Macro Roundup

breaking rule as this quote might be useful for National Review oped, "even liberal Alan Blinder...."

"...Readers of these pages know that I’ve been critical of the president. But it must be said that his economic policies have been the shining stars in a dismal policy firmament. Like most liberal economists, I did not like the way he structured his tax cuts. And like many economists of all stripes, I thought the tax cuts might overheat an already-hot economy. But the latter worry appears to have been wrong, at least so far. The tax cuts seem to have boosted growth without exciting inflation.Thanks to the government shutdown, fourth-quarter numbers haven’t been released, but the available data for 2018 show a surge in business investment in the quarter immediately following the tax cut and a strong overall investment level for the year. The slowdown toward the end of the year, however, bears watching...."
Alan Blinder, "The Obama-Trump Economic Boom,"Wall Street Journal, February 25, 2019, https://www.wsj.com/articles/the-obama-trump-economic-boom-11551138008

Michael Pettis, "Why U.S. Debt Must Continue to Rise,"China Financial Markets, February 7, 2019, https://carnegieendowment.org/chinafinancialmarkets/78304

"...I will not pretend to offer a complete analysis of debt in the U.S. economy here, but there are at least two reasons that the United States has no choice but to encourage an increase in debt to prevent a rise in unemployment. The first reason is the U.S. role in the global balance-of-payments system and the second one is high levels of U.S. income inequality.Although these two factors seem like two different things, they work in the same way and for the same reasons.....that the United States runs trade deficits mainly because the rest of the world exports its excess savings there...because of distortions in income distribution in the rest of the world, developed economies suffer from excess savings and insufficient demand...if the excess savings are exported to an advanced economy whose domestic investment needs are not constrained by an inability to access domestic savings, these savings do not result in an increase in investment, so the world is left with lower demand.As I will explain below (see Where Might This Argument Be Wrong?), when excess savings flow into the United States, these savings do not cause investment to rise. This is a classic case of beggar-thy-neighbor policies, in which one country benefits at the greater expense of its trade partners. Much of the world’s excess savings flow to rich countries where these funds are not needed, rather than to developing countries that can use them productively. It is typically the countries with the most open, most flexible, and best-governed financial markets that end up on the receiving end, mainly the so-called Anglo-Saxon economies and especially the United States. The United States runs capital account surpluses, in other words, not because it is capital short, but because the world has excess savings and the United States is the leading safe haven into which to hoard these savings.Some observers might object to this interpretation. After all, they might say, doesn’t the United States have a low savings rate, well below its investment rate? And doesn’t that prove that the United States needs foreign savings? Not necessarily. While this was the case in the nineteenth century, when the United States imported capital because it lacked sufficient domestic savings to fund its investment needs, it is no longer true in the twenty-first century. Rather than assuming, as most economists still do, that the United States imports foreign savings because U.S. savings are too low, it is vital to recognize that U.S. savings are low because the United States imports foreign savings. This is because a country with a capital account surplus must, by definition, run a current account deficit, and because investment in that country must, also by definition, exceed savings. Most economists see this tautology and mistakenly assume an automatic direction of causality in which foreign capital inflows drive U.S. investment above the level of U.S. savings. The main reason for this assumption, it turns out, is because if inflows don’t drive up investment, they must drive down savings, and people have a difficult time understanding how foreign capital inflows can drive down savings.But, as I will show later (see What Drives Down Savings?), there is nothing mysterious or unlikely about this process.....It may seem surprising at first that income inequality has the same economic impact as forced imports of foreign capital. By itself, income inequality tends to force up the savings rate, simply because rich households save more than ordinary or poor households. Put differently, if $100 is transferred from an ordinary American household, which consumes perhaps 80 percent of its income and saves 20 percent, to a rich household, which consumes around 15 percent of its income and saves 85 percent, the initial impact of the transfer is to reduce consumption by $65 and increase desired savings by the same amount. But that is not the end of the story. In any economic system, savings can only rise if investment rises. If the United States cannot invest the additional savings—for reasons which I will discuss below (again, see Where Might This Argument Be Wrong?)—if rising income inequality causes U.S. savings in one part of the economy (the rich household that benefitted from the increase in savings) to rise, this must also cause savings in some other part of the economy to decline. Again, the point is fairly simple. Total savings cannot rise unless these savings are invested. If savings in one part of the economy rise because of a transfer of wealth from poorer households to richer households, and if this does not cause investment to rise, this very transfer must then repress savings in another part of the economy. Notice how similar this is to the way the trade deficit works: rising savings in one part of the world are exported to the United States and cause savings in the United States to decline. In either case, if investment doesn’t rise, savings cannot rise, so an increase in savings in one sector or country must cause a reduction of savings in another.....Another way of looking at it is that both trade deficits and high income inequality reduce domestic demand, so returning the economy to its expected growth rate requires a new source of demand, and this new source is almost always generated by debt. By the way, this explains in part why economists are generally unable to find a correlation between the trade deficit and unemployment, or between income inequality and unemployment. Rather than cause unemployment to rise, these conditions can simply force an increase in debt....."

