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Menzie Chinn

Menzie Chinn

He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Articles by Menzie Chinn

Federal Spending Implications of the House GOP Tax Plan: $25 bn Off of Medicare …

6 days ago

As noted in this earlier post, the distributional consequences of the House Tax Cuts and Jobs Act should include the spending cuts. According to CBO, there will be a $25 billion cut to Medicare unless independent legislation is passed. From TPM:
…automatic cuts spring into action anytime Congress passes a bill that balloons the federal deficit, as the tax bill would. The approximately $136 billion in cuts spurred by the GOP tax bill would hit a number of government programs—including farm subsidies and the Border Patrol—but would cut most deeply into Medicare. Medicaid, Social Security, and food stamps are protected.

[FY 2016 net Medicare outlays were $588 billion]
Even then, PAYGO requirements won’t be met given limits on how much can be cut in a given year. From CBO:
Given that the

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Tracking Wisconsin Manufacturing Employment

7 days ago

The Wisconsin Department of Workforce Development (DWD) today released new employment data for October. Manufacturing employment surged in the establishment data, but the contemporaneously released additional three months of data from the Quarterly Census of Employment and Wages (QCEW) (through June) suggests slower manufacturing growth.

Figure 1: Wisconsin manufacturing payroll employment from establishment survey (CES) (blue), and from Quarterly Census of Employment and Wages (QCEW) (red), both measured on a log scale. Light brown shaded area denotes period where CES data has not been benchmarked using QCEW data. Source: BLS, and DWD.
When the establishment series is revised in the January data release, it will incorporate data from the QCEW. In previous two years, the manufacturing

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Distributional Consequences of the Tax Cuts and Job Act

8 days ago

Here’s a metaphorical picture:Source: AP/Jacquelyn Martin via Garber.
and here’s a more technical depiction.Source: Tax Policy Center.
Notice that in 2027 the benefits skew much more toward higher incomes. And in general, the cuts accruing to the lower income households expire, while those to the higher are permanent.

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The Real Adrenaline Shot? Kansas since the End of the Brownback Experiment

8 days ago

Kansas employment nosedived in June, and has bounced back since the Brownback tax cut was rolled back. Kansas employment is catching up with Missouri after lagging. The Philadelphia Fed’s coincident and leading indices also point to a recovery in Kansas.
Figure 1: Nonfarm payroll employment in Kansas (blue), on log scale. Source: BLS.
Notice that NFP employment dives, then rebounds with rescission. One might think that this is a function of government employment declining with budget troubles, but a similar pattern obtains when examining private NFP.

Figure 2: Private nonfarm payroll employment in Kansas (blue), on log scale. Source: BLS.
The fact that Kansas employment has recovered means that Kansas is no longer losing ground relative to Missouri employment.

Coincident indicators

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CBO/JCT on Deficits and Debt under the Tax Cuts and Job Act

9 days ago

And resulting impending cuts to Medicare.
Per CBO letter released yesterday.
Figure 1: Federal budget balance to GDP, by FY, baseline (blue), and under Tax Cut and Jobs Act (red). Source: CBO.

Figure 2: Federal debt held by the public to GDP, by FY, baseline (blue), and under Tax Cut and Jobs Act (red). Source: CBO.
And from the CBO today:
Without enacting subsequent legislation to either offset that deficit increase, waive the recordation of the bill’s impact on the scorecard, or otherwise mitigate or eliminate the requirements of the PAYGO law, OMB would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion. However, the PAYGO law limits reductions to Medicare to four

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Census Data on Wisconsin Manufacturing: More on Premature Triumphalism

10 days ago

Recall the Walker Administration termed the Quarterly Census of Employment and Wages (QCEW) the “gold standard” of employment measures. I thought it useful to compare the QCEW figures on manufacturing against the establishment survey. Here is the twelve money growth rate under the two measures (the QCEW data is not seasonally adjusted).
Figure 1: 12 month log difference in Wisconsin manufacturing payroll employment from establishment survey (CES) (blue), and from Quarterly Census of Employment and Wages (QCEW) (red). Light brown shaded area denotes period where CES data has not been benchmarked using QCEW data. Source: BLS, and author’s calculations.

