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

Progressive policies

Via Washington Post on Progressive policies

Of the many things that are terribly wrong with our current tax debate, one primary offender is the notion that tax cuts will unleash massive growth effects. If facts could kill this mythology, it would be long dead.

…but a great, new paper just landed on my desk that takes a clever approach to this question of the impact of progressive, market interventions on growth and jobs. Ian Perry of the University of California Berkeley Labor Center has a new paper out called “California Is Working” that tests this question in a sort of experimental framework by using California as an example of the conservative, anti-interventionists’ worst nightmare.

Moreover, we don’t need to set the evidentiary bar unnecessarily high in this sort of comparison. While his study is suggestive, Perry’s findings don’t convince me that progressive measures lead to faster growth and jobs. They do, however, in tandem with tons of other research, convince me that these progressive interventions do not hurt growth. The defense of the CPM against the onslaught of predictions of doom need not point to better growth outcomes. It could well be — in fact, I think it is — that these measures have little to do with growth and a lot to do with who benefits from that growth.

That’s why these issues generate so much heat from the affected industries and their lobbies. It’s not growth rates they’re really worried about. It’s who gets the money, the cleaner air, the health coverage and so on.

Remember this in the context of the tax debate, as its advocates assure us that unleashing growth requires tax cuts on behalf of wealthy households and multinational corporations. And keep these findings in mind next time conservatives inveigh against expanding affordable health coverage or raising the minimum wage or the overtime salary threshold. Though their cries will allege the squandering of growth and jobs, the evidence from California reminds us that what they’re really bemoaning is a more equitable distribution of wages, incomes and even power.

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This is Why Inflation Expectations Are So Important

by Hale Stewart (originally published at Bonddad blog)

This is Why Inflation Expectations Are So Important

The underlying trend in inflation is driven by the laws of supply and demand, which are as applicable today as they ever were. Excess demand pushes inflation up; excess supply pushes inflation down. Central banks exploit this relationship, working to create excess demand or excess supply in the economy, to target the inflation rate.
A central role in this relationship between the economy and inflation is played by inflation expectations. The more anchored those expectations are, the more quickly the economy will find its way back to normal after an economic shock. This is known as the credibility dividend: a credible central bank will see inflation expectations well anchored at the target level and will have a relatively easy time restoring normality after a shock. What this means is that the underlying trend in inflation may become more stable as expectations become more anchored. In short, the more successful the inflation target is, the less obvious the relationship between economic shocks and inflation will become.

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Fox’s Shep Smith on Tax Bill

I found this segment of interest from Fox News…while I differ on the generic federal deficit thinking, I notice while Obamacare repeal was ‘do or die’, Smith noticed the eight years of Republicans calling doom from the federal deficit gets hardly a peep.

Student loan deductions and credits disappear, among a list. as well…his affect is telling.

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Small businesses, tax cuts, and reporting

(Dan here…lifted from AB 2012)

Small businesses, tax cuts, and reporting

 I sometimes get the ‘eyes rolling’ reaction from people in my social sphere when I insist that at least linking to  original documents is important, and that someone needs to follow up on what an author says someone else says (as a way to gain traction and authority status for their own writing, such as saying the non-partisan Tax Policy Centers says).  I won’t go into the idea of spin, which involves figuring out intent.  Mine is a caution for readers:

The post is lifted from a note from Daniel Becker in response to a query I sent to him…Dan is a small businessman in the way most of us think of as small business.  (The IRS has a different criterion  of ownership that allows a company like Bechtal at $31 billion to be considered a small business).

Dan Becker’s note:

The Washington Post article is   Obama calls for small business tax breaks.   The article uses the  Tax Policy Center original under the title Temporary Tax Relief to Create Jobs  as the source for the reporting.

The WP article notes:

“The last time the country had a similar proposal to the tax subsidy was during the Carter administration, according to the Tax Policy Center. Research by the Labor Department found that few firms knew about the tax policy, but those that did increased employment notably.”

