Wednesday, June 14, 2017

The Long-Run Effects of Immigration during the Age of Mass Migration

From the NBER Digest:

 

The Long-Run Effects of Immigration during the Age of Mass Migration, by Jay Fitzgerald:Studying immigrant flows during the period of highest immigration in U.S. history, Sandra Sequeira, Nathan Nunn, and Nancy Qian find that counties that received large influxes of immigrants experienced both short- and long-term economic benefits compared with other regions. In Migrants and the Making of America: The Short- and Long-Run Effects of Immigration during the Age of Mass Migration (NBER Working Paper No. 23289), they report that these benefits were realized without loss of social and civic cohesion and the long-term benefits persisted to the dawn of the 21st century.

MigrantsU.S. counties that received larger numbers of immigrants between 1860 and 1920 had higher average incomes and lower unemployment and poverty rates in 2000.

The researchers recognize that immigrants may have been drawn to locations with particular attributes, and that these attributes may also have contributed to those locations' subsequent growth. They therefore focus on differences in the dates on which counties became connected to the railway network, which made it much easier for immigrants to reach a particular location, as a source of quasi-random variation in immigrant inflows.

Using census data along with historical railway maps and other source information, the researchers track county-level immigration, along with the decade-by-decade fluctuations in immigrant flows to the United States. The gradual expansion of railway networks, which connected only 20 percent of the nation in 1850 but 90 percent by 1920, together with the timing of waves of immigration, provide variation in how accessible different locations were to immigrants from 1850 to 1920.

A central finding is that the economic benefits of immigration were significant and long-lasting: In 2000, average incomes were 20 percent higher in counties with median immigrant inflows relative to counties with no immigrant inflows, the proportion of people living in poverty was 3 percentage points lower, the unemployment rate was 3 percentage points lower, the urbanization rate was 31 percentage points higher, and education attainment was higher as well. The researchers do not find any cost of immigration in terms of social cohesion. Counties with more immigrant settlement during the Age of Mass Migration today have levels of social capital, civic participation, and crime that are similar to those of regions that received fewer immigrants.

Measuring the short-term impacts of immigration from 1850 to 1920, the researchers find a 57 percent average increase by 1930 in manufacturing output per capita and a 39 to 58 percent increase in agricultural farm values in places that received the median number of immigrants relative to those that received none. Though some of the counties studied show a lower rate of literacy due to the influx of immigrants, many of whom did not speak English, the researchers find that illiteracy declined steadily over the years and that there was an increase in innovation activity, as measured by patents per capita, in counties with large immigrant populations.

The long-run positive effects of immigration in counties connected to rail lines appear to have arisen from the persistence of the short-run benefits, particularly greater industrialization, agricultural productivity, and innovation.

"Taken as a whole, our estimates provide evidence consistent with a historical narrative that is commonly told of how immigration facilitated economic growth," the researchers conclude. "Despite the unique conditions under which the largest episode of immigration in U.S. history took place, our estimates of the long-run effects of immigration may still be relevant for assessing the long-run effects of immigrants today."

    Posted by on Wednesday, June 14, 2017 at 09:08 AM in Economics, Immigration | Permalink  Comments (16) 


    Tuesday, June 13, 2017

    Links for 06-13-17

    Things have been a bit slow here lately. Sorry about that. With Trump, economic commentary has waned considerably. Guess you can only say this policy is stupid so many times. Plus, it's all hidden behind closed doors so we can't comment. Can't imagine why...

      Posted by on Tuesday, June 13, 2017 at 12:02 PM in Economics, Links | Permalink  Comments (212) 


      FOMC Ahead

      Tim Duy:

      The recent inflation data doesn't exactly support the Federal Reserve’s monetary tightening plans. Chair Janet Yellen and her colleagues will surely take note of the weakness at this week’s Federal Open Market Committee meeting, but they will downplay any such concerns as transitory. At the moment, low unemployment remains the focus. Add to that loosening financial conditions and you get a central bank that is more likely than not to stay the course on its plan to hike interest rates. [...Continued at Bloomberg Prophets...]

        Posted by on Tuesday, June 13, 2017 at 11:26 AM in Economics, Monetary Policy | Permalink  Comments (52) 


        Monday, June 12, 2017

        Links for 06-12-17

          Posted by on Monday, June 12, 2017 at 02:54 PM in Economics, Links | Permalink  Comments (118) 


          Friday, June 09, 2017

          Links for 06-09-17

           

            Posted by on Friday, June 9, 2017 at 01:36 PM Permalink  Comments (336) 


            Paul Krugman: Wrecking the Ship of State

            "Trump is neither up to the job of being president nor willing to step aside and let others do the work right":

            Wrecking the Ship of State, by Paul Krugman, NY Times: After Donald Trump’s surprise election victory, many people on the right and even in the center tried to make the case that he wouldn’t really be that bad. Every time he showed a hint of self-restraint — even if it amounted to nothing more than reading his lines without ad-libbing and laying off Twitter for a day or two — pundits rushed to declare that he had just “become president.”
            But can we now admit that he really is as bad as — or worse than — his harshest critics predicted he would be? And it’s not just his contempt for the rule of law, which came through so clearly in the James Comey testimony: As the legal scholar Jeffrey Toobin says, if this isn’t obstruction of justice, what is? There’s also the way Trump’s character, his combination of petty vindictiveness with sheer laziness, leaves him clearly not up to doing the job.
            And that’s a huge problem. Think, for a minute, of just how much damage this man has done on multiple fronts in just five months.
            Take health care. ...
            Or take the remarkable decision to take Saudi Arabia’s side in its dispute with Qatar...
            And consider his refusal to endorse the central principle of NATO, the obligation to come to our allies’ defense... What was that about? Nobody knows...
            The point, again, is that everything suggests that Trump is neither up to the job of being president nor willing to step aside and let others do the work right. And this is already starting to have real consequences, from disrupted health coverage to ruined alliances to lost credibility on the world stage.
            But, you say, stocks are up, so how bad can it be? And it’s true that while Wall Street has lost some of its initial enthusiasm for Trumponomics — the dollar is back down to pre-election levels — investors and businesses don’t seem to be pricing in the risk of really disastrous policy.
            That risk is, however, all too real — and one suspects that the big money, which tends to equate wealth with virtue, will be the last to realize just how big that risk really is. The American presidency is, in many ways, sort of an elected monarchy, in which a temperamentally and intellectually unqualified leader can do immense damage.
            That’s what’s happening now. And we’re barely one-tenth of the way through Trump’s first term. The worst, almost surely, is yet to come.

              Posted by on Friday, June 9, 2017 at 09:14 AM Permalink  Comments (184) 


              Thursday, June 08, 2017

              Links for 06-08-17

                Posted by on Thursday, June 8, 2017 at 09:28 AM in Economics, Links | Permalink  Comments (119) 


                Nobel Laureates Give Advice to Young Economists (Video)

                  Posted by on Thursday, June 8, 2017 at 08:37 AM in Economics, Video | Permalink  Comments (10) 


                  Wednesday, June 07, 2017

                  Links for 06-07-17

                    Posted by on Wednesday, June 7, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (306) 


                    Tuesday, June 06, 2017

                    Fed Watch: Fed Just Sort Of Confident About Full Employment

                    Tim Duy:

