October 2007 Archives

Here's one paragraph from the Wall Street Journal article on the move.

Stocks and bonds sold off on the news. The Dow Jones Industrial Average ,up over 80 points before the Fed's afternoon announcement, initially fell into negative territory. Long-term bond prices, which move in the opposite direction of yields, fell. The statement appears to sharply reduce the odds the Fed will cut rates again at its December meeting, as markets had expected.

Please excuse my shouting for just a moment.... GOOD! Maybe they'll take it to heart this time.

There, now I feel better.

Comments are coming in fast and furious to the Journal's Real Time Economics blog. They are overwhelmingly harsh. Personally, I don't share that harsh assessment that this was the wrong thing to do. I don't think this was a decision that they wanted to make. Certainly it is not a decision that they thought they would have to make a few weeks ago. If they could go back and do a couple things differently, they might be tempted. Given the way things evolved, they did the best they could, came up with a better statement, and maybe learned a thing or two. Could be worse.

Ok, first of all, the Fed needs to upgrade its web server to handle the extra load if they are going to give us any more days like this. I think all the people checking in at 1:15 (Central) might have brought down the server. I'm getting nothing right now.

Here's the CNBC story. The link to the statement will have to wait until their server catches its breath.

UPDATE: And here it is... FOMC Statement

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent.

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M. Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the federal funds rate at this meeting.

My first impression is that it is a good statement... better than the last. In the first paragraph (not counting the opening sentence), I see a reiteration that this move, with September's, should help forestall adverse effects from the housing trouble. In other words, I see this as telling the market, "You didn't get it last time but let's try this again. We're serious." Ok, maybe that could have been stronger. But there is an additional sentence about the inflation risks. That's good. There is a statement that the balance of risks is roughly equal. That is the key. That is a much stronger way of saying that the predisposition is going to be towards doing nothing unless something really serious pushes them off of that stance. It is a lot stronger than the previous statement. Though it will be ruthlessly parsed word by word in the next few hours, my initial read is that this satisfies me.

Hoenig dissented. Poole did not. Some might be surprised, but I was not. Poole's interviews lately have been pretty balanced. He has been upfront about recognizing the risk from financial instability. Hoenig, on the other hand, didn't get as much attention. But I do remember this item...

TULSA, Oklahoma (Reuters) - Federal Reserve Bank of Kansas City President Thomas Hoenig on Wednesday said he was keeping an open mind about the future direction of interest rates but was on alert for fallout from financial market woes.

"Wait and see," he cautioned an audience at a dinner hosted by the Kansas City Fed.

That was from October 17. I kept that story in my feed reader for some reason... as if I thought I might want to reference it someday.

And as I said before, the fact that someone dissented and asked for no change does a lot for making this a credible statement that says that they are done unless something at least a standard deviation out of the ordinary occurs.

Well, that was an interesting couple of days. Let's do it again in about 6 weeks... with a little less drama, maybe?

In the very short run (like, say, the next couple hours), no. Wall St. Journal story on GDP here. The stock market, quite predictably, rallied a bit. However, it has not moved anyone seriously off of their expectations of a 25 b.p. rate cut. So, if your immediate thought was that this might buy the Fed a way out, I have to say that I don't think it's any easier. In a perfect world, expectations might have been more balanced coming into today and then this data could have tipped the balance towards doing nothing. I might wish that was the world we live in, but it's not. Felix Salmon has more.

On the fundamental question of what the Fed should do--taking everything, including expectations, into account--I'm left with the opinion that while it would be a courageous statement of principle to do nothing (and part of me really wishes they could), I think it might be too risky given the somewhat fragile state of the market. I'm really holding my nose as I say that because I don't like the idea of the Fed being pushed into doing something. But in some sense you also have to play the hand you are dealt...or the hand you dealt yourself... or something.

Commenter Kevin writes:

I think Ben's Fed has really tried to stay away from any commitments about the path of future policy moves. So I think your suggestion that they say that this will be the last cut is a nonstarter. However, what I do expect would be more guidance about the conditions for any changes - which may include taking back the rate cuts (imagine that!).

First, a clarification. When I made reference to them saying that this would be the last cut, I was using some verbal shorthand at the end of a long post (in a three part series!) Of course they will not say it in so many words. They can "say" it in their assessment of the risks to growth and inflation. It's easy to come up with some wording that would say that they are going to have a "neutral bias" (though that language is itself somewhat passé). Whether one could make that language credible is another matter.

So then what about some guidance about the conditions for any changes? Not yet, not in any formal way. That could potentially end up being part of the new communication strategy that the Fed is discussing. But not yet. And they are certainly not going to say anything today about when these cuts are going to be taken back. Not a chance. Personally, I'd like to see that guidance too. I think one could make a credible case that if 4th quarter GDP growth is above X and if average monthly job growth stays above Y and if core PCE stays below Z, then they could raise the funds rate in January or March. But they certainly aren't going to tell us X, Y, and Z (or whatever other indicators would come into play). And I really don't think you're even going to get much of a hint yet. I think the best we can hope for is a strongly worded statement that growth is stronger than anticipated, that the housing problems have not yet spilled over into the broader economy, and that the magnitude of that spillover may be less than anticipated. Furthermore, firms are getting squeezed by higher input prices. While that has not yet passed through to final goods prices, the weaker dollar is going to put more pressure on firms to raise prices. (Except that the Fed will not talk about the weaker dollar, but you get the idea.) Make it so we expect that at least 25 basis points will be taken back if this strength continues. That way, if the 4th quarter ends up being only slightly weaker, they could still get by with holding steady in December and January.

It's almost time.

I've got a full plate tomorrow, so I may not be able to post in the morning. I am going to try to arrange it to be around the computer at 1:15 (Central), though I may step out to watch CNBC for the actual announcement. So here are my thoughts after a long day of kicking this around, watching the markets, and reading the commentary.

25 b.p. still seems like what we will see. Greg Ip's column didn't push the market very much toward any real expectation that they will do nothing. But it did wring out any hope of getting 50 b.p. If that was the intent, it worked. If it helps the market get a little better perspective going forward (looking ahead to December), then it's a good thing.

Tonight I find myself thinking about tomorrow's GDP numbers and wondering about inflation. I find myself compelled to say that I really hope that the Fed can create an expectation that there will be no cut in December and stick to it. 4.5% may not be exactly neutral, but it's close. Close enough to be a good vantage point to see where we go from here.

