Wednesday, November 25, 2015

Links for 11-25-15

    Posted by on Wednesday, November 25, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (130) 

    Tuesday, November 24, 2015

    'Economists and the Eurozone: Wake Up Calls and Political Capture'

    Simon Wren-Lewis:

    Economists and the Eurozone: wake up calls and political capture: ... It is natural at this point to talk about Germany, and the fact that as a result of low wage increases undercutting Eurozone neighbours before the recession, Germany is not suffering as much from this recession as other countries. But I have often tried to avoid stopping there, and instead to ask whether Germany's strange stance on these macro issues simply reflects this different conjunctural position. I think the answer is no.

    I'm increasingly drawn to the view that Germany's stance reflects similar political economy pressures as you will find in other OECD economies: there is no German exceptionalism, but rather that the forces that everywhere are pushing austerity and tighter monetary policy happen for various reasons to be stronger in Germany. From this perspective, this post from Frances Coppola is particularly interesting. Perhaps the problem at the heart of the Eurozone is that economic policy advice in Germany has been effectively captured by employers' interests, and perhaps the interests of banks in particular.

     Economic policy effectively captured by business and financial interests? That could never happen here...

      Posted by on Tuesday, November 24, 2015 at 10:11 AM in Economics, Politics | Permalink  Comments (89) 

      'Is the ACA in Trouble?'

      Henry Aaron at Brookings:

      Is the ACA in trouble?: United Health Care’s surprise announcement that it is considering whether to stop selling health insurance through the Affordable Care Act’s health exchanges in 2017 and is also pulling marketing and broker commissions in 2016 has health policy analysts scratching their heads. ...
      Is United’s announcement seriously bad news for Obamacare, as many commentators have asserted? Is United seeking concessions in another area and using this announcement as a bargaining chip? Or, is something else going on? The answer, I believe, is that the announcement, while a bit of all of these things, is less significant than many suppose. ...
      What seems to have happened—one can’t be sure...—is that the company, which mostly delayed its participation in the individual exchanges until 2015, incurred substantial start-up costs, enrolled few customers who turned out to be sicker than anticipated, and experienced more-than-anticipated attrition. Other insurers, including Blue-Cross/Blue-Shield plans nation-wide which hold a dominant position in individual markets in many states, did well... But minor players in the individual market, such as United, may have concluded that the costs of developing that market are too high for the expected pay-off. ...
      What this means is that United’s announcement is regrettable news for those states from which they may decide to withdraw, as its departure would reduce competition. United might also use the threat of departure to negotiate favorable terms with states and the Administration. ... But it would be a mistake to treat United’s announcement, presumably made for good and sufficient business reasons, as a portentous omen of an ACA crisis.

        Posted by on Tuesday, November 24, 2015 at 09:27 AM in Economics, Health Care | Permalink  Comments (55) 

        Links for 11-24-15

          Posted by on Tuesday, November 24, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (198) 

          Monday, November 23, 2015

          James Poterba Interview

          James Poterba is interviewed by the Richmond Fed:

          ... EF: More recently, one of your areas of research has been retirement finance and the investment decisions of workers thinking about their retirement. In recent decades, we've seen a tremendous shift in the private sector from defined benefit retirement programs to defined contribution programs. Was this mainly a response by firms to the tightening of the regulatory environment for defined benefit plans, to changing demand from workers, or to something else?
          Poterba: I think it's a bit of everything. A number of factors came together to create an environment in which firms were more comfortable offering defined contribution plans than defined benefit plans. One factor was that when firms began offering defined benefit plans, in World War II and the years following it, the U.S. economy and its population were growing rapidly. The size of the benefit recipient population from these plans relative to the workforce was small. It was also a time when life expectancy for people who were aged 65 was several years less than it is today. Over time, the financial executives at firms came to a greater recognition of the true cost of defined benefit plans.
          I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income.
          But ERISA and the growing recognition of the costs of defined benefit plans are probably not the full story. The U.S. labor market has become more dynamic over time, or at least workers think it has, and that has led to fewer workers being well-suited to defined benefit plans. These plans worked very well for workers who had a long career at a single firm. Today, workers may overestimate the degree of dynamism in the labor market. But if they believe it is dynamic, they may place great value on a portable retirement structure that enables them to move from firm to firm and to take their retirement assets with them.
          Most workers who are at large firms, firms that have 500 employees or more, have access to defined contribution plans. Unfortunately, we still don't have great coverage at smaller firms, below, say, 50 employees. For workers who will spend a long career at a small firm, the absence of these employer-based plans can make it harder to save for retirement. A key policy priority is pushing the coverage of defined contribution plans further down the firm size distribution. That's hard, because smaller firms are less likely to have the infrastructure in place in their HR departments or to have the spare resources to be able to learn how to establish a defined contribution plan and how to administer it. They are probably also more reluctant to take on the fiduciary burdens and responsibilities that come with offering these plans.
          Another concern, within the defined contribution system, is the significant amount of leakage. Money that was originally contributed for retirement may be pulled out before the worker reaches retirement age.
          EF: What is causing that? ...
          Poterba: Say you've worked for 10 years at a firm that offers a 401(k) plan and you've been contributing all the way along. You decide to leave that firm. In some cases, the firm you are leaving may encourage you to take the money out of their retirement plan because they may not want to have you around as a legacy participant in their plan. ... Sometimes, the worker may choose to move the funds from the prior 401(k) plan to a retirement plan at their new employer, or to an IRA. Those moves keep the funds in the retirement system. But sometimes, the worker just spends the money. When an individual leaves a job, they may experience a spell of unemployment, or they may have health issues. There may be very good reasons for tapping into the 401(k) accumulation. Using the 401(k) system as a source of emergency cash, sort of as the ATM for these crises, diminishes what gets accumulated for retirement. ...

          Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings. So while there may be a "very good reason" for this from an individual's perspective, from a larger social perspective this is a problem connected to our unwillingness to provide adequate social insurance for those who are the unlucky losers to the dynamism inherent in capitalism that propels us forward. Those who benefit so much from the dynamism could and should do more to help those who pay the costs.

            Posted by on Monday, November 23, 2015 at 11:20 AM in Economics, Social Insurance | Permalink  Comments (26) 

            Paul Krugman: Health Reform Lives!

            The recent "bad, or at least not-great news about health reform" is won't derail Obamacare:

            Health Reform Lives!, by Paul Krugman, Commentary, NY Times: To the right’s dismay, scare tactics — remember death panels? — and spurious legal challenges failed to protect the nation from the scourge of guaranteed health coverage. Still, Obamacare’s opponents insisted that it would implode in a “death spiral” of low enrollment and rising costs.
            But the law’s first two years ... went remarkably well. The number of uninsured Americans dropped sharply,... while costs came in well below expectations. ...
            I mention all of this to give you some perspective on recent developments that mark a break in the string of positive surprises. Yes, Obamacare has hit a few rough patches lately. But they’re much less significant than a lot of the reporting, let alone the right-wing reaction, would have you believe. Health reform is still a huge success story. ...
            First, premiums are going up for next year, because insurers are finding that their risk pool is somewhat sicker and hence more expensive than they expected. There’s a lot of variation across states, but the average increase will be around 11 percent. That’s a slight disappointment, but it’s not shocking, given both the good news of the previous two years and the long-term tendency of insurance premiums to rise 5-10 percent a year.
            Second, some Americans who bought low-cost insurance plans have been unpleasantly surprised by high deductibles. This is a real issue, but it shouldn’t be exaggerated. All allowed plans cover preventive services without a deductible, and many plans cover other health services as well. Furthermore, additional financial aid is available to lower-income families... Some people may not know about these mitigating factors ... but awareness should improve over time. ...
            Oh, and official projections now say that fewer people will enroll in those exchanges than previously predicted. But the main reason is that surprisingly few employers are dropping coverage; overall projections for the number of uninsured Americans still look pretty good.
            So where does that leave us? Without question, the run of unexpectedly good news for Obamacare has come to an end, as all such runs must. ... There were bound to be some bobbles along the way.
            But are we looking at the beginnings of a death spiral? Some people are indeed saying that, but as far as I can tell, they’re all people who have been predicting disaster every step of the way...
            The reality is that Obamacare is an imperfect system, but it’s workable — and it’s working.