                    Fed Just Sort Of Confident About Full Employment, by Tim Duy: Over at Project Syndicate, Brad DeLong takes issue with Fed policy decisions. Importantly, he identifies, correctly, that the Fed's forecasting record in recent years has been less than optimal. Much less. The repeated optimism that inflation will soon revert to target is a most significant problem for a central bank with a formal inflation target. On this point the Fed has faced disappointment time and time again.
                    Brad is correct in his summary that the Fed needs to reassess its forecasting methodology to ensure that it is not biased toward high inflation forecasts. That said, I believe the issue is not quite as severe as Brad believes. In particular, I think this may be a bit unfair:
                    The FOMC’s blind spot stems from the fact that it is relying more on its assessment of the labor market, which it considers to be at or above “full employment,” than on noisy month-to-month inflation data. But “full employment” is a rather tenuous and unreliable construct. It has now been 20 years since economists Douglas Staiger, James Stock, and Mark Watson showed that Fed policymakers should not be so confident in estimates of “full employment.” And yet, for some reason, the Fed community has not let this essential message sink in.
                    I think there is actually quite a bit of uncertainty among Fed officials about the exact level of full employment. To be sure, policymakers repeatedly argue that they believe they are near full employment. But first, take that into context of changing estimates of full employment:

                    Full

                    Clearly policymakers are willing to change their minds as new information becomes available.
                    Second, if they were fairly inflexible regarding their estimates of full employment and the implications for inflation, they would have raised rates after unemployment fell to 6.5% - the threshold for maintaining zero rates under the Evans Rule.
                    Third, and probably most importantly, if they clung to a strict confidence in their estimates of full employment, they would have long ago abandoned their gradual approach to raising interest rates. As of now, the unemployment rate at 4.3% is a full 0.4 percentage points below the median estimate of the longer run unemployment rate and below the 4.5-5.0% range of estimates of that measure. Moreover, job growth remains strong enough to drive the unemployment rate further down. So if they were very confident of their estimates of full employment, Fed officials would be much more concerned that they had already fallen behind the inflation curve. They would be raising rates at every meeting, not just an expected three times this year. They wouldn't be dragging their heels on raising interest rates back to their estimate of neutral. They would be racing to do so.
                    The unemployment rate in May stood 0.5 percentage points below the January level. At this pace, the rate will fall below 4% by the end of this year. That is not unreasonable at this point. Yet policymakers largely continue to expect just two more rate hike this year - which I find incredibly patient given that I doubt there is any FOMC participant who believes that inflation can remain contained if the unemployment rate holds consistently below 4%.
                    Fourth, recall the conclusion of Federal Reserve Governors Lael Brainard's recent speech:
                    While that remains my baseline expectation, I will be watching carefully for any signs that progress toward our inflation objective is slowing. With a low neutral real rate, achieving our symmetric inflation target is more important than ever in order to preserve some room for conventional policy to buffer adverse developments in the economy. If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy.
                    I take this at face value - the Fed will likely reduce the path of expected rate hikes if inflation does not firm in the next few months.
                    Finally, I understand the hesitancy to raise rates in the face of low inflation. I too have an innate desire to hold back policy until we see the "whites in the eyes" of the inflation beast. But I also understand the position of policymakers - the uncertainty cuts both ways. There is a chance that the Phillips curve is nonlinear and the economy is close to an inflection point. And if that inflection point hits, they don't have confidence they can easily slow the economy without triggering a recession. So, from their perspective, restraining the economy a notch now may maximize the net present value of output if it prevents a recession later.
                    Bottom Line: The Fed's gradual, data-dependent path is almost perfectly designed to make no one happy. Too slow for some, too fast for others. Perhaps that means it is more right than wrong after all.

                      Posted by on Tuesday, June 6, 2017 at 04:31 PM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (15) 


                      Ben Bernanke Interview

                      One part of a long interview of Ben Bernanke:

                      ... Jim Tankersley: But you don’t think, particularly in those first moments of the crisis when Fed officials and Treasury officials were trying to work together to stop the bleeding, there weren’t more things that could have been done for homeowners, for folks who were just those underwater people that you mentioned in the very beginning of your answer.
                      Ben Bernanke: Again, I focused first on what the Fed could do. The Fed has a certain set of tools. We were successful in stabilizing the financial system after the crisis. We were successful in getting the economy back on a recovery track, as we’ve seen. Now the specific example you give is homeowners — that was the responsibility of the Treasury, although we were very interested in that at the Fed; we had many conversations with the Treasury about what they were doing.
                      I think the Treasury made a pretty serious effort on that front. There was money appropriated under the TARP to help homeowners, and the Treasury set up programs both to help people refinance their mortgages and to modify or restructure troubled mortgages. And some millions of people were helped by those programs.
                      My perceptions of that effort, though, speaking from someone who was outside of that policy effort, was that there were two big sets of constraints. One was that it’s just a lot harder than you think to, for example, to modify or restructure mortgages when the borrower is possibly unemployed, possibly not interested in talking to the bank or participating in a program. It was awfully difficult as a practical manner to manage the restructuring programs.
                      But the other part was that, people don’t remember this necessarily, it was actually very politically unpopular to help troubled homeowners. And Congress put lots of restrictions on what could be done, and tried to make sure there wasn’t any significant subsidy, for example. So within the inherent logistical difficulties, which were substantial, and the political constraints from Congress, the Treasury was hampered, I think, in its efforts. It did make, I think, a good-faith effort, and it did help millions of people.
                      Again, whether a bigger effort would’ve had more effect on the recovery, I’m not sure that it was a first-order issue. It certainly would’ve helped a lot of individual people, a lot of families. From the political point of view, it cuts both ways. The story is that the Tea Party was triggered not by anger necessarily at the financial players, but at the idea that the government would be helping people who had “overborrowed” or been irresponsible in taking out mortgages. ...

                        Posted by on Tuesday, June 6, 2017 at 09:19 AM in Economics, Monetary Policy | Permalink  Comments (36) 


                        Links for 06-06-17

                          Posted by on Tuesday, June 6, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (122) 


                          Monday, June 05, 2017

                          Anxious About the Economy?

                          Tim Duy:

                          Anxious About the Economy?, by Tim Duy: The current U.S. economic expansion is one of the longest on record. The longer it lasts, the more likely growth will become tepid and uneven, raising angst about its sustainability. See the May employment report, with its disappointing 138,000 gain in payrolls, downward revisions to previous months, and soft wage growth. Yet, at the same time, the unemployment rate fell to the lowest level since 2001. Anxiety is elevated with speculation that the Trump administration's pro-growth, fiscal stimulus plans are on the ropes. ...
                          Continue reading at Bloomberg Prophets...

                            Posted by on Monday, June 5, 2017 at 10:15 AM in Economics, Monetary Policy | Permalink  Comments (41) 


                            The More Trump Fails, the Better Off We’ll Be

                            I have a new column:

                            The More Trump Fails, the Better Off We’ll Be: The Trump administration has gone to war against independent sources of information that pose a challenge to its policy goals and the narratives it tells to support them. One of the most recent targets is the Congressional Budget Office. ...

                              Posted by on Monday, June 5, 2017 at 07:52 AM in Economics, Politics | Permalink  Comments (68) 


                              Paul Krugman: Making Ignorance Great Again

                              The truth is out there, but it's buried under a large pile of nonsense, lies, misleading statements, and deception:

                              Making Ignorance Great Again, by Paul Krugman, NY Times: Donald Trump just took us out of the Paris climate accord for no good reason. I don’t mean that his decision was wrong. I mean, literally, that he didn’t offer any substantive justification... It was just what he felt like doing.
                              And here’s the thing: What just happened on climate isn’t an unusual case — and Trump isn’t especially unusual for a modern Republican. ... Facts and hard thinking aren’t wanted, and anyone who tries to bring such things into the discussion is the enemy.
                              Consider ... health care. ... Did the administration and its allies consult with experts, study previous experience with health reform, and try to devise a plan that made sense? Of course not. In fact, House leaders made a point of ramming a bill through before the Congressional Budget Office ... could assess its likely impact.
                              When the budget office did weigh in, its conclusions were what you might expect:... a lot of people are going to lose coverage. Is 23 million a good estimate...? Yes — it might be 18 million, or it might be 28 million, but surely it would be in that range.
                              So how did the administration respond? By trying to shoot the messenger. Mick Mulvaney, the White House budget director, attacked the C.B.O...
                              So, Mr. Mulvaney, where’s your assessment of Trumpcare? You had plenty of resources to do your own study before trying to pass a bill. ...
                              But Mulvaney and his party don’t study issues, they just decide, and attack the motives of anyone who questions their decisions. ... Truth, as something that exists apart from and in possible opposition to political convenience, is no longer part of their philosophical universe. ...
                              And as health care and climate go, so goes everything else. Can you think of any major policy area where the G.O.P. hasn’t gone post-truth? ...
                              But does any of it matter? The president, backed by his party, is talking nonsense, destroying American credibility day by day. But hey, stocks are up, so what’s the problem?
                              Well, bear in mind that so far Trump hasn’t faced a single crisis not of his own making. As George Orwell noted ... in his essay “In Front of Your Nose,” people can indeed talk nonsense for a very long time, without paying an obvious price. But “sooner or later a false belief bumps up against solid reality, usually on a battlefield.” Now there’s a happy thought.

