The Death of Dick Day

I learned a few days ago that Richard (Dick) Hollis Day died about a month ago.  There is no obit yet, so I do not have exact dates of birth or death, but communicating with an old mutual friend who knows his oldest son, apparently he succumbed to dementia and related problems that had him declining over the last several years at his home in Cambria, California.  He was born in 1933, but not sure of exact date, so he was either 87 or 88.  

Dick was somebody I think underappreciated by the economics profession who in my view played an important role on several fronts, both intellectually and in other ways. I shall note a prominent one of the latter being that he was he founding editor in 1981 of the Journal of Economic Behavior and Organization (JEBO), with me replacing him in that position in 2001 (lasting until end of 2010).  This “heterodox but respected” journal was very much his creation, and he published many papers that have since become highly respected although unpublishable in top journals back then.  The first in the first issue was one on new institutional economics by Nobelist Oliver Williamson and the second was the paper on mental accounting that was cited by the Nobel Committee when Richard Thaler received the prize.  It is the case that many ideas he championed back then have now become much more respectable, such as new institutional economics and behavioral and experimental economics, especially after the Nobel awards in 2001 and 2002 respectively for George Akerlof and Vernon Smith.

April jobs report: well, that was a big miss …. but look at the composition

HEADLINES:

• +266,000 million jobs added: 218,000 private sector plus 48,000 government. The alternate, and more volatile measure in the household report indicated a gain of 328,000 jobs, which factors into the unemployment and underemployment rates below.
• U3 unemployment rate rose 0.1% to 6.1%, compared with the January 2020 low of 3.5%.
• U6 underemployment rate declined 0.3% to 10.4%, compared with the January 2020 low of 6.9%.
• Those on temporary layoff increased 88,000 to 2,114,000.
• Permanent job losers increased 97,000 to 3,529,000.
• February was revised upward by 68,000, while March was revised downward by 146,000, for a net loss of 78,000 jobs compared with previous reports.

Leading employment indicators of a slowdown or recessionI am still highlighting these because of their leading nature for the economy overall.  These were almost uniformly negative, their worst performance in a year: 

The American Economic Review is publishing an article by Samuel Norris, Matthew Pecenco, and Jeffrey Weaver that suggests parental incarceration has benefits for children:

Every year, millions of Americans experience the incarceration of a family member. Using 30 years of administrative data from Ohio and exploiting differing incarceration propensities of randomly assigned judges, this paper provides the first quasi-experimental estimates of the effects of parental and sibling incarceration in the US. Parental incarceration has beneficial effects on some important outcomes for children, reducing their likelihood of incarceration by 4.9 percentage points and improving their adult neighborhood quality. While estimates on academic performance and teen parenthood are imprecise, we reject large positive or negative effects. Sibling incarceration leads to similar reductions in criminal activity.

The authors have been criticized not for the substance of their conclusions, but because their findings will serve to legitimize mass incarceration.

Noah Smith has an excellent post discussing the controversy and arguing that scholars should not be constrained by political considerations when deciding what to publish. 

I want to make two different points.  First, I don’t think the main message of the paper is pro-incarceration at all.  My initial reaction reading the abstract (that’s all I’ve read) is that it adds to the growing body of evidence that children are very sensitive to their environments, and that we need to think hard about what we can do to help disadvantaged children have decent childhoods and reach their potential as adults.  You could read this article and think we need to make the Biden family allowance permanent.  You could read it and think that we need to provide paid family leave.  You could read it and think we need better schools.  You could read it and think that we need to make it easier for women to leave abusive relationships.

Second, I don’t think the paper will torpedo criminal justice reform efforts.  Democrats are certainly not going to change their views on the desirability of criminal justice reform as a result of this study.  More importantly, I doubt Republican politicians will either.  The fact is that there is modest support among some Republicans for criminal justice reform, based on years of advocacy and attitude-shaping by libertarians and fiscal conservatives.  Getting to yes on reform will be difficult, but that’s just politics.  One paper isn’t going to change the balance of forces; that’s not how politics works. 

