Friday, February 23, 2018

Links for 02-23-18

    Posted by on Friday, February 23, 2018 at 09:38 AM in Economics, Links | Permalink  Comments (95) 


    Paul Krugman: Nasty, Brutish and Trump

    "there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom":

    Nasty, Brutish and Trump, by Paul Krugman, NY Times: On Wednesday, after listening to the heart-rending stories of those who lost children and friends in the Parkland school shooting — while holding a cue card with empathetic-sounding phrases — Donald Trump proposed his answer: arming schoolteachers.
    It says something about the state of our national discourse that this wasn’t even among the vilest, stupidest reactions to the atrocity. No, those honors go to the assertions by many conservative figures that bereaved students were being manipulated by sinister forces, or even that they were paid actors.
    Still, Trump’s horrible idea, taken straight from the N.R.A. playbook, was deeply revealing...
    To see why, consider the very case often used to illustrate how bizarrely we treat guns: how we treat car ownership and operation...,there’s a lot of variation in car safety among states within the U.S., just as there’s a lot of variation in gun violence.
    America has a “car death belt” in the Deep South and the Great Plains; it corresponds quite closely to the firearms death belt defined by age-adjusted gun death rates. It also corresponds pretty closely to the Trump vote — and also to the states that have refused to expand Medicaid, gratuitously denying health care to millions of their citizens. ...
    For whatever reason, there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom.
    This paranoia strikes both deep and wide. ... And it goes along with basically infantile fantasies about individual action — the “good guy with a gun” — taking the place of such fundamentally public functions as policing.
    Anyway, this political faction is doing all it can to push us toward becoming a society in which individuals can’t count on the community to provide them with even the most basic guarantees of security — security from crazed gunmen, security from drunken drivers, security from exorbitant medical bills (which every other advanced country treats as a right, and does in fact manage to provide).
    In short, you might want to think of our madness over guns as just one aspect of the drive to turn us into what Thomas Hobbes described long ago: a society “wherein men live without other security than what their own strength and their own invention shall furnish them.” And Hobbes famously told us what life in such a society is like: “solitary, poor, nasty, brutish and short.”
    Yep, that sounds like Trump’s America.

      Posted by on Friday, February 23, 2018 at 09:30 AM in Economics, Politics | Permalink  Comments (41) 


      Economic Fluctuations and Growth Research Meeting

      I am here today:

      Economic Fluctuations and Growth Research Meeting
      Andrew Atkeson and Monika Piazzesi, Organizers
      Federal Reserve Bank of San Francisco
      February 23, 2018

      Friday, February 23

      9:00 am
      Fatih Guvenen, University of Minnesota and NBER
      Gueorgui Kambourov, University of Toronto
      Burhanettin Kuruscu, University of Toronto
      Sergio Ocampo-Diaz, University of Minnesota
      Daphne Chen, Florida State University
      Use It Or Lose It: Efficiency Gains from Wealth Taxation
      Discussant: Roger H. Gordon, University of California at San Diego and NBER

      10:15 am
      Matteo Maggiori, Harvard University and NBER
      Brent Neiman, University of Chicago and NBER
      Jesse Schreger, Columbia University and NBER
      International Currencies and Capital Allocation
      Discussant: Harald Uhlig, University of Chicago and NBER

      11:30 am
      Katarína Borovičková, New York University
      Robert Shimer, University of Chicago and NBER
      High Wage Workers Work for High Wage Firms
      Discussant: Isaac Sorkin, Stanford University and NBER

      1:30 pm
      Marcus Hagedorn, University of Oslo
      Iourii Manovskii, University of Pennsylvania and NBER
      Kurt Mitman, Institute for International Economic Studies
      The Fiscal Multiplier
      Discussant: Adrien Auclert, Stanford University and NBER

      2:45 pm
      Carlos Garriga, Federal Reserve Bank of St. Louis
      Aaron Hedlund, University of Missouri
      Housing Finance, Boom-Bust Episodes, and Macroeconomic Fragility
      Discussant: Veronica Guerrieri, University of Chicago and NBER

