Tuesday, October 13, 2015

Angus Deaton's Letter from America: How to Measure Poverty?

This is a good example of the type of research that interests Angus Deaton (here, though, he is mostly describing the work of others, though his own work paved the way for this type of research):

Letter from America: It's a big country and how to measure it, RES Newsletter, October, 2014t: In this Letter from America, Angus describes recent efforts to record the significant differences in regional price levels across the USA. The task is technically complex and also raises political sensitivities.

One of the first things visitors from Europe confront when they come to America is just how enormous the place is, an enormity that is somehow enhanced by the fact that, after many hours in an airplane, you get off and discover that almost everything looks the same as where you got on, something that is rare in Europe. There may be mountains, palm trees, or a temperature difference that tells you that something has changed, but one thing that you will not find, at least in the official numbers and until very recently, is any difference in the price level. In consequence, the federal poverty line is the same everywhere, independent of the local cost of living, which does not prevent it from feeding into a range of federal and state welfare policies.

The need for regional price indices In 1995, a panel of the National Academy of Sciences thought hard about how poverty ought to be measured; I was fortunate enough to be a member of the group... One of the group’s recommendations was that the poverty line should be adjusted for differences in price levels in different places, something that was not possible in 1995, because the statistical system did not produce such price indices. Contrast this with Eurostat...

There was then, as now, some reluctance, including from the Bureau of Labor Statistics — the agency that produces consumer price indices — to calculate geographical price indices. The then Commissioner was concerned about political pressure from legislators to alter price indices in their favor — to entitle their constituents to greater federal benefits — just as the census counts —which are used for drawing boundaries of congressional districts — have, in the past, been politically contested and were for many years mired in the courts. For whatever reason, no policy change or new data collection took place for many years. ... The BLS produces regional price indices, but those are all indexed to 100 in the base year, and so can only be used to compare rates of inflation, not price levels.

Change came, as it often does, through a combination of analysis, personality, and the passage of time, which allows people to become more senior and more influential. ... Census, under the leadership of David S Johnson, developed a Supplemental Poverty Measure based in large part on the recommendations of the Academy Report. Incorporated into this new measure — which is not the official poverty measure — are spatial price indices...

‘Regional price parities’ now available...


...but the official poverty measure remains The Supplemental Poverty Measure has not been adopted as the official poverty line, and indeed, its greater complexity would make it difficult to use for testing for individual eligibility. Yet this means that the official poverty measure, with all its flaws — including the failure to take local prices into account, and its blindness to taxes and official benefits — continues to be used, something that is unlikely to change in the current climate in Washington. Even so, the new measure is widely used in analysis including in official documents, particularly to assess the effects of the Great Recession of which it gave a much superior account than the official measure — not because of spatial price indices — but because the official measure ignored the substantial effects of the safety net on supplementing incomes of the poor. A bad measure can survive for a long time even when its deficiencies are well understood, though perhaps the recent crisis has helped make those deficiencies even more starkly and widely apparent, and may create some of the political momentum that will eventually lead to change.

    Posted by on Tuesday, October 13, 2015 at 02:37 PM in Economics | Permalink  Comments (2) 

    'Global Dovishness'

    Paul Krugman:

    Global Dovishness: Tim Duy points us to a striking speech by Lael Brainard, who recently joined the Fed Board of Governors, which takes a notably more dovish line than we’ve been hearing from Yellen and Fischer. Basically, Brainard comes down on the ... precautionary principle side of the debate, arguing that given uncertainty about the path of the natural rate of interest, and great asymmetry in the consequences of moving too soon versus too late, rate hikes should be put on hold until you see the whites of inflation’s eyes.

    Why does she sound so different from Fischer and Yellen? Duy argues that it is in part a generational thing...

    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...

    So does her speech matter? She is, as I indicated, pretty much saying what some of us on the outside have been saying, although she does it very clearly and well; but does it make a difference that someone on the inside is laying down a marker warning that raising rates could be a big mistake? I guess we’ll see.

      Posted by on Tuesday, October 13, 2015 at 10:03 AM in Economics, Monetary Policy | Permalink  Comments (56) 

      'A Stimulus Junkie's Lament'

      Simon Wren-Lewis:

      One ‘stimulus junkie’ has already had a go at this FT piece by the chief economist of the German finance ministry ...
      German officials need to be very careful before they claim that recent German macro performance justifies their anti-Keynesian views, because it might just prompt people to look at what has actually happened. Germany did undertake a stimulus package in 2009. But more importantly, in the years preceding that, it built up a huge competitive advantage by undercutting its Eurozone neighbors via low wage increases. This is little different in effect from beggar my neighbor devaluation. It is a demand stimulus, but (unlike fiscal stimulus) one that steals demand from other countries. This may or may not have been intended, but it should make German officials think twice before they laud their own performance to their Eurozone neighbors. If these neighbors start getting decent macro advice and some political courage, they might start replying that Germany’s current prosperity is a result of theft. ...

        Posted by on Tuesday, October 13, 2015 at 10:02 AM in Economics, Fiscal Policy | Permalink  Comments (15) 

        Fed Watch: Brainard Drops A Policy Bomb

        Tim Duy:

        Brainard Drops A Policy Bomb, by Tim Duy: What if a Federal Reserve Governor drops a policy bomb in the woods and no one is there to hear it? Did it really make a noise?

        That's what happened today. While the bond market was closed and whatever financial journalists were left focusing their efforts on newly-minted Nobel Prize recipient Angus Deaton, Federal Reserve Governor Lael Brainard dropped a policy bomb with her speech to the National Association of Business Economists. It was nothing short of a direct challenge to Chair Janet Yellen and Vice Chair Stanley Fischer. Is was, as they say, a BFD.

        That, at least, is my opinion. Consider, for example, Brainard's opening salvo:

        The will-they-or-won't-they drumbeat has grown louder of late. To remove the suspense, I do not intend to make any calendar-based statements here today. Rather, I would like to give you a sense of the considerations that weigh on both sides of that debate and lay out the case for watching and waiting.

        Wait, who is making calendar-based statements? Yellen:

        ...these two judgments imply that the real interest rate consistent with achieving and then maintaining full employment in the medium run should rise gradually over time. This expectation, coupled with inherent lags in the response of real activity and inflation to changes in monetary policy, are the key reasons that most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2 percent objective.

        and Fischer:

        In the SEP, the Summary of Economic Projections prepared by FOMC participants in advance of the September meeting, most participants, myself included, anticipated that achieving these conditions would entail an initial increase in the federal funds rate later this year.

        After essentially saying that such calendar-based guidance is beneath her, she says what she is going to do: Explain why policymakers should delay further. Note however this stands in sharp contrast with Yellen and Fischer. Their efforts have been spent on explaining why rates need to rise soon. Hers will be spent on why they do not.

        After assessing the quality of the recovery, Brainard asserts:

        In contrast to the considerable progress in the labor market, progress on the second leg of our dual mandate has been elusive. To be clear, I do not view the improvement in the labor market as a sufficient statistic for judging the outlook for inflation. A variety of econometric estimates would suggest that the classic Phillips curve influence of resource utilization on inflation is, at best, very weak at the moment. The fact that wages have not accelerated is significant, but more so as an indicator that labor market slack is still present and that workers' bargaining power likely remains weak.

        Recall that Yellen, in her most recent speech, made the Phillips Curve the primary basis for her case that rates will soon need to rise:

        What, then, determines core inflation? Recalling figure 1, core inflation tends to fluctuate around a longer-term trend that now is essentially stable. Let me first focus on these fluctuations before turning to the trend. Economic theory suggests, and empirical analysis confirms, that such deviations of inflation from trend depend partly on the intensity of resource utilization in the economy--as approximated, for example, by the gap between the actual unemployment rate and its so-called natural rate, or by the shortfall of actual gross domestic product (GDP) from potential output. This relationship--which likely reflects, among other things, a tendency for firms' costs to rise as utilization rates increase--represents an important channel through which monetary policy influences inflation over the medium term, although in practice the influence is modest and gradual. Movements in certain types of input costs, particularly changes in the price of imported goods, also can cause core inflation to deviate noticeably from its trend, sometimes by a marked amount from year to year. Finally, a nontrivial fraction of the quarter-to-quarter, and even the year-to-year, variability of inflation is attributable to idiosyncratic and often unpredictable shocks.

