Monday, January 26, 2015

Links for 01-26-15

    Posted by on Monday, January 26, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (24)


    Sunday, January 25, 2015

    'Nominate A Qualified Undersecretary Of Domestic Finance Now'

    This is from Simon Johnson (I didn't follow the debate over the qualifications of Antonio Weiss, the administration's nominee for Undersecretary for Domestic Finance, as closely as I should have, so I don't have much to say about that part of what is said below. But I very much agree with the need to find someone who will stand up for financial reform):

    Nominate A Qualified Undersecretary Of Domestic Finance Now: The Obama administration urgently needs to nominate a qualified individual as Undersecretary for Domestic Finance at the Treasury Department. ...
    The ... White House pushed hard for the confirmation of a Wall Street executive, Antonio Weiss, as Undersecretary for Domestic Finance. (In mid-January, in the face of continuing legitimate questions about his qualifications, Mr. Weiss withdrew himself from consideration. ...) ...
    The House Republicans show every sign of doing what they can to help Citigroup, JP Morgan Chase, and others remove all effective restrictions on megabanks’ ability to take on large amounts of risk. The big banks want to return to the days of executives getting the upside when things go well and the taxpayer left holding the bag whenever disaster strikes.
    The Treasury Department urgently needs to focus intellectual and administrative attention on the substance of defending Dodd-Frank, including shoring up support with Democrats, resisting the political onslaught led by House Republicans, and reaching out to senators of both parties who are willing to help. A key piece of becoming properly organized – intellectually and in terms of liaison with Congress – involves appointing a credible, qualified Undersecretary for Domestic Finance who hits the ground running and really knows what he or she is talking about. ...
    Mr. Weiss’s principal problem was simple: he ... did not have the relevant general domain expertise and also lacked a sufficiently convincing grasp of the economic and political details surrounding financial regulation.
    The search now should be quite straightforward. Find someone with relevant experience and a good track record – including statements and actions that are on the public record and that demonstrate willingness to challenge the megabanks’ worldview. ...
    Nominating a credible Undersecretary for Domestic Finance quickly is an essential step towards helping the Treasury Department most effectively serve the American people – and towards preventing the collapse of financial reform.

      Posted by on Sunday, January 25, 2015 at 02:08 PM in Economics, Financial System, Regulation | Permalink  Comments (15)


      Who are the Radicals in Europe?

      Gloomy European Economist, Francesco Saraceno:

      Who are the Radicals in Europe?: As I write the Greek people are voting.  I was puzzled in the past weeks by the fear (more in the media than in markets, actually) of a “radical” left win. Puzzled, because the radical and ideological policy makers do not seem to live in Greece, today. On January 20 I wrote a piece for the Greek website Macropolis, where I claimed that we should not expect an Armageddon if Syriza wins, but rather some welcome fresh air.  I reproduce the piece here: ...

      To give you the flavor of his remarks:

      ... On closer inspection, it seems far more radical the position of those who, despite having grossly underestimated the negative effects of austerity, ask for more of the same; of those who insist on advocating supply-side reforms to cope with a chronic lack of demand; and of those who boast having achieved a balanced budget one year ahead of forecasts, when Europe would benefit from a recovery of domestic demand in Germany.
      What will happen then, if “radical” Syriza will win the election? Actually not much. ...

      [In case you missed them, see also an interview with Jamie Galbraith, The Prospects and Consequences of a Possible Syriza Government and Let Us Hope for a Syriza Victory by Simon Wren-Lewis.]

        Posted by on Sunday, January 25, 2015 at 09:55 AM in Economics, Politics | Permalink  Comments (68)


        Fiscal Cliff Forecasts

        Robert Waldmann:

        2013 and all that II: A fairly large number of economists have argued that Keynesians predicted that the fiscal cliff January 2013 and sequestration March 2013 would cause a recession. A fairly large number of Keynesian economists have denied personally making that prediction (including the oversigned). Only following a complaint in comments will I look up all the links at which I just hinted.
        I think it is fairly easy to decide if the orthodox Keynesian view was that 2013 fiscal contraction would cause a recession. The reason is that official forecasts are Keynesian. The forecasting models range from new Keynesian with added epicycles for the Bank of England to paleo Keynesian for the Fed.
        So I decided to look up forecasts for 2013. The advantage is that official forecasts include a precise guess of the expected value of future variables...

          Posted by on Sunday, January 25, 2015 at 09:54 AM in Economics, Fiscal Policy | Permalink  Comments (25)


          Links for 01-25-15

            Posted by on Sunday, January 25, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (74)


            Saturday, January 24, 2015

            US/Euro Foreign Exchange Rate

            “A strong dollar has always been a good thing for the United States,” Treasury Secretary Jacob J. Lew declared not long ago, a position that he has restated frequently.

            In 2011, Timothy F. Geithner, then the Treasury secretary, said, “A strong dollar will always be in the interest of the United States.”

            But is it really a good thing — for the United States and the global economy?

              Posted by on Saturday, January 24, 2015 at 01:45 PM in Economics, International Finance | Permalink  Comments (70)


              'Throw More Money at Education'

              This was retweeted a surprising number of times:

              Throw More Money at Education, by Noah Smith: It’s become almost conventional wisdom that throwing more money at public education doesn’t produce results. But what if conventional wisdom is wrong?
              A new paper from economists C. Kirabo Jackson, Rucker Johnson and Claudia Persico suggests ... that spending works. Specifically, they find that a 10 percent increase in spending, on average, leads children to complete 0.27 more years of school, to make wages that are 7.25 percent higher and to have a substantially reduced chance of falling into poverty. These are long-term, durable results. Conclusion: throwing money at the problem works.
              Here’s the hitch: The authors find that the benefits of increased spending are much stronger for poor kids than for wealthier ones. So if you, like me, are in the upper portion of the U.S. income distribution, you may be reading this and thinking: “Why should I be paying more for some poor kid to be educated?” After all, why should one person pay the cost while another reaps the benefits?
              Well, let me try to answer that. There are several good reasons. ...

                Posted by on Saturday, January 24, 2015 at 11:10 AM in Economics | Permalink  Comments (19)


                'Did the Keynesians Get It Wrong in Predicting a Recession in 2013?'

                Dean Baker:

                Did the Keynesians Get It Wrong in Predicting a Recession in 2013?:  I have had several readers send me a blogpost from Scott Sumner saying that the Keynesians have been dishonest in not owning up to the fact that they were wrong in predicting a recession in 2013. The argument is that supposedly us Keynesian types all said that the budget cuts and the ending of the payroll tax cut at the start of 2013 would throw the economy back into recession. (Jeffrey Sachs has made similar claims.)
                That isn't my memory of what I said at the time, but hey we can check these things. I looked at a few of my columns from the fall of 2012 and they mostly ran in the opposite direction. The Washington insider types were hyping the threat of the "fiscal cliff" in the hope of pressuring President Obama and the Democrats to make big concessions on Social Security and Medicare. They were saying that even the risk of falling off the cliff could have a big impact on growth in the third and fourth quarter of 2012.
                My columns and blogposts (e.g. here, here, here, here, and here) were largely devoted to saying this was crap. I certainly agreed that budget cutbacks and the end of the payroll tax cuts would dampen growth, but the number was between 0.5-0.8 percentage points. This left us far from recession. (All my columns and blogposts from this time are at the CEPR website, so folks can verify that I didn't do any cherry picking here.)
                I know Paul Krugman is the real target here, not me, but we've been seeing the economy pretty much the same way since the beginning of the recession. If he had a different story at the time I think I would remember it. But his columns and blogposts are archived too. I really don't think anyone will find him predicting a recession in 2013, although I'm sure he also said that budget cuts and tax increases would dampen growth. 
                Anyhow, I'm generally happy to stand behind the things I've said, and when they are proven wrong I hope I own up to it. But I don't see any apologies in order. No recession happened in 2013 and none was predicted here.

                I don't recall predicting a recession either (the "they" intended to tar all Keynesians refers to just a few people), just that it would be a drag on growth (the CBO predicted 0.6%). In any case, not much can be said unless one takes the time to estimate a model, use it as a baseline, and then ask the model how the economy would have done in an alternative world where policy was different. Just because we still had growth after the budget cuts does not prove or disprove anything. Even if growth rises under austerity, you can't say it would not have risen a bit more more without austerity (all else is far from equal) unless you have done the hard work of estimating a defensible model and then asking it these questions. Similarly, you can't say much about the degree of monetary offset unless you have taken the time to do the econometrics to support it. But with changes this small -- the impact was predicted to be much less than one percent of growth by most models -- it is very hard to get statistically significant differences in any case.

                The problem is that there is no model that all economists agree is "best" for these purposes, and the answer one gets depends upon the particular choice of models. Choose a model that delivers small fiscal multipliers and you get one answer, use a model with bigger multipliers and the answer changes. But even the models with the largest multipliers did not predict a recession, only a drag on growth (generally less than one percent) so the fact that we still had growth says nothing about the impact of the policy, or the degree of monetary offset.

                  Posted by on Saturday, January 24, 2015 at 10:32 AM in Econometrics, Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (52)


                  Links for 01-24-15

                    Posted by on Saturday, January 24, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (143)


                    Friday, January 23, 2015

                    'Who is Moving Out of the U.S. Labor Force?'

                    Tyler Cowen:

                    Who is moving out of the U.S. labor force?: Read the recent testimony of Robert E. Hall (pdf):

                    Most of the decline in participation occurred among teenagers and young adults. The finding that these effects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefit programs, because these programs, especially food stamps, are only available to families with incomes well below the median.

                    So what is going on here? Could it be “culture”? Hall cites, suggestively, time use surveys showing that sleep and personal consumption of video are up strongly.

