socialist-economics

Wednesday, November 30, 2016

Dean Baker: The Huge Costs of Trump Energy Plans [feedly]

The Huge Costs of Trump Energy Plans
http://cepr.net/publications/op-eds-columns/the-huge-costs-of-trump-energy-plans

Dean Baker
Philadelphia Inquirer, November 29, 2016

Billings Gazette, November 29, 2016
Honolulu Star-Advertiser, November 29, 2016
Lacrosse Tribune, November 29, 2016
Chippewa Herald, November 28, 2016
Winona Daily News, November 28, 2016
Lawton Constitution, November 27, 2016
Rome News-Tribune, November 27, 2016
Spartanburg Herald Journal, November 27, 2016
Hendersonville Times-News, November 27, 2016
Willimantic Chronicle, November 27, 2016
Chambersburg Public Opinion, November 27, 2016
Edmond Sun, November 27, 2016
Fairmont West Virginian, November 27, 2016
Korea Herald, November 26, 2016
Sacramento Bee, November 24, 2016
Bellingham Herald, November 24, 2016
McClatchy News Service, November 24, 2016
Tribune News Service, November 24, 2016

See article on original site

In the last two years, North Dakota has lost almost half its jobs in the oil and coal industries.

The losses aren't the fault of pesky environmentalists worried about groundwater contamination and global warming. They're the result of collapsing world energy prices.

The story of the North Dakota oil and gas industry captures the absurdity of President-elect Trump's plans to remove environmental restrictions on fossil-fuel production.

Apparently, he wants us to believe a boom in production would lead to massive job growth and plunging energy prices and no negative consequences. But the story of an energy boom just around the corner is an illusion.

As in North Dakota, it's not environmental restrictions that are holding back the U.S. fossil-fuel industry. It's the market. Oil is readily available on world markets for $45 a barrel, less than half its price of three years ago.

At this price, it is not profitable to drill for more oil or gas in most of the areas Trump wants to open up to the fossil-fuel industry. And removing such restrictions would have an unnecessary, negative impact on some of America's most scenic sites.

The industry will always want to drill where it's cheapest. This means that if Trump allows drilling in picturesque, historic areas that are now protected, and such operations prove slightly cheaper than already blighted sites in Texas or North Dakota, then Exxon-Mobil, Shell, and the rest will shift their operations to the lowest-cost area.

If we follow Trump and put a cheap price on preserving nature, then we can be assured there will be less nature to preserve. That will in no way make America great again.

The same goes for our drinking water. Fracking has been restricted in many parts of the country because of the risk to drinking water and the local environment.

If Trump is able to reverse state and local bans on fracking, he will in effect be giving oil and gas companies the right to pollute people's farms and drinking water. Apparently, Trump and his followers don't care about people's property rights.

But the biggest tragedy in this story is damage done to the planet through increased emissions of greenhouse gases. We all know Trump says global warming is a hoax invented by China.

Who knows or cares whether he actually believes that rising Arctic temperatures, rising ocean waters, growing deserts in Africa, droughts in California, and other climate disruptions are all inventions of the Chinese. These are the problems that those of us who live in the real world have to confront.

And the problems facing our children will be much larger if we don't take serious steps to reduce greenhouse gas emissions. This damage is in many ways irreversible. The carbon we put into the atmosphere today will stay there for hundreds of years.

Perhaps the most painful part of this story is that we are not even getting anything in return for causing this damage.

Trump is not going to create millions of new jobs with his drill-everywhere policy. He is not going to put West Virginia coal miners back to work.

In fact, his policy will probably hasten the destruction of the coal industry as it makes natural gas even cheaper.

What we are talking about is a policy with potentially enormous environmental costs with virtually no economic benefits, unless you happen to own lots of stock in oil and gas companies.

Perhaps that makes it a sound like good policy for a Trump administration, but the rest of us probably care more about our kids and the planet.

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Links for 11-29-16 [feedly]

Links for 11-29-16
http://economistsview.typepad.com/economistsview/2016/11/links-for-11-29-16.html

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Recent Economic Developments and Longer-Run Challenges [feedly]

...Interesting a a measure of pessimism still strong at the Fed....very slippery, wishing for high productivity in a market with a rising proportion of intangibles -- the latter don't measure well cuz they are, as Samuelson wrote long ago, "squshy commodities of dubious tradeable value"

Recent Economic Developments and Longer-Run Challenges
http://economistsview.typepad.com/economistsview/2016/11/recent-economic-developments-and-longer-run-challenges.html

Federal Reserve Governor Jerome Powell (for a more optimistic take on the "new normal," see Is Our Economic Future Behind Us? by Joel Mokyr):

Recent Economic Developments and Longer-Run Challenges: ...Longer-Run Challenges Productivity and Growth