        Yellen concludes, after breaking down the inflation shortfall into its constituent parts, that the resource utilization component is now fairly small and will soon dissipate, having only the temporary components to worry about:

        Although an accounting exercise like this one is always imprecise and will depend on the specific model that is used, I think its basic message--that the current near-zero rate of inflation can mostly be attributed to the temporary effects of falling prices for energy and non-energy imports--is quite plausible. If so, the 12-month change in total PCE prices is likely to rebound to 1-1/2 percent or higher in 2016, barring a further substantial drop in crude oil prices and provided that the dollar does not appreciate noticeably further.

        Brainard, however, is not buying this story. Brainard's focus:

        Although the balance of evidence thus suggests that long-term inflation expectations are likely to have remained fairly steady, the risks to the near-term outlook for inflation appear to be tilted to the downside, given the persistently low level of core inflation and the recent decline in longer-run inflation compensation, as well as the deflationary cross currents emanating from abroad--a subject to which I now turn.

        While Yellen sees the risks weighted toward rebounding inflation, Brainard sees the opposite. Moreover, policymakers have been twiddling their thumbs as the world economy turns against them:

        Over the past 15 months, U.S. monetary policy deliberations have been taking place against a backdrop of progressively gloomier projections of global demand. The International Monetary Fund (IMF) has marked down 2015 emerging market and world growth repeatedly since April 2014.

        While all of you have been arguing about when to raise rates, the case for raising rates has been falling apart! As a consequence:

        Over the past year, a feedback loop has transmitted market expectations of policy divergence between the United States and our major trade partners into financial tightening in the U.S. through exchange rate and financial market channels. Thus, even as liftoff is coming into clearer view ahead, by some estimates, the substantial financial tightening that has already taken place has been comparable in its effect to the equivalent of a couple of rate increases.

        Brainard buys into the view that recent activity in financial markets has already tightened monetary conditions. Later:

        There is a risk that the intensification of international cross currents could weigh more heavily on U.S. demand directly, or that the anticipation of a sharper divergence in U.S. policy could impose restraint through additional tightening of financial conditions. For these reasons, I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery--and argue against prematurely taking away the support that has been so critical to its vitality.

        Not balanced, but to the downside. That calls for different risk management:

        These risks matter more than usual because the ability to provide additional accommodation if downside risks materialize is, in practice, more constrained than the ability to remove accommodation more rapidly if upside risks materialize.

        In effect, the Fed can't cut rates quickly, but they can raise rates quickly:

        ...many observers have suggested that the economy will soon begin to strain available resources without some monetary tightening. Because monetary policy acts with a lag, in this scenario, high rates of resource utilization may lead to a large buildup of inflationary pressures, a rise in inflation expectations and persistent inflation in excess of our 2 percent target. However, we have well-tested tools to address such a situation and plenty of policy room in which to use them.

        Brainard is willing to risk a rapid rise in rates. Yellen is not. Indeed, quite the opposite. Yellen desperately wants a very slow pace of rate increases:

        If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.

        The more I think about it, the less I am worried about this issue. Suppose that the Fed needs raise rates at twice the pace they currently anticipate. What does that mean? 25bp at every meeting instead of every other meeting? Is that really an "abrupt tightening?" Not sure that Yellen has a very strong argument here. Or one that would withstand repeated attacks from her peers.

        I feel like I haven't scratched the surface on this speech, but I will cut to the chase: This is an outright challenge to the Yellen/Fischer view.

        I think these three players are all products of their experience. Yellen received her Ph.D in 1971. Fischer in 1969. Both experienced the Great Inflation first hand. Brainard earned her Ph.D in 1989. Her professional experience is dominated by the Great Moderation.

        I think Yellen wants to raise interest rates. I think Fischer wants to raise rates. I think both believe the downward pressure on inflation due to labor market slack is minimal, and the Phillips Curve will soon assert itself. I think both do not find the risks as asymmetric as does Brainard. I think they believe the risk of inflation is actually quite high. Or, probably more accurately, that the risk of destabilizing inflation expectations is quite high.

        I think that Brainard knows this. I think that this speech is a very deliberate action by Brainard to let Yellen and Fischer know that she will not got quietly into the night if they push forward with their plans. I think that she is sending the message that they will not have just one dissent from a soon-to-be-replace regional president (Chicago Federal Reserve President Charles Evans), but a more-difficult-to-ignore Fed governor still voting when January 1 rolls around.

        And now that Brainard has laid down the gauntlet, it will look very, very bad for Yellen and Fischer if their plans go sideways. This is very likely the last big decision of their careers. They know what happened to Greenspan’s legacy. I doubt they want the same treatment. Why risk their reputations when the cost of waiting is a 25bp move every meeting instead of every other meeting? Is it worth it?

        Brad DeLong suggested the Fed commit to one of two policy messages:

        I must say that they are not doing too well at the clear-communication part. I want to see one of following things in Fed statements:

        1. We will begin raising interest rates in December at a pace of basis points per quarter, unless economic growth and inflation fall substantially short of our current forecast expectations.
        2. We will delay raising interest rates until we are confident that it will not be appropriate to return them to the zero lower bound after liftoff.

        If we had one of these, we would know where we stand.

        But Stan Fischer's speech provides us with neither.

        I think that Fischer wants the first option, but knows Brainard’s views, and hence knows that December is not a sure thing if Brainard can build momentum for her position. Hence the muddled message. Brainard could be the force that drives the Fed toward option number two. An option closer to that of Evans and Minneapolis Federal Reserve President Narayana Kocherlakota. That would be a game changer.

        Bottom Line: This is the most exciting speech I have read in forever. Not necessarily for the content. But for the politics. Evans and Kocherlakota are no longer the lunatic fringe. This could be a real game changer that shifts the Fed toward the Evans view of the world, with no rate hike until mid-2016. Brainard muddied further the already murky December waters.

          Posted by on Tuesday, October 13, 2015 at 12:24 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (47) 

          Links for 10-13-15

            Posted by on Tuesday, October 13, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (135) 

            Monday, October 12, 2015

            'Why So Slow? A Gradual Return for Interest Rates'

            This Economic Letter from Vasco Cúrdia of the SF Fed finds that even though interest rates are very low, so is the natural rate of interest, and that implies that monetary policy is "relatively tight."  "The model projections for the natural rate are consistent with the federal funds rate only gradually returning to normal over the next few years, although substantial uncertainty surrounds this forecast":

            Why So Slow? A Gradual Return for Interest Rates: Short-term interest rates in the United States have been very low since the financial crisis. Projections of the natural rate of interest indicate that a gradual return of short-term interest rates to normal over the next five years is consistent with promoting maximum employment and stable inflation. Uncertainty about the natural rate that is most consistent with an economy at its full potential suggests that the pace of normalization may be even more gradual than implied by these projections.
            To boost economic growth during the financial crisis, the Federal Reserve aggressively cut the target for its benchmark short-term interest rate, known as the federal funds rate, to near zero around the beginning of 2009. Since then the time projected for the rate to return to more normal historical levels has been continually postponed.
            To understand the level of the federal funds rate and when it might be normalized it is useful to consider the concept of the natural rate of interest first proposed by Wicksell in 1898 and introduced into modern macroeconomic models by Woodford (2003). The natural rate of interest is the real, or inflation-adjusted, interest rate that is consistent with an economy at full employment and with stable inflation. If the real interest rate is above (below) the natural rate then monetary conditions are tight (loose) and are likely to lead to underutilization (overutilization) of resources and inflation below (above) its target.
            This Economic Letter analyzes the recent behavior of the natural rate using an empirical macroeconomic model. The results suggest that the natural rate is currently very low by historical standards. Because of this, monetary conditions remain relatively tight despite the near-zero federal funds rate, which in turn is keeping economic activity below potential and inflation below target. The model projections for the natural rate are consistent with the federal funds rate only gradually returning to normal over the next few years, although substantial uncertainty surrounds this forecast. ...

            And the conclusion:

            ... This Letter suggests that the natural rate of interest is expected to remain below its long-run level for some time. This implies that low interest rates over the next few years are consistent with the most efficient use of resources and stable inflation. The analysis also finds that the output gap is expected to remain negative even after the natural rate is close to its long-run level. Additionally, there is considerable uncertainty about both the short-run dynamics as well as what level should be expected in the longer run. All these considerations reinforce the possibility that interest rate normalization will be very gradual.

              Posted by on Monday, October 12, 2015 at 01:31 PM in Economics, Monetary Policy | Permalink  Comments (34) 

              Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Awarded to Angus Deaton

              Busy this morning. Here's the press release on the award of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2015 to Angus Deaton:

              Consumption, great and small: To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.
              The work for which Deaton is now being honored revolves around three central questions:
              How do consumers distribute their spending among different goods? Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.
              How much of society's income is spent and how much is saved? To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.
              How do we best measure and analyze welfare and poverty? In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton's focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.

