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Interactive timeline

Plan the time to take a deep breath and look at Steven Harper’s Interactive Timeline: Everything We Know About Russia and President Trump at Moyers and Company.

When it comes to Donald Trump, his campaign and their dealings with Russia past and present, sometimes it’s hard to keep track of all the players without a scorecard. We have one of sorts — a deeply comprehensive timeline detailing what actually happened and what’s still happening in the ever-changing story of the president, his inner circle and a web of Russian oligarchs, hackers and government officials.

Since first launched in February 2017, the timeline has grown to more than 400 entries — and we will continue to add updates each week.

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Industrial production: once again, the hard data fails to confirm the sof … ofertheluvofgaud

by New Deal Democrat
Industrial production: once again, the hard data fails to confirm the sof … ofertheluvofgaud

This morning’s report on industrial production confirms that the economy remains on autopilot, and that’s a good thing.

Overall production increased again, and the trend of rising production since spring of last year is clear:

When we break it down by manufacturing (blue, left scale), mining, and utilities (red and green, right scale), we get pretty much the same picture:

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Why Is The Fed Raising Interest Rates As Fast As It Is?

Why Is The Fed Raising Interest Rates As Fast As It Is?

I have a theory that at least some people at the Fed are supporting interest rate increases not because they are worried about incipient inflation that must be nipped in the bud in advance under a regime of inflation targeting, but because they are looking over the horizon and worrying about a possible recession in the not-too-distant future, and they want to be able to have interest rates high enough that they can then engage in lowering them as a stimulative policy tool under the circumstances.  If they are too low, then extraordinary measures will need to be used, and some of those measures may not be available in the future.

This theory is based on nothing solid at all, nothing.  I think that those who may be thinking this (and my likely candidate(s) would be people at the very top) are constrained in speaking openly due both to the current institutional arrangement of consensus decisionmaking within an established inflation targeting system with a 2% inflation target, not to mention pressure not to talk about possible future dangers.  The current line is that the economy is doing well, and certainly it is on the standard measures of unemployment and inflation, even if the former could be better and wages could be rising more rapidly.  Indeed, it is this good performance that is supposedly underlying the moves to raise interest rates and possibly “normalize” the balance sheet (which I doubt there will be too much action on).  But my theory is that for some of them it is a matter of trying to “normalize” on interest rates as well while the possibility of normalizing is possible, while the economy is doing fairly well and one can raise them without obviously slowing things down noticeably, so that indeed there will be the ability to lower them again in the future when necessary.

He did not put this theory forward, but it was reading the recent column by Larry Summers that appeared in the Washington Post on Monday was been linked to by Mark Thoma today (unable to make that link, sorry) and also can be gotten to at larrysummers.com/2017/08/14/why-the-federal-reserves-job-will-get-harder.  He is focused on the upcoming ending of the term of his rival as Chair of the Fed, Janet Yellen, and is worried about who Trump will pick and what will happen.  While stating that he would have “preferred a slower pace of interest rate adjustment,” he bottom lines that “Overall it has done well in recent years” (even though he did not get picked to be Chair).

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Real retail sales disappoints . . . the Doomers

Real retail sales disappoints . . . the Doomers

This morning’s report on July retail sales once again belies the claim that “hard data” and “soft data” are divergent..

Not only did July come in at a strong +0.6% (+0.5% ex-autos), but June was revised up as well. Given basically non-existent inflation, this means that real retail sales made two more new records for this expansion:

In fact, real retail sales look like they are right in line with a multi-year trend.

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“The Changing of the Guard:” the prescient 1980 book that foretold neoliberalism

“The Changing of the Guard:” the prescient 1980 book that foretold neoliberalism

About a month ago I read the synopsis of an interview in which Thomas Frank described the near evisceration of the Democratic Party.  Here’s his simple version:

“[T]he Democrats have, what happened is that some years ago they decided they didn’t want to be the party of the people anymore. They didn’t want to be the sort of traditional Democratic Party that I grew up with, the party of Roosevelt, Truman, Kennedy, Johnson. That’s not what they wanted to be.

“They wanted to be something different. This involved … It was an enormous transition in the Democratic Party all through the seventies, all through the eighties, all through the nineties until they are what we see them as today. They are a party that represents a group of very affluent white collar professionals. That’s who leads the party. That’s who they speak for. That’s whose issues they care about. That’s really who they are….

“[T]he Democrats, as they moved away from their old working class base and they treated them very poorly and they did the same with other essential elements of their constituent groups, minorities for example … [W]hen they did things like got NAFTA passed which was really hard on working class people, when they did those things they used to have a saying. They’d say, ‘Well you know we don’t have to worry about that. Those people have nowhere else to go.’ Nowhere else to go. This was a Democratic saying in the 1990s.

