Monday, October 10, 2016

Oliver Hart and Bengt Holmstrom Share the 2016 Nobel Price in Economics

The Nobel committee announced today that for their work in contract theory Oliver Hart and Bengt Holmström won the 2016 Sveriges Riksbank Prize in Economic Science in Honor of Alfred Nobel. Charles Duxbury and Mike Bird report on it in the Wall Street Journal today. Moreover the Journal reported in a video:
Evan Peterson, "Why Bengt Holmström, is An Economist You Should Know," Open Markets, October 21, 201.

Monday, October 03, 2016

For the Record: Harris Commented on the Auto Bailout.

Alex Johnson,  "For Dealers, Auto bailout Can't Come Too Soon." NBC News 12/4/2008, quoted Malcolm Harris, an economics professor at Friends University in Wichita, said: “If you have a half a million or a million people out of work, with retail sales in real terms already down 5 percent over a year ago, you’re taking what’s becoming a significant recession and making it a lot nastier.”

Saturday, September 10, 2016

Wells Fargo to Pay $185 Million Fine Over Illegal Account Openings

Even Homer Nods

Wells Fargo is generally considered one of the best run banks. It has a strong commercial banking franchise and its risk management and more limited exposure to investment banking caused it to come out on top in market value after the financial crisis.  It's chief risk officer is higher in its corporate hierarchy than any major bank's going into the financial crisis.  According to Tammy Norman of Emporia State University and Kurt Reding of Wichita State, this is a good indicator of how seriously an organization takes internal controls and risk management and has a long background in internal audit with Spirit aerospace and Boeing.  Tammy recently did a study of the relationship between organizational structure and internal controls.  Kurt is the author of the leading international textbook in the field.  So it is a surprise that Wells Fargo has had an  internal lapse in its commercial bank of all places.  The bank faces a $185 million fine illegal sales practices.  It found hundreds of employees tried to meet ambitious cross-selling goals by opening accounts without customers' permission or even their knowledge. following widespread  including opening accounts for customers without their knowledge. 

In this video, WSJ reporter Emily Glazer joins Lunch Break to discuss the story.  Photo: Getty

Friday, April 01, 2016

The Jobs Report: Solid Growth, But Does Little to Solve Our Economic Malaise

Today the Bureau of Labor Statistics issued the March jobs report.  It shows continued solid growth:  An increase of 215,000 new jobs.  The unemployment rate stayed at 5.0% as more people worked and more people reentered the labor force.  The labor force participation rate is now at 63%.  

The graph shows the percent of the adult population with jobs according to the household survey.  It shows the economic malaise the country has suffered these last seven years. Robert Bartlett tittled his history of the Reagan period The Seven Fat Years.  These have been the seven lean years.

The employment ratio plunged during the recession and continued to fall after its official end (June, 2009.) Jobs data,
revised after the NBER called the trough, show that jobs continued to fall into the first few months of 2010.  Jobs growth failed to keep pace with population growth on into 2011.  We really did not see job growth fast enough to outpace population until 2013.

Wichita's Chief Industry

On a less cheerful note, aircraft employment fell by 900.

Thursday, March 31, 2016

Why is Trump Triumphing In His Demographics Sweet Spot? Look at the Data

Two Federal Reserve Bank of St. Louis Economists, Michael McCracken and Joseph McGillicuddy, provide this graph.  It shows the change in employment since the recession trough in June, 2009:

Bottom line: There are even fewer jobs for those without a college degree now than at the bottom of the recession.  Guess who is bearing the brunt of the weakest economic recovery in a century? 

With income inequality on everyone's mind these days, might a key cause be the administration's economic policies that are eviscerating the working class combined with the cultural elites' war on the family?  Or is that heresy?

Friday, March 18, 2016

Marvin Ellison CEO of JCPenny

How JCPenney CEO Ellison Plans to Turn Company Around March 15 -- JCPenney CEO Marvin Ellison discusses the company's turnaround plans. He speaks on "Bloomberg Markets." February 29, 2016, 3:53 P.M. ET JC Penney Scores Upgrade; Has ‘Pathway to $1B’ in Cash Flow

Saturday, February 06, 2016

This Morning's Employment Report

The Bureau of Labor Statistics reported today that unemployment fell to 4.9 percent and wages rose. "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent."  Jobs rose 151,000 according to the payroll survey and 496,000 according to the household survey. The unemployment drop was dispute a jump in the labor force of 433,000, admittedly amplified by new higher population estimates.   