              More here, here, here, here, and here.

              Update: Here too.

                Posted by on Monday, October 12, 2015 at 10:38 AM in Economics | Permalink  Comments (16) 

                Paul Krugman: The Crazies and the Con Man

                Why is Paul Ryan under so much pressure to become speaker, and why would he be wise to resist?:

                The Crazies and the Con Man, by Paul Krugman, Commentary, NY Times: How will the chaos that the crazies, I mean the Freedom Caucus, have wrought in the House get resolved? I have no idea. But as this column went to press, practically the whole Republican establishment was pleading with Paul Ryan ... to become speaker. ...
                What makes Mr. Ryan so special? ... To understand Mr. Ryan’s role in our political-media ecosystem, you need to know two things. First, the modern Republican Party is a post-policy enterprise, which doesn’t do real solutions to real problems. Second, pundits and the news media really, really don’t want to face up to that awkward reality.
                On the first point, just look at the policy ideas coming from the presidential candidates, even establishment favorites like Marco Rubio... Josh Barro has dubbed Mr. Rubio’s tax proposal the “puppies and rainbows” plan, consisting of trillions in giveaways with not a hint of how to pay for them — just the assertion that growth would somehow make it all good.
                And it’s not just taxes, it’s everything. ... Yet most of the news media, and most pundits, still worship at the church of “balance.” They are committed to portraying the two big parties as equally reasonable. This creates a powerful demand for serious, honest Republicans who can be held up as proof that the party does too include reasonable people making useful proposals. ...
                And Paul Ryan played and in many ways still plays that role... This has been enough to convince political writers who don’t know much about policy, but do know what they want to see, that he’s the real deal. ...
                Which brings us back to the awkward fact that Mr. Ryan isn’t actually a pillar of fiscal rectitude, or anything like the budget expert he pretends to be. And the perception that he is these things is fragile, not likely to survive long if he were to move into the center of political rough and tumble. Indeed, his halo was visibly fraying during the few months of 2012 that he was Mitt Romney’s running mate...
                Predictions aside, however, the Ryan phenomenon tells us a lot about what’s really happening in American politics. In brief, crazies have taken over the Republican Party, but the media don’t want to recognize this reality. The combination of these two facts has created an opportunity, indeed a need, for political con men. And Mr. Ryan has risen to the challenge.

                  Posted by on Monday, October 12, 2015 at 01:17 AM in Economics, Politics | Permalink  Comments (92) 

                  Fed Watch: Fed Struggles With The High Water Mark

                  Tim Duy:

                  Fed Struggles With The High Water Mark, by Tim Duy: Gavyn Davies reviews the evidence on the apparent slowing of US economic activity and concludes:

                  So is the US slowdown for real? Yes, but it is not yet very severe — and some of it is the result of the temporary inventory correction, and some to the rising dollar. Unless it grows worse in the next few weeks, it is unlikely to dislodge the Fed from the path it has now firmly chosen.

                  This I think is broadly consistent with views on the FOMC and explains why many policymakers insist that a rate hike this year remains likely. Vice Chair Stanley Fischer was the latest to reiterate the point. Via his prepared remarks for the IMF:

                  In the SEP, the Summary of Economic Projections prepared by FOMC participants in advance of the September meeting, most participants, myself included, anticipated that achieving these conditions would entail an initial increase in the federal funds rate later this year.

                  They will want look through any near term GDP volatility, and discount volatility related to inventories. Look then to real final sales rather than GDP. Avoid getting caught up in the headline numbers; watch the underlying trends instead.

                  Still, there is a range of views on the FOMC, from Richmond Fed Jeffrey Lacker, who believes the Fed should already have raised rates, to Minneapolis Federal Reserve President Narayana Kocherlakota, who would like the Fed to consider a negative rate. And arguably even the center is not particularly committed to a particular policy path. To be sure, they like to talk tough, but every time they get ready to jump, they walk back from the edge.

                  Why the lack of conviction? Essentially, the economy is resting on what is likely its high water mark for growth in this cycle, leaving the Fed perplexed regarding their next move. They want the economy to slow from its current pace and glide into a soft landing. But acting too early will leave their job half finished and sow the seeds of the next recession. Acting too late, however, will yield the inflationary outcome they so fear. And they don't know the exact definitions of "too early" and "too late."

                  This chart (modified from Davies' version) illustrates the evolution of US growth since 2012:


                  In broad terms, consumption, investment, and government spending jointly accelerated during 2013. The external side of the economy offset some of this acceleration by first moving from a slightly positive contribution to none and then, beginning in 2014, a substantial negative contribution. The net effect is that overall economy largely normalize around a 2.5% growth rate in 2014 and remained there since.

                  That 2.5% growth is what the economy delivers given the combination of long-term factors (labor and productivity growth) and the current set of fiscal, monetary, and external conditions. The actual composition of output will evolve around that 2.5% rate. It is likely the high-water mark, in terms of growth, for this recovery. Faster growth likely requires a net easier combination of monetary and fiscal policy. Slower growth may already be locked in by past policy, or maybe the economy just moves generally sideways from here.

                  Most important is to remember that monetary policymakers expect and want the economy to slow as it gently glides down to that mythical soft-landing. They aren't looking for faster growth. The current pace of growth will, in their view, force unemployment further below the natural rate next year than they are willing to tolerate. Hence the most recent employment reports are not necessarily unmitigated bad news from their perspective. New York Federal Reserve President William Dudley, via Bloomberg:

                  Dudley said the key to liftoff will be whether the labor market continues to improve, thereby putting more upward pressure on wages and inflation. Last month’s jobs report was “definitely weaker,” but even monthly gains of 120,000 or 150,000 are enough to continue to push the U.S. unemployment rate lower, he said.

                  Or, more explicitly, from San Fransisco Federal Reserve President John Williams:

                  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. (emphasis added)

                  Williams is looking for 2% growth in the second half of this year and next year. He expects the economy to slow, and believes it needs to slow to sustain healthy, long-run growth. But I don't think he knows exactly when and how much the Fed needs to tap the breaks to achieve that healthy growth. And he would not be alone - lack of consensus around the question is exactly why communication appears so muddled. They can't tell you what they don't know.

                  Further confusing the issue is the cat that Kocherlakota let out of the bag last week:

                  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.

                  I believe the FOMC should take actions to facilitate a resumption of the 2014 improvement in the labor market by adopting a more accommodative policy stance...

                  As group, monetary policymakers have stuck by the line that "tapering is not tightening." Kocherlakota is not following the party line. He explicitly connects the dots and concludes that the current inflection point in the economy is the result of the tapering debate begun over two years ago. He essentially argues that had it not been for the taper and end of QE3, then financial conditions would be more accommodative today and the economy would not yet be at an inflection point.

                  Kocherlakota is an outlier; he is not interested seeing the labor market throttle back just yet, fearing that such an outcome will end improvement in underemployment indicators. This would lock the economy into a suboptimal state of persistent excess slack and impede the return of inflation to the Fed's target. The general consensus on the FOMC is that such a goal can be achieved with more a more moderate pace of improvement in labor markets that holds unemployment modestly below the natural rate for a time. Hence he is alone in his view that more easing is needed at this time. Chicago Federal Reserve President Charles Evans probably comes closest with his explicit calls to hold rates at current levels until the middle of 2016.

                  But even if the party line is that "tapering is not tightening," Kocherlakota must have planted the seeds of doubt in the minds of his colleagues. After all, it is a risk management exercise. If they are wrong, and Kocherlakota is right, then they will look like the dropped the ball if they pull the trigger too early. Something of a big risk to take when inflation remains persistently below trend and you lack traditional tools to respond to a renewed slowdown in activity.

                  Bottom Line: So where does all of this leave Fed policy? Confused, I think, like September when economists saw the outcome of that meeting as a coin toss. Don't expect communications to become much clearer. October is off the table (despite what Lacker might believe). They first need to decide if the last two months of jobs data were aberrations or signals of slowing job growth. They can't do that before October. And I am not confident they can do so by December. If we get two more reports hovering around 200k a month between now and December, matched with generally consistent data across other indicators, then December is on the table. That would indicate the economy is not coming off its high water mark without some help from the Fed. If jobs growth slows to 100k a month, again with a broad swath of generally consistent data, then we are looking at deep into 2016 before any hike. Around 150k is the gray area. They won't know if the economy is poised to head lower on its own, or if that is sufficient to contain inflationary pressures. They don't know if they should be tapping on the breaks or not. Risk management under the assumption of constrained inflation suggests they push off action until January or March. But they would not send such a clear message. Indeed, I suspect that more numbers like the last two will make the December meeting much like September's. That I fear is my current baseline - another close call in which the Fed concludes to take a pass.

