Krugman: Is There Any Point To Economic Analysis?

Paul Krugman has a new column in the New York Times on the forming political consensus in the Beltway that the current slow recovery is not caused by a lack of large expansionary fiscal stimulus (or monetary stimulus), but from structural unemployment.

A few further thoughts inspired by the sad revelation that Beltway conventional wisdom has settled on the proposition that high unemployment is structural, not cyclical, even though there is now a bipartisan consensus among economists that the opposite is true….

[T]here is now a much stronger consensus that unemployment is cyclical, not structural, than there was a couple of years ago. I mentioned Eddie Lazear’s paper at Jackson Hole; there was also Naryana Kocherlakota’s change of heart (for which he deserves major props — the number of economic analysts willing to change their views in the face of evidence is much too small).

So what we have here is an economic discussion working the way things are supposed to work — slower than I’d like, but still, in the end we did have the professionals concluding that one popular story about the nature of our troubles was wrong.

And the pundit class, it seems, paid no attention. Talking about “structural” sounds serious, or maybe Serious, so that’s what they say, even though the evidence is all the other way. And it’s not even “views differ on the shape of the planet” territory: PBS viewers weren’t even given a hint that the professional consensus exists. It’s as if you had a program on climate and only climate-change deniers were represented.

And maybe we should put this in the context of another debate, the big one over austerity. Here too there has been a rather decisive turn in professional opinion; there are a lot of dead-enders even within the economics profession, but the fact remains that both pillars of the pro-austerity position — claims of expansionary austerity, and claims that terrible things happen when debt crosses some rather low threshold — have collapsed, spectacularly. Yet policy hasn’t changed at all; at best there have been tiny adjustments at the margin in Europe, and in the US we’re still slashing spending in the face of a weak economy.

It’s pretty depressing for those who would like to believe that analysis and evidence matter. The recent evolution of both policy and conventional wisdom on macroeconomics seems to suggest otherwise.

Now, I think Krugman would agree that a (small) part of the slow recovery is from structural changes, but he’s right that most of the continuing unemployment is cyclical, caused by a weak fiscal and monetary response.

What is surprising is that Krugman didn’t state the obvious in this column: if the “Very Serious People” didn’t adopt the “its structural employment, so nothing can really be done” line of thinking, then they would have to admit to being wrong about preaching about the dangers of fiscal and monetary stimulus.

Not everyone is an economist like Naryana Kocherlakota.


PS: The summary of Krugman’s column was copied from The Economist’s View


Tax Breaks for the Rich

The CBO recently released a large report on tax expenditures, deductions, credits, and exclusions that go to individuals. As I said, its a large report, so fortunately Dylan Matthews at Wonkblog has already broken it down to six charts, of which I will repost the first one.

Cost of Expenditures, by Income Group Benefiting


Take a look at his full post for the rest of the charts.

It seems to me that there is plenty of room to, say cut some deductions, exclusions, etc on the highest percentiles so we can afford to pay for food stamps.

Krugman: The Ugly, Destructive War Against Food Stamps

From Paul Krugman:

I usually read reports about political goings-on with a sort of weary cynicism. Every once in a while, however, politicians do something so wrong, substantively and morally, that cynicism just won’t cut it; it’s time to get really angry instead. So it is with the ugly, destructive war against food stamps. …

Food stamps have played an especially useful — indeed, almost heroic — role in recent years. In fact, they have done triple duty. First, as millions of workers lost their jobs…, food stamps … did significantly mitigate their misery. Food stamps were especially helpful to children…

But there’s more. … We desperately needed (and still need) public policies to promote higher spending on a temporary basis — and the expansion of food stamps … is just such a policy. Indeed, estimates from … Moody’s Analytics suggest that each dollar spent on food stamps in a depressed economy raises G.D.P. by about $1.70…

Wait, we’re not done yet. Food stamps greatly reduce food insecurity among low-income children, which, in turn, greatly enhances their chances of … growing up to be successful, productive adults. So food stamps are … an investment in the nation’s future…

So what do Republicans want to do with this paragon of programs? First, shrink it; then, effectively kill it.

