Thursday, February 26, 2015


Economists who work on growth, technology, and productivity:
... Wonder if automation technology is near a tipping point, when machines finally master traits that have kept human workers irreplaceable. 
You guys probably need to make sure you make it into the top of the income distribution:
... Rather than killing jobs indiscriminately, Mr. Autor’s research found automation commandeering such middle-class work as clerk and bookkeeper, while creating jobs at the high- and low-end of the market.

This is one reason the labor market has polarized and wages have stagnated over the past 15 years, Mr. Autor said. The concern among economists shouldn’t be machines soon replacing humans, he said: “The real problem I see with automation is that it’s contributed to growing inequality.”

If you've been paying attention in class ... this is the Thanksgiving analogy I talked about in class in "The Future You", and "What's Wrong with America's [sic] Right Now? Is It the Economy, or Is It Us?".

Read the whole thing, entitled "What Clever Robots Mean for Jobs" in the February 24 issue of The Wall Street Journal". 

* This is required, but it's not like there's a huge amount of exam-worthy content you need to worry about. Just some viewpoints on stuff that macroeconomists need to be thinking about.

The Disability Scam That Isn't

There's a (mostly conservative) meme out there that 1) there's record numbers of people claiming disability, and 2) most of those people must be lazy scammers.

Of course there's a record number of people claiming disability: our population gets larger every day, and we add disabled people at roughly the same rate.

So point # 1 falls into the useless and misleading record category, much as the many records (e.g., number of breakfasts I've eaten in my lifetime) I've already set this morning.

But, what about point # 2?

There is a serious problem with disability funding. This comes out of the Social Security Administration, and the money they "set aside" for this is "going to run out". I've put those in quotes because that isn't actually what's going to happen; but there is a lack of political will to allocate more money to this without some pointless grandstanding.

So, here's two facts to think about.
... 5.6% of Americans ages 35-44 reported having a work-limiting disability in 1984, while in 2014 that figure was 5.4%.
... The percentage of the working-age population collecting disability insurance benefits has more than doubled to 5.7% in 2014 from 2.7% in 1984. 
Those statistics don't match up perfectly, but they're pretty close. How is that possible? Let's slice and dice the information and restate it this way:

  • In 2014, 5.4% reported having a disability and 5.7% received benefits.
  • In 1984, 5.6% reported having a disability and 2.7% received benefits.
This sounds like we're a lot better at giving benefits to people who say they need them (but there isn't much change in people saying they need them).

That sounds like government doing it's social welfare job ... you know ... outreach to people who need help. 

Gee ... government doing its job ... that's not the tone of that conservative meme at all.

And just what happened to all those people in 1984 who said they were disabled but didn't get benefits? No doubt, some of them worked. But presumably that wasn't always a good thing. And then I think a lot of them sat around the house, supported by their families, who weren't supported by the rest of society. 

When you put it that way, it sounds like in the good old days ... we were jerks to each other.

Read the whole thing, entitled "Averting the Disability-Insurance Meltdown" in the February 23 issue of The Wall Street Journal. The author works for the American Enterprise Institute, a conservative think tank; like most conservatives he's more interested in how we pay for our government's largesse, but I don't really think he'd understate the number of disabled in a relatively conservative newspaper.

Tuesday, February 24, 2015

Hopefully, the Last About Greece for a while.

The Greek government filed the final draft of its proposed reforms, and these were accepted this morning.

In related news, Greece's grandmother is feeling much better. ;)

One More Way to Think About Greece (Not Required)

It was inevitable that there'd be a rap video about the Greek crisis:

NSFW (but no worse than most rap).

Monday, February 23, 2015

The Dog Ate Greece’s Homework

Greece was not able to complete a final version of its proposal for reforms today.

Greece had promised, as part of Friday’s agreement, to have that proposal finalized by Monday.

… Even the few extra hours sought by Greece’s new Syriza-led government—in power just four weeks—suggest it is struggling to meet the tough demands of its creditors on the one hand while fending off internal dissension within its ranks on the other.

Over the weekend, the government was locked in feverish deliberations with its bailout inspectors—from the European Commission, the International Monetary Fund and the European Central Bank—as Athens sought their acceptance of alternative reform proposals.

In related news, Greece’s grandmother is very sick Winking smile

Sunday, February 22, 2015

An Observation from Zorba the Greek (Not Required)

We’ve talked a little bit in class about 1) how contemporary Greek society has been … hmmm … not so good for the 180 or so years that Greece has been an independent country, and 2) how we seem to be a little too forgiving towards Greece because … you know … the Greeks get a pass because guys like Plato and Socrates lived there once upon a time.

So I watched a movie called Zorba the Greek this past weekend. This is a movie that people of my parents’ generation used to talk about when I was a kid. My wife thought the same thing, and she hit record on our DVR. I had dim memories of having seen it, but I now think I was wrong. Anyway, I watched it in full. I don’t especially recommend it, but if you’re a movie buff, it did win 3 Oscars, and I can see why … in a sort of generation after World War II, continental European, existentialist, magical realism sort of way.

One scene in the movie though, has relevance to our discussions of Greece’s ongoing problems: wanting to join the big kids club of the EU, lying to get in, finding out the hard way that they may not meet the required standard, and then acting petulant and uncooperative when attempts to rectify their advantage-taking is made by others.

The movie is set in a remote village on the Grecian isle of Crete. The movie was made in 1964, from a novel written in 1946, broadly about a real guy who died of old age in 1941, that the author met between the world wars. It’s not clear what the era portrayed in the movie (or book) is supposed to be, but since there are cars and record players, but no mention of the Nazi’s invading and occupying … I’m thinking it’s supposed to be the 1930’s. 

So this one scene involves the death of an old French woman, who had been some sort of performer and/or courtesan around the eastern Mediterranean*, and who had retired to rural Crete with some evident material wealth.

And the villagers know that she’s 1) rich, and 2) has no family locally. So they start stealing her stuff before she actually dies, and the thievery gets positively orgiastic when she does die. Within the afternoon her house is stripped of everything but her body laying where she died in her bed.

The movie makes very clearly that the villagers do this because, without heirs, “the state” will come and take all her possessions for itself.

Thus, the Greece of 4 generations ago was one in which the unethical rapaciousness of the government was a fixture of reality featured in popular movies.

Flash forward to the last decade, and we have the Greek government unable to pay its own bills, and with a citizenry unwilling to loan it much money, that when given entre into mainstream Europe goes borrowing, and within several years can’t pay the money back, can’t establish where it all went, and then somewhat successfully portrays itself as the victim … because … you know … Aristotle used to live there.


How does this compare to the culture and government that is Cedar City? This is a true story that happened about 10 years ago. There was a lot that was an eyesore in the 600 block of North Main. The building on it was full, but locked up, and abandoned. The city wanted to do something about it, and researched the case. It turned out the guy who’d owned it free and clear, and run a repair shop out of it, had died without heirs. And everyone had left it alone in case someone showed up to claim it. The thing is, he’d died in 1964, and everyone who remembered why the city had left the property alone was long gone.

So in Cedar City, the government is so unrapacious that they’ll let a property sit idle for 4 decades in the hopes that it can stay in private hands, and in Greece the government was so rapacious that the locals would strip a property to keep its chattel in private hands within about 4 hours. It may not be fair, but I’ll point out that taking those cardinal numbers seriously suggests that the Greek government is 85,000 times worse than the one in Cedar City.

* She does make a reference to how popular she’d been in Beirut, which speaks to the setting being somewhat later, since Beirut didn’t begin to thrive as a cultural center until well after being made a provincial capital in 1888, being helped along by the French taking it over in 1923.

Saturday, February 21, 2015

Ummm … Some Think the Greeks Have Won

Here’s the official Greek statement about what they agreed to. Is it all spin? Hard to say.

Frances Coppola writing at CoppolaComment thinks that what Syriza really wanted out of this was a chance to be offered trust to do what they think is right. Maybe so. It’s an interesting read.

Here’s a Reuters article, datelined Athens, that surveys some varied viewpoints.

All via Marginal Revolution.

Friday, February 20, 2015

The Greek Deal

So, they came down to the last day to cut a deal. The best information on it right now is on The Telegraph’s live blog for February 20.

Greece appears to have settled for the same deal they walked away from on Monday. That deal didn’t cut them much of a break, but gave them 4 months of leeway in which to settle the situation. All this for a one page statement of generalities, like this one:

The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions. [emphasis original]

Syriza’s campaign commitment was to not refrain from a unilateral rollback of structural reforms (put in place by the previous government). How do they spin this: we lied all through the autumn to get elected? we lied to the Eurozone this week? we’re not lying, but the Germans are being really mean to us?

My take on this is that the problems with Greek society are deeper than that, and the capability of governments to solve problems is less than people tend to imagine.

So, watch the news in June because they’re going to do the same thing all over again.


There are two reasons they ended up doing this on Friday night.

  1. The most common time to watch news on TV is 6 pm on weeknights (with ratings the lowest on Friday), and the press conference was at 8 pm. By doing this on Friday night, they’re hoping that the media circus will have died down a little by next week. This is pretty common in governments everywhere, but let’s be realistic: if you have to think that way about your policy announcements, they’re probably not popular ones.
  2. Banks are closed on weekends (and ATMs have limited funds). And Monday is a holiday in Greece. So they have 3 days for the news to settle in, and for capital flight to slow down. The thing to watch for on Tuesday is how the banks in Greece look: are they open? are their lines? I do not think I’d put much stock in riots: those are pretty common in Greece, and they’ve weathered many of those over the last few years.

Greece, Capital Flight, and Capital Controls

When dealing with foreign exchange and government finance crises we need to think about the balance sheets of banks.

But, the information we get can come from different perspectives, and the legacy media isn't always very good at making that clear.

So, let's think about a generic bank.

  • Someone has cash outside the bank. That's an asset for them. 
  • When that person deposits that cash, they get a statement back from the bank. That's their asset now.
  • The bank records that statement as a liability, and the cash as an asset.
  • Then the bank makes a loan: some of the cash leaves the bank, and the bank gets a loan contract. The assets are now mostly that contract, with a little cash left in the vault.
The problem with a country that gets into trouble because its own government is profligate is that those loan contracts are usually now treasury bills issued by that government.

What the ECB is worried about with the Greek banking system is whether those treasury bills can be counted on the balance sheet at their face/book value, or whether they need to be valued at something lower because the Greek government is less likely to pay those in full. Actually changing the value on the balance sheet to reflect that is called marking to market. Thus, the Greek banking system has problems on the asset side, which drives their net equity towards zero (and bankruptcy).

But they've also got problems on the liability side. When depositors aren't sure if the banks are reliable, they start withdrawing their deposits. Superficially, this sounds like it might solve part of the banks' problems with net equity. However, the real issue for the bank is how they convert their less liquid assets (like treasury bills) into cash to give back to the depositors. Because the banks need to sell those assets promptly to meet their liquidity requirements, they're shifting the supply of them to the right, and they'll take lousy offers (the price of those assets will fall).

This doubles down on the mark-to-market problem.

Here's the numbers: $28B has been withdrawn from the Greek banking system since the new year. Withdrawing from the system means going to some other country's banking system (or to a mattress or coffee can buried in the yard).
Greek banks ECB
This chart came from this article, and I can't resize it, so if you can't see the whole thing go to the source.

A way that you address this problem, that no one really likes, is capital controls. What this means is that there are restrictions all along the line in what you do with your own money: you can't withdraw it from the bank in large amounts, and you can't take it out of the country (without smuggling it). 

The ECB is denying that capital controls are in the works for Greece to stay in the Eurozone. But, that's what they did to Cyprus two years ago, so I don't know how credible that is. Keep an eye on the news over the next few days to see what happens.

The "joke" on The Telegraph's live blog this morning was about 
So, who will institute capital controls first? Greece, to keep money in? Or Denmark to keep money out?
The news on the live blog is that of the 19 countries in the Eurozone (each of which, I believe, officially gets one vote) there is now a bloc of 8 countries lined up against Greece staying with the Euro (Germany, Austria, Slovakia, Belgium, Estonia, Lithuania, Latvia, and Finland). I don't know if Greece (or for that matter Cyprus) gets to vote on this.

