In which I come up with a title for my next novel

Locus of Tenure

A macroeconomics professor at an elite New England liberal arts college dies suddenly in his sleep. His death is attributed to natural causes, but in the months that follow, at liberal arts colleges all across New England, one macroeconomist after another dies a mysterious death. Police are unable to find a cause of death: is it the work of a particularly ingenious serial killer? After several unusually prompt job applications arrive at two of these colleges, suspicions focus on an underpaid, underappreciated, underachieving professor of macroeconomics at a small mid-Atlantic college. What drove him to commit these dastardly acts: was it his wife's incessant nagging to move the family closer to civilization? his failed attempts at curriculum reform? or could it have something to do with that sultry young science professor he had been spending time with lately?

What I wish Obama would tell liberals about the public option

Look, I'm sorry I've dicked you around about this for the last year. It's a good idea, but there are other ways, but I'll push for it if the votes are there, but it's not in my consensus plan... Crikey, why one of you hasn't announced a primary challenge already I'll never know.

So here's the deal. At this point, the public option doesn't have the votes. The House managed to include it in its bill, which passed with a couple of votes to spare. But we're going to lose a bunch of the abortion nuts this time around because the bill includes the Senate language, so we're going to need to pick up some votes from conservative Democrats who aren't wild about the PO. And the Senate - good God, who knows what the Senate would do with the PO. I mean, we could have 55 votes in favor, and then Joe Lieberman throws up some roadblock to reconciliation that he dug out of the Senate rules from 1809. Plus, suppose we pass the damn thing, what have we got? The weakest possible version of the public option that practically no one will be able to use.

So we've gone another direction with this thing. No public option, but we're going to regulate the hell out of the insurance companies. Regulate 'em back to the stone age, which for them is pre-Reagan, when they were just a bunch of not-for-profit paper-pushers. We're going to repeal their anti-trust exemption, we're going to increase competition through exchanges and interstate competition, we're going to put a cap on the proportion of premiums that can go to administrative expenses, we're going to keep them from cherry-picking their customers; and if none of that works, we're going to just slap price controls on them. They're going to be regulated utilities like they are in Switzerland.

Now, if you liberals still want a PO, then you're going to have to man up. First, drop this weak crap you put in the House bill and push for something substantial like Medicare for Everyone. Then, run on this in November. Motivate the base - the only way to stave off horrendous defeat is to give the liberals something to vote for. Me, I'm going to stay out of this one, because, well, I'm kind of a wuss. But I'll tell you what I'll do for you: I'll go to the black community in every contested Congressional district and I'll tell them that their job didn't end when they left the voting booth in 2008. They didn't turn out in record numbers to vote for a failed one-term black president, did they? No, they wanted a successful two-termer who was going to make real change to benefit their communities. Well, that's going to require them to show up in big numbers in the midterms as well as in years that are divisible by four.

So let's get this thing done now, without the public option. And then you come back and fight hard in 2010 and beyond.

We are being prepped for some bad February employment numbers

Floyd Norris joins the crowd noting that February's employment numbers are going to be misleadingly miserable because of the blizzard. He looks back at January 1996 and notes that that month's weak employment report convinced commentators cited in a NY Times article that the economy was slipping into recession:

Some analysts found more evidence of a deteriorating economy in today’s report. “We are flirting with recession,” the National Association of Manufacturers said. And economists at Salomon Brothers, the Wall Street investment house, told clients that “fundamental weakness continues to emerge in timely indicators that are unlikely to be distorted by freak weather.”

The next month's job report showed an increase of over 700,000 in employment. The lesson is, whatever number is reported for February is virtually meaningless.

Still, there has been a disturbing drumbeat of negative economic news of late: new home sales plunge, more trouble in the banking system, consumer confidence falls, ... It's getting tougher and tougher to be an optimist.

