October 01, 2003
Industrial Production is Often and Substantially a Monetary Phenomenon

Christina Romer and David Romer have a new measure of monetary policy "shocks"--of shifts in monetary policy that are not responses to expected economic developments. Such a measure is important because without it you cannot untangle (a) the effects of monetary policy from (b) events that were forecast and were thus not consequences but causes (in an expectational, time-reversed sense) of monetary policy. There measure leads to the conclusion that in America today monetary policy is really powerful: "The cumulative response of industrial production to our measure of monetary shocks indicates a strong relationship. Industrial production begins to fall five months after [an increase in interest rates] and reaches its minimum after 22 months. The effects of monetary shocks on real output are both large and statistically significant. A [one percentage]-point shock to the funds rate is associated with a reduction in industrial production of 4.8% after 22 months." A New Measure of Monetary Shocks: Derivation and Implications: Conventional measures of monetary policy, such as the federal funds rate, are surely influenced by forces other than monetary policy. More importantly, central banks adjust policy in response to a wide range of information about future economic developments. As a result, estimates...

Posted by DeLong at 08:22 PM

September 03, 2003
Econ 101b: Fall 2003: The Erosion of Okun's Law

We used to have considerable confidence in Okun's law: that an extra one percentage point rise (or fall) in the unemployment rate over a year would reduce (or boost) that real GDP growth by an extra 2.5 percent over that year because a rising (or falling) unemployment rate would also be accompanied by a falling (rising) share of the population in the labor force and by falling (rapidly rising) productivity. Productivity would fall when the unemployment rate rose for two reasons: first, even when factories are not running at full capacity they still incur substantial setup and maintenance costs; second, even when there isn't enough work for them to do firms would rather hold onto skilled workers than watch them drift away and have to pay to train their replacements the next time the wheel of the business cycle turns. Things have been different, however, in this recession (and to a lesser extent in the preceding early-1990s recession. The standard relationship between output growth and hours worked has gone substantially awry. See that branch poking out of the scatter diagram on the left side? That's the most recent data. (The smaller twig pointing out below and to the left...

Posted by DeLong at 04:22 PM

August 27, 2003
Note: Productivity in the Third Quarter

If seasonally-adjusted hours worked in August and September just equal those in July (a reasonable bet for August at least), then labor input in the third quarter of 2003 will be 0.4% below labor input in the second quarter of 2003--labor input will be falling at a 1.6% annual rate. That means that a third-quarter seasonally-adjusted growth rate of 4% per year would be associated with a productivity growth rate of 5.6% per year......

Posted by DeLong at 09:41 AM

July 03, 2003
The Help-Wanted Index

Slate's Daniel Gross has a nice piece on the Conference Board's help-wanted index: No Help Wanted for Help-Wanted - A tribute to the Help-Wanted Index, the economic gauge that shouldn't work but does. By Daniel Gross: Feeling more optimistic about the job market? Check out the Conference Board's Help-Wanted Index. The 52-year-old index, which measures the volume of help-wanted classified advertisements in newspapers, stood at 36 in May (with 1987 as a 100 baseline), its lowest level since 1961, and off 50 percent from February 2001.Should we care about this seemingly Jurassic metric? Surprisingly, yes. The Help-Wanted Index is oddly comforting, an economic gauge that seems archaic but remains incredibly useful. The index is derived from a medium that is slowly losing its audience. It ignores technological advances that have utterly changed what it is measuring. And it lost its bearings for a period in the late 1990s. (Truth be told, who didn't?) Even so, this dead-tree index is still vigorously alive.Since the Truman administration (1951), the Conference Board has been diligently collecting information on how many help-wanted ads were sold by one newspaper in each of 52 representative labor markets. (One can envision rows of clerks with green eyeshades sitting...

Posted by DeLong at 10:37 AM

March 21, 2003
Why Is Economy Class So Uncomfortable?

One of our graduate students, Peter Fishman, wants to write a paper about price discrimination. He has a great quote about mid-nineteenth century French railroads that he obtained from Andrew Odlyzko: In 1849 Jules Dupuit wrote, "It is not because of the few thousand francs which have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or other has open carriages with wooden benches. What the company is trying to do is to prevent the passengers who pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich? And it is again for the same reason that the companies, having proven almost cruel to the third-class passengers and mean to the second class ones, become lavish in dealing with first-class passengers. Having refused the poor what is necessary, they give the rich what is superfluous."...

