From an email suggestion:
To Understand Climbing Death Rates Among Whites, Look To Women Of Childbearing Age, by Laudan Aron, Lisa Dubay, Elaine Waxman, and Steven Martin, Health Affairs: The news that mortality is increasing among middle-aged white Americans spread like wildfire last week ... thanks to a study by Anne Case and Angus Deaton... Unfortunately, there are a couple of pieces of the puzzle ... the ... study missed.
By not looking at men and women separately, Case and Deaton failed to see that rising mortality is especially pronounced among women...., in the decade between 1992-96 and 2002-06, female mortality rates increased in 42.8 percent of US counties. Only 3.4 percent of counties, by comparison, saw an increase in male mortality rates. ...
Furthermore, our own analysis of the same data used by Case and Deaton shows that ... between 1999 and 2013, age-specific mortality rates for US white women age 45-54 increased by 26.8 deaths per 100,000 population, while the corresponding increase for men was 7.7 deaths.
By lumping women and men together, the study also missed the important point that the increases in mortality are affecting women of reproductive and childrearing ages...
Accidental poisonings ... explain only half of the total increase in deaths among white women... In addition to suicide, obesity- and smoking-related diseases are driving these mortality increases. Our findings clearly point to the need for a stronger public health focus on the misuse of prescription opioid drugs, as well as more prevention and treatment of tobacco, alcohol, and other drug use; mental illness; and obesity-related illnesses. ...
Posted by Mark Thoma on Tuesday, November 10, 2015 at 05:52 PM in Economics, Health Care |
This is from Tim Taylor:
Calibrating the Hype about Online Higher Education: "Massive open online courses" (MOOCs) and other aspects of online higher education were white-hot a few years ago, but I'd say that they have cooled off to only red-hot. Two economists who have also been college presidents, Michael S. McPherson and Lawrence S. Bacow discuss the current state of play and offer some insights in "Online Higher Education: Beyond the Hype Cycle," appearing in the Fall 2015 issue of the Journal of Economic Perspectives. Here are some points that caught my eye.
About one-quarter of higher education students took an online course in 2013, and about one-ninth of higher education students took all of their courses online that year.
"The US Department of Education recently began to conduct its own survey of online education as part of its Integrated Post-Secondary Education Data System (IPEDS), with full coverage of the roughly 4,900 US institutions of higher education. As shown in Table 1, IPEDS data indicates that as of 2013, about 26 percent of all students took at least one course that was entirely online, and about 11 percent received all of their education online."
When it comes to the possibility of education technologies that can operate at large scale with near-zero marginal costs, there's a history of overoptimism. Here's a quick sketch of promises about educational radio, and then educational television.
"Berland (1992), citing a popular commentator named Waldeman Kaempffert writing in 1924, reported that “there were visions of radio producing ‘a super radio orchestra’ and ‘a super radio university’ wherein ‘every home has the potentiality of becoming an extension of Carnegie Hall or Harvard University.’” Craig (2000) reports that “the enthusiasm for radio education during the early days of broadcasting was palpable. Many universities set up broadcast stations as part of their extension programs and in order to provide their engineering and journalism students with experience in radio. By 1925 there were 128 educational stations across the country, mostly run by tertiary institutions” (p. 2831). The enthusiasm didn’t last—by 1931 the number of educational stations was down to 49, most low-powered (p. 2839). This was in part the result of cumbersome regulation, perhaps induced by commercial interests; but the student self-control problem ... likely played a role as well. As NBC representative Janice Waller observed, “Even those listeners who clamored for educational programs, Waller found, secretly preferred to listen to comedians such as Jack Benny. These “intellectually dishonest” people “want to appear very highbrow before for their friends . . . but down inside, and within the confines of their own homes, they are, frankly, bored if forced to listen to the majority of educational programs” (as quoted in Craig 2000, pp. 2865–66).
"The excitement in the late 1950s about educational television outshone even the earlier enthusiasm for radio. An article by Schwarzwalder (1959, pp. 181–182) has an eerily familiar ring: “Educational Television can extend teaching to thousands, hundreds of thousands and, potentially, even millions. . . . As Professor Siepman wrote some weeks ago in The New York Times, ‘with impressive regularity the results come in. Those taught by television seem to do at least as well as those taught in the conventional way.’ . . . The implications of these facts to a beleaguered democracy desperately in need of more education for more of its people are immense. We shall ignore these implications at our national peril.” Schwartzman goes on to claim that any subject, including physics, manual skills, and the arts can be taught by television, and even cites experiments that show “that the discussion technique can be adapted to television.”"
The Internet offers the possibility not just of widespread distribution of education material, but also of interactive content. But if the content is to be richly interactive--that is, more than just a short multiple-choice quiz inserted into the recorded material--the costs of design and production could be very substantial.
"Richly interactive online instruction is obviously much more expensive than Internet-delivered television. The development costs for Carnegie Mellon’s sophisticated but far from fully computer-adaptive courses in statistics and other fields have been estimated at about $1 million each (Parry 2009). Although future technical developments will reduce the costs of providing a course of a fixed level of quality over time, those future technical developments will also encourage the provision of additional features. Universities can invest in improving the production values of such television programs at the margin in ways that range from multiple camera angles to the incorporation of sophisticated graphics and live location video. Many interactive courses could also conceivably benefit from regular updating based on recent events or scholarship ... Our point is that while online courses offer the potential for constant modification and updates, realizing this potential may in fact be expensive, leading to less-frequent updates than for traditionally taught subjects. ... Those who foresee the widespread adoption of adaptive learning technology often underestimate the cost of producing it. Stanford President John Hennessey, in a recent lecture to the American Council of Education, estimated that the cost of producing a first-rate highly interactive digital course to be in the millions of dollars (Jaschik 2015). Few individual institutions have the resources to make such investments. Furthermore, while demand may be substantial enough to support such investments for basic introductory courses in fields that easily lend themselves to such instruction, it is unlikely that anyone will invest in the creation of such courses for upper-level courses unless they can be adopted at scale.
There's no guarantee that online tools will reduce the costs of higher education. One possibility is that well-endowed universities use online higher education as a way to drive up costs--since these schools often compete to provide a high-end experience. For example, expensive schools might "flip the classroom" by paying for both a rich and interactive online course, and then also hiring enough faculty members (not graduate students!) to staff a large number of discussion and problem-solving sections.
Indeed, there is a real chance that at least in selective higher education, technology will actually be used to raise rather than lower cost. There are obvious ways to use online materials to complement rather than to substitute for in-person instruction. Flipping the classroom, as we will explain further, is one. Instructors can also import highly produced video material—either purchased or homemade— to complement their classes, and there could easily emerge a market in modular lessons aimed at allowing students to extend material farther or to get a second take on a difficult set of concepts. If individual faculty members are authorized to make these choices, and universities agree to subsidize expensive choices, costs seem likely to rise.
Conversely, schools that are lower-ranked and with fewer financial resources may be pushed to focus on implementing a low-cost and mostly online curriculum.
Broad-access unselective institutions are already among the largest users of online instruction. These institutions are responsible for the education of many students—at least half of all those enrolled in postsecondary education—and they disproportionately educate lower-income students and students of color. Enabling technological advances to support improvement in the educational success of these institutions at manageable cost is an important goal, arguably the most important goal for using technology to improve American higher education. (Of course, the implications of these technologies for global learning would be potentially gigantic.) There is especially high potential for online education to cater to the large number of nontraditional students, which includes adult learners and those who have a very high opportunity cost of attending college whether at the undergraduate or graduate level. For this group of students, asynchronous online learning can be a godsend. Opportunities surely exist for technology to penetrate this market further, and quality is likely to improve as faculty and others figure out how to take better advantage of new educational technology. As the technology improves and as more institutions adopt it, more of these students are likely to receive all or at least some of their education online.
Yet this great opportunity is accompanied by considerable risk. It is all too easy to envision legislators who see a chance to cut state-level or national-level spending that supports higher education by imposing cheap and ineffective online instruction on institutions whose students lack the voice and political influence to demand quality. It’s equally easy to imagine for-profit institutions proffering online courses in a way that takes advantage of populations with little experience with college in a marketplace where reliable information is scarce.
(Full disclosure: I've been Managing Editor of the Journal of Economic Perspectives since 1987. All JEP articles from the current issue going back to the first issue are freely available online courtesy of the publisher, the American Economic Association.)
Posted by Mark Thoma on Tuesday, November 10, 2015 at 09:58 AM in Economics, Technology, Universities |
James Bullard, president of the St. Louis Fed, says there are five questions for monetary policy:
The five questions
- What are the chances of a hard landing in China?
- Have U.S. financial market stress indicators worsened substantially?
- Has the U.S. labor market returned to normal?
- What will the headline inflation rate be once the effects of the oil price shock dissipate?
- Will the U.S. dollar continue to gain value against rival currencies?
I would add:
- Will wage gains translate into inflation (or something along those lines)?
