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NYT: Obama Picks Michigan Professor for Fed Board

Obama Picks Michigan Professor for Fed Board

WASHINGTON — President Obama said on Monday that he would nominate Kathryn M. Dominguez, a professor of economics at the University of Michigan, to a seat on the Federal Reserve’s Board of Governors.

Well I got nothing. Except to note that Ann Arbor is not on ANY large body of water whether Freshwater OR Saltwater. So who is Prof. Dominguez? And what does this appointment indicate for Obama policy preferences going forward?

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The current “gangbusters” wealth effect on consumption

Pulled back from comments. (bolding mine)

July 20, 2015 7:01 am
These days , more people may own stocks , but the vast majority own trivial amounts. Look up Edward Wolffs stuff on wealth distribution and try to estimate how much stocks would have to go up to tease out any meaningful consumption out of the bottom 90% of the wealth distribution.

The dotcom bubble was unusual in that from the mid-90s to just after the crash decent income gains were achieved across the distribution , something that hadn’t been seen for a couple of decades. That may have contributed to any apparent consumption anomaly , as more-than-usual income flowed to high MPC households.

You can find people who can econometrically manufacture stock market wealth effects of 5-10 cents on the dollar , but they’re almost always those of a certain “persuasion” , politically speaking , i.e. mouthpieces for the 1%. Greenspan was a famous example.

Other asset prices certainly respond to a stock market bubble , like art and other collectibles , but that doesn’t do much for the economy either.

Shiller has never believed much in the stock market wealth effect , and I tend to think he’s on the right track. A couple pennies on the dollar in the US , maybe :

Housing wealth is more potent , I’m sure , but when you back out the collateral-enhanced borrowing increase , I doubt that it amounts to more than a penny or two attributable to wealth “animal spirits”.

Finally , ‘splain this :

If there’s any kind of generalized wealth effect , it should be going gangbusters right now , bigger even than the dotcom or subprime booms. That’s hard to square with this economy’s performance , which has limped along right through the wealth boom. Maybe some would argue that without the wealth boom we’d be entirely dead , but my feeling is we’ve designed the economy to generate wealth instead of gdp. In that sense , we’re doing great !

My reply

Indeed the ratio of personal consumption expenditures to personal disposable income is the highest its been since 1950 except for 2005 2006 and 2007 (the height of the housing bubble).


Note in the discussion that Brad DeLong, Dean Baker and I all agree that housing wealth has more effect on aggregate demand than stock market wealth. I argued as you do that the wealth of the rich has little effect on their consumption (which is I think limited by 24 hours in a day not a budget).

I have no idea why it is that people who assert there is a stock price effect on consumption tend to be right wing. They often argue that promoting saving is very important (hence capital income shouldn’t be taxed). In general they argue that consumption is too high not too low (and that it crowds out investment). Thus they should argue that causing low consumption is a good thing about low stock prices.

In fact, I think that usually (when the economy is not in a liquidity trap) lower consumption would be better. This is one of many reasons why I would like to effectively confiscate part of the value of stock by taxing dividends. It is exactly the wealth effect that makes the optimal tax on capital income (as correctly calculated using the standard model used by critics of capital income taxation) very high.

In any case, I don’t think one should decide what is true by group affinity for people who say one thing or another. Rather I think it is better to look at data (as I did following your absolutely correct albeit rhetorical gangbusters prediction).

GDP is way below trend because of low residential investment and low government consumption and investment. Consumption is high — much higher than one would guess with the most empirically successful model with no wealth effect (which is the paleo Keynesian consumption function).

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Right Wing Slant to Non-Partisan Progressive Think Tanks

With the Koch Brothers donating to Center for American Progress and funding studies on Incarceration, one might wonder what changes might occur at CAP due to the financial support of studies by the Koch Brothers. CAP is not the only one to begin to solicit or accept funding from major corporations or interests. Brookings has also been soliciting funding for its research.

Corporations made up 25% of Brookings’s donors giving at least $50,000 in 2013, up from 7 percent in 2003, the analysis found. The proportion of donors at that level coming from overseas, including foreign governments and trade associations, rose from 6 percent to 22 percent in that period. Separately, the analysis showed a substantial increase over that time in the percentage of gifts that came from corporate and foreign donors.” The increase comes as corporate interests look for other ways to influence Washington beyond traditional lobbying efforts.

