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

Today in "Economists Are NOT Totally Clueless" (Interlude; Part 2 of 3 or 4)

Tyler Cowen can count:

In sum, maybe three percent expected inflation conflicts with the desire to rapidly recapitalize banks through maintaining a wide interest rate spread. Maybe we need that zero nominal short rate or at least the Fed thinks we do….

I also regard this as a somewhat gruesome hypothesis. It means that “Main Street” is paying for “Wall Street” (forgive me the use of those awful terms) in at least two ways: high unemployment and inability to earn much on one’s savings….

The term structure also implies that the market is expecting rising short rates, so if the bank mess isn’t cleaned up soon, heaven forbid. The spread, as a means of restoring bank profitability, won’t last forever.

And Ryan Avent (via Brad DeLong) points out the next piece of that puzzle:

[T]he Fed’s commitment to undo its interventions is already having an effect. In expectation of more of these moves to come (as well as, perhaps, increases in interest rates) markets have been bidding up the dollar, which has busily appreciated during the month of December. That, in turn, will deprive the American economy of a potential source of demand—growth in consumption of American exports thanks to the effect of a weak dollar.

More bluntly, we’re seeing a move toward contractionary monetary policy at a time when unemployment is at 10%. Funny that.

I can’t think of a scarier way to end the year. Sorry about that. Best wishes for 2010—we’re all going to need them.

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Older workers working longer; labor-force participation falling

The BLS released its employment and labor force projections for the period 2008-2018. The report highlights a more diverse and slower growing labor force stemming from a falling labor-force participation rate. Some headline findings of the report are (bold font by yours truly):

Total employment is projected to increase by 15.3 million, or 10.1 percent, during the 2008-18 period, the U.S. Bureau of Labor Statistics reported today. The projections show an aging and more racially and ethnically diverse labor force, and employment growth in service-providing industries.


Projected employment growth is concentrated in the service-providing sector, continuing a long-term shift from the goods-producing sector of the economy. From 2008 to 2018, service-providing industries are projected to add 14.6 million jobs, or 96 percent of the increase in total employment. The 2 industry sectors expected to have the largest employment growth are professional and business services (4.2 million) and health care and social assistance (4.0 million).


The largest decline among the detailed industries is expected to be in department stores, with a loss of 159,000 jobs, followed by manufacturers of semiconductors (-146,000) and motor vehicle parts (-101,000).

…and more…

Occupations that usually require a postsecondary degree or award are expected to account for nearly half of all new jobs from 2008 to 2018 and one-third of total job openings. Among the education and training categories, the fastest growth will occur in occupations requiring an associate degree.

The last part is very interesting. According to Table 9 of the employment projections, the growth rates of jobs requiring an associate degree or higher are generally in the double digits. In order to work in a top 10 wage and salary growth industries, one must attain a higher degree.

That little fact explains the projected trend in labor-force participation among those aged 16-24 years: down.

The chart illustrates the BLS’ projection of the labor-force participation rate (LFPR) by age group (Table 3.3). The LFPR is the percentage of the population that is either working or seeking employment. There are two important points here.

First, the 16-24 LFPR is expected to fall another 4-points to 54.5% by 2018. This furthers a downward trend that has been underway for some time.

Second, the population is growing older, but that is not the full LFPR story: older workers are working longer. The LFPR for those aged 65 and older is expected to jump 33% to 22.4% by 2018. This trend has emerged more recently, where just one decade ago the LFPR went essentially unchanged from the ten years prior to that.

In spite of their working longer, and with the downward trend in the 16-24 LFPR, the growing baby-boomer population (individuals born 1946-1964) is expected to drag the aggregate LFPR a point-and-a-half to 64.5% by 2018 (the aggregate LFPR is an average of all age groups).

It should be noted that this is a long-term projection. Therefore, the 2007-2009 recession affects primarily the rates of growth toward the long-run values rather than the levels of employment and the labor force per se. According to the forecast, the unemployment rate is 5.1% by 2018, and the average annual rate of GDP growth is 2.4% (slower productivity growth is expected to drag GDP growth).

