I'm in Kansas City, where the Royals have started the season as one would expect of the current iteration of the team.

Fortunately, I'm not here for the baseball, but rather for the Kauffman Economics Bloggers Forum. There will be presentations tomorrow (agenda here; homepage for live streaming here) in three session. The morning features Tyler Cowen, Ben Wildavsky, Megan McArdle, Bryan Caplan, and Bob Cringely; early afternoon are Lynne Kiesling, Ryan Avent, Arnold Kling, and Felix Salmon; and it closes out with Dean Baker, Steve Waldman, and Virginia Postrel.

All times on the website are Central.

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In comments Mark Sadowski noted that short term real interest rates have fallen a lot since Ben Bernanke began announcing QE2. In earlier posts, I had considered only the 7 year constant maturity and the 5 year constant maturity series. I think that medium term real interest rates matter most for investment and that real interest rates have a negligible effect on consumption, government consumption, and net exports (except via exchange rates). I am also interested in the fact.

So I generated an absurdly crowded Fred Graph

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Brad DeLong culls the comments to this post at Crooked Timber to produce a "with notably rare exceptions" Greatest Hits package—his second post riffing on the original—in honor of The Maestro continuing to attempt to improve the reputations of Paul Volcker and Ben Bernanke, if not G. William ("I ran a company, I didn't need to know about Finance") Miller.*

I point you to Dr. DeLong on the off chance that you didn't read any of the other three (one by Henry, two by Brad) posts, while we all wait for Patrick or Jim MacDonald to continue the riff with more variations.

Economics question of the day: whose productivity will be greater: someone who reads all (now four, counting this one) posts, someone who starts with Dr. DeLong's second, someone who starts with Dr. DeLong's first, or someone who only read Henry Farrell's original post but kept clicking back to see the newer comments?

Explain your answer in terms of the value-added of aggregators and/or hedonic pricing. Best answers will be forwarded to Bill Dudley, the current leader of the FRB of New York, on the off chance he ever agrees to speak in Queens again.

*I refuse to believe that Alan Greenspan is stupid enough to believe the things he's saying now. Next thing you know, he'll be claiming that his Ph.D. thesis was so perfect that no one should ever read it, lest they despair of following in his giant footsteps.

It has been asserted that many mortgage servicing contracts are inefficient, because they give the servicer incentives to foreclose even when re-negotiation would be better for the owner of the mortgage. An inefficiency is a profit opportunity. If there are such contracts, then a different contract can generate higher revenue for both the servicer and the final owner.

If this is a problem, then it is especially tricky in the case of mortgages owned by special purpose entities which issued various debt like tranches and an equity tranche (owned by the sponsor). In such cases, for all I know, any renegotiation of the service contract might be forbidden, but I think it is more likely that the sponsor as equity holder could renegotiate the contract with the mortgage servicer. The problem is that, for many CDOs the equity stake is worthless and would remain worthless even if the mortgage servicing contract were improved.

Owners of more senior tranches might benefit from a new contract which is equally valuable to the mortgage servicer, but they don’t control the special purpose entity. The debt like tranches are really more like preferred stock, since failure to make scheduled payments does not constitute default. Owners of those securities can’t ask a bankruptcy court to seize the special purpose entity to protect their interests. So, as things stand, there might be an inefficiency such that no one can profit by eliminating it.

The solution would be for the sponsor to purchase some of the preferred stock like securities, then renegotiate the mortgage servicing contract. Alternatively, an investor could buy the equity tranche (which is worth almost exactly zero) and some of the preferred stock like securities and then renegotiate.

I think there is a possible profit opportunity.

This post is long, vague, sloppy and after the jump. The one sentence version is that the Fed can affect the real economy by buying assets which private investors consider risky.

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Crossposted at The Street Light.

There's been a bit of discussion floating around about whether the US's deficit and debt situation makes it appropriate to draw comparisons with Greece. Of course, such a comparison is ridiculous for a number of reasons, not least because the US has its own currency. But Greece has been on my mind lately for unrelated reasons, including the following news:

Euro economists expect Greek default, BBC survey finds
Greece is likely to default on its sovereign debt, according to the majority of respondents to a BBC World Service survey of European economists. Two-thirds of the 52 respondents forecast a default, but most said the euro would survive in its current form.

...The forecasters the BBC surveyed are experts on the euro area - they are surveyed every three months by the European Central Bank (ECB) - and as well placed as anyone to peer into a rather murky crystal ball and say how they think the crisis might play out. The survey had a total of 38 replies and two messages came across very strongly.

Not only do I agree that default by Greece on its sovereign debt is quite possible... but I think it increasingly likely that policy-makers in Greece may decide that it is the least bad option at this point, particularly in the face of an increasingly hard-line attitude from Germany regarding bailouts (which will only be reinforced by recent election results).

The problem is easy to lay out: Greece has more debt than it can realistically make payments on, and being a euro country also has a currency over which it has no control. If it had its own currency, it would be in a classic debt crisis similar to several Latin American countries in the 1980s, or possibly Mexico in 1994.

However, it effectively has a fixed exchange rate with the rest of the euro zone, and has invested enormous political and economic capital in maintaining its committment to the euro. In that sense, the best analogy might be with Argentina in 2001, which was struggling to maintain a rock-solid fixed exchange rate with the US dollar through a currency board arrangement.

Argentina in the late 1990s had a slowing economy, uncompetitive industries, large current account deficits, and a vast amount of external debt denominated in a currency that was not its own. Sound familiar? In an effort to meet its debt payments while simultaneously keeping its exchange rate pegged to the dollar, the Argentine government squeezed and squeezed the economy. Finally, however, the resulting deflation and recession grew so severe that the government collapsed, and in early 2002 a new government dropped the peg to the dollar (after fiddling with a hybrid system with multiple currencies existing simultaneously) and eventually defaulted on its debt.

And look what happened.

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by: Daniel Becker
This is very important.  It is a list of all we have done in the world.   Go take a look.  It won't take long.  I'll wait for you to return.

That we do not teach about this in our schools is why we are who we are.  This list should be a banner which is run along the bottom of every news cast for as long as we are involved in such activity or when a new such action is proposed.  It should be a page in every Sunday newspaper edition for as long as we are involved or when a new such action is proposed.

Most of all, this list and the banner should start with the following words: "You have done all of the following..."  I say "you" because such actions need to remain personal.   It is always personal.  Yes, you and me personally have done all of this.  Don't start thinking that the use of robotics removes you from the equation.  Don't fall for that psych-ops.  You, me, we still are the one's pulling the trigger.  We did this.  All of this. 

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David Zetland at Aguanomics suggests that the problems worldwide with water for drinking and as importantly sanitation receives little attention. I like the poll on his site which suggests for the US that floods or droughts are the main driving force getting us to notice, or special interests.

