Morning Report – Another Elmendorf special 2/5/14

Vital Statistics:

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S&P Futures 1742.0 -1.7 -0.10%
Eurostoxx Index 2968.5 6.1 0.20%
Oil (WTI) 97.58 0.4 0.40%
LIBOR 0.236 0.000 -0.04%
US Dollar Index (DXY) 81.15 0.024 0.03%
10 Year Govt Bond Yield 2.64% 0.01%
Current Coupon Ginnie Mae TBA 106.1 0.0
Current Coupon Fannie Mae TBA 104.8 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.24
Markets are flattish this morning after the ADP Employment Report forecast that 175,000 jobs were created in January. Bonds and MBS are flat. Markets might be a little thin today as the Northeast is snowed in once again.
The ADP report suggests a “meh” number for this Friday’s jobs report, although the ADP report has been a lousy predictor of the BLS numbers lately – last month, ADP forecast 238k jobs and the BLS number came in at 87K. So take this number with a grain of salt. Given what we know about the Fed’s intentions regarding tapering, it would take an extraordinary number on either side to change the Fed’s glidepath.
Mortgage Applications rose .4% last week, which is actually a pretty dismal number when you think about it – mortgage rates fell 7 basis points last week and we had an easy comparison given the MLK holiday the week before. Purchase apps were down 3.8%, while refis were up 2.8%. That said, this is a seasonally weak time, so it is hard to read too much into it, but there it is. FWIW, the homebuilders that have reported fourth quarter earnings so far noted strong traffic in January, which is an encouraging sign.
In the partisan spin wars about obamacare, the CBO launched a new toy to tussle over, with a study showing that obamacare would cost the economy about 2 million jobs. Republicans cited the study, saying that it confirmed what we knew all along, that obamacare would be a job killer. When you look at what CBO actually said, however, it they concluded that the job losses would comhe from people voluntarily leaving the work force, not employers cutting hours / jobs. In fact, CBO said the job losses attributable to employers cutting jobs was so small they didn’t bother to measure it. Obviously Elmendorf (head of the CBO) hasn’t been checking out the reports put out by the regional Federal Reserve banks, or the NFIB small business surveys, which document actual hiring plans from actual businesses and instead is relying on some sort of model to predict what will happen.
Regardless of how their model is specified, the CBO is in effect arguing that the laws of supply and demand are different in the labor market (which is an underlying assumption of most other left-wing labor policy). The normal supply / demand curve looks like this:  As prices increase, more supply comes out (which means if compensation increases, more people want to work) and demand decreases ( which means businesses will want to cut costs / substitute labor for technology, etc) All pretty common-sense stuff. Anyone who has taken Econ 101 will recognize this chart:

However, CBO is making a different argument: Because of obamacare (which raises the price of labor through employer mandates, etc) people will drop out of the labor force more than they would otherwise.  In other words, as price increases, supply will decrease. If people are starting to make more, does anyone really think that would encourage people to quit working? And their second argument makes even less sense – that employers will ignore increased compensation costs and continue to hire as before. Anyone who has used a self-checkout at the supermarket knows that argument is bunk. The CBO is arguing that employer demand for labor is inelastic – meaning that no matter what the price of labor is, they will pay it. In other words, if prices increase, demand stays the same. That may be true of certain items (think life-saving drugs like insulin), but certainly not 99.9% of the goods out there, and certainly not labor. Heck, if that was the case, raise the minimum wage to a million dollars and we’ll all be rich! Essentially, CBO is arguing that the labor market looks like this:

I’ll leave it to the reader to figure out whether this makes sense or not.

This study, along with another Elmendorf special – that mass principal mods would save the government money – makes me wonder how partisan the supposedly non-partisan Elmendorf CBO is.

45 Responses

  1. About time!





  2. Heh.


  3. Isn’t CVS’s decision re tobacco really about class signaling?


  4. Brent–

    Pretty graph! 🙂


  5. thanks,=.. my ASCII art attempt in PL didn’t really work, did it?


  6. Isn’t CVS’s decision re tobacco really about class signaling?

    No, it’s about them legitimizing themselves as a health care provider. There’s plenty in that to scare the pants off of you rather than worrying about whether or not they’re out to screw the poor.

    And why would you think that cigarette smoking is a class issue? When I think about it, the only people that I know personally who smoke are all richer than me. Of course, since they smoke I figure I’m smarter than them, so there’s that.


  7. my ASCII art attempt in PL didn’t really work, did it?

    If only that were the least of PL’s problems!


  8. you tired to explain that to the PL. you’re braver than I thought.

    “The CBO is arguing that employer demand for labor is inelastic”

    are the justifying that argument? Or is this just an article of the faith.


