tag:blogger.com,1999:blog-26576055633207888562024-03-13T09:35:31.863-07:00US and Economics<center>The blog of Mike Smitka, an economist at Washington and Lee University, with occasional posts by David Ruggles, his co-blogger at <a href="http://autosandeconomics.blogspot.com">Autos and Economics</a>.<br>
<b>...Rhetoric need not obey the laws of arithmetic...</b></center>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.comBlogger50125tag:blogger.com,1999:blog-2657605563320788856.post-20297219998103421882015-04-15T04:43:00.003-07:002016-03-04T06:49:50.810-08:00Blogging now at Autos and Economics<div style="text-align: center;">I may on occasion repost here, but have decided not to spread my posts across several blogs. Please follow at:</div><div style="text-align: center; font-size: 125%;"><a href="http://autosandeconomics.blogspot.com/">Autos and Economics</a></div><div style="text-align: center; font-size: 75%">http://autosandeconomics.blogspot.com</div><hr width="55%" align="center"><div style="text-align: center;">During the <a href="https://www.blogger.com/www.wlu.edu">Washington and Lee University</a> academic term my students and I blog on the following class-related sites.</div><hr width="15%" align="center"><div style="text-align: center;"><b>Fall 2015</b></div><div style="text-align: center;"><a href="http://econ398.academic.wlu.edu/" style="text-align: center;">Senior Macroeconomics Seminar</a> (Econ 398)– mainly US-related</div><div style="text-align: center;"><a href="http://econ274.academic.wlu.edu/">China's Modern Economy</a> (Econ 274)</div><div style="text-align: center;"><a href="http://econ243.academic.wlu.edu/">Economics of Business Strategy</a> <i>Industrial Organization</i> (Econ 243)</div><hr width="20%" align="center"><div style="text-align: center;"><b>Winter 2016</b>:</div><div style="text-align: center;">Econ 274 and Econ 243 as above</div><hr width="20%" align="center"><div style="text-align: center;"><b>Spring 2016</b></div><div style="text-align: center;"><a href="http://econ244.academic.wlu.edu/">Auto Industry</a> (Econ 244)</div><div style="text-align: right; font-size: 85%;"><i>Mike Smitka, Professor of Economics, Washington and Lee University</i></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-17292350512075363602013-12-10T19:44:00.000-08:002013-12-10T19:48:14.656-08:00Some recovery!<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicIu0Dc7InRNZ9l5P7myGgz1401tEeSYh-fcBEQ89Hj59ofZb_ZVVECHu6v95q97qnX65uUA4PQUl18dqVTsnsz2Nptd0dERfBTrodAqTCPRIP90CUkaZXSfEZuN9XBBFh3UQmmQQqKyR4/s1600/SAAR.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicIu0Dc7InRNZ9l5P7myGgz1401tEeSYh-fcBEQ89Hj59ofZb_ZVVECHu6v95q97qnX65uUA4PQUl18dqVTsnsz2Nptd0dERfBTrodAqTCPRIP90CUkaZXSfEZuN9XBBFh3UQmmQQqKyR4/s320/SAAR.jpg" width="320" /></a></div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2pgWXWNsydpKTzdIBAJqgf7bL91yJs9wPyM5-69woDePuI0Q-yHN9ih3U40MzYplwYduDnKc2DjoZXSnF2-nZfm27LmntzUxYcXqBVNhnq53uW39nGh_NIlWdXYu3wFye4FvVRyzafGUX/s1600/2013.11+AutoShare.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2pgWXWNsydpKTzdIBAJqgf7bL91yJs9wPyM5-69woDePuI0Q-yHN9ih3U40MzYplwYduDnKc2DjoZXSnF2-nZfm27LmntzUxYcXqBVNhnq53uW39nGh_NIlWdXYu3wFye4FvVRyzafGUX/s320/2013.11+AutoShare.jpg" width="320" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ-nlm_eB5Zv50Eo6e-44zmpiW-IORBGYQv3iRH2ufLs5PTcnj-GNIpiIejvyglGQl5r8KnNFq1os0xrVCakvLcA1cX6r6AX-fXPe9aYKL_cpy7e_XXWZmaX9ydQa_YknpLHgkyLgT5n8j/s1600/2013.11+AutoEmpl.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ-nlm_eB5Zv50Eo6e-44zmpiW-IORBGYQv3iRH2ufLs5PTcnj-GNIpiIejvyglGQl5r8KnNFq1os0xrVCakvLcA1cX6r6AX-fXPe9aYKL_cpy7e_XXWZmaX9ydQa_YknpLHgkyLgT5n8j/s320/2013.11+AutoEmpl.jpg" width="320" /></a><p class="callout">...reposted from <a href="http://autosandeconomics.blogspot.com">Autos and Economics</a>...<p class="base">The US recovery continues at a snail's pace; the auto industry is doing better. The rise in the SAAR [seasonally adjusted annual rate of sales] puts us below the bubble-inflated peak of 2005-6, but given subsequent population growth is at a more sustainable level. Other auto-related indicators show marked improvement, but suggest we still have a ways to go. First, the share of the auto industry (retail and manufacturing) was at 2.3% of the labor force in the late 1990s; it then fell steadily to 2.0% before falling off a cliff in 2008. The nadir was 1.6%; today we're back to 1.8%. That is only about halfway, assuming that other structural changes in the US (the continued growth of healthcare) makes it possible to return to the days of yore.<br />
<p class="callout">...automotive employment's only about halfway back...<br />
<p class="base">If we look at the details, we get a more nuanced story. The retail side (which includes auto parts and not just vehicles) peaked at about 1.9 million workers; it fell by 300,000 during the Great Recession, and is now 2/3rds of the way back to that level. Manufacturing took a harder hit, falling from 1.1 million at the start of 2006 to 1.0 million in 2007, before dropping by 400,000 in 2008-9 to just above 600,000 workers or less than half the level of the late 1990s. We're now back to almost 850,000, a sharper rise than in retail, but with further to go. Yes, suppliers are running at more than 100% capacity, and that must normalize. So employment will rise further, as overtime and other expedients are replaced by permanent hires. Still, it's not clear that the US is on track to get back to earlier levels, though over the next few years other changes may help (e.g., Honda's goal to export 30% of US-based production).<br />
<p class="base">But overall the story from labor markets is of an anemic recovery. As the baby boomers retire, the growth of the working age population will slow. At present, however, we're only just keeping up with population growth, and the gap between "normal" employment (I tracked age-specific levels back to 1994) is large, roughly 9.1 million workers as of November 2013. Furthermore, more jobs are part-time while a sizeable share of the labor force that had been working employed full-time are still working short hours. If we adjust for that, we're shy 10.8 million full-time jobs. Let's not forget long-term unemployment either, the 27+ week component is improving but is only down to what had been previously been the historic peak.<br />
<p class="callout">...the low level of participation isn't just "boomer" retirement...<br />
<p class="base">Finally, this is not due to boomers entering retirement early. Indeed, participation of older workers has trended up throughout the Great Recession and subsequent recovery. In other words, they aren't retiring with past rapidity. That's part of the reason that prime-aged participation rates remain below historic levels. Again, I've traced these levels back much futher – they were essentially flat going into the Great Recession. Now we can see a small increase since the worst of the recession, but only by about 1 percentage point to 95% of the previous norm. And the rate for young workers (age 20-24) remains in the abyss.<br />
<p class="base">As someone who works on the Japanese economy, this halting recovery looks all too familiar. We may not see a lost decade, but we're already in the 6th year since the onset of the Great Recession. Real estate bubbles are matched by lots of debt, and resolving that overhang is a challenge. If lenders aren't expected to bear much of the loss (and through deposit insurance, the government), then households [in the US] and corporations [in Japan] must. That has real ramifications – including ironically a huge buildup in government debt, in the end offering up assets that it stingily refused to do earlier in the game.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWkI-Mh0YDBqWSd6Nq02-lTJpzjmdNkUdzGejXoLBBWJ0d2M_ebFDR5p5M2I0csjBDiXlarokgiqOfSLpJWL5gpqdrOSXlzZsOJeKYd-o7wAR1v55KRu6TbCBOoKBKMdCeTU-6qjhO-bN1/s1600/2013.11+Gap.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWkI-Mh0YDBqWSd6Nq02-lTJpzjmdNkUdzGejXoLBBWJ0d2M_ebFDR5p5M2I0csjBDiXlarokgiqOfSLpJWL5gpqdrOSXlzZsOJeKYd-o7wAR1v55KRu6TbCBOoKBKMdCeTU-6qjhO-bN1/s320/2013.11+Gap.jpg" width="320" /></a><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhq75baBqwPvXo5vIrdUwyBhQwUroZRaXDb-Hy5OLpFP7Q1dYx5pm1cElhjmZDXGrlunS8h9N_4Rr7uPinh8anG49jua2wOTmxgKN5QgN-JcZjKSFbqJdPf-8Y86B08oGq3HbouRUi7-CSH/s1600/2013.11+Participation.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhq75baBqwPvXo5vIrdUwyBhQwUroZRaXDb-Hy5OLpFP7Q1dYx5pm1cElhjmZDXGrlunS8h9N_4Rr7uPinh8anG49jua2wOTmxgKN5QgN-JcZjKSFbqJdPf-8Y86B08oGq3HbouRUi7-CSH/s320/2013.11+Participation.jpg" width="320" /></a><br />
<p class="base"><span style="font-size: 125%;"> Click on the graphs to expand!</span><br />
Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-69250504773950527122013-11-29T11:09:00.000-08:002013-11-29T11:19:18.389-08:00Energy futures<p class="base">The challenge of "green" is aggregating small amounts of energy – ultimately days of sunlight per surface<sup class="base">[1]</sup> – into amounts useable in quantity and continuity. Plants convert some of that energy continuously in daylight hours, but aggregating is the challenge. Currently we rely almost entirely upon a fossil fuel process that takes eons and is not sustainable – even if the amounts of recoverable fuels remains large, the environmental side effects are rising, not falling. Global economic growth has almost immeasurable benefits – hundreds of millions of Chinese no longer face hunger daily. Only recently has the government sufficiently overcome the fear of famine to eliminate the mandate that farmers grow grain. In China point- and regional-source pollution is now sufficiently bad to generate local political action, as it was first in California and then in the US as a whole in the 1960s. But no local government, and most national governments, are uninterested in denying access to electricity (air conditioning, refrigeration, lighting) or mobility (cars). Desirable or not, I don't think it's realistic to expect that governments will do much to repress energy demand. Supply-side developments are thus crucial. That means improving the feasibility of solar, wind, hydro and biomass. <br />
<p class="base">One challenge is operational size. To what extent are economies of scale so intrinsic in the physics (and their engineering implementation) that only large facilities are feasible? Let me speculate on alternatives for wind power to frame this question.<br />
<p class="base">Currently the trend is towards very large turbines. Winds blow stronger above ground; if you're building a tall tower, you then want to generate a lot of power per tower to cover costs. That may work, with better engineering of blades and generators and mechanical connections. Scale on the manufacturing side can help, as standardized designs lead to economies in production, from poles to turbine blades.<br />
<p class="base">What would a small system look like, something found in every backyard? First, the turbines would have to be short and spin on a vertical rather than a horizontal axis; they couldn't look like windmills, but rather spinning windpoles that would face different wind sheer and so might be cheaper structurally – the pole would be the turbine access, with lower stresses cheap bearings or even bushings would do. Now close to the ground they'd "enjoy" far less wind, so would have to be really cheap. Windpoles might be relative to windmills on a watt-hour basis.<br />
<p class="base">Then there's the aggregation issue. Such windpoles probably couldn't each turn a generator, that would be too high in cost per unit of energy. They might however be able to turn a small scroll compressor that would feed through standard lines to a centrally located turbine. Scroll compressors are pretty well understood, there are lots of refrigerators and air conditioners out there. Storing compressed air is also a mature technology, providing a means to enhance continuity. Small air tools – small turbines – have also been around a long time. So the pieces could be assembled quite readily.<br />
<p class="base">I'm not enough of an engineer to cost any of this out. There may be simply too little wind energy at ground level. But versions of this – systems whose cheapness and small size make up for conversion efficiency – seem worth exploring. Perhaps they already have been, and have been found wanting. But in some parts of the world small rooftop solar water panels are pervasive – highly inefficient in the amount of energy they convert but so cheap as to make sense.<br />
<p class="callout">...[we'll see] a multiplicity of energy systems … [as in] vehicle drivetrains<br />
<p class="base">In any case, any attempt to move away from fossil fuels is likely to lead to a multiplicity of energy systems – just as we are currently seeing a growing variety of vehicle drivetrains, depending on local fuel options and driving patterns.<br />
<p class="signature">mike smitka<br />
<div class="endnote">Note 1. Nuclear – including geothermal – and tidal sources are exceptions. While in principle fusion is possible only uranium-based fission is commercially available, but that suffers from both political and economic pressures that make it a small slice of currently harnessed energy. Geothermal and tidal energy are at present unimportant.</div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-3410777272487534772013-11-07T04:57:00.000-08:002013-11-07T04:57:24.238-08:00<style>
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<p class="base">Here are assorted data for your perusal – unfortunately due to the government shutdown data releases are delayed or (for certain data) a month will be skipped. For example, the "Employment Situation" was scheduled for November 1st; instead it will come out November 8th. <i><b><span style="color: #8A2908; font-family: cursive;">Click on charts to expand to full size.</b></i></span><br />
<p class="base">First, the first three charts on employment show a slow gain relative to age-adjusted population growth, but only slow. We still are far below normal levels of employment, and there's no particular reason to think that the fundamental structure of the labor markets and participation decisions changed over the course of a few months back in 2008-9 – no big shift in the ability to claim disability, no basic change in unemployment benefits, no change in wages [indeed, this recession reinforces the claim that wages are rigid downward, absent inflation], and I've already corrected the data for boomer retirement. That's clear if you look at the fourth chart of age-specific participation rates. Older workers – those of historic retirement age – are working more than ever [the chart gives data only from 2000, before then employment structures were relatively stable]. But in 2009 the share of people working in prime age brackets dropped, and that of younger people plummeted. Basically, while the economy is growing, it's not growing enough to eliminate the excess capacity of the Great Recession. <br />
<p class="base">The fifth chart is investment. Again, we're out of the trough of 2009, but the level is still below that of some previous recessions. So more of the same: the economy is growing, but not recovering quickly.<br />
<p class="base">That's not true for all sectors. As per the sixth chart, car sales have boomed; suppliers are at capacity, makers are having a hard time launching new vehicles at target levels of output. Still, we remain below the hyped level of the 2000s, and my sense is that sales are leveling out. There's still an overhang of vehicles from the go-go years, though depreciation operates far more rapidly in housing market. At the micro level I'm an example: since I'm stuck with an unsold house, we waited to replace our aging (240K miles 15 years) Volvo until the last minute – it wouldn't restart in the dealership parking lot so they gave me a tradein value lower than the local junkyard. We did buy a new car, as I judged the price differential relative to used cars too slim. However, too many people are underwater on their mortgages, median income [the point at which half the population has higher, half lower income] is falling. So my judgement is that the upside isn't going to move up very fast, despite our rising population. And while I only include the last couple years in the seventh chart, market shares have been relatively stable – with Toyota and Honda at a lower level. The eighth and final chart is of market groups. The top 4 firms have in the aggregate lost share, but over 2012-13 the Big Three and the Detroit Three have been stable.<br />
<p class="base">Finally, interest rates have dropped back to the new normal under the Fed's antirecessionary monetary policy. With the fears of default eased, short rates are essentially zero. Now from day to day rates jump around, but remain extraordinarily low by historic standards, all the way out to 30 years. The yield curve is flat at maturities under 5 years, but there's now a moderately steep differential at longer maturities. With rates low, this isn't reflecting expected inflation but rather that eventually the economy will recover and with it short-term interest rates will rise. The market, however, is pricing that as years away – like 3-5 years. That is unfortunately consistent with my straight-line projection of labor market growth – at the current pace the gap won't be erased until the start of 2019. While I would not be surprised to see things accelerate as the housing stock normalizes ... well, the housing stock doesn't normalize quickly: according to the IRS, which is generous in such things, depreciation takes 30 years, and with median incomes stagnant, half the population isn't in a position to upgrade their "digs".<br />
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<table class="t11" cellpadding="0" cellspacing="0" width="80%" align="center"> <tbody>
