Does Walmart create jobs?

Kathleen Grier @ Salon:

Contrary to Walmart’s self-glorifying mythology, the retailer is anything but a job creator — in fact it is a huge job killer. Not only that, destroying jobs is an essential component of Walmart’s anti-worker business model. Let’s put aside Walmart’s happy talk and examine the cold, hard facts.

First, let’s look at the impact of Walmart on local labor markets. The largest, most rigorous study conducted on the subject is this peer-reviewed article from 2008. Its lead author is economist David Neumark, who is no wild-eyed liberal. (See, for example, this anti-minimum wage op-ed he wrote for the Wall Street Journal).

Earlier studies did not adequately deal with selection bias: i.e., the problem that when and where Walmart chooses to open new stores is not random, but tends to be correlated with other variables. Those confounding variables make it difficult to determine whether local employment outcomes are causally related to Walmart‘s entry, or to something else. I’ll skip the technical details, but suffice it to say Neumark and his co-authors devised a sophisticated methodology that accounts for the selection bias. Using data from over 3,000 counties, their results show that when a Walmart store opens, it kills an average 150 retail jobs at the county level, with each Walmart worker replacing about 1.4 retail workers. These results are robust under a variety of models and tests.

Other strong studies found similar results. A 2008 peer-reviewed study that looked at Maryland concluded that Walmart’s presence significantly decreased retail employment, by up to 414 jobs. And a 2009 study by Loyola University found that the opening of a Chicago Walmart store was “a wash,” destroying as many jobs as it created: “There is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area,” according to the report. In short, when Walmart comes to town, it doesn’t “create” anything. All it does is put mom-and-pop stores out of business.

Justice for all...

The Daily Show on "Too Big To Jail"

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The economy is worse than the lower unemployment rate suggests

Wonkblog/ Ezra Klein @ WaPo:

From the Center on Budget and Policy Priorities:

The core issue here is that the unemployment rate only counts people actively looking for work. That means there are two ways to leave the ranks of the unemployed. One way — the good way — is to get a job. The other way is to stop looking for work, either because you’ve retired, or become discouraged, or begun working off the books.

The yellow line on the left shows the official unemployment rate since 2008. It’s fallen from over 10 percent to under 8 percent. But the red line on the right shows the actual employment rate — that is, the percentage of working-age adults with jobs. What should scare you is that the red line has barely budged.

At the beginning of 2007, the employment rate was 63.3 percent, and the unemployment rate was 4.7 percent. By the end of 2009 — so, after the worst of the recession — it had fallen to 58.3 percent, and unemployment was up to 9.9 percent. Today, it’s 58.7 percent, even though unemployment has fallen to 7.6 percent. That means a lot of the people who’ve left the rolls of the unemployed haven’t gotten a new job. They’ve just left the labor force altogether.

Some of that’s natural. The population is aging, and the labor force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests. And instead of doing anything to help those people get back to work, Washington canceled the payroll tax cut, permitted sequestration to go into effect, and is now arguing about whether to shut down the federal government — and possibly breach the debt ceiling — in the fall.

"Sex, Money & Gravitas"

 Krugman @ NYTs:

Can a woman effectively run the Federal Reserve? That shouldn’t even be a question. And Janet Yellen, the vice chairwoman of the Fed’s Board of Governors, isn’t just up to the job; by any objective standard, she’s the best-qualified person in America to take over when Ben Bernanke steps down as chairman.

Yet there are not one but two sexist campaigns under way against Ms. Yellen. One is a whisper campaign whose sexism is implicit, while the other involves raw misogyny. And both campaigns manage to combine sexism with very bad economic analysis. 

Let’s start with the more extreme, open campaign. Last week, The New York Sun published an editorial attacking Ms. Yellen titled “The Female Dollar.” The editorial took it for granted that the Fed has been following disastrously inflationary monetary policies for years, even though actual inflation is at a 50-year low. And it warned that things would get even worse if the dollar were to become merely “gender-backed.” I am not making this up. 

