Sunday, August 31, 2003
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Voting with their feet... |
I missed this on Friday, as well as the earlier LA Times article. In what appears to be a consistent pattern, blue states are losing population and red states are gaining.
Tax dollars, federal money, economic growth, and votes are all involved with population flows like this. What's the cause? Says OpinionJournal's Daniel Henninger:
When the Los Angeles Times published a story on the outflow, it didn't have much trouble identifying the reason: The exodus is economic. In the world's stalest states, such as Germany or Japan, people faced with cost-of-living waters rising to choking levels turn numb and go nowhere. But here in the U.S. moving on is a tradition, and today we have Web sites to reveal a suitable refuge from state political cultures intent on keeping the spending and tax spigot open. |
| Link posted by Steve Antler : 7:10 PM |
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Let's try to remember none of this stuff really matters... |
By The Associated Press : "Most voters haven't started paying attention to the Democratic presidential race, says a poll released on Labor Day weekend--the campaign's traditional starting point...Two-thirds of voters--including two-thirds of Democrats--were unable to name any of the Democratic candidates for president, said the CBS News poll out Sunday..."
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| Link posted by Steve Antler : 1:30 PM |
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Rich pay more... |
Via Bruce Bartlett: new CBO study on effective Federal tax rates. One conclusion: if measured as quintile's percent contribution, federal taxes increased in progressivity between 1997-2000 (top quintile goes from burden of 64.2% to 66.7% of total).
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| Link posted by Steve Antler : 9:17 AM |
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Wrong once, wrong twice... |
Putting politics aside, consensus seems forming Paul Krugman's two most important recent economic predictions are about as wrong as can be.
First and foremost there's the Krugman insistence the recovery is not happening. Forget it. Everyone now feels safe saying the recession is really over:
The strong recovery is finally here. The economy's momentum is unmistakable, despite the East Coast blackout, the jump in long-term interest rates, the spike in gasoline prices, and a mammoth federal budget deficit. Orders are up, and business is investing for growth. Profit margins among the approximately 2,300 companies that have reported second-quarter results are now close to pre-recession levels, according to consulting firm Economy.com. The stock market has largely held onto the gains of recent weeks. Apoplithorismosphobia is receding, too. That's Greek for fear of deflation or, perhaps more correctly, the fear that deflation signals a depression, say Mark Thornton, senior fellow at the Ludwig von Mises Institute in Auburn, Ala.
So is that it? Can we safely put away our books on the Great Depression, 19th century deflations, and Japanese economic history? Hardly. Deflation isn't a temporary consequence of the 2000-03 downturn. It's a signal that the age of inflation is over. Deflation's emergence reflects the spread of market capitalism and the rise of the global financial markets. Both trends will only gain influence in coming years.
And of course that troubling second paragraph brings us to the second, and perhaps more important, Krugman economic prediction that turns out to be wrong. Consensus is now that deflation in the strict monetary sense is an ongoing threat to the US and world economy. While Paul has discussed deflation from time to time, he's never brought it forward as any sort of central threat to the US economy.
Instead, for years Paul has warned of an upcoming Return of Depression Economics -- a deficient-aggregate-demand-style economic slowdown. Before or after 9/11 and two wars, this simply never happened. For all the whining about income maldistribution, tortured (and misused) statistics, and above all the hysteria over distributional aspects of the tax cut, the recent US economy has never shown a shred of evidence of Depression-style insufficient aggregate demand. |
| Link posted by Steve Antler : 6:54 AM |
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Their crippling obsession... |
The Bush Tax Cut continues its starring role in the establishment's intellectual life. Here, Maureen Dowd is has-been comedian, desperately seeking a joke to go with her perfect, treasured punch line:
You can't conduct a great historical experiment in a petty and bickering frame of mind. The agencies of the Bush administration are behaving like high school cliques. The policy in Iraq is paralyzed almost to the point of nonexistence, stalled by spats between the internationalists and unilateralists, with the national security director, Condoleezza Rice, abnegating her job as policy referee.
The State Department will have to stop sulking and being in denial about the Pentagon running the show in Iraq. And the Pentagon will have to stop being dogmatic, clinging to the quixotic notion that it only wants to succeed with its streamlined force and its trompe l'oeil coalition. Rummy has to accept the magnitude of the task and give up running the Department of Defense the way a misanthropic accountant would.
Big deeds need big spirits. You can't have a Marshall Plan and a tax cut at the same time. |
| Link posted by Steve Antler : 6:49 AM |
Saturday, August 30, 2003
Friday, August 29, 2003
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New Iraq Press Editorials: More MEMRI Translations |
This batch expresses lots of dissatisfaction with the Saudis and other Arab states:
Iraqi frustration with the dominant Arab position was...reflected in a grass-root initiative: According to the daily Baghdad (published by the Iraqi National Reconciliation Movement) "more than 700 Iraqi intellectuals signed a petition urging the Governing Council to suspend Iraq's membership in the Arab League...because of the Arab countries' support of the former regime and their opposition to the Coalition efforts to change it. The petition harshly criticized the latest decision of the Arab League regarding the interim Governing Council [the League did not recognize the legitimacy of the Council]..." The petitioners urged the suspension of Iraq 's membership until "the Arab League admits its grave mistakes towards our nation and amends its appalling positions towards the Council and Iraq..." |
| Link posted by Steve Antler : 2:39 PM |
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Redistribution as the new Prohibition Movement? |
There are many historical examples of radical economic change calling forth countervailing religious movements -- turn of the century American revivalism as reaction to urban industrialization, for example.
There have been so many strains of redistributionist thinking in U.S. political life of the past fifteen years, from Rawlsianism to Gore Populism to the Living Wage Movement, we begin to think we're actually seeing a genuine spiritual reaction to globalization and the higher-productivity new economy.
To attribute Orlando's new living wage law to a simple religious construct like Christian fundamentalism or liberal Judaism is foolish. Something more complicated has to be involved, or politicians like Gore (or Bush, for that matter) would have clearly and obviously succeeded in harnessing this impetus.
Bob Riley's proposed Alabama tax increase may prove a turning point, since it is explicitly based on an appeal to what's called, in academic circles, "Primitive" (i.e. early, pre-Patristic) Christianity:
In late May, Gov. Bob Riley, a conservative evangelical Republican who'd never supported a tax increase in his life, unveiled a plan to enact the largest tax increase in Alabama history. Riley's plan lays claim to enough revenue to pay off the state's $675 million deficit and still raise hundreds of millions more for public schools and social services. In addition, Riley's $1.2 billion plan substantially shifts the tax burden from poor Alabamians to the wealthy.
"Jesus says one of our missions is to take care of the least among us," Riley told The Birmingham News in May[,] "[w]e've got to take care of the poor."
Turn of the century religious revivalism, of course, culminated in the socially and economically disastrous social experiment known as Prohibition. One can only wonder what this new religious movement will bring forth? |
| Link posted by Steve Antler : 9:45 AM |
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Paul Krugman plays Tokyo Rose |
Depressing, to see a talented economist cross-dress as enemy propagandist:
The direct military cost of the occupation is $4 billion a month, and there's no end in sight. But that's only part of the bill.
This week Paul Bremer suddenly admitted that Iraq would need "several tens of billions" in aid next year. That remark was probably aimed not at the public but at his masters in Washington; he apparently needed to get their attention.
It's no mystery why. The Coalition Provisional Authority, which has been operating partly on seized Iraqi assets, is about to run out of money. Initial optimism about replenishing the authority's funds with oil revenue has vanished: even if sabotage and looting subside, the dilapidated state of the industry means that for several years much of its earnings will have to be reinvested in repair work...
[E]ven the government of a superpower can't simultaneously offer tax cuts equal to 15 percent of revenue, provide all its retirees with prescription drugs and single-handedly take on the world's evildoers -- single-handedly because we've alienated our allies. In fact, given the size of our budget deficit, it's not clear that we can afford to do even one of these things. Someday, when the grown-ups are back in charge, they'll have quite a mess to clean up.
As usual, we've got more questions here than answers. The $4 billion a month, for example -- Paul: can you tell us if this number includes expenses we'd have to pay out even if we weren't in Iraq? Does it include, for example, stuff like food or gasoline?
If so, maybe you could explain why our fighting men don't need to eat or travel when they're outside Iraq?
UPDATE: Krugman's so looking forward to getting the "grown-ups" back in charge I'd suggest he form a new variety act called "The Three Grownups" consisting of himself, Michael Moore, and Al Franken. As an administrative crew maybe they could find the Clinton staffers who ripped the "w's" off the computer keyboards as they left the White House. |
| Link posted by Steve Antler : 7:29 AM |
Thursday, August 28, 2003
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JUST IN |
JOINT ECONOMIC COMMITTEE VICE CHAIRMAN JIM SAXTON PRESS RELEASE CONGRESS OF THE UNITED STATES For Immediate Release
August 27, 2003 SUSTAINED ECONOMIC GROWTH SHOULD BE A TOP PRIORITY OF TAX POLICY
-- Tax Relief Did Not Cause Budget Deficits -- Press Release #108-53
WASHINGTON, D.C. -- Partisan attacks on Administration economic policy by Senator John Kerry and other presidential candidates fail to acknowledge the fact that tax relief legislation did not push the budget into deficit, Vice Chairman Jim Saxton said today. Instead, the bursting of the financial bubble in 2000, and the related economic slowdown and recession that followed, are the main factors pushing the budget into deficit. In other words, these economic factors changed the budget situation; a changed budget situation did not cause the economy to deteriorate, as some suggest.
Congressional Budget Office (CBO) budget surplus projections made in January 2001 demonstrate that the budget effects of the tax bills passed in the last three years were too small to push the budget into deficit. The budget effects of the tax legislation alone would have left large surpluses through 2008. For example, in 2003, after enactment of the tax relief bills, the surplus would have been $182 billion. However, the popping of the financial bubble in 2000, and the associated economic slowdown and recession, along with new spending, will generate a 2003 deficit of $401 billion, according to new CBO estimates released yesterday.
"The magnitude of the economic and technical revisions to the 2001 CBO budget projections has been astronomical," Saxton said.
"The numbers show that the recent swing from large budget surpluses into deficits is much too large to have been caused by the tax legislation passed in the last three years. Unfortunately, some have confused the effects of the economic and technical revisions with those of the tax legislation...Despite the partisan criticism, economic growth now seems to be responding favorably to the changes in tax policy. This tax relief policy is based on the idea that restoration of healthy economic growth should be a main focus of tax policy. A pick up of economic growth also will provide a much more favorable setting in which to address the problem of deficit spending," Saxton concluded...
For more information on tax policy, please visit our website at www.house.gov/jec.
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Thanks to S.B. for passing this along. Click here for whole release (including table) in PDF format. |
| Link posted by Steve Antler : 8:24 PM |
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Yes, we remember a time before air conditioners... |
Absolutely essential reading from Victor Davis Hanson, on why everyone wants us to fail in Iraq. Take Europe, and more specifically France, for example:
[American] failure [in Iraq] is essential to confirming the entire European view of how the world should work. Expecting French support would be the equivalent of asking them to admit that investment in American-style air-conditioners was necessary not merely for their dead, but for the living as well -- or that those lengthy August retreats to the beach and mountains while their parents and grandparents fried was an indictment of their entire socialist paradise. Who could think that the same type of individual responsibility for which they caricature us is sorely needed, in an amoral country where the younger and hale expect the state to do for the old and unwanted what they themselves will not? I have been to dozens of American hospitals in August in the scorching San Joaquin Valley heat, but never to one that was empty of nurses and doctors. And when it hits 110 in supposedly provincial Fresno, 10,000 Valley residents -- poor or rich, young or old, citizen or alien -- do not die. |
| Link posted by Steve Antler : 3:07 PM |
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In that great Davis tradition of opportunist demagoguery... |
Bustamante, Lawmakers Unveil Legislation to Make Energy Price Gouging A Felony:
SACRAMENTO - Lt. Governor Cruz M. Bustamante and members of the State Assembly today unveiled proposed legislation that would allow for the criminal prosecution of corporations and their executives and employees who engage in market manipulation in California's gas and electricity markets.
The measure, AB 67x, authored by Assemblyman Dennis Cardoza, D-Merced, would make it a felony for any director, officer or employee who manipulates the market to charge 'unjust or unreasonable rates,' as determined by any state or federal regulatory agency and current federal law.
'This proposed law would make it a criminal act for energy generators to defraud the State of California by gaming the market and price-gouging California consumers,' Bustamante said at a Capitol news conference. 'If what they're doing isn't illegal, it ought to be.'
The California Independent System Operator estimates that more than $6 billion in unjust and unreasonable rates have been charged by energy companies. In addition, William L. Massey, a member of the Federal Energy Regulatory Commission, said Wednesday in Washington, D.C., that generators are 'exercising their market power' in California '24 hours a, seven days a week.'
'Our state treasury is being plundered of billions of dollars, and funding for other critical programs is being placed in jeopardy,' Bustamante said. 'Ongoing investigations and lawsuits will deal with what's taken place to date. This bill will stop the gouging in the future.'...
UPDATE: Via Bruce Bartlett, this from Fox. |
| Link posted by Steve Antler : 2:19 PM |
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The New Egyptian Economic Anthpology of Imperialism |
Find this at today's MEMRI, an extract from "May the Cannibals be Cursed!" by Fatma Abdallah Mahmoud, published in Al-Akhbar (an Egyptian government daily):
According to the French 'Dictionnaire Larousse,' cannibals are primitive, barbaric, blood-letting creatures from the prehistoric era. They lived by killing their human enemies, tearing their bodies apart, disemboweling them, taking apart their organs, gouging out their eyes, scalping their heads, and hanging their skulls at the entrance to their caves! After that, they would gobble their flesh while it was still raw. Only after they had completely digested them could they be certain they were dead!
'Dictionnaire Larousse' adds...that this was how the cannibals...took vengeance upon their enemies. They would slaughter them, tear them limb from limb, and mutilate the corpses, exactly as the American forces did to the bodies of Saddam Hussein's two sons Uday and Qusay, whose distressing and shocking pictures were circulated by the world media.
Every place that it destroys, annihilates, and plunders treasure and oil [from], America does no less than what primitive cannibal tribes did in the prehistoric era!!
What is the meaning of the abhorrent crimes that America perpetrates in Iraq , Liberia , Afghanistan , Sudan , and Palestine via the Israeli angels of destruction? What is the meaning of the deeds carried out everywhere by the American forces -- or to be more precise, by the children and grandchildren of the gangs of pirates and blood-letters who run [ U.S. ] policy?...
What is the meaning of this satanic force that makes them mutilate corpses, in a way so barbaric and loathsome -- thus harming human dignity, whether the individual be dead or alive, and contravening the simplest of the rudiments of morality, humanity, and even military [ethics]?!!
Behold, we see these pirate murderers, who completely annihilated the peace-seeking Indians on their land, prove that there is no difference between their repulsive and loathsome present and their black past, [blood] stained with crime and murder.
The blood spilled in most of the countries of the free world -- the hero Iraq, the courageous fighting African Liberia from which America seeks to remove French protection, and Afghanistan, whose poor and ordinary citizens gave the arrogant American forces a drink from the bitter [cup] of defeat and humiliation, [the same cup from which] they drank, to intoxication, in their war in Somalia. In addition, we must never forget the fierce whipping the Americans took in Vietnam; American military honor was dragged like a floor rag through the Vietnamese swamps!
The fight against America will be continued, Allah willing, by the peoples waging Jihad against the original pirates and criminals [i.e. the Americans] -- or, to be more precise, against the cannibals and the human corpse-disembowelers!!
Thanks ( -- I think? -- ) to D.H. for sending the WSJ link (subscription required). WSJ also points out the same government which sponsors publication of this material has received about $60 billion in US aid since 1979. |
| Link posted by Steve Antler : 11:06 AM |
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A Modest Proposal |
As we know from this and similar reports, the Saudi government is now challenging the Bush administration to prove Saudi citizens are fighting American troops in Iraq.
'We are very concerned about this issue because we would like to take action,' Saudi foreign policy adviser Adel al-Jubeir said in an interview with The Associated Press. 'But we have no evidence of Saudis crossing into Iraq and we have received no evidence from the U.S. government.'...Al-Jubeir said his government has offered to send its own team of investigators to help U.S. officials identify any possible Saudi expatriate who may have come through other countries, like Iran, or who made it through the porous, desert borders between Iraq and the Saudi kingdom...'We are willing to send a team to Iraq to look at any evidence they might have,' he said. 'Saudi Arabia is determined to fight terrorism and to prosecute terrorists regardless of where they are.'
Wouldn't it prove Saudi Arabia wasn't involved in terrorist sabotage of the Iraq-Turkey pipline if it immediately agreed to an increase in oil production equal to Iraq's normal capacity? Under such an agreement, Saudis would subsequently cut back their production as Iraq gradually increased its own output of crude. Regional crude production would no longer be affected by Iraq's recovery or by ongoing economic terrorism against pipelines or fields.
This, like nothing else, could prove to the world Saudi Arabia is not practicing economic terrorism as a means of limiting regional oil output. This is a useful way Saudis could contribute to and prove their support of Iraq's economic recovery. |
| Link posted by Steve Antler : 10:42 AM |
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Coleman car-campers are gloating... |
We've just finished putting the camping gear away. Okay, now I admit it, we're basically 1950's style "car-campers." While we eschew electricity and use tents instead of the more common trailer or recreational vehicle, we keep food in nonmechanical ice chests left in the nearby car overnight (keeps raccoons and bears away).
While we may take the occasional hike, we don't backpack into the woods overnight. Our latest innovation in gear was a clunky Coleman toaster, which uses a red-hot over-the-camping-gas-burner metal plate to toast bread one side at a time. It is nice to know we're in a growing majority:
According to the Outdoor Industry Association's 2002 annual recreation survey, the number of newcomers to cycling, canoeing, climbing, hiking and snowshoeing was flat, continuing a trend that started in 1999. Backpacking declined. And the outdoors folks are trying to figure out how to crack the youth market, which would rather jump off a cliff than hump a pack through the woods. |
| Link posted by Steve Antler : 10:09 AM |
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Hey, when you're right, you're right! No? |
Q2 GDP growth has been revised upward to 3.1%. Let's remember way back in April, when everyone else was wondering whether there'd be anything significantly above zero to report, Fairmodel was predicting 2.7%. It seemed so outlandish everyone (including me) ignored it.
Guess what? With the modest exception of EconoPundit's discerning readership, mostly everyone is still ignoring it! |
| Link posted by Steve Antler : 8:06 AM |
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What will your salary buy in San Diego? |
We're adding this instant city-to-city cost of living comparison calculator to the EconoData section of the blogroll just as soon as we decide on a snappy short name.
Thanks to Robert Musil (who used it to show Paul Krugman was ignoring important data). |
| Link posted by Steve Antler : 7:11 AM |
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It's a "source of the source" kinda thing... |
There's an old first-year graduate exercise proving the rate of economic growth depends not simply on the level of investment, but rather on the level of investment in capital goods industries.
Here's an update of the same line of thinking -- an optimistic Chicago Fed Letter arguing the source of productivity growth is not use of but rather investment in information and communcations technology:
At the peak of the "New Economy" hype of the late 1990s, many argued that "The Internet changes everything." The presumption was that the changes would take place almost overnight. But the lessons from previous general purpose technologies such as electricity, as well as recent theoretical and empirical work, suggest that the necessary complementary investments and innovations take place only with long lags. Thus, it could be that the promise of the Internet and other new technologies will continue to be realized -- but [only] over a long period.
More generally, though, the sustained, strong productivity performance of the U.S. economy gives grounds for cautious optimism that when the overhang of recent bad shocks ends, the economy could return to relatively robust rates of growth. To the extent that ICT is, indeed, a general purpose technology, the returns to innovation (whether managerial innovations or the development of new products and processes) are likely to remain high for some time to come.
(Thanks to Bruce Bartlett for the link.) |
| Link posted by Steve Antler : 6:52 AM |
Wednesday, August 27, 2003
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Political Deja Vu |
| To me this guy is sounding more and more like Ross Perrot. Don't his people tell him (a) this sort of thing can be verified and (b) most people don't think CNN is a wing of the Bush Administration? |
| Link posted by Steve Antler : 7:41 AM |
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Did you know? |
| Babson College's Global Entrepreneurship Monitor conducts and publishes an annual survey measuring many aspects of U.S. entrepreneurial activity (including, of course, whether or not it is increasing). Check out Bill Hobbs' discussion of the latest report. |
| Link posted by Steve Antler : 7:19 AM |
Tuesday, August 26, 2003
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Just in from Reuters: the sky is falling! (Forget about everything after 2004, those years don't count.) |
Actually, the new CBO study they're talking about seems pretty optimistic:
If current laws and policies do not change, the federal government will incur a total budget deficit of $401 billion this year and $480 billion in 2004...Although those deficits represent record levels in dollar terms, at about 4 percent of the nation's gross domestic product (GDP) they are smaller than the deficits of the mid-1980s... In the absence of further legislative changes, the recent surge in deficits will peak in 2004, CBO estimates; after that, annual deficits will decline steadily before giving way to surpluses early in the next decade. Deficits are projected to total $1.4 trillion over the next five years. The five years after that show a small net surplus (less than $50 billion) in CBO's latest projections.
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| Link posted by Steve Antler : 2:59 PM |
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Uh, what day of the week did you say this is? |
Semi-exhausted, we're back.
Aside from its mile-long beach, the Island's main feature is emptiness.
Please don't get me wrong, I'm pro-people, pro-population, pro-city, pro-development, pro-settlement -- but still, when there is no artificial lighting for miles and the night sky is clear it's like a vision of the afterlife.
We saw a hazy glow, a city in the distance, an impossibility since there was no city in that direction. It was the start of that evening's Northern Lights, shortly moving from hazy white glow to a kind of cinemascope skyline bar code to a crazy light show of streaks, layered dancing ripples, glowing cloud formations moving impossibly from horizon to horizon in a flash. On it went for hours.
Mars was an impossible heavy orange streetlight just hanging on the horizon. We could find it each of the clear nights.
And from the Island we moved to Door County. Between American Folklore Theater and Peninsula Players we were able to catch a new play each night.
And now, after all that, we're back. The camping gear sit organized in the dining room, waiting to be re-sorted and cleaned. And then we put it all away for yet another year. |
| Link posted by Steve Antler : 8:05 AM |
Thursday, August 14, 2003
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History happens all the time... |
For three years I've been teaching economics (and a bit of Western Civ) to MBA students from the Peoples' Republic of China. It feels excellent to read stuff like this:
BEIJING - Communist leaders plan to amend China's constitution to formally enshrine the ideology of Jiang Zemin, the recently retired leader who invited capitalists to join the Communist Party, official media said Tuesday...The change would give Jiang a shot at his longtime goal — sealing his place in history alongside his legendary predecessors. Jiang's policies might find a place in the constitution along with those of Mao Zedong, the founder of communist China, and Deng Xiaoping, who launched the country's economic reforms...The news reports gave no details of the possible changes. But foreign analysts say they include the communist era's first guarantee of property rights for entrepreneurs who have driven China's two-decade-old economic boom.
Find more commentary at Samizdata.net. |
| Link posted by Steve Antler : 8:00 AM |
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Herbert cites Solow... |
Today in NYT:
Speaking at a press conference arranged by the Economic Policy Institute...Robert Solow...assailed the Bush tax cuts as "redistributive in intent and redistributive in effect."
This is just lazy and disappointing. The remainder of the editorial is blatantly redistributionist, as is the entire EPI website.
To favor redistribution is a perfectly valid policy stance, one with which reasonable people could agree or disagree. But to favor a highly radical version of it yourself while claiming neutrality and accusing your opponents of redistributionism is a tactic designed to win by confusing the natives. It stinks. |
| Link posted by Steve Antler : 7:50 AM |
Wednesday, August 13, 2003
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Pope Converts to Protestantism |
No, wait, that's the next story. This story is that MAUREEN DOWD ACTUALLY WROTE A WITTY COLUMN. Its subject matter is Democratic politicians' blogs. Somebody's got to reproduce it with full links to each blog she cites. If nobody does this by 3pm today, I may have to do it myself. I'm waiting...
UPDATE: Robert Musil, highly structured exhibitionist, completes part of the challenge by giving us links but not a reprint. Anyway here's a portion of his comments:
As criticism of her effort, I can offer naught but a quibble. Yes, Ms. Dowd is correct to write that these Democratic candidates are crowding into the blogosphere -- spewing out canned meanderings in a genre invented by unstructured exhibitionists. How quickly things change now. Before the blogosphere, such candidates could only spew out their canned meanderings by crowding into the first available genre invented by unstructured exhibitionists: the mainstream media.
How could Maureen Dowd, the nation's leading unstructured exhibitionist, have missed such a point?! |
| Link posted by Steve Antler : 8:27 AM |
Tuesday, August 12, 2003
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Time for a little vacation... |
I continue to be troubled by this graph. Wiser heads than mine have combed thru the numbers, but I still worry. My family is taking me camping in a few days. This is probably a good idea.
What's my concern? First and foremost there's the ironic sardonism that the surplus -- emblematic for Krugman and his followers of everything right about the Clinton years -- would graph out as such a phallopriapic  monstrosity. To a reasonable oberver the shape would seem emblematic of everything wrong with the Clinton years. I guess this is the sort of thing one should notice and then forget about.
But there's more. The plot seems so striking and singular you can't help but wonder did this rapid accumulation of surplus do damage? Sudden radical events are always suspect. Those familiar with the numbers credit declining stock prices as a clear-cut cause of the recession. Still, we know the surplus accumulated quickly because (a) there was an economic boom preceeded by (b) a radical tax increase which caused (c) lots of bracket creep -- in effect, an additional tax increase.
Now just as there are structural and cyclical deficits, so must there also be structural and cyclical surpluses. Much of this surplus had to have been "cyclical" -- caused by the business cycle rather than causing it.
But in the aggregate macroeconomy everything really causes everything else. This is (and here you must pardon possibilities of further sexual innuendo) a leakages/injections question. The surplus was used to retire debt. Did this process take place at a fast enough pace? Or did the failure of the Clintonites to move quickly enough spark the recession? |
| Link posted by Steve Antler : 12:13 PM |
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Just In |
From: Robert.Nichols
Sent: Tuesday, August 12, 2003 11:13 AM
Subject: Facts regarding the Increase in Dividends - from the US Treasury
It has long been recognized that the double taxation of corporate dividends introduces many deleterious distortions into the economy, including an inefficient bias against corporate finance by equities, and a disincentive to pay out dividends to shareholders. The Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) addresses these disincentives by greatly lowering the maximum tax rate on dividends and on capital gains to 15 percent in 2003-2008, and for taxpayers in the 10 percent and 15 percent ordinary brackets, the rate falls to 5 percent in 2003-2007 and to zero in 2008. By encouraging equity financing, it will reduce the risk of corporate bankruptcies. By encouraging higher dividends, it will help reduce faulty accounting that led firms to overstate earnings. The effects of JGTRRA are already being seen, especially in the numbers of companies that have increased their payouts of dividends.
Perhaps the clearest evidence of the effects of JGTRRA is the large number of companies that have initiated dividend increases since May 28. Ex-Dividend.com has reported 719 dividend increase announcements so far this year, compared with 550 announcements at this point last year. In particular, the number of announcements from June 1 through July 25, 2003 was 74 percent greater than during the same period last year. Companies increasing dividends include such well-known names as Target, Procter & Gamble, Walgreen, and Bank of America. More than 60 percent of the companies have hiked dividends by more than 10 percent. 210 companies have announced a dividend increase since President Bush signed JGTRRA into law on May 28, 2003.
Moreover, JGTRRA's influence can also be seen in the 134 companies that were not previously paying dividends, but have announced dividends this year. These companies include Microsoft, Viacom, Petsmart, and IHOP. According to Bloomberg (July 27): "Shareholders will pocket $9.2 billion more from Standard & Poor's 500 Index companies in the next year, thanks largely to President George W. Bush's dividend-tax cut. Since Bush signed the tax reduction into law in May, 54 members of the S&P 500 have either raised quarterly dividends or started making a payout. The average increase has been 28 percent."
-end- (Links added.)
Via BB. Thanks.
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| Link posted by Steve Antler : 10:42 AM |
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Daschle exemption now available to all States? |
NYT limply calls the Bush forest plan a "Misdirected Forest Strategy":
On its face, the plan seems innocent enough. It would increase the Forest Service's fire-prevention budget and presumably the service's ability to stop fires before they happen by aggressively thinning overgrown forests and deliberately setting controlled fires to prevent even bigger blazes. The problem with the plan is that it is hopelessly, perhaps deliberately, vague. It does not specifically require that the money be spent where it would obviously do the most good, at the urbanized edges of the forests, where homeowners and their property are most at risk. Indeed, its mandate is so broad that it practically invites commercial logging on millions of acres in remote areas of the national forests, where fires pose little or no threat to people or property but where the trees are the biggest and the opportunities for profit are the largest.
