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

Your Tax Dollars Subsidizing Methane Gas Emissions

Sandwichman at Econospeak has a post up on subsidizing Methane and the BLM. It fits in with the Bundy take over of the Wildlife Refuge Bldg. He credits 538 Politics for this exclusive The Armed Oregon Ranchers Who Want Free Land Are Already Getting A 93 Percent Discount We are paying for the air pollution and they are getting a hefty discount on the grazing of their cattle.

Sandwichman: Well, looky here. On the one hand, the minimum wage has declined substantially over the last several decades in real terms. But on the other hand, federal government subsidies to a small number of cattle ranchers has increased as the gap between the market price and the Bureau of Land Management grazing fees has widened.

According to a report from the Center for Biological Diversity, “fewer than 21,000 — or 2.7 percent of the nation’s total livestock operators — benefit from the Forest Service and BLM grazing programs in the West.” Furthermore;

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Universities and Donations – Western Carolina University

invisible hand What does a public university do when a donation to it comes with strings? This is the situation Western Carolina University finds itself in today as a $2 million donation is being given to it by a Charles Koch Foundation to establish a Center for the Study of Free Enterprise under BB&T bank sponsored department chair Dr. Robert Lopez.

Just to be clear, this is not the only donation ever made by a Charles Koch Foundation to a college or university, the “Koch brothers and their various funding arms awarded $108 million to 366 colleges and universities from 2005 to 2014 — with $19.3 million across 210 college campuses in 2013 alone — according to political funding analysis by the Institute for Southern Studies and Center for Public Integrity.” More and more, we can see moneyed and political interests making large donations no longer tied to just a name on a building in memory of that person: but, the donations are tied to a particular and current interest with an active participation. This is not only happening at universities or colleges, you can see conservative or other groups showing interest in think tanks such as CAP and Brookings for topics such as student loans and changing the law with regard to “mens rea.” The later being a direct attempt to change the law so as to protect their business. It is difficult for a college or a university, much less a think-tank, to accept a donation from an outside interest with ties to an ideology or interest without favoring it in the future.

In answer to WCU Provost Alison Morrison-Shetlar questioning whether Faculty Senate Leader opinion really reflected the overall view of the faculty. “The Faculty Senate voted in majority opposing the establishment of this new center, which is consistent with what I have heard from the general faculty,” said Dr. Bill Yang, chair of the faculty senate rules committee. There does not appear to be a conflict here to what WCU Provost Alison Morrison-Shetlar and what Senate Faculty Chair Dr. David. MCord said; “It is not a small stakes issue here. This is the academic integrity of the institution over the long run” and suggesting it is “fairly unique” to have the overwhelming majority of faculty take a stand one-way and the administration do the opposite.

In a subsequent interview WCU Provost Alison Morrison-Shetlar claimed “the majority of written comments from faculty support the creation of a free enterprise center. She said only one-third of those who submitted comments opposed it.” According to an analysis of the written faculty responses by The Smoky Mountain News; “The written comments showed 20 were against the center, 14 were for it and three were in the middle.” Still a majority against the donation.

The Free Trade Center was originally pitched in August 2105 and Dr. Lopez was given the go-ahead to pursue the Center and construct a proposal with only the Provost’s and the Dean of the School of Business’s knowledge. Coming up for a vote to approve, both the Dean and the Provost came to “finally” realize they would need faculty input before the meeting and the planning stage. Coming out of the October 1st Provost Council meeting, it was decided to present the proposal to the faculty and on October 14 (don’t they have documented rules [like Robert’s] for this stuff?) it was accomplished with a stipulation a decison was to be reached by the next Provost meeting November 1. The failure of the Dean, the Provost and Dr. Lopez to notify faculty members left something to be desired leaving a bad taste in the mouths of some as the process was hurried and not transparent.

One email as disclosed by the Smokey Mountain News gives the impression the center was a foregone conclusion as the administration was on board from the beginning or shortly after Dr. Lopez was given the go ahead. Dating back to late September, the email states; “The Chancellor would like for the proposal to be to the Board of Trustees by the last meeting of this semester. That means we will have to get this turned around and back to the Provost Council in a timely manner,” Dean Darrell Parker wrote in an email to Dr. Brian Kloeppel, the dean named to handle the faculty input process.

Ahhh, but there are University policy rules to be followed. The email “predates several steps outlined in university policy governing the creation of a new center or institute. Administration was already angling to have the center on the desk of trustees within a couple months, despite two rounds of faculty input still needed and a two-phased approval by the provost council.”

