Tuesday, October 25, 2016

Here's a question answered

Search FRED for ophnfb -- output per hour, non-farm business -- a measure of labor productivity. Three series turn up: OPHNFB, PRS85006092, and PRS85006091. But only sometimes. Sometimes you get a list with only one item on it: OPHNFB. For some reason they design software these days to give inconsistent responses. Maybe the reason is some kind of corner-cutting to save money. But it seems to me the reason is just pure stupidity.

Well that's out of the way. I hope it's not my stupidity!

It took me fifteen minutes to duplicate the list with three results so I could write this post. When you're old as I am, 15 minutes is a big chunk of Time Remaining.

The three series offer the data as an index (2009=100), as Percent Change at Annual Rate, and as Percent Change From Quarter One Year Ago. If I start with the index, I can get "Percent Change From Quarter One Year Ago" easily. I can also get "Percent Change" (though not at an annual rate). Usually I just use the index in whatever form I need, without a thought.

Today for some reason, there was a thought: I can compare the "Percent Change at Annual Rate" series to the index in its "Percent Change" form. And I can see whether they just multiply by four or if they do something more complicated to get the "at Annual Rate" thing.

So I divided the "Percent Change at Annual Rate" series by the "Percent Change" form of the index:

Graph #1
Nope: Not just multiplied by four. They do something more complicated.

Of course, it's close to four. It would have to be. And maybe you could multiply by four and no one would ever know the difference, but it wouldn't be right.

Okay. The Dallas Fed has a page that shows the calculation: Annualizing Data.

I printed the Dallas Fed page as a PDF file (two pages) and made it available for download.

Monday, October 24, 2016

Some gossip about Alan Greenspan

From Thoughts on “Teaching Economics After the Crash” at medium.com by Karl Whelan, Professor of Economics at University College Dublin:
Greenspan’s “Model”
Alan Greenspan was not an academic. He was a consultant who leveraged his substantial Washington connections into an appointment as Fed chairman. And his positions on economics were very far from the mainstream.

I worked for Alan Greenspan from 1996 to 2002 and met him quite a few times. He is a man of many talents but it’s an understatement to say that his approach to economics was idiosyncratic. It was an interesting combination of obsessive analysis of high frequency economic data and extreme right-wing views picked up from his time as part of Ayn Rand’s “inner circle.” Hard to believe as it may be, the most powerful economist in the world held views that were very far from those taught in mainstream economics degrees.

From Is Yellen Starting a Civil War at the Fed? by Monetary Watch:
Greenspan more or less ruled the FOMC with an iron fist. As recounted by Frederick Sheehan in his book Panderer to Power, Greenspan himself controlled everything about the FOMC’s messaging and he drafted the FOMC statements that were to be issued after the meeting — without any input from the committee. Even Yellen herself, who had served on the committee in the 1990s, said being a Fed governor was “a great job, if you like to travel around the country reading speeches written by staff.”

Sunday, October 23, 2016

Change in debt and change in GDP

If you take the ratio of two "change in" values, the change in this divided by the change in that, usually you get a graph with a few very large spikes, and everything else too small to see. I try to avoid graphs like that. But sometimes you have to look.

Here is the change in TCMDO debt relative to the change in GDP, from FRED:

Graph #1: Change in Debt relative to Change in GDP
Doesn't show me anything but one tall spike.

I've been thinking about using the Hodrick-Prescott filter to soften the changes in two "change in" series, so I can look at the ratio of filtered values.

Can't do Hodrick-Prescotts at FRED. I brought the numbers into Excel. It's quarterly data but for extra smoothing I used the bigger smoothing constant that's a default for monthly data. Here's what I got:

Graph #2
I still have that tall spike. But instead of being a momentary phenomenon it looks like it lasted 20 years. That's a little silly. What's interesting, though, apart from the spike, is that there seems to be a persistent upward trend from the 1950s to the present day. Apart from the spike and some possible wiggles.

I reduced the smoothing to a low number and took another look:

Graph #3
The spike is still there, now spread over only a few years. And there are lots of little ups and downs probably related to recessions.

Look how small the wiggle is, between 2006 and 2009. That's the crisis.

That tall spike of 2001 is really something of an anomaly. Looks like there was a particularly small increase in GDP and a good size increase in debt at the same time. In the source data I have the value 2.53 for the second quarter of 2001, 665.07 for the third quarter, and 9.25 for the fourth quarter. That third quarter number is a fluke.

I deleted the third-quarter value and left the cell blank in the spreadsheet. (The HP function reads it as zero.) And I changed the smoothing factor back to the number I started with. Here's how the graph came out this time:

Graph #4
Now we're getting somewhere. There is a definite up-trend with some wiggle to it for the whole period shown. There are exceptional lows centered on 1991 and 2009.

You will recognize the 2009 event as our crisis and the Great Recession, even though the smoothing factor pushes the peak back before 2003. Maybe we could say that the smoothing merged a normal wiggle (the 2001 recession?) with the large decline of the Great Recession. Just a thought. I try to be flexible, reading these things.

The other low, 1991, I think I know what that one is. There was a general slowdown in the growth of debt that lasted from the mid-1980s to the early 1990s. I looked at that slowdown before.