Note: I will not be available to reply to comments until Friday, January 1. My apologies.

Rebecca Wilder

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Today in "Economists Are NOT Totally Clueless" (Part 1 of 2 or 3)

The WSJ collects reactions to the release of the latest Case-Shiller index. Let’s look at two, just for fun:

One in four mortgages are currently underwater. Foreclosure and delinquency rates, which hit a record high at the end of the third quarter of 2009, are therefore likely to continue to rise, perhaps sharply. In addition to this, the inventory of homes for sale remains near record highs. … Despite the recent positive reports on housing prices, we believe that prices have further to fall—about another 5%-10%. — Patrick Newport, IHS Global Insight….

When the Case-Shiller index began increasing in the summer, there were concerns that exaggerated seasonal patterns were an important driver, as trends had briefly improved in the summer of 2008 as well. However, while some seasonality does appear to have been present, the fact that the Case-Shiller home price index is continuing to increase is good news. We still believe that home prices could fall a bit over the course of 2010, but the majority of the price adjustment has probably already occurred. — Abiel Reinhart, J.P. Morgan Chase

I’m not cherry-picking here. I could make fun of the excluded “the long-awaited U.S. housing market recovery is well upon us” all day, but I’ll leave that one to CR (who, I now see, has already done a Variation on the Theme).

But let’s look at pieces of the two points, and see why I’m not sanguine (besides being long housing, that is):

  1. One in four mortgages are currently underwater. One in four = 25%.
  2. “[W]e believe that prices have further to fall—about another 5%-10%.”
  3. “[T]he Case-Shiller home price index is continuing to increase”
  4. “Home prices could fall a bit over the course of 2010, but the majority of the price adjustment has probably already occurred.”

Even if you take all of those at face value, you have to combine Bad Economics and Bad Policy to assume the worst is near over.

Details below the fold.

Bad Economics: If 25% of households are underwater right now, it would be foolish to assume that those people would or should stay in their house. (Steve Randy Waldman made this point a while back.)

This doesn’t mean that all 25% of those householders should move. There are major transaction costs in moving, not the least of which is the cost of moving itself. Renting will not be a better deal for everyone, but more and more people are going to realize that not walking away will be A Bad Idea, damaging the future of their child and themselves long after any credit report impact will have dissipated.

And if prices are still 5-10% above where they will be, the decision will become that much more inevitable, especially in areas where employment is lagging.

Looking at the “bright spot”—the counterintuitive rise in the Case-Shiller Index—which looks less firm than one might gather from the commenters—we see that this is another Second Derivative Problem: the pace of the decline has slowed (7.3% YOY) and the gain (“a seasonally adjusted 0.4%”) comes primarily from two areas (Phoenix, which has the largest YOY decline in the Index, and SF), with only five other positive gains over the month, none greater than 0.4% (SD; New York City is flat).

There are green shoots there, but they are on rather fallow ground.

Bad Policy is made clear in the last point: “the majority of the price adjustment has probably already occurred.”

Let’s assume that statement is true. We are, therefore, slightly away from equilibrium, but probably close enough.

But 25% of householders are underwater. And probably 80% of those—one in five “homeowners”—would have their economic situation improved by walking away and renting.

The term that comes to mind is “deadweight loss.” And let’s look at that in the next post.

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Save Hoffman La Roche from itself

Robert Waldmann

Zenapax world supplies at risk – well basically nonexistent.

I was thrilled when my father, Thomas Waldmann won a Service to America award in large part for his contribution to the development of Daclizumab, that is, Zenapax TM, a humanized monoclonal antibody which inhibits the immune response. Zenapax is approved for sale for the prevention of rejection of transplanted kidneys. It is also demonstrably beneficial for people who suffer from auto-immunse diseases including Mutliple Schlerosis Uveitis
(the reason Braille was blind) and inflamatory bowel disease and is key to a promising approach to treatment of Hodgkin’s lymphoma in the numerous minority of cases in which standard therapies fail .

The patent belongs to Hoffman La Roche Ltd whose role was basically to organize and finance the clinical trials which demonstrated the effectiveness of Zenapax in the prevention of rejection of transplanted kidneys.

