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

Okay, so Clinton wouldn’t want Iowa Gov. Terry Branstad administering her healthcare insurance. Instead she wants Anthem Blue Cross to continue to do that.

Hmmm.  I wonder which one of her consultants wrote that one for her, and I wonder how many times she practiced saying it.

I mean, y’know, just sayin’.

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UPDATE: Reader Urban Legend asked me in the comments to this thread to provide a link to what I’m referring to.  Here’s what I’m referring to:

“I have looked at the legislation that Sen. Sanders has proposed, and basically he does eliminate the Affordable Care Act … puts it all together in a big program, which he then hands over to the states to administer. And I have to tell you, I would not want, if I lived in Iowa,Terry Branstad administering my health care.”

Sanders defended his proposal, saying it would expand Medicaid to all people and eliminate situations in some states where the program hasn’t been expanded properly because of a state’s “right-wing political ideology” that is “denying millions of people the expansion of Medicaid that we passed in the Affordable Care Act.”

Clinton: I wouldn’t want Branstad running my health care, Jason Clayworth, Des Moines Register, Nov. 15

I also misspelled Branstad’s name in the title of this post, and have now corrected it.

Added 11/19 at 10:23 a.m. 

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Gas All Boomers" Or At Least Tax And Cut Their Benefits More Says WaPo

by Barkley Rosser   

“Gas All Boomers” Or At Least Tax And Cut Their Benefits More Says WaPo

No, nobody in today’s Washington Post Outlook section devoted to the boomers said that first line, although it has become a commonplace on such sites as Economics Job Market Rumors where anonymous and frustrated millennials very frequently and fervently spout that opening line to the point that it lost whatever ironic humor it had some time ago.  But then irony is a Gen-X thing, not a millennial or boomer thing.

However, taxing them more and cutting their benefits is certainly called for by new economics reporter (and Gen Xer) James Tankersley, in an astoundingly bad article full of so much nonsense one does not know where to start.  He claims that because of their huge numbers, none of this will happen, even though the latest budget deal has in fact cut benefits for them (really for everybody not already receiving them, but with front end boomers the most likely to have been counting on those now cut benefits in the near term, see my post on this here).

While I shall deal with Tankersley’s numerous misrepresentations, let me note more of the anti-boomer venom filling this special issue (Is this WaPo trying to market to millennials?).  So, Heather Havrilesky has the following:

“For the remainder of the decade, we can expect a brand-new wave of melodramatic retrospectives, each designed to remind us of a magical time when boomer heads were packed full of  idealistic notions and covered in lustrous free-flowing hair.  But just as what goes up must come down, what frolics in the mud of Woodstock must eventually sulk in the flourescent chill of the cardiology office. Somehow as boomers age, their commitment to dragging that dusty 60s archival reel out of the basement yet again seems to grow exponentially”

[I shall accept that some of this complaining is not without merit.  Her eventual take is that people now should take things as seriously now without looking back to the 60s either for inspiration or comparison, especially invidious comparison, and that starting in the 70s and on the more conservative majority of the boomers took over the show.  But mostly she is whining and snarking.]

Not quite as hostile is the much older Landon Y. Jones, one of the early coiners of the term “baby boomers.” who declares:

“The designation has to do with coming of age at the right time. They enjoyed sex, drugs, and rock-and-roll, took all the good jobs and are now retiring and becoming a burden on society,” which is the gist of Tankersley’s whine, although Jones is mostly interested in the origin of the term and how it has been used indifferent countries rather than blasting on and on in this vein, which is in fact him reporting on the views of the late Dutch critic of the boomers, Pim Fortuyn.