                                Posted by on Monday, June 5, 2017 at 07:47 AM in Economics, Politics | Permalink  Comments (40) 


                                Links for 06-05-17

                                  Posted by on Monday, June 5, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (152) 


                                  Saturday, June 03, 2017

                                  Links for 06-03-17

                                    Posted by on Saturday, June 3, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (208) 


                                    Friday, June 02, 2017

                                    Job Growth Slows Sharply in May as Unemployment Hits New Low

                                    Dean Baker:

                                    Job Growth Slows Sharply in May as Unemployment Hits New Low: The weaker job growth in recent months means that we will see a big uptick in productivity in the second quarter.
                                    The unemployment rate fell to 4.3 percent in May, a new low for the recovery and the lowest level since 2001. However, this decline in the unemployment rate was the result of people leaving the labor market, as the number of people reported as employed in the household survey actually fell, with the overall employment-to-population ratio (EPOP) dropping from 60.2 percent in April to 60.0 percent in May.

                                    The establishment survey showed further evidence of a weakening labor market as the pace of job growth slowed in May to 138,000. There were also substantial downward revisions to the prior two months’ job growth numbers, which brought the average for the last three months to just 121,000. ...

                                    The situation in the household survey was mixed. The drop in employment was among prime-age workers, with the EPOP falling from 78.6 percent to 78.4 percent, with both men and women seeing small declines. On the plus side, the unemployment rate for African American men over 20 fell 0.8 percentage points to 6.5 percent, the lowest level since April of 2000. However this was entirely due to men dropping out of the labor force as employment actually fell.

                                    All the duration measures of unemployment rose modestly in May. The quit rate rose modestly to 11.7 percent, which is still below pre-recession peaks and well below the peaks hit in 2000. Involuntary part-time employment fell for the fourth consecutive month to a new low for the recovery. It is now only slightly larger relative to the size of the labor force than before the recession. Voluntary part-time rose by 320,000 but is still slightly below the peak hit in November.
                                    The summary data continue to show little evidence for the story that the labor market is increasingly benefiting the most educated workers. While the unemployment rate for college educated workers edged down by 0.1 percentage point, so did the EPOP. It now stands 0.4 percentage points below its year-ago level. In terms of EPOPs, those with high school degrees and less than high school were the biggest gainers in the last year.

                                    There is certainly little evidence in this report that the labor market is overheating or is likely to do so any time in the foreseeable future.

                                    See also Bill McBride at Calculated Risk (here too):

                                    A Disappointing Employment ReportThe headline jobs number was below expectations, and there were combined downward revisions to the previous two months.   Is this is slowdown in hiring a short term issue, part of the normal business cycle, or due to a Trump Slump? My view is this slowdown in hiring is mostly part of the normal business cycle (my expectation was job growth would slow further this year). There was still some good news - especially with the unemployment rate falling to 4.3% (lowest since 2001), and U-6 falling to 8.4% (lowest since 2007).  But overall this was a disappointing report. ...

                                      Posted by on Friday, June 2, 2017 at 10:36 AM in Economics, Unemployment | Permalink  Comments (72) 


                                      Paul Krugman: Trump Gratuitously Rejects the Paris Climate Accord

                                      If liberals are for it, they’re against it:

                                      Trump Gratuitously Rejects the Paris Climate Accord, by Paul Krugman, NY Times: As Donald Trump does his best to destroy the world’s hopes of reining in climate change, let’s be clear about one thing: This has nothing to do with serving America’s national interest. The U.S. economy, in particular, would do just fine under the Paris accord. This isn’t about nationalism; mainly, it’s about sheer spite.
                                      About the economics:... Clearly, it would be an economy running on electricity...
                                      What would life in an economy that made such an energy transition be like? Almost indistinguishable from life in the economy we have now. ...
                                      Wouldn’t energy be more expensive in this alternative economy? Probably, but not by much: Technological progress in solar and wind has drastically reduced their cost, and it looks as if the same thing is starting to happen with energy storage.
                                      Meanwhile, there would be compensating benefits. Notably, the adverse health effects of air pollution would be greatly reduced, and it’s quite possible that lower health care costs would all by themselves make up for the costs of energy transition, even ignoring the whole saving-civilization-from-catastrophic-climate-change thing. ...
                                      Why, then, are so many people on the right determined to block climate action, and even trying to sabotage the progress we’ve been making on new energy sources?
                                      Don’t tell me that they’re honestly worried about the inherent uncertainty of climate projections. ...
                                      Don’t tell me that it’s about coal miners. ...
                                      While it isn’t about coal jobs, right-wing anti-environmentalism is in part about protecting the profits of the coal industry, which in 2016 gave 97 percent of its political contributions to Republicans. ...
                                      Pay any attention to modern right-wing discourse — including op-ed articles by top Trump officials — and you find deep hostility to any notion that some problems require collective action beyond shooting people and blowing things up.
                                      Beyond this, much of today’s right seems driven above all by animus toward liberals rather than specific issues. If liberals are for it, they’re against it. If liberals hate it, it’s good. Add to this the anti-intellectualism of the G.O.P. base, for whom scientific consensus on an issue is a minus, not a plus, with extra bonus points for undermining anything associated with President Barack Obama.
                                      And if all this sounds too petty and vindictive to be the basis for momentous policy decisions, consider the character of the man in the White House. Need I say more?

                                        Posted by on Friday, June 2, 2017 at 09:12 AM in Economics, Environment, Politics | Permalink  Comments (107) 


                                        Links for 06-02-17

                                          Posted by on Friday, June 2, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (129) 


                                          Thursday, June 01, 2017

                                          Fed Watch: Brainard, Powell, Employment Report Ahead

                                          Tim Duy:

                                          Brainard, Powell, Employment Report Ahead, by Tim Duy: Federal Reserve policymakers are turning a cautious eye to the inflation numbers, but for now believe special factors account for much of the weakness. Consequently, they remain more focused on the labor market in their policy deliberations. For now, that implies they will resist changing their expectations of further tightening this year as the US jobs market continues to hold strong. Tomorrow we should see more evidence of that strength.
                                          Inflation continues to come in below expectations. The latest PCE inflation report, for example, was better than March but still anemic:

