Category: Equitablog

Claims that most of the decline in labor-force participation since 2008:

are “structural” have always seemed to me to run aground, hole themselves, and sink on the reef that is the 25-54 labor-force participation rate. I have been reading the 25-54 labor-force participation rate since 1980:

as showing three things: First, a steep increase from feminism from 1980-1990:

Second, a plateau or perhaps very slow decline from incipient “peak male” and higher post-graduate education rates from 1990 to 2008, with participation bulging because of cyclical factors during the boom of the late 1990s and slumping because of cyclical factors during the jobless recovery of the mid-2000s:

And, third, a collapse starting with the 2008 financial crisis driven by the awful cyclical state and labor-side hysteresis resulting therefrom:

The claim that what has happened to 25-54 participation since 2008 is simply a continuation and acceleration of structural trends that had been ongoing since 1990 would have to surmount a very high bar indeed for me to find it credible:

Nor do I see a credible gender-difference story: we need a structural account for both an acceleration in the “peak male” decline in male 25-54 activity and for the pullback–without changing fertility behavior–in female activity from the values it has had since 1995:

And if there is a 2%-point gap between 25-54 participation today and a “structural” projection back in 2008 of what it would be today, doesn’t that tell us a lot about the size of structural shifts since 2008 in the broader adult employment-to-population ratio?

Daniel Kuehn: Study Design and the Minimum-Wage Debate: “Studies that match labor markets…

… experiencing a minimum-wage increase with an appropriate comparison labor market… tend to find that minimum-wage increases have little or no effect on employment…. Studies that do not match labor markets experiencing a minimum-wage increase with a comparison labor market tend to find that minimum-wage increases reduce employment…. Labor market policy analysts strongly prefer studies that match ‘treatment’ with ‘comparison’ cases in a defensible way over studies that simply include controls and fixed effects in a regression model…

Gerard Roland and Yuriy Gorodnichenko: Putin’s endgame: “To Putin’s surprise, the Ukrainian government and army…

…have put up serious resistance to his earlier moves. The level of popular support for his people’s republics in the East has also been surprisingly low…. The possible outcomes: (1) Ukraine continues fighting without any material help from the West…. (2) Ukraine continues fighting, the West radically tightens economic sanctions and gives more economic help to Ukraine…. (3) Ukraine continues fighting, the West radically tightens economic sanctions, gives more economic help to Ukraine, and provides military help.

While Mr Putin has spent copious amounts of oil dollars to modernise the Russian army, it is no match for Western forces. Even if the West does not send troops to Ukraine and limits military support to supplies of weapons and intelligence, the Ukrainian forces will be able to have an upper hand in combat and it will be a matter of time before they retake the east of Ukraine…. It may take many thousands of lives on both sides before the war is over (scenario 1), or the war may end soon. The tally largely depends on the West’s policy response…. The West’s policy of appeasement has so far been utterly ineffective…

Cosma Shalizi is teaching his excellent Statistical Computing class for the fourth time–really worth following along if you want to be an order-giver rather than a spear-carrier in the Big Data technostructure of tomorrow today:

Class Announcement: 36-350, Statistical Computing, Fall 2014: Fourth time is charm: Instructors: Yours truly and Andrew Thomas. Description: Computational data analysis is an essential part of modern statistics. Competent statisticians must not just be able to run existing programs, but to understand the principles on which they work. They must also be able to read, modify and write code, so that they can assemble the computational tools needed to solve their data-analysis problems, rather than distorting problems to fit tools provided by others. This class is an introduction to programming, targeted at statistics majors with minimal programming knowledge, which will give them the skills to grasp how statistical software works, tweak it to suit their needs, recombine existing pieces of code, and when needed create their own programs…. The class will be taught in the R language, use RStudio for labs, and R Markdown for assignments. Pre-requisites: This is an introduction to programming for statistics students. Prior exposure to statistical thinking, to data analysis, and to basic probability concepts is essential…. The class may be unbearably redundant for those who already know a lot about programming. The class will be utterly incomprehensible for those who do not know statistics and probability.

