Spanish inflation rises to 3%

Duncan Black, Ph.D. who Specializes in the Economies of Cities, Explains It All to You – Bruce has made this point repeatedly. Dr. Black puts it in more direct language: [I]nevitably the Social Security Trustees will, perfectly justifiably, tweak a few assumptions about future economic activity so that there will be a DOOM scenario, an EVERYTHING’S AWESOME scenario, and a "uh oh maybe in about 40 years we will have a problem" scenario. And then Fred Hiatt will print another million ZOMG WE MUST DESTROY SOCIAL SECURITY NOW IN ORDER TO SAVE IT FORTY YEARS FROM NOW columns and some future president will marvel at those worthless IOUS and blah blah blah. We know how this works. And the Sensible Centrists* are gathering behind someone who wants to do just that.

Facts or Fallacies Part III: Combinations, Murder and the Primordial Lump – In Part I, I compared the statistical fact that non-farm employment was lower in September 2010 than it had been in December 1999 with the assertions that those who believed any such thing could occur were guilty of a lump-of-labor fallacy. In Part II, I rehearsed debating points regarding Paul Krugman’s columns citing the alleged fallacy. My intention in Part III is not to refute the fallacy claim. I believe I did that sufficiently in "Why Economists Dislike a Lump of Labor" and "The Lump-of-Labor Case Against Work-Sharing." To date, no one has brought forward a substantive rebuttal to those articles. Instead, I will explore further the evolution of the fallacy claim.
India’s Microfinance Industry Fuels Mass Suicides – Most of us remember Muhammad Yunus’s 2006 Nobel peace prize for microfinance, small loans to start businesses, with extremely low default rates. Now it looks like this industry has done what many American financiers have done, lent more than people can ever pay back, in order to make greater profits. In India and other parts of Asia, however, cultural factors mean that over indebtedness causes more than just sadness and bankruptcy. This lending without regard to ability to repay has causes massive suicide on the part of borrowers. This is particularly insidious, given that- unlike home loans or payday loans in the U.S. –  the whole point of microfinance is to help the poor start businesses.
Memo to Elizabeth Warren: How to Do Things With Documents – Elizabeth Warren has proposed, as one of her first initiatives, that banks should simplify their standardized credit card contracts with customers to insure that customers understand what they are signing.This proposal has generated lots of enthusiasm among centrists as a modest, relatively non-political initiative, something that hardly anyone could be against, but that holds out the possibility of reducing fraud and confusion in the credit markets by at least ensuring that consumers know what they are getting into.  This is a great idea, but I wonder if Warren’s team has explored all the governance possibilities that inhere in something as simple as revising the look and language of a credit document. Here they might take a page from a private industry group specializing in credit documents, the International Swaps and Derivatives Association.

