Links; more on heating vs. overheating.

January 12th, 2018 at 12:22 pm

Medicaid is a highly efficient program (see figure below), delivering health coverage to 70 million low-income persons while conveying many ancillary benefits on its beneficiaries, as Hannah Katch and I point out in the NYT oped.

So, of course, Republicans want to lay waste to it. They were blocked from doing so through their ACA repeal, they did a bit of it in their tax plan, and now they’re going after Medicaid through the waiver process (which skirts Congress), by adding a work requirement. As Hannah and I stress, you can’t feed or house your family on health coverage, so the incentive to work is already built into the program, which is why most able-bodied beneficiaries already work.

At any rate, it’s going to take action at the state level to block this latest attack.

Turning to other current events, I wrote about jittery bond markets yesterday, trying to emphasize that heating is not overheating. We should expect to see inflation and interest rates on the rise, given how low they’ve been and the stage we’re at in the expansion. Though granted, the Fed must try to look around corners, I don’t see much evidence of real resource constraints building up.

Yet, bond rates spiked when the core CPI came out this AM at 0.3% over the month instead of 0.2%. Note that yr/yr core CPI came in at 1.8%, which, given that the CPI runs ~30bps hotter than core PCE, is much like the growth rate of the core PCE, which last come in at 1.5% (Nov/Nov). Both are well below the Fed’s target rate.

As the next figure shows, breakeven rates, a measure of inflation expectations measured as the spread between rates on 10-yr TIPS and 10-yr Treasuries, have spiked a bit in recent days, as has the 10-year yield. But they’re only back to levels from about a year ago, and, as noted, CPI core inflation itself remains well below target (which is 2.3-2.5 for core CPI).

This all comes down to a few key questions:

Q: Are resource constraints building in the economy?

A: Not that you’d see in inflation (realized or expected), interest rates, or wage growth. As for employment, the jobless rate is low but employment rates may have room to run.

Q: Have the benefits of the recovery reached deeply enough into all corners of the country?

A: It’s getting there, but wage growth is under-performing and there are areas where the job market has not yet firmed up.

Perhaps most importantly:

Q: Are the risks to the Fed hitting the growth brakes symmetric or asymmetric?

A: They are asymmetric. Since inflation has been below target for years on end, achieving the Fed’s 2% target, on average, requires some period of  being above the target rate. Similarly, the least advantaged don’t catch a buzz from the recovery until we hit and stay at chock-full employment. Both of these factors point to the likelihood of greater damage from pushing back too hard on growth right now than from maintaining a largely accommodative stance.

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7 comments in reply to "Links; more on heating vs. overheating."

  1. UserFriendly says:

    Re Medicaid.
    My whole life has been one big experiment in national policy trying to ruin my life and/or kill me. I graduated in 2008 with a Chemical Engineering degree and $120k in public and private student debt. It took 4 soul crushing years of working 60 hour weeks at 3 part time jobs before I got a job in my field, all the while piling on credit card debt to cover living expenses so I could make loan payments. Income based repayment would have increased the amount I had to pay because it ignored all the rest of my debt payments. Thanks to the Wall Street dems teaming up with the GOP and passing bankruptcy reform (again, after I had already signed for loans) bankruptcy was not an option. When I finally did get a job in my field it payed $20k/yr less than the average starting salary when I signed for my loans. Even after 4 years and several salary bumps I still was nowhere on paying down my debt and a massive bout of depression kicked in. That started showing in my work and eventually I got let go. I’m trying to dig myself out of that pit and deal with essentially PTSD from my first job hunting experience and now the government wants to kick me off my antidepressants and ADHD meds.

    All this because we have two right wing parties that don’t understand how fiat currency works. Neoliberalism really does have two rules.
    1. Because Markets.
    2. Go Die.

    • Smith says:

      Yes but the Democrats say there is a large shortage of STEM workers. Others say no.
      From a liberal think tank
      From a conservative source (which linked to the EPI report)

      Democrats immigration bill sought to greatly increase (more than double) the number of STEM workers who are added to the US workforce each year. The number of H1B was expanded, which both increased the number of temporary workers under the program (1/2 of 350,000 are STEM so 175,000 out of 3 million) and the number from that program who stay permanently (roughly half stay, and become cumulatively 1/4 to 1/3 of the 3 million), and replacing family based immigration with merit based point system which would also greatly increase STEM worker total in immigration mix.

      One can support the current level of immigration, full labor rights for all immigrant workers, and an end to threat of deportation of immigrants already here, without supporting increased immigration, making exploitation of immigrant safer for employers, and further targeting STEM occupations as a destination for immigrants.

      I would say read the report from the EPI, but also the conservative National Review. The National Review report outlines clearly the bargain Democrats cut with Republicans which is clearly dishonest and unethical.

      With all due respect, Jared Bernstein, who is a supporter of changes in immigration, has never addressed the conflict and hypocrisy inherent in the Democrats proposals which he has previously endorsed.

      As should be clear from this comment, I support immigration and unlike Democrats, I support stronger measures to give immigrants (including the undocumented) labor rights, especially by ending employer sponsorship requirements, but not necessarily increased immigration, greater and safer exploitation by employers, targeting STEM workers, including Chem Engineering. STEM are targeted because science is international, mathematical, language skills are not as highly valued in STEM, and they are high paying jobs, worth the extra trouble to create a class of immigrants to satisfy business intent to suppress wages.

      • Smith says:

        This report estimates about 460,000 H1B for 2013, and a little less than half are in computer field, not sure of total STEM or Chem Eng.

