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.
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.
Seigneurage is the scary name macroeconomists give to the wealth that accures to you from being able to print money.
That wealth has to come from somewhere right? When governments print and spend new cash, what they are doing is depreciating the value of the cash the public already holds. We call this an inflation tax.
Here’s a really cool example. Because some people regard pieces of currency with certain sequences of serial numbers to be lucky, the government can actually sell them for more money.
It turns out that Asian buyers are willing to pay $6 for a one dollar bill, if its serial number contains four consecutive eights.
Once you get out of the New York City that most Americans are vaguely familiar with, say, north of 123rd St., “The City” starts to fade into “Upstate”. There’s not a sharp borderline, but even 50 years ago when That Girl was a hit sitcom, going to Brewster to visit her parents was definitely going upstate.
That leaves about 50,000 square miles or so of New York (the state) as Upstate.
And it’s been economically dead for a long time: a macroeconomic zombie.
I hate to break it to the writer, but it’s the other way around: Detroit is becoming Upstate New York with less grass.*
I was a kid when it first dawned on my that my hometown was going down the toilet, and quickly at that. Somewhere between 1975 and 1978 I know I had to start making excuses to people from other places about why Buffalo was just as good. And we’re not talking resort locations. Instead, this was why Pittsburgh couldn’t be that good, or why would anyone want to move to Sacramento.
I’m motivated to write this post because one of the author’s sources got it wrong:
“It all began in 1959 when the interstate highway system was completed,” says Carl Schramm, professor of innovation and entrepreneurship at Syracuse University. “That was also the year commercial jets went into service and half the homes in Florida were air-conditioned.”
Schramm’s a much bigger fish than me. And he’s right about 1959. But the reason is the opening of the St. Lawrence Seaway. This is the system of canals that allows ships to get around Niagara Falls (and other smaller falls, and rapids) to go from Duluth all the way to the open Atlantic.
The reason this is a big deal is that most of Upstate New York thrived on the basis of transshipment. Buffalo was the interior port of New York City: ships came east and transferred their loads to trains bound for New York City, while goods came west on the trains, and loaded on ships bound for Cleveland, Toledo, Detroit, Chicago, and Milwaukee (but also Erie, Sandusky, Windsor, Sarnia, Bay City, Traverse City, Muskegon, Gary, Racine, Sheboygan, Green Bay, Sault St. Marie, Marquette, Superior, Duluth … and probably in a small way, my eponymous town of Tofte, Minnesota). And Buffalo got that way by being the terminus of Erie Canal, which linked to the inland ports of Rochester, Syracuse, Rome, Utica, and many others.
So, in 1959, they bypassed the reason for the existence of a the populous ribbon running through the middle of Upstate New York. It’s been dying ever since.
For perspective, consider this great chart of relative size of large metropolitan areas. Find Buffalo: it has a hump in the 1950’s. Now go across to the present day, where the comparably sized cities are Seattle, Phoenix and San Diego (larger original here).
Let that roll of your tongue: Buffalo — the Phoenix of the 1950’s.
The author is right about the rest: bad weather, tax and regulatory policies that satisfy those from the City but hurt those from Upstate, New York’s unusual method of financing Medicaid, and the fleeing of the big industries that anchored all those cities. So let me be perfectly clear: the St. Lawrence Seaway bypassed something that everyone wanted to bypass anyway.
I think the author is a little wrong also about the politics involved. Yes, New York is a blue state. But the bigger problem in New York is the domination of the state’s political system by three officeholders: the governor, the Speaker of the Assembly (legislature, and the majority leader in the State Senate. It was huge news in New York when one of them was arrested for fraud a few months back. I won’t go into the details, but if you’re number 4, you may as well not bother; I actually know a former # 4, and he hitched himself to Hillary because he wasn’t moving up any further within the state.
Don’t believe me? They let an upstater serve as Speaker last year … for 12 hours. That was between the fraudster and 20 year veteran from Manhattan, and the new guy from The Bronx. They let another upstater serve for 3 days in 1991. The last upstater to serve a long term as Speaker left office in 1959. Senate Majority Leaders are much the same, although Wikipedia doesn’t make it easy to figure out what they represent. Governors? Don’t even bother looking for one from Upstate.
I actually don’t have much of a problem with this set up. Politics is politics, and if New York was a success story I’d be lauding these troikas.
But it isn’t.
Upstate New York is a victim of a political system based around New York City. And really, Upstate isn’t a zombie at all: it’s more like the victim of a vampire … already cold and quickly fading away.
* Funny story. Many western Mormons do a pilgrimage of sorts: they go to the northeast and midwest to follow the trail that the early Mormons followed for the 20 years or so before they emmigrated to Utah. My friend and colleague GP did this with his family about ten years ago. While passing Buffalo, instead of going through on the interstate, they decided to bypass it on U.S. highways. This took them through the suburbs I know well. When he returned, he told me that he never understood why riding lawn mowers were invented until he saw how big the lawns were in that area. That’s one thing Upstate has going for it … nice lawns.
It’s a given that we worry about the wrong thing in contemporary society.
My previous post highlighted the ultimate cause of death. This is the wrong thing to worry about: dying of cancer in 2014 is sad, but it also indicates that you missed out on dying from something like typhoid fever as you would have done a century ago. There’s an aphorism that I heard years ago that’s relevant here: “Most men die with prostate cancer, but not of prostate cancer”.
Basically, we ought to be focusing on days of potential life lost, rather than cause of death. That we’d focus on more important stuff, like car crashes, suicides, and AIDS.
Anyway, an improved version of the previous post focuses on this diagram (via bookofjoe). This shows life-years lost (that’s good). But, it shows them worldwide (which doesn’t do much for America’s weird proclivities). And it uses a misleading 3-D perspective (which distorts our senses).
There also isn’t a before and after: cancer is as big a pink area as it is because the yellow and green areas have gotten smaller through time.
What can we learn from this?
Malaria is huge. Bill and Melinda Gates, or Bjorn Lomborg, are right to be focusing on this.
War is tragic, but is hugely overrated as a problem.
AIDS is a much bigger problem than most of the stuff we spend money on in hospitals and doctor’s offices.
Road accidents are tragically large. I wonder how much of this could be completely eliminated by stronger enforcement of road rules. Given how little of the rest of the chart is related to crime, perhaps it’s time we recognize that bad driving is the biggest crime of all.
Huge chunks of the yellow block are essentially macroeconomic: starvation, diarrhea, pre-term birth, lower respiratory infections, neo-natal conditions and neo-natal infections. It is a tragedy of contemporary developed economy politics that we don’t hold accountable leaders of developed countries who’s policies lead to untimely deaths. These people are mass-murderers before they even get out the guns.
Charlie Brooker’s Weekly Wipe is a British TV show, more or less like The Daily Show. Here they’ve put together a faux news report containing all the features that usually go into one of these things … with just about as much actual economic content as usually go into these things:
I am not sure which of Robert Heinlein’s works this came from, but it speaks to the improvement of well-being in human history:
Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
As part of my continuing meme that people don’t get the importance of economic growth because we don’t tell people often enough how recently life was lousier, I bring you this chart from Mark Perry at Carpe Diem (he has links to the data there too):
What do you like to do: eat at home, or eat out at a restaurant/bar? I think that’s a no-brainer. So, what we’re showing here is a dramatic improvement in well-being, on a small and unimportant data set, albeit one that’s familiar to all of us on a weekly basis.
There are those that say that the standard of living has not improved in the U.S. over the last two generations (or the single one shown here). Charts like this are easy to come by, and they shout out that those people are simply lying, or repeating the lies of others.
Now, this chart says nothing about the distribution of spending. I’ll discuss that below.
A few notes first:
One might complain that this chart isn’t adjusted for inflation. That won’t matter since we’d normally adjust both series by the same price index. Inflation by the CPI was about 70% over this period. Spending at grocery stores was up by 80%, which means real grocery spending was up. But spending at restaurants and bars was up by just shy of 200%. That’s a lot of real (fun) discretionary spending.
You could also argue that this should be adjusted for population growth. Except that was up by 25% over this period. That actually implies that real per capita spending at grocery stores actually declined by about 15%. We can probably thank Walmart for doing that single-handedly: Walmart only had 6 stores selling groceries at the time this data set starts; now they have 1,980. But for restaurants and bars, combining inflation and population growth says that spending should not quite double, and it almost tripled.
Yes, I probably should have gotten the raw data, taken natural logs, and posted a corrected version. Actually, I did all that (of course, you knew I would, right?). But it didn’t show anything very different, so I figured I wouldn’t steal Mark Perry’s thunder by changing his chart.
One might argue that the average ticket has gone up at restaurants and bars over this period. I do not have that data handy, but I’m pretty sure our hospitality faculty can provide data showing that the real price of most hospitality services has actually declined over this period.
Now, inequality: I’m not going to say that maybe that hasn’t gotten worse (although I really don’t think so). But let’s take seriously the idea that it has. Most discussions of inequality focus on the top 1%, the top 10% or the top 20%. If all of that spending at restaurants and bars was done by the top 20%, how much would their spending have had to increase? Spending at restaurants and bars tripled, so if one fifth of the population made that happen, their share must have gone up by 15 times. Halve that to account for inflation and population growth, and you’re saying that a generation ago the top fifth went out one day a week and now they go out all seven. That’s ridiculous. But, if you do it for the top 10%, the story becomes that they used to go out one day a week, and now they go out 14 days each week. That’s not even possible. There isn’t much point in even calculating what would need to have happened to the top 1%. One could make the argument that this is all celebrities getting bottle service in Las Vegas and Miami, and that this has gone up a lot over the last generation. But in order to believe that you’d need to think that the rich never spent gobs of money foolishly. Yeah … right. If anything, when most of “the rich” people in the country live in places like, say, St. George, it’s hard to argue that they even have extravagant tastes.
In the end, this simple graph tells a story of sustained economic growth improving the lives (in a minor way) of a very large fraction of the population.
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