George Soros Leaves a Weblog Comment for Hans-Werner Sinn
Understanding Karl Marx: Hoisted from the Archives from Four Years Ago May Day Weblogging

Noted for May 1, 2013

  • Ryan Avent:** The euro crisis: Europe bleeds out: "IT IS a car crash of a data release…. The overall rate, at 12.1%? In the spring of 2010 unemployment rates in America and the euro zone were effectively the same at about 10%. There is now a gap of 4.5 percentage points. Total unemployment? In the first three years of the downturn America did far worse than the euro area, adding some 7.5m workers to the unemployment rolls to Europe's 4.7m. Since then total unemployment in the euro area has risen by another 3.2m while America reduced the ranks of the jobless by 3.5m. The euro area now has some 19.2m unemployed workers…. Greek joblessness topped 27% in January (the most recent month for which data there are available), while Spanish employment has risen to 26.7%…. And did you know that Dutch unemployment rose by 1.4 percentage points over the past year? German unemployment, of course, has held steady at 5.4% since last summer. It is the youth figures that are most remarkable, however: 59.1% of those under 25 are unemployed in Greece, 55.9% in Spain, 38.4% in Italy, 38.3% in Portugal, 26.5% in France—3.6m youths in all. There is blame to go around for this, but one has to reserve special criticism for the European Central Bank. The Federal Reserve's main policy rate has been effectively zero since late 2008; the ECB's has never fallen below the current 0.75% level. The Fed has undertaken major asset-purchase programmes in an effort to raise growth expectations, lower interest rates, and improve lending conditions; the ECB deployed a special lending programme to banks last year in order to prevent a systemic collapse, but its balance sheet has since been shrinking as those loans are repaid. The Fed has reacted to weakening inflation and inflation expectations and has linked policy changes to labour market indicators. The ECB has presided over a wrenching disinflation that has brought inflation well below target, and which is both a consequence of recession and itself an implement of macroeconomic pain. Europe's governments have behaved badly, but American fiscal policy has hardly been better…. [A]t the moment, the ECB is behaving as though the main economic failure in the 1930s was the world's pathetic inability to grit its teeth and endure the costs of tight money."

Tom Kludt: Polling Backlash For Senators Who Opposed Background Checks | Michael Steen: Eurozone jobless rate hits record high as inflation falls | Aaron Carroll: Remember this the next time someone disses Medicaid | Tom Braithwaite in New York and Shahien Nasiripour: Fed weighs tighter cap on bank leverage | Ethan Pollack, Josh Bivens, and Andrew Fieldhouse: Dangerous targets: Why setting a specific deficit reduction target would worsen the economic and fiscal situation | Dan Baum: Now She Tells Us: Sandra Day O'Connor's Memoir |

  • Heidi Shierholz: The missing workers: how many are there and who are they?: "A recent paper (pdf) on labor force participation in the aftermath of the Great Recession by Christopher Erceg and Andrew Levin of the Boston Federal Reserve Board unearths an excellent resource for getting to the bottom of how much of the decline in labor force participation since the start of the Great Recession is due to cyclical factors (i.e. the result of a lack of job opportunities) and how much is due to structural factors (e.g. things like baby boomers hitting retirement age)…. We estimate that the U.S. economy needs 8.8 million jobs to restore the degree of labor market health that prevailed in December 2007. Embedded in this number is an estimate that much of the decline in labor force participation—from 66.0% in December 2007 to 63.3% last month—has been due to the weak economy, and not to more benign, non-cyclical factors… the work by Erceg and Levin finds that indeed cyclical factors account for the bulk of the post-2007 decline in the labor force participation rate…. Who are the missing workers? More than half of all missing workers—53.7 percent—are “prime age” workers, age 25-54. A third are prime age men and a fifth are prime age women. Another roughly 30 percent are under age 25; 18 percent of missing workers are men under age 25 and 13 percent are women under age 25…. The remaining roughly 15 percent of missing workers are age 55 and over, mostly women; 13.1 percent of missing workers are women age 55 and over, while 2.6 percent of missing workers are men age 55 and over. The only gender/age group that has not seen a cyclical decline in labor force participation is men nearing retirement age, those age 55-64. This is likely due to workers opting not to retire early because of the loss of retirement security caused by the effects of the Great Recession."

  • Michael Spagat: The Iraq Sanctions Myth: "It is easy to get lost in this hall of mirrors, so let me be clear. Iraqis did suffer a lot under the sanctions regime, but the child mortality rate was not highly elevated throughout the 1990s and just before the invasion of Iraq. Nor did the child mortality rate plummet after this invasion. Nevertheless, many people continue to be taken in by the sanctions myth. Surveys are a ubiquitous part of modern life and a crucial research tool. Yet quality varies considerably from survey to survey and results are often wrong as recent, high-profile measurement fiascos in Iraq and the DRC demonstrate. When we see a survey all of us will now pause for a moment to reflect on the integrity of the field work. If more people had done this in recent years it might have made it more difficult to justify, excuse, or cite bogus reasons for some of the terrible violence that has plagued our world in the 21st century."

Owen Zidar: The Role of Automatic Stabilizers in the U.S. Business Cycle: "Alisdair McKay and Ricardo Reis have a new paper on automatic stabilizers with some interesting results on heterogeneous effects for different income groups: 'ABSTRACT: Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how effective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the effectiveness of the stabilizers, whereas tax-and-transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any effect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the effectiveness of the stabilizers.'"

  • Paul Krugman: The Story of Our Time: Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family. Families earn what they can, and spend as much as they think prudent…. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too. And that’s what happened after the financial crisis of 2008…. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day. Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment. So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused."