Dissent on Keynes: A Critical Appraisal of Keynesian Economics - Mark Skousen ed. | Keynesian Economics | John Maynard Keynes

Dissent on Keynes: A Critical Appraisal of Keynesian Economics - Mark Skousen ed. | Keynesian Economics | John Maynard Keynes

Using Private Sector “Big Data” as an Economic Indicator: The Case of Construction Spending - Federal Reserve Bank of Chicago

Using Private Sector “Big Data” as an Economic Indicator: The Case of Construction Spending - Federal Reserve Bank of Chicago

The politics of mate choice

From John R. Alford, Peter K Hateme, John R. Hibbing, Nicholas G. Martin, Lindon J. Eaves

Abstract: 

Recent research has found a surprising degree of homogeneity in the personal political communication network of individuals but this work has focused largely on the tendency to sort into likeminded social, workplace, and residential political contexts. We extend this line of research into one of the most fundamental and consequential of political interactions—that between sexual mates. Using data on thousands of spouse pairs in the United States, we investigate the degree of concordance among mates on a variety of traits. Our findings show that physical and personality traits display only weakly positive and frequently insignificant correlations across spouses. Conversely, political attitudes display interspousal correlations that are among the strongest of all social and biometric traits. Further, it appears the political similarity of spouses derives in part from initial mate choice rather than persuasion and accommodation over the life of the relationship. 

Various papers

7.  What Was the Industrial Revolution?
by Robert E. Lucas, Jr. #23547 (EFG)
http://papers.nber.org/papers/w23547?utm_campaign=ntw&utm_medium=email&utm_source=ntw

9.  The Disappointing Recovery of Output after 2009
by John G. Fernald, Robert E. Hall, James H. Stock, Mark W. Watson #23543 (EFG LS)
http://papers.nber.org/papers/w23543?utm_campaign=ntw&utm_medium=email&utm_source=ntw


7.  What Was the Industrial Revolution?
by Robert E. Lucas, Jr.  -  #23547 (EFG)

Abstract:

At some point in the first half of the 19th century per capita GDP in
the United Kingdom and the United States began to grow at something
like one to two percent per year and have continued to do so up to
the present.  Now incomes in many economies routinely grow at 2
percent per year and some grow at much higher "catch-up" rates. 
These events surely represent a historical watershed, separating a
traditional world in which incomes of ordinary working people
remained low and fairly stable over the centuries from a modern world
where incomes increase for every new generation.  This paper uses
Gary Becker's theory of a "quantity/quality trade-off," consistent
both with Malthusian population dynamics (quantity) and with
demographic transition (quality), to identify a limited set of forces
that were central to this revolution.

http://papers.nber.org/papers/w23547?utm_campaign=ntw&utm_medium=email&utm_source=ntw



9.  The Disappointing Recovery of Output after 2009
by John G. Fernald, Robert E. Hall, James H. Stock, Mark W. Watson  -  #23543 (EFG LS)

Abstract:

U.S. output has expanded only slowly since the recession trough in
2009, even though the unemployment rate has essentially returned to a
pre-crisis, normal level.  We use a growth-accounting decomposition
to explore explanations for the output shortfall, giving full
treatment to cyclical effects that, given the depth of the recession,
should have implied unusually fast growth.  We find that the growth
shortfall has almost entirely reflected two factors:  the slow growth
of total factor productivity, and the decline in labor force
participation. Both factors reflect powerful adverse forces that are
largely unrelated to the financial crisis and recession--and that
were in play before the recession.

http://papers.nber.org/papers/w23543?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Morningside Hill: The US Jobs Market Much worse than the official data

From May 2017, Morningside Hill: 

The US jobs market has been described as the backbone of the recovery – 82 months of continuous jobs growth with unemployment hitting 4.5% – the lowest since 2007. However, the perceived strength in jobs creation is at odds with other economic indicators. President Trump ran on a campaign that repeatedly touted “jobs, jobs, jobs.” His emphasis on jobs creation and bringing employment back to America struck a chord with voters. Trump’s election in itself contradicts the popular narrative that the US jobs market is tight and robust. Wages, disposable income and real earnings growth along with low productivity and overall slow economic growth all challenge the BLS’s jobs numbers and thus Wall Street’s perception that the jobs market is tight. 