        The 460,000 does or doesn’t include those waiting for green cards?
        Many, at least according to this pro immigration site.
        “Immigration Voice estimates there are some 1.5 million H1B visa holders in the country waiting for green cards, many of whom are from India and have been waiting for more than a decade.”
        There is also Brietbart stories which link to Department of Homeland Security, but those reports do not break down the data to show H1Bs waiting in line for Green cards (they get EADs I765s to stay working).

        There are many, many ways to read and interpret the data, some saying immigration effect is significant, some saying it’s too small to impact the average American worker and wage. Ironically the same and contradictory arguments come from both conservatives and liberals, both supporters and critics of proposed changes increasing or decreasing levels.

        It is difficult to find voices for those advocating keeping the levels as the currently exist.

      • UserFriendly says:

        My issue isn’t so much with immigration. I have a hard time faulting less fortunate people who are just trying to make a better life for themselves. My issue is with WJC for signing GLBA and CFMA as presents to Wall Street, with Bush Jr for appointing non-regulating regulators and signing Bankruptcy reform, and with Obama for doing literally the bare minimum to reform the system and not helping anyone who wasn’t a millionaire.

        I blame the whole lot of them who benefited from VERY heavily subsidized college and due to their complete lack of understanding of fiat currency decided to end those subsidies and make my generation bare all the risk of paying for education. The whole BS notion that I should have skin in the game so that I would go into a lucrative field is insulting. Not to mention that it only works when you don’t also lock the escape hatch with bankruptcy reform so even when I can’t repay due to no fault of my own I don’t end up with a ruined life. Just by graduating in the wrong year I lost well over $100k in lifetime earnings.

        Because somehow after a few years of college I was supposed to notice that congress made it impossible for me to declare bankruptcy, that Wall Street had taken advantage of WJC’s pointless surplus and created MBS to offer investors who would have happily bought bonds, that the demand for MBS was so great that Wall Street was giving out NINJA (No Income No Assets or Job) mortgages just to be able to sell more MBS, and that that whole house of cards was going to come crumbling down and destroy the job market just as I was graduating. I should have taken that into account and just dropped out. Unfortunately I was busy trying to get good grades and I’m not psychic.

        I should have known that Citibank got to staff Obama’s cabinet.
        Because after all, that is what they paid for. I was just one of the 225 voters in MN that gave the Democrats a supermajority in the senate, for all the good that did.

        I blame this lousy country that went from seeing investing in infrastructure, education, and research as tools to improve the lives of all it’s citizens to a stingy oligarchy that only cares about handing out favors to the highest bidder. Both parties are so thoroughly corrupted by their donors that they completely ignore the needs of everyone else. That is why we have more Americans killing themselves on opiates every year than died in the Vietnam and Iraq wars combined. We propagandize people with BS about pulling yourself up by your bootstraps and achieving the American Dream while at the same time making it functionally impossible for all but the luckiest to do that. This is no meritocracy. When I graduated college about half my class had jobs lined up. Not the smartest kids though, just the ones with family connections; the ones who really didn’t need it because they didn’t have to take on debt for school.

        The worst part is that with the economy imploding under Bush Jr’s watch Obama would have had to shoot someone on 5th avenue to lose but he gleefully took Wall Street’s money anyways. He sold out the country, his voters, and the whole world’s economy for absolutely no reason. He will go down as one of the worst presidents in history, on par with Hoover. The only reason he won reelection is because the GOP nominated the monopoly man. It was the Wall Street cronies in his inner circle that argued for a smaller stimulus fearing imaginary bond vigilantes, that stopped him from nationalizing citibank, that designed HAMP to ‘foam the runways’ for banks, that decided none of the criminals whose greed blew up the economy needed to get fired, much less jailed.

        Hillary went down in flames because she was busy touting a recovery that never hit anyone but the top 10%, and that 10% will always vote for tax cuts no matter how vile the person offering them is. The other 90% couldn’t handle more of the same. If someone running on Bernie’s no money from billionaire’s model doesn’t win in 2020 go long in Guillotines. “Those who make peaceful revolution impossible will make violent revolution inevitable.” -JFK

        • Smith says:

          You seem to be missing a key change in Clinton era that made it harder for students with debt.
          “How the Clinton administration made it harder on student borrowers”
          By John McMickle — 06/16/16

          This has four effects:
          1) No bankruptcy removes moral hazard for banks, make student loans to anyone for any education program, there is no escape except death.
          2) Colleges can keep raising tuition sky high to fund million dollar fund raising University presidents, building programs, marquee professors, and administrative personnel. Banks will loan any amount needed, see reason (1)
          3) The government aids and abets this system and has no reason to look for another fix, like pressuring colleges not to waste money and raise tuition, and cracking down on expensive for profit schools with highest default rates and lowest value. Defaults are curtailed because there is no escape.
          4) The worst part of this is that if you need to negotiate with loan servicing entities, they won’t bargain, or stretch out loans, they charge crazy fees and destroy your credit, and ability to continue or finish your education. They can do this and act with impunity because there is no escape.
          The Obama administration did change the way loans are handled and eliminated the middleman for federal loans, and pressured handling of private loans to reform their collection methods. However, Elizabeth Warren questioned why the government was trying to turn a profit on the loans.
          Guillotines are most famous for falling indiscriminately, and precisely what any progressive revolution must assiduously avoid. This includes rhetoric that is ostensibly merely figurative.
          JFK good orator, but he did begin the devolution of New Deal WWII progressive tax system.
          My issue isn’t so much with immigration, as with exploitation of immigrant labor, the targeting of STEM occupations, and the macro effect on the entire economy. Trumps preference to copy Canada and Australia with a point system will make things worse. People underestimate the effects of small amounts of highly paid workers holding down wages in one occupation rippling through the entire economy. Yet it’s not that difficult to model.