Back in the game?

The Financial Times piece Bob and I wrote in January predicting a "job-rich" recovery is still taunting me from the bulletin board in the department office, so I'm tempted to lie low. But here goes.

The argument for a strong recovery was that (1) deep recessions are ordinarily followed by strong recoveries; (2) this is largely because in deep recessions companies cut employment excessively, businesses and households cut back spending excessively, and when the dust settles they snap back to something approximating normal; that applies to this recession-recovery episode; (3) monetary and fiscal policy are tremendously expansionary. At the same time a number of "headwinds" were tending to push growth down: the housing market, consumer debt, state fiscal problems, etc.

I thought that the forces of expansion would overpower the headwinds, and a growing economy would relieve pressures from the weak housing market and so on. I still think that argument is right, but I did not count on the European crisis in the spring to so royally screw things up. I now believe (with something approaching the confidence that I have that the Packers will go to the Superbowl) that the growth slowdown was due not to the forces of expansion being weaker than I gave them credit for, but to uncertainty surrounding the European debt crisis. My evidence for this is the coincidence of credit spreads rising at exactly the time of the slowdown in employment: here's the graph.

Private sector employment growth (the blue line) was increasing steadily throughout 2009 and into the first quarter of 2010, headed for the 200-300,000 per month range. Then Europe happened, credit spreads (the difference between Baa and Aaa bond yields, in red) rose, and employment growth leveled off. Now it's possible that the slowdown was due to some other factor and that credit spreads were predictive of rather than responsible for the slowdown in growth. But I think that the European crisis is the most plausible explanation. Either way, credit spreads are now returning to the levels they were at the beginning of the year. I predict that this signals a return to progress toward a healthy expansion in employment.

The signs of renewed strength are all around us - Calculated Risk has the run-down. On the basis of the recent indicators, CR predicts growth of 3%+ in 2011, which is significantly more optimistic than the consensus forecast of around 2.5%. But I'm more optimistic: I don't think I was wrong before about the fundamental sources of strength in the economy, so I don't see why we couldn't see growth around 4%, with growth in employment of say 200,000 or more per month, and a substantial (1% or more) decline in unemployment. We'll have better indicators of employment growth in November after the ADP and ISM reports come out, but I'm going to guess on the basis of spidey sense that it'll be somewhere near 200,000.

Of course, everything I've just written comes with a giant caveat: if Europe collapses or the US experiences some kind of fiscal crisis (say because Republicans refuse to raise the debt ceiling this spring unless Democrats repeal health reform), all bets are off. Indeed, the Baa-Aaa spread has stopped falling since October, probably in large part because of the Ireland crisis. This is a bad sign.

Curious headline

Every month around this time the WSJ reports breathlessly on the Bureau of Labor Statistics release on state unemployment rates with headlines like "Unemployment in States Remains High." The story starts:

Unemployment rates were little changed in most states in October, as a recovery in the labor market remained sluggish across the country.

The Labor Department reported that 19 states and Washington DC experienced jobless-rate decreases, while the rate rose in 14 regions and was unchanged in 17.

Well, we kind of knew this already didn't we? The national numbers did come out on Nov. 5 and showed a steady unemployment rate. What, you thought that unemployment would be plummeting in most states while the national number was unchanged?

An alternative explanation

Paul Krugman cites a firewall-protected WSJ article offering another explanation for the recent rise in Treasury rates: the attack on QE by Republicans has raised questions in financial markets as to whether the Fed will actually go through with the plan. This is plausible, but it's very difficult to distinguish this possibility from the others.

Here's a way to think about the effect of QE on long-term interest rates. Long-term interest rates should be equal to the average of the expected future rates on short-term securities plus a term premium reflecting the degree to which long-term securities are imperfect substitutes for short-terms. The expected future short term rates, in turn, can be decomposed into expected future real rates plus expected future inflation.

