Friday, November 18, 2016

Links for 11-18-16

    Posted by on Friday, November 18, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (90) 

    Thursday, November 17, 2016

    Yellen: The Economic Outlook

    Federal Reserve Chair Janet L. Yellen:

    The Economic Outlook, Before the Joint Economic Committee, U.S. Congress, Washington, D.C., November 17, 2016: ...The U.S. economy has made further progress this year toward the Federal Reserve's dual-mandate objectives of maximum employment and price stability. Job gains averaged 180,000 per month from January through October, a somewhat slower pace than last year but still well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate, which stood at 4.9 percent in October, has held relatively steady since the beginning of the year. The stability of the unemployment rate, combined with above-trend job growth, suggests that the U.S. economy has had a bit more "room to run" than anticipated earlier. ...
    While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market. ... Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently. While the improvements in the labor market over the past year have been widespread across racial and ethnic groups, it is troubling that unemployment rates for African Americans and Hispanics remain higher than for the nation overall, and that the annual income of the median African American household and the median Hispanic household is still well below the median income of other U.S. households.
    Meanwhile, U.S. economic growth appears to have picked up from its subdued pace earlier this year. ...
    Turning to inflation... Core inflation, which excludes the more volatile energy and food prices and tends to be a better indicator of future overall inflation, has been running closer to 1-3/4 percent.
    With regard to the outlook, I expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return of inflation to the Committee's 2 percent objective over the next couple of years. ... As the labor market strengthens further and the transitory influences holding down inflation fade, I expect inflation to rise to 2 percent.
    Monetary Policy I will turn now to the implications of recent economic developments and the economic outlook for monetary policy. The stance of monetary policy has supported improvement in the labor market this year, along with a return of inflation toward the FOMC's 2 percent objective. In September, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent and stated that, while the case for an increase in the target range had strengthened, it would, for the time being, wait for further evidence of continued progress toward its objectives.
    At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee's objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee's 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.
    Waiting for further evidence does not reflect a lack of confidence in the economy. Rather, with the unemployment rate remaining steady this year despite above-trend job gains, and with inflation continuing to run below its target, the Committee judged that there was somewhat more room for the labor market to improve on a sustainable basis than the Committee had anticipated at the beginning of the year. Nonetheless, the Committee must remain forward looking in setting monetary policy. Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.
    The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability. This assessment is based on the view that the neutral federal funds rate--meaning the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel--appears to be currently quite low by historical standards. ... With the federal funds rate currently only somewhat below estimates of the neutral rate, the stance of monetary policy is likely moderately accommodative, which is appropriate to foster further progress toward the FOMC's objectives. But because monetary policy is only moderately accommodative, the risk of falling behind the curve in the near future appears limited, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years.
    Of course, the economic outlook is inherently uncertain, and, as always, the appropriate path for the federal funds rate will change in response to changes to the outlook and associated risks.

      Posted by on Thursday, November 17, 2016 at 10:59 AM in Economics, Fed Speeches, Monetary Policy | Permalink  Comments (18) 

      Winning an Election Does Not Entitle One to Upend Basic Values

      This is by Larry Summers. Comments?:

      Winning an election does not entitle one to upend basic values: I will never again use the term “political correctness.” Whatever rhetorical value the term may have once had is far more than offset by what has been unleashed in the name of resistance to it since the presidential election.
      I have made no secret over the years of my conviction that the sensitivities of individuals or members of various group should not be permitted to chill free speech on college campuses. I have the scars to show for speaking out against overdoing the idea of microaggression, the regulation of Halloween costumes and the prosecution of students for taking part in sombrero parties – all of which have struck me as “political correctness” run amok.
      But the events of the last week are giving me pause about that term and its usage and the complex issues underlying it. It’s not that I now think speech codes are wise or that we should stamp out microaggressions wherever they are perceived. Rather, my reaction is to the way the President-elect has been heard during the campaign and the terrifying events his election has set off. ...
      Black students, gay students, Hispanic students, Muslim students, disabled students, female students – all of them now fear that the basic security and acceptance on which they relied is at risk. Help lines are flooded with calls. Those who seek to count hateful incidents report an upsurge. I cannot convince myself that that fear is irrational. ...
      In the face of all this, the President-elect and his staff ... have allowed, without adequate response and rejection, the celebration of victory to metastasize into something dark and evil. It is surely wrong to hold the President-elect personally responsible for all the words and deeds of all who support him. Equally, the President-elect has a moral obligation to stand up for tolerance and against intolerance whatever its source.
      The fight for academic freedom and for ideological diversity on college campuses should and will go on. But given what opposition to “political correctness” has licensed, it time to retire the term.
      More importantly, democracy does not mean electrocracy. Winning an election does not entitle one to upend our basic values. The refusal to tolerate blatant racism, bigotry and misogyny are beyond compromise. The first obligation of anyone currently in a leadership position is not to find common ground with our new President-elect now that the ballots have been counted and the election is over. It is instead to once again make it possible for all who live in our country to feel safe.

        Posted by on Thursday, November 17, 2016 at 10:27 AM in Economics, Politics | Permalink  Comments (51) 

        There are Two Productivity Puzzles

        Patrick Schneider at Bank Underground (at the B of E):

        There are two productivity puzzles: Much has been written about the productivity puzzle. But there are actually two puzzles apparent in the data – one in the level that hit at the crisis and the other in the growth rate, which is a more recent phenomenon – and they could be driven by completely different sources. Distinguishing between the two puzzles is important precisely because of these potential differences – if anyone analyses the puzzle as a whole looking for the force driving it, the actual underlying variety will confound our estimates of the relative importance of these drivers.

        In this post I discuss:

        1. what people mean by the productivity puzzle, usually a percent deviation from the pre-crisis trend;
        2. how I think of it as actually two puzzles: one in the level and the other in the growth rate;
        3. and why this distinction can be important, using the example of a simple growth accounting decomposition of productivity growth into capital deepening and technological advancement.


          Posted by on Thursday, November 17, 2016 at 10:11 AM in Economics, Productivity | Permalink  Comments (2) 

          Links for 11-17-16

            Posted by on Thursday, November 17, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (111) 

            Wednesday, November 16, 2016

            CBO Report Confirms What We Already Knew about the Overtime Rule


            David Weil and Heidi Shierholz at the US Department of Labor blog:

            CBO Report Confirms What We Already Knew: In May, the Department of Labor published a final rule that will extend critical overtime protections to millions of workers. The rule updates the salary threshold below which most salaried workers are overtime eligible (and above which they may be exempt from overtime depending on their duties). ...

            Yesterday, the Congressional Budget Office released a study of the economic impact of reversing these updates to the overtime regulations and taking away these important protections. The CBO report confirms what we already knew – that the rule will increase earnings for middle-income Americans.

            Here are our takeaways from the report:

            1. ...reversing the rule would strip nearly 4 million workers of overtime protections. ...
            2. ...reversing the rule would reduce workers’ earnings while increasing the hours they work. ...
            3. At a time when income inequality is already of great concern, CBO finds that reversing the rule would primarily benefit people with high incomes. ...
            4. ...reversing the rule would not create or save jobs. ...
            5. important indirect benefit of the update to the overtime regulations that would be lost if it were reversed: strengthened overtime protections for overtime-eligible workers earning between the old and new salary threshold. ...
            6. CBO likely overestimates the amount of money businesses would save if the rule were reversed. ...
            7. CBO does not mention key benefits of the update to the overtime regulations that would be lost if it were reversed. ...
            8. CBO believes that a substantial part of the savings to employers arising from reversing the update to the overtime regulations will be passed on to consumers in the form of lower prices.  ... Given the range of uncertainty in these estimates, while it is clear that real family incomes would increase for the highest income Americans, it is less clear that family income for other groups would change significantly — except for those households with workers directly affected by loss of overtime coverage, whose incomes would fall.

            The bottom line is that today’s report confirms what we already knew: the overtime rule restores the promise that a long day’s work should be rewarded with fair pay. At a time when income inequality is already of great concern, the report also concludes that reversing the rule would primarily benefit people with high incomes. ...

              Posted by on Wednesday, November 16, 2016 at 12:24 PM Permalink  Comments (10) 

              We Must Rethink Globalization, or Trumpism will Prevail

              Thomas Piketty:

              We must rethink globalization, or Trumpism will prevail: Let it be said at once: Trump’s victory is primarily due to the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this. ...
              The tragedy is that Trump’s program will only strengthen the trend towards inequality. ..
              The main lesson for Europe and the world is clear: as a matter of urgency, globalization must be fundamentally re-oriented. The main challenges of our times are the rise in inequality and global warming. We must therefore implement international treaties enabling us to respond to these challenges and to promote a model for fair and sustainable development. ...
              There should be no more signing of international agreements that reduce customs duties and other commercial barriers without including quantified and binding measures to combat fiscal and climate dumping in those same treaties. For example, there could be common minimum rates of corporation tax and targets for carbon emissions which can be verified and sanctioned. It is no longer possible to negotiate trade treaties for free trade with nothing in exchange. ... 
              It is time to change the political discourse on globalization: trade is a good thing, but fair and sustainable development also demands public services, infrastructure, health and education systems. In turn, these themselves demand fair taxation systems. If we fail to deliver these, Trumpism will prevail.

              I recently made a similar argument:

              ...Those of us in the economics profession have a choice to make. 

              We can hold onto old ideas, inflated promises about the benefits of globalization and international trade for example, while charlatans such as Donald Trump take advantage of the fears people have to divide us through racism and xenophobia that miscasts the blame for our economic woes. Or we can recognize that change and new ways of thinking are needed and lead the way to policies that move us toward a more equitable economic system.

                Posted by on Wednesday, November 16, 2016 at 10:38 AM in Economics, Income Distribution, International Trade | Permalink  Comments (68) 

                FRBSF Economic Outlook

                The latest economic outlook from the SF Fed:

                FRBSF Fed Views: Rhys Bidder, economist at the Federal Reserve Bank of San Francisco, stated his views on the current economy and the outlook as of November 10, 2016.

                Real GDP grew at an annualized rate of 2.9% in the third quarter, a significant improvement over the average growth of 1.1 % during the first half of the year. Even though consumption growth has eased from its earlier rapid pace, strong net exports and a turnaround in inventory accumulation have boosted real GDP growth.

                Growth continuing at a moderate pace

                As some of the recent strength in net exports is likely to be transitory and investment and manufacturing performance continues to be sluggish, we expect real GDP growth to soften somewhat in the fourth quarter. However, annualized growth in the second half of the year should exceed 2% based on solid consumption growth in the near-to-medium term underpinned by strong fundamentals, such as continued strength in the labor market. Going into 2017 and beyond, we expect the pace of growth to slow somewhat to its long-run trend of a little over 1 ½%.

                The October labor market report indicated a still solid labor market with nonfarm payroll employment increasing by 161,000 jobs in October, while previous months’ data were revised upwards. Monthly payroll gains have averaged 179,000 per month over the past six months.

                Employment growth still solid

                The unemployment rate declined slightly, from 5.0% to 4.9% in October, and remains close to our estimate of the natural rate of unemployment, currently 5.0%. This decline was accompanied by falls in broader measures of labor market slack that include marginally attached workers and those who work part-time but would prefer to have full-time jobs. With the economy growing somewhat above trend and employment growth remaining healthy, we expect the unemployment rate to decline modestly in the near-term, before returning to its natural level.

                Data consistent with full employment

                Inflation remains below the Fed’s 2% target, although it has picked up somewhat. Headline inflation, captured by the 12-month percent change in the personal consumption expenditures (PCE) price index was 1.2% in September which is the highest reading reported since late 2014, partly reflecting a rebound in energy prices. Core inflation, which removes the direct influence of the volatile energy and food price components of inflation, remained at 1.7% in September, the same rate reported for August. As the labor market tightens further and the lingering effects of past dollar appreciation and oil price declines subside, we expect both core and headline inflation to rise gradually towards 2%.