                      Posted by on Friday, January 23, 2015 at 10:03 AM in Economics, Social Insurance, Unemployment | Permalink  Comments (65)


                      'The Prospects and Consequences of a Possible Syriza Government'

                      Jamie Galbraith in interviewed by Roger Strassburg on the upcoming Greek election and the prospects and consequences of a possible Syriza government:

                      Roger Strassburg:  Can you tell us a little about what Syriza has for plans if it were to get elected, what the platform is.  You are an advisor of Tsipris currently?
                      James Galbraith:  I'll start out by qualifying my role.  I consider that I'm a friend of the movement for a change of government in Greece, and specifically a friend of Alexis Tsipras.  I've been a colleague for the last couple of years of Yanis Varoufakis, who is now running for parliament in Athens at the moment on the Syriza ticket.  He was preselected by Syriza for what is the largest multi-seat constituency.  The night before the vote in Parliament, where the third round of the presidential selection precipitated this election, I sent a personal note of encouragement to Alexis Tsipras, which they released to the Greek press.   So my position is known in Greece.
                      What is the platform of the Syriza movement?  Let me just summarize it without going into the details of the various measures that they propose to take. I think the fundamental point is that the Greek nation has been subjected to conditions for the continuing provision of financing, including the restructuring of the debt in 2012.  These were the Memorandums, which are manifestly unsuccessful as an economic recovery program.  That point is now abundantly clear to the Greek electorate, which is why the party that has rejected those conditions is in the leading position.  So the basic provision of the Syriza platform is that those conditions will no longer be agreed to as a position of the Greek government.
                      Roger Strassburg:  Which means?
                      James Galbraith:  Let me carry on for a little bit on how best to think of those provisions.
                      The superficial presentation one reads in the press is:  financial assistance, but in order to qualify for it you have to make certain reforms, and the point of the reforms is to put your economy back into a position of being competitive and on the path of growth.  And that's been going on for six years, and the results are what we see:  Instead of a growing economy you have an economy and a society stressed to the point of breaking, with massive unemployment and the emigration of substantial parts of the professional class especially, and the weakening of the core social institutions, education, health care, urban services and everything else to the point where they are actually a barrier to investment and economic success.  And you have the impoverishment of large sections of the population, especially the elderly population.  It's at every level a failure.  Then one has to ask, was there a bona fide program for economic recovery in the first place?  And I think it's clear that even if those who argued for this program believed it might produce recovery and growth, these objectives were very secondary or even tertiary considerations in their minds.  It is clear that the policies that were specified as a condition were at bottom not recuperative, but punitive in character.  Punitive in character against the whole Greek nation, and on an improper principle of collective responsibility for the admitted mismanagement of the affairs of the Greek state by previous governments and by the Greek political class.
                      Roger Strassburg:  Schäuble has said as much.
                      James Galbraith:  Yes.  If you read Timothy Geithner's memoir, it's clear that he was very struck by this attitude, which reflected a moralizing indifference to the future of Europe. 
                      Roger Strassburg:  That's the attitude of most of the German government and the press.
                      James Galbraith:  That fact was not concealed by them.  I'm obviously not one of most the unqualified admirers of Secretary Geithner, but on this point, clearly he had recorded an accurate perception and an admirable reaction to that way of conceiving things.
                      Roger Strassburg:  He was rebuffed by the Europeans.
                      James Galbraith:  Yes, sure he was.  So we have it on the record in an irrefutable way that it was a punitive rather than a recuperative strategy.  I don't think anybody can really argue otherwise.  A punitive strategy that was in place partly because of the interests of creditors in getting assets at fire-sale prices.  That's basically a debt collector's attitude.  And partly because of the internal politics of the German state at that time, in which a moralizing narrative was politically more useful than a more generous one would have been.
                      Roger Strassburg:  I don't think that's really changed.
                      James Galbraith:  Perhaps not, but it is one of the considerations that went into the implementation of the policy in the first place.
                      Roger Strassburg:  Of course now they can't change that because they've essentially given the public...
                      James Galbraith:  Let's get to the question of whether things can change a little bit down the road.  I think one negotiates with people you disagree with.  You don't negotiate with people you agree with.  We'll just establish this as the starting point for the conversation.  In that case, having recognized this, that we're no longer playing the games that the incumbent government at the moment has been playing, of pretending that the policies that you're signing on to are growth and recovery and reform policies when you know that they are simply the conditions for the financial policy of “extend and pretend” that has been underway for quite a long time.
                      That said, what is the leverage that would be applied to the Greek government if it chooses to recognize this reality and take a different path?  In fact the leverage available is not zero, but it's limited to some measures that would be fairly extreme in ordinary conditions.  On the one hand, there are certain parts of the debt that should ordinarily be rolled over.  Since the debt is now almost all – all the significant parts of it are in the hands of public authorities, the question of whether they would roll it over is a policy question for them.  In some sense they have the ability, if they were to choose, to place the Greeks in technical default, but one has to ask what happens under those circumstances, and the answer is, I would think, not very much. If I owe you a note, and my ability to pay it depends upon your willingness to roll it over, then if you, say, you don't roll it over, and I don't pay you, well, you still hold the note and it's still accruing interest and it's still an asset.  It's not an economic issue between us, except that you don't have the cash.  But the European Central Bank and other European authorities are not in need of cash.  It's not like a private debt.  So that's a bit of an artificial question.
                      And the other point of leverage is the Emergency Liquidity Authority, which backstops the Greek banking system.  To cut the ELA would be to pull the plug on the Greek banking system and effectively to force a crisis in the affairs of the Eurozone.  If the attitude of the creditors is “my way or the highway”, that you can have an election, but you may not change your policies, well then the burden of historical responsibility will be on them.  We shall see.  However my basic view is that Germany, having been one of the central countries at the origin of the European Union and at the origin of the Eurozone, will wisely not take the step of blowing up the European Union and the Eurozone over an argument about the conditionalities attached to past financial bargains.
                      Roger Strassburg:  That depends on how they estimate the risk that that will happen.  I'm not sure how they're estimating it.
                      James Galbraith:  That is, of course, the question, but when you go into a poker game, you don't go in showing your cards.  Obviously the German government would like the potentially incoming Greek government to fold its hand.  I think they can reasonably expect that the incoming Greek government, unlike the previous Greek governments, won't do that.  A major difference is that previous Greek governments had large internal factions fundamentally aligned with the policies of the Memorandum and the Troika.  This was certainly true of the Papandreou government.  George Papandreou was surrounded by neoliberal fellow travelers.  And that won't be true of the incoming government, assuming Syriza wins the election.  So the European partners can reasonably expect that the poker game will have to be played for a while.  We'll see if it can come to some kind of a reasonable agreement.  You have two sovereign countries with a difference of view, and one of them has a very strong case in equity for taking a different route after six years of good-faith effort to make the other route work when it was manifestly not a workable route.
                      Roger Strassburg:  I know Yanis Varoufakis made it very clear about that when we talked to him a little over a year ago.  He said that he would simply not pay as long as the conditions weren't right.
                      James Galbraith:  If you look at the Greek government debt in accrual accounting terms, if you look at it under the terms of IPSAS, the restructuring in 2012 was already very fundamental.  This is a debt which exists on very long terms at low interest rates, but the most important thing is that it's in the hands of public creditors.  The stuff that's in the hands of private creditors can be paid without difficulty, so there isn't a risk of a generalized private credit market debacle.  The stuff in public hands is an accounting matter, which has to do with the rules of the Eurozone that you can't actually write down the debt because that would make it too easy to escape from the conditionalities. 
                      In any event the conditionalities are going to be essentially a dead letter once the new government gets its policies in place.  Let's just take one example I'm a little familiar with.  If you go out to the Greek islands, they each have their own electric power generation station, which is in the nature of islands. They're all monopolies.  Do you allow those monopolies to be sold off to foreign investors in order to satisfy your debts, in which case you're putting the residents of each of these little islands at the mercy of a tiny little electric power monopoly?  That's from a public policy standpoint not a very good idea.  It has nothing to do with economic growth.  It has to with the capacity of what's equivalent to a local landlord to charge an unlimited amount of rent.  It's like the city of Chicago selling its parking meters to a private company.  It meant that there are no more street fairs in Chicago because you have to pay the company for its lost parking meter revenue.  That's not an economic growth strategy.
                      Roger Strassburg:  That's a typical arrangement, though, that's been happening in Germany, as well – Public-Private Partnerships.
                      James Galbraith:  Yes, but that has material consequences, which have nothing to do with economic growth, but a good deal to do with the viability of community life.
                      And we're talking also about questions about regulations governing the labor market.  There might be some negotiating room there.  For instance, there's a provision in Greek law, dating from the time of Andreas Papandreou, which limited the fraction of your labor force that you can lay off at any given time.  That provision is hard to maintain when a large fraction of your businesses are going bankrupt.  So there's some negotiating room about labor market rules.  As you go through these things, you say, okay, is there any merit to the substance of the provision, and if not, what's a better provision?
                      Parts of the Syriza program are to relieve some of the pressure on the most vulnerable parts of the Greek population, people who don't have access to electric power, people who need food in schools. In Greece today there are significant portions of the population which are in serious distress.  Dealing with that is a part of the program.  It would be nice for Greece to have some more fiscal room to implement changes, but there are significant changes even if there is no effective or very little effective new fiscal room.  Greece has already reduced its trade deficit, it's actually running a primary surplus.
                      Roger Strassburg:  The trade deficits have been reduced because of reduced imports, right?
                      James Galbraith:  Yes, it's primarily due to reduced imports, the point being that at the current level of activity, there's not an immediate need for new fiscal resources in order to just simply carry on.  And so a leverage over a change of policy in that respect is not going to be decisive.
