The Economist Wants You to be Less Ignorant

The Economist has a great post about the effects of (legal) immigration and crime. Starting January 1st, Bulgarians and Romanians will have free migration to the rest of the European Union. Ignorant xenophobic people are worried about negative effects on crime. I say ignorant because:

Researchers at the London School of Economics and University College London have studied the effect on crime of two large migration flows to Britain. One was the arrival of large numbers of economic migrants from eastern Europe after the enlargement of the EU in 2004. Rates of violent crime in the parts of England and Wales where they settled remained stable and property crime fell...Economic migrants are likely to arrange jobs before they arrive. Few are unemployed. Studies in America have shown similar trends: the crime rate among first-generation immigrants is lower than the overall crime rate.

 The second group were asylum seekers...their presence had no impact on the prevalence of violent crime. Property crime did, however, rise slightly. Part of the reason behind this is the contrasting circumstances of asylum seekers...Few planned to leave their homelands.

 The funny part is that their native born children commit crimes at the same rate as the rest of the native born. Sounds to me like they'll be as American or British as anyone else.


On the emigration side, I found this:

Ireland's situation is still perilous...Only mass emigration over the last five years has stopped its unemployment figures from rising...Emigration now even seems to have formally become a government policy to reduce unemployment figures. 

But that shouldn't be too surprising. Ireland has used emigration as a safety valve for centuries, why change what works? Fun fact: Ireland's population before the Great Famine was over 6 million people. Many emigrated because of the famine, but the trend continued until the mid 20th century, when the population bottomed out just under 3 million. Today Ireland's population is still below its peak, at around 5 million people.

You know what’s dumb? (probably part 1 of a never-ending series)

One thing fo sho is when people in rich countries complain about the socioeconomic consequences of aging populations, shrinking workforce, etc., and whatever negative consequences they are assumed to bring. While some of these are concerns, a bad thing to do is try to boost fertility rates within the borders of that country, like Singapore[1]. There’s an easy solution[2]: reduce barriers to immigration. There, same effect, but you know it will work. And someone else’s country paid to raise those chumps so you’re already ahead (and the country they come from benefits too). And world poverty will decrease significantly faster.

The reduction of artificial barriers to labor markets would lead to an average increase of 1.4% global GDP for every 1% increase in migration[3]. And this increased GDP will be distributed among a lower number of people (compared to current trends), due to more rapidly decreasing fertility rates of the poor whose incomes rise.

Which means we all get to be richer with less strain on the environment than would otherwise be the case. So shut up about declining population growth and let people have the freedom to choose how large of a family they want[4], and where they want to raise it.

Economist Quotes

"Everywhere we look we see fewer and fewer people...that understand even economics 101. People who don’t are not entitled to an opinion. People who do, but still reject econ101, are entitled to an opinion."

- Scott Sumner

November Jobs Report

November Jobs Report: it was in sort of good range. 203,000 jobs were added in November. The recent trend has improved since the summer, which has happened to some degree each summer to winter this recovery. The previous two reports number's were only slightly adjusted. The labor force participation rate changed little.

The unemployment rate fell from 7.3% to 7%, based on the numbers in the smaller Household Survey used for the unemployment rate. Al Jazeera called it a "five year low" which is depressing. Al Jazeera followed that up with "but wages barely increased". Duh, one has to happen before the other. If at any point in time you told me unemployment would be above 7% for five years in the United States I'd bet wages wouldn't grow, barely increase at best. Given a labor demand resulting in that high of unemployment for that long, either real wages would need to fall or productivity increase faster than wage growth to decrease unemployment (and both are happening to a slow extent). Increased demand for labor blah blah long run back to equilibrium.

Trash Talking

In a recent post I made fun of some guy in the Senate whose objection to Janet Yellen being Fed Chairperson is that she believes monetary policy is effective. Since winning this years Nobel Prize in Economics for the Efficient Market Hypothesis (EMH), Eugene Fama said of Quantitative Easing (QE): "They're basically neutral events. I don't think they do very much."

