Category: Equitablog

Guido Matias Cortes et al.: The Micro and Macro of Disappearing Routine Jobs: A Flows Approach: “The U.S. labor market has become…

…increasingly polarized since the 1980s, with the share of employment in middle-wage occupations shrinking over time. This job polarization process has been associated with the disappearance of per capita employment in occupations focused on routine tasks. We use matched individual-level data from the CPS to study labor market flows into and out of routine occupations and determine how this disappearance has played out at the ‘micro’ and ‘macro’ levels. At the macro level, we determine which changes in transition rates account for the disappearance of routine employment since the 1980s. We find that changes in three transition rate categories are of primary importance: (i) that from unemployment to employment in routine occupations, (ii) that from labor force non-participation to routine employment, and (iii) that from routine employment to non-participation. At the micro level, we study how these transition rates have changed since job polarization, and the extent to which these changes are accounted for by changes in demographic composition or changes in the behavior of individuals with particular demographic characteristics. We find that the preponderance of changes is due to the propensity of individuals to make such transitions, and relatively little due to demographics. Moreover, we find that changes in the transition propensities of the young are of primary importance in accounting for the fall in routine employment…

James Pethokoukis: The weird obsession that’s ruining the GOP: “Call it doomsday prepper economics…

…For more than five years, many Republicans and conservatives have warned that catastrophe is nigh. Washington’s deficit spending and the Federal Reserve’s excessive money printing will lead to a financial crisis worse than the Great Recession, they prophesied. Inflation will skyrocket, the dollar will collapse, and the Chinese will dump treasuries, they swore. As Ron Paul, the libertarian former GOP congressman and presidential candidate, said back in 2009: ‘More inflation is absolutely the wrong way to go. We’re taking a recession and trying to turn it into a depression. We’re going to see a real calamity’. Many GOP politicians have since echoed Paul’s prediction. But the Next Great Inflation never happened….

The inflation alarmism driving them is taking a weird turn…. Conservative author Amity Shlaes approvingly cites ShadowStats as supporting her thesis that “inflation is higher than what the official data suggest.” Others fans include conservative intellectual Niall Ferguson, Sen. Tom Coburn (R-Okla.), and a good chunk of the conservative blogosphere. ShadowStats’ popularity on the right is crazy…. If GOP inflationistas had their way, the weak U.S. recovery would almost surely be even weaker. Just look at Europe…. Why this GOP inflation obsession? Maybe it’s a legacy of how rapidly rising prices in the 1970s swept conservatives into power in both America and Great Britain. Maybe it’s how many conservative talk radio shows are sponsored by gold companies who stand to benefit from inflation hysteria. Maybe it’s a belief that every single economic metric must be a nightmare under President Obama. But whatever the reason, the GOP’s preoccupation with phantom price increases is distracting it from the actual problems afflicting the U.S. economy…

Eric Chemi and Ariana Giorgi: For CEOs, Correlation Between Pay and Stock Performance Is Pretty Random: “With all the public chatter about exorbitant executive compensation and income inequality…

…it’s useful to look at the relationship between chief executive officer pay and corporate performance. Typically, when the subject of their big pay packages arises, CEOs—usually through their spokespeople—say they are paid for performance. Does data back that up?… Equilar ranked the salaries of 200 highly paid CEOs. When compared to metrics such as revenue, profitability, and stock return, the scattering of data looks pretty random…. Check the comparison of the ranking of the 200 CEOs Equilar looked at to their company’s stock returns…. If ‘pay for performance’ was really a factor in compensating this group of CEOs, we’d see compensation and stock performance moving in tandem…. They certainly wouldn’t look like this:

Lawrence Summers: Advantages the Rich Have That Money Cannot Buy: “The primary reason for concern about inequality is that lower- and middle-income workers have too little…

…not that the rich have too much… the criterion should be… [the] impact… on the middle class and the poor…. Important aspects of inequality are unlikely to be transformed just by limited income redistribution. Consider… health and… opportunity for children. Barry Bosworth and his colleagues… [the] cohort[s]… born in 1920 and… 1940…. The richest men gained roughly six years in life expectancy… the lowest… two years… lifestyle and variations in diet and stress [rather] than the ability to afford medical care….

