Tuesday, November 29, 2011

Ed Hugh on the Euro and Other Links to Enliven Your Econ Course

If you don't have time to read everything about the teetering euro, read Ed Hugh's excellent summary in "Last Days of Pompeii" from Economonitor. Hugh shows that many countries share the problems of the euro (excessive public and private debt, aging populations, competition from emerging economies), but the euro is getting hit first and worst.

All of us want to work behavioral economics into our courses these days. Here's a great behavioral econ reading list from Cheap Talk that will help.

If you want to get a good discussion going on consumerism and the environment, show your students this ad from Patagonia, "Don't Buy This Jacket," and the commentary by Mark Gunther.

Follow me on Twitter @dolanecon to get more links like these to enliven your econ courses.

Friday, November 25, 2011

US GDP Data: Downward Revision of Q3 GDP Strengthens Case for Stimulus

The second estimate of U.S. GDP for the third quarter of 2011 shows a downward revision, making the real growth rate 2 percent rather than the 2.5 percent reported in last month’s preliminary estimate. The slowing growth rate makes the expansion look weaker than before and strengthens the case for new stimulus. >>>READ MORE

Follow this link to view or download the latest GDP charts ready for classroom presentation

Wednesday, November 23, 2011

Thoma on Taxing the Rich vs. Growth and Other Links to Enliven Your Econ Course

Mark Thoma offers his opinion as to Why America Should Spread the Wealth: "If those at the top of the income distribution receive far more than the value of what they create, and those at lower income levels receive less, then one way to correct this, at least in part, is to increase taxes at the upper end of the income distribution and use the proceeds to protect important social programs that benefit working-class households, programs that are currently threatened by budget deficits." He acknowledges, however, that beyond a point, there may be a tradeoff between achieving greater equality through taxation, on the one hand, and stimulating growth, on the other. My thought: Greater emphasis should be placed on the difference between raising marginal tax rates on the rich (for example, by letting the Bush tax cuts expire) and undertaking true tax reform. The latter would eliminate loopholes and cut tax rates in a way that simultaneously raised average tax rates on upper-income households while cutting their marginal tax rates. Such a policy could promote both growth and equality, while achieving fiscal consolidation at the same time. (For more on growth-friendly fiscal consolidation, see this earlier post.)

In a recent post on Economonitor, Paolo Manasse and Giulio Trigilia provide evidence that markets are now perceiving a general euro risk rather than confining the perception of risks to just a few countries. They argue that Italy's weak fundamentals, which cannot be cured by a simple change of government, lie behind the emergence of generalized euro risk.

Scott Sumner, drawing on work by Timothy Taylor, calculates that the Transport Safety Administration is killing 100 people (equivalent to the crash of a medium-sized airliner) every month. That happens because longer waiting times at airport security since 9/11 divert a large amount of traffic to the highways, where fatalities per passenger mile are far higher than for commercial air travel.

Follow me on Twitter @dolanecon to get more links like these to enliven your econ courses.

Sunday, November 20, 2011

On Technical Barriers to Leaving the Euro and Learning from Others’ Experience

When discussion turns to the possibility that some country might leave the euro, much is often made of the technical difficulties of introducing a new currency, especially of the months, even years, of planning that went into launching the euro in the first place. Sample: “Computers will have to be reprogrammed. Vending machines will have to be modified. Payment machines will have to be serviced to prevent motorists from being trapped in subterranean parking garages. Notes and coins will have to be positioned around the country.” (Joshua Chaffin in the Financial Times, quoting a 2007 paper by Barry Eichengreen.)

Yes, there would be technical difficulties. Still, lots of countries have switched currencies in the past. Sometimes the process has been planned and orderly, sometimes messy and chaotic. One way or another, the job gets done. Anyone who thinks technical problems pose insurmountable barriers needs to look at the imaginative, pragmatic devices that other countries have used to ease the transition from one currency to another. Here are three lessons from other countries’ experiences  that would be relevant to anyone now making plans to leave the euro. READ MORE>>>

Wednesday, November 16, 2011

US Inflation Data: Moderate October CPI Data Give Fed Room to Maneuver in Face of Euro Crisis

US inflation pressures continued to ease in October, according to the latest data from the Bureau of Labor Statistics. With the struggling US economy facing headwinds from the euro crisis, low inflation gives the Fed a welcome extra bit of room to maneuver.