New Pettis, worth reading

“…Mayor Bill de Blasio is canceling one of his signature education initiatives, acknowledging thatdespite spending $773 million he was unable to turn around many long-struggling public schools in three years after decades of previous interventions had also failed…” Eliza Shapiro, “$773 Million Later, de Blasio Ends Signature Initiative to Improve Failing School,” New York Times, February 26, 2019, https://www.nytimes.com/2019/02/26/nyregion/renewal-initiative-de-blasio.html $773 Million Later, de Blasio Ends Signature Initiative to Improve Failing Schools

“The era of closing schools has come to an end,” the mayor said.

Mr. de Blasio insisted on Monday that developing a close relationship with the teachers’ union has led to a stronger school system. He said that ongoing conflict between Mr. Bloomberg’s administration and the U.F.T. led to “paralysis and conflict,” and he pointed to the national turn away from education reform and toward teachers, as is evident in the recent wave of teacher strikes and growing political hostility toward charter schools.

But because the program was based on the union-friendly theory that struggling schools need more resources, rather than more effective teachers, Mr. Mulgrew may face fresh questions about not only the execution but the design of the program.

Many advocacy groups and local politicians, including Mr. de Blasio, then the public advocate, railed against school closures. The city’s teachers’ union, the United Federation of Teachers, was the most powerful lobby against closures. The union’s president, Michael Mulgrew, who has a close ear to the ground in schools, has been critical of the Renewal program’s execution.

Mr. Bloomberg’s small schools planled to an increase in high school graduation rates and students going to college, all at a lower cost to the city than students in other types of schools, according to aseries of studies.But while results were encouraging, the plan did not rescue all the schools it touched: More than a third of the schools that ended up on the original Renewal list were created during Mr. Bloomberg’s tenure.

Renewal was created in part as a rebuke to former mayor Michael R.Bloomberg’s plan to fix long-suffering schools, which relied on shuttering more than 100 schools and opening dozens of smaller schools with specific themes in their place, typically staffed by new principals and different teachers. Mr. Bloomberg put a heavy emphasis on using data to make decisions about schools, and Mr. de Blasio’s administration now seems to be heading in that direction.

Mr. de Blasio’s administration should have been quicker to replace principals in the schools that were taking the longest time to improve, according to the report, and should have avoided marking schools with a label that denoted poor performance, which scared off parents.

Suspensions also dropped by more than 50 percent across all Renewal schools during that same period, which is notable since many of the schools had discipline issues, and attendance crept up by about 4 percent over the last four years.

The Renewal schools that did succeed tended to have particularly strong principals, according to a report prepared by city officials about the end of the program, and an emphasis on using student achievement data to identify problems. The high schools in the program, which used a structured data-tracking system, made the most collective progress: The average graduation rate rose to 72 percent last year, up from 52 percent in 2014.

That strategy will technically apply to all schools in the system, though the initial focus will be on schools that State Education Department officials consider low-performing. Schools will not be publicly labeled low-performing, in part to avoid the stigma that the Renewal label gave schools, which city officials believe led to dwindling enrollment as parents searched for other options.