True, The Sun is a marginal publication, with strong gold-bug tendencies, and nobody would pay much attention if the rest of the right had ignored or distanced itself from that editorial. In fact, however, The Wall Street Journal immediately followed up with its own editorial along the same lines, in the course of which it approvingly quoted The Sun piece, female dollar and all. 

The other campaign against Ms. Yellen has been subtler, involving repeated suggestions — almost always off the record — that she lacks the “gravitas” to lead the Fed. What does that mean? Well, suppose we were talking about a man with Ms. Yellen’s credentials: distinguished academic work, leader of the Council of Economic Advisers, six years as president of the San Francisco Fed, a record of working effectively with colleagues at the Board of Governors. Would anyone suggest that a man with those credentials was somehow unqualified for office? 

Sorry, but it’s hard to escape the conclusion that gravitas, in this context, mainly means possessing a Y chromosome. 

Both anti-Yellen campaigns, then, involve unmistakable sexism, and should be condemned for that reason. As it happens, however, both campaigns have another problem, too: They’re based on bad economic analysis. 

The Summers of our discontent

Jason Linkins @ Huffington Post:

Way way back at the end of this period of time that we like to call "the 1990s," Time magazine featured Alan Greenspan, Robert Rubin, and Larry Summers on its cover and called them "The Committee To Save The World." And that was basically the moment that put the American economy on the Darkest Timeline. Somewhere, out there, there is a parallel universe where Brooksley Born, Sheila Bair, and ... I don't know, let's say a bottle of sriracha were appointed to the same committee, and there, the economy is humming and Elizabeth Warren didn't even need to run for Senate.

How did that work out?

In the intervening years since the Frio Trio were plastered all over your dentist's office, Greenspan has been forced to admit that his overarching theories were kinda-sorta all cocked up. Rubin ... well, he at least fell into a swimming pool at a big Wall Street to-do at the 2012 Democratic National Convention, in the most cosmically just thing that has ever happened at a political event. But Larry Summers has proven to be the sort of dread beast that even Ash Williams couldn't send off to a spectral dirt nap. Now, it is being rumored that Summers is atop the list of possible replacements for Ben Bernanke at the Federal Reserve.

Lordy, it was just 18 months ago that we were forced to ruminate on the possibility that Summers might end up leading the World Bank. At the time, the best (among many!) arguments against this came from Felix Salmon, who recognized that running the World Bank called for "a very high level of cultural and interpersonal sensitivity," and not, say, a high level of whatever personality traits lead one to opine, "I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable."

Obamacare is still driving Republicans crazy

 Professor Krugman @ NYTs:

Leading Republicans appear to be nerving themselves up for another round of attempted fiscal blackmail. With the end of the fiscal year looming, they aren’t offering the kinds of compromises that might produce a deal and avoid a government shutdown; instead, they’re drafting extremist legislation — bills that would, for example, cut clean-water grants by 83 percent — that has no chance of becoming law. Furthermore, they’re threatening, once again, to block any rise in the debt ceiling, a move that would damage the U.S. economy and possibly provoke a world financial crisis.

Yet even as Republican politicians seem ready to go on the offensive, there’s a palpable sense of anxiety, even despair, among conservative pundits and analysts. Better-informed people on the right seem, finally, to be facing up to a horrible truth: Health care reform, President Obama’s signature policy achievement, is probably going to work. 

And the good news about Obamacare is, I’d argue, what’s driving the Republican Party’s

intensified extremism. Successful health reform wouldn’t just be a victory for a president conservatives loathe, it would be an object demonstration of the falseness of right-wing ideology. So Republicans are being driven into a last, desperate effort to head this thing off at the pass.

Some background: Although you’d never know it from all the fulminations, with prominent Republicans routinely comparing Obamacare to slavery, the Affordable Care Act is based on three simple ideas. First, all Americans should have access to affordable insurance, even if they have pre-existing medical problems. Second, people should be induced or required to buy insurance even if they’re currently healthy, so that the risk pool remains reasonably favorable. Third, to prevent the insurance “mandate” from being too onerous, there should be subsidies to hold premiums down as a share of income. 