Before going to Tankersley, I will note one other writer a bit more sympathetic to the boomers, Shirley Abrahms, who dispels five myths about them.  Supposedly, in spite of Tankersley et al, they are not as wealthy as widely thought (although some are), they are not clearly much healthier than their parents (and the recent Case-Deaton report on middle aged white males dying sooner since 2000 fits in with this, although she did not mention that), that boomers are reasonably charitable rather than just being “selfish,” that they are not as technologically incompetent as many think, although certainly Xers and millennials are more  competent than they are (not to mention the rising post-millennials now beginning to make their first appearances), and finally that their sex lives are not total disasters, although aside from all the viagra and cialis ads, I was under the impression that they were mostly being criticized for having been too much into sex, etc., although perhaps that wicked past had supposedly led to a pathetic present.  For all her wisdom, Abrahms undercuts her own credibility by somehow thinking that 18 year olds were voting for LBJ in 1964, which was most definitely not the case (why is it that WaPo has gotten so bad that even its supposed fact checkers goof up?).

So, on to Tankersley, regarding whom I really wonder if either he or his anti-entitlement bosses are aware just how totally off this debut article is.  I am not going to quote and will not answer everything, but will try to focus on some of the biggest bloopers.  I shall also note that near the end of his article that a lot of the problems he identifies are really a matter of the large numbers of boomers and not any clearly intentional actions.  But this does not absolve them from deserving to “pay more” somehow for all the damage they have supposedly caused.  A main thrust of my response will be, if indeed they were causing all these problems, were not the earlier Silents and Greatest at least as guilty, if not in some cases worse?
OK, I shall quote one paragraph, which summarizes most of his complaints:

“Boomers soaked up a lot of economic opportunities without bothering to preserve much for the generations to come.  They burned a lot of cheap fossil fuels, filled the atmosphere with beat-trapping gases and will probably never pay the costs of averting catastrophic climate change or helping their grandchildren adapt to a warmer world.  The took control of Washington at the turn of the millennium, and they used it to rack up a lot of federal debt, even before the Great Recession hit.”

YIkes!

For starters let us note that the stagnation of real wages began in the 1970s, about the time when most boomers entered the labor market.  So both the Greatest and the Silents did much better than the boomers on that one, with the period of rapidly rising real wages being 1945-73.  Yes, the early Greatest suffered in the Great Depression and fighting in WW II, but those amazingly quiet Silents really raked it in.  Look at somebody born in 1930.  only barely experiencing the GD as a child and not having to fight in WW II, if experiencing the privations of rationing, again as a young person, but then entering the job market in the late 40s and having the full experience of that postwar boom, well into middle age when the wage growth slowed, and in their 50s when fica taxes rose sharply as part of the Greenspan Commission’s 1983 deal designed to “make sure the baby boomers pay for  their own retirement,” which mostly they have despite the misrepresentations of Tankersley.  There were no payments for  COLA recipients prior to 1971, but any Greatest or Silent retiring not too long after it was put in then paid zippo into Social Security but got many times what they paid in benefits, far more than the boomers will get (who so far have not whined about this latest benefit cut, which Tankersley ignores, needless to say).

Tankersley’s spin is that even though wages have not risen, a point he ignores, boomers got promoted to higher salaries as they aged.  While indeed growth has reverted to its 1975-95 average, there is no reason that Xers and millennials will not be able to have such promotions either. After all, the boomers are now indeed beginning to retire in serious numbers, opening up all those upper tier jobs for their juniors to earn more.  The idea that SS and Medicare will not be there is of course the biggest phone screed that WaPo hands out, when in fact the projections have the millennials receiving more in benefits than current recipients, even if the system “goes bankrupt,” not that Tankersley is anywhere near even being conscious of this I think.  And, of course most of those projected increases in costs are tied to medical care cost increases, which hopefully will be kept more in line in the future.

