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

Employment Dynamics

In recent years the BLS has developed a new database where they can track the jobs created by an establishment over time. It is called Business Dynamics and you can read about it here.

Research using the new database has altered the basic view of where jobs are created. The old view that jobs are created by small businesses has been pretty much discredited by this approach.

As the chart below demonstrates over recent years, large firms have accounted for a greater share of employment than small firms. Since the 2000 recession their share has been relatively constant, implying that small and large firms have created about the same number of jobs.

The new research finds that net job growth appears to stem from the new establishments that survive. Of course the problem is that many new establishments do not survive. After 5 years less than half of the new establishment are still around and after 16 years less than a quarter survive. So while it is true that small firms create many new jobs, they also destroy many jobs.

The new data implies that net job creation comes largely from the creation of new establishments and the few of them that manage to survive over the long run.

Just as an aside this chart shows one of the problems I have with many conservative economist. They believe that government is inefficient and wasteful. Actually, they are probably right. What I have problems with is their belief that the private market is efficient, especially if it is taken to mean that it is not wasteful. As far as I am concerned the private market probably is just as inefficient and wasteful as government. Less than half of new firms survive five years. Just think of how wasteful that is– for years businessmen try to provide a good or service that the market is not demanding. It may be the best we can do, but it is still extremely inefficient and wasteful.

Was the stock market efficient last week when it was bouncing up and down several percentage points daily only to end up barely changed for the week?

Years as a business economist taught has me that markets almost always overshoot and undershoot, either producing too much or too little and asking prices that or either too low or too high. My one investment rule that may be original is that any shortage everyone sees a few years down the road will never materialize because too many people will try to take advantage of the supposed shortage and actually end up creating a surplus.

What the new data also provides is a record of the jobs created by new establishments — what the birth part of the birth -death model in the monthly employment report estimates. What this data shows is that the republican claim that new jobs are not being created appears to be based in fact.

However, that trend of new establishments creating fewer jobs is a decade old. The number of jobs created by new firms peaked in 1999 and has declined every year since and the record in recent years is right on the trend established over the past decade. Thus, it appears that the shortage of new jobs from new establishments in recent years does not appear to stem from recent developments. Rather, it is a trend that has been firmly in pace for a decade.

When I look at this data I do not come up with a good explanation for the decade long decline in job creation by new establishments. The data only goes back to the early 1990s, so maybe what we are seeing is that job creation was unusually high in the 1990s because of the IT bubble and all the recent decline represents is just a return to normal. But I doubt it, and am open to other suggestions.

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The Medicare Sky is Falling.. Accepting Medicare

by run 75441

The Medicare Sky is Falling

Part of the Medicare Sky Falling story is a claim that doctors are refusing to accept new Medicare patients because of low payments. It is common for politicians and pundits to pontificate declaring Medicare is broken. A doctor himself, Wyoming Senator Barrasso made the claim to CNN’s Candy Crowley recently.

Sen. John Barrasso mistakenly claimed that “57 percent of doctors don’t want new Medicare patients,” which isn’t true. His own spokeswoman admits he got it wrong.

National surveys have put the number who don’t take new Medicare patients as low as 14 percent, and a big American Medical Association survey last year showed only 17percent of all physicians said they were ‘restrictin’ Medicare patients (either taking none, or just some).”Senator’s Barrasso’s Medicare Mistake

See also Part 1, Part 2, and Medicare Breaks medical inflation curve

The claim is related to the implementation of the Sustainable Growth Rate formula which adjusts physician payments whenever the aggregate cost of Medicare exceeds the calculated growth rate. The Sustainable Growth Rate is outside of the ACA and since its inception has only been applied once in 2002. Congress has repeatedly delayed the decreases by applying short term fixes canceling out the planned SGR adjustments in reimbursements. The proposed 2012 budget also contained delays in implementation. The SGR was passed as a method to control the increasing aggregate cost of Medicare without consideration for the number of services provided.

On the other hand, 62% of Primary Care doctors said they would stop taking new Medicare patients if the SGR formula reimbursement cuts were implemented. To increase reimbursements for primary care, the ACA has in it provisions to increase primary care doctors reimbursements and at the same time reduce reimbursements for specialists.