I'm sure it is frustrating for Fed officials to have a market that responds to every bit of news as a potential tipping point, but that's the environment we live in right now. They can manage it once they recognize how sensitive everyone is to a hint of economic weakness and how entrenched the sentiment is that the Fed will rescue them. This is Mr. Bernanke's chance to establish his approach to managing market expectations. The statement tomorrow will tell all.

Enough kibitzing. It's their move.

Edward Nelson and Anna Schwartz of the St. Louis Fed and NBER respectively have published a working paper which responds to Paul Krugman's essay in the New York Review of Books, "Who Was Milton Friedman?"

The paper is titled: The Impact of Milton Friedman on Modern Monetary Economics: Setting the Record Straight on Paul Krugman’s “Who Was Milton Friedman?”

The abstract:

Paul Krugman’s essay “Who Was Milton Friedman?” seriously mischaracterizes Friedman’s economics and his legacy. In this paper we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman’s impact on modern monetary economics and on today’s central banks. We also refute the conclusions that Krugman draws about monetary policy from the experiences of the United States in the 1930s and of Japan in the 1990s.

Hat tip: RGE Monitor

The decline was more than expected. (Reuters)

NEW YORK (Reuters) - Consumer confidence declined for the third month in a row in October to its lowest level in two years on growing concerns about weakening business conditions and the impact that could have on the job market.

The Conference Board said on Tuesday its index of consumer sentiment fell more than expected to 95.6 in October down from a revised 99.5 in September. The median forecast of economists polled by Reuters was for 99.0 in October.

As of 9:30 (Chicago time) November fed funds were trading at 95.485 after starting the day at 95.495. Greg Ip's article may have spooked Wall Street, but at the corner of Jackson and LaSalle the expectation is, at this hour, still a 25 b.p. cut.

Click the image for the full size version. Source: Chicago Board of Trade (10 minute delayed quotes)

Electronic trading in fed funds continues overnight. You can see that when Ip's article hit the internet, the reaction was immediate but short-lived.

It should be an interesting 27 hours or so.

One more thing, that deserves mention. Don't think that it hasn't crossed my mind that this piece by Greg Ip may (probably?) reflect some internal Fed talk that they want to get out to the public. Reuters even picked up the story in one of those rare journalism twists where the story itself is the story.

The article by Greg Ip, the Journal's Fed watcher who is known for sometimes reflecting the views of senior central bankers, said policymakers view this week's decision as a choice between a quarter-point cut to 4.5 percent and not moving at all.

Seems like there are (at least) two possibilities. Either this is supposed to prepare the market for no cut at all, or it is meant to totally disabuse the market of any thought of a 50 b.p. cut before such speculation gets out of control.

It could be a little of both. A cut is not a sure thing. It's probably still the most likely and least risky option. But I'm prepared to be wrong. I just can't imagine a unanimous vote to hold steady, whereas I can imagine a unanimous (perhaps one dissenting) vote for 25 b.p. And I wonder about the signal that would be sent if a vote to hold steady was not unanimous. Whereas if a hawkish member dissents from the consensus to cut, I think that's easier for the market to swallow (a better indicator that they figure that they are slightly below a neutral funds rate), and it would still be consistent with the tone of Ip's article. Comments?

Tim Duy makes his stand.

And So It Begins, by Tim Duy: The Fed begins a two-day meeting today, with market participants widely expecting a rate cut. I am mentally prepared to be on the wrong side of this call, joining the lonely few, but I just can’t tease another rate cut out of the incoming data.

In my mind, the argument for a rate cut hinges on one crucial assumption – that the market is expecting a rate cut, and the Fed will not want to disappoint....

Agreed. He also says...

If the Fed fails to ease, so the story goes, they will be blamed for failure to communicate effectively. After all, given their push for transparency, shouldn’t they make an effort to send a signal when the markets are headed in the wrong direction? The problem with this view is that Fed Chairman Ben Bernanke does not believe it is his job to lead markets around by the nose like his predecessor. I think under the new regime, the Fed expects their comments to be taken at face value. And I think they are pretty effectively communicating their view on the economy: Outside of housing, there is minimal spillover, and whatever spillover exists is completely expected....

I do see Tim's point about Mr. Bernanke. But by the same token, Mr. Bernanke has to realize how his comments would be interpreted (in the October 15 speech to which Duy provides a link). If he didn't like it, there was time for him or others to refine the message.

If the Fed decides they are unwilling to defy the market, or that “risk management” requires additional rate cuts, I would have to conclude that regardless of what the statement says, that one must expect a series of multiple rate cuts. They will be responding to the deteriorating housing market, and I simply expect no stabilization in that market in the near future (don’t get me wrong – I am not a pie-in-the-sky optimist).

I know, and I've voiced my concern about this. But Tim is suggesting here that there is no way for them to issue a credible statement that really indicates that they are done. Obviously the September statement wasn't it. But I think it's possible to craft such a statement.

Bottom Line: I believe the Fed intended to take a pass in October with the 50bp rate cut. I believe market participants were correctly reading the data until they got caught up in the risk management story. I think the Fed has been explaining past actions, not future policy. For that, you need to look at their forecast. On the basis on the data alone, the Fed is already so far in front of the curve it is hard to justify another cut at this point. I absolutely do not expect the Fed to cut 50bp.

I also believe that they intended to hold rates constant now when they made their decision in September, and it is possible (likely?) that the risk management story got overblown. But I'm less convinced that they were explaining their past actions. I don't see them as being "far in front of the curve". I see them as wanting to get just a little bit below neutral. Given that potential growth may be slowing and inflation is mostly contained, they are probably not quite at neutral yet. I could accept another 25 b.p. as getting us close to where they want to be to end the year, or just a bit below. I think they would prefer to end the year at 4.5% as opposed to roiling the markets this week by throwing them a curveball.

Cut now, and make it clear that it's an early Christmas present and that they're not getting any more in December. Make it clear that at 4.5%, policy is neutral to slightly accommodative. I think they could sell that.

Tim and I agree on a couple things. A 50 b.p. cut is pretty much out of the question. He says he is mentally prepared to be wrong. So am I. But the more I look at the minutes of the last meeting, the Fedspeak, the continued uncertainty, and the general unease about growth prospects in the 3 to 9 month period ahead, the more I think that the decision to cut carries a bit less risk than the decision not to cut.

A thought occurs to me. The fact that we're having this last minute discussion about the possibility of no cut would, I believe, make it more credible for the Fed to announce that this week's cut (if there is one) is the last for a while.

Greg Ip, as always, has some of the keenest insight. In tomorrow's Wall St. Journal, he has a piece called "Why Rate Cut Isn't a Sure Thing."

