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

Sergio Mattarella elected President of Italy

Tbe Italian parliament has elected Sergio Mattarella president of the republic. For US readers, the Italian President is like the constitutional monarch of the parliamentary republic. Actual controversial decisions are made by the prime minister (now Matteo Renzi). The president has great power in theory on the understanding that it is used only of the Constitution is threatened (of course the Italian being as functional as the US congress Presidential decrees are often needed to give parliament more time to get the job done) . The president is not supposed to be controversial or to say anything controversial.

The extremely old and finally insisting on retiring ex president Giorgio Napolitano was so uncontroversial that he was bland — the epitome of the moderate centrist establishment figure. He spent most of his adult life as an extremely boring moderate centrist communist (only in Italia). He was contested by the anti establishment raging angry movimento 5 stelle which opposes the status quo and supports — well they’ll get around to that some decade.

Mattarella is an ex Christian Democrat. However, he is controversial. The reason is that way back when the crooked Socialist party was giving Berlusconi half of the duopoly of television, Mattarella resigned in protest. His election is a painful defeat for Berlusconi. The headline in the centrist establishment Corriere della Sera is “Mattarella, l’ex Dc che si scontrò
con Berlusconi sulla legge Mammì” that is “Mattarella the ex Christian Democrat who clashed with Berlusconi over the Mammi act” (the law which gave Berlusconi his TV empire).

Berlusconi haters (including the oversigned) are gloating over how Renzi outmanouvered Berlusconi.

The President actual matters in Italy some times. His (never yet her) key decision is to ask someone to try to find a majority in parliament which will him (never yet her) prime minister. Since it is not always clear which party will betray which and whether there is a majority, this decision isn’t mechanical as it is in say the UK.

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An Honest Guess about G and GDP in 2014q4

Disappointingly, the BEA flash estimate is that US GDP grew at an annualized rate of only 2.6% from the third to the fourth quarter of 2014 after having grown at a 5 % annualized rate from the second to the third. This is well within the ordinary range of changes of growth rates without a clear or interesting cause.

I couldn’t help wondering if the reduction in GDP growth corresponded to a reduction in total US G (government purchases AKA government consumption plus investment). I have noted that the rapid growth in the 2nd and third quarters of 2014 occured at the same time that long declining US G turned up.

In fact, the decline of US real government purchases declined in the fourth quarter.


This is a guess about one data point, but it is very unusual for my guesses to be correct. I thought it was (barely) worth menitoning that a Keynesian guess about US 2014q4 G was correct.

udate: Again for the little it’s worth, the change in the change of real GDP (real GDP 2014q4 – 2 real GDP 2014q3 + real GDP 2014q2) is about twice the change in the change of real G (real G 2014q4 – 2 real G 2014q3 + real G 2014q2) giving a 2 datapoint regression estimate of the Government expenditure multiplier of about 2 which is very close to the estimate using data from the trough 2009q2 through 2014q2 (1.7) so the last data point fits the simple Keynesian model almost better than could be expected.

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Another image of labor’s broken back: $48,887 in profit per employee!

This article via Yahoo news caught my attention: Five years into recovery, Dow Companies squeeze workers as investors thrive

I think this picture spells it out rather well.


Profit per employee

“As the chart shows, the 30 huge companies that comprise the Dow Jones Industrial Average have barely nudged their employee ranks higher…”

But this is even more astounding:

Over the past five years, total profits of the current Dow 30 members surged by more than 42% through the end of 2014, to nearly $320 billion. This has driven the average annual profit per employee up by more than 34% since 2009, to $48,887.

According to this CNN article from August, the median household income is $53,891.    That means these 30 companies are pocketing 90% of what an household earns.  That’s out the door, cash in the pocket 90% of what a household works all year to earn.  Now, I’m not sure, but I think that household income is pretax and I doubt they get to hid that $53,891 in some account out of reach of the tax man.  In fact, I’ll bet that household needs every bit of that money just to get through the year.

Well, the 30 are not hiding all of it:

Dividends paid by the Dow 30 are up better than 30% the past five years, according to FactSet.

Read the article.  The author does his best to explain this situation, but it’s seem more like excuses.  A grasping at straws to dismiss what we know has been an intentional drive to get to this point.  My interpretation of it is that these companies are now able to “grow” the pot of money without actually having to increase their sales.  True money from money… but, they are scared that this magic will leave them and then what?




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Inequalities, National and Global

by Joseph Joyce

Inequalities, National and Global

The publication of Thomas Piketty’s Capital in the Twenty-First Century brought attention to an issue that has been slowly seeping into public discourse. President Obama’s State of the Union address made it clear that we will not need to wait until the 2016 Presidential campaign to hear proposals to rectify the rise in inequality. But the data and trends of global inequality reveal a more complex situation than the national states of affairs that Piketty highlights.

