What to do about income inequality?

The first step (of course) is to admit there is a problem.

Everybody knows higher taxes kill jobs. Really!

The graph below is an "inconvenient" fact for the claim in the title of this post.

Grading the GOP Presidential candidates on the budget

Stan Collender at the blog CaptialGainsandGames has an interesting piece (see here) where he grades the GOP Presidential Candidates their approach to the Federal budget.  Below are his grades:


Herman Cain:             Dropped the course
Jon Huntsman:          Incomplete: He just hasn't said much of anything on the budget
Mitt Romney:             D

Romney's says he will reduce spending to 20 percent of GDP by 2016, something that is likely to happen anyway if the economy picks up and current tax and spending laws stays in place. He's also talked about $500 billion in spending cuts without even hinting what they would be. He's also basing his estimates on a change in Medicare that is so unlikely to be adopted it has to be labeled fantasy.

Newt Gingrich:            F

This one is easy. According to the Tax Policy Center, Gingrich's tax plan would increase the deficit by $1.3 trillion in 2015 compared to what would occur under current law. To reduce the deficit, Gingrich relies on what he calls "deep" but completely unspecified spending cuts and higher economic growth.

Ron Paul                      F

This one is also easy. Paul says he wants to eliminate the income, estate and capital gains taxes. That would be fine if he also at least mentioned in passing that he'll also need to eliminate almost everything the federal government does to prevent the deficit and debt from rising. He doesn't.

Rick Perry                    F

Perry says he'll balance the federal budget by 2020, that is, by the end of his second term as president. In other words, without actually admitting it, Perry is saying that there will be seven years of federal deficits if he's elected. Perry also says he wants to cap overall federal spending at 18 percent of GDP without saying how he's going to get it to fall that far below the historical average of between 20 and 21 percent during a period when, because of the Baby Boomers retiring and higher interest on the national debt, it will be rising.

Michelle Bachmann   F

Bachmann doesn't have a deficit reduction plan unless you call refusing to raise the federal debt ceiling and increased Pentagon spending a way to reduce the deficit. Bachmann is committed to what she says will be "deep cuts in spending." She does not, of course, specify what they will be.

Rick Santorum           F

Santorum says he wants to cut $5 trillion in spending over five years. But other than ending federal spending on education, he doesn't say how. Santorum also doesn't say that $5 trillion would be a roughly 20 percent reduction in spending.

Top 10 absurd economic claims for 2011

Menzie Chinn over at Econbrowser (see here) has a "top 10" pick of the most absurd economic claims for 2011.  As the post states,

Here are my "ten best" (actually -- most hilariously deluded) excursions into the fantasy world from my postings to Econbrowser.  The inspirations range from Speaker Boehner's math to the Heritage Foundation's simulations (where have you gone, Bill Beach!).

It is an enlightening post.  Will  2012 produce better economic reasoning?  Well ....

New data on hourly costs in manufacturing

The Bureau of Labor Statistics has a new report (see here) on hourly compensation costs in manufacturing (2010).  Below is a summary graph:

Honestly, what does it take to dismiss the "Big Lie?"

Joe Nocera at the New York Times has a must read post (see here) about the continued false claim that Fannie Mae and Freddie Mac caused the Great Recession.  How often must a falsehood be exposed and discredited before people stop perpetuating it?  I don't know and it is very discouraging.  Fannie Mae and Freddie Mac are not my favorite organizations and they deserve plenty of criticism.  But to argue they "caused" the Great Depression is absurd.  Yet it gets repeated everyday.  Well, kudos for Mr. Nocera for taking on the task of dispelling the claim one more time.  In part he says (but go read the entire essay),


So this is how the Big Lie works. 

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings. 

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie. 

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point. 

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie. 

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

A year of bad ideas

Jeff Madrick has a good post on the "10 Worst Economic Ideas of 2011" (see here, it is worth reading in full).  What does he say they are?  Well,


1. Taxes should be more regressive.

2. Austerity works.

3. Export growth models are sustainable.

4. Fannie and Freddie did it.

5. Cutting Social Security benefits is a priority.

6. Inflation is just around the corner.

7. The Medicare eligibility age should be raised.

8. Competition between Medicare and private health insurance will reform the health care system and reduce costs.

9. Federal spending should be capped at 21 percent of GDP.

10. Balancing the budget should involve equal parts tax hikes and government spending cuts.

I don't remember another time when ideas that have been discredited (and often) have gone on to become so widely embraced by people (and, particularly, the Republican party).  Maybe 2012 will be better.

