I awoke this morning to discover-- thanks to the Sunday Boston Globe -- that the Gubernatorial race here in Massachusetts is now looking like a toss-up (5 weeks or so from election day).
I must confess to being a bit surprised....after all, last week the typically reliable Suffolk Poll had Governor Patrick leading by 7 percent (outside of the poll's margin of error) while the Globe Poll (conducted by Andrew Smith at the University of New Hampshire) has the Governor leading by a single point (a statistical tie given that it is well within the poll's margin of error).
As I have discussed previously, up until today the preponderance of the polling evidence has indicated that Governor Patrick has a relatively decent lead and a high probability of victory. So what, if anything, has changed and what possible explanations can we offer for the apparent change in the Governor's political prospects.
A closer look at the technical details and findings of both the Suffolk and the UNH/Globe Poll is revealing:
1) Even though they were released several days apart, these two Polls were actually in the field at the same time:
The Suffolk Poll- Conducted September 16th-19th (Source: Boston Herald)
UNH Poll- Conducted September 17th-22nd (Source: Boston Globe)
This begs the question of whether there was a major sea change in public opinion during the three days last week when the UNH poll was in the field and the Suffolk Poll was not. And if so, why?
UNH reports that they interviewed 522 adults (471 of which were likely voters) and so they averaged about 87 interviews per day over the six day period. So, for the sake of discussion, let's assume that 261 (or 87*3) of the 522 respondents were answering the UNH questions during the three day period in question.
In order for the data collected during those three days to have a large enough impact to explain the difference between the two polls, there would have had to have been a pretty large shift in sentiment that UNH was able to capture and Suffolk missed.
So, what, if anything, happened between September 20th to the 22nd that might account for this change? A few possibilities come to mind:
1) We have had some debates....maybe they made a difference?
The latest debate was broadcast on the evening of September 21st and so the UNH/Globe Poll did interview somewhere between 87 and 174 of its respondents during or after the debate. Could this have made a difference? Sure. Could it explain the entire difference? Seems unlikely to me.
In order for the debate to have made a difference of this magnitude, it would have had to have had a huge audience and there would have to be a very large proportion of non-Baker voters whose minds were changed by the debate.
2) Didn't Tim Cahill's campaign manager and senior advisor just quit? Couldn't this have led to some of his supporters defecting to Charlie Baker?
Maybe, but any impact could not have been reflected in the UNH/Globe poll. According to the Herald, Cahill's campaign manager quit the evening of the 23rd (his campaign manager quit shortly thereafter), after the UNH/Globe Poll had completed its interviews.
3) Maybe the undecided voters decided en masse last week and they are disproportionately declaring their intention to vote for Baker?
Nope. The Suffolk Poll identified 10% of the voters as undecided, the UNH/Globe Poll reported that 14% of voters remain undecided.
At this point some of you may be asking yourselves, "Isn't it possible that the Suffolk Poll was wrong?"
Indeed it is. However, since the Suffolk Poll is consistent with the previous polling data, it is the UNH/Globe poll that, as the folks from Sesame Street so nicely put it, does not look like the others and therefore is the "data point" that requires an explanation.
So, absent some missing "real world" event that changed voters minds, one has to wonder whether the UNH/Globe Poll is an outlier, a statistical anomaly that occasionally and unavoidably throws a wrench into the best laid plans of survey researchers to conduct a valid poll.
If, as is common practice, the estimates contained in the UNH Poll are offered with a 95% Confidence Interval this could simply be a case of bad luck for UNH's Dr. Smith. In this context, what a 95% Confidence Interval means is that if the Poll were conducted 20 times, one of those times the estimates would fall outside of the margin of error, perhaps even well outside. In other words, any given poll has a 1/20 chance of being wrong, perhaps even wildly wrong.
I can't help but wonder whether this is one of those times....
Sunday, September 26, 2010
Monday, September 20, 2010
Income Inequality and its Discontents
This weekend, Todd Henderson attracted a great deal of attention when he published (originally posted here but subsequently removed and cached here) an extended complaint about how difficult it will be for he and his wife to make ends meet if the Bush tax cuts are not extended by the Congress.