Both courses of action have risks. Perhaps the biggest is that the market's certainty that rates will be cut creates a burden on the Fed to deliver. Ordinarily, meeting market expectations isn't a goal in itself for the Fed.

But the current environment is more fragile than usual, and thus the consequences of disappointing the market are potentially more damaging. Against that, the Fed will have to weigh the risk that a cut will stoke inflationary psychology.

I've been going back and forth on this in my head for the last week. My head would like to see a bold move to keep rates constant at this meeting and re-evaluate in December. My gut thinks that Mr. Bernanke will err on the side of caution. That we're even having this discussion indicates that there is much work to be done on the communication channels between the Fed and the market.

The bottom line for me is still that the Fedspeak leading up to the quiet period before the meeting was pointing to more downside risks. I took that to mean that they are leaning toward easing.

So let's think about how a "no cut" scenario plays out. The only way they can stand pat is to give a statement that opens the door to future cuts should intermeeting data turn sour. Given that GDP and payroll data is just around the corner and a long time from that data to the next meeting, I think there is a risk that holding steady now could potentially cause expectations of future cuts to get built into the market really soon after this meeting. I don't think they would find that to be optimal. Furthermore, I doubt that they could get a unanimous vote to hold steady. Again, the expectations of future cuts are sure to be built in from day one.

But if they cut on Wednesday and made a statement that credibly states that they are done for a while, I think that would be easier for the market to digest, and probably lead to a better result in the long run. Then in the intermeeting period they could clarify that they really are done unless things turn sour--and speak frankly about what it would take. They would have to state that they think that they are (75 b.p. lower than this summer) now ahead of the curve, that they need to stay vigilant with regard to long term inflation expectations, and that they have revised their growth forecast upward.

Door number 2 seems the likely choice. But it's not a sure thing.

C'mon folks! What do you think?

Now we tax based on intent. A scary thought for your Halloween. You can't make this stuff up. The Tax Foundation quotes from the Iowa Department of Revenue. Yes, my beloved Iowa has taken it upon itself to engage in this kind of silliness.

The Department recently refined its position on whether pumpkins are subject to Iowa sales tax to more closely match what we believe to be their predominant use.

In the past, pumpkins were exempt from sales tax as a food (edible squash), even if they were to be later made into jack-o'-lanterns or used as decorations.

Our position now is that pumpkins are taxable if:

1. They are advertised to be used as jack-o'-lanterns/decorations, or

2. It is understood that they will be used as jack-o'-lanterns/decorations

Pumpkins are exempt in the following circumstances:

* The buyer completes a sales tax exemption certificate stating they will be used as food, or

* The pumpkins are a specific variety used to make pumpkin pies and are advertised in that way, or

* They are purchased with Food Stamps.

Retailers who sell pumpkins should keep these guidelines in mind and make any necessary changes to their tax treatment of pumpkin sales.

I predict a surge in sales of pumpkins for pie making.

Hat tip to King at SCSU Scholars

Today's best article on the upcoming Fed meeting is in the Financial Times. Read and understand.

The Federal Reserve is likely to cut interest rates by a quarter-point to 4.5 per cent when its two-day policy meeting concludes on Wednesday. But the debate among Fed policymakers will be more finely balanced than is suggested by the odds in the futures market – in which a rate cut is seen as a virtual certainty.

According to anecdotal reports, there is some resistance among Fed insiders to the notion of a guaranteed rate cut. Many would have preferred to go into the meeting with market odds more evenly balanced, which would give the central bank greater latitude to make its determination without risking market turmoil.

It seems safe to say the Fed was not expecting to be in this situation when it cut rates by half a point in September. As Don Kohn, vice-chairman, explained shortly afterward, the Fed believed that by cutting rates more than expected it would get ahead of the curve.

The initial 50-basis-point cut was “a not unreasonable first approximation of what might be required to keep the economy on a sustainable path”, Mr Kohn said.

Indeed. Yet, some of the data that has come out since September has been worse than expected, particularly in the housing market. No need to rehash all of that here. We all know what has been going on. A sober assessment of the risks to the economy would have to include an increased recession risk since August and even since September. On that basis, it's hard to argue against a rate cut.

And yet, as an October cut has become more certain, it has also increased the likelihood that the market will expect future cuts. To feed into that belief would be a regrettable mistake. So how does the Fed tiptoe around this minefield?

First, they need to recognize that if there is going to be a housing induced recession, there is little that they can do about it short of refueling the housing boom, which is not an option. The cost of doing nothing may be slow growth for a couple of years. The cost of doing something may be a resurgence of inflation after a couple of years.

Higher oil prices and a lower dollar pose long term risks for inflation if the Fed is not careful. If the funds rate is below 4% in early 2008, I would become concerned about the inflation outlook going forward. They have to be very careful not to let expectations of inflation rise as that would just lead to more painful readjustments later.

The members of the FOMC know all of this very well, and I don't think they want a repeat of the last rate cutting cycle which went too deep for too long. And yet they will be tempted to yield to the siren's song. Ironically, it is less a matter of political pressure (as some say existed in the 1970s that led to inflation then) and more a matter of market pressure. Wall Street, not Pennsylvania Avenue, is addicted to the rate cuts. Even the scent of it in the air sends the Dow up these days. And as long as the Fed is worried about disappointing those who have made their bets at the Chicago Board of Trade, there is going to be a temptation to take the cuts too far. It's "measured pace" all over again but in the other direction. Remember how frustrated I was about that situation? I'm just as frustrated now. As wonderful as the fed funds futures market is, I'm sure that the inhabitants of the Eccles Building occasionally curse at it under their breath. That's why a communication policy revision is seriously in order.

Some kind of policy rule would really help. Because right now you have a situation where the market is guessing the Fed's next move and the Fed doesn't want to disappoint the market. Since market prognosticators are pretty bad at calling turning points, this makes it hard for the Fed to change direction. It's a setup for trouble, and is one of the better arguments for a policy rule such as an inflation target.

But since we don't have such a policy rule now, we will have to be content with simply wanting the Fed to make a statement that they are done for now, unless they aren't. As the FT article concludes:

More likely, policymakers will seek to balance a rate cut with a statement that tempers expectations of many more cuts to come. They will again hope they are done. But with economic uncertainty still high, they will want to leave open the option to cut again if necessary at the next meeting.

And you know what that means. We'll be having this same discussion again in a few weeks, unless they decide to send a signal that they are not beholden to the futures market and keep rates steady. As much as I might like the signal that it would send, it is an option that is not without risk. Perhaps a dissenting vote in favor of no cut could send the same message in a less risky way. I'm not convinced that the statement alone, no matter how strongly worded, would send the same message.

