July Jobs Report Disappoints

After two months of fairly respectable jobs numbers, the July jobs report turned out to be fairly disappointing:

America’s employers added 162,000 jobs in July, fewer than expected, with the previous two months revised downward slightly as well.

The unemployment rate, which comes from a different survey, ticked down to 7.4 percent as people got jobs or dropped out of the labor force.

The job gains reported by the Labor Department on Friday were concentrated in retail, food services, financial activities and wholesale trade. The manufacturing sector gained 6,000 jobs; government employment stayed basically flat.

July represented the 34th-straight month of job creation, but the latest pace of employment gains is still not on track to absorb the backlog of unemployed workers anytime soon. At the average rate of job growth seen so far this year, it would take more than seven years to close the so-called jobs gap left by the recession, according to the Hamilton Project at the Brookings Institution.

Other indicators disappointed, too, with both average hourly wages and the length of the private-sector workweek shrinking modestly in July.

“I honestly didn’t think it would be this hard,” said Keith Aiken, 38, who moved into a homeless shelter in Greensboro, N.C., about a month ago. His employer of more than a decade, a group home for people with disabilities, shut down last August, and he has been looking for work ever since.

After state officials ended North Carolina’s eligibility for federal unemployment benefits last month, Mr. Aiken’s benefits stopped and he was no longer able to pay his rent.

“Hopefully something will come open pretty soon,” he said, noting that he is looking into contract labor in Iraq or Afghanistan. “I like to think I’m down but not quite out yet.”

The outlook for workers like Mr. Aiken is unclear.

Some economists are hopeful that the pace of hiring will pick up once Congress’s latest across-the-board budget cuts have worked their way through the system at the end of the fiscal year on Sept. 30. But battles in Washington over the debt ceiling and further austerity measures mean that the drag from a shrinking government could continue into next year and beyond.

“Whether there’s less fiscal drag, more fiscal drag, or a train wreck, we still really don’t know,” said Joshua Shapiro, chief United States economist at MFR.

Analysts are also questioning the disconnect between job growth and other measures of the country’s economic health. The current rate of job creation would typically coincide with faster-growing economic output.

But the country’s gross domestic product, a broad measure of the production of goods and services, grew at a relatively tepid annual rate of 1.7 percent in the second quarter of this year and 1.1 percent in the first quarter, much less than would be predicted from recent hiring trends.

Trends in output and job growth seem unlikely to stay decoupled for too long, some economists say, in which case output should start to pick up, or job growth should start to slow, or both.

“I think with the economy showing 1 percent growth on average over the last three quarters you’re locked into 150,000 jobs per month for the rest of this year,” said Steven Ricchiuto, chief United States economist at Mizuho Securities.

At first glance, of course, the drop in the unemployment rate looks like a good thing. In reality, though, it’s clear that the drop in the unemployment rate is due in large part to the fact that people continue to drop out of the labor market due to lack of success, not because they’re finding jobs.  The extent to which labor force participation has collapsed since the beginning of the recession can be easily seen in this chart:

Labor Force Participation

 

Undoubtedly, some portion of this drop in labor force participation can be attributed to retirement, early or otherwise, but that clearly can’t explain the entire drop off, nor can it explain why it’s taken so long for the rate to rise to anything close to where it was before the recession began. We’re living in a world where large numbers of people have simply given up on the labor market, and it’s hard to see any reason why they’ll be returning any time soon.

FILED UNDER: Economics and Business, Quick Takes
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. C. Clavin says:

    This is what you want…why are you dissapointed?
    What did you expect to happen when your cute little libertarian dream of shrinking Government came true? An economic boom?

  2. C. Clavin says:

    It occurs to me that instead of being all disappointed…that maybe you should question the feasibility of your ideology.

  3. stonetools says:

    There should really be two unemployment reports-this one and another one that indicates what the unemployment rate would be if the Republicans had not blocked the jobs programs proposed by the President.
    Meanwhile on Twitter, Doug is saying stuff even more economically literate:

    Nonsense. The Obama White House claimed their $800 billion “stimulus” would solve our problems. It didn’t @JimPethokoukis

    Maybe Doug could link to where the White House said that. He can take all the time he wants.

  4. PJ says:

    @C. Clavin:

    It occurs to me that instead of being all disappointed…that maybe you should question the feasibility of your ideology.

    Somalia is a booming success!

  5. C. Clavin says:

    @ Stonetools…
    Maybe Doug could give us his ideas for growing the economy…while at the same time slashing the Public Sector.
    If he could illustrate those ideas with historic precedents…that would be incredibly valuable too.

