The govenator

I didn’t vote for him, but Jerry Brown is… awesome! There’s some sort of Nixon-going-to-China thing going on in California right now.

Jerry! Jerry! Jerry!

Labor mobility

If labor was perfectly mobile and suddenly there were massive dislocations requiring workers to relocate, you’d expect an uptick in the number of workers moving, right? A corollary is that if you do not see an up-tick in the number of workers moving, then either there was no massive dislocations or there is not perfectly mobility. Take the second case: with imperfect immobility workers would like to take jobs in other places, but they can’t. This looks like sticky wages. Sticky wages make aggregate demand effects important. These data suggesting labor mobility did not increase in the last recession, then, are consistent with both structural and cyclical problems in the labor market.

A link everyone will find useful

I was at a practice job talk at a nearby university on Friday. As preface to my work ((I’ll post on it as soon as I get my job applications sent)), I pointed out that workers change careers many times, 3 or 4 times, over their lifetimes where career change is defined as an occupation change that requires different tasks performed on the job, e.g. taxi driver to nurses assistant. BTW, workers change occupations about once every five years so only about a third of these are career changes. One of the audience members, an academic, objected saying that nobody he knows has ever changed occupations (not just careers, occupations).

On that note, I am sure everyone would find this MR linked paper useful: goofy titles get cited less often. At the link, its suggested that this is because “science is serious business”, but in my experience this result stems from the fact that most of these titles are “funny” but not funny. The problem is that the paper only looks at the effect of average “funny” titles. Since the average “funny” title isn’t funny, just “funny”, its picking up the effect of being “funny” not funny. I’m sure there are some really funny titles that get extra cites because of it.

Which paper titles are funny and not just “funny”?

William Wallace Watch

Another Fed speech to throw in the William Wallace speech bucket.

“They can take lives but they can never take our… history contingent monetary policy!!!”

(h/t Sumner)

Quit picking on Japan, part II

Will Wilkinson has been schooling the internets about division properly controlling for inflation when figuring real incomes, eliciting bored nods from those that have actually read Broda/Weinstein/Romalis (no links… too boring to write a post about) and confused indignation from those that want to talk about everything except real income inequality. Anyway, this prompted me to take another look at Broda’s (the intellectual ring master of this set of papers) list of working papers.

I found this interesting paper. Broda and Weinstein do the same sort of analysis for Japan that Broda/Romalis did for poor people in the US: he generates price indices (hah!) controlling for substitution and quality issues (but leaving out the fancy math to account for new products). Japan doesn’t make these corrections when calculating its CPI and so the authors just replicate the changes the BLS made in calculating the US’s CPI after the Boskin report but for Japan. They find that deflation was understated:
japan_deflation

Ignoring the factoid that “deflation is bad”, this actually means growth in real consumption per person in Japan was higher than previously thought. Instead of growing at a rate 2% slower than the US, using the uncorrected Japanese official statistics, real consumption per capita has been growing at a rate only 0.7% slower than the US.

Foreclosure deadweight?

Mike suggested for those interested in the foreclosure issue this paper.

That paper says this paper estimates the deadweight costs of foreclosures.

No it doesn’t ((This is one of those cases where something is so blindingly obvious that I think to myself that I must be missing something at a fundamental level. If this is the case, please school me.)). It measures (or attempts to measure) the price discount of foreclosed homes. It turns out for observably equivalent houses, foreclosed houses sell for 20-25% cheaper.

This means one of two things:

  1. There’s some unobserved thing about foreclosed homes that make them worth less
  2. Banks (or owners of the foreclosed property) sell them at a discount

Neither of these things is an inefficiency. In the first case, the price just reflects fundamentals. In the second case, the banks loss is exactly balanced by the buyers gain.

Now, what is inefficient about letting underwater houses foreclose?

