Saturday , September 18 2021
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Well, that didn’t take long!

Summary:
Just a week ago, I did a post that questioned a recent study of the effects of ending the 0 supplemental unemployment benefits (in 25 states).  The problem was not that the study was wrong, rather that it was merely one of lots of similar studies done over recent decades, and its results need to be viewed with caution.  It sure didn’t take long for my warning to be validated. Here’s what I said: And lots of other things are going on that might have effected the results.  As just one example, the study occurred during the recent Covid delta variant surge that disproportionately hit the “red states”.  And which are the states that eliminated the 0 bonus?  Mostly red states.  These states also had a significantly lower unemployment rate than average . . . making

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Just a week ago, I did a post that questioned a recent study of the effects of ending the $300 supplemental unemployment benefits (in 25 states).  The problem was not that the study was wrong, rather that it was merely one of lots of similar studies done over recent decades, and its results need to be viewed with caution.  It sure didn’t take long for my warning to be validated. Here’s what I said:

And lots of other things are going on that might have effected the results.  As just one example, the study occurred during the recent Covid delta variant surge that disproportionately hit the “red states”.  And which are the states that eliminated the $300 bonus?  Mostly red states.  These states also had a significantly lower unemployment rate than average . . . making job growth more difficult.

And here’s today’s headline in the FT:

Total of new positions drops to 235,000 in August from 1.1m in July but unemployment rate falls

Read those figures again.  We went from a blowout figure of 1.1 million in July (probably aided by the expiring benefits in 25 states), to an abysmal 235,000 in August.  You don’t need a PhD in economics to understand that this is mostly due to the delta variant.  Indeed, a couple of days ago the American Economic Association convention that takes place in early January each year was moved online.  (A silly decision, in my view.)

Last week, I saw some people on twitter criticizing UI skeptics for refusing to admit they were wrong about the effects of ending the supplemental UI benefits.  In light of today’s jobs report, I wonder if those same people will admit they were wrong about the implications of these new studies.

PS.  The FT article describes Goldman Sachs providing what seems like a more clear-eyed view of the effects of this policy:

Goldman Sachs economists estimate that July’s jobs growth would have been 400,000 higher had the enhanced benefits expired nationwide, and forecast next week’s termination to add 1.5m in payroll gains by the end of the year.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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