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

Consumer credit: both producer and consumer sides of the ledger show mortgage market OK, increasing stress for other loans

Consumer credit: both producer and consumer sides of the ledger show mortgage market OK, increasing stress for other loans

The New York Fed reported on household debt and credit.

The good news is that there has been no increase in total delinquencies:

This is important because the amount of delinquencies would be expected to increase if we were close to getting into a recession.

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Justice Stevens Shoots At Gun Decision

Justice Stevens Shoots At Gun Decision

Former Supreme Court Justice John Paul Stevens, now 99 years old, has written a book, The Making of a Justice: My First 94 Years. Apparently he considers the  District of Columbia versus Heller decision to be the worst of all those that was made during his time on the Supreme Court, that one on  a 5-4 vote.  That decision upended the interpretations of the Second Amendment that had been in place since the amendment was adopted, with Stevens noting that in fact this longstanding interpretation reflected gun laws from even the colonial era.  That interpretation allowed for gun control legislation for civilians as it was always assumed that the opening phrase about “maintaining a militia” (by state governments) meant that the second phrase about “the right to bear arms shall  not be ingfringed” only applied to those in the military.  The Heller decision undid that, making the right to bear arms disconnected from the business about militias and essentially absolute.

Clearly Stevens feels guilty about what has happened since then, most clearly the epidemic of mass murders with high-powered weapons that were actually banned for civilian use for a decade after 1994, during when such mass murders happened at a lower rate than before or after.  That law was allowed to lapse, when instead the US should have extended it and followed a policy more like what Australia did by buying up outstanding such weapons, which was followed by a dramatic decline in gun-related homicides.   As it is, the US now has a far higher rate of per capita gun ownership than any other nation, more than twice as many as Serbia, the nation with the next highest such rate.

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The Exorbitant Privilege in a World of Low Interest Rates

by Joseph Joyce

The Exorbitant Privilege in a World of Low Interest Rates

The U.S. dollar has long enjoyed what French finance minister Valéry Giscard d’Estaing called an “exorbitant privilege.”  The U.S. can finance its current account deficits and acquisition of foreign assets by issuing Treasury securities that are held by foreign central banks as reserves. The dollar’s share of foreign reserves, while falling, remains over 60%.  But in a world of low interest rates, how exorbitant is this privilege, and is it solely a U.S. phenomenon?

John Plender of the Financial Times has pointed out that U.S. Treasury bonds offer a rate of return that matches or is higher than that of other government bonds with similar risk ratings.  This is true whether we look at nominal returns or real rates of return. The nominal returns reported below are those available on the ten-year government bonds of Germany, Japan, the U.K. and the U.S., while the changes in prices are those reported for their Consumer Price Indexes :


Nominal Return Change in Prices Real Return
Germany -0.05% 2.0% -2.05%
Japan -0.06% 0.5% -0.56%
U.K. 1.13% 1.9% -0.77%
U.S. 2.47% 1.9% 0.57%


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Who Needs Critical Thinking?

Who Needs Critical Thinking?

Apparently not the US military.

“Critical thinking” has long been a buzz phrase of US higher education.  There was a time when I could not hear a speech by a higher administrative person at my or other higher ed institutions that did not tout critical thinking as a really important goal of higher ed.  We were all supposed to be teaching it all the time.  I got a bit tired of these incessant speeches, but in fact I agreed with that and continue to. I have not heard these speeches for some time, but critical thinking remains officially a goal in widespread statements in writing throughout higher ed.

However this may be changing in a disturbing part of higher ed.  I was at a dinner in Washington last evening.  Attending this was someone who teaches at the National Defense University who reported on what I consider a disturbing development there.  Apparently this commonplace of having critical thinking being a goal of higher ed was in place officially at the NDU. However, after “Mad Dog” Mattis resigned, the Chair of the Joint Chiefs replaced the Commandant of the NDU.  The new Commandant has made a big deal of getting rid of this goal and replacing it with an emphasis on training for “war execution.”