My experience with Democratic friends tells me the Party's environmental branch has been owned by crazies for way too long. The Party Faithful no longer have a serious stock of knowledge about biology or environmental economics. This means Clinton's midnight environmental regulations will turn out to be be their own, not the Republicans', poison pill.
Just imagine the two sides facing each other in a debate. There's the angry environmentalist ranting about forest industry exploitation. Your eyes glaze over as he explains the forest ecosystem was completely different before settlers wiped out the indigenous inhabitants. You get a little uncomfortable as he explains people just shouldn't build their houses in areas threatened by recent forest fires.
And on the other side of the platform there's this boring Republican guy in a suit. Now it's his turn to speak.
He stands up and says if you don't harvest a reasonable number of the trees and use them to build, say, low-income housing, they'll just burn down anyway.
End of story.
UPDATE: On the Daschle exemption, I guess this is an okay place to start. |
| Link posted by Steve Antler : 7:59 AM |
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Paul Krugman, Socialist Internationalist Transnational Progressivist |
There are always those wonderful, innocent darling freshmen boys and girls who were raised in a videogame and know nothing of the world. Every semester I have to explain to some of these how the public sector spends most of its money by buying goods and services from the private sector. No, I have to explain, we don't have "public" companies for the government and "private" ones for the rest of us.
Now Paul Krugman comes along and muddies the whole thing up :
Military privatization, like military penny-pinching, is part of a pattern. Both for ideological reasons and, one suspects, because of the patronage involved, the people now running the country seem determined to have public services provided by private corporations, no matter what the circumstances. For example, you may recall that in the weeks after 9/11 the Bush administration and its Congressional allies fought tooth and nail to leave airport screening in the hands of private security companies, giving in only in the face of overwhelming public pressure. In Iraq, reports The Baltimore Sun, 'the Bush administration continues to use American corporations to perform work that United Nations agencies and nonprofit aid groups can do more cheaply.'
As I recall the airport screening issue was over unionization, not privatization, but perhaps I missed something. Anyway, even if the Baltimore Sun said it and meant it I don't think anyone who knows anything agrees UN agencies and "nonprofit" NGO's can do things more cheaply than American corporations.
UPDATE: Luskin says it best:
And as to the "ideological reasons," isn't it peculiar that an economist would as reflexively mistrust private economic action as Krugman does? It's rather like a veterinarian who doesn't much like puppies. |
| Link posted by Steve Antler : 7:10 AM |
Monday, August 11, 2003
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Farther and farther we go, out on a limb... |
Judging from the ECM's figures on consumer spending I'd predict the upcoming retail sales announcements will be a pleasant surprise. But then we're getting used to good news by now.
UPDATE (8/12, 6pm): Import prices are announced tomorrow as well. ECM calls for a 3.9% drop, but I'm a little foggy on where oil prices fit into this.
UPDATE (8/13, 7:15am): and by the way we're also looking for a spectacular (say -20%?) decline in business inventories. |
| Link posted by Steve Antler : 9:46 PM |
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Great example... |
 This jumped out at me as an exceptional news photo.
To supporters, it shows a resolute, vigorous, alert political leader.
To detractors it shows a finger-wagging, scolding, self-righteous bully.
Maybe the best news pictures are the ones that can be both things to both parties. |
| Link posted by Steve Antler : 12:24 PM |
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All together now, once more, everybody repeat after me: "No Monopoly Lasts Forever." Very good! |
(Reuters) Low-Cost Linux Gaining on Microsoft in India: "About 10 percent of India's personal computers will be sold with Linux rather than Microsoft operating systems by March, 2004, says Linux distributor Red Hat Inc (Nasdaq:RHAT - news), up from nothing in January.
Besides the plain switch of desktop operating systems to Linux, analysts say the bigger worry for Microsoft is the growing use of Linux among India's pool of an estimated 400,000 software developers, many of whom churn out code for giants such as General Motors (NYSE:GM - news) and American Express (NYSE:AXP - news). " |
| Link posted by Steve Antler : 12:12 PM |
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The future's proper context is the past... |
Reproducing Al Hunt's available-to-subscribers-only WSJ deficit complaint, Brad DeLong posts a graphic which projects future deficits to 2013.
He provides us with this interpretation:
The problem is not this year's deficit or next year's deficit--big deficits in a time of near-recession and falling employment are a good idea. The problem is the deficits that will stare us in the face five, ten, twenty, et cetera years in the future: deficits that will slow economic growth and create the risk of turning our politics in an Argentinean direction
 Frankly, there are subtleties here Brad is missing.
First, it's neither fair nor wise to project into the future without establishing a context.
When we look over that context, namely the five decade history of real federal deficits and the real value of federal debt, we see a striking picture of consistent deficits. The real value of federal debt fell steadily thru the mid 1970's, and rose thereafter.
A quick look at the graphs suggests the 1997:1 to 2001:3 experience was an anomaly. It may even have been a singularity or a perverse set of circumstances. Trying to reproduce this surplus might even be dangerous.
Our attitude toward federal debt and deficit was not settled economics as of 1997:1. It is not settled economics right now.
To illustrate, consider this depressing thought. Let's stipulate that any economy is always subject to a myriad of influences, and no single cause ever induces a single effect.
That having been said, simulaton can sometimes find exceptional influences which, for all practical purposes, are the "cause" of certain events.
I wonder whether such simulation techniques would reveal that the exceptional and singular Clinton Surplus of 1997-2001 was actually the cause of the recession from which we're now recovering?
UPDATE: Then there's this from the JEC:
Some observers argue that the tax relief packages of the last three years are the primary reason that budget deficits have replaced surpluses. This is incorrect. In fact, the large deficits reflect the near "perfect storm" that has rocked the federal government's budget: 1) revenues plummeted due to a weak economy and a sharp drop in the stock market, 2) spending increased due to two wars and new homeland security requirements, and 3) fiscal discipline weakened following the emergence of budget surpluses. These factors account for about three-quarters of the decline in the budget surplus.
April 2001 was the high point for budget surplus forecasts. OMB then estimated a $334 billion surplus for fiscal year 2003, while it now estimates a $455 billion deficit...[E]conomic changes have been the primary cause of the budget deterioration in the current fiscal year. The weak economy reduced the size of the tax base, increased spending on programs like Medicaid, and revealed technical adjustments that needed to be made to the budget estimates. In all, those factors account for 53 percent of the changes in OMB' s projections, and none of them were due to legislation. Legislated spending increases and tax relief account for 24 percent and 23 percent of the reductions in OMB's projections, respectively (increased debt service costs have been allocated to each category). Estimates for other years by both OMB and the Congressional Budget Office (CBO) reveal a similar trend. (Emphasis added.)
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| Link posted by Steve Antler : 11:02 AM |
|
Monday... |
| Here's your economic calendar. The archives are now back and the links seem restored. How? Why? If you know drop me a line because I sure as heck don't. |
| Link posted by Steve Antler : 6:08 AM |
Sunday, August 10, 2003
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Narrative and sermon... |
Back in the late 60's, when I started teaching, I always had trouble with the first few lectures of Econ 101.
"Scarcity is universal," the students had to learn, "so choice is necessary." And I'd go on to the then-canonical story of the little boy with a quarter to spend when chocolates cost five cents and gumdrops cost a penny each, and how the quarter could buy five chocolates but no gumdrops, or four chocolates and five gumdrops, and so goes this perfectly trivial and boring example.
