Reading Ben Stein's discussion of the economy really makes you wonder what country he lives in. Today's column is dedicated to vindicating his prediction last year that the problems coming from the mortgage market would be relatively minor and easily contained. It includes a number of wondrous "no big deal" comments. For example, the Fed had to step in and rescue Fannie and Freddie from bankruptcy -- no big deal. We've had only one major bank (IndyMac) fail -- no big deal. One of the major investment banks, Bear Stearns, collapsed -- no big deal. Of course those minimizing the economy's problems last summer expected such commonplace events. We also have the great line "employment in June was considerably less than 1 percent below its all-time peak in November 2007." You've got to really really love that one. Does Stein not know that economies add jobs through time. In other words, we generally expect that in any given month we have more jobs that we ever did before. To be 1 percent below our all-time peak, 7 months after that peak is really quite bad. In addition, Stein misrepresents the meaning of the employment data. Contrary to what he claims, the numbers do not show "that 94.5 percent of the people who wished to be employed and were capable of work were employed." The employment rate (EPOP), the percentage of the non-institutional population that is actually employed, is more than 2 full percentage points below its peak in 2000. This corresponds to more than 5 million fewer people employed compared with a situation in which the EPOP had stayed the same. We can either believe that these people just developed a distaste for working in the last eight years, or alternatively that they are not working because the labor market does not present as many good job opportunities today as it did in 2000. The latter seems more plausible to me, but readers can make up their own minds. In singing the praises of the economy, Stein also neglects to mention the loss of $5 trillion in real housing wealth over the last two years (almost $70,000 per homeowner), but that's probably a small point.
--Dean Baker
