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February 7, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 07 Feb 2013 01:11 AM PST
The title of this column by Caroline Baum implies that the entire nation was "snookered" about uncertainty holding back the economy, but some of us tried to warn that the uncertainty argument was bogus. In any case, good to see people coming to this realization (see also "Things Serious People Believe"):
How a Nation Got Snookered by a Phony Narrative, by Caroline Baum, Commentary, Bloomberg: ... My interest is in a ... narrative ... created by the political class and business leaders, then dutifully promulgated by the news media, on the effect that "uncertainty" was having on the U.S. economy in the months leading up to the fiscal cliff.
Republicans in Congress claimed that businesses were sitting on cash, unwilling to invest until they knew what their tax rate would be next year... What's more, raising taxes on "job creators" would bring the U.S. economy to its knees. Business leaders were only too happy to adopt the Republican talking points as their own. ...
Both business- and consumer-sentiment surveys bore out the depressed mood. The Business Roundtable's CEO Economic Outlook Survey for the third quarter, released on Sept. 26, showed a plunge in expectations for sales, capital expenditures and hiring over the next six months. ...
Look at what happened in the fourth quarter, specifically in the three areas -- hiring, capital spending and sales -- covered by the CEO survey: ... The private sector added 675,000 jobs, making it the second-best quarter since the recession ended in June 2009. Business spending on equipment and software rose 12.4 percent annualized, the biggest increase since the third quarter of 2011. Business sales rose an annualized 4.2 percent (assuming no change for December), the strongest quarter of 2012. ... The same holds true for consumers. ...
Which brings me to the subject of uncertainty... Why not call it by what it really is, which is pessimism? When businesses say they aren't going to invest because of uncertainty, what they mean is, they don't think their investments will produce a substantial profit.
Uncertainty didn't carry much weight in the fourth quarter. In fact, it looks like we got snookered by a euphemism that was ... an excuse to prevent an undesirable political outcome (tax increases)...
Posted: 07 Feb 2013 12:03 AM PST
Posted: 06 Feb 2013 12:26 PM PST
Robert Greenstein of the CBPP corrects Nicholas Kristof:
How Effective Is the Safety Net?, by Robert Greenstein: Nicholas Kristof published an important column in the New York Times recently about young children in some poor communities who face greatly diminished opportunities by the time they're just 2 years old.[1] "Many low-income children never reach the starting line," he notes.
Kristof points out that there are no magic bullets and that we need well-designed studies and careful research to give us more information about what works. He cites, for example, evaluation data showing that a program under which nurses visit the new parents of poor, at-risk children produces results. Federal funding for this program, which now comes through the health reform law, is scheduled to run out after 2015. Will policymakers have the wisdom to extend this program and to improve it based on what we've learned? That's the type of action we need to take.
Unfortunately, Kristof's otherwise excellent column also contains a significant misjudgment. He says that despite the growth of various social programs over recent decades, the poverty rate is no lower today than it was in the late 1960s... However, the comparison of today's poverty rate to the rate in the 1960s isn't valid, as explained below, and Kristof overlooks recent research showing that safety-net programs lift millions of people out of poverty and, in a number of cases, have positive long-term effects on children's outcomes. ...
Most analysts agree that using the official poverty measure to compare today's poverty rate to the rates in the late 1960s yields highly distorted results due to serious flaws in the poverty measure. ... Comparing poverty rates today with those of more than 40 years ago, based on a poverty measure that counts the part of the safety net that's shrunk but overlooks key parts that have expanded and now add substantially to low-income families' purchasing power, produces a result that seemingly shows no progress in reducing poverty. But such a comparison has little meaning.
So what do we know about the safety net's effect on poverty? A fair amount, and the results are often impressive. ...
To be sure, questions can be raised about the effects of safety-net programs on individual behavior, such as work effort, and how that affects poverty. To address those questions, some of the leading researchers in the field conducted a comprehensive review of the available research and data on the safety net's impacts on poverty. In a study issued by the National Bureau of Economic Research, they find (after taking behavioral effects into account) that the safety net lowers the U.S. poverty rate by approximately 14 percentage points.[3] In other words, the safety net keeps or lifts one of every seven Americans out of poverty. That's more than 40 million people. ...
Beneficial effects of key safety-net programs, especially on children, go well beyond poverty reduction. ... In short, existing programs shrink poverty substantially and give large numbers of children a better chance. For millions of Americans who have fallen on hard times, these programs do a good job of helping them get through the hard times and make it out of poverty. ...
Despite these important effects, however, there are too many other poor families and children — those Kristof writes so eloquently about — for whom the existing programs and supports, while often crucial, are insufficient.
As Kristof notes, too many children start kindergarten already far behind, and their future opportunities — including going to college and succeeding in a job — are seriously constrained. ...
We need to do better...
Yet as we look to identify and institute effective interventions, we should be careful not to lose sight of the safety net's considerable accomplishments or the progress that has been made in improving the lives of tens of millions of less fortunate Americans.
These programs also act as automatic stabilizers for the economy in tough times, and that has benefits that extend far beyond the individual beneficiaries of these social insurance programs.
