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

Fool me once again?

From the Roosevelt Institute comes this graphic on the overall reality of macro policies:

The Republicans’ underlying assumption—that corporations invest more and create more jobs only when they are relieved of burdensome tax rates—is false. American businesses already enjoy a historically low cost of capital, and they have more than enough cash on hand to invest, raise wages, and create jobs. Corporations are choosing to make dividend payments and stock buybacks instead of investing because they face a lack of competitive pressure—itself the result of power and wealth shifting toward rich shareholders. Another tax cut for the rich will only make the problem worse.

FoolMeOnce_MythvsFact

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Saint Janet Yellen: The Best Fed Chair Ever?

by Barkley Rosser  (originally published at Econospeak)

Saint Janet Yellen: The Best Fed Chair Ever?

OK, so the immediate reaction of many to this title might be to laugh, but I challenge anybody reading this to name another Fed Chair who was clearly better than she is.  I do not think you can.  However, one reason why one may not think much about her is that things have been so inconsequential since she has been Chair.  Nothing much has happened.  She continued the Quantitative Easing for awhile started by Bernanke and then stopped it.  Inflation has remained below 2% mostly.  Growth has not been dramatic, but it has been steady and higher than in most other advanced market capitalist economies.  There has not been a recession since 2009.  There have been no bubbles and no crashes.  Nothing dramatic has happened and certainly nothing bad, even if lots of deep problems of the US economy such as inequality remain.  But that one is not the Fed’s responsibility anyway.  So, bottom line, she has been doing a great job even if everybody is quite certain Trump will replace her, with all kinds of candidate names being thrown around.  But none of these will be better than she has been.

So, going backwards her most serious rival might be her immediate predecessor, who  looks to have played a substantial role in the save of September, 2008 that involved buying a lot of eurojunk from the ECB, only to roll it off over the next six months or so.  Of course some of the more innovative things done then were coming out of the NY Fed, but Bernanke did an excellent job when the crisis hit.  At the same time, Janet was around during that period, initially as San Fran Fed president, and then later as Vice Chair.  But where Bernanke looks not so good is the runup to that crisis, where he seems really not to have seen it coming.  Who saw it coming and as far back as 2005 sounding the alarm about the housing bubble?  Oh, right. Janet Yellen.

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“Nothin’ but ‘blue skies’ do I see”

A little Ella Fitzgerald for you today. Kind of fits with what is going on in the US today.

Over at Vox, Matt Yglesias has an interesting article on the Trump Transition Team ordering government economists to cook up rosy economic forecasts. With his far reaching economic “it will be great” promises during the election, delusional Trump has laid out a “blue skies” future which is likely unobtainable with the past economic growth of less than 2%. Trump intends to get there with increased spending on military and infrastructure, tax reform, cuts in regulations, etc. and never touching Randian Paul Ryan’s favorite target of cuts to Social Security and Medicare. Still, The Fed and CBO are forecasting growth at less than 2% going forward.

The Transition Team has a plan . . . “a regulatory rollback and tax reform unleashing growth, driving a recovery in productivity, sending business investment higher, and drawing idled workers back to the labor force.” Trump asserts faster growth to be the result of regulatory rollback and tax reform and will result in economic growth soaring to 3 to 3.5% . . . well above the CBO and Fed’s reasoned estimates. All of this and no Fed interest rate increases forecasted as foreign funds will flock to the US to invest and fund this growth (think of the mortgage market pre-2008 attracting all the foreign money looking for safe haven after Greenspan nixed Fed Rate increases).

The Wall Street Journal’s Nick Timiraos suggests the numbers arrived at for growth were not arrived at by any process at all; instead, “the transition team gave CEA staff the growth target the budget would produce and told them to fill in data supporting the target and necessary to make it happen.” The logic could work if the end result, the target, is realistic. As Matt points out the deficit would be larger; but the economy would be 17% larger and the deficit as a part of GDP much smaller (hmmm, deficit growth . . . sounds like Reagan and Bush II all over again).

So, Trump has an overly optimistic budget based upon phenomenal growth which defies what every one else believes will happen and he will pass the budget to Congress. Watching everything else which has happened over the last 30 days; if Congress balks or does not find a way to make Trump’s budget proposal happen, similar accusations will be forth coming from The White House as to how Congress failed (think Appeals Court) to make things happen which impacts every citizen in the US. Everybody’s fault except his. Then too, Trump was left quite a mess . . .

Expect another week of listening to Trump complaining about how everyone failed him.

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The shallow industrial recession is fading in the rear view mirror

by New Deal democrat

The shallow industrial recession is fading in the rear view mirror

A year ago the “shallow industrial recession” induced by the strong US$ and imploding oil patch was bottoming.  At that time I described the historical pattern:

Typically new orders turn positive first (red, left scale in the graph below), followed by sales (green, right scale), and finally inventories (blue, right scale):


At that time I concluded:

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The C-Span Ranking of Presidents

C-Span just released a ranking of US Presidents based based on a survey of historians, journalists and other scholars. Obama came in 12th.

Here is the survey’s description of the process used to generate the rankings:

C-SPAN’s academic advisors devised a survey in which participants used a one (“not effective”) to ten (“very effective”) scale to rate each president on ten qualities of presidential leadership: “Public Persuasion,” “Crisis Leadership,” “Economic Management,” “Moral Authority,” “International Relations,” “Administrative Skills,” “Relations with Congress,” “Vision/Setting An Agenda,” “Pursued Equal Justice for All,” and “Performance Within the Context of His Times.”

Surveys were distributed to historians and other professional observers of the presidency, drawn from a database of C-SPAN’s programming, augmented by suggestions from the academic advisors. Ninety-one agreed to participate. Participants were guaranteed that individual survey results remain confidential. Survey responses were tabulated by averaging all responses in a given category for each president. Each of the ten categories was given equal weighting in arriving at a president’s total score.