Another claim by pundits and politicians is Medicare has been outstripping inflation. This has been true for a number of years; but, a more recent trend shows quite the opposite. Here again pundits and politicians have been claiming the reduction in doctors accepting Medicare patients has been the cause of such a decrease in Medicare cost. I believe we have debunked that claim earlier.

Given that rising healthcare costs drive the cost of Medicare, Medicaid, and even commercial insurance; it is outrageous that people would consider cuts in Medicare and Medicaid as a means to control overall healthcare costs or just give up the fight on rising healthcare costs and sacrifice the poor, the children, and the elderly to vouchers and buyer beware.

How has Medicare been performing recently? Maggie Mahar at Health Beat Blog Deadlock Over The Debt: What It Means to You . . . touches upon the planned cuts in Medicare John Boehner proposes and lesser cuts offered by President Obama as a compromise to break the stalemate in Washington between the Democrats, the Republicans, and the Tea baggers. Wrongly identifying Medicare and Medicaid as the leading cause of rising healthcare costs, the House under John Boehner has sought to impose severe cuts in the programs which will in effect balance the deficit and budget on the backs of the poor, the elderly, and the children who depend upon Medicare and Medicaid heavily. Medicare and Medicaid are still on the chopping block for cuts under the recent compromise.

In an update to its S&P Healthcare Indices (12 month moving average), Standard and Poor’s reports Medicare cost trends decreased with costs growing at a rate of 2.64% annually in May. So, why attack a program whose costs are decreasing and out-performing the Commercial Index (private healthcare) which showed a 7.35% annual cost?

While both the Commercial and Medicare Indexes showed a slight uptick in May of .25 and .16, Medicare has consistently outperformed commercial healthcare insurance in controlling cost. Medicare’s performance comes in light of increased healthcare industry costs and a growing baby boomer population.

As Taken from, “US Healthcare Costs Rose 5.8% Over the 12 Months Ending May 11 According to the
S & P Healthcare Economic Indices

The Commercial Index (private healthcare) mirrors the growing costs of healthcare in the US. From the May 2010 levels, the Commercial Index reflects a 7.35% increase, Medicare 2.64%, and the composite of both 5.35%. The Medicare Index shows a widening gap between it and the Commercial Index which appears to be occurring from its control of costs. In effect, Medicare is dragging down the cost of commercial insurance and acting as a control on overall healthcare costs.

As Taken from, “US Healthcare Costs Rose 5.8% Over the 12 Months Ending May 11” S & P Healthcare Economic Indices

While hesitant to declare an outright victory and a long term trend in Medicare cost controls, David Blitzer of the S & P Indices in a conversation with Maggie Mahar indicated this is more than just a blip on the screen. He went on to add:

We tend to get data from the Centers for Medicare and Medicare about 1 to 1 1/2 years after the fact; this is why there is a widespread perception that Medicare spending is still rising 2% faster than GDP. S&P is giving us more current numbers, and while the S&P index is ‘is not perfect,’ Blitzer says, ‘it’s good.

While there is waste in Medicare, it is conceivable Medicare costs could be reined in even further through the ACA and enough such so as to match GDP growth and no more. To squeeze cost the ACA will look to the Advantage Programs Insurers, overpayments to Advantage insurers, payments for some preventable errors, annual increases in reimbursements to hospitals, nursing homes and other institutional providers, and with systematic changes to the today’s healthcare model which rewards providers for doing more than for better outcomes.

Interesting that S&P downgrades US Credit Rating while at the same time shows proof of entitlement programs driven by the cost of the healthcare industry are decreasing at a faster rate than their commercial counterparts.

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Another Reason You Can Have Him

Fitch won’t downgrade the U.S., but they have downgraded Chirstiedom, officially because he didn’t pillage the state’s severely-underfunded Pension Funds enough.

Of course, those Pension Funds wouldn’t be so underfunded if they had been funded instead of f*ck*d by the Whitman Administration’s Coke-Induced Budgeting Practices. (The “miracle of compound interest” includes that it doesn’t compound so much when there’s no principal.)

[UPDATE: Blue Jersey highlights the line I missed:

Fitch believes that meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long term challenges, such as property tax relief, school funding, and infrastructure needs.