What proponents of criminal justice reform really need to worry about is rising crime rates.  A rise in crime will not just destroy support for reform, it will help Republicans gain control of government at all levels.

1st quarter GDP; March incomes & outlays, and March durable goods

Marketwatch 666, Commenter R.J.S.

Our economy grew at a 6.4% rate in the 1st quarter, quite a bit stronger than during the fourth quarter, as stimulus supported growth in personal consumption of goods and increased federal government consumption outlays more than offset weaker private investment, shrinking inventories, falling exports, and the negative impact of rising imports…the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 6.4% annual rate from the output of the 4th quarter of 2020, when our real output grew at a 4.3% real rate…in current dollars, our first quarter GDP grew at a 10.72% annual rate, increasing from what would work out to be a $21,494.7 billion a year output rate in the 4th quarter of last year to a $22,048.9 billion annual rate in the 1st quarter of this year, with the headline 6.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.1%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change…. 

As is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now….note that March construction, March trade in services, and non-durables inventory data have yet to be reported, and that the BEA assumed a $15 billion increase in exports of services, a $2.5 billion increase in imports of services, a $7.6 billion increase in residential construction, a $1.2 billion decrease in non-residential construction, a $2.9 billion increase in public construction, and a $34.5 billion decrease in nondurable manufacturing inventories for March before they estimated 1st quarter output (see the Key source data and assumptions excel file that accompanies this report for more specific details).

Recall Senators McConnell’s and Graham’s strong opposition to the first COVID relief package? Said it was because they feared it might reduce the incentive of workers in their states to work for low wages; that’s really low wages as in less than a living wages. Mitch and Lindsey, and most of the present day republican party, are miners of poverty. Miners as in get every last possible cent possible out of the working class and personally wheelbarrow it up to those living in the big houses on the hill. Being as they are professionals, Mitch and Lindsey don’t come cheap.

Right to work states are right to mine states. With few exceptions, right to work states are red states. A living minimum wage is an anathema to the miners of poverty.

The miners’ motto: Get every last drop of blood. Though a hand full of democratic members of Congress (think FL) do prenez l’argent, most of the support for poverty mining comes from republican politicians. Faced with regulation or restriction, lenders of payday loans, cash advances, title loans, low wages, and such, turn first to the the republican party.

Another way of obtaining the very last drop is on the spending end. There are stores that deliberately take advantage of poor people. They may do this by way of taking advantage of the customer’s inability to compute price per unit in real-time, their innumeracy, senility, etc. Major grocery chains avoid low-income areas. Dollar stores move in and sell inferior goods for less.

Payday loans take a big cut of the working poor’s wages without hardly lifting a finger beyond signing a political contribution check. Car title loans are a great way of getting at any asset/savings the working poor might have.

Peonage, as practiced in say Alabama, is the cruelest of all the various means of mining poverty. Arrest someone for little or no reason, brand them a felon, then throw them in prison. Once incarcerated, the great state peddles their labor as a source of revenue. Local turkey/chicken/pork processor, general contractor, furniture manufacturer, … hires the the prison labor for a few dollars a day so as to better compete with turkey/chicken/pork processors, general contractors, furniture manufacturers who pay their workers a living wage. Meanwhile, across Alabama, the working class poor are competing for jobs with prison labor. Fine economic model you have there, Mitch and Lindsey.

The executive increases the return to shareholders, in return they increase the executive(s) salaries; and so it goes. The Trump tax cuts were used by corporate executives to buy back shares; increasing the stock value, sending more along to the shareholders who then reward the executive(s) with bigger salaries. What’s missing? The workers. Time was when industrial work forces were huge and unions were strong; when the unions had lots of clout with the democratic party, ergo with government; when they could leverage their clout into a fairer share. Having little leverage, workers are left to suck hind teat. Consequently, more and more of the returns from business go to the shareholders, bondholders, and executives.