Marc Shivers thinks it will be 25 basis points as well. He bases this prediction off of the recent speeches by Fed officials. I've been reading those as well and I concur. Standing pat is a somewhat attractive option, and while a longshot, it seems more likely than 50 b.p. But ultimately, either extreme is too risky as it could roil the markets more than they want. If I were on the committee I would probably vote for no cut as long as I knew I would be in the minority. They will compromise on 25 b.p. and hope that they are done. (But I'd like them to prove me wrong by issuing a statement that really has some teeth.)

Her husband enjoyed widespread popularity for his handling of the economy. She, a lawyer and senator, ran for the presidency herself hoping to take advantage of her husband's sway with the voters.

Nope. It's not who you're thinking, unless you're up to speed on politics south of the equator. (Reuters)

And she won.

BUENOS AIRES (Reuters) - Argentine first lady Cristina Fernandez de Kirchner rode an economic boom and her husband's popularity to victory in a presidential election on Sunday to become the country's first elected woman leader.

Fernandez, a glamorous lawyer and center-left senator, will take over from President Nestor Kirchner in December in a rare power handover between democratically elected spouses.

Partial results showed Fernandez with 44 percent support and a wide lead, enough to claim victory and avoid a runoff vote. Her main rivals, former lawmaker Elisa Carrio and former economy minister Roberto Lavagna, both conceded defeat.

Fernandez, 54, ran an effortless campaign without a primary, a candidates' debate or concrete policy outlines. She instead met foreign leaders and trumpeted lower poverty rates since Kirchner took office four years ago.

The article also points out:

Argentina has had a woman president before, but she was not elected. Isabel Peron, the third wife of former President Juan Peron, succeeded him when he died in 1974 and ruled for two years until she was ousted in a military coup.

It wasn't even Evita.

The article also states that Fernandez has a tough road ahead:

Argentines recently called for boycotts of tomatoes, potatoes and other foods as prices have soared. The president-elect says she will fight inflation by striking deals with businesses and unions to cap profit and wage demands.

Uh-oh.

I'll post my thoughts on the FOMC meeting later today. For now, read Greg Ip's piece in the Wall Street Journal.

The NY Times writes about the consolidations that will occur as the Chicago Mercantile Exchange merges with the Chicago Board of Trade. It's not quite an obituary, but close.

As a result of its merger in July with the Chicago Board of Trade, the exchange, also known as the Merc, is moving in May to a new trading floor at the board’s Art Deco headquarters. With the consolidation of the two exchanges, the pork belly pit, formerly emblematic of Chicago’s open-outcry commodity trading, will close and begin operating only by computer.

The open-outcry pits of other low-volume markets, including cash dairy products and South American bean futures, are also closing. Many traders believe that all commodity markets will follow suit.

...

The pits have nurtured their own Darwinian values and an ethic of trust. They have been described as high-stakes chess with a locker-room atmosphere, raw capitalism shed of its corporate skin.

Many traders drift away as they age because they find it difficult to keep up. Traders in the livestock pits tend to be older, however, and have been resistant to a different way of trading.

“It depends on how old you are,” said Bob Lassandrello, 51, who has traded for 27 years in the cattle pit. “I see a lot of the younger guys trying to dip their toe in the water of trading electronically.”

Amid the cacophony — yelling that ranges from desperate to triumphant — Mr. Lassandrello, surrounded by some 50 traders in colorful jackets and sneakers, wades into a pool of discarded orders. He takes pride in his ability to read a competitor, a skill critical in the pits but absent from electronic trading. That is why he is considering early retirement.

“We’re near extinction,” said Mr. Lassandrello, who believes many of his generation will not make the transition to the screen.

In a way it is too bad. There's something exciting about open-outcry trading. There is something almost primal about it. And yet, the computer makes things so much more efficient. As economists we know that technological change does cause changes in the types of skills valued by the market. Just because they did it in the "good ol' days" isn't an argument for keeping it.

And yet, it's still too bad.

So is there an economic argument for keeping some form of open-outcry trading? Perhaps. As long as there's some veteran trader out there who thinks he or she can go up against the machine and win, there will be open-outcry trading. I don't think that species has died out yet; and there might just be some times when they can go up against the machine and win. Hence, it will probably never go away entirely. But one thing is clear. The glory days of trading in the pits have passed into history.

My economist readers probably are familiar with RePEc. Christian Zimmerman has added a blog to the impressive list of resources over there. Here's what he says under the heading "about this blog".

We, the RePEc team, discuss here the workings of RePEc and seek input from the community on how we can improve. We also want to give more volunteers opportunity to be part of this project and provide valuable services to the profession. Finally, we also discuss issues about the dissemination of research on Economics.

Here's what he means by addressing the dissemination of research. On the topic of peer review...

We can think completely differently. Think of this blog. I rant on a topic, and then others can comment on it and openly declare whether this rant was valuable or not. Why not do this with academic work? An early attempt was done with WoPEc. This was the first RePEc service, similar to IDEAS and EconPapers today, which offered for some time on each paper’s abstract page a discussion section. Participation was minimal and there was very little value added (see an example, I could not find one that actually had comments). This aspect of WoPEc was finally abandoned. A second attempt was organized by SOLE (Society of Labor Economists), that would post every two weeks a new paper to discuss. Again, participation was small, and the project was finally abandoned.

The latest attempt is the Economics E-Journal, which allows registered users to rate and comment on discussion papers. Once the editors find that a paper has generated sufficient interest, it is promoted to the journal, where it can still be discussed. This initiative started this year, so the jury is still out whether it will be successful in the end. So far, it looks very promising.

From time to time, members of the RePEc team are approached and asked whether a discussion section could be added to our services. Given the past experience with WoPEc and the large monitoring costs involved, we are not enthusiastic. Of course if other volunteers are interested in working on this, we may think about it. But first we need to understand whether there is really a demand for this. Maybe RePEc is now too large for this and such initiative should be left to field specific initiatives (SOLE again?).

RePEc is a quality operation. Zimmerman has been one of the driving forces for the site in recent years. Though there is a long history going back to the now-defunct WoPEc as he mentions. (The site still exists but is no longer updated.) One could also trace its lineage back to the working paper site (EconWPA) at Wash U started by Bob Parks. Bill Goffe's Resources for Economics also came out of those early years. Zimmerman also had a quantitative macro and RBC site that is now part of RePEc that goes back to 1995 according to the copyright. (It's a trip down memory lane thinking about all those early sites.) That sounds about right. That was about the time that I was starting grad school and was pretty early in "Internet Time." The RePEc blog might be a good way to get more people involved, and that would be positive for the site and the profession.

