Vox Baby

Moving to Capital Gains and Games

2008-03-24T09:31:00.004-04:00

After several years of blogging on my own at Vox Baby, I am joining Stan Collender and Pete Davis over at the newly redesigned Capital Gains and Games blog. Stan and Pete are two of the sharpest people writing about fiscal policy and financial matters, and so you should expect triple the fun at half the price.

The new feed is http://www.capitalgainsandgames.com/rss.xml, so set your bookmarks and feed readers accordingly.

Vox Baby will remain intact, so there's no need to change any links.

See you over at Capital Gains and Games.

Pass the Spittoon, Mortgage Meltdown Edition

2008-03-22T13:51:00.000-04:00

I confess: I get annoyed beyond measure when I read articles like this one from Alan Zibel and J.W. Elphinstone of the Associated Press, which ran in my local paper this week. It manufactures drama where none is warranted. Here's the hook:

Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow — even for those with good credit.

Mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged nearly a quarter of the nation's ZIP codes where they refuse to insure some home loans.

I'm already annoyed in three ways, and it's just two sentences in:

Consumers and the U.S. economy do NOT need banks to lend more freely. Banks lending too freely is what got us into the current mess.
The traditional 20 percent down payment for a home exists in part because mortgages are nonrecourse loans--the property is the only security the lender has in the transaction. While some reductions of that number may be appropriate, it was the abandonment of sensible lending standards that got us into the current mess.
The word "some" in the last sentence smuggles in quite a lot. If the meaning of "some" were made plain early in the article, we would stop reading and disregard the article as not worth our time.

We do find out what "some" means later on in the article:

In recent weeks, mortgage insurers have flagged more than 9,600 ZIP codes in at least 34 states where they won't insure certain types of home loans — those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.

"Some" home loans are now revealed to be loans that are extremely risky--loans whose pervasive use are what got us into the current mess--in areas where house prices are declining the most. So a shorter version of the article is that mortgage insurers are now not willing to insure loans that they shouldn't have been insuring earlier. That this is a good thing has completely escaped the notice of the two authors.

If This Meltdown Were a Movie

2008-03-18T11:36:00.000-04:00

Ben Bernanke would be played by Harvey Keitel, reprising his role as Winston Wolf if we're lucky or Victor the Cleaner if we're not.

The responsibility for this financial meltdown does not rest with him. It was his predecessor, Alan Greenspan, whose stewardship of monetary policy set the stage for the debt-laced consumption rampage of the American consumer and the leverage-soaked financial carnival of mortgage lenders and investment bankers. (If you're keeping score at home, Greenspan still doesn't get it.) Based on his performance so far, I'm nominating Ben Bernanke to the All-Madden team of central bankers.

Bernanke has two broad categories of options:

1) Damned if He Doesn't

Bear Stearns just collapsed--it cannot pay its creditors. What was a liability to Bear Stearns was an asset to some other investor. That asset now has no value. If the other investor was also a financial institution, then it has fewer assets relative to its liabilities and is now less solvent. It may not be able to pay all of its creditors. And so on, all through the leveraged financial sector.

The Fed can act to prevent or mitigate this cascade. Looking at the prospect of contagion, the Fed has acted on two fronts. It has lowered short-term interest rates to prop of asset values across the economy. As discounting for risk has increased, discounting for time has decreased. The Fed has also intervened in specific episodes, directly backstopping private actors like JP Morgan who have stepped in to assume the liabilities of the likes of Bear Stearns.

Bernanke can't sit idly while large financial institutions crumble. There is a perception, if not the reality, of too much collateral damage in the process.

2) Damned if He Does

The Fed is supposed to be the economy's lender of last resort. If a solvent but illiquid bank needs short-term cash and cannot find it on the private market, the Fed should make credit available. Without this backstop, financial institutions would be less willing to take leveraged positions in support of beneficial economic activity.

But sometimes financial institutions take these leveraged positions in support of exceedingly risky activities. This is particularly true when they hold a put option to sell the activity to someone else if its value falls. Any intervention by the Fed extends that put option to would-be speculators, if not today, then certainly in the future.

You can call this Samwick's Law if you like:

If an institution is deemed too big to fail, then it is only a matter of time before it finds a way to get big and fail.

When you provide insurance against outcomes that a financial institution cannot control, you distort incentives on the activities it can control. Specifically, they take on more risk. To address the immediate problem, Bernanke invites the next one. Snotty bloggers two or five or ten years from now may be hanging the next crisis--runaway inflation, a persistent liquidity trap, even more spectacular bubbles in financial markets--around Ben's neck.

