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February 4, 2013

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 10 Dec 2012 12:33 AM PST
I have been arguing for some time now "that we have paid too little attention to the growing economic and political power of our largest firms," and that this is a factor in the "maldistribution" of income, so it's nice to see this issue get more attention:
Robots and Robber Barons, by Paul Krugman, Commentary, NY Times: The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It's simple:... profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today's economy.
Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we're looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.
About the robots: there's no question that in some high-profile industries, technology is displacing workers of all, or almost all, kinds. ... What's striking ... is that many of the jobs being displaced are high-skill and high-wage; the downside of technology isn't limited to menial workers. ...
What about robber barons? We don't talk much about monopoly power these days; antitrust enforcement largely collapsed during the Reagan years and has never really recovered. Yet Barry Lynn and Phillip Longman of the New America Foundation argue, persuasively in my view, that increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.
I don't know how much of the devaluation of labor either technology or monopoly explains, in part because there has been so little discussion of what's going on. I think it's fair to say that the shift of income from labor to capital has not yet made it into our national discourse.
Yet that shift is happening — and it has major implications. For example, there is a big, lavishly financed push to reduce corporate tax rates; is this really what we want to be doing at a time when profits are surging at workers' expense? Or what about the push to reduce or eliminate inheritance taxes; if we're moving back to a world in which financial capital, not skill or education, determines income, do we really want to make it even easier to inherit wealth?
As I said, this is a discussion that has barely begun — but it's time to get started, before the robots and the robber barons turn our society into something unrecognizable.
Posted: 10 Dec 2012 12:24 AM PST
Tim Duy:
Is The US Already in Recession?, by Tim Duy: Via a recent media blitz, ECRI Co-Founder Lakshman Achuthan insists that the US is already in recession, apparently as of July. I would be very skeptical that this was in fact the case. I think the preponderance of evidence weighs in favor of ongoing expansion, disappointing as the pace of that expansion may be.
Actually, Achuthan loses credibility quite quickly by claiming there is a strict definition of recession based upon peaks of production (Achuthan apparently views "production" as "industrial production"), income, jobs, and sales. In contrast, according to the NBER business cycle dating committee:
The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production (IP). The Committee's use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs.
Dating a recession, it would seem, is something of an art. And note that Achuthan appears to ignore the role of GDP and GDI in the determination of a recession. Taking a quick look at those two series:
Rece1
Both GDP and GDI gained in the third quarter. I would imagine that the NBER would need to see at least one of these indicators clearly turn downward before the issue of recession would even be worth the slightest consideration. Onto the jobs picture:
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No, nothing to see here. Unless you expect some very, very significant revisions, nothing in the jobs picture should lead you to believe that a recession began in July. I find it very hard to believe that the NBER would find cause to declare a recession began in July when the economy added jobs for the next four months. How about real income?
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Arguably, there is a peak in July. There was, however, also a peak at the end of 2010 as well, and real income moved sideways for almost a year, yet no recession was identified in 2011. In other words, recent behavior in this series is not inconsistent with that seen during the current expansion.
Together, I don't think these four indicators even begin to pass the sniff test for dating a recession beginning in July 2012. Beyond what the NBER believes to be the key elements in identifying recessions comes secondary data that does not cover the entire economy. Start with industrial production:
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There is clear evidence that manufacturing softened in recent months, consistent with the July near-term peak in industrial production. As the NBER notes, however, a downturn in one sector does not define a recession. A recession is a broad-based downturn in activity; industrial production may be an element in dating a cycle, but is not itself a recession. Next up is real manufacturing and trade sales, only available through September:
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I would be hard pressed to call July a peak. It looks like this series rolls over quickly in a recession, coincident with a jobs downturn. And that, I believe, is the key - you don't see widespread declines of activity without widespread job losses. And when job losses mount, sales roll over. I very much doubt sales will roll over in the presence of ongoing job growth. They may bounce along sideways - see 2006. But decline substantially and persistently? Doubtful, in my opinion. Watch, however, for recession watchers to take an October, Katrina-impacted decline as recession evidence.
I think that even a cursory glance of all the data the NBER cites as elements in recession dating, even ignoring the important issue of first identifying broad-based indicators, would lead one to be very skeptical about a July recession call on the basis of "eyeball econometrics" alone. Moving on to something more sophisticated, Chauvet and Piger (1998) use the four variables identified by Achuthan to estimate recession probabilities:
Rece5
When first released, this measure stirred up some excitement as some interpreted the original 20% estimate for August to be a clear signal of recession. As Jeremy Piger notes on his website:
Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion.
In any event, the estimate was subsequently revised downward, and now indicates only marginal probability of recession.