Gosh, you mean you have to pay for services? As for the other highlight:

The state’s recent economic performance has been weak and the state is expected to lag the nation in recovering from the recent recession.

we could always use The Texas Solution: Hire More and More Government Workers.]

So, if you want him, as I said at Skippy, you can have him. He’s got experience with ratings downgrades.

Sadly, I suspect Joe Wiesenthal has it right:

It might not be a big deal, and it might not be his fault, but this should probably kill any buzz about him running for President right now, given that THE DOWNGRADE is expected to be such a salient point of attack for any eventual GOP nominee.

And since the downgrade was engineered by a Romney supporter, any suggestions of conspiracy here are unjustified.

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Unemployment, Unemployment Benefits and Severance Packages: A Modest Thought Experiment

by Mike Kimel

Most economists believe that unemployment benefits increase the unemployment rate. The idea is that even having a relatively small income coming in (from unemployment) can encourage people to stay jobless just a little while longer. And no doubt there are people who play the unemployment compensation game fairly well.

Now, consider severance packages. These days they aren’t uncommon. There are differences in how different states treat severance packages, but as I understand it, in general, if a jobless worker received a severance package equivalent to X weeks of pay in lump sum form, that makes the worker ineligible to receive unemployment benefits for what would otherwise be the first X weeks worth of claims. Which, would imply that for an unemployed worker, there is zero incentive to be jobless during the first X weeks of unemployment, but a jump in the incentive to be jobless beginning in week X + 1. One presumes, therefore, a greater probability of people turning down proffered job offers in weeks X-1 or X (when unemployment benefits are imminent) than in week 1 or 2 (when there is a much longer wait to get unemployment benefits).

If this solves the problem of anyone looking for a thesis topic at a Freshwater school, your thanks are all the payment I need but I do appreciate cookies.

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It’s A Miracle?

Scott Lemieux linked to an article that in turn referenced a BEA report on state GDP gains with this map:

or, if you just want to see the numbers,

“Growth only slightly lower than Michigan’s” should be a great campaign slogan.*

*And that’s ignoring that the second-largest contributor to that gain is Finance and Insurance. Rick Perry probably gives Jamie Dimon a big, wet kiss every time they meet.


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Texas Tort Reform and Texas Doctors

Governor Perry of Texas is making the claim that the Texas 2003 tort reform lead to Texas having 20,000 more doctors.

I challenge him to document his numbers.

Here is the number of doctors registered to practice in Texas before and after the 2003 tort reform. The data is from the official state registry that is the only body with the authority to

license doctors to practice in Texas.

The data clearly shows that the growth rate of the number of doctors practicing in Texas slowed from an average rate of 3.4% in the five years before tort reform to a rate of 2.4% in the five years after tort reform. The calculations does not use the data from 2003, the actual year tort reform was passed and a year that should be considered a transition year.. This official data directly contradicts Perry claim that tort reform increased the number of doctors practicing in Texas.

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Go ahead. Implement Austerity at your own peril

by Daniel Becker
(This is a long post. The time for sound bite debate to the demise of learned discussion is over for we are flirting with danger.)
Via a post at Financial Armageddon I learnt of a paper looking at the relationship of austerity implementation and social unrest. It is recent, dated August 2011.
Jacopo Ponticelli, Universitat Pompeu Fabra
Hans-Joachim Voth, UPF-ICREA, CREI and CEPR
Discussion Paper No. 8513
August 2011
Centre for Economic Policy Research
The Financial Armageddon article shows the first chart of the paper which presents: the relationship between fiscal adjustment episodes and the number of incidents indicating instability (CHAOS).
“CHAOS is the sum of demonstrations, riots, strikes, assassinations, and attempted revolutions in a
single year in each country. The first set of five bars show the frequencies conditional on the size of budget cuts. When expenditure is increasing, the average country-year unit of observation in our data registers less than 1.5 events. When expenditure cuts reach 1% or more of GDP, this grows to nearly 2 events, a relative increase by almost a third compared to the periods of budget expansion. As cuts intensify, the frequency of disturbances rises. Once austerity measures involve expenditure reductions by 5% or more, there are more than 3 events per year and country — twice as many as in times of expenditure increases.”
This is a rather disturbing chart. Certainly the recent events in England play into the subject of this paper. That WE are now setup for our version of austerity implementation, this paper should be put in the hands of all the staff members of congress and the president. If I had my own national news show I would have in the corner of the screen the above chart along with the google map of all the riot locations in London and in big letters: Cut SS, MC, Medicaid. Really? You want to go there?
There is more to this paper than just the apparent connection between austerity and upheaval. “Controlling for economic growth does not change our results. This suggests that we capture more than the general association between economic downturns and unrest.”
This is the most powerful statement of the paper. It implies that “Man” in all his glory is responsible for such social activity. It is not the “natural” course of economic activity that creates such volatile activity.  It is the economic policy implementedthat determines whether there will be unrest or not. Currently, the proposed austerity is based on an a priori of “we’re broke”. It is stated with the authority of natural cause. Mother Nature Economy did it’s thing and well…we’re broke. All we can do is rebuild after the storm. Yet, an economy is totally of human design. The republican who stated that the conservative movement was making reality was more correct than their fantasizing of control and power would allow them to realize. Thus I delve into this paper more after the jump.


There are two points that need to be understood if we are to apply the lessons of this social economic paper. Point 1:
“However, countries with very high levels of constraints on the executive show a weaker degree of association…Table 10 demonstrates that in countries with better institutions, the responsiveness of unrest to budget cuts is generally lower. Where constraints on the executive are minimal, the coefficient on expenditure changes is strongly negative – more spending buys a lot of social peace.”
So, some kind of governance that includes self determination is a mechanism for minimizing upheaval/unrest. I believe the American Revolution would be an example of upheaval in the face of “minimal executive” constraint. Finding that constraint of the executive is determinative does not mean such rights are exercised by the people to their benefit:
“The political economy literature on austerity suggests a paradox. There is no significant punishment at the polls for governments pursuing cut-backs (Alesina, Perotti, and Tavares 1998; Alesina, Carloni, and Lecce 2010), and no evidence of gains in response to budget expansion (Brender and A. Drazen
I don’t know what to make of such findings. Certainly there must be more in the details of the studies sited. If such lack of response by the electorate is true, then we are in deeper trouble than realized.  
Based on this conclusion, the authors ask: 
“Why, then, is fiscal consolidation often delayed, or only implemented half-heartedly?” 
They suggest fear of unrest may be the reason and footnote the following: 
14 Alesina, Carloni and Lecce (2010) also suggest that implementation of budget measures may be harder if the burden falls disproportionately on some groups.
I would hate to think that austerity measures are not implemented simply because of fear of a reprisal that appears to be short lived with no political loss to those implementing the policy instead of not implementing austerity because research and experience prove it to be actually harmful in it’s results and even contradictory to the desired outcome of greater prosperity with reduced risk of living. If the politico is acting based on the former, it show’s no conviction of ideology and philosophy. If they fail to acted based on the latter, it shows a lack of character of inquiry and enlightenment. In either case, Naomi Kline’s work notes that austerity is always implemented with some form of force. In our country the force appears to be consolidation and control of the media combined with massive amounts of spending thus control of the debate and knowledge of the subject matter. Though the police state is in place thanks to Bush/Cheney and the expansion under Obama. 
Point 2:
“Further, we examine if the spread of mass media changes the probability of unrest. This is not the case. If anything, higher levels of media availability and a more developed telecommunications infrastructure reduce the strength of the mapping from budget cuts to instability.”
In their conclusion they flatly state: Contrary to what might be expected, we also find no evidence that the spread of mass media facilitates the rise of mass protests.
This suggests that cutting communications as some have done recently in an attempt to curb the upheaval is not a procedure that works in the long term. The focus of the complaint, materialized via upheaval will have to be addressed. It is not the ease of rallying the masses, the pep squad going viral that solely explains the materialization or degree of unrest. Though it may explain the reduction in strength of austerity implementation and resulting upheaval. I think the authors have stumbled upon the modern version of the printing press coming into existence and the effects it had.
The authors review current literature on the subject and find there is some confliction as to the effects of budget cutting. I’ll let you read it, but my take home is that it depends on what stage of national development the country is in as to the extent austerity will produce unrest, if the unrest is sustained post implementation and whether it promotes growth. They even site:
Giavazzi and Pagano (1990) and Alesina et al. (2002) find that cuts can be expansionary. Amongst the reasons suggested for this finding are a reduction in uncertainty about the course future spending (Blanchard 1990a), and a positive wealth shock as a result of lower taxes in the future (Bertola and Drazen 1993).3
I guess we know where the current meme comes from. Unfortunately the authors also note:
IMF interventions, on the other hand, often led to more frequent disturbances (Morrison, Lafay, and Dessus 1994).
Similarly, Haggard, Lafay and Morrison (1995) find that IMF interventions and monetary contractions in developing countries led to greater instability.
Recently, work by the IMF has suggested that austerity measures may be less expansionary than previously thought; they may well have the standard negative Keynesian effects as a result of lower demand (IMF 2010; Pescatori, Leigh, and Guajardo 2011).
Oh no! What is the IMF going to do now? I’m still praying for you Greece.
The author’s sum up the literature review with:
Remarkably, to the best of our knowledge, there exists no systematic analysis of how budget cuts affect the level of social instability and unrest in a broad cross-section of developed countries, over a long period.
Wouldn’t you think that such research would be considered key to one’s knowledge base before we start implementing policy that to date has been mostly tried and studied in 3rd world situations?  Wouldn’t you think that the advising 
