Yes, there’s a Trump bump in the equity markets. But the market’s a fickle friend, Mr. President, and it doesn’t help your working-class supporters.

August 3rd, 2017 at 2:24 pm

Our Tweeter-in-chief can barely type fast enough to keep up with the stock market. President Trump expressed great excitement about the stock market hitting 22,000 yesterday, and somewhat weirdly touted the fact that the market hit an all-time high; “weirdly” because all-time highs are not unusual. According to CNN, “the Dow has reached a new high, on average, once every seven days since fully recovering from the Great Recession in March 2013.”

Still, the President has a case for a bona fide Trump bump in the stock market. The figure below plots a “spline function” through the DJIA since late 2007. This function is constructed to produce a linear trend with specified kink points. If the kink points are insignificant, the trend’s slope won’t change (apologies if I’m “mansplining”). The kinks are the terms (starting with the month they won) of Presidents Obama and Trump, and the acceleration starting in November 2016 is clear.

For the record, Obama had a long, bull run himself. I always said that guy was a lousy socialist, albeit a great president. Also for the record, it has long been known that the economy grows faster under Democratic presidents.

Moreover, if I were Trump, I’d be awfully cautious about tying myself to the masthead of the DOW. It goes up, it goes down, and while the correlation of that kink point and his election is undeniable, over the longer-term, presidents don’t have nearly as much influence on markets as they like to think (when it goes up, of course). Just look at where the dollar is now: its Trump bump has already fizzled.

In this regard, though he gets a high-grade so far, I thought Treasury Secretary Mnuchin made a rookie mistake when he agreed on CNBC that the stock market would be the Trump administration’s report card.

Second, as I can’t stress enough in these parts, it is extremely important not to conflate a rising stock market with the economic well-being of the working-class voters who put Trump where he is today. Consider these facts:

–Research by NYU economics professor and wealth expert Ed Wolff finds that fewer than half of all households (46 percent) own stocks, either directly or indirectly (like through their retirement account). However, among the richest 1 percent of households, the ownership rate is 94 percent.

–The value of holdings is even more skewed than straight up ownership. Among the half of households with some equity holdings, less than a third hold at least $10,000 in stocks, compared to 93 percent of those households in the top 1 percent.

–Since the late 1980s, about 80 percent of the value of the market has been held by the top 10 percent, and about 40 percent of the market’s value belongs to the top 1 percent.

–In other words, the share of stock market wealth held by the top 1 percent (38 percent), is twice that of the share held by the bottom 90 percent (19 percent).

I know I’m not the Jared to which Trump listens. If I were, I’d warn him that the stock market is as fickle a friend as they come, and not much of a friend at all to those in his core constituency.

A few links: eroding norms and the limits of presidents re the economy

August 2nd, 2017 at 10:02 am

I’ve had a couple of WaPo posts out to which I’ve been meaning to link.

This first one, on the warp speed of norm erosion in the Trump era, has the interesting feature that its shelf life was vastly shortened by the Mooch getting the bootch later in the very day I posted. Of course, given that Trump still tops the ticket, I suspect the general thrust of the piece remains valid.

Today, I’ve got a post up pushing back on the idea that presidents play an outsized role in economic outcomes, especially near-term ones. I don’t mean to underplay their role, which can be significant, especially via counter-cyclical policies in recessions. But taking credit (or getting blame) for this or that monthly jobs or quarterly GDP report is nonsense.

As is the whole “my platform will boost growth by X percent,” where X is non-tiny. That’s the source of all kinds of bad policy, especially in the realm of tax cuts, dereg, tilted trade deals, and many other forms of upward redistribution.

One thing I didn’t fit into the piece: President Obama, who liked, understood, and respected data, did a lot less of this sort of thing–claiming credit for positive data releases–than most POTUS’s before or…um…since. He was especially careful not to set up the stock market as a report card, despite the fact that it grew strongly on his watch (the DJIA rose by a factor of 3 between March of ’09 and Dec of ’16).

