FRIDAY, JULY 2, 2021

BLOGS/OP-EDS

Pace of US job growth picks up as signs point to tight labor market (Jason Furman + Wilson Powell, PIIE)
Jason Furman on the new jobs numbers – pace of jobs growth is picking up, “…Ultimately the most important way to assess the tightness of labor markets is wages. The last fifteen months have been unusual in that very high unemployment did not result in any slower wage growth for the workers who kept their jobs—instead wage growth continued at a relatively fast rate with the fastest wage growth for the bottom quartile of workers. Over the last two months wage growth has picked up to an annual rate of 8.1 percent for production and non-supervisory workers. This almost certainly understates true wage growth in the economy because many of the workers rehired have been in lower-wage industries and as they re-enter the jobs numbers they drag down the average. It is impossible to do a full adjustment for this effect without the underlying micro data, but a crude adjustment holds the industry sector shares of total hours worked constant, effectively averaging the growth in wages within each industry sector. This shows that wage grew 1.5 percent in April and May for production and non-supervisory workers, or 9.1 percent at an annual rate, faster than in any pre-pandemic two-month period since the early 1980s. (The two-month wage growth for all private workers was the fastest pre-pandemic growth on record, with data going back to 2006.)…”

NEWS

U.S. Added 850,000 Jobs in June Labor Rebound (Josh Mitchell, Wall Street Journal) ($)
“…The U.S. economy added 850,000 jobs in June—the biggest gain in 10 months—and workers’ wages rose briskly as the labor market heated up after a spring lull. The increase in U.S. jobs reported Friday by the Labor Department was the strongest since last August and exceeded economists’ estimates. It followed a gain of 583,000 jobs in May and 269,000 in April. The unemployment rate, derived from a separate survey of households, rose to 5.9% from 5.8%, in part because the number of job seekers grew last month….”

‘Heads bashed bloody’: China’s Xi marks Communist Party centenary with strong words for adversaries (David Crawshaw + Alicia Chen, Washington Post) ($)
“…President Xi Jinping struck a defiant tone as he hailed the “great rejuvenation of the Chinese nation” under the party’s guidance. He declared that the party had achieved its centenary goal of building a moderately prosperous society and solved the problem of absolute poverty, adding that nothing could divide the party and the nation….“The Chinese people have never bullied, oppressed, or enslaved the people of other countries,” he said. “At the same time, the Chinese people will never allow any foreign forces to bully, oppress or enslave us. Anyone who dares try to do that will have their heads bashed bloody against a Great Wall of steel forged by over 1.4 billion Chinese people.”…”

Private equity breaks 40-year record with $500bn of deals (Ortenca Aliaj + Kaye Wiggins, Financial Times) ($)
“…Private equity firms have had their busiest six months since records began four decades ago, striking deals worth more than $500bn and helping to propel global mergers and acquisitions activity to an all-time high. Buyout groups have announced 6,298 deals since the beginning of January, worth $513bn even before counting a $34bn megadeal for the medical supply company Medline, the strongest half-year result since at least 1980 according to figures from data provider Refinitiv. Wider corporate dealmaking continued at a frenzied pace, with overall transaction volumes hitting an all-time high of $1.5tn this quarter, the fourth consecutive quarter in which it has topped $1tn in a remarkable rebound in activity since the early days of the pandemic….”

Rumors of the Demise of Cars Have Been Greatly Exaggerated (Emily Cadman, Charlie Wells, + Shamsiya Hussainpoor, Bloomberg) ($)
“…Turns out the appeal of cars — despite taking a few hits over the years — is as resilient as the “Fast and the Furious” films, the latest of which debuted in cinemas recently after prior installments grossed billions of dollars worldwide over the past two decades….Then the pandemic hit. Now, as the world recovers, used car prices are going through the roof. Waiting times for driving tests have blown out. And online requests for driving directions are soaring, while public transit route inquiries have plunged. An EY survey of 3,300 consumers in nine countries found that 32% of non-car owners said they intended to get a car in the next six months. About half of those prospective buyers were millennials….”

Record Skew index shows nagging investor nerves on US stocks rally (Robin Wigglesworth + Michael Mackenzie, Financial Times) ($)
“…the Skew index — which measures the difference between the cost of derivatives that protect against big market drops on one side, and the right to benefit from a rally on the other — has hit record heights. The Skew gauge rises when fear outpaces greed, so the widening divergence indicates how worries are bubbling up beneath the seemingly placid surface of the stock market….Moreover, the Vix volatility index — Skew’s more famous fellow derivatives-based measure of investor fear — has tumbled to the lowest levels seen since the coronavirus pandemic began to rattle markets in February 2020, due to the sharp decline in actual stock market volatility. The Skew index does a poor job of predicting market calamities, and technical factors such as withdrawal of big option sellers in the wake of the March 2020 turmoil may be helping to pull it higher. But analysts still say it is a decent proxy for the strength of fear and greed among investors…”

NEW ECON RESEARCH

The Demand for Executive Skills (Stephen Hansen et al., National Bureau Of Economic Research) ($)
“We use a unique corpus of job descriptions for C-suite positions to document skills requirements in top managerial occupations across a large sample of firms. A novel algorithm maps the text of each executive search into six separate skill clusters reflecting cognitive, interpersonal, and operational dimensions. The data show an increasing relevance of social skills in top managerial occupations, and a greater emphasis on social skills in larger and more information intensive organizations. The results suggest the need for training, search and governance mechanisms able to facilitate the match between firms and top executives along multiple and imperfectly observable skills.”

NEW SCIENCE

Demonstration of a trapped-ion atomic clock in space (E. A. Burt et al., Nature)
“Atomic clocks, which lock the frequency of an oscillator to the extremely stable quantized energy levels of atoms, are essential for navigation applications such as deep space exploration1 and global navigation satellite systems, and are useful tools with which to address questions in fundamental physics. Such satellite systems use precise measurement of signal propagation times determined by atomic clocks, together with propagation speed, to calculate position. Although space atomic clocks with low instability are an enabling technology for global navigation, they have not yet been applied to deep space navigation and have seen only limited application to space-based fundamental physics, owing to performance constraints imposed by the rigours of space operation. Methods of electromagnetically trapping and cooling ions have revolutionized atomic clock performance. Terrestrial trapped-ion clocks operating in the optical domain have achieved orders-of-magnitude improvements in performance over their predecessors and have become a key component in national metrology laboratory research programmes13, but transporting this new technology into space has remained challenging. Here we show the results from a trapped-ion atomic clock operating in space. On the ground, NASA’s Deep Space Atomic Clock demonstrated a short-term fractional frequency stability of 1.5 × 10−13/τ1/2 (where τ is the averaging time)14. Launched in 2019, the clock has operated for more than 12 months in space and demonstrated there a long-term stability of 3 × 10−15 at 23 days (no drift removal), and an estimated drift of 3.0(0.7) × 10−16 per day. Each of these exceeds current space clock performance by up to an order of magnitude. The Deep Space Atomic Clock is particularly amenable to the space environment because of its low sensitivity to variations in radiation, temperature and magnetic fields. This level of space clock performance will enable one-way navigation in which signal delay times are measured in situ, making near-real-time navigation of deep space probes possible”

IN OUR AIRPODS

U.S. Jobs Surge w. Walsh (Bloomberg Surveillance)

Happy Fourth Of July Weekend!

158 Years Ago Today Joshua Chamberlain Lead The 20^th Maine To Victory On Day Two Of Gettysburg.

THURSDAY, JULY 1, 2021

BLOGS/OP-EDS

The minimum wage paradox (Craig Richardson, Winston Salem Journal)
Craig Richardson has created an online calculator that lets you look at the net impact of a minimum wage increase (via Mark Perry), “…There are some uncomfortable truths about raising the minimum wage from its current level of $7.25 per hour to $15 per hour that are revealed by an online tool created by our Center for the Study of Economic Mobility (CSEM) at Winston-Salem State University. The tool, which we call the Social Benefits Calculator, enables anyone to go online and experience for themselves what it is like to be receiving social benefits and experience a monthly wage increase. Designed for Forsyth County (North Carolina), the calculator shows that with more than a 100% rise in the minimum wage, many people who currently receive social benefits will barely experience a change in their standard of living. Let’s use the calculator and create a hypothetical example: a full-time working parent earning the minimum wage, who is unmarried with two children in subsidized day care. As seen in Table 1 (above, click to enlarge), after his or her wages more than double from $7.25 an hour to $15 an hour, earnings rise from $1,160 to $2,400, or a $1,240 change. Sounds good, right? That’s an enormous bump up of wages by 107%. But after subtracting the decrease in benefits and higher taxes, that $1,240 increase erodes to just a $199 net improvement, or just a 16% change. Imagine getting a big raise and seeing 84% of it go away. In comparison, millionaires and billionaires pay just 37% for the federal marginal tax rate on higher income. Through multiple scenarios using the CSEM calculator, I have found long ranges of income where work barely pays — what I call “disincentive deserts” in my published research. In some cases, individuals are actually worse off by accepting wage increases because of larger drop-offs in benefits, in what are called “benefits cliffs.”…”