Graph that says much about the status of health care

A passage from Vaclav Havel

The original and most important sphere of activity, one that predetermines all the others, is simply an attempt to create and support the independent life of society as an articulated expression of living within the truth. In other words, serving truth consistently, purposefully, and articulately, and organizing this service. This is only natural, after all: if living within the truth is an elementary starting point for every attempt made by people to oppose the alienating pressure of the system, if it is the only meaningful basis of any independent act of political import, and if, ultimately, it is also the most intrinsic existential source of the "dissident" attitude, then it is difficult to imagine that even manifest "dissent" could have any other basis than the service of truth, the truthful life, and the attempt to make room for the genuine aims of life. 

Interesting data on work force participation

Over at the blog CalculatedRisk (see here) there is some interesting data on work force participation by age group (see graph below):

The author states that:

The participation rate is low for those in the '16 to 19' age group. The rate increases sharply for those in the '20 to 24' age group, and the rate is at its peak from 25 to 49 - and drops off a little for the '50 to 54' age group.

Median debt levels for ages 65 to 74

The Wall Street Journal has a disturbing post (see here) on the rise of median debt levels from 1992 to 2007 for people ages 65 to 74 (see graph below).

New revelations about the Fed's actions during the financial crisis

Over at Bloomberg News (see here) there is a very informative piece about heretofore unrevealed actions taken by the Federal Reserve to shore up the financial system during the Great Recession.  The information is raising many new questions and I suspect these questions will lead to more arguments.  However, one of the observations that shouldn't get lost is that the findings make clear just how dire the economic and financial situation was in 2008.  And this is an important point given that many still claim that "everyone" should have been allowed to fail (along with the other increasing popular - and in my review ridiculous - claim that the government should do nothing in such situations).

And along these lines, take a look at the profile of the two economists (Christopher Sims and Thomas Sargent) who recently won the Nobel prize that appears in today's New York Times (see here).  In particular - again, for those who appear completely ignorant of the history of economics (many of whom a running for president) - see the following quote from the piece:

Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentator say.

It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent.

The duty of protesters: be informed

Gregory Mankiw (see here) has a piece at the New York Times today that is worth a quick read.  He teaches economics at Harvard and has been an adviser to Republican administrations, though he is clearly a "mainstream" economist.  Several students walked out of his Economics 10 class in protest (supporting the Occupy Wall Street movement) and Professor Mankiw's piece is something of a response.  Fundamentally, he applauds their passion but laments their ignorance of basic economics.  His piece contains the following (cautionary) quote from John Maynard Keynes:

“The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.”

Some data on the impact of a job loss on earnings

Over at Macroblog (see here) John Robertson takes a look at some recent research on the impact of a job loss on job earnings (using data from the research of Princeton Professor Henry Farber).  He summarizes some of the data in the chart below (click to enlarge):

Mr. Robertson says,

My reading of this information is that the lower earnings of re-employed displaced workers don't appear to be contributing to the current sluggish aggregate income picture significantly more so than in the past. Instead we have to look at other factors, such as the continuing difficulty job losers have had finding a new job and especially a full-time job.
 

Restaurant performance index data

Over at CalculatedRisk (see here) they have the following chart (click to enlarge):

Restaurant spending is considered discretionary spending and, as such, is strongly impacted by the overall health of the economy.  Not much improvement seen here yet.

With Dr. Berwick's resignation, we incur another political loss

I suppose most of the people following the political fiasco regarding Dr. Donald Berwick, MD (Interim Administrator for the Centers for Medicaid and Medicare Services), weren't surprised that he chose to exit the stage rather than stay and fight with the 42 Senate Republicans that were hell bent on not letting the facts come between them and their ideologies.  John McDonough has a nice piece (see here) on this and the extent of our loss.  Some of what he says is given below.

When the history of American medicine since, say, 1910 (around the time, it is suggested, the chance that an encounter with a physician would help more than harm a patient, surpassed 50/50) is written, Berwick will be recognized as one of our most important and influential physicians. What has he done to deserve that?

Back in the 1980s, Berwick was a pediatrician at the Kenmore Center of the Harvard Community Health Plan in Boston, and in charge of "quality assurance" for the plan. His intellectual curiosity led him to wonder how non-medical parts of U.S. society addressed quality, a heretical notion in the snobby, clubby world of organized U.S. medicine.

In his search, Berwick stumbled onto a fast moving and worldwide intellectual revolution in industry and manufacturing. A key thought leader was another former heretic named W. Edwards Deming who taught the Japanese in the 1950s and the US in the 1970s and '80s that the path to economic success required a relentless focus on customer satisfaction and quality improvement, and that better quality -- doing the right thing and doing it right -- was a way to save money by eliminating rework. The term of art was "total quality management." 

Inspired by Dr. Deming's work, Dr. Berwick wrote a landmark article in 1989 about quality improvement in healthcare.  Those 42 Republicans saved us!!  We sure wouldn't want anyone running CMS that was focused on quality and the role of evidence in reforming healthcare.

Please!! Not Newt Gingrich

Like most people, I have been watching the Republican presidential candidates more to see who might survive than anything else.  But I have to make one comment, since this blog claims to respect the presentation of good data.  Newt Gingrich may be the most anti-evidence candidate of the bunch.  His basic approach has been:  if you don't like the data, then attack the analysts.  A fellow Republican had this to say about him recently regarding his tendency to attack the Congressional Budget Office - which is nonpartisan-  (see here):

In short, Mr. Gingrich’s unprovoked attack on the C.B.O. is part of a pattern. He disdains the expertise of anyone other than himself and is willing to undercut any institution that stands in his way. Unfortunately, we are still living with the consequences of his foolish actions as speaker.

High tech, jobs, and the future

Over at Business Insider (see here) there is a very interesting piece about Apple's new data center in North Carolina (see pic below).

It is high tech, state of the art, huge, and it only employs 50 people.  The author makes the following argument:

It is true that having more companies like Apple would certainly help the US.

But we would need a lot more companies like Apple to make a dent in our unemployment and inequality problems.

Why?

Because Apple also actually exemplifies some of the reasons why we have such huge unemployment and inequality problems:

• "Digital" businesses like Apple employ far fewer people (per profit) than traditional manufacturing businesses.
• Apple's 60,000+ jobs are not just in the US--they're spread around the world.
• Apple's extraordinary ~25% profit margin means that the benefits of its success accrue primarily to a relatively small group of (rich) shareholders rather than a broad base of (middle-class) employees.

We can always blame ....

Robert Shiller reminds us about ..... jobs

Robert Shiller (see here) has a very timely essay today that I hope many people read.  He addresses the lack of political will to do much of anything about the continuing jobs crisis.  Below is a part of his essay that should make us all pause:

As anger rises in today’s economy, I’m reminded of Thomas Jefferson’s words about the danger of “angry passions” arising between the North and South over the question of extending slavery to the Missouri territory. In an 1820 letter he wrote that “this momentous question, like a fire bell in the night, awakened and filled me with terror.” He went on to predict, from his observations of such rancor, the secession of the South that was to come 40 years later.

Our country is a much more stable and just society now than it was in 1820. Still, we should regard the current economic dispute as another fire bell in the night. It is important to recreate the sense of a just society, without anger — and an important step in that direction is to ensure that there are enough jobs.

Timothy Taylor on grade inflation

Timothy Taylor (an award winning economics professor) has a very interesting post on grade inflation (see full post here).  In part he says,

Like so many other bad habits, grade inflation is lots of fun until someone gets hurt. Students are happy with higher grades. Faculty are happy not quarreling with students about grades.

When I refer to someone getting hurt by grade inflation, I'm not talking about the sanctity of the academic grading process, which is a mildly farcical concept to begin with and at any rate too abstract for me. I'm also not referring to how it gets harder for law and business schools to sort out applicants when so many students have high grades. In the great list of social problems, the difficulties of law and B-school admissions offices don't rank very high.

