Paul Krugman wants lawmakers to create a modern version of the Works Progress Administration, an important New Deal-era agency which put millions of people to work on public infrastructure projects:

A question I’m occasionally asked at public events is, why aren’t we creating jobs with a WPA-type program? It’s a very good question. ...

You can make a pretty good case that just employing a lot of people directly would be a lot more cost-effective; the WPA and CCC cost surprisingly little given the number of people put to work. Think of it as the stimulus equivalent of getting the middlemen out of the student loan program.

Putting aside the standard concern about central planning, there are some unintended consequences that could come with a modern WPA. This 1990 paper by Robert Margo points out that the long-term unemployed with Depression-era WPA jobs were more likely to be unskilled, and when economic conditions picked up, were less likely to get back into the private sector:

The results indicate that employment growth had an insignificant (though negative) effect on the probability of holding a long-term job with the WPA; thus the long-term unemployed on work relief were not very responsive to improved economic conditions. Long-term unemployed not on work relief, however, were responsive to improved economic conditions -- the incidence of long-term unemployment, among persons not on work relief, was significantly lower in states with higher-than-average rates of employment growth.

So what happens if we create a new WPA, employment growth resumes, and there are large numbers of WPA-type workers who don't want to give up their jobs? What makes our era different than the Great Depression is that we (hopefully) won't have a war-driven employment boom to help encourage people to leave public works jobs. You could argue, as David Leonhardt and Noam do, that some other sort of employment boom could be coming. But for the pessimists like me, a creakier job market would mean that it'll be relatively more attractive to an unskilled worker to hold onto a WPA job than to take on riskier private-sector work. Would lawmakers then decide to terminate the program and send these workers back on unemployment? Do we transition these workers into some sort of new long-term social security program? Or do we just keep the WPA for good?

John Reed apologizes for creating Citigroup.

What Europe is getting right in tackling unemployment.

Public works projects successful in rural India?

Study: Pork-barrel spending a symptom, not cause, of budget woes.

Did Malcolm Gladwell cause Lehman's collapse?

So yesterday I posted an item complaining about the line of argument that attributes Tuesday's election results to the fact that Democrats had strayed too far from the center, had done too much to quickly, were expanding government too far, etc., etc. I argued that it was much more plausible that voters--particularly the independent voters who decide elections--were just pissed off about the economy. To believe the former, you'd have to believe that these voters have well worked-out views about the proper size of government, and that they're supremely self-aware about where they stand on the ideological spectrum, and where politicians stand relative to them at any given moment, which strikes me as a bit implausible.

Alas, today David Brooks basically takes the too-far-from-the-center argument and runs with it. It's as though he read my post and tried to construct a column that came to the precise opposite conclusion on every point. (Though, as long as we're on the subject of implausibility, let me point out that that's fantastically implausible.)

Brooks and I agree that Democrats took a real drubbing among independents Tuesday. (It would be hard to disagree--the numbers are the numbers.) And we both agree that the economy was a major factor. As Brooks reports:

You've probably already heard the grim news: The economy shed another 190,000 jobs last month, driving the unemployment rate up to 10.2 percent (though the job-loss total wasn't so far out of line with what economists expected). But here's the number I'm seizing on: 5.594 million. That's the number of people who've been unemployed for 27 weeks or more, a horrifically large number of people to be struggling through such oppressive circumstances. That's up from last month's 27-weeks-and-over figure of 5.438 million.

So how can this possibly be good news? It has to do with a point I blogged about earlier this week, which comes from a recent issue of Grant's Interest Rate Observer (not online). In the issue, Jim Grant and Dan Gertner argue that one big indication of whether the recovery will be "jobless" or "jobful" is when different durations of unemployment peak relative to the bottom of the business cycle. For example, as I explained in the earlier item:

[I]n the 1981-2 recession--which saw a rapid return to job growth--the number of people out of work less than 5 weeks peaked two months before the bottom of the business cycle (i.e., the end of the recession); the number of people out of work 5-14 weeks peaked exactly at the bottom, as did the number of people out of work 15-26 weeks; and the number of people out of work 27 weeks and over peaked 7 months after the bottom. It turns out that most postwar recessions/recoveries prior to 1990 followed this pattern: the various durations of unemployment tend to peak not too long after the bottom of the recession itself, and there's a fairly quick overall return to job growth.