Posted by Mark Thoma on Tuesday, November 10, 2015 at 09:58 AM in Economics, Monetary Policy |
Posted by Mark Thoma on Tuesday, November 10, 2015 at 12:06 AM in Economics, Links |
Congress enjoys a "political free lunch," budgetary illusions that make it appear that tax cuts, new spending -- whatever -- will not require cuts in other spending, an increase in taxes, or change the deficit. Ben Bernanke reveals the trickery behind the latest attempt at deception:
Budgetary sleight-of-hand: The House voted Thursday to pay for planned highway construction by drawing on the Federal Reserve’s capital. The idea of using Fed capital to pay for government spending, which comes up periodically, is a bad one, for several reasons. ... More substantively—and this is what I want to focus on in this post—“paying” for highway spending with Fed capital is not paying for it at all in any economically meaningful sense. Rather, this maneuver is a form of budgetary sleight-of-hand that would count funds that are already designated for the Treasury as “new” revenue.
To see why, first note that the Fed, as a side effect of its other activities, is already a major source of revenue for the federal government. The Fed earns interest on its portfolio of securities. This income, less the Fed’s operating expenses and interest paid on Fed liabilities, is sent to the Treasury on a pretty much continuous basis. These remittances are large: Over the past half dozen years the Fed has sent nearly half a trillion dollars to the Treasury, funds which directly reduce the government’s budget deficit. ... The Fed’s capital account provides a buffer that absorbs any losses on the Fed’s portfolio and allows the payments to the Treasury to be smoothed over time.
Unlike the Fed’s remittances, which are real resources whose availability reduces the burden on the taxpayer, drawing down the Fed’s capital provides no net new funding for the government. ...
Legislators who care about the integrity of the budgeting process should not support this budgetary sleight-of-hand.
Posted by Mark Thoma on Monday, November 9, 2015 at 10:40 AM in Budget Deficit, Economics, Monetary Policy, Politics |
"There is a darkness spreading over part of our society":
Despair, American Style, by Paul Krugman, Commentary, NY Times: A couple of weeks ago President Obama mocked Republicans who are “down on America,” and reinforced his message by doing a pretty good Grumpy Cat impression. He had a point: With job growth at rates not seen since the 1990s, with the percentage of Americans covered by health insurance hitting record highs, the doom-and-gloom predictions of his political enemies look ever more at odds with reality.
Yet there is a darkness spreading over part of our society. ... There has been a lot of comment ... over a new paper by the economists Angus Deaton (who just won a Nobel) and Anne Case, showing that mortality among middle-aged white Americans has been rising since 1999..., while death rates were falling steadily both in other countries and among other groups in our own nation.
Even more striking are the proximate causes of rising mortality. Basically, white Americans are, in increasing numbers, killing themselves... Suicide is way up, and so are deaths from drug poisoning and ... drinking... But what’s causing this epidemic of self-destructive behavior?...
In a recent interview Mr. Deaton suggested that middle-aged whites have “lost the narrative of their lives.” That is, their economic setbacks have hit hard because they expected better. Or to put it a bit differently, we’re looking at people who were raised to believe in the American Dream, and are coping badly with its failure to come true.
That sounds like a plausible hypothesis..., but the truth is that we don’t really know why despair appears to be spreading across Middle America. But it clearly is, with troubling consequences for our society...
I know I’m not the only observer who sees a link between the despair reflected in those mortality numbers and the volatility of right-wing politics. Some people who feel left behind by the American story turn self-destructive; others turn on the elites they feel have betrayed them. No, deporting immigrants and wearing baseball caps bearing slogans won’t solve their problems, but neither will cutting taxes on capital gains. So you can understand why some voters have rallied around politicians who at least seem to feel their pain.
At this point you probably expect me to offer a solution. But while universal health care, higher minimum wages, aid to education, and so on would do a lot to help Americans in trouble, I’m not sure whether they’re enough to cure existential despair.
Posted by Mark Thoma on Monday, November 9, 2015 at 12:42 AM in Economics |
Onto The Next Question, by Tim Duy: It would seem that a December rate hike is all but certain barring some dramatic deterioration in financial conditions. The October employment report should remove any residual concerns among FOMC members over the underlying pace of activity, clearing the way for the Fed to make good on the strongly worded October FOMC statement. Given the resilience of recent trends, it is tough to see that even a weak-ish November employment report would dissuade the Fed from hiking rates. Quite frankly, regardless of whether you think they should hike rates, if they don't hike rates, the divergence between what they say and what they do would become truly untenable from a communications perspective.
Nonfarm payrolls jumped 271k in October, a relief after two weaker reports. Note though that the three-month moving average still indicates that job growth has lost some momentum:
That said, momentum remains sufficient to sustain ongoing improvement in a wide array of labor market indicators. Those pervasively identified by Federal Reserve Chair Janet Yellen:
Notably, wage growth accelerated, giving fresh hope that it has broken out of its multiyear doldrums. The Fed will see this as evidence that their estimates of the natural rate of unemployment are more right than wrong:
Another way to see that wage growth may be set to break higher:
If nominal wage growth were to break higher, would that reflect the impact of productivity gains, margin compression, or higher inflation? Your view on that question will influence your rate outlook.
With unemployment edging below the Fed's current estimate of the natural rate (note that we get updated forecasts in December) and wages showing signs of life, it seems that the Fed is positioned to move forward with a rate hike in December. This is especially if they want to make good on their promise to hike rates at a gradual pace. San Francisco Federal Reserve President John Williams reiterated that point last week. Via the Wall Street Journal:
“An earlier start to raising rates would also allow a smoother, more gradual process of policy normalization, giving us space to fine-tune our responses to any surprise changes in economic conditions,” Mr. Williams said. “If we were to wait too long to raise rates, the need to play catch-up wouldn’t leave much room for maneuver,” he said.
Note that the first hike and pace of tightening were never really separate as the Fed would like you to believe. Williams makes clear the the pace was in fact dependent on the timing of the first hike. The earlier they start, the more gradual the subsequent pace.
The question now arises, however, of what is "gradual"? The general consensus is the "gradual" means 25bp every other meeting. St. Louis Federal Reserve President James Bullard says there is not fixed definition as of yet. Via Reuters:
"Once 'liftoff' occurs the debate will immediately shift to when is the next move going to come? How fast is the pace of increases going to be? ... What does 'gradually' actually mean?" Bullard said. "That is going to be a hot debate and we won't really have credibility as a committee for the notion of gradualness until we make that second move."
Has the Fed already waited too long to sustain a path of 25bp every other meeting? That is what we should be asking. Indeed, I believe the next labor report will have more implications for the January meeting than the December meeting. Anxiety among Fed officials regarding whether or not they are falling behind the curve is inversely proportional to the unemployment rate. If it ticks down to 4.8% in the November report, they will start to get very nervous that 25bp every other meeting is not tenable. It of course goes without saying that if core-inflation starts to firm in the next two months and tend toward trend more quickly than anticipated, policymakers will break into a cold sweat.
Still unknown is how rate hikes will interact in the global environment. Fed Governor Lael Brainard has yet to give up her concerns. Via MarketWatch:
Brainard said the "feedback loop" between market expectations of divergence between the U.S. and its major trading partners and financial tightening in the U.S. means that "material restraint to U.S. conditions is already in place."
How much tightening Fed tightening can the US sustain in a world driven the zero lower bound globally? Such concerns are generally downplayed by Fed officials; that lack of concern is something I view as a key risk. The tipping point between loose and tight financial conditions is likely lower than in the past. The Fed may blow past that tipping regardless of how fast they hike rates. In some sense, one can argue that the end point for rate hikes is more important than whether the Fed moves on average at 12.5bp or 25bp every meeting.
Bottom Line: The debate is shifting. It is soon to be no longer about the first rate hike. Fed officials, the question is shifting from whether they should go at all to whether they waited too long.
Posted by Mark Thoma on Monday, November 9, 2015 at 12:15 AM in Economics, Fed Watch, Monetary Policy |
Posted by Mark Thoma on Monday, November 9, 2015 at 12:06 AM in Economics, Links |
Grasp the reality of China’s rise: ...In the years ahead, China is likely to account for between one-third and one-half of growth in global incomes, trade and commodity demand, and its significance will only increase... I returned last week from a trip to China with the dispiriting conclusion that the world lacks shared understandings regarding goals for the evolution of the Chinese economy...
The first issue ... is whether it is the objective of the United States and the global community to see China succeed economically..., or whether it is our objective to contain and weaken China economically so that it has less capacity to mount global threats. This is seen in Beijing as a live question... The world cannot expect economic cooperation from Beijing if its objective is to inhibit Chinese economic performance. ... None of this is to say the United States does not have valid concerns...
Second,... the ... reforms that are necessary if China is to grow sustainably and strongly over the next decade ... will surely take a toll on growth in the short run. This ... will reduce demand for imports from the rest of the world and raise China’s trade surplus. ...
The world is likely to be well-served by recognizing that its deepest interests lie in China pursuing ... reform, even at the expense of modest reductions in China’s contribution to global demand ... and possibly more exchange rate depreciation than we would prefer. ...
Finally,... the United States’ failure to provide the necessary congressional approval to allow China’s voting power in the International Monetary Fund to rise above that of Belgium’s suggests a troubling indifference to global reality. ...
Today the perils of the future have much to do with China’s rise and with the worlds of commerce and economics. Let us hope that we find the wisdom to manage them well.