QE has a direct effect on the term premium: think of a two-part process whereby the Fed first trades short-term securities for long-term securities, thus increasing demand for longs at the expense of shorts and driving up the price of longs relative to shorts, reducing the term premium. Then the Fed conducts conventional open market operations (purchases of shorts) to keep the interest rate at zero.

QE can affect expected future real interest rates by altering markets' beliefs about the health of the economy. A stronger economy means higher real rates, weaker economy means lower real rates.

QE can affect inflation expectations. Higher expected inflation means higher nominal rates, lower expected inflation means lower nominal rates.

Perhaps we can distinguish between the possibilities by looking at the spread between the 30-year and 10-year Treasury yields. The Fed's purchases under QE2 will be confined to securities with a maturity under 10 years. Let's see, if QE is effective we should see yields on 10-year securities fall relative to those of 30-year securities, so the 30-year - 10-year spread should rise. If QE is not expected to hold we should see this spread fall. Expectations of an improving economy and inflation should affect the 10-year and 30-year identically, so there should be no change in the spread.

Roll the tape:



Hmm, the spread rises following the Fed announcement of another round of QE (though this only makes sense if the $600 billion purchases the Fed announced was bigger than expected; I don't think it was). Then it starts falling a couple of days before the letter from Republicans and conservative economists criticizing the policy (but a few days after Sarah Palin's tweet). So if you fudge dates a little you can get support for the WSJ/Krugman view (how often do you see those two names together behind one view?!). But if you look at where the spread is now versus where the spread was before the QE announcement, and you remember that both 10-year and 30-year rates have risen since Nov. 5, it seems like support for the "economy is strengthening" view.

And then we learn that GDP grew at a 2.5% rate in the third quarter rather than the 2.0% increase initially reported. The increase in the estimate reflects better numbers for consumption spending, inventory investment and imports. So some more foundation for the economy-is-strengthening view.

Why have long-term bond yields risen in the past two weeks?

There's buzz out there that the problem is that the Fed's announcement that it would purchase $600 billion of long-term bonds spooked financial markets: long-term rates rose because of expectations of a depreciation of the dollar and higher inflation.

Now, trying to understand day-to-day squiggles in bond yields is difficult, some might say futile. Nevertheless, it does not appear that the data is consistent with the "spooked financial markets" explanation. Below are the yields on nominal 10-year Treasury notes, inflation-indexed notes (TIPS), and the difference between the two, which is a widely-used measure of inflation expectations. It looks to me like the big run-up in nominal yields followed the October employment report (released on Nov. 5), not the Fed's quantitative easing announcement of Nov. 2. Furthermore the increase in nominal yields reflects an increase in the real rate of return, not an increase in expected inflation. A possible explanation is that the employment report, which showed much stronger employment growth than economists had anticipated (with a few notable exceptions!), caused an upward revision in forecasts for economic growth, which is ordinarily associated with higher real interest rates (e.g. maybe the Fed will have to move away from its zero interest rate policy sooner than had been expected).

Of course a gajillion other things are happening at the same time. Who knows what the Ireland debt crisis is doing to financial markets right now?

Barney Frank reads my blog!

Washington, D.C. – House Financial Services Committee Chairman Barney Frank (D-MA) issued the following statement today regarding Republican attacks on efforts by the Federal Reserve to use well-understood monetary policy tools in order to help boost the U.S. economy:

“I was not surprised at the extreme hypocrisy of the Central Bank of China insisting that America – apparently alone among nations – has an obligation to subordinate its own legitimate economic needs to international currency movements, nor was I surprised that other central banks, including Germany’s, joined China.

“What did disappoint me was to see conservative economists, high-ranking officials of previous Republican administrations, and Republican Congressional leaders share the attack by these foreign banks not simply on the substance of the Federal Reserve’s proposal, but on the very notion that America has a right to give a primary focus to our own economic need for growth at this time.

“Debating American economic policy is one thing; joining in a broad attack by foreign central banks, who insist that America somehow must subordinate our own legitimate economic needs to their currency requirements, is quite another. But that is essentially what the Reagan-Bush-Bush economists have asserted in their letter to Chairman Bernanke when they say that ‘The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.’”