      4:00 pm
      John Kennan, University of Wisconsin at Madison and NBER
      Spatial Variation in Higher Education Financing and the Supply of College Graduates
      Discussant: Danny Yagan, University of California at Berkeley and NBER

        Posted by on Friday, February 23, 2018 at 09:08 AM in Academic Papers, Conferences, Economics, Macroeconomics | Permalink  Comments (1) 


        Thursday, February 22, 2018

        Fedspeak and the January FOMC Minutes

        Tim Duy:

        Fedspeak Reiterates Gradual Path: Fed speakers continue to reiterate that policy remains on a gradual path of tightening. So far, the inflation data and brightening economy has more emboldened their commitment to gradual rate hikes than a faster pace of hikes. What about fiscal policy? That train has left the station, but central bankers don’t seem too concerned – yet. ...continued here...

        And one more from Tim:

        First Impressions of the January FOMC Minutes: The minutes of the January FOMC meeting revealed increasing confidence in the economic outlook. That translated into increased confidence that gradual rate hikes remains the appropriate policy path. Does that mean the central bankers stand poised to raise their “dots” such that the median rate hike projection rises to four hikes? I don’t think so. I read the minutes as wiping away lingering concerns about the inflation outlook and allowing policymakers to coalesce around the existing three hike projection. The risk remains, of course, that conditions remain sufficiently buoyant to raise the rate projection in June or September. More important to me at this juncture is I see clear hints that the projections beyond 2018 are vulnerable to upward revisions. ...continued here...

          Posted by on Thursday, February 22, 2018 at 02:27 PM in Economics, Monetary Policy | Permalink  Comments (51) 


          Links for 02-22-18

            Posted by on Thursday, February 22, 2018 at 08:31 AM in Economics, Links | Permalink  Comments (137) 


            Tuesday, February 20, 2018

            On the Link between US Pay and Productivity

            Anna Stansbury and Lawrence Summers at VoxEU:

            On the link between US pay and productivity, by Anna Stansbury and Lawrence Summers, VoxEU: Pay growth for middle class workers in the US has been abysmal over recent decades – in real terms, median hourly compensation rose only 11% between 1973 and 2016.1 At the same time, hourly labour productivity has grown steadily, rising by 75%.
            This divergence between productivity and the typical worker’s pay is a relatively recent phenomenon. Using production/nonsupervisory compensation as a proxy for median compensation (since there are no data on the median before 1973), Bivens and Mishel (2015) show that typical compensation and productivity grew at the same rate over 1948-1973, and only began to diverge in 1973 (see Figure 1).

            Figure 1 Labour productivity, average compensation, and production/nonsupervisory compensation 1948-2016

            Stansbury20febfig1

            Notes: Labour productivity: total economy real output per hour (constructed from BLS and BEA data). Average compensation: total economy compensation per hour (constructed from BLS data). Production/nonsupervisory compensation: real compensation per hour, production and nonsupervisory workers (Economic Policy Institute).