Hat tip to Greg Mankiw.

A footnote: The Wash U connection to all those early internet archives is everywhere. As a minor in computer science in college, I remember well the freeware archive at Wash U. It was probably the first internet address that I memorized... wuarchive.wustl.edu. If you were a CS student in the early to mid '90s, you used it. Sadly, this too is defunct. Does anyone else remember wuarchive?

Looking for good public schools? Find a smallish to medium sized city with a medium to large sized university. Our little (20,000 pop.) town fits that description. According to recent data, over 13% of adults 25 and over in our town have a graduate degree. (Only 10 non-metro area communities in the country scored a higher percentage.) A lots of them are Ph.D.s. And a lot of them are parents. Parents with Ph.D.s (at least those I know) tend to be actively involved and demand quality education for their kids.

So out of curiosity I was looking at school data (2005-2006) for Illinois and found that in 6th grade math, our school is right around the level of the top 100 in Illinois. (I was counting individual schools, not district averages.) Just a few places down from some of the suburban Chicago magnet schools, and on par with some other districts with stellar reputations. How many schools with 6th grade classes in Illinois? A lot. I didn't count as it's hard to separate the individual schools from district averages. But it's certainly more than 1000.

How about HS ACT ranking? I may have miscounted when trying to separate individual high schools from district averages, but it looks like Macomb is no lower than about a tie for 70th out of Illinois (public) high schools. (We beat out Urbana, Charleston, and Edwardsville... all university towns like we are...though they also were high on the list.) Evanston, IL (I hear they have a university there) was just 3 places above us. In downstate Illinois, Macomb is one of the top few. The list is, of course, top heavy with Chicago prep schools and high property value suburbs. (In case you're curious, our district's average ACT score was 22.2 which is somewhere above the 63rd percentile nationally.)

It is nice that such data is available on the web. I've had such good experiences with our school so far, I just wanted to see how we rank. I wanted confirmation for my suspicion (based on more evidence than just my current residence...I've seen it in other places I've lived) that small to medium sized towns with medium to large universities do well. And I wanted to confirm that the good experiences we've had so far are indicative of what we might see as our kids go through the system.

It is certainly possible that part of the explanation is that children of parents with graduate degrees (like households where one or both parents are university professors, doctors, lawyers, etc.) get a lot of early education at home so they start reading before kindergarten. But in our district math scores rise from 3rd grade to 6th grade, so the school is providing some value added. So maybe there are positive externalities to this kind of clustering.

Maybe having a lot of Ph.D.s in town is a substitute for a large property tax base in determining school performance?

From Bloomberg:

Oct. 25 (Bloomberg) -- Orders for American-made durable goods unexpectedly fell, led by a slump in military equipment that overshadowed increases in business investment.

Demand for cars, planes and other items made to last several years fell 1.7 percent in September, the Commerce Department said today in Washington. At the same time, orders for and sales of computers and machinery, a proxy for capital spending, advanced.

``Manufacturing will have slow-but-steady growth through the end of the year,'' said Adam York, an economist in Charlotte, North Carolina, at Wachovia Corp., which had forecast orders would decline in September. The drop in total orders was ``not quite as weak as the headline suggests.''

Record export demand will keep manufacturing growing, helping prevent the housing-market recession from sinking the broader economy, economists said. The gains in business investment prompted Morgan Stanley and Macroeconomic Advisers LLC, a St. Louis-based research group, to lift their estimates of third-quarter growth.

Macroeconomic Advisers, headed by former Federal Reserve Governor Lawrence Meyer, increased its calculation of growth last month to 3.3 percent, from 3.1 percent. Morgan Stanley adjusted its estimate to 3.5 percent, from 3.1 percent.

The falling dollar is keeping the export market going. The decline in military spending in September could be due to the end of the budget year or just the vagaries of war spending. That investment remains strong is quite impressive. For the rest of 2007 I think we're going to see very uneven performance as certain sectors struggle due to the decline in housing while others respond positively to strong global demand.

King Banaian made a good point along these lines a few days ago.

A local friend reported to me that someone spoke in a meeting of business leaders rather negatively about my writing on the local economy. Basically that I don't know what I'm talking about. Someone responded to him that at least sectorally there are problems stemming from housing. My friend reported that, afterwards, several people came up to him and the guy who spoke back to the critic saying "doesn't he know there are people really hurting out there?"

"Is your firm hurting?" I asked.

"No, we're fine," he replied. "But I know others who are in big trouble."

And so in today's environment, perhaps more than business managers are used to from past experience, sectoral recessions may not lead to overall declines. But when people see a recession in one sector it makes them think that everyone is suffering the same fate... except (perhaps) them.

That said, the size of the decline in housing reported yesterday had me saying, along with Brad DeLong, "GURK!"

Grep Ip writes in the Wall Street Journal:

WASHINGTON -- Federal Reserve officials are nearing consensus on several steps to make their deliberations more transparent to the public, but are likely to defer one of Chairman Ben Bernanke's longstanding goals: an explicit inflation target.

The centerpiece of their new communications steps would be the release of economic forecasts of policy makers four times a year, instead of the current two times, with additional detail and background, according to people familiar with the matter. Moreover, the horizon for those forecasts would be extended to three years from two.

Trying to set a target without really setting a target?

While the idea of setting an inflation target hasn't been shelved, officials say it needs more discussion. Meanwhile, they see the longer forecast horizon as an interim step with many of the benefits of an inflation target. The public could assume the Fed expects to achieve its desired inflation rate in three years and thus a third-year forecast amounts to a target. The forecast approach sidesteps the biggest problems with an official number: the misgivings some officials still have with a target, potential political fallout and the difficulty of agreeing on the right number.

...

At his nomination hearing in 2005, Mr. Bernanke restated his preference for a target while promising "extensive discussion and consultation" and "no precipitate steps." After he became chairman, he began making greater use of the FOMC forecasts to explain Fed policy. He also appointed Fed Vice Chairman Donald Kohn, like Mr. Greenspan a skeptic of targets, to head a subcommittee on communications. Mr. Kohn has shown signs of warming to the notion. In September, he said in a speech he was "relatively more persuaded" that targets help anchor the public's expectations of inflation.

Mr. Kohn is an important figure on the Board. If he comes around, there is a chance. But a big obstacle still remains at the other end of Constitution Avenue, and the committee is rightly cautious.

