When Dave Aeikens was on my program on Saturday he mentioned an citizen's journalism academy he was hoping to run for Minneapolis. It appears to be a go:

I am writing to let you know that the Society of Professional Journalists will be bringing one of its national training programs to Minneapolis in June. The Citizen Journalism academies are designed to help provide advice and information to journalists not affiliated with newsrooms or who have not had formal training about gathering and reporting news. The program provides primers on ethics, state open records laws, media law, writing for online audiences and a look at the latest technological trends that people are using to cover the news. The Minneapolis Academy is the fifth in a series that started in 2008. We have had successful stops in North Carolina, Los Angeles and Chicago. A program is planned for Denver in May.

Minneapolis is an obvious place to conduct this event because of the great outpouring of citizen journalists in Minnesota.

I am hoping you will help me spread the word about this event to your friends and colleagues. I have provided a link that better explains the programs and describes some of the speakers we have lined up for Minneapolis. We will be completing the program lineup in the next few weeks.

http://www.spj.org/cja.asp

Word spread, Dave. The link says the Minneapolis session is June 13, at the StarTribune. Cost is $40 which includes lunch.

Labels: Media

The banking system can increase or decrease the money stock, but there is nothing unique about this power. Any holder of money balances can produce effects on the money stock similar to those produced by banks (though not through creation or extinction of deposits). When banks reduce their holdings of high-powered money by making loans and thereby reduce their reserve ratio, they increase the money stock; but the public also increases the money stock (eventually) when it reduces its holdings of high-powered money in relation to deposits (assuming banks maintain the same reserve ratio). Changes the currency-money and reserve-deposit ratios, therefore, have similar effects on the money stock, though they represent high-powered balances in relation to deposits of two different sectors, the banks and the public, which view deposits differently-banks, as a liability, and the public, as an asset. The two ratios are nevertheless separated in the analysis to follow, because they behave in different ways.

From a very old essay by Philip Cagan. Many people want to wonder how it is that we can print as much money as we have and how it could not lead to inflation, and why we might have deflation. The answer comes in distinguishing monetary base from the money supply.

Monetary base or "high-powered money" (as we used to call it) is measured by the liabilities of the Federal Reserve. Jim Hamilton over the weekend had two posts highlighting how the Fed's activities in extending credit to all and sundry has exploded the balance sheet of the Fed. He asks at the end of the first post "Does the explosive growth of the monetary base ... imply uncontrollable inflationary pressures? My answer: not yet, but stay tuned." That takes us to the second post where he argues the Fed has hamstrung itself in creating these new lending facilities and tripling its liabilities.

Sure, but the fact remains that the relationship is between money supply and inflation or deflation, not monetary base. To get from one to the other you have to look at the other two routes that Cagan identifies. Both the public and the banks can demand monetary base and keep it, rather than have it create money. Indeed, the process of, for example, American citizens withdrawing deposits and sticking the resulting cash in the mattresses of their beds would destroy money created by deposit expansion. Since at least half of our currency is held overseas (largely by private citizens as a store of value), instability in those countries increases the demand for base money. Interestingly in this recession, so far we have not seen a run for currency -- the ratio of currency to deposits has remained relatively stable over the last two years.

Likewise, banks can decide to hold reserves against their deposits in greater proportion during times of turbulence. Particularly beginning in fall when the ability of banks to attract overnight loans was damaged in the credit crunch, banks relied on the old fashioned means of putting cash away in the vault or on deposit at the Fed (it's too soon to say whether the Fed's decision to pay interest on deposits has had any impact on this.)

We write about the wall of monetary base as if it is an excess supply of bank reserves; it's almost certainly not in the present environment. When it is, only then can it be inflationary. We can, of course, use government force to increase the demand for base money -- for instance, by reimposing reserve requirements on time deposits -- and limit inflation this way. We normally don't use reserve requirements for monetary policy only because it's a blunt, powerful tool. Yet it wouldn't be out of line to use it as part of a solution. (I doubt this would be news to the Bernanke Fed, btw.)

The public's demand for money has also increased, as shown by the decrease in the velocity of money (the inverse of which is the share of one's income one is holding as money.) I show here both M1 and M2 velocity, using personal income as a representation of GDP.


People in uncertain times want to hold on to money relative to other assets, and once again, inflation is the result of an excess supply of money. Our fears of inflation imply that the increased demand for reserves (by banks) and money (by the public) are temporary phenomena, bound to reverse in more normal times that are in the offing. I'm not sure why we believe this to be true. The disappearance of some asset classes, and the increased perception of risk in many others, would lead to a rise in the demand for money in almost any standard view of economics. Maybe that perception reverses quickly, but maybe not. High inflation isn't a problem until it does.

This does not deny Hamilton's last point in his second post, that the Fed has cost itself both maneuverability and credibility in its mission to fight inflation. But I would disagree with Hamilton that it's the Fed's primary mission. The Fed does not have the sole goal of price stability. We might wish it did -- I certainly have in years past -- but I do agree with Robert Gay's assessment in this Bloomberg podcast with Tom Keene last week that the Fed has two modes -- normal mode, in which price stability is its primary function, and crisis mode, where "inflation be damned, it's battle stations people!" Unless the Congress changes the rules and removes the lender-of-last-resort function from the Fed, it will always have those two modes.

Labels: economics, Federal Reserve

A few weeks ago I wrote a post on corporatism and our long march towards its modern European example. Discouraged to find that post is #2 on a Google search of "corporatism Europe" -- fame is nice, but can I be the only one seeing it? Thankfully no; Jonah Goldberg sees it too.

FDR may have talked a good game about going after �economic royalists,� and he did love confiscatory personal income taxes. But he and his Brain Trust also loved cartels, big businesses, and other �big units� of society. The notion that big business and big government are at war with one another is one of the great enduring myths of the 20th century. The truth is that ever since Teddy Roosevelt abandoned his love of trust-busting, progressives have liked big businesses big, really big. The bigger the business, the more reliable the partner for big government.

That�s why any huge corporation that plays ball on health care, or �green jobs,� or countless other initiatives, is hailed as a �forward-thinking� or �progressive� company. Companies such as GE, which stands to make billions from Obama�s energy proposals, are vital sidekicks in the new era of public-private partnerships. Why is Obama working tirelessly to save Detroit automakers? Because GM is a wonderful poster boy for peddling nationalized health care, and UAW is an indispensable cog in the Democratic Party.

Douglas Carswell MP writes of his country's infatuation with independent commissions and watchdog groups instead of relying on party politics:

For democrats like me, there's no point in explaining that the idea of disinterested technocrats is an illusion, and that no such person exists. Or that deference to supposed "experts" makes it much more difficult to recognise and correct failures. There's no point in saying that leaving it to "experts" was precisely what happened with child protection in Haringey. Or with the Bank of England setting interest rates too low for too long.

[U]nless we restore confidence to the Westminster system, people are going to end up preferring a technocracy that is technically inept to a democracy that excludes the people. We�re already half way there.

A CEO goes to a meeting in a government building in DC and is told that the only way his firm can get government assistance which, since the government helped destroy financial markets, is the only way a firm his size can get any kind of debtor-in-possession financing to get through bankruptcy -- the only way his firm can survive will require him to sacrifice himself. You might wish to argue that they shouldn't have taken the money they already got, but please tell me what the difference is between nationalization of a carmaker and a government firing the head of a carmaking firm? Yet it makes perfect sense in a corporatist world.

It is not, as John Hinderaker argued this evening, that Obama wants to run the car companies. Far from it: he's quite content to have technocrats in charge that call on government for protection from upstarts and who will pay obeisance in cash and ballots. What he wants instead is a unification of the people and of corporations towards a greater good. A "rationalized" system, as Goldberg points out, that compels a million small businesses to follow a national plan, incurring costs that choke the life out of the small business and leave the bigger sticks all alone. A bundle of sticks tied together for a common purpose.

Hmmm, "bundle of sticks." Seems I've heard that before.

Labels: economics

Saturday's Final Word featured Society for Professional Journalists and St. Cloud Times reporter Dave Aeikens, the podcast of which is now available (link when it's live.) Following on our discussion of the press restrictions of the Minnesota Legislature, Dave provided us with examples where online and "legacy" journalists (hey, if it works for toxic assets, why not?) are working together to blur the lines between who is a journalist and who is not. In fact, he was adamant that the line could not be drawn.

In the second half we turned to the idea of media bias; I am one who does not think there is groupthink in the media (Janet might disagree with me here, but read through to be sure), but that writers tend to reflect individual preferences and are reinforced in doing so when they think their audience will favor. Some of the economic research that convinces me of this is a paper by Mullainathan and Shleifer (2005 AER, ungated copy here, hereinafter MS.) It was their example of the two stories on the unemployment rate that I read to Dave. I think there's slanting of stories, which as MS point out can be a rational response to a biased readership. The market for the StarTribune contains the congressional district of Keith Ellison, so you write stories Ellison supporters would like. That's not bias, that's responding to incentives.

With that in mind, consider this opinion piece written by Randy Krebs in the Sunday St. Cloud paper. He illustrates his belief that he has intolerant readers by reporting on phone calls he receives after the paper reports on "Rep. Steve Gottwalt�s bill requiring people to remove headgear for their driver�s license photo." A few sentences later he writes, "A couple of different readers called separately to express support for Gottwalt�s initial idea." Mr. Krebs takes the rest of the column to call these two callers intolerant. Wouldn't a reader think that by extension Krebs thinks Gottwalt is, too?

Except that the paper reported weeks ago (in an article co-authored by Dave Aeikens, just to tie this together) that after meeting with Muslim groups, who felt the law was discriminatory against their religious practices, Gottwalt revised the bill to strike a better balance. This point appears nowhere in the Krebs opinion unless you ask why Krebs called it "Gottwalt's initial idea." It seems to me Krebs was aware of that change, but because it was inconvenient to his story he made his way quickly around that point to get back to attacking the droogs who dared ring his phone.

So is that bias? I don't think so; even if it is, Mr. Krebs is certainly entitled in an opinion piece to express it. I suspect though it's a bit more like slanting; there is nothing false about what Krebs has written, but he's in need of props to tell his story of religious intolerance and found these callers handy. It would muddy his story to remind people of Gottwalt's revision, so that doesn't make it into the op-ed.

Dave argues in the podcast that without newspapers bloggers have nothing to say. But newspapers in fact present us with something to do: to demonstrate slanting, and yes, re-slant for our readers. Since it appears more liberals self-select into careers in journalism (see for example here and here for evidence, for starters), those who want a different slant are served by both Fox and by center-right bloggers.

Labels: economics, Gottwalt, Media, St. Cloud

Two appearances on central Minnesota radio this morning, talking about the local economy and last Friday's report:

• Up Front, with Rod Grams, KLTF in Little Falls, 9:40-10am.
• Jay Caldwell, WJON, around 10:15am.

There are audio streams available from each of those links (I do not think either podcasts.)

Labels: Media

The news story in the Times is here. There's very little good news in it, alas. The continued decline of our local leading indicators series (above) gives a 99.3 reading for February, continuing a decline that began in earnest a year ago, making an end to the local recession before the end of summer quite unlikely. Our probability of recession index for February showed a 94% chance of recession 4-6 months ahead (again, for the June-August period.)

For Scholars readers, you may find a copy of the report here.

As supporting evidence, you may wish to see Minneapolis Fed President Gary Stern's address to the Minnesota Economics Club yesterday:

Once under way, the pace of the expansion is likely to be subdued for a time. There is historical precedent for this, since the recovery of the early 1990s was initially quite modest, as was the recovery earlier this decade. More importantly, in view of the state of the credit markets, it seems a fair bet that it will take time for momentum to build. But with the passage of time�as we get into the middle of 2010 and beyond�I would expect to see a resumption of healthy growth.

I still see the possibility of a trough of the business cycle in late 2009, but if the recession and recovery is U-shaped, that trough may be barely perceptible this year.

Labels: economics, St. Cloud

The National Association of Scholars argues no. At Virginia Tech, official documents for promotion and tenure say, however, that �diversity accomplishments are especially important for candidates seeking promotion to full professor. ... Committees are asked to develop working expectations for department members, perhaps sharing good examples, and to review diversity contributions included in the dossier with those expectations in mind.� The provost of the school is insisting that it's only a suggestion. Um, doesn't look it to me.

Labels: higher education

I've spent some time the last day or two thinking about the ways in which economics is caricatured by those who don't like its conclusions. A reader sent me this target-rich environment from a Harvard (!) conference, which included this description of one of the papers:

Economics is a two-faced, one might almost say schizophrenic, discipline. It claims to be a science, describing the world, telling it like it is without preconception or value judgment. (Never mind that the hey-day of positivism that enshrines the separation between fact and value is long past; economists have always lived in a time warp.) The reality is that descriptive economics has been shaped by a framework of assumptions, a metaphysics more geared to its normative message than to its descriptive pretensions. This framework is essential to the normative side of an economics that trumpets the virtues of markets and is maintained even when it gets in the way of understanding how the economy really works.

The 19th century physicist, Lord Kelvin, famously proclaimed the virtue of knowledge imbued with the precision of number. Economics goes physics one better, from epistemology to ontology: anything we can�t measure�like community�simply doesn�t exist.

If this was a non-economist writing I'd probably blow him off as an ill-informed crank. Except he's not. I remember hearing him interviewed on Econtalk and while I disagreed with his critique I found him thoughtful.

Couldn't remember when I heard this so I had to download and listen again. Russ Roberts does a good job of jotting some stream-of-consciousness notes to the page and there's a reference there that caught my eye:

Hayek was very aware, in The Fatal Conceit, championing the extended order of the market economy. Felt we had to be of two minds, interacting with our friends and loved ones differently. Dangerous to extend either realm into the other, though we may disagree where to draw that border.

The extended order or, as I say in development economics, the extending order, is the process of widening the circle of potential traders that allows greater specialization and exchange. It is, in the view of the speakers of this conference, perfectly fine to extend the order but only to a certain degree. The quote above is of Roberts responding to Marglin who says this in the podcast (in Roberts' notes):

What is it that the market is actually doing so well? It's producing more and more goods. In large parts of the world that's still the prime necessity. In the U.S., though, we have plenty of goods, enough to lead a dignified life. Why is enough never enough? Dismal science, what does pursuit of more and more does to our relationships?

Yet the production of those goods is not just an end in itself. Certainly in a 19th Century factory that division of labor, specialization and exchange may have lead to mind-numbing repetitive tasks, a suffocation of creativity and even spirit. But now? I find it difficult to hold that the act of creating a service or good doesn't contain some value to the worker. I take my income because my employer gives it to me, because I persuaded her or him to do so, but how many of us just do what provides a maximum income versus a job that provides some satisfaction from the work itself? The division of labor is not only about the maximization of production. It is about allowing a person to specialize in doing that which they do better than they do anything else. What other way to satisfaction do speakers at this conference see?

Note: no numbers were harmed in the production of this blog.

Labels: economics

Another reason for the less optimistic forecast from CBO comes from their projection that, on average, long-run economic growth of natural or potential GDP will slow.

For the next few years, CBO projects faster growth than the Blue Chip, as the economy grows back toward CBO�s estimate of potential GDP (which corresponds to a high level of use of labor and capital resources). Still, the CBO forecast assumes that the gap between actual and potential output closes more slowly than in previous recoveries because of a persistent drag from financial markets, households� loss of wealth, the overhang of vacant houses, and weak economic growth overseas. Therefore, CBO projects that the economy does not return to its potential level until 2014.