<tr class="t11"><td class="t22">Date</td><td class="t22">1 month</td><td class="t22">3 mo</td><td class="t22">6 mo</td><td class="t22">1 yr</td><td class="t22">2 yr</td><td class="t22">3 yr</td><td class="t22">5 yr</td><td class="t22">7 yr</td><td class="t22">10 yr</td><td class="t22">20 yr</td><td class="t22">30 yr</td></tr>
<tr>
<td class="t11" valign="middle"><div class="p11">10/15/13</div></td>
<td class="t11" valign="middle"><div class="p11">0.32</div></td>
<td class="t11" valign="middle"><div class="p11">0.14</div></td>
<td class="t11" valign="middle"><div class="p11">0.16</div></td>
<td class="t11" valign="middle"><div class="p11">0.16</div></td>
<td class="t11" valign="middle"><div class="p11">0.37</div></td>
<td class="t11" valign="middle"><div class="p11">0.68</div></td>
<td class="t11" valign="middle"><div class="p11">1.45</div></td>
<td class="t11" valign="middle"><div class="p11">2.11</div></td>
<td class="t11" valign="middle"><div class="p11">2.75</div></td>
<td class="t11" valign="middle"><div class="p11">3.50</div></td>
<td class="t11" valign="middle"><div class="p11">3.78</div></td>
</tr>
<tr>
<td class="t11" valign="middle"><div class="p11">10/16/13</div></td>
<td class="t11" valign="middle"><div class="p11">0.14</div></td>
<td class="t11" valign="middle"><div class="p11">0.10</div></td>
<td class="t11" valign="middle"><div class="p11">0.11</div></td>
<td class="t11" valign="middle"><div class="p11">0.15</div></td>
<td class="t11" valign="middle"><div class="p11">0.34</div></td>
<td class="t11" valign="middle"><div class="p11">0.64</div></td>
<td class="t11" valign="middle"><div class="p11">1.41</div></td>
<td class="t11" valign="middle"><div class="p11">2.06</div></td>
<td class="t11" valign="middle"><div class="p11">2.69</div></td>
<td class="t11" valign="middle"><div class="p11">3.43</div></td>
<td class="t11" valign="middle"><div class="p11">3.72</div></td>
</tr>
<tr>
<td class="t11" valign="middle"><div class="p11">10/17/13</div></td>
<td class="t11" valign="middle"><div class="p11">0.01</div></td>
<td class="t11" valign="middle"><div class="p11">0.05</div></td>
<td class="t11" valign="middle"><div class="p11">0.08</div></td>
<td class="t11" valign="middle"><div class="p11">0.13</div></td>
<td class="t11" valign="middle"><div class="p11">0.33</div></td>
<td class="t11" valign="middle"><div class="p11">0.61</div></td>
<td class="t11" valign="middle"><div class="p11">1.35</div></td>
<td class="t11" valign="middle"><div class="p11">1.98</div></td>
<td class="t11" valign="middle"><div class="p11">2.61</div></td>
<td class="t11" valign="middle"><div class="p11">3.36</div></td>
<td class="t11" valign="middle"><div class="p11">3.66</div></td>
</tr>
<tr>
<td class="t11" valign="middle"><div class="p11">11/05/13</div></td>
<td class="t11" valign="middle"><div class="p11">0.06</div></td>
<td class="t11" valign="middle"><div class="p11">0.05</div></td>
<td class="t11" valign="middle"><div class="p11">0.08</div></td>
<td class="t11" valign="middle"><div class="p11">0.10</div></td>
<td class="t11" valign="middle"><div class="p11">0.32</div></td>
<td class="t11" valign="middle"><div class="p11">0.60</div></td>
<td class="t11" valign="middle"><div class="p11">1.39</div></td>
<td class="t11" valign="middle"><div class="p11">2.06</div></td>
<td class="t11" valign="middle"><div class="p11">2.69</div></td>
<td class="t11" valign="middle"><div class="p11">3.46</div></td>
<td class="t11" valign="middle"><div class="p11">3.76</div></td>
</tr>
</tbody>
</table>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-83063672825080964052013-05-03T09:34:00.000-07:002013-07-09T09:40:22.968-07:00Folks, The Economy's Stalled (June 9 update)<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><div class="separator" style="clear: both; text-align: center;"></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgmu6MtzAupoI9iZnA14e6-19p0IBjInfgrXGTdXrjpxyg_u_DUnY8Oh_Fp_ijearR-V97w-knslQp9WHEVYqyTSWEHiOqNvqGDROmHMzqXH6qPqwBdQWirpCigJRgxMzJHqKaL1Vtdo4/s1600/EmplGap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="433" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgmu6MtzAupoI9iZnA14e6-19p0IBjInfgrXGTdXrjpxyg_u_DUnY8Oh_Fp_ijearR-V97w-knslQp9WHEVYqyTSWEHiOqNvqGDROmHMzqXH6qPqwBdQWirpCigJRgxMzJHqKaL1Vtdo4/s640/EmplGap.png" width="640" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMbWTnel4CSuvKXMpSmV1fcNqC7ubLqSwU4Xpf-7_FeFUGiLEAbvroiuEBUKQf5Zij2guka9yRjt8NngOXuif7A7nOAf_-ZKviXz-KpwoxkQSaA63_j7R9P2TkpbIniXE2EtgMnqkc2aM/s1600/ShortHourGap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><br />
</a></div><i><span style="font-size: 85%;"></span>...the economy is stalled...</i></div><div style="margin-top: 8pt; text-align: justify;">The Bureau of Labor Statistics released the Current Population Survey and Current Employment Survey data for April 2013, which provide detail beyond "headline" unemployment (which by the way fell 0.1 percentage point to 7.5%).</div><div style="margin-top: 8pt; text-align: justify;">I prefer to look at employment data, to lessen the impact of people moving in and out of the labor force. As my baseline I use demographics-adjusted trend employment, to reflect for example the retirement of the baby boomers.</div><div style="margin-top: 8pt; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMbWTnel4CSuvKXMpSmV1fcNqC7ubLqSwU4Xpf-7_FeFUGiLEAbvroiuEBUKQf5Zij2guka9yRjt8NngOXuif7A7nOAf_-ZKviXz-KpwoxkQSaA63_j7R9P2TkpbIniXE2EtgMnqkc2aM/s1600/ShortHourGap.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMbWTnel4CSuvKXMpSmV1fcNqC7ubLqSwU4Xpf-7_FeFUGiLEAbvroiuEBUKQf5Zij2guka9yRjt8NngOXuif7A7nOAf_-ZKviXz-KpwoxkQSaA63_j7R9P2TkpbIniXE2EtgMnqkc2aM/s320/ShortHourGap.png" width="320" /></a>The lead stories (e.g., Bloomberg) point to a drop in the headline rate and a rise in payrolls. However, when we compare employment to what we need to keep up with population growth, April 2013 saw no growth. The graph says it all. (Adding in changes in the number working involuntary short hours doesn't change the story – see the graph to the left.)<br />
<span style="font-size: 85%;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPi-dtCkm5JViW_uVfD1jczvhdi1YKp-cjQXnd3x_hGsDPS32HYYOKa7yJW6_4kdopdRQXguKzuGKn0GSpTtpUQGrUHPdMfZ0mM8Y6aGmX27TRbP6DDRqNb2jvc8rjw-59Rq7WTgpp_XQ/s1600/EmplProjection.png" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPi-dtCkm5JViW_uVfD1jczvhdi1YKp-cjQXnd3x_hGsDPS32HYYOKa7yJW6_4kdopdRQXguKzuGKn0GSpTtpUQGrUHPdMfZ0mM8Y6aGmX27TRbP6DDRqNb2jvc8rjw-59Rq7WTgpp_XQ/s320/EmplProjection.png" width="320" /></a></span><br />
<div style="margin-top: 8pt; text-align: justify;">Unfortunately, this rate of employment growth leaves us years away from "normalcy" – assuming that we do return to pre-recession levels (and there's no good story why we would not). The projection is based on a regression fit done a couple months ago, when employment growth was higher. So it is if anything pessimistic. Now I can tell a story that once we reach a certain level of recovery, a virtuous circle will kick in leading to faster recovery. The more time passes, the fewer people who are underwater on their mortgages, and the more younger people who have built up a financial cushion sufficient to purchase or renovate housing. As the family budget crunch eases, other consumption will rise, helping the process. And so on. While waiting, let's not think about spillovers from Europe, or disruptions in the BRIC economies, or the possibility of irrational fiscal policy at home.</div><div style="margin-top: 8pt; text-align: justify;">Finally, because others track employment-population ratios, I present those for 5-year age brackets. The data are noisy, presumably because of small sample sizes (especially for old workers). These show, first of all, that young workers bore the brunt of the recession, but that prime-age workers were hit fairly uniformly, too. Further, while above the 2010 nadir, there's no strong indication that things have improved in the past 12 months.</div><div style="margin-top: 8pt; text-align: justify;">Note that, contrary to my expectations, early retirement does not jump out of the data. Employment as a share of population is down by 2% for those age 60-64, but actually rises for the 65, 70- and 75+ brackets. While that for age 55-59 is down, it's down by about the same amount as for other prime-age (potential) workers. Now these data make no distinction between part- and full-time employment, nor for wages, so they may mask changes for older workers. However, the overall message is that older workers have postponed retirement, not taken early retirement.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...<i>Mike Smitka</i>...</span><br />
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<div class="separator" style="clear: both; text-align: center;"></div><div style="text-align: left;"></div><br />
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgc3Aj4GxsfXgopNuvO6BRZuyqrZ8uZ5nztXq0L_aEoYNloYyAXRYA1bBbpF7i-bJ_L143eg6yRRAk10QSZNEEoP1SX6GWrrnejc0F2PzGVuTfJhGm_T0ZRPmeoYn2FRsOsTpT8UbEXIV4/s1600/AgeEmplRatios.png" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgc3Aj4GxsfXgopNuvO6BRZuyqrZ8uZ5nztXq0L_aEoYNloYyAXRYA1bBbpF7i-bJ_L143eg6yRRAk10QSZNEEoP1SX6GWrrnejc0F2PzGVuTfJhGm_T0ZRPmeoYn2FRsOsTpT8UbEXIV4/s320/AgeEmplRatios.png" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Prime-Age Worker Employment-Population</b></td></tr>
</tbody></table><br />
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMQCHcQwXMBEXv2sliTh2yj8CYR6uqK_kvQ9-oTVv8a0i0-HcI5te_Bx3kEv3S9hMDxotOHygLdPcrBN0pPfHNW6W36Ho5oNrhlp0ks6AM9KTqJ91Ukq6koyLo7Yuk9cZiGmOXgngc_1Y/s1600/OldAgeEmplRatios.png" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="217" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMQCHcQwXMBEXv2sliTh2yj8CYR6uqK_kvQ9-oTVv8a0i0-HcI5te_Bx3kEv3S9hMDxotOHygLdPcrBN0pPfHNW6W36Ho5oNrhlp0ks6AM9KTqJ91Ukq6koyLo7Yuk9cZiGmOXgngc_1Y/s320/OldAgeEmplRatios.png" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Older-age Employment-Population Ratios</b></td></tr>
</tbody></table><br />
<div class="separator" style="clear: both; text-align: center;"><span style="font-size: 85%;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPi-dtCkm5JViW_uVfD1jczvhdi1YKp-cjQXnd3x_hGsDPS32HYYOKa7yJW6_4kdopdRQXguKzuGKn0GSpTtpUQGrUHPdMfZ0mM8Y6aGmX27TRbP6DDRqNb2jvc8rjw-59Rq7WTgpp_XQ/s1600/EmplProjection.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><br />
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</div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-89886608018462090802013-03-20T05:06:00.000-07:002013-03-20T05:10:06.748-07:00Why Support Higher Education?<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><a href="http://www.cbpp.org/images/cms/3-19-13sfp-f1.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="320" src="http://www.cbpp.org/images/cms/3-19-13sfp-f1.jpg" width="186" /></a><br />
<i>..."flagship" colleges are not a local public good...</i></div><div style="margin-top: 8pt; text-align: justify;">I've long been puzzled by state support for elite universities. In contrast, I've long been puzzled by the lack of state support for community colleges. So what's the puzzle?</div><div style="margin-top: 8pt; text-align: justify;">To make sense to an economist, states should support goods and services that private markets don't adequately provide and where the benefits accrue primarily to the state. In other words, they should be local public goods.</div><div style="margin-top: 8pt; text-align: justify;">That may have been true for elite state schools at one point in time. Nowadays, however, they recruit out-state and their graduates enter a national job market. That's not as true for second-tier schools, and not at all true for community colleges.</div><div style="margin-top: 8pt; text-align: justify;"><a href="http://www.cbpp.org/images/cms/3-19-13sfp-f4.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="http://www.cbpp.org/images/cms/3-19-13sfp-f4.jpg" width="190" /></a><br />
In othe words elite "flagship" schools are not a local public good, whereas community colleges are.</div><div style="margin-top: 8pt; text-align: justify;">The <a href="http://www.cbpp.org/">Center on Budget and Policy Priorities</a> provides data on dramatic changes in state funding to higher education. Many things drive this; obviously the timing reflects a stringent fiscal environment. In addition, the data don't indicate how these changes are split among tiers in the education system – elite schools, second-tier 4-year schools and community colleges. The latter ought to be the priority, because benefits are local, from both the student end and from the employer end. However, at least in Virginia [<i>mea culpa</i>: my wife teaches in the VCCS] elite schools have alumni lobbying networks (and sports programs that enhance visibility) – Virginia Military Institute, physically adjacent to my own W&L, is an example. The community college system has neither (though in some locations employers may raise their "voice".</div><div style="margin-top: 8pt; text-align: justify;">Now some "flagship" schools are almost private; the University of Michigan is one such, and the University of Virginia is moving in that direction; both seek to be "national" university. Cause or effect? – in any case, I don't find the diminished state role inappropriate. However, I fear that all are painted with the same broad brush strokes, though the decimation of lower-tier institutions in California is what dominates my thinking. I don't research education, so this is primarily a thought piece, but one hypothesizing on the basis of data. I'll post further as I learn more.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-86883688268964301422013-02-24T21:55:00.001-08:002013-02-24T21:55:06.180-08:00Government Efficiency: A Natural Experiment<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...sequestrian offers a "natural" experiment to test views of government...</i></div><div style="margin-top: 8pt; text-align: justify;">Microeconomists will thank Congress for providing a natural experiment to test competing views of government. One is that government is unnecessary, or at least inefficient in an allocative sense -- lots of money on things that aren't very useful (and perhaps not enough money on things that are). If so, then sequestration won't matter. Economists also employ a second concept of efficiency, which in layman's terms could be phrased as "doing the job in a lean manner." If the government is inefficient in this sense, then sequestration will not matter: fire 10% of our civil servants and the remainder should be able to easily pick up the slack.</div><div style="margin-top: 8pt; text-align: justify;">Then come alternative views of the impact of fiscal policy on the macroeconomy, "the" multiplier. Now I highlight "the" because Principles textbooks and macroeconomists who live in other than a blackboard world have maintained since the 1920s that the impact of fiscal policy in a great recession is large, while that in the midst of an expansion is small or nil. There is no "the" there. We again have a natural experiment: if the multiplier is really zero or negative, as claimed by those who opposed ARRA (the 2009 stimulus package), then sequestration will do no harm to overall growth.</div><div style="margin-top: 8pt; text-align: justify;">I hope the sequestration experiment will not undertaken long enough to actually provide the evidence we economists need. That's because my priors are that (i) the bulk of the non-defense spending of the government is productive, that (ii) our bureaucracy is surprisingly efficient, and that given our lingering Great Recession (iii) the multiplier is 1.5 or greater [that is, we get more than a dollar boost in GDP for a dollar of properly accounted stimulus]. So we will (ii) see disruptions that (i) will matter and (iii) that if they go on for long, will aggregate through lower expenditures to have a measurable impact on GDP.</div><div style="margin-top: 8pt; text-align: justify;">So what of the natural experiment jargon? Well, identifying the direction of causation in economics is really hard. Fiscal measures are affected by a recession. Since taxe receipts are dependent on income, budget deficits explode. While expenditure changers also occur, some of those are a function of our growing economy and population, hence "endogenous". Furthermore, new policies are implemented only slowly; measuring "real" stimulus turns out to be hard. Statistical tests therefore seldom convince open-minded skeptics.</div><div style="margin-top: 8pt; text-align: justify;">In contrast, sequestration will offer a sharp "exogenous" change with discrete timiing and clear numbers. Of course there are lots of other things affecting the economy, and so a one-time event won't be an unambiguous cause. If sequestration extends for months, however, we'll have another data point generated when it ends.</div><div style="margin-top: 8pt; text-align: justify;">To reiterate: my priors are that sequestration is a big deal. So I hope that Congress (or more specifically, the House) sits down with the Administration in short order, and leaves us economists bereft of data.</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...Mike Smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-65220346337315783462013-02-24T06:43:00.001-08:002013-02-24T06:43:36.863-08:00Steve Rattner on fiscal issues<style type="text/css">p {margin: 4pt 0pt 5pt 1pt} p.level1 {margin: 4pt 5pt 4pt 15pt; text-align: justify} p.level2 {margin: 4pt 5pt 4pt 35pt; text-align: justify}</style><br />
<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...header...</i></div><div style="margin-top: 8pt; text-align: justify;">Steve Rattner worked very hard on behalf of our economy with the Auto Task Force. The US was already in the throes of the Great Recession. Had the bankruptcy process not been handled in a timely manner, our economy would have been thrust into a second depression. (See the related <a href="autosandeconomics.blogspot.com">Autos and Economics</a> blog.</div>I had had a bankruptcy lawyer into my classroom before the recession began; he described the nightmare that large corporations face, years of uncertainty and hundreds of millions in lawyers fees under Chapter 11. The Task Force was absolutely brilliant in avoiding that scenario.) <br />