But from their source it actually notes:

“The last experience the United States had with a credit for incremental employment was with the new jobs credit enacted at the beginning of the Carter Administration in 1977. Evaluations of that credit and how it came about found that most firms were either unaware of the credit or did not respond to it. Research based on a Department of Labor survey found that only 6 percent of firms who knew about the credit said that it prompted them to hire more workers. Firms that were aware of the credit, however, increased employment about 3 percent more than other firms. ”   (bolding is Dan B.’s)

WP had another smoothing over (under the fold):

“An incremental jobs credit could be a cost-effective way of raising employment in the short run, the nonpartisan center said in a report this year. The effectiveness of any jobs subsidy depends . . . on how employers perceive its potential benefits when making hiring decisions.”

The actual statement:

In summary, the effect of this proposal on employment is very uncertain. In theory, an incremental jobs credit could be a cost-effective way of raising employment in the short run and some research suggests that the 1977 credit did increase jobs, although the evidence on that is far from conclusive.
The effectiveness of any jobs subsidy depends greatly on both the details of the proposal, still to be finalized, and on how employers perceive its potential benefits when making hiring decisions.

Dan B

(Editorial comment at end of note from Dan Becker….Man! They still want to believe that cutting taxes is actually the same as if the 99% were now getting that $1 trillion of income that is now with the 1%. Just like they believe cutting taxes will increase revenues (sure if you convince the dictator to stop taking a full 90% of all that his people produce, but that’s not US).

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Economic Consequences of Populism

by Joseph Joyce

Economic Consequences of Populism

Who is the true populist: Bernie Sanders, who promises single-payer health care and college without tuition, or Donald Trump, who campaigned on a promise to “drain the swamp”?  Jeremy Corbyn of the UK’s Labour Party, who wants to nationalize public-sector firms, or Marine Le Pen of France’s National Front, who wants to take France out of the Eurozone? And what would be the consequences of their policies?

To answer these questions requires first an understanding of populism. One definition of populism, such as the one found here, refers to it as policies for the “common people.” Populism, therefore, divides the world into two groups: the good “common people” and the evil “them.” “They” deprive the “people” of the rewards of their hard work and exclude them from the political process. But just who are these “common people”? And who are not?

Dani Rodrik of Harvard’s Kennedy School in one recent paper and a second coauthored with Sharun Mukand of the University of Warwick proposes an analytical framework for understanding the different strands of nationalism. Rodrik and Mukand suggest that populist politicians obtain support by exploiting divisions within a society, and envisage two kinds of separation. The first is an ethno-national split, such as occurred in Europe in the 1930s and again in modern-day Europe, and is usually associated with right-wing movements. The second is a partition by economic class, as seen in the U.S. in the 1890s, Peron’s Argentina and contemporary Venezuela, and is often found in left-wing organizations.

Under this classification, Trump and Le Pen are nationalist populists while Sanders and Corbyn have a class-based agenda. Once we understand this demarcation, we can see they will advocate different policies. The nationalist populists are suspicious of all foreign contact. They regard trade pacts as zero-sum transactions: one side to an agreement wins, and the other loses. Similarly, immigrants hurt native workers and impose fiscal costs on society. These populists are in favor of government expenditures for the “people,” but not anyone else. They favor domestic firms and will support measures to benefit them.

Class-based populists, on the other hand, are concerned about the “workers,” who includeindustrial laborers and farmers. They are suspicious of property owners and the financial sector. They seek to use taxes and other measures to redistribute property. They may also advocate government control of the economy through public ownership or the use of licenses and other means to guide production. They can grant subsidies for the purchase of basic needs, such as food or fuel. They will oppose foreigners if they are seen as allied with domestic financiers.

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The Exchange Rate as a ‘Veil’

(Dan here…Biagio Bossone will be joining contributors to Angry Bear.  Here is his first post for AB concerning the impact of exchange rates)

by Biagio Bossone      (Biagio BOSSONE is an Italian national,  currently advises the World Bank Group/IMF on financial sector development issues and technical assistance programs in several countries in Africa, Asia and the Pacific, Latin America, and Northern Africa and the Middle East. He is a consultant to private-sector organizations He has taught at various universities in Italy.)

The Exchange Rate as a ‘Veil’

A few years back, Antonio Fatas challenged the conventional wisdom whereby sudden stops – or the abrupt reductions in net capital inflows caused by crisis confidence – are relevant only for countries with fixed exchange rates, arguing that where countries run large persistent current account deficits, sudden stops of capital could be contractionary even under floating rates. The issue was at the center of a lively controversy, yet is has remained unresolved. Coming to a closure on it requires considering that the effectiveness of exchange rates as an adjustment mechanism must be seen in relation to the role that financial markets play in the context of a given country. This is what this post sets out to do, after reviewing the terms of the controversy.

