Hard Currencies, Soft Heads

U.S. Census Bureau Announces 2010 Census Population Counts – The U.S. Census Bureau announced today that the 2010 Census showed the resident population of the United States on April 1, 2010, was 308,745,538.  The resident population represented an increase of 9.7 percent over the 2000 U.S. resident population of 281,421,906.
…The most populous state was California (37,253,956); the least populous, Wyoming (563,626). The state that gained the most numerically since the 2000 Census was Texas (up 4,293,741 to 25,145,561) and the state that gained the most as a percentage of its 2000 Census count was Nevada (up 35.1% to 2,700,551).Regionally, the South and the West picked up the bulk of the population increase, 14,318,924 and 8,747,621, respectively. But the Northeast and the Midwest also grew: 1,722,862 and 2,534,225.
Census 2010: Which States Gained House Seats, Which States Lost – The Census announced today that the U.S. population rose 9.7% to 308,745,538, the slowest increase since the Great Depression. The data also reapportioned the number of seats in the House of Representatives. Here’s the list of who lost and who gained seats:
Those Teacher Numbers – Adam points to a new study estimating a 400K social value of a good teacher. This is in line with other recent estimates. I want to make a couple of notes on how to think about that. 1) Social value isn’t a feel good concept. Hanuschek limits himself to future earnings of the students. The other big drivers are always crime reduction and public assistance reduction. So we are saying better teachers lead to higher wages, lower crime and less welfare. This is a far cry from trying to put numbers on soft factors like civic engagement. 2) As big as these numbers are they actually accord with the way people behave. In areas where private school dominates, parents obsess over getting Johnny into the right private school. There are obviously some peer factors at work here but at its heart a school is primarily a collection of teachers and classrooms. Unless we think the classrooms are really, really good, then the parents are implicitly obsessing over getting the right teachers.
Brad Delong’s analysis of the housing crisis – Delong makes it sound like the bubble started in 2002 or maybe 2004. Here is the Case-Shiller housing price indices for the nation and for the ten largest cities: The boom in housing prices began in the mid to late 1990s. It does accelerate sometime in the early 2000s. Next, let’s ask the question, when did loans start getting really risky. In 2001, Josh Rosner chronicles the deterioration in underwriting standards in this paper. Rosner notes (writing in 2001) that Fannie Mae had begun a push toward low downpayment loans, away from 20% down and was beginning to buy loans with 5% down and 3% down. Here are the data: The chart, from my paper, shows Fannie and Freddie’s purchases of owner-occupied loans where the loans have less than 5% down. Having Fannie and Freddie purchase these loans means that a lot more people are going to be able to buy houses than before. It also means they are willing to pay more for a given house. This helped create the housing bubble. In 2004, Fannie and Freddie did “pull back” as Delong mentions and as Krugman has claimed as well, in the sense that they did buy fewer low downpayment mortgages in 2004 relative to 2003. But it was still about triple what they bought in 1999. And the number rises steadily between 2004 and 2007. Not really a pull back. Delong says Fannie and Freddie were “small players by 2004.” No. They weren’t. Here is the picture of Mark Thoma’s that Krugman cites to show that “Fannie and Freddie pulled back sharply after 2003.”


How the Tax Deal Helps Manhattan Real Estate Developers In the Name of 9/11 – Why is Congress continuing to subsidize lower Manhattan real estate developers nearly a decade after the 9/11 terrorist attacks on the World Trade Center? While the Senate continues to squabble about whether to provide medical care to first responders, lawmakers have had no second thoughts about continuing special tax-exempt bond financing for high-end builders. A provision that gives developers yet another year to put together these bond deals is buried deep in the just-passed $858 billion tax cut and unemployment bill.  The Liberty Bond program was supposed to be temporary when Congress created it in 2002. It authorized up to $8 billion in special tax-exempt bonds for a designated neighborhood south of Canal Street on the tip of Manhattan. Nearly all the financing has been used to build high-end commercial and residential projects. For instance, one-bedroom apartments in one bond-financed building—10 Liberty Street–rent for $3,695-a-month. “Modern living meets classic charm” at Two Gold St—another Liberty Bond project—where an 819 sq. ft. unit rents for $3,000-plus. The cost to taxpayers for continuing the subsidies that make deals such as these possible—more than $100 million.