Year on year manufacturing employment growth through March 2017 according to QCEW was 0.2%, lower than the 0.5% implied by the

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Guest Contribution: “The Long-term Job Decline in US Manufacturing”

10 days ago

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers.

What does international trade have to do with US jobs? Surely the US trade deficit in manufacturing has reduced employment? Not as much as you would think, on net. Especially with regard to overall employment, which in the long run is determined by the size of the labor force. But even if manufacturing jobs are considered more important than service jobs, trade policy has not been the main reason for their decline. Perhaps the raw statistics can be made more intuitively convincing if one makes comparisons with other sectors.
Consider long-term job loss in three sectors: Manufacturing, Coal, and

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How’s Wisconsin’s Economy Doing?

12 days ago

Employment underperforming the February Budget forecast; output too. Philadelphia Fed indices say activity is flat. A time series forecast using forward-looking indicators implies a continued rise in the unemployment rate.

Ever since the Wisconsin Department of Revenue stopped publishing the Wisconsin Economic Outlook (see here for discussion), I’ve been forced to compile on my own various evaluations of prospects for Wisconsin’s economy. Here’s my take.
To begin with, let’s look at the forecasts used in the Governor’s budget, from February (based on IHS MarkIt forecasts), and compare to outcomes realized so far.
First employment:Figure 1: Wisconsin nonfarm payroll employment (blue), and forecast used in FY2017-19 budget (red), in thousands, both on log scale. Source: BLS and DoA.
As

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Defining Crowding Out in an Open Economy

14 days ago

Gavin Ekins argues that it’s Time to Shoulder Aside “Crowding Out” As an Excuse Not to Do Tax Reform. From the introduction:

Government budget deficits do absorb a portion of national or global saving, diverting the saving from supporting private investment. This is known as “crowding out.” However, saving is flexible both in magnitude and where it is invested. It can grow as household income increases and move in response to higher borrowing needs and higher returns to investment. Much of a tax reduction feeds directly into saving, especially cuts in business taxation. Furthermore, the United States is an open economy closely integrated with world financial markets. Even relatively large budget deficits are dwarfed by huge levels of global saving. It takes only a minute change in

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Ethnic Diversity Measured

15 days ago

In trying to explain why Canada has lower gun death rates than the US, Bruce Hall boldly asserts that Canada is more ethnically homogenous than the US. I wonder in this data-rich era why people make bold assertions like this.

Mr. Hall bases his assertion on data analyzed by Political Calculations. For reasons I have highlighted here, here, and here, this is an ill advised decision. It’s also strange, as social scientists have been creating indices based on formal definitions of diversity. One associated with Alesina, et al. (2002), ethnic fractionalization, which is measured as follows:
If you called up two people at random in a particular country and ask them their ethnicity, what are the odds that they would give different answers? The higher the odds, the more ethnically

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Cumulative Mass Shooting Casualties in America as of November 6th

17 days ago

Figure 1: Cumulative sum of mass shooting casualties, beginning in 1982M08; deaths (red), wounded (pink). October observation for data through 11/6. Source: Mother Jones.

Here’s a detail:Figure 2: Cumulative sum of mass shooting casualties, beginning in 2007M01; deaths (red), wounded (pink). October observation for data through 11/6. Source: Mother Jones.
This graph is for this commenter.
Figure 3: Cumulative sum of mass shooting casualties, beginning in 1982M08; deaths inflicted by non-Muslims (dark red), wounded inflicted by non-Muslims (pink), deaths inflicted by Muslims (dark blue), wounded inflicted by Muslims (light blue). October observation for data through 10/2. Source: Mother Jones and author’s calculations. Tabulations of religion of perpetrator by author.
The database

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Crimes against Economic Analysis

18 days ago

Well, Sam Clovis is no longer under consideration to be the top scientist at USDA (a good thing given he has no scientific credentials). But Bill Beach is nominated to be Commissioner of Labor Statistics, i.e., heading BLS.