The task of finding the least worst way to do the wrong thing is a thankless one, but Bernanke is persevering admirably. Let's see what he does at 2:15 today.

Life is unfair, and so is the bailout

2008-03-17T19:36:00.001-04:00

My commentary on the Bear Stearns bailout aired on NPR's Marketplace this evening. Here's the teaser:

The collapse of Bear Stearns prompted the Fed to once again cut interest rates. Commentator and economist Andrew Samwick says whether you call it a bailout or a rescue, all Americans have a stake in the outcome.

And here's an excerpt:

Two questions immediately come to mind: Is this fair, and should we care? The question of fairness is easier to answer -- of course it isn't fair. Bear Stearns' fall from grace was its own fault. It was the high-wire act in a leverage-soaked financial carnival.

And yet those in the corridors of power have intervened on the perpetrators' behalf. Some people call this "socialism for the rich." Even that's too generous -- under socialism, the rich would be paying higher taxes during the boom times. No, "fairness" is not a word that describes this bailout.

So life is unfair... Does that mean we should care?

Enjoy!

Samwick Media Watch

2008-03-17T15:12:00.000-04:00

I'll be on NPR's Marketplace this evening, putting in my 1% of a share of Bear Stearns stock on the goings-on in financial markets. The theme--is this fair and why should you care?

Find your local station here.

Gaps and Redundancies

2008-03-16T09:44:00.000-04:00

There is some irony to be found in the title of Tamar Levin's excellent article in Friday's edition of The New York Times, "Report Urges Changes in Teaching Math." To do anything other than what the report recommends would hardly qualify as teaching math. Here's the crux of the matter:

Closely tracking an influential 2006 report by the National Council of Teachers of Mathematics, the panel recommended that math curriculum should include fewer topics, spending enough time to make sure each is learned in enough depth that it need not be revisited in later grades. That is the approach used in most top-performing nations, and since the 2006 report, many states have been revising their standards to cover fewer topics in greater depth.

It was the frequent revisiting of earlier topics in later grades, with little increase in the sophistication of the approach, that drove me crazy in primary and secondary school. And it wasn't just math--it was virtually every subject. And despite this revisiting in later grades, students' achievements lag those in other countries. So much redundancy in instruction, and yet so many gaps in knowledge. That's strong evidence of the possibility of making gains in outcomes without additional resources.

There is more of interest in the article, particularly in this passage:

After hearing testimony and comments from hundreds of organizations and individuals, and sifting through a broad array of 16,000 research publications, the panelists shaped their report around recent research on how children learn.

For example, the report found it is important for students to master their basic math facts well enough that their recall becomes automatic, stored in their long-term memory, leaving room in their working memory to take in new math processes.

“For all content areas, practice allows students to achieve automaticity of basic skills — the fast, accurate and effortless processing of content information — which frees up working memory for more complex aspects of problem solving,” the report said.

Dr. Faulkner, a former president of the University of Texas at Austin, said the panel “buys the notion from cognitive science that kids have to know the facts.”

We needed cognitive science to figure that out? There was some competing notion, masquerading as an educational philosophy, that suggested that kids did not have to know the facts? The recommended approach all sounds very familiar, if not widely utilized.

Read the whole thing.

Bair 1, Abernathy 0

2008-03-15T09:37:00.001-04:00

We'll give FDIC Chairman Sheila Bair credit for this bit of lonely prudence in a financial sector gone mad:

"There are significant uncertainties regarding our projections, and given the challenges facing the banking industry and the likelihood of more bank failures, I believe preparedness should be our overriding concern," said Sheila C. Bair, FDIC Chairman. "Because we are anticipating more difficult times, it would be prudent to continue to build the deposit insurance fund at the pace allowed by the current rates and the remaining credits. As we build up the insurance fund, banks and thrifts should be taking steps to bolster their capital and reserves.

This was her very sensible justification of the FDIC's board's decision to keep the assessment rates charged to insured banks and savings associations unchanged for 2008. And into the fray jumps Wayne Abernathy, now the executive vice president at the American Bankers Association, who is quoted as follows:

The decision today could mean that as much as $20 billion or more of bank services will now not be available to invest in new jobs and new businesses this year, precisely when new jobs and new business investments are most needed.

So, according to this logic, it makes sense to blame the FDIC for its prudence rather than the worst offenders represented by the ABA for their recklessness for the absence of $20 billion dollars from the banking system in the near term.

It is amazing what a change of employer and address can do.

Are We in a Recession?

2008-03-14T12:11:00.000-04:00

The honest answer is that we cannot provide an answer in real time.