              Posted by on Monday, November 23, 2015 at 12:51 AM in Economics, Health Care | Permalink  Comments (158) 

              Fed Watch: Mission Accomplished

              Tim Duy:

              Mission Accomplished, by Tim Duy: Federal Reserve policymakers have pretty much taken all of the mystery out of this next meeting. Federal Reserve Vice Chair Stanley Fischer, via Reuters:

              "In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates," Fed Vice Chairman Stanley Fischer told the San Francisco Fed's biannual Asia Economic Policy conference.

              "While we at the Fed continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to 'just do it'."

              New York Federal Reserve President William Dudley, via Reuters:

              The Federal Reserve should "soon" be ready to raise interest rates as U.S. central bankers grow confident that low inflation will rebound and that employment remains stable, William Dudley, the influential head of the New York Fed, said on Friday.

              "We hope that relatively soon we will become reasonably confident that inflation will return to our 2 percent objective," he said at Hofstra University. Dudley said it was "very logical" to expect that the Fed's inflation and employment conditions would be met "soon," allowing policymakers to "start thinking about raising the short-term interest rates."

              Atlanta Federal Reserve President Dennis Lockhart, via CNBC:

              A top Federal Reserve official said Thursday he is "comfortable" with raising the federal funds rate "soon," as concerns about low inflation and global risks are not persuasive enough to keep interest rates near zero.

              "I'm comfortable with moving off zero soon," said Atlanta Fed President Dennis Lockhart in prepared remarks.

              San Francisco Federal Reserve President John Williams, via Reuters:

              "The data I think have been overall encouraging, especially on the labor market," San Francisco Fed President John Williams told reporters after a conference at University of California Berkeley's Clausen Center.

              "Assuming that we continue to get good data on the economy, continue to get signs that we are moving closer to achieving our goals and gaining confidence getting back to 2-percent inflation... If that continues to happen there's a strong case to be made in December to raise rates."

              Obviously serial dissenter Richmond Federal Reserve President Jeffrey Lacker is also looking for a rate hike. And so too is Cleveland Federal Reserve President Loretta Mester. To be sure, they all give a nod to “data dependence,” implying that a rate hike is not a sure thing. But, barring an outright collapse in financial markets, it is very difficult to see the data evolve between now and December 15-16 in such a way that the Fed suddenly has a change of heart. And note there is little reason for them to think at this point that growth has slowed well below trend. It is widely expected that Q3 GDP is this week revised up to 2.1% while current quarter GDP is tracking at 2.3%. While in 1990s terms these are not staggering numbers, in 2010 terms they exceed the Fed’s estimate of potential GDP growth. And with more and more Fed officials convinced the economy is operating near full employment, anything over 2% raises worries on Constitution Avenue that the economy might overheat.

              Now, we still have one employment report ahead of us. Aside from the now-reversed equity declines in August, recall from the last minutes that uncertainty regarding the labor market helped stay the Fed’s hand:

              In assessing whether economic conditions and the medium-term economic outlook warranted beginning the process of policy normalization at this meeting, members noted a variety of indicators, including some weaker-than-expected readings on measures of labor market conditions, and almost all members agreed it was appropriate to wait for additional information to clarify whether the recent deceleration in the pace of progress in the labor market was transitory or reflected more persistent factors that might jeopardize further progress.

              It would seem that the October labor report put an end to those concerns. Consequently, the following comes into play:

              Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting, provided that unanticipated shocks do not adversely affect the economic outlook and that incoming data support the expectation that labor market conditions will continue to improve and that inflation will return to the Committee's 2 percent objective over the medium term.

              I suspect that only an outright disaster in the November labor report would prompt the Fed to take a pass at the December meeting. It is just simply the case that given their Phillips curve framework, they are running out of reasons not to raise rates. They would need enough weak data to fundamentally alter their outlook to the downside, and it is hard to see that happening in the short time remaining.

              Consequently, it is hard to come to any other conclusion than that they are going to raise the target range on the federal funds rate in December. In Fedspeak, they might as well be screaming it into your ears.

              While they may be taking the mystery out of the first rate hike, however, they are trying to put the mystery into subsequent rate hikes. Lockhart, via Reuters:

              "The pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates," Lockhart said in a speech to the DeKalb Chamber of Commerce in Atlanta.

              Williams, via Reuters:

              "We definitely do not want to, either through our actions or our words, indicate a preference for a very mechanical path of interest rates, whether it’s every other meeting or however you think about it," Williams said. "Since economic data can surprise on the upside and the downside, maybe there will be opportunities to show we are data dependent."

              And St. Louis Federal Reserve President James Bullard, via Bloomberg:

              “When we had a normalization in 2004 to 2006 we moved at the same 25 basis points per meeting for 17 meetings in a row,” Bullard said. “I am virtually certain that was not optimal monetary policy. That was a very mechanical approach to increasing rates. This time I am hopeful we can be more flexible and reactive to data.”

              How will they communicate uncertainty in the path of rate hikes? I wonder if they can simply retain this sentence in the next statement:

              In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.

              It seems like this could be used to convey uncertainty in subsequent meetings, especially if they choose not to hike in January.

              Bottom Line: The Fed is set to declare “Mission Accomplished” at the next FOMC meeting. Indeed, many policymakers have already said as much. Absent a very significant change in the outlook, failure to hike rates in December would renew the barrage of criticism regarding their communications strategy that prompted them to highlight the December meeting in their last statement. Once they have communicated their intentions for subsequent rate hikes, they will turn their attention to the issue of normalizing the balance sheet. Even though officials have not committed to a specific path, I am working with a baseline of 100bp of tightening between now and next December, or roughly 25bp every other meeting. I expect that by the second quarter of next year they will begin communicating the fate of the balance sheet. Whether they should hike or not remains a separate issue. Over the next twelve months we will learn the extent of which the Federal Reserve can resist the global downward pull of interest rates. Other central banks have been less-than-successful in their efforts to pull off of the zero bound – not exactly a hopeful precedent.

                Posted by on Monday, November 23, 2015 at 12:15 AM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (33) 

                Links for 11-23-15

                  Posted by on Monday, November 23, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (114) 

                  Sunday, November 22, 2015

                  'An Unforgiving Musical-Chairs Economy'

                  Harold Pollack (the beginning of the post talks about a recent column in the NY Times noting that "The people who most rely on the safety-net programs secured by Democrats are, by and large, not voting against their own interests by electing Republicans. Rather, they are not voting, period," and how that has turned blues states red):

                  What’s the matter with Kentucky?: ...Viewed from afar, one might think that categories such as “deserving poor” or “disabled” are reasonably clear-cut. Viewed up-close, things seem much more fuzzy. Many people who rely on public aid straddle the boundaries between deserving and undeserving, disabled and able-bodied. Many of us know people who receive various public benefits, and who might not need to rely on these programs if they made better choices, if they learned how to not talk back at work, if they had a better handle on various self-destructive behaviors, if they were more willing to take that crappy job and forego disability benefits, etc.
                  It’s easy, even viewing our own friends and relatives, to confuse cause and effect regarding more intimate barriers. A sad reality of psychiatric disorders is that the very symptoms which inflict mental pain on the sufferer can make themselves felt to others in ways that undermine empathy and personal relationships.
                  Across the Thanksgiving dinner table, you see these human frailties and failures more intensely and with greater granularity than the labor economist could possibly see running cold data at the Census Bureau. But operating at high altitude, the labor economist sees structural issues you can’t see from eye level.
                  There have always been vulnerable people, whose troubles arise from an impossible-to-untangle mixture of bad luck, destructive behaviors, and difficult personal circumstance. That economist can’t see why your imperfect cousin can’t seem to get it together to hold a basic job. She can see that your cousin is being squeezed out by an unforgiving musical-chairs economy. Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs.

