Macro Roundup

"...In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office’s (CBO’s) projected rate published in 2017 before the tax cut. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut’s effects on GDP, they tend to rule out very large effects particularly in the short run. Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes. This potential outcome may raise questions about how much longer-run growth will result from the tax revision.....In April 2018, CBO projected real GDP growth for the calendar year 2018 of 3.3% (indicating a projected 3% growth rate without the tax cut). According to the National Income and Product Accounts (NIPA), actual growth rate was 2.9%, which is consistent with a small effect of the tax revision, perhaps even smaller than projected by most analysts. Quarterly growth rates are shown in Figure 1. The revenue loss from the tax cut without incorporated growth effects was estimated at about 1.2% of GBP in 2018... The high rate of growth in the second quarter of 2018 shown in Figure 1 may have been due to the demand-side stimulus of the tax cuts, which began to be reflected in withholding beginning in the first quarter, as well as the possibly delayed receipt of tax refunds. On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although examining the growth rates cannot indicate the effects of the tax cut on GDP, it does tend to rule out very large effects in the near term. The data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself. Assuming a tax rate of 18% (based on CBO estimates), and estimating the tax cut to reduce revenue in calendar year 2018 by about 1.2% of GDP, a 6.7% GDP increase due to the tax cuts alone would be required.15 Rather, the combination of projections and observed effects for 2018 suggests a feedback effect of 0.3% of GDP or less—5% or less of the growth needed to fully offset the revenue loss from the Act...."

Jane G. Gravelle and Donald J. Marples, "The Economic Effects of the 2017 Tax Revision: Preliminary Observations," Congressional Budget Office, May 22, 2019, https://www.everycrsreport.com/reports/R45736.html

".... Chair Jerome Powell has said the Fed was never likely to get the size of its balance sheet back down to pre-crisis levels.But what officials haven’t really detailed is how large it will grow and how much U.S. debt the central bank will gobble up. The Fed will have around $2 trillion in Treasuries by year-end. By mid-2020 though, most Wall Street dealers expect the bank to start accumulating Treasuries once again, à la QE. And by the end of the coming decade, it will have more than doubled its holdings of the debt to roughly $4.4 trillion, leaving the overall size of its balance sheet close to $5 trillion, a Wells Fargo estimate showed. (Its MBS holdings will shrink from over $1.4 trillion to under $400 billion in that span.) Next year alone, TD’s Misra expects the Fed will purchase about $300 billion of Treasuries from the open market, or roughly 30% of the over $1 trillion that the U.S. is forecast to issue to cover its ballooning deficit. That’s in addition to the nearly $300 billion of maturing Treasuries the Fed will replace by buying directly from the government. What the Fed buys matters. Officials have said they may skew purchases toward shorter maturities, but no final plan has been set. The Fed holds no T-bills after swapping them out earlier this decade to drive down longer-term yields. Bill purchases could help lower short-term funding costs and widen the gap between 3-month and 10-year rates -- a key bond-market recession indicator -- after that part of the yield curve sporadically inverted since March, says Margaret Steinbach, a fixed-income investment specialist at Capital Group. “As part of normalization, we will have to decide what the maturity structure should be in the longer term,” Powell said at a May 1 press conference. So why exactly is the Fed getting back into the business of buying bonds? Part of it simply has to do with accounting. While attention has been focused on the asset side of the Fed’s balance sheet, it also has liabilities, which mainly come in the form of currency in circulation and bank reserves. As with any balance sheet, the two sides need to net out. Since those liabilities tend to naturally increase over time with the economy, so too must the Fed’s assets. It was this balancing act that prompted some on Wall Street to say the QE unwind was creating reserve scarcity. That by shrinking its asset base, the Fed squeezed reserves as currency grew on the liability side of its ledger. Lorie Logan, a key New York Fed official, said in April it’s monitoring indicators for changes in reserve conditions. Once the Fed decides the banking system has an appropriate level of reserves, it will need to start buying Treasuries again. Morgan Stanley’s Matthew Hornbach, who estimates the Fed will buy about $278 billion of Treasuries from the open market next year, says a third of that will be needed to prevent currency growth from squeezing bank reserves. Post-crisis regulations to curb financial risk-taking, as well as the fact the Fed pays interest on excess reserves as a policy tool, have also prompted banks to hold far more cash than before. That all suggests the Fed likely will keep growing its asset base -- indefinitely -- by continually buying Treasuries..."
Liz McCormick and Alex Harris, "QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar,"Bloomberg, May 21, 2019, https://www.bloomberg.com/news/articles/2019-05-21/qe-may-be-over-but-the-fed-s-u-s-debt-hoard-is-set-to-double