World Water WTF

Today (March 22) is the annual circus of "look at me" articles, press releases, conferences and speeches by people and for people with attention-spans of a goldfish.
Not my scene, so I am I'm giving you a break from the fracas, with BONUS funnies that put things in context...

and help with priorities...

Health Care Thoughts: Quality Commission

PPACA (aka Obamacare) required a commission on health care quality. The interagency working group released a report late last week.

A PDF of the report is here.

Probably more comments after I read it in full.

Tom aka Rusty Rustbelt

RJS had been a long-time commenter at my blog, News N Economics, and has joined Angry Bear's thread of comments. RJS runs his own blog, Global Glass Onion, where he publishes a weekly newsletter encompassing news from around the world for his readership. Collaborating with Dan, we asked RJS to make a similar contribution to Angry Bear, where he has kindly agreed to format the topics and style to fit our needs. The style of rj's Analysis is evolving, so please comment with your feedback. Rebecca Wilder

A guest post by RJS: "RJS Analysis - Japanese Disaster Impact"

Although some east coast Japanese ports were damaged by the tsunami, and most of the infrastructure in a primary agricultural region has been destroyed, it appears the major problem facing Japan right now is lack of electrical generating capacity; Citigroup analysts say it may be "irreversible"... Tokyo has been warned of blackouts during cold weather; this is not so much because of the loss of the infrastructure; rather the 9.7 GW taken out of service with the six closed reactors is a lion's share of the electric power in the east. These operate on US style 60Hz power, while the generating capacity in the west of Japan is a legacy of 19th century German generators, which run at 50Hz, and the two systems don't talk to each other... We now learn that rolling blackouts will likely continue into the summer because TEPCO will only be able to supply 50 million KW per day, whereas typical peak summer usage is 60 million KW... The shortfall may eventually be made up by spare gas and diesel generating capacity; but as of yet, I've yet to see a timeline as to when. So at present, even many of the Japanese manufacturers who were not damaged by the quake have shut down their production lines; and as many are the sole makers of various automotive & electrical components, manufacturing around the globe is starting to be affected... How bad this can become globally is still anyone's guess; but in the one similar experience we had with a resin plant fire in japan in 1993, prices of semiconductors doubled in a matter of days. In just one example illustrative of the problem, making the i-phone alone involves 9 different companies, in Korea, Japan, Taipei, China, Germany, and the US...
(Read more after the jump)

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The CRB: Index of Industrial Raw Materials hit a new cyclical high yesterday.

Daily CRB: index of industrial raw materials.
This does not include energy and/or foodstuffs.


It is an outstanding leading-concurrent indicator of oil prices and world economic growth.

Scott Sumner wrote

If pressed, Keynesians will usually point to real interest rates as the right measure of monetary ease or tightness. By that criterion the Fed adopted an ultra-tight monetary policy in late 2008. Monetarists will usually say that M2 is the best criteria for the stance of monetary policy. By that criterion the ECB adopted an ultra-tight monetary policy in late 2008. And yet it’s difficult to find a single prominent macroeconomist (Keynesian or monetarist) who has publicly called either Fed or ECB policy ultra-tight in recent years. Maybe tight relative to what is needed, but not simply “tight.”

To me this means that he claims that US real interest rates have been high "in recent years". Of course he also says "in late 2008" but suggests that the real interest rates then were a policy choice and that the policy continues.

In fact real interest rates in the US are extraordinarily low. The 5 tear real interest rate is negative. I think Sumner made a definite claim about published numbers which is definitely false.

Sorry I don't know how to embed Fred graphs. Please click this link.

I added the chart for you -- spencer

update: thanks spencer. Also I have added the link to Prof. Sumner's post.



More after the jump.

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Go read Mark Thoma. Because he's a kinder, gentler human being than I am:

The time to stand up to the budget busting was when it happened, and when members of the list had the power to affect policy, not many years later in an article at Politico. Many on the list were either part of the decision making team in the 2000s that opened the hole in the budget, or supported what the team did.

Or, as The Pragmatic Capitalist said on Twitter (h/t Joe Weisenthal, whose own take on the cabal is here; translated into English):

So, 10 former White House economic advisers (who, judging by results, suck at their jobs) now say USA is bankrupt from high deficits.

Grandpa died last week
And now he’s buried in the rocks
But everybody still talks about
How badly they were shocked
But me, I expected it to happen
I knew he’d lost control
When he built a fire on Main Street
And shot it full of holes

Health Care thoughts: Obamacare Suffers Serious Set Back

The Community Living Assistance Services and Support (aka C.L.A.S.S.) is a lesser discussed but important feature of Obamacare (PPACA).

The Act requires the feds to set up a quasi-insurance self-funding mechanism for long-term care services (for more details see my write up at ISSUU/healthcarethinktank.

During testimony in February before the Senate Finance Committee DHHS Secretary Kathleen Sebelius admitted that as designed by Congress C.L.A.S.S. is not financially sustainable.

The battle now is whether or not Sebelius can 1) fix the Act via regulatory changes or 2) Congress must redesign the Act.

In the latest volley the Congressional Research Services says the regulatory powers are NOT broad enough for Sebelius to effectively rewrite the statute via regulation.

A bigger question remains for many of us, “can this program ever be financially sustainable?”

As predicted, with Obamacare the devil will be in the regulatory details.

Tom aka Rusty Rustbelt

(Dan here...lest opponents of PPACA get too excited, Rusty thinks the idea and some of the details of C.L.A.S.S. are a really good idea...)

Spain vs. Germany vs. UK: production trends showing holes in some growth stories

Eurostat reports new orders for January:

In January 2011 compared with December 2010, the euro area1 (EA17) industrial new orders index2 rose by 0.1%. In December 20103 the index grew by 2.7%. In the EU271, new orders increased by 0.2% in January 2011, after a rise of 2.9% in December 20103. Excluding ships, railway & aerospace equipment4, for which changes tend to be more volatile, industrial new orders increased by 1.6% in the euro area and by 1.9% in the EU27.

This was a disappointing report, as Bloomberg consensus was expecting a 1% monthly gain. The Eurostat press release reports new orders by country and production type only(capital, consumer, intermediate, durable, and nondurable). However, I look at the origination of orders by region: domestic, non-domestic extra-euro (which is the same as non-domestic for the Euro area as a whole), and non-domestic intra-euro.

The idea is, that with ubiquitous fiscal austerity, Euro area countries rely on external demand for growth. So here's my question: how's Spain to survive? (more after the jump)

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As an extension of one of my posts, Global payment system, as the current buzz in healthcare reform, Michael Halasy points us to one of his choices for a plan.

Guest post by Michael Halasy, Practicing Emergency Medicine PA, Health Policy Analyst, and Health Services Researcher

Prometheus and Bundled Payments

So, one of the more intriguing propositions in the midst of health reform is to reform payments. Make no mistake this has been tried before, and many physicians and hospital administrators remember the days of capitation and DRG’s with Medicare.