Simon Johnson muses about moving the IMF headquarters to Beijing

Quite a leap from bailing out Ireland to making China the leading country in global finance. But it would be nice to have someone else do all the bailouts for a change.

It is too consistent.

The Germans are critical of the Fed's quantitative easing and criticisms of China's exchange rate policies. From the Financial Times:

In the wake of the Fed’s move, Wolfgang Schäuble, German finance minister, said that the US policy was “clueless”. “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their [central bank’s] printing press,” Mr Schäuble said this month.

It is too consistent. Quantitative easing may help force China to revalue. Any increase in inflation in the US as a result of QE will be exported to China if its exchange rate remains fixed. It can tighten capital controls rather than revalue, but this is difficult to do. It can impose price ceilings on food and other sensitive items, but this is a stopgap measure that is doomed to failure. Ultimately revaluation is the only sensible policy.

Paul Krugman has a good takedown of the China-Germany-Republican "axis of depression." Why is it that Republicans hate Europeans so much when it comes to a VAT but act just like Germans on the subject of monetary policy? Whatever the reason, Democrats should be hammering the Republicans hard on this. Every time they criticize Republicans on macroeconomic policy, they should be sure to lump them with China and Germany. As in: "We call on the Congressional Republicans and the Chinese government to respect the Federal Reserve's independence and support America's efforts to restore growth."

Obama finally draws a line in the sand...

But it's on an issue that is of absolutely no value to his liberal base. Why didn't he show the same spine on the Bush tax cuts, the public option, a larger fiscal stimulus, judicial nominations,....?

Of course he's right on START. The Senate Republicans, apparently, are reflexively opposing it on the grounds that if Obama's for it it must be bad, despite the fact that it seems to be supported by every non-officeholding Republican in America. Perhaps the Republicans will come out of this with their polish scuffed, which could benefit the Democrats on issues like jobs, deficit, and health care in the months to come. One can hope.

Pharmaceutical companies are doing their part to stimulate the economy

The Financial Times reports this morning that Roche plans to cut 4800 jobs in 2011 and 2012. This comes on the heels of Merck's decision to cut 15,000 jobs and Pfizer's decision to cut 6000. I don't know much about economics, but I do trust the judgment of the Congressional Republican leaders and liquidationists around the world who tell me that the key to economic recovery is for everyone to tighten his belt and balance his budget, whose main legislative priority is to cut government spending and freeze new hiring of government workers. With our large corporations taking their cue from the Republicans, prosperity must surely be around the corner!

Free Market Does Not Exist!

Cambridge University economist Ha-Joon Chang offers an institutionalist analysis of the recent injection by Fed as another step in an accelerating currency war, explains the political economy of G-20 summit and argues that there is no such thing as a free market.

Worst television show in history

Cop Rock (1990). I remember at the time thinking this was going to be the worst show ever, and time has vindicated my judgment. I'm surprised it lasted 11 episodes.



Note: TV Guide ranked Cop Rock #8 worst show of all time behind the Jerry Spring Show, My Mother the Car, XFL, The Brady Bunch Hour, Hogan's Heroes, Celebrity Boxing, and AfterMASH, and just ahead of You're in the Picture and Hee Haw Honeys. But I beg to differ. From concept to implementation, Cop Rock is head and shoulders above the pack. And how can I take seriously any ranking that puts Hogan's Heroes - one of the best shows ever - in the bottom 10?

Murder

Yesterday's killing of a wildlife conservation officer was, by my count, the fifth murder in Adams County in the last two or three years. This is a tragic event and I hesitate to make political commentary on it, but I will nonetheless. My political commentary on it is this. If you ask the typical resident of Adams County what is the source of most violent crime in our area, I would bet their answer would be: drug trafficking, blacks, illegal Mexican immigrants, black-Hispanic drug dealers in transit from DC towards the northeast. The fact is that all five of the (convicted or alleged) killers in Adams County were white. One man killed his wife in their house in Lake Heritage, a solidly middle- to upper-middle class community outside of town. A student at Gettysburg College killed his ex-girlfriend. A man somewhere in Carroll Valley killed his wife and son. A man somewhere in Carroll Valley killed a younger man he was camping with. And now this. White people, domestic violence, rural or suburban settings, in most cases involving guns.