The rule of thumb is that a recession is two or more consecutive quarters of negative growth in real GDP. The latest estimate of 4th quarter GDP was 0.6%. Not negative, but certainly not great. So to say that we are in a recession, according to this rule of thumb, is to say that we have knowledge that the current quarter's growth rate is negative and either or both of the following:

4th quarter GDP growth from 2007 will be revised below zero when the next estimate is released on March 27.
2nd quarter GDP growth from 2008 will be negative.

I don't see how anyone could be sure of this. The starting point for 2nd quarter GDP itself is not known and will not be officially estimated in advance form until late April. There is already considerable monetary and fiscal stimulus in the pipeline that will begin to have an impact over the second quarter.

Then NBER has a broader defintion of a recession than the rule of thumb:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.

So to assert that we are in a recession is a claim that a peak has occurred, that the subsequent decline is significant, that the decline will last more than a few months, and that the decline will be evident in many if not all of the indicators listed in the definition. What do the indicators say?

The Real GDP growth has been positive thus far according to official estimates (as noted above).
Real personal income less current transfers, with data available through January, peaked in September 2007 (see Table 1 for income and transfers and Table 9 for the price deflator) but has fallen only 0.3% since then. We get February data on March 28.
Employment peaked in December 2007 and has fallen by less than 0.1% over the subsequent two months.
Industrial production fell from September to October 2007 and then rebounded to achieve the same index value in January as it had in September. We'll learn about the February value on Monday.
Wholesale-retail sales. Wholesale trade fell slightly between November and December but more than made up the decline in January. (February data are released on April 9.) Retail sales fell between January and February.

Each of these indicators seems to be some version of flat. It is premature to be making pronouncements like this these, from Congressman Frank and Senator Dodd:

“We are in a recession now that has an unusual cause. It is not your usual cyclical problem… This is a structurally caused recession,” Mr. Frank told reporters at a press conference. Mr. Dodd, also appearing at the press conference, had an even gloomier take.
“This is the worst housing crisis in our lifetime. We are in a recession. People want to talk about ‘Are we?’ — we’re in one. The question is: how deep is this going to go? How long lasting will it be? The underlying economic conditions in our country are not good for resolving this. Almost every other recession we can talk about lasted eight months. When you’ve got deficits running as high as they are — The value of the dollar… inflation going up, unemployment going up, these are not great underlying economic circumstances to respond to the situation.”

They are right that the present period is different from past recessions--first, because we cannot assert that it is a recession, and second, because we have already stretched our policy responses just about as far as they will go.

Governor Spitzer, We Hardly Knew You

2008-03-12T14:15:00.001-04:00

My first reaction to the news of Eliot Spitzer's demise was that I felt bad for his three daughters, for reasons discussed here. My second reaction was that I felt bad for his wife for having to stand there and face the public glare as well. I presume that she did that for her daughters if not for her husband. It is the adultery embedded in the transaction, particularly by a father of teenage daughters in the public eye, that most disturbs me.

But that's a personal judgment and a matter that may be relevant in a divorce proceeding. It doesn't necessarily have to guide public policy. What of the transaction itself, if it did not involve adultery? For a public official, the big danger is that Spitzer's desire to keep the activity secret would subject him to blackmail by those in on the secret. With the secret out in the open, there's no longer any danger in that happening, even if he hadn't resigned. Perhaps we need a disclosure policy for elected officials?

What of the transaction itself, if it did not involve adultery or a public official? Now we get to find out whether I'm a libertarian or not, I suppose. Here is a libertarian's case in defense of legalized prostitution. Here's another defense of legalized prostitution based on strengthening the legal status of women who currently engage in illegal prostitution.

What does the economist in me say? Despite the rather high price paid by Governor Spitzer ($4300 per hour), prostitution--particularly if legalized--lowers the cost to the man of obtaining more and more varied sexual activity from women. Who is made better off by this change in price?

Men who partake of prostitutes (buyers).
Women who engage voluntarily in prostitution but not other types of sex (sellers).
Men who do not partake of prostitutes but who face less competition in finding sexual partners from the men who are now content with prostitutes (buyers of substitutes).

Who is made worse off?

Women who do not engage in prostitution (sellers of substitutes)

The last one is a pecuniary externality. Though not a threat to economic efficiency, I'm not enough of a libertarian to ignore it.

Gridlock on Electric Highways

2008-03-11T08:58:00.000-04:00

When I suggested the need for a capital budget, these were the sort of problems I wanted to avoid (this one in my own backyard):

CONCORD, N.H.—Northern New England is turning to the sun, wind and waste wood for clean, renewable power, but there's a serious problem: the threat of gridlock on electricity "highways."