“Trump gave those people somewhere else to go.”

This critique rang a bell, not because I have read similar requiems before, but because I read it as a foretelling nearly 40 years ago, in the late David Broder’s “Changing of the Guard.”  Broder described the worldviews of a bunch of technocratic Democrats — and some Republicans — then in their 30s and 40s, people like Gary Hart, Jerry Brown, and a guy named Bill Clinton, who … well, let me turn the mike over to the right-wing  Commentary Magazine, which said in its review at the time:

“For anyone still perplexed by the Democratic party’s recent [in the early 1980s] misfortunes, a careful look at these interviews … suggests that the much-heralded collapse of liberal ideology is a more serious problem than even the election debacle would indicate. The conventional analysis is that liberalism’s dilemma stems from a failure to advance beyond the policies and attitudes embodied in the career of Hubert Humphrey: a reliance on economic growth as the principal means of curbing poverty, a generous and ever-expanding system of social-welfare benefits, and a foreign policy stressing containment of the Soviet Union and aid to the developing world. But it is important to keep in mind that many new-generation liberals have consciously rejected the Humphrey tradition. “We are not a bunch of little Hubert Humphreys,” Gary Hart declared upon winning election to the Senate in 1974 ….

“They speak with pride of having promoted more open and efficient government, of being more accessible to the public, of maintaining their “independence” from the established party organizations, and of their opposition to the spoils system.”

 

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In which I (partially) disagree with Dean Baker about the stock market

In which I (partially) disagree with Dean Baker about the stock market

Dean Baker complained yesterday about pundits who talk about the stock market in terms of economic well-being:
As someone who routinely considers both corporate profits and stock prices in terms of economic well-being, I disagree — somewhat.

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On JOLTS, I continue to dissent

On JOLTS, I continue to dissent

The only two significant items of data in the second week of the month typically had been the JOLTS report and the Labor Market Conditions Index.

I say, “had been” because the Fed has discontinued reporting the LMCI.  Here’s their explanation:

Although the LMCI was reconstructed back 50 years, it was only published in real time for the last few.  I am disappointed.  Even if the Fed believes the LMCI was not giving them the accurate information they were looking for, I wish they had at least continued to publish it in real time for one full economic cycle, because it may have given other valuable information — e.g., being a valid long leading indicator for the economy as a whole — that wasn’t on their radar.

Turning to JOLTS, I have been a dissenter about this data series for the last year.  The typical commentator has focused on job openings, which have been trending higher strongly (as they did in today’s report for June):

 

Thus even Bill McBride calls today “another strong report.”

But openings are the one aspect of the report that are not “nard” data. They can just as easily be skewed by employers trolling for resumes, perhaps laying the groundwork for visas for cheap immigrant labor, or simply refusing to offer the wage or salary that would call forth enough actual applicants to hire. Hence the disconnect between “openings” and “hires.”

Rather, I prefer to focus on the “hard” data series such as hires, quits, and layoffs.  And here, the story hasn’t been nearly so strong.

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The Financial Crisis Tenth Anniversary

(Dan here…posted a day later)
The Financial Crisis Tenth Anniversary

Yesterday, August 9, is being widely proclaimed as the tenth anniversary of the beginning of the financial crisis that fully crashed in September, 2008, with the recession that began at the end of 2007 plunging more profoundly and widely after that.  The specific event on August 9, 2007 was the limiting of withdrawals from US mortgage backed hedge funds by the BNP Paribas bank in Paris.  In a post yesterday, one of the leading analysts and prophets of the crisis, Dean Baker, noted that BBC erroneously claimed that housing prices in the US began falling after that date, when in deed Dean accurately notes that it was the decline in housing prices starting somewhat earlier that led to this action by BNP Paribas ten years ago.

As one of those who analyzed what was going on better than most and with better timing, I link to my post of July 11, 2008, which analyzed what had been happening and forecast a full-out  crash coming soon, which indeed occurred a bit over two months later.  The title of that post is “Falling from the Period of Financial Distress into the Panic and Crash.”  I note that the unpublished paper I cited in that post by me with Mauro Gallegati and Antonio Palestrini, “The Period of Financial Distress in Speculative Markets: Interacting Heterogeneous Agents and Financial Constraints,” was finally published in Macroeconomic Dynamics in Feb. 2011, vol. 15, pp. 60-79.  A few comments now.