            What does this stark divergence imply about the relationship between productivity and typical compensation? Since productivity growth has been so much faster than median pay growth, the question is how much does productivity growth benefit the typical worker?2
            A number of authors have raised these questions in recent years. Harold Meyerson, for example, wrote in American Prospect in 2014 that “for the vast majority of American workers, the link between their productivity and their compensation no longer exists”, and the Economist wrote in 2013 that “unless you are rich, GDP growth isn't doing much to raise your income anymore”. Bernstein (2015) raises the concern that “[f]aster productivity growth would be great. I’m just not at all sure we can count on it to lift middle-class incomes.” Bivens and Mishel (2015) write “although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority”.
            Has typical compensation delinked from productivity?
            Figure 1 appears to suggest that a one-to-one relationship between productivity and typical compensation existed before 1973, and that this relationship broke down after 1973. On the other hand, just as two time series apparently growing in tandem does not mean that one causes the other, two series diverging may not mean that the causal link between the two has broken down. Rather, other factors may have come into play which appear to have severed the connection between productivity and typical compensation.
            As such there is a spectrum of possibilities for the true underlying relationship between productivity and typical compensation. On one end of the spectrum – which we call ‘strong delinkage’ – it’s possible that factors are blocking the transmission mechanism from productivity to typical compensation, such that increases in productivity don’t feed through to pay. At the opposite end of the spectrum – which we call ‘strong linkage’ – it’s possible that productivity growth translates fully into increases in typical workers’ pay, but even as productivity growth has been acting to raise pay, other factors (orthogonal to productivity) have been acting to reduce it. Between these two ends of the spectrum is a range of possibilities where some degree of linkage or delinkage exists between productivity and typical compensation.
            In a recent paper, we estimate which point on this linkage-delinkage spectrum best describes the productivity-typical compensation relationship (Stansbury and Summers 2017). Using medium-term fluctuations in productivity growth, we test the relationship between productivity growth and two key measures of typical compensation growth: median compensation, and average compensation for production and nonsupervisory workers.
            Simply plotting the annual growth rates of productivity and our two measures of typical compensation (Figure 2) suggests support for quite substantial linkage – the series seem to move together, although typical compensation growth is almost always lower.

            Figure 2 Change in log productivity and typical compensation, three-year moving average

            Stansbury20febfig2

            Notes: Data from BLS, BEA and Economic Policy Institute. Series are three-year backward-looking moving averages of change in log variable.

            Making use of the high frequency changes in productivity growth over one- to five-year periods, we run a series of regressions to test this link more rigorously. We find that periods of higher productivity growth are associated with substantially higher growth in median and production/nonsupervisory worker compensation – even during the period since 1973, where productivity and typical compensation have diverged so much in levels. A one percentage point increase in the growth rate of productivity has been associated with between two-thirds and one percentage point higher growth in median worker compensation in the period since 1973, and with between 0.4 and 0.7 percentage points higher growth in production/nonsupervisory worker compensation. These results suggest that there is substantial linkage between productivity and median compensation (even the strong linkage view cannot be rejected), and that there is a significant degree of linkage between productivity and production/nonsupervisory worker compensation.
            How is it possible to find this relationship when productivity has clearly grown so much faster than median workers’ pay? Our findings imply that even as productivity growth has been acting to push workers’ pay up, other factors not associated with productivity growth have acted to push workers’ pay down. So while it may appear on first glance that productivity growth has not benefited typical workers much, our findings imply that if productivity growth had been lower, typical workers would have likely done substantially worse.
            If the link between productivity and pay hasn’t broken, what has happened?
            The productivity-median compensation divergence can be broken down into two aspects of rising inequality: the rise in top-half income inequality (divergence between mean and median compensation) which began around 1973, and the fall in the labour share (divergence between productivity and mean compensation) which began around 2000.
            For both of these phenomena, technological change is often invoked as the primary cause. Computerisation and automation have been put forward as causes of rising mean-median income inequality (e.g. Autor et al. 1998, Acemoglu and Restrepo 2017); and automation, falling prices of investment goods, and rapid labour-augmenting technological change have been put forward as causes of the fall in the labour share (e.g. Karabarbounis and Neiman 2014, Acemoglu and Restrepo 2016, Brynjolffson and McAfee 2014, Lawrence 2015).
            At the same time, non-purely technological hypotheses for rising mean-median inequality include the race between education and technology (Goldin and Katz 2007), declining unionisation (Freeman et al. 2016), globalisation (Autor et al. 2013), immigration (Borjas 2003), and the ‘superstar effect’ (Rosen 1981, Gabaix et al. 2016). Non-technological hypotheses for the falling labour share include labour market institutions (Levy and Temin 2007, Mishel and Bivens 2015), market structure and monopoly power (Autor et al. 2017, Barkai 2017), capital accumulation (Piketty 2014, Piketty and Zucman 2014), and the productivity slowdown itself (Grossman et al. 2017).
            While we do not analyse these theories in detail, a simple empirical test can help distinguish the relative importance of these two categories of explanation – purely technology-based or not – for rising mean-median inequality and the falling labour share. More rapid technological progress should cause faster productivity growth – so, if some aspect of faster technological progress has caused inequality, we should see periods of faster productivity growth come alongside more rapid growth in inequality.
            We find very little evidence for this. Our regressions find no significant relationship between productivity growth and changes in mean-median inequality, and very little relationship between productivity growth and changes in the labour share. In addition, as Table 1 shows, the two periods of slower productivity growth (1973-1996 and 2003-2014) were associated with faster growth in inequality (an increasing mean/median ratio and a falling labour share).
            Taken together, this evidence casts doubt on the idea that more rapid technological progress alone has been the primary driver of rising inequality over recent decades, and tends to lend support to more institutional and structural explanations.

