Sunday, May 20, 2018

A number of women who put off having babies after the 2007-09 recession are forgoing them altogether; more educated women and student debt also contribute to decline in birth rates

See U.S. Births Hit Lowest Number Since 1987: Last year’s fertility-rate drop was the largest one-year decline since 2010 by Janet Adamy of The WSJ.
"American women are having children at the lowest rate on record, with the number of babies born in the U.S. last year dropping to a 30-year low, federal figures released Thursday showed.

Some 3.85 million babies were born last year, down 2% from 2016 and the lowest number since 1987, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics. The general fertility rate for women age 15 to 44 was 60.2 births per 1,000 women—the lowest rate since the government began tracking it more than a century ago, said Brady Hamilton, a statistician at the center.

The figures suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether. Kenneth M. Johnson, senior demographer at the University of New Hampshire, estimates 4.8 million fewer babies were born after the recession than would have been born had fertility rates stayed at prerecession levels."

"The postrecession baby lull appeared to be ending when births ticked up in 2014. But they’ve now fallen for three straight years, and last year’s fertility-rate drop was the largest one-year decline since 2010."

"One bright spot in Thursday’s figures, which are preliminary, is a continued sharp decline in teen births, which fell 7% last year. Since 2007, the teen birthrate has declined by 55%, and is down 70% since its peak in 1991. Children born to adolescents are more likely to have poorer educational, behavioral and health outcomes throughout their life."

"lower teen fertility accounts for about one-third of the overall decline in births among U.S. women.

The increase in women attending college is another force behind the birth decline, researchers say. Those with more skills face a greater trade-off if they interrupt their careers to have children.

“People are coming out with a lot of debt,” said Jennie Brand, professor of sociology and statistics at UCLA who has studied the impact of education on fertility. That gives them an incentive to keep working. “It’s another thing they have to grapple with before they might think about starting a family.”"

Related posts:

The Economy Affects The Birth Rate (2010)

Did The Recession Help Lower The Birth Rate? (2011)

U.S. Fertility Rate Hits Lowest Level on Record (2012)

Thursday, May 17, 2018

Has An Increase In Supply Reduced The Economic Value Of Recycling?

See Recycling, Once Embraced by Businesses and Environmentalists, Now Under Siege: Local officials raise fees and send recyclables to landfills as economics erode by Bob Tita of The WSJ. It seems like there is so much of it that the price has fallen and it is not worth the cost of sorting, etc. The article has a graph that shows that just in the last two years the price of cardboard has fallen by 50% while it has fallen even more for mixed paper. Excerpts:
"The U.S. recycling industry is breaking down.

Prices for scrap paper and plastic have collapsed, leading local officials across the country to charge residents more to collect recyclables and send some to landfills. Used newspapers, cardboard boxes and plastic bottles are piling up at plants that can’t make a profit processing them for export or domestic markets.

“Recycling as we know it isn’t working,” said James Warner, chief executive of the Solid Waste Management Authority in Lancaster County, Pa. “There’s always been ups and downs in the market, but this is the biggest disruption that I can recall.”"

"As cities aggressively expanded recycling programs to keep more discarded household items out of landfills, the purity of U.S. scrap deteriorated as more trash infiltrated the recyclables. Discarded food, liquid-soaked paper and other contaminants recently accounted for as much as 20% of the material shipped to China, according to Waste Management Inc.’s estimates, double from five years ago.

The tedious and sometimes dangerous work of separating out that detritus at processing plants in China prompted officials there to slash the contaminants limit this year to 0.5%. China early this month suspended all imports of U.S. recycled materials until June 4, regardless of the quality. The recycling industry interpreted the move as part of the growing rift between the U.S. and China over trade policies and tariffs.

The changes have effectively cut off exports from the U.S., the world’s largest generator of scrap paper and plastic. Collectors, processors and the municipal governments that hire them are reconsidering what they will accept to recycle and how much homeowners will pay for that service. Many trash haulers and city agencies that paid for curbside collection by selling scrap said they are now losing money on almost every ton they handle."