<div style="margin-top: 8pt; text-align: justify;">However, while Rattner has been able to step back and rethink standard ways of doing things in the realm of corporate restructuring, he has not similarly been able to distance himself from received thinking on fiscal issues. Above all, he continues to view retirement security (Social Security and Medicare) as boats that ought to run on their own bottoms. Since money is fungible, there is nothing inherent in this, except as it changes the politics. However, over the last four decades Congress has not treated the operating budget as something separate from these programs. The "on-budget" and "off-budget" distinction is irrelevant.</div><div style="margin-top: 8pt; text-align: justify;">Now Rattner is not an economist, and so also misses details here and there. On the surface these are not matters of substance. However, they do affect the tone of the debate, because they exaggerate the magnitude of issues in some places, and understate or obscure them in others.</div><div style="margin-top: 8pt; text-align: justify;">As a lay person Rattner does a good job. But we really need everyone who approaches these issues with good intentions to do a better one.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div><p>Rattner slides:<br />
<p class=level1>1. Slide 2: Why care?<br />
<p class=level2>a. Beholden to China, yes, but they are more beholden to us – they are only one of many bondholders, but almost all their bonds are dollar-denominated.<br />
<p class=level2>b. Intergenerational transfers can occur via voluntary saving, involuntary taxing (FICA) and debt issued outside our economy. Don't focus on one to the exclusion of the others. Futhermore, ALL retirement at the societal level has to be financed on a pay-as-you-go basis, since what we consume are services, and they can't be saved.<br />
<p class=level1>2. Slide 9: Revenues vs Spending<br />
<p class=level2>a. Spending and revenue are distorted in the graph due to the sharp decline in GDP, from which we have yet to recover. So you need to incorporate changes in the numerator and not just the denominator. One way to do that is to use potential GDP. (This same issue applies elsewhere.)<br />
<p class=level2>b. On the revenue side, reliance on income taxes accentuates the impact of busts and booms. Graphing against the gap between current and potential GDP would highlight that.<br />
<p class=level1>3. Slide 13: Tax Expenditures<br />
<p class=level2>a. A focus on tax rates obscures other tax rules (carried interest) that affect actual payments, particularly for those in jobs amenable to relabeling compensation to be other than wages.<br />
<p class=level2>b. Perhaps in the discussion of the slide, but it's worth noting that some of the tax expenditures are only relevant if you have enough income to itemize deductions.<br />
<p class=level1>4. Slide 16: Healthcare costs<br />
<p class=level2>a. Projections of social security expenditures are fairly robust, because you can use replacement rate x GDP x claimants / GDP, and demographic projections are robust while the replacement rate is fixed by law.<br />
<p class=level2>b. Projections of healthcare are very dependent on projections of healthcare costs. While we have not been successful in the past in controlling costs, the rate of increase has slowed in recent years. If that continues – and since there's little consensus on why the increase has slowed, we simply don't know – then this graph overstates future levels, potentially by a large percentage of GDP<br />
<p class=level1>5. Slide 17: R&D and infrastructure<br />
<p class=level2>a. We ought to be spending less on infrastructure today, depreciation versus new construction of roads and the like. That it's fallen by half doesn't tell us what we need to know.<br />
<p class=level2>b. Accounting for R&D is hard. For example, nuclear weapons programs don't yield private benefits and should be excluded. That was more important in the 1950s, muddying what we might learn from comparisons.<br />
<p class=level1>6. Slide 18: Unfunded obligations<br />
<p class=level2>a. These are subject to the discount rate and number of years over which projections are made. Social security goes out 75 years – sensible?<br />
<p class=level2>b. Furthermore, no one contemplates repaying all government debt. What matters are changes sufficient to stabilize debt.<br />
<p class=level2>c. To communicate with lay people, what is the equivalent steady-state change in taxes as a percentage of GDP required to accomplish this?<br />
<p class=level1>7. Slides 21-22: Simpson-Bowles? Let's hope not – I've never figured out why people talk about it. Furthermore, when matters, not just how much. Should we be striving to raise taxes and lower expenditures while unemployment remains far, far above historic levels?<br />
<p class=level1>8. Slide 25: Wish list. <br />
<p class=level2>a. Skimpy on details.<br />
<p class=level2>b. The devil rules therein.<br />
<p class=level1>9. Slide 26: Social security. <br />
<p class=level2>a. All of this presumes that somehow social security ought to be a boat that rides on its own bottom. As an economist, there's no reason for that.<br />
<p class=level2>b. In addition, are benefits so generous that they ought to be cut? The lower CPI adjustment does that, and since retirees aren't average – they consume more healthcare – the overall inflation rate already understates the inflation they face.<br />
<p class=level2>c. Raising the cap on social security payments only affects higher income individuals; depending on the level, means testing potentially also affect higher income individuals.<br />
<p class=level2>d. Raising the retirement age certainly enhances revenue while lowering outlays, but is offset by higher rates of disability at older ages. Since those who are poor are more likely to be disabled, a blanket increase could result in those most vulnerable falling through the cracks.<br />
<p class=level2>e. Social security is intended to provide security, as it insures against inflation and swings in returns on stocks and bonds. Private accounts do not provide those functions. Nor would private accounts add to national savings. They also face phase-in issues.<br />
<p class=level1>10. Slide 27: Healthcare reforms<br />
<p class=level2>a. Several of these proposals parallel those for Social Security and suffer from the same defects.<br />
<p class=level2>b. Cost control ultimately requires saying "no" – but current legislation provides very little ability to limit treatments that are not proven more effective than less costly alternatives. In addition, there are no mechanisms to encourage the terminally ill to seek hospice care rather than hospitalization. These are challenging technically, as well as in politics and ethics. Nevertheless, we fool ourselves to think that co-pays and tougher reimbursement guidelines will be adequate, except as they mean that less well-off individuals do without.<br />
<p class=level1>11. Slide 29: Sequestration<br />
a. I have yet to see any proposal for a grand bargain that reflects sensible economic analysis.Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-14865845169993389072013-01-18T15:43:00.002-08:002013-01-18T15:46:44.743-08:00<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...how can you discuss policy if you can't count?...</i></div><div style="margin-top: 8pt; text-align: justify;">Some comics are simply too good to pass up. I've seen jokes using the 110% quip, but this is a nice collage. I've linked this to the Dilbert web site via uclick.com; if the link disappears you'll need to look for the Jan 18th strip elsewhere. I'll see if I can find the text of (today's) Founders Day lecture at W&L. I don't want to try to paraphrase without links if I can find the real thing and cite, or at least paraphrase with a link to the original. If I manage, you'll see the connection.</div><br />
<div class="separator" style="clear: both; text-align: left;"><a href="http://synd.imgsrv.uclick.com/comics/dt/2013/dt130118.gif" imageanchor="1" style="clear:right; float:right; margin-left:1em; margin-bottom:1em"><img border="0" height="187" width="600" src="http://synd.imgsrv.uclick.com/comics/dt/2013/dt130118.gif" /></a></div><br />
Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com1tag:blogger.com,1999:blog-2657605563320788856.post-86194200958012166562013-01-17T18:45:00.000-08:002013-01-17T18:47:50.079-08:00Ron Paul at Washington and Lee: Does gold shine?<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...based on discussions following Ron Paul's Wednesday January 15, 2013 talk at W&L...</i></div><div style="margin-top: 8pt; text-align: justify;">There's a certain fascination with gold; it seems to offer a way to constrain central bankers, at one end of the rules versus discretion debate. Mind you, central banks don't have a stellar track record. The Federal Reserve raised interest rates during the onset of the Great Depression, surely worsening matters. That's a core criticism of Milton Friedman and Anna Schwartz in their Monetary History of the United States. So it's sensible to ask if there's a viable alternative.</div><div style="margin-top: 8pt; text-align: justify;">Drawing upon Irving Fisher, Milton Friedman played around with rules that focused on the growth of the monetary base. Empirically, the first pass seemed to be OK. However, that turned out to be an artifact of his particular dataset, drawn from the early post-WWII period in which financial institutions in the US were tightly regulated. By 1980-81, when the Fed briefly tried to use such a rule under Paul Volcker's chairmanship, it was clear that there was no stability of the link between creating additional reserves and banks' creation of money. So if not reserves, then let's try targeting monetary aggregates, first M1 then M2. When those proved unreliable, then let's try an inflation target, now part of the legal mandate for the Bank of England. That, too, has problems; the latest iteration is to focus on holding the constant the growth of nominal gross domestic product. As to Friedman, he eventually concluded that none of the rules he proposed would work. But that was in his academic publications, and in talks before economists. He never went back to emend his popular writings that propounded what has been labeled "monetarism." Nor did he support the gold standard; to reiterate, in his analysis it was the US attempt to adhere to the gold standard that turned a recession into the precipitous decline of the Great Depression.</div><div style="margin-top: 8pt; text-align: justify;">So what's wrong with gold? For one thing, any claim that it provides a stable source of value fails to pass the laugh test. Jewelry fashions come and go; central banks buy gold and then don't; mines dry up; the global economy booms. All affect the price of gold. Over the past 4 decades (setting 1970 = 100) the price rose to 950 circa 1980, then fell to 150 by the 1990s, and has risen again to 750. Traders in shopping malls booths wouldn't have a business scamming people out of their grandparents jewelry and selling overpriced coins if the price of gold was stable. One of the largest sources of gold is Russia; do we want to give Vladimir Putin the ability to thrust us into a recession if somehow Congress were able to forge a direct link between gold and the US macroeconomy? I suspect not.</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk5Dm6_5fY15W6hB-AD6TT8YzTAN34CKTPmpX5Fw20o69VOwqgm7rsJvz1IzxJgtPR5-6DUt_txTjucu8_sDEWiupXov_YQa5GFPialH04TiZHyQtz8l2KSF_eGncB5JunDChxuvpRLQ8/s1600/realAu.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk5Dm6_5fY15W6hB-AD6TT8YzTAN34CKTPmpX5Fw20o69VOwqgm7rsJvz1IzxJgtPR5-6DUt_txTjucu8_sDEWiupXov_YQa5GFPialH04TiZHyQtz8l2KSF_eGncB5JunDChxuvpRLQ8/s320/realAu.png" width="320" /></a></div><div style="margin-top: 8pt; text-align: justify;">Now it's unclear why Rand Paul latched onto gold; I suspect it was that he really wasn't "into" economic policy and never did his homework. Then, too, there is the residual impact of the writings Hayek and other "Austrians" that go back to the days when it looked like monetary policy rules might work. That is compounded by the Austrian school's loss of focus once high socialism was no longer a real threat. Hayek and others engaged in broad-brush arguments against socialism, with the Soviet system as their implicit target. It's hard for young people to fathom, but at one time that model seemed a real threat, both with the Red Army's continued occupation of eastern Europe, and the attraction of Stalin and the meteoric rise of of Russia from a backward peasant society to a military and scientific power that could provide many of the appurtenances of middle class life to its core population. In contrast, England's economy didn't do very well after 1914, and did horribly after 1929. In newly independent colonies, the political model also seemed attractive; bedeviled by unnatural geographies and ethnic tensions, democracy didn't look workable in the short run, and presidents who developed a fondness for the trappings of office found Stalin's example of how to hold onto power more useful than trying to learn lessons from Churchill's electoral failures. But in 1989, the collapse of the Soviet Union, and within a few years of Tiananmen, the success of market-oriented reforms in China. No one now views socialism as a threat.</div><div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...he had a store of one-liners, but no coherent story...</i></div><div style="margin-top: 8pt; text-align: justify;">Unfortunately, the Austrian school has nothing to say to this new world; its raison d'être vanished in 1989. Yes, government is bad. But we're no longer talking about the heavy hand of the central planners in Moscow and their cruder counterparts in Romania or Beijing. The Austrian's broad-brushed treatment is not amenable to empirical exploration; ironically, unlike the teachings of Marx, it is more political philosophy than economics. (Marx's theories, of course, have been found wanting.) So the Austrians have nothing to offer policymakers, they have no ability to provide a nuanced picture of an economy. Another irony is that without the foil of the Soviet Union, those enthralled by the writings of von Mises and Hayek have become doctrinaire, arguing over fine points, hostile to any who are not true believers. I had hoped that mindset died out with the last generation of Marxists, only to find that today it characterizes the Right rather than the Left [both capitalized – after all, they are/were proud of the label].<br />
</div><div style="margin-top: 8pt; text-align: justify;">Now Ron Paul is an engaging speaker; I've heard him. He makes enough sense here and there to encourage people to listen. But he ranges too far and wide. When it comes to economics, he may have a store of one-liners, but they don't add up to a coherent story.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-74680737998140110572013-01-07T19:30:00.000-08:002013-01-07T19:34:43.325-08:00Debt Ceiling Dynamics<style>p.me {margin-top: 8pt; text-align: justify}</style><br />
<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...chaos, painful chaos...</i></div><div style="margin-top: 8pt; text-align: justify;">What would happen if Congress refuses to raise the debt ceiling? The answer is chaos, painful chaos that would have horrific short-term implications for not just the US but the global economy. Here's why.</div><div style="margin-top: 8pt; text-align: justify;">Refusing to raise the debt ceiling of course could mean that the government is unable to send out social security checks in a timely manner, or otherwise pay its bills. Mind you, these are all programs duly legislated with expenditures authorized by Congress. So the proper way to do things is to change the law. If members of Congress don't think they can get re-elected if they do that, then ... but let me stick to the economics.</div><div style="margin-top: 8pt; text-align: justify;">The real nightmare is the uncertainty this would throw into credit markets. The impact would be concentrated in short-term markets, because that's the debt that (by definition!) falls due. An awful lot of our economy is tied to those markets – money market funds, the prime rate that affects small business loans, car loans and credit card interest rates, and of course that also affects the holding cost of financial institutions with short-term funding needs. The Federal Reserve can work to keep the Federal Funds rate low, but that's an arm's length removed, and at best helps out banks. As we've seen, however, the straight banking portion of our financial system is a shadow of its former self, while the shadow banks have taken over. </div><div style="margin-top: 8pt; text-align: justify;">Normally there's virtually no capital gains risk, upside or downside, in short-term markets – one reason that interest rates are typically much lower. But what if you have a Treaury maturing 5 days from now, and you're not sure it will be good. Now you will get your money, sooner rather than later, but the certainty is gone. Suddenly you're in a seller's market, and face a loss if you try to sell it -- but the possibility of no money on day 5 if you don't. </div><div style="margin-top: 8pt; text-align: justify;">Now at today's interest rates – let's say 0.04% pa, the rate on a one-month bond at the end of December 2012 – well, a $1 million bond earns roughly $1 a day. But if you're a corporate treasurer that really needs the money to make payroll, you may well prefer to take a $100 loss on your $1 million – that is, get $999,900 today – than have a bunch of workers seeking to lynch you because their car payment check bounced. But that means a 4% interest rate – and if we look at what happened when Lehman failed, rates could go much higher.</div><div style="margin-top: 8pt; text-align: justify;">That doesn't sound like much, but it would put money market mutual funds at risk, as many have committed to holding short-term Treasuries to minimize risk. Ditto foreign exchange trader from around the globe. With trillions of dollars traded every day, a jump in interest rates of that magnitude would throw a monkey wrench in the economy that would make the fiscal cliff look as flat as a bowling alley.</div><p class="me">So I think that an administration pushed into a corner would in fact be willing to do almost anything, even delay social security payments, to avoid a bond default. But market managers won't want to place their careers at risk of politicians, most of whom are lawyers, failing to get their priorities straight. Unlike with the fiscal cliff, a last-minute compromise will thus still cause chaos.</p><p>I try to avoid hyperbole, but to me it would be treason – far more dangerous to the US than spilling top secrets – for Congress to use the debt ceiling as a political tool.<br />