In response, another economist called him a "dumbass".

October Jobs Report

The October Jobs Report came out today, so the BLS is back on its normal schedule. Finally a goodish number: 204,000 jobs were added. Though the Household Survey used to generate the unemployment rate (7.3%), showed people leaving the labor force and high job losses. But the shutdown has massively complicated any useful interpretation for the discrepancy. But the Establishment Survey (which the net change is measured from) is more reliable.

I'd like to say I have no idea why the graphs I upload have started to have the shoddy looking solid white coloration where the net gain line crosses the y-axis mark. I've done nothing different than before, thanks google. 

The previous two months were better than originally reported as well, with August job growth of 238,000. So the picture of the labor market is a little better than it was last report. 

September Jobs Report Update

The BLS released its official statistics today, delayed more than two weeks due to the shutdown. They aren't good. Only 148,000 jobs were added, below the private estimate of ADP. Revisions to previous months roughly balanced out. 

Despite a good start to the year, job growth has returned to disappointing numbers. Now which chumps were talking about it being time to scale back monetary stimulus again?

Politics and Yellen's Nomination

When Janet Yellen was nominated to be a Fed Vice-Chairperson, all four Republican members of the Senate Banking Committee voted against her. With Bob Corker of Tennessee saying:

"She was not particularly modest about the role of monetary policy in the economy and I don’t see any evidence that’s changed."

Note that this is not a statement on a specific theory of monetary policy or even on a side of any general debate about monetary policy, such as what the inflation target should be. Mr. Corker is saying he doesn’t like her because she believes that Fed policy has an important influence on the economy. That period is bold for emphasis. That should be requirement number 1 for a Fed Chair. Paul Volcker is famous for showing how easily the Fed can stifle inflation. Even the libertarian Alan Greenspan recognized the importance of monetary policy enough to not feel any need for modesty. Ben Bernanke's academic career was about how influential monetary policy remained over the economy even when interest rates are near 0%.

Here’s a metaphor economists like to use. Say you are a passenger in a car, and have never seen a car before. The car is driving along a hilly road, and maintains a constant speed uphill and downhill. The driver is so skilled that yo can adjust the acceleration and breaking to cancel out the effect of the hills. Without controlling for anything else, you would find that the actions of the driver have no effect on the speed of the car. The speed stays constant whether the driver hits the breaks or the gas. Bob Corker, among others, is that passenger, and probably has about the same understanding of economics as the theoretical passenger has about cars, or hills for that matter.

Typically monetary policy stays in the background, keeping inflation from rising above its target. But in a debt crisis, the reaction of monetary policy can greatly influence the severity of the damage; it can mean the difference between a depression and recession. There's no need for modesty.

The Next Chairperson of the Federal Reserve

Or at least she better be. Janet Yellen was nominated for the Chair of the Federal Reserve, and no nominee has gotten less than 70 votes in the Senate for their confirmation. But the low of 70 was for the current Chairperson, Ben Bernanke, a Republican nominated by a Democrat.

She is the first woman to be nominated for the position; and the best person for the job. She is immensely experienced, and respected in the economics community. She has frequently been called a "dove", which is to suggest she is less concerned about inflation than a "hawk" would be. This is a lazy misnomer: Yellen has defended the Fed's 2% inflation target as much as anyone. It's only now that unemployment is above "full employment" and inflation has been consistently below the Fed's target that she has been a leader in structuring the Fed's unconventional policy responses. 

The correct debate isn't about inflation hawks vs. doves. It's about whether a person feels monetary policy is effective enough to bring unemployment down, and inflation up, to target even when interest rates are near 0%. It is, and Dr. Yellen knows this.

September Jobs Report

There was no jobs report due to the shutdown. A private estimate by ADP, puts September job growth at 166,000ish. But the private estimates are often well off from the BLS figures, which go through at least two more (sometimes substantial) revisions. The private estimates certainly aren’t the market movers the BLS figures are. But this figure, if accurate enough, provides evidence of a slowing economy. Not to mention that 800,000 people are temporarily out of paid work, and around 1 million are working with delayed pay, due to the shutdown.