What made these comments so striking was the fact that Todd Henderson is a Law Professor at the University of Chicago and his wife is a practicing physician. Based on his declarations of his tax payments and other info Professor Henderson unwisely shared with his readers, Berkeley's Michael O'Hare estimates that the Hendersons earn an estimated household income of $450,000 a year.
Not surprisingly, Professor Henderson has been catching quite a beating for his kvetching from a number of observers (James Fallows provides an excellent summary here). But it is Berkeley's Brad DeLong who, after reminding Professor Henderson that he is in fact rich, makes an observation that absolutely nails the real issue here.....that the gap between the top .01% of households and everybody else has widened so dramatically that even the rich feel deprived (albeit relatively).
As Professor DeLong puts it,
What Professor Henderson -- who no doubt now regrets ever opening his mouth on this subject -- reminds us, is how many different worlds we Americans live in, worlds whose boundaries appear to be increasingly divided by income.
In future posts I will discuss some of the social and economic implications of rising income inequality and the important role it may be playing in the current economic recovery.
What made these comments so striking was the fact that Todd Henderson is a Law Professor at the University of Chicago and his wife is a practicing physician. Based on his declarations of his tax payments and other info Professor Henderson unwisely shared with his readers, Berkeley's Michael O'Hare estimates that the Hendersons earn an estimated household income of $450,000 a year.
Not surprisingly, Professor Henderson has been catching quite a beating for his kvetching from a number of observers (James Fallows provides an excellent summary here). But it is Berkeley's Brad DeLong who, after reminding Professor Henderson that he is in fact rich, makes an observation that absolutely nails the real issue here.....that the gap between the top .01% of households and everybody else has widened so dramatically that even the rich feel deprived (albeit relatively).
As Professor DeLong puts it,
"Cast yourself back to 1980. In 1980 a household at the bottom of the 1% rich households in America had an income equivalent in today's dollars $190,000 a year. They know of 1000 people--900 of them poorer than they are in income brackets 90-99% and 100 people richer than they are in the top 1% income bracket. The 900 people poorer than them back in 1980 had incomes from $85,000-$190,000 a year. Those are, if you are sitting at the bottom of the top 1%, the middle class who are not as successful as you. You don't look downward much. Instead, you look upward. Of the 100 above you, 90 in 1980 had incomes less than three times their incomes. And they would have known of 1 person of that 100 who was seven times as rich as they were.
Now fast forward to today. Today a household at the bottom of the 1% rich households in America has an income of nearly $400,000 a year--the income of that slot in the labor market has more than doubled, while the incomes of those at the slot at the bottom of the 10% wealthy has grown by only 20% in two decades. The 900 people he knows in the 90%-99% slots have incomes that start at $110,000 a year. Compared to Henderson's $455,000, they are barely middle class--"How can they afford cell phones?" Henderson sometimes wonders.
But he wonders rarely. He doesn't say: "Wow! My real income is more than twice the income of somebody in this slot a generation ago! Wow! A generation ago the income of my slot was only twice that of somebody at the bottom of the 10% wealthy, and now it is 3 1/2 times as much!" For he doesn't look down at the 99% of American households who have less income than he does. And he looks up. And when he looks up today he sees as wide a gap yawning above him as the gap between Dives and Lazarus. Mr. Henderson doesn't look down.
Instead, Mr. Henderson looks up. Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.
And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them--widening income inequality over the past generation has excluded him from the rich who truly have money. "While relative deprivation has long been a sociological fact of life and is an interesting phenomenon in its own right, there is a larger lesson here that goes to the heart of some major economic and social challenges facing the United States.
What Professor Henderson -- who no doubt now regrets ever opening his mouth on this subject -- reminds us, is how many different worlds we Americans live in, worlds whose boundaries appear to be increasingly divided by income.
In future posts I will discuss some of the social and economic implications of rising income inequality and the important role it may be playing in the current economic recovery.
Sunday, September 19, 2010
It's the Consumer, stupid
There are a number of reasons to be concerned about the sustainability of the economic recovery both nationally and here in Massachusetts. In particular, recent consumer sentiment and consumer behavior data are particularly troubling.
Consumer behavior is important for a number of reasons, not the least of which is how dependent the national economy is on what the Bureau of Economic Analysis terms "personal consumption expenditures".
