…‘Gosh, I was hearing from everyone and meeting with everyone,’ said Neese, an Oklahoma City entrepreneur and former ‘Ranger’ for President George W. Bush who raised more than $1 million for his reelection. This year, no potential White House contender has called — not even Bush’s brother, Jeb…. The lament of the rich who are not quite rich enough for 2016. Bundlers who used to carry platinum status have been downgraded… eclipsed by the uber-wealthy, who can dash off a seven-figure check to a super PAC without blinking. Who needs a bundler when you have a billionaire?… Fundraisers once treated like royalty because of their extensive donor networks, are left pining for their lost prestige. Can they still have impact in a world where Jeb Bush asks big donors to please not give more than $1 million to his super PAC right now?…
Marriage: How Good an Idea at the Margin?
A fine rant from the very sharp and newly-parental Matthew Yglesias:
…As Betsey Stevenson and Justin Wolfers put it, we have gone from shared production to shared consumption and formed more egalitarian partnerships based on common preferences rather than a swap of housework for rent money. This new model of partnerships has thus far not taken root as strongly in working-class relationships. That’s unfortunate. But it’s a mistake to believe women are making themselves worse off than their next actually available alternative. As women have become more empowered, they have gotten pickier. That means more single women, and a higher quality of relationship for the non-single.
None of this is to deny either the conservative premise that many people would be better off in stable, loving relationships or the liberal premise that more and better employment opportunities for working-class men could make such relationships more likely.
But to explain a social crisis, you first have to establish that a crisis is occurring. There is no major dimension on which American children are doing worse in 2015 than they were in 1975. That should be a huge giveaway that the decline of marriage is a consequence of something good — prosperity, especially for women — rather than a cause or a consequence of something bad.
But I think Matt goes off the rails at the end, however.
The liberal premise is that there is a social and economic crisis and that is that the rise in inequality that has made blue-collar men less “marriageable”. So Matt’s view that “the decline of marriage is a consequence of something good” is wrong, or at least incomplete. The decline of marriage is in large part the result of something good–modern feminism–and in lesser part the result of and a canary-in-the-coalmine something bad–rising inequality.
And the conservative premise is not “that many people would be better off in stable, loving relationships.” It is considerably different than that:
…In many parts of America there are no minimally agreed upon standards for what it means to be a father…. Norms… were destroyed by a plague of nonjudgmentalism, which refused to assert that one way of behaving was better than another…. It will require holding people responsible…. History is full of examples of moral revival, when social chaos was reversed, when behavior was tightened and norms reasserted. It happened in England in the 1830s and in the U.S. amid economic stress in the 1930s. It happens through organic communal effort, with voices from everywhere saying gently: This we praise. This we don’t…
For Brooks, the enemy is “a plague of nonjudgmentalism”, which would seem to apply that the solution is some form of judgmentalism. That is not exactly a call for people to work harder on establishing loving relationships, is it?
But Brooks is elusive about what kinds of judgmentalism he is calling for. So here we have Judith Thurman reporting on another voice from America’s conservative right:
…Little House on the Prairie, the third and best known of the eight novels… [of Laura Ingalls] Wilder… describ[ing] the Ingallses’ migration from Wisconsin to Kansas, where they build an illegal homestead on land reserved for the Osage tribe, and suffer a series of Job-like tribulations: predation by wolves and panthers, a prairie fire, malaria, blizzards, menacing encounters with the Indians, and a near-fatal well-gas accident. None of it crushed their spirits or shook their belief in self-reliance, although the story ends on a bitter note—one that Governor Palin might have recalled. Charles learns from a neighbor that federal troops are coming to evict the settlers. The ‘blasted politicians in Washington’ have betrayed them, and, without waiting to be run off ‘like an outlaw,’ he abandons the little house in a rage. In the last scene, with his family camped by its wagon in the high grass, he gets out his fiddle. ‘And we’ll rally round the flag boys,’ he sings. ‘We’ll rally once again / Shouting the battle-cry of Freedom!’ Ma shushes him—it’s too martial a song for the girls, who are half-asleep, but ‘Laura felt that she must shout, too.’…
Morning Must-Read: Alejandro Badel: Economic Mobility across Federal Reserve Districts
…People born in 1980-82. The family income of these persons in 2011-12… was compared with the income of their parents in 1996-2000…. We focused on the probability that a child raised in the bottom fifth of the U.S. income distribution rose to the top fifth.
Today’s Must-Must-Read: David Wessel: Why Are Unions so Focused on Fighting Trade Deals?