Then we have all this stuff about burning fossil fuels and ruining the environment.  Last time I checked, the golden era of gas hog polluting cars was the 50s and 60s, with environmental laws arriving in the early 70s and with higher oil prices leading to much greater gas efficiency of cars. This backslid in the later 80s and 90s when oil prices fell and we got the SUV boom.  But offhand the Greatest and the Silents look at least as guilty, and frankly more so, on this matter of polluting the atmosphere than do the boomers, whose main sin would indeed to be their large numbers, not their excessively polluting ways compared to other generations.
Then we get this weird claim that the millennials “took control of Washington at the turn of the millennium,” thus making “the boomers” responsible somehow for the clearly irresponsible policies of George W. Bush, even though he lost the popular vote in 2000.  But Bill Clinton is a boomer, and he was in charge in the 90s, when the national debt actually fell. Do not the boomers get some credit for him?  Or do we only get the blame for his sexual improprieties?  The more striking increase in non-war debt came with Reagan, he of the Greatest Generation, with a full quarter of boomers not even old enough to vote when he came in.  Surely he was more a creature of the Greatests and the Silents, with their failure to obey rational expectations and Ricardian Equivalence by lowering their savings rates when they got his tax cuts (with income tax cuts indeed offsetting those fica increases aimed at the boomers).
He goes on and non about a lot more, but I think I am going to stop here other than to note that he opens by complaining about people talking about raising the retirement age for future retirees not somehow noting that indeed the 1983 agreement put in place such increases for the boomers, increases which are already happening and will continue to do so. Really, this article is a disgrace.

Barkley Rosser

originally published at Econospeak

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#PorteOuverte Paris attack PSA.

There have been four terrorist attacks in Paris tonight. At least 35 people were killed and about 100 taken hostage.

In the horror, there is one promising development which might be useful to any angrybear readers in Paris

#PorteOuverte

Parisians have been advised to stay home until the situation is under control. It being Friday night, many people in Paris are out on the town far from home (or hotel) and often in places such as bars and discoteques which are not pleasing to possible Jihandist terrorists. Someone had the admirable, brilliant and generous idea to offer shelter to such people suggesting they indicate need for shelter or willingness to provide shelter by tweeting the tag #PorteOuverte.

The idea has gone viral. I found out about it from a retweet by eminent LSE econometrician @dannyquah who, I assume, is in London. I also saw the tag in a tweet I couldn’t read (because it was in German) and tried to write one explaining it in Italian.

There are also warnings that shelter seekers and providers should only communicate their locations using privately using DM as there might be terrorists on twitter.

In Time Ashley Ross reports on the phenomenon.

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Low Inflation Pressures at Zero Output Gap due to rising Inequality

Menzie Chinn wrote about various ways to estimate potential GDP. It becomes perplexing when an estimation shows that the output gap could be zero. Why? Because there are such weak inflation pressures…

“That seems implausible to me, but then, so too does a nearly zero gap, given the lagging inflation rate.” – Menzie Chinn

The gap can be closed with weak inflation pressures.

Just hold down labor power, spread underemployment among more people, reduce labor share by 5%, mute investment and increase inequality. You weaken consumer power for more people.
Now the real problem in understanding low inflation at a zero gap is thinking there is still much more spare capacity with so much underemployment. That is not good thinking. Underemployment does not necessarily imply spare capacity. It could also imply economically marginalized people working in underemployed jobs, which holds down wage inflation.

The economy has a balance for the number of labor hours needed for the concentrations of consumer wealth in an economy. The higher concentrations of wealth that we see now imply fewer labor hours in balance. We have seen labor hours peak at the same level for two decades now. The result is that many people will be cut out (marginalized) from the economy because they are not needed in the balance.

So what appears as spare capacity is really unneeded capacity that will never be utilized.

How many people have been cut out of the economy by rising inequality? We will eventually know as the Fed rate seeks normalization.

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Dow’s Attractor Level over the past year

Since December of 2014, I have been tweeting that the Dow will orbit around an attractor level around 17,300…

Here is what the Dow has done since then until just a moment ago…

1 year dow

The red line shows the attractor level that I have been seeing. Why did I see this? The economy hit the effective demand limit in the 3rd quarter of 2014. I knew the market could not go much above that level due to a profit limit. I sensed that the economy would slide along the effective demand limit. I sensed that the economy would at least hold onto that level. And I knew that monetary policy would stay accommodative. I knew there would be a correction at some point, but that the market would rise back to the attractor.

