In the Wall Street Journal today, President Obama’s top economic advisor, Larry Summers, is quoted as saying “the unemployment rate — currently at 9.5% — is 1 to 1.5 percentage points higher than would be expected under one economic rule of thumb.” [emphasis added]
Back on March 16, I reported on this blog of the work done by a former business school professor of mine. The original post can be found here. Professor Harvey just ran the numbers and forecast an 11% to 12% eventual unemployment rate. He reconfirmed that number on July 3rd. You can see his blog post here.
So, Dr. Summers is using economic “rules of thumb” to run the economy? Hasn’t he ever heard of analysis? Is he not terribly good in math? Maybe President Obama ought to try someone else as his top economic advisor. Someone with innate skills in math and science — perhaps a woman. But don’t ask Dr. Summers for any recommendations because chances are it won’t be a woman. Remember, it was Dr. Summers who opined that innate differences might be the reason fewer women excel in math and science.
In Dr. Summers defense, maybe he was just using a rule-of-thumb then, too.
It is deceitful to pretend that there is something sloppy or incompetent about Summers use of the phrase “rule of thumb.”
Economists use rules of thumb all the time. That is part of doing economics. Even in the quote you cited, Summers acknowledges that he is just referring to one interpretation of data. That is why he identified that his numbers were based on a rule of thumb, to allow for the possibility of other interpretations.
Following your link, Professor Harvey’s numbers are “estimates” based on outcomes “suggested” a survey of CEO’s. Probably less scientific than Summers’ models.
Mr. Summers is running for Fed Chief and heis running from the left which requires denial of reality and suspension of the facts.
Unemplpyment calculations in this country are always low given the vagaries of who is looking and how long you have been unemployed along with fulltime/part time stats.
Mike Protack
noman: Summers expected unemployment to stay below 9% by using a “rule of thumb”. Dr. Harvey used actual data. Looking at the unemployment numbers, today… Summers wrong, Harvey right.
Call it what you want… I just call it facts.
Summers expected unemployment to stay below 9% by using a “rule of thumb”.
That’s not what Summers said in the article you cited.
I don’t know who you think is dumb enough to buy this strawman you are selling. It is insulting.
Your “rule of thumb” is a widely accepted relationship called Okun’s Law. It is often correct but not always.
It is not some lazy guess he made up on the fly, as you imply.
Summers was simply noting that the current economy was not following predictions of Okun’s Law. The implication is that we should look for other factors to explain the divergence. This is not a prediction on Summers part; it is just good technical economics, and it is his job.