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Friday, February 28, 2014

'The Real Reason Nobody Reads Academics'

Appreciate the mention:

The Real Reason Nobody Reads Academics, by Ezra Klein: New York Times columnist Nicholas Kristof recently ignited a bit of a firestorm with a column asking why academics are irrelevant to public debates. I’d turn the question around: Why aren’t journalists better at taking advantage of academic expertise?
The most efficient arrangement would have academics communicate directly with the public. Thankfully for journalists, they don’t. ... It would be a disaster for our profession if academics became good at communicating what they know.
The relationship between academics and journalists should be a happy symbiosis. The two sides are perfectly designed, in strengths and weaknesses, to support each other. ...
The good news is the chasm is closing. Academics have increasingly turned to the blogosphere, opening a window on academic conversations that were formerly out of view. In political science, for instance, the Monkey Cage is a minor miracle. In economics, Mark Thoma at the Economist’s View is tireless in tracking discussion across the profession.
Still, it would be better if academics didn’t have to blog, or know a blogger, to get their work in front of interested audiences. That would require a new model for disseminating academic work -- one that gets beyond the samizdat system used for working papers on the one hand, and the rigid journal publication system on the other. If academia was easier to keep up with, I think a lot of academics would be surprised to learn how many journalists care about their work, and I think a lot of journalists would be happy to find how much academic research can do for their stories.

    Posted by on Friday, February 28, 2014 at 12:36 PM in Economics, Press | Permalink  Comments (37)


    'Death of a Statistic'

    Tim Taylor:

    Death of a Statistic, by Tim Taylor: OK, I know that only a very small group of people actually care about government statistics. I know I'm a weirdo.  I accept it. But data is not the plural of anecdote, as the saying goes. If you care about deciphering real-world economic patterns, you need statistical evidence. Thus, it's unpleasant news to see the press release from the US Bureau of Labor Statistics reporting that, because its budget has been cut by $21 million down to $592 million, it will cut back on the International Price Program and on the Quarterly Census of Employment and Wages.

    I know, serious MEGO, right? (MEGO--My Eyes Glaze Over.)

    But as Susan Houseman and Carol Corrado explain, the change means the end of the export price program, which calculates price levels for U.S. exports, and thus allows economists "to understand trends in real trade balances, the competitiveness of U.S. industries, and the impact of exchange rate movements. It is highly unusual for a statistical agency to cut a so-called principal federal economic indicator." As BLS notes: "The Quarterly Census of Employment and Wages (QCEW) program publishes a quarterly count of employment and wages reported by employers covering 98 percent of U.S. jobs, available at the county, MSA [Metropolitan Statistical Area], state and national levels by industry." The survey is being reduced in scope and frequency, not eliminated. If you don't think that a deeper and detailed understanding of employment and wages is all that important, maybe cutting back funding for this survey seems like a good idea.

    These changes seem part of series of sneaky little unpleasant cuts. Last year, the Bureau of Labor Statistics saved a whopping $2 million by cutting the International Labor Comparisons program, which produced a wide array of labor market and economic data produced with a common conceptual framework, so that one could meaningfully compare, say, "unemployment" across different countries. And of course, some of us are still mourning the decision of the U.S. Census Bureau in 2012 to save $3 million per year by ending the U.S. Statistical Abstract, which for since 1878  had provided a useful summary and reference work for locating a wide array of government statistics.

    The amounts of money saved with these kinds of cuts is tiny by federal government standards, and the costs of not having high-quality statistics can be severe. ...

    I wish I had some way to dramatize the foolishness and loss of these decisions to trim back on government statistics. ...

    It won't do to blame these kinds of cutbacks in the statistics program on the big budget battles, because in the context of the $3.8 trillion federal budget this year, a few tens of millions are pocket change. These cuts could easily be reversed by trimming back on the outside conference budgets of larger agencies. But all statistics do is offer facts that might get in the way of what you already know is true. Who needs the aggravation?

    Yes, no sense letting actual facts get in the way of what people just know is true...

      Posted by on Friday, February 28, 2014 at 07:22 AM in Economics | Permalink  Comments (26)


      Paul Krugman: No Big Deal

      It's not clear that the Trans-Pacific Partnership is a good idea:

      No Big Deal, by Paul Krugman, Commentary, NY Times: Everyone knows that the Obama administration’s domestic economic agenda is stalled in the face of scorched-earth opposition from Republicans. And that’s a bad thing: The U.S. economy would be in much better shape if Obama administration proposals like the American Jobs Act had become law.
      It’s less well known that the administration’s international economic agenda is also stalled, for very different reasons. In particular,... the proposed Trans-Pacific Partnership, or T.P.P. — doesn’t seem to be making much progress...
      And you know what? That’s O.K. It’s far from clear that the T.P.P. is a good idea. ... I am in general a free trader, but I’ll be undismayed and even a bit relieved if the T.P.P. just fades away. ...
      There’s a lot of hype about T.P.P. .... Supporters like to talk about the fact that the countries at the negotiating table comprise around 40 percent of the world economy, which they imply means that the agreement would be hugely significant. But trade among these players is already fairly free, so the T.P.P. wouldn’t make that much difference.
      Meanwhile, opponents portray the T.P.P. as a huge plot, suggesting that it would destroy national sovereignty and transfer all the power to corporations. This, too, is hugely overblown. ...
      What the T.P.P. would do, however, is increase the ability of certain corporations to assert control over intellectual property. Again, think drug patents and movie rights.
      Is this a good thing from a global point of view? Doubtful. ... True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious — and has nothing at all to do with classical arguments for free trade. ...
      In short, there isn’t a compelling case for this deal... Nor does there seem to be anything like a political consensus in favor, abroad or at home. ...
      So what I wonder is why the president is pushing the T.P.P. at all. ... My guess is that we’re looking at a combination of Beltway conventional wisdom — Very Serious People always support entitlement cuts and trade deals — and officials caught in a 1990s time warp, still living in the days when New Democrats tried to prove that they weren’t old-style liberals by going all in for globalization. ...
      So don’t cry for T.P.P. If the big trade deal comes to nothing, as seems likely, it will be, well, no big deal.

        Posted by on Friday, February 28, 2014 at 12:03 AM in Economics, International Trade | Permalink  Comments (45)


        Links for 2-28-14

          Posted by on Friday, February 28, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (73)


          Thursday, February 27, 2014

          Brief Note

          Traveling today ...

            Posted by on Thursday, February 27, 2014 at 10:20 AM in Economics | Permalink  Comments (3)


            'Little Evidence of a 'Big Tradeoff' Between Redistribution and Growth'

            Redistribution does not appear to hinder economic growth:

            Treating Inequality with Redistribution: Is the Cure Worse than the Disease?, by Jonathan D. Ostry and Andrew Berg: Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects, (including questions about the consistency of extreme inequality with democratic governance), but also the economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.
            Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth. Recent narratives include how inequality intensified the leverage and financial cycle, sowing the seeds of crisis; or how political-economy factors, especially the influence of the rich, allowed financial excess to balloon ahead of the crisis.
            But what is the role of policy, and in particular fiscal redistribution to bring about greater equality? Conventional wisdom would seem to suggest that redistribution would in itself be bad for growth but, conceivably, by engendering greater equality, might help growth. Looking at past experience, we find scant evidence that typical efforts to redistribute have on average had an adverse effect on growth. And faster and more durable growth seems to have followed the associated reduction in inequality. ...
            To put it simply, we find little evidence of a “big tradeoff” between redistribution and growth. Inaction in the face of high inequality thus seems unlikely to be warranted in many cases.

              Posted by on Thursday, February 27, 2014 at 12:33 AM in Economics, Income Distribution | Permalink  Comments (38)


              The Obama Stimulus

              Jeff Frankel says the stimulus worked:

              Guest Contribution: “The Obama Stimulus and the 5-Year Anniversary of Market Turnaround”, econbrowser: Commentators are taking note of the five-year anniversary of the fiscal stimulus that President Obama enacted during his first month in office. Those who don’t like Obama are still asking “if the fiscal stimulus was so great, why didn’t it work?” ... Listening to these arguments, one would think that no effect of the Obama stimulus could be seen by the naked eye in the U.S. economic statistics of 2009. Nothing could be further from the truth. ...
              If one judges by the economic statistics, the effect could not have been much more immediate, whether one looks at job loss, GDP, or financial market indicators. Look at the graphs below. ...
              Of course there are always a lot of things going on. One cannot say for sure what was the effect of the Obama stimulus. And one can debate why the pace of the expansion slowed after 2010 (my own prime culprit is the switch to fiscal austerity). But whether looking at indicators of economic activity, the labor market, or the financial markets, one cannot say that the fiscal stimulus of February 2009 had no apparent impact in the graphs.

                Posted by on Thursday, February 27, 2014 at 12:24 AM in Economics, Fiscal Policy | Permalink  Comments (47)


                Links for 2-27-14

                  Posted by on Thursday, February 27, 2014 at 12:06 AM in Economics, Links | Permalink  Comments (71)


                  'The Pattern of Job Creation and Destruction by Firm Age and Size'

                  What age and size firms have the highest net job creation rates?

