Halloween Special: How to Scare an Economist!

October 30th, 2014 at 5:22 pm

We econo-types come in lots of different flavors and we all have our demons. Assuming you’d like a Halloween costume that would scare one of us, here’s a handy typology. I even put in a couple of ideas to frighten some of my CBPP friends.

Feel free to add others to the comments section. Better yet, put on one of these and take a selfie and, if it’s not too scary, I’ll post it!

Type of Economist Scary Costume
Microeconomist A Harberger Triangle
Macroeconomist An Okun Gap
Democrat economist Balanced Budget Amendment
Republican economist Rising Debt/GDP ratio (but they’re just pretending to be scared)
Econometrician Heteroskedastic errors!
Forecasters Actual outcomes
Fed economists Unanchored inflationary expectations
Chye-Ching, Chuck A tax loophole or even scarier, forgone revenue
Bernanke Rick Perry (and vice versa, of course)
UAW economist The trade deficit, or more subtly, the undervalued yuan
Rational expectations economist Reality
Econ grad student Negative externality
Thomas Piketty g>r
Me A supply side economist


Our steady macro economy and what it means for the Fed

October 30th, 2014 at 1:42 pm

The US economy expanded at a nice clip of 3.5% in the third quarter, according to this AM’s report from the BEA. That’s their advance guesstimate based on incomplete data so future revisions may wiggle about some, but it’s pretty consistent with what we expected.

It’s also an annualized quarterly rate, whereas my readers know I prefer to pull out something closer to the underlying trend by taking year-over-year changes (e.g., 20013q3-2014q3). That’s what I do in the figure below, and I’ve added in core inflation, payroll employment growth, as well as the unemployment rate.

Yes, starting in around 2010 it’s a boring picture. That’s the point.

Real GDP’s been bumping around the 2% line, up 2.3% over the past year and tracking a bit faster at 2.5% averaging over the last two quarters. So maybe a smidgen of acceleration there.

Payrolls have been hugging that 2% line on a year-over-year basis. The jobless rate’s been sliding down, and while its initial descent was driven in no small part by discouraged job seekers giving up the search—and thus not counted among the unemployed—lately it has been falling for the right reason: more job seekers finding work.

Inflation—and I’m using the core PCE, since that’s the Fed’s preferred gauge for price pressures—has been running consistently below their 2% target. The most recent observation from today’s release is 1.5% and averaging these yearly changes over the past two years gets you a paltry 1.4%, with little variance. Inflation expectations remain well-anchored under 2% as well.

In other words, you can make this as complicated as you want, get all wound up in the impacts of the end of the Fed’s monthly asset buys, Europe’s slow down, the emerging markets, or “whatevs” as the kids say. But there’s a lot of momentum in these trends and my expectation is that the steady recovery remains on track.

That’s not the express track, to be sure. We never had the needed bounce-back after the Great Recession and we settled into trend growth before repairing enough of the damage. There’s still a lot of slack in the job market and that’s why most households’ real wages and incomes have been pretty flat.

So I’m definitely not saying all’s well. Instead my point is that it will take a lot more quarters and years of this slow and steady improvement to squeeze the remaining slack out of the job market and get back to full employment. And only then do I expect to see many more people benefiting from the growth you see in the chart.

That means the Fed needs to continue to support the economy through very low rates and the big balance sheet they’ve built up (i.e., with QE over, they won’t be adding to it, but neither do they need to unwind it yet).

Or to put it slightly differently, if that inflation line looks scary, volatile, or threatening to you, go get your eyes checked.


Sources: BEA, BLS





States that took the Medicaid expansion are seeing slower cost growth and fewer uninsured. The other states are paying a new red state tax.

October 27th, 2014 at 6:45 pm

This deserves more time than I’ve got right now, but be sure to see this post from my CBPP colleague Jesse Cross-Call showing a difference of more than 2 percentage points in projected Medicaid cost growth between states that expanded the program under the Affordable Care Act and those that did not.


To give you a little perspective on that cost difference, if it persisted for say, 10 years, it would mean a 27% savings for the expanders relative to the non-expanders.

As Jesse notes:

While benefiting from slower spending growth, expansion states are making substantial progress in reducing the ranks of the uninsured.  The uninsured rate among non-elderly adults has fallen by 38 percent in expansion states but only by 9 percent in non-expansion states, an Urban Institute survey found.  The fact that the federal government picks up the entire cost of newly eligible individuals under the expansion allows states to expand coverage while limiting their costs.

While the Kaiser report [on which the costs data are based] examined only state Medicaid budgets, it notes that expansion states also expect a more far-reaching positive impact on their overall finances:

“States expanding Medicaid also typically cited net state budget savings beyond Medicaid.  States reported that expanded coverage through Medicaid could allow for reductions in state spending for services such as mental health, correctional health, state-funded programs for the uninsured and uncompensated care.”

So, think of the citizens of the states forgoing the expansion and these commensurate savings as paying an ideological, red state tax. And you thought red states didn’t like tax increases?!

Hey, What’d I Miss? OTE 10/21 — 10/27

October 27th, 2014 at 10:09 am
  • Discussing the Fed, QE, and the full employment unemployment rate.
  • Looking at Larry Mishel’s wage message at the Boston Fed inequality conference.
  • Listing a few observations re global growth, the US dollar, under-priced oil, and their impact on US growth rates.
  • Analyzing evidence from abroad to explain why it takes more than economic growth alone to reach the middle class.
  • Posting my slides from a talk I gave at the Council on Social Work Education re the economy, poverty, and YOYOs vs WITTs.
  • Explaining how no one, not even the Fed, has done the necessary analysis to explain the question of QE and inequality.