"The waste-management authority in Lancaster County this spring more than doubled the charge per ton that residential trash collectors must pay to deposit recyclables at its transfer station, starting June 1. The higher cost is expected to be passed on to residents though a 3% increase in the fees that haulers charge households for trash collection and disposal."

"Mr. Warner may limit the recyclable items collected from Lancaster County’s 500,000 residents to those that have retained some value, such as cans and corrugated cardboard. He said mixed plastic isn’t worth processing."

"the more intensive sorting process takes too long to process scrap profitably."
Interesting that the article mentions that few items still have value, including cans and  corrugated cardboard. It reminds me of a 2015 New York Times article by John Tierney called The Reign of Recycling. Excerpt:
"According to the E.P.A.’s estimates, virtually all the greenhouse benefits — more than 90 percent — come from just a few materials: paper, cardboard and metals like the aluminum in soda cans. That’s because recycling one ton of metal or paper saves about three tons of carbon dioxide, a much bigger payoff than the other materials analyzed by the E.P.A. Recycling one ton of plastic saves only slightly more than one ton of carbon dioxide. A ton of food saves a little less than a ton. For glass, you have to recycle three tons in order to get about one ton of greenhouse benefits. Worst of all is yard waste: it takes 20 tons of it to save a single ton of carbon dioxide.
Once you exclude paper products and metals, the total annual savings in the United States from recycling everything else in municipal trash — plastics, glass, food, yard trimmings, textiles, rubber, leather — is only two-tenths of 1 percent of America’s carbon footprint.
As a business, recycling is on the wrong side of two long-term global economic trends. For centuries, the real cost of labor has been increasing while the real cost of raw materials has been declining. That’s why we can afford to buy so much more stuff than our ancestors could. As a labor-intensive activity, recycling is an increasingly expensive way to produce materials that are less and less valuable.

Recyclers have tried to improve the economics by automating the sorting process, but they’ve been frustrated by politicians eager to increase recycling rates by adding new materials of little value. The more types of trash that are recycled, the more difficult it becomes to sort the valuable from the worthless.
In New York City, the net cost of recycling a ton of trash is now $300 more than it would cost to bury the trash instead. That adds up to millions of extra dollars per year — about half the budget of the parks department — that New Yorkers are spending for the privilege of recycling. That money could buy far more valuable benefits, including more significant reductions in greenhouse emissions."
See also his 1996 article Recycling Is Garbage.

Wednesday, May 16, 2018

Have Performers Found A Way To Beat Ticket Scalpers?

It seems like it has been going on for a long time. Pop stars put tickets on sale and a concert is sold out quickly. But many of the the tickets are bought by scalpers who turn around and sell them for a higher price.

Why wouldn't the performers just raise the price to what fans end up paying anyway? Then there is no margin for the scalpers. The pop stars have long wanted the publicity of the instant sell out and also might not have wanted to alienate their fans with high prices.

But now, it seems like there are ways to verify who the "real" fans are online who buy early. They get discounts and it prevents the scalpers from buying up large blocks of tickets early on.

See Why Empty Seats at Taylor Swift’s Concerts Are Good for Business: Pricier tickets aimed at squeezing out scalpers and delivering higher returns to promoters are producing fewer instant sellouts by Anne Steele of The WSJ. The new policy seems to be working because Swift has already made 15% more than her last tour. Excerpts:
"The strategy, which could reset how tickets to high-profile tours are sold, is to use aggressive pricing to limit the ability of scalpers to purchase tickets and later sell them at higher prices. In addition, a program from Ticketmaster is aimed at giving passionate fans earlier access to tickets at discounted prices."

"For the current Taylor Swift tour, would-be concertgoers were encouraged to register for Ticketmaster’s Verified Fan program months before tickets went on sale. They could boost their standing in the ticket queue by watching music videos and purchasing the “Reputation” album or merchandise. Users then received codes that allowed them the chance to purchase discounted tickets over a six-day presale period."

"Half of Ms. Swift’s tickets were allocated to the Verified Fan presale. Ticketmaster said soon after the presale that only 3% of those tickets had made their way to secondary websites such as StubHub, compared with an average of 30% to 50% of tickets for high-demand artists. It is unclear whether that statistic has held up; several of the dates now have upward of 3,000 tickets listed on StubHub."

