(2007):
No Exit Revisited: “Andrew Sullivan tries to answer my post from yesterday…
…on No Exit, the [Betsy McCaughey] article he published attacking the Clinton health plan. He says that ‘I don’t think it’s fair to expose the internal editing of a piece but there was a struggle and it’s fair to say I didn’t win every skirmish,’ which is interesting, and he says that ‘I was aware of the piece’s flaws but nonetheless was comfortable running it as a provocation to debate.’ What he doesn’t say is that he believes the piece accurately described the Clinton health care plan. Which is what’s at issue. There were reasons to criticize the delivery structure the Clintons sought to implement, but No Exit simply lied…
Household deleveraging, or the paying down of debts, was one of the major economic stories of the recovery from the Great Recession. In the run up to the 2007-2009 recession, household debt doubled between 2001 to 2007 as the housing bubble inflated. The bubble eventually popped and millions of households were left with debt loads they couldn’t handle. Households have been digging out from under this damage in the years since. But according to the data, the period of deleveraging is over. Households now are taking on more debt. And they aren’t alone.
Last month, economists at the Federal Reserve Bank of New York released new data on household debt. The authors say the data show “households have begun to use credit to supplement their cash flow again.” J.W. Mason, a professor at John Jay College, using an accounting approach to household debt finds that the increase in debt-to-income ratio is from new borrowing, opposed to changes in interest rates or inflation.
But households are late to the new borrowing cycle compared to businesses, which have been borrowing considerably for several years now. A new report from the Treasury Department’s Office of Financial Research highlights the increase in corporate leverage.
Now this increase in corporate debt isn’t necessarily a problem. Companies simply could be taking advantage of low-interest rates to borrow and increase their productivity. And for a while, that is what they appeared to be doing, according to the OFR report. But as the authors note that more recently, companies are using the borrowed money for other things.
Instead of growing their businesses, corporations are using borrowed money to buy back stocks, pay out dividends to stockowners, and buy other companies. This means a substantial portion of this borrowed money isn’t used for investment but rather it seems to be used to get profits out of the corporation and into the hands of shareholders. This process might be responsible for the apparent disconnect between corporate profits and investment in recent years.
Furthermore, the OFR report notes the debt issued by corporations is of lower quality that in the past. So called “high-yield” debt has comprised 24 percent of all corporate debt since 2008, compared to 14 percent in previous economic expansions.
Regardless of the reason for borrowing, we should remember that corporations are leveraging up in a period of extraordinarily low interest rates. The Federal Reserve seems ready to raise interest rates in the middle of next year, so the era of zero-interest rates will eventually come to an end. If corporations can adequately handle their debt loads, everything should be fine. But if corporate finances are built on a foundation of sand, requiring future refinancing at higher costs, then we should all be concerned.
…all of which have further demonstrated the law’s success. 1. Increasing access to the uninsured…. Conservatives widely denied that the law would even succeed at its basic goal of increasing access to health insurance. Obamacare ‘created more uninsured people than it gave insurance to. And it promises to create even more,’ argued National Review’s Jonah Goldberg. Fox News panelist Charles Krauthammer proclaimed the law would result in ‘essentially the same number of uninsured.’… 2. Reducing overall health-care costs…. 3. Hospital errors…. 4. Insurance competition. Obamacare is based on an old Republican plan, developed by the Heritage Foundation and first tried by Mitt Romney, whose central feature was market competition…. Liberals did not place much faith in this dynamic…. But the dynamic has turned out to work much better than expected…
:
The Future of U.S. Economic Growth: Panel 1: Forecasting the Long-Term Growth Outlook
If David Beckworth is here, I want him to ask his question–itself triggered by an observation from Noah Smith at Stonybrook. If he isn’t here, or is shy…
Are We Mismeasuring Productivity Growth?:
“Noah Smith… observed that the Fernald TFP data…
…can be decomposed into TFP in investment production and TFP in consumption production. TFP in investment looks better than the overall…. TFP in consumption… has basically flatlined since the early 1970s and is what is driving the Great Stagnation…. The Great Flattening does not seem reasonable. Has productivity growth in consumption really been flat since the early 1970s?… This suggests there are big measurement problems in consumption production. And I suspect they can be traced to the service sector…”
Here are the figures:
And the question is obvious: if this is mismeasurement of technological progress in consumption focused since 1973 on quality, choice, and information goods, how should we understand the past generation and a half? If this isn’t mismeasurement, what explains the end of technological progress in the production of consumer output?
…can be decomposed into TFP in investment production and TFP in consumption production. TFP in investment looks better than the overall…. TFP in consumption… has basically flatlined since the early 1970s and is what is driving the Great Stagnation…. The Great Flattening does not seem reasonable. Has productivity growth in consumption really been flat since the early 1970s?… This suggests there are big measurement problems in consumption production. And I suspect they can be traced to the service sector…
…That’s 954 posts, almost a million words, and about a hundred posts in the past twelve months. The blog continues to serve as an enormously important part of my own intellectual life, permitting me to spend a few hours several times a week on topics of continuing interest to me, without needing to find the time within my administrative life to try to move a more orderly book manuscript forward. And truthfully, I don’t feel that it is faut de mieux or second-best. I like the notion that it’s a kind of ‘open source philosophy’….
