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August 23, 2012

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 22 Aug 2012 12:24 AM PDT
Mitt Romney's promise to restore Obama's Medicare savings is "both puzzling and bogus":
Patients Would Pay More if Romney Restores Medicare Savings, Analysts Say, by Jackie Calmes, NY Times: Mitt Romney's promise to restore $716 billion that he says President Obama "robbed" from Medicare has some health care experts puzzled, and not just because his running mate, Representative Paul D. Ryan, included the same savings in his House budgets.
The 2010 health care law cut Medicare reimbursements to hospitals and insurers, not benefits for older Americans, by that amount over the coming decade. But repealing the savings, policy analysts say, would hasten the insolvency of Medicare by eight years — to 2016, the final year of the next presidential term, from 2024.
While Republicans have raised legitimate questions about the long-term feasibility of the reimbursement cuts, analysts say, to restore them in the short term would immediately add hundreds of dollars a year to out-of-pocket Medicare expenses for beneficiaries. That would violate Mr. Romney's vow that neither current beneficiaries nor Americans within 10 years of eligibility would be affected by his proposal to shift Medicare to a voucherlike system in which recipients are given a lump sum to buy coverage from competing insurers.
For those reasons, Henry J. Aaron, an economist and a longtime health policy analyst at the Brookings Institution and the Institute of Medicine, called Mr. Romney's vow to repeal the savings "both puzzling and bogus at the same time."
Marilyn Moon, vice president and director of the health program at the American Institutes for Research, calculated that restoring the $716 billion in Medicare savings would increase premiums and co-payments for beneficiaries by $342 a year on average over the next decade; in 2022, the average increase would be $577. ...
Posted: 22 Aug 2012 12:15 AM PDT
At the NYT Room for Debate: Me versus John Cochrane and Ed Harrison:
My position is that the Fed is too worried about inflation and too pessimistic about its ability to lower the unemployment rate, and as a consequence it is not doing enough to fight the unemployment problem.
Posted: 22 Aug 2012 12:06 AM PDT
Posted: 21 Aug 2012 01:52 PM PDT
Niall Ferguson doesn't know what he is talking about:
Open Mouth, Insert Foot: Going Viral?, by Invictus: I had barely finished reading Niall Ferguson's takedown of President Obama when a flood of  takedowns of Mr. Ferguson started hitting the web. This post, then, will not be about his Newsweek piece, but instead about his recent Bloomberg TV interview with Erik Schatzker and Sara Eisen. And, in particular, one very specific part of that interview where Ferguson makes what is well beyond what I could even charitably refer to as a rookie mistake. ...
At 3:55 into the clip, Sara asks Ferguson about the private sector job gains versus the massive public sector job losses we've seen under Obama. (I'd add, as Sara alluded to, that this private sector recovery continues to exceed what we saw in the last two recessions...)
Here's what, by my transcription, Ferguson had to say (emphasis mine):
Well, that's not really a part of the argument I made in the piece. The point I made in the piece was that the stimulus had a very short-term effect, which is very clear if you look , for example, at the Federal employment numbers there's a huge spike in early 2010 and then it falls back down.
Bloomberg went on to show the following graphic...:
Spike
Niall, babe, I got one word for you: Census.
The spike in the graphic above – which Ferguson claims is stimulus-related – is actually Census-related. ... In May 2010, for example, there were – referring to the above-linked document – 564,000 temporary Census workers on the Fed's payroll that Ferguson seems to think were related to Obama's stimulus package. As one would expect, as the Census was completed, the government just "shut that whole thing down"...
As I recently discussed with BR, and as he has written about countless times, this is the risk one runs when letting one's ideology run wild – that one twists, contorts, and distorts the facts (in extreme cases, perhaps, without even realizing it) to fit one's narrative.
A mistake regarding such a fundamental matter is inexcusable...