The headline CPI actually fell at a 1 percent rate during October.  (All inflation rates given in this post are seasonally adjusted monthly changes stated as annual rates.)  Energy prices were the main factor driving headline inflation downward. Negative inflation is unlikely to persist, however, given that world oil prices have already pushed back over $100 a barrel this week.

Core inflation remained moderate in October, rising just slightly to a 1.7 percent annual rate. Apparel prices and prices of medical goods and services helped pull the core rate up a bit from September’s 0.6 percent, which was the low for the year. READ MORE>>>

Follow this link to view or download a classroom-ready slideshow including the latest inflation charts and analysis.

Monday, November 14, 2011

Understanding the New View of Poverty (2): What Helps and What Hurts

Last week, the Census Bureau published a new Supplemental Poverty Measure (SPM) that changes our understanding of poverty in America. The first installment of this post looked at the way it erodes our stereotypes of who is poor, especially by showing that there are more poor white, working-age, home-owning Americans than we thought. No matter what population group or political party you belong too, it is now harder to dismiss income insecurity as something that threatens only people who are not like you. This installment turns to the issue of which government policies help reduce poverty and which policies may be making the problem worse. READ MORE>>>

Tuesday, November 8, 2011

Understanding the New View of Poverty (1): The Erosion of Stereotypes

We all thought we knew who is poor in America. Children, especially in one-parent households. Racial minorities. Families who aren't able to participate in the great American dream of home ownership. Really? The Census Bureau's new Supplementary Poverty Measure (SPM) erodes all of these stereotypes. They still contain some truth, but less than it seemed. No matter who you are, you cannot dismiss income insecurity as a problem that doesn't threaten people just like you.

The news does not come without warning. The official 2010 poverty figures, released in September, already showed a record high poverty rate for working-age Americans—some 13.7 percent, up from 12.9 percent in 2009, itself a record. Now the new SPM shows that official figures understate the problem. Why, and what does it mean? READ MORE >>>>

Saturday, November 5, 2011

US Employment Data: October Job Growth Still Slow but Details Hold a Bit of Good News

The Bureau of Labor Statistics reported only 80,000 new payroll jobs in October, still a very slow tempo. However, there was a bit of good news hidden in the revisions for earlier months. The August payroll job figure, originally reported as a shockingly bad zero gain, was revised upward to a more respectable 104,000. September's job growth, in turn, was revised upward from 103,000 to 158,000. Some observers believe that upward revisions are typical of a job market that is beginning to turn the corner toward growth. Optimists can hope this month's 80,000 will eventually be revised up, as well. >>>Read more

Follow this link to view or download a slideshow with the latest unemployment charts and graphs, ready for your classroom or business presentation

Thursday, November 3, 2011

NGDP Targeting is the Natural Heir to Monetarism

In a recent post, Daniel Alpert enlists Milton Friedman as an ally against the newly popular (but not new) idea of targeting nominal GDP. On the contrary, I see NGDP targeting as the natural heir to monetarist policy prescriptions of the 1960s and 70s.

If we look at the textbook version of monetarism, the point is almost trivial. Textbook monetarism begins from the equation of exchange, MV=PQ, where M is money (M1, back in the day), V is velocity, P is the price level, Q is real GDP, and PQ is NGDP. Next it adds the simplifying assumption that velocity is constant. It follows that targeting a steady rate of money growth is identical to targeting a steady rate of NGDP growth.

Of course, Friedman himself propounded a more sophisticated monetarism, one in which the linkage between monetary policy and NGDP was not so tight. He saw two sources of slippage as potential problems for a monetary growth target. READ MORE>>>