Recession Creates Spike in Multifamily Households –Of the myriad ways the Great Recession has altered the country’s social fabric, the surge in households like the Maggis’, where relatives and friends have moved in together as a last resort, is one of the most concrete, yet underexplored, demographic shifts. Census Bureau data released in September showed that the number of multifamily households jumped 11.7 percent from 2008 to 2010, reaching 15.5 million, or 13.2 percent of all households. It is the highest proportion since at least 1968, accounting for 54 million people. Even that figure, however, is undoubtedly an undercount of the phenomenon social service providers call “doubling up,” which has ballooned in the recession and anemic recovery. The census’ multifamily household figures, for example, do not include such situations as when a single brother and a single sister move in together, or when a childless adult goes to live with his or her parents.
Yes, Virginia, this is a Recovery – On the one hand, I fully appreciate those who say, essentially, "we’re not in a recovery because things are still awful," but on the other hand want to take no prisoners of those who disrespect that the term has an academic meaning that is well known and that requires respect. Well, the Doomorons are at it again, this time citing as authority a piece written at New Deal 2.0 by a "Junior Fellow" at the Franklin and Eleanor Roosevelt Institute, who claims that it is "idiocy" to say that we are in a recovery because, allegedly, the middle class is doing worse than it was in 2009. He provides no evidence, and in fact, almost all the evidence is that the middle class is still doing poorly, but better than it was doing in 2009. Real income is still bad, but up. Foreclosures are bad, but down. Household net wealth isn’t good, but has gone up. Hourly earnings are still bad, but up. Jobs are bad, but up. Unemployment is bad, but down.
How ‘Citizens United’ Ruling Screws the Free Market – In 2007 David Cay Johnston, a Pulitzer-prize winning New York Times reporter, devoted his book Free Lunch to exploring, in the subtitle’s words, "How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill)." He details how certain laws transfer wealth to the politically powerful by, among other methods, capping corporate liability, shifting tax burdens, and generously subsidizing billionaires at the average citizen’s expense. Taking this one step further, researchers have attempted to quantify the return-on-investment (ROI) of this corruption. A widely cited study by professors at the Universtiy of Kansas shows a 22,000 percent return on $283 million spent lobbying for tax holidays. Another study demonstrates that large companies got a 600-2000 percent return lobbying for tax breaks. Both of these estimates far eclipse the average ROI for Fortune 500 companies, which is less than 10 percent. As Johnston puts it, corporations can more easily "mine gold from the government treasury than the side of a mountain."
2010: The Year of IMF Reform – The IMF Blog – The year 2010 was—finally—the year of IMF reform. Dominique Strauss-Kahn, the IMF’s Managing Director, did not exaggerate when he asserted that the agreements of 2010 were “the most important reform in the governance of the institution since its creation.” What will happen now, and why is it so important? Three major changes have been agreed to. Each one is a major reform and the culmination of years of work. Each one will be difficult to make effective. Each one should prove to be a blessing, but only if it is well implemented. First, the fast-growing emerging market countries will have a bigger say in how the institution is run and how it interacts with its membership. For the first time, the combined voting power of the United States and the current European Union members will fall below 50 percent.
Mike Pence and the Charm of Having it Both Ways – I see the Wall Street Journal is now marketing Indiana Republican Represantive Mike Pence as a "military and fiscal hawk." One’s first thought is that it’s an oxymoron, on the order of "chaste debauchery." There’s nothing more tiresome than the public figure–there are swarms of them, who ladle out the goodies to the hogs at the military trough while trumpeting their own budgetary rectitude. Indeed critics like to climb on Pence the selectivity of his hawkery, as he beats his breast for budget restraint, with a compassionate exception for pork in his own state. On the narrow issue of inconsistency, I’m almost willing to give him a bye: I can’t think of any politician of either party who has ever survived while attacking a dominant economic interest on his home turf. My notion is that Pence is one of those who have figured out how to talk the talk on defense cuts, knowing they will never have to walk the walk
Can Social Science Combat Climate Change? – By studying past instances of social transformation, scientists at Lawrence Berkeley National Laboratory (LBNL) hope to predict future change in response to global warming as part of California’s Carbon Challenge—a study commissioned by the California Energy Commission to help the state cut greenhouse gas emissions by 80 percent below 1990 levels. LBNL energy technology scientist Jeffery Greenblatt and his colleagues are analyzing technology options as well as data records from 10 historical behavior changes—smoking cessation, seat belt use, vegetarianism, drunk driving, recycling and yoga, among others.For starters, Greenblatt is examining the full mix of technical advances in both the supply and demand of energy that could possibly help meet the target, including more efficient electric motors, better insulation, intelligent controls for energy, as well as fluorescent and LED lighting. But even all of these technological advances may not get California to its mid-century mandate alone.
