Friday, June 14, 2019

Social Security news that all Presidential candidates are ignoring

Next year is going to be a big year for politics with the Presidential elections.  It also is going to be a big year for the Social Security system.  Why?  For the first time since 1982 payroll tax revenue will not be sufficient to cover Social Security benefits, as reported by NYT earlier this week.

Retirees should not worry, yet.  There is enough money in the trust fund to keep the system whole for 15 more years.  But then the federal government would have to reduce benefits by about 20 percent.

It is unlikely that both houses of Congress and the President will come up with a solution before 2021.  Every year when the problem gets ignored makes the pain (reduced benefits, tighter benefit eligibility, higher taxes, or some combination of all of the above) that much worse.  Modest delays in retirement age and modest hikes in the payroll tax will resolve the problem if these steps are taken now.

Although today's candidates would rather talk about building a beautiful wall or launching a Green New Deal, voters should be pressing them for answers regarding how to save Social Security.

Wednesday, May 8, 2019

Tariff update

The Trump tariffs have now been in place long enough that economists have had time to conduct rigorous research regarding their impact.  Three recent studies of note:

Washing machines: three economists at the Federal Reserve and the University of Chicago took a deep dive into the tariffs placed on washing machines.  They found that washing machine prices rose by 12 percent across the board in the US, imported machines went up just as much as domestically produced ones.  Also drier prices went up by the same amount, even though they were not subject to the tariff.  They estimate the cost to consumers to be $1.5b a year.  Samsung and LG are opening plants in the US and Whirlpool is adding jobs as well, but this amounts to 1800 new jobs at a cost of $820k per job.  Hope your washer and dryer hold up!

Economy-wide impact: another team from Columbia, the New York Fed, and Princeton looked at the collective effect of all the Trump tariffs.  They found the tariffs were passed on to customers 100% in the form of higher prices, resulting in a loss of $1.5b per month.   In addition, the tariffs imposed by China, EU, Mexico and others as counter-measures had an adverse effect on US exports of $2.4b per month.

Yet another team from Cal-Berkeley, Columbia, UCLA, and Yale reached similar conclusions.  Imports dropped 31.5% in markets covered by the Trump tariffs and US exports dropped 11% in response to retaliatory tariffs.

Does anyone notice a pattern here?  And what will happen if tariffs on China are ratcheted up even further in the next few days?

Tuesday, April 30, 2019

MBA alum featured on page one Sunday NYT

MBA 2013 alum Jason Queen was the main subject of the lead front page article in Sunday's New York Times.  Jason has been a successful developer in downtown Raleigh, specializing in historic structures and blighted neighborhoods.  The article covers the changing real estate market in many parts of the country where whites are buying houses and property in primarily black or Hispanic neighborhoods.  Jason also has transformed an old bus depot into Transfer Co. Food Hall.  Great to see an alum do so well and getting recognized.

Sunday, March 10, 2019

About that trade deficit report

Not sure anyone would want to be the White House messenger who had to tell the boss that the US set a trade deficit record in 2018.  The general public probably found this news surprising, given the multiple-front tariff wars going on.

Economists did not find the record deficit to be surprising at all.  The US economy has been growing more rapidly, meaning everyone has greater spending capacity.  Some of that spending is going to be for imports.

At the same time, Europe and China are slowing down, putting a damper on exports.  Put the two together and, voila, fewer exports + more imports = larger trade deficit.

Saturday, March 9, 2019

Economic aspects of daylight savings time

Ready to spring forward tonight at 2 a.m.?  Today's WP reports that Congress is considering a bill called the Sunshine Protection Act that would have us observe daylight savings time for the entire year.  Supporters of the bill cite public health studies showing spikes in depression, heart attacks and sleep disorders immediately following time changes.

Economic research also is influencing the debate.  A 2015 study found that crime decreased in the spring with later sunsets (and was not offset by more crime in the morning).  Another study found that there were no energy savings resulting from daylight savings time in the summer.  Daylight savings time reduces demand for lighting, but these savings have dissipated as lights have become more energy efficient.  Also, workers come home earlier than they would have under standard time and run the air conditioning more.

I am not sure how the politics on daylight savings sort out; to my knowledge no one has yet asked Alexandria Ocasio-Cortez her opinion.

Friday, March 8, 2019

Which employment number should we believe?

Today's headline story: payroll employment increased by only 20,000 in February.  Some in the financial press have taken this as a sign that the recovery is slowing down.  Others say the numbers are off because of the recovery from the federal shutdown.

The feds track employment with two different series and they do not always tell the same story, as this WSJ piece from yesterday explains.  It turns out that the household survey of employment showed a gain of 255,000 jobs in February and a drop in the unemployment rate from 4.0 to 3.8 percent.  The household survey has been showing slower employment growth than the payroll survey over the last six months but it now appears to be catching up.