“I am not aware of criticisms the policy wasn’t followed,” Lopez said. “This decision is the end of a process that from the very beginning was transparent and inclusive.”

– Wardell Townsend, chair of the WCU board of trustees, said university policy related to the center’s creation was followed, based on what he was told by the provost.

Provost “Morrison-Shetlar said in an interview the policy was ‘followed to the letter.’”

So much for the complaints of the faculty about not following policy and it being truncated.

The process to start a Center for Free Enterprise was well on the way by the time the faculty was informed. In early October, Distinguished Professor of Capitalism Dr. Lopez had already penned a job description “two months before the free enterprise center would come before the board of trustees for a vote” and the position would “participate in a new interdisciplinary center for free enterprise research.”

The position would be a part of the Center for Free Enterprise as the Gimelstob-Landry Distinguished Professor of Regional Economic Development. The position was also announced the previous year with no candidates found to fulfill the role. It was thought at the time the mention of a Free Enterprise Center may prejudice candidates and only those candidates of this mindset might apply. A concern by those opposing the center was the funders might influence who was selected to fill the professorship.

“As far as I’m involved, there is no chance that any donor will appoint any university personnel, full stop,” Lopez said.

References:

“WCU leaders, faculty at odds over Koch-funded free enterprise center” Smoky Mountain News, Becky Johnson

“WCU community grapples with academic pursuits in the face of politically-charged outside funding” Smoky Mountain News, Becky Johnson

” WCU chancellor pledges transparency, faculty involvement to vet controversial Koch money” Smoky Mountain News, Becky Johnson

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NAIRU V Estimation

by Marco Fioramanti and Robert Waldmann

This is the second to last post on the European Commissions DG -Ec-Fin estimates of cyclical unemployment for the purposes of calculating output gaps. This estimate is called unemployment minus the NAWRU (non accelerating wage inflation rate of unemployment). We will call unemployment – NAWRU “cyclical unemployment” even though it is agreed that the NAWRU is partly cyclical.

For several countries (including Italy) it is calculated with a time series model based on an accelerationist Phillips curve in which the change in wage inflation depends on cyclical unemployment. The model is fairly complicated with 11 paramters (estimated for Italy with 50 annual data points and 3 years of atheoretic forecasts). It is briefly described here based on this working paper.

The model attempts to fit 2 time series, unemployment and the change in the rate of increase of wages, and includes 4 disturbance terms. To be very brief, the expected acceleration of wage inflation is a linear function of cyclical unemployment and two lags of cyclical unemployment (the equation includes one of the disturbance terms). Cyclical unemployment is assumed to be an AR(2) (with the second of the disttubance terms) The NAWRU is assumed to be an I(2) second order random walk — the drift of the NAWRU is itself assumed to be a random walk (so the disturbance to the drift and the disturbance to the level are the 3rd and 4th disturbance terms). The assumption that the drift is a random walk is crazy — it always implies long term forecasts of unemployment less than zero or over 100%. The EC staff agree that this model can’t be taken literally. They ignore it when making long term forecasts. However, the resulting estimates of cyclical unemployment are used to calculated output gaps.

Robert wrote “As one might guess, identification is a bit problematic. However, it is possible to convince a computer to estimate all the parameters.” As we (mostly Marco) have attempted to do this for slightly modified models, we have discovered that it is very difficult to convince a computer to estimate all the parameters (DG -Ec Fin uses their own software). This (in addition to the usual procrastination) has caused a long delay between NAWRU IV
and NAWRU V (this post).

The problem (at least for STATA addicts) is that STATA ends up at a corner attempting to set the variance of the disturbance to the drift of the NAWRU to zero. This means that estimated of the model as officially described using STATA’s standard sspace command provides no empirical support for the theoretically unjustified assumption which has impossible long term implications. STATA (v. 11 to 14) refuses to report estimates after getting stuck in a corner (this is a feature not a bug).

Based on Robert’s efforts to code a pseudo-annealing Kalman filter maximum likelihood estimator (which are not publishable even in a blog) we think the key issue is the imposition of an arbitrary maximum on the variance of the disturbance to cyclical unemployment. This will be the topic of NAWRU VI — the final episode if and when the conclusion is based on the use of standard software.

But in this post, we want to discuss estimation of the model with the variance of that disturbance term set to zero — that is — estimation of a model in which the NAWRU is assumed to be a random walk with drift.