“…suggest $400 statistic be used with caution. For instance: A footnote in the survey highlights 2016 research that found 76% of households had at least $400 in liquid assets, far higher than the 56% in 2016 who said they would cover a $400 expense with cash or its equivalent. (Reasonable to assume that first number is higher today.) Moreover, the fact that some people choose to hold both high-interest credit card debt and cash that could be used to pay down that debt has been termed the “credit card debt puzzle.” It’s a thing. Indeed, only 12% said they wouldn’t use any means to pay that expense. (A great thread by National Review’s Robert VerBruggen notes, among other things, that 25% of those billed as being unable to cover $400 with borrowing or selling make more than $75,000 a year.”)…”

James Pethokoukis, "The insatiable appetite for dour data about a decent economy," American Enterprise Institute, May 28, 2019, https://www.aei.org/pethokoukis/the-insatiable-appetite-for-dour-data-about-a-decent-economy/

The insatiable appetite for dour data about a decent economy

If you look at the national unemployment rate of 3.6% — the lowest in more than 50 years — American capitalism doesn’t appear to be terribly broken. And as the economy has rebounded from the Great Recession and Financial Crisis, real wages continue to rise, especially so for lower-income Americans. Another seeming sign of non-brokenness.

Or to approach things a different way: A recent Federal Reserve survey finds 75% of U.S. adults say they are either “doing okay or living comfortably,” 56% say they are better off than their parents were at the same age (vs. 25% saying “about the same” and 19% “worse off”), and 64% rate their local economic conditions as “good” or “excellent.”

But none of those upbeat Fed survey findings were given the media attention of this one: Many adults are “financially vulnerable and would have difficulty handling an emergency expense as small as $400.” Specifically — and here I will use The Washington Post’s description of the survey results — “Almost 4 in 10 people (39%) said they wouldn’t be able to scrape together the cash to meet a $400 emergency expense” while 61% say they would cover it with cash, savings, or a credit card paid off at the next statement.

Instead, this group would resort to a number of alternate options, including putting the expense on a credit card and paying it off over time, borrowing from family members, and selling something to raise cash. (People could choose more than one option.) Proof positive, apparently, of a deep vein of financial fragility running through this economic boomlet.

But people are funny about money, and those behavioral quirks suggest $400 statistic be used with caution. For instance: A footnote in the survey highlights 2016 research that found 76% of households had at least $400 in liquid assets, far higher than the 56% in 2016 who said they would cover a $400 expense with cash or its equivalent. (Reasonable to assume that first number is higher today.)

Moreover, the fact that some people choose to hold both high-interest credit card debt and cash that could be used to pay down that debt has been termed the “credit card debt puzzle.” It’s a thing. Indeed, only 12% said they wouldn’t use any means to pay that expense. (A great thread by National Review’s Robert VerBruggen notes, among other things, that 25% of those billed as being unable to cover $400 with borrowing or selling make more than $75,000 a year.”)

The survey itself poses the question: “Although so many incurring additional costs for a modest expense is disconcerting, it is possible that some would choose to borrow even if they had $400 available, preserving their cash as a buffer for other expenses.”

Like I said, people are funny about money — and that includes answering surveys about money. (Question wording might be key here, such as “would” vs. “could.”) My AEI colleague Andrew Biggs notes on Twitter that while the Fed survey finds only 36% of non-retired adults think their retirement saving is on track, the reality of retirement finances suggest far more should be confident. As Biggs wrote in The Wall Street Journal earlier this year:

Eight in 10 retirees tell Gallup they have enough money to “live comfortably,” and 6 in 10 working-age households say the same. Seventy-five percent of retirees tell the Federal Reserve’s Survey of Consumer Finances they have “at least enough to maintain standard of living,” up from 61% in 1992. Census Bureau research that uses Internal Revenue Service data to measure retirees’ incomes found that the over-65 poverty rate was only 6.7% in 2012, down from 9.7% in 1990 and lower than any other age group…. According to Fed data, the median retiree household’s income grew by 56% above inflation from 1989 through 2016, versus only 4% real growth for working-age households. Incomes grew faster at the poorest fifth percentile retirees than at the 95th percentile of the working-age population.

The $400 statistic is certainly interesting and worth reporting in context, but no more so than other data on wages and mobility showing American capitalism might be doing better than you think.

Drew Desilver, "The politics of American generations: How age affects attitudes and voting behavior," Pew Research Center, July 9, 2014, https://www.pewresearch.org/fact-tank/2014/07/09/the-politics-of-american-generations-how-age-affects-attitudes-and-voting-behavior/

The politics of American generations: How age affects attitudes and voting behavior

The report, based on a survey of more than 10,000 Americans, finds that among the oldest Americans (those ages 65 and up), nearly two-thirds are at opposite ends of the typology. 32% fall into the two strongest Republican-oriented groups (what we call Steadfast Conservatives and Business Conservatives) and 33% are either Solid Liberals or Faith and Family Left, the two strongest Democratic-aligned groups. (Steadfast and Business Conservatives are separated mainly by the latter’s more Wall Street orientation, while the Faith and Family Left tend to be more conservative on social issues than Solid Liberals.)