The shrinking part comes from the latest farm bill released by the House Agriculture Committee… That bill would push about two million people off the program. …

These cuts are, however, just the beginning… Remember,… Paul Ryan’s budget is still the official G.O.P. position…, and that budget calls for converting food stamps into a block grant program with sharply reduced spending. If this proposal had been in effect when the Great Recession struck,… it … would have meant vastly more hardship, including a lot of outright hunger, for millions of Americans, and for children in particular.

Look, I understand the supposed rationale: We’re becoming a nation of takers, and doing stuff like feeding poor children and giving them adequate health care are just creating a culture of dependency — and that culture of dependency, not runaway bankers, somehow caused our economic crisis.

But I wonder whether even Republicans really believe that story — or at least are confident enough in their diagnosis to justify policies that more or less literally take food from the mouths of hungry children. As I said, there are times when cynicism just doesn’t cut it; this is a time to get really, really angry.

Summary version of Krugman’s column lifted from: Economist’s View

Aquifers: Modern Tragedy of the Commons

A bit late, but better than never.

From the New York Times:

Forty-nine years ago, Ashley Yost’s grandfather sank a well deep into a half-mile square of rich Kansas farmland. He struck an artery of water so prodigious that he could pump 1,600 gallons to the surface every minute.

Last year, Mr. Yost was coaxing just 300 gallons from the earth, and pumping up sand in order to do it. By harvest time, the grit had robbed him of $20,000 worth of pumps and any hope of returning to the bumper harvests of years past.

“That’s prime land,” he said not long ago, gesturing from his pickup at the stubby remains of last year’s crop. “I’ve raised 294 bushels of corn an acre there before, with water and the Lord’s help.” Now, he said, “it’s over.”

The land, known as Section 35, sits atop the High Plains Aquifer, a waterlogged jumble of sand, clay and gravel that begins beneath Wyoming and South Dakota and stretches clear to the Texas Panhandle. The aquifer’s northern reaches still hold enough water in many places to last hundreds of years. But as one heads south, it is increasingly tapped out, drained by ever more intensive farming and, lately, by drought.

Vast stretches of Texas farmland lying over the aquifer no longer support irrigation. In west-central Kansas, up to a fifth of the irrigated farmland along a 100-mile swath of the aquifer has already gone dry. In many other places, there no longer is enough water to supply farmers’ peak needs during Kansas’ scorching summers.

And when the groundwater runs out, it is gone for good. Refilling the aquifer would require hundreds, if not thousands, of years of rains.

What we have here is another example of the Tragedy of the Commons. The Tragedy of the Commons, for the economically uninitiated, is where a common resource is depleted or mismanaged by individuals acting in their short term interests while ignoring the long term results on the resource. With fisheries, for example, a fisher might think that it is in their economic interest to catch more fish to sell, thus increasing income, while ignoring that if all the fishers on the fishery increase their harvest the fishery could be depleted.

Theoretically, there should be a Federal agency to prevent this from happening: the EPA via the Clean Water Act could have jurisdiction. But it appears nothing will be done until it is too late.

PS: From PopSci:

Over the last century, the U.S. has depleted enough of its underground freshwater supply to fill Lake Erie twice, according to a new study from the U.S. Geological Survey. Here’s another way to understand how much water we’ve used. Just between 2000 and 2008, the latest period in the study and the period of fastest depletion, Americans brought enough water aboveground to contribute to 2 percent of worldwide ocean level rise in that time.

“We think it’s serious,” Leonard Konikow, the U.S. Geological Survey hydrologist who performed the study, tells Popular Science. “It’s more serious in certain areas.”

A map of the most depleted aquifers:

 Groundwater Depletion in the US

Groundwater Depletion in the US: Alaska isn’t included in this map because it hasn’t had any significant groundwater depletion.  L.F. Konikow, U.S. Geological Survey

NFL meet Rugby

The NFL announced a partnership with the Rugby Premier League to bring rugby to the US during the football off season.

