Faculty meeting

I can't believe we can't get unanimous consent for the idea that one of the goals of the Gettysburg Curriculum ought to be that "students know stuff about a lot of different things."

I'm not sure I understand seasonal adjustment

The unemployment rate rose from 9.8 percent in September to 10.2 percent in October, right? Well, not exactly. The Census Bureau, on behalf of the Bureau of Labor Statistics, surveyed households in September and October. In September it estimated that there were 14.538 million people unemployed and 139.079 million employed for an unemployment rate (u=U/(U+E)) of 9.5 percent. Then it surveyed another group of people in October and estimated that there were 14.547 million unemployed and 139.088 employed, for an unemployment rate of 9.5 percent. The number unemployed rose by 9000 as did the number of employed, and the unemployment rate was unchanged.

But then the BLS seasonally adjusted the data. Given that this is October when presumably some companies start to hire for the Christmas season, given the number of work days in the month, etc., we would ordinarily have seen bigger employment gains. So the numbers were passed through the seasonal adjustment sausage grinder, and voila, we have a decrease in employment of 589,000, an increase in unemployed of 558,000, and an increase in the unemployment rate from 9.8 percent to 10.2 percent.

I get that. But then I compare the unadjusted and adjusted data for October 2009 with October 2008. Comparing Octobers should take care of most of the seasonal factors, no? We're left with adjustments for number of weekdays, weather, whatever else the BLS factors in, which I wouldn't think were very important. But what do we find? According to seasonally unadjusted data, over the year from October 2008 to October 2009 6.455 million fewer people were employed, 5.078 million more were unemployed, and the unemployment rate rose from 6.1 percent to 9.5 percent (an increase of 3.4 percentage points). According to the seasonally adjusted data, we had 6.382 million fewer employed, 5.479 more unemployed, and an increase from 6.6 to 10.2 percent in the unemployment rate (3.6 percentage points).

So in a nutshell, seasonal adjustment subracted 73,000 people from employment and added 401,000 to unemployment, and added 0.2 percentage points to the unemployment rate, from October 2008 to October 2009. I wonder why? And I wonder if this should make me discount the sharp rise in the unemployment rate in October 2009 as somewhat a figment of the BLS's seasonal adjustment techniques?

Holy bubble economy!

This figure is from the CBO's Budget and Economic Outlook, August 2009. It shows household net worth as a multiple of disposable income. Until the mid-1990s, the ratio was fairly stable in the 4.5-5 range, dipping during the bear market, high inflation 1970s. The two most recent business cycles show dramatic and unprecedented increases in net worth followed by massive crashes. This is a phenomenon that cries out to be incorporated Minsky-style into macroeconomic models.

Household net worth seems to be back to normal. Another sign that the worst is behind us?

Making the rounds on Facebook

CNN report: 10 year old in Arkansas refuses to say the Pledge of Allegiance until gays can marry. Classmates call him "gaywad".

Why market structure matters

Greg Mankiw introduces an article critical of the possibility of the current health reform bills reducing health care costs by writing:

Let's review some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

Everything he writes is true - if markets are competitive. If sellers (insurance companies, health care providers) have monopoly power, then it is possible to reduce prices while increasing quantity supplied. I know this because I read it in a book: N. Gregory Mankiw, Principles of Economics (5th edition), Chapter 15.

Americans demand higher unemployment!

Politico reports that the Obama Administration is planning to pivot toward deficit control, which could mean the end (for now) of cap-and-trade. This is worrisome if true:

1. We have a serious long-term budget problem; that is, after 2020 or so, the numbers look really ugly. The key to getting a handle on this is reducing health care costs. Hopefully whatever is passed this year will help, or at least give future governments tools to address these problems.

2. In the medium term there's no real budget crisis. Deficits are expected to stabilize at around 3% of GDP once the economy recovers (2013 or so), which is about the level under Bush II and lower than what we had under Reagan and Bush I. Tackling the long-term issues would be easier if we had a better medium term balance (or a better balance now), but reducing the deficit in the medium term should not be considered absolutely necessary in and of itself.

