The many flaws in the Senate’s rollback of Dodd-Frank: Attention must be paid. [feedly]

The many flaws in the Senate's rollback of Dodd-Frank: Attention must be paid.
http://jaredbernsteinblog.com/the-many-flaws-in-the-senates-rollback-of-dodd-frank-attention-must-be-paid/

A couple of days ago, I participated in the "On Point" radio show about this (sort of) bispartisan effort to significantly rollback the Dodd-Frank financial reform bill that passed back in 2010. I was a member of team Obama back then and thought this was an important and very necessary advance. Imperfect, sure, but an essential set of regulations and consumer protections to diminish the seemingly endless repetition of the economic shampoo cycle: bubble, bust, repeat.

You can listen to my take on the show. I think this so-called fix to the bill goes way too far and exempts or partially exempts too many potentially risky institutions from the necessary oversight in Dodd-Frank. This mistake represents a) precisely the amnesia about reckless finance that repeatedly shows up years after the last crisis, b) an underestimate by the Senate Democrats signing on to the measure of the risk brought back into the system , and c) an almost completely unnecessary bit of work.

By that last point, I mean this: what's the motivation here? The financial sector, large and small, is doing great in terms of profitability (and that's before all their goodies in the tax cuts), credit is freely flowing, and while there's always speculation afoot in financial markets, there are no large and potentially destabilizing credit bubbles. So, of all the problems we face, why should Congress waste valuable time fixing something that's clearly not broken?

No question, as I stressed on the show, compliance with Dodd-Frank is far from costless, as any banking executive will readily tell you. And while the compliance burden is smaller for smaller banks, it's still a pain for some institutions, like community banks and credit unions. So, I grant that there's a rationale for reducing that burden. But, as you'd expect, given the linkages between Congress and the deep-pocketed banking lobby (and, trust me, I'm not just talking about the R's), the Senate legislation goes much further than that.

Moreover, once the bill gets out of the Senate, it may well have to be reconciled with a far more deregulatory House bill. Most notably, the Senate bill leaves the Consumer Financial Protection Bureau created by Dodd-Frank intact, whereas House conservatives have long been trying to crush the CFPB.

But there were two points that came up in the show that I wanted to further amplify, including an important fact check.

A couple of times in the show, advocates of the rollback argued that Dodd-Frank was responsible for putting a bunch of smaller banks out of business. I pointed out that while it's true that there are fewer smaller banks, this is a long-term trend that did not accelerate post Dodd-Frank. The figure below shows this to be the case, which correct the strong, wrong assertion to the contrary made by Cong. Jeb Henserling towards the end of the show.

Source: https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160810_cea_community_banks.pdf

My second point is one I alluded to but wanted to further underscore: just because a bank is not "systemically connected," i.e., its failure does not threaten the larger financial system, doesn't mean it should be able to engage in excessively risky finance.

The rollback allows smaller banks to make some of the same kind of risky mortgages that inflated the bubble that ultimately gave us the Great Recession. For two reasons, however, proponents of the bill argue this won't be a problem. First, because the banks can't securitize and offload the mortgages, so keeping them on their books gives them the incentive to not underprice risk. Second, they simply don't lend enough in this space to threaten the system.

I don't buy the first claim for a moment. The reason the shampoo cycle exists is because time-and-again, institutions increasingly get their risk on as the memory of the last meltdown fades. We had plenty of credit bubbles and busts before securitization come on this scene.

I asked the Roosevelt Institute's Mike Konczal (read his excellent, deep-dive oped on the rollback bill) about this second point: whether we should downplay concerns about smaller banks because they're not "systemically connected." Like me, he views such concerns as highly germane to this misguided legislation: "When banks fail, they usually fail in a correlated way, because they are chasing the same strategies and ideas. So, you can have several mid-sized or smaller banks collapse at the same time and added together they become a real threat. At that point you'll wish they were better capitalized and had better failure planning, which is exactly what this bill rolls back."

This is far from over, and I can tell you from my own visits up to the Hill in recent days that many Democrats, and not just from the Sanders/Warren wing, recognize what's going on here, oppose the bill, and fear their Senate colleagues got rolled. So, assuming you'd rather not end up where we were ten years ago, stay tuned into this and join me in pushing back on it.