In the 2015-2019 period, the projected rate of real GDP growth averages 2.4 percent. That rate is lower than during the period from 2010 to 2014, largely because there is no longer any gap to close between actual and potential GDP.

Projected growth from 2015 to 2019 is also below historical average growth rates, a difference that is more than accounted for by slower growth in the labor force because of the retirement of the baby boom generation. Over the postwar period, the labor force grew at an average annual rate of 1.6 percent; by contrast, we project it to grow only 0.4 percent per year in the period from 2015 through 2019. As a result, potential GDP grew 3.4 percent per year on average in the postwar period, but CBO expects that it will grow by only 2.4 percent annually...

The rate of the 'primary deficit' that one can maintain is the function of three elements: the current debt-to-gdp ratio, the growth rate of real GDP in the long run, and real interest rates. If the government can maintain productivity to have real GDP grow faster than long run rates, it can run a small deficit and still have the debt-to-GDP ratio move towards zero to avoid the possibility will view US debt as a Ponzi scheme. But as the growth rate of GDP falls or the real interest rate rises, even small budget surpluses might not be enough to stabilize the ratio, leading to calls for even higher taxes (or lower spending) to get it onto a sustainable path.

Note, CBO is giving a better forecast than private forecasters, but worse than the Administration. I find Doug Elmendorf's explanation quite sound, though if there's a huge savings response to the loss of wealth (and future wealth via higher implied future taxes), you might not see as large an increase in interest rates on government debt as one might guess historically.

Reinhart and Rogoff:

Assuming the U.S. continues going down the tracks of past financial crises, perhaps the scariest prospect is the likely evolution of public debt, which tends to soar in the aftermath of a crisis. A base-line forecast, using the benchmark of recent past crises, suggests that U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession. Eight and a half trillion dollars may sound like a lot. It is more than 50 percent of U.S. national income. But if one looks at the Obama administration's stunning budget-deficit projections, with exceedingly optimistic projections on growth and bank-bailout costs, we think the U.S. is right on track.

Labels: economics

Regulation is a chess mid-game, not a math problem. With a math problem, once you solve the problem, it stays solved. In a chess mid-game, new opportunities and threats arise constantly. You try to plan ahead, but your plans inevitably degrade over time.

From the ever-quotable Arnold Kling. Anything that combines two passions like that for me -- though I have lost my chess playing as Littlest has grown out of it -- is a winner. It's a nice way to describe the regulatory dialectic.

Labels: banking, chess, economics

Last night I was at our BPOU meeting and heard about HF 264, which would have mandated health insurance policies that covered durable medical products like a wheelchair to provide hypoallergenic pillows and HEPA-filtered vacuum cleaners to policyholders who were suffering from "asthma symptoms." It was also to be included in payments for people on medical assistance. This is the braincrampchild of Representative Karen Clark of Minneapolis. We had some fun talking about it this morning on the KNSI Morning Show.

Today they posted a revision, removing the mandate on private policyholders, but retaining it for MA. It's on its way to the Finance Committee, having passed Health Care and Human Services. One can only shake his head, but hope his dandruff does not cause an allergic reaction.

Maybe it's time for another version of stupid bills.

Labels: DFL legislature, Minnesota

Americans have boring strikes. The only reason gay pride parades draw so much attention is because American labor unions are still striking in the 19th century.One of the best pieces of journalism I've read was the P.J. O'Rourke account of strikes in South Korea; you had a real sense from his writing that you were in the middle of something dangerous with him. Via my colleague Ming Lo, here's another odd little strike going on right now in France (bien s�r!).

Striking French workers for U.S. manufacturer 3M held their boss hostage amid labor talks Wednesday at a plant south of Paris, as anger over layoffs and cutbacks mounted around the country.

While the situation at the 3M plant outside Pithiviers was calm, worker rage elsewhere boiled over into an angry march on the presidential palace in Paris and a bonfire of tires set alight by Continental AG employees whose auto parts factory was being shut down.

...A few dozen workers at Pithiviers took turns standing guard Wednesday outside factory offices where the director of 3M's French operations, Luc Rousselet, has been holed up since Tuesday. The workers did not threaten any violence and the atmosphere was calm.

A few police officers stood outside, while workers inside exchanged jokes and worries about their future amid heaps of empty plastic coffee cups and boxes of cookies.

...In France, it is not unheard-of for striking workers to hold company executives as a way of winning concessions from management. The hostages are almost never injured. A similar situation ended peacefully earlier this month at Sony's French facilities.

"We don't have any other ammunition" other than hostage-taking, said Laurent Joly, who has worked at the Pithiviers plant for 11 years and is angry that he is being transferred to another French site.

...When Rousselet came out of the guarded office to go to the bathroom Wednesday, workers booed him while reporters asked how he was holding up.

"Everything's fine," he said.

Workers planned to bring Rousselet mussels and french fries for dinner if he was still there Wednesday night.

Ming wonders if the workers are Belgian. Seems unlikely. Seems also unlikely that this tactic would work in the US; can you imagine Andy Stern serving mussels?

Labels: unions

Mr. Jake Desantis, erstwhile of AIG Financial Products, goes Galt:

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.�s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.�s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to �name and shame,� and his counterpart in Connecticut, Richard Blumenthal, has made similar threats � even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There�s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn�t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.�s or the federal government�s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

A true Randian would have kept the money and gone to the Gulch. Yet Rand seems to echo Mr. Desantis:

A society that robs an individual of the product of his effort, or enslaves him, or attempts to limit the freedom of his mind, or compels him to act against his own rational judgment-a society that sets up a conflict between its edicts and the requirements of man�s nature�is not, strictly speaking, a society, but a mob held together by institutionalized gang-rule. Such a society destroys all the values of human coexistence, has no possible justification and represents, not a source of benefits, but the deadliest threat to man�s survival.

Perhaps some of the righteous anger will slow the advance of these predations, but it doesn't appear there is any governor on the engine that moves the gangs.

I wish you good luck, Mr. Desantis. You may now fully expect to be hounded by those folks who are about done with Joe Wurzelbacher.

(h/t: Division of Labor)

UPDATE: One of the forecasters who called the housing market correctly finds a gulch in Canada.

Labels: economics

I was watching Michele Bachmann's latest video from Fox on the amount of extra-constitutional authority she feels Sec. Geithner and Federal Reserve Chair Bernanke had taken in the bailout. It might be worthwhile to recall what current Obama adviser Paul Volcker said about the Bear Stearns a year ago:

``The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,'' Volcker said in a speech to the Economic Club of New York.

Fed Chairman Ben S. Bernanke last month agreed to lend against Bear Stearns securities, paving the way for JPMorgan Chase & Co. to buy its Wall Street rival. Bernanke, who worked with Treasury Secretary Henry Paulson to broker the bailout, last week defended the move as necessary to prevent ``severe'' damage to financial markets.

Volcker, the Fed chairman from 1979 to 1987, had implicit criticism for U.S. regulators and market participants who allowed ``excesses of subprime mortgages'' to spread into ``the mother of all crises.'' The Fed's Bear Stearns loan was unusual, he said.

``What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return,'' he said.

...``The extension of lending directly to non-banking financial institutions -- while under the authority of nominally `temporary' emergency powers -- will surely be interpreted as an implied promise of similar action in times of future turmoil,'

That $29 billion was an investment vehicle called Maiden Lane. A Scholarly A for those of you who can, without Google, tell me who was funded by Maiden Lane II and Maiden Lane III.

Give up? Hint: the answer requires three letters. It's in the paper a lot these days.

I'm reading through the history of the Banking Act of 1933. I landed on a Cato Journal article by William Shughart, explaining the Glass-Steagall provisions in something other than the omniscient regulator perspective. Seems to follow what I'm reading as well in Charles Ellis' The Partnership.

Labels: banking, economics

If you're interested in hearing radio without my one-hour economics lectures, listen in to KNSI tomorrow, 6-8am, as I sit in for Don Lyons on the Morning Show. (Streams from link on right hand side of the page.) So good, they have to give me a producer. What you won't hear is this:

Labels: economics, KNSI

In the Baltics, the global recession is biting down hard on economies advancing through transition:

Prime Minister of Lithuania Andrius Kubilius confirmed preliminary forecasts of the Ministry of Finance stating that Lithuania's gross domestic product (GDP) would slump by 10% in 2009, the highest decrease since 1993.

In past December, the Ministry of Finance forecasted that the Lithuanian economy would contract by 4.8% in 2009.

In an interview to the Lithuanian Radio on Tuesday, the prime minister said that it would only be possible to comment on these figures after their official announcement. "The updated forecasts are marked by consistent pattern that Lithuania's economy is falling at a faster pace than expected," stated Kubilius and recalled that the neighboring Latvia forecasted that its GDP would drop by 15%, Estonia � by 9% and Germany � over 6%...

In fact, the Germans are wondering if it won't be worse than that. As a forecaster this tells me export growth, even if the dollar slides, will be worse than we thought. Menzie Chinn looks at this through an IMF report and worries about further downward surprises in world economic growth. But is this a case for fiscal policy expansion?

Read more about eastern European economies here. I think this does a great deal of damage to the goal of EU expansion.

Labels: economics

The usefulness of economists continues, so I get to reappear on The Ed Morrissey Show at 2pm today to talk about the Geithner Plan. I haven't posted about it yet, so listen in, and then check back here for a summary.

Labels: Media

I don't mean to make a big issue of the Armenian genocide recognition bill -- posting twice in a year is normally enough -- but over the weekend someone emailed me a BBC article indicating that the Turkish government has escalated the debate with the release of a movie titled Sari Gelin, or Blonde Bride.

Sari Gelin, or "Blonde Bride", was commissioned by the Turkish General Staff and distributed in recent months by the education ministry.

It is an attempt to counter what Turkey calls "baseless" claims that Ottoman Turks committed genocide against the Armenians in 1915.

The DVD was sent to all elementary schools with a note instructing teachers to show it to pupils and report back.

At the school of Mr Kaya's daughter, children as young as six had to watch.

"This film is not fit for adults, let alone children," he says.

"They're promoting discrimination, branding certain people as 'others' and teaching children to do the same. My daughter will not be part of this enmity."

Mr Kaya has applied to the courts to sue Education Minister Huseyin Celik, arguing the film incites ethnic hatred against Armenians.

There are around 50,000 Turkish-Armenians left in Turkey, mostly in Istanbul.

In a statement last month, the ministry said it had stopped distributing the film and claimed it was never intended for children.

But teachers are still receiving official reminders to screen it.

Sari Gelin is an old tale, which probably has Azerbaijani or Turkic roots, of intermarriage between a Turkish Muslim man and a Christian, blonde Armenian woman.* There are various versions of the story. (As a side note, it's also a folk song, performed here by an Armenian man on the duduk in the pre-Christian temple at Garni, if my eyes are right. There are Turkish performances as well.) It ends badly for the couple, in some versions the boy dies and in others the girl does. We can guess how it turns out here:

"The word Armenian is used very many times and always negatively," says Ayse Gul Altinay, a board member of the Hrant Dink Foundation.

She has good reason for concern.

Two years ago, Hrant Dink - a prominent Turkish-Armenian writer - was shot and killed by a teenager, who saw him as an enemy of the state.

So, the foundation created in his memory has also applied to the courts to get Sari Gelin withdrawn from schools.

"Showing young people a film with graphic scenes of violence, that repeats over and again that the Armenians stabbed the Turks in the back, and killed innocent women and babies and civilians is very dangerous," Ms Altinay says.

"We worry it will create more hatred."

The subtitle of the movie is "Armenian issue" which is how most Turkish denial literature presents the question. The cover also says it's "the true story". Without getting into a debate over the historical record, I think it's fair to say this video represents an escalation of official Turkish efforts to dispute that record. (It's gone on less officially for a very long time.) And this happens at a time when Turkey's admission to the EU is under great scrutiny, and while it shows some signs of willingness to open trade and cultural links with Armenia.

None of this would I expect to lead the Obama Administration to cancel its planned visit to Turkey. It's more likely to inflame than change if the Administration did so. But it would be welcomed if, during his visit to what is, after all, a forum on dialogue between the West and the Muslim world, President Obama called for an end to ethnic tensions among all the people in the Middle East and made mention of both the Kurds and Armenians.

*--While you'd struggle to find a blonde Armenian these days, that's because of the amount of intermarriage that occurred in the 1400 years or so up to the latter 19th C . Armenians were originally an Aryan tribe.

One of the things we know in economics is that most people prefer to smooth their consumption over time. There are plungers; there are people who save too much and others who save too little, but on average people get it right. Because most people make less when they're young, they typically accumulate debt when they are young, only to retire it and accumulate wealth when you're old. For every individual, insolvency means you no longer can make a credible commitment to pay that debt down to zero in your lifetime.

The same applies to government. Governments cannot run Ponzi schemes, accumulating ever-higher amounts of debt. We need to demonstrate that, over time, the total national debt is on a path that leads eventually to its retirement. I've mentioned working on debt sustainability in Indonesia before; the goal there was to see if the government could repay a huge bank bailout that caused it to issue debt that was more than half of one year's GDP (to put that in our terms, that would be equivalent to a seven trillion dollar bank bailout here in the US.) In Indonesia's case, it was fine because it could always transfer oil royalties to the state budget to retire the debt.

Are we on a path headed to zero? The CBO's scoring last Friday of the Obama budget suggests that the proposal does not do so.

During the first hour of the Final Word on Saturday I put this graph up on Twitter for my listeners. The blue line represents the forecast of the ratio of federal government debt to GDP in the baseline scenario, which includes TARP and the stimulus bill. The purple line is that ratio as projected by CBO based on the proposed budget of President Obama. The report states:

The cumulative deficit from 2010 to 2019 under the President�s proposals would total $9.3 trillion, compared with a cumulative deficit of $4.4 trillion projected under the current-law assumptions embodied in CBO�s baseline. Debt held by the public would rise, from 41 percent of GDP in 2008 to 57 percent in 2009 and then to 82 percent of GDP by 2019 (compared with 56 percent of GDP in that year under baseline assumptions).

I'm pretty confident a graph like this was one of the discussions that happened between CBO chief Doug Elmendorf and OMB director Peter Orszag last Wednesday. The White House is arguing that the Elmendorf forecast is more pessimistic, but they aren't saying too pessimistic. But the difference is $2.3 trillion in debt, and the WSJ reminds us this morning that this only includes the "down payment" on health care reform.

The way I look at this is to understand a concept called the "primary deficit". This is the deficit net of interest payments on the debt. Suppose you are paying on a credit card you've decided not to use any more. They are charging you high interest. You have to pay off at least all of the interest each month, plus some of the principal, for you to make any progress towards paying that debt off. Likewise, if the government wants to make any progress towards paying off its debt, it must collect enough in taxes, or cut spending enough, to not have to borrow all of what it needs to pay the interest on the debt. Now, it can hope to have an easier time paying back the debt because the economy grows, and it will if GDP growth should exceed the real interest rate it has to pay on the debt. But each year we add to the debt it gets a little harder. And doubling the debt-to-GDP ratio in ten years, with a forecast for real interest rates near 3% in their figures, that's quite hard to do.

The repercussions over the last three days have been astounding. Sen. Judd Gregg is sounding an alarm over the problem CBO raises. Nouriel Roubini says "A government that will issue trillions of dollars of new debt to pay for this severe recession and socialize private losses may risk becoming a Ponzi government if--in the medium term--it does not return to fiscal discipline and debt sustainability." In Canada Diane Francis thinks America may have reached its best-before date. And if the government is issuing into this environment $2.5 trillion in new debt that foreign governments no longer want to hold, this week starts to see the dollar slide and Treasury yields rise. Markets won't wait for Congress to figure this out; that market discipline that Robert Rubin once warned to Bill Clinton will come back in force. Maybe it's time for Mr. Rubin to make another visit to a young president.