Looking at the youngest American adults, those ages 18 to 29, nearly one-in-five are what we call Young Outsiders — GOP leaners who favor limited government but are socially liberal. Almost exactly the same percentage are what we’ve termed the Next Generation Left, who tilt more to the Democrats but are wary of social-welfare programs. And many (17%) are Bystanders — not registered to vote, don’t follow politics and generally the least politically engaged. That’s the biggest share among all age brackets, though perhaps not entirely surprising.

Who are the political typology groups?

On an individual level, of course, many people’s political views evolve over the course of their lives. But academic research indicates not only that generations have distinct political identities, but that most people’s basic outlooks and orientations are set fairly early on in life. As one famous longitudinal study of Bennington College women put it, “through late childhood and early adolescence, attitudes are relatively malleable…with the potential for dramatic change possible in late adolescence or early adulthood. ut greater stability sets in at some early point, and attitudes tend to be increasingly persistent as people age.”

A recent paper by two Columbia University researchers that combined multiple survey data sources finds evidence of this sort of generational imprinting. Their study identified five main generations of presidential voters, each shaped by political events during their formative years: New Deal Democrats, Eisenhower Republicans, Baby Boomers, Reagan Conservatives and Millennials. (The researchers note, however, that their model works best among non-Hispanic whites.) Amanda Cox of The Upshot (The New York Times’ data blog) has created a fascinating interactive visualization of the researchers’ model.

Pew Research Center surveys over the past two decades also have found compelling evidence that generations carry with them the imprint of early political experiences.

read the Fed's "$400 dollar" report you were interested in,the NYT reporting sort of buried the lead, the percentage that would pay in cash is 61%, up from half in 2013, which granted they did note but seems significant. the "real" number is only 12% would be unable to pay.

a footnote also cites a study that found that 76% of household had $400 in liquid assets.

".....Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. When faced with a hypothetical expense of $400, 61 percent of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”)—a 2 percentage point increase from 2017 (figure 10). In 2013, half of adults would have covered such an expense in the same way. Among the remaining 4 in 10 adults who would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family (figure 11). Twelve percent of adults would be unable to pay the expense by any means. Although so many incurring additional costs for a modest expense is disconcerting, it is possible that some would choose to borrow even if they had $400 available, preserving their cash as a buffer for other expenses...."

Federal Reserve Staff, “Report on the Economic Well-Being of U.S. Households in 2018," Federal Reserve, May 2019, https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf

Williams biology professor

"....However, when one assumes that everyone is a blank slate, differences between what males and females do can be explained only by bias and harassment. The conclusion is obvious: All STEM fields are cesspools of sex discrimination. This is what happens when ideology replaces biology. It’s become taboo to even mention the possibility that men and women might have different preferences. Sadly, students do not seem to realize that their good intentions may lead them to resist learning scientific facts, and can even harm their own goal of helping women and ethnic minorities. The existence of any genetic differences between males and females, or between different ethnic groups, does not imply that we should treat members of those groups differently. Denying reality and pretending that differences do not exist—as if this were the only possible path toward equality—is dangerous. If you believe that moral equality relies on biological equality, this makes your moral views susceptible to future research that might reveal biological inequalities. Instead, equality and equal opportunity for all should be the default position, regardless of potential biological differences. When students at Williams or anywhere else try to protect their worldview by denying scientific evidence, it is bound to affect what professors teach and how they teach it. Campus norms proscribe any discourse that might offend women, minorities, or anyone perceived as a victim of patriarchal white societies. However, this rule, no matter how well intentioned, is harming the very people it aims to protect. The argument favoring a certain amount of self-censorship is that it is necessary to protect minority students from feeling unsafe when they hear what they see as “hate speech.” However, by not talking about science that some find unsettling, we deny students opportunities for learning and for intellectual empowerment. How well can they argue their positions effectively unless they are seeing the world as it really is?..."
Luana Maroja, "Self-censorship on Campus Is Bad for Science,"The Atlantic, May 29, 2019, https://www.theatlantic.com/ideas/archive/2019/05/self-censorship-campus-bad-science/589969/

Self-censorship on Campus Is Bad for Science

I have taught evolution and genetics at Williams College for about a decade. For most of that time, the only complaints I got from students were about grades. But that all changed after Donald Trump’s election as president. At that moment, political tensions were running high on our campus. And well-established scientific ideas that I’d been teaching for years suddenly met with stiff ideological resistance.

