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

Two additions to Angry Bear roster

New Deal democrat has joined the roster at Angry Bear and will be cross posting from the respected Bonddad blog as well as publishing original posts at AB.  “New Deal democrat is the norm de blog of a professional who, once upon a time long long ago wanted to make use of his undergraduate degree in psychology in Public Policy Analysis. While taking graduate macroeconomics at the Wharton School, he was told that empirical results from psychology were irrelevant because deductive economic theory showed that “they all randomize[d] out.” He promptly undertook another career. But he remained a math nerd with an interest in economics and politics. He began blogging over 10 years ago. He focuses on business cycle indicators, with a particular emphasis on jobs and wages.”

 

Sandwichman has joined the roster at Angry Bear and will be cross posting from the respected blog Econospeak as well as publishing original posts at AB.   Sandwichman   “teaches collective bargaining and labor/environmental issues at Simon Fraser University, near Vancouver, Canada. His research investigates how archaic vindication-fables steer mainstream economic discourse away from critical insights.

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It’s official – Icelandic bankers have been jailed

If you’ve been following my posts over the last few years, you know that Iceland took the dramatic step of prosecuting top officers at the country’s big 3 banks, all of which were allowed to go bankrupt in the wake of the 2008 financial collapse. Unlike Ireland, it did not turn bank debt into government debt, which increased Ireland’s debt by close to 100% of gross national product (GNP) overnight. Though hit hard by the 50% drop of the krona, Iceland has managed a remarkable, though still incomplete, recovery marked by its renewed ability to borrow in foreign currency with less than a 1% risk premium and by achieving unemployment rates that Eurozone countries can only envy.

What you wouldn’t know, if you just been looking at the headlines (Google “Iceland jails bankers” and you’ll see what I mean), is that Iceland had not actually been jailing bankers. Here’s a typical one from the BBC, “Iceland jails former Kaupthing bank bosses” (12 December 2013). In fact, nobody went to jail at that time: They were convicted, but all four Kaupthing officials appealed their sentences. If you search similarly titled stories, you will see that headline “jailings” were either convictions, or an affirmation of these lower court decisions by the Icelandic Supreme Court, neither of which actually led to immediate jailings. Indeed, one of the “Kaupthing Four,” as they are now called, was living in Luxembourg (he had headed Kaupthing’s Luxembourg branch), and I wondered to myself if could even be compelled to return to Iceland to serve his sentence.

Now I am happy to report that the Kaupthing Four are finally in jail in a minimum-security prison with only one road connecting it to the outside world, including the former CEO of Kaupthing’s Luxembourg unit who was outside Iceland when his conviction was upheld. There have been an additional 22 convictions now at various stages in the appeals processes, and special prosecutor for the banking crimes, Olafur Hauksson, indicted five more bank officials for fraud and manipulating stock prices just last month.

As Kaupthing was Iceland’s largest bank before the crash, jailing its top officials sends a reassuring sign that the rest of those convicted will eventually follow suit. Iceland thereby establishes a precedent we should continue to urge in the United States, United Kingdom, and elsewhere that bankers are not too big to jail.

A note to readers: Bloomberg reporter Edward Robinson had not replied to a request for some clarifications at the time this story was published. If any of you know when the Kaupthing Four reported to prison, whether there are other bankers already in jail, or other useful news, please send along the information and I’ll be happy to credit you. Thanks!

Cross-posted from Middle Class Political Economist.

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ISM new orders surge to 58.3: the shallow industrial recession is ending

by New Deal democrat

ISM new orders surge to 58.3: the shallow industrial recession is ending

    
OK, probably ending, since nothing is perfect.  But if there are reasons to be more concerned about 2017, this morning’s ISM report is very strong evidence that the shallow industrial recession we have had for the last year is ending, either now or within the next 3 months.

Last month I wrote that “For me to be confident that this slowdown was ending, I would want to see new orders spike to at least 54.”

Well, as forecast by the regional Fed reports, New Orders blew out to the upside at 58.3.  With the sole exception of the month of September 2001 (for obvious reasons),there has never been a reading over 55 in a downturn in industrial production that hasn’t either coincided, or been shortly followed by, the end of that downturn.  This is true all the way back to 1948, although the below graph (thru January), for clarity, just focuses on the last 20 years:


Here is a close-up for the last 10 years, updated through this morning, comparing ISM new orders (red) with industrial production(blue):

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Chris Blattman’s Blog: “An open letter to Senator Chuck Grassley from an Iowan high school student”

Someone far younger than us has seen the false logic of the Republicans in resisting the selection of a Supreme Court Justice.