Better Quality Majors Means this Happens Later …

15-02-19, Pepper and Salt, Unemployed Economists

Thursday, February 19, 2015

News from Within the Hour

It's crunch time. There are a number of reporters around the globe live blogging/tweeting the Greek situation. Here's one from the British newspaper The Telegraph.

Just after 11 am (our time) this morning, the Germans told the Greeks to forget about an extension.

Ed Conway of SkyNews has the official German statement.
The Greek letter [their proposal] is not clear at all, but opens immense room for interpretation. ... It includes no clear commitment to successfully conclude the current programme. It is totally unclear how the Greek government wants to pay its bills over the coming weeks ...
In a rather pointed comment, the Germans called the Greek proposal a Trojan Horse — meaning that it appears to be one thing (like a proposal about how to fix the problem) when in fact it's another (an excuse to continue doing more of the same). So their recommending:
... It makes no sense to start drafting a Eurogroup statement on Friday. 
Following this, about 10 minutes ago, it was reported that the ECB is going to start telling Greek banks that they have to mark to market the value of the Greek governments treasury bills that they are holding. Bank run here we come ...

Science Fiction (Not Required)

I mentioned these in class, so here's some links if you're curious.

The original link on how much would it cost to build a "death star" is here. One of the many follow-ups was one I wrote that we'd have that much money in less than 500 years. Of course, a death star would also have a lot of power, but getting that much growth is much less realistic.

I also babbled about how enough economic growth at current rates will lead us to Dyson Spheres in ... hmm ... not that many centuries. These ideas are related to the Kardashev Scale, and our civilization's position on that scale.

Another idea that is staring to intrude on macroeconomics is extreme life expectancy. Here's the piece by Aubrey de Gray; in class I paraphrased this quote from that article: "I think the first person to live to 1,000 might be 60 already." If that's even barely possible, then Medicare is pretty much the only government program that we should even be thinking about (which is why there's all these posts about Medicare on this blog). Don't forget that 75 years ago, Auntie Em was Hollywood's version of how old the aunt of a 14 year old girl should look.

I don't make this stuff up. I just report it. If you want to explore more, the macroeconomist who's really out there is Robin Hanson. Check out his website (which isn't maintained that well) or his blog overcomingbias.

Tuesday, February 17, 2015

Some Thoughts On Greece

I first heard that the latest talks with Greece had broken down from this post entitled “Is Greece Really Going to Leave the Eurozone?” by Tyler Cowen that appeared on Marginal Revolution early Tuesday morning. He offers some sobering views, broadly consistent with our classroom discussions:

First, I do not see that (most) extant commentary is properly accounting for the very recent fiscal collapse of the Greek economy.  I am not sure there is any fix, and the expression “failed state” comes to mind ...

Second, I do not assume Syriza … have a coherent bargaining strategy at all.  I take this point from a broader reading of history, where I see that quite often leaders in critical positions simply do not know what they are doing.  By no means is that always the case …

Third, I believe we as observers tend to overestimate the permanence of … Greece in the eurozone.  In a broader historical perspective, the arrangement simply doesn’t make sense to me …

Fourth, I still don’t think enough commentators are stressing how much the creditor eurozone countries see this as a nested game, where concessions to Greece would have to imply larger concessions elsewhere …

KH sent in a link to the article “Greek Financing Talks Break Down Amid Deep Divisions Over Bailout” from the February 17 issue of The Wall Street Journal. It gives some details on the current tone of the talks (or lack thereof). It also had this interesting chart:

This shows, by month, how much Greece’s government owes, and to whom it owes the money. The first several months on the left show that Greece owed a lot of money to owner of their own treasury’s bills — that’s probably mostly Greek banks, and remember that the ECB started refusing to accept those bills as collateral about 10 days ago. Also, bills are short-term, so those gray bars indicate a rollover of other debt that expired fairly recently. The orange bars are problematic too: that’s loans from the IMF that Greece has not been able to roll over. And then there are the big payments due in July and August, with the biggest chunks (in blue) to the ECB, but also over a billion to the central banks of various countries (in yellow).