U.S. Health Care Spending...Again

The world's least cost-effective health care system. Shirley Wang @ WSJ:

That the U.S spends a lot of money on health care is a refrain many Americans are familiar with, but the latest health expenditure data from the Organization for Economic Co-operation and Development still are striking. Here’s a graph of health-care expenditure as a percentage of gross domestic product for the 34 member nations of the OECD between 1980 and 2012. As you can see, there’s one country whose expenditure begins to distinguish itself from all the others — the U.S.

In 2011, the most recent year in which most of the countries reported data, the U.S. spent 17.7% of its GDP on health care, whereas none of the other countries tracked by the OECD reported more than 11.9%. And there’s a debate about just how well the American health-care system works. As the Journal reported recently, Americans are living longer but not necessarily healthier .

"Much of Dodd-Frank is dying on the vine"

Erika Eichelberger @ Mother Jones:

The Dodd-Frank financial reform act of 2010 turns three years old this month. But because of intense Wall Street lobbying, only about a third of the provisions it requires have actually been made into rules by Wall Street regulators, and many have gaping loopholes designed by industry lobbyists. A new analysis by the Sunlight Foundation, a non-profit that advocates for government transparency, starkly illustrates why regulatory agencies are so swayed by industry: over the past three years, those whose job it is to police Wall Street have met with big banks 14 times more often than pro-reform groups to discuss proposed Dodd-Frank rules.

The Sunlight Foundation reviewed three years worth of meetings that banks, industry lobbyists, corporations, and financial reform advocacy groups had with the Commodities Futures Trading Commission (CFTC), the Treasury Department and the Federal Reserve, and found that these regulators had met 2,118 times with financial institutions, and only 153 time with pro-reform groups. Here's what that looks like, via the Sunlight Foundation:

Inflation-Mania Cranks & Crackpots

Conservative policy analyst Bruce Bartlett @ NYT's Economix on the "Inflationphobes," who are apparently a...uh...bunch of cranks and crackpots:

When the most recent recession began in December 2007, there was no reason at first to believe that it was any different from those that have taken place about every six years in the postwar era. But it soon became apparent that this economic downturn was having an unusually negative effect on the financial sector that threatened to implode in a wave of bankruptcies. The Federal Reserve reacted by doing exactly what it was created to do — be a lender of last resort and prevent systemic bank failures of the sort that caused the Great Depression and made it so long and severe.

As the Fed lent freely to banks and other financial institutions, its balance sheet grew very rapidly. The reserves of the banking system grew concomitantly; reserves are funds that banks have available for immediate lending that theoretically should lead to credit expansion and new investment by businesses, durable goods purchases by households and so on.

 

Federal Reserve Bank of St. Louis

 

During the inflation of the 1970s, most economists became convinced that if the Fed adds too much money and credit to the financial system it will inevitably cause prices to rise. Since the increase in the money supply in 2008 and 2009 was unprecedented, many economists reacted fearfully to the Fed’s actions.

Given the order of magnitude of the increase in bank reserves, from virtually nothing to more than $1 trillion almost overnight and now to more than $2 trillion, it was not unreasonable to be concerned about the potential for Zimbabwe-style hyperinflation.

But inflation fell rather than rising. In the five and a half years since the start of the recession, the consumer price index has risen a total of 10.2 percent. In the five and a half years previously, it rose 17.7 percent. That is, the rate of inflation fell by almost half.

Now, I don’t expect all the people who filled The Wall Street Journal’s editorial page in 2008 and 2009 predicting an imminent rise in inflation to offer a mea culpa, but at some point I think the inflationphobes should at least stop saying that hyperinflation is right around the corner.

Whither Dodd-Frank?

