Tuesday, August 31, 2010

For Tennis Fans: Oudin's 2010 Courage Sneakers Are Available From Adidas

As a favor to tennis fans everywhere, Melanie Oudin's sneakers are made by Adidas and are available for purchase from the company's website.

I am not employed or compensated in anyway by Adidas. Also, I do not know anyone who is employed by Adidas. I remember when my daughter was influenced by fashion trends and fads started by celebrities, sports players, recording artists and movie stars. Clothing trends and fads are a cause of much parental stress in children clothing shopping.

Oudin's 2009 Adidas Believe tennis shoes, which do not appear to be available anymore.

This Time It Is Not The Economy Stupid: It Is Health Care

First of all, the fact that the health care bill is no longer the topic du jore does not mean it is no longer an issue. The real questions are whether the health care bill moved voters away from the Democrats, and whether those voters have since moved back now that the debate is over. The answers are yes - the debate moved voters away from the Democrats; and no - the voters have not come back.
This time it is not the economy stupid. The above chart and quotation from RealClearPolitics blog shows that the Democrats will lose control of the House of Representatives in the November 2010 election because of health care. Read the complete RealClearPolitics blog, "Health Care Reform Has Endangered the Democratic Majority" by Jay Cost.

Sunday, August 29, 2010

Barro Blames Obama's Policies For Weak Recovery And High Unemployment

From The Wall Street Journal Opinion piece, "The Folly of Subsidizing Unemployment" by Robert Barro, economics professor at Harvard University and a senior fellow at Stanford University's Hoover Institution:
The economic "recovery" has been disappointing, to put it mildly, and it has become increasingly clear that the blame lies with the policies of the Obama administration, not with those of its predecessor.
In general, the current administration has been too focused on expanding government, redistributing more from rich to poor, and stimulating aggregate demand. I have previously criticized the stimulus package as cost-ineffective. In particular, whatever tax reductions were in the package did not involve the cuts in marginal income tax rates that encourage investment, work effort and productivity growth.
...suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.
Read Barro's complete Wall Street Journal opinion piece here.

Wednesday, August 25, 2010

Was CBO Pressured During The Health Care Debate To Hide Important Information From Congress?

[UPDATE: On September 14, 2010, Keith Hennessey retracted his post that CBO was pressured. See Hennessey's retraction "Retracting one of my CBO health care posts".]

Keith Hennessey thinks that the Congressional Budget Office was pressured to hide important information during the health care bill debate. CBO's recent data (PDF page 24, document page 6) shows that the new health care law will increase federal entitlement spending by $401 billion over the next decade, and will increase taxes by $525 billion over that same time period. Hennessey writes in his blog:
Based on CBO’s normal scoring practices and the intense scrutiny of both CBO and this legislation, this cannot possibly have been an oversight. I would bet heavily that CBO was pressured not to show this information.

If I’m right, CBO should have resisted this pressure and provided a picture that was both more complete and consistent with how they usually score legislation.

Deficits matter. So do spending and revenues. If they remain in place, these laws will make government spending $401 B larger this decade. By reducing the budget deficit through tax increases, these bills will shift some of the fiscal burden from the future to the present. By increasing government spending, these bills will increase the cost of government on the private sector that pays for it. That latter point is an important piece of information that Congress should have had when they voted.

I am generally a fan of CBO, and please don’t group me with the bashers who say they did everything wrong. This, however, was a failure.
Keith Hennessey served as Deputy Assistant to the President for Economic Policy and Deputy Director of the National Economic Council at the White House from August 2002 through the end of 2007. In 2008 and the first three weeks of 2009, he was Assistant to the President for Economic Policy and Director of the National Economic Council, a position now held by Dr. Larry Summers for President Obama.

Wednesday, August 18, 2010

2011 Income Tax Calculator For Four Legislative Proposals

The Tax Foundation posted an income tax calculator to compute the 2011 federal income tax under four legislative proposals. The tax calculator is available here.

The calculator computes income taxes under the following scenarios:
  1. Congress allows all of the Bush tax cuts to expire;
  2. Congress acts to extend into 2011 all of the Bush tax cuts (the position of most congressional Republicans);
  3. Congress passes the tax laws suggested in President Obama's budget, letting cuts expire for families making over $250,000 a year (and singles making over $200,000), as well as extending some stimulus measures and imposing new limitations on itemized deductions; and
  4. Congress passes the tax laws recently proposed by congressional Democrats, similar to the Obama plan, but without extending stimulus measures and with no additional limitations on itemized deductions.

