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Ed Dolan

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  • U.S. Unemployment Rate Falls To 7.3 Percent In August, A New Low For The Recovery [View article]
    Actually, I am not now in New Haven. I was speaking of a certain small town in the Midwest where I have a home. But that is just a detail.

    With regard to U-6, you are right. I always include U-6 in my charts because it is a better indicator of "employment stress," as some call it, than the standard unemployment rate. It is important to include things like discouraged workers and involuntary part-time work.

    Your comment on "the increasing importance of U-6" prompted me to look again at the data. Going back beyond the start of the above chart, I looked at the ratio of U-6 to the standard rate. In March 2007, when standard U hit its low for the cycle of 4.4 percent, the ratio U-6/standard was 1.86. In the latest month, it is almost exactly the same, 1.87. I was astonished to see how constant the ratio has been over the whole range of one of the most severe business cycles in US history: At no point, boom or bust, has the ratio been less than 1.6 or higher than 1.9.

    I will have to think about what that constancy means. Thanks for suggesting the idea, maybe the subject of a new post.
    Sep 13, 2013. 10:38 AM | Likes Like |Link to Comment
  • U.S. Unemployment Rate Falls To 7.3 Percent In August, A New Low For The Recovery [View article]
    I strongly agree with your view that economists should look more at the real world. When I look at the real world in my town, I see new construction activity in previously vacant lots, I see businesses opening in shops that were vacant a year ago, and I see little hand-written "help wanted" signs that never make it into the national surveys. I don't know where you live, but the real world I see shows exactly the same picture as the data: Still below the last cyclical peak of activity but gradually getting better.

    Of course, it could be different where you live. That is why we don't rely *entirely* on personal observations, but supplement them with national surveys that use methodologies that are imperfect and subject to sampling error, but at least are broadly based and largely unchanged from year to year.
    Sep 10, 2013. 09:51 AM | 2 Likes Like |Link to Comment
  • U.S. GDP Grows 1.7% In Q2, Beating Expectations, But Earlier Quarters Revised Down To A Crawl [View article]
    That would be one way to look at it, except that about half of the revisions are up and the other half are down. So half the time the government seems to be lying to make things look worse than they are and then giving out better info later. Go figure.
    Aug 2, 2013. 05:16 PM | Likes Like |Link to Comment
  • Part-Time Work Is Increasingly By Choice As U.S. Labor Market Strengthens [View article]
    "I know a lot of people who had their hours cut and not by choice.. . . they are becoming the new majority."

    This is the difference between people who go by their personal experience and economist, who go by the data. The data show that involuntary part-time workers are 0.5 percent of the labor force and falling.
    Jul 7, 2013. 03:26 PM | Likes Like |Link to Comment
  • Why Such A Large Downward Revision Of Q1 GDP Growth? [View article]
    The initial estimate is not fraudulent in any sense. It is based on limited data available early in the quarter plus extrapolations from past trends. On average the revisions are close to zero.

    If you look back over the data, you will see that sometimes the revisions are up, sometimes down. For example, in Q3 2012 the revision was up from 2.0 advance to 3.1 third, and in Q4 2012, it was up from -0.1 to +0.4. If the government were inclined to "defraud" us by giving a false advance estimate in Q1 2013, why didn't it do the same in the second half of 2012?
    Jun 27, 2013. 10:03 AM | Likes Like |Link to Comment
  • Why Latvia's Decision To Join The Euro Makes Sense [View article]
    Good question, it will take a new post to answer adequately. One clear difference is that the kuna is not a fixed rate currency now, so the transition would be a bigger change. Other questions: How flexible are Croatia's labor markets? Who are its main trading partners? What is the banking system like? (Healthier than neighboring Slovenia's, I hope.) Is its fiscal policy firmly grounded in long-term rules, or is it subject to short-term populist pressures over the course of elections and government changes?

    It is an open question. One of the big take-aways from the optimal currency area literature is that you have to approach each country, even each region in a nuanced, discriminating way. Not everyone should be in and not everyone out. That is why the EU rule that all new members must join the euro is an especially bad idea.

