Thursday, January 28, 2016

Back to the 60's Phillips Curve ?

I have been postponing posting this post. Now it is a bit late as it is, I think, strictly inferior to Nick Bunker's post "Context may be everything when it comes to the Phillips curve" which you should probably just read. Both are mainly comments on Olivier Blanchard's Peterson Institute for International Economics policy brief (pdf) "The US Phillips Curve: Back to the 60s? " which itself is largely based on Blanchard Cerutti and Summers (2015) (which he cites).

Blanchard analyzed US unemployment and inflation with a model including time varying parameters and concluded two things. First it appears that inflation expectations are anchored. What this really means is that recent inflation has a small effect on current inflation (Blanchard and Blanchard et al don't attempt to directly measure expectations). Second, the slope of the Phillips curve has declined with large changes in unemployment followed by small changes in inflation. Blanchard stressed that the computer is convinced that the slope declined in the early 90s and that this is not a new great-recession pattern.

I will present some very simple graphs assuming expectations are completely anchored. That is, I will do what old Keynesians are often (incorrectly) accused of doing and ignore fluctuations in expected inflation entirely. The point, as noted by Bunker following Ekaterina V. Peneva and Jeremy B. Rudd, is that the change from the 60s to around now is a reduction of the pass through of labor costs to price inflation. Like Blanchard and BCS, they use a sophisticated time varying parameter model, but the point is simple -- in recent decades wage and price inflation have not moved together.

I think it is worth a blog post to check whether the relationship between unemployment and the increase of nominal labor costs (roughly wage inflation) has changed too. My impression is that it hasn't. I look at two series from FRED

HCOMPBS Business Sector: Compensation Per Hour, Index 2009=100, Quarterly, Seasonally Adjusted

and UNRATE "Civilian Unemployment Rate (UNRATE), Percent, Quarterly, Seasonally Adjusted" with 1950s econometrics, that is scatter plots. awinf is the % rate of increase of HCOMBS over 4 quarters (so the points on the scatter are not independent observations. I pool data from before 1973q1 and after 1985q1, that is back in the good old days and after the Volcker deflation. A 0 next to the dot means data from after 1985q1 and a 1 means data from before 1973q1.

The scatter is scattered. The old and new clouds of points overlap. I think there seems to be a reasonably stable and not shifting long run downward sloping Phillips curve. the main difference between the sub periods is that unemployment has often been very high post 1985.

Here is another scatter using only data from after 1953 so 1953-1972 and then 1985-2015.

For what it's worth, STATA isn't convinced that there has been a statistically significant change since 1973 even though it calculated standard errors ignoring the overlap of the intervals over which labor cost inflation was measured.

Now I look at annual GDP deflator iflation and labor cost inflation (always with overlapping intervals). The scatters look completely different pre 1973 and post 1985

before 1973, the two inflation rates were extremely highly correlated.

After 1985 the (still statistically signficant) correlation was much reduced

It sure seems to me that the change from one period of anchored expectations to another has a lot to do with price setting and not so much to do with wage setting. Given the gigantic changes in the US labor market (roughly the death of trade unions) this is very puzzling.

Monday, January 25, 2016

NAWRU VI Arbitrary Limits on Parameters

by Marco Fioramanti and Robert Waldmann

This is the final post on European Commission decomposition of unemployment into cyclical unemployment and the NAWRU (non accelerating wage inflation rate of unemployment). This calculation is important because cyclical unemployment is used to calculate the output gap and cyclically corrected budget deficits, which are used to calculated allowed spending under the stability and growth pact.

In an earlier post we have noted that the assumption that cyclical unemployment affects the acceleration of inflation rather than the level is problematic. It has become controversial (again) with many macroeconomists convinced that inflation expectations have become anchored so cyclical unemployment is related to the level not the acceleration of inflation (pdf warning).

It seems to us that the effort to extract a time series of cyclical unemployment which is correlated with the acceleration of wage inflation has lead to at least two very strange modelling choices. First, as noted here, the EC assumes that the NAWRU is a twice integrated random walk, that is that the drift of the NAWRU is itself a random walk. This means that the NAWRU sometimes trends up and sometimes trends down. The long term implications of this assumption are nonsensical, and, in fact, the EC doesn't take it seriously. In fact, EC long term forecasts are based on the assumption that the NAWRU is mean reverting.

Second, the EC imposes arbitrary limits on the parameters of their time series model. In particular, and crucially, they impose an upper limit on the variance of disturbances to cyclical unemployment (another pdf warning). This limit has two important effects.

First, it reduces the variance of cyclical unemployment. Second it increases the correlation between the estimated time series of cyclical unemployment and the acceleration of wage inflation. The second point is a bit technical for a blog, but it can be explained (we hope).

The series of cyclical unemployment is estimated in order to fit two observed series: total unemployment (equal to cyclical unemployment + the NAWRU) and the acceleration of wage inflation. Importantly, there are no free parameters in the identity: unemployment = cyclical unemployment + NAWRU. In contrast there are free parameters in the wage acceleration equation -- the slope parameters of the Phillips curve. This means that if, for example, cyclical unemployment is divided by 10, the estimated NAWRU must change and so must disturbances in the NAWRU time series. In contrast, there is no necessary reduction of the fit of the wage acceleration equation -- the Phillips curve slope parameters can be multiplied by 10 giving the exact same forecasts for wage acceleration.

Extreme restrictions on the variance of cyclical unemployment would make cyclical unemployment a negligeable component of total unemployment, while it could still be just as associated with wage acceleration as before. This means that as the allowed variance of cyclical unemployment goes to zero the estimated values of cyclical unemployment will go to those most correlated with wage acceleration.

Importantly this argument has nothing to do with any assumption about the true behavior of wages. Even if the time series of the acceleration of wage inflation were replaced with random numbers, it would be possible to force the computer to chose a time series of cyclical unemployment which is significantly correlated with those random numbers by imposing a low enough variance of the disturbances to cyclical unemployment.

It seems at least possible that the low variance of estimates of cyclical unemployment (and the resulting cyclical rigidity of required austerity) are the by product of an effort to force the data to fit an accelerationist Phillips curve.

Monday, January 11, 2016

NAIRU V Estimation

by Marco Fioramanti and Robert Waldmann

This is the second to last post on the European Commissions DG -Ec-Fin estimates of cyclical unemployment for the purposes of calculating output gaps. This estimate is called unemployment minus the NAWRU (non accelerating wage inflation rate of unemployment). We will call unemployment - NAWRU "cyclical unemployment" even though it is agreed that the NAWRU is partly cyclical.

For several countries (including Italy) it is calculated with a time series model based on an accelerationist Phillips curve in which the change in wage inflation depends on cyclical unemployment. The model is fairly complicated with 11 paramters (estimated for Italy with 50 annual data points and 3 years of atheoretic forecasts). It is briefly described here based on this working paper.