Posted by Mark Thoma on Sunday, November 8, 2015 at 07:23 PM in China, Economics, Politics |
Posted by Mark Thoma on Sunday, November 8, 2015 at 12:06 AM in Economics, Links |
Anyone think this is correct?:
Economic Policy Splits Democrats, WSJ: The old guard of a party that laid the groundwork for the election of a two-term president watches with unease at what’s happening to their electoral prospects and economic policy proposals. ...
That alarm shines through in a new 52-page report from centrist Democratic think tank the Third Way...
“The right cares only about growth, hoping it will trickle down,” says Jonathan Cowan, president of Third Way. The left, meanwhile, is too focused on “redistribution to address income inequality.”
Third Way says a better agenda focuses on growth by promoting skills, job growth and wealth creation without adding to deficits or raising taxes on the middle class. Its report outlines a series of policies it says can do this...
The gist of the report concludes that the economic problems facing the American middle class have less to do with unfairness—or the idea that the system is fundamentally “rigged” against workers—and more to do with technological and globalization forces that can’t be reversed.
[That statement will drive Larry Mishel nuts.]
The report spotlights a divide on the left in both substance and style. ...
Progressives want to see a more fundamental rewrite of the rules to break up political power, on par with President Theodore Roosevelt‘s “trust-busting” of a century ago. “This country is in real trouble,” Ms. Warren said at the May event. “The game is rigged and we are running out of time.”
That kind of rhetoric gives Mr. Cowan fits because he says it isn’t a winning political message. ...
He says that leading economic ideas on the left, including advocacy for a $15 minimum wage, expanded Social Security benefits and a single-payer health-care system, won’t play well with independent voters. The report cites focus group research in advancing its argument that Americans, particularly independents and moderate voters, are more anxious than they are angry about these changes.
Third Way cites the failures of main street icons such as Kodak, Borders Books and Tower Records as proof that new technologies and delivery systems, as opposed to a “stacked deck” in Washington, are primarily responsible for economic upheaval.
Tower Records explains inequality? Seriously? From Larry Mishel (linked above):
Many economists contend that technology is the primary driver of the increase in wage inequality since the late 1970s, as technology-induced job skill requirements have outpaced the growing education levels of the workforce. The influential “skill-biased technological change” (SBTC) explanation claims that technology raises demand for educated workers, thus allowing them to command higher wages—which in turn increases wage inequality. A more recent SBTC explanation focuses on computerization’s role in increasing employment in both higher-wage and lower-wage occupations, resulting in “job polarization.” This paper contends that current SBTC models—such as the education-focused “canonical model” and the more recent “tasks framework” or “job polarization” approach mentioned above—do not adequately account for key wage patterns (namely, rising wage inequality) over the last three decades.
So, should I adopt a message I don't think is true because it sells with independents who have been swayed by Very Serious People, or should I say what I believe and try to convince people they are barking up the wrong tree? (For the most part anyway, I believe both the technological/globalization and institutional/unfairness explanations have validity -- but how do workers capture the gains Third Way wants to create through growth and wealth creation without the bargaining power they have lost over time with the decline in unionization, threats of offshoring, etc.? That's the bigger problem.) It is unfair when, say, economic or political power redirects income away from those who created it to those who did not (I am using the normative equity principle that each person has a right to keep what he or she produces, to reap what they have sowed, and I have little doubt that workers have been paid less than their productivity, and those at the top more. That's unfair, and redirecting income -- redistributing if you will -- to those who actually earned it is not harmful. It is just, and it creates the correct economic incentives). Wealth creation/growth has not been the biggest problem over the last four decades (i.e. since inequality started to increase), it is how the gains have been distributed. I'd rather convince people of the truth that more growth and more wealth creation won't solve the problem if we don't address workers' bargaining power at the same time than gain their support by patronizing their views. In the meantime redistributing income from those who didn't earn it to those who did can serve as a temporary solution until we get the more fundamental underlying problems fixed (e.g. level the playing field on bargaining power between workers and firms).
Maybe politicians have to tell people what they want to hear, I'll let them figure that out, but I will continue to call it as I see it even if "independents and moderate voters are more anxious than they are angry about these changes." That won't change if we play into those anxieties instead of explaining why new approaches are needed, and explaining how they will benefit from a system that does a better job of rewarding hard work instead of ownership, connections, and power.
Posted by Mark Thoma on Saturday, November 7, 2015 at 10:05 AM in Economics, Income Distribution, Politics, Productivity, Technology, Unions |
Posted by Mark Thoma on Saturday, November 7, 2015 at 12:06 AM in Economics, Links |
Health inequality is large and consequential:
Health Inequality, by Giacomo De Giorgi and Maxim Pinkovskiy, Libery Street Economics: However important income inequality is, it is only a partial representation of the inequality in well-being among individuals, households, counties, and other communities. At a minimum, we need to consider other crucial measures such as consumption, leisure, and health. ...
It seems rather obvious that health is a fundamental component of welfare, yet more work needs to be done on analyzing the evolution of health inequality and its relationship with income inequality in a consistent framework that would allow us to draw welfare conclusions, as we do later in this blog.
First, we document, and map below, a large dispersion in life expectancy across counties.
...From the map’s legend, we can immediately notice a very large dispersion: the top 20 percent of life expectancy is about a decade longer than the bottom 20 percent. Looking at the map also immediately tells us that the Southeast has a substantially lower life expectancy. We note that this is partly owing to differences in demography and income across counties. ...
Welfare Analysis How important are these large health inequalities for welfare? ...
We ... conclude that raising life expectancy out of the lower tail would be a much more welfare-improving intervention than fully equalizing consumption. (We get analogous results if we ask by how much the decision maker would need to have all consumption levels raised in order to be indifferent between the current consumption and life expectancy distribution and the proposed intervention).
Health is a Key Component of Inequality
In terms of welfare (under standard assumptions on the welfare function), the elimination of the left tail of mortality would have a beneficial impact that is about 60 percent larger than full consumption equalization.
What are the policies that might eliminate the lower tail of the life-expectancy distribution? This remains a topic for further discussion. However, we observe that the increase in life expectancy that we need to achieve the elimination of the lower tail is not unprecedented. Over a span of twenty years, life expectancy increased on average by three years across U.S. counties, which would be sufficient to raise the lower tail substantially.
Posted by Mark Thoma on Friday, November 6, 2015 at 10:56 AM in Economics, Health Care, Income Distribution |
On today's' employment report:
October Jobs Growth Pushes Unemployment Rate Down to 5.0 Percent, by Dean Baker: Manufacturing wages have risen by just 2.0 percent over the last year. The Labor Department reported the economy added 271,000 jobs in October, with all but 3,000 of these jobs in the private sector. This is a sharp bounce back from the prior two months when private sector job growth averaged just 137,000. This job growth was sufficient to push the unemployment rate down slightly to 5.0 percent. While the employment-to-population ratio edged up slightly to 59.3 percent, it is still below the 59.4 percent high for the recovery. The labor force participation rate is actually down 0.4 percentage points from its year-ago level. ...
After a discussion of the details of the report, he concludes:
In short, this is a much positive report than we saw in the prior two months. However, there is much in the report that indicates there is a still a large amount of slack in the labor market.
And one more from Calculated Risk:
October Employment Report: 271,000 Jobs, 5.0% Unemployment Rate: From the BLS:
Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction. ... The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported. ... In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September (+1 cent). Hourly earnings have risen by 2.5 percent over the year. ...
Again, after looking at the details within the report, he concludes:
This was well above expectations of 190,000 jobs, and revisions were up, and there was a pick up in wage growth ... a strong report.
Posted by Mark Thoma on Friday, November 6, 2015 at 09:47 AM in Economics, Unemployment |
Austerity did not lead to prosperity:
Austerity’s Grim Legacy, by Paul Krugman, Commentary, NY Times: When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible..., was avoided.
Then it all went wrong. ... In 2010, more or less suddenly, the policy elite on both sides of the Atlantic decided to stop worrying about unemployment and start worrying about budget deficits instead.
This ... was very much at odds with basic economics. Yet ominous talk about the dangers of deficits became something everyone said because everyone else was saying it, and dissenters were no longer considered respectable...
Yet there’s growing evidence that we critics actually underestimated just how destructive the turn to austerity would be. Specifically, it now looks as if austerity policies didn’t just impose short-term losses of jobs and output, but they also crippled long-run growth. ...
What this suggests is that ... austerity had truly catastrophic effects, going far beyond the jobs and income lost in the first few years. In fact, the long-run damage ... is easily big enough to make austerity a self-defeating policy even in purely fiscal terms: Governments that slashed spending ... hurt their economies, and hence their future tax receipts, so much that even their debt will end up higher...
And the bitter irony ... is that this catastrophic policy was undertaken in the name of long-run responsibility, that those who protested ... were dismissed as feckless.
There are a few obvious lessons from this debacle. “All the important people say so” is not, it turns out, a good way to decide on policy... Also, calling for sacrifice (by other people, of course) doesn’t mean you’re tough-minded.
But will these lessons sink in? Past economic troubles, like the stagflation of the 1970s, led to widespread reconsideration of economic orthodoxy. But one striking aspect of the past few years has been how few people are willing to admit having been wrong about anything. It seems all too possible that the Very Serious People who cheered on disastrous policies will learn nothing from the experience. And that is, in its own way, as scary as the economic outlook.
