Here’s an excellent survey in Scientific American of the evolving field of behavioral economics.

There are some very useful ideas here, including ways that we could frame legislative policy choices.

An amusing observation by MIT professor Andrew Lo:

“Economists suffer from a deep psychological disorder that I call ‘physics envy,’ ” Lo says. “We wish that 99 percent of economic behavior could be captured by three simple laws of nature. In fact, economists have 99 laws that capture 3 percent of behavior. Economics is a uniquely human endeavor and, as such, should be understood in the broader context of competition, mutation and natural selection-in other words, evolution.”

One of the economic blogs notes that the housing problem is not turning around.  As measured by single family home delinquencies experienced by Freddie Mac, the economy is still plunging southward at a very high rate.

Click here to see the chart full-sized.  Doesn’t look like a turnaround, does it?

still too fast

Here’s this morning’s one-liner from the Economics & Statistics Administration:

Real gross domestic product (GDP) decreased at an annual rate of 5.5% in the first quarter of 2009, according to today’s final estimate.  This follows a decrease of 6.3% in the fourth quarter of 2008.

So let’s see if we can get a feel for what these numbers mean:

• A sound, sustainable growth rate for the US economy is about 3%.  Let’s call that 60 miles an hour — the safe, sustainable speed we might use on the interstate to get to grandma’s house — nothing fancy but we’ll get there in good shape.
• That would mean that a shrinkage rate — reverse growth — of 6.3% is the same as driving 126 mph — in the other direction!
• And the 5.5% decrease means that we’re still driving in the wrong direction, we’ve just slowed down to 110 miles an hour!

And this is supposed to be good news?  At least we’re slowing, but we’re still way beyond our normal economic driving range. Detailed data here.

Here’s an interesting chart:  an annotated track of American debt as percent of GDP since the founding of the Republic. From a prominent economics blog.  Go below the jump for a full-sized look. Read the rest of this entry »

the national chart

There’s a connection: no job may mean no house and vice versa.  This survey of the relationship in a number of cites, including Seattle, suggests that house prices don’t stabilize and start to rise until the bottom of the unemployment curve is reached. For us that is expected to be sometime next year, Spring ‘10.

And note in the chart below that Seattle’s home prices, even though falling, are still quite high compared to historical trends.  Click here to see the Seattle area chart full size.

Paul Krugman points out just how serious the unemployment numbers continue to be.

Here’s a plot of new claims (4-week average) (red, right scale) versus the monthly decline in payroll employment (blue, left scale). What the figure suggests is that to stabilize employment, we’d have to see new claims drop below 400,000 or so. We’re nowhere near that point. In fact, a read of the data remains very, very grim.

Here’s an interesting item from McClatchy: an interactive chart showing forecast employment recovery times for all the metropolitan areas of the country.

Using Google maps, one can zoom in.  Unemployment data also availble.  Another example of what a creative news service can do online.

What do the data show? Many (most?) metropolitan areas of the U.S. will not recover to ‘normal’ unemployment levels until 2012.  We already knew that, this makes it graphic.

engines missing

I grump at every one of the cheerful forecasts — including the President’s (technically OMB’s) budgeted expectation of 3.5-4% growth in the budget years just ahead, growht which conveniently erases some of the red ink.

What factors point the other way?  I’ll keep this post open for further additions, here’s my starting list:

1. All engines stopped.  The US economy is huge and hugely stopped. We need several economic engines revving up.  For now the main engines are stopped or at idle: manufacturing, home building, retail.
2. Joblessness climbing.  The rate at which people are being thrown out of work may be slowing but the total number of people losing their jobs each day is still at a staggering level.  And as the previous post showed, hours worked are also still plummeting so those fortunate enough to have a job are taking home smaller paychecks (and cutting back on health care expenses, etc.).
3. Banking still nearly frozen. For all the $trillions we’ve committed to the finance in outright grants or guarantees, the US and global finance sector is still dysfunctional.

anchored

Not only are our engines not running, our economy is held back by two major anchors:

1. Health care costs.  Health care is eating us alive.  It is a cancer. More and more Americans are going without health care yet health budgets are skyrocketing — way beyond ‘normal’ growth.
2. Low high school graduation rates.  The fact is that our education system is dumping a fourth or more of our kids into adulthood without the skills needed ti get into a good career. The total number of non-high school graduates in my legislative district is increasing! Yet we all know that this is the point in history when nations thrive only by dint of a highly educated workforce.

Unemployment is one measure of the recession.  Working hours is another. One of the interesting aspects of this recession is how much working hours have decreased — i.e., rather than or in addition to laying people off employers have been cutting payrolls by cutting hours worked.

This chart shows that even as the pace of layoffs is slowing a bit, the working hours cutbacks are still going strong.  This reduced hours crunch translates into smaller paychecks and more pain: more mortgage problems, dropping health insurance, etc. All of which translates into lower tax revenues and trouble for our state budget.

Jeff Frankels discusses his reasons for placing great weight on weekly hours worked as a key measure of recession-recovery, a measure which shows we’re still in deep trouble, including on our state budget.

The New York Times details the progression of events and decisions that led from Bill Clinton’s budget surpluses to the Bush-Obama deficits.

They have assembled a telling graphic – a portrait which we may wish to keep as a reference in the dark days ahead — make that years and decades — when we repay these debts.

The graphic itself is below the jump. Read the rest of this entry »