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

Snow today and tomorrow

Snow today and tomorrow

Reporting in so far from Mass., Rhode Island, Ohio, New York, Michigan, Illinois, on the snow storm surging across a third of the US. No pictures yet.

Dan B. says:

I’ve had enough. Between plowing my office, the shop, the home and mom’s. Then snow blowing the piles to make room for more. Being, literally up to my hips in snow cleaning off the greenhouses and cancelling my office because I can not keep the hill of the driveway clean…
I’ve had enough.

After this current storm, I have a friend coming to the office with his Bobcat to clean out the 8 to 10′ high mounds on both sides of the driveway at the bottom. I have a unique situation such that the highway plows unload 2.5 lanes of snow that has been pushed for 200′ the minute they hit my driveway.

Spencer England says:

I’ve been in New England since 1974 and this is the first time I’ve ever hired anyone to do my driveway. Although after the blizzard of 1978 I did hire a crew to shovel
the snow off my roof. That one storm dropped five feet of snow. In the Boston area we are seeing building collapse already from the heavy snow on flat roofs even before this storm hits. In one parking garage two guys were trapped in their car when the roof collapsed on them. We already have five feet of snow and I am running out of room to but more.

Just did my deck shoveled before this storm for the first time this season. It was still relatively light snow, not ice and I could slide most of it under the railing rather than lifting it.. They expect the second snow this week to be a heavy wet one with freezing rain, etc

Mike says:

I live sox blocks from the office and walk to work every day. It was a very slow trudge today. I suspect it will be worse tomorrow. We also feed some feral cats and one dog which requires a drive. It sucks in this weather but they gotta eat.

Rebecca says:

I have to shovel a 2′ by 10′ sidewalk.

Dan C. says:

Back in the day the private contractor who plows for the town had his young daughter with him, and Linda provided hot chocolate and coffee for the two (or me some other times) the next couple winters. His daughter is in high school now, but he plows the area which includes our driveway and walk area. At this point I am estatic for the favor. I had to shovel a section of the roof for ice dams.

Of course the snow piles are over 8 feet by tonite.

No word from Linda or Ken, but my Chicago son says lots of snow for that city. I can hear Rusty grumbling from here! As people check in I will add comments. I expect Robert is doing fine with the weather in Italy. Noni Mausa has the dogs out and sleds ready.

Run75441 says:

…work in Upstate New York in the snow belt and we are over 110 inches since December. We get plenty of snow. If you don’t like cross country skiing, downhill, or snowshoe-ing; you go dormant. Got snowshoes for Christmas as my oldest son kept my cross country skiis.

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Ned Meet FRED

Just how easy is it to use FRED ? I will find out starting four minutes ago, I am trying to set up a FRED account and generate a graph of interest (CPI inflation and nominal wage inflation plotted on time).

I have an account.

19 minutes in. I have downloaded data. Not the data I should have downloaded but that’s not FRED’s fault.

Don’t blame FRED. I can’t handle Excel.

OK here we are 58 minutes in. I can handle FRED. Unfortunately while I am a US citizen and, in theory, a macroeconomist, I don’t know anything about US macro time series (I haven’t dealth with them in over 20 years). I don’t understand why the FRED employment cost index starts in 2001 or so. I barbarically constructed something which has something to do with wages with the snappy name WASCUR-PAYEMS which is equal to the percent change since a year ago of WASCUR (Compensation of Employees: Wages & Salary Accruals) minus the percent change since a year ago of PAYEMS (total non-farm payrolls, all employees).

I still don’t know how to embed the graph which is called Ned Meet Fred.

I admit that WASCUR – PAYEMS is no good. WASCUR doesn’t include fringe benefits. Also it corresponds to quarterly pay not hourly pay, so fluctuations in hours worked per worker show up as if they were wage inflation.

Nonetheless my graph Ned Meets Fred does not fit my prediction (my record remains perfect). WASCUR – PAYEMS does not look like the Atlanta Fed’s index of sticky prices. It was highly correlated with the CPI in the late 40s back when unions were really strong, not correlated in the 70s back when US nominal wage rigidity was justly famous, and is now correlate again.

This feeble effort to deal with US time series data offers something less than no support for Paul Krugman’s Un-COLA hypothesis.

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More on the Middle East

The NYT reports today of further developments in the Middle East.

Jordan’s Royal Palace says the king has sacked his government in the wake of street protests and has asked an ex-army general to form a new Cabinet.

King Abdullah’s move comes after thousands of Jordanians took to the streets — inspired by the regime ouster in Tunisia and the turmoil in Egypt — and called for the resignation of Prime Minister Samir Rifai who is blamed for a rise in fuel and food prices and slowed political reforms.

The Royal Palace says Rifai’s Cabinet resigned on Tuesday.

Barkley Rosser offers a take off point for the international aspects of the Egyptian turmoil, and a beginning look at the history of the politics/economics of the nation.

Yesterday, Juan Cole posted on Class Conflict in Egypt. As usual, very insightful on the poltical economic foundations of this uprising. He argues that the original base of support for the Nasserist regime that took over in a coup in 1952 was rural land reform, with the rural middle class that got land still the base of the regime. However, over time with urbanization and slow growth and the rise of corruption since Mubarak took over, that base has eroded.

Nasser also gained credibility for throwing out the British and standing up to other outsiders (with the US and Soviets ironically siding with him in the 1956 Suez Crisis against the UK, France, and Israel).

Real wages doubled between 1960 and 1970, when Nasser died, but stagnated after that until 2000, with nearly zero real per capita income growth and a worsening income distribution. Neo-liberal policies, including relaxation of food price controls in the 1990s, did not produce much, although growth did increase after 2000, running at a 5-6% rate. But it has not been enough to provide jobs for the many urban youth, particularly the better educated ones.

Also, since 1980 the regime has been seen as supported by outsiders, particularly the US, Israel, Britain, and France, in contrast to the Nasser period. As economic problems surged with the food price spikes in 2008 and the subsequent Great Recession in the world economy, this made for a weak foundation of support for the regime. We should expect any successor to take a more independent line, especially the moderate El-Baradei who was so badly treated by the US previously.

I must note, however, that while inequality has increased, it is not all that bad compared to many other countries, with Egypt’s current Gini coefficient of 34.0 putting it in 90th place in terms of inequality in the world.

Finally, I note that the chances for Mohamed El-Baradei succeeding Mubarak (eventually anyway) have increased with him receiving the support of the Ikhwan, the Muslim Brotherhood. However, there are other more radical Islamist groups in Egypt calling for an Islamist state with Shari’a imposed as law, although they appear to be a minority on that side, even though they are more moderate than the expelled Egyptian Islamic Jihad, whose leaders include the #2 and #3 figures in al-Qaeda.

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Mandate Up

Mandate Up by The Bell offers some advice to his readers on the mood of the country:

Their Promised Approach to Governance Didn’t Work Out So Well for the Last Guys

During one of their debates, Nevada Tea Party Senatorial candidate Sharon Angle famously told Majority Leader Harry Reid to “Man up!” meaning he needed to toughen up in the face of adversity and take responsibility for his actions and their consequences. As it turned out, Reid apparently manned up sufficiently to become one of the relatively few Democrats avoiding rejection by voters last Tuesday.
Republicans, the big winners in this election, were quick to see their victory as a justification to mandate up. Their victory moved Representative John Boehner of Ohio, the likely next Speaker of the House, to tears of relief because he believed his Party now could save the American Dream. “I think that it’s a mandate for Washington to reduce the size of government and continue our fight for smaller, less costly and more accountable government,” he told reporters.

John Boehner and Mitch McConnell believe they have
been given a mandate to undo Obamacare and Obama

Boehner also believes Republicans have a mandate to repeal healthcare reform as passed by Democrats, calling it a “monstrosity” that “will kill jobs in America, ruin the best healthcare system in the world, and bankrupt our country.”
Senator Mitch McConnell of Kentucky, who will remain Minority Leader because candidates like Angle did not prevail, was even more belligerent. He argued Republican lawmakers should vote to repeal healthcare reform, over and over if necessary. Then McConnell took it a step further, maintaining that merely opposing Obama’s policies was insufficient.
Republicans top goal for the next two years should be doing anything and everything possible to deny the President a second term. McConnell reasons the only way for Republicans to undo everything is “to put someone in the White House who won’t veto any of these things.”
For his part, Obama was chastened by the “shellacking” his Party suffered but unapologetic about his agenda, although he conceded he was so eager about what needed to be done he had forgotten how he promised to do it (i.e. outreach to Republicans and greater civility/bipartisanship). “I do believe there is [still] hope for civility,” he avowed.
Boehner and McConnell flatly stated they would accept Obama’s help only as far as it coincided with their mission.
They say the size of their victory demonstrates the American publicly has roundly rejected Democratic progressivism and this rejection cuts across all demographics and ideologies except for the extreme loony Left. Election results and exit polls tell a different story, however.
For starters, one might assume – given the extent to which Republicans used Obama as a proxy against Democratic contenders – that Democrats who voted with the President would suffer the worst loses while those who distanced themselves and voted against him would do better. In fact, of the thirty-three House Democrats running for re-election who voted against healthcare reform, two-thirds were defeated. About the same was true among the forty-two who voted against Cap and Trade. In comparison, only two Senate Demorats who voted for both the stimulus and healthcare reform lost.
CNN exit polls reject the oft-insisted conservative claim that this election was a referendum against Obamacare. Only seventeen percent of voters considered healthcare reform their top issue and more half voted for Democrats. Likewise, only thirty-seven percent said their vote meant “expressing opposition to Obama.” Even given continuing high unemployment and slow recovery, in the sixteen Democratic-represented Congressional districts hardest hit by the economy, only one flipped Republican.
There is no question that Republicans received a loud and clear mandate from a cadre of energized conservative voters. However, far from representing all Americans, this group was both whiter and, especially, more elderly than the population as a whole. Republicans continued to lose eighteen to twenty-nine year olds by seventeen points. As Harold Meyerson of the Washington Post observed, “There was absolutely a Republican wave on Tuesday, but it looks more like the wave of the past than the wave of the future.”
Republicans won with this cadre and Independent voters, who broke for the GOP in 2010 by about the same margin they went for Obama and Democrats in 2008. They were sending a mandate too but one less about ideological preference and more about results.
The Washington Post’s David Broder explains, “There will be a temptation to interpret the Democrats’ loss of their House majority and of at least six Senate seats as a rejection of Obama’s first-term agenda . . . American voters are not that flighty or unsettled . . . The biggest problem by far was the economy . . . The worst mistake would be for [Obama] to abandon or reject his own agenda for government.”
Broder’s conservative colleague Charles Krauthammer disagreed, arguing the rejection was so complete that neither Obama nor any future Democratic can or would wish to govern from a progressive philosophy ever again. However, he concurred on this key point – “Republicans [should not] over-interpret their Tuesday mandate. They received none.”
Some pundits argue Obama’s fatal mistake was in overreaching while others maintain he was not nearly aggressive enough. Actually, Obama’s mistake was overestimating how long Americans would be patient over a sluggish economy from which the middle class had failed to benefit long before the recession. Republicans benefited as the only available alternative. They are also next in line for the boot if they fail to deliver. Moreover, nothing suggests voters have grown more patient.
To this end, Republicans must focus on economic growth and creating jobs in the private sector. They must press for reforms but be willing to compromise on details. While attempting to repeal healthcare reform is a gesture owed to their most ardent constituents, they must present viable conservative alternatives to its most unpopular components. This is not my policy prescription but that of Karl Rove, writing in the Wall Street Journal.
Boehner and McConnell may choose not to heed these admonitions. They may insist they have a mandate that represents the broad will of the American People. They may insist this election represented a permanent seismic shift to the ideological right by this country. They may insist compromise is a dirty word and only total repeal is sufficient. They may insist voters have seen the error of their ways and will patiently wait two years or more for them to build the majorities and power bases necessary to do things the right way. They may insist they only way they will not be successful is if the defeated Party is obstructionist.
Of course, they insisted in the run-up to this election that these are exactly the same mistakes made by the Democratic leadership after 2008. As chief of the defeated, Obama noted in his press conference, “Ultimately, I’ll be judged as President as to the bottom line, results.” The same is true for Boehner, McConnell, and the rest of the Republicans swept into office last week.
It is time for them to quit mandating up and start manning up. They have the acting tough part down pat. Now it is time to work on the taking responsibility part. Otherwise, it will quickly become clear nobody was listening to the American People this election.