This is smart on the NFL’s part for two reasons: First Rugby appears to be on the upswing in terms of popularity and owning the US Rugby League could mean lots of dollars in the future. Second this would give NFL fans something similar to football to watch just when they are missing the NFL.

The $325,000 Hamburger

From the New York Times:

The hamburger, assembled from tiny bits of beef muscle tissue grown in a laboratory and to be cooked and eaten at an event in London, perhaps in a few weeks, is meant to show the world — including potential sources of research funds — that so-called in vitro meat, or cultured meat, is a reality…

The burger was created at phenomenal cost — 250,000 euros, or about $325,000, provided by a donor who so far has remained anonymous. Large-scale manufacturing of cultured meat that could sit side by side with conventional meat in a supermarket and compete with it in price is at the very least a long way off.

It may not taste very well or be the most cost effective, but I am convinced we are looking at the future of meat production.

The benefits could be quite large once the process is perfected. Here’s a few I thought up off the top of my head:

  1. We’d need a lot less food stock per pound of meat, as there’s no animal to get into the way
  2. Feeding 9 billion in 2050 a euro/US meat diet becomes less harmful to the environment
  3. Reduced global warming by eliminating–except for dairy–one of the largest sources of methane gas (cow farts
  4. Test tube meat should eliminate much of the antibiotics use in animal raising, which causes the drug resistant forms of e. coli
  5. Growing meat in vitro removes the ethical issues with mass farming of animals (open range vs pens, etc)
  6. Genetically engineered meat could be healthier for you than the real thing. Imagine a t-bone steak made of turkey that tastes like beef, or chicken with the anti-oxidants of fruit


Oregon Medicaid Study: Need More Power

If you missed it last week, a two year follow up from the Oregon Medicaid experiment was published and caused a bit of a stir as the study concluded any health gains from Medicaid were statistically insignificant. The only problem is, there doesn’t appear to be enough participants in the study to measure any individual health gains for a specific condition (baring any large effects).

Kevin Drum:

Let’s do the math. In the Oregon study, 5.1 percent of the people in the control group had elevated GH [glycated hemoglobin, aka A1C, or colloquially, blood sugar] levels. Now let’s take a look at the treatment group. It started out with about 6,000 people who were offered Medicaid. Of that, 1,500 actually signed up. If you figure that 5.1 percent of them started out with elevated GH levels, that’s about 80 people. A 20 percent reduction would be 16 people.

So here’s the question: if the researchers ended up finding the result they hoped for (i.e., a reduction of 16 people with elevated GH levels), is there any chance that this result would be statistically significant? […] The answer is almost certainly no. It’s just too small a number.

Austin Frakt:

I plugged these numbers into Stata’s sample size calculation program (sampsi) to do a power calculation for the difference between two proportions. I found that the probability of this result occurring under the null hypothesis that Medicaid would have no effect on GH levels is 0.35. The null cannot be rejected. We knew this from the paper, and, hence, all the hubbub. (Never mind that we also cannot reject a much larger effect. The authors cover this in their discussion.)

The standard level of statistical significance is rejecting the null with 0.95 probability. Assuming the same baseline 5.1% elevated GH rate and a 20% reduction under Medicaid, what sample size would we need to achieve a 0.95 level of significance? Plugging and chugging, I get about 30,000 for the control group and a 7,500 treatment (Medicaid) group. (I’ve fixed the Medicaid take-up rate at 25%, as found in the study.) This is a factor of five bigger than the researchers had.

You should read the entirety of both Frakt and Dunn’s posts. Frakt also has a follow up post to the one I have quoted with some technical explanation to his power calculation.

PS: Matt Yglesias has a post on the experiment needed to determine the effectiveness of Medicaid. He also notes that Florida and Texas missed out on this opportunity when they completely rejected all Medicaid expansion.

Service Based Economy = Longer Recoveries?

From Martha L. Olney and Aaron Pacitti:

Recovery from recessions takes longer than it has in the past.

The current crisis aside, this change has not happened because recessions themselves are longer. Nor has it occurred because recessions are deeper than in the past. Instead this change is the result of slower economic growth following the end of a recession. And slower growth means longer recoveries.