…So with states passing right-to-work laws, Congress pressuring the National Labor Relations Board, the tax code rewarding big corporations that move overseas, funding for education, training and infrastructure under pressure, middle-income wages stagnating across the whole economy, why so much union energy devoted to fighting TPP?…
Rich Trumka… assigns a very large share–an improbably large share, in my view–of the blame for stagnant wages and inequality to recent trade agreements…. There is evidence… that globalization is part of the reason American workers aren’t doing better… by allowing more earning opportunities for those at the top and exposing ordinary workers to more competition, especially in manufacturing…. [And] Mr. Trumka isn’t alone in suggesting that much of what’s in TPP is aimed at shoring up intellectual-property and other protections for U.S. corporations. That’s good for the companies, but may not do much for their American workers…. Still, I find it hard to find an economic rationale for the intensity of the AFL-CIO’s fight against TPP….
Morning Must-Read: Charles Gaba: Dear Pete Sessions: “Bazillion” Is Not a Real Number Either
…If you just do simple multiplication, 12 million [insured individuals] into $108 billion, we are talking literally every single [Obamacare] recipient would be costing this government more than $5 million per person for their insurance. It’s staggering….$108 billion for 12 million people is immoral. It’s unconscionable. – Rep. Pete Sessions (R-Tex.), statement on the House floor, March 24, 2015….
For the record: Rep. Sessions is not a 3rd grader. He’s 60 years old. He attended (and presumably graduated from) Southwestern University. He was a marketing district manager for Southwestern Bell, and is now the Chair of the House Rules Committee of the United States House of Representatives…. Instead of ‘$108 billion’ Sessions meant ‘$95 billion’, and instead of ’12 million’ he meant ’23 million’.,,, The actual number Rep. Sessions should have used was ‘less than $5,000 per person’ as opposed to ‘more than $5 MILLION per person’ (off by a factor of 1,000x) or, if you believe his later ‘clarification’, ‘$60,000 per person’ (off by a factor of 12x)…. If the ACA really did cost ‘more than $5 million’ for every enrollee, that would be $60,000,000,000,000 ($60 Trillion), which I do admit would be a wee bit on the pricey side. On the other hand, I should thank Rep. Sessions for at least admitting that 12 million people have enrolled in private ACA exchange policies, since some of his Republican colleagues still seem to have a hard time believing that.
A new era of earnings-led consumption growth?
After the U.S. housing bubble burst in 2007, many economists and policymakers claimed that the United States could no longer depend upon credit growth to boost consumption and economic growth. Investment and earnings would have become the foundation for future increases in personal consumption. It seems that part of that recommendation may be coming true. Personal consumption appears to be now strongly linked to earnings growth, a relationship that could have important implications for the future pace and stability of economic growth.
Late last week, Bloomberg News reported on an analysis of consumption growth by Tom Porcelli, the chief U.S. economist for RBC Capital Markets. The analysis looked at the correlation between the growth in earnings, specifically total weekly payrolls, and consumption growth. Porcelli finds that correlation during the current economic expansion, from June 2009 to today, is 0.9, a very high correlation. Compare that to the correlation for the expansion from late 2001 to late 2007, which was just over 0.1. This weak relationship between consumption and earnings growth during this earlier period makes sense as this was when the housing bubble was inflating.
Porcelli’s results indicate that consumption and earnings growth are currently tightly linked. Looking at the growth in weekly payrolls over the past two expansions, the difference in the rate isn’t that large. For the expansion between November 2001 and December 2007, the growth rate in payrolls was 4.12 percent on an annual basis. For the most recent expansion, June 2009 to today, the average annual growth rate is 4.09 percent. Yet there’s a significant difference in the growth rate of consumption. For the previous expansion, the average annual growth rate in inflation-adjusted personal consumption expenditures, or PCE, was 2.8 percent. Yet, with roughly the same payroll growth, the average annual growth rate in PCE for this expansion now stands at 2.3 percent, a full half percentage point lower, though of course the current expansion has yet to run its full course.
A dig into the data shows that the decline in consumption powering economic growth is about the growth in the consumption of nondurable goods (food and clothing) and the consumption of services (healthcare and transportation). In the 2001-to-2007 expansion, consumption of nondurable goods grew at a 2.6 percent average annual rate and services grew by 2.5 percent. In the current expansion, the average rates are 1.9 percent and 1.8 percent, respectively. And as economists Atif Mian of Princeton University and Amir Sufi of the University of Chicago noted last year, nondurable and services PCE growth is historically weak during this business cycle.
Earnings growth over a recovery intuitively seems more connected to nondurable and services rather than durable goods. The reason: Durable goods (a car or a dishwasher) are often large essentials for a household whereas nondurable goods and services are more likely to be expenditures that are not critical for the maintenance of life. Households could hold back on these expenditures if earnings growth isn’t as strong.
Personal consumption is about 70 percent of the total U.S. economy, so understanding the changing determinants of consumption growth is critical. If consumption is more earnings-led and earnings growth picks up, then the result would be more sustainable and equitable growth. But if it doesn’t pick up then consumption growth may become permanently lower. So either consumption would become a lower share of total economic growth or total growth slow down. Any of the above scenarios would be a stark and important change for the U.S. economy.