Over the past two generations… the college enrollment rate for children from the lowest quarter… has increased from 6% to 8%, the… highest quarter… from 40% to 73%…. The average affluent child now receives 6,000 hours of extracurricular education… read to, taken to a museum, coached in a sport… other… stimulus… more than the average poor child…. It would be a tragedy if this new focus on inequality and on great fortunes diverted attention from the most fundamental tasks… supporting the health and education of all its citizens…

Members of America’s relatively-rich upper-middle class are, says Larry Summers, different from members of America’s native-born working class in more then their ability to earn high incomes in the marketplace and so gain the resources to spend in order to achieve an upper middle-class standard of living. Diet, stress, smoking, exercise, and a host of other lifestyle factors play a bigger role then does income in giving the upper-middle class longer life expectancy than the native-born working class. And within-the-family investment in children’s experiences and capabilities plays an important role in preparing the next generation to navigate the social and educational obstacle course to productive adulthood.

That reducing income and wealth inequalities will not proportionately reduce all inequalities is not, of course, an argument to eschew smart policies to reduce income and wealth inequalities. It is, however, an argument to do more: to try to act on the health and lifestyle and family structure margins as well as on the after-tax income margin and on the wealth-accumulation margin.

But how?

Naomi Cahn and June Carbone have long argued that the successes come from evolving sociological institutions that cope with the consequences of the coming of reliable birth control and the shrinkage in the average number of pregnancies from eight to two. They see as successful:

a Blue Family Paradigm [that] emphasizes the importance of women’s as well as men’s workforce participation, egalitarian gender roles, and the delay of family formation until both parents are emotionally and financially ready…

And they contrast it with:

a Red Family Paradigm–associated with the Bible Belt, the mountain west, and rural America–[that] rejects these new family norms, viewing the change in moral and sexual values as a crisis. In this world, the prospect of teen childbirth is the necessary deterrent to premarital sex, marriage is a sacred undertaking between a man and a woman, and divorce is society’s greatest moral challenge.

Yet, increasingly, the RFP is unsustainable, both because men without college degrees can no longer fulfill the requirements of their RFP social-gender role, and because most women do not wish to:

The stable, blue collar jobs that have historically supported young families, and early marriage and childbearing derail the education needed to prosper. The result is that the areas of the country most committed to traditional values have the highest divorce and teen pregnancy rates, fueling greater calls to reinstill traditional values…

And here things become truly dicey: calling for a revolution in culture and an abandonment of values is rarely an easy solution to problems of inequality.

Should-Reads:

1. Tim Jost:Will Was the ACA Dicision Based on a Mistake?: “In a recent blog post, Cato scholar Michael Cannon admitted that he and his colleague, Case Western University professor Jonathan Adler, had made a mistake in an amicus brief they submitted to the courts in the Halbig and King cases…. This mistake… goes to the central argument that he and Jonathan have relied on…. Cannon’s error is one of a flood of misstatements that the opponents of the ACA have propagated, from ‘death panels’ at the outset to ‘no federal exchange tax credits’ now.  The real danger is the disinformation about the ACA could infect a decision in the Halbig case…. I can find no evidence in the extensive debates that accompanied the Affordable Care Act or in the relevant committee reports  that Congress modeled the ACA premium tax credit structure after the Trade Adjustment Act tax credit program…. An individual’s receipt of a Trade Adjustment Act tax credit was not dependent on a state doing anything…. The ACA is quite different from the Trade Adjustment Act in that under the ACA exchanges are in effect in every state, while there is no such system set up in the Trade Adjustment Act…. Other misunderstandings on the part of Judge Randolph abounded in the argument…. One hopes that by the time the D.C. Circuit announces a decision in this case, the judges will have reread the briefs and supporting record and have corrected any erroneous first impressions…. The courts have to get this right.”

