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September 28, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Alternative Definitions of the Business Cycle

Posted: 28 Sep 2010 01:08 AM PDT

More Bad News about Unemployment

Posted: 28 Sep 2010 12:42 AM PDT

Unemployment could continue rising through the first half of 2011:

Forecasting Growth over the Next Year with a Business Cycle Index, by David Lang and Kevin J. Lansing, FRBSF Economic Letter: The current economic recovery is proceeding at a tepid pace despite massive federal fiscal stimulus and extremely low interest rates. Forecasts derived from business cycle indicators produced by the Chicago and Philadelphia Federal Reserve Banks predict that real U.S. GDP growth through the first half of 2011 will remain at or below potential. If these forecasts prove accurate, then the historical relationship between real GDP growth and the labor market suggests that the unemployment rate could rise by as much as 0.5 percentage point during this period.
The National Bureau of Economic Research Business Cycle Dating Committee has determined that the recent recession ended in June 2009. Since then, the U.S. economy has recorded four consecutive quarters of positive real GDP growth. During this period, inventory accumulation by businesses accounted for more than half the growth, while real final sales of domestically produced goods and services grew only at an annual 1.1% rate on average. Due to the severity of the recession and the lackluster nature of the recovery so far, the level of real GDP at the end of the second quarter of 2010 was still 1.3% below the pre-recession peak reached more than 2½ years ago.
Recent weaker-than-expected economic data have raised concerns about the recovery's staying power. In a recent Economic Letter, Berge and Jorda (2010) estimate the probability of falling back into recession during the next two years at around 50%. While discussions in the media often focus on the likelihood of a "double dip," it is important to recognize that, even if the economy avoids another recession, future real GDP growth may not be strong enough to prevent the unemployment rate from rising. Standard macroeconomic models would predict an increase in the unemployment rate if real GDP growth over the next two to four quarters were to fall below the economy's potential growth rate, defined as the sum of the long-run trend growth rates of productivity and the labor force. The Congressional Budget Office (CBO 2010) estimates that the U.S. economy's potential annual growth rate over the next five years is 2.1%. Other estimates of potential growth are significantly higher. If real GDP growth were to fall below potential growth for a sustained period, then the unemployment rate would be expected to rise.
In this Economic Letter, we use two well-known business cycle indicators to help forecast real GDP growth two to four quarters ahead. According to our empirical forecasting models, real GDP growth will remain at or below estimates of potential growth through the first half of 2011, implying a significant risk of rising unemployment. ...[...continue...]...

One of the points I try to make in the post above this one is that a focus on alternatives to the NBER measure of the business cycle that give employment more weight could improve the policy response to unemployment problems.

links for 2010-09-27

Posted: 27 Sep 2010 11:02 PM PDT

Are America's Rich Falling Behind The Super-Rich?

Posted: 27 Sep 2010 05:29 PM PDT

As a follow-up to the post below this one, to the Todd Hendersons and Ben Steins out there, and with a hat tip to Barry Ritholtz, Tim Duy suggests:

"The Great Income Shift"

Posted: 27 Sep 2010 04:24 PM PDT

In case you need a reminder of how the distribution of income has changed in recent decades:

Enough Is Enough on Tax Cuts for Wealthy, by Chuck Marr, CBPP: In yesterday's New York Times, Richard Thaler ... neatly refuted the arguments for borrowing tens of billions of dollars each year to keep President Bush's tax cuts flowing to the most affluent 2 percent of people in the country. He then posed a central question: "whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living."
As I've noted before, over the last three decades a stunning shift in income has taken place in this country, from the middle class to those few at the very top of the income scale. Back in 1979, the middle 20 percent of Americans had more than twice as large a share of the nation's total after-tax income as the top 1 percent. But by 2007, the top 1 percent's slice of the economic pie had more than doubled and in fact exceeded the middle class's slice, which had shrunk.
This great income shift means the average middle-income American family had about $9,000 less after-tax income in 2007, and an average household in the top 1 percent had $741,000 more, than they would have had if the 1979 income distribution had remained. Here's how this looks in graph and table form:

Fully two-thirds of the income gains in the last economic expansion (2001-2007) flowed to just the top 1 percent. This is not a healthy sign for a society. As Professor Thaler urges, we need to decide whether we want to promote still-greater inequality (by extending the high-income tax cuts) or lean against this trend. Each year the average millionaire gets about $125,000 from the Bush tax cuts, according to the Urban-Brookings Tax Policy Center. Now seems to be a good time to say enough is enough.

Let me ask again: Is it possible for an outcome to be equitable when, as in recent decades, nearly all of the gains from growth accrue to one class?

If you want to know why people are so angry, you're looking at a big part of the reason.

"When it All Went Wrong"

Posted: 27 Sep 2010 01:09 PM PDT

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