Tuesday, January 05, 2016

The Making of the Big Short (the Movie That Is.)

Michael Lewis' book, The Big Short: Inside the Doomsday Machine is one of the best on the financial crisis.  No one writes about finance like Lewis, the journalist who started as a bond trader with Salomon Brothers.   His book chronicles the outsiders who bet against the housing bubble. It short be read with Gillian Tett's book, Fools Gold, which follows the tribe of geeks who invented the credit default swaps in the first place. My favorite moment in the book is when Paulson's analysts are at a Deutsche Bank conference.  They are baffled at why the bankers are so ready to sell them credit default swaps after he had been pulling teeth to buy them months earlier. 

Adam McKay directed the movie based on the book.  Here is a Wall Street Journal Cafe interview with him: 

Oddly enough, John Paulson, who made the biggest killing–the biggest short–is not in the movie.  Richard Thaler is.  He is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business.  He presented a paper at the 1985 FMA meetings in New York which presented evidence against the efficient market hypothesis.  That was my first professional finance meeting and I had the pleasure of discussing the paper.  I sympathized with his difficulty at the time publishing such heresy.  Times change.  Now you can see he is at the pinnacle of the profession. Thomas Kuhn taught us that a scientific orthodoxy is finally finished only when the last member of that school dies.    

Wednesday, December 30, 2015

Was 1945 a Recession Year?

On EconTalk, Russ Roberts, debated Noah Smith on whether economics is a science.  It was a fun discussion well worth listening to. 

At one point Russ brought claimed Paul Samuelson predicted a return to the massive employment of the Great Depression when military spending fell after World War II. Noah Smith replied there was a recession.  I wrote a brief comment, although it turns out that Russ already posted Geoffrey Moore's note on business cycle chronology which treated the 1945 downturn as sui generis.

My analysis:

The NBER indicates a cyclical peak on February, 1945 with a trough 8 months later. Germany surrendered May 8th and Japan August 15th.  Japan's formal surrender was on September 2nd aboard the U.S.S. Missouri.  General MacArthur's boss was the former senator form Missouri.  Missouri is also the only state with two Federal Reserve Banks.

The unemployment rate was 1.1% at the NBER cyclical peak. The highest it rose to in 1946 was 4.26%. Apparently someone predicted 8 million unemployed in 1946. Some predictions were even wilder.

Yes there was a downturn as the U.S. economy ramped down from its most fevered war pace.  Looking at key series from their peaks to troughs, industrial production declined 35.5% from August, 1944 through February 1946. Payroll employment dropped by 3.3 million jobs from November, 1943 through September, 1945. Almost two million of that drop was in September, 1945, more or less VJ Day. The cyclical trough (October, 1945) corresponds to the first post war month. The 37 month expansion that followed ended in November, 1948.  

Do you want to call the 1945 cyclical episode a recession, a peacetime adjustment, or a preliminary ramp-down of the state driven economy? Geoffrey Moore wrote, "There remains the brief contraction after World War II, February—October 1945, which marked the transition from a wartime to a peacetime economy, and which is the most difficult of all to characterize because different measures yield such different results. However, in terms of its impact upon the well-being of the population it must surely be classed among the more modest of those in our list." Interestingly, Moore chooses his criterion of severity as welfare not aggregate demand or production, the more Keynesian categories.

i did not get interested in the business cycle until maybe the 1973-75 recession, on which I wrote my dissertation. My first memory of  economics would have been the copy of Samuelson's Economics which I studied to prepare for high school debate. I do not remember a discussions of business cycle history that talked about either the 1945 downturn or the 1945-48 recovery. They would have either ignored it or refereed to it as a wartime transition or demobilization. Indeed, I do not remember the textbooks of my youth (Keynesian all) dwelling on either the 1945 contraction nor the 1945-48 expansion. One excuse for their silence is that quarterly GDP data starts in 1947. Still the widespread prediction of a return to the Great Depression by the secular stagnationists was not mentioned in polite company.