Month: March 2014

Pre-Debate Notes:

• The first question, I think, is how much does each of us owe to all the rest for there being here to help us? The answer is, I think, everything: drop any of us naked and alone into the pre-human settlement Missouri Valley and we are chewy and taste good with ketchup to grizzly bears. Life is then nasty, British–and very short. Thus each of us owes the others who came before us and now surround us and who kept the grizzly bear population down and rebuilt the civilization–well, each of us owes the others everything.

Continue reading “Notes for Debate with Jeff Miron on Marty Nemko’s Radio Show: Sunday Focus: March 23, 2014” →

http://research.stlouisfed.org/dashboard/215

Must-Reads:

1. Jared Bernstein: Where Do the Fiscal Headwinds Come From?: “Richard Kogan and William Chen shows that relative to projections that were made in 2010, spending reductions… [have] generated deficit savings of $2.5 trillion over the current 10-year budget window (2015 to 2024).  Adding in the associated reduced interest payments of about $650 billion amounts to $3.2 trillion in deficit savings from spending cuts. Revenue added about $950 billion and technical and economic changes added savings of about $840 billion…. $5 trillion in savings over the budget window relative to the 2010 baseline… 77 percent of the savings that come from policy changes… are from spending cuts…. Neither of these developments should be seen as… great achievements.  The stimulus response to the Great Recession was too short-lived, and many of the program cuts… have been thoughtless slash-and-burn…. And from the perspective of the macroeconomy… [are] the source of the fiscal headwinds that have consistently held back the recovery.”

2. Cardiff Garcia: Yellen’s words vs what you heard: “[Yellen] doesn’t think inflation will threaten to breach the 2 per cent level so long as unemployment is ‘quite high’. his could be read either hawkishly or dovishly. The potentially hawkish interpretation is… that such language reinforces the implicit, extant policy of 2 per cent as an inflation ceiling…. The dovish reading is that if she doesn’t think this tradeoff is likely to be an issue, then it’s because she also thinks there is more labour slack than the unemployment rate is communicating…. It’s also possible to mash together the two interpretations: policy will stay looser for longer, but only because the health of the labour market is worse off than the unemployment rate suggests. No change relative to the status quo on the hawkish-dovish spectrum…. Markets gravitated instead to two hawkish signals. One was the median forecast for the federal funds rate at the end of 2015 and 2016…. The other hawkish signal was Yellen’s definition of what constitutes ‘a considerable time after the asset purchase program ends’ before the first rate hike… ‘on the order of around six months’…. As for the rest of the presser, I believe this extended passage was especially important: ‘I have talked in the past about indicators I like to watch or I think that are relevant in assessing the labor market. In addition to the standard unemployment rate, certainly look at boarder measures of unemployment…. U6… five percent of the labor force working part time on an involuntary basis… is an exceptionally high number… discouraged and marginally attached workers… immensely high and can be very stubborn in bringing down… a cyclical component in the fact that labor force participation is depressed… quit rates now are below normal pre-recession levels… hires rate, however, remains extremely depressed… wage growth has really been very low…'”

3. Angus Deaton: The Great Escape:

Continue reading “Things to Read at Lunchtime on March 22, 2014” →

Jared Bernstein: Where Do the Fiscal Headwinds Come From?: “Richard Kogan and William Chen shows that relative to projections that were made in 2010, spending reductions…

[have] generated deficit savings of $2.5 trillion over the current 10-year budget window (2015 to 2024).  Adding in the associated reduced interest payments of about $650 billion amounts to $3.2 trillion in deficit savings from spending cuts. Revenue added about $950 billion and technical and economic changes added savings of about $840 billion…. $5 trillion in savings over the budget window relative to the 2010 baseline… 77 percent of the savings that come from policy changes… are from spending cuts…. Neither of these developments should be seen as… great achievements.  The stimulus response to the Great Recession was too short-lived, and many of the program cuts… have been thoughtless slash-and-burn…. And from the perspective of the macroeconomy… [are] the source of the fiscal headwinds that have consistently held back the recovery.

Of those whom I think are the three best young macroeconomists who got their Ph.D. degrees in the past year, all three got their degrees from Berkeley, and two of the three–Johannes Wieland and Joshua Hausman–ajsut presented their rapid-response survey of the effects of Japan’s Abenomics at the Brookings Panel on Economic Activity: “Abenomics: Preliminary Analysis and Outlook”. I am not there: I am on the other coast, teaching and waiting for my mother to fly in from Albuquerque. But as I follow along it is clear to me that they have done a very good job:

Joshua K. Hausman and Johannes F. Wieland: Abenomics Preliminary Analysis and Outlook: “Japan’s great economic experiment known as Abenomics appears to be increasing the country’s immediate economic growth,

Continue reading “Abenomics a Short-Run Success: Reading Hausman and Wieland: Friday Focus: March 21, 2014” →

Cardiff Garcia: Yellen’s words vs what you heard: “[Yellen] doesn’t think inflation will threaten to breach the 2 per cent level so long as unemployment is ‘quite high’.

This could be read either hawkishly or dovishly. The potentially hawkish interpretation is… that such language reinforces the implicit, extant policy of 2 per cent as an inflation ceiling…. The dovish reading is that if she doesn’t think this tradeoff is likely to be an issue, then it’s because she also thinks there is more labour slack than the unemployment rate is communicating…. It’s also possible to mash together the two interpretations: policy will stay looser for longer, but only because the health of the labour market is worse off than the unemployment rate suggests. No change relative to the status quo on the hawkish-dovish spectrum…. Markets gravitated instead to two hawkish signals. One was the median forecast for the federal funds rate at the end of 2015 and 2016…. The other hawkish signal was Yellen’s definition of what constitutes ‘a considerable time after the asset purchase program ends’ before the first rate hike… ‘on the order of around six months’…. As for the rest of the presser, I believe this extended passage was especially important:

I have talked in the past about indicators I like to watch or I think that are relevant in assessing the labor market. In addition to the standard unemployment rate, certainly look at boarder measures of unemployment…. U6… five percent of the labor force working part time on an involuntary basis… is an exceptionally high number… discouraged and marginally attached workers… immensely high and can be very stubborn in bringing down… a cyclical component in the fact that labor force participation is depressed… quit rates now are below normal pre-recession levels… hires rate, however, remains extremely depressed… wage growth has really been very low…

Angus Deaton: The Great Escape:

Must-Reads:

1. Paul Krugman: Notes on Piketty: “Piketty’s big idea is that we are in the early stages of returning to a society dominated by great dynastic fortunes, by inherited wealth. And he has an analytic argument to back up that idea…. Imagine a wealthy family that has managed, somehow or other, to guarantee that a large fraction of its income is used to accumulate more wealth. Can this family thereby acquire a dominant position in society?The answer depends on the relationship between (the risk) r, the (risky) rate of return on assets, and g, the overall rate of economic growth. If r is less than g, dynasties are doomed to erode…. So what determines r-g? Piketty stresses the effects of changes in economic growth…. Piketty tells us something remarkable: historically, r has almost always exceeded g–but there was an exceptional period in the 20th century, a period of rapid labor force growth and technological progress, when r was less than g. And he asserts that the kind of society we consider normal, in which high incomes reflect personal achievement rather than inherited wealth, is in fact an aberration driven by this exceptional period. It’s a remarkable, sweeping vision. A couple of questions: 1. How much of the decline in r relative to g in the 20th century reflected fast growth, and how much reflected policies? 2. How relevant is this story to what has happened so far? In the United States, as Piketty himself stresses, soaring inequality has to date been largely been driven by labor income – by ‘supermanagers'”

2. Austin Frakt: Job lock: Introduction: “Ask an economist about employer-sponsored health insurance (ESI) and it won’t be long until s/he tells you it distorts the labor market. To most health economists, ‘job lock’, the idea that workers work more or face constraints in job mobility due to provision of work-related health insurance, is a real and important phenomenon. It’s one reason why many advocate limiting or ending the exclusion of ESI from taxation, among other reforms. But why, you might ask, do some so firmly believe in job lock? What’s the conceptual or theoretical explanation? Where’s the evidence that it exists and is substantial? If it exists, what laws and regulations help keep it in place? Finally, how does the Affordable Care Act (ACA) begin to address it, if at all?… I will tackle these questions…. I will rely most heavily on the literature reviews contained in Gruber and Madrian (2002), Fairlie, Kapur, and Gates (2011), Bradley, Neumark, and Barkowski (2013), and GAO (2011). Nick’s forthcoming post will cover the legal landscape. He has also provided helpful feedback on early drafts of my posts.”