The Looming Stagflationary Debt Crisis (Nouriel Roubini, Project Syndicate) ($)
“Hey Joe, take a walk on the wild side” Nouriel Roubini warns that the drivers of stagflation are in place, “…We are thus left with the worst of both the stagflationary 1970s and the 2007-10 period. Debt ratios are much higher than in the 1970s, and a mix of loose economic policies and negative supply shocks threatens to fuel inflation rather than deflation, setting the stage for the mother of stagflationary debt crises over the next few years….To be sure, real long-term borrowing costs may initially fall if inflation rises unexpectedly and central banks are still behind the curve. But, over time, these costs will be pushed up by three factors. First, higher public and private debts will widen sovereign and private interest-rate spreads. Second, rising inflation and deepening uncertainty will drive up inflation risk premia. And, third, a rising misery index – the sum of the inflation and unemployment rate – eventually will demand a “Volcker Moment.”…The stagflation of the 1970s will soon meet the debt crises of the post-2008 period. The question is not if but when….”

Credit, Income, and Inequality (Manthos Delis et al., Federal Reserve Bank of New York)
New research from the FRBNY shows the importance of access to credit, “…Our main finding is summarized by the chart below, which shows applicants’ income five years after the loan decision against the credit score. The chart reveals a clear upward shift in applicants’ income around the cutoff, with marginally accepted applicants experiencing higher incomes than marginally rejected applicants. In general, our analysis shows that access to credit has a positive effect on the income of small business owners. Specifically, being approved for a loan implies an increase in the recipient’s income of approximately 6 percent one to three years after the loan decision, and an increase of 11 percent five years after….A natural implication of our key findings is that the income distribution of applicants around the cutoff changes in response to the bank’s credit decisions. Using two standard aggregate measures of income inequality (the Gini coefficient and the Theil index), we document a tighter income distribution among accepted applicants and a wider income distribution among rejected applicants. We next examine how credit origination affects the income distribution in the economy more generally. First, we show that loan approval has a stronger effect on applicants’ future income in low-income regions compared to high-income regions, thus potentially affecting the income distribution within and across geographical areas. Second, we exploit the Great Recession to analyze how an economic crisis and associated credit crunch affect the credit-income relationship. We show that the positive effect of credit access on individual income is somewhat stronger during the crisis period, when small business owners are more credit-constrained. Overall, these results are in line with the theory pointing to a negative relationship between credit availability and income inequality….”

The Two Charts That Show How Much Stress Is on the Trucking System Right Now (Joe Weisenthal, Bloomberg) ($)
Joe Weisenthal highlights two good charts showing the stress on the trucking system, “…rising number of incidences of trucking operators simply rejecting jobs from shippers with whom they had pre-existing relationships…compiled an index of these rejections, which you can see here. The white line shows the high level of rejected jobs so far in 2021, though it’s roughly on par with the early part of 2018, which was the last time the trucking industry was in a boom. The key idea is that the higher the number, the more power the trucking industry has over customers to reject orders or increase prices. The lower the line, the more the customer has the power, and in fact you can see that 2019 was an awful reversal of 2018. So the pace of rejections is roughly on par with 2018. But one huge difference right now is absolute volumes, which are soaring. You see the white line for 2021 is just head-and-shoulders over the same time in previous years. So there’s way more volume being shipped right now, and the industry is rejecting orders at the highest pace in recent years…But for now, carriers have a tremendous amount of pricing power and leverage over the companies that need to make shipments….”

There Are No ‘Dead End’ Jobs in This Hot Labor Market (Michael Strain, Bloomberg) ($)
My AEI colleague Mike Strain argues for the importance of the first rung of the job ladder, “…it’s bizarre to argue that the current success of those who were in low-wage jobs implies that those jobs only offer a “dead end.” Today’s experience demonstrates precisely the opposite: that many workers can use these jobs as a stepping stone to better opportunities….when applicants are scarce, employers hire people with relatively fewer skills or less experience than they normally would. They are also likely providing increased in-house training to get the new workers up to speed….Progressives and conservative populists alike, take note: The best employment program is a hot economy….”

Globalisation’s coming renaissance (Martin Sandbu, Financial Times) ($)
Martin Sandbu suggests a way to think about managing globalization going forward, “..I would extend the framework further: not just trade, but capital flows or migration can be — and increasingly are — treated in the same way. …Some would say that, like protectionism, imposing standards and values on production processes gives up some gains from trade — since some goods and services will not be traded as a result — for the sake of those standards and values. The better view, I think, would be that goods and services whose production disrespect deeply held norms (which, at home, legally enforced) do not actually generate gains from trade at all. It is precisely to seek the maximum gains from trade that a more nuanced view of globalisation is emerging….”

NEWS

Behind Biden’s 2020 Victory (Ruth Igielnik et al., Pew Research Center)
“…Both Trump and Biden were able to bring new voters into the political process in 2020. The 19% of 2020 voters who did not vote in 2016 or 2018 split roughly evenly between the two candidates (49% Biden vs. 47% Trump). However, as with voters overall, there was a substantial age divide within this group. Among those under age 30 who voted in 2020 but not in either of the two previous elections, Biden led 59% to 33%, while Trump won among new or irregular voters ages 30 and older by 55% to 42%. Younger voters also made up an outsize share of these voters: Those under age 30 made up 38% of new or irregular 2020 voters, though they represented just 15% of all 2020 voters…Biden made gains with suburban voters. In 2020, Biden improved upon Clinton’s vote share with suburban voters: 45% supported Clinton in 2016 vs. 54% for Biden in 2020. This shift was also seen among White voters: Trump narrowly won White suburban voters by 4 points in 2020 (51%-47%); he carried this group by 16 points in 2016 (54%-38%). At the same time, Trump grew his vote share among rural voters. In 2016, Trump won 59% of rural voters, a number that rose to 65% in 2020….Trump made gains among Hispanic voters. Even as Biden held on to a majority of Hispanic voters in 2020, Trump made gains among this group overall. There was a wide educational divide among Hispanic voters: Trump did substantially better with those without a college degree than college-educated Hispanic voters (41% vs. 30%)….Biden made gains with men, while Trump improved among women, narrowing the gender gap. The gender gap in the 2020 election was narrower than it had been in 2016, both because of gains that Biden made among men and because of gains Trump made among women. In 2020, men were almost evenly divided between Trump and Biden, unlike in 2016 when Trump won men by 11 points. Trump won a slightly larger share of women’s votes in 2020 than in 2016 (44% vs. 39%), while Biden’s share among women was nearly identical to Clinton’s (55% vs. 54%)….Biden improved over Clinton among White non-college voters. White voters without a college degree were critical to Trump’s victory in 2016, when he won the group by 64% to 28%. In 2018, Democrats were able to gain some ground with these voters, earning 36% of the White, non-college vote to Republicans’ 61%. In 2020, Biden roughly maintained Democrats’ 2018 share among the group, improving upon Clinton’s 2016 performance by receiving the votes of 33%. But Trump’s share of the vote among this group – who represented 42% of the total electorate this year – was nearly identical to his vote share in 2016 (65%)….”

U.S. Wins International Backing for Global Minimum Tax (Paul Hannon + Kate Davidson, Wall Street Journal) ($)
“…The U.S. has won international backing for a global minimum rate of tax as part of a wider overhaul of the rules for taxing international companies, according to people familiar with the talks, a major step toward securing a final agreement on a key element of the Biden administration’s domestic plans for revenue raising and spending. Officials from 130 countries that met virtually agreed Thursday to the broad outlines of the overhaul, including all of the Group of 20 nations, according to one of the people familiar with the matter. It would be the most sweeping change in international taxation in a century. They include China and India, the large developing countries that had previously had reservations about the proposed overhaul….”

Treasury Yields Signal Investors’ Waning Economic Exuberance (Sam Goldfarb, Wall Street Journal) ($)
“…The recent drop in U.S. Treasury yields reveals some investors’ doubts about how strong the economy will be in the coming years, even as inflation pushes to its highest level in more than a decade. Yields, which fall when bond prices rise, have surprised many by sliding in the second quarter of the year. That marks a reversal from the sharp rise of the year’s first three months, when markets generally rode a wave of optimism that stimulus and reopenings would spur a roaring ’20s type of acceleration. The yield on the benchmark 10-year U.S. Treasury note settled Wednesday at 1.443%, up from 0.913% at the end of last year but down from 1.749% at the end of March….”

Mortgage Rates in the U.S. Slip, With 30-Year Loans at 2.98% (Maria Heeter, Bloomberg) ($)
“…Mortgage rates in the U.S. fell, dipping back below 3%. The average for a 30-year loan was 2.98%, down from 3.02% last week, Freddie Mac said in a statement Thursday…”

General Mills Warns of Inflation, Readies for Shifting Consumer Behavior (Annie Gasparro + Micah Maidenberg, Wall Street Journal) ($)
“…General Mills Inc.said it is raising prices across nearly all its grocery categories around the world, as the maker of Cheerios cereal and Betty Crocker cake mix says it faces its highest costs in a decade. More expensive ingredients, packaging, trucking and labor will push General Mills’ overall costs about 7% higher over the next year or so, executives said….Consumers could be a wild card, though. With the pandemic waning in the U.S., Mr. Harmening said it is hard to predict how consumers will react to higher prices, and whether they might buy less food. “We are ending one period of significant consumer disruption only to start another,” he said. “The next few months will be especially critical for our brands as the world transitions to a new normal.”…”

Is Facebook a monopolist? (Staff, The Economist) ($)
“…To give the ftc its due, delineating digital markets is devilishly tricky. Like Facebook, most social-media firms do not charge users, so the typical approach of looking at an industry’s consumer-derived sales is no use. Facebook does have paying customers, firms that buy ads on its platforms, but the extent of that market, too, is hazy. If all American online advertising counts, its share is 25%, according to an estimate by The Economist (see chart). Looking just at social-media advertising it does rise to 60% in America (though globally Facebook’s share is declining). But what qualifies as social media is amorphous, as features and rivals pop up and fizzle….”

US and Japan conduct war games amid rising China-Taiwan tensions (Demetri Sevastopulo + Kathrin Hille, Financial Times) ($)
“…US and Japanese military officials began serious planning for a possible conflict in the final year of the Trump administration, according to six people who requested anonymity. The activity includes top-secret tabletop war games and joint exercises in the South China and East China seas….As the two allies started to bolster their joint planning, Japan asked the US to share its Taiwan war plan, but the Pentagon demurred because it wanted to focus on boosting planning between the two countries in phases. One former US official said the eventual goal was for the two allies to create an integrated war plan for Taiwan….One official said the US and Japan needed to urgently create a trilateral sharing mechanism with Taiwan for information about Chinese naval and air force movements, especially around the Miyako Strait to the east of Taiwan which is covered by Japanese sensors from the north-east and Taiwanese sensors from the south-west. “Some of that kind of data is shared between Taiwan and the US, and between Japan and the US. But we have no direct sharing trilaterally,” the official said. “You cannot start setting that up in the middle of a contingency. You have to do it now.” Another official said the three nations had taken a small but important step in 2017 by agreeing to share military aircraft codes to help identify friendly aircraft….”

NEW ECON RESEARCH

The Distributional Effects of Trade: Theory and Evidence from the United States (Kirill Borusyak + Xavier Jaravel, NBER) ($)
“How much do consumption patterns matter for the impact of international trade on inequality? In neoclassical trade models, the effects of trade shocks on consumers’ purchasing power are governed by the shares of imports in consumer expenditures, under no parametric assumptions on preferences and technology. This paper provides in-depth measurement of import shares across the income distribution in the United States, using new datasets linking expenditure and customs microdata. Contrary to common wisdom, we find that import shares are flat throughout the income distribution: the purchasing-power gains from lower trade costs are distributionally neutral. Accounting for changes in wages in addition to prices in a unified nonparametric framework, we find substantial distributional effects that arise within, but not across, income and education groups. There is little impact of a fall in trade costs on inequality, even though trade shocks generate winners and losers at all income levels, via wage changes”

NEW SCIENCE

Welcome Polygenically Screened Babies (Scott Alexander, Astral Codex Ten) ($)
“…Another thing I missed during my hiatus last year: the birth of the first polygenically-screened baby….What about IQ? There are definitely scientists who have figured out how to do polygenic analyses to predict a modest amount of variation in IQ, though I don’t know if their algorithms are public, and they’re certainly not convenient for amateurs to use. If you had them, would they work? Gwern has done some calculations and finds that with ten embryos (a near-best-case scenario of what you’re likely to get from egg extraction) and modern (as of 2016) polygenic scoring technology, you could get on average +3 IQ points by implanting the smartest. If polygenic scoring technology reached the limits of its potential (might happen within a decade or two) you could get +9 IQ points. Embryos from the same parents only vary a certain amount in IQ, and about half of IQ variation is non-genetic, so you can’t work miracles with this…Getting back to reality – the first polygenically screened baby was born last year to a family with a history of breast cancer, which screening + selection can make less likely. Her name was Aurea, meaning “dawn” – which may or may not be a coincidence….”

IN OUR AIRPODS

Inflation Debate With Woodard (Bloomberg Surveillance)

WEDNESDAY, JUNE 30, 2021

BLOGS/OP-EDS

Bosses, It Looks Like More of Your Workers Are Going to Quit Their Jobs (Joe Weisenthal, Bloomberg)
“It ain’t gettin’ me further than the next paycheck” Joe Weisenthal reports the Labor Differential sub-index of the Conference Board Consumer Confidence Survey is at its highest level since 2000, “….The more confident you are that there are jobs available, the more comfortable you’ll be quitting the job you have….Here’s the chart showing how Labor Differential (yellow) has been leading the quits rate….Long story short: To the extent that employers are having headaches finding new workers, it doesn’t look like that’s about to change anytime soon….”

Distinguishing Between Signal and Noise in Recent Jobs Data (Cecilia Rouse et al., Council Of Economic Advisors)
CEA on how to think about volatility in employment numbers, “…Our analyses all suggest that monthly job growth remains more volatile than before the pandemic. As a result, a single month’s jobs report—and the “surprise” positive or negative, relative to forecasted job growth—provide a less clear signal of the health of the U.S. economy right now than it would in normal economic conditions. As demonstrated in this blog, data volatility highlights why—now more than ever—it is essential to look at trends and a wide range of indicators rather than data from any single month or source….”

Wildfires in California (Jose Luis Ricón Fernández de la Puente, Nintil)
Jose Luis Ricón Fernández de la Puente provides context on the California wildfires, “…To sum up, this is what is going on…burned acres per year in California are increasing relative to 1950. This is predicted to continue to increase, but the increase won’t be linear. Some years will see very little fire and others will see 2020-scale mega fires….This quantity of fire is not unseen in the history of California: pre-1800 there used to be more fires, and during the European colonization California saw even more fires….The practice of zero-tolerance fire suppression, or fire exclusion, has lead to a buildup of field throughout California. This compounded with a particularly wet period leading to strong plant growth coupled with lower fire incidence. The combination of the end of this wetter period, and rising temperatures due to climate change is what has led California to the current situation….The right question to ask is not whether the driver is climate change or fire suppression looking back. The right question to ask is what to do moving forward, especially accounting for various political and social constraints. Even without climate change, fire exclusion, or weather oscillations, a lot of California is going to naturally burn. The questions then become: How much of California should burn, given what Californians care about? Rather than accepting the default amount of acres burned in a pristine California untouched by us….”

Bidenomics takes on government investment (Noah Smith, Noahpinion) ($)
Noah Smith makes the case that Bidenomics, like Reaganomics, is likely the start of a paradigm shift, “…I’m optimistic about their direction. They both show a new paradigm emerging — a bipartisan recognition that government investment and government spending on technological competitiveness are both key components of a healthy economy. The shift in outlook is bipartisan, even if the GOP isn’t yet ready to fully open the public purse-strings on behalf of a Democratic President. In fact, looking back on the New Deal and Reaganomics — our last two big policy paradigm shifts — we can see that they were substantively stymied in their early incarnations. Reagan’s 1981 tax cuts caused such high deficits that he had to partially reverse them in the following years. He never really made much progress on deregulation — in fact, more significant deregulations happened under Carter. It was only later, under Bill Clinton, that Reaganomics reached its full fruition, with financial deregulation and welfare reform….In other words, these transformative economic policy programs often have much of their impact in the years after a president leaves office. On many points they fall victim to dogged opposition and status quo bias in the short run, but they change the way both parties think economic policy ought to be done. And that’s what really changes things….if Biden can create a mindset change — a general bipartisan and popular acceptance of the type of policies needed to meet the challenges of the 2020s — he can leave a legacy that goes far beyond actual dollars spent. The recent set of investment bills give a glimmer of hope that this is already happening….”