While working on this article my friend Ed Morrissey at Hot Air forwarded a note from a concerned citizen who had seen Sen. Gregg's interview. What does this do, she wondered, for her as a mother, a business owner, someone in her late 30s? The conception in this post on consumption smoothing owes a great deal to the work of Lawrence Kotlikoff, who foresaw years ago the clash between young and old when it comes to this debt. His book, The Coming Generational Storm, detailed how the impending explosion of Social Security and Medicare benefits would devour the next generation that had to pay those benefits. He's set up a financial planning service that uses some of these theories. Six months ago he wrote:

The decline in the dollar and our low national saving rate reflect an old policy of the government living beyond its means. If you look at all the extra consumption, it's occurring in large part among the elderly and, in large part, in the form of health care. This is not oldster bashing. We need to care for older Americans, but we need to do so in a way that doesn't constitute fiscal child abuse.

Some of this is changing -- some people are delaying retirement, others are saving more now -- but it's as if the current administration is turning its back on the very generation that brought it to office. If someone could get them the message...

UPDATE: Welcome Hot Air readers!

Labels: economics

The primary debate about �global warming� / �climate change� is whether there is scientific proof that human activity (rather than natural causes) is responsible for significant climate change.

A new peer-reviewed paper has just delivered a major blow to the �greenhouse gas� assumptions that are central to the arguments of most climate alarmists. The paper, published in the International Journal of Modern Physics, is entitled Falsification of the Atmospheric CO2 Greenhouse Effects within the Frame of Physics. Both the abstract and a pdf of the full 115-page paper are available to the public.

Here are a few central points from this paper, done by two German physicists who understand that we have witnessed the erosion of the scientific method in order to support a political agenda. I have interspersed a few extra words of my own [set off in square brackets like this] for clarity.

There are no common physical laws between the warming phenomenon in glass houses [hothouses on farms and in indoor gardens] and the fictitious atmospheric green house effect... The terms "greenhouse effect" and "greenhouse gases" are deliberate misnomers...

The temperature rises in the climate model computations are made plausible by a perpetuum mobile [that is, the physically impossible "perpetual motion machine"] of a second kind. This is [accomplished] by setting the thermal conductivity in the atmospheric models to zero, an unphysical assumption [and an impossible action]...

The CO2 greenhouse effect ... is a "mirage." The horror visions of a risen sea level, melting pole caps and developing deserts in North America and in Europe are fictitious consequences of fictitious physical mechanism as they cannot be seen even in the climate model computations. The emergence of hurricanes and tornadoes cannot be predicted by climate models because all of these deviations are ruled out. The main strategy of modern CO2 greenhouse gas defenders seems to [be to] hide themselves behind more and more pseudo-explanations, which are not part of the academic education or even of the physics training...

If conclusions out of computer simulations are to be more than simple speculations, then in addition to the examination of the numerical stability and the estimation of the effects of the many vague input parameters, at least the simplifications of the physical original equations should be critically exposed. The point discussed here was to answer the question, whether the supposed atmospheric effect has a physical basis. This is not the case. In summary, there is no atmospheric greenhouse effect, in particular, [no] CO2 greenhouse effect, in theoretical physics and engineering thermodynamics. Thus, it is illegitimate to deduce predictions which provide a consulting solution for economics and intergovernmental policy.

This paragraph from the abstract also provides food for thought:

The atmospheric greenhouse effect, an idea that may authors trace back to the traditional works of Fourier (1824), Tyndall (1861) and Arrhenius (1896), and which is still supported in global climatology, essentially describes a fictitious mechanism, in which a planetary atmosphere acts as a heat pump driven by an environment that is radiatively interacting with but radiatively equilibrated to the atmospheric system. According to the second law of thermodynamics, such a planetary machine can never exist. Nevertheless, in almost all texts of global climatology and in a widespread secondary literature, it [this belief that counters the 2nd law of thermodynamics] is taken for granted that such a mechanism is real and stands on firm scientific foundation.

Perhaps we really need to consider the negative impact of government sponsorship and funding of research. We now have a graphic example of how vulnerable such a system is to being captured to support a political agenda. And perhaps, if our Democratic leaders are so interested in "helping" people they may consider Bjorn Lomborg's suggestion that the funds intended to delay the impact of the false belief of AGW, would be much better spent on projects with well-known high-value payoffs for people around the world.

UPDATE 3/23/2009 6:55 am: An alert commenter noted my error in the original title, which now has been corrected. However, his assertion that an article published in a well-respected journal is "bunkum" by "unknown scientists" is a classic illustration of my point about the politicization of science. The AGW alarmists repeatedly try to shut off debate by demonizing anyone who deviates from the politically correct party line.

Labels: global warming????

That is the question:

Labels: blogging

When I wrote a mention of Jim Geraghty yesterday regarding the Armenian genocide recognition resolution, I wasn't expecting a response from him. But I so called this review that it bears notice, particularly Jim's shifting of position on Turkey. While noting how hypersensitive Turks are about the issue, and agreeing with me that it's hard for Americans to trade helping Armenians with an ancient wrong for a strategic ally in the middle east, he says:

the ruling AKP party in Turkey has made quite a few ominous moves on a wide variety of fronts. Prime Minister Recep Tayyip Erdogan delivered an anti-Israeli tirade and stormed out of a panel with Israeli president Shimon Peres at Davos. Polls indicate that that Turks like Obama more than they like Americans. New lawsuits against cartoonists and journalists have weakened freedom of the press in a country where it had generally thrived not long ago. The Turks' foreign policy has turned away from Europe and gotten closer to Russia and much warmer toward Hamas, Hezbollah, and Syria than it was a short while ago.

He still sees the balance leaning against genocide recognition; I disagree for several reasons, but not least of which is the one he highlights: If you're going to trade a moral issue for realpolitik, shouldn't it be with a more reliable ally?

The Bernanke Fed has now dropped even the pretense of independence and has made itself an agent of the Treasury, which means of politicians. With its many new credit facilities -- the TALF and the others -- it is making credit allocation decisions across the economy. If a business borrower qualifies for one of these facilities, it gets cheaper money. If it doesn't, it's out of luck. Thus the scramble by so many nonbanks to become bank holding companies, so they can tap the Fed's well of cheap credit.

The question is how the Fed will withdraw from all of this unchartered territory now that it has moved into it. How will it wean companies off easy credit, especially since some companies may need it to survive? What happens when Members of Congress lobby the Fed to keep credit loose for auto loans to help Detroit, or credit cards to help Amex? House Speaker Pelosi yesterday gave a taste, saying the AIG bailout was the Fed's idea "without any prior notification to us." Mr. Bernanke, meet your new partners.

From the Wall Street Journal this morning. Let me add a few thoughts:

The reason central banks were granted independence was that independence provided a bulwark against an inflationary bias that more dependent central banks have. (There's plenty of research on this, including my own here and here.) Dallas Fed President Richard Fisher puts this rather well:

Why do we have independent central banks? To provide a barrier between government and the money supply. Why is this necessary? Because doing the right thing for the long-term interests of the people can be very hard to do. Monetary policymakers often have to make decisions that can cause economic pain for real people in the short term, or decide not to do things that could help people out of an immediate bad situation, in order to preserve the welfare of the people over the long run.

The incentives given to elected officials, even in the most praiseworthy democracies, increase the likelihood of harnessing monetary policy to their political needs. A congressman or a senator or a president who has all the best intentions and works earnestly for long-term prosperity is still subject to reelection and would quickly find himself voted out of a job if he tried to implement some of the stern policies that an independent central banker is often required to carry through.

But that's not the only reason we have the Fed. The Fed, unlike the European Central Bank or the Bank of Mexico (the subject of Fisher's speech), wasn't created in an inflationary world. Its purpose in 1913 was to act as a lender of last resort. It would lend to any and all on the basis of good collateral, following the precepts, I think, of Bagehot's Lombard Street. It does not have, like those other banks, the single goal of price stability. It is thus, in my view, a less independent bank than what 1990s "best practices of central banking" would have created.

Where the Fed is going now is a place we talked about last September when the most serious trouble brewed. Since Treasury seems unable or unwilling to act as a market maker of last resort, it is being left to the Fed to do so. In doing so we are shifting a large amount of risk onto the central bank, and because Congress sees this it is likely to meddle further in the Fed's actions. This is bad, as Fisher argues, for price stability. But it is worse than this. Anne Sibert wrote a short precis of what independent central banks do in liquidity crises, and the answer is quite clear:

The decision to bail out an individual bank is far too political an act for the unelected officials of an operationally independent central bank. It should be left to a separate regulatory agency, which has the expertise, and to the Treasury, which has the power to tax. All that is needed is that the regulators have a credit line with the central bank ... that is guaranteed by the Treasury.

Interestingly, it is Senate Democrats such as Chris Dodd who are expressing this skepticism. While they are undertaking this overhaul, if Dodd and others are concerned about the size of the Fed's balance sheet and risk of inflation, they should consider amending the Federal Reserve Act to give the Fed more strength in the fight against inflation. Of course, that means tying its own hands, and so far this bunch doesn't seem up to that task.

Labels: economics, Federal Reserve

Then:

Presidential candidate Barack Obama shared with the Armenian National Committee of America (ANCA) a strongly worded statement today calling for Congressional passage of the Armenian Genocide Resolution (H.Res.106 & S.Res.106), and pledging that, as president, he will recognize the Armenian Genocide.

In his statement, the Presidential hopeful reaffirmed his support for a strong �U.S.-Armenian relationship that advances our common security and strengthens Armenian democracy.� He also pledged to �promote Armenian security by seeking an end to the Turkish and Azerbaijani blockades, and by working for a lasting and durable settlement of the Nagorno Karabagh conflict that is agreeable to all parties, and based upon America�s founding commitment to the principles of democracy and self determination.�

From the Obama campaign site:

I will promote Armenian security by seeking an end to the Turkish and Azerbaijani blockades, and by working for a lasting and durable settlement of the Nagorno Karabagh conflict that is agreeable to all parties, and based upon America's founding commitment to the principles of democracy and self determination. And my Administration will help foster Armenia's growth and development through expanded trade and targeted aid, and by strengthening the commercial, political, military, developmental, and cultural relationships between the U.S. and Armenian governments.

I also share with Armenian Americans � so many of whom are descended from genocide survivors - a principled commitment to commemorating and ending genocide. That starts with acknowledging the tragic instances of genocide in world history. As a U.S. Senator, I have stood with the Armenian American community in calling for Turkey's acknowledgement of the Armenian Genocide. Two years ago, I criticized the Secretary of State for the firing of U.S. Ambassador to Armenia, John Evans, after he properly used the term "genocide" to describe Turkey's slaughter of thousands of Armenians starting in 1915.

...America deserves a leader who speaks truthfully about the Armenian Genocide and responds forcefully to all genocides. I intend to be that President.

Now:

Seeking to avert tensions during President Barack Obama's visit to Turkey, both sides are playing down potential fallout from a renewed attempt by some U.S. lawmakers to declare the killing of Armenians by Ottoman Turks genocide.

Ahmet Davutoglu, foreign policy advisor to Turkey's Prime Minister Tayyip Erdogan, told reporters on Thursday the issue, which caused U.S.-Turkish relations to plummet in 2007, would not "hijack" Obama's visit early next month.

"Nothing can shadow the success of this visit," Davutoglu told reporters after meeting Obama's national security advisor Jim Jones at the White House. ...

Asked whether Obama's views might have changed, Davutoglu was noncommittal.

"I did not say yes or no," he said. "Of course, I cannot speak on behalf of General Jones, but we went through all these issues in a very friendly and cooperative manner."

Recognizing how sensitive the issue could become in U.S.-Turkish relations, the State Department has avoided comment on the resolution or what the Obama administration's policy is on labeling what happened as genocide.

"I don't want to go any further on it until we have had a chance to take a closer look at it and discuss it within the government, and that's where I'm going to leave it," State Department spokesman Robert Wood told reporters on Wednesday.

He wasn't that unclear a year ago. Via YouTube:

I did not vote for or against candidates last year over the recognition of the genocide; he didn't disappoint me. As Jim Geraghty (no enemy of Turkey himself) often says, all promises from President Obama come with an expiration date. Other candidates have promised the Armenian diaspora recognition when they get into office, only to be disappointed when they get into office. What amazes me is two things: Why the Armenian diaspora continues to let itself be used this way; and the ease with which the State Department -- run by a former senator who sponsored a genocide recognition resolution not so long ago -- can pretend this is the FIRST time they thought about the question.

Labels: Armenia, Obama

A couple of weeks ago the Minnesota Timberwolves announced a deal: For the 2009-2010 season tickets would cost less. The level of price discrimination between the upper and lower decks increased. Moreover, if you buy season tickets and you lose your job, they'll refund the remainder of the season.

As Rick Reilly points out, it does mean you have to watch the Timberwolves.

But at least the T'wolves understand a demand curve: If the demand for your product falls because, say, your best player blew out his knee, or the firing of Matt Millen leaves your GM the worst in professional sports, it's possible the profit-maximizing price for your product fell as well. They might not know Lebron from Love, but seems Wolves management understands dollars.

Not so the city of Chicago, who can't seem to figure out that recessions might be good for museums (h/t: WSJ BotW):

Chicago would cut off the free water spigot and other public subsidies to museums that charge more than $10 for admission, under a measure proposed Wednesday in response to the Art Institute's 50 percent hike in its admission fee.

The increase approved last week by the Chicago Park District board would raise the Art Institute's admission fee from $12 a person to $18, a "remarkable jump," according to Ald. Edward M. Burke (14th), chairman of the City Council's Finance Committee.

Less than three years ago, the Art Institute was still one of the few big city museums with no mandatory admission fee. Museum patrons were asked to pay a "suggested" fee. But those who refused were not turned away.

"A family of four going to the museum would have to pay $72, plus parking, plus a Coke or a candy bar. It's becoming impossible for Chicago citizens to take advantage of these cultural institutions," Burke said.

Noting that the Art Institute received a $6.6 million Park District subsidy last year, Burke said, "I know their endowment has probably suffered with the downturn in the economy. But that's no excuse to stick it to the hard-working men and women of Chicago who are already paying taxes that subsidize these institutions who might like to take their kids to see these great treasures."

The city is mostly interested in negotiating for free dates from the museum. But the museum has already given away all its admission revenue from February after experiencing increased attendance last year. The Institute had or has a free admission day once a week. Like the T'Wolves, the Art Institute makes available high-priced tickets for those willing to pay, and has historically maintained free days (no doubt in part to its attractiveness to would-be contributors or funds and art exhibits.)

Those who do not have the money have options of other cultural activities which are free (such as the museum at Northwestern, or the Chicago Cultural Center.) Nobody makes someone go to the Art Institute, but someone makes it pay for water and maintains a monopoly on its provision. It is all pandering, of the same kind as is occurring with AIG, proven by the last line of the Alderman's outrage:

"It's one thing to charge $18 for somebody who's coming here from New Orleans or New York or San Francisco. It's something entirely different . . . to charge $18 to a taxpayer who lives in Chicago, who�s already paying taxes that subsidize these institutions.�

And it's entirely another thing, Alderman, to coerce money from Chicagoans to give to a museum when they may lose their job -- they won't get their property taxes back -- all so that you can grandstand to the media about providing access to art.

