Friday, November 2, 2018

Who’s Better: Trump or Obama?

How about … neither?

Former student MC sent me a link to this piece entitled “Two Charts Show Trump’s Job Gains Are Just a Continuation from Obama’s Presidency”. It’s by Chuck Jones, and appeared in Forbes.

I am not sure how much I’m supposed to read in to the word “continuation” in the title. To me, it’s not clear if the author means that Obama is responsible for Trump’s good numbers, or just that the economy is doing its thing, and Obama and Trump just rode the same wave.

Either way, it makes a point that I made in principles classes just this morning: the labor market data doesn’t show that Trump is doing anything special.

U.S. employment

U.S. unemployment rate

The big point here is that the differences are overblown (so I’m of the opinion that they are both lucky to be riding a good wave). If you’re a Trump-lover, he’s nothing special. And if you’re a Trump-hater: he’s not wrecking anything either.

P.S. At the time that I write this, I’ve barely begun the revision of my text for Spring 2019. One thing I intend to include is some simulations looking at whether we could have forecast the economy’s performance over Trump’s first 7 quarters at the time of the election. So there will be more to come.

Thursday, October 18, 2018

Putting Real GDP Per Capita In Perspective

The Philippines is not one of the poorest countries on the planet. But it certainly was a century ago, and it has not grown as well as its neighbors. Currently, its real GDP per capita is about 3K/yr in American Dollars. Ours is about $60K.

What does that get you? Check out this gripe from the comments at Marginal Revolution:

Airspace homogenuity is a 1st World gripe. Here’s some of my 3rd World concerns: do we have any more Philippine spitting cobras in our backyard? (We’ve killed two in the last year, one of them at 10:00 am in the outdoor kitchen, slithering up to somebody; it can shoot their venom up to 10 feet, kills many within 30 minutes, too short to make it to the hospital); are we going to run out of water in this rain forest climate that has no dams, though we just dug a second pressurized well?; does burning plastic (there’s no trash pickup here) cause cancer though we’ve taken precautions to build a big pit and stay upwind? (diesel fuel helps but it’s so rainy here it’s hard to burn anything); did the diseased bat that almost landed on my head carry Ebola or rabies (I have anti-rabies shots, but not Ebola)?; will the volcano erupt again and bury us with pyroclastic flow, like it almost did earlier this year (the magma the size of a football stadium that rolled down the mountainside was spectacular, I saw it when it happened); will our new concrete house get damaged by an earthquake (I think not, we used good concrete not the crumbly stuff they use here to save money), or a typhoon (we have a steel roof; the Philippines gets something like a dozen typhoons a year, and we’re in ‘typhoon alley’); will we have another power cut just when I’m typing this? (the PH regional power plant is geothermal, which sounds good but in fact is prone to breakdowns, a brownout for a few hours every week is common, and more common during rain, a coal-fired plant is actually more reliable and btw electricity costs are about 2-3x more than in the USA, and people here are poor). Why are fruits and vegetables so expensive here ($1 for an ordinary apple; 80 cents for a small fist sized greenish tomato or huge, dirt filled–it’s comical–carrot) and why won’t my next-of-kin eat them? (sad people here eat nothing but sugar, white rice, pork, chicken, and the bony talapia fish, all fried of course since nobody even sells ovens and the one oven I bought, imported, had a gas leak and is inoperative, serves me right for trying to buck custom and buying things knowing everything here is sold from First World county rejected equipment, I kid you not).

It’s both amazing from the perspective of history, but not so amazing from the perspective of the internet that this commenter chimes in rather often on the world’s most popular economics blog.

Wednesday, October 3, 2018

Hyper-Local Institutions, Family Income, and Future Prospects

As time progresses, we get better and better data about what helps people avoid poverty.

The old school story was that it was about your parents’ income: the richer they were, the richer you were likely to be.

The new school story, developed in other parts of macroeconomics over the last 30 years, is that once we correct for readily observable differences (like parents’ income), what’s left over as a residual is the effects of the harder to measure institutions that make up societies and cultures. And those institutions seem to make a lot of difference, although we have trouble pinning down what they are.

There’s new research discussed in an article in The New York Times entitled “Detailed New National Maps Show How Neighborhoods Shape Children for Life” that shows this. You have to click through to run the interactive graphic: I just have screen captures below.