The model attempts to fit 2 time series, unemployment and the change in the rate of increase of wages, and includes 4 disturbance terms. To be very brief, the expected acceleration of wage inflation is a linear function of cyclical unemployment and two lags of cyclical unemployment (the equation includes one of the disturbance terms). Cyclical unemployment is assumed to be an AR(2) (with the second of the disttubance terms) The NAWRU is assumed to be an I(2) second order random walk -- the drift of the NAWRU is itself assumed to be a random walk (so the disturbance to the drift and the disturbance to the level are the 3rd and 4th disturbance terms). The assumption that the drift is a random walk is crazy -- it always implies long term forecasts of unemployment less than zero or over 100%. The EC staff agree that this model can't be taken literally. They ignore it when making long term forecasts. However, the resulting estimates of cyclical unemployment are used to calculated output gaps.

Robert wrote "As one might guess, identification is a bit problematic. However, it is possible to convince a computer to estimate all the parameters." As we (mostly Marco) have attempted to do this for slightly modified models, we have discovered that it is very difficult to convince a computer to estimate all the parameters (DG -Ec Fin uses their own software). This (in addition to the usual procrastination) has caused a long delay between NAWRU IV and NAWRU V (this post).

The problem (at least for STATA addicts) is that STATA ends up at a corner attempting to set the variance of the disturbance to the drift of the NAWRU to zero. This means that estimated of the model as officially described using STATA's standard sspace command provides no empirical support for the theoretically unjustified assumption which has impossible long term implications. STATA (v. 11 to 14) refuses to report estimates after getting stuck in a corner (this is a feature not a bug).

Based on Robert's efforts to code a pseudo-annealing Kalman filter maximum likelihood estimator (which are not publishable even in a blog) we think the key issue is the imposition of an arbitrary maximum on the variance of the disturbance to cyclical unemployment. This will be the topic of NAWRU VI -- the final episode if and when the conclusion is based on the use of standard software.

But in this post, we want to discuss estimation of the model with the variance of that disturbance term set to zero -- that is -- estimation of a model in which the NAWRU is assumed to be a random walk with drift.

This model has less appalling implications for the long term. The NAWRU is not restricted to the range from 0% to 100% but it would be easy to impose this restriction (the standard approach would be to assume that the NAWRU is a martingale and the variance becomes small when the NAWRU is near the limits -- it is possible to assume that this state dependent variance is constant over the range experienced during the sample period so the model as written is valid). The fluctuations in the NAWRU remain exogenous and unexplained, but there is at least a literature on why the natural rate of unemployment might fluctuate.

This model has implications strikingly different from those of the EC DG- EcF Fin model. The The fitted NAWRU no longer tracks the business cycle. The variance of cyclical unemployment is much greater. The resulting fiscal dictates would have been very different if the EC had used our simpler model .

here un = NAWRU

ug = unemployment - NAWRU = "Cyclical Unemployment"

ddw = the acceleration of wage inflation

The estimate command is

(the constraints are identities such as unemployment = (unemployment-NAWRU) + NAWRU and the assumption that the NAWRU is not mean reverting)

matrix rjw=(1, 1, 1, 1, 1, 1.407003, -0.49923037, 0.1555339, 1, 1, -0.031958257, 0.048677339, -0.019232409, 0.032105009, 0.28977462, 0.000507234)

sspace (un L.un L.mu, state noconstant) ///

(mu L.mu, state noerror noconstant) ///

(ug1 L.ug, state noerror noconstant) ///

(ug2 L.ug1, state noerror noconstant) ///

(ug L.ug L.ug1, state) ///

(u un ug, noerror noconstant) ///

(ddw ug ug1 ug2, noconstant) if year >=1965 & year<=2017, ///

iterate(100) from(rjw) constraints(1 2 3 4 5 6 7) ///

covstate(di) covobserved(di) difficult

Here are the estimates

For what it's worth, the likelihood is larger than that reported by the EC. We don't think too much attention should be paid to those two numbers -- the reported likelihood depends on technical assumptions used to initialized the Kalman filter when there are nonstationary variables. The null that the disturbance to the NAWRU has mean zero (so the NAWRU is a trend) is not rejected. There is little evidence that ug is related to the acceleration of wage inflation.

Tuesday, December 29, 2015

NAWRU IV The Long Term

Guest post by Marco Fioramanti explaining how the EC "reconciles" the NAWRU Phillips curve model with completely implausible long term implications with their long term forecasts. Brief summary -- they don't take the model seriously.

by Marco Fioramanti

At this link you can find an EC's WP in which they distinguish between NAWRU and Structural Unemployment.

  They say (pg 1 link above):

“(...) Importantly, this method [the Unobserved Component Model for NAWRU - mf] provides only a proxy for structural unemployment that might not remove fully the impact of all temporary shocks. In particular, persistent shocks are likely to contaminate the trend.”

  Macroeconomic projections for the forecast and the fiscal stuff in EC works this way:

  1. Country desks do the forecast up to t+1/t+2 depending on the season (t+1 in spring, t+2 in autumn).

2. The service in charge of the estimation of potential output and output gap takes the numbers from (1) applies the methodology (production function approach called PF below) and go to t+5. In doing this a set of rules (on top of the PF approach) is used to extend the projection horizon, one of which is that the output gap closes in t+5. These estimations are at the core of the SGP.

3. EC also has long term projections for long term sustainability of public finance (pension, health care etcAgeing-related expenditure) which goes from t+10 to t+50. This is a simplified PF approach. To link t+5 to t+10 they have introduced a modified version of PF(t+5) methodology in which they anchor NAWRU to converge to structural unemployment in t+10 (for Italy structural unemployment is 9.4% according to EC’s latest estimate).

They say (pg. 39 in this WP ):

            “The NAWRU framework incorporates economic rationale into the T+10 NAWRU forecast, relying on a set of four labour market economic indicators (i.e. unemployment benefit replacement ratio; tax wedge; active labour market policies; & union density) and a set of macro control variables (i.e. TFP; real interest rate; employment in construction; & the T+5 NAWRU) to guide the forecast beyond T+5. This approach allows for a decomposition of the NAWRU into structural drivers and medium term cycles & for a prediction between T+6 and T+10 which reverts the NAWRU back towards the long run structural unemployment rate. A simple convergence rule towards the T+10 NAWRU is applied & a so-called prudent rule is built into the approach in order to override the calculations in cases where the T+10 NAWRU forecast is deemed to be surrounded by a relatively high degree of uncertainty for a particular country.”

So, while EC recognizes the NAWRU is too cyclical, they keep using it.