I attend a lot of health policy meetings and symposia, and the common theme on the priorities coming out of these meetings centers around bundled payments, and payment reform. The thought of course being, that as you change the payment system, other changes will be more palatable, and easier to enact. We’ve had some discussion of the ACO concept here, and make no mistake, bundled payments tied to outcome measurements will be one of the chief indicators of the ACO model success, and/or, it’s demise.

The problem is, that the current fee for service model is broken. Almost everyone knows this. It encourages fragmentation, volume over value, and quantity over quality. This is not sustainable, and is one of the main drivers in some respects of healthcare cost increases.

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by Mike Kimel

Is Economics a Science - Three Comments

In the last few days I came across three very different posts, each of which covers (to some extent) the question of whether economics is a science. In order of how focused on the posts are on that particular question....

Barry Ritholtz is on fire with this post on Alan Greenspan.

Mike the Mad Biologist on when economists misunderstand biology. (My answer to whether economics is a science appears in comments to Mike's post.)

Brad DeLong provides an insider's view of the problem.

Update: Discussion hits a chord with bloggers and readers. Here are other links to the discussion.

Noah Opinion blog

Barry Eichengreen

Peter Dorman at Econospeak

Links section at Naked Capitalism in comments.

Crossposted at The Street Light.

Last week I took a look at the way that higher labor productivity has not translated into higher worker compensation, particularly during the 1980s and 2000s. This is at odds with classical labor market theory, which suggests that as workers become more productive, their increasing value to firms should cause their wages to be bid higher so that their compensation rises accordingly.

There are a number of possible explanations for the divergence between productivity and compensation, and for how this may play into the broader phenomenon of stagnant wages for average workers. Part of the explanation is that an increasing share of worker compensation takes the form of benefits rather than wages and salaries. As shown in the chart below, fully one-fourth of worker compensation in 2010 took the form of benefits. (Source: BEA personal income data.)

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Mark Thoma rightly points out the hypocrisy of the deficit hawks' intent to cut spending while approving military spending in the same sentence. Ryan Avent furthers the dicussion by stating that Washington has used the 'dire fiscal' rhetoric to sell short-term cuts that were unwarranted, given that the fiscal problems are structural in nature.

Me, I'd argue that the fiscal deficit is simply the consequence of corporate America's excess saving: the corporate saving glut - no I didn't mean the 'global saving glut'. Furthermore, the corporate saving glut is manifesting itself into the labor market, creating high and persistent unemployment. Some economists are wrongly referring to this as higher structural unemployment.

Exhibit 1: The 3-sector financial balance model demonstrates that elevated excess private saving (firms and households) keeps the government deficit in the red. For a discussion of the 3-sector financial balances, see Scott Fullwiler and Rob Parenteau; and I've written on this as well.

The excess saving rate for the public sector, external sector, and household sector is constructed using the Federal Reserve's Flow of Funds accounts as: (Gross Saving - Gross Investment)/GDP. The excess corporate saving rate is the residual of the Current Account (external saving) net of government and household excess saving. If the corporate excess saving rate is positive, then investment spending falls short of asset purchases (financial or tangible).

* In Q4 2010, the household excess saving rate dropped to +3.5% of GDP
* In Q4 2010, the government excess saving rate dropped to -10.4% of GDP
* In Q4 2010, the current account deficit dropped to -3% of GDP
* In Q4 2010, the corporate excess saving rate jumped to 3.9% of GDP - this is the Corporate Saving Glut because while firms are investing, they're saving more, thereby breaking the positive feedback loop.

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By: Daniel Becker

 

Just a little something that came across my desk. As you read it, think about the concept: War on Drugs.

“In the United States, the therapeutic use of opioids has exploded as witnessed by the increased sales of hydrocodone by 280% from 1997 to 2007, while at the same time methadone usage increased 1,293% and oxycodone increased 866% (5). In addition, the estimated number of prescriptions filled for controlled substances increased from 222 million in 1994 to 354 million in 2003 (5). Consequently, the milligram per person use of therapeutic opioids in the United States increased from 73.59 milligrams in 1997 to 329.23 milligrams in 2006, an increase of 347% (5). And, while hydrocodone is the most commonly used opioid in the United States, based on milligrams per person, oxycodone is the most commonly used drug with methadone use rapidly increasing the most... Consequently, Americans, constituting only 4.6% of the world’s population, have been consuming 80% of the global opioid supply, and 99% of the global hydrocodone supply, as well as two-thirds of the world’s illegal drugs (4-6,26-29).”

Read the whole study. There is a lot of info regarding the particular drugs. For instance, one researcher found that they had no effect on one's ability to drive. Though another found there were cognitive issues. So, are they or are they not getting high?

I have all sorts of thoughts about it. Depression is highly associated with pain. That is, more pain is reported as depression is experienced and more depression is reported as pain is experienced. Emotional pain? Physical Pain? Are doctors just becoming more comfortable with such prescription practices, thus a kind of "heard" mentality? I mean, once you put them into happy land drug wise, there's nothing left to do. Next patient please.

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NPR writes:

Get outside if you can Saturday evening and look up. Something that only happens a couple times in most people's lives should be putting on a pretty good show (and we can all use a break from the news of late).

As NASA's Science News explains, a "super moon" will be dominating the sky.

USNO offers access to precise data.

(hat tip Nancy O.)

Wow, FX space is totally rattled this week: the yen hit 76.25 against the dollar at the end of the day on March 16 and has since rebounded to current levels 80.90 (1:50pm in NY on 3/18). What happened over this time span? Mass speculation on yen appreciation due to earthquake-related repatriation, followed by technical levels being hit that drove the yen up against the dollar, and a collapse of the dollar against the yen (spike downward in the chart below). And then yesterday the G7 central banks (the Bank of Japan, Bank of England, European Central Bank, the Federal Reserve, and the Bank of Canada) agreed to coordinate a weak-yen effort. Today the yen is off 2.7% against the dollar.

Note: In the chart above, a decline in the USD/YEN is an appreciation of the Japanese yen and a depreciation of the US dollar. The chart above illustrates the daily fluctuation of USD/Yen since the Tōhoku earthquake on March 11.

The coordinated depreciation of the yen against its major trading partners is 'concerted', and such an effort has not occurred since September 2000 when the G7 bid up the euro. The yen effort is very different, as I'll explain below. Furthermore, ongoing weakness in the yen against the rest of the G7 currencies depends on further actions by the Bank of Japan into next week and beyond.