How important is consumer spending to growth? Well, the latest US Gross Domestic Product release estimates that consumer spending contributed +1.4 percent to national economic growth in the second quarter of 2010 (total growth was estimated to be +1.6 percent in that same quarter). In other words, pretty damn important.
So, what are American consumers thinking and, perhaps more importantly, what does their recent behavior suggest our economic future holds?
I think there are at least three things worth paying attention to....all of which are troubling.
1) Consumer confidence appears to be weakening
Nationally, consumer confidence (as measured by the University of Michigan consumer sentiment survey) remains relatively weak by historical standards and the latest data indicate consumers are less optimistic about the future than they were a year ago. Closer to home, the news is no better according to the latest MassInsight's Consumer Confidence Survey for Massachusetts.
2) The "deleveraging of household balance sheets" continues
In an environment where home equity continues to decline, unemployment is high and interest rates are low, it is not surprising that many households are consuming less, saving more and paying down their debts. In the long run this is a good thing but it in the short run it reduces consumer spending and slows economic growth.
The caution of the American consumer is all the more understandable given the most recent Flow of Funds report released by the Federal Reserve. As Calculated Risk points out, the data in the report indicate that, "household net worth is now off $12.3 Trillion from the peak in 2007, but up $4.7 trillion from the trough in Q1 2009." This negative wealth effect is undoubtedly constraining consumption as well.
However, this may not be as healthy as it sounds. According to a recent Wall Street Journal Analysis of these same data, most of the "deleveraging" appears to be the result of consumer defaults on mortgages and other consumer credit obligations rather than through the paying down of these debts. The Journal estimates that of the $610 billion in outstanding consumer debt that has been shed in the past two years, a mere $22 billion has been paid off in the traditional way, with the balance being reduced through credit defaults.
Many of these households that have been forced or have chosen to default on their debts will now find themselves unable to access consumer credit at reasonable (or even unreasonable) terms. Absent access to credit, it is hard to imagine these families making major purchases (purchasing a car or a home etc) anytime soon.
3) Small businesses are worried about the lack of demand for their goods and services
As the Congress debates whether to extend the Bush tax cuts or not, one keeps hearing about how important small businesses are to job growth and how we must be very careful not to allow changes in tax policy to discourage them from hiring.
While undoubtedly small businesses create the majority of the jobs in the US economy, it does not appear that taxes represent the biggest concern for our small businesses. According to the most recent National Federation of Small Business (NFIB) survey, small business confidence remains weak.
As a number of observers have pointed out (notably Catherine Rampell and Paul Krugman), 31 percent of small businesses surveyed by the NFIB identified poor sales as their biggest problem.
So consumers are spending less in part because of legitimate concerns about their financial futures and job security, while small businesses can't hire because of weak consumer spending.
A nasty catch-22 to say the least and a real cause for concern going forward....
Consumer behavior is important for a number of reasons, not the least of which is how dependent the national economy is on what the Bureau of Economic Analysis terms "personal consumption expenditures".
How important is consumer spending to growth? Well, the latest US Gross Domestic Product release estimates that consumer spending contributed +1.4 percent to national economic growth in the second quarter of 2010 (total growth was estimated to be +1.6 percent in that same quarter). In other words, pretty damn important.
So, what are American consumers thinking and, perhaps more importantly, what does their recent behavior suggest our economic future holds?
I think there are at least three things worth paying attention to....all of which are troubling.
1) Consumer confidence appears to be weakening
Nationally, consumer confidence (as measured by the University of Michigan consumer sentiment survey) remains relatively weak by historical standards and the latest data indicate consumers are less optimistic about the future than they were a year ago. Closer to home, the news is no better according to the latest MassInsight's Consumer Confidence Survey for Massachusetts.
In an environment where home equity continues to decline, unemployment is high and interest rates are low, it is not surprising that many households are consuming less, saving more and paying down their debts. In the long run this is a good thing but it in the short run it reduces consumer spending and slows economic growth.
The caution of the American consumer is all the more understandable given the most recent Flow of Funds report released by the Federal Reserve. As Calculated Risk points out, the data in the report indicate that, "household net worth is now off $12.3 Trillion from the peak in 2007, but up $4.7 trillion from the trough in Q1 2009." This negative wealth effect is undoubtedly constraining consumption as well.