                Inflation rising towards target

                Treasury yields and other long-term rates have remained low since the Fed raised its funds rate target range at the end of 2015. These low rates appear to reflect market expectations that the pace of any further policy tightening will be gradual and that the natural rate of interest is lower as a result of lower trend GDP growth, which in turn partly reflects lower expectations for productivity growth and slower trend growth in the labor force.

                Long-term rates remain low

                Labor force growth depends on growth in the working age population as well as the labor market participation rate, which measures the fraction of the working aged who are working or seeking work. The growth rate in the population has slowed over the post-war period and in recent decades the labor force participation rate has declined substantially.

                Slower labor force growth in recent years

                The recent decline in the labor force participation rate partly reflects cyclical factors associated with the recent recession. However, the principal driver of its trend decline is the effect of an aging population.  Since participation is relatively high among the young and prime-aged and substantially lower among older groups, the overall participation rate declines as the older groups represent a larger share of the population. This process will continue in coming years as more baby boomers reach retirement age.

                Aging of population lowers participation

                The growth of the labor force determines how many jobs need to be created to maintain full employment. Intuitively, the more people there are who want to work, the more jobs are needed to absorb them into the ranks of the employed. Calculations of trend labor force growth allow an estimate of the pace of employment growth consistent with a healthy labor market at full employment. In the 1990s, this number appears to have been of the order of 150,000 job gains per month. However, due to the aforementioned demographic changes, the “new normal” or “trend” employment growth is now estimated to be approximately 80,000. Alternative assumptions about future participation rates imply estimates varying between 50,000 and 100,000 jobs per month.

                Employment growth has been above trend

                These estimates suggest that even if employment growth declines substantially from its current pace of 161,000 jobs to less than 100,000 per month, such a decline is still consistent with a healthy labor market where unemployment is close to its natural rate.

                The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System.

                  Posted by on Wednesday, November 16, 2016 at 10:14 AM in Economics | Permalink  Comments (0) 

                  Links for 11-16-16

                    Posted by on Wednesday, November 16, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (115) 

                    Tuesday, November 15, 2016

                    A Note on the Jeffersonian Road Not Taken in American Economic History

                    Brad DeLong:

                    A Note on the Jeffersonian Road Not Taken in American Economic History: Whether Thomas Jefferson's vision of the future of America was coherent was unclear then and remains unclear now.
                    Jefferson, like most of his founding-father contemporaries, was steeped in one version of classical history: Roman history as a morality play. Jefferson and many, many of his revolutionary peers assumed that yeoman farmers--Cincinnati--were the only possible social class that could maintain a free republic. They all believed that Rome was a great, free Republic because of its fiercely-independent farmers who nevertheless loved their city and would--like Cincinnatus--drop their ploughs and instantly take up their swords to defend (and conquer), and then return to their ploughs after the war was over.
                    The history that he and his peers had been taught was that the two centuries around the start of the Christian era saw the transformation of Rome from a virtuous farmer's republic into an unequal, commercial, corrupt, imperial city of plutocrats and proletarians. The wealth of conquest corrupted the Republic, so their teachers taught them, transforming Italy into a land of plutocrats, moneylenders, slaves, and driving the former self-sufficient yeomen off their land into the city. There they subsisted on bread and circuses and became proletarians--the Roman mob which was such easy prey to demagogues. Thus the virtuous city of Rome degenerated into the unequal, commercial, corrupt, imperial city of proletarians and plutocrats over which demagogues and then demagogues fought.
                    The Emperor Augustus stabilized the situation at the price of the Romans' liberty, but only for a while. Afterwards the best that could be hoped for was the benevolent rule of a wise autocratic emperor. And after a run of five--Nerva, Trajan, Hadrian, Antonius Pius, and Marcus Aurelius--Rome's luck ran out.
                    Jefferson and his followers saw the transformation of London into an unequal, commercial, corrupt, imperial city as a similar threat to British liberty. Indeed, what they saw as the threat of the spread of imperial corruption from London across the Atlantic was one of the reasons that they made the American Revolution.
                    Republican virtue was to be found only in the countryside, where people worked hard and wrested their living from the soil. But Jefferson did not set his hand to the plough. And his family’s plantations were arenas of vice and domination to a degree that far surpass the corrupt London of George III Hanover. Jefferson did, however, free those of his slaves who were descended from himself.
                    Making this historical morality play very real indeed to Jefferson's generation was their firm belief that eighteenth-century Britain was repeating Roman history. Eighteenth-century Londoners saw their civilization as in an "Augustan Age"--and the rebel American colonists saw that as no good thing. That is why they rebelled. Rebel colonial grievances up to 1775 were not because the tyranny of London was then so burdensome--stamp taxes, tea imports, arbitrary royal governors, continental-system trade restrictions, and even the closing of Boston's port were not intolerable, but the precedent that Americans were not citizens but subjects was intolerable in the context of what they saw as Britain's steps along the road of imperial destiny. And after the Revolution was won, one of Jefferson's highest priorities was to keep the cycle of urban-imperial corruption and subsequent loss of liberty from happening again by making sure that Philadelphia and New York did not become Rome. In the eyes of Jefferson and company, Republican virtue was to be found only in the countryside, where people worked hard and wrested their living from the soil.
                    And while imperial Britain’s rule was a bad thing in Jefferson's view, the agrarian economy that imperial Britain’s mercantilist policies had gardened its North American colonies into was a good thing because it kept Americans close to the soil, and hence virtuous.
                    The Jeffersonian current in American politics was indeed strong. A generation after Jefferson, the president was Andrew Jackson. Andrew Jackson's enemies were: Amerindians, bankers, corrupt government contractors, and anyone who favored literacy or property tests that kept the vote from the (white, male) rural adults with their hunting rifles whom Jackson as president believed had come down the Mississippi at the end of 1814 and so enabled him to win the Battle of New Orleans. A Jefferson-Jackson United States would have been rural, Anglo-Saxon, Southern and Border-Southern, and not a technological-leader but rather a technological-follower nation.
                    What would have been the long-term consequences if America had not taken the Hamiltonian turn? What would the world in 1900 have looked like if the United States had focused on specializing in its comparative advantage of resource-intensive products and bought most of its manufactures from Britain and Europe?

                      Posted by on Tuesday, November 15, 2016 at 01:13 PM in Economics | Permalink  Comments (41) 

                      China, Currency Manipulation, and Trump's Day One

                      Brad Setser:

                      China, Manipulation, Day One, the 1988 Trade Act and the Bennet Amendment: President-elect Trump has said that he plans to declare China a currency manipulator on day one.
                      I am among those who think this is a bad idea. This isn’t the right time to signal that China’s long-standing exchange rate management has crossed over the line and become manipulation. If China responded by ending all exchange rate management—no daily fix, no band, no intervention, a true float—the renminbi would certainly fall, and potentially fall by a lot.
                      Uncomfortable as it is to say, right now it is in the United States’ economic interest for China to continue to manage its exchange rate. ...
                      I guess you could argue that that China’s reserves sale have been persistent and one-sided, and thus fit the letter of law. But China has sold foreign exchange in the market to keep the yuan from depreciating. The monthly data suggest has China not bought foreign exchange in the market to keep the yuan from appreciating in the past 6 quarters or so... Its intervention in the market has worked to prevent exchange rate moves that would have the effect of widening China’s current account surplus over time. Every indicator of intervention that I track is telling the same story.
                      I can see how a case could be made that China’s broader exchange rate management—notably its use of the fix to guide the CNY—could meet the 1988 law’s definition of manipulation. ... I have consistently argued that China’s currency is still tightly managed. ...
                      But that doesn’t mean naming China is a good thing to do right now. ...
                      The goal of the United States right now, in my view, should be to encourage China to manage its currency in a way that doesn’t give rise to strong expectations of further depreciation that could fuel potentially unmanageable outflows—while encouraging China to put in place the bank recapitalization and social safety net needed to more permanently wean China off external demand. ...

                      There's much more in the full post.

                        Posted by on Tuesday, November 15, 2016 at 10:31 AM in China, Economics, International Finance | Permalink  Comments (19) 

                        Is higher inflation just around the corner?

                        Me, at MoneyWatch:

                        Why interest rates will likely rise faster than inflation: Is higher inflation just around the corner? That seems to be how the bond market sees it: As soon as traders heard Donald Trump had won the presidency, bond yields spiked (chart below). That’s because it’s widely assumed that inflation and interest rates will be higher under Trump than they would have been under Democrat Hillary Clinton.

                        There are two reasons to expect higher interest rates and rising inflationary pressure with Trump rather than Clinton as president...

                          Posted by on Tuesday, November 15, 2016 at 09:53 AM in Economics, Inflation, Monetary Policy, MoneyWatch | Permalink  Comments (10) 

                          Job-to-Job Transitions in an Evolving Labor Market

                          An FRBSF Economic Letter from Canyon Bosler and Nicolas Petrosky-Nadeau:

                          Job-to-Job Transitions in an Evolving Labor Market: Job mobility—the ability of workers to move easily from one job to another—is commonly linked with economic opportunity. High job mobility in the United States has long been regarded as an advantageous feature. A fluid labor market serves as an important engine of economic and social mobility by enabling workers to change jobs for higher compensation, better work conditions, and opportunities for advancement. However, the aggregate rate at which people leave one job for another has been falling for almost two decades. Some analysts suggest this may be a sign that the labor market has lost some of its dynamism.
                          In this Economic Letter we explore the sources of this decline in the job-to-job transition rate. We find that a pronounced decline in the job switching behavior of young workers ages 16 to 24 since the late 1990s explains most of the overall decline in job-to-job transition rates. The labor market is as dynamic today as it was 20 years ago for workers ages 25 years and over.
                          Declining dynamism
                          People are constantly moving in and out of jobs. More people move from one job to another in a given month than move from unemployment into a new job. Job-to-job flows generally reflect the natural process of people shifting around to find the best job for their skill sets. In the process, these workers often secure higher wages, experiment with different jobs, and develop new skills. The fluidity of the U.S. labor market is envied by many economies around the world. However, as with other measures of dynamism, declining job-changing activity in the United States has raised concerns that the engine of opportunity is stalling (Davis and Haltiwanger 2014). Between 1997 and 2013, the most recent year of data available from the Census Bureau’s Survey of Income and Program Participation (SIPP), the rate at which people move out of one job and into another has declined just over 25%. In a typical month in 1997, nearly 3% of people over age 16 who were employed in one month had moved to a different job by the next month. By 2013 this had dropped to near 2% (see Figure 1 and Moscarini and Thomsson 2007).

                          Figure 1
                          Overall job-to-job transition rate has declined

                          Source: Survey of Income and Program Participation (SIPP) and authors’ calculations.
                          Gray bars represent NBER recession dates. Line breaks show periods with missing data.