Some thoughts:

* In 2000 the wedge between the eurodollar spot and its PPP estimate of fair value diverged throughout the year. The spot rate became increasingly undervalued, hitting a wide in October 2000 (according to Bloomberg estimates of PPP). This seems to be a traditional initial condition for intervention. In contrast, though, the USD/YEN spot is seriously overvalued according to a similar measure of PPP fair value. I should note that currency fair value is a contentious topic. (more after the jump)

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by Linda Beale
crossposted with Ataxingmatter

Information Reporting on foreign depositors in US banks--Florida's GOP delegation shamefully supports tax evasion facilitation

Many wealthy Americans have taken advantage of banking secrecy in other countries, particularly Switzerland, to hide their assets and income from the United States, thus avoiding paying their fair share of taxes on their riches.  That practice became somewhat harder when reports on American accountholders became available to the government and the media were filled with stories of Swiss bankers for UBS carrying diamonds in tubes of toothpaste for their wealthy US clients, in order to help them evade US income tax laws.  The government instituted a voluntary disclosure program that permitted Americans with foreign accounts to come forward, at a relatively low penalty cost compared to the charges that could be assessed against them (including potentially criminal tax fraud charges).  When that program ended after thousands had voluntarily come forward, a new program (with a 25% penalty rather than the former program's 20% penalty) was instituted and is currently ongoing.  The result of the UBS episode was a deferred prosecution and a final agreement to reveal the names of about 4500 accountholders, presumably the largest accounts and the most likely to involve fraudulent tax evasion. 

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by Mike Kimel

Japan: The Post-WW2 Rise, the 1980s Peak, and the Decline - A Simple Theory
Cross-posted at the Presimetrics blog.

A lot has been written about the disaster in Japan. I don't have much I can add to that, except that like everyone else (or at least everyone civilized), I am so very sorry that it happened. (What is with the folks talking about Pearl Harbor? Seriously. What is that about?)

Still, in reading about the tragedy, I had a thought about Japanese economic history and I'd like to expand on it in this post. But I'd like to lead off by pointing out I am not an expert on Japan. That means y'all can feel free to correct me where I'm wrong, but it also means I started off by going to this website, which has some cool country studies. The website:

contains the on-line versions of books previously published in hard copy by the Federal Research Division of the Library of Congress as part of the Country Studies/Area Handbook Series sponsored by the U.S. Department of the Army between 1986 and 1998. Each study offers a comprehensive description and analysis of the country or region's historical setting, geography, society, economy, political system, and foreign policy.

Let me start by quoting liberally from Japan country studym specifically the section on bureaucrats.

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Simon Johnson offers pointed criticism of the role Timothy Geithner has played to date in the Great Recession and bank regulation, in particular as an advisor and architect to the Obama economic team and how that policy is presented and pursued in Congress. Another worthwhile read.

This week in 1861:

March 18:  Governor Sam Houston of Texas refuses to take oath of allegiance to Confederacy and is deposed.^{[214],  ,}Confederate Brigadier General Braxton Bragg prohibits further passage of supplies to Fort Pickens at Pensacola, Florida.^{[214][215]  (ilsm)}

I've been receiving questions about this week's rather dramatic appreciation of the yen. Central banks around the world have been intervening today to prevent further volatility in exchange rates, but that still doesn't explain exactly why currency traders have been so eager to buy yen this week.

There are rarely easy answers to questions involving exchange rate movements. However, I have shared a few thoughts on the subject over at The Street Light.

Comments have gotten heated and way off base (not a political statement :) if the goal is adding knowledge and a thorough critique of ideas that are presented. I will be taking a more active role in moderation. I think we had crossed a boundary somewhere along the line.

The Brown-Johnston back and forth seemed a good choice because it involved multiple points to address and demanded the reader actually read an entire post and replies. Too often we stop at one point we question or occur to us that is missing, reply, and leave it at that, only to find it was dealt with later in the posting or comments.

(There are a number here that stop conservation completely unless giving each other the finger is debate)

In addition, such as today authors will be coming by to comment such as David Cay Johnston is doing today and later this evening Ian Fletcher should, so there is incentive to behave as if we have guests in the house.

A recent ruling on countervailing duties and anti-dumping duties by the World Trade Organization:
(bolding is mine)

Senior Economist Ian Fletcher for the Coalition for a Prosperous America offers one point of view:

The American position is that we are entitled to apply what are called “countervailing duties” against products that are subsidized by foreign governments. And on top of that, we are also entitled to apply duties designed to counteract the practice of dumping, or selling a product below cost in order to destroy foreign competitors.
Both these responses on our part have long histories of being accepted as legitimate, both under international trade law and in economics. (This is why the WTO had originally accepted our position; the new ruling is actually the result of an appeal by China.)

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Center for Business Public Policy's Jeffrey Brown wrote a simple economic critique of David Cay Johnston's (Tax.com) piece on pensions.

David Cay Johnston dropped by with some lengthy comments and replies. Well worth reading the entire thing, especially the comments.

Crossposted at The Street Light.


Yesterday Ezra Klein had a chart (from a paper by Larry Mishel and Heidi Shierholz at EPI) showing that both private sector and public sector wages have been stagnating for the past several years, and have certainly not kept up with productivity growth. I think it’s useful to look at the relationship between productivity and compensation over a longer time horizon.

The following chart shows labor productivity and real hourly compensation since 1950. (Data from the BLS.) Two things strike me particularly about this graph. The first is how closely the two series track each other between 1950 and 1980. During those 30 years labor productivity in the nonfarm business sector of the US economy rose by 92%; real hourly compensation paid to workers rose by a nearly identical 87%. Classical economic theory says that is exactly what we would expect – as workers become more valuable to firms by producing more output with every hour of labor, firms should compete with each other to employ them, driving up wages by an equal amount.


The second striking feature of this picture is, of course, how much the two series have diverged since the early 1980s. Output per hour of work in 2010 was 87% higher than in 1980, while real hourly compensation was only 38% higher.

The table below shows changes in labor productivity and hourly compensation by decade. Again, let me draw your attention to two features. First, this data confirms that the “great productivity slowdown” of the 1970s and 80s seems to have been vanquished; over the past 15 to 20 years US businesses have been improving productivity at rates as high as during the 1950s and 60s. Yet more evidence that Tyler Cowen’s “Great Stagnation” is not a productivity story.


The second remarkable feature of this table is that the vast majority of the gap between productivity and hourly compensation comes from the 1980s and 2000s, while during the 1990s workers shared in productivity gains nearly as fully as they did in the 1960s. And that, of course, leads us directly to the $64,000 question: what was it about the 1980s and 2000s that made it so difficult for workers to reap the fruits of their more productive labor?

I give up. It was perfectly obvious what was happening at Fukushima on Saturday afternoon, when I posted bullet points at Skippy: there was going to be a major cleanup cost and the live reactors were not salvageable, but nothing fatal to many was loose in the atmosphere yet.

Which is why I followed up here on Sunday with "use saltwater as the best option." Once you accept that you're doing damage control, do it efficiently and don't worry about the sunk cost.