Our Financial Early Warning System Is Broken (Glenn Hubbard + Don Kohn, Bloomberg) ($)
A warning from my friend Glenn Hubbard and Don Kohn that regulators need to look outside of the traditional banking system for sources of systemic risk, “…we see the need for a structural change: Overhaul the agencies tasked with identifying and addressing threats outside traditional banks…Regulators’ objective should not be merely to put out fires once they see smoke, but to prevent the dangerous accumulation of combustible material. New threats will emerge in unexpected ways; solutions will prompt unanticipated responses. So regulation must be dynamic, requiring an ongoing assessment process, not just periodic changes. To meet that challenge, we urge a restructuring of the FSOC and the OFR…”

Hot Property Markets Are a Real Inflation Risk (John Authers, Bloomberg) ($)
“Home is where I want to be” John Authers on the American housing market, “….When the property market is in a true bubble, and prices are higher than can be justified by the rental yield they could raise, the effect is less direct. That appears not to be the case at present. Excluding the “bubble” period from 2002 to 2007, the relationship is tight:…Eric Brescia, economist at Fannie Mae, makes these concerning conclusions: “due to how shelter costs are measured, the housing components of the indices decelerated considerably over the past year, despite strong home price appreciation. This has kept topline inflation from being even higher. Lagged effects from the past year’s house price appreciation and more recent rent recovery could begin to flow into inflation measures as soon as the May readings. House price gains to date suggest an eventual acceleration in shelter inflation from the current rate of 2.0 percent annualized to about 4.5 percent. If house price growth continues at the current pace, shelter inflation would likely move even higher. Timing lags suggest increasing shelter inflation will last through at least 2022, meaning “transitory” increases to the rate of overall inflation may be more prolonged than many are expecting. Due to the heavy weight given to shelter, housing could contribute more than 2 percentage points to core CPI inflation by the end of 2022 and about 1 percentage point to the core PCE. Both would be the strongest contributions since 1990.”…While this dose of housing inflation need not inflict the horrors of past bubbles, it could create problems if it carries on much longer….”

Monetary policy is not the solution to inequality (Martin Wolf, Financial Times) ($)
Martin Wolf argues monetary policy cannot “solve” inequality and efforts to address inequality via monetary policy are risky “…It is clear, for example, that falling real interest rates and easy monetary policies have tended to raise asset prices, to the benefit of the wealthiest. But, interestingly, the measured impact on wealth inequality has not been as dramatic as one might have expected. More important, it would have made no sense to adopt a deliberately more restrictive monetary policy solely in order to lower asset prices. This would have reduced activity and raised unemployment. That is the worst thing that could happen to people who are dependent on their wages for their livelihoods. Meanwhile, how would the majority of people, who own almost no assets, be better off because billionaires were a bit poorer? It would be mad for central banks to cause slumps in order to lower asset prices….A more relevant concern is raised by the dominant contemporary demand to “run the economy hot”. That raises two real (and possibly related) dangers: inflation and financial instability. On the former, proponents of this approach argue that one cannot know where the risk of significant inflation lies without pushing the economy not just to, but beyond, the limit. But that could also prove costly if, as some fear, inflation soars and that overshoot proves very expensive to reverse. On the latter, it is hoped that sophisticated regulation will contain financial instability, even in the easiest imaginable monetary environment. That could be true, under ideal regulation. But regulation is never ideal. Moreover, it is already easy to identify vulnerabilities, notably in the non-bank financial sector. There is simply so much debt. That may be fine if interest rates stay low. But will they? Focusing on outcomes, not forecasts, makes this less likely…”

NEWS

Inflation Eats at Surging U.S. Pay With Biden Plans at Stake (Katia Dmitrieva, Bloomberg) ($)
“…Americans are enjoying outsized pay boosts this year from desperate employers, but the raises are failing to keep pace with surging prices for everyday goods. U.S. wages likely posted a third strong monthly gain to fuel a 3.6% increase in June from a year earlier…At the same time, prices for everything from milk to car rentals and gasoline are rising at a rapid clip, eating into those income gains. The Federal Reserve’s preferred consumer-price gauge rose 3.9% in the 12 months through May, the fastest since 2008….”

It’s Some of America’s Richest Farmland. But What Is It Without Water? (Somini Sengupta, New York Times) ($)
“…That crisis presents rice farmers in the Sacramento Valley, which forms the northern part of the Central Valley, with a tricky choice: Should they plant rice with what water they have, or save themselves the toil and stress and sell their water instead?…At $575 per acre-foot (a volume of water one acre in size, one foot deep) the revenue compares favorably to what he would have made growing rice — without the headaches. It makes “economic sense,” Mr. Fiack said flatly….”

NEW ECON RESEARCH

Learning About Homelessness Using Linked Survey and Administrative Data (Bruce Meyer et al., University of Chicago)
“…Nationally, only a small share of sheltered homeless adults in 2011-2018, about 9.1 percent, changed states in the year before their interview. While this is higher than one-year interstate mobility for the housed population, it is still lower than one might expect given the rhetoric on this subject. Further, longer-term measures of mobility since birth indicate only small differences between the homeless and comparison groups, suggesting that the link between mobility and homelessness is not as strong as suggested in public discourse….There is a stark disparity in the share reporting a cognitive limitation. Nearly one-quarter of the sheltered homeless ages 18-64 reports difficulty remembering or making decisions, a rate that is approximately twice that of the poor comparison group and 5.5 times that of the housed population in this age range. Cognitive limitations appear to be a significant factor distinguishing the sheltered homeless from the rest of the poor….Most people experiencing homelessness are reached by some form of social safety net program, primarily SNAP and Medicaid, with at least 88 percent of the sheltered and 78 percent of the unsheltered receiving at least one benefit…”

Labor-Market Concentration and Labor Compensation (Yue Qiu + Aaron Sojourner, Institute Of Labor Economics) (2019)
“This paper estimates the effect of labor-market concentration on labor compensation across the U.S. private sector since 2000. We distinguish between concentration in local labor markets versus local product markets, guarding against bias from confounded product-market concentration. Analysis extends beyond wages to rates of employment-based health insurance coverage. Estimates suggest negative effects of labor-market concentration on labor compensation. This comes through both reducing the human-capital level of those in the market and reducing pay conditional on human-capital level. Higher product-market concentration exacerbates and higher unionization rates mitigates these effects.”

NEW SCIENCE

Landmark CRISPR trial shows promise against deadly disease (Heidi Ledford, Nature)
“…Preliminary results from a landmark clinical trial suggest that CRISPR–Cas9 gene-editing can be deployed directly into the body to treat disease. The study is the first to show that the technique can be safe and effective if the CRISPR–Cas9 components — in this case targeting a protein that is made mainly in the liver — are infused into the bloodstream. In the trial, six people with a rare and fatal condition called transthyretin amyloidosis received a single treatment with the gene-editing therapy. All experienced a drop in the level of a misshapen protein associated with the disease. Those who received the higher of two doses tested saw levels of the protein, called TTR, decline by an average of 87%….Techniques for delivering CRISPR–Cas9 components to various parts of the body are advancing rapidly, says Anderson. “The list keeps growing,” he says. “I’m optimistic that we’re going to see much broader application of genome editing.”…”

How Weird Is the Heat in Portland, Seattle and Vancouver? Off the Charts. (Aatish Bhatia et al., New York Times) ($)
“…In Vancouver, British Columbia, this past weekend’s temperatures were far above norms for this time of year, and a town in British Columbia reached nearly 116 degrees, the highest recorded temperature for any place in Canada in its history. In Seattle, there have been only two other days in the last 50 years with temperatures in the triple digits: in 2009 and 1994…. Climate is naturally variable, so periods of high heat are to be expected. But in this episode scientists see the fingerprints of climate change, brought on by human-caused emissions of carbon dioxide and other greenhouse gases. Karin Bumbaco, Washington’s assistant state climatologist, said that any definitive climate-change link could be demonstrated only by a type of analysis called an attribution study…On a global average, the world has warmed about 1.8 degrees Fahrenheit since 1900. “When you have that warmer baseline, when you do get these extreme events it’s just going to get that much warmer,” she said….””

IN OUR AIRPODS

Bruce Meyers on Poverty (Russ Roberts, EconTalk)

TUESDAY, JUNE 29, 2021

BLOGS/OP-EDS

US workers are quitting jobs at historic rates, and many unemployed are not coming back despite record job openings (Jason Furman + Wilson Powell, PIIE)
“…Take this job and shove it. I ain’t working here no more….” Jason Furman on one big thing in the labor market, the number of workers who are leaving unemployment for a record number of job openings is below average, “..Overall, based on the historic relationship between job openings and transitions from unemployment to employment, one would have predicted that 34 percent of the unemployed in April 2021 would have transitioned to employment in May 2021, which would have resulted in 1 million more unemployed people finding jobs per month (figure 3). Given how high the openings rate is relative to its historical values, one might not want to take the relationship too literally; this far out of sample, it is possible that the relationship diminishes. But at the very least, there is no reason the transition rate should not be around, say, 29 percent, the 80th percentile of its historical value. Even at this more modest level, an extra 500,000 people would have transitioned from unemployment to employment every month…Given the number of job openings, filling a substantial fraction of the current 10 million jobs shortfall should get easier in the coming months. The biggest uncertainty remains whether and when the entire gap can be filled or if the economy will fall short because the last jobs are the hardest to find, some workers will have withdrawn from the labor force entirely due to early retirement and other factors, and businesses may end up with higher productivity and fewer workers. But at least for a while the speed limit on job creation should be considerably faster than it has been to date….”

Biden’s Plan for an Entitlement Society (John Cogan + Daniel Heil, Wall Street Journal) ($)
John Cogan and Daniel Heil report on their new research (see new econ research) on the impact of Biden’s planned expansion of the welfare state, “…the American Families Plan would add 21 million Americans to the list of federal entitlement beneficiaries. With these additional recipients, 57% of all married-couple children would receive federal entitlement benefits, and more than 80% of single-parent households would be on the entitlement rolls. The share of households receiving assistance would be higher in some areas of the U.S. than in others. This is primarily because federal eligibility for many of the American Families Plan’s programs, particularly its refundable tax credits, don’t account for geographical differences in incomes and living costs. We estimate that most of the Biden plan’s entitlement benefits would go to middle- and upper-income households. Households in the upper half of the nonelderly income distribution would receive 40% of the new entitlement benefits….”

The Pandemic JOLTS (Alex Tabarrok, Marginal Revolution)
To the curious incident of the dog in the night-time, Alex Tabarrok on JOLTS relationship to the recessions associated with Tech Bubble, the Financial Panic and the Pandemic, “… Why, for example, are supply shocks seemingly so much easier for an economy to handle than demand shocks? And why are some demand shocks worse than others? The dot com bust was at least as big a decline in wealth than the housing bust in 2009 but the latter resulted in a much bigger recession. How much was due to policy? How much was due to the fact that the financial system wasn’t so involved in the dot com bust or the pandemic recession? Finance often seems like it doesn’t do so much but why then do things go so badly when the financial system is impeded?…”

Real House Prices and Price-to-Rent Ratio in April (Bill McBride, Calculated Risk)
Bill McBride notes that in real terms the Case Shiller National Index is 5% above the bubble peak, price to rent ratio is ~ at 2004-2005 levels.“…It has been fifteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index (SA), was reported as being 35% above the previous bubble peak. However, in real terms, the National index (SA) is about 5% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is still 3% below the bubble peak…In real terms, the National index is 5% above the bubble peak, and the Composite 20 index is back to late-2005. In real terms, house prices are close to previous peak levels….On a price-to-rent basis, the Case-Shiller National index is back to April 2005 levels, and the Composite 20 index is back to October 2004 levels. In real terms, prices are close to 2005 peak levels, and the price-to-rent ratio is back to late 2004, early 2005….”

Xi’s Gamble (Jude Blanchette, Foreign Affairs) ($)
Jude Blanchette makes the case that the PRC’s a middle term threat as their relative power vis-a-vis the US peaks, “…Put simply, Xi has consolidated so much power and upset the status quo with such force because he sees a narrow window of ten to 15 years during which Beijing can take advantage of a set of important technological and geopolitical transformations, which will also help it overcome significant internal challenges. Xi sees the convergence of strong demographic headwinds, a structural economic slowdown, rapid advances in digital technologies, and a perceived shift in the global balance of power away from the United States as what he has called “profound changes unseen in a century,” demanding a bold set of immediate responses…”

The S&P 500-to-Gold Ratio Is Nearing Its Highest Level in Over 15 Years (Joe Weisenthal, Bloomberg) ($)
“Keeps me searchin’ for a heart of gold, And I’m getting old” Joe Weisenthal highlights a movement in gold prices, “…The ratio of the S&P 500 to the price of gold is nearing its 2018 peak. And if the ratio eclipses that level, it will be at a more-than 15-year high. This simple chart tells a great story about fear and greed. Optimism and pessimism. When people are feeling good, they bet on humans and companies. When people are fearful, they buy the yellow metal, which has been a store of value for thousands of years. It doesn’t do anything, really, other than exist….”

NEWS

US home prices rise at fastest pace in more than 30 years (Mamta Badkar, Financial Times) ($)
“…US home price growth accelerated in April at the fastest pace in more than three decades as strong housing demand continued to come up against a shortage of residential properties. The S&P Case-Shiller national home price index, which covers all nine US census divisions, rose 14.6 per cent year on year in April, data on Tuesday showed. That followed a 13.3 per cent annual jump in March, and was “the highest reading in more than 30 years,” according to the report. Meanwhile, the 20-city composite, which covers US metropolitan areas including Dallas, Miami, New York and San Francisco, rose 1.6 per cent from the previous month and 14.9 per cent year on year….”

US cannot afford housing market ‘boom and bust’, warns Fed official (James Politi + Colby Smith, Financial Times) ($)
“…“It’s very important for us to get back to our 2 per cent inflation target but the goal is for that to be sustainable,” Eric Rosengren, the president of the Boston Fed, told the Financial Times. “And for that to be sustainable, we can’t have a boom and bust cycle in something like real estate. “I’m not predicting that we’ll necessarily have a bust. But I do think it’s worth paying close attention to what’s happening in the housing market”….“You don’t want too much exuberance in the housing market,” Rosengren said. “I would just highlight that boom and bust cycles in the real estate market have occurred in the United States multiple times, and around the world, and frequently as a source of financial stability concerns.”…”

Fed Officials Debate Scaling Back Mortgage-Bond Purchases at Faster Clip (Paul Kiernan, Wall Street Journal) ($)
“…One option suggested at the meeting was to start scaling back the mortgage-bond purchases earlier or more quickly than the Treasury debt purchases, officials said. Call it a two-speed taper. “There are some unintended consequences and side effects of these purchases that we are seeing play out,” Dallas Fed President Robert Kaplan said in an interview, referring to the mortgage-bond purchases, which he thinks are contributing to skyrocketing home prices. He had said previously that he was questioning whether the purchases are still needed. “I’ve shared my views” at the policy meeting, he said….Other Fed officials argue against the idea, saying the combined purchases of mortgage and Treasury securities lower long-term interest rates overall—not just mortgage rates. They say other factors are contributing to the hot housing market, including a dearth of homes for sale relative to strong demand. They view the mortgage-bond purchases as they do the Treasury purchases—as a way to push down long-term rates throughout the economy by buying long-term securities, which pushes up their prices. Bond prices and yields move inversely. The mortgage bond buys are “not really directly affecting the interest you pay on your mortgage,” San Francisco Fed President Mary Daly, told reporters Tuesday. “My best-guess estimate is that we are having a de minimis effect on mortgage interest rates with our mortgage-backed securities purchases.” The average rate on a 30-year fixed-rate mortgage has fallen to 3.02% as of last week from about 3.5% in February 2020, before the pandemic hit the U.S. economy, according to Freddie Mac….”

Americans’ Hunger for the World’s Goods Drives Global Recovery (Tom Fairless + Stella Yifan Xie, Wall Street Journal) ($)
“…Through the mid-2000s, the U.S. was the main locomotive for global growth, until China’s explosive expansion provided a second, and often leading, driver of the world’s economy. Now, China, while still growing strongly, is expected to slow later in the year following its rapid comeback from the pandemic, as its government seeks to rein in credit. Europe’s slower economic recovery, weighed down by weak consumer spending, is also helping to blunt global inflation and demand. The U.S., in contrast, has approved stimulus spending about seven times as large as a share of world GDP as China’s fiscal stimulus after the 2008 financial crisis. The most recent U.S. spending program alone is expected to lift output by up to 0.5 percentage point in Japan, China and the eurozone over the next 12 months, and by up to 1 percentage point in Canada and Mexico, according to the Organization for Economic Cooperation and Development. The OECD in May raised its forecast for global economic growth this year to 5.8%, which would be the fastest since 1973…”

NEW ECON RESEARCH

The Impact of President Biden’s American Families Plan on the Federal Entitlement System (John Cogan + Daniel Heil, Hoover Institution)
“This paper presents an analysis of the American Families Plan’s entitlement programs. Overall, the President’s plan would add 6.2 million households, containing 21.3 million persons, to the federal entitlement benefit rolls. The increase would lift the percentage of all non-elderly U.S. households that receive benefits from at least one federal entitlement to over 50 percent. This would be the first time in U.S. history that a majority of working age households are federal entitlement recipients, except perhaps for the pandemic years 2020 and 2021 for which we are yet to have data. Over 40 percent of the plan’s new entitlement benefits would go to households in the top half of the income distribution.”