                          The decline has been gradual since 1997 and appears to be part of a secular trend distinct from the ups and downs of business cycles. That said, job-to-job transitions tend to move in accord with the business cycle. Expansions, for instance, tend to coincide with more job-to-job transitions. This is particularly evident during the strong expansion of 2004–07, which led to a temporary reversal of the downward drift. People changed jobs more frequently during the housing boom, reflecting greater economic opportunities, but this acceleration came to an end with the onset of the Great Recession. More recently, as the labor market has strengthened in general, there has been a modest pickup in job-to-job transitions.
                          Job-to-job transitions: The life cycle and over time
                          The reasons for and benefits from mobility change over a person’s life. Early in life, the mobility of a fluid labor market allows people to experiment and discover their skills and desired careers (Gervais et al. 2016). Later in life, when people are more established in their careers, mobility reflects the opportunity to find better employment and wage gains or to develop new skills at different tasks. Job-to-job transitions occur more frequently earlier in life. They are highest under the age of 22, then decline rapidly over the remainder of the 20s before stabilizing in the 30s and over the rest of a person’s work life.
                          Comparing the two lines in Figure 2 reveals a striking drop in the job-to-job movement of young workers between 1997 and 2012. The mobility rates for workers under age 21 dropped about 2 percentage points, from about 6% to about 4%. This stands in stark contrast to the stability in job-to-job mobility for people over age 30. The rate among people ages 40 to 44, for instance, was 1.9% in 1997 and 1.7% in 2012. By this measure, mobility is essentially unchanged since 1997 for a large majority of the workforce.

                          Figure 2
                          Job-to-job transition rates decline with age

                          Job-to-job transition rates decline with age

                          Source: SIPP and authors’ calculations.

                          We consider an alternative scenario that holds job-to-job rates for all age groups constant at their 1997 levels, and calculate what the overall rate would have been through 2013 relative to the actual rates. In the alternative scenario, actual rates of employment for each demographic group follow the historical experience, and only job-to-job mobility is held fixed. In particular, young workers in this scenario retain their high rates of job-to-job transitions from 1997 through 2013. This scenario suggests that the overall job-to-job transition rate would have been 2.4% in 2013, instead of the actual 2% rate. This underscores the fact that mobility, by this measure, has not changed significantly for workers over the age of 25.
                          The pronounced change in the job switching behavior of the young has had a significant impact on the overall decline. Even though individuals under age 25 represent only about 12% of the continuously employed, their diminished job-to-job transition rates account for 70% of the decline in the aggregate job-to-job transitions rate. This observation is clearer when we separate the population into two age groups, workers under age 25 and those 25 and older. Figure 3 reports the job-to-job transition rates for these two groups. It shows that much of the movement has been among younger workers (blue line), while the transition rate for the older group of workers (red line) shows no downward trend.

                          Figure 3
                          Young workers drive overall decline in job-to-job transitions

                          Young workers drive overall decline in job-to-job transitions

                          Source: SIPP and authors’ calculations.

                          To gain some insight into the reasons for the declining job-to-job transition rates among young workers, Figure 4 breaks the under-25 group into rates for different occupation groups: services (red line), clerical and retail sales (green line), managerial and professional sectors including technicians, finance, and public safety (yellow line), and sectors such as transportation, construction, mechanics, mining, and farm work (blue line). Together, these sectors represented 95% of employment of the young in 2013. The main finding in the figure is that the decline in job mobility is prevalent across all occupations. It’s also apparent that the dispersion in the job-to-job rates across occupations in 1997 is no longer present by 2013.

                          Figure 4
                          Decline for the young similar across occupations

                          Decline for the young similar across occupations

                          Source: SIPP and authors’ calculations.

                          The decline in services (red line) appears to be the most pronounced. The rate of job-to-job transitions in 1997 was 5.5%. By 2013 it had declined to 3.5%. Nonetheless, job-to-job transitions in services were more frequent than in other sectors during this entire time period. Services provide a large and increasing share of employment for the young, growing from 23% of jobs in 1997 to 31% in 2013. This growth in share offsets some of the sector’s decline in transitions such that, on net, service occupations do not explain much of the overall decline in job-to-job transition rates for young workers. Of the other broad occupation groups reported in Figure 4, the transportation and construction sectors (blue line) contribute the most to the decline in job-to-job transition rates among young workers. The sector saw a large drop in employment of young workers over this period, and those remaining in the sector experience fewer job-to-job changes than in the past.
                          Possible explanations and consequences for the U.S. economy
                          Interpreting the decline in job mobility among the young and its implications for the future of the U.S. economy depends on the underlying explanations for this trend. We can only speculate at this stage. Some of the potential explanations raise concerns. For example, there has been a rising trend of young adults moving back home in recent years (Kaplan 2012). Whether this is a socially desirable development is unclear. While children gain some insurance against the rocky first years in the labor market by moving in with their parents, this may be at the cost of diminished experimentation with different jobs. Another concern is that technological changes that eliminate middle-level skilled jobs also eliminate opportunities for the young to develop and advance in their careers.
                          On the other hand, the decline in job mobility may be the result of improvements in the labor market rather than a symptom of deterioration. In a maturing economy, workers engage in longer periods of training and greater specialization. This could explain, in part, the trends we observe among young workers. As people earn advanced degrees, they are more likely to move directly into their career of choice and require less job experimentation. The probability of ending a job declines with tenure (Farber 1999). Thus, if young workers find the right job more quickly and stay in their positions longer, they may no longer experience as many job changes early in life. Finally, improved information technologies, such as job search and the screening of applications, have changed how people look for jobs (Stevenson 2009, Faber and Kudlyak 2016) and may have enabled better careers matches (Kuhn and Mansour 2014).
                          All in all, regardless of the decline in job-to-job mobility for younger workers, the continued fluidity of the labor market for the vast majority of the working population alleviates many of the concerns for the future functioning of the U.S. labor market.
                          Canyon Bosler is a graduate student at the University of Michigan and a former research associate at the Federal Reserve Bank of San Francisco.
                          Nicolas Petrosky-Nadeau is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.
                          Davis, Steven J., and John Haltiwanger. 2014. “Labor Market Fluidity and Economic Performance.” NBER Working Paper 20479.
                          Faberman, Jason, and Marianna Kudlyak. 2016. “What Does Online Job Search Tell Us about the Labor Market?” FRB Chicago Economic Perspectives 40(1).
                          Farber, Henry S. 1999. “The Dynamics of Job Changes in Labor Markets.” Chapter 37 in Handbook of Labor Economics, edition 1, volume 3, eds. O. Ashenfelter and D. Card. Amsterdam: Elsevier, pp. 2,439–2,483.
                          Gervais, Martin, Nir Jaimovich, Henri E. Siu, and Yaniv Yedid-Levi. 2016. “What Should I Be When I Grow Up? Occupations and Unemployment over the Life-Cycle.” Journal of Monetary Economics 83, pp. 54–70.
                          Kaplan, Greg. 2012. “Moving Back Home: Insurance against Labor Market Risk.” Journal of Political Economy 120(3), pp. 446–512.
                          Kuhn, Peter, and Hani Mansour. 2014. “Is Internet Job Search Still Ineffective?” Economic Journal 124(581), pp. 1213–1233.
                          Moscarini, Giuseppe, and Kaj Thomsson. 2007. “Occupational and Job Mobility in the U.S.” Scandinavian Journal of Economics 109(4), pp. 807—836.
                          Stevenson, Betsey. 2009. “The Internet and Job Search.” Chapters in Studies of Labor Market Intermediation, pp. 67–86. Cambridge, MA: National Bureau of Economic Research.
                          Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.

                            Posted by on Tuesday, November 15, 2016 at 12:15 AM in Economics, Unemployment | Permalink  Comments (14) 

                            Links for 11-15-16

                              Posted by on Tuesday, November 15, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (112) 

                              Monday, November 14, 2016

                              Blanchard on the Election: Recession, Expansion, and Inequality

                              Olivier Blanchard:

                              In the Light of the Elections: Recession, Expansion, and Inequality: Will the economic program of President-elect Donald Trump lead to a recession or to an expansion? ... It is obviously hard to tell..., what happens to the US economy depends mainly on the balance between macroeconomic and trade measures.
                              On the macroeconomic front, signs point to larger fiscal deficits, as a result of both higher infrastructure spending and corporate and personal tax cuts. ...
                              If deficits take place, they will lead to higher spending and higher growth for some time. And with the US economy already operating close to potential, deficits will lead to higher inflation..., potentially leading the US Federal Reserve to react by increasing interest rates faster than it intended to before the election. ...
                              To the extent that both growth and interest rates are higher, the dollar is likely to appreciate, leading, ironically, to larger US trade deficits, which Donald Trump the candidate indicated he wanted to fight. This leads me to trade issues and trade measures. ... Imposing tariffs on a major scale would decrease growth and make a recession more likely. ... Tariffs by themselves may indeed reduce imports, increase the demand for domestic goods, and increase output... But the "by themselves" assumption is just not right: Tariffs ... would most likely lead to a tariff war and thus decrease exports. And the decrease in imports and exports would not be a wash. ...
                              So, in the end, expansion or recession will depend on the balance between macroeconomic and trade measures. My own guess is the first will dominate, and growth will be sustained, at least for some time. Will it be enough to satisfy those who voted for Donald Trump, worried about their incomes and their futures? I am not so sure. Growth will indeed lift most boats. But many measures will push in the opposite direction. Lower corporate taxes, lower personal taxes on the rich, and financial deregulation will increase the share of output going to capital... The (now partial?) dismantling of Obamacare, if it is to happen, will not help the twenty or so million who benefit from it today. Tariffs on foreign goods may save some middle class jobs but will destroy others and increase the cost of living for those at the bottom end of the income distribution. Inequality may well go up, not down.
                              Take these remarks for what they are, an early analysis of a still unknown set of measures, all with complex effects. ... But predictions of recession were too pessimistic. If macro measures dominate trade measures, we may be in for a Trump expansion, at least for a time. 

                                Posted by on Monday, November 14, 2016 at 10:14 AM in Economics, Politics | Permalink  Comments (38) 

                                Fed Watch: December Still A Go

                                Tim Duy:

                                December Still A Go, by Tim Duy: Some back of the envelope calculations: The Fed's long-run real GDP growth estimate - the rate of potential GDP growth - is 1.8%. According to Federal Reserve Vice Chair Stan Fischer last week:
                                If labor force participation was to remain flat, job gains in the range of 125,000 to 175,000 would likely be needed to prevent unemployment from creeping up. However, if labor force participation was to decline, as might be expected given demographic trends, the neutral rate of payroll gains would be lower. If we assumed a downward trend in participation of about 0.3 percentage point per year, in line with estimates of the likely drag from demographics, job gains in the range of 65,000 to 115,000 would likely be sufficient to maintain full employment.
                                Labor force growth of 0.3%. Together, these two points imply a productivity estimate of 1.5%. The Fed's inflation target is 2%. The 2% inflation target plus 1.5% productivity growth suggests that the Fed anticipates wage growth of 3.5% when the economy settles into full employment.
                                Roughly; these are just back-of-the envelope calculations. Notice though that the 3-month moving average for average wage growth ticked up to 3.3% last month:


                                To be sure, 12-month wage growth still lags at 2.8%, but you can see where that trend is headed. Just like inflation, headed higher.
                                Under these conditions, it is reasonable to believe the economy is very close to full employment. Of course, some slack may still lurk in the background. Perhaps it exists in the underemployment estimates:


                                Or perhaps labor force participation will feel more cyclical pull before demographics begin to dominate again. But that would be a short-term impact. Longer run, the aging population will take its toll on the labor force. Anyway you slice it, the Fed's comfort level with their estimate of full employment must be on the rise:


                                Indeed, given the current pace of job growth, the Fed anticipates the economy is positioned to soon reach their mandates. Perhaps even more so. Fischer from last week:
                                ...the more interesting and important questions relate to the next few years rather than the next few months. They relate in large part to the secular stagnation arguments that were laid out yesterday in Larry Summers' Mundell-Fleming lecture--in particular the behavior of the rate of productivity growth. The statement that the problem we face is largely one of demand--and we do face that problem--seems to imply either that productivity growth is called forth by aggregate demand, or a Say's Law of productivity growth, namely that productivity growth produces its own demand.
                                That is not an issue that can be answered purely by theorizing. Rather, it will be answered by the behavior of output and inflation as we approach and perhaps to some extent exceed our employment and inflation targets.
                                The Fed faces a familiar dilemma in December. Act preemptively, or hold still waiting for labor force and productivity growth to comes along? Most likely the Fed will take the opportunity in December to act preemptively and reiterate that doing so allows for them to retain their "move gradually" plan.
                                Does the election throw a wrench in their plans? Financial markets were buoyed by the prospect of a Republican dominated government, sending stocks higher and bonds lower. Would the bond sell off induce the Fed to take a pass in December, on the theory that higher interest rates imply tighter financial conditions? In this case, I think not. The steepening of the yield curve:


                                likely reflects the prospect of a reflationary policy mix. Note also that market-based inflation expectations tell the same story:


                                The Fed finally has the chance to chase the yield curve higher; I think they take it.
                                The situation differs from the steepening of the infamous "taper tantrum." Then the sell-off on the long end reflected a perceived change in the path of monetary policy, a perception the Fed did not share. Hence they needed to act in such a way to communicate their true intentions. In this case, the market is digesting new developments and raising estimates of the medium-run economic outlook and the likely monetary policy path.
                                Note that the Fed sees the prospect of fiscal stimulus as well. Fischer again, via Reuters:
                                "On more expansionary fiscal policy, I think many members of the open market committee and of the Federal Reserve Board have commented it would be useful to have a more expansionary fiscal policy," Fischer said.
                                It is not exactly a secret that the Fed would like a more expansionary fiscal policy to take on more of the macroeconomic policy burden. The Fed believes that a more expansionary fiscal policy would provide them greater room to "normalize" interest rates. Hence they will be closely watching the evolving fiscal agenda. It is too early for them to update their economic projections dramatically, but with regards to the December rate decision, the prospect of substantial fiscal stimulus must count as an upside risk for growth and inflation.
                                Given that the economy is already near the Fed's estimates of full employment, the risk of fiscal stimulus should imply a risk of a higher rate path in 2017 and beyond. Assuming no change in productivity or labor force growth, it is reasonable to anticipate that the Fed would consider a full monetary offset to any fiscal stimulus; the alternative from their perspective would be substantially higher inflation. President-elect Donald Trump might not take too kindly to such an agenda, thinking that it would undermine his efforts to
                                "make America great" again. The risk is that he would attempt to further politicize the Fed, nominating friendly governors willing to minimize the monetary offset. Beware of higher inflation in such an environment.
                                Bottom Line: With the economy hovering near full employment, the Fed will want to press forward with a December rate hike. Market odds of 85% are reasonable. Watch for signs the Fed will feel they have little choice but to offset fiscal stimulus if they want to preserve their inflation target. This is particularly the case for any large stimulus; Republican administrations have historically been pro-deficit spending. The stage is set for a contentious relationship with the next Administration. Watch for increasing politicization of the Federal Reserve.

                                  Posted by on Monday, November 14, 2016 at 09:46 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (9) 

                                  Paul Krugman: Trump Slump Coming?

                                  The consequences of Trumpism:

                                  Trump Slump Coming?, by Paul Krugman, NY Times: Let’s be clear: Installing Donald Trump in the White House is an epic mistake. ...
                                  But will the extent of the disaster become apparent right away? It’s ... tempting to predict a quick comeuppance — and I myself gave in to that temptation, briefly, on that horrible election night... But I quickly retracted that call. Trumpism will have dire effects, but they will take time to become manifest.
                                  In fact, don’t be surprised if economic growth actually accelerates for a couple of years.
                                  Why am I, on reflection, relatively sanguine about the short-term effects of putting such a terrible man, with such a terrible team, in power? ...
                                  First,... take the signature Trump issue of trade policy. A return to protectionism and trade wars would make the world economy poorer over time... But predictions that Trumpist tariffs will cause a recession never made sense: Yes, we’ll export less, but we’ll also import less, and the overall effect on jobs will be more or less a wash. We’ve already had a sort of dress rehearsal for this ... in ... Brexit, ...
                                  Beyond these general principles,... a Trump administration might actually end up doing the right thing for the wrong reasons. ...
                                  Donald Trump isn’t proposing huge, budget-busting tax cuts for the wealthy and corporations because he understands macroeconomics. But those tax cuts would add $4.5 trillion to U.S. debt over the next decade...
                                  True, handing out windfalls to rich people and companies that will probably sit on a lot of the money is a bad, low-bang-for-the-buck way to boost the economy... But an accidental, badly designed stimulus would still, in the short run, be better than no stimulus at all.
                                  In short, don’t expect an immediate Trump slump.
                                  Now, in the longer run Trumpism will be a very bad thing for the economy... For one thing,... if we ... face a new economic crisis — perhaps as a result of the dismantling of financial reform — it’s hard to think of people less prepared to deal with it.
                                  And Trumpist policies will, in particular, hurt, not help, the American working class... More on that in future columns.
                                  But all of this will probably take time; the consequences of the new regime’s awfulness won’t be apparent right away. Opponents of that regime need to be prepared for the real possibility that good things will happen to bad people, at least for a while.

                                    Posted by on Monday, November 14, 2016 at 12:57 AM in Economics, Politics | Permalink  Comments (226) 

                                    Links for 11-14-16

                                      Posted by on Monday, November 14, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (63) 

                                      Sunday, November 13, 2016

                                      The Other Infrastructure

                                      This is by David Warsh:

                                      The Other Infrastructure, Economic Principals: Bridges, roads, airports, the electricity grid, pipelines, food and fuel and water systems: all of these are underfunded to some degree. So are the myriad new arrangements, from satellites and ocean buoys to emission scrubbers and ocean barriers, required to keep abreast and cope with climate change. Which wheels will begin to get the grease in coming months? We’ll see.

                                      At the moment I am even more interested in the well-being of social information systems Last week The Wall Street Journal announced it would reduce its print edition from four sections to two, bringing it into line with the Financial Times. Should that be an occasion for concern? On the contrary, let me try to convince you that it is welcome news.

                                      Although newspapers still carry crossword puzzles, comics, agony aunts, and churn out all manner of fashion magazines, they are mainly in the business of producing provisionally reliable knowledge. What’s that? I have in mind propositions on which every honest and knowledgeable person can agree.

                                      Not so much big judgement, such whether climate change is occurring or whether Vladimir Putin is a despot, but rather ascertainable facts, beginning with what parties to various debates are saying about themselves and each other and about their pasts. These are the foundations on which big judgements are based

                                      A case in point: almost all of what the world knows about Donald Trump, that is, that we consider that we really know, we owe to The New York Times, The Wall Street Journal, The Washington Post, the Financial Times, and various newspaper-like organizations, Bloomberg News, Politico, and the Guardian in particular. The Associated Press, Reuters and the BBC contributed a little less; magazines still less; the rest of radio and television, hardly anything at all, with the notable exception of Fox News anchor Megyn Kelly’s lead off question in the first presidential debate. Someone will prepare a list of the fifty or a hundred of the best stories of the last year, I expect. I’ll only mention a few memorable examples:

                                      The Post’s coverage of the Trump Foundation; the Times’ many investigations, including those of his tax strategies and his practices as a young landlord; a Politico roundtable of five Trump biographers; the WSJ’s pursuit of the George Washington bridge closing, coverage that changed the course of the campaign; and the FT’s continuing emphasis on the foreign policy implications of the America election. The same thing could be said about newspapers’ coverage of Hillary Clinton.

                                      Newspapers exist to process and assess the rival claims of experts – politicians, governments, corporations, the professoriate, pollsters, authors, whistleblowers, filmmakers, and denizens of the blogosphere. When its own claims to authority are misplaced – a spectacular example having been the Monday before the election, when newspapers were still expecting a Clinton victory – the print press and its kith and kin correct themselves (the next day) and investigate the prior beliefs that led them to error. A free and competitive press resembles the other great self-correcting systems that have evolved over centuries – democracy, markets, and science.

                                      And as for social media, the new highly-decentralized content producers, to the extent they are originators of new information, the claims made there are slowly becoming subject to the same checking and assessment routines as are claims advanced in other realms. (No, the Pope did not endorse Donald Trump.) As for intelligence services, in which the experts’ job is to know more than is public, it is the newspapers that make them less secret. More than any other institution in democratic industrial societies, newspapers produce a provisional version of the truth. So the condition of newspapers should concern us all.

                                      In What If the Newspaper Industry Made a Colossal Mistake?, in Politico, Jack Shafer speculated recently the newspaper companies had “wasted hundreds of millions of dollars” by building out web operations instead of investing in their print editions, “where the vast majority of their readers still reside and where the overwhelming majority of advertising and subscription revenue still come from.” As perspicacious a press critic as is writing today, Shafer was reporting on an essay by a pair of University of Texas professors, H. Iris Chyi and Ori Tenenboim, in Journalism Practice.

                                      Chyi and Tenenboim overstated their case, I think. Those dollars invested in web operations weren’t wasted; they had to be spent. Most newspapers, all but the WSJ, made the mistake of making their content free on the Web for several years. Only gradually did they come round to the approach the Journal had pioneered: a paywall, with some sort of a metering technology designed to encourage online subscriptions.

                                      More serious has been the lack of thinking-out-loud about the future of those print editions. No one needs to be told that smart phones have replaced newspapers, radio, and television as the tip of the spear of news. It appears that Facebook and Twitter have supplanted cable television and radio talk shows as the dominant forum for political discussion. But newspapers haven’t gone away; indeed, by establishing beachheads for the content they produce on social media platforms, they have become more influential than ever.

                                      The immense prestige associated with newspapers arose from the fact that for centuries they were reliable money machines, thanks to their semi-monopoly on readers’ attention. It is no longer news that the revenue model has turned upside down, Advertisers used to pay two thirds or more of the cost of publishing a successful newspaper; today it is more like a third, if that. Attention was slowly eroded away by radio, broadcast and pay television, until the invention of search-based advertising in 2002 turned decline into a seeming rout. The basic business model is still the same, as Tim Wu explains in The Attention Merchants; The Epic Scramble to Get Inside Our Heads (Knopf, 2016): “free diversion in exchange for a moment of your consideration, sold in turn to the highest-bidding advertiser.” It’s the technology that has changed.

                                      In a world in which the gas pump starts talking to you when you pick up the hose and video commercials are everywhere online, the virtues of print are many-sided, for readers and advertisers alike. In Why Print Still Rules, Shafer laid out the case for print’s superiority as a medium – “an amazingly sophisticated technology for showing you what’s important, and showing you a lot of it.” It’s finite. It attracts a paying crowd, which is why advertisers are willing to pay more – much more – for space.

                                      The fancy newspapers are in good shape to refurbish their printed editions. Three of the four have new owners with deep pockets. Rupert Murdoch, a maverick Australian, now a US citizen, bought the WSJ in 2007; Amazon’s Jeff Bezos, thought to be the second richest American, after Bill Gates, bought the WPost in 2013; the Japanese newspaper group around Nikkei bought the FT in 2015. The NYT is the shakiest of the four, but there seems little doubt that the cousins of the Sulzberger/Ochs clan will find a suitable partner, the oft-expressed enmity of President-elect Trump notwithstanding.

                                      Pricing, meanwhile, is all over the map, as is the appropriate size of the paper edition itself. The FT delivers two sections of tightly-written no-jump news over five days and a great weekend edition for $406 a year. The WSJ costs $525 a year for six days, including a first-rate weekend edition. The Times charges $980 a year for seven days a week, including a Sunday edition that contains much more content than most readers need. (Its ads bring in a ton of money.) That’s why the WSJ decision to cut back to from four to two daily sections is significant: it acknowledges the reduced but still very powerful claim of print on consumers’ ever-more stretched budget of time. It puts more pressure on the Times’s luxury brand.

