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

Identity theft

America’s fastest growing crime problem points us to some numbers:

When we talk about crime at the city level, we tend to focus on violent crime and property crime. These two categories don’t encompass the entire universe of illegal behavior, but they cover crimes that a) have victims, and b) local police can actually  investigate. Property and violent crime affect us where we live and work, and we expect local government to do something about them.

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Trans Pacific Partnership

Trans Pacific Partnership is Not Especially Important

Paul Krugman argues that the Trans Pacific Partnership is no big deal:

I’ve been getting a fair bit of correspondence wondering why I haven’t written about the negotiations for a Trans Pacific Partnership

The answer is that I’ve been having a hard time figuring out why this deal is especially important. …

The big talk about TPP isn’t that silly. But my starting point for things like this is that most conventional barriers to trade — tariffs, import quotas, and so on — are already quite low, so that it’s hard to get big effects out of lowering them still further. …

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Political centrism and journalism

Brendan Nyhan at Columbia Journalism Review reminds us to be careful about debating budget priorities:

How should the United States choose among the difficult tradeoffs it faces in setting the federal budget? There’s no one correct answer, but you wouldn’t know it from coverage of the budget deal between Senator Patty Murray and Rep. Paul Ryan, which passed the Senate last night and will soon be signed into law.

Under the norm of objectivity that dominates mainstream political journalism in the United States, reporters are supposed to avoid endorsing competing political viewpoints or proposals. In practice, however, journalists often treat centrist policy priorities—especially on fiscal policy—as value-neutral. That’s wrong. While it’s widely accepted that the federal government faces limits on what it can borrow in the financial markets, there is significant disagreement, including among experts, over the priority that should be given to reducing current deficit and debt levels relative to other possible policy objectives. It is, in other words, a political issue.

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In defense of Greenspan on Solow’s criticism

Robert Solow wrote an article about Greenspan, his successes and his mistakes, Alan Greenspan Is Still Trying to Justify His Bad Decisions; What the maestro doesn’t understand.

Even though I agree with what Solow said about Greenspan’s early years, I want to defend Greenspan during the years after the 2001 recession. There was something not even Solow understands to this day. I start with what Robert Solow said here…

“Hindsight leaves no doubt that it would have been a great idea to prick the housing bubble early. But imagine that Greenspan and the Fed had done so. Suppose they had tightened credit, pushed interest rates higher, put an end to the housing boom, and thus—very likely—created a standard recession like so many of the others. They would surely have been pilloried for destroying a nice prosperity in midstream and creating painful unemployment.”

The economy was not going to fall into a recession if interest rates had been raised back in 2003. That view is an error that many economists still have. The economy was no where near the natural level of GDP (effective demand limit) and still had plenty of traction to overcome higher interest rates.

Back up a bit, in 2001, I would say that the Fed rate was too high. The economy was falling into a contraction and the Fed rate was 3.5%. Then as the economy began to recover in 2002, the Fed rate returned to a balanced path back to their previous target. Then the Fed rate started to slide lower in 2003. Inflation had gone down to 1.4%. And even went to 1.3% in 2004. So the Fed lowered the interest rate in response to the inflation rate.

But another thing took place in 2003 that neither the Fed nor Robert Solow saw. The natural level of real GDP in terms of labor and capital utilization shifted in 2003. The Fed didn’t sense this until 2005. Then they reacted by raising the Fed rate fast towards a path of balance. The Fed must have been thinking that they had more spare capacity to work with to get the economy back to full employment of labor and capital. But there wasn’t as much spare capacity as they thought.

I do not blame Greenspan. I cannot even blame Robert Solow for not knowing this. They both do not have a working model for the effective demand limit.

This video explains in more depth the movement of the Fed rate during those years.

 

It is unfair to criticize Greenspan. The shift of the natural level of real GDP was not seen by anyone. In fact, the more recent shift after the crisis of 2008 is still not seen by anybody. Thus, even Solow continues to make the same mistake in judgement.

I can foresee a moment when the Fed realizes the natural level of real GDP is closer than they think and has to tighten policy quickly, like Greenspan did back in 2005. Will Robert Solow criticize Ben Bernanke in the future for holding the Fed rate down too low? If he doesn’t criticize now, he shouldn’t in the future. Like Solow said, “Hindsight leaves no doubt that it would have been a great idea to prick the housing bubble early.”

Solow is criticizing from hindsight. I understand what Greenspan was thinking and what he was reacting to. I do not blame him. The invisible shift of the natural level of real GDP took him and others by surprise.

The problem now is that the more recent shift will surprise even the likes of Solow.

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NSA Spying: Who Profits?

The latest revelations have the NSA and its British counterpart spying on Unicef, Médecins  du Monde, and Joaquín Almunia,

vice-president of the European commission with responsibility for competition policy. The Spaniard is in charge of major anti-monopoly investigations, and approving mergers of companies with significant presence in the EU.