NBER Working Paper: Do Americans Want to Tax Capital? Evidence from Online Surveys

"Do Americans Want to Tax Capital? Evidence from Online Surveys," by Raymond Fisman, Keith Gladstone, Ilyana Kuziemko and Suresh Naidu 

Abstract:

A vast theoretical literature in public finance has studied the question of the desirability of capital taxation.  Distinct from questions of the optimality of taxing wealth is whether it is politically feasible.  We provide, to our knowledge, the firstinvestigation of individuals' preferences over jointly taxing income and wealth, via a survey on Amazon's Mechanical Turk.  We provide subjects with a set of hypothetical individuals' incomes and wealth and elicit subjects' preferred (absolute) tax bill for these individuals.  Our method allows us to unobtrusively map both income earned and accumulated wealth into desired tax levels.  Our regression results yield roughly linear desired tax rates on income of about 14 percent.  Respondents' suggested tax rates indicate positive desired wealth taxation.  When we distinguish between sources of wealth we find that, in line with recent theoretical arguments, subjects' implied tax rate on wealth is three percent when the source of wealth is inheritance, far higher than the 0.8 percent rate when wealth is from savings.  We show these tax rates are consistent with reasonable parameterizations of recent theoretical optimal wealth tax formulae.

Trade does not increase income inequality

A recent IMF paper by Diego A. Cerdeiro and Andras Komaromi  "Trade and Income in the Long Run: Are There Really Gains, and Are They Widely Shared?" tackles big questions about income and income inequality related to trade. 

Abstract

In the cross-section of countries, there is a strong positive correlation between trade and income, and a negative relationship between trade and inequality. Does this reflect a causal relationship? We adopt the Frankel and Romer (1999) identification strategy and exploit countries' exogenous geographic characteristics to estimate the causal effect of trade on income and inequality. Our cross-country estimates for trade's impact on real income are consistently positive and significant over time. At the same time, we do not find any statistical evidence that more trade increases aggregate measures of income inequality. Heeding previous concerns in the literature (e.g. Rodriguez and Rodrik, 2001; Rodrik, Subramanian and Trebbi, 2004), we carefully analyze the validity of our geography-based instrument, and confirm that the IV estimates for the impact of trade are not driven by other direct or indirect effects of geography through non-trade channels.

Research Note on the December 2017 Massachusetts Employment Situation

December 2017 Report: U-Rate: 3.5%; Jobs: 63,000 YoY 

OVERVIEW

•  According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped to 3.5 percent in December from 3.6 percent in November.
• The state lost 500 jobs in the month.
• The state's labor force participation decreased one-tenth of a percentage point to 65.3 percent over the month. Compared to December 2016, the LFP rate over the year has increased by 0.7 percentage point.
• Construction gained 1,600 (+1.0%) jobs over the month and Manufacturing added 800 (+0.3%) jobs; Leisure and Hospitality gained 500 jobs (+0.1%); Financial Activities added 400 (+0.2%) jobs. 
• Professional, Scientific and Business Services lost 1,000 (-0.2%) while Education and Health Services lost 1,000 (-0.1%)  
• Other Services lost 200 (-0.1%) jobs over the month; Trade, Transportation and Utilities lost 500 (-0.1%) and Information lost 700 (-0.8%) and Government lost 100 jobs. 
• The November jobs number was revised from the originally reported 6,700 to 7,800 jobs. 

ANALYSIS

The December unemployment rate was six-tenths of a percentage point lower than the national rate of 4.1 percent reported by the Bureau of Labor Statistics. The largest private sector percentage job gains over the year were in Construction, Manufacturing, Financial Activities and Leisure and Hospitality. 