A recent Brookings study released in June analyzed Federal Reserve Board data that tracks student debt and income levels in young households and concluded typical student borrowers were no worse off now than they were a decade ago and reports of a student debt crisis may be overblown. The study contradicted arguments from critics of the for-profit student-loan industry and Sen. Elizabeth Warren (D-Mass.), who has pushed for federal relief of a debt burden that she has said “crushes ­ millions of young people and has started to weigh down the entire economy.”

Federal Reserve Chair Janet L. Yellen later cited the same database reaching an entirely different conclusion. In an October speech, Yellen warned of the “dramatic increase” in debt for students and in particular for low-income families further warning of “the large and growing burden” of student debt on its owners and its impact on the future economy.

Matthew Chingos a researcher for Brookings called Senator Warren’s proposals of lower interest rates poorly thought out and not as progressive as they may seem. Going back to the same ‘fair market value” analysis Jason Delisle of the New America Foundation advocates, Matt suggests today’s interest rates do not reflect administrative costs and default rates. He conveniently ignores the inability to discharge student loans in bankruptcy and the collection of debt afterwards which exceeds that of dischargeable loans. Another Brookings Associate Beth Akers has claimed student loan interest rates on student loans do not really much of an impact on cost ignoring the overall student loan cost in comparison to short-term costs. Silly me, I should take a fifteen year a $100,000 8% mortgage as opposed to a 6% mortgage loan as my payments will not matter? Many student loans are 10 or more years in length, graduate and doctorate loans do exceed $100,000, and while undergrad loans may be less; the overall cost does matter in relation to the accumulation of wealth for young people.

Michael Simkovic, a visiting associate professor of law at the University of North Carolina at Chapel Hill and an expert on lending issues, said that if Brookings’s reports on student debt were to dictate policy, they would “boost the profits of the student lenders like Sallie Mae.” In other words, the Brookings study favors a positive business policy over that of advancing a student prospects and whose growth in wealth and income will spur greater economic growth over the long term. With this outlook, Brookings gives the appearance of shifting to the right in politics.

The closeness of this new approach with corporate funding gives the appearance of ties between Brookings and the student loan lending industry. While Brooking denies being influenced, there appears to be similar ones between Chingos, Akers, and Delisle with business promoting their interests also. Created in 2000, Lumina Foundation came into being when USA the largest administrator of student loans sold its assets to Sallie Mae. Since 2009, Lumina has donated $1.9 million to Brookings. The donation figure was tabulated by the Foundation Center, a research group that tracks philanthropic giving. Matt Chingos states Lumina did not underwrite his June study; but, at the same time, Lumina has directed $hundreds of thousands in both his and Akers direction since 2011.

Three former Sallie Mae board members sit as directors of Lumina. Lumina states unequivocally in this David Dayen article it has no ties to the student loan industry and it is an “independent and nonpartisan organization.” Interestingly, Lumina has shown up on other articles on student loans as well as the one cited to refute any impact it may have. To my point though, corporate interests are having more impact on once nonpartisan studies just by the nature of their donations as more think tanks are looking for funding and corporate interests are looking for other ways to impact Washington. Going forward, nonpartisan think tanks such Brookings lend their past credentials to the results of today’s studies which are indirectly and directly funded by corporate interests.

In the end, the directors at Brookings, Lumina, and the study’s authors have taken an arm’s length stance on the impact of the donations to Brookings and the results of the studies. So one could conclude, nothing has changed over the last decade or so with Brookings and we have nothing to worry about as corporations support independent study at nonpartisan think tanks?

Senator Elizabeth Warren declined to comment on the Brookings reports, but she called for greater transparency so the public can assess the “independence, or lack of independence, of the research from think tanks.” Maybe Senator Warren has a point? This is first time I have seen a Brookings study use terminology such as “cheap political gimmick” and “embarrassingly bad proposal” and potentially may be the beginning of political sway in the study and no longer presenting “just the facts mam.” If anything Warren’s proposal of reducing student loans to what the Fed uses for a discount rate is a proposal too late and should have come years earlier as we would have been graduating a cohort of students who would have benefited from much lower rates. Who is embarrassingly naive now?