Highlights of the past year include….
- Extensive discussion of critical realism….
- Some extended thinking about causal mechanisms
- A burst of posts about agent-based models….
- Several posts on Margaret Archer’s theory of morphogenesis
- Posts on rising global inequalities
- Posts on the recent history of China
- Posts on the continuing effects of racial inequality in the US
One thing I have always found intriguing about writing the blog is the amount of data the medium provides…. A blogger has an inherently closer relationship to his or her audience than a traditional academic…. With more than a million page views a year on the blog, this data is pretty granular. Here are the top five posts of all time since 2007, based on the number of page views:
- What is a social structure? (65,962)
- Lukes on power (33,131)
- Sociology as a social science discipline (29,446)
- Why a war on poor people? 16,352)
- Social mobility? (15,614)
The ‘war on poor people’… the great majority of those 16,000 views came within a few weeks of its publication…. linked in a column by Paul Krugman… the academic equivalent of a viral cat video on YouTube….
I suppose many scholars would look at blog entries as ‘working notes’ and published articles as ‘archival’ and final, more authoritative and therefore more suitable for citation and further discussion. But I’m not sure that’s the right way of thinking…
Panel 2: The Future of Innovation: Stagnation, Singularity, or Something in Between?:
A Question: For us economists, intensive economic growth is the rate in percent per year at which the real cost of obtaining the currently-produced bundle of marketed goods and services decline. what I am hearing from Erik is that, in his view, that is missing much if not most of the action: that what we really ought to be doing is measuring the rate at which the real cost of staying on the same utility surface is declining. And that these two are very different right now.
The fearfully sharp Robert Barro says somewhere that, with competitively-produced and sold commodities, the consumer surplus generated was as a rule of thumb roughly equal to the total cost, and that order of magnitude seems about right to me. But there seems every reason to think that when the real value produced is in the process of attracting an audience–a product to be sold to advertisers–that rule of thumb is wrong, and that consumer surplus generated is orders of magnitude larger than market cost. If true, that suggests massive misallocation. Metric gigatons of not just low-hanging but dropped fruit.
If only we could think up better societal division-of-labor coordinating mechanisms than either pounding information goods into the Smithian market that works so well for rival-and-excludible commodities but not so well elsewhere, or making your nut by selling as product the eyeballs and attention of those who are your real customers.
When Americans talk about entrepreneurs, or at least the reasons for becoming one, the possibility of great success is most often the first topic of discussion. The great wealth that company founders such as Bill Gates or Mark Zuckerberg amassed certainly make the idea of starting a business more attractive to potential entrepreneurs. But according to a new National Bureau of Economic Research working paper, we should be paying more attention to the down-side risks when it comes to fostering entrepreneurship.
The new paper, by economists John Hombert and David Thesmar of HEC Paris, David Sraer of the University of California-Berkeley, and Antoinette Schoar of the Massachusetts Institute of Technology, looks at a reform in the French unemployment insurance system enacted in 2002. The reform allowed unemployed workers who start a new business to keep the right to their unemployment benefits for up to three years. They could use the accrued benefits to make up the difference between their business’s revenue and the level of benefits they would have otherwise received.
The four researchers find that the policy change acted as a sort of entrepreneurship insurance. Workers who before would have been hesitant to start a business may be more likely to do so now that they had some protection against downside risk. The new paper documents that the rate at which firms were created increased by 25 percent after the 2002 reform.
Were these new entrepreneurs people who would be good at starting a business but were just more risk averse? Or instead were they just people throwing their hats in the ring? Hombert, Schoar, Sraer, and Thesmar find that the new entrepreneurs were quite similar to the old ones and, in fact, slightly more ambitious in their goals. They also find that the newly created firms were just as likely to increase employment — and just as likely to fail — as the older cohorts of new firms.
So the evidence points toward these new entrepreneurs being capable businesspeople who just needed a safety net before starting a business. What’s more, these new firms had a positive impact on the overall economy. The level of total employment in the French economy was unchanged by the reform, but the four economists find that the new firms had higher wages and were more productive than the firms they replaced. The reform helped boost the productivity of the French economy.
Of course, these results are about the French economy. Extrapolating results across economies is always a risky endeavor. As the authors point out, the rate of business creation is much lower in France than the in the United States. So a similar reform in this country might have a smaller impact. But the underlying principle is important to consider. Many U.S. policymakers and economists are worried about the decline in entrepreneurship and business creation. They might want to consider investigating whether alleviating the down-side risks to starting a company can help solve that problem.
:
Economist’s View: ‘What’s Causing the Increase in Long-Term Unemployment?’: “Salim Furth, who ‘is senior policy analyst…
…in macroeconomics at the Heritage Foundation’s Center for Data Analysis’:
What’s Causing the Increase in Long-Term Unemployment?: Some economic indicators, including the short-term unemployment rate, have recovered to levels associated with ‘normal times.’ But long-term unemployment remains high…. Many economists, myself included, expected that the expiration of long-term unemployment benefits at the end of 2013 would sharply lower the long-term unemployment rate. Instead, the rate has continued its slow, steady decline…. Economists have not yet found convincing explanations…. The problem is worth studying.
They will have to find another social insurance program to blame… instead of, say, lack of demand (a policy failure) combined with the stigma attached to the long-term unemployed.”