                    Posted by on Sunday, November 22, 2015 at 12:10 PM in Economics | Permalink  Comments (56) 

                    Links for 11-22-15

                      Posted by on Sunday, November 22, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (224) 

                      Saturday, November 21, 2015

                      'The Political Aftermath of Financial Crises: Going to Extremes'

                      At Vox EU:

                      The political aftermath of financial crises: Going to extremes, by Manuel Funke, Moritz Schularick, and Christoph Trebesch: Summary Recent events in Europe provide ample evidence that the political aftershocks of financial crises can be severe. This column uses a new dataset that covers elections and crises in 20 advanced economies going back to 1870 to systematically study the political aftermath of financial crises. Far-right parties are the biggest beneficiaries of financial crises, while the fractionalization of parliaments complicates post-crisis governance. These effects are not observed following normal recessions or severe non-financial macroeconomic shocks.

                        Posted by on Saturday, November 21, 2015 at 12:15 AM in Economics, Politics | Permalink  Comments (18) 

                        Links for 11-21-15

                          Posted by on Saturday, November 21, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (100) 

                          Friday, November 20, 2015

                          'Some Big Changes in Macroeconomic Thinking from Lawrence Summers'

                          Adam Posen:

                          Some Big Changes in Macroeconomic Thinking from Lawrence Summers: ...At a truly fascinating and intense conference on the global productivity slowdown we hosted earlier this week, Lawrence Summers put forward some newly and forcefully formulated challenges to the macroeconomic status quo in his keynote speech. [pdf] ...
                          The first point Summers raised ... pointed out that a major global trend over the last few decades has been the substantial disemployment—or withdrawal from the workforce—of relatively unskilled workers. ... In other words, it is a real puzzle to observe simultaneously multi-year trends of rising non-employment of low-skilled workers and declining measured productivity growth. ...
                          Another related major challenge to standard macroeconomics Summers put forward ... came in response to a question about whether he exaggerated the displacement of workers by technology. ... Summers bravely noted that if we suppose the “simple” non-economists who thought technology could destroy jobs without creating replacements in fact were right after all, then the world in some aspects would look a lot like it actually does today...
                          The third challenge ... Summers raised is perhaps the most profound... In a working paper the Institute just released, Olivier Blanchard, Eugenio Cerutti, and Summers examine essentially all of the recessions in the OECD economies since the 1960s, and find strong evidence that in most cases the level of GDP is lower five to ten years afterward than any prerecession forecast or trend would have predicted. In other words, to quote Summers’ speech..., “the classic model of cyclical fluctuations, that assume that they take place around the given trend is not the right model to begin the study of the business cycle. And [therefore]…the preoccupation of macroeconomics should be on lower frequency fluctuations that have consequences over long periods of time [that is, recessions and their aftermath].”
                          I have a lot of sympathy for this view. ... The very language we use to speak of business cycles, of trend growth rates, of recoveries of to those perhaps non-stationary trends, and so on—which reflects the underlying mental framework of most macroeconomists—would have to be rethought.
                          Productivity-based growth requires disruption in economic thinking just as it does in the real world.

                          The  full text explains these points in more detail (I left out one point on the measurement of productivity).

                            Posted by on Friday, November 20, 2015 at 05:03 PM in Economics, Macroeconomics, Methodology, Technology, Unemployment | Permalink  Comments (22) 

                            Paul Krugman: The Farce Awakens

                             Why do Republicans have so many panic attacks?:

                            The Farce Awakens, by Paul Krugman, Commentary, NY Times: Erick Erickson, the editor in chief of the website, is a serious power in right-wing circles. ... So it’s worth paying attention to what Mr. Erickson says. And ... his response to the attack in Paris was a bit startling. The French themselves are making a point of staying calm, indeed of going out to cafes to show that they refuse to be intimidated. But Mr. Erickson declared on his website that he won’t be going to see the new “Star Wars” movie on opening day, because “there are no metal detectors at American theaters.”
                            It’s a bizarre reaction — but when you think about it, it’s part of a larger pattern. These days, panic attacks after something bad happens are the rule rather than the exception, at least on one side of the political divide. ...
                            But we shouldn’t really be surprised, because we’ve seen this movie before (unless we were too scared to go to the theater). Remember the great Ebola scare of 2014? The threat of a pandemic, like the threat of a terrorist attack, was real. But it was greatly exaggerated, thanks in large part to hype from the same people now hyping the terrorist danger.
                            What’s more, the supposed “solutions” were similar, too, in their combination of cruelty and stupidity. ...
                            What explains the modern right’s propensity for panic? Part of it, no doubt, is the familiar point that many bullies are also cowards. But I think it’s also linked to the apocalyptic mind-set that has developed among Republicans during the Obama years.
                            Think about it. From the day Mr. Obama took office, his political foes have warned about imminent catastrophe. Fiscal crisis! Hyperinflation! Economic collapse, brought on by the scourge of health insurance! And nobody on the right dares point out the failure of the promised disasters to materialize, or suggest a more nuanced approach.
                            Given this context, it’s only natural that the right would seize on a terrorist attack in France as proof that Mr. Obama has left America undefended and vulnerable. Ted Cruz ... goes so far as to declare that the president “does not wish to defend this country.” ...
                            The point is that at this point panic is what the right is all about, and the Republican nomination will go to whoever can most effectively channel that panic. Will the same hold true in the general election? Stay tuned.

                              Posted by on Friday, November 20, 2015 at 01:08 AM in Economics, Politics | Permalink  Comments (89) 

                              'Rebooting the Eurozone: Step 1 – Agreeing a Crisis Narrative'

                              Richard Baldwin at Vox EU:

                              Rebooting the Eurozone: Step 1 – Agreeing a Crisis narrative: The Eurozone needs fixing, but it is impossible to agree upon the steps to be taken without agreement on what went wrong. This column introduces a new CEPR Policy Insight that presents a consensus-narrative of the causes of the EZ Crisis. It was authored by a dozen leading economists from across the spectrum. The consensus narrative is supported by a long and growing list of economists. 


                              The Eurozone Crisis broke out in May 2010; it is a long way from finished. Although some positive signs have emerged recently, EZ growth and unemployment are miserable and expected to remain miserable for years.

                              • A large slice of Europe’s youth have been or will be jobless during the critical, formative years of their working lives;
                              • The economic malaise is feeding extremist views and nationalistic tendencies just when Europe needs to pull together to deal with challenges ranging from the migration crush to possible new financial shocks.

                              Worse yet, many of the fragilities and imbalances that primed the monetary union for this crisis are still present.

                              • Many of Europe’s banks face problems of non-performing loans;
                              • Many are still heavily invested in their own nation’s public debt – a tie that means problems with banks threaten the solvency of the government and vice versa;
                              • Borrowers across the Continent are vulnerable to the inevitable normalisation of interest rates that have been near-zero for years.

                              As a first step to finding a broad consensus on what needs to be done to fix the Eurozone, we have written what we consider to be a consensus narrative of the Eurozone Crisis. It is published today as CEPR Policy Insight 85, which can be downloaded for free from:

                              Rebooting the Eurozone: Step 1 – agreeing a crisis narrative

                              Although the authors hark from diverse backgrounds, we found it surprisingly easy to agree upon a narrative and a list of the main causes of the EZ Crisis. We say “surprisingly” since EZ policymakers remain attached to very diverse narratives of the Eurozone crisis.