Cat lapping

Now we know how they do it.

Maybe we are the problem, not our elected leaders

Liberals are frustrated at Democrats in Congress and the White House who are too willing to compromise with Republicans rather than sticking to their principles. Yet according to a USA Today / Gallup poll, Democrats who compromise and Republicans who are intransigent are merely catering to their respective bases. According to the poll, 41 percent of Republicans versus 18 percent of Democrats agreed that "it is more important for political leaders to stick to their beliefs even if little gets done." 59 percent of Democrats and 32 percent of Republicans said no, "it is more important for political leaders to compromise in order to get things done."

The currency policy that dares not speak its name

President Obama is at the G-20, defending the US against an international uproar caused by the Fed's latest round of quantitative easing. Here's what's going on:

The unemployment rate in the US is 9.6% and recovery has been sluggish. With fiscal policy off the table because of the Republican victory in the midterm elections, the Federal Reserve has decided to use one of the few remaining tools it has: purchases of $600 billion worth of long-term government bonds over the next eight months in an effort to lower long-term bond rates. Some economists think this program would have little effect and we'd be better off if the Fed did nothing, but one can also argue (and I would) that the program is in fact too modest: the Fed would do more good if it announced that it intends to keep buying bonds until inflation rises somewhat above the usual 2 percent comfort range for awhile. Creating expectations of higher inflation would give an additional boost to spending beyond the effect of lower nominal bond rates.

Germany, China and Brazil have voiced strong opposition to the Fed's move. What these countries have in common is that all of them are enjoying a strong recovery without the kind of extraordinary measures that the US is undertaking. They are worried that the Fed's policy will force them to import higher US inflation or cause the dollar to depreciate against their currencies. I've got some sympathy for Brazil here, but none at all for China and Germany.

China, as we all know, is pegging its currency at an undervalued rate relative to the dollar, resulting in huge trade surpluses for China and deficits for the US. The normal route to correcting imbalances like this is a real depreciation in the deficit country (the US) and a real appreciation in the surplus country (China). There are two ways for a real appreciation to occur in China: its inflation rate could rise or its currency could appreciate, either of which makes its goods more expensive relative to US goods and reduces its surplus. Monetary expansion in the US will force China to allow higher inflation, revalue its currency, or expand an already cumbersome and costly system of capital controls that requires it to buy enormous amounts of US Treasury securities (which, thanks to the Fed, will be offering either lower yields in the future than they currently do). If quantitative easing forces China to back off from its destructive currency policies, it will be a force for stability in the world economy.

While Germany is enjoying a strong recovery the rest of Europe is teetering toward another recession. Germany, which has an outsized influence over the European Central Bank, is reluctant to help its fellow European countries out by further expanding monetary policy because of its historic hangups over inflation. The Fed's quantitative easing may force Germany to do the right thing here as well: if the ECB wants to resist an appreciation of the euro it will have to match the Fed's monetary expansion, easing economic conditions in the rest of Europe.

I'm not as familiar with Brazil's objections to the Fed's policy. I suspect that the root of their objection is that Brazil's major competitors in trade, Argentina and some other Latin American countries, peg their currencies to the dollar, so that a depreciation of the dollar hurts Brazil's trade position. My understanding may be dated however. At any rate, this is a problem that I think could be easily cured if Brazil allowed its currency to track the dollar downward.

There are surely some complications I haven't accounted for, for example the fear that monetary expansion will feed world-wide speculation in commodities. But it seems to me that half a century ago the world economy agreed on an international monetary system where each country has autonomy over its monetary and fiscal policies, exchange rates can adjust to insulate one country from the policy choices of another, and a web of national and international regulatory agencies can keep financial markets in line (ok, that one doesn't always work perfectly). The world economy needs monetary expansion in the US and countries have the tools to adjust to the US policy.

