Some people do this with pop music. Have you ever decided that the you liked a song because everyone else did, and then later on wondered what you were thinking? It’s actually an important part of pop music: do we really think “Blurred Lines” is as good today as we did in the summer of 2013 (when Ellen introduced it to the world as one of the songs they dance to on her show)?*
Cowen provided another example this week. In noting that Los Angeles has decided to unilaterally start raising its minimum wage, Jared Bernstein wrote a piece in support.
A lot of what economists do is actually pretty hard. In this case, they’re trying to figure out if giving poor teenage girls bikes helps them stay in school.
How do you measure that? With something called a differences of differences of differences approach. It’s actually pretty simple when it is explained so clearly, but I’d bet that most claims of that government policy is helpful wouldn’t stand up to this straightforward scrutiny:
That’s in recession territory, but is not yet a recession. It’s not that unusual for the economy to dip that low, or for downward revisions to be that big. To be a recession, those low numbers have to be sustained.
Enter GDPNow from the Atlanta Fed. This is their new-ish real time forecast of the economy. It showed a fairly severe drop-off starting around the beginning of February.
But, there’s a trick to interpreting their data announcements: they keep forecasting last quarter’s real GDP growth until the initial announcement comes out about a month after the end of the quarter. So if you go look at their data, all through January they are forecasting 2014 IV. It’s only with the start of February that they start to forecast 2015 I, whose initial draft won’t be available for 3 more months.
So, in saying that their numbers start to look bad around the start of February, they are saying that 2015 I looked bad from the get go.
And GDPNow continues to show that weakness all through their forecasts for 2015 II that they started about 4 weeks ago.
First, a note about these charts. What I’m showing is the cumulative average forecast for each quarter, from the beginning of forecasts for that quarter. What that means is that the big vertical jumps, like the in the blue line in the top center, just mean that one quarter ended and another began. The jump is then the difference from the last forecast for the previous quarter to the first forecast for the next quarter.
I’m also showing moving averages of all the forecasts for a quarter. This means that starting from a jump, as the jagged line moves to the right it becomes more accurate, before there’s another jump to the next quarter.
This is what really worries me. This shows the components of GDP and their contributions to the forecasted growth rate of real GDP. Not surprisingly, consumption (PCE) is the largest, imports are negative, and so on.
What happened in 2015 I is that investment, government spending, and exports are all weak, and consumption is merely average.
Note that the above is just the forecast from GDPNow. The revision that was announced this morning is that the sum of these 5 components. GDPNow was a weak 0.9 when forecasting stopped at the end of April, and the revision is a 1.6 below that.
Why was it that weak? Exports were revised to –1.0 (1.1 below forecast), and PCE was revised to 1.2 (0.4 below the forecast). Basically, everything was weak to begin with, and the two blue components came in much lower than forecast. Both of those components are purchases of goods made in the U.S., one by foreigners and one by residents.
This chart shows the deviation from the mean for that component. And this really scares me.
Note the huge drop in the investment forecast. This is for the current quarter, not the one whose downward revision was just announced. This suggests that businesses have gotten the message that neither residents or foreigners are buying their goods, and so they’ve scaled back their investment spending severely.
This does not look good.
I tend to be an optimist. I make a point of remarking in my macro classes that I tend to miss business cycle peaks because of that optimism. I wonder now if everyone else is missing this one. We’ll see in a few months I guess.
Gary Silverman draws a great analogy between Hollywood:
There was good news out of Hollywood this week for Hillary Clinton, Jeb Bush and Han Solo. The latest box-office receipts suggest that the public appetite for the old and the familiar is surprisingly robust.
The numbers emerged after Walt Disney tried to do things a little differently during the recently concluded Memorial day weekend. The US holiday marks the unofficial start of summer in this part of the world and Hollywood typically joins in the fun by releasing big-budget sequels such as X-Men: Days of Future Past in 2014 or Fast & Furious 6 the year before.
Last weekend, however, Disney served up Tomorrowland, a fantasy starring George Clooney that featured such novelties as original characters and an original story (albeit with synergistic connections to the attraction of the same name at the company’s theme parks). To create an air of mystery, the studio’s advance marketing campaign kept a tight lid on plot details.
The response was dismal …
And our contemporary political system:
But the truly amazing thing is that all this repetition remains popular with the people and that suggests we need to prepare ourselves for sequels in the White House. I speak as one of the doubters who wondered whether Americans could stomach a presidential campaign in 2016 between the wife of one president, Mrs Clinton, and the son and brother of another, Mr Bush.
Now I’m not so sure. A citizenry that would want to sit through Fast & Furious 7, which opened this year, could probably handle a Clinton Administration 3 or a Bush Administration 4. For all we know, it might even look forward to a star turn by Hillary’s daughter, Chelsea, or Jeb’s son, George P. [emphasis added]
Read the whole thing, entitled “Hollywood learns originality does not pay” in Financial Times.
This is about the drought in California, but it’s a roundabout story.
When I was in my early teens in the late 1970’s, I was into (board) wargames. Going hand-in-hand with that was an interest in military affairs.
This was the Cold War, so any intelligence coming out of the Soviet Union that became public was interesting trivia that got written up in some wargaming publication.
I don’t have any of those magazine any more, and I’ve tried to find this reference without success. But here’s what I recall.
There was some sort of exchange of military officers between the U.S. and the Soviet Union. Basically, everyone goes to some events to reduce tensions, and spies as much as they can on the side.
So the magazine was debriefing one of these American officers, and he stated flat out (in maybe 1979 or so) that the Soviet Union was a paper tiger.
When asked why, he said that the most telling thing was that he visited a base that had been clearly spiffed up for his visit. These things are planned months in advance, so everything he was supposed to look at was clearly in tip-top shape. But his job was to look at stuff they weren’t expecting.
And what did he notice? That the grass at the base was dead and painted green. It was summer, and it was dry (I seem to recall that the base was in north Central Ukraine), but to that officer, it said a lot about the budget priorities of the Soviet Union that they couldn’t afford to water the grass at a base they knew in advance that they’d be showing off to visitors.
NSFW. Click the link if you don’t know what that means.
If you haven’t heard, there’s an undergraduate at Duke his is public about doing porn to pay her bills. What I have below is the fourth part of series on The Source about her experience. My guess is that most of you won’t have a problem with what’s shown: if you do, don’t watch.
This video mostly covers her at a convention meeting fans. Just like, say, baseball … the fans pay cash for autographs and staged photos.
Towards the end of the video, she counts up her take from that day, and it’s $981. That’s revenue.
She figures it cost her $600 in expenses to do the show (flight, hotel, meals, incidentals), which she calls overhead. The distinction between fixed and variable costs in microeconomics is more situation-specific than most students are aware of. In this case, that overhead is a variable cost from the perspective of her whole life, because she didn’t have to do the show. But, once she’s decided to do the show, the overhead is a fixed cost of that show (because she could probably work longer signing autographs to increase her revenue without increasing those fixed costs). I know … more complex than you may need.
Then she recognizes that those overhead costs apply to both days of the show, while she hasn’t counted the revenue from the first day. She figures she made $600 more in revenue the previous day, subtracts out $100 in other expenses, and figures she cleared $800 for the weekend.
I’m not sure how she’s set up for tax purposes. But, the video doesn’t say anything about that, so let’s assume that she’s a proprietor. Then that $800 is the accounting profit from her business, and that goes straight into her bank account as individual income.
But she recognizes and mentions that she did a lot of work for that $800 (and I don’t mean something crude about porn, I mean just working at her convention booth).* Presuming she did two 8-hour days, that works out to about $50/hour: comparable to what professors in the SUU School of Business make (not me, I’m a peon). So, it’s great money for an undergraduate, but she’d probably be making that in 15-20 years anyway.
Now, here’s where the porn comes in. Her accounting profit is $800. But her economic profit would subtract out many things, most importantly opportunity costs. The reason most people don’t do porn is not that they can get paid better at other jobs, but that they suspect that doing porn is blocking them out of future job possibilities that might pay more. So it’s not so much an opportunity cost as the cost of opportunities foregone.
In this case, I think those opportunity costs fall mostly on the actual doing of the porn, rather than on going to conventions. So for this particular weekend, her accounting profit is $800 and her economic profit might be the $500 excess she makes over working some other job back at school.
But, for her career, let’s say she makes $100K. That’s accounting profit. She’s willing to do that because her economic profit is less than that, but still positive and presumably large. Just to throw out a number, perhaps her opportunity costs are $60K, so she’s left with $40K in economic profits. When you choose not to do porn, you’re thinking that the opportunity costs of that far outweigh the accounting profits. When you put it that way, the difference between someone who does porn and someone who does not is largely their subjective evaluation of their opportunity costs: if you don’t think they’re large, you do porn, if you do think they’re large, you don’t.
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