                                      It’s the regional papers that worry me, as much for their roles as distributors of news as producers of it. When the Times, WSJ and FT are placed on the stoop in the morning, my old paper, The Boston Globe, is not among them. At around $770 a year, it simply costs too much, especially considering the meager local content it provides. Assume that the “right” price for a year of a fancy paper today is somewhere between the FT and the WSJ, at around $500 a year. At around half as much, or even $300, a print edition of the Globe would be highly attractive. My hunch is that circulation would again begin to increase, and, in the process, shore up the metropolitan area’s home-delivery network. Instead I buy digital versions of the Globe (for $208) and the Post (for $149). Want to know what a year of the print Post costs? So does the copy editor. But I stopped looking after interrogating the web page for five minutes. Newspapers are notorious for gulling their subscribers. Not even the FT is straightforward about it.

                                      Like the other leading papers – the Chicago Tribune, Los Angeles Times, Philadelphia Inquirer, and Baltimore Sun – the Globe was sold for a song to a non-newspaper owner in the course of the panic that followed the advent of search advertising in 2002. These publishers no longer seem to see themselves as part of an industry that was quite tight-knit before the fall. That’s another disadvantage with which the big national dailies must cope. For many years, newspaperfolk considered that their businesses were mostly exempt from the laws of supply and demand. Price cuts play a big part in the lore of its past. Today, the future of the industry depends on the recognition that price/performance is everything.

                                        Posted by on Sunday, November 13, 2016 at 11:12 AM in Economics, Press | Permalink  Comments (47) 

                                        Saturday, November 12, 2016

                                        Links for 11-12-16

                                          Posted by on Saturday, November 12, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (255) 

                                          Friday, November 11, 2016

                                          Handouts With a Twist: Rebuilding America’s Infrastructure

                                          Robert Frank:

                                          Handouts With a Twist: Rebuilding America’s Infrastructure: ...Redistributive taxation has always been a fraught subject in America. It is thus encouraging that many prominent conservatives now favor a system of basic income guarantees. ...
                                          In many ways, it’s an appealing idea. But given the realities of American political culture, cash transfers alone cannot solve the problem. They might work, though, if combined with ... an offer of employment as trainees ... to rebuild the nation’s crumbling infrastructure. ...
                                          Previous expansions of the nation’s infrastructure — such as the Works Progress Administration during the Great Depression and the Interstate Highway System initiative of the 1950s — have identified many useful tasks that could be done by properly supervised unskilled workers. Together, the earnings from such jobs plus the small basic income grant would exceed the poverty threshold. ...
                                          We could provide more generous support for those most in need, while at the same time providing them with an opportunity to contribute directly to the nation’s prosperity.

                                            Posted by on Friday, November 11, 2016 at 03:52 PM in Economics, Fiscal Policy, Social Insurance | Permalink  Comments (30) 

                                            Paul Krugman: Thoughts for the Horrified

                                            I started blogging a few months after George Bush was reelected. I didn't feel like I has done enough before the election, so I decided to do whatever I could to try and make a difference.

                                            When Trump was elected, I felt like I had failed, that all the effort over the last 12 years (it takes an immense amount of time each day to do this, and the opportunity cost has been high) had been for nothing. I felt like hanging it up. But I knew deep down I couldn't do that. So time to regroup, drop the complacency I fell into over time (I don't write anywhere near as much as I once did), and do what I can.

                                            The most disappointing part of this is about my plans for the future. I have (tentatively) been thinking of retiring in two years, and cutting back considerably on blogging, writing columns, etc. The time to stop and smell the roses is near. Now those plans are in doubt. If Trump and the Republicans proceed as I think they will, it may be much longer than that before I can scale back and live with myself.

                                            Anyway, here' Paul Krugman:

                                            Thoughts for the Horrified, by Paul Krugman, NY Times: So what do we do now? By “we” I mean all those left, center and even right who saw Donald Trump as the worst man ever to run for president and assumed that a strong majority of our fellow citizens would agree.
                                            I’m not talking about rethinking political strategy. There will be a time for that.... For now, however, I’m talking about personal attitude and behavior in the face of this terrible shock. ...
                                            Unfortunately, we’re not just talking about four bad years. Tuesday’s fallout will last for decades, maybe generations.
                                            I particularly worry about climate change..., the damage may well be irreversible.
                                            The political damage will extend far into the future, too. The odds are that some terrible people will become Supreme Court justices. States will feel empowered to engage in even more voter suppression... At worst, we could see a slightly covert form of Jim Crow become the norm all across America.
                                            And you have to wonder about civil liberties, too. The White House will soon be occupied by a man with obvious authoritarian instincts...
                                            What about the short term? My own first instinct was to say that Trumponomics would quickly provoke an immediate economic crisis, but after a few hours’ reflection I decided that this was probably wrong. I’ll write more about this in the coming weeks...
                                            So where does this leave us? What, as concerned and horrified citizens, should we do?
                                            One natural response would be quietism, turning one’s back on politics. It’s definitely tempting... But I don’t see how you can hang on to your own self-respect unless you’re willing to stand up for the truth and fundamental American values.
                                            Will that stand eventually succeed? No guarantees. Americans, no matter how secular, tend to think of themselves as citizens of a nation with a special divine providence, one that may take wrong turns but always finds its way back, one in which justice always prevails in the end.
                                            Yet it doesn’t have to be true. ... Maybe America isn’t special, it’s just another republic that had its day, but is in the process of devolving into a corrupt nation ruled by strongmen.
                                            But I’m not ready to accept that this is inevitable — because accepting it as inevitable would become a self-fulfilling prophecy. The road back to what America should be is going to be longer and harder than any of us expected, and we might not make it. But we have to try.

                                              Posted by on Friday, November 11, 2016 at 09:46 AM in Economics, Politics, Weblogs | Permalink  Comments (156) 

                                              Links for 11-11-16

                                                Posted by on Friday, November 11, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (183) 

                                                Thursday, November 10, 2016

                                                What Does the Trump Victory Mean for Climate Change Policy?

                                                Robert Stavins:

                                                What Does the Trump Victory Mean for Climate Change Policy?: Those of you who have read my previous essay at this blog, “This is Not a Time for Political Neutrality” (October 9, 2016), know that my greatest concerns about a Trump presidency (then a possibility, now a certainty), were not limited to environmental policy, but rather were “about what a Trump presidency would mean for my country and for the world in realms ranging from economic progress to national security to personal liberty,” based on his “own words in a campaign in which he substituted impulse and pandering for thoughtful politics” … and “built his populist campaign on false allegations about others, personal insults of anyone who disagrees with him, and displays of breathtaking xenophobia, veiled racism, and unapologetic sexism.”
                                                That’s a broad indictment, to be sure, but whatever real expertise I may have is actually limited to environmental, resource, and energy economics and policy, and so that has and will continue to be the real focus of this blog, “An Economic View of the Environment.”  With that in mind, I return today from last month’s brief immersion in partisan politics to discuss climate change policy.
                                                Yesterday, an editor at The New York Times asked me to write a 500-word essay giving my view of what the Trump victory will mean for climate policy.  This morning, my very brief essay was published under the headline, “Goodbye to the Climate.”  Given the brevity of the piece, it does not touch on many issues and subtleties (I come back to that at the end of today’s blog post)...

                                                  Posted by on Thursday, November 10, 2016 at 10:09 AM in Economics, Environment, Politics | Permalink  Comments (88) 

                                                  Links for 11-10-16

                                                    Posted by on Thursday, November 10, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (199) 

                                                    Wednesday, November 09, 2016

                                                    The Limitations of Randomized Controlled Trials

                                                    Angus Deaton and Nancy Cartwright:

                                                    The limitations of randomized controlled trials: In recent years, the use of randomized controlled trials has spread from labor market and welfare program evaluation to other areas of economics, and to other social sciences, perhaps most prominently in development and health economics. This column argues that some of the popularity of such trials rests on misunderstandings about what they are capable of accomplishing, and cautions against simple extrapolations from trials to other contexts. ...

                                                      Posted by on Wednesday, November 9, 2016 at 11:20 AM in Economics, Methodology | Permalink  Comments (8) 

                                                      Comments on the Election

                                                      I case you have something to say...

                                                        Posted by on Wednesday, November 9, 2016 at 12:33 AM in Politics | Permalink  Comments (249) 

                                                        Paul Krugman: The Economic Fallout

                                                        Paul Krugman:

                                                        Paul Krugman: TheEconomic Fallout: It really does now look like President Trump, and markets are plunging. When might we expect them to recover?
                                                        Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.
                                                        Still, I guess people want an answer: if the question is when markets will recover, a first-pass answer is never.
                                                        Under any circumstances, putting an irresponsible, ignorant man who takes his advice from all the wrong people in charge of the nation with the world’s most important economy would be very bad news. What makes it especially bad right now, however, is the fundamentally fragile state much of the world is still in, 8 years after the great financial crisis. ...
                                                        Now comes the mother of all adverse effects – and what it brings with it is a regime that will be ignorant of economic policy and hostile to any effort to make it work. Effective fiscal support for the Fed? Not a chance. In fact, you can bet that the Fed will lose its independence, and be bullied by cranks.
                                                        So we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.

                                                          Posted by on Wednesday, November 9, 2016 at 12:24 AM in Economics, Politics | Permalink  Comments (116) 

                                                          Links for 11-09-16

                                                            Posted by on Wednesday, November 9, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (41) 

                                                            Tuesday, November 08, 2016

                                                            Monte Carlo Simulation Basics, I: Historical Notes

                                                            Dave Giles:

                                                            Monte Carlo Simulation Basics, I: Historical Notes: Monte Carlo (MC) simulation provides us with a very powerful tool for solving all sorts of problems. In classical econometrics, we can use it to explore the properties of the estimators and tests that we use. More specifically, MC methods enable us to mimic (computationally) the sampling distributions of estimators and test statistics in situations that are of interest to us. In Bayesian econometrics we use this tool to actually construct the estimators themselves. I'll put the latter to one side in what follows.
                                                            To get the discussion going, suppose that we know that a particular test statistic has a sampling distribution that is Chi Square asymptotically - that is when the sample size is infinitely large - when the null hypothesis is true. That's helpful, up to a point, but it provides us with no hard evidence about that sampling distribution if the sample size that we happen to be faced with is just n = 10 (say). And if we don't know what the sampling distribution is, then we don't know what critical region is appropriate when we apply the test.
                                                            In the same vein, we usually avoid using estimators that are are "inconsistent". This implies that our estimators are (among other things) asymptotically unbiased. Again, however, this is no guarantee that they are unbiased, or even have acceptably small bias, if we're working with a relatively small sample of data. If we want to determine the bias (or variance) of an estimator for a particular finite sample size (n), then once again we need to know about the estimator's sampling distribution. Specifically, we need to determine the mean and the variance of that sampling distribution.
                                                            And there's no "magic number" above which the sample size can be considered large enough for the asymptotic results to hold. It varies from problem to problem, and often it depends on the unknown parameters that we're trying to draw inferences about. In some situations a sample size of n = 30 will suffice, but in other cases thousands of observations are needed before we can appeal to the asymptotic results. 
                                                            If we can't figure the details of the sampling distribution for an estimator or a test statistic by analytical means - and sometimes that can be very, very, difficult - then one way to go forward is to conduct some sort of MC simulation experiment. Indeed, using such simulation techniques hand-in-hand with analytical tools can be very productive when we're exploring new territory.
                                                            I'll be devoting several upcoming posts to this important topic. In those posts I'll try and provide an easy-to-follow introduction to MC simulation for econometrics students.
                                                            Before proceeding further, let's take a brief look at some of the history of MC simulation. ...