                                          Corepce617

                                          This weakness has not gone unnoticed on Constitution Ave, but Fed officials are not ready to call it quits on the expected path of monetary policy. Federal Reserve Governor Lael Brainard said earlier this week:
                                          Even so, I see some tension between signs that the economy is in the neighborhood of full employment and indications that the tentative progress we had seen on inflation may be slowing. If the tension between the progress on employment and the lack of progress on inflation persists, it may lead me to reassess the expected path of the federal funds rate in the future, although it is premature to make that call today.
                                          Her colleague Governor Jerome Powell appears less concerned:
                                          Core inflation was 1.5 percent for the 12 months through April. This measure has also risen since 2015, although its gradual increase appears to have paused because of weak inflation readings for March and April. Some of the recent weakness can be explained by transitory factors. And there are good reasons to expect that inflation will resume its gradual rise.
                                          On the other side of the country, San Francisco Federal Reserve President John Williams repeats the same:
                                          Meanwhile, although inflation has been running somewhat below the Fed’s goal of 2 percent, with the economy doing well and some of the factors that have held inflation down waning, I expect we’ll reach that goal by next year.
                                          The tendency to dismiss weak inflation numbers will continue as long as unemployment plumbs fresh lows for this cycle. Central bankers believe they are in the range of full employment, and don't want to risk being too far below their estimates of the neutral interest rate when inflation finally does take hold a bit more aggressively.
                                          But will unemployment continue to push lower? The labor market appears to maintain considerable momentum. Initial claims remain low, ADP anticipates private sector job growth for May at 253k, and the ISM employment index picked up. See Calculated Risk for the rundown. Wall Street anticipates job growth of 185k for May within a range of 140k to 231k. My expectation is just on the north side of the consensus number: Nfp617
                                          This should be enough job growth to maintain downward pressure on unemployment; as the economy matures, the Fed anticipates a requirement of only roughly 100k jobs per months to hold unemployment steady. A number closer to 200k will leave them concerned that sooner or later inflation will eventually emerge and they need to be ahead of that emergence not behind.
                                          Two more interesting points on this from Powell. First, he thinks that labor force participation is near trend levels:
                                          The labor force participation rate, which had declined sharply after the crisis, has now been roughly stable for 3-1/2 years, which represents an improvement against its estimated downward trend. Participation is now close to estimates of its trend level.
                                          This implies that he anticipates need to slow job growth sooner than later to avoid excessive undershooting of the unemployment rate. Second, he see wages growth as just about right after accounting for productivity:
                                          Wage data have gradually moved up, consistent with a tightening labor market. Although average hourly earnings are rising only about 2.5 percent per year, slower than before the crisis, much of that downshift may reflect the slowdown in productivity growth we have experienced. For example, over the past three years, unit labor costs--that is, nominal wages adjusted for increases in productivity--have been generally rising a bit faster than prices.
                                          If productivity growth is 50bp lower than just prior to the recession, then real wages are close to target:

                                          Realwages617

                                          So, assuming the Fed maintains its assumptions regarding productivity growth, we don't need to see much faster wage growth for policymakers to become more convinced the economy is near full employment. Another point to remember when analyzing the labor report.
                                          Bottom Line: The Fed's focus remains on the labor market. Hence, they remain focused on two rate hikes and balance sheet action still to come this year. One of those rate hikes will come this month. If sustained, weak inflation will eventually push them to rethink the path of policy. But the impact of those changes might fall more on 2018 than on 2017.

                                            Posted by on Thursday, June 1, 2017 at 11:07 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (20) 


                                            How America Could Save $65 Billion in Mobile Phone Bills

                                            Tim Taylor:

                                            How America Could Save $65 Billion in Mobile Phone Bills: It is a fact of nature that all countries have the same electromagnetic spectrum of radio frequencies. It is a fact of politics that countries have different rules for allocating these frequencies. And it is a fact of economics that people in different countries pay very different rates for their use of spectrum. Mara Faccio and Luigi Zingales ask: "Why does the price of the same basket of mobile phone services vary around the world from $10.07 to $47.25? Why does the price of a 1GB mobile-broadband internet plan vary from $11.24 to $100.28?" They investigate the question in a January 2017 working paper "Political Determinants of Competition in the MobileTelecommunication Industry"...  For those who prefer to get their economics via cartoon, the most recent issue of the Chicago Booth Review has you covered with on this topic.

                                            Countries can affect the competitive situation of telecommunications industries in many ways, including the rules that govern entry, the extent of price regulation, whether phone numbers are easily portable when shifting between carriers, whether voice-over-internet calls are permitted, and so on. These rules vary substantially across countries. ...
                                            The ... authors ... argue that the relatively small differences in quality cannot explain the relatively large differences in prices paid by consumers; indeed, the higher prices paid by consumers help to explain the high stock prices for major US carriers like AT&T, Verizon, T-Mobile, and Sprint. In looking at their overall data set, the authors write: "We test this hypothesis and we find no evidence that a higher degree of competition leads to lower quality of service or less investments. If anything, the results go in the opposite direction."

                                            In the United States, the Federal Communications Commission just completed in March 2017 its first "incentive" auction, in which the broadcast TV companies that were allocated huge chunks of spectrum decades ago, but now deliver most of their content via cables, have an chance to sell off that spectrum to mobile services. As the FCC writes: "In the auction, TV broadcasters could voluntarily give up their current broadcast channel in exchange for a share of the proceeds from an auction of their channel to commercial wireless service providers to provide expanded mobile broadband services." This is a step in the right direction. But American consumers have every reason to keep comparing their mobile bills to those in Germany, Denmark, and elsewhere, and to get an answer from their government on why the electromagnetic spectrum that is naturally available everywhere should cost more in the United States.

                                              Posted by on Thursday, June 1, 2017 at 10:02 AM in Economics, Market Failure | Permalink  Comments (21) 


                                              The Working Class’s Role in Trump’s Election

                                              Caroline Freund:

                                              The working class’s role in Trump’s election: President Donald Trump’s election victory last year was driven in part by support he got in the traditionally Democratic parts of the industrial Northeast and Midwest of the US. Many analysts have argued that Trump’s promises to bring back US manufacturing hollowed out by trade and technology changes paved the way for his achievement.
                                              Recent empirical evidence shows that trade shocks can influence voting patterns. Autor et al. (2016) find that import competition from China is associated with increased political polarisation in US congressional elections, as measured by the number of moderate incumbents who lost their seats. Using data on voting patterns in six presidential elections, Jensen et al. (2016) extend this analysis to include trade in services and exports, and find that while rising imports are associated with more polarisation, rising exports are associated with more support for the incumbent. Che et al. (2016) find that greater import competition from China is correlated with increases in election turnout and the share of votes for a Democrat in congressional elections. 
                                              Evidence that the decline in manufacturing was not the real reason for Trump’s success
                                              The data show that this bit of conventional wisdom might be misplaced. Education and race were far bigger factors in determining the change in voting results from the 2012 election.  These two factors alone explain more than 70% of the variation in the Republican vote share across counties, as compared with the last election, and more than 80% in the swing states.
                                              And within manufacturing, race mattered greatly: only the predominantly white manufacturing counties were drawn to Trump’s message.  Racially diverse manufacturing counties rejected it.  These twin factors roughly cancelled each other out. In the end, whether or not manufacturing was part of a county’s economic base did not have much of an effect on its change in voting behaviour.
                                              In a new paper, Dario Sidhu and I examine electoral data from the 2016 compared with previous presidential elections (Freund and Sidhu 2017). The county-by-county breakdown in the data shows that on aggregate, manufacturing jobs did not play a significant role in the election results.
                                              When economics, identity, and demographic variables were considered together, the share of employees in manufacturing was not significantly associated with increased support for Donald Trump, versus Mitt Romney in 2012. Even more striking, counties where manufacturing declined since 2000 – many of which received special attention during the campaign – also did not have an increase in their vote share for Trump from four years before.
                                              None of this is to say manufacturing as an economic foundation for a county did not matter at all in the election. But it boosted Trump only in counties that were predominately white.
                                              In mostly white manufacturing counties, there was a significant increase in the Republican vote share since 2012. In more racially and ethnically diverse manufacturing counties (above average share of black and Hispanic residents), there was a significant decline in the share of votes going to the Republican candidate. On aggregate, these effects roughly offset each other, with the net result that the presence of manufacturing in a county (or the extent of job loss) was not associated with the result. To the extent manufacturing played a role, it was through the ethnic makeup of counties. The impact of this effect was magnified in crucial swing states, where counties are on average less diverse than the nation as a whole.

