Category: Equitablog

Elizabeth Nolan Brown: Weak Government Regulations Made Me Do It, Legal Sea Foods CEO Claims: “Over the weekend, a carbon monoxide leak in a Long Island Legal Sea Foods restaurant resulted in 27 hospitalizations and one death.

Now the head of the upscale chain is trying to pin the blame for the leak—the result of a defective heating system, authorities say—on inadequate government regulations. New York state fire code requires carbon monoxide detectors in locations where people sleep but not in restaurants, shops, or other commercial establishments. In a statement Sunday, Roger Berkowitz, president and CEO of Legal Sea Foods, said the tragedy “highlights the inadequacy of the codes for carbon monoxide detectors in commercial spaces.” How about the inadequacy of Legal Sea Foods’ efforts to protect its customers and workforce? Conspicuously lacking from Berkowitz’s statement was any hint of personal responsibility for the poisonings…. It’s absurd to suggest this tragedy is rooted in a failure of regulatory oversight…. The Long Island mall in which Legal Sea Foods operates is fitted with multiple carbon monoxide detectors, according to Newsday. And it seems the mall’s owners got the gumption to do this without any sort of legal requirement. After all, not killing or sickening employees and customers is only good business sense…. For under $25 and 10 minutes of forethought, this Legal Sea Foods tragedy could have been prevented. Instead, the restaurant’s leadership decided to meet only the bare minimum of safety requirements—and that’s on them. 

Daniel Kuehn: Facts & other stubborn things: Caplan on the college premium: “The earnings advantage of college students has been substantial, but graduation rates have barely moved. Why?

Bryan offers evidence that these earnings are highly conditional on graduation, and that since expected graduation rates vary many students with low expected graduation rates are not going to be enticed by the premium. I think this is a great example of differentiating between marginal behavior properly understood and naive assumptions about what the outcomes of marginal behavior should be.

Continue reading “Morning Must-Read: Daniel Kuehn: Bryan Caplan on the College Premium” →

Joe Deaux: The Story of the Federal Reserve the Day After Lehman Brothers Collapsed: “Hours after Lehman Brothers tumbled into history as the largest bank failure in U.S. history, Federal Reserve Chairman Ben Bernanke’s concerns focused elsewhere.

Opening remarks on Sept. 16, 2008, according to transcripts released by the central bank on Friday, revealed that Bernanke and members of the Fed’s policy-making wing–the Federal Open Market Committee–were uncertain how the Lehman bankruptcy would affect the broader economic system…. The Fed… turned its attention to a discussion of whether to raise the federal funds rate, which on that day sat at 2%…. Lockhart predicted that the federal funds rate target would remain around the current 2% level for “several months” going into 2009, and he recommended that the Fed not change the rate at that meeting. Boston Fed President Eric Rosengren, whose comments pushed for the most accommodative monetary policy, offered a grim outlook…. “The failure of a major investment bank, the forced merger of another, the largest thrift and insurer teetering, and the failure of Freddie and Fannie are likely to have a significant impact the real economy…. Individuals and firms will become risk averse, with reluctance to consume or to invest” Rosengren said he supported a 25 basis-point cut to the Fed funds rate….

Continue reading “Morning Must-Read: Joe Deaux: The Story of the Federal Reserve the Day After Lehman Brothers Collapsed” →

Must-Reads:

1. Paul Krugman: The Urge To Tighten: “People are going through the Fed’s 2008 transcripts, and finding that most officials had no idea what was going down…. I’m a bit surprised, but that’s not the most surprising thing. What’s really surprising, and a bit dismaying, is the fact that a number of Fed officials were evidently focused on inflation, and some were eager to raise rates. That is, there were a fair number of people at the Fed — very much not, however, including Janet Yellen –who would, if they could, have echoed the ECB’s big mistake. What’s kind of shocking about this is that official Fed doctrine is to focus on core inflation, not react to short-run fluctuations in commodity prices. And the history of the past decade or so has showed that this is very much the right thing to do — headline inflation has swung widely, while focusing on core inflation has been a much better (though not perfect) guide…. Were Fed officials just not on board with this doctrine? Or was it part of a general urge to tighten, because central bankerly types just really dislike easy money?”

