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A little late on this: Here is The Economist calling for NGDP targeting:
A target for nominal GDP (or the sum of all money earned in an economy each year, before accounting for inflation) is less radical than it sounds. It was a plausible alternative when inflation targets became common in the 1990s. A target for NGDP growth (ie, growth in cash income) copes better with cheap imports, which boost growth, but depress prices, pulling today’s central banks in two directions at once. Nominal income is also more important to debtors’ economic health than either inflation or growth, because debts are fixed in cash terms.
Critics fret that NGDP is hard to measure, subject to revision, and mind-bogglingly unfamiliar to the public. Yet if NGDP sounds off-putting, growth in income does not. And although inflation can be measured easily enough, central banks now rely nearly as much on estimates of labour-market “slack”, an impossibly hazy number. Most important, an NGDP target would free central banks from the confusion caused by the broken inflation gauge. To set policy today central banks must work out how they think inflation will respond to falling unemployment, and markets must guess at their thinking. An NGDP target would not require the distinction between forecasts for growth (and hence employment) and forecasts for inflation.
Faster NGDP growth could come from better productivity, more hiring or faster inflation; all of which rich economies could use a bit more of. Setting a different target does not mean central banks will automatically reach it. And their unconventional toolkit looks depleted. Quantitative easing, which is still in use in Europe and Japan, is falling out of favour because of worries about asset prices (see article). Interest rates cannot be cut far below zero without radical changes in the nature of money (the Bank of England’s chief economist recently suggested eliminating cash). But getting the target right is an important start. Patiently waiting for inflation to turn up is no longer good enough.
From the new Fed study, “Why Boomerang? Debt, Access to Credit, and Parental Co-residence among Young Adults”:
While we have demonstrated that debt, and particularly the rise in student loan debt, can explain a substantial portion of the recent increase in parental co-residence, an important question remains as to what else may explain elevated rates of parental co-residence during the Great Recession. While anecdotal evidence suggests this phenomenon is a product of weak labor markets, Figure 1 indicates that co-residence rates began to rise before the onset of the Great Recession, and remain elevated despite improvements in the labor market. While analyses have found that own unemployment does predict individual living arrangements, fluctuations in aggregate unemployment are unable to explain recent trends Based on our estimates, the decline in home prices in the Great Recession should have encouraged independent living. While outside the scope of our analysis, it is possible that non-economic factors, such as cultural changes across cohorts, could also play a role.
So a big part of it is debt, according to the study. And here is the chart showing that co-residence rates started climbing before the Great Recession
So what else might be going on? An interesting point in the footnotes expanding on that point about “cultural changes”:
For example, Howe and Strauss (2000) note that in a 1973 survey only 33 percent of young adults responded that it was a good idea for older people to live with their grown children. By 1994, that number had risen to 55 percent (p. 132). The authors also provide numerous examples of survey evidence suggesting that Millennials have more positive attitudes towards their parents, are closer to their parents, and have more similar tastes to their parents compared to young adults from earlier cohorts (pp. 185-188).
So kids don’t think their parents are as lame as they used to because both like “Star Wars” or, say, “The Walking Dead” … and are thus more willing to live with them? Hmm …
The Economist looks at the challenge advancing technology like sharing platforms poses to left-wing politicians, using France as an example. Check out the fun fact at the end of the paragraph, which is really the main reason for the post:
Emboldened by books such as “The Second Machine Age”, by Erik Brynjolfsson and Andrew McAfee, France’s economy minister, Emmanuel Macron Macron and his friends are grappling with how to rewrite the rules of equality and welfare for the digital economy, which hollows out the salaried middle, spreads freelance work and sidelines union-backed incumbents. What, they ask, will the left have to say when driverless cars make unionised taxi-drivers redundant? Or about legal working time in an Uberised economy where freelancing prevails? Such questions may seem otherworldly to those handing out flyers and treading pavements to try to stave off electoral defeat today. But the workplace shake-up is on its way faster than Mr Hollande can perform a pirouette on economic policy. Nearly 25% of Europe’s workforce is not salaried. Mr McAfee reckons that half of today’s jobs will in time be automated out of existence. And France is ripe for disruption: mergers aside, the youngest firm in the CAC 40, the main stock index, was founded in 1967.