But evacuation and problems with all three plants that were offline at the time of the earthquake moves to stage seven, which was summarized by Pink Floyd:

Though even that may be pessimistic; Al Jazzera English (via their Twitter feed) reports that the heroes of this entire episode—the unnamed workers who are trying to avert serious leakage into the environment—are back at work after having temporarily been evacuated to a bunker.

Medicins Sans Frontiers (Doctors without Borders)

Shelterbox

Global Giving

Yves Smith at Naked Capitalism points us to exploring how the pursuit of "efficiency", for example in supply chains, without assessing what other risks are involved and planning ahead can result in major problems:

It isn’t all that hard to understand that stressing efficiency at all cost comes at the expense of safety. Engineers will tell you that efforts that are pro-safety involve various forms of buffers and redundancy and are thus costly. During the early days of the crisis, commentators often discussed the implications of Richard Bookstaber’s book A Demon of Our Own Design, in which he argued that systems that lacked breaks between various processes were tightly coupled, which meant that a failure at one point in the process would propagate through the entire system, as if one transformer failing would bring down an entire electrical grid.

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by Linda Beale Audit rates for the rich increasing--about time

crossposted with Ataxingmatter

Note to readers:  sorry for the long absence again--personal circumstances prevented my blogging for the last several weeks.  I hope that I can again resume regular blogging now, but do apologize for the absence.

The IRS recently released its 2010 Data Book, which describes the agency's activities for the 2010 FY ending September 30, 2010.

One important part of the data revealed is a much-needed focus on the compliance of wealthy taxpayers.  IRS Commission Doug Shulman admitted in late 2009 that the agency needed to shift its focus to pay more attention to high-net-worth individuals--at least in part to reassure ordinary Americans that the rich weren't able to avoid compliance (i.e., the idea that they might be able to avoid paying taxes simply because they had lots of money and could seek out tax shelters unavailable to the rest of us).  The IRS created a group within the agency focused on "global high wealth" individuals--those with $10 million or more.  Plans for the group required increased audits as a way to call attention to the problems and for the agency to teach itself more about the ways that these high-wealth individuals maintain their wealth and receive their income.  The Data Book shows that the IRS audited 18.4% of those high-income taxpayers in FY 2010, up considerably from the rate of 10.6% the prior fiscal year.

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David Zetland at Aguanomics offers this review of a topic that gets little national attention - the use of water between watershed areas, water rights, and how we value water to date at least in this area of the country. Use of water and policy on water use tends to be regionally and locally based, making a one size fits all answer to the problems of water use less than useful.

King of California -- The Review

In this book, Mark Arax and Rick Wartzman illustrate the fascinating details behind a family that combined hard work, farming wisdom and political maneuvering to turn "lake-bottom land" into a farming empire, with help from government workers who may have ignored the Public interest and badly-written and ill-enforced government laws.

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Health Care: Defining an ACO
Having recently plowed through about hundreds of pages on Accountable Care Organizations (ACOs) and Integrated Delivery Systems (IDSs), I should know how to define an ACO.
But I don't know, not exactly. Using an old Supreme Court standard, I know one when I see it, I think, because of certain characteristics.
This is critical because the Obama administration expects to garner huge savings from providers working through ACOs, beginning for Medicare in 2012 (building such systems in less than 9 months is going to be a Herculean task)..
The best formal definition I have seen to date, and it is very general, is the CMS definition for Medicare ACOs, and I quote:
Q: What is an "accountable care organization."
A: An Accountable Care Organization, also called an "ACO" for short, is an organization of health care providers that agrees to be accountable for the quality, cost and overall care of [Medicare] beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it (ACO).
It is a start, barely. The ACOs are supposed to be in place 1/1/2012. Administrative regulations were issued in November 2010 and the public comment period ended recently.
In a recent speech DHHS Sec. Berwick offered these "flag and apple pie" characteristics, still very general:

• the patient and family will be at the center;
• teamwork will now become “paramount;”
• respect resources and reduce waste;
• reinvest where investment counts;
• measure and manage outcomes partially through electronic health records; and

• establish a solid health care workforce foundation

Tom aka Rusty Rustbelt

The Guardian via Alternet offers this note on the Bradley Manning pre-trial treatment:

PJ Crowley Resigns After Remarks Bashing Bradley Manning's Detention

PJ Crowley, the official spokesman at the state department, has fallen on his sword after calling the treatment of Bradley Manning, the alleged source of the WikiLeaks files, "counterproductive and stupid".

The resignation followed Crowley's remarks to an MIT seminar last week about Manning's treatment in military prison.

More below the fold...

op-ed by Dale Coberly
Is It or Isn't It
(And what is a "budget" anyway)


There have been a number of comments and counter-comments on the subject of the definition of "on budget."

I may have contributed to this "debate" by referring to Social Security as "off budget." I knew what I meant, and I thought I was using the words the way I had seen them used by "experts." Then CoRev and MG found "definitions" that seemed to contradict my usage. It has seemed to me that these commenters didn't really understand the definitions they were citing, but I think we both have been guilty of a kind of laziness and stubbornness that make it impossible to resolve the dispute.

I do not offer the following out of any claim to authority, but as an appeal to common sense.

(Dan here...Spirited debate warning...feint of heart need not enter. OTOH, stay on topic and try not to be repetitious.)

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In a perfect world, you use distilled HOH to cool and control a nuclear reactor.

In a flawed world, you use potable HOH and hope nothing damages the reactor in the longer term.

In an emergency, especially one where potable HOH is going to be in short supply and you are near the coast, you use saltwater and hope you can avert a crisis while only losing future use of a reactor you weren't going to be able to salvage in the first place.

This is not rocket science, it's making the best tradeoff you can and hoping that ex post discussions are about "better next time " instead of "what went wrong."

{Cross posted from dKos Social Security Defenders group. Some parts will be pretty familiar to AB readers}

You may have to bear with me here. Because very few people have seriously examined what a solvent Social Security system would actually look like. One of those that has is (thankfully) Steve Goss, the Chief Actuary of Social Security, who last year wrote what may be the single most important article on Social Security that I have ever read. It was included in the 75th Anniversary edition of the Social Security Bulletin under the title The Future Financial Status of the Social Security Program

The whole thing is important but I want to focus on and then unpack the following passage, because the implications are simply transformational.

However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a "contingency reserve" targeted at one year's cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees' current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.

Unpacking below the fold.

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McConnell is Partially Right About Government Employment

David Weigel listens to Senator McConnell so we don’t have to:

Weigel says:

I looked at the government employment data provided by the Bureau of Labor Statistics and it is true that most of those working for the government work for state and local government. As our table shows, total government employment during February 2011 was 22.217 million (down from 22.582 million as of January 2009) whereas Federal employment was only 2.856 million (up from 2.792 million as of January 2009). Federal employment grew by only 64,000 which was more than offset by the fall in state government employment. Local government employment fell by 352,000 and total government employment fell by 365,000. Not exactly consistent with the message that the Senator was trying to convey.