Ultimately we are going to have to see a depreciation of the dollar because of the large US trade deficits and our weak economy, and quantitative easing is going to push us in this direction. It would be nice if Obama could come right out and say this, but it would violate a taboo in the world of international finance which is that the US government must always and everywhere declare its support for a "strong dollar." The currency policy that dares not speak its name.

I'm pretty sure this is how some students get into Gettysburg College

I'm the guy chasing the runner down trying to keep him out of the endzone.

(Thanks to Ralph for passing this on.)

Blue dogs and Democrats

Democrats are engaged in a debate over whether to blame the Blue Dog caucus for the loss they suffered last week. One argument is that the Democrats lost because they pursued an overly ambitious liberal agenda which the Blue Dog members were right to oppose. On the other side are those who argue that the Blue Dogs sabotaged what was in fact a winning agenda, weakening fiscal stimulus and health care legislation both in substance and politically. Matt Bai sides with the absolve-the-blue-dogs crowd, noting that in a country where 41 percent of voters described themselves as conservative it's hard to argue that the Democrats were right to push for liberal legislation.

I look at this in a slightly different way. I think that voters punished Democrats for results and appearances, not for the content or ideological tilt of specific pieces of legislation. Had the economic recovery that looked so promising in March and April continued through the summer there would have been very little criticism of ARRA from moderates and independents (of course the Tea Partiers will be with us always). But the recovery faltered, so it was easy to label ARRA as a failed and wasteful program. I believe that health reform became unpopular not because people don't like the substance of the law - as is often noted, individual components of the law poll very well - but because the process of enacting it became such a circus and people were turned off by the horsetrading.

So what does this say about the Blue Dogs? In retrospect, I think the liberal leadership in the House and Senate should have struck a different sort of deal with the Blue Dogs. Rather than bargain with the Blue Dogs, publicly and at length, in order get a weaker version of health reform and ARRA through Congress, wouldn't it have been nice if the two groups had engaged in some straightforward logrolling? What would Blue Dogs have been able to bring home to their constituencies that would have strengthened their prospects for reelection? Meaningful long-term deficit reduction? Entitlement reform? Tax reform? Ok, in exchange for Blue Dog support for a clean health reform law (including a public option, with a faster timeline to implementation) and a strong ARRA ($1 trillion plus rather than $800 billion), the liberals promise to immediately pivot to a more Blue Dog friendly agenda. The economy would be better off with a stronger ARRA, helping everyone's re-election prospects; the stink would be off health reform; and the Blue Dogs would have real moderate-to-conservative accomplishments that they could have run on in 2010.

Best Stewart-Colbert rally sign

From Greg Mankiw:

It's hostile out there

On Wednesday Bruce Larson and I gave a talk at the monthly meeting of Gettysburg's Democracy for America group about the election results. Well, we didn't talk really so much as respond to questions from the audience. It was a very polite, civil affair where nothing much profound was said. Certainly no one said anything disparaging of the opposition except perhaps to wonder why so many Americans seem to vote against what the DFA members view as their interests. The local paper covered the event and though the reporter mischaracterized some of our remarks made the event seem if anything more anodyne than it really was. So I was surprised at the tone of some of the comments to the online article (of which there are, at last count, 65):

Really? You have no idea why Americans booted your side out? You're as out of touch as your leaders. Here's a crazy idea, listen to the American people! When they say they don't want our gov't to grow bigger, then don't! When they say stop bailing out businesses, then don't! When they say we don't! want your health care rammed down our throat, then don't! The American people know your message, and we ain't buying it! If the Republicans don't listen to us, we'll kick them out too. See I could have sat on that panel of eggheads and given you a real answer instead of joking about bumper stickers!