Let assume that fact is correct. How does the US compare? Well, among the Dow 30, the youngest company is Cisco Systems, founded in 1984. Then you have a bunch from the 1970s, including Apple, Home Depot, and Microsoft. And there’s Intel from 1968. That group both shows America’s technological leadership, but also the US economy’s ability to innovate in other areas such as retailing. (How is Alphabet not part of the Dow industrials, by the way? Then again, Apple only got there earlier this year.) Seems a much better way of gauging economic dynamism and innovative oomph than, say, the share of government spending devoted to R&D. I might also point out that the US produces far more large, tech startups than all of Europe combined (chart via the Financial Times):
And I love this chart comparing nations on their ability to produce billionaire entrepreneurs per million residents. I have helpfully highlighted the US and France:
Oh, and so I just don’t pick on France, Germany’s economy has its problems, too.
Links and quotations for October 5, 2015: An artificial brain, changes at the TVA, and the war of the near-monopolies
Microsoft co-founder Paul Allen is investing in building an artificial brain, prompting ever-relevant ethical debates about “runaway machine intelligence” and the perceived versus actual dangers of AI. That, why the TVA is shifting away from coal, why politicians are trying harder to learn about freelancers and the ‘gig’ economy, and how the silent warring among giant tech firms (“near-monopolies”) changes the economy.
How the Nobel Prize became the most controversial award on Earth – Vox
Soon, Power Will Be Delivered to Your Device by Air – WSJ – “Wireless power will be, in other words, not just a convenience, but a fundamental enabler of whole new platforms. The players in this field are myriad, but their technology can be boiled down to four basic types.”
Thought process: Building an artificial brain – Washington Post – “Now 62 and worth an estimated $17.7 billion, the Microsoft co-founder [Paul Allen] is using his wealth to back two separate philanthropic research efforts at the intersection of neuroscience and artificial intelligence that he hopes will hasten that future. The first project is to build an artificial brain from scratch that can pass a high school science test.”
Even Appalachia Is Walking Away From Coal – Slate
The TVA began to turn away from coal in 2011, primarily because the federal government deemed that its plants were too dirty. That year, the TVA struck a deal with the Environmental Protection Agency and other government bodies to lessen the environmental impact of its power production on the air, land, and water. At the time, the TVA said it would shut down 18 of its 59 coal-fired generating units by the beginning of 2018. That would represent the retirement of about 2,700 megawatts of coal capacity.
But in the past four years, TVA’s shift away from coal has been hastened by three large forces: the natural gas boom, which has made a cleaner-burning local fuel cheaper; new regulations on emissions that are making burning coal a more expensive hassle; and the plummeting cost of renewables.
Politicians Turn to Start-Ups for Grasp of ‘Gig Economy’ – NY Times
Thumbtack is one of several start-ups that are being drawn into the debate over the future of work by politicians and policy makers. With the approach of an election year in which income inequality is expected to be fiercely debated, the security — or lack of security — that these types of jobs provide has become a central issue. … A recent study commissioned in part by the Freelancers Union estimates that about one-third of the work force, or 53.7 million people, now do freelance work, an increase of 700,000 from a year earlier. Nearly three-quarters of the freelancers surveyed agreed that technology was making it easier to find work.Many policy makers are only now catching up to the implications of the trend. Even though many start-ups that have pioneered more flexible work arrangements began operating in 2009 and 2010, lawmakers did not start to pay attention to them until Uber ran into legal trouble over whether its drivers should be defined as employees, according to Arun Sundararajan, professor of information, operations and management sciences at New York University.
