.

In the long run, say, 10 or 15 years... will it matter what decision I made during this fateful time in economics history... it's a significant question, because many Americans are in the same boat as I. Many students decided to delay entry in the job market, get more edjumucated in hopes to find a better chance at scoring that great job once they've graduated.Graduate and professional school enrollments were at unprecedented levels during this time. Students seemed to be doing anything they could rather than trying to find a job.

I can see two sides to this story. One: those that did delay that entry now are better educated. They took a step that many later in life wish they had. They got that extra degree while while they were still in a "student" mindset. While the job market sure does stink now, this could prove an asset later in life. From my perspective, had a gotten a job during that preliminary search, I probably would not have gone to grad school... I would have happily taken that first paycheck and said "keep 'em comin boss!"

On the other hand, those that did successfully enter the job market are among a unique set of people as well. They got hired when hiring was down, and more people than ever were looking for jobs. That makes them very hardened and qualified sector of the workforce, who will have a few years of experience under their belts when these overeducated and underworked grad students begin trying to take their jobs away in a few years once they've graduated. But these people also accepted jobs when firms were cutting back, profits were down, wages were down, benefits being cut, and companies were simply not growing at the pace that they had been for the previous decade. Could this have hurt them? It certainly may have caused them to accept less than they would have otherwise gotten a year ago... but in the long run??

One thing I learned as a grad student is not to oversimplify things (which I've done plenty of here). In other words, I am much more aware now of what I don't know. So I don't have an answer to my long run question. But it at least causes you to think. How much does the first few years of employment matter for the rest of your career? How much value does one extra degree add to your resume over the course of your lifetime?

I don't have the answers... just trying to begin asking the right questions.