                      So that's the basic scene-setting.  Then you have the question of what is it that the European Union could do if it were truly motivated by good will to help not only a partner state in particular, but perhaps more generally, to move from a policy of debt collection and punishment to a policy of stabilization and expansion.  That would also, I think, be on the agenda.
                      Well then we get into the terrain of the Modest Proposal.  The Modest Proposal is a proposal for the whole Eurozone, but it would certainly have some applicability to the Greek case.  The nature of the proposal has evolved a bit since publication of the last version of the Modest Proposal, thanks to Sr. Draghi and his moves toward Quantitative Easing.  A sensible way forward, in which there's been some interest in other governments of Europe, would be to launch a larger investment program through the European Investment Bank and for the ECB to guarantee the price of EIB bonds.  Taking account of the fact that the rhetoric of Europe has moved very much in favor of an investment program, and certainly at the rhetorical level Juncker's 315 billion euro program establishes that this is a legitimate need, an important need. But of course Juncker's proposal is not an effective policy.
                      Roger Strassburg:  Is this another matching funds problem?
                      James Galbraith:  It's a leverage problem.  In the case of the Juncker program there's only a small amount of public money, and the idea is that this is going to incentivize a large amount of private investment.  It's not really very plausible, but let's take the fact that he's acknowledged the need for a program and also has acknowledged at least a fraction of the scale that's actually required.  So we've put some large-looking numbers on the table. These are steps in the right direction.  Now we can haggle over what it takes to make it work.  It's a bit like George Bernard Shaw and Lady Astor.  You know that story, right?
                      Roger Strassburg:  No, I don't.
                      James Galbraith:  It's one of the old stories.  Shaw turned to Lady Astor at a dinner party and said, “Madame, would you sleep with me for a million pounds?”, and she said, “I'd consider it”.  Then he said, “How about ten pounds?”, and she said, “What do you think I am?”  Then he said, “Well we've established that, now we're just haggling over the price.”  Having established that we need the investment program, we can now talk about how to achieve it.
                      The other item that would be extremely useful for the European Union to act on quickly would be to get some measures for income stabilization and humanitarian assistance for vulnerable populations.
                      Roger Strassburg:  Transfer programs.
                      James Galbraith:  I wouldn't call them transfer programs.  I'd call them social insurance programs.  Transfer implies that somebody rich is paying for somebody poor.  But when you're taking a resource which is presently out of use and bringing it back into use, that's not what you're doing.  You're actually stabilizing the social and economic situation in the recipient country at no real cost to the larger European economy.
                      Roger Strassburg:  You're reinstating the insurance programs.
                      James Galbraith:  Yes, exactly.  And doing it on a sustainable basis.  Unemployment insurance has been discussed as a potential Europe-wide initiative, but you could also have nutrition assistance.  I've over the years proposed a few other things, but those two would be immediately practical, and the discussion of how to fund them is in the Modest Proposal.
                      So I think what one can expect, and I'm not speaking for Syriza in any sense by saying this, and I do want that to be clear, but I think one can expect a constructive negotiating position to be developed by a new Greek government.  And a constructive and reasonable one, one that is based on principles that have been applied at every level in the construction of Europe.
                      The European Union and German Unification were both brought into being on principles of social solidarity and common progress;  the Federal Republic in the first place, German unification and the European Union, all constructed on a language of principles of inclusion and solidarity and mutual support.
                      Roger Strassburg:  The Unification was all Germans.
                      James Galbraith:  That was all Germans, yes.  But it's okay, it's a principle that has been articulated in Germany, that is understood in the German political community, and that is, I think, the principle on which progress for Europe, or for that matter, the stability of Europe depends.
                      Roger Strassburg:  That would require a lot of convincing.  The Reunification was one thing...
                      James Galbraith:  We're not asking for a referendum, a plebiscite in the German population.  This is a question to be decided between governments.  We don't need to convince people on the principles of this, one simply needs to have an agreement about an acceptable way to proceed.
                      Roger Strassburg:  It's really not that simple in Germany – or anyplace else, for that matter.
                      James Galbraith:  Nobody claims simplicity.  Speaking now, as I have been all along, for myself here, I've always as a general rule felt that one negotiates with people you disagree with, not with people you agree with, and you negotiate in good faith.  It's an obligation on both sides that you negotiate in good faith, otherwise there's no point in having the negotiation.  And I would always choose as a negotiation partner a political authority that has real authority.  Certainly the leader of Germany is a person in that position, I would say the most successful and dominant political personality in modern Europe.  When you're negotiating, you negotiate with the top person.  That makes you more likely to have a favorable result than if you negotiate with someone who is in a very weak internal position, and not able to make changes in policy.
                      Roger Strassburg:  One of those things that's been kicked around for a while, is there going to be such a thing as a United States of Europe, and that's not going to happen.
                      James Galbraith:  It's certainly not part of the Syriza program.  The Syriza program is a pro-European program.  It is, and I think Europe and Europeans, people are committed to the European project, can consider it a great stroke of luck that there has arisen in Greece, and consequently, partly consequently and subsequently, in Spain, as well as in the present government of Italy, a pro-European set of parties, whose objective is change, constructive change, to make the European project viable.  That's in many ways the last line that will be there.  If those movements are not successful, then you have the Five Star movement in Italy, and you have, I suppose, the Golden Dawn in Greece.  So good luck to you if you go from where we are now to that.  And I'm not saying that the Five Star and the Golden Dawn are equivalent, they're not, but they're anti-European.
                      Roger Strassburg:  A little like AfD in Germany.
                      James Galbraith:  I wouldn't even say that.  I think that all three are really quite different, but you're going to move toward politics which is much nastier, much more vicious and anti-European in character rather than constructive and pro-European in character.
                      Roger Strassburg:  You have those trends in the UK, as well.
                      James Galbraith:  Of course.  So with that in mind, you have here a chance, at least in principle, to create a window of, let's say, constructive hope in the European case.
                      Roger Strassburg:  Do you think Syriza has a chance of winning?  I'm asking for your prophetic powers here...
                      James Galbraith:  It's not necessary to hope in order to persevere.  It's the motto of William of Orange, I learned some years ago from my friend Bill Black.  I maintain that, let's pursue a line as long as there is some prospect of success.
                      Roger Strassburg:  This is the best chance that they've had in, well, ever.
                      James Galbraith:  Yes.  As a small “d” democrat I find the situation in Greece quite inspiring because you have here something really very rare in any country in recent years, which is an election in which the public is making a choice that matters.  The outcome is not a question of some manipulation among existing political classes, or even the evolution of a previously existing party system, which was the case in Italy.  They have a clear-cut choice, and they're making it.  This is what democracy should be about.  Often it is some very blurry version of that at best.
                      Roger Strassburg:  It appears at the moment that Syriza won't be able to govern without a coalition.
                      James Galbraith:  Yes, I'd agree with that.  If you just look at the math of the polls, my guess is that they'd need somewhere up to twenty seats.
                      Roger Strassburg:  Given the bonus of fifty.
                      James Galbraith:  Yes.  They'd get a base of eighty, then a bonus of fifty, and then they need up to twenty more, depending on what the actual margin of victory is.  And then what actually happens depends on what happens to the representation of the smaller entities in the Greek system, given the three percent threshold to get into the parliament, so you don't know which of the various other players will be represented and at what numbers.  That's all in flux, so we'll see.
                      Roger Strassburg:  It remains interesting.
                      James Galbraith:  Oh, it will remain interesting, but you need to have, say, the acquiescence of twenty members, and if you don't get them, then there's another election.  And the typical pattern of a second election is to reaffirm the first, and the electorate can either go forward or backwards.  It's generally likely in the second case that you'd get a coalescence of people who say, enough of this nonsense, and move into the Syriza camp.
                      Roger Strassburg:  People will vote for the one more likely to win.
                      James Galbraith:  Yes, exactly.  Also, when you have an election, and you have this outcome of where the party which was just a few years ago at very low levels has moved up into the high twenties, and in terms of popular support is the largest single political entity in the country, then the perception of the party and its leader changes.  It was just a few years ago, nobody would talk to Alexis Tsipras.  He was considered kind of a dangerous figure who should be kept isolated.  Then he became the leader of the Greek official opposition, which made him at least a presence on the local scene.  And then with the European parliamentary elections he became the largest party, which created a kind of presumptive possibility that he would, that Syriza would win the election.  And then there was the question of whether there would be an election, and then it became clear that the government could not muster 180 votes to elect a presidential candidate, and there we are.  This is a cumulative, ongoing process.
                      Roger Strassburg:  They now appear to be viable.
                      James Galbraith:  They are, as a political force in Greece, viable.
                      Roger Strassburg:  How is the press treating him.  Are they treating him fairly?
                      James Galbraith:  These are tests.  I don't begrudge the forces of the status quo their stratagems.  I think that there are such things as pariahs in politics.  It's not unreasonable to draw distinctions between the mainstream and the fringe, and make it difficult to cross that barrier to become a mainstream political force. Which means, when you have a movement that achieves that, that is something to be taken seriously.  It's not a freak phenomenon, it's not something which is achieved easily.  It's a process of years.  And that's what we've observed in Greece, something which was at one point a minor player of dissidence in a country dominated by New Democracy and PASOK, two very long-established political parties with high dynastic traditions going back to the end of the civil war, and especially to the end of the junta in 1974.  And that political order has crumbled, first PASOK, and now you see the relative decline of New Democracy.  So something new has emerged.
                      Roger Strassburg:  Isn't PASOK now so low that they may not even make it into the parliament?
                      James Galbraith:  What has happened in PASOK is that George Papandreou has left to form his own formation, and we shall now see what happens there.  I'm not actually close enough to be able to judge, but it might be one or the other, Venizelos vs. Papandreou.  Or the other two possibilities are that it might be both or it might be neither.  We'll see.
                      Roger Strassburg:  Tsipras appears to be somewhat charismatic.
                      James Galbraith:  I've seen him up close on a couple of occasions at important moments where the eyes of the country were clearly on him. I've spoken to him on a number of occasions, he was in Austin at a conference a few years ago, and I have a sense of him as a thoughtful presence in private, and a rather impressive one in public.