<div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com2tag:blogger.com,1999:blog-2657605563320788856.post-64284524900579687582012-12-14T21:40:00.000-08:002012-12-14T21:46:45.618-08:00Triple alignment: The Age of Aquarius<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...when Jupiter aligns with Mars ...</i></div><div style="margin-top: 8pt; text-align: justify;">Three sources point toward a triple alignment in 2016.</div><div style="margin-top: 8pt; text-align: justify;">First the Fed promises to hold interest rates at zero through 2015. In other words, don't expect much before then.</div><div style="margin-top: 8pt; text-align: justify;">Second, the IMF has a nice study of US real estate markets in its background studies for the 2012 Article IV Consultation with the U.S. Taking household formation, the depreciation of housing, new construction rates and vacancy rates, they see housing markets recovering in ... 2016.</div><div style="margin-top: 8pt; text-align: justify;">Finally, my own projection from the rate of job creation relative to the growth of population -- the normalization of age-specific employment to population -- points to 2016 as the point of covergence with "normalcy."</div><div style="margin-top: 8pt; text-align: justify;">According to <a href="http://en.wikipedia.org/wiki/Age_of_Aquarius">Wikipedia,</a></div><div style="margin: 8pt 32pt 8pt 32pt; text-align: justify;">Traditionally, Aquarius is associated with electricity, computers, flight, democracy, freedom, humanitarianism, idealists, modernization, astrology, nervous disorders, rebellion, nonconformity, philanthropy, veracity, perseverance, humanity, and irresolution.</div><div style="margin-top: 8pt; text-align: justify;">OK, I'll settle for a level of unemployment that gives new graduates a shot at a job. The Euro meltdown, the Chinese real estate bubble, and Congressional intransigence can all delay the advent of the new age. However, the closer we get to 2016, the greater the chance that our own domestic dynamics dominate.</div><div style="margin-top: 8pt; text-align: justify;">Unfortunately, we're only at the start of 2013. So we've three more full years to go. We may not count this as a lost decade. Scant consolation.</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-79540008789719486562012-11-16T04:59:00.003-08:002012-12-14T21:42:47.645-08:00Employment Rates and the Recession<div class="p2"><head><br />
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</head>The Great Recession entailed a huge rise in unemployment; that is easy to track, as it is prominently featured in the monthly Bureau of Labor Statistics releases and is soon thereafter up on the St. Louis Fed FRED data site. Almost as well known is the rise in workers on (involuntary) short hours. That sort of correction is standard, reflected in the "U-6" series of "alternative measures of underutilization."</div><div class="p2">During the current US recession workers also dropped out of the labor force in unprecedented numbers. While that is a major component of adjustment to business cycles in Japan (and unemployment a smaller component), that has not been the case for the US. During the 2001 recession, employment as a share of the population for the middle of the labor market (ages 30-54) fell by 1.7 points. In contrast, between January 2007 and January 2010 the ratio fell by 5.1 points.</div><div class="p2">During the past decade, however, the age composition of the population shifted markedly; above all, the baby boomers are now entering retirement. This makes it more difficult to summarize in a single number. But it also turns out that the dynamics across different cohorts are quite different. My own prior was that the Great Recession led to a wave of early retirements, which would show up as a drop in the ration of employment to population. In fact, the ratio rose rather than fell.</div><div class="p2">This brief note focuses on presenting the data. </div><a name='more'></a>It also combines age-specific employment rates with Census Bureau population projections to project future "normal" employment.<br />
<div class="p2"><b><i>Data and Methods</i></b></div><div class="p2">Employment rates by age are available as time series from the Current Population Series on the BLS web site. (See the appendix for the series names.) Specifically, data are available by 5-year brackets (age 16-19 through age 70-74 and then age 75+) on a monthly basis beginning in January 1994. Data are not seasonally adjusted, but visual examination suggests these series have only a modest (and irregular) seasonal component so I have not imposed my own corrections. Because I am interested in the impact of the recession, I construct a (Paasche index) project using a base period (here January 2007) with age-specific brackets and the population in each bracket to project future "normal" employment.</div><div class="p1"><br />
</div><div class="p2"><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span>∑ (ratio<sub>t</sub> x pop<sub>t</sub>)</div><div class="p2"><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span>------------------ <span class="Apple-converted-space"> </span>x 100 <span class="Apple-converted-space"> </span>= <span class="Apple-converted-space"> </span>employment-population index</div><div class="p2"><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span><span class="Apple-tab-span"> </span>∑ (ratio<sub>base</sub> x pop<sub>t</sub>)</div><div class="p1"><br />
</div><div class="p2">In particular, given the changing age structure of the population, what number of jobs would be needed to return us to the January 2007 ratio of employment to population? (I have not extended data backwards.)</div><div class="p2">Now these data should be viewed as providing an additional snapshot. I limited my effort to data readily downloadable from the BLS web site. As a result I make no attempt to examine how employment ratios differ by gender, race and education, nor do I distinguish part-time from full-time labor.<a href="http://www.blogger.com/blogger.g?blogID=2657605563320788856#note-ca1a9e0"><sup>1</sup></a> In addition, I have not compared these data to the more commonly used participation data, which are also available by age bracket. No single number or even modest set of numbers can capture more than a few angles of the dynamics of our labor market.</div><div class="p14"><span class="s2"><a href="http://www.blogger.com/blogger.g?blogID=2657605563320788856" name="note-ca1a9e0"></a></span>1. <span class="Apple-tab-span"> </span>Internal BLS studies such as Sok (2010) utilize more detailed breakdowns for older workers; she also references labor economics studies of shifting trends in the transition to full retirement. Similarly, Rothstein (2012) examines youth (un)employment with detailed breakdowns by gender, race and education.</div><div class="p2"><b><i>Age brackets</i></b></div><div class="p2">Visual inspection quickly shows that six age brackets from 25-54 are all very similar in behavior. A quick showed that the difference between high and low fell from 6 percentage points in 1994 to a relatively stable 3.5-4.0 percentage points after early 2001. Almost all of that variation is in fact due to slightly higher employment ratios at ages 30-34 and lower ratios at age 50-54; the variation between age 35-39 and 45-40 is under 1.0 percentage points.</div><div class="p2">In contrast, younger brackets exhibit a sharp fall. The employment rate among high-school age individuals exhibits a large secular decline; that among the age 20-24 bracket a smaller one. Both drop sharply with the Great Recession.</div><div class="p2">Older brackets show an opposite trend, a long-term secular rise. Strikingly, these are the only age brackets to exhibit <b><i>no</i></b> decline during course of recession. Sok (2010) speculates that this trend may reflect the shift towards defined contribution retirement plans.</div><div class="p2"><b><i>Pseudo-cohorts</i></b></div><div class="p2">Pseudo-cohort data – comparing behavior in a bracket with the the next-older bracket 5 years later – can highlight qualitative changes in labor markets.<a href="http://www.blogger.com/blogger.g?blogID=2657605563320788856#note-3f3952d0"><sup>2</sup></a> In Japanese data there is a pronounced rise in female LF participation starting at 20-24, which is then followed with a lag by a rise in the age 25-29 bracket, and now in the age 30-34 bracket. In other words, in the pseudo-cohort women are increasingly exhibiting "career" behavior rather than dropping out of the labor market with marriage and child-rearing. In Japan there are also smaller systematic changes in older male cohorts.<span class="Apple-converted-space"> </span></div><div class="p2">The data I use here do not break down employment rates by gender. In the more aggregate US data, visual analysis reveals no patterns as striking as those in Japan. Overall there are modest trend toward declining transition probabilities in the 1999-2001, decreasing from above 1.0 toward 1.0. This probably reflects a tailing off of the rise in female employment rates. There is a modest rise in older brackets. For example, in about 70% of the age 55-59 bracket in 1994 were still working in 1999, when they were age 60-64. By 2005 that had risen to 75%. There is also a 5 percentage point rise going from age 60-64 to age 65-69.<span class="Apple-converted-space"> </span>This is a restatement of the rise in employment rates among older workers noted above. However, all series are noisy and there are no clear changes after 2005.</div><div class="p14"><span class="s2"><a href="http://www.blogger.com/blogger.g?blogID=2657605563320788856" name="note-3f3952d0"></a></span>2. <span class="Apple-tab-span"> </span>A true cohort analysis would track individuals across time. Pseudo-cohorts tracks large averages so may be confounded by trends at the individual level that cancel each other, and by changes at frequencies shorter than the available 5-year increments.</div><div class="p2"><b><i>Projections of Future "normal" employment</i></b></div><div class="p2">I previously did a quick and crude constant growth rate projection of "normal" employment based on the rate of employment growth prior to the commencement of the Great Recession in early 2007. However, because of the rapidly shifting age structure of the US population, a simple projection will overstate "needed" employment. Indeed, the 2008 National Population Projection suggests that 2007 is the break point; the aging of the baby boomers began exerting its effect just at the start of the Great Recession.</div><div class="p2">To estimate "normal" future employment I thus use the January 2007 employment-population ratios as a base and multiply the projected population in each 5-year age bracket by the relevant ratio. The employed population grew at a steady 1.0% during 2001-2006; over the 10 years 1997-2006 it grew an average of 1.3%. However, using the population projections with the January 2007 base, employment growth falls, from 0.9% in 2007 to 0.5% in 2013. As a result, using realistic population projections lowers the anticipated number of employed in 2016 by 5.2 million relative to a simple constant growth projection. The decline would be greater if we limited the analysis to workers aged 25-64, as between 2007 and 2017 the aging of the baby boomers leads to a projected 2.4 million rise in workers age 65+.</div><div class="p2">The attached graphs provide two simple analyses using this series. One compares actual employment relative to the projected "normal" level of employment. Projecting recent net job creation into the future, this shows that the economy will return to normality in early 2019; a similar projection of employment less those on involuntary short hours provides a similar date for full recovery from the Great Recession. Both imply that in the end this process will have required a full dozen years.</div><div class="p2">Note that the jobs gap is smaller than the current level of unemployment. That is because even in good times an economy exhibits frictional unemployment, reflecting the normal churn in labor markets as young workers enter the market, and current workers quit to search for better jobs and lose their jobs because of structural shifts in the economy and as firms fire people and search for better workers. Even at the peak of the housing bubble – Oct-Dec 2006 – unemployment never fell below 4.4% or 6.7 million workers. As of October 2012, unemployment was 5.5 million workers higher, while my projection of<span class="Apple-converted-space"> </span>employment rates suggests that, reflecting exit from the labor force, the true gap is 9.1 million.</div><div class="p2"><b><i>Conclusion</i></b></div><div class="p2">Examining employment rates provides a different picture from other metrics, such as age-specific unemployment rates. In particular, employment rates have not fallen among older workers, in contrast to younger workers. Are employers substituting older (and probably part-time) workers for young (and possibly part-time) workers? or does the human capital of older workers render young workers poor substitutes, so that a tightening of labor markets will not lead directly to an increase in demand for younger workers? These are clearly important topics, but I have not searched EconPapers for recent work on these topics. My primary goal was simply to give a quick overview of the data, and then to use them to<span class="Apple-converted-space"> </span></div><div class="p2"><b><i>Bibliography</i></b></div><div class="p3">Rothstein, Donna S. (2012). "Young adult employment during the recent recession." <b><i>Issues in Labor Statistics</i></b>, 12(02).</div><div class="p3">Sok, Emy (2010). "Record unemployment among older workers does not keep them out of the job market." <b>Issues in Labor Statistics</b>, 10(04).</div><div class="p4"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td align="center" class="td1" valign="middle"><br />
<div class="p6">Employment Trend vs Census-adjusted Trend</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaE84Oj-2hgDF3fOPEoTEUMzNXeZFxdK9_Mlny_Vz6SyRwmHrhEsFhAejjnnYjaXC1jDDMvLnXxVp1SBch1gLaKXWMHjqH4DrOxBb1HtDs-mk1xCL5V_wUTzB5QB90dDWArZPWKvNvHMM/s1600/image.pdf.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="273" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaE84Oj-2hgDF3fOPEoTEUMzNXeZFxdK9_Mlny_Vz6SyRwmHrhEsFhAejjnnYjaXC1jDDMvLnXxVp1SBch1gLaKXWMHjqH4DrOxBb1HtDs-mk1xCL5V_wUTzB5QB90dDWArZPWKvNvHMM/s400/image.pdf.jpg" width="400" /></a></td> </tr>
</tbody> </table><br />
<table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Employment trend subtracting workers on (involuntary) short hours</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRWE8xylBVoxynkcBV033p9aAR7KgZT8-9XuCuL-othgL66anbuMuZu3sNHEKN-_uv9hDbS3u-92noOMdjgodnEduvMykWSyedQWLRyMc2A79HjAjHuJyDZ62pqutZZiXNRZmn05H-r1I/s1600/image.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="273" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRWE8xylBVoxynkcBV033p9aAR7KgZT8-9XuCuL-othgL66anbuMuZu3sNHEKN-_uv9hDbS3u-92noOMdjgodnEduvMykWSyedQWLRyMc2A79HjAjHuJyDZ62pqutZZiXNRZmn05H-r1I/s400/image.jpg" width="400" /></a></td> </tr>
</tbody> </table><br />
<table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Frictional Unemployment</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<div class="p7"><span class="s1"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwp0EhYF55jqv1Cp938H1YkN9cwUJT_y05BCX8UoT3yjzaIxlKuRDo_mG0sdAcCmvysgTkwLPXX_EpUkvsxY5rOqWGEEN3ChTJH2TcFg4foLMbHXJvPGzAaM7DvetXM15dtEimjY_9vGc/s1600/image-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwp0EhYF55jqv1Cp938H1YkN9cwUJT_y05BCX8UoT3yjzaIxlKuRDo_mG0sdAcCmvysgTkwLPXX_EpUkvsxY5rOqWGEEN3ChTJH2TcFg4foLMbHXJvPGzAaM7DvetXM15dtEimjY_9vGc/s400/image-1.jpg" width="400" /></a></span></div></td> </tr>
</tbody> </table><div class="p5"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Employment-Population Ratios by Age Bracket: Index</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx_aSX3z5FZWlXg1jKC2Yasn9UDuOP963jfxSsRapOGQNs0mQDWAgtbDh43CUeY1GxsZ3ss7wUTZFBeHjwpIBlcqlvaI05hj-Pa5ZTcO2Ip7QvVICpgetkG8i02dHOC9ERlHaqknda2n4/s1600/image-2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx_aSX3z5FZWlXg1jKC2Yasn9UDuOP963jfxSsRapOGQNs0mQDWAgtbDh43CUeY1GxsZ3ss7wUTZFBeHjwpIBlcqlvaI05hj-Pa5ZTcO2Ip7QvVICpgetkG8i02dHOC9ERlHaqknda2n4/s400/image-2.jpg" width="400" /></a></td> </tr>