Labels: economics, sports

I'll be on the Ed Morrissey Show at 2:30pm CT today. I believe he's doing movies in the first half hour, so tune in for the whole show. I don't have a scorecard for what he wants to talk about, but I bet it will be economicky.

UPDATE: Different show link, and found out he wants to talk Fed. Google for Operation Twist to prepare...

Labels: economics, hot air, Media

Marty Owings, whose fight to get access to the Minnesota Legislature was chronicled on our show last Saturday and earlier, is now credentialed to the Minnesota House. How many others? We don't yet know:

My remaining concerns are simple. If there are new rules for "online" media, I haven't seen any. Perhaps we all fall under the umbrella of "Press", but then there remains the issue of updating the language to remove words like "television" and "radio", to be replaced with the more generic term "Press". If the process has not changed and the rules are what they've always been, then will every Journalist who applies for credentials have to wait two months and pester Legislators endlessly until they approve them?

So we do not yet know if anything has been done for Dan Ochsner. As Sunshine Week conitnues, let's keep working for equal access to all journalists, regardless of their media. Let's hope that Marty getting a pass and Dan losing his is the result of a process that provides equal access and not because Marty and Dan are on different sides of most issues.

Labels: DFL legislature, Media, Minnesota

An old saw in forecasting: �Give 'em a number, or give 'em a date, but never give them both a number and a date. �If you do, you'll be wrong.

The Obama Administration, less than a week into its Spring Happy Offensive, got a bold fresh piece of reality from one of its allies in the Senate.

With new estimates due Friday from the Congressional Budget Office, the White House is being warned to expect a grim set of deficit projections, adding well over $1 trillion on top of the red ink already conceded in President Barack Obama�s 10-year spending plan.�

�The CBO re-score is going to be an eye-opening event for a lot of people who want to finesse this,� New Hampshire Sen. Judd Gregg told POLITICO. �You cannot finesse the coming fiscal calamity we are facing, the size of the debt in the out years and the size of the deficit in the out years.��

Gregg, the ranking Republican on the Senate Budget Committee, refused to discuss any of the CBO estimates. But behind the scenes, Senate Budget Committee Chairman Kent Conrad (D-N.D.) has begun to aggressively raise warnings with the administration and his colleagues about the data.�

CBO said Wednesday that it has yet to complete its formal scoring of the Obama budget. But some data, including a revised economic baseline, have been provided to Congress, and Conrad appears to be using these numbers to map out where he believes the figures will end up.�

In 2014, at which point the White House projects a deficit of $570 billion, it�s now expected that CBO will show a number in excess of $700 billion. Five years later, in 2019, Obama�s budget concedes that the deficit will have widened to $712 billion; Democrats expect CBO to put the number over $1 trillion.

...White House Budget Director Peter Orszag, who met with House Democratic leaders Wednesday evening, is himself a former CBO director and veteran of scoring former President George W. Bush�s budgets in the past. Orszag said he had yet to see any of his old colleague�s deficit numbers but said CBO�s economic growth numbers lagged behind Blue Chip forecasts and this would be a drag then on the Obama plan.�

Conrad is adamant that the numbers require budget adjustments: Senate Democrats could be put in the position of scaling back the administration�s domestic appropriations requests. �I�m expecting significant change,� Conrad said this week of the CBO numbers. �I think all of us have a very good sense that they will be more adverse.�

I italicized the key point. CBO is saying it sees the economy as being not as robust as the Blue Chip forecast, which is not as robust as that being offered by the White House (the forecast Orszag is charged with making.) There's nothing up at the CBO's site to tell us what those are. Some Senate Republicans are already slagging on the Obama budget for forecasting a 3.7% GDP growth rate between 2011 and 2015 as opposed to 3.1% for Blue Chip, -1.2% vs -2.6% for 2009 and 3.2% vs 1.9% for 2010. If CBO is even south of the Blue Chip estimates (courtesy U.S. News), it makes life for Orszag very hard and gives a lot of strength to Sen. Conrad, who is quickly becoming the center of the battle over the size of the deficit and the national debt. �Orszag is seen by most as an excellent former CBO head, and an honest broker. �It will do no good to his reputation if his forecast looks too rosy.

It's no small matter; the Senate Republican document claims that the Blue Chip forecast generates a national debt $2.2 trillion higher than that projected by the Obama Administration. �And they are pointing to nervous centrist Democrats who share their concerns. �And now maybe CBO projecting lower growth than even private economists? �For a first budget of a popular president being sent to a Congress of his own party, this cannot be what the White House expected.

Labels: economics, Obama

C'mon. If suicide were a proper penalty for piddling away taxpayer dollars, the National Mall would look just like Jonestown after refreshments.

-- David Harsanyi (h/t: Russ Roberts)

UPDATE: This is almost as good:

I go back to Art Laffer�s four prosperity killers: inflation, higher tax rates, re-regulation, and trade protectionism. You can put a check mark next to each box.

Yup.

Labels: banking, politics

In a world where both a president and a past (and future?) presidential candidate bemoan obesity, one person at least has a grip on its significance:

The current obesity �crisis� represents a significant triumph for private enterprise and freedom. For the first time in human history, people in most of the world are more worried about the risks of gaining weight than about the risks of starving. But this triumph is being discussed as a crisis which demands government to take action, and that action invariably involves more government restrictions over private enterprise and our freedoms. Unfortunately, the obesity �crisis� is but one of many examples of the successes of our economic system�a system based primarily on private property and voluntary exchange�being treated as failures. Such �failures� are then used to justify government actions that reduce both our prosperity and our freedom.

That's Dwight Lee in the upcoming issue of Intercollegiate Review, which is available for a sneak peak. (If, by the way, you're itching to read some good economic principles and have not read Lee before, this search should bring up all the "Economic Notions" columns Dwight did for The Freeman about 7-10 years ago. (They ran for about four years.) Students in my lower-division classes frequently get one of these two-pagers; FEE should make a book of them.)

Lee is of course right: Julian Simon observed that Malthusian starvation is no longer a fact of this planet. It's worth noting that less than a year ago some Nobel prizewinners were whinging about high food prices and possibility of starvation again; most recent long-term and short-term estimates are for lower prices.

Ob: Medicare and obesity, see this from William Niskanen, and on whether they are actually a crisis, well, it looks like the numbers don't support this.

Labels: economics

Two Republican legislators are proposing a suspension of a public works provision that keeps wages on public projects very high, reducing the amount of jobs that could be created:

Today, Sen. Chris Gerlach, R-Apple Valley, and Rep. Steve Gottwalt, R-St. Cloud, have joined with commercial builders to introduce legislation to call �time out� on prevailing wage mandates during budget strife. The bill would suspend prevailing wage for the calendar year following a November budget forecast of a 1-percent deficit or greater.

...Gottwalt said this means the state either pays more for a project, gets less construction for its money, or has fewer workers on the job. Being more efficient will create better outcomes for everyone, he said.

�We can�t cut other vital government services, lay off state employees, and raise taxes while deliberately overpaying to build or renovate buildings,� Gottwalt said. �With the state bonding bills averaging over a $1 billion per biennium, we could save a minimum of $70 million. That�s money that can build more projects and create more jobs.�

Paul Burke, owner of Mike�s Clean Sweep Services, agreed.

�We do the heavy cleaning to prepare the building for occupancy,� he said. �Our company pays good wages: nearly always more than my competitors. We need to do so to keep the best workers. But prevailing wage rates are 40 percent higher than my rates. I have to pass that on through the contract, and that means the project is more expensive, or they use less of my services and I have to hire fewer people.�

�At a time of budget cuts, it just doesn�t make any sense to have a super-minimum wage for state funded construction projects,� Gerlach said. �Our prevailing wage system is deliberately biased to ensure that high wages are paid. How can we deliberately overpay to construct buildings, while laying off the people that were supposed to work in them? The least we can do is suspend the program when we know we have to cut spending or raise taxes.�

Among other studies cited, Gerlach and Gottwalt offer a 2005 Minnesota Taxpayers Association study that shows that payment of "prevailing wages" as required by Davis-Bacon legislation (such as that proposed in the federal stimulus package) adds 7-10% to project costs. This enriches insiders that work on public projects, many of them unionized, at the expense of those who would work for less and permit those funds to hire more workers.

It would make some sense if the wages that were required on public projects were those common to a region -- you wouldn't want people getting public money who were paying low wages when the purpose of the project is to stabilize family incomes. But as Investors Business Daily pointed out last week,

At the Department of Labor, two agencies gather information related to wages and labor: the Wage and Labor Division (WHD) as well as the Bureau of Labor Statistics (BLS). It is the WHD that has the job of calculating the prevailing wage under the Davis-Bacon Act.

A 2008 study by Suffolk University and the Beacon Hill Institute found that WHD prevailing wage estimates were 22% higher than the BLS average reported wages paid in various cities. The reason is madness in the WHD's method.

According to the Suffolk study, the structure of the WHD methodology results in lower participation from small and midsize firms, provides an opportunity for unions to dominate the process of reporting wages, and lets as few as 12.5% of survey respondents set wages for the entire universe of workers.

In contrast, the BLS uses the Occupational Employment Survey, which collects wage data from more than 1.2 million establishments. Thus BLS wage estimates rely on a much larger sample that better represents wages that prevail in the labor market.

In Minnesota it's worse insofar as the sampling is for a modal wage (according to the MTA study), so one unionized large firm can force a high wage on many smaller firms (which may or may not be unionized.) The gap is probably not 22% in Minnesota, given the MTA estimate of 7-10%, but it is sufficiently high to cause one to wonder how these laws actually help all workers.

I hope Gerlach and Gottwalt go beyond this law and seek a law change that requires payment of median wages rather than the modal standard. It would reduce costs, allow more workers to be hired, and still assure that low wages are not paid on public projects. It's what most states do; time for Minnesota to catch up.

Labels: economics, Minnesota

For the discussion happening on Janet's post last night, permit me to recall a few earlier posts on the topic pre-Janet:

• A discussion of Groseclose and Milyo on media bias (June 2004); updated copy of the paper here;
• Daniel Sutter, Cato Journal 2001;
• Does the town of a newspaper determine its bias?

See also this from Steve Levitt and this from Freakonomics Blog co-contributor Melissa Lafsky.

Labels: Media

So everyone is upset about the AIG bonuses. As an act of moral suasion, which is how I took it, President Obama's statement about "pursue every legal avenue" to prevent their payment is fine. I assumed when he spoke that the effort was understood to be futile, since Larry Summers had said the day before that they do not violate contracts "willy-nilly" and that this was not an avenue they wished to pursue.

More pressure has ensued, and now we have congresspersons contemplating a 100% tax on the bonuses. I'm not even sure that Mr. Liddy in sackcloth and ashes will slake the thirst for vengeance over payment on these contracts.

It is worth recalling however, as a reader wrote me today, that we have been here before. The Clinton Administration in its 1993 tax law change wanted to cap the amount of executive pay that could be deducted against income taxes. My correspondent writes:

There was also a loophole, a provision that said that Bonus Compensation was taxed differently than standard compensation. Bonus compensation under those provisions is fully deductible. That was the year when people like Michael Eisner of Disney got large bonuses for performance. Over time, Executive Compensation was shifted from Salary to Bonuses, and such provisions were written into Executive Contracts and those of other high performing employees. Presumably �Bonus Compensation� was to be tied to performance or certainly used as an incentive to get a star performer to move into a failing area of the business to help �right the ship�. Another point that is sometimes missed is that compensating someone with a bonus is being more responsible to the shareholders because this allows the company to structure its tote sheet in a way to reduce the overall corporate tax burden.

Now fast forward to the �Banking Crisis� and �Bailout Packages� and we have a sudden attack on �Bonus Payouts�. People who apparently don�t understand how business works or how to get top level performers to stick their careers out on the line are attacking people who get such rewards.

I think in fact they get it. One person reported to me that a client of his, who works for a large firm, was asked to move as a division president of a part of the firm that was struggling. The compensation agreement called for base salary and bonus, and that the bonus was to be as a minimum equal to base salary. That minimum was what the fellow received for two years; he got more in year three as the division turned around.

A couple years ago, as Democrats were taking office, Business Week discussed the distortion in the structure of compensation induced by the Clinton tax policy.

Bill Clinton had what he thought was a great idea to curb the soaring paychecks of the nation's executives. It was 1991, shortly after the launch of his Presidential campaign, and he had just read a best seller on corporate greed by compensation guru Graef Crystal.

Clinton's brainstorm: Use the tax code to curb excessive pay. Companies at the time were allowed to deduct all compensation to top executives. Clinton wanted to permit companies to write off amounts over $1 million only if executives hit specified performance goals. He called Crystal for his thoughts. "Utterly stupid," the consultant says he told the future President.
"We were trying to shame companies into changing their behavior," says former Clinton senior adviser Bruce Reed. "And companies have been shameless in ignoring what we did." Or perhaps just astute in exploiting the flimsiness of Section 162(m) of the IRS code, as the measure is formally known. Reed acknowledges that the Clinton team deliberately watered down the proposal to make it more palatable by, for example, not applying the performance requirement to the award of stock options.

This is part and parcel of a process we've referred to for years as "the regulatory dialectic." Often the dialectical process is technological in nature, and other times it's provided intentionally by the process, as it was in 1993. The underpayment of base salary was induced, in no small part, by previous fits of populist pique against executive compensation, and now that it produces an undesired outcome -- "bonuses" for executives at failing firms that aren't really bonuses at all. So now we'll respond with some new law hastily written and barely passable as not a bill of attainder, and what will happen? Probably something unexpected, and at some time in the future undesirable. Rinse and repeat.

Labels: banking, economics, politics

Numbers being thrown around by the Democrats in Washington, DC these days are simply mind-boggling. Yes, both parties have a history of ignoring the long-range implications of their programs, starting with FDR's Social Security "solution" in the 1930's. But the unbelievable ramp-up by Obama and his cronies is simply unprecedented.

Is there anything that can be done to change this ever increasing mindset of "we can always have our way, spend our way and never be held accountable"?

A simple but effective approach may be to include all the zeroes in these bills, current and future. Far too many people hear "million" and "billion" and "trillion" and simply don't understand the magnitude of these numbers.

Most politicians, under the guise of "caring" ignore the 600 pound gorillas in the room or just push the decision down the road to the next generation or more. So many baby boomers who were raised to disagree with the previous generation and taught they were special, raised another generation that thinks it's perfect. Terrific! Now these same boomers and their kids are putting in place programs that will eventually tax their kids and grandkids forever.

A wake-up call occurred with one of my former students who worked at the Federal Reserve Bank in Minneapolis. His paper draft wrote numbers as: $4.6 billion, $972 million, etc. I asked him to put in the zeroes: $4,600,000,000, $972,000,000 etc. He showed his paper to his boss, a minimum of a 10 year veteran of the Federal Reserve System. His boss was stunned.

If someone working with that much money gets stunned by looking at the zeroes, maybe, there is hope that if we include the zeroes in all these government programs, we'll wake up and take measures to protect our nation, its economy and, as Dems like to say, "the children." For now, our kids are on the hook for a long time for Irrational spending by their parents.

Labels: taxes

Anyone know which basketball team included Michael Jordan as a player? Kobe Bryant? Shaq O'Neal? What about schools where Tubby Smith coached? How about "Coach K?" Yep, most of us know the teams or schools associated with these people. Why? Because whenever their names were/are mentioned, the name was automatically linked with the sports team on which they played or coached. Any sportscaster mentioning Jordan said, "Michael Jordan of the Chicago Bulls."

