The “Plunging Economy.”
Marcus asks the Question; What to make of these trends? Do they justify the “recession mania” that is taking shape?
The Fed believes otherwise about the possibility of recession and clings to the only thing not plunging.
Marcus asks the Question; What to make of these trends? Do they justify the “recession mania” that is taking shape?
The Fed believes otherwise about the possibility of recession and clings to the only thing not plunging.
And they say only Sarah can toss word salad? Au contraire mes freres! Et Souers! Et comarades!
Six months ago only morons believed the ‘morans’ would put this country in a position where there was even a tiny crack for a ‘democratic socialist’ or even a full out ‘social democrat’ to squeeze through a window of acceptable discourse into the White House. Maybe YOU “Felt the Bern!” but if you had a glimmer of political awareness at all you put that alongside your Dean 2004 “Sleepless Summer Tour” (and I was wearing mine just yesterday) and sighed “Well not this year, unless the Contradictions Heighten Themselves”.
Then this happened. Trump at 41%. Challenged FROM THE RIGHT! With Cruz at 20% or so. You don’t know what to say. It is like Jeremy Corbyn woke up some morning and found that the Conservatives had been taken over by the Official Monster Raving Loony Party being challenged by UKIP
Surely the 1% would not let this happen. Or their paymasters the 0.1%. Even a libtard like me had to put aside the warm glow and mild comfort of the Bernie Bern. Because THAT wasn’t going to happen! You could ask Joke Line or any other Village
Idiot Pundit in good standing, the R Establishment would not and could not allow the choice to be between Trump and Cruz. After all memories of the Other Barry in 1964 hadn’t died.
Unless they did. I would still bet big money on Hillary pulling out both the nomination and the election. But it is no longer crazy to think a head on head contest between Trump and Sanders. And what might be the totally unpredictable results of that. All I can say is that if you had a bet on this with British bookie Ladbrokes then God Bless.
And if like most of the world are asking “What the bleedin’ hell was THAT about!?” Treat this as an Open Thread for all things political and not.
by Marco Fioramanti and Robert Waldmann
This is the final post on European Commission decomposition of unemployment into cyclical unemployment and the NAWRU (non accelerating wage inflation rate of unemployment). This calculation is important because cyclical unemployment is used to calculate the output gap and cyclically corrected budget deficits, which are used to calculated allowed spending under the stability and growth pact.
In an earlier post we have noted that the assumption that cyclical unemployment affects the acceleration of inflation rather than the level is problematic. It has become controversial (again) with many macroeconomists convinced that inflation expectations have become anchored so cyclical unemployment is related to the level not the acceleration of inflation (pdf warning).
It seems to us that the effort to extract a time series of cyclical unemployment which is correlated with the acceleration of wage inflation has lead to at least two very strange modelling choices.
First, as noted here, the EC assumes that the NAWRU is a twice integrated random walk, that is that the drift of the NAWRU is itself a random walk. This means that the NAWRU sometimes trends up and sometimes trends down. The long term implications of this assumption are nonsensical, and, in fact, the EC doesn’t take it seriously. In fact, EC long term forecasts are based on the assumption that the NAWRU is mean reverting.
Second, the EC imposes arbitrary limits on the parameters of their time series model. In particular, and crucially, they impose an upper limit on the variance of disturbances to cyclical unemployment (another pdf warning). This limit has two important effects.
First, it reduces the variance of cyclical unemployment. Second it increases the correlation between the estimated time series of cyclical unemployment and the acceleration of wage inflation. The second point is a bit technical for a blog, but it can be explained (we hope).
The series of cyclical unemployment is estimated in order to fit two observed series: total unemployment (equal to cyclical unemployment + the NAWRU) and the acceleration of wage inflation. Importantly, there are no free parameters in the identity: unemployment = cyclical unemployment + NAWRU. In contrast there are free parameters in the wage acceleration equation — the slope parameters of the Phillips curve. This means that if, for example, cyclical unemployment is divided by 10, the estimated NAWRU must change and so must disturbances in the NAWRU time series. In contrast, there is no necessary reduction of the fit of the wage acceleration equation — the Phillips curve slope parameters can be multiplied by 10 giving the exact same forecasts for wage acceleration.