This causes me to come back to my original point; “With the Koch Brothers donating to Center for American Progress and funding studies on Incarceration, one might wonder what changes might occur at CAP due to the Koch’s financial support of future studies.” Having watched what is occurring at Brookings, one might expect a different direction taken by CAP.

The New Republic takes issue with the direction of the Koch Brothers and the Center for American Progress study on incarceration;

“The consensus may be bipartisan, but it’s not ideologically balanced. The language advocates use to describe the problems at hand and the nature of their proposed policy solutions demonstrate that this moment is far more concerned with mass than incarceration. Despite reports of meeting in the middle, we’re witnessing a liberal acquiescence: Nearly everything is phrased in conservative terms — cutting costs, saving funds, and minimizing the size of the system.”

There is more to the issue of prisons than just head count and hidden within the parole, local, state, and federal justice/prison systems. Sentencing guidelines, parole board rules (which grant the boards court-like powers), the public defender system (vastly underfunded and under manned), the 1996 AEDPA (which disallows federal courts from ruling on state decisions in criminal cases), etc. are some of the issues needing to be addressed. Rather than concern over these issues and the impact upon people going to trial, conservatives or “being right on crime” are now concerned about the impact on taxpayers. More on this in another post.

In an earlier post, I had written about Alan Collinge going to Washington DC to protest CAP’s apparent change of direction with student loans.

CAP’s “How Qualified Student Loans Could Protect Borrowers and Taxpayers” proposes returning bankruptcy protections to student loans. Examining the plan reveals this program would “allow student loan borrowers to refinance their loans at current rates (about 4.5 percent for undergraduate loans, 6.4 percent for graduate loans). While this could mean a significant interest reduction for private loan holders, it would likely translate into only a couple of percent reduction for federal loans, which comprise the lion’s share of all outstanding loans. There is also a .5 percent fee that would be slapped onto the principle of the new, refinanced loan, making the plan even less attractive. This plan, furthermore, would not be available to the most distressed borrowers, those in default whose loans have exploded with penalties and fees.

There are some hidden consequences as well. For private loan holders, the federalization of their loans – and let’s be honest, this really is a federalization plan rather than a refinancing plan- will cause them to lose vital consumer protections like statutes of limitations and Fair Debt Collection Practices rules (Don’t believe the rhetoric about federal loans having more consumer protections than private loans – this is completely false). This could be a huge negative for these borrowers.”

Instead what is seen are alternatives to bankruptcy such as gainful employment, income based payment, service loan forgiveness, payment on time, interest reductions, etc. in most plans are teasers with only a low percentage of applicants being accepted and successful. CAP and other advocates push for these repayment programs which in the end result in the majority of people who try for the benefit being kicked out before anything is forgiven. CAP has recruited a former director of the Department of Education lending program David Bergeron who does not appear to have brought anything new to the discussion other than repayment programs which may cause more damage in the end. The issue still remains of bankruptcy protection in the form given to big business and TBTF by Congress and in the end walked away from $billions in responsibility over the decades. Guess students do not get a benefit of the doubt.

Nonperforming loans would be included in this plan also as a bailout and makes the government a private industry bill collector for loans which more than likely should not have been made. The impact of this plan would help a few borrowers and in the end may hurt them as they lose protection under the statutes of limitations.

The same as Brookings, the Center for American Progress in alliance with conservative groups is voicing a message more to the right in politics than progressive.

1. “Elizabeth Warren faces right-wing stooge: Here’s who’s quietly funding her top critic” David Dayen, “Salon”
2. “At fast-growing Brookings, donors may have an impact on research agenda” Tom Hamburger and Alexander Becker, “The Washington Post”
3. “Obama’s Student-Debt Fix Isn’t Much Better than the GOP’s” Nora Caplan-Bricker, “New Republic”
4. “You Can’t Reform the Criminal Justice System by Cutting Costs” Stephen Lurie, “New Republic”
5. Student loan refinancing Alan Collinge, “The Hill”

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DeLong and Baker discuss two bubbles and two recessions

Here is an interesting (as always) cyber discussion between Brad DeLong and Dean Baker.