What's my point?

The press likes to cover up when Dems makes mistakes, get in trouble with the law, go back on their word. The press will use the name of the politician but not identify the party. However, if a Republican messes up, the party label is always included.

This practice is unfair to the population in general because it hides bad behavior and often implies that only Republicans make errors. Therefore, my recommendation to all who write about politics is to include the name of the party of the person being discussed, either side. Our writing is for all people, not just the "insiders." It's time everyone knew who was making the mistakes or reneging on their word.

Labels: politics

My interview with Marty Owings and Dave Aeikens on the Minnesota House press-supression is here. The St. Cloud Times weighed in yesterday with an editorial:

In an apparent effort to avoid being caught on candid camera, the House tried to limit audio and video recording and photography of public hearings in House Committee hearing rooms.

Yes, that�s right. They sought to prevent reporting to the public events at public hearings.

On the Senate side, local conservative radio personality Dan �The Ox� Ochsner had the DFL-led Senate deny him annual media credentials this session despite having held them several other sessions.

Capitol folks have tried to justify these actions on themes such as �not enough room,� �we�re updating our rules� and �they don�t regularly cover the Capitol.�

Sorry, but they are missing the point. Legislators are conducting the public�s business, not the media�s business. The only rules needed are those that embrace openness � no matter who is asking for it.

Amen to that. Gary Gross provides additional coverage.

Labels: DFL legislature, free speech, Minnesota

A better idea, even Warren Buffet seems to agree, might be to halt the visible taxpayer handouts on the banks' asset side. Let the massive guarantees already in place on the banks' liability side do the work of bailing out the system via the fat spreads banks are now earning above their government-guaranteed cost of funds. The advantage: It's relatively invisible and/or can be claimed that it's being done for the good of depositors, not bankers.

From Holman Jenkins in this morning's Political Diary (subscription required.) One hopes this does not mean a restriction on competition for deposits; our experience with Regulation Q and the savings and loan debacle should be instructive. I think it instead will mean the continued provision of cheap credit via the Fed; Bernanke said last night as much.

Mr. Bernanke's TV appearance obviously took place with approval from the White House...

I don't know how Jenkins knows that, but if so it's distressing to see Chairman Bernanke toss away the Fed's independence quite so blatantly. Cooperating is one thing, seeking approval is quite another.

Labels: banking, economics, Federal Reserve

Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it�s predecessors, is fundamentally sound and not driven by financial excess.

This is Larry Summers Friday at the Brookings Institute. Set aside the fact that he is dismissive of the Bush expansion that was "driven by financial excess". If you are going to say that, you'd have to include the late 1990s tech bubble when the Treasury secretary was the same Larry Summers. And set aside the errant apostrophe. (Grading papers this weekend, guess I'm hypersensitive.)

And leave aside for a time the fact that a month ago he expected job loss for some time going forward. He's just singing from the new Obama hymnal that all is well now; if there's one thing this administration does well, it's deploying messengers (even those who've been in trouble in the past.)

No, what I find interesting about that sentence is that there's something fundamentally different about the expansion planned by the Obama economic team from the last two. A huge amount of spending has to be financed; normally this would set off higher interest rates. That's deadly for banks still on their backs, if they have to raise rates to keep deposits while having their mortgages pushed down as the Obama plan tries to relieve homeowners. The only way that can work is to transfer money either to homeowners or to the banks, and where is that money going to come from, if not another bubble?

Brown Brothers Harriman points out the size of the problem simply: Where do you sell $2.5 trillion of government debt? (h/t: Craig Newmark)

One group of likely buyers of US Treasuries that is not fully appreciated by market participants, who have focused on international demand, are Americans themselves. The household savings rate is trending higher, the current account deficit is trending lower, and investors have been terribly burnt by the equity market. Investors are all stripes may be attracted to the security of the US Treasury market.

US individuals owned a little less than $90 bln of US Treasuries as of the end of Q3 08 and have increased their holdings for each of the first three quarters of 2008. Mutual funds held by individuals, including non-Americans, held about $155 bln of Treasuries as of the end of Jan, a 16% increase in the past year, according to Morningstar Inc.

Unless you assume a huge shift outward of savings supply (I am thinking in terms of loanable funds theory in my head -- if you want to debate the theory there's your starting point) via Ricardian equivalence or portfolio repair, you have to think real interest rates are headed north. Nominal rates may be held down by deflationary pressure, but with as much money as Bernanke acknowledged last night, that cannot last. I have a running joke with my colleagues that I have every confidence that the Fed has not forgotten how to create inflation.

China's concerned, and the G-20 meeting of finance ministers and central bankers came up a cropper after the U.S.' desire to get help with restarting the locomotive for world economic growth ran up against the Europeans' fear of financial meltdown. Bernanke's soothing tones last night on that point won't convince the EU to join in singing from the Obama hymnal; one can see this morning that markets took the message fairly well, but I doubt it lasts longer than the first negative comment from Europe or China. Those folks know too what the Fed hasn't forgotten.

P.S. I had Twittered my surprise that Bernanke went with the savings glut/bad regulation story to explain the boom-bust. His explanation is a good fit with Michael Mandel's last week.

Labels: economics, Federal Reserve

One of the greatest, taken-for-granted, aspects of a free society, is the ability to think "outside the box." We just assume that we can as in "How" (can we do ____ better)? or "Why" (do we do ____ this way)? two of the most defining words in the English language.

A recent example, in the Star Tribune, is that of Eric Besvold, a worker on the baggage ramp for NWA in Minneapolis. What he saw bothered him - soldier caskets were treated like other baggage. "Why do we do this? There has to be a better way. This just isn't right." After working up the ranks within the airlines during the summer of 2006, Eric was able to order a special cart to be used only for transporting deceased soldiers. He decorated it with magnetic military emblems and American flags.

Besvold is a 3rd-generation Navy man who served in Kuwait in 2005 and has taught nearly 50 fellow ramp employees the correct procedures for honoring military dead. The process is documented so all steps are properly performed. All soldier remains are treated with respect.

In addition, all military escorts are offered free soda, coffee and food in the Worldperks Club when they have to wait for subsequent flights.

"This was a very easy thing for us to support," said Bill Lentsch, senior VP of flight operations. "These soldiers fought for our country and deserve our respect."

Mr. Besvold epitomizes what Americans do: See a problem or situation that appears wrong, study it, then do something about it. Thank you, Eric!

Labels: American Heroes, soldiers

Maybe there's a reason (or two) that women don't pursue the hard sciences and engineering to the extent that men pursue these fields. If you are at all interested in this topic, here's your opportunity to discover that there actually MAY BE real, basic causes for the lack of women in these fields.
The Minnesota Association of Scholars (MAS) is bringing Christina Hoff Sommers to the University of Minnesota Campus on Friday, April 3. Ms. Sommers is the author of and The War Against Boys and Who Stole Feminism.

Banquet: MAS Members - 6:00 ($29) McNamara Alumni Center, U of M. Email MnScholars@umn.edu for reservations. Mail checks to: PO Box 14531, Mpls., MN 55414 by March 25. If you plan to attend the lecture, $34, in advance.

Lecture only: 7:30 - tickets $5 in advance, $10 at the door. With student ID, students $1 - max, two tickets.

Labels: education

From Casey Mulligan. The comparisons are month to same month a year ago, so the entries for January and February say total payroll tax revenues were slightly about the January and February levels in 2008. But real disposable personal income in the first quarter of 2008 was down, so hard to say if this is evidence in favor of a rebound in consumer spending. On the other hand, retail sales are looking up, continuing a trend for two of the four coincident indicators that are up. (BTW, it's the first time I noticed that leading indicators is up the last two months.)

Labels: economics

Phil Miller: Capitalism is not a system. It's an emergent or spontaneous order. Given Phil's and my love of baseball, I encourage readers to Warren Meyer's post from a few years ago tying baseball and economics.

Labels: economics

If you want to know why St. Cloud has been tossed out of the Q-Comp program that Governor Pawlenty touted to increase teacher performance through, inter alia, pay for performance, you need only read these two paragraphs:

About 96 percent of the district�s 750-800 teachers participate in Q-Comp. A teacher in the program receives about $2,000 and teachers who accept leadership roles in the program earn a stipend.

...The decision is also significant for the district because of dollars tied to two staff development days agreed to in the district�s contract with teachers.

Last year those days were paid for with Q-Comp money. Now the district will have to find money in next school year�s budget to pay for the days.

As the StarTribune pointed out last month, it ain't merit pay if 99% of teachers get it. And it ain't merit pay if you're using the money to pay for a staff development day for everyone. H/T for the STrib link to Kevin McNellis at Growth and Justice, who says Pawlenty "must mandate the use of quantified measures of teacher merit" to make this program go. The suspension of St. Cloud from the program is actually a good first step, since it was the inability of the district and the local union to agree on revising the teacher contract to include merit pay that was why Q-Comp was in trouble here. (The school superintendent up here,who has taken up blogging, acknowledges this.) Maybe the district and the teachers union can now come to an agreement on providing for real merit pay where not everybody is above average.

Labels: education, St. Cloud

Tom Scheck reports that the DFL leadership in the Minnesota Senate has finally gotten around to a proposal to close the budget deficit. The proposal borrows $1.1 billion from future payments in K-12 education aids (Governor Pawlenty had proposed $1.3 billion), makes $2.156 billion in spending cuts -- mostly through E-12 spending that could be offset by agreeing to meet requirements to receive additional stimulus bucks (as I mentioned a couple weeks ago.) As both Scheck and Andy Aplikowski note, in the past the Legislature has used the teachers' union to be an army of lobbyists for higher taxes.

And then they leave hanging out there this line

New Resources, $2.1 billion

This fools nobody: we know that means a tax increase. (Don't you DARE call it a fee!) $2.1 billion is the opening bid. $2.1 billion plus whatever Education Minne$ota ducks of the cuts mentioned. Lest you have any doubt, see Steve Perry observing the toe tag on Sen. Ann Rest's rather sensible tax bill.

Rest has touted the proposal as revenue-neutral. And that's a problem in the view of some Senate DFLers, who think Minnesota needs a revenue-neutral tax overhaul like a burning house needs a fresh coat of paint. While practically everyone respects Rest's command of the tax system, there seems to be no shortage of skepticism about the political timing of the measure. In the words of one well-placed Senate DFLer, "Our problem this year isn't pleasing the business community. It's fixing the deficit."

And fixing the deficit, and getting the economy to grow again, is to raise taxes? As observed elsewhere,
And when Minnesota has been weighted down by a high cost of doing business, where businesses pay $2.08 in taxes for every dollar of state tax expenditures that benefit them, why is our current mess a failure to keep taxes high?

Labels: DFL legislature, economics, taxes

Last weekend Ed Morrissey posted a story on the use of state money to create a mortgage loan program consistent with Islamic banking principles (wiki). The plan is to use the murabaha instrument, in which the bank buys the asset and embeds a return on its investment in a higher resale price to the person who wants to own it. It's a sort of "rent-to-own" principle. (You can see the contract here.) If you ever bought a house on a contract-for-deed, you've got a feel for what these contracts are like. (Unsurprisingly, in tight credit markets these kinds of mortgage-buying instruments are on the rise.)

Ed objects to the policy not because of Islamic principles at all but that the state is intruding into the private market. Sorry to say, Ed, that horse left the barn a very long time ago, with mortgage deductibility, Fan/Fred, CRA, etc.

The story has spread quite a bit. Yesterday James Taranto wondered if the users of these contracts had deprived themselves of a benefit:

Since mortgage interest is tax-deductible and principal is not, one assumes this means that borrowers with Islamic mortgages end up paying considerably more for the same house than those with regular mortgages. (The AP does not answer this obvious question.) If the law provided for an equivalent tax break for Islamic mortgages, however, presumably Shariah would permit Muslims to take advantage of it, since the ban is on interest, not tax advantages.

I think that misses Ed's point though. If you give a deduction for interest on home mortgages you've handed a tax benefit for those who negotiate contracts that use interest to compensate lenders. An Islamic bank is compensated for the use of funds via marked-up principal. If that profit is not tax-deductible to the homebuyer, a dollar paid in mark-up is more costly than a dollar paid in interest, and the Islamic bank will face a lower demand curve for mortgages. Since the state has already intervened through the mortgage interest deduction, there's not much ground to stand on to say the state should abjure from supporting an Islamic mortgage instrument.

But what supports the use of Islamic mortgage instruments is, to go back to my hobby horse of the week, is a set of institutions that make banks comfortable with such an instrument. Virginia Postrel a few years ago interviewed Timur Kuran, a USC professor who has written the best one book on Islamic economics that I have read, Islam and Mammon: The Economic Predicaments of Islamism. Banks were supposed to work principally as venture capitalists, sharing in profits and loss. But that didn't work out very well for Islamic banks, for much the same reason as actors who are supposed to get residuals from their artistic work get screwed: the borrower simply says there are no profits. So contracts like murabaha came about, and there needs to be enforcement of these contracts. Enter the government who normalizes the contract form (see links above) and establishes damages for default. Contract law has to adjust to deal with a different kind of contract, and just like the rent-to-own deal that goes bad in this story, the law still has some catching-up to do.

Kuran warns that sometimes the purposes of Islamic banks goes beyond the creation of these contracts, though.

Islamic economists not only want their own banks, Professor Kuran writes. They ''desire new regulations that would force all banks to limit themselves to variable earnings and commitments.''

''And they want interest-based banking outlawed.''

But that's simply rent-seeking behavior, and that's not unique to Islamic banks.

Labels: banking, economics

Household assets as a whole fell 15% to $65.7 trillion, unadjusted for inflation, compared to a decline of less than a percentage point to $14.2 trillion in total household liabilities. The net worth of American households � the difference between assets and liability -- was $51.5 trillion, down $11.2 trillion or nearly 18% from 2007.That sets Americans' total wealth back to levels lower than 2004. It was the first decline in American household net worth since 2002.

The Fed data signals the end of an era where Americans spent with an eye on their growing assets -- their homes, their retirement funds, their stock investments. Known as the "wealth effect," economists calculate that Americans spend about a nickel more for every dollar gained.

From the WSJ a couple of hours ago. Now I've usually done the wealth effect calculation at .03 rather than .05 when I teach macro in the classroom. Carroll, Otsuka and Slacalek estimate the housing wealth effect to be .02 in the short run and .09 in the long run. 5% of the loss in net worth would be $560 billion; between the second and fourth quarters of last year consumption fell $230 billion on an annual basis (see Table 2 here.) And this does not include additional stock market losses since the first of the year. It would be hard to believe consumption leads us out of the recession any time soon unless we see repairing of personal balance sheets.

I bet we'll see a spate of new papers on the wealth effect in the economics research literature this year.

Labels: economics

In southern California, municipalities that received stimulus money they couldn't use according to the shovel-ready criterion are instead auctioning it off. Los Angeles' transporation agency allocated money to the cities in its service area, and the money is getting moved around (I assume the agency is acting to clear the market and enforce transactions.) The going price was a little more than sixty cents on the dollar. Josh Harkinson of Mother Jones notes:

I'm sure many cities have higher priorities than transportation. And I would have liked to have seen more direct aid to ailing local governments in the stimulus bill. Still, MTA's approach strikes me as a bit too creative. What's next, stimulus money credit default swaps?

Now that would appear to be efficient; if a city in LA County wanted to, say, finance a couple extra police officers rather than five new shelters on a bus route, it could make that choice; the buyer gets $500k of transportation spending for $320k or so, which might make a transportation project that had benefits of $400k now a winner. Seems like a win-win?

