- Voters May Be Wising Up - Paul Krugman
- A new classification of monetary policy frameworks - VoxEU
- Monetary and Fiscal Federalism, Debt, Canada, and the Eurozone - Nick Rowe
- Paul Krugman Explains Trade and Tariffs - The New York Times
- The Skeptical View in Favor of an Antitrust Push - Tim Taylor
- Monetary policy spillovers in the first age of globalisation - Bank Underground
- Cryptocurrencies challenge the status quo - VoxEU
- Mortgage delinquency rates: A cross-country perspective - VoxEU
- The illusion of knowledge - Stumbling and Mumbling
- A Keynesian model of long-run growth - VoxEU
- What Hath Merkel Wrought? - Uneasy Money
- Household Inequality, Consumption, and Aggregate Real Shocks - FRB Chicago
- The Dollar’s Doldrums - Barry Eichengreen
- The Distribution of Gains from Globalization - The Unassuming Economist
Saturday, March 17, 2018
Tuesday, March 13, 2018
- Springtime for Sycophants - Paul Krugman
- Assessing Trends in Real Shares - Econbrowser
- The consumer benefits of trade agreements - VoxEU
- Towards a Union in the Union - Thomas Piketty
- When Shall We Overcome? - Joseph E. Stiglitz
- AEA draft code of conduct - Women in Economics at Berkeley
- China’s Unnecessary and Counterproductive Fiscal Consolidation - Brad Setser
- Identification Is Not Causality, Causality Is Not Identification - Marc Bellemare
- Trade Wars Can Be a Game of Chicken. Sometimes, Literally. - NYTimes
- Budget deficits, fiscal councils and authoritarian regimes - mainly macro
- The Great Recession took a toll on public health - EurekAlert
- Shares of Real GDP Don't Give the Real Story of Manufacturing - Justin Fox
- Great Recession still plagues workers with lower lifetime wages - EurekAlert!
- The Household Fallacy - Roger E. A. Farmer
- Ergodicity - Roger E. A. Farmer
- Cultural costs of high house prices - Stumbling and Mumbling
- US economy is still far from fully recovered - Martin Sandau
- Ten Years After Bear - Cecchetti & Schoenholtz
- Can central bankers become Superforecasters? - Bank Underground
- Innovation as a Challenge to Regulation - The Regulatory Review
- Equity markets are thriving but are they relevant? - John Kay
Monday, March 12, 2018
Jobs Report Gives Fed Cover To Retain Gradual Rate Path: The jobs report gives the Fed cover to retain a gradual rate path. To be sure, the rapid pace of job growth will leave them nervous about an unsustainable pace of growth. But the flat unemployment rate remains consistent with their forecasts. In addition, low wage growth indicates the economy has not pushed past full employment. If inflation remains constrained, the Fed would be pretty much on target for this year. That suggests the three-hike scenario should remain in play. But increased confidence in the outlook and risk management concerns will push up enough “dots” in the next Summary of Economic projections toward four hikes for this year. ...continued here...
Sunday, March 11, 2018
- Trump’s Trade Gimmickry - Dani Rodrik
- The three mistakes of centrism - mainly macro
- Trump’s Negative Protection Racket (Wonkish) - Paul Krugman
- Graphs for the Most Basic of Business Cycle Macro Analyses - Brad DeLong
- Inflation? Bring It On. Workers Could Actually Benefit. - Isabel Sawhill
- Immigration: the wrong battle - Stumbling and Mumbling
- Potential threats to central bank independence - VoxEU
- The New Fama Puzzle, post-ZLB - Econbrowser
- FedView - FRBSF
- Special Greeting from the UCLA Causality Blog - Judea Pearl
- Putin’s Stated Plan: A High-Tech Russian Doll - Economic Principals
- The many flaws in the Senate’s rollback of Dodd-Frank - Jared Bernstein
- Job Growth Soars in February, Wage Growth Slows - Dean Baker
- How poor was 18th century France? - Notes On Liberty
- Wicksellian Exchange Rate – losinterest
- Some Economics of Place-Based Policies - Tim Taylor
- The New York Fed DSGE Model Forecast–March 2018 - Liberty Street
- Medicine Markup - FRB Richmond
- Too Many Co-Authors - FRB Richmond
- Interview of Jean Tirole - FRB Richmond
Friday, March 09, 2018
I kind of got behind...
- The gendered impact of eliminating mandatory retirement - Frances Woolley
- What Do Stock Prices Tell Us about the Economy? - Uneasy Money
- The productivity slowdown and labor’s income share - Equitable Growth
- A new take on low interest rates and risk taking - VoxEU
- Publicly funded applied research pays off - VoxEU
- The Real Engine of the Business Cycle - Amir Sufi & Atif Mian
- Will China Out-Innovate the West?- Edmund S. Phelps
- The Blockchain Pipe Dream - Nouriel Roubini & Preston Byrne
- Trump’s Tax on America - Brad DeLong
- What Insights Do Taxi Rides Offer into Federal Reserve Leakage? - Promarket
- Airlines Use Earnings Calls to Coordinate Capacity Reductions - ProMarket
- A Ranting Old Guy With Nukes - Paul Krugman
- Krugman’s Taking Your Questions on Trade - The New York Times
- Oh, What a Trumpy Trade War! - Paul Krugman
- Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933 - NBER
- A First Look at Employment - macroblog
- The Misthinking of Globalization—Past, Present, and Future - IGM Forum
- This article at Vox summarizes everything that I've been trying to say - Environmental Economics
- How Will the U.S. Fund its Twin Deficits? - Brad Setser
- Saving the heartland: Place-based policies in 21st Century America - Larry Summers
- Cochrane Fails to Make His Case for the Trump Tax Cut Again - EconoSpeak
- D is for Devastating: A Statistical Error and the Vitamin D Saga - Carola Binder
- The 2016 Sterling Flash Episode - Bank Underground
- Preventing Bank Runs - FRB Richmond
- Did the Dodd-Frank Act End ‘Too Big to Fail’? - Liberty Street Economics
- Currency markets send a warning on the US economy - Larry Summers
- E.U. Pledges to Fight Back on Trump Tariffs as Trade War Looms - The New York Times
- A new fiscal policy for a world of accelerated change and artificial intelligence - Brookings
- Economic Forecasts with the Yield Curve - FRBSF
- Bank Financing: The Disappearance of Interbank Lending - Cecchetti & Schoenholtz
- Janet Yellen: 10 quotes on her past and the economy - Brookings
- Questions - Tim Duy's Fed Watch
- The Macroeconomics of Trade War - Paul Krugman
- Consensus and mutual understanding - Understanding Society
- The economic and political cost of UK austerity - mainly macro
- Why do beginner econometricians get worked up about the wrong things? - Frances Woolley
- Sorting, incentives, and excessive managerial pay - VoxEU
- Top5itis: The Disease that Affects Economics - ProMarket
Friday, March 02, 2018
- The Force of Decency Awakens - Paul Krugman
- The Hidden Taxes on Women - The New York Times
- Republicans say they favor free markets. Yeah, right. - Washington Post
- Economists vs. Scientists on Long-Term Growth - Kenneth Rogoff
- Bernanke Interviews Yellen - Tim Taylor
- Mathematical Finance - Magic, maths and money
- Regional Consumption Responses and the Aggregate Fiscal Multiplier - Fed
- The dangers of pluralism in economics: the case of MMT - mainly macro
- Why Jay Powell’s Fed taper is not causing tantrums - FT
- Making Globalization Work - William Dudley
- A snippet on bounded rationality - Crooked Timber
- Peer to Peer – Scale and Scalability - Bank Underground
- Weighting the Wage Growth Tracker - macroblog
Thursday, March 01, 2018
Fed Changing Its Tune: Yesterday I called attention to this line from Federal Reserve Chairman Powell’s testimony:In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.
I interpreted this as a shift in the Fed’s focus. The risks are shifting, hence the new concern about an overheated economy. In contrast, previous iterations of this policy guidance referred to “achieving” and then “sustaining” full employment. Central bankers must view the economy as in a danger zone for inflationary pressures. ...continued here...