                                              Figure 1 Republican vote share change from 2012 to 2016 and manufacturing employment

                                              Freundfig1

                                              Notes: Standardized coefficients.  Additional controls, median wage, unemployment, labour force participation, age, religion, county size. 
                                              Source: Freund and Sidhu (2017).

                                              Why are counties polarised within manufacturing by race?
                                              There are two potential explanations for why predominantly white manufacturing counties became more Republican and diverse manufacturing counties voted more Democratic in this election. 
                                              The first is that economic shocks were different across white and diverse counties.  Perhaps white manufacturing towns specialise in products more prone to technological change or facing pronounced import competition; alternatively, white manufacturing towns may have been largely one company towns with few alternative employment opportunities.
                                              The second is that the two groups reacted differently to economic changes that have occurred over time.  It is possible that white manufacturing towns rejected existing policies, such as openness to trade and increased income redistribution (for example, through the Affordable Care Act); while diverse manufacturing towns rejected the message that economic conditions in the US were deteriorating.
                                              The analysis shows that the second explanation – different reactions to economic change – is more consistent with the data. Perhaps most telling, comparing the 2016 election results with the county’s share of employment in manufacturing from 1986 – when manufacturing employment was near its peak and one in four manufacturing workers was in a union – the same polarisation is evident.  Historical manufacturing counties that are mostly white voted more Republican, but historical manufacturing towns that are relatively diverse voted more Democratic, as compared with 2012. 
                                              Does this mean the population is becoming more polarised?
                                              Morris Fiorina, a political scientist at Stanford University, has shown that polarisation can be driven by the electorate or the candidates (Fiorina 2004). While a polarised population – with a large group on the right and a large group on the left – produces a split electorate, polarising candidates can yield a similar outcome, even if most of the population has centrist political views. The difference is that with an increasingly polarised electorate, voter participation should logically increase, as each group is tied to its candidate and opposed to the alternate. In contrast, with polarising candidates, the middle of the distribution is unsatisfied, so voter participation should in theory decrease.
                                              When other factors are eliminated, the data show that the rise in the Republican share of votes in white manufacturing counties was largely due to a drop in Democratic votes; while the rise in the Democratic share in non-white manufacturing counties was driven by a relatively higher drop in Republican votes.  In addition, on average across counties, as compared with 2012, relatively low voting rates among Democratic voters was a bigger contributor to the results than high voting rates among Republicans. Put differently, Trump did not win the white working class, Clinton lost it.
                                              The 2016 election outcome is thus more consistent with Fiorina’s example of polarising candidates than a polarised electorate.  The good news is that Americans are probably far less divided then they appear. The bad news is that the US desperately needs a more centrist and less partisan government to unify and lead, but that seems unlikely anytime soon.
                                              References
                                              Autor, D, D Dorn, G Hanson, and K Majlesi (2016), “Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure”, NBER Working Paper No. 22637.
                                              Che, Y, Y Lu, J R Pierce, P K Schott and Z Tao (2016), “Does Trade Liberalization with China Influence US Elections?”, NBER Working Paper No. 22178.
                                              Fiorina, M (2004), Culture War? The Myth of a Polarized America, Stanford University Press.
                                              Freund, C and D Sidhu (2017), “Manufacturing and the 2016 Election: An Analysis of US Presidential Election Data”, PIIE Working Paper No. 17-7. 
                                              Jensen, J B, D P Quinn and Ss Weymouth (2016): “Winners and Losers in International Trade: The Effects on US Presidential Voting,” NBER Working Paper No. 21899.

                                                Posted by on Thursday, June 1, 2017 at 12:24 AM in Economics, Politics | Permalink  Comments (82) 


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                                                  Wednesday, May 31, 2017

                                                  Rethinking the Universalism versus Targeting Debate

                                                  Raj M. Desai at Brookings:

                                                  Rethinking the universalism versus targeting debate: According to the International Labor Organization’s latest Social Protection Report, over 70 percent of the world’s population lacks adequate access to social protection. Meanwhile, efforts around the world to redesign social safety nets have revived the debate on targeting versus universalism. Universalism, of course, proposes that all citizens of a nation receive the same publicly provided benefits. By contrast, proponents of targeting argue for using various mechanisms to identify, and distribute the bulk of benefits to, the poor. In the 1970s and 1980s, many developing countries shifted away from broad social policies that emphasized universal benefits (but that often only covered a small fraction of the population) toward programs that required beneficiaries to meet specific criteria. But after years of emphasis on the need to target public resources to vulnerable segments of the population, the pendulum appears to be swinging back toward universalism. What does this imply for developing countries seeking to expand their systems of social protection? ...

                                                    Posted by on Wednesday, May 31, 2017 at 12:44 PM in Economics, Social Insurance | Permalink  Comments (13) 


                                                    On The US-Germany Imbalance

                                                    Paul Krugman:

                                                    On The US-Germany Imbalance: Trump’s tweet on German-US trade was, it goes without saying, deeply stupid and destructive. He obviously doesn’t get how the EU works – it’s a customs union, so there is no such thing as bilateral trade policy. He also thinks that bilateral trade balances are the test of fairness, which is all wrong. Somewhat annoyingly, there is a real issue lurking behind all of this: Germany’s excessive overall surplus, the consequence of inadequate spending and reflation in the aftermath of the euro crisis. But insulting a key ally on obviously fallacious grounds is no way to help with that issue.
                                                    But never mind all that. I found myself wondering about the causes of the underlying fact: Germany does indeed have a huge bilateral surplus with the US, exporting about 2.5 times as much to us as we sell in return. ... Why?
                                                    Somewhat surprisingly, there’s not a lot of economic literature on the causes of bilateral trade imbalances. Davis and Weinstein (DW) had a nice empirical examination, which concluded that the standard explanations didn’t explain much, that overall there was a lot more imbalance in the world than there “should” be. Still, I think it’s interesting (although maybe not important) to ask what we can say...
                                                    As DW say, one theory of imbalances is macroeconomic: countries that save more than they invest will run surpluses... And that’s certainly part of the story. ...
                                                    The other story DW tell is about “triangular trade.” .... [explains] ...
                                                    But wait, there’s more. I suspect that part of the US-Germany bilateral imbalance is an optical illusion, brought on by transshipment... [explains] ...
                                                    Again, the policy relevance is basically nil. But it might be a good idea to have more research on bilateral trade imbalances, if only to make dissing Trump tweets even easier.

                                                      Posted by on Wednesday, May 31, 2017 at 11:49 AM in Economics, International Trade | Permalink  Comments (23) 


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                                                        Tuesday, May 30, 2017

                                                        What History Tells Us About Trump’s Budget Fantasy

                                                        Larry Summers:

                                                        What history tells us about Trump’s budget fantasy: At the risk of beating a dead horse, here are some thoughts on the Trump administration’s 3 percent growth forecast. Zero interest rates seemed inconceivable 15 years ago, and yet they happened. Almost no one forecast the productivity boom that took place in the United States between 1995 and 2005 or the magnitude of the 2008 financial crisis. So any statement that a given forecast is inconceivable is unwarranted.
                                                        It is, though, reasonable to use history to try to gauge the likelihood of possible outcomes. I do not see how any examination of U.S. history could possibly support the Trump forecast as a reasonable expectation. ...