This points to a reality of the shutdown: it is costly, and increasingly so the more time passes. From the 70% of federal intelligence employees furloughed, to new NIH patients turned away, to NOAA furloughing employees just to bring some back again for an approaching storm, to Maryland projected to lose $5 million of tax revenue per day. In the longer run, far more of these jobs become essential than the label suggests. 

But an overlooked effect of the shutdown is the lack of data. The Federal Reserve has pursued a policy that has a rough unemployment target (down to under 7%), and an inflation target (long term expectation no higher than 2%). Now neither statistic is being collected or reported by the BLS, the primary source for these figures. So the longer the shutdown lasts, the less reliable the data that guides monetary policy will become. 

August Jobs Report

Definitely a bad one. Only 169,000 jobs were added in August. The unemployment rate dropped to 7.3% due to people leaving the labor force. And the past two months of lackluster job growth were revised down by a total of 74,000 jobs. The last three months have been the worst since the recent round of Quantitative Easing (QE) began.

Coincidentally, this comes as the Fed has been making noises about "tapering" or removing stimulus in the near future. Unexpectedly, after this began, around March, inflation expectations dropped (and were never high anyway). This is the same pattern as the previous rounds of QE: as their end became apparent inflation and hiring declined, leaving the economy stagnant and making future rounds of stimulus necessary. 

That being said employment data is always volatile, and other data such as car sales and new Unemployment Insurance claims still point to strong growth. But as long as inflation, and inflation expectations aren't high, and wages aren't rising, the Fed clearly has room to stimulate without much downside risk[1]. And the fastest way to stop using unconventional monetary policy, and thus reduce that risk, is to use it correctly the first time. Withdrawing stimulus in the near future would be a mistake, at least one person at the Fed understands this.

Money

Here is a chart of money: 

Approximately all of it (at the time, and in dollars) and examples of what it can be used for. As the chart states: "All this money flows in and out of, and between, households, corporations, and governments. This process is complicated". Basically, there is a circular flow to all of this money, so there is double counting. But it is a great snapshot to look at whenever one is bored.

So…That Immigration Bill

If anyone reads this regularly, they know I’ve done a few posts about the economics of migration (here, here, and here). That’s because freer migration is the single best thing for the world economy. Since that statement isn’t at all controversial, and Latinos voted against Republicans in droves in the last election, it was natural that a bipartisan immigration bill passed the senate. The bill, while still flawed, was progress in the right direction. However, it died in the House, where Republicans refused to let it come up for a vote. 

So what would the immigration bill have done for the economy? It would have been a net benefit. The CBO found that, over the next 20 years, passage of the immigration bill would increase GDP by 5.4%, and reduce federal debt by $300 billion. Average wages would be 0.5% higher[1]; the rate of return on capital investment would be higher. Immigrants added to the population would “participate in the labor force at a higher rate”, or because they would be both less skilled and work at lower wages, on average (the bill would also allow for more skilled immigrants), they would be employed at a higher rate[2]. Overall, the bill would increase the productivity of capital and labor, meaning it would be profitable to employ more of both. Illegal immigrants who would obtain legal status would see a wage increase of 12%, and increased productivity. It would lead to a higher return on savings, which, combined with increased wages would lead to a higher savings rate.

Economist Quotes

"What are you? Blind? In which case maybe. I mostly support projects working to restore sight and prevent eye disease. Or 'expanding the market' as you might call it."

- Banksy

July Jobs Report

162,000 jobs were added in July. It's neither relatively good nor bad. The previous two months were revised down by 26,000 jobs total.

It's a mixed signal, and there have been a lot of mixed signals in the economy lately. The good part is that the innovative Fed policy we currently have automatically adjusts to economic conditions. If the economy slows down it means monetary stimulus will last longer. And the mixed signals in the economy have already triggered some subtle but telling word changes in Fed policy statements, which point to the need for continued stimulus.