                    Posted by on Monday, October 12, 2015 at 12:15 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (12) 

                    Links for 10-12-15

                      Posted by on Monday, October 12, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (54) 

                      Sunday, October 11, 2015

                      'One Reason Why Monetary Policy is Preferred by New Keynesians'

                      Simon Wren-Lewis:

                      One reason why monetary policy is preferred by New Keynesians: ...Suppose, for example, individuals decide for some reason that they want to hold more money. They expect to sell their output, but plan to buy less. If everyone does this, aggregate demand will fall, and producers will not sell all their output. If goods cannot be stored, and if producers cannot consume their own good, this could lead to pure waste: some goods remain unsold and rot away. (If all producers immediately cut their prices, then a new equilibrium is possible where producers’ desire to hold more real money balances is achieved by a fall in prices. So we need to rule this possibility out by having some form of price rigidity.)
                      The government could prevent waste in two ways. It could persuade consumers to hold less money and buy more goods, which we can call monetary policy. Or it could buy up all the surplus production and produce more public goods, which we could call fiscal policy. Both solutions eliminate waste, but monetary policy is preferable to fiscal policy because the public/private good mix remains optimal.
                      Three comments on this reason for preferring monetary policy. First, if for some reason monetary policy cannot do this job, clearly using fiscal policy is better than doing nothing. It is better to produce something useful with goods rather than letting them rot. We could extend this further. If for some reason the impact of monetary policy was uncertain, then that could also be a reason to prefer fiscal policy, which in this example is sure to eliminate waste. Second, the cost of using fiscal rather than monetary policy obviously depends on the form of public spending. If the public good was repairing the streets the market was held in one year earlier than originally planned the 'distortion' involved is pretty small. Third, another means of achieving the optimal solution, besides monetary policy, is for the government to give everyone the extra money they desire.

                        Posted by on Sunday, October 11, 2015 at 10:23 AM in Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (99) 

                        Links for 10-11-15

                          Posted by on Sunday, October 11, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (132) 

                          Saturday, October 10, 2015

                          Just 158 Families Provided Nearly Half of Campaign Cash

                          In case you were wondering, yes, wealth from the energy and finance industries does dominate campaign spending early in campaigns, and flows mostly to Republicans:

                          Just 158 families have provided nearly half of the early money for efforts to capture the White House, NY Times: They are overwhelmingly white, rich, older and male, in a nation that is being remade by the young, by women, and by black and brown voters..., they reside in ... exclusive neighborhoods dotting a handful of cities and towns. And in an economy that has minted billionaires in a dizzying array of industries, most made their fortunes in just two: finance and energy.
                          Now they are deploying their vast wealth in the political arena, providing almost half of all the seed money raised to support Democratic and Republican presidential candidates. Just 158 families, along with companies they own or control, contributed $176 million in the first phase of the campaign... Not since before Watergate have so few people and businesses provided so much early money in a campaign, most of it through channels legalized by the Supreme Court’s Citizens United decision five years ago. ...
                          ...the families investing the most in presidential politics overwhelmingly lean right ... contributing tens of millions of dollars to support Republican candidates who have pledged to pare regulations; cut taxes on income, capital gains and inheritances; and shrink entitlement programs. While such measures would help protect their own wealth, the donors describe their embrace of them more broadly, as the surest means of promoting economic growth and preserving a system that would allow others to prosper, too. ...
                          Most of the families are clustered around just nine cities. ...
                          Tend to Be Self-Made ...
                          A number of the families are tied to networks of ideological donors ...

                            Posted by on Saturday, October 10, 2015 at 02:10 PM in Economics, Politics | Permalink  Comments (41) 

                            'Is Money Corrupting Research?'

                            Luigi Zingales:

                            Is Money Corrupting Research?: The integrity of research and expert opinions in Washington came into question last week, prompting the resignation of Robert Litan ... from his position as a nonresident fellow at the Brookings Institution.
                            Senator Elizabeth Warren raised the issue of a conflict of interest in Mr. Litan’s testimony before a Senate committee... Senator Warren was herself criticized by economists and pundits, on the left and right. ... But at stake is the integrity of the research process and the trust the nation puts in experts, who advise governments and testify in Congress. Our opinions shape government policy and judicial decisions. Even when we are paid to testify..., integrity is expected from us. ...
                            Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives do not matter. Had the conclusions not pleased the Capital Group, it would probably have found a more compliant expert. And the reputation of not being “cooperative” would have haunted Mr. Litan’s career as a consultant. ...
                            Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational incentives do not work because the practice of bending an opinion for money is so widespread as to be the norm. ...

                            He goes on to suggest some steps to strengthen the reputational incentive.

                              Posted by on Saturday, October 10, 2015 at 12:33 AM in Economics | Permalink  Comments (42) 

                              'Don’t Starve the BLS'

                              Katharine Abraham, Steven Davis, and John Haltiwanger:

                              Don’t Starve the BLS: ...why is Congress eyeing further cuts to the Bureau of Labor Statistics budget?Proposed Senate legislation would cut the BLS by another $13 million in 2016, after its real annual spending has already fallen more than 10 percent ($72 million) over the last five years. ...
                              ...we need more and better data to understand our changing economy, not less. Instead of narrowing its data collection, BLS ought to expand it. For starters, it should develop and strengthen programs to help assess the growth of the “gig economy,” how global supply chains affect the US economy, and why wage growth remains sluggish despite job vacancy rates at a 15-year high.
                              Skeptics will ask, why not rely entirely on the private sector to do this work? ... The answer is simple..., no private entity can match government statistical agencies’ ability to collect objective data and aggregate them into usable basic statistics. ... those basic statistics, such as basic scientific research, yield highly diverse applications and valuable benefits across our economy and society.
                              Underfunding the BLS would be a false economy. It would mean basic statistics would be undersupplied, and the quality of economic decision-making would suffer. It may save a few million dollars in the 2016 federal budget, but would ultimately cost us much more.

                                Posted by on Saturday, October 10, 2015 at 12:24 AM in Economics | Permalink  Comments (33) 

                                Links for 10-10-15

                                  Posted by on Saturday, October 10, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (83) 

                                  Friday, October 09, 2015

                                  'Resurrecting the Role of the Product Market Wedge in Recession'

                                  Some of you might find this interesting:

                                  Resurrecting the Role of the Product Market Wedge in Recessions Mark Bils, Peter J. Klenow, and Benjamin A. Malin: Abstract Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been called “the labor wedge” — a cyclical intratemporal wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The intratemporal wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the true cyclical price of labor, we instead examine the self-employed and intermediate inputs, respectively. Looking at the past quarter century in the United States, we find that price markup movements are at least as important as wage markup movements — including during the Great Recession and its aftermath. Thus, sticky prices and other forms of countercyclical markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.

                                  Download Full text.

                                    Posted by on Friday, October 9, 2015 at 11:04 AM in Academic Papers, Economics | Permalink  Comments (8) 

                                    'The Minimum Wage: How Much is Too Much?'

                                    Alan Krueger:

                                    The Minimum Wage: How Much is Too Much?: The federal minimum wage has been stuck at $7.25 an hour since 2009. While Congress has refused to take action, Democratic politicians have been engaged in something of a bidding war to propose raising the minimum wage ever higher: first to $10.10, then to $12, and now some are pushing for $15 an hour. ...
                                    When I started studying the minimum wage 25 years ago,... research that I and others ... conducted convinced me that if the minimum wage is set at a moderate level it does not necessarily reduce employment. ...
                                    Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. ...
                                    But $15 an hour is beyond international experience, and could well be counterproductive. ...
                                    Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research.