2. Michael Cannon: Erratum In The Adler-Cannon Amicus Briefs Filed In ‘Halbig’ & ‘King’: “On pages 11-12 of our Halbig brief and pages 14-16 of our King brief, we claimed the bipartisan Small Business Health Options Program Act, introduced in 2008 (S.2795) and again in 2009 (S.979) by Sen. Richard Durbin (D-IL), conditioned tax credits to small businesses on states establishing ‘SHOP’ Exchanges.  Those bills in fact explicitly authorize tax credits to participating employers whether a state or the federal government established the Exchange. The error was mine. I apologize to the courts and my coauthor.”

3. Jonathan Cohn: Halbig and King Rulings: What They Mean for Obamacare: “According to the lawsuits, which are the brainchild of Michael Cannon from the Cato Institute and Jonathan Adler from Case Western University… Obamacare’s architects intended to use the subsidies as incentive for states to manage their own marketplaces…. As many experts (and I) have written before, the theory is inconsistent with the rest of the statute, the discussions of the law prior to passage, and what the people who wrote the statute say now. An amicus brief from the law’s sponsors attests to the fact that they never intended to deny anybody subsidies just because states asked HHS to handle the work of regulating its insurance policies. Also among those who think the Cannon-Adler theory is nonsense is Liz Fowler… chief health care counsel on the Senate Finance Committee during the law’s crafting probably understood congressional intent better than anybody…. That argument prevailed in two lower federal courts…. And it prevailed again on Tuesday, in the Fourth Circuit Court of Appeals, when a three-judge panel ruled unanimously that the subsides are ok. But a three-judge panel from the D.C. Circuit, also ruling on Tuesday, split along partisan lines. The two Republican appointees ruled in favor the lawsuits…”

4. Scott Lemieux: They Criticize What They Can’t Understand: “To the extent that there’s an argument against reading the ACA to include subsidies on the federal exchanges, it has to be that while Congress intended the subsidies to be available on both, reading the literal language of an isolated provision it says that the subsidies are only available on state exchanges, so tough luck.  This is, to be clear, a terrible argument, but it’s the best one available…. [But] some conservatives are arguing that Congress actually intended for the federal exchanges not to include subsidies…. Ramesh Ponnuru…. ‘If Obamacare had proven more popular… most states would have established exchanges. And if the law were put in place as written… the few holdouts would be under pressure to establish exchanges to get credits…. It’s wrong, then, to say that Congress obviously didn’t intend to include this restriction.’ This argument is… amazing…. We also know that Congress anticipated that some states would not create their own exchanges… because the statute gave the federal government the power to create exchanges when states wouldn’t…. The actually existing Congress assumed that some states would not participate but wanted the exchanges available in all 50 states…. There’s a more fundamental problem with the arguments made…. The ACA was… written by public officials who wanted to substantially increase access to medical care. The central function of the subsidies wasn’t to create incentives for state governments; it was to ensure that the non-affluent uninsured who didn’t qualify for Medicaid could purchase insurance on the exchanges…. Conservatives trying to evaluate the goals of the ACA are like elephants trying to play a toy piano…”

5. James J. Heckman: Randomization and Social Policy Evaluation: “This paper considers the recent case for randomized social experimentation and contrasts it with older cases for social experimentation. The recent case eschews behavioral models, assumes that certain mean differences in outcomes are the parameters of interest to evaluators and assumes that randomization does not disrupt the social program being analyzed. Conditions under which program disruption effects are of no consequence are presented. Even in the absence of randomization bias, ideal experimental data cannot estimate median (other quantile) differences between treated and untreated persons without invoking supplementary statistical assumptions. The recent case for randomized experimentation does not address the choice of the appropriate stage in a multistage program at which randomization should be conducted. Evidence on randomization bias is presented…”

