August 31, 2009
The Lasting Legacy of the Bush Tax Cuts
From The 2009 Budget Deficit: How did we get here? by John Irons, Kathryn Edwards, and Anna Turner:
This Issue Brief examines the details and causes of the current budget deficit and the role the current recession has played. The years between 2001 and 2007 saw a large deterioration in the budget balance, which was driven chiefly by legislated policy changes. The Bush-era tax cuts are the largest contributors to this period of policy-induced increases to the federal budget deficit. . . .
August 30, 2009
Econbrowser Emoticon shifts to neutral
|Sep 13, 2006|
|Feb 21, 2007|
|Apr 25, 2007|
|Jun 27, 2007|
|Oct 5, 2007|
|Jan 4, 2008|
|Aug 30, 2009|
If you've only been following Econbrowser since 2008, you may have thought that the crabby countenance in the upper-right corner of our main page was a permanent fixture, conveying our general grumpiness about the state of the economy or perhaps life in general. Despite having been stuck in the pessimistic mode for quite some time now, the emoticon was in fact always intended to be a dynamic feature, adjusted from time to time to provide readers with our overall impression of incoming data. The table on the left provides links to each occasion that our Little Econ Watcher's countenance has changed in the past.
Last week's data persuaded me to move the Econbrowser Emoticon back into neutral, signifying that I now judge overall output to be growing slowly rather than declining. Here are details on the evidence that prompted this change in assessment, and what it signifies.
August 29, 2009
Of Ideologues and Ranters
From Arnold Kling's entry yesterday:
Kwak goes on to endorse Chinn's ideological rant that the Bush tax cuts caused the financial crisis. Yes, I know that Chinn is speaking in the tone of economic analysis rather than a rant, but only a left-wing ideologue would take the thesis seriously. I bet Kwak cannot find a blog post of Chinn's where he made a policy point against Democrats/liberals or for Republicans/conservatives.
August 28, 2009
$9 trillion-- what, me worry?
August 27, 2009
I Am Even More Confused Now...
August 26, 2009
Reflections on the Causes and Consequences of the Debt Crisis of 2008
In late 2008, the world's financial system seized up. Billions of dollars worth of financial assets were frozen in place, the value of securities uncertain, and hence the solvency of seemingly rock solid financial institutions in question. By the end of the year, growth rates in the industrial world had gone negative, and even developing country growth had declined sharply.
August 25, 2009
Good news on house prices
I was happy and surprised to see that the nominal S&P/Case-Shiller seasonally adjusted Home Price Index rose by 0.75% in June for a composite of 20 U.S. metropolitan areas.
OMB and CBO Economic Projections
August 23, 2009
The market-perceived monetary policy rule
Stanford Professor John Taylor has suggested that monetary policy could be summarized in terms of a simple rule, lowering interest rates when output is too low and raising them when inflation is too high. A number of academic papers have investigated this rule from the perspective of describing what the Federal Reserve has historically done. In a new paper co-authored with Federal Reserve economist Seth Pruitt and Office of Immigration Statistics economist Scott Borger, I take a look at what monetary policy rule the market perceived the Fed to be following over different historical periods.
August 21, 2009
The Road Ahead for the Fed
Tom Keene has been doing a series for Bloomberg Radio this week on the new book, The Road Ahead for the Fed. You can listen to Tom's interviews with me or three of the other authors who contributed to the book by clicking on a link below.
Richard Posner Misunderstands Numbers, Yet Again
Richard Posner displays his failure to understand the difference between expenditures (reported on Recovery.com) and tax rebates (not reported online, but have to be estimated).
August 20, 2009
Basic Math for the Math Challenged
Since Richard Posner has decided to exhibit his math skills again, I thought it useful to work through some math to see how one can obtain back-of-the-envelope estimates for the stimulus package. I'll use Mr. Posner's numbers to illustrate.
August 19, 2009
Monthly GDP Estimates: Stabilization and Upswing...for Now
Here are the latest reads on monthly GDP:
Honesty, Dishonesty and Competence: Comments on Posner's Critique
Richard Posner has a critique of public intellectuals who work in the public sphere (with special reference to Christina Romer), either in government service, or in journalistic fora. Mark Thoma and Brad Delong have already made clear the (many) points at which Mr. Posner has gone astray. Parenthetically, I'll add that I wonder about the analytical abilities of anybody who lumps Philip Glass (!) and Elliott Carter together into the highbrow music category (see page 18 in his tome Public Intellectuals: A Study of Decline (1991)). More substantively, I have a few of additional observations, some of which are amplifications of Brad Delong's points.