                  The Pattern of Job Creation and Destruction by Firm Age and Size, by John Robertson and Ellyn Terry, macroblog: A recent Wall Street Journal blog post caught our attention. In particular, the following claim:
                  It’s not size that matters—at least when it comes to job creation. The age of the company is a bigger factor.
                  This observation is something we have also been thinking a lot about over the past few years (see for example, here, here, and here).
                  The following chart shows the average job-creation rate of expanding firms and the average job-destruction rates of shrinking firms from 1987 to 2011, broken out by various age and size categories:
                  In the chart, the colors represent age categories, and the sizes of the dot represent size categories. So, for example, the biggest blue dot in the far northeast quadrant shows the average rate of job creation and destruction for firms that are very young and very large. The tiny blue dot in the far east region of the chart represents the average rate of job creation and destruction for firms that are very young and very small. If an age-size dot is above the 45-degree line, then average net job creation of that firm size-age combination is positive—that is, more jobs are created than destroyed at those firms. (Note that the chart excludes firms less than one year old because, by definition in the data, they can have only job creation.)
                  The chart shows two things. First, the rate of job creation and destruction tends to decline with firm age. Younger firms of all sizes tend to have higher job-creation (and job-destruction) rates than their older counterparts. That is, the blue dots tend to lie above the green dots, and the green dots tend to be above the orange dots.
                  The second feature is that the rate of job creation at larger firms of all ages tends to exceed the rate of job destruction, whereas small firms tend to destroy more jobs than they create, on net. That is, the larger dots tend to lie above the 45-degree line, but the smaller dots are below the 45-degree line. ...
                  Apart from new firms, it seems that the combination of youth (between one and ten years old) and size (more than 250 employees) has tended to yield the highest rate

                    Posted by on Thursday, February 27, 2014 at 12:03 AM in Economics, Unemployment | Permalink  Comments (5)


                    Wednesday, February 26, 2014

                    Links for 2-26-14

                     A bit late with these today:

                      Posted by on Wednesday, February 26, 2014 at 10:25 AM in Economics, Links | Permalink  Comments (24)


                      Fed Watch: Tarullo on Monetary Policy and Financial Stability

                      Tim Duy is helping to fill the void -- thanks Tim:

                      Tarullo on Monetary Policy and Financial Stability, by Tim Duy: Federal Reserve Governor Daniel Tarullo tackled the issue of financial stability in a speech that I think is well worth the time to read. The starting point is that many lessons have been learned over the past two cycles, including the perils of ignoring financial stability issues. But how should such concerns be incorporated into the policymaking process? Tarullo:

                      While few today would take the pre-crisis view common among central bankers that financial stability should not be an explicit concern of monetary policy, there is considerable disagreement over--among other things--the weight that financial stability concerns should carry compared with traditional monetary policy goals of price stability and maximum employment.

                      Tarullo begins with a brief overview of the financial crisis and the Fed's response, declaring partial victory:

                      ...while the recovery has been frustratingly slow and remains incomplete, there has been real progress, despite the fact that in the past couple of years a restrictive fiscal policy has been working at cross-purposes to monetary policy, and that balance sheet repair and financial strains in Europe have made it more difficult for the economy to muster much self-sustaining momentum.

                      As Tarullo notes, the Fed's actions have not come without backlash. Of much focus is the size of the balance sheet, and the likelihood of unwinding the resulting liquidity should inflation rear its head. Tarullo quickly dismisses this concern as no longer of major concern given the expansion of the Fed's toolkit. He turns his attention toward bigger game:

                      The area of concern about recent monetary policy that I want to address at greater length relates to financial stability. The worry is that the actual extended period of low interest rates, along with expectations fostered by forward guidance of continued low rates, may be incentivizing financial market actors to take on additional risks to boost margins, thereby contributing to unsustainable increases in asset prices and a consequent buildup of systemic vulnerabilities. Indeed, in the years preceding the crisis, a few prescient observers swam against the tide of conventional wisdom to argue that a sustained period of low rates was inducing investors to "reach for yield" and thereby endangering the financial system.

                      Policymakers currently anticipate the Fed will hold interest rates near zero into 2015, followed by only a gradual path of tightening. The concern is that such a long period of low rates will spawn an asset bubble, or bubbles, similar to the process that many feel fueled the housing boom last decade. The eventual unwinding of any bubbles would likely be unpleasant. But, presumably, the period of low rates occurred for a reason - to support economic activity. Therein lies the conundrum for policymakers:

                      The very accommodative monetary policy that contributed to the restoration of financial stability could, if maintained long enough in the face of slow recovery in the real economy, eventually sow the seeds of renewed financial instability. Yet removal of accommodation could choke off the recovery just as it seems poised to gain at least a bit more momentum.

                      So how can the Federal Reserve protect against financial instability? Tarullo here makes a point I think the Fed will frequently reiterate:

                      As a preliminary matter, it is important to note that incorporating financial stability considerations into monetary policy decisions need not imply the creation of an additional mandate for monetary policy. The potentially huge effect on price stability and employment associated with bouts of serious financial instability gives ample justification.

                      By addressing financial instability risks, they are attempting to minimize deviations in inflation and unemployment. In effect, they might slow the pace of activity on the upside in return for minimizing the downside. This, however, is easier said then done, as it is difficult to sell delaying progress on the real problems of low inflation and high unemployment to fight against a phantom downturn:

                      Of course, this preliminary observation underscores the fact that the identification of systemic risks, especially those based on the putative emergence of asset bubbles, is not a straightforward exercise. The eventual impact of the bursting of the pre-crisis housing bubble on financial stability went famously underdiagnosed by policymakers and many private analysts. But there would be considerable economic downside in reacting with policy measures each time a case could be made that a bubble was developing.

                      The Fed is actively paying attention to markets in the search for stability risks. Tarullo reports the outcome of the Fed's new macroprudential efforts:

                      At present, our monitoring does find some evidence of increased duration and credit risk, but the increases appear relatively moderate to date--particularly at the largest banks and life insurers. Moreover, valuations for broad categories of assets such as real estate and corporate equities remain within historical norms, suggesting that valuation pressures, if present, are confined to narrower segments of assets. For example, valuations do appear stretched for farmland, although recent data are suggesting some slowing, and for the equity prices of some small technology firms.

                      No broad-based concerns such as the equity surge of the 1990s or the housing boom of the 2000s. Just pockets of issues here and there. That said, all is not perfect:

                      Still, there are areas where investors appear to have been very sanguine regarding certain types of exposure and modest in their demands for compensation to assume such risk. High-yield corporate bond and leveraged loan funds, for instance, have seen strong inflows, reflecting greater investor appetite for risky corporate credits, while underwriting standards have deteriorated, raising the possibility of large losses going forward.

                      Weak underwriting for risky, leveraged assets that investors seem eager to acquire for unusually little reward. This is the kind of situation, especially with leveraged assets, that will repeatedly gain the Fed's attention going forward. What action has the Fed taken? Tarullo:

                      In these circumstances, it has to date seemed appropriate to rely on supervisory responses. For example, in the face of substantial growth in the volume of leveraged lending and the deterioration in underwriting standards, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued updated guidance on leverage lending in March 2013. This guidance outlined principles related to safe and sound leveraged lending activities, including the expectation that banks and thrifts originate leveraged loans using prudent underwriting standards regardless of their intent to hold or distribute them.

                      In addition, the Federal Reserve, alongside other regulators, has been working with the firms we supervise to increase their resilience to possible interest rate shocks...Our analysis to this point (undertaken outside of our annual stress test program) suggests that banking firms are capitalized to withstand the losses in asset valuations that would arise from large spikes in rates, which, moreover, would see an offset from the increase in the value of bank deposit franchises. This finding is consistent with the lack of widespread stress during the period of May through June 2013 when interest rates increased considerably. The next set of stress-test results, which we will release next month, will provide further insight on this point, both to regulators and to markets.

                      Some enhanced guidance and additional stress tests. I think it would be reasonable to describe this response as underwhelming. Would "additional guidance" have deterred lending activity during the housing bubble? I somehow doubt it. Indeed, Tarullo has his doubts:

                      While ad hoc supervisory action aimed at specific lending or risks is surely a useful tool, it has its limitations. First, it is a bit too soon to judge precisely how effective these supervisory actions--such as last year's leveraged lending guidance--have been. Second, even if they prove effective in containing discrete excesses, it is not clear that the somewhat deliberate supervisory process would be adequate to deal with a more pervasive reach for yield affecting many areas of credit extension. Third, and perhaps most important, the extent to which supervisory practice can either lean against the wind or increase the overall resiliency of the financial system is limited by the fact that it applies only to prudentially regulated firms. This circumstance creates an incentive for intermediation activities to migrate outside of the regulated sector.

                      The last point is critical. Increased regulatory activity might just push more activity into the shadow banking realm. There the threat of financial instability might increase exponentially, but without a regulator as a backstop. I think this issue will tend to restrain the Fed's interest in heavy-handed regulatory activity.

                      Tarullo follows with a discussing of time-varying policies, citing the example of increased loan-to-value requirements for mortgages as lending accelerates. This is an area to watch, as Tarullo sees value in this approach:

                      ...I would devote particular attention to policies that can act as the rough equivalent of an increase in interest rates for particular sources of funding. Such policies would be more responsive to problems that were building quickly because of certain kinds of credit, without regard to whether they were being deployed in one or many sectors of the economy...

                      Such policies could slow the progress of an asset bubble and, as Tarullo points out, provide additional time for policymakers to determine if the situation requires a change in overall monetary policy. Ultimately, however, Tarullo is a realist. He doesn't intent to put all his eggs in the macroprudential basket:

                      The foregoing discussion has considered the ways in which existing supervisory authority and new forms of macroprudential authority may allow monetary policymakers to avoid, or at least defer, raising interest rates to contain growing systemic risks under circumstances in which policy is falling well short of achieving one or both elements of the dual mandate. However, as has doubtless been apparent, I believe these alternative policy instruments have real limitations.