                        Posted by on Friday, January 23, 2015 at 09:15 AM in Economics, Politics | Permalink  Comments (25)


                        Paul Krugman: Much Too Responsible

                        Europe’s self-indulgent "archons of austerity" and "doyens of deflation":

                        Much Too Responsible, by Paul Krugman, Commentary, NY Times: The United States and Europe have a lot in common. Both are multicultural and democratic; both are immensely wealthy; both possess currencies with global reach. Both, unfortunately, experienced giant housing and credit bubbles between 2000 and 2007, and suffered painful slumps when the bubbles burst.
                        Since then, however, policy on the two sides of the Atlantic has diverged. In one great economy, officials have shown a stern commitment to fiscal and monetary virtue, making strenuous efforts to balance budgets while remaining vigilant against inflation. In the other, not so much.
                        And the difference in attitudes is the main reason the two economies are now on such different paths. ... No, it’s not morning in America... Recovery could and should have come much faster, and family incomes remain well below their pre-crisis level. Although you’d never know it from the public discussion, there’s overwhelming agreement among economists that the Obama stimulus of 2009-10 helped limit the damage..., but it was too small and faded away far too fast. ...
                        Europe, on the other hand ... did almost everything wrong. On the fiscal side, Europe never did much stimulus, and quickly turned to austerity ... despite high unemployment. On the monetary side, officials fought the imaginary menace of inflation, and took years to acknowledge that the real threat is deflation. ...
                        Monetary policy got much better after Mario Draghi became president of the European Central Bank in late 2011. ... But it’s not at all clear that he has the tools to fight off the broader deflationary forces set in motion by years of wrongheaded policy. ...
                        The terrible thing is that Europe’s economy was wrecked in the name of responsibility. ... In a depressed economy..., a balanced-budget fetish and a hard-money obsession are deeply irresponsible. Not only do they hurt the economy in the short run, they can — and in Europe, have — inflict long-run harm, damaging the economy’s potential and driving it into a deflationary trap that’s very hard to escape.
                        Nor was this an innocent mistake. The thing that strikes me about Europe’s archons of austerity, its doyens of deflation, is their self-indulgence. They felt comfortable, emotionally and politically, demanding sacrifice (from other people) at a time when the world needed more spending. They were all too eager to ignore the evidence that they were wrong.
                        And Europe will be paying the price for their self-indulgence for years, perhaps decades, to come.

                          Posted by on Friday, January 23, 2015 at 12:24 AM in Economics, Fiscal Policy, Monetary Policy, Politics | Permalink  Comments (59)


                          Links for 01-23-15

                            Posted by on Friday, January 23, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (100)


                            Thursday, January 22, 2015

                            Interview of Donald Kohn

                            From an interview of Donald Kohn by Cecchetti & Schoenholtz:

                            Interview: Donald Kohn: ... Where should we be looking now for financial stability risks given this experience?
                            Vice Chairman Kohn: The response of the authorities to the crisis has concentrated on banks, especially large banks, and other systemically important financial institutions, including insurance companies, investment banks, etc. I think those financial institutions that have been the target of the authorities’ attention are in much better shape, and I don’t think they constitute a risk to financial stability today. So I don’t think that what nearly brought the system down before, a Lehman Brothers kind of collapse, is currently a risk.
                            There could be mispriced bonds. People have pointed to junk bonds and dollar-denominated emerging market bonds and asked whether the risk in those bonds has been accurately valued by the market.  With regard to the consequences of a price adjustment, I would contrast the dot-com boom and bust with the housing boom and bust. The difference was the participation of intermediaries. Most price adjustments are fine. There could be quite a bit of volatility in the market as prices adjust. But I don’t see it having the same kind of risk characteristics that the subprime market had in the United States. ... I would look at ... the markets and the pricing of risks, including liquidity risks...
                            Also, I would look at what remains of the shadow banks. In the tri-party RP [repurchase] markets, the money markets funds and other cases, there have been some fixes. But I do think we need to be careful that – as we put more restrictions on banks and other systemically important institutions – if their activity migrates to other places, it doesn’t do so in a way that has systemic risk associated with it. I don’t see that today, but I think it’s something we have to be careful about in the future.

                            Tri-party repo (where we saw a run on the shadow banking system during the crisis, a vulnerability that still exists) is what worries me the most.

                              Posted by on Thursday, January 22, 2015 at 11:09 AM in Economics, Financial System, Regulation | Permalink  Comments (5)


                              'Not Seeing Luck'

                              Chris Dillow at Stumbling and Mumbling:

                              Not seeing luck: I claimed the other day that those of us who are in the global 1% are apt to under-estimate our good fortune. There is, in fact, quite robust evidence from other contexts that we tend to under-rate luck and over-rate skill and causality. ...

                              This is probably because of a self-serving bias... However, other research shows that people also see skill where none in fact exists even in other people. ... This sort of behaviour has been confirmed in laboratory experiments. ...

                              I suspect that this is part of an older-attested phenomenon - that people under-rate randomness and over-rate causality, which is one reason why we draw overconfident inferences from noisy data. ...

                              You might see this as an echo of David Hume's claim, that our ideas about causality result merely from custom and habit and so are fallible.

                              It also, I suspect, helps explain a claim made by Hume's good friend. If we over-rate causality and under-rate luck, we will exaggerate the extent to which the wealthy deserve their fortune. As a result:

                              We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous. We see frequently the vices and follies of the powerful much less despised than the poverty and weakness of the innocent...The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness. (Theory of Moral Sentiments, I.III.29)

                                Posted by on Thursday, January 22, 2015 at 10:29 AM in Economics | Permalink  Comments (29)


                                Fed Watch: Policy Divergence

                                Tim Duy:

                                Policy Divergence, by Tim Duy: Increasingly, the Federal Reserve stands in stark contrast with its global counterparts. While the ECB readys its own foray into quantitative easing, the Bank of England shifted to a more dovish internal position, the central bank of Denmark joined the Swiss in cutting rates, and the Bank of Canada unexpectedly cut rates 25bp this morning. The latter move I found somewhat unsurprising given the likely impact of oil prices on the Canadian economy. The rest of the world is diverging from US monetary policy. How long can the Fed continue to stand against this tide?

                                Late last week, Reuters reported that the Fed's resolve was stiffening. This week, the Wall Street Journal reported the Fed was staying the course. This morning, Bloomberg says the Fed is getting weak in the knees:

                                Federal Reserve officials are starting to reassess their outlook for the economy as global weakness and disappointing data on American consumer spending test their resolve to raise interest rates this year.

                                San Francisco Fed President John Williams last week said he will trim his U.S. estimate because of slower growth abroad. Atlanta’s Dennis Lockhart said Jan. 12 that he advocates a “cautious” approach to rate increases and inflation readings “may be pivotal.” Both are voters on the Federal Open Market Committee in 2015 and repeated that rates could be raised in the middle of the year.

                                I doubt the Fed will place too much weight on the December retail sales report. It is fairly noisy data and there is no indication that the fundamental upward trend has been broken:

                                RETAIL012115

                                Moreover, I think they would be wary of reading too much into one data point given the upswing in consumer confidence in recent months. That, of course, only builds upon the upswing in employment data. And housing starts finished the year on a strong note - see Calculated Risk for more on that topic.

                                All that said, the Fed should of course be cautious about the impact of global weakness. But how does the Fed communicate such caution? The challenge I see for the Fed is that they will want to hold the statement fairly steady, with falling oil prices and global weakness as offsetting risks while holding the line on the "low inflation is transitory" story. They want to keep June alive. After all, it's still five months out - a lifetime at the speed of today's financial world. They don't want expectations to fall too far to the back of the year while they are still looking at a June hike.

                                Such a steady hand, however, may be viewed as hawkish, which is also a message the Fed does not want to send. My expectation is that they highlight the improving US economy, particularly the acceleration in job growth, while offering concerns about the global economy. Remember that the condition of the US job market is very different than during previous bouts of financial instability; the momentum looks more self-sustaining than it has in a long time. They may even point to policy action on the part of foreign central banks to help assuage some global weakness concerns.

                                Separately, St. Louis Federal Reserve President James Bullard gives no quarter in his argument for rate hike in the first quarter of this year in this Wall Street Journal interview:

                                I still think we should get off zero (interest rates). The kinds of things we’re observing now, it is not the constellation of data that would be consistent with a zero policy rate. I think it is important to get started and to start normalizing policy. Even once we start to normalize, interest rates would still be extremely low. We’re talking about levels of 50 basis points or 75 basis points. That is still extremely low and that would still be putting upward pressure on inflation even if we did that. So I’d like to get going. I don’t think we can any longer rationalize a zero interest rate policy.

                                Bullard thinks the data is not consistent with a zero rate policy, while I fear that the data is where it is at because of the zero rate policy. Moreover, I would tend to proceed more cautiously then Bullard given the current flattening of the yield curve. But Bullard is an outlier; the FOMC consensus is in favor of caution, which is why there is no rate hike on the table next week or in March. And it is why June is in no way guaranteed; they need something from wage growth that they just aren't getting. If they want to set up for a June rate hike without wage growth, they need to start telling a compelling alternative story soon.