"many artists have been hesitant to raise prices for fear of appearing greedy.

With tickets priced closer to their market value, scalpers—who not only profit but also absorb the risk on tickets that go unsold—have less incentive to try to flip them."

"with artists pricing closer to market value, he said, the fan experience is little changed compared with what it might have been buying tickets on the secondary market."
See a post from 2009 Miley Cyrus vs. The Ticket Scalpers.

Tuesday, May 15, 2018

How Central Banks Differ In Their Methods Of Calculating Inflation

My last two posts covered the uncertainty about the natural rate of unemployment. That is the lowest rate of unemployment compatible with price stability or a low level of inflation. That implies that, if the policy makers try to get the unemployment rate too low, the inflation rate will go over some target, like 2% (the Fed's target).

But it also appears that there is no "right" way to calculate inflation. See Lies, Damn Lies and Inflation: CPI figures have different meanings in the U.S. and Europe, thanks to different treatment of housing and health care by James Mackintosh of The WSJ. Excerpt:
"It is less well understood that the inflation figures have quite different meanings, thanks to different treatment of housing and, to a lesser extent, health care. The most dramatic difference is housing: In the U.S., shelter makes up a third of the consumer-price index, because it includes an imputed rent for homeowners. In Europe only actual rents are measured, at a weight of just 6% of the basket of goods and services underlying the price index.

Measure both using the European approach, and overall prices have risen the same amount since 2011. It is true that using this measure—known as the harmonized index of consumer prices, or HICP—U.S. prices have risen faster since last summer. But that appears to be in large part due to energy, where the weak dollar has pushed oil prices up faster than in Europe. There aren’t any detailed breakdowns available for U.S. HICP, which is still an experimental statistic, but the CPI excluding shelter, food and energy is the best equivalent to core eurozone inflation, and exactly the same at 1.2%.

Another indication of the importance of housing comes from the Cleveland Fed’s median CPI, which takes the middle price rise from a ranking of the CPI components. It drops from 2.6% to 1.7% when imputed rents are excluded, although in recent months it, too, has accelerated.

The Fed’s preferred inflation gauge, the PCE price index, takes a sixth of its weight from rent and imputed rent. The gap from CPI weights is made up mostly by including employers’ health-care costs to get a health-care weight of a fifth. In Europe the equivalent health-care costs, mostly borne by government, are ignored in HICP, and booze and smokes are almost as important as health-care in determining inflation.

Statisticians have argued for years about how to include housing costs, and they keep changing their minds. The Swedish central bank switched its target last year to a different measure of inflation in order to exclude mortgage rates, while the British statistical agency last year started promoting a measure of inflation including imputed rents, with mixed success."

Monday, May 14, 2018

More on the natural rate of unemployment

The WSJ printed a letter about the article I linked in the previous post and then had a related article. See Was the Phillips Curve Ever a Reliable Tool?

Here is the letter:
"Prof. Blinder suggests nobody knows what the nonaccelerating rate of unemployment (Nairu), the neutral (natural) rate of interest (aka r-star or r*) and the Phillips curve are today. This is hardly new. Estimates of Nairu and the Phillips curve have changed constantly over the last 50 years. Alan Greenspan noted this fact at the December 1995 Federal Open Market Committee meeting: “saying that the Nairu has fallen, which is what we tend to do, is not very helpful. That’s because whenever we miss the inflation forecast, we say the Nairu fell.” Other FOMC participants made similar comments at other meetings, e.g., at the February 1999 meeting William Poole, president of the St. Louis Fed, said, “the Phillips curve is an unreliable policy guide”; Edward Boehne, president of the Philadelphia Fed, said “Nairu . . . has about zero value in terms of making policy.” The natural rate of interest is also essentially impossible to measure and, hence, a useless guide for policy.

The truth is making monetary policy is no more difficult or easier today than it ever was. The problem is Mr. Blinder and others have deluded themselves into believing that measures of these concepts have been useful for making policy, even though he notes that the correlation between the unemployment rate and changes in inflation has been essentially zero for nearly 30 years. Inexplicably, he and others choose to ignore the fact that these concepts have had to be re-estimated continuously when their forecasts proved to be wrong.