Fioramanti, Padrini and Pollastri (2015) propose (among others methodologies) using structural unemployment instead of NAWRU in the PF approach also for the t+5 projections - so the estimate of the natural rate of unemployment used in calculating the output gap would be the natural rate of unemployment as originally defined by Friedman. Endnote: In contrast to the t+5 methodology (for which you can get all the necessary files and instructions to replicate EC’s results) the t+10 methodology is not fully public.

 -- Marco Fioramanti

Comment by Robert Waldmann

It is very important that the EC doesn't take the I(2) NAWRU model seriously.  They have a model used for long term forecasts and another model used to calculate the NAWRU and cyclical unemployment = unemployment - NAWRU.  The NAWRU is used only to calculate the output gap and allowed deficits under the stability and growth pact (SGP). The bad long term implications of policies with good effects in the short term is the justification for the SGP *and* the claim that the concept of the natural rate of unemployment has policy relevance.

The estimates of cyclical unemployment include a series of arbitrary fudge factors NAWRU minus structural unemployment called "medium term cycles". There is no explanation of the cause of "medium term cycles".  The model of "medium term cycles" is not a model of "cycles" as the word is used in macroeconomics, because NAWRU-structural unemployment is not stationary.

It is hard to justify the use of a model (the NAWRU accelerationist Phillips curve discussed in these posts) with absurd long term implications which are ignored when making long term forecasts in the application of the SGP. I think there are two possible explanations of this modelling strategy. First it is possible that the technicians were instructed to make the accelerationist Phillips curve work and overcome all challenges from the data. Second it is possible that DG EcFin is willing to allow deficts over 3% of GDP because of cyclical corrections but only so long as the cyclical corrections are small. This corresponds to dividing the cycle into a "medium term cycle" with huge variance which has no role in a short term cycle with small variance (based on which Treasuries are given some slack) .

In any case, I certainly agree with Fioramanti, Padrini and Pollastri's proposal to use unemployment minus structural unemployment when estimating output gaps.

Monday, December 28, 2015

Global Warming Update

To celebrate the Paris peace talks and in honor of the Christmas season it has been almost unpleasantly hot in the Washington DC area (interesting how the people who laugh at Al Gore whenever it snows aren't mentioning this).

I am in my parents house in Silver Spring Maryland. On Christmas day it was so hot in their house that we used a fan to cool. We didn't turn on the air conditioning in December only because we didn't want to contribute to the global problem.

Here is a photograph taken (by Richard Waldmann) December 27th 2015 of Forsythia's blooming in Silver Spring Maryland

Friday, December 25, 2015

NAWRU III Hysteresis

This is the third of a series of posts on the non accelerating wage inflation rate of unemployment (NAWRU) estimated by the European Commission. In the first, I argue that this estimate is very important because it is used to implement the Stability and Growth Pact. In the second, I argue that the NAWRU is not well defined if there are anchored expectations or if there is downward nominal rigidity, and that there is strong evidence of both in 21st century Italian data (and therefore no hint at all that the NAWRU is a concept useful for those attempting to estimate the current Italian output gap). This post was a general overview and promise of future blogging.

When estimating the NAWRU the European Commission staff imposes the assumption that it shifts exogenously. The assumption is that the NAWRU is I(2) that is that the first difference of the first difference of the NAWRU is stationary. This implies that the NAWRU will almost certainly *not* remain in the interval from 0% to 100%. This makes no sense, but, in this post I will focus on the assumption that the disturbance terms which shift the level and the trend of the NAWRU are independent of all other variables. This means that the NAWRU is assumed to be genuinely exogenous -- not just exogenous to the model but exogenous to the economy, and, in particular, not affected by monetary or aggregate fiscal policy. This means that when unemployment is decomposed by total unemployment = NAWRU + cyclical unemployment, the conditional distrubtion of the NAWRU depends on past NAWRU but is independent of current and past cyclical unemployment.

The assumption that these shifts are exogenous is extremely important. An alternative view (discussed in 1960 in the second major article on the Phillips curve) is that structural unemployment is not exogenous because, with time, cyclical unemployment can become structural. This possibility was discussed and named "hysteresis" by Blanchard and Summers in 1986. They and Eugenio Cerutti have returned to the topic and presented massive evidence that it is important in (pdf warning) 2015.

The assumption that the NAWRU is not affected by aggregate demand is not easily reconciled with the fact that, in the 21st century, the estimate NAWRU closely tracks total unemployment. This must be true of estimated NAWRUs as inflation has remained stable in Eurozone countries (warning same pdf to which I linked in an earlier post).

The hypothesis that the NAWRU is exogenous can be tested by embedding the model used by the Commission in a more flexible model. One possibility (actually explored by the commissions DG EcFin) is to allow the acceleration of wage inflation to depend on lagged shifts in total unemployment. I have estimated both the official model and this more flexible model by maximum likelihood. My impression (that is the output of a program I wrote but don't swear by) is that the null of the official model is strongly rejected against the alternative. In any case, Blanchard, Cerutti and Summers present strong evidence that recessions often appear to have long lasting effects. The general pattern of European unemployment and wage inflation from 1980 on is of huge long lasting shifts in unemployment and a single huge decline in wage inflation in the 80s.

The assumption that the NAWRU is exogenous and must simply be accepted by fiscal authorities is critically important. If austerity causes an increase in the NAWRU, it can be self defeating. There is now overwhelming evidence that, especially when the safe short term interest rate is near zero, reduced government spending causes lower GDP and higher unemployment (pdf warning). If cyclical unemployment becomes structural, this implies a long lasting reduction in revenues and a long lasting increase in social insurance transfers. As noted by DeLong and Summers (pdf warning), this can imply that reduced government spending causes a higher long run debt to GDP ratio. The technical assumption that the NAWRU is exogenous has fundamentally important policy implications. It can be tested.

The econometricians at the Commissions DG EcFin are placed in a difficult position. They are required to look at data to apply the stability and growth pact, but they are not allowed to estimate parameters which suggest that the stability and growth pact causes instability and stagnation.

Tuesday, December 22, 2015

NAWRU II . There is no such thing as a NAWRU

This is the first of five posts I promised to write in this post.

NAWRU stands for the Non Accelerating Wage inflation Rate of unemployment. It is a concept used by the European Commission when deciding how much to allow Treasuries adhering to the Stability and Growth Pact to spend. The commission considers cyclically adjustments based on, among other things, unemployment minus the NAWRU. The Commission gives mere elected officials some slack if unemployment is above the NAWRU as estimated by Commission staff.

Unemployment is never far above the estimated NAWRU. The estimated NAWRU has dramatically increased in countries whose unemployment rates have increased. Estimates for Spain vary from 21% to 25%.