However, this may not be as healthy as it sounds. According to a recent Wall Street Journal Analysis of these same data, most of the "deleveraging" appears to be the result of consumer defaults on mortgages and other consumer credit obligations rather than through the paying down of these debts. The Journal estimates that of the $610 billion in outstanding consumer debt that has been shed in the past two years, a mere $22 billion has been paid off in the traditional way, with the balance being reduced through credit defaults.
 |
| Source: Wall Street Journal |
3) Small businesses are worried about the lack of demand for their goods and services
As the Congress debates whether to extend the Bush tax cuts or not, one keeps hearing about how important small businesses are to job growth and how we must be very careful not to allow changes in tax policy to discourage them from hiring.
While undoubtedly small businesses create the majority of the jobs in the US economy, it does not appear that taxes represent the biggest concern for our small businesses. According to the most recent National Federation of Small Business (NFIB) survey, small business confidence remains weak.
As a number of observers have pointed out (notably Catherine Rampell and Paul Krugman), 31 percent of small businesses surveyed by the NFIB identified poor sales as their biggest problem.
 |
| Source: New York Times |
A nasty catch-22 to say the least and a real cause for concern going forward....
Friday, September 17, 2010
Another month of job growth for the Commonwealth
Yesterday the Massachusetts Executive Office of Workforce Development released their preliminary job estimates for August (the press release and links to latest data can be found here). These estimates indicate that Massachusetts has added jobs for seven consecutive months, gaining 64,300 net new jobs over this period.
A couple of noteworthy items from the release and the associated detailed monthly data.
1) These monthly data releases are notoriously volatile and subject to revision so, it is wise to not put too much stock in a single month's worth of data.
However, this report contained an upward revision of the July numbers (from +13,200 jobs to +15,200 jobs) and is the 7th consecutive month of net job growth....both very encouraging signs.
2) Given the continued sluggishness of the national and global economies, one can't help but wonder how long this can last. Eventually, the slowdown in key markets for Massachusetts goods and services has got to take at least some of the wind out of the sails of the state's recovery.
3) That said, corporate profits are approaching pre-recession levels and domestic investment in equipment and software still appears to be holding up as reflected in the national income and product accounts and the earnings reports for some of the leading technology firms.
Bottom line, this is undeniably very good news. The growth of construction employment is especially welcome as this sector has been hit especially hard in recent years.
A couple of noteworthy items from the release and the associated detailed monthly data.
- The private sector continues to add jobs (+4,000 between July and August) but public sector job losses (-1,900 during the same period) are partially offsetting these gains.
- Seasonally adjusted job gains were led by Leisure and Hospitality (up 19,300 jobs so far this year), Professional and Business Services (up 13,500 jobs in 2010) and Construction (up 1,600 since July and 3,200 year to date).
- Job losses were concentrated in Manufacturing (down 1,600 for the month but up 600 overall year to date), Information ( down 1,100 for the month but up 500 overall year to date) and Government (down 1,900 for the month but up 3,800 overall year to date)
- Government job losses were largely concentrated among federal employees (down 1,500 for the month) which likely reflects the continued impact of the layoffs of the pool of temporary workers hired for the decennial census.
1) These monthly data releases are notoriously volatile and subject to revision so, it is wise to not put too much stock in a single month's worth of data.
However, this report contained an upward revision of the July numbers (from +13,200 jobs to +15,200 jobs) and is the 7th consecutive month of net job growth....both very encouraging signs.
2) Given the continued sluggishness of the national and global economies, one can't help but wonder how long this can last. Eventually, the slowdown in key markets for Massachusetts goods and services has got to take at least some of the wind out of the sails of the state's recovery.
3) That said, corporate profits are approaching pre-recession levels and domestic investment in equipment and software still appears to be holding up as reflected in the national income and product accounts and the earnings reports for some of the leading technology firms.
Bottom line, this is undeniably very good news. The growth of construction employment is especially welcome as this sector has been hit especially hard in recent years.
Tuesday, September 14, 2010
What will the banks do?
The weak housing market has long been a drag on state and national economic growth but, up until recently it appeared that prices had hit bottom and a slow but steady recovery was underway. Since the expiration of the federal housing tax credit, however, the recovery in the housing market appears to have stalled.