When the Dow was around 16,700 on September 17th, I tweeted…

A month later…

With the Fed signalling a rate rise in December. I am now re-assessing the attractor level. The important factor is how consistent the Fed will be over time lifting the Fed rate.

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The Continuing Dominance of the Dollar: A Review of Cohen’s “Currency Power”

by Joseph Joyce

The Continuing Dominance of the Dollar: A Review of Cohen’s “Currency Power”

Every year I choose a book that deals with an important aspect of globalization, and award it the Globalization Book of the Year, also known as the “Globie.” Unfortunately, there is no cash prize to go along with it, so recognition is the sole award. Previous winners can be found hereand here.

The winner of this year’s award is Currency Power: Understanding Monetary Rivalry by Benjamin J. Cohen of the University of California: Santa Barbara. The book deals with an issue that is widely-discussed but poorly-understood: the status of the dollar as what Cohen calls the “top currency.” The book’s appearance is quite timely, in view of the many warnings that China’s currency, the renminbi (RMB), is about to replace the dollar (see, for example, here).

Cohen proposes a pyramid taxonomy of currencies. On the top is the “top currency,” and in the modern era only the pound and dollar have achieved that status. The next level is occupied by “patrician currencies,” which are used for cross-border purposes but have not been universally adopted. This category includes the euro and yen, and most likely in the near future the RMB. Further down the pyramid are “elite currencies” with some international role such as the British pound and the Swiss franc, and then “plebeian currencies” that are used only for domestic purposes in their issuing countries. Below these are “permeated currencies” which face competition in their own country of issuance from foreign monies that are seen as more stable, “quasi-currencies” that have a legal status in their own country but little actual usage, and finally at the base of the pyramid are “pseudo-currencies” that exist in name only.

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Do Voters Who Want ‘Change’ Really Care More About the Age of the Candidate Than About the Age of the Candidate’s Ideas? REALLY?

The Marco Rubio debate moment that worries Democrats: When Marco Rubio cast the election as a ‘generational choice,’ he took a page out of the Obama playbook to portray himself as the candidate of future. It could work.

— Title and subtitle of an article in today’s Christian Science Monitor, by Linda Feldman (via Yahoo Politics)

Yup.  Voters are downright clamoring for a return to 1920s economic and social policies—which, point by point by point, actually is what he wants to do.

All those young voters who so enthusiastically supported Obama in 2008 are chomping at the bit, and the ones who have turned 18 since then are so gullible that they think a 44-year-old Ronald Reagan/George W. Bush on steroids is the real candidate of change because, well, y’know, he’s 44.*

So what the Democrats should do, I think, is nominate a 43-year-old Communist Workers Party candidate if one were to run.

I mean … whatever.

Maybe some major polling organization will test out this theory that the age of the candidate rather than the age of the candidate’s ideas is what matters to voters, by including a question about it in its next survey.  The margin of error would be 30 years—the difference in the ages of Marco Rubio and Bernie Sanders.

Seriously, of all the asinine canards that political consultants and political journalists sell, this surely rates among the most transparently ridiculous. Although maybe it didn’t really matter after all that Obama ran in 2008 not merely as the youngest candidate but (except for John Edwards) the most progressive.  Or maybe people thought John McCain was the progressive.

Yeah.  That’s it.  People thought John McCain was the progressive.

And they think Elizabeth Warren’s and Bernie Sanders’ ideas are old hat.

—-

*Sentence typo-corrected 11/11 at 6:15 p.m.

—-

ADDENDUM: Don’t miss this terrific piece by Adele Stan on the American Prospect website.  (H/T Paul Waldman.)