FWIW: Syriza is opposed to raising their VAT. Tim Worstall told me over the weekend that austerity programs are so tight in Portugal that the police will tail cars from shopping areas, pull them over, and ask to see their receipts to check that they’ve paid their VAT.

Big Ideas and Just-So Stories

Part of what you're supposed to learn in college is a smattering of the really big ideas.
  1. You may have already read my response to Tommy's question in the Quodlibet (the one with the story about airplane damage, and how that might relate to how we think about recessions), and
  2. I don't know if any of you subscribe to Quora. It's a tech website that is also a Quodlibet (with answers that are crowd-sourced). Anyway ...
  3. Today on Quora there are several voices using the same example to address this tangentially related question.
What's interesting is that the same insights are used at Facebook to figure out what their users are doing.

I'm not special. Lots of people know this story, and understand why it's important. But I may be the first professor you've had to point out that the surface story the data is telling us is often very different from the truth.

Here's another example, entitled "The Wittgenstein Test" that Scott Sumner (a macroeconomist from Bentley) posted on EconLog about a week ago. He has 5 examples saying pretty much the same thing: maybe the Great Recession didn't mean what we think it means. The best one is # 2. We've been told endlessly that there was a speculative bubble in real estate prices. If there was a bubble, prices would run up, and then collapse rapidly. At first glance this sounds like a reasonable description of our experience around the Great Recession. Except the Great Recession was global, so it behooves us to look at global data. Here's that data:

Screen Shot 2015-02-10 at 8.01.53 PM.png

Oops. That kind of looks like 1) a run-up in prices that was driven by a common global factor, followed by 2) a dispersion of price behavior across countries because the common global factor went away and was replaced by locally important ones. Gee ... almost like there never was a bubble at all.

The beauty of the asset bubble story is that is supports a view that market behavior is both irrational and unbeneficial. My ... what an interesting position to gain popularity in the U.S. during a period when government has been dominated by a party with an  agenda to increase government regulation.

All I'm saying is that when you learn (and do) macroeconomics you need to be aware that a lot of analyses amount to "just-so stories".

Friday, February 13, 2015

Behind Door # 2

Tyler Cowen writing at Marginal Revolution:

For the last few weeks there have been three models in the running:

1. The Greek government is calling the Germans Nazis because they figure Grexit is coming no matter what and they want to get the populace riled up as a distraction from the disasters, or

2. The Greek government will cave so cravenly on the substance that they want to have it on the record books that they supplied some expressive goods for a few weeks’ time, namely insulting the Germans and claiming that the Troika is dead and buried, or

3. The Greek government is simply full of out-of-control, ideological maniacs.

Right now it is looking like #2 … Arguably the insults and posturing have narrowed the possible bargaining space by hurting feelings all around.

Monday, February 9, 2015

Currency War Budding?

The quantitative easing being pursued by the European Central Bank has the side effect of depreciating the Euro. This is advantageous to European exporters, and but a problem for everyone else’s exporters. That’s a problem because, taken as a whole, the EU is the largest economy in the world (although the EMU is somewhat smaller).

Anyway, what do you do if you’re a policymaker in a country that has to compete with Europe for trade? One option is to depreciate your own currency too.

This sort of race to the bottom is called a currency war. And the evidence is building that we’re in a small one. Check out this chart:

You already know that the Euro has been depreciating against the dollar. This shows that the Canadians and Australians are more concerned about the Europeans stealing their exports, so they’re matching the Euro depreciation.

Read about it in “Central Banks Move to Drive Down Currencies, Yielding Domino Effect” in the February 9 issue of The Wall Street Journal.

Briefing the Prime Minister

AF sent along a link to this article from the BBC entitled “UK planning for possible Greece exit from the eurozone”. It points out that a lot of the things we’re talking about in class (possible Greek exit from the Eurozone, Greece potentially issuing a new currency, compromise solutions, Greeks losing their wealth, inflation, devaluations, and contagion) are actually part of the briefing given to the Prime Minister of the UK and his cabinet this morning.

Sunday, February 8, 2015

Perhaps It’s Not a Problem that the U.S. Is Growing Slowly

I’m not happy that the U.S. is growing slowly. But it’s my job to look at all sides of the debate.