Dan Thornton, Ph.D.
Valley Park, Mo.
Mr. Thornton is a retired vice president of the Federal Reserve Bank of St. Louis."
See also Unemployment Plunge Raises Stakes in Fed’s Goldilocks Conundrum: Danger of an overheating economy looms ever closer—or not, as theories increasingly come up short by Harriet Torry of The WSJ. Excerpts:
"Ryan Sweet, an economist at Moody’s Analytics, says Nairu is the economics profession’s Loch Ness monster: You might think you’ve seen it, but it’s always hard to know.

Over the past seven decades, Nairu has ranged from about 4.6% to just over 6%, according to the Congressional Budget Office’s economic projections.

Complicating matters, Nairu estimates rely on a contentious theory that falling unemployment pushes up prices and wages. That relationship appears to have broken down in recent years, when inflation remained below the Federal Reserve’s 2% target even as the jobless rate steadily declined.
There are several explanations for why. Nairu itself might not be a useful guide. Or the U.S. might not be at full employment yet. The White House’s chief economist, Kevin Hassett, said last month that full employment “could be in the threes now.”

A broader measure of unemployment that includes workers stuck in part-time jobs or too discouraged to search for work remains high, suggesting slack remains in the labor market. The measure fell to 7.8% in April from 8% in March, whereas in December 2000 it stood at 6.9%.

Former Fed Vice Chairman Alan Blinder points to his “traumatized worker” theory. “Workers still remember the bad old days and they’re more interested in job security than they are in seeking out a raise,” he said.

The Fed’s rough estimate for Nairu is now around 4.5%. Officials project the actual jobless rate will drop to 3.8% by end of this year and reach 3.6% in 2019 and 2020."

Saturday, May 12, 2018

Nobody knows what the natural rate of unemployment is today

See Is the Phillips Curve Dead? And Other Questions for the Fed: Before adjusting interest rates again this year, the central bank should focus on the fundamentals by Alan Blinder. I provide a graphical explanation at the end. Excerpts:
"Most economists determine whether the economy needs stimulus by comparing current and projected unemployment rates with a measure called the Nairu—the nonaccelerating inflation rate of unemployment (sometimes called the natural rate of unemployment). That number is supposed to mark the dividing line between unemployment so high that it pulls inflation down and unemployment so low that is pushes inflation up

Trouble is, nobody knows where the Nairu is today. The FOMC is acting under the assumption that today’s 4.1% unemployment rate is below Nairu, which it currently pegs at 4.5%. That could be right. But a year ago the committee thought Nairu was 4.7%, and three years ago it pegged it at 5.1%. The estimate kept falling because inflation stubbornly refused to rise despite low unemployment.

Here’s my own view, but it’s no more than an educated guess: The unemployment rate has settled at 4.1% for six months now, and inflation is creeping up very slightly. That suggests a Nairu in the 4% to 4.5% range, just a pinch lower than what the Fed now believes. But remember, the Fed keeps lowering its estimate.

Now to the second question: With the federal funds rate in the 1.5% to 1.75% range today, is monetary policy stimulating the economy or restraining it? To answer that question in the past, economists have compared the real interest rate—the funds rate minus inflation—to another key dividing line: the neutral (or natural) real interest rate, which Wall Street calls r* (pronounced “r-star”). Here’s the idea: When the real federal funds rate is above r*, that means money is “tight,” the Fed is holding back demand and inflation should fall. When the real federal funds rate is below r*, money is “loose,” the Fed is pushing demand up, and inflation should rise.

But where is that dividing line today? That’s a complicated question, because r* depends on many factors beyond the Fed’s control. If any of those other factors change, so will r*. The most prominent example today is fiscal policy, which has recently changed quite a lot due to large tax cuts and a bipartisan spending spree. These developments have presumably pushed the neutral interest rate above the Fed’s semiofficial estimate made last fall, which was 0.4%.