Some criticized the former president for not taking more credit for growth outcomes on his watch. (I’d separate out the Recovery Act, which we did claim some credit for, but which was a very challenging message to get across.) The economic message, as I recall, pretty much reduced to “things are improving but they’re still not good enough.” Whether that was a good or lame message, I can’t say, but it was true (especially from the perspective of the middle class), and Obama was fundamentally just a very honest person, especially for a politician.

Finally, I do think team Trump makes a big, rookie mistake by setting out the stock market as a report card. That’s one fickle report card, and it goes up and down in ways that typically have nothing to do with the actions of an administration. At some point, I predict they’re going to be trying the old junior high stunt of getting the report card from the mailbox before mom and dad get there.

This moment in health care

July 28th, 2017 at 1:28 pm

Over at WaPo. It’s never over, but this is a real win. Where we are, how we got here, and what’s next…well, those are all very tricky questions with potentially less hopeful outcomes. But man, at least for now, a lot of people very narrowly dodged the impact of some really terrible legislation.

Yes, the “skinny repeal” is just a play to get to conference. But it’s also terrible policy.

July 26th, 2017 at 7:10 pm

Readers know I’ve been deeply engaged in the healthcare debate, and highly critical of the efforts thus far to repeal and replace, demean and deface, disgust and disgrace, etc.

But I haven’t weighed in on up to the minute changes in part because they’re changing fast and because the journalists who follow this are doing a good job of tracking developments in the Senate.

In sum, Senate R’s have failed to pass any of the repeal and/or replace bills they’ve come up with so far. At this point, McConnell looks to be counting on getting to 50 votes with “skinny repeal,” which gets rid of the individual and employer mandates, along with a tax on medical devices.

At one level, this is high strategery. His play is to get to conference, i.e., once both chambers have passed bills, the R’s convene a committee that tries to agree on a plan that R majorities in both houses will support. There’s no requirement that what comes out of conference looks like what went in, and that means they’re most likely to go right back to the full, draconian repeal-and-replace cuts that would lead to tens of millions losing coverage.

Would Senate “moderates” who’ve blocked these bills thus far backtrack and vote for stuff they’ve heretofore opposed, like huge cuts to Medicaid or ending coverage of pre-existing conditions, maternal care, mental health, substance abuse treatment, etc.? They might, but it’s worth remembering that the debate on the conference bill is constrained, no amendments are allowed, and leadership will be in full arm-twisting mode.

People are calling the skinny repeal a Trojan Horse but it’s really more of a stalking horse. The Trojan Horse was supposed to be something good on the outside with something bad on the inside. But this damn thing is just all bad.

In fact, the skinny repeal should make even less sense to Republican voters (and yes, I know that trying to make sense out of any of this is a waste of time). While the Medicaid expansion has proven to be extremely important in expanding affordable coverage, the part of Obamacare that conservatives have consistently screamed the most about is the alleged collapsing of the non-group market.

That’s phony too, of course, as I’ve written in many places, and, in fact, that part of the market was beginning to stabilize. From one of my earlier pieces on this:

After a few years of the experience with the ACA, private insurers are figuring out how to profitably price coverage. But many moving parts make this process an ongoing challenge for them. Some of that was expected, like the phaseout of reinsurance subsidies. But others, like the Trump administration’s flirting with the loss of cost-sharing subsidies that private insurers depend on to hold down premium charges, are pure sabotage.

These payments reduce deductibles and copays for low- and moderate-income people, and their loss could lead the average premium for a benchmark plan to go up almost 20 percent. Just as they’re getting the pricing calibrated, the uncertainty around whether the government will continue to make these payments has surfaced as one of the main reasons that private insurers are asking themselves whether it makes sense to continue to offer coverage in the exchanges.

Let’s pause on the irony here for a moment. Conservatives’ flawed ideology (explained below) that the private sector is the most efficient delivery mechanism for health coverage kept a public option out of the ACA. But the private insurers themselves said at the time, and maintain to this day, that they can’t serve the exchanges without government subsidies. Now, Republicans want to block those subsidies, because … you guessed it … the private market blah, blah, yada, yada.