Food Fight: An update on private equity performance vs public equity markets (Michael Cembalest, J.P. Morgan)
“…Are the recent annualized 1%-5% excess returns over public equity markets since 2009 enough given the illiquidity of private equity? Rather than apply an abstract derived cost of liquidity, most investors will judge for themselves whether these returns suffice based on their consistency and magnitude….As with buyout managers, VC manager MOIC and IRR also tracked each other until 2012 after which a combination of subscription lines and faster distributions led to rising IRRs despite falling MOICs. There’s a larger gap between average and median manager results than in buyout, indicating that there are a few VC managers with much higher returns and/or larger funds that pull up the average relative to the median. VC managers have consistently outperformed public equity markets when looking at the “average” manager. But to reiterate, the gap between average and median results are substantial and indicate outsized returns posted by a small number of VC managers. For vintage years 2004 to 2008, the median VC manager actually underperformed the S&P 500 pretty substantially….Since the S&P 500 outperformed the Russell 2000 Index, the Russell 2000 Growth Index, the Russell Microcap Index and most other US equity benchmarks since 2010, using a different benchmark than the S&P 500 would simply make venture outperformance look larger since that date….As you can see, the vast majority of the 165 IPOs analyzed resulted in a large share of the total value creation accruing to public market equity investors; nevertheless, there were some painful exceptions (see lower left region on the chart)….”

Who Paid Los Angeles’ Minimum Wage? A Side-by-Side Minimum Wage Experiment in Los Angeles County (Christopher Esposito et al., NBER)
“In the restaurant industry, the incidence of an increase in the minimum wage may fall on restaurant owners, customers, landlords, and/or employees. We analyze the first two in this study, with implications for the incidence borne by landlords and employees. We exploit a geographical discontinuity in Los Angeles County, where in 2015 the City of Los Angeles passed a minimum wage law and in 2016 the State of California passed a different minimum wage law. This created two minimum wage schedules in the county that remained unequal for over five years. Using a novel data set from a multi-year price survey, our analysis shows that the incidence of Los Angeles City’s higher minimum wage fell on customers in high-income neighborhoods, and on landlords and restaurant owners in low-income neighborhoods. We further show that the mix of responses at restaurants subject to the LA City minimum wage, including price increases, menu changes, and restaurant closures, was affected by proximity to restaurants subject to the lower California State minimum wage. The effect of neighborhood income levels and distance to lower-wage competition has important implications for designing minimum wage policies.”

NEW SCIENCE

A Black Hole Feasted on a Neutron Star. 10 Days Later, It Happened Again (Kenneth Chang, New York Times) ($)
“…In January last year, astronomers definitively observed, for the first time, a black hole swallowing a dead star, like a raven devouring roadkill. Then 10 days later, they saw the same act of scavenging happen again in a different, distant sector of the cosmos. Those triumphs, reported in a paper published on Tuesday in Astrophysical Journal Letters, are the latest in the still nascent field of gravitational astronomy, which is detecting the literal stretching and scrunching of space-time caused by some of the most cataclysmic events in the universe. “It’s the first time that we’ve actually been able to detect a neutron star and a black hole colliding with each other anywhere in the universe,” said Patrick Brady, a professor of physics at the University of Wisconsin-Milwaukee who serves as the spokesman for the LIGO Scientific Collaboration….”

IN OUR AIRPODS

Labor Market w. Luzzetti (Bloomberg Surveillance)

MONDAY, JUNE 28, 2021

BLOGS/OP-EDS

Over 3.8 Million Young Adults Found Not Working or in School in Early 2021 (Simran Kalkat et al., Center For Economic And Policy Research)
Don’t you feel like you’re a rider on a downbound train? Simran Kalkat, Julie Yixia Cai and Shawn Fremstad find that while the NEET rate for young Americans has declined from it’s peak in April 2020, “…our analysis reveals that 20- to 24-year-olds have experienced a steady decline in NEET rates since their April 2020 peak, there were still roughly 740,000 more young adults not in work or school in the first quarter of 2021 compared to the first quarter of 2020. Taking a longer-term perspective, the gradual declines in the percentage of young adults who are not in work or school, and the narrowing of disparities by gender, race, and ethnicity are good news, but considerable racial and ethnic disparities still remain. Moreover, the progress on reducing racial and ethnic disparities had been disrupted by the pandemic…”

Remote work won’t save the heartland (Mark Muro et al., Brookings Institution)
Two American kids (not) growing up in the heartland, Mark Muro and his team report the migration out of superstar cities isn’t benefiting the American heartland, “… the outflow of people from dense, high-cost urban metro areas accelerated in 2020, the flows were rather modest in most cases (with the exceptions of the Bay Area, New York, and Seattle)….most of the moves were short to moderate distances, often to nearby counties—not the nation’s interior….look more specifically at moves from the San Francisco and San Jose, Calif. metropolitan areas to the heartland…Through that analysis, we found that in 2020, there was a gross total of 700,000 outbound moves from the Bay Area—but only 12,000 address changes were filed for moves from the Bay Area to the 19 classic heartland states. These 12,000 moves do not seem nearly enough to significantly revitalize the region. We also looked at moves out of New York, Los Angeles, Washington D.C., and Seattle. Even after adding the Mountain West states to the list of heartland destination states, the gross total out-migration to the heartland rises to only 198,000, out of 4.7 million outbound moves from those metro areas….”

Research Roundup: Lead Exposure Causes Crime (Jennifer Doleac, Niskanen Center)
Plata o plomo. Jennifer Doleac summarizes recent research looking at the relationship btw lead exposure and criminal behavior and concludes lead remediation should be a funding priority, “….There is a growing body of high-quality evidence showing that such exposure creates big problems. Kids’ exposure to lead in topsoil, paint, and drinking water leads to large increases in antisocial and criminal behavior in the future; these behavioral effects are costly to those individuals and to their communities. Lead remediation is therefore a highly cost-effective crime-reduction strategy. It would also likely yield large benefits in terms of increasing academic achievement and reducing mortality. While we are working on lead remediation, investing more resources in mitigation strategies such as the CDC-recommended intervention for children with high BLLs would also be a smart investment that would yield lower crime rates down the road….”

A response to Scott Alexander on Jewish achievement (Noah Smith, Noahpinion) ($)
Noah Smith has some great factoids that undermine claims that only systemic racism is holding groups back in American, “…Here’s a graph showing a measure of occupational status by national ancestry: Indians come out on top, with Iranians in second place. This is unsurprising to anyone who knows that Indian Americans have the highest median household income of any ancestry group (in terms of median personal income adjusted for age and sex, Belarusian and Chinese Americans pull a bit ahead). Breaking it down by religion, Hindu Americans have an even higher percentage of adults making over $100,000 a year than Jewish Americans: Now, we know exactly why this is the case: Selective immigration. There is no real argument about this. Our immigration system selects for highly skilled individuals, and the larger the ratio of the source country’s population to the number of people who come over here, the more selected the immigrant group tends to be. This is a fancy way of saying that the Indian people who come to America tend to be the educational and economic cream of the crop of 1.4 billion people — engineers, business executives, doctors, entrepreneurs and so on. That kind of selection very predictably creates an elite minority. And unlike in the case of Jews, selective immigration very clearly demonstrates a shortcoming of disparate impact doctrine — and of the idea that systemic racism is the sole cause of racial disparities. The fact that selective immigration regularly and quite predictably creates minority groups with different aptitude for business and education — whether you believe that aptitude comes from culture, genetics, social capital, or whatever — it demonstrates a way that group outcome disparities come from sources other than structural racism. And it gives a clear reason for us to temper the application of disparate impact….”

Dirt Road Anthem (James Freeman, Wall Street Journal) ($)
James Freeman collects a number of interesting factoids on infrastructure spending, “According to a summary of the bipartisan deal, of the $579 billion in new federal spending above and beyond the “baseline” spending that is already expected, less than 19% will go to the category described as “Roads, bridges, major projects.” And even the money that really is spent on infrastructure won’t go very far. Recently in the Washington Post of all places, columnist Catherine Rampell did a nice job explaining the problem: “The United States is notoriously bad at this. We pay much more per unit of subway track or road tunnel, for instance, than other developed countries. Five of the world’s six most expensive subway lines are in New York City, according to the Transit Costs Project database maintained by New York University’s Marron Institute of Urban Management. Likewise, a new tunnel in Seattle cost around $1.6 billion per mile, more than three times the per-mile cost of a recent tunnel in Paris and more than seven times that of one in Madrid, according to institute fellow Alon Levy. Construction costs for the U.S. interstate highway system have also risen dramatically since the mid-20th century, according to a study from scholars at George Washington University and Yale. These patterns are not readily explained by labor or materials prices….”