To me, the real and practical problem of grade inflation is that it causes students to alter their choices, away from fields with tougher grading, like the sciences and economics, and toward fields with easier grading. 

As an economist, Mr. Taylor gets to one of the more important issues for society at large.  In an economy built around the fundamental issues of "supply and demand," grade inflation ends up distorting the choice of a vocation (relative to the needs of the economy).  Mr. Taylor is adding his voice to several recent articles discussing data that shows students are increasingly choosing "the path of least resistance" in college.  Mr. Taylor concludes his piece as follows:

In short, grade inflation in the humanities has been contributing to college students moving away from science, technology, engineering, and math fields, as well as economics, for the last half century. It's time for the pendulum to start swinging back. A gentle starting point would be to making the distribution of grades by institution and by academic department (or for small departments, perhaps grouping a few departments together) publicly available, and perhaps even to add this information to student transcripts. If that answer isn't institutionally acceptable, I'm open to alternatives.

Interesting data on "percent born in state of residence"

Catherine Rampell over at Economix (see here) has some interesting data from the Census Bureau regarding the "percent born in state of residence by state" (see below).

According to the post, "The share of Americans who move their homes in a year has reached a record low..."

Data on spendng and earnings

Jared Bernstein (see here) has an interesting graph from Marketwatch showing spending and earnings growth (see below).  Bernstein says:

Confidence remains low but at least in some surveys is climbing off the bottom.  Still, it’s shaky and could head south again if things worsen.  Retail sales have actually been pretty steady, but there’s a disconnect, as the figure below reveals, between, earnings and sales growth.  Hmmm…spending out of savings when earnings are weak…where have I seen that before?

Interesting data on earnings and unemployment by college major

The Wall Street Journal has some very interesting data (see here) on annual earnings and unemployment by college undergraduate major.  It is worth a look.

The elections are over; now what Mississippi

So the elections in Mississippi yesterday contained some surprises.  Now what?

First, Governor-elect Bryant, how about rethinking your priorities for the state?  Too much of your acceptance speech sounded like the same old partisan cliches (as if you are working for some national Republican campaign).  Let's concentrate on Mississippi.  And you could do worse than start by looking at the following data (from John McDonough's blog, see here).  The first graph is from the Commonwealth Fund and it clearly shows an increase in employer health care premiums from 2003 to 2009.  Note that Mississippi is in the "highest percentage of Median Household Income" group.

The second graph is from research that Mr. McDonough has access to from the Harvard School of Public Health.  The graph compares the State uninsurance Rate for 2010 (vertical axis) with "Family Premiums as a percentage of Median Income, 2009."  Yes, that is Mississippi way over there on the right of the graph.

The relationship isn't perfect and there is a lot left unexplained, but in general the ability to pay makes a big difference.  So, Governor-elect, you want to set an agenda for the state:  you can begin by taking seriously the growing impact of health care costs on the economic success of Mississippi families.  You don't like "Obamacare"?  Fine.  Tell us what should be done and show us the evidence that it will make things better.  Because one thing is for sure:  people in Mississippi are going to get sick and it is isn't getting any cheaper to treat them.  If you think there is something more important and relevant to the working families of Mississippi (of all income levels), I'm all ears.

Peter Orzag weighs in on the debate over a college degree

Yesterday at Bloomberg (see here) Peter Orzag made the following comments:

The effects of globalization are already moving up the wage scale, though, and that trend will likely continue. As Alan Blinder of Princeton University trenchantly noted in 2006, “Many people blithely assume that the critical labor-market distinction is, and will remain, between highly educated (or highly skilled) people and less-educated (or less-skilled) people -- doctors versus call-center operators, for example.” Instead, the crucial distinction is between those tasks that are easily digitized (and thus subject to substantial competition from workers abroad) and those that are not. 

As with most prediction, we tend to begin from the past.  If economists like Orzag and Blinder are correct (and I'm pretty convinced they are), the rules of the past are not going to be good predictors in this case.  Orzag goes on in the piece to name three serious challenges facing college-age Americans.

