Month: July 2009

Google, Unemployment, and the Future of Data

Google may eventually solve the problem of finding data on the web. Too bad its first effort reports the wrong numbers for unemployment.

Since leaving public service, I have occasionally pondered whether to start a company / organization to transform the way that data are made available on the web. The data are out there, but they remain a nuisance to find, a nuisance to manipulate, and a nuisance to display. I cringe every time I have to download CSV files, import to Excel, manipulate the data (in a good sense), make a chart, and fix the dumb formatting choices that Excel makes. All those steps should be much, much easier.

There are good solutions to many of these problems if you have a research assistant or are ready to spend $20,000 on an annual subscription. With ongoing technology advances, however, there ought to be a much cheaper (perhaps even free) way of doing this on the net.  With some good programming, some servers, and careful design (both graphic and human factors), it should be possible to dis-intermediate research assistants and democratize the ability to access and analyze data. At least, that’s my vision.

Many organizations have attacked various pieces of this problem, and a few have even made some headway (FRED deserves special mention in economics). But when you think about it, this is really a problem that Google ought to solve. It has the servers, software expertise, and business model to make this work at large scale. And with its launch of a search service for public data it has already signaled its interest in this problem.

As a major data consumer, I wish Google every success in this effort. However, I’d also like to use their initial effort, now almost three months old, as a case study in what not to do.

Google’s first offering of economics data is the unemployment rate for the United States (also available for the individual states and various localities). Search for “unemployment rate united states” and Google will give you the following graph:

Google UE

Your first reaction should be that this is great. With absolutely no muss and no fuss, you have an excellent (albeit sobering) chart of the unemployment rate since 1990. I would add myriad extensions to this – e.g., make it easier to look at shorter time periods, allow users to look at the change in the unemployment rate, rather than the level, etc. – but the basic concept is outstanding.

Unfortunately, there is one major problem:  That’s the wrong unemployment rate.

Click over to the Bureau of Labor Statistics, open a newspaper (remember them?), or stay right here on my blog – all of them will tell you that the unemployment rate in June was 9.5% not 9.7%.

Continue reading “Google, Unemployment, and the Future of Data”

CLASS Act Fails the Offset Test

If you take budgeting seriously, people sometimes think you are a curmudgeon. When I was at the Congressional Budget Office, for example, we were once denounced as anti-housing because we concluded that increasing subsidies for low-income housing wasn’t free. CBO reached that conclusion using an advanced tool known as “arithmetic”, but some advocates tried to portray it as an anti-housing policy statement.

At the risk of again appearing curmudgeonly, I would like to draw your attention to a provision in the health care reform bill being considered by the Senate HELP Committee. That provision, the Community Living Assistance Services and Supports Act, would create a new program to insure participants against some of the financial costs of disability and long-term care.

I have nothing to say about the merits of this provision, except to note that it has one of the best acronyms in legislative history: the CLASS Act.

I have a great deal to say, however, about the arithmetic of the CLASS Act, because it illustrates just how hard it will be for our legislative process to really pay for health care reform.

Continue reading “CLASS Act Fails the Offset Test”

We Already Did a Second Stimulus

Much ink, both physical and electronic, has recently been spilled on the question of whether the United States should undertake a second stimulus.

To which there is only one possible answer: we already did a second stimulus.

The first stimulus — the Economic Stimulus Act of 2008 — was signed by President Bush in February 2008. That Act gave families $115 billion in tax rebates and allowed companies to depreciate business investment more rapidly. Overall, the Act reduced taxes and increased spending by $168 billion in 2008 and 2009 (the long-term budget hit from the Act is smaller — about $124 billion over ten years — because the corporate tax reductions deferred tax payments rather than eliminating them.)

Those were the days before the collapse of Lehman (heck, it was even before the collapse of Bear Stearns) when policymakers were rightly worried about a weak economy, but $168 billion seemed like a lot of money.

The second stimulus — the American Recovery and Reinvestment Act of 2009 –was signed by President Obama in February 2009. That Act increases spending on a host of programs, including infrastructure, state assistance, and extended unemployment insurance. It also created the Making Work Pay tax credit, among other tax reductions. The Act is usually described as a $787 billion stimulus, with ten-year spending increases of $575 billion and tax reductions of $212 billion. The reality is a bit more complex, however. On the one hand, the Act provides somewhat more stimulus than the headline figure; for example, there are about $810 billion in spending increases and tax reductions during the first seven years. On the other hand, the stimulus takes time to phase in; during fiscal 2009, for example, the estimated stimulus is about $185 billion.

