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Monday, August 10, 2015

The news

Been busy again, here's news:

New Deal Demoncrat - why should you read me? Why should you read him?:
So what is it that I bring to the table? Fitting the data into the business cycle.

I know of nobody else in the econoblogosphere who so relentlessly parses the economic data into long and short leading indicators, coincident indicators, short and long lagging indicators, and midcycle indicators -- and backs up the categorizations with as much historical data as possible, sometimes going back an entire century.

So when I read somewhere that, e.g., employment will drive consumer spending, or housing, I already know that the historical data shows exactly the reverse: housing drives employment with a 12 month or more lag; consumer spending drives employment with a much shorter lag. I know that, over the longer term, corporate profits lead stock prices, not the other way around. I know that bank lending only turns up once an expansion has started. I know that the trend in hiring, whether up or down, slows and then turns first in comparison with the trend in firing. And so on.
Yeah no really he's right. I'm taking economics at university cos I'm scared he'll stop blogging someday.

The only thing I'd tell NDD to change is how he spells DOOOOOM with not five Os.

Worthwhile Canadian Initiative - problems with the Fraser Institute inequality survey. No, really? The Fraser Institute lied in order to justify a neocon agenda? You're kidding me!:
Professor Sarlo highlights “a principal finding of the study” that “individual income inequality has actually declined in Canada” over the study period 1982 – 2010. It is odd to highlight the individual result given that the study argues “that the appropriate recipient unit is the family” and finds that family inequality has increased. But let that pass for the moment, because there are still three red flags.

First, the study’s income definition excludes capital gains but deducts all income taxes, including the income taxes paid on capital gains. Hence the income observation for someone with capital gains will actually be lower than an otherwise identical person with no capital gains. As capital gains mostly occur towards the top end of the income distribution, this reduces the estimate of inequality.

Second, the data source is the Survey of Labour and Income Dynamics (SLID). A 2004 Statistics Canada paper by Frenette, Green and Picot and a 2007 Canadian Journal of Economics (CJE)paper by Frenette, Green and Milligan show that SLID tends to under-represent individuals in the tails of the distribution and hence underestimates inequality. (There is an ungated version of the latter paper here, although I prefer the journal version.) Given it is a direct challenge to its findings, one would expect some comment in the Fraser Institute study, but the paper is not cited.

This connects to the third red flag. The SLID coverage problem means that the top one per cent is underrepresented in the analysis (and does not even get a mention in the paper). Data from Statistics Canada CANSIM table 204-0001 (where I have adjusted for inflation) show why this matters: The average after-tax income of the top one per cent of taxfilers went from about $200 thousand to about $380 thousand between 1982 and 2010, an increase of about 90 per cent. For the top 0.1 per cent the increase was from about $570 thousand to about $1.4 million (about 140 per cent).

In sum, the Fraser Institute study uses a flawed income variable and a data set that lacks coverage in the tails, both in ways that lead to underestimated inequality. And it omits discussion of the top one per cent where significant increases in income inequality have occurred. I noted in my Globe letter that the Fraser Institute study includes this comment: “Too often, improper measures of inequality are used to arrive at results supportive of an advocate’s pre-existing position.” I wondered whether it had happened again.
Well that was so totally unexpected! The Fraser Institute lying? The Fraser Institute omitting conflicting data? The Fraser Institute essentially publishing a completely fabricated neocon puff-piece to support their fascist kleptocratic agenda? Me going completely overboard with sarcasm when you've already got the point? Say it ain't so!

Macro Market Musings - the monetary superpower strikes again. The argument is that because China has pegged the yuan to the dollar, they are now exposed to the USA's upcoming monetary tightening cycle. Which is important. Then again, the Chinese leadership seems fond of using other macroprudential tools, like changing the reserve ratio. Though I guess that could end horribly when taken too far.

Economist - why Indian manufacturing peaked in the 90s. Why Whitey's Modi fanclub are idiots for thinking that he can rescue India by waving the Holy Handbag of Margaret Thatcher.

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