    I'll try to follow up.
    Jun 11, 2013. 09:46 AM | Likes Like |Link to Comment
  • U.S. Labor Market Shows Moderate Gains In May [View article]
    You are right to point out that the methodology used by the BLS for both surveys is subject to various kinds of errors and biases. What puzzles me is (a) why you blame it on Obama, since these methodological problems are longstanding, and (b) why you think they bias the trend in employment upward, rather than simply causing random errors around the trend. Can you explain?
    Jun 8, 2013. 02:46 PM | Likes Like |Link to Comment
  • Bridges Falling Down: The Economics Of The Infrastructure Debt [View article]
    The federal government has spent about $800 million on rail improvements in the Seattle-Portland corridor. It is not clear in what sense, if any, that these funds were "diverted" from roads and bridges. I think they were earmarked for rail from the get-go.

    Unfortunately, the result is in no sense high-speed rail. The spending has cut only a few minutes off the scheduled travel time, plus making service a bit more reliable. True HSR is years away.
    May 26, 2013. 06:06 PM | Likes Like |Link to Comment
  • Bridges Falling Down: The Economics Of The Infrastructure Debt [View article]
    Thanks for your comment. Actually, I agree with you on most of what you say. I think you are taking some incidental lines in the post out of context and treating them as if they were my main points. Let me try to clarify my position:

    (1) I do agree that the government should have a capital budget for infrastructure investments, and that such investments should not primarily be treated as an element of countercyclical policy (although there may be cases where the state of the cycle could affect acceleration or delay of projects that are otherwise worthwhile). Yes, at the end of the post, I wrote "The last time I blogged about the infrastructure deficit, the fiscal deficit was still getting worse. Now the economy is slowly recovering and the fiscal deficit is looking a little better. So isn't it about time to look at the larger picture." I did not mean to say that we have to wait for deficits to improve before spending on infrastructure. What I meant was that last time I wrote on infrastructure (early 2011), people were saying we couldn't afford it because deficits were too big, so now they have one less excuse, let's get moving. I guess my point didn't come across.

    (2) Similarly, by suggesting skepticism about the "jobs multiplier" argument, I was not implying that any specific percentage of infrastructure spending is wasted. I think we both agree that some is wasted, that we should waste as little as possible, and that we will never get the waste down to zero. What I had in mind here was avoiding the "double counting" that occurs when people say "This bridge is worth building because (a) it will improve traffic flow and (b) it will create a lot of jobs." When we decide whether to build a bridge (or anything else), we have to do benefit/cost analysis. The improvement in the traffic flow goes on the benefit side of the equation, and the wages paid out go on the cost side. If the benefits are greater than the cost, build it. If we put the wages and the traffic improvement both on the benefit side, then, obviously, we are going to approve just about anything, including the occasional "bridge to nowhere" that serves as a poster child for the opponents of all infrastructure spending. If you go to the linked report from the Bipartisan Study Center, they explain all this in more detail and more clearly than I did in my one-line bullet point.
    May 26, 2013. 10:17 AM | 1 Like Like |Link to Comment
  • Thoughts On Tim Cook's Testimony [View article]
    Good piece, I certainly support the idea of ditching the corporate tax, and Rand Paul is right, Congress has only itself to blame.

    My recommendation is zero corporate tax and tax all capital income (income and dividends) at ordinary income rates. (See this for details of why the two tax law changes logically go together.

    I would quibble a little with your statement "Are financial journalists ignorant of the fact that the incidence of corporate taxes falls almost entirely on consumers? " The economic research I have read suggests that something like 70%, maybe more, of the burden of the corporate tax falls on employees, not on consumers. But that does not detract from your main point.
    May 24, 2013. 01:07 PM | Likes Like |Link to Comment
  • U.S. CPI Falls In April At Fastest Rate Since 2008 - Is It Overstating The True Rate Of Inflation? [View article]
    The phrase was "gradual progress toward full employment," not that we are at full employment. Please do not try to turn a statement about a direction of change into a statement of where we are.

    Most of the indicators you mention are improving, although none have reached their pre-recession best. For example, U-6 is now at 13.9%, down from its peak of 17.4%. Components of LFPR that are not related to aging of population are also improving, for example, a gradual trend toward decrease of fewer discouraged workers (down to 3.2% of population from over 5%). The number of involuntary part-time workers is also trending down (over 6% at start of 2011, 5.1% now).