Almunia has been involved in a long-running investigation into Google over complaints about the company’s alleged stranglehold on online advertising; he has also clashed with Google and Microsoft over privacy concerns, and was prominent in the EU’s response to the global financial crisis.

Hmmmmm. Who wants to keep tabs on the European commission responsible for competition policy?

Jeez! Golly Whiz! I dunno!

Google? Microsoft? best buds with the NSA and GCHQ?  No, no….these are honorable men, so are they all, all honorable men.   Wink, wink, nudge, nudge.

To these unbelievable suggestions, The NSA quietly replied,

“As we have previously said, we do not use our foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of – or give intelligence we collect to – US companies to enhance their international competitiveness or increase their bottom line.

Yet, why target the European commission responsible for competition policy?  Will the NSA please answer that question.  Maybe someone should ask Obama?  Does anyone dare?

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Bezos and the CIA

Via Alternet comes this reminder:

News media should illuminate conflicts of interest, not embody them. But the owner of the  Washington Post is now doing big business with the Central Intelligence Agency, while readers of the newspaper’s CIA coverage are left in the dark.

The Post’s new owner, Jeff Bezos, is the founder and CEO of Amazon — which recently landed a $600 million contract with the CIA. But the  Post’s articles about the CIA are not disclosing that the newspaper’s sole owner is the main owner of CIA business partner Amazon.

Even for a multi-billionaire like Bezos, a $600 million contract is a big deal. That’s more than twice as much as Bezos paid to buy the  Post four months ago.

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Accurate reporting

Lifted from an e-mail from reader Jack (http://angrybearblog.com/2013/12/20391.html#comments):
(attribution corrected…irony comes to mind)

Compare Fujita’s conclusion from the Fed paper, here  http://philadelphiafed.org/research-and-data/publications/research-rap/2013/on-the-causes-of-declines-in-the-labor-force-participation-rate.pdf#page=7, with da Costa’s description in the WSJ. da Costa, “Philly Fed economist Shigeru Fujita argues that the shrinking of the U.S. workforce over the past year and half was “entirely due to retirement” of baby boomers.” http://blogs.wsj.com/economics/2013/12/09/work-force-is-shrinking-because-of-retiring-boomers-philly-fed-paper-argues/

Apparently what Fujita concludes has gotten lost in da Costa’s translation, and both writings are in English. The WSJ staff don’t concern themselves with that. A word, phrase or sentence left out here and there can significantly change the originals author’s meaning and the details presented in the body of the original report are wholly misrepresented. That’s what slanted media can do to the public’s understanding of issues, especially when the data being presented is complex and a bit arcane in a layman’s vernacular.

Fujita’s conclusion:

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HOW MUCH INTEREST DOES SOCIAL SECURITY PAY?

By Dale Coberly

HOW MUCH INTEREST

DOES SOCIAL SECURITY PAY?

A reader asked what interest does Social Security pay on your “investment”?  I think it is important to realize that this is not the important question about Social Security.  Social Security is an insurance program and it doesn’t make any more sense to talk about the “interest” you earn on your “investment” than it would to ask what interest you earn on your car or home insurance. Or grocery budget.

However a person should know what he is paying for his insurance and whether the insurance is worth the premium.  In this sense it might be useful to make an estimate of Social Security’s “return on investment.”  But such an estimate can be dangerously misleading if you do not keep in mind that you are paying for insurance.

By using the 2013 and 2009 Trustees Reports, I have calculated some “returns” reasonably associated with the “premium”… the “payroll tax”… “invested.”  My results compare fairly closely with some standard estimates of SS “return on investment” in the “average” case, and diverge widely in the case of lower earners and what I regard as a more likely pattern of earnings.  Because SS is intended as insurance, the “earnings” of the “average worker” are not as germane to the task of Social Security as are the “earnings” of those who earn less than average.

By taking the “Average Wage Index” as an “average wage” over the 35 years that SS counts  wages (and therefore taxes paid) for purposes of computing your contribution and benefit…

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Minimum wage 20 years ago

Lifted from comments by Fred C. Dobbs at Economist View:

Supersize My Wage http://nyti.ms/1cOvtvS
NYT Magazine – December 17, 2013 – ANNIE LOWREY
About 20 years ago, in the midst of a recession, New Jersey decided to boost its minimum wage to $5.05 an hour from $4.25. Its neighbor to the west, Pennsylvania, chose not to tinker with its wage floor. Two bright young economists at Princeton, David Card and Alan B. Krueger, recognized in that dull occurrence a promising natural experiment (*).

The two found fast-food joints along the New Jersey-Pennsylvania border, and surveyed them twice over the course of 11 months about how many people they employed. They figured that when New Jersey’s minimum wage went up, Garden State burger joints would hire fewer workers. The ones on the Pennsylvania side, acting as a kind of control, would see no change.

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