Extreme restrictions on the variance of cyclical unemployment would make cyclical unemployment a negligeable component of total unemployment, while it could still be just as associated with wage acceleration as before. This means that as the allowed variance of cyclical unemployment goes to zero the estimated values of cyclical unemployment will go to those most correlated with wage acceleration.
Importantly this argument has nothing to do with any assumption about the true behavior of wages. Even if the time series of the acceleration of wage inflation were replaced with random numbers, it would be possible to force the computer to chose a time series of cyclical unemployment which is significantly correlated with those random numbers by imposing a low enough variance of the disturbances to cyclical unemployment.
It seems at least possible that the low variance of estimates of cyclical unemployment (and the resulting cyclical rigidity of required austerity) are the by product of an effort to force the data to fit an accelerationist Phillips curve.
Clinton put her presidential experience in stark terms by telling detail-laden stories about her political life, including one about dealing with a terrorist threat around President Barack Obama’s first inauguration from the White House’s Situation Room.
“I was able to bring my years of experience to the forefront,” Clinton said about having to decide whether to go on with the inauguration despite the threat against Barack Obama, who she described as the nation’s “newly elected young dynamic president.” “This is one of the biggest parts of the decision as you head toward February 1 that I want you to keep in mind. We’re living in a complicated world, to say the least. We know we have a terrorist threat — and I’ve laid out a detailed set of recommendations of what to do.”
The anecdote, which gripped town hall attendees here, squares with Clinton’s closing argument: I am ready for the presidency on Day 1 and you and your family don’t have time to wait for someone to learn on the job.
— One Iowa city, two messages for Clinton and Sanders, Dan Merica and Jeff Zeleny, CNN, yesterday
The years of experience she brought to the forefront in early January 2009 were eight years as a United States senator. She was not yet secretary of state, unless she was playing that role secretly in Bush’s State Department.
And, yes, the reporters’ phrasing above (“… Clinton said about having to decide whether to go on with the inauguration despite the threat against Barack Obama”) is an accurate description of her claim. In a more detailed account I read elsewhere but couldn’t find just now to quote from, she did indeed claim that she was the one who made the call on whether the inauguration should proceed. Which strikes me as probably not accurate.
I guess the implication is supposed to be that Sanders, who on Inauguration Day 2017 will have been a senator for 10 years and, before that a member of the House for 14 years, would make a different call in such a situation, because he lacks sufficient experience to weigh the complex pro and cons properly. Only someone who has had no particular experience in foreign affairs other than as a run-of-the-mill senator for eight years but nonetheless was about to become secretary of state could have called that one right.
What worries me more than anything else about a Clinton general election campaign is her propensity to say obviously silly things. Elsewhere in that speech, in Clinton, IA on Friday, she again repeated her (and her daughter’s) complaint—without any hint of recognition of irony—that Sanders’ single-payer healthcare insurance plan would kill Obamacare. As if it weren’t the very purpose of a single-payer healthcare insurance system to eliminate private healthcare insurance for the benefits that the single-payer plan provides. As if the purpose of Obamacare was to create some living monument to Obama, rather than to provide healthcare insurance to people who had no access to it, and provide decent insurance to people who had policies that provided almost no coverage.
In a post here last week, I said about her contest with Bernie Sanders:
Live by the sleight-of-hand, die by the sleight-of-hand. Or at least because of the sleight-of-hand: you’re own. At least if your opponent is now, finally, getting real media attention and has a zillion followers. Who use social media!
But if it is Clinton, not Sanders, who wins the nomination, is there some way to get her to speak in normal, sensical sentences and paragraphs? Like her husband did on her behalf a few days ago in New Hampshire?
I think whichever one wins the Dem nomination will win the general election. But will she make it an easier procession by ditching the incoherencies? Or is that type of thing just inherent to her, something she lacks the ability to stop because she doesn’t realize that it is counterproductive and could be fatal to her candidacy?
