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March 8, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 28 Feb 2013 12:29 AM PST
Tim Duy:
Know Your Fed Chairs, by Tim Duy: Tennessee Senator Bob Corker (R) went on the offensive during the Q&A period of Federal Reserve Chairman Ben Bernanke's Senate testimony this week. A portion of the transcript, via Business Insider:
Sen. Corker: I don't think there's any question that you would be the biggest dove, if you will, since World War II. I think that's something you're rather proud of...Do you all ever talk about the longer term degrading effect of these policies as we try to live for today?
Chairman Bernanke: I think one concern we have is the effect of long term unemployment and the people who haven't had jobs for years. That means they're never going to acquire skills for years and be a productive part of our workforce
You called me a dove. Well maybe in some respects I am but on the other hand my inflation record is the best of any Federal Reserve chairman in the post-war period, or at least one of the best — about 2 percent average inflation...
It is not clear that Corker knows much about the history of inflation since WWII, so I thought a little chart would be handy:
Fedmonth[Click on image for larger chart]
As is clear to anyone who looks at the data, Bernanke does in fact have one of the better records on inflation in the post-WWII period. Is it the best? On the basis of average headline CPI during time as chair, Bernanke looks to come in second behind William McChesney Martin, Jr. Note, however, that it would be reasonable to point out that inflation accelerated during Martin's watch, setting the stage for the high-inflation 1970's. Taking the path of inflation into account, I would tend to argue the Bernanke's record is superior to Martin's.
If we change the focus to headline PCE inflation (quarterly), then Bernanke comes slightly ahead of Martin on averages alone:
[Click on image for larger chart]
Of course, using only inflation averages might not be the best measure on Fed performance. Volcker, for example, had high average inflation rates during his tenure, but inflation declined dramatically. And inflation declined further under Greenspan. Overall, I consider the Chairmen who presided over the 1965 to 1980 period as having the worst records on inflation, while all the Chairman since 1980 have solid inflation records. McCabe is a mixed bag. Clearly inflation was volatile during his tenure, but the Fed was working in the context of the transition out of WWII.
Finally, this whole discussion presupposes that low inflation is always desirable and ignores the fact that the Fed has a dual mandate. Monetary policy is about more than low inflation - it is about stable inflation in the context of the overall economic and financial landscape. Bernanke's battle hasn't even been to contain inflation; his focus has been preventing deflation. But putting these issues aside for the moment, it seems pretty clear that if the only metric that Corker cares about is low inflation, Bernanke has clearly delivered.
Posted: 28 Feb 2013 12:03 AM PST
Posted: 27 Feb 2013 05:27 PM PST
Alternative title: "How to Make a Slow Recovery Even Slower." I'm guessing you already know my opinion of austerity. Cutting the budget during a deep recession and expecting the confidence fairy to undo the harm is (and has proven to be) a very bad idea.
Posted: 27 Feb 2013 03:35 PM PST
Assume everything that can go wrong does go wrong, and that nothing whatsoever goes right. Then, surprise, (and drum roll for Senator Sessions), the result will not be very good:
Jeff Sessions, Wonk McCarthyite, by Jon Chait: Senator Jeff Sessions announced yesterday that he had uncovered a staggering new fact. Obamacare, according to a new report from the General Accounting Office, would add $6.2 trillion to the deficit over the next 75 years. The report would be out the next day. We'd all see. Conservatives were right all along! Obamacare is turning America into Greece!
Well, the report is out, and conservatives are afire with rage. National Review, the Daily Caller, the Heritage Foundation, and many others are all reporting the new bombshell. But the report turns out to be following directions to assume that all of the efforts in the law to control health-care cost inflation fail or are repealed, and the portions that provide coverage are kept in place.
So, yeah. If Congress keeps the parts of the law that cost the government money, and repeals the parts that save money, the law will increase deficits. Alternatively, if the government repeals the parts that cost money and keeps the parts that save money, it will reduce the deficit by more than we're projecting. ...
Let me turn the microphone over to Kevin Drum (where the title of this post comes from):
... This is what Sessions asked the GAO to do. He wanted a report describing what would happen if all the costs of Obamacare stayed intact but all the revenues and savings measures didn't. To the surprise of no one, under those conditions the deficit would go up. You could pretty much plug any government program into a scenario like that and get the same result. ...
This is so obviously moronic...
If conservatives are looking for examples of utterly wasteful government spending...