                              The need for a consensus narrative

                              Formulating a consensus on the causes of the EZ Crisis is essential. When terrible things happen, the natural tendency is to fix the immediate damage and take steps to avoid similar problems in the future. It is impossible to agree upon the steps to be taken without agreement on what went wrong. Absent such agreement, half-measures and messy compromises are the typical outcome. But this will not be good enough to put the EZ Crisis behind us and restore growth.

                              This is why formulating a consensus narrative of the EZ Crisis matters so much. Eurozone decision-makers will never agree upon the changes needed to prevent future crises unless they agree upon the basic facts that explain how the Crisis got so bad and lasted so long.

                              The following leading economists have agreed to support the consensus-narrative. If you are an economist and would like to support the consensus-narrative, please email stating your support and attaching a CV showing you are an economist (business, media, academics, think tanks, etc.).

                              Supporters of the Consensus Narrative on the Eurozone Crisis (in order of replying)

                              Silvana Tenreyro, LSE, Sir Charles Bean, LSE (Ex-Deputy Governor Bank of England), Philippe Bacchetta, University of Lausanne, Jorge Braga de Macedo, Universidade Nova de Lisboa, Lars E O Svensson, Stockholm Univeristy (ex-Deputy Governor of Sveriges Riksbank), Andrew Rose, UC Berkeley, László Halpern, Hungarian Academy of Sciences, Refet S. Gürkaynak, Bilkent University, Giorgio E Primiceri, Northwestern University, Peter Bofinger, Universität Wurzburg, Jürgen von Hagen, Universität Bonn, Tryphon Kollintzas, Athens University of Economics and Business, Patrick Honohan, Trinity College Dublin (Ex-Governor of Central Bank of Ireland), Charles A Goodhart, LSE, David Vines, University of Oxford, Fabrizio Coricelli, University of Paris I, Stephanie Schmitt-Grohé, Columbia University, Pierre-Olivier Gourinchas, UC Berkeley, Evi Pappa, EUI, Cédric Tille, The Graduate Institute, Geneva (Member of the Swiss National Bank Council),

                                Posted by on Friday, November 20, 2015 at 12:15 AM in Economics | Permalink  Comments (37) 

                                Links for 11-20-15

                                  Posted by on Friday, November 20, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (95) 

                                  Thursday, November 19, 2015

                                  Explaining Inequality (Piketty, Murphy, Durlauf Video)

                                    Posted by on Thursday, November 19, 2015 at 02:31 PM in Economics, Income Distribution, Video | Permalink  Comments (5) 

                                    'The Effects of Stimulus Spending on Surrounding Areas'

                                    This is from the St. Louis Fed's On the Economy blog:

                                    The Effects of Stimulus Spending on Surrounding Areas: Government spending on goods and services from the American Recovery and Reinvestment Act of 2009 (ARRA) reached around $350 billion.1 Some of this spending impacted not just the areas receiving the money, but surrounding areas as well, thanks to commuters. ...
                                    Dupor and McCrory found substantial direct and spillover effects within regions interconnected by commuter flows. As noted in the article, stimulus spending in one county increased employment and wage payments in places two to three counties away, as long as the areas were sufficiently connected, as measured by commuting patterns. They found that:
                                    • One dollar of ARRA spending in a subregion increased wage payments by $0.64 in that subregion.
                                    • It increased wage payments in the neighboring subregion by $0.50.
                                    In his article, Dupor wrote: “Thus, combining both the direct and spillover effects, there is a greater than one-for-one increase in the wage bill with respect to an increase in the stimulus spending.”
                                    Dupor and McCrory also examined changes in the employment level to gauge economic activity. They found that, following the first two years after ARRA’s enactment, $1 million of stimulus in one part of a local labor market increased employment by 10.3 persons and increased employment in the rest of the local labor market by 8.5 persons.4
                                    Dupor concluded in his article: “Besides providing evidence in favor of a government spending multiplier, our results should provide caution to other researchers, as well as to policymakers. Failing to take into account positive spillovers could lead policymakers to underestimate the total social benefit of government fiscal intervention.”

                                      Posted by on Thursday, November 19, 2015 at 09:05 AM in Economics, Fiscal Policy | Permalink  Comments (9) 

                                      'How Workers Exit the Labor Market after Local Economic Downturns'

                                      The main point of this research is how recessions impact labor market participation, but it also supports the claim in my most recent column that worker mobility (in terms of moving up the job ladder) has fallen due to "declining economic prospects":

                                      How workers exit the labor market after local economic downturns: In light of the recent Great Recession, we continue to learn about how large economic downturns directly affect workers in a variety of ways. Here, we document that following an adverse demand shock, individuals exit local labor markets primarily through migration, although that has become less prominent in the Great Recession. Faced with declining economic prospects, workers are becoming more likely to stay put, without re-entering the labor market. While our research documents the increase in non-participation following adverse labor demand shocks, more needs to be done to understand what effect this phenomenon has on the broader economy. In particular, little research has been done on the effect of non-participation on wages and employment prospects for those seeking work, or on the long-term effects labor force exit has on a worker’s human capital.

                                        Posted by on Thursday, November 19, 2015 at 09:00 AM in Economics, Unemployment | Permalink  Comments (32) 

                                        Links for 11-19-15

                                          Posted by on Thursday, November 19, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (150) 

                                          Wednesday, November 18, 2015

                                          'Regional Inequality is Out of Control'

                                          Haven't had a chance to read this carefully yet, but thought it might be of interest:

                                          Boom and Bust, by Phillip Longman, Washington Monthly: Despite all the attention focused these days on the fortunes of the “1 percent,” our debates over inequality still tend to ignore one of its most politically destabilizing and economically destructive forms. This is the growing, and historically unprecedented, economic divide that has emerged in recent decades among the different regions of the United States.

                                          Until the early 1980s, a long-running feature of American history was the gradual convergence of income across regions. The trend goes back to at least the 1840s, but grew particularly strong during the middle decades of the twentieth century. ...

                                          Yet starting in the early 1980s, the long trend toward regional equality abruptly switched. ...

                                          A major factor that has not received sufficient attention is the role of public policy [note: antitrust in particular]. Throughout most of the country’s history, American government at all levels has pursued policies designed to preserve local control of businesses and to check the tendency of a few dominant cities to monopolize power over the rest of the country. These efforts moved to the federal level beginning in the late nineteenth century and reached a climax of enforcement in the 1960s and ’70s. Yet starting shortly thereafter, each of these policy levers were flipped, one after the other, in the opposite direction, usually in the guise of “deregulation.” Understanding this history, largely forgotten in our own time, is essential to turning the problem of inequality around. ...

                                          ...Inequality, an issue politicians talked about hesitantly, if at all, a decade ago, is now a central focus of candidates in both parties. The terms of the debate, however, are about individuals and classes: the elite versus the middle, the 1 percent versus the 99 percent. That’s fair enough. But the language we currently use to describe inequality doesn’t capture the way it is manifest geographically. Growing inequality between and among regions and metro areas is obvious to all of us. But it is almost completely absent from the current political conversation. This absence would have been unfathomable to earlier generations of Americans; for most of this country’s history, equalizing opportunity among different parts of the country was at the center of politics. The resulting policies led to the greatest mass prosperity in human history. Yet somehow, about thirty years ago, we forgot our history.