The trouble began when we discussed the notion of heritability as it applies to human intelligence. (Heritability is the degree to which offspring genetically resemble their parents; the concept can apply not only to physical traits, but also to behavioral ones.) In a classroom discussion, I noted that researchers have measured a large average difference in IQ between the inhabitants of the United States and those of my home country, Brazil. I challenged the supposed intelligence differential between Americans and Brazilians. I asked students to think about the limitations of the data, which do not control for environmental differences, and explained that the raw numbers say nothing about whether observed differences are indeed “inborn”—that is, genetic.

There is, of course, a long history of charlatans who have cited dubious “science” as proof that certain racial and ethnic groups are genetically superior to others. My approach has been to teach students how to see through those efforts, by explaining how scientists understand heritability today, and by discussing how to interpret intelligence data—and how not to.

In class, though, some students argued instead that it is impossible to measure IQ in the first place, that IQ tests were invented to ostracize minority groups, or that IQ is not heritable at all. None of these arguments is true. In fact, IQ can certainly be measured, and it has some predictive value. While the score may not reflect satisfaction in life, it does correlate with academic success. And while IQ is very highly influenced by environmental differences, it also has a substantial heritable component; about 50 percent of the variation in measured intelligence among individuals in a population is based on variation in their genes. Even so, some students, without any evidence, started to deny the existence of heritability as a biological phenomenon.

Similar biological denialism exists about nearly any observed difference between human groups, including those between males and females. Unfortunately, students push back against these phenomena not by using scientific arguments, but by employing an a priori moral commitment to equality, anti-racism, and anti-sexism. They resort to denialism to protect themselves from having to confront a worldview they reject—that certain differences between groups may be based partly on biology. This denialism manifests itself at times in classroom discussions and in emails in which students explain at length why I should not be teaching the topic.

To my surprise, some students even objected to other well-established biological concepts, such as “kin selection,” the idea that, when individuals take actions for the benefit of their offspring and siblings, they are indirectly perpetuating their own genes. Startled students, falling into what we call the “naturalistic fallacy”—the notion that what occurs in nature is good—thought I was actually endorsing Trump’s hiring of his family! Things have gone so far that, in my classes, I now feel compelled to issue a caveat: Just because a trait has evolved by natural selection does not mean that it is also morally desirable.

The duty of scientists is to study the world—including the human body and mind—as it is. Some of our students, however, are seeing only what they want to see and denying real-world phenomena that conflict with their ideology. Take, for example, the obvious biological differences between the sexes, not only in physical traits (men, on average, are clearly stronger and faster than women are), but also in aptitudes and preferences (boys generally prefer wheeled toys, and girls prefer plush toys, a preference that is also observed in baby monkeys!).

People expect an equal sex ratio across academic professions and sometimes ascribe the lack of such equality to bias. In the so-called STEM fields—science, technology, engineering, and mathematics—the relative paucity of women is frequently taken to reflect endemic sexism. While this is undoubtedly a factor, the effect of bias as opposed to other factors, such as differences in what male and female students prefer, requires detailed empirical study.

One set of data challenges the idea that bias is the only cause of sex-ratio differences in the STEM fields. The so-called gender-equality paradox involves the observation that, while women and men around the world perform equally well on standardized science tests, countries with the highest proportion of women in STEM are not the ones with the least discrimination or sexual harassment, but those with the greatest gender inequality. Where women are free to choose their own path and do not have to worry about pay, they gravitate toward the humanities. Countries such as Norway and Finland have relatively few women in STEM fields, while countries such as Algeria and Indonesia have an ample supply.

However, when one assumes that everyone is a blank slate, differences between what males and females do can be explained only by bias and harassment. The conclusion is obvious: All STEM fields are cesspools of sex discrimination. This is what happens when ideology replaces biology. It’s become taboo to even mention the possibility that men and women might have different preferences.

Sadly, students do not seem to realize that their good intentions may lead them to resist learning scientific facts, and can even harm their own goal of helping women and ethnic minorities. The existence of any genetic differences between males and females, or between different ethnic groups, does not imply that we should treat members of those groups differently. Denying reality and pretending that differences do not exist—as if this were the only possible path toward equality—is dangerous. If you believe that moral equality relies on biological equality, this makes your moral views susceptible to future research that might reveal biological inequalities. Instead, equality and equal opportunity for all should be the default position, regardless of potential biological differences.

When students at Williams or anywhere else try to protect their worldview by denying scientific evidence, it is bound to affect what professors teach and how they teach it. Campus norms proscribe any discourse that might offend women, minorities, or anyone perceived as a victim of patriarchal white societies. However, this rule, no matter how well intentioned, is harming the very people it aims to protect. The argument favoring a certain amount of self-censorship is that it is necessary to protect minority students from feeling unsafe when they hear what they see as “hate speech.” However, by not talking about science that some find unsettling, we deny students opportunities for learning and for intellectual empowerment. How well can they argue their positions effectively unless they are seeing the world as it really is?