The War of Amazon, Apple and Other Near-Monopolies – Bloomberg View
Four companies — Amazon, Facebook, Google and Apple — are all jockeying to control as much of our technology experience as possible. A legal expert that I interviewed a few years back called it “the war of the APIs,” but it goes well beyond that. Each company is trying to leverage the dominance it has in one area to push into as many other areas as possible, while simultaneously trying to undercut the other firms that are already there. …
This is exactly the sort of activity — leveraging a quasi-monopoly to gain dominance in another market — that caused the Justice Department to go after Microsoft in the 1990s.
You wouldn’t know it by listening to Donald Trump, but rounding up and deporting — humanely, according to Trump — some 11 million undocumented/unauthorized/illegal immigrants would be pretty pricey. Lots of different estimates, but maybe anywhere from $100 billion to $600 billion, if preventing future illegal entry is also included.
Legal status for many or most undocumented immigrant already in the US seems more likely. One potential compromise is legalization without citizenship. Immigration expert Peter Skerry has outlined a plan for “permanent non-citizen resident” status. These immigrants would be prohibited from ever becoming eligible for naturalization — unlike green card holders — but they would have full access to the labor market. And that may be enough for most of the undocumented. Skerry notes that a quarter century after the 1980s amnesty, only 41% of the nearly 2.7 million individuals who became legal permanent residents had gone on to exercise the option to naturalize. In other words, when offered the chance to become citizens, the overwhelming majority of the undocumented have settled for less.
So normalization without citizenship. And with normalization would hopefully come assimilation. Yet does citizenship itself spur greater assimilation and civic participation? Ars Technica highlights a natural experiment in Switzerland suggesting “immigrants who gain citizenship in their new countries go on to have improved integration into the fabric of that country.”
Apparently Swiss municipalities used to decide on citizenship applications through a secret ballot vote, a practice that ended in 2003. I know, weird. Anyway, what researchers did was compare outcomes a decade later among applicants who barely passed or failed the vote, assuming their characteristics were pretty similar. And the findings, as summarized by Ars Technica reporter Cathleen O’Grady:
When they surveyed these immigrants a decade later, they found that those whose applications were only just approved had significantly higher political integration than those who had only just failed. These people had increased political knowledge, were more likely to feel that they had a political voice, and were more likely to participate in politics through actions like voting, contacting politicians, or donating to political parties. This was consistent even for immigrants from different countries.
Because the survey was conducted in 2011-2014, which was a decade or more since the last citizenship votes in Switzerland, the researchers suggest that the results are picking up on genuine, long-term changes. It’s possible that immigrants might have a spike in their political participation after a successful application, but a temporary change is unlikely to have continued for a decade or more, they argue. … Given that social and political integration of immigrants is often something that policies explicitly aim to encourage, this is important information. Although a natural experiment like this would be difficult to find in other countries, future research will need to confirm whether the same effect seems to be consistent in different countries with different immigration procedures.
Of course, Switzerland is very different from America. Of course, of course, of course. But maybe the results would be even better here given how accepting of immigrants we are generally. I found this comment about the study — found on a different site — interesting:
When I got my lovely red passport after following all of the rules for 12 years, I proudly showed it to some Swiss colleagues. Instead of saying “Welcome to the Swiss Club” as I expected, I got “you are paper Swiss”, “you are not real Swiss”, “you bought your passport”. Until attitudes like this change, then Swiss citizens will never integrate fully with Swiss nationals.
I think that person is likely to have experienced a different reaction had he or she become an American citizen, yes?
#NoGreatStagnation | The definitive list of the 10 greatest innovations of the 21st century (so far)
View related content: Pethokoukis
Is this as good as it gets? Have all the great inventions already been invented, the great innovations already innovated, the great thoughts thunk? Are we doomed to suffer a neverending Great Stagnation, a millennium of technological meh? Some pessimists think so.
But I. Do. Not.
Just look around and you will find ample evidence that the mind of man continues to conjure all manner of marvels.
