Tag: Economy

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Recall that the Department of Commerce, last month, said that our economy as measured by GDP had contracted in the first quarter of this year by 1%. Commerce is out with an updated estimate of our economy’s performance for that first quarter: GDP shrank by 2.9%. Tyler Durden at Zero Hedge has a graph that’s […]

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The Sun Will Come Out Tomorrow at the Fed


YellenThe Federal Reserve’s latest two-day meeting of its policymaking committee wrapped up this afternoon with few surprises. Its statement on policy generally displayed a belief that the economy is stronger; notably, the Federal Open Market Committee statement did not change at all on the question of inflation, even though the latest CPI figures showed an uptick.

More telling was the summary of economic projections the Fed provided to the markets at the same time. GDP growth for 2014 was revised sharply downward, while unemployment forecasts dropped slightly. I suspect that this reflects the increasing view within the Fed that unemployment rates are being driven down by low labor force participation than it does some brightening of job prospects. The Wall Street Journal interpreted the optimism as the Fed’s way of saying the economy is doing fine … and you’ll all see it in 2015. The market reacted with a nice 98 point gain on the Dow, almost all of which came after the announcement.

What to make of it all? Simply this: The Fed is going to remove quantitative easing at this rate come hell or high water. There’s enough price inflation out there to justify a slight speed-up; it is apparent now that whatever they decide to do with interest rates will happen in the first half of 2015 — and it doesn’t appear they are going to speed up, largely because they don’t know exactly what to do. They are nervous enough about inflation to slightly lift their forecasts for short-term rates for the end of 2015 … to a range of 1-1.25% from a straight 1%. As I said, “slightly.” Asked about the CPI inflation data today, Janet Yellen called it “noisy”. 

Still More on the Piketty Wars


Piketty_in_CambridgeResponding to Thomas Piketty’s response (linked here) to the charges raised by the Financial Times, Chris Giles notes that there remain concerns with Piketty’s presentation:

There are a few things on which we agree. First, the source data on wealth inequality is poor. I have written that it is “sketchy” and Prof Piketty says it is “much less systematic than we have for income inequality”. Second, it would have been preferable for Prof Piketty to have used a more sophisticated averaging technique than a simple average of Britain, France and Sweden to derive an estimate for European wealth inequality. Third, the available data suggests a broad trend of reduction in wealth inequality during most of the 20th Century.

There are more aspects on which there remains disagreement. Prof Piketty does not explain the multiple missing data points in his data or tweaks to it; he explains transcription errors as deliberate adjustments to overcome discontinuities in data, but does not provide formulas or an explanation of why these undocumented adjustments should apply to only one data point in a time series; he does not explain why it is consistent to favour household surveys over estate tax records for the US but not the UK; nor why his UK series showing rising wealth inequality differs so materially from his source materials, which show falling UK wealth inequality in eight of the most recent nine decades.

What the Piketty Errors Mean


PikettyRemember the Reinhart/Rogoff spreadsheet error? In the event that you do not, here is a summary. Those who follow debates between economists will recall that the spreadsheet error led to all kinds of excoriations of Carmen Reinhart and Kenneth Rogoff on the part of liberal economists, who claimed that they were responsible for austerity policies that killed off economic growth. Even Stephen Colbert got in on the act. Their spreadsheet error was considered to be the worst tragedy that befell the planet since that one time when Oedipus and Jocasta had a super-awesome first date.

Of course, the excoriations were vastly overstated, but that didn’t stop intellectual opponents of Reinhart and Rogoff from engaging in hyperbole on a grand scale. Now that Thomas Piketty has been caught making his own significant errors, comparisons have naturally been made between Piketty on the one hand, and Reinhart and Rogoff on the other.

These comparisons fail. Reinhart and Rogoff may have made a spreadsheet error, but there is a very plausible argument that the error did not affect their conclusions, and there was no serious accusation on anyone’s part — not even the most severe critics — that Reinhart and Rogoff engaged in intellectual or scholarly fraud.

Facts Are Stubborn Things . . . As Thomas Piketty Is Beginning to Find Out


I have bought Thomas Piketty’s book Capital in the Twenty-First Century, and while I have posted many an item that takes issue with the books claims and conclusions concerning wealth inequality, I do plan on reading Piketty; his book has made quite the intellectual and cultural impact, and although I know what his basic arguments are, I want to be sure that I read the whole of the book to be fully aware of his claims.

But even before reading the book, one can conclude certain things about Piketty, as my previous blog posts indicate. And today, we learn that we may well be able to conclude one more thing still about Piketty, his research, and his arguments: They may be completely wrong. And yes, those words were worth emphasizing.

