This site has moved to
The posts below are backup copies from the new site.

February 4, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 02 Feb 2013 12:06 AM PST
Posted: 01 Feb 2013 03:12 PM PST
Jagdish Bhagwati answers the following question:
Recent factory fires in Pakistan and Bangladesh have killed more than 400 people. Yet, the stricken garment manufacturers had apparently passed inspection — despite bars on windows and locked exits — and been deemed safe.
These factories supply clothing to — and are in business because of — American companies like Wal-Mart and Sears. So where does the responsibility lie in improving worker safety, and what can be done about it?
Here's his response:
Blame Bangladesh, Not the Brands, by Jagdish Bhagwati: The community was in a "palpable state of shock" over the fire at a plant that left 25 workers dead and 55 others injured. "Many people who lost loved ones and friends in the fire expressed bitterness... They acknowledged that the plant provided significant employment..., but they were deeply concerned by reports that many of the victims ... were trapped in the building by blocked exits."
Was this a report from Bangladesh or Karachi? No, it was from a poultry processing plant in Hamlet, N.C. ... in 1991. Blame for that fire was cast not just on the company, but on the government.
The Bangladesh fires emphasize again a lax and lackadaisical attitude to the issue of workplace safety by the Bangladeshi authorities, possibly aided and abetted by domestic politics. This reflects a general attitude of neglect in protecting workers against unsafe conditions, like providing goggles and ensuring that they are worn when workers operate close to an open furnace.
But asking Wal-Mart, Gap and other brands to substitute for the somnolent government will only marginally address worker safety reform. What is necessary is for the Bangladeshi government to stop resting on its laurels of social progress — a myth, which I and the economist Arvind Panagariya have recently challenged, and step up to the plate to establish proper regulations and monitoring, extending to all of Bangladesh, not just its garment factories.
I agree that the Bangladeshi government should "step up to the plate to establish proper regulations and monitoring," but companies have a role to play too (they may, for example, have political power that can be used to block or encourage regulation and monitoring, and there is the moral obligation to protect workers as well). If we assume the companies can't do much, and don't hold them accountable -- if we brush it off as an inevitable response to market pressures in an environment with few constraints on this type of behavior -- they'll have no incentive to change.
Posted: 01 Feb 2013 02:21 PM PST
We have years yet before the economy will fully recover, and I've been calling for infrastructure spending recently to try to help things along. We'd need the spending even if we didn't have an unemployment problem, so infrastructure spending can be defended without even considering its ability to stimulate the economy. The fact that it can also help the recovery is icing on the cake.
This Megan McArdle, nearly five years ago (July 2008), telling us that the recession would be over before we could possible get infrastructure projects in place. After all, we were experiencing one of the "more modest recessions of today," and we'd fully recover before we could even get started:
Infrastructure is so . . . stimulating, by Megan McArdle: Mark Thoma wants us to look at spending for stimulus, instead of tax cuts:
I agree that Fed policy alone may not be enough to get the economy back on track, I've argued that for a long time. But tax cuts are not the only option for stimulating the economy, government spending can also be used, and in theory ... a one dollar increase in government spending has a bigger impact on GDP than a one dollar tax cut. Infrastructure is an obvious target for spending, it's surely needed...
The idea that we should use emergency infrastructure spending as a stimulus is gaining strength among liberals. As the daughter of a transportation guy, I can certainly vouch for the fact that many areas of American infrastructure are in dire need of improvement.

However, as the daughter of a transportation guy, I regret to report that the idea of using infrastructure spending as a stimulus is a complete fantasy. This is not your grandfather's stimulus spending. FDR could spend whacking great sums on dams and roads and rural electrification, and hope to have an immediate effect, because FDR was working on a multi-year depression, and in the pre-1960s regulatory environment.

Between the environmental impact statements, public review periods, and byzantine bidding process, the development cycle for anything more complicated than painting a bus station is now measured in decades, not years. This wouldn't even work to get us out of the ten-year Great Depression, much less the more modest recessions of today. As my father likes to point out, if Bush had come into office declaring that his number one priority was shoring up the levees in New Orleans, by the time Katrina hit they might, with luck and a huge amount of political pressure, have been ready to put the EIS out for public review. More likely, they would still have been wrangling over the funding mechanisms and which state and federal agencies had exactly what authority*.

The reason we rely mostly on monetary policy and tax cuts for stimulus is that it is possible to rapidly implement whatever stimulus you decide on. With the exception of a few transfer programs such as food stamps and unemployment insurance, which are hard to funnel very large sums of money through, there is nothing on the spending side that matches tax cuts for speed. You could allocate the money, to be sure, but by the time it actually hit an agency and went through the bureaucratic procedures necessary to actually spend it, the window for effective stimulus would have passed.

We could improve matters by ripping out all of the procedural hurdles and community review procedures we've forced on the government, and in my opinion, that wouldn't be a bad thing. But in my opinion, this is somewhat less likely to be achieved than my teenage dreams of becoming a rock star.