Posted by Mark Thoma on Friday, November 6, 2015 at 01:08 AM in Budget Deficit, Economics, Fiscal Policy, Politics |
Posted by Mark Thoma on Friday, November 6, 2015 at 12:06 AM in Economics, Links |
[Running very late today, so three quick posts to get something up besides links -- I probably chose this one because my name was mentioned. See the sidebar for more new links.]
Public investment: has George started listening to economists?: I have in the past wondered just how large the majority among academic economists would be for additional public investment right now. The economic case for investing when the cost of borrowing is so cheap (particularly when the government can issue 30 year fixed interest debt) is overwhelming. I had guessed the majority would be pretty large just by personal observation. Economists who are not known for their anti-austerity views, like Ken Rogoff, tend to support additional public investment.
Thanks to a piece by Mark Thoma I now have some evidence. His article is actually about ideological bias in economics, and is well worth reading on that account, but it uses results from the ChicagoBooth survey of leading US economists. I have used this survey’s results on the impact of fiscal policy before, but they have asked a similar question about public investment. It is
“Because the US has underspent on new projects, maintenance, or both, the federal government has an opportunity to increase average incomes by spending more on roads, railways, bridges and airports.”
Not one of the nearly 50 economists surveyed disagreed with this statement. What was interesting was that the economists were under no illusions that the political process in the US would be such that some bad projects would be undertaken as a result (see the follow-up question). Despite this, they still thought increasing investment would raise incomes.
The case for additional public investment is as strong in the UK (and Germany) as it is in the US. Yet since 2010 it appeared the government thought otherwise. ...
However since the election George Osborne seems to have had a change of heart. ...
Posted by Mark Thoma on Thursday, November 5, 2015 at 10:43 AM in Economics, Fiscal Policy, Macroeconomics |
Business cycle theory vs growth theory: Macroeconomics is divided into (short run) business cycle theory and (long run) growth theory.
Those of us who do business cycle theory have a bit of an inferiority complex (though you might not know it from listening to us argue). Because growth theory seems to be so much more important. Where would you rather live: in a rich country during a recession; or in a poor country during a boom? (Watch the flows of people voting or attempting to vote with their feet if you are not sure how most people would answer.) In the long run, productivity is about the only thing that matters.
We would feel better about ourselves, and what we are studying and teaching, if we could argue that taming the business cycle would improve long run growth.
Notice that I have deliberately personalised this question to make you aware of my personal bias. Macroeconomists like me, who do short run business cycle theory, want to think that what we are doing is important. We want to argue that taming the business cycle would improve long run growth.
(The Great Recession was great for my sort of macro; we haven't had so much fun since the 1970's. The Great Moderation was a boring time for macroeconomists like me, when we seemed to be victims of our own success; all the growth theorists were stealing our limelight.)
Why might business cycles lower the long run growth rate? ...
Posted by Mark Thoma on Thursday, November 5, 2015 at 10:43 AM in Economics, Macroeconomics |
The “C word”: A Hidden Tax on Growth, by Vitor Gaspar and Sean Hagan: In recent years, citizens’ concerns about allegations of corruption in the public sector have become more visible and widespread. From São Paulo to Johannesburg, citizens have taken to the streets against graft. In countries like Chile, Guatemala, India, Iraq, Malaysia and Ukraine, they are sending a clear and loud message to their leaders: Address corruption!
Policymakers are paying attention too. Discussing the “C word” has long been a sensitive topic at inter-governmental organizations like the International Monetary Fund. But earlier this month at its Annual Meetings in Lima, Peru, the IMF hosted a refreshingly frank discussion on the subject. The panel session provided a stimulating debate on definitions of corruption, its direct and indirect consequences, and strategies for addressing it, including the role that individuals and institutions such as the IMF can play. This blog gives a flavor of the discussion. ...
Posted by Mark Thoma on Thursday, November 5, 2015 at 10:43 AM in Economics |
Posted by Mark Thoma on Thursday, November 5, 2015 at 12:06 AM in Economics, Links |
What 2016 Might Bring, by Time Duy: I recently predicted the following:
One of two things is going to happen. Either the US economy is or will soon be slowing on the back of already tighter financial conditions. Or the US economy will soon be slowing on the back of future tighter financial conditions as directed by the Federal Reserve.
My baseline expectations for next year need more explanation, particularly in light of the weak third quarter GDP report and the early signals on fourth quarter growth via the Atlanta Fed’s GDPNow tracker (currently at the low-end of consensus). Three caveats, however, to keep in mind. First, I avoid over-analyzing the quarterly fluctuations in GDP preferring instead to track trends over a longer period. Second, similarly, the initial release will be subject to substantial revision. Third, the Atlanta Fed number may or may not evolve over the course of the quarter; where it is now is not necessarily where it will be when fourth quarter data is released.
That said, GDP growth slowed noticeably in the third quarter, dragging down recent trends:
Negative inventory adjustment, however, was a significant factor. When we look at recent trends in final sales to domestic purchases, domestic momentum remains solid:
Generally, housing, autos, services, and the government sectors remain solid. The soft spots are the external sector and manufacturing. These two are obviously related; weakness in manufacturing is closely tied to a stronger dollar and reduced activity in the oil and gas exploration. ISM surveys reveal a striking divergence between the manufacturing and services sides of the economy:
It is thus quite arguable that, after accounting for inventories, little momentum has been lost. The softening of the job growth, however, suggests that the underlying pace of growth has pulled back from full throttle (at least our current definition of full throttle):
Perhaps then growth has in fact softened, possibly a consequence of already tighter monetary policy. Minneapolis Federal Reserve President Narayana Kocherlakota:
In mid-2013, the FOMC announced its intention to taper its ongoing asset purchase program. We can see that this announcement represented a dramatic change in policy from the sharp upward movements in long-term bond yields that it engendered. Personally, I interpret this policy change back in 2013 as the onset of what the Committee currently intends to be a long, gradual tightening cycle. As I noted earlier, we would typically expect that such a change in monetary policy should affect the economy with a lag of about 18 to 24 months. Viewed through this lens, the slow rate of labor market improvement in 2015 is not all that surprising.
We will get a reading on the labor market Friday to help confirm or deny recent trends. Suppose the numbers both this month and next are better than expected, thus belying the recent softness. What will be the Fed’s reaction? I think it is fairly safe to say the “raise rates” contingent will have the upper hand in December, thus formally beginning the “normalization” process with a first rate hike of the cycle.
In other words, if growth is not in fact slowing, then the Federal Reserve will likely soon take action to slow growth. How many rate hikes follow? And how rapidly do they follow? The Fed appears to believe that they have roughly 375bp ahead of them and can raise rates every other meeting to get there. What actually happens will depend on how hard they think they will be running up against any constraints in the economy. As a summary indicator, note that the unemployment rate already sits at something near policymaker’s estimate of the natural rate of unemployment:
My interpretation of the Fed’s intentions is that they would like to see the unemployment rate temporarily stabilize at something below the natural rate to allow for further reduction in underemployment. To accomplish this job growth will need to slow over the next year to that necessary to absorb growth in the labor force. What does that mean for the numbers? San Francisco Federal Reserve President John Williams offers what is probably a reasonable middle ground among officials:
As we make our way back to an economy that’s at full health, it’s important to consider what constitutes a realistic view of the way things will look. The pace of employment growth, as well as the decline in the unemployment rate, has slowed a bit recently…but that’s to be expected. When unemployment was at its 10 percent peak during the height of the Great Recession, and as it struggled to come down during the recovery, we needed rapid declines to get the economy back on track. Now that we’re getting closer, the pace must start slowing to more normal levels. Looking to the future, we’re going to need at most 100,000 new jobs each month. In the mindset of the recovery, that sounds like nothing; but in the context of a healthy economy, it’s what’s needed for stable growth.
As the next year unfolds, what we want to see is an economy that’s growing at a steady pace of around 2 percent. If jobs and growth kept the same pace as last year, we would seriously overshoot our mark. I want to see continued improvement, but it’s not surprising, and it’s actually desirable, that the pace is slowing.
All else equal, if they are not seeing evidence of that slowing by the middle of next year I would expect them to accelerate the pace of rate increases. That is probably when we need to worry about overshooting. Not so much from the faster rate increases, but from the failure to account for policy lags. It may be a challenge to see the impacts of policy tightening early on if rate hikes are at a glacial pace. Hence the Fed may erroneously believe they need to play “catch-up” more than is truly necessary.
Overshooting, however, is a consideration for a later day. At this point it is sufficient to recognize that, at least under the current monetary policy framework, either the economy will slow by itself or the Fed will eventually work to force it to slow. That would seem to suggest that growth is at or past its peak for this cycle. That is the situation I am most wary of at the moment, leading me to the conclusion that growth is headed down in 2016.
I am not wedded to that scenario. I can envision sustained higher growth on the back of either faster than anticipated labor force growth or faster productivity growth. Recent trends tend not to be terribly supportive, but nonetheless I remain watchful that those trends shift. Indeed, perhaps we will see productivity rise as firms react to tighter labor markets. Such a scenario could deliver a sustained growth with accelerating wages. That would obviously be something of a win-win situation.