Wednesday, February 28, 2018
- Bonuses and Bogosity - Paul Krugman
- How Low Can Unemployment Really Go? - The New York Times
- Krugman on Temporary vs Permanent Monetary Injections - David Beckworth
- Two Central Bankers Walk Into a Restaurant... - Tim Taylor
- Fed Chair Jay Powell on Monetary Policy Rules - David Beckworth
- Black/White Disparities: 50 Years After the Kerner Commission - Tim Taylor
- Working Toward the Next Economic Paradigm 1 Mohamed A. El-Erian
- A skeptical view of the impact of the Fed’s balance sheet - Econbrowser
- Understanding the U.S. Investment Income Balance (wonky) - Brad Setser
- Computational social science - Understanding Society
- The Rate of Return on Everything - No Hesitations
- An Assessment of the U.S. Economy - Randal Quarles
Monday, February 26, 2018
Looking For Policy Continuity From Powell, by Tim Duy: Federal Reserve Chairman Jerome Powell will tackle his first Semiannual Monetary Policy Report to the Congress this week. The expectation is that Powell will by and large reiterate the case for continued gradual tightening of monetary policy. That has come to mean three rate hikes in 2018, although given the data dependence of policy the risk is that three becomes four. Market participants remains nervous, however, that Powell will set a more hawkish tone indicating a sharp acceleration of rate hikes. I think this very unlikely at this juncture. I do think there is room, however, to emphasize that if fiscal spending supercharges growth in 2018, then rate hikes will continue into 2019. ...Continued here...
- Paroling the Spanish Prisoner (Wonkish) - Paul Krugman
- The Making of Lehman Brothers II - Simon Johnson
- Monetary Policy Cycles and Financial Stability - FRBSF
- Three questions for Federal Reserve chairman Jay Powell - FT
- Options of Last Resort - Liberty Street Economics
- ‘Metrics Monday: What to Do Instead of log(x +1) - Marc F. Bellemare
- Relying on the Fed's Balance Sheet - Cecchetti & Schoenholtz
- Rebuilding macroeconomic theory project - Equitable Growth
- Keynes's General Theory Contains Few Mentions of "Fiscal Policy"- Brad DeLong
- Slok on QE, and a great paper - John Cochrane
- A great EFG - John Cochrane
- Money and monetary stability in Europe, 1300-1914 - VoxEU
- Paul Krugman Looks Back at the Macroeconomic Policy Debate - Brad DeLong
- A Skeptical View of the Impact of the Fed’s Balance Sheet”- William Dudley
- Bulls--- Detection as a Student Learning Goal - Brad DeLong
Friday, February 23, 2018
- Financial Plumbing Most to Blame for 2008 Crisis - IGM Forum
- Foreign exchange interventions: Frequent and effective - VoxEU
- The recession of 2012-13 and the taper tantrum - MacroMania
- Some Thoughts About Economic Exposition in Math and Words - Tim Taylor
- Europeans should stop whining about their appreciating currency - FT Alphaville
- In America’s absence, Japan takes lead on Asian free trade - Washington Post
- Should Hurricane Maria Be Modeled as a Positive Growth Shock? - Brad Setser
"there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom":
Nasty, Brutish and Trump, by Paul Krugman, NY Times: On Wednesday, after listening to the heart-rending stories of those who lost children and friends in the Parkland school shooting — while holding a cue card with empathetic-sounding phrases — Donald Trump proposed his answer: arming schoolteachers.
It says something about the state of our national discourse that this wasn’t even among the vilest, stupidest reactions to the atrocity. No, those honors go to the assertions by many conservative figures that bereaved students were being manipulated by sinister forces, or even that they were paid actors.
Still, Trump’s horrible idea, taken straight from the N.R.A. playbook, was deeply revealing...
To see why, consider the very case often used to illustrate how bizarrely we treat guns: how we treat car ownership and operation...,there’s a lot of variation in car safety among states within the U.S., just as there’s a lot of variation in gun violence.
America has a “car death belt” in the Deep South and the Great Plains; it corresponds quite closely to the firearms death belt defined by age-adjusted gun death rates. It also corresponds pretty closely to the Trump vote — and also to the states that have refused to expand Medicaid, gratuitously denying health care to millions of their citizens. ...
For whatever reason, there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom.
This paranoia strikes both deep and wide. ... And it goes along with basically infantile fantasies about individual action — the “good guy with a gun” — taking the place of such fundamentally public functions as policing.
Anyway, this political faction is doing all it can to push us toward becoming a society in which individuals can’t count on the community to provide them with even the most basic guarantees of security — security from crazed gunmen, security from drunken drivers, security from exorbitant medical bills (which every other advanced country treats as a right, and does in fact manage to provide).
In short, you might want to think of our madness over guns as just one aspect of the drive to turn us into what Thomas Hobbes described long ago: a society “wherein men live without other security than what their own strength and their own invention shall furnish them.” And Hobbes famously told us what life in such a society is like: “solitary, poor, nasty, brutish and short.”
Yep, that sounds like Trump’s America.
I am here today:
Economic Fluctuations and Growth Research Meeting
Andrew Atkeson and Monika Piazzesi, Organizers
Federal Reserve Bank of San Francisco
February 23, 2018
Friday, February 23
Fatih Guvenen, University of Minnesota and NBER
Gueorgui Kambourov, University of Toronto
Burhanettin Kuruscu, University of Toronto
Sergio Ocampo-Diaz, University of Minnesota
Daphne Chen, Florida State University
Use It Or Lose It: Efficiency Gains from Wealth Taxation
Discussant: Roger H. Gordon, University of California at San Diego and NBER
Matteo Maggiori, Harvard University and NBER
Brent Neiman, University of Chicago and NBER
Jesse Schreger, Columbia University and NBER
International Currencies and Capital Allocation
Discussant: Harald Uhlig, University of Chicago and NBER
Katarína Borovičková, New York University
Robert Shimer, University of Chicago and NBER
High Wage Workers Work for High Wage Firms
Discussant: Isaac Sorkin, Stanford University and NBER
Marcus Hagedorn, University of Oslo
Iourii Manovskii, University of Pennsylvania and NBER
Kurt Mitman, Institute for International Economic Studies
The Fiscal Multiplier
Discussant: Adrien Auclert, Stanford University and NBER
Carlos Garriga, Federal Reserve Bank of St. Louis
Aaron Hedlund, University of Missouri
Housing Finance, Boom-Bust Episodes, and Macroeconomic Fragility
Discussant: Veronica Guerrieri, University of Chicago and NBER
John Kennan, University of Wisconsin at Madison and NBER
Spatial Variation in Higher Education Financing and the Supply of College Graduates
Discussant: Danny Yagan, University of California at Berkeley and NBER
Thursday, February 22, 2018
Fedspeak Reiterates Gradual Path: Fed speakers continue to reiterate that policy remains on a gradual path of tightening. So far, the inflation data and brightening economy has more emboldened their commitment to gradual rate hikes than a faster pace of hikes. What about fiscal policy? That train has left the station, but central bankers don’t seem too concerned – yet. ...continued here...
And one more from Tim:
First Impressions of the January FOMC Minutes: The minutes of the January FOMC meeting revealed increasing confidence in the economic outlook. That translated into increased confidence that gradual rate hikes remains the appropriate policy path. Does that mean the central bankers stand poised to raise their “dots” such that the median rate hike projection rises to four hikes? I don’t think so. I read the minutes as wiping away lingering concerns about the inflation outlook and allowing policymakers to coalesce around the existing three hike projection. The risk remains, of course, that conditions remain sufficiently buoyant to raise the rate projection in June or September. More important to me at this juncture is I see clear hints that the projections beyond 2018 are vulnerable to upward revisions. ...continued here...
- What Does a True Populism Look Like? It Looks Like the New Deal - Dani Rodrik
- Mapping Capital Flows Into the U.S. Over the Last Thirty Years - Brad Setser
- Stable exploitation - Stumbling and Mumbling
- The World-Wide Fama Puzzle Reversal - Econbrowser
- Puerto Rico and the U.S. Virgin Islands after the Hurricanes - Liberty Street
- Fed Officials Say Economy Is Ready for Higher Rates - The New York Times
- The Economic Roots of the Rise of Trumpism - John Komlos
- Economic Conditions and Key Challenges Facing the U.S. Economy - Dallas Fed
- Bank bail-ins: Lessons from the Cypriot crisis - VoxEU
Tuesday, February 20, 2018
Anna Stansbury and Lawrence Summers at VoxEU:
On the link between US pay and productivity, by Anna Stansbury and Lawrence Summers, VoxEU: Pay growth for middle class workers in the US has been abysmal over recent decades – in real terms, median hourly compensation rose only 11% between 1973 and 2016.1 At the same time, hourly labour productivity has grown steadily, rising by 75%.
This divergence between productivity and the typical worker’s pay is a relatively recent phenomenon. Using production/nonsupervisory compensation as a proxy for median compensation (since there are no data on the median before 1973), Bivens and Mishel (2015) show that typical compensation and productivity grew at the same rate over 1948-1973, and only began to diverge in 1973 (see Figure 1).