Wait, I have done that for you. Here is the definitive list of the Greatest Innovations of the 21st Century (So Far). Now this is a living, breathing document. And as humanity adds to our impressive list of wonders, it will be updated. But here the current list, ranked by order of ascending awesomeness:
10.) Back-lit television remote control
9.) MLB Network’s Shift Trax, a baseball diamond graphic with red dots showing where players on defense are standing.
7.) Laser pointer thingie that shoots green or red dots — or both!– of light [Editor’s note: I know, more dots] all over your house. Because Christmas.
5.) (Tie.) The self-financing Great Wall of Trump \ The “Make America Great Again” hat.
4.) Tooth-extracting drone.
You know, Captain Picard had it right:
Links and quotations for October 2, 2015: On-demand vs. disruptive business, how privacy panics distort policy, and more
An interesting look here at whether the most popular and seemingly innovative businesses are truly disruptive, or actually have weaker value propositions. Also, lessons from how privacy panics historically limit innovation, a spotlight on the freelancer and his political priorities, and mounting physical violence against Uber in Brazil.
What Generous People’s Brains Do Differently – HBR – “New research from the emerging field of neuroeconomics suggests that being generous is not as tough as some people think. But even so, it is pretty rare.”
IBM says its carbon-nanotube-based chips can break through limits of Moore’s Law- Fast Company – “… The result, the company said, could be smaller and faster computer chips that significantly surpass what’s possible with today’s silicon semiconductors. … In recent years, however, it has appeared likely that industry has reached the limits of physics when it comes to doubling the power of silicon chips.”
Most On-Demand Businesses Aren’t Actually Disruptive – HBR
How TV Sustains the Work Ethic – Aeon – “You probably shouldn’t start thinking of your 9-to-5 job as if you were President Bartlet, let alone Abraham Lincoln. Don Draper’s Gettysburg fantasy leads only to the Coca-Cola I’d Like to Teach the World to Sing commercial – a tawdry vision of unity (this time global rather than national) and a much less savory version of US patriotism, though a triumphant professional accomplishment. Still, in the interest of getting to better social arrangements, something like the fate of the republic, or the public good, ought to be allowed to hover above what we presently do for a living. The economy is strong enough to invite that kind of scrutiny.”
From Kodak To Google, How Privacy Panics Distort Policy- TechCrunch
This cycle of panic-then-acceptance can slow innovation and adoption of new technologies. To be sure, some technologies have challenged traditional notions of privacy, or even presented new risks to consumers, and to the extent that there are legitimate risks of consumer harm, these concerns should be taken seriously. However, it is important to recognize that the privacy panic cycle is a detrimental one — with a long historical precedent.
[…] We will continue to see the privacy panic cycle distort the public reception of new technologies unless we begin to recognize it. Technologies will always have some tradeoffs, and there is no question that we need smart policies that both mitigate concerns and optimize societal benefits. But when privacy advocates merely scare consumers away from innovation rather than working to create sensible solutions for integrating useful new technologies into society, they slow the pace of economic and social progress.
This is what the state of freelancing in the US means for the future of work – Fast Company
There are now almost 54 million Americans freelancing, an increase of 700,000 over last year. That’s more than a third of the American workforce. Millennials, as I’ve argued before, are native freelancers, and it shows: They are freelancing at a higher rate than any other group. …
And even in this political season, the candidates for president—desperate as they are to appeal to untapped caches of voters—have not yet begun to talk to freelancers and independent workers. That’s a mistake: Freelancers are a large and motivated voting bloc. In our survey, 86% said they plan to vote in the 2016 election. That’s a staggering turnout figure. And 62% said they’d vote for the candidate who supports independent workers’ interests. That means millions of votes are up for grabs.
The Fight Against Uber Is Getting Violent In Brazil – TechCrunch
All four cities Uber currently operates in Brazil have registered taxi driver violence against Uber drivers. In capital city Brasilia, taxi drivers attacked a private driver they mistook for an Uber driver at the airport. In Belo Horizonte, several Uber drivers have reported being followed, threatened and attacked an by taxi drivers. Taxi drivers kidnapped and beat an Uber driver in São Paulo. The head of São Paulo’s taxi syndicate recently told councilmembers, “Someone is going to die.”