                                                              Posted by on Tuesday, November 8, 2016 at 10:29 AM in Econometrics, Economics | Permalink  Comments (2) 

                                                              The Opportunity Cost (and Benefit?) of Brexit

                                                              Chris Dillow:

                                                              The opportunity cost of Brexit: There’s one possible effect of Brexit that I suspect hasn’t had the consideration it merits – the opportunity cost.
                                                              What I mean is that all of us – politicians, journalists and regular folk – have limited attention and mental resources. Attention devoted to Brexit is therefore attention that’s taken away from other matters. ... Brexit steals cognitive bandwidth.
                                                              For example, in a better world, we’d devote our political attention to overcoming secular stagnation, welfare reform, combating inequalities of power and income, improving workers’ rights and so on. ... Rather than turn our attention to progress, we’re wearing ourselves out trying to avoid regress.
                                                              Brexit distorts the policy agenda in other ways. For example, industrial policy should be concerned with increasing productivity and innovation. But in fact, it’s focused upon limiting the damage of Brexit, perhaps by offering handouts to favoured big firms whilst letting smaller ones swivel in the wind.
                                                              And then there’s the question of the values promoted by the Brexit debate. Brexit fuels nativism and even perhaps mercantilism, whilst the policies it squeezes out would focus instead upon more enlightened ideals such as liberty and equality. ...

                                                              He goes on to discuss the possibility that there might also be an "opportunity benefit."

                                                              ...had we not had Brexit Cameron and Osborne would still be in office so we’d be stuck with fiscal austerity. As it is, their departure has created space for a “reset” of policy. If Johnson and Fox were not tied up with Brexit negotiations, they’d probably find some ways to damage our polity. And a government whose energies and political capital weren’t sapped by Brexit might well have even more ability to hurt the worst off.
                                                              Which brings me to a paradox. We lefties can be quite relaxed about the opportunity cost of Brexit. Yes, Brexit is regrettable, but it has the silver lining of distracting the Tories from doing damage elsewhere. Tory supporters, however, have no such comfort. They should regard Brexit as a distraction of government energy which could be well-employed elsewhere. In this sense, it is intelligent Tories who should most regret Brexit.

                                                                Posted by on Tuesday, November 8, 2016 at 09:25 AM in Economics, Politics | Permalink  Comments (7) 

                                                                Links for 11-08-16

                                                                  Posted by on Tuesday, November 8, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (127) 

                                                                  Monday, November 07, 2016

                                                                  Has the Fed Fallen behind the Curve This Year?

                                                                  An Economic Letter from Fernanda Nechio and Glenn Rudebusch of the SF Fed:

                                                                  Has the Fed Fallen behind the Curve This Year?: Last December, monetary policy analysts inside and outside the Fed expected several increases in short-term interest rates this year. Indeed, the median federal funds rate projection in December 2015 by Federal Open Market Committee (FOMC) participants was consistent with four ¼ percentage point hikes in 2016. So far, none of those increases has taken place.
                                                                  Of course, monetary policy decisions are often described as data-dependent, so as economic conditions change, FOMC projections for the appropriate path of monetary policy adjusts in response. However, as Rudebusch and Williams (2008) note, changes in forward policy guidance can confound observers and whipsaw investors. In fact, some have complained that the lower path for the funds rate this year represents an inexplicable deviation from past policy norms. A reporter described these complaints to Federal Reserve Chair Janet Yellen at the most recent FOMC press conference (Board of Governors 2016b): “Madam Chair, critics of the Federal Reserve have said that you look for any excuse not to hike, that the goalpost constantly moves.” Such critics have accused the Fed of reacting to transitory, episodic factors, such as financial market volatility, in a manner very different from past systematic Fed policy responses to underlying economic fundamentals.
                                                                  This Economic Letter examines whether the recent revision to the FOMC’s projection of appropriate monetary policy in 2016 can be viewed as a reasonable course correction consistent with past FOMC behavior. We first show that the projected funds rate revision is not large relative to historical forecast errors. Next, we show that a simple interest rate rule that summarizes past Fed policy can account for this year’s revision to the funds rate projection based on recent changes to the FOMC’s assessment of economic conditions.
                                                                  Recent revisions to FOMC economic projections
                                                                  Four times a year, the FOMC releases a Summary of Economic Projections (SEP), which presents participants’ forecasts for key economic variables at various horizons. These projections get revised over time as economic conditions evolve. Table 1 presents the median projections from the December 2015 and September 2016 SEP releases (Board of Governors 2015 and 2016a). The top part of the table reports forecasts for the 2016 values of the federal funds rate, real GDP growth, the unemployment rate, headline inflation, and core inflation, which excludes energy and food prices. The bottom part of the table reports the FOMC’s longer-run economic projections, which describe where the economy is expected to settle after five or so years assuming appropriate monetary policy and the absence of further economic shocks. Much recent commentary has reassessed and debated the “new normal” for the economy, and these longer-run projections provide insight into the FOMC participants’ evolving views on this issue (Leduc and Rudebusch 2014).

                                                                  Table 1
                                                                  FOMC projections for 2016 and the longer run

                                                                  The first line of Table 1 is the focus of our analysis. The projected funds rate at the end of 2016 was revised down from 1.4% to 0.6%—a reduction of 0.8 percentage point. This revision in the policy path was accompanied by other changes in economic conditions. For example, since the end of last year, the median FOMC projection has been revised to show slower real GDP growth in 2016 and a bit higher unemployment, as the economy slightly underperformed expectations. At the same time, while core inflation for this year is expected to be a bit higher now than it was last December, overall price inflation was revised down with lower energy prices.
                                                                  These economic projections have to be evaluated relative to assessments of the longer-run “normal,” which are also subject to revision. Of course, the benchmark for inflation hasn’t changed, as the FOMC’s longer-run inflation target has remained at 2%. But the September 2016 SEP revised the normal or trend growth rate of the economy lower, in part because of continuing weak productivity (Fernald 2016). Also, the projected normal or natural unemployment rate was revised down by 0.1 percentage point to 4.8% with news of greater labor force participation. Finally, there is a notable drop in the longer-run normal funds rate from 3.5% to 2.9%. Since longer-run inflation is fixed at 2%, this decline translates one-for-one into a lower inflation-adjusted or real normal funds rate. This longer-run neutral or equilibrium real interest rate—often referred to as r-star—is the risk-free short-term interest rate adjusted for inflation that would prevail in normal times with full employment. A range of factors appear to have pushed down FOMC participants’ assessments of the neutral real interest rate including a greater global supply of saving, changing demographics, and slower trend productivity growth (Williams 2016).
                                                                  Is the revision to the policy projection unusually large?
                                                                  In recent years, Fed policymakers have repeatedly indicated that monetary policy is data-dependent, so funds rate projections will change with new information about the economy. As Fed Chair Yellen (2016) put it, “Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook. And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.”
                                                                  To consider whether the revision to the FOMC’s projected policy path was outsized, Figure 1 provides historical perspective with a fan chart for the funds rate, a type of graph that many central banks use to communicate policy uncertainty. The solid black line shows the midpoint of the daily federal funds target range through the December 16, 2015, FOMC meeting, when that range was raised to ¼-½%. The blue dots represent the median projection from that meeting for end-of-year funds rate levels. For example, in December 2015, the FOMC projected the funds rate would increase 1 percentage point by the end of 2016 (middle blue dot). In contrast, the median funds rate projection from the September 2016 FOMC meeting (red dots) shows only a ¼ percentage point hike in the funds rate this year.

                                                                  Figure 1
                                                                  FOMC projections of end-of-year funds rate

                                                                  FOMC projections of end-of-year funds rate

                                                                  Note: Shaded region is a 70% confidence interval for the Dec. 2015 projection based on historical forecast errors.

                                                                  One way to gauge whether the revision to this year’s policy path is surprisingly large is to compare it with past forecast errors. Given the December projection, the shaded fan region in Figure 1 shows an approximate 70% confidence interval of likely outcomes based on historical forecast accuracy. This range equals the median December 2015 projection plus and minus the average root mean squared prediction error for various horizons subject to a zero lower bound (Yellen 2016). The September 2016 projection is well inside this confidence interval. That is, the revision in the projected funds rate this year is not unusual from a historical standpoint. Indeed, given the distribution of past discrepancies between forecasts and outcomes, the odds were better than even that the funds rate path would be revised as much as it was in the September projection.
                                                                  Is the policy revision consistent with past Fed behavior?
                                                                  Can the moderately sized revision to the policy path since the end of last year be explained by changing economic circumstances? To answer this, we use a simple interest rate rule of thumb that has been widely employed to describe past systematic Fed policy reactions (see, for example, Rudebusch 2009, Carvalho and Nechio 2014, and Yellen 2016). In this policy rule, the funds rate depends on the neutral real interest rate, inflation, and the unemployment gap, which is measured as the deviation of the unemployment rate from its longer-run normal level. Such rules are often used to assess whether the level of the funds rate is appropriate. However, important policy concerns that are left out of the rule can adversely affect the validity of the rule-implied level of the funds rate as a measure of appropriate policy. Accordingly, we consider a less ambitious question, whether the revision to the 2016 policy path is consistent with the rule. This latter assessment is arguably less affected by factors that are left out of the rule but are fairly stable over time including, for example, risk management considerations regarding the lower bound on interest rates or the weak long-term inflation expectations.
                                                                  Our specific benchmark policy rule recommends lowering the funds rate 1.5 percentage points if core inflation falls 1 percentage point and lowering it 2 percentage points if the unemployment gap rises 1 percentage point. Therefore, the rule-implied revision to the target funds rate depends on changes in three components:
                                                                  Funds rate revision = neutral rate revision + (1.5 × inflation revision) – (2 × unemployment gap revision).
                                                                  This equation can identify potential systematic determinants of a change in the FOMC’s funds rate projection. The three narrow bars on the right in Figure 2 report the contributions of the three components of the rule-implied funds rate revision. The projection of a lower longer-run normal funds rate pushes the rule-implied funds rate down by 0.6 percentage point. Thus, a lower new normal for the neutral real rate can account for much of the downward shift in the appropriate funds rate (Daly, Nechio, and Pyle 2015). A higher unemployment gap—reflecting both a slightly higher unemployment projection and slightly lower natural rate of unemployment—accounts for another 0.4 percentage point of the decline in the rule-implied rate. This effect is consistent with Chair Yellen’s message that the economy has “a little more room to run” (Board of Governors 2016b). Finally, these two factors are partly offset by marginally higher core inflation, which adds 0.15 percentage point. Similar to other research, we use core inflation in the rule to avoid overreacting to transitory food and energy price fluctuations. In addition, we use a rule without policy gradualism following Rudebusch (2006).