Where are we today? The federal funds rate is at 1.7%, while inflation is at 2% and inching up. This means the real federal funds rate—the difference between those two metrics—is slightly negative and thus almost certainly below the neutral rate, though perhaps not by a huge amount. The Fed’s current monetary policy is therefore still slightly stimulative"

"When I was the Fed’s vice chairman in the 1990s, we felt we had a reasonable handle on the Phillips curve: If unemployment rose by 1 percentage point for a year, that would knock about half a percentage point off the inflation rate, plus or minus. That rule of thumb worked pretty well back then. But not lately.

Since 2000, the correlation between unemployment and changes in inflation is nearly zero."
Now my graphical explanation.

The more money in the economy, or the lower the interest rate, the more demand for all goods and services, holding all other factors constant (this total demand is called aggregate demand or AD). The price level in the economy and the total output or quantity produced in the economy is determined by the interaction of AD and aggregate supply (in this case I am interested in something called short-run AS or SRAS-so yes there is a long-run AS but that is not the important issue here although in the long run we will come back to QF with even more inflation if we go past it in the short run). 

The full-employment GDP (QF in the graph below) is the level of GDP that gives us the natural rate of unemployment. If we move from AD1 to AD2, we will still have very small price increases while having a big increase in GDP which will help lower the unemployment rate. But if we go past AD2 (if interest rates get too low), then we get much bigger price increases than for AD increases to the left of QF. So we want the Fed to set interest rates so that we are at AD2. But no one knows for sure if we are at AD2 or not.



The SRAS also keeps getting steeper since inefficiency increases as we get closer to (and beyond)  QF. As inefficiency increases, costs increase faster and faster. This gets passed on to the consumer in the form of ever faster increases in prices. The slope has to get steeper to reflect this. The inefficiencies come in partly because we keep bringing less efficient resources into production the more we try to produce.

If a company has 4 idle factories and demand picks up, it brings the most efficient of the four back online, then the next one, and so on. The demand for resources might be increasing at an increasing rate.
 
Related posts

Fed Officials Disagree On Threat Of Inflation (from 2009)

Fed Chair Janet Yellen: "there remains considerable slack in the economy" (from 2014)

Friday, April 27, 2018

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling

See School Is Expensive. Is It Worth It? For your kids, yes—at least assuming they graduate. But the author of ‘The Case Against Education’ says the benefits to society are vastly overstated. WSJ interview with James Taranto and economics professor Bryan Caplan. Excerpts:
"Mr. Caplan’s case against education begins by acknowledging the case in favor of getting one. “It is individually very fruitful, and individually lucrative,” he says. Full-time workers with a bachelor’s degree, on average, “are making 73% more than high-school graduates.” Workers who finished high school but not college earn 30% more than high-school dropouts. Part of the difference is mere correlation: Mr. Caplan says if you adjust for pre-existing advantages like intelligence and family background, one-fifth to two-fifths of the education premium goes away. Even so, it really does pay to finish school."

"“Why is it that employers would pay all of this extra money for you to go and study a bunch of subjects that they don’t actually need you to know?”

The answer is “signaling,” an economic concept Mr. Caplan explains with an analogy: “There’s two ways to raise the value of a diamond. One of them is, you get an expert gemsmith to cut the diamond perfectly, to make it a wonderful diamond.” That adds value by making the stone objectively better—like human capital in the education context. The other way: “You get a guy with an eyepiece to look at it and go, ‘Oh yeah, yeah, this is great—it’s wonderful, flawless.’ Then he puts a little sticker on it saying ‘triple-A diamond.’ ” That’s signaling. The jewel is the same, but it’s certified.

Suppose you have a bachelor’s in philosophy from Mr. Caplan’s doctoral alma mater, and you’re applying for a job somewhere other than a college philosophy department. What does the sheepskin signal? His answer is threefold: intelligence, work ethic and conformity. “Finishing a philosophy degree from Princeton—most people are not smart enough to do that,” he says. At the same time, “you could be very smart and still fail philosophy at Princeton, because you don’t put in the time and effort to go and pass your classes.”