August 18, 2009
Replay of 1930?
We know the glass is both half empty and half full. But the real question is whether liquid is being added in or draining out.
August 17, 2009
A Utilization-adjusted Measure of Productivity: Implications for the Output Gap
John Fernald and Kyle Matoba of the San Francisco Fed have just released a utilization adjusted total factor productivity series (data here). The importance of this development is clearly laid out by the authors:
This Economic Letter looks at potential output from the perspective of growth accounting, which assesses some of the key supply-side factors determining sustainable, noninflationary potential output. Perhaps most importantly, we find that the underlying pace of efficiency improvements -- "technological progress," broadly construed-- has remained strong during the recession. This strength offers a reason for cautious optimism about potential output and the long-term health of the American economy. More immediately, stronger potential relative to the same observed output implies substantial slack in the economy.
August 16, 2009
Leading Indicators: Key Economies and the BRICs
A month ago, I examined the information content of the OECD's Composite Leading Indicators. The August release (for June data) is out. There's substantial variation in the implied outlook across economies.
August 15, 2009
Current economic conditions
This was another week when everybody but me sees an economic recovery in the works.
August 13, 2009
GDP, Potential, and Debt Forecasts -- and Implied Multipliers
The WSJ August survey indicates a resumption of growth in Q3. What was perhaps a bit surprising was the bump up in the Q3 q/q SAAR growth from about 1 percent to 2.4 percent. The out-quarters were little changed. These forecasts imply the following trajectory for GDP.
August 11, 2009
Paying for design flaws
Updates on what this is going to cost you and me.
The Paranoic Impulse in Current Discourse
Or, "return of the black helicopters"
Plenty of examples of hyperbole in current policy discussions, but here I want to return  to the specific topic of whether several key data series examined by economic analysts can be trusted, or whether in fact they are deliberately manipulated by government bureaucrats. Case in point is Econbrowser reader DickF's comments:
The government thinks it can run the economy on data that is years old and inaccurate at best. Also any time numbers are manipulated by government there is a political element involved. The whole reason the numbers are manipulated is to the will be "more normal" but who decides what is normal? In the government political bureaucrats who know their jobs depend on pleasing the politically connected. This is just another reason why centrally planned economies always fail. The hubris in government economic circles is enormous.
I am not saying that the agencies are manipulating data to make "each respective Administration look good." Sometimes they manipulate date to make an Administration look worse than it actually is. It depends on their political inclination.
August 10, 2009
Exchange Rates: New Papers
During the summer, I had the good fortune to attend two excellent conferences focused on new findings in exchange rate economics (yes, not all economic research is focused on the financial crisis and recession). The first was a Bank of Canada-European Central Bank conference Exchange rates: The global perspective, and the second was the NBER International Finance and Macroeconomics Summer Institute session "Exchange Rates and Relative Prices".
Links for 2009-08-10
I spent the last week of July as a visiting scholar at the Federal Reserve Bank of Atlanta, home to Macroblog and a number of superb economists. Their Center for Quantitative Economic Research is now going to be reporting my GDP-Based Recession Indicator Index, as you'll see from following the link.
And I was interested in this story from the Wall Street Journal:
Houston-based Apache Corp. [APA] has agreed to provide natural gas for export to Asia through a proposed project in Canada, the latest sign that huge gas discoveries in North America are reshaping global energy markets. Kitimat LNG Inc., the Canadian company planning to build the liquefied-natural-gas export terminal in Kitimat, British Columbia, will announce Monday that Apache has become the second major North American gas producer to sign on to the project. Last month, another Houston-based gas producer, EOG Resources Inc., signed a similar deal....
"We're confident that there's going to be plenty of gas available for export for a long time," said Greg Weeres, vice president of Pacific Northern Gas Ltd., which is planning to build a pipeline to supply gas to the Kitimat facility.