And:

• Andrew Odlyzko: The early British railway system, the Casson counterfactual, and the effectiveness of central planning
• Mike Konczal: Dr. Strangelove and the Halbig Decision
• Richard Mayhew: Obamacare in an import-export regional economic modeling view
• John Authers: Long-term returns boosted by illiquidity
• Michael Tomasky: Conservatives Find Typo in Obamacare, Try to Kill People with It

Should Be Aware of:

1. Steve M.: If Your Argument Is “They’d Never Go That Far”, You Still Don’t Understand Republicans: “Maybe I’m overly pessimistic about Obamacare’s fate, but Ezra Klein believes the Supreme Court simply wouldn’t use the Halbig case to gut the law, and his argument strikes me as exceedingly naive…. ‘The Court simply isn’t going to rip insurance from tens of millions of people due to an uncharitable interpretation of congressional grammar. For five unelected, Republican-appointed judges to cause that much disruption and pain… would be a disaster for the institution….’ But Republican governors, especially from the tea party class of 2010, have been harming large numbers of people quite openly… and, apart from Pennsylvania’s Tom Corbett, they all have a shot at reelection. Voters who aren’t specifically targeted by these governors sure don’t seem to be displaying much empathy for those who are. A lot of the people harmed by a Supreme Court evisceration of Obamacare will be Democratic voters who wouldn’t have voted GOP anyway…. Maybe the Court’s Republicans are going to game this out and conclude that a ruling against the law will be too much for the GOP and conservative movement to handle. But I wouldn’t bet the rent money on that.”

2. Paul Krugman: Debt Disaster Dead-Enders: “I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece–it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis…. The policy recommendations [are] written as if he knows nothing about the ongoing discussion of these issues over the past decade and more. Portman wants us to raise the Medicare and Social Security ages. But raising the Medicare age doesn’t save money, and the Social Security age is already on an upward track to 67–while life expectancy at age 65 has risen very little for the bottom half of workers…. For sure we need serious efforts to control health-care costs–which we seem to be getting in Medicare, but face relentless Republican demagoguery. Finally, whenever someone warns about the supposedly unsupportable costs of entitlements decades into the future, you should ask why, exactly, it’s urgent that we solve that conjectural future problem now–and why it has any bearing at all on current fiscal issues…. But the deficit scolds do love their looming disaster, and they love making tough proposals that someone always involve sacrifices by the little people.”

3. Richard Mayhew: En Bancing on Halbig: “The two ‘intellectual fathers”’of the anti-Obamacare lawsuits are Michael Cannon and Jonathan Adler.  Their major brief on the Halbig case contains a massive factual error that invalidates their argument…. Michael Cannon and Jonathan Adler did not withdraw their brief…. It is almost like Cannon and Adler are neo-feudalists who want to f— the poor, the middle class and anyone else in this strand of the multiverse who is slightly less privileged than themselves…. NB Remember legal ‘history’ is not concerned with verifiable truth, rather it is concerned with creating a patina of ‘truthiness’ to win an argument.”

Already-Noted Must-Reads:

1. James Hamilton: The Changing Face of World Oil Markets: “1. World oil demand is now driven by the emerging economies…. 2. Growth in production since 2005 has come from lower-quality hydrocarbons…. 3. Stagnating world production of crude oil meant significantly higher prices…. 4. Geopolitical disturbances held back growth in oil production…. 5. Geological limitations are another reason that world oil production stagnated…. More recently, the decline in U.S. production has turned around dramatically with the exploitation of tight oil formations…. Many analysts are optimistic that the trend of growing production from this resource will continue…. But even if this forecast proves accurate, it is abundantly clear that it would not return real oil prices to their values of a decade ago…. Rather than a force pushing oil prices back to historical lows, it seems more accurate to view the emerging tight-oil plays as a factor that can mitigate for a while what would otherwise be a tendency for prices to continue to rise in the face of growing demand from emerging economies and stagnant supplies from conventional sources…”