• "a college degree by itself will be less likely to guarantee a high wage"
• the evidence is that there is declining state support for public higher education which drives higher tuition
• college graduates are entering a labor market with a "higher-than-usual unemployment rate"

Some data on tax subsidies

One of the odd developments in the continuing saga over taxes, the debt, etc. is the argument made by some that the "middle class" and the "upper class" aren't also benefiting (rather largely in come cases) from U. S. tax policy.  Take a look at the graph below from Suzanne Mettler (see here).  It is revealing.

CBO data on income inequality

The CBO (see here) published a report recently on income inequality that deserves a read.  One of the key graphs is shown below (click to enlarge).

There is an entire "cottage industry" of people who deny that income disparity has grown at all.  What???  Econbrowser (see here) summarizes as follows (see the graph below).

What is of most interest is (i) real after-tax income of the top 1 percentile has risen about 275%, and (ii) the pre-transfers/pre-tax income share of the top 1% has increased most profoundly.

Robert Reich on "the seven biggest economic lies"

Robert Reich (see here) gets it about right in my opinion.

1. Tax cuts for the rich trickle down to everyone else. Baloney. Ronald Reagan and George W. Bush both sliced taxes on the rich and what happened? Most Americans’ wages (measured by the real median wage) began flattening under Reagan and have dropped since George W. Bush. Trickle-down economics is a cruel joke.

 2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)

 3. Shrinking government generates more jobs. Wrong again. It means fewer government workers – everyone from teachers, fire fighters, police officers, and social workers at the state and local levels to safety inspectors and military personnel at the federal. And fewer government contractors, who would employ fewer private-sector workers. According to Moody’s economist Mark Zandi (a campaign advisor to John McCain), the $61 billion in spending cuts proposed by the House GOP will cost the economy 700,000 jobs this year and next.

 4. Cutting the budget deficit now is more important than boosting the economy. Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.

 5. Medicare and Medicaid are the major drivers of budget deficits. Wrong. Medicare and Medicaid spending is rising quickly, to be sure. But that’s because the nation’s health-care costs are rising so fast. One of the best ways of slowing these costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to reduce costs, and to move from a fee-for-service system to a fee-for-healthy outcomes system. And since Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone.

 6. Social Security is a Ponzi scheme. Don’t believe it. Social Security is solvent for the next 26 years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. That ceiling is now $106,800. 

 7. It’s unfair that lower-income Americans don’t pay income tax. Wrong. There’s nothing unfair about it. Lower-income Americans pay out a larger share of their paychecks in payroll taxes, sales taxes, user fees, and tolls than everyone else.

Why things don't change

In terms of the political organization of businesses, large publically traded companies most closely resemble rigged election autocracies. There are typically millions of people-shareholders-with a nominal say in the choice of chief executive. But in reality the decision to retain a leader comes down to the choices of senior executives, board members and possibly a few large institutional investors.  No executive lasts long if he does not keep this small group happy, which is why such insiders receive large bonuses and rewards even as the organization fails. Investing to promote an increase in a stock’s price and paying large dividends might be really good for shareholders and the economy as a whole, but generally these groups are not the political threat to the corporate leadership. So, as in dictatorship, insiders prosper at the expense of the broader community. This will not change until publicly traded companies alter their governance.

Bruce Bueno de Mesquita and Alastair Smith, authors of The Dictator’s Handbook

Paul Krugman on the economic "fantasy" of the modern GOP

I don't always agree with Krugman, but he seems right on target this time (see here).

The Great Recession should have been a huge wake-up call. Nothing like this was supposed to be possible in the modern world. Everyone, and I mean everyone, should be engaged in serious soul-searching, asking how much of what he or she thought was true actually isn’t.

But the G.O.P. has responded to the crisis not by rethinking its dogma but by adopting an even cruder version of that dogma, becoming a caricature of itself. During the debate, the hosts played a clip of Ronald Reagan calling for increased revenue; today, no politician hoping to get anywhere in Reagan’s party would dare say such a thing.

Another first: Median Monthly Mortgage vs Median Rental Cost

Catherine Rampell over at the New York Times Economix blog (see here) has a graph from the group at Capital Economics which reports an interesting finding:  "For the first time in three decades, the median monthly mortgage payment is about the same as the median rental payment:"

Data on job openings

CalculatedRisk (see here) has an update on the JOLTs report (click to enlarge).

