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September 18, 2011

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Latest Posts from Economist's View


"House Republicans Whittle Down $447 Billion American Jobs Act to $11 Billion"

Posted: 18 Sep 2011 04:05 AM PDT

I think this might be a political mistake if Republicans follow through on blocking all but $11 billion of Obama's jobs proposal. But this is likely just the opening bid, which is intentionally low. As I've noted before, I expect Republicans to go along with just enough to be able to defend against the charge they didn't do anything to help the jobless, and not a penny more -- and they will insist on tax cuts as a large fraction of whatever is done. (If Democrats reject a proposal heavily tilted toward tax cuts, Republicans will try to make it seem as though Democrats are the ones standing in the way. If Democrats play the game right, that shouldn't be a problem, but that's a big if):

House Republicans Whittle Down $447 Billion American Jobs Act to $11 Billion, by: David Dayen: The House GOP leadership has written a memo to their caucus picking and choosing what they would be willing to support in the American Jobs Act. The numbers come out to support for 1/44th of the overall price tag, about 2% of the total bill.
As you may know, the AJA is comprised of about 57% tax cuts and 43% spending initiatives. So in the main, House Republican leaders tossed out the spending and embraced a few of the tax cuts. They also rejected the tax hikes on corporations and the wealthy to pay for the bill.
John Boehner, Eric Cantor, Kevin McCarthy and Jeb Hensarling, who wrote the memo, took advantage of the President's backtracking of an "all or nothing" approach to the bill, and stressed "areas of common agreement" in the plan. ...
So at best, you're talking about a $447 billion jobs bill whittled down to no more than $11 billion. The memo closes by saying that "We are, however, committed to passing legislation to implement the policies in the areas where agreement can be found to support job creation and long-term economic growth." With these numbers, I'm not sure why they're even bothering.

Meanwhile, the millions of unemployed continue to struggle.

The American and European Jobs Machines

Posted: 18 Sep 2011 03:42 AM PDT

Conservatives have long argued that high taxes, regulation, and lack of mobility were hurting the European job machine. However, as Antonio Fatas notes, according to this measure, European labor markets have been outperforming US markets for over a decade:

The American and European jobs machines, by Antonio Fatas: Via Mark Thoma I read about the recent failure of the American jobs machine, unable to keep up with the strong dynamics it displayed during the 80s and 90s. After the 2001 recession the performance of the labor market as measured by the number of jobs or the employment rate (employment relative to population) has been much weaker than in the previous two decades. And it is a combination of very limited job creation during the 2001-2007 period and an extremely high rate of destruction during the last recession.
To add an international perspective, here is a comparison between the American, European and German job machines for the last 18 years.
The variable plotted is the employment rate for individuals in the 15-64 age group. During the 90s the US employment rate increased, at a time where the European (and German) employment rate was declining. This was a period where the US economy, in particular its labor market, was used as an embarrassing example for the Europeans. A lot of talk about how high taxes, regulation, lack of mobility in Europe were hurting the European job machine.
But starting with the late 90s we see a reversal of this trend. While the US employment rate flattens and then drops, the European rate, more so the German one, increases and by 2009/10, the German employment rate is above that of the US. Of course, this is just a partial view of the labor market (there are other age groups, there is the issue of number of hours worked), but it illustrates well the change in the performance of the US labor market, not just in isolation, but in comparison with similar economies. And what it is interesting is that this is not just the outcome of the great recession, it is a trend that had started more than a decade ago.

Shiller: Keynes' Beauty Contest Problem

Posted: 18 Sep 2011 03:33 AM PDT

Robert Shiller:

The Beauty Contest That's Shaking Wall St., by Robert Shiller, Commentary, NY Times: The extraordinary surge of stock market volatility during the last month ... has been linked to news events. Much of it came after S& P ... downgraded the nation's long-term debt... It's tempting to think that the market has been responding rationally to these developments. But that isn't an adequate answer. Why did investors react so strongly to the rating change, which, after all, was merely the opinion of a few analysts on a committee? And why did the market swing so much day to day, even when there was no significant news? ...
Keynes supplied the answer in 1936 ... by comparing the stock market to a beauty contest. He described a newspaper contest in which 100 photographs of faces were displayed. ... The winner would be the reader whose list of six came closest to the most popular of the combined lists of all readers.
The best strategy, Keynes noted, isn't to pick the faces that are your personal favorites. It is to select those that you think others will think prettiest. ... Similarly in speculative markets, he said, you win not by picking the soundest investment, but by picking the investment that others, who are playing the same game, will soon bid up higher. ...
The ... best explanation for the market's back-and-forth swings is that each day we are conducting a Keynesian beauty contest, and reassessing what others think that still others are thinking. On days without much news, the market is simply reacting to itself. And because anxiety is running high, investors make quick, sometimes impulsive, responses to relatively minor events. ...
This may sound like a crazy game, but if others are playing it, we must, too. The outlook for the economy depends on how this convoluted beauty contest plays out.

What Liberal Bias?

Posted: 18 Sep 2011 03:24 AM PDT

Good question:

Fair and balanced after all? The bias of the US press, by Riccardo Puglisi and James M. Snyder, Jr.,Vox EU: ...In a recent and influential paper, Tim Groseclose and Jeff Milyo (2005) ... conclude that the US media display an overall liberal bias, i.e. most media outlets are to the left of the average American voter. ... The results in Groseclose-Milyo are likely to become salient in the public debate over the next year, as Groseclose has recently published Left Turn: How Liberal Media Bias Distorts the American Mind, which draws heavily on their findings.
Because of its novelty, prominence, and stark conclusions, the original Groseclose-Milyo paper has been subject to several critiques... For example, John Gasper (forthcoming) shows that the liberal bias essentially disappears if we exclude the citations of a single group – the National Taxpayers Union – from the analysis. ...
[I]n our paper "The Balanced US Press" (2011a)..., we ... find that, on average, newspapers are located almost exactly at the median voter in their home states. ...
Economists often point out that rational citizens are less likely to be influenced by media bias if they learn that this bias exists. However, we might also worry about the political and policy consequences of wrongly persuading citizens that media outlets have a left-leaning position overall, when in fact they are balanced. That is: What happens if citizens are convinced to "undo" a bias that does not exist?

links for 2011-09-17

Posted: 17 Sep 2011 10:10 PM PDT

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