</tbody> </table><div class="p5"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Employment-Population Ratios by Age Bracket: Levels</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsZCRp2OT2Z3ckP3emgetqG9SlJanJcw3Am15yvoy-FO07d7Im-QY-5kY0DuJ1bd9hJey5FmE1ifaU5zp2nZ3dI1Q1sWRIDe1H8oR0J8_pgLbwbptniRUNZGQSykqVBUuSfIw7Ci1CSB0/s1600/image-3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsZCRp2OT2Z3ckP3emgetqG9SlJanJcw3Am15yvoy-FO07d7Im-QY-5kY0DuJ1bd9hJey5FmE1ifaU5zp2nZ3dI1Q1sWRIDe1H8oR0J8_pgLbwbptniRUNZGQSykqVBUuSfIw7Ci1CSB0/s400/image-3.jpg" width="400" /></a></td> </tr>
</tbody> </table><div class="p5"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Pseudo-cohort transition rates</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35xfaVDqQh1AZK_gHhQIS0XNYxZsp1xn-5V7gUCCK-VgbUNc-VZKl-GeqtI8IUNhXiKrH7FnTvCNAnn2xiC1RTC5g9J4_hwXcl6TE6OoeXkKTjYr8GYsGQhlrrzo7Us2JCQXtdKDABOU/s1600/image-4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35xfaVDqQh1AZK_gHhQIS0XNYxZsp1xn-5V7gUCCK-VgbUNc-VZKl-GeqtI8IUNhXiKrH7FnTvCNAnn2xiC1RTC5g9J4_hwXcl6TE6OoeXkKTjYr8GYsGQhlrrzo7Us2JCQXtdKDABOU/s400/image-4.jpg" width="400" /></a></td> </tr>
</tbody> </table><div class="p5"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td1" valign="middle"><br />
<div class="p6">Narrowing of Variation in Employment Rates in Core</div></td> </tr>
<tr> <td class="td1" valign="middle"><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidX09I2FSnV8RIA_r4Wl43H7mrorlqrjboItbKH9cFYzcGoOxWHindf_vsMzz5GXf__f6iWK49_0oZtNTCFeAS5HgXt-xyPO5IcFVtVnkxjXZZhpuB1NnCq-D_OcSwfXGVwV63AYV07ZQ/s1600/image-5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidX09I2FSnV8RIA_r4Wl43H7mrorlqrjboItbKH9cFYzcGoOxWHindf_vsMzz5GXf__f6iWK49_0oZtNTCFeAS5HgXt-xyPO5IcFVtVnkxjXZZhpuB1NnCq-D_OcSwfXGVwV63AYV07ZQ/s400/image-5.jpg" width="400" /></a></td> </tr>
</tbody> </table><div class="p1"><br />
</div><div class="p9"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td2" colspan="4" valign="middle"><br />
<div class="p10">Projected Employment</div><div class="p10">January 2007 Age-specific Employment Rates and 2009 Census Population Projections<span class="Apple-converted-space"> </span></div></td> </tr>
<tr> <td class="td2" colspan="4" valign="top"><br />
<div class="p11"><br />
</div></td> </tr>
<tr> <td class="td3" valign="top"><br />
<div class="p11"><br />
</div></td> <td class="td4" valign="middle"><br />
<div class="p10">Projected Employment Levels</div></td> <td class="td5" valign="middle"><br />
<div class="p10">Increment</div></td> <td class="td6" valign="middle"><br />
<div class="p10">Percent growth</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2000</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>137,282,140<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10">-</div></td> <td class="td6" valign="middle"><br />
<div class="p10">-</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2001</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>138,781,310<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,499,170<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">1.09%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2002</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>140,188,448<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,407,138<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">1.01%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2003</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>141,539,899<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,351,451<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.96%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2004</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>142,919,993<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,380,094<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.98%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2005</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>144,324,153<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,404,160<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.98%</div></td> </tr>
<tr> <td class="td7" valign="top"><br />
<div class="p10">2006</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>145,746,856<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,422,703<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.99%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2007</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>147,002,624<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,255,768<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.86%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2008</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>148,192,628<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,190,004<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.81%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2009</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>149,389,459<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,196,831<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.81%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2010</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>150,560,924<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,171,465<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.78%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2011</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>151,681,907<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>1,120,983<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.74%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2012</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>152,585,881<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>903,974<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.60%</div></td> </tr>
<tr> <td class="td7" valign="top"><br />
<div class="p10">2013</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>153,392,625<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>806,744<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.53%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2014</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>154,162,670<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>770,045<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.50%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2015</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>154,873,642<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>710,972<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.46%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2016</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>155,574,275<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>700,633<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.45%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2017</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>156,183,742<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>609,466<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.39%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2018</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>156,731,461<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>547,719<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.35%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2019</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>157,273,686<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>542,225<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.35%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2020</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>157,766,969<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>493,283<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.31%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2021</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>158,338,163<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>571,195<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.36%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2022</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>158,846,493<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>508,330<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.32%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2023</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>159,345,716<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>499,222<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.31%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2024</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>159,852,299<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>506,583<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.32%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p10">2025</div></td> <td class="td4" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>160,311,745<span class="Apple-converted-space"> </span></div></td> <td class="td5" valign="middle"><br />
<div class="p10"><span class="Apple-converted-space"> </span>459,446<span class="Apple-converted-space"> </span></div></td> <td class="td6" valign="middle"><br />
<div class="p10">0.29%</div></td> </tr>
<tr> <td class="td2" valign="top"><br />
<div class="p11"><br />
</div></td> <td class="td4" valign="middle"><br />
<div class="p11"><br />
</div></td> <td class="td5" valign="middle"><br />
<div class="p11"><br />
</div></td> <td class="td6" valign="middle"><br />
<div class="p11"><br />
</div></td> </tr>
<tr> <td class="td2" colspan="4" valign="top"><br />
<div class="p12">Source: <a href="http://www.census.gov/population/projections/files/downloadables/NP2009_D1_C.xls">http://www.census.gov/population/projections/files/downloadables/NP2009_D1_C.xls</a></div></td> </tr>
</tbody> </table><div class="p13"><br />
</div><div class="p13"><br />
</div><div class="p6">BLS Data Series</div><div class="p9"><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="t1"><tbody>
<tr> <td class="td8" valign="middle"><br />
<div class="p10">Age Bracket</div><div class="p11"><br />
</div></td> <td class="td9" valign="middle"><br />
<div class="p10">Series Name</div><div class="p11"><br />
</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">16-19</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNS12300012</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">20-24</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNS12300036</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">25-29</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324932</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">30-34</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324933</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">35-39</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324934</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">40-44</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324935</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">45-49</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324936</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">50-54</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324937</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">55-59</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02300094</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">60-64</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02300096</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">65-69</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324938</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">70-74</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324941</div></td> </tr>
<tr> <td class="td10" valign="middle"><br />
<div class="p10">75+</div></td> <td class="td9" valign="middle"><br />
<div class="p10">LNU02324942</div></td> </tr>
</tbody> </table><div class="p1"><br />
</div><br />
<br />
<div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div><br />
<br />
Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-46814046730413514792012-11-09T16:40:00.002-08:002012-11-09T16:43:49.015-08:00Finessing Norquist<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>Republicans can have their cake and eat it too</i></div><div style="margin-top: 8pt; text-align: justify;">The "fiscal cliff" is in reality a slope that gets steeper and steeper. We need to strike a deal in early January, before the economy gathers downhill momentum, but there is room to maneuver. This opens up the possibility that Republicans can have their cake and eat it too. Once January 1st arrives, the "temporary" Bush taxes cuts will have expired. Any final package will reasonably provide a cut to the post-January-1st level of the alternative minimum tax. It will probably include other minor adjustments. So what asked to vote, what Republicans can say "aye" to a package that contains tax cuts and not tax increases.</div><div style="margin-top: 8pt; text-align: justify;">Object to this as sophistry. Fine, but sophistry is better than demagoguery!</div><div style="margin-top: 8pt; text-align: justify;">Have Americans given Obama a mandate? Well, he's been pretty clear about raising the rather low tax rates the truly rich face, rates significantly lower than what I pay. He won the election. So people had an opportunity to say "no" and ... didn't.</div><div style="margin-top: 8pt; text-align: justify;">Locally, my House district re-elected the Republican incumbent, Bob Goodlatte, against token opposition, a virtually unknown Democratic candidate running for office for the first time. Goodlatte won by the expected wide margin. Does that mean that he has a mandate? I don't think so; a mandate comes only when you've contested against a serious candidate, and the voters chose you. Even then, few people vote on a single issue, and few elections are decided on a single issue. Goodlatte is good on constituent services, and has done a modest job of lobbying for local pork. Did we elect him to bring home more bacon for all, or to procure a piece of choice filet mignon for the few? I rather think the former.</div><div style="margin-top: 8pt; text-align: justify;">We can step over the edge of the "cliff" and still step back. That provides room for creative and constructive bargaining. Lets hope our putative leaders in Washington, Republican and Democratic, are up to the task.</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-16795289393206549152012-11-07T08:26:00.000-08:002012-11-09T16:43:16.327-08:00Confirmations and Continuity<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...Obama is already on the ground and running...</i></div><div style="margin-top: 8pt; text-align: justify;">Despite all the verbiage spilled this election, I've encountered no mention of the challenge that faces every new president of naming top administrators – secretaries, undersecretaries, assistant secretaries and deputy assistant secretaries, plus Executive Office staff, from the direct assistants to the president to the Council of Economic Advisors and other appendages. New Presidents also face a steep learning curve on operational matters, from dealing with intelligence briefings and to establishing personal ties (or not!) with key Congressional leaders.</div><div style="margin-top: 8pt; text-align: justify;">The "<a href="http://publicservice.evendon.com/PlumBook2008M.htm">Plum Book</a>" drawn up every 4 years as an aid to new (and incumbent) presidents lists 7,996 positions subject to presidential appointment. While in practice many of will be filled through routine promotions of senior civil servants, in 2008 some 1,141 positions required Senate confirmation. Unless they both want to stay and an incoming president chooses to leave them in place -- as President Obama did in 2009 with Robert Gates as Secretary of Defense -- there is then no one to sign off on regulatory approvals and staff changes and so on until the Senate approves them. Making appointments takes months; confirmation the majority of candidates takes the better part of the year, particularly when the Senate objects to the initial nominee.</div><div style="margin-top: 8pt; text-align: justify;">An incumbent who is re-elected need not spend time learning the ropes. (Hopefully they will also reflect on successes and failures during their first 4 years!) While many appointees will choose to move on before 2016, a second-term president likewise needs spend little time on personnel issues or other transition tasks.</div><div style="margin-top: 8pt; text-align: justify;">So unlike 2009, when he faced transition tasks in the midst of a financial crisis, Obama is already on the ground and running. Of course he had the overhead of the election campaign, and so perforce was faced with performing two full-time jobs the past year or so. Crises (and routine tasks) kept intruding. On TV he appears visibly tired, for good reason. Our electoral system imposes a burden on maintaining efficient government operations. We've lessened that burden for the next four years, to our benefit.</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-50406124019829140352012-11-02T08:49:00.003-07:002012-11-05T08:25:30.795-08:00More Employment<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;">
<i>...more important is employment to population...</i></div>
<div style="margin-top: 8pt; text-align: justify;">
The data for October 2012 – the last "big" data release before the election -- are now available on the Bureau of Labor Statistics <a href="http://www.bls.gov/">web page</a> and on a select basis as graphs on the St Louis Fed <a href="http://http//research.stlouisfed.org/fred2/">FRED database</a>. I do look at unemployment and other metrics, but here want to highlight the employment to population data, which avoids "noise" that comes from people dropping in and out of the labor force -- that is, I look at employment/population not employment/labor force. This measure also has the advantage that it automatically adjusts to population growth (unlike overall employment measures) and, when is disaggregated, is neutral to changes in the age composition of the population (such as the aging of the baby boom cohorts).</div>