2. Kevin Drum: Walmart’s Core Customer Base Is Doing Poorly: “We may not officially be in a recession any more, but the poor are still hurting pretty badly. And that’s Walmart’s core customer base: ‘Wal-Mart Stores Inc forecast a lower full-year profit than analysts expect, as fewer food stamps, higher taxes and tighter credit erode its sales, news that sent its shares down 1 percent in premarket trading on Thursday…. A major factor in Wal-Mart’s U.S. performance was a “low-single-digit decline” in sales of groceries at stores open at least a year, which generate about half of its sales…. Wal-Mart’s grocery sales have suffered from fewer food-stamp benefits resulting from U.S. federal budget cuts in November. One in five of its shoppers relies on food stamps, according to Cowen analyst Tal Lev.’ I imagine that Walmart is now suffering from the failure to extend unemployment benefits too. And from the slowdown in economic activity and job losses caused by the sequester. And from our failure to increase the minimum wage. But then again, lots of people are suffering from all that. Walmart is just a very large canary in the coal mine.”

3. James Surowiecki: Assessing the American Dream: “As the economist Joseph P. Ferrie has shown, in the late nineteenth century U.S. society was far more mobile than Great Britain’s…. Andrew Carnegie [could] start as a bobbin boy in a cotton factory at a dollar-twenty a week and end up one of the world’s richest men. This legacy left a deep imprint on American culture…. That feeling has persisted: Americans are less concerned than Europeans about inequality and more confident that society is meritocratic. The problem is that, over time, the American dream has become increasingly untethered from American reality…. Salt Lake City and San Jose, have mobility rates as high as anywhere else in the developed world. There are also places in the U.S., like Mississippi, where mobility is lower than anywhere else in the developed world. So if you could figure out exactly what Salt Lake City is doing right, and apply that lesson elsewhere, you might be able to get people movin’ on up again. Increasing economic opportunity is a noble goal, and worth investing in. But we shouldn’t delude ourselves into thinking that more social mobility will cure what ails the U.S. economy…. Sweden has one of the highest rates of social mobility in the world, but a 2012 study found that the top of the income spectrum is dominated by people whose parents were rich…. More important… most people are… middle and working classes; public policy should focus on raising their standard of living, instead of raising their chances of getting rich…”

4. Larry Mishel: Misdirection on Assortative Mating and Income Inequality: “This is a story about misdirection…. The paper… is titled ‘US inequality due to assortative marriages’… by Jeremy Greenwood [et al.]…. The authors conclude that ‘rising assortative mating together with increasing labour-force participation by married women are important’…. So, right out of the gate, a key influence not trumpeted in the headline (rising labour-force participation by married women) is introduced…. The question that should be answered is why income inequality grew a great deal between 1979 and now and was fairly stable before then…. Greenwood et al.’s data show that positive assortative mating declined(!) from 1980 to 2005… positive assortative mating was a force that equalized incomes after 1980. It was in the period from 1960 to 1980 that positive assortative mating lead to more unequal incomes. Consequently, their research in no way lifts up the role of ‘like marrying like’ in generating inequality since 1980: it actually means that economic inequalities overcame an equalizing demographic factor…. The title of the VoxEU piece, ‘US inequality due to assortative marriages’, may seem like it’s answering a relevant question, but it isn’t…”

Continue reading “Things to Read on the Morning of February 25, 2014” →

First of all, it seems very clear to me that whatever disemployment effects a minimum wage increase would have are swamped for any reasonable greatest-good-of-the-greatest number calculation by the positive effects on income distribution and on the effectiveness of the EITC as an anti-poverty program that the minimum wage increase would have.

