Thursday, May 31, 2012

European culture

Victor David Hanson has an interesting article about the role of culture in European development and the ongoing European crisis:
Do average passersby throw down or pick up litter? After a minor fender-bender, do drivers politely exchange information, or do they scream and yell with wild gesticulations? Is honking constant or sporadic? Are crosswalks sacrosanct? Do restaurant dinners usually start or wind down at 9 P.M.? Can you drink tap water, or should you avoid it? Do you mostly pay what the price tag says, or are you expected to pay in untaxed cash and then haggle over the unstated cost? Are construction sites clearly marked and fenced to protect pedestrians, or do you risk walking into an open pit or getting stabbed by exposed rebar?
By coincidence, my Lindenwood colleague, Mike Mathea, sent me this chart today. It presents the results of a survey of Europeans about Europeans:

My favorite part is that Greeks consider themselves the most hardworking and the most corrupt. Corruption must take a lot more effort than it looks.

Wednesday, May 30, 2012

Where's the Obama bounce-back?

The President often tries to blame the weakness of the recovery on the depth of the recession that he inherited.  Others have claimed that recessions that are precipitated by a financial crisis just tend to be harder to recover from.  Both claims are absolute nonsense.

The chart below illustrates the tendency for severe recessions to be followed by strong recoveries. Specifically, long recessions tend to be followed by strong growth in the first year of recovery. One of my co-authors, Jeremy Piger, documented this bounce-back effect a few years ago. The same effect can be illustrated in the chart by replacing the length of the recession with the peak-to-trough real GDP decline.

Notice that the Obama recovery is an outlier to this pattern.  Given the length of the Bush recession, previous experience would have predicted real GDP growth in the first year of the Obama recovery to have been several percentage points higher than it was.

As for the second claim, that financial recessions are special and more difficult to recover from, a recent paper by economists at the Federal Reserve finds that there is no such relationship. Their research also debunks the first claim:
Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. However, recovery does change with some characteristics of recession. Recoveries tend to be faster following deeper recessions, especially in emerging markets, and tend to be slower following long recessions.
Rather than blaming our anemic recovery on the hand he was dealt, the President and his apologists should perhaps consider the possibility that his policies might have something to do with it. Indeed, according to history, he was actually dealt a very strong hand in terms of the strength of the recovery, but he frittered it away.

Monday, May 28, 2012

A Memorial Day Remembrance

My uncle, Captain Howard J. Wall, KIA, February 8, 1945, Neuendorf, Germany.

Recipient of the Distinguished Service Cross for actions on February 7, 1945.

Buried at Henri-Chapelle American Cemetery, Belgium.

Survived by his mother, father, four brothers, two sisters, wife, and a son, Howard J. Wall, Jr., born February 6, 1945.

Friday, May 25, 2012

Austerity shmausterity

The Post-Dispatch printed my letter about their ridiculously innacurate editorial about the European crisis.  Here's my letter, which is slightly less snotty than the version I submitted.

Wednesday, May 23, 2012

Yes, there was an Obama spending binge

Much has been made of the claim by Rex Nutting of MarketWatch that the Obama spending binge never happened.  As usual, James Pethokoukis is on top of this.  Basically, Nutting's claim is that the big jump in spending occurred in the 2009 budget, which was largely due to the Bush administration, so our current level of spending is Bush's fault.  What Nutting doesn't tell you is that that increase in the 2009 budget was due to a temporary emergency measure, the Targeted Asset Relief Program (TARP).  Obama made that spending level permanent, using the TARP bump as cover. 

The biggest surge in U.S. government spending occurred to finance World War II.  When the war ended, spending returned to something close to its pre-war level.  According to Nutting's logic, if Harry Truman had instead decided to maintain Roosevelt's spending level by creating new social programs, it would have been Roosevelt's fault.

Don't the Post-Dispatch editors have a Google machine?

The editorial board of my hometown paper, the St. Louis Post-Dispatch, is not known for being particularly astute when it comes to economics.  In fact, I think it's fair to say that they have a bit of a reputation for letting blatant partisanship get in the way of sensible analysis.  Today they have an editorial that should cement their reputation.  The editorial purports to be about the European crisis, but it is really a tool for taking a phony dig at the GOP.

Tuesday, May 22, 2012

Bernie Miklasz on the Rams and the Dome

Bernie Miklasz of the Post-Dispatch wrote a column on Sunday advising that "Cool Heads Are Needed in Dome Discussion."  He's absolutely right, of course, which is why we need to take a careful look at the costs and benefits of any possible public financing of the Edward Jones Dome.  As I posted earlier, David Nicklaus described the economics of the situation.  Now, Micklasz lays out what he thinks are the issues and facts at hand.  He's largely right, but let me point out some problems with what he says.