Was Not Helping Underwater Homeowners a Massive Mistake?


091813housing-600x353In their much-praised new book, House of Debt, economists Atif Mian and Amir Sufi argue the 2000s housing crash caused a much worse recession than the tech-stock crash because asset losses were more heavily concentrated among the 99% — who then stopped spending. The burst Internet stock bubble, on the other hand, “concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending.”

Which raises the following counterfactual: what if Washington had pushed massive relief for underwater homeowners?

Former Obama Treasury Secretary Timothy Geithner doesn’t think something like a principal reduction scheme would have helped much. As he wrote in his new book, Stress Test: “We did not believe, though we looked at this question over and over, that a much larger program focused directly on housing could have a material impact on the broader economy.”

Don’t Be a Nudge


Minnesota’s state executive and legislative branches are currently under Democratic (or as we say up here, DFL — Democratic, Farmer and Labor) Party control. They recently passed a Women’s Economic Security Act here, a passel of 1970s-era measures on comparable worth, more generous parental leave, a better place to pump breast milk for your child at work, etc. The cost to the state is a few million dollars; the costs to businesses will be substantial. We could go on about those, but the Freedom Foundation of Minnesota has found a little nugget in the middle of this bit of warmed-up Carterism.

The bill states: “the commissioner of management and budget must report to the legislature…on the potential for a state-administered retirement savings plan”, by January 2015. The legislation includes $400,000 to study the issue. While a legislative report may seem innocuous (albeit expensive), it is anything but. This is the proverbial camel’s nose under the tent.

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No, I’m not writing about his book and whether or not a Presidential advisor asked him to lie about the role of Social Security in our nation’s debt (which, to his credit, he declined to do). This post is about his op-ed in The Wall Street Journal concerning the onset of the Panic of 2008. […]

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Recovery Summer VI


shutterstock_52707991A few weeks back, the press heralded improvements in the unemployment rate and the whopping 0.1 percent growth rate for 2014’s first quarter. A barely perceptible growth of one-tenth of one percent is bad enough, but it might be getting worse.

Employing newly released data from the Commerce Department, forecasters are now expecting to find that the gross domestic product actually contracted in the first quarter. Don’t be surprised when the government quietly lowers that Q1 estimate.

The latest evidence came Tuesday, when the Commerce Department released reports on retail sales and business inventories. Retail sales in February and March were revised up, but business inventories grew less in March than the agency had assumed in its GDP calculations.

Who Doesn’t Want a Drawbridge Sometimes?—Aaron Miller


In Ed Driscoll’s latest podcast, James briefly describes what he calls “the drawbridge effect”: successful business owners using their acquired power and resources to prevent others from following their success. Is this scenario truly common? If it is common, is it as selfish as it first appears?

Imagine that you could afford to build a house on a beautiful secluded beach. Soon others discover that shore and more houses are built. Then the condos and hotels come, along with little tourist shops and restaurants. Eventually, home owners are driven out by rising property taxes. Those that remain are faced with a very different beach experience than the one they bought into.

Is the US Counting Too Much on the Shale Boom to Fix the Economy? — James Pethokoukis


Calling the shale gas and oil boom an “energy revolution” is no overstatement. Between 2005 and 2013, US production of natural gas increased by 33% and liquid fuel 52% thanks to advanced drilling technology. But I get the impression that some people — particularly on the right — see fracking as a sort of magic bullet for America’s economic stagnation. Well, that and the repeal of Obamacare.

But I urge caution in equating an America energy revolution with an American economic revolution. It’s a big economy, after all. And it’s tough for any one thing to make a dramatic, overwhelming impact. For instance: the McKinsey Global Institute has projected that so-called unconventional energy production could support 1.7 million jobs by 2020. IHS Global Insight takes its forecast out to 2035 and sees a gain of 2.4 million jobs. Those are big numbers, of course, but they seem less impressive when you consider that total US employment by then might be 160-170 million jobs.

Employment Paralysis in the Obama Economy — Doug Kimball


As many of you know, I’m in the midst of a job search. It became clear early on that I needed to temper my expectations; which is to say consider taking a few giant steps backwards in order to get a paycheck.

The first headhunter I met with tried to sell me on a “retained search.” That’s a euphemism for paying them a fee up front to represent me. I politely told them, no, but I wanted to ask them if they saw “SUCKER” tattooed on my forehead. This is where the job market is. Poor unemployed dinosaurs like me are rubes to be deprived of their IRA savings.