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Sunday, May 4, 2014

Yes Sumner is Enjoying Those Cuts to UI

     His latest post pretends to not be sure about the effects of the cut in UI-but we know he's 100% for them no matter what he might like to claim. Ok, maybe, my buddy Tom Brown doesn't know. Here he effects to not be sure yet-the jury's still out.

      "What is the effect of the end of extended unemployment benefits (which reduced the maximum from 73 weeks to 26 weeks?)  Unfortunately, it is too soon to tell. Indeed we may never really know."

      "The two jobs surveys have very different results for the first 4 months of 2014. The household survey shows total employment up by 1,083,000, versus 1,374,000 for all of 2013. That’s clearly an improved pace.  Unfortunately the much more reliable payroll survey does not show a significant upswing, with monthly job growth running at 214,000 vs. 194,000 in 2013.  Of course the April numbers represented a significant improvement in the trend, and perhaps the winter numbers were impacted by the weather.  In my view we need three of four more months to get a good sense of 2014.  Indeed it might not be until some time in 2015 (when the final revisions come in) that we get the full picture.  Right now it’s wait and see."

     "My best guess is that both sides of the debate will eventually be shown to be partly correct.  When unemployment insurance ended in North Carolina last year the unemployment rate fell relatively sharply.  This probably represented a combination of more jobs created and fewer unemployed due to discouraged workers completely abandoning the job search.  But the data is maddeningly imprecise.  Let’s revisit this in three months."

     "PS.  We are very rapidly approaching a “5 point something” unemployment rate, which in my view will have important psychological effects, regardless of what you think about the unemployment rate vs. labor force participation rate debate.  The fact that long term bond yields are still quite low provides further support for a claim I’ve been making for years—low interest rates will be the “new normal” in the 21st century."

     http://www.themoneyillusion.com/?p=26717

     The last paragraph seems to mean that it really doesn't matter why the rate falls-so long as it does it has positive effects. So if we change the measurement of employment today-as has been done in past, like from U-3 to U-6-we would see unemployment 'fall'-would this to have a positive effect too? I thought he believes so much in rational agents-this is pretty irrational behavior right here isn't it? 

     Here Sumner tells is what he really thinks:

     "Yes, I should have said what I really thought—that the fall would be surprisingly large.  (Based on the North Carolina pattern.)  Still, I hope all my readers bought stock options right before today’s announcement."

        Actually, I did have a position in Wells Fargo of 60 calls at May 23 $49.50 and I ended up holding them into Friday morning and making $1400-a gain of 60 percent though not because I heeded Sumner's advice.  

       I see that Morgan Warstler is still riding his hobby horse about how technology has made all debt-private as well as public-a thing of the past. 

       "Scott, low interest rates will be the “new normal” in the 21st century.”

     "What if that overstates it… what if the real interest rate is negative forever? Or the trend is that way."

      "I’m asking because:

     “Cash is very different from credit. It tends to be used for different types of transactions.”
If we are moving to a cash + equity = wealth, with far less debt and debt payments to creditors, why doesn’t the % targeted in NGDPLT matter?"

    "Isn’t 5% or 4.5% historically based on atomic debt based collateral as the way of buying things?"

      Listen, I admire Morgan in his worship at the Holy Altar of all things Tech-I follow him in many ways. However, I think he's a little bit too Utopian about it. I don't think there will ever be a time when business can finance itself 100% cash and equity or even close to it-read Schumpeter and you'll see why. Historically it was in the 19th century when doing so was possible. I think his dream here is a bridge too far-assuming such a state of affairs was even desirable-which I'm not even clear why it is. 

      I think that American Debts gets it right-also in the comments section. Sumner had no answer for him other than 'the fiscal multiplier is zero.' Still I think it's a good point-while Sumner is asking how much the cut in UI reduced the unemployment rate by he never asks how much it might have lowered growth by. Here is Amercian:

        "I don’t know how the loss of those many weeks of benefits couldn’t be a loss for the economy. 40 weeks x $280 (guess) x 2,000,000 = quite a bit of spending that would have gone straight into grocery stores, gas stations, pharmacies, auto mechanics and restaurants. Now the budget is a tiny bit better but a lot of dollars that would have been circulating since January are not out there."

        Sumner had no comment on the fact that GDP was just .2 percent in the first quarter-even his hobby horse, the NGDP rate was barely 1.5 percent if that. Yes, I know other factors were important like the bad winder but other factors are also important in the unemployment rate. The question can at least be broached-is the drop in growth in any way due to the cut in UI due to a drop in AD? 

          

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