                      As he later says, this means that the Fed should not take the direct monetary policy action "off the table" when it comes to addressing financial instability. What does that mean for policy in the near term? Tarullo:

                      As I noted earlier, I do not think that at present we are confronted with a situation that would warrant a change in the monetary policy we have been pursuing...

                      Not terribly surprising. After all, given that policymakers expect a long period of low rates, they obviously are not expecting sufficient financial instability to justify changing that outcome. But expect more talk about the topic:

                      ...But for that very reason, now is a good time to consider these issues more actively. One useful step would be development of a framework that would allow us to make a more analytic, less instinctual judgment on the potential tradeoffs between enhanced financial stability and reduced economic activity. This will be an intellectually challenging exercise, but in itself does not entail any changes in policy.

                      Bottom Line: The Fed continues to explore the role of monetary policy in addressing asset bubbles. But engaging such concerns head on with tighter policy remains a secondary option. The first option is a variety of macroprudential tools. Moreover, policymakers believe they have the time to explore such tools, much as they have had time to consider managing their expanded balance sheet. They will also remain cautious to act out fear of increasing the risk of instability by driving activity out from under their purview. At this point, my gut reaction is that by the time the Fed feels they are left with no other option but to tighten policy to limit financial instability risks, the damage will already have been done.

                        Posted by on Wednesday, February 26, 2014 at 06:36 AM in Economics, Fed Watch, Monetary Policy, Regulation | Permalink  Comments (12)


                        Tuesday, February 25, 2014

                        Legal Scholarship and Monetary Policy

                        This will be good for my monetary theory and policy class:

                        ...should scholars refrain from writing about legal issues in macroeconomics, specifically monetary policy?

                        One thinks of monetary policy decisions—whether or not to raise interest rates, purchase billions of dollars of securities on the secondary market ("quantitative easing"), devalue or change a currency—as fundamentally driven by political and economic factors, not law. And of course they are. But the law has a lot to say about them and their consequences, and legal scholarship has been pretty quiet on this.

                        Some concrete examples of the types of questions I’m talking about would be:

                        • Pursuant to its dual mandate (to maintain price stability and full employment), what kinds of measures can the Federal Reserve legally undertake for the purpose of promoting full employment?  More generally, what are the Fed’s legal constraints?
                        • What recognition should American courts extend to an attempt by a departing Eurozone member state to redenominate its sovereign debt into a new currency?

                        When it comes to issues like these, it is probably even more true than usual that law defines the boundaries of policy. Legal constraints in the context of U.S. monetary policy appear fairly robust even in times of crisis. For example, policymakers themselves often cite law as a major constraint when speaking of the tools available to the Federal Reserve in combating unemployment and deflation post-2008. Leading economics commentators do too. Yet commentary on “Fed law” is grossly underdeveloped..., legal academics have largely left commentary on the Fed and macroeconomics to the econ crowd....

                        [There's quite a bit more in the full post.]

                          Posted by on Tuesday, February 25, 2014 at 09:22 PM in Economics, Monetary Policy | Permalink  Comments (9)


                          Links for 2-25-14

                           I don't know if these are really early, or really late.

                            Posted by on Tuesday, February 25, 2014 at 01:18 PM in Economics, Links | Permalink  Comments (62)


                            Monday, February 24, 2014

                            Links for 2-25-14

                            Thanks to Tim Duy for the links tonight:

                            Labor Department Weighs Cutting Data on Import and Export Prices to Save Money - Real Time Economics
                            The Great Recession! It's Right Behind You! - Free Exchange
                            Federal Reserve Appoints Portland Business Leader Charles Wilhoite to Western Economic Advisory Council - Oregonian
                            A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy - NBER
                            What is the Stance of Monetary Policy - macroblog
                            Fracking Boom Leaves Texans Under a Toxic Cloud - Bloomberg
                            Dallas Fed's Fisher Wants to Continue Reducing Bond Purchases - Real Time Economics
                            You Won't Have Broadband Competition Without Regulation - Felix Salmon
                            Has Monetary Cooperation Broken Down? - PIEE
                            Why the Euro Inflation Number is Worse Than it Looks - Financial Times
                            My Quiz for Wannabe Keynesians - Roger Farmer
                            Global Growth After the G20 Summit - Gavyn Davies/Financial Times
                            Where a Higher Minimum Wage Hasn't Killed Jobs - Bloomberg
                            State Hiring Credits and Recent Job Growth - San Francisco Federal Reserve

                              Posted by on Monday, February 24, 2014 at 10:36 PM in Economics, Links | Permalink  Comments (92)


                              Apologies To Everyone

                              Apologies to everyone.

                              My life is in shambles.

                              Today was really hard.

                              I'll be back as soon as I can, but for now I need to heal.

                                Posted by on Monday, February 24, 2014 at 07:13 PM in Economics | Permalink  Comments (93)


                                Paul Krugman: Health Care Horror Hooey

                                 Paul krugman:

                                Health Care Horror Hooey, by Paul Krugman, Commentary, NY Times: Remember the “death tax”? The estate tax is quite literally a millionaire’s tax — a tax that affects only a tiny minority of the population, and is mostly paid by a handful of very wealthy heirs. Nonetheless, right-wingers have successfully convinced many voters that the tax is a cruel burden on ordinary Americans...
                                You might think that such heart-wrenching cases are actually quite rare, but you’d be wrong: they aren’t rare; they’re nonexistent. In particular, nobody has ever come up with a real modern example of a family farm so ld to meet estate taxes. The whole “death tax” campaign has rested on eliciting human sympathy for purely imaginary victims.
                                And now they’re trying a similar campaign against health reform. ...
                                Even supporters of health reform are somewhat surprised by the right’s apparent inability to come up with real cases of hardship. Surely there must be some people somewhere actually being hurt by a reform that affects millions of Americans. Why can’t the right find these people and exploit them?
                                Sophistry, a concept taught by the ancient Greek philosophers in order for a rhetorician to recognise spurious logic and arguments, is alive...See All Comments Write a comment
                                The most likely answer is that the true losers from Obamacare generally aren’t very sympathetic. For the most part, they’re either very affluent people affected by the special taxes that help finance reform, or at least moderately well-off young men in very good health who can no longer buy cheap, minimalist plans. Neither group would play well in tear-jerker ads.
                                No, what the right wants are struggling average Americans, preferably women, facing financial devastation from health reform. So those are the tales they’re telling, even though they haven’t been able to come up with any real examples.
                                Hey, I have a suggestion: Why not have ads in which actors play Americans who have both lost their insurance thanks to Obamacare and lost the family farm to the death tax? I mean, once you’re just making stuff up, anything goes.

                                  Posted by on Monday, February 24, 2014 at 11:32 AM in Economics, Health Care, Politics | Permalink  Comments (70)


                                  Links for 02-24-2014

                                    Posted by on Monday, February 24, 2014 at 05:32 AM in Economics, Links | Permalink  Comments (70)


                                    Sunday, February 23, 2014

                                    'Housing Weakness: Temporary or Enduring?'

                                    CR:

                                    Housing Weakness: Temporary or Enduring?, by Bill McBride: The recent data for housing has been weak, with new home sales and housing starts mostly moving sideways over the last year (with plenty of ups and downs, and I expect downward revisions to Q4 new home sales). Existing home sales have declined 14% from a peak of 5.38 million in July 2013 on a seasonally adjusted annual rate basis (SAAR), to just 4.62 million SAAR in January.

                                    There are several reasons for the recent weakness...

                                      Posted by on Sunday, February 23, 2014 at 10:03 AM in Economics, Housing | Permalink  Comments (40)


                                      Links for 02-23-2014

                                        Posted by on Sunday, February 23, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (66)


                                        Saturday, February 22, 2014

                                        'Winners Take All, but Can’t We Still Dream?'

                                        Robert Frank:

                                        Winners Take All, but Can’t We Still Dream?, by Robert Frank: It’s clear that the lives of many creative artists are being transformed by digital technology. But competing schools of thought cite the very same technology in support of strikingly different conclusions.
                                        One group, for example, says the ability to widely distribute the best performers’ products at low cost portends a world where even small differences in talent command huge differences in reward. That view is known as the “winner take all” theory.
                                        In contrast, the “long tail” theory holds that the information revolution is letting sellers prosper even when their offerings appeal to only a small fraction of the market. This view foresees a golden age in which small-scale creative talent flourishes as never before.
                                        These dueling theories strike close to home. My personal intellectual bets have given me a strong rooting interest in the winner-take-all view. But even the most flint-eyed economist has a romantic side. That part of me wants the long-tail outlook to prevail, and not just because of its hopeful message for underdogs. ...

                                          Posted by on Saturday, February 22, 2014 at 01:02 PM in Economics, Income Distribution | Permalink  Comments (51)


                                          Links for 02-22-2014

                                            Posted by on Saturday, February 22, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (143)


                                            Friday, February 21, 2014

                                            'What Do Obamacare and the EITC Have in Common with Cap-and-Trade?'

