The Economy and the News Cycle
Friends of mine have asked me lately how badly President Obama’s economic policies are working. My reply is that it is way too soon to tell.
I would expect that by now, the effect of Obama Administration policies on unemployment would amount to rounding error. Instead, I presume that most of the increase in unemployment over the past six months was “baked in” to the situation that existed last year. Some people forecast the high unemployment, and some people didn’t, but that is neither here nor there.
The super-delayed stimulus might have nudged the unemployment rate up by 0.1 percentage points by driving up interest rates, and the anti-business rhetoric and uncertainty generated by aggressive Administration initiatives on health care and energy might have nudged it up by another 0.1 or 0.2. Maybe a really optimal stimulus would have instead nudged it down by 0.2 or 0.3. More likely, the difference between best case and worst case amounts to rounding error.
The problem that Obama has with the unemployment rate is one of perception. The news cycle has gotten shorter over the years. If a story is more than three days old, it is stale. Meanwhile, the economic cycle has not gotten shorter, so it still takes several quarters for the economy to change direction. In fact, if anything, it could be that as far as unemployment is concerned, the economic cycle has gotten longer: as our labor force becomes more heterogeneous, it takes even more time to redeploy people out of declining businesses and into expanding ones.
The same news cycle that gets impatient with wars that last more than a week also gets impatient with recessions that last longer than nine months. The economic cycle and the news cycle are out of sync.
In this video, John Taylor makes a similar point in passing. It is a fascinating lecture. In part, he champions the use of high-frequency data in macro, which, if it were useful, would help close the gap between the news cycle and the policy evaluation cycle.