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

Carbon Gridlock Redux in Washington State

byPeter Dorman (originally published at Econospeak)

Carbon Gridlock Redux in Washington State

A year ago—it already seems like another era—an initiative to set up a carbon tax in Washington State, I-732, was defeated by the voters.  The proposal was to use the money for tax reductions in accordance with the standard economic view that taxing “bads” rather than goods generates a double dividend.  I disagree with that (I think the deadweight loss case against taxes is weak), but I agree that carbon prices operate like a sales tax and are regressive, so it’s a good idea to return the money according to an egalitarian formula, preferably equal rebates per person.

But most of the political left sees it differently.  When they look at carbon pricing they see a big new revenue stream that can be used to fund all the things they have been unable to get in a period of conservative (or neoliberal) political dominance.  They want infrastructure, mass transit, community development projects and environmental restoration, and for them returning the money is unthinkable.  So the left in Washington State, including unions, social justice organizations and most of the environmental activist community, opposed 732, denouncing it as a corporate subterfuge.  A carbon tax is always going to face headwinds, but with the left as well as much of the right in opposition, it was doomed.

So here we are again, looking at another round of state carbon tax initiatives for 2018.  The group that organized the left campaign against 732, the Alliance for Jobs and Clean Energy, is drafting their version, which will surely funnel most of the money to the causes (and in some cases the organizations) of their constituents.  But, perhaps in a play to get a bigger voice in the process, the Affiliated Tribes of Northwest Indians, an umbrella group of 57 tribal governments in the region, has just announced it has begun drafting its own initiative, one that earmarks most of the money for environmental purposes, with a chunk dedicated to the tribes.  The prospect is for heated backroom meetings, where the leadership of various organizations push and pull to divvy up the potential carbon cash.  Whether the product of this process can survive at the polls is another question.

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Hurricane workarounds for industrial production and housing

Hurricane workarounds for industrial production and housing

Hurricane Harvey has already affected some of the August data releases.  Irma has already started to affect some weekly releases, and will undoubtedly affect the September monthly releases.
I have already begun to adjust for the hurricanes in the case of initial jobless claims.  But what of the monthly data?
While there is nothing so timely and precise as backing out affected states from the initial jobless claims report, there are workarounds that can at least tell us if there has been any significant change in trend for both the industrial production and housing reports.
I will put up separate posts, but to cut to the chase, we can use the Regional Fed reports (minus Dallas, and adding the Chicago PMI) to give us a reasonable estimate of industrial production in the non-hurricane affected areas. Similarly, we can make use the regional breakdowns in the housing report by subtracting the South and determining the trend in the remaining 60% of the country outside of that census region.  I have already looked at this morning’s housing report, and it turns out the effect is not what you would think!  I’ll have that post up by tomorrow.
Unfortunately there is no regional or state-by-state breakdown of retail sales or regional consumption expenditures on any sort of timely basis, so we’re kind of stuck there.

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2.5 cheers for 2016’s new high in real median income!

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Deficits Do Matter, But Not the Way You Think

Dan here…a reminder about our federal deficit.

Deficits Do Matter, But Not the Way You Think
07.20.10    Roosevelt institute  L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of “unsustainable” budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government’s stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still — likely — years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson’s well-funded public relations campaign, fronted by President Obama’s National Commission on Fiscal Responsibility and Reform — a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness. But even deficit doves like Paul Krugman, who favor more stimulus now, are fretting about “structural deficits” in the future. They insist that even if we do not need to balance the budget today, we will have to get the “fiscal house” in order when the economy recovers.

In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default. We have never claimed that sovereign currencies are free from inflation. We have never claimed that currencies on a floating exchange rate regime are free from exchange rate fluctuations. Indeed, we have always said that if government tries to increase its spending beyond full employment, this can be inflationary; we have also discussed ways in which government can cause inflation even before full employment. We have always advocated floating exchange rates — in which exchange rates will, well, “float”. While we have rejected any simple relation between budget deficits and exchange rate depreciation, we have admitted that currency depreciation is a possible outcome of using government policy to stimulate the economy.

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Hurricane adjusted initial claims for week of Sept. 2: 239,000

Hurricane adjusted initial claims for week of Sept. 2: 239,000

Last week I promised I would repeat an exercise I first undertook in 2012 when Superstorm Sandy disrupted the initial claims data: estimating what the initial jobless claims would have been, but for the hurricane.