                                                                  Figure 2
                                                                  Revisions in FOMC and rule-implied 2016 funds rate:
                                                                  Change from December 2015 to September 2016

                                                                  Revisions in FOMC and rule-implied 2016 funds rate: Change from December 2015 to September 2016
                                                                  Figure 2 compares the total of these three components with the FOMC forecast revision for the 2016 federal funds rate. The left-hand bar represents the 0.8 percentage point decline in the median FOMC funds rate projection from the end of last year to September. The second bar from the left reports a total rule-implied funds rate reduction of 0.85 percentage point over that same period. The similar levels of the two wide bars show that the revision in FOMC participants’ views about appropriate policy in 2016 was consistent with a standard benchmark formulation of how the Fed reacts to changes in economic circumstances.
                                                                  The downward shift to the FOMC’s 2016 funds rate projection was not large by historical standards and appears consistent with past Fed policy behavior in response to evolving economic fundamentals. Therefore, if monetary policy was correctly calibrated at the end of last year, it likely remains so, and the Fed has not fallen behind the curve this year.
                                                                  Fernanda Nechio is a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco.
                                                                  Glenn D. Rudebusch is director of research and executive vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco.
                                                                  Board of Governors of the Federal Reserve System. 2015. “Summary of Economic Projections.” December 16.
                                                                  Board of Governors of the Federal Reserve System. 2016a. “Summary of Economic Projections.” September 21.
                                                                  Board of Governors of the Federal Reserve System. 2016b. “Transcript of Chair Yellen’s Press Conference,” September 21.
                                                                  Carvalho, Carlos, and Fernanda Nechio. 2014. “Do People Understand Monetary Policy?” Journal of Monetary Economics 66, pp. 108–123.
                                                                  Daly, Mary C., Fernanda Nechio, and Benjamin Pyle. 2015. “Finding Normal: Natural Rates and Policy Prescriptions.” FRBSF Economic Letter 2015-22 (July 6).
                                                                  Fernald, John. 2016. “What Is the New Normal for U.S. Growth?” FRBSF Economic Letter 2016-30 (October 11).
                                                                  Leduc, Sylvain, and Glenn D. Rudebusch. 2014. “Does Slower Growth Imply Lower Interest Rates?” FRBSF Economic Letter 2014-33 (November 10).
                                                                  Rudebusch, Glenn D. 2006. “Monetary Policy Inertia: Fact or Fiction?” International Journal of Central Banking 2(4, December), pp. 85–135.
                                                                  Rudebusch, Glenn D. 2009. “The Fed’s Monetary Policy Response to the Current Crisis.” FRBSF Economic Letter 2009-17 (May 22).
                                                                  Rudebusch, Glenn D., and John C. Williams. 2008. “Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections.” In Asset Prices and Monetary Policy, ed. J.Y. Campbell. Chicago: University of Chicago Press and NBER, pp. 247–289.
                                                                  Williams, John C. 2016. “Monetary Policy in a Low R-star World.” FRBSF Economic Letter 2016-23 (August 15).
                                                                  Yellen, Janet L. 2016. “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future.” Presented at “Designing Resilient Monetary Policy Frameworks for the Future,” a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 26.
                                                                  Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.

                                                                    Posted by on Monday, November 7, 2016 at 02:55 PM Permalink  Comments (12) 

                                                                    Paul Krugman: How to Rig an Election

                                                                    Yes, the election was rigged:

                                                                    How to Rig an Election, by Paul Krugman, NY Times: It’s almost over. Will we heave a sigh of relief, or shriek in horror? Nobody knows for sure, although early indications clearly lean Clinton. Whatever happens..., let’s be clear: this was, in fact, a rigged election.
                                                                    The election was rigged by state governments that did all they could to prevent nonwhite Americans from voting: ...
                                                                    The election was rigged by Russian intelligence, which was almost surely behind the hacking of Democratic emails, which WikiLeaks then released with great fanfare. Nothing truly scandalous emerged, but the Russians judged, correctly, that the news media would hype the revelation ... as somehow damning.
                                                                    The election was rigged by James Comey... He abused his office, shamefully.
                                                                    The election was also rigged by people within the F.B.I. ... who clearly felt that under Mr. Comey they had a free hand to indulge their political preferences. ... The agency clearly needs a major housecleaning...
                                                                    The election was rigged by partisan media, especially Fox News, which trumpeted falsehoods...
                                                                    The election was rigged by mainstream news organizations, many of which simply refused to report on policy issues, a refusal that clearly favored the candidate who lies about these issues all the time, and has no coherent proposals to offer. ...
                                                                    The election was rigged by the media obsession with Hillary Clinton’s emails. She shouldn’t have used her own server, but there is no evidence at all that she did anything unethical, let alone illegal. ...
                                                                    It’s a disgraceful record. Yet Mrs. Clinton still seems likely to win.
                                                                    If she does, you know what will happen. Republicans will ... deny her legitimacy from day one...
                                                                    So in the days ahead it will be important to remember two things. First, Mrs. Clinton has actually run a remarkable campaign, demonstrating her tenacity in the face of unfair treatment and remaining cool under pressure that would have broken most of us. Second..., if she wins it will be thanks to Americans who stood up for our nation’s principles — who waited for hours on voting lines contrived to discourage them, who paid attention to the true stakes in this election rather than letting themselves be distracted by fake scandals and media noise.
                                                                    Those citizens deserve to be honored, not disparaged, for doing their best to save the nation from the effects of badly broken institutions. Many people have behaved shamefully this year — but tens of millions of voters kept their faith in the values that truly make America great.

                                                                      Posted by on Monday, November 7, 2016 at 09:37 AM in Economics, Politics | Permalink  Comments (49) 

                                                                      A Voter’s Guide to Economic Policy

                                                                      I have a new column:

                                                                      A Voter’s Guide to Economic Policy: The election will be over tomorrow, and I am very much looking forward to it coming to an end. Now we can finally come together as a nation and begin to make progress on important economic, social, and political issues (I can dream, can’t I?) 
                                                                      For those of you who haven’t voted yet and are trying to quickly learn about the candidates for local, state, and federal level office, here’s a summary of the economic policies and ideologies of Democrats and Republicans. These are general tendencies, candidates from both parties will differ in some ways from the principles their party supports, but the policies that actually get enacted must be supported by a broad swath of the party so they usually reflect the general view among party members. ...

                                                                        Posted by on Monday, November 7, 2016 at 08:50 AM in Economics, Politics | Permalink  Comments (9) 

                                                                        Links for 11-07-16

                                                                          Posted by on Monday, November 7, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (97) 

                                                                          Sunday, November 06, 2016

                                                                          Links for 11-06-16

                                                                            Posted by on Sunday, November 6, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (128) 

                                                                            Saturday, November 05, 2016

                                                                            More Jobs, a Strong Economy, and a Threat to Institutions

                                                                            Adam Davidson in the New Yorker:

                                                                            More Jobs, a Strong Economy, and a Threat to Institutions: ...Institutions are significant to economists, who have come to see that countries become prosperous not because they have bounteous natural resources or an educated population or the most advanced technology but because they have good institutions. Crucially, formal structures are supported by informal, often unstated, social agreements. A nation not only needs courts; its people need to believe that those courts can be fair. ...
                                                                            Over most of history, a small élite confiscated wealth from the poor. Subsistence farmers lived under rules designed to tax them so that the rulers could live in palaces and pay for soldiers to maintain their power. Every now and then, though, a system appeared in which leaders were forced to accommodate the needs of at least some of their citizens. ... The societies with the most robust systems for forcing the powerful to accommodate some of the needs of the powerless became wealthier and more peaceful. ... Most nations without institutions to check the worst impulses of the rich and powerful stay stuck in poverty and dysfunction. ...
                                                                            This year’s Presidential election has alarmed economists for several reasons. No economist, save one, supports Donald J. Trump’s stated economic plans, but an even larger concern is that, were he elected, Trump would attack the very institutions that have provided our economic stability. In his campaign, Trump has shown outright contempt for courts, free speech, international treaties, and many other pillars of the American way of life. There is little reason to think that, if granted the Presidency, Trump would soften his stand. ...
                                                                  ’s easy to imagine a President Trump refusing to heed our own highest court, which, as President Andrew Jackson observed, has no way, other than respect of institutions, to enforce its decisions. No one knows what Trump would do as President, but, based on his statements on the campaign trail, it’s possible to imagine a nation where people have less confidence in the courts, the military, and their rights to free speech and assembly. When this happens, history tells us, people stop dreaming about what they could have if they invest in education, new businesses, and new ideas. They focus, instead, on taking from others and holding tightly to what they’ve already amassed. Those societies, without the institutions that protect us from our worst impulses, become poorer, uglier, more violent. That is how nations fail.

                                                                              Posted by on Saturday, November 5, 2016 at 11:50 AM in Economics, Politics | Permalink  Comments (46) 

                                                                              Links for 11-05-16

                                                                                Posted by on Saturday, November 5, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (178) 

                                                                                Friday, November 04, 2016

                                                                                Strong Employment Gains for Prime-Age Workers as Wage Growth Accelerates

                                                                                Dean Baker (see also Calculated Risk, Jared Bernstein):

                                                                                Strong Employment Gains for Prime-Age Workers as Wage Growth Accelerates: The Labor Department reported the economy added 161,000 jobs in October. With modest upward revisions to the prior two months’ data, the average for the last three months is 176,000. The unemployment rate edged down to 4.9 percent, but the employment rate also edged down to 59.7 percent, as the household survey showed a small decline in both employment and labor force participation.
                                                                                However the picture is much better for prime-age workers (ages 25–54). Their employment-to-population (EPOP) ratio rose 0.2 percentage points to 78.2 percent. This is the highest it has been in the recovery, although it is still 2.1 percentage points below the pre-recession peak and 3.7 percentage points below its 2000 peak.
                                                                                It’s worth noting that the improvement in prime-age EPOPs occurred for both men and women. The EPOP for prime-age men is up by 4.6 percentage points from its trough in December of 2009. The EPOP for prime-age women is up by 2.9 percentage points from its recession trough in September of 2011, although women were much less hard hit by the downturn.
                                                                                Using the 2000 peaks as the base of comparison, the EPOP for women is down by 3.3 percentage points while the EPOP for men is down by 4.5 percentage points. While the falloff has been larger for men than women, there have been sharp declines for both, indicating that the problem is the labor market, not the physical and/or psychological state of men.
                                                                                Other data in the household survey were also positive. ....
                                                                                There was little change in the duration measures...
                                                                                The numbers of voluntary and involuntary part-time workers were little changed....
                                                                                Interestingly, recent growth has not especially favored more educated workers. Over the last year, employment rates for people with just a high school degree are up by 0.5 percentage points, while those with some college have seen a rise of 0.7 percentage points. By contrast, the EPOP for workers with college degrees has fallen by 0.1 percentage points.
                                                                                Most of the data on the establishment side survey should be seen as positive, in spite of the somewhat slower pace of job growth. Wage growth appears to have accelerated modestly. The average hourly wage over the last three months increased at a 2.9 percent annual rate compared with its average over the prior three months. Over the last year, the average hourly wage is up 2.8 percent.
                                                                                Some of this wage growth does not indicate more rapid growth in compensation, but rather a shift from benefits (mostly health care) to wages. The employment cost index for the last year showed private sector wages rising 2.4 percent while benefits increased by just 1.8 percent.
                                                                                More rapid wage growth is consistent with a story where workers are leaving low-paying jobs for better paying jobs. In this respect it is worth noting that lower paying industries were not sources of big job gains in October. ...
                                                                                This jobs report provides solid evidence that the labor market is improving for most of the labor force. Workers are taking advantage of a tighter labor market to move into better paying jobs.

                                                                                  Posted by on Friday, November 4, 2016 at 09:10 AM in Economics, Unemployment | Permalink  Comments (49) 

                                                                                  Paul Krugman: Who Broke Politics?

