Describing the latest Fed pronouncement, David Andolfatto writes,
how new are these buzzwords? They’re not new at all. Consider this from the December 09, 2003 FOMC statement
I have said before that the economy resembles 2003. Output has recovered more strongly than employment. Long-term bond rates are puzzlingly low. House prices have been rising (quite rapidly near us in suburban Maryland). Policy makers are trying to loosen mortgage credit.
UPDATE: See also Mark Thoma/Tim Duy.
Yevgeniy Feyman & Aobo Guo write,
The ACA’s limits on age-based rating, elimination of risk-based rating, and mandated generous minimum benefits have forced premiums to rise. Deductibles and out-of-pocket costs are higher now as well: cost-sharing offers insurers a sharp tool for varying the amounts that consumers pay.
Apparently, for all the hostility toward catastrophic health insurance voiced by Obamacare advocates, the way that competition is structured on the exchanges is leading health insurers toward policies with higher deductibles. For those of us who want market-oriented reforms, this is good news. American consumers need to get used to paying for at least some of their medical services with their own money, and this way the “blame” is placed on the government’s system of health insurance, not on the market.
The problem is that most industries formed since 2000—electronic auctions, Internet news publishers, social-networking sites, and video- and audio-streaming services, all of which appeared in official industry classifications for the first time in 2010—employ far fewer people than earlier computer-based industries. Whereas in 2013 IBM and Dell employed 431,212 and 108,800 workers, respectively, Facebook employed only 8,348 as of last September.
The reason these businesses spin off so few jobs is that they require so little capital to get started. According to a recent survey of 96 mobile app developers, for example, the average cost to develop an app was $6,453. Instant-messaging software firm WhatsApp started with a relatively meager $250,000; it employed just 55 workers at the time Facebook announced it was buying the company for $19 billion. All of which explains why new technologies throughout the 2000s have brought forth so few new jobs.
Pointer from Mark Thoma.
My thoughts.
1. Either IBM and Dell produced much more output than Facebook, or Facebook exhibits much higher productivity. Of course, valuing the output of IBM and Dell is difficult, and valuing the output of Facebook is impossible.
2. Without saying so, Frey is complaining about high productivity growth.
3. Frey does not point out that the official productivity statistics do not show high productivity growth. Not that I am a proponent of the official productivity statistics.
4. Frey does not point out that most economists view high productivity growth as a good thing.
5. I think that most non-economists (and maybe even some economists) do not realize that Thiel-Cowen stagnation is incompatible with Summers stagnation. The former is a story of disappointingly low productivity growth, and the latter is a story of “excess” productivity growth. I personally do not buy either stagnation story.
6. If you think that the media likes bad news, then they are bound to like either stagnation story (or both simultaneously, even though they contradict one another). The media deck is stacked against optimists. I would say that it is even stacked against realists.
The first step is to introduce legislation that would allow any state to opt out of all of ObamaCare’s mandates, regulations, taxes and requirements, and instead opt into a far simpler and more flexible alternative system. In that system, state residents not offered health coverage by their employers could receive a federally funded, age-based credit for the purchase of any state-approved health-insurance product—including those bought outside of any exchange and regardless of whether they meet ObamaCare’s coverage requirements.
And if the legislation is vetoed?
Timothy Taylor excerpts from a book on macroprudential regulation.
Paul Tucker: “Legislators have typically favoured rules-based regulation. That is for good reason: it
helps to guard against the exercise of arbitrary power by unelected officials. But a static rulebook is the meat and drink of regulatory arbitrage, which is endemic in finance. Finance is a ‘shape-shifter’.
Rules do not work, because banks figure out a way to manipulate the rules. Tucker gets this. So does Wolf Wagner, also quoted by Taylor.
Also, discretion does not work, in my opinion, because discretion tends to be procyclical, doing exactly the wrong thing at the wrong time. In good times, regulators ease up, and in bad times, they tighten up. Just look at how regulators behaved before and after the housing crash. Or compare Ben Bernanke’s discussion of bank supervision before and after he knew about the crisis.
I think that principles-based regulation might work better. That is, pass a law saying that managers and directors of financial institutions are responsible for prudent management. Require auditors to flag questionable practices.
Also, I think that incentives are important. Casual observation suggests that investment banking was more cautious when investment banks were partnerships rather than limited-liability corporations. We should look for ways to give bank executives more skin in the game in their institutions. Suppose you have a bank that goes bust in 2025. All of its top executives over the preceding 10 years would be held personally liable those losses, in proportion to the compensation that they received over that period.
(For each year, take the five most heavily compensated executives, and put their total compensation into a hypothetical pool. Add these to get a company total for fifteen years. Then divide each executive’s total compensation over the 10 years by the company total to get the fraction of losses for which that executive is liable.)
Actually, I don’t think that the formula needs to be perfectly “just.” The point of any such system is to make executives manage banks as if they were risking their own money, because they would be.
