Allowing underwater borrowers to refinance could help

Yves Smith and Adam Levitin, for whom I have enormous respect, argue that allowing underwater borrowers to refinance their mortgages at lower rates would not help the housing market very much. I am not so sure.

Consider a borrower with a six percent mortgage whose house is worth 80 percent of the mortgage balance. Let's also say that it is four years into its mortgage--so it has 26 years remaining on its term. If house prices remain flat, it will be 11 years and 9 months before the mortgage balance drops to the value of the house.

Suppose we were to convert the mortgage to a 4.5 percent mortgage but left the mortgage payment the same. In the first month, the amount of principal payment would increase by 2.35 fold. The borrower would be above water in 5 years and 5 months (I have a spreadsheet with the calculations, should anyone be interested). If house prices rise by two percent per year, the 4.5 percent borrower would be right-side up in less than four years. Helping borrower see a light at the end of the tunnel could really make a difference (I don't see borrower in Las Vegas ever seeing that light, but not everyone is in Las Vegas).

Personally, I would rather see some principal reduction too, but allowing free refinancings on Fannie and Freddie mortgages could materially benefit the housing market.

Top 10 Least-Polluting U.S. Metros

From the Urban Land Institute:

Top 10 Least-Polluting U.S. Metros : As greenhouse gas (GHG) reduction policies

gain momentum at the federal and metropolitan levels, a new study about urban

areas’ GHG emissions levels could have implications for real estate

developers.

It is stirking that LA is among the best 10, and is not materially different from Portland and is even a little better than Boston and Seattle. To be fair, the climate here is mild in both winter and summer (while it can get hot during the day, it almost always cools into the 60s or lower at night), and this allows us to avoid cranking up furnaces and air conditioners. But Portland and Seattle have pretty mild climates, too.

One could argue (and some have), that LA has accomplished this by being anti-business, hence driving polluters--along with their jobs--to other states. This may be correct, but ultimately, everyone is going to have to control carbon emissions. Perhaps this will give LA a first mover advantage.

What does Warren Buffett know?

When I first read this morning that Warren Buffett had invested $5 billion in Bank of America, I was puzzled. I didn't know how Buffett could figure out the costs of likely mortgage repurchases from securities issued by Countrywide/Bank of America.

I thought perhaps that Buffett had hired an army of analysts to go through the securities and figure out their value. But Nicholas Santiago (h/t Yves Smith) has the more likely explanation:

3. Warren Buffett has made a career of investing in troubled companies for the sake of the economy. The last time he made an investment such as this one was back in 2008 with Goldman Sachs Group Inc.(NYSE:GS). It is important to remember that Goldman Sachs was bailed out by the tax payer in what was called the TARP program. Buffett knows that the U.S. taxpayer will bail him out if he is wrong and Bank of America stock does go belly up.

[Disclosure: I own a few shares of Berkshire-Hathaway B-shares].

Robert E. McCormick and Robert D. Tollison on the NCAA's Subversion of the Academy

This is worth reproducing (with the kind permission of the authors) in its entirety:

Two great American institutions are about to crank up. Freshman and their older classmates will soon start returning to campuses for fall classes. Soon thereafter or about the same time, fans will fill stadiums and the 2011 college football season will begin. These two events come together almost naturally and have for over 100 years. The former may be one of the best examples anywhere of competition among universities and colleges, but the latter is surely one of the best examples of a cartel. Recent athletic resignations and firings at Ohio State, Georgia Tech, and now most recently the University of North Carolina demonstrate that the corrupting influences of the NCAA cartel on the academy have reached the highest levels of our public universities. Doubtless there are few people on earth who care less about the University of North Carolina in Chapel Hill than us (since it is a prime competitor in intercollegiate sports), but in spite of this, the time has come to stand up and be counted on the athletic scandal that has engulfed UNC-CH and so many other institutions of higher learning in our country (including Georgia Tech and Ohio State). UNC-CH is not just a university, it is regularly rated as one of the top five public universities in the United States.

What is the root of the problem here? We assert it is the enormous economic rents, or free money, that have been created by the NCAA cartel. Moreover, no college or university can be expected to withstand the ill-gotten gain that lurks underneath the NCAA banner. The NCAA is a cartel of the major athletic universities in the United States that sets wages, playing conditions, and other aspects of intercollegiate athletics. Most prominently of these is a restriction on payments to football and basketball players. These two sports create billions of dollars in local and national revenues via gate receipts, TV contracts, and ancillary merchandise, not to mention millions of dollars annually at member schools in donations by alumni and other supporters of athletic programs.