 -- via my feedly newsfeed

Jobs report: There’s still room to run in this job market! [feedly]

Jobs report: There's still room to run in this job market!
http://jaredbernsteinblog.com/jobs-report-theres-still-room-to-run-in-this-job-market/

Payrolls rose 313,000 last month, well above expectations, and the unemployment rate held at 4.1 percent, as wage growth moderated a bit  from last month's pace (up 2.6 percent, yr/yr). Though these monthly data are notoriously jumpy, the out-sized job gains were accompanied by a nice pop in labor force participation rate–up 0.3 percent to 63 percent–suggesting that the hot labor market may be pulling new workers in from the sidelines. If so–if this turns out to be more of a trend than a blip–this has important, positive implications for the increased "supply-side" of the economy, implying more room-to-run than many economists believe to be the case.

This was the first over 300K month since July 2016, and the jump in labor force participation comes after the rate was stuck at 62.7 percent since last September. However, both of these values jump around and so our monthly smoother provides a look at the underlying trend in job growth by taking 3, 6, and 12 month averages of the monthly changes.

This month, the smoother tells a surprising story. Typically, as economies close in on full employment, we expect the rate of job gains to slow, as the labor market nears its capacity. But the smoother shows the opposite pattern, that of a (slightly) accelerating trend. For example, over the past three months, the average monthly job gains come to 242,000, but over the last 12 months, they amount to a lower 190,000. We should be careful not to over-interpret even these smoothed numbers, but the punchline is that it's hard to make a case that employment growth is DEcelerating, as would be the case if the economy's water glass, if you will, were full to the brim.

This question of how much room-to-run exists out there is leading, as it should, to close scrutiny of wage growth for signs that job market pressures are pushing up paychecks. The figures below show yearly hourly wage growth (along with a smoother trend) of both all private sector workers and the lower paid 80 percent who are blue-collar or non-managers. The wage pop that spooked markets last month (Jan17/Jan18) was revised down slightly, from allegedly scary 2.9 percent to 2.8 percent. As noted, this month's wage pace slowed a bit to 2.6 percent.

Again, the smooth trend (6-mos average, in this case) in wage growth deserves a close look, and it shows remarkably little acceleration given the persistent tightness of the job market. I'll discuss why that may be occurring in a moment, but in fact, there's a bit more there than meets the eye. Taking annualized growth rates of quarterly averages reveals more wage acceleration: 2.9 percent over the past three months compared to 2.5 percent last spring. This suggests perhaps a bit more pressure than the annual growth numbers reveal, which is, of course, what we'd expect at this point.

That said, there's just no story right now, at least in the actual data (as opposed to expectations), of an overly tight job market leading to inflationary wage gains. The figure below shows some of the key indicators from the Fed's dashboard, including unemployment, the Fed's guess at the "natural rate" (the lowest unemployment rate consistent with stable inflation), actual inflation (PCE core, the Fed's preferred gauge), and the Fed's inflation target of 2 percent.

As you see, unemployment has been below the Fed's "natural rate" for about a year (!) and both inflation and wage growth remain subdued. In other words, the links in the chain that go from a tight labor market, to faster wage growth, to faster inflation, remain uniquely weak.

There are surely many reasons for this, not all of which are understood. Productivity growth is lower, which tamps down potential wage growth. But also, worker bargaining power looks weaker than it should be at low unemployment. That's partly because the unemployment rate isn't telling the full story. Consider the prime-age (25-54) employment rate. Its peak in 2007 was 80.3 percent and its trough was 74.8 percent. Last month, it popped up three-tenths to 79.3 percent, thus it has recovered 4.5 out of 5.5 lost points. Given the population of these workers, each point amounts to 1.3 million potential workers added to the labor force. In other words, while there's no question that there's less slack in the job market, it's very likely a mistake to conclude there's no slack left.

A few more details:

–Warmer February weather compared to a harsh January may have played a role in the big jobs pop. The strong construction number (61,000 jobs added) may be evidence of that effect.

–Retailers (brick and mortar stores) got an off-trend-to-the-upside bump of 50,000. I suspect that trails off in coming months.

–Manufacturing, perhaps helped by the weaker dollar, continues to post decent gains, and is up 224,000 over the past year.

–Black unemployment, which spiked last month, fell back down to 6.9 percent, close to its historical low, suggesting the tight labor market is helping to employ minority workers. Still, the black rate remains close to twice the white rate.

This morning I read a pretty typical market take of the current job market. Economists at Barclays Bank wrote: "Looking ahead, we will view solid growth in employment less favorably."

While I'm sorry in this analytic context for getting my class warrior on, why must Wall St. begrudge Main St. right now? The answer is high pressure job markets threaten wage gains which threaten both profit margins and inflation. Well, we've had too few wage gains relative to profits, and not enough inflation. So I, for one, will be looking at more reports like this one "more favorably."