The FOMC as a whole is still not ready to take the step. One concern is that Congress, having taken a more populist turn since Democrats took power in 2006, could perceive a target as subordinating the Fed's responsibility for employment, despite Mr. Bernanke's insistence to the contrary. Another is that officials don't think the current system is broken.

No, it's not broken, but nor was it broken when many of the other steps toward transparency were taken. In principle, a target would certainly help to anchor expectations. And as a practical matter, a three year forecast might work as a reasonable proxy for an operational target even if nothing is written in stone. Additional releases of forecasts are surely welcome to any observers of the Fed out there.

I look forward to more of this.

The Road to the White House, a multi-day mock presidential election event is off to a tremendous start here at WIU. Tonight, students played the roles of primary and caucus voters from a selection of states. Other students played the roles of campaign workers trying to sway the voters. Broadcast students used it as a real-world training exercise and broadcast the proceedings on the college cable channel. Print journalism students were seen scribbling on notepads and taking photos. Our state senator was in attendance. Faculty supervised the ballot process, answered questions, and kept the process moving forward.

Students were given a taste of what it is like to vote in a primary or take part in a caucus. Having participated in the Iowa caucus once back in the day, I volunteered to coordinate a couple of the caucuses. What a rush! (That is not a phrase that I use often, and probably never have used on the blog to this point.) Before we started, the look on some students faces was one of apprehension and confusion. Many, if not most, have not participated in any "real" politics. Maybe some have voted in a state election, but not many in this bunch would have voted in 2004. Given that we are in a primary state, I doubt that many have caucused (though we do have many students from Iowa--some of whom I learned from conversations are planning to caucus in '08).

At the end of the session, I noticed a visible change in the facial expressions of those students. It was no longer apprehension and confusion, but a look of satisfaction. A look that said that this wasn't so bad after all, and maybe it was even interesting.

The best part of it is that this mock election event is spread out over a couple of weeks. The energy will continue to build. Many of the students are signed up to participate each night, giving it some real potential for creating a lasting impression.

Here's the main website for Road to the White House. You can read more about the events here and here.

The results of tonights polling of the students? On the Republican side, they like Giuliani. Romney was close behind, and Ron Paul was surprisingly strong. On the Democratic side, Obama was the clear favorite. Now of course, we are in Illinois, and there is obviously some home bias. It wasn't even close. This may be one area where the simulation is not quite in sync with reality. Obama clearly has the hearts of these students even as he has lost ground to Clinton in the larger population. Can he come back? I just saw a ballroom full of students who hope so. Whatever your political affiliation, it was quite a sight to see on our campus tonight.

Starting tonight, WIU is running a large scale mock election for students--The Road to the White House. As a part of this process, we will be simulating, over a number of days (through November 5), the entire election season beginning with the primaries and caucuses and ending with the election. Students will be playing the roles of delegates, campaign workers and the media. The mock election is the brainchild of political science professor Richard Hardy, who has conducted similar events at the University of Iowa and the University of Missouri. It is hoped that ours will involve even more students than either of the previous ones, perhaps making it the largest event of its kind anywhere.

You can follow the events at the real time blog with full coverage in a companion blog of the event. I will provide updates throughout the next couple weeks as well.

This is going to be a huge event, and I'm really looking forward to participating as a "faculty helper". It's going to be a great way to get students involved and thinking about the political process.

At this time of year, it is not unusual for students coming to my office hours to remark about the view I have from my office. It is nice to be able to see the change in colors from one day to the next. And in the fall, the skies in the midwest are often a beautiful deep blue. My office faces west, so the sunsets are nice too.

Here are the two games that will be programmed into my DVR:

North Dakota State (#1 FCS Coaches Poll) at Minnesota (TV: Big Ten Network 11am CDT)

Northern Iowa (#2 FCS Coaches Poll) at Western Illinois (#17 FCS Coaches Poll) (TV: Fox Sports Midwest 6:30pm CDT)

Unfortunately another obligation tomorrow night will prevent me from attending the WIU game. The UNI vs WIU game features the only two teams unbeaten in conference play. In the Sports Network poll, NDSU is #2 and UNI #1.

Go Leathernecks!

UPDATE: NDSU and UNI both won. I recorded both and watched them later. It is truly unfortunate that NDSU is not yet eligible for post-season play after their transition to the FCS (formerly Division I-AA). In my opinion, the best two teams at this level are NDSU and UNI. Having seen both play, I'd give the edge to UNI, but not by much. Yes, the Bison did beat a Big Ten opponent (Minnesota), but Minnesota has been having so much trouble lately, I'm not sure what weight to put on that. It is a shame that NDSU and UNI will not play this year. Next year, however, they will be in the same conference.

Our playoff hopes are circling the drain after the loss to UNI, but next year our redshirt freshman QB will be a year older and a year wiser having played the #1 and #2 teams in the FCS.

Do not be surprised if UNI wins it all this year. Do not be surprised if the Bison win it all next year.

Tim Schilling has moved from the Chicago Fed to the Powell Center for Economic Literacy. Thus his blog had to move as well. You can now find it at http://www.valuingeconomics.blogspot.com/. In his latest posts, he finds economic ideas in the Meredith Willson musical The Music Man... everything from elasticity and externalities to the roles of government and the entrepreneur. If you teach economics, put Schilling's blog in your feed reader.

King Banaian gets it. Responding to Rodrik's discussion starter, he writes,

Because I read more now, I think research is improved too.

I'll second that. And...

I worry about the lemons problem only insofar as one thinks econoblogging is about spreading the word of what's on the cutting edge of economics research or the policy debates. I have never concerned myself with the former, and as to the latter, I'm not terribly convinced that the best policy analysis comes from the economists with the longest c.v.'s. Again, that might be about where I'm from and what I do, a personal bias.

Since I, like Banaian, am on the faculty of a "Non-Flagship State U" we share a similar perspective. I agree that excellent policy analysis can come from economists without a long c.v. So if you can't judge a blog's quality relative to the market solely on the basis of the academic prestige of the author or his/her institution, does that lead to a breakdown of the market? No. Links are the currency of the realm here, and they are the way that information gets passed along. Suppose a brand new blog reader drops in on the economic corner of the blogosphere tonight. After how many minutes of clicking around will he or she figure out who the heavy hitters are? It probably wouldn't take long to get the lay of the land. A lot of those readers will never pick up a copy of the American Economic Review, much less Econometrica. And yet, they will figure out whose blogs are worth reading (and probably figure out who's got the best academic pedigrees as well). Whether their list of favorites would put their c.v.'s in rank order or not, well... de gustibus non est disputandum.