This model has less appalling implications for the long term. The NAWRU is not restricted to the range from 0% to 100% but it would be easy to impose this restriction (the standard approach would be to assume that the NAWRU is a martingale and the variance becomes small when the NAWRU is near the limits — it is possible to assume that this state dependent variance is constant over the range experienced during the sample period so the model as written is valid). The fluctuations in the NAWRU remain exogenous and unexplained, but there is at least a literature on why the natural rate of unemployment might fluctuate.

This model has implications strikingly different from those of the EC DG- EcF Fin model. The The fitted NAWRU no longer tracks the business cycle. The variance of cyclical unemployment is much greater. The resulting fiscal dictates would have been very different if the EC had used our simpler model .

randomwalk_NAWRU_unem

randomwalk_NAWRU_cyclical

here un = NAWRU
ug = unemployment – NAWRU = “Cyclical Unemployment”
ddw = the acceleration of wage inflation

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Republican Policy Response to Increasing Income Inequality

“Labor Share is decreasing so lets cut tax on capital to zero”.

That is it. Literally. When you parse out Paul Ryan’s ‘Path to Prosperity’ or the net effects of Rubio’s tax plan that is what Republicans are pushing as the solution to everything. And pretty much always has been since “Rising Tide”.

Forget the rhetoric and labels about “Flat Tax” and “Fair Tax” and focus on the mechanism and it ALWAYS reduces to “Cut tax on capital”.

Period. End of story. (Unless of course someone wants to treat this as an Open Thread. Because Comments are Open.)

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Brad DeLong Rejoins the Reality-Based Community; Mark Thoma tells us why it is so

Even if his inspiration for doing so comes from (of all places) the HuffPo, This is spot-on:

Unless something big and constructive in the way of global economic policy is done soon, we will have to change Stiglitz’s first name to ‘Cassandra’ — the Trojan prophet-princess who was always wise and always correct, yet cursed by the god Apollo to be always ignored. Future economic historians may not call the period that began in 2007 the ‘Greatest Depression.’ But as of now, it is highly and increasingly probable that they will call it the ‘Longest Depression.’

Sadly, his prescriptions–good prescriptions, I hasten to note*–address the sources of the Depression, not the most direct solution. For that, we turn (staying in the popular press) to Mark Thoma (via, er, Mark Thoma):

Private investment could be increased by lowering the interest rate with monetary policy, but since the interest rate is as low as it can go, this won’t be effective.

Another solution is to raise private investment through mechanisms such as tax incentives. But in a stagnating economy, business confidence is low, and it’s unlikely this will have much of an effect. It’s worth trying, but it’s unlikely to be enough.

Yet another solution is to raise public investment; infrastructure spending is a frequently mentioned candidate. This is attractive for two reasons. First, investment in U.S. infrastructure has been lagging, which needs to be addressed independent of the secular stagnation problem. Second, while tax incentives amount to leading a horse to water and hoping it will drink, government investment is determined by fiscal policy. It can be whatever value Congress and the president want it to be.

This is why those who are worried about secular stagnation have repeatedly called for substantial investment in infrastructure. [link from original]

Give Mark extra credit for being one of the few economists willing to say publicly that Excess Reserves are not “investment,”** even as he hedges whether “secular stagnation” is the current reality.


*”What we need now is 1) debt relief to unwind the overhang and 2) much tighter financial regulation to prevent the growth of new fragilities.”

**He doesn’t take the next step and state that IOER is being paid because banks are insolvent and robbing the Fed is a victimless crime, but we shouldn’t expect everything.

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The Anglo-Saxon Hide, Adam Smith, Karl Marx and the 35 Hour Work Week

Too wide a scope for a blog post? You betcha. But this was going to be the core of my PhD Dissertation back when I was in such a program and had delusions of adequacy. So those who wonder “WTF does any of this have to do with labor hours?” Well bear with me. Or scroll away. Because much tedium and obscurity is found under the fold. A pure dose of ‘tl/dr’ which doesn’t even get to either Smith or Marx. Yet.

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An Effective Demand theory of the Fed Rate through the Business Cycle

In time, we will see a debate start raging as to whether the Fed rate should have started rising earlier instead of at the end of 2015. Some like me say that the Fed rate should have started rising earlier because the market had momentum and the capacity to accept the rate rises. Others say the market had to wait to tighten the labor market more and try to generate some inflation.

A Theory of the Fed Rate Movements based on Effective Demand

A measure of the effective demand limit gives a view of spare capacity in the economy through the business cycle.

update UT index

The plot shows spare capacity in the economy in terms of labor and capital. The plot in the graph above expands upward during a recession, then contracts downward through a business cycle.  When the plot is high, there is more spare capacity that can be utilized and the Fed rate should be lower than its normalized rate.

