Worthy Reads from February 6, 2019

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The important takeaway from the February 1 BLS Employment Report is that goods-producing wage growth was remarkably low. No one data point should cause you to change your view radically. But it is yet another brick in the wall of evidence that the Federal Reserve has been massively underestimating how much slack there is in the U.S. economy by focusing on the unemployment rate. The current employment-to-population ratio is 60.7%. The prime-age rate tells us that we should probably adjust that upward by 2.1% to take account of population aging over the last two decades. That tells us that the labor market is still slack relative to its state in the late 1990s to the extent of a full percentage point or so. We should not expect to see higher inflation now—and the Fed should not have tied itself to the mast of using the unemployment rate as thecyclical variable over the past decade. Dan Alpert brings the main course. Karl Smith, Ryan Avent, Nick Bunker: Dan Alpert: Dan Alpert on Twitter: “Hourly and weekly wages for literally all categories of goods producing jobs took a huge tumble last month-down 13 cents/hr or 0.45% on average M/M. Its good 🙁 that there are so few of them or wages across the board would have plummeted! This is huge news!…
The wise Kevin O’Rourke tells me what is going on with respect to Brexit. That Theresa May’s current demand from the EU is that the EU give her permission to break Britain’s word in the Good Friday agreement tells us that her thinking is not something any sane statesman can follow. And what confidence can anybody have in the word of an England that would ask for such permission, anyway?: Kevin O’Rourke: The EU Has No Incentive to Blink on the Irish Border Question: “For Ireland, no deal means a border, but that is hardly the end of the story. Sooner or later someone in the UK will decide that it is time to “sort things out”, and that will mean further negotiations. Abandon the principle that a backstop is required and any border that emerges will be permanent. Retain it and the border may only be temporary. There is still the possibility that the UK will, after all, keep its promises. And Leo Varadkar, the Irish prime minister, will be eviscerated by the opposition if he backs down. An accidental no-deal Brexit is frighteningly likely. It is made more likely by miscommunication and miscalculation. Now is the time for clarity about what will happen if it comes about…
The long con, behavioral economics, and the mass- and social-media nature of the modern public sphere collide in ways that I do not understand, but that I think may be very important: Neil Steinberg: What’s next? ‘Hi, This Is A Scam! Grab Your Wallet So We Can Cheat You!’: “‘Social Security numbers do not get suspended’, the Federal Trade Commission points out on its web page devoted to this scam. ‘Ever’. Are there people who don’t know this? Apparently so. Which raises the question: Why base your scam on something a halfway savvy person knows to be false? For exactly that reason…. Fraud is… about identifying the most credulous, the choicest marks, and going after them. It’s a manpower issue…. Scams fall into two categories: fear and greed…. Fear and/or greed already in the victims-to-be make them party to their own defrauding, but inspires an unspoken complicity that blunts their ability to realize they’ve been had. The resilience of the cheated is plain if we look at… those who supported Donald Trump…
Odds are now 50-50 that the entire Eurozone is or is about to be in a recession: Lucrezia Reichlin: The Threat of a Eurozone Recession: “My company, Now-Casting Economics, first detected a slowdown in the eurozone… started in the third quarter of 2017 and has affected all major eurozone economies, particularly Germany and Italy. This runs contrary to the widely held view of the eurozone as comprising a core of successful countries–especially Germany–and a debt-ridden, slow-growth periphery…
A very welcome shift from a central that two months ago looked hell-bent on a policy likely to cause recession. What explains the shift, however? I do not understand why their policy was what it was two months ago. While I understand their policy now, and while I approve of their shift, I do not understand the why: Frances Coppola: What Is The Real Reason For The Fed’s Sudden Decision To Stop Raising Interest Rates?: “The Fed has put the brakes on. At its latest monetary policy meeting, the FOMC left interest rates unchanged and said it would be ‘patient’ about further interest rate rises. Furthermore, the FOMC’s forward guidance about the pace of balance sheet reduction says that it is ‘prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments’, including reversing course and doing more QE if necessary. Yet only a month ago, the Fed was signaling two interest rate rises in 2019 and no change in the pace of balance sheet reduction. What has caused this sudden change of heart?…