                                      Posted by on Friday, October 9, 2015 at 09:26 AM in Economics | Permalink  Comments (70) 

                                      'Faith in an Unregulated Free Market? Don’t Fall for It'

                                      Robert Shiller continues to phish for book sales:

                                      Faith in an Unregulated Free Market? Don’t Fall for It: Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ...
                                      The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions. ...
                                      Don’t get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I’ve written about these things in this column.
                                      But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ...
                                      Current economic theory does recognize that if there is an “externality” — say, a business polluting the air in the course of producing the goods it sells — the outcome won’t be optimal, and most economists would agree that in such cases we need government intervention.
                                      But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

                                        Posted by on Friday, October 9, 2015 at 09:25 AM in Economics, Market Failure | Permalink  Comments (16) 

                                        Paul Krugman: It’s All Benghazi

                                        Beat the press:

                                        It’s All Benghazi, by Paul Krugman, Commentary, NY Times: So Representative Kevin McCarthy, who was supposed to succeed John Boehner as speaker of the House, won’t be pursuing the job after all. He ... finished off his chances by admitting — boasting, actually — that the endless House hearings on Benghazi had nothing to do with national security, that they were all about inflicting political damage on Hillary Clinton.
                                        But we all knew that, didn’t we?
                                        I often wonder about commentators who write about things like those hearings as if there were some real issue involved... Surely they have to know better... Somehow, though, politicians who ... are obviously just milking those issues for political gain keep getting a free pass. And it’s not just a Clinton story.
                                        Consider the example of an issue ... that dominated much of our political discourse just a few years ago: federal debt.
                                        Many prominent politicians made warnings about the dangers posed by U.S. debt, especially debt owned by China... Paul Ryan ... portrayed himself as a heroic crusader against deficits. Mitt Romney made denunciations of borrowing from China a centerpiece of his campaign... And by and large, commentators treated this posturing as if it were serious. ...
                                        Well, don’t tell anyone, but the much feared event has happened: China is no longer buying our debt, and is in fact selling ... U.S. debt... And what has happened is what serious economic analysis always told us would happen: nothing. It was always a false alarm. ...
                                         People who really worry about government debt don’t propose huge tax cuts for the rich, only partly offset by savage cuts in aid to the poor and middle class, and base all claims of debt reduction on unspecified savings to be announced on some future occasion. ... 
                                        Sometimes I have the impression that many people in the media consider it uncouth to acknowledge, even to themselves, the fraudulence of much political posturing. The done thing, it seems, is to pretend that we’re having real debates...
                                        But turning our eyes away from political fakery, pretending that we’re having a serious discussion when we aren’t, is itself a kind of fraudulence. Mr. McCarthy inadvertently did the nation a big favor with his ill-advised honesty, but telling the public what’s really going on shouldn’t depend on politicians with loose lips.
                                        Sometimes — all too often — there’s no substance under the shouting. And then we need to tell the truth, and say that it’s all Benghazi.

                                          Posted by on Friday, October 9, 2015 at 01:13 AM in Economics, Politics, Press | Permalink  Comments (78) 

                                          Links for 10-09-15

                                            Posted by on Friday, October 9, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (128) 

                                            Thursday, October 08, 2015

                                            'The Slow Rate of Labor Market Improvement in 2015 is Not All That Surprising'

                                            Federal Reserve Bank of Minneapolis president Narayana Kocherlakota:

                                            ...Why has the rate of labor market improvement slowed so much in 2015 relative to 2014? In thinking about this question, I find the timing of monetary policy changes to be highly suggestive.
                                            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.
                                            I believe the FOMC should take actions to facilitate a resumption of the 2014 improvement in the labor market by adopting a more accommodative policy stance. Remember, inflation is low, and is expected to remain low, relative to the FOMC’s target. In particular, I don’t see raising the target range for the fed funds rate above its current low level in 2015 or 2016 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering. Indeed, I would be open to the possibility of reducing the fed funds target funds range even further, as a way of producing better labor market outcomes.
                                            There is, of course, a risk that inflationary pressures could build up more rapidly than I (or others) currently anticipate. But the solution to this scenario is relatively simple: Raise interest rates. Given my current outlook, I believe that it would be appropriate to wait until 2017 to initiate liftoff and then raise the fed funds rate at about 2 percentage points per year. My preferred pace of tightening mirrors the pace of tightening from 2004 to 2006—a pace of tightening that is often seen as gradual. (In fact, some would argue, with the benefit of hindsight, that it was overly gradual.) In response to unanticipated inflationary pressures, the FOMC could simply react as it did in 1994, and raise the fed funds rate more rapidly than this gradual pace.
                                            ... The lesson of 2014 is clear: We can do better. Given 2014, and given how low inflation is expected to be over the next few years, I see no reason why the Committee should not aim to facilitate continued improvement in labor market conditions. Indeed, I currently see no reason why we should not aim for the kind of strong labor market conditions that prevailed at the end of 2006.
                                            But we will get there only if we make the right choices. The FOMC can achieve its congressionally mandated price and employment goals only by being extraordinarily patient in reducing the level of monetary accommodation. Indeed, to best fulfill its congressional mandates, the Committee should be considering reducing the target range for the fed funds rate, not increasing it. ...

                                              Posted by on Thursday, October 8, 2015 at 11:11 AM in Economics, Inflation, Monetary Policy, Unemployment | Permalink  Comments (11) 

                                              Wanted: Independent Evaluations of Government Programs

                                              In case you are feeling Moody:

                                              Timothy Geithner and the Auditors, by Dean Baker: Eduardo Porter had a good piece in the NYT pointing out the importance of having independent evaluations of government programs. The point is that the agencies undertaking a program have a strong incentive to exaggerate its benefits. ...
                                              One of the areas noted by Porter is in the rating of mortgage backed securities (MBS). During the housing bubble years, the bond-rating agencies routinely gave investment grade ratings to MBS that were stuffed with junk mortgages. They ignored the quality of the mortgages because they wanted the business. They knew if they gave honest ratings, the investment banks would take away their business.
                                              While Porter notes this is a problem with the issuer pays model (the banks pay the rating agencies), there actually is a very simple solution. In the debate on Dodd-Frank, Senator Al Franken proposed an amendment which would have the Securities and Exchange Commission pick the rating agency, instead of the issuer. The bank would still pay the fee, but since they were no longer controlling who got the work, it eliminated the conflict of interest problem. The amendment passed the senate 65-34, with considerable bi-partisan support.
                                              Unfortunately, as Geithner indicated in his autobiography, the Obama administration apparently did not like the dismantling of the perfect system we have today. The Franken amendment was removed in the conference committee and the existing structure was left in place. This was possible because the bond-rating agencies and the banks have real lobbies, whereas the folks who like honest evaluations don't. Of course the news media didn't help much, giving the issue very little coverage. And what attention it did get largely reflected the views of the financial industry.
                                              Anyhow, this is a good example of the difficulties in putting in place the sort of independent auditing process that Porter seeks.

                                                Posted by on Thursday, October 8, 2015 at 10:53 AM in Economics, Politics, Regulation | Permalink  Comments (47) 

                                                'The China Debt Fizzle'

                                                Here at the University of Oregon, one of our specialties is developing models where agents in the macroeconomy don't have rational expectations, instead they learn about the economy over time. Of course, these models need to be taken to the data to see if people do actually learn in the way the models predict. But if the data sets contain too many "Very Serious People", the tests will surely fail. They learn nothing from experience:

                                                The China Debt Fizzle, by Paul Krugman: Remember the dire threat posed by our financial dependence on China? A few years ago it was all over the media, generally stated not as a hypothesis but as a fact. Obviously, terrible things would happen if China stopped buying our debt, or worse yet, started to sell off its holdings. Interest rates would soar and the U.S economy would plunge, right? Indeed, that great monetary expert Admiral Mullen was widely quoted as declaring that debt was our biggest security threat. Anyone who suggested that we didn’t actually need to worry about a China selloff was considered weird and irresponsible.
                                                Well, don’t tell anyone, but the much-feared event is happening now. As China tries to prop up the yuan in the face of capital flight, it’s selling lots of U.S. debt; so are other emerging markets. And the effect on U.S. interest rates so far has been … nothing.
                                                Who could have predicted such a thing? Well,... anyone who seriously thought through the economics of the situation ... quickly realized that the whole China-debt scare story was nonsense. But as I said, this wasn’t even reported as a debate; the threat of Chinese debt holdings was reported as fact.
                                                And of course those who got this completely wrong have learned nothing from the experience.