Second, I agree with my colleague Michael Reich that the CBO’s relatively high–but still low in both absolute and relative to the size of the economy terms, for it is high only relative to other studies and to the consensus view around here–estimate of the disemployment effect of the minimum wage increase is puzzling, and seems to me to be more likely to be wrong than right:

Michael Reich: No, a Minimum-Wage Boost Won’t Kill Jobs: “The CBO examines the effects of a bill to raise the federal minimum wage from its current $7.25 to $10.10 by 2016, an increase of 39 percent.

Based on its own research, the CBO report estimates some stunning benefits: about 23 million people would receive pay increases and 900,000 people would be lifted above the federal poverty level. Pretty good news for a White House that has been touting the virtues of a minimum-wage increase…. The CBO also reported a definite cost: Employment would fall by 500,000…. These estimated employment losses have become the subject of considerable disagreement among wonks and economists. Jason Furman, chair of the White House’s Council of Economic Advisers, and his colleague Betsey Stevenson argue that the CBO could easily have picked a much lower job-loss number, including one that would be so small as to be negligible. Conservative groups… have said that the CBO’s job loss figures are consistent with their own estimates. So who’s right?…

Continue reading “What Effect Will a Minimum Wage Increase Have?: Tuesday Focus: February 25, 2014” →

Larry Mishel: Misdirection on Assortative Mating and Income Inequality: “This is a story about misdirection….

The paper… is titled ‘US inequality due to assortative marriages’… by Jeremy Greenwood [et al.]…. The authors conclude that ‘rising assortative mating together with increasing labour-force participation by married women are important’…. So, right out of the gate, a key influence not trumpeted in the headline (rising labour-force participation by married women) is introduced…. The question that should be answered is why income inequality grew a great deal between 1979 and now and was fairly stable before then…. Greenwood et al.’s data show that positive assortative mating declined(!) from 1980 to 2005… positive assortative mating was a force that equalized incomes after 1980. It was in the period from 1960 to 1980 that positive assortative mating lead to more unequal incomes. Consequently, their research in no way lifts up the role of ‘like marrying like’ in generating inequality since 1980: it actually means that economic inequalities overcame an equalizing demographic factor…. The title of the VoxEU piece, ‘US inequality due to assortative marriages’, may seem like it’s answering a relevant question, but it isn’t…

James Surowiecki: Assessing the American Dream: “As the economist Joseph P. Ferrie has shown, in the late nineteenth century U.S. society was far more mobile than Great Britain’s….

Andrew Carnegie [could] start as a bobbin boy in a cotton factory at a dollar-twenty a week and end up one of the world’s richest men. This legacy left a deep imprint on American culture…. That feeling has persisted: Americans are less concerned than Europeans about inequality and more confident that society is meritocratic. The problem is that, over time, the American dream has become increasingly untethered from American reality…. Salt Lake City and San Jose, have mobility rates as high as anywhere else in the developed world. There are also places in the U.S., like Mississippi, where mobility is lower than anywhere else in the developed world. So if you could figure out exactly what Salt Lake City is doing right, and apply that lesson elsewhere, you might be able to get people movin’ on up again.

Increasing economic opportunity is a noble goal, and worth investing in. But we shouldn’t delude ourselves into thinking that more social mobility will cure what ails the U.S. economy…. Sweden has one of the highest rates of social mobility in the world, but a 2012 study found that the top of the income spectrum is dominated by people whose parents were rich…. More important… most people are… middle and working classes; public policy should focus on raising their standard of living, instead of raising their chances of getting rich…

Ryan Avent: Federal Reserve transcripts: The Great Recession! It’s right behind you! : “Was [Geithner] a villain or a hero?