Is The Goldman Sachs-SEC Settlement In Trouble?

A federal judge has refused to approve the Citigroup settlement with the SEC without more information. See "Judge won't approve SEC-Citigroup settlement over risky mortgages without fuller information" by Marcy Gordon, AP Business reporter. Also see The Wall Street Journal article, "Judge Won't Approve Citi-SEC Pact" by Kara Scannell.

From Scannell's article:
The judge, striking a frustrated tone, fired several questions at the SEC, among them why it pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged sins of bank executives.
The judge's refusal to rubber stamp the The Citigroup-SEC settlement is a recent reminder of the things that are wrong with the SEC-Goldman Sachs settlement. ACA was never charged. There is no admission of guilt or wrongdoing by Goldman. The penalty is far in excess of the alleged or admitted harm.

See my earlier post, "Fair Analysis Of SEC Goldman Settlement: Will The Court Accept It?"

Tuesday, August 17, 2010

The US House Price Bubble Went Undetected As It Happened

The small number of economists who argued forcefully for a bubble often did so years before the housing market peak, and thus lost a fair amount of credibility, or they make arguments fundamentally at odds with the data even ex post. For example, some economists suggested that cities where new construction was limited by zoning regulations or geography were particularly “bubble-prone,” yet the data shows that the cities with the biggest gyrations in house prices were often those at the epicenter of the new construction boom. We conclude by arguing that economic theory provides little guidance as to what should be the “correct” level of asset prices —including housing prices. Thus, while optimistic forecasts held by many market participants in 2005 turned out to be inaccurate, they were not ex ante unreasonable.
From the abstract to the Federal Reserve of Boston Public Policy Discussion Paper No. 10-5, "Reasonable People Did Disagree: Optimism and Pessimism About the U.S. Housing Market Before the Crash" by by Kristopher S. Gerardi, Christopher L. Foote, and Paul S. Willen.

From the complete discussion paper, which is available here:
From our review of the pre-crisis housing literature from the early-to-mid-2000s, it is apparent that well-trained and well-respected economists with the best of motives could and did look at the same data and come to vastly different conclusions about the future trajectory of U.S. housing prices. This is not such a surprising observation once one realizes that the state-of-the-art tools of economic science were not capable of predicting with any degree of certainty the collapse of U.S. house prices that started in 2006. The asset-pricing literature does not yet have a firm grasp on when and why prices can deviate from market fundamentals for long periods of time.

Saturday, August 14, 2010

Canada's Employment Reaches Pre-Recession Levels With Tax And Government Spending Cuts

Above chart from Carpe Diem, Mark Perry.

From the Carpe Diem post, "Canada, Land of Smaller Government, Has Regained All Jobs Lost in 2008-09 vs. U.S. Still Down By -8m" by Mark Perry:
Canada has actually been aggressively cutting both taxes and government spending, with impressive results in economic performance.

Only $66 Billion, 29 Percent, Of $230 Billion Infrastructure Stimulus Funds Paid Out So Far

From The Wall Street Journal article, "Slow Progress on Some Big Stimulus Projects" by Louise Radnofsky:
A year and a half after Congress passed the economic-stimulus plan, the state aid and tax cuts in the package have nearly ended, but some of the big infrastructure projects touted by the Obama administration are still months from visible development.
...the package offered $230 billion to fund an array of projects ranging from road repaving to modernizing the electricity grid to launching new high-speed rail services. Administration officials said when pushing for the program that the money would be targeted at projects that could create jobs quickly.

So far, $182 billion of the infrastructure money has been awarded, though the government has paid out only $66 billion of the total.
Read the complete article here.

Thursday, August 12, 2010

1 Out Of 6 Medicare Recipients Is 18-64 Years Old

From "Nonelderly Medicare Beneficiaries: Access And Costs More Problematic" by Chris Fleming, August 12th, 2010, on HealthAffairs Blog:
A new study released today by Health Affairs [HTML version] focuses on an often-neglected segment of Medicare enrollees: people ages 18–64 with permanent disabilities, a group that currently numbers eight million, or roughly one-sixth of the total number of Americans on Medicare.
The study is available as a PDF here.