                                Somewhat disappointing is that Bullard is flip-flopping. To date he has been a fairly reliable inflation-hawk - his opinions shift consistently with the inflation outlook. Not this week:

                                I do worry about TIPS-based inflation compensation and it has been down a lot recently and it does concern me. What I want to do with that is wait and see what happens in global oil markets, wait and see what equilibrium turns out to be and then see what happens with breakeven inflation at that point. I want to let the dust settle on the oil market and then go back and check breakeven inflation rates and see what’s happened.

                                Basically, Bullard wants to ignore the market-based inflation metrics that would have in the past told him to hold off on any tightening. He really, really wants to liftoff from the zero bound, the sooner the better. I don't think this level of immediacy is felt by other FOMC members, but I do think they are hoping and praying the data gives them enough to move by mid-year.

                                Bottom Line: The Fed finds itself in a familiar place - wanting to change policy but not quite getting the data they need while at the same time global stress in on the rise. Luckily for them, they weren't going to move off the zero-bound next week anyways; they still have months of data to sift through between now and then. And unlike past times of turbulence, the US is coming from a position of strength, eliminating the need for any panicky moves. Next week is mostly then just about communicating how and how not they are responding to overseas developments.

                                  Posted by on Thursday, January 22, 2015 at 12:15 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (23)


                                  Links for 01-22-15

                                    Posted by on Thursday, January 22, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (172)


                                    Wednesday, January 21, 2015

                                    'Rising Fears About Losing and Replacing Jobs'

                                    Tim Taylor:

                                    Rising Fears About Losing and Replacing Jobs: The General Social Survey is a nationally representative survey carried bout by the National Opinion Research Center at the University of Chicago and financially supported by grants from the National Science Foundation. Starting in 1977 and 1978, and intermittently over the years since then, it has included these two questions:

                                    Thinking about the next 12 months, how likely do you think it is that you will lose your job or be laid off—very likely, fairly likely, not too likely, or not at all likely?

                                    About how easy would it be for you to find a job with another employer with approximately the same income and fringe benefits you have now? Would you say it would be very easy, somewhat easy, or not easy at all?

                                    Back in 1980, Charles Weaver wrote an article about the patterns of the answers in the first wave of this data. He updates the results and looks for patterns over time in "Worker’s expectations about losing and replacing their jobs: 35 years of change," in the January 2015 issue of the Monthly Labor Review, published by the US Bureau of Labor Statistics. ...

                                    Both simple comparisons and more sophisticated analyses suggests that fear about losing and replacing jobs has been rising over time. Here's the simple comparison from Weaver: "Compared with workers in 1977 and 1978, workers in 2010 and 2012 expressed significantly less job security. They were more afraid of losing their jobs (11.2 percent versus the earlier 7.7 percent) and were less likely to think that they could find comparable work without much difficulty (48.3 percent versus the earlier 59.2 percent)."

                                    The more detailed breakdown of the data shows which groups have seen their labor market fears increase the most. On the question how likely you are to lose your current job, the answer for the population as a whole rose 3.5 percentage points from 1977-78 to 2010-12. But for blue-collar craft workers the increase was 11.1 percentage points, and for blue collar operatives the rise was 9.7 percentage points. Also, from the early to the most recent survey, those in the age 50-59 age bracket were 8.2 percentage points more likely to think that they were likely to lose their job.

                                    On the issue of whether workers expected to be able to find a comparable job, the answer for the population as a whole dropped 10.9 percentage points from 1977-78 to 2010-12. For those with "some college," but not a college degree, the expectation fell by 23.1 percentage points, and for white collar workers in clerical jobs it fell by 23.9 percentage points. Interestingly, for workers 60 and over the confidence in being able to fine a comparable job was actually 1.7 percentage point greater in the 2010-12 results than in the 1977-78 results.

                                    An obvious question is whether the greater fears about losing jobs and replacing jobs are a relatively recent development--in particular, whether they happened only in the aftermath of the Great Recession--or whether this has been a steady trend over time. Stewart runs through a number of different statistical exercises to consider this point...

                                    Stewart writes: "In 2010 and 2012, more workers feared losing their jobs, and far fewer workers said that it would be easy to find a comparable job, than in 1977 and 1978. ... Some may infer that the lower job security felt by Americans in 2010 and 2012 was an aberration, based upon the unusual conditions presented by the recent recession. But the reality is that the downward trend in feelings of job security has been going on for the last 35 years, apart from the “extra push” it has received from the “`Great Recession,' ..."

                                    As I mentioned in yesterday's blog post, I think the most powerful fear in the current labor market is not about mass unemployment, but instead is a concern that the available alternative jobs may be of lower quality in terms of wages, benefits, work conditions, job security, and the prospect for a future career path.

                                      Posted by on Wednesday, January 21, 2015 at 11:02 AM in Economics, International Trade, Technology, Unemployment | Permalink  Comments (42)


                                      A Tale of Two Pegs

                                      Paul Krugman on the independence of central banks from the concerns of "hard-money types":

                                      A Tale of Two Pegs: I’m still in Hong Kong, and ... by the numbers Switzerland’s monetary situation pre-collapse and Hong Kong’s now look remarkably similar. ... So is the Hong Kong dollar at risk of a franc-like event?
                                      No, it isn’t. There’s not a hint of pressure to drop the currency board. Why is Hong Kong different?
                                      The answer, I’d argue, is that the institutional setup and history of Hong Kong plays very differently with hard-money ideologues than the Swiss peg did... Swiss currency intervention looked to the usual suspects like activist monetary policy, runaway expansion of the central bank’s balance sheet, “printing money” to debase the currency even if the goal was to keep it from getting stronger. Meanwhile, Hong Kong has a currency board, which is the next best thing to the gold standard, so maintaining the peg — through the very same mechanisms Switzerland was using! — became a demonstration of stern Victorian monetary virtue. Hence no chorus demanding that the peg be abandoned.
                                      Remember, there was no forcing event in Switzerland; as far as the finances go, the SNB could have maintained the peg forever. It was the nagging from hard-money types that led to the debacle. Meanwhile, Hong Kong has managed to wrap the very same policy in libertarian clothes, and there’s no problem.

                                        Posted by on Wednesday, January 21, 2015 at 10:41 AM in Economics, International Finance | Permalink  Comments (16)


                                        Low-Income Loans Didn't Cause the Financial Crisis

                                        At MoneyWatch:

                                        Low-income loans didn't cause the financial crisis, by Mark Thoma: What caused the housing bubble and collapse of the financial system? Many fingers have pointed to a lack of regulation, financial innovation that didn't live up to its promises of risk-sharing and risk-reduction, and low interest rates from the Fed, which created an excess of liquidity.
                                        Another cause that's often cited says the financial crisis was the result of government pressure to make subprime home loans to those at the lower end of the income scale. But recent work from the National Bureau of Economic Research provides no support for that claim. ...

                                          Posted by on Wednesday, January 21, 2015 at 09:35 AM in Economics, Housing, Income Distribution, MoneyWatch | Permalink  Comments (26)


                                          Links for 01-21-15

                                            Posted by on Wednesday, January 21, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (229)


                                            Tuesday, January 20, 2015

                                            Obama and I, Me, My, You, We, Our

                                            Mark Liberman at Language Log tries to set the record straight -- yet again:

                                            Presidential pronouns: This time it's Ron Fournier: Ron Fournier, "Is Obama More Interested in Progress or Politics?", National Journal, 1/20/2015:

                                            Count how many times Obama uses the words "I," "me," and "my." Compare that number to how often he says, "You," "we," "our." If the first number is greater than the second, Obama has failed.

                                            This leads naturally to a different question: "Is Ron Fournier More Interested in Analysis or in Bullshit?"...

                                            If Ron Fournier had spent a minute or two looking into the facts of the matter, he might have discovered... ALL presidents since WWII have used substantially more first-person-plural pronouns than first-person-singular pronouns in the SOTU messages; Adding second-person pronouns makes the disproportion even larger; Obama is pretty much in the middle of the pack on all the relevant measures. ...

                                            Mr. Fournier is reprising a sub-theme of the Great Obama Pronoun Fantasy, variants of which seem to draw pundits like flies to rotting meat. ...

                                              Posted by on Tuesday, January 20, 2015 at 11:46 AM in Politics | Permalink  Comments (36)


                                              'The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy'

                                              Mike Konczal:

                                              The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy: President Obama is going big on capital taxation in the State of the Union tonight, including a proposal to raise dividend taxes on the rich to 28 percent. ...Bush’s radical cuts to capital taxes are part of his legacy... And it’s a part that the latest evidence tells us did a lot to help the rich without helping the overall economy at all.
                                              In the response to Obama’s proposal, you are going to hear a lot about how lower dividend rates increase investment and help the real economy. Indeed, lowering capital tax rates has been a consistent goal of conservatives. As a result, one of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the dividend tax rate from 38.6 percent to 15 percent... So did the tax cut make a difference?
                                              This is where UC Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,” (pdf, slides) comes in. ...
                                              Here’s what he finds: ... There’s no difference in either investment or adjusted net investment. There’s also no difference when it comes to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boost the real economy. This is true across a crazy-robust number of controls, measures, and coding of outliers. ...
                                              President Obama will likely focus his pitch for the dividend tax increase on the future, when, in his argument, globalization and technology will cause compensation to stagnate while investor payouts skyrocket and the economy becomes more focused on the top 1 percent. But it’s worth noting that while capital taxes are a solution to that problem, that the radical slashing conservatives have brought to them are also partly responsible for our current malaise.