Have you learned nothing from the Bit$h slap America sent you Nov. 2nd.? We are not confused. That is your first mistake, why do many Democrats, and edu-endoctrinators like the professor think that anyone who isn't a left wing liberal must be stupid, confused, racist or uncompassionate? American is fed up with government growing bigger and bigger, further intruding on our lives. America is disgusted with liberals who want to bring this country down, liberals who think we should apologize to the world. American doesn't want better slogans or more bumper stickers, this show just how stupid you view the general public as being. Do you really think that a bumper sticker will make us forget the terrible job you've been doing and the contempt you have for our freedom, our rights and our will? Its no wonder you lost, get used to it, 2012 is gonna be the next slap coming your way. You mocked the Tea Party, America back the tea party. Start packing your bags, Freedom is back, and it kickin' A' and taking names.

"they had no answer"?? Really? That is somewhat amusing as I watched at times the MSNBC tv coverage of the election tuesday, it seemed that their pundits; Matthews, Maddow, Robinson, O'Donnell, and the mad man Olberman didn't seem to have an answer to what happened tuesday evening either. It seems that those presented to us as being some of the brightest and the best from the left really don't have any great understanding of or any keen insight into the issues really confonting the country does it? The problem is that they so arrogantly and condescendingly present themselves as possessing these qualities.

So let me get this straight, you asked a few college professors, from a small private privledged college, in a rural agricultural area of Pa why the Dems lost so many seats. How the heck do they know, they are completely out of touch with what the average American goes through day to day....

I guess all professors @ GC are democrats who cannot grasp the notion of what Barrak ran on? Change? Wow! Don't send your kid to this school is what I just read. No discussion on social healthcare, taxes, cuts or actually having people who aren't puppets for lobbyist. I love america but something needs to change and it is government. The results will not change anything but what you are seeing is people who are sending a message that don't plan on being a career polititian unless you provide a service for your state and not big government or big business. The professors jobs should be on the block for not being open minded.

Really? The democrat analysts are just as out of touch as the group itself. We as taxpaying CITIZENS are sick and tired of paying 40% of our income to the government. It has to stop somewhere. The democrats will always get the majority of the black and hispanic vote, and everyone else looking for a handout. Fortunately, for now, we the LEGAL CITIZENS out number these people, and we are voting. Get in touch with reality.

Wow.

Shwing!

I predicted +167,000 private sector employment, +134,000 overall because of a drop in government workers. Actual numbers: +159,000 private sector, +151,000 overall because of basically flat government employment. I declare victory!

Most forecasts were much more pessimistic. Calculated Risk says the consensus was +60,000. In fact, the establishment survey side of the BLS employment report was stronger than the headline number indicates because they revised August's and September's numbers upward by 56,000 and 54,000 respectively. The BLS now estimates that 1.1 million jobs have been created since December 2009. This is not sufficient - a good number would be closer to 3 million - but it is a far cry from the "jobless recovery" following the 2001 recession.

Another good piece of news is average weekly hours, up from 34.2 to 34.3 hours. Pre-recession average was around 34.6. As we approach 34.6, more and more of the increased labor demand will show up as an increase in jobs rather than hours, and the jobs numbers will look better and better.

On the other hand, the household survey indicates a loss in employment of 330,000 workers, most of whom left the labor force (labor force fell by 254,000). This number is very volatile however so you don't want to make too much of one month's data. Since December 1.3 million more people are working according to this measure.

What does all this mean for policy in the months to come? Briefly: we still need QE2. The positive news does not mean that it is now time to contract fiscal policy - we need to extend the middle class portion of the Bush tax cuts, we need more aid to state and local governments, we need extended unemployment insurance. Republicans will nip this recovery in the bud if they insist on slashing the deficit or shutting down the government.

Scariest thing I've heard all day (but it's still only 6:30)

"We are who we said we are, and we are ready to do what we said we would do," said Brad Dayspring, a spokesman for Mr. Cantor [R-Virginia]."