the proof of effectiveness from these advising economist? Even medicine has acknowledged there is a difference between men and women other than genital development. The review of literature is clear. Start cutting and you will piss people off such that they express it ultimately in violent means though if you can ride it out the violence abates and prosperity looms until it doesn’t because people just plain have no money. The word for today is: Demand. Use it in a sentence as it relates to this discussion.
We can think that there are other issues involved when people protest, but the authors make it clear, austerity brings out the greatest number of people. For those considering how to handle the masses when the austerity gets implemented:
“The simple correlations suggest that these co-movements do not extend to all indicators of unrest equally – riots, revolutions, and demonstrations decline as expenditure rises, but assassinations and strikes seem – at a first pass – uncorrelated. Similarly, output growth seems to correlate negatively with assassinations, riots, revolutions, and demonstrations, but not with strikes.” 
And: “This suggests that unrest reacts particularly strongly to budget cuts and growth when unrest levels are already high.”
Go ahead, implement at your own imperil. In case you think this connection of unrest/upheaval is related to how they measure it, the authors checked that variable: “We conclude that the way in which we measure unrest does not matter for our main finding.”
Looking at the relationship of austerity policy involving taxes: 
Higher taxes and lower expenditure are associated with more unrest, but the relationship is not significant. Tax increases have a positive sign, but the effect is not significant at standard levels of rejection (column 2). It is also small – a one standard deviation rise in the tax/GDP ratio increases unrest by less than 0.01 events. Overall, we find that improvements in the budget balance raise the level of unrest (column 3). As the results in columns (1) and (2) make clear, this reflects the impact of expenditure cuts, and not of tax increases.
We find the same results as before – expenditure cuts wreak havoc, tax increases do so only to a small extent and insignificantly. Overall, the budget balance matters for predicting unrest.
Just to make sure no one gets this wrong: A change in budget balance predicts unrest if the balance is reduced via cuts. Kind of makes it difficult to accept that the masses want something for nothing. In fact, I would suggest “entitlement” as it has come to mean something for nothing is the wrong word to apply to government programs of which people pay for willingly via taxes and don’t get riotous if they are asked to pay more.
If we wanted to avoid the upheaval of austerity implementation we should consider: 
In all specifications, the effect of GDP growth on unrest is negative. In contrast to the results for expenditure changes, the effect is not tightly estimated, except in the case of demonstrations, when it is also large – every 1% increase in GDP cuts the number of demonstrations by close to 0.4 events.
See, do something that actually improves the economy and people don’t protest! Wow, who’d a thunk it? Of course improving the economy such that people do not protest would mean having implemented something which produces an actually experienced improvement in the peoples lives. Something like real rising wages paralleling productivity rise and thus rising wealth. Unlike say, debt driven consumption only to have financing go away and then told to suck it up.
They look further at the connection of spending cuts vs economic growth and find:
In contrast, if expenditure changes are negative, they matter a great deal for unrest, driving up CHAOS by 0.19 incidents for each standard deviation of expenditure cuts. Next, we repeat the exercise for output changes. Increases in output do much to cut unrest (col. 3), with a one standard deviation increase in output (3.77%) reducing CHAOS by 0.2 incidents on average. In contrast, declines do not set off major disruptions to the same degree. Overall, the results in table 12 confirm that the relevant identifying variation for expenditure changes comes from cuts; for output changes, it comes from positive growth, not recessions.
This paper kind of makes you think about our current governance of Wall Street/Corp influence and apparent dominance of policy choices to the exclusion of polls showing people want no cuts in programs referred to as entitlements and instead have the budget balanced via tax revenue enhancement. Wonder what happens when virtual people known as corporations do not experience austerity yet have persuading influence over We the people’s choices via money into the election process.? I guess we are going to find out. As I have heard in the past: tort is the free market response to lax governance of the market. Is upheaval the same free market response to unresponsive policy toward the people?
My concern is that the initial response by those supporting and promoting austerity will be the furthering of the police state we have been developing since 9/11. Only it will also be fired up (pun intended) domestically. It is the response we have experienced in the past with the civil rights motion and even back to the labor movement. It appears that a police response is always the first response to protest as protest is interpreted as potentially criminal regardless of what the Constitution reads. Yet here we have a paper suggesting that all of it can be avoided. Combining this paper with the 2005 World Bank report on what creates wealth in a developed economy it appears to me that we have  in our hands the answer to what appropriate economic policy should look like for our current situation. 
I asked September 2008 if we could please broaden our discussion regarding the crisis. That has not happened. The discussion is still disjointed, segmented and narrow. Now I’m imploring that we broaden the discussion. Pleading!