Are the rich making you poor? – MOST adults accept that life is not fair, but the word fairness gets used a lot when we talk about income inequality. What’s fair and whether it matters depend on one’s personal values. But for policymakers, the important issue to think about is the nature of the income inequality. Are the rich getting richer while the poor and middle class stay the same? Or, are the rich getting rich at the expense of the poor? When the latter is true, the case for intervention is stronger. According to a recent New York Times article the rich getting richer has made the poor worse off. The argument is that the poor and middle class become discouraged and give up: Inequality has been found to turn people off. A recent experiment conducted with workers at the  University of California found that those who earned less than the typical wage for their pay unit and occupation became measurably less satisfied with their jobs, and more likely to look for another one if they found out the pay of their peers. Other experiments have found that winner-take-all games tend to elicit much less player effort — and more cheating — than those in which rewards are distributed more smoothly according to performance.
Do Public Workers’ Diplomas Justify Their Pay? – Several studies have found that public workers tend to have more education than private-sector workers, and a reader asks if this perhaps indicates that public workers are overeducated. Jeffrey Keefe, a Rutgers professor, studied this issue for the Economic Policy Institute and found that 57 percent of public-sector New Jersey employees hold four-year degrees, compared with 40 percent in the private sector. But in large part this owes to two factors, the first of which goes to the nature of public-sector employment. Teachers, who all have four-year degrees and often master’s and other advanced degrees, make up the single largest part of the public work force. Similarly, the professionalization of police departments most often means that even patrol officers hold at least two-year degrees and brass most often hold four-year degrees and more. As one jumps from department to department, from social workers to environmental workers to budget analysts, college degrees are as often the coin of the realm.
Speculators and Instability – I think speculators get a bad rap and speculation is a stabilizing impact on commodity prices. The easiest illustration of this comes from the price of onions. Onion futures trading was banned in 1958 at the behest of then-congressman (later president) Gerald Ford who felt speculators were engaged in price manipulation. The result is that onions are one of the most unstable commodities out there: In general, commodities speculation is a good thing. For any given commodity at any given time, there’s always someone who wishes the price were either higher or lower and that person tends to complain about speculators. But if you constantly had to pay the spot price for everything, prices would be more unstable and ordinary households and firms would need to spend more time stockpiling goods to hedge against price fluctuations. The world of derivatives is a convenient playground for Wall Street firms interested in designing products whose purpose is regulatory arbitrage and this is a bad thing. But the problem there is with the regulatory arbitrage, not the speculation.
Prolonged Unemployment Will Worsen CBO Projections – In his Sunday New York Times column, economist Paul Krugman suggested that even sustained growth at 4% a year wouldn’t restore full employment for several years. Indeed, unemployment would hover around 9% by the end of this year, and it would remain above 8% at the close of 2012. In Paul Krugman’s view, this strengthens the case for increased government spending. There is, however, another way of looking at the impact of sustained unemployment. One danger is that we’ve crafted a federal fiscal policy that assumes a lower level of unemployment for the next several years, and thus makes overly optimistic assumptions about future federal revenues as well as social safety net expenditures. These estimates relied on a baseline projection the CBO released in March of 2009 which assumed that unemployment would average 9% in 2010, 7.7% in 2011, and 5.6% over the years 2012 to 2015 and 4.8% between 2016 and 2019. As we now know, however, unemployment was far higher in 2010. And even growth at a robust rate of 4% a year wouldn’t bring the average unemployment rate to 7.7% in 2011, or indeed in 2012
Government Unions and the Government – Last January when the Bureau of Labor Statistics released its annual report on union membership, the report showed that for the first time in American history government employees represented a majority of the nation’s union members. Unions representing public-sector workers seemed to have about five minutes to celebrate. Almost immediately, it seemed, government officials in state after state and city after city started to ask public-sector unions to accept freezes on salaries  and concessions on pensions. That trend has only picked up steam as my colleague Michael Powell wrote in his front-page article on Sunday. I have an article in today’s paper that examines the latest development in this push to rein in the nation’s public-sector unions. With many new Republican governors being inaugurated this week and with Republicans winning control of 26 state legislatures, up from 14, Republican lawmakers in several states are moving quickly to try to weaken public-sector unions.
TruthDig: Blizzard a Case of God-Blocking– The Rev. Pat Robertson sparked controversy in Sunday’s broadcast of his “700 Club” program when he claimed that God created the blizzard currently battering the Northeast “to punish Americans who were planning to drive to do something gay.”  Explaining his theory, Robertson said, “Because of the bad road conditions the Almighty has made, any gay activities that people were planning on doing will have to be postponed by a day or two.” Additionally, he argued, God shut down major airports in the New York area “so that people who were hoping to fly to do something of a gay nature would have to take a train or a bus, so it might be days before the gay thing they were going to do could occur.” As for the millions of straight people in New York City who were also grounded by the bad weather, the televangelist said, “I think God probably wonders: If these people are really straight, then what are they doing in New York?” In other blizzard-related news, the National Weather Service offered this update: “It’s as white as a Glenn Beck rally out there.”
FOMC Minutes: Economic improvement "not sufficient" for QE2 changes – From the December 14, 2010 FOMC meeting. These are probably the key sentences:  While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program, and some noted that more time was needed to accumulate information on the economy before considering any adjustment. Members emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments; however, some indicated that they had a fairly high threshold for making changes to the program. And on the outlook:  Regarding their overall outlook for economic activity, participants generally agreed that, even with the positive news received over the intermeeting period, the most likely outcome was a gradual pickup in growth with slow progress toward maximum employment.
City Unemployment: Little Progress – Most cities made little progress on the jobs front in the twelve months ended November 2010, according to new data from the Labor Department. Unemployment rates were higher or unchanged in November than a year earlier in 206 metropolitan areas, and lower in 166 areas, the Labor Department said. The jobless rate declined in just 18 of the 49 most populous metro areas. Area’s hit hardest by the housing bust continued to face the biggest struggles. California’s Inland Empire and Las Vegas were tied for the highest unemployment rate among large cities at 14.3%. Florida had four cities in the top 10 highest rates. Detroit had the largest drop in the unemployment rate, falling to 12% in November 2010 from 15% a year earlier, but that was largely the result of a shrinking labor force. The number of people with jobs in the city declined in November from a year earlier. The following interactive chart tracks unemployment changes in the 49 most populous cities.
What’s QE2 accomplishing? -BUTTONWOOD continues his scepticism of the value of the Federal Reserve’s new asset purchases in a post citing a study by David Ranson of Wainwright Economics. Mr Ranson has conducted a basic analysis tracking growth and inflation between 1950 and 2007, relative to change in the monetary base. He finds that growth is higher in years with slower monetary base growth, and Buttonwood concludes:QE just expands claims on wealth, not wealth itself, and thus does not really help the economy. As you might expect, I don’t find this particularly persuasive. For one thing, the monetary base doesn’t move off trend that much, and when it does its typically due to countercyclical Fed action: The base drops as the Fed tries to cool an overheating economy, rises as the Fed tries to perk up a lagging economy, and soars when crisis strikes. It should be obvious that growth is generally the response to, rather than the cause, of an expectation of slowing growth.
The Pain of Economic Change – Michigan is the only state in the union showing a net negative population trend in the recent census report, and is an interesting case study of the pain of economic change. For several decades after WWII, Michigan enjoyed above average prosperity on the backs of the Big 3 auto makers and the employment model of the United Auto Workers, with lateral benefits and trickle down to construction, tourism, retail, services and health care. Both the private sector economy and local/state government systems were built on the broad foundation of prosperity.  Tax and regulatory systems were not hospitable to non-manufacturing businesses and non-union businesses, but with enough money in the system all of this was tolerable (money can ease many hurts).