To be sure, the inflation outlook has an impact on the Fed's timing, but it remains something of a wildcard. The Fed expects to normalize only after they are reasonably confident that inflation will return to target. Two more solid job reports are enough to get there. The pace of subsequent rate hikes depends on the evolution of inflation relative to that target. As Federal Reserve Chair Janet Yellen said today, via the Wall Street Journal:
Referring to recent remarks by Fed governor Lael Brainard on the subdued state of U.S. inflation, Ms. Yellen told lawmakers that “if we were to move, say in December, it would be based on an expectation -- which I believe is justified -- that with an improving labor market and transitory factors fading, that inflation will move up to 2%. But of course if we were to move, we would need to verify over time that expectation was being realized, and if not, adjust policy appropriately.”
Near term inflation perked up a bit in September, but still remains below target:
One might think that persistently low inflation eventually wears on inflation expectations. Yellen raised this concern in September:
Although the evidence, on balance, suggests that inflation expectations are well anchored at present, policymakers would be unwise to take this situation for granted. Anchored inflation expectations were not won easily or quickly: Experience suggests that it takes many years of carefully conducted monetary policy to alter what households and firms perceive to be inflation's "normal" behavior, and, furthermore, that a persistent failure to keep inflation under control--by letting it drift either too high or too low for too long--could cause expectations to once again become unmoored. Given that inflation has been running below the FOMC's objective for several years now, such concerns reinforce the appropriateness of the Federal Reserve's current monetary policy, which remains highly accommodative by historical standards and is directed toward helping return inflation to 2 percent over the medium term.
Interestingly, the University of Michigan’s survey of inflation longer-term inflation expectations continues to drift lower just as the Fed is considering rate hikes:
Contrast with the cycle of tightening in the middle of the last decade:
The accuracy of survey-based measures is in doubt, however. For example, via the St. Louis Federal Reserve, economist Kevin Kliesen concludes:
Going forward, most Federal Reserve officials expect inflation to eventually return to 2 percent. But when using measures of inflation expectations to forecast future inflation, policymakers and forecasters should focus on market-based measures of inflation expectations. They are much more accurate than survey-based measures.
Yellen, however, hesitates to embrace market-based measures of inflation expectations (although I suspect she would quickly embrace them if they headed higher). Discarding both measures thus leaves us with little guidance, unfortunately. My take is that there is probably some information from the direction of both measures, and that information is generally not supportive of the Fed’s confidence that inflation will return to target in a timely fashion. The Fed would have a hard time justifying ongoing hikes, even if the economy outperforms their expectations, if inflation remains tame. My suspicion is that under such a scenario the Fed would pivot away from their current inflation framework to financial stability concerns to justify tighter policy.
Bottom Line: I tend to believe that growth has peaked for this cycle, or, more accurately, that sustaining these growth rates will likely require faster productivity or labor force growth. Indeed, it appears the Fed will force such an outcome if they remain committed to their basic policy framework. This seems like a reasonable baseline from which to think about the next 4 or 5 quarters. Productivity growth could pick up such that a stabilizing unemployment rate remains consistent with steady growth. Assuming growth is not yet softening, a 25bp rate hike every other meeting beginning in December is also a reasonable baseline for monetary policy; if the Fed doesn't see that having an impact, they will likely step up the pace. It should go without saying that a slowing economy is not to be equated with a recession.
Posted by Mark Thoma on Wednesday, November 4, 2015 at 04:52 PM in Economics, Fed Watch, Monetary Policy |
James Kwak at The Baseline Scenario:
60% of Ted Cruz‘s Tax Cut Goes to the Top 1%: I haven’t been commenting on Republican tax plans this season because, well, it takes a lot to impress me when it comes to absurd tax cut proposals. Ted Cruz has done it. The major components of Cruz’s plan amount to this:
- A flat 10% tax on individual income (labor and investments)—down from top rates today of 43.4% on labor and 23.8% on capital gains and dividends
- No payroll taxes (15.3% for most people today), corporate income tax (average rate about 13% today), or estate tax
- A 19% value-added tax (16% of gross business receipts, including the tax)
There are two big things that are crazy about this plan. The first is that it eliminates an enormous amount of tax revenue: $3.6 trillion over ten years, according to the right-wing Tax Foundation’s “static” analysis—that is, before the growth fairy waves her magic wand. To put that in context, that’s more than we plan to spend on the military over the next ten years.
The second is the astonishingly naked handout to the very rich:
60% of the tax cut goes to the top 1%.
That leaves only 40% for everyone else. This number is so embarrassing that you won’t find it in the Tax Foundation’s analysis. ...
Of course, none of this should be any surprise. Republican tax proposals became completely divorced from reality long ago. More importantly, the Republican nomination lies in the hands of a handful of donors who are in the 0.001%, so the rational thing for any candidate to do is pander to them as enthusiastically as possible.
The only policies we have that limit the transmission of wealth from generation to generation are the estate tax and taxes on investment income. Eliminating one and slashing the other, as Ted Cruz proposes, is the single biggest step we can take toward becoming an aristocracy of inherited wealth. As a member of the 1%, that would be good for my grandchildren—but it would be bad for the country.
[I left out quite a bit of the original post.]
Posted by Mark Thoma on Wednesday, November 4, 2015 at 12:32 PM in Economics, Politics, Taxes |
Here we go again:
Yellen Signals a Fed Tilt Toward December Rate Increase, by Binyamin Appelbaum: Janet L. Yellen, the Federal Reserve chairwoman, told Congress on Wednesday that the Fed would consider raising its benchmark interest rate in December, citing an economy that she said was “performing well.”
“It could be appropriate” to act at the Fed’s final policy-making meeting of the year, Ms. Yellen told the House Financial Services Committee. She suggested that if growth continued apace, the Fed was inclined to start raising interest rates, although she added the cautionary note that “no decision has been made.” ...
Posted by Mark Thoma on Wednesday, November 4, 2015 at 09:18 AM in Economics, Monetary Policy |
From Vox EU:
Restarting the global economy: Three mismatches that need concerted public action, by Michael Spence, Danny Leipziger, James Manyika, and Ravi Kanbur: The global economy is not working properly. This column argues that to overcome suboptimal results, global aggregate demand must be expanded, the gap between excessively large pools of capital and huge unmet infrastructure needs must be bridged, and finally, the distributional downside of rapid technological advances and global integration must be addressed. Change will come only when a global vision is put forth, coupled with political will.
Posted by Mark Thoma on Wednesday, November 4, 2015 at 01:13 AM in Economics |
Posted by Mark Thoma on Wednesday, November 4, 2015 at 12:06 AM in Economics, Links |
My latest column:
Do Economists Promote Ideology as Science?: Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?
This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions? ...
Posted by Mark Thoma on Tuesday, November 3, 2015 at 04:05 AM in Economics, Fiscal Times |
Advanced economies are so sick we need a new way to think about them: ...Hysteresis Effects Blanchard Cerutti and I look at a sample of over 100 recessions from industrial countries over the last 50 years and examine their impact on long run output levels in an effort to understand what Blanchard and I had earlier called hysteresis effects. We find that in the vast majority of cases output never returns to previous trends. Indeed there appear to be more cases where recessions reduce the subsequent growth of output than where output returns to trend. In other words “super hysteresis” to use Larry Ball’s term is more frequent than “no hysteresis.” ...
In subsequent work Antonio Fatas and I have looked at the impact of fiscal policy surprises on long run output and long run output forecasts using a methodology pioneered by Blanchard and Leigh. ... We find that fiscal policy changes have large continuing effects on levels of output suggesting the importance of hysteresis. ...
Towards a New Macroeconomics My separate comments in the volume develop an idea I have pushed with little success for a long time. Standard new Keynesian macroeconomics essentially abstracts away from most of what is important in macroeconomics. To an even greater extent this is true of the DSGE (dynamic stochastic general equilibrium) models that are the workhorse of central bank staffs and much practically oriented academic work.
Why? New Keynesian models imply that stabilization policies cannot affect the average level of output over time and that the only effect policy can have is on the amplitude of economic fluctuations not on the level of output. This assumption is problematic...
As macroeconomics was transformed in response to the Depression of the 1930s and the inflation of the 1970s, another 40 years later it should again be transformed in response to stagnation in the industrial world. Maybe we can call it the Keynesian New Economics.
Posted by Mark Thoma on Tuesday, November 3, 2015 at 03:42 AM in Economics, Macroeconomics, Methodology |
No surprises here, but nice to see this quantified:
Exploring Differences in Unemployment Risk, by Benjamin Pugsley, Rachel Schuh, and Ayşegül Şahin: The risk of becoming unemployed varies substantially across different groups within the labor market. Although the “headline” unemployment rate draws the most attention from the news media and policymakers, there is rich heterogeneity underlying this overall measure. We delve into the data to describe how unemployment and job loss risk vary with demographics (gender, age, and race), skill (educational attainment), and job characteristics (occupation and earnings).
Differences in unemployment across these groups are long-standing. The table below shows the average unemployment rate for various demographic, skill, and occupation groups in the labor force since 1976. Workers who are younger or less educated, workers in manual occupations, and workers who identify as Black or Hispanic experienced significantly higher average unemployment rates than college educated and older workers. ...
After presenting and discussing the evidence, they conclude:
These patterns ... have important implications for policy. Aggregate stabilization policies that aim for maximum employment would be especially helpful for demographic groups that face a higher and more cyclical risk of unemployment.
