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November 22, 2006
Inequality: Not Just Made In The USA
China’s poor grew poorer at a time when the country was growing substantially wealthier, an analysis by World Bank economists has found.
The real income of the poorest 10 per cent of China’s 1.3bn people fell by 2.4 per cent in the two years to 2003, the analysis showed, a period when the economy was growing by nearly 10 per cent a year. Over the same period, the income of China’s richest 10 per cent rose by more than 16 per cent...
China, which had relatively even income distribution in 1980 when it embarked on market reforms, is now “less equal” than the US and Russia, using the Gini co-efficient, a standard measure of income disparities.
The Wall Street Journal has more (on page A4 of today's print edition):
The reason for the income decline at the bottom isn't clear. The World Bank hasn't completed its analysis and its conclusions haven't been published. Even so, the data call into question an economic model that economists have held up as an example for other developing nations.
"This finding is very important. If true, it sheds doubt on the argument that a rising tide lifts all boats," said Bert Hofman, the World Bank's chief economist in China...
Many observers place part of the blame on the way China dismantled its social-welfare system as it phased out state control of the economy -- without building up much to replace it. Health care has become a point of particular concern, as costs shoot up without any widespread system of medical insurance to cover them.
Here is an important piece of information:
The World Bank's Mr. Hofman says the bank's analysis shows the majority of China's poorest 10% appear to be only temporarily poor, thrown down by some setback like sudden illness, the loss of a job or the confiscation of land. That suggests that a basic social safety net, like medical insurance or unemployment benefits, could help move them back out of poverty. Only about 20% to 30% of the poorest appear to be long-term poor, and even they have some savings.
... the survey compares snapshots of the lowest tier of Chinese society at two different points, rather than tracking the same of group of households over time. So, it doesn't necessarily mean that the people who were in the poorest 10% of society in 2001 were all 2.5% worse off in 2003.
Temporary bouts of economic hardship are clearly a much different thing than persistent poverty traps. And if, in fact, poverty is predominantly transitory, we should perhaps be more circumspect about declaring that a rising tide fails to raise all boats. Rising inequality -- here and elsewhere -- may be very well be a problem. But policymakers would be well advised to understand what problem it is, before the surgery begins.
August 30, 2006
There is a little something for everyone -- that is to say, things to cheer about, things to frown about -- in the Census Bureau's report on Income, Poverty, and Health Insurance Coverage for 2005. MarketWatch summarizes:
Real U.S. median household income rose 1.1% in 2005, climbing for the first increase since 1999, but inflation-adjusted incomes still have not recovered fully from the 2001 recession, the Census Bureau reported Tuesday.
Real median incomes for 2005 rose 1.1% to $46,326 but were down 0.5% from 2001's $46,569. Median income means half of the 114.4 million U.S. households earned less, half earned more. The figures have been adjusted for inflation.
Income inequality continued to increase, with the top 20% of families accounting for a record 50.4% of all household income, just the third time since the mid-1960s that they've taken more than half. For the top 20%, the median income rose by $3,592, or 2.2%, to $166,000.
Meanwhile, the bottom 20% captured just 3.4% of income, matching their lowest share since the mid-1960s. Median incomes for the bottom 20% increased by $17, or 0.2%, to $11,288...
The poverty rate declined for the first time since 2000, nosing down to 12.6% from 12.7%, but this amounted to a statistically insignificant change, the government said. The poverty rate was 1.3 percentage points higher than 2001's 11.3% but was lower than the 13.8% average in the 1990s.
If you are poor and not working -- which is the most common circumstance for those under the poverty line -- the reasons are not obviously associated with a lack of jobs for those who choose to remain in the labor force.
July 22, 2006
Odds And Ends -- July 22 Edition
A rainy morning in Cleveland, and an opportunity to do some quality blog-surfing.
The confluence of Chairman Bernanke's Congressional testimony and the release of the June FOMC meeting minutes got lots of people thinking about what is next for U.S. monetary policy. Brad Delong is "surprised that there hasn't been a pause yet" and thinks that we haven't seen one because "the Fed is scared of the 'soft on inflation' headlines that a pause would generate." The Capital Spectator offers a terrific round-up of the week's economic news, and claims that "In theory, a slowing economy makes it easier for the Federal Reserve to cease and desist with its current round of interest rate hikes. In practice, life's more difficult, thanks to the worrisome rise in core CPI in June..." Tim Duy also thinks that "although the Bernanke sounded soothing relative to expectations, the incoming data argue for another rate hike in August." Toni Straka believes the "rate trend will stay the same and probably accelerate." At Hypothetical Bias, the opinion is "Once more and done (for a bit, at least)". William Polley is leaning that way too. Barry Ritholtz reiterates: The Bernanke bounce in the stock market is a "sucker bet".
Speaking of the Chairman -- more specifically his ideas about the global savings and investment and their relationship with interest rates -- Mark Thoma has a legitimate beef with the use of the word "glut."
Other summaries of, and commentary on, the week's economic news: From Dr. John John Rutledge (here and here). Calculated Risk provides a nice graphical look at where housing inventories are building, replicated from the Wall Street Journal. The Nattering Naybob Chronicles has its usual rundown of the week in bond and equity markets. MacroMouse contemplates the end of quantitative easing in Japan, and sees lessons for U.S. policymakers. Tim Iacono has plenty of this and that, as does The Skeptical Speculator.
On my exchange with Nouriel Roubini on Chinese currency reform, Kash agrees "it does not feel like we're getting closer to some sort of crisis" but wonders "what should we expect it to feel like?" Paul at Truck and Barter gets right to the substance of our exchange, while Brad Setser adds his own, ever insightful, thoughts at RGE Monitor. The Skeptical Speculator notes that "China has taken additional steps to cool its economy." Though not about the Chinese case specifically, Daniel Gross addresses a related and really important question: Is the end of American dominance in capital markets done?
Russell Roberts echoes an argument made this week by Ben Bernanke: In dealing with low-wage workers, an earned-income credit is preferable to a minimum wage. He also takes on Paul Krugman's position on both the minimum wage and the inequality statistics that Krugman argues support a minimum wage policy.
Brad DeLong highlights an interesting column by Hal Varian on luck and taxation. (Bottom line: If luck -- as opposed to hard work and risk-taking -- is a big part of being rich progressive taxation makes good economic sense. The intuition would be that luck is not sensitive to prices, and so won't be diminished by relatively high taxes.)
Mark Thoma noticed the Varian piece too, and has several links to others opining on the inequality debate more generally. I'd also check out Greg Mankiw's ruminations, Tom McGuire's recent "Stalking Points", and, if you have the time, everything in the Cafe Hayek archive on inequality.
Taking a more global perspective on poverty and inequality, J.S. at Environmental Economics shares some thoughts on "Rethinking Development Aid For The 21st Century" (thoughts which sound pretty darn sensible to me). Also, NEI Nuclear Notes asks "Should Developing Nations Embrace Nuclear Energy?" In the category of excellent advice, The New Economist quite rightly commends your attention to the Private Sector Development Blog. (So do I.)
A colorful picture of who gets what from oil revenues across the G7 is available at Contango.
John Irons documents the continuing, and puzzling, mix of profits versus labor compensation in overall income. As I've noted before, however, there may be more to this story than meets the eye.
Hat tip to Captain Capitalism for the link to this article about a county in Oregon that is running its own monetary system. Mark Thoma comments intelligently on a proposal to implement a commodity-based monetary system backed by "local renewable energy" (whatever that might mean).
Daniel Drezner links to an interesting article in the Economist on the value (or lack thereof?) of large quantitative trade models.
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