Coaches sign multi-year multi-million dollar contracts while players get tuition, room and board, and recently, only because of an important court case (White v. NCAA), some pocket money to cover the cost of living. Big chunks of these revenues also go to support other men and women athletic teams on campuses, swimming, track, golf, soccer, and the like. None of this would be possible but for the overarching cartel agreement between all of the major U.S. colleges and universities operated under the umbrella of the NCAA.

Both of us have long held, along with numerous other economists (such as Gary Becker and Robert Barro), that the NCAA’s cartel harms the market, the world, and the athletes, but now we are prepared to claim more. To wit, this crisis in athletics puts the American system of higher education at risk.

Despite our earlier disclaimer, UNC-CH is an incredible academic institution, a virtual colossus of graduate education, research, and professional education. Yet with all its storied history and social importance, the school has put its institutional credibility and brand name at risk by succumbing to the perverse incentives created by the cartel, a cartel whose primary function is to maintain a façade of amateurism on the one hand while aggressively pursuing commercial profits on the other. Never mind the morality of the arrangement. Focus instead on what this temptation has done to the University, and remember that this has been happening at lesser schools for a long time. Now that it has reached the ranks of most elite universities, it is hard to argue that any school is immune from becoming ensnared in the inevitable trap that lies in the huge gulf between amateur inputs (the lowly paid players) and professional outputs (massive TV contracts, alumni donations, and ticket prices).

Hear us clearly, we are NOT arguing to pay players. We are lamenting the diminution of the reputation of a top ranked public university and the warning signal that it sends about the dangers of the incentives created in this case. We believe in amateurism, deeply. But we believe that it should apply broadly to the coaches, the fans, and all the rest of the participants in intercollegiate sports. If amateurism is a shrine, then let us all worship it. The fans should get to see the games for nothing or nearly so (the costs of facilities and game day services). The coaches should be faculty or volunteers as they are in Little League and in local neighborhoods. It is not amateurism, but the business of intercollegiate athletics is a growing cancer bound to infect other storied American institutions of higher education.

Where does the fault lie? It lies plainly on the shoulders of the NCAA cartel. We propose that our school, Clemson, and the rest of the schools in the ACC leave the organization, sit down, take stock and decide whether the Ivy League approach is better for the ACC (no athletic scholarships) or whether the players should receive reasonable compensation. We do not take a position on the issue. Each league within the NCAA should do the same, and we doubt that they will all choose the same course. Some will go the Ivy route, others the payment route. And that is as it should be. There should NOT be one authority in control of almost all collegiate athletics in the United States. Competition is salutary, and it should prevail both on and off the field.

Cartels are a bad bargain. They raise price to consumers, reduce output and social welfare, and enrich one class of participants at the expense of another, creating envy and strife. The NCAA cartel is especially perverse because it disadvantages young people (often from challenging backgrounds) to the advantage of adults. And worse, it is morally corrupting to these same young people, compounded by the fact that it derives from the same university institutions society has charged to nurture them to adulthood.
At present, coaches, even those trying to live by the rules, daily confront moral dilemmas and choices. But the nature of the restrictions creates two sets of rules (written and unwritten), and our young college students, both the athletes and their classmates, are not being taught to play by the rules. They are being taught, “everyone cheats, we got caught, it is no big deal.” Paying under the table is okay. Having tutors write term papers is okay for athletes who are working their rear ends off to practice especially if they are good and the team is winning.

Students are being taught that ends matter, but means do not. Our educational system is built upon honor, integrity, and the search for truth as bedrocks. Yet these same foundations are washed away on a regular basis by phenomenal dollars made available by the cartel. What is a young person to believe? That it is wrong to crib on a test or plagiarize a term paper, but okay to lie to the NCAA investigator? That it is right and proper to offer a helping hand to those less fortunate or in need, but wrong to do so if they have signed an athletic scholarship? Our universities need to stand for our culture, and our culture should not be about lying, half-lying, deviousness, and cheating. There is only one way to end cheating- resolve the conflict between amateurism and professionalism, either by making both sides professional or both sides amateur. But the current situation is unsustainable and puts institutions of higher education at risk.
We contend that the moral fiber of the university is one of its most powerful social virtues. It helps bring young people to adulthood with a care and concern that things are done correctly and on the up and up ethically.