1)  Regarding the matter of the housing market bubble, everybody, including Dean Baker, always cites the numbers provided by the Case-Shiller index of housing prices in the 10 and 20 largest municipalities.  This is indeed an excellent source, but it is not the only one, and it is arguably biased because of its focus on large metropolitan areas.  A much broader index is that estimated by the Federal Housing Finance Agency.  Whereas the Case-Shiller index peaked around June, 2006, the FHA one peaked in January, 2007, over a half year later.  The FHA index is arguably more representative of the broader market, although it is probably true that the worst of the speculative markets and crashes were in larger metro areas, with declines in some of those already at down 10 to 12 percent by August, 2007, as Dean accurately notes in his post.  But even now I rarely see anybody citing the FHA index, with the occasional exception of Calculated Risk.

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Why subsidize protectionism motivated investors?

The already infamous case of Foxconn in Wisconsin illustrates a dynamic we are likely to witness more before we are rid of the illegitimate Trump regime. One of the regime’s hallmarks has been a set of unpredictable trade policies with a definite protectionist tilt. The United States was withdrawn from the Trans Pacific Partnership agreement on January 23. On May 19, the regime officially announced it would renegotiate the North American Free Trade Agreement (NAFTA).

If you’re a company dependent on exports to the United States, these are worrisome developments. Given that the country had $2.7 trillion in imports and an overall trade deficit of $502.3 billion in 2016, there are quite a few companies dependent on exporting to the United States. Therefore, the environment is threatening for them at present.

The classic response, as I wrote before, is to protect access to the U.S. market by making your product in the United States. This is what foreign automakers did in the 1980s, in the face of so-called “voluntary export restraints” on Japanese cars. Being committed to a particular site means that a company’s bargaining power with the host government is sharply reduced. However, thanks to U.S. federalism, all is not lost for a company that really needs to locate in the United States.

Since each state has access to large revenues and budgets, and because the U.S. Constitution has not been interpreted to mean that location incentives violate the Commerce Clause (read: Cuno v. Daimler-Chrysler), state and local governments are able to reward companies for doing something they would have done anyway: Come to the United States. Even in the Foxconn case, where the firm obviously wanted to be in House Speaker Paul Ryan’s district, it created the illusion that it might go elsewhere, which was all it had to do to get Wisconsin to cough up an obscene $3+ billion subsidy. (We won’t know how much in total until we find out the cost for local tax increment financing.)

How can this happen? Probably the two biggest reasons are that the company is mobile, especially when it hasn’t committed any money yet, and that there is a tremendous information asymmetry working against governments. Lots more information is available on governments and their officials than is available about a company and its true preferences. Even when a corporation is strongly telegraphing its preferred site, you never can be 100% sure that site will be the winner, or that it will be the winner even if it gives no investment incentives. Corporations make up competing sites even when there aren’t any (a site location consultant tells me he always recommends that; see Competing for Capital). They exploit their information advantage well. As a result, governments give them investment attraction subsidies and the average taxpayer pays for it.

How do we know that Foxconn is coming to the United States because it is worried about protectionism? Because it made no economic sense for Foxconn to build here otherwise. There are good reasons Foxconn makes all iPhones in China: land, labor, and just about everything else are way less expensive than in the United States, *and* provincial and municipal governments will give them generous location incentives to favor one over the other. You can’t beat that with a stick. But you can beat it if market access is in question.

As long as U.S. protectionism remains ascendant, a growing number of foreign companies will follow Foxconn and hedge their bets to guarantee access to the U.S. market. Due to fiscal federalism, however, the potential advantages from foreign investment (which may not be that great, depending on job losses at existing competitors’ facilities) will be diluted or even overwhelmed by the amount of subsidies the newcomers receive. State and local governments need to resist temptation — to be more precise, we need to find a way politically to make them resist temptation.

H/t to Greg LeRoy for suggesting this article.

Cross-posted from Middle Class Political Economist.

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July jobs report: across the board solid

July jobs report: across the board solid

HEADLINES:

  • +209,000 jobs added
  • U3 unemployment rate down -0.1% from 4.4% to 4.3%
  • U6 underemployment rate unchanged 8.6%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: down -11,000 from 5.431 million to 5.420 million
  • Part time for economic reasons: down -44,000 from 5.326 million to 5.282 million
  • Employment/population ratio ages 25-54: rose 0.2% from 78.5% to 78.7% (a new post-recession high)
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.06 from $22.04,  to $22.10, up +2.4% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

Holding Trump accountable on manufacturing and mining jobs
Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?

  • Manufacturing jobs rose by 16,000 for an average of +5,500 vs. the last severn years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs fell by -200 for an average of +100 vs. the last severn years of Obama’s presidency in which an average of -300 jobs were lost each month

May was revised downward by -7,000. June was revised upward by 9,000, for a net change of +2,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.

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