Posted by DeLong at 05:24 PM

March 19, 2003

Ted Barlow points to a very nice and interesting article on Fortune.com by Jerry Useem. It's about the Mighty WalMart......

Posted by DeLong at 09:34 PM

September 13, 2002
Handout--the Current Economic Situation in the U.S.

Next Year's Analyses Next February the Commerce Department's Bureau of Economic Analysis is going to release its first estimates of production and productivity for the year 2002. When they do, everyone is going to sit up and take notice--because the numbers will be very surprising. We today already know (although very few think about it) what those numbers will be in rough outline: some 13/16 of the data for the year-to-year growth rates from 2001 to 2002 is already baked in the cake. So let's take a look at what next February's data releases are going to show: The growth rate of output per hour between 2001 and 2002 is going to be absolutely huge. Labor productivity growth will--unless our forecasts of what has happened in the third quarter and will happen in the fourth quarter are really, really off--be faster than in any year since the Korean War. The extraordinarily, ridiculously high productivity growth rates in the fourth quarter of 2001 and the first quarter of 2002 guarantee it. Labor productivity growth in 2002 relative to 2001 is a far cry from the 0.9 percent per year of the period from the mid-1970s productivity slowdown to the mid-1990s. Labor...

Posted by DeLong at 07:11 PM

September 06, 2002
High-Tech Investment

High-Tech Investment If you read your business pages, you might well think that business purchases of computers are way down. Guess what? They're not. This year it looks like America's businesses are going to buy 13% more in the way of quality-adjusted computers and peripherals than in any previous year. In 2001--the only year in which real investment in computers and peripherals fell--quality-adjusted purchases fell by only 3%. Spending on computers and peripherals has indeed fallen. But that's because computers have become cheaper--a lot cheaper--not because American business is installing less computer power this year than in the past. Things look less bright if you aggregate up all high-tech investment--not just real investment in computers, but also software and "other": real investment in this broader category this year will be 4 percent below its year-2000 peak--but still higher than in any year other than 2000. Why the different pattern? The falloff in telecom investment. We are no longer spending a fortune digging holes and stuffing large quantities of fiber optic cables down them....

Posted by DeLong at 05:34 PM

August 15, 2002

At what level of material wealth does one become, completely, totally, utterly sated? How much stuff--how many things--how much power to buy and control does one have to have before one can say "enough is enough," stop playing the game for increased wealth, and start playing some other, different game? Here is discouraging psychological evidence from publishing magnate and Rolling Stone founder Jann Wenner. It turns out that--at least as far as he is concerned--wealth in nine figures isn't enough yet to make him not care... Premium Blend: A group weblog from the editors of Corante: What's your number? How much is enough? It may be more than you think: ''I had a fascinating conversation recently with Jann Wenner, the founder of Rolling Stone. Here's a guy who's probably got three or four hundred million dollars--he's got a Gulfstream II and a house here and a house there, and you can't imagine what trappings he could want from the next level. But he's got this gleam in his eye because he's telling me about how he spent the weekend with Paul Allen. He said that Paul Allen didn't have a GII, he had two 757s. They flew over to, like,...

Posted by DeLong at 08:10 PM

The Course of the Recession

Last month's revisions to the NIPA produced a three-quarter decline in real GDP in 2001, instead of the preliminary one-quarter decline. Nevertheless, real GDP declined by only 0.6 percent before beginning its bounce-back in the fourth quarter of 2001. But the most interesting series remains the unemployment rate, still trending upward as real GDP grows less rapidly than productivity plus the trend increase in the labor force, and thus the proportion of America's potential workers left idle continues to grow. Charts from the Wall Street Journal....

Posted by DeLong at 04:22 PM

July 19, 2002
The NAIRU: Non-Accelerating Inflation Rate of Unemployment

The NAIRU A key concept in macroeconomic policy is the idea of the NAIRU: the Non-Accelerating-Inflation Rate of Unemployment, the rate of unemployment at which there is neither upward pressure on inflation (from producers taking advantage of the market power given them by bottlenecks, and from workers using the market power provided by a tight labor market to try to realize wage growth aspirations higher than the rate of productiivty growth) nor downward pressure on inflation (from customers taking advantage of the market power given them by excess capacity, and from firms using the market power provided by high unemployment to try to decrease the rate of wage growth). If you look at the unemployment rate in the U.S. and the following year's change in inflation, you find that an extra one percentage point of unemployment pushes the inflation rate down by about 0.4 percentage points in the following year--more in some years, less than others, as shown in the figure below. If we accept this number of 0.4 for what economists call the "Phillips curve slope," we can follow Ball and Mankiw (2002) and calculate the information each year gives us about the NAIRU. Given a year's unemployment rate...