 -- via my feedly newsfeed

Welfare Versus GDP: What Makes People Better Off [feedly]

Welfare Versus GDP: What Makes People Better Off
https://blogs.imf.org/2018/03/07/welfare-versus-gdp-what-makes-people-better-off/

Oslo, Norway. In rich countries like Norway, that have greater life expectancy, more leisure, and lower inequality, measured well-being is higher than income (photo: iStock by Getty Images).

For years, economists have worked to develop a way of measuring general well-being and comparing it across countries. The main metric has been differences in income or gross domestic product per person. But economists have long known that GDP is an imperfect measure of well-being, counting just the value of goods and services bought and sold in markets. The challenge is to account for non-market factors such as the value of leisure, health, and home production, such as cleaning, cooking and childcare, as well as the negative byproducts of economic activity, such as pollution and inequality.

Charles Jones and Peter Klenow proposed a new index two years ago (American Economic Review, 2016) that combines data on consumption with three non-market factors—leisure, excessive inequality, and mortality—in an economically consistent way to calculate expected lifetime economic benefits across countries. In our recent working paper, Welfare vs. Income Convergence and Environmental Externalities, we updated and extended this work, attempting to include measures of environmental effects and sustainability. In this blog we look at our results from updating the new index.

Our findings clearly suggest that per capita income or GDP does capture the main component of well-being. And health—a key component of well being—is critical to raising welfare and income.

The well-being index

What emerges from Jones and Klenow's work is a consumption-equivalent index that measures welfare derived from consumption, then adds the value of leisure (or home production) and subtracts costs related to inequality. This calculation is made for each country over one year and then multiplied by the life expectancy in each country. This gives us a measure of average expected lifetime welfare based on consumption, leisure, inequality, and life expectancy. (Click here for a further discussion of the well-being index.)

There is a close relationship between our calculation of per capita welfare for 151 countries in 2014 and per capita income or GDP. The chart above shows that most countries line up fairly well along the 45-degree line (where relative welfare and income per capita are the same) indicating correlation, but there are significant differences, too. Poorer countries on the left are largely below the line, showing that welfare is lower than income. Richer countries at the top right are above the line, reflecting welfare that is higher than income. 

Grouping countries by income quintile gives us some insight into why this is the case (see chart above). We can present the welfare index for each quintile calculated from the components of life expectancy, consumption, leisure, and inequality, with US levels as a benchmark. As a group, the top fifth of countries based on income has a combined welfare index almost 7 percent below the US benchmark. The bottom fifth's index is about 95 percent lower than that of the US.

As the main component of the index, consumption explains most of the difference in welfare between countries at different income levels. Richer countries in the top two-fifths benefit from higher life expectancy and lower inequality. Poorer countries in the bottom three-fifths have lower life expectancy and higher inequality, contributing to lower welfare.

How has welfare changed over time? Welfare grew more quickly than income during the recent global financial crisis (chart below). This is particularly true for countries that were hardest hit in Western Europe and North America. The only exception is Asia, which had an impressively high level of growth in both income and welfare.

 What can we learn from the calculation of this index?

First, don't throw out GDP. As imperfect as it is, per capita income or GDP does capture the main component of well-being. Policies that improve the efficiency of production and contribute to income will continue to be important in promoting welfare. These include the bread and butter of IMF policy advice: promoting macroeconomic and financial stability, and structural reforms to improve the efficiency of markets.

Second, improvements in health are vital. Poor health leads to lower life expectancy and imposes a significant welfare cost on poorer countries. Policies that improve health are powerful tools in raising welfare: improving access to healthcare, nutrition, and clean water; improving the quality of care; and taxing unhealthy behaviors such as smoking.

Bad health also contributes to disruptions in employment, lowers productivity, and reduces economic growth. So, improvements in health will not only elevate welfare directly but are also likely to result in higher incomes and future welfare improvements in a virtuous cycle.

See Geoffrey Bannister explain his findings on Welfare versus GDP below:

 -- via my feedly newsfeed

Beware of Strike-it-Rich Euphoria: the Curse of Potential Oil Wealth [feedly]

Beware of Strike-it-Rich Euphoria: the Curse of Potential Oil Wealth

https://soundcloud.com/imf-podcasts/james-cust-on-oil-discoveries

https://blogs.imf.org/2018/03/09/beware-of-strike-it-rich-euphoria-the-curse-of-potential-oil-wealth/

The resource curse, or paradox of plenty, is when countries with an abundance of natural resources suffer stagnant economic growth or even contraction.