            Table 1 Average annual growth rates of productivity, the labour share and the mean/median ratio during the US’ productivity booms and productivity slowdowns

            Stansbury20febtable1_0

            Note: Data from BLS, Penn World Tables, EPI Data Library.

            Policy implications
            The slow growth in median workers’ pay and the large and persistent rise in inequality are extremely concerning on grounds of both welfare and equity. There are important ongoing debates about the factors responsible for this phenomenon, and what must be done to reverse it.
            Our contribution to these debates is, we believe, to demonstrate that productivity growth still matters substantially for middle income Americans. If productivity accelerates for reasons relating to technology or to policy, the likely impact will be increased pay growth for the typical worker.
            We can use our estimates to calculate a rough counterfactual. If the ratio of the mean to median worker's hourly compensation in 2016 had been the same as it was in 1973, and mean compensation remained at its 2016 level, the median worker's pay would have been around 33% higher. If the ratio of labour productivity to mean compensation in 2016 had been the same as it was in 1973 (i.e. the labour share had not fallen), the average and median worker would both have had 4-8% more hourly compensation all else constant. Assuming our estimated relationship between compensation and productivity holds, if productivity growth had been as fast over 1973-2016 as it was over 1949-1973, median and mean compensation would have been around 41% higher in 2016, holding other factors constant.
            This suggests that the potential effect of raising productivity growth on the average American’s pay may be as great as the effect of policies to reverse trends in income inequality – and that a continued productivity slowdown should be a major concern for those hoping for increases in real compensation for middle income workers.
            This does not mean that policy should ignore questions of redistribution or labour market intervention – the evidence of the past four decades demonstrates that productivity growth alone is not necessarily enough to raise real incomes substantially, particularly in the face of strong downward pressures on pay. However it does mean that policy should not focus on these issues to the exclusion of productivity growth – strategies that focus both on productivity growth and on policies to promote inclusion are likely to have the greatest impact on the living standards of middle-income Americans.
            References
            Acemoglu, D and P Restrepo (2017), "Robots and jobs: Evidence from US labour markets", NBER Working Paper 23285.
            Acemoglu, D and P Restrepo (2016), “The race between machine and man: Implications of technology for growth, factor shares and employment”, NBER, Working Paper 22252.
            Autor, D, D Dorn, L F Katz, C Patterson and J Van Reenen (2017), “The fall of the labour share and the rise of superstar firms”, CEPR Discussion Paper 12041.
            Autor, D, D Dorn and G H Hanson (2013), "The China syndrome: Local labour market effects of import competition in the United States", American Economic Review 103(6): 2121-2168.
            Autor, D, L F Katz and A B Krueger (1998), "Computing inequality: Have computers changed the labour market?"  Quarterly Journal of Economics 113(4): 1169-1213.
            Barkai, S (2016), "Declining labour and capital shares", Stigler Center for the Study of the Economy and the State, New Working Paper Series 2.
            Bernstein, J (2015), “Faster productivity growth would be great. I’m just not sure we can count on it to lift middle class incomes”, On the Economy Blog, 21 April.
            Bivens, J and L Mishel (2015), “Understanding the historic divergence between productivity and a typical worker's pay: Why it matters and why it's real", Economic Policy Institute, Washington DC.
            Borjas, G J (2003), “The labour demand curve is downward sloping: Reexamining the impact of immigration on the labour market”, Quarterly Journal of Economics 118(4): 1335-1374.
