Relevant and even prescient commentary on news, politics and the economy.

Science and Technology advice

Via Science magazine, Trump’s White House science office still small and waiting for leadership:

…Trump has yet to nominate an OSTP director, who traditionally also serves as the president’s science adviser. Nor has he announced his choices for as many as four other senior OSTP officials who would need to be confirmed by the Senate.

Still pending is the status of the President’s Council of Advisors on Science and Technology, a body of eminent scientists and high-tech industry leaders that went out of business at the end of the Obama administration.

Via NYT, The Climate Lab That Sits Empty:

There are only a handful of labs in the United States and elsewhere with the equipment to reliably make these measurements at the high precision required for atmospheric research. None has the capacity the Boulder lab would have to run the necessary number of measurements — about 5,000 per year. And the Boulder lab, unlike others with similar equipment, would be fully dedicated to monitoring global greenhouse gas emissions.

The National Oceanic and Atmospheric Administration first sought funding for this program without success in 2012 and is trying yet again this year. But there seems to be little hope that lawmakers will finally provide the roughly $5 million for the machine and attendant research program. Worse, the whole national greenhouse-gas monitoring program may be at risk, if Congress approves President Trump’s proposed cuts to climate science.

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Wisconsin and Foxconn…

Via the New York Times Wisconsin and Foxconn:

Foxconn’s plan for a $10 billion factory in Wisconsin is certainly good news for President Trump and Republican politicians Gov. Scott Walker and Speaker Paul D. Ryan, whose district the plant would call home.

But the deal with Foxconn, the Taiwanese electronics supplier, comes with a heavy price tag for Wisconsin taxpayers: $3 billion in state tax credits that dwarf the typical incentive package companies receive from local governments.

Even as Mr. Walker celebrated the news with Foxconn executives at a rally at the Milwaukee Art Museum on Thursday, experts on the political left and right alike said the rewards were not justified by the cost of the tax breaks.

Over all, the subsidies for the Foxconn plant, which would produce flat-panel display screens for televisions and other consumer electronics, equal $15,000 to $19,000 per job annually.

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by Dale Coberly





I received an email a few days ago from Chris Dreibelbis,Fix the Debt, purporting to explain “why the Social Security Trustees urge action.”

“Fix the Debt” is a project of the Committee for a Responsible Federal Budget (CRFB) which is funded in part by Peter Peterson, a very rich person who has made something of a second career writing and saying misleading things about Social Security.  So have CRFB and “Fix the Debt.”

The present email from Dreibelibis looks reasonable enough,  but also misleading enough, that I thought it worth writing this short post.

Dreibelbis quotes the Trustees, “Both Social Security and Medicare face long term shortfalls under currently scheduled benefits and financing….The Trustees recommend that lawmakers take action sooner rather than later to address these shortfalls…”

Dreibelbis says, “The newest report forecasts that Social Security’s combined trust fund will run dry by 2034.  At that point, all recipients will see a 23% cut in benefits.  For example a typical person born in 1990 … will see a cut of over $160,000 dollars in scheduled lifetime benefits.”

To check this, I assumed that person would pay FICA taxes on income equal to 12.4% of the average income each year from 2020 through 2054.  I looked at Table V.C7 (Trustees Report p150} for a person who obtains age 65 in 2055 and retires at age 67 to find a scheduled yearly benefit of $33430.  Since the numbers in the table are given as constant 2017 dollars, I assumed the “real” value of the benefit would not change and multiplied it by the 20 years that person could expect to live in retirement, for a total of 668600 dollars.  Now, if the benefits are cut by 22% that person would lose $158,778 in total benefits over his lifetime. This is close enough to Dreibelbis figure, assuming he may have done the calculation slightly differently.


But what Dreibelbis did not do was calculate the cost of avoiding the benefit cut by raising the payroll tax 4%.  This turns out to be $93566 or about 60% of the value of the lost benefits.  Sounds to me like a better deal.  Moreover the tax would be paid out of an income of 2.339,153, leaving him an after the tax total income of $2,245,587, or an average of about $64,159 per year (2017 dollars).   Taking the benefit cut would leave him a total of $509,822 in benefits, or an average of about $25,491 per year to live on when he is old.