Figure 1 Labour productivity, average compensation, and production/nonsupervisory compensation 1948-2016
Notes: Labour productivity: total economy real output per hour (constructed from BLS and BEA data). Average compensation: total economy compensation per hour (constructed from BLS data). Production/nonsupervisory compensation: real compensation per hour, production and nonsupervisory workers (Economic Policy Institute).What does this stark divergence imply about the relationship between productivity and typical compensation? Since productivity growth has been so much faster than median pay growth, the question is how much does productivity growth benefit the typical worker?2
A number of authors have raised these questions in recent years. Harold Meyerson, for example, wrote in American Prospect in 2014 that “for the vast majority of American workers, the link between their productivity and their compensation no longer exists”, and the Economist wrote in 2013 that “unless you are rich, GDP growth isn't doing much to raise your income anymore”. Bernstein (2015) raises the concern that “[f]aster productivity growth would be great. I’m just not at all sure we can count on it to lift middle-class incomes.” Bivens and Mishel (2015) write “although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority”.
Has typical compensation delinked from productivity?
Figure 1 appears to suggest that a one-to-one relationship between productivity and typical compensation existed before 1973, and that this relationship broke down after 1973. On the other hand, just as two time series apparently growing in tandem does not mean that one causes the other, two series diverging may not mean that the causal link between the two has broken down. Rather, other factors may have come into play which appear to have severed the connection between productivity and typical compensation.
As such there is a spectrum of possibilities for the true underlying relationship between productivity and typical compensation. On one end of the spectrum – which we call ‘strong delinkage’ – it’s possible that factors are blocking the transmission mechanism from productivity to typical compensation, such that increases in productivity don’t feed through to pay. At the opposite end of the spectrum – which we call ‘strong linkage’ – it’s possible that productivity growth translates fully into increases in typical workers’ pay, but even as productivity growth has been acting to raise pay, other factors (orthogonal to productivity) have been acting to reduce it. Between these two ends of the spectrum is a range of possibilities where some degree of linkage or delinkage exists between productivity and typical compensation.
In a recent paper, we estimate which point on this linkage-delinkage spectrum best describes the productivity-typical compensation relationship (Stansbury and Summers 2017). Using medium-term fluctuations in productivity growth, we test the relationship between productivity growth and two key measures of typical compensation growth: median compensation, and average compensation for production and nonsupervisory workers.
Simply plotting the annual growth rates of productivity and our two measures of typical compensation (Figure 2) suggests support for quite substantial linkage – the series seem to move together, although typical compensation growth is almost always lower.
Figure 2 Change in log productivity and typical compensation, three-year moving average
Notes: Data from BLS, BEA and Economic Policy Institute. Series are three-year backward-looking moving averages of change in log variable.Making use of the high frequency changes in productivity growth over one- to five-year periods, we run a series of regressions to test this link more rigorously. We find that periods of higher productivity growth are associated with substantially higher growth in median and production/nonsupervisory worker compensation – even during the period since 1973, where productivity and typical compensation have diverged so much in levels. A one percentage point increase in the growth rate of productivity has been associated with between two-thirds and one percentage point higher growth in median worker compensation in the period since 1973, and with between 0.4 and 0.7 percentage points higher growth in production/nonsupervisory worker compensation. These results suggest that there is substantial linkage between productivity and median compensation (even the strong linkage view cannot be rejected), and that there is a significant degree of linkage between productivity and production/nonsupervisory worker compensation.
How is it possible to find this relationship when productivity has clearly grown so much faster than median workers’ pay? Our findings imply that even as productivity growth has been acting to push workers’ pay up, other factors not associated with productivity growth have acted to push workers’ pay down. So while it may appear on first glance that productivity growth has not benefited typical workers much, our findings imply that if productivity growth had been lower, typical workers would have likely done substantially worse.
If the link between productivity and pay hasn’t broken, what has happened?
The productivity-median compensation divergence can be broken down into two aspects of rising inequality: the rise in top-half income inequality (divergence between mean and median compensation) which began around 1973, and the fall in the labour share (divergence between productivity and mean compensation) which began around 2000.
For both of these phenomena, technological change is often invoked as the primary cause. Computerisation and automation have been put forward as causes of rising mean-median income inequality (e.g. Autor et al. 1998, Acemoglu and Restrepo 2017); and automation, falling prices of investment goods, and rapid labour-augmenting technological change have been put forward as causes of the fall in the labour share (e.g. Karabarbounis and Neiman 2014, Acemoglu and Restrepo 2016, Brynjolffson and McAfee 2014, Lawrence 2015).
At the same time, non-purely technological hypotheses for rising mean-median inequality include the race between education and technology (Goldin and Katz 2007), declining unionisation (Freeman et al. 2016), globalisation (Autor et al. 2013), immigration (Borjas 2003), and the ‘superstar effect’ (Rosen 1981, Gabaix et al. 2016). Non-technological hypotheses for the falling labour share include labour market institutions (Levy and Temin 2007, Mishel and Bivens 2015), market structure and monopoly power (Autor et al. 2017, Barkai 2017), capital accumulation (Piketty 2014, Piketty and Zucman 2014), and the productivity slowdown itself (Grossman et al. 2017).
While we do not analyse these theories in detail, a simple empirical test can help distinguish the relative importance of these two categories of explanation – purely technology-based or not – for rising mean-median inequality and the falling labour share. More rapid technological progress should cause faster productivity growth – so, if some aspect of faster technological progress has caused inequality, we should see periods of faster productivity growth come alongside more rapid growth in inequality.
We find very little evidence for this. Our regressions find no significant relationship between productivity growth and changes in mean-median inequality, and very little relationship between productivity growth and changes in the labour share. In addition, as Table 1 shows, the two periods of slower productivity growth (1973-1996 and 2003-2014) were associated with faster growth in inequality (an increasing mean/median ratio and a falling labour share).
Taken together, this evidence casts doubt on the idea that more rapid technological progress alone has been the primary driver of rising inequality over recent decades, and tends to lend support to more institutional and structural explanations.
Table 1 Average annual growth rates of productivity, the labour share and the mean/median ratio during the US’ productivity booms and productivity slowdowns
Note: Data from BLS, Penn World Tables, EPI Data Library.Policy implications
The slow growth in median workers’ pay and the large and persistent rise in inequality are extremely concerning on grounds of both welfare and equity. There are important ongoing debates about the factors responsible for this phenomenon, and what must be done to reverse it.
Our contribution to these debates is, we believe, to demonstrate that productivity growth still matters substantially for middle income Americans. If productivity accelerates for reasons relating to technology or to policy, the likely impact will be increased pay growth for the typical worker.
We can use our estimates to calculate a rough counterfactual. If the ratio of the mean to median worker's hourly compensation in 2016 had been the same as it was in 1973, and mean compensation remained at its 2016 level, the median worker's pay would have been around 33% higher. If the ratio of labour productivity to mean compensation in 2016 had been the same as it was in 1973 (i.e. the labour share had not fallen), the average and median worker would both have had 4-8% more hourly compensation all else constant. Assuming our estimated relationship between compensation and productivity holds, if productivity growth had been as fast over 1973-2016 as it was over 1949-1973, median and mean compensation would have been around 41% higher in 2016, holding other factors constant.
This suggests that the potential effect of raising productivity growth on the average American’s pay may be as great as the effect of policies to reverse trends in income inequality – and that a continued productivity slowdown should be a major concern for those hoping for increases in real compensation for middle income workers.
This does not mean that policy should ignore questions of redistribution or labour market intervention – the evidence of the past four decades demonstrates that productivity growth alone is not necessarily enough to raise real incomes substantially, particularly in the face of strong downward pressures on pay. However it does mean that policy should not focus on these issues to the exclusion of productivity growth – strategies that focus both on productivity growth and on policies to promote inclusion are likely to have the greatest impact on the living standards of middle-income Americans.
Acemoglu, D and P Restrepo (2017), "Robots and jobs: Evidence from US labour markets", NBER Working Paper 23285.
Acemoglu, D and P Restrepo (2016), “The race between machine and man: Implications of technology for growth, factor shares and employment”, NBER, Working Paper 22252.
Autor, D, D Dorn, L F Katz, C Patterson and J Van Reenen (2017), “The fall of the labour share and the rise of superstar firms”, CEPR Discussion Paper 12041.
Autor, D, D Dorn and G H Hanson (2013), "The China syndrome: Local labour market effects of import competition in the United States", American Economic Review 103(6): 2121-2168.