When last we heard of Bill Beach, he had just revised the fantastical forecasts of the Ryan (2011) plan. Recall:
Heritage (Center for Data Analysis) CDA re-adjusted the natural or structural rate of unemployment — and hence simulated unemployment — without having any reported impact on any of the other variables changing
In other words, Heritage’s CDA under Bill Beach’s leadership projected fantastical growth under the Ryan plan. As Macroeconomic Advisers put it:
We don’t believe this finding, which was generated by manipulating an econometric model that would not

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A Modest Proposal (to Boost Growth): Wisconsin Edition

18 days ago

Certain individuals (even on this weblog) have highlighted the decline in labor force growth as a factor in stagnant economic growth in Wisconsin. Wisconsin State Representative Scott Allen has the following public policy proposal, as recounted in The Hill:

A Wisconsin state lawmaker this week suggested that abortion be made illegal to help add more people to the workforce.

“Labor force shortages are tied to population declines. And labor force shortages are a limiting factor in economic growth. And limited economic growth poses a problem when government tries to pay for public services and infrastructure,” Allen said.
“In spite of this Mr. Speaker, ironically, the Democrats continue their effort to support the abortion industry.”

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Federal Debt under the Tax Cut and Jobs Act

20 days ago

It (the debt picture under the Tax Cut and Jobs Act, H.R.1) is not pretty, especially after taking into account the accounting gimmicks (that change the “reported” number but not the actual numbers).
Source: Committee for a Responsible Federal Budget (Nov. 3, 2017).
Note that plausible dynamic scoring is unlikely to change the trajectory of debt-to-GDP substantially.

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Did Lower Relative Manufacturing Wages Lead to Greater Manufacturing Activity in Wisconsin?

20 days ago

As suggested here. Maybe. It might depend on the measure of economic activity.

One viewpoint is that high wages discouraged employment in Wisconsin. Below, I show the wage premium from Alder et al. (2017), and Wisconsin’s manufacturing value added as a share of the Great Lakes region, for the 1950-2000 period (1963 onward for GDP).
Figure 1: Top – Wisconsin wage premium from Alder et al. (2017) and Bottom – Wisconsin’s manufacturing value added share of Great Lakes. NAICS data 1997 onward. Source: Alder et al. (2017), BEA regional data, and author’s calculations.
To me, it seems like the expansion of Wisconsin’s share decelerates 1980-1990 as the Wisconsin wage premium declines, and at a minimum does not accelerate 1990-2000 (maybe even slows further!) when one would’ve thought it would

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“West Coast Workshop in International Finance 2017”

20 days ago

Taking place today, this is the fifth in the series, with topics this year on exchange rates and monetary policy, macroprudential policy, credit and business cycles (sponsored by UC Santa Cruz Economics, Santa Clara Economics, and Federal Reserve Bank of San Francisco, organization chaired by Helen Popper at SCU and Grace Weishi Gu at UCSC).
The website is here with links to papers, conference agenda here.

Exchange Rates and Monetary Policy, Chair: Grace Gu (UCSC)
9:00 – 9:45“Currency Manipulation,” Tarek Hassan (U. Chicago), Thomas Mertens (FRB San Francisco), and Tony Zhang (U. Chicago)
Discussant: Romain Ranciere (USC)
9:45 – 10:30
“Should Central Banks Worry about Nonlinearities of their Large-Scale Macroeconomic Models?” Vadym Lepetyuk (Bank of Canada), Lilia Maliar (Stanford),

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Wisconsin Economic Activity Flat… And Projected to Remain Flat

21 days ago

That’s what the Philadelphia Fed’s leading indices, released today, indicate. In contrast, Minnesota is projected to power ahead.
Figure 1: Coincident index for Minnesota (blue), Wisconsin (red), and US (black), 1992M07=100, all on log scale; March 2018 values are implied by leading indices. Source: Philadelphia Fed, author’s calculations.
The implied level of economic activity in March 2018 will not exceed the level estimated for July 2017.
Governor Scott Walker has described the Wisconsin economy as “on fire”.