There are probably games you can play with “present value”  or “what you could have earned from interest,”   but that does introduce some “if’s.”  In any case, a first look at the numbers suggest that paying the extra tax makes more sense than taking the benefit cut.  It turns out that most workers would only see half the taxes (the other half being paid by the employer:  (i am quite aware of the “employers share is “really” the employees money” argument, but that is a metaphysical argument meant to distract from the payroll facts on the ground.)  Taking that employee’s share only, and phasing in his 2% tax increase one tenth of one percent (about a dollar per week at today’s average wage) per year would leave his total tax cost of avoiding the $153,778 benefit cut at about $35710.  This means every dollar he pays in “extra” taxes would get him $4.31 in saved benefits.

By the way, these numbers are in “real” dollars.  Accounting for inflation would make the benefit of paying the tax look much larger.  Or BE much larger, since any attempt to make up for the SS tax by “personal savings”  would have to first make up for what would be lost to inflation.

Dreibelbis does not address this. He strongly implies we need to cut SS now in order to “know what you can count on in the future.”   He never considers that we could just pay an invisibly larger tax now and keep (earn) the benefits we will will most definitely need in the future.

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Trilemmas and Financial Instability

by Joseph Joyce

Trilemmas and Financial Instability

Whether or not the international monetary trilemma (the choice facing policymakers among monetary autonomy, capital mobility and a fixed exchange rate) allows policymakers the scope for policy autonomy has been the subject of a number of recent analyses (see here for a summary). Hélène Rey of the London Business School has claimed that the global financial cycle constrains the ability of policymakers to affect domestic conditions regardless of the exchange rate regime. Michael Klein of the Fletcher School at Tufts and Jay Shambaugh of George Washington University, on the other hand, have found that exchange rate flexibility does provide a degree of monetary autonomy. But is monetary policy sufficient to avoid financial instability if accompanied by unregulated capital flows ?

A recent paper by Maurice Obstfeld, Jonathan D. Ostry and Mahvash S. Qureshi of the IMF’s Research Department examines the impact of the trilemma in 40 emerging market countries over the period of 1986-2013. They report that the choice of exchange rate regime does affect the sensitivity of domestic financial variables, such as domestic credit, house prices and bank leverage, to global conditions. Economies with fixed exchange rate regimes are more impacted by changes in global market volatility than those with flexible exchange rate regimes. They also find that capital inflows are sensitive to the choice of exchange rate regime.

However, the insulation properties of flexible exchange rates are not sufficient to protect a country from financial instability. Maurice Obstfeld of the IMF and Alan M. Taylor of UC-Davis in a new paper point out that while floating rates and capital mobility allow policy makers to focus on domestic objectives, “…monetary policy alone may be a relatively ineffective tool for addressing potential financial stability problems….exposure to global financial shocks and cycles, perhaps the result of monetary or other developments in industrial-country financial markets, may overwhelm countries even when their exchange rates are flexible.”

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Money makes the world…

Even though Angry Bear has as an audience of people who are more than beginners in economic thought,  I think it worthwhile to pursue basic stories about what we demand and value from our way of life, which includes the “economy”.

I had a recent experience where an acquaintance came up to me and asked about Angry Bear and then proceeded to explain what formed the basics of his economic narrative. In rough form and I think my summation accurate enough for casual conversation: Capital is like stocks, debt is like bonds, and rents are had by all…government (I think he meant taxes and ?), companies arbitage?, monopolies (profits and ?). He also asked who I read to get my information (I assume he was asking for a reference or two for Econ 202 information).

I actually wasn’t sure how to respond given his perceptions and also I wasn’t sure how great an interest he had in sorting out his stories or math on economics…I had mine, but there needs to be common ground somewhere. At least we had not begun with the tweet kind of economics spouted by political figures and slogans for PR campaigns.  And he actually might be interested and willing to re-think basics. What might the format be to encourage him to be more thoughtful?

I think this worth pursuing beyond the tired story line of avoiding Uncle so and so at Thanksgiving dinner or the neighbor who has clearly and unequivocally bought into simple political memes.   Barkley Rosser’s Could the US default due to a Complexity Catastrophe? offers another example.

Where does one begin with experience and smart people in one’s circles of activities?

How to think like and economist of that is what you wish by Brad DeLong

I have long had a “thinking like an economist” lecture in the can. But I very rarely give it. It seems to me that it is important stuff—that people really should know it before they begin studying economics, because it would make studying economics much easier. But it also seems to me—usually—that it is pointless to give it at the start of a course to newBs: they just won’t understand it. And it also seems to me—usually—that it is also pointless to give it to students at the end of their college years: they either understand it already, or it is too late.

