Linking ≠ endorsement.
⇧ On secular stagnation: Larry Summers responds to Ben Bernanke | Brookings Institution
Before Larry Summers’ reply was posted, we had read Ben’s post but didn’t want to include it in our aggregation because it was so wonkish, not that we haven’t posted wonkish things before.
We were just a bit disappointed because Ben Bernanke as Fed Chair treated us to some plain-language analysis of the economic system. He may simply be attempting to rejoin the “debates” at the “highest level.”
However, Larry’s statement as follows prompted us to post a link to his reply, where there is also a link to Ben’s post.
Imagine a secular stagnation world with a zero real interest rate. Then, government debt service is very cheap. As long as a public investment project yields any positive return it will generate enough revenue to service the associated debt. This effect will be magnified if there are any Keynesian fiscal stimulus effects of the project or if there are any hysteresis effects. Notice that with sufficiently low real interest rates, even fiscal stimulus, which does not have supply effects, can pay for itself through mulitiplier [sic] effects.
We agree with that paragraph with the qualification that just “any positive return” won’t be enough unless Larry specifically means “net-positive,” which is how we’re taking it.
While not being dumbed down at all, Larry’s reply was, nevertheless, more accessible.
A fresh cup of coffee didn’t hurt either.
While we’re at it, Larry may be disappointed that he wasn’t made Fed Chair; but we want to say here that while we were pulling for Janet Yellen, Larry is actually more useful on the outside being free to be openly advocating fiscal stimulus, which he might have been constrained from strongly advocating, though we did hear Ben Bernanke hint at it a few times.
He would have taken plenty of heat for it had he been chosen and tried it.
⇧ FOREX-Dollar retreats on weak data as new quarter begins | Reuters
No surprise here:
The dollar fell on Wednesday at the start of the second quarter as disappointing data on U.S. manufacturing and jobs growth raised bets the Federal Reserve might refrain from raising interest rates until late 2015 at the earliest.
An Iranian deal will lower oil prices some more too, which will slow manufacturing for that sector.
The ECB’s actions along with Japan’s really suggest that the US must do fiscal spending. The Republicans won’t do that. Therefore, unless something dramatic happens to turn the tide, look for the announcement of a US recession in the not too distant future.
The Fed really doesn’t have much room in which to maneuver. That’s why it will have to be fiscal. The deficit hawks won’t do the right thing. It will take another downturn and another election cycle or even two before the people will get it.
We’d love to be wrong.
⇧ Poverty Shrinks Brains from Birth – Scientific American
This is why welfare cuts are counterproductive.
…growing up poor can hurt a child’s brain development starting before birth, research suggests—and even very small differences in income can have major effects on the brain.
We’ve also seen that welfare benefits actually help people start businesses.
⇧ Economic Inequality: It’s Far Worse Than You Think – Scientific American
In a study published last year, Norton and Sorapop Kiatpongsan used a similar approach to assess perceptions of income inequality. They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned. Then they asked people how much CEOs and workers should earn. The median American estimated that the CEO-to-worker pay-ratio was 30-to-1, and that ideally, it’d be 7-to-1. The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.”
⇧ It’s A Near-Zero World, And “Structural Reforms” May Actually Hurt – Real Time Brussels – WSJ
The main issue is that structural reforms tend to lower the inflation rate. More competition forces producers to cut prices. Deregulating labor markets tends to lower wages. In normal times, the disinflationary impact of structural reforms could be offset with stimulus from the central bank, raising the growth rate an economy can sustain without inflation starting to accelerate.
But with interest rates at the “zero lower bound,” central bankers can’t cut rates more to push up prices. Falling prices will therefore increase inflation-adjusted interest rates, and thus depress the economy.
⇧ Deadly floods wreak havoc in Chile – YouTube
At least 23 people have been killed and around 50 are missing from deadly floods in Chile.
The rains, which started on Tuesday, were the worst in 80 years to fall in the Atacama region, one of the driest on Earth.
Rivers burst their banks after heavy rains in the Andes sent floodwater down into the valleys and towns below.
Almost 11,000 people have been affected and more than 4,500 are in shelters.
Interior Minister Rodrigo Penailillo said entire towns had been left without drinking water.
⇧ Nonresidential Construction Spending Flat in February
“Construction is impacted more by weather than just about any economic segment and the impact of February’s brutal weather is evident in the government’s spending figure,” said Associated Builders and Contractors Chief Economist Anirban Basu. “ABC continues to forecast robust nonresidential construction spending recovery in 2015 despite the most recent monthly data, with the obvious exceptions of industry segments most directly and negatively impacted by declines in energy prices.
⇧ Oregon Seeks to Become First State to Limit Antibiotic Use at Factory Farms | Common Dreams | Breaking News & Views for the Progressive Community
Is this real-estate related?
These Concentrated Animal Feeding Operations (CAFOs) certainly sit on real estate, and their operations certainly impact the surrounding environment (and properties) but also more than that, as with the use or misuse of antibiotics.
“The Food and Drug Administration has been aware of the problems associated with the misuse of these critical, life saving drugs since at least 1977, but has not required factory farms to stop misusing them,” she continued. “Despite overwhelming scientific evidence that curbing the misuse of antibiotics on factory farms would address this public health crisis and help maintain the effectiveness of these critical, life saving drugs, the meat industry continues to oppose meaningful regulation on how it uses antibiotics.”
⇧ TRENT v. STARK METAL SALES, INC. | Leagle.com
Regardless of whether Trent violated a workplace rule by having marijuana metabolites in his system at the workplace, R.C. 4123.54(A)(2) provides that he is entitled to workers’ compensation benefits unless his drug use was the proximate cause of the injury. While appellant proffered evidence that Trent indicated to other employees that he could not pass the urine drug screen on the day of the accident because of marijuana use, his proffered testimony indicated that he had not smoked marijuana on the day of the accident, and had last smoked marijuana several weeks before the accident. The proffered evidence did not demonstrate that he was under the influence of marijuana on the date of the accident and that his marijuana use was the proximate cause of the accident. The trial court did not abuse its discretion in excluding the evidence on the basis that its prejudicial effect outweighed its probative value.
⇧ NYC Gets Record $3 Billion FEMA Grant for Sandy Housing Repairs – Bloomberg Business
The funds will pay for relocating heating and electricity systems to higher ground, building barriers for low-lying buildings near waterways and beaches, and providing stand-by generators to mitigate power losses, which affected tens of thousands of New Yorkers for several days.
⇧ California governor says green grass is a ‘thing of the past,’ imposes water limit to combat drought | National Post
California Gov. Jerry Brown ordered officials Wednesday to impose statewide mandatory water restrictions for the first time in history as surveyors found the lowest snow level in the Sierra Nevada snowpack in 65 years of record-keeping.
“We’re in a new era; the idea of your nice little green grass getting water every day, that’s going to be a thing of the past,” Brown said.
Critics of the Democratic governor said his order does not go far enough to address agriculture — the biggest water user in California.
“In the midst of a severe drought, the governor continues to allow corporate farms and oil interests to deplete and pollute our precious groundwater resources that are crucial for saving water,” Adam Scow, California director of the group Food & Water Watch, said in a written statement.
⇧ Oklahoma Gov. Requests Federal Disaster Declaration
Oklahoma Gov. Mary Fallin has requested a federal disaster declaration for Tulsa and Cleveland counties in the wake of deadly tornadoes that ripped through two mobile home parks near Sand Springs and another tornado that swept through Moore and heavily damaged an elementary school.
Freedom Industries and West Virginia regulators have signed an agreement for cleaning up the site of a 2014 chemical spill in the Elk River that prompted a tap water ban for 300,000 people for days.
Whatever your overall view of the Affordable Care Act, one indisputable fact is that it’s costing taxpayers much less than expected — about 20% less, according to the Congressional Budget Office. …
… Obamacare isn’t perfect, but it has dramatically improved the lives of millions. Someone should tell the voters.
⇧ Developer’s solution to Paterson abandoned properties: He’ll buy them | NJ.com
A developer who has rebuilt several city homes has offered to buy all the vacant land the city owns.
Mayor Jose Torres said it’s a commendable offer, but intends to stick to his plan. The ordinance lays out several steps before the city can move on a property: The city has to send multiple notices to the owners or stakeholders and petition a court to take it under receivership. After that, the city can put out a request for proposals to rehabilitate an individual property, open to developers like Florio and non-profits like Habitat for Humanity.
Owners who dispute the ‘abandoned’ designation must prove that the properties are rehabilitated or that they plan to rehabilitate them.
⇧ Housing market softening everywhere but Toronto and Vancouver, BMO says – Business – CBC News
“Suffice it to say that strong Canadian home price gains are now almost purely a two-city phenomenon, and the so-called soft landing (harder in Alberta and Saskatchewan) is well underway across most of the country,” Kavcic says.
Although it’s still in the black on an annual basis, new data out of Calgary on Thursday shows that city’s average house price has now declined for two months in a row as the impact of cheap oil filters through the broader economy.
⇧ Sovereign fund buying slides as oil falls and real estate peaks | Reuters
Thomson Reuters data shows that sovereign wealth funds, which invest windfall revenues from oil and other exports for future generations, were involved in 27 deals worth a total of $5.1 billion.
This marks a sharp reversal from a $30.6 billion peak reached in the last quarter of 2014 when sovereign funds were buying up assets at their fastest rate since the financial crisis.
US factory orders rebounded in February after six months of declines, led by nondurable goods like refined oil products, the government reported Thursday.
The gain was not expected; the average estimate was for a 0.5 percent fall.
⇧ Calgary resale housing market sees another month of declining sales | Calgary Herald
…with sales numbers down, days on market up dramatically and those initial panic listings entering their 90th day on the market, we should now begin to witness asking prices beginning to drop. In fact, you may now begin to see properties de-listed and then re-listed in April and May as competition gets more fierce for a smaller number of buyers.
⇧ Why are interest rates so low, part 3: The Global Savings Glut | Brookings Institution
What we’re hearing from Ben Bernanke here sounds like a call for deregulation and for neoliberalism. In addition, it sounds like he’s talking about the paradox of thrift, but what else are the poor to do?
We hope that in subsequent blog post that Ben will come out in favor of less austerity or no austerity at all, which is what we want (no austerity).
⇧ EconoMonitor : Ed Dolan’s Econ Blog – Deconstructing ShadowStats. Why is it so Loved by its Followers but Scorned by Economists?
It is hard to think of a website so loved by its followers and so scorned by economists as John Williams’ ShadowStats, a widely cited source of alternative economic data on inflation and other economic indicators. Any econ blogger who has ever written a line about inflation is familiar with ShadowStats. Time and again, readers cite it in comments, not infrequently paranoid in their tone and rude in their language. Brief replies that cast doubt on some of more extreme claims made by ShadowStats fans don’t seem to have much effect. After a recent round of comments, I promised the editor of one website to undertake a thorough deconstruction of ShadownStats. Here is the result.
⇧ Signs of Life in the Eurozone by Nouriel Roubini – Project Syndicate
The immediate causes of recovery are not difficult to discern. Last year, the eurozone was on the verge of a double-dip recession. When it recently fell into technical deflation, the European Central Bank finally pulled the trigger on aggressive easing and launched a combination of quantitative easing (including sovereign-bond purchases) and negative policy rates.
The financial impact was immediate: in anticipation of monetary easing, and after it began, the euro fell sharply, bond yields in the eurozone’s core and periphery fell to very low levels, and stock markets started to rally robustly. This, together with the sharp fall in oil prices, boosted economic growth.
Other factors are helping, too. The ECB’s easing of credit is effectively subsidizing bank lending. The fiscal drag from austerity will be smaller this year, as the European Commission becomes more lenient. And the start of a banking union also helps; following the latest stress tests and asset quality review, banks have greater liquidity and more capital to lend to the private sector.
Russia is becoming more assertive and aggressive in Ukraine, the Baltics, and even the Balkans….
…Germany needs to adopt policies — fiscal stimulus, higher spending on infrastructure and public investment, and more rapid wage growth — that would boost domestic spending and reduce the country’s external surplus. Unless, and until, Germany moves in this direction, no one should bet the farm on a more robust and sustained eurozone recovery.
We disagree concerning Russia. What is Nouriel Roubini’s evidence for the claim?
During its on-site monitoring, the Organization for Security and Co-operation in Europe (OSCE) has found no evidence that substantiates the claims of a Russian invasion of Ukraine.
Contrary to claims, Russia has been instrumental in causing the current ceasefire in Ukraine, though that ceasefire hasn’t been strictly always adhered to by Ukraine or the People’s Republic of Donetsk or People’s Republic of Lugansk. Each side blames the other.
We think Russia has been reacting to misguided and dangerous Cold War rhetoric from people clinging to a Berlin Wall mentality for the sake of imperialism.
Russia talks much more about national sovereignty and international cooperation rather than national subservience. That bothers those who desire US imperialism. It’s not conducive to a good global business or investment climate with the possible exception of weapons manufacturers.
We don’t consider unnecessary saber rattling to be good risk management but rather inviting death and destruction and unethical war-profiteering.
The risks are huge considering that Russia still has the nuclear capacity to reduce much US development to rubble or worse and to render the entire country highly radio active.
⇧ [Today’s Pick] Prominent apartment developer calls for more affordable housing | The Charlotte Observer The Charlotte Observer
Now this is our kind of businessman.
J. Ron Terwilliger, who is in Charlotte to speak to the Urban Land Institute and Charlotte City Council, told the Observer Monday that the U.S. is in a “silent housing crisis,” with more than 20 million families paying over half of their income for housing.
“We’re short on affordable rental housing now, woefully short, and we’re getting shorter,” said Terwilliger. He said three-quarters of the approximately $200 billion spent annually on housing subsidies in the U.S. goes to homeowners, much of it in the form of tax deductions for mortgage interest, and said more should go to renters.
That kind of thinking can give capitalism a better name (win-win-win).
⇧ U.S. labor market slack and the path to full employment – Washington Center for Equitable Growth
A new paper by Dartmouth College professor David Blanchflower and International Monetary Fund adviser Andrew Levin tried to estimate the level of labor market slack. The paper, written for the Full Employment project of the Center on Budget and Policy Priorities, looks at measures of slack by breaking them down into three different gaps: the unemployment gap, the labor force participation gap, and the underemployment gap.
…Blanchflower and Levin find evidence of remaining slack. …
Yet Federal Reserve Chair Janet Yellen says that stronger nominal wage growth (before factoring inflation into the mix) is not a prerequisite for interest rate increases. Wage growth could continue to be flat and the Fed may still go head and raise interest rates.
We hope not.
⇧ Why China May Have the Most Factory Robots in the World by 2017 – Real Time Economics – WSJ
The trade group says one reason China will continue booming is because it has relatively low “robot density.” China has about 30 robots for every 10,000 factory workers. In Germany, the density is 10 times higher. In Japan, it’s 11 times higher.
When robotics becomes cheaper than human labor, who will purchase the products?
We must have a guaranteed basic income.
⇧ Greece Throws Away One of Its Eurogroup Memo Wins, Submits Reforms Reaching Up to a 3.9% Fiscal Surplus | naked capitalism
One of the things we’ve stressed is that the Greek government’s repeated claims that it is submitting an anti-austerity reform package is untrue. The Greek government committed to achieving a fiscal surplus of 1.0% to 1.5% and has separately said it will always run a fiscal surplus. We have stressed that running a fiscal surplus is an economic dampener, and is even more damaging in a severely depressed economy like Greece.
One could argue that Greece still got a win in the Eurogroup memo of February, in which the agreement stated that the fiscal surplus target for 2015 would be reassessed in light of current conditions. Most observers took that to mean that the scheduled increase to 3.0% was officially off the table, and that that was an important success for Greece. Mind you, the 3.0% goal was widely recognized as unrealistic, but Greece was relieved of the need to make concessions to have it reassessed. But is also important to recognize that this was a qualified gain, since the 1.0%-1.5% target is still austerian.
… While readers correctly point out that voters don’t support leaving the Eurozone, that view is to a significant degree the government’s doing. If Syriza leaders really believed a Grexit could be a positive step, or at least was a superior alternative if the creditors were unreasonable, they could have made efforts to persuade citizens.
We totally agree with that.
⇧ Liquidity Traps, Local and Global (Somewhat Wonkish) – NYTimes.com
Reading Paul Krugman (in his style that is much less formal than Ben Bernanke’s and even more accessible than Larry Summers’s) state Ben’s position helped us better understand Bernanke’s points. Of course, going over the subject matter again regardless of style helps.
This reminds us of when Ben Bernanke actually said that he thinks bank reserves really aren’t necessary. He said that while he was Fed Chair and probably deliberately avoided fleshing it out.
The savings glut is connected to such reserves, even capital reserves for non-bank entities still deemed systemically important (too big to leave under-regulated in terms of cash cushioning).
We sense that perhaps Ben Bernanke has been searching for a way to keep the government from being the direct instrument of recovery maybe because Ben is bias for banking profits, maybe even subconsciously.
The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into “lowflation”, you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.
… Europe’s trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren’t that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.
We agree and not just because of that but simply because fiscal spending works and is cleaner and better understood and better able to be sold to the masses, who need to finally be deliberately involved by those in the ivory towers, which we think Paul Krugman does try to do via his N YT column.
So, we’re looking at the difference here between a person for the people versus a person still close to the bankers.
Of course, Ben Bernanke is encouraged to disabuse us if we’re thinking incorrectly that he might have a bias in favor of bankers over the people.