Inequality is often measured by the Gini coefficient. This number is based on the Lorenz curve, which shows the proportion of the total income of a population that is cumulatively earned by different segments of the population, beginning at the bottom. The Gini coefficient (or index) is the ratio of the area under an actual Lorenz curve distribution of a society and the area of the distribution of perfect inequality. It is a number between zero and one (or 100), where zero corresponds to a case of perfect equality, and one is a situation of total inequality. A Gini coefficient above 0.50 is considered to be “high.”

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US technology giant Apple has reported the biggest quarterly profit ever made by a public company.

Apple reported a net profit of $18bn (£11.8bn) in its fiscal first quarter, which tops the $15.9bn made by ExxonMobil in the second quarter of 2012, according to Standard and Poor’s

Wowww in one quarter Apple made 3/14ths of Fannie Mae’s $83 billion 2013 profits. Hey wait 3/14th is less than a quarter.

The record is the highest profit ever reported for a publicly traded corporation while Fannie Mae is closely held 80% by the US Federal government. It is a publicly owned corporation not a public corporation.

It is also generally agreed that publicly owned Fannie Mae is unnacceptable and must be privatized or, better, eliminated entirely. The public sector is just too inefficient although it makes the highest profits ever recorded, while competing with the private sector (oh and saving the US economy).

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What is Noah thinking? Part 2

Noah Smith has replied to my recent post criticizing his use of median household income to measure middle class living standards. He raises some interesting questions, but some of them still leave me scratching my head.

Smith writes:

I don’t understand the idea that “households have had to” compensate for lower weekly wages (also the choice of weekly over hourly wages continues to mystify me, since long workweeks suck, but OK).

Of course, no one literally had to compensate for the fact that their wages were falling, but people do prefer to maintain (if not improve!) their current level of consumption. So, if wages are falling, and you want to maintain your standard of living, you have to adjust something.

Let’s make no mistake, real wages were falling (see Table B-15), and even today remain below their all-time peak. The Bureau of Labor Statistics (BLS) likes to use the period 1982-84 as its base period for inflation calculations, so the numbers that follow are in 1982-84 dollars to adjust for inflation. Smith likes to talk about 1980-2000, working from one business cycle peak to another, but he ignores the previous business cycle peak, 1973, which is a very interesting and important one since that is the year of peak real hourly wages (equal to 1972) and real weekly wages were just 37 cents less than 1972. It seems to me that it’s more interesting to ask if middle class workers are as well off as they were at their peak than to ask if they are as well off in 1979 or 1980.

What happened to real wages? In inflation-adjusted dollars, the hourly wage peak of 1972-73 was $9.26 per hour; in 1980 it was $8.26 per hour, in 2000 it was $8.30 per hour, and in 2013 it had increased to $8.78 per hour.

But it’s actually worse than that. Unlike professors, whose working time is pretty much their own as long as they teach well enough and publish enough to get tenure, most people cannot choose how much they work: Their employer decides that for them. Your paycheck is hourly wage times hours worked, and hours worked by production and non-supervisory workers has fallen from 36.9 in 1972 and 1973 to a low of 33.1 in 2009 and in 2013 was 33.7 hours per week. That is why we can’t look at just the hourly wage, but need to use the weekly wage (hours per year would be an even better metric, but BLS does not publish the data that way). By the way, this category of workers is no small slice: It makes up about 62% of the entire non-farm workforce and 80% of the non-government workforce.

Because both hourly real wages and hours per week fell, real weekly earnings fell even more: From $341.73 (again, 1982-84 dollars) in 1972 to $290.80 in 1980, $284.78 in 2000, and $295.51 in 2013. If you’re keeping track at home, that’s a fall of 15% from 1972 to 1980, a 16.67% fall from 1972 to 2000, and still 13.5% below the 1972 peak in 2013.

But wait! After directly quoting and discussing what I said about real weekly wages, Smith suddenly, with no documentation, rejects that premise: “So, median real wages in America stayed roughly flat in America in 1980-2000, and people worked more – actually, what happened is that many women stopped being housewives and began working.” Nothing I said in my post was about median real wages, but weekly real wages of production and non-supervisory workers. And he knows this is my view, because he clicked through, and even linked to, my much longer post, “The best data on middle class decline.” He suddenly introduces a different measure entirely, and gives no argument for why it’s better.