In this podcast, World Bank economist James Cust, says the problem of eradicating extreme poverty is going to be about how resource-rich countries manage their resource wealth.

"The share of the world's poor living in resource-rich countries in the year 2000 was less than 25 percent, but by 2030 it will be almost 75 percent," says Cust. 

While the resource curse is notorious, Cust has his sights set on the lesser known presource curse. He says the latter is not an effect from oil exports, as is the case for the better-known resource curse, but rather an effect from the discovery of oil or other natural resources.

"We find that some countries have experienced problems in growth, even before production begins—before a single barrel of oil is taken out of the ground," he says.

Expectations form the basis of the curse, he adds, and countries, governments and citizens alike suffer from a strike-it-rich euphoria. This emboldens governments to increase spending and borrowing, and in some cases, it leads to economic crises when oil prices collapse, he says.

In theory, major resource discoveries should propel growth. But in practice, Cust says the opposite is often true. Keeping that in mind, Cust has a simple recommendation for countries to avoid the presourse curse.

"Don't count your chickens before they've hatched."

Take Ghana and Tanzania, which both had major discoveries of oil during the commodities boom. Ghana got off to a good start. The government put in place a strong petroleum revenue management program that specified how to use the oil revenues, and included a savings fund for future generations. It saved about $500 million from oil revenues. Unfortunately, the country borrowed about $4.5 billion. Although it didn't break the rules of their petroleum revenue management act, it defied the spirit of it, Cust says. And when the oil price crashed in 2014, oil revenues dried up, growth slumped.  

Tanzania took a different path. The government didn't increase borrowing to the same extent as Ghana, and didn't increase spending to unsustainable levels. So, when oil prices crashed in 2014, they weren't as vulnerable as Ghana was. 

Fortunately, Cust says lessons from Ghana and Tanzania's experience can help the current roster of nations grappling with these same challenges learn, and in turn, smartly manage their own major discoveries. 

VISIT WEBSITE

 -- via my feedly newsfeed

Mark Thoma Links for 03-09-18 [feedly]

Links for 03-09-18
http://economistsview.typepad.com/economistsview/2018/03/links-for-03-09-18.html

I kind of got behind...

• The gendered impact of eliminating mandatory retirement - Frances Woolley
• What Do Stock Prices Tell Us about the Economy? - Uneasy Money
• The productivity slowdown and labor's income share - Equitable Growth
• A new take on low interest rates and risk taking - VoxEU
• Publicly funded applied research pays off - VoxEU
• The Real Engine of the Business Cycle - Amir Sufi & Atif Mian
• Will China Out-Innovate the West?- Edmund S. Phelps
• The Blockchain Pipe Dream - Nouriel Roubini & Preston Byrne
• Trump's Tax on America - Brad DeLong
• What Insights Do Taxi Rides Offer into Federal Reserve Leakage? - Promarket
• Airlines Use Earnings Calls to Coordinate Capacity Reductions - ProMarket
• A Ranting Old Guy With Nukes - Paul Krugman
• Krugman's Taking Your Questions on Trade - The New York Times
• Oh, What a Trumpy Trade War! - Paul Krugman
• Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933 - NBER
• A First Look at Employment - macroblog
• The Misthinking of Globalization—Past, Present, and Future - IGM Forum
• This article at Vox summarizes everything that I've been trying to say - Environmental Economics
• How Will the U.S. Fund its Twin Deficits? - Brad Setser
• Saving the heartland: Place-based policies in 21st Century America - Larry Summers
• Cochrane Fails to Make His Case for the Trump Tax Cut Again - EconoSpeak
• D is for Devastating: A Statistical Error and the Vitamin D Saga - Carola Binder
• The 2016 Sterling Flash Episode - Bank Underground
• Preventing Bank Runs - FRB Richmond
• Did the Dodd-Frank Act End 'Too Big to Fail'? - Liberty Street Economics
• Currency markets send a warning on the US economy - Larry Summers
• E.U. Pledges to Fight Back on Trump Tariffs as Trade War Looms - The New York Times
• A new fiscal policy for a world of accelerated change and artificial intelligence - Brookings
• Economic Forecasts with the Yield Curve - FRBSF
• Bank Financing: The Disappearance of Interbank Lending - Cecchetti & Schoenholtz
• Janet Yellen: 10 quotes on her past and the economy - Brookings
• Questions - Tim Duy's Fed Watch
• The Macroeconomics of Trade War - Paul Krugman
• Consensus and mutual understanding - Understanding Society
• The economic and political cost of UK austerity - mainly macro
• Why do beginner econometricians get worked up about the wrong things? - Frances Woolley
• Sorting, incentives, and excessive managerial pay - VoxEU
• Top5itis: The Disease that Affects Economics - ProMarket

