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April 3, 2010

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links for 2010-04-02

Posted: 02 Apr 2010 11:03 PM PDT

The Volatility of Household Income

Posted: 02 Apr 2010 06:03 PM PDT

From The Income Rollercoaster: Rising Income Volatility and its Implications, by Karen Dynan at Brookings:

...Figure 1 shows the evolution of household income volatility over time.


As can be seen, the standard deviation of the percent change in household income trended up in the 1970s, stabilized a bit in the 1980s, but then turned up again after 1990. All told, household income volatility increased by about one-third between the late 1960s and the middle part of this decade.

The increase in volatility has largely resulted from an increase in the frequency of large household income changes. The solid red line in Figure 2 shows the fraction of households experiencing a drop in income of 50 percent or more, and the dashed blue line shows the same for increases in income.


The shaded areas represent recessions (as dated by the National Bureau of Economic Research); as expected, large income declines tend to go up during such periods, and large increases tend to go down. One can also see that the prevalence of large income increases was particularly high during the late 1990s when macroeconomic conditions were booming.

The figure shows a decided uptrend in the frequency of large drops in income, with about 7 percent of households experiencing declines in income of 50 percent or more in the late 1960s and 12 percent experiencing such drops in the middle part of the 2000s. The share of households seeing a 50 percent or more increase in income rose from about 8 percent to 10 percent over the period. ...

The conclusion:

Household income volatility appears to have trended significantly upward over the past several decades, with much of the rise tied to an increase in the frequency of very large changes in income. Volatility of earnings per hour has risen more sharply than the volatility of hours, suggesting an important involuntary component to the increase in income variability. Expanded access to credit has probably mitigated the degree to which income declines translate into consumption declines, but this development has posed other risks to household economic security, as have other trends in household financial opportunities.

It is too early to know what effects the current economic crisis will have on these trends. The high current degree of weakness in labor markets—together with the expectation that the economic recovery will proceed only slowly—implies that household income volatility may be unusually elevated for several years to come.

And as the crisis ends and we begin to return to normal, the pressures from the federal budget will make it very difficult to expand social insurance programs to cope with the increased uncertainty that households face. There will be many calls to reduce the size of government, and it will be a fight just to maintain the level of protection that these programs currently offer.

"Who Loves Intellectuals -- Democrats or Republicans?"

Posted: 02 Apr 2010 03:51 PM PDT

A National Affairs essay claims that the Republican Party make better use of intellectuals than Democrats:

Who loves intellectuals -- Democrats or Republicans?, by Carlos Lozada, Commentary, Washington Post: As far as perceptions go, a big difference between President Obama and his predecessor comes down to smarts: Obama is brainy, Bush is folksy. The stereotypes extend to the parties, with Ivy League egghead Democrats and tea partying small-town Republicans seeming to inhabit different planets.
But an intriguing National Affairs essay by the Hudson Institute's Tevi Troy shifts the focus, arguing that "Republican presidents actually use intellectuals and allow them to help define presidential agendas, while the Democrats often treat intellectuals as cultural ornaments." Troy is a veteran of the George W. Bush White House...
Democratic presidents, he writes, have a tortured relationship with big thinkers. John F. Kennedy relished his ivory-tower persona and brought in Arthur Schlesinger as an in-house intellectual. But Lyndon Johnson was "uneasy" with liberal intellectuals, Troy writes, while Jimmy Carter's effort to channel historian Christopher Lasch produced the disastrous "malaise" speech of 1979. Bill Clinton, by contrast, courted liberal thinkers, even installing political economist Robert Reich as labor secretary.
On the GOP side, Richard Nixon's top intellectual was disenchanted Democrat Daniel Patrick Moynihan, who put conservative thinkers and neocons on the White House radar -- a process that culminated under Reagan, when dozens of conservative intellectuals populated the White House. After George H.W. Bush's disinterest in intellectuals backfired when key conservatives backed Clinton in 1992, his son learned the lesson, establishing a White House office to connect to the world of ideas. ...
And Obama? He can't assume liberal thinkers will love him forever. Some of his moves -- on Guantanamo and the public option -- have already stoked discontent. ...

By the accounting in the article, which presidents courted academics?:

Kennedy - Yes
Johnson - No ("uneasy with intellectuals")
Carter - Yes (but it didn't work out)
Clinton - Yes
Obama - Yes

Nixon - Yes (but led by a disgruntled Democrat)
Reagan - yes
George H.W. Bush - No
Bush II - Yes (but see below)

How does that translate into this?

Republican presidents actually use intellectuals and allow them to help define presidential agendas, while the Democrats often treat intellectuals as cultural ornaments.

As far as Bush II is concerned, I would claim that it was the intellectuals who chose Bush, not the other way around (on the assumption, which appears correct in retrospect, that they could lead him around by the nose once he was elected). So there was a "cultural ornament" involved - but not for Democrats - it was the guy dressed in the cowboy suit.

I will stipulate that Republicans are tied much closer to the intellectual community than they are willing to admit. However, Kennedy, Clinton, and now Obama have used intellectual firepower every bit as effectively as Nixon, in the design of policy and otherwise, and certainly as effectively as Bush II. So I don't get this claim.

How do you see it?

Unemployment Rate Holds Steady at 9.7%

Posted: 02 Apr 2010 09:37 AM PDT

My take on the employment report (buttressed with graphs and quotes from Dean Baker):

Unemployment Rate Holds Steady at 9.7%

Like Dean, I wasn't very impressed with the report.

Update: David Altig:

Updating a calculation referenced in a speech by Atlanta Fed President Dennis Lockhart on Wednesday, at a pace of 162,000 jobs added per month and at the current labor force participation rate, unemployment this time next year would still be just north of 9 percent.

And it's unlikely that labor force participation will hold constant. Instead, it's likely to increase. If so, then the unemployment rate will be even higher.

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