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October 6, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Unemployment and Underemployment by Income

Posted: 06 Oct 2010 02:00 AM PDT

Menzie Chinn looks at unemployment by income group: 

The Incidence of Unemployment and Underemployment, by Income, by Menzie Chinn: As we ponder the plight of the over-$250K household income group (see the poignant story here), I think it worthwhile to examine the unemployment and underemployment rates for lower-income households. In researching statistics for our forthcoming book, Lost Decades, Jeff Frieden and I stumbled upon this study by Andrew Sum and Ishwar Khatiwada, with Sheila Palma... They characterized the mid-2010 employment situation as "A Truly Great Depression Among the Nation's Low Income Workers Amidst Full Employment Among the Most Affluent".
We asked the authors for an update of their results, and they kindly obliged. Below, we present a graph of unemployment and underemployment rates, for the January - August 2010 period, conditional on household income in 2008.


Figure 1: Unemployment rate (blue) and underemployment rate (red), for January-August 2010, based on household income in fourth quarter of 2008. Blue dashed line is average unemployment rate for entire sample; purple dashed line is average unemployment plus underemployment ratio for entire sample. Source: Calculations based on estimates provided by Andrew Sum and Joseph McLaughlin.

"Credit for the Recovery"

Posted: 06 Oct 2010 01:59 AM PDT

Daniel Gross:

Credit for the Recovery, by Daniel Gross, Commentary, NY Times: Every time the United States suffers a recession, trendspotters hasten to identify signs of frugality, extol the rediscovery of thrift and find evidence that Americans are finally (finally!) kicking their demon debt habit. ... Americans, we are told, have rediscovered their inner skinflint. Indeed, the savings rate, which fell into negative territory in 2005 at the height of the boom, bounced back strongly. ...
In fact, though,... some measures of consumer debt are starting to rise again and the easy-money, no-money-down culture still prevails in crucial sectors.
Oh, and a look at the data suggests that the decline in personal debt is driven less by Americans giving up on credit cards than on credit card issuers giving up on Americans., a credit-card industry site, crunched data ... and found that ... from January 2009 through June 2010, American lenders simply wrote off $124.1 billion in credit card balances as uncollectable. That accounts for nearly the entire $134 billion decline in revolving credit balances outstanding in the same period. ... A similar dynamic may be taking place in the much larger housing-debt market. Mortgage debt has fallen for nine straight quarters... But ... most of this decline can likely be ascribed to lenders writing off ... loans...
Meanwhile, as the economy slowly recovers, there are signs that Americans are rediscovering their free-spending ways. Total consumer credit ... has stabilized, and it rose in both June and July. It's back to where it was in the second quarter of 2009. Collectively, we don't seem to have run our credit cards through shredders. ...
And, believe it or not, that's a good thing. The economic expansion ... was initially powered by government stimulus and business investment. But for this recovery to mature, broaden and persist, the greatest economic force known to mankind — the American consumer — has to get back in the game. ...
John Maynard Keynes wrote of the paradox of thrift — if everyone saves, everyone becomes poorer, because demand for goods and services will fall. Here's another paradox: Running up consumer debt may be a moral failure and a recipe for long-term damnation, but it also contains the roots of our short-term salvation.

If the change in credit is decomposed into voluntary changes and involuntary changes, I wonder how the proportions have changed over time, especially recently? (By involuntary credit, I means changes driven by unexpected events, or forced by changes in economic circumstances, e.g. a car breaks down and there's no choice but to use a credit card to get it fixed, a recession hits causing a household member losing their job, and credit is used to fill the gap when money runs short each month, etc. I mostly have in mind the changes forced by the recession.)

There's also a question about the desirability of returning to a consumer debt fueled economy, and there's a question about the direction of causation as well. Does credit cause the expansion in GDP, or does the expansion cause the increase in the use of (voluntary) credit? I'm not sure what the data say on the causality question. Anyone know?

