By Bilal Hafeez 13-05-2019
In: post, Newsletter

Macro From Web: Hefty US payroll tax, India Re-monetised and the Botswana Model


In this curated list, we have some proposals for carbon taxes and climate tariffs, we learn the scale of medical costs over lifetimes and get a primer on socialism. On the policy front, how Fed monetary policy works (or not), how EM should use FX policy and China’s credit arsenal. On the less obvious side, how invesment is double-counted in GDP, the weakness of live investment track records and a leading US economist you haven’t heard of.

Fiscal policy

Snapshots of US Income Taxation Over Time  “for all the huffing and puffing over income taxes, it’s worth remembering that 67.8% of US taxpayers in 2019 will pay more in federal payroll taxes (which fund Social Security, Medicare, and disability insurance) than in federal income taxes”

How to design a stimulus packageA well-designed stimulus package should depend on the usefulness of public expenditure. The output multiplier is not a robust statistic to use, and instead the ‘unemployment multiplier’ should be used. 

Evolution or revolution: An afterwordOliver Blanchford and Larry Summers argue that the financial ramifications of a low-rate environment lead to important changes in our understanding of the macroeconomy and in policy judgements about how to achieve the best performance (ie more fiscal).

Lifetime Medical Spending of Retirees Households with heads who turned seventy in 1992 will incur $122,000 in medical spending on average, including out-of-pocket expenditures and Medicaid payments

Inequality

Is the Middle Class within Reach for Middle-Income Families? Fed’s Brainard: “The discrepancy between slow growth in income and wealth, on the one hand, and rising costs of housing, health care, and education, on the other, may be making it more difficult for middle-income families to achieve middle-class financial security.”

Diverging Trends in National and Local ConcentrationNational industry concentration appears to be increasing but at the local level it is decreasing.

The roots of health inequality and the value of intra-family expertisePoorer people have worse health at birth, are sicker in adulthood, and die younger than richer people. Apart from socioeconomic status, exposure to informal health expertise may also affect health.

Is All Economics Local? Fascinating speech by Andy Haldane, BoE Chief Economist on regional and local inequalities in the UK

Monetary policy

Monetary Policy, Housing Rents, and Inflation Dynamics Fed finds that hikes lead to rents going up as people switch away from owning houses.

On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint Finds that hitting ZLB doesn’t reduce the effectiveness of monetary policy

Cleaning Up After Burns’s MessHistory lesson on the ill-fated tenure of Fed Chair Burns in the 1970s.

Ten Years Later—Did QE Work?  NY Fed finds that the empirical studies of recent years suggest that large-scale asset purchases can affect real economic outcomes via a bank lending channel

Perspectives on U.S. Monetary Policy Tools and Instruments“ The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates.”

Despite hype, demonetization missed all goals Looks like India’s experiment didn’t go as planned as cash has returned to earlier trends.

FX and Trade

Dirty Floating in Emerging MarketsFormer Chilean finance minister argues that FX policy should be used by central banks.

Real US trade balanceAn analysis of the trend in the US trade deficit. Finds that the US fiscal deficit is a factor in the size of the deficit (offsetting the improvement due to energy exports).

Business investment and labour market

Investment in emerging markets falls to historic low  Net public investment in emerging market countries has fallen below 1 per cent of GDP for the first time on record, raising fears of widening infrastructure gaps.

Double-Counting of Investment Robert Barro argues that investment enters once in GDP when it occurs and again in present value when the cumulated capital leads to more rental income. The double-counting issue implies over-statement of levels of GDP and national income. There is also exaggeration of capital-income shares.

Understanding labour market developments in New Zealand, 1986–2017RBNZ concludes that secular increases in participation, primarily by women and particularly older workers, have dominated declining participation associated with population ageing. ..Although the observable human capital characteristics of workers improved steadily over the period, net employment growth acted to lower wage growth.

8 jobs from 50 years ago that are obsolete Includes typists, video store clerks and switchboard operators

Investing and financial markets

Systematic trading strategies: fooled by live recordsGood note on how the mass production of model trading strategies leads to survivorship bias issues.

Premium for Heightened Uncertainty: Solving the FOMC PuzzleFinds and explains why stock markets make gains ahead of FOMC days (and key data releases).

Why don’t insurers try to mitigate risk?Citing a new book “An Economist Walks into a Brothel”, insurers find that  risk mitigation is not a source of “sustainable competitive advantage” (as it is easy to copy)

 Is a leverage reckoning coming? According to McKinsey, not yet.

China

Reddit Has Become A Battleground Of Alleged Chinese TrollsApparently, Chinese government-sponsored users are engaging in a coordinated effort to spread propaganda and bury anti-China messages on Reddit.

China Has Ample Policy Tools for Uncertainties, Central Bank Says Looks like China is gearing up for a trade war

China’s Northeastern rust belt struggling to retain population as economic slowdown speeds up exodusThe northeast rust belt, once the pride and birthplace of China’s industrial development, is in its biggest economic slump as it struggles to shake off a deep-rooted planned economic mindset and dwindling resources, and a brain drain to regain competitiveness.

How did China move up the global value chains?  Liberalising trade and FDI is key to the promotion of domestic value added into a country’s exports

The Chinese Enlightenment at 100 History lesson of the 100 anniversary of the May Fourth movement which began 100 years ago and birthed modern China and the Chinese Communist Party

Politics

Democrats Have No Safe Options On Health Care“when asked what health care policies they want Congress to prioritize, Americans don’t list Medicare for All first. Instead, … they want Congress to pass targeted measures that would lower prescription drug costs, continue the ACA’s protections for preexisting conditions and protect people from surprise medical bills. “

Silver Bulletpoints: The 4 Meta-Messages Of The 2020 Campaign Good summaries of what each Democrat candidate for the Presidency stand for.

What Botswana Can Teach Us About Political StabilityBotswana is actually an unofficial adoptive monarchy around the old royal family, quite similar to the case of the Roman Empire, where the head of state picks the successor and gives him the junior position.

Socialism: A short primerThe Brooking Institute gives a primer on socialism in three parts: its definition, the age gap in perceptions of socialism among Americans, and how socialism evolved to social-democratic systems in the U.K. and Germany.

Lending cycles and real outcomes: Costs of political misalignment Government ownership of banks can help solve credit market failures and stabilise the supply of credit over the business cycle. However, it can also end up serving political interests and lead to a misallocation of financial resources.

Climate Change


Why the world needs a carbon tax  A broad-based tax on carbon dioxide and other greenhouse gases would be far less expensive than a Green New Deal is likely to be, yet it could motivate action on a scale that is both grander and more precise. 

The Case for Climate Tariffs Because the United States is the world’s biggest economy, most countries have to accommodate America’s trade demands in some way. In a similar vein, a future US government could use import tariffs, or the threat of them, to push other countries to reduce their carbon dioxide emissions more sharply.

Hurricanes, Climate Change and Political Accountability  In the year after the disaster, Congress members from districts hit by a hurricane are more likely to support bills supporting more environmental regulation and control, as predicated by the vast majority of the scientific community

Economics

Top 100 Economics Blogs Of 2019A comprehensive list

The Price of Everything, the Value of the Economy: A Clark Medal for Emi Nakamura I missed this from early May. The award for top US economist under 40 went to Nakamura. I’m not familiar with her work, but she specialises in firm price-setting and effects of fiscal and monetary policies.