Wednesday, August 11, 2010

Fiscal Stimulus Slows Growth By Channeling Demand To Wrong Sectors

From "To spend or not to spend: Is that the main question?" by Guillermo Calvo, Professor of Economics, International and Public Affairs at Columbia University, August 4, 2010 on VOX blog:
The argument [for fiscal stimulus] assumes that the government channels additional spending towards the very same goods that B [borrower] cannot afford. This is not true in general. In the US, for instance, small firms lost access to working capital that the government spends on solar energy. Hence, sectoral “lack of demand” is unlikely to vanish. The sun will set on B goods and shine on government goods.

Fiscal expansion could thus have little impact on unemployment, because the unemployed in the sector that caters to B's [borrower's] tastes are unlikely to find new jobs in those sectors that benefit from the government's largesse. One important reason for sluggish employment creation is that stimulus packages are transitory and hiring-and-firing is costly. Sectors producing government goods will go on overdrive, but will be reluctant to hire new workers. Equally important, labour reallocation is costly and cannot take place in the spur of the moment: a bricklayer does not become a computer technician overnight. This helps to explain why US unemployment is still high even though output is heading to recovery (see Calvo and Loo-Kung 2010). Moreover, if trust in financial intermediaries does not recover, even this type of inefficient and employment-less recovery may lose steam if fiscal stimulus is discontinued.
[W]e have reached a major fork in the road:
  1. Maintaining or increasing fiscal stimulus will probably prevent a major slump of economic activity and a sharp rise in unemployment (the feared double-dip recession), but at the cost of slowing down growth and technical progress;

  2. On the other hand, phasing out fiscal stimulus risks generating double-dip recession but, if unnecessary pain is avoided, it may result in a more vibrant economy in the medium run.
The choice is difficult and I am afraid that it will be guided by political expediency, and the outcome will depend, in no small measure, on implementation.
Read Professor Calvo's complete post here.

Tuesday, August 10, 2010

Solution To Fixing The Ozone Layer Increased Global Warming

From "Beyond Carbon: How Fixing the Ozone Layer Contributes to Climate Change" by Adam Fischer on state of the planet blog:
Early on, HFCs [hydrofluorocarbons] became the primary CFC [chlorofluorocarbons] alternative. The man-made chemicals were ozone-friendly substitutes that could be used in consumer, commercial and industrial products (such as refrigeration, air conditioning, insulating foams, aerosols and fire extinguishers). HFCs, however, have one major shortcoming: their high global warming potential (GWP). A substance’s GWP is defined as the degree to which it contributes to global warming, relative to an equivalent amount of carbon dioxide (CO2). Since CO2 is the dominant greenhouse gas by volume, other gases are converted into CO2-equivalents according to their GWP; a substance with GWP of 10, for example, contributes to global warming 10 times as much as the same amount of CO2.

The dozen or so substances in the HFC family have GWPs ranging from 140 to 11,700. The lifespan of these chemicals also varies: the less harmful compounds stay in the atmosphere for just over one year, while the most damaging ones can last up to 260 years.
Due to population growth, HFC emissions in developing countries could be as much as 800 percent greater than in developed countries by 2050. At that time, HFC emissions, when measured by their CO2-equivalent, would account for roughly 9 to 19 percent of carbon dioxide emissions (in business-as-usual scenarios). As a result of this higher-than-expected atmospheric concentration, the impact of HFC emissions on the climate is slated to be about three times greater than what the Intergovernmental Panel on Climate Change (IPCC) had anticipated.
Read the complete post here.
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Sunday, August 8, 2010

Obama's Proposal To Raise Capital Gain And Dividend Taxes Will Retard US Economic Growth

From "Fairness and the Capital Tax Fetish. No serious economist thinks higher dividend and cap gains taxes are efficient ways to raise revenue" by Glenn Hubbard, dean of Columbia Business School, and a former chairman of the Council of Economic Advisers under President George W. Bush:
low [capital gain and dividend] tax rates encourage capital accumulation, productivity and wage growth.
Deficit reduction is a legitimate object of concern. But if this concern is the dominant one, I am aware of no serious analysis that would claim smaller costs to the economy—in lost output and foregone economic growth—of raising capital income taxes as opposed to increasing other taxes or limiting deductions or reducing federal spending.