            Brynjolfsson, E and A McAfee (2014), The second machine age: Work, progress, and prosperity in a time of brilliant technologies, WW Norton & Company.
            The Economist (2015), “Inequality: A defining issue – for poor people”, Economist Blog – Democracy in America, 16 December.
            Elsby, M, B Hobijn and A Şahin (2013), "The decline of the US labour share", Brookings Papers on Economic Activity 2013(2): 1-63.
            Feldstein, M (2008), “Did wages reflect growth in productivity?" Journal of Policy Modeling 30(4): 591-594.
            Freeman, R B, E Han, B Duke, D Madland (2016), “How does declining unionism affect the American middle class and inter-generational mobility?”, Federal Reserve Bank, 2015 Community Development Research Conference Publication.
            Gabaix, X, J‐M Lasry, P‐L Lions and B Moll (2016), "The dynamics of inequality", Econometrica 84(6): 2071-2111.
            Goldin, C D, and L F Katz (2009), The race between education and technology, Harvard University Press.
            Grossman, G M, E Helpman, E Oberfield and T Sampson (2017), “The productivity slowdown and the declining labour share: A neoclassical exploration”, NBER, Working Paper No 23853.
            Karabarbounis, L and B Neiman (2014), “The global decline of the labour share", Quarterly Journal of Economics 129(1): 61-103.
            Lawrence, R Z (2015), “Recent declines in labour's share in US income: A preliminary neoclassical account", NBER Working Paper No w21296.
            Lawrence, R Z (2016), “Does productivity still determine worker compensation? Domestic and international evidence”, in The US Labour Market: Questions and Challenges for Public Policy, American Enterprise Institute Press.
            Levy, F and P Temin (2007), "Inequality and institutions in 20th century America", NBER Working Paper 13106
            Meyerson, H (2014), “How to raise Americans’ wages”, The American Prospect, 18 March.
            Piketty, T (2014), Capital in the Twenty-First Century, Cambridge, MA: Belknap Press.
            Piketty, T and G Zucman (2014), “Capital is back: Wealth-income ratios in rich countries 1700–2010”, Quarterly Journal of Economics 129(3): 1255–1310.
            Stansbury, A and L Summers (2017), “Productivity and pay: Is the link broken?”, NBER, Working Paper 24165.
            Endnotes
            [1] As measured using the CPI-U-RS consumer price deflator. Using the PCE consumer price deflator, median compensation has risen by about 26% over the period rather than 12%. We use the Economic Policy Institute’s measure of median compensation, which they calculate from median wages (BLS) and the average wage-total compensation ratio (BEA NIPA).
            [2] Note that we focus in this column on the divergence of median or typical pay from average productivity. The divergence of average compensation from average productivity – equivalent to the declining labour share – has been smaller and more recent. Analyses of the average compensation-average productivity divergence can be found in Feldstein (2008), Lawrence (2016) and our recent paper (Stansbury and Summers 2017).

              Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Income Distribution, Productivity | Permalink  Comments (91) 


              Links for 02-20-18

                Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Links | Permalink  Comments (156) 


                Inflation, General Data Flow, Fiscal Stimulus, And Implications For Monetary Policy

                 

                Tim Duy:

                Inflation, General Data Flow, Fiscal Stimulus, And Implications For Monetary Policy, by Tim Duy: The data flow remains supportive of the Fed’s forecast of sustained moderate growth. A spike in prices, however, drove core CPI inflation to the fastest monthly pace since 2005, again raising fears that the Fed will accelerate the pace of rate hikes. I still think this is premature. To be sure, the risk is that the Fed hikes rates more than the projected three times this year. But Powell & Co. will need more data to support a faster pace of rate hikes. They will not overreact to data that may prove to be nothing more than a flash in a pan. ...continued here...