According to First American Core Logic, in the second quarter 15% of Massachusetts homeowners with mortgages were in a negative equity or "underwater position" (versus 23% nationwide). And according to the Warren Group, foreclosures are way up and sales are down in Massachusetts of late.
A major wild card in all of this is well described in a recent Wall Street Journal article. The article highlights how important the decisions banks make in how they dispose of their REO portfolio (the foreclosed properties they own) will be to the future trajectory of the housing market.
With demand for housing continuing to wane, a potential flood of bank owned properties into the market could force housing prices down further, pushing more homeowners "underwater" and fueling a vicious and self reinforcing circle that is now in its fifth year.
The job market is another wild card here. Here in Massachusetts, if we can continue to add jobs at current pace, I think that household finances should be stable enough to allow more families to keep current with their mortgages and slow the pace of foreclosure activities. If not, more foreclosures seem inevitable.
You would think that any self respecting bank would consider holding onto properties so that they don't end up racing each other to the bottom. But most banks hate being landlords and so, if history is any guide here, it seems likely that the supply of these homes on the market will increase.
Considering that housing supply already appears to be rising, it is beginning to look like we are in for another round of housing price declines.
According to First American Core Logic, in the second quarter 15% of Massachusetts homeowners with mortgages were in a negative equity or "underwater position" (versus 23% nationwide). And according to the Warren Group, foreclosures are way up and sales are down in Massachusetts of late.
A major wild card in all of this is well described in a recent Wall Street Journal article. The article highlights how important the decisions banks make in how they dispose of their REO portfolio (the foreclosed properties they own) will be to the future trajectory of the housing market.
With demand for housing continuing to wane, a potential flood of bank owned properties into the market could force housing prices down further, pushing more homeowners "underwater" and fueling a vicious and self reinforcing circle that is now in its fifth year.
The job market is another wild card here. Here in Massachusetts, if we can continue to add jobs at current pace, I think that household finances should be stable enough to allow more families to keep current with their mortgages and slow the pace of foreclosure activities. If not, more foreclosures seem inevitable.
You would think that any self respecting bank would consider holding onto properties so that they don't end up racing each other to the bottom. But most banks hate being landlords and so, if history is any guide here, it seems likely that the supply of these homes on the market will increase.
Considering that housing supply already appears to be rising, it is beginning to look like we are in for another round of housing price declines.
Sunday, September 12, 2010
Forecasting the Gubernatorial Election
As election day grows near, I have begun to pay more attention to what the professional political forecasters are saying. In politics as in economics, predicting the future is a tricky business but it often can be very enlightening, especially when done well.
Nate Silver, whose independent blog became very influential during the 2008 elections and who recently teamed up with the NY Times, is one of the more interesting political forecasters out there. His latest models suggest that:
Specifically, he assigns a 73.4% probability of a Patrick victory, a 26.6% chance of a Baker victory and a 0% chance of a Cahill victory (sorry Mr. Treasurer).
Locally, the always interesting David Bernstein over at the Boston Phoenix comes to pretty much the same conclusion albeit with a lot less number crunching and a lot more on the ground insight.
It is still early but, absent some major game changers in the next 6 weeks, it appears we are due for a major shakeup in the Congress and a second term for Governor Patrick and Lieutenant Governor Murray.
Nate Silver, whose independent blog became very influential during the 2008 elections and who recently teamed up with the NY Times, is one of the more interesting political forecasters out there. His latest models suggest that:
- The Republicans have a 2 in 3 chance of taking back control of the house of representatives.
- The Republicans have a 1 in 4 chance of taking control of the Senate.
- The Republicans are expected to control 30 of the 50 State Houses (up from 23).
Specifically, he assigns a 73.4% probability of a Patrick victory, a 26.6% chance of a Baker victory and a 0% chance of a Cahill victory (sorry Mr. Treasurer).
Locally, the always interesting David Bernstein over at the Boston Phoenix comes to pretty much the same conclusion albeit with a lot less number crunching and a lot more on the ground insight.
It is still early but, absent some major game changers in the next 6 weeks, it appears we are due for a major shakeup in the Congress and a second term for Governor Patrick and Lieutenant Governor Murray.
Saturday, September 11, 2010
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