Krugman, current account, crisis

Paul Krugman posts an interesting take on the Euro crisis, with some data on average current account balances and average fiscal imbalances.

I like the table, but check out the relationship between the fiscal balance and the current account balance.  A scatterplot reveals an upward sloping relationship with a slope of 1.4 (t of 2.7) and an R2 of 0.4.  Surely not ironclad but suggestive that the story we tell college students about the U.S., that public dissaving produces a trade deficit, other things equal, might also be relevant here.  Even if ultimately it's the current account that actually produces a crisis, the budget deficit might be a pretty important cause.

Volcker on inflation

Today in the NY Times, former chairman of the Fed and Obama's Economic Recovery Advisory Board argues forcefully against higher inflation as a potential tool for rebalancing the economy. Elsewhere, folks like Ken Rogoff and others have suggested that a period of higher inflation might be the most direct path to recovery from a position of overleverage. An article in Bloomberg from 2009 presents a discussion, including the strategy of price-level rather than inflation targeting.

Volcker's got to be the preeminent authority on cleaning up the aftermath of inflationary policies, and his point is plain:  expectations of higher inflation are extremely hard to wring out of the economy, so it's not worth going there.

Courtesy of Greg Mankiw's blog, here's another perspective on related issues, courtesy of John Taylor.

Cheney on fiscal policy

I can't help but feel like I'm picking on an easy target, but Dick Cheney's view of fiscal policy in a recent PBS interview just makes me shake my head in sadness. The challenge posed by entitlements spending is real, but it was as real in 2000 as it is today. Demographic trends have been known at least since the Social Security reform of the 1980s.

What a disingenuous thing to call for austerity now, after eight years of utter fiscal profligacy under the supervision of Bush and Cheney. Planning for population aging should have been the strategy all along, Mr. Cheney, you utter political hack.

Now let me apologize for dog-piling. I hope that when I'm in my twilight people are more forgiving of the ridiculous things I may say.

Cassidy looks at income trends

The New Yorker's John Cassidy discusses long-term trends in earnings and income in an interesting blog post. Cassidy is right that trends in the statistics on median earnings and income are alarming, but there are a few more nuanced parts of the story that seem to be missing from this short piece. But perhaps they're in his larger work. 

Average earnings and income have been increasing rather steadily. That there's a difference between trends in the median and in the average speaks to rising earnings and income inequality. Clearly a reason not to be optimistic for those in the left tail if they're stuck there, but a little more nuanced than pessimism-for-all.

 Second, if one looks at total compensation or unit labor costs, one also sees a different picture, and it's because of the rapid rise in benefits, namely subsidies for health insurance premia. Trends in the average are strongly upward, and I imagine the same would hold true for the median, which I don't think the BLS or Census publishes (these are establishment, not survey data). Rapidly rising health care costs are painful, and we pay more than do those in other countries for what we get out of it, but let's not forget that Americans also living longer on average than earlier generations. (And yes, there is an inequality story here too.)

 Finally, let's not forget that the story for women has been starkly different, whether measured by mean or median earnings. Surely the increase in female earnings, while perhaps not always directly good for men in some hyper-selfish version of the world with no partnerships, is an optimistic rather than pessimistic trend.

Go Doug!

Yesterday NPR reported on some Congressional testimony by CBO director Doug Elmendorf. He laid out the cold, hard facts about fiscal sustainability sprinkled with some common sense about when during the business cycle to tighten, when to loosen, and how to plan ahead. Speaking clearly and firmly about economic policy in a diverse setting is a great skill.

Room-for-debate on lowering college tuition

The Times offers twelve viewpoints on reducing college tuition, specifically in response to Gov. Rick Perry's call for a $10,000 college degree. There is quite a diversity of perspectives, and there are a bunch of interesting ideas, many of which seem focused on squeezing more output (student-taught-hours) from faculty. But the prize goes to the president emeritus of GWU, who offers these gems (emphasis mine):

"We can reinvent what we call the college experience. Will it be the same? No it won’t. Will it be better or worse? Yes it will. I hope the governor does not have plans for a $10,000 medical degree."

That last nugget sums it up well! Presumably reductions in marginal cost will reflect reductions in marginal benefits and outcomes, unless we're talking about greater taxpayer subsidies.

Reinhardt on growth statistics

Princeton health economist Uwe Reinhardt discusses growth and inequality in the Times, and cites a nice article in J Econ Lit by Atkinson, Piketty, and Saez that reveals, among other things, what happens to cross-country patterns in average income statistics if you remove the top 1 percent.