Posted: 21 Aug 2012 11:41 AM PDT
John Cassidy:
... Reaganism/Thatcherism, for all its faults, was a genuine intellectual movement, or counter-movement. These days, the right seems unable to rise above rabble-rousing. The end of the Cold War robbed it of an external enemy. The tensions between its social and economic wings robbed it of any internal cohesion. The financial crisis and Great Recession robbed it of a creed—laissez faire. It's still got plenty of willing foot soldiers, and a lot of big money behind it, but where is the fresh thinking and intellectual direction? All that's left is anti-government posturing, waving the flag, and Obama-bashing. And even in pursuing this limited agenda, it often gets its facts wrong.
The recent antics of Niall Ferguson "blatantly twisting a report from the Congressional Budget Office and presenting numerous other distortions and half-truths that anybody with access to Google could discredit in a few hours" leads Cassidy to
a question that's been been on my mind every day since Mitt Romney picked Paul Ryan as his running mate: Where are the real conservative intellectuals these days? Surely there must be some, but sometimes it seems like all the right has to offer is a soap-box mountebank like Ryan, a trio of embittered Supreme Court Justices, and a few gnarled old Washington fixtures like Bill Kristol, George Will, and Charles Krauthammer. Given this vacuum, it's relatively easy for an energetic and disputatious blow-in like Ferguson to emerge as one of Obama's most visible, if not exactly persuasive, critics.
Ferguson argues this hasn't hurt his academic reputation. But it certainly didn't help it, and I would be more inclined to believe that his academic work is tainted by his ideology after seeing the conscious distortions (and his denials that he did it) in his piece on Obama that has brought so much (deserved) controversy. Even his friends are critical:
My friendship with Niall is, from my point of view, unshakable. ... I read Corinthians at his wedding and am the godfather of one of his sons. ... But I have a duty to write when I think he's wrong and why... So I have given my response. With all due respect, I think I do understand these issues as well as Niall, having covered and read about them for years. I'm not an expert, but I can't find an expert who agrees with Niall that there are no cost control efforts in the ACA. You can argue they won't work, as I've said. But you cannot argue they don't exist and on that basis say that Obamacare will add a trillion to the deficit. You cannot also monkey around with statistics, get no fact-check and expect no pushback.
Why are Republicans using such deceptive tactics? Greg Sargent via Brad DeLong:
the GOP ticket doesn't want a great debate at all. Their entire strategy is designed to obscure the true ideological differences between both sides…. Romney has refused to detail his positions on issue after issue…. If they did want a contest between two grand visions, they wouldn't be shying away from discussing the true nature and implications of their own vision. Yet they are doing just that.
This explains why the Romney campaign has been campaigning so heavily on two falsehoods about Obama's policies: That he gutted welfare reform's work requirement and raided Medicare to pay for Obamacare. The former claim is a distraction; the latter is about muddying the two sides' actual differences…. The muddying is necessary because the actual Ryan vision for Medicare's future is deeply unpopular. Same on taxes: Romney won't detail how he'd pay for his deep tax cuts — which would disproportionately benefit the rich — because paying for them with middle class tax hikes would be politically unacceptable….
Republicans may not have much in the way of new ideas, but they do have a vision -- they just don't want you to understand what that vision is, or how it differs from what Democrats are proposing. That wouldn't be good for the cause.
Posted: 21 Aug 2012 09:41 AM PDT
Tim Duy:
Chances of QE3 Diminishing, by Tim Duy: I have made the case that neither the doves nor the hawks that are important for the course of monetary policy. It is the center that is the key, and that center needs to be pulled in one direction or the other by Federal Reserve Chairman Ben Bernanke. If the 2Q12 slowdown proved to be temporary, I doubt Bernanke is inclined to pursue more QE in the absence of clear financial market disruption. And with that in mind, although economic performance continues to be no better than lackluster, recent data has dispelled the worst fears that we are heading into recession. This combined with stable financial markets argues against additional easing in September.