                                            Posted by on Wednesday, November 18, 2015 at 11:44 AM in Economics, Income Distribution | Permalink  Comments (43) 

                                            'A More Inflexible Fed Would Cause More Crises'

                                            Adam Posen:

                                            A More Inflexible Fed Would Cause More Crises: Having saved the US economy from a second Great Depression, the Federal Reserve has become a political scapegoat in the Congress for its own failures to secure the recovery. Rather than improving our tax code, investing in our future, or simply passing a budget that is little more than avoiding default, the House is prioritizing so-called “reform” of the Fed.  Just as throughout the global financial crisis and recovery, Congress is abdicating its economic responsibilities to the American people and attacking one of the few policy institutions that worked instead.
                                            Both Republicans and Democrats have already curtailed the ability of the US central bank to respond proactively to any financial crisis... They have done this by restricting the Fed’s ability to lend to troubled institutions in a crisis—even though such lending is the very essence of why the central bank exists: ...
                                            Now, there are new legislative efforts trying to force the Fed to follow strictly a narrow policy rule when setting monetary policy even in normal times—and report to Congress in a very literal-minded short-term way about any deviations from that rule. ...
                                            More closely examined, any imposition of a simplistic rigid policy rule with mechanistic monitoring will only serve to politicize monetary policy to an unprecedented extent. And that, for good reason, is almost universally seen in the economics profession as something that would inevitably lead to ongoing higher inflation and bigger, more frequent boom-bust cycles. ...
                                            Any effort to limit US monetary policy to an inflexible rule with politicized short-term oversight should be opposed..., doing so would bring severe harm to the workers, savers, and investors in the US economy.

                                              Posted by on Wednesday, November 18, 2015 at 10:32 AM in Economics, Monetary Policy, Politics | Permalink  Comments (8) 

                                              Links for 11-18-15

                                                Posted by on Wednesday, November 18, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (229) 

                                                Tuesday, November 17, 2015

                                                An Essential Part of Job Creation Policy is Missing

                                                My latest column:

                                                An Essential Part of Job Creation Policy is Missing: The presidential candidates from both parties have focused on the struggles of the working class, and rightly so. Inequality has been rising, jobs have been hard to find, and when jobs do appear they tend to pay low wages and offer few if any benefits.  There is little security due to globalization and digital technology, and workers cannot count on adequate social insurance to insulate them from the high costs of unemployment.
                                                Meanwhile, as wages for those who do have jobs stagnate, the costs of childcare, health care, housing, utilities, college, transportation, insurance, food, recreation (how many hours at the minimum wage are required to simply take a family of four to the movies?) and so on continue to rise making it harder and harder for families to make ends meet.
                                                So the candidates have focused on how to create jobs that pay a decent wage. But there is an important facet of job creation that is being left out of these and other discussions...

                                                  Posted by on Tuesday, November 17, 2015 at 10:17 AM in Economics, Unemployment | Permalink  Comments (117) 

                                                  'Where Have all the Workers Gone?'

                                                  Why have so many workers left the labor force?:

                                                  Where have all the workers gone?, by: Isabel V. Sawhill, Brookings: Employment rates among prime-age workers, especially men, have declined sharply over the last few decades. The Great Recession made matters worse. Recent declines in the unemployment rate have enticed some back into the active labor force but the long-term picture is still discouraging. When we compare the U.S. to other advanced countries, working-age adults are simply not working as much as adults in most European nations.
                                                  What's going on here? As my colleague Gary Burtless notes, three developments have probably played a role. First, real wages have fallen by 28 percent for high-school educated men since 1980, making work much less attractive, but also signaling that employers are looking for a higher level of skill. Second, the disability rolls have been growing (primarily because of musculoskeletal and mental health issues). Although getting onto disability is a long and involved process, the benefits compete favorably with what a low-skilled worker could earn and create a disincentive to re-enter the labor market. Third, now that women are almost half the labor force, the pressure for men to work has lessened.
                                                  In the shorter run, it's hard to tell how much of the recent sharp drop in employment is related to weak demand and how much to these longer-term factors. ....

                                                    Posted by on Tuesday, November 17, 2015 at 10:11 AM in Economics, Unemployment | Permalink  Comments (32) 

                                                    ‘Chicagonomics’ and ‘Economics Rules’

                                                    David Leonhardt reviews ‘Chicagonomics’ and ‘Economics Rules’:

                                                    ‘Chicagonomics’ and ‘Economics Rules’: He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich — who suffer from “indolence and vanity” — to help the poor.
                                                    Which leftist economist was this? None other than Adam Smith, the inventor of the “invisible hand” and the icon of ­laissez-faire economics today. Smith’s modern reputation is a caricature. ...

                                                      Posted by on Tuesday, November 17, 2015 at 10:08 AM in Economics | Permalink  Comments (10) 

                                                      Links for 11-17-15

                                                        Posted by on Tuesday, November 17, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (178) 

                                                        Monday, November 16, 2015

                                                        'Inflation and Activity – Two Explorations and their Monetary Policy Implications'

                                                        Olivier Blanchard, Eugenio Cerutti, and Lawrence Summers (the results are preliminary):

                                                        Inflation and Activity – Two Explorations and their Monetary Policy Implications Olivier Blanchard, Eugenio Cerutti, and Lawrence Summers NBER Working Paper No. 21726 November 2015: Introduction: We explore two empirical issues triggered by the Great Financial Crisis. First, in most advanced countries, output remains far below the pre-recession trend, leading researchers to revisit the issue of hysteresis... Second, while inflation has decreased, it has decreased less than was anticipated (an outcome referred to as the “missing disinflation’’), leading researchers to revisit the relation between inflation and activity.
                                                        Clearly, if confirmed, either the presence of hysteresis or the deterioration of the relation between inflation and activity would have major implications for monetary policy and for stabilization policy more generally. ...
                                                        First, we revisit the hysteresis hypothesis, defined as the hypothesis that recessions may have permanent effects on the level of output relative to trend. ... We find that a high proportion of recessions, about two-thirds, are followed by lower output relative to the pre-recession trend even after the economy has recovered. Perhaps more surprisingly, in about one-half of those cases, the recession is followed not just by lower output, but by lower output growth relative to the pre-recession output trend. That is, as time passes following recessions, the gap between output and projected output on the basis of the pre-recession trend increases. ...
                                                        Turning to the Phillips curve relation, we ... find clear evidence that the effect of the unemployment gap on inflation has substantially decreased since the 1970s. Most of the decrease, however, took place before the early 1990s. Since then, the coefficient appears to have been stable, and, in most cases, significant...
                                                        Finally, in the last section, we explore the implications of our findings for monetary policy. The findings of the second section have opposite implications for monetary policy... To the extent that recessions are due to the perception or anticipation of lower underlying growth, this implies that estimates of potential output, based on the assumption of an unchanged underlying trend, may be too optimistic, and lead to too strong a policy response to movements in output. However, to the extent that recessions have hysteresis or super-hysteresis effects, then the cost of allowing downward movements in output in response to shifts in demand increases implies that a stronger response to output gaps is desirable.
                                                        The findings of the third section yield less dramatic conclusions. To the extent that the coefficient on the unemployment gap, while small, remains significant, the implication is that, within an inflation targeting framework, the interest rate rule should put more weight on the output gap relative to inflation. ...

                                                          Posted by on Monday, November 16, 2015 at 11:31 AM in Academic Papers, Economics, Monetary Policy, Productivity | Permalink  Comments (47) 

                                                          'Uber Is Not the Future of Work'

                                                          Larry Mishel:

                                                          Uber Is Not the Future of Work: The rise of Uber has convinced many pundits, economists, and policymakers that freelancing via digital platforms is becoming increasingly important to Americans’ livelihood. It has also promoted the idea that new technology—particularly the explosion of platforms enabling the gig economy—will fundamentally alter the future of work.
                                                          While Uber and other new companies in the gig economy receive a lot of attention, a look at Uber’s own data about its drivers’ schedules and pay reveals them to be much less consequential than most people assume. In fact, dwelling on these companies too much distracts from the central features of work in America that should be prominent in the public discussion: a disappointingly low minimum wage, lax overtime rules, weak collective-bargaining rights, and excessive unemployment, to name a few. When it comes to the future of work, these are the aspects of the labor market that deserve the most attention. ...