The Walmart Living Wage Bill is a Bad Idea

The bill that recently passed the D.C. City Council  yet to be signed by the mayor, requiring Walmart to pay a “living wage” of $12.50 an hour is a bad idea[1]. At worst it will harm the poor and unskilled, at best it is a very inefficient way to benefit a small number of them.

Suburban Poverty

"...it is true that poverty rates tend to be higher in cities and the countryside. But the suburbs are where you will find America’s biggest and fastest-growing poor population."

June Jobs Report

195,000 jobs were added in June. A relatively good number given the recent past. The labor force participation rate stayed about the same. Furthermore, both April and May were revised upward to nearly 200,000 jobs added.

Current job numbers represent a break with the previous post-recession trend of relatively strong winters and weak summers. 2013 is on track to be the  strongest year of the recovery. All this despite fiscal austerity, and weaker growth in Europe and developing countries. Monetary policy, however, has been at its most expansionary of the recovery.

Abortion

The state of Texas is currently trying to pass a bill that would limit access to abortions, which, according to the Supreme Court, is at least against the spirit of the Constitution. Anyway, a Democratic State Senator, Wendy Davis, successfully filibustered the bill in a special legislative session. However, the governor just declared a new special session, so its passage is very likely.  

Due to these current events, now seemed like a good time to share a couple graphs I've come across in The Economist. First, a graph of teenage pregnancy, birth, and abortion rates. 

All rates have been decreasing, despite the legality of abortions. Surely the large decrease in teenage pregnancy has contributed, so it would seem that if Texas wants to reduce abortions it should reduce its higher than average teen pregnancy rate. But Texas has abstinence-only education.

The second graph shows the rates of safe and unsafe abortions in the world:

According to the data, Latin America and Africa have the highest rates of abortions, despite having some of the strictest laws limiting the procedure, or making it illegal. At the same time, they have the highest rates of unsafe abortions. The least that can be said is that laws limiting or making abortion illegal are negatively correlated with the rate of abortions. The United States and Canada, where abortion laws are generally more liberal, have lower rates of abortions and nearly no unsafe abortions. And those rates are decreasing.

No one wants there to be more abortions. But it seems that "legal, safe, and rare" is a more successful policy than the alternative, which, according to these graphs, could be described as "illegal, unsafe, and more common".

May Jobs Report

The Economy added 175,000 jobs in May. A very average number. The unemployment rate went up 0.1% to 7.6% due to more people entering the labor force. 

Not much more to say / gonna be lazy on this one. Sorry I'm not sorry.

Pakistan

A pretty newsworthy event has occurred in Pakistan: after winning an election, the new Prime Minister was sworn in. But this is no ordinary political event; it is in fact the first time since independence that an elected civilian government has finished its full term, and been replaced by another elected government. The new Prime Minister, Nawaz Sharif, also set a record by being elected to the post for a third time.

Additionally, there is a new opposition party, led by Imran Khan. His party had never won a seat previously, but now is the third largest in the parliament. The vote, while beset by some violence, was largely free and fair. Turnout increased to 60%. It only takes one time to set a precedent. Here's to a better more democratic future.

Mr. Sharif called for the end to drone strikes in Pakistan after being sworn in. Imran Khan has done so repeatedly as well. A new data visualization tells the story of drone strikes in Pakistan. Less than 2% of those killed have been "high-level" targets, 22% were confirmed civilians, and the remainder are "alleged combatants", whom the authors treat as "other" or those who can't be proven non-combatants.

The drone program got off to a pretty slow, yet horrible start, generally killing more children than anyone else, to say nothing of adult civilians. Over time, civilian deaths continued to increase, but alleged combatant deaths increased faster. Presently, around 76% of those killed are alleged combatants. Better targeting I guess, but it bears repeating: less than 2% have been high profile targets.

Economics of Emigration and the American South

A while ago I posted about the immense benefits of freer migration for migrants, the places they leave, and the places they go. Most research focuses on immigration, and partly as a result there is concern that emigration makes a sending country worse off by reducing its productive capacity. As I outlined in my original post, emigration is a net benefit, and increases growth.

