Abstract of the Week

John Cook and his co-authors have a new study in the journal Environmental Research Letters digging into the significant research conducted on climate change between 1991 and 2011 to find a consensus position on man-made global warming. The full paper, as well as the accompanying video, are well worth checking out this weekend.

“We analyze the evolution of the scientific consensus on anthropogenic global warming (AGW) in the peer-reviewed scientific literature, examining 11 944 climate abstracts from 1991–2011 matching the topics ‘global climate change’ or ‘global warming’. We find that 66.4% of abstracts expressed no position on AGW, 32.6% endorsed AGW, 0.7% rejected AGW and 0.3% were uncertain about the cause of global warming. Among abstracts expressing a position on AGW, 97.1% endorsed the consensus position that humans are causing global warming. In a second phase of this study, we invited authors to rate their own papers. Compared to abstract ratings, a smaller percentage of self-rated papers expressed no position on AGW (35.5%). Among self-rated papers expressing a position on AGW, 97.2% endorsed the consensus. For both abstract ratings and authors’ self-ratings, the percentage of endorsements among papers expressing a position on AGW marginally increased over time. Our analysis indicates that the number of papers rejecting the consensus on AGW is a vanishingly small proportion of the published research.”

Chart of the Day

– Karl Smith charts just how decent the recovery in private employment (in blue) has actually been in the wake of the Great Recession.

“To beat a dead horse for just a second, there is a good chance, that the notch you see just after 2012 will be straightened out after the benchmark revision and total employment in the US will be revised higher. More importantly, this nearly V-shaped recovery in jobs is a heck of a lot better than what you saw after the Dot-Com bust.”

“The problem is three-fold. 1) This ression was just really, really bad. So, even a sharp recovery doesn’t make everything feel ok. 2) The private sector barely recovered from Dot-Com before it got whacked. So part of what you feel is the suckage of going on 12 years of sub-par job growth. 3) The public sector is a total different story.”

Not Much Division at the Fed

The Wall Street Journal looks at some of the divisions within the Federal Reserve on how to move forward with the central bank’s current support for the economic recovery.

“San Francisco Fed President John Williams, who has been enthusiastic about the merits of the program, said Thursday that he is still prepared to reduce the size of the purchases ‘as early as this summer.’ The president of the Boston Fed, meanwhile, suggested that there is a case that the Fed should be doing even more to boost the economy… A vocal group of regional Fed bank presidents, meanwhile, pressed the case for winding down the bond purchases now.”

Bill McBride explains why there isn’t as much division as may appear from individual Fed Bank Presidents’ speeches and why it wouldn’t matter anyway.

“Some Federal Reserve members carry more weight than others including Fed Chairman Ben Bernanke, Vice Chair Janet Yellen and NY Fed President William Dudley. I’d also pay the most attention to Charles Evans (Chicago Fed), Eric Rosengren (Boston Fed), and John Williams (SF Fed) and a few others. Richard Fisher (Dallas Fed) is entertaining, but has been mostly wrong about the economy. The reality is there is little significant disagreement at the FOMC, and the I expect the bond purchases to continue at the current level through most if not all of this year.”

Obamacare’s Hidden Costs

Linda Gorman has an interesting explainer on how President Obama’s health care reform law could end up taxing marginal increases in income well above 100%.

“The federal poverty level for a family of four is currently $23,550. Allowing for the income set-asides and multiplying by 1.38, this family would be eligible for Medicaid as long as it doesn’t earn more than $32,499. Now, suppose that the family earns an additional $501. It will now be ineligible for Medicaid. If the employer does not offer affordable coverage, the family will have to turn to a health insurance exchange… the premium cost for family coverage purchased through an exchange will be $1,143 per year.”

“Yet, after paying this premium and paying the additional federal income taxes it owes, this family is actually worse off as a result of its higher earnings… On average, however, the family will be much worse off if the employer offers affordable coverage. To be affordable, the employee’s premium for his own coverage cannot exceed 9.5 percent of his W-2 wages, or $3,135. But the employer can charge any amount for other family members. Assuming the employee must pay the national average family premium ($4,316), the employee will have about $4,000 less take-home pay!”

How is Immigration Reform Faring in Committee?

