Friday, June 25, 2010
Conflicting opinions abound as to the future trajectory of the US Price level. James Hamilton provides an excellent analysis of the distinction between what he expects to see on the inflation front by comparing short run conditions to longer term conditions.
Monday, May 3, 2010
Should the term limit on Federal Reserve Board positions be shortened? Posner and Posner make some interesting points in favor of this argument in their column in the Financial Times.
In general, Federal Reserve Governors serve 14-year terms that can not be renewed. This means that the chairman, whose own position is subject to a four year term that can be renewed, can only serve up to fourteen years. As Posner and Posner point out, however, members may have extended terms if they are appointed to complete the remainder of a predecessor’s term. This explains how Mr Greenspan served 18 years. In 1987, President Reagan appointed him to complete Paul Volcker’s term. President Bush reappointed him in 1992 he served until 2006.
Wednesday, April 21, 2010
As President Obama (and Florida state legislatures!) look for ways to improve education, they need to remember there are other inputs besides teachers…such as their students. As Newsweek reports, a working paper by Cornell professor Kirabo Jackson and published by the National Bureau of Economic Research explains that Texas high-school students who earned cash for passing
Advanced Placement exams improved their GPAs, and improved college attendance, performance, and the likelihood of earning their degrees.
Where was the impact of pay to study the largest? Among African American students, who were 10 percent more likely to enter college and 50 percent more likely to remain in school through graduation. And the program is a lot less expensive than other attempts that have been made.
According to Jackson, "If you have a million dollars (this is) a pretty good way to spend it." It provides "cool" kids who don't want others to make fun of them an excuse for doing well. They can say "I don't like math; I'm saving for an Xbox.'
Tuesday, April 20, 2010
Goldman Sachs Fraud, Tiny Town Style…
Monday, April 12, 2010
When analyzing the period following the Great Depression, how often does supply side economics come in mind? Burt and Anita Folsom write in the WSJ that many people attribute getting out of the Great Depression with policies advocated by FDR, and explain why this is a myth. "FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II."
In fact, after FDR's death, Congress resisted political pressure to continue FDR policies and reduced taxes. This included decreasing corporate tax rates and repealing FDR's "excess profits" tax.
As the Folsoms put it, "Georgia Sen. Walter George...defended the Revenue Act of 1945 with arguments that today we would call "supply-side economics." If the tax bill "has the effect which it is hoped it will have," George said, "it will so stimulate the expansion of business as to bring in a greater total revenue.""
Tuesday, March 23, 2010
Individual: The wealthy ($200,000 for individuals and $250,000 for couples): the bill increases the individual’s share of Medicare tax from 1.45% to 2.35% The rich can afford it, right? Beware of income creep! These income levels would be indexed to inflation. Overall inflation increases at a slower pace than health care inflation. This would expose more employers to the tax over time.
Out-of-Pocket Cost: Other provisions likely to affect the rich reduce tax preferences associated with paying out-of- pocket medical expenses. Starting in 2013, Americans under 65 won’t be able to deduct medical expenses until they exceed 10 percent of income, up from 7.5 percent now; retirees would keep the lower threshold.
Yikes! The bill in 2011 further restricts what can be purchased with health savings accounts. Improper withdrawals from the accounts also would be hit with a new 20 percent tax.Tanning Salons, Wheelchairs, and Drugs (oh my!): Salon tanners, beware! Get ready to pay a 10 percent excise tax. Purchasing a wheelchair results in 2.3 percent excise tax. Drugmakers may pass on a $3 billion annual fee. Insurance companies would be denied deductions when they pay their executives over $500,000.
Noncompliance: Those who don’t purchase insurance would be subject to a fine of $325 in 2015 and $695 in 2016. Individuals may be subject to a charge equal to as much as 2.5 percent of their income in 2016, if the total is greater than the flat payment.
Employers with 50 or more workers would pay $2,000 per worker if they don’t offer health insurance. The legislation offers a small business tax credit to help pay for employer- provided premiums.
Hmmmm.....I wonder how many of those celebrating passage of health care would still celebrate if they knew this?