Posted by Mark Thoma on Tuesday, November 3, 2015 at 03:33 AM in Economics, Unemployment |
Posted by Mark Thoma on Tuesday, November 3, 2015 at 12:06 AM in Economics, Links |
Paul Starr writing at The American Prospect:
A Shocking Rise in White Death Rates in Midlife—and What It Says about American Society: Drugs, alcohol, and suicide have taken an unparalleled toll on middle-aged whites, especially those with a high school degree or less.
In a reversal of earlier trends, death rates among white non-Hispanic Americans in midlife increased sharply between 1999 and 2013, according to a new study by economists Anne Case and Angus Deaton, winner last month of the Nobel Prize for economics. The increased deaths were concentrated among those with the least education and resulted largely from drug and alcohol “poisonings,” suicide, and chronic liver diseases and cirrhosis. This midlife mortality reversal had no parallel in any other industrialized society or in other demographic groups in the United States.
Case and Deaton’s analysis, published today in the Proceedings of the National Academy of Sciences, also shows increased rates of illness, chronic pain, and disability among middle-aged whites. The findings have important implications for American politics and public policy, particularly for debates about economic inequality, public health, drug policy, disability insurance, and retirement income. The data also suggest why much of American politics may be taking on an increasingly harsh and desperate quality. ...
Posted by Mark Thoma on Monday, November 2, 2015 at 12:45 PM in Economics, Social Insurance |
Ralph Nader thinks Janet Yellen needs to consult with her husband on monetary policy:
... But anyway, Nader's questionable and sometimes wholly inaccurate policy analysis—don’t get me started on his aside about student loans—isn't really the most remarkable part of the letter. Rather, it's when the man gets personal. He writes:
Chairwoman Yellen, I think you should sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive. Together, figure out what to do for tens of millions of Americans who, with more interest income, could stimulate the economy by spending toward the necessities of life.
Yes, Ralph Nader just told the most powerful woman in the world to take more tips from her husband. Akerlof is a brilliant man. I'm sure he has interesting thoughts on monetary policy that they discuss over dinner. But Yellen is Fed chair for a reason.
Anyway, just in case Yellen wants advice from another man in her life, Nader has a second suggestion...
Posted by Mark Thoma on Monday, November 2, 2015 at 11:04 AM in Economics, Monetary Policy |
Rhys Bidder of the SF Fed (I should probably note that these are his views, not the Fed's, though I hope the Fed is paying attention):
Are Wages Useful in Forecasting Price Inflation?, FRBSF Economic Letter: Wages and prices are closely related. Wages are an important part of businesses’ costs and are thus tied to their pricing decisions. Similarly, people take the general level of prices into account when figuring out how much pay they deserve for their work. It is intuitive, therefore, that wage data could contain important information about prices and, in particular, might be useful for forecasting price inflation. Indeed, the recent declines in some wage indicators following hints of strengthening earlier in the year have raised questions about what this might mean for future inflation.
In this Letter I summarize what research can tell us about whether or not wage data are, in fact, informative for future price inflation. Overall, the literature suggests that wages do not provide significant additional information beyond what can already be gleaned from other sources, including prices themselves. ...
In classical economic theory, the labor market clears at a nominal wage that makes labor supply equal to labor demand. Both supply and demand depend on the face value of wages relative to the overall price level—typically called the “real wage” because it shows how much can be bought with the wage at current prices. The real wage determines the benefit to the worker of working and the real cost to the business of employing that worker.
In the long run, the real wage is determined by factors such as productivity, bargaining power, and the ability of firms to mark up prices over costs. Consequently, prices and nominal wages must adjust relative to each other to be consistent with these fundamentals. ...
However, while the connection between wages and prices is relatively well understood in the long run, their short- to medium-run relationship is not so simple. Wages and prices may fluctuate relative to each other in response to transitory influences and to restore their long-run relationship. The bargaining power of firms and workers may vary and productivity may change temporarily. Even if there are no long-run trends in these variables, there may be changes in their steady-state relationships that lead to transient but long-lasting adjustments. These phenomena introduce complicated dynamics into the relationship between wages and prices that determine how useful wage data are for forecasting inflation. ...
These results do not imply that wages and prices are unrelated. Certainly they are tied together in the long run, and wage data will surely contain some information for future price inflation. However, after incorporating information from prices and activity measures, the marginal additional benefit of using wage data appears small. ...
Fundamentally, the weak forecasting power of wages for prices suggests that unexpectedly high or low inflation could occur regardless of the recent behavior of wages. Thus, as ever, policymakers must be vigilant to ensure policy is consistent with the targeted inflation rate. ...
Researchers have extensively studied how wage data might help predict future price inflation. The overall conclusion of the literature is that wages generally provide less valuable insight into future prices than some other indicators. In fact, models that do not incorporate wages often result in superior inflation forecasts.
Posted by Mark Thoma on Monday, November 2, 2015 at 10:27 AM in Economics, Inflation, MoneyWatch |
The economy does better when the president is a Democrat:
Partisan Growth Gaps, by Paul Krugman, Commentary, NY Times: Last week The Wall Street Journal published an op-ed article by Carly Fiorina titled “Hillary Clinton Flunks Economics,” ridiculing Mrs. Clinton’s assertions that the U.S. economy does better under Democrats. ...
Mrs. Clinton is completely right... Last year the economists Alan Blinder and Mark Watson circulated a paper comparing economic performance under Democratic and Republican presidents since 1947. Under Democrats, the economy grew, on average, 4.35 percent per year; under Republicans, only 2.54 percent. ...
Why is the Democratic record so much better? The short answer is that we don’t know. ... Certainly no Democratic candidate would be justified in promising dramatically higher growth if elected. And in fact, Democrats never do.
Republicans, however, always make such claims: Every candidate with a real chance of getting the G.O.P. nomination is claiming that his tax plan would produce a huge growth surge — a claim that has no basis in historical experience. Why?
Part of the answer is epistemic closure: modern conservatives generally live in a bubble into which inconvenient facts can’t penetrate. ... Beyond that..., Republicans need to promise economic miracles as a way to sell policies that overwhelmingly favor the donor class.
It would be nice, for variety’s sake, if even one major G.O.P. candidate would come out against big tax cuts for the 1 percent. But none have..., all of the major players have called for cuts that would subtract trillions from revenue. To make up for this lost revenue, it would be necessary to make sharp cuts in big programs — that is, in Social Security and/or Medicare.
But Americans overwhelmingly believe that the wealthy pay less than their fair share of taxes, and even Republicans are closely divided on the issue. And the public wants to see Social Security expanded, not cut. So how can a politician sell the tax-cut agenda? The answer is, by promising those miracles, by insisting that tax cuts on high incomes would both pay for themselves and produce wonderful economic gains.
Hence the asymmetry between the parties. Democrats can afford to be cautious in their economic promises precisely because their policies can be sold on their merits. Republicans must sell an essentially unpopular agenda by confidently declaring that they have the ultimate recipe for prosperity — and hope that nobody points out their historically poor track record.
And if someone does point to that record, you know what they’ll do: Start yelling about media bias.
Posted by Mark Thoma on Monday, November 2, 2015 at 12:51 AM in Economics, Politics |
When I tweeted a link to this post by Robert Reich, it received an unusually large number of retweets:
The Rigging of the American Market: Much of the national debate about widening inequality focuses on whether and how much to tax the rich and redistribute their income downward.
But this debate ignores the upward redistributions going on every day, from the rest of us to the rich. These redistributions are hidden inside the market.
The only way to stop them is to prevent big corporations and Wall Street banks from rigging the market. ...
After explaining how concentrated many industries are, and the monopoly/pricing power that gives firms in these industries (which they exploit), he concludes:
... Add it up – the extra money we’re paying for pharmaceuticals, Internet communications, home mortgages, student loans, airline tickets, food, and health insurance – and you get a hefty portion of the average family’s budget.
Democrats and Republicans spend endless time battling over how much to tax the rich and then redistribute the money downward.
But if we didn’t have so much upward redistribution inside the market, we wouldn’t need as much downward redistribution through taxes and transfer payments.
Yet as long as the big corporations, Wall Street banks, their top executives and wealthy shareholders have the political power to do so, they’ll keep redistributing much of the nation’s income upward to themselves.
Which is why the rest of us must gain political power to stop the collusion, bust up the monopolies, and put an end to the rigging of the American market.
Posted by Mark Thoma on Monday, November 2, 2015 at 12:15 AM in Economics, Income Distribution, Market Failure, Politics |
Posted by Mark Thoma on Monday, November 2, 2015 at 12:06 AM in Economics, Links |
This is telling, and kind of funny. This is how the National Review Online talks about budget deficits when a Republican is in office (this is from September, 2004 -- keep in mind that the recovery from the recession under Obama has been stronger than under Bush)
Defending The Bush Deficits, by Aman Verjee, NRO: It’s not hard to do if you look at the data.
Since President Bush took office in 2000, the economy has gone through at least three major shocks that were not of his making: a major terrorist attack that damped consumer confidence; the depression in business spending that followed the bursting of the stock market bubble; and a series of accounting scandals that afflicted some of the largest and most visible corporations in the United States.
Yet, the U.S. economy has outperformed that of every other G7 country since 2001. ... This remarkable record on the economy owes much to the pro-growth policies of the Bush administration. ...