What they found is that children of poor families in some neighborhoods did better than those from other neighborhoods. A half-mile radius makes a difference, which is why they use the word hyper-local for this effect.

Of course, my guess is that most of you could identify a neighborhood close to where you grew up where you could just bet that many peoples’ lives didn’t work out well.

Cedar City doesn’t work too well for this (we’re too small). I’m going to go back to a neighborhood where I used to live in New Orleans. If you saw the house we used to live in, by Utah standards you’d think we were poor. But New Orleans is expensive, so I assure you it was an upper middle class neighborhood. But it wasn’t rich. It’s the greenish area under the darker blue rectangle in the center, next to the big park (in white). It would take 10 minutes or less to walk it from west to east.

Poor Kids from New Orleans Neighborhood Capture, NYT 18-10-03

You don’t know this, but I do: New Orleans is a great example for something like this because rich and poor live much closer and more spottily than in other cities (if you’ve never been to the South, more limited zoning makes them far less segregated than you’d expect).

Even though this was a good neighborhood, the map shows only outcomes for kids that grew up in poor households in these neighborhoods (richer kids are not shown here at all).

And what you see is that a poor neighbor where we used to live, would have kids that would grow up into middle incomes, but only so far. The poor kids just to the north, who would have gone to the same elementary school ended up a lot better off. The poor kids just to the north and a little west did well, but not as well as the ones straight north (our best — and much richer — friends lived in that neighborhood that somehow did less for the poor). All the way to the north along the lake … which was super rich, poor kids did pretty well, but not as well as in other neighborhoods nearby. That little greenish triangle southeast of where I lived was not regarded as a great neighborhood … but somehow kids there do fairly well.

Here’s Salt Lake City, which I’m guessing is far more segregated by income:

Poor Kids from Salt Lake City Neighborhoods Capture, NYT 18-10-03

Yes, the south end of the valley is richer, but that isn’t shown here. But there’s something about it that helps poor kids turn into rich adults. And if you look at The Avenues, there are some neighborhoods there (that are pretty much all rich) where poor kids are not getting something they need to improve their lives.

You probably need to go to the interactive graphic to zoom in, but in my old neighborhood (now called Westpointe because no one liked being associated with Rose Park) the dividing line goes down the main street by our old apartment. The neighborhood was all apartments, but poor kids in our complex turned out better (on average) than poor kids in the complex just across the street. Weird.

It’s also interesting to compare the two maps. These are all for kids whose families had the same incomes in New Orleans as they did in Salt Lake City. But there’s something about Salt Lake City that helps those kids grow up to be financially better off than kids from big chunks of New Orleans. Somehow the culture in SLC is one in which the poor do better.

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On a different note, the article discusses a policy choice made by the Seattle Housing Authority.

This should be fairly obvious by the time you reach this class: passing policies is easy, finding policies that work is hard.

In this case, they’ve assumed that it’s something in the good neighborhoods. So they’re subsidizing poor people with vouchers to cover higher costs in the good neighborhoods. That will have a direct effect of increasing the number of poor households in those neighborhoods. But there will be an indirect effect: the vouchers will shift demand to the right, pushing up prices, and pushing out some of the marginal people who could afford those neighborhoods without the voucher.

Even so, this is problematic. This policy does not acknowledge that people may have self-selected into those neighborhoods, and their choices may be correlated with other behaviors. If good outcomes result from what residents do rather than what they have, then this sort of policy is likely to be a waste of money. An important caveat to that is that it may be helpful to push poorer families to move nearer to families with better habits, in which case the policy will work. But in contemporary society, that’s viewed as inappropriately judgmental. Politically, that tends to trump whether it works or not.

Monday, October 1, 2018

Was There a Mini-Recession in 2015-6?

Recessions are officially “called” by a group called the NBER Business Cycle Dating Committee (made up of academic macroeconomists from the best schools).

They are looking for a pervasive decline, that is correlated across both space (most of the country), and time (at least several months for a recession).

In this class in Spring 2016, we discussed heavily whether or not the U.S. seemed like it was peaking, or had already peaked (see here, here, and here especially).

This soft period didn’t last, and the Committee did not call a peak or trough.

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Neil Irwin (a journalist who covers macro) now argues in an op-ed in The New York Times entitled “The Most Important Least-Noticed Economic Event of the Decade” that this was a mini-recession.

There’s no such thing officially. But we have had significant soft spots before (1986-7 associated with the stock market crash, and 1966-7 associated with widespread urban riots).

So what does Irwin think about this one?

First, while the Trump administration has claimed full credit for a surge in business investment, the bounce-back from the mini-recession is a major factor.

White House economists have presented charts showing a surge starting in the fourth quarter of 2016, when the election took place. But that turnaround began in mid-2016 by most measures, not late 2016 as suggested by the White House’s “six quarter compound annual growth rate” measure.

Second, the mini-recession might well have affected some political attitudes during the 2016 election. While the economy was in pretty good shape for people in large cities on the coasts, 2016 was rough for a lot of people in local economies heavily reliant on drilling, mining, farming or making the machines that support those industries.

I don’t put too much stock into these, but I don’t dismiss them either. Macro is like that.

Thursday, September 27, 2018

Try and Fix the National Debt

I am not of the opinion that the national debt of the U.S. is a big problem. But many people are. If you’re one of those, here’s a tool that allows you to play with policy options and see what they do to the debt.

One thing I don’t like about tools like this is that you can mentally “cheat” a little. You can do this because each little policy choice has a price tag, and the visual tools update immediately to let you know how far you still have to go.

So, there’s a big list of policy options: several pages of about a dozen each. I recommend you start out with some sort of rule for how you think about the world, and then spot the 10 or 20 that fit that rule, and see how you do. Sample rules might be: vote against all defense spending increases, or vote against anything (positive or negative) involving Obamacare, or vote in favor of everything that reduces tax complexity.

Monday, September 17, 2018

Who Led the Most Interesting Life In Recent Times (Optional)

This was posted on Marginal Revolution. Tyler’s suggestion is:

Keynes pops to mind as one contender.  He was a top-tier intellect and economist, he was closely connected to the arts, had plenty of brilliant Bloomsbury people to chat with, married a ballerina, played a major role in politics several times, and he participated in several critical and indeed formative moments of history (Treaty of Versailles, fiscal policy, Bretton Woods).  He experienced both world wars (no one said “interesting” has to be good!).  Still, he didn’t travel enough to be a slam dunk (I can’t quite bring myself to write “nor did he have the internet.”)

The post has links to many more.

Friday, September 7, 2018

Cost of Democratic Socialism

It’s 2 months before the 2018 election, and in the wake of Bernie Sanders presidential run and aspirations, “democratic socialist” candidates are all the rage.

These candidates often propose new government programs with large benefits: single payer healthcare, guaranteed jobs programs, free college, and so on.

Benefits have costs. Politicians and voters are not unaware of this. Ideally, we’d only like to pursue things for which the benefits exceed the costs (or net benefits are positive).

This is a surprisingly hard thing to do because it’s hard to pin down costs.

David Riedl, an economist working for the conservative Manhattan Institute, has stockpiled a lot of numbers from neutral to progressive (not conservative) sources all in one place. It’s not pretty.

The Federal government is projected to collect $44T in revenues over the next decade, to help pay for $56T in spending (the difference being national debt increases from running deficits). The democratic socialist proposals that are on the table are projected to add $42T in spending to that total.

Single payer healthcare provides a good example:

And here is a key point: … I have yet to come across even one specific single-payer proposal that raises anywhere close to the roughly $30 trillion needed to pay for the new system …

Democratic socialists are disingenuously cagey about the exorbitant tax burden they require. Alexandria Ocasio-Cortez recently offered a list of tax increases — such as a 28 percent corporate tax rate, a “Buffett tax” on millionaires, and carbon tax — that collectively add up to just $2 trillion over the decade, according to the CBO.

Here are three ideas that are in fairly common discussion. We’ll go back to the whole slate of $44T of new spending, and take at face value progressive estimates that $10T of that would be covered by savings over current systems. Fair enough. You can come up with the remaining money by:

  • Taxing corporations and the rich: a 100% tax on corporate profits and a 100% tax on all income over $150K would do the trick. This presumes corporations would stay open, and the rich would still work.
  • Introduce a VAT of 87%. This is essentially a nationwide sales tax on all items.
  • Add a new payroll tax of 37% on top of the 15% FICA tax we all pay now.

Do note that these three could be combined to lessen the burden of each.

Read the whole thing, entitled “America might be ready for democratic socialism. It’s not ready for the bill.” at Vox.

Hat tip to Tommy Austin, who took principles of macro from me back in the mid-90s, and who still sends cool links to his old professor.