                                                          Posted by on Tuesday, May 30, 2017 at 09:20 AM in Economics | Permalink  Comments (90) 


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                                                            Monday, May 29, 2017

                                                            The Phillips Curve: A Primer

                                                            Cecchetti & Schoenholtz:

                                                            The Phillips Curve: A Primer: Economists have debated the relationship between inflation and unemployment at least since A.W. Phillips’s study of U.K. data from 1861 to 1957 was published 60 years ago. The idea that a tight or slack labor market should result in faster or slower wage gains seems like a natural corollary to standard economic thinking about how prices respond to deviations of demand from supply. But, over the years, disputes about this Phillips curve relationship have been and remain fierce.
                                                            As the U.S. labor market tightens, and unemployment approaches levels we have not seen in more than 15 years, the question is whether inflation is going to make a comeback. More broadly, how useful is the Phillips curve as a guide for Federal Reserve policymakers who wish to achieve a 2-percent inflation target over the long run?
                                                            To anticipate our conclusion, despite evidence of a negative relationship between wage inflation and unemployment, central banks ought not rely on a stable Phillips curve for setting monetary policy. ...

                                                              Posted by on Monday, May 29, 2017 at 11:56 AM in Economics, Macroeconomics, Monetary Policy | Permalink  Comments (48) 


                                                              Paul Krugman: Trump’s Energy, Low and Dirty

                                                              King Coal has a scary soul:

                                                              Trump’s Energy, Low and Dirty, by Paul Krugman, NY Times: Donald Trump has two false beliefs about energy, one personal, one political. ...
                                                              On the personal side, Trump reportedly disdains exercise of any kind except golf. He believes that raising a sweat depletes the finite reserves of precious bodily fluids, I mean energy, that a person is born with, and should therefore be avoided.
                                                              Many years of acting on this belief may or may not explain the weird and embarrassing scene at the G-7 summit in Taormina, in which six of the advanced world’s leaders strolled together a few hundred yards through the historic city, but Trump followed behind, driven in an electric golf cart.
                                                              More consequential, however, is Trump’s false belief that lifting environmental restrictions ... will bring back the days when the coal-mining industry employed hundreds of thousands of blue-collar Americans. ...
                                                              These days..., those who take energy policy seriously see a future that belongs largely to renewables... But that’s not what voters from what used to be coal country want to hear. They enthusiastically backed Trump, who promised to bring those coal jobs back, even though his real agenda would punish those voters with savage cuts in programs they depend on. And Trump cares a lot more about public adulation than he does about serious policy advice.
                                                              Which brings me ... to Trump’s European trip...
                                                              First, in Brussels, he declined to endorse NATO’s Article 5, which says that an attack on any NATO member is an attack on all. In effect, he repudiated the central plank of America’s most important alliance. Why, it was almost as if he’s more interested in appeasing Vladimir Putin than he is in defending democracy.
                                                              Then, in Taormina, he was the only leader who refused to endorse the Paris climate accord ... that may be our last good chance to avoid catastrophic climate change. ... But Trump isn’t offering coal country real help, just a fantasy about turning back the clock. ...
                                                              So am I suggesting that the world’s most powerful leader might put the whole planet’s future at risk so that he can keep telling politically convenient lies...? Yes. ...
                                                              Now, maybe Trump won’t really pull the plug on Paris; or maybe he’ll be gone from the scene before the damage is irreversible. But there’s a real possibility that last week was a pivotal moment in human history, the moment when an irresponsible leader sent the whole world careening off to hell in a golf cart.

                                                                Posted by on Monday, May 29, 2017 at 09:54 AM in Economics, Environment, Politics | Permalink  Comments (63) 


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                                                                  Saturday, May 27, 2017

                                                                  The Future of Work: Automation and Labor: Inclusive AI: Technology and Policy for a Diverse Human Future

                                                                  Brad DeLong:

                                                                  The Future of Work: Automation and Labor: Inclusive AI: Technology and Policy for a Diverse Human Future: Thank you very much.
                                                                  Let me follow the example of our Lord and Master Alpha-Go as it takes the high ground first.
                                                                  Let me, therefore, take the hyper-Olympian and very long run historical point of view.
                                                                  The human brain is a massively parallel supercomputer that fits inside half a shoebox. It draws 50 watts of power. It is an amazing innovation, analysis, assessment and creation machine. 600 million years of proto-mammalian and mammalian evolution coupled with the genetic algorithm means that almost every single human can solve AI problems far beyond our current engineering reach—so much so that much of what our machines find impossible our brains find so trivially easy that we call such capabilities "unskilled".
                                                                  When combined with our brains, human fingers are amazingly fine manipulation devices.
                                                                  Human back and leg muscles—especially when testosterone soaked—are quite good at moving heavy objects.
                                                                  Thus back in the environment of evolutionary adaptation, we used our brains, our big muscles, and our fingers to lead cognitively interesting if stressful and short lives.
                                                                  But history has rolled forward since the hunter-gatherer age. And as history has rolled forward, we have figured out other things to do to add economic and sociological value than their uses in the hunger-gathers paradigm. Over the long historical sweep, the ability to add value using our backs to move heavy objects and our fingers to perform fine manipulations in cognitively-interesting ways has, relatively, declined. We have, so far: ...[continue]...

                                                                    Posted by on Saturday, May 27, 2017 at 02:52 PM in Economics, Technology | Permalink  Comments (102) 


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                                                                      Friday, May 26, 2017

                                                                      Paul Krugman: It’s All About Trump’s Contempt

                                                                      "The mother of all sucker punches":

                                                                      It’s All About Trump’s Contempt, by Paul Krugman, NY Times: For journalists covering domestic policy, this past week poses some hard choices. Should we focus on the Trump budget’s fraudulence — not only does it invoke $2 trillion in phony savings, it counts them twice — or on its cruelty? Or should we talk instead about the Congressional Budget Office assessment of Trumpcare, which would be devastating for older, poorer and sicker Americans?
                                                                      There is, however, a unifying theme to all these developments. And that theme is contempt — Donald Trump’s contempt for the voters who put him in office. ... He is ... betting that he can break every promise he made to the working-class voters who put him over the top, and still keep their support. Can he win that bet?
                                                                      When it comes to phony budget math — remember his claims that he would pay off the national debt? — he probably can. ...
                                                                      The bigger question is whether someone who ran as a populist, who promised not to cut Social Security or Medicaid, who assured voters that everyone would have health insurance, can keep his working-class support while pursuing an agenda so anti-populist it takes your breath away. ...
                                                                      So what did [Trump voters] think they were voting for? Partly,... they ... believed that he was a different kind of Republican. Maybe he would take benefits away from Those People, but he would protect the programs white working-class voters ... depend on.
                                                                      What they got instead was the mother of all sucker punches.
                                                                      Trumpcare, the budget office tells us, would cause 23 million people to lose health insurance, largely through cuts to Medicaid... It would also lead to soaring premiums — we’re talking increases on the order of 800 percent — for older Americans whose incomes are low but not low enough to qualify for Medicaid. That describes a lot of Trump voters. Then we need to add in the Trump budget, which calls for further drastic cuts in Medicaid, plus large cuts in food stamps and in disability payments. ...
                                                                      So many of the people who voted for Donald Trump were the victims of an epic scam by a man who has built his life around scamming. ...
                                                                      Will they ever realize this, and admit it to themselves? More important, will they be prepared to punish him the only way they can — by voting for Democrats?