Apparently the push on this from the new Commandant has been so intense that it led to a large pushback from the faculty at the NDU.  Aside from stated dissenting views, apparently 15 members of the NDu faculty have resigned over this in protest (not including my interlocuter, who nevertheless sides with those resigning over this).  So our military is now to be trained just to fight wars, but without doing any thinking about it.

Something making this more important is that there have been large cuts in the budget of the State Department, with a large reduction in diplomatic personnel.  This means that the military increasingly will be performing diplomatic functions.  But rather than being trained for that or any sort of peacemaking or, well, thinking, the military is being pushed towards mindless war fighting.

Barkley Rosser

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We are probably close (~500,000) to “full employment

We are probably close (~500,000) to “full employment”

From time to time over the past few years I have tried to estimate how far we were from “full employment,” by which I meant the average levels of the best year in each of the past two expansions. I also estimated how long it would take to get there given the then-current monthly gains in employment.

For example, two years ago I estimated that we needed to add another 2.5 million people, or 1.5% of the labor force, to the employment rolls in order to be at “full employment.” Last August, I updated the figure to a shortfall of about 0.8%, and estimated that, if employment trends held, we would get to “full employment” in about 9 to 12 months from then, which would be sometime between now and the end of summer.

Given the continuing very good jobs reports, I thought I’d take another look.

First, here is the U6 underemployment rate. This includes, most importantly, involuntary part-time workers. For us to be at full employment, this figure ought to be at its 1999-2000 and 2006-07 levels:

We have already surpassed the latter, and are only about 0.2% away from the former.


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Meidner Lives!

Rudolf Meidner, one of the unsung economics heroes of the last century, argued for solidarity wages on several grounds, one of which is that low wages subsidize less efficient firms.*  Bring the bottom up, he said, and you will change the mix of enterprises and boost overall productivity.  It’s just a hypothesis, but here’s a bit of recent evidence from a pair of researchers:

We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

*Unsung in English.  What are they singing these days in Sweden?

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Robert J. Samuelson Denounces Economists

Robert J. Samuelson Denounces Economists

While often on Mondays at the Washington Post, Robert J. Samuelson is spouting VSP lines about how we must be responsible and cut Social Security benefits.  However, today he has written on “What economists don’t know,” which comes across as a pretty big spanking for economists, among whom he does not make much differentiation.  We are all pretty much as ignorant as each other and just plain not willing to admit it, given that we are also all (actually here he admits not all) trying to “gain and retain political relevance and power.”  Shame on us! (or at least some of us)

OK OK, before digging into his more specific complaints, of course I and others here at Econospeak agree that there is a lot that economists do not know, pretty much all of us, and there is also an Establishment that poses as knowing much more than it does that has fallen on its face on quite a few occasions, but nevertheless just keeps putting itself forward as knowing more than others, in many cases indeed apparently out of a pursuit for “political relevance and power.”  Indeed, we like to think that we have exposed this Establishment for its high crimes and misdemeanors, at least on a few occasions, even if we ourselves sometimes make erroneous remarks as well on various matters (and, of course, we get visited by good old Egmont from time to time, whose denunciations of all economists except for himself and maybe one or two others makes Samuelson’s complaints look like high praise).

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Two Recent Studies, Children of Incarcerated Parents and the Long Run Effects of Student Debt

Two Recent Studies, Children of Incarcerated Parents and the Long Run Effects of Student Debt

Amid the blooming flowers of May, each year sees the arrival of the Papers and Proceedings volume of the American Economic Review, containing short and sometimes punchy gleanings from the previous ASSA meetings.  Here are two abstracts of interest.  I haven’t gone through the papers themselves, so I can’t vouch for their methodologies, but the results they claim to have found are politically important.

Title: Student Debt and Labor Market Outcomes
Authors: Gerald Eric Daniels Jr. and Andria Smythe

We study the impact of student debt on various labor market outcomes, namely, income, hourly wages, and hours worked. Using the NLSY97 and a difference-in-difference approach, we find statistically significant differences in labor market outcomes for individuals who received a student loan versus those who received no student loan. We find that the difference in post- versus pre-college income is 8-9 percent higher for individuals that received a student loan relative to individuals who received no student loan. Further, we find evidence that this higher income is due to higher work hours.