Alan Blinder, Truman's one-armed economist

After his economic advisers kept qualifying their statements with "but, on the other hand", Harry Truman famously quipped that what he needed was a one-armed economist. Well, Princeton economist Alan Blinder is Truman's kind of economist because he is happy to pretend that there is no other hand when it comes to fiscal policy.

More on the Dome debate

David Nicklaus of the St. Louis Post-Dispatch has hit the nail on the head in a column discussing the wisdom of using taxpayer money to finance sports stadia: "Let's keep faulty economics out of Dome debate."  He makes some of the same points I made on the Jaco Report, where I said that claims of large economic impacts for NFL stadia are false, although there is a case to be made of treating having an NFL team as an amenity.  Here's Nicklaus's take::

Monday, May 21, 2012

Science says that organic-food eaters are jerks

Hat tip, Instapundit: “There’s a line of research showing that when people can pat themselves on the back for their moral behavior, they can become self-righteous.”

There's an enormous amount of anecdotal evidence to this effect, so it's interesting that it is now settled science.  I'm looking forward to the follow-up study of Prius owners, although South Park already has this one nailed:

Saturday, May 19, 2012

A recipe for failure

Take a healthy dose of one bad policy (billions of dollars chasing the physics-defying solar-powered future) and mix in another bad policy (punitive tariffs on imports of Chinese solar panels), and presto: A silly policy that is at odds with itself.
The tariffs will make solar power even less competitive against other energy sources, creating a demand for even more U.S. subsidies and delaying the renewable power future that Mr. Obama and his green allies so fervently claim to want.

Blue-state economic policy

As has been apparent for a few years now, California's governing class just might be the most incompetent and rapacious leeches that ever drove a once-dynamic economy over a cliff.  Now they are being urged by the Obama Administration to be even more incompetent and rapacious.  The issue is the insane drive to build high-speed rail to and from nowhere:

Thursday, May 17, 2012

Coffee, still the magic elixir

Not only did coffee fuel the Age of Enlightenment, but it turns out that coffee drinkers live longer.  Take that you tea-sippers!

Three charts and a table

James Pethokoukis has "The 3 economic charts that could crash Obama’s reelection hopes". The first is a chart showing real GDP growth for the most recent seven recoveries from recession, measured from the trough to 12 quarters later. Consider this a follow-up to a post of his from January and a post of mine the next day. His third chart is one that I've been harping on for some time, the employment-to-population ratio, which should replace the unemployment rate because it captures the fact that millions have left the labor force.

Tuesday, May 15, 2012

Sportswriter as economist

Bryan Burwell of the St. Louis Post-Dispatch is a terrific and intelligent sportswriter, but a terrible economist. I don’t doubt that he adds more to day-to-day well-being of St. Louisans than the average economist would, but that’s because he usually sticks to sports. Today, however, he ventured out of his area of expertise into the realm of economic policy. His column asks us to “Look at the big picture” when discussing the stadium counterproposal that the Rams have submitted to the Convention and Visitors Commission (CVC).

Monday, May 14, 2012

Typically flabby thinking about the minimum wage

The other day I posted about a David Nicklaus column explaining why raising the minimum wage would harm the very people it is intended to help.  On Sunday, the Post-Dispatch published a letter that was chock full of the tropes that pass for sophisticated arguments when it comes to the minimum wage. I don't mean to pick on the letter writer, but his contribution is just too on the nose to pass up. Here are all of the points in the letter, with my comments in italics.

The President's growth forecasts

In this interesting article about the hazards of economic forecasting, Nash Keune reports how the Obama Administration has consistently overestimated the effects that its policies would have on growth and employment.  Forecasting is an especially dodgy exercise in which large errors are common.  Good forecasters, however, will be right on average.  That is, they overestimate sometimes and underestimate other times, so that their average error is close to zero. 

Republican anti-informationalism?

The Wall Street Journal had an editorial on Saturday about some unfortunate developments regarding the American Community Survey, which is undertaken by the U.S. Census Bureau. 
The House voted 232 to 190 to abolish the Census's American Community Survey, or ACS, which is the new version of the long-form questionnaire and is conducted annually. Republicans claim the long form—asking about everything from demographics to income to commuting times—is prying into private life and is unconstitutional.
Although the case against its constitutionality is weak, there's no doubt that the ACS is prying. As social scientist, I can appreciate the benefits of the ACS:
the ACS provides some of the most accurate, objective and granular data about the economy and the American people, in something approaching real time. Ideally, Congress would use the information to make good decisions. Or economists and social scientists draw on the resource to offer better suggestions. Businesses also depend on the ACS's county-by-county statistics to inform investment and hiring decisions.
On the other hand, the ACS would be uncontroversial if not for the fact that participation in the survey is required by law once you are selected. As stated on the ACS web site:
Do I have to answer these questions?
Yes. You are legally obligated to answer all the questions, as accurately as you can.
The relevant laws are Title 18 U.S.C Section 3571 and Section 3559, which amends Title 13 U.S.C. Section 221.
It seems to me that this government heavy-handedness is unnecessary and might even reduce the quality of the information that people provide. But even if quality of the data is enhanced by the legal requirement to participate, there is a very strong argument to be made that the enhancement is not worth it.  Other data sources are able to achieve a great deal of usefulness without threatening people with the force of the U.S. Department of Justice.

