Right Angle Club: 2016
Right Angle Club 2017
Dick Palmer and Bill Dorsey died this year. We will miss them.
|Professor Kenneth Burdett|
The Right Angle Club, now luxuriating in its new quarters in the Pyramid Club, was recently visited by Professor Kenneth Burdett of University of Pennsylvania and Cornell. A charming fellow with a Scottish burr in his accent (he mentioned he had been born in England), he elected to tell us of a new revolution in economics which has slipped by us unnoticed, without textbooks devoted to it, or Nobel Prizes awarded. That is, many of the concepts central to macroeconomics are really net values, or ratios between two more basic facts. The concept of unemployment was offered as a handy example.
We tend to think of 230,000 new jobs this month as a hard fact, but it is actually a ratio of several million people getting new jobs, and several million losing jobs, not to mention a number who simply decide to leave the workforce and retire. We all sort of knew it was a ratio, but most of us had no idea it was the net flow of many-times larger numbers. It is because of the difference in the size of the flows, which are much greater in size than the small net unemployment figure, that this is a revolution rather than a humdrum ratio. We've been accustomed to the much smaller ratio than to the many-times larger flow numbers. What happens is vastly larger numbers of people lose their jobs during a depression, but millions more people re-enter the workforce, too, probably at a lower wage level.
|Thomas A. Hirschl|
Curiously, a new book by Mark Rank of Washington University, and Thomas A. Hirschl of Cornell (!), called Chasing the American Dream: Understanding What Shapes our Fortunes has just appeared, saying the same thing. Their approach is to develop a figure for the risk of being unemployed for a year in the next 5, 10, or 15, and at the moment the answer for unmarried white persons sometime during the next fifteen years in the future is 32 percent. That seems to be a much more scary projection than to set the present aggregate total unemployment at 4.6%. We'll have to wait 15 years to see if that prediction really is accurate, or if it has the dire consequences we immediately assign to it. But it would appear many assumptions are about to be set on their head, and the quality of our projections is about to shift dramatically. For example, Chairman Bernanke of the Federal Reserve placed great stock on wage inflation being "core" inflation, but these calculations suggest much more can be made of the data than that. Since somehow it is calculated the present recession has eight more years to run, because current oversupply will require eight more years to run down, data recalculated in this new way may give different answers. It would then be useful to see which is the better approach to economic prediction.
|Chasing the American Dream|
Right Angle members who lean both right and left seemed impressed and befuddled by this new view of an old topic, and that's probably a very good thing. There seems no question of the validity of the approach, no question of significance, and little doubt of its ability to change attitudes. We look forward to many more insights from the Dismal Science, of this nature. For instance, this professor of many students of the rentier class remarked at how repeatedly he had been struck by students able to afford red convertibles (and the Princeton tuition cost) were nevertheless willing to throw themselves into the scrum of Wall Street, to make even more money. He regarded that as a strength of the American economy, in stark contrast to that in Europe, where the first sign of prosperity sent his old acquaintances, straight to the pub to relax a bit. In the British aristocracy, "entering trade" is a low-class thing to do, whereas sitting on the sidewalk sipping wine is the mark of really high class.