Monday, March 22, 2010
COST: CBO: $940 billion over 10 years.
HOW MANY COVERED: 32 million uninsured.
INSURANCE MANDATE: Almost everyone is required to be insured or else pay a fine.
EMPLOYER RESPONSIBILITY: Employers are penalized if the government subsidizes their workers' coverage, at $2,000-per-employee. Companies with 50 or fewer workers are exempt from the requirement. Part-time workers are included in the calculations, counting two part-timers as one full-time worker.
HOW YOU CHOOSE YOUR HEALTH INSURANCE: In 2014, new state-based purchasing pools called exchanges would provide plans for small businesses, the self-employed and the uninsured.
GOVERNMENT-RUN PLAN: No government-run insurance plan but an option of signing up for national plans.
GOP HEALTH CARE SUMMIT IDEAS: Absent from the current legislation are two of the principle ideas provided by the GOP -- hiring investigators to pose as patients and search for fraud at hospitals and increasing spending for medical malpractice reform initiatives. Increases in primary care physician payments
Russ Roberts tries to look on the bright side regarding the passage of health care legislation. Regardless of whether we analyze the current system or changes that could be coming, "People like having other people pay for their health care. They don’t see that that drives up the price and makes it harder for poor people without insurance to pay for health care."
Monday, March 15, 2010
1) Severe declines in asset values that persist:
Average decrease in real housing prices is 35% and lasts six years.
Average decrease in equity prices 55% and lasts three and a half years.
2) Substantial decreases in output and employment:
An increase in the average unemployment rate of 7 percentage points, lasts over four years. Average GDP decreases 9 percent, lasts two years.
3) A dramatic increase in the real value of government debt (an average of 86 percent)
Reinhart and Rogoff: "Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system... the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn."
I guess this begs the question "Are we there yet?"
Friday, March 12, 2010
What do wrap dresses and the proposed price controls on health insurance and credit cards have in common? According to Amity Shlaes at Forbes, these are all evidence of the public's short term memory. Shlaes describes how, in response to rising gas prices in 1973, the Nixon administration had its Cost of Living Council (I guess this was before the era of Czars) freeze gasoline prices.
Consumers learned the hard way that what seemed like a great idea quickly became a nightmare. Oil companies and dealers responded to the price ceiling by limiting supply. Customers were prohibited from purchasing more than a half a tank of gas, and often found themselves running out of gas and sitting in line waiting to purchase gas. Gas stations closed early and did not open on Sundays.
The gas lines of the seventies should serve as a warning for those who are not concerned about government's moves towards controlling prices in the health insurance and credit card industry. As Shales puts it "The Administration may not be calling its plans "price controls......" Still, such entities are laying the ground for price controls when they set premiums or the Visa interest rate."
Wednesday, March 3, 2010
Tuesday, March 2, 2010
Monday, March 1, 2010
As Michael Tanner puts it "...the only way to spend less on health care is to consume less health care. Someone, sometime, has to say no. But the incentives under our current health care system perversely encourage everyone to say "yes.""
Economists Do It With Models provides an excellent explanation of how splitting the bill provides an incentive to overconsume, not unlike the challenges faced in the insurance industry.
Monday, February 9, 2009
Nouriel Roubini and Nassim Taleb, better known as Dr. Doom and the Black Swan for their respective roles in predicting the current mess in the financial markets, told CNBC they see more rough waters ahead.
Even if the current mess is handled perfectly, said Roubini, expect the recession to last at least another 12 months. Particularly reassuring was:
“If you don’t do everything right, and I think there’s a large probability that’s going to happen, then we may end up in a multi-year stagnation or near depression like the one that Japan had,” he added.
Friday, February 6, 2009
The Labor Department is reporting a loss of 598,000 jobs in January. According to an AP report, the is the largest number of job losses since the end of 1974. This also increases the unemployment rate from 7.2 percent to 7.6 percent, a slightly higher number that the 7.5% rate expected by economists.