<div style="margin-top: 8pt; text-align: justify;">
The data show a steady improvement in the economy. All data below are as a percent of population (or change in percentage points in the comparative rows). As with all employment data, there is some noise from month to month. In addition, these data aren't seasonally adjusted. But it's one more picture of our slowly improving economy, a process that whoever is president for the next four years can little to improve but that will by 2016 have brought us close to "normalcy".</div>
<table border="1" cellpadding="1" cellspacing="1"><tbody>
<tr> <td><br />
age bracket</td> <td><br />
16-19</td> <td><br />
20-24</td> <td><br />
25-29</td> <td><br />
30-34</td> <td><br />
35-39</td> <td><br />
40-44</td> <td><br />
45-49</td> <td><br />
50-54</td> <td><br />
55-59</td> <td><br />
60-64</td> <td><br />
65-69</td> <td><br />
70-74</td> <td><br />
75+</td> </tr>
<tr> <td><br />
Oct 2012</td> <td><br />
26.5</td> <td><br />
61.8</td> <td><br />
75</td> <td><br />
76.6</td> <td><br />
77.5</td> <td><br />
78.4</td> <td><br />
77.6</td> <td><br />
74.3</td> <td><br />
69.2</td> <td><br />
52.7</td> <td><br />
29.9</td> <td><br />
18.7</td> <td><br />
7.3</td> </tr>
<tr> <td><br />
12 month average</td> <td><br />
26.0</td> <td><br />
61.4</td> <td><br />
73.6</td> <td><br />
75.5</td> <td><br />
76.5</td> <td><br />
77.5</td> <td><br />
76.6</td> <td><br />
73.9</td> <td><br />
67.9</td> <td><br />
51.7</td> <td><br />
30.0</td> <td><br />
18.2</td> <td><br />
7.2</td> </tr>
<tr> <td><br />
change vs avg</td> <td><br />
0.5</td> <td><br />
0.4</td> <td><br />
1.4</td> <td><br />
1.1</td> <td><br />
1.0</td> <td><br />
0.9</td> <td><br />
1.0</td> <td><br />
0.4</td> <td><br />
1.3</td> <td><br />
1.1</td> <td><br />
-0.1</td> <td><br />
0.5</td> <td><br />
0.1</td> </tr>
<tr> <td><br />
<span style="font-size: x-small;"><i>vs Oct 2011</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0.2</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>-0.3</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>2.1</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>1.1</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0.8</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>1.5</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0.8</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0.2</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0.5</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>1.8</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0</i></span></td> <td><span style="font-size: x-small;"><i><br />
</i></span> <span style="font-size: x-small;"><i>0</i></span></td> </tr>
<tr><td><i><span style="font-size: x-small;">vs Oct 2009</span></i></td> <td><i><span style="font-size: x-small;">0.3</span></i></td><td><i><span style="font-size: x-small;">1.5</span></i></td><td><i><span style="font-size: x-small;">1.5</span></i></td><td><i><span style="font-size: x-small;">1.3</span></i></td><td><i><span style="font-size: x-small;">0.9</span></i></td><td><i><span style="font-size: x-small;">2.1</span></i></td><td><i><span style="font-size: x-small;">0.4</span></i></td><td><i><span style="font-size: x-small;">-0.4</span></i></td><td><i><span style="font-size: x-small;">1</span></i></td><td><i><span style="font-size: x-small;">1.9</span></i></td><td><i><span style="font-size: x-small;">1</span></i></td><td><i><span style="font-size: x-small;">0.4</span></i></td><td><i><span style="font-size: x-small;">0.2</span></i></td></tr>
</tbody> </table>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho35dVNs3S4za6EDSkr8884Cv6AgJ9nnYkj7bXUupZonRFpzAr3bFoz39REd6URLcXD_D4Ydg4hYtNNAwEa3MXTZFr-7cNdda1jrA_M0S-ykQGJoJ5Hqkh-SDvkx8SMexMJaS8-Wk4ngM/s1600/PopAge.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="433" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho35dVNs3S4za6EDSkr8884Cv6AgJ9nnYkj7bXUupZonRFpzAr3bFoz39REd6URLcXD_D4Ydg4hYtNNAwEa3MXTZFr-7cNdda1jrA_M0S-ykQGJoJ5Hqkh-SDvkx8SMexMJaS8-Wk4ngM/s640/PopAge.jpg" width="640" /></a></div>
<br />
<div style="margin-left: 5%; margin-right: 5%; text-align: right;">
<span style="font-size: 85%;">...mike smitka...</span></div>
Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-34470245431482177562012-10-26T08:35:00.000-07:002012-10-26T16:22:53.960-07:00The Chimera of Energy Indepence<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...how much are Americans willing to pay for independence?...</i></div><div style="margin-top: 8pt; text-align: justify;">Planet Money has a nice segment today [Oct 26] arguing that <a href="http://www.npr.org/blogs/money/2012/10/26/163637629/energy-independence-wouldnt-make-gasoline-any-cheaper">Energy Independence Wouldn't Make Gasoline Any Cheaper</a>. They use interviews in Canada, a net energy exporter, to make the case: prices there are neither cheap nor stable.</div><div style="margin-top: 8pt; text-align: justify;">A simple Econ 101 framework helps. Why would a country be a net exporter (such as Saudi Arabia or Iran) rather than a net importer such as the United States? The obvious answer is because we're not the low-cost provider. Ergo we buy from people who are.</div><div style="margin-top: 8pt; text-align: justify;">So first, the only way we can obtain "independence" is if we are willing to pay more for energy. Listening to the presidential debates, however, the framing clearly equates independence with low prices. That can't happen, barring a technological breakthrough that can be quickly commercialized. Solar power? Well, Arizona has plenty of sunshine days and lots of comparatively empty land. But getting power from there to the rest of the US would be a challenge. And Saudi Arabia? -- they've even more empty land and more days of sunshine. Shipping the energy would remain the issue. But we might still not be the low-cost provider.</div><div style="margin-top: 8pt; text-align: justify;">Second, how about price volatility? Lessening that requires that we add layers of regulation, specifically that we prohibiting exports and imports. Energy markets are global, else we'd not worry about the Middle East. If global prices go up, then so will US domestic prices unless we prohibit exports. If global prices fall, then we have to prohibit imports lest firms turn to cheaper sources. Neither presidential candidate proposes any such thing.<br />
</div><div style="margin-top: 8pt; text-align: justify;">Then there's the red herring of regulation. We have anecdotal evidence that we in fact err on the side of minimalism: remember BP Horizon? More generally, you'd have to make the case that we are stricter than other countries, in a way that keeps us from drilling. Now local petroleum geologists assure me that there are reserves in really, really deep water and in the far Arctic. Neither are low-cost sources, both because of the difficulty of drilling and the additional challenge of getting oil from wellhead to refinery. The barrier to greater supply – greater "independence" – remains low prices.<br />
</div><div style="margin-top: 8pt; text-align: justify;">You'd flunk Econ 101 if you didn't also mention the demand side. Not a hint of such from either Obama or Romney. Even the general public understands that demand-side policies require paying a higher price for energy.</div><div style="margin-top: 8pt; text-align: justify;">So how much are Americans willing to pay for independence? My guess: not one penny.<br />
</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...mike smitka...</span></div><div style="text-align: justify; margin-left:5%; margin-right:5%; font-size: 90%;">Addendum:<br \>Indeed, how much are we willing to pay for sanctions on Iran? – my hunch is "zero". But sanctions are working in an economic sense: production is down over 1 million barrels a day, enough to move the price we pay at the pump. Neither candidate was willing to point that out.</div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-72696519480485371602012-10-11T13:48:00.000-07:002012-10-17T07:28:48.225-07:00How Fast is Job Creation?<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...age composition matters...</i></div><div style="margin-top: 8pt; text-align: justify;">How long recovery takes depends on the rate of job creation relative to the growth of the working age population. It turns out that age composition matters. In 2005-6 the economy needed roughly 125,000 a month to keep unemployment from changing; by 2008, when the Great Recession began, that rate had fallen to 102,000. Continued shifts – more people at the retirement end of their working life – pull that down to 71,000 in 2012. It then drops to 65,000 in 2013-14 and 62,000 in 2015-16. Cumulated over 2008-2016 that's a 5 million difference relative to the steady employment growth of the previous decade. (<b>Addendum:</b> Nowhere in the data does the shortfall get anywhere near the 23 million unemployed Romney repeated time and again in the second debate. He can't be very concerned about the issue if, after 7 years on the campaign trail, he has no grasp of basic data.)</div><div style="margin-top: 8pt; text-align: justify;">So first I calculated the expected normal level of employment, correcting for demographics; details are below the chart. I then calculated trend job growth (a simple regression using data from January 2010, the rough nadir of the recession, through Sept 2012). On that basis we return to normal levels of employment in fall 2018. If we naively take the faster average growth since summer 2011 (the light blue in the graph), we recover in time for the next midterm elections. That's a sharp contrast to the naive straight-line projection of required employment growth, which doesn't get us back on track until far into the future or (under the optimistic light blue scenario) late 2018.</div><div style="margin-top: 8pt; text-align: justify;">I don't believe the optimistic case – we face headwinds but no tailwinds. Congress can mishandle the Fiscal Cliff; global growth is slowing. For the latter, the Europeans have yet to provide Greece and Spain a politically viable strategy for staying in the Euro zone. China's economy has slowed. Energy prices remain a drag, particularly on Japan which (due to the shutdown of most nuclear power generation) now faces a huge import bill for hydrocarbons. We are bit by bit moving out of the real estate bubble, as every quarter another 750,000 or so households will work out from being underwater on their mortgages, and as state and local government revenue stabilize. Nothing on the horizon will speed that process; neither presidential candidate has offered realistic proposals to address underlying issues.</div><div style="margin-top: 8pt; margin-bottom: 8pt; text-align: justify;">Overall, however, this presents a far brighter picture than my previous calculations, which used the straight-line (blue) projections rather than the baby-boom-adjusted (red) projections. When I used the former, we were making almost no progress on closing the employment gap. But in fact we have made progress, even if it's less than we'd like.</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXIyf-SeukJNCT_vrGv86sPSqgSx13uLVCW4lMbSNYGd5FeuHfaj9vksxuJfLMrFw6In-EokjSUpObvVOBbrsXtkP6B82K-U8XtJhpK97CZHFsE1eHmYFyfv6dx9o7kY4YKOmJjQ3276E/s1600/AltProjection.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXIyf-SeukJNCT_vrGv86sPSqgSx13uLVCW4lMbSNYGd5FeuHfaj9vksxuJfLMrFw6In-EokjSUpObvVOBbrsXtkP6B82K-U8XtJhpK97CZHFsE1eHmYFyfv6dx9o7kY4YKOmJjQ3276E/s640/AltProjection.jpg" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"></div><div style="margin-top: 8pt; text-align: justify;">A bit of tedium on my calculations. I began by pulling employment to population data from the Bureau of Labor Statistics, a bit tedious as you have to pull a lot of data series, and the series include 13 observations per year because they include an annual number. So I had to delete those. (Thank you Nisus Writer, for making that easy!) Then I graphed it in Excel to see if the data suggested shortcuts.</div><div style="margin-top: 8pt; text-align: justify;">As it happens, most of the employment-to-population data show no trend over the two decades prior to the onset of the Great Recession. You can observe the impact of increased schooling at the young end of the age spectrum, and a modest rise in the share of people working in older cohorts, those age 60 and above. Even in those cases, most of the shift was before 2005. If we go back further, there were larger changes in schooling and in women's labor force participation, but those predate the 1990s. So with no trend going into the Great Recession – there is no upturn in the mid-2000s corresponding to the bubble – I could take the employment-population figures at the start of 2007 as the starting point.</div><div style="margin-top: 8pt; text-align: justify;">I thus took the immediate pre-recession levels for 5-year age brackets, age 16-19, age 20-24 through age 70-74. (It would be wrong to stop at age 65, which is what most data sources do, because 18% of Americans are still working in their early 70s.) Note that in the Great Recession the share of people working fell sharply, particularly at younger ages (16-24) and among prime-age workers (those age 25-54). Hence for projections it's necessary to use the (stable) prior level as the reference point. That doesn't matter at older ages; the data show no wave of early retirement, if anything they show a very slight increase in labor force participation. (<span style="font-size: x-small;">continued below graph...</span>)</div><div style="margin-top: 8pt; text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8Y2o1d8tQdej4I7lxKBcx-vQ2byyNy-mfgQcojbcxtUl1FoOXy_Hq-ao5nrDSyRhT-ENc6jBR5uMkDBiOkRTsOfA3R7P5uxrqlEWfM_jfoQwVEBIzMCPxS_D7AI-1Xet6Ur-ntgdt9tE/s1600/EmplPop.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="433" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8Y2o1d8tQdej4I7lxKBcx-vQ2byyNy-mfgQcojbcxtUl1FoOXy_Hq-ao5nrDSyRhT-ENc6jBR5uMkDBiOkRTsOfA3R7P5uxrqlEWfM_jfoQwVEBIzMCPxS_D7AI-1Xet6Ur-ntgdt9tE/s640/EmplPop.jpg" width="640" /></a></div><div style="margin-top: 8pt; text-align: justify;">I then went to the US Census for population projections. The 2009 is the most recent, projection population by age for each year through 2050. I reduced these to the 5-year brackets used for the BLS employment-population data. To get the "normal" level of employment, I then multiplied the projected population in each 5-year bracket by the pre-recession employment-to-population ratio (for older workers, the most recent ratio) and added the totals. Since the Census doesn't provide monthly projections, I simply took the annual increment and spread it evenly across each month.</div><div style="margin-top: 8pt; text-align: justify;">Presumably sometime soon we'll get projections based on the 2010 Census, but fertility rates change slowly, and even if the 2010 data are off, that will make a difference in the 16-19 age bracket only from 2026. Likewise, mortality was already very low in the age 60 bracket; the Census Bureau projects a continued drop in mortality, and that rate also changes slowly. So going out a decade won't lead to much error there, either, and its impact is further reduced because employment rates drop. The weakest part of the projection is immigration. Since that presumably has fallen with our Great Recession, it means that if there's an error, it's towards an overestimate of the population and hence of the number of jobs our economy needs to create.</div><div style="margin-bottom: 8pt; margin-top: 8pt; text-align: justify;">One final note is that these data are for employment, and not full-time employment. That means it does it take into account those working multiple jobs, and those working involuntary short hours. I cannot track either by age bracket. Glancing at the data suggests no particular trends in multiple jobs; in contrast, there has been a sharp rise in the number of those "working part-time jobs for economic reasons". The latter means that I understate the amount of time recovery will take, because those jobs need to be converted back into regular jobs, on top of the need to create new jobs. Here's what that graph does: it pushes the recovery date out past 2020...</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJiE1maE_XElirFXoH_KOouGdesqJDu42TZez739C2NFT8ovYotAqlr2VLbyKOlF3GI7pJiftCW8o9qO0DG9GLUG4USWHCATbxw7YZVKyD5f0Nu4E8Q9NXBiFHwBb6N2p3XcnfzYfl3S4/s1600/AltProj.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJiE1maE_XElirFXoH_KOouGdesqJDu42TZez739C2NFT8ovYotAqlr2VLbyKOlF3GI7pJiftCW8o9qO0DG9GLUG4USWHCATbxw7YZVKyD5f0Nu4E8Q9NXBiFHwBb6N2p3XcnfzYfl3S4/s640/AltProj.jpg" width="640" /></a></div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...Mike Smitka...</span></div></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-56801718426309291282012-10-04T08:24:00.001-07:002012-10-04T08:24:32.744-07:00But Romney Can't Work with Congress!<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...Romney's plan is "work with Congress"...</i></div><div style="margin-top: 8pt; text-align: justify;">Obama did not go for the jugular; he's not a street fighter. He did not try to get Romney to name a single one of the loopholes he would close -- there are lots, but the big ones are capital gains, home mortgages and charitable contributions. Without closing those, he can't deliver on his tax cut.<br />