  6. stonetools says:

    @C. Clavin:

    Since 2010 Congress , by blocking further stimulus and by instituting spending cuts and government layoffs , have instituted the de facto austerity program that conservatives say would restore economic growth by establishing “confidence” that the government would restrain spending.So where are the jobs? It turns out the establishing such confidence doesn’t actually increase aggregate demand, which is why businesses aren’t hiring. Indeed, it depresses aggregate demand, as Keynes pointed out oh, 80 years ago.

    However , since Obama is President, somehow the failure of yet another conservative policy becomes Obama’s fault , although Obama has been urging more stimulus. Its heads I win, tails you lose. And then there is the budget crisis the Republicans are going to engineer in fall.
    The good thing is that Obama is out there calling for a new jobs program. He is at least getting out in front this time instead of reacting.

  7. James in Silverdale, WA says:

    I do not believe Mr. Mataconis is disappointed even a little bit.

  8. C. Clavin says:

    Stonetools…
    I’m not even arguing for stimulus…but just the normal course of action.
    http://www.nytimes.com/interactive/2012/05/04/business/economy/off-the-charts-shrinking-government.html?ref=economy&_r=0

  9. Gromitt Gunn says:

    From the embedded article:

    “I honestly didn’t think it would be this hard,” said Keith Aiken, 38, who moved into a homeless shelter in Greensboro, N.C., about a month ago. His employer of more than a decade, a group home for people with disabilities, shut down last August, and he has been looking for work ever since.

    After state officials ended North Carolina’s eligibility for federal unemployment benefits last month, Mr. Aiken’s benefits stopped and he was no longer able to pay his rent.

    Let’s be totally clear – this man is living in a homeless shelter because North Carolina unilaterally decided to decrease the time people can receive unemployment benefits, even though it wasn’t costing them anything to keep them at the current Federal levels. And it is highly likely that the only reason he had to go on unemployment in the first place is because the State decided to cut funding for group homes for the disabled.

  10. inhumans99 says:

    I noticed the report said that manufacturing picked up and lack of construction jobs were a drag on the economy, could it be that repairing the ageing infrastructure in this country would be a great way to pick up the pace of hiring, why yesiree bob, imho, I do think it would help!

    We know that Google and Apple are starting to manufacture more and more doodads in this country, so wouldn’t it be nice if folks did not have to worry about a bridge literally falling on them or dropping out from beneath them as they are on their way to create these “Made In America” gadgets?

    Everyone hates the term “shovel ready” jobs, but most reasonable folks will not argue that many bridges, overpasses, etc., are well past their date of expiration, and can use an immediate retrofit or two. These construction projects would be long-term operations, and would keep people employed for an extended length of time.

    I am more of a lurker, so I am not looking to get into a long drawn out debate with Jenos, Erik, and the rest of the conservative crew on this great blog, just wanted to throw my opinion into the mix (and yes, I KNOW what people say about opinions, they are like (self censored), because everyone has one, fair enough folks, fair enough).

  11. Cal American says:

    What exactly is “OUTSIDETHEBELTWAY” about Doug? He reads like a Conservative Washington insider who has just been issued the latest version of “the script”.

  12. Todd says:

    After 24 years in the military, I’m now in the job market, and it’s not pretty. When applying for a job evokes some of the same emotions as buying a lottery ticket, there’s a problem. In more normal times, I’d have multiple options to choose from; instead I’m just hoping to find something reasonable by January.

    But I still remember one of Doug’s first posts about the sequester, where he claimed there would be no effect … and even if there was, he was willing to “take the hit” .. so it’s all good.

  13. JKB says:

    ….again.

    Need to add that to the headline. And that is with the soft bigotry of low expectations. We don’t expect much in jobs these days but can’t even meet those reduced standards. And with such low expectations, DC hardly puts in any effort at all these days.

    On the bright side, if, big if, we can elect a Reagan-like president in 2016, who pushes back against the regulatory state and frees up the markets by removing the social engineering leaving only government working to control bad acts, then they will appear god-like by simply being competent. Say what you want about Obama but the first President who is merely competent in pushing legislation, an advocate for focused regulation and free markets will appear wondrous by comparison. A good deal of Reagan’s allure came from him being not-Carter, or even Ford or Nixon domestically.