DeLong asserted (as he often does) that the great recession was so severe because of finance and “clogged credit channels”

Baker argued (as he often does) that the decline in house prices alone was sufficient to explain the downturn.

In particular he argues
1) that the housing bubble was larger than Brad calculates because Brad used 2002 as his base year and the bubble was already well inflated by then.
2) that the decline in construction plus the decline in consumption due to reduced housing wealth explains the decline in aggregate demand (without any need to discuss finance, underwater mortgages, or clogged credit channels).
and finally that
3) The 2001 recession which followed the bursting of the bubble was also severe if one considers employment not GDP.

For what it’s worth, I agree with Baker’s first point (and would go even further). I don’t have a firm view on the second point, but I think I agree with Baker. I don’t agree with Baker’s third claim.

DeLong responded

I would (and do) say: yes, you have a problem. You need to rebalance, but competent policymakers can balance the economy up, near full employment, rather than balancing the economy down. And from late 2005 to the end of 2007 the balancing-up process was put in motion and, in fact, 3/4 accomplished.

There is no reason why moving three million workers from pounding nails in Nevada and support occupations to making exports, building infrastructure, and serving as home-health aides and barefoot doctors needs to be associated with a lost decade and, apparently, permanently reduced employment.

I think Dean Baker agrees with Brad Delong that competent (Keynesian) policymakers could have handled the large problems.

I comment in more detail on the discussion after the jump.

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It is Ok to Attack a Democrat’s Military Service . . .

It is just not ok to attack a Republican’s Military Service

This Sunday, Jack Tapper on CNN “called Republicans who were outraged over attacks on Sen. John McCain’s war record to the table to explain themselves on past attacks on Democrats. Jack reminded the Republicans of their Swift Boat smear of then 2004 Democratic presidential candidate John Kerry’s military service. At the Republican National Convention, many Republicans were band aids with Purple Hearts on them to mock Kerry’s wounds during the Viet Nam war.

C&L reader Prometheus59650 added the names of Tammy Duckworth and Max Cleland, to the list of Democrat aligned veterans who suffered attacks on their military record or patriotism by Republicans.

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It’s Trumpertainment! ; E!-Bear ; Fun Times at Circus Got-GOP!

Well Huffington Post has decided to relegate direct coverage of Trump’s daily activities to its Entertainment page even as they will still cover polling etc on their Politics page. So I thought I would kind of hitch a ride on that. But as amusing as all this is to a certain type of smug DFH know-it all type (like me!!!) it is increasingly not really funny at all.

(edit) I was going to take this a different direction but given the Trump/McCain brouhaha I think I will just open the fun for everyone to jump in.

Trump or GOOP 2016 Open Thread

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Krugman forgets his own past?

Today Paul Krugman wrote… Link

“Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.”

Here is what Paul Krugman wrote in 1998 to undermine the living wage movement… Link

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal.”

It appears that Paul Krugman is one of the economists who he says used to think that wages are pretty much determined by honest supply and demand. Does he realize that he used to think that way?



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Don’t buy eggs at Costco. Buy them at Walmart instead. Seriously.

LOS ANGELES (AP) — Brad Pitt and Bill Maher say Costco contributes to animal cruelty by selling eggs from caged hens.

Pitt sent a letter to the chief executive of the big-box chain Thursday asking the company to stop selling eggs produced this way. Pitt’s letter to Craig Jelinek says caged birds suffer atrophy of their muscles and bones from years of immobility, adding that the cages have been banned in California and much of Europe.

“As you know, these birds producing eggs for your shelves are crammed five or more into cages that are not large enough for even one hen to spread her wings,” Pitt writes.

Maher took aim at the company in an editorial published last week by The New York Times.

“Multiple investigations into battery cages document animals with deteriorated spinal cords, some who have become paralyzed and then mummified in their cages,” Maher wrote. “Imagine cramming five cats or dogs into tiny cages, hundreds of thousands in each shed, for their entire lives. That would warrant cruelty charges, of course. But when the egg industry does it to hens, it’s considered business as usual.”

Both commended Costco for its other animal-welfare efforts and called on the company to make good on its 2007 promise to move toward uncaging its egg-laying hens.