The Senate “Gang of Eight” immigration reform proposal is currently undergoing the markup process in the Judiciary Committee, involving the consideration of what could amount to hundreds of amendments. Dylan Matthews has a breakdown of the 48 amendments that have already been adopted in three days of markup.

Here are some of the most interesting changes so far:

“Securing the whole border (voice vote) Another Grassley amendment strikes all references to ‘high risk’ sections of the border. The bill as written would allow the path-to-citizenship section of the bill take effect when 90 percent of crossers at the high-risk sections of the Mexican border are being captured. This amendment changes that to requiring that 90 percent of crossers on all of the Mexican border be captured before the path-to-citizenship section takes effect.”

“Family unity in detention (10-8) This Hirono amendment would require border agents to ask if apprehended individuals are traveling with spouses or children, or whether or not they are parents or spouses. The intent is to try to ensure that families are not separated during the interrogation process.”

“Protection for E-Verify false positives (voice vote) This Franken amendment calls for annual audits to determine the error rate for E-Verify, the legal status verification system that the immigration bill makes mandatory, and if the rate of false positives (that is, legal residents who are marked as illegal) is above a certain rate, then the maximum fine for first-time offender companies is reduced to account for the possibility of system error.”

The Wrong Shield Law

Lawmakers are considering a new “shield law” in the wake of reports that the Department of Justice seized phone records from the Associated Press that would make it more difficult for government to force journalists to reveal their sources. Stephen Carter argues that the particular shield law under consideration “is a bad idea.”

“The statute, in any case, says only that the government can’t subpoena documents or testimony from journalists until it has exhausted other reasonable means of getting the same information… Even in the absence of a shield law, most prosecutors are too savvy to go after journalists… the protections themselves might change the status quo only a little.”

“The larger problem is the class the bill would protect. The protection applies only to a ‘covered person,’ and a covered person is defined with disturbing narrowness… The main problem is that the statute, by protecting only those who commit journalism professionally, would drive a fully informed and rational leaker to go to a reporter for a mainstream media organization rather than to a blogger or a law student.”

Republicans Debate Demands for Debt Limit Increase

With the debt limit once again primed to become a key issue this fall, “most GOP lawmakers agree that they probably should not block a debt-limit increase, halt Treasury borrowing and let the government default on its obligations,” the Washington Post reports. But that doesn’t mean they will rubber stamp an increase.

“Republicans will demand some kind of prize for voting to raise the debt limit, preferably some policy that serves to reduce the debt… With the budget deficit falling far faster than anyone expected, House leaders have backed off their insistence that any debt-limit increase be paired with budget cuts of equal value. Now, it seems, the sky’s the limit.”

“They ranged from tax and entitlement reform to approval of the Keystone XL pipeline to passage of a bill that would require congressional approval for any federal regulation that would impose more than $100 million in new costs on business. At least one person wanted to take on late-term abortion.”

Why Don’t Markets Trust the Fed

Jesse Eisinger looks at why the financial markets — and in particular hedge fund managers — distrust the Federal Reserve and are critical of Fed Chairman Ben Bernanke’s recent policies.

“It’s impressive that the Fed and many economists have successfully predicted the path of interest rates and inflation in the wake of the worst financial crisis in a generation. But neither the central bank nor academicians managed to predict or prevent the crisis in the first place. The failure dwarfs the accomplishment.”

“Fund managers remember only too well how Alan Greenspan encouraged the stock bubble of the late 1990s, convincing investors that he would bail them out if the stock market dropped severely… The Fed needs to convince the markets that it is on high alert for excesses that could cause the next crisis. And it has to come from the chairman.”

Meanwhile, Matthew Klein advocates for having “more people setting monetary policy who understand how the financial system works.”

“Getting Jeremy Stein, the Harvard economist and finance expert, on the Federal Reserve Board was a good start — more like him would be better… President Barack Obama should see if a top Fed job might lure former Pimco managing director Paul McCulley out of retirement. There are also several good options within academia, including Markus Brunnermeier, John Geanakoplos, Hyun Song Shin and Amir Sufi. Let’s think outside the box.”

We Still Can’t Wind Down the Big Banks

A new paper from the Bipartisan Policy Center lays out how reforms to the Bankruptcy Code and new powers in the Dodd-Frank financial reform law can resolve the problem of “too big to fail,” but Simon Johnson calls the paper “unconvincing — and the bottom-line policy implication, ‘do little, be happy,’ is downright dangerous.”