CalculatedRisk says:

Notice that hires (dark blue) and total separations (red and blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

In general job openings (yellow) has been trending up, and are up about 7% year-over-year compared to August 2010. Layoffs and discharges are down about 10% year-over-year.

Nationwide look at sales taxes

Scott Drenkard over at the Tax Foundation (see here) has a nice map showing the sales tax rates for the U. S. (see graph below, click to enlarge).

Are we in the midst of a structual change in employment patterns?

Dave Altig at the Federal Reserve Bank of Atlanta (see here) has a very interest graph posted. (see below, click to enlarge). "The following chart shows pre- and postrecession, cross-sector average monthly changes in payroll employment, broadly defined according to U.S. Bureau of Labor Statistics' classifications. For reference, the size of the circles in the chart reflect the relative prerecession size of the sector in terms of employment."  

He states:

In general, the pattern of circles is such that those sectors with relatively high employment changes prerecession are those that have exhibited relatively high changes during the recovery. In other words, we have not yet seen a widespread reshuffling of cross-sectoral employment trends outside of the recession.

What accounts for the number of "strange" claims about economics?

This question of this post has puzzled me for some time now.  That is, I have wondered how it can be the case that people (some of them well-regarded) can make such "strange" claims about economics.  By strange I mean claims that are absent any empirical support.  What do I include in this list?

• Claims that the federal government can do nothing to mitigate an economic downturn.
• Claims that there is no such thing as a multiplier effect.
• Claims that modern Keynesian models provide no guidance to the current economic challenges.
• Claims that simply cutting taxes is a solution to the downturn in employment.
• Claims that "austerity" measures will actually end up being expansionary.
• Claims that we need to return to the gold standard.

You get the idea.  Presently, the most vocal peddlers of these claims are often to be found among the current crop of GOP presidential candidates, but there are plenty of non-Republicans to pick from as well. Well, Kevin O'Rourke has a post (see here) that might just serve to provide an explanation.  He says,

One lesson is that it is one thing to play counter-intuitive intellectual parlour games in order to get tenure at a fancy university, but another thing entirely to say something about the real world. For that you need a little common sense.

Another lesson is that economists need at least some training in economic history. No-one with the slightest feeling for historical reality could believe that the Great Depression was due to supply side forces, for example. I observe that Krugman, along with such luminaries as Maurice Obstfeld and Ken Rogoff, did his graduate work in MIT, and I surmise (without having any inside knowledge on the matter) that all three were exposed to Charlie Kindleberger and Peter Temin. They are all distinguished theorists, but also have a historical sensitivity, and this makes them better economists — if your definition of a good economist includes the ability to say sensible things about our very messy real world.

I suppose I should include "attacks on Ben Bernanke and the Federal Reserve" in the list as well.  Matthew O'Brien at The New Republic (see here) calls this line of attack (and some of the others) the result of intellectual Dark Ages.  He says,


It is not clear if this intellectual Dark Age will pass. Bernanke has become such a persona non grata in Republican circles that it is easy to forget he is a Republican. Among these competing theories for Republican Fed-bashing, the scariest, of course, is that the attacks are not just cynical, but represent genuine belief. It’s enough to make a liberal long for Milton Friedman.

In some ways, this all makes me think about the famous article by Ron Suskind (who is in trouble with the White House again - different White House this time) in the New York Times magazine in which he recounts a meeting with a Bush aide after he published a piece they didn't like (see here).

In the summer of 2002, after I had written an article in Esquire that the White House didn't like about Bush's former communications director, Karen Hughes, I had a meeting with a senior adviser to Bush. He expressed the White House's displeasure, and then he told me something that at the time I didn't fully comprehend -- but which I now believe gets to the very heart of the Bush presidency. 

The aide said that guys like me were ''in what we call the reality-based community,'' which he defined as people who ''believe that solutions emerge from your judicious study of discernible reality.'' I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ''That's not the way the world really works anymore,'' he continued. ''We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors . . . and you, all of you, will be left to just study what we do.''

Maybe I'm just longing for political types to at least take a vacation back in the "reality-based" world.

Technology and the Great Recession

Kathleen Madigan (see here) has a piece at the Wall Street Journal about the increasing use of "machines" and the continuing slowdown in hiring.  The pieced contains the following graph (click to enlarge).