I think it is clear that there is something very wrong with the estimates. I think the approach has five fatal defects and should not be accepted as an area for further exploration let alone a basis for dictates to member countries. The first fatal defect of estimates of the NAWRU is that the hypothesis that there is such a thing has been rejected by the data. The concept survives only by changing the 1968 natural rate hypothesis into a natural rate model which is used without any assertion that it has testable implications which have not been rejected by the data.

The NAWRU is a meaningful concept only if the acceleration of wage inflation is a function of the unemployment rate. This might or might not be true. The logic was that wage settlements are made aiming for a real wage, so expected price inflation is incorporated one for one into wage inflation. It is assumed that all recognize that the nominal wage doesn't matter, so there is no particular problem with cutting nominal wages when expected price inflation is negative. The opinions on this question of everyone who has ever had any role in negotiating wages were considered irrelevant. The argument went on that people won't make forecasting mistakes with the same sign forever, so the coefficients of expected inflation on lagged inflation must add to one. Oh yes, it was assumed that expected inflation was a linear function of lagged inflation, because uh that makes the math easier. It was decided to cut out the middle periods and make the coefficient on once lagged inflation one. Finally, somehow, lagged wage inflation took the place of lagged price inflation (I can't even imagine a bad argument for this step, but the Commission took it).

The concept requires both that only the difference between nominal wage growth and expected inflation matter. This means that there is no downward nominal rigidity, that is there there is nothing special about nominal wage increases of zero nor any difference between wage inflation near zero and far from zero.

It also requires that expectations can not be anchored. Expectations which are sometimes anchored and sometimes not anchored are not a linear function of past outcomes. They are absolutely a feature of expectations elicited in experiments. When presented with random walks, people usually forecast mean reversion. However a series of increases in a row causes them to forecast further increases (Barberis, Nicholas, Andrei Shleifer, and Robert Vishny, 1998, A model of investor sentiment, Journal of Financial Economics 49, 307–343). This is a robust result.

If there is downward nominal rigidity or expectations can be anchored, then there may be no well defined NAWRU. This doesn't mean that it is impossible to calculate a number and call it the NAWRU. Rather it implies that there is a range of unemployment rates such that wage inflation does not accelerate. If that is the case, cyclical fluctuations of unemployment within that range will be incorrectly identified as fluctuations in the NAWRU. I think it is clear that, for Italy, this range stretches at least from 8% to 13%, since wage inflation has remained roughly constant as unemployment rose from 8% to over 13%. Wage inflation didn't increase back when Italian unemployment was 8% nor did it decrease after unemployment rose to over 13%.

The simple fact is that, in the 21st century, there is almost exactly precisely zero correlation between the Italian unemployment rate and the change in Italian wage inflation. To calculate a NAWRU year after year with such data requires heroic data processing.

Here is a Phillips scatter of unemployment and wages for Italy

Data from FRED. There is one observation per month from February 1980 through February 2015. Winf is the percent increase in LCWRIN01ITM661S the "Hourly Wage Rate: Industry for Italy©: Seasonally adjusted" over the preceding year (so the series for Winf consists of overlapping 12 month intervals). Unem is LRHUTTTTITM156S"Harmonized Unemployment: Total: All Persons for Italy©:Seasonally Adjusted" from January 1983 on but is ITAURHARMMDSMEI "Harmonized Unemployment Rate: All Persons for Italy© : Seasonally Adjusted" for 1980-1982. I have no idea why one series is available only after January 1983 or why the other is available only before August 2012 or how they differ (in the period when both are available, they are very similar but not identical).

I think it is obvious that the graph doesn't look as a Phillips curve should. Since January 2000, the unemployment rate has varied from 5.8% to 13.2 % yet wage inflation has varied only from 1.1% to 4.8%. 21st century changes in Italian wage inflation are dwarfed by the huge declines in the 1980s. According to the accelerationist Phillips curve, Italian wage inflation should have remained in double digits in the 80s and 90s or declined to well below zero by now.

It is possible to pick an arbitrary series of numbers and call them the highly variable NAWRU, that is, it is impossible to prove that no NAWRU exists (as it is impossible to prove a negative) but there is clearly no more evidence that Italy has a NAWRU than that it is haunted by ghosts.

Here is the graph for the 21st century

There is, perhaps, some hint of higher wage inflation at lower unemployment rates, but no clear acceleration. Nothing much seems to have happened to wage inflation as unemployment rose from around 8% to 13.2%.

The NAWRU refers to the acceleration of wage inflation. I consider the difference between wage inflation in one month and 12 months earlier (so it is an annual difference of an annual difference and the data refer to overlapping 24 month intervals)

This is an extremely impressively horizontal scatter. There is no sign of any association of unemployment and accelerating wage inflation at all. Here is a regression (with uncorrected standard errors)

. gen awinf = winf-winf[_n-12]

. reg awinf unem if month>2000

Number of obs = 181

F( 1, 179) = 0.00

Prob > F = 1.0000

R-squared = 0.0000

Adj R-squared = -0.0056

awinf | Coef. Std. Err. t

unem | 3.30e-07 .0396278 0.00

_cons | .0270689 .3569347 0.08

So "almost exactly precisely zero correlation " means a correlation coefficient of 0.00 something and a regression coefficient of 0.00000033 . The T-statistic is not correct, the standard errors should be corrected for the 24 periods of overlap. But I don't think that a T-statistic which is biased away from zero and equal to 0.00 really needs to be corrected. The almost exactly complete absence of any evidence of any effect of unemployment on the acceleration of wage inflation is extraordinary. It is extremely unlikely that two independent series would happen to have such low correlation.

This is the first regression I estimated with Italian data. Using the full sample I get a (statistically insignificantly) upward sloping accelerationist Phillips curve.

. reg awinf unem

awinf | Coef. Std. Err. t

unem | .0373827 .076396 0.49

_cons | -.8178216 .7054678 -1.16

I just now think that, maybe I should lead wage inflation acceleration (or lag unemployment)

awinf2 = winf[_n+12]-winf

. reg awinf2 unem if month>2000

awinf2 | Coef. Std. Err. t

unem | .0211333 .0482586 0.44

_cons | -.1483054 .4191373 -0.35

That doesn't make much difference does it ?

There is no hint in the Italian data that there is such a thing as a NAWRU. Those with firm faith can still believe in the NAWRU, but their faith receives no assistance at all from the data.

update: typos corrected thanks to Reason and Marco Fioramanti. An explanation was revised aiming for comprehensibility following advice from Marco Fioramanti.

Monday, December 21, 2015

NAWRU 1 The totally arbitrary estimated natural rate of unemployment and Euro Block Fiscal Policy.

Please read the version here which was updated and corrected (following comments by Marco Fioramanti)

European Commission fiscal dictates are based on outdated economic theory, strange econometrics and arbitrary ad hoc restrictions on parameter estimates. It is not easy to discuss the technique behind that which presents itself as technocracy with a straight face. The 'cracy part is genuinely powerful, so this matters.