Today’s Must-Must-Read: Robert Skidelsky: Messed-Up Macro
…After the financial crisis of 2008 erupted, we got the Great Recession instead. Governments managed to limit the damage by pumping huge amounts of money into the global economy and slashing interest rates to near zero. But, having cut off the downward slide of 2008-2009, they ran out of intellectual and political ammunition. Economic advisers assured their bosses that recovery would be rapid…. But then it stalled in 2010…. It is now pretty much agreed that fiscal tightening has cost developed economies 5-10 percentage points of GDP growth since 2010. All of that output and income has been permanently lost… [and] made the task of reducing budget deficits and national debt as a share of GDP much more difficult…. That should have ended the argument. But it did not…
Evening Must Read: Mark Thoma: The Attack of the Anti-Keynesians
…and… little guidance… [to] fiscal policy in particular. So we should not have been surprised when many people turned to a model that had been developed to address precisely these types of questions, the Keynesian model, for guidance. Was this guidance useful?… The insights and advice… turned out to be remarkably good…. Modern macroeconomic models were not up to the task when they were needed the most, and nobody should be faulted for turning to the ‘old fashioned’ Keynesian model… for guidance…
The Assumptions Behind the Federal Reserve’s Choice of 2% per Year Were Erroneous
A question I will never ask any Federal Reserve policymakers— not in public, not in private. They do not need their elbows jiggled in this way:
The decision by the Federal Reserve in the mid-1990s to settle on a 2% per year target inflation rate depended on three facts — or, rather, on three things that were presumed to be facts back in the mid-1990s:
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That the long run Phillips curve was vertical even with an inflation rate averaging 2% per year, so that there was no production or employment cost of such a target.
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That the safe real interest rate would be positive and significant, so that a 2% per year inflation target would not entail disturbingly low levels of nominal interest rates that might lead to instabilities in velocity.
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That shocks to the economy would be small, so that the Federal Reserve would never seek to compensate with an interest-rate reduction in the range of 5% or more.
We now know that all three of these were and are false.
The easiest way to fix this problem would be to revise the Federal Reserve Act — perhaps to add “healthy rate of nominal wage growth” to the list of Federal Reserve monetary policy objectives.
A Rant Against the Use of the Word “Bubble” in the Context of the Bond Market
I was reading Duncan Weldon’s very interesting “A Policy Driven Bond Bubble” (see also “Is There a Bubble in Fear” plus “A Monetary Policy Which Is Cheap But Not Easy”), and I found myself thinking:
We should careful when we call things “bubbles”.
When we call something a “bubble” we attach a number of meaning-tags to it. Here are three:
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Bubbles are collective irrationality.
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Bubbles pop.
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Owning bubbly assets entails large long- and fat-tailed risks.
Safe bond prices are certainly elevated — more than elevated: absurd. The Federal Reserve has squeezed the term premium by shrinking the supply of long-term bonds and put the underlying fundamental future short rate to which the term previous applied on a very low path.
But does holding bonds entail accepting large long- and fat-tailed risks? Only if you must sell your bonds in the future. If you have the option to hold them to maturity, your risks are bounded and very small. What you are complaining about is not risk, but rather lousy expected return. And even if you cannot hold them to maturity, the fact that others can hold them to maturity provides a pool of demand that limits how far bond prices can crash.
Must bond prices undergo a sharp drop as interest rates spike? No. It might happen — and it might not. But with a bubble you know there is going to be a crash. With a bubble, the people holding the asset at any moment know that its fundamental value does not match its price. They hope that they will be able to sell their position to a greater fool at a higher price. But nobody in a bubble who understands what is going on thinks holding the asset to maturity or for the long run will end in less than tears.
And are bond prices collective irrationality? Are the traders and investors who are holding bonds making a large collective mistake? I certainly believe most of them should shrink their bond positions and invest in diversified equities instead. But many have: that is why the Shiller stock price to average earnings over the last decade stands at 27.85 — a cyclically-adjusted earnings yield of 4%/year:
But if you are unwilling to accept the equity risk that you could lose 40% of your value in a year — as people did in 2008, 2001, 1974, 1945, 1937, 1929-1933, 1907, and 1904, and almost in 1970 and 1987 — should stock prices return next year to their long-term average earnings yields, your choices are limited. Cash and near-cash are not attractive to anyone save those unable to get the option to hold long Treasuries to maturity. What is “irrational” is not bond traders and investors, but rather the economy that has convinced the Federal Reserve that its current low-rates-forecast-forever policy path is the best it can do.
Thus I think clearer thought is obtained by eschewing applying the word “bubble” the bond market. Call them extremely richly-valued. Call them low return. Call them risky for those without the option to hold them to maturity. But if you have to use the word “bubble” apply it to other things.
I wouldn’t even say that the U.S. is currently in a monetary policy bubble. For that to be the case, it would have to be a small open economy borrowing heavily in foreign currency, or in some form of currency union with larger economic powers…