                  Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Monetary Policy | Permalink  Comments (12) 


                  Monday, February 19, 2018

                  Links for 02-19-18

                    Posted by on Monday, February 19, 2018 at 11:56 AM in Economics, Links | Permalink  Comments (178) 


                    Friday, February 16, 2018

                    Paul Krugman: Budgets, Bad Faith and ‘Balance’

                    "our job, whether we’re policy analysts or journalists, isn’t to be “balanced”; it’s to tell the truth":

                    Budgets, Bad Faith and ‘Balance’, by Paul Krugman, NY Times: Over the past couple of months Republicans have passed or proposed three big budget initiatives. First, they enacted a springtime-for-plutocrats tax cut that will shower huge benefits on the wealthy while offering a few crumbs for ordinary families — crumbs that will be snatched away after a few years, so that it ends up becoming a middle-class tax hike. Then they signed on to a what-me-worry budget deal that will blow up the budget deficit to levels never before seen except during wars or severe recessions. Finally, the Trump administration released a surpassingly vicious budget proposal that would punish not just the vulnerable but also most working families.
                    Looking at all of this should make you very angry... But my anger isn’t mostly directed at Republicans; it’s directed at their enablers, the professional centrists, both-sides pundits, and news organizations that spent years refusing to acknowledge that the modern G.O.P. is what it so clearly is.
                    Which is not to say that Republicans should be let off the hook. ...I can’t think of a previous example of a party that so consistently acted in bad faith — pretending to care about things it didn’t, pretending to serve goals that were the opposite of its actual intentions. ... The ... party’s true agenda, dictated by the interests of a handful of super-wealthy donors, would be very unpopular if the public understood it. So the party must consistently lie...
                    Meanwhile, many news organizations ... treat recent G.O.P. actions as if they are some kind of ... departure from previous principles. They aren’t. Republicans are what they always were: They never cared about deficits; they always wanted to dismantle Medicare, not defend it. They just happen not to be who they pretended to be.
                    Now, there’s no mystery about why many people won’t face up to the reality of Republican bad faith. Washington is full of professional centrists, whose public personas are built around a carefully cultivated image of standing above the partisan fray, which means that they can’t admit that while there are dishonest politicians everywhere, one party basically lies about everything. News organizations are intimidated by accusations of liberal bias, which means that they try desperately to show “balance” by blaming both parties equally for all problems.
                    But our job, whether we’re policy analysts or journalists, isn’t to be “balanced”; it’s to tell the truth. And while Democrats are hardly angels, at this point in American history, the truth has a well-known liberal bias.

                      Posted by on Friday, February 16, 2018 at 12:39 PM in Economics, Politics, Press | Permalink  Comments (252) 


                      Thursday, February 15, 2018

                      Links for 02-15-18

                        Posted by on Thursday, February 15, 2018 at 10:51 AM in Economics, Links | Permalink  Comments (260) 


                        Tuesday, February 13, 2018

                        Links for 02-13-18

                          Posted by on Tuesday, February 13, 2018 at 01:39 PM in Economics, Links | Permalink  Comments (271) 


                          Paul Krugman: Trump Doesn’t Give a Dam

                          "Trump’s offer on infrastructure is this: nothing":