On the other hand, the 1990-1 and 2001 recessions/recoveries looked very different. In the first case, the number of people out of work 5-14 weeks peaked 11 months after the end of the recession; the number of people out of work 15-26 weeks peaked 15 months after the end of the recession; and the number of people out of work 27 weeks and over peaked 19 months after the recession. (The corresponding peaks for 2001 came 5, 20, and 22 months after the end of the recession.) And, of course, these recessions corresponded with an agonizingly slow labor-market recovery.

Grant and Gertner argue that the dynamics of the current recovery, in terms of those unemployment peaks, look a lot more the pre-1990 business cycle than the post-1990 business cycle. Which is to say, they resemble the era of "jobful" recoveries rather than the era of jobless recoveries. During the current recession/recovery, the number of people out of work 5-14 weeks peaked the same month as the presumed end of the recession (May, according to Bloomberg), and the number of people out of work 15-26 weeks peaked a month later.

The only real hitch in Grant/Gertner analysis was that final category: people out of work at least 27 weeks. As Grant and Gertner conceded, the number of people out of work that long hadn't yet peaked. In fact, in the last set of data prior to today, the number actually jumped pretty sharply, from 4.988 million to 5.438 million.

Which is why the latest 27-weeks-and-over number is so encouraging. After jumping by 450,000 in September, it only jumped about 150,000 in October, suggesting that the number of very-long-term unemployed could be about to level off. If it does peak in the next month or two, that would really strengthen the Grant/Gertner case that employment growth could come a lot more quickly than we think, since it resembles what we observed before 1990, when "jobless" recovery wasn't yet part of the lexicon.

P.S. In fairness, the 27-week-and-over number actually leveled off in August, too, before shooting up again in September. So we won't have a great sense of whether it's stabilizing until we get another month or two worth of data. But the early indication is certainly encouraging.

Arnold's hidden F-You message unlikely to have happened by chance.

Union roll declines are not just a U.S. phenomenon.

Should NYT dump its sports section?

The legal market in human cadavers.

Treasury's treating bloggers like journalists.

One of the most frustrating consequences of an Election Day like Tuesday is that it invariably (if fleetingly) transforms moderate politicians with no particular insight into the dynamics of public opinion into all-knowing sages. More to the point, it elevates their perfect-for-every-occasion view of politics, which says that if your party suffers a setback, the reason must be that it was too far to one side of the political spectrum, and so the answer is obviously to move back to the middle. And, of course, "the middle" is almost never a coherent worldview or set of policy preferences, but simply 10 or 25 or 50 percent less than what one side or the other proposes. So, for example, you get stuff like this from Ben Nelson and Olympia Snowe in Politico:

"People need to be saying slow it down and don’t add more to the deficit," Nelson said. "And what have many of us been talking about? We don’t want to see anything added to the deficit unless there’s cost containment." On health care, Nelson said: "Let’s see coverage extended, … but at what cost?’

Maine Sen. Olympia Snowe, the lone Republican to vote for a health care bill, said Tuesday’s results should slow Democrats down on health care — and "certainly gives pause on how you approach things.

Or take this from today's Wall Street Journal:

"What the exit polls showed was real voter fatigue with how crowded the plate is," said Rep. Gerry Connolly (D., Va.). "We need to take a deep breath, step back and clean the plate before we add to it." ...

"I do consider Virginia a bellwether state," said Rep. Gene Taylor of Mississippi, a conservative Democrat. "I would encourage the leadership to get back to the center."

But why would "too liberal" or "too expensive" or "too crowded" be the most plausible reading of what voters said Tuesday? Wouldn't an equally plausible reading be that voters don't think the economy is improving or that Washington is making it better, regardless of where those efforts lie along some dubious ideological spectrum? 