In the Operations Management course that I teach we look at the role of technology (and its evolution).  There is a school of thought that argues that increased replacement of labor by technology accounts for much of the "hollowing out" of jobs.  That is, they argue that reducing the need for "skilled" labor is one of the legacies and continuing pursuits of "scientific management."  Technology, of course, has also made possible many improvements in work and productivity.  But there is another side that gets too little consideration and one doesn't have to be a Luddite to find it troubling.

The piece also contains the following statement:

Businesses’ preference for equipment — while understandable from a cost perspective — is also a big reason why policymakers are stymied to find ways to ignite job creation.

Economic consequences of the Iraq/Afghanistan wars

Menzie Chin over at Econbrowser (see here) helps us "see" the real impact (see graph below, click to enlarge).

The graph is "cumulative real direct costs in constant 2010 dollars."  As the analysis states:

By the way, the macro challenge posed by the unfunded war (combined with tax cuts and a new, unfunded, Medicare Part D mandate) was not unforeseen.

Decade tough on incomes for males

Mike Mandel (see here) has looked at the new data coming out and with the help of the Progressive Policy Institute has a graph that tells a disappointing story (see below, click to enlarge).

Data on property taxes

Over at the Tax Foundation (see here) they have a very interesting map of the growth of property taxes by state (see below, click to enlarge).

Nick Kasprak of the Tax Foundation says,

Today's Monday Map looks at the growth of property taxes between 2009 and 2010. The basic metric we use to judge property tax levels is the median real estate tax divided by the median home value. This figure more than doubled in Louisiana, rising over 140% (though it should be said that Louisiana still ranked lowest overall in 2009, and only jumped to 3rd lowest for 2010.) North Dakota and Indiana are the only two states that saw a decrease.

I need to think about this measure some (median real estate tax divided by median home value).  As you can see, using this metric Mississippi had the second highest percentage increase from 2009 to 2010.

There are pensions and then their are pensions for state legislators

USA Today has an interview with Cardozo Law School Professor Edward A. Zelinsky (see here) regarding State pensions and the way they are calculated.  Mr. Zelinsky has done considerable work in this area and he finds many things "offensive" about the way pensions are managed.  One of these offensive items is that many states calculate the pensions for State Legislators (wait for it.....) differently than they do for everyone else in the pension plan (always, of course, in a way that increases the future pension benefit).  Below is a graph from the interview (click to enlarge) showing which indicates which states have "special" retirement laws (the darker green the state, the more special laws are in effect).  And, yes, Mississippi is one.  The full article (read it here) contains this sentence: Mississippi legislators get two pensions that on average add up to 165% of their salary.

Grading the statements of the candidates

The blog 538 (see here) points us to PolitiFact's grading of statements by the Republican contenders for president (see graph below, click to enlarge).

Micah Cohen at 538 says:

As you can see, some candidates have fared better than others. Over 60 percent of Representative Michele Bachmann’s statements were ruled either False (“The statement is not accurate”) or Pants on Fire (“The statement is not accurate and makes a ridiculous claim). Herman Cain and former Senator Rick Santorum didn’t fare any better, although both have not had that many grades given to them.

If he were alive, would conservatives listen to Friedman?

Bruce Bartlett has an informative piece over at the Fiscal Times (see here) in which he is as perplexed as anybody about the "Fed bashing" that is all too common among the Republican candidates for president.  He points us to a 1997 piece that Milton Friedman wrote for the Wall Street Journal regarding Japan's similar recession.  Professor Friedman said:

“The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money…. Defenders of the Bank of Japan will say, ‘How? The Bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?’ The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money.”

I confess that simply do not understand some of the statements about the Fed from the likes of Rick Perry and Ron Paul; moreover, it is disappointing that people take their statements seriously.  Milton Friedman has always been something of an economic hero to Republicans.  I can't believe he would happy with the current crop of leaders in the GOP.