Like Chicken Little, who caviled because she mistook a tumbling acorn for a crashing sky, President Bush’s critics are unjustified when they foretell of an impending economic doom. Alarmists who worry about the historical heights to which deficits have climbed need to review the historical data for some context. ...
At the end of 2003, federal debt stood at 36 percent of GDP. It is currently projected by the Congressional Budget Office to reach 40 percent of GDP by 2005 before it begins to decline again. By historical and international standards, these levels of debt are very modest. For instance, the debt burdens of Germany and France are over 60 percent of GDP; in Japan, debt is almost 150 percent of GDP. ... The president’s critics might suggest that economic growth should have been better in the low-debt years than in the high-debt years, but in fact, real GDP growth averaged 4.44 percent in the high-debt years and just 3.14 percent in the low-debt years. ...
Looking back at American history, it is apparent that economic prosperity can continue even if the federal government maintains a debt burden that is much higher than it is today as a percentage of GDP. ...
The lesson is clear: Economic prosperity can continue even if the federal government never balances its budget. ...
Posted by Mark Thoma on Sunday, November 1, 2015 at 10:29 AM in Budget Deficit, Economics, Politics |
Posted by Mark Thoma on Sunday, November 1, 2015 at 12:06 AM in Economics, Links |
Please, sir, may I have a little more of that growing pie I worked so hard to help you make?
...millions of Americans have one overriding question: When will my pay increase arrive? The nation’s unemployment rate has fallen ... to 5.1 percent from 10 percent in 2009, but wages haven’t accelerated upward, as many had expected.
In fact, the labor market is a lot softer than a 5.1 percent jobless rate would indicate. ... This ... continued labor market weakness ... goes far to explain why wage increases remain so elusive. ...
But work force experts assert ... many other factors ... help explain America’s stubborn wage stagnation. Outsourcing, offshoring and imports exert a steady downward tug on wages. Labor unions have lost considerable muscle. Many employers have embraced pay-for-performance policies that often mean nice bonuses for the few instead of across-the-board raises for the many.
Peter Cappelli, a professor at the Wharton School of Business, noted, for instance, that many retailers give managers bonuses based on whether they keep their labor budgets below a designated ceiling. “They’re punished to the extent they go over those budgets,” Professor Cappelli said. “If you’re a local manager and you’re thinking, ‘Should we bump up wages,’ it could really hit your bonus. ...
Jared Bernstein ... put it another way: “There’s this pervasive norm” among employers “that labor costs must be held down at all costs because maximizing profits is the be-all and end-all.”
He added that the “atomization” of the American workplace — with the use of more temps, subcontractors, part-timers and on-call workers — had reduced companies’ costs and workers’ bargaining power.
As a result of all these trends, the share of corporate income going to workers has sunk to its lowest level since 1951. ...
Posted by Mark Thoma on Saturday, October 31, 2015 at 04:13 PM in Economics, Income Distribution |
Posted by Mark Thoma on Saturday, October 31, 2015 at 01:19 PM in Economics, Politics |
The GOP Circus: Truth-Defying Feats, by Rick Perlstein: ...Step right up! Be amazed, be enchanted, by the magic GOP unicorn-and-rainbow-producing tax cut machine!
It takes a lot of energy to sustain a lie. When enough people do it together, over a sustained period of time, it wears on them. It also produces a certain kind of culture: one cut loose from the norms of fair conduct and trust that any organization requires in order to survive as something more than a daily, no-holds-barred war of all against all. A battle royale. A circus, if you prefer.
And the act in the center ring? The Amazing Death Spiral. One performer does something so outrageous that anyone else who wishes to further hold the audience’s attention has to match or top it––even if they know it’s insane. Listen to the warning of the one guy who dares grab the ringmaster’s microphone and say that if this keeps on going everyone will end up dead. That’s what poor old John Kasich did. Hear him cry about his “great concern that we are on the verge, perhaps, of picking someone who cannot do this job. I’ve watched people say that we should dismantle Medicare and Medicaid. . . . I’ve heard them talking about deporting 10 or 11 [million] people from this country. . . . I’ve heard about tax schemes that don’t add up.”
And what happened to him? Read the snap poll from Gravis research. Only 3 percent of Republicans thought he won the debate. (First place was Trump with 26.7; second was Rubio with 21.1; third was Cruz with 17.3; and fourth was Ben Carson with 12.5.) Only 2.4 percent said they would vote for Kasich for president. When the clowns are running the show, of course it’s going to be in disarray.
David Brooks says not to worry if candidates are lying about their economic plans, they are just exaggerating to make themselves more attractive to conservative voters (they couldn't possible be lying about who their true allegiance, could they?):
At this stage it’s probably not sensible to get too worked up about the details of any candidate’s plans. They are all wildly unaffordable. What matters is how a candidate signals priorities. Rubio talks specifically about targeting policies to boost middle- and lower-middle-class living standards.
Paul Krugman is, shall we say, unconvinced:
...My experience is that the best way to figure out a candidate’s true priorities — and his or her character — is to look hard at policy proposals.
My view here is strongly influenced by the story of George W. Bush. Younger readers may not know or remember how it was back in 2000, but back then the universal view of the commentariat was that W was a moderate, amiable, bluff and honest guy. I was pretty much alone taking his economic proposals — on taxes and Social Security — seriously. And what I saw was a level of dishonesty and irresponsibility, plus radicalism, that was unprecedented in a major-party presidential candidate. So I was out there warning that Bush was a bad, dangerous guy no matter how amiable he seemed.
How did that work out?
So now we have candidates proposing “wildly unaffordable” tax cuts. Can we start by noting that this isn’t a bipartisan phenomenon, that it’s not true that everyone does it? Hillary Clinton isn’t proposing wildly unaffordable stuff... And proposing wildly unaffordable stuff is itself a declaration of priorities: Rubio is saying that keeping the Hair Club for Growth happy is more important to him than even a pretense of fiscal responsibility. Or if you like, what we’ve seen is a willingness to pander without constraint or embarrassment.
Also, his insistence that the magic of supply-side economics would somehow pay for the cuts is a further demonstration of priorities: allegiance to voodoo trumps all.
At a more general level, I’d argue that it’s a really bad mistake to wave away policy silliness with a boys-will-be-boys attitude. Policy proposals tell us a lot about character — and the history of the past 15 years says that journalists who imagine that they can judge character from the way people come across on TV or in personal interviews are kidding themselves, and misleading everyone else.
"What matters is how a candidate signals priorities." Yes, and the priority seems to be lying is okay to get what you want. That's a great trait to have in a president who might fact the decision to send our kids to die in a war he or she wants. Oh wait.
Posted by Mark Thoma on Saturday, October 31, 2015 at 12:05 PM in Economics, Politics |
This is from Richard Thaler:
...Many companies are nudging purely for their own profit and not in customers’ best interests. In a recent column in The New York Times, Robert Shiller called such behavior “phishing.” ...
Some argue that phishing — or evil nudging — is more dangerous in government than in the private sector. The argument is that government is a monopoly with coercive power, while we have more choice in the private sector over which newspapers we read and which airlines we fly.
I think this distinction is overstated. In a democracy, if a government creates bad policies, it can be voted out of office. Competition in the private sector, however, can easily work to encourage phishing rather than stifle it.
One example is the mortgage industry in the early 2000s. Borrowers were encouraged to take out loans that they could not repay when real estate prices fell. Competition did not eliminate this practice, because it was hard for anyone to make money selling the advice “Don’t take that loan.”
Posted by Mark Thoma on Saturday, October 31, 2015 at 11:08 AM in Economics, Market Failure |
Posted by Mark Thoma on Saturday, October 31, 2015 at 12:06 AM in Economics, Links |
On misunderstanding economics: Most of us have long lamented the general public's lack of understanding of economics. A new paper by David Leiser and Zeev Kril sheds interesting light upon this. The human mind, they say, "is not particularly equipped to think about economics"...
Faced with this..., say Leiser and Krill, people resort to metaphors - the most notorious being that governments should manage the public finances as if it were a household. Worse still, they are often overconfident about the applicability of these metaphors. ...
There is, though, another heuristic laypeople use, which Leiser calls the "good begets good heuristic" (pdf). He shows that people believe that good things cause good things to happen, and bad things to cause bad things. For example, they think a rise in unemployment is associated (pdf) with a rise in inflation because both are bad... What might be more problematic is that people think government spending is bad, and so associate it with rising unemployment.
I've got three observations here. First, the poor public understanding of economics is NOT a partisan matter. It leads both to anti-market attitudes and to anti-Keynesian ones.
Second, the issue here is not confined to the UK...
Thirdly, our political and social institutions do not adequately correct these problems, and might exacerbate them. Politicians and the media tend to pander to misconceptions rather than correct them... It's not just economists who should lament this, but everyone who cares about the quality of our democracy.
Posted by Mark Thoma on Friday, October 30, 2015 at 11:25 AM in Economics |
Catherine Rampell blames the media for the behavior of Republicans during the debate (and more generally), but if the press called them on their "grifting,", would the Republican base listen?
Springtime for Grifters, by Paul Krugman, Commentary, NY Times: At one point during Wednesday’s Republican debate, Ben Carson was asked about his involvement with Mannatech, a nutritional supplements company that makes outlandish claims ... and has been forced to pay $7 million to settle a deceptive-practices lawsuit. The audience booed, and Mr. Carson denied being involved...