                          Trump Doesn’t Give a Dam, by Paul Krugman, NY Times: Donald Trump doesn’t give a dam. Or a bridge. Or a road. Or a sewer system. Or any of the other things we talk about when we talk about infrastructure.
                          But how can that be when he just announced a $1.5 trillion infrastructure plan? That’s easy: It’s not a plan, it’s a scam. The $1.5 trillion number is just made up; he’s only proposing federal spending of $200 billion, which is somehow supposed to magically induce a vastly bigger overall increase in infrastructure investment, mainly paid for either by state and local governments (which are not exactly rolling in cash, but whatever) or by the private sector.
                          And even the $200 billion is essentially fraudulent: The budget proposal announced the same day doesn’t just impose savage cuts on the poor, it includes sharp cuts for the Department of Transportation, the Department of Energy and other agencies that would be crucially involved in any real infrastructure plan. Realistically, Trump’s offer on infrastructure is this: nothing.
                          That’s not to say that the plan is completely vacuous. One section says that it would “authorize federal divestiture of assets that would be better managed by state, local or private entities.” Translation: We’re going to privatize whatever we can. It’s conceivable that this would be done only in cases where the private sector really would do better, and contracts would be handed out fairly, without a hint of cronyism. And if you believe that, I have a degree from Trump University you might want to buy. ...
                          So why isn’t Trump proposing something real? Why this dog’s breakfast of a proposal that everyone knows won’t go anywhere?
                          Part of the answer is that in practice Trump always defers to Republican orthodoxy, and the modern G.O.P. hates any program that might show people that government can work and help people.
                          But I also suspect that Trump is afraid to try anything substantive. To do public investment successfully, you need leadership and advice from experts. And this administration doesn’t do expertise, in any field. Not only do experts have a nasty habit of telling you things you don’t want to hear, their loyalty is suspect: You never know when their professional ethics might kick in.
                          So the Trump administration probably couldn’t put together a real infrastructure plan even if it wanted to. And that’s why it didn’t.

                            Posted by on Tuesday, February 13, 2018 at 01:39 PM in Economics, Fiscal Policy, Politics | Permalink  Comments (24) 


                            FRBSF: The Current Economy and the Outlook

                            From the San Francisco Fed:

                            FRBSF Fed Views: Fernanda Nechio, research advisor at the Federal Reserve Bank of San Francisco, stated her views on the current economy and the outlook as of February 8, 2018.

                            Above-trend growth continues

                            Based on the advance estimate of the Bureau of Economic Analysis, real GDP expanded at an annual rate of 2.6 percent for the fourth quarter of 2017 and 2.5 percent for the year overall. The bulk of the strength in real GDP growth can be attributed to robust consumer spending, which in turn reflects household wage gains, increased equity prices, and supportive financial conditions. As monetary policy continues to normalize over the next two to three years, we expect growth gradually to fall back to our trend growth estimate of about 1.8%.

                            Job growth remains strong

                            Recent employment gains remain solid. Nonfarm payroll employment in January rose by 200,000 jobs. During 2017, payroll gains have averaged around 181,000 jobs per month.

                            Unemployment below natural rate

                            The unemployment rate remained at 4.1% in January, unchanged since October. We expect this rate to fall below 4% in 2018 before gradually returning to our estimate for its natural level at 4.75%.

                            Inflation expected to increase gradually

                            Inflation continues to remain below the Federal Reserve’s 2% target. Overall inflation in the twelve months through December, as measured by the price index for personal consumption expenditures was 1.7%. Core inflation, which excludes volatile food and energy prices, rose 1.5% in the twelve months through December. Given the strong labor market conditions, we expect overall and core consumer price inflation to rise gradually and reach our 2% target over the next couple of years.

                            Short-term interest rates heading up

                            Interest rates are continuing to increase with the gradual removal of monetary policy accommodation. At its January meeting, the FOMC maintained the target range for the federal funds target at 1.25% to 1.5%.

                            Life expectancy steadily increasing

                            The developed world is undergoing a dramatic demographic transition. In most advanced economies, actual and expected longevity have increased steadily, while the median retirement age has changed little, leading to longer retirement periods. Meanwhile, population growth rates are declining and in some cases, even becoming negative.

                            Population growth declining

                            Changing demographics can affect the natural real rate of interest, r-star; the inflation-adjusted interest rate that is consistent with steady inflation at the Fed’s target and the economy growing at its potential. Demographic trends affect the equilibrium rate by changing incentives to save and consume. Lengthier retirement periods may raise some households’ desire to save rather than consume, lowering r-star. At the same time, declining population growth increases the share of older households in the economy, who generally have higher marginal propensities to consume, raising consumption and r-star. As population growth declines, it could also reduce real GDP growth and productivity, thereby putting downward pressure on r-star.