New data on rising student loan debt

Over at the Atlantic (see here) Daniel Indiviglio has a good piece on the student loan issue.  The piece has the following graph (see below, click to enlarge).  He says,

The chart above is striking for another reason. See that blue line for all other debt but student loans? This wasn't just any average period in history for household debt. This period included the inflation of a housing bubble so gigantic that it caused the financial sector to collapse and led to the worst recession since the Great Depression. But that other debt growth? It's dwarfed by student loan growth.

American spending on debt service decreases

Justin Lahart over at Real Time Economics (see here) has an update on the after-tax amounts Americans are spending on debt service (see graph below, click to enlarge).

Data on bank failures

The blog Calculated Risk (see here) has an update on bank failures for this recession (see graph below, click to enlarge).

The "Great Tax Divide"

The New York Times (see here) has the following interesting graph.

States and the role of higher ed

The Wall Street Journal (see here) has this data (click to enlarge) from the Bureau of the Census.

New data on student loan defaults

The Department of Education released the following today (see here):

The U.S. Department of Education today released the official FY 2009 national student loan cohort default rate, which has risen to 8.8 percent, up from 7.0 percent in FY 2008. The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.

Over at the Huffington Post (see here) Chris Kirkham has the following graph (click to enlarge).

This is even more troubling when you take into account the data on employment for people with a college degree.  The graph below (click to enlarge) is from the blog Rortybomb (see here).

A little statistics humor

Thanks to Austin Frakt (see here) for pointing me to this bit of statistical humor.

Can manufacturing recover?

Louis Uchitelle over at the New York Times (see here) as a piece today about the extent to which manufacturing just isn't "on the radar."  He has the following graph (see below, click to enlarge).

He says:

A tipping point may already have been reached. Manufacturing’s contribution to gross domestic product — roughly equivalent to national income — has declined to just 11.7 percent last year from as much as 28 percent in the 1950s, according to the Bureau of Economic Analysis. In this century, the 20-percent-or-more club draws its members mainly from Asia and Europe.

I'm with Allan Sloan

Over at Fortune (see here), Alan Sloan writes:  What the hell is going on?  Forgive the shouting, but I'm with Mr. Sloan.  He continues:

What's ailing us? It's not just unemployment. It's not just Europe's debt woes. And, no, it's not Wall Street this time. It's the takeover of the economic debate by fanatics who are up to no good. Fix that -- and maybe you fix the economy.

His piece (yes, a bit of rant, but maybe it is time for one) includes the following graph (click to enlarge).

He doesn't hold back:

If I sound angry, it's because I am. Think of me as an angry moderate who's finally fed up with the lunacy and incompetence of our alleged national leaders -- and with people stirring up trouble from which they hope to benefit politically or financially. Some policies and statements you hear from Tea Party types about the economy and the debt markets are utterly insane. Any competent economics instructor would give you an F if you asserted the same sort of nonsense on an exam.

His piece is worth reading; that is, unless you have become so ideological that you no longer think the data matters.

Data on new business establishments

The Federal Reserve Bank of Atlanta has some very interesting data on the number and size of new business establishments (see here).  The graph below pretty much tells the story (click to enlarge).  The data show that "Not only has the number of new establishments declined, but the average size of new establishments has also tended to decline over time."

John Robertson (research department at the Atlanta Fed) says:

If small businesses, or more specifically new small businesses, are an engine of job growth in the United States, that particular engine has been getting less powerful. Between March 2009 and March 2010, new establishments generated 1 million fewer jobs than over the period from 2005 to 2007.

Wages, the recession, and college grads

The Economic Policy Institute (see here) has a graph (see below, click to enlarge) that "tracks the average inflation-adjusted hourly wage for young college graduates with no advanced degree from 1979 to 2010."

Not good news as students head back to college.

Will our elected officials get to work on jobs???

Jared Bernstein (see here) has the graph of the day (click to enlarge).  The data is from the Bureau of Labor Statistics, Median Length of Unemployment since 1967.

Want free checking? Stay away from big banks.

Felix Salmon has a piece today (see here) about the extent to which big banks have forgone free checking accounts (see graph below, click to enlarge).

He says:

But America’s biggest banks, behaving in a pretty cartel-like manner, have nearly all abolished it in unison. Two years ago, 96% of them had free checking; now, only 35% do.

New data on Case-Shiller

The June 2011 data for the Case-Shiller Home Price Index is out (see below).  See here.