On Low Treasury Yields (Greg Obenshain, Verdad Capital)
Greg Obenshain from Verdad Capital makes the case that Treasury’s primarily react to growth, “Treasury rates have continued to move with nominal growth, rallying during the COVID recession and selling off as growth returned, just as would be expected.This week we wanted to address the common feedback we’ve received: At 1.5% yield, or even at 2%+ yield if growth continues, the return impact of Treasurys in growth slowdowns is sure to be more muted than in the past. On its face, this objection is true. A yield of 1.5% is less than 6.4%, so a buy-and-hold strategy will return less. But what is interesting is that the expected price return has not significantly changed….in general, Treasury prices have been more likely to move opposite of equity prices when rates are low, like in the 1950s and early 1960s and since the late 1990s. But when rates are high, Treasury prices are more likely to move with equity prices. Surely, this is a strike against Treasurys. Doesn’t this just confirm that Treasurys are terrible if rates are going up? Well, no, because we based the above on S&P 500 returns, and those can be driven by many factors other than just growth. Treasurys are more simple. As we argued before, they react primarily to growth. If we redo the above chart just to show returns during NBER-dated recessions when growth is by definition negative, the story is much more consistent….”

Time to Grow (Gregor Macdonald, The Gregor Letter) ($)
Gregor Macdonald on America’s energy balance sheet, US is now a net exporter of energy, “…The United States’s energy balance sheet is in rude health as the country’s net dependency on imported energy continues to fall. Energy independence is a tricky concept and frankly, not especially important. The obsession with the idea is largely an outgrowth of the oil embargoes and related crises forty years ago. There’s nothing wrong with a global trade in energy, which arises from the inevitable fact that most countries are in surplus of some energy sources, and in deficit of others. The US is still a net importer of crude oil, for example. But it is not an extreme importer. The pejorative version of dependency should be reserved for more extreme imbalances. But there’s a balance sheet perspective to a country’s import and export profile to be considered, and in the case of the US, its balance sheet is looking great. Simply put, the US produces oil, coal, natural gas, nuclear, wind, solar and hydro—and in some of these it has surpluses that it exports, like natural gas, and in others deficits where it must import, like oil. The mighty ascent of domestic renewables, for example, has eased the call on natural gas, freeing up more for export. And the ascent of US oil production has had similar effects, especially when considering the US’ vast petrochemical complex that now exports large volumes of petroleum products. When you sum all these parts you solve for net import dependency. And in the chart below, you can see that at one point over 15 years ago, net imported energy as a percentage of total energy use stood at 30%. But starting in 2019, that figure actually went negative after a long decline. The US is using less energy, exporting more energy, and creating its own energy to the following result: it’s no longer dependent, on a net basis….”

What New York Could Learn From Utica (Paul Krugman, Krugman Wonks Out)
Paul Krugman on New York City’s prospects, “…In fact, having real estate developers take a big hit might eventually be positive for New York as a whole… its economy has, as Glaeser more recently put it, become a monoculture, dominated by finance. So what? If the financial industry is willing to pay higher rents, why not accept the market’s verdict? Well, cities are all about “externalities” — the spillovers businesses generate by being near one another. And there’s a good argument that being a one-industry town reduces positive externalities, because it limits the cross-pollination of ideas that can foster innovation. So New York will probably be slower to recover economically than much of the rest of the nation, and once it does recover, it will probably emerge with a cheaper, more diversified economy than it was in 2019. But that may be a good thing in the long run…”

Even Finance Professors Lean Left (John Cochrane, The Grumpy Economist)
John Cochrane reports on the political affiliations of the top American finance departments, “…You may have thought of finance professors at business schools as likely to be a fairly conservative lot, or at least to include a good number of them. You might think finance would be an exception to the growing political monoculture in US academia. You would be mostly wrong….”

NEWS

Americans Are Leaving Unemployment Rolls More Quickly in States Cutting Off Benefits (Eric Morath + Joe Barrett, Wall Street Journal) ($)
“…The number of unemployment-benefit recipients is falling at a faster rate in Missouri and 21 others states canceling enhanced and extended payments this month, suggesting that ending the aid could push more people to take jobs…The number of workers paid benefits through regular state programs fell 13.8% by the week ended June 12 from mid-May—when many governors announced changes—in states saying that benefits would end in June, according to an analysis by Jefferies LLC economists. That compares with a 10% decline in states ending benefits in July, and a 5.7% decrease in states ending benefits in September. Workers on state programs would lose the $300 weekly federal enhancement but could continuing receiving the state benefits. Jefferies also found somewhat larger decreases in the number of people receiving benefits through pandemic programs in states curtailing benefits, though the data lags behind by an additional week. In many cases, those recipients will be cut off entirely when their state ends participation in the federal programs….”

Where Jobless Benefits Were Cut, Jobs Are Still Hard to Fill (Patricia Cohen, New York Times) ($)
“…We were hoping we would see prepandemic levels,” said Courtney Boyle, general manager of Express. After all, Missouri had just cut off federal unemployment benefits. Business owners had complained that the assistance, as Gov. Mike Parson put it, “incentivized people to stay out of the work force.” He made Missouri one of the first four states to halt the federal aid; a total of 26 have said they will do so by next month. But in the St. Louis metropolitan area, where the jobless rate was 4.2 percent in May, those who expected the June 12 termination would unleash a flood of job seekers were disappointed. Work-force development officials said they had seen virtually no uptick in applicants since the governor’s announcement, which ended a $300 weekly supplement to other benefits. And the online job site Indeed found that in states that have abandoned the federal benefits, clicks on job postings were below the national average….”

One in Five Young Adults Is Neither Working Nor Studying in U.S. (Augusta Victoria Saraiva, Bloomberg)
“…In the first three months of the year, about 3.8 million Americans age 20 to 24 were not in employment, education or training, known as the NEET rate, the Center for Economic Policy and Research said in a report. That’s up by 740,000, or 24%, from a year earlier, before many lost their jobs or opted to defer college enrollment as campuses shut down at the onset of the Covid-19 pandemic….While the NEET rate has eased from its April 2020 peak, progress on reducing racial disparities hasn’t been as even. Almost a quarter of Black young adults were inactive last quarter, up from 20.9% in the same period of 2020. The rate for Hispanics in that age group was just under 20% and about 16% for White Americans….”

Capital-Spending Surge Further Lifts Economic Recovery (Sarah Chaney Cambon, Wall Street Journal) ($)
“…Nonresidential fixed investment, a proxy for business spending, rose at a seasonally adjusted annual rate of 11.7% in the first quarter, led by growth in software and tech-equipment spending, according to the Commerce Department. Business investment also logged double-digit gains in the third and fourth quarters last year after falling during pandemic-related shutdowns. It is now higher than its pre-pandemic peak. Orders for nondefense capital goods excluding aircraft, another measure for business investment, are near the highest levels for records tracing back to the 1990s, separate Commerce Department figures show. “Business investment has really been an important engine powering the U.S. economic recovery,” said Robert Rosener, senior U.S. economist at Morgan Stanley. “In our outlook for the economy, it’s certainly one of the bright spots.”…”

Record Stock Sales From Money-Losing Firms Ring the Alarm Bells (Lu Wang + Vildana Hajric, Bloomberg) ($)
“…Since the end of March, almost 100 unprofitable companies, including GameStop Corp. and AMC Entertainment Holdings Inc., have raised money through secondary offerings, twice as many as coming from profitable firms, according to data compiled by Bloomberg….During the past 12 months, almost 750 money-losing firms have sold shares in the secondary market, exceeding those that make profits by the biggest margin since at least 1982, data compiled by Sundial Capital Research show….In fact, the previous two periods in which unprofitable firms dominated the pool of equity offerings, the S&P 500 Index was either at the start of a bear market, or already in one…”

Hotels’ and Restaurants’ Rebound Summer Held Back by Shortages of Everything (Te-Ping Chen et al., Wall Street Journal) ($)
“…Instead, restaurants, theme parks, hotels and tourist attractions are finding themselves squeezed from multiple sides: rising costs, worker shortages, unpredictable supplies of some foods and, in some cases, demand so overwhelming it’s difficult to avoid leaving customers dissatisfied….Together, these forces are restraining the recovery for an industry that, just before the pandemic, was responsible for nearly 17 million jobs and 4.2% of U.S. GDP, much of it through small businesses….In manufacturing and retail trade, worker numbers are now 96% and 97%, respectively, of what they were prior to Covid-19. But in leisure and hospitality, employment is still just 85% of what it was before the pandemic. New York restaurateur and Shake Shack Inc. founder Danny Meyer said he can’t remember another period when demand for eating out far exceeded the labor needed to provide that service. “This is a very different moment, but it has been brewing,” he said. “Our industry has to face up to a lot of things…”

Big miners’ capital discipline is good news for investors (Staff, The Economist) ($)
“…The big five miners consolidated their market power with a spate of huge mergers in the 2000s, just in time for China’s emergence as a voracious consumer of metals. The result was a 15-year supercycle of high prices. Miners splurged around $1trn chasing higher volumes and mega-projects. Many proved disastrous—perhaps a fifth of that investment was returned to shareholders, according to one estimate. After a round of firings, a new generation of mining bosses promised to do better. In the past few years value, not volume, became the industry’s watchword. “We will never lose our capital discipline,” vows Eduardo Bartolomeo, boss of Vale. So far the miners have kept their promise. Although capital spending in the industry has grown since 2015, it is still 50% below its peak in 2012. Most of that has gone on sustaining current output, not adding new capacity. Even as rising metals prices have padded profit margins, spending on exploration has stayed low, notes Danielle Chigumira of Bernstein, a broker (see chart 2). That is a break from the past….”