Bons mots from Greg Mankiw

First he criticizes Barack Obama for dropping the "cadillac" health plan tax and replacing the lost revenue with a tax on unearned income:

This change was probably made to attract more House Democrats. It will likely make the plan even less attractive to congressional Republicans.

So whereas zero Republicans were going to vote for the plan before...

Next he's on to the proposal to cap insurance rate hikes:

Very, very strange. You would think that all those future Nobel-prize-winning economists working for the President would explain to him the history and economics of government price controls. Imposing price controls certainly wasn't President Nixon's finest hour.

Alternatively he could have those economists turn to the chapter in Greg Mankiw's Econ 101 textbook on how to regulate prices of natural monopolies.

The conservative approach to health reform?

The NY Times op-ed piece is misleadingly titled "How the GOP can fix health care." Exhibit A for why this is misleading is that none of the five contributors is currently in government. It seems that the only chance the GOP has of fixing health care is for the current crop of Republican congressmen to turn over their seats to a new generation (or an older generation) that is actually committed to reform.

None of the five pieces identifies lack of coverage for 50 million Americans as a problem that reform needs to address. Instead, four of the five focus exclusively on containing costs. The exception is James Pinkerton, who proposes that we spend more on cures for costly diseases. There's an idea - let's get rid of disease, and then we won't need to worry about the health care system at all! The fact of the matter is that Republicans have never viewed lack of coverage as a fundamental problem. All Republican "reform" proposals aim at reducing costs. While Republicans claim that reducing costs will expand coverage, no reform I've seen would reduce costs by enough to seriously dent the ranks of the uninsured.

It's also worth noting that some of the best ideas the contributors have - having Medicare pay for outcomes rather than procedures, setting up insurance exchanges - are already in the House and/or Senate bills. Mark McClellan is the only one of the contributors to acknowledge this. In fact, he is the one contributor who seems to be advocating that the Republicans work with the Democrats to improve the Democrats' plan by adding more efforts to control costs such as tort reform, rather than simply starting from scratch. If there were five or ten McClellans in the Senate who were not afraid of opposing their party leadership, we'd have decent health reform legislation by now.

Ezra Klein explains why the Republican proposal to let insurance be sold across state lines is a very bad one

Here.

Marc Thiessen: terrorists want to be tortured

On CSPAN radio, Marc Thiessen (former Bush Administration official and author of a new book on the Administration's "war on terror," says that the CIA did terrorists a favor by torturing them. Really, I'm serious. Listen to him here. Find the clip at minute 28:58 of the transcript. His argument is basically that the terrorists want to give us information, but their oath to al Qaeda forbids this. But if they are tortured (sorry, enhancedly-interrogated) up to their limit to resist, they are relieved of their oath and are free to open up.

This is truly astonishing and sickening. More broadly, it is dismaying to me that because of the can of worms the Bush Administration opened up, every time a terrorist is captured we now have to have a debate over whether we should torture him. Why don't we torture the underwear bomber? Let's torture the Taliban commanders captured in Pakistan! And every time, opponents of torture have to explain that we live in a civilized society where that is or should be anathema. Thanks, Dick Cheney.

Home loan foreclosures

The Financial Times reports that "US home loan foreclosures reach record high." The percentage of home loans that are delinquent or in the process of foreclosure is frightening. This graph, from Calculated Risk, tells the tale:

The graph shows that 14% of home loans are either delinquent or in the process of foreclosure, up from just over 5% in 2005. (The source is the Mortgage Bankers' Association. The MBA report says the number is 15%; I don't know the source of the discrepancy.) There are powerful forces driving economic recovery, as I've mentioned in numerous posts on this blog. At the same time dangerous imbalances are accumulating in the economy that are pushing back against the forces for recovery - among them home foreclosures, a developing commercial real estate crisis, Europe's debt problems, the possibility of a financial crisis in China as it tries to prick its bubbles, a flight from Treasuries led by China, ... These forces could derail recovery. On the other hand, economic growth and increased employment act against these recessionary forces: more jobs means more household income and fewer foreclosures, and so on. Time may also be on the side of recovery: the wave of foreclosures hits those homeowners who are deepest underwater; as the most troubled loans are foreclosed, the remaining outstanding loans are healthier and less likely to fall into delinquency. Expansionary and contractionary economic forces are engaged in a dramatic tug of war.