Autor, D, L F Katz and A B Krueger (1998), "Computing inequality: Have computers changed the labour market?" Quarterly Journal of Economics 113(4): 1169-1213.
Barkai, S (2016), "Declining labour and capital shares", Stigler Center for the Study of the Economy and the State, New Working Paper Series 2.
Bernstein, J (2015), “Faster productivity growth would be great. I’m just not sure we can count on it to lift middle class incomes”, On the Economy Blog, 21 April.
Bivens, J and L Mishel (2015), “Understanding the historic divergence between productivity and a typical worker's pay: Why it matters and why it's real", Economic Policy Institute, Washington DC.
Borjas, G J (2003), “The labour demand curve is downward sloping: Reexamining the impact of immigration on the labour market”, Quarterly Journal of Economics 118(4): 1335-1374.
Brynjolfsson, E and A McAfee (2014), The second machine age: Work, progress, and prosperity in a time of brilliant technologies, WW Norton & Company.
The Economist (2015), “Inequality: A defining issue – for poor people”, Economist Blog – Democracy in America, 16 December.
Elsby, M, B Hobijn and A Şahin (2013), "The decline of the US labour share", Brookings Papers on Economic Activity 2013(2): 1-63.
Feldstein, M (2008), “Did wages reflect growth in productivity?" Journal of Policy Modeling 30(4): 591-594.
Freeman, R B, E Han, B Duke, D Madland (2016), “How does declining unionism affect the American middle class and inter-generational mobility?”, Federal Reserve Bank, 2015 Community Development Research Conference Publication.
Gabaix, X, J‐M Lasry, P‐L Lions and B Moll (2016), "The dynamics of inequality", Econometrica 84(6): 2071-2111.
Goldin, C D, and L F Katz (2009), The race between education and technology, Harvard University Press.
Grossman, G M, E Helpman, E Oberfield and T Sampson (2017), “The productivity slowdown and the declining labour share: A neoclassical exploration”, NBER, Working Paper No 23853.
Karabarbounis, L and B Neiman (2014), “The global decline of the labour share", Quarterly Journal of Economics 129(1): 61-103.
Lawrence, R Z (2015), “Recent declines in labour's share in US income: A preliminary neoclassical account", NBER Working Paper No w21296.
Lawrence, R Z (2016), “Does productivity still determine worker compensation? Domestic and international evidence”, in The US Labour Market: Questions and Challenges for Public Policy, American Enterprise Institute Press.
Levy, F and P Temin (2007), "Inequality and institutions in 20th century America", NBER Working Paper 13106
Meyerson, H (2014), “How to raise Americans’ wages”, The American Prospect, 18 March.
Piketty, T (2014), Capital in the Twenty-First Century, Cambridge, MA: Belknap Press.
Piketty, T and G Zucman (2014), “Capital is back: Wealth-income ratios in rich countries 1700–2010”, Quarterly Journal of Economics 129(3): 1255–1310.
Stansbury, A and L Summers (2017), “Productivity and pay: Is the link broken?”, NBER, Working Paper 24165.
 As measured using the CPI-U-RS consumer price deflator. Using the PCE consumer price deflator, median compensation has risen by about 26% over the period rather than 12%. We use the Economic Policy Institute’s measure of median compensation, which they calculate from median wages (BLS) and the average wage-total compensation ratio (BEA NIPA).
 Note that we focus in this column on the divergence of median or typical pay from average productivity. The divergence of average compensation from average productivity – equivalent to the declining labour share – has been smaller and more recent. Analyses of the average compensation-average productivity divergence can be found in Feldstein (2008), Lawrence (2016) and our recent paper (Stansbury and Summers 2017).
- Come the Recession, Don’t Count on That Safety Net - The New York Times
- Absolute poverty: when necessity displaces desire - Microeconomic Insights
- Do Job Market Networks Help Recovery from Mass Layoffs? - FRBSF
- Interest Ratess and Exchange Rates Before and After the Crisis - Econbrowser
- Milton Friedman’s Rabble-Rousing Case for Abolishing the Fed - Uneasy Money
- Start preparing for the next financial crisis now - FT
- How internet giants damage the economy and society - FT
- The market failures of Big Tech - FT
Inflation, General Data Flow, Fiscal Stimulus, And Implications For Monetary Policy, by Tim Duy: The data flow remains supportive of the Fed’s forecast of sustained moderate growth. A spike in prices, however, drove core CPI inflation to the fastest monthly pace since 2005, again raising fears that the Fed will accelerate the pace of rate hikes. I still think this is premature. To be sure, the risk is that the Fed hikes rates more than the projected three times this year. But Powell & Co. will need more data to support a faster pace of rate hikes. They will not overreact to data that may prove to be nothing more than a flash in a pan. ...continued here...
Monday, February 19, 2018
- Trump’s Twin Deficits (Wonkish) - Paul Krugman
- Income inequality and aggregate demand - Equitable Growth
- What Do Trade Agreements Really Do? - NBER
- Why Economists Are Worried About International Trade - Greg Mankiw
- Trump’s Tax Success Is at the Expense of His Trade Agenda - Brad Setser
- “Fake news”: the monopoly on the narrative - Branko Milanovic
- When the impartial spectator is missing - Stumbling and Mumbling
- The Stubbornly High Cost of Remittances - Cecchetti & Schoenholtz
- Arms and Projects (Wonkish) - The Leisure of the Theory Class
- House prices and rents in the UK - mainly macro
- Economics in Two Lessons - Crooked Timber
- Economics in Two Lessons: Chapter 1 - Crooked Timber
- Leading on Climate at Every Level - Regulatory Review
- U.S. GDP Expenditure Components - MacroMania
- More on Neural Nets and ML - No Hesitations
- Do Trump’s deficits matter? - mainly macro
- Missing Productivity Growth - IGM Forum
Friday, February 16, 2018
"our job, whether we’re policy analysts or journalists, isn’t to be “balanced”; it’s to tell the truth":
Budgets, Bad Faith and ‘Balance’, by Paul Krugman, NY Times: Over the past couple of months Republicans have passed or proposed three big budget initiatives. First, they enacted a springtime-for-plutocrats tax cut that will shower huge benefits on the wealthy while offering a few crumbs for ordinary families — crumbs that will be snatched away after a few years, so that it ends up becoming a middle-class tax hike. Then they signed on to a what-me-worry budget deal that will blow up the budget deficit to levels never before seen except during wars or severe recessions. Finally, the Trump administration released a surpassingly vicious budget proposal that would punish not just the vulnerable but also most working families.
Looking at all of this should make you very angry... But my anger isn’t mostly directed at Republicans; it’s directed at their enablers, the professional centrists, both-sides pundits, and news organizations that spent years refusing to acknowledge that the modern G.O.P. is what it so clearly is.
Which is not to say that Republicans should be let off the hook. ...I can’t think of a previous example of a party that so consistently acted in bad faith — pretending to care about things it didn’t, pretending to serve goals that were the opposite of its actual intentions. ... The ... party’s true agenda, dictated by the interests of a handful of super-wealthy donors, would be very unpopular if the public understood it. So the party must consistently lie...
Meanwhile, many news organizations ... treat recent G.O.P. actions as if they are some kind of ... departure from previous principles. They aren’t. Republicans are what they always were: They never cared about deficits; they always wanted to dismantle Medicare, not defend it. They just happen not to be who they pretended to be.
Now, there’s no mystery about why many people won’t face up to the reality of Republican bad faith. Washington is full of professional centrists, whose public personas are built around a carefully cultivated image of standing above the partisan fray, which means that they can’t admit that while there are dishonest politicians everywhere, one party basically lies about everything. News organizations are intimidated by accusations of liberal bias, which means that they try desperately to show “balance” by blaming both parties equally for all problems.
But our job, whether we’re policy analysts or journalists, isn’t to be “balanced”; it’s to tell the truth. And while Democrats are hardly angels, at this point in American history, the truth has a well-known liberal bias.
