Liveblogging World War II: April 12, 1943
Noah Smith: Kauffman Foundation 2013 Economics Webloggers Forum: Blogging and Your Economics Career

L'Esprit de l'Escalier: April 12, 2013

L'Esprit de l'Escalier: April 12, 2013

  • In the inbox: "Back in 2004, Ross Douthat's shtick was: 'My friends and I worked very hard at Harvard to avoid classes where we would have to work hard or learn anything. How dare Harvard let us get away with it!' Now in 2013 he has removed all of his own agency from the situation--it is no longer in any sense his own fault that the led-to-water horse refused to drink, and that all he got out of his four years at Harvard College were useful right-wing nut noise machine social and career connections."

  • The seasonal update statisticians are updating their seasonal adjustment factors in a reasonable and prudent way. Before last Friday I wouldn't have said that there was a noticeably large chance that we would see weakening in the US economy this spring, but now…. Our models say that when an economy gets wedged like this with clearly subnormal spending and employment, it is either because a shortage of cash Relative to the wage level is making people want to cut back on their spending below income to build up cash balances, or because a shortage of risk tolerance makes people prefer to limit how much spending they commit to risky projects. So you either Giusti economies cash stock--which the Fed has done without noticeable effect--or wait for supply and demand to lower wages (not happening in the US on any useful timescale) or wait for deleveraging to raise risk tolerances back to more normal levels or find some way to boost the risk tolerance of the market. Short-term treasuries are yielding -2 and the S&P is yielding 6. That is one hell of a gap. And I have no clue how long processes of deleveraging take of their own accord…

  • Back in 2009 the IMF made its forecasts of economic growth assuming a multiplier of 0.5--that a 1%-point cut in the government deficit would reduce production and GDP by 0.5%. This graph shows on its vertical axis the difference between GDP in 2011 and what the IMF had forecast, and shows on the horizontal axis by how much countries cut their deficit after 2009. Countries like Germany, Sweden Finland, Austria, and Denmark that expanded their deficits on average grew faster than the IMF had forecast. Countries like Greece, Roumania, Ireland, Great Britain, Portugal and Slovenia that cut their deficits grew slower than the IMF had forecast. The slope is -1: cutting your deficit by an additional 1%-point of GDP reduces growth relative to the IMF forecast by an additional 1 percentage point. Since the IMF forecast assumes a multiplier of 0.5, that means that the multiplier was actually 1.5. Moreover, these are for the most part small countries with a lot of trade: 40% of all dollars or euros or pounds spent are spent outside the country. That means that for the system as a whole--taking account of effects not just on the home country but on other countries--the multiplier is more like 2.5. Screenshot 4 3 13 7 02 AM 5

  • Demographic change putting downward pressure on labor force participation is small, about one percentage point since 2007. See Moffitt (2012). It looks to be overwhelmingly discouraged workers, but the workers by and large don't call themselves discouraged--they say they are going to school or making homes or just taking some time off, but it sure looks to me as if they would be back in the labor force if things were better. As for the transformation of cyclical of the structural unemployment, of course it is going on. How fast is it going on? How reversible is it? I don't think anybody has anything better than slightly informed guesses. We will see at what unemployment rate inflation begins to pick up, and then we will know...

  • Everyone agrees that we have to cut Medicare spending growth somehow or other. Obama figures out where we're paying too much to hospital and insurance companies, cutting that waste, and using the proceeds to increase coverage for seniors (donut hole, etc.) and strengthen the system. The current Medicare Trust Fund is projected to last a lot longer under ObamaCare than it would be if ObamaCare was repealed.

  • We are moving into a future in which we will hopefully have a smaller share of defense in total spending. But we are also moving into a future in which education, health care, and retirement are greater proportions of economic activity. And if there are any lessons from history, it is that the private market does not do well at all in providing retirement security, education, or health insurance. So we really ought to see spending rise. And that means tax increases…

  • In the inbox: "I just noticed Graeber's note 19 to chapter 12, p. 451 of his Debt: 'For those who don't know how the Fed works: technically, there are a series of stages. Generally the Treasury puts out bonds to the public, and the Fed buys them back. The Fed then loans the money thus created to other banks at a special low rate of interest ("the prime rate"), so that those banks can then lend at higher ones. In its capacity as regulator of the banking system, the Fed also establishes the frac­tional reserve rate: just how many dollars these banks can "lend"--effectively, create-for every dollar they borrow from the Fed, or have on deposit, or can other­wise count as assets. Technically this is 10 to to 1, but a variety of legal loopholes allow banks to go considerably higher.' Not understanding the Treasury bond market in a book that purports to be a major treatise on debt???" Ah. But you don't understand: "Graeber: The endlessly cited Apple quote... has been held out, reproduced, sent around in every conceivable way... gets repeated a thousand times. No other one does. That’s because it’s the only sentence flagrantly wrong.... [S]cholars of Greece, Mesopotamia, and Islam, Medievalists, Africanists, historians of Buddhism, and a wide variety of economists... none have noticed any glaring errors—in fact, the most frequent reaction is that it’s remarkable that someone who is not an area specialist actually more or less gets it right (remember, these are scholars often loathe to admit even their own colleagues in the field get it more or less right.) The book is pretty meticulously researched and has stood up to scholarly review." :-) "Oh right, I keep forgetting. Meanwhile, someone should tell him that deposits are not assets but liabilities for banks." Why? If Graeber were interested in learning the difference between a bit and a credit, he would've learned it long ago...

  • "Do you believe that a social revolution, similar to the 1960s or a socio/economic revolution, similar to the 1930s is inevitable, and if so why?" As my teacher Richard Freeman stressed, all of these came out of left field—people who did expect a revolution were surprised because what they got was not what they had expected, and people who did not were surprised, and a lot of the time people who do expect a revolution are surprised by its non-appearance. This is, I think, something that is unforcastable: by the time you can make reliable forecasts, the things that allow you to forecast have already brought it on…

  • “The bottom line,” said Representative Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee, which Mr. Ryan leads, “is that Romney is proposing to take more money from seniors in higher premiums and co-pays and hand it over to private insurance companies and other providers in the Medicare system.”

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