What I needed here was history, maybe even ethics. It wasn't enough to force them to memorize definitions of choice and opportunity cost. They had to recognize, even feel these concepts' importance.
I found a better lecture example by thinking about Malthus and his most important student, Charles Darwin.
The core of Darwinism is the Malthus principle, that a natural population will always expand to (and always a bit beyond) the margin of starvation. The population's fertility - its ability to reproduce and completely fill an ecological niche - is a survival trait. When two populations share an ecological niche, the more-productive population will always out-compete the a less-productive one. This means the more-productive population's genes get passed on, while the less-productive population's genes don't.
Okay, now tune to one of those nature shows on the Discovery Channel. There's a scraggly, runty, weak Zebra on the edge of the herd. (Or is it a pack? Or flock? Whatever.) That poor zebra, the one least able to compete for food, and the one most likely to get eaten by the lion, shows the zebra population basically "wants more" of the ecological niche "than it can afford." The herd (or pack, or whatever) has expanded to the limit -- and a bit beyond.
"Wanting more than we can have" is neither social nor situational, but biological. Encoded in our genes, the scarcity principle has been with us since our single-celled ancestors out competed their slower-reproducing rivals. Economics is a branch of biology: first-week Economics 101 lectures should evoke images of not of brats buying candy but of The Lion King, with the scarcity principle being part of the circle of life itself. Heck, we can even bring in the music!
I pushed the argument to the limit last year in the course of a heated discussion with a liberal colleague. In so doing, I found one of those rare things we could actually agree on.
The debate was over social justice and the Bush Tax Cut. My position was there's a difference between redistribution policy and tax policy. His was redistribution should be a central aspect of all policy.
We backtracked and agreed the richer the population, the more likely it would choose liberal, redistributive social policies. "Social justice," we agreed, was "something like an income-superior good."
And then it dawned on me. No, that's wrong. It's not that social justice is income-superior, but rather it's that social justice is a good and therefore we inherently want more of it than we can afford! We finally agreed we were arguing about the implications of this principle, but not about the principle itself.
And so I'd call this essay more a sermon than anything else, since the point of a sermon is to lead someone to a small idea worth thinking about during the upcoming week.
Here's the idea. We can't avoid wanting more than we can afford, because that's part of our biological makeup. This means we can't avoid wanting more social justice than we can afford, because social justice is a good and we always want more goods than we can afford.
So I think we're inherently lots better than we make ourselves out to be -- and that makes me feel kinda good!
End of sermon, and have a great day.
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| Link posted by Steve Antler : 9:06 AM |
Saturday, August 09, 2003
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Links and archives still missing... |
| Nothing we do seems to restore the archives, which means the links don't work. Sorry. Very frustrating. |
| Link posted by Steve Antler : 11:11 AM |
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If you continue GDP growing and employment declining, at the end of the day everything is being produced by nobody. (attr. Alan Greenspan, July 2003 ) |
Bruce Bartlet explains the jobless recovery:
A review of recent recessions shows that there has been a change in the behavior of productivity. Historically, a sharp drop in productivity preceded recessions, as employers kept workers on even as output fell. Productivity rose after the recession mainly because employers were reluctant to hire as output increased. Thus, in the six quarters preceding the trough of the 1973-75 recession, there was zero increase in productivity during that whole period. In the six quarters before the 1981-82 recession, the total increase in productivity was just 0.8 percent. In the six quarters after the trough, productivity rose by 5.9 percent in both cases.
This started to change with the 1990-91 recession. Productivity rose by 1.2 percent going into the recession and 4.5 percent coming out. The higher productivity going in meant that fewer workers were needed coming out of the recession. Now, in the current recession, which ended in the fourth quarter of 2001, we have seen even higher productivity on either side. The latest data show an increase in productivity of 4 percent in the six quarters before and 6.5 percent in the six quarters after. That is why employment growth and hiring levels remain weak. Employers are raising output without adding much new labor.
It is important to remember that this is a short-run phenomenon. In the long run, higher productivity increases employment, a fact documented in two new studies from the Federal Reserve Bank of Richmond and the Federal Reserve Bank of San Francisco. But in the meantime, employment growth may still be slow for a couple more months.
UPDATE: As well, Bartlett includes these data:
===========Productivity Growth (%)
1959-1972====2.9
1974-1982-------0.8
1983-1995====1.7
1996-2002-------2.8
Source: Bureau of Labor Statistics
UPDATE II: Arnold Kling has been working on this as well:
Labor utilization was still as high as 98.5 percent in January of 2001. From March of 2001 through November of 2001 -- the respective dates for the beginning and the end of the recession, according to the NBER -- labor utilization fell from 97.8 percent to 94.5 percent. Since November of 2001, labor utilization has plunged still further, to 90.3 percent in July of 2003. In other words, the drop that LUCY [NB: this is Kling's term for Labor Capacity Utilization Index] has taken so far during the 'recovery' exceeds the decline that took place during the recession. NBER, you've got some 'splainin' to do! |
| Link posted by Steve Antler : 8:00 AM |
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Archives gone, links don't work... |
| Sorry, but suddenly the archives are missing and all the internal links go to the same "page not found" place. We can only hope this is some kind of temporary Blogger server problem. |
| Link posted by Steve Antler : 7:02 AM |
Friday, August 08, 2003
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Fannie Mae's ECMs show loss risk... |
Not all the elaborate computer models (ECMs) see the future as optimistically as the one I use, apparently. This, from a whistle blower to Alex Berenson of the NYT, raises lots of questions:
At the end of last year, the models showed that Fannie Mae's portfolio would have lost $7.5 billion in value if interest rates rose immediately by 1.5 percentage points, internal company documents provided to The New York Times indicated. At that time, the market value of all the assets on Fannie Mae's books, minus all the company's debts, was about $15 billion. So it would have lost roughly half its market value from such a sharp increase in interest rates, according to the models.
Two for starters: what are the models, and what are they showing now? (Thanks to Ted Harlan, more at Mises.org.)
Update: The articles' Nassim Nicholas Taleb quotes suggest material was taken out of context, and/or Berenson (who we are told has "three times been named one of the top thirty business reporters under the age of thirty") doesn't understand the subject matter:
Fannie Mae and other big holders of mortgages and mortgage-backed securities chronically underestimate the odds of a big move in interest rates that could devastate the value of their portfolios, said Nassim Nicholas Taleb, a hedge fund manager and the author of two books about risk and the financial markets. In general, he said, Fannie Mae and other companies rely too much on computer models that do not account for rare but devastating breaks in markets.
"The fact that they have not blown up in the past doesn't mean that they're not going to blow up in the future," said Mr. Taleb, who is also an adjunct professor of mathematics at the Courant Institute of New York University. "The math is bogus."
The model Fannie Mae uses each week to estimate the value of its portfolio and its vulnerability to interest rate swings is complex. It must estimate the value of all of the hundreds of thousands of mortgages and mortgage-backed securities by estimating how much cash they will produce over time.
So the company simulates hundreds of different changes in short- and long-term interest rates for 30 years, then estimates how quickly the mortgages it owns will be paid back under each simulation. Based on those estimates, the company can roughly value its portfolio and estimate how vulnerable it might be to changes in rates over time.