“While much of these [year over year] job gains continue to be in sectors like Professional, Business, and Scientific Services, Manufacturing posted a preliminary 2,800 over the year job gain, the first over the year over job gain in that sector in 18 years," Labor and Workforce Development Secretary Rosalin Acosta said in yesterday's statement. 

Over the last decade, Manufacturing has lost 43,100 jobs. (See table.) However, if we were to rank wages in the sectors with employment growth sectors such as Management and Professional Services, we find that manufacturing wages would rank 3rd (with $1,625 per week) and significantly higher than the private sector average of $1,273.   

The state’s high-tech manufacturing may account for the high wages in an overall shrinking sector — highlighting how output increases with fewer workers.  Weekly wages in the management subsector are nearly double when compared to all private industries. 

No surprise: Sales of desktop computers decline

You will find more statistics at Statista

The latest Beige Book: Most firms retain positive outlook in New England

The Federal Reserve Bank of Boston contribution to the latest Beige Book

Business activity expanded modestly in the First District as 2017 came to a close. Most contacted retailers, manufacturers, and software and information technology (IT) services firms saw revenues increase, although a minority reported flat to slight declines in revenues or sales from a year earlier. Among responding retailers, online sales performed better than in-store sales. Revenue increases among software and IT services firms were strong, ranging from 10 percent to 20 percent year over year. Commercial and residential real estate markets continued much as in the last report, with commercial rents and residential prices increasing in general, while sales were mixed. Labor markets continued to be tight and difficulty in hiring workers has constrained expansion for some firms. Few contacts mentioned price changes. Most responding firms in the region retained a positive outlook for their business.

The Solow Model and the Steady State

MR University: Intro to the Solow Model of Economic Growth

A very good introduction to the famous economic growth model.

More on the automated economy from NBER

From a new NBER working paper, "Artificial Intelligence, Automation and Work,"  by Daron Acemoglu and Pascual Restrepo. 

Abstract:

We summarize a framework for the study of the implications of automation and AI on the demand for labor, wages, and employment.  Our task-based framework emphasizes the displacement effect that automation creates as machines and AI replace labor in tasks that it used to perform.  This displacement effect tends to reduce the demand for labor and wages.  But it is counteracted by a productivity effect, resulting from the cost savings generated by automation, which increase the demand for labor in non-automated tasks.  The productivity effect is complemented by additional capital accumulation and the deepening of automation (improvements of existing machinery), both of which further increase the demand for labor. These countervailing effects are incomplete.  Even when they are strong, automation increases output per worker more than wages and reduce the share of labor in national income.  The more powerful countervailing force against automation is the creation of new labor-intensive tasks, which reinstates labor in new activities and tends to increase the labor share to counterbalance the impact of automation.  Our framework also highlights the constraints and imperfections that slow down the adjustment of the economy and the labor market to automation and weaken the resulting productivity gains from this transformation:  a mismatch between the skill requirements of new technologies, and the possibility that automation is being introduced at an excessive rate, possibly at the expense of other productivity-enhancing technologies.

"The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus."

The finding from a new NBER working paper by Glenn Ellison and Sara Fisher Ellison titled, "Match Quality, Search, and the Internet Market for Used Book."

Abstract:

This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books.  A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare.  A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace.  The paper develops a framework for structural estimation of a model based on the theory.  The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.

Another China Shock: Economists: "When work disappears"

Another formidable paper by the noted economist David Autor, David Dorn and Gordon Hanson: "When Work Disappears: Manufacturing Decline and the Falling Marriage Market Value of Young Men." 

Abstract: 

We exploit the gender-specific components of large-scale labor demand shocks stemming from rising international manufacturing competition to test how shifts in the relative economic stature of young men versus young women affected marriage, fertility and children’s living circumstances during 1990-2014. On average, trade shocks differentially reduce employment and earnings, raise the prevalence of idleness, and elevate premature mortality among young males. Consistent with Becker’s model of household specialization, shocks to male relative stature reduce marriage and fertility. Consistent with sociological accounts, these shocks raise the share of mothers who are unwed and share of children living in below-poverty, single-headed households.

Hat tip to David Warsh over at Economic Principals.

