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(Clicking on picture will make it larger.) Floyd Norris has an interesting column in this morning’s New York Times. Earlier this week, I was getting ready with some observations similar to his, though I am sure I could not have done as good a job as he has in getting across the gist of the problem and presenting some evidence. Essentially, Norris shows that since the introduction of the euro in 2000, products from the countries now in fiscal crisis have lost competitiveness relative to German products in international markets. Norris presents data on competitiveness. His data is similar to the series depicted in the chart at the top of this post, but the data above are real exchange-rate indexes. The lines in my chart compare the competitiveness of various economies’ exports, taking into account not only differences in unit labor costs but also the values of their currencies relative to those of their trading partners. Norris’s graph and my own feature data from different economies. Norris’s point is that Germany is an big exporter partly because it has reduced labor costs relative to its competitors. Meanwhile, according to Norris’s theory, the peripheral countries of Europe, such as Greece, Ireland, and Portugal, have become less competitive, as their labor costs have risen relative to those in Germany and other “core”… Read More

Many Levy Institute scholars and staff members are in New York City for this year’s conference on the late Institute scholar and author. Breakfast should be ending now, with the conference about to begin. The conference’s theme is “financial reform and the real economy.” More information about the conference, including the program, are available at the conference page on the Institute’s website. Update, approximately 3 pm, April 13: The first audio from the conference has now been posted to this page on the Institute website. Now available there is audio from the conference’s formal opening and from the first session. You can choose among recordings of Leonardo Burlamaqui, Dimitri B. Papadimitriou, Jan Kregel, L. Randall Wray, and Eric Tymoigne. The conference ends this Friday, April 15.

(Click graph to expand.) Recent months have seen double-digit increases in energy prices and the prices of many important agricultural commodities. Because of the recent inflation in various raw materials, fuels, and foods, many ordinary Americans have been finding it increasingly difficult to afford basic necessities. The figure above shows just how severe this trend has been. (You will probably need to click on the image to make it larger.) The lines for various commodity groups begin on the left side of the figure at a level of zero percent for the March 2006 observation. Each subsequent point on a given line shows the total percentage change since March 2006 in the amount of one type of farm product that can be purchased at the wholesale level with the average weekly paycheck. The dark blue line that appears nearly flat shows average real (inflation-adjusted) weekly earnings as reported by the government. The Bureau of Labor Statistics (BLS) uses the consumer price index (CPI-U) to deflate this series. The line shows that the purchasing power of wages for a typical job has increased by only about 2.2 percent over the five-year period shown in the figure. Moreover, ground has been lost since early last fall, when wages were as high as 3.3 percent above March 2006 levels. The other lines in… Read More

The new edition of The Atlantic contains this interesting map, showing how changing median incomes and demographics have divided the United States into 12 distinct geographic areas, each contributing to an overall picture of increasing economic inequality. (It may be helpful to use your browser’s “zoom” feature as you look at the map.) For example, our institute is located in a county described by the map as a “monied burb,” while I grew up in a county that the authors have labeled “boom town.” I would venture a guess that many readers who are familiar with these counties will be surprised to see how they are labeled. We take the new map and other efforts like it with a grain of salt, but as something to provoke thought about how things are indeed very different than they used to be.

Charts in last week’s entry, which contained approximations of  real interest rates for various European countries, were unfortunately incorrect.  The problem resulted from a silly mathematical error in the formula used to calculate the figures shown in the graphs. Accordingly, the author has recently uploaded a new version of the post, including corrected diagrams. He apologizes for the errors and any confusion they may have caused.

Paul Krugman slugs it out with our colleague Jamie Galbraith and many other “modern monetary theory” partisans at Krugman’s New York Times blog website. Jamie’s most recent retort is at the top of this page of the blog site. Many of the points raised in the discussion there are central to our work here at the Levy Institute and to the views of Galbraith and others in our macro research group. Update: More links to the ongoing Krugman-MMT debate can be found here.  -G.H., March 31. Update, August 11: Krugman on MMT again, this time drawing lessons from French fiscal policy between World Wars I and II.

(Click picture to enlarge.) Readers may have seen two charts that are part of a column by David Wessel published last week. For five European countries, they compare actual interest rates with those prescribed by a standard policy rule. Wessel’s charts provide some interesting evidence that European Central Bank monetary policy has been either too loose or too tight most of the time for several currently ailing European economies, given these countries’ inflation rates and gaps between actual and potential output.  Wessel’s charts support the article’s theme, which is that severe economic problems in some Eurozone countries result in part from the “one-size-fits-all” interest rate policies of the ECB. Along the same lines, at the top of this entry is a chart of short-term “real interest rates” faced by business borrowers who use overdraft loans in a group of European countries, which are mostly members of the euro area. I have used data on interest rates for this common type of loan, adjusting each month’s observation to reflect the same month’s measured consumer price inflation, so that the resulting “real rates” take into account inflation’s effects on the burden of loan payments. Inflation is helpful to debtors because it has the effect of reducing the amount of goods and services represented by each dollar owed under the terms of a… Read More