A prime example is New Hampshire's northern Coos County, where there are proposals to build renewable energy plants with roughly 460 megawatts of capacity -- two-thirds of the proposed renewable projects in the state -- to run over a transmission line that can only handle 100 megawatts.

The bottleneck is in Whitefield, the end of a transmission loop that runs through Berlin and Lost Nation.

Projects are approved on a first-come, first-served basis, and the first in line, Noble Environmental Power, stands ready to claim the entire 100 megawatts in 2009 for a wind park. That will leave the other proposals to wither and die if investors, electricity consumers or the government don't spend $200 million to upgrade 100 miles of line.

Even if the money were available now, the upgrade could take six years to complete, presenting investors with another hurdle -- time.

Last month, backers of a proposed 70-megawatt biomass plant in Groveton announced they had had enough, at least for now. Joshua Levine, project developer for Tamarack Energy, a partner in North Country Renewable Energy's plant, said the project is on hold despite the $1 million already spent on it.

The plant would burn wood chips, low-grade wood from logging operations and other clean wood readily available in the economically stressed region.

If we intend to bring new sources on line, we need to upgrade capacity. It's crazy to have $150 billion for economic stimulus on things we don't need and yet be cash starved on projects for which we've articulated a need.

Don't Blame this on Math

2008-03-10T11:40:00.001-04:00

In yesterday's New York Times, we are told "Math Suggests College Frenzy Will Soon Ease." Actually, I don't get the math in a couple of places. Let's start here:

Projections show that by next year or the year after, the annual number of high school graduates in the United States will peak at about 2.9 million after a 15-year climb. The number is then expected to decline until about 2015. Most universities expect this to translate into fewer applications and less selectivity, with most students probably finding it easier to get into college.

The article cites projections from the Western Interstate Commission for Higher Education. How can there only be 2.9 million high school graduates per year?

We know from the American Community Survey that in 2006, there were 17.5 million students enrolled in high school and that enrollment rates for those under age 17 are 95% or higher. We also know that only 7% of teens 16-19 are classified as high school dropouts. So we are looking at a graduation number that's in the neighborhood of 17.5*(1/4)*(0.93) = 4.1 million.

So I don't trust the WICHE projections, but it is worth considering the simple population movements. Here is a graph of the number of 18-year olds by year, based on Census projections:

So there is a dip coming up in the population of 18-year olds that will turn back the clock by about 10 years.

Is that a lot or a little? As one example, for the Class of 2010 at Dartmouth, there were 13,938 applicants, of whom 2,186 or 15.7% were admitted. If this were the peak, and we applied the changes in the projections (a drop to 90.7% of the peak), that would boost the admit rate to 15.7/0.907 = 16.9% before it began to fall again. I don't think we'll notice any easing in the frenzy here in Hanover.

CEO Succession

2008-03-09T11:09:00.001-04:00

I was surprised to learn in Good to Great that outside CEOs were not associated with the transition from good companies to great companies. Harvard Business School Professor Joseph Bower picks up on this theme in his recent Marketplace commentary:

What companies really need is what I call in my new book, The CEO Within, an "inside outsider" -- that is, an outstanding inside performer who has retained his or her objectivity. They have energy, ambition and intellectual integrity. They see the magnitude of change needed, and because they are insiders they can move quickly with a real chance of success because they know the people, systems, culture and assets of the company.

Why aren't there more candidates like this available? To begin, a surprising number of companies don't have a real succession process. They treat succession as an uncomfortable event. Managing the development of leaders inside the company requires investment in every aspect of the way the firm is managed: who is recruited, how businesses are organized, how executives are paid and promoted, and how operations are planned and resources allocated. The process requires years, not days, of preparation. Companies need to change their ways on CEO succession or pay a price that goes far beyond the new CEO's compensation package.

At Dartmouth, the Board of Trustees are gearing up for a search for a successor to Jim Wright as the College's president. I wonder if this will have any bearing on the selection of Dartmouth's next president.

No LUV, or Maybe Too Much, from the FAA

2008-03-08T18:13:00.000-05:00

As a longtime flyer of Southwest Airlines, this was not welcome news:

WASHINGTON – The Federal Aviation Administration said Thursday it would fine Southwest Airlines Co. $10.2 million for safety violations that included knowingly flying more than three dozen jets without mandatory inspections for structural damage.

Southwest, which found cracks in the bodies of six of its jets during belated inspections, said safety was never jeopardized.

The fine would be the largest ever levied against an airline, the FAA said.