UPDATED 1/15/18: Even the big boys make mistakes: World Bank to correct "Doing Business" Index

Update from Paul Romer on Doing Business Index.

From the WSJ

The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.

The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years. 

The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.

Americans' Optimism About Job Market Hit Record High in 2017

According to Gallup:

• 56% viewed job market positively in 2017, up from 42% in 2016
• Confidence in job market buoyed by Republicans since Trump's inauguration
• 40% of unemployed adults seeking jobs rated job market as good

Read the entire article here.

Good question from LifeHacker: "Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line"

Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line

To put it in perspective: just 52 percent of American adults owned stocks in 2016, according to Gallup. And as you may have guessed, that stock ownership is not evenly distributed among income groups: The Federal Reserve reports that 93.6 percent of families earning a median salary of $251,500 (the top 10 percent of wage earners) owned stock in 2016, while less than 40 percent of families earning up to a median salary of $54,100 did (0 to 50th percentile). Separately, an economist from New York University found that the top 20 percent of earners owned 92 percent of the stocks in 2013. So celebrating record highs for an arbitrary measure that almost half of adults don’t benefit from doesn’t make a ton of sense.

What’s a better measurement for the average worker? I’d posit employment, wages and debt. And here’s the thing. If you don’t have a job at all, you’re likely less concerned with whether the Dow is at 21,000 or 25,000 than when you’ll get your next paycheck. The unemployment rate is at a 17-year low, but economists worry that job growth may begin to slow. Then there’s wages, which are low, and our debt, which keeps increasing*—according to the Federal Reserve, consumer credit card balances are at a new all-time high of $1.0227 trillion, which should give the Dow enthusiasts pause. (*Actually, the Fed recently found we’re slightly less indebted overall because we’re not buying houses, which isn’t exactly a silver lining). Are you really celebrating the Dow’s new watermark if you have over $25,000 in student loan debt?

In migration in the United States, the latest data

You will find more statistics at Statista

The benefits of public transportation: Subways reduce air pollution

Subways and Urban Air Pollution, a new NBER paper by Nicolas Gendron-Carrier, Marco Gonzalez-Navarro, Stefano Polloni and Matthew A. Turner

Abstract

We investigate the relationship between the opening of a city’s subway network and its air quality. We find that particulate concentrations drop by 4% in a 10km radius disk surrounding a city center following a subway system opening. The effect is larger near the city center and persists over the longest time horizon that we can measure with our data, about eight years. We estimate that a new subway system provides an external mortality benefit of about $594m per year. Although available subway capital cost estimates are crude, the estimated external mortality effects represent a significant fraction of construction costs. 

Read more here.  

Rent control: the law of unintended consequences at work

"The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco," a new NBER Working Paper by Rebecca Diamond, Timothy McQuade and Franklin Qian

Abstract:

We exploit quasi-experimental variation in assignment of rent control to study its impacts on tenants, landlords, and the overall rental market. Leveraging new data tracking individuals’ migration, we find rent control increased renters’ probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase. Using a dynamic, neighborhood choice model, we find rent control offered large benefits to covered tenants. Welfare losses from decreased housing supply could be mitigated if insurance against rent increases were provided as government social insurance, instead of a regulated landlord mandate. 

Contact NBER to get a copy of the paper.

Federal Reserve Bank of St. Louis: MSA real income in the early 1970s influenced population growth

Extract:

The figure seems to indicate a positive correlation between these variables. For instance, the Seattle, Denver, Anchorage, and San Diego MSAs, which had relatively higher real incomes in 1970, experienced high population growth over the period. On the other hand, the Detroit, Philadelphia, and Pittsburgh MSAs, which had lower real incomes in 1970, seem to have experienced lower (negative) population growth. Not all cities exhibit the positive correlation, however. The Atlanta, Houston, and Dallas MSAs had low average real incomes in 1970 yet experienced high population growth over the period. Incomes in these MSAs, however, have grown rapidly since 1970, which could be a main reason for the population growth.

Read the entire synopsis here.  Complete analysis in PDF. 