The blogosphere, even just the economics corner, is a big place with room for many styles and approaches. Rodrik seems to have come around on the question that kicked off this whole discussion as well. We'll gladly give him a mulligan on this one. In the world of blogging, that happens, and that's one of the things that makes all this interesting...and valuable.

Wow. Check these out. Here are some of the names: Arrow, Fischer, Krugman, Sen, Chari, Schelling, Samuelson, Fudenberg. If it's more than you'll have time for this weekend, download them now and savor them one at a time.

Dani Rodrik notes Greg Mankiw's recent post announcing the end of comments on his blog and wonders, "Is the econ-blogosphere sustainable?"

At this rate, in any case?

Two things happened in the last twenty-four hours which made me wonder if some of the best economics blogs may be on their way out. First, an economist with a very high-quality blog told me that he was not sure if he had made the right decision by starting it. He said he worried about coming up with new content on a daily basis, and that he may run out of energy at some point. Then, Greg Mankiw declares that he is too busy to be reading and filtering all the comments he gets on his site and turns off the comments section. In a long post, he says the whole blog thing is taking too much of his time, and intimates that he may not be doing this for ever.

So if economists with high opportunity costs of time start to get out, shall we have a lemons problem on our hands? Will eventually the only prolific bloggers remain the ones that are not worth reading?

It is ironic that this post comes in a rather slow period in my own blogging. My excuse? Working on getting a conference paper out. Not to mention the fact that conferences aside, as late October rolls around a lot of us in the academic community find ourselves in a pretty busy time. It's what I call the rhythm of the semester. In my case, a lot more is hitting right now than would be usual even for late October. Opportunity cost, baby!

But to call this a "lemons" problem is to imply that there is some information asymmetry in the market. In other words, when there are a lot of blogs out there, it is harder for people to tell which ones are the "good" ones and which ones are the lemons. Unable to command a price to cover their opportunity cost, the "good" bloggers exit and you're left with lemons.

Nah.

Finding a good blog is a lot easier than finding a good used car, and the commitment factor is a lot less of an issue. If you buy a lemon used car you're stuck. If you find you're reading a sub-par blog, you can move on. Information is passed in the form of links that tie us all together. Yes, there can be a bit of an echo chamber in some corners, but particularly in the economics wing of the blogosphere there is also a lot of cross-traffic between writers of different ideological persuasions. I mean, I comment at Angry Bear once in a while. They haven't kicked me out yet. My comments and their responses there and here build a stock of information about our blogs that makes it way around the network of readers. That helps people make decisions about who to read. So while I wouldn't say that the econ-blogosphere is a picture of a perfect market of ideas, it's got a lot of things going for it. I don't think the lemons issue is much of a problem.

I have a feeling that the stable long run equilibrium will have some of the better blogs that feature mostly economics and less of the daily political bloodsport will post better items less frequently. Also, blogs by academics will be subject to bursts of activity and periods of relative quiet. Readers who become familiar with that rhythm will accept it the same way that TV viewers are accustomed to sweeps week and summer reruns.

In other words, the death of the econ-blogosphere has been greatly exaggerated. It seems much more likely to me that the medium is simply entering another stage in its development.

Here is the press release from the Nobel Foundation:

Adam Smith's classical metaphor of the invisible hand refers to how the market, under ideal conditions, ensures an efficient allocation of scarce resources. But in practice conditions are usually not ideal; for example, competition is not completely free, consumers are not perfectly informed and privately desirable production and consumption may generate social costs and benefits. Furthermore, many transactions do not take place in open markets but within firms, in bargaining between individuals or interest groups and under a host of other institutional arrangements. How well do different such institutions, or allocation mechanisms, perform? What is the optimal mechanism to reach a certain goal, such as social welfare or private profit? Is government regulation called for, and if so, how is it best designed?

These questions are difficult, particularly since information about individual preferences and available production technologies is usually dispersed among many actors who may use their private information to further their own interests. Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals' incentives and private information. The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures. Today, mechanism design theory plays a central role in many areas of economics and parts of political science.

Here is the scientific background paper. Arnold Kling calls it a "Nobel Prize in abstraction". Marginal Revolution provides a translation as well as links about Leonid Hurwicz, Roger Myerson, and Eric Maskin. Mark Thoma lists some other media links as well.

In this post, Tyler Cowen muses about the practicality of their research, asking "Did these guys get at the real reasons why we don't organize the entire economy as a second-price auction?" That's a fair question. But the seminal contributions of these three to the theory of mechanism design are already central to the study of auctions, regulation, and social choice. Those are precisely the sort of things that the Nobel Committee likes to reward. For laying the foundations of this work, Hurwicz was a great choice. Maskin and Myerson are a little on the young side for an economics Nobel, but very appropriate choices to complement Hurwicz.

After hearing about this, I was having flashbacks to my Ph.D. micro courses all morning. Despite what you might think, that's not entirely a bad thing. I remember well the days and nights I spent poring over the work of these three prize winners. I learned a lot from their papers, and I'm happy to see them get the prize.

The previous post reminds us that The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel will be announced on Monday. Any picks? For years, I've been thinking that Jagdish Bhagwati would be a very good choice. Oliver Hart, Bengt Holmstrom, and Oliver Williamson would make a good trio of winners in the area of the theory of the firm. At the moment, Gene Grossman and Elhanan Helpman are the front-runners on the Thomson Scientific poll. Eugene Fama is also a possibility.

But never underestimate the committee's ability to surprise us. Edmund Phelps was not on a lot of short lists last year. Perhaps this year's will also be unexpected. Nonetheless, all of those mentioned above are deserving and will probably have their day eventually.

Comments are welcome.

Press release from the Nobel Foundation

Relevant excerpt:

This year's physics prize is awarded for the technology that is used to read data on hard disks. It is thanks to this technology that it has been possible to miniaturize hard disks so radically in recent years. Sensitive read-out heads are needed to be able to read data from the compact hard disks used in laptops and some music players, for instance.

In 1988 the Frenchman Albert Fert and the German Peter Grünberg each independently discovered a totally new physical effect – Giant Magnetoresistance or GMR. Very weak magnetic changes give rise to major differences in electrical resistance in a GMR system. A system of this kind is the perfect tool for reading data from hard disks when information registered magnetically has to be converted to electric current. Soon researchers and engineers began work to enable use of the effect in read-out heads. In 1997 the first read-out head based on the GMR effect was launched and this soon became the standard technology. Even the most recent read-out techniques of today are further developments of GMR.