Wonkblog @ WaPo:

Sunday is the third anniversary of the Dodd-Frank Act. To get a sense of how

implementation has been going, I asked 16 people at the forefront of the debate to answer two questions: What has gone better than you had expected? And what has gone worse? – Mike Konczal

Sheila C. Bair served as the 19th chairman of the Federal Deposit Insurance Corp. for a five-year term, from June 2006 through June 2011.

“Things that went better than expected: just about all of the rules where an agency could act alone, e.g., the FDIC’s rules on resolution authority and deposit insurance premiums; the CFPB’s rules on mortgage lending standards; the CFTC’s rules on moving standardized domestic swaps to centralized clearing.

“Things that were bigger problems than expected: just about all of the rules where inter-agency coordination and agreement were required: e.g. tougher bank capital standards, the Volcker Rule, risk retention for securitizers. Between agency squabbling and industry lobbying, Sisyphus could move faster than the agencies in moving these rules.”

Michael S. Barr is a  professor of Law at the University of Michigan Law School and former assistant secretary of the treasury for financial institutions, where he was a key architect of the Dodd-Frank Act.

“The opponents of financial reform are losing. There’s a strong, new Consumer Financial Protection Bureau, looking out for American households, and Senate Republicans finally relented and confirmed, by a lopsided vote, Rich Cordray as director of the bureau.

Capital requirements are going up, derivatives are coming out of the shadows and major financial firms will be subject to strict supervision and wind-down authority regardless of corporate form. But much remains to be done, from LIBOR reform to the Volcker Rule, and the financial industry will continue to try to lobby, litigate and legislate their way out of the tough new rules. Now is not the time to lose hope, stop fighting or give in, but to renew the commitment to making the financial system fairer and safer.”

Bernanke: Congress itself poses the greatest risk to growth

Binyamin Applebaum @ NYTs:

WASHINGTON — The Federal Reserve’s chairman, Ben S. Bernanke, emphasized on Wednesday that the central bank remains committed to bolstering the economy, insisting that any deceleration in the Fed’s stimulus campaign will happen because it is achieving its goals, not because it has lowered its sights. 

Mr. Bernanke said he still expected to reach that point in the coming months but, in what may have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth. 

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he told the committee. 

The sluggish economy has been a constant background for Mr. Bernanke’s biannual testimony. Unemployment, at 7.6 percent, remains stubbornly above the Fed’s goals. 

Inflation has sagged to the lowest pace on record. Growth continues at a “modest to moderate pace,” the Fed said Wednesday in its monthly beige book survey of economic conditions across the country, released separately from Mr. Bernanke’s testimony.

"A Call to Battle on Bank Leverage"

Former chief IMF economist Simon Johnson @ NYT's Economix:

On Tuesday, federal banking regulators opened an important new phase of the debate on how safe very large financial institutions should become. The next round of argument will be intense; the focus has shifted to the specific and high-stakes question of how much leverage big banks can have – i.e., how much of each dollar on their balance sheet they should be allowed to fund with debt rather than with equity.

The people who run global megabanks would rather fund them with relatively more debt and less equity. Equity absorbs losses, but these very large companies are seen as too big to fail – so they benefit from implicit government guarantees. A higher degree of leverage – meaning more debt and less equity – means more upside for the people who run banks, while the greater downside risks are someone else’s problem (the central bank, the taxpayer or, more broadly, you).

"Income, Race and Voting

Professor Krugman ventures into Poli Sci, @ NYTs:

Still thinking about the new GOP idea — hey, let’s go for white voters! Why didn’t we think of that before? ... I’m venturing into political science territory here,and would be happy to have real experts weigh in; but I’m pretty sure I have the basics right here.

So, let’s look at some exit poll data, and cross-tab it with Census income data. In the figure below, the red lines show the income-voting relationship from the Times summary of exit polls, which also supplies the broad ethnic group data. For incomes, I use Census data on median household income for 2011, which is also available for regions. For voting I use Alabama to represent the South, Ohio to represent the Midwest.