Of course it was too good an idea to survive government: the plan has been canceled. (h/t: Tyler Cowen.)

Labels: economics

The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.

�We are taking an approach that wants the banks to help the economy and whether it is ultimately good for a particular bank is secondary,� said L. William Seidman, the former senior regulator during the savings and loan bailout. �Weak banks are being asked to do things that will erode their position.�

Of course the article goes on to say no, this isn't really nationalization at all. The banks are being looked out for, the government says. But if you think of property rights as a bundle of sticks, sure looks like many sticks are coming out of the bunch.

I spent a while this afternoon -- school's out for the week, I have a little peace and quiet around my usually noisy office today -- re-reading Hayek's Nobel Prize lecture, The Pretense of Knowledge. I am struck by this part towards its conclusion:

To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the over-confident because their experiments may after all produce some new insights. But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based - a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.

You have probably heard a number of people questioning how it is that we can solve a debt problem in the United States by adding to our debt with scads of government spending. But there's a better analogy here. The financial system's failures are the product of developing new ways for banks to communicate with each other through new instruments, ones that connected new traders together in a way that was meant to overcome autarky. "What we had here was a failure to communicate," you might say. So what does this financial policy of the new government do, if not to assume it can rebuild a new communication system for banks? After Fred and Fan fail because they were told to invest in mortgages to increase homeownership while staying profitable (those aren't always sympathetic goals), they are now being told to help refinance mortgages where borrowers have zero equity (even 5% underwater.)

It's an administration run by a fellow with a hubris surplus, and that disease is all the more dangerous, the more power one has.

While Secretary Geithner is filling his Treasury, he should hand a copy of Hayek's speech to each of the applicants ... and one to his boss.

Labels: economics

I think capitalism will be different, and the financial system will be dramatically different. It�s already dramatically different. Again, if you look at the scale of adjustment and restructuring in the financial system, it�s already happened. It�s profound in scope already. So if you just look at the system today relative to what it was through three years ago in terms of the institutions that existed then, and their basic shape has changed dramatically. And there�s going to be more changes ahead. But I think it will emerge stronger. This will clean out a lot of the excesses and bad practices, and those that don�t get cleaned out just by experience and knowledge now, better regulation oversight, better rules to the game, enforced more cleanly, we�ll fix.

Tim Geithner, on Charlie Rose last night.

The capitalist economy is on the verge of collapse. Capitalism as a system has failed. ... Unfortunately, emptying the economy of moral and religious values and imposing completely profiteering mechanisms has caused numerous economic and social problems.

Mahmoud Ahmadinejad, this morning.

Side note: What's Geithner doing on Charlie Rose? Doesn't he have more important things to do, like, oh, maybe a banking plan? It's still incomplete.

UPDATE: Worthwhile discussion of the socialism between Harold Meyerson and Russ Roberts.

Labels: economics

China vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models, helping the country extend its lead as the world�s largest auto market this year.

Sales of passenger cars, buses and trucks climbed to 827,600, the China Association of Automobile Manufacturers said today in Beijing. The tally in the first two months rose 2.7 percent to 1.56 million, compared with a 39 percent decline to 1.35 million in the U.S.

China has halved retail taxes on small cars and drawn up plans to give out vehicle subsidies in rural areas to revive demand after auto sales rose at the slowest pace in a decade last year. Combined with the country�s wider 4 trillion yuan ($585 billion) economic stimulus package, the policies have caused General Motors Corp. to roughly double its forecast for China�s nationwide auto market growth this year.

Via Bloomberg. (h/t: Dave.) It's a major bounceback from January. The Chinese government isn't signing on to vouchers yet, but there's pressure and four regional governments have already done so. (We noted the vouchers here last week.) Instead, last month the Chinese government halved the tax on new car purchases for small-engine cars (under 1.6L.)

One may recall that there was strong bipartisan support in the US Senate for similar proposals, and some of that went through (though to get the credit on buying your first house, you have to buy before November 30 and hold the house three years. At a lunch talk I gave today, someone in the audience said that three people at her firm had bought homes in the last two months in part to capture the potential $8000 benefit.) The auto credit is to allow you to write off the sales tax on a new car purchase (if the car is under $49,500 -- doesn't Obama like Cadillac?) But the effect of that deduction isn't likely to be felt until 2010, so there isn't much good there to jump-start things right now, as the cut in the registration fee does. Heard of any state cutting taxes on new car purchases? Me neither.

Labels: economics

Using rainfall, public relief, and election data from India, we examine how governments respond to adverse shocks and how voters react to these responses. The data show that voters punish the incumbent party for weather events beyond its control. However, we find evidence that fewer voters punish the ruling party when the party responds vigorously to the crisis. Moreover, severe crises are associated with increased voter sensitivity to disaster assistance. These results are consistent with models of government accountability, and provide an explanation for Amartya Sen�s claim that democratic governments respond better to salient emergencies than to less conspicuous ones. Even so, the results suggest that even the most responsive government will fare worse in the subsequent election than had there been no disaster.

Abstract of a new paper. (h/t: Chris Blattman)

Labels: economics

Obama in his chosen city of Chicago always assumed that the private sector would be eternally bounteous. As a community organizer following the formulas of Saul Alinsky, he assumed that the political establishment would always be there and that if you organized smartly enough, you could get a chunk out of it.�

When he decided that community organizing was small change and went into the politics business, he, like all Chicago politicians, assumed that the private-sector economy would always be bounteous and that if you shook its members down and taxed them, you could always get a bigger chunk out of them. And it has mostly worked that way in Chicago.

Graph from BEA.

Labels: economics, Obama

Several weeks ago I noted that one thing the stimulus package (or any of the proposals that so far have come from the Obama Administration) would generate is trust.

I think that key determinant in this [recession] is the degree to which Americans generally trust each other. That level has been sufficient to support democracy in the English-speaking world or Anglosphere. I'm more optimistic that our culture and moral fiber maintains trust even when confidence is shaken as it surely has been the last 18 months. To the extent it does, this recession shall pass, and like Shiller I'm not inclined to think stimulus does anything to shake that.

Craig Newmark notes that the topic of trust has taken off lately. Since I wrote, Sapienza and Zingales have started to research the amount of trust in financial systems. Showing that it has declined, they conclude:

For financial markets to play their vital role once again, we must restore people�s faith in them. The most effective way to do so is to eradicate the perception that the government is run in Wall Street�s interest. The ethics rules issued by President Obama are a good but insufficient first step. More important is to redesign the bank rescue plan so that it clearly acts in the interest of the country (having well-capitalized banks), not the interest of Wall Street (having taxpayers bail out current investors).

Newmark also links this paper by Bruce Yandle, which I've skimmed so far and think needs a full read. Trust is built through market transactions over time; formal rules help reduce that time. Describing Hayek's work he says:

Simply put, in the absence of market-generated trust-forming devices transacting parties could never afford enough police and regulators to induce honest behavior among ordinary people. Trust and trust-forming mechanisms can be a low-cost substitute for police, regulators and court actions.

So what arises instead are, Yandle states, common codes and customs and certification, like audited balance sheets. Moody's and Standard and Poor's replaces a handshake. Willem Buiter goes further, saying "for every good, service or financial instrument that plays a role in your �model of the world�, you should explain why a market for it exists," since without some kind of trust only a "pre-Friday Robinson Crusoe autarky" exists.

Nothing said by the Obama Administration so far proposes to repair that. If anything, its silence on the banking system indicates it too has lost trust. (See this by Simon Johnson, e.g.) It is stuck having itself instead lampooned. (h/t: Greg Mankiw.)

Labels: banking, economics, Obama

Marty Owings is still banging at the doors of the DFL Legislature, trying to get equal press access.

Mr. [Andrew] Whittenborg [DFL Director of Public Affairs] mentioned that various people had "touched the Meeting/Hearing policy proposal from house attorneys, the Sergeant At Arms Office, House Leadership, Republicans and members of the media." and quickly added that "Your feedback to this has been sharp and instantaneous and nothing on this is going forward."

Mary Lahammer of TPT's Almanac suggested that any lawyer who proposed these rules should be "disbarred". Tom Hauser from KSTP agreed and added that it was "absurd" that any Law Maker would even propose these rules. Jason Barnett of the Uptake.org asked what the real issue was. Mr. Whittenborg said it ran the gamut from "space concerns" to "security issues." He said some concerns were raised about who was filming Law Makers and that some of them were "weirded out" while others welcomed the cameras.

Pat Kessler reported last night on this meeting, including a clip of Michael calling shame on the DFL.

You will recall that we reported on this last Monday, and I thought that the press might take this story up. Mary Lahammer has picked up on this, including an utterly stunning story in which Don Davis, a very longtime, reputable reporter for Forum Communications, was approached by state troopers for taking pictures of a representative introducing a bill. Tim Budig thinks it's got everything to do with bloggers (though as I recall the Uptake, which is a blog with a camera, has six passes!)

Most of the attention so far is on the House. I hope there is as well follow-up on the removal of credentials by Senators Tarryl Clark and Larry Pogemiller from KNSI host Dan Ochsner.

Labels: DFL legislature, Minnesota

When Bush didn't save New Orleans, it was because he was a Republican. Roll eyes, here. (Never mind that the Governor was a Democrat.) Of course government didn't work well between 2000 and 2008. Insert snicker, here. Some people think government doesn't work well when Republicans are in charge because Republicans (fill in the blank here with your own partisan vitriol).

But once Obama got into the White House, I think some people actually thought it would be different. He cares, after all, and he has such a high IQ.

Krugman is going to have to come to grips with the possibility that maybe it wasn't Bush that made government so incompetent. It was government.

Russ Roberts yesterday. To paraphrase Churchill, laissez-faire may be the worst economic system of all time, except for all the others we've tried.

Labels: economics, politics

The forecast is rosy from the get go. The budget forecasters assumed that the economy would grow at a 3% annual rate starting in April, and that real GDP would fall just 1.2% in 2009, from 2008. Then, from 2010 through 2013, the administration assumes that real GDP will grow at a 4.0% annual rate. To put this in perspective, it is twice as fast as the economy�s 2.0% annual rate of growth between 2004 and 2008. This is not impossible, but the only other periods that came close to this 4% growth rate for such a prolonged period of time were in the late-1990s and mid-1980s. Forgive us for pointing this out, but both of these periods followed major shifts toward freer markets, and tax cuts, not bigger government and tax hikes.

There is no period in US history where tax rates and the size of government both increased, and yet real GDP growth accelerated as sharply as the Obama team forecasts.

If real GDP grows 1% slower on an annual basis, federal spending would be 23% of GDP in 2013, not 22%. The last time government spending was anywhere near this level, was in 1982-83, in the wake of the worst recession in post-war history with unemployment at 9.7%. But by 2013, according to the Obama forecast, the US will be in the fourth year of recovery, with an unemployment rate at 5.2%.

In other words, it is the Obama team�s shift to an expanded government role in the economy and society that is boosting spending, not just spending to stimulate the economy. Deficits will remain extremely large because spending is so much above any historical ability of the economy to pay for it. And, the more taxes are lifted to pay for it, the slower the economy will grow and the less likely any economic data even remotely resembling the Obama Administration�s rosy scenario will come to pass.

From First Trust economists Brian Wesbury and Robert Stein this week. Graph above, of federal outlays and revenues based on OMB's new budget except for 2007 data, from here. I tried to shift the GDP figures to those from Blue Chip (that OMB reported) but it doesn't make a big difference, and it appears the post-2010 forecasts are from last October, before the, um, fit hit the shan. I'd rather see some new long-term forecasts collected up before I tried that fix, and think Wesbury and Stein might be wise to provide an alternative long-term GDP forecast before speculating. But qualitatively, they seem right.

Labels: economics, Obama

On fiscal freedom Minnesota is actually about average, with the most striking flaw the dependence of local governments on higher-level governments for about half of their revenues. However, the state ends up 31st on economic freedom, 31st on personal freedom, and 35th overall. Some striking facts about Minnesota include the following: Wine is taxed quite heavily ($4.85 per gallon effective rate) but beer and spirits are not; the state still has blue laws for alcohol; low-level marijuana possession is decriminalized; the state lacks helmet laws and prohibits sobriety checkpoints but requires personal injury auto insurance coverage; labor laws are extensive; health insurance mandates are the most costly in the country; asset forfeiture does not require owner knowledge of criminal activity; and cigarette taxes are high.

From the new Freedom in the 50 States index created by the Mercatus Center. It is only 1/8 taxes, 50% paternalism. The last sentence lists some things I don't spend enough time thinking about for Minnesota.

You can find critiques of these types of indices in my book.

Labels: economics, Minnesota

This makes Scholars very sad.

...you would spend your time well looking at this chart from James Kwak. I've shown it to several audiences over the last two weeks and it gets a lot of study. I'm going to grade papers now and take the rest of the day from the blog (or at least until I finish grading, which probably runs the rest of the day.)

Kwak more recently pointed out this Bloomberg article on public pension plans. I thank God I decided to go TIAA-CREF than the Teachers' Retirement Fund many years ago.

Still got time? Michael Lewis on Iceland. It's Lewisian over-the-top reportage, but really entertaining.

Labels: economics

Maybe it's just me, but government symbolism has always bothered me. The latest is this one, being affixed to stimulus infrastructure investments.

When I worked on advising projects, they put one of these on my computer. I was mostly working in Ukraine at the time and the parallels to Soviet symbolism were pretty obvious. There's also the parallel to WPA programs. There are still stone structures here in St. Cloud which carry a WPA mark on them. You won't see this one I have put here on any of that work, but you see the letters on the cornerstone.

This latest one, though, with the symbolism of green technology (I thought it was for agriculture) and the gears made me think of an old Soviet labor exhortation poster.

Title explanation.

Labels: Obama, Russia

Lake Superior last froze over in 2003. It has now, again, frozen over. Go here to see photo by NOAA. The frequency of freeze overs has historically been around once every 20 years. Now, in the last decade, we have seen two freeze overs. So what about climate change aka global warming?

"Due to the recent cold spell and below normal temperatures for much of the winter of 2008-2009, ice covers nearly all of Lake Superior. Only small areas of open water remain. This image was taken on Tuesday, March 3rd. If arctic air does not return in the next couple of weeks, it is likely that this will be the day of maximum ice cover on Lake Superior for this winter as warmer weather and periods of stronger winds through the end of this week will cause open water areas to expand."

While many environmentalists will argue that this is an exception, there are far more "exceptions" occurring and the earth's temperature has been cooling since 1995. Exceptions are exceptions until they become norms. Global warming is a hoax as is its related "cause," CO2.

I've asked a few greens who believe "CO2 is bad" if they're willing to stop breathing? They never reply, "Yes." Hmm wonder why? CO2 problems would disappear if all animals were gone. Then again, plants would disappear, too because, as my fourth graders knew. plants release oxygen for animals and animals (including humans) release CO2 for plants.

Labels: global warming????

Thanks to Powerline, I listened to this song. It's true - at all levels of government - our money is not yours to spend.

Take a couple of minutes and go here to listen to this song. She nails it!

Labels: Democrats, Obama, taxes

From Bloomberg today:

Last week, when American taxpayers learned that a bank receiving Troubled Asset Relief Program funds had thrown a lavish bash and spared no expense to celebrate with the bands Chicago and Earth, Wind & Fire, I introduced legislation based on a simple concept: if a company accepts bailout funds from the taxpayer, it can�t waste money on lavish parties, expensive dinners and Tiffany trinkets.