Must- and Shall-Reads:

• Tobias Adrian, Richard Crump, Benjamin Mills, and Emanuel Moench: Treasury Term Premia: 1961-
• Mark Thoma: How to shock the U.S. economy back to life
• Mark Thoma: Objections to Fiscal Policy are Groundless—It Works
• Alan Kirman: Demand Theory and General Equilibrium: From Explanation to Introspection, a Journey down the Wrong Road
• Cardiff Garcia: “Oops, we raised rates too soon”
• Cathy O’Neil: Mathbabe
• Robert E. Hall and Charles I. Jones: The Value of Life and the Rise in Health Spending

• Radley Balko: How municipalities in St. Louis County, Missouri profit from poverty

• Paul Krugman: Money in a Time of Zero: “People who spend too much time… [saying] monetary policy doesn’t matter…. Contractionary monetary policy is working just fine; all the central banks that mistakenly decided that it was time to raise rates… [are now] realizing their error and reversing course. But what about the fact that vast increases in the monetary base have failed to do much to the economy?… The irrelevance of the monetary base is… something that happens when you’re in a liquidity trap…. I get annoyed both by people who declare that nobody could have predicted the failure of balance-sheet expansion to cause inflation, and by those who claim that conventional economists like me just don’t understand that money is endogenous. Guys, I laid it all out 16 years ago. And as for the idea that the absence of a clear definition of money, plus the fact that most money is created by financial institutions, means that central banks don’t matter, James Tobin dealt with all that more than fifty years ago…. If you think something deeply disturbing from an analytical perspective has taken place… you basically weren’t paying attention. If you read your Tobin… [and what] Woodford and I had to say about the liquidity trap, you expected to see exactly what we’re seeing.”

• Erica Williams and Chris Mai: State Earned Income Tax Credits and Minimum Wages Work Best Together: “Lawmakers should look to help working families recover…. They can do this effectively by strengthening their states’ earned income tax credits (EITCs) and minimum wages.  EITCs and the minimum wage are twin pillars of making work pay for families that earn low wages…. Strengthening either… will boost incomes for low-wage working families, but these policy improvements are particularly effective in combination…”

• Martin Wolf: Financial reform: Call to arms: “The financial crises and the years of economic malaise that followed represent profound failures of the economy and of policy. Above all, they were failures of understanding…. In retrospect, the insouciance of policy makers about the risks being run seems terrifying. But this also raises a big question now: have they learnt the right lessons for the future?… The target of monetary policy is to keep inflation low and stable, though some central banks (notably the Fed) explain that the aim is the highest level of activity subject to hitting its inflation target…. The financial sector is also to remain broadly the same as before, albeit vastly more tightly regulated and with somewhat higher capital requirements. There is also to be enhanced oversight of the systemic fragility of the financial system under the rubric of macroprudential policy. This new orthodoxy is merely a chastened version of the old. But is it workable?… There are a number of reasons for believing the answer is no First, policy makers rely overwhelmingly on monetary policy as the stabilisation instrument of choice. But monetary policy works via asset prices and credit expansion. This combination certainly risks a repeat of crises…. Second, experience shows that the low inflation targets to which policy makers are committed are not high enough to ensure short-term interest rates can remain above zero in all circumstances…. Third, potential exists for conflict between monetary policy on the one hand and macroprudential policy on the other…. The new regulatory regime is an astonishingly complex response to the failures of this model. But ‘keep it simple, stupid’ is as good a rule in regulation as it is in life. The sensible solution seems clear: force banks to fund themselves with equity…. A shift away from over-reliance on inflexible debt contracts, with all the fragility they create in the economy, would require complementary policy changes. The existing favourable tax treatment of debt needs to be ended…. The pre-crisis orthodoxy proved defective. The new orthodoxy is an improvement. But it is open to question in important respects. The financial system remains fragile. The risks of further crises are not small. Far greater ambition is needed.”