Extended Fed Currency Swaps Not Sign of Fresh Concern – The Federal Reserve’s extension of it currency swap arrangements with other major central bank reflects continued unease around the state of European financial markets. That said, the decision to maintain the swap lines with the Bank of Canada, Bank of England, the European Central Bank, the Bank of Japan and Swiss National Bank, should be viewed more as a protective action on the part of American officials. It is not, most economists reckon, a sign that some new problem is about to arise, even as it’s true investors remain worried by news out of Europe. Central bankers first launched the facility during the depth of the financial crisis, and it was heavily used to ensure major central banks would not run short of dollars. It was relaunched in May when Greek government financing woes began roiling world financial markets. So far, the currency swaps have been little used because even as unsettled as markets became, the overall health of the banking system is much improved. That’s kept borrowing at the facility in the low millions, as institutions like the ECB take out very modest loans, essentially to keep the facility alive. That compares with the nearly $600 billion tapped during the worst part of the financial crisis.
When Good Teaching Pays Off – Earlier this year my colleague David Leonhardt wrote about a new study that found that a good kindergarten teacher could greatly improve students’ future earnings. On that basis, an especially strong kindergarten teacher is arguably worth about $320,000 a year, which is the present value of the additional earnings that a full class of students can expect to earn over their careers. Now another working paper, by Stanford’s Eric A. Hanushek, gets similar results, arguing that a minor improvement in teacher quality could have a big effect on test scores, especially as they compare to those of other countries.
Losing Hope About a Recovery – When will the economy begin to recover? The National Bureau of Economic Research’s Business Cycle Dating Committee says the recovery began in June 2009, but unemployed Americans beg to differ: That pie chart is from a new report from Rutgers’s Heldrich Center for Workforce Development, which has periodically resurveyed the same group of American workers who were unemployed at some point in the year after the financial crisis hit (and many of whom are still unemployed). In November 2010, the center asked these workers when the economy would “begin to recover.” As you can see, 13 percent of these respondents said the economy would begin to recover more than five years from now, and another 15 percent said it would “never” begin to recover.
Euro Becomes Increasingly Popular Choice to Fund Carry Trades -The euro’s struggles could become more pronounced in coming months as traders increasingly use the beleaguered currency to fund so-called “carry trades.” That may sound surprising, given the yen and the dollar’s singular appeal as currencies is that they cost next to nothing to borrow. But the euro is perceived to be so vulnerable to further declines on the foreign exchange market that big market participants are zeroing in on trades to bet against it. “The main emphasis is a short euro play,” said Phil Streible, senior market strategist at Lind-Waldock. Streible said the lack of a plan to solve the ongoing sovereign debt crisis, more than interest rates, is the deciding factor in the carry trade right now. The euro is expected to continue its decline against other major currencies because its economy will likely remain weak.
Notes On Government Employment – First, what we’ve seen under Obama is a small rise in federal employment, swamped by a larger fall in state and local employment — reflecting the budget woes of the states, and the inadequacy of federal aid in the slump. So you see a small rise if you look only at the feds, but a decline if you look at the overall picture.Second, most government workers are at the local level, and most of the rest are state workers; the federal government is a small piece of the total. And if you look at what they do, a lot of them are teachers; many of the rest are firefighters, police, and other occupations we sort of like. Third, why has government employment grown over time? Because, um, we have a growing population. Here’s government employment as a share of the population: Yes, government got bigger under those socialists Dwight Eisenhower, LBJ, and Nixon. Since then, however, there has been no trend relative to population.And bear in mind, again, that the representative government employee isn’t a bureaucrat trampling on your liberty; he or she is a schoolteacher.
Chart of the day: The working poor – This chart comes from a Working Families Project report, and it underscores how the Great Recession has hit the working classes just as much as it has the unemployed. The baseline here — 200% of the poverty level — might sound high enough to be comfortable, but it isn’t: we’re talking a total household income of $36,620 for a family of three, or $44,100 for a family of four. (I’ve put the full chart, taken from here, over to the right.) As the report says, Nearly 1 in 3 working families in the United States, despite their hard work, are struggling to meet basic needs. The plight of these families now challenges a fundamental assumption that in america, work pays. The workers in these families have a much greater risk of becoming unemployed than the population as a whole, and of course they’re financially much less prepared for any period of unemployment than most of the rest of us. Michael Fletcher has a good write-up of the report, describing the working poor starkly as “people who earn wages so paltry that they are struggling to survive”, and showing that they’re unlikely to get much help from the government:

Modeling Sunshine and Shadows: Inequality, long hours and crisis – Now I haven’t read Bob Reich’s new book but I did the next best thing. I saw him talk about it at a book tour event in Point Reyes Station in October. Reich’s argument is that 1. incomes have stagnated since the early 1980s 2. the first response of households was to increase hours supplied to the labor market to maintain purchasing power but when that strategy ran up against its limit, 3. households began to borrow aggressively. I think Reich has the ingredients right but they’re in the wrong chronological order. That can be crucial when you’re baking a cake or explaining history. Long before incomes began to stagnate, hours of work ceased a century long trend of decline, a trend that BLS economist Joseph Zeisel had called "one of the most persistent and significant trends in the American economy in the past century." Not to put too blunt a point on it, Americans suddenly stopped taking part of the gains of technology in the form of leisure. It’s not as if they "just decided" to do this, either. There were all sorts of structural changes in the U.S. labor market that broke the trend. Just to name a few, there was the abandonment of the shorter hours employment strategy by organized labor in favor of promoting economic growth fueled by government spending, there was the explosion of per-employee benefits (quasi-fixed costs) as a proportion of total compensation and there was the FLSA provisions themselves which, in effect, were a double-edged sword with regard to the incentive of overtime pay.

FAQ: Fed Explains Swap Lines With Foreign Central Banks – The Fed announced this morning that it’s extending its temporary dollar liquidity swaps with foreign central banks through August 2011. The following is a Q&A from the Fed explaining the program. Why has the Federal Reserve re-established temporary U.S. dollar liquidity swap facilities with foreign central banks? The swap facilities announced in May 2010 respond to the re-emergence of strains in short term funding markets in Europe. They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions
Hard Currencies, Soft Heads – Krugman – Oh, wow: it seems that European hard-money types really are proposing Latvia as a model for Ireland to emulate. The line goes like this: sure, Iceland has begun to recover, but so have Latvia and Estonia, even though they held their currencies firm. To quote from the article — which is bluntly titled Irish should look to Baltics, not Iceland: Both Estonia and Latvia revised up their third-quarter GDP figures Thursday leading analysts to pronounce that, as for Iceland, a corner had been turned. Exports are growing in both countries and domestic demand in Latvia has finally started to pick up. The Baltics have done much worse than Iceland. And the employment numbers are just part of it. Iceland, as even the IMF says, has been able to “preserve the Nordic social model”; there has been a lot of distress, but not much extreme hardship. Meanwhile, the impact on Baltic society has been devastating.  Anyway, the idea that a country suffering a 25 percent fall in GDP, a 20 percent fall in employment, and mass emigration can be hailed as a policy triumph boggles the mind.
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