This will be the first of a long long series of posts. It is written to blogging editorial standards, which means I think everything is true, but it's not as if I were submitting this to a peer reviewed Journal. I will try to present an outline.

A. Allowed deficits under the Stability and Growth Pact as revised in 2005 depend on estimated output gaps -- the restrictions on deficits refer to the "structural balance" (SB) which is the cyclically adjusted deficit minus one off expenditures and revenues. These posts will focus on the cyclical adjustment. The allowed deficit is 3% plus 0.5 times potential output minus actual output (the output gap). update: (correction due to Marco Fioramanti) Allowed spending depends on a "medium term objective" (MTO) which in turn is defined in terms of the SB end update. This means that estimation of potential output are very important as they is step required to apply an international treaty.

B. The European Commission (from now on EC) estimates of potential output are based on a production function and require estimates of the capital stock, total factor productivity and potential employment. This series of posts will consider only the estimates of potential employment. Potential employment is equal to the labour force times the natural employment rate. The natural employment rate is 100% minus the non wage inflation accelerating rate of unemployment (NAWRU). Estimates of the NAWRU are needed to construct estimates of potential output.

C. Another way of putting it is that the estimate output gap is a function of cyclical unemployment which equals actual unemployment minus the NAWRU. This means that estimates of the NAWRU are very important.

D. This means we (in the Eurozone) have a problem. The stability and growth pact requires estimation of the NAWRU which means that it dictates that there is a NAWRU and that, if unemployment is above the NAWRU the rate of increase of nominal wages declines. If the accelerationist Phillips curve does not correspond to reality, the Stability and Growth Pact is like the possibly mythical local ordinance which declared that Pi is equal to 3.0.

E This means that reassurances (to Paul Krugman) that policy makers and staff have moved on to use of Phillips curves with anchored expectations are uh not accurate.

F. There are many many problems with EC estimates of the NAWRU. This is obvious, because estimates of the NAWRU track actual unemployment and are absurdly high -- the EC estimate of the Spanish NAWRU for 2014 is greater than 20% (pdf warning) . I will write a post on each of the problems which I have noticed.

1. The theory which implies there is a NAWRU is rejected by the data. The acronym NAWRU implies that there is one and only one unemployment rate consistent with non accelerating inflation. European data from the past 7 years show huge fluctuations in unemployment and extremely stable inflation. There is no falsifiable hypothesis including a NAWRU which has not been falsified. The reaction has been to assume that the NAWRU fluctuates for unexplained reasons so the NAWRU story has no implications for the association between unemployment and inflation.

2. The changes in the NAWRU must be exogenous. It is not just that they are exogenous to the model (not explained) they must be unaffected by policy. This is an assumption. It is assumed that fiscal policy has no effect on the future NAWRU. In other words it is assumed that there is no hysteresis. This assumption is required for calculations of the effects of spending and revenues on the long term debt to GDP ratio (as stressed by DeLong and Summers pdf warning). The vitally important assumption is not tested.

3. The NAWRU is assumed to be an I(2) process -- not only does the level shift exogenously but so does the trend. This means that the first difference of the first difference of the NAWRU is stationary. This assumption implies that long term forecasts of the NAWRU, say 100 years from now, are always either greater than 100% or less than 0%. Clearly this is crazy. The original argument for an accelerationist Phillips curve is very explicitly an argument about the long run. There is a fundamental contradiction between the concept of a NAWRU and a time series model of the NAWRU whose long term implications are ignored.

4. The NAWRU is estimated by EC using two time series -- the acceleration of wage inflation and the unemployment rate. A model (explained for example in Fioramanti Padrini and Pollastri 2015 (warning same pdf to which I linked above). This model has 4 series of disturbance terms used to fit 2 time series. As one might guess, identification is a bit problematic. However, it is possible to convince a computer to estimate all the parameters.

5. In a last arbitrary ad hoc step, EC imposes limits on three of the parameters of their model. Crucially one of these is the variance of disturbances to cyclical unemployment. This last intervention is not motivated by theory or evidence. It has a very large effect on estimates of cyclical unemployment and allowed deficits.

I think it is clear that point 5 is very interesting. Even the reader who has been patient enough to read this far, might not be patient enough to read posts 1 through 4. I think 2, 3 and 4 will be skipable, but I don't guarantee that the future post 5 will be comprehensible without reading 1-4 (or even after reading 1-4).

update: the post has been corrected based on comments by Marco Fioramanti.

Friday, December 18, 2015

Kids these days

I am blogging with my smartphone while waiting for a plane. That is all.

Sunday, December 06, 2015

Is Okun's Law OK ?

I think this is the 4th thing I've written about this Krugman post "Anchors Away"* while alarmed by my obsession with that application of 1960s macro and 1960 (but not 61) macro to current issues, I do see some hope. I have made it to the last two paragraphs.

How much output growth would this involve? An Okun’s Law type relationship also works pretty well for the euro area as a whole, and gives a coefficient close to the US level:

[graph] So a 4 percentage point decline in unemployment would, if the historical relationship holds, mean 8 percent more in real GDP — that is, this naive calculation puts the euro area output gap at 8 percent, which is huge.

Should we take this seriously? If not, why not?

Glad you asked Paul. First I don't have a problem with the calculation that Euro block unemployment is 4% greater than it could and should be. The astonishing implication is that Euro block economies could endure unemployment as low as 6% without suffering ever rising inflation. I see no reason to doubt this. Even the famously dysfunctional Italian economy managed it (the stability of inflation is even more striking if one looks at wages not consumer prices -- the ups and downs of the consumer price inflation rate in the graph in the linked post correspond to sharp increases and decreases in the price of oil -- no new graph as this is not this post's topic).

But I am not so convinced by the Okun's law estimate and calculation. Krugman's estimate ( and Okun's) is a simple regression with no lags or leads. The regression is valid if unemployment is a function of current output so the immediate effect of a downturn is equal to the long run effect of a prolonged depression. However, in practice employment adjusts slowly in recessions with the peak of unemployment typically occurring after the trough of GDP. I think the coefficient of GDP growth on the change of unemployment reflects this slow adjustment of employment. I'd guess a long run Okun's relationship would give a number closer to labor's share so two thirds, maybe 1 but not 2. I won't estimate this coefficient using changes from 2007 to 2014 for different Euro group countries (although I should). It implies an output gap of roughly 3 to 4% which I find highly plausible.

I think this implies an average allowed deficit of 4.5 to 5% of GDP (IIRC the Eurocrats calculate that a 1% output gap causes the deficit to increase by 0.5% of GDP based on increased transfers as well as reduced tax revenues). *The pun in the title doesn't fit the content of the post and set a very bad example, which may have influenced me and led me aweigh from the balanced prose path appropriate for serious topics)

Phillips curve Philippic I

This post is a teaser. I am writing that I will be writing about how the Phillips curve is used by the European Commission and in particular EcoFin. I am trying to force myself to write something by promising the web that I will.