In addition, Fannie Mae will "shock" its portfolio, estimating its vulnerability to an immediate swing in rates. To do that, it immediately moves the entire yield curve of short- and long-term rates up or down by some arbitrary amount, like one percentage point, and then recalculates the value of all its mortgages.
Rate shocks are almost always negative for Fannie Mae, and they are often strongly negative, because the shortfall between the value of the mortgages it owns and the value of the debt it has issued tends to widen at an accelerating pace.
Still, the simulations are not exact, because Fannie Mae can never exactly estimate all the factors that will affect its portfolio, or exactly how rates may change as it and other companies try to protect themselves from future changes, Mr. Taleb said.
"All these models are pseudoscience to me," he said. "There is no science in it."
Probabilities of the very rare events Taleb writes about must basically be made up if they're to be included in any model like the one described, and his criticism "Fannie Mae can never exactly estimate all the factors that will affect its portfolio" makes him sound like someone who doesn't understand financial modeling at all. Perhaps the quote was taken out of context.
UPDATE: A reader sends this in:
It seems to me as if this NYT is trying to make the simple concept of duration into an ECM. Anyone could've taken a look at Fannie Mae's portfolio and determined the sensitivity of its value to a change in interest rates. It doesn't take any sort of elaborate model. In order to chock up such calculations as some sort of "secret model," one must really have absolutely zero knowledge of basic financial principles.
UPDATE II: Arnold Kling, whose expertise here is greater than mine, sends us a link to this discussion, which reads in part:
What I gather from this story is that if you mark to market Fannie Mae's entire balance sheet, the affect of an increase in interest rates is small and perhaps favorable. However, if you only mark to market one side of the balance sheet--the mortgage assets--you get a big decline in value. The story implies the latter approach is more accurate. This is 180 degrees incorrect.
UPDATE III: More -- this from someone a little closer to the inside than me:
The fulcrum of the Times' FNMA hit piece, that a 150 bp discontinuous rate move would impair the firm's capital, fails the empirical evidence test: We had such a move in short rates following 9/11. And we're just had such a spike in the long end. Fannie and Freddie are still reportedly profitable.
Now, don't underestimate the math here. I've traded mortgage backed securities, and it is gnarly. Between the mortgage assets, callable liabilities, and derivative hedges, you're in very deep yoghurt.
But to many folks' surprise, including mine, the 2 GSEs have apparently, thusfar, weathered storms that would have been assigned trivial weights in any forward-looking probability analysis.
Would I want to see these guys have more capital? Hell yes. Should they be fully privatized so Uncle Sam isn't implicitly on the hook, and so there's a level playing field on the credit side? Absolutely.
But to toss mud at their risk management expertise, given their recent performance, is just more shoddy Times journalism. |
| Link posted by Steve Antler : 10:29 AM |
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On transition from manufacturing to service economy... |
Richard A. Heddleson sends us this note:
[As of] 100 years ago...Agricultural workers comprised about 40% of American workers, down from 90% + a century earlier...[T]hey would in the next century fall to less than 1%. This was painful for a lot of small "family farmers" who lost their livelihood, but few really pine for the good old days on the farm sufficiently to move back. Likewise the manufacturing jobs weren't all that great unless you were too poorly educated to do anything else, it was a paycheck. That is why we should all be so concerned about the abysmal job the public schools are now doing. We don't need so many people who can do nothing else and there is no excuse for producing so many.
Manufacturing jobs are dull, boring, repetitive, uninteresting, dirty, and intrinsically unrewarding. Some service jobs are the same, particularly for those with no education. But many many more of the service jobs are challenging and rewarding.
Lots to disagree with here. The last paragraph is kinda naive. Given enough time any job can start to feel dull, boring, repetitive, uninteresting, dirty, and intrinsically unrewarding.
My personal experience with manufacturing took me from a sort of foolish leftist academic horror that people might actually stand in one place doing the same thing all day to, frankly, a kind of appreciation that one's muscles really like being used. After a few months on the bandsaw it dawned on me I was now being paid to do what formerly I had been paying for at the health club. |
| Link posted by Steve Antler : 7:59 AM |
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Salon? |
Completely ignoring the survey literature, Krugman's latest cites a questionable authority:
But as a recent article in Salon reminds us, this appearance of uncertainty is 'manufactured.' Very few independent experts now dispute that manmade global warming is happening, and represents a serious threat. Almost all the skeptics are directly or indirectly on the payroll of the oil, coal and auto industries. And before you accuse me of a conspiracy theory, listen to what the other side says. Here's Senator James Inhofe of Oklahoma: 'Could it be that manmade global warming is the greatest hoax ever perpetrated on the American people? It sure sounds like it.'
That he thinks the Inhofe quote adds anything suggests final stages of serious intellectual decline. Judging from his writing, Paul finds it self-evident everyone with whom he disagrees is either (1) stupid, (2) greedy, or (3) evil.
Check out Robert Musil and Jane Galt on this as well. |
| Link posted by Steve Antler : 6:41 AM |
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New Iraqi editorials in translation... |
New batch of these just in at MEMRI. Three of the more positive responses to the question should Iraq recognize Israel:
"We wish that a just peace be established across the region, and that the language of understanding prevail. Presently, there is no need for perpetual wars and conflicts. Israel is a country recognized by the U.N. and has existed since 1948, so why should we oppose international will?…"
"Recognizing the Hebrew state is a realistic solution in the present circumstances. There is no need to spend more on weapons and on useless wars."
An Iraqi citizen who said that he fought against Israel in the Golan Heights in 1973 said: "…It is time to end the conflict and recognize it, just the way the Palestinians did." |
| Link posted by Steve Antler : 6:31 AM |
Thursday, August 07, 2003
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This Just In: Nothing New... |
Here's what we suppose is the latest from Business Week:
Boskin is now redoing his calculations, both to fix the mistake and to take the criticisms into account. But the debate is far from over. Boskin still argues that some of the revenues from deferred taxes are not being counted in long-term budget projections, but he's not willing to hazard a guess about the magnitude until he has had a chance to redo -- and double-check -- his figures.
In other words, nothing new. |
| Link posted by Steve Antler : 1:28 PM |
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Let's review... |
Here we pull together the ECM generated forecasts of the past few days.
 We started with a discouraging unemployment rate picture, with rates refusing to get down to prerecession levels thru 2006:4. However the forecast picture in terms of gross numbers clearly showed a jobs recovery.
When we plotted the numbers, we got a shock. As if someone had planted a secret message, historical and forecast job data when the sample is limited to 2000:4 thru 2004:6 (the current Bush Presidency) traces out a DUBYA! This is enough to give you nightmares -- I've heard of hidden codes in the Bible and stuff like that, but this is ridiculous ! (Fortunately, continued investigation revealed no more hidden messages.)
We next looked at productivity (output per paid worker) and profitability (NIPA flow of funds firms' before tax profit). Both looked really good (profitability especially), so we got brave and moved on to interest rates.
 Yes, all of them are moving up and the mortgage rate seems especially enthusiastic about the process. We can see a distinct slowdown, but not absolute decline, in housing. Absolute numbers increase, but rate of increase definitely declines. This seems to match the upturn in the mortgage rate. This tentatively explains the stubborn inability of unemployment to get below the mid 5.5%'s as we move toward 2006.
 Finally, how about investment. Will rising rates kill investment and thereby kill the recovery? It looks like "no," because the ECM predicts other interest rates will rise more slowly, allowing increasing profitability to attract funds to investment purposes. It looks like we're at the base of a genuine investment recovery, with recent "upticks" and "downticks" a thing of the past. (Yes, I know if you look close the curve seems to form a Dubya after 2000. Forget about it.)