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Who Cares About Nominal Rigidities?

Tyler Cowen doesn’t much.

I tend to agree with Cowen. Nominal rigidities were quite the thing just before I arrived, so I think they are over rated. However, there are two points one of which is totally twitty and the other of which is a dead horse still being beaten by Paul Krugman.

OK twitty: By definition for there to be unemployment there must be three agents, an employer, an employee and an unemployed person. The unemployed person must be eager to work as the employee does at the employee’s wage. The employer must consider the unemployed person qualified. This means that unemployment can certainly be eliminated if wages fall. At some point, either the employee decides to quit and just live off savings till social security kicks in or the unemployed person decides he or she doesn’t want the job. By definition, wage rigidity is needed to explain unemployment. This is true even if lower wages do not at all cause higher employment. If nothing else super low wages can convince people to leave the labor force eliminating unemployment that way. In this case wage flexibility doesn’t help the unemployed — it makes the alternative of working worse so they consider their horrible predicment the best they can hope for. I said it was twitty.

Second, things are unusual because we are in a liquidity trap. The reason nominal rigidities usually matter is that the real money supply could increase if the nominal money stock staid the same and wages and prices fell. From 1940 through 2008 this meant that wage and price flexibility should have prevented output from fallin. N ow, however, the money supply doesn’t matter since we are in a liquidity trap. In the IS-LM model (M/P) (money divided by the price level) appears. If P is free to adjust, then there can be no problem with insufficient aggregate demand. Therefore in all of the macro literature from 1940 through 2008, nominal rigidities were considered important. The idea here is wages go down so the firms cut prices (to maximize profits they would) so real balances (M/P) goes up so aggregate demand goes up so GDP goes up. There is no need for real wages to fall.

Right now this doesn’t matter as M/P doesn’t matter. But for decades and decades it mattered a lot, so nominal rigidities mattered. In practice, wages and prices are sticky so all reality based macroeconmists (“that’s not enough I need a majority” — Adlai Stevenson) agreed that nominal rigidities mattered. Now not so much. M/P doesn’t matter so P only matters because of debt deflation (lower P makes nominal mortgage debt an ever worse problem) so wage and price flexibility won’t save us so Keynesians don’t talk about it.

As always, don’t confuse “Keynesians” with Keynes. Keynes was not interested in nominal rigidities The General Theory through “The General Theory Restated” included nothing on nominal anything.

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Global slowdown underway – it’s more than the Japanese supply chain disruptions

by Rebecca Wilder

Global slowdown underway – it’s more than the Japanese supply chain disruptions

The global economic rebound is slowing markedly. With a tightening bias in emerging markets and a US recovery that continues to disappoint, external demand for any country that ‘needs it’ – those countries mired in fiscal austerity without monetary autonomy, i.e. euro area countries – is decelerating precipitously.