Manufacturing says "See you in December": BLS: NFP +148,000 U-Rate 4.1%

OVERVIEW

• The unemployment rate remained at 4.1 percent for the third consecutive month in December while payrolls expanded by 148,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.7 percent. The employment-population ratio was unchanged at 60.1 percent. 
• Employment in health care increased by 31,000 while construction added 36,000 jobs. 
• The manufacturing sector added 25,000 jobs. The BLS reports that this sector added 196,000 jobs in 2017 after a dismal 2016 which saw a loss of 16,000 jobs. 
• Professional and business services kept pace in 2017 with the previous year adding 44,000 jobs per month. In December, the sector added 19,000 jobs 
• Employment in the other major sectors— mining, wholesale trade, transportation and warehousing, information, financial activities and government —changed little over the month. 
• Over the year, the BLS reports the unemployment rate and the number of unemployed were down by 0.6 percentage point and 926,000, respectively.

ANALYSIS

In December, the American jobs machine took a breather. The payroll employment (+148,000) fell below the Wall Street consensus of 190,000 jobs.  According to an ADP report earlier this week, private sector employment increased by 250,000 jobs in December.  The unemployment rate for the major work groups remained low. The unemployment rate for African-Americans fell to 6.8 percent the lowest ever.  The retail sector fared better under the last year of the previous administration where it increased by 203,000 in 2016. In 2017 it lost 67,000. Employment in general merchandise edged down in 2017 shedding 67,000 jobs. However, Manufacturing added 196,000 jobs in 2017 following little net change in 2016. The November employment report was revised up from +228,000 to +252,000 and the change in October was revised down from +244,000 to +211,000 (Combined over two months, a net loss of 9,000 jobs). Over the past three months, job gains have averaged 204,000 a month.  In December, average hourly earnings for all employees increased by 9 cents to $26.63; over the past year, hourly earnings have risen by 65 cents or 2.5 percent. The labor force participation rate has not changed over the year. It remains at 62.7 percent.  The number of workers employed part-time for economic reasons has declined by 639,000 over the past year.  

 

Stoned nation? Business will be good.

You will find more statistics at Statista

ADP: Private sector adds 250,000 jobs in December

"Financial markets benefit society"

From a new European Central Bank paper by Alexander Popov,  "Evidence on finance and economic growth."

This paper reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important benefits of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The paper highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth.

Available here. 

The Evolution of U.S. Monetary Policy

A very readable overview of monetary policy in the United States by Robert L. Hetzel, a staff economist at the Federal Reserve Bank of Richmond.

Abstract: 

Since the establishment of the Federal Reserve System in 1913, policymakers have always pursued the goal of economic stability. At the same time, their understanding of the world and of the role of monetary policy has changed dramatically. This evolution of views provides a laboratory for understanding what kinds of monetary policy stabilize the economy and what kinds destabilize it.

Available here.

"How to save humanity from the Malthusian destiny" resulting from AI

From the new NBER working paper by Anton Korinek, Joseph E. Stiglitz  titled, "Artificial Intelligence and Its Implications for Income Distribution and Unemployment."

Abstract:

Inequality is one of the main challenges posed by the proliferation of artificial intelligence (AI) and other forms of worker-replacing technological progress.  This paper provides a taxonomy of the associated economic issues:  First, we discuss the general conditions under which new technologies such as AI may lead to a Pareto improvement.  Secondly, we delineate the two main channels through which inequality is affected - the surplus arising to innovators and redistributions arising from factor price changes. Third, we provide several simple economic models to describe how policy can counter these effects, even in the case of a "singularity" where machines come to dominate human labor. Under plausible conditions, non-distortionary taxation can be levied to compensate those who otherwise might lose.  Fourth, we describe the two main channels through which technological progress may lead to technological unemployment via efficiency wage effects and as a transitional phenomenon. Lastly, we speculate on how technologies to create super-human levels of intelligence may affect inequality and on how to save humanity from the Malthusian destiny that may ensue.

Read the whole working paper here. (Gated)

ARIMA for Stock forecasting