The Fed could start raising interest rates sooner if the employment numbers grow at 300k per month. Today's report indicates that the Fed will keep its powder dry for a little bit longer.

Monday, February 18, 2019

Economists' statement on carbon dividends

FT reports today that 3333 economists, including 27 Nobel Laureates and all four former Fed chairs, have signed the following statement:
Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations. 
I.          A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future. 
II.         A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services. 
III.        A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives. 
IV.        To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing. 
V.         To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.
This is the first such "statement by economists" that I have ever signed.  I believe that both major political parties are on the wrong side of this issue.  The Democrats are serious about global warming, but their idea of a Green New Deal will result in government micro-management of nearly the entire economy, millions of patronage jobs, and an unsustainable boost to federal debt.  The Republicans are not serious.

Fortunately neither party will be able to keep to their current positions.  A carbon tax provides both the opportunity for a political compromise that would actually work.  Given the right incentives, organizations will figure out the best path toward carbon neutrality.

Friday, February 15, 2019

Making sense of North Carolina's ABC system

No, I am not talking about the public schools.  North Carolina is one of a handful of states where hard liquor sales are restricted to state-run ABC stores.  The stores are widely dispersed, keep limited hours, and offer limited selections compared to other states where the private sector is allowed to operate more freely.  In a recent poll, a majority of 625 registered voters favored privatization.

I live in Cary, a town of 165k residents.  Cary has three ABC stores.  When I lived in Cambridge, Mass. as a graduate student, there were three liquor stores within a block of my apartment.  And they stayed open late.  And now they are open Sundays.

From an economic standpoint, the ABC system acts as an inefficient tax on alcohol consumption.  Every state taxes alcohol because demand is price insensitive (making it a great source of revenue) and excessive consumption yields some nasty negative externalities.  NC imposes an additional tax by raising the transaction cost of making alcohol purchases.

Hypothetically, the state could privatize the ABC stores and raise per gallon taxes enough so that there is no increase in alcohol consumption.  The N&O reports there have been some hearings at the NC General Assembly.   The level of economic literacy in this debate is not high.  A Charlotte legislator was concerned that privatization would result in the loss of the 2870 jobs in the ABC system across the state, apparently ignoring the offsetting creation of jobs in the private sector.

I am not counting on being able to restock my Knob Creek bourbon at Harris Teeter on Sunday any time soon.

Wednesday, February 6, 2019

Best music from last year

The Grammy Awards are Sunday night.  Based on my not-so-lofty credential as rock and roll critic of the Michigan State News (largest circulation paper in Lansing at the time) in the early 1970s, here are the 10 albums I enjoyed the most in 2018.  Most of them are not Grammy nominees.  My current tastes run to alternative, rock and world music, with occasional trips down the classic rock and soul memory lanes.  If you are looking for advice on the best hip-hop, stop reading.

1.  US Girls, In a Poem Unlimited; songs about women done wrong backed by a band that brings the funk
2.  Kacey Musgraves, Golden Hour; country is cool again
3.  Christine and the Queens, Chris; she sings (in French and English), dances and channels Michael Jackson
4.  Rosalia, El Mal Querer; flamenco is cool again
5.  Boygenius, Boygenius, EP; Julien Baker, Phoebe Bridgers and Lucy Dacus's supergroup
6.  Snail Mail, Lush; being an indie rock star beats going to high school
7.  Soccer Mommy, Clean; being an indie rock star beats going to NYU
8.  Boz Scaggs. Out of the Blues; best effort by an artist of my generation
9.  Beach House, 7; more dream pop from a band that keeps getting better
10.  SOPHIE, Oil of Every Pearl's Un-Insides, industrial strength electronics

Honorable mentions (multiple playlist-worthy tracks): Janelle Manae, Dirty Computer; the 1975, A Brief Inquiry into Online Relationships; Iceage, Beyondless; Hot Snakes, Jericho Sirens; Let's Eat Grandma, I'm All Ears.  

On Grammy night I'll be rooting for: Cardi B, Bad Bunny and J Balvin, "I Like It"

Saturday, February 2, 2019

NC State MBA team places 1st in Krispy Kreme challenge

Kudos to the 40+ Jenkins MBA students who participated in this morning's Krispy Kreme challenge.  For the second time in three years, they brought home the gold -- first place in the Casual Team category. The KK challenge involves a five mile run from the NC State Bell Tower to the downtown Raleigh KK and back, those in the Casual Team have the option to consume a dozen donuts on the way back or to take the donuts home to their family and friends.
More importantly, the KK challenge raises over $100k each year for UNC Children's Hospital.  This is one of NC State's signature events and I am heartened that so many students came out so early in the cold to participate.