During Covid-19, Most Americans Got Richer—Especially the Rich (Orla McCaffrey + Shane Shifflett, Wall Street Journal) ($)
“…U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades. Many Americans of all stripes paid off credit-card debt, saved more and refinanced into cheaper mortgages. That challenged the conventions of previous economic downturns. In 2008, for example, U.S. households lost $8 trillion….The stock market, in turn, became the driver of the household wealth gain, accounting for nearly half the total increase….”

China’s cyber power at least a decade behind the US, new study finds (Helen Warrell, Financial Times) ($)
“…China’s strengths as a cyber power are being undermined by poor security and weak intelligence analysis, according to new research that predicts Beijing will be unable to match US cyber capabilities for at least a decade. The study, published on Monday by the International Institute for Strategic Studies, comes as a series of hacking campaigns have highlighted the growing threat of online espionage by hostile states….China, like Russia, has proven expertise in offensive cyber operations — conducting online spying, intellectual property theft and disinformation campaigns against the US and its allies. But both countries were held back by comparatively loose cyber security compared with their competitors, according to the IISS. “While it is true that cyber security is less well developed in Russia and China, they need it less urgently than open western economies,” Hannigan said. “The threat is not symmetrical: western economies are under siege from cyber criminal groups based in and tolerated or licensed by Russia — the same is not true in reverse.”

NEW ECON RESEARCH

Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis (Mathias Kruttli et al., Federal Reserve)
“Hedge fund gross U.S. Treasury (UST) exposures doubled from 2018 to February 2020 to $2.4 trillion, primarily driven by relative value arbitrage trading and supported by corresponding increases in repo borrowing. In March 2020, amid unprecedented UST market turmoil, the average UST trading hedge fund had a return of -7% and reduced its UST exposure by close to 20%, despite relatively unchanged bilateral repo volumes and haircuts. Analyzing hedge fund-creditor borrowing data, we find the large, more regulated dealers provided disproportionately more funding during the crisis than other creditors. Overall, the step back in hedge fund UST activity was primarily driven by fund-specific liquidity management rather than dealer regulatory constraints. Hedge funds exited the turmoil with 20% higher cash holdings and smaller, more liquid portfolios, despite low contemporaneous outflows. This precautionary flight to cash was more pronounced among funds exposed to greater redemption risk through shorter share restrictions. Hedge funds predominantly trading the cash-futures basis faced greater margin pressure and reduced UST exposures and repo borrowing the most. After the market turmoil subsided following Fed intervention, hedge fund returns recovered quickly, but UST exposures did not revert to pre-shock levels over the subsequent months.”

Labor Market Concentration, Earnings Inequality, and Earnings Mobility (Kevin Rinz, U.S. Census Bureau) (2018)
“Using data from the Longitudinal Business Database and Form W-2, I document trends in local industrial concentration from 1976 through 2015 and estimate the effects of that concentration on earnings outcomes within and across demographic groups. Local industrial concentration has generally been declining throughout its distribution over that period, unlike national industrial concentration, which declined sharply in the early 1980s before increasing steadily to nearly its original level beginning around 1990. Estimates indicate that increased local concentration reduces earnings and increases inequality, but observed changes in concentration have been in the opposite direction, and the magnitude of these effects has been modest relative to broader trends; back-of-the-envelope calculations suggest that the 90/10 earnings ratio was about six percent lower and earnings were about one percent higher in 2015 than they would have been if local concentration were at its 1976 level. Within demographic subgroups, most experience mean earnings reductions and all experience increases in inequality. Estimates of the effects of concentration on earnings mobility are sensitive to specification.”

NEW SCIENCE

Mysterious skull fossils expand human family tree — but questions remain (Nicola Jones, Nature)
“…Fossils found in China and Israel dating from around 140,000 years ago are adding to the ranks of hominins that mixed and mingled with early modern humans. The fossils from Israel hint that a previously unknown group of hominins, proposed to be the direct ancestors of Neanderthals, might have dominated life in the Levant and lived alongside Homo sapiens. Meanwhile, researchers studying an extremely well-preserved ancient human skull found in China in the 1930s have controversially classified it as a new species — dubbed Dragon Man — which might be an even closer relative to modern humans than are Neanderthals….”

Nathan Seiberg on How Math Might Complete the Ultimate Physics Theory (Kevin Hartnett, Quanta Magazine)
“…We cannot yet formulate QFT in a rigorous way that would make mathematicians perfectly happy. In special cases we can, but in general we cannot. In all the other theories in physics — in classical physics, in quantum mechanics — there is no such problem. Mathematicians have a rigorous description of it. They can prove theorems and make deep advances. That’s not yet the case in quantum field theory. I should emphasize that we do not look for rigor for the sake of rigor. That’s not our goal. But I think that the fact that we don’t yet have a rigorous description of it, the fact that mathematicians are not yet comfortable with it, is a clear reflection of the fact that we don’t yet fully understand what we’re doing. If we do have a rigorous description of QFT, it will give us new, deeper insights into the structure of the theory. It will give us new tools to perform calculations, and it will uncover new phenomena. “Are we even close to doing this?” Whatever approach we take, we get stuck somewhere. One approach that gets close to being rigorous is we imagine space as a lattice of points. Then we take the limit as the points approach each other and space becomes continuous. We describe space as a lattice, and as long as we’re on the lattice there is nothing non-rigorous about it. The challenge is to prove that the limit exists as the distance [between points on the lattice] becomes small and the number of points [on the lattice] becomes large. We assume this limit exists, but we cannot prove it….”

IN OUR AIRPODS

U.S. Energy Secretary Granholm (Bloomberg Surveillance)

FRIDAY, JULY 2, 2021

BLOGS/OP-EDS

NEWS

NEW ECON RESEARCH

NEW SCIENCE

IN OUR AIRPODS

U.S. Jobs Surge w. Walsh (Bloomberg Surveillance)

Happy Fourth Of July Weekend!

158 Years Ago Today Joshua Chamberlain Lead The 20th Maine To Victory On Day Two Of Gettysburg.

THURSDAY, JULY 1, 2021

BLOGS/OP-EDS

NEWS

Mortgage Rates in the U.S. Slip, With 30-Year Loans at 2.98% (Maria Heeter, Bloomberg) ($) “…Mortgage rates in the U.S. fell, dipping back below 3%. The average for a 30-year loan was 2.98%, down from 3.02% last week, Freddie Mac said in a statement Thursday…”

NEW ECON RESEARCH

NEW SCIENCE

IN OUR AIRPODS

Inflation Debate With Woodard (Bloomberg Surveillance)

WEDNESDAY, JUNE 30, 2021

BLOGS/OP-EDS

NEW ECON RESEARCH

NEW SCIENCE

IN OUR AIRPODS

Bruce Meyers on Poverty (Russ Roberts, EconTalk)

TUESDAY, JUNE 29, 2021

BLOGS/OP-EDS

NEWS

NEW ECON RESEARCH

NEW SCIENCE

IN OUR AIRPODS

Labor Market w. Luzzetti (Bloomberg Surveillance)

MONDAY, JUNE 28, 2021

BLOGS/OP-EDS

NEWS

NEW ECON RESEARCH

U.S. Energy Secretary Granholm (Bloomberg Surveillance)

Share this:

158 Years Ago Today Joshua Chamberlain Lead The 20^th Maine To Victory On Day Two Of Gettysburg.

Mortgage Rates in the U.S. Slip, With 30-Year Loans at 2.98% (Maria Heeter, Bloomberg) ($)
“…Mortgage rates in the U.S. fell, dipping back below 3%. The average for a 30-year loan was 2.98%, down from 3.02% last week, Freddie Mac said in a statement Thursday…”