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October 20, 2011

Latest Posts from Economist's View

Latest Posts from Economist's View

"First Look at US Pay Data, It’s Awful"

Posted: 20 Oct 2011 12:24 AM PDT

In case you were wondering:

First look at US pay data, it's awful, by David Cay Johnston, Reuters: Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks... The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful.
These are important and powerful figures. ... There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by 20 percent over 2009.
The median paycheck -- half made more, half less -- fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.
The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.


More significantly,...  close to 10 million workers who did not find even an hour of paid work in 2010. ...
What these figures tell us is that there was a reason voters responded in the fall of 2010 to the Republican promise that if given control of Congress they would focus on one thing: jobs.
But while Republicans were swept into the majority in the House of Representatives, that promise has been ignored. ... Instead of jobs, the focus on Capitol Hill is on tax cuts for corporations with untaxed profits held offshore, on continuing the temporary Bush administration tax cuts -- especially for those making $1 million or more - and on cutting federal spending, which mean destroying more jobs in the short run. ...
The data show why protests like Occupy Wall Street have so quickly gained momentum around the country... Will official Washington look at the numbers and change course? Or do voters need to change their elected representatives if they want to put America back on a path to widespread prosperity?

And, from the WSJ:

Real hourly wages fell 0.1% in September from August. After rising briefly at the start of this recovery, real hourly pay is back to about where it was two years ago — despite the fact that worker productivity has risen more than 5% since then.

Cheney's Fracking "Halliburton Loophole"

Posted: 20 Oct 2011 12:15 AM PDT

 Another Bush administration gift that keeps on giving:

Safety First, Fracking Second, The Editors, Scientific American: A decade ago layers of shale lying deep underground supplied only 1 percent of America's natural gas. Today they provide 30 percent. Drillers are rushing to hydraulically fracture, or "frack," shales in a growing list of U.S. states. ... The benefits come with risks, however, that state and federal governments have yet to grapple with.
Public fears are growing about contamination of drinking-water supplies from the chemicals used in fracking and from the methane gas itself. Field tests show that those worries are not unfounded. ... Yet states have let companies proceed without adequate regulations. They must begin to provide more effective oversight, and the federal government should step in, too.
Nowhere is the rush to frack, or the uproar, greater than in New York. ... Fracking is already widespread in Wyoming, Colorado, Texas and Pennsylvania.
All these states are flying blind. A long list of technical questions remains unanswered about the ways the practice could contaminate drinking water, the extent to which it already has, and what the industry could do to reduce the risks. ...
Scientific advisory panels at the Department of Energy and the EPA have enumerated ways the industry could improve and have called for modest steps, such as establishing maximum contaminant levels allowed in water for all the chemicals used in fracking. Unfortunately, these recommendations do not address the biggest loophole of all. In 2005 Congress—at the behest of then Vice President Dick Cheney​, a former CEO of gas driller Halliburton—exempted fracking from regulation under the Safe Drinking Water Act. Congress needs to close this so-called Halliburton loophole, as a bill co-sponsored by New York State Representative Maurice Hinchey would do. ...

links for 2011-10-20

Posted: 20 Oct 2011 12:06 AM PDT

What's Needed to Successfully Target the Level of Nominal GDP?

Posted: 19 Oct 2011 02:07 PM PDT

Brad DeLong:

What Needs to Happen for the Fed to Successfully Target the Level of Nominal GDP?, by Brad DeLong: Paul Krugman writes:

Getting Nominal: "Market monetarists" like Scott Sumner and David Beckworth are crowing about the new respectability of nominal GDP targeting. And they have a right to be happy. My beef with market monetarism early on was that its proponents seemed to be saying that the Fed could always hit whatever nominal GDP level it wanted; this seemed to me to vastly underrate the problems caused by a liquidity trap. My view was always that the only way the Fed could be assured of getting traction was via expectations, especially expectations of higher inflation –a view that went all the way back to my early stuff on Japan. And I didn't think the climate was ripe for that kind of inflation-creating exercise.

