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February 7, 2014

Latest Posts from Economist's View

Latest Posts from Economist's View

Paul Krugman: Health, Work, Lies

Posted: 07 Feb 2014 12:33 AM PST

The CBO's report on Obamacare is --surprise -- being misrepresented:

Health, Work, Lies, by Paul Krugman, Commentary, NY Times: ... On Tuesday, the budget office released a report on the fiscal and economic ... effects of the Affordable Care Act. ...
The budget office has now increased its estimate of the size of these effects. It believes that health reform will reduce the number of hours worked in the economy by between 1.5 percent and 2 percent, which it unhelpfully noted "represents a decline in the number of full-time-equivalent workers of about 2.0 million."
Why was this unhelpful? Because politicians and, I'm sorry to say, all too many news organizations immediately seized on the 2 million number and utterly misrepresented its meaning. For example, Representative Eric Cantor, the House majority leader, quickly posted this on his Twitter account: "Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced."
Not a word of this claim was true. The budget office report didn't say that people will lose their jobs. It declared explicitly that the predicted fall in hours worked will come "almost entirely because workers will choose to supply less labor"  ... Oh, and because labor supply will be reduced, wages will go up, not down.
We should add that the budget office believes that health reform will actually reduce unemployment over the next few years. ...
So was Mr. Cantor being dishonest? Or was he just ignorant of the policy basics...? It doesn't matter — because even if it was ignorance, it was willful ignorance. Remember, the campaign against health reform has, at every stage, grabbed hold of any and every argument it could find against insuring the uninsured, with truth and logic never entering into the matter.
Think about it. We had the nonexistent death panels. We had false claims that the Affordable Care Act will cause the deficit to balloon. We had supposed horror stories about ordinary Americans facing huge rate increases, stories that collapsed under scrutiny. And now we have a fairly innocuous technical estimate misrepresented as a tale of massive economic damage.
Meanwhile, the reality is that American health reform — flawed and incomplete though it is — is making steady progress. No, millions of Americans won't lose their jobs, but tens of millions will gain the security of knowing that they can get and afford the health care they need.

Latest from the Journal of Economic Perspectives

Posted: 07 Feb 2014 12:06 AM PST

A few of the articles from the latest Journal of Economic Perspectives:

When Ideas Trump Interests: Preferences, Worldviews, and Policy Innovations, by Dani Rodrik: Ideas are strangely absent from modern models of political economy. In most prevailing theories of policy choice, the dominant role is instead played by "vested interests"—elites, lobbies, and rent-seeking groups which get their way at the expense of the general public. Any model of political economy in which organized interests do not figure prominently is likely to remain vacuous and incomplete. But it does not follow from this that interests are the ultimate determinant of political outcomes. Here I will challenge the notion that there is a well-defined mapping from "interests" to outcomes. This mapping depends on many unstated assumptions about the ideas that political agents have about: 1) what they are maximizing, 2) how the world works, and 3) the set of tools they have at their disposal to further their interests. Importantly, these ideas are subject to both manipulation and innovation, making them part of the political game. There is, in fact, a direct parallel, as I will show, between inventive activity in technology, which economists now routinely make endogenous in their models, and investment in persuasion and policy innovation in the political arena. I focus specifically on models professing to explain economic inefficiency and argue that outcomes in such models are determined as much by the ideas that elites are presumed to have on feasible strategies as by vested interests themselves. A corollary is that new ideas about policy—or policy entrepreneurship—can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power. I conclude by discussing the sources of new ideas. Full-Text Access | Supplementary Materials

An Economist's Guide to Visualizing Data, by Jonathan A. Schwabish: Once upon a time, a picture was worth a thousand words. But with online news, blogs, and social media, a good picture can now be worth so much more. Economists who want to disseminate their research, both inside and outside the seminar room, should invest some time in thinking about how to construct compelling and effective graphics. Full-Text Access | Supplementary Materials

Links for 02-07-2014

Posted: 07 Feb 2014 12:03 AM PST

Fed Watch: Another Month, Another Employment Report

Posted: 06 Feb 2014 02:56 PM PST

Tim Duy:

Another Month, Another Employment Report, by Tim Duy: Tomorrow brings the January 2014 employment report. The usual caveats apply:

  • The monthly change in payrolls is a net number and represents only a fraction of the churn in the labor market.
  • The employment data is heavily revised. The preliminary number can greatly understate or overstate actual labor market behavior.
  • Nasty weather might also have impacted the numbers. Robin Harding at the Financial Times identifies other factors - expiration of unemployment benefits and annual revisions - that can also scramble the final numbers in the report.
  • Forecasting the change in payrolls is thus something of a fool's game. A game we all play nonetheless.

With all that said, I will venture a guess of a 200k gain in nonfarm payrolls for January:


This is a bit over consensus of 181k, but pretty much right in the middle of the range of estimates (125k-270k). Full disclosure: Last month my forecast was wildly optimistic. Still, I think that report was an outlier. Overall I don't see that the pace of improvement in the labor market has changed dramatically one way or another in the last few months. The economy have been generating 180-200k jobs a month for two years despite the ups and downs in the data. I suspect underlying activity continues to support a similar trend. Any improvements that were evident prior to the December report were likely modest. Indeed, I am skeptical that the pace of activity overall has dramatically improved either.
As far as monetary policy, it is likely that only a very, very weak report would deter Fed officials from the current tapering agenda. Even that is in question given that we will see another employment report - not to mention a plethora of other data - before the mid-March FOMC meeting. It seems that hawks and doves alike want to wind down the asset purchase program, with the only difference being the pace of tapering. Atlanta Federve Reserve President Dennis Lockhart sums up what I believe is the consensus view:
Absent a marked adverse change in the outlook for the economy, I think it is reasonable to expect a progression of similar moves, with the asset purchase program completely wound down by the fourth quarter of the year...
...But given my current views on the economy, I like the current positioning of policy.
It's in the right place for now, in my opinion. I think we policymakers should be patient—not too quick to respond to zigs and zags in the data.
Hawks, of course, would like a more rapid pace of tapering. Philadelphia Federal Reserve President Charles Plosser basically said "enough is enough" yesterday:
Notice that even though we are reducing the pace at which we are purchasing longer-term assets, we are still adding monetary policy accommodation. As I noted earlier, I believe the economy has already met the criteria of substantial improvement in labor market conditions, and the economic outlook has improved as well. So my preference would be that we conclude the purchases sooner rather than later...
...If the unemployment rate continues to drop at that pace, we will soon be at the 6.5 percent threshold in our forward guidance for interest rates.
Although the FOMC has indicated that it doesn't anticipate raising rates when the economy crosses that threshold, I do believe that we will have complicated our communications if we are still purchasing assets at that point. What is the argument for continuing to increase monetary policy accommodation when labor market conditions are improving rapidly, inflation has stabilized, and the outlook is for it to move back to goal?
Plosser would like to end asset purchases prior to hitting the unemployment threshold. Problem is, that threshold could easily be hit tomorrow if not at the next meeting. So, I guess all I can say to Plosser is "good luck with that."
Bottom Line: Even a weak employment report may not be immediately pivotal for monetary policy; there is still another report to go before the next FOMC meeting. A solid report, however, will further entrench the Fed's commitment to the current policy path.

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