Short comments

1.  Unemployment is falling very fast.  Since December 2012 the unemployment rate has fallen from 7.9% to 6.3%.  That’s really fast, 1.6% in 16 months.  By comparison, between February 1984 and April 1987 the unemployment rate fell from 7.8% to 6.3%.  That’s really slow, 1.5% in 38 months.  In the Clinton boom it fell from 7.8% to 6.4% in 22 months.  Tyler Cowen links to a post that predicts further fast declines in unemployment.  The post says the conventional wisdom is that unemployment will level off in the low 6s.  But why is this the conventional wisdom?  Why won’t it keep falling?

[And don’t say the unemployment rate doesn’t measure the actual condition of the labor market. That has no bearing on whether this (highly flawed) indicator will keep falling.]

Monthly household data is erratic—in my view the next three payroll numbers will tell us a lot about the US labor market.  By the fall I’ll probably have a new view of the economy, perhaps with some mea culpas.  At least if we get sub-200,000 or over 275,000 payroll numbers for the next three months.

2.  It’s all about the life cycle.  For years I’ve been arguing that income inequality and wealth inequality data is almost meaningless, for all sorts of reasons.  One is life-cycle effects.  Arnold Kling has an excellent article that discusses a recent study that shows that while only 67% of Americans own homes at the moment, 89% have purchased homes by age 55.  Very few Americans go through life without being homeowners.

Recall the study that showed 73% 0f Americans are in the top 20% at some point during their lives.  And Dems wonder what’s wrong with Kansas!  What wrong with economists who don’t understand life-cycle effects?

3.  Ashok Rao has a great post skewering the attitudes of the eurozone elite.  This elite used to insist the ECB not ease policy to boost recovery because they needed to focus like a laser on 1.9% inflation.  Now that inflation is only 0.6% and the ECB has announced a plan to do exactly what the elite claimed to want, you get questions like this from the centrist paper Die Zeit:

Prices and wages in den crisis countries had risen far too rapidly over many years. The low rate of inflation helps companies there to regain competitiveness vis-à-vis rivals in the north. Why do you want to counter that?

The only mystery here is why the ECB official didn’t merely respond with “never reason from a price change.”  I can’t believe I’ve reached the point of defending the ECB.  Has it gotten that bad?

4.  Lorenzo has a great post on banking instability:

Something that is very clear, is that “de-regulation” is a term empty of explanatory power. All successful six have liberalised financial markets–Australia and New Zealand, for example, were leaders in financial “de-regulation”. If someone starts trying to blame the Global Financial Crisis(GFC) on “de-regulation”, you can stop reading, they have nothing useful to say.

He also has interesting things to say on the “small is beautiful” argument for small countries.

5.  In an earlier post I discussed Thomas Piketty’s claim that “all the historical data” showed that workers real wages had done poorly during the early stages of the industrial revolution.  Mark Sadowski left a comment that clearly shows this is a highly contentious issue.



17 Responses to “Short comments”

  1. Gravatar of Steve Roth Steve Roth
    4. June 2014 at 06:30

    Arnold makes some good suggestions for better measures of wealth/income concentration. He should do the research and share the results with us.

    He doesn’t mention another key set of measures, though, that would speak volumes: how have his recommended measures (i.e. lifetime odds of home ownership, being in top XX% income bracket, etc.) changed over time? Enquiring minds…

    Your point about lifecycle effects is well-taken. Would be great to see this much better explicated. But from at least one perspective it’s beside the point. If 1. economic incumbents increasingly dominate the claims on output (a.k.a. “wealth”), and 2. a large and/or growing share of that incumbency derives from inheritance, does it matter greatly which age groups dominate within the incumbent group?

    Or to ask it another way: do we derive any economic value from extremely high net-worth and long-lived financial dynasties — excepting members of those dynasties?

    Which brings me to ridicule Piketty’s unworkable wealth-tax idea. (Though the “global” part is a worthy long-term goal.) We’ve already got an excellent wealth tax that requires individuals’ net worth to be calculated only once per lifetime. Turn it up!

  2. Gravatar of Joseph Joseph
    4. June 2014 at 08:26

    With regards to the unemployment rate, I remember seeing, maybe 2 months ago, something by Justin Wolfers, saying that since about the end of recession, until recently the steady state unemployment rate, based off job separation rates and job hiring rates, has been below the actual unemployment rate but they have now more or less equalised.
    His point being that the recession created a large pool of unemployed workers, but that we had finally chewed our way through them and that any further drops in the unemployment rate would have to be due to an increase in the job finding rate, and no corresponding increase in the separations rate, which are both at lower than average levels so any increase in the job findings rate would likely be matched by the separations rate.