ADDENDUM: I posted the following comment in the Comments thread in response to a comment by Run75441 about Hillary and Chelsea Clinton’s (mis)representations about the single-payer healthcare insurance bill that Sanders proposed in 2013, and about the proposal he released two weekends ago:
The single-payer plan that Sanders released a few hours before the debate two weekends ago is administered entirely by the federal government, just as current Medicare is, run. I read that last night.
Sanders’ earlier proposal, from 2013, was structured like the marketplaces part of the ACA are, including the provision that if states refused to administer it, either at the outset or down the road, the federal government would do so.
The purpose of the state involvement was to give states some slight latitude in coverage and administration of it, in order to try to fend off the usual attacks about states having no say, no leeway. That, of course, was the reason that the ACA was structured the way it was.
But of course since 2013, it became clear that Republican-controlled states would not cooperate at all, in any respect, so the federal government would have to run a whole lot of it anyway.
But what Hillary and Chelsea Clinton did was to outright lie that the 2013 Sanders proposal was similar to the ACA’s Medicaid provision rather than the ACA’s marketplaces provision, and that the states could opt out or hamstring or cripple healthcare insurance.
This was especially strange since it is Clinton, not Sanders, who sings the praises of the ACA and says she wants to keep it and improve upon it. The ACA has separate marketplaces for each state, and therefore separate policies available in each state.
The Clintons’ misrepresentation of what part of the ACA Sanders’ plan resembled was classic Hillary Clinton: a bald misrepresentation about Sanders’ policy proposals and stated goals, via glaring misdirection and sleight of hand.
Added 1/25 at 11:27 a.m.
A comment on
Olivier Blanchard, Eugenio Cerutti, and Lawrence Summers: Inflation and Activity–Two Explorations and their Monetary Policy Implications:
update: Anne in comments said it was impossible to understand what, if anything, I concluded. My conclusion
is was that Blanchard, Cerutti and Summers have found striking evidence of hysteresis. They reject the null hypothesis that GDP is a stationary AR(2) around a quadratic trend. It is true that I came up with the null (they don’t do formal hypothesis testing) based on what I guessed they had in mind. In any case, I personally am reassured that they are on to something.
Major update: I have been playing with the program. I find that the proportion of simulated recessions followed by lower output (as defined by BCS) is very sensitive to assumptions about trends and persistence of shocks. I no longer draw any particular conclusion from my effort.
While I really like the non-parametric approach of ” we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower
output or even lower growth. ” I worry that this might happen even without hysteresis.BCS do not consider the distribution of their statistic under the no hysteresis null. This isn’t hard to do — just simulate data with a trend stationary process and do the calculations.
This also isn’t very useful. Without details, it is possible to make a large fraction of recessions be followed by lower output as defined by BCS by playing with assumptions about the trend stationary process. I am deleting my first effort to do this (there was a bug in the program) and just reporting that (as usual) if one makes arbitrary assumptions, one can get arbitrary results.
I don’t think this worries BCS, because they know
that GDP is very far from a trend stationary AR(1) with coefficient 0.5. how common the pattern is given standard models with standard parameters.
I did a more serious effort to check the distribution of their statistic under their null. I model log GDP as an AR(2) around a quadratic trend. Coefficients estimated with US data
AR coeffs rho1 = 1.328043 ; rho2 = -0.3781878; trend tr=.0105446 per quarter ;
-0.000009077 per (quarter -1947) squared. SE of disturbance to get roughly the right number of recessions.
update 3: new simulations here too
update 6: newer simulations.
27,700 pseudo recessions of which 15,172 = 54.8 % are followed by low output. For the reasonable null hypothesis with parameters based on data, the fraction with low output as defined by BCS is
about very roughly what they would hope (to be cautious they round down their estimated trends by one standard deviation).
the Gauss file which I used for the simulations [was] after the jump (yes I still use Gauss)
update 4: jmg points out that the Gauss code was messed up. It seems that wordpress assumed it was html code and rendered it. I won’t try to post the Gauss code.
Noah Smith posted an article about Zombie companies in Japan. He recognizes that creative destruction must take place. Zombies must die. So bail outs of inefficient businesses must stop.