In 2012 I created that adjustment by backing out the affected states (NY and NJ) from the non-seasonally adjusted data.  That gave me the number of initial claims filed in the other 48 states.  I compared that with the same metric one year earlier, and multiplied by the seasonal adjustment.

What that does is give me the number if the affected states had the same relative number of claims during the given week, as all of the unaffected states.  In 2012, it showed that Sandy was not masking any underlying weakness in the economy.

The state by state data is released with a one week delay.  So what follows is the analysis for the week of September 2, the number for which was reported one week ago. This week I only had to back out Texas.  Next week I will undoubtedly have to back out Florida as well.

Here is the table for the Week of September 3 in 2016 vs. September 2 this year:

Metric                              2016                   2017

Seasonally adjusted:       257,000              298,000

Adjustment for total:       1.18%                1.19%

Not seasonally adjusted: 217,715              250,621

Texas claims:                     15,707                63,788

NSA claims ex-TX           202,008              186,833

TX as % of total:              7.2%                   n/a

2017 w/ TX adjustment:  n/a                      201,405

If we use the 2016 weekly seasonal adjustment of 1.18% for the adjusted 201,405 total, this gives us ~238,000.

If we use the 2017 weekly seasonal adjustment of 1.19% for the adjusted 201,405 total, this gives us ~240,000.

Thus the hurricane-adjusted initial jobless claims number for the week of September 2, 2017 is 239,000.

The underlying national trend in initial jobless claims remains very positive.

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Price Gouging

by Peter Dorman  (originally published at Econospeak)

Price Gouging

Whenever there’s a natural disaster, a famine or some other such crisis, people zero in on price gouging.  Are grain merchants jacking up prices to take advantage of a food shortage?  What about airlines raising fares to cash in on desperate attempts to flee an impending hurricane, or stores that double or triple the price on bottled water?  And generators that suddenly only the rich can afford?

Most think this type of exploitation is unjust and even wicked, but Econ 101 says the opposite: it’s a rational, socially desirably market response to a change in supply and demand.  Higher prices for goods made scarce and valuable by a disaster encourage both more provision and greater care in use, exactly what you would want in such a situation.  For details, see the writeup in today’s New York Times.

According to the Times, the main flaw in the free market argument is that it allows the poor to be completely priced out.  This is an application of the argument, made by many social theorists, that distinguishes between essential goods, which should be rationed more or less equally among all, and inessentials, which can be left to the market.  There’s a lot to be said in its favor, and I won’t dispute it.

But the Times and most commentators miss a second point, which is about the same issue of social utility as the case for markets.  Societies depend on a general willingness to share, volunteer and reciprocate, especially in desperate times.  When a hurricane or earthquake strikes, or when war or some other spasm of human destructiveness occurs, we depend on friends and strangers to help locate survivors, pick up the rubble, share their homes and meals and generally pitch in.  There have been a number of stories, for instance, about ordinary people from other parts of the country who, hearing about Harvey’s devastation of Houston, made their way their to help out however they could.  Most of us won’t drop everything and head to Texas, but it’s safe to say that Houston won’t recover, or at least not so much or so quickly, unless hundreds of thousands in Texas and elsewhere lend a hand.

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Who owns the Wealth in Tax Havens?

WHO OWNS THE WEALTH IN TAX HAVENS?, an NBER working paper, points to following the money:

Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised seriesof top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.

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“If you tax investment income what will people do? Stuff their money in the mattress?”

“If you tax investment income what will people do? Stuff their money in the mattress?”

Steve Roth | October 15, 2012 9:25 pm

Richard Thaler asks exactly the right question. This from the latest IGM Forum poll of big-name economists, on the effects of taxing income from “capital.”

I’ve been over this multiple times before, but it’s nice to see the thinking validated by a real economist. If you’ve got money, there is no (practicable) alternative to “investing” it. (Those are irony quotes: referring to “buying financial assets,” as opposed to “buying/creating real [fixed] assets,” which is the technical meaning of “investing” in national-account-speak.)

Or actually — there is one alternative to “investing” your money: spending it.