What does this number mean? This unemployment number puts the current recession on a par with the recession of the early 1990's. It is still less than the double digit unemployment rate associated with the recession of the eighties. It is also worth noting, though, that the economy has lost 3.6 million jobs since the start of the recession back in December 2007. What may be particularly alarming about this is that half of these jobs have been eliminated in the past three months.
It is a good time to be in school....
Wednesday, February 4, 2009
As the WSJ blogger puts it:
"The latest House stimulus package includes some effective provisions, such as a temporary tax cuts, he said. But other pieces don’t fit with what he’s (Zandi) been advocating — quick spending to boost the economy.
“If I were king for the day I might define the stimulus differently,” Mr. Zandi said. “The part of it that doesn’t really fit what I was hoping for was the spendout ratio on infrastructure. The spendout ratio is slower than expected.”"
This morning's ADP report indicates a loss of 522,000 additional jobs from the private sector in January. This suggests the numbers that will be reported on Friday from the BLS should be pretty depressing.
As the Real Time Economics Blog at the WSJ suggests, though, the ADP numbers may not reflect everything occuring in the Labor Market. The BLS and ADP numbers tend to differ, particularly since the recession has worsened. It is important to keep in mind that the BLS numbers will also reflect jobs gained in the public sector, meaning those numbers could be less severe.
Sunday, August 10, 2008
Friday, August 1, 2008
Florida's economy declined at a 1.6 percent annual rate in the second quarter and year-to-year growth slowed to just 0.5 percent. Comparing this to the national averages indicates Florida is "underperforming." US real GDP rose 1.9 percent that quarter, while the U.S. economy grew 1.8 percent.
Florida usually rides out recessions better than the national average. Two notable exceptions occured during the 1990-1991 and the 1973-75 recessions. What did these recessions share? Being particularly brutal for real estate, which Vitner called “the lifeblood of Florida’s economy.”
The graph above reveals two important characteristics of unemployment. First, the rate is less than what we tend to observe during a recession. However, note that the maximum unemployment rate in each business cycle usually occurs to the right of the shaded area--or after the recession is over.....which is why we call this a lagging economic indicator
Wednesday, July 30, 2008
Economists expected a decrease of 60,000 jobs. Market watchers are awaiting Friday's labor market report. If it confirms an expected 75,000 decline in jobs, July would be the seventh consecutive month of job losses.
Monday, July 21, 2008
Decreases in factory workers' hours and a declining stock market are among the variables causing a .1 decline in this index number. Current conditions suggest inevitable future job cuts, as with announcements such as that by General Motors Corp. last Friday that it will probably close more factories as part of its plan to decrease truck and SUV production by 300,000 by the end of the year.
Manufacturers of motor vehicle related products have cut workers and their hours, and sold or closed down companies, said Ralph Hardt, president of Feintool Inc., a Cincinnati component maker. "The number of auction flyers that come across my desk is back where it was in 2000, 2001, the last recession we had," he said.
Wednesday, July 16, 2008
Tanta makes a great point that more than rivals any economic lecture I have given on FDIC and moral hazard:
"The big moral hazard problem that existed back when deposit insurance was first invented was, of course, the nasty information asymmetry between depositors and the banks. The banks knew what ridiculous risks they might be running with your savings account, but you didn't. "Bank runs" start because the information about risk gets out suddenly (and often incompletely) to depositors at the moment of crisis, leading to depositor panic.
In the New Era here, Mr. Bash actually got information from the media about the riskiness of his bank before it managed to create widespread depositor panic. So he goes to the bank to withdraw his money--or at least that part of it over the $100,000 deposit insurance limit--but when the helpful teller points out to him that he can make perfectly meaningless changes to names on his accounts and get more "free insurance," he decides that makes more sense. His concern about the management of his bank and its risk tolerance does not extend to looking that gift horse in the mouth."
'nuf said.....Tanta, you go girl.....
Tuesday, July 15, 2008
Looking at the past 12 months, wholesale prices have risen 9.2 percent. This is the largest year-over-year increase since June of 1981. This also happens to be another time where inflation was a problem due to rising oil prices.