Although she doesn’t mention Rubio’s age, so maybe it’s not such a terrific piece.  Doesn’t she know that Rubio is 44 years old?

Added 11/11 at 7:03 p.m.

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Forecasting the 2016 election economy: in which I respond to Nate Silver

-by New Deal democrat

Forecasting the 2016 election economy: in which I respond to Nate Silver
As you all know, I have been writing a series about “Forecasting the 2016 election economy.” In general, good economic conditions at election time usually mean the return of the incumbent party to the White House, while a recession is almost always fatal.

My goal in this experiment is to be able to make a reasonable forecast of those conditions, hopefully no later than the publication of December and 4th quarter data in January.

Based on 160 years of NBER data, and 50 years of data on the “long leading indicators,”a week agoI made a preliminary forecast that Q3 2016 GDP will be positive, a boon to the Democratic nominee.

Several days later, in what reads like a direct reply, Nate Silver poured cold water over the entire enterprise, writing that “We know almost nothing about the election day economy.”

While I have the utmost respect for Nate’s statistical skills, I believe in this case his argument is misdirected.  In particular, I believe he has failed to distinguish between the fabled unreliability of the general economic punditry and the more rigorous and objectively verifiable record of indexes of leading indicators.

The gist of Nate’s argument, as I read it, is that while the state of the economy is very important to election outcomes (I agree), non-economic events can have important political consequences (I agree with that as well.  If the economy were the sole determinant of presidential outcomes, Humphrey in 1968 and Gore in 2000 would have won in landslides).  Beyond that, he says, economic forecasting has almost no value one year out, the forecast of an economic pundit having a margin of error of +/-4.6%!  Specifically with regard to 2007, while (he says, I disagree as spelled out below) there were a few warning signs, the punditry and even the Fed was remarkably complacent, seeing only a 1/3 chance of a recession in 2008!  Nate also cites his book, The Signal and the Noise, which devotes a 23 page chapter to issues with economic forecasting, mainly developing in great detail the horrible record of pundits in general.

But, dear reader, notice that in his article this week, and in the links in that article, Nate nowhere discusses the record of indexes of leading indicators in general, or long leading indicators in particular.

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The Futility of low interest rates to save the already Marginalized

One who makes comments on Angry Bear, William Ryan, said…

“Besides I thought we have been in a slump since 2008 haven’t we?( I guess it depends on what sector of the economy we are talking about)”

What sector has been in a slump? Middle and low incomes. Wages have been barely rising. Under-employment is rampant with high levels of part-time workers and long-term unemployment.

How low interest rates are a Futile Attempt to save the Already Marginalized from High Inequality

Labor share has really been dropping since 2003. Inequality is rising. Corporations are making record profits while labor becomes marginalized. What does it mean to be marginalized?

If you go to any Latin American country, you will see large sectors of the populations marginalized. They just do not participate in the economy to any great extent. I have lived in Mexico, Guatemala and Chile and  passed through other countries.

Why are large sectors marginalized? … It is simple, Inequality. Money gets concentrated at the top and flows very slowly among the bottom of society. The rivers are full at the top, but the rivers run dry and slow at the bottom. It is a liquidity thing. It is the reason that Reagan and others were so wrong about “Trickle-down economics”. When you create an economy for the top incomes, hoping that it will trickle-down to the rest, you are in the realm of being evil. It is one of the greatest lies.

I never liked Reagan, even before 1980. I was not happy when he became president. I knew things would not turn out well over time. He started the political process to create inequality.

Ok, enough on Reagan… back to low interest rates trying to cover-up the evils of inequality.

When you look at a society, you will see sectors of labor marginalized, cut off from the economy. You may see millions upon millions in the country-side of China, or millions in India. You may see millions becoming marginalized in the United States.