So the detail of the graph above is somewhat heartening. While foreclosures are at a record high, the 30-day and 90-day "buckets" are falling, meaning fewer homes are entering the delinquency-foreclosure death spiral. According to the MBA report:

“We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007, continued with the meltdown of the California and Florida housing markets due to overbuilding and the weak loan underwriting that supported that overbuilding, and culminated with a recession that saw 8.5 million people lose their jobs,” said Jay Brinkmann, MBA’s chief economist.

“The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight. We normally see a large spike in short-term mortgage delinquencies at the end of the year due to heating bills, Christmas expenditures and other seasonal factors. Not only did we not see that spike but the 30-day delinquencies actually fell by 16 basis points from 3.79 percent to 3.63 percent. Only three times before in the history of the MBA survey has the non-seasonally adjusted 30-day delinquency rate dropped between the third and fourth quarter and never by this magnitude. If the normal seasonal patterns hold for the first quarter, we should see an even steeper drop in the end of March data.

Good news for the forces of expansion.

The public auction refuses to die

The liberal blogosphere and media are all a twitter about the impending revival of the public option. Ezra Klein reports that while the public option is good policy and popular with the public, it is incredibly divisive in Congress and its inclusion in any health reform package that the Senate plans to take up will reignite last summer's insanity, possibly derailing the whole effort.

Here's a modest suggestion. The Senate should take up a bill without the public option, then immediately following that take up the public option as a separate piece of legislation. Let's get the major components of reform done and behind us before restarting World War III. This approach might also make it easier to get passage in the House. I suspect that if you add up the Democrats who are opposed to the public option and that oppose the Senate language on abortion, you get enough to defeat the bill. But the broad reform bill and the public option could probably pass separately.

The blizzard and February jobs

I was going to blog about this awhile ago but never got around to it. Now the WSJ has the scoop:

The February jobs report may look worse than is actually the case thanks to foul winter weather, according to a report from forecasting firm Macroeconomic Advisers.

That’s because the February blizzard, which laid feet of snow across the country and brought business to a virtual standstill across the Midwest and Northeast, kept many workers from getting to the office and likely pushed new hiring into the following month. The blizzard occurred during the periods when both the Household and Establishment Surveys were conducted, meaning it could affect both the jobs tally and the unemployment rate. Of course, those jobs would resurface in the March jobs report.

Using the January 1996 blizzard as a benchmark, Macroeconomic Advisers’ estimates that the March 5th jobs report would have 66,000 fewer jobs than it would otherwise have. However, because there was a lot more snow this month than in January 1996 - and because snow delays lasted almost an entire week in some places and occurred precisely at the time when Labor Department is taking measurements - the effect could be much bigger.

“I think it could be big - it could be 100,000″ jobs, says Joel Prakken, chairman of Macroeconomic Advisers.

Here's the data from the 1996 blizzard. The effect was big.

February was supposed to be the month when job growth turned positive. Now we may have to wait for March.

Bernanke says money is just an illusion

The Onion reports:

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

More...

Systemic risk regulator

The Times reports that

The Senate and the Obama administration are nearing agreement on forming a council of regulators, led by the Treasury secretary, to identify systemic risk to the nation’s financial system... The effect would be to diminish the authority of the Federal Reserve, whose regulation of banks has been criticized for failing to head off the problems... Though some in the Fed continue to push for the central bank to be the overseer of systemic risk, the chairman, Ben S. Bernanke, is willing to go along with a Treasury-led council.

