Politicians love to brag about cutting government work forces. This month, while the private sector added 57,000 jobs, government shed 39,000 jobs, for total job growth of 18,000, which is basically not different from zero statistically.
Cutting government jobs not only has consumption effects (people who don't get paychecks can't buy stuff), it also has productivity effects. When the DMV is closed three days a month, people have to wait longer to get their drivers' licenses. When there are fewer cops, crime increases. When there are fewer high school teachers, the ability to offer AP courses drops, etc.
Is there waste in the public sector? Sure. But for those working in the private sector, particularly large institutions, ask yourself whether everyone you work with is productive. I have no idea what the "correct" level of public sector employment is. I also have no idea how much public sector employment crowds out the private sector, but if the crowding out effect is less than one (and with unemployment above nine percent, I am guessing the effect must be less than one), then reducing government employment reduces total employment. But to think that cutting government employment is a magic pill for economic recovery makes no sense.
Jumat, 08 Juli 2011
Rabu, 06 Juli 2011
What is the incidence of the Fannie-Freddie bailout?
There is lot of rending of garments and gnashing of teeth that the FF bailout will cost something like $300 billion, including the implicit subsidy to mortgages that are guaranteed (the cash flow cost right now is something like $130 billion). So for an economy whose GDP is roughly $14.5 trillion, this is a little more than two percent of GDP.
To whom does the money go? Given that shareholders were essentially wiped out, it goes to largely three places: holders of Fannie and Freddie debt, the US Treasury (which owns preferred shares in the companies) and homeowners. I am curious how this shakes out distributionally. Clearly, homeowners are on average richer than renters, and bondholders are richer than non-bond holders, so the bail-out must have some regressive implications, but it is not clear to me how much so. It is at least worth thinking about.
To whom does the money go? Given that shareholders were essentially wiped out, it goes to largely three places: holders of Fannie and Freddie debt, the US Treasury (which owns preferred shares in the companies) and homeowners. I am curious how this shakes out distributionally. Clearly, homeowners are on average richer than renters, and bondholders are richer than non-bond holders, so the bail-out must have some regressive implications, but it is not clear to me how much so. It is at least worth thinking about.
Selasa, 05 Juli 2011
So Congressman, how do you get to 19 percent?
From Mark Thoma's blog, I pick up the following quote from Paul Ryan:
I was on a panel last month with Ryan, and was impressed with how intelligent he is, particularly in contrast to Wisconsin's governor. The fact that he is so intelligent tells me that he knows what a cynical game he is playing.
RYAN: What happens if you do what he’s saying, is then you can’t lower tax rates. So it does affect marginal tax rates. In order to lower marginal tax rates, you have to take away those loopholes so you can lower those tax rates. If you want to do what we call being revenue neutral … If you take a deal like that, you’re necessarily requiring tax rates to be higher for everybody. You need lower tax rates by going after tax loopholes. If you take away the tax loopholes without lowering tax rates, then you deny Congress the ability to lower everybody’s tax rates and you keep people’s tax rates high.The Congression Budget Office did an analysis of the Ryan Budget plan, which anticipates revenues rising to 18.5 percent of GDP by 2022 and to 19 percent by 2030. Revenue is currently at 15 percent (Table 1 on page 3). The CBO followed the following instruction:
The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff.If Ryan will only accept closing loopholes in order to cut marginal tax rates, partcularly for the wealthiest Americans, I am hard pressed to see how we get from 15 to 19--would you care to specify Congressman Ryan?
The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028
and remains at that level thereafter. There were no specifications of particular revenue
provisions that would generate that path. (see page 11).
I was on a panel last month with Ryan, and was impressed with how intelligent he is, particularly in contrast to Wisconsin's governor. The fact that he is so intelligent tells me that he knows what a cynical game he is playing.
Kurt Paulson adds more evidence that FF were not leaders into the crisis
).
From comments:I think there is at least one additional and important piece of data in support of your argument which, to my mind, has been underplayed in this whole discussion. FHFA released a research report in Sept. 2010 entitled "Data on the Risk Characteristics and Performance of Single-Family Mortgages Originated in 2001 - 2008 and Financed in the Secondary Market." Of particular importance is Figure 8 (page 16), entitled "Ever 90-Day Delinquency Rates on Higher Risk Single-Family Mortgages Originated from 2001 through 2008 and Sold into the Secondary Market, by Origination Year." While not a great title, the graph shows that for Higher Risk loans, PLS default rates were ALWAYS higher than GSE loans for vintage 2001-2007 loans. A frequently repeated claim is that the GSEs (whether or not through their "affordable" goals) caused a reduction in underwriting standards and therefore caused the crisis. As you point out, this is false - despite some bad actions by the GSEs. What this Figure 8 demonstrates is that it PLS defaults for similarly situated borrowers were substantially higher. Private securitization cannot be blamed entirely for the crisis: but it cannot be excused. These data seems to suggest that PLS underwriting was worse than the GSEs. The report and data can be found at: http://www.fhfa.gov/Default.aspx?Page=313 (but I can't seem to link to the Figure itself).