So here’s my picture:

Contrary to what some people keep saying, people with higher incomes, other things equal, tend to vote Republican. Cut through the noise and fog, and it is true that Democrats broadly want to redistribute income down, and Republicans want to redistribute income up — and on average, voters get that (which is why “libertarian populism” is hot air). But race and ethnicity also matter, a lot. What you can see right away is that there are three groups that are fairly anomalous.

"The Lagging Public Sector"

Floyd Norris @ NYT's Economix:

Private sector employment in the United States is growing at about the same rate it did during the best days of the last decade.

The difference is in the government. It continues to shed workers.

Source: Bureau of Labor Statistics, via Haver Analytics  Year-over-year change in employment.

The above chart shows the annual change in employment for the private sector, and for government jobs, since the end of 2002.

Over the last 12 months, private sector employment rose 2 percent. That is down a little from the 2.5 percent rate early last year, but it is about the same as the rate of growth in the fall of 2005.

But government employment continues to fall. It is down 0.2 percent, which is the best year-over-year showing since 2009, when the government cutbacks were starting to be felt.

On a monthly basis, over the last 12 months the economy added an average of 191,000 jobs a month in the private sector, and cut public sector employment by 3,000 jobs a month.

Politicians lamenting the slow pace of recovery might, logically, look for ways to increase hiring in the sector that is lagging the most.

(A note on the data: I used figures before seasonal adjustments, which is possible since annual changes presumably take care of seasonal adjustment. And I dropped from the numbers the temporary surge in government jobs caused by hiring for the 2010 census. Without that change, there would have been a rise in government employment in 2010 and a much steeper decline in 2011.)

Infrastructure repair is key to growth

 Barry Ritholz @ The Big Picture:

If you have spent much time traveling around the United States, you likely have noticed that our infrastructure looks a bit worn and tired and in need of some refreshing. If you spend much time traveling around the world, however, you will notice that our infrastructure is shockingly bad. So bad that it’s not an exaggeration to declare it a national disgrace, a global embarrassment and a massive security risk.Not too long ago, the infrastructure of the United States was the envy of the world. We had an extensive interstate highway system, deep-water ports connected to a well-developed rail system and a new airport in every major city (and most minor ones). Electricity was accessible to the vast majority of the nation’s residents, as was Ma Bell’s telephone network.

That was then. In the ensuing decades, we have allowed the transportation grid to get old and out of shape. Our interstate highway system is in disrepair; our bridges are rusting away, with some collapsing now and then. The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyberattacks. The cell system of the United States is a laughingstock versus Asia’s or Europe’s coverage. There are very few things that are done better by government mandate than by the free market, but cell coverage is one of them. Broadband, almost as laughable as our cell coverage, is another.

"The Always Wrong Club"

Paul Krugman, via Floyd Norris, rounds up the usual suspects:

Aha. Floyd Norris reminds us of the 23-economist letter from 2010, warning of

dire consequences — “currency debasement and inflation” — from quantitative easing. The signatories are kind of a who’s who of wrongness, ranging from Niall Ferguson to Amity Shlaes to John Taylor. And they were wrong again.

But that won’t diminish their reputations on the right, even a bit. How do I know that? Well, also on the list — presumably because they asked him to be there — is Kevin Hassett, co-author of Dow 36,000 and also a prominent denier of the existence of a housing bubble. Fool me once, fool me twice, fool me yet again — hey, never mind.

Quite amazing.

"What to Do with the Hypertrophied Financial Sector?"

Definition:
hy·per·tro·phy  (hi-pûr-tro-fe)

n. pl. hy·per·tro·phies

A nontumorous enlargement of an organ or a tissue as a result of an increase in the size rather than the number of constituent cells.

intr. & tr.v. hy·per·tro·phied

To grow or cause to grow abnormally large.