2. Sarah Kliff: Halbig says Congress meant to limit subsidies. Congress disagrees: “Did Congress intend for Obamacare’s federal-run exchanges to distribute tax credits to millions of enrollees? Two circuit courts have spent a combined 116 pages opining on the issue…. For staffers who helped write Obamacare though, there isn’t really a debate at all. The answer, for them, is crystal clear: they definitely meant to have subsidies available in all 50 states, regardless on who ran the marketplace. ‘It was always intended that the federal fallback exchange would do everything that the statute told the states to do, which includes delivering the subsidies’,”says Chris Condeluci, who worked as tax and benefits counsel for the Senate Finance Committee Republicans during the Affordable Care Act debate…. ‘The evidence of Congressional intent here is overwhelming’, John McDonough, who worked on the Health, Education, Labor and Pension committee during the health reform debate, wrote in an email. ‘There is not a scintilla of evidence that the Democratic lawmakers who designed the law intended to deny subsidies to any state, regardless of exchange status’…”

3. Mike Konczal: Dodd-Frank Reforms Are Finally Paying Off: “This past year has seen significant advances with at least four major wins. And crucially, the battles that still remain are coming clearly into focus. First, banks are now required by regulators to hold higher levels of capital…. Last fall, the Commodity Futures Trading Commission oversaw the launch of the exchanges for trading derivatives…. Part of the goal of this reform was to enforce price transparency…. Another win was the ruling on the Volcker Rule…. There will be a long implementation process as regulators make calls about what falls inside and outside of the rule, but the fact that it survived this process is important…. The FDIC this past year started to put serious meat on the process of how it would create a death panel for a failed large financial firm…. Conservatives should rejoice. I consistently hear about how Dodd-Frank is a ‘corporatist’ bill that protects firms by labeling them systemically important. And if being seen as systemically important and subject to Dodd-Frank rules was an implicit subsidy—-the ‘biggest kiss’, as Mitt Romney put it during the 2012 debates—then firms should be running toward the designation. The opposite of that happened in 2013….
    
   “The Tea Party narrative [now] officially absolv[es]… Wall Street from any and all dubious activity or need for reform…. Jeb Hensarling… mocks the idea that ‘an alchemy of Wall Street greed, outsized risk and massive Washington de-regulation almost blew up the planet’…. In recent years Republicans would at least reference the idea that some reforms were needed, even if they were minimal. That is no longer in play. [Peter] Suderman and other critics are wrong in arguing that there’s no logic behind Dodd-Frank. Dodd-Frank was to port the regulatory system of banks that had kept the economy working during the Golden mid-century period over to the capital markets that have exploded in the past 30 years. This process is slowly working…”

Mike Konczal: Dodd-Frank Reforms Are Finally Paying Off: “This past year has seen significant advances…

…with at least four major wins. And crucially, the battles that still remain are coming clearly into focus. First, banks are now required by regulators to hold higher levels of capital…. Last fall, the Commodity Futures Trading Commission oversaw the launch of the exchanges for trading derivatives…. Part of the goal of this reform was to enforce price transparency…. Another win was the ruling on the Volcker Rule…. There will be a long implementation process as regulators make calls about what falls inside and outside of the rule, but the fact that it survived this process is important…. The FDIC this past year started to put serious meat on the process of how it would create a death panel for a failed large financial firm…. Conservatives should rejoice. I consistently hear about how Dodd-Frank is a ‘corporatist’ bill that protects firms by labeling them systemically important. And if being seen as systemically important and subject to Dodd-Frank rules was an implicit subsidy—-the ‘biggest kiss’, as Mitt Romney put it during the 2012 debates—then firms should be running toward the designation. The opposite of that happened in 2013….