I looked through the overall rankings and some of the rankings by category. Having co-authored a book on ranking Presidents, I have a lot of quibbles with the rankings. But many of them would be controversial. So I thought to myself – is there a simple way to decide whether this list has merit?

Here’s what jumps out at me. Take a gander at the list by economic management. Note that Teddy Roosevelt came in 4th place in that category. (First, second and third were Washington, Lincoln and Clinton. I find that to be borderline insane in and of itself. However, since Washington and Lincoln are names the public can recognize and Clinton was recent, I will not discuss them so as to avoid controversy.) TR also came in 4th in that category in the two previous surveys in 2009 and 2000 so it seems that ranking is pretty stable.  The, ahem, experts surveyed seem to be pretty sure TR belongs right up there.

Now here’s the problem. TR was President from September 1901 to March 1909. He did some effective things on the economy – some of his Square Deals, the Trust Busting, regulation, etc.  But… his outcomes were not very good. For instance, there was a fly in the ointment – the recession from September 1902 to August 1904. That would seem to cast doubt on his economic performance. But… that isn’t the problem with ranking TR as fourth best on the economy. There was another recession from May 1907 to June 1908. And that was no ordinary recession. The Panic of 1907 occurred in October of 1907, close to the middle of that recession. And who saved the day? Was it TR and his administration? Was it their policies? Nope. It was JP Morgan. Yes. That JP Morgan.

And the aftermath of the recession wasn’t pretty either. Data from that era isn’t great, but by all accounts, there was a big spike in unemployment, bankruptcies, etc.

The US economy is not worse than that of Zimbabwe in 2017. And yet, something along those lines would need to be true if TR turned in the fourth best economic performance among all US Presidents. I am no historian, but to me, any survey placing TR in fourth place for economic performance is indistinguishable from parody. It is enough for me to conclude that those responsible for this nonsense simply have no idea what they are doing.

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Industrial production: We’re DOOO …. oh, wait, it’s the global warming hoax

by New Deal democrat

Industrial production: We’re DOOO …. oh, wait, it’s the global warming hoax

At first blush yesterday’s negative industrial production print gives the lie to the proposition that the economy has left last year’s “shallow industrial recession” behind, as it looks to be going mainly sideways:

But a closer examination shows that is not the case.  Industrial production is broken up into three groupings: manufacturing (by far the biggest), utilities, and mining (including oil and gas).

So here is the information for manufacturing (blue. left scale) and mining (red, right scale):


Although the trend is modest, manufacturing has broken out to new highs.  And the energy patch is clearly seeing a rebound.

Which means that the *entire* reason for the decline is utilities:

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Recall and the General Strike

by Sandwichman

Recall and the General Strike

The tradition of the oppressed teaches us that the “emergency situation” in which we live is the rule. — Walter Benjamin, On the Concept of History, 1940

Back in December, I posted Full Employment and the Myth of the General Strike to start the conversational ball rolling about the idea of a general strike. It was the middle post in a three-part series on full employment.
Events move fast in 2017.
In the past two days, op-eds have appeared in the Washington Post and the Guardian taking up the issue of job action — and the general strike — as forms of resistance. On Monday, the Guardian published a Comment is Free by Francine Prose, “Forget protest. Trump’s actions warrant a general national strike.” This morning, “Where’s the best place to resist Trump? At work.” by labor lawyers, Moshe Marvit and Leo Gertner, was published as a PostEverything by the Washington Post.
Apparently, a call has gone out for a general strike on February 17, which strikes me (no pun intended) as rather precipitous. But the conversation is rolling.
Another element I would like to throw in is “what are the demands?” That Trump stop doing nasty things? That the GOP house and the GOP senate impeach the one who is going to sign their tax cut bills? I propose recall — total recall. Not only are the elected officials themselves corrupt, incompetent and unrepresentative but the electoral system that has installed them has been thoroughly corrupted and undemocratic. Throw the bums — AND THE NAG THEY RODE IN ON — out.
To give context and American (U.S.) historical resonance to that demand, it is useful to consider Populist and Progressive proposals for “direct democracy,” through initiative, referendum and the “imperative mandate” (recall) from over a century ago.
What am I really talking about here? What am I doing? The narrative time dimensions of the revolutionary general strike and of the reformist recall, as conceived by Populists and Progressives, could not be more contrasting. The general strike takes place in what Walter Benjamin referred to as jetztzeit — “not homogenous, empty time, but time filled by the presence of the now.”

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Why You Should Never Use a Supply and Demand Diagram for Labor Markets

by Peter Dorman    (published originally at Econospeak)

Why You Should Never Use a Supply and Demand Diagram for Labor Markets

You would know this if you read your Cahuc, Carcillo and Zylberberg, but you probably won’t, so read this instead.
A standard S&D diagram for the labor market might look like this:

It’s common to use W (wage) on the price axis and N (number of workers) on the quantity axis.  Equilibrium is supposed to occur at the W where quantity supplied equals quantity demanded.  From here you might introduce statutory minimum wage laws, or jobs with different nonpecuniary benefits and costs, etc.  The default conclusion is that free markets are best.

But hold on a moment.  S and D don’t tell you how many workers actually have jobs or how many jobs are actually filled—these are offer curves.  The S curve tells you how many workers would be willing to accept a job at various wages, and the D curve tells you how many jobs would be made available to them.  That’s not the same as employment.

They would be the same in a world in which labor markets operated according to a two-sided instantaneous matching algorithm, something designed by Google with no human interference at any stage of the process.  In such a world all offers would enter a digital hopper, and all deemed acceptable by someone else’s algorithm would be accepted immediately.  Maybe not Google but Priceline.

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