Economist Brad DeLong:

Back in 2011, I wrote:

In 1950, finance and insurance in the United States accounted for

2.8% of GDP…. Today, it is 8.4% of GDP…. If the US were getting good value from the extra 5.6% of GDP that it is now spending on finance and insurance--the extra $750 billion diverted annually from paying people who make directly useful goods and provide directly useful services--it would be obvious in the statistics… diverting that large a share of resources away from goods and services directly useful this year is a good bargain only if it collectively has a substantial amount of what financiers call "alpha", only if it boosts overall annual economic growth by 0.3%--or 6% per 25-year generation….

Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends? There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money…

Over the past year and a half, in the wake of Thomas Philippon and Ariel Resheff's estimate that 2% of U.S. GDP was wasted in the pointless hypertrophy of the financial sector, evidence that our modern financial system is less a device for efficiently sharing risk and more a device for separating rich people from their money--a Las Vegas without the glitz--has mounted. Bruce Bartlett points to Greenwood and Scharfstein, to Cechetti and Kharoubi's suggestion that financial deepening is only useful in early stages of economic development, to Orhangazi's evidence on a negative correlation between financial deepening and real investment, and to Lord Adair Turner's doubts that the flowering of sophisticated finance over the past generation has aided either growth or stability.

Inflation is too damned low!

We constantly hear noise about the inflation bugaboo. Not because we're experiencing inflation, but because it's a convenient scare word in certain circles wedded to the economics of austerity. But, of course, inflation is the least of our problems - in fact, if anything "inflation is too damned low!"

Binyan Applebaum @ The New York Times' Economix shows that "Yes, We Have No Inflation":

 

      Source: Bureau of Economic Analysis 

Inflation remained sluggish in May. Prices continued to rise at the slowest pace in at least half a century, up just 1.1 percent over the previous year, the Bureau of Economic Analysis said Thursday. While some other measures of inflation are rising a little more quickly, the Federal Reserve regards this one as most accurate.

Slow inflation may sound like a good thing, but it’s not. Particularly not now.
Economic research suggests that inflation is best in moderation. Price increases lead to wage increases, which makes it easier to repay existing debts, like mortgages, and more attractive to incur new debts, like borrowing to start a company.

Inflation also functions as a kind of economic WD-40, easing shifts in the allocation of resources.  It is easier for struggling companies and industries to adjust by withholding cost-of-living increases than by seeking to impose wage cuts.

Perhaps most importantly, moderate inflation keeps the economy at a safe distance from deflation, or general price declines, which can freeze activity as would-be buyers wait for lower prices. Such a buffer would be particularly valuable now because the Fed is already stretching the limits of its ability to stimulate the economy, leaving the United States unusually vulnerable to any new shocks...

"How Austerity Has Failed"

Martin Wolf @ New York Review of Books focuses on Europe's massive policy failure:

Austerity has failed. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but also in the long term: the costs of investments unmade, of businesses not started, of skills atrophied, and of hopes destroyed.

What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder. If policymakers listened to the arguments put forward by our opponents, the picture, already dark, would become still darker.

How Austerity Aborted Recovery

Is Ben Bernanke abandoning the real economy?

 Economist Jared Bernstein worries about the Fed Chairman:

OK, clearly the markets aren’t listening to me—not exactly a surprise.  But they’re not

listening to Ben either, who’s been saying that the economy’s getting a bit better, so interest rates are going up.  And at some point, sooner than later, he and his buds are going to start adding a bit less juice to the punch bowl.  Surely, markets, (he’s saying) you didn’t think this easy money party was going to last forever?  After all, central banks in healthy economies don’t have $3.4 trillion balance sheets and hold rates at zero.

Here’s a little sample of what’s on the wires re markets and Ben right now—if they were going out, they’d need couples’ therapy (“Markets, I think Ben is trying to tell you something…can you tell Ben why you’re having trouble hearing him?”).

Bernanke and Markets, Crazed and Confused

Bernanke Speaks, and Markets Tumble

Bernanke Sneezes, Global Markets Catch a Cold

So I don’t really know what to make of the markets and I suspect they’re just going to be volatile for a while.  Like I said yesterday, it’s the real economy I’m worried about, and I used to have a friend in Ben when it came to that.  Now, I’m not so sure.