If the center is the key, we need to see where the center is moving. This should provide some insight into Bernanke's leanings as well. On July 13, Atlanta Federal Reserve President Dennis Lockhart said:
So, as one policymaker, here's my situation: my support for the current stance of policy rests on a forecast that sees a step-up of output and employment growth by year-end and into 2013. If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it. So, as I said at the outset, this is a challenging juncture for policymaking.
The data since that time has shifted Lockhart's views, with likely no small part of that change due to the employment report. Today:
As of July, there are more than 4½ million fewer payroll jobs than in November of 2007. Most of these job losses were in the private sector. The share of unemployed workers who have been out of a job for more than 27 weeks has fluctuated between 40 and 50 percent over the entire course of the recovery.
I think this condition can be attributed, at least in part, to fundamental imbalances that have not yet been corrected, a situation that presents formidable challenges for monetary policymakers. There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources. Monetary policy can exert a powerful positive influence on an economy, but as Chairman Bernanke has pointed out, monetary policy is not a panacea.
It is not that Lockhart believes the economy is surging forward. It is muddling along. But muddling along at a rate that does not justify additional easing. Nor is it clear that such easing would be effective as the remaining problems are beyond the scope of monetary policy. The logic appears to be that employed by Bernanke - the benefits of addition easing at this point do not exceed the risks. And while for the hawks those risks are inflation, for the middle ground I suspect the risks are to the functioning of financial markets. And while we are on the topic of financial markets, from Bloomberg:
"Anytime you see the equity markets rise, I think what it tells you is there is more appetite for risk," Lockhart told reporters after his speech. "And in the current context, I would interpret that to be some comment on more confidence that Europe will work through its problems without a major incident of some kind."
Europe has stabilized, reducing one of the clear risks to the outlook. Perhaps I have been too hard on ECB President Mario Draghi. Of course, I thought the same thing after the two rounds of LTRO, and that didn't stick. Once bitten, twice shy. But that can wait for a later post. The upshot is that equity markets have been on a nonstop trip higher:
Sp500
We are not seeing a repeat of last summer's weakness that prompted Operation Twist. And while I don't have access to a Bloomberg terminal, Zero Hedge does, and noted this headline:
LOCKHART SAYS DISINFLATION, DEFLATION NOT NOW A CONCERN
Back to the charts:
Infexp
TIPS are not signaling an imminent decline in inflation expectations. To be sure, this is at odd with the steady decline in inflation expectations as measured by the Cleveland Federal Reserve:
Cleve
but that measure is not likely to weigh heavily in FOMC discussions. Policymakers are more likely to take their signals from financial markets.
The Reuters coverage of Lockhart's speech included this line:
Central bank officials gather in Jackson Hole, Wyoming, late next week for an annual conference on monetary policy. Many analysts believe Bernanke will use a speech there to lay out a third round of quantitative easing via bond buys, or QE3.
I find it very unlikely that Bernanke gives such direction on QE3. I think the current economic and financial environment bears little resemblance to the famous Jackson Hole speech of 2010. Given the change in the tenor of the data and the financial markets, it is hard for me to believe that his risk/benefit calculus is currently in favor of additional quantitative easing. I think he might take action if he could find another tool that he thought would be more effective than additional quantitative easing, but I don't see such a tool on the horizon. Maybe he will pull something out of his hat next week, but I doubt it.
Bottom Line: Closely following the doves would lead one to conclude that QE3 was imminent. This dovish chatter keeps the possibility of QE on the table. But really this has been the case for months. That should lead one to conclude that the bar to additional QE is high, very high. The middle, led by Bernanke, is just not pulling in that direction. Indeed, recent events seem to be pulling the middle away from additional QE. Assuming the FOMC holds steady in September, I think we will be able to measure the conviction of the doves by any dissents. If San Francisco Federal Reserve President, the most dovish voting FOMC member, does not dissent, he must not have a strong conviction that additional easing is necessary. And if the doves lack such conviction, why should we expect it from the middle ground?

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