3. Tim Mulaney: “Here’s what I thought the biggest difference [between Bernanke and Yellen] was: Yellen’s invocation of the continuing struggles of people involuntarily working part-time, and the ongoing struggle of workers around the middle of the income strata to get a raise of much more than 2% a year. Delivered with what passes for passion among economists, it was a sharp contrast with Bernanke’s last press conference in December, where he mentioned wages only in passing and didn’t mention the part-timers at all…. Her argument was that inflation can’t be close if wage gains are lousy and 5% of U.S. workers are stuck in part-time jobs…. A Fed that worries as much about part-timers as plutocrats? Is that a gaffe? Maybe on K Street. Probably, on parts of Wall Street. On Main Street, it’s a breath of fresh air.”

4. Quoctrung Bui: Who Had Richer Parents, Doctors Or Artists?: “A few weeks ago, we were sitting around the office arguing over this simple question: Who had richer parents, journalists or people working in finance? Doctors or artists? More generally: What’s the link between household income during childhood and job choice during adulthood?… A government survey has tracked more than 12,000 people for decades. It allowed us to look at the same group of people in 1979 and 2010 — from a time when most were teenagers to the time when they were middle-aged and, for the most part, gainfully employed.”

Continue reading “Things to Read on the Afternoon on March 20, 2014” →

Paul Krugman: Notes on Piketty: “Piketty’s big idea is that we are in the early stages of returning to a society dominated by great dynastic fortunes, by inherited wealth.

And he has an analytic argument to back up that idea…. Imagine a wealthy family that has managed, somehow or other, to guarantee that a large fraction of its income is used to accumulate more wealth. Can this family thereby acquire a dominant position in society? The answer depends on the relationship between (the risk) r, the (risky) rate of return on assets, and g, the overall rate of economic growth. If r is less than g, dynasties are doomed to erode…. So what determines r-g? Piketty stresses the effects of changes in economic growth…. Piketty tells us something remarkable: historically, r has almost always exceeded g–but there was an exceptional period in the 20th century, a period of rapid labor force growth and technological progress, when r was less than g. And he asserts that the kind of society we consider normal, in which high incomes reflect personal achievement rather than inherited wealth, is in fact an aberration driven by this exceptional period. It’s a remarkable, sweeping vision. A couple of questions: 1. How much of the decline in r relative to g in the 20th century reflected fast growth, and how much reflected policies? 2. How relevant is this story to what has happened so far? In the United States, as Piketty himself stresses, soaring inequality has to date been largely been driven by labor income – by ‘supermanagers’

Joshua K. Hausman and Johannes F. Wieland: Abenomics: Preliminary Analysis and Outlook

In early 2013, Japan enacted a monetary regime change. The Bank of Japan set a two percent inflation target and specified concrete actions to achieve this goal by 2015. Shinzo Abe’s government is supporting this change with fiscal policy and structural reforms. We show that Abenomics ended deflation in 2013 and raised long-run inflation expectations. Our estimates suggest that Abenomics also raised 2013 output growth by 0.9 to 1.7 percentage points. Monetary policy alone accounted for up to a percentage point of growth, largely through positive effects on consumption. In the medium and long-run, Abenomics will likely continue to be stimulative. But the size of this effect, while highly uncertain, thus far appears likely to fall short of Japan’s large output gap. In part this is because the Bank of Japan’s two percent inflation target is not yet fully credible. We conclude by outlining how to interpret future data releases in light of our results.

Continue reading “Conference Draft Papers from Brookings Panel on Economic Activity: Spring 2014” →