McConnell's quote below the fold:

More below the fold...

by Mike Kimel

Justifying Progressive Tax Rates
Cross posted at the Presimetrics blog.


The Atlantic's website carries a blog by a conservative/libertarian who writes very well on a wide variety of topics, and who sometimes covers economic issues with great insight. Of course, I'm talking about Andrew Sullivan. (What, you didn't think... of course not. Don't be ridiculous.)

A smart writer - even one you don't always agree with - also has smart readers. (Of course, the flip side is that a clueless writer who gets the facts wrong all the time also has clueless readers who get the facts wrong all the time.) Here's a bit of a letter one of Sullivan's readers readers sent him, reproduced on Sullivan's blog:

I'm a bit late with this, but I wanted to respond to your post yesterday in which you wrote:

"To many on the right, this inequality is a non-issue, and in an abstract sense, I agree. Penalizing people for their success does not help the less successful."

Let's look at this issue another way: A homeowner who owns a $1 million home will pay more for insurance than will the owner of a $200,000 home. The insurer is not penalizing the first homeowner for his success. The first homeowner simply has more to lose and therefore pays more. If you believe the core function of government is to provide a stable environment (physical, financial, legal, social) in which society can flourish, the wealthy have more to lose from government's absence. Penalizing the successful wouldn't help anyone. Underwriting the successful costs money.

Later in the post, Sullivan goes on to inadvertently disrespect Hauser's Law. Sullivan's blog is not an "econ blog" but I think it has better economic insights than a lot of blogs that are, even if I often disagree with his politics.

Events 150 years ago should be remembered in 2011. A large re-enactment of scenes of the battle is planned for Gettysburg 1-3 July 2013. There were many event leading up to, and following, the greatest battle fought in the Western Hemisphere and they also should be commemorated.

“11 Mar in 1861 is significant; it is the date that the several states having seceded from the United States began ratifying constitution. That constitution was ratified in the following manner.”

““March 11, 13, 16, 21, 23, 29, April 3, 22: The Confederate Congress adopts a permanent Constitution of the Confederate States on March 11.[185][202] The then seceded states ratify this constitution on March 13 (Alabama), March 16 (Georgia), March 21 (Louisiana), March 23 (Texas), March 29 (Mississippi), April 3 (South Carolina) and April 22 (Florida).[210] “

“Reference here for other dates leading to the War Between the States, or the US Civil War.”

(idea courtesy of liveblogging at Brad DeLong's....sent by ilsm)

2011 Hayek Book Prize Nomination Form

The Manhattan Institute is currently gathering nominations for our Hayek Prize, which will honor the book published within the past two years that best reflects F.A. Hayek’s vision of economic and individual liberty. The winner of the Hayek Prize will be given a $50,000 cash award and asked to deliver our annual Hayek Lecture in New York City later this year.

We encourage the nomination of books that advance the ideals of classical liberalism along a range of economic, political, and moral dimensions. Hayek's The Road to Serfdom is very much the inspiration and the model for the Prize.

Nominations are due by Friday, March 11, 2011.

Presimetrics can be nominated by Angry Bear readers. I know....just found it, so thanks.

I found this little reminder of who is sharing to fix the deficits:



Tax policy center

The Federal Reserve released the Q4 2010 Flow of Funds Accounts for the US. On the household balance sheet, net worth (total assets minus total liabilities) was estimated at $56.8 trillion, which is up $2.1 trillion over the quarter. Notably, household net worth has increased $6.4 trillion since the recession's end (Q2 2009). Moreover, personal disposable income increased another $918 billion over the quarter, which dropped household leverage (total liabilities/disposable income) 1.1% to 116%.

Personal saving as a percentage of disposable income rose markedly in Q4 2010 to 10.9% (based on the BEA's measurement of saving using flow of funds data - see Table F.10, lines 49-52).

The chart above illustrates the the wealth effect - the wealth effect is the propensity to consume (save) as wealth increases/decreases. In the Flow of Funds data, this is best approximated by the ratio of net worth (wealth) to disposable income. In Q4 2010, wealth rose 0.15 times disposable income to 4.9, while the saving rate surged 6 pps to 10.9%.

More below the fold...

Mark Thoma at Maximum Utility has conclusions on the figures for creation of jobs and trend in trade deficits: (reposted with permission of the author)

Figures on the trade balance and new claims for unemployment insurance are out this morning, and the news isn’t as good as hoped. First, initial claims increased:

In the week ending March 5, the advance figure for seasonally adjusted initial claims was 397,000, an increase of 26,000 from the previous week’s revised figure of 371,000. The 4-week moving average was 392,250, an increase of 3,000 from the previous week’s revised average of 389,250.

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Wisconsin Senate Passes Bill Ending Public Bargaining Rights by Yves Smith at Naked Capitalism writes on this evening's news on Wisconsin political conflicts. Reposted.

After claiming repeatedly in the media that the fight to end public worker bargaining rights was all about the budget, Governor Walker stripped the collective bargaining provisions out of the budget (which required the participation of at least one Democrat to have a big enough quorum to satisfy Constitutional requirements for fiscal votes) and the Wisconsin legislature passed it separately.

More below the fold...

There's been a rather silly news item floating around the internets and business press today about the role of government in the US economy. Here's an example from the Investors Business Daily:

Is America Becoming A Welfare Nation?

More than one-third of all wages and salaries in this country are actually government handouts. We should be alarmed that we've become a nation of dependents.

Using data mined from the Bureau of Economic Analysis, TrimTabs Investment Research has found that 35% of wages and salaries this year will be in the form of a government payment. That's up sharply from 2000, when it was 21%, which is more than double the rate — 10% — of 1960.

The payouts are primarily Social Security and Medicare benefits, and unemployment checks. But they are not limited to those programs.

In any case, we're seeing before us a disturbing trend. A society can't survive moving in this direction.

Sigh. Where to begin.

More below the fold...

by Daniel Becker


I posted in 7/2009 on the issue of fixing our healthcare system based on the Massachusetts model. The first was Massachusetts is fixing the fixed healthcare system.   The second was a followup to the first:  Fixing the fixing. Healthcare Deja vu.

The issue was that we are dancing around. All the proposals to date have been nothing more than a relabeling of already tried organizational structuring within the private insurance model.  I ended the first article with a quote from a NEJM report and a my question:

Despite these imprecisions, the difference in the costs of health care administration between the United States and Canada is clearly large and growing. Is $294.3 billion annually for U.S. health care administration money well spent?

Well, is it? Did they even ask?

I ended the second article with:

We're talking the same old approach to what really is a problem with the product. At least in the bad socialist health care programs they recognize that a for profit third party only adds cost and thus do not have to account for that part of our problem (it's called savings). They just need to resolve the product quality issue. It is the only common issue to all nations.

I'm taking bets on the date of the new fix of the newly fixed, fixed system.