Thursday, February 15, 2018
- Gaps in the Market - Heather Boushey
- The President’s new budget - Jared Bernstein
- Rising Interest Rates, but Easier Financial Conditions - Tim Taylor
- UBI policies don’t cause people to leave workforce - UChicago News
- Landing a Jumbo Is Getting Easier - Liberty Street Economics
- Urban concentration and economic growth - VoxEU
- Pedantry and Mastery in Following Rules - Uneasy Money
- Nudge Policies - Tim Taylor
- Deficits - John Cochrane
Tuesday, February 13, 2018
- Parcoursup: could do better - Thomas Piketty
- The Double Threat to Liberal Democracy - Dani Rodrik
- GDPNow's Forecast: Why Did It Spike Recently? - macroblog
- The Disappointing Recovery in U.S. Output after 2009 - FRBSF
- Great Recession’s Impact Lingers in Hardest-Hit Regions - Liberty Street
- Network Effects, Big Data, and Antitrust Issues For Big Tech - Tim Taylor
- Money As Equity: For An "Accounting View" Of Money - EconoMonitor
- The Belt and Road Initiative Didn't Quite Live up to its Hype - Brad Setser
"Trump’s offer on infrastructure is this: nothing":
Trump Doesn’t Give a Dam, by Paul Krugman, NY Times: Donald Trump doesn’t give a dam. Or a bridge. Or a road. Or a sewer system. Or any of the other things we talk about when we talk about infrastructure.
But how can that be when he just announced a $1.5 trillion infrastructure plan? That’s easy: It’s not a plan, it’s a scam. The $1.5 trillion number is just made up; he’s only proposing federal spending of $200 billion, which is somehow supposed to magically induce a vastly bigger overall increase in infrastructure investment, mainly paid for either by state and local governments (which are not exactly rolling in cash, but whatever) or by the private sector.
And even the $200 billion is essentially fraudulent: The budget proposal announced the same day doesn’t just impose savage cuts on the poor, it includes sharp cuts for the Department of Transportation, the Department of Energy and other agencies that would be crucially involved in any real infrastructure plan. Realistically, Trump’s offer on infrastructure is this: nothing.
That’s not to say that the plan is completely vacuous. One section says that it would “authorize federal divestiture of assets that would be better managed by state, local or private entities.” Translation: We’re going to privatize whatever we can. It’s conceivable that this would be done only in cases where the private sector really would do better, and contracts would be handed out fairly, without a hint of cronyism. And if you believe that, I have a degree from Trump University you might want to buy. ...
So why isn’t Trump proposing something real? Why this dog’s breakfast of a proposal that everyone knows won’t go anywhere?
Part of the answer is that in practice Trump always defers to Republican orthodoxy, and the modern G.O.P. hates any program that might show people that government can work and help people.
But I also suspect that Trump is afraid to try anything substantive. To do public investment successfully, you need leadership and advice from experts. And this administration doesn’t do expertise, in any field. Not only do experts have a nasty habit of telling you things you don’t want to hear, their loyalty is suspect: You never know when their professional ethics might kick in.
So the Trump administration probably couldn’t put together a real infrastructure plan even if it wanted to. And that’s why it didn’t.
From the San Francisco Fed:
FRBSF Fed Views: Fernanda Nechio, research advisor at the Federal Reserve Bank of San Francisco, stated her views on the current economy and the outlook as of February 8, 2018.
Based on the advance estimate of the Bureau of Economic Analysis, real GDP expanded at an annual rate of 2.6 percent for the fourth quarter of 2017 and 2.5 percent for the year overall. The bulk of the strength in real GDP growth can be attributed to robust consumer spending, which in turn reflects household wage gains, increased equity prices, and supportive financial conditions. As monetary policy continues to normalize over the next two to three years, we expect growth gradually to fall back to our trend growth estimate of about 1.8%.
Recent employment gains remain solid. Nonfarm payroll employment in January rose by 200,000 jobs. During 2017, payroll gains have averaged around 181,000 jobs per month.
The unemployment rate remained at 4.1% in January, unchanged since October. We expect this rate to fall below 4% in 2018 before gradually returning to our estimate for its natural level at 4.75%.
Inflation continues to remain below the Federal Reserve’s 2% target. Overall inflation in the twelve months through December, as measured by the price index for personal consumption expenditures was 1.7%. Core inflation, which excludes volatile food and energy prices, rose 1.5% in the twelve months through December. Given the strong labor market conditions, we expect overall and core consumer price inflation to rise gradually and reach our 2% target over the next couple of years.
Interest rates are continuing to increase with the gradual removal of monetary policy accommodation. At its January meeting, the FOMC maintained the target range for the federal funds target at 1.25% to 1.5%.
The developed world is undergoing a dramatic demographic transition. In most advanced economies, actual and expected longevity have increased steadily, while the median retirement age has changed little, leading to longer retirement periods. Meanwhile, population growth rates are declining and in some cases, even becoming negative.
Changing demographics can affect the natural real rate of interest, r-star; the inflation-adjusted interest rate that is consistent with steady inflation at the Fed’s target and the economy growing at its potential. Demographic trends affect the equilibrium rate by changing incentives to save and consume. Lengthier retirement periods may raise some households’ desire to save rather than consume, lowering r-star. At the same time, declining population growth increases the share of older households in the economy, who generally have higher marginal propensities to consume, raising consumption and r-star. As population growth declines, it could also reduce real GDP growth and productivity, thereby putting downward pressure on r-star.
In the United States, these demographic changes have already put significant downward pressure on interest rates between 1990 and 2017. As demographic movements tend to be long-lasting, the effects on interest rates may be ongoing. A lower equilibrium rate has the potential to limit the scope for the Federal Reserve to cut interest rates in response to future recessionary shocks.
The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System.
Monday, February 12, 2018
So far, I’d say this is small potatoes… -- New York Federal Reserve President William Dudley, February 8, 2018
All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. -- Federal Reserve Chairman Ben Bernanke, May 17, 2007
Friday was yet another day of wild swings on Wall Street as market participants continue to digest the implications for stocks and bonds of this new stage of the business cycle. In short, there looks to be a painful repricing underway that involves a new equilibrium set of prices for bonds and stocks. For now, though the Fed doesn’t care about your pain. At least that’s the message from Fed officials. They want to keep the focus on the bigger picture. That bigger picture is the economic forecast – which continues to point to gradual rate hikes. ...[continued here]...
- How Big a Bang for Trump’s Buck? (Wonkish) - Paul Krugman
- Kaldor and Piketty’s facts: The rise of monopoly power - Equitable Growth
- The rise of market power explains macroeconomic puzzles - Equitable Growth
- Economics and politics of monetary policymaking: A new eBook - VoxEU
- Weber’s proof of Gittins Index Theorem - The Leisure of the Theory Class
- Metrics Monday: Causal Inference with Observational Data - Marc Bellemare
- Does More "Skin in the Game" Mitigate Bank Risk-Taking? - Liberty Street
- The Impact of Tax Arbitrage on the U.S. Balance of Payments - Brad Setser
- A Multicointegration Model of Global Climate Change - Stochastic Trend
- Understanding Bank Capital: A Primer - Cecchetti & Schoenholtz
- Notes on European Recovery (Wonkish) - Paul Krugman
- Nobody Knows Anything - Economic Principals
- Global trade and the dollar - VoxEU
- Economic Goodness-of-Fit - Dave Giles
Friday, February 09, 2018
"...pretending to care about the deficit served several useful political purposes":
Fraudulence of the Fiscal Hawks, by Paul Krugman, NY Times: In 2011, House Republicans, led by Paul Ryan, issued a report full of dire warnings about the dangers of budget deficits. ... Citing the horrors of big deficits, Republicans refused to raise the federal debt ceiling, threatening to create financial turmoil and effectively blackmailing President Barack Obama into cutting spending on domestic programs.
How big were these horrifying deficits? In the 2012 fiscal year the federal deficit was $1.09 trillion. Much of this deficit, however, was a direct result of a depressed economy... The deficit fell rapidly over the next few years as the economy recovered.
This week Republicans, having just enacted a huge tax cut, cheerfully agreed to a budget deal that, according to independent experts, will push next year’s deficit up to around $1.15 trillion — bigger than in 2012..., but this time none of the deficit will be a result of a depressed economy.
Wait, it gets worse. In 2012 there were strong economic reasons to run budget deficits. The economy was still suffering the aftereffects of the 2008 financial crisis. ... By contrast, there is no comparable case for deficits now, with the economy near full employment and the Fed raising interest rates to head off potential inflation. ...
If anything, we should be using this time of relatively full employment to pay down debt, or at least reduce it relative to G.D.P. ...Republicans ... are providing more stimulus to an economy with 4 percent unemployment than they were willing to allow an economy with 8 percent unemployment.
There have been many “news analysis” pieces asking why Republicans have changed their views on deficit spending. But let’s be serious: Their views haven’t changed at all. They never really cared about debt and deficits; it was a fraud all along. ...
However, pretending to care about the deficit served several useful political purposes. It was a way to push for cuts in social programs. It was also a way to hobble Obama’s presidency.