To pile irony on top of irony, the skinny repeal doesn’t go after Medicaid, but it’s a great tool to further destabilize the non-group market. Once you end the mandates, you invite the adverse selection that undermines risk pooling. Healthy people opt out, leaving more expensive people behind. Premium rise–2o%, according to CBO–leading the next healthiest tier to leave, and so on (the budget office also predicts this plan will leave 16 million fewer people with health coverage).

Which is why, according to the Times, Blue Cross Blue Shield warned senators “against repealing the mandate that almost everyone have insurance without something to take its place.”

BTW, depending on how much of the rest of the ACA remains intact, higher premium subsidies will help many consumers offset these higher coverage costs, meaning not only will skinny repeal cover fewer people at higher costs, but the government will have to make up some of the difference. Great work, R’s!

Given the just plain mean and ill-founded hostility of Republicans towards the poor and Medicaid, I at least understood their motive for the deep cuts they proposed (supported by Trump, who lied about this in the campaign, promising not to cut the program). Yet now, they’re tactically stripping down their repeal plans down to parts that exclusively make purchasing health care in the private marketplace a lot more expensive, the very thing they’ve whined about for years.

I know I should be totally used to it by now, but I’m still taken aback by the hypocrisy of these politicians, and by their willful failure to try to meet the needs of anyone who isn’t one of their rich donors.

Fed holds steady, and for now, the dollar is helping with inflation.

July 26th, 2017 at 2:59 pm

The Federal Reserve’s interest-rate-setting committee just wrapped up their meeting and as predicted, announced that they’ll hold rates steady. Markets were interested in any guidance on when the central bank would start slowly unwinding its balance sheet, to which the Fed’s statement said, “relatively soon.” So, not a lot to see here folks…move along.

Yet in the background, there’s been an interesting development in recent weeks, one that weighs on current monetary policy. Consider these two facts. First, the Fed has been consistently missing their inflation target to the downside. Second, following a “Trump bump” after the surprise election outcome, the value of the dollar has come down about 7 percent this year (the dollar fell after the Fed statement today, which currency traders presumably viewed as dovish).

These two facts point in different directions. Since a weaker dollar makes imports more expensive, it tends to correlate with higher prices. Its impact is dampened to an extent by the fact that our import share of GDP—15%–is relatively low (it’s twice that share in the UK). And of course, many other inflation determinants are in play in these days.

That said, a simple model of price growth that includes an index of the dollar against our trading partners does an OK job of tracking year-over-year changes in core PCE inflation (the Fed’s favored gauge). The figure below shows what happens when I let the dollar keep declining at its recent pace. Inflation picks up and by the end of this year, hits the Fed’s 2% target, then hits 2.2% by the end of 2018.

Suppose President Trump got confused and appointed Jared Bernstein to chair the Fed instead of Jared Kushner, and I let unemployment fall to 3.5% by the end of 2019. Inflation grows faster still, but not at anything like scary magnitudes. True, this is a toy model but given the flatness of the Phillips Curve right now (i.e., the low correlation between unemployment and inflation), I suspect at least some of the more structural models would generate a similar result.

Faster price growth would be a good thing (here’s Bin Appelbaum on why), but there’s a wrinkle to this dollar scenario: if the Fed continues on its rate-hiking, “normalization campaign,” we may not achieve that result. The reason is that higher interest rates raise the value of the dollar in international markets.

Of course, if the Fed were truly concerned about hitting, or better yet, exceeding its inflation target, which is supposed to be an average, not a ceiling, they wouldn’t be raising in the first place. Apparently, the drive to “normalize” rates is stronger than the drive to boost prices, which Chair Yellen thinks is going to happen on its own, just around the next corner.

But by continuing to raise, and thereby adding some strength to the dollar, they’re kinda working at cross purposes, at least as far as regaining some control over price growth.