Just in general, when reflecting on the other than ideal state of academic macroeconomics, I have comforted myself with the thought that policy makers mostly ignore allegedly micro founded macro and, to the extent they listen to economists at all, use old pretty much Keynesian models roughly based on the work of Keynes Hicks, Solow Samuelson U Friedman and not of Lucas let alone Prescott (yes Friedman would be surprised to be called roughly Keynesian, but, in fact so called New Keynesian economics is largely based on Friedman as noted by Brad DeLong).

I am distressed because I have learned something from Marco Fioramanti about what models policy makers use. The model in question is a highly modified Phillips curve not a silly modern micro-founded macroeconomic model. It is used to estimate the non accelerating wage inflation rate of unemployment (NAWRU not exactly the same as the good old NAIRU because the inflation is wage inflation not price inflation). This is subtracted from unemployment to estimate cyclical unemployment. The estimated Cyclical unemployment is used to estimate potential output and the output gap (with a production function of capital and (employment + cyclical unemployment) and estimated technology (estimating technology is another very tricky issue). The output gap is used to cyclically adjust deficits -- that is to dictate fiscal policy.

The last part is key. At the end of the calculations there aren't recommendations to policy makers. The calculations are part of implementing an international treaty -- the Stability and Growth Pact as modified in 2005.

In order to ensure long-term compliance with the SGP deficit and debt criteria, the member states have since the SGP-reform in March 2005 striven towards achieving their country-specific Medium-Term budgetary Objective (MTO). The MTO is the set limit, that the structural balance relative to GDP needs to equal or be above for each year in the medium-term. Each state select its own MTO, but it needs to equal or be better than a calculated minimum requirement (Minimum MTO) ensuring sustainability of the government accounts throughout the long-term (calculated on basis of both future potential GDP growth, future cost of government debt, and future increases in age-related costs). The structural balance is calculated by the European Commission as the cyclically-adjusted balance minus "one-off measures" (i.e. one-off payments due to reforming a pension scheme). The cyclically-adjusted balance is calculated by adjusting the achieved general government balance (in % of GDP) compared to each years relative economic growth position in the business cycle (referred to as the "output gap"), which is found by subtraction of the achieved GDP growth with the potential GDP growth. So if a year is recorded with average GDP growth in the business cycle (equal to the potential GDP growth rate), the output gap will then be zero, meaning that the "cyclically-adjusted balance" then will be equal to the "government budget balance". In this way, because it is resistant to GDP growth changes, the structural balance is considered to be neutral and comparable across an entire business cycle (including both recession years and "overheated years"), making it perfect to be used consistently as a medium-term budgetary objective.[24][25]

Whenever a country does not reach its MTO, it is required in the subsequent year(s) to implement annual improvements for its structural balance equal to minimum 0.5% of GDP, although it should be noted that several sub-rules (including the "expenditure benchmark") has the potential slightly to alter this requirement.

As a "pact" this can't be unilaterally changed by a national parliament. Here is an extreme (but not misleading) edit ""output gap" ... a country ... is required". The calculated output gap affects what once sovereign countries are required to do.

However, the output gap has to be estimated by a long suffering staff which has to follow clear objective unchanging rules (they not being superior to elected officials as their immediate superiors are). These rules have to make sense and yield sensible results even if the economic model on which they are based doesn't fit recent data well. Since casual discussion of the Stability and Growth pact doesn't clearly distinguish the structural deficit and the ordinary budgetary deficit, large cyclical adjustments would cause extreme suspicion that the rules were being bent.

In particular, that which many countries are required to do depends on a calculation based on an accelerationist Phillips curve. Behind the calculation there is a model in which it is assumed that unemployment affects the change in the rate of wage inflation and in which a decrease from 11% to 9% is just like a decrease from 1% to -1%. This means that, to the extent that the Stability and Growth Pact is involved, policy is absolutely not based on consideration of Phillips curves with anchored expectations.

The reassuring claims about policy and Phillips curves made to Paul Krugman -- " the usual response from model-oriented public officials and research staff at policy institutions is to say that what they work with now is a Phillips curve with “anchored” expectations " -- are to this important extent, false.

Krugman calculated a Euro area output gap using an anchored Phillips curve. Even he is astounded (and unconvinced) by his calculated output gap of 8%. Using such a gap for the correction would allow a fundamental transformation of fiscal policy in many Euro area countries. These do not including those, such as Germany, where the pact isn't binding, or Greece which can't borrow even if it had EcoFin permission, because no one will lend to them. However, they most definitely include Italy.

I don't take Krugman's calculation more seriously than he does (another post) but it is easy to understand why the binding authoritative calculations with the force of an international treaty are completely different. One reason is that they are based on an accelarationist Phillips curve estimates of which imply double digit natural rates of unemployment (which have shot up since 2008). The other (and probably more important) explanation is that such a conclusion is unacceptable to the Eurocrats who claim to be technicians not dictators, but who accept no limits on their power and will never accept markedly higher deficits.

Still the demonstrable fact that the official and binding calculations are based on a model which is wildly at odds with the data might have some impact on someone somewhere sometime somehow.

Saturday, December 05, 2015

Donald Trump number one in all the polls

of course that is in @Satan 's time line. I would guess Donald Trump is less hated by people who follow @realDonaldTrump but I'd rather go to hell than go there.

Monday, November 30, 2015

RubiK's Octopus

via Mark Thoma The photograph illustrates a fascinating post which really is about How to do cephalapod philosophy And while on the topic of molluscs an old favorite

Wednesday, November 25, 2015

When is a Bailout not a Bailout

Simon Wren Lewis wrote "It raises important issues about how to reinterpret a no bail out policy when OMT is possible,"

Heh indeed. The crucial credibility of the commitment to Calvinist virtue of the European Central Bank is entirely based on the distinction between lending money to a Treasury and buying bonds issued by that Treasury.

Buying bonds that no one else wants is an forbidden sinful bailout. Open market operations are standard central banking. Open markets being what they are, open market operations involve selling something or a price lower than the asking price of anyone else buying something for a price higher than any other bid. Roughly half of open market operations must involve buying a bond at a price no one else is willing to pay because markets work that way.

The fundamental central economically and morally crucial distinction is between buying a bond to drive up its price (drive down its yield) for good macroeconomic reasons or doing the exact same thing to bail out a Treasury.

This is a rule which can't be enforced without ESP. Even with ESP the central banker and the enforcer have to have a clear idea about a distinction based on words alone and not on desired outcomes. Also there is no enforcer.

The no bailout policy is like a rope made of sand except for the parts about ropes, sand and making.

