Posts Tagged ‘Economy’
But since mid-October, there has been an unmistakable reversal in the inflation-expectations trend. Based on 5-year breakevens, all of the September spurt has been erased. And 2-year breakevens are back at July levels. Given my optimism over the Fed’s September moves and the apparent strength of underlying fundamentals in the economy, I would like to disregard this trend, but one should be very reluctant to abandon guideposts that have served one well just because they’ve moved in an inconvenient way.
In this time of economic uncertainty and political strife, the United States must play to its strengths. Our most enduring strength – the thing that sets us apart and ahead – has always been that we are the country where the world’s best want to live. In return for the chance to live here, immigrants have time and again helped our nation to maintain its pole position among the nations of the Earth.
Matt Mitchell at the Mercatus Center points out that, “after 60 years, the private economy is 5 times its 1950 size. But state and local governments are spending almost 13 times as much as they did in 1950,” in the graph below.
Josh Barro also looks into this issue; focusing on San Jose he says, “In other words, the city made a lot of promises that it could barely afford when times were good, and now that times are bad, it really can’t afford them.” And uses the graph below to point out the recessions impact on local public sector jobs in San Jose.
Ezra Klein sees the same data in an entirely different way. He notes:
That said, the place where you can most fairly blame the government for the shape of the labor market is in public-sector jobs. The federal government can choose to hire, fire or hold employment steady. It can give states money to keep emmployees on the job, or it can withhold that money. So the fact that the public sector is losing jobs isn’t just a problem, but a problem that the federal government could, with 100 percent certainty, fix. Today’s press conference wasn’t about whether the private sector is fine. It was about whether Congress could do more for both the private and public sectors. And that’s what we should be talking about.
Thanks to Tyler Cowen for the pointer on much of this.
So, for the recovery to take hold its not necessary that workers salaries go up or even that an increasing fraction of national income go to workers. Its entirely possible that a decreasing fraction could go to workers, but that corporations and their shareholders will do better.
Need some evidence? Here is a graph of inflation adjusted manufacturing average wages versus inflation adjusted manufacturing production.
As a little retort to the Krugman op-ed j linked this morning. From Fed President Narayana Kocherlakota via The Wall Street Journal:
“I see [inflation] changes as a signal that our country’s current labor market performance is much closer to ‘maximum employment’ than the post-World War II U.S. data alone would suggest,” Kocherlakota said. “As I’ve argued in the past, appropriate policy should be responsive to such signals.”
The present economic dilemma in which setting short-term nominal interest rates to zero has failed to revive the economy looks exceptional from our present perspective but will in fact be typical of future recessions.
The cause of this, according to Yglesias is an aging population (illustrated below by population pyramids from Flatrock.org).
Export success will resurrect the United States as a dominant global economic power. America will be wealthier, its products will have greater global reach, and it will largely cure its trade imbalance with China. The fear of American foreign policy being determined by Beijing, or constrained by the financial resources of the Chinese central bank, will be forgotten. No one will view the United States as the borrowing supplicant in the U.S.-China economic relationship, and, all else equal, our exports to China will increase friendly feelings toward that country.
During the industrial revolution, there were far fewer obstacles to the sweeping economic change generated by transformative technologies. That lack of obstacles generated more than a few nasty outcomes, including labour and environmental conditions at which we now recoil. We’re nonetheless grateful, I think, that it occurred and was so transformative. Today’s economies simply aren’t as flexible as they used to be. If that leaves whole sectors of the economy walled off from change, then the impact on growth in incomes, employment, and especially living standards could be significant.
Read both posts. They are interesting, especially Cowen’s article. As my title suggests this should be the topic of the Obama-Romney debates.