And I don’t think it’s unfair to suggest that there was an element of deliberate economic sabotage. ... Basically, they were against anything that might help the economy on President Obama’s watch.
Now Obama is gone, and suddenly deficits don’t matter. ...
No, this is all about Republican bad faith. Everything they said about budgets, every step of the way, was fraudulent. And nobody should believe anything they say now.
- No Fairy, No Cry - Paul Krugman
- Do Not Overlook the December Trade Data - Brad Setser
- What Bitcoin Reveals About Financial Markets - John Quiggin
- What Do Cryptocurrencies Have to Do with Trust? - Liberty Street
- Fisherian Decomposition of Interest Rate Increase - Econbrowser
- Technology, power & ideology - Stumbling and Mumbling
- Decreasing the size of the state is very unpopular - mainly macro
- Economic predictions with big data: The illusion of sparsity - VoxEU
- The Chinese banking system - VoxEU
- Olympic Economics - Tim Taylor
- The origins of money - FT
Thursday, February 08, 2018
Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than In Much of Europe”
"In an interview with ProMarket, Nobel Prize-winning economist Angus Deaton talks about the connection of rent-seeking and monopolization to rising inequality":
Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than In Much of Europe”: In December, the United Nations’ special rapporteur on extreme poverty and human rights, Philip Alston, embarked on a coast-to-coast tour of the United States. Alston’s fact-finding mission, conducted at the invitation of the federal government, resulted in a grim report that declared the US “the world champion of extreme inequality” and highlighted the vast inequities that plague American society: The US is one of the world’s wealthiest countries, yet 40 million of its inhabitants live in poverty, its infant mortality rates are the highest among developed nations, and Americans lead “shorter and sicker lives, compared to people living in any other rich democracy.” The US also has the lowest rate of social mobility of any rich country, rapidly turning the American Dream—its national ethos—to “an American illusion.”
Rising inequality has been the focus of countless articles, books and debates in recent years, as more and more empirical studies show that in the decades since 1980, income gains have gone overwhelmingly to the top 1 percent and 0.1 percent. Much of the debate, however, is concerned with the implications of inequality: Does rising inequality negatively affect economic growth? Does it undermine democracy? Did it contribute to the rise of populist politics in America and around the developed world?
Those, says Nobel Prize-winning economist Angus Deaton, are the wrong questions to ask if we wish to understand inequality. In fact, he suggested in a recent piece for Project Syndicate, it’s possible that the term “inequality” itself might be ill-fitting. A better term might be “unfairness”: Inequality, he argued, is the consequence of economic, political, and social processes—some good, some bad, and some very bad. The key to addressing its rapid increase is to address the processes that can be deemed “unfair.”
Examples are plenty. In his piece, Deaton focuses on several processes and policies that have allowed the rich to get richer while holding down middle- and working-class wages. Among them: rising health care costs, market consolidation, diminishing labor power, and corporations’ political power. These processes do not stem from “unstoppable processes” like technology or globalization, argues Deaton, but are the result of rent-seeking.
Deaton, the recipient of the 2015 Nobel Prize in Economics, is one of the world’s foremost experts on inequality. The groundbreaking research on US mortality rates he conducted together with Anne Case revealed an increase in midlife mortality rates among white non-Hispanic Americans, led by death related to drugs, alcohol and suicide—what they called “deaths of despair.”
To better understand the connection between inequality and rent-seeking in America, we spoke with Deaton, a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at the Woodrow Wilson School of Public and International Affairs and the Economics Department at Princeton University. In his interview with ProMarket, Deaton discussed the connection of rent-seeking and monopolization to rising inequality, and explained why he believes it’s easier for rent-seekers to influence policy in the US than in Europe. ...[continue]...
Wednesday, February 07, 2018
- Wells Fargo’s board members are getting off too easily - Larry Summers
- A Farewell to Fracking Regulations - The Regulatory Review
- A DSGE Perspective on Safety, Liquidity, and Low Interest Rates - Liberty Street
- US History and the Path to European Integration - Tim Taylor
- Confidence and Crashes - Roger E. A. Farmer
- The size and composition of fiscal adjustment matter for inequality - VoxEU
- U.S. Government Views on Climate in Historical Context - Robert Stavins
Tuesday, February 06, 2018
On the Uses (and Abuses) of Economath: The Malthusian Models: Many American undergraduates in Economics interested in doing a Ph.D. are surprised to learn that the first year of an Econ Ph.D. feels much more like entering a Ph.D. in solving mathematical models by hand than it does with learning economics. Typically, there is very little reading or writing involved, but loads and loads of fast algebra is required. Why is it like this? ...
"all of this would be manageable if key policymakers could be counted on to act effectively":
Has Trumphoria Finally Hit a Wall?, by Paul Krugman, NY Times: When talking about stock markets, there are three rules you have to remember. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.
So the market plunge of the past few days might mean nothing at all. ...
Still, market turmoil should make us take a hard look at the economy’s prospects. And what the data say, I’d argue, is that at the very least America is heading for a downshift in its growth rate; the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising. ...
But should we be worried about something worse than a mere downshift in growth?
Well, asset prices do look high: A widely used gauge of stock valuations puts them at a 15-year high, while a conceptually similar measure says that housing prices have retraced a bit less than half the rise that culminated in the great housing bust.
Individually, these numbers aren’t that alarming: Stocks, as I said, don’t look nearly as overvalued as they did in 2000, housing not nearly as overvalued as it was in 2006. On the other hand, this time both markets look overvalued at the same time, at least raising the possibility of a double-bubble burst like the one that hit Japan at the end of the 1980s.
And if asset prices take a hit, we might expect consumers — who have been spending heavily and saving very little — to pull back.
Still, all of this would be manageable if key policymakers could be counted on to act effectively. Which is where I get worried.
It’s surely not a good thing that Trump got rid of one of the most distinguished Federal Reserve chairs in history just before markets started to flash some warning signs. Jerome Powell, Janet Yellen’s replacement, seems like a reasonable guy. But we have no idea how well he would handle a crisis if one developed.
Meanwhile, the current secretary of the Treasury — who declared of Davos, “I don’t think it’s a hangout for globalists” — may be the least distinguished, least informed individual ever to hold that position.
So are we heading for trouble? Too soon to tell. But if we are, rest assured that we’ll have the worst possible people on the case.
Monday, February 05, 2018
Moving Pieces, by Tim Duy: There are lots of moving pieces right now. So many that few wanted to step in front of last week’s selling on Wall Street. I am going to try to sort out some of these pieces here.
The employment report and, most notably, the pop in wages caught analysts off guard. If you were expecting the job market to slow down early this year, you continue to be on the wrong side of the story. Employers added 200k workers to payrolls in January, close to the three-month average of 192k. Curiously, the unemployment rate has held steady for four months in a row despite job growth well in excess of labor force growth. To be sure, those numbers come from different surveys, so they don’t need to match up month to month. Still, I think the household survey will eventually catch up and hence we should be prepared for a sharp lurch downward in the unemployment rate in the coming months. ...continued here...
- The Death of the Phillips Curve? - Dallasfed.org
- Let Them Eat French Fries - Paul Krugman
- Jerome Powell’s challenge at the Fed - Larry Summers
- A Few More Words about Janet Yellen - Economic Principals
- A People’s Democracy in America - Tyson & Mendonca
- When Will Tech Disrupt Higher Education? - Kenneth Rogoff
- Big Data, Machine Learning, and Economic Statistics - No Hesitations
- Academic knowledge is not just another opinion - mainly macro
- A New Perspective on Low Interest Rates - Liberty Street Economics
- Financing Intangible Capital - Cecchetti & Schoenholtz
- Who’s Able-Bodied Anyway? - The New York Times
- Reported preference versus revealed preference - VoxEU
- Large models, small models and Brexit - mainly macro
- Unemployment insurance and adverse selection - VoxEU
Friday, February 02, 2018
"lower-level Fed appointments are becoming cause for concern":
The Gang That Couldn’t Think Straight, by Paul Krugman, NY Times: ...A remarkable number of Trump appointees have been forced out over falsified credentials, unethical practices or racist remarks. And you can be sure there are many other appointees who did the same things, but haven’t yet been caught. ...
But what’s the problem? After all, stocks are up and the economy is steadily growing. Does competence even matter?
The answer is that America ... can run on momentum for a long time even if none of the people in charge know what they’re doing. Sooner or later, however, stuff happens — and then incompetence becomes a very big deal...