When Southwest belatedly conducted the inspections, it found cracks in the bodies of six Boeing 737-300s, with the largest measuring 4 inches. Serious fractures can depressurize an aircraft and in 1988 caused an Aloha Airlines jet to rip apart, killing a flight attendant.

The FAA announced the fine a week before congressional investigators were to disclose findings from their own inquiry into Southwest's failure to meet airworthiness directives. That investigation was prompted by information provided by Dallas-based FAA inspectors who said their supervisors allowed the planes to keep flying even after Southwest reported its failure to make the scheduled inspections.

The FAA doesn't come out looking too good, either. Regulatory capture, anyone?

Good Jobs at Good Wages

2008-03-07T13:02:00.001-05:00

I know, the employment report has no good news in it, but this front page story in The New York Times is sure to get some attention. The concept:

Would six-figure salaries attract better teachers?

A New York City charter school set to open in 2009 in Washington Heights will test one of the most fundamental questions in education: Whether significantly higher pay for teachers is the key to improving schools.

The school, which will run from fifth to eighth grades, is promising to pay teachers $125,000, plus a potential bonus based on schoolwide performance. That is nearly twice as much as the average New York City public school teacher earns, roughly two and a half times the national average teacher salary and higher than the base salary of all but the most senior teachers in the most generous districts nationwide.

The school’s creator and first principal, Zeke M. Vanderhoek, contends that high salaries will lure the best teachers. He says he wants to put into practice the conclusion reached by a growing body of research: that teacher quality — not star principals, laptop computers or abundant electives — is the crucial ingredient for success.

“I would much rather put a phenomenal, great teacher in a field with 30 kids and nothing else than take the mediocre teacher and give them half the number of students and give them all the technology in the world,” said Mr. Vanderhoek, 31, a Yale graduate and former middle school teacher who built a test preparation company that pays its tutors far more than the competition.

I would much rather see that, too. At this school, teachers will be paid so well that they'll make more than the principal, an inversion which generated this:

Ernest A. Logan, president of the city principals’ union, called the notion of paying the principal less than the teachers “the craziest thing I’ve ever heard.”

“It’s nice to have a first violinist, a first tuba, but you’ve got to have someone who brings them all together,” Mr. Logan said. “If you cheapen the role of the school leader, you’re going to have anarchy and chaos.”

Randi Weingarten, president of the United Federation of Teachers, called the hefty salaries “a good experiment.” But she said that when teachers were not unionized, and most charter school teachers are not, their performance can be hampered by a lack of power in dealing with the principal. “What happens the first time a teacher says something like, ‘I don’t agree with you?’ ”

Presumably, the principal listens to what the teacher has to say and then makes a decision, which may or may not accommodate the teacher's disagreement. Millions of businesses, and even some educational institutions, operate on this principle. Those that operate in competitive markets don't prosper by ignoring good advice or treating talented employees as if they are inconsequential. And the teacher is not an indentured servant here--"nothing" prevents a teacher dissatisfied with a principal from starting a rival school with better policies.

The Age of Friedman is not dead yet.

The Drop in Labor Force Participation

2008-03-06T09:03:00.000-05:00

Following a comment on yesterday's post, here is an article from the the St. Paul Pioneer Press two years ago discussing voluntary withdrawal from the labor market. The key paragraphs:

So who is dropping out, and why?

Primarily the declines since 2001 are among younger workers ages 16 to 24 and women ages 25 to 45. Proportionally, since the teens account for a small number of workers in the state, women dropouts are mainly driving the changes.

The change with young workers can be more easily explained. Most don’t have to work. When jobs are flush and pay well, more take jobs. If jobs are slim and pay tight, homework and hanging out win out. “If jobs aren’t readily available they are not going to be searching for them and calling themselves in the labor market,” Stinson said.

The reasons why women are leaving are more elusive.

Julie Hotchkiss, a research economist and policy adviser with the Federal Reserve Bank in Atlanta, has studied why women leave the work force.

She found that women with college degrees were less likely to participate in the labor force in 2005 than they were just five years earlier. Women were still getting college degrees at the same rate but the degrees were less of a pull into the labor market.

The increase in Hispanic women, who traditionally are less likely to be in the labor force, is another factor, as is the increase in women with children under age 6. Still, “unobserved” factors that couldn’t be explained, more than anything else, contributed to the reasons why women are dropping out, she said.

Read the whole thing.