                                            Jeff Frankel has a follow-up to a post I highlighted a few days ago:

                                            What Do Obamacare and the EITC Have in Common with Cap-and-Trade?: My preceding blog post described how market-oriented mechanisms to address environmentally damaging emissions, particularly the cap-and-trade system for SO2 in the United States, have recently been overtaken by less efficient regulatory approaches such as renewables mandates. One reason is that Republicans — who originally were supporters of cap-and-trade — turned against it, even demonized it.
                                            One can draw an interesting analogy between the evolution of Republican political attitudes toward market mechanisms in the area of federal environmental regulation and hostility to the Affordable Care Act, also known as Obamacare. ... One can trace through the parallels between clean air and health care. ... A third example is the Earned-Income Tax Credit. ...

                                              Posted by on Friday, February 21, 2014 at 11:27 AM in Economics, Market Failure, Politics, Regulation | Permalink  Comments (21)


                                              'What Game Theory Means for Economists'

                                              At MoneyWatch:

                                              Explainer: What "game theory" means for economists, by Mark Thoma: Coming upon the term "game theory" this week, your first thought would likely be about the Winter Olympics in Sochi. But here we're going to discuss how game theory applies in economics, where it's widely used in topics far removed from the ski slopes and ice rinks where elite athletes compete. ...

                                                Posted by on Friday, February 21, 2014 at 08:13 AM in Economics, Methodology | Permalink  Comments (25)


                                                Paul Krugman: The Stimulus Tragedy

                                                The stimulus package was more effective than people realize:

                                                The Stimulus Tragedy, by Paul Krugman, Commentary, NY Times: Five years have passed since President Obama signed the American Recovery and Reinvestment Act — the “stimulus” — into law. With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy’s plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment.
                                                It was also a political disaster. And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since.
                                                Let’s start with the good stimulus did..., most careful studies have found evidence of strong positive effects on employment and output.
                                                Even more important, I’d argue, is the huge natural experiment Europe has provided... You see,... austerity led to nasty, in some cases catastrophic, declines in output and employment. And private spending in countries imposing harsh austerity ended up falling..., amplifying the direct effects of government cutbacks.
                                                All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.
                                                So why does everyone ... except those who have seriously studied the issue ... believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.
                                                There’s no mystery about why: America was coping with the legacy of a giant housing bubble. ... And the stimulus was both too small and too short-lived...
                                                There’s a long-running debate over whether the Obama administration could have gotten more. The administration compounded the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back...
                                                But that’s all water under the bridge. The important point is that U.S. fiscal policy went completely in the wrong direction after 2010. With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling... And this anti-stimulus has destroyed millions of jobs.
                                                In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.

                                                  Posted by on Friday, February 21, 2014 at 12:24 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (134)


                                                  Links for 02-21-2014

                                                    Posted by on Friday, February 21, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (100)


                                                    Thursday, February 20, 2014

                                                    'Moore's Law: At Least a Little Longer'

                                                    Tim Taylor:

                                                    Moore's Law: At Least a Little Longer: One can argue that the primary driver of U.S. and even world economic growth in the last quarter-century is Moore's law--that is, the claim first advanced back in 1965 by Gordon Moore, one of the founders of Intel Corporation that the number of transistors on a computer chip would double every two years. But can it go on? Harald Bauer, Jan Veira, and Florian Weig of the McKinsey Global Institute consider the issues in "Moore’s law: Repeal or renewal?" a December 2013 paper. ...
                                                    The authors argue that technological advances already in the works are likely to sustain Moore's law for another 5-10 years. This As I've written before, the power of doubling is difficult to appreciate at an intuitive level, but it means that the increase is as big as everything that came before. Intel is now etching transistors at 22 nanometers, and as the company points out, you could fit 6,000 of these transistors across the width of a human hair; or if you prefer, it would take 6 million of these 22 nanometer transistors to cover the period at the end of a sentence. Also, a 22 nanometer transistor can switch on and off 100 billion times in a second. 
                                                    The McKinsey analysts point out that while it is technologically possible for Moore's law to continue, the economic costs of further advances are becoming very high. They write: "A McKinsey analysis shows that moving from 32nm to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle."
                                                    Of course, it's also possible to have performance improvements and cost decreases on chips already in production: for example, the cutting edge of computer chips today will probably look like a steady old cheap workhorse of a chip in about five years. I suspect that we are still near the beginning, and certainly not yet at the middle, of finding ways for information and communications technology to alter our work and personal lives. But the physical problems and  higher costs of making silicon-based transistors at an ever-smaller scale won't be denied forever, either.

                                                      Posted by on Thursday, February 20, 2014 at 12:17 PM in Economics, Productivity, Technology | Permalink  Comments (25)


                                                      'Random Variation'

                                                      James Kwak:

                                                      ... I used to believe that no one could beat the market: in other words, that anyone who did beat the market was solely the beneficiary of random variation (a winner in Burton Malkiel’s coin-tossing tournament). I no longer believe this. I’ve seen too many studies that indicate that the distribution of risk-adjusted returns cannot be explained by dumb luck alone; most of the unexplained outcomes are at the negative end of the distribution, but there are also too many at the positive end. Besides, it makes sense: the idea that markets perfectly incorporate all available information sounds too much like magic to be true. ...

                                                        Posted by on Thursday, February 20, 2014 at 08:31 AM in Economics, Financial System | Permalink  Comments (36)


                                                        'How Well Did Social Security Mitigate the Effects of the Great Recession?'

                                                        I started blogging during the Social Security wars of the Bush administration. Looks like it's a good thing reason prevailed:

                                                        How Well Did Social Security Mitigate the Effects of the Great Recession?, by William B. Peterman and Kamila Sommer: Abstract: This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.

                                                          Posted by on Thursday, February 20, 2014 at 12:24 AM in Economics, Social Insurance, Social Security | Permalink  Comments (17)


                                                          Links for 02-20-2014

                                                            Posted by on Thursday, February 20, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (42)


                                                            Wednesday, February 19, 2014

                                                            'Forget the Minimum-Wage Job Losses: It's Government Cuts That'll GetYou Mad'

                                                            Heidi Moore:

                                                            Forget the minimum-wage job losses: it's government cuts that'll get you mad, by Heidi Moore: ...Which is worse: 500,000 Americans out of work, or 2m?... 500,000 is an estimate of the number of jobs the country might lose if the minimum wage gets raised to $10.10 an hour, according to a controversial analysis released Tuesday by the Congressional Budget Office. ...
                                                            What about those 2m jobs? That’s how much the economy will lose by 2019 because of federal budget cuts, as estimated by the Center for American Progress. And, well, I hate to break it to you, but Congress already voted on those last year, and it didn’t spur one fired shot.
                                                            Budget cuts, also known as austerity, are the most damaging economic decision Congress has made since the financial crisis. Former Federal Reserve chairman Ben Bernanke warned lawmakers several times that austerity measures would hurt the economy, but they largely ignored his warnings. Jobs lost to government budget cuts are part of the reason why the economy still looks so weak...
                                                            The cost of austerity doesn’t stop at 2m jobs, either. There could be as many as 7 million jobs that are never even created because of Washington budget cuts, according to the Economic Policy Institute. Those 7 million jobs would be the difference between the unhappy economy we have now ... and an actual recovery.
                                                            So, here’s the not-so-simple question: if everyone’s so angry about losing 500,000 jobs while paying the average worker more per hour, where’s the unstoppable outrage about the 2m jobs that already seem lost to austerity? ...

                                                              Posted by on Wednesday, February 19, 2014 at 07:39 PM in Economics, Fiscal Policy, Unemployment | Permalink  Comments (33)


                                                              'The Rise and Fall of Cap-and-Trade'

                                                              Jeff Frankel:

                                                              The Rise and Fall of Cap-and-Trade: ...the political tide on both sides of the Atlantic has been against “cap and trade” over the last five years. In the United States, the highly successful trading system for allowances in emissions of SO2 (sulfur dioxide) has all but died since 2012.  In the European Union as well, the Emissions Trading System was in effect overtaken by other kinds of regulation in 2013.
                                                              Cap-and-trade was originally considered a Republican idea.  Market-friendly regulation was pushed by those who thought of themselves as pro-market, rather than by those who thought of themselves as pro-regulation.  Most environmental organizations were opposed to the novel approach;  many of them thought it immoral for corporations to be able to pay for the right to pollute. The pioneering use of the cap-and-trade approach to phase out lead from gasoline in the 1980s was a policy of Ronald Reagan’s Administration.  Its successful use to reduce SO2 emissions from power plants in the 1990s was a policy of George H.W. Bush’s administration.  The proposal to use cap-and-trade to reduce SO2 and other emissions further was a policy of George W. Bush’s administration ten years ago under, first, the Clear Skies Act proposed in 2002 and then the Clean Air Interstate Rule of 2005. (See Schmalensee and Stavins, 2013, pp.103-113.) ... Senator John McCain, had sponsored US legislative proposals to use cap-and-trade to address emissions of carbon dioxide and other greenhouse gases responsible for global warming. ...
                                                              Republican politicians have now forgotten that this approach was ever their policy.  To defeat the last major climate bill in 2009, they worked themselves into a frenzy of anti-regulation rhetoric.  ... The Republican rhetoric successfully stigmatized cap-and-trade.  Schmalensee and Stavins (p.113) sum it up: “It is ironic that conservatives chose to demonize their own market-based creation.”
                                                              This stance left in its place alternative approaches that are less market-friendly (Stavins, 2011)... The non-market alternatives, such as “command and control” regulation requiring that particular energy sources or particular technologies be used, are less efficient.    Nonetheless they are again the dominant regime.   ...
                                                              There is nothing inevitable or irreversible about the recent trend away from cap-and-trade.  ... Even in the US, where it began, there is still grounds for hope. ...