“The argument many Republicans are making is that Barack Obama is a ‘lame duck’ president, and, because “the people have not spoken,” he should not be allowed to nominate a replacement for Justice Antonin Scalia.

However, you are running for reelection in Iowa this November. At that time, Iowans will go to the polls and their voice will be heard. Until then, who speaks for the people of Iowa? You, as chairman of the Senate Judiciary Committee, carry significant power in determining who gets to become the next Supreme Court Justice. But senator, since you, too, are in an election year, how can you possess the authority to make a decision that will affect the future of our country if ‘the people have not yet spoken’? Following the direction of the Republican’s logic, I politely ask you to step aside as chairman of the Senate Judiciary committee until the elections take place.”

Chris Blattman: Bonus points because the Harvard admissions committee will love this.

As taken from: Chris Blattman’s Blog, March 31, 2016

An Update; 4/4/2016 from productivedeath:

“An open letter to Sen. Chuck Grassley:

This year I and thousands of other young Iowans will be voting in their first election.

The argument many Republicans are making is that Barack Obama is a “lame duck” president, and, because “the people have not spoken,” he should not be allowed to nominate a replacement for Justice Antonin Scalia.

However, you are running for reelection in Iowa this November. At that time, Iowans will go to the polls and their voice will be heard. Until then, who speaks for the people of Iowa? You, as chairman of the Senate Judiciary Committee, carry significant power in determining who gets to become the next Supreme Court Justice. But senator, since you, too, are in an election year, how can you possess the authority to make a decision that will affect the future of our country if “the people have not yet spoken”? Following the direction of the Republican’s logic, I politely ask you to step aside as chairman of the Senate Judiciary committee until the elections take place.

If you want to make critical decisions based on a constructed rationale, at least apply your creative thinking to all elected officials — including yourself.”

Jake Smith, senior, Roosevelt High School

Des Moines Register

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Brad DeLong Marks His Beliefs about "The Return of Depression Economics" to Market

Lifted from Robert Waldmann’s Stochastic Thoughts:

Brad DeLong Marks His Beliefs about “The Return of Depression Economics” to Market

I am overwhelmed by admiration for Brad DeLong (happens a lot) who reposted his review of Krugman’s “The Return of Depression Economics” from 1999 “Just in case I get a swelled-head and think I am right more often than I am …”

update: Do read Brad’s review/post. It is mostly brilliant (aside from the error which he stresses). In particular, Krugman and Delong both warn of the danger of allowing firms to borrow in foreign currency. Way back in 1999 it was widely agreed that East Asian countries had harmed themselves by borrowing in dollars. Later the Argentine crisis demonstrated this again with the worst recession after WWII and before Greece’s recent crisis.

But it seems to have been forgotten. I read in the March 5-11 2016 economist “By the middle of last year, the stock of dollar loans to non-bank borrowers, including companies and government, had reached $3.3 trillion. Indeed until recently, dollar credit to borrowers outside America was growing more quickly than to borriwers within it. The fastest increase of all was in corproate bonds issued by emerging-market firms.

One can hope that, this time it’s different and won’t end in disaster. Well at least one can wish.

end update:

Way back in the last century, Brad thought he had a valid criticism of Paul Krugman’s argument that Japan (and more generally countries in a liquidity trap) need higher expected inflation. I think the re-post is not just admirable as a self criticism session, but also shows us something about the power of Macroeconomic orthodoxy. Brad is just about as unorthodox as an economist can be without being banished from the profession, but even he was more influenced by Milton Friedman and Robert Lucas than he should have been. I reproduce the offending passage below.

The context is that Japan had slack aggregate demand at a safe nominal interest rate of 0 — that is it was in the liquidity trap. Krugman argued that higher expected inflation would cause negative expected real interest rates and higher aggregate demand and solve the problem. Brad was unconvinced (way back then).