                            Lower r-star limits response to recessions

                            In the United States, these demographic changes have already put significant downward pressure on interest rates between 1990 and 2017. As demographic movements tend to be long-lasting, the effects on interest rates may be ongoing. A lower equilibrium rate has the potential to limit the scope for the Federal Reserve to cut interest rates in response to future recessionary shocks.
                            The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System.

                              Posted by on Tuesday, February 13, 2018 at 01:28 PM in Economics | Permalink  Comments (4) 


                              Monday, February 12, 2018

                              Stick To The Forecast

                              Tim Duy:

                              Stick To The Forecast, by Tim Duy:
                              So far, I’d say this is small potatoes… -- New York Federal Reserve President William Dudley, February 8, 2018
                              All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. -- Federal Reserve Chairman Ben Bernanke, May 17, 2007
                              Friday was yet another day of wild swings on Wall Street as market participants continue to digest the implications for stocks and bonds of this new stage of the business cycle. In short, there looks to be a painful repricing underway that involves a new equilibrium set of prices for bonds and stocks. For now, though the Fed doesn’t care about your pain. At least that’s the message from Fed officials. They want to keep the focus on the bigger picture. That bigger picture is the economic forecast – which continues to point to gradual rate hikes. ...[continued here]...

                                Posted by on Monday, February 12, 2018 at 01:57 PM in Economics, Monetary Policy | Permalink  Comments (62) 


                                Links for 02-12-18

                                  Posted by on Monday, February 12, 2018 at 01:52 PM in Economics, Links | Permalink  Comments (152) 


                                  Friday, February 09, 2018

                                  Paul Krugman: Fraudulence of the Fiscal Hawks

                                  "...pretending to care about the deficit served several useful political purposes":

                                  Fraudulence of the Fiscal Hawks, by Paul Krugman, NY Times: In 2011, House Republicans, led by Paul Ryan, issued a report full of dire warnings about the dangers of budget deficits. ... Citing the horrors of big deficits, Republicans refused to raise the federal debt ceiling, threatening to create financial turmoil and effectively blackmailing President Barack Obama into cutting spending on domestic programs.
                                  How big were these horrifying deficits? In the 2012 fiscal year the federal deficit was $1.09 trillion. Much of this deficit, however, was a direct result of a depressed economy... The deficit fell rapidly over the next few years as the economy recovered.
                                  This week Republicans, having just enacted a huge tax cut, cheerfully agreed to a budget deal that, according to independent experts, will push next year’s deficit up to around $1.15 trillion — bigger than in 2012..., but this time none of the deficit will be a result of a depressed economy.
                                  Wait, it gets worse. In 2012 there were strong economic reasons to run budget deficits. The economy was still suffering the aftereffects of the 2008 financial crisis. ... By contrast, there is no comparable case for deficits now, with the economy near full employment and the Fed raising interest rates to head off potential inflation. ...
                                  If anything, we should be using this time of relatively full employment to pay down debt, or at least reduce it relative to G.D.P. ...Republicans ... are providing more stimulus to an economy with 4 percent unemployment than they were willing to allow an economy with 8 percent unemployment.
                                  There have been many “news analysis” pieces asking why Republicans have changed their views on deficit spending. But let’s be serious: Their views haven’t changed at all. They never really cared about debt and deficits; it was a fraud all along. ...
                                   However, pretending to care about the deficit served several useful political purposes. It was a way to push for cuts in social programs. It was also a way to hobble Obama’s presidency.
                                  And I don’t think it’s unfair to suggest that there was an element of deliberate economic sabotage. ... Basically, they were against anything that might help the economy on President Obama’s watch.
                                  Now Obama is gone, and suddenly deficits don’t matter. ...
                                  No, this is all about Republican bad faith. Everything they said about budgets, every step of the way, was fraudulent. And nobody should believe anything they say now.

                                    Posted by on Friday, February 9, 2018 at 02:40 PM in Budget Deficit, Economics, Politics | Permalink  Comments (286) 


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