Question for those that want to stick it to the banks

Some seem to really dig plans for the housing market that stick to the banks. I’m down; I dig redistributional policy and we should encourage people to do what’s best for them and their families (even if its bad for the banks for “the system”).

I just took a peak at the CalPERS annual statement and it appears they have a huge stake in the bank-side of the mortgage industry (over $10B in MBS and large positions in bank stocks). So here’s the question: what theory of justice requires redistribution from public service retirees to underwater home owners? Less snarkily: why are you so sure that the owners of these banks are any better off at the moment than the folks that bought too expensive houses?

Wouldn’t it be better to directly help poor people?

Increase inflation AND combat structural issues

Inflation is below target. Increasing output and decreasing or stagnant inflation is an indication that inflation expectations are becoming unanchored. That’s bad. Inflation should not spend too long, too far from its implicit target of 2%.

Structural unemployment is high right now. Instead of just dumbly extending UI benefits and scratching our heads on why unemployment among the young is increasing after three subsequent increases in the real minimum wage, we should do something about it.

Politically — I’m only guessing because I’m no expert — dealing with structural unemployment would be cheaper. The Fed, more than anyone else, knows how to increase inflation and they have figured out the cheapest way to do it. You might think, however, there are personnel issues at the Fed, i.e. too many hawks, that make “doing the right thing” impossible. And so, you might think, political pressure would have an effect on policy in the short run. I’m not sure why you think that. The FOMC meets only ever so often and they never take radically new action one way or the other. Policy stickiness is one of the most reliable facts about Fed policy. According to Goodfriend and King, even Volcker’s radical disinflation started over a year after he became chairman (and it took another 1/2 year to start to see employment effects). BTW, we’re not changing the chairman for a long while and even supposing Bernanke was suddenly reborn a Sumnerian, how do you think employers would react if the Fed announced bold action one way or the other? Ditto for massive institutional changes at the Fed.

In any case, with the Bernanke Put getting close to its strike price, the monetary policy car is going in the right direction. Given the current institutional framework, political pressure is not going to speed the car up.

But we can do more about structural unemployment. All it would take is for some enterprising think-tank researcher to buddy up with a promising young politician ((I’m thinking there may be an “only Nixon can go to China” effect here, but I’m sure a charming Democrat could pull it off too)) and to come up with a bold plan to deal with it. Radical changes to the UI system. Radical policies to deal with labor immobility. Radical interventions in the housing market. If engineered and sold to help reduce unemployment and as a package deal, these policies would be supported by both sides.

PS – We shouldn’t look to Europe for examples for good labor market institutions… the EU’s unemployment rate is higher than the US’s right now.

Did you know?

After Kockerlakota dared suggest there are substantial structural problems in the labor market (right wing scum!), the very next paragraph was:

Given the structural problems in the labor market, I do not expect unemployment to decline rapidly. My own prediction is that unemployment will remain above 8 percent into 2012. Persistently high unemployment of this kind will impose considerable losses on many of our citizens. Good public policy requires that we help mitigate their losses via a well-designed unemployment insurance program. Recent economic research, including some done at the Federal Reserve Bank of Minneapolis, shows that such a program will not feature the termination of benefits after 26, 52, or 99 weeks. Instead, a good insurance program should offer constant benefits over the entire duration of an unemployment spell, however long. It should provide incentives only through the level of those benefits, not through their timing.

and then he cites Shimer/Werning (2008). That paper shows just what Kockerlakota suggests above, i.e. if the unemployed have good access to liquidity (i.e. a part-time job, bridge loans or savings) there should be no cut-off of unemployment benefits (left-wing nut job!).

Question

All the heat on the issue of AD policy overshadowed and even delegitimized discussion of policy to deal with structural issues in the labor market. Suppose the latter policies were cheaper economically and politically. In this case, while the benefits are smaller (only 1/3rd of unemployment would be addressed according to RA) the cost/benefit analysis would still come out in favor of policies addressing the structural issues.

Was the acrimony and name-calling worth it?