Category: Equitablog

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” →

And we're off! You can download all the Brookings Papers on Economic Activity, right here: http://t.co/8tkWWBFSgO #BPEA

— Justin Wolfers (@JustinWolfers) March 20, 2014

Alas! I am not there–I am on the other coast, teaching and waiting for flights to arrive for spring break…

There are, I believe, eight requirements for the competitive marketplace–the System of Natural Liberty of Adam Smith–to do its job as our collective societal calculating mechanism for managing our enormous and finely-graded social division of labor:

1. Exclusion–commodities must be such (or be made such via th legal order) that you can charge a price for them…
2. Rivalry–commodities must be such that one person’s using it imposes a cost on others, and so it makes sense for you to charge a price for them…
3. Information–if one person knows more about the true properties of what is being bought or sold, things will go badly wrong: markets in commodities subject to adverse selection and moral hazard do not work well…
4. Competition–markets with only one or a very few effective buyers or sellers cannot work well…
5. Equilibrium–people cannot go away disappointed by their inability to find a counterparty at the prevailing price or surprised at what the prevailing price turns out to be…
6. Restriction–the benefits and costs must fall upon the buyer and seller, rather than ramify via externalities and have large effects on other…
7. Calculation–people must not make large and systematic mistakes about what their interests are…
8. Distribution–the people who have the money, and thus the power to command the division of labor, must be those who in our estimation deserve to do so either because of their need or for other reasons…

Continue reading “On the Pace of Growth: I Think the Very Smart Joe Stiglitz Gets One Wrong: Thursday Focus: March 20, 2014” →

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.

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.

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.

Must-Reads:

1. Ryan Avent: Monetary policy: Try overshooting for two years: “Though it would be the right thing to do, I don’t expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don’t expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don’t expect those things, I don’t think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.”

2. James Kwak: You Don’t Say: “Peter Eavis… highlighted a statement… by… William Dudley (formerly of Goldman Sachs, then a top lieutenant to Tim Geithner): ‘There is evidence of deep-seated cultural and ethical failures at many large financial institutions’…. In 2008… people probably thought that our largest banks were just guilty of shoddy risk management, dubious sales practices, and excessive risk-taking… we’ve had to add price fixing, money laundering, bribery,  and systematic fraud on the judicial system…. Framing the problem as a ‘trust issue’—customers no longer see banks as trustworthy institutions—is beside the point. Wall Street’s main defense is that its clients already realize that investment banks do not have their buy-side clients’ best interests at heart, and clients who don’t realize that are chumps. And in the wake of the financial crisis, I suspect there are few individuals out there who believe that their banks are there to help them. The banking industry has discovered that it can thrive without trust, which is not surprising; retail depositors trust the FDIC, and bond investors know that trust isn’t part of the equation…”

3. Jon Cohn: New GOP Health Plan Sounds Exactly Like Old One: “House Republican leaders have come up with a new health care proposal. And based on a report in the Washington Post, it will look a lot like their old health care proposals—the ones that would have done very little to improve access, reduce financial distress, and contain health care spending. But this new plan would be different in one key respect. Implementing this sort of Republican plan now would probably mean taking away coverage from quite a lot of people who just got it. That’s a pretty big deal…. The interesting question is how Republicans intend to present this plan…. If Republicans intend to repeal the Affordable Care Act and replace it with the framework that Costa’s story describes—or even something with a bit more money behind it—a lot of those people are going to lose… insurance altogether. Until this year, taking away Obamacare meant taking away a hypothetical benefit. Now that benefit is real…. But really, the policy details are sort of irrelevant here. Notwithstanding the efforts of a few dedicated intellectuals and a tiny cadre of federal lawmakers, the vast majority of Republican officials have zero interest in health care reforms that significantly increase access to care. The new House Republican plan was supposed to show otherwise. If they actually manage to produce something—this isn’t the first time they’ve promised a proposal wasn’t imminent—and if it looks like the media reports suggest, the plan will merely confirm everybody’s suspicions: Significantly increasing access to health care just isn’t a priority for today’s Republican Party.”

4. Timothy Noah: Inside Low-wage Workers’ Plan to Sue McDonald’s — and Win: “The wage theft lawsuits filed against McDonald’s last week in New York, Michigan and California threaten to breach a wall that for decades has protected fast-food corporations from the demands of minimum wage workers. The lawsuits accuse McDonald’s restaurants of various illegal labor practices. Many fast food workers, it’s alleged, have been taken “off the clock” either while working or while waiting on site to start or complete a shift; either way, federal law requires that the workers be compensated for their time. Another allegation is that many of these low-wage workers have gotten the cost of their uniforms deducted from their paychecks, effectively reducing their pay to below the federally or state-mandated minimum wage. Yet another allegation is that many fast food workers have been denied legally-mandated overtime pay. What’s unusual here aren’t the claims of labor law violations, which are common enough, but rather, who’s being blamed. The wall that fast food workers hope to blast through with these class-action suits is the franchise system. All of the lawsuits name McDonald’s itself as a defendant, even though most of the targeted restaurants are owned not by McDonald’s but by McDonald’s franchisees…”

Continue reading “Things to Read on the Evening of March 19, 2014” →

Noam Levey: In northern Maine, collaboration brings better health – latimes.com: “Many of the nation’s healthiest communities are wealthy and have large numbers of college-educated residents.

But northern Maine is among a handful of telling exceptions, making it an important guidepost as the country searches for ways to improve health…. The region now is among America’s poorest…. Yet northern Maine ranks high on national measures of health…. Residents of the region receive recommended screenings and medical care more often than other Americans. They suffer fewer complications in nursing homes and are less frequently prescribed risky medications. And they are nearly half as likely to die from preventable diseases as residents of other low-income areas…. Maine’s success owes much to the type of care that Patterson typifies — intensely personal, data-driven and highly coordinated. The approach grew out of a decades-long effort by local leaders that many experts consider a model for how to improve community health.

Ryan Avent: Monetary policy: Try overshooting for two years: “Though it would be the right thing to do,

I don’t expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don’t expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don’t expect those things, I don’t think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.

James Kwak: There’s No Substitute for the Government: “There are basic economic reasons why public social insurance is superior to voluntary charity.

The goal here is to protect people against risk: of unemployment, of health emergency, of outliving one’s savings, and so on. For a risk-mitigation scheme to work, there are a few things that are necessary. One is that people actually be covered. This is something you can never have with a private system (unless it’s regulated to the point of being essentially public), since charities get to pick and choose whom they want to help. As Konczal says of private agencies before the Depression, “They were also concerned they’d lose their ability to stigmatize—or to protect—various populations; by playing a role in determining who wasn’t deserving of assistance, they could shield those they felt worthy of their support.”

Another thing you want is the assurance that the system has the financial capacity to actually protect you in the event of a crisis. That’s why you don’t depend on your neighbors to rebuild your house if it burns down. Besides the fact that they may not like you, they probably don’t have enough money—especially if you lose your house in a fire that burns down the entire neighborhood. As I’ve said many times before, there is no other entity in the country—and not really one in the world—with the financial capacity of the federal government. Even state governments scramble to cut benefits when push comes to shove, which is one reason why some states provide Medicaid coverage to almost no one.