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s year by barry cynamon of the st louis fed and steven fazzari of washington university in st louis estimates that prolific saving by the top 5 has been suppressing demand since the mid 1980s that squeeze was mostly offset by increased borrowing by the bottom 95 they find america and britain unlike germany and japan saw rapid growth in private debt in the 2000s the assertion that rich households save more than poorer ones is something that makes perfect sense to me but apparently is unsupported by evidence of course cynamon and fazzari disagree like krugman i d like to agree unlike most everybody with a stick in this fire i don t know enough about it to contradict anybody for the sake of this post however let s suppose krugman is wrong cynamon and fazzari are right so here s where we stand p rolific saving by the top 5 has been suppressing demand since the mid 1980s that squeeze was mostly offset by increased borrowing by the bottom 95 as evidenced by the rapid growth in private debt in the 2000s let s consider these two groups the 5 and the 95 let s presume income inequality was stable from world war two until 1980 for simplicity assume that the income of the 95 was just equal to the income of the 5 before 1980 each group received half of gdp after 1980 let s suppose income shifts by 1 of gdp each year the income of the 95 falls by 1 of gdp and that of the 5 rises by a like amount sounds like an economic model to me after 25 years of 1 transfers from the 95 to the 5 half of the 95 s annual income has shifted allegiance but i still don t like the disputed line rich households save more than poorer ones disputed lines don t make strong arguments in a post i didn t recommend larry summers put the five versus ninety five thing in terms i like much better when he referred to high spending debtors and low spending creditors in such terms one need not quibble over evidence posted by the arthurian at 4 00 am 3 comments wednesday december 18 2013 secular stagnation strikes again on 12 december 2012 i showed this graph stages of the slowdown in real growth on 15 december 2013 larry summers wrote why stagnation might prove to be the new normal you can see the new normal in my graph twice not a recommendation to read the linked post posted by the arthurian at 4 00 am 0 comments tuesday december 17 2013 worst case unemployment and the output gap part six in a series that starts here a while back i looked at the myth of jobless recoveries okun s law and hodrick prescott calculations the hodrick prescott calc can be used to smooth out a data series like gdp or the unemployment rate it smooths out the ups and downs of the business cycle so you can see the underlying trend okun s law says there is a consistent relation between unemployment and output it says when output drops one percent below trend unemployment rises half a point above trend when output rises one percent above trend unemployment falls half a point below these trends that are part of the okun s law calculation you can use the hodrick prescott calculation to get them now here is what i did a while back in a follow up post after first vehemently denying that such calculations are reasonable i took the unemployment numbers from fred and figured the hp trend for unemployment then i set the original unemployment numbers aside i took the real gdp numbers from fred and figured the hp trend for real gdp then i subtracted the trend from the original numbers this gave me a measure of how far real gdp was off its trend then i took those off trend numbers and divided them in half in half because okun s law says what happens to unemployment is half as big as what happens to output so i just scaled the off trend output values down to fit the unemployment rate then i took those scaled down output values and added them to the underlying trend for unemployment the hodrick prescott trend subtracted maybe i forget then i took these unemployment trend plus off trend output numbers and put them on a graph along with the original unemployment numbers the idea which i got from the myth of jobless recoveries post was that if the two lines turned out similar it was evidence that there is a strong reliable relation between unemployment and real gdp the two lines turned out similar despite my initial objections i was forced to admit the arithmetic was good and i learned of the strong reliable relation between unemployment and real gdp here s what i m thinking if there is a strong reliable relation between unemployment and real gdp then we should be able to compare gaps we should be able to look at the gap between official unemployment and worst case unemployment and look at the gap between real and potential gdp and maybe see something interesting in the two gaps i m thinking we can use the output gap and the unemployment gap to establish whether those calculations are valid at the start i was thinking i could use those gaps to establish that at least one of the data series is not valid maybe to show that the revised down version of potential gdp is wrong that would be interesting but i m no longer sure i could pull that from the numbers i need some time with this i want to set this topic aside for a while and come back to it later i ve been sitting down to write the next posts in series but end up writing other things it s just not there yet meanwhile if anyone else is looking into this do let me know posted by the arthurian at 4 00 am 0 comments monday december 16 2013 figuring worst case unemployment part five in a series that starts here graph 1 actual and hypothetical unemployment source erceg and levin via john taylor by worst case unemployment i don t mean the worst that one can possibly imagine i mean the worst we can reasonably expect based on estimates and projections made by bls and other agencies engaged in that sort of thing anyway my intent here is not to tell another discouraging story my intent is to look at one of the discouraging stories that s out there so as to better understand it so as to get a feel for the validity of that story or the lack of validity to duplicate the worst case unemployment graph i need to rework the labor force participation rate rather than letting it fall rapidly as it has i want it to fall slowly as the november 2007 bls projection anticipated i m trying to mimic the negligible decline of unemployment shown in the red line on graph 1 here and i think the bls number will help me get there a plan finally came together in my head an overview of what i want to do first use the labor force participation rate and the 2007 bls projection to come up with numbers showing how big the labor force was expected to be before things fell apart call it the hypothetical labor force participation rate second work backwards from there to get numbers for the hypothetical labor force third subtract the number of employed people from the hypothetical labor force to get the hypothetical number of unemployed persons use this number to determine the hypothetical unemployment rate that s the plan step one i went back to fred for quarterly data on the three series used to generate the graph for friday s post civilian labor force clf16ov civilian noninstitutional population cnp16ov civilian labor force participation rate civpart and uploaded the file to google drive the november 2007 bls projection which we looked at yesterday predicted an annual growth rate of 0 1 percent for the 2006 2016 period a very slight decline