Dow Crosses 15000 For First Time With Today's Strong Job Numbers; Sumner Takes Victory Lap

     The news today was mostly good as we saw 165,000 new jobs in April-expectations were for 150,000- and strong upward revisions from previous months. The unemployment rate edged lower to 7.5%.

     "The unemployment rate edged lower to 7.5 percent, due partly to the jobs gains and to a labor-force participation rate that remains at a 35-year low. An alternative rate that also counts those who have quit looking or are underemployed rose to 13.9 percent."

    "Job gains were concentrated primarily in the professional and business services sectors, with 73,000, and bars and restaurants, which added 38,000. Retail also added 29,000 jobs."

    http://www.cnbc.com/id/100704780

    There were also very sharp upward revisions. March from 88,000 to 138,000; February from 269,000 to 338,000. 

    If there's any bad news it's that we have to listen to Sumner's declarations of victory-supposedly what he calls the "Keynesian multiplier" is dead. After all, the bottom hasn't drooped off of the earth just yet, ,so Keynesians lose and austerity is not a problem with monetary offset. No doubt paragraphs like these are what he loves to seize on:

    "New figures from the Bureau of Labor Statistics indicated that a light March payrolls report may have been an aberration, as higher taxes and reduced spending due to the fiscal stalemate in Washington failed to deter growth."

    However, let's not get too far ahead of ourselves:

    "It's not great, not disastrous, just kind of an in-the-middle number," said Bob Damon, president of executive recruiting firm Korn/Ferry International."

    "He noted that the hiring is coming from small-and mid-cap companies that are outpacing larger firms, which are "still in stall mode."

   "What's really fueling it is the small- and mid-cap world where innovation is really at the forefront," Damon said. "What we're looking for is the Fortune 500 (companies) to rebound. Once we see that going on, then we'll start to see real job creation in the country."

     In other word many of the jobs are low paying service jobs-nothing new here; we have been becoming more of a service sector economy for the last 12 years. 

   "Indeed, the report showed challenges remain for the labor market."

   "The average work week declined by 0.2 hours to 34.4 hours, while wages rose 4 cents to $23.87."

    "In sum, what we got in today's report is a fair reflection of what we have in today's economy: Mediocre growth supported by mediocre jobs growth in industries paying generally mediocre salaries," said Steve Blitz, chief economist at ITG."

    In any case here's Sumner this morning:

    "Well you guys had a nice little run, but it’s all over now.  Monetary offset stands triumphant."

     "PS.  I should clarify that the big story is the revisions.  We are adding 196,000 jobs per month this year, which is actually more than last year, despite the austerity."

     http://www.themoneyillusion.com/?p=21021

     It's at least early to declare final victory. That 196,000 average is based largely on the strength of February which is prior to the sequester. Does he really think that everyone is going to now embrace the sequester now? 

    Krugman has a piece about how in fighting the ideology of expansionary austerity you have to play "whack a mole."

      http://krugman.blogs.nytimes.com/2013/05/03/playing-whack-a-mole-with-expansionary-austerity/

     It's a good piece but it has nothing to do with Sumner. I agree to a large extent that Krugman's probably to not get into it with Sumner all the time. Still I think his reticence is over done sometimes. Sumner has been on a little mini crusade not so much for austerity as against anyone criticizing it.  His argument is not meant to seem pro-austerity-he's too shrewd for that-but anti anti austerity if you will. 

      For example, he's very clever in passages like these:

     " Rogoff is right that higher inflation would have been desirable back in 2008-09.  But today wage growth has fallen so low that even 2% inflation would promote a robust recovery.  We don’t need to clobber savers with high inflation.  And we won’t."

     "Over the past year NGDP growth has been running around 3.5%; 2% real and 1.5% inflation.  Given the slack in the economy, if the Fed bumped that up to 5.5% NGDP growth for 2 years, we’d get around 2% inflation and 3.5% RGDP growth.  At worst it would be 2.5% inflation and 3% RGDP growth.  In either case the unemployment rate would quickly fall back to the natural rate (whatever it is.)"