If workers were guaranteed a fair share, we wouldn’t be in the disparity we are in. Time was when the unions could ensure that some of the work force got something approximating a fair share. That was then. Needed today are laws that guarantee the workers a fair share of all profits. Corporate accounting, subject to rigorous review, or tax filings could be used. All corporate and business licenses would be subject to compliance.

In the case of start-ups, in lieu of, until, profitability, the workers would receive some minimum wage, plus stock and/or stock options.

As for workers having a say: Workers would have at least 30% representation on all corporate boards and means of input to management in sole proprietorships.

For the from partial to fully automated production facilities, an assessment as to the return on investment in automation would be made and a generous allowance for return on such investment would allowed. Return beyond that allowance would taxed separately a high rate. The revenues from this tax would be dedicated to the enhancement of the social safety net, to provide guaranteed income, etc.

Jobless claims: pandemic progress continues

[Note: I’ll comment on the Q1 GDP report later today or tomorrow.]

New jobless claims will almost certainly continue to be the most important weekly economic data for the next 3 or 4 months, as increasing numbers of vaccinated people and outdoor activities lead to an abatement of the pandemic. Seven weeks ago I set a few objective targets for new claims: to be under 500,000 by Memorial Day, and below 400,000 by Labor Day. This week showed that the first target is clearly in reach.

On an unadjusted basis, new jobless claims declined from 9,486 to 575,350. Seasonally adjusted claims declined by 13,000 to 553,000. The 4 week average of claims also declined by 44,000 to 611,750. All of these were new pandemic lows, after slight upward revisions to last week’s numbers. 
Here’s how the trend looks since last August:

by Joseph Joyce

The Next “Lost Decade”

The 1980s were a “lost decade” of economic growth for those developing countries in Latin America that were enveloped in a debt crisis. Many now fear that we are on the verge of another debt crisis in the wake of borrowing by governments to support their economies during the pandemic. A concerted response will be needed to avoid it.

Countries such as Mexico and Brazil had borrowed during the 1970s to finance oil bills that had skyrocketed after OPEC had raised petroleum prices. International banks were happy to recycle the dollars that the oil-exporters had placed on deposit with them. The crisis came when the Federal Reserve under Paul Volcker raised interest rates, and the U.S. experienced back-to-back recessions that lowered the demand for these countries’ exports. It took a decade of negotiations and failed initiatives before the bank debt was refinanced as bonds or written off.

The IMF’s latest Global Financial Stability Report provides data on the recent rise in government debt: “Government debt in emerging markets (excluding China) is expected to reach 61 percent of GDP in 2021, and gross financing needs are anticipated to remain elevated at 13 percent of GDP in 2021, coming off record levels in 2020.” This escalation follows the pre-pandemic period when public debt/GDP levels had already risen in emerging market economies and advanced economies outside Europe.

More signs of an economic Boom

I have a new article discussing Monday’s durable goods new orders report up at Seeking Alpha, explaining how this data fits into the overall picture of a production-side Boom continuing in the months ahead. 

As usual, clicking over and reading will increase your knowledge of what to expect in the months ahead for the economy, and reward me with a few $$$ for the effort I put in.

While I am at it, the consumer side is Booming as well. Not only is personal spending at record levels (blue in the graph below), but personal saving is also much higher than it was before the pandemic (red), thanks to the stimulus payments:

And consumer confidence as at Boom levels as well:

While house price gains continue to go nuts, housing remains much more affordable than at the peak of the bubble

The boom – and maybe insanity – in house price gains continued in February, as both the Case Shiller and FHFA house price indexes increased roughly 1% just since January! The YoY increase for both was almost exactly 12%, as shown in the graph below:

While the YoY increase in house prices matches those of the bubble peak, and are, to say the least, not sustainable, they aren’t quite the crisis that they appear at first glance.