What the Unemployment Rate Misses

2008-03-05T18:05:00.001-05:00

In his Economic Scene column in today's New York Times, David Leonhardt discusses the challenges of measuring unemployment and using the unemployment rate to assess the state of the labor market. In a nutshell, we have a fairly low official unemployment rate and yet many people not working. In this excerpt, he focuses on a distinction that his colleague Paul Krugman once glossed over (to much fanfare in my first month of blogging):

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

As we discussed briefly then, the BLS does collect measures of unemployment that progressively relax the condition that individuals have to be actively looking for work. Leonhardt characterizes them as "broader but not especially useful." I don't think they should be dismissed so readily. They are found in Table A-12 of the monthly employment report. You can get the historical data here. Let's go to the picture.

The 4 curves are as follows:

Blue: The conventionally measured unemployment rate, currently at 5 percent and low by historical standards. This is the number unemployed divided by the total number in the labor force (employed plus unemployed).

Red: Add people classified as discouraged workers--those who have given a job-market related reason for not currently looking for a job--to the unemployed. The increase is very slight--historically between 0.1 and 0.4 percentage points.

Yellow: Add people classified as marginally attached (beyond being discouraged)--those who currently are not looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. This currently adds 0.8 percentage points to the unemployment rate, which is typical of the full 14 year time period.

Green: Add people classified as employed part time for economic reasons--those who want and are available for full-time work but have had to settle for a part-time schedule. This number is currently 9 percentage points of the labor force (augmented to include those marginally attached or employed part time for economic reasons).

The last measure seems to be a pretty good measure of labor underutilization. What does it tell us about what the conventional unemployment rate misses? In April 2006, the gap between the two shrank to 3.4 percentage points, compared to 4.1 percent today. The latter figure is about the size of the gap that prevailed around the recent peak in the unemployment rate in 2003. The gap was greater than 4.1 percent in most of the months shown prior to 1997. The gap was as narrow as 3 percentage points as the unemployment rate reached its lowest values in 2000.

The more comprehensive measures of labor underutilization are available and are consistent with the story being told in the article, though you have to get to "employed part time for economic reasons" to get much of a gap. I think they would be more "useful" to journalists if journalists chose to report them.

Barry Ritholtz also comments on the story and refers back to a measure of the "augmented unemployment rate," which doesn't include the economic part timers but also doesn't require that those who want a job have actually looked for one. (This information can be calculated from Table A-1 of the monthly employment report.) At present, there are about 5 million who "want a job" among the roughly 80 million who are not in the labor force, or about 6.25 percent. This proportion has stayed around 6 percent for several years.

Grassroots Leaders Like Me

2008-03-05T00:43:00.000-05:00

My latest letter from Tim Morgan began like this:

Dear Friend,

I don't want to believe you've abandoned the Republican Party, but I have to ask . . . Have you given up?

Our records show that we have not yet received your Republican National Committee membership renewal for the critical 2008 presidential election year.

As the Treasurer of the RNC, I know our Party's success depends directly on grassroots leaders like you.

So I am surprised and concerned especially because I know how generously you supported President Bush and the RNC in the past. You helped to advance our vision for America and elect Republicans at all levels of government.

I know other things come up, and perhaps you've just been delayed in renewing your membership. If that's the case, I understand.

But we've not heard from you this year -- and I hope you haven't deserted our Party.

Call me crazy, but I don't think "Have you given up?" is ready to stand toe-to-toe with "Yes We Can" in the general election. To paraphrase Ronald Reagan, I didn't desert the Republican Party, ...

Krugman's Keys to a Landslide Victory

2008-03-03T09:22:00.001-05:00

The phrase "Obama Derangement Syndrome" has entered public usage. It seems to have two strains. The first is adulation for Senator Obama beyond what can be linked to his accomplishments in public office. The second is the more usual strain, irrational dislike, which has to date infected a number of Democrats, but none more publicly than Paul Krugman. He continues his quest to be the poster boy for ODS in his New York Times column today, "Deliverance or Diversion." Stay with this excerpt until the punchline:

But Mr. Obama, instead of emphasizing the harm done by the other party’s rule, likes to blame both sides for our sorry political state. And in his speeches he promises not a rejection of Republicanism but an era of postpartisan unity.

That — along with his adoption of conservative talking points on the crucial issue of health care — is why Mr. Obama’s rise has caused such division among progressive activists, the very people one might have expected to be unified and energized by the prospect of finally ending the long era of Republican political dominance.

Some progressives are appalled by the direction their party seems to have taken: they wanted another F.D.R., yet feel that they’re getting an oratorically upgraded version of Michael Bloomberg instead.

Others, however, insist that Mr. Obama’s message of hope and his personal charisma will yield an overwhelming electoral victory, and that he will implement a dramatically progressive agenda.

The trouble is that faith in Mr. Obama’s transformational ability rests on surprisingly little evidence.