Since then, I came across a paper on emigration and growth in the Southern United States. At the beginning of the 20th century the South was proportionally poorer than the North. Starting in the 1940s, the South grew faster than the North and closed the gap significantly. At the same time, there was large black emigration out of the South.

To get at the causation, Richard Hornbeck and Suresh Naidu of Harvard and Columbia University respectively, look at The Great Mississippi Flood of 1927. 

Fair Trade

Is better to buy based on than organic/local. This has been a micro-blog.

My Ideology

If there’s one thing I could’ve[1] said to my Sociology of Inequality class, it’s that markets are natural forces. They cannot be defied indefinitely. Just as ideology is more powerful than coercion in the survival of societies, markets are more powerful than our resistance to them. If you don’t do things efficiently it doesn’t matter your goal, you wasted resources. Our optimal progress depends on working with natural forces; it’s just like sailing. 

Progress that more widely benefits humanity is certainly possible. Every dictator who falls, or monopoly that can’t adapt fast enough will benefit that progress. When markets are not manipulated to serve governments, businesses, countries, regions, or groups in particular, but the people of all of them in general, we’ll have reached our potential. That is what we should be striving to do, because nothing else will work.

April Jobs Report

165,000 jobs were added in April. A number that is neither good nor bad. The unemployment rate went down to 7.5% and not because people were leaving the labor force this time. In better news, March's terrible number has been revised up to a less bad 138,000 jobs added. February's numbers were revised up to 332,000 jobs added, the highest number since May of 2010.

Front Page Billing for Maryland

This is the most front page Maryland I've seen on a non-Maryland news source site or paper. When gay marriage was upheld in referendum we had to share the glory with some other states. But now here we are:

As the Governor, Martin O'Malley, put it, "Evidence shows that the death penalty is not a deterrent, it cannot be administered without racial bias, and it costs three times as much as life in prison without parole." Not to mention, as was communicated by the presence of an exonerated death row inmate at the signing, it can't be administered without killing innocent people. So woo.

Actually far more important is the 260,000 people dying in the East African famine during 2010-12. For some reference the UN estimates around 70,000 people have died in Syria's civil war in the past two years. The UN has many early warning famine indicators, and they did see the famine coming. But rich countries didn't want to help out any until it was a popular story in the news.

Also apparently the ECB has realized monetary policy is too tight and has made it a quarter percent less too tight.

Another Labor Market Graph

Here's another useful graph for understanding the current state of the labor market. It's known as the Beveridge Curve, which graphs the relationship between job vacancies and the unemployment rate. With no changes in the efficiency of a labor market, a given level of openings should correspond with a given unemployment rate. For example, 2005 and 2006 in the graph below have roughly the same number of vacancies and similar unemployment rates.

There has been a noticeable shift in the curve, indicating a less efficient labor market. In the 2000s labor market, the rate of vacancies we have today would correspond with an unemployment rate of around 5.5 to 6%. 

More (and better) Unemployment Indicators

In addition to the monthly job growth numbers, I felt it would be nice to give some greater detail of unemployment through this recover. First, a couple graphs showing the increase in long term unemployment.

And last, a graph of the best unemployment indicator, the Employment to Population Ratio. It is presented as the number of people 16 and older employed over the number of people 16 and over multiplied by 100. The benefit is that, unlike the unemployment rate, people leaving the labor force doesn't make the statistic look better. Most OECD countries have an upper age limit, which is smarter. Retiring baby boomers would bring down the ratio all else remaining constant (notice that the ratio was decreasing slowly before the recession hit). 

So the reality is slightly better than the graph would initially indicate.

March Jobs Report

March employment growth was the worst since June of 2012. 88,000 jobs were added, and the unemployment rate decreased to 7.6% due to people leaving the labor force. 

Naturally, the fact that the sequester hit in March comes to mind for a potential cause. While the amount of spending cut so far is bound to be tiny (due to lags in appropriations and spending only $41 billion of the $85 billion in cuts for 2013 will take effect in 2013), there is no longer any optimistic uncertainty that they will happen. 