There is a clear positive implication of our argument. Cheating teaches cheating, and it is a mistake to think that our kids will not watch what we do instead of what we say. The scandals that now infect the best universities in the land will almost surely lead to more and more academic dishonesty and disregard for the basic traditions of the academy if something does not happen to reverse course. Cheating in the athletic department begets cheating in the classroom and perhaps generally in life. This is a prediction of our argument albeit a depressing one.

It is critical to note that we are big fans of the coexistence of athletics and academics. Our research speaks loudly and clearly on this. We support athletics as part of university education and think the two together make for the best organizational arrangement. Our cry is NOT about athletics, but about the NCAA cartel that creates the rents and free money that shred the moral underpinnings of our home, the academy.
A la Ronald Reagan, we say tear down the wall around truth and dignity. Clemson, UNC, Georgia Tech, and all the rest should refuse the financial inducements offered by the NCAA. Return to amateur intercollegiate sports, or pay the players. Nothing less than the integrity and quality of our universities is at stake.

The passage that really hits home to me is: "Students are being taught that ends matter, but means do not. Our educational system is built upon honor, integrity, and the search for truth as bedrocks. Yet these same foundations are washed away on a regular basis by phenomenal dollars made available by the cartel. What is a young person to believe?"

Two cents (or maybe a nickel) on Texas.

Texas is doing well relative to the country. Its jobs creation rate is second only to North Dakota, a state whose population is smaller than Austin's. It has large in-migration because of jobs, and as one blogger points out, wages are rising faster in Texas than [most] other states, so one cannot credibly make the argument that its success is entirely a "race to the bottom outcome." The fact that Texas only relies a little more than average on construction for its employment base shows that its job performance is not the result of an unsustainable housing construction boom of the Arizona, Florida, Nevada and Central California variety.

In an ideal world, we would run some regressions explaining Texas' growth, but we haven't sufficiently up-to-date data to do that. We do know that some things matter in general for growth: climate (which I don't think even Rick Perry is claiming credit for); fraction of the population with a BA, and, if I may refer to work I did five years ago, availability of air transportation.

Texas does well in two out of three indicators: since World War II, people and jobs have moved to warmer places such as Texas, and Dallas is a hub for two airlines and Houston is a hub for one. Texas is below average, however, in the share of adults with BAs and graduate degrees.

So why is Texas doing well? First, it has managed to maintain its state and local government spending far better than most other states, and has not had the negative stimulus arising from massive layoffs. Over the past decade, government job growth in Texas has outpaced private sector job growth by about 2 to 1.

Second, Texas has among the most stringent consumer protection laws in finance in the country--likely arising from a long-standing Western mistrust of bankers. As a consequents, consumers were essentially forbidden from using their homes as piggy banks. As Mike Konczal shows, this means Texans have far less debt to pay off (it also shows how we in California are still in the soup). So "heavy-handed" regulation helped keep Texas out of trouble.

Finally, it is simply easier to develop everything in Texas--housing, businesses, etc. This is the one part of the conservative view of Texas that I buy--as one Los Angeles planner said to me, it takes 18 months in LA to do what it takes six weeks to do in Dallas. LA doesn't even have by-right zoning. It is here where I think Texas has an enormous advantage for business development over California.

That said, California has a greater share of people with BA's than Texas. Part of the reason why may be that well-educated people, who can afford to live in a place that takes environmental protection seriously, do so. There is actually some good reason for California's stringent environmental rules--the air quality here, while much better than it used to be, is still not good enough. Of the ten cities with the worst air quality in the country, six are in California. But the cities with the worst air quality outside of California are Houston and Dallas; someday voters in those cities are going to demand better. I do think California can do a better job of protecting its environment while making business development easier, but that is the subject of another post.

Cost and benefit

I listened to a colleague of mine on Friday discuss how nothing adds to our carbon footprint like flying-and I have little doubt that he is right. Mark Twain one wrote, “Travel is fatal to prejudice, bigotry, and narrow-mindedness.” I am pretty sure that is right too.

Triumph of the Rentier City?

I am teaching a senior honors seminar this fall. Among the readings is Ed Glaeser's new book, TheTriumph of the City. It is a perfect book for smart undergraduates--it is well written, thoughtful, and thought-provoking. It is also packed with fun facts.

Early on in the book, Ed celebrates the resiliency of Manhattan, noting that "[b]etween