Microcardiods Vs Magaurisoids

Well this is delicate. This humble blog is getting some traffice (from Mark Thoma as usual). It is unfortunate that I feel the need to blog wearing my tinfoil hat. I would like the reader to consider the civilizational struggle and ask if might be reasonable to entertain the possibility that our planet is the scene of a struggle for dominance between two alien civilizations. Now I understand claiming contact with one alien civilization is already full tinfoil hat so I guess I am going for tinfoil gloves too.

Of course one of the alien races would have to be the Megaurasoids characterized by large ears and completely mysterious political success. They seem to have landed in Indonesia in the 1960s and have already colonized the 2nd and third largest democracies.

I don't approve of colonialism, but we had been making a mess of things.

Of course this means I am not just a birther but a Birther alleging that Obama isn't just an alien in the legal sense but in the science fiction sense. I have seen photos of his birth certificate, but think back to 2002. Would you ever have imagined that a black guy named Barack Hussein Obama would become president through entirely terrestrial means ?

The second exemplar would, of course, have to be Joko Widowo who rose from a humble (allegedly earthling) background to be elected president of Indonesia. Hmm that extremely large important country no one ever thinks about again. Just look and tell me this is a coincidence

Hmm different hair. Slightly different eyes. The same ears. The same strange career path. I mean Widowo was elected president before he learned how terrestrials perform the strange task we call "pulling up our socks."

Look at the expressions. Both seem mildly pleased to find themselves in the White House. It's almost as if, after the distance they've travelled the distance from Hawaii or Indonesia to DC isn't any big deal.

Now I am confident that the megaurisoids have good intentions. Obviously, as mentioned above, their ability to get people to trust them is one of the ways in which they differ from humans.

Unfortunately we, and they, are not alone. There is clearly another group which landed in the frozen wastelands of Northern North America somewhere between Calgary and Milwauki. Again, try to tell me this is a coincidence with a straight face

I am, of course, almost the last to notice

MomJ at gardenweb has an wonderful example (think about it -- a political story so alarming and easily supported with photographic evidence that it is reported in a gardenweb forum).

Ms Observer Staff showed that even color film can not hide the resemblance

In five decades, at least the microcardiods have learned how to shave. The strange technology called the "razor" must be alien to them (probably because they were too tempted to try to kill each other with safety razors).

Tuesday, November 24, 2015

Bearing the Crown of Scorn

In "Who's the Most Humble? We Are!" Kevin Drum draws my attention to something Carly Fiorina said to which People for the American Way drew his attention.

"I do think it's worth saying," Fiorina declared, "that people of faith make better leaders because faith gives us humility"

Heh indeed. They also have a better sense of irony and self awareness.

Drum is not pleased.

He did write

"I've got nothing against organized religion. It provides an important part of life for a lot of people and does a lot of good charitable work. "

But then "" and wrote a devastating critique.

My rant volume goes up to 11

(his rant quality is much higher -- "always click the link" -- Kevin Drum).

My comment.

But even those of of us who don't believe that He technically Exists must be hypothetically eternally grateful to Jesus Christ for His willingness to suffer. I'm not talking about a bit of scourging and 3 hours on the cross. For such a benevolent and omniscient being the pain due to the humiliation of being associated with people like Fiorina must make crucifixion seem like a walk in the park.

OK enough snark now how about some science. I tried to check if Luntz was telling the truth. I know that socially undesired outcomes including teenage pregnancy are more likely in highly religious states. I also know what "ecological fallacy" means.

Of course I googled. It turns out that it is hard to get to other than obviously biased by googling [religious faith and teenage pregnancy]. The first few hits were all to heritage foundation sites. I chose to go to google scholar and found

http://www.sciencedirect.com/science/article/pii/S1054139X04004124

"Conclusion

Frequency of attendance and religious affiliation have little impact on sexual behaviors once intercourse occurs."

Which contradicts Luntz's claim because of the qualifiers "every single" and "all".

I also recall Case and Katz (1991) "The Company You Keep"

http://www.nber.org/papers/w3705

Which makes me feel old. The relevant bit of the abstract is "We find that family adult behaviors are strongly related to *analogous* youth behaviors. The links between the behavior of older family members and youths are important for criminal activity, drug and alcohol use, childbearing out of wedlock, schooling, and church attendance."

** mine.

The point is that, in regressions including the other adult behaviors, parents' church attendance is significantly related to youths' church attendance but not statistically significantly related to youths' criminal activity, drug and alcohol use, childbearing out of wedlock, or schooling.

Now this doesn't mean that organized religion has no effect -- to conclude that would be to reject the alternative hypothesis. It doesn't even mean that Luntz's claim is false -- he said "correlated" not "partially correlated," so he referred to simple regressions not multiple regressions.

I am sure Luntz knows about omitted variable bias. I am sure he is deliberately appealing to omitted variable bias to strengthen (and flatter) the faith of the audience.

I am as atheist as Kevin Drum is and as confident that organized religion is, on balance, a good thing*, but I am sure that Luntz's claim about the current level of empirical support for this view is based on the deliberately misleading use of the word "correlated".

* Yes I know that, according the the Gospels as written decades after his death, Jesus said "the truth shall set you free" and I just said I believe religious beliefs are are for the most part good false beliefs. I disagree with Jesus on the value of believing the truth.

Monday, November 23, 2015

What caused the Great Recession ?

A short comment on a shorter comment on Krugman's short comment on "The Big Short"

Comment FSP asked a question

FSP Los Angeles 41 minutes ago My question is this: Would the Lesser Depression have occurred if we did not have the "financial superstructure" of sub-prime backed securities, and just had instead the bursting of a housing bubble, without the implosion of those financial products adding to the problem? Or, can the two not be separated? I think at least a rough attempt to separate the two factors (housing bubble and financial superstructure) can be managed. Dean Baker has definitely claimed that the lesser depression would have occurred without the financial superstructure

The rough approach (Baker's approach) is to look at the much smaller past fluctuations in housing prices back before the RMBS CDO CDS superstructure was built and the subsequent fluctuations in GDP and employment. Baker argues that GDP behaved as one would forecast based on housing prices and regressions with pre-superstructure data.

Or you can ask if the financial crisis would have caused a lesser depression even if triggered by something other than a bubble bursting (a bubble in house price or some other price). Here the standard variable is the quality premium on corporate bonds (the spread between say a B corporate bond rate and AAA bonds or treasuries). This spiked in late 2008.

The time series of the two candidate explanatory variables are very very different. The lag, magnitude and duration of the effects on GDP can be estimated with 20th century data.

This is crude, but not as bad as my knowledge of the literature. I know of people (Del Negro & Schorfheide 2012 ) who look at quality premia and what happened next. I know of Baker who looks at house prices and what happened next. I (amazingly) don't know of anyone who has let the two variables into the same regression.