    Here’s a graph with what I believe are the relevant rates.

  3. Gravatar of benjamin cole benjamin cole
    4. June 2014 at 10:11

    The ECB is fomenting political extremism while asphxiating Europe.
    Central banking is too important to be left to central bankers.

  4. Gravatar of ssumner ssumner
    4. June 2014 at 12:06

    Steve, I’m not too worried about dynasties.

    Wealth is the present value of future consumption. A VAT is essentially a wealth tax, in the long run.

  5. Gravatar of charlie charlie
    4. June 2014 at 12:14

    Can inflation be meaningfully disaggregated by euro country? This paper suggests so:

    If so, I wonder what the Germany-only inflation rate has been the past few years. If it is closer to 2%, then a lot of things make sense.

  6. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. June 2014 at 12:22

    For those who worry that it has only been the rich who got richer since the 1970s;

  7. Gravatar of Doug M Doug M
    4. June 2014 at 13:33

    German CPI.
    2011 2.0%
    2012 2.0%
    2013 1.4%
    last 12 months 0.9%

  8. Gravatar of charlie charlie
    4. June 2014 at 14:32

    Doug M, thanks for the numbers. I guess they are bringing it on themselves, as well, then.

  9. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    4. June 2014 at 16:39

    James Hamilton has some fun at Econbrowser;

    ‘The fact that Brad mentions such a wide range of possible values makes it obvious that defending a particular number for δ is anything but cut and dried. If you look at the assumed depreciation rates that underlie the national income accounts to which Brad appeals, you will find that rates of 10-20% are quite common for most forms of producers’ machinery and equipment (and perhaps it would be unfair at this point to mention the fine study by DeLong and Summers (1991) which concluded that this is the category of capital to which we should pay the most attention).’

  10. Gravatar of Alex Alex
    5. June 2014 at 00:08

    Just on that fourth point about deregulation; how is Australia deregulated exactly? We have 4 main banks with about 80% of the saving and loans markets, and the regulator (APRA) ensures that we more or less keep that structure, putting up fairly high barriers to entry.
    I don’t know if that flows through to NIMs or other measures, as I’m not sure of comparable measures in other countries, but it seems odd to say we’ve deregulated our financial markets given the paucity of banks and insurers, as well as the fairly explicit discussions which happened after the 91 recession (caused in part by the expectation of financial deregulation).

  11. Gravatar of Steve Roth Steve Roth
    5. June 2014 at 03:56

    “Wealth is the present value of future consumption. A VAT is essentially a wealth tax, in the long run.”

    That seems…idealized at best. Better, I think: Wealth is the collective claims on future production. (That’s what financial assets are: legal claims.)

    If increasing concentrations of wealth in the hands of dynasties results in those claims turning over more slowly relative to the counterfactual — less velocity, less spending on newly produced goods and services — that Really Matters.

    “The Fed Moves Last” model, of course, says it doesn’t matter. But nobody ever moves last.

  12. Gravatar of Steve Roth Steve Roth
    5. June 2014 at 04:08

    “Idealized” in that: it’s suggesting the market is accurately predicting all future consumption.

    As opposed to allocating claims against the future, whatever that may be.

  13. Gravatar of ssumner ssumner
    5. June 2014 at 07:34

    Charlie, German inflation no longer matters, just as Ohio inflation doesn’t matter.

    Patrick, Both comments are funny.

    Alex, The large number of banks in America is a product of regulation, bad regulations. You are lucky to have smaller number of big banks (like Canada.) The system is more stable that way.

    Steve, Velocity doesn’t matter. The Fed simply offsets changes in velocity (except perhaps at the zero bound, but that’s an entirely unrelated problem, having nothing to do with wealth inequality.)

  14. Gravatar of dannyb2b dannyb2b
    5. June 2014 at 13:56

    “The Fed simply offsets changes in velocity (except perhaps at the zero bound, but that’s an entirely unrelated problem, having nothing to do with wealth inequality.)”

    Why cant fed offset v at zlb?

  15. Gravatar of ssumner ssumner
    6. June 2014 at 05:32

    Danny, It can, but doesn’t always do so because that puts them outside its comfort zone.

  16. Gravatar of Lorenzo from Oz Lorenzo from Oz
    10. June 2014 at 01:43

    Thanks for the link! (I only just noticed.) Fragile by Design is a great read and prompted a series of posts from yours truly.

  17. Gravatar of Grandpa Sumner At It Again | MattBruenig | Politics Grandpa Sumner At It Again | MattBruenig | Politics
    30. September 2014 at 16:16

    […] this bullshit about how wealth inequality is really about life-cycle effects. He has though over and over. He has never thought to age-control wealth data and he also has no idea how they work. […]

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