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Article Artículo

Will Immigration Reform Do Wonders for the Budget? Does Anyone Who Reads the NYT Article on the Topic Have Any Idea?

Yesterday I got to make fun of the NYT for telling readers that food stamps was a $760 billion program. I thought they were giving the 10-year cost, but apparently they had just made a mistake and added a zero to the annual cost, as they later acknowledged in a correction.

This helped make my point. No one, apparently including the editors at the NYT, has any idea what these budget numbers mean. If the original article had told readers that spending on the food stamp program was roughly 1.8 percent of this year's budget it would have immediately conveyed meaningful information to readers. And the editors at the NYT probably would have noticed if the piece had said that food stamps were 18 percent of the budget.

Anyhow, today the NYT obliged us with another example of meaningless budget numbers in reporting on the budgetary consequences of immigration reform. According to a new report from the Congressional Budget Office (CBO):

"The report estimates that in the first decade after the immigration bill is carried out, the net effect of adding millions of additional taxpayers would decrease the federal budget deficit by $197 billion. Over the next decade, the report found, the deficit reduction would be even greater — an estimated $700 billion, from 2024 to 2033."

Okay, are we in for a budget bonanza from immigration reform? After all, those are pretty big numbers.

Dean Baker / June 19, 2013

Article Artículo

Latin America and the Caribbean

Venezuela

World

A Timeline of Venezuelan Opposition Reactions to the Recent Elections
October 5, 2012

Henrique Capriles’ campaign coordinator Leopoldo López is quoted in the press saying, "We have been and will continue to be respectful of the established processes," ahead of the October 7 presidential elections.
October 7, 2012

Capriles assures voters that their vote is secret.  His election campaign tweets, “Remember that the vote is secret, only you and God will know who you voted for! Vote without fear” and similar messages during election day.
 

Ignacio Avalos, director of the independent Venezuelan Election Observatory is quoted in the press saying "The government and the opposition both agree that the electoral system is good in general," and, "Opposition experts concluded that you cannot cheat the system."
 

When going to vote, Capriles tells reporters “if I had any doubt whatsoever of the transparency of this process I wouldn’t be here.”
 

Following the National Electoral Council’s (CNE) announcement that President Hugo Chávez has won re-election, Capriles promptly concedes defeat, accepting the electoral results even though other members of the opposition reject the results, citing alleged fraud and “irregularities.”
March 5, 2013

President Chávez dies.
March 8, 2013

The MUD boycotts the swearing-in ceremony of Vice President Nicolás Maduro as interim president, and most of the opposition does not attend.
March 9, 2013

The CNE announces that elections for a new president will take place April 14.
March 25, 2013

Opposition legislators Ricardo Sánchez, Carlos Vargas, and Andrés Avelino announce they are breaking with Capriles’ campaign, warning of a MUD plan to reject the election results, and saying the Capriles campaign was “encouraging a climate of instability and violence, where the terrible and painful consequence ...intensifies the perverse division between Venezuelans.” They also referred to some opposition members’ acceptance of illegal campaign funds.

Dan Beeton and Stephan Lefebvre / June 18, 2013

Article Artículo

Housing Wealth Effect: Robert Samuelson Never Heard of Inflation

That's what readers would probably conclude from a column headlined "Americans have record wealth but aren't spending it." The first paragraph begins:

"In the economic history of our time, June 6, 2013, ought to occupy a special place. That’s the day the Federal Reserve disclosed that the net worth of American households — the value of what they own minus what they owe — hit $70 trillion, a record that exceeded the previous peak before the 2007-09 financial crisis. Higher stock prices and a long-awaited housing recovery are slowly restoring Americans’ lost wealth. By all rights, this symbolic crossing ought to improve confidence, prompt consumers to spend more freely and increase the economy’s growth."

Okay, let's first check the story that consumers are not spending freely. If we turn to the most recent data we see that the saving rate for the first quarter was 2.3 percent. That is slightly higher than the 1.5 percent saving rate we saw at the peak of the bubble in 2005 and 2006, but it's not hugely different. (Arguably, because of the statistical discrepancy in the national accounts we should view the saving rate as being somewhat lower at the bubble peak.)

It is possible that the first quarter saving rate was somewhat lower than normal because households were taking time to adjust their consumption to the ending of the payroll tax cut. Also, they may have been spending part of the big dividend payouts that were made in the 4th quarter to beat the rise in tax rates. If we average in the 5.3 percent saving rate from the 4th quarter, we get an average of 3.8 percent for the last two quarters, 2.3 percentage points above the saving rate at the peak of the bubble. So the question is why consumption is not back to its bubble peaks if wealth is back to its bubble peak.

Samuelson tells us:

"Here’s where the process seems to have broken down. Before the financial crisis, says economist Mark Zandi of Moody’s Analytics, an added dollar of housing wealth might produce 8 cents in extra spending, and an extra dollar of stock wealth, 3 cents. The overall effect was about 5 cents per dollar of new wealth, Zandi says. Now, 2 or 2.5 cents 'seems more likely to me.'" 

Okay, let's check that one.

Dean Baker / June 17, 2013

Article Artículo

How Do You Say "Housing Bubble" In Canadian?

Paul Krugman has a nice post on the housing bubble in Canada. Needless to say, I strongly agree. It is painful how so many people refer to this downturn as the result of a financial crisis.

I have often posed the simple question of what would be different right now if we had not had the crisis but house prices were exactly where they are today. Would firms be investing more, would people be consuming more, would we see more building in spite of near record vacancy rates? It's hard to see the answer to any of these questions as being yes.

The failure to recognize the last housing bubble and its risks was an act of astounding incompetence by people in policy positions and really the economics profession as a whole. The failure to see the continuing risks posed by renewed bubbles should be enough to sentence these people to the sort of hardcore unemployment experienced by people with no marketable skills.

One item that Krugman misses in comparing household debt in the U.S., U.K., Canada, and the euro zone is that the overwhelming majority of the debt in the U.S. is 30-year fixed rate mortgages. The interest rate on these mortgages will not change if long-term rates rise by 2-3 percentage points as folks like CBO predict.

On the other hand, the standard mortgage in the UK is an adjustable rate mortgage. In Canada it's typically a 5-year mortgage that has to be paid off or refinanced at the end of the period. It's easy to see what happens in these cases when interest rates rise and it's not pretty.

 

Addendum:

Since I've been asked in e-mails and twitter comments I'll present again the patented Dean Baker Bubble Bursting Formula for Central Bankers:

1) Talk

2) Regulatory Powers

3) Higher Interest Rates

Dean Baker / June 15, 2013