                                                Posted by on Tuesday, January 20, 2015 at 09:42 AM in Economics, Politics, Taxes | Permalink  Comments (18)


                                                'Poorer Parents are Just as Involved in Their Children's Activities as Better-Off Parents'

                                                This seems worth noting:

                                                Poorer parents are just as involved in their children's activities as better-off parents, EurekAlert: Poorer parents are just as involved in education, leisure, and sports activities with their children as better-off parents, a new study has found.
                                                Dr Esther Dermott and Marco Pomati analysed survey data on 1,665 UK households and found that poorer parents were as likely to have helped with homework, attended parents' evenings, and played sports or games with their children in the previous week.
                                                Dr Dermott, of the University of Bristol, and Mr Pomati, Cardiff University, say they found no evidence of a group of poor parents who failed their children.
                                                "Those with lower incomes or who felt poor were as likely to engage in all of the good parent-child activities as everyone else," they say in an article published online in the journal Sociology.
                                                "The findings support the view that associations made between low levels of education, poverty and poor parenting are ideologically driven rather than based on empirical evidence. Claims that families who are poor or are less well educated do not engage in high profile good parenting practices are misplaced." They found no evidence of a group of parents who failed to participate in parent-child activities, they say.
                                                "This is potentially important since recent political discourse has not only promoted the idea that poor parenting exists but also emphasised the existence of a group of parents who persistently fail to engage in parenting activities that are beneficial for their children." ...

                                                  Posted by on Tuesday, January 20, 2015 at 09:16 AM in Economics | Permalink  Comments (22)


                                                  Links for 01-20-15

                                                    Posted by on Tuesday, January 20, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (199)


                                                    Monday, January 19, 2015

                                                    Fed Watch: Seconded

                                                    Tim Duy:

                                                    Seconded, by Tim Duy: I see Jon Hilsenrath at the Wall Street Journal seconds my take from this morning:

                                                    Federal Reserve officials are on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation.

                                                    This is generally consistent with my view. The Fed is likely reacting more slowly than market participants. Hilsenrath adds something I forgot to mention:

                                                    Central to their internal deliberations ahead of the March meeting is a debate about how low the jobless rate can fall before it stirs wage and inflation pressure. Fed officials estimate the “natural rate” of unemployment—meaning the rate below which wage pressures increase—is between 5.2% and 5.5%.

                                                    Mr. Rosengren said he was considering revising this estimate down because the jobless rate has fallen to near the 5.2%-5.5% range without triggering any sign of wage pressure. He said he suspected some of his Fed colleagues also were considering moving this estimate down. The lower the estimate goes, the more patient they might be before raising rates.

                                                    Just as I think it will be hard for the Fed to raise rates if the unemployment rate continues to fall while wage growth remains subdued, it will also be difficult to justify current estimates of the natural rate of unemployment under those circumstances. Still, I would caution that lowering the estimate of the natural rate would be, I think, an implicit rejection of the "underemployment hypothesis." It would be easier to adjust estimates of the natural rate downward if measures of underemployment were more consistent with their traditional relationships with unemployment. In other words, the natural rate may be consistent with subdued wage growth due to the existence of high levels of underemployment.

                                                    My opinion is that the global disinflationary environment would support low inflation at levels of unemployment below the Fed's current estimate of the natural rate, similar to the situation of the late 1990s.

                                                      Posted by on Monday, January 19, 2015 at 02:49 PM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (25)


                                                      Don't Blame Poor People for the Housing Crisis

                                                      Tyler Cowen:

                                                      Were poor people to blame for the housing crisis?, by Tyler Cowen:
                                                      When we break out the volume of mortgage origination from 2002 to 2006 by income deciles across the US population, we see that the distribution of mortgage debt is concentrated in middle and high income borrowers, not the poor. Middle and high income borrowers also contributed most significantly to the increase in defaults after 2007.
                                                      ...That is from the new NBER working paper by Adelino, Schoar, and Severino.  In other words, poor people (or various ethnic groups, in some accounts) were not primarily at fault for the wave of mortgage defaults precipitating the financial crisis.  The biggest problems came in zip codes where home prices were having large run-ups. ...

                                                        Posted by on Monday, January 19, 2015 at 11:11 AM in Economics, Financial System, Housing | Permalink  Comments (22)


                                                        Fed Watch: Will The Fed Take a Dovish Turn Next Week?

                                                        Tim Duy:

                                                        Will The Fed Take a Dovish Turn Next Week?, by Tim Duy: As it stands now, we are heading into the next FOMC meeting with the growing expectation that the Fed will take a dovish turn. Is it not obvious that global economic turmoil, collapsing oil prices, weak inflation, and a stronger dollar are clearly pointing to rapidly rising downside risks to the US economy? For financial market participants, they answer is a clear "yes." Expectations of the first rate hike have been pushed out to the end of this year, seemingly in complete defiance of Fed plans for policy normalization. The Fed may get there as well and abandon their carefully crafted mid-year plan, but I suspect they will not move quite as rapidly as financial market participants desire.
                                                        As a general rule, the Fed tends to act in a more deliberate fashion. To be sure, this was not evident during the crisis. Indeed, "panicky" might be a better adjective during that period. But note that in comparison to past bouts of tumolt on global markets, the US economy is in a much better place, with accelerating job growth when unemployment is already near traditional mandate-levels. From their point of view, this is a whole different world compared to that of the last round of Euro-induced crisis.
                                                        This take from Jonathan Spicer and Ann Saphir at Reuters probably saw less play than it deserved:
                                                        Tumbling oil prices have strengthened rather than weakened the Federal Reserve's resolve to start raising interest rates around midyear even as volatile markets and a softening U.S. inflation outlook made investors push back the timing of the "liftoff."
                                                        Kind of a "Fed is from Mars, markets are from Venus" situation. It is important to recognize that the Fed sees falling oil prices as a significant, unexpected development that represents the realization of an upside risk to their forecast. They are thinking of an outcome not unlike that revealed in the most recent Bloomberg/UMich read on consumer sentiment:

                                                        CONSEN011815

                                                        Through the roof, one might say. So at this point the Fed will view the external threats to the economy as just risks, but the very real move in oil is at a minimum adding upside risk to their forecasts or already pushing their forecasts to the upside. With regards to external threats, they probably think that more aggressive ECB action is in the wings to put their immediate fears to rest. And the downward push on inflation is, from their perspective, a transitory issue and therefore a non-issue.
                                                        Consider this also from the Reuters article:
                                                        Interviews with senior Fed officials and advisors suggest they remain confident the U.S. economy will be ready for a modest policy tightening in the June-September period, while any subsequent rate hikes will probably be slow and depend on how markets will behave.
                                                        in light of this from St. Louis Federal Reserve President James Bullard:
                                                        “The level of inflation is not so low that it can alone justify a policy rate of zero,” Mr. Bullard said in material prepared for a speech in Chicago.
                                                        and this from San Fransisco Federal Reserve President John Williams:
                                                        Placing heavy emphasis on the date of liftoff “suggests that you don’t have any other decisions to make,” Williams said. “We want to be very confident that we’re on the right path, that the data support that first move, but that first move on tightening is only one of many, many policy actions we’ll need to do during the normalization. It’s not the critical component.”
                                                        and this from Federal Reserve Chair Janet Yellen:
                                                        So, I think you raise a very important point because, although there is a great deal of market focus on the timing of liftoff, what to matter in thinking about the stance of policy is what the entire path of interest rates will look like. And I really don’t have much for you other than to say that they will be data dependent—that, over time, the stance of policy will be adjusted to try to keep the economy on a track where we see continuing progress toward achieving our goals of maximum employment and price stability.
                                                        My takeway is that the Fed sees the timing of the first rate hike as less important than everything that comes after that hike. This will leave them less eager to delay the hike. Given where the economy currently stands, I suspect they see little chance of damage from that first hike alone.
                                                        This is also interesting:
                                                        Some of those interviewed stressed that in the light of last year's strong jobs gains waiting until mid-year represented a cautious approach rather than an aggressive one, allowing the Fed to delay the rate liftoff if needed, particularly if inflation expectations turned sharply down.
                                                        The suggestion here is that at least some Fed officials view signaling a mid-year rate hike as the cautious approach because the data increasingly suggests to them that they should be moving sooner than later.
                                                        Bottom Line: I reiterate my view that despite the generally positive data flow, and the upward boost from oil, I don't see how they can justify raising rates without some reasonable acceleration in wage growth. That said, perhaps by my own argument above they can justify it on the basis of 25bp won't hurt anyone anyways. But my broader point is this: During normal times the Fed moves methodically if not ponderously. The current state of the economy gives them room to move as such. So I would not be surpised to see a fairly steady hand revealed in the next FOMC statement.