In Rio, a crowd of several hundred taxi drivers protesting the service in Rio surrounded two Uber cars, called the police, who arrested the drivers and escorted the passengers to…. wait for it… taxis. At a bigger protest in July, the head of Rio’s taxi syndicate told the press, “We don’t want these pirates driving on the streets.”
While taxi drivers must pass through a battery of paperwork, courses, exams and fees to offer what is known as public individual transportation in Brazil, private individual transportation services don’t have specific regulations on the books. “This is very different from being illegal,” Uber spokesperson Fabio Sabba says.
I was at a financial conference, also attended by a former Democratic politician — a person some used to think was potentially veep material, at least. At one point, this person wondered aloud, “Why don’t we just make college free?” In other words, why not spend more money on higher education to increase affordability? Or, really, eliminate affordability as an issue at all? This idea seems to be gaining traction on the left.
Now there was no consideration about the design flaws in the federal student aid system or what sorts of institutional behaviors it encourages. It’s a system where colleges are empowered, as my colleague Andrew Kelly points out, “to capture as much federal aid as they can.” It is a system that makes it almost impossible for the customers to comparison shop or truly know the value of what they are purchasing. The market test is never really conducted. Kelley: “In short, the problem is not only that we make so much money available in student aid, but that we make so much money available with very few strings attached.”
Likewise, the focus on what college costs ignores the failure of the financial aid system to promote value. So here from Kelly are several reforms that would encourage colleges to compete on price and value:
First, capping PLUS loans to parents and graduate students, which allow unlimited borrowing up to the cost of attendance, seems like a straightforward reform to curb tuition inflation. Reforming generous loan forgiveness programs to encourage prudent borrowing is another.
Second, federal policy should empower consumers with better information about costs and student outcomes. The College Scorecard’s new earnings data is a start. But the federal government should expand on this effort to collect and make public program-level outcome data.
Third, policymakers should create two simple accountability mechanisms based on loan repayment rates: a performance floor that would exclude the worst-performing institutions from federal aid programs and a risk-sharing policy that would give institutions above that floor greater skin in the game. If all colleges were held responsible for a percentage of their students’ unpaid loans, they would have incentive to contain their tuition, maximize rates of student success, and reconsider their admissions standards.
Fourth, reforms should create space for private financing that can inject more market discipline into higher education. In theory, private investors could underwrite on the basis of program quality and future earnings, driving students toward valuable opportunities. Existing private student loans do not appear to be forward-looking in this way. More than 90% of new loans feature a co-signer.
An alternative is an Income Share Agreement, under which students obtain funding for school in exchange for a percentage of their after-school income over a set period of time. Because an investor’s return is directly tied to a student’s success, ISA providers have incentive to help students navigate toward valuable opportunities There are a number of for-profit and nonprofit entities trying to offer this option to students, but a lack of legal and regulatory clarity has limited the growth of this market. Policymakers like Senator Marco Rubio and Representatives Todd Young and Jared Polis have introduced bills that would provide such clarity and put common sense consumer protections in place.
It’s not there were no encouraging bits in the September jobs report. There were. Long-term unemployment fell. So did people working part-time who would prefer full-time gigs. Ugh, but the rest.
1.) Just 142,000 net new payrolls (and a mere 118,000 in the private sector) vs. the 200,000 consensus forecast. Also, the July and August numbers were revised lower by 59,000.
2.) Household employment fell by 236,000. And if combine that number with the payrolls number using the 20/80 weighting suggested by economist Justin Wolfers, the economy may have lost something like 66,000 jobs last month.
3.) In the third quarter, average monthly job gains averaged 167,000 versus 237,000 in 3Q 2014. Deceleration.
4.) Both the labor force participation and employment rates fell, the former to a 38-year low. Those “Not in Labor Force” increased by 579,000, while “Employed” fell by 236,000.