Mr. Obama’s ability to attract wildly enthusiastic crowds to rallies is a good omen for the general election; so is his ability to raise large sums. But neither necessarily points to a landslide victory.

So, in this installment of Krugman's anti-Obama screed, Democrats are supposed to be concerned about Senator Obama winning the nomination because it is not clear that he can secure a landslide victory in the general election. And if they believed him, and thought twice about voting for Senator Obama in the remaining primaries, they would instead vote for Senator Clinton.

Going first to personalities, is it really Krugman's contention that the odds of a Democratic landslide victory are higher with Senator Clinton than with Senator Obama as the nominee? Going next to tactics, is it really Krugman's contention that the odds of a Democratic landslide victory are higher with Senator Obama campaigning to the political left of where he is now? Or that they are higher if he makes partisan rhetoric a more central part of his campaign? If he holds any of these views, then he's got precious little company among rational people in holding them.

I don't doubt that Krugman and many others would be happier if they could implement a more so-called progressive agenda as a result of the 2008 election. But this group does not comprise a majority of the voting public, to say nothing of a landslide majority. Absent that majority, the candidate needs to have appeal beyond the political left.

And, yes, many people -- myself included -- do fault the Republicans of the last several years for the poor state of public policy today. They've had the presidency since 2001 and majorities in Congress over much of that time. To not hold them responsible would be ridiculous. But that does not mean that we would opt for government by a 51% majority in the opposite direction if there is a possibility of something based more on a broad-based, politically centrist consensus. People seeking that consensus will be voting for Senator McCain or Senator Obama.

Bogus Art

2008-03-02T09:09:00.000-05:00

The Los Angeles Times has a story this morning about the revenue loss to the Treasury from overvalued donations of works of art:

An alleged tax-fraud scheme involving donations of overvalued art to four local museums is part of a larger, unchecked problem with inflated art appraisals that has cost the federal government untold millions, a Times analysis has found.

Each year, the Internal Revenue Service audits donations claimed on only a handful of the 100,000 or more tax returns that allow art donors to reap nearly $1 billion in tax write-offs. Half of the donations checked over the last 20 years had been appraised at nearly double their actual value.

The crux of the public policy problem is the infrequency with which appraisals are checked. It makes all other remedies less effective:

A 2006 law tightened standards and increased penalties on bad appraisals. For donors, it lowered the threshold on what the law considers a bloated appraisal, from 200% overvalue to 150%. It also increased oversight of and fines for appraisers. But because the IRS checks so few appraisals, some believe that overvaluations will continue.

This is not a hard problem to solve. Every significant donation should have its appraisal checked by the IRS, and the donor should bear the cost of that process, not the government. There would be fewer small donations of art, but for major pieces, this cost of checking the appraisal would be small relative to the value of the tax deduction.

Ethics Reform in Louisiana

2008-02-28T06:38:00.003-05:00

The most interesting excerpt of a very interesting tale of Louisiana politics in today's New York Times:

In a town where legislators have been known to proclaim paid-for meals a principal draw to public service, this was an especially unpopular move. Last week, State Representative Charmaine L. Marchand of the Lower Ninth Ward in New Orleans said the limit would force her and her colleagues to dine at Taco Bell, and urged that it be pushed to $75 per person, to give them “wiggle room.”

No public groundswell took up her cause, and the $50 limit held.

Read the whole thing, and hope for more good things from Governor Jindal.

Workaholics Are Us

2008-02-27T13:55:00.000-05:00

Here is the abstract from a new article by Dan Hamermesh and Joel Slemrod:

A large literature examines the addictive properties of such behaviors as smoking, drinking alcohol, gambling and eating. We argue that for some people addictive behavior may apply to a much more central aspect of economic life: working. Although workaholism raises some of the same health-related concerns as other addictions, compared to most of the more familiar addictions it is more likely to be a problem of higher-income individuals and is more likely to generate negative spillovers onto individuals around the workaholic. Using the Retirement History Survey and the Panel Study of Income Dynamics, we show that high-income, highly educated people exhibit behavior that is consistent with workaholism with regard to retiring–they are more likely to postpone earlier plans for retirement. The theory and evidence suggest that the presence of workaholism calls for a more progressive income tax system than otherwise, although other more targeted policies may be part of optimal policy.

The full paper is here. The reference to negative spillovers and a progressive income tax reminded me of this earlier discussion.

Nickel and Dimed at Dartmouth

2008-02-26T11:41:00.001-05:00

Last evening, the Ethics Institute and the Dartmouth Centers Forum hosted a public lecture by Barbara Ehrenreich, "Working for Change," based on her book, Nickel and Dimed: On (Not) Getting By in America.