Is raising inflation expectations a good idea? – When you are at the zero rate bound, the monetary policy tools to use (QE, etc) have the objective of increasing inflation expectations. If people expect heightened inflation, monetary authorities intend them to do several rational acts: buy stuff now that they would have postponed ‘til the future, and make investments in businesses, stocks, and others that rise in tandem with inflation. Examples were made of buying a canoe now, buying a farm, buying oil and gas shares, as well as buying a restaurant meal now. The point was also made that rising inflation will spur people to borrow money, since the rising inflation will increase the value of physical assets, while inflating away the real cost of borrowing. But rising inflation expectations cuts both ways. If a lender is going to lend to a borrower to buy his canoes now, it’s now going to lend him at the rate that incorporates the higher inflation expectations for next year. So the higher borrowing rate effectively offsets the value of buying canoes now rather than buying it at a higher price next year and just borrowing less (or not at all). There’s no way to get ahead if the other side also knows what one side knows.
In Defense of the Dodd-Frank Resolution Authority, Part 1 – This post started out as a defense of Dodd-Frank’s resolution authority, and a description of what the liquidation of one of the major US banks would likely look like under the new law. But I quickly realized that in order to understand how a resolution of one of the major banks would work in practice, you really have to have an understanding of how the major banks/investment banks are structured, legally, and why that structure causes so many problems in bankruptcy. I don’t think this is something that’s ever been explained in the blogosphere (I’d be extremely surprised), but it’s crucial to understanding the real issues surrounding financial reform and the major banks, so I think this post can be useful. Anyway, this is part one of a two-part post; part two will describe what an orderly liquidation of a major US bank under the Dodd-Frank resolution authority would actually look like. That post will come sometime tomorrow.
Flaws in the belief in effectiveness of Fed monetary easing – QE2 is hailed by some economists as the tool needed to jumpstart the laggard US economy. The mechanism here is – The build-up of the monetary base eventually leads to rising inflation expectations. This is supposed to then encourage people to start buying things now, in anticipation of rising future prices, which then leads to a positive multiplier effect for the economy. There are several flaws in this belief. Here are reasons that I could think off the top of my head: Debt among economic agents is ignored/inflation expectations is over-estimated. Debt does make a difference. Inflationary measures can be hindered in a recession economy with a lot of debt, because the indebted that are undergoing deflation, i.e. balance sheet recession, will not be induced to make more purchases if paying off the debt is already eating up much of their income. They will hope that the non-indebted ones will come to the rescue, and be induced to consume more via increased inflation expectations. Transmission to the larger economy will be via even more debt. QE2 puts more reserves on the banks, but no money goes directly to people who will spend it on consumption. For this to get to the end-consumers, those remaining non-indebted will have to take one for the team, get into debt, and spend it in the local economy.
Labor Dept Changes the Employment Report – The Labor Department is ringing in the New Year with an assortment of changes to the employment report. The adjustments, both to improve accuracy and to better gauge the effects of the recession, will be rolled out over the next couple months. Here’s a guide to the changes coming up:Unemployment Duration: Jobless Americans will be able to report unemployment durations of up to five years; until now, the government has recorded only whether a person has been out of work for two years or more. The switch will show up in January’s employment data, released in February. It won’t change the total number of unemployed people.Birth/Death Model: Business births and deaths will be estimated on a quarterly basis instead of annually with the aim that it will lead to smaller revisions in employment data. The adjustment will begin with the January jobs report released in February. Separate measures for unincorporated self-employed workers and incorporated self-employed workers will be added to Table A-9, which currently looks like this.The tables that currently identify self-employed workers, Table A-8 for example, will now list them as self-employed workers, unincorporated. That changes their title but still measures the same set of people.
The Fallacy of a Pain-Free Path to a Healthy Housing Market – In the mid-1990s, the public policy goal of increasing the U.S. homeownership rate collided with a huge leap in financial innovation. Lenders shifted from originating and holding mortgages to originating and packaging them for sale to investors. These new financial products enabled millions of Americans who hadn’t previously qualified to buy a home to become owners. Housing construction boomed, reaching a postwar high—9.1 million homes were built between 2002 and 2006, a period when 5.6 million U.S. households were formed. The resulting oversupply of homes presents policymakers with a formidable challenge as they struggle to craft a sustainable economic recovery. Usually a driver of economic recoveries, the housing market is foundering as an engine of growth. A fresh push to increase ownership drove the rate up 5 percentage points to its peak in the mid-2000s. Home price gains followed the rate upward. As gauged by an aggregate of housing indexes dating to 1890, real home prices rose 85 percent to their highest level in August 2006. They have since declined 33 percent, falling short of most predictions for a cumulative correction of at least 40 percent. In fact, home prices still must fall 23 percent if they are to revert to their long-term mean (Chart 1).