  9. Shit, corked.


  10. you tired to explain that to the PL. you’re braver than I thought.
    “The CBO is arguing that employer demand for labor is inelastic”
    are the justifying that argument? Or is this just an article of the faith.

    Yeah, immediately after I posted it, I was accused of being stupid and unable to read. Of course those comments came before anyone could read what I had said….

    The logic is identical to those that argue that increasing the minimum wage doesn’t affect job growth.


  11. smoking rates decline as income increases. .

    That could be more about age than class… Most smokers start young (does anyone pick up the habit after their 20s?) and give it up as they age. Income increases with age as well, so….


  12. 4 tweets by Byron York. The last one asks a really good question.


  13. Heh.


  14. “What’s the limiting principle here?”

    when non-democractic constituencies start to benefit.


  15. Is Domenech’s piece about how David can fight Goliath or how being David is cool and there are a long line of riotous Davids?

    I can’t decide.


  16. Nice piece on our national debt.

    As the CBO put it: “To avoid these consequences, lawmakers will ultimately have to make significant changes to tax and spending policies – letting revenues rise more than they would under current law, reducing spending for large benefit programs below the projected amounts, cutting other federal spending to even lower levels by historical standards than currently projected, or adopting some combination of those approaches.”

    These are the stark choices America faces, whether or not Washington has decided to move on.

    What can’t go on forever, won’t.

    What’s left out is debt repudiation.


  17. they’ll seize retirement assets first.


  18. Wont be enough. There is no prospect for growth.


  19. Plus I’m not sure how you seize the assets of the largest segment of the electorate that is also the segment most likely to vote.

    Repudiation, printing and hyper-inflation.


  20. That this appeared in HuffPo tells you who the message is for.


  21. Nice Libertarian piece on immigration.

    Plus it touches on the hubris of control.


  22. Still don’t get why this animates the left so.

    Ultimately, what justification does a layman have for believing a scientist over a preacher given that s/he has no training in either.

    Why the butthurt is all.


  23. This is why a number of states did not want to expand Medicaid. The Woodwork effect means that those who enroll outside of OCare criteria only get 50% vs Ocare’s 90%+ rate.


  24. That culture war isn’t going to fight itself, Troll.

    Some dude wants to build an ark. and that’s offensive for reasons I don’t understand.


    • McWing/nova:

      I thought this was interesting, from the Daily Beast piece on the Nye/Ham debate:

      Nye may be the last to understand a point that seems to be circulating more widely these days: creationism is a political issue, not a scientific one, and throwing around scientific facts won’t dissuade those who don’t accept scientific authority in the first place.

      It is true that creationism is a political issue, but what is interesting to me is that it is the atheists that have turned it into one. After all, it isn’t fundamental Christians who are trying to legislate atheist beliefs/values out of existence.


  25. “The Woodwork effect means that those who enroll outside of OCare criteria only get 50%”

    Things NoVA’s said for $600*, Alex

    *we’re increasing difficulty!


  26. Heh.

    It is a wonder. All things to all people.


  27. Why the butthurt is all.

    I think it comes from the possibility of someone teaching creationism in public schools. Still the amount of outrage seems out of proportion with the issue….


    • I am genuinely curious…how can anyone think that it is reasonable to demand that people in a given community be forced to support, via taxation, a public school, while disallowing those same people from establishing the curriculum to be used in that public school?


  28. That said, the left has always feared and despised religion, so it makes sense from that angle as well… I guess they don’t like the idea of someone answering to a higher power than the state.


  29. “answering to a higher power than the state”

    everything for the state, nothing outside the state, nothing against the state.

    he was very clear on this point.


  30. because they don’t believe in representative democracy?


  31. because they don’t believe in representative democracy?

    Ironically, as a limited government guy, I get accused of that all the time. Any limitation on government power means you are rejecting democracy…


  32. But a Representative Republic is a rejection of Democracy as classically understood.


  33. Shouldn’t January’s unemployment rate have skyrocketed as those who were “job locked” because they were afraid to quit their jobs due to fear of losing their health insurance?


  34. The lefty butthurt’s just weird, no?


    • McWing:

      The lefty butthurt’s just weird, no?

      Within the context of the left’s ideological intolerance for disagreement, I suppose it is rather predictable. The entire progressive project is essentially an exercise in imposing its values/will on those who disagree, so it shouldn’t come as a surprise that it will be most outraged at those instances where it is been unable to do so.


  35. Here we go.


  36. The lefty butthurt’s just weird, no?

    Bill Nye vs this other guy is kind of the Super Bowl for progressives…


  37. Thanks Brent. This post makes your point on Demand much more clearly.

    I think the CBO is wrong here as well:

    “In fact, CBO said the job losses attributable to employers cutting jobs was so small they didn’t bother to measure it.”

    My PL windmill was attempting to make them realize that people working less due to an effective tax is a classic supply side argument.


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