The Tea Party narrative [now] officially absolv[es]… Wall Street from any and all dubious activity or need for reform…. Jeb Hensarling… mocks the idea that ‘an alchemy of Wall Street greed, outsized risk and massive Washington de-regulation almost blew up the planet’…. In recent years Republicans would at least reference the idea that some reforms were needed, even if they were minimal. That is no longer in play. [Peter] Suderman and other critics are wrong in arguing that there’s no logic behind Dodd-Frank. Dodd-Frank was to port the regulatory system of banks that had kept the economy working during the Golden mid-century period over to the capital markets that have exploded in the past 30 years. This process is slowly working…

James Hamilton: The Changing Face of World Oil Markets: “1. World oil demand is now driven by the emerging economies…

…2. Growth in production since 2005 has come from lower-quality hydrocarbons…. 3. Stagnating world production of crude oil meant significantly higher prices…. 4. Geopolitical disturbances held back growth in oil production…. 5. Geological limitations are another reason that world oil production stagnated…. More recently, the decline in U.S. production has turned around dramatically with the exploitation of tight oil formations…. Many analysts are optimistic that the trend of growing production from this resource will continue…. But even if this forecast proves accurate, it is abundantly clear that it would not return real oil prices to their values of a decade ago…. Rather than a force pushing oil prices back to historical lows, it seems more accurate to view the emerging tight-oil plays as a factor that can mitigate for a while what would otherwise be a tendency for prices to continue to rise in the face of growing demand from emerging economies and stagnant supplies from conventional sources…

It now looks like that, instead of the 3.3% real GDP growth 2014 that we expected at the end of last fall, we are going to have half that: a 1.7% real GDP growth 2014. But the having of growth is coming 100% out of productivity: all labor market indicators are on the track that was expected late last fall.

Trying to wrap my head around this turning out to be really, really difficult.

The undershoot relative to previous expectations of first-quarter real GDP growth by 6%-points, followed by no bounce-back catch-up at all, would seem to be bad news for inflation, for profit margins and hence stock valuations, and for long-run potential GDP. But the stock market does not seem to care. And inflation expectations as measured by the TIPS-Treasuries breakeven do not seem to care.

Is it that people trading in the breakeven think that the Federal Reserve will hit the economy on the head if inflation starts to rise, and so think that the stock market in failing to react and fall is irrational? Is it that people trading in the stock market think that the effect of lower long-run potential and lower profit margins on real stock values are offset by higher inflation and hence have no impact on nominal stock market values, and that the breakeven market by failing to markup future inflation is irrational? If you think the markets had it right in January, then right now either the stock market is too high or the TIPS-Treasuries interest-rate spread is too low. People ought to have been shorting the stock market, shorting treasuries, and hedging by buying TIPS on a large scale.

The stock market should have fallen, TIPS should have risen (in price), or Treasuries should have fallen (in price) as it became clear first set the first quarter of 2014 would be so bad and then that there would be no bounce back in real GDP.

I find the failure of any of these three things to happen disturbing. It suggests a lack of faith by Ms Market in the national income identities…

Sarah Kliff: Halbig says Congress meant to limit subsidies. Congress disagrees: “Did Congress intend for Obamacare’s federal-run exchanges…

…to distribute tax credits to millions of enrollees? Two circuit courts have spent a combined 116 pages opining on the issue…. For staffers who helped write Obamacare though, there isn’t really a debate at all. The answer, for them, is crystal clear: they definitely meant to have subsidies available in all 50 states, regardless on who ran the marketplace. ‘It was always intended that the federal fallback exchange would do everything that the statute told the states to do, which includes delivering the subsidies’,”says Chris Condeluci, who worked as tax and benefits counsel for the Senate Finance Committee Republicans during the Affordable Care Act debate…. ‘The evidence of Congressional intent here is overwhelming’, John McDonough, who worked on the Health, Education, Labor and Pension committee during the health reform debate, wrote in an email. ‘There is not a scintilla of evidence that the Democratic lawmakers who designed the law intended to deny subsidies to any state, regardless of exchange status’…