August 09, 2009
It's not over yet
Some are greeting Friday's employment report as an all-clear signal. But my advice is, keep your helmet on-- they're still shooting real bullets out there.
August 08, 2009
Employment, Hours, and Estimated Output
Some observations on the employment situation and other economic indicators: (1) Not only is nonfarm payroll employment slowing its rate of descent, so is private employment; (2) but perhaps more dramatically the decline of aggregate hours halted last month; (3) the rate of decrease has diminished even faster for civilian employment measured by the household survey, and indeed; (4) the household (research) series adjusted to conform to the payroll series is now improving; and (5) a first "estimate" of July GDP supports the case for stabilization of output.
August 06, 2009
Pricing of interest rate risk in fed funds futures contracts
Do current fed funds futures prices signal a belief by market participants that the Fed may begin raising interest rates early next year? My latest research paper suggests not.
August 05, 2009
China's Impact on the Global Economy: A Symposium
As attested to by the large amount of coverage of the recent US-China Strategic and Economic Dialog  , , , , China looms large in any discussion of the world economy. One of the most important contributors to the informed discussion on this subject was Brad Setser, at the Council on Foreign Affairs and before that at RGE Monitor. Unfortunately, Dr. Setser will be leaving the blogosphere, so his insights will be missed (although fortunately for us, he'll be adding his input at the NEC, where we all wish him well).
So now, there'll be even a greater need for reasoned analysis. One addition to the discussion is a Symposium on China's impact on the global economy just published in Pacific Economic Review (August 2009). From my introductory chapter to the symposium:
Over the past decade, China's presence in the global economy has grown increasingly large. Along many dimensions, China is, rightly or wrongly, perceived to have an enormous impact. In the trade arena, China is now widely considered to be the world's workshop, displacing some traditional exporters of labour-intensive goods, even as its economy is ever more closely woven into the fabric of the increasingly fragmented chain of production....
August 04, 2009
Current economic conditions
July auto sales might be viewed as the first solid indicator of an improving U.S. economy. But what does it really tell us?
August 03, 2009
Comparing the Current Recession and the "1980-82 Recession"
At least one observer has argued that the current recession is not as bad as that of the 1980-82 recession, when those two separate recessions (1980Q1-1980Q3; 1981Q3-1982Q4) are considered as one (see  ). Here is my interpretation of this assertion, updated to use the latest GDP data, and normalizing (log) GDP on the recession start dates.
Multipliers, under Differing Monetary Regimes
Here's another installment in a series attempting to move the discussion from "my estimate vs. your estimate" (or "prior", as the case may be)       to something more constructive (and hopefully more nuanced). From the conclusion to "Expectations and Fiscal Stimulus" by Troy Davig and Eric M. Leeper:
This paper has embedded estimated Markov-switching rules for U.S. monetary and fiscal policy into an otherwise conventional calibrated DSGE model with nominal rigidities to deliver some quantitative predictions of the impacts of government spending increases. When monetary and fiscal policy regimes vary -- from active monetary/passive fiscal to passive monetary/active fiscal to doubly passive to doubly active -- government spending multipliers can vary widely. An increase in government spending of $1 in present value raises output by $0.80 in present value under [Active Money/Passive Fiscal] AM/PF, while it raises output by as much as $1.80 in present value when monetary policy is passive. In our simple model, this translates into a decrease in consumption of $0.20 in present value under AM/PF, but an increase in consumption of about $0.80 in present value under passive monetary policy.
August 02, 2009
Cash for clunkers
A victim of its own success?
August 01, 2009
Good News and Bad News from the GDP release
Some additional observations (see Jim Hamilton's take, as well as others) on the GDP release: (1) the five year revision indicates that GDP was larger than we thought, but it also declined faster in 2009Q1; (2) GDP growth was lower throughout 2008 than earlier estimated; (3) GDP growth in 2008Q2 at 1.5% SAAR would have likely been at zero or negative in the absence of the January 2008 stimulus package in which case; (4) GDP q/q growth would have been negative from 2008Q1 to 2009Q2; (5) the case that ARRA directly affected 2009Q2 GDP is limited, in a mechanical sense since most of the increase in government spending is accounted for by defense spending; and (6) the US ex-oil ex-agricultural net exports to GDP ratio is back to where it was in 1998Q1.