• Alex Tabarrok: What has Economics Done for You Lately?: “A very nice talk by Robert Litan on the contributions of economists and economic ideas to the internet economy”

• Nick Bunker: Weekend reading: “Jeff Guo on the ‘shadow’ price of housing and the places where housing is more expensive than you would expect…. What do employers look at when hiring recent college graduates?… It’s internships….. Neil Irwin… the gains that middle-income households… haven’t seen…. Izabella Kaminska on how patent trolls are the new rentier class…. Search models… can help us better understand… recessions…”

Should Be Aware of:

• Liz Bourke: A More Intimate Scale: Ancillary Sword by Ann Leckie
• flot/README.md at GitHub
• Flot Reference
• Richard Mayhew: Utilization in H1 2014
• Timesify
• Dan Froomkin: Obama Makes Bushism the New Normal
• Giffy

Erica Williams and Chris Mai: State Earned Income Tax Credits and Minimum Wages Work Best Together: “Lawmakers should look to help working families recover…

…They can do this effectively by strengthening their states’ earned income tax credits (EITCs) and minimum wages.  EITCs and the minimum wage are twin pillars of making work pay for families that earn low wages…. Strengthening either… will boost incomes for low-wage working families, but these policy improvements are particularly effective in combination…”

David Glasner has an interesting–but I think flawed–note on the very interesting Milton Friedman paper “Real and Pseudo Gold Standards”–which David thinks is flawed:

David Glasner: Real and Pseudo Gold Standards: Could Friedman Tell the Difference? “One of the first academic papers by Milton Friedman that I read…

…was ‘Real and Pseudo Gold Standards’… presented to the Mont Pelerin Society… published in the Journal of Law and Economics in October 1961…. In the Mont Pelerin Society…. a perhaps more numerous faction… disdained any monetary system other than the gold standard… the unyieldingly stubborn Ludwig von Mises… the almost equally intransigent… Jacques Rueff…. Friedman was realistic enough to understand that one could not reason with von Mises…. Instead, his strategy was to say that there is only one kind of real gold standard…. Friedman acknowledged that a real gold standard could be defended on strictly libertarian grounds, he argued that a pseudo-gold standard could not, inasmuch as it requires all sorts of market interventions…. Here is how he put it:

It is vitally important for the preservation and promotion of a free society that we recognize the difference between a real and pseudo gold standard. War aside, nothing that has occurred in the past half-century has, in my view, done more weaken and undermine the public’s faith in liberal principles than the pseudo gold standard…. Those of us who support it in the belief that it either is or will tend to be a real gold standard are mistakenly fostering trends the outcome of which they will be among the first to deplore….

Just to digress for a moment, I will admit that when I first read this paper as an undergraduate I was deeply impressed by his introductory statement, but found much of the rest of the paper incomprehensible. Still awestruck by Friedman, who, I then believed, was the greatest economist alive, I attributed my inability to follow what he was saying to my own intellectual shortcomings. So I have to admit to taking a bit of satisfaction in now being able to demonstrate that Friedman literally did not know what he was talking about…

I think that Friedman’s paper has somewhat more coherence than David does. From Milton Friedman’s standpoint (and from John Maynard Keynes’s) you need microeconomic stability in order for private laissez-faire to be for the best in the best of possible worlds. Macroeconomic stability is:

1. stable and predictable paths for total spending, the price level, and interest rates; hence
2. a stable and predictable path for the velocity of money; hence
3. (1) then achieved by a stable and predictable path for the money stock; and
4. if (3) is secured by institutions, then expectations of (3) will generate the possibility of (1) and (2) so that if (3) is actually carried out then eppur si muove…

Now there are two different institutional setups that can produce (3):

1. a monetarist central bank committed to targeting a k% growth rate of the money stock via open-market operations; or
2. a gold standard in which a Humean price-specie flow mechanism leads inflating countries to lose and deflating countries to gain gold, tightly coupled to a banking system in which there is a reliable and stable money multiplier, and thus in which the money stock grows at the rate at which the world’s gold stock grows (plus the velocity trend).