“We are talking about huge, complex and opaque companies — typically including hundreds of thousands of employees across more than 100 different countries, with 2,000-plus legal entities… The exercise of having large bank holding companies draw up ‘living wills’ to show how their failures could be handled under normal bankruptcy procedures (part of the Title I requirements under Dodd-Frank) is widely regarded as having yielded little or nothing of value.”

“Who will get what kind of support — or be forced to swallow a bail-in (i.e., take losses) in a potential crisis? It is impossible to say with any accuracy… And this leads to perhaps the greatest deficiency in this report: a complete failure to discuss the importance of who holds the quasi-mythical ‘loss-absorbing debt’ at the holding company level. If such debt is held by highly leveraged institutions, with or without obvious systemic importance themselves, then a sharp fall in the value of this debt (leading up to the forced conversion into equity) can help spread a crisis far and wide.”

Student Loans Become a Federal Cash Cow

“The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers,” Huffington Post reports, and the “estimated increase in the Education Department’s earnings from student borrowers and their families may cause a political firestorm in Washington.”

“The new profit prediction comes as Washington policymakers increasingly focus on soaring student debt levels and the record relative interest rates that borrowers pay as a potential impediment to economic growth. Regulators and officials at agencies that include the Federal Reserve, Treasury Department, Consumer Financial Protection Bureau and Federal Reserve Bank of New York have all warned that student borrowing may dampen consumption, depress the economy, limit credit creation or pose a threat to financial stability.”

“Compared to a benchmark interest rate — what the U.S. government pays to borrow for 10 years – student borrowers have never paid more… the CFPB lamented that borrowers are unable to refinance their obligations after they have graduated from college and secured well-paying jobs.”

Blocking the Medicare Reform Board Won’t Stop Reform

The Hill looks at a recently-publicized memo from the Congressional Research Service to Sen. Tom Coburn (R-OK) revealing that if Congress blocks nominees to the Independent Payment Advisory Board — created under President Obama’s health care reform law to slow the growth of Medicare spending — Secretary of Health and Human Services Kathleen Sebelius “can step in instead.”

“The IPAB would make targeted cuts in Medicare’s payments to doctors and other providers. Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) recently said they would not recommend members for the IPAB, as the law asks them to. The House’s internal rules also call for ignoring the IPAB’s proposed cuts.”

“Technically, the IPAB would make recommendations to Congress. But those recommendations are designed to move on a ‘fast track.’ Congress doesn’t have to approve the cuts — rather, they would take effect unless Congress blocks them and comes up with equivalent savings. Cuts that came from Sebelius would move through the same expedited process.”

Economic Data Remains Weak, But Positive

A series of economic data releases today, including the Consumer Price Index from the Federal Reserve Bank of Cleveland and April housing starts from the Census Bureau, show an economy that remains in a sluggish recovery and will likely dispel talk of ending quantitative easing this summer.

Cullen Roche on the CPI numbers: “CPI came in at 1.1% year over year. The government’s headline data has trended lower than I would have expected mainly due to the extremely weak energy data. The core (ex-energy and food) remains just below the Fed’s comfort zone at 1.7%. In general, this data is consistent with an accommodative Fed who sees a very weak underlying economy. No big changes in outlook based on this data. It’s all consistent with the muddle through story.”

Matthew Yglesias on housing starts and permits: “New housing starts fell considerably—16.5 percent—between April and March… I’m going to say that this is the month when my once-a-month invocation to pay more attention to the more-accurately-measured building permits series is finally going to pay off. In April of 2012, US jurisdictions issued permits for the construction of 749,000 new housing units. In March 2013, they issued permits for the construction of 890,000 new housing units. In April 2013, they issued permits for the construction of 1,017,000 new housing units. That is an ongoing recovery in the pace of housing construction.”

Not Much of a Climate Change Debate

A new study in the journal Environmental Research Letters “studied 4,000 summaries of peer-reviewed papers in journals giving a view about climate change since the early 1990s and found that 97 percent said it was mainly caused by humans,” Reuters reports.

“Opinion polls in some countries show widespread belief that scientists disagree about whether climate change is caused by human activities or is part of natural swings such as in the sun’s output.”