i figured a quarterly growth rate that would give an annual rate of 0 1 percent then i took the first quarter 2006 value and starting from there applied my quarterly growth rate to generate the numbers checking my work bls projected a participation rate number of 65 5 for 2016 i got 65 43 for first quarter 2016 65 38 for fourth quarter so i tweaked my quarterly growth rate to get the same 65 5 number that bls got i m calling this number the hypothetical labor force participation rate check my work step two to figure the labor force participation rate lfpr you take the civilian labor force clf as a percent of the civilian noninstitutional population cnp you can rearrange that formula to see clf in terms of population and participation rate now i just use the hypothetical labor force participation rate in place of the official version the hypothetical is a significantly higher number so it produces a significantly higher civilian labor force i am calling this number the hypothetical civilian labor force check my work step three okay now i need some more data i need the number of people employed so i can calculate the hypothetical number of unemployed persons then using that number and the hypothetical labor force i can figure the hypothetical unemployment rate and i will need the official unemployment rate for comparison to the hypothetical number these are numbers we looked at on saturday i went back to fred for the relevant numbers quarterlies and put em in a new spreadsheet along with my step two results the number of people in the labor force less the number working is the number of people out of work or in this case the hypothetical labor force less the number employed equals the number of hypothetical unemployed and then the number of hypothetical unemployed as a percent of the hypothetical labor force equals the hypothetical unemployment rate graph 2 check my work i think i duplicated their graph posted by the arthurian at 4 00 am 0 comments sunday december 15 2013 preparing to figure worst case unemployment part four in a series that starts here on thursday i took a first look at worst case unemployment what the unemployment rate would be if everyone who was expected to stay in the labor force actually stayed in the labor force and if people who were expected to enter it entered it when people who are looking for work give up when they stop looking they are no longer in the labor force so the labor force gets smaller then the number in the labor force who are not working becomes a smaller percentage of the total labor force so the unemployment number goes down the unemployment number goes down not because there are more jobs but because there are fewer people trying to get a job this is what john taylor and others have been pointing out taylor showed a graph comparing the official unemployment number and what unemployment would be if everyone who was in the labor force stayed in the labor force well i took an interest in that graph and decided i wanted to see if i could duplicate it the numbers i used on thursday i don t think were the right versions that s why i did all that double checking on friday and saturday finding number series where the ratio is a good match for the labor force participation rate and the number of persons unemployed and the number employed now that i have the right numbers maybe i can duplicate the worst case graph in his post of 23 november 2013 john taylor links to a paper by christopher erceg and andrew levin labor force participation and monetary policy in the wake of the great recession i couldn t get to that paper at ssrn but taylor has an older post that links to an earlier version of erceg and levin s paper pdf 50 pages erceg and levin refer to a bls forecast of the labor force participation rate from back in november 2007 just prior to the onset of the recession they note at bls i found labor force projections to 2016 more workers in their golden years pdf 20 pages from the monthly labor review of november 2007 table 3 in that pdf gives civilian labor force participation rates for 1986 1996 2006 and a 2016 projection the annual growth rate is projected to be 0 1 percent for the 2006 2016 period only a slight decline in the labor force participation rate was anticipated i m thinking that is where erceg and levin got the forecast they show on this graph graph 1 source john b taylor yes on page 49 of the erceg and levin pdf they plot several subsets of the labor force participation rate projection and refer to the november 2007 issue of the monthly labor review i see bill mitchell is on a related topic posted by the arthurian at 4 00 am 0 comments saturday december 14 2013 number of persons employed and unemployed part three in a series that starts here i m trying to back into numbers that other people calculate so i can know what numbers they use to get the numbers they get from yesterday i know the civilian labor force clf16ov is the number used to calculate the labor force participation rate so i know clf16ov is the right number to use to figure out how many people are working and how many are looking for work i thought i d use fred s unrate to figure the working and looking numbers when i saw the name of the series civilian unemployment rate my confidence improved because it s another civilian series probably in the right ballpark i thought so i multiplied the labor force by the unemployment rate and divided the hundred out of it that gave me a count of unemployed persons or actually thousands of unemployed persons but what to compare it to i searched fred a bit and found the bluntly named series unemployed unemploy i put it on the graph with my calculation another good match graph 1 calculating the number of people unemployed after that then i could subtract the number of people unemployed from the civilian labor force to get the number of people employed but again what to compare it to how about civilian employment graph 2 calculating the number of people employed nice posted by the arthurian at 4 00 am 0 comments friday december 13 2013 how to calculate labor force participation rate ask com had a good answer the labor force participation rate is the percentage of people who are 16 and older who are employed or looking for employment the lfp rate formula take the number of people employed and looking and divide it by the entire population that are not in institutions school prison or military multiply this number by 100 to get the percentage of people participating in the labor force and this note the labor force participation rate civilian labor force total non institutionalized civilian population i went right to fred found civilian labor force clf16ov and civilian noninstitutional population cnp16ov took the ratio multiplied by 100 and put civilian labor force participation rate civpart on the same graph good match graph 1 the calculation that gives the civilian labor force participation rate posted by the arthurian at 4 00 am 3 comments thursday december 12 2013 worst case unemployment from philip greenspun s weblog unemployment rate adjusted for labor force participation illustrating the magic of choosing one s statistic carefully today s new york times front page carries a story about how the jobless rate has fallen to a five year low of 7 investor s business daily however calculates unemployment at nearly a modern day high of roughly 12 by holding labor force participation constant at the 2007 level 66 ...
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