                                                          Posted by on Monday, January 19, 2015 at 08:38 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (6)


                                                          Paul Krugman: Hating Good Government

                                                          Why do conservatives hate government?:

                                                          Hating Good Government, by Paul Krugman, Commentary, NY Times: It’s now official: 2014 was the warmest year on record. You might expect this to be a politically important milestone. ... So will the deniers now concede that climate change is real?
                                                          Of course not. Evidence doesn’t matter for the “debate” over climate policy... And this situation is by no means unique. Indeed,... it’s hard to think of a major policy dispute where facts actually do matter; it’s unshakable dogma, across the board. And the real question is why.
                                                          Before I get into that, let me remind you of some other news that won’t matter.
                                                          First, consider the Kansas experiment. Back in 2012 Sam Brownback, the state’s right-wing governor, went all in on supply-side economics: He drastically cut taxes, assuring everyone that the resulting boom would make up for the initial loss in revenues. Unfortunately..., his experiment has been a resounding failure. ... So will we see conservatives scaling back their claims about the magical efficacy of tax cuts...? Of course not. ...
                                                          Meanwhile, the news on health reform keeps ... being more favorable than even the supporters expected. ...
                                                          All this is utterly at odds with dire predictions that reform would lead to declining coverage and soaring costs. So will we see any of the people claiming that Obamacare is doomed ... revising their position? You know the answer.
                                                          And the list goes on..., a big chunk of America’s body politic holds views that are completely at odds with, and completely unmovable by, actual experience. ...
                                                          The question, as I said at the beginning, is why. Why the dogmatism? Why the rage...,why this hatred of government in the public interest? Well, the political scientist Corey Robin argues that most self-proclaimed conservatives are actually reactionaries. That is, they’re defenders of traditional hierarchy — the kind of hierarchy that is threatened by any expansion of government, even (or perhaps especially) when that expansion makes the lives of ordinary citizens better and more secure. I’m partial to that story, partly because it helps explain why climate science and health economics inspire so much rage.
                                                          Whether this is the right explanation or not, the fact is that we’re living in a political era in which facts don’t matter. This doesn’t mean that those of us who care about evidence should stop seeking it out. But we should be realistic in our expectations, and not expect even the most decisive evidence to make much difference.

                                                            Posted by on Monday, January 19, 2015 at 12:24 AM in Economics, Politics | Permalink  Comments (100)


                                                            Links for 01-19-15

                                                              Posted by on Monday, January 19, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (75)


                                                              Sunday, January 18, 2015

                                                              'It Can be Morning Again for the World’s Middle Class'

                                                              LS:

                                                              It can be morning again for the world’s middle class, by Lawrence Summers, FT [open link]:The most challenging economic issue ahead of us involves a group that will barely be represented at this week’s annual Davos summit — the middle classes of the world’s industrial countries..., no one should lose sight of the fact that without substantial changes in policy the prospects for the middle class globally are at best highly problematic.
                                                              First, the economic growth that is a necessary condition for rising incomes is threatened by the spectre of secular stagnation and deflation. ... Second, the capacity of our economies to sustain increasing growth and provide for rising living standards is not assured on the current policy path. ... Third, if it is to benefit the middle class, prosperity must be inclusive and in the current environment this is far from assured. ...
                                                              The experience of many countries and many eras shows that sustained growth in middle class living standards is attainable. But it requires elites to recognise its importance and commit themselves to its achievement. That must be the focus of this year’s Davos.

                                                                Posted by on Sunday, January 18, 2015 at 11:05 AM in Economics, Income Distribution | Permalink  Comments (53)


                                                                'Driving the Obama Tax Plan: The Great Wage Slowdown'

                                                                David Leonhardt:

                                                                Driving the Obama Tax Plan: The Great Wage Slowdown: The key to understanding President Obama’s new plan to cut taxes for the middle class is the great wage slowdown of the 21st century. ... There is little modern precedent for a period of income stagnation lasting as long as this one. ...
                                                                The wage slowdown is the dominant force in American politics and will continue to be as long as it exists. ...
                                                                No politician, of either party, can quickly alter the basic forces behind the great wage slowdown. That’s why Mr. Obama has begun talking about a tax cut for the middle class, to be financed by a tax increase on the affluent — who have continued to do quite well in recent years. It’s also why several conservatives are talking about a cut in the payroll tax, the largest federal tax for most Americans.
                                                                And you can expect the 2016 presidential candidates to talk about middle-class tax cuts, too. ...

                                                                  Posted by on Sunday, January 18, 2015 at 09:50 AM in Economics, Income Distribution | Permalink  Comments (32)


                                                                  Links for 01-18-15

                                                                    Posted by on Sunday, January 18, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (82)


                                                                    Saturday, January 17, 2015

                                                                    Links for 01-17-15

                                                                      Posted by on Saturday, January 17, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (154)


                                                                      Friday, January 16, 2015

                                                                      'Inequality is Extremely Wasteful'

                                                                      Robert Frank:

                                                                      I've been studying inequality for more than 30 years, and for most of that time it's been an issue well out of the limelight. And so I've been delighted to see it enter the political conversation in a big way recently.
                                                                      But something major is missing from that conversation, which centers on questions of fairness. Fairness clearly matters, but focusing on it presupposes a zero-sum competition between different classes. That's consistent with the conventional view that inequality is good for the rich and bad for the poor, and so the rich should favor it while the poor should oppose it. But the conventional view is wrong.
                                                                      High levels of inequality are bad for the rich, too, and not just because inequality offends norms of fairness. As I'll explain, inequality is also extremely wasteful.
                                                                      It's easy to demonstrate that growing income disparities have made life more difficult not just for the poor, but also for the economy's ostensible winners — the very wealthy. The good news is that a simple change in tax policy could free up literally trillions of dollars a year without requiring painful sacrifices from anyone. If that claim strikes you as far-fetched, you'll be surprised to see that it rests on only five simple premises. ...

                                                                      He goes on to explain in detail.

                                                                        Posted by on Friday, January 16, 2015 at 09:26 AM in Economics, Income Distribution | Permalink  Comments (59)


                                                                        Paul Krugman: Francs, Fear and Folly

                                                                         A lesson to be learned:

                                                                        Francs, Fear and Folly, by Paul Krugman, Commentary, NY Times: ...On Thursday the Swiss National Bank, the equivalent of the Federal Reserve, shocked the financial world with a double whammy, simultaneously abandoning its policy of pegging the Swiss franc to the euro and cutting the interest rate it pays on bank reserves to minus, that’s right, minus 0.75 percent. Market turmoil ensued.
                                                                        And you should feel a shiver of fear, even if you don’t have any direct financial stake in the value of the franc. For Switzerland’s monetary travails illustrate in miniature just how hard it is to fight the deflationary vortex now dragging down much of the world economy. ...
                                                                        If you ask me, the Swiss just made a big mistake. But frankly — francly? — the fate of Switzerland isn’t the important issue. What’s important, instead, is the demonstration of just how hard it is to fight the deflationary forces that are now afflicting much of the world — not just Europe and Japan, but quite possibly China too. And while America has had a pretty good run the past few quarters, it would be foolish to assume that we’re immune.
                                                                        What this says is that you really, really shouldn’t let yourself get too close to deflation — you might fall in, and then it’s extremely hard to get out. This is one reason that slashing government spending in a depressed economy is such a bad idea: It’s not just the immediate cost in lost jobs, but the increased risk of getting caught in a deflationary trap.
                                                                        It’s also a reason to be very cautious about raising interest rates when you have low inflation, even if you don’t think deflation is imminent. Right now serious people — the same serious people who decided, wrongly, that 2010 was the year we should pivot from jobs to deficits — seem to be arriving at a consensus that the Fed should start hiking very soon. But why? There’s no sign of accelerating inflation in the actual data, and market indicators of expected inflation are plunging, suggesting that investors see deflationary risk even if the Fed doesn’t.
                                                                        And I share that market concern. If the U.S. recovery weakens, either through contagion from troubles abroad or because our own fundamentals aren’t as strong as we think, tightening monetary policy could all too easily prove to be an act of utter folly.
                                                                        So let’s learn from the Swiss. They’ve been careful; they’ve maintained sound money for generations. And now they’re paying the price.

                                                                        More here.

                                                                          Posted by on Friday, January 16, 2015 at 12:24 AM in Economics, International Finance | Permalink  Comments (201)


                                                                          Links for 01-16-15

                                                                            Posted by on Friday, January 16, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (79)


                                                                            Thursday, January 15, 2015

                                                                            'State and Local Tax Systems Hit Lower-Income Families the Hardest'

                                                                            Michael Leachman of the CBPP:

                                                                            State and Local Tax Systems Hit Lower-Income Families the Hardest, CBPP: In nearly every state, low- and middle-income families pay a bigger share of their income in state and local taxes than wealthy families, a new report from the Institute on Taxation and Economic Policy (ITEP) finds. As the New York Times’ Patricia Cohen wrote, “When it comes to the taxes closest to home, the less you earn, the harder you’re hit.”...
                                                                            In the ten states with the most regressive tax systems, the bottom 20 percent pay up to seven times as much of their income in taxes as their wealthy neighbors. ...
                                                                            A number of states, including Kansas, North Carolina, and Ohio, have made the situation worse in recent years by cutting income taxes, the only major state revenue source typically based on ability to pay. Income tax cuts thus tend to push more of the cost of paying for schools and other public services to the middle class and poor — exactly the opposite of what is needed.

                                                                              Posted by on Thursday, January 15, 2015 at 10:36 AM in Economics, Income Distribution, Taxes | Permalink  Comments (28)


                                                                              'Switzerland’s One-Day, 18 Percent Currency Rise'

                                                                              Neil Irwin:

                                                                              Economic Lessons From Switzerland’s One-Day, 18 Percent Currency Rise: ...It is not every day that the currency of an advanced, economically important country rises by double-digit percentages against the currencies of other such countries within mere hours. But that is what happened to the Swiss franc on Thursday. It is up 18 percent against the euro as of Thursday morning, and at one point was up 39 percent. Currency strategists were searching for any analogue in modern history for a similarly abrupt move in major Western currency and coming up empty.
                                                                              The Swiss move offers interesting lessons about the oddly precarious state of the global economy, but first it’s worth working through what exactly the Swiss National Bank has done. ...