On the other hand, bad reports have come and gone and sometimes been revised away, so it can't be said with certainty that the report really was this bad, or that it was caused by any one thing specifically. Numbers for January and February were revised up somewhat.

The First Offensive UN Force

A bit of history was made the other day, you may have missed it because it pertains to that Africa place everyone's heard so little about, specifically the Democratic Republic of Congo (or Congo for the rest of this post[1]). 

Conflict in eastern Congo has gone on for decades. All of Congo's neighbors have gotten involved at various points both directly and through proxies. The climax was the First and Second Congo Wars, Africa's deadliest conflict. Rwanda in particular has always been involved, partially to carry on fighting against Hutu militias that participated in the genocide. It is pretty much common knowledge that Rwanda sponsors rebel groups in eastern Congo.

Anyway, for the first time in UN peacekeeping history, a unit of 2,500 peacekeeping forces in Congo have been given an "offensive" mandate. Meaning they have been instructed to actively "neutralize" and "disarm" rebel groups. Unarmed US drones will also be deployed to assist with the fight. To assuage fears that this historic precedent is a historic precedent, the UN says the intervention force will be created "on an exceptional basis and without creating a precedent", oh politics.

In reality this is more of the UN making official what it has been trying to get away with in other conflicts. UN and French peacekeepers intervened on behalf of rebels (now the government) in Cote d'Ivoire, under the justification of protecting civilians from government forces. So now, in eastern Congo at least, its official, the UN has taken sides.

Laissez-faire and the Triangle Shirtwaist Fire

Here’s a story illustrating the need for some level of regulation on businesses. It's not about needing more or less necessarily, it's that there's an optimal level above none. 


The Triangle Shirtwaist Company (TSC) was one of the largest of nearly 500 garment factories on Manhattan in the early 1900s. It was a competitive industry, with no monopoly power. Around 70% of the workers in the garment industry in New York City were female. Most of the women were recent immigrants, or their children. They worked 7 days a week at least 11 hours a day for around $1 to $2 a day[1] minus what their employer deducted for electricity and supplies (adjusting for inflation, $1 back then was worth around $24 today). Given that 20% of the world population still lives on less than $1.25[2] a day, the wages paid, while low and for sweat-shop work, were still an initially attractive way out of poverty. 

But the women and some men of the garment shops came to believe they were paid too little given the value of their output.

Happy Anniversary!

Its been ten years since the United States launched an unprovoked invasion of Iraq. Iraq wasn't a threat to the United States or even its neighbors; so the only logical reason is George W. Bush having a personal grudge. The American people were deliberately lied to about the justification. In one such instance, according Hans Blitz (Chief UN Weapons Inspector at the time), a document alleging to show Iraqi intent to buy uranium from Niger, mentioned during a State of the Union Address, took the UN team "less than a day" to prove fake. But we all know it was bullshit; let's see what Bush spent to settle his grudge.

4,804 coalition troops were killed (of which 4,475 Americans), and over 32,000 wounded. Over 110,000 Iraqi civilians were killed (and that's low-balling it). Already over $1.6 trillion has been spent on the war. Estimates of the final bill for the United States range between $2.4 trillion to $6 trillion. And that's just in direct costs, to say nothing of the cost to families, the lost productivity and anguish from thousands dead and tens of thousands wounded, and the opportunity cost of lost benefits of anything else the money could've gone towards. The estimates are between 12.4% and 30% of where our national debt is projected to be in 10 years. Basically, people wouldn't really care so much about our debt right now had we not wasted trillions of dollars and gained nothing but dead and wounded for it. So good job America.

The Sequester, What’s its Deal?

The answer is it’s some economically damaging bullshit that won’t change our debt outlook. 

Blah blah automatic spending cuts, you get the point. Basically, it will cut around $1 trillion from government debt over the next ten years. $85 billion will be cut from the 2013 budget[1]. While those may be relatively small numbers compared to federal spending, it’s ignorant to think they are harmless. There’s a new and gathering body of evidence that shows government spending has a proportionally larger effect on the economy in times of economic weakness; cutting spending now is especially damaging to current economic growth.