“Japan’s cycle of bailouts must end.” Noah Smith, January 20, 2016
I agree and have written in the past about the Zombie companies weighing down advanced economies. They hold down wages, productivity and growth.
“These zombie companies are less productive, less marginally profitable, thus less able to raise wages at a time when wages need to be raised. Zombie companies justify lower wages for all companies. Keeping these zombie companies alive is a weight dragging down the demand side of most advanced countries.” Edward Lambert, August 5, 2013
“As the upward trend in profit rates reverses, zombie companies will be brought into the light. These zombie companies fed off of the business expansion, as profit rates were rising after the crisis. They generate a profit which is less than the market average for profit rates. When profit rates revert back to the mean, these zombie companies start losing money. As they struggle, they drag down other companies.
“Monetary policy is protecting these less profitable companies from being replaced by more efficient operations. When the eventual recession hits, it will be deeper as more zombie companies will be cleaned out… unless monetary policy and fiscal policy comes to their rescue.” Edward Lambert, August 6, 2013
“So there must be pressure within the banking system to keep the central bank rates low for a “considerable” time in order for society and banks to avoid suffering the hardships of killing zombies off. Yet we will eventually have to kill them off in order to improve productivity and real wages. Sooner but for sure later the world will have to take its medicine by central banks tightening their rates…” Edward Lambert, September 19, 2014
Will the Fed loosen monetary policy back up with another QE? Will they try to save the zombies again and again as Japan has done?
It is great to see Noah Smith bringing this issue up, because the downturn we are seeing is related to vulnerable zombie companies out there in the economy. If the Fed and other policy makers would just let the market open up for entrepreneurs to creatively destroy the zombies, eventually the world economy would move forward with vigor.
But, as Noah points out, when Sharp has 50,000 employees on the line, and small start-ups much less, jobs must be saved. But the cost is lower wages which eventually drag down the demand side of the economy. General Motors in the US was bailed out and their wages dropped.
So I give a big cheer for Noah’s article… YEAH!
Sarah Kliff has a very helpful account of Vermont’s attempt to create a state-level single-payer health care system, and why it failed. It’s a bit like the old joke about the farmer, asked for directions, who says “Well, I wouldn’t start from here.”
The point is not that single-payer is a bad idea. It is that given where the U.S. is now, achieving the kind of low costs we see in other countries would involve imposing large losses on many stakeholders, including people with generous policies, health care providers, and more — which is the point I’ve been making. The gains would almost surely be bigger than the losses, but that’s not going to make the very hard politics go away.
— Paul Krugman, Lessons From Vermont, today
I don’t have time right now to read Kliff’s piece, so I don’t know whether she, like Krugman, says that Sanders’ single-payer plan precludes the purchase by employers for their employees, or by individuals, of separate, private-insurer, supplemental policies?
Medicare-for-all means Medicare for all. Or something close enough to it to allow separate, private-insurer, supplemental policies. Just like real Medicare does!
ADDENDUM: By Noni Mausa in the Comments thread:
Canada here. I had a good professional job for 20 years, which included a generous supplemental health policy. Having been retired for 15 years (!) that means that for at least 35 years public and private coverage have rolled along smoothly side by side here.
Still haven’t read the Kliff piece. But, for the life of me, I don’t understand the basis of this claim that Sanders’ single-payer proposal precludes the availability of supplemental healthcare policies. Or precludes employers from providing them as benefits. Or whatever these folks are saying.
It sounds like a classic canard, to me.
What if our 2016 election ends up being between a socialist and a borderline fascist — ideas that died in 1989 and 1945 respectively?
— Thomas Friedman, What If?, New York Times, today
What if Thomas Friedman had decided not to claim in the Opinion Pages of The New York Times that Bernie Sanders is a Communist?
Which, since what died in 1989 was not Democratic Socialism—the government systems of the Scandinavian countries, Holland and Germany, for example, did not collapse in 1989 and remain intact today—is what he said.*
That’s not a rhetorical question, New York Times editors.