Would somebody please tell me what the Brexiters want? Do they want to stay in the customs union? Do they want a hard border in the Irish Sea? Do they want a hard border within Ireland? What is Theresa May asking for? What are the “alternative arrangements to prevent a hard border with Northern Ireland” and yet allow the collection of customs and the exclusion of commodities that do not meet European standards that they seek? 14.5 of British GDP is exported to the EU. 3.5% of EU GDP is exported to Britain. Demonstrating that being in the EU is a good deal relative to other options is an important value for the EU. Evans-Pritchard never says—nor does he comment that the German economists whom he praises also call for the UK government to abandon its “red lines”. What is Theresa May willing to give up that the EU values in order to secure the removal of the Irish Backstop?: Ambrose Evans-Pritchard: German Anger Builds Over Dangerous Handling of Brexit by EU Ideologues: “A group of top German economists has told the EU to tear up the Irish backstop and ditch its ideological demands in Brexit talks, calling instead for a flexible Europe of concentric circles that preserves friendly ties with the UK…. The report implicitly rebuked the European Commission for mishandling its negotiations with Britain and for trying to use the legal advantage of the Article 50 process to dictate a harsh settlement, with little regard for long-term strategic and diplomatic interests…
The Philips Curve was always properly used as a heuristic framework for thinking about issues, not as a machine for generating certainty-equivalent forecasts to use in month-to-month policy decisions: Jeanna Smialek: R.I.P. Phillips Curve? The Fed’s Wonky Guidestar May Be Dimming: Fed has been moving from tight labor-brings-inflation logic. They’re now waiting for actual, not anticipated, price gains…
The Federal Reserve turns on a dime. I wish that rates were lower as they pursue a higher inflation target than 2%/year, but they appear to have decided that they, after all, really o not wish to invert the yield curve. That makes this a brighter day than I had expected. Tim Duy: Setting The Doves Free: “The statement was more dovish than I anticipated; I did not think they would want to take rate hikes off the table to this degree. I forgot that the Fed often turns their story later than I think they should, but when they turn, they turn quickly…. The Fed believes they will maintain a larger than expected balance sheet…. The bar for raising rates seems high now and apparently hinges on the inflation boogeyman to finally show his face…. This sounds like the rate hike cycle is over–or largely over–as long as the economy eases as expected…
It is starting to look like Theresa May is aiming at forcing Britain’s House of Commons to make a late-March choice between Her Deal and No Deal. A British patriot would be going to the country to ask it to make a choice between Her Deal and No Brexit. But, alas, countries do not get the political and moral non-dwarfs that they need: Rafael Behr: May Thinks She’s Won. But the Reality of Brexit Will Soon Hit Her Again: “Inside the addict’s head the most important thing is getting to the next Brexit fix, scoring the best deal. But from the outside, to our European friends and family, it is obvious that the problem is the compulsive pursuit of a product that does us only harm…. Some MPs can see the situation spiralling out of control. Today 298 lined up to demand an intervention. They backed a cross-party bid to seize control of the Brexit agenda from the government… But the move failed…
?????? it certainly seems to me as though Donald Trump wants there to be a Sino-American trade war—after all they are, as he says, “easy to win”. If the U.S. wants a tussle with China over intellectual property, the right strategy is for the U.S to back off now, go to the TPP members, apologize for its actions in rejecting the TPP in early 2017, join the TPP, and then negotiate as part of a United front with other TPP members. The U.S. by itself has no leverage —the IP China can grab is worth more than the cost of losing access to the U.S. market. So I have no idea what Marty thinks he is saying here: Martin Feldstein: There Is No Sino-American Trade War: “Chinese negotiators recently offered to buy enough American products to reduce the bilateral trade deficit to zero by 2024. Why, then, have US negotiators rejected that as a way to end the dispute?…

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