Furthermore, the design of the cuts is especially inefficient. The cuts are across the board, meaning affected departments cannot pick the least effective programs to cut; they will be cut as much as the most needed programs. The cuts also treat any dollar the government uses as spending, when in fact much of what is being cut is investment. This is similar to saying you “spent” money by putting it in a retirement account. The government invests money in infrastructure, education, research, etc. which leads to future benefits. But investment will be cut the same as consumption or transfer payments, meaning the future benefits will be cut too.

Ignoring the horrible design, many have argued that the pain is worth the result. But the sequester fails to make significant cuts or change the long run trend in government debt. If current laws remain the same, federal debt will amount to $20 trillion by 2023, and will be growing by over $1 trillion a year. All the sequester does is buy a year of time through one-off cuts.

While 5% reduction in debt is still something, and we need to cut spending whether taxes are raised or not, the cuts that come in 2013 are especially damaging and foolish. The CBO and Macroeconomic Advisors (MA) project that the first year of cuts ($85 billion) will reduce economic growth by 0.6% in 2013. The CBO forecasts 750,000 less jobs by the end of 2013 than would be the case without cuts; more optimistically, MA projects the job losses, of 700,000, would take until the end of 2014 to fully occur[2]. This is for the equivalent of one month of spending by 2023. Why not push it back a year? It’d still be the same amount of spending without derailing what should otherwise be the best year of the recovery so far.

In the longer run, growth is projected to return to “normal”. My argument against that outlook is that the models they use don’t reflect dynamic factors such as the cost of poor infrastructure, or the inefficiency and inequality of an underfunded court system and other vital government functions. But leaving aside the fact that a functioning government is better for the economy than anarchy, the cuts are coming too early, and to the wrong areas of government spending. If we don’t reduce the spending growth of mandatory programs (which is primarily Medicare, Medicaid, and Social Security) then we will have gained nothing, at a high cost to the recovery. One only needs to look to Europe to see how a policy of spending cuts in a weak economy results. 

February Jobs Report

236,000 jobs were added in February, a relatively good number for the recovery. The unemployment rate went down to 7.7%, while the labor force participation rate was steady. November job growth was revised upward 23,000 to 219,000 jobs added. December job growth was revised down by 38,000 to 119,000 jobs.

Again, the job numbers show an improving labor market that has seemingly ignored the headwinds of tax increases[1] and the uncertainty of repeated deadline fiscal bargaining. While the cuts from the sequester have not yet impacted the economy, the uncertainty of them and expectations that they might happen already have. This suggests markets either didn't expect the cuts to happen or don't think they'll have much of an impact. We'll see what happens when the cuts are actually occurring.

Hugo Chávez is Dead!

Hugo Chávez died on March 5th after a two year battle with cancer. He had been president of Venezuela since 1999. It is great news. While the most likely outcome of a mandated election in 30 days of his death will be the election of his vice-president, Nicolás Maduro, Mr. Maduro lacks the charisma and loyal following of Chávez. The opposition has been making slow but steady electoral gains and is increasingly united. Either way, the new president will have to deal with the decaying façade of Chávez’s “21st Century Socialism”. 

This is Awkward

At the end of January, I posted about the BEA's 2012 fourth quarter GDP growth estimate. It was -0.1% annualized. Most of the decrease was due to cuts in government spending, and reductions in private business inventories (which is typically a sign of negative expectations). Positive contributors to GDP included nonresidential and residential fixed investment. 

The thing was, job numbers and stock market performance were suggestive of positive GDP growth. I expected that GDP growth would be revised up. It was; instead of contracting by 0.1%, the economy grew by 0.1%. It is still a bad number and still out of line with the job market performance. On the other hand inflation growth is slowing, and in urban areas has sat at 0% for a couple months now, which can indicate slowing growth.

Basically who knows.

