J. Bradford DeLong's Blog, page 2144

Continue the Emergency Unemployment Insurance Program

http://www.epi.org/page/-/pdf/112910-uiextension.pdf

The Honorable Barack Obama


President of the United States


The White House


1600 Pennsylvania Avenue, N.W. Washington, D.C. 20500

The Honorable Nancy Pelosi


Speaker of the United States House of Representatives


Washington, D.C. 20515

The Honorable John Boehner


Minority Leader of the United States House of Representatives


Washington, D.C. 20515

The Honorable Harry Reid


Majority Leader of the United States Senate


Washington, D.C. 20515

The Honorable Mitch McConnell


Minority Leader of the United States Senate


Washington, D.C. 20515

November 29, 2010

Dear Mr. President, Speaker Pelosi, Majority Leader Reid, Congressman Boehner, and Senator McConnell:

Congress must decide whether to continue the Emergency Unemployment Compensation program (EUC), a decision that will directly affect millions of families and the entire economy. Authorization for the additional benefits Congress has been providing since the passage of the American Recovery and Reinvestment Act in February 2009 expires tomorrow, November 30, and millions of unemployed workers will soon be affected. I write you out of concern for the jobless, who through no fault of their own, cannot find work in an economy with only one job vacancy for every five unemployed workers, and who depend on EUC to pay their rent or mortgage, pay for groceries and gas, and pay for their heating bills and other utilities.

But I write also out of concern for the economy. Together with Lawrence Katz of Harvard University, I gathered the signatures of 33 prominent economists on the attached statement, which warns that letting the Emergency Unemployment Compensation program expire will weaken the economy by reducing the spending of the unemployed and overall consumer demand. All of us agree that EUC should be extended for another 12 months and that there is no danger that continuing to provide extended unemployment insurance benefits will materially raise overall unemployment. We also agree that deficit financing for EUC is prudent and will not contribute significantly to long-term deficits.

We hope that you act swiftly to renew these benefits, for the good of the economy and the well-being of millions of deserving Americans who depend on them.

Sincerely,

Lawrence Mishel

President of the Economic Policy Institute

Department of "Huh?!" (Unemployment Insurance Edition)

Greg Mankiw writes:

Greg Mankiw's Blog: My Agnosticism about UI: A few readers have asked me to opine on the current debate over the extension of unemployment insurance benefits.  I have avoided commenting on the topic because I am ambivalent on the issue, largely because I am agnostic about what economists know about optimal UI.... I have yet to see a compelling quantitative analysis of the pros and cons that informs me about how generous the optimal system would be.... It is plausible to me that UI benefits should last longer when the economy is weak.  The need for increased aggregate demand is greater, and the impact on job search may be weaker.  But this conclusion is hardly enough to tell us whether 99 weeks is too much, too little, or about right.  It is also conceivable that the amount of UI offered in normal times is higher than optimal and that a further extension would move us farther from what is desirable.

I should note, by the way, that economists who strongly favor the extension of UI benefits, such as those who signed this letter, also tend to favor more income redistribution in general.  I suspect, therefore, that the foundation of their support comes not from having weighed the specific pros and cons of UI per se, but rather from a more general desire to "spread the wealth around."  That issue is, as I tell my students, more a matter of political philosophy than it is of economics.

This does surprise me.

I would have thought he would have said that continuing our current extension of unemployment insurance benefits to 99 weeks is a good idea:

Continuing the current extension is an expansionary short-run fiscal policy, the economy badly needs more expansionary short-run fiscal policy, and it is one of the few expansionary short-run fiscal policies that might get enacted in the current political climate.

Down the hall at Harvard he has Raj Chetty, who has thought as carefully as anybody about the pros and cons of unemployment benefits and about the optimal structure unemployment insurance. Cf. Chetty (2004), "Optimal Unemployment Insurance When Income Effects are Large" http://www.economics.harvard.edu/files/faculty/1238_ui_income.pdf. Down the hall at Berkeley I have Emmanuel Saez, who has also thought as carefully as anybody about the pros and cons of unemployment benefits and about the optimal structure unemployment insurance. Cf. Landais, Michaillat, and Saez (2010), "Optimal Unemployment Insurance Over the Business Cycle" http://elsa.berkeley.edu/~saez/landais-michaillat-saezNBER10UI.pdf. Both build on Baily (1978), "Some Aspects of Optimal Unemployment Insurance." Both conclude that an unemployment benefit-market wage of about 50% is about right unless you are in a state of affairs in which continuation of unemployment benefits for a particular group is materially reducing the total economy-wide level of employment. Since right now it seems to me highly likely that continuation of unemployment benefits for all groups are raising and not lowering employment--it is a fiscal stimulus in a 10% unemployment rate environment, after all--I don't see any technocratic argument for reducing the benefit-length ceiling below its current 99 weeks at all.

With respect to unemployment benefits and progressive income redistribution. Well, we do need more progressive income redistribution--remember that we are in a country where a generation ago the top 0.01% of households took 1% of total income, and now they take 6%. But that did not enter into my thinking. Remember: your unemployment benefits are an increasing function of your previous wage--it is an insurance program that redistributes to those who have lost as a result of the recession much more than a welfare program that redistributes to the poor. The belief that in a risk-averse world good government policy should reduce and spread risks is a somewhat different thing from a belief that good government policy equalizes incomes and makes everybody dress in identical blue overalls.

Chestnuts Roasting on an Open Fire...

Mark Evanier:

Mel Torme: ORIGINALLY PUBLISHED 7/9/99

I want to tell you a story...

The scene is Farmers Market — the famed tourist mecca of Los Angeles.  It's located but yards from the facility they call, "CBS Television City in Hollywood"...which, of course, is not in Hollywood but at least is very close. Farmers Market is a quaint collection of bungalow stores, produce stalls and little stands where one can buy darn near anything edible one wishes to devour.  You buy your pizza slice or sandwich or Chinese food or whatever at one of umpteen counters, then carry it on a tray to an open-air table for consumption. During the Summer or on weekends, the place is full of families and tourists and Japanese tour groups.  But this was a winter weekday, not long before Christmas, and the crowd was mostly older folks, dawdling over coffee and danish.  For most of them, it's a good place to get a donut or a taco, to sit and read the paper.

For me, it's a good place to get out of the house and grab something to eat.  I arrived, headed for my favorite barbecue stand and, en route, noticed that Mel Tormé was seated at one of the tables.

Mel Tormé.  My favorite singer.  Just sitting there, sipping a cup of coffee, munching on an English Muffin, reading The New York Times.  Mel Tormé. I had never met Mel Tormé.  Alas, I still haven't and now I never will.  He looked like he was engrossed in the paper that day so I didn't stop and say, "Excuse me, I just wanted to tell you how much I've enjoyed all your records."  I wish I had. Instead, I continued over to the BBQ place, got myself a chicken sandwich and settled down at a table to consume it.  I was about halfway through when four Christmas carolers strolled by, singing "Let It Snow," a cappella. They were young adults with strong, fine voices and they were all clad in splendid Victorian garb.  The Market had hired them (I assume) to stroll about and sing for the diners — a little touch of the holidays.

"Let It Snow" concluded not far from me to polite applause from all within earshot.  I waved the leader of the chorale over and directed his attention to Mr. Tormé, seated about twenty yards from me.

"That's Mel Tormé down there.  Do you know who he is?" The singer was about 25 so it didn't horrify me that he said, "No." I asked, "Do you know 'The Christmas Song?'" Again, a "No." I said, "That's the one that starts, 'Chestnuts roasting on an open fire...'" "Oh, yes," the caroler chirped.  "Is that what it's called?  'The Christmas Song?'" "That's the name," I explained.  "And that man wrote it."  The singer thanked me, returned to his group for a brief huddle...and then they strolled down towards Mel Tormé.  I ditched the rest of my sandwich and followed, a few steps behind.  As they reached their quarry, they began singing, "Chestnuts roasting on an open fire..." directly to him.

A big smile formed on Mel Tormé's face — and it wasn't the only one around.  Most of those sitting at nearby tables knew who he was and many seemed aware of the significance of singing that song to him.  For those who didn't, there was a sudden flurry of whispers: "That's Mel Tormé...he wrote that..." As the choir reached the last chorus or two of the song, Mel got to his feet and made a little gesture that meant, "Let me sing one chorus solo."  The carolers — all still apparently unaware they were in the presence of one of the world's great singers — looked a bit uncomfortable.  I'd bet at least a couple were thinking, "Oh, no...the little fat guy wants to sing." But they stopped and the little fat guy started to sing...and, of course, out came this beautiful, melodic, perfectly-on-pitch voice.  The look on the face of the singer I'd briefed was amazed at first...then properly impressed.

On Mr. Tormé's signal, they all joined in on the final lines: "Although it's been said, many times, many ways...Merry Christmas to you..."  Big smiles all around. And not just from them.  I looked and at all the tables surrounding the impromptu performance, I saw huge grins of delight...which segued, as the song ended, into a huge burst of applause.  The whole tune only lasted about two minutes but I doubt anyone who was there will ever forget it.

I have witnessed a number of thrilling "show business" moments — those incidents, far and few between, where all the little hairs on your epidermis snap to attention and tingle with joy.  Usually, these occur on a screen or stage.  I hadn't expected to experience one next to a falafel stand — but I did...

What Do Econ 1 Students Need to Remember Most from the Course?

Economics deals with those things that we want but that are "scarce." We economists care about commodities whenever there are not enough of them for all of us to be satisfied that we have all that we want. Under those circumstances societies then have to--we have to--figure out whether it is worth making more of these scarce commodities. And then, if we do make more of them, we then need to figure out who is going to get to use them.

Where things are not scarce (the air, for example), that is not economics. Where we do not, care that is not economics either. Where things are both scarce and where we care, we have the economic problem.

How ought a society to go about dealing with the economic problem? How should we--collectively--decide whether it is worth our while to make more of any particular commodity? And if we do decide to make more of them, how ought we to decide who is been going to get use them?

At this point I need to pause and note two facts about the world. Most scarce things that we care about are "rival." And most scarce things that we care about are "excludable." By "rival" I mean the only one person can use it at a time. I am now using this iPad to read my lecture notes. Because I am now using it, you cannot be. By "excludable" I mean that it is relatively easy to keep someone from making use of a commodity. I can keep your cows from eating my grass by putting up a barbed-wire fence.

Because commodities are "rival," somebody's use of a particular good imposes an opportunity cost on the rest of society. Because I am using this iPad, there is one fewer iPad for the rest of you to use. My use restricts your opportunities. A good economic system would make me take account in my decision-making of any reduction in your opportunities and resources that might be caused by my actions.

This is where the market economy comes in.

Let us assign each newly-produced commodity a particular person. Call this person the "owner." Let the owner decide who is going to get to use the commodity. Let the owner exclude all others who from using the commodity. And let the owner charge the designated user he or she has decided upon a "price" for the right to make use of this commodity.

This simple institutional arrangement has a huge number of advantages as societal mechanism for planning and coordinating the production and distribution of scarce, rival, excludable commodities.

It solves the problem of production--what commodities we should try to make more of. Individuals look forward into the future and recognize that others will be willing to pay them high prices for commodities they greatly desire. That gives individuals an incentive to figure out how to make more of those scarce, rival, excludable commodities that are scarcest.

It solves the problem of economizing--of how to get people to economize on their own consumption and not hog too great a share of society's total resources for themselves. Because they have to pay the owners the prices the owners ask, their eyes may be bigger than their stomachs but their wallets generally will not be.

It solves the problem of distribution--of determining who is going to get to use newly-produced commodities. The owner has an incentive to choose the person willing to pay the highest price--and the person willing to pay the highest price is, in some sense, the person who values it the most, to whom it is scarcest.

Moreover, it solves the problem of coordination: As long as market prices are free to move to equalize quantities supplied and demanded, there does not need to be any huge centralized computer bureaucracy keeping track of everything and making sure that plans add up. The market will coordinate itself.

And it solves the problem of information: In a market economy with commodities with owners, decision-making is pushed out to the periphery of society where people already know what is going on. You don't need any huge centralized computer bureaucracy collecting and processing information--and where people do discover that there are things that they don't know but need to learn, why knowledge of something and that somebody else would like to learn it is also a commodity and those who know those two facts are its owners.

It is hard to imagine a simpler institutional framework--owners and prices--that could solve those five problems so very well.

At this point I need to pause and point out a lucky consonance between the requirements of a societal institution for producing and allocating rival, excludable, scarce commodities on the one hand and the psychological propensities of us East African Plains Apes on the other. That we believe that things are ours and that we own them is perhaps not so surprising--it appears deeply deeply engraved in mammalian psychology. Squirrels certainly act as though they believe that they "own" nut-foraging sites. Dogs believe that they "own" bones. We East African Plains Apes, however, not only believe that we own things--we like to give them away. We are animals that solidify our own societal bonds via relationships of gift-exchange. And it is this psychological propensity to engage in gift-exchange--what Adam Smith called our natural propensity to truck, barter, and exchange in such a way that both sides are happy because they feel that they have gained something from the deal--that serves as the underpinning of our market economy.

That is the first thing I want you to remember from this course: The market economy, based on deep human psychological propensities, is an extraordinarily effective societal instrumentality for planning and coordinating the production and distribution of scarce, rival, excludable commodities.

Remember this. Keep it as an active process running on your wetware always. Lay up this idea in your heart and in your soul. Bind it for a sign upon your hand, that they may be as frontlets between your eyes. Teach it to your children when thou sittest in thine house, when thou walkest by the way, when thou liest down, and when thou risest up. And write them upon the door posts of thine house, and upon thy gates: that thy days and the days of thy children--or at least the commodities they own--may be multiplied.

Anybody Have Two Good Essay Questions They Can Spare?

As auxiliary reading, my Econ 1 students were supposed to have read large chunks of the Wealth of Nations and of Free to Choose.

Anybody have two good police-the-reading essay questions that are (a) straightforward to answer if you have actually read those books, and (b) not if not?

Department of "Huh?!"

Oh no, no, no, no, no. The Wall Street Journal news pages used to be better than this.

Michael Derby's headline is:

Jobs Data Provide Fodder to Both Sides of QE2 Debate

And the article begins:

The surprisingly weak state of the jobs market in November provides fodder to both sides of the debate over the potency of the Federal Reserve’s bond-buying program.

Supporters of the current state of Fed policy will see in November jobs a clear rationale for the Fed to employ whatever tools it has to fix a terrible jobs market. Core central bankers were already confident the policy will help, although even the strongest advocates of the action do not expect it to push through a huge surge in activity.... On Friday, Ellen Beeson Zentner of the Bank of Tokyo-Mitsubishi called the jobs data “atrocious,” and said it “legitimizes the Fed’s extreme measures to get the economy moving. Is anyone going to question their methods after this report?”

The answer is yes, and one need not even go outside the walls of the Fed to find an opponent to the current course of monetary policy. On Thursday, Philadelphia Fed President Charles Plosser, who will hold a voting role on the interest-rate setting Federal Open Market Committee next year, said in a speech, “I am still somewhat skeptical that we will see much of a stimulative effect from the new round of purchases.” He added, “It is not clear to me that a further reduction in long-term interest rates will do much to speed up the reduction in the unemployment rate to more acceptable levels”...

Plosser gave his speech on Thursday. The employment release came on Friday. Plosser gave his talk before the jobs data for November were released. The surprisingly weak state of the jobs market in November" provided no fodder at all for Plosser because he did not know about it. Not surprisingly, Plosser did not say that the Friday release made him more confident in his point of view that the benefit-cost ratio of QE II is too low for it to be worth doing.

Why oh why can't we have a better press corps?

What Kind of Uncertainty is Holding Back the Economy?

Christy Romer:

NYTimes.com: UNCERTAINTY is frequently blamed for the sorry state of the economy — for why businesses are not investing strongly in new equipment or hiring more workers, and for why consumers are not spending freely.... Uncertainty is likely holding back the recovery. But its sources are far more fundamental than the tax and environmental issues that typically top the list of complaints. And the solution is certainly not for the government to do less. Rather, it needs to do much more.

Despite all of the hand-wringing over the future of the Bush tax cuts, it is just not plausible that they are a major source of uncertainty.... President Obama indicated, as he had done frequently before, that he was eager to reach a compromise. Both political parties have clearly stated their intention to extend the tax cuts on incomes less than $250,000. The biggest question is whether the top tax rate will be 35 or 39.6 percent. That is not the degree or kind of uncertainty that is likely to cause businesses and consumers to put hiring and spending decisions on hold.

The more genuine source of tax uncertainty is related to the government’s long-run budget deficits. Congressional Budget Office projections show that the current budget trajectory is grossly unsustainable. The tax changes required to balance the budget in the future could be modest or enormous.... Simply promising not to raise taxes wouldn’t be helpful. The American people are wise enough to understand that wishing won’t make the problem go away. The only way to resolve this fundamental uncertainty is to enact a credible long-run deficit reduction plan....

Wall Street analysts often cite possible government regulations on the environment as another source of damaging uncertainty. But... inaction could be far more damaging.... Climate change and dependence on foreign oil are problems that won’t go away on their own. Tabling plans to deal with them... makes it harder [to plan]. Until businesses and communities know the costs and incentives for developing renewable energy, nuclear power and natural gas — and whether we will address climate change through prices or direct regulation — it will be very hard to invest in new power sources and related industrial technologies.

The deepest and most destructive uncertainty we face centers on the overall health of the economy.... Unlike other postwar recessions that were caused by tight monetary policy and high interest rates, the recent downturn resulted from the bursting of a housing bubble and a financial crisis. Because we are in largely uncharted territory, figuring out how and when the economy will recover is much harder than usual.... One sign of heightened macroeconomic uncertainty is that the forecasts of respected analysts are all over the map... the difference between the highest and the lowest forecasts of unemployment a year from now is about twice as large as it was before the crisis. And forecasters’ reported uncertainty about their longer-run forecasts has shown no sign of improving over the last year. If professional forecasters are unsure of the future, businesses and consumers certainly are as well....

In a paper I wrote many years ago, I found that such macroeconomic uncertainty helped start the Great Depression. The stock market crash in October 1929 didn’t destroy a particularly large amount of wealth or make people highly pessimistic. Rather, it made companies and consumers very unsure about future income, and so led them to stop spending as they waited for more information.

How do we resolve uncertainty about future growth? The Federal Reserve, Congress and the president need to reaffirm that they will do whatever it takes to restore the economy to full health. They could take a lesson from President Franklin D. Roosevelt, who declared in his 1933 inaugural address that he would treat the task of putting people back to work “as we would treat the emergency of a war.”

They should follow up with powerful fiscal and monetary actions to create jobs — coupled with a concrete plan for tackling our long-run budget problems. We are at a critical moment.... [P]olicy paralysis would be a disaster. It would make uncertainty more acute by leaving us to the unpredictable forces of natural recovery and with no prospect of resolving our unsustainable deficits...

Mark Thoma Watches the Obama Administration Work So Very Hard to Go Off Message

Mark Thoma:

Economist's View: Off Message Watch: "I Don't Know That for Sure": The administration just cannot admit that it made a mistake in proposing a stimulus package that was too small. This is from a Q&A with Austan Goolsbee::

Q. Would our economy be in better shape right now if the initial stimulus when the administration took office had been bigger?

A. I don’t know the answer to that for sure. There’s a bit of a crystal ball in that. It obviously depends on what the things were.

The right answer here is "of course if would have been better," and to then talk about how Republicans blocked any hope of additional stimulus once it was clear the economy was doing much worse than anticipated. But because the administration refuses to admit its mistake and concede that the stimulus was too small, it cannot bring itself to argue that the economy needs more help from fiscal authorities. There were nods in this direction now and again, but the administration never really tried to make this argument, a strong push for a job creation program for example, and it has thus given up the chance to make clear which party is standing in the way of providing more help for distressed households.... Paul Krugman... is thinking along the same lines [as me]:

I know what’s going on: the administration decided, more or less a year ago, that rather than admit that its stimulus package was inadequate and call for more, it would put on a happy face and hope for better news. But here’s the thing: by now we know that this strategy has been a political disaster. So you would think that the administration would change its line.
But to do that, someone at the top has to make the decision to change direction. And clearly, nobody has. I don’t think there was a deliberate decision to persist in an obviously losing strategy; I just think top management has gone missing. And so the administration drifts...

From my point of view things look a little more complex. On the one hand, administration economists are under message discipline to make idiots of themselves by claiming that the policies that Obama could get enacted were perfect policies.

On the other hand, the spinmasters are badmouthing the administration economists and saying that what went wrong was their fault:

*Richard Wolffe: The day before his party's shellacking in this month's elections, Obama sat down with his economic team to examine... whether today's high unemployment rate is structural or cyclical.... [It] may be a little late to try to agree on the root cause of today's high unemployment. This lack of agreement on economic fundamentals.... As one senior Obama advisor told me the day after the disastrous midterms: "It was hard to find a single economic message when the economic team couldn't agree on a single economic policy..."

And what the spinmasters are saying looks to me to be false.

The meeting was not to examine whether high unemployment was cyclical or structural and did not reflect disagreement on economic fundamentals: it was to review the reasons that the economic team was confident that an enormous share of excess unemployment was cyclical. The economic team did not disagree on economic policy: all thought that the economy needed (a) more stimulus now, and (b) credible plans now put in place to reduce the deficit by a lot after, say, 2015. The economic team's disagreements were over how to sell the message "more stimulus now, more deficit reduction later" to the politicians and the journalists.

Yes, Virginia, It Would Be a Measurably Better World If the Washington Post Had Just Published Its Last Piece of Fishwrap

Why oh why can't we have a better press corps?

What the Washington Post headline writers say about "Fair Game":

Fair Game' gets some things about the Valerie Plame case right, some wrong

What Walter Pincus and Richard Leiby say about "Fair Game":

holds up as a thoroughly researched and essentially accurate account -- albeit with caveats...

Walter should get a better gig--one that does not lie in its headlines about what the articles he writes say

There Ought to Be Resignations in Protest and Disgust from the Washington Post Every Day, But Today More than Ever

Why oh why can't we have a better press corps?

There is something wrong with anybody who is still working for--or buying--the Washington Post.

Matt Duss reports:

Eight Years Later, Washington Post Still Defending The Saddam-Niger-Yellowcake Story: This... from the Washington Post’s editorial “review” of the film ["Fair Game"], is pretty clearly dishonest:

The movie portrays Mr. Wilson as a whistle-blower who debunked a Bush administration claim that Iraq had tried to purchase uranium from the African country of Niger. In fact, an investigation by the Senate intelligence committee found that Mr. Wilson’s reporting did not affect the intelligence community’s view on the matter, and an official British investigation found that President George W. Bush’s statement in a State of the Union address that Britain believed that Iraq had sought uranium in Niger was well-founded.

“Well founded,” I suppose, in the sense that (some in) Britain “believed” it. But as we now know, and as the Washington Post itself has reported, our own intelligence agencies, as well as those of other countries, were highly skeptical of the claim. Maybe the Washington Post’s editors should try reading their own paper. From April 2007:

Dozens of interviews with current and former intelligence officials and policymakers in the United States, Britain, France and Italy show that the Bush administration disregarded key information available at the time showing that the Iraq-Niger claim was highly questionable. In February 2002, the CIA received the verbatim text of one of the documents, filled with errors easily identifiable through a simple Internet search, the interviews show. Many low- and mid-level intelligence officials were already skeptical that Iraq was in pursuit of nuclear weapons. The interviews also showed that France, berated by the Bush administration for opposing the Iraq war, honored a U.S. intelligence request to investigate the uranium claim. It determined that its former colony had not sold uranium to Iraq.

It’s somewhat pathetic that now, years after the Niger uranium claim has been debunked, the Washington Post’s editors are still hiding behind the “Britain believed...” formulation. Just as in the U.S., Britain’s investigation found that leaders had relied on questionable intelligence and disregarded key intelligence caveats in making their case for war. Even so, the Butler report is generally regarded as a whitewash.... Hilariously, the editors write that “the film’s reception illustrates a more troubling trend of political debates in Washington in which established facts are willfully ignored.” I quite agree, though I don’t think it’s unreasonable to expect greater respect for those established facts from the Washington Post than from a Hollywood movie.