Answer: Lots of chemicals. Check out this interesting explanation from Wired.

Good, not great. That's how I'd sum up today's employment report.

Employment rose in September, and the unemployment rate was essentially unchanged at 4.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Nonfarm payroll employment rose by 110,000 following increases of 93,000 in July and 89,000 in August (as revised). In September, health care, food services, and professional and technical services continued to add jobs, while employment trended down in manufacturing and construction. Average hourly earnings rose by 7 cents, or 0.4 percent.

The unemployment rate actually climbed just a bit, but a 0.1% move in either direction is within the statistical margin. That said, it was 4.5% this summer, so that gives fuel to the argument that things have marginally deteriorated. Spencer was correct with his hypothesis that August numbers would be revised upward due to a fluke of timing in the data collection period. The last 3 months have clocked in at just under 100,000 per month on average.

That's no great shakes, but it's not recessionary yet. Opinions differ as to just how much job growth is needed per month to keep up with population growth. For a long time 150,000 was the number tossed around. Demographic changes have likely lowered that number, though probably not under 100,000. In casual conversation these days, I settle on around 125,000 and admit to uncertainty. In that respect, the recent numbers are good, but not great.

Given the current uncertainty about whether we are on the cusp of a recession, however, the numbers take on greater importance. Everyone wants to know whether this will move the Fed. No doubt this is a data point in favor of a less aggressive move, or perhaps no move at all. The Chicago Board of Trade binary options indicate that the probability of some kind of cut in October dropped from 56% to 41%. It's still pretty much a coin toss, but the bias of the coin shifted just a tad.

Then there was this speech today by Don Kohn. (h/t Calculated Risk) Here are a couple of salient points.

Many people had expected the Federal Reserve to follow a gradual path of rate reductions in response to financial market developments--say, 25 basis points in September and another 25 basis points in October. Such a path would be in keeping with how we have often approached our policy choices, as it has the advantage of allowing us to calibrate our policy as we see how the economic situation is evolving and responding to earlier policy moves. However, given the circumstances at the time of the September FOMC meeting, there were strong arguments in favor of the larger action of a 50 basis point decrease in the federal funds rate. For one thing, it seemed that a decrease of that size could well be necessary to promote moderate growth. We had been holding the federal funds rate at 5-1/4 percent, well above the expected rate of inflation, in part to compensate for what had been very narrow yield spreads and readily available credit. We did not know how quickly markets would recover, the extent to which credit terms and standards would be tightened, or precisely how households and businesses would respond to recent or forthcoming financial developments. But, pending further evidence, a 50 basis point easing was not an unreasonable first approximation of what might be required to keep the economy on a sustainable growth path.

In addition, I thought that economic performance would be better served by the Federal Reserve taking its chances on responding too much, or too rapidly, to the turmoil in financial markets rather than acting too little, or too slowly. Sluggish or inadequate easing risked a weaker real economy that might cause lenders to pull back even more, leading to a deteriorating situation that could prove difficult to reverse. With the news on inflation relatively favorable of late and with inflation expectations seemingly well anchored, I believed that we would be able to offset the cut in the federal funds rate--if it turned out to be larger than needed--in time to preserve price stability.

And what will become the headline for this speech...

We will need to be nimble in adjusting policy to promote growth and price stability.

That would seem to suggest a Fed that was ready to move decisively with an opening gambit of 50 basis points just in case all of it was needed. That doesn't mean that the next move will be that aggressive. Furthermore, they're ready to take it back if prices jump.

But right now inflation still seems contained. The CPI is up just 2% in the last year (that's the headline number, not core) and the most recent reading was actually a slight decrease. If the economy softens, it will keep the pressure off. But if not... then it pays to be nimble.

There is still a very large amount of sentiment for continued rate cuts, and today's employment number, while not entirely dismal, will probably not diminish that sentiment among those who hold most tightly to it. For those on the margin, it may be enough to urge them to wait. If the rest of the month's data turns out to be consistent with the labor data, then they may put off a cut until December. It seems to me right now that a further cut in October is speculative--an insurance policy in case the housing problems spill over into the broader economy. The more insurance they take, the greater the likelihood that they find themselves needing to reverse course in 2008.

For now, for my money, it's still a tossup.

In related action, PGL discusses the labor force participation rate and employment/population ratio. He mentions our discussion from way back. I'll say it again. The long run trends are for lower LFPR and E/P as the baby boomers retire. But that's not what we're seeing here. I raised the point then and repeat it now as a caution to not necessarily expect the "optimal" ratios today (and in years to come) to equal those of the late '90s. However, the declines over the last year (like the increases in the previous year) are of a more high frequency nature. PGL is correct to raise the issue. The decline in these numbers since December is indicative of some potential problems below the surface that deserve more investigation. More on that later.

From University Relations:

MACOMB, IL -- Robert F. Kennedy, Jr., will present "Our Environmental Destiny" at 7 p.m. Wednesday, Oct. 3 in Western Hall on the Western Illinois University-Macomb campus as part of the University Theme "Global Challenges and Personal Responsibility – Environmental Sustainability" 2007-2008 Speaker Series. Kennedy's presentation is open free to the public.

I will be attending.

From Washington Wire (WSJ): "Thompson and Obama Cross Paths in Coralville"

They spoke at the Marriot in Coralville (Iowa) just a couple hours apart. I used to go jogging very close to there.

This just came in my inbox.

Sep. 27 (Bloomberg) -- Edmund Phelps, winner of the 2006 Nobel Prize for economics and a professor at Columbia University, talks with Bloomberg's Tom Keene from New York about limitations of U.S. Federal Reserve monetary policy, the role of central banks in preventing economic slowdown and risk facing the U.S. economy. (Source: Bloomberg)

I'll have to listen later. Time for class.

How could you forget? Well, it seems that at least one unhappy customer won't let it go. (Wired News)

Dongmei Li of Queens, N.Y., claimed the company violated price discrimination laws when it slashed the price of the 8-gigabyte iPhone by a third, from $599 to $399, within two months of the gadget's June debut.

...

According to Li's lawsuit, filed on Sept. 24 in the U.S. District Court, Eastern District of New York, the price reduction injured early purchasers like herself because they cannot resell the product for the same profit as those who bought the cell phone following the price cut.

Cannot resell the product for the same profit? She was an iPhone speculator?

I could have told you that speculating on iPhones would probably not be wise. Just sit back and enjoy your consumer surplus.