Posted: 06 Feb 2013 10:55 AM PST
Not sure where to start with this one other than to note that Jagdish Bhagwati does not seem to like Al Gore:
Futurama, by Jagdish Bhagwati: ...Al Gore ... surely succeeded beyond his wildest expectations as the author of An Inconvenient Truth. But his phenomenal success had little to do with science (which has remained somewhat controversial: many of us remember for instance the not-too-distant scare about global cooling, also from climate scientists) and much to do with the photographs of polar bears caught on drifting ice as glaciers melted. An image like that is what we all need when we push our pet agendas. Alas, none of us is so fortunate. Nor is Gore as he turns now to writing about our future. ...
The problem Gore faces in the bulk of this book therefore is that his identification of problems, and his proposed solutions, are not compelling. His erudition is considerable but is necessarily limited since he casts his net wide, and he is both unfamiliar with important issues pertinent to his analysis and also shallow in his prescriptions for remedial policies. ...
Given Gore's justified reputation on climate change, a disappointing feature of Gore's book is in the chapter titled "The Edge." I agree with him that the evidence on climate change, and the contribution to it by man-made carbon emissions, is about as good as science can provide; and he is persuasive in his sketch of the scenario of the dangers that global warming, unchecked, hold for mankind. Where he fails is in the remedies that he discusses. To focus on just one issue: there is now agreement from the last meeting at CancĂșn on the attempted renewal of Kyoto Protocol that $100 billion be found annually to create new technologies of mitigation and adaptation to climate change. It is expected that a significant share of this will be public funds. We have the precedent that public monies should largely be used to create public good: thus the new seeds under the green revolution were publicly financed and they were available to everyone virtually for free. Should we then not expect the green technologies developed with public funds to be available for free to Mars, China, and India?
But, to my knowledge, Gore has not embraced this proposal, which would make, say, India accept more ambitious targets of carbon reduction because it would reduce the cost of doing so. I would not make the ferocious charges that Gore levels at the opponents of climate change (see page 283). But may I wonder whether the reason for Gore's omission is that he is heavily invested in green-energy stocks and would like to see public funds to be used only for private payoffs by these firms?
The good in the book is therefore offset by the bad. But even the bad will produce good if it irritates us into thinking harder about the many issues that Gore correctly insists we must confront.
Gore's sin is not embracing a particular proposal, and it must be because "he is heavily invested in green-energy stocks?" Pretty thin charge, and pretty speculative -- I expected a more compelling complaint. (Bhagwati agress with Gore on the science, says he's persuasive, etc., and acts like the know-it-all judge of all things related to climate change, yet he tosses out the global cooling thing? There's a reason this is called the "global cooling myth.")
In another part, I was surprised to hear a call for unions:
...The problem in this world of competition among similar products is that comparative advantage is now fragile: it has a "knife-edge" quality. One day you have it; the next day you do not. Almost every entrepreneur has a rival breathing down his neck; and this need not be from China or India, with their "low wages"—what Gore frets about—but may be Poland or France or Sweden. There are three implications.
First, firms need flexibility in firing if they are to hire.
Second, we can no longer assure economic security for workers by giving them lifetime employment. The security has to be for the worker herself, unrelated to specific occupation and employment.
Third, the volatility also means that we can no longer expect firms to provide training and hence "human capital" to blue-collar workers who can be expected to leave at the next sign of trouble at their plant or firm. We therefore have to provide this human capital through efforts by unions, employers, community colleges, etc.
Gore also accepts uncritically the notion that we are doomed to greater inequality in a globalized world of trade and multinational investment. The evidence is more mixed than he reports...
I think it would only be fair to note the incentives work the other way as well. With firms willing to fire workers at the drop of a hat -- older social obligations to retain workers through tough times are largely gone -- there's no incentive for workers to invest in themselves if the human capital is unique to the particular firm. Why bother if you are unlikely to be there for very long? (That is, I don't think the problem is workers who "leave at the next sign of trouble." f course they'll leave for another opportunity if they fear they'll be fired in the near future due to the "trouble.")
Posted: 06 Feb 2013 09:57 AM PST
Haven't checked in with Robert Reich for awhile:

The Economic Challenge Ahead: More Jobs and Growth, Not Deficit Reduction, by Robert Reich: Can we just keep things in perspective? On Tuesday, the President asked Republicans to join him in finding more spending cuts and revenues before the next fiscal cliff whacks the economy at the end of the month.
Yet that same day, the Congressional Budget Office projected that the federal budget deficit will drop to 5.3 percent of the nation's total output by the end of this year. 
This is roughly half what the deficit was relative to the size of the economy in 2009. It's about the same share of the economy as it was when Bill Clinton became president in 1992. The deficit wasn't a problem then, and it's not an immediate problem now. 
Yes, the deficit becomes larger later in the decade. ... The real deficit problem comes after that — when rising healthcare costs combined with 76 million decaying boomers will cost us all a fortune. ...
Right now the central challenge is to reignite the economy — getting jobs back, improving wages, and restoring growth. Deficit reduction moves us in the opposite direction. ...
In other words, we're still having the wrong discussion. It shouldn't be how to cut the budget deficit. It should be how to bring back good jobs and economic growth. 
Deficit hawks and government-haters are still framing the debate. That bodes ill for all of us.
I never thought that the policymakers at the Fed would be the only ones who seem to care about the unemployed. Right now, the jobs deficit is far more important to our future than the budget deficit.

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