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Econ AMA Part X: Fact-Check Edition

ResponsiblyIrresponsible
Posts: 12,398
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6/14/2015 3:54:35 PM
Posted: 1 year ago
I think this is my third one, though this one has slightly different intentions.

My motivation for starting these isn't to flaunt that I've had formal training in economics, but rather to dispel a lot of the bullsh1t we all heard in the media, be it from pundits or from politicians. With an upcoming election season and a loaded GOP primary, the fact-checkers are going to be working overtime. But let's just say that I operate with less of a lag.

Mainly, I'll answer anything having anything remotely to do with economics, though my intention is to answer fact-based questions. For instance, if you ask a question like "Do tax cuts spur growth?", I'm willing to give you my opinion and to link you to some relevant research, but on something as complex as that, the evidence is so split that I won't be able to answer it authoritatively or with a high degree of certainty (and, not to mention, you all know what I think of fiscal policy). But, if you were to ask, for instance, "Was Bernie Sanders full of sh1t when he said the 'real' unemployment rate is 12 percent?", I'll gladly tell you that how and why he's either (a) ignorant, (b) intentionally misleading you, or (c) misreading the U6. (I think this one-off example actually underscores how nonpartisan I am, because I like Bernie Sanders).

With that, ask away!
~ResponsiblyIrresponsible

DDO's Economics Messiah
Diqiucun_Cunmin
Posts: 2,710
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6/14/2015 4:26:45 PM
Posted: 1 year ago
At 6/14/2015 3:54:35 PM, ResponsiblyIrresponsible wrote:
I think this is my third one, though this one has slightly different intentions.

My motivation for starting these isn't to flaunt that I've had formal training in economics, but rather to dispel a lot of the bullsh1t we all heard in the media, be it from pundits or from politicians. With an upcoming election season and a loaded GOP primary, the fact-checkers are going to be working overtime. But let's just say that I operate with less of a lag.
Isn't that the intention of the previous AMAs as well?
Mainly, I'll answer anything having anything remotely to do with economics, though my intention is to answer fact-based questions. For instance, if you ask a question like "Do tax cuts spur growth?", I'm willing to give you my opinion and to link you to some relevant research, but on something as complex as that, the evidence is so split that I won't be able to answer it authoritatively or with a high degree of certainty (and, not to mention, you all know what I think of fiscal policy). But, if you were to ask, for instance, "Was Bernie Sanders full of sh1t when he said the 'real' unemployment rate is 12 percent?", I'll gladly tell you that how and why he's either (a) ignorant, (b) intentionally misleading you, or (c) misreading the U6. (I think this one-off example actually underscores how nonpartisan I am, because I like Bernie Sanders).

With that, ask away!
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

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ResponsiblyIrresponsible
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6/14/2015 4:28:16 PM
Posted: 1 year ago
At 6/14/2015 4:26:45 PM, Diqiucun_Cunmin wrote:
Isn't that the intention of the previous AMAs as well?

Sort of, but this is much more of an on-the-spot Factcheck service, lol.
~ResponsiblyIrresponsible

DDO's Economics Messiah
MisterMittens
Posts: 3,660
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6/15/2015 5:43:04 PM
Posted: 1 year ago
At 6/14/2015 3:54:35 PM, ResponsiblyIrresponsible wrote:
"Was Bernie Sanders full of sh1t when he said the 'real' unemployment rate is 12 percent?"
^This.
And what is 'real' unemployment supposed to mean anyway (as opposed to just unemployment).
I know from my limited econ experience that unemployment rates are based on percentage of labor force. Not everyone is factored in as part of the labor force based on willingness to work or something, meaning big chunks of people don't necessarily count as being unemployed.
Yay or nay?
I'm handsome. Whoever disagrees with me can go die in a deep, dark hole.
ResponsiblyIrresponsible
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6/15/2015 10:00:06 PM
Posted: 1 year ago
At 6/15/2015 5:43:04 PM, MisterMittens wrote:
At 6/14/2015 3:54:35 PM, ResponsiblyIrresponsible wrote:
"Was Bernie Sanders full of sh1t when he said the 'real' unemployment rate is 12 percent?"
^This.

He was full of sh1t. When he was referring to the "real" unemployment rate, he was talking - or at least I think he was, because it's really the only plausible explanation - about the U6. There are a number of different measures of unemployment depending on whom we classify as "unemployed."

Here's a link to those measures: http://www.bls.gov...

A brief run-through, starting with the U3, which is "conventional" measure:

U3 = total unemployed as percent of the civilian labor force
U4 = total unemployed plus discouraged workers divided by labor force plus discouraged workers
U5 = Total unemployed plus discouraged workers plus people marginally attached to the labor force divided by labor force plus people marginally attached to the labor force
U6 = Total unemployed plus people marginally attached to the labor force plus total employed part time for economic reasons, divided by labor force plus all persons marginally attached to the labor force

And here's an interesting paper from the San Francisco Fed pointing to the different measures of unemployment slack and employing a 1993 Taylor Rule to gauge the corresponding policy interest rate: http://www.frbsf.org...

So, basically, these alternate measures of unemployment - and Sanders is attempting to use the broadest measure - suggest that the depth of the recession may have induced people to drop out of the labor force, or some may have become involuntarily part-time unemployed, so the "real" unemployment rate is higher than the 5.5 percent recorded by the BLS via the U3.

BUT, there are caveats:

(1) Even the broadest measure, the U6, is currently at 10.8%
(2) It's *not* the real unemployment rate: Sanders discounts that some people are structurally unemployed (skills became obsolete because of the depth of the recessions for instance, and there is a great deal of evidence for negative duration dependence) or simply chose to retire early, as was the case for 50-somethings and onward.
(3) There's some evidence, such as a paper by Alan Krueger, suggesting that the marginally attached are so disconnected from the labor force that they either won't be able to reenter or, if they do, won't be able to retain a job.

So, there's a lot more than really meets the eye. There's no "natural rate" for the U6, so we don't know what the "normal" level of unemployment is. It's fair to say that the actual unemployment rate may be higher than the U3 states, but jumping to the U6 is just flimsy and wrong.

And what is 'real' unemployment supposed to mean anyway (as opposed to just unemployment).

Basically, it's a broader measure of labor market slack factoring in people involuntarily part-time employed or who have dropped out of the labor force. Reentry rates may vary, though, which complicates the analysis.

I know from my limited econ experience that unemployment rates are based on percentage of labor force. Not everyone is factored in as part of the labor force based on willingness to work or something, meaning big chunks of people don't necessarily count as being unemployed.
Yay or nay?

Yup, that's exactly right.
~ResponsiblyIrresponsible

DDO's Economics Messiah