Are the neoclassicals really going to argue that if we tax returns on financial assets at a higher rate — so “investors” have less after-tax income — they’re going to spend more? I don’t think I have to cite sources to prove that they consistently argue exactly the opposite.

But just for grins, let’s say they will spend more. That would be great! They’d increase the volume of private money circulation (P*T, or M*V, your choice) — boosting demand for real goods and services, stimulating production, and goosing GDP.

And if we’re lucky, they’ll use it for investment spending instead of consumption spending. They get to write off those real investment expenditures against their taxes, after all. Not true with consumption expenditures, much less purchases of financial assets.

In which case — this seems kind of obvious when you think about it — taxing “investment” income will increase investment (while reducing the federal deficit). What’s not to like?

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A note on Hurricane Harvey and unemployment claims

A note on Hurricane Harvey and unemployment claims

Initial jobless claims for last week were reported at 298,000 this morning, a jump of over 50,000 from recent levels.

As most people probably already know, this huge jump had everything to do with Hurricane Harvey shutting down southeastern Texas, including the entire 7 million Houston metro area. Undoubtedly, the effect will last for weeks.

Fortunately, if we want to know what jobless claims would be ex-Harvey, there is a way to figure that out.  Although I haven’t felt the need to dwell on weekly claims for several years now, I’ll start to calculate this again next week.

I did this before, in 2012, after Superstorm Sandy.  Here’s how I described the process then:

I wanted to try to find out how much of this morning’s initial claims number was still due to Sandy. To do so, I checked the BLS breakdown of initial claims by states, which gives the unadjusted state-by-state initial claims numbers. I deducted NY and NJ, the two states most hit by Sandy, and compared the number as deducted with the unadjusted number minus NY and NJ this week one year ago. Since the seasonal adjustment should be almost identical, that should give me the “real” ex-Sandy initial claims number, assuming NY and NJ would, ex-Sandy, have layoffs at a similar rate to all the other states.

To do the same thing for Harvey, I’ll simply calculate the number for all states except Texas.  Because the state by state data is reported with a one week delay, that won’t be until next week.

Of course, I might have to account for Irma and maybe even Jose in the next few weeks as well.  But, one bridge at a time . . . .

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Why Economists Don’t Know How to Think about Wealth (or Profits)

by Steve Roth (originally published at Evonomics 2016)

Why Economists Don’t Know How to Think about Wealth (or Profits)

Until 2006, they quite literally weren’t playing with a full (accounting) deck. Most still aren’t.

By Steve Roth

In the next evolution of economics taking shape around us and among us, perhaps no school has been so transformational over recent decades as a loose, worldwide group best described as “accounting-based” economists. Modern Monetary Theory (MMT), with its central tenet of “stock-flow consistency” (or stock-flow coherence) is at the center and forefront of this group.

These accounting-based economists more than any others managed to accurately predict our recent Global Great Whatever. And Wynne Godley, rather the pater familias of MMT, predicted the current Euro crisis in amazingly precise and accurate detail — in 1992, before the project was even launched. These economists’ nerdy and businesslike, green-eyeshade and steel-tipped-pen approach gives them unique and accurate insights into the state of the economy, and its likely futures.

Given these decades of focus on national accounts, it’s amazing that almost no economists are aware of a pretty remarkable fact:

Before 2006, the U. S. didn’t even have complete, stock-flow-consistent national accounts. That was the year that the BEA and the Fed released the Integrated Macroeconomic Accounts (IMAs; also presented as the “S” tables at the end of the Fed’s quarterly Z.1 report). They provided annual tables extending back to 1960, based on the latest international System of National Accounts (SNAs). Think: Generally Accepted Accounting Practices (GAAP), but for countries. We didn’t get quarterly tables in these accounts until 2012, only four years ago. And even today, we don’t have quarterly tables for subsectors of the financial sector.

In June 2013, the Z.1 report was renamed, from the Flow of Funds Accounts of the United States to the Financial Accounts of the United States, and the IMAs’ comprehensive data has been steadily more fully incorporated throughout the report — notably in the up-front Page i table, “Growth of Domestic Nonfinancial Debt,” which is now “Household Net Worth and Growth of Domestic Nonfinancial Debt.” See also Table B.1, “Net National Wealth,” which was added in the September 2015 release.

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