For the moderate view of politics to be right, it would have to be the case that the average voter has a well-worked out worldview, and that he or she gets upset when politicians deviate even a couple ticks in either direction along the ideological spectrum. Or it would have to be the case that the average voter has fairly precise, well-thought-out ideas about the "right amount" for Congress or the White House to have "on its plate" at any given moment. Deviate from those preferences, and the voters will rise up to punish you.

A banking industry lobbyist I spoke with this evening alerts me to a fascinating development in the House Financial Services Committee: Pennsylvania Rep. Paul Kanjorski is about to introduce an amendment to the systemic risk bill moving through the committee (see my discussion here and here) that would give regulators the power to break up too-big-to-fail firms. The details are a little unclear--as it stands, the current bill would give the Fed some vague powers in this vein. But the soon-to-be Kanjorski amendment appears to go much further, and the banks are freaking out about it. As the lobbyist told me, "He wants to effectively go back to Glass-Steagall"--the Depression-era law that separated commercial and investment banking. "That was a little unexpected. It sort of ... threw people for a loop."

Bloomberg has the rough outline:

Representative Paul Kanjorski said today regulators should get authority to dismantle firms, preventing them from getting so big their collapse would harm the financial system. He said he is coordinating with the European Union, which is forcing asset sales by state-aided banks to limit their advantage. ...

The committee today began considering a bill, proposed last week by Chairman Barney Frank, that would let the Federal Reserve limit company size by forcing the sale and transfer of assets and off-balance-sheet items at firms whose collapse would pose a risk to the economy. The Fed would have power to stop some activities by institutions.

“That’s a very limited power,” Kanjorski said of Frank’s plan. “It’s not clearly defined. We’re going to be very evident as to how.”

Frank’s provision on the Fed only applies to holding companies, while Kanjorski said his proposal will apply to all U.S. financial institutions.

I'll update if I find out more.

Eugene Fama calls the premise of Justin Fox's book "fantasy".

Why did Volcker walk out of his Bartiromo interview?

Dirk Bezemer: Why financial sector debt is a dead-end for the economy.

Treasury to issue 30-year inflation protected bonds.

Felix Salmon can't see a painless way out of the bubble we're inflating.

The Great Crash ... in nominal spending.

Is Stanford's John Taylor -- who, according to this measure is the 10th most influential economist in the world -- exhibit A for the corrosion that occurs when politics meets academic economics?

In a blog post last week titled "National Accounts Show Stimulus Did Not Fuel GDP Growth," Taylor writes:

Along with the news that real GDP growth improved from -0.7 percent in the second quarter to 3.5 percent in the fourth quarter, the Bureau of Economic Analysis (BEA) released detailed National Income and Product Account tables...These tables make it very clear that the $787 billion stimulus package had virtually nothing to do with the improvement. Of the 4.2 percent improvement, more than half (2.36 percentage points) was due to firms cutting inventories at a less rapid pace, which has nothing to do with the stimulus. (For the details look at BEA’s Table 2 which shows that the contribution of inventory investment increased from -1.42 to .94 which equals 2.36.)

What about the other components of GDP? In particular what about government spending, which was supposed to be a big part of this stimulus? Government spending was a negative factor, subtracting 0.9 percentage points from the change in GDP growth.

(emphasis mine)

While nothing about Taylor's math is technically inaccurate, his interpretation strikes me as way off. Taylor is looking at a table which breaks down the sources of the percentage change in GDP growth and then taking the difference between the two:

Apparently there’s a rumor making the rounds in some corners of Wall Street that yesterday’s election results are driving today’s stock market rally—the theory being that the results are a blow to Obama’s agenda, and stopping Obama is good for the market. (I just got a call from a producer at CNBC asking me what I thought about this). The reasons why this theory is utterly ludicrous are almost too numerous to catalogue, but let me give it a quick shot:

First, as I write this (around 1:30 pm), the Dow is up about 100 points, or just over 1 percent. Since March, the Dow has gained well over 3,000 points (or over 45 percent). If I’m not mistaken, Obama was president and moving ahead with his agenda during that entire stretch. So it seems like the Dow has spent lot more time rising when his agenda was on track (about 8 months) than it has when it looked like his agenda might stall (today). (And, for what it’s worth, the Dow is up even if you start with Election Day 2008 or the day of the inauguration.)