Let's turn to longer-run challenges, and start by asking why growth has been so slow, and how fast we are likely to grow going forward. This next slide shows the five-year trailing average annual real GDP growth rate (figure 8). By this measure, growth averaged about 3.2 percent annually through the 1970s, the 1980s, and the 1990s. But growth began to decline after 2000 and then nose-dived with the onset of the Global Financial Crisis in 2007 and the slow expansion that followed. Since the financial crisis ended in 2009, forecasters have gradually reduced their estimates of long-run trend growth from about 3 percent to about 2 percent--a seemingly small difference that would make a huge difference in living standards over time.³

How much of this decline is just a particularly bad business cycle, and how much represents a long-run downshift? To get at that question, let's take a deeper look at the growth slowdown. We can think of economic growth as coming from two sources: more hours worked (labor supply) or higher output per hour (productivity). Hours worked mainly depends on growth in the labor force, which has been slowing since the mid-2000s as the baby-boom generation ages. As you can see, the labor force is now growing at only about 0.5 percent per year (figure 9). Another way to see this is through the sustained increase in the ratio of people over 65 to those who are in their prime working years (figure 10). This long-expected demographic fact has now arrived, and it has challenging implications for our potential growth and also for our fiscal policy.⁴

The unexpected part of the growth slowdown reflects weak productivity growth rather than lower labor supply. Labor productivity has increased only 1/2 percent per year since 2010--the smallest five-year rate of increase since World War II and about one-fourth of the average postwar rate (figure 11). The slowdown in productivity has been worldwide and is evident even in countries that were little affected by the crisis (figure 12). Given the global nature of the phenomenon, it is unlikely that U.S.-specific factors are mainly responsible.

A portion of the productivity slowdown is undoubtedly due to low levels of investment by businesses. The financial crisis and the Great Recession left firms with excess capacity, reducing incentives to invest. If businesses expect slower growth to continue, that will also hold down investment.

The other important factor is the decline in what economists call total factor productivity, or TFP, which is the part of productivity that is not explained by capital investment or increases in the skills of the labor force. TFP is thought to be mainly a function of technological innovation and efficiency gains.

There is no consensus about the future direction of productivity.⁵ The pessimists argue that the big paradigm-changing innovations, such as electrification or the advent of computers, are behind us. If that is so, then our standard of living will increase more slowly going forward. The optimists think that this slowdown is only a passing phase and that the age of robots and machine learning will transform our economy in coming decades. Still others argue that we are currently underestimating productivity and output because of the real difficulties we face in measuring GDP in a modern economy. For example, how do we measure the value-added of free digital services like Facebook or Twitter?⁶

The future is, as always, uncertain. But I would sum up the growth discussion as follows. Growth in the labor force has slowed, and we can estimate it with reasonable confidence to be only about 0.5 percent. Growth in productivity is both more important and much harder to predict. Productivity varies significantly over time, as figure 11 showed. If productivity growth returns to, say, 1.5 percent, then the U.S. economy could grow at about 2.0 percent over the long term. Actual growth may turn out to be weaker or stronger, and the choices we make as a society will have something to say about that.

Why Are Long-Term Interest Rates So Low?

Let's turn to the related question of why long-term interest rates are so extraordinarily low in advanced economies around the world. The yield on our own benchmark 10-year U.S. Treasury security has increased lately, but at 2.3 percent it is still far below what was normal before the financial crisis. In fact, this next chart shows that, as growth and inflation have fallen, longer term interest rates have fallen as well over the past 35 years (figure 13).

So why are long-term interest rates so low? Many of you will no doubt be thinking, "They are low because you people at the Fed set them low!" While there is an element of truth there, that is not the whole story. The FOMC has considerable control over short-term interest rates. We have much less influence over long-term rates, which are set in the marketplace. Long-term interest rates represent the price that balances the supply of saving by lenders and demand for funds by borrowers, such as businesses needing to fund their capital expenditures. Lenders expect to receive a real return and to be compensated for inflation and for the risk of nonpayment. Meanwhile, borrowers adjust their demand for funds based on their changing assessment of the risks and expected returns of their investment projects. When desired saving rises or investment demand falls, then long-term interest rates will decline. Today's very low level of long-term rates suggests that both of these factors are at play.

Both expectations of slower growth and the aging of our population are having significant effects on desired saving and investment and are thus important causes of lower interest rates. If the economy is expanding more slowly, then the level of investment needed to meet demand will be lower. The lower path of growth reduces future income prospects of households, and they will tend to raise their saving. The pending retirement of baby boomers means higher saving, because people tend to save the most in the years just before their retirement. In addition, the lower rate of return on capital owing to lower productivity growth will lead to less investment and lower interest rates.