  14. stonetools says:

    @Gromitt Gunn:

    t’s be totally clear – this man is living in a homeless shelter because North Carolina unilaterally decided to decrease the time people can receive unemployment benefits, even though it wasn’t costing them anything to keep them at the current Federal levels. And it is highly likely that the only reason he had to go on unemployment in the first place is because the State decided to cut funding for group homes for the disabled.

    I truly hope that the Democrats in North Carolina tell it just as clearly as you did, and that North Carolinians vote out those sadists that implemented those inhumane policies.Its really time for Democrats to be a lot blunter and clearer about Republican policy than they have been so far.

  15. HarvardLaw92 says:

    @JKB:

    who pushes back against the regulatory state and frees up the markets by removing the social engineering leaving only government working to control bad acts

    You know, I keep hearing this. Free markets! Free markets!

    Nevermind that the logical outcome of a shift to a truly free market will be a steady (and steadily increasing) stream of jobs flowing offshore in search of cheaper labor. You guys live in the world of the imaginary – if you build it, they’ll come!

    So, enlighten me – exactly which regulations need to be eliminated? No need to actually explain HOW eliminating them will be beneficial (although we’ll certainly be getting around to that discussion). At this point I’ll settle for a list.

  16. HarvardLaw92 says:

    @JKB:

    A good deal of Reagan’s allure came from him being not-Carter, or even Ford or Nixon domestically.

    Why do you guys keep genuflecting to Saint Ronald of Burbank, when his presidency serves as the antithesis of every principle that you ostensibly hold dear? The man’s presidency single-handedly validated Keynes.

    It ballooned spending, ballooned federal debt and ballooned the size of the federal government, all while raising taxes. You’re free, of course, to create whatever imaginary heroes you like, but I’d think that you might pick starting material that’s a little less (like less than 180 degrees) apart from your ostensible belief system.

  17. stonetools says:

    @JKB:

    A good deal of Reagan’s allure came from him being not-Carter, or even Ford or Nixon domestically.

    A good part of Reagan ‘s allure came from the American public being totally deluded about the effect of Reagan’s policies. Now that we have seen the results of where Reagan’s policies can lead, we can reassess whether total deregulation of the markets, sharply cutting taxes on the rich, etc., is the wonderful cure all Reagan said it would be.
    BTW, the economy did better and created more jobs under Clinton than it did under Saint Ronaldus. Just sayin’.

    A titbit:
    Under Reagan, average unemployment 7.54 per cent
    Under Clinton, average unemployment 5.20 per cent.

  18. HarvardLaw92 says:

    @stonetools:

    It will be an uphill battle. The first thing that NC’s new Republican majority did after taking office was, of course, to gerrymander the districts.

    It then wasted no time in passing one of the most egregious set of voter suppression laws around. I’m pretty afraid that the good people of NC will be stuck with this self-imposed lunacy until 2020 at the earliest.

  19. Tony W says:

    @JKB:

    A good deal of Reagan’s allure came from him being not-Carter, or even Ford or Nixon domestically.

    @stonetools:

    I truly hope that the Democrats in North Carolina tell it just as clearly as you did, and that North Carolinians vote out those sadists that implemented those inhumane policies.Its really time for Democrats to be a lot blunter and clearer about Republican policy than they have been so far.

    My take – Reagan’s allure came from having a responsible and reasonable opposition in Congress who did not try at every turn to make him appear incompetent (he did that quite well on his own, thank you very much).

    The R’s have dragged this fight into the mud, it is way past time for the D’s to step up.

  20. beth says:

    @HarvardLaw92: Don’t hold your breath waiting for an answer. They either ignore the question or come up with a laundry list of things like “get rid of the EPA and all its regulations”. Yeah, let’s gut all the clean air/water bills and business will pick right up (of course we’ll all be dead but hey. life’s full of tradeoffs). Or, like a business owning friend of mine does, will list a bunch of local/state regulations that have nothing to do with the federal government.

  21. C. Clavin says:

    “…On the bright side, if, big if, we can elect a Reagan-like president in 2016, who pushes back against the regulatory state and frees up the markets by removing the social engineering leaving only government working to control bad acts, then they will appear god-like by simply being competent…”

    Do you know anything about the Reagan presidency?
    Reagan balloned the deficit…raised taxes…and grew the Government.
    All the things you claim not to want.
    Maybe you only know how to repeat what you are told…and don’t really know what you want.

    Pay attention Junior…If we were growing today Government like Reagan grew Government then…we wouldn’t even be having this discussion because UE would be sub 6% and dropping…the GDP would be 3% or more and growing.