In Chile, the marginalized are called, “Marginados o marginalizados”. It is a common term. Marginalized communities are extremely easy to spot and describe. They really have no place or hope to become part of the real economy and improve their condition. If the central bank of Chile wanted to incorporate these Marginados into the real economy, they would have to drop their interest rate down to zero for a long time and push businesses into less profitable ventures that could employ these people.

If you leave the marginalized labor outside the economy, you only have to set interest rates for a smaller tighter economy. Interest rates will go up because there will be less slack capacity of labor and capital. But the moment that you look to the marginalized sectors and say, “We have to get them into the economy”, then you all of sudden see unused capacity and start to drop interest rates in order to expand production and drive down societal unemployment rates.

You may want to bring the marginalized workers in because it is the right thing to do, or because you see large reserves of cheap labor to take advantage of. Either way, you bring down interest rates to motivate business to employ more people who are more likely to be unskilled and unproductive.

China has kept interest rates low as part of their financial repression policies. But those policies are slowly being reversed. The key though is if inequality can come down in China. That is a lot to ask, especially for China where people ferociously protect their wealth.

But by lowering interest rates, you bring in workers that are not part of the “real” economy which has been downsized from inequality. These extra workers will take more part-time jobs and lower pay. These jobs are less productive. As the marginalized sectors get incorporated, inflation is weakened due to lower pay and overextended business development, which in the long-run can only be profitable if there is a strong consumer base. So eventually inequality has to be reversed.

Context and the Future

Business development has been the fever for a few decades. Large amounts of marginalized labor, land and capital had to be developed. Interest rates have been falling steadily for decades. Business has overextended in China and as we see now in Europe too where banks have growing amounts of non-performing loans. The context of low interest rates started out as a plan to help businesses develop marginalized sectors worldwide. Now low interest rates are trying to salvage the businesses with non-performing loans.

What is the future? There will have to be a general pullback from low interest rates. Keeping the interest rates low will create deeper and deeper levels of non-performing loans that will have to be dealt with in the future.

Realize this… High inequality has already marginalized many workers. These workers are being employed but they have no hope of improving their condition. These employed workers are destined to be what they really are… marginalized.

It is delusional to think that we are helping them with low interest rates. It is like a patient that has no hope of living, and as doctors, we are telling them that they will live a normal life. It is a lie that will create massive bitterness in the future.

The rich feed upon low interest rates and get stronger. Inequality is not reversed with low interest rates.

Inequality created marginalized workers and trying to make up for this fact with low interest rates is futile. As long as we have higher levels of inequality, we will have to accept higher levels of marginalized workers. Interest rates will go lower and lower trying to deny this reality.

But one day, interest rates will have to rise in order to optimize the economy at a smaller level that is functional with high levels of inequality.

We will set interest rates for a socially optimal level of workers that can work for the rich. Interest rates will have to abandon those who are marginalized. Interest rates will have to rise. In that moment, the reality and evil promise of inequality will be manifested. Large sectors of society will become as they were intended under higher levels of inequality… marginalized and infected with humiliation.

The United States and Europe will become as Latin American countries. You will have smaller neighborhoods of very rich. You will have larger neighborhoods of poor marginalized people. There can be no other outcome from high inequality. And low interest rates can try to hide or postpone this fact, but eventually the reality manifests, and most likely the hard way.

The only solution is to significantly raise labor’s share of income around the world. Inequality has to come down. The result will be that the rivers of liquidity at the bottom of society will start to flow better. Marginalized workers will stop being exploited and start being a real and viable part of the economy. They will create their own grassroots business development. Inflation will be supported throughout society.  There will then be good reasons to raise interest rates to normalized levels, because the marginalized workers are no longer marginalized. A place has been prepared for them at the table.

Summary

High inequality creates large sectors of marginalized people. Interest rates come down in an eventually futile attempt to keep them in the economy. But they are already destined to be marginalized. So interest rates go lower and lower to hide this reality.

The only way to return to normal interest rate levels is to reverse inequality.

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