By continuity that would seem to imply that there is an optimal point in the college curriculum to teach this stuff. But is that true?

What do you think?

(Dan here….also lifted from comments)

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Game Of Thrones Guesses

Dan here…Lifted from Robert’s Stochastic Thoughts:

Game Of Thrones Guesses

1. I guess from the TV series it is official that John Snow is the son of Lyanna Start and Rhaegar Targaryan
2. I’m a fairly sure that Lyanna Stark is also the knight of the laughing tree (and that’s part of the reason Rhaegar loved her so much it caused a civil war).
3. in King’s Landing there is a black cat with one ear who hates Lannisters . I am suspect that he was Rhaenys Targaryen’s pet whom she calle Bellarion the dread. I also suspect that Arya Stark will see through that cat’s eyes.
4. I am fairly confident that the horn of Joramun was found by John Snow with obsidian weapons and given to Sam Tarly
5. I am quite confident that the younger brother of Cersei who will strangle her is Jaime not Tyrion.
6. of course John Snow is one of the heads of the dragon. I guess that Aegon Targaryen VI isn’t the third (he would appear in the TV series if he were important). Some suspect that Tyrion is the bastard son of the mad king. I don’t have a guess. Also Brandon as Warg might control a dragon.

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How Keynesian Policy Led Economic Growth In the New Deal Era: Three Simple Graphs

(Dan here…lifted and reposted)

by Mike Kimel

How Keynesian Policy Led Economic Growth In the New Deal Era: Three Simple Graphs

November 22, 2011

In this post, I will show that during the New Deal era, changes in the real economic growth rate can be explained almost entirely by the earlier changes in federal government’s non-defense spending. There are going to be a lot of words at first – but if you’re the impatient type, feel free to jump ahead to the graphs. There are three of them.

The story I’m going to tell is a very Keynesian story. In broad strokes, when the Great Depression began in 1929, aggregate demand dropped a lot. People stopped buying things leading companies to reduce production and stop hiring, which in turn reduced how much people could buy and so on and so forth in a vicious cycle. Keynes’ approach, and one that FDR bought into, was that somebody had to step in and start buying stuff, and if nobody else would do it, the government would.

So an increase in this federal government spending would lead to an increase in economic growth. Even a relatively small boost in government spending, in theory, could have a big consequences through the multiplier effect – the government hires some construction companies to build a road, those companies in turn purchase material from third parties and hire people, and in the end, if the government spent X, that could lead to an effect on the economy exceeding X.

This increased spending by the Federal government typically came in the form of roads and dams, the CCC and the WPA and the Tennessee Valley Authority, in the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables it falls under the category of nondefense federal spending.

Now, in a time and place like the US in the early 1930s, it could take a while for such nondefense spending by the federal government to work its way through the economy. Commerce moved more slowly back in the day. It was more difficult to spend money at the time than it is now, particularly if you were employed on building a road or a dam out in the boondocks. You might be able to spend some of your earnings at a company store, but presumably the bulk of what you made wouldn’t get spent until you get somewhere close to civilization again.

So let’s make a simple assumption – let’s say that according to this Keynesian theory we’re looking at, growth in any given year a function of nondefense spending in that year and the year before. Let’s keep it very simple and say the effect of nondefense spending in the current year is exactly twice the effect of nondefense spending in the previous year. Thus, restated,

(1) change in economic growth, t =
f[(2/3)*change in nondefense spending t,
(1/3)*change in nondefense spending t-1]

For the change in economic growth, we can simply use Growth Rate of Real GDP at time t less Growth Rate of Real GDP at time t-1. The growth rate of real GDP is provided by the BEA in an easy to use spreadsheet here.

Now, it would seem to make sense that nondefense spending could simply be adjusted for inflation as well. But it isn’t that simple. Our little Keynesian story assumes a multiplier, but we’re not going to estimate that multiplier or this is going to get too complicated very quickly, particularly given the large swing from deflation to inflation that occurred in the period. What we can say is that from the point of view of companies that have gotten a federal contract, or the point of view of people hired to work on that contract who saved what they didn’t spend in their workboots, or storekeepers serving those people, they would have spent more of their discretionary income if they felt richer and would have spent less if they felt poorer.

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