It will be interesting to see how House and Senate Republicans handle their party's civil war. The tried-and-true method by which Republicans have dealt with the crazies in their base is to placate them with purely symbolic measures (a House vote to repeal health reform that dies in the Senate, lots of talk of a balanced budget amendment) while continuing with business (and I do mean business) as usual on substantive matters - tax breaks and deregulation of well-connected businesses, big chunks of money for the obscenely rich, etc. The crazies have always bought this in the past, so smart money says it'll work again this time around.

Playing around with employment data

Some back of the envelope calculations. The ADP employment report says private sector employment rose by 43,000 from September to October. The ADP numbers have consistently underestimated the BLS numbers for private sector employment all year. But it's more confusing than that: the ADP revises the previous month's numbers at the same time they report new estimates, so the change is from a revised estimate, not their initial estimate. That confuses the exercise of using the data to predict the BLS numbers, which also are computed relative to a revised estimate of the previous month's employment. So what if instead we try to predict the level of BLS employment from the level of ADP employment, then use that information to infer the change in BLS employment?

Ok, the first thing I find is that the ADP numbers on the level of employment are falling further and further below the BLS numbers.



Let's say that in October the trend continues, and ADP is 0.99 of the BLS private sector number. ADP private sector employment is reported at 107,056, so that implies a BLS number of 108,137. The BLS reports that in September private employment was 107,970 - this implies an increase in private sector employment of 167,000, before taking account of revisions.

But government employment has been falling. I've lost track of what's going on with the Census (I think all the temporary Census workers have been let go by now, but I don't know for sure), but the average monthly change in total government employment from February (before Census hiring) and September was -32,000. Therefore we get a total increase in payroll employment of +135,000.

Hmm, meanwhile the Institute for Supply Management's index of employment shows an acceleration of hiring in both manufacturing and services in October. I run a regression from January 2000 to September 2010 of the change in payroll employment on a constant and the ISM employment index for services and the index for manufacturing. I then forecast into October and I get.... drumroll please.... +133,000.

Ok, so two complete separate methods give me almost exactly the same result. I'm going to stop there before a third method gives me something completely different (specifically, I'll ignore this morning's initial claims numbers, which were not good), and place my bet:

Payroll employment for October up 134,000.

Gregg Easterbrook - idiot

I've had it with Gregg Easterbrook. Every week it seems he vents his spleen about my hero Brett Favre, criticizing Favre for being an egomaniac who's bringing his team down. This week he calls for him to be benched, then in a long aside explains why Favre is not in fact the problem with the Vikings this year: the offensive line can't block, the defensive line can't stop the run, no one can tackle, the coach can't call plays. And he doesn't even mention the fact that the leading receiver is a complete head case: his rant against the couple that catered the Vikings' post-practice meal is even more ridiculous than his running over a traffic cop several years ago.

I've watched many of the Vikings games and I can tell you that Favre's problem is that (a) he's gotten mediocre at the age of 41, and (b) he's got defenders in his face or around his ankles every time he drops back to throw the ball. But even on his worst day Favre is a better quarterback than Tavaris Jackson. And say what you want about his "me-me-me" attitude, he gives everything he has to lead his team to victory. If gramps can play, Childress should let him - even with two broken bones in his ankle and eight stitches in his chin, Favre gives the Vikings a better chance to win than Jackson.

If I believe this hard enough, will it come true?

Nate Silver: 5 Reasons Democrats Could Beat the Polls and Hold the House

Short story: polls that call landlines but not cellphones understate Democratic support by about 4 percentage points. Robocall polls are also biased in favor of more committed voters, which this year means Republicans. Gallup polls have a screwy methodology that is biased against less committed voters as well. Democrats have better turnout operations. And all those indicators of Republican strength (strength in generic poll, individual races, among different demographics, etc.) are all correlated and poll-dependent, so if the polls are wrong the deeper analysis is wrong as well. All of these things could - repeat could - mean Democrats don't do as badly as expected. But as Nate says, odds are the expectations are correct. Still, one can dream...