J. Bradford DeLong's Blog, page 2099

Mark Thoma Sends Us to Mary Daly et al. on "The Recent Evolution of the Natural Rate of Unemployment"

MT:

Economist's View: "The Recent Evolution of the Natural Rate of Unemployment": Research from Mary Daly, Bart Hobijn, and Rob Valletta of the SF Fed says that the increase in the structural rate of unemployment is relatively small, and it is expected to be transitory: (they estimate that only "about 0.5 percentage points or less" of the increase in unemployment is persistent):

Abstract The U.S. economy is recovering from the financial crisis and ensuing deep recession, but the unemployment rate has remained stubbornly high. Some have argued that the persistent elevation of unemployment relative to historical norms reflects the fact that the shocks that hit the economy were especially disruptive to labor markets and likely to have long lasting effects. If such structural factors are at work they would result in a higher underlying natural or nonaccelerating inflation rate of unemployment, implying that conventional monetary and fiscal policy should not be used in an attempt to return unemployment to its pre-recession levels. We investigate the hypothesis that the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. We begin by reviewing a standard search and matching model of unemployment, which shows that two curves—the Beveridge curve (BC) and the Job Creation curve (JCC)—determine equilibrium unemployment. Using this framework, our joint theoretical and empirical exercise suggests that the natural rate of unemployment has in fact risen over the past several years, by an amount ranging from 0.6 to 1.9 percentage points. This increase implies a current natural rate in the range of 5.6 to 6.9 percent, with our preferred estimate at 6.25 percent. After examining evidence regarding the effects of labor market mismatch, extended unemployment benefits, and productivity growth, we conclude that only a small fraction of the recent increase in the natural rate is likely to persist beyond a five-year forecast horizon.

Rudyard Kipling's "The Love Song of J Alfred Prufrock"

An atrocity committed by Jim Macdonald:

You can talk o' coffee spoons


When you're sittin' in your rooms


Or wanderin' dark streets wi' bad intent


But when comin' down the stairs


You 'ad better all bewares


O' our Michelangel-wallah, Alfred 'Frock!


The arguments 'e made


Very seldom would dissuade


The colonel from decidin' what was what,


But the way 'e tied 'is tie


Made the lads shout "Harry By!"


When 'e brought the mermaids to the sentry 'ut.

An' it's 'Frock, 'Frock, 'Frock!


Why you bugger, what's that 'idden in your smock?


You go risposta fosse


Wi' your senza piu scosse!


Why's a peach stuck in your pocket, Alfred 'Frock?

The uniform 'e wore


Was 'is trousers rolled before


An' 'is hair combed down a little bit behind.


When the fog was blowin' yellow


You'd go lookin' for the fellow


An' some novels an' some teacups you would find.


We was standin' in the hall


When Prince 'Amlet came to call


An' a lord was what we needed an' right quick


So we started in to shout,


"Is there any lord about?"


When up an' came a-trottin' Alfred 'Frock

An' it's 'Frock! 'Frock! 'Frock!


Would you leave off watchin' that thrice-blessed clock?


If you don't tornass' al mondo


You can just di questo fondo


You bleedin' literary Alfred 'Frock!

'E was tellin' 'is one joke,


'Bout a showgirl an' a bloke,


When the prince 'e keeled over wi' ennui


In the midst o' some digression


'Bout the claws an' their procession


That didn't make a lick o' sense to me.


So 'e took a slice o' toast,


An' a piece o' a cold roast,


Then 'e looked for just a spot o' marmalade.


Wi' a smile a little bent


'E said, "That's not what I meant,"


An' that is 'ow 'e ended 'is tirade.

An' it's 'Frock! 'Frock! 'Frock!


You're listenin' to a string quartet by Bach!


Wi' your stream o' conscious' blather


An' an angsty long palaver


You're an influential poet, Alfred 'Frock!

18.098 / 6.099 Street-Fighting Mathematics

http://ocw.mit.edu/courses/mathematics/18-098-street-fighting-mathematics-january-iap-2008/: Level: Undergraduate. Instructor: Dr. Sanjoy Mahajan:

This course teaches the art of guessing results and solving problems without doing a proof or an exact calculation. Techniques include extreme-cases reasoning, dimensional analysis, successive approximation, discretization, generalization, and pictorial analysis. Applications include mental calculation, solid geometry, musical intervals, logarithms, integration, infinite series, solitaire, and differential equations. (No epsilons or deltas are harmed by taking this course.) This course is offered during the Independent Activities Period (IAP), which is a special 4-week term at MIT that runs from the first week of January until the end of the month.

http://ocw.mit.edu/courses/mathematics/18-098-street-fighting-mathematics-january-iap-2008/readings/sf_math.pdf

Mike Konczal: Why Friends Don't Let Friends Support the Republican Party

Mike Konczal on the kooks whom Ron Paul calls as witnesses:

As for the witnesses, Thomas J. DiLorenzo is a senior fellow at the Ludwig von Mises Institute. He's got the Lincoln stuff down pat.  He appears to be best known as an author of Lincoln Unmasked: What You're Not Supposed to Know About Dishonest Abe (example, see this interview:

I saw it as my duty to spread the truth about what a horrific tyrant Lincoln was…. I think secession is not only possible but necessary if any part of America is every to be considered "the land of the free" in any meaningful sense.... Lincoln was almost exclusively devoted to Hamiltonian mercantilism — high protectionist tariffs, other forms of corporate welfare, a central bank modeled after the Bank of England to pay for it all, and political patronage and matching politics….The entire agenda of Hamiltonian mercantilism was put into place during the Lincoln administration — along with the first income tax, the first military conscription law, and the creation of the internal revenue bureaucracy, among other monstrosities...

He writes less about the Federal Reserve and monetary policy. He writes about central banking policy at the founding of our country as a debate between Hamilton and Jefferson, but post WWII central banking gets mentioned only as "the Fed and its legalized counterfeiting operations" and that TARP was just like "appointing the US Treasury secretary as the nation's first financial dictator."   This should make for an interesting conversation on monetary policy.

I'm not trying to cherry-pick. You can read his articles at Mises or Lew Rockwell. He has his opinions and arguments...

Does NGDP Level Targeting Work?

Kantoos:

NGDP level targeting works! « Kantoos Economics: It seems that Germany has found an amazing policy mix for dealing with severe crises: introduce NGDP level targeting and spread the temporary unemployment via subsidized Kurzarbeit over all workers. Of course, this conclusion and the title of the post are a bit provocative, as NGDP level targeting was never an official policy (if it were, Germany might have done even better!). However, the German case shows that the best way out of a severe crisis is to bring NGDP back on its trend path.

The problems with his argument, of course, are (a) no German policymaker ever said they were engaged in nominal GDP targeting and (b) any policy that works is likely to produce numbers that look a lot like nominal GDP targeting...

Martin Wolf: Britains Experiment in Austerity

MW:

Britain’s experiment in austerity: Between 2010 and 2015, the UK is forecast to have the third largest reduction in the share of government borrowing in national income among 29 high-income countries: only Iceland and Ireland are to cut more.... Yet the UK has had no fiscal crisis. That makes its austerity remarkable.... So what explains the UK’s striking austerity? The starting point must be the size of the deficit itself. In 2010, the UK’s share of headline borrowing in national income was the third highest among the high-income countries, after the US and Ireland.... The UK’s fiscal accounts show a sudden surge in government spending and a modest fall in revenue, relative to gross domestic product.... [W]hat made the ratio of spending to GDP jump so quickly was the unexpected fall in GDP....

It is essential to understand the assumptions made by the UK government in deciding its fiscal strategy.... First, the government decided that a substantial part of the GDP lost in the crisis would never return.... The second assumption is that the ratio of spending to GDP should be brought back to around 40 per cent in 2014-15... well below the average... under Margaret Thatcher and John Major. Such levels of spending are a reflection of political and social values, not economic necessity.... Third, the government is determined to raise the ratio of receipts to GDP back to pre-crisis levels.... Fourth, the government has decided upon two new fiscal rules: a cyclically adjusted balance in the current budget by the end of the forecast horizon and the aim of lowering debt as a share of national income between 2014-15 and 2015-16.... Finally, and perhaps most important, the government decided that, given what it saw as a large risk of a meltdown in confidence in UK public finances, it had both to set out and start implementing its fiscal plans at once... the publication of good fiscal intentions would be insufficient... voters, having short memories, would be more inclined to forgive front-loaded cuts than backloaded ones.

The result, then, was these exceptionally tough fiscal plans. The government had alternatives.... I have emphasised the risk that a rapid withdrawal of fiscal support would reduce not just actual GDP, but prospective growth, via its negative impact on investment in physical and human capital. But a bigger question still arises: what is the longer-term plan for the economy’s supply-side? How is the economy to grow? That will largely determine whether what lies ahead is a short period of misery or a prolonged era in the doldrums. It is the question I plan to address this coming Friday.

Barry Eichengreen: Wellsprings of Uprisings

BE:

Why Egypt Should Worry China by Barry Eichengreen: A strictly economic interpretation of events in Tunisia and Egypt would be too simplistic.... That said, there is no question that the upheavals in both countries – and elsewhere in the Arab world – largely reflect their governments’ failure to share the wealth. The problem is not an inability to deliver economic growth. In both Tunisia and Egypt, the authorities have strengthened macroeconomic policy and moved to open the economy. Their reforms have produced strong results. Annual growth since 1999 has averaged 5.1% in Egypt, and 4.6% in Tunisia – not Chinese-style growth rates, to be sure, but comparable nonetheless to emerging-market countries like Brazil and Indonesia, which are now widely viewed as economic successes.

Rather, the problem is that the benefits of growth have failed to trickle down to disaffected youth.... With modern manufacturing underdeveloped, many young workers with fewer skills and less education are consigned to the informal sector. Corruption is widespread. Getting ahead depends on personal connections of the sort enjoyed by the sons of military officers and political officials, but few others.

It may stretch credulity to think that a high-growth economy like China might soon be facing similar problems. But the warning signs are there. Given the lack of political freedoms, the Chinese government’s legitimacy rests on its ability to deliver improved living standards and increased economic opportunity to the masses. So far those masses have little to complain about. But that could change, and suddenly.

First, there is the growing problem of unemployment and underemployment among university graduates.... [T]here is the problem of less-skilled and less-educated migrants from the countryside... consigned to second-class jobs in the cities.... The migrants’ predicament underscores the need to reform hukou, China’s system of residency permits.... Finally, China needs to get serious about its corruption problem.... If Chinese officials don’t move faster to channel popular grievances and head off potential sources of disaffection, they could eventually be confronted with an uprising of their own – an uprising far broader and more determined than the student protest that they crushed in Tiananmen Square in 1989.

Liveblogging World War II: February 9, 1941

Winston S. Churchill:

Here is the answer which I will give to President Roosevelt.... We shall not fail or falter; we shall not weaken or tire. Neither the sudden shock of battle nor the long-drawn trials of vigilance and exertion will wear us down. Give us the tools and we will finish the job.

Why Friends Don't Let Friends Support the Republican Party...

Ezra Klein:

Ezra Klein - What makes Paul Ryan confident in his Medicare plan?: Here's a question for Paul Ryan, or anyone who supports Paul Ryan's plan: Why are the cost savings in his bill possible, while the cost savings in the Affordable Care Act aren't? Ryan has been warning that one of the ways the Affordable Care Act saves money in Medicare might be overstated.... But Ryan's skepticism about Medicare's ability to hit these targets is selective. As Uwe Reinhardt points out, if you look at what Ryan himself proposes to do to Medicare, it shares a crucial similarity. In the Ryan-Rivlin plan, seniors stop getting Medicare and begin getting a check to buy private insurance products that Medicare has certified. How does that save money? Well, it doesn't. Might actually cost money.... What saves money is that the check can only grow in value at GDP plus one percentage point -- that is to say, the same rate that Ryan considers implausible in the ACA.

This might make sense if Ryan and Rivlin had a much more plausible explanation of how their program would save Medicare money, but they don't. As CBO says (pdf), seniors will have to "purchase less extensive coverage or pay higher premiums" under Ryan-Rivlin. And it's actually worse than that, as Medicare is cheaper than private insurance, and so forcing seniors to buy private plans rather than Medicare will mean they pay more for the same health-care coverage....

So Ryan's plan is to hold down costs in Medicare by giving seniors less money to purchase more expensive private insurance. If you could make that stick, it would indeed hold down costs. But it's a lot more painful, and it includes many fewer mechanisms for cost control, than the Affordable Care Act. And yet when it comes to the ACA, Ryan firmly believes that seniors will quickly and successfully force Congress to reverse any reforms that degrade their Medicare experience. That's a fair enough concern, of course. What's confusing is why it isn't doubly devastating when applied to Ryan-Rivlin.

Felix Salmon: Why the NYT will lose to HuffPo

FS:

Why the NYT will lose to HuffPo: Tom McGeveran asks an important question, in his analysis of the AOL-HuffPo deal:

What is it about the environment of traditional journalism that makes it so that readers are more likely to interact with the Huffington Post reblog of a New York Times article than they are with the article itself?

The answer to this question, I think, is also a key part of the reason why the NYT paywall is a bad idea. It’s worth using a specific example here, so let’s take Dave Pell’s suggestion and look at the NYT’s Olbermann scoop last night, and HuffPo’s reblog of it. When Pell first tweeted the comparison, the NYT blog had no comments, while the HuffPo blog had “hundreds of comments/likes.” Now, the NYT post is up to 93 comments, but the HuffPo post is still miles ahead: 2,088 comments, 1,392 likes on Facebook, 340 Facebook shares, 89 tweets, and 52 emails. All of which figures are easily visible in a colorful box at the top of the story. The NYT, by contrast, keeps such numbers to itself....

McGeveran says the NYT doesn’t look more like HuffPo because “their very existence is justified by their obligation to readers to vouch for the content they produce,” including widgets from Twitter and Facebook and the like, if the content from those widgets appears on the NYT website. And I daresay that the NYT sells that Killington ad at a much higher rate, per thousand pageviews, than HuffPo is getting for its ProFlowers and Lufthansa ads and its Bing tie-in. But the HuffPo page is clearly generating lots of pageviews, and has more ads on the page....

[T]he NYT page is like walking into a library, while the HuffPo page is like walking through Times Square. The HuffPo page is full of links to interesting stories elsewhere on the site — about Egypt, or the kid in the Superbowl Darth Vader ad, or the stories my Facebook friends are reading. And there are lot of links to media stories, too; each one has a photo attached.

The NYT page, by contrast, feels like it’s at a site-map dead end. It’s part of the Media Decoder blog, and almost every NYT story linked to on the page is also part of that blog. There are almost no photos; there is almost no color.

Most importantly, the HuffPo page is genuinely, compellingly, interactive....

[I]t’s worth remembering that the NYT paywall is really, at heart, a navigation fee. The side door is always open: if you get to the NYT website from, say, the HuffPo story, then you’ll be able to read that story no matter how many other stories you’ve read that month. The NYT has said that 80% of its visitors don’t read enough pages per month that they’d have any need to subscribe at all. But it’s pretty obvious why that is: the NYT is making precious little effort to encourage people to want to click around the site and view more pages.

The fact is that readers come to the NYT — or any website — because they want to read its stories. They don’t much care about branded sections, or deciphering the difference between a news story and a blog entry. (The Olbermann story is a blog post, for reasons which even I don’t fully understand.) But the NYT site architecture seems built around the peculiar way that the news is produced inside 620 8th Avenue, rather than around showing the NYT’s readers the exact stories they’re most likely to want to read.

Once the paywall goes up, it’s certain that non-subscribers — the vast majority of the NYT readership — will read fewer pages per month than they did before. The NYT’s navigation was never very sticky, as we’ve seen, but from here on in there will actually be a substantial economic incentive not to explore the site, and to save up your precious quota of pageviews for when you need them most.

One of the paradoxes of news media is that most of the time, the more you’re paying to use it, the harder it is to navigate. Sites like HuffPo make navigation effortless, while it can take weeks or months to learn how to properly use a Bloomberg or Westlaw terminal. Once the NYT implements its paywall, it’s locking itself into that broken system: it will be providing an expensive service to a self-selecting rich elite who are willing to put in the time to learn how to use it. Meanwhile, most Americans will happily get their news from friendlier and much more approachable free services like HuffPo.

Rather than learning from or trying to emulate HuffPo’s hugely valuable editorial technology, then, the NYT is sticking its head in the sand and retreating to a defensive stance of trying to make as much money as possible from its core loyal readers. There’s no growth in such a strategy. Indeed, the opposite is true: the NYT is making it both hard and expensive to become a core loyal reader. Meanwhile, the open web will become ever more accessible and social, with friends pointing friends to news in a site-agnostic manner. The NYT is distancing itself from that conversation, standing proud and aloof. It’s a strategy which is doomed to fail.