                                                                Posted by on Wednesday, February 19, 2014 at 08:48 AM in Economics, Market Failure, Regulation | Permalink  Comments (109)


                                                                Why Is the Job-Finding Rate Still Low?

                                                                From Liberty Street Econmics at the NY Fed:

                                                                Why Is the Job-Finding Rate Still Low?, by Victoria Gregory, Christina Patterson, Ayşegül Şahin, and Giorgio Topa: Fluctuations in unemployment are mostly driven by fluctuations in the job-finding prospects of unemployed workers—except at the onset of recessions, according to various research papers (see, for example, Shimer [2005, 2012] and Elsby, Hobijn, and Sahin [2010]). With job losses back to their pre-recession levels, the job-finding rate is arguably one of the most important indicators to watch. This rate—defined as the fraction of unemployed workers in a given month who find jobs in the consecutive month—provides a good measure of how easy it is to find jobs in the economy. The ... the job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work. In this post, we explore the underlying reasons behind the low job-finding rate. ...

                                                                  Posted by on Wednesday, February 19, 2014 at 07:59 AM in Economics, Unemployment | Permalink  Comments (39)


                                                                  Links for 02-19-2014

                                                                    Posted by on Wednesday, February 19, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (50)


                                                                    Tuesday, February 18, 2014

                                                                    'Lincoln and Marx'

                                                                    Daniel Little:

                                                                    Lincoln and Marx: Robin Blackburn has assembled a fascinating book drawing out some surprising connections between Abraham Lincoln and Karl Marx, An Unfinished Revolution: Karl Marx and Abraham Lincoln. Since both thinkers are highly original in their thinking about the worlds they inhabited, I’ve found the book to be absorbing. It consists of a brilliant hundred-page historical essay by Blackburn that draws out the themes in political theory that were of concern to both thinkers and demonstrates some surprising parallels. The book then provides several relevant speeches by Lincoln, several pieces of journalism by Marx about slavery and the American Civil War, letters by Marx including the centerpiece, a letter from Marx to Lincoln on behalf of the International Workingmen's Association; and several miscellaneous short articles by other people about Marx and Lincoln.
                                                                    Blackburn is the perfect person to do this work. He is a recognized expert on Marx's thought, and he is also an expert on the history of New World slavery. (The American Crucible: Slavery, Emancipation and Human Rights, The Overthrow of Colonial Slavery: 1776-1848). So he is unusually well prepared to draw out the connections between the ideas of Marx and Lincoln on the topics of the Civil War, slavery, and economic competition between the North and the South. He also offers a very interesting analysis of the impact that the large immigration of German workers had on the politics of the North in the twelve years before the Civil War. Here is one illustrative incident:
                                                                    As the Civil War unfolded, German Americans and their overseas friends furnished vital support to the Northern cause. At the outbreak of the war, a German American militia in St. Louis played a key role in preventing Missouri's governor from delivering the state--and the city's huge arsenal--into Confederate hands. [Marx's friend] Wedemeyer became a colonel, served as a staff officer in St. Louis for General John Frémont, and was put in charge of the city's defenses. (25)
                                                                    The International Workingmen's Association itself came to have a substantial presence in the United States and brought with it a political agenda advocating racial and gender emancipation. After the suppression of the Paris Commune the headquarters of the IWA was moved to New York, and there were dozens of IWA sections in large Northern cities.
                                                                    The IWA mustered a demonstration of 70,000 or more in New York in December 1871 to pay tribute to the Commune's tens of thousands of martyrs. The parade brought together the Skidmore Guards (a black militia), the female leadership of Section 12 (Woodhull and Claflin), an Irish band, a range of trade unions, supporters of Cuba's fight for independence marching under the Cuban flag, and a broad spectrum of socialist, feminist, Radical, and Reform politics. (77)

                                                                    source: Robin Blackburn, An Unfinished Revolution, p. 99

                                                                    The 1964 letter from Marx to Lincoln is on the occasion of Lincoln's re-election as President. The thrust of the letter is to express support for Lincoln in the effort to end slavery in the United States. Here is the closing paragraph of the letter:
                                                                    The workingmen of Europe feel sure that as the American War of Independence initiated a new era of ascendancy for the middle class, so the American antislavery war will do for the working classes. They consider it an earnest of the epoch to come, that it fell to the lot of Abraham Lincoln, the single-minded son of the working class, to lead his country through the matchless struggle for the rescue of an enchained race and the reconstruction of a social world. (212)
                                                                    A reply to this letter was received through the intermediary of Charles Francis Adams, United States Ambassador to Britain. The key lines of the reply are these:
                                                                    [The government of the United States] strives to do equal and exact justice to all states and to all men, and it relies upon the beneficial results of that effort for support at home and for respect and goodwill throughout the world. Nations do not exist for themselves alone, but to promote the welfare and happiness of mankind by benevolent intercourse and example. It is in this relation that the United States regard their cause in the present conflict with slavery-maintaining insurgents as the cause of human nature, and they derive new encouragement to persevere from the testimony of the workingmen of Europe that the national attitude is favored with their enlightened approval and earnest sympathies. (214)
                                                                    About one month following the assassination of President Lincoln, Marx sent another letter to President Andrew Johnson, also on behalf of the International Workingmen's Association. It contains a powerful elegy for the President and is perhaps the most moving prose to be found in Marx's writings.
                                                                    It is not our part to call words of sorrow and horror, while the heart of two worlds heaves with emotions. Even the sycophants who, year after year and day by day, stuck to their Sisyphus work of morally assassinating Abraham Lincoln and the great republic he headed stand now aghast at this universal outburst of popular feeling, and rival with each other to strew rhetorical flowers on his open grave. They have now at last found out that he was a man neither to be browbeaten by adversity nor intoxicated by success; inflexibly pressing on to his great goal, never compromising it by blind haste; slowly maturing his steps, never retracing them; carried away by no surge of popular favor, disheartened by no slackening of the popular pulse; tempering stern acts by the gleams of a kind heart; illuminating scenes dark with passion by the smile of humor; doing his titanic work as humbly and homely as heaven-born rulers do little things with the grandiloquence of pomp and state; in one word, one of the rare men who succeed in becoming great, without ceasing to be good. Such, indeed, was the modesty of this great and good man, that the world only discovered him a hero after he had fallen a martyr. (214-215)
                                                                    The "Unfinished Revolution" in Blackburn's title refers to the failure of two large forms of human emancipation in the United States following the Civil War that lay at the heart of the political philosophies of Marx and Lincoln -- the full emancipation of African Americans as the descendants of slaves, and the creation of a broad workers' movement that would successfully challenge the power of big business. "If the nonappearance of a US labor party marked a critical defeat for Karl Marx, the failure of the Republican Party to emerge from Reconstruction and its sequel as a party of bourgeois rectitude and reform registered a spectacular defeat for Lincoln's hopes for his party and country" (96). And Blackburn closes his introduction with some speculation about how Marx might have acted had he himself have relocated to America (as Engels briefly visited New York and Boston in 1887).
                                                                    Just as he saw the importance of the slavery issue at the start of the Civil War, so he would surely have focused on "winning the battle of democracy," securing the basic rights of the producers -- including the freedmen -- in all sections as preparation for an ensuing social revolution.... Marx and Engels would have insisted that only the socialization of the great cartels and financial groups could enable the producers and their social allies to confront the challenges of modern society and to aspire to a society in which the free development of each is the precondition for the free development of all. (100)
                                                                    The ideas that hold Marx and Lincoln together are emancipation and the basic dignity of the common working man and woman, and the vision of a society in which both freedom and dignity are possible for all.

                                                                      Posted by on Tuesday, February 18, 2014 at 07:42 PM in Economics | Permalink  Comments (44)


                                                                      'Families Need Insurance for Wages and for Family Responsibilities'

                                                                      Miles Corak:

                                                                      ... Wage inequality and stagnant earnings are issues firmly stapled to the political agenda. But lack of stability and predictability in incomes and other resources matters too, and the last few decades—and especially the last few years—of the US labor market and family life have been marked by increased risk and turbulence.

                                                                      Public policy for social mobility needs to support not just the adequacy of incomes, but also their volatility, and fill a need for both wage insurance and family responsibility insurance. ...

                                                                      More here.

                                                                        Posted by on Tuesday, February 18, 2014 at 12:40 PM in Economics, Social Insurance | Permalink  Comments (51)


                                                                        'Who’s Borrowing Now? The Young and the Riskless!'

                                                                        The Liberty Street Economics blog at the NY Fed analyzes the latest Household Debt and Credit Report (see Calculated Risk as well):

                                                                        Just Released: Who’s Borrowing Now? The Young and the Riskless!, by Andrew Haughwout, Donghoon Lee, Wilbert van der Klaauw, and David Yun: According to today’s release of the New York Fed’s 2013:Q4 Household Debt and Credit Report, aggregate consumer debt increased by $241 billion in the fourth quarter, the largest quarter-to-quarter increase since 2007. More importantly, between 2012:Q4 and 2013:Q4, total household debt rose $180 billion, marking the first four-quarter increase in outstanding debt since 2008. As net household borrowing resumes, it is interesting to see who is driving these balance changes, and to compare some of today’s patterns with those of the boom period.
                                                                        The next two charts show contributions to changes in debt balances by borrower age, first when household credit was expanding rapidly in 2006, and then in 2013. For each age group, the charts show the percentage change in aggregate debt outstanding for each type. Thus, summing the numbers for a given loan type produces the overall percentage growth for that type over the relevant four-quarter period.