Title: The Child Left Behind: Parental Incarceration and Adult Human Capital in the United States
Author: Laura E. Henkhaus

Exposure to parental incarceration is particularly prevalent in the United States, where about 7 percent of children have lived with a parent who was incarcerated. In this paper, I use nationally representative US data and apply partial identification methods to bound the likely effects of parental incarceration on education and labor market outcomes. Findings suggest that parental incarceration leads to substantially higher rates of high school dropout. Results provide some support for negative effects on likelihood of college degree attainment and employment in young adulthood. This work has important implications for criminal justice policy and social policies toward children.

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Kenneth Burke Predicted Jeff Bezos’s Moon Colony Dream 48 Years Ago

Over a time span of forty-four years, Kenneth Burke wrote a series of four essays beginning with “Waste — or the Future of Prosperity,” published in 1930, and concluding with “Why Satire, With a Plan for Writing One” in 1974. Between those two bookends were “Recipe for Prosperity: ‘Borrow. Buy. Waste. Want.,'” in 1956 and “Towards Helhaven: Three Stages of a Vision,” in 1971. Burke made explicit the affinity between the four essays in each successive iteration with repeated reference to the first essay:

Recipe for Prosperity: “Some years ago, in fact just before the stock-market crash of ’29, 1 wrote  an article entitled “Waste or the Future of Prosperity.” It was a burlesque, done along the lines of Veblen’s ingeniously ironic formula, “conspicuous consumption,” as used in his Theory of the Leisure Class.”

Towards Helhaven: “Years ago I published a satire closely akin to the theme of my present “Helhaven” vision. It was called “Waste—or the Future of Prosperity.” The general slant was that, although there is a limit to the amount that people can use, there’s no limit to the amount that people can waste.”

Why Satire: “A rudimentary version of my satire was written just before the market crash of 1929, and published after. Done under the obvious influence of Thorstein Veblen, it was called “Waste—or the Future of Prosperity” (The New Republic 58). It was a perversely rational response to a time when the principle of “planned obsolescence” was already becoming a major factor in the engineering and merchandising of commodities manufactured for the mass market.”

In “Toward Helhaven,” Burke presented the satire of the “Culture-Bubble on the Moon,” the haven to which the .01% would flee to escape the polluted hell they had created on the earth.

For a happy ending, then, envision an apocalyptic development whereby technology could of itself procure, for a fortunate few, an ultimate technological release from the very distresses with which that very technology now burdens us.

Not incidental to Burke’s technological paradise would be a “Super-Lookout” for observing those “scurvy anthropoid leftovers that might still somehow contrive to go on hatching their doubtless degenerate and misshapen broods back there among those seven filthy seas”:

…a kind of chapel, bare except for some small but powerful telescopes of a special competence. And on the wall, in ecclesiastical lettering, there will be these fundamental words from the Summa Theologica: “And the blessed in Heaven shall look upon the sufferings of the damned, that they may love their blessedness the more.”

Of course Bezos claims that his vision will preserve earth as a pristine residential zone, with only light industry. Of course! Bezos, however, doesn’t have a track record for that kind of long run prediction. Burke did. His 1930 burlesque was proven prophetic by the time of his 1956 reassessment.
Central to Burke’s futurist satire, as he emphasized several time, was Thorstein Veblen’s The Theory of the Leisure Class. Familiarity with Veblen’s theory and “his ingeniously ironic formula, ‘conspicuous consumption'” would enhance understanding of Burke’s satire.
It is not easy to give a quick overview of Veblen’s book and theory. For starters, his “ironic formula” of “conspicuous consumption” is not meant to be ironic. Although composed in a satirical tone, The Theory of the Leisure Class is not a satire. Readers may find the sustained, exaggeratedly-elevated tone of the book grating, which may well be intentional.
Reading backward from the last chapter, “The Higher Learning as an Expression of the Pecuniary Culture” reveals that the “theory” of the title has a dual reference. The very notion of theory is itself imbued with class privilege, prestige, parasitism and obscurantism. To have the leisure to criticize the nature of class society is already to be implicated in the perpetuation of class hierarchies. There is no escaping from the labyrinth of language that has evolved to vindicate the right of the mighty.
Or, at least, there is no leisurely escape to be achieved by reading about it. One must do the work.
Veblen left a clue in the last chapter when he discusses the role of the priest or shaman as mediator between the “inscrutable powers that move in the external world” and the “common run of unrestricted humanity.” Science enters as a token of priestly prowess:

…as commonly happens with mediators between the vulgar and their masters, whether the masters be natural or preternatural, he found it expedient to have the means at hand tangibly to impress upon the vulgar the fact that these inscrutable powers would do what he might ask of them. Hence, presently, a knowledge of certain natural processes which could be turned to account for spectacular effect, together with some sleight of hand, came to be an integral part of priestly lore.

To illustrate his point, Veblen presented the “typical case” of  the Norwegian peasants who “have instinctively formulated their sense of the superior erudition of… even so late a scholar in divinity as Grundtvig, in terms of the Black Art.” Norwegian peasants is self-referential; the Danish minister, N. F. S. Grundtvig, was a major influence on Veblen, particularly on his concept of language. In effect, Veblen was warning the reader that his prose was exemplary of the “sympathetic magic” performed by the theorist — “a by-product of the priestly vicarious leisure class.”

The core of Veblen’s theory is presented in the “Introductory” chapter one and the first six paragraphs of chapter two, “Pecuniary Emulation.” The following thirteen chapters elaborate the implications of that theory with the final chapter “deconstructing” the pretense of theory existing outside of the social strictures that have given birth to it. Veblen’s speculation about the origins of a “leisure class” and of ownership is outlined in two brief passages from chapter two:

The early differentiation out of which the distinction between a leisure and a working class arises is a division maintained between men’s and women’s work in the lower stages of barbarism. Likewise the earliest form of ownership is an ownership of the women by the able-bodied men of the community. …

The ownership of women begins in the lower barbarian stages of culture, apparently with the seizure of female captives. The original reason for the seizure and appropriation of women seems to have been their usefulness as trophies.

From that inauspicious beginning things only get more complicated and ingrained through emulation until ultimately even “enlightenment.” ritually clothed in its atavistic cap and gown, comes to the aid of subjugation and social domination. Emulation, invidious comparisons and distinctions, conspicuous and vicarious leisure, consumption and waste accumulate as habits in an accustomed way of life. But first of all emulation, which brings us back to the theme of Burke’s essays: waste as the basis of continued “prosperity”:

With the exception of the instinct of self-preservation, the propensity for emulation is probably the strongest and most alert and persistent of the economic motives proper. In an industrial community this propensity for emulation expresses itself in pecuniary emulation; and this, so far as regards the Western civilized communities of the present, is virtually equivalent to saying that it expresses itself in some form of conspicuous waste. The need of conspicuous waste, therefore, stands ready to absorb any increase in the community’s industrial efficiency or output of goods, after the most elementary physical wants have been provided for.

Two other aspects of Veblen’s theory indicate its usefulness for understanding our current predicament of regression: the central role played by subjugation of women, previously mentioned, and by the glorification of arms. Veblen stressed repeatedly the symbolic importance of arms to leisure class values:

Under this common-sense barbarian appreciation of worth or honour, the taking of life — the killing of formidable competitors, whether brute or human — is honourable in the highest degree. And this high office of slaughter, as an expression of the slayer’s prepotence, casts a glamour of worth over every act of slaughter and over all the tools and accessories of the act. Arms are honourable, and the use of them, even in seeking the life of the meanest creatures of the fields, becomes a honorific employment.

So, those offices which are by right the proper employment of the leisure class are noble; such as government, fighting, hunting, the care of arms and accoutrements, and the like — in short, those which may be classed as ostensibly predatory employments.

It is noticeable, for instance, that even very mild-mannered and matter-of-fact men who go out shooting are apt to carry an excess of arms and accoutrements in order to impress upon their own imagination the seriousness of their undertaking.

Kenneth Burke may have predicted Jeff Bezos’s moon colony dream 48 years ago but Thorstein Veblen predicted the 21st century GOP platform 120 years ago.

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