The board overseeing 401(k)-style benefits for 52,000 Illinois state workers has terminated all money managers who try to handpick winners, a major embrace of low-cost funds that instead mimic the markets.
***The shift would dramatically reduce outside management fees paid plan-wide, dropping from more than $10 million annually to $1 million, Marc Levine, the board’s chairman, said in an interview. On a per-participant basis, it equates to fees being shaved to about one-fourth of the previously paid total. ***The Illinois plan’s abandonment of higher-charging, so-called “active” managers comes amid a broader debate unfolding among big investors: whether Wall Street firms can consistently outperform a simple index fund that costs virtually nothing.
Saturday, September 17, 2016
From The Wall Street Journal, "Illinois State Pension Board Stops Trying to Beat the Market: Switch to funds that track market is a win for Vanguard Group, Northern Trust; among the losers: T. Rowe Price, Fidelity" by Timothy W Martin:
Posted 9/17/2016 02:00:00 AM
Tuesday, September 13, 2016
My posted comment to Megan McArdle's article, "Banks and Colleges Are Wasting Our Money" on BloombergView:
When there are rents and barriers to entry, innovators attempt, sometimes successfully and sometimes not, to develop less costly and/or higher quality substitute products. We get email, text message, Skype, YouTube, Uber, Kickstarter, Makerbot, Bitcoin, Netflix, streaming music services, etc. All are less costly and/or have better benefits than their prior alternatives.
In 1971, the US Supreme Court case of Griggs v Duke Power Co effectively banned employer aptitude testing of applicants. Employers had to resort to other signals about applicants and the college graduation race began. Colleges with their judicially created oligopoly became free to increase tuition without the possibility of employers developing their own alternative applicant aptitude signal. Students left with no other employer signaling mechanism are left with little choice but to pay the higher tuition.
Posted 9/13/2016 12:53:00 PM
Thursday, September 8, 2016
CBO's Projects Slower GDP Growth Due To Retiring Baby Boomers, Stable Participation Rate Of Working-Age Women, Work Disincentives Of Federal Taxes And Spending, Lower Productivity, And Crowding Out Of Private Investment By Federal Borrowings
From Congressional Budget Office, "Why Is CBO’s Projection of GDP Growth Slower Than Past Rates of Growth?" Posted by Robert Shackleton, analyst in CBO’s Macroeconomic Analysis Division, on September 8, 2016:
According to CBO’s most recently published projections, the economy is expected to grow substantially more slowly over the coming decade than it has over much of recent history. Whereas inflation-adjusted gross domestic product (GDP) grew by an average of 3.2 percent per year from 1950 to 2015—which is about the same as the average growth rate during the 25 years preceding the 2007–2009 recession—CBO expects that it will grow by only 2.0 percent per year over the coming decade.
In large part, the projected slowdown in economic growth is due to slower growth in the labor force. During the 1950–2015 period, growth was spurred by two factors: the large increase in the working-age population that was caused by the post–World War II baby boom and the rapid rise in women’s participation in the labor force. Driven by those factors, the labor force grew by an average of about 1½ percent per year from 1950 to 2015; the average rate of annual growth in the 25 years preceding the last recession was only slightly lower. More recently, the ongoing retirement of the baby boomers and the relatively stable labor force participation rate of working-age women have led to a decline in labor force growth. Because those trends are expected to continue, CBO projects that the labor force will grow at an average rate of only about ½ percent per year over the next decade. In addition to demographic factors, that projection reflects CBO’s judgment that some people will decide to work somewhat less because of federal tax and spending policies that are set in current law.
Slower growth in the labor force accounts for only about three-fifths of the projected slowdown in the growth of inflation-adjusted GDP; slower growth in labor force productivity accounts for the rest. Labor force productivity grew by an average of about 1¾ percent per year from 1950 to 2015; the average rate of annual growth was about the same in the 25 years preceding the last recession. However, CBO projects that labor force productivity will grow at an average annual rate of less than 1½ percent over the coming decade. That slowdown is attributable mainly to two other projections that CBO has made—namely, that growth in both capital services and total factor productivity (TFP, or output per unit of combined labor and capital services) in the nonfarm business sector of the economy will also be slower. Those projections reflect CBO’s expectation that some of the unusually slow growth of TFP during the past decade will persist over part of the next decade. They also reflect the agency’s projection of greater federal borrowing under the current laws governing taxes and spending, which would crowd out some private investment.
Posted 9/08/2016 01:57:00 PM
From Congressional Budget Office, "Uncertainties in the Economic Outlook" Posted by Charles Whalen, analyst in CBO’s Macroeconomic Analysis Division, on September 7, 2016:
On August 23, CBO published An Update to the Budget and Economic Outlook: 2016 to 2026, describing the agency’s projections for the federal budget and the U.S. economy over the next 10 years. As is always the case, economic outcomes will undoubtedly differ from CBO’s projections in some respects. Today, we discuss several uncertainties in the current economic outlook.
Recognizing the uncertainty of economic forecasts, CBO constructs its projections so that they fall in the middle of the distribution of possible outcomes, given current law and the economic data available when the projections are prepared. Nevertheless, many developments—such as economic growth abroad that was weaker than expected or growth in productivity that was faster than expected—could make outcomes differ substantially from what CBO has projected.
***To roughly quantify the degree of uncertainty in its projections for the next five years, CBO analyzed its past forecast errors for the growth rate of real GDP over five-year periods since 1976. Those errors have a standard deviation of about 1.3 percentage points: Thus, in CBO’s view, there is a two-thirds chance that the average annual growth rate of real GDP over the next five years will be between 0.7 percent and 3.2 percent (see the figure). Similarly, CBO’s forecast errors for inflation over five-year periods (as measured by the consumer price index for all urban consumers, which is generally higher than the PCE price index by about 0.4 percentage points per year owing to the different methods used to calculate them) have a standard deviation of 1.5 percentage points, which suggests that there is a two-thirds chance that inflation will average between 0.6 percent and 3.6 percent over the next five years.
Source: Congressional Budget Office
Posted 9/08/2016 01:00:00 AM
Thursday, September 1, 2016
From Pew Research Center, "U.S. immigrant deportations declined in 2014, but remain near record high" by Ana Gonzalez-Barrera and Jens Manuel Krogstad:
Source: Pew Research Center
The Obama administration deported 414,481 unauthorized immigrants in fiscal year 2014, a drop of about 20,000 (or 5%) from the prior year, newly released Department of Homeland Security data show. A total 2.4 million were deported under the administration from fiscal 2009 to 2014, including a record 435,000 in 2013, according to a Pew Research Center analysis of the data.
Posted 9/01/2016 02:28:00 PM
Fro US Bureau of Labor Statistics a new video, "What Is Productivity?"
The BLS productivity program is proud to release the video, “What is Productivity?” This video is intended to provide basic productivity concepts to a general audience and explain how growth in productivity leads to improvements in our lives. You can view the video at https://youtu.be/rIG237BJXQot
Posted 9/01/2016 12:35:00 PM