As with productivity, the factors behind the fall in U.S. interest rates include an important global component, as rates are low around the world. Indeed, although our rates are near historical lows, U.S. Treasury rates are among the highest among the major advanced economy sovereigns (figure 14).

Is This the New Normal?

What can we do to prevent low growth, low inflation, and low interest rates from becoming the new normal? We need to focus on ways to increase our long-term growth and spread that prosperity as broadly as possible. I hasten to add that these policies are, for the most part, outside the purview of the Federal Reserve. We need policies that support productivity growth, business hiring and investment, labor force participation, and the development of skills. We need effective fiscal and regulatory policies that inspire public confidence. Increased spending on public infrastructure may raise private-sector productivity over time, particularly with the growth of the stock of public infrastructure near an all-time low.⁷ Greater support for public and private research and development, and policies that improve product and labor market dynamism may also be fruitful.⁸ Monetary policy can contribute by supporting a strong and durable expansion in a context of price stability.

Monetary Policy
The low interest rate environment presents special challenges for monetary policy. In setting our target for the federal funds rate, a good place to start is to identify the rate that would prevail if the economy were at 2 percent inflation and full employment--the so-called neutral rate. "Neutral" in this context means that the rate is neither contractionary nor expansionary. If the fed funds rate is lower than the neutral rate, then policy is stimulative or accommodative, which will tend to raise growth and inflation. If the fed funds rate is higher than the neutral rate, then policy is tight and will tend to slow growth and reduce inflation.

But we can only estimate the neutral rate, and those estimates are subject to substantial uncertainty. Before the crisis, the long-run neutral rate was generally thought to be roughly stable at around 4.25 percent. Since the crisis, estimates have steadily declined, and the median estimate by FOMC participants stood at 2.9 percent in September. Many analysts believe that the neutral rate is even lower than that today and will only return to its long-run value over time.⁹ The low level of the neutral interest rate has several important implications. First, today's low rates are not as stimulative as they seem--consider that, despite historically low rates, inflation has run consistently below target and housing construction remains far below pre-crisis levels. Second, with rates so low, central banks are not well positioned to counteract a renewed bout of weakness. Third, persistently low interest rates can raise financial stability concerns. A long period of very low interest rates could lead to excessive risk-taking and, over time, to unsustainably high asset prices and credit growth. These are risks that we monitor carefully. Higher growth would increase the neutral rate and help address these issues.

Turning to the outlook for monetary policy, incoming data show an economy that is growing at a healthy pace, with solid payroll job gains and inflation gradually moving up to 2 percent. In my view, the case for an increase in the federal funds rate has clearly strengthened since our previous meeting earlier this month. Of course, the path of rates will depend on the path of the economy. With inflation below target, relatively slow growth, and some slack remaining in the economy, the Committee has been patient about raising rates. That patience has paid dividends. But moving too slowly could eventually mean that the Committee would have to tighten policy abruptly to avoid overshooting our goals.

Conclusion
To wrap up, since the end of the Great Recession in 2009, our economy has recovered slowly but steadily. Today, we are reasonably close to achieving full employment and our 2 percent inflation objective. But we face real challenges over the medium and longer terms. Our aging population will mean slower growth, all else held equal. If living standards are to continue to rise, we need policies that will support productivity and allow our dynamic economy to generate widespread gains in prosperity.

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How the Democrats could win again, if they wanted

https://www.theguardian.com/commentisfree/2016/nov/29/how-the-democrats-could-win-again-if-they-wanted?CMP=Share_AndroidApp_Gmail

Tuesday, November 29, 2016

Eastern Panhandle Independent Community (EPIC) Radio:Addicted!! On the Are You Crazy Show Podcast Nov 30

John Case has sent you a link to a blog:

Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Addicted!! On the Are You Crazy Show Podcast Nov 30
Link: http://www.enlightenradio.org/2016/11/addicted-on-are-you-crazy-show-podcast.html

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EPIC Radio Podcasts:Tbe Labor Beat 2016 Election Review --Nov 17, 2016 -- in Two Parts

John Case has sent you a link to a blog:

Blog: EPIC Radio Podcasts
Post: Tbe Labor Beat 2016 Election Review --Nov 17, 2016 -- in Two Parts
Link: http://podcasts.enlightenradio.org/2016/11/tbe-labor-beat-2016-election-review-nov.html

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Eastern Panhandle Independent Community (EPIC) Radio:OCCUPY West Virginia on EPIC Radio

John Case has sent you a link to a blog:

Occupy West Virginia on EPIC Radio

Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: OCCUPY West Virginia on EPIC Radio
Link: http://www.enlightenradio.org/2016/11/occupy-west-virginia-on-epic-radio_29.html

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