Bottom Line: Lakshman Achuthan is in the media claiming the US is already in recession as of July. I don't think even a cursory examination of the data supports that contention.
Posted: 10 Dec 2012 12:06 AM PST
Posted: 09 Dec 2012 10:59 AM PST
[Three quick ones before hitting the road.] Is Iceland an exception when it comes to bailing out banks?:
State Costs of the 2008 Icelandic Financial Collapse, by Thorolfur Matthiasson & Sigrun Davidsdottir: Outside Iceland it is widely believed that the collapse of the Icelandic financial sector in October 2008 came at no expense to Icelandic taxpayers. This contrasts with taxpayers in Ireland, the UK, Greece, Spain and Portugal, who have recapitalized their banking sectors. However, based on a recent estimate of public funds put into the financial sector since the collapse, we calculate that the cost accruing to the Icelandic State amounts to 20 to 25% of GDP – which means that Iceland cannot be taken as an example of a country that did not bail out any banks. This is of some interest since Iceland is now a popular comparison for economists studying crisis-stricken European countries.
Posted: 09 Dec 2012 10:59 AM PST
Paul Krugman:
Dean Baker catches David Ignatius suggesting that trade liberalization can provide enough economic boost to offset the effects of austerity. As Dean says, the arithmetic is totally off — almost two orders of magnitude off. ...
First, there's an especially strong tendency to mythologize the power of free trade. Not that open world markets are a bad thing; they're definitely a force for good, especially for small, poor countries. But my experience is that the less somebody knows about international trade, the more likely he or she is to imagine that modest moves toward or away from protectionism will have huge effects. Trade economists, who have actually worked with the models, have a much less grandiose view.
Second, even to the extent that trade liberalization would raise the efficiency of the world economy, it is not, repeat not, a route to overall job creation. Yes, everyone would export more; they would also import more. There is no reason at all to assume that the jobs gained from export creation would exceed the jobs lost to import competition.
Globalization is not the answer to the Lesser Depression.
Posted: 09 Dec 2012 10:59 AM PST
Comments on this?:
End the war on terror and save billions, by Fareed Zakaria: As we debate whether the two parties can ever come together and get things done, here's something President Obama could probably do by himself that would be a signal accomplishment of his presidency: End the war on terror. ...
For 11 years, the United States has been operating under emergency wartime powers granted under the 2001 "Authorization for Use of Military Force." That is a longer period than the country spent fighting the Civil War, World War I and World War II combined. It grants the president and the federal government extraordinary authorities at home and abroad, effectively suspends civil liberties for anyone the government deems an enemy and keeps us on a permanent war footing in all kinds of ways. ... Phasing out or modifying these emergency powers should be something that would appeal to both left and right. ...
If you want to know why we're in such a deep budgetary hole, one large piece of it is that we have spent around $2 trillion on foreign wars in the past decade. ... The ... U.S. government has built 33 new complexes for the intelligence bureaucracies alone. The Department of Homeland Security employs 230,000 people. ...
Of course there are real threats out there... But we have done this before, and we can do so in the future under more normal circumstances. ...
In any event, it is a good idea that the United States find a way to conduct its anti-terrorism campaigns within a more normal legal framework, rather than rely on blanket wartime authority granted in a panic after Sept. 11.
No president wants to give up power. But this one is uniquely positioned to begin a serious conversation about a path out of permanent war.
Posted: 09 Dec 2012 09:38 AM PST
This is pretty Mickey Mouse. Republicans have fired a staffer for daring to put market reform -- making markets work better like Republicans say they favor -- ahead of special interests.:
GOP fires author of copyright reform paper, by Cory Doctorow: Derek Khanna, the Republican House staffer who wrote an eminently sensible paper on copyright reform that was retracted less than a day later has been fired. So much for the GOP's drive to attract savvy, net-centric young voters. After all, this is the party that put SOPA's daddy in charge of the House Tech and Science Committee.
But it's pretty terrible for Khanna -- what a shabby way of dealing with dissent within your ranks.
From the linked article:
it's now been confirmed that, due to significant lobbying pressure by the entertainment industry and (even more so) the US Chamber of Commerce, Derek Khanna ... has been let go from his job.
Where's the outrage from sensible Republicans (I checked Mankiw, but he's whining about taxes on the wealthy again today -- big surprise there)? Saying Republicans support free markets is almost as funny as saying they want lower taxes on the wealthy because of the wondrous economic growth miracle lower taxes would bring us. (Can you feel that miracle all around us from the vastly lower taxes we already have? No? You must be in the wrong income class.) Republicans want what's good for the people who pay for their campaigns, nothing more, nothing less, and they'll use whatever arguments get them there.

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