Posted: 27 Feb 2013 02:22 PM PST
If any academics happen to be in Eugene this weekend:
2013 West Coast Trade Workshop (link)
All sessions will be held in the Walnut room in the Inn at the 5th.
Saturday March 2nd
8:15 am-10:15 am Session 1 – Innovation and Growth (Chair – Nicholas Sly)
10:15am - 10:30am Coffee Break
10:30am- 12:30pm Session 2 – International Trade and Worker Skills (Chair – Bruce Blonigen)
12:30pm-2pm Lunch Break 2pm-4pm Session 3 – Foreign Direct Investment (Chair – Jennifer Poole)
 Evening Hosted Group Dinner
Sunday, March 3rd ­8:30am-10:30am Session 4 – Consequences of the Trade Liberalization (Chair – Alan Spearot)
10:30am – 10:45am Coffee Break 10:45am-12:45pm Session 5 – Offshoring (Chair – Anca Cristea)
Posted: 27 Feb 2013 02:07 PM PST
Income growth for the working class has not kept pace with productivity. Instead, much of the growth has gone to the top of the income distribution (in my view, more than can be justified by any reasonable estimate of the marginal productivity of the wealthiest among us). It appears that redirecting that income so that the gap -- positive or negative -- between productivity and income growth falls is also stimulative (and the stimulus is strongest when the income goes to households at the lowest rungs of the income distribution):
Fiscal Policy and MPC Heterogeneity, by Owen Zidar: Tullio Jappelli and Luigi Pistaferri have a recent paper called Fiscal Policy and MPC Heterogeneity. Here's an interesting figure from it that shows how MPC varies by cash-on-hand:
They aren't the only ones who document MPC heterogeneity. Dynan, Skinner, Zeldes have a nice JPE 2004 paper on this and so does Parker (AER 1999).
So why does this matter? As Tullio Jappelli and Luigi Pistaferri put it:
the results have important implications for the evaluation of fiscal policy, and for predicting household responses to tax reforms and redistributive policies. In particular, we find that a debt-financed increase in transfers of 1 percent of national disposable income targeted to the bottom decile of the cash-on-hand distribution would increase aggregate consumption by 0.82 percent.
Posted: 27 Feb 2013 10:31 AM PST
 Opportunity is far from equal:
What Explains the Racial Wealth Gap?, by Neil Shah, WSJ: White families build wealth faster than black households... What explains this growing divide? ... The findings are the latest evidence that barriers in workplaces, schools and communities — rather than personal attributes and cultural factors — may be making it harder for blacks to accumulate wealth than whites over time. ...
Home ownership is the biggest contributor to net worth. But white families, the researchers say, buy homes and start acquiring equity on average eight years earlier than black families, largely because white families can lean on their own families for help with down payments...
The recession had a disproportionately bad effect on blacks, researchers said. "Half the collective wealth of African-American families was stripped away during the Great Recession due to the dominant role of home-equity in their wealth portfolios and the prevalence of predatory high-risk loans in communities of color," said Thomas Shapiro, director of the Institute on Assets and Policy. "Borrowers of color are more than twice as likely to lose their homes."
Meanwhile, accomplishments like job promotions and pay increases don't appear to pay off for black families the way they do for whites. ... Differences related to inheritances, college education and unemployment also play a role. Whites are five times more likely to inherit, while 80% of black students graduate with debt compared with 64% for whites. "Similar college degrees produce more wealth for whites," Shapiro said.
Posted: 27 Feb 2013 10:07 AM PST
Sheila Bair:
Grand Old Parity, by Sheila Bair, Commentary, NY Times: ... I am a capitalist and a lifelong Republican. I believe that, in a meritocracy, some level of income inequality is both inevitable and desirable... But I fear that government actions, not merit, have fueled ... extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.
This is not a situation that any freethinking Republican should accept. Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money... But more fundamentally, it cuts against everything our country and my party stand for. Government's role should not be to rig the game in favor of "the haves" but to make sure "the have-nots" are given a fair shot. ...
For instance, as part of renewed fiscal discussions over sequestration, Republicans should put fundamental tax reform on the table and make it our priority to end preferential treatment of investment income, which lets managers of hedge funds pay half the tax rate of managers of shoe stores. ... If we eliminate this and other unjustified tax breaks, we can produce enough new revenues to lower marginal rates and reduce the deficit...
Republicans should also put rebuilding the nation's transportation and energy infrastructure high on our political agenda. ...
Having worked for Senate Republicans in the 1980s, I remember a time when Republicans stood up to special interests and purged the tax code of preferences for investment income and other special breaks. ...

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