The never-ending questions about public sector pay – A story in the Times today covers the ongoing attempts by politicians to decrease the pay and power of unions: State officials from both parties are wrestling with ways to curb the salaries and pensions of government employees, But in some cases — — officials are seeking more far-reaching, structural changes that would weaken the bargaining power and political influence of unions, including private sector ones. And yesterday, at the Economix blog, Times reporter Michael Powell had some more comments on a previous article he’d written about public sector pay, where he made this claim: A raft of recent studies found that public salaries, even with benefits included, are equivalent to or lag slightly behind those of private sector workers. An important note about these public sector studies is that I don’t believe that any of their authors are claiming that there is no public sector union wage premium. Just like in the private sector, being in a union raises your wages by over 10%.

 Home Prices Will Decline for Years: Zuckerman – Home prices will continue to decline for several years, Mort Zuckerman, the chairman and CEO of Boston Properties, told CNBC Monday. “I’m pessimistic about residential real estate,” said Zuckerman, whose firm specializes in high-end commercial real estate and last week bought the iconic John Hancock Tower in Boston’s Back Bay for $930 million.  Zuckerman, who is also the chairman and editor in chief of the weekly news magazine U.S. News & World Reports and publisher of the New York Daily News, blamed the continuing price decline on the so-called shadow inventory of foreclosed homes that’s yet to come on the market. “That’s what’s going to put downward pressure on residential prices,” Zuckerman added, “And in my judgment, that’s going to continue for several years.”

Spanish inflation rises to 3% – Despite the recession, Spain still manages an inflation rate that is more than 1% higher than Germany’s; Ireland has been suffering a massive flight of deposits in 2010, as savers shifted their funds elsewhere in the eurozone; the cash for clunkers scheme has ended in France, as the industry is staring down into an abyss; there is some good news from the eurozone as well, as the manufacturing purchasing managers index reaches a new cyclical high; Lucas Zeise says 2011 is going to be a good year – the problem is that this will postpone bank resolution; the Bavarian CSU opposes Wolfgang Schäuble’s plans for a political union; bond spreads, meanwhile, have been extraordinarily volatile in recent days, with Spanish and Irish rising massively overnight. [more]
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