The question we face today is whether to enact a third stimulus, not a second one. I will have more to say on this in the future. For now, I think the Obama administration has it exactly right, indicating that it’s premature to enact a third stimulus, but their economic team is closely monitoring the situation.

Citigroup & Berkshire Anomalies

Summary: Both Citigroup and Berkshire Hathaway continue to violate the law of one price.

Citigroup

In previous posts (this is the most recent), I’ve pointed out that there are three ways you can purchase common shares of Citigroup:

Simple: Buy shares of common stock.

Preferred: Buy shares of preferred stock that will convert into common.

Synthetic: Use call and put options to replicate the financial returns of owning common stock.

In a perfect world, these three approaches would give nearly identical prices. That’s the law of one price.

Over the past few months, however, Citi securities have been breaking that law. Investors who have been buying common shares have been significantly overpaying relative to the values implied by the prices of the preferred stock and options.

Continue reading “Citigroup & Berkshire Anomalies”

Happy Birthday America

… and happy birthday to one of the world’s greatest documents.

My wife and I have a simple tradition for celebrating the fourth: we set our clock radio to NPR and wake up to its annual reading of the Declaration of Independence. It’s an inspiring way to start the day.

My favorite part? The concluding lines:

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

CBO on the New HELP Bill

On Thursday evening, the Congressional Budget Office (CBO) released a preliminary analysis of the latest version of Title I of the Affordable Health Choices Act, commonly known as the HELP bill or the Kennedy bill (since it’s the product of the Senate Committee on Health, Education, Labor, and Pensions which Senator Kennedy chairs).

Based on a quick review, here are the top six things I think you should know about the cost estimate:

1.  The analysis is preliminary. CBO and the Joint Committee on Taxation have not yet had time to analyze every provision in the bill, some provisions remain in flux, and new provisions may be added. Health policy continues to be a moving target.

2. The headline cost of the bill — about $600 billion over ten years — is significantly lower than the $1 trillion net cost of the previous version of the bill. The net costs declined because (i) the subsidies for coverage through health insurance exchanges are now smaller, (ii) employers would have to pay a penalty if they do not offer insurance to their workers, and (iii) it would be much harder for employees to get subsidies in the exchange if their employer offers health insurance.

Note: The new CBO tables cover Title I of the bill, which has a net budget cost of $597 billion.  CBO had earlier scored other portions of the bill as costing $14 billion. As a result, you will hear some commentators using the $597 billion figure and others using $611 billion.

3. As usual, it’s important to unpack the headline cost into its constituent parts: the 10-year cost of expanding health insurance coverage in Title I is about $743 billion and a separate provision adds an additional $10 billion. That $753 billion cost is then partially offset by penalties on employers who don’t offer coverage to their workers ($52 billion), penalties on uninsured individuals ($36 billion), higher income and payroll taxes ($10 billion), and the net premiums generated by a program (CLASS) to provide long-term care insurance ($58 billion). The income and payroll tax offset is much smaller than in the previous version of the bill because the current draft would have a much smaller impact on employer-provided health insurance.

4. The bill includes provisions for a public plan, but CBO concludes that these provisions would “not have a substantial effect on the cost or enrollment projections.” CBO reaches that conclusion because “the public plan would pay providers of health care at rates comparable to privately negotiated rates–and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges.” In short, the reduced cost of the bill is due to the factors outlined in the previous paragraph, not to the public plan.

Continue reading “CBO on the New HELP Bill”

A Grim Jobs Report

The headlines in today’s job report were gloomy:

  • Nonfarm payrolls fell by 467,000 in June, more than expected and more than in May.
  • The unemployment rate increased to 9.5%.

That gloominess is confirmed if you look deeper into the numbers. Most striking is the continued decline in the number of hours logged by private sector workers. The average workweek fell to 33.0 hours in June, the lowest since BLS began tracking the data in 1964.

The economy is thus losing jobs and, for the jobs that remain, is losing hours worked. That double whammy is bad news for the economy.

The following chart shows year-over-year changes in BLS’s index of total private sector hours worked (by production and nonsupervisory workers, who make up the bulk of the workforce). This index is useful because it captures both the number of jobs and the number of hours worked:

AWHI - June - 2009

As you can see, the recent decline in private hours worked is sharper than any in the past forty years. Over the past twelve months, total private hours have declined by 7%.

A closely related issue is the rise in part-time employment for economic reasons. Continue reading “A Grim Jobs Report”