What kind of stuff may happen? The scariest scenarios involve national security. But we can’t count on smooth sailing for the economy, either. And who will manage economic turbulence if and when it hits? After all, we currently have perhaps the least impressive Treasury secretary in U.S. history.
Matters are a bit better at the Federal Reserve, where nobody seems to have bad things to say about Jerome Powell, just confirmed as Fed chairman. On the other hand, why didn’t Trump just follow the usual norms and appoint Janet Yellen, who has done a fantastic job, to a second term?
One answer may be that Trump is a traditionalist — and few things are more traditional than passing over a highly qualified woman in favor of a less qualified man. But I also suspect that he found Yellen’s independent stature threatening.
And lower-level Fed appointments are becoming cause for concern.
Last week, senators at a confirmation hearing questioned the economist Marvin Goodfriend, whom Trump has nominated for the Fed’s Board of Governors. Democrats pointed out that Goodfriend was wrong, again and again, about monetary policy during the crisis, repeatedly predicting inflation that didn’t happen.
Now, everyone makes bad predictions now and then; God knows I have. But you’re supposed to face up to your mistakes, figure out what went wrong and adapt your views. Goodfriend refused to do any of that. And why should he? His errors were politically correct; they reinforced Republican orthodoxy. From the G.O.P.’s point of view, having been completely wrong about monetary policy isn’t a defect, it’s practically a badge of honor.
The point is that even at the Fed, which is partly insulated from the Trumpian reign of error, U.S. policymaking is being denuded of expertise. And the whole nation will eventually pay the price.
Economy Adds 200,000 Jobs in January, Black Unemployment Jumps 0.9 Percentage Points, CEPR: The Bureau of Labor Statistics reported that the economy added 200,000 jobs in January. With modest downward revisions to the prior two months data, this brings average growth over the last three months to 192,000. This is slightly more rapid than the 176,000 average over the last year. The picture on the household side was mixed, with the both the unemployment rate and employment-to-population ratios (EPOPs) remaining unchanged.
However, while the unemployment rate for whites dipped by 0.2 percentage points to 3.5 percent, the black unemployment rate jumped 0.9 percentage points to 7.7 percent, putting it just a hair under the 7.8 percent rate of January, 2017. This was associated with a 0.6 percentage point drop in the employment rate.
This is disappointing since the 6.8 percent rate in December was the lowest on record. (The data only go back to 1972.) ... The employment data for blacks are highly erratic and it is likely that much of this change is driven by measurement error, but it is nonetheless discouraging to see this reported jump.
The percentage of unemployment due to voluntary quits, a measure of people’s confidence in their labor market prospects, was unchanged at 10.9 percent. It stood at over 12.0 percent before the recession and peaked at over 15 percent in 2000.
Less-educated workers continue to be the biggest job gainers. ...
One item suggesting slower job growth going forward is a drop in the diffusion indexes, which show the percentage of industries intending to add jobs. The overall index fell from 65.5 to 57.9, while the manufacturing index fell from 60.5 to 53.9.
The story is mixed on the wage side. The overall average hourly wage is up 2.9 percent year-over-year, a modest acceleration from its prior pace. However, the average wage for production and nonsupervisory workers, a group that excludes many higher-paid workers, rose just 2.4 percent over the last year. By industry, the fastest growth appears to be in restaurants, with higher wages driven both by minimum wage increases and a tightening of the labor market. Wage growth in manufacturing, at 1.9 percent, lags the overall average, as does the 2.2 percent growth in retail.
Overall, this is a positive picture of the labor market with the jump in wages being especially good news. However, there are discouraging signs, such as the drop in the diffusion indexes, the small percentage of unemployment due to voluntary quits, and of course, the rise in the black unemployment rate. In addition, there was a 0.2 hour drop in the length of the average workweek. This led to a drop in average weekly pay, despite the higher hourly rate. This is most likely a blip in the data, but one that is worth noting.
- The Bad News in the Good News - Paul Krugman
- Why Women’s Voices Are Scarce in Economics - New York Times
- Oliver Hart and the Poetry of Economic Theory - ProMarket
- The bitterness of Adam Smith - globalinequality
- Kill the Zombie Firms - Tim Taylor
- Is the Euro Out of Danger? - Tim Taylor
- Economists in public - Stumbling and Mumbling
- Completing Correlation Matrices - Bank Underground
- Hey Democrats, the Problem Isn’t Jobs and Growth - Baseline Scenario
- How Well Do Economists Forecast Recessions? - Unassuming Economist
- Janet Yellen: Performance Review - Stephen Williamson
- What We Know for Sure that Just Ain't So — Roger E. A. Farmer
- How to Spend Trillions on ‘Infrastructure’ - The New York Times
Wednesday, January 31, 2018
Fed Stands Pat, But More Rate Hikes Are On The Way, by Tim Duy: As anticipated, the Fed left rates unchanged at the conclusion of yesterday’s FOMC meeting. The statement was little changed but the handful of revisions point to continuing rate hikes. The Fed remains on track for three 25bp rate hikes in 2018. For the most part, the turnover at the Fed combined with ongoing solid data has left the remaining doves sidelined. The low inflation warnings of last year were largely a head fake as the Fed was always positioned to continue raising rates as long as there looked to be continuing downward pressure on unemployment. ...Continued here...
Gauti Eggertsson, Ragnar Juelsrud, and Ella Getz Wold at VoxEU:
Monetary policy with negative nominal interest rates: Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand. ...
Olivier Coibion, Yuriy Gorodnichenko, and Mauricio Ulate at the CBPP:
The most recent releases of Gross Domestic Product (GDP) imply that the current level of U.S. output is almost equal to the Congressional Budget Office’s (CBO’s) estimate of the “potential level of GDP,” a measure of how much the U.S. economy could produce if its resources were fully and efficiently utilized. The World Bank further estimates that this closing of the output gap has occurred not just in the U.S. but across most advanced economies (World Bank 2018). Ten years after the onset of the Great Recession, according to this view, the economy has finally returned to its potential level and economic policy instruments should be gradually returned to normal levels, a process the Federal Reserve is now implementing.
In this brief, based on our earlier research, we challenge this conclusion. According to our analysis, CBO’s and other similar estimates of potential output are too pessimistic, and as such, they encourage policymakers, such as those at the Federal Reserve, to accept lower levels of potential than those which could be achieved. This pessimistic view and associated policies could be extremely costly to U.S. households.
Our findings include:
In deriving potential GDP, current methods used by key agencies tend to under-respond to the shocks they should respond to and over-respond to the shocks that they should not respond to. Most recently, this has led to some frequently used estimates of potential GDP that are as much as $1.2 trillion, or nearly $10,000 per household, below our preferred estimate. Methods that do not feature the under-/over-responsiveness problem we document imply that more active stimulus on the part of the Federal Reserve is warranted to enable actual GDP to finally catch up to potential. The benefits of this policy shift would include significantly greater household incomes and higher employment levels than those engendered by the current policy stance.
Should the Federal Reserve be Raising Rates due to a Closing Output Gap? ...
Noëmie Lisack, Rana Sajedi and Gregory Thwaites at Bank Underground:
Population ageing and the macroeconomy: An unprecedented ageing process is unfolding in industrialised economies. The share of the population over 65 has gone from 8% in 1950 to almost 20% in 2015, and is projected to keep rising. What are the macroeconomic implications of this change? What should we expect in the coming years? In a recent staff working paper, we link population ageing to several key economic trends over the last half century: the decline in real interest rates, the rise in house prices and household debt, and the pattern of foreign asset holdings among advanced economies. The effects of demographic change are not expected to reverse so long as longevity, and in particular the average time spent in retirement, remains high.
An unprecedented demographic change…
- Winter 2018 Journal of Economic Perspectives - Tim Taylor
- Trumponomics Is Failing on Growth - Simon Johnson
- Worse Than Willie Horton - Paul Krugman
- Real-time estimates of potential GDP - Jared Bernstein
- Trade and investment disputes: The role of economists - VoxEU
- Declining industries - Understanding Society
Tuesday, January 30, 2018
"This will end badly":
Bubble, Bubble, Fraud and Trouble, by Paul Krugman, NY Times: The other day my barber asked me whether he should put all his money in Bitcoin. And the truth is that if he’d bought Bitcoin, say, a year ago he’d be feeling pretty good right now. On the other hand, Dutch speculators who bought tulip bulbs in 1635 also felt pretty good for a while, until tulip prices collapsed in early 1637.
So is Bitcoin a giant bubble that will end in grief? Yes. But it’s a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology. And there’s something to be learned about the times we live in by peeling away that wrapping. ...