    You Republicans want to argue for; less regulation which helped cause the Bush Contraction…low taxes which are historically low now…and less Government spending which is currently happening…well goldangit…that’s exactly where we are at right now…and you aren’t happy with the results. WTF do you want?
    How much less regulation, lower taxes, and less spending is finally going to do the trick?
    When are you going to admit Republican theories are completely baseless and fatally flawed???

  22. HarvardLaw92 says:

    @beth:

    Hence my request – I have a tendency to hand people the rope with which to hang themselves. It’s far more effective if you build your own box.

  23. SC_Birdflyte says:

    At a Chamber of Commerce meeting this morning, we learned that SC has a transportation needs list of approximately $ 48 billion. Projected spending for FY 2014: $ 591 million. Our gasoline tax is 3rd lowest in the nation.

  24. HarvardLaw92 says:

    @SC_Birdflyte:

    Not to worry. Haley & Friends will certainly have no problem creeping up to the federal transportation trough, while simultaneously professing to hate federal spending.

    There is a reason that states like SC are such huge net beneficiaries from government spending – they get to impose lower taxes because folks like me up in NY are footing the bill for the difference.

    I do have to express admiration for Southern politicians in that regard – nobody does the side-step better than they do.

  25. al-Ameda says:

    God how I miss those days back in 2008 and 2009 – when the economy was shedding jobs at rates ranging from 500,000 to 775,000 per month. Now those were truly disappointing jobs reports.

  26. Pinky says:

    Undoubtedly, some portion of this drop in labor force participation can be attributed to retirement, early or otherwise…

    Actually, the opposite is true. The labor force participation rate among the over-50’s has been increasing as people put off retirement. The entire decline in the labor force participation rate is from people under 50, and the younger, the bigger the drop.

  27. HarvardLaw92 says:

    @Pinky:

    The entire decline in the labor force participation rate is from people under 50, and the younger, the bigger the drop.

    (Reputable) source please.

  28. Pinky says:

    @HarvardLaw92: CPS. I forget which table.

  29. JKB says:

    @beth: @HarvardLaw92:

    who pushes back against the regulatory state and frees up the markets by removing the social engineering leaving only government working to control bad acts

    I must say HavardLaw92’s response is a genuine example of the level of reading comprehension and thought we’ve come to expect from the Harvard trained, i.e., deeply flawed.

    So please point to where I said we should abolish regulation? Refine, get rid of the how and concentrate on outcome.

    As for example? Well, the tax laws are almost totally social engineering with a bit of cronyism thrown in, so I’ll go with Flat tax. There are many areas to be refined, but it is in the weeds and requires real study with real discussion. But if the focus is on setting government being an outrider keeping everyone going in the right direction instead of trying to take the bull by the horns so that it can only follow a narrow path, then we could really update the way things are done and probably have better success in achieving good outcomes. Downside, fewer opportunities for graft and less need for paying off Harvard lawyers to make quiet deal with their roommate from college for a special sign off.

    I know, rule of law with the law equally available and applied to everyone….that’s crazy talk.

    And hey, Reagan dug us out of a big whole and set the economy for the 1990s boom. Maybe in 10 years we’ll be back saying similar about Obama but probably only in the government controlled media, not by objective observers.

  30. HarvardLaw92 says:

    @JKB:

    So please point to where I said we should abolish regulation? Refine, get rid of the how and concentrate on outcome.

    Please point to where I said that you did? I simply asked you for a list of specific regulations which need to go.

    As for example? Well, the tax laws are almost totally social engineering with a bit of cronyism thrown in, so I’ll go with Flat tax. There are many areas to be refined, but it is in the weeds and requires real study with real discussion. But if the focus is on setting government being an outrider keeping everyone going in the right direction instead of trying to take the bull by the horns so that it can only follow a narrow path, then we could really update the way things are done and probably have better success in achieving good outcomes. Downside, fewer opportunities for graft and less need for paying off Harvard lawyers to make quiet deal with their roommate from college for a special sign off.

    WTF does this gobbledygook even mean?

    Hint: for a flat tax to remain revenue neutral, the imposed rate will need to be somewhere in the neighborhood of 24%. The vast majority of taxpayers do not pay an actual tax rate of >= 24%. I do.

    Short version: your taxes will skyrocket while mine drop. Thanks for thinking of me I guess?

    And hey, Reagan dug us out of a big whole and set the economy for the 1990s boom.

