I’ll have more to say about stuff soon, but…

May 23rd, 2017 at 9:30 am

I can’t just ignore this Manchester suicide bombing and go about my business. There’s so much negativity and horror in the world right now, including terror, of course, but also a level of greed, inequality, and power-abuse that just keeps growing.

There is much beauty as well, and a growing, robust resistance such that I feel increasingly connected to others who feel as I do about things, so I’m definitely not saying all is lost.

The other day, I gave this commencement speech to the graduates of Columbia University School of Social Work (which was where I got my PhD lo these many years ago). To be in the same room with all of those graduates and their professors, all of whom are part of the solution, was tremendously uplifting, and that’s a very real part of life too.

Buddhism teaches us that such dualities are omnipresent, and the enlightened life accepts that and tries to seek balance. But there’s no denying that in so many spheres of life right now, the balance is way off.

OK, we’re back live, trying to block the evil and elevate the good. More to come…

ICYMI–WaPo posts

May 22nd, 2017 at 8:46 am

First, Trump’s first full budget is out tomorrow and man, what a mess. Just a massive shift in resources from the poor and middle class through vicious spending cuts to the wealthy in tax cuts. And partially “paid for”–those scare quotes are very important–by a bullsh__ growth assumption of 3%. It’s standard issue, Ryan’esque fare, but goes after not just discreationary–there’s just not that much left there they can plausibly cut–but also mandatory programs, including Medicaid (on top of AHCA cuts), food stamps, EITC, CTC, more…

Second, it took too long, but these interesting figures suggest the stock market may have woken up to the fact that the market-friendly Trump agenda won’t exactly be forthcoming. To be clear, I still think a big, wasteful, regressive tax cut is coming, but probably not as big and not as soon as market participants imagine, even still.

Jump on the productivity merry-go-round!

May 18th, 2017 at 5:14 pm

That’s the new game all the nerds are playing. You just write down all the reasons why people say productivity isn’t growing as fast as it was 15 years ago, and you ask noted productivity expert John Fernald: “Whussup with that?”

That’s what Ben and I do in the latest episode of the On the Economy podcast, which you can listen to on SoundcloudiTunesStitchrGoogle Play, and TuneIn.

Of course, while podcasts are fun and convenient, they don’t support graphs, so here’s a graph of year-over-year changes in productivity growth. Fernald points out how noisy the series is, so I’ve added a slow-moving trend which captures the important facts of the data: productivity was growing at around 3% until the mid-1970s. Since then, it’s grown a lot slower than that, though that hump in the latter 1990s is something to which we devote a lot of analysis in the podcast. At any rate, over the last decade, productivity has grown at around 1.2.

Source: BLS, my analysis

Even while we’re crackin’ wise and having fun in the discussion, it’s essential to recognize that when President Trump and Secretary Mnuchin go on about how their awesome program is going to deliver 3% growth, they’re mainly talking about changing that trend in the picture, about which Ben, John, and I are all duly skeptical. (I discuss their real motivation for such nonsense here–the faster growth assumption sops up a bunch of red ink caused by their big, regressive tax cuts.)

Special bonus for OTE’ers: You’ll hear a snippet of Eliane Elias on the podcast, but here’s one of her recent concert performances that’s worth a close listen.

Potential growth and phony budgeting

May 16th, 2017 at 10:29 am

The WSJ has a piece out this AM making an argument that’s become common from economists who think about growth, myself included: there’s no good reason to expect team Trump to achieve their 3 percent GDP growth goal. Many previous pieces have made this case, based on the limits we observe to the two additive components of GDP growth: labor force and productivity growth.

I’ll get to those in a moment, but to me, the important and timely line in the WSJ piece wasn’t so much the analysis of why 3 percent is probably an unrealistic goal (though good for the Journal for amplifying this point). It’s this one sentence, with a factoid you need to know (my bold): “If the economy expands at around a 3% rate over the next decade—a projection Mr. Mnuchin says the administration will make in its budget proposal later this month [next week, actually]—government revenue over the time should be $3.7 trillion more than currently forecast, according to estimates by economists at Goldman Sachs Group Inc.” And those dudes know their trillions.

So that’s the play here. They’re going to pretend to get the extra revenue they need to offset their big tax cut by making an unrealistic growth assumption. The official revenue scorekeepers won’t buy it, so eventually we’ll see a more plausible score with lots of red ink, but when you hear administration officials claim otherwise, you’ll know why they’re wrong.

That said, people who have very reasonably come to distrust economists’ proclamations about growth forecasts might well ask, “how do you know what’s possible re future growth rates?” Fair point. One of the key drivers, as noted, is productivity growth, and economists failed to forecast both the mid-1990s speedup and the subsequent slowdown.

On the labor force—the other growth component—we’re on much more solid ground. Our aging demographics are baked in the cake, so, absent a bunch more immigration, which is possible but unlikely, that’s going to account for 70 percent of the slowdown, as shown in the table below from CBO projections (1% of the 1.4% growth deceleration).

On productivity growth, like I said, we just don’t really have a great bead on what makes it speed up or slow down, so our best move is to assume the long-term trend persists. Over the past 50 years, productivity growth has been around 1.5 percent, about where CBO is in the table above. No one can be too confident in that prediction, but you can be sure that there’s absolutely nothing in the Trump agenda—or anyone else’s agenda—that would justify a predicted jump in that growth rate.

One final point designed to encourage a healthy dose of skepticism about these forecasting exercises. The WSJ includes the figure below, showing the potential growth rate, the same topline variable in the CBO table above. Note how it wiggles up and down over time, suggesting movements in maximum labor force and productivity growth.

Source: WSJ

While there’s definitely some rich analysis that goes into this measure—CBO does the best work one can do on it—it ends up being pretty close to a simple trend extraction. That is, for all our number crunching and forecasting of what’s going to happen, we’re pretty much looking in the rearview mirror and saying, “the future will be a lot like the past,” especially regarding productivity growth.

Let me show you what I mean. The figure below plots the same potential GDP growth line from the WSJ figure against a smooth trend extracted from actual GDP growth. They’re not the same but they’re close. Interestingly, they diverge significantly at the end, but even if the trend is right, it’s still just about 2 percent, which is, in fact, the underlying GDP growth rate since 2000.

Source: BEA, CBO, HP trend

Summing up, economists’ productivity predictions tend to be off the current trend, which is as it should be, but admits that we’re lousy at catching turning points. Certainly, if you’re budgeting for the future, that’s by far the only prudent play. Any assumption of significantly faster growth should be treated with as much respect as magic beans. Aging demographics, on the other hand, are slowing growth in a way we can somewhat reliably predict. And most of all, fully discount BS revenue projections off of phony growth forecasts.

Housing, justice, jobs, and the flat Phillips Curve: Racial discrimination and a possible role for the Fed

May 15th, 2017 at 11:35 am

Over at WaPo. One attribute of the post is the link to Richard Rothstein’s important new book documenting the “unhidden policies” responsible for racial residential segregation. The rigor of his research creates a bullet proof case for a) the laws, covenants, and zoning practices that kept African-Americans in high-poverty areas, and b) the difficulty unwinding those impacts today. I predict this book is going to be a big deal. At least I hope so.

Here’s the figure showing the constant ratio where black unemployment rates are 2x those of whites. This may be one of the most consistent relationship in economics, which is why I argue for lower overall unemployment in the piece, to tap this powerful elasticity to disproportionately push down the black rate.

Source: BLS