</div><div style="margin-top: 8pt; text-align: justify;">Oh, and if the loopholes are closed, in my case the reduction in the tax rate wouldn't be enough to offset the loss of the mortgage deduction, because I'm stuck with a house I can't sell plus the one I live in. So Romney is in fact promising to increase my taxes, and I'm middle class, as a professor I don't make it into the top 10%.</div><div style="margin-top: 8pt; text-align: justify;">But the most disturbing component is something about which I've not seen a single comment. The core of Romney's plan, er, argument is "we'll work it out with Congress." I'm afraid that won't prove possible. The Tea Party adherents in Congress will prove no more flexible with Romney than with Obama. Indeed, the choice of Ryan will embolden them to dig in their heels. So I think the reality would be that Romney would not gain unity among Republicans on any of the crucial issues (other than repealing RomneyCare). Meanwhile, he will alienate the Democrats.</div><div style="margin-top: 8pt; text-align: justify;">Now to the puzzlement of many, since he had a majority, Obama tried to sit down and work with Congress during his first two years. The result was many compromises but few votes in return -- and since the midterm elections, none. Working with Congress? -- we've been there and done that, and it didn't work.</div><div style="margin-top: 8pt; text-align: justify;">The bottom line is that with both the Tea Party and the Democrats against him, Romeny will find it harder to work with Congress than President Obama, not easier. To put it bluntly, Romney will find it impossible. So what is his real plan, to dither for 4 years?</div><div style="margin-top: 8pt; text-align: justify;">...with both the Tea Party and the Democrats against him [Romney's plan is] impossible...</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-1850349606528784502012-09-23T12:40:00.000-07:002012-09-23T12:41:58.088-07:00Micro vs Macro<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...the fallacy of composition separates micro from macro...</i></div><div style="margin-top: 8pt; text-align: justify;">As I struggle with teaching senior majors a bit of macroeconomics, I am trying to think of ways in which I can distinguish the mindset of micro (the majority of our curriculm) from macro.</div><div style="margin-top: 8pt; text-align: justify;">(Aside: for the present, I'm posting primarily on the course site on the publicly-accessible W&L WordPress server, at <a href="http://econ398.academic.wlu.edu/">http://econ398.academic.wlu.edu</a> (and similar sites for Japan at <a href="http://econ272.academic.wlu.edu/">econ272.academic.wlu.edu</a> and Industrial Organization at <a href="http://econ243.academic.wlu.edu/">econ243.academic.wlu.edu</a>)</div><div style="margin-top: 8pt; text-align: justify;">One issue is data: if you take a skeptical view, that structural change in the US since 1980 is substantial -- look at changes in "openness" (trade shares, international financial flows), financial sector reforms (the nature of "money", the rise of multistate banks, and "shadow" banks), labor markets (education levels, mobility, less weight in unionized sectors, more in services) and demographics (more and older retirees hence greater transfers) -- then you may be reluctant to think that there is much to be garnered, indeed you may believe that much will be muddied, from using data older than 20 years. Since key macro measures are only available on a quarterly basis, you're thus stuck with 80 observations, which doesn't provide for much statistical power, particularly given the infrequency of shocks and major policy changes. Using multi-country panel data requires even stronger assumptions than (say) using data from 1962 on for the US. Those doing micro work tend to use datasets with hundreds, if not many thousands, of observations.</div><div style="margin-top: 8pt; text-align: justify;">Then there are aggregation issues. The more disaggregated the model, the more convincing are microfoundations (though ironically those who use that term are often using models so aggregate that they are reduced to assuming representative agents with identical and unchanging preferences for labor vs leisure and today vs the future). These are present as well in micro markets, but are either more obvious or less severe, and typically both.</div><div style="margin-top: 8pt; text-align: justify;">Most central, in my mind, is that the fallacy of composition separates micro from macro. A nice post on the <a href="http://www.voxeu.org/article/why-micro-success-doesn-t-guarantee-macro-success">Vox EU blog</a>, "Micro success does not guarantee macro success," provides an illustration. They look at job search assistance programs, for which in the Danish case there are not only good data, but a randomized base that helps control for extraneous factors. Such programs do indeed improve the speed at which workers find new jobs, by about 10% over 3 months. Since such individuals then stop collecting unemployment and start paying taxes, it is extremely cost-effective.</div><div style="margin-top: 8pt; text-align: justify;"><b>However...</b>such experiments are hard to replicate, because unless the demand for workers is adequate, the primary effect is to speed up who gets jobs -- those fortunate enough to be enrolled in the program -- but not to create extra jobs.</div><div style="margin-top: 8pt; text-align: justify;">Basically, the normal statistical design takes those in a city who were chosen (randomly) for the program with those who were not. Most (though not all) of the effects disappear when those not chosen for the program are compared with those newly unemployed elsewhere. At first glance that's less clean because it's harder to control for various in geography and attendant local industry effects. However, it misses the point that the difference in the more typical control case doesn't preclude that it takes those (randomly) not chosen for the program longer to find a job. Furthermore, when extended to a wider share of those unemployed, employers are flooded with applications, while the ability of the employment office to taylor their help goes down. Indeed, past the point of including about 30% of those unemployed, the spillovers dominate, and the program ceases to be cost-effective.</div><div style="margin-top: 8pt; text-align: justify;">Macroeconomics if full of similar examples. One household can increase their saving to provide for retirement; that won't shift asset prices, it won't shift the amount of consumption. So they can effectively transfer resources across time. We have that built in (fallaciously) into our economy, in the form of the Social Security Trust Fund. Unfortunately, we can't put doctors in deep freeze: medical services have to come out of contemporaneous production. So in order for retirees to consume medical services (and in the aggregate, other consumption goods), we who are working have to consume less. All retirement is fundamentally pay-as-you-go. The Trust Fund is meaningless; when the future comes, the idea is that it sells off assets. But it's not small in the economy. To do so requires us to save more (to buy those bonds) or to be taxed more (so the government can buy them on our behalf) or (but only in the short term) rolled over into general government debt.</div><div style="margin-top: 8pt; text-align: justify;">I won't pretend this is simple to understand. But I don't pretend that macroeconomics is easy, either. It requires us to deal with aggregation and spillovers, which is not what we do in our day-to-day decision making. That requires abstraction and building models to check that we've aggregated consistently; it turns out to be very easy to play with ideas only to discover that they don't add up, that they are internally inconsistent (and not in a small way).</div><div style="margin-top: 8pt; text-align: justify;">And then there remains the challenge of testing these abstractions against our scanty set of real-world data.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...signature...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-36850496602164396482012-08-30T07:41:00.001-07:002012-08-30T08:39:34.387-07:00No fiscal cliff?<div style="margin-top: 8pt; text-align: justify;">The <i><b>New York Times</i></b> 29 August 2012 Economix blog, <a href="http://economix.blogs.nytimes.com/2012/08/29/is-the-fiscal-cliff-a-big-deal/" target="_blank">"Is the Fiscal Cliff a Big Deal?"</a> by Casey Mulligan is faulty, because it misses an Economics 101 opportunity cost issue.<br />
<table align=right border=0 cellpadding=20 hspace=20 width=40%><tbody>
<tr><td><div style="color: #741b47; font-size: 110%; text-align: justify;"><i>...cutting unemployment insurance won't increase employment; in an environment where jobs are scarce, <i>at most</i> it will shift who has jobs...</i></div></td></tr>
</tbody></table></div><div style="margin-top: 8pt; text-align: justify;">Now it's easy to find non-economists making this mistake, or comparable ones. The Republican platform worries that trimming the Department of Defense's budget will cut jobs and hurt the economy, but turns around and claims that the roughly half of the 2009 stimulus package that added jobs somehow didn't help the economy. However, absent very large changes -- in an economy with a labor force of 155 million, a million jobs one way or the other is not a large change, however much it matters to those million people -- if such effects exist, they are symmetric.</div><div style="margin-top: 8pt; text-align: justify;">What Mulligan assumes is that such issues never exist. The issue of unemployment is that people aren't looking for work. So cutting unemployment benefits will actually lead to more people working. First, unemployment benefits are not that generous -- if you're on a tight budget, you really need more income. But in today's context that's beside the point, because the underlying rate of unemployment is high. Corrected for changes in the working age population, the gap from where we were before the recession started is 14.5 million jobs.</div><div style="margin-top: 8pt; text-align: justify;">Let me give an anecdote. My son has hunted for a regular job for a year, with no "bites" -- other than to become a low-level fast-food supervisor. He does better doing landscaping for neighbors. But a few years back he had opportunities, but wanted to finish his college degree. Most of his friends are in the same position, job-hunting, though they may have part-time jobs that provide some income.</div><div style="margin-top: 8pt; text-align: justify;">Now an anecdote is not data; it only helps you think about what might be going on. But it does suggest that we look at overall unemployment. After all, if you want to argue that collecting unemployment checks is what is holding the economy back, you have to explain the source of a sudden shift in ethics in early 2007 that led 10-plus million Americans to decide that sitting home was a nice option. Instead, we can look at job losses and mass layoffs, both tracked by the <a href="http://bls.gov/bls/unemployment.htm">Bureau of Labor Statistics</a>. Their data also show a rise in those "working part-time for economic reasons", that is, people who have had their hours cut but want to work more. If the mass laziness story is true, then we shouldn't see this happening, either -- we'd expect to see the number of people happily accepting part-time work also rising. The data show they're unhappily accepting such work because the alternative, unemployment, is worse.</div><div style="margin-top: 8pt; text-align: justify;">Mulligan's analysis of why in fact the "fiscal cliff" won't actually hurt growth isn't worth a "mulligan" -- this analysis is too sloppy to be anything more than ideology wrapped in professional credentials; the Times shouldn't grant him another shot. </div><div style="margin-top: 8pt; text-align: justify;">Incentives do matter -- my paid employment lies in trying to teach students that -- but they aren't the only things that matters. In this case jobs simply aren't there. So if someone enjoying life on the dole gets a job, that means someone else won't have a job. Unless employment opportunities increase, it's a game of musical chairs. That reflects the second main thing that I am tasked with conveying to students, that they calculate opportunity costs appropriately, without double-counting or missing something. Mulligan totally fails to ask whether opportunities have shifted; he would earn a 50% grade in Economics 101.</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...mike smitka...</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-89980728346231123552012-08-14T08:38:00.000-07:002012-08-14T08:38:26.415-07:00Paul Ryan: In all honesty, there's nothing there to critique<div style="color: #741b47; font-size: 120%; margin-left: 200pt; margin-top: 8pt; text-align: right;">... [to] gut medicare...is economically irrelevant...because it represents an unfunded mandate...</div><div style="margin-top: 8pt; text-align: justify;">As an economist I place little credence in words, and so in all honesty I can do little to critique Paul Ryan. That's because his track record in Congress is minimal – in 13 years only 2 bills with his name have actually passed, and neither was substantive. True, he's put his name on many bills, but they've gone nowhere. So while he claims to be for sound budgets, as an economist I see no evidence of that in what he has accomplished during his 6-plus terms in the House. If anything, his voting record points the other way: he's cast an "Aye" for numerous budget-busting laws, including the Bush-era tax cuts and the Medicare prescription drug bill that expanded benefits but not revenues. Furthermore, he did support the Bush bail-out measures, a mark in his favor as putting things practical over things ideological. His track record is too thin to tell whether he is primarily pragmatic. Of course his telegenic persona conveys a different message, but it is a message without substance.</div><div style="margin-top: 8pt; text-align: justify;">As to ideas, well, Ryan is allowing himself to be portrayed as a neo-fisc, the new breed of Republican fiscal conservatives who promise to balance budgets while cutting taxes.* To date the neo-fiscs have shown no ability to deliver. Yes, they've cut taxes. But no, they've not closed loopholes – Ryan's proclaimed preference – and no, they've not controlled expenditures. Ryan is true to neo-fisc form, in that he has not spelled out details on either front, except that he won't cut defense, hardly an example of controlling expenditures. Oh, he's promised to gut medicare, but that's neither politically credible nor economically meaningful. Why is it economically irrelevant? That's because it represents an unfunded mandate: we as a society don't tolerate emergency rooms refusing to admit car accident victims or nursing homes trundling elderly patients to curbside because they can't pay for their next day. Those costs will have to be loaded onto the charges for people with insurance. In short, the neo-fisc position consists of slogans and not fleshed-out policies; you can't label proponents ideologues, because you have to have ideas to be an ideologue.**</div><div style="color: #741b47; font-size: 120%; margin-top: 8pt; margin-left: 200pt; text-align: right;">...you can't label [neo-fiscs] ideologues because you have to have ideas to be an ideologue...</div><div style="margin-top: 8pt; text-align: justify;">For Romney – surely he is in charge of his campaign – Ryan is a convenient mouthpiece, his value enhanced by his skimpy track record, because unlike the beach, it hides rather than reveals. Ryan is already energizing the disaffected on the right, who might otherwise sit the election out. Meanwhile that frees Romney to move toward the center, where the swing voters reside. He doesn't have much time left to do that, but there's also little evidence that people vote their pocketbooks; style seems to trump substance. </div><div style="margin-top: 8pt; text-align: justify;">I've blogged on Japan and Economics about debt and deficits, choosing that forum because Japan's debt is far higher and thus less sustainable than ours. But Japan has also started to do something about it, passing an increase in their national sales tax (the final deal was hammered out on August 10th) when further budget cuts proved illusive.</div><div style="margin-top: 8pt; margin-left:15%; margin-right:15%; text-align: justify;"><span style="font-size:85%;">* I will blog on Japan and Economics about debt and deficits, choosing that forum because Japan's debt is far higher and thus less sustainable than ours. But even in Japan it's not a crisis, and in addition Japan has started to do something about it, passing an increase in their national sales tax (the final deal was hammered out on August 10th) when further budget cuts proved illusive.</span></div><div style="margin-top: 8pt; margin-left:15%; margin-right:15%; text-align: justify;"><span style="font-size:85%;">** My computer's dictionary would thus label such "demagogues:" politicians who "appeal to popular desires and prejudices rather than use rational argument." My sense is that campaigning via sound bites forces all candidates to rely on that game. Hence polls matter, policy analysis does not. My training as an economist however suits me only for the latter, and so that's what I blog.</span></div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">Mike Smitka</span></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-54379265591979020652012-08-11T13:50:00.001-07:002012-10-14T08:02:49.636-07:00What Romney Thinks Matters<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...our problem is strong growth!?...</i></div><div style="margin-top: 8pt; text-align: justify;">Mitt Romney's choice of a vice presidential is puzzling. As I see it, Paul Ryan's primary strength is that he shares a name with Rand Paul. Ryan has never worked outside the Beltway; he's a pure Beltway insider. Obama at least worked before running for office, as a professor, as a lawyer and as a community activist. (Anyway who thinks Obama is a liberal needs to check where he taught, too -- not too many years ago the Republican Party might have thought he was a little too conservative for them!)