Medical Malpractice

Here's a long post, it's about medical malpractice:

Malpractice is one of the most public and emotional issues in the topic of health care and health reform. For decades frivolous lawsuits, out of control awards, and increasing malpractice insurance costs have been blamed for increasing the cost of health care. The reality is much more complicated. The malpractice system is not a substantial factor behind health care costs or a contributor to rising health care cost. But the benefit of the system is very much in question. The malpractice system must both compensate victims and deter negligence to be effective; it struggles to do either. 

January Jobs Report

The January Jobs report came out Friday along with annual revisions to past jobs numbers. Job growth in January was 157,000, a relatively average number for the current recovery. The unemployment rate went up by 0.1% due to revisions to population and labor force estimates. The better news is the direction of the revisions to past numbers. November was revised up from 161,000 to 247,000 jobs added, a strong performance in the context of the recovery. December was revised up from 155,000 to 196,000. Generally speaking, the revisions to older months were upwards in direction. There were even a couple months of job growth above 300,000.

The graph below shows the revised numbers in white, and the previous numbers in red.




The jobs report gives further evidence in conflict with the fourth quarter contraction in GDP indicated in the BEA's preliminary estimates. As I noted in the previous post, these estimates are always revised to some degree, sometimes by over a percentage point. When looking at other indicators of economic strength, it seems very likely that GDP did in fact expand in the fourth quarter.

Wha??

According to the Bureau of Economic Analysis, the economy is, well was in the fourth quarter, contracting for the first time since 2009. It comes as quite a surprise to any non-doomsayer. The economy grew by 3.1% annualized in the third quarter, in the fourth it contracted by 0.1%. Granted, the "advance" report is revised multiple times; initially the advance report put third quarter GDP growth at 2% annualized. The fourth quarter number could be revised up, but will still be poor. 

The reported contraction was due in large part to reductions in government spending (mostly defense, which alone knocked 1.28% off growth), and in inventories. The reduction in inventories could indicate an expectation of worse growth going forward. Exports also took a hit, owing to a weak world economy.

On the other hand, the jobs data had the same middling growth during the fourth quarter, as in not indicating a worsening situation. Consumer spending and residential investment put in strong numbers as well.

It should become a bit clearer whether the good signs will be revised down or the bad signs revised up when the January jobs report and previous month revisions come out on Friday.

Graphs out of Context

Here is a graph:

This Year Should be Better

Economically, this year should be better than last; it should be the best year of the recovery so far. There are two main reasons why: the housing market and the Federal Reserve. 

The massive debt brought on by the crash is still slowly but surely being paid off. The number of homeowners who are delinquent or in foreclosure continues to drop, making housing investments less and less risky. 

Data is for the New York Fed district and not the whole county, but the general trend is the same.

Housing prices in real terms[1] and as a ratio to rental prices have dropped to pre-bubble levels. 

The average amount of time a home sits on the market before being bought has returned to average levels as well (between 4 and 5 months). Eventually simple demographics will take hold. The population of the United States continues to grow, and the number of people per household remains above average. The consultancy Macroeconomic Advisers projects that the United States will need an average of 1.6 million new houses per year over the next decade; in 2012 1 million were built. 

The Federal Reserve has been buying assets to create $40 billion of new money each month since September, and last month increased that amount to $85 billion. They have committed themselves to this level of money creation until unemployment is below 6.5%, so long as inflation remains stable. This will reduce the cost of borrowing and investing, and a bit of higher inflation would reduce the real value of debt over time and make exports more competitive. Generally speaking, it takes about six months for changes in Fed policy to have a real effect. 

So 2013 should be better than 2012, however politicians can still ruin it. 

December Jobs Report

155,000 jobs were created in December. The number is incredibly average for the disappointing recovery. The monthly average for 2012 was 152,900; the average for 2011 was 153,300. Such weak and consistent job growth puts the economy on track to recover all the jobs lost in the recession by March of 2015. But the population will be larger, so recovery to the rate of unemployment seen before the recession will take even longer.