She's a compelling story teller. Here's an example of something that I had not previously appreciated--paying rent. For the working poor, the monthly payment isn't the only or even the main challenge. Coming up with the first and last month's payments is more than most can manage. So this puts them into a different type of housing--the residential motel, which is less cost effective but allows more of a day-to-day payment. These facilities often lack a refrigerator and a microwave, which in turn means that nutrition suffers as well, with fast food taking the place of better meals. Problems cascade, and keeping it all together becomes more of a struggle, to say nothing of actually getting ahead. The Dartmouth has more of a recap of her talk.

She's also an occasional blogger. Here's her rather unconventional take on the economic stimulus plan, from a month ago.

Ferraro on Superdelegates

2008-02-25T09:52:00.001-05:00

Geraldine Ferraro owns up to having created the superdelegate process in 1982 when she was the vice chairwoman of the House Democratic Caucus. The first part of this New York Times op-ed is a reasonable historical retelling. But then she falters, as do all justifications of this system. Here's the key excerpt:

Today, with the possibility that Hillary Clinton and Barack Obama will end up with about the same number of delegates after all 50 states have held their primaries and caucuses, the pundits and many others are saying that superdelegates should not decide who the nominee will be. That decision, they say, should rest with the rank-and-file Democrats who went to the polls and voted.

But the superdelegates were created to lead, not to follow. They were, and are, expected to determine what is best for our party and best for the country. I would hope that is why many superdelegates have already chosen a candidate to support.

Besides, the delegate totals from primaries and caucuses do not necessarily reflect the will of rank-and-file Democrats. Most Democrats have not been heard from at the polls. We have all been impressed by the turnout for this year’s primaries — clearly both candidates have excited and engaged the party’s membership — but, even so, turnout for primaries and caucuses is notoriously low. It would be shocking if 30 percent of registered Democrats have participated.

If that is the case, we could end up with a nominee who has been actively supported by, at most, 15 percent of registered Democrats. That’s hardly a grassroots mandate.

More important, although many states like New York have closed primaries in which only enrolled Democrats are allowed to vote, in many other states Republicans and independents can make the difference by voting in Democratic primaries or caucuses.

Whatever its imperfections, whether genuine (low turnout) or alleged (open primaries), the nominating process is not improved by resolving a close race for pledged delegates with backroom deals for superdelegates. Read the rest of the op-ed, where her partisan interests become evident.

Take Your Plan Administrator to Court

2008-02-21T10:38:00.003-05:00

Carrie Johnson reports in today's Washington Post on the Supreme Court's latest pension ruling:

The Supreme Court handed workers a major victory yesterday by allowing them to sue over mismanagement of their 401(k) retirement accounts, in which more than 50 million employees have invested nearly $3 trillion.

The unanimous holding reverses a lower court decision that had barred individuals from suing over losses related to mistakes and misconduct, and thus had insulated employers from lawsuits even as more U.S. workers came to rely on the savings accounts to help fund their retirements.

[...]

Yesterday's decision will allow James LaRue to proceed with a case against his former employer, DeWolff, Boberg & Associates, over $150,000 in losses he claims he suffered after the Texas management consultancy failed to act on instructions to shift his retirement savings when the stock market hit turbulence more than six years ago.

In a telephone interview, LaRue, 47, criticized his former company for being "nonresponsive" when he asked to transfer his money from stocks into cash as the Internet bubble burst and the market plunged after the Sept. 11, 2001, terror attacks. LaRue, now a self-employed consultant to manufacturing and telecommunications companies, said his former colleagues at DeWolff Boberg were "hiding under the law."

Seems like a reasonable step forward--LaRue should get his day in court. The reaction from businesses are predictable:

Business advocates predicted the ruling would unleash a raft of lawsuits by employees, particularly as stock market volatility once again is causing havoc with investment accounts.

"Ultimately, employers aren't going to sponsor plans if they're going to be sued every time they make an innocent mistake," said Thomas Gies, a Washington lawyer who defended the consulting firm, which denies any wrongdoing.

Even innocent mistakes have consequences, and the entity that makes the mistake should pay to fix it. If an employer cannot sponsor a plan without making multiple innocent mistakes, then that employer should not sponsor a plan. The defense against lawsuits is to have clear procedures and to stick to them.

Coming Soon to a Sky Near You

2008-02-20T10:40:00.001-05:00

The U.S. Naval Observatory has a lunar eclipse computer that you can use to get the viewing times and locations in your town this evening.

Some helpful concepts here.

Enjoy!