Exhibit 1: import demand for manufactured goods from 22.5% of the world (see chart at the end of this post) is slowing quickly, even contracting.

The chart illustrates the growth of import demand for manufactured goods from the US (12.8% of world import demand in 2011) and China (9.7% of world import demand in 2011) on a 3-month over 3-month annualized and seasonally adjusted basis. Spanning April through June 2011 compared to January through March 2011, US imports for manufactured goods slowed to a 4.9% annualized clip, while Chinese manufacturing imports contracted at a 22.9% annualized pace. US import demand growth peaked at 36.9% in March 2011 (again, on the same 3M/3M SAAR basis), while Chinese import demand growth peaked a bit earlier at 108.2% in January 2011.

One may argue that the sharp slowdown (US) and deceleration (China) of manufacturing imports is a product of supply chain disruptions stemming from the Japanese earthquake and ensuing tsunami. Let’s take a look.

Exhibit 2: Japanese distortions started to ease in April and May, leading global imports by roughly 1 month.

The chart above illustrates the dynamics of the Japanese industrial sector before and after the earthquake. Industrial production started to recover in April 2011 and hit a month/month peak of +6.2% growth in May. The sector has all but recovered, and should have been reflected in the US and Chinese import data as positive momentum by June- it hasn’t. In June, the seasonally adjusted import demand decelerated to a 0.6% pace in the US, while that in China contracted 4.3%.

In contrast, we saw the easing of supply chain disruptions in the US domestic industrial production stats. In the US (not shown, but you can get the IP data here), production of motor vehicles and parts fell 6.6% in April, which has improved sequentially through June (-2% M/M). This should be reflected in import demand (first chart), but the opposite’s occurred. In fact, import demand has worsened, while the supply chain disruptions improved. Better put: there’s weakness in global demand that is unrelated to Japanese supply chain disruptions.

Global growth is slowing – according to import demand of manufactured goods by the US and China, it’s slowing rather quickly. Where will this be felt? In Europe, of course. Germany derives near 50% of GDP from export demand, and imports roughly 45% of its goods and services from within the euro area (data here). The PIIGS countries – Portugal, Ireland, Italy, Greece, and Spain – necessitate strong external demand from the core countries (Germany and France) and from outside the euro area in order to successfully deleverage amid sharp fiscal retrenchment. Unless the German consumer really starts spending, the global industrial sector is unlikely to drive demand sufficiently enough in Europe.

Rebecca Wilder

Reference: dynamics of US and Chinese shares of world import demand


Crossposted at Newsneconomics

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Bachmann-Perry Overdrive, the Snag, and Other Notes

The real story of Michelle Bachmann’s “win” in the Iowa straw poll (not to be confused with the Iowa primary) isn’t that she got just over 4,800 votes—it’s that she paid for 6,000, proving at least 1,200 Iowa straw pollers are smarter than most of the reporters covering her “win.”

Late to the party mention: The Kauffman Institute’s Blogger Survey results are here (I hope).

The people who rant about 51% of Americans “paying no income taxes” are strangely silent about the fact that more than two-thirds of corporations don’t pay any—and they aren’t subject to Social Security or Medicare/Medicaid taxes either.

More Dr. Seuss is good, though “newly enhanced Seuss illustrations” sounds suspiciously like a step beyond even the later collaborations, such as The Butter Battle Book.

Robert (at least on his FB feed) is trying desperately to be nice to Matt Yglesias. I’m not, since Matt “I’ve never attended a public school so I know what’s wrong with them” Y. continues to fool himself about “the need for education reform” and refuses to pay attention to the research that shows most of those “reforms” his hedge-fund buddies are championing have been tried and failed. Jersey Jazzman does the heavy lifting here and (especially) here, while Bruce Baker notes the core of the Charterist argument.

Want a clear explanation for why people become writers or, if they don’t write well enough, bloggers? Jason Albert in, of course, Slate explains his own ego.

(The idea that maybe we need a third category of uncreative typist—Slate columnists—rises up when they try to make an economic argument without understanding sunk costs. But giving them any more pageviews would be a violation of the Douthat Rule.)

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