Sunday, May 13, 2012

Two booming economic sectors

The economy has been rough shape for some time, but we shouldn't overlook the two sectors that are booming, one of which has the potential to lead the rest of economy to great things, while the other will stamp its foot on the throat of the rest of the economy:

"Jobs Abound In Energy Industry's New Boom Time"

"The Bloodsucker Economy"

Public financing of NFL stadiums

I appeared on the Jaco Report this morning discussing the economics behind public financing of stadiums. The St. Louis Rams are negotiating over upgrades of the Edward Jones Dome.

We are still swimming in oil

Back in March, I posted about a ridiculously innacurate claim by President Obama that the United States is oil-poor.  The U.S. Energy Information Administration, however, reported back in 2009 how we are awash in crude oil and natural gas.  A second government agency, the General Accountability Office reported to Congress that "Recoverable Oil in Colorado, Utah, Wyoming 'About Equal to Entire World’s Proven Oil Reserves'". Apparently these memos keep getting lost somewhere between these independent agencies and the President's desk.

Note also that the bulk of these oil reserves lie under Federal land, which has increasingly been placed off limits for oil and gas exploration.  Remember all of this the next time you are told that there is nothing the President can do about gas prices, or that the administration is choosing "all of the above" on energy.

Friday, May 11, 2012

I'd like to study the effectiveness of these studies of studies of studies

 A government study of a study of studies:
The Pentagon was inundated with so many studies in 2010 that it commissioned a study to determined how much it cost to produce all those studies.
Now the Government Accountability Office has reviewed the Pentagon’s study and concluded in a report this week that it’s a flop.

The monster that won't die

The always-excellent David Nicklaus has a column today about a proposal to raise the minimum wage in Missouri for a second time during this recession and non-recovery.  The title of his article, "Timing is bad for a minimum wage increase", hits on the sheer lunacy of raising the minimum wage when the labor market is so weak.  The body of the article goes on to explain how the timing is actually never good for this misguided policy because it harms the very people that it is intended to help.  My own view is that the minimum wage is a significant contributor to keeping the poor from joining the middle class.

Thursday, May 10, 2012

The wacky things you read in the paper

I continue to be amazed at the levels of stupidity and wackiness that people are capable of. Cases in point are four items in today's St. Louis Post-Dispatch. I'm having a tough time deciding which one is dumbest.

Wednesday, May 9, 2012

What economists (mostly) agree on

Every so often it's worth refreshing our collective memory about the breadth of agreement among professional economists. Because of our well-deserved reputation for not being able to reach a conclusion even if we were laid end to end, the many policy areas for which we are in general agreement are often forgotten.

Greg Mankiw has a collection of 14 statements over which there is general agreement. Read the whole list, but here are my favorites, along with the percentage of economists who agree with them:

Social science vs. hard science

Jim Manzi has an interesting discussion about the limits of social science, particularly economics, relative to hard sciences:
When it comes to deciding what policy actions to take, we should listen carefully to what economists and other social scientists say, but we should treat their assertions differently than we do predictions arrived at via experiments. We should subject them to useful cross-examination by specialists in other fields, reflect on how to weigh technical and non-technical opinions, ponder human motivation, and all the rest.
He's right, of course, but I think he doesn't make a clear enough distinction between economists' predictions of the direction of effects, and the precise magnitude of effects. Often, the magnitude is not that relevant.  For example, as reported by Greg Mankiw, 93 percent of economists agree that "(a) ceiling on rents reduces the quantity and quality of housing available." If we know that rent controls are a bad idea and, therefore, should not be implemented, how important is it to know precisely how bad they are? Just don't use them!

Douglas Elmendorf of the CBO on the Budget

If you want to know all about the budget deficit and what choices we face, this video of Douglas Elmendorf, the Director of the Congressional Budget Office is a must. In a nutshell
Achieving a sustainable federal budget will require the United States to deviate from the policies of the past several decades in at least one of the following ways: raise federal revenues significantly above their average share of GDP, make major changes to the sorts of benefits provided for Americans when they become older, or substantially reduce the role of the rest of the federal government relative to the size of the economy.
Elmendorf is nonpartisan and extremely competent. In the video Anil Kashyap gives him a glowing introduction that is well-deserved.