Neither is this one: What if major news and opinion outlets like the venerable New York Times had meaningful standards limiting the latitude of its opinion writers to baldly misrepresent clear fact? In other words, what if his editors had refused to let him make that representation of fact?
*Sentence typo-corrected. 1/20 at 7:36 p.m.
The Clinton campaign is set to air this new, minute-long ad in Iowa and New Hampshire that has the feel of a closing argument: [picture from ad of a very solemn-faced Secretary of State Clinton standing next to Obama at the funeral of a fallen soldier or marine, and a link to the ad.]
— Greg Sargent, The Washington Post, this morning
Sargent goes on to say:
The ad makes the case that Clinton is the only Democratic candidate who has the fight, gravitas, and multi-faceted experience to handle both international crises and domestic economic challenges. The new spot has echoes of the infamous 3 A.M. ad that Clinton ran against Barack Obama in 2008, which argued that when your children are sleeping and a crisis is unfolding, the person you want in the White House is someone as experienced as Clinton.
But Clinton’s new ad is both less of an attack and also goes a bit farther. It is both an argument for Clinton’s fitness as commander in chief and an electability argument, in the sense that it suggests that only a candidate with this fleshed out a profile can win in November.
Good heavens. This is someone whose husband was elected president in 1992 with government experience only as governor of Arkansas, against a sitting president who also attended military funerals, in his capacity as Commander in Chief, and who was a former CIA chief.
This attack is really dumb.
Clinton continues to run a really awful campaign, in my opinion—a campaign in which she’s spent the last few months adopting Republican talking points and making bald misrepresentations about Sanders’ policy positions, past and present, via strange sleights of hand or outright misstatement.
After taking a five-week hiatus from posting here at AB, I’ve posted a series of posts on the campaign in the last week, the most recent one titled “The little problem with Clinton’s message that Krugman doesn’t mention in his critique of Clinton and Sanders today: Her incessant claim that only taxes bears negatively against “incomes”. The post was hastily written (I had only a few minutes to throw it together yesterday), and I’ve now edited it and added an addendum, which says:
Here in sum is the point: Clinton says that the only thing that matters to people’s bottom line is the amount of taxes they pay.
Which apparently is largely true for the wealthy, but is hardly true for the middle class and so-called working class–whose financial bottom line, financial security and standard of living is impacted tremendously by such things as healthcare insurance premiums, whether paid to the government or instead to a private company, and out-of-pocket payments to hospitals, medical labs and physicians.
That’s was so enrages me. Clinton claims by that soundbite of hers that all that matters is “income,” not income minus such things as private-healthcare-insurance premiums and out-of-pocket payments for health care.
That post was a follow-up to this one posted on Monday, titled “Why Do So Many Wealthy Democrats Think The Only Money That Matters To The Hoi Polloi Is The Money They Must Pay To The Government?”
Which itself was in part a follow-up to one I posted on Sunday shortly before the debate, titled “Pre-Debate Contest: Guess which one of Sanders’ past or present policy positions or legislation he supported that Clinton will misrepresent most outlandishly tonight.”
You get the idea.
Clinton certainly is qualified to become Commander in Chief. And as someone who is slightly more hawkish than Bernie Sanders, whose candidate I support obsessively, I think she would make a good one. But I also think Bernie Sanders would make a good one. Just as I think Bill Clinton made a good one.
The problem with Clinton’s campaign in part concerns the substance of her proposals vis-à-vis the substance of most of Sanders’, but she certainly is entitled to make her arguments on those, as long as she does not use Republican slogans to make them, and as long as she does not misstate Sanders’ past and present policy proposals. Least of all, habitually. And she does both of these things habitually; they’re mainstays of her campaign.
I’ve covered these points in the posts I link to, and I don’t have time right now to further elaborate anyway. But if Clinton becomes the nominee, I dearly hope will somehow learn of my posts here at AB and take to heart what they say, because they will be pertinent to general election campaign, just as they are to her primary campaign.
Hey, maybe she’ll ditch her campaign consultants and replace them with … me! I’d be wayyy better. And I’m much cheaper.