How could the Fed rate change in relation to this graph?

The Fed rate would fall during a recession as spare capacity rises. Then as spare capacity gets utilized, the Fed rate should start rising again toward its neutral natural rate. In theory, the Fed rate would ideally normalize when the plot reaches near zero.

The Fed rate would change something very roughly like this… (range is 5% normalized Fed rate which falls to around 2% during a recession)

theory fr ut

The Fed rate would fall during a recession and when spare capacity is rising. The Fed rate would rise when spare capacity falls to around 5% on graph until it reaches a 5% normalized rate when the blue plot reaches near zero.

How well has the actual Fed rate followed this pattern?

theory fr ut2

Compare how the brown and red lines move up and down together. The two lines do seem to move together roughly at the same times. So the Fed rate has already followed the pattern. (link to FRED data)

Note… The Fed rate should not have risen before the 2001 recession when the spare capacity was actually rising.

A Graph for a Theory of the Fed Rate through the Biz Cycle

theory fr ut3

Basically a theory would say that the Fed rate should start rising when the plot is falling between the red lines. Once the plot goes below the red lines, the Fed rate should not rise, but stay steady and be ready to come down to preserve the natural level of full employment. Then the Fed rate should come down when the plot is rising above the lower red line.

According to this simple theoretical model, the Fed rate should have started rising moderately back in 2012 or 2013 (update: assuming a normalized Fed rate of 3% to 4%). And now is not the time for the Fed rate to start rising toward a normalized natural rate since the plot has already bottomed out. A rising Fed rate now will eventually strangle the economy which has very little spare capacity.

I use this theory to say that the Fed should have started raising the Fed rate moderately earlier in the recovery.

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What is NOT Discussable in the Media

Stormy–tired, old, and pissed off–Jan 7, 2016

Jobs, Free Trade, and Globalization

  • TTIP and TTP
  • Who is keeping these important trade deals off the front page?
  • Trade deficit—where have the jobs gone? Let’s ask Obama, Hillary, et al.
  • Outsourcing and the myth of Free Trade.
  • Are we edging towards deflation?
  • Have corporations squeezed the final dollar out of globalization? Is globalization about to implode. Take a good look at China and its export machine. Did Jobs make his buck in China on the backs of the poor? Why do we celebrate the bastard?

I will be posting an update to the U.S. trade deficit fiasco–along with some comments about China.  It is a joke that this stuff and its consequences are ignored by the main street media and many so-called economists.

Israel

    • Israel–Saudi connection/love affair. According to Netanyahu:

“The dangers of a nuclear-armed Iran and the emergence of other threats in our region have led many of our Arab neighbors to recognize, finally recognize, that Israel is not their enemy. And this affords us the opportunity to overcome the historic animosities and build new relationships, new friendships, new hopes.”

  • How much influence does AIPAC have over Congress and the President?
  • Is the major media in the pocket of AIPAC–New York Times, et al
  • In discussions about Middle East chaos, why is Israel and its role and aims not included?

Feminism and other special interests

  • Who cares if the next president is black, a woman, or a dwarf? Have we NOT had enough of feminists who simply want a woman in the White House, regardless of her views? Is Hilary milking this one? Do principles count?
  • Is the DNC in the pocket of Wall Street?
  • Who is pulling the strings that keep Sanders off the major media?
  • Is media concentration on Feminism, Black Lives Matter, and Gun Control possible diversions to keep our eye off the deeper problems, which, if we faced, might address some of these issues?

Obama

  • Does Obama really care about black lives? How about jobs for the deprived, exploited, and poor? Why has he not addressed outsourcing and propose serious solutions? Why has he allowed the militarization of the police?
  • Is Obama more interested in feathering his nest–like the Clintons—with his billion dollar library
  • Why is he so interested in expanding BIG Brother–i.e., the NSA? Does he give merely lip service to democracy?
  • Why does he NOT pursue those who tortured and led this country into a war that killed hundreds of thousands?? Nixon covered-up a break-in. Slick Willy lied about adultery! And look at the flap those minor crimes created?
  • Does Obama believe that big crimes should be rewarded, but if a poor black man  or woman or child looks cross-eyed at the police, he can be shot? He should be asked.
  • Is it any accident that Rahm Emmanuel was once Obama’s chief of staff?

Media obsession with the GOP candidates

    • Is this just the ultimate diversion?

And I have not even mentioned Global Warming.   At some point this country is going to explode if we do not answer these questions.

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