The other thing we might consider is just not having the stimulus. It seems to me that both monetary and fiscal stimulus at this point are trying to attack supply shocks by goosing demand. America is going to have to get used to consuming less oil and less cheap foreign credit some time, and maybe the best way to do that is to let the shocks work their way through the system.
Yep, just a little supply-shock, nothing to worry about -- certainly nothing to attack with an inherently supply-side policy (with important demand-side benefits) such as infrastructure.
Nearly five years later there's still time -- and the need -- for infrastructure spending.
Posted: 01 Feb 2013 10:49 AM PST
Tim Duy on the employment situation report:
Mixed Messages in the Employment Report, by Tim Duy: Another first Friday, another employment report. Is this what our lives are meant to amount to? Sitting glassy eyed in front of a screen, clutching a cup of coffee like a life preserver, waiting for the internet to spit up some numbers that are only going to be changed next month? And to do this day, after day, after day?
Apparently, yes. And apparently I need some more coffee to drown any philosophical urges.
This is an intriguing employment report. Calculated Risk describes it as:
This was another sluggish growth employment report, but with strong upward revisions to prior months.
Mark Thoma agrees, and adds:
And "another sluggish report" ought to bring some soul-searching in Congress, followed by action to try to help with job creation (even with the prior revisions recovery is far too slow to be acceptable).
Brad DeLong adds it to his "Soft Bigotry of Low Expectations Department." Cardiff Carcia at FT Alphaville is a bit more (modestly) optimistic:
Overall the report is (modestly) good news, showing that the economy was adding jobs at a faster rate than we thought in the final quarter of last year.
On the other hand, Wall Street cheered, sending stocks and bonds both higher. I can see that. Right now, one can imagine two threats to the current happy state of affairs on Wall Street. One is some accident, fiscal, European, war in the Middle East or whatever, take your pick, that plunges the global economy back into recession. The other is that activity accelerates such that the Fed removes accommodation earlier and faster than currently anticipated. Outcomes in between - ones that suggest the Federal Reserve will stay on its current path while at the same time growth is set to continue - seem then most likely to leave that current state of affairs in tact. And this report delivers exactly that message. Nothing here to suggest the Fed needs to accelerate its time table. Well, almost nothing.
Nonfarm payrolls grew by 157k in January, a little below consensus expectations, but upward revisions pushed the November and December numbers to 247k and 196k, respectively. The twelve-month moving average is now 168k:
The unemployment rate edged up, even after adjusting for the population control effect:
Consider the combination - solid if not spectacular job growth plus a stagnant unemployment rates equals a growing economy and the Fed on hold. At least, that is the message of the Evan's rule with regards to the federal funds rate. Moreover, it is anticipated that some version of the Evan's rule will also apply to the tapering off of asset purchases. So not only is the lift-off from the zero bound delayed, but so too is the end of asset purchases. Something for both equity and bond traders. What's not to like?
On a softer note, the employment numbers in the household report are not as rosy as those of the establishment report:
Something to keep an eye on as a possible precursor to softening in the establishment numbers in future months.
Was there anything here that might prompt the Fed to rethink policy? It's a bit of a stretch at this point, but note that wage growth continued to accelerate:
Like I said, a bit of a stretch. Wage growth can accelerate quite a bit (at least, in my opinion) before it becomes an inflation concern. Indeed, as Mark Thoma points out, the real problem continues to be too little inflation to begin with. For many of us, accelerating wage growth is a good thing. But look for more hawkish policymakers to point to rising wages as evidence that a.) the economy has made a solid turn such that asset purchases are no longer necessary and that b.) the Evan's rule is faulty because one cannot adequately summarize the state of the economy in just two variables. That said, I don't think any such noise would be enough to shift the path of policy. Just another little thing to think about.
On a final note, the ISM report came in better than expected:
Good enough to signal the economy is not collapsing, not good enough to indicate the Fed needs to change course.
Bottom Line: To be sure, I would prefer stronger employment numbers. And I would prefer the support for those numbers came from a little more fiscal policy relative to monetary policy. But I can also see that, from the point of view of financial market participants, this can be described as a Goldilocks data day. Not too warm, not too cold. Just right.
Posted: 01 Feb 2013 08:16 AM PST
The Employment Situation:
Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics reported today. Retail trade, construction, health care, and wholesale trade added jobs over the month.
I agree with Calculated Risk:
This was another sluggish growth employment report, but with strong upward revisions to prior months.
And "another sluggish report" ought to bring some soul-searching in Congress, followed by action to try to help with job creation (even with the prior revisions recovery is far too slow to be acceptable). But somehow a deficit problem years in the future is more important than people struggling today.
More from CR:
The headline number was below expectations of 185,000. However employment for November and December were revised up sharply. ... The unemployment rate increased slightly to 7.9% from 7.8% in December. The unemployment rate is from the household report and the household report showed only a small increase in employment. ... The Labor Force Participation Rate was unchanged at 63.6% in January.. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics. The Employment-Population ratio was also unchanged at 58.6% in January...
We shouldn't simply accept this as the inevitable consequence of a financial recession. Policy matters, and policymakers in Congress have not done their jobs. If the politics of big money didn't protect them -- if members of Congress faced the unemployment line when they failed -- maybe things would be different. That's why the political empowerment of the working class is the key to better employment policy.

No comments: