Thursday, July 18, 2013

Today's links

1---Bernanke drops a D-bomb, IFR

Bernanke is someone who made his academic reputation studying the tragedy of the last depression, namely that policy didn’t move rapidly or forcefully enough. He learned that lesson well, and no one can fault him for a lack of daring or creativity in monetary policy. He’s overseen an unprecedented expansion of the Fed’s balance sheet and the introduction of a host of innovative, but unproven, other policies.

Unfortunately, there isn’t great evidence at this point that it is working, if we define working as doing more good than harm. Extraordinary monetary policy has certainly been good for risky assets and those of us who make their livings off of them, but the economy remains curiously sluggish, with an increasing gap between rich and poor and little evidence of the kind of steady growth in living standards we saw before the growth of financialisation.

That may turn out to be the tragedy of the Bernanke era.

2---No Wage Inflation in This Economy, Jared Bernstein

3---The pain of budget cuts, It's our economy

The economy can’t recover until housing recovers. Housing can’t recover until people can afford to buy houses. People can’t afford to buy houses until they can get jobs, and those with jobs can’t afford to buy houses until wages go up. Wages can’t go up until the trade problem is fixed. And the trade problem is killing jobs.

Let’s look more closely. With jobs at the center of the problem, one thing that must be rethought is the sequestration. The CBO estimates sequestration will cost around 750,000 jobs in total, and forecasters think it could reduce economic growth by half a percentage point this year. The economy is adding very few jobs, just enough to keep with the growth of the workforce. And the federal government shed 8,000 jobs.

4---The social devastation of Detroit, wsws

The destruction of Detroit workers’ pensions and health benefits, along with the gutting of fire protection, street lighting, sanitation and other elementary services, marks a new stage in the restructuring of American class relations that began with the financial collapse in 2008 and the multi-trillion-dollar bailout of the banks. The devastation of working class Detroit is setting a precedent for the entire country.

Bankers, bondholders and politicians are debating among themselves whether this operation can best be carried out through the bankruptcy courts, or whether greater reliance should be placed on the unions, which are more than willing to help impose these attacks on Detroit workers. A decision is expected this week. If Detroit declares bankruptcy, it will be the largest city to do so in US history.

Regardless of the tactic employed, the basic strategy is the same. Under Orr’s plan, pension trust funds will receive as little as 10 cents for every dollar owed by the city to retirees. Cost-of-living adjustments will be eliminated, future pension payments frozen, and retirees shifted to Medicare or privately controlled health care exchanges under Obama’s health care “reform.”

As a result, 30,000 active and retired workers will see their income and health coverage drastically reduced. These measures go well beyond the savage austerity cuts imposed on workers in Greece and other heavily indebted European countries.

It is of no consequence to the financial elite that Michigan’s constitution says public pensions are a “contractual obligation,” which “shall not be diminished or impaired.” Brushing this aside, Orr argues that federal bankruptcy laws trump state constitutional protections.

5---Slow 2013Q2 Growth: The Shadow of the Sequester?, econbrowser

Macroeconomic Advisers estimates second quarter growth at around 0.6% SAAR. [0] Is it because of the sequester and the ending of the payroll tax rate reduction? In part, Jeff Frankel thinks so; see also [1]. Macroeconomic Advisers had predicted something over a 1% reduction in growth rate (SAAR) relative to baseline in the second quarter

6---Obama wins back the right to indefinitely detain under NDAA, RT

7--Labor's share of corporate income keeps falling, CEPR

The graph below shows the labor share of net income in the corporate sector. This is a bit simpler than constructing productivity and pay data, but it should get at the same issue. I have pulled out depreciation and also indirect taxes, so the division is simply between labor income and capital income. I also show the share of labor compensation in after-tax income in the corporate sector.

 Book1 2597 image001                 Source: Bureau of Economic Analysis.
In the data in the graph it certainly looks like we are seeing a redistribution from labor to capital at least in the years since the crash. For the last three years the labor share of before-tax income was lower that at any point hit in the 1980s and 1990s. The labor share of after-tax income is more than two percentage points lower than at any point in the 1980s and 1990s. That looks like a fairly serious redistribution.
We can throw in the usual qualifications about the data being erratic and cyclical, but it's pretty hard to find a way to make this redistribution disappear. It may prove to be the case that if the unemployment rate falls back to more normal levels then workers will get increased bargaining power and will be able to recapture more of the gains from productivity growth, but that is not happening now.
8---What Gloomy CEOs See That Giddy Retail Investors Don’t , Testosterone Pit

9---There goes Detroit, economic populist

10--House-flipping is back, flourishing again, realty check

11---Richard Koo: The ineffectiveness on monetary policy, snbchf

Koo: As more and more people began to realize that increases in monetary base via QE during balance sheet recessions do not mean equivalent increases in money supply, the hype over QEs in the FX market is likely to calm down. At the moment, however, that is not yet the case, as the sharp fall of the yen following the announcement of Abenomics with its commitment to monetary easing amply demonstrates….The only way quantitative easing can have a positive impact on economic activity is if the authorities’ purchase of assets from the private sector boosts asset prices, making people feel wealthier and thereby encouraging them to consume more. This is the wealth effect, often referred to by the Fed chairman Bernanke as the portfolio rebalancing effect, but even he has acknowledged that it has a very limitmued impact.
….
In a sense, quantitative easing is meant to benefit the wealthy. After all, it can contribute to GDP only by making those with assets feel wealthier and encouraging them to consume more



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