However, Hoffman La Roche pharmaceuticals has decided to stop making Zenapax for uhm no comprehesible reason. I quote “This decision has been taken in view of available alternative treatments and the diminishing market demand for ZENAPAX and is not due to any safety issue.

This decision makes no business sense. It casts doubt on the question of whether managers of Hoffman La Roche pharmaceuticals are up to the task of making decisions which affect thousands of lives. By law Hoffman La Roche is not allowed to advertize uses of Zenapax other than the one for which it was approved. No law prevents them from forecasting demand based on the evidence, published in top peer reviewed journals, that Zenapax has many other uses and that demand for the antibody will increase.

Obviously the decision is reversible. I am going to try to convince Hoffman La Roche to not kill the goose that will lay golden eggs.

update: Now I understand. Hoffman La Roche does not completely own all of the rights to daclizumab= Zenapax. The drug will imply huge profits for someone, but not for them even if they make it, because they didn’t buy the rights to use it for purposes other than preventing transplant rejection. It’s too late to save Hoffman La Roche from itself (also I exagerated since they are making plenty of profits from other drugs).

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Economic Growth: Blood Suckers v. Free Lunchers

by cactus

Economic Growth: Blood Suckers v. Free Lunchers

Good evening, and welcome to another episode of Comparing Presidents: Tax Burden v. Economic Growth. But looking at things from a Democrat v. Republican perspective seems to be a step too far for some readers, so this time we’ll do something different. For the purpose of this post, I’m going to pretend there are two different parties… the blood suckers and the free lunchers. The blood suckers are those under whom the federal government’s revenue as a percentage of total income increased, and the free lunchers are those under whom the federal’s government revenue as a percentage of total income decreased.

Some housecleaning before we go on… links to all the data plus a handy google spreadsheet are provided below. As always, we compute the annualized growth in each series (real GDP per capita, gov’t revenue / personal income) from the last full year before a President took office to his last full year in office. For those who left office early, if they left in the second half of the year, we consider that to be their last full year in office. Otherwise, we consider the year before they left office to be their last year in office. Finally, due to objections from folks who insist that the Germans saved our economic behinds by bombing Pearl Harbor (and yes, some of the comments I get would make Belushi wince), I’m leaving out Hoover, and only looking at the worst six years of FDR’s term (i.e., only going through ’38).

So here’s what it looks like:

(BTW… for convenience, the numbers you see sitting above each bar are the annualized percentage change in the gov’t collections / personal income, by president)

A few quick notes:

1. Its easy to tell a story with the words “cutting taxes leads to faster growth” but very difficult to make any such story compatible with the graph above.
2. The relationship between changes in the tax burden and growth in real GDP per capita is not one to one… clearly other variables matter too.
3. If you truly believe that peeing in the gas tank is going to improve your mileage, sooner or later you’re going to end up broken down on the side of the road.
4. I’ve written one or another variation of this post for the past four or five weeks. I think its fairly obvious what the relationship between taxes and economic growth isn’t, even if some readers refuse to accept it. I’m tired of rewriting this same #$% post, so its time to move forward.
by cactus

Data sources:

Real GDP per capita – NIPA Table 7.1, line 10

Federal gov’t’s current receipts – NIPA Table 3.2, line 1

Personal Income – NIPA Table 3.2, line 1

The above three BEA spreadsheets, plus my analysis, are all available in this google spreadsheet.

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The suspected terrorist went to a federal pen?

by: Divorced one like Bush

So, we can’t bring the Gitmo crowd here because they are dangerous and would create an inviting situation for further terrorism, but we can take the suspected Northwest Airline man to a federal pen just outside of Detroit? A suspected terrorist, in a federal pen?

What?  Does the government really think that we don’t need the auto industry now so – so what if Detroit get’s all blown up? How could they do this to Detroit, risking all our money after helping GM and Chrysler?

Hope everyone remembers this when the super patriots come screaming again about how dangerous it is to close Gitmo and bring them to a federal pen.   At this point in the game, one is suppose to call Bull S#$t.