                                                                                Posted by on Thursday, January 15, 2015 at 10:17 AM in Economics, International Finance | Permalink  Comments (45)


                                                                                Links for 01-15-15

                                                                                  Posted by on Thursday, January 15, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (155)


                                                                                  Wednesday, January 14, 2015

                                                                                  'Republican Assault on Dodd-Frank Act Intensifies'

                                                                                  Is anyone surprised?:

                                                                                  Republican assault on Dodd-Frank act intensifies, by Barney Jopson, FT: Republicans are intensifying an assault on the Dodd-Frank financial reform act in the second week of a new Congress...
                                                                                  Under attack in the House on Wednesday was part of the so-called Volcker rule, a provision of the reforms that limits bank risk taking.
                                                                                  Lawmakers voted 271-154 to delay from 2017 to 2019 a ban on banks holding securitised debt that has been packaged into collateralised loan obligations, with 29 Democrats supporting the postponement along with Republicans. ...

                                                                                  Because the Masters of the Universe need years and years to adjust to this change (Dodd-Frank was passed nearly *five* years ago). Or maybe they are simply hoping to delay and delay until they can get repeal? The president has said he will veto this if it also gets through the Senate, but they will likely try to attach it to other legislation to make a veto much harder.

                                                                                  I don't think the repeal of Glass-Steagall caused the financial crisis. But that doesn't mean the Volcker rule has no value, only costs. Repeal of Glass-Steagall sets up a vulnerability that could cause a crisis in the future, so it's worth fixing via the Volcker rule.

                                                                                    Posted by on Wednesday, January 14, 2015 at 12:28 PM in Economics, Financial System, Politics, Regulation | Permalink  Comments (11)


                                                                                    'Supply-Side Enablers'

                                                                                    pgl:

                                                                                    ...Norman Ture indeed was the original supply-sider who basically told Chairman Mills to ignore the CEA’s recommendations for fiscal restraint in 1966. We now know the unfortunate history of politics not heeding the advice of sensible economists. And yes – the supply-siders once again pushed for fiscal stimulus in 1981. How did that work out? I bring this up today in light of the fact that Mitt Romney is once again running for President. The last time he did so, he advocated large tax cuts without any serious consideration of how to pay for them. I’m sure Romney will have plenty of supply-side enablers once again.

                                                                                      Posted by on Wednesday, January 14, 2015 at 11:45 AM in Economics, Politics, Taxes | Permalink  Comments (87)


                                                                                      'Let Us Hope for a Syriza Victory'

                                                                                      Simon Wren-Lewis:

                                                                                      Let us hope for a Syriza victory: If you think this sentiment is dangerous, because you have read that if this left wing party formed a government after the forthcoming Greek elections the Eurozone would be plunged into crisis, I suspect you should reconsider where you get your information from.[1] Here is why.
                                                                                      Syriza wants to reduce the burden of Greek government debt by various means, which would clearly benefit Greece and mean losses for its creditors. Its bargaining position is strong because the government is running a primary surplus. This means that if all debt was written off and the Greek government was unable to borrowing anything more, it would be immediately better off because taxes exceed government spending. In contrast the creditors’ position in such a situation is normally very weak, which is why some kind of deal is usually done to reduce the debt burden. Creditors take a hit, but not as bad a hit as they would if all debt was written off. ...

                                                                                        Posted by on Wednesday, January 14, 2015 at 10:02 AM in Economics | Permalink  Comments (21)


                                                                                        'Seven Lessons about Child Poverty'

                                                                                        From Clio Chang at The Century Foundation:

                                                                                        Seven Lessons about Child Poverty: Introduction: The official child poverty rate in the United States stands at 20 percent, the second-highest among its developed counterparts, for a total of almost 15 million children. Since the 2008 recession, 1.7 million more kids have fallen into poverty, according to UNICEF’s relative measure of poverty.
                                                                                        Compared to other age groups, a much higher share of Americans aged 0 to 18 are impoverished.
                                                                                        Let that sink in for a minute.
                                                                                        Why are we allowing so many Americans to start their lives in poverty, knowing that it likely will do them significant long-term damage, as well as limit our growth as a nation? It is a blow to our nation’s dedication to equal opportunity.
                                                                                        That question is especially perplexing because relatively simple, proven approaches would address some of the worst impacts of child poverty. What follows are seven lessons drawn from The Century Foundation’s Bernard L. Schwartz Rediscovering Government Initiative conference last June, Inequality Begins at Birth, that would help us tackle gaps in our public policy, as part of the Initiative’s equal opportunity agenda. The lessons are as follows:
                                                                                        1. The Stress of Childhood Poverty Is Costly for the Brain and Bank Accounts
                                                                                        2. Child Poverty Is Not Distributed Equally
                                                                                        3. The Power of Parental Education
                                                                                        4. Higher Minimum Wage Is a Minimum Requirement
                                                                                        5. Workplaces Need to Recognize Parenthood
                                                                                        6. Government Works
                                                                                        7. Cash Allowances Are Effective
                                                                                        Lesson 1: The Stress of Childhood Poverty Is Costly for the Brain and Bank Accounts ...

                                                                                          Posted by on Wednesday, January 14, 2015 at 12:24 AM in Economics, Income Distribution | Permalink  Comments (54)


                                                                                          Links for 01-14-15

                                                                                            Posted by on Wednesday, January 14, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (119)


                                                                                            Tuesday, January 13, 2015

                                                                                            Full Employment Alone Won’t Solve Problem of Stagnating Wages

                                                                                            I have a new column:

                                                                                            Full Employment Alone Won’t Solve Problem of Stagnating Wages: The most recent employment report brought mixed news. The unemployment rate continues its slow but steady downward path and now stands at 5.6 percent, but wages remain flat. In response, most analysts made two points. First, the lack of wage growth indicates that we are not yet close enough to full employment to generate upward pressure on wages, so policymakers should be patient in reversing attempts to stimulate the economy. Second, once we do get closer to full employment the picture for wages will change and the long awaited acceleration in labor compensation will finally materialize. 
                                                                                            I fear this trust that market forces will eventually raise wages will lead to disappointment. ...

                                                                                              Posted by on Tuesday, January 13, 2015 at 08:38 AM in Economics, Fiscal Times, Income Distribution, Unemployment | Permalink  Comments (78)


                                                                                              'Selective Voodoo'

                                                                                              Paul Krugman:

                                                                                              Selective Voodoo: House Republicans have passed a measure demanding that the Congressional Budget Office use “dynamic scoring” in its revenue projections — taking into account the supposed positive growth effects of tax cuts. It remains to be seen how much damage this rule will actually cause. The reality is that there is no evidence for the large effects that are central to right-wing ideology, so the question is whether CBO will be forced to accept supply-side fantasies.
                                                                                              Meanwhile, one thing is fairly certain: CBO won’t be applying dynamic scoring to the positive effects of government spending, even though there’s a lot of evidence for such effects.
                                                                                              A good piece in yesterday’s Upshot reports on a recent study of the effects of Medicaid for children; it shows that children who received the aid were not just healthier but more productive as adults, and as a result paid more taxes. So Medicaid for kids may largely if not completely pay for itself. It’s a good guess that the Affordable Care Act, by expanding Medicaid and in general by ensuring that more families have adequate health care, will similarly generate significant extra growth and revenue in the long run. Do you think the GOP will be interested in revising down estimates of the cost of Obamacare to reflect these effects? ...

                                                                                                Posted by on Tuesday, January 13, 2015 at 08:37 AM in Economics, Fiscal Policy, Politics, Taxes | Permalink  Comments (6)


                                                                                                'Estimated Social Cost of Climate Change Not Accurate'

                                                                                                Climagte change may be more costly than we thought:

                                                                                                Estimated social cost of climate change not accurate, Stanford scientists say: The economic damage caused by a ton of carbon dioxide emissions - often referred to as the "social cost" of carbon - could actually be six times higher than the value that the United States now uses to guide current energy regulations, and possibly future mitigation policies, Stanford scientists say.
                                                                                                A recent U.S. government study concluded, based on the results of three widely used economic impact models, that an additional ton of carbon dioxide emitted in 2015 would cause $37 worth of economic damages. These damages are expected to take various forms, including decreased agricultural yields, harm to human health and lower worker productivity, all related to climate change.
                                                                                                But according to a new study, published online this week in the journal Nature Climate Change, the actual cost could be much higher. "We estimate that the social cost of carbon is not $37 per ton, as previously estimated, but $220 per ton," ...

                                                                                                See also: New economic model may radically boost the social cost of carbon - Ars Technica.

                                                                                                  Posted by on Tuesday, January 13, 2015 at 08:36 AM in Economics, Environment | Permalink  Comments (12)


                                                                                                  Links for 01-13-15

                                                                                                    Posted by on Tuesday, January 13, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (141)


                                                                                                    Monday, January 12, 2015

                                                                                                    'Higher Education, Wages, and Polarization'

                                                                                                    Rob Valletta in an SF Fed Economic Letter:

                                                                                                    Higher Education, Wages, and Polarization, by Rob Valletta, FRBSF Economic Letter: Holding a four-year college degree gives a worker a distinct advantage in the U.S. labor market. The wage gap between college-educated working adults and those with high school degrees is large and has grown steadily over the past 35 years. This gap appears to be bolstered by technological advances in the workplace, notably the ever-growing reliance on computers, because the skills needed to apply these technologies are often acquired through or associated with higher education. Since 2000, however, this trend has altered. Increasingly, the U.S. labor market favors workers who hold a graduate degree, while the wage advantage for those who hold a four-year college degree has changed little. In this Economic Letter, I examine the potential explanations for this change. I focus on the polarization hypothesis, which emphasizes employment and wage growth at the top and bottom portions of the skill distribution (Acemoglu and Autor 2011). ...

                                                                                                      Posted by on Monday, January 12, 2015 at 10:17 AM in Economics, Universities | Permalink  Comments (36)