Second, the daily movements of financial markets are way, way over-determined. See, for example, this midday Dow Jones piece, which suggests the Dow’s rise today is a function of (in no particular order): The likely Fed announcement that monetary policy will stay easy; the falling dollar, which is boosting the profits of U.S.-based multinationals and exporters; and two semi-encouraging (or at least not discouraging) reports on the labor market.

Third, when you look at the 30 individual stocks that make up the Dow, you notice two classes of companies that might be directly affected by the Obama agenda and, therefore, by the potential thwarting of it. The first is pharmaceutical companies (Merck and Pfizer are both in the Dow). The second is financial services companies (JP Morgan, American Express, and Bank of America are all in the Dow). As I write this, Merck is up  6 percent, which might suggest a post-Election Day boost. Except that, as the aforementioned Dow Jones piece notes, the far more likely explanation of its surge is the companies own prediction today of “annual earnings growth in the high-single digits on a percentage basis until 2013.” Beyond that, Pfizer and the three financial services companies are all up between zero and two percent—no better than a lot of the non-financial, non-healthcare companies in the Dow, like McDonald’s (up 2.5%) or Walt Disney (up 2.75%).

Dan Gross: Rising U.S. stocks are a sign of growing foreign markets.

CBO brief summarizing 28 gov't programs in support of housing.

Mark Zandi says small business needs public help.

Fed could face pressure from lawmakers to extend housing support.

Being sad may be good for you.

In the latest issue of Grant's Interest Rate Observer (not online), the venerable James Grant, with a big assist from his colleague Dan Gertner, makes the case that expectations of a jobless recovery are seriously misplaced, and that the current recovery will end up looking a lot more like the "jobful" recoveries that preceded the 1991 and 2001 recessions/recoveries. (In the latter two cases, it took three-and-a-half to four years for employment to return to its pre-recession levels; most economists predict it will take about that long this time.)

The Grant/Gertner case is based on tracking the peak for different durations of joblessness. So, for example, in the 1981-2 recession--which saw a rapid return to job growth--the number of people out of work less than 5 weeks peaked two months before the bottom of the business cycle (i.e., the end of the recession); the number of people out of work 5-14 weeks peaked exactly at the bottom, as did the number of people out of work 15-26 weeks; and the number of people out of work 27 weeks and over peaked 7 months after the bottom. It turns out that most postwar recessions/recoveries prior to 1990 followed this pattern: the various durations of unemployment tend to peak not too long after the bottom of the recession itself, and there's a fairly quick overall return to job growth.

On the other hand, the 1990-1 and 2001 recessions/recoveries looked very different. In the first case, the number of people out of work 5-14 weeks peaked 11 months after the end of the recession; the number of people out of work 15-26 weeks peaked 15 months after the end of the recession; and the number of people out of work 27 weeks and over peaked 19 months after the recession. (The corresponding peaks for 2001 came 5, 20, and 22 months after the end of the recession.) And, of course, these recessions corresponded with an agonizingly slow labor-market recovery.

So what do the numbers for the current recession look like? Grant and Gertner assume (following Bloomberg) that the recession ended in May. In that case, the peak for the number of people out of work 5-14 weeks came the same month as the end of the recession; the number of people out of work 15-26 weeks peaked one month after the recession; and we may be about to see the peak for the number of people out of work 27 weeks or more, which would put it in the 6-7-8 month range. Which is to say, barring some sort of double-dip (and pending that final peak), the dynamics of unemployment during this recovery look a lot more like the traditional post-war recovery than the brutal jobless recoveries of the last two recessions. Here's hoping, in any case.

P.S. Of course, if the recession ended later than May, as some think, that would only strengthen the Grant/Gertner case, as the unemployment peaks would come even earlier relative to the bottom of the business cycle.