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Recession slammed domestic migration

by Rebecca Wilder

Earlier this year, I compared US migration with that in Canada – one healthy, the other not so much. As a sequel to the story, the Census released its figures for migration into 2009, and the pattern in the US has worsened (you can download the here).

The picture of American mobility is one of people/workers/households with essentially nowhere to go. Unemployment is ubiquitously high, and the housing market is lousy – can’t sell your home, can’t get a job. This Great Recession dragged net-domestic migration (moving within the US borders) down in all regions of the country.

Here are some of the headline results according to the Wall Street Journal:
The recession has had a profound effect on migration patterns in the U.S., reversing the flow of people to former housing-boom states such as Florida and Nevada, the latest data from the Census Bureau show.

In the year ending July 1, 2009, Florida — once the top draw for Americans in search of work and warmer climes — lost more than 31,000 residents to other states, the Census Bureau reported Wednesday. Nevada lost nearly 4,000. The numbers are small compared with the states’ populations, but they reflect a significant change in direction: In the year ending July 2006, Florida and Nevada attracted net inflows 141,448 and 41,640 people, respectively.

There’s no place to go. If you are in Michigan, for example, which state has the better prospects? And furthermore, homeowners are likely to find it very difficult to sell. It is worthwhile to compare the current experience with the cyclical downturn of 2001, when the unemployment rate increased for two years into 2003.

The chart below illustrates the net-domestic migration rate in 2003 and 2009 for each state, excluding the outliers which are listed in the text box. This is the state-level compliment of the first chart, which lists changes in migration patterns by region.

A 45-degree line is drawn: states above the line are seeing higher net-migration compared to 2003, while those below the line are posting lower net-migration than in 2003. Also, positive numbers indicate net-immigration (more people entering the state than leaving), while negative numbers indicate net-emigration (more people leaving the state than entering).

The first observation is that the “usual suspects”, Nevada, Florida, and Arizona, are the outliers. Nevada, for example, saw its net-domestic immigration rate of roughly 20% in 2003 turn negative by 2009, -1.5%. And compared to the previous recovery, which saw rising unemployment through the middle of 2003, states like Colorado, Oklahoma, Louisiana, and Utah are experiencing increased migration into their states. However, a larger share of states are seeing migration patterns slowing or even turning negative. And finally D.C., home to the US government, is experiencing large migration inflows compared to the last recession, -17.8% to +7.5% in 2009. Best to be near the spending.

In the first chart, there is clearly a negative correlation between years in which the unemployment rate is rising (2003) and net-domestic migration across regions. But this time around, the magnitude is much larger – the labor market was hit harder and the housing market is in shambles.

A more flexible migration pattern would further the structural shift that is underway in the labor market (generally out of manufacturing and financial services and into alternate industries). It will take some time for the migration clog to free up, and the structural re-balancing of production and jobs will likely take some time. There’s just no quick fix.

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American Exceptionalism Strikes Again

This chart from National Geographic combines several data sets which require a little bit of puzzling out, but which come together in one whopper of an illustration.

The parameters are:

Cost per capita – lefthand scale, and lifespan — righthand scale, which together give a sloped line for each nation showing dollars per year of lifespan.

Thickness of each nation’s line indicates number of doctor’s visits per year.

Line colour indicates whether the nation has universal health coverage (blue) or not (red.) There are only two red lines — Mexico and the USA.

Looking at these, you would hope to achieve a low lefthand starting point (low cost), a high righthand point (high longevity), and a thick line (lots of doctor visits.)

The USA line looks like it was drawn by someone who got the instructions backwards — a very high lefthand starting point (huge cost), a mediocre righthand point (middlin’ longevity), and a hairlike line thickness (scanty doctor visits, less than 4 per year.)

Who gets the healthcare bargain on this chart? Japan is the most striking, with the highest lifespan (almost 83 years), and a visit a month or more to the doctor, at a cost of about $2,600 per capita — one-third the US cost.

Fifteen of the 21 nations shown achieve longer lifespans than the USA, at roughly half the US price.

Nuts, just nuts.

h/t to “fatster” in the comments over on Emptywheel.

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