                                                                        Change-in-Debt-by-Borrower-Age

                                                                        A couple of things stand out. First, overall growth in debt remains considerably more muted in 2013 than it was in 2006, with the exception of auto loans, where 2013 data continued to reflect the strong growth we have been seeing since mid-2011, and student loans. (In the case of student loans, the percentage growth has moderated since 2006, but since the outstanding balance has doubled, the lower percentage growth is associated with comparable dollar increases.) Mortgage and home equity line of credit (HELOC) balances, in particular, grew much more slowly in 2013 than in 2006. Second, for all loan types and in both years, balance increases were mainly driven by younger age groups. Again, though, student loans are an exception: even older student loan borrowers continue to increase their borrowing.
                                                                        The next two charts break down the same data, this time by Equifax risk score (or credit score) groups.

                                                                        Change-in-Debt-by-Credit-Score

                                                                        On the credit score breakdown we see stark differences in patterns for mortgages and HELOCs between the 2013 and 2006 cohorts. Notably, in 2013, balances fell for the lowest credit score borrowers—the result of charge-offs from previous foreclosures—while all groups, even those with subprime credit scores, increased their mortgage balances in 2006. Now, the modest mortgage balance increases we see are mainly coming from high credit score borrowers.
                                                                        A similar picture emerges for credit card balances. Note, though, that credit card balances for subprime borrowers were falling in 2006, again mostly due to charge-offs, making the increased mortgage balance for that group in 2006 seem all the more remarkable.
                                                                        There’s been a tremendous amount of attention to the growth of student loans in recent years, and these charts indicate some of the reason why. First, student loans grew the most of any debt product in both periods (in percentage terms). Second, the growth in educational debt, like that of auto loans, is concentrated among the lower and middle credit score groups.
                                                                        But auto and student loans have been growing for some time, while overall debt continued to fall. In 2013, the increased credit card and mortgage debt among the young and the riskless led to a turnaround in the trajectory of overall debt.
                                                                        For a more detailed look at net borrowing by age and credit score in 2006 and 2013, please take a look at our interactive graphic.
                                                                        Disclaimer
                                                                        The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

                                                                          Posted by on Tuesday, February 18, 2014 at 09:47 AM in Economics | Permalink  Comments (8)


                                                                          Links for 02-18-2014

                                                                            Posted by on Tuesday, February 18, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (77)


                                                                            Monday, February 17, 2014

                                                                            The Stimulus Success

                                                                            Calculated Risk (aka Bill McBride):

                                                                            The Stimulus Success: It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy.
                                                                            The stimulus could have been structured differently, for example, why have tax incentives for businesses to invest when their is already too much capacity? And research suggests the cash-for-clunkers program was not very helpful.
                                                                            And more importantly - knowing that recoveries from financial crisis are slow - investment in infrastructure could have been larger and lasted longer (not just "shovel ready" programs).
                                                                            It is the details that should be debated - understanding what worked and what didn't work would be useful during the next financial crisis (when the next generation of financial wizards think they've discovered how to turn lead into gold) - but overall the program was obviously helpful.  ...
                                                                            It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future. ...
                                                                            We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues ...

                                                                              Posted by on Monday, February 17, 2014 at 02:03 PM in Economics, Fiscal Policy | Permalink  Comments (77)


                                                                              Paul Krugman: Barons of Broadband

                                                                              We should be more worried than we are about monopoly power:

                                                                              Barons of Broadband , by Paul Krugman, Commentary, NY Times: Last week’s big business news was the announcement that Comcast ... has reached a deal to acquire Time Warner... If regulators approve the deal, Comcast will be an overwhelmingly dominant player in the business...
                                                                              So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?
                                                                              On the first question, broadband Internet and cable TV are already highly concentrated industries... Comcast perfectly fits the old notion of monopolists as robber barons...
                                                                              And there are good reasons to believe ... that monopoly power has become a significant drag on the U.S. economy as a whole.
                                                                              There used to be a bipartisan consensus in favor of tough antitrust enforcement. During the Reagan years, however, antitrust policy went into eclipse, and ever since measures of monopoly power... have been rising fast.
                                                                              At first, arguments against policing monopoly power pointed to the alleged benefits of mergers in terms of economic efficiency. Later, it became common to assert that the world had changed in ways that made all those old-fashioned concerns about monopoly irrelevant. Aren’t we living in an era of global competition? Doesn’t ... creative destruction ... constantly tear down old industry giants and create new ones?
                                                                              The truth, however, is that many goods and especially services aren’t subject to international competition: New Jersey families can’t subscribe to Korean broadband. Meanwhile, creative destruction has been oversold: Microsoft may be ... in decline, but it’s still enormously profitable thanks to the monopoly position it established decades ago.
                                                                              Moreover, there’s good reason to believe that monopoly is itself a barrier to innovation...: why upgrade your network or provide better services when your customers have nowhere to go?
                                                                              And the same phenomenon may be ... holding back the economy as a whole. One puzzle ... has been the disconnect between profits and investment. Profits are at a record high..., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.
                                                                              It’s time, in other words, to go back to worrying about monopoly power, which we should have been doing all along. And the first step on the road back from our grand detour on this issue is obvious: Say no to Comcast.

                                                                                Posted by on Monday, February 17, 2014 at 12:24 AM in Economics, Market Failure, Technology | Permalink  Comments (40)


                                                                                Links for 02-17-2014

                                                                                  Posted by on Monday, February 17, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (76)


                                                                                  Sunday, February 16, 2014

                                                                                  'It's Not Just Talent and Hard Work'

                                                                                  Two responses to Greg Mankiw's assertion that the income of the wealthy is deserved:

                                                                                  Paul Krugman:

                                                                                  Iron Men of Wall Street: Greg Mankiw has written another defense of the 0.1 percent — and this one is kind of amazing. ... Mankiw invokes the strong role of financial fortunes in U.S. inequality to argue that the incomes are deserved...
                                                                                  Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; the wizardly job of “allocating the economy’s investment resources” consisted, we now know, largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.
                                                                                  One more thing: Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election... It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill. ...

                                                                                  Dean Baker:

                                                                                  Inequality By Design: It's Not Just Talent and Hard Work: Greg Mankiw is out there defending the 1 percent again. He put forward the argument that the big bucks are simply their just desserts; the rewards for exceptional skill and hard work.
                                                                                  His opening act is Robert Downey Jr. who apparently got $50 million for his starring role in a single movie. This is a great place to start. There's no doubt that Robert Downey is an extremely talented actor, but of course there have been many actors over the years who have put in great performances for much less money. How is that Downey could earn so much more than a great actor from the 50s, 60s, or 70s? ...
                                                                                  In fact, a big part of the reason that Downey can collect huge paychecks is the extension and strengthening of copyrights. The United States has lengthened the period of copyrights from 28 years, with an option for a 28 year renewal, to 75 years in the 1976, and then to 95 years in 1998. 
                                                                                  It also has stepped up copyright enforcement, imposing stiff fines on people who use the Internet to make unauthorized copies of copyrighted material. ... It is only because of government intervention in the form of copyright monopolies that he is able to collect $50 million. ...
                                                                                  So is Downey worth his $50 million, perhaps given the structure we have, but we could easily have a different structure which could quite possibly be a more efficient way to support and distribute creative work. (Here's my scheme.) ...
                                                                                  Then we get to the CEOs who Mankiw tells us get high pay because of what they contribute to their companies and the economy. If this is the case, how do we explain CEO's of companies like Lehman, Bear Stearns, and AIG walking away with hundreds of millions of dollars even though they drove their firms into bankruptcy? ... How do we explain the fact that CEOs of incredibly successful companies in Europe, Japan, and South Korea make on average around a tenth as much as our crew does?
                                                                                  That one doesn't seem to fit the just desserts story. The more likely explanation is the Pay Pals story, where the company's board of directors are paid off by CEOs to look the other way as they pilfer the company. ...
                                                                                  And then there is the financial sector where Mankiw tells us that the extraordinary pay is compensation for the volatility of paychecks. That's interesting, except the vast majority of comparably talented and hardworking people would be happy to get the pay the finance folks get in the bad years. Much of the big money on Wall Street stems from highly leveraged bets that beat the market by seconds or even milliseconds. This provides as much value to the economy as insider trading...
                                                                                  It would be interesting to see what would happen to the big fortunes in the financial sector if it had to pay a small transaction fee, effectively subjecting it to the same sort of sales tax that is paid in almost every other sector of the economy. It would also be interesting to see what would happen to the private equity folks if they lost the opportunity for the tax gaming that is their bread and butter....
                                                                                  If the 1 percent are able to extract vast sums from the economy it is because we have structured the economy for this purpose. It could easily be structured differently, but the 1 percent and its defenders aren't interested in changing things. And the 1 percent and its defenders have a great deal of influence on the direction of economic policy.