But at this point Krugman doesn’t have all the answers. For while the fact of regular, moderate inflation would certainly boost aggregate demand for products made in Japan, the expectation of inflation would cause an adverse shift in aggregate supply: firms and workers would demand higher prices and wages in anticipation of the inflation they expected would occur, and this increase in costs would diminish how much real production and employment would be generated by any particular level of aggregate demand.Would the benefits on the demand side from the fact of regular moderate inflation outweigh the costs on the supply side of a general expectation that Japan is about to resort to deliberate inflationary finance? Probably. I’m with Krugman on this one. But it is just a guess–it is not my field of expertise–I would want to spend a year examining the macroeconomic structure of the Japanese economy in detail before I would be willing to claim even that my guess was an informed guess.

And there is another problem. Suppose that investors do not see the fact of inflation–suppose that Japan does not adopt inflationary finance–but that a drumbeat of advocates claiming that inflation is necessary causes firms and workers to mark up prices and wages. Then we have the supply-side costs but not the demand-side benefits, and so we are worse off than before.

As Brad now notes, this argument makes no sense. I think it might be hard for people who learned about macro in the age of the liquidity trap to understand what he had in mind. I also think the passage might risk being convincing to people who haven’t read enough Krugman or Keynes.

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Lower income households are getting clobbered by rent increases

Dan here:   NDd has agreed to post to Angry Bear and make use of the expanded topics that AB offers as well.  I will be adding his name to our roster and make an introduction, although many are familiar with his writing.

by New Deal democrat 

Lower income households are getting clobbered by rent increases

Tomorrow just about every data point in the world will be reported … but while we are waiting, here is an important story that will particularly be of interest to our progressive readers.

A study by the Pew Foundation shows that rents are killing lower income households. Oddly, it hasn’t been picked up by progressive blogs.  I came across the study by way of Mike Shedlock, who claimed that it shows that consumers haven’t been spending any of their gas savings.  Ummm, actually, no, since the first thing that Pew tells us is that

Expenditures are a key but often overlooked element of family balance sheets. ….  [T]his chartbook uses the Bureau of Labor Statistics’ Consumer Expenditure Survey to explore household expenditures, examining changes in overall spending and across individual categories from 1996 to 2014.

Since gas prices only started their big decline late in 2014, actually the Pew study tells us absolutely zero about what consumers have done with their gas savings in 2015 and 2016.  But I digress.

Here is the overall summary graph from the Pew Foundation:


More important is the breakdown in expenses of shelter, transportation, food, and healthcare costs that Pew finds contributed the  most to the increase in household expenditures.

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The 1996 Welfare reform bill hits again

Max Ehrenfreund and Roberto Ferdman report the latest news in today’s Washington Post

Tens of thousands of Americans just lost their food stamps

A 20-year-old rule that was suspended in many places during the recession requires that adults without children or disabilities have a job to receive food stamps for more than three months, and today is that cutoff for many recipients.

The rule was part of the 1996 welfare reform which didn’t just convert AFDC to TANF but also restricted food stamp eligibility.

Who wants to tell me again that the 1996 bill is ancient history and I should stop grinding old axes. Ed ? Kevin ? Bueller ?

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Deaths, Injuries and the the Gender Gap in Pay

by Mike Kimel

Deaths, Injuries and the the Gender Gap in Pay

A few days ago, Glassdoor.com released a report (Demystifying the Gender Pay Gap) looking at the gender gap in pay, which they claim is about 24%. That is, women make about 76 cents for every dollar made by men. Glassdoor also indicates that adjusting for education, years of experience, location, job title, and job type, the gender gap in the US drops to about 5.4%, which means adjusting for the aforementioned factors, women in the US make about 94.6 cents for every dollar earned by men.

Figure 1. Glassdoor’s Gender Gap

Kimel 1.   Glassdoor Pay Gap by Gender

I skimmed through the report, and two obvious things missing (admittedly hard for Glassdoor.com to capture) from the analysis are death and injury. Men are more likely to get injured or even die on the job. This is true even for the same job.

For example, consider the most white collar office workplace with which you are familiar. Every so often, it is decided that some file cabinet, or some other heavy equipment has to be moved, and it just isn’t worth the requisition or the wait to have someone come up from Maintenance and move it. Regardless of the gender composition of the hyper white-collar workers at the workplace, what is the gender composition of the subgroup that moves the stuff? Because in the one time out of a thousand that something falls on someone, that’s the gender composition of those who will get hurt or worse.

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