3. Roosevelt began taking aggressive actions to fight the Great Depression in 1933. In 1937, thinking the economy had recovered sufficiently, the Fed tightened monetary policy and FDR pushed through some budget cuts. The economy immediately sank into another severe recession. The Japanese began a massive fiscal expansion to stimulate their economy in the early 1990s. By 1937, they thought the economy had stabilized sufficiently to withdraw some of the stimulus. Taxes were raised; the economy sank into another recession. It would be a huge mistake for the Obama Administration to start tightening fiscal policy in 2011. Huge.

4. The Obama Administration knows this, so it looks like they're being careful to say that they are trying to tackle the medium term issues without cutting deficits in the near term. But politically, apparently, the American people (independents at least) want higher unemployment now. I worry about political pressure to reduce budget deficits too soon. In this environment, it turns out that running big budget deficits is the politically courageous move!

5. Cap and trade should be a net revenue enhancer, or at worst budget neutral. Initially under Waxman-Markey 85% of emissions permits are given away, but the percent that is auctioned rises over time. Budget concerns should not be an impediment to cap and trade (though I too see huge political hurdles at this time). If I were Obama, I'd propose a sweeping overhaul of the tax code designed to (a) eliminate loopholes, equalize rates for different types of income, and otherwise make the code more efficient; (b) increase revenues in the medium term enough to make a dent in budget deficits, while (c) preserving the current level of progressivity. A key element of this tax reform would be a carbon tax and/or cap and trade system.

Damn Church!

Ok, I'm getting mighty ticked off at the Catholic Church. Catholics? Fine, no problem, I've got lots of friends and family who are religious Catholics, and their Catholicism brings meaning to their lives, makes them good people who I admire, causes them to do good things for society. I went to a Jesuit university and loved the intellectual and moral climate there. Hurrah for Catholics!

But the Catholic Church? It's a big, lumbering, corrupt, top-heavy, patriarchal bureaucracy guided by medieval social values. It ought to have its land and buildings confiscated like they did in France in 1789.

Source of my ire today: this article saying that the Church has told DC officials that if they allow same-sex marriage, the Church will stop providing social services to the poor. The law does not require the Church to actually officiate same-sex marriages, but does require them to pay benefits to same-sex spouses of employees. Seems that the act of writing a check to cover Bob's health insurance because Gary is a Church employee is such a profound violation of the Church's religious principles that the Church would rather abandon Christ's commandment to serve the poor and downtrodden than compromise those principles. That is one twisted ranking of priorities.

Lingering source of contempt: the Church's insistence that Congress adopt something like the Stupak Amendment as the price for supporting health reform. Rachel Maddow said something last night that I hadn't thought of before. Before Stupak, the compromise that had been struck to avoid having federal money used for abortion services was that the federal subsidies for health insurance and the individuals' contributions would be segregated, and payments for abortion services would be paid out of the individuals' contributions. The Church called that a shell game - money is fungible, after all. Of course the Church is right. Here's another example of a shell game. The Church receives billions of tax dollars to support its social services work. But tax dollars should not be used to support purely religious activities like evangelism, paying priests, and so on. So the tax dollars are put in a separate pot to be used only for the authorized purposes, and the rest of the Church's activities are funded from its own sources. I assume that the Church, in fairness, would approve of a law modeled on Stupak that would prohibit any organization receiving federal money from participating in religious activities? Any takers?

The plight of the working poor

The graph below, from Greg Mankiw, shows income after taxes and transfers as a function of pre-tax and transfer income. At the high end of the income distribution the graph looks like you'd expect - as you get paid more you pay more in taxes, but your after tax and transfer income is still higher. In the "working poor" range, however, more effort to earn higher pre-tax and transfer income doesn't really pay off: various forms of assistance you get when you're poor (earned income tax credit, food stamps, Medicaid, etc.) phase out, leaving you no better off than you were with a lower income. That's bad.



The problem I have with this kind of analysis is, what would Mankiw do about it? Would he drop the green dot on the graph toward zero to improve incentives to work? Would he stretch out the transition period so as to reduce incentives to work for people in the $50,000-$70,000 range? Neither of those options is very palatable. If you're going to help the poor, you can either phase out incentives rather quickly as in the graph above, or phase them out really slowly, spreading the disincentives across the income distribution and greatly adding to the cost of your programs.

Disincentives to work are the unavoidable cost of a social safety net. Maybe it's ok that workers at Walmart don't have an incentive to take a second job at the 7-11; they still, after all, have an incentive to get an education and land one of them fancy college professor jobs on the upward-sloping portion of the graph.