US and Economics
...Rhetoric need not obey the laws of arithmetic...
Wednesday, April 15, 2015
Blogging now at Autos and Economics
Tuesday, December 10, 2013
Some recovery!
...reposted from Autos and Economics...
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.
...automotive employment's only about halfway back...
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).
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.
...the low level of participation isn't just "boomer" retirement...
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.
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.
Click on the graphs to expand!
Friday, November 29, 2013
Energy futures
The challenge of "green" is aggregating small amounts of energy – ultimately days of sunlight per surface[1] – 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.
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.
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.
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.
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.
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.
...[we'll see] a multiplicity of energy systems … [as in] vehicle drivetrains
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.
mike smitka
Thursday, November 7, 2013
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. Click on charts to expand to full size.
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.
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.
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.
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".
Date | 1 month | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
10/15/13 |
0.32 |
0.14 |
0.16 |
0.16 |
0.37 |
0.68 |
1.45 |
2.11 |
2.75 |
3.50 |
3.78 |
10/16/13 |
0.14 |
0.10 |
0.11 |
0.15 |
0.34 |
0.64 |
1.41 |
2.06 |
2.69 |
3.43 |
3.72 |
10/17/13 |
0.01 |
0.05 |
0.08 |
0.13 |
0.33 |
0.61 |
1.35 |
1.98 |
2.61 |
3.36 |
3.66 |
11/05/13 |
0.06 |
0.05 |
0.08 |
0.10 |
0.32 |
0.60 |
1.39 |
2.06 |
2.69 |
3.46 |
3.76 |
Friday, May 3, 2013
Folks, The Economy's Stalled (June 9 update)
Wednesday, March 20, 2013
Why Support Higher Education?
Sunday, February 24, 2013
Government Efficiency: A Natural Experiment
Steve Rattner on fiscal issues
Rattner slides:
1. Slide 2: Why care?
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.
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.
2. Slide 9: Revenues vs Spending
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.)
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.
3. Slide 13: Tax Expenditures
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.
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.
4. Slide 16: Healthcare costs
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.
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
5. Slide 17: R&D and infrastructure
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.
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.
6. Slide 18: Unfunded obligations
a. These are subject to the discount rate and number of years over which projections are made. Social security goes out 75 years – sensible?
b. Furthermore, no one contemplates repaying all government debt. What matters are changes sufficient to stabilize debt.
c. To communicate with lay people, what is the equivalent steady-state change in taxes as a percentage of GDP required to accomplish this?
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?
8. Slide 25: Wish list.
a. Skimpy on details.
b. The devil rules therein.
9. Slide 26: Social security.
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.
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.
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.
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.
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.
10. Slide 27: Healthcare reforms
a. Several of these proposals parallel those for Social Security and suffer from the same defects.
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.
11. Slide 29: Sequestration
a. I have yet to see any proposal for a grand bargain that reflects sensible economic analysis.