“Rising concentrations of carbon dioxide, the main greenhouse gas, hit 400 parts per million in the atmosphere last week, the highest in perhaps 3 million years.”

Will Cloning Return to the Agenda?

News that US scientists have successfully cloned a human embryo “seems almost certain to rekindle a political fight that has raged, on and off, since the announcement of the creation of Dolly the sheep in 1997,” according to NPR.

“But it’s a fight that has, over the past decade and a half, produced a lot of heat and light and not a lot of policy… About the only law that has been able to pass is language that gets added to the funding bill for the Department of Health and Human Services every year since the mid-1990s… It bars the use of federal funds for research that could destroy or harm a human embryo.”

Stop Focusing on “The Deficit”

Reihan Salam explains why lawmakers’ narrow focus on bringing down the deficit for its own sake is “a fool’s errand” and not the right way to make policy.

“The country faces a number of interrelated challenges. Reforming entitlement programs, and in particular health entitlement programs, are among the most important of these challenges, but not just because they are a driver of future deficits. After all, we could raise taxes, including relatively efficient consumption taxes, to address fiscal imbalances.”

“Rather, the deeper problem is that while some of our institutions work relatively well for most people…a lot of them work really badly for people in the bottom two-fifths… We’re in this, or we should be in this, for more than just paring down the debt.”

The Fed is Promoting Irresponsibility

The Federal Reserve’s stimulative monetary policies are frustrating Cullen Roche, not because they aren’t working to some extent, but because the central bank is “encouraging the exact type of mentality and actions that can be so dangerous and destabilizing.”

“In essence, the Fed is working against the prudent types. It’s working against those of us who are trying to teach people basic and important principles about money and markets that can help one substantially reduce risk in a savings portfolio and generate substantially greater stability and predictability with regards to one’s future.”

“They want you to be irrational and imprudent. They want you to chase stock prices higher and allocate out of safe assets into the higher risk assets while incurring all the risks that come along with owning these assets. Personally, I think that’s a reckless message and has the potential to cause more instability over the course of the business cycle than stability. And that’s why many financial types like myself hate what the Fed is doing.”

Medicare, Medicaid Get First Confirmed Chief Since 2006

Marilyn Tavenner, President Obama’s nominee to lead the Centers for Medicare and Medicaid Services, was overwhelmingly confirmed this week, giving CMS their first confirmed administrator since 2006, The Hill reports.

Sarah Kliff explains why confirmation matters: “When the White House knows you’re going to be around for a significant amount of time and have the Senate’s backing, they say, it makes it easier to stand firm on crucial fights.

Why Austerity Just Won’t Die

Paul Krugman has a lengthy post-mortem of austerity policies in the New York Review of Books in which he digs into “the urge to dwell on the lurid details of the boom, rather than trying to understand the dynamics of the slump.”

“Economics 101 would seem to say that all the austerity we’ve seen is very premature, that it should wait until the economy is stronger… austerity economics is in a very bad way. Its predictions have proved utterly wrong; its founding academic documents haven’t just lost their canonized status, they’ve become the objects of much ridicule… This raises the obvious question: Why did austerity economics get such a powerful grip on elite opinion in the first place?”

“Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.”

“I’d argue that Keynes was overwhelmingly right in his approach, but there’s no question that it’s an approach many people find deeply unsatisfying as an emotional matter. And so we shouldn’t find it surprising that many popular interpretations of our current troubles return, whether the authors know it or not, to the instinctive, pre-Keynesian style of dwelling on the excesses of the boom rather than on the failures of the slump.”

Felix Salmon: “I think the general view of the public, and of our mainstream elected representatives, is even simpler. These people aren’t economists, and don’t think in terms of cycles; they certainly can’t clearly articulate the difference between a financial crisis and a fiscal crisis… the biggest problem with Keynes is that, just like Ricardo, a lot of what he discovered is deeply counterintuitive. In which case, Krugman’s cyclical arguments are not going to carry the day politically.”

Military Raises Recruiting Standards in Sluggish Economy

With the military winding down its presence in Iraq and Afghanistan and high youth unemployment in the wake of the financial crisis, CNN reports that the military is raising it’s recruiting standards.