The reaction in some quarters suggests that I had attempted -- like a modern-day Dean Wormer in �Animal House� -- to ban fun of any kind, or that the wheels of commerce and marketing would grind to a halt.

Nothing could be further from the truth. Normal marketing and travel wouldn�t be affected one iota.

I believe we have to insist that tax dollars be spent wisely because, otherwise, Americans will refuse to rescue any business struggling in the most difficult economic times since the Great Depression. And believe me, Americans struggling to hold onto their homes and their jobs are already tired of picking up the newspaper and reading about idiotic abuses of taxpayer money.

When did Senator Kerry become a senator? Who pays him? And was this a wise use of tax dollars?

But here is the most delicious part. You read somewhere, perhaps Mitch, talk about how TCF is returning the money from TARP because it didn't want the money and didn't need the money (which is what the partiers Kerry is attaching say too). But in this interview between Bill Cooper and Greta van Susteren, did you catch this?

VAN SUSTEREN: In terms of the $361 million, have you contacted them and told them that it is coming back? How do you do this?

COOPER: Yes, we filed with it. There is a number where you file and tell them we want to pay the money back. The stimulus bill contained a provision that permits you to do this, and they have to consult then with the regulators, your primary regulator, to determine whether if it is prudent that you pay it back, that you have enough capital and good operations, and so forth, that you could pay it back. And I am confident that they will find that is the case with us.

You have to ASK PERMISSION to pay back the money? So you are compelled to take the cash, and when you try to pay it back you have to have the government tell you it's OK for you to repay. Senator Ketchup can keep you on the leash as long as he wants by calling the regulators. Incredible. I've never seen anything like this.

Labels: economics, Kerry

This graph, of which I've been doing a local version for about a year, has a new story to tell. Last summer I thought it said the recession was wimpy. It's not any more. The data is from the Minneapolis Fed, which has a really nice tool to create one of these graphs and data to download if you want more control (as I did.) "Median" is the median value of the 10 previous recessions. "Record" in the sense that we now have a postwar record almost; I've always viewed the 1948 recession as an abnormality created by demobilization from WW2. I'm not sure why I think that. I downloaded a paper on that recession, written before the 1957 recession, to read over the weekend. Maybe I'll write about this again, as I think this ties to some of the conclusions in Amity Shlaes work on the Great Depression and some of her interviews lately where she's talked about the postwar recovery.

I'll be on the David Strom Show tomorrow at 10am CT on the Patriot (in addition to my usual NARN turn at 3pm); since they always have me the first Saturday of the month, it's almost always the case that the employment numbers are the first thing we discuss. So keep this graph handy; I'll discuss it then.

Labels: AM1280, economics, Final Word, NARN

This month it's about one of my favorite examples fair trade coffee.

The coffee market is volatile, and when the price goes up, the farmers are often the last to get paid more for their crop.

Reflecting on our conversation while enjoying the aroma of freshly brewed coffee, I wondered what would happen to the farmers if people quit drinking their lattes?

Fair trade coffee raises prices, which encourages people to stay in coffee production. But is this the best use of their labor?

Coffee prices rise and fall by large amounts, alternatively enriching and impoverishing these farmers. Would they be better off with fewer farms and farmers, but with more labor to produce other goods that generate value?

Labels: Mrs. S, St. Cloud

In October I wrote a post titled "The Obama Discount" which included the graph to the left. This compared the InTrade price on the Obama wins contract with the closing price of the Dow, on a daily basis. The regression line is drawn and its equation appears on the lower left hand corner. If you were to set the probability of an Obama win at 100% -- which it was on November 5, 2008 -- you would get a closing price on the Dow of 7,708.11.

Now obviously that's not a great measure of what the market thought of candidate Obama. It extrapolates the line well past the data, which we teach our students not to do. The Dow closed on November 5 at 9,139.27, down almost 500 points that day. It went down more the next day and never rose above that mark (only above 9000 on the close on January 2 and January 6.) On January 20, the market closed at 7,949, certainly within the margin of error of that 7,708. But again, that could be just coincidence.

Now the stock market is a leading indicator. As much as the Obama administration would like to say the market is not a statement on his economic leadership, the Dow has been used to predict business cycle troughs, with average length between bottom of the stock market and bottom of the economic recession about five to six months. If his leadership is supposed to have caused a recovery, it hasn't yet.

If anything, the movement down from the beginning of this administration's inauguration to now is a statement of what the market thinks the economy will do this summer and fall. One could say that the fearmongering of the early days of Obama's term may have provided more information to the market and talked it down. Its movement of late though, with Obama having stopped being President Eeyore, can only be ascribed to expectations on the basis of the stimulus package's passage and the uncertain future of the financial plans. The market's drift downward today, in the presence of an employment report that had no surprises, is not a statement of disappointment about the nature of the current economy. (I haven't done an exhaustive literature review, but I am pretty sure there isn't evidence on reverse causality from the economy to the Dow.) It is the increasing realization that James Pethoukoukis' pronouncement last October, which got me to dry that first graph, was correct:

I find it hard to believe that fears about a deep recession are suddenly dawning upon investors and thus are solely responsible for kneecapping the market. I've been hearing such dire forecasts for weeks from top Wall Street economists, and I really think they're already baked into the cake. (And credit markets actually look like they are finally picking up a bit�a plus for stocks.) So with that perception locked in, maybe the future political landscape is finally playing a greater role in the minds of investors, especially with polls showing a possible landslide Obama win and big Democratic congressional majorities. Is it really more plausible to suggest no effect whatsoever from a possible once-a-generation, political sea change, especially one that moves away from the winning economic formula of the past 25 years ? Not even a smidgen of worry? C'mon, now.

To paraphrase the immortal words of Denny Green, Obama is who we thought he was, and he won anyway. The market, that great processor of information, has figured this out.

Labels: economics, Obama

I am a firm believer that our US military is what keeps us free, keeps our press free, and overall is a shining example of how a military should behave.

In addition, I'd hire a military vet any day of the week. Why? They show up on time! They can take orders, they can give orders, lead. They listen. They review whatever they have done and learn from errors. They are held to standards. They are mature and responsible.

It is extremely unfortunate that our educational institutions and others, including our present POTUS, do not seem to grasp the sacrifices nor the enormous benefits and positive examples our military people provide throughout the world.

This video shows the military's response to President Obama and President Bush. The difference in how these two leaders are perceived by our military is incredible. Old Chinese saying: "A picture is worth 1000 words."

Update 3/6/09: Just learned this. When "Hail to the Chief" is played, soldiers must stand at attention. If you notice in the video, there was no music when President Bush approached the podium and he was free to mingle with the soldiers (and crowds in other venues) which he did. When President Obama went to speak, "Hail to the Chief" was played so soldiers had to stay at attention. Does the Obama team know this protocol? If yes, then he appears to not want much to do with soldiers. If not, the team should consider the message they send by "controlling" our military. Regardless, this video still shows who cares about soldiers.

Labels: US Soldiers

I am teaching a three-week money and banking course in May. In this time, and in such a compressed period, what textbook would you choose? Or do you go purely on readings? I'm inclined to the latter, which would be the first time in 25 years I've done that.

Labels: banking, economics

At noon today, Congressman John Kline held a blogger conference call to discuss the Democrat Party sponsored Orwellian-named bill, the "Employee Free Choice Act." To read the label, one would think that employees would be able to choose their place of work, their union, no union, etc. but in reality, this bill would remove the American right of a secret ballot for union elections.

How? Simply put, if 50% + 1 employees in a company sign a union card recognizing a union, that's it. What company would consider opening if union 'representatives' could go to employees' homes, and 'interest' them into signing something what would throw away their right to a secret ballot?No company. Secret union vote? No, over, fait accompli, etc. The employer is forced to recognize the union and can no longer allow workers to vote on a secret ballot as to whether or not they really want a union.

Congressman Kline, along with more than 107 co-sponsors, have introduced the "Secret Ballot Protection Act," a bill that would mandate secret ballot elections for employees.

It's simple folks: The American workers' right to a secret ballot will be gone, period. If the Orwellian named "Employee Free Choice Act" passes, Obama has promised to sign it - another payback, this time to his union backers. It becomes law. We will pay and pay while jobs will go away. This action by the whining Democrats will force so many jobs overseas, we may never get them back.

No Democrats have signed on with this bill but a few phone calls might change some minds. Call the Congressional switchboard at 202.224.3121 and ask for offices of the following Representatives: Colin Peterson and Tim Walz of MN; Dan Boren of OK; Bobby Bright of AL.

Additoinal information here and here and latest summary, here.

Labels: Freedom, unions

What more can I say?

A new national survey of faculty members shows that the proportion of professors who believe it is very important to teach undergraduates to become "agents of social change" is substantially larger than the proportion who believe it is important to teach students the classic works of Western civilization.

According to the survey, 57.8 percent of professors believe it is important to encourage undergraduates to become agents of social change, whereas only 34.7 percent said teaching them the classics is very important. Observers say the difference results from influences as diverse as conservative criticisms of curriculum and Barack Obama's call for social activism during his presidential campaign.

The survey found that, on the issue of classics and change, professors' opinions also vary by rank. Full professors are more likely than assistant professors to say teaching the classics is important, and assistant professors are more likely than full professors to say encouraging undergraduates to become socially involved is important.

Source, based on this survey. As George Stigler once said, the typical college catalog would not stop Diogenes in his search for an honest man. Ben Rogge, economist and former dean at Wabash College, used that quote in an excellent commencment speech, The Promise of the College, on what students should expect from university studies. Included was this caution:

One of the ways in which colleges (and college faculties in particular) have become corrupt in recent years has been the way in which they have sought to woo their students to their personal causes by assuring the students that they, the young, are possessed of a mystical wisdom, a godlike, compassionate understanding of life denied to all over age twenty-two, except of course those few adults who share the vision. This I believe to be nonsense.

Young people, and I mean you, are capable of being intelligent, courageous, selfless, and dedicated, but are not usually marked by the qualities of wisdom, tolerance, kindness and true compassion. I cannot urge you too strongly to beware of all adults who flatter you and tell you of your wisdom: we seek but to enlist you in our causes, whether of the left or the right or the middle, and we do not honestly believe you to be wise�nor are you, as a matter of fact.

To know more, yet to know how little you know�is that all there is to it?

Yes, that's about it. To know more may not be much and it may not be directly useful in the way the world measures usefulness, but at least it's something. To know more is at least to live an examined rather than an unexamined life; to live in an examined world rather than an unexamined world. In a world in which most human beings are said to live lives of quiet desperation, surely there is something to be said for this increased awareness, this increased perception of shades of meaning, of shades of beauty and ugliness and dissonance, of shades of dignity and integrity and vulgarity and hypocrisy.

Labels: higher education

During our conference last week one speaker mentioned that China is using consumption vouchers to create stimulus. Chinese citizens save a lot, so handing them vouchers that cannot be saved and that have an expiration date was seen to help local merchants. Some vouchers go towards domestic vacations. One of my colleagues passed along that in Taiwan, where the vouchers are also being used, one county has used a lottery to induce more consumption; a four-year-old has won the use of a private island for the summer.

Counties elsewhere in Taiwan have offered cars, houses and other prizes to encourage locals to spend consumer vouchers worth T$3,600 ($103) that the government gave to every citizen in January to encourage spending to help boost the sagging economy.

Penghu, which comprises 64 islands, is known for its beautiful beaches and water sports.

One place is giving discounts for using the Taiwanese discount dollars. I haven't figured out why you'd get a discount. Maybe because they're out of towners. Details of the Taiwanese program are here.

Labels: China, economics

We know that the state is already in place to pick up $1.3 million of the federal stimulus spending aimed at supporting state budgets. From faculty union sources I've learned that there is an additional $669 million in spending for K-12 and higher ed. But that requires the legislature and Governor Pawlenty to keep spending at 2008-09 levels. So for instance, the governor's budget sought base spending reductions of $73 million for the next biennium for MnSCU; that would have to be rescinded to get that $669. So too would cuts to the U of M. And it would delay the day of reckoning on the higher ed budget. I probably don't have the exact net gain or loss figured in here, but that $669 is not a free lunch.

Also, the federal stimulus bill raised Pell grants by $500. That can be used to shift off spending by the Office of Higher Education on state grants. According to thesame union sources, that might be another $69 million. The temptation will be, of course, to shift that money out of higher education.

Labels: higher education, Minnesota

Prof. David Colander writes that at Middlebury College, his school which has no business major, his majors believe the undergraduate economics degree has the right amount of academic rigor.

At Middlebury, the economics department continually gets students who were planning to major in science until they discovered that in a science major, they would be expected to make a deep commitment to future graduate work. (How deep is that commitment? Students told me that one science student at Middlebury was informed that he would not have time to participate in a sport and also be a science major.)

As chair of the economics department, I am frequently asked by my dean to figure out ways to reduce the number of economics majors � the administration simply refuses to keep increasing the number of economics faculty members. I propose that the solution does not lie in changing the economics major, but in making other majors "just right" as well.

To that end, I asked my students why they considered the other social sciences easy. The answer was twofold. First, far fewer courses in those fields are taught quantitatively than is the case in economics, even though much of the relevant research work is highly quantitative. Other social-science curricula could challenge students more by adding some applied-statistics, math, or computer-science courses as standard requirements. The second reason my students considered the other majors too easy was that they believed the grading standards were undemanding. If they are right, those standards could be raised. For example, social-science courses could require students to write substantial papers that are subject to rigorous standards of logic and exposition.

When I asked my students how the natural sciences could become "just right" majors, they suggested that those departments focus less on training future scientists and more on educating future citizens about the exciting developments in science today. That way, science majors would be able to wait to become scientists in graduate school; they could learn about science during their undergraduate years.

We have a college of business, and the economics department is not in it, so our story is quite different. I suspect the rest of the university would like our business school to be smaller. But besides the obvious benefit of teaching economics to their students, a business school contains many of the students who would also be interested in economics. While some of our best students are like Middlebury's, where students flee the natural sciences (or math and statistics) to have something that feels as rigorous but allows more freedom of thought and perhaps a more engaging subject matter, most of our students come from those who find there to be TOO much emphasis on careers in management or finance. There's just lots of things you can do with an economics degree. And no matter if you're at a school like Middlebury, a Harvard, or St. Cloud State, there are good students who want all those options.

Labels: economics, higher education

I think Peter Boettke gets this right:

During our current crisis we are not yet moving in a full blown socialist direction as traditionally understood. Instead, we are moving toward some sort of mixed ownership form, where resources are retained in some private hands, but also the public hand is deep in control. Such is the fate of our banking industry. Washington Post headline today reads: US Clears Path to Bank Takeovers -- Obama's revised plan for industry aid could result in nationalization. Listening to CNN this morning, I heard how this is really our only way out of the mess we are in. Supposedly, those watching are told, the Bush team pursued the "let the market correct the problem" approach and that has resulted in our current mess. Then we tried to recapitalize the banks and that didn't work. So here we are. BTW, during this same stretch of "logical analysis" we also were told that we are in this problem because of government spent too much and had a debt problem, but that the only way to get out of it is to spend even more and go deeper into debt. The newwoman turned to the camera and said something along the lines of: I know that sounds strange, but it is the truth. Followed by two talking heads explaining how our relations with China are critical to the success of Obama's rescue.

We are in trouble but it is a crisis of ideas that is most troubling. We are marching toward corporatist system as fast as the votes will take us. Who will say NO to this?