Renewal will not be replaced by an entirely different school improvement program. Instead, the city will direct funding and academic support to schools most in need of help, under a strategy it is calling comprehensive school support, by consulting student achievement data under a new centralized data system known as Edu Stat.

“We put ourselves on this very aggressive three-year timeline. In retrospect, that was probably an unrealistic timeline in some cases,” he said. Mr. de Blasio eventually added a fourth year to the program.

Mr. de Blasio said he is confident that those schools are “on a path for success,” even though they are taking more time to change than his administration first hoped.

Though about a quarter of the schools improved enough to exit the program after three years, another quarter closed, and the remaining 50 will remain open but in a limbo state: They will continue to receive indefinitely much of the same support they did as Renewal schools, but without the Renewal label. The city could still close any of these schools in future years, officials said.

“We defined success as whether most of the schools could move substantially in the right direction — and that, we got,” Mr. de Blasio added.

“We never said from day one, ‘We guarantee all of them will become paradise,’” he said, referring to the schools in the program. “We knew that there could well be closures and ones that didn’t work.”

Though only about 25 percent of the schools in the program have improved enough to require less investment and support on the four-year timeline Mr. de Blasio established, the mayor insisted that Renewal still achieved its “core mission.”

Mr. de Blasio said the reorganization of the Department of Education’s behemoth bureaucracy, undertaken last year by his schools chancellor, Richard A. Carranza, would help smooth out the confusing lines of authority that led to frustration among principals and teachers in Renewal schools.

“I’m at peace that with the information we had and the structure we had at the time, it was a sensible approach,” he said. But he added, “I would not do it again that way.”

In a lengthy interview on Monday, Mr. de Blasio defended the goals of the program, but said its execution was flawed.

As education fads have come and gone, politicians have flipped between school improvement models based on punitive measures like closure and teacher firing and softer approaches that rely on pouring resources into schools.

While some small cities like Lawrence, Mass., and Camden, N.J., have achieved some success with different strategies, no large school system has cracked the code, despite decades of often costly attempts.

The question of how to fix broken schools is a great unknown in education, particularly in big city school districts.

The New York Timesreported in October that Mr. de Blasio was preparing to close Renewal, and that city officials had known some Renewal schools were likely to fail but had left most of them open anyway. As a result, officials essentially kept thousands of children in classrooms where they had little if any chance of thriving.

Instead, the program has been plagued by bureaucratic confusion and uneven academic results since Mr. de Blasio began it in 2014. Though some of the nearly 100 low-performing public schools have shown better results, many have fallen short of the improvements that Mr. de Blasio predicted. The Renewal label itself caused parents to seek other options, causing enrollment in some schools to plummet.

The end of the initiative, called Renewal, is a blow to Mr. de Blasio, who had hoped that success would bolster his effort to build a national reputation for innovative policies. Urban educators around the country had also looked to Renewal as a model for improving underperforming schools in historically troubled districts, rather than closing them.

Mayor Bill de Blasio is canceling one of his signature education initiatives, acknowledging that despite spending $773 million he was unable to turn around many long-struggling public schools in three years after decades of previous interventions had also failed.

Doug Holtz-Eakin and his team at AAF have created some cost estimates for the Green New Deal somewhere btw 52.6-94.4 T over ten years

"...For most of the past four decades, judgments about valuations have been more important than speculative considerations. That has changed markedly in the past few years. As mortgage rates have increased and house prices have recovered from their trough in the early 2010s, American consumers now believe that valuations are at their least attractive since the peak of the housing bubble in 2006. Overall sentiment has held up because speculation is now higher than ever..."

Matthew Klein, "U.S. Consumers Are Souring on the Housing Market,"Barrons, February 27, 2019, https://www.barrons.com/articles/u-s-consumers-are-souring-on-the-housing-market-51551270600

Jaison Abel and Richard Deitz, "The (Modest) Rebound in Manufacturing Jobs," Federal Reserve Bank of New York, February 4, 2019, https://libertystreeteconomics.newyorkfed.org/2019/02/the-modest-rebound-in-manufacturing-jobs.html

Despite the recent increase in jobs, the nation’s manufacturing employment base is a fraction of what it was in the early 1980s, even as output in the sector has continued to increase. Whether manufacturing jobs continue to grow going forward is an open question. No doubt, recent tariffs and associated trade policy uncertainty pose significant challenges for continued job growth in the manufacturing industry, particularly in sectors that rely on steel and aluminum as inputs to the production process.

In our next post, we will look at where within the United States manufacturing jobs have been growing. It turns out the places that lost the most manufacturing jobs are not necessarily the ones where those jobs are coming back.

Between 2000 and 2010, every sector within the manufacturing industry lost jobs. The most significant declines occurred in the computers and electronics industry and the transportation equipment industry. These two industries provide a case in point about the two driving forces that have pushed down manufacturing employment so significantly in recent decades. The transportation equipment industry lost nearly 730,000 jobs during this ten year period, due in large part to productivity gains tied to automation. The computers and electronics industry shed more than 720,000 jobs between 2000 and 2010. While also seeing productivity gains reducing the need for workers, many industries have faced intense competition from overseas, and outsourcing and offshoring has become widespread. Apparel is an example of an industry that suffered severe job losses in the United States as production shifted overseas. Other industries, such as fabricated metals and machinery, saw steep job losses due to a combination of productivity gains and import competition. At the other end of the spectrum, job losses were minimal in the food, beverages, and petroleum and coal industries.

The bounce back in manufacturing jobs has been led by the transportation equipment industry, which added around 300,000 jobs, roughly a third of the net increase over this period. As the costs of overseas labor and shipping products from other parts of the world have climbed, manufacturers started to bring jobs back to the United States. Such reshoring of manufacturing jobs has been particularly pronounced in the automotive industry. The fabricated metals and machinery industries—which were hit hard between 2000 and 2010—also saw significant gains, together adding about 230,000 jobs. Fueled by strong domestic demand throughout the expansion following the Great Recession, the food and beverages industries—which had largely been insulated from job losses during the early 2000s—saw a combined increase of nearly 240,000 jobs.

Looking Ahead

Although the manufacturing industry as a whole saw a large employment decline followed by a modest rebound, some sectors within the manufacturing industry have seen a substantial uptick in jobs over the last several years, while other sectors continue to shed jobs. The chart below shows the net change in manufacturing jobs by industry for the 2000-10 period compared to the 2010-17 period.

In 1980, there were close to 20 million manufacturing jobs in the United States, a figure that declined to around 12 million following the Great Recession. Much of this decline was concentrated in recessions—though the business cycle in and of itself is not the main driver of the waning of manufacturing jobs in recent decades. Many of these jobs simply disappeared and did not come back during the subsequent recoveries. Technological advances, particularly automation, as well as globalization, particularly rising import competition from China, are the primary contributors to this long-term decline in manufacturing employment. A surprisingly large portion of this decline occurred between 2000 and 2010, when the nation lost 5.7 million manufacturing jobs. However, employment stabilized beginning in 2010, and nearly a million manufacturing jobs have been gained since then. While this may not seem like much on the heels of such a momentous decline, this sustained increase in manufacturing employment represents the longest such stretch since the 1960s, and the nation has not added this many manufacturing jobs since the 1970s.

Changes within the Manufacturing Industry

The (Modest) Rebound in Manufacturing Jobs

Jaison R. Abel and Richard Deitz

The United States lost 5.7 million manufacturing jobs between 2000 and 2010, reducing the nation’s manufacturing employment base by nearly a third. These job losses and their causes have been well documented in the popular press and in academic circles. Less well recognized is the modest yet significant rebound in manufacturing jobs that has been underway for several years. Indeed, employment in the manufacturing industry began to stabilize in 2010, and the nation has added nearly 1 million jobs since then. Although modest in magnitude, this uptick in manufacturing jobs represents the longest sustained increase since the 1960s and bucks a decades-long trend of secular decline in employment in the goods producing sector of the economy. This is the first of two posts on the rebound in manufacturing jobs. In this post, we outline the manufacturing jobs recovery and assess which sectors within the manufacturing industry are driving this increase. The second post will focus on the geography of the manufacturing employment rebound. It will examine where manufacturing jobs are growing and where they are continuing to decline, with a focus on how areas in the New York-Northern New Jersey region have fared.