“The Pentagon estimates that only one in four of today’s youth are fit for military service… It wasn’t always this way. Just six years ago, during the Iraq war surge, the military had lower standards. Only about 86% of new recruits had high-school diplomas, and just 67% of recruits scored in the top 50th percentile on the Armed Forces Qualification Test. Waivers excusing health issues and prior misconduct — even felonies — were not uncommon.”

“Those waivers were needed to hit enrollment targets… Now a whopping 99% of recruits have a high-school diploma — an all-time high… There are roughly two applicants for every slot the military is trying to fill.”

How to Speak Like a Central Banker

The Federal Reserve has increasingly come to rely on communication in its efforts to encourage markets and boost the economy, primarily through the Federal Open Market Committee’s policy statements. This will become even more important as the central bank releases its exit strategy, and Ylan Mui deciphers some of the key phrases you will hear from Fed officials.

“Exit strategy. This is the overall strategy for moving from current Fed policy — near-zero interest rates and a $3 trillion balance sheet with another $85 billion in bonds being added — to whatever the Fed’s monetary policy stance will look like as the economy gets closer to normal.”

“State-contingent. This is Fed officials’ way of saying that they will respond to whatever the economy does. If the recovery is going well, game on, exit strategy! If things go south, they can turn that dial the other direction.”

Obama’s Budget Strategy Vindicates Compromises

With news that the short-term budget deficit will be over $200 billion smaller than previously believed, Ross Douthat says that “with these numbers coming on the heels of several months of decent job growth… Obama’s defenders can make a case that he steered a reasonably successful middle course.”

“He got all the stimulus money that Congress was ever going to be willing to push out the door, his own party didn’t give him that much room to maneuver on entitlements, the opposition party was too dysfunctional to cut a deal… and here we are, in much better economic shape than Europe and with more breathing room on debt than anyone expected. It isn’t ideal, but it could have been a lot worse.. I don’t agree with a lot of this pitch, but i agree with the last line.”

“Obama is currently presiding over an improving fiscal and economic picture, and the disasters that conservatives, in particular, described on the horizon — default, hyper-inflation, Greece — seem increasingly remote.”

The Legacy of Tailhook

Retro Report: “It was called the worst case of sexual harassment in the U.S. Navy’s history and led to promises of culture change. But 20 years later, how much has really changed?”

Invest in Removing Carbon from the Atmosphere

Lawrence Krauss explains that “in addition to undertaking dramatic global efforts to reduce present and future CO2 emissions, we need a strategy for addressing the carbon already up there,” and he looks at how we would go about doing just that.

“There are two parts to the extraction process. First, one removes CO2 from the air by using a sorbent, which is a material that can absorb gasses. Next, the CO2 has to be extracted from the sorbent and sequestered, presumably by pumping it deep underground at relatively high concentration or by binding it to minerals—a bit like how we handle nuclear waste. But another possibility includes actually converting it back into fuel.”

“Given the risks of increasing CO2 levels in the atmosphere, and the difficulty of slowing current production, at the very least some modest government R&D support of this important possible alternative seems appropriate right now to help safeguard our future.”

A New Argument for Ending the Fed’s Asset Purchases

Tim Duy breaks down a recent speech by Federal Reserve Bank of Philadelphia President Charles Plosser in which Plosser lays out the arguments for ending the central bank’s quantitative easing program sooner rather than later.

“In short, the Fed communicated a particular strategy – one in which the pace of asset purchases would be determined by recovery in the labor market. And, by Plosser’s reckoning, the 60% increase in the pace of job growth is evidence of exactly the kind of improvement the Fed was looking to achieve.”

“I think that most policymakers will not be swayed to an early end by the ‘Fed’s inflation credibility is at risk’ argument. But a subset is likely swayed by the ‘financial stability is at risk’ argument. And another subset may be swayed by the ‘communications credibility is at risk argument’ that is an element of Plosser’s speech. In short, the majority favoring continuing asset purchases at the current pace is obviously shrinking.”

Chart of the Day

– Cullen Roche charts the large de-leveraging effort by households in the wake of the Great Recession, pointing out that the Federal Reserve Bank of New York’s latest quarterly report on household debt shows that de-leveraging is about to end.

“Technically, it’s still a de-leveraging, but this is a story about gradual improvement. And this de-leveraging has essentially slowed to a trickle at this point and is likely to turn positive in the coming quarters. I wouldn’t declare the Balance Sheet Recession in the USA over, but its impact is certainly waning.”