Ok folks. The betting is closed. Time to lay the cards on the table.

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by Mike Kimel
Cross posted at the Presimetrics blog.

The inimitable TBogg has a clip from the upcoming movie Atlas Shrugs, Part 1. The book is so long and so interminable that the movie has to be done in three pieces.

The clip has to be seen - words don't do it justice. And while at TBogg's there - read the comments readers left behind. Some of them are hilarious. In any case, the clip apparently inspired TBogg to search out more information, and he located an interview with John Aglialoro, the producer of the movie:

More below the fold...

In order to make this timely I am cut and pasting a note from CEPR pointing to the efficacy of cutting spending in the Social Security through means testing. The MSM and politicians have proposed this and raising the retirement age as answers to 'the deficit' crisis, some commenters indicating a 'tipping point' of disaster soon to come and saying Social Security needs to be a focus of this move to prevent disaster.

Such answers can be examined one by one in this particular forum since luckily the format can offer respite from the political power plays of the moment and posturing from 'friend and foe' alike. Since means testing is in the media, let's look at the numbers. Please read the 14 page document first, and then come back with comments. I apologize for not commenting in particular on the topic but cannot today.

Means testing, or reducing Social Security payments to affluent beneficiaries, has been touted as an effective way to reduce the cost of the program. A new report from the Center for Economic and Policy Research (CEPR) examines the feasibility of several different means testing scenarios and finds the potential savings to be rather limited.

“The majority of Social Security beneficiaries are lower- to middle- income people,” said Dean Baker, an author of the paper and a co-director at CEPR. “The number of beneficiaries who are by most standards considered affluent is too small to raise a significant amount of money via means testing.”

The report, “The Potential Savings to Social Security from Means Testing,” first describes the distribution of Social Security benefits by income level.

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Premier Wen Jiabao made stabilizing prices China's top economic priority for 2011. Amid the surge in world energy costs, this story didn't make the front page. However, Chinese policymakers did take their time spent out of the limelight to allow the Chinese yuan to appreciate roughly 0.3% against the US dollar.

Chinese inflation is elevated and near 5% (4.9% is the official rate as of January 2011). I understand that China's growth adjustment will take time; but if you've got unwanted inflation, then domestic policy is too loose (fiscal or monetary). And in this case, it's the monetary policy that's too loose - that goes for both currency and rates policies.

On the rates front: there's a very frothy feel in domestic asset markets, specifically the property market. Low rates and easy money have sparked a(nother) property boom in China, one that policymakers are trying to tamp down. The Economist published a recent article to the point.

But it's going to take much, much more than raising down payments and reserve requirements to shore up demand for risk assets. I mean, it really doesn't take a genius to see that real rates are entirely too low. What's the investment strategy here: nominal GDP is expected to grow at a 11% in 2011 (according to Economic Intelligence Unit, no link), while the lending rate is just 6.06%. There's no rocket science here: money's entirely too easy and inflationary pressures are there.

Furthermore, deposit rates are too low and capping domestic consumer demand. Rates need to rise.

More below the fold...

Health Care thought: Cost versus Benefit

Sixteen year old Wes Leonard made a dramatic last second shot to win a tournament game for Fenville High School in Michigan.

Then he fell on the floor and died from cardiac arrest due to an enlarged heart.

Every year young athletes die during and after games, many in basketball games, many from cardiac arrhythmia . Although the absolute numbers appear to be very small, the tragedy of a young person dying in front of a crowd is almost too much to bear.

So, should every high school athlete, or at least every basketball athlete (the pace of the game is torrid) have an EKG before the season begins? Many sports physicals are done at little or no cost by physicians in the community, but mandatory EKGs would be costly even if done at no charge to the athlete.

Would this be a good use of our resources? Who should decide?

(free advice: If you have a high performance student athlete pay for a thorough physical and have a discussion with the physician on the advisability of an EKG.)

Tom aka Rusty Rustbelt

James K. Galbraith, Lloyd M. Bentsen, Jr. Testify on Sensible Tax Reform

Tax policy was demystified in testimony by Galbraith and Bentsen, Jr. Will Congress listen?

Statement by James K. Galbraith, Lloyd M. Bentsen, Jr. Chair in Government/Business Relations and Professor of Government, The University of Texas at Austin, and Senior Scholar, Levy Economics Institute, before the Senate Finance Committee, March 8, 2011, hearing on Principles of Efficient Tax Reform.

“Chairman Baucus, Senator Hatch, Members of the Committee, it is an honor for me to appear before you this morning, to discuss the fundamental principles of an efficient tax reform.

1. Taxes and Deficits. Let me begin by noting that the realized budget deficit is an economic outcome, not a policy choice. So long as the economy faces high unemployment, there is no fiscal formula — no combination of tax increases and spending cuts — that can make it go away.

Our present very large budget deficits arise for two reasons.

More below the fold...

by Linda Beale
crossposted from Ataxingmatter

Why Tax Law Should be Required of All Law Students

We tax profs have a tendency to tell our colleagues that tax law should be a mandatory topic for all law students because there's nothing that you do that has economic consequences for which tax law isn't relevant.  Whether you are marrying or divorcing, having a baby or buying a home, there are tax considerations that you should know about.  If you are starting a business, depositing the proceeds of a theft in a bank, embezzling or gambling, there are tax considerations that you should know about.  If you are filing a tort action, there are tax ramifications.  If you own property, there are tax consequences.  If you work and earn a salary, there are tax consequences.  If you find a diamond in the street and keep it, there are tax considerations.  If  you get an "extreme makeover" home, there are tax consequences.  If your home is rented by tourists in town to see the Master's Golf tourney, the tax consequences will vary tremendously if the tenants are there for only 10 days versus if they are there for three weeks, even if you live in the house every other day of the year.  And on and on.

Ted Seto, a tax prof at Loyola Law School in Los Angeles, noted another interesting fact about tax law that relates to this claim.  He notes that many of the important laws in other fields that we tend to think of as just a part of the common law had their origins in--you guessed it--tax law.  The following is quoted with his permission:

More below the fold...

by Mike Halasy
Healthcare concultant and researcher, PA

UPDATE: Part 1 here; Part 2 here. (h/t rjs in comments for the suggestion.)
Update 2: Post fixed...Dan

Medical Malpractice Reform: Truth in Advertising Needed (Part Three of Three)

So in the first two articles we have addressed the historic effects of tort reform using Texas as an example, and subsequently we reviewed the effects of tort reform on so called “defensive medicine” practices, looking at both the effect of reform measures on physician/provider ordering patterns, as well as the possible effects on patient outcomes or mortality.
Today, we are going to examine the last party in this carousel. The insurance agencies themselves. For starters, I wanted to examine if there was any sort of a relationship between malpractice premiums, and healthcare spending. So, using historic healthcare expenditure rates from the NHE database (CMS), I calculated the rate of healthcare growth, percentage wise, per year from 1995-2008. I then used an ISO database set to examine the growth in insurance premiums per year.