Friday, May 4, 2012

At least Joe Biden knows what's needed

Two years ago, Vice President Joe Biden predicted that job growth would be between 250 and 500 thousand per month "sometime in the next couple of months."  It turned out that net job growth in the ensuing six month period was 38 thousand in total, or 6.3 thousand per month.  Put another way, he was off by between 3,700 and 7,800 percent. The Vice President seems to be no better at forecasting than is his boss, but at least Biden has a much better idea of what counts as good news.

The President needs to set higher standards for himself

The President seems nonplussed by today's employment report. 
Obama chose to focus on the fact that the rate of unemployment dropped from 8.2 percent from 8.1 percent, not the headline number showing the economy created only a net 115,000 jobs last month, below market expectations.
"After the worst economic crisis since the Great Depression, our businesses have now created more than 4.2 million jobs over the last 26 months (and) more than one million jobs in the last six months alone," Obama said at a school in the crucial election swing state of Virginia.
So, he's happy that 169 thousand more people left the labor market than found jobs, which is the only reason that the unemployment rate fell.  Imagine how happy he'd be if 500 thousand people just gave up looking for work.  The unemployment rate would plummet and really give him some good news to talk about.

The President is also happy with the net increase of 4.2 million private sector jobs over a 26 month period (or 163 thousand per month) and with the 1.2 million increase over the past six months (or 207 thousand per month).  Even at the rate of the past six months, it would take almost two more years just to reach the January 2008 level of private employment.  But that's not what is needed.  Because the population has grown, the relevant level of employment we need to achieve keeps rising over time. 

As I have pointed out, even at the temporarily high rate of job growth of December 2011 to February 2012 (245 thousand per month), it might take until March 2021 to achieve full recovery (note that this is for total employment, not just private employment). Here's the chart from that post:

The Obama Recovery rages forward

Some highlights from today's release of The Employment Situation - April 2012 from the BLS, with my clarifications in italics:
  • "Both the number of unemployed persons (12.5 million) and the unemployment rate (8.1 percent) changed little in April."  The number of unemployed fell by 173 thousand and the unemployment rate fell by 0.1.  It is the drop of 342 thousand people in the labor force that explains the drop in the unemployment rate.
  • "Total nonfarm payroll employment rose by 115,000 in April. This increase followed a gain of 154,000 in March and gains averaging 252,000 per month for December to February."  Job growth failed to keep up with population growth. We need to be averaging at least 450,000 per month to climb out of this hole, and it appears that the three "strong" months from earlier in the year were an anomoly.
  • "The civilian labor force participation rate declined in April to 63.6 percent, while the employment to population ratio, at 58.4 percent, changed little."  Actually, the employment to population ratio fell by 0.1, which is not insignificant. 
As I have posted about several times, all of the relevant information is captured by the employment to population ratio, which has been stagnant since late 2009.

A better life for Julia

The Heritage Foundation has produced a slideshow that outlines a different life for Julia than the creepy cradle-to-grave dystopia envisioned by the Obama campaign. Watch the two slideshows and decide which America you want.

Thursday, May 3, 2012

This is getting creepy

First the Obama campaign chose to echo Mao when choosing "Forward" as its campaign slogan, and now it has an ad that echoes Stalin, who was looked upon by the masses as the source of their food and housing.  The new ad, called "The Life of Julia", shows a hypothetical woman over her lifetime benefiting from all the great things that Obama has provided for her.

I am Mitt Romney's puppetmaster

Gateway Economist says it:  "The President needs a few opposite days"

And Mitt Romney follows: Romney says he’ll do ‘the opposite’ of Obama to help recovering economy

Wednesday, May 2, 2012

Dodd-Frank bogged down

The Dodd-Frank reform of financial regulations was a monstrosity from the outset that promises to make a bad problems worse while creating a host of new problems. It's been nearly two years since the President signed it into law, but no one yet has much of an idea how it will affect them:
As the lawyers at DavisPolk point out in their Dodd-Frank progress report for the month of May, Dodd-Frank required regulators to write 398 rules. So far, regulators have missed 148 of the 221 rule-writing deadlines — two-thirds — that have already passed.
You shouldn’t blame the regulators. Mr. Dodd and Mr. Frank sponsored a bad law. Appointees and civil servants face an impossible task.
It's one thing to face a future with new rules that will be both onerous and ineffective, but on top of that, we have to wait years to find out which routine and legal actions today will be illegal in the future.