Senin, 04 Juli 2011
Mark Thoma and Dean Baker are correct: Fannie Mae and Freddie Mac did not start the crisis.
Rather they followed it. The data showing how private label securities led us into the mess is here. Mark Thoma and Dean Baker take down the Will-Brooks-Morgenstern-Rosner meme that in the absence of Fannie and Freddie, we would not have had a financial crisis.
Did Fannie and Freddie behave admirably? In many respects no, but they did maintain underwriting discipline longer than most of the rest of the mortgage market. On the other hand, their bad behavior from early in the decade prevented them from leading the market: accounting scandals (Freddie understated earnings while Fannie overstated them) led the companies' regulator, OFHEO, to require both companies to improve their capital ratios, which meant they needed to shrink their share of the mortgage business.
The most disturbing part of the attacks on the GSEs is that it is an indirect method for blaming minorities and the poor for the financial crisis, an argument that is at once ludicrous, disingenuous, and reprehensible. (Once again, I should disclose that I worked for Freddie from September 2002 until January 2004. I should also note that the fact that I stayed there for such a short period reflects in part a lack of particularly warm feelings for the company. I do own a few hundred worthless shares of Freddie Mac stock).
Did Fannie and Freddie behave admirably? In many respects no, but they did maintain underwriting discipline longer than most of the rest of the mortgage market. On the other hand, their bad behavior from early in the decade prevented them from leading the market: accounting scandals (Freddie understated earnings while Fannie overstated them) led the companies' regulator, OFHEO, to require both companies to improve their capital ratios, which meant they needed to shrink their share of the mortgage business.
The most disturbing part of the attacks on the GSEs is that it is an indirect method for blaming minorities and the poor for the financial crisis, an argument that is at once ludicrous, disingenuous, and reprehensible. (Once again, I should disclose that I worked for Freddie from September 2002 until January 2004. I should also note that the fact that I stayed there for such a short period reflects in part a lack of particularly warm feelings for the company. I do own a few hundred worthless shares of Freddie Mac stock).
President Obama and Regulation vs. Pricing
I opened my New York Times this morning to see that President Obama wants to raise fuel economy standards by twofold over the next 14 years. I have no doubt that the goal of reducing fuel consumption is a good one, but doing it using regulation is clumsy and could be counterproductive.
First, such regulations could hurt welfare in three ways: if it drives up production costs, it will reduce the number of cars sold and hence have an adverse impact on employment. Second, it could lead to cars that people don't want, and so consumer welfare is reduced. Third, if cars get high mileage, people will drive them more--not enough, in all likelihood, for total fuel consumption to go up, but enough to create other negative externalities, such as congestion.
But what of the fact that fuel consumption produces negative externalities? That it leads to greenhouse gas emissions and endangers our security? The best way to deal with a negative externality is to impose a Pigou tax--one that requires consumers to pay for both the private and social costs of their actions. If the US had gas prices more similar to what we observe in other parts of the developed world, it is likely that people would generally choose more fuel efficient cars, but that those who wanted big cars even in the face of higher gas prices would be able to buy them. At the same time, such a policy would discourage driving (better fuel economy encourages driving), and would therefore help relieve congestion a bit. The revenue raised by a gas tax could also be used to fund transit and provide a tax cut to those most hurt by higher gas prices--those at the lower end of the income distribution.
First, such regulations could hurt welfare in three ways: if it drives up production costs, it will reduce the number of cars sold and hence have an adverse impact on employment. Second, it could lead to cars that people don't want, and so consumer welfare is reduced. Third, if cars get high mileage, people will drive them more--not enough, in all likelihood, for total fuel consumption to go up, but enough to create other negative externalities, such as congestion.
But what of the fact that fuel consumption produces negative externalities? That it leads to greenhouse gas emissions and endangers our security? The best way to deal with a negative externality is to impose a Pigou tax--one that requires consumers to pay for both the private and social costs of their actions. If the US had gas prices more similar to what we observe in other parts of the developed world, it is likely that people would generally choose more fuel efficient cars, but that those who wanted big cars even in the face of higher gas prices would be able to buy them. At the same time, such a policy would discourage driving (better fuel economy encourages driving), and would therefore help relieve congestion a bit. The revenue raised by a gas tax could also be used to fund transit and provide a tax cut to those most hurt by higher gas prices--those at the lower end of the income distribution.
Minggu, 03 Juli 2011
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