    More gobbledygook talking points. Reagan dug us INTO a massive hole. His admin TRIPLED the federal debt that existed when he assumed office. He set the economy for the 1990s boom? Um, no. He set the economy for the Bush I recession.

    But hey, I’m a fair guy, Explain to me exactly how Reagan’s policies resulted in a boom in the 1990s. Be specific, and don’t use gobbledygook.

    Ball’s in your court.

  31. HarvardLaw92 says:

    @Pinky:

    I see. Get back to me when you’ve found it.

  32. beth says:

    @JKB: Again, you don’t answer the question. You cite tax laws as an area for reformation, something I doubt you’ll get much argument from from any liberal. However, tax laws are not the same as the job killing regulations conservatives love to rail against, but never specify.

  33. Pinky says:

    @HarvardLaw92: Sorry. Table 3.3, BLS, not CPS.

  34. HarvardLaw92 says:

    @Pinky:

    A couple of points:

    1) That table only provides real data through 2010, which is three years old now.

    2) It tends to mislead people because the percentages displayed are demographical, not populational.

    In other words, if you have a population of 100 people, 10 of whom are over 65, and 2 of those over 65’s go back to work, you’ve seen a 20% shift among over 65 year olds, not over the entire population.

    You also have to factor out the effects of changes to the retirement age made in 1983, which are still being implemented, and the fact that these retiring boomers had seen massive hits to the two most traditional sources of retiree wealth – retirement accounts and real estate.

    Not saying that more old people aren’t remaining in the workforce longer – they are, for a variety of pretty glaring and understandable reasons that can’t be neatly packaged into conservative rhetoric. I mention it just in passing, as well, but the retention of older workers often stifles the market for younger replacements. All isn’t as is being advertised.

  35. C. Clavin says:

    Yeah, Pinky…that chart doesn’t say what you think it says.

  36. C. Clavin says:

    “…I’ll go with Flat tax…”

    Russia has a flat tax…you should move there.
    The Democracy there is more to your liking anyway.

  37. C. Clavin says:

    “…And hey, Reagan dug us out of a big whole and set the economy for the 1990s boom…”

    Whoa…talk about “Short-Fiction Masterpieces”.
    You should stop mindlessly repeating baseless Republican myths, Pumpkin.

  38. stonetools says:

    @HarvardLaw92:

    You have to understand where the right wingers are coming from. They have NO answers to issue of how to decrease unemployment-zip, zilch, nada. Their only recourse is to fall back on the typical conservative nostrums for everything-cutting taxes (which they euphemistically call “tax reform”) or deregulation.
    Now you can’t rationally argue that tax reform or deregulation can help with the current unemployment problem, which is why Doug doesn’t even bother to answer these posts. He knows he’s got nothing. (JKB et al. aren’t smart enough to see this, so they trot out the usual nostrums).
    Doug has moved on to simply shrugging his shoulders and saying that the current unemployment rate is like bad weather-the “new normal” we can’t do anything about. That’s nonsense too -the solution is the same that Reagan used to grow his way out of HIS recession-fiscal stimulus. Fortunately for him, he had a Congress that understood the facts of economic life-a Democratic majority Congress, I might add.

  39. Pinky says:

    @stonetools: If I could sum up your argument, then, it would be “nyaa nyaa nyaa.”

  40. C. Clavin says:

    @ Stonetools…

    “…Doug has moved on to simply shrugging his shoulders and saying that the current unemployment rate is like bad weather-the “new normal” we can’t do anything about…”

    Actually to a certain extent Doug is right.
    This is the new normal.
    In the old normal the Public Sector grew. That was during the Reagan, Bush 41 and Bush 43 administrations.
    Now Obama is President and Republicans do not want to have the Public Sector grow. So that’s the new normal.

  41. stonetools says:

    @Pinky:

    Instead of trying ( and failing) to ” sum up” my argument, why don’t you try responding to HL92 and C. Clavin. That should keep you busy and out of mischief.

  42. stonetools says:

    @C. Clavin:

    Now Obama is President and Republicans do not want to have the Public Sector grow. So that’s the new normal.

    Well at least until the black usurper leaves the White House. Then Republicans will rediscover their love for “infrastructure spending” , “weapons programs crucial to maintaining technological superiority” and “maintaining military readiness” through the maintenance and expansion of military bases in the South

  43. wr says:

    @JKB: “There are many areas to be refined, but it is in the weeds and requires real study with real discussion. But if the focus is on setting government being an outrider keeping everyone going in the right direction instead of trying to take the bull by the horns so that it can only follow a narrow path, then we could really update the way things are done and probably have better success in achieving good outcomes”

    And JKB wins the “conservative” of the year award. First he says we need to vastly roll back regulations. Then, when pressed as to which regulations he’d undo, he comes up with a list of cowboy cliches and some nonsense about a flat tax which he then says is too hard for him to figure out.