</div><div style="margin-top: 8pt; text-align: justify;">Back to Ryan. I looked at junior's budget proposal months back, and it didn't make dollars and cents -- the arithmetic simply didn't add up. He wanted to reduce the Federal government to 3.75% or less of the economy. But he also promised not to touch the military -- and the Department of Defense and related expenditures are a full 4.0% of our economy. And that's just for starters. I didn't see any point in spending more time on his proposal, but suppose I'll now be forced to read through it carefully. Not today.</div><div style="margin-top: 8pt; text-align: justify;">In any case, Romney's choice does deliver a clear message, that he views our primary problem as economic growth so strong that it is driving wages up -- because if interest rates are zero, government debt costs our society nothing. As a Wall Street insider, Romney can't claim not to know that. Now wages are our economy's biggest cost. If they aren't rising, we can't have inflation. Food prices go up and down; so do energy costs. But both are modest slices. Ours is a service economy; what matters are not things solid and liquid, but how much it costs to pay someone to cook us a meal, or change a bandage, or set up an IT system.</div><div style="margin-top: 8pt; text-align: justify;">So Romney must believe that unemployment is not a problem. Too much employment is the problem -- despite the 8.3% headline.</div><div style="margin-top: 8pt; text-align: justify;">He's out of touch with the world in which I live, with a recent college grad at home, still unemployed. And hasn't Romney read the latest inflation reports from the Bureau of Labor Statistics? -- April, 0.0%; May, -0.3%; June, 0.0%. The average is deflation. For those of you who believe in conspiracies behind every door (and the doors at the BLS are kept locked VERY tight prior to announcements, listen to the August 3rd 2012 <a href="http://castroller.com/Podcasts/TheEconomyExplained">Planet Money podcast</a> Keeping the Biggest Secret in the US Economy), well, the <a href="http://bpp.mit.edu/usa/">Billion Price Project</a> that relies solely on private sector data tells a similar story: there are simply no signs of inflation.</div><div style="margin-top: 8pt; text-align: justify;">Will Ryan help Romney pull in votes? I'm not a political scientist, and know neither whether Wisconsin is a close race nor whether Ryan is respected there. All I know is that his state is not on the "swing" lists I've seen. Otherwise, unless a VEEP embarrasses the main candidate -- I used to live in Ferraro's home district, and so know up close that some picks are underwhelming -- the apparent reaction of voters is "who cares?" Still, a junior House member doesn't seem an impressive pick. </div><div style="margin-top: 8pt; text-align: justify;">Does Ryan appeal to swing voters -- well, I think not. I used to dance from party to party, but for a couple decades have lived in a Congressional district where elections haven't been contested, so I don't know whether I can still swing. (My blue suede shoes are Galabrier "Royal Robbins" rock climbing boots from the 1970s, so no, I can't dance.) Still, my gut feeling is that Ryan has no appeal even among moderate Republicans.</div><div style="margin-top: 8pt; text-align: justify;">I'd like an alternative to Obama. But It doesn't look like the Republicans are providing one this time around.</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">Mike Smitka</span></div><div style="margin-top: 8pt; text-align: justify;">CORRECTION: I do not follow who is whom among politicians, current and would-be. In the process I confused Paul Ryan with Ron Paul Jr (and hence Ron Paul Sr). In the first version of this page I mistakenly wrote that Ryan's strength was his father's name recognition. That is wrong; Paul Ryan's father died while he was a teenager.</div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-39618069189770160872012-08-05T05:39:00.000-07:002012-08-05T05:40:50.633-07:00It's not just kids and retirees<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...early retirement and education aren't "safety valves"...</i></div><div style="margin-top: 8pt; text-align: justify;">At 8.3%, "headline" unemployment represents 1 in 8 would-be workers without jobs. Furthermore, we know that we're seeing not just high unemployment but also a big drop in the size of the labor force. That is, we've observed a big drop in the unemployment-population ratio.</div><div style="margin-top: 8pt; text-align: justify;">OK, but isn't this just youth staying in school longer? And baby boomers who are retiring, or retiring early? After all, the unemployment rate for "prime" workers is 7.2%, rather lower than the July 2012 average of 8.3%. And if we're thinking of the impact on families -- kids -- high "primer earner" unemployment is more worrisome than that at the young and old ends of the age spectrum.</div><div style="margin-top: 8pt; text-align: justify;">Now for the population as a whole employment has fallen more than unemployment has risen. Rephrased, the non-participation [in the labor force] rate rose, from 33.9% in January 2004-December 2006 to 36.2% over the 6 months ending in July 2012, a 2.3% rise. Relative to the base (66.1%) that's equivalent to a 3.5% rise in unemployment. If we add that to the headline rate we get 11.8%.</div><div style="margin-top: 8pt; text-align: justify;">This sort of shift doesn't typify previous recessions. But perhaps this time around it's not the recession but long-term trends that happen to be showing up now. [See the graph below on the long-term trend.] In particular, we've far more youth in higher education, and baby boomers are in their early 60s. So it could be that large numbers of younger individuals are staying in school -- or, having grim job prospects, are enrolling in community colleges <i>en masse</i>. Meanwhile, for the boomers, while retiring before age 65 may be painful, it's feasible. And government workers and others can qualify for pensions before age 65, and don't have to wait on social security.</div><div style="margin-top: 8pt; text-align: justify;">Unfortunately, the data show it's not just boomers and students: the shift for the prime age workers (age 25-54) is in fact is larger than that for the population as a whole. We're not in fact seeing a boom in schooling and early retirements.</div><div style="margin-top: 8pt; text-align: justify;">In particular, during the bubble era 2004-7 prime age labor force participation rose by 1.4 percentage points, from a peak of 78.7% to 80.3%, and averaged 79.4% over January 2004-December 2006; over the last 6 months, through July 2012, it's averaged 75.7%. That's a drop of 3.7% (and an equivalent rise in the non-participation rate). Doing the same arithmetic leads to an adjusted unemployment rate of 11.9%. At one level it's not surprising; prime age workers (25-54) are a large proportion of the standard labor force (age 16-64), so the averages can't diverge all that much. Still, I'd hoped otherwise. But early retirement and education aren't "safety valves" that mute the impact of the Great Recession. That's not the case</div><div style="margin-left: 5%; margin-right: 5%; text-align: right;"><span style="font-size: 85%;">...Mike Smitka...</span></div><div style="margin-top: 8pt; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCbpsLjWR5L_Y8U3TMesGGHkV59GqRhLCrJxhSAKX3BK2I9FElyZSKtTOxx2rBT6p2HgNcZEWha40I25jK0SXCy74kYz9cdpfhZwL-mg6nlm_lS1s9Ef7bc0usXDFPIN9utq6PKDGG6Kg/s1600/LR+LF.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCbpsLjWR5L_Y8U3TMesGGHkV59GqRhLCrJxhSAKX3BK2I9FElyZSKtTOxx2rBT6p2HgNcZEWha40I25jK0SXCy74kYz9cdpfhZwL-mg6nlm_lS1s9Ef7bc0usXDFPIN9utq6PKDGG6Kg/s400/LR+LF.jpg" width="400" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBerNLKy3MQvIxaiCmImogg2Mr-jlhB2Oaj6K2a5g7rjmuTPrxtuRlYoJO-yKxyGMXUrla2YvscilHMjkiesL1KZ3sRumGVsddKAl8_8t74F6KoXdnZvkEBVbMooP0OmRQUgFhFTjcz4M/s1600/recent+LF.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBerNLKy3MQvIxaiCmImogg2Mr-jlhB2Oaj6K2a5g7rjmuTPrxtuRlYoJO-yKxyGMXUrla2YvscilHMjkiesL1KZ3sRumGVsddKAl8_8t74F6KoXdnZvkEBVbMooP0OmRQUgFhFTjcz4M/s640/recent+LF.jpg" width="640" /></a></div></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0tag:blogger.com,1999:blog-2657605563320788856.post-78156264027272290432012-07-15T20:04:00.001-07:002012-07-15T20:04:37.734-07:00Was Tobin Right? – "the" Tobin Tax, that is?<div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>...foreshortening the bubble by 6 months would have helped...</i></div><div style="margin-top: 8pt; text-align: justify;">I'd headed from Wall Street to grad school in the fall of 1980 because of the eurodollar bubble I saw poised to implode around my bank and others. Lots of liquidity, regulation carried out with a wink and a nod – where I worked, the Bank of Tokyo, continued lending quietly despite a formal prohibition, a "quiet period", imposed by the Ministry of Finance on Japanese banks. How did BOT get around it? – well, they had two subsidiaries, one in California, one in New York, that were (legally) US banks. So regulations from Tokyo didn't apply. We didn't tell regulators what we were doing, and it seems they didn't ask.<br />
</div><div style="margin-top: 8pt; text-align: justify;">In college I'd done math, history, languages but not a single course in economics. It was thus Jim Tobin – the late Nobel laureate who spent most of his career at Yale – who introduced me to macroeconomics. At that point the rational expectations revolution was just beginning, while many of today's standard econometric techniques were just being developed, so I had a foot in both schools. Tobin saw that we were exposed to as much as he could cram into a year, including finance and other areas that are now separate fields. It was a good grounding, full of wisdom, and an attempt to get us to think through stories, to learn the weaknesses of narrative and the weaknesses of formal models. He was suspicious of what he called "new classical" macroeconomics. Formal general equilibrium models were not robust – John Taylor showed that one simple tweak undid the initial "policy neutrality" models of last year's Nobel laureate Thomas Sargent (who, by the way, Tobin tried unsuccessfully to recruit to Yale). Of course "Jumpin" Joe Stiglitz was showing the same thing held true for a variety of simple equilibrium models, but that's for a footnote.*<br />
</div><div style="margin-top: 8pt; text-align: justify;">But all of this is an aside, and ultimately I didn't stay on the macro side, partly because that seemed less central to understanding Japan, and partly because a whole group of students were doing the money-macro thing. In addition, I'd done some grad work in math, and deliberately gave it up. So I wondered whether I'd be any happier doing it a second time around. Too bad, perhaps, because I think my sense of the dynamics of bubbles turned out to be pretty sound – the bubble I saw clearly as an insider didn't actually "break" until the Latin American debt crisis erupted in 1984. In any case, I was iconoclastic enough to avoid the crowd, ultimately doing a dissertation with another future nobel laureate as chair, but those stories are for later.<br />
</div><div style="margin-top: 8pt; text-align: justify;">Back to Tobin and macro. Over time the gist of macro gradually sank in, in all its variety; I only remember one thing as puzzling me, the "Tobin tax" on financial transactions. He foresaw financial markets as able to move money into individuals niches (say, an Iceland) in such volume as to sway the structure of the real economy, and able to move more quickly than real economies could respond. Except that it wasn't just tiny economies that were at risk, but subsets such as US real estate or (within the still inchoate EU) Spain. Putting a tax on transactions could shift traders away from short-term arbitrage (in today's markets, of potentially under a second's duration) and into assets that offered higher real returns over a longer time horizon. (Of course Tobin was a developer of CAPM, and so preached on the risk-return tradeoff and balanced portfolios, more poignant at Yale because in the go-go years of the 1970s endowment managers lost so much money as to put the institution at risk.)<br />
</div><div style="margin-top: 8pt; text-align: justify;">Anyway, at the time I saw no benefit from a "Tobin tax"; I thought he was wrong, overstating the dangers, understating the costs of his tax. But he really did see the direction the world was moving – perhaps because, unlike economists of the past 30 years, as a grad student he had had to study economic history, including the era of global markets that started unravelling in 1914. Would a "Tobin tax" have prevented our current meltdown? Perhaps not. Leaning on central bankers to provide easy money wasn't even necessary, Greenspan and counterparts elsewhere needed little urging. But it would have slowed the rise, would have forced managers in financial institutions to step back and ask whether speculation should be allowed to develop into a core source of profits. And it would have generated much more information.<br />
</div><div style="margin-top: 8pt; text-align: justify;">That lack of information should not be treated lightly. People really didn't know what was going on.<br />
</div><div style="margin-top: 8pt; text-align: justify;">Let me illustrate that with a story from my banking days. Sometime in 1980 it fell to me to sound out peer institutions on their Brazil exposure. To do that I needed to offer information from my end, and so asked for and was given (in considerable detail) our own exposure: local lending, short-term trade finance ("letters of credit"), foreign exchange positions, cross-border "eurodollar" loans in various currencies. At that point BOT's position was on the order of $1 billion, not quite enough to bring down the bank, but enough to make a serious dent in its capitalization. We were reaching the point where we were reluctant to hold more Brazil paper directly, and if others were in a similar position … well, that would be it for Brazil. <br />
</div><div style="margin-top: 8pt; text-align: justify;">So I called around to the then-reigning banks, Citi and Morgan and a few others most active in Latin America, where Brazil was perceived as the most successful and the best managed economy. Some banks gave me more info, some less, but to me the bottom line was clear: Brazil could still borrow, but at its then-current rate of burning through foreign exchange reserves, it wouldn't be able to do so for long. That was bad news: their economy was running on debt, fueled by a plethora of "big push" investment projects financed with international loans that weren't (yet) generating exports and hence the dollar revenue needed to "service" dollar-denominated debt. Needless to say, that big push also generated lots of jobs, and so was popular with the military dictatorship of the day, who (with hindsight justly) feared the impact on their hold on power should the economy slow. [Homework: trace analogs with German banks and Spanish resort property developers.]<br />
</div><div style="margin-top: 8pt; text-align: justify;">The bottom line, however, is that banks were flying blind, unable to aggregate information in much detail. No one talked about private loans or foreign exchange business, which was quite profitable (we "scored" with VW in Brazil and used that to gain business with VW in Germany, all hush-hush). And even if we (and the Brazilian government) kept pretty good track of eurodollar originations, we (and we assumed others) tried to sell on paper to smaller, correspondent banks and get it off our own books so that we could keep lending. Foisting Brazil paper took time, and those in the making the loans to Brazil weren't necessarily kept in the loop by our own correspondent banking people. We had no idea about others; the borrower – Brazil – only knew who originally lent the money, not who currently held the "paper", the loan. Well, it turned out that other banks too were finding it harder to unload their eurodollar assets to smaller banks. By the time everyone knew that, however, it was too late: by the fall of 1980 the overwhelming majority of the loans that underlay the crisis of 1984 had been "booked". <br />
</div><div style="margin-top: 8pt; text-align: justify;">Again, this time around many market participants were surely starting to have their suspicions. A Tobin tax would have forced greater clarity. Oh, not much. With real estate prices rising at 20+% per annum in places such as Arizona (to use US as an example), however, even foreshortening the bubble by 6 months would have helped.<br />
</div><div style="text-align: right; margin-left:5%; margin-right:5%"><span style="font-size:85%;">...Mike Smitka...</span></div><div style="text-align: justify; margin-left:10%; margin-right:10%"><span style="font-size:85%;">* Note: to the best of my knowledge – I have not scanned the literature for a number of years – the uncomfortable truth is that this lack of robustness in small models is true for large models, too. There is simply no "law of large numbers" for general equilibria, where a simple model of an economy that is fragile to minor changes in assumptions gets things "almost right" when hundreds more markets are added. <br>In addition, the "dynamic" (forward-looking) general equilibrium models in current use rely upon convergence to a steady state as a solution technique. That assumption distinctly limits the ability to use such models to "test" whether fiscal policy works since it makes it hard to force the model to deviate from the equilibrium path.<br><br />
<b><i>Mea culpa:</b></i> my apologies for weaving too many threads in one short post. I intend to gradually expand this into multiple posts. But not tonight.</span></div><div style="color: #741b47; font-size: 110%; margin-top: 8pt; text-align: right;"><i>… what do I do when data demonstrate I've been wrong? I hope I change my mind …</i></div>Mike Smitkahttp://www.blogger.com/profile/10310816368811158899noreply@blogger.com0