Monday, November 16, 2015

Yglesias on Abenomics

https://twitter.com/mattyglesias/status/666049859753918464 I have three responses. First I don't approve of changing the indicator between the time one makes a prediction and one looks at the data. Yglesias stressed expected inflation and actual inflation when declaring Abenomics a success.

Second in macro there aren't enough data points to just compare means for treated and untreated subjects -- there is one case of Abenomics treated Japan. Macro theory is unreliable, but imposing some theory on data is necessary. I think it is safe to assume that monetary policy affects employment through interest rates and the price level. Nominal interest rates were very low pre-Abe (also including the 10 year treasury rate = 0.713% the month before he was elected prime minister). The inflation rate remains extremely low. I don't see a path from changed monetary policy to improved employment. But I will check.

OK unemployment. rom the graph can you guess when Shinzo Abe was elected ? I can't (and with failing memory had to go to the Wikipedia but I'm man enough to admit it)

Answer he became prime minister after the DEcember 2012 elections. This was unsurprising after he was elected LDP party president September 26 2013. I see no hint of a change of economic regime September 2012 or December 2012 or at any date after 2008.

I don't see what checking the working age population growth rate has to do with Abenomics. It is determined by fertility 15 years ago and 65 years ago and, a tiny bit (but matters a lot for those uh involved) by the very low death rates of Japanese under 65. I guess that the idea is either that low working age population growth explains low GDP growth in spite of Abenomics or the tweet includes a typo and Yglesias meant to refer to the ratio of employment to the working age population.

That ratio has indeed increased dramatically. It began increasing before Abe but something new and different has been happening.

Sunday, November 15, 2015

Stanley Greenberg Warns the GOP

I found Stanley Greenberg's article Why 2016 could be shattering for Republicans very interesting.

I was afraid to read it, because I don't want my hopes raised and then crushed. The current polls, for what they are worth, don't show a GOP cruising for a bruising. Greenberg's main claim is that John B. Judis and Ruy Teixeira were right way back in 2004 when they predicted an Emerging Democratic Majority.

I think the change based on 11 years of information is a greater stress on the beliefs of currently young Americans about religion and gays (also marijuana but Greenberg didn't mention that green stuff). They key paragraph is

... a new majority coalition of racial minorities, single women, millennials and seculars. Together, these groups formed 51 percent of the electorate in 2012, but our analysis of census survey data and exit poll projections indicates that they will comprise fully 63 percent in 2016. With these growing groups each supporting Hillary Clinton by more than 2 to 1 in today’s polls, it is fair to say that the United States has reached an electoral tipping point.

I think the growth of seculars is a bit of a surprise (they are people don't identify with any organized religion a majority of whom are neither atheist nor agnostic). But I think the key question is whether millennials will keep their current views which are similar to mine and very different from those of a majority of US citizens of my age. Another question is whether US Hispanic whites will continue to be a racial minority (as US Irish, Italians and Poles once were) or whether they will come to consider themselves part of roughly the same group as WASPs.

The point is not new (it probably wasn't new in 2004 either). To me the really interesting thing about the article is the name of the author. Greenberg has made a career studying the difficulties Democrats have have regaining the support of Reagan Democrats/blue collar ethnics/working class whites recently here. In this article, he argues that that group, which he studied and studied is no longer politically crucial. It is almost as if Mudcat Saunders wrote that he was convinced by Thomas Schaller's thesis in "Whistling Past Dixie" (I see it was published in January 2008 so Schaller sure didn't have to wait as long as Judis and Teixeira for confirmation).

I am not really surprised that Greenberg goes where the data lead him -- I have often been impressed by his research. But I am pleased. I think his narrow economic interests would have been well served by acting as the debater contra Judis and Teixeira. I don't think there is any advantage for public intellectuals gained by noting that the world has changed and that the things they said about the past are not true of the present. I think it helps to be predictable (I'm sure it helps them get on TV as bookers want to know what guests will say). Now Greenberg is in a different league than Sanders or the talking heads. Top Democrats will listen to him even after he has changed his emphasis. He wants them to win elections so he doesn't just want to take their campaign money, he wants to give them good advice. Still I am pleased (and displeased that I am surprised enough to be pleased).

Greenberg suggests that the new Republican and Conservative extremism is a reaction to the knowledge that people of my age race and gender won't control our shared country for long. This is the natural if uncharitable guess of what tea partiers really mean when they say they want to take our country back. Here it is important that, following party affiliation, voting intention, and issue polling, he considers key groups to be single women vs married women and men whether married or single (lots of tea partiers are women but few are single women). I know very few US conservatives and very few Republicans, but I am sure he is right. They talk and write about tipping points and some sort of doom. I am sure it is demographic doom.

I am out of touch (I am typing this in Rome). I am surprised that 15% of new marriages include spouses of different races (always counting Hispanic and Anglo white as different). I am shocked and appalled that only 68% of US adults think that "Sex between and unmarried man and woman" is "morally acceptable". I mean what the fuck do they expect single adults to do ? I guess it is impressive that this is only 5% more than the 63% who think gay sex is morally acceptable (still way too low but much higher than it was). I guess the dramatic news is that attitudes towards gay sex and premarital heterosex are similar, but I think it bears repeating: what the fuck ?

Friday, November 13, 2015

Second Comment on one Morning Plum Post by Greg Sargent

Extreme editing

GOP consultant Charlie Black explains what might stop Trump:

Black said he was briefed on the findings of two recent private focus groups of Trump supporters in Iowa and New Hampshire that showed these voters knew little about his policy views beyond immigration.

Members of the House Freedom Caucus are preparing a “Contract With America II” that would call for House votes in the first 100 days of 2016 on replacing Obamacare, overhauling entitlement programs such as Social Security and Medicare, and repealing the estate tax. [It] also calls for legislation to slash government regulations by 20 percent, cut corporate tax rates and expand offshore oil drilling.

That is one Republican argues that Trump will be stopped, because people don't know about his policy proposals, are thinking of only some issues, and responding to pollsters based on a general impression not policy issues and other Republicans propose cutting Social Security, Medicare and corporate tax rates. The case for Republican optimism is that people will learn the facts and decide whether to vote for Trump based on his policy proposals and then we can go back to getting the votes of people who want to keep the government's hands off of their Medicare and get back to fighting to cut Medicare.

As noted by many (including of course Paul Krugman) the establishment Republican case against fear of Trump and Carson is that they are obviously crazy. This is true, but so are all Republicans. They have to assume that voters will pay attention to Trump and Carson's policy proposals but not to the policy proposals of any other Republicans.

They are not only relying on voter ignorance but on selective voter ignorance. This leads me to conclude that the chance that they are guessing right and will win the next election is ... terrifyingly high.