There’s a phrase in sports called “winning ugly”. It means that you don’t look like you should win, but you win anyway. Casual fans don’t like “winning ugly”, but coaches and players are usually pretty OK with it.

Maybe, just maybe, the U.S. economy is winning ugly right now.

How would we know? Consider these graphs from Calculated Risk.

Year-over-year Change Labor Force

The blue is actual growth rates in the labor force, while the red dashed line has been smoothed. Our labor force isn’t growing as quickly as it was 40 years ago. No, duh. That was when the baby boomers were hitting the market in force, and now they’re retiring in force. And check out the previous post: labor force participation is down because retirees and students are up.

Now look at real GDP growth rates:

Year-over-year Change GDP

They’ve been trending down too, when smoothed.

Now superimpose the two:

Year-over-year Change Labor Force and GDP

The difference between the blue and red lines is productivity: how much is tacked on to labor force growth by capital accumulation and technological improvements. And it looks … pretty stable over the last 50 years.

The upshot of this is that if we’re fans of real GDP growth, then we’re going to be disappointed. But if we’re fans of per capita real GDP growth, then there’s no problem with America.

But it does mean that we’ll have to revise what we think is normal for real GDP growth. Perhaps the 2-3% under Obama is the new normal and that it’s not a bad thing.

Why Aren’t More Americans Working?

Ask a conservative this question.

Well, really, why bother. You know what the answer will be: everyone is lazy and claiming disability.

Or not. That’s the funny thing when you look actually look at data. It tells you things you might not hear otherwise.

What is incontestable is that labor force participation is way down over the last decade. This means there are more people who just aren’t interested in working. Who are those people?

It turns out, it’s mostly retirees and students (with the disabled trailing behind).

Here’s the story on retirees:

The panel on the left indicates that total retirees has risen, while the panel on the right indicates that early retirees has fallen. Put bluntly, this means that old people are living longer, choosing not to work when doing that (and who can blame them). That will decrease labor force participation, but I’d hardly call it a bad thing.

Then there’s students. Here’s their story:

Note that while students and the disabled are both up, that students actually opened a big lead after the Great Recession (that’s closed down now that it’s easier to get a job).

How is this all possible? It turns out that labor force participation, when measured by households, is down most sharply in the rich ones. The poor are actually more likely to be working now than they were before the Great Recession.

Think about this: it means that both political parties are full of it. Democrats would have you believe that the poor aren’t working as much as they’d like because the economy is weak. Except they’re working more. The Republicans would have you believe that people are faking disability to avoid work, when maybe all they’re faking is paying attention in class.

What ELA Means for Greece

Here’s one opinion:

… The ECB really didn’t have much option but to do what it did. Syriza’s strategy was all over the place … At the end of the first ten days, they had said that they were defaulting, but not defaulting, that they didn’t want to borrow any more money, except maybe EUR10bn of treasury bills, that there would be no debt reduction, except that this was a euphemism for “yes there will”, and primary surplus would be maintained, although this didn’t necessarily mean any change in tax or spending plans. They’d also emphasised that they wanted to get a deal with the troika, but were not prepared to talk to the representatives of the troika.

When a borrower starts behaving like this, the natural instinct of any creditor who knows what they’re doing is to “shorten the leash”. … That’s the reasoning behind the collateral changes and the moves toward restricting ELA.

But everyone is worried about this, because ELA and its controls have always been seen as something of a nuclear threat — a policy lever that can never be pulled because the consequences are so drastic.

How drastic? People are envisioning immediate runs on Greek banks if ELA is stopped.

Alternatively, it’s possible that the ECB has no intention of cancelling ELA. Instead, they are using it as pressure to get Syriza to sacrifice domestic bank depositors in order to pay its debts. This is kind of what happened in Cyprus two years ago.

Via Marginal Revolution.

Greek Banks and ELA

The noose is tightening on Greece. Until last Thursday, private Greek banks that were having liquidity problems were allowed to get emergency financing from the European Central Bank by providing collateral for new loans.

The thing is, the collateral the ECB was willing to accept was the government bonds of the Greek government.

On last Thursday, the ECB announced that it would no longer accept this collateral.