It's important that the Fed maintain its regulatory role in the banking system - the authority to regulate banks provides the Fed with timely information about the condition of the banking system that is useful for the conduct of monetary policy. But I also think it's a good idea to put the Treasury rather than the Fed in the lead role of systemic risk regulator. It's a matter of political accountability. In the 2000s monetary and regulatory policy conducted by the Fed, SEC, FDIC, and other regulatory agencies created a dangerous situation in financial markets. Given the political economy of financial policy, these issues were not going to be dealt with by passing off bits and pieces of them to the regulatory agencies where they can be "handled" outside public view. I think there's a slightly greater chance that they'll be taken seriously if they're given a greater public profile. Even if that's not the case, at least centralizing authority at the Treasury Department will make the president directly, publicly accountable.

GDP and unemployment forecasts

The Minutes from the January FOMC meeting include the economic projections from governors and Fed bank presidents. Little change since November. The Fed projects GDP growth in the range of 2.8 to 3.5 percent in 2010 and the unemployment rate to finish the year in the range of 9.5 to 9.7.



Here is the full distribution of estimates. I've penciled in the Council of Economic Advisors' estimates from the Economic Report of the President and the Survey of Professional Forecasters estimates from the Philadelphia Fed. The CEA and SPF forecasts of GDP growth are in the central tendency range of the Fed's while their unemployment forecasts are somewhat more pessimistic.



One often commentators treating these forecasts almost as data - "look at the jobless recovery we're having, unemployment is expected to stay at 10 percent throughout 2010!" As I've noted on many occasions, however, the forecasts are frequently way off the mark. None of these guys thought in 2007 that we were going to have a recession, and all underestimated the severity of the recession in 2008. Given this track record I don't know why one would take the estimates for 2010 at face value.

Okun's Law

Brad DeLong (The Life and Strange Death of Okun's Law) writes (quoting from a piece of his from 2003):

We used to have considerable confidence in Okun's law: that an extra one percentage point rise (or fall) in the unemployment rate over a year would reduce (or boost) that real GDP growth by an extra 2.5 percent over that year because a rising (or falling) unemployment rate would also be accompanied by a falling (rising) share of the population in the labor force and by falling (rapidly rising) productivity. Productivity would fall when the unemployment rate rose for two reasons: first, even when factories are not running at full capacity they still incur substantial setup and maintenance costs; second, even when there isn't enough work for them to do firms would rather hold onto skilled workers than watch them drift away and have to pay to train their replacements the next time the wheel of the business cycle turns.

Things have been different, however, in this [2001] recession (and to a lesser extent in the preceding early-1990s recession...

Yes, as many commentators have noted, employment losses in this recession, as well as those of 2001 and 1990-91, have been out of proportion to the drop in output. DeLong points us to Groshen and Potter (2003) for an explanation pointing to structural change in labor markets (hey, Potter was my TA in graduate macro - he once took points off one of my homework assignments for "not having the courage of your convictions" - a propos of nothing).

Anyway, what DeLong and others seem not to have accounted for is the fact that since the 1970s at least unemployment always rises disproportionately to output losses at the end of recessions. Then fairly quickly during the recovery Okun's Law restores itself as the unemployment rate falls faster than would otherwise be predicted. In other words, Okun's Law's "strange death" always seems to be followed by a miraculous resurrection.

I demonstrate this using a slightly different formulation than that used by the CEA and DeLong. Take the Congressional Budget Office's measures of the natural rate of unemployment and potential output. Account for the fact that movements in unemployment tend to lag those of output by a quarter or so. Use an Okun's coefficient of 2 instead of 2.5 (turns out 2.5 applied to the 1970s, but the coefficient is closer to 2 for the 1980s-present). Let's predict the unemployment rate using

U = .5*(output gap) + natural rate

Then compute the difference between actual unemployment and the rate predicted as above. We get the following graph:


Note the regularity: at the end of the last 6 recessions, the unemployment rate was usually 0.5-1.0 percentage points higher than would be predicted by Okun's Law. Then during the recovery period, unemployment goes back to the level Okun would have predicted. For example, in 1982Q4, the trough of the 1981-82 recession, the unemployment rate stood at 10.7 percent whereas Okun's Law would have predicted a rate of 9.7 percent. There followed a period of extraordinary growth: the output gap fell by 5 percent from 1982Q3 to 1984Q1, which according to the rule should have reduced the unemployment rate by 2.5% to 8.1% by 1984Q2. It actually fell to 7.4%. So if history repeats itself today, we should see the unemployment rate falling by more than 1/2 percentage point for every 1 percentage point of excess output growth until eventually the unemployment rate is in line with the output gap. Specifically, we've got 1.4 percentage points of unemployment that should melt away even without excess output growth - whether that happens in one year or more is anyone's guess, but I believe in Okun's Law so I believe it will happen eventually.

That's not to say that there has been no structural change since the 1980s. Growth in employment and decline in unemployment now follows recovery of output by a quarter or two, whereas in the 70s and 80s employment rose and unemployment fell immediately once output started growing. But the main reason the unemployment rate was stubbornly high after the 1990-91 and 2001 recessions was not because of structural change, but because of slow output growth.

Blizzard

Afternoon classes are cancelled, library is closed. But Athletic Center and college union building are open. Explain.

Snow

Gettysburg doesn't usually get a lot of snow, but we still have two feet on the ground left over from the weekend, and the current storm has already dumped about 8 inches on us and continues. If you're reading this and you're in one of my classes, turn off your computer and get to class - your parents paid good money for a year's worth of book-learnin', and so book learnin' is what you're gonna get. Back in Wisconsin we call a day with snow like this "Wednesday."

Not so Washington DC, which every year is shocked, shocked that they can have a blizzard there. It never snows in DC, they say, which is why we don't own any snow plows. Well, when I was in college there in the early 80s we would get a 1-2 foot blizzard once a year at a minimum. I've lived north and south of DC for the last 17 years, and it seems that every winter there's at least one storm that closes the airports and prevents my colleagues who live in the area from driving up to teach their classes. Here's the annual data. Things have been pretty quiet in the last few years, but I think to say that a storm like the one that hit this past week is unprecedented or unexpected is to be ignorant of history. Get some freakin' snow plows!

This is especially important because this week, it turns out, is survey week for the monthly employment situation report. All across the eastern seaboard the Census Bureau is going to call people up and ask them "have you worked outside the home for pay in the past week"? How many people, especially in the DC area, are going to say "no, I can't get my car out of the driveway"? How will this affect February's job numbers? In fact, how many Census workers are actually at their desks making these calls?

Unwinding

During the recession the Fed has bought about $1.5 trillion dollars in assets that include mortgage backed securities, debt issued by the housing agencies Fannie Mae and Freddie Mac, long-term government debt, and a host of other risky assets. In the process it has created the same amount of bank reserves, most of which sit in the banks' deposits at the Fed because banks are reluctant to make loans. In essence, the Fed has become the primary lender to the US housing market and some other financial markets.

Over the coming year banks will, it is to be hoped, become less reluctant to lend. Those idle reserves will be lent out, the money supply will expand, and the Fed will face the problem of how to "unwind" these extraordinary actions to head off inflation. The NY Times is misleading, however, when it says "Ben S. Bernanke ... now faces the delicate task of beginning to pull the central bank out of its extraordinary effort to prop up the economy." Now is certainly the time to plan, but it is far too early to do.

One thing the Fed certainly should be in no hurry to do is to reduce its holdings of securities (in central bank jargon, to reduce the size of its balance sheet). I think there is a certain level of discomfort, if not at the Fed than among commenators in the press, with the idea that the Fed would be the owner of so many different types of privately issued securities. But the fact that the Fed holds, say, $970 billion of mortgage-backed securities, is not in itself inflationary. Inflation will be a danger when idle reserves are turned into loans and therefore bank deposits (money). The Fed can control the pace of new lending by adjusting the interest it pays on reserves. It does not have to adjust its holdings of securities.