Despite tentative bipartisan support for basic income in the U.S, the concept has gained greatest traction outside America. Switzerland has become the first country to hold a referendum on basic income at a national level; in 2015, the Swiss Parliament will vote on whether to extend a basic income of 2,500 Swiss francs (about $2,600) per month to every Swiss resident.
The article discusses radical versions of the Basic Income Grant for the U.S., in which $15,000 per household would be provided instead of Social Security as well as means-tested programs such as food stamps. It was hard for me to tell whether Medicaid would have to go, too. One commenter even thinks that Medicare would be axed to help pay for the income grant.
Anyway, although political judgment is not my specialty, it seems to me that tying a basic income grant to getting rid of Social Security would make it much harder to pass.
Meanwhile, if Switzerland pulls it off, it will be another victory for small states having better government/
The country has been hit by economic crises in its major patrons, Venezuela and Russia. The net oil importer has depended heavily on subsidized energy imports from Caracas. But Venezuela’s economic turmoil is deepening, making it increasingly unable to afford its subsidy of Cuba. Russia, as one of the country’s largest creditors, is facing its own financing problems. And Europe, whose open trade with Cuba made it the second-largest export market for the country, has struggled to avert a third recession in five years.
I was struck by the fact that the opening to Cuba came at a point where Russia is reeling. It seems to me that this is an opportunity to pull Cuba out of Russia’s orbit. Free trade with Cuba seems to me like a great idea. But I am not running in any Republican primaries.
Plus, I bet that the Marlins and the Rays would draw better if they played some of their home games in Havana.
thanks to the work of Christopher Clark and Amos Storkey at the University of Edinburgh in Scotland. These guys have applied the same machine learning techniques that have transformed face recognition algorithms to the problem of finding the next move in a game of Go. And the results leave little hope that humans will continue to dominate this game.
Pointer from Tyler Cowen. As I read the article, they have been following a strategy very similar to what I proposed six months ago.
If they are as close to success as the article indicates, then the world of Go is about to be completely upended. With Othello or Chess, most of what is knowable had already been articulated by humans by the time that computers came along. At least as far as Othello is concerned, computers did not come up with any new strategy or tactics. They just got more skillful than humans at making the best choice in close situations. With Go, my guess is that there may still be a lot left to be discovered about the game. If so, then computers will soon be in a position to make the discoveries. Even if there is nothing new to be discovered, once computers start making fewer mistakes than humans, human Go players will soon be studying computer games.
If greedy speculators were to blame for the $7.50 per barrel (and 10.6%) increase in oil prices during the first half of this year that motivated your anti-speculation bill in early July, do oil speculators now get any of the credit for the $43.60 (and 41%) drop per barrel in oil prices during the last half of 2014?
1. Oil is a speculative asset. The price of oil today and the price expected for oil ten years from now are necessarily linked. See Hotelling pricing of natural resources.
If you believe that the oil price is going to be high ten years from now, then you try to leave more of it in the ground today, raising its price today. If you believe that the price is going to be low ten years from now, you try to sell it now, while you can still get a decent price. This drives the price down today.
2. Although I cannot find the post now, I recall James Hamilton suggesting that the oil market is subject to speculative overshooting and undershooting. More recently, he wrote,
It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.
3. Why would someone expect oil prices to be low for the next several years? Perhaps low-cost energy supplies will emerge (note that fracking is not low-cost) rapidly. Perhaps world economic growth will be very slow for many years. However, it strikes me as at least plausbile that low-cost energy supplies will not emerge and that world economic growth will be decent, in which case I would expect the price of oil to rise. Most important, there is still the possibility that all the money-printing going on in the world will amount to something, and even if the supply-demand balance in energy markets stays where it is, the nominal price of oil will go up a lot. If I were a speculator now, I would be inclined to be long oil.
4. It is possible that what is going on is a cave-in on the part of speculators who had been betting that money-printing would cause a lot of inflation. One can interpret the decline in interest rates and the softness in commodity prices as reflecting speculators giving up on those positions.
5. As is often the case, in looking at financial markets I find myself feeling confused and out of synch.
CBO Director Elmendorf writes,
in some situations, legislators might want to adopt policies with a smaller variance of budgetary effects in order to reduce the risk of large fiscal problems. For example, understanding the extent of uncertainty about future federal spending that arises from uncertainty about lifespans might affect whether policymakers want to index eligibility ages for certain programs to lifespans.
Pointer from Mark Thoma.
A couple years back when some CBO staff invited me to have a discussion of their work, I gave two complaints. One was that their macroeconomic forecasting was treated as “scoring” by the public, and I thought that they needed to make clear the tenuous nature of macro modeling. The other was that I thought that they should be augmenting point forecasting of the budget with scenario analysis.
I think that reporting a number like “forecast variance” would not be helpful to politicians. However, reporting what would happen under particular scenarios, such as increased longevity, higher interest rates, or lower house prices, could be very useful.