If President Obama is interested in promoting growth now and in the future, he should commit to retaining the low tax rates Congress passed in 2003.
Read the entire Wall Street Journal article here.

More Long Term Unemployed

The red line says a lot about the severity of the current recession on employment compared to previous recessions since 1969.

The above chart is from Calculated Risk blog, "Duration of Unemployment" post.

Friday, August 6, 2010

New Jobs Have Left And Gone Away

Where have you gone, jobs I used to do
A nation turns it's lonely eyes to you (Woo, woo, woo)
What's that you say, economic bloggers
New jobs have left and gone away
(Hey, hey, hey...hey, hey, hey)
Sung to the tune of Mrs. Robinson, written by Paul Simon and sung by Simon and Garfunkel.

The employment report came out to day.
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Thursday, August 5, 2010

Men And Women Work Equal Time In The Job And Home

From "Women's 'double shift' of work and domestic duties a myth finds new research" from the London School of Economics:
Feminists are wrong to claim that men should do a larger share of the housework and childcare because on average, men and women already do the same number of hours of productive work. In fact, if we consider the hours spent doing both paid work and unpaid household, care and voluntary work together, men already do more than their fair share, argues LSE sociologist Catherine Hakim in a special issue of Renewal: a journal of social democracy.
A copy of the study is available here.

We Still Do Not Know What Caused The 2008 World-wide Financial Crisis

From "What do we know about the causes of the crisis?" by Andrew K. Rose and Mark M. Spiegel, 2 August 2010, on VOX:
In our earlier research on early warning systems (Rose and Spiegel 2010b and 2010c), we found that it was difficult to reliably link macroeconomic or financial indicators from 2006 or earlier to a variety of financial and real manifestations of the 2008 crisis. Our more recent research corroborates our scepticism. Despite a broad search, we have been unable to find consistent strong linkages between pre-existing variables that are plausible causes of the Great Recession and the actual intensity of the recession.

It is natural for economists to generalise from experiences of a few particularly salient countries to make generalisations, though it is often inappropriate. Our poor results are simply telling us that the pre-conditions for the crisis in the US (or Iceland, or Latvia …) often do not describe other countries particularly well. Credit growth was high before 2008 in Australia, Canada, and South Africa, yet these countries seemed to have weathered the crisis well. Real housing prices actually fell in Japan, Germany and Portugal, yet these countries were hard hit. Since it is difficult to understand the cross-country incidence of the great recession even in retrospect, we are dubious about the potential for a comparable early warning forecasting model going forward.
Read the complete post here.

Without knowing the causes of the 2008 financial crisis, the Dodd-Frank financial reform law will not prevent the next crisis.

Without knowing the causes of the 2008 financial crisis, random and political government policies, such as stabilizing home prices, are unlikely to return the US to a pre-crisis level of output and employment.

Tuesday, August 3, 2010

Time To Let More Foreign Born, Foreign Trained Doctors Into The US

Foreign-born doctors practicing in the United States who earned their medical degrees abroad performed as well or better than their U.S.-born counterparts, a new study finds.
Read the complete Bloomberg Businessweek article, "Foreign-Trained Doctors As Good As U.S.-Trained Counterparts" by Jenifer Goodwin here.
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Monday, August 2, 2010

The Origins Of Oil Reserves

Excellent New York Times article, "Tracing Oil Reserves to Their Tiny Origins" by William J. Broad on the geological origins of oil reserves:
Today, a principal tenet of geology is that a vast majority of the world’s oil arose not from lumbering beasts on land but tiny organisms at sea. It holds that blizzards of microscopic life fell into the sunless depths over the ages, producing thick sediments that the planet’s inner heat eventually cooked into oil. It is estimated that 95 percent or more of global oil traces its genesis to the sea.
Read the complete article here.
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Is Nominal Bank Regulatory Capital The Cause Of Deflation Risk?

A comment I posted on, "Krugman: 'Why Is Deflation Bad?'" on Calculated Risk:
Electronics and other consumer goods, such as appliances, can experience quick price decreases (deflation). Sales are brisk because many retailers give price guarantees that if there is a lower price in a fixed time period after purchase they will match the price and refund the difference.