It would be a terrible mistake for the Fed to sell off its security holdings prematurely. Doing so would cause interest rates on these types of lending to rise and cause the recovery to stall. The Fed knows this, and so will not make this mistake. Securities should be sold off only as quickly as private sector demand for them increases. This could be a long process.

Jobbish recovery

Not quite "job-rich" yet, but getting "jobbish." Aggregate hours worked rose at an annual rate of 4.1 percent from November-January. This happened because average hours worked rose from 33.0 to 33.3, which looks small but gets us almost half way to where we were before the recession hit (33.8). So yes, productivity growth has been extraordinary, but businesses are starting to actually have to have people work more hours to produce the stuff they've been selling. That bodes well for employment numbers in coming months.

The big rise in hours could be a temporary blip, but it's worth noting that following the 2001 recession hours didn't rise this much until mid-2004.

Alternative views of the recovery

Tim Duy has a pretty good analysis. He argues that the data is showing a strengthening economy but not one that is strong enough to show a 1983-style recovery. I agree.

Trip down memory lane

I've got no new insights on the employment numbers. But I'm curious, how have the benchmark revisions changed my understanding of where we are and how fast the labor market is going to return to growth territory. First, a trip down memory lane.

On November 6, in the wake of an employment report for October that showed a loss of 190,000 jobs, I presented a graph of the change in payroll employment. The graph drew a line up from the worst month of job losses (January 2009) through the job loss figures since that date. I argued that if current trends continued, employment growth would cross zero in January and be positive in February.

On December 3 I undertook a similar analysis and found that employment growth should be positive in February, maybe a bit negative in January.

On December 4, following the release of the November employment numbers, I guessed that following current trends job growth would be somewhere around 130,000 in January and 200,000 in February. Optimism grows.

On January 9 I projected trends from quarterly data and guessed that we'd have +50,000 in January and +100,000 for February.

On January 21 I used a VAR to forecast employment from initial claims data and predicted that January's employment would be +135,000.

The BLS has now revised its figures for April 2008 - March 2009, which changes the seasonal adjustment factors that it uses for the data after March 2009. The effect of the revisions are shown in the two graphs below. The decline in jobs during the recession was much worse than we thought previously, but the pace of the turnaround has not changed much. Using data from January-December 2009, I would have predicted an increase of 97,000 jobs in January before the revisions and 58,000 after the revisions. The actual number, -20,000, is lower but not much lower. It might have been slightly positive but for really bad weather in January: 75,000 jobs were lost in construction and 14,000 were lost in leisure/hospitality. Almost all other sectors of the economy showed employment increases.

So I think we're still on track. Most of my previous crude forecasts had shown January to be a mediocre month and February to be the first month of substantial gains.

First take on employment numbers

According to the Bureau of Labor Statistics, total employment fell by 20,000 in January. This is worse than consensus forecasts and much worse than my more optimistic forecasts. The situation is very confusing, however, for two reasons.

First, the household survey tells a dramatically different story: employment up 541,000, number unemployed down 430,000, unemployment rate down from 10% to 9.7%, employment-population ratio up from 58.2 to 58.4 percent. I generally have less faith in the household survey, but the disparity is dramatic enough to cause one to scratch one's head.

Second, the payroll employment report included two major sets of revisions. The annual "benchmark" revisions reduced employment numbers from April 2008 on, and had a major effect on revisions to data in recent months. The BLS also changed its seasonal adjustment factors, which changed employment numbers from 2005 on.

Bottom line: I don't know what the hell is going on. Time to call Bob.

Now begins the back-fighting and recriminations

Progressive forces are in shock at the stunning turnaround in today's faculty meeting. By overwhelming votes, the faculty rejected both the Committee for Truth and Light's and the APPC's motions regarding the "informed citizenship" goal. As a result: the status quo prevails, the Science, Technology and Society requirement remains in place.