As shown below, the four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007.

Why is it taking longer and longer for the U.S. economy to recover from recessions?

We argue that the shift from being a goods-producing, manufacturing-based economy to a service economy — what some have termed “deindustrialization” — is causing the pace of economic recoveries to slow…

The U.S. economy is much more service-dependent today than it was back then. Since 1950, services have risen from 40 percent to 65 percent of output and from 48 percent to 70 percent of jobs…

Goods-producing businesses are not dependent on domestic demand to increase production as the economy comes out of a recession. They can produce in anticipation of increasing demand or in response to increased external demand. Either way, domestic demand need not increase before goods production increases. Service producers are not so lucky…

Service producers must wait until the customer or patient is present, for only then can they produce. The greater the share of services in the economy, the greater the share of businesses that must wait for domestic demand to actually pick up before they can increase production. And thus, the more services an economy produces, the longer it will take for a recovery to take hold.

You should read the whole post. At this time I have not read the underlying paper, so I cannot fully comment. However my initial thoughts are that I can see how a service-based economy might be a part of why recoveries take longer, but I’m not sure a service-based economy accounts for the majority of the difference. Sticky-wages, low inflation, and mild austerity—just to name a few—would all seem to play a role in the slowness of the current recovery.

Perhaps I will blog more on the subject after I get a chance to read the paper.

FYI: here is a graph of the ratio of service-based employees as a share of total non-farm employees:

Revolving Door Continues: FCC Edition

From Ars Technica:

President Barack Obama will nominate venture capitalist Tom Wheeler to be the next chairman of the Federal Communications Commission, The Wall Street Journal reported today. Wheeler is “a former top lobbyist for the cable and wireless industries” and will be nominated as soon as tomorrow, the Journal wrote. The Hill reporter Brendan Sasso said the White House has now confirmed that Wheeler will be nominated for the post.

The revolving door continues in Washington. After the previous FCC Chairman Julius Genachowski announced he was resigning, President Obama has picked Tom Wheeler to fight on behalf of consumers as the next FCC Chairman. The only problem is Wheeler has been a lobbyist for the same industry he is now supposed to regulate twice. Once as the President of the National Cable Television Association (NCTA), and second as CEO for the Cellular Telecommunications & Internet Association (CTIA).

With such strong industry ties, it is very debatable from my vantage point that Wheeler will be any improvement over Genachowski, who presided over the Comcast/NBC Universal merger, allowed large loopholes in the Net Neutrality rules, and largely ignored the poor results of his own National Broadband Plan.

Indeed, the content and telephony industry has already begun to offer praise for Wheeler, with AT&T Senior Executive VP Jim Cicconi stating in a blog post:

I’ve known Tom Wheeler for many years, and he is an inspired pick to lead the FCC.  Mr. Wheeler’s combination of high intelligence, broad experience, and in-depth knowledge of the industry may, in fact, make him one of the most qualified people ever named to run the agency.

I can think of no nominee more talented or whose leadership skills are more needed. Moreover, Mr. Wheeler will be joining a complement of fellow commissioners who are equally formidable and well suited for this important moment in the FCC’s history.

Verizon Senior VP Craig Silliman also had positive remarks:

Verizon also congratulates Mr. Wheeler on his nomination; his experience and leadership will serve the commission well as it addresses policies involving the rapidly changing broadband and wireless industries.  Verizon looks forward to working with him and the commission to shape pro-consumer and pro-innovation policies in the communications marketplace.

In addition, at least Comcast, MPAA, CTIA, and NCTA have also released positive statements on the new FCC Commissioner.

While President Obama is not behaving any worse than his predecessors, President-Elect Barack Obama promised better:

I am in this race to tell the corporate lobbyists that their days of setting the agenda in Washington are over. I have done more than any other candidate in this race to take on lobbyists — and won. They have not funded my campaign, they will not run my White House, and they will not drown out the voices of the American people when I am president.

— Barack Obama, Speech in Des Moines, IA November 10, 2007