                                                  Posted by on Thursday, October 8, 2015 at 09:55 AM in China, Economics, Financial System | Permalink  Comments (9) 

                                                  'We All Get ‘Free Stuff’ From the Government'

                                                  Bryce Covert:

                                                  We All Get ‘Free Stuff’ From the Government: ...Jeb Bush got caught sounding like a Mitt Romney rerun recently: He told a mostly white audience that he could attract black voters because his campaign “isn’t one of ... we’ll take care of you with free stuff.” ...
                                                  But the shorthand of “free stuff” also takes an incredibly narrow, and therefore misleading, view of government benefits. There’s a whole treasure trove of government handouts that aren’t dispensed through spending, but rather through the tax code. That doesn’t make them any less “free” than a rent voucher or an Electronic Benefit Transfer card. ...
                                                  What the government loses to tax expenditures dwarfs spending on welfare programs. ... These facts are obscured for most people. While those who get government benefits through spending programs are often aware — and too frequently ashamed — of that fact, those who get them through the tax system usually don’t realize they’ve received a handout. ...
                                                  Jeb Bush ,,, has saved at least $241,000 since 1981 through the mortgage interest deduction. ... Just days before he vowed not to promise voters more free stuff, he put out a tax plan that would give out a whole lot more of it. ...
                                                  Every four years, politicians stigmatize “free stuff” like food stamps and welfare while courting votes — and gloss over tax breaks. ... We turn a blind eye to giving out more and more tax breaks but balk at actually spending enough on welfare to truly help the most vulnerable among us.

                                                    Posted by on Thursday, October 8, 2015 at 09:34 AM in Economics, Social Insurance | Permalink  Comments (15) 

                                                    Links for 10-08-15

                                                      Posted by on Thursday, October 8, 2015 at 12:06 AM Permalink  Comments (185) 

                                                      Wednesday, October 07, 2015

                                                      Summers: Global Economy: The Case for Expansion

                                                      Larry Summers continues his call for fiscal expansion:

                                                      Global economy: The case for expansion: ...The problem of secular stagnation — the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies — is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...
                                                      This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...
                                                      Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...
                                                      The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today’s problems have to do with too little lending for productive investment.
                                                      Inevitably, there will be discussion of the need for structural reform... — there always is. ...
                                                      Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today’s secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.

                                                      [The full post is much, much longer.]

                                                        Posted by on Wednesday, October 7, 2015 at 12:46 PM in Economics, Fiscal Policy | Permalink  Comments (78) 

                                                        The Welfare State and Economic Growth

                                                        Support for the point I was making in my column yesterday:

                                                        Rethinking Parameters of the US Welfare State, by Tim Taylor: ...The ... question ... was about whether the welfare state undermines productivity and growth. Garfinkel and Smeeding point out that in the big picture, all the high-income and high-productivity nations of the world have large welfare states; indeed, one can argue that growth rates for many high-income nations were higher in the mid- and late 20th century, when the welfare state was comparatively larger, than back in the 19th century when the welfare state was smaller. Indeed, improved levels of education and health are widely recognized as important components of improved productivity. As they write: "Furthermore, by reducing economic insecurity, social insurance and safety nets make people more willing to take economic risks."

                                                        One can make any number of arguments for improving the design of the various aspects of the welfare state, or to point to certain countries where aspects of the welfare state became overbearing or dysfunctional. But from a big-picture viewpoint, it's hard to make the case that a large welfare state has been a drag on growth. Garfinkel and Smeeding write:

                                                        "Of course, many other factors besides social welfare spending have changed in the past 150 years. But, as we have seen, welfare state spending is now very large relative to the total production of goods and services in all advanced industrialized nations. If such spending had large adverse effects, it is doubtful that growth rates would have been so large in the last 30 years. The crude historical relationship suggests, at a minimum, no great ill effects and, more likely, a positive effect. The burden of proof clearly lies on the side of those who claim that welfare state programs are strangling productivity and growth. If they are right, they need to explain not only why all rich nations have large welfare states, but more importantly why growth rates have grown in most rich nations as their welfare states have grown larger."

                                                          Posted by on Wednesday, October 7, 2015 at 09:30 AM in Economics, Productivity, Social Insurance | Permalink  Comments (36) 

                                                          'The Papal Encyclical and Climate Change Policy'

                                                          Robert Stavins:

                                                          The Papal Encyclical and Climate Change Policy: ...I’m inspired by a marvelous essay by Yale professor William Nordhaus, “The Pope & the Market,”... However, my thoughts are completely independent from his...
                                                          With that preamble out of the way, here are the reactions of one environmental economist, yours truly, to Laudato Si’...
                                                          The Pope is to be commended for taking global climate change seriously, and for drawing more world attention to the issue. There is much about the encyclical that is commendable, but where it drifts into matters of public policy, I fear that it is – unfortunately – not helpful.
                                                          The long encyclical ignores the causes of global climate change: it is an externality, an unintended negative consequence of otherwise meritorious activity by producers producing the goods and services people want, and consumers using those goods and services. ... There may well be ethical dimensions of the problem, but it is much more than a simple consequence of some immoral actions by corrupt capitalists.
                                                          The document also ignores the global commons nature of the problem, which is why international cooperation is necessary. If the causes of the problem are not recognized, it is very difficult – or impossible – to come up with truly meaningful and feasible policy solutions.
                                                          So, yes, the problem is indeed caused by a failure of markets, as the Pope might say, or – in the language of economics – a “market failure”. But that is precisely why sound economic analysis of the problem is important and can be very helpful. Such analysis points the way to working through the market for solutions...
                                                          Should Carbon Markets be Condemned?
                                                          In surprisingly specific and unambiguous language, the encyclical rejects outright “carbon credits” as part of a solution to the problem. It says they “could give rise to a new form of speculation and would not help to reduce the overall emission of polluting gases”. The encyclical asserts that such an approach would help “support the super-consumption of certain countries and sectors”.
                                                          That misleading and fundamentally misguided rhetoric is straight out of the playbook of the ALBA countries, the small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations. Those countries have been strongly opposed to any market-based approaches to climate change...
                                                          By incorporating the anti-market rhetoric of the ALBA countries, the encyclical [is] emphasizing a perspective that is not progressive and enlightened, and would – I fear – ultimately work against meaningful climate policy at the international, regional, national, and sub-national levels.
                                                          That is why I said that although there is much about the encyclical that is commendable, where it drifts into matters of public policy it is – unfortunately – not helpful.

                                                            Posted by on Wednesday, October 7, 2015 at 12:15 AM in Economics, Environment | Permalink  Comments (73) 

                                                            Links for 10-07-15

                                                              Posted by on Wednesday, October 7, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (141) 

                                                              Tuesday, October 06, 2015

                                                              The Club for Growth, Equity, and Social Insurance

                                                              I have a new column:

                                                              Economic Growth vs. Social Insurance—Why Can’t We Have Both?: Why do Republicans on the campaign trail tend to emphasize policies that are focused on enhancing long-run economic growth while Democrats tend to focus more on immediate problems such as high unemployment? Republicans have a Club for Growth that grades politicians on their support of “free-market, limited government” policies they believe are the key to economic growth. Democrats are more likely to pay attention to institutions such as the Economic Policy Institute where “policies that protect and improve the economic conditions of low- and middle-income workers” are promoted. In general, Democrats seem much more focused on short-run economic problems than Republicans. Is there any basis within economics for this difference in emphasis on which type of policy is most important?
                                                              As I’ll explain shortly, there is, or more precisely, there was.
                                                              Some Republicans use the promise of economic growth as a ruse for their real goal, lower taxes on the wealthy. For them, it’s really a “Club to Lower Taxes and Cut Social Programs.” But today I want to focus on the economics rather than the politics.
                                                              What is the source of the idea that we cannot address both long-run growth and problems such as high unemployment and rising inequality at the same time? Why have economists and politicians chosen sides on which of the two is most important? There are two reasons for this. ...

                                                                Posted by on Tuesday, October 6, 2015 at 09:09 AM in Economics, Politics | Permalink  Comments (87) 

                                                                'Marco Rubio is Insisting That His Massive Tax Cuts Will Pay for Themselves'

                                                                Ezra Klein:

                                                                Why Marco Rubio is insisting that his massive tax cuts will pay for themselves, explained: On Tuesday, Marco Rubio told CNBC's John Harwood that his massive tax cuts — which estimates have found would blow a roughly $4 trillion to $5 trillion hole in the deficit — creates a surplus "within the 10-year window."
                                                                It is worth slowing down to make clear exactly what Rubio said there. Rubio's plan cuts corporate taxes, capital gains taxes, taxes on the rich, taxes on the middle class — it cuts taxes on everyone. The cuts are so large that the New York Times called it "the puppies and rainbows plan." And what Rubio is saying is that his massive tax cut is actually going to mean more tax revenue for the government — that two minus one will equal four. ...
                                                                Rubio's assurance will, to most tax analysts, sound like nonsense. And it is nonsense. A plan that massively cuts taxes isn't going to lead to budget surpluses. But it's nonsense that has been validated by an important conservative tax group, that shows the kind of candidate Rubio is looking to be, and that speaks to why the debate over taxes in Washington has become so dysfunctional. ...