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Premature Triumphalism and Wisconsin Manufacturing

22 days ago

Some analyses have pointed to the surge in Wisconsin manufacturing employment as evidence that certain policy configurations lead to improved performance [1]

Indeed, Wisconsin (unbenchmarked) manufacturing employment has moved slightly ahead of that in Minnesota, relative to January 2011. However, if one were interested in the value added, it turns out that Wisconsin is a marked underperformer.
Figure 1: Log manufacturing value added in Minnesota (blue), Wisconsin (red), and US (black), normalized to 2011Q1=0. NBER recession dates shaded gray. Source: BEA, NBER, and author’s calculations.
Wisconsin lags Minnesota by 14.5 percentage points cumulative since 2011Q1. Inspection of durables manufacturing does not change the picture substantively.
Figure 2: Log durable manufacturing value

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No Second Thoughts: Sustained 3.5% Growth Is Unlikely

23 days ago

Reader Arthurian writes in the wake of the 3% growth rate (SAAR) reported for 2017Q3:
Back in January Menzie Chinn said he thought growth in the 3.5-4% range was “unlikely”. I wonder if he is having second thoughts now.
I’m going to show two pictures deploying at most undergraduate statistics to show why I — like most numerically literate people — still think sustained 3.5% growth is unlikely.
First, consider what a naive statistical model — an ARIMA(1,1,1) estimated over the 1986-2017Q3 period — says, as compared to a 3.5% or 4% growth rate.
Figure 1: Reported GDP (blue), ARIMA(1,1,1) dynamic forecast (red) and 64% prediction interval (gray lines), implied path for 3.5% sustained growth (pink) and for 4% (light green), all billions Ch.2009$ SAAR. Source: BEA 2017Q3 advance release,

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Guest Contribution: “The Choice of Candidates for Next Fed Chair”

25 days ago

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate.

The Trump Administration has said it will announce its choice for the new Chair of the Federal Reserve Board before November 3rd. Subject to Senate confirmation, the chosen candidate will succeed Janet Yellen, whose term ends February 3.
The Trump White House has said it views five candidates as front runners. Two are eminent economists with unusually impressive records both in academic research, mostly at West Coast universities, and as practitioners of macroeconomic policy. That would be Yellen herself, who is a strong candidate for reappointment, and

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So Much For Fiscal Probity

28 days ago

House adopts Senate budget…
The budget will allow Republicans to pass a tax overhaul that adds up to $1.5 trillion to the deficit through a process known as reconciliation, which only requires 51 votes to pass in the Senate.

Here’s the implications for debt:
Source: Committee for a Responsible Federal Deficit (Oct. 18, 2017).
In other words, the legendary “true” Republican deficit hawk is a rare creature indeed.
If the legislation passes, my back of the envelope calculations (based on these estimates) suggest a 0.5 ppt of GDP increase in the current account relative to what would have otherwise occurred.

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Day 279: China Still Not Yet Declared a Currency Manipulator

29 days ago

Not that I’m complaining. But seriously, it’s far past the “day one” of the new Administration when Donald Trump promised China would be declared a currency manipulator.

The Treasury’s report was released last week. Treasury uses the following criterion:
Pursuant to Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, thissection of the Report seeks to identify any major trading partner of the United States thathas: (1) a significant bilateral trade surplus with the United States, (2) a material currentaccount surplus, and (3) engaged in persistent one-sided intervention in the foreignexchange market. Section 701 requires data on each major trading partner’s bilateral tradebalance with the United States, its current account balance as a percentage of GDP,

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Be Not Complicit

October 24, 2017

Senator Flake’s prepared comments announcing his resignation from the Senate (from CNN):
Mr. President, I rise today to address a matter that has been much on my mind, at a moment when it seems that our democracy is more defined by our discord and our dysfunction than it is by our values and our principles. Let me begin by noting a somewhat obvious point that these offices that we hold are not ours to hold indefinitely. We are not here simply to mark time. Sustained incumbency is certainly not the point of seeking office. And there are times when we must risk our careers in favor of our principles.