 -- via my feedly newsfeed

Alabama’s Proposal Will Cost Thousands Their Medicaid Coverage, Won’t Encourage Work

----
Alabama's Proposal Will Cost Thousands Their Medicaid Coverage, Won't Encourage Work // Center on Budget: Comprehensive News Feed
https://www.cbpp.org/blog/alabamas-proposal-will-cost-thousands-their-medicaid-coverage-wont-encourage-work

Alabama, which has refused to expand Medicaid for low-income adults under the Affordable Care Act (ACA), is now proposing to make work a condition of Medicaid eligibility for very low-income parents, stating that it wants to encourage work.


----

Read in my feedly.com

Sam Webb: Tariffs, spontaneous surges, and socialism

Tariffs, spontaneous surges, and socialism

Sam Webb

i1. The quick embrace of Trump's protectionist proposals by the steelworkers union strikes me as a bad idea. Among other things, allying yourself to Trump, especially when he seems to be unraveling and opposition to him is growing, is shortsighted.

Moreover, these proposals if enacted could easily divide the union. Canadian workers, who will be adversely affected by them, won't be happy. Nor will steelworkers in other countries.

And who knows how serious this proposal is, It could easily be the impulsive and momentary ravings of a president who is melting down on the one hand and on the other hand is anxious to activate his base this fall and in 2020 when voters go to the polls. Remember Trump's support for Dreamers and comprehensive gun controls? There one day; gone the next!

Finally, anyone who is a partisan of the working class, has to account for the larger impact of such proposals on the entire class of wage and salary workers. Retaliatory steps by other countries can be expected if the proposals are implemented, which, in turn, will likely come back to bite U.S. workers and cause divisions among working people here and globally.

When I was in the Communist Party, we weren't against the regulation of trade or investment, but protectionism was never part of that conversation. Working class unity and interests, writ large, were. Not sure what the position is now, although I was surprised to read an article on the website of People's World that had not even a hint that Trump's proposals and the union's endorsement of them might be problematic in some ways.

2. I just heard that West Virginia teachers and other public sector workers won a 5 per cent wage increase. And they did it in a right to work state and in the face of a mean spirited, right wing Republican legislature and governor. Against this backdrop — not to mention the decades old uphill struggle of the labor movement — it's a stunning victory and will surely give hope and inspiration to working people elsewhere. No doubt lessons will be culled from this experience.

Others who are more familiar with the details of this strike will do that, but I would make one observation: It strikes me that the strike and its success is an inseparable part of the powerful surge of spontaneous protest actions coming on the immediate heels of Trump's election. Led largely by women who are newcomers to activist politics and operating at a distance from the traditional labor-liberal-left organizational infrastructures and networks, these actions are reshaping the political terrain in red and blue states alike. What was considered improbably has become doable, what was considered unreachable is now within reach. Needless to say, this augers well for the future — not least the elections this fall.

3. Watching the consolidation and centralization of power by Chinese president and Communist Party leader Xi Jinping makes me appreciate once again the warning of the great Marxist historian, E.P. Thompson decades ago:

"I am told that, just beyond the horizon, new forms of working class power are about to arise which, being founded upon egalitarian productive relations, will require no inhibition and can dispense with the negative restrictions of bourgeois legalism. A historian is unqualified to pronounce on such utopian projections. All that he knows is that he can bring in support of them no evidence whatsoever. His advice might be: watch this new power for a century or two before you cut down your hedges." (Whigs and Hunters)

4. Below is an article on Vietnam, written by C.J. Atkins. While I found it very informative, I came away with two concerns. First, does it make sense to say that a "socialist oriented market economy' is an oxymoron? Second, can any take on Vietnam after 50 years avoid the subject of the depth and extent of Vietnam's democratic culture and practices?

Vietnam: 50 years after the Tet offensive

HO CHI MINH CITY, Vietnam—On the bustling streets of Ho Chi Minh City, for at least a moment, it's possible to forget that this was once the center of a war zone. Just over fifty years ago, on January 30, 1968, the grounds of the American embassy in Saigon (as this city was then known) … Continue readingVietnam: 50 years after the Tet offensive

People's World

--

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, The Enlighten Radio Player Stream, 

Sign UP HERE to get the Weekly Program Notes.

Check out Socialist Economics, the Enlighten Radio website, and 

The Poets and Mechanics Quaker Worship Group