David Boaz recently described both Bush and Obama as embracing corporatism. He quotes Nobel laureate Edmund Phelps:

The fundamental corporatist idea was to retain the private income, private wealth and private ownership of firms that (were) so central to capitalism (and found in avant-garde examples of market socialism too) but to remove the brain of capitalism � to curtail and to modify the mechanism of experiments and discoveries undertaken by unorganized entrepreneurs and financiers on which capitalism relied. . . . Corporatism sought to interpose the interests of the whole society in a range of decisions affecting the directions taken in the business sector.

Phelps wrote in 2000 about the corporatist state's inability to use the technological gains of the 1990s to improve its living standards nearly to the level of the those practicing more traditionally laissez-faire policies. In 2006 he wrote:

The premise of corporatist Europe � that prosperity and human development and productivity are fine but not at the expense of any of the �social partners� and certainly not at the expense of its job security � is disastrously wrongheaded. (A society should view a policy move from the viewpoint of citizens� life prospects rather than make the crude demand that every social partner gain from every transaction.) The economies built for job security have suffered the biggest swings in economic activity and have for two decades exhibited the highest unemployment in the OECD. The twin socialist goals of high development and high employment require the dynamism that only well-functioning institutions of capitalism can generate.

This really should be the focus of critics of the Obama economic policy: It should not be solely focused on taxation. That's a rum game; when the government collects $3.7 trillion in taxes and borrowings it has enough to bribe a majority to take from the minority. It is the loss of the ability of individuals to pursue their own life prospects in a way that does not require the approval of others that this Administration is attacking, at many levels. From banking to freedom of conscience of an auto executive, we are stifling dynamism. Virgina Postrel once worried about the rise of stasis in good times, but we are now seeing it applied in bad.

Ob: post titie

Labels: economics, Obama

The local area unemployment rate in St. Cloud reached 9.4% in January. January is always high due to post-holiday layoffs of seasonal employees, but this is clearly a record. Retail dropped 554 jobs in January, but that's barely 20% of the 2631 jobs lost in the area overall. Even areas normally not moving down in January, like health care, saw losses.

The size of the declines are worse in the Cities (that data is seasonally adjusted, unlike the St. Cloud data -- I do the SA myself.) Health sector there is at least holding some gains, but construction looks worse.

Labels: economics, Minnesota, St. Cloud

In other words, if God came down and told us the exact date the current recession was going to end, my forecast subsequent to that date would be for higher than normal growth. But absent that divine intervention, there is always some chance the recession will linger (remember the Great Depression), and our forecast has to give some positive probability weight to that scenario as well.

Greg Mankiw, on the CEA forecast. More comments to follow later.

Labels: economics

State and local governments in Minnesota are expected to be eligible to receive nearly $4.6 billion in assistance under the ARRA. At this time, however, the forecast impact of the additional federal spending on the state�s budget outlook is much smaller than that amount. Much of the spending authorized by the ARRA is dedicated to specific purposes and projects so it will have no direct impact on Minnesota�s general fund outlook. For example, Minnesota is expected to be eligible to receive about $450 million in additional funds for highway and bridge construction projects. When received those funds will be directed into dedicated highway construction funds and not comingled with general fund revenues, leaving the state�s general fund budget outlook unchanged.

This forecast includes only one direct ARRA related budget adjustment, the change in the Federal Medical Assistance Percentage (FMAP). Unlike other federal funds, Minnesota can recognize and spend these funds within current law and without additional review. In fact, the state is already preparing to receive the retroactive portion of the FMAP increase. The change in FMAP is expected to provide Minnesota with an additional $464 million in FY 2009 and $1.359 billion in FY 2010-11.

That $464 million alleviates any additional unallotment that might have happened in FY 2009 and in fact some of it carries over to FY 2010-11, if the Legislature and Pawlenty don't get itchy to spend it. I recall from the original Obama transition plan for what became ARRA that we would get more direct spending than offset of tax cuts ($.60 increase in G and $.30 decrease in T.) Since most of the FMAP money will reduce the deficit and (one hopes) reduce any potential state tax increase, it seems like this fits right. It's fairly close to what the Pawlenty budget projected, too.

February�s baseline economic forecast from Global Insight (GII), Minnesota�s national macro-economic consultant, calls for real GDP to decline at a 2.7 percent annual rate in 2009. The recession extends into early fall, with the economy growing at below trend rates through mid 2010. The unemployment rate reaches 9.4 percent in early 2010 and remains at that level until the fall of that year. By the end of 2009 U.S. payroll employment is expected to be 6 million below its fourth quarter 2007 peak, it then recovers very slowly. It is not until mid-2012 that the number of U.S. jobs exceeds the 2007 high. In GII�s February baseline real GDP grows at a 2.0 percent annual rate in 2010 and at a 3.5 percent annual rate in 2011.

Hmmm. The new Obama budget calls for growth in 2010 of 3.2% in 2010 and 4% in 2011. OMB has gotten a bit tetchy about this; they rely on comparison to a forecast where borrowing trillions of dollars has no effect on private sector investment, and where the productivity of whatever government buys is equivalent to the productivity of private investment. So who do you believe -- the Obama Administration, or Global Insights and the MN Dept. of Finance?

I'll have to read the rest later -- busy until late this PM.

Labels: economics, Minnesota

Meat-eaters are �trading down� from beef and pork in favor of chicken as consumers pare their food costs, according to the chairman of grocery chain Safeway Inc. and analysts at Deutsche Bank AG.

The switch will squeeze beef and pork producers, while chicken sellers may gain from the quest for �cheaper protein,� Deutsche Bank said in its �Monthly Mouthful� report. Still, poultry prices face pressure as rising protectionism and global recession make global trade more competitive, the report said.

�We�re seeing more shifts in the meat category to cheaper meats -- ground beef and chicken -- than we saw earlier in the year,� said Safeway Chairman Steven Burd. There is �a trading down virtually across the board� in retail and even �non- retail� products, he said during the Pleasanton, California- based company�s earnings teleconference on Feb. 26.

The CHART OF THE DAY compares the U.S. wholesale prices of chicken breasts, beef brisket, beef cutout and pork belly futures since Lehman Brothers Holdings Inc. filed for bankruptcy, an event that helped trigger the credit crunch and recession. Notice how pork futures initially rallied as an alternative investment, but have declined along with the more expensive cut of beef.

Source. So while real incomes are rising, people may still be substituting to add to savings.

UPDATE: It's more prevalent than I thought.

Labels: economics

The talk I gave to Winter Institute's Economic Outlook last Thursday night is now available. My portion begins right at the 30:00 point, lasts 30 minutes. and mostly focuses on the St. Cloud economy. The Q&A appears to have been recorded. Before I started talk radio, I could not have done that talk sitting down. Now it's easier, but I still prefer to walk and talk.

If you have itnerest in China, you can find the Friday presentations by our delegates from Nankai University Binhai College, Nicholas Lardy and Wing Thye Woo as well as the lunch talk by my friend Jack Hou from this page.

Labels: economics, SCSU

Under the current tax system, according to the OECD, the top statuatory individual income tax marginal rate is 41.4%, combined state and local. In Minnesota, that would be 42.85%. On the OECD measure, for wage income that puts us 11th of the 31 OECD countries for low taxes, between Austria and Spain.

In 2011, the rate rises to 39.6% for federal, and the state is threatening a 10.3% top marginal tax rate. That moves us to about 50% for the top marginal rate, to 24th on the list. We'd be between Italy and France. Good for geography. Lousy for economic growth.

Labels: economics, taxes

On Saturday's Final Word we had KNSI program director and talk host Dan Ochsner, more often known around St. Cloud as simply The Ox. Dan had reported to me on Thursday last week that he had had his press credentials to the floor of the Minnesota State Senate revoked after holding them for many years. Here's a Google cache of the 2006 press booklet for the senate. It contains KNSI entries for Ox and for former news director Cory Kampschroer. The 2009 book, in contrast, has an entry for KNSI in its table of contents, but nobody from KNSI is listed. (I listed the Google cache just in case the other book is disappeared.) The new book was printed Feb. 5 according to the properties of the Adobe document, a month after the opening of the Senate. This was the same week, it appears, that Ox was denied access to the Senate. (Worth noting here: credentials are a hard plastic badge which are renewed. Ox reported sending in his request for renewal; no additional badge was expected.)

Dan has been an officer of professional radio organizations through the AP and held credentials for many years. His biography includes being past president, Minnesota Associated Press Broadcasters (2000-01) and a news or program director since 1999 in Detroit Lakes and St. Cloud.

It was not the Ox's first visit to St. Paul this year. He broadcast, it appears, from the Minnesota House on January 7. At that time nobody had informed him that his credentials to the senate were being pulled. He had, as usual gone to do a show at the opening of the legislature (as Gary reported) and had, among other things, discussed the amount of per diem money received by Senator Tarryl Clark.

Did this have anything to do with Ochsner's credentials being pulled? He reported on the air that he was told that the Senate had decided to focus their floor privileges to reporters who were more often at the capitol (Dan's show makes a monthly appearance, though he says he visits the capitol more often than that.) He was informed that this came from Clark and DFL Senate leader Larry Pogemiller. When Sen. Clark subsequently was interviewed on Ox's show, she was questioned about this. At one point she is reported to have said that she thought his listeners were not interested in this subject and that Ox should move on. Ox's response was that he knew his listeners, and that they were interested.

Readers are probably aware that in her successful special election campaign in December 2005, Senator Clark's opponent was none other than Ox. It's noteworthy that she continued to do his show even after the credential was pulled. The ostensible reason -- that there's too much traffic on the Senate floor, flies in the face of the evidence, insofar as a new organization that is not a radio, TV, or print outlet, The Uptake, holds five credentials. Is access for that group more important than for out-state news organizations? Does the Senate not respect the journalism of people who are outside the Twin Cities? (Notable silence from the one remaining St. Cloud journalist with full access.)

There is a particular issue, perhaps, between Ox and Clark. Perhaps; I'm not as interested in that. Later in the show Marty Owings, who probably agrees with nothing I blog here, called in to say his work as a journalist was equally hampered in the House. (Chris Stellar reports on this in MnIndy.) His story, that Rep. Tony Sertich had used a procedural trick to restrict access to online media, was the point where I decided this has to be discussed. (h/t on Marty goes to Mitch.) He appears in Hour 2 of the Final Word broadcast of 2/28.

The Society of Professional Journalists has spoken out in favor of online journalists, but not yet, as far as I can tell, for Ox.

If the Legislature is concerned about the conduct of individual reporters, existing rules and procedures can be utilized. If the problem is one of space, then the criteria for distributing media passes should be equitable for all journalists, not arbitrarily discriminatory based on an outlet�s medium.

The Minnesota Independent quotes House Rules Committee Chair Tony Sertich as saying a rule change to allow online media would open access to anybody. In fact, the change gives open access to everybody, which is the best and most credible means of government accountability in a democracy.

Indeed. Dear SPJ, let me take you to a page that I would say summarizes the problem here. This is the temporary rules of the Senate. Lines 10.8-10.16 state:

16.1 The Secretary shall provide space for news reporters on the Senate floor in limited numbers, and in the Senate gallery. Because of limited space on the floor, permanent space is limited to those news agencies that regularly cover the legislature, namely: The Associated Press, St. Paul Pioneer Press, St. Paul Legal Ledger, Star Tribune, Duluth News-Tribune, The Forum, Rochester Post-Bulletin, St. Cloud Times, WCCO radio, KSTP radio, Minnesota Public Radio, and Minnesota News Network. The Secretary shall provide an additional two spaces to other reporters if space is available. One person from each named agency and one person from the Senate Publications Office may be present at the press table on the Senate floor at any time. Other news media personnel may occupy seats provided in the Senate gallery.

The italics are mine. By what right does the Senate get to restrict access to this oligarchic structure of media? Why are certain groups privileged? (And indeed, why are these called "press privileges"? A freedom is not a privilege.) Where are the First Amendment advocates? Who decides which of these agencies are named and which are not? If you favor open access for everybody, dear SPJ, strike this list.

Labels: censorship, DFL legislature, Final Word, free speech, Minnesota

..."because I made the whole thing up."

Just days before DFL caucusing begins for Minneapolis City Council elections, Charles Carlson � University of Minnesota student and Minnesota representative at the Democratic National Convention � said he will announce Monday his withdrawal from the Ward 2 councilmember race following a series of lies regarding his past and his qualifications.

...Carlson, who speaks with an English accent, previously claimed he grew up in Ramsgate, England, but admitted recently that he grew up in the United States.

The Daily confirmed that Carlson attended elementary school, middle schools and high schools throughout Minnesota, including Northfield High School, where a former classmate said Carlson did not have an accent. Also, the classmate did not have any knowledge of Carlson previously living in England.

In a Feb. 1 Daily article, Carlson said his English background would help him connect with the 2nd Ward�s immigrant population.

Carlson also provided the Daily with two fraudulent transcripts to Phillips Exeter Academy in New Hampshire and Princeton University. These schools, along with two other English schools he claimed to have attended, had no record of Carlson.

Carlson said he has been diagnosed with schizophrenia affective disorder, which impacts an individual�s ability to accurately judge reality. Although he said he did not know whether it has affected his perception, he admitted in a recent interview to making false claims in an attempt to hide a �messy past,� which Carlson said included two years in a mental institution.

�I spent six years being a gay nothing that people just made fun of, and then when I was discharged I found out that people would believe anything you told them,� he said. �And in an effort to substantiate who I am, to be something, I went too far.�

...�This campaign was never about me, it was really about the fact that I felt students were being neglected,� Carlson said. �I�m very sorry for not being honest.�

I hope Mr. Carlson, age 23, gets the help he needs. It appears he was diagnosed properly and, while it doesn't seem he was institutionalized more than a couple of months he was under care and given a guardian. He actually is correct that people want to believe things you tell them about yourself, and a good story will seldom be checked.

But I do like the "the campaign was never about me" part. Look, son, in politics it's ALWAYS about you. Where did you learn that lying about yourself was acceptable if the ends were right? My first suspect: University.

(h/t: Tony.)

Labels: higher education

The story is here.

The St. Cloud Christian School�s seventh- and eighth-grade math league team was crowned as West Central Division Champions for the third year in a row.

Littlest appears with her favorite politician.

Labels: life

Mea culpa. �On Friday I posted a simple graph of state government employees under the title "Growth in the supply of "witnesses" at DFL "listening sessions"". �Late last night Dave Senf, an economist at DEED, where they compute those numbers, set me straight on the data I had posted. �

The data you are using in the graph at SCSU scholars is correct but it is Current Employment Statistics data which includes work-study students at our public universities and colleges. If you dig deeper, you will find that most of the job growth in state government employment in the last eight years has occurred at the state�s public universities and colleges, places like SCSU.

I had thought to look at that split, which is available on the site I had linked, but I guess I decided it didn't matter. What I missed entirely is that "work-study" point though. Senf is correct that the amount of students receiving work-study aid (federal and non-federal) has grown recently, from 5.4% in 1999-2000 to 7.2% in 2003-04 (last data available from the National Center for Education Statistics.) �I was unaware that work-study students are counted in the CES data which I used, but not in the QCEW data that Senf provides here (in Excel form.)

MnSCU employs 19,734 persons, up from 17,653 in 2005-06 (MnSCU demographic report.) That second report seems pretty clearly not to include work-study. University of Minnesota system employment rose over that period by less, from 24,498 to 25,976. But those data do not account for half of the rise I showed in the graph on Friday, and it is quite likely that work-study student employment accounts for the bulk of the remainder, and had I pulled that data out the graph would seem to have been much less dramatic. �I regret the misstatement.

Labels: economics, Minnesota