Posted by DeLong at 11:39 AM

Things Going Right: Falling Poverty in the 1990s

One of the many things that went right with America in the 1990s was the one-third reduction in African-American poverty. 33.4% of America's African-American population fell beneath the poverty line in 1992. 22.0% of America's African-American population fell beneath the poverty line in 2000. We'll see how many of those reductions we give back in the recession just past, but I hope that the recession uptick in African-American poverty will be small. What produced this wonderful decade--a striking contrast to the near-stagnation of the poverty rate in the 1980s? Strong productivity and income growth, coupled with first falling and then remarkably low rates of unemployment. What the "poverty rate" really is. What will happen when the poverty rate gets so low that it is no longer an interesting indicator of living standard changes for those Americans with the least money? When that happens, we will define a new, higher, more generous poverty line, and start thinking about how we collectively can effectively eliminate poverty under that definition as well. Memo: Overall and White Unemployment Rates as Well...

Posted by DeLong at 11:37 AM

July 03, 2002
The Boom in IT Investment

Real gross investment in IT relative to real GDP. The series is in chained 1996 dollars, so the relative levels are equal to nominal spending levels in 1996. We could choose an earlier base year, and blow up the apparent salience of IT investment today. We could choose a later base year, and reduce somewhat the salience of IT investment today. The first thing to note--the thing that is invariant to the choice of base year--is the extroardinary rise in the relative salience of IT, and how quickly it was accomplished. The second thing to note is how small the real decline in IT investment in the current recession has been. It erased less than two years' growth in relative real IT investment. Real Investment in Information Technology Equipment and Software Divided by Real GDP From the National Income and Product Accounts prepared by the Commerce Department's Bureau of Economic Analysis. Real gross private investment in information technology and software divided by real gross domestic product [GDP]. Note that this is not a "share": it is just two series of numbers, one divided by the other....

Posted by DeLong at 02:30 PM

The Accumulation Century, the Education Century, and What Comes Next...?

The nineteenth century was the age of invention, innovation, and accumulation. New technologies were developed in the lab and installed in the field, on the road, and in the factory. These new technologies were for the most part embodied in expensive and sophisticated capital goods. Hence economic growth in the nineteenth century was overwhelmingly the accumulation and deployment of physical capital goods that embodied productve modern technologies. By contrast, the twentieth century saw not a rise but a fall in the physical capital-output ratio. We have many more and much more sophisticated machines and structures now, yes. But the ratio of the value of capital to the value of output has fallen. In this sense, the twenteith century was the human-skill century, one in which the key complementarity was not between technology and machines but between technology and the skills and capabilities of the labor force. What comes next? What will the start of the twenty-first century bring? Unless the U.S. makes a major national effort, a variety of forces seem to be working to make the upgrading of the educational and skill level of the American labor force much slower in the future than it has been in the...

Posted by DeLong at 01:20 PM

The Upward Shift in Gross Investment in America

Before the 1990s there was some evidence for a long, slowly-moving upward trend in the volume of investment relative to GDP. Many Republican politicians (and a few analysts) thought that the Reagan tax cuts of the early 1980s had generated an investment breakthrough: they looked at the rise in investment from 1982 to its 1984 peak, projected this rise forward, and forecast rapid economic growth as it was "morning in America." But whatever supply-side incentives did in the mid- and late-1980s to boost demand for investment funds, the large federal deficits (and the swing in the balance of payments back toward zero) did more to drain the pool of savings and reduce the supply of potential investment funds. Anomalously, the later 1984-1989 stage of the 1980s expansion saw not rising but falling investment relative to GDP. The 1990s, by contrast, saw a stunning explosion of investment in America. A fall in private savings was greatly outweighed by a combination of the Clinton administration's successful commitment to deficit reduction, the return of foreigners' willingness--nay, eagerness--to invest in America, and stunning declines in the relative prices of high-tech investment goods that gave firms undertaking investment projects much more bang for the buck....

Posted by DeLong at 01:12 PM