    Yes, it would be nice to have higher wages and more jobs. At the moment the economy is not offering us that option. Perhaps you would prefer fewer jobs at higher pay. That is a legitimate preference, I don't argue with it, although it is not my own preference.
    May 18, 2013. 10:36 AM | Likes Like |Link to Comment
  • Why Hasn't The U.S. Become Another Greece? [View article]
    If I understand you correctly, you are saying that historically, the trend of real tax revenue grows faster than the trend of real GDP. That has been true in the US because the tax system is progressive, and because brackets have been legislated in nominal terms. As a result, we need tax "cuts"--really, adjustment for the long-term trend of nominal income--to keep tax revenue constant as a percent of real GDP. If that is what you have in mind I agree.

    The issue of automatic stabilizer is a little different; it is a short-term phenomenon that pertains to what happens to tax revenues as a result of movements of real GDP above and below the trend over the business cycle. I think it is legitimate to omit them from the analysis in this case and treat the long-term bracket creep as a separate issue.
    May 16, 2013. 12:58 PM | Likes Like |Link to Comment
  • The People Of The EU Support The Euro For The Very Reason It Is Destroying Them [View article]
    "It is the same for the euro. Everyone would benefit from a devaluation"

    I'm not sure I agree with that. I see different reasons why the euro is so popular even though it is harming the European economy as a whole.

    1. Leaving the euro would hurt people whose debts are denominated in euros. If they have borrowed from domestic banks, maybe the loans would be redenominated back to the drachma, peseta, or whatever, but some people and firms have borrowed from foreign sources, so it would not be so easy to redenominate their debts. They would be hurt badly if their country left the euro and then devalued.

    2. Since the start of the crisis, real effective exchange rates in Greece, Portugal, Italy, and Spain have all risen relative to that of Germany. That has hurt competitiveness of the economies, but at the same time, it supports the standard of living of people who have incomes or savings denominated in euros. If their countries left the euro and devalued, they would suffer a loss of purchasing power.

    These two factors together mean that even if a breakup of the euro helped competitiveness, growth, and employment in the countries that left, many individuals in those countries would suffer.
    May 15, 2013. 01:25 PM | Likes Like |Link to Comment
  • Why Arguments Against Exporting Natural Gas Don't Add Up [View article]
    "A carbon tax would disproportionately impact low-income families. "

    There are many arguments for and against a carbon tax, and I am willing to engage on the issue at great length at any time. However, the argument that such a tax would harm low-income families is one of the most illogical, even though it is used frequently both by those on the left and those on the right.

    If you want to help the poor, using targeted policies that help the poor, not pricing that provides a trickle of benefits to the poor while bestowing most of their benefits on higher income families.

    If you think higher prices would help promote conservation and clean energy, while should you let the poor off the hook and encourage them to use energy wastefully?

    For a full development of these arguments, see "When does 'It would hurt the poor' outweight 'It's good for the environment'?"
    May 13, 2013. 10:09 AM | 2 Likes Like |Link to Comment
  • Why Arguments Against Exporting Natural Gas Don't Add Up [View article]
    " I also think that cheap local energy is a huge multiplier for the economy."

    This is a widespread view, but it is not well substantiated by cross-country data. On the whole, countries with low energy prices tend to have weak economies and those with high energy prices do quite well, thank you. For example

    Countries with very low gasoline prices include: Venezuela, Turkmenistan, Libya, Iraq, Iran, etc.

    Countries with very low electricity prices: Russia, Iran, Pakistan, Ukraine, Serbia

    Countries with high gasoline prices include fast-growing economies like Turkey and Hong Kong, also many of the countries most successfully fighting the European slump like Norway, Finland, Netherlands

    Countries with high electricity prices (aside from obvious case of island countries) also include many rich and/or dynamic countries like Brazil, Denmark, Germany, Chile.

    In short, what is really a "huge multiplier" for an economy is an energy policy that prices each energy source realistically according to market forces, modified where necessary by taxes to reflect negative environmental effects. On the contrary, subsidies and protectionism to keep prices artificially low are economically destructive.

    Please don't fall for the "Myth of Affordable Energy."
    May 13, 2013. 10:00 AM | Likes Like |Link to Comment