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July 10, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

"Rethinking the Geography of American Poverty"

Posted: 10 Jul 2010 01:30 AM PDT

The location of poverty is shifting:

Rethinking the geography of American poverty, by Steven Yaccino, University of Chicago News: For decades, suburban living has been synonymous with America's upper middle class, a stereotype that emerged from the "Leave it to Beaver" era and morphed into today's gated communities, mega-malls, and million-dollar mansions. But even before the recession, Elizabeth Kneebone says that idyllic American Dream was only one side of the suburban coin.
"People have this idea that poverty is this ultra-urban or ultra-rural phenomenon," says Kneebone, a senior research analyst at the Brookings Institution's Metropolitan Policy Program. "They think of inner cities or Appalachia, but in reality American poverty is increasingly suburban."
Kneebone..., citing a paper she published earlier this year... describes how major metropolitan suburbs saw their poor populations increase by 25 percent over the last decade. That's almost five times more than America's largest cities, making them the largest and fastest-growing poverty demographic area in the country. By 2008, large American suburbs were home to 1.5 million more poor people than their primary cities and housed almost a third of the entire nation's poor...
Since post-WWII suburbanization, millions of people have been flocking to the fringe of metro areas. More recently, that trend also has brought an influx of low-income Americans searching for affordable housing, jobs, and schools. ...
While the trend predates the recent downturn, Kneebone attributes part of recent poverty increases to large employment declines in suburbanized industries like real estate, retail, construction, and manufacturing. The economic fallout, she says, could carry on well into recovery, posing new policy challenges to suburban governments that are not used to such high demand for safety net services.
Given the added stress on these systems and limited capacity, Kneebone has been urging policy-makers to ... start crafting effective solutions before things get worse. "If you have an outdated understanding of where poverty is in the country or where the poor populations live, it's hard to shape an effective response," she says. ...

links for 2010-07-09

Posted: 09 Jul 2010 11:01 PM PDT

How Close to Deflation are We?

Posted: 09 Jul 2010 11:03 AM PDT

Mike Bryan of the Atlanta Fed:

How close to deflation are we? Perhaps just a little closer than you thought, macroblog: Since last October, the consumer price index (CPI) has gone up an annualized 0.7 percent. On an ex-food and energy basis, the number is a little lower, at 0.5 percent. And the Cleveland Fed's trimmed-mean and median CPIs, at 0.7 percent and 0.2 percent, respectively, also put the recent trend in consumer prices in pretty low territory.
And this is before we take into account any potential mismeasurement, or "bias," in the construction of the CPI.
How big is the CPI's bias? Well, in 1996, the Social Security Administration commissioned a study on the accuracy of the CPI as a measure of the cost of living. This so-called "Boskin Commission Report" said the CPI was overstated by about 1.1 percentage points per year. The commission identified several sources of potential bias, but about half of the 1.1 percentage points resulted from new products and quality changes that were slow or otherwise imperfectly introduced into the price statistic.
Since that time, the Bureau of Labor Statistics has initiated a number of methodological changes that have reduced the CPI's mismeasurement bias. In a 2001 paper, Federal Reserve Board economists David Lebow and Jeremy Rudd put the CPI bias at only about 0.6 percentage points. And again, of this amount, the big share of the bias (about 0.4 percentage points) resulted from the imperfect accounting of new and improved goods.
Now, in an article (available to all in its working paper version) appearing in the latest issue of the American Economic Review, Christian Broda and David Weinstein say the earlier estimates of the new goods/quality bias may be a bit understated. The authors examine prices from the AC Nielsen Homescan database and conclude that between 1996 and 2003, new and improved goods biased the CPI, on average, by about 0.8 percentage points per year. If this estimate is accurate, consumer price increases since last October would actually be around zero, or even slightly negative, once we account for the mismeasurement of the CPI caused by new and improved goods.

But (oh, you just knew there was going to be a "but" in here, right?) the authors also point out that, because new goods are introduced procyclically, this bias tends to be larger during expansions and smaller during recessions. In other words, given the severity of the recession and the modest pace of the recovery, there may not be a whole lot of innovation going on right now in consumer goods. This is a bad thing for consumers, of course, but it would be a good thing for the accuracy of the CPI.

Given this and other indications of the economy's weakness, should monetary and fiscal policymakers do more? I think they should, but key policymakers don't share that view. In fact some say that despite recent data indicating trouble may be ahead, the recovery is proceeding normally and doesn't need any further help. Here's Richmond Fed President Jeffrey Lacker:

The recent spate of weaker economic data doesn't mean the U.S. recovery is faltering, and the Federal Reserve continues to get closer to the time when it will need to raise interest rates... Lacker believes, like many other Fed officials, that the economy doesn't yet need fresh support from the Fed. He put very low odds the Fed will come back into the market to buy mortgages, saying "I don't think this is the time to shift gears again" and "we are a long way a ways from needing to think about starting up asset purchases again."

What's he afraid of? Inflation?

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