Interesting questions remain. Can we identify any interest rate crowding out of private investment with a counterfactual run of the model rescinding the Bush Tax Cut? If we re-allocate the tax cut -- say, decreasing its present form but giving it all back in the form of payroll tax reductions -- can we generate a more robust recovery? These and many additional interesting question remain. |
| Link posted by Steve Antler : 9:35 AM |
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Just a reminder... |
I went out on a limb yesterday morning predicting the productivity announcement, due this morning at 7:30 am Eastern time. Stay tuned and watch this spot.
Yahoo! News - Wall St. Seen Lower, Productivity Awaited: "Non-farm productivity is expected to show an increase of about 4.1 percent, while unit labor costs are expected to decline about one percent in the second quarter, according to a Reuters poll of 22 economists. "
Our ECM is predicting 4.6%. I will be insufferably smug if I'm right, properly chastened if wrong.
UPDATE (7:44am Central): I was right in direction but ECM conservatively underestimated the surprise Q2 jump of 5.7%. (Can anyone explain why briefing.com and market forecasts went down to 3.5% and 4.0%?) |
| Link posted by Steve Antler : 6:58 AM |
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From the mailbox... |
Steve,
Love your site, but I need remedial help with economics. Our beloved senator, Fritz, exited politics by saying "at the end of World War II we had 40 percent of our workforce in manufacturing. And now we're down to 10 percent. We've got 10 percent of the country working and producing, and we've got the other 90 percent talking and eating. That's all they're doing." Insert Hollings joke here.
This has always bothered me, as well. My head tells me that production doesn't necessarily mean a physical product, and therefore there is little downside, but the gut says otherwise. Could you recommend a resource to foil my protectionist buddies? We have lost thousands of textile jobs in South Carolina, and will no doubt fill many service related jobs as a result. I trust the market, as long as I understand why. Just as flying in an airplane became easier after someone explained to you why the plane gets off the ground.
Thanks in advance if you can help.
Brian Stritt
Dear Brian:
First of all let's stipulate to something very important: the market stinks. It chews up and spits out people, businesses, cities.
Market adjustments -- the process of getting from "there to here" when those funny curves shift on the blackboard -- can wipe out a hundred thousand families. Just like that bored summer-vacation sixth grader who finds and crushes an anthill.
We have heroic-ironic expressions like "creative destruction" to describe this. And then there's Karl Marx:
...Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish [capitalism]. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices...are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind...
To face this grim reality and get some sort of understanding I'd suggest two starting points.
First of all, loss of job, decline of an industry, is just one of the many bad things that can happen to good people. There are bookstores of material out there addressing this question. Lots of these books are bad, but some are actually okay. This is way outside my field so I can't really advise here, other than to say economic trouble is only one of many kinds of misfortunes people face in life.
Second (and here I can be more helpful) we've got to remember the "urgency/there's got to be" rule. This rule states: just because you can say with great urgency "there's got to be an answer" doesn't mean there is one!
The simple hard fact in life is, sometimes there are no easy answers, or no answers at all. Sometimes anything we do makes things worse.
Having a service economy when we could manufacture virtually everything we buy from abroad feels really odd, until you go to Cost Plus and buy stuff for less than we could produce it. The fact is we've voted for globalization with our dollars, and this has cost lots of jobs.
But the economy is constantly shedding and re-growing jobs all at once. New firms, new jobs, new kinds of manufacture are happening all the time. This is a hard message for families facing economic dislocation -- until they get caught up in new activies and catch that great feeling of optimism America seems to generate.
Marx was wrong about many things, but he was absolutely dead-on correct that capitalism means constant revolution. In my lifetime I've seen tiny garage businesses grow into Microsoft and Apple, and there are lots more out there.
So what can we "do" about the market? Leave it alone. When it hurts our families and friends (as it will inevitably do) we've got to take care of each other as best we can.
And finally we've got to realize we built carnivals, amusement parts, Disney World and Great America because we wanted safe imitations of the breathtaking wonder of capitalism itself. So hold your breath and wait for the next exciting twist of the roller coaster, because this ride won't be over for a long, long time.
Best wishes,
EconoPundit
UPDATE: Bruce Bartlett adds this, suggesting in addition we round things out with quantitative support:
There's a better answer to your manufacturing jobs question. One is that the real output of goods as a share of real GDP has never been higher. In other words, manufacturing is fine. The decline in jobs is mainly the result of higher productivity. It would be stupid to sacrifice productivity just to keep jobs. The result would be a declining standard of living for everyone.
Second, the you have to be careful about defining a manufacturing job. Thirty years ago...manufacturers like GM tried to do as much in-house as they could. They had [whole buildings] full of accountants, for example, who were all counted as manufacturing workers simply because they worked for a manufacturing company. Now, GM contracts out its accounting services. So those same accountants are counted as being in the service sector, rather than the manufacturing sector. If you check the BLS data, you will find that the fastest rising occupational category is something called business services, most of which used to be counted in manufacturing.
UPDATE: Watch this space for additional quantitative support. |
| Link posted by Steve Antler : 5:49 AM |
Wednesday, August 06, 2003
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Will rising interest rates choke off the recovery? |
The ECM has predicted an end to the housing boom. How about investment? Will it recover, or be choked off by rising interest rates?
Best guess right now is things will be more or less okay. ECM forecasts mortgage rates leveling off faster than the bond rate, and this seems to allow the acceptable and perhaps robust investment recovery generated by restored profitability.
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| Link posted by Steve Antler : 11:17 AM |
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Sounds just like Purim... |
Nancy Pelosi's August recess memo to Democratic lawmakers includes detailed instructions for throwing a birthday party for Medicare:
Buy additional party supplies. Be creative. Buy a "Happy Birthday" tablecloth for the center table. Purchase disposable plates and utensils if the facility will not provide them. You may also wish to purchase additional party favors - horns and whistles can be very useful to "boo" the Republican agenda... |
| Link posted by Steve Antler : 10:18 AM |
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Join me out here on the limb... |
My ECM tells me we may be surprised by the productivity figure to be announced shortly. ECM's quarterly is calculated at about 4.6%, briefing room and market expect 3.5% and 4.0% announcement.
UPDATE: Oops! It comes out tomorrow, not today! Anyway everything said above still holds true. (Memo to myself: in future, no more before-coffee morning blogging.) |
| Link posted by Steve Antler : 6:58 AM |
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The Luskin Strikes Back... |
Tons of info and links disguised as highly entertaining reading over at Don Luskin's Conspiracy to Keep You Poor and Stupid. Some answers to our questions about Krugman's "elaborate computer models" as well! Here's a sample of Luskin's gritty realism:
...biased liberal pundits like Krugman -- and biased liberal reporters like Jonathan Weisman of the Washington Post -- seem to have discovered politics for the first time, now, under a Republican administration. Weisman wrote last week in what passes as a news story that Treasury's providing that analysis to Tim Russert was an 'unusually political step' that 'is likely to become a staple for GOP attacks.' Weisman has obviously forgotten about that time in 1996 when some Republican presidential candidates were advocating a flat tax, and the Treasury Department of Robert Rubin and Lawrence Summers came up with an analysis designed to torpedo it.
(Emphasis added.) |
| Link posted by Steve Antler : 6:39 AM |
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