                                                                        Posted by on Friday, May 26, 2017 at 04:16 AM in Economics, Politics | Permalink  Comments (240) 


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                                                                          Thursday, May 25, 2017

                                                                          Blinder: Why, After 200 Years, Can’t Economists Sell Free Trade? (Video)

                                                                            Posted by on Thursday, May 25, 2017 at 12:32 PM in Economics, International Trade, Politics | Permalink  Comments (24) 


                                                                            Fed Watch: Fed Not Ready To Change Course

                                                                            Tim Duy:

                                                                            Fed Not Ready To Change Course, by Tim Duy: The minutes of the May Federal Reserve meeting reveal central bankers remained poised to raise interest rates again in June:
                                                                            With respect to the economic outlook and its implications for monetary policy, members agreed that the slowing in growth during the first quarter was likely to be transitory and continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat further, and inflation would stabilize around 2 percent over the medium term…
                                                                            …Members generally judged that it would be prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory before taking another step in removing accommodation.
                                                                            With incoming data brighter and suggesting that the first quarter slowdown was indeed temporary, a June rate hike looks more certain than not. But why are they even contemplating raising rates at all given recent inflation numbers? And how long can the Fed stick with its current rate hike trajectory with inflation persistently below their 2 percent target?
                                                                            The Fed finds itself stuck in a conundrum of low inflation despite low unemployment. One interpretation of this situation is that it is not a conundrum at all. The Fed’s estimates of the natural rate of unemployment are too high, and hence unemployment isn’t really all that low.
                                                                            The other interpretation is with unemployment low and projected to be lower, it is only a matter of time before the inflation shoe drops. As noted in the Fed minutes:
                                                                            Labor market conditions strengthened further in recent months. At 4.5 percent, the unemployment rate had reached or fallen below levels that participants judged likely to be normal over the longer run. Increases in nonfarm payroll employment averaged almost 180,000 per month during the first quarter, a pace that, if maintained, would be expected to result in further increases in labor utilization over time.
                                                                            This is the potential outcome that keeps Fed Chair Janet Yellen and her colleagues gently resting their feet on the brakes.
                                                                            To compare inflation-unemployment dynamics during the last three tightening cycles, I use here the estimate of the non-accelerating inflation rate of unemployment (NAIRU) produced by the Congressional Budget Office and core Personal Consumption Expenditures inflation. I assume for consistency that the Fed has a 2 percent inflation target throughout this period, but that is technically true only since 2012. 
                                                                            Consider the late 1990s. The high productivity growth and rising dollar environment kept downward pressure on inflation even as unemployment fell as low as 3.8 percent:

                                                                            FedMandate1

                                                                            Will history repeat itself? Should the Fed take the chance that history will repeat itself? There are risks to such a strategy. Inflation eventually did take hold, accelerating in 2001:

                                                                            FedMandate2

                                                                            The return of inflation spooked the Fed enough that they hiked rates 50 basis points in May 2000, the last hike of the cycle. In retrospective that final hike was too much, too late and helped set the stage (or at least worsen) for the 2001 recession. One lesson learned: Even in a favorable macroeconomic environment, there are limits to how low the Fed can let unemployment fall.
                                                                            Contrast this with the next hiking cycle, initiated by former Fed Chair Alan Greenspan and concluded by his successor Ben Bernanke. The post-2001 economy saw stagnant to falling productivity and a weaker dollar. It also experienced higher inflation with a smaller unemployment gap:

                                                                            FedMandate3

                                                                            Greenspan had the best of both worlds, whereas Bernanke arguably had the worst. But the lesson learned was again that unemployment cannot be reduced indefinitely without triggering higher inflation, and once the Fed allowed unemployment to fall too low, reversing course was very difficult and likely to conclude in recession. It is no wonder then that current Federal Reserve Chair Janet Yellen repeats the concern that:
                                                                            …waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.
                                                                            This time around, the Fed faces low productivity but a generally stronger dollar. And the unemployment-inflation dynamic is splitting the difference between the past two tightening cycles:

                                                                            FedMandate4

                                                                            Stuck in the middle, so to speak. Will the economy face a positive productivity shock that further reduces inflationary pressures? Or will the dollar continue its recent slide with the opposite impact on inflation? Will low unemployment finally start to kindle an inflationary fire? Or is the estimate of the natural rate of unemployment still too high? Interestingly, the minutes suggest that the majority of central bankers expect it more likely than not that these dynamics play out in such a way that the Fed needs to steepen the path of tightening:
                                                                            Several participants, however, pointed to conditions under which the Committee might need to consider a somewhat more rapid removal of monetary accommodation--for instance, if the unemployment rate fell appreciably further than currently projected, if wages increased more rapidly than expected, or if highly stimulative fiscal policy changes were to be enacted. In contrast, a couple of others judged that the Committee could withdraw monetary accommodation even more gradually than reflected in the medians of forecasts in the March Summary of Economic Projections, noting that slack might remain in the labor market or that inflation was not very sensitive to declines in the unemployment rate below its estimated longer-run normal level.
                                                                            The Fed, it seems, is biased toward more tightening not less - a situation that doesn't seem tenable if inflation remains persistently low as the year drags on.
                                                                            Bottom Line: The bar to scaling back the Fed’s plans appears fairly high and requires either a more evident slowdown in growth that is likely to stabilize the unemployment rate or a substantial downward revision of NAIRU estimates. Until then, policymakers look committed to the middle ground of gradual removal of accommodation.

                                                                              Posted by on Thursday, May 25, 2017 at 09:22 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (15) 


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                                                                                Wednesday, May 24, 2017

                                                                                Trump’s “China Deal” is Only a Good Deal for China

                                                                                Larry Summers:

                                                                                Trump’s “China deal” is only a good deal for China: The events of the last week have crowded out reflection on economic policy.  But things have been happening. Commerce Secretary Wilbur Ross described the trade deal reached with China earlier this month as “pretty much a herculean accomplishment….This is more than has been done in the history of U.S.-China relations on trade.”
                                                                                Past a certain point, exaggeration and hype become dishonesty and deception. In economic policy, as in almost everything else, the Trump Administration is way past that point.
                                                                                The trade deal is a “nothing burger” that a serious Administration committed to helping American workers would likely not have accepted, and surely would not have hyped. ... [gives details of the agreement] ...
                                                                                Now it is true that a ludicrously hyped squib of a deal is much better than a trade war. So perhaps we should be pleased that the President and his commerce secretary are so easily manipulated. Perhaps our officials know how bad a deal they got and are just hyping for political reasons.
                                                                                It is an irony of our times that those who most frequently denounce “fake news” seem to most frequently purvey it.

                                                                                  Posted by on Wednesday, May 24, 2017 at 09:09 AM in Economics, International Trade, Politics | Permalink  Comments (114) 


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                                                                                    Tuesday, May 23, 2017

                                                                                    It’s Time to Worry about Health Care in the Senate

                                                                                    David Leonhardt

                                                                                    It’s Time to Worry about Health Care in the Senate, NY Times: While the rest of the country has been transfixed by Trumpian chaos, members of the Senate have spent the last two weeks talking about taking health insurance from millions of Americans.
                                                                                    There is an alarmingly large chance that they’ll decide to do so. But if they do, they will almost certainly rely on a political sleight of hand to disguise their bill’s damage. Understanding that sleight of hand — and calling attention to it — offers the best hope for defeating the bill.
                                                                                    The effort to take health insurance from the middle class and poor and funnel the savings into tax cuts for the rich is a little like mold. It grows best in the dark. ...
                                                                                    If secrecy is the first part of the strategy, distraction is the second. ...
                                                                                    The final part of the strategy will be arm-twisting. If victory is in sight, McConnell will invoke party loyalty to cajole his colleagues... Being the Republican who brought down Trumpcare wouldn’t be fun.
                                                                                    So the current period is important. It’s a time for all those groups that oppose the bill, and for the engaged progressive base, to put senators on notice. ...
                                                                                    A small group of Senate Republicans has shown signs of being persuadable, and only three are likely needed to stop a bill. The group includes Lamar Alexander, Shelley Moore Capito, Bill Cassidy, Susan Collins, Dean Heller, Lisa Murkowski and Rob Portman.
                                                                                    They should hear a loud message that Americans aren’t in favor of taking health insurance from their fellow citizens. The senators work for those citizens, not for Mitch McConnell, Paul Ryan and Donald Trump.