As we can plainly see, there is no correlation, but out of sense of thoroughness, I even ran a simple regression.

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Part of an e-mail from Beverly Mann on additional expansion of corporate personhood concept at the Supreme Court:

I agree that, as the article at Raw Story says, the decision is a striking contrast to the court's ruling in Citizens United, which upended decades of campaign finance regulation, allowing corporations to spend unlimited amounts on political campaigns without having to identify themselves.

Some commentators are amused by the last sentence of the final paragraph of Roberts’ opinion in the case. The paragraph reads:

We reject the argument that because “person” is defined for purposes of FOIA to include a corporation, the phrase “personal privacy” in Exemption 7(C) reaches corporations as well. The protection in FOIA against disclosure of law enforcement information on the ground that it would constitute an unwarranted invasion of personal privacy does not extend to corporations. We trust that AT&T will not take it personally.

The line strikes me as a nod to a hilarious Supreme Court Dispatch article that Dahlia Lithwick wrote in Slate, reporting on the oral argument in the case in January, in which she treated AT&T as an actual human and said “he” was in court that day to watch the argument.

But there’s really no mistaking that Roberts and some of the others are feeling burned by the massive criticism of the Citizens United opinion last year.

by Beverly Mann

Does the Tea Party Dislike Goodwin Liu?

Politico had an article last week called “Will Senate ever vote on Liu?” Liu is Goodwin Liu, a prominent liberal Constitutional Law professor at the UC, Berkeley. His official profile at the U. is here.

Obama nominated him in 2009 to the Court of Appeals for the Ninth Circuit, the appellate court for the west coast states, Arizona, Nevada and Hawaii, and by far the largest of the federal appellate courts. His Judiciary Committee hearing was held more than a year ago, and the nomination was voted out of that Committee more than a year ago but was never brought to a floor vote because Republicans planned to filibuster it. Obama renominated him early this year, and his Committee confirmation hearing was held yesterday. The Politico article says this time the nomination will be brought to a floor vote but that his confirmation is unlikely.

The Politico article summarizes the controversy about his nomination:

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Moody's has downgraded its rating on Greek sovereign debt:

Greece debt rating cut further by Moody's

Moody's has downgraded Greece's debt to "highly speculative" prompting an angry response from the finance ministry. Greek bonds fell after the rating agency cut its rating from Ba1 to B1.

Moody's cited "endemic tax evasion", "very ambitious" austerity plans, and the possibility that the EU may force a debt restructuring on Greece after 2013 as reasons for its decision.

Greece's finance ministry said the move was "incomprehensible" and called for tighter regulation of rating agencies.

"Ultimately, Moody's downgrading of Greece's debts reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy," said the Greek finance ministry in a statement.

"Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis."

I have to say, I agree completely with the sentiments expressed here by the Greek finance ministry. In my mind, the credit rating downgrades have become a lagging indicator of problems, and have demonstrated little or no predictive power. Take a look at the chart below.

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Barry Ritholz shines a light on an alternative to the current meme on public sector unions:

In a Labor Day address in 1980, Ronald Reagan said:

"These are the values inspiring those brave workers in Poland … They remind us that where free unions and collective bargaining are forbidden, freedom is lost."

Reagan as above, in video.

(Hat tip Goldilocksisableachblonde at Economistsview)

by Mike Kimel

Cross posted at the Presimetrics blog

I really don't understand this post by Tyler Cowen. He begins by noting:

The median earnings of full-time Canadian workers increased by just $53 annually -- that's right, $53 annually -- between 1980 and 2005.

He then links to two documents, one of which says this:

A more likely explanation is that the rich have used their clout to get governments in the United States, Britain and Canada to change the rules, redirecting economic benefits to themselves.

More below the fold...

Earlier this week I argued that the ECB's inflation target of just below 2% is too simplistic, especially during periods of supply-side price shocks: energy, food, VAT hikes. Here's a menu of reactions to the ECB's announced rate hike (Trichet used the phrase 'strong vigilance', which historically is a leading indicator of a rate hike in the following month): Paul Krugman calls it 'madness'; David Beckworth sports the 'black eye' metaphor; Kantoos is somewhat more explicit in his language; and Warren Mosler goes for the Disney theme.

And then I see that one of my favorite blogs, the Eurointelligence blog, interprets the policy response as warranted in the face of an 'overheating' export sector. From Eurointelligence:

(It is our interpretation that the ECB is very keen to drive up the euro’s exchange rate against the dollar to reduce the commodity price shocks, and to reduce the overheating in the export sector. This is why the ECB was keen to signal this interest rate as early as possible, to underline the transatlantic policy gap. We don’t think the ECB intends to hike interest rates to very high absolute levels, though we consider a 2% year-end rate realistic.)

RW: My initial reaction was: what? Am I missing something here? Is the ECB right to be strongly vigilant? Is the export sector (1) overheating? and (2) therefore unmooring Eurozone inflation expectations?

No.

Exhibit 1: Real exports are 1.5% below the pre-crisis level (1H 2008). No overheating there. Based on the chart below, whose data are from Eurostat, I'd even argue that there is a possible stagflationary scenario on the horizon if investment doesn't pick up.

If it's not the export sector, perhaps it's a broader impetus to prices driven by services and consumption goods. No.

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Felix Salmon writes on the question of appropriate pension plans for state systems (emphasis on teacher retirement systems) in Reuters...however, the comment section offers a superb range of thoughts by non-experts on the matter of state pensions as well.

1. Is a 7-8% return reasonable to expect (smoothed over time) in the future?
2. If a different system is used from here on out? what are appropriate transitions?...Felix compares to 401k plans as being totally inadequate but there are other proposals.
3. What about the question of buyouts?
4. Interestingly several of the commenters were using the MA teachers retirement system as an example, which makes it useful for the AB post here.
5. What are the incentives inherent in the current system? (ie. most value is actually 'accrued' in the last five (?10) years of acummulated contribution for a pensioner? Not unlike any plan based on yearly contributions over decades.
6. The meme of baby boomers/versus younger contributors was brought forward but without numbers...this also could be subsumed under #2 and #3.
7. What is 'underfunding' in this context?

Calculated Risk revisits the employment to poulation ratios:

...What happens to the participation rate is an important question. If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.9%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place (and can be very confusing - and I'm guilty of using different numbers).

Here is a look at some the long term trends (updating graphs through February 2011)...

Worth a visit this weekend. It also points to questions regarding other types of policy questions for planners.

Mark Thoma links us to Rewriting the Macroeconomists’ Playbook in the Wake of the Crisis by Oliver Blanchard of the IMF.

In comments are names we all recognize.

Yves Smith on the Harry Shearer show concerning the Mortgage Mess is being re-aired this Sunday (see link for times).

The transcript for the show is at the link.