Note the rapid increase following the 1991 low. That increase was made possible by the big decline that preceded it. And the rapid increase in Debt-to-GDP provided the funds that allowed the growth of spending that created the good years of the 1990s.

So, why have we not had comparable good years after the 2009 low? I don't know yet, but I have some thoughts to explore.

1. The uptrend after 2009 starts at a much higher level. There's a lot more debt now than in the 1990s.
2. The uptrend after 2009 is less steep. So there is more of a delay before the good years this time, and those years might not be as good.
3. The uptrend after 2009 has not yet reached its peak. There is still time; the good years may yet come.

// The Excel file

Saturday, October 22, 2016


Friday, October 21, 2016


Thursday, October 20, 2016

At least Congress could say their hands are clean

At Wall Street on Parade: The Fed Has Been Winging It for Eight Years; It’s Time for Congress to Step Up.

"Since the Wall Street crash in 2008", the article says, things have not been good. They point out that capacity utilization is lower now than it was in 2007, and they mention the "sharp decline since November 2014." They show this graph, to which I've added a bright red line:

Since 2008? I think they miss the bigger picture.

Here's the opening paragraph:

Since the Wall Street crash in 2008 crippled the U.S. economy, Congress has played the role of a spectator at a big league baseball game – munching on popcorn and licking its greasy fingers soiled with corporate campaign loot – as the real players on the field, the Federal Reserve, controlled the action.

And the final paragraph:

It’s long past the time for Congress to wash off those greasy fingers and do its job.

But other than the washing of hands, there is no specific suggestion as to what should be done. The best I can suppose is that the article calls for a change of emphasis from monetary policy to fiscal. Yet as they point out

Since the crash, the Federal debt has doubled to $19.4 trillion

so I'm not sure what they have in mind.

Perhaps they are saying you can tell by current conditions that the doubling was clearly insufficient. Yeah. I think they mean the Federal debt has only doubled to $19.4 trillion, while the "balance sheet of the Fed has more than quadrupled". I guess they want the Federal debt to double again, to get it up in the quadruple range too.

But then, Scott Sumner would say you can tell by current conditions that the quadrupling of the Fed's balance sheet was clearly insufficient. So maybe people will soon be calling for an octupling of debt and balance sheets. And after that, a 16-tupling maybe.

Myself, I think fixing the economy requires a little more finesse of thought.

Wednesday, October 19, 2016

What if we tax corporate interest expense?

This is the effective corporate income tax rate:

Graph #1: Effective Corporate Income Tax Rate
We looked at it recently. The graph today shows annual (not quarterly) data.

This is the money corporations paid out as interest expense:

Graph #2: The Cost of Interest to Corporations
Interest is a tax deductible business expense. What if it wasn't? If interest wasn't tax deductible, the corporations would have to pay tax on the money they spend paying interest. How much would the tax have been? To find out, we can multiply the interest cost shown on Graph #2 by the tax rate shown on Graph #1:

Graph #3: Additional Tax Paid by Corporations if Interest Was Not Deductible
For the most recent year, the tax rate is a little over 25%, the interest expense is a little over $800 billion, and the tax on that amount comes to a little over $200 billion. Assuming that everything else stays the same.

What if we take this additional tax that corporations would have paid, and see what happens to the Federal deficits when the extra revenue is added in:

Graph #4: Actual Deficit (red) and Deficit Reduced by Taxing Interest Expense (blue)
Assuming that everything else stays the same, the Federal budget goes to surplus in the 1970s. It goes to surplus in the 1980s. It goes to surplus in the 1990s. It even goes to surplus in the 2000s.

Of course, everything else would not stay the same. Corporations would borrow less. Adjustments would have to be made. Perhaps there would be fewer mergers and acquisitions. Perhaps policy would be forced to shift away from the reliance on credit.

I can't tell you specifically what would change. I can tell you, though, that there would be less debt, and less credit use. And I can tell you that our economy can function on less credit. There was far less credit in use in the 1960s, for example, than there is today. And the economy was good.

Tuesday, October 18, 2016

The Corporate Tax Burden

What does everybody complain about all the time? Taxes.

This graph shows the corporate income tax, in red:

Graph #1: Corporate income tax in red, and corporate interest cost in blue.
Corporate income tax in red, and corporate interest cost in blue.

And what do they complain about? Taxes.

Monday, October 17, 2016

The Personal Income Tax

Back to SOI for more Statistics on Income.

Table 8: Personal Income per National Income and Product Accounts (NIPA), and Taxable Income and Individual Income Tax per Statistics of Income (SOI), 1950-2012.

The file is histab8.xls. It gives personal income, taxable income, and taxable income as a percent of personal income. It gives the total income tax in billions, and as a percent of personal income, and as a percent of taxable income.

I'm just looking for those last two.

Yesterday we looked at the corporate income tax as a percent of taxable corporate income (profits) and as a percent of gross corporate income. I want to do the same now for personal income.

Graph #1
The tax amounts to about 10% of gross personal income, or about 20% of taxable.

The personal tax is lower than the corporate tax, as a percent of taxable income. But the personal tax is much higher than the corporate as a percent of gross.

Graph #2
Now you know.

// The Excel file