    Yes, this is exactly what we need — someone who will take the bull by the horns and steer us down the right path. What a great thinker you are. JKB. If only intellects like yours were in charge again, as they were from 2000 to 2008…

  44. Pinky says:

    @stonetools: I’m ok with where that discussion stands. HL accused me of a fallacy in reasoning, and looking over the way I said it, I can’t argue with him. I was trying to make the point that, along with the natural decline in labor force participation in older workers, there’s a disturbing trend with older workers staying on longer and younger workers not entering the work force. I hope that someone reading over the sequence of comments would learn something from mine, and be corrected from getting the wrong impression of it from HL’s. I’m not in a urinary competition here.

  45. HarvardLaw92 says:

    @Pinky:

    Agreed. It’s not weenie and ruler time. You raised a valid point – we very much do have a problem, and older people working longer and longer is a vivid symptom of that problem. I just don’t think it can be reduced to simple explanations or solved with simple answers. Complexity is a virtue, if for no other reason than it forces both sides to come to the table with more than the finger.

  46. stonetools says:

    @Pinky:

    With all due respect, I don’t think your response to my arguments was in the spirit of “not being in a urinary competition.” Maybe if you could try again?

  47. Kari Q says:

    Labor force participation by age is a question that’s been studied by economists. Calculated Risk reports on it frequently, and the aging population is reducing the labor force participation rate. This is from a Merill Lynch report:

    We can isolate the effect of demographics on the LFPR by looking at the participation rates by age cohort. The aggregate LFPR is equal to the summation of each individual age cohort’s LFPR weighted by its share of the population. … This suggests that half of the 2.7pp decline in the LFPR since the onset of the recession can be explained simply from the aging population. In other words, holding all else equal – meaning no business cycle dynamics – the LFPR would be at 64.6% today compared to the actual rate of 63.3%. The remaining 1.4pp drop is due to some combination of secular and short-term cyclical factors.

    also:

    The LFPR for 16 to 19 year olds plunged to 34.3% last year from 52% in 2000.

    Elsewhere, he reported that many of these younger potential workers are getting more education and training instead of entering the labor force immediately.

    It appears that the decline in the labor force participation is partially cyclical, as the recession has driven people out of the labor market, partially age related as the boomers retire, and partially a reflection of the increase in college and post-secondary education among the young.

  48. anjin-san says:

    @ JKB

    if, we can elect a Reagan-like president in 2016, who pushes back against the regulatory state and frees up the markets by removing the social engineering leaving only government working to control bad acts,

    Well, we had eight years of Bush. The message to business coming out of his administration was basically “Just make money. We don’t care how you do it.”

    How did that work out, jobs wise?

  49. anjin-san says:
  50. JKB says:

    @anjin-san:

    Sadly, Bush was not Reagan-like. He foolishly imposed the Department of Homeland Security on us. As well as the No Child Left Behind fiasco which by centralizing schooling even further was the worst idea and contrary to every bit of knowledge about principal-agent and the fact that local knowledge is key to good operation of an organization.

    Francis Fukuyama just wrote about this in a current series on the nature of effective government:

    This macro observation can be applied on a micro organizational level as well: organizations need to decentralize and delegate authority because it is the lower levels of the organization that have direct access to the local knowledge that is necessary to get the job done.

    These two factors, expertise and local knowledge, then explain the need for bureaucratic autonomy, both in private and public sector organizations. Even though the formal organization chart says the principal is the boss, it is the agent who often is better suited to making decisions. All well-functioning organizations thus have to solve the problem of delegated discretion, in which agents are allowed sufficient autonomy while still remaining under the broad control of the principal.

  51. anjin-san says:

    Sadly, Bush was not Reagan-like.

    Sure he was. They both blew up the deficit and grew the government. And you are conveniently forgetting that Vlocker, the architect of the Reagan recovery, was a Carter appointee.

  52. anjin-san says:

    decentralize and delegate authority because it is the lower levels of the organization that have direct access to the local knowledge that is necessary to get the job done.

    Local governments can be every bit as inept and corrupt as the federal government. If you don’t know that, you need to get out more.