Now is such a time.
It must also be said that I rise today with no small measure of regret. Regret, because of the state of our disunion, regret because of the disrepair and destructiveness

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Prospects for Economic Activity in Wisconsin

October 23, 2017

My last two posts [1] [2] on the Wisconsin economy refer to employment. A broader measure of economic activity, meant to track state Gross Domestic Product, is provided by the Philadelphia Fed’s coincident indices. That indicator for Wisconsin is currently decreasing; the October 2 release (for the index through August) indicate the most recent peak was June, and has been declining since. This is shown in Figure 1. Moreover, the leading index points to continued contraction over the next six months.
Figure 1: Coincident index for Wisconsin (blue, left log scale), and implied value for April 2018 (light blue dashed arrow, left log scale), and Wisconsin nonfarm payroll employment (red, right log scale). Light green shading pertains to period during which employment data does not incorporate

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In Case You Forgot: Wisconsin Still 29,400 Below Governor Walker’s Promised 250,000 New Jobs by January 2015

October 22, 2017

The Wisconsin Department of Workforce Development touts employment growth. Here is a graph comparing reported employment and Walker’s August 2013 promise (which reader Alan Goldhammer reminds me of).

Figure 1: Wisconsin private nonfarm payroll employment (blue), and path promised by Walker in August 2013 (red). The light green shaded period pertains to data that has not yet been benchmarked using QCEW data. Source: BLS, Milwaukee Journal Sentinel, author’s calculations.
The release notes:
“Wisconsin’s manufacturing sector continues to lead the way for Wisconsin’s economy, with the number of manufacturing jobs added in Wisconsin ranking second nationally year over year and our state’s growth rate leading other Midwest states,” Secretary Allen said. “Additionally, Wisconsin’s 12-month gain

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One for the Annals of Selective Data Reporting: Wisconsin Edition

October 19, 2017

Around midmonth I often check the Wisconsin Department of Workforce Development to see their reporting of state employment statistics in advance of the BLS release (tomorrow, for the September figures). Oddly, today, the DWD released statistics for September, without any detailed tables, in an abbreviated press release (compare with last month’s release to see what I’m saying). In order to figure out the revised August numbers (and actual level of September preliminary numbers) one had to go back to earlier releases and add and subtract.

Why? Well, I can piece together the information provided to generate these graphs, which suggest to me the motivation was to obscure the lackluster nature of Wisconsin employment growth.
Figure 1: Nonfarm payroll employment in Minnesota (blue), Wisconsin

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“We’re Doing a Great Job” in Puerto Rico

October 19, 2017

I just saw the President re-state this point in a press conference with the Governor of Puerto Rico. He also just said (if I heard it right) that the Federal response deserves a “10” score. Here are some key graphs.

These graphs are based on FEMA data, reported and updated here by WaPo (graphs accessed 11:50AM Central, 10/19).
It is good to see the gradient is positive, after trending sideways for some days. Of course, these statistics mean that around 2.7 million American citizens are without power; and about 1 million without water service one month after Hurricane Maria struck the island. It is also good that the President has not suggested pulling out FEMA and other Federal support again. I know, it’s a low bar, but these days I am thankful for whatever I can get.

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The Association between China-based Job Displacement and Drug Overdose Deaths

October 19, 2017

A recent White House internal memo has suggested a causal relationship between the decline in manufacturing jobs and a host of social ills, including the opioid epidemic. Here is a graphical/geographic comparison of two variables that are related to these factors.

Here is the geographic variation in job loss due to trade competition from China:
Source: EPI via Oak (2012).
Here is the geographic variation in drug deaths in 2015:
source: Jacobs (2017).
The correlation is less than perfect, from my casual inspection. It should be noted that the influential academic findings have documented a rise in mortality among white non-Hispanic working class individuals, not overall populations, as in the second figure. Still, this lack of correlation suggests that the link between manufacturing job

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Recession Watch, October 2017

October 18, 2017

Where do we stand?

Here’s the official GDP series and two monthly series.
Figure 1: Real GDP in bn. Ch2009$ SAAR, from third release (blue bar), Macroeconomic Advisers (green), e-forecasting (red), GDPNow (dark blue bold line). Source: BEA, Macroeconomic Advisers (28 September), e-forecasting (18 October), Atlanta Fed GDPNow (13 October).
Note that the decline in monthly GDP as calculated by e-forecasting starts in August, before Hurricanes Irma and Harvey. Of course, these monthly series are subject to large revisions, so it’s advisable to downweight such a movement. In addition, the Atlanta Fed’s GDPNow suggests continued growth in the third quarter, 3% SAAR.
Five key indicators the NBER Business Cycle Dating Committee (BCDC) have in the past examined are depicted below. They also

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