This is a rather bald statement that they are no longer sure, that if the banks expect to make interest payments based on debt service paid by the Greek government, that this business plan will work.

For now, the ECB has switched to a more serious form of short-term relief for Greek banks called ELA, along with a higher interest rate. ELA gets reviewed every two weeks, and if it gets stopped, it’s hard to see the Greek financial system avoiding collapse.

This is not an improvement.

Monday, February 2, 2015

4th Quarter GDP Report

The advance announcement of real GDP for 2014 IV came out on Friday morning. The rate of growth of real GDP was estimated at an annualized rate of 2.6% for the quarter.

This is below the historical average of 3.0 to 3.5% per year, although it's little bit better than we've been averaging since the last trough in 2009.

The weak performance during this recovery is shown here:

One thing you should keep in mind, especially in Utah where everything associated with Obama typically gets the negative treatment, is that we've had 3 expansions in a row that started out weakly. In fact, if you look closely at the right hand side of the chart, you can see just the beginnings of the high growth that Clinton is remembered for, and which didn't start until about 5 years after he took office.

One of the notable things about this somewhat weak growth report is that the number was dragged down by net exports, as shown in the bottom center panel of this chart:

Recall that exports are added into GDP but imports are subtracted out.

This is perverse. Here's why.

What do you want? Goods or work? This is a no-brainer: you want the goods, and you don't want to work to get them.

But what it means for your imports to exceed your exports is that you're getting more goods for less work. That's what you want, right? Except that when we count GDP, we do the opposite.

Why do we do that? It goes back to the reasons we started measuring GDP in the first place: who was going to win a war because their economy is bigger. If you want that, you want people working and exporting, rather than importing and enjoying their stuff. In short, GDP measures what the government wants its subjects to do, not what they'd actually like.

Now, this position does require an overhaul of how we think about GDP and GDP growth. That's beyond the scope of this post. But it does mean that every time you see a GDP growth rate, you should look and see if it's boosted by exports (which is what they want but not what you want) or brought down by imports (which is what you want but not what they want).

So what does it mean that imports brought down the growth rate in the fourth quarter? It means that Americans were feeling good about the economic situation, and buying more of everything ... no matter where it was made. I don't know about you, but I feel good when I walk out of the store with more stuff ... no matter where it was made.

Read the whole thing, entitled "U.S. Economy Hits Speed Bumps" in the January 31 issue of The Wall Street Journal.

Unusual New Croatian Policy

I'm not sure what to make of this at all ... and it really isn't on any macroeconomists radar screen just yet.

Anyway, Croatia put in place a policy today by which the government is cancelling the debts of a small chunk of the population.

This may or may not be related to the appreciation of the Swiss franc, in which many Croatian mortgages are denominated.

Interestingly, part of the reason for this policy change is that Croatia, as a relatively new country, has no bankruptcy law whatsoever. So there's no way for anyone to get out from under their debt burden, whether they have a good reason or not.

There are lots of links to this on the internet, but they all say pretty much the same thing. Here's one.

Sunday, February 1, 2015


The thing you should always worry about in democracy is that you’re voting for a package deal: if you like the person/party and vote for them, you get all their positions … not just the ones you like.

And what if those positions are bizarrely dumb? What does that say about the rest of the package?

So, in Greece, Syriza … within a week of winning the election … has put limiting all-inclusive vacation resorts on its agenda of things to fix.

You can’t make this stuff up.

When a new Greek activist government — under pressure to look like it’s doing something — declares that they believe all-inclusive resorts are bad because tourists stay on property instead of benefiting the local town economies nearby but promise they’re only talking theoretically and you should trust them that they aren’t going to do anything about it… you should trust them as much as you do that they’ll repay all of their bonds in full.

Tourism represents about a fifth of GDP. All-inclusive package tours are a key segment of the European market, especially for tourists coming from the UK and Germany.

Since tourism is important to the economy, and the economy is doing badly, it must be tourism’s fault.

FWIW: That makes the tourism industries size in Greece comparable proportional to the largest industry in the U.S. That would be FREI: finance, real estate, and insurance. Except that the latter are difficult, and people get paid a lot to do them because they’re valuable.

Via Marginal Revolution.