When events are expected or feared people use contractual provisions to remove the risk, as Coase would expect. If anticipated deflation were a real problem, people would add into purchase and debt contracts provisions to offset the deflation risk, just as CPI increases were added to offset inflation risk in many contracts.

Deflation protection for leases, rentals and sales are easy to incorporate and likely will be incorporated. Mortgages are much more difficult only because regulatory bank capital is in nominal terms and lenders cannot incorporate a deflation offset into debt such as mortgages without destroying their capital base. If the regulators would incorporate deflation into their regulatory capital calculations, then mortgages and other bank loans could also offer deflation protection into their debt terms upon issuance or upon renegotiation. A major impediment to banks in the recent financial crisis was the loss of bank capital if they recognized the lower collateral value of the real estate behind their mortgages.

The issue is not deflation. It is the contractually ability to protect against the deflation risk and government regulation of banks is the major impediment.

Transportation Delays Will Increase To Offset Carbon Fuel Tax

A comment I posted on The Bellows:
Transportation is usually an intermediate and not an end product in itself (although one can enjoy a Sunday drive and it can be a leisure activity by itself). It is mostly an input.

Alternatives, such as buses and trains, follow fixed routes which often increase the time to go from point a to b, especially if one is required to go into a central hub (a nearby town or city) and then depart from the hub to reach the final destination. Additionally, there is the waiting time until the next scheduled bus or train. Other modes of transportation that require human power, such as walking and biking will also increase the time of travel.

Costs equal the actual cost plus the opportunity cost caused by the travel time. Transportation time from delays, schedules, routes, etc. will expand until the two costs are equal. The marginal cost of fuel with a tax, and the marginal cost of alternative transportation with the opportunity cost of the extra travel time will equal each other.

Since travelling and waiting are inefficient and not productive activities, productivity will decline. One has to remember that most European countries have lower productivity measures than the US.

To offset the loss and increase productivity, additional people with the higher opportunity costs will move closer to work locations, often major cities, increasing real estate costs and expanding the area of expensive real estate around cities and other central work areas. It will push those with lower opportunity costs (usually non-professionals and lower wage earners) further away from central work locations.

Additionally, increasing transportation costs will increase 'just-in-time' business costs. Business will increase inventories and supplies until the marginal cost of storage equals the marginal cost of transportation. Additional inventories will require expanding storage facilities at businesses to hold the extra inventory and supplies, which will also add to costs.

Increased transportation costs will also have a major impact on agricultural and food production. Large-scale food manufacturing and packaging plants will break up into smaller units closer to end consumers to lower transportation costs. Major distribution centers for the major retailers such as Gap, etc., will downsize and more, smaller distribution warehouses will move closer to end consumers.

The costs of final goods and services will increase to absorb the extra business costs caused by the fuel tax.

Substitution will occur but not always in the most obvious ways. For example, more households may eat at home instead of going to a restaurant or choosing a closer restaurant. Of course, less expensive goods and services will be substituted for more expensive where possible. Where cheaper alternatives are unavailable, consumption will decline.

Furthermore, fewer restaurants will offer delivery services. One of the surprises and delights that many European have about the US is the availability of delivery and pick up services, for food, cleaners, etc. The Europeans that I have met and worked with who live in the US for a while like the benefits that come from lower fuel costs and miss it when they go back to Europe.

Most auto repair shops, including dealer repair shops, depend on frequent parts deliveries, sometimes more than once a day. As repair costs increase, there will be some decrease in car repairs, which in and of itself has negative consequences on safety and pollution. If dealers hold more inventories, it will also increase repair costs.

Shoppers will bundle their shopping for goods and services to decrease its cost and they will shop less frequently. Retail stores will change size and available inventory to offset the less frequent shopping.

There will be attempts to increase travel time efficiencies, in addition to shortening travel time, by creating more passenger space to allow computer, cell phone and other work related uses, which will decrease available passenger carrying capacity and increase transportation costs directly, through government subsidies with increased taxes, or through delays.

And of course, there will be many unexpected consequences.

Increasing fuel costs through a tax may reduce fuel consumption, but it is likely to negatively impact US productivity, increase consumer product costs, and decrease consumer product and service choices.

In effect, we will create a European economy.