In principle, you can use Bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and Bitcoin turns out to be a clunky, slow, costly means of payment. ... There’s really no reason to use Bitcoin in transactions — unless you don’t want anyone to see either what you’re buying or what you’re selling, which is why much actual Bitcoin use seems to involve drugs, sex and other black-market goods. ...
So are Bitcoins a superior alternative to $100 bills, allowing you to make secret transactions without lugging around suitcases full of cash? Not really... Bitcoin ... is ... an asset whose price is almost purely speculative, and hence incredibly volatile. ...
Oh, and Bitcoin’s untethered nature also makes it highly susceptible to market manipulation. ...
But what about the fact that those who did buy Bitcoin early have made huge amounts of money? ...
As Robert Shiller, the world’s leading bubble expert, points out, asset bubbles are like “naturally occurring Ponzi schemes.” Early investors in a bubble make a lot of money as new investors are drawn in, and those profits pull in even more people. The process can go on for years before something — a reality check, or simply exhaustion of the pool of potential marks — brings the party to a sudden, painful end.
When it comes to cryptocurrencies there’s an additional factor: It’s a bubble, but it’s also something of a cult, whose initiates are given to paranoid fantasies about evil governments stealing all their money (as opposed to private hackers, who have stolen a remarkably high proportion of extant cryptocurrency tokens). ...
So no, my barber shouldn’t buy Bitcoin. This will end badly, and the sooner it does, the better.
- The Rising Importance of Soft Skills - Tim Taylor
- Picking your own facts - Stumbling and Mumbling
- What is the Fourier Transform and what is it good for? - Boing Boing
- Can Economic Populism Preempt Political Populism? - Dani Rodrik
- Republicans Discover Mythical Basis for Regulatory Reform - Regulatory Review
- NJ Embraces Making Utilities Pay to Emit Carbon - NYTimes
- Hiring Diverse Candidates - Women in Economics at Berkeley
Monday, January 29, 2018
This is from Thomas Piketty's blog, but it is a collective effort signed by a group of people (listed at the end of the Piketty post):
Democratising Europe begins with ECB nominations: While our eyes are glued to the interminable vicissitudes of the German Groko, a no less important story is playing out in Brussels, but has so far met with indifference. On January 22nd and February 19th, Eurogroup finance ministers will hold private meetings that will mark the beginning of a profound renewal of the European Central Bank executive board. The first big change will be the planned replacement of current Vice-President, Vitor Constancio. In the next two years, no less than 4 of the 6 members of the executive body of the ECB, Mario Draghi included, will be replaced.
All signs indicate that the future of economic, fiscal and monetary policy in eurozone countries is at stake in this series of nominations. ...
After a decade of crisis, the ECB is no longer the same institution that was drawn up by the Treaties...; it speaks on equal terms with the four other “presidents” of the Union (of the Commission, the Council, Eurogroup, and, finally, the European Parliament) when it comes to designing the political and institutional future of eurozone government, etc.
And yet, it as if the coming nominations are just another technicality. While there is in fact a rare occasion for leading parties and actors of representative politics to make their weight felt on the crucial issue of eurozone governance, everything seems set to keep nominations behind closed doors. ...
The nomination process does not have to be conducted in private. It doesn’t have to be yet another game of European musical chairs. ...
This is from Josh Hendrickson at The Everyday Economist:
On Prediction: Suppose that you are a parent of a young child. Every night you give your child a glass of milk with their dinner. When your child is very young, they have a lid on their cup to prevent it from spilling. However, there comes a time when you let them drink without the lid. The absence of a lid presents a possible problem: spilled milk. Initially there is not much you can do to prevent milk from being spilled. However, over time, you begin to notice things that predict when the milk is going to be spilled. For example, certain placements of the cup on the table might make it more likely that the milk is spilled. Similarly, when your child reaches across the table, this also increases the likelihood of spilled milk. The fact that you are able to notice these “risk factors” means that, over time, you will be able to limit the number of times milk is spilled. You begin to move the cup away from troublesome spots before the spill. You institute a rule that the child is not allowed to reach across the table to get something they want. By doing so, the spills become less frequent. You might even get so good at predicting when the milk will spill and preventing it from happening that when it does happen, you and your spouse might argue about it. In fact, with the benefit of hindsight, one of you might say to the other “how did you not see that the milk was going to spill?”
Now suppose that there was an outside observer who studied the spilling of milk at your house. They are tasked with difficult questions: How good are you at successfully predicting when milk is spilled? Were any of your methods to prevent spilling actually successful? ...
From Cecchetti & Schoenholtz:
Time Consistency: A Primer: “[S]ome useful policy strategies are ‘rule-like’, in that by their forward-looking nature they constrain central banks from systematically engaging in policies with undesirable long-run consequences.” Ben S. Bernanke and Frederic S. Mishkin, “Inflation Targeting: A New Framework for Monetary Policy,” Spring 1997.
The problem of time consistency is one of the most profound in social science. With applications in areas ranging from economic policy to counterterrorism, it arises whenever the effectiveness of a policy today depends on the credibility of the commitment to implement that policy in the future.
For simplicity, we will define a time consistent policy as one where a future policymaker lacks the opportunity or the incentive to renege. Conversely, a policy lacks time consistency when a future policymaker has both the means and the motivation to break the commitment.
- The Economics of Dirty Old Men - Paul Krugman
- The importance of Taleb’s system - globalinequality
- The Outsider - Stumbling and Mumbling
- Structural VAR Analysis - No Hesitations
- Economics Textbooks - Crooked Timber
- The Spendthrift Economy - Paul Krugman
- What the Economic Data Don’t Tell Us - Paul Krugman
- Weekend Blogging Nostalgia – Kevin Drum
- The Tale of the Two Cobblers (collusive price cuts) - Nick Rowe
- Why economists should look at horses - Stumbling and Mumbling
- Independent Fiscal Councils: Watchdogs or lapdogs? - VoxEU
- Speed under sail during the early Industrial Revolution - VoxEU
- Balance, Fairness and Accuracy – a CRISPR Primer - Economic Principals
- The FT's 404 page is an hilarious introduction to economic theory - Boing Boing
Saturday, January 27, 2018
From the NBER Digest:
Cutback in H-1B Visas Did Not Raise Employment for Natives, by Steve Maas, NBER Digest: In response to concerns that foreign workers were taking jobs from Americans, especially in high-technology fields, Congress cut the annual quota on new H-1B visas from 195,000 to 65,000, beginning with fiscal year 2004. A study by Anna Maria Mayda, Francesc Ortega, Giovanni Peri, Kevin Shih, and Chad Sparber, based on data for the fiscal years 2002-09, finds that the reduced cap did not increase the hiring of U.S. workers.
In The Effect of the H-1B Quota on Employment and Selection of Foreign-Born Labor (NBER Working Paper No. 23902), the researchers examine data obtained through a Freedom of Information Act request to present the first assessment of the consequences of the cap reduction on various sectors of the skilled labor force.
The H-1B program, which was launched in 1990, has provided foreign-born, college-educated professionals their main entry point into the U.S. market. As much as half the growth in America's college-educated science, technology, engineering and mathematics workforce in subsequent decades can be attributed to H-1B workers.
Since the cap was tightened in 2004, firms hired between 20 and 50 percent fewer new H-1B workers than they might have hired had it remained at 195,000 visas per year. The researchers find, however, that the reduced pool of foreign workers did not lead firms to hire more Americans, and conclude that this suggests "low substitutability between native-born and H-1B workers in the same skill groups." The cap only applies to for-profit companies, not to new employees of educational institutions or nonprofit research institutions.
The researchers also find that the quota reduction resulted in changes to the composition of new visa holders and the companies that hired them. Employment losses were concentrated at the lowest and highest ends of the wage scale, leading H-1B workers to become more concentrated among workers with mid-level skills. "The binding H-1B cap reduced the number of workers who were likely to have been among the most talented and productive foreign individuals seeking U.S. employment." Yet these are just the workers who might have contributed technological advances benefiting the entire economy.
The cap led to an increased concentration of India-born workers in computer-related fields. The paper posits that Indians had a leg up on other foreign workers because of long-established labor networks in the software and semiconductor industries.
On the employer side, the lower cap favored larger firms with greater experience navigating the bureaucracy of the visa program and with in-house legal teams that could handle the paperwork. This proved especially advantageous in fiscal years 2008 and 2009, when demand for visas was so high that the number of applications exceeded the quota level within the first week and the government resorted to a computerized random lottery system to allocate them. Smaller firms simply could not afford to spend money applying for visas when they were not sure whether they would obtain one.