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Trade policy agreements and capital flows

Yves Smith at Naked Capitalism offers wise words regarding trade policy agreements and capital flows, in addition to pointing us toward a letter signed by several hundreds of economists regarding capital controls and government.:

This letter is at odds with a longstanding project of major financial firms: to allow them to move money across borders with no muss or fuss. This was the dream of Citibank’s Walter Wriston, who perversely was not deterred by the large losses his bank incurred in its sovereign lending misadventures of the late 1970s. It became a matter of policy in the Rubin/Summers Treasury Department.

Although the danger of destabilizing “hot money” inflows has been well recognized since the Asian crisis of 1997, the thrust of US policy has been to continue to push for more capital markets liberalization, particularly in emerging economies. Yet the evidence has continues to mount that a high level of international capital movements isn’t merely a potential threat to developing markets, but to economic stability. As we’ve pointed out repeatedly, the Carmen Reinhart/Kenneth Rogoff work on financial crises showed a strong correlation between high levels of international funds flows and banking crises.

The odd, and telling bit in the debate is the unwitting concession to financiers embedded in the existing terminology: capital controls. It incorrectly implies that money is every and always stateless, and any effort to restrict it is unnatural. But truly stateless commodities are highly transportable, high density stores of value whose content can be readily verified: think diamonds (at least pre the era of synthetic diamonds), gold, platinum. But despite their obvious value, what someone receives in exchange if one transports them across borders is very much in doubt, not just due to price fluctuations but also to the difficulties of finding a trustworthy party who would convert the commodity into local currency at a fair rate.

In other words, we’ve all gotten so used to being able to change money, use credit cards, and suck local currency out of ATMs when traveling abroad that we’ve forgotten that this has been put in place with government support. And it has come more recently in some countries than others. I recall running into a McKinsey colleague in the Hong Kong airport in 1985. He was astonished to see that the foreign exchange booths would exchange Indian rupees. The rupee then was a controlled currency; that sort of operation was in theory impermissible. But Hong Kong was always a bit lawless, and this was probably a small scale enough operation so as to fly under any official radar.

But so far, we have been talking about money, and the conversion of currency in a personal/retail context. By contrast, “capital” carries with it the idea of investment. Money is not being moved simply to get it into another country (well it might be if you are a drug dealer or the leader of a banana republic planning your exit strategy) but to put it to work. That in turn means you expect some sort of legal protection in the recipient country, ideally as good as the natives get (again note we accept the idea of equal protection under the law in some contexts and not others, so this is not a given).

But what about movement of funds between countries? How exactly is this a matter of rights? For individuals, as with our drug lord example, the reason for trying to move it abroad is almost certainly not legitimate; it’s to escape prosecution and taxation. The US takes the view that the income of its citizens, no matter where earned, is subject to US taxation. Governments lose significant amounts of money due to corporate gaming of tax regimes. Nicholas Shaxson, in his new book Treasure Islands, argues that poor African nations are actually capital exporters. They lose more in tax revenues via arranging their affairs so as to show income in low tax jurisdictions (often with little in the way of real operations there) than they gain in foreign aid.

Now as the letter above acknowledges, international treaties have effectively given investors the right to move funds without restriction into certain types of instruments. But look at the implicit logic, and it’s one that actually goes back to discussions early in the history of the US over whether Congress should charter a bank (yes, Virginia, pre-revolutionary America thrived without banks). The debate centered around differing ideas of what “freedom” meant.

The opponents of the bank charter were concerned about potential abuses that could result from concentrated power. To them, “freedom” meant the right of citizens to take action and use democratic processes to move their government and society in directions that they could hopefully agree on and would produce better outcomes.

The bank advocates, most notably Robert Morris, took a very revealing position: they argued that the government had the right to grant privileges, but not to take them back. It amounted to arguing that economic interests extended to private actors somehow became their property, and that any reversal of these grants was not simply an act of bad faith, but was despotic theft.

Yet we routinely accept the rescinding of government privileges of various sorts; consider the 1990s “end of welfare as we know it” or the expected reductions in pensions of state employees. But when large commercial interests obtain valuable economic rights, reining them back when they are found to impose undue costs on others is depicted in a completely different light. Restricting them isn’t framed neutrally, as, say, a revision, but as a “control” when the prevailing ideology treats that as a “c” word.

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