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

Real Per Capita Income by State ( 2012 $ ) Updated

You can not use inflation data like the CPI to compare living cost is one location to another.  So the BEA has constructed a database  of Regional Price Parities  ( RPP) that allow you do do that for all states and the some 383 Standard Metropolitan Areas in the USA. I was preparing to show them when BEA published the 2018 data.  But that data will not be released until next year so I’m going ahead and showing the 2008 to 2017 data. Note, that in the tables for real per capita personal income by state for 2012 and 2017,  I have converted the data in 2012 $ to an index of personal income as a percent of the national average to facilitate comparisons.

Figure one

The first thing I noticed in the data is Connecticut and Massachusetts  at the top of the tables with per capita real incomes of 129.6% and 121.6% of the national average, respectively.

Even adjusted for the high cost of living they still have the highest real per capita income in the US.  I’ve long  thought of these two states as prime examples of the post-industrial economy.They were the first industrial states and  went through major problems when the textile and shoe industries departed for cheap labor in the south — something quite like the rust-belt states are now experiencing. But that was decades ago and they have now developed economies based on education, finance, high technology and medical care.  The basis for each was  the state investing strongly in education throughout the decline of the old industries so that they had the trained labor force to take advantage of new opportunities.

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Elliott Maraniss

Elliott Maraniss

It’s with more than average interest that I just read a review of David Maraniss’ new book about his father Elliott, A Good American Family: The Red Scare and My Father.  I knew Elliott during my years in Madison as a contributing writer to his newspaper, the Capital Times, and as an informal sounding board for his thoughts on the New Left.  The period in question was the early 1970s.

First, Elliott was the most visibly nervous person I had ever met.  He talked quickly in a loud but skittish voice, and his usual facial expression was a half-smile that seemed to reflect a deep uncertainty about everyone and everything.  Of course, he held a position of authority—editor—and he was able to make decisions rapidly and with conviction.  Still, it always seemed there was something more going on; I had no idea.

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In which I nitpick Prof. Jared Bernstein about a consumer “economic tailwind

In which I nitpick Prof. Jared Bernstein about a consumer “economic tailwind

Last Friday, following the release of May’s personal income and spending report, Prof. Jared Bernstein, whom I follow religiously, wrote among other things about some economic headwinds and tailwinds, including the following:

Finally, my personal favorite tailwind indicator [pointing to the below graph]: the close tracking between aggregate real earnings and consumer spending. The good news is they’re both clearly in expansion territory. The bad news is that they can both downshift within a few quarters:

Although he labels them differently, the first is one of my favorites as well: real aggregate payrolls of production and non-supervisory employees. The second is real personal consumption expenditures.


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Iran Nuclear Deal: Better Late Than Never?

Iran Nuclear Deal: Better Late Than Never?

Monday has seen a curious coincidence that I have seen nobody else comment on regarding the  status of the JCPOA Iran nuclear deal.  On the one hand Iran has apparently now officially violated the agreement in terms of the amount of low level enriched uranium it has, going over the allowed limit, although it remains very far from obtaining in nuclear weapons. On the other the EU, more specifically and especially France and Germany, have gotten their alternative payment mechanism, Instex, operational.  This has been set up to allow European companies to deal with Iran without using dollars or the US-controlled SWIFT clearing system.

However, it is only initially going to deal with non-sensitive items like food and pharmaceuticals, not other goods, at least not now.  The Iranians have made it clear that for them to keep to the JCPOA the Europeans need to more fully offset the US sanctions.  That is not happening, not at least now, although the possibility is there.

So, this may be too late, but maybe Iran will not get too far above the limits.  Maybe there is still a chance to more seriously offset Trump’s illegal sanctions.

Barkley Rosser

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Housing: Elizabeth Warren v. John Cochrane

Housing: Elizabeth Warren v. John Cochrane

Noah Smith has a lot of praise for the economic policy proposals from Elizabeth Warren. I’ll mention only one:

With costs for shelter eating a bigger piece of Americans’ paychecks, and local government paralyzed by incumbent homeowners, the country needs a big solution. Warren’s would combine incentives for raising zoning density with increased public construction”.

