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August 18, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 18 Aug 2012 12:06 AM PDT
Posted: 17 Aug 2012 12:24 PM PDT
I wish I could believe this:
Biden guarantees: 'There will be no changes in Social Security', by Michael O'Brien, NBC News: ..."Hey, by the way, let's talk about Social Security," Biden said..."Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security," ... "I flat guarantee you." ...
But the first time Republicans offer a trade ("tell you what, if you cut Social Security, we'll stop cutting taxes"), will the administration take it? I'm afraid they will.
Posted: 17 Aug 2012 10:53 AM PDT
On Romney:
Romney vows to boost national debt by $716 billion, by David Lauter, LA Times: Before the presidential campaign hurtles off to the next skirmish, take a moment to notice what happened this week: Mitt Romney vowed to increase the national debt by $716 billion, and no one so much as blinked. ...
To recap: As part of the Obama health reform law, Congress voted to reduce payments to certain hospitals, insurance companies and other healthcare providers by about $716 billion over the next 10 years. The law directed the money to help pay for expanded prescription drug coverage for seniors – eliminating the so-called doughnut hole – and to help cover younger Americans who do not have insurance at their jobs.
When Rep. Paul D. Ryan, Romney's choice as his running mate, drafted his budget plan, he ... kept those Medicare cost cuts and applied the savings to reducing the federal deficit. Why wouldn't he, after all? Ryan was trying to close a huge budget gap, and here was a rare case in which Congress had already agreed to a spending restraint that was relatively non-controversial -- the hospitals and provider groups had agreed to the cuts, and they would not reduce benefits to Medicare patients.
But Ryan's decision – logical though it may have been in the budget context – blunted a Republican attack on Obama for "raiding" Medicare. So on Wednesday, Romney made clear that he would eliminate the Medicare savings, and Ryan fell into line.
The move would mean Medicare's main trust fund would run out of money in just four years, rather than 12 under Obama's plan. And because Romney did not offer any new revenue to cover the $716 billion cost, nor any offsetting reductions, the price tag would simply be added to the national credit card – worsening the "prairie fire of debt" that Romney decried in a speech this spring. ...
I would have said "Ryan ... kept those Medicare cost cuts and applied the savings to tax cuts for the wealthy" instead of "Ryan ... kept those Medicare cost cuts and applied the savings to reducing the federal deficit."
On Ryan:
Stimulus problem adds to Paul Ryan's woes, by Steve Benen: We talked on Tuesday about Republican vice presidential hopeful Paul Ryan having a stimulus problem: publicly, he claims to abhor President Obama's Recovery Act, but privately, he sought Recovery Act funds for his district and said they'd boost the economy. ...
Appearances of hypocrisy are perhaps the least important part of the story. Rather, the controversy matters for two important reasons. First, the revelations undermine the basis for Ryan's philosophical/ideological objections -- the Republican insists government spending can't create jobs and doesn't boost economic growth, but in his letters to the Obama administration, Ryan said government spending in his district can create jobs and does boost economic growth.
And second, Ryan got caught lying about his efforts -- twice. In 2010, Ryan specifically said he would not vote against something "then write to the government to ask them to send us money.... I did not request any stimulus money." In reality, Ryan penned at least five letters to two federal departments seeking grants under Obama's Recovery Act.
Yesterday, talking to a reporter in Ohio, Ryan again said, "No, I never asked for stimulus," even though he got called out for telling this same lie two years ago.
Late yesterday, hoping to make the problem go away, Ryan said in a statement that he "didn't recall" his efforts...
The degree to which Romney and Ryan are running against their former selves (or split into two selves that contradict one another) is pretty astounding.
Posted: 17 Aug 2012 10:41 AM PDT
David Altig of the Atlanta Fed argues that "the majority of FOMC participants don't seem to think that the unemployment rate will improve that quickly, but "it is not at all obvious that the pace of the recovery is inconsistent with the FOMC's view of achieving its dual mandate." It sounds as though the Fed has given up -- we've done all that we can, there's nothing more we can do, so we won't even try -- and we're not about to risk even the tiniest bit of inflation to find out if we are wrong (and this is despite assurances from Bernanke and others that the Fed is not out of bullets):
The (Unfortunately?) Consistent Record of the Recovery, Macroblog: In his last two posts (here and here), economist Tim Duy has done some yeoman work displaying and discussing the economic context of monetary policy decisions past and prospective. Though Wednesday's self-titled post "Data Dump" focuses on the incoming data as a set-up to the next meeting of the Federal Open Market Committee (FOMC), what strikes me is the consistency of the broad macroeconomic outcomes over the course of the recovery. Gross domestic product (GDP) growth has pretty clearly clocked in at about 2 percent...
...and, looking through the quarterly ups and downs, payroll employment growth has clearly trended near 150,000 jobs per month after a slower start in 2010:
The inflation picture shows more variation...
...but in my view, that sort of variation is why it makes sense to think in terms of medium-term performance. "Medium-term" is more a measure of art than science, and I would concede the point that the recovery as a whole would be on the shorter end of that time frame. Suffice it to say that the pace of price-level growth over the past two and a half years wouldn't contradict the presumption that inflation is pretty close to the FOMC's stated longer-run objective.
Duy looks at this performance and sees pretty clear evidence of failure:
The economy continues to settle into a path that is not consistent with either part of the Fed's dual mandate. Moreover, there are very real downside risks to even a tepid outlook...
This is frustrating. What in the world is the point of making a big claim to affirm the nature of the dual mandate and then subsequently ignore any forecasts that indicate you have no faith the elements of the dual mandate will be met anytime soon?
That complaint is not really about the inflation part of the mandate, but the employment/growth part of it. But if you are willing to accept that employment growth remains on a pace of 150,000 jobs per month—and I see no clear evidence to the contrary—it is not at all obvious that the pace of the recovery is inconsistent with the FOMC's view of achieving its dual mandate. Here, for example, are the central tendency ranges of the unemployment rate projections from the FOMC's June Summary of Economic Projections (SEP) and the employment growth that would be required to meet those objectives (with some important assumptions, such as the labor force participation rate remaining at the current level).
Here is the important statement of conditionality, as described in the SEP document:
The charts show actual values and projections for three economic variables [GDP growth, the unemployment rate, and PCE inflation] based on FOMC participants' individual assessments of appropriate monetary policy.
Under appropriate policy—which pretty clearly means mandate-consistent outcomes—the majority of FOMC participants don't seem to think that the unemployment rate will improve that quickly. And, to my point, it is not clear that the trend in payroll employment is inconsistent with that pace of improvement.
Of course, individual contributors to the SEP may have different assumptions about things like the labor force participation rate. More importantly, the SEP is silent on what, in each contributor's view, constitutes "appropriate policy."
And I am certainly begging the important issues. Would the economy have achieved even the somewhat unspectacular pace of 2 percent GDP growth, 150,000 jobs per month, and average inflation near the long-run objective absent large-scale asset purchases ("QE2"), forward guidance (statements indicating that policy rates are expected to be exceptionally low through at least late 2014), and maturity extension programs ("Operation Twist")? Does "appropriate policy" imply that more must be done to achieve even the modest progress in the unemployment rate implied in my calculations above? And could we have (looking backward) or can we (looking forward) do even better with an even more aggressive approach, as many Fed critics argue?

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