Adam Marx

I comment on Kevin Drum Commenting on Karl Smith who wrote



You are very very kind to Smith. If the question is how important are credit conditions, then considering government employment is not appropriate. As you note, as he notes, government employment has relatively little to do with credit conditions. Also the wtwo different scales are misleading. He should have set both series to 0 at the business cycle peak and graphed one job as one job.

You are right again that the evidence strongly suggests that the problem is housing specific and not tight credit in general. Investment in productive capital recovered normally. Corporate bond yields are normal. A tiny fraction of small businessmen consider "interest rates/credit" their biggest problem. Automobile sales are booming.

So what's with housing ? Well it isn't excess housing stock from the bubble (ask Brad DeLong). It sure isn't mortgage interest rates which are tiny. It might be lending standards. It might also be that people have decided that houses are terrible investments for the same irrational trend chasing reason they decided they were wonderful investments in the 00's.

My comments at Smith's blog are extremely slightly less rude.

If you want to look at credit sensitive sectors you really should not add government workers to the goods producing workers. As you note, government employment is extremely insensitive to credit conditions, because state a local government access to credit is legally restricted.

Employment in goods production is recovering. The decline was (of course) much more severe than in the last two recessions, but the recovery has started much sooner after the trough.

https://research.stlouisfed.org/fred2/graph/?graph_id=68673&category_id=0

Earlier inflation fighting recessions have a very different pattern exactly because those downturns depended on credit conditions which were very tight during the recessions deliberately created by the Fed. and then suddenly looser.

You note that construction is very different from manufacturing. So I looked at manufacturing employment. This time it is very different from the last recession, since it declined less and is recovering.

http://research.stlouisfed.org/fred2/graph/?graph_id=68675&category_id=0

How about durable goods (which would depend on credit conditions more than non durable goods). Compared to last recession same absolute decline (greater proportional decline). This time recovery. Last time continued decline

http://research.stlouisfed.org/fred2/graph/?graph_id=68676&category_id=0

It's construction this time.

For this graph I am going to start in 1970, because I notice something. The delay from the peak of construction employment to rapid growth of construction employment has been similar in the four peaks before the latest and should be coming to an end for the latest case around now (and employment has begun to increase).

http://research.stlouisfed.org/fred2/graph/?graph_id=68678&category_id=0

I didn't know this. I know the economy boomed back after the second dip of the double dip Volcker recession, but I didn't think that this was after a long period of low construction employment. Also I remember the 1974-5 recession lasting a long time, but hey I was only 1 when it ended and not looking at disaggregated data back then. I knew about Bush mush recoveries, but I was very inclined to consider them extraordinary. It all fits an industry which takes a while to get going either because of excess stock because of overbuilding or because uh Rome wasn't built in a day (and Romulus spent a century just getting planning permission and hiring an architect)..