                                                                                      Posted by on Tuesday, May 23, 2017 at 10:08 AM in Economics, Health Care, Politics | Permalink  Comments (26) 


                                                                                      Trump’s Budget is Simply Ludicrous

                                                                                      Larry Summers:

                                                                                      Trump’s budget is simply ludicrous: Details of President Trump’s first budget have now been released. Much can and will be said about the dire social consequences about what is in it and the ludicrously optimistic economic assumptions it embodies. My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course.
                                                                                      Apparently, the budget forecasts that US growth will rise to 3.0 percent because of the Administration’s policies—largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth-fairies and ludicrous supply-side economics.
                                                                                      Then the Administration asserts that it will propose revenue neutral tax cuts with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least you cannot do so in a world of logic. ...
                                                                                      This is a mistake no serious business person would make. It appears to be the most egregious accounting error in a Presidential budget in the nearly 40 years I have been tracking them. ...
                                                                                      I have no doubt that there are civil servants in OMB, Treasury and CEA who do know better than this mistake. Were they cowed, ignored or shut out? How could the Secretary of Treasury, Director of OMB and Director of the NEC allow such an elementary error? I hope the press will ferret all this out.
                                                                                      The President’s personal failings are now not just center stage but whole stage. They should not blind us to the manifest failures of his economic team. Whether it is Secretary Mnuchin’s absurd claims about tax cuts not favoring the rich, Secretary Ross’s claim that the small squib of a deal negotiated last week with China was the greatest trade result with China in history, NEC Director Cohn’s ludicrous estimate of the costs of Dodd Frank, or today’s budget, the Trump administration has not yet made a significant economic pronouncement that meets a minimal standard of competence and honesty.

                                                                                        Posted by on Tuesday, May 23, 2017 at 09:21 AM in Budget Deficit, Economics, Politics | Permalink  Comments (40) 


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                                                                                          Posted by on Tuesday, May 23, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (123) 


                                                                                          Monday, May 22, 2017

                                                                                          Paul Krugman: The Unfreeing of American Workers

                                                                                          Freedom's just another word for nothing left to lose:

                                                                                          The Unfreeing of American Workers, by Paul Krugman, NY Times: American conservatives love to talk about freedom. ... Well, why not? After all, America is an open society, in which everyone is free to make his or her own choices about where to work and how to live.
                                                                                          Everyone, that is, except the 30 million workers now covered by noncompete agreements, who may find themselves all but unemployable if they quit their current jobs; the 52 million Americans with pre-existing conditions who will be effectively unable to buy individual health insurance, and hence stuck with their current employers, if the Freedom Caucus gets its way; and the millions of Americans burdened down by heavy student and other debt. ...
                                                                                          And you can make a strong case that we’re getting less free as time goes by.
                                                                                          Let’s talk first about those noncompete agreements... Noncompete agreements were originally supposed to be about protecting trade secrets... And that’s perfectly reasonable.
                                                                                          At this point, however, almost one in five American employees is subject to some kind of noncompete clause..., noncompete clauses are in many cases less about protecting trade secrets than they are about tying workers to their current employers, unable to bargain for better wages or quit to take better jobs.
                                                                                          This shouldn’t be happening in America... But there’s another aspect of declining worker freedom...: health care.
                                                                                          Until 2014, there was basically only one way Americans under 65 with pre-existing conditions could get health insurance: by finding an employer willing to offer coverage. ...
                                                                                          But what if you wanted to change jobs, or start your own business? Too bad: you were basically stuck...
                                                                                          Then Obamacare went into effect, guaranteeing affordable care even to those with pre-existing medical conditions. This was a hugely liberating change for millions. ...
                                                                                          But maybe not for much longer. Trumpcare ... would drastically reduce protections for Americans with pre-existing conditions. And even if that bill never becomes law, the Trump administration is effectively sabotaging individual insurance markets, so that in many cases Americans who lose employer coverage will have no place to turn...
                                                                                          You might say, with only a bit of hyperbole, that workers in America, supposedly the land of the free, are actually creeping along the road to serfdom, yoked to corporate employers the way Russian peasants were once tied to their masters’ land. And the people pushing them down that road are the very people who cry “freedom” the loudest.

                                                                                            Posted by on Monday, May 22, 2017 at 09:28 AM in Economics, Politics | Permalink  Comments (81) 


                                                                                            The Heartless Tradeoffs in the Trump Budget

                                                                                            I have a new column:

                                                                                            The Heartless Tradeoffs in the Trump Budget: As the bombshells continue to drop on the Trump administration, behind the scenes Trump’s first detailed budget proposal is being developed, and it has a few bombshells of its own, particularly for the poor. The budget proposal is not yet finalized, so the details could change, but according to what has leaked so far, the budget is a combination of tax cuts for the wealthy, reduced spending on social programs that serve the needy, and wishful thinking about tax cuts and economic growth. ...

                                                                                              Posted by on Monday, May 22, 2017 at 09:21 AM in Budget Deficit, Economics, Politics, Social Insurance, Taxes | Permalink  Comments (24) 


                                                                                              Links for 05-22-17

                                                                                                Posted by on Monday, May 22, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (84) 


                                                                                                Saturday, May 20, 2017

                                                                                                Links for 05-20-17

                                                                                                  Posted by on Saturday, May 20, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (180) 


                                                                                                  Friday, May 19, 2017

                                                                                                  Paul Krugman: What’s the Matter With Republicans?

                                                                                                  "even if Trump goes, one way or another, the threat to the Republic will be far from over":

                                                                                                  What’s the Matter With Republicans?, by Paul Krugman, NY Times: ...It has become painfully clear ... that Republicans have no intention of exercising any real oversight over a president who is obviously emotionally unstable, seems to have cognitive issues and is doing a very good imitation of being an agent of a hostile foreign power..., there is not a hint that any important figures in the party care enough about the Constitution or the national interest to take a stand. ...
                                                                                                  What’s the matter with Republicans?
                                                                                                  Obviously I can’t offer a full theory here, but there’s a lot we do know...
                                                                                                  First, ... the ... G.O.P. ... is one branch of a monolithic structure, movement conservatism, with a rigid ideology — tax cuts for the rich above all else. Other branches of the structure include a captive media that parrots the party line every step of the way. ...
                                                                                                  And this monolithic structure — lavishly supported by a small number of very, very wealthy families — rewards, indeed insists on, absolute fealty. Furthermore, the structure has been in place for a long time... What this means is that nearly all Republicans in today’s Congress are apparatchiks, political creatures with no higher principle beyond party loyalty. ... Republicans ... went all in behind Trump, knowing full well that he was totally unqualified, strongly suspecting that he was corrupt..., and even ... now, with the Trump/Flynn/Comey story getting worse by the hour, there has been no significant breaking of ranks. ...
                                                                                                  Does this mean that Trump will be able to hold on despite his multiple scandals and abuses of power? Actually, yes, he might. ...Republicans won’t turn on Trump unless he has become such a political liability that he must be dumped.
                                                                                                  And even if Trump goes, one way or another, the threat to the Republic will be far from over.
                                                                                                  In a perverse way, we should count ourselves lucky that Trump is as terrible as he is. Think of what it has taken to get us to this point — his Twitter addiction, his bizarre loyalty to Flynn and affection for Putin, the raw exploitation of his office to enrich his family, the business dealings ... he’s evidently trying to cover up by refusing to release his taxes.
                                                                                                  The point is that given the character of the Republican Party, we’d be well on the way to autocracy if the man in the White House had even slightly more self-control. Trump may have done himself in; but it can still happen here.

                                                                                                    Posted by on Friday, May 19, 2017 at 01:44 AM in Economics, Policy | Permalink  Comments (232) 


                                                                                                    Links for 05-19-17

                                                                                                      Posted by on Friday, May 19, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (121)