At this point, however, we seem to have a broad convergence. As I read them, the market monetarists have largely moved to an expectations view. And now that we're almost four years into the Lesser Depression, I'm willing, out of a combination of a sense that support is building for a Fed regime shift and sheer desperation, to support the use of expectations-based monetary policy as our best hope.

And one thing the market monetarists may have been right about is the usefulness of focusing on nominal GDP. As far as I can see,the underlying economics is about expected inflation; but stating the goal in terms of nominal GDP may nonetheless be a good idea, largely as a selling point, since it (a) is easier to make the case that we've fallen far below where we should be and (b) doesn't sound so scary and anti-social.

I still believe that the chances of success will be a lot larger if we have expansionary fiscal policy too; but by all means let's try whatever we can…

Let's try to answer this question by using… the IS-LM model!

If you are--as we are right now--in a liquidity trap, with extremely interest-elastic money demand, then expansionary monetary policy that involved the Federal Reserve buying financial assets for cash:

  1. will have next to no effect on the short-term safe nominal interest rate--it's already zero.
  2. will decrease the long-term safe nominal interest rate to the extent that your open-market operations today change people's expectations of what your target for the short-term safe nominal interest rate in the future.
  3. will decrease the long-term safe real interest rate to the extent that it decreases the short-term nominal interest rate and changes expectations today of what inflation will be in the future.
  4. will decrease the long-term risky real interest rate to the extent that it decreases the long-term safe real interest rate and to the extent that the assets purchased for cash by the Federal Reserve free up the risk-bearing capacity of private investors and lead to a reduction in risk spreads.
  5. will increase spending to the extent that it decreases the long-term risky real interest rate and to the extent that private spending responds positively to decreases in the long-term risky real interest rate.

Lots of steps here, some of which may well be weak.

By contrast, the alternative expansionary policy is for the government to print money and spend it buying useful things. Then:

  1. The buying of useful things raises spending.
  2. Financing it by printing money rather than issuing bonds means no increase in interest rates to crowd out private spending.
  3. Financing it by printing money rather than promising to levy future taxes means no increase in the present value of future tax liability to crowd out private spending.
  4. Financing it by printing money means no worries about any increase in fears of some future government default.

By contrast, if we tried to target nominal GDP through fiscal policy alone--through borrowing and spending buying useful things:

  1. The buying of useful things raises spending.
  2. Financing it by issuing bonds might mean an increase in interest rates that would crowd out private spending.
  3. Financing it by promising to levy future taxes means an increase in the present value of future tax liability that might crowd out private spending.
  4. Financing it by issuing bonds means a possible increase in fears of some future government default.

To try to target nominal GDP using either only monetary policy or only fiscal policy seems hazardous. To coordinate--monetary and fiscal expansion, money printing-financed purchase of useful things--seems to be the winner.

Yep, as I've been arguing since this started, we need attack the unemployment problem aggressively with both barrels of the policy gun.

A Convenient Excuse

Posted: 19 Oct 2011 11:07 AM PDT

If you don't have a job, many in the GOP think it's your own fault. Never mind that there are fewer jobs than people looking by a wide margin, somehow if the unemployed would try harder, the jobs will magically appear:

GOP debate crowd cheers idea that jobless are to blame for their plight, by Greg Sargent: ...This moment from last night's debate, in which the audience cheered the idea that the unemployed are solely to blame for not having a job, strikes me as one of the most iconic moments we've seen at the debates yet...
Anderson Cooper says: "Herman Cain, I've got to ask you — two weeks ago, you said, `Don't blame Wall Street, don't blame the big banks. If you don't have a job, and you're not rich, blame yourself.' That was two weeks ago. Do you still say that?" At this point applause starts, and after Cain stands by the claim, the applause crescendos and hoots of approval can be heard.
Lovely,... the crowd is applauding the idea that the unemployed are solely to blame for their plight. The basic suggestion here is that ... it's morally correct to place all the blame for unemployment on the jobless themselves. ...

Convenient, isn't it? It gives people who don't think they have any obligation to contribute to social insurance a reason to turn their backs on the unemployed.

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