                                                                                    Posted by on Sunday, February 16, 2014 at 09:46 AM in Economics, Income Distribution | Permalink  Comments (86)


                                                                                    The Permanent Scars of Economic Pessimism'

                                                                                    As a follow-up to the post below this one, Antonio Fatas:

                                                                                    The permanent scars of economic pessimism: Gavyn Davies at the Financial Times reflects on the growing pessimism of Central Banks regarding the growth potential of advanced economies. In the US, the Euro area or the UK, central banks are reducing their estimates of the output gap. They now think about some of the recent output losses as permanent as opposed to cyclical.
                                                                                    It output is not far from what we consider to be potential, there is less need for central banks to act and it is more likely that we will see an earlier normalization of monetary policy towards a neutral stance...
                                                                                    But it is important to understand that the permanent effects are the consequence of the recession itself. If we could manage to reduce the length and depth of the recessions we would be minimizing those permanent effects. And in that sense, accepting these changes as structural and unavoidable is too pessimistic, leads to inaction and just makes matters worse. If you read the evidence properly, you want to do the opposite, you want to be even more aggressive to avoid what it looks at a much bigger cost of recessions.

                                                                                      Posted by on Sunday, February 16, 2014 at 09:31 AM in Economics, Fiscal Policy, Monetary Policy, Unemployment | Permalink  Comments (12)


                                                                                      'A Second Look at the Employment-to-Population Ratio'

                                                                                      Some of the Federal Reserve regional banks appear to be moving toward the conclusion that we are closer to full employment than we thought (and hence the need for stimulus, while not yet eliminated, is diminished).

                                                                                      My view is that the Fed has been overly optimistic throughout this long ordeal called the Great Recession, and, therefore, given that inflation is not a problem, if the Fed is going to make a mistake, it ought to be on the side of doing too much for too long rather than ending stimulus too soon:

                                                                                      A Second Look at the Employment-to-Population Ratio, by Pat Higgins, Macroblog, FRB Atlanta: This analysis is a companion piece to my Atlanta Fed colleague John Robertson's recent macroblog post. John's blog highlighted some findings of a recent New York Fed study by Samuel Kapon and Joseph Tracy on the employment-to-population (E/P) ratio. Their work has received considerable attention in the media and blogosphere (for example, here, here, and here). Kapon and Tracy's final chart (reproduced below) has received particular scrutiny.
                                                                                      The blue line represents the authors' estimate of the demographically adjusted E/P ratio purged of business-cycle effects. This line can be thought of as "trend." The chart shows that as of November 2013, the E/P ratio was only –0.7 percentage point below trend. Was the "gap" between actual and trend E/P really this small?
                                                                                      Attempting to answer this question requires digging into the details of Kapon and Tracy's method for estimating trend. One key excerpt is the following:
                                                                                      To overlay our demographically adjusted E/P ratio with the actual E/P ratio, we need to adopt a normalization… [W]e adopt the normalization that over the thirty-one years in our data sample [1982–2013] any business-cycle deviations between the actual and the adjusted E/P ratios will average to zero.
                                                                                      This methodology seems reasonable since one might typically expect business cycle effects to average out over 30 years. However, the 1982–2013 sample period is somewhat unusual in that the unemployment rate was elevated at both the starting and ending points.
                                                                                      The chart below shows estimates of three labor market gaps derived from the Congressional Budget Office's (CBO) estimates—released on February 4, 2014—of the potential labor force and the long-term natural rate of unemployment. (This rate is often referred to as the nonaccelerating inflation rate of unemployment, or NAIRU, and refers to the level of unemployment below which inflation rises.)
                                                                                      On average, the trend E/P ratio is below the actual rate by 0.86 percentage point. If one were to normalize the Kapon and Tracy E/P trend so that its average value was equal to CBO's trend, then the November 2013 E/P gap is about 1.5 percentage points. Whether or not the CBO estimate is the right benchmark is a matter of taste. CBO's recent estimate of NAIRU in the fourth quarter of 2013—5.5 percent—is lower than the 6 percent median estimate from the Survey of Professional Forecasters in the third quarter of 2013.
                                                                                      A second, more subtle issue in the Kapon and Tracy analysis is their treatment of cohorts:
                                                                                      We divide these individuals into 280 different cohorts defined by each individual's decade of birth, sex, race/ethnicity, and educational attainment. We assume that individuals within a specific cohort have similar career employment rate profiles. We use the 10.2 million observations [of CPS microdata] to estimate these 280 career employment rate profiles.
                                                                                      A well-known 2006 Brookings paper by Stephanie Aaronson and other Fed economists modeled trend labor force participation rate(LFPR) using birth-year cohorts. With estimates of trend LFPR and NAIRU, we can back out a trend E/P ratio. The chart below, adapted from Aaronson et al., plots age-group LFPRs against birth year.
                                                                                      We see that successive birth-year cohorts born between 1925 and 1950 had steadily increasing labor force attachment. Attachment for more recently born cohorts has leveled off and even declined slightly. People born in the 1990s have very low labor force attachment by historical standards. The inclusion of the "1990s—decade of birth" dummy variable in the Kapon and Tracy research probably implies that their model is interpreting much of this decline as structural. However, an alternative interpretation is that the decline is cyclical, because persons born after 1990 have been in an environment of high unemployment for most of their short working lives.
                                                                                      To gauge the sensitivity of trend or structural LFPR to how the youngest cohorts are treated, I used a stripped-down version of a model similar to Aaronson et al. Monthly LFPRs are modeled as a function of age, sex, birth date, and the CBO's estimate of the output gap during the January 1981 to January 2014 period. Time series published by the U.S. Bureau of Labor Statistics for 30 different age-sex cells are used so that the regression has 11,550 observations. Structural LFPR is constructed with the fitted values of the regression with a value of 0 percent for the output gap at all points in time. The trend E/P ratio is then backed out with the CBO's estimate of NAIRU.
                                                                                      The model is run with two different assumptions: First, following the approach of Aaronson et al., people born after 1986 have the same birth-year cohort effects as those born in December 1986. Second, no constraints are placed on birth-year cohort effects. Trend values of LFPR and E/P (taking on board the CBO's NAIRU) are plotted in the two charts below:

                                                                                       

                                                                                      The January 2014 E/P gap with unconstrained cohort effects, as in Kapon and Tracy, is –1.0 percent, well below the –1.7 percent gap in the model with constrained cohort effects. Ultimately, both models are still very consistent with Kapon and Tracy's bottom line:
                                                                                      It is important to control for changing demographic factors when looking at the behavior of the E/P ratio over time. This step is particularly important today when these demographic factors are exerting downward pressure on the actual E/P rate, suggesting that the recent lack of improvement in the E/P ratio does not imply a lack of progress in the labor market. The adjusted E/P rate corroborates the basic picture from the unemployment rate that the labor market has been recovering over the past few years, but that it still has a ways to go to reach a full recovery.

                                                                                        Posted by on Sunday, February 16, 2014 at 09:20 AM in Economics, Monetary Policy, Unemployment | Permalink  Comments (20)


                                                                                        Links for 02-16-2014

                                                                                          Posted by on Sunday, February 16, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (50)


                                                                                          Saturday, February 15, 2014

                                                                                          'Time to Get Real on Comcast-Time Warner'

                                                                                          On the proposed Comcast Time-Warner merger:

                                                                                          Paul Krugman:

                                                                                          Monoposony Begets Monopoly, And Vice Versa: Nothing to see here, folks, says Comcast. The cable giant’s defenders insist that its already awesome market power won’t be increased if it acquires Time Warner, because they serve (i.e., are local monopolists in) different geographical areas...
                                                                                          But elsewhere in the business section, we see clear evidence that this is nonsense. Comcast’s size gives it monopsony as well as monopoly power — it is able to extract far more favorable deals from content providers than smaller rivals. And if it’s allowed to acquire Time Warner, it will be even more advantaged...
                                                                                          This would, in turn, make it even harder for potential competitors to enter markets served by ComcastTimeWarner, strengthening its monopoly position.
                                                                                          What possible justification could there be for approving this scheme?

                                                                                          Joshua Gans:

                                                                                          Time to get real on Comcast-Time Warner, by Joshua Gans: ... with every potential harm to the public benefit is also opportunity. What would happen if, as part of the conditions to approve this merger (a) content assets were divested; and (b) Net Neutrality was enshrined? That may remove more structural impediments to competition and guarantee that this is a long-term win for consumers. It would be nice if someone were to propose that.

                                                                                          In general, I don't think that we pay enough attention to the problems that are associated with market power.

                                                                                            Posted by on Saturday, February 15, 2014 at 02:11 PM in Economics, Market Failure, Regulation | Permalink  Comments (37)


                                                                                            'Microfoundations and Mephistopheles'

                                                                                            Paul Krugman continues the discussion on "whether New Keynesians made a Faustian bargain":

                                                                                            Microfoundations and Mephistopheles (Wonkish): Simon Wren-Lewis asks whether New Keynesians made a Faustian bargain by accepting the New Classical dictat that models must be grounded in intertemporal optimization — whether they purchased academic respectability at the expense of losing their ability to grapple usefully with the real world.
                                                                                            Wren-Lewis’s answer is no, because New Keynesians were only doing what they would have wanted to do even if there hadn’t been a de facto blockade of the journals against anything without rational-actor microfoundations. He has a point: long before anyone imagined doing anything like real business cycle theory, there had been a steady trend in macro toward grounding ideas in more or less rational behavior. The life-cycle model of consumption, for example, was clearly a step away from the Keynesian ad hoc consumption function toward modeling consumption choices as the result of rational, forward-looking behavior.
                                                                                            But I think we need to be careful about defining what, exactly, the bargain was. I would agree that being willing to use models with hyperrational, forward-looking agents was a natural step even for Keynesians. The Faustian bargain, however, was the willingness to accept the proposition that only models that were microfounded in that particular sense would be considered acceptable. ...
                                                                                            So it was the acceptance of the unique virtue of one concept of microfoundations that constituted the Faustian bargain. And one thing you should always know, when making deals with the devil, is that the devil cheats. New Keynesians thought that they had won some acceptance from the freshwater guys by adopting their methods; but when push came to shove, it turned out that there wasn’t any real dialogue, and never had been.