The controversy

Various views were expressed on the issue. Andrew Rose noted that the magnitude of the business cycle had not varied significantly between inflation targeters and hard fixers over the period since 2007, and concluded that the ‘insulation’ power of different exchange rate regimes is in fact similar. Paul Krugman countered that a decline in the capital account caused by a sudden stop must be matched by a rise in the current account, and noted that the mechanism to produce such adjustment varies with the underlying exchange rate regime: it works though import compression under fixed rates, while it works through depreciation and export growth under floating rates. As a consequence, a shock that is contractionary under fixed rates (or a monetary union) is expansionary under floating rates.

Kenneth Rogoff remarked that outcomes are sensitive to long-term debt sustainability and future inflation. A country with its own currency has indeed the ability to escape a debt crisis through seigniorage and inflation, but this works only to the extent that inflation is not priced in. In fact, as Giancarlo Corsetti and Luca Dedola pointed out, the historical record indicates that outright default on public debt denominated in domestic currency is far from rare, including in countries where the authorities control the ‘printing press’: the moment investors anticipate inflationary financing, interest rates rise and reduce the gains from debt monetization up to the point of undermining its effectiveness altogether.

Interestingly, Brad DeLong claimed that in a sudden stop the central bank can credibly commit to persistently keeping the short-term safe nominal interest rate at zero (swapping out cash and pulling in bonds ad libitum), yet such policy would have no effects on the economy’s real equilibrium if, on the relevant margin, government-printed cash were to become as unsatisfactory an asset as government bonds: under similar circumstances, people would not want to dump government bonds for cash and foreign securities; they would dump both government bonds and cash for foreign securities. Economic chaos would be such that foreigners would be unwilling to trade their own currencies for domestic goods and services or assets (e.g., domestically-located property). However, as DeLong also noted, for this scenario to hold there should be an extraordinary degree of dysfunction, not just a reduction in market views of the long-term fundamental value of the currency.

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October jobs report: great utilization, decent growth, poor wages (reposted)

(Dan here….Corrected code to fit the format and reposted)
 by New Deal Democrat
  • +261,000 jobs added
  • U3 unemployment rate down -0.1% from 4.2% to 4.1%
  • U6 underemployment rate down -0.3 from 8.2% to7.9%
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  down -443,000 from 5.628 million
    to 5.135 million
  • Part time for economic reasons: down -369,000 from 5.122 million to 4.753
  • Employment/population ratio ages 25-54: down -0.1% from 78.9% to 78.8%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: down -$.0.1
    from $22.23  to $22.22, up +2.4% YoY.  (Note: you may be reading different information about
    wages elsewhere. They are citing average wages for all private workers. I use wages for
    nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.
Is he keeping this promise?  
  • Manufacturing jobs rose by +24,000 for an average of  +14,000 a month vs. the
    last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were
    added each month.
  • Coal mining jobs were unchanged for an average of +250 a month vs. the last
    seven years of Obama’s presidency in which an average of -300 jobs were lost each month


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2017 Globie: “Grave New World”

by Joseph Joyce

2017 Globie: “Grave New World”

Once a year I choose a book that deals with an aspect of globalization in an interesting and illuminating way, and bestow on it the “prize” of the Globalization Book of the Year (known as the “Globie”). The prize is strictly honorific—no check is attached! But I enjoy drawing attention to an author who has an insight on the process of globalization.  Previous winners are listed below.

This year’s Globie goes to Stephen D. King for Grave New World: The End of Globalization, The Return of History. King is senior economic adviser at HSBC Holdings, where he was chief economist from 1998 to 2015. He is the author of Losing Control: The Emerging Threats to Western Prosperity, which won the Globie in 2010, and therefore is the first two-time winner.

In the new book King addresses the current status of globalization, and how it may evolve in the future. In the book he makes six claims:

  • Globalization is not irreversible;
  • Technology can both enable globalization and destroy it;
  • Economic development that reduces inequality between states but reinforces domestic inequality creates a tension between a desire for gains in global living standards and social stability at home;
  • Migration in the 21st century will affect domestic stability;
  • The international institutions that have helped govern globalization have lost their credibility;
  • There is more than one version of globalization.

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