"The Future of Fannie and Freddie"

Posted: 06 Oct 2010 01:59 AM PDT

Edward Glaeser says Fannie and Freddie should become public companies:

The Future of Freddie and Fannie, by Edward L. Glaeser: In the past, Fannie Mae and Freddie Mac operated as profit-making entities backed by an implicit government guarantee. That toxic combination always seemed designed to lose billions of taxpayer dollars, and that is exactly what happened.
Looking forward, the best option is to replace them with an entirely public entity that enables securitization by guaranteeing 30-year fixed-rate mortgages and that charges a high enough premium to stay solvent. We then should hope that private competitors will eventually put the public entity out of business. ...
The free-market friends of privatizing those entities envision a bold new world where the government no longer stands behind their debt. But if the last three years have taught us anything, it is that the government is not going to sit by and let a major part of the financial system fail.
So ... Fannie-Freddie ... will be bailed out. If the government is going to bear the costs of any future catastrophe, then it might as well ... ensure that the entity is as prudent as possible. Such prudence is far more compatible with a slow-moving public bureaucracy than with a nimble, profit-seeking private company.
The case for keeping Freddie and Fannie public reflects an even deeper problem: wealthy, powerful private companies that are deemed to have public missions find it disturbingly easy to subvert the political process. A century ago, progressives supported public ownership of streetcar lines and utilities because they believed that the owners of those companies had far too much power over local governments. ... Public ownership was seen as a way of limiting the corrupting influence of private money on local politics.
Before the crash, the political clout of Freddie Mac and Fannie Mae was legendary. If they are reformed as private entities, that influence will re-emerge and any attempt to keep them in check will fail. It is far safer to keep them profitless and public. ...
A purely public entity that charges a serious insurance fee would ensure that Americans can still get mortgages. ... Over time, we can then evolve to a healthier model...

I don't have much to add. I agree that a privatized Fannie and Freddie will be bailed out in a crisis, so they have insurance already, implicitly at least. If the companies are made public, the insurance is explicit, and an insurance fee plus regulation can offset the incentive to take on too much risk that the insurance brings about. As for the public versus private question, if there are large losses and the private insurance is insufficient to cover them, the government will have to step in anyway (as it does in natural disasters when private insurance can't cover the losses). Also, the private insurance companies would need to be large making the regulatory capture argument given above persuasive. So I'm not sure the private sector option is viable.

links for 2010-10-05

Posted: 05 Oct 2010 11:02 PM PDT

Where are Young Grads Finding Jobs?

Posted: 05 Oct 2010 12:45 PM PDT

A between classes quickie (young here is defined as 25-34): 

Where Young College Grads Are Finding Jobs: Government, by Michael Mandel: ...Government has been the main hirer of young college grads over the past year.  And why not? Government jobs are safer, they pay well, and have better benefits than the private sector.  The next biggest hirer of young college grads is the broad category entitled professional and technical services, which includes such  industries as law, accounting, computer systems design, and management consulting.  These industries as a whole have not been expanding, or expanding only slow–but they have been shifting towards better-educated workers.
Then comes the distressing category: Hotel and restaurants.  We hear anecdotes about young college grads being forced to work as waitstaff in restaurants, and here's one indication that might be more common than we would like–the number of young college grads working in hotels and restaurants is up 33K over the past year.
Two industries that I lump together in my mind as the 'social and community' sector are social assistance and membership associations. Now, for sure, not all the enterprises in these two industries are nonprofit. But in some sense, they are directed towards broad social goals. Total young college grad employment in the social and community sector is up about 60K.
One final but important source of jobs for young college grads is the communications sector, which for me includes industries such as telecom, internet publishing, and broadcasting.  Young college grad employment is up about 18K in these industries. Please note–I was formerly in publishing, and now I'm in internet publishing–two different industries.
Which sector is worst? Finance, of course, which has been shedding young college grads like crazy.


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