— Brad Pitt, Bill Maher slam Costco, speak up for caged hens, Associated Press, today

A few years ago I became a mostly-vegetarian because agribusiness’s treatment of animals was bothering me enough for me to make the change.  I eat fish, cage-free eggs and free-range chicken, but no other meat or poultry. I’ve become very conscious of which stores sell cage-free eggs and free-range chicken, and the relative prices for these.  Trader Joe’s has by far the least expensive cage-free eggs.  Their free-range chicken—they sell two brands—is relatively reasonable, too.  Which is to say, it’s more expensive than non-free-range, of course, but not exorbitant.

A few weeks ago, I stopped in at a Walmart that has a full grocery store within it and as I was passing the eggs saw …  these.  Wikipedia explains:

The Happy Egg Company is one of the UK’s largest free-range egg brands. Originally setup in January 2009 by Noble Foods, the brand’s annual turn over for 2013 was close to £75 million. The brand philosophy is to put the welfare of their hens first and the company claim to operate above established free-range egg production standards. The company’s farms have 20% tree coverage and assorted environmental enhancements.

The brand launched in the US in October 2012. In January 2015, the American Humane Association announced that the company is the first egg producer to receive humane certification.

Okay, they’re expensive—about $.40 more per dozen than a cage-free brand that Walmart sells, which in turn are well more expensive than the eggs from caged hens.  But everyone has his or her priorities.  I love eggs but would no longer eat them if I couldn’t get them from cage-free hens.  And free-range, of course, is better.  And apparently there are a lot of Brits who think the extra cost is worth it, too.  The company is only six years old and doing quite well.

Here in this country an epidemic of bird flu in several western states has caused a significant rise in the price of eggs recently.  And most of the eggs Walmart sells are, of course, other brands, most of them not cage-free.  But let’s hear it for Walmart for offering this brand.  And may The Happy Egg Company find this country a friendly market.

As for Costco, people who care about this issue and who shop regularly at Costco should buy their eggs elsewhere.


UPDATE: Actor Ryan Gosling beat the other celebs to the punch.  In an open letter to Costco’s CEO last month in the wake of an undercover investigation by the Humane Society of the United States, Gosling wrote:

…. Video footage revealed abhorrent cruelty including rows upon rows of birds confined in filth-laden cages with the mummified corpses of their cage-mates—eating, sleeping, defecating, and laying eggs on top of dead birds—and hens’ wings, legs, and necks trapped in the corroded wires of their battery cages.

Furthermore, it is appalling that Costco has been selling these eggs with deceptive labeling on cartons featuring graphics of birds living out in a green pasture. You’re already eliminating cages for veal calves and pigs – don’t you feel that chickens also deserve the same mercy?

So many corporations are meeting public demand for more humane products and transparency in the food chain.

I sincerely hope that Costco will set plans now to go completely cage-free for its eggs.


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Sports, John Oliver’s inspiration to say NO!

This is just so perfect.  Yet again, our comedians have to do what journalist are supposed to do.  And, he does it with facts!  Considering here in RIland some rich dude (who just died) paid $20 million for the Pawtucket Red Sox (the Boston’s farm team) and has proposed moving it to Providence on the water front…for $120 million over 30 years in tax free land along with other stuff, Mr. Oliver could not have been more timely.

Unfortunately, the sense I’m getting is that the people are giving a rather large NO!  But, of course our legislators are giving the “Let’s hear them out” line.   One idiot, happens to be representing my home town actually used the phrase “loss leader” as the reason why we should spend the public money this way.   Had the nerve to ask a person if they knew what it means?  F’n idiot!  Our senate leader: Afterward, in a one-on-one interview with NBC 10 News, Sen. M. Teresa Paiva Weed said hopes of keeping the team at McCoy Stadium may be a lost cause.

Watching John Oliver here, he could be talking about our Paw Sox situation.  It is exactly what is being played on the people of RI.  It’s a tried and true game plan used against the people.

Make sure you check out 3 points in the video.  The first is 8:35 onward.  It’s so funny.  The next is 11:00 where he talks about the economic findings and one economist suggested better plan.  The last is the end at 15:37 where he gives the inspirational halftime speech.

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