As for conformity, Mr. Caplan puts the signal into words: “I understand what society expects of me. I’m willing to do it; I’m not going to complain about it; I’m just going to comply. I’m not going to sit around saying, ‘Why do we have to do this stuff? Can’t we do it some other way? I don’t feel like it!’ ” It’s easy to gainsay the value of conformity, a trait the spectacularly successful often lack. Think Mark Zuckerberg. But then imagine how he would have fared as a 21-year-old college dropout applying for an entry-level corporate job.

Mr. Caplan believes these signals are reliable, that college graduates generally do make better employees than nongraduates. Thus it is rational for employers to favor them, and for young people to go through school."

"Because educational signaling is zero-sum, and because its benefits tend to flow to those who were well-off to begin with, the system promotes inequality without creating much wealth. Research comparing the personal and the national payoffs of schooling finds a wide discrepancy—in “the ballpark of, if a year of school for an individual raises earnings about 10%, [then] if you go and raise the education of an entire country’s workforce by a year, it seems to only raise the income of the country by about 2%.” Mr. Caplan therefore reckons that roughly 80% of the education premium comes from signaling, only 20% from marketable skills."

Also see The Philadelphia Eagles' Personnel Strategy: Targeting College Grads: Six of the Seven Players the Team Drafted This Year Are on Track to Graduate by Kevin Clark of the WSJ. It seems like NFL teams see the college degree as a signal. Exceprt:
"Philadelphia's philosophy of pursuing graduates was born when Roseman, the Eagles' general manager since 2010, and Kelly, the team's second-year coach, each discovered that teams with the most college graduates are overwhelmingly successful. Kelly learned this late in his coaching tenure at Oregon, when former Indianapolis Colts coach Tony Dungy, whose son played at Oregon, mentioned in a talk to Oregon players that in the 2000s, the two teams who happened to have loads of graduates were the Colts and New England Patriots. Those teams dominated the first decade of this century.

"I didn't know he'd take it this far," Dungy said, jokingly.

In a private conversation later, Dungy, now an analyst for NBC, told Kelly that his research showed players with degrees were more likely to earn a second NFL contract and make more money. He told Kelly "the guys with degrees have what you are looking for. They are driven. If it's between two players, a degree might tip the scale. But at the time, I don't think he was even thinking of the NFL."
But before Kelly even arrived in Philadelphia, Roseman was doing his own research. Each year, Roseman and his lieutenants take the last four teams left in the playoffs and do reports on them—studying their players' height, weight, background and virtually everything else. Through those reports came evidence that the most successful teams had many college graduates on them. When Roseman and Kelly joined forces, the plan was clear.

The trends over the last five drafts are startling. Studies show that teams who select players who spent five years in college—and thus almost always have a degree—win big. Of the three teams with the most fifth-year seniors drafted, two of them met in February's Super Bowl: the Seattle Seahawks and Denver Broncos. The Jacksonville Jaguars, who went 4-12, took the fewest.

The team that drafted the most players who stayed just three years on campus? The New York Giants, who have missed the playoffs the past two seasons. The Colts, Patriots and Washington Redskins, who have five total playoff appearances in the last two years, have taken the fewest three-year players, who rarely have college degrees.

Kelly said a degree is more than proof of intelligence. "It's also, what is their commitment?" he said. "They set goals out for themselves and can they follow through for it? A lot of people can tell you they want to do this, this and this. But look at their accomplishments."

The Eagles say they want players who are prepared, and a degree confirms that. Take wide receiver Jordan Matthews, a Vanderbilt economics major whose study habits translated perfectly to the NFL."

Related posts:

A fake job reference can be just a few clicks away.

Fake Economist Fools Portugal.

Slave Redemption in Sudan. (Fake slaves are sold to those who buy slaves and then give them their freedom)

Can A Product Work Just Because It's Expensive?. (fake medicine)

If It Pays To Have Friends, Can You Pay To Have Friends?. (you can hire fake boyfriends)

Study: Half of American Doctors Give Patients Placebos Without Telling Them.

Saudis grapple with fake street sweepers .

Rent a White Guy: Confessions of a fake businessman from Beijing (by Mitch Moxley in The Atlantic Monthly)

Can adding a phantom third story to their homes help families find a wife for their son?