This is interesting in light of John Cochrane’s rant attacking the Democrats on the housing issue. Read it for yourself. Cochrane only noted the increased public construction aspect and tried to tell his readers that only Cory Booker wanted to reform zoning issue. While Cochrane admitted increased housing supply would be a good idea – he slandered any government efforts to do so. No wonder he’s the “grumpy economist”!

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As we start the second half of 2019 . . . (Updated: manufacturing almost exactly flat in June)

As we start the second half of 2019 . . . (Updated: manufacturing almost exactly flat in June)

First of all, I forgot to post a link to my post at Seeking Alpha on how a near-term recession is not likely to be centered on either the consumer and financial sectors of the economy, which are doing OK at the moment, but the producer sector – manufacturing – which is getting pretty shaky. We’ll find out more later this morning when ISM manufacturing for June gets reported.

As usual, clicking over and reading puts a penny or two in my pocket to reward me for my efforts.

Now that we are in the second half of the year, I expect the slowdown that we’ve seen over the past few months to become more entrenched. I remain on “recession watch” because risks are elevated (see, for example, this post by Menzie Chinn), but despite the inverted yield curve, my base case remains slowdown only because the Fed can lower rates substantially without being worried about inflation. The main wild card is that Trump probably simply cannot control his urge to roil producers with chaotic tariff and trade policies.

UPDATE: The ISM manufacturing index remained slightly positive in June, at 51.7. The leading new orders subindex was precisely flat, at 50.0:

There is no manufacturing recession. There is the barest of manufacturing expansion.

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Same Scams, Different Countries

Via Diane Ravitch’s blog is a link to this paper Great Britain school priveatization run amok.

In the course of the last quarter century, governmental entities in both the United States and England have sought to encourage educational innovation by creating publicly funded schools that are independent from many rules that apply to locally controlled schools. These schools are called charter schools in the United States and academy schools (academies) in England.

1 Private companies run a high percentage of these charter schools and academies. In the United States, these companies are commonly referred to as educational management organizations (EMOs).

2 In England, these organizations are called academy trusts (ATs).

3 EMOs and ATs frequently engage in related-party transactions for a number of services including educational technology, real estate, and consulting.

4 Related-party transactions are business deals between companies with special, pre-existing relationships.

5 These arrangements can occur, for example, between affiliated companies or a parent company and its subsidiaries.

6 Although related-party transactions are legal, they can create harmful conflicts of interest.

7 As a result, in both the charter and academy sectors, governmental entities have created monitoring systems to protect against wasteful and fraudulent related-party transactions.

8  However, despite the existence of these monitoring systems, numerous instances of problematic related-party transactions have occurred in charter schools and academies. Using comparative legal research methodologies, this article attempts to explain why the monitoring systems of each domain are having such a difficult time regulating related-party transactions.

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The Parting of Ways: The U.S. and China

by Joseph Joyce

The Parting of Ways: The U.S. and China

The agreement of U.S. President Donald Trump and Chinese President Xi Jingping to restart trade talks put offs planned increases of tariffs on Chinese exports. But there is little doubt that the U.S. intends to move ahead with its intention to undo the economic integration that has been underway since the 1990s. Even when it proves impossible to reverse history, the consequences of such a move will have long-lasting consequences for the global economy.

To understand what is at stake, think of the following simple guide to the status of the world’s nations in the aftermath of World War II. Countries separated into three groups, each anchored on its own tectonic plate. The “first world” consisted of the advanced economies of the U.S., Canada, the West European nations, Japan, Australia and New Zealand. These economies enjoyed rapid growth in the 1950s and 1960s, due in part to the expansion of trade amongst them. The formation of the European Community (now Union) eventually led to a single market in goods and services, capital and labor for its members. The largest of the advanced economies exerted their control through the “Group of Seven,” i.e., France, Germany, Italy, Japan, the United Kingdom and the U.S. Their leaders met periodically to discuss economic and other types of policies and issued communiques that listed their agreements. Their predominance extended to their control of the International Monetary Fund and the World Bank.

The “second world” included the Communist nations: the Soviet Union and the countries it controlled in Eastern Europe, as well as China and North Korea. These were command economies, run by government ministers. There was some commerce between the Soviet Union and its East European satellites, but all trade was managed. There were virtually no commercial or financial interactions with the first world.

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