More the latter if you ask me. But above all he was a human—experienced in global finance, yes, but even so—trying to assess the plausibility of the occurrence of an event well outside the lived experience of everyone in that room, and faring reasonably well all things considered…

Continue reading “Ryan Avent on Tim Geithner: Fed 2008 Transcript weblogging” →

Having finally gotten to the end, I have one major reaction:

Janet Yellen looks really, really good–smart, coherent, convincing, polite, influential, effective, and with an eye on what the major risks and problems are. Maybe Eric Rosengren has a slight edge in terms of possessing the requisite degree of alarm. But the two of them are clearly head-and-shoulders above every single other member of the FOMC in their understanding of the looming crisis…

As I, at least, see it, there are four big questions in the debate over “Say’s Law”:

1. Is Walras’s Law–the claim that at any price factor the excess demand for all commodities taken together must adept zero–a good way to think about macroeconomics in general, or do we have to jump to Clower-Leijonhufvud-Malinvaud rationed-equilbrium approaches?
2. Does it therefore immediately provide a refutation of the naïve Say’s Law claim–the claim that there is no such thing as a “general glut”, as an excess demand of commodities as a whole and of labor–via John Start Mill’s observation that, in Walras’s Law terms, an excess demand for money is an excess supply of commodities in general plus labor?
3. Did the people whom Keynes claimed really believed in their hearts-of-hearts in “Say’s Law” from Say to Pigou actually do so?
4. If (2) holds, how do we make sense of 2008-2014 (and of other episodes) given that an excess demand for money should show itself in high interest rates, as people dump interest-earning assets to try to build up their stocks of liquid cash money?

Four big questions. Five related posts in dialogue with each other that shed some light on them:

• David Glasner
• Paul Krugman
• Brad DeLong
• Brad DeLong: 2
• Nick Rowe

David Glasner: Who’s Afraid of Say’s Law?: “There were two famous objections made to Say’s Law:

first, current supply might be offered in order to save for future consumption, and, second, current supply might be offered in order to add to holdings of cash. In either case, there could be current supply that is not matched by current demand for output, so that total current demand would be insufficient to generate full employment…. The savings argument goes back to the nineteenth century, and the typical response was that… the shortfall in consumption demand would lead to an increase in investment demand driven by falling interest rates and rising asset prices…. Keynes proposed an argument about liquidity preference and a potential liquidity trap, suggesting a reason why the necessary adjustment in the rate of interest would not necessarily occur….

The argument that the existence of money implies that Say’s Law can be violated was widely accepted…. Oskar Lange… introduced a distinction between Walras’s Law and Say’s Law (“Say’s Law: A Restatement and Criticism”)…. Lange showed that Walras’s Law reduces to Say’s Law only in an economy without money. In an economy with money, Walras’s Law means that there could be an aggregate excess supply of all goods at some price vector, and the excess supply of goods would be matched by an equal excess demand for money. Aggregate demand would be deficient, and the result would be involuntary unemployment….

One of my regular commenters, Tom Brown, asked me recently whether I agreed with Nick Rowe’s statement: “the goal of good monetary policy is to try to make Say’s Law true.” I said that I wasn’t sure what the statement meant, thereby avoiding the need to go into a lengthy explanation about why I am not quite satisfied with that way of describing the goal of monetary policy.

There are at least two problems with Lange’s formulation of Say’s Law. The first was pointed out by Clower and Leijonhufvud…. Lange’s analysis was based on the absence of trading at disequilibrium prices…. In a real-time economy in which trading is routinely executed at disequilibrium prices, transactors may be unable to execute the trades that they planned to execute at the prevailing prices. But when planned trades cannot be executed, trading and output contract, because the volume of trade is constrained by the lesser of the amount supplied and the amount demanded…. If transactors do not succeed in supplying as much as they planned to supply at prevailing prices, then, depending on the condition of their balances sheets, and the condition of credit markets, transactors may have to curtail their demands in subsequent periods….

Continue reading “Say’s Law: Theory, Practice, and History: A Virtual Debate Made Up of Five Somewhat-Related Posts Worth Reading” →