                                                            Posted by on Monday, November 16, 2015 at 10:16 AM in Economics | Permalink  Comments (25) 

                                                            'Clinton is Both Right and Wrong about Glass-Steagall'

                                                            Me, at MoneyWatch:

                                                            Clinton is Both Right and Wrong about Glass-Steagall: In the Democratic presidential debate, Hillary Clinton said she opposed the reimplementation of the Glass-Steagall act. The Act was repealed in 1999, and many people believe easing the restrictions the Act imposed on banks caused the financial crisis. As I will explain shortly, the evidence does not support this claim, but that doesn’t mean the repeal of Glass-Steagall was a good idea...

                                                              Posted by on Monday, November 16, 2015 at 09:48 AM in Economics, Politics | Permalink  Comments (31) 

                                                              Paul Krugman: Fearing Fear Itself

                                                              Don't give in to fear:

                                                              Fearing Fear Itself, by Paul Krugman, Commentary, NY Times: Like millions of people, I’ve been obsessively following the news from Paris, putting aside other things to focus on the horror. It’s the natural human reaction. But let’s be clear: it’s also the reaction the terrorists want. And that’s something not everyone seems to understand.
                                                              Take, for example, Jeb Bush’s declaration that “this is an organized attempt to destroy Western civilization.” No, it isn’t. It’s an organized attempt to sow panic, which isn’t at all the same thing. And remarks like that, which blur that distinction and make terrorists seem more powerful than they are, just help the jihadists’ cause. ...
                                                              So what was Friday’s attack about? Killing random people in restaurants and at concerts is a strategy that reflects its perpetrators’ fundamental weakness. It isn’t going to establish a caliphate in Paris. What it can do, however, is inspire fear — which is why we call it terrorism, and shouldn’t dignify it with the name of war.
                                                              The point is not to minimize the horror. It is, instead, to emphasize that the biggest danger terrorism poses ... comes not from the direct harm inflicted, but from the wrong-headed responses it can inspire. ...
                                                              It would certainly be a very bad thing if France or other democracies ... try to achieve perfect security by eliminating every conceivable threat — a response that inevitably makes things worse... 9/11 ... was a disastrous war that actually empowered terrorists, and set the stage for the rise of ISIS. ...
                                                              So what can we say about how to respond to terrorism? Before the atrocities in Paris, the West’s general response involved a mix of policing, precaution, and military action. All involved difficult tradeoffs: surveillance versus privacy, protection versus freedom of movement, denying terrorists safe havens versus the costs and dangers of waging war abroad. And it was always obvious that sometimes a terrorist attack would slip through.
                                                              Paris may have changed that calculus a bit, especially when it comes to Europe’s handling of refugees, an agonizing issue... And there will have to be a post-mortem on why such an elaborate plot wasn’t spotted. But do you remember all the pronouncements that 9/11 would change everything? Well, it didn’t — and neither will this atrocity.
                                                              Again, the goal of terrorists is to inspire terror, because that’s all they’re capable of. And the most important thing our societies can do in response is to refuse to give in to fear.

                                                                Posted by on Monday, November 16, 2015 at 01:08 AM in Economics, Terrorism | Permalink  Comments (74) 

                                                                Links for 11-16-15

                                                                  Posted by on Monday, November 16, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (163) 

                                                                  Sunday, November 15, 2015

                                                                  'America is Exceptional … and Ordinary'

                                                                  From Lane Kenworthy (in June - missed it at the time):

                                                                  America is exceptional … and ordinary, The Good Society June 2015: American exceptionalism is one of our country’s most cherished notions.1 There is considerable truth in it: we are different in a number of respects from the world’s other rich longstanding-democratic nations, a group that includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, (South) Korea, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. At the same time, there are a host of ways in which we’re quite ordinary.2
                                                                  To some, “exceptional” doesn’t just mean different; it means best. To others it means worst. As we’ll see, America is both.
                                                                  Here is a brief and partial introduction to the United States in comparative perspective. Though it barely scratches the surface, it will give you a sense of some of the ways in which the US is both different and similar, both wonderful and woeful. ...

                                                                    Posted by on Sunday, November 15, 2015 at 10:56 AM in Economics | Permalink  Comments (30) 

                                                                    Links for 11-15-15

                                                                      Posted by on Sunday, November 15, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (219) 

                                                                      Saturday, November 14, 2015

                                                                      'The Silver Lining of Unemployment Benefits'

                                                                      "Does making unemployment benefits more generous keep more people out of work? Ioana Marinescu shares her fascinating discovery that by making the job market more relaxed, they actually help match people with the few available job vacancies."

                                                                        Posted by on Saturday, November 14, 2015 at 12:15 PM in Economics, Social Insurance, Unemployment | Permalink  Comments (35) 

                                                                        Links for 11-14-15

                                                                          Posted by on Saturday, November 14, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (162) 

                                                                          Friday, November 13, 2015

                                                                          'Where Fed's Critics Got it Wrong in GOP Debate'

                                                                          Couldn't resist commenting on this:

                                                                          Where Fed's critics got it wrong in GOP debate, by Mark Thoma: The Federal Reserve was instrumental in easing the impact of the Great Recession. As bad as the downturn was, it could have have been worse if central bankers hadn't aggressively used monetary policy to curb the severity of the crisis and help put the U.S. economy on the path to recovery.
                                                                          So it has been disappointing to hear Republican presidential candidates bash the Fed in their debates and on the campaign trail. ...

                                                                            Posted by on Friday, November 13, 2015 at 09:54 AM in Economics, Monetary Policy, MoneyWatch, Politics | Permalink  Comments (65) 

                                                                            'When Economics Works and When it Doesn’t'

                                                                            Part of an interview of Dani Rodrik:

                                                                            Q. You give a couple of examples in the book of the way theoretical errors can lead to policy errors. The first example you give concerns the “efficient markets hypothesis”. What role did an overestimation of the scope and explanatory power of that hypothesis play in the run-up to the global financial crisis of 2007-08?
                                                                            A. If we take as our central model one under which the efficient markets hypothesis is correct—and that’s a model where there are a number of critical assumptions: one is rationality (we rule out behavioural aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems—there’s a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you’d looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn’t have bothered you at all. You’d tell a story about how wonderful financial liberalisation and innovation are—so many people, who didn’t have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits.
                                                                            But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing—boom and bust cycles, behavioural biases, agency problems, externalities, too-big-to-fail problems—if you applied those tools to the same facts, you’d get a very different kind of story. I wish we’d put greater weight on stories of the second kind rather than the first. We’d have been better off if we’d done so.

                                                                              Posted by on Friday, November 13, 2015 at 09:45 AM in Economics, Methodology | Permalink  Comments (16) 

                                                                              Paul Krugman: Republicans’ Lust for Gold

                                                                              Why have Republican candidates for president embraced hard money policies?:

                                                                              Republicans’ Lust for Gold, by Paul Krugman, Commentary, NY Times: It’s not too hard to understand why everyone seeking the Republican presidential nomination is proposing huge tax cuts for the rich. Just follow the money...
                                                                              But what we saw in Tuesday’s presidential debate was something relatively new on the policy front: an increasingly unified Republican demand for hard-money policies, even in a depressed economy. Ted Cruz demands a return to the gold standard. Jeb Bush ... is open to the idea. Marco Rubio wants the Fed to focus solely on price stability, and stop worrying about unemployment. Donald Trump and Ben Carson see a pro-Obama conspiracy behind the Federal Reserve’s low-interest rate policy.
                                                                              And let’s not forget that Paul Ryan ... has spent years berating the Fed for policies that, he insisted, would “debase” the dollar and lead to high inflation. Oh, and he has flirted with Carson/Trump-style conspiracy theories, too...
                                                                              As I said, this hard-money orthodoxy is relatively new. ... George W. Bush’s economists praised the “aggressive monetary policy”... And Mr. Bush appointed Ben Bernanke... But now it’s hard money all the way. ...
                                                                              This turn wasn’t driven by experience. The new Republican monetary orthodoxy has already failed the reality test with flying colors... But years of predictive failure haven’t stopped the orthodoxy from tightening its grip on the party. What’s going on?
                                                                              My main answer would be that the Friedman compromise — trash-talking government activism in general, but asserting that monetary policy is different — has proved politically unsustainable. You can’t, in the long run, keep telling your base that government bureaucrats are invariably incompetent, evil or both, then say that the Fed, which is ... basically a government agency run by bureaucrats, should be left free to print money as it sees fit. ...
                                                                              The interesting question is what will happen to monetary policy if a Republican wins next year’s election. As best as I can tell, most economists believe that it’s all talk, that once in the White House someone like Mr. Rubio or even Mr. Cruz would return to Bush-style monetary pragmatism. Financial markets seem to believe the same. At any rate, there’s no sign in current asset prices that investors see a significant chance of the catastrophe that would follow a return to gold.
                                                                              But I wouldn’t be so sure. True, a new president who looked at the evidence and listened to the experts wouldn’t go down that path. But evidence and expertise have a well-known liberal bias.

                                                                                Posted by on Friday, November 13, 2015 at 12:33 AM in Economics, Monetary Policy, Politics | Permalink  Comments (72) 

                                                                                Links for 11-13-15

                                                                                  Posted by on Friday, November 13, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (120) 

                                                                                  Thursday, November 12, 2015

                                                                                  Obama: How to Achieve 'New Jobs, Stronger Growth, and Lasting Prosperity'

                                                                                  Barack Obama

                                                                                  America’s bold voice cannot be the only one, by Barack Obama, FT: ...Today the G20 faces another challenge. While the global economy is growing, it is growing too slowly. ... That is why, at next week’s summit, my message will be clear: we have to take action to strengthen growth in a way that benefits all our people.
                                                                                  Specifically, there are five areas in which we can act. First, our countries have to implement fiscal policy that supports short-term demand and invests in our future. ... Second, our countries have to take action to boost demand by putting more money into the pockets of middle-class consumers who drive growth. ... Third, our countries can foster more inclusive growth by lowering barriers to entering the labor force. ... Fourth, we can support more inclusive growth with high-standard trade agreements that actually benefit the middle class. ... Fifth, the world agrees on the need for greater public investment, especially where interest rates are low. That is why I am pushing Congress to create jobs today and tomorrow by adopting a long-term infrastructure plan this year.
                                                                                  Furthermore, public investment often jump-starts private investment. ...

                                                                                    Posted by on Thursday, November 12, 2015 at 10:32 AM in Economics | Permalink  Comments (54) 

                                                                                    'Being An Inflation Hawk Means Never Having To Say You’re Sorry'

                                                                                    I was considering saying a few words about the Binyamin Appelbaum interview with Richmond Fed president Jeff Lacker, but Paul Krugman beat me to it:

                                                                                    Being An Inflation Hawk Means Never Having To Say You’re Sorry: Jeffrey Lacker, president of the Richmond Fed, is worried about inflation unless the Fed tightens quickly, ignoring the worriers. Here’s what he just said:
                                                                                    If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness.
                                                                                    Oh, wait: That’s what he said six years ago. It is, however, pretty much indistinguishable from what he is saying now.
                                                                                    It seems to me that this is a bit of much-needed context.

                                                                                    I prefer the approach by Charles Evans, president of the Chicago Fed where the asymmetric risks of making a policy mistake (due to the asymmetric difficulties of recovering from a policy mistake) are at the forefront:

                                                                                    ... So why do I lack confidence in our ability to achieve our 2 percent inflation target over the medium term? One reason is that there exist a number of important downside risks to the inflation outlook. Now I recognize that “medium term” is somewhat vague. To a central banker it can mean two to three years or three to four years. It is more a term of art than science.
                                                                                    So what are these inflation risks? With prospects of slower growth in China and other emerging market economies, low energy and import prices could exert downward pressure on inflation longer than most anticipate. That’s a risk. In addition, while many survey-based measures of long-term inflation expectations have been relatively stable in recent years, we shouldn’t take them as confirmation that our 2 percent target is assured. In fact, some survey measures of inflation expectations have ticked down in the past year and a half. Furthermore, measures of inflation compensation derived from financial markets have moved quite low in recent months. These could reflect either lower expectations of inflation or a heightened concern over the nature of the economic conditions that will be associated with low inflation. Adding to my unease is anecdotal evidence: I talk to a wide range of business contacts, and virtually none of them are mentioning rising inflationary or cost pressures. No one is planning for higher inflation. My contacts just don’t expect it.
                                                                                    How does this asymmetric assessment of risks to achieving the dual mandate goals influence my view of the most appropriate path for monetary policy over the next three years? It leads me to conclude that 1) a later liftoff and 2) a more gradual normalization of our monetary policy setting will best position the economy for the potential challenges ahead.
                                                                                    More specifically, before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could be well into next year...
                                                                                    Historically, central bankers have established their credibility by defending their inflation target from above — to fight off undesirably high inflation. Today, policy needs to defend our inflation target from below. This is necessary to validate our claim that we aim to achieve our 2 percent inflation target in a symmetric fashion. Failure to do so may weaken the credibility of this claim. The public could begin to mistakenly believe that 2 percent inflation is a ceiling — and not a symmetric target. As a result, expectations for average inflation could fall, lessening the upward pull on actual inflation and making it even more difficult for us to achieve our 2 percent target.
                                                                                    Another factor underlying my thinking about policy is a consideration of policy mistakes we could make. One possibility is that we begin to raise rates only to learn that we have misjudged the strength of the economy or the upward tilt in inflation. In order to put the economy back on track, we would have to cut interest rates back to zero and possibly even resort to unconventional policy tools, such as more large-scale asset purchases. I think our multiple rounds of asset purchases were effective, but they clearly are a second-best alternative to traditional policy. This scenario is not merely hypothetical. Just consider the recent challenges experienced in Europe and Japan. Policymakers tried to raise rates that were near or at their lower bounds; but faced with faltering demand, they were forced to reverse course and deploy nontraditional tools more aggressively than before. And we all know the subsequent difficulties Europe and Japan have had in rekindling growth and inflation. So I see substantial costs to premature policy normalization.
                                                                                    An alternative potential policy mistake would be that sometime during the gradual policy normalization process, inflation begins to rise too quickly. Well, we have the experience and the appropriate tools to deal with such an outcome. Given how slowly underlying inflation would likely move up from the current low levels, we probably could keep inflation in check with only moderate increases in interest rates relative to current forecasts. And given how gradual the projected rate increases are to start with, the concerns being voiced about the risks of rapid increases in policy rates if inflation were to pick up seem overblown to me. For example, we could raise the funds rate 100 basis points more than envisioned by the median participant’s projection in a year simply by increasing rates 25 basis points at every meeting instead of at every other meeting — that’s hardly a steep path of rate increases.
                                                                                    All told, I think the best policy is to take a very gradual approach to normalization. The outlook for economic growth and the health of the labor market continues to be good. But the outlook for inflation remains too low. A gradual path of normalization would balance both the various risks to my projections for the economy’s most likely path and the costs that would be involved in mitigating those risks. ...