Pollsters are attributing the vote to a general sense of disatisfaction and alienation among the faculty as a result of pay freezes and a general decline in the quality of the hors-d'ouevres at FASH. As a result, voters lashed out at all symbols of authority, including the APPC and yours truly.

Progressive forces are now in disarray. One faction claims that the group provoked the backlash by going too far, too fast. One insider noted that "We need to remember that at the end of the day, this is a right-of-center faculty. It is not surprising that it would be so resistant to progressive change." Others argued that the CTL failed to articulate a clear vision of change. As a result voters were confused and easily misled by an effective propaganda blitz by the APPC and its allies. "It was patently untrue that the CTL proposed establishing death panels for students who failed to meet the diversity requirements," one source argued, "but the lack of a strong message from the CTL allowed this myth to fester." Still others argued that this episode signalled a need for change at the top: a movement is afoot to replace Char Weise with Ralph Sorensen as official spokesman for the group.

Weise responded to requests for a reaction through a spokesman. "One thing is clear," the spokesman said, "someone is to blame. And it sure as hell isn't me."

The January effect in initial claims

Brad DeLong notes that there's been an uptick in jobless claims every January for several years, with no noticeable correlation with movements in employment. An anonymous commenter on the previous post says the same thing.

Unemployment claims

I keep waiting for indications that the labor market is finally catching up to the goods market, but I keep being disappointing. The Department of Labor reports that initial jobless claims were up (a bit) again last week. Consensus forecast for employment growth in January is +15,000, which is a continuation of the slow upward trend but not extraordinary news. I'll be more confident that my optimism over the last few months is being vindicated if it's more like +50,000.

Highlights from the PGL auction

At last Saturday's Project Gettysburg-Leon auction, a coupon worth $100 towards tree removal sold for $280. Discuss.

Barack Obama, hostage negotiator

Republicans have taken the American policy process along with a pack of blue dogs hostage and are holed up in their compound on Constitution Ave. Liberals have their SWAT team at the ready and are begging for authorization to storm the compound. Obama says no, give me one more chance to talk them out. Stay tuned.

La plus ca change...

Thomas Malthus, Essay on the Principles of Population, 1798:

The poor-laws of England tend to depress the general condition of the poor in these two ways. Their first obvious tendency is to increase population without increasing the food for its support. A poor man may marry with little or no prospect of being able to support a family in independence. They may be said therefore in some measure to create the poor which they maintain; and as the provisions of the country must, in consequence of the increased population, be distributed to every man in smaller proportions, it is evident that the labour of those who are not supported by parish assistance, will purchase a smaller quantity of provisions than before, and consequently more of them must be driven to ask for support...

Hard as it may appear in individual instances, dependent poverty ought to be held disgraceful. Such a stimulus seems to be absolutely necessary to promote the happiness of the great mass of mankind; and every general attempt to weaken this stimulus, however benevolent its apparent intention, will always defeat its own purpose. If men are induced to marry from a prospect of parish provision, with little or no chance of maintaining their families in independence, they are not only unjustly tempted to bring unhappiness and dependence upon themselves and children; but they are tempted, without knowing it, to injure all in the same class with themselves. A labourer who marries without being able to support a family may in some respects be considered as an enemy to all his fellow-labourers.

I feel no doubt whatever that the parish laws of England have contributed to raise the price of provisions, and to lower the real price of labour. They have therefore contributed to impoverish that class of people whose only possession is their labour. It is also difficult to suppose that they have not powerfully contributed to generate that carelessness, and want of frugality observable among the poor, so contrary to the disposition frequently to be remarked among petty tradesmen and small farmers. The labouring poor, to use a vulgar expression, seem always to live from hand to mouth. Their present wants employ their whole attention, and they seldom think of the future. Even when they have an opportunity of saving they seldom exercise it; but all that is beyond their present necessities goes, generally speaking, to the ale-house. The poorlaws of England may therefore be said to diminish both the power and the will to save, among the common people, and thus to weaken one of the strongest incentives to sobriety and industry, and consequently to happiness...