5.) Average hourly earnings actually fell by a penny with the long-term growth trend stuck around 2%.
In other words, how did everyone enjoy the sweet spot of the Great Recovery? Those were heady days! Good times had by all. Here is how Barclays summed up the month:
Beyond the headline number, we see broad-based weakness in US labor markets, with the past month’s revisions now showing a decidedly softer trend growth in jobs. Although the U3 unemployment rate was unchanged at 5.1%, the participation rate fell 0.2 to 62.4%. The broader U6 underemployment rate, which includes part-time workers, declined three-tenths, to 10.0%, as the number of workers who are part time for economic reasons dropped sharply. However, given the overall weakness in the report, we do not take that decline as a positive sign, as some of that decline likely reflects workers leaving the workforce rather than finding full time work. Average hourly earnings were also soft, rising 0.0% m/m, much weaker than expected.
This report is much weaker than we had expected. We believe the weakness in payroll employment growth and hours worked reflect the deceleration in activity abroad and, more recently, the pickup in financial market volatility domestically. Past experience suggests that these episodes temporarily weigh on demand for labor and we raised this as a risk to our outlook on August 24 when we pushed out our expectation for the first rate hike to March 2016. Our past research on the subject suggests it takes more than just a few months for these pot holes in global growth and uncertainty to fade. In the meantime, US activity, payroll growth, and inflation tend to soften. As such, we retain our view that rate hikes will be deferred past year end and we believe this employment report substantially reduces the probability of a rate hike from the FOMC this year.
Update: And this from IHS Global Insight:
The September jobs report was uniformly disappointing. Not only was jobs growth in the month well below the yearly average, the gains in the prior two months were trimmed by a total of 59,000. The simultaneous declines in labor force participation and hours worked are also reasons to worry. Last but not least, stagnant wages are worrisome.
Two months of weak payroll gains suggest that the mighty US jobs machine may be losing some steam. Potential culprits include weakness overseas (which is hurting manufacturing), volatility in the stock market (which is making companies more cautious), and weak productivity growth (forcing companies to boost productivity by shedding workers).
Implications for the first Fed rate hike: in retrospect, the decision by the Fed to hold fire seems like a good one. There has been a downshift in jobs growth and wage inflation remains very low. The earlier rationale for raising rates has now lost some validity. As of this moment, the odds are slightly better than 50/50 that the first Fed hike will come in December. However another month or two of weak jobs growth could mean a further delay.
Hey, let’s scapegoat Airbnb for high San Francisco housing prices instead of, you know, building more housing
In my previous post, I mentioned the role of housing in exacerbating inequality. Pricey housing also hurts the economy by making it more expensive to live in high innovation cities like San Francisco. So what to do about this. Here is venture capitalist Sam Altman:
The whole magic of the sharing economy is better asset utilization and thus lower prices for everyone. Home sharing makes better utilization out of a fixed asset, and by more optimally filling space it means the same number of people can use less supply. In fact, Airbnb worked with economist Tom Davidoff of the University of British Columbia and found that Airbnb has affected the price of housing in SF by less than 1% either up or down.
But in the last 5 years, the cost of housing in the city has about doubled. The reason for this is a lot more people want to live in SF than we have housing for, and the city has been slow to approve new construction. Who is to blame for this? The same politicians that are trying to distract you with Airbnb’s 340 “professionally rented” units.
What should the politicians actually be doing about the housing crunch? The obvious answer would be to support building more housing and fixing the supply side of the equation. But instead they’re doing the opposite (e.g. a moratorium on new construction in the Mission) and trying to turn Airbnb into a scapegoat.
I love San Francisco. I wish housing here were much cheaper. This is a special city and more people are going to want to live here, and more are going to want to come visit and do business with people here. Instead of trying to ban the future, we should be making it easier for middle class families to stay in the city. We can do this by building more units to push the market price of housing down and by making it easier for San Franciscans to share their homes.