That’s not to say there’s no argument one could make for that measure. In fact, Dean Baker in an email a few years back pointed out to me that the real weekly wage measure I have used does not include McDonald’s supervisors, who certainly are not well paid by any stretch of the imagination. But likewise, it does not include everyone from CEO on down. To clarify the difference, my preferred measure is the average (mean) of what’s close to the bottom 62% of workers, while the median is of course the median of everyone. Which better captures the situation of the middle class?

I submit that my measure is better. Smith is right that real median wages have stayed fairly flat from 1980 to 2000, and in fact they have also varied little from 2000 to 2013. But that does not seem consistent with increasing cries of economic distress, as people have lost jobs, homes, and, too often, their pensions. I have always thought that declining real wages were fairly invisible at first: People might have made less than the previous generation, but for any given individual, that effect was offset by their increasing experience over time, leading to a slightly higher  real income for that person. It was only when large numbers of people began to lose jobs, and could not find anything that paid as much as their old job, that the issue of middle class decline rose more to public consciousness.

Having shifted measures in midstream, Smith’s final comments are rather less compelling. He has via  this shift precluded the answer that women entered the workforce in large numbers from 1980 to 2000 to help maintain consumption, a position buttressed by the finding of Elizabeth Warren and co-researchers that private debt has increased sharply. I would also point out that women entered the workforce more rapidly in the 1973-79 period (when incomes were falling the most consistently) than in 1980-2000, as a close inspection of this FRED chart will show. Finally, going back to Warren’s work, she argues that the rapid rise of home prices swallowed up the nominal income increase due to women entering the workforce, and that the average house grew in size by less than half a room in over 20 years, even while new single-family houses were growing by the much larger percentages Smith gave in his initial article.

Hence, Smith’s claim that I’m saying increased women’s labor force participation “represents a deterioration in the living standards of the average American” is mistaken, based on his using a different measure of middle class income than I do. I have tried to indicate why I think my measure is better, which would make women’s labor force participation indeed at least in part a response to the falling incomes his measure doesn’t show.

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CBO Budget and Economic Outlook: 2015 to 2025

CBO Budget and Economic Outlook: 2015 to 2025

Document link for Robert’s post. Lots of numbers here, including a new
Jan 2015 Baseline for Social Security
Just started poking at the numbers but it seems that CBO has revised projected revenue for SocSec down going forward. Not by a lot but perhaps enough to make Brother Krasting happy. But in the interest of ‘Numbers for All!!!’ and before I dive back in here are the links for Bears to start their own foraging.

Update: Well I found the smoking gun that drives those revenue forecasts. It is on page 114 in App A.

A change in CBO’s forecast of economic growth lowered
revenue projections for the 2017–2024 period. CBO has
slightly reduced its projection for the pace of economic
growth over the 2016–2019 period: Real (inflationadjusted)
GDP is now projected to be about 1.1 percent
lower, on average, over the 2017–2024 period than CBO
anticipated in August, and nominal GDP—the main
source of taxable income—is projected to be lower by
1.2 percent over the same period. (The projection for
inflation as measured by the price indexes for GDP is
little changed.)
Consequently, CBO also has lowered its projections for
wages and salaries—the most highly taxed type of income
specified in the economic forecast—by an average of
1.2 percent over the 2017–2024 period. That change
in the forecast has led CBO to make a downward adjustment—of
slightly more than $300 billion (or 1.1 percent)—in
its projections of revenue from individual
income and payroll taxes for that period.

I will leave it to smarter Bears to see if these drops in GDP and wages make sense.

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CBO says Obamacare Will Cost 20% Less Than Initial Projections

The CBO lowered its forecast of the cost of the Affordable Care Act by 20%

h.t. Richard Mayhew and @StevenTDennis

Here is the CBO report (pdf warning)

I clip and past a dramatic graph


They also estimate that it has caused 12 million more people to have insurance. This is the net increase subtracting cancelled non ACA compliant pseudo insurance. I wonder if the official 12 million estimate will convince people to stop saying that the increase is around 10 million (I doubt it). My back of the envelope calculation was 13-14 million.

Notably ACA critics claimed that the old CBO estimate, which implied that Obamacare would reduce the deficit, was bogus. Well it was incorrect (making predictions is difficult especially about the future) but because it underestimated the reduction of the deficit due to Obamacare.

The CBO cost estimate of costs through is also 7% lower than their estimate made April 2014. That is, the latest estimate of the costs 2015-2024 is reduced by $101 billion (which isn’t pocket change even for the US Federal Government). Also and in addition, the new CBO estimate of the number of people who will gain insurance in 2024 due to the ACA is one million higher than the estimate made long ago in April 2014, so one million more people insured for 101 billion fewer dollars. Not bad at all.

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