                                                                                   "Republican leaders have spent the past couple of decades ... trashing democratic norms in pursuit of economic benefits for their donor class":

                                                                                  Who Broke Politics?, by Paul Krugman, NY Times: ...This has been an election in which almost every week sees some longstanding norm in U.S. political life get broken. ... So how did all our political norms get destroyed? Hint: It started long before Donald Trump.
                                                                                  On one side, Republicans decided long ago that anything went in the effort to delegitimize and destroy Democrats. Those of us old enough to remember the 1990s also remember the endless series of accusations hurled against the Clintons. ...
                                                                                  When Mrs. Clinton famously spoke of a “vast right-wing conspiracy” out to undermine her husband’s presidency, she wasn’t being hyperbolic; she was simply describing the obvious reality.
                                                                                  And since accusations of Democratic scandal, not to mention congressional “investigations” that started from a presumption of guilt, had become the norm, the very idea of bad behavior independent of politics disappeared: The flip side of the obsessive pursuit of a Democratic president was utter refusal to investigate even the most obvious wrongdoing by Republicans in office.
                                                                                  There were multiple real scandals during the administration of George W. Bush, ranging from what looked like a political purge in the Justice Department to the deceptions that led us into invading Iraq; nobody was ever held accountable.
                                                                                  The erosion of norms continued after President Obama took office. ...
                                                                                  What was the purpose of this assault on the implicit rules and understandings that we need to make democracy work? Well, when Newt Gingrich shut down the government in 1995, he was trying to, guess what, privatize Medicare. The rage against Bill Clinton partly reflected the fact that he raised taxes modestly on the wealthy.
                                                                                  In other words, Republican leaders have spent the past couple of decades ... trashing democratic norms in pursuit of economic benefits for their donor class.
                                                                                  So we shouldn’t really be too surprised that Mr. Comey, who turns out to be a Republican first and a public servant, well, not so much, decided to politically weaponize his position on the eve of the election...
                                                                                  Despite Mr. Comey’s abuse of power, Mrs. Clinton will probably win. But Republicans won’t accept it. ... And no matter what Mrs. Clinton does, the barrage of fake scandals will continue, now with demands for impeachment.
                                                                                  Can anything be done to limit the damage? It would help if the media finally learned its lesson, and stopped treating Republican scandal-mongering as genuine news. And it would also help if Democrats won the Senate, so that at least some governing could get done.

                                                                                    Posted by on Friday, November 4, 2016 at 08:37 AM in Economics, Politics | Permalink  Comments (30) 

                                                                                    Links for 11-04-16

                                                                                      Posted by on Friday, November 4, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (110) 

                                                                                      Thursday, November 03, 2016

                                                                                      Paul Krugman on Brexit, U.S. Election, and Fed Policy (Video)

                                                                                        Posted by on Thursday, November 3, 2016 at 01:26 PM in Economics, Video | Permalink  Comments (10) 

                                                                                        Mainstream Economics

                                                                                        Simon Wren-Lewis:

                                                                                        Ann Pettifor on mainstream economics: Ann has a article that talks about the underlying factor behind the Brexit vote. Her thesis, that it represents the discontent of those left behind by globalization, has been put forward by others. Unlike Brad DeLong, I have few problems with seeing this as a contributing factor to Brexit, because it is backed up by evidence, but like Brad DeLong I doubt it generalizes to other countries. Unfortunately her piece is spoilt by a final section that is a tirade against mainstream economists which goes way over the top. ...

                                                                                        Most economists have certainly encouraged the idea that globalization would increase overall prosperity, and they have been proved right. It is also true that many of these economists did not admit or stress enough that there would be losers as a result of this process who needed compensating from the increase in aggregate prosperity. But once again I doubt very much that anything would have changed if they had. And if they didn’t think enough about it in the past, they are now: see Paul De Grauwe here for example.

                                                                                        There is a regrettable (but understandable) tendency by heterodox economists on the left to try and pretend that economics and neoliberalism are somehow inextricably entwined. The reality is that neoliberal advocates do use some economic ideas as justification, but they ignore others which go in the opposite direction. As I often point out, many more academic economists spend their time analyzing market imperfections than trying to show markets always work on their own. They get Nobel prizes for this work. I find attempts to suggest that economics somehow helped create austerity particularly annoying, as I (and many others) have spent many blog posts showing that economic theory and evidence demonstrates that austerity was a huge mistake.

                                                                                          Posted by on Thursday, November 3, 2016 at 11:05 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (32) 

                                                                                          Taxing the Rich More—Evidence from the 2013 Federal Tax Increase

                                                                                          Emmanuel Saez:

                                                                                          Taxing the rich more—evidence from the 2013 federal tax increase: One of the most contentious aspects of the tax policy debate in the United States today is the proper level of taxation of the rich. In the current presidential election contest, Hillary Clinton proposes to increase taxes on the rich while Donald Trump proposes to cut taxes on the rich. This policy decision is particularly important because the concentration of income at the top is extremely high. ...
                                                                                          Progressive taxation historically is the most powerful tool to reduce income concentration. The classic counter argument is that higher top tax rates might discourage economic activity among the rich. In a recent paper, I analyze the effects of the 2013 federal income tax increase on the behavior of top income earners to cast light on this issue. ...
                                                                                          After President Obama was re-elected in early November 2012, it was virtually certain that top income tax rates would go up in 2013. For the rich, shifting $100 of income from 2013 to 2012 saves $9 in taxes for capital income (and $6 for labor income), which means the rich had strong incentives to accelerate their incomes into 2012 to benefit from the lower 2012 tax rates and avoid the higher 2013 tax rates. ...
                                                                                          This retiming response is large—income earners in the top 1 percent shifted about 10 percent of their income from 2013 into 2012. Lost government tax revenues, however, were modest as income shifted into 2012 still were taxed at the 2012 rates, which were about three-quarters of the 2013 tax rate. ...
                                                                                          I estimate that only about 20 percent of the projected revenue increase from the 2013 tax hike is lost due to the behavioral responses over the medium term. Second, by itself, the 2013 tax increase will not be sufficient to curb the extraordinarily high level of pre-tax income concentration in the United States.
                                                                                          These findings echo the findings of earlier work analyzing the 1993 Clinton era tax increase, which also generated short-term retiming of top incomes into 1992 but did not prevent top income shares from surging in the mid-to-late 1990s. It is also striking that the best growth experience for the bottom 99 percent of income earners over the past 25 years took place in the mid-to-late 1990s and between 2013 and 2015—after tax increases on the rich. This suggests that taxing the rich more does not have detrimental effects on the broader economy; quite the contrary.

                                                                                            Posted by on Thursday, November 3, 2016 at 09:58 AM in Economics, Taxes | Permalink  Comments (35) 

                                                                                            Links for 11-03-16

                                                                                              Posted by on Thursday, November 3, 2016 at 12:06 AM in Economics, Links | Permalink  Comments (145) 

                                                                                              Wednesday, November 02, 2016

                                                                                              Fed Watch: Fed Remains On The Sidelines

                                                                                              Tim Duy:

                                                                                              Fed Remains On The Sidelines, by Time Duy: As expected, the Federal Reserve left policy unchanged this month. The statement itself was largely unchanged as well. The near term inflation outlook improved, going from this is in September:

                                                                                              Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.

                                                                                              To this in November:

                                                                                              Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.

                                                                                              With the year-over-year impacts of oil prices falling out of the data, headline inflation will track back upwards. Not a big surprise. With regards to the timing of the next move, the Fed went from this in September:

                                                                                              The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.

                                                                                              To this now:

                                                                                              The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.

                                                                                              See what they did there? Conditions are moving in the right direction, but the Fed still waits for some "further" evidence. Continuation of recent trends is likely sufficient to be that "further" evidence needed to justify a rate hike in December.

                                                                                              What would derail a December rate hike? Greg Ip at the Wall Street Journal speculates that a Trump win in next week's election would do the trick:

                                                                                              ...a Trump victory would probably cast enough of a pall over the outlook to give the Fed reason to delay its next rate increase into next year. Ironically, Mr. Trump may discover that he, not Mr. Obama, is the reason the Fed hasn’t tightened.

                                                                                              Agreed, although this doesn't seem likely at this juncture. More likely to stay the Fed's hands would be a slowdown in hiring to something closer to 100k a month. That would probably end the downward pressure on the unemployment rate and raise questions about the Fed's basic forecast that the unemployment rate will continue to decline in the absence of additional rate hikes. We get two employment reports before the December meeting; for the Fed to stay on the sidelines yet again, we probably need to see both reports come in weak. The first one - for October - comes Friday morning. ADP estimates that private payrolls will be up 147k - not surging, but still easily sufficient for the Fed to justify a rate hike. If this comes to pass, we would probably need a deluge of soft numbers to keep the Fed on hold again.

                                                                                              Bottom Line: Fed is looking past the election to the December meeting for its second move in this rate hike cycle. Probably need some unlikely softer numbers to hold them back again.

                                                                                                Posted by on Wednesday, November 2, 2016 at 03:11 PM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (5) 

                                                                                                FOMC Leaves Policy Unchanged

                                                                                                From the FOMC Press Release today, no change in rates but " the case for an increase in the federal funds rate has continued to strengthen":

                                                                                                 ... the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. ...

                                                                                                Full statement: Press Release, November 2, 2016.

                                                                                                  Posted by on Wednesday, November 2, 2016 at 11:27 AM in Economics, Monetary Policy | Permalink  Comments (29) 

                                                                                                  Can China Reduce Its National Savings Rate with More Social Insurance?

                                                                                                  The theme of the day so far appears to be social insurance. This is from Brad Setser (the full post is much longer):

                                                                                                  Can China Reduce Its National Savings Rate with More Social Insurance?: Andrew Batson recently pushed back a bit against my attempt to frame one of China’s core macroeconomic problems as “too much savings.” He argues that policies to bring down savings have been tried in China – spending on social insurance rose in the ‘aughts – and it didn’t bring down national savings...
                                                                                                  So is there no hope? ...
                                                                                                  I am more optimistic than Andrew is, even with data from the expansion of social insurance in the ‘aughts, for three reasons:
                                                                                                  • There is significant evidence that higher spending on public health in particular lowers savings
                                                                                                  • There are still significant gaps in China’s social safety net that could be filled in and thus there is scope to make China’s system of social insurance more generous.
                                                                                                  • Many of China’s social insurance programs seem to take in more in contributions than they pay out in benefits. That is part of the reason why it isn’t a surprise that the expansion of social insurance, as they were designed, didn’t lower national savings. And it is also suggests there is scope to change the way social insurance is funded and in the process lower national savings.
                                                                                                  Let me take each point in turn. ...
                                                                                                  Bottom line: A broad redesign of China’s system of social insurance seems to offer potential to lower China’s level of savings.
                                                                                                  These issues here of course are complex: the balance between social insurance and incentives to work; the balance between a pay-go system and a funded system; and the question of how to split cost and responsibilities between municipality, province and the central government.
                                                                                                  Yet it still seems, from affair, that there is room to reform China’s system of social insurance in ways that would provide stronger and more consistent coverage, with more portable benefits, ideally financed through a more progressive system of taxation.
                                                                                                  And in the interim, well, China’s central government has ample fiscal space and could easily pick up more of the tab – allowing contributions to be cut temporarily. That seems like a healthier way of providing short-term stimulus than another round of credit loosening. It does, though, require tolerance of bigger central government fiscal deficits.

                                                                                                    Posted by on Wednesday, November 2, 2016 at 10:43 AM in China, Economics, Social Insurance | Permalink  Comments (33) 

                                                                                                    Why We Need Social Insurance

                                                                                                    I make this argument every few years. Seemed like it was time to make it again (it's at MoneyWatch):

                                                                                                    The economic case for social insurance: Republicans and Democrats have very different ideas about social insurance programs such as unemployment compensation, Social Security, Medicare and food stamps. Democrats would like to see the scope and generosity of these programs increased, while Republicans would like to cut back, if not eliminate, many of these programs (e.g. Obamacare). 

                                                                                                    It’s true that GOP presidential nominee Donald Trump has, at times, said he’ll protect Medicare and Social Security. But given Trump’s plans to cut taxes and raise the national debt by trillions over the next decade, and the general Republican sentiment about social insurance, it’s hard to see how these programs can be protected if Republicans gain control of Congress and the presidency.

                                                                                                    Part of the GOP’s objection to these programs is the idea that they take money from those who have earned and deserve it and redistribute it to those who have not. They say that’s unfair. Is that true, or is there an economic basis for social insurance? ...

                                                                                                      Posted by on Wednesday, November 2, 2016 at 09:38 AM in Economics, Social Insurance | Permalink  Comments (29)