                                                                                      Posted by on Thursday, November 12, 2015 at 09:51 AM in Economics, Monetary Policy | Permalink  Comments (29) 

                                                                                      Links for 11-12-15

                                                                                        Posted by on Thursday, November 12, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (89) 

                                                                                        Wednesday, November 11, 2015

                                                                                        'A Debate With Bernanke Over the Fed’s Easy Money Policies'

                                                                                        William Cohan ("a former senior mergers and acquisitions banker") argues with Ben Bernanke over the Fed's interest rate policy. These people (the one who isn't Bernanke in this case) are nuts:

                                                                                        A Debate With Bernanke Over the Fed’s Easy Money Policies: By the end of our recent conversation, Ben S. Bernanke ... and I had a gentleman’s bet. I believe the easy money policies he ... put in place while serving as Fed chairman starting in 2008 ... will lead inevitably to a near-term financial crisis; he thinks that idea is beyond ridiculous...
                                                                                        “The low rate of interest isn’t something that God gave us,” he explained. “It’s something that is a feature of the economy. There’s a lot of savings in the world looking for a relatively small number of good-return investments, and so the equilibrium real interest rate in the economy is very, very low.” ...
                                                                                        There is a target interest rate that is consistent with full employment. “And for most of the recovery,” he said, “that number was actually negative. Any economist can explain why ..., “policy did lower the interest rate ... but even after lowering them, they were still too high ... because of the zero lower bound. ...
                                                                                        He said the blame for the extended period of low interest rates belonged with Congress... “Go complain to Congress because the fiscal policy turned very contractionary, which meant the Fed had to bear the entire burden of creating a recovery,” he continued. “If fiscal policy had been more balanced, then we could’ve had the same recovery with higher interest rates. ...Congress said essentially, ‘The Fed will take care of it,’ then the Fed could use the only tool it had.” ...
                                                                                        But he will owe me a beer when the next financial crisis hits, sooner than anyone would like.

                                                                                        Related to the post before this one:

                                                                                        He said that it was “a red herring” that quantitative easing or the zero interest rate policy helped make the rich richer...
                                                                                        “It’s been going on for a long time,” he said. “It’s been increasing since the 1970s. ... The Fed’s effects on inequality are modest and temporary, and the fact that the Fed’s policies created jobs means that the absolute benefits for the working class are very substantial.”

                                                                                          Posted by on Wednesday, November 11, 2015 at 12:10 PM in Economics, Monetary Policy | Permalink  Comments (66) 

                                                                                          Trickle Down, Starve the Beast, Supply-Side, and Sound Money Fantasies

                                                                                          From the WSJ editorial page:

                                                                                          ...On the other hand, Mr. Cruz’s pitch for “sound money” that helps the middle class stands out in the GOP field and deserves more elaboration. It’s also notable that nearly all of the GOP candidates identify the Federal Reserve’s post-crisis monetary policy as a source of rising inequality that has favored the wealthy. This is a populist note that has the added benefit of being true. ...

                                                                                          Rising inequality for four decades can be blamed on the Fed's response to the financial crisis? Seriously? On taxes:

                                                                                          Then there’s tax policy, in which all of the candidates offered up reform plans that would be an improvement over the status quo.

                                                                                          But it has to be the right kind of tax policy (tax cuts or credits for the wealthy:

                                                                                          Marco Rubio was challenged on his child tax credit, which he would increase to $2,500 from $1,000. ... Mr. Rubio’s diagnosis of the changing economy has particular appeal to anxious voters. It’s too bad his tax credit is such an expensive political pander.

                                                                                          But of course cutting taxes on the wealthy is not an expensive pander, it will generate growth!!! Tax revenue will rise and the deficit will fall!!! The benefits will trickle down to the middle class (unless that evil Fed gets in the way decades later)!!! None of which has actually happened according to the empirical evidence. Republicans seem to have a talent for telling economic stories about how their policies will benefit the middle class all the while disguising the true intent of the legislation. So long as it can be true in theory (the confidence fairy comes to mind), the actual evidence doesn't matter.

                                                                                          James Pethokoukis says it's time to end the supply-side charade:

                                                                                          A last hurrah for Republican tax slashers: The Republican party’s raison d’être is cutting taxes. ... Republicans should pray for a new purpose. Their standing with middle-class voters is little improved from 2012. ... Their “supply-side” orthodoxy would merit much of the blame. Big tax cuts, particularly for the wealthiest, do not work in an age of high inequality and heavy debt. ...
                                                                                          Many of the party’s 2016 candidates seem to disagree that change is needed. ... Almost all have released economic plans built around “pro-growth” tax cuts costing trillions. ... But there are good reasons to view the next election as a last hurrah for Republican-style supply-side policy.
                                                                                          First, voters do not much care about taxes. ... Second, America’s fiscal situation makes deep tax cuts implausible. ... Third, tax cuts look like an answer desperately searching for a problem. Today’s top US marginal tax rate is 39.6 per cent...
                                                                                          There are signs candidates are starting to wriggle out of the supply-side straitjacket. At this week’s Republican presidential debate in Wisconsin, Marco Rubio said a larger tax credit for families was just as important as tax cuts for business. ... While 1980s-style supply-side doctrine still rules the Republican roost, it may not beyond November 2016.

                                                                                          There are also signs that these proposals, while perhaps helping candidates draw votes, have little chance of success in Congress. Republicans may need a new cover story -- a new "economic" argument or the middle class that obscures the true intent of the policy -- but it's not clear there's anything as magical as trickle down, starve the beast, supply-side, sound money fantasies that have served them so well.

                                                                                          Update: From Kevin Drum:

                                                                                          ...Well, the Tax Foundation is a right-leaning outfit, so you have to figure they're going to give Republican plans a fair shake. And their distributional analysis of Rubio, Bush, Trump, and Cruz shows that their tax plans are all pretty similar: tiny gains for middle-income workers and huge gains for the top 1 percent. I've used the static analysis, since it's the most tethered to reality, but even if you use the magic dynamic estimates you get roughly the same result: the rich make out a whole lot better than the middle class.
                                                                                          That said, you really have to give Ted Cruz credit. When it comes to giving huge handouts to the rich, he's the true Republican leader.


                                                                                            Posted by on Wednesday, November 11, 2015 at 11:02 AM in Economics, Fiscal Policy, Monetary Policy, Politics | Permalink  Comments (46) 

                                                                                            'Friction is Now Between Global Financial Elite and the Rest of Us'

                                                                                            Robert Reich at Comment is Free:

                                                                                            Friction is now between global financial elite and the rest of us, The Guardian: The standard explanation for why average working people in advanced nations such as Britain and the United States have failed to gain much ground over the past several decades and are under increasing economic stress is that globalization and technological change have made most people less competitive. The tasks we used to perform can now be done more cheaply by lower-paid workers abroad or by computer-driven machines.
                                                                                            The left’s standard solution has been an activist government that taxes the wealthy, invests the proceeds in excellent schools and in other means that people need to become more productive, and redistributes to those in need. These prescriptions have been opposed vigorously by those on the right, who believe the economy will function better for everyone if government is smaller, public debt is reduced and taxes and redistributions are curtailed.
                                                                                            But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. ...

                                                                                              Posted by on Wednesday, November 11, 2015 at 10:10 AM in Economics, Income Distribution, Market Failure, Politics | Permalink  Comments (15) 

                                                                                              'Even Famous Female Economists Get No Respect'

                                                                                              Bit behind today. This is by Justin Wolfers:

                                                                                              Even Famous Female Economists Get No Respect: Men’s voices tend to dominate economic debate, although perhaps this is shaped by how we talk about the contributions of female economists. This is easiest to see in how we discuss the work of economist power couples.
                                                                                              Remembering the journalistic cliché that one is an example, two is a coincidence and three is a trend, I figured it worth exploring how female economists are treated. ...

                                                                                                Posted by on Wednesday, November 11, 2015 at 10:10 AM in Academic Papers, Economics, Press | Permalink  Comments (11) 

                                                                                                Links for 11-11-15

                                                                                                  Posted by on Wednesday, November 11, 2015 at 12:06 AM in Economics, Links | Permalink  Comments (183)