     "Unfortunately there is very little chance that the Fed will achieve 5.5% NGDP growth.  Some have argued that fiscal austerity is slowing the recovery.  Indeed the Fed has argued that fiscal austerity is slowing the recovery.  And that’s because fiscal austerity is slowing the recovery.  RGDP growth in Q2 will likely be lower than if the sequester had not taken effect.  So why do I keep prattling on about  ”zero fiscal multiplier?”

      http://www.themoneyillusion.com/?p=20971

     He manages to actually admit that the sequester will lower RGDP-and also to bring Rogoff into the conversation-indeed, the title of the piece is Rogoff on Monetary Stimulus. It's a novel form of apologetics, just bring him back into the conversation innocuously as a Rortian Conversational Partner as if nothings happened. 

     In this post he went on to sayithat the fiscal multiplier is zero over time: ie, maybe one particular FS could give a positive rate of return, but there' no way to guarantee this over time-if you do 5 FS's over a 20 year period you expect the cumulative effect of FS over 20 years to be "roughly zero."

    Even if true why we should care about this is not clear. It's a variant of the Lucas Critique of discretionary policy-by definition fiscal policy is discretionary. 

     Then in another piece beating the horse over the "Keynesian multiplier" he lets this slip:

     "Meanwhile the anti-austerians predicted a 1.5% hit to RGDP, some even mentioned 2%, and yet those predictions also look off base so far, as 2013 will look much like 2012.  Yet the press has an overwhelming Keynesian bias, so any facts are assumed to support the Keynesian model, no matter how much at variance. For instance, the US is doing more fiscal austerity that Europe, and yetDavid Beckworth showed that it’s Europe that has the big slowdown, not the US.  And let’s not even talk about the fact that the biggest surge in public debt in global history—-Japan since 1993, has been associated with FALLING NGDP!!!!  That’s right, the biggest surge in public debt is associated with the worst 20-year performance for AD in all of global history.  Of course “correlation doesn’t prove causation,” unless it supports the Keynesian model."

      http://www.themoneyillusion.com/?p=21008

    This is a talking point he's been using the last several posts or so: "anti-austerians" or "Keynesian" predicted a hit of 1.5% in RGDP and if that doesn't happen-and through 4 months it doesn't seem likely to happen-they are show to be all wet.  It's interesting that he thinks correlation doesn't prove causation is just a Keynesian bias.  

     More specifically there are two troubles with this:

    1. I don't know of any Keynesian or anti-austerian who has predicted a 1.5% hit to RGDP. If it's out there fine but he of course doesn't provide the sources.

    2. He has now declared for the first time that the U.S. did more austerity than Europe-presumably he means teh EU as a whole. 

    If this is true it means that austerity works or at least doesn't hurt-right? He's been trying to rescue austerity for a few years since David Cameron and his Chancellor O'sbourne have begun their deep austerity by claiming that there actaully hasn't been any austerity. 

     I don't know what his premise is for claiming that the U.S. has done more austerity: in reality, austerity here has been relatively mild. The main austerity has been at the state level. If it weren't for that we'd be much closer to where we want to be right now. 

     When asked about Britain his argument is well the deficit is still so large, ignoring the distinction of the structural deficit. Perhaps his explanation for the U.S. will be forecasts that our deficit is coming down this year. 

       This ignores that the deficit can rise based on more austerity and lower tax revenue. Of course, Sumner doesn't worry about causation. just find the correlation that backs what you want it to show and call it a day. 

      I think Krugman would be well served in responding to this argument. It was nice when he went after Suner for a change the other day.

      http://diaryofarepublicanhater.blogspot.com/2013/04/krugman-calls-out-sumner-hornets-nest.html

     However, one more post would be very welcome. I know that this would lead to a war of words but it would serve as a learning opportunity as well for both laypeople and policymakers. I think Krugman is sometimes too reticent