Some more thoughts on the federal debt, which I blogged about last week: First, at Barry Ritholtz’s blog, there are some other interesting figures: one portraying the gross federal debt in three different ways and another breaking the gross debt down by holder. Ritholtz’s figures use data from the U.S. Treasury Department. Note that the gross debt, which stands at a little over $14 trillion, includes around $3 trillion in securities held by the Social Security and Medicare trust funds. (See Trustees’ report.) These securities are not treated as federal liabilities in flow-of-funds data, the main source for the figures in my earlier post. This difference between net and gross numbers accounts for most of the apparent gap between the figures reported in Ritholtz’s blog and those reported here. Like the Federal Reserve’s portfolio of Treasury securities, the securities owned by the trust funds are essentially both assets and liabilities for the broader federal sector, and for macroeconomic purposes, it is best to net them out in my opinion. This leaves well below $10 trillion in federal debt to the public, according to both flow-of-funds data and the Treasury Department website. Regardless of the exact size of the federal debt, which is not crucial, the point to note right now about the deficit issue is that the economy does not… Read More

(Click on graph to enlarge.) Some interesting information on the federal government’s balance sheet can be gleaned from the fourth-quarter flow-of-funds report, which was released by the Federal Reserve Board on the 10th of this month. The total amount of all federal liabilities, as reported by the Fed last week, is shown as the sum of the red and blue areas in the figure above. The blue portion of the graph represents net liabilities owed by the federal government to the Federal Reserve System, while the red portion shows the rest of the federal government’s liabilities. The blue portion is best netted out of the total debt when one is calculating a figure to be used for policy purposes, as it essentially represents a sum of money that one part of the federal government owes to another. (The Fed describes itself in its educational literature as “independent within the government,” though it is shown in flow-of-funds reports as a separate entity with a separate balance sheet from that of the federal government.) As noted in the figure above, total federal liabilities, according to the new data, rose in the fourth quarter of 2010 to 75.0 percent of seasonally adjusted U.S. GDP from 72.6 percent the previous quarter. Of this 2.4 percentage-point increase, 1.6 percentage points were accounted for by an… Read More

(Click figure to enlarge.) Two Fridays ago, I blogged about some newly released Bureau of Labor Statistics (BLS) data from a monthly household survey. I was surprised later to see that Multiplier Effect was one of only a handful of websites to mention that non-seasonally adjusted data showed vastly different and perhaps more disturbing results than the widely reported deseasonalized numbers: a flat unemployment rate, a sharp fall in employment, and a rise in the number of people unemployed. All of the numbers I discussed were based on traditional concepts of unemployment, which have been familiar to newspaper readers for decades. It is important to put such survey results in context, and I have now had time to finish putting together some further information on the effects of seasonal adjustment on the numbers released early this month. While the standard version of the unemployment rate is widely reported and debated, it does not include potential workers who are not considered to be in the labor force because they have not recently been looking for work. If the labor market were stronger, most of these individuals would almost certainly return to the workforce and find work. Hence, it is interesting to look at a broader measure of unemployment that includes at least some of those out of workforce who want to… Read More

The White House remedies for the mortgage meltdown have now been presented. Congress will debate the life extension, death, or rebirth of federal mortgage entities Fannie Mae and Freddie Mac during the coming weeks. When the noise has died down, don’t expect substantial change. But those who hope for genuine financial reform should, nonetheless, listen carefully not only to what Washington says, but to whom it says it. Will the new guidelines call on traditional home-loan bankers to make traditional loans? Or will we hear a shout-out to the investment bankers/mortgage traders who designed the mess? In any new financial structure for home loans, the single most important issue will be the ratio of debt to assets that the government will expect lenders to show. During the real estate boom, lenders were willing—and able—to provide mortgage brokers with financing for 100 percent or more of the value of a property with the expectation that real estate prices would rise. We witnessed the triumph of the trader over the banker: Profit relied on the sale or refinancing of the asset. For a mortgage originator or securitizer with no plans to hold on to the mortgage, what really matters has been the ability to place it, not the depth of the underwriting or the long-term financial prospects of the home resident. A… Read More

In Friday’s post, I pointed out that unemployment and employment numbers announced by the BLS had apparently been changed greatly by the process of adjusting for typical seasonal changes. These adjustments are meant to account, for example, for the fact that retail business is generally stronger than usual during the holiday season at the end of each year. Friday’s widely reported unemployment drop to 9.0 percent in January from 9.4 percent the previous month was a figure that had been seasonally adjusted by the BLS to remove such normal seasonal effects. Also reported by the BLS Friday in the same set of documents were non-seasonally adjusted numbers that showed an increase in unemployment from 9.1 percent in December 2010 to 9.8 percent in January 2011. Few internet news outlets seem to have reported these latter percentages or the underlying raw numbers used to calculate them. On the other hand, many blogs and other news sources mentioned that adjustments had been made to the official numbers to reflect improved estimates of population growth from recent surveys, resulting in a problem with comparing January’s numbers with December’s. Friday morning’s blog post contained a qualifying statement to the effect that these population-related statistical adjustments had probably affected the un-seasonally adjusted numbers that I reported in the same post. Here is what I have been able to figure out about the… Read More