As it happens, Mr. Carson lied. ... But the Republican base doesn’t want to hear about it... These days, in his party, being an obvious grifter isn’t a liability, and may even be an asset. ...
About the grifters: Start with the lowest level, in which marketers use political affinity to sell get-rich-quick schemes, miracle cures, and suchlike. That’s the Carson phenomenon, and it’s just the latest example of a long tradition..., a “strategic alliance of snake-oil vendors and conservative true believers” goes back half a century. ...
At a somewhat higher level are marketing campaigns more or less tied to what purports to be policy analysis. Right-wing warnings of imminent hyperinflation, coupled with demands that we return to the gold standard, were fanned by media figures like Glenn Beck, who used his show to promote Goldline, a firm selling gold coins and bars at, um, inflated prices. ...
Oh, and former Congressman Ron Paul, who has spent decades warning of runaway inflation and is undaunted by its failure to materialize, is very much in the business of selling books and videos showing how you, too, can protect yourself from the coming financial disaster.
At a higher level still are operations that are in principle engaging in political activity, but mainly seem to be generating income for their organizers. ... For example, only 14 percent of what the Tea Party Leadership Fund spends is “candidate focused.”
You might think that such revelations would be politically devastating. But the targets of such schemes know, just know, that the liberal mainstream media can’t be trusted...
Furthermore, the success of the grifters ... defines respectability down.
Consider Mr. Rubio... There was a time when Mr. Rubio’s insistence that $6 trillion in tax cuts would somehow pay for themselves would have marked him as deeply unserious... But the Republican base doesn’t care what the mainstream media says. ...
The point is that we shouldn’t ask whether the G.O.P. will eventually nominate someone in the habit of saying things that are demonstrably untrue, and counting on political loyalists not to notice. The only question is what kind of scam it will be.
Posted by Mark Thoma on Friday, October 30, 2015 at 09:56 AM in Economics, Politics, Press |
The missing lowflation revolution: It will soon be eight years since the US Federal Reserve decided to bring its interest rate down to 0%. Other central banks have spent similar number of years (or much longer in the case of Japan) stuck at the zero lower bound. In these eight years central banks have used all their available tools to increase inflation closer to their target and boost growth with limited success. GDP growth has been weak or anemic, and there is very little hope that economies will ever go back to their pre-crisis trends.
Some of these trends have challenged the traditional view of academic economists and policy makers about how an economy works. ...
My own sense is that the view among academics and policy makers is not changing fast enough and some are just assuming that this would be a one-time event that will not be repeated in the future (even if we are still not out of the current event!).
The comparison with the 70s when stagflation produced a large change in the way academic and policy makers thought about their models and about the framework for monetary policy is striking. During those year a high inflation and low growth environment created a revolution among academics (moving away from the simple Phillips Curve) and policy makers (switching to anti-inflationary and independent central banks). How many more years of zero interest rate will it take to witness a similar change in our economic analysis?
Posted by Mark Thoma on Friday, October 30, 2015 at 12:24 AM in Economics, Macroeconomics, Methodology |
Posted by Mark Thoma on Friday, October 30, 2015 at 12:06 AM in Economics, Links |
The Republican presidential candidates are right. The media does suck.
But not for the reasons the candidates complained about Wednesday night.
We in the media suck because we have rewarded their rampant dishonesty and buffoonery with nonstop news coverage. Which, of course, has encouraged more dishonesty and buffoonery.
Hence the aggravating behaviors that candidates doubled-down on during the debate, based on lessons that we in the media taught them. To wit...
Posted by Mark Thoma on Thursday, October 29, 2015 at 05:52 PM in Economics, Politics |
I would send you to Brad DeLong's piece on Ben Bernanke through a short excerpt if I could, but when I post just a few sentences from anything appearing at Project Syndicate they get mad at me. So I mostly just put their articles in links, if I link them at all. Not sure why they don't want me to send them traffic.
Posted by Mark Thoma on Thursday, October 29, 2015 at 12:49 PM in Economics, Monetary Policy |
Growth Falls Off Sharply in Third Quarter: The economy grew at a 1.5 percent annual rate in the third quarter, a sharp slowing from the 3.9 percent rate reported for the second quarter. The falloff was largely due to slower inventory growth. Inventories subtracted 1.44 percentage points from the growth rate in the quarter after adding 0.02 percentage points in the second quarter. Final demand for the quarter grew a 3.0 percent annual rate. For the first three quarters of the year GDP has risen at a 2.0 percent annual rate.
There were few surprises in the report. Consumption grew at a 3.2 percent rate, driven by a 6.5 percent growth rate in durable good consumption. Non-residential investment grew at a weak 2.1 percent rate. All components of investment were weak, but structures declined at a 4.0 percent rate after rising 6.2 percent in the second quarter. Housing grew at a modest 6.1 percent rate, down from an average of 9.8 percent in the prior three quarters. Exports and imports grew at almost the same rate, having little net effect on growth. Government expenditures grew at a 1.7 percent annual rate, adding 0.3 percentage points to growth.
There continues to be no evidence of inflationary pressures in any sector. The core PCE grew at just a 1.2 percent rate in the quarter. The basic story continues to be one of modest growth with very little inflation.
Posted by Mark Thoma on Thursday, October 29, 2015 at 09:29 AM in Economics |
December Still Very Much A Live Meeting, by Tim Duy: One of two things is going to happen. Either the US economy is or will soon be slowing on the back of already tighter financial conditions. Or the US economy will soon be slowing on the back of future tighter financial conditions as directed by the Federal Reserve.
In a worst case scenario, both of these things will happen.
And the odds of both of these things happening seems higher after this week's FOMC meeting. Rather than being a nonevent as expected, it was actually quite exciting. We learned that the majority of the FOMC remains wedded to the idea of a December rate hike. That was made very clear with this sentence:
In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.
That was a fairly clear warning that December is really, really in play. No, really this time. They mean it. After all, a number of them are on record repeatedly saying that they expect to hike interest rates this year. I tend to wonder if they feel compelled to act on these statements? The opportunities to show their mettle are fairly limited at this point.
It also seems as if Federal Reserve Governors Lael Brainard and Daniel Tarullo were schooled hard this week. They argued publicly that they did not see reason to raise rates this year. I doubt they changed their opinions - at least not privately. But they very clearly did not change any opinions on the FOMC. Indeed, one wonders if they only hardened their colleagues positions on a rate hike this year. Consider Paul Krugman's response to me:
Maybe, but it’s also worth noting the difference in perspective that comes from having your original intellectual home in international versus domestic macroeconomics. I would say that Brainard’s experience is dominated not so much by the Great Moderation as by the Asian financial crisis and Japan’s stagnation; internationally oriented macro types were aware earlier than most that Depression-type issues never went away. And if you read Brainard’s argument carefully, she devotes a lot of it to the drag America may be facing from weakness abroad and the stronger dollar, which acts as de facto monetary tightening
Krugman is right; I should have mentioned this. Regardless, note what key line was removed from the September statement:
Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.
Downplaying these concerns appears to be an effort to cut the knees out from under Brainard. To be sure, US markets rebounded, but have we seen much in the last six weeks to so quickly remove global concerns? I am wary to believe so with data like these:
CRB spot raw industrial price index set new 6 year low this week. https://t.co/gN9Pcbhbua
— Caroline Baum (@cabaum1) October 28, 2015
In any event, it seems reasonable to believe that the bar for a rate hike at the next FOMC meeting is fairly low. Prior to the meeting I said this:
The middle range of closer to 150,000 jobs a month—a more lackluster reading similar to the past two months—is the gray area. This is the range in which the proper application of risk management principles becomes critical. In that range—a range I find likely—the degree to which Brainard & Co. shape the debate at this week’s meeting will determine the policy outcome in December, and likely beyond.
I am thinking we now we know how little Brainard shaped the debate. Lackluster numbers seem likely to suffice at this juncture. Hence why market expectations moved as they did:
The "hawkish" shift in hike expectations (yest => today)... Dec: 34% => 46% Jan: 41% => 54% Mar: 57% => 68% pic.twitter.com/1NLZwHgivE
— Charlie Bilello, CMT (@MktOutperform) October 28, 2015
The willingness of the Fed to hike in the face of lackluster numbers is a bit disconcerting, to say the least. Lackluster numbers, by definition, indicate slower activity, and one would think that the Fed would like to see how that played out before piling on. But assuming this from Jon Hilsenrath at the the Wall Street Journal:
Mr. Fischer is among those more eager to raise rates.
It is easy to see how the Fed gets behind tighter policy. I don't know that Brainard could easily counter the gravitas of Fischer.
Bottom Line: December stays on the table. Very much so, in fact. Indeed, in all reality the only reason market participants have not gone all in on December is because they recognize that the Fed has repeatedly cried "wolf" this year. Makes one distrustful of the Fed's proclamations. At this juncture, my expectation is that only disappointing data prevents the Fed from moving in December. It will be interesting to see how well the Fed statement holds up to the light of this week's GDP report and the next two employment reports.
Posted by Mark Thoma on Thursday, October 29, 2015 at 12:15 AM in Economics, Fed Watch, Monetary Policy |