                                                                  Posted by on Tuesday, October 6, 2015 at 09:07 AM in Budget Deficit, Economics, Politics, Taxes | Permalink  Comments (17) 

                                                                  'TPP Take Two'

                                                                  Paul Krugman:

                                                                  TPP Take Two: I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things... But the WH is telling me that the agreement just reached is significantly different from what we were hearing before, and the angry reaction of industry and Republicans seems to confirm that.
                                                                  What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer. ...

                                                                    Posted by on Tuesday, October 6, 2015 at 09:03 AM in Economics, International Trade, Politics | Permalink  Comments (8) 

                                                                    'Demand Deniers'

                                                                    Chris Dillow:

                                                                    Demand deniers: The Tories seem ... oblivious to problems of weak demand. ...
                                                                    Jeremy Hunt tries to justify cutting tax credits by claiming that he wants to create a culture of hard work.
                                                                    Let's leave aside the fact that working long hours is often a sign a economic failure - of low productivity - and ask: what would happen if people offered to work longer?
                                                                    The answer is that, in many cases their employers would reject their offers. There are already 1.28 million people who are working part-time because they cannot find full-time work. This tells us that, for very many people, the problem isn't a lack of culture of hard work but a lack of demand for their services. ...
                                                                    These ... examples raise the question: why are the Tories demand-deniers? Alex offers one answer: it's because they still believe that poverty is the fault of the individual - they are committing the fundamental attribution error.
                                                                    The counterpart to this is a perhaps willful failure to see that there are also systemic reasons for low pay - not just bad policy, but fundamental properties of the capitalist economy.

                                                                      Posted by on Tuesday, October 6, 2015 at 09:00 AM in Economics, Politics | Permalink  Comments (12) 

                                                                      Links for 10-06-15

                                                                        Posted by on Tuesday, October 6, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (197) 

                                                                        Monday, October 05, 2015

                                                                        'Is Economics Research Replicable? Usually Not.'

                                                                        Andrew Chang and Phillip Li:

                                                                        Is Economics Research Replicable? Sixty Published Papers from Thirteen Journals Say “Usually Not”, by Andrew C. Chang and Phillip Li, Finance and Economics Discussion Series 2015-083. Washington: Board of Governors of the Federal Reserve System: Abstract We attempt to replicate 67 papers published in 13 well-regarded economics journals using author-provided replication files that include both data and code. Some journals in our sample require data and code replication files, and other journals do not require such files. Aside from 6 papers that use confidential data, we obtain data and code replication files for 29 of 35 papers (83%) that are required to provide such files as a condition of publication, compared to 11 of 26 papers (42%) that are not required to provide data and code replication files. We successfully replicate the key qualitative result of 22 of 67 papers (33%) without contacting the authors. Excluding the 6 papers that use confidential data and the 2 papers that use software we do not possess, we replicate 29 of 59 papers (49%) with assistance from the authors. Because we are able to replicate less than half of the papers in our sample even with help from the authors, we assert that economics research is usually not replicable. We conclude with recommendations on improving replication of economics research.

                                                                          Posted by on Monday, October 5, 2015 at 10:39 AM in Economics, Methodology | Permalink  Comments (40) 

                                                                          Is Donald Trump Right to Call NAFTA a ''Disaster''?

                                                                          At MoneyWatch

                                                                          Is Donald Trump right to call NAFTA a "disaster"?: Recently, Donald Trump made a strong claim about the North American Free Trade Agreement (NAFTA) in an interview on CBS 60 Minutes:
                                                                          "It's a disaster. ... We will either renegotiate it, or we will break it. Because, you know, every agreement has an end. ... Every agreement has to be fair. Every agreement has a defraud clause. We're being defrauded by all these countries."
                                                                          Is he right? Was NAFTA a disaster? ...

                                                                          I also talk about immigration.

                                                                            Posted by on Monday, October 5, 2015 at 05:22 AM in Economics, Immigration, International Trade, Politics | Permalink  Comments (94) 

                                                                            Paul Krugman: Enemies of the Sun

                                                                            Why are Republicans hostile to initiatives that promote wind and solar energy?:

                                                                            Enemies of the Sun, by Paul Krugman, Commentary, NY Times: Does anyone remember the Cheney energy task force? Early in the George W. Bush administration, Vice President Dick Cheney released a report that was widely derided as a document written by and for Big Energy — because it was...
                                                                            But here’s the thing: by the standards of today’s Republican Party, the Cheney report was enlightened, even left-leaning. One whole chapter was devoted to conservation, another to renewable energy. By contrast, recent speeches by Jeb Bush and Marco Rubio — still the most likely Republican presidential nominees — barely address either topic. When it comes to energy policy, the G.O.P. has become fossilized. That is, it’s fossil fuels, and only fossil fuels, all the way.
                                                                            And that’s a remarkable development, because ... we’re ... living in an era of spectacular progress in wind and solar energy. Why has the right become so hostile to technologies that look more and more like the wave of the future? ...
                                                                            Part of the answer is surely that promotion of renewable energy is linked in many people’s minds with attempts to limit climate change — and ... the association with climate science evokes visceral hostility on the right.
                                                                            Beyond that,... follow the money. We used to say that the G.O.P. was the party of Big Energy, but these days it would be more accurate to say that it’s the party of Old Energy. In the 2014 election cycle the oil and gas industry gave 87 percent of its political contributions to Republicans; for coal mining the figure was 96, that’s right, 96 percent. Meanwhile, alternative energy went 56 percent for Democrats.
                                                                            And Old Energy is engaged in a systematic effort to blacken the image of renewable energy, one that closely resembles the way it has supported “experts” willing to help create a cloud of doubt about climate science. An example: Earlier this year Newsweek published an op-ed article purporting to show that the true cost of wind power was much higher than it seems. But ... the article contained major factual errors, and its author had failed to disclose that he was the Charles W. Koch professor at Utah State, and a fellow of a Koch- and ExxonMobil-backed think tank. ...
                                                                            While politicians on the right may talk about encouraging innovation and promoting an energy revolution, they’re actually defenders of the energy status quo, part of a movement trying to block anything that might disrupt the reign of fossil fuels.

                                                                              Posted by on Monday, October 5, 2015 at 12:33 AM in Economics, Environment, Politics | Permalink  Comments (56) 

                                                                              Ben Bernanke: Execs Should Have Gone to Jail

                                                                              From an interview in USA Today:

                                                                              The decision about whether to prosecute individuals wasn't up to him, [Bernanke] says. "The Fed is not a law-enforcement agency," he says. "The Department of Justice and others are responsible for that, and a lot of their efforts have been to indict or threaten to indict financial firms. Now a financial firm is of course a legal fiction; it's not a person. You can't put a financial firm in jail."

                                                                              From another report:

                                                                              Asked if someone should have gone to jail, he replied, "Yeah, I think so."

                                                                              There's a video of the interview at the first link.

                                                                                Posted by on Monday, October 5, 2015 at 12:24 AM in Economics, Financial System | Permalink  Comments (42) 

                                                                                Links for 10-05-15

                                                                                  Posted by on Monday, October 5, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (162) 

                                                                                  Sunday, October 04, 2015

                                                                                  'Paying CEOs Fat Bonuses for Stock Performance Doesn't Work'

                                                                                  People on Twitter seemed interested in this:

                                                                                  Paying CEOs fat bonuses for stock performance doesn't work, by Lawrence Lewitinn, Yahoo Finance: It turns out offering CEOs huge bonuses to boost shareholder returns doesn’t actually work, according to a new study from Cornell University.
                                                                                  The analysis, done in conjunction with consultants Pearl Meyer & Partners, examined a decade’s worth of data from every company in the S&P 500. It compared companies that offer their top brass a total shareholder return (TSR) plan to those that don’t and found the increasingly popular pay plans haven't significantly boosted any of a number of key metrics. ...

                                                                                  To be fair, I should note that this is qualified. The end of the article points out that this "doesn’t rule out other performance bonuses" that avoid the problems associated with this particular method of trying to align the preferences of CEOs with those of stockholders. Nevertheless, I'm skeptical.