                                                                                            My view is that micro-founded models are useful for answering some questions, but other types of models are best for other questions. There is no one model that is best in every situation, the model that should be used depends upon the question being asked. I've made this point many times, most recently in this column, an also in this post from September 2011 that repeats arguments from September 2009:

                                                                                            New Old Keynesians?: Tyler Cowen uses the term "New Old Keynesian" to describe "Paul Krugman, Brad DeLong, Justin Wolfers and others." I don't know if I am part of the "and others" or not, but in any case I resist a being assigned a particular label.

                                                                                            Why? Because I believe the model we use depends upon the questions we ask (this is a point emphasized by Peter Diamond at the recent Nobel Meetings in Lindau, Germany, and echoed by other speakers who followed him). If I want to know how monetary authorities should respond to relatively mild shocks in the presence of price rigidities, the standard New Keynesian model is a good choice. But if I want to understand the implications of a breakdown in financial intermediation and the possible policy responses to it, those models aren't very informative. They weren't built to answer this question (some variations do get at this, but not in a fully satisfactory way).

                                                                                            Here's a discussion of this point from a post written two years ago:

                                                                                            There is no grand, unifying theoretical structure in economics. We do not have one model that rules them all. Instead, what we have are models that are good at answering some questions - the ones they were built to answer - and not so good at answering others.

                                                                                            If I want to think about inflation in the very long run, the classical model and the quantity theory is a very good guide. But the model is not very good at looking at the short-run. For questions about how output and other variables move over the business cycle and for advice on what to do about it, I find the Keynesian model in its modern form (i.e. the New Keynesian model) to be much more informative than other models that are presently available.

                                                                                            But the New Keynesian model has its limits. It was built to capture "ordinary" business cycles driven by pricesluggishness of the sort that can be captured by the Calvo model model of price rigidity. The standard versions of this model do not explain how financial collapse of the type we just witnessed come about, hence they have little to say about what to do about them (which makes me suspicious of the results touted by people using multipliers derived from DSGE models based upon ordinary price rigidities). For these types of disturbances, we need some other type of model, but it is not clear what model is needed. There is no generally accepted model of financial catastrophe that captures the variety of financial market failures we have seen in the past.

                                                                                            But what model do we use? Do we go back to old Keynes, to the 1978 model that Robert Gordon likes, do we take some of the variations of the New Keynesian model that include effects such as financial accelerators and try to enhance those, is that the right direction to proceed? Are the Austrians right? Do we focus on Minsky? Or do we need a model that we haven't discovered yet?

                                                                                            We don't know, and until we do, I will continue to use the model I think gives the best answer to the question being asked. The reason that many of us looked backward for a model to help us understand the present crisis is that none of the current models were capable of explaining what we were going through. The models were largely constructed to analyze policy is the context of a Great Moderation, i.e. within a fairly stable environment. They had little to say about financial meltdown. My first reaction was to ask if the New Keynesian model had any derivative forms that would allow us to gain insight into the crisis and what to do about it and, while there were some attempts in that direction, the work was somewhat isolated and had not gone through the type of thorough analysis needed to develop robust policy prescriptions. There was something to learn from these models, but they really weren't up to the task of delivering specific answers. That may come, but we aren't there yet.

                                                                                            So, if nothing in the present is adequate, you begin to look to the past. The Keynesian model was constructed to look at exactly the kinds of questions we needed to answer, and as long as you are aware of the limitations of this framework - the ones that modern theory has discovered - it does provide you with a means of thinking about how economies operate when they are running at less than full employment. This model had already worried about fiscal policy at the zero interest rate bound, it had already thought about Says law, the paradox of thrift, monetary versus fiscal policy, changing interest and investment elasticities in a  crisis, etc., etc., etc. We were in the middle of a crisis and didn't have time to wait for new theory to be developed, we needed answers, answers that the elegant models that had been constructed over the last few decades simply could not provide. The Keyneisan model did provide answers. We knew the answers had limitations - we were aware of the theoretical developments in modern macro and what they implied about the old Keynesian model - but it also provided guidance at a time when guidance was needed, and it did so within a theoretical structure that was built to be useful at times like we were facing. I wish we had better answers, but we didn't, so we did the best we could. And the best we could involved at least asking what the Keynesian model would tell us, and then asking if that advice has any relevance today. Sometimes if didn't, but that was no reason to ignore the answers when it did.

                                                                                            [So, depending on the question being asked, I am a New Keynesian, an Old Keynesian, a Classicist, etc.]

                                                                                              Posted by on Saturday, February 15, 2014 at 08:43 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (52)


                                                                                              Links for 02-15-2014

                                                                                                Posted by on Saturday, February 15, 2014 at 12:03 AM in Economics, Links | Permalink  Comments (70)


                                                                                                Friday, February 14, 2014

                                                                                                'Are New Keynesian DSGE Models a Faustian Bargain?'

                                                                                                Simon Wren-Lewis:

                                                                                                 Are New Keynesian DSGE models a Faustian bargain?: Some write as if this were true. The story is that after the New Classical counter revolution, Keynesian ideas could only be reintroduced into the academic mainstream by accepting a whole load of New Classical macro within DSGE models. This has turned out to be a Faustian bargain, because it has crippled the ability of New Keynesians to understand subsequent real world events. Is this how it happened? It is true that New Keynesian models are essentially RBC models plus sticky prices. But is this because New Keynesian economists were forced to accept the RBC structure, or did they voluntarily do so because they thought it was a good foundation on which to build? ...

                                                                                                  Posted by on Friday, February 14, 2014 at 04:29 PM in Economics, Macroeconomics, Methodology | Permalink  Comments (33)


                                                                                                  'How Persistent are Monetary Policy Effects at the Zero Lower Bound?'

                                                                                                  Another paper I need to read:

                                                                                                  How Persistent are Monetary Policy Effects at the Zero Lower Bound?, by Christopher J. Neely, FRB St. Louis: Abstract Event studies show that Fed unconventional announcements of forward guidance and large scale asset purchases had large and desired effects on asset prices but do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on asset prices, with half-lives of 3 months. This would suggest that unconventional policies can have only marginal effects on macroeconomic variables. The present paper shows, however, that the SVAR is unstable, forecasts very poorly and therefore delivers spurious inference about the duration of the unconventional monetary shocks. In addition, implied in-sample return predictability from the SVAR greatly exceeds that which is consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect plausible predictability in asset returns are more stable and imply that the unconventional monetary policy shocks were fairly persistent but that our uncertainty about their effects increases with forecast horizon. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.

                                                                                                    Posted by on Friday, February 14, 2014 at 04:28 PM in Economics, Monetary Policy | Permalink  Comments (7)


                                                                                                    Paul Krugman: Inequality, Dignity and Freedom

                                                                                                    Dignity:

                                                                                                    Inequality, Dignity and Freedom, by Paul Krugman, Commentary, NY Times: Now that the Congressional Budget Office has explicitly denied saying that Obamacare destroys jobs, some (though by no means all) Republicans have stopped lying about that issue and turned to a different argument... — it’s still a bad thing because, as Representative Paul Ryan puts it, they’ll lose “the dignity of work.” ...
                                                                                                    It’s all very well to talk in the abstract about the dignity of work, but to suggest that workers can have equal dignity despite huge inequality in pay is just silly. ...
                                                                                                    In fact, the people who seem least inclined to respect the efforts of ordinary workers are the winners of the wealth lottery. ... And ... Republican politicians. ...
                                                                                                    So what would give working Americans more dignity ... despite huge income disparities? How about assuring them that the essentials — health care, opportunity for their children, a minimal income — will be there even if their boss fires them or their jobs are shipped overseas?
                                                                                                    Think about it: Has anything done as much to enhance the dignity of American seniors, to rescue them from the penury and dependence that were once so common among the elderly, as Social Security and Medicare? Inside the Beltway, fiscal scolds have turned “entitlements” into a bad word, but it’s precisely the fact that Americans are entitled to collect Social Security and ... Medicare, no questions asked, that makes these programs so empowering and liberating.
                                                                                                    Conversely, the drive by conservatives to dismantle much of the social safety net, to replace it with minimal programs and private charity, is, in effect, an effort to strip away the dignity of lower-income workers.
                                                                                                    And it’s ... an assault on their freedom. Modern American conservatives talk a lot about freedom, and deride liberals for advocating a “nanny state.” But when it comes to Americans down on their luck, conservatives become insultingly paternalistic, as comfortable congressmen lecture struggling families on the dignity of work. And they also become advocates of highly intrusive government. ...
                                                                                                    The truth is that if you really care about the dignity and freedom of American workers, you should favor more, not fewer, entitlements, a stronger, not weaker, social safety net.
                                                                                                    And you should, in particular, support and celebrate health reform. Never mind all those claims that Obamacare is slavery; the reality is that the Affordable Care Act will empower millions of Americans, giving them exactly the kind of dignity and freedom politicians only pretend to love.

                                                                                                      Posted by on Friday, February 14, 2014 at 12:24 AM in Economics | Permalink  Comments (84)