The mass of happiness among the common people cannot but be diminished when one of the strongest checks to idleness and dissipation is thus removed; and when men are thus allured to marry with little or no prospect of being able to maintain a family in independence. Every obstacle in the way of marriage must undoubtedly be considered as a species of unhappiness. But as from the laws of our nature some check to population must exist, it is better that it should be checked from a foresight of the difficulties attending a family, and the fear of dependent poverty, than that it should be encouraged, only to be repressed afterwards by want and sickness.

Andre Bauer, Lieutenant Governor of South Carolina, 2010:

Manufacturing expanding at a healthy clip

The Institute for Supply Management's Purchasing Manager's Index is a widely-watched barometer of activity in the manufacturing sector. A value greater than 50 means manufacturing is expanding, less than 50 means contraction. In January the index rose to 58.4, the highest level since 2004. The performance of manufacturing since its trough in December 2008 (when it hit 32.5) has been impressive in comparison to past recoveries: another economic indicator that paints a picture much more like the 1982-83 or 1975-76 recoveries than the 1991-92 and 2001-02 recoveries. The on-the-ground reporting of production and profits is getting more and more optimistic, while professional sourpusses are still fixated on the pessimistic forecasts of professional forecasters, the Obama Administration, CBO, and Fed.

(I'm going to feel pretty stupid if the sourpusses turn out to be right.)


(Correction: the graph shows the absolute change in the index relative to its low point, not the percent change.)

Keynes vs Hayek

Circulating in the attention economy of the "internets" is this Austrian appropriation of the hiphop vernacular.



Moralist tone of the Hayekian critique of excessive borrowing aside, I find it quite interesting how the liberatory tinge of Hayek's "I want to free the markets!" is made to contrast with Keynes' "I want to steer the market". In a sense, hiphop (an erstwhile element of alternative youth culture) and discourses of freedom are mobilized to support a particular economic ideology (and I am not using ideology in a merely pejorative sense). No doubt, underlying this freedom versus planning dichotomy is the ultimate normative bedrock of neoliberal creed: freedom of choice. Nevertheless in this particular context, it seems that our choices are truncated; they are limited to either steering the economy or freeing the economy. As if these two are our only choices. What about embedding the economy, or socialising the economy, or ecologising the economy? The implicit common denominator that brings Keynes and Hayek together is that both place their bets on economic growth as the ultimate aim of social evolution and that they are both blind to the systemic nature of class and ecological injustices of these creatively destructive but also destructively creative cycles of boom and bust.

Administration's economic forecasts

Brad DeLong sends us to Eschaton, who is one of many who have been driven to the depths of despair by the Administration's pessimistic economic forecasts in the proposed budget for 2011. I think we need to take a deep breath here:

If you were Christina Romer and you had to make public a forecast for growth and unemployment for the next three years, would you give your mean forecast, a forecast biased to the optimistic, or a forecast biased to the pessimistic?

I'd give a number more pessimistic than my true forecast. The reason is I don't want to be caught in the same situation the Administration found itself in this year when it predicted 8.5% unemployment and the unemployment rate went to 10%. My decision to do this is reinforced by the fact that the pessimistic forecast is consistent with the Fed's forecasts.

The Fed faces an incentive to report a more pessimistic forecast than its true beliefs as well. If it predicts strong growth ahead it makes financial markets think interest rates are going to rise, and so bond rates rise, choking off recovery. Better to announce a pessimistic forecast, keep rates low, and get the economy humming again. The Fed's incentives are reinforced by the fact that its pessimistic forecasts are only little more optimistic than private forecasters; if the Fed is wrong, it made the same mistake as everyone else, and gets no flak.

The private forecasters are idiots.

Meanwhile...

The ad you won't see during the Superbowl

I'm actually not sure if they rejected this ad because it's offensive to gays or offensive to homophobes. Or to Packers fans (yuck, I've been kissed by a Vikings fan - gross!).