                                                                                    Posted by on Sunday, October 4, 2015 at 05:43 PM in Economics, Market Failure | Permalink  Comments (8) 

                                                                                    'Nonrival Goods After 25 Years'

                                                                                    Paul Romer:

                                                                                    Nonrival Goods After 25 Years: Joshua Gans has a generous post that notes the 25th anniversary of the publication of my 1900 JPE article. I could not agree more with his observation that “there is more to be done …” in understanding the economics of ideas.
                                                                                    His post helped me see how to respond to a conversation I had this summer. I’ll use the excuse of the anniversary to focus for the month on such basics as the meaning of nonrival good. Doing so will be a shift for this blog, which until now has been concerned primarily with economics as a science and incidentally with my day job, which focuses on the interaction between urbanization and development.
                                                                                    I’m looking forward to revisiting these basics. ...

                                                                                    [He goes on to talk about excludability and nonrival goods.]

                                                                                      Posted by on Sunday, October 4, 2015 at 05:29 PM in Economics | Permalink  Comments (1) 

                                                                                      Worries about a Global Economic Slowdown

                                                                                      Jim Hamilton:

                                                                                      ... What evidence is there that worries about a global economic slowdown are figuring prominently in recent oil prices? Exhibit one is the remarkable comovement between commodity and asset prices. Concerns about global economic weakness show up in commodity prices and asset markets across the board. ...

                                                                                      Gavyn Davies:

                                                                                      The turbulence in the global financial markets in the past few weeks has been widely attributed to a “China shock” that has increased the risks of a major downturn in global activity. Last month, this blog concluded that our regular “nowcasts” for global activity had not yet corroborated this narrative.
                                                                                      This month, we have identified the first clear evidence that the global economy has slowed down since mid year, with emerging markets and advanced economies both now growing more slowly. ...

                                                                                        Posted by on Sunday, October 4, 2015 at 10:24 AM in Economics | Permalink  Comments (40) 

                                                                                        Links for 10-04-15

                                                                                          Posted by on Sunday, October 4, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (142) 

                                                                                          Saturday, October 03, 2015

                                                                                          'How Poverty Affects Children’s Brains'

                                                                                          We need to do more to "inoculate young children’s pliable brains against the ravages of poverty":

                                                                                          How poverty affects children’s brains, Washington Post: ... In a study published this year in Nature Neuroscience, several co-authors and I found that family income is significantly correlated with children’s brain size — specifically, the surface area of the cerebral cortex, which ... does most of the cognitive heavy lifting. Further, we found that increases in income were associated with the greatest increases in brain surface area among the poorest children. ...
                                                                                          Some feared the study would be used to reinforce the notion that people remain in poverty because they are less capable than those with higher incomes. As neuroscientists, we interpret the results very differently. We know that the brain is most malleable in the early years of life...
                                                                                          Our [new] clinical trial is designed to provide strong evidence regarding whether and how poverty reduction promotes cognitive and brain development. This study, however, will take at least five years to complete — far too long for young children living in poverty today. We should not wait until then to push for policies that can help inoculate young children’s pliable brains against the ravages of poverty. ...

                                                                                            Posted by on Saturday, October 3, 2015 at 03:52 PM in Economics, Income Distribution | Permalink  Comments (54) 

                                                                                            'The Romer Model Turns 25'

                                                                                            Joshua Gans:

                                                                                            The Romer Model turns 25: 25 years ago this month Paul Romer‘s paper, “Endogenous Technological Change” was published in the Journal of Political Economy. After over 20,000 citations, it is one of the most influential economics papers of that period. The short version of what that paper did was to provide a fully specified model whereby technological change (i.e., the growth of productivity) was driven not be outside (or exogenous) forces but, instead, by the allocation of resources to knowledge creation and with a complete description of the incentives involved that provided for that allocation. Other papers had attempted this in the past — as outlined in David Warsh’s great book of 2006 — and others provided alternatives at the same time (including Aghion, Howitt, Grossman, Helpman, Acemoglu and Weitzman) but Romer’s model became the primary engine that fueled a decade-long re-examination of long-term growth in economics; a re-examination that I was involved in back in my student days.
                                                                                            Recently, Romer himself has taken on others who, more recently, have continued to provide models of endogenous economic growth (most notably Robert Lucas) for not building on the work of himself and others that grounded the new growth theory in imperfect competition but instead trying to formulate models based on perfect competition instead. I don’t want to revisit that issue here but do want to note that “The Romer Model” is decidedly non-mathy. As a work of theoretical scholarship, every equation and assumption is carefully justified. The paper is laid out with as much text as there is mathematics. And in the end, you know how the model works, why it works and what drives its conclusions. ...

                                                                                            After explaining the contributions in detail, he also covers:

                                                                                            So why has work in this area somewhat petered out? ...

                                                                                            And ends with:

                                                                                            In summary, the Romer model was a milestone and led to much progress. It is a stunningly beautiful work of economic theory. But there is more to be done and my hope is we will see that happen in the future as the cumulative process that drives new knowledge can drive new economic knowledge as well.

                                                                                              Posted by on Saturday, October 3, 2015 at 11:46 AM in Economics, Productivity, Technology | Permalink  Comments (4) 

                                                                                              Where Have all the Teachers Gone?

                                                                                              The people who say "think of the children!" when stoking unfounded fears about the debt seem to have no problem with this. Maybe the children aren't really their main concern:


                                                                                                Posted by on Saturday, October 3, 2015 at 11:16 AM in Economics, Education | Permalink  Comments (79) 

                                                                                                Links for 10-03-15

                                                                                                  Posted by on Saturday, October 3, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (138) 

                                                                                                  Friday, October 02, 2015

                                                                                                  ''You Just Don’t See the Positive Side'' of High Managerial Compensation

                                                                                                  From an interview with Thomas Piketty during a trip to South Africa:

                                                                                                  ...I think in all cases there is always a lot to learn from these historical experiences and probably the one … lesson is we don’t want, we don’t need 19th-century inequality to grow in the 21st century. We find the role of inequality may be justified by incentive and growth considerations, but certainly no extreme and sometimes obscene level of inequality of pay that we’ve seen in recent days, with top managerial compensation going to millions of dollars. You just don’t see the positive side of this in the performance, in the job creation. ... The idea that you need to pay top managers 100, 200 times the minimum wage to get them to work and otherwise they will just not do the work. That ideology is not consistent at all with the historical data that we have, which shows that you can develop with reasonable, not extreme inequality levels. ...

                                                                                                  The comments on the interview, at least when I read them, were not supportive.

                                                                                                    Posted by on Friday, October 2, 2015 at 06:57 PM in Economics, Income Distribution | Permalink  Comments (15) 

                                                                                                    'Job Growth Weakens in September'

                                                                                                    Dean Baker:

                                                                                                    Job Growth Weakens in September: The Labor Department reported the economy created just 142,000 jobs in September, well below most forecasts. Furthermore, the prior two months' numbers were revised down as well, bringing the average for the last three months to 167,000. In addition, there was a drop in the length of the average workweek of 0.1 hour causing the index of aggregate hours to decline by 0.2 percent. The household survey also showed a weak picture of the labor market. While the unemployment rate was unchanged at 5.1 percent there was a drop of 0.2 percentage points in both the labor force participation rate and the employment-to-population (EPOP) ratio. The drop in the EPOP brought the ratio back to its level of October 2014.

                                                                                                    The weakness in job growth in the establishment survey was spread widely across sectors. ...

                                                                                                    The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.

                                                                                                    The household survey also showed a weak picture of the labor market. While the unemployment rate was unchanged there was a drop of 0.2 percentage points in both the labor force participation rate and the employment to population ratio. The low EPOP is not primarily a demographic story. The EPOP for prime-age (25–54) men is still 3.5 percentage points below its pre-recession peak and 5.0 percentage points below its 2000 high. For prime-age women the September EPOP is 2.7 percentage points below the pre-recession peak and 4.7 percentage points below the high hit in 2000. Clearly this is not a story of people leaving the labor force to retire.
                                                                                                    Other news in the household survey was mixed. The share of unemployment due to people who voluntarily quit their jobs remained at the low 9.8 percent rate of August, a level typically seen in recessions. The duration measures all fell slightly, reversing some increases in the prior two months. The one piece of clear good news in the survey was a drop of 447,000 in the number of people working part-time for economic reasons. This number is erratic, but this is an unusually large one-month decline.

                                                                                                    On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.

                                                                                                      Posted by on Friday, October 2, 2015 at 09:14 AM in Economics, Unemployment | Permalink  Comments (157)