Friedman calls (2) a “pure gold standard”. Anything else that claims to be a gold standard is and must be a “pseudo gold standard”. It might be a pseudo gold standard either because something disrupts the Humean price-specie flow mechanism–the “rules of the game” are not obeyed–so that deficit countries do not reliably lose and surplus countries do not reliably gain gold. It might be a pseudo gold standard because the money multiplier is not reliable and stable–because the banking system does not transparently and rapidly transmute a k% shift in the stock of gold into a k% shift in the money stock.

Or, in short, to Friedman a gold standard is only a real gold standard if it produces a path for the money stock that is a k% rule. Anything else is a pseudo gold standard.

The purpose of the paper, in short, is a Talmudic splitting-of-hairs. The point is to allow von Mises and Rueff and their not-so-deep-thinking latter-day followers (paging Paul Ryan! Paging Benn Steil! Paging Charles Koch! Paging Rand Paul!) to remain in their cloud-cuckoo-land of pledging allegiance to the gold standard as a golden calf while at the same time walling them off from and keeping them calm and supportive as the monetarist central bank does its job of keeping our fiat-money system stable by making Say’s Law true enough in practice.

As such, it succeeds admirably.

Or, at least, I think it does…

Have I just given an unconvincing Straussian reading of Friedman–that he knows what he is doing, and that what he is doing is leaving the theoretical husk to the fanatics von Mises and Rueff while keeping the rational kernel for himself, and making the point that a gold standard is a good monetary policy only if it turns out to mimic a good monetarist fiat-money standard policy? That his apparent confusion is simply a way of accomplishing those two tasks without splitting Mont Pelerin of the 1960s into yet more mutually-feuding camps?

Or was he simply, as David thinks, confused?

You decide…

908 words

Martin Wolf: Financial reform: Call to arms: “The financial crises and the years of economic malaise…

…that followed represent profound failures of the economy and of policy. Above all, they were failures of understanding…. In retrospect, the insouciance of policy makers about the risks being run seems terrifying. But this also raises a big question now: have they learnt the right lessons for the future?… The target of monetary policy is to keep inflation low and stable, though some central banks (notably the Fed) explain that the aim is the highest level of activity subject to hitting its inflation target…. The financial sector is also to remain broadly the same as before, albeit vastly more tightly regulated and with somewhat higher capital requirements. There is also to be enhanced oversight of the systemic fragility of the financial system under the rubric of macroprudential policy.

This new orthodoxy is merely a chastened version of the old. But is it workable?… There are a number of reasons for believing the answer is no First, policy makers rely overwhelmingly on monetary policy as the stabilisation instrument of choice. But monetary policy works via asset prices and credit expansion. This combination certainly risks a repeat of crises…. Second, experience shows that the low inflation targets to which policy makers are committed are not high enough to ensure short-term interest rates can remain above zero in all circumstances…. Third, potential exists for conflict between monetary policy on the one hand and macroprudential policy on the other….

The new regulatory regime is an astonishingly complex response to the failures of this model. But ‘keep it simple, stupid’ is as good a rule in regulation as it is in life. The sensible solution seems clear: force banks to fund themselves with equity…. A shift away from over-reliance on inflexible debt contracts, with all the fragility they create in the economy, would require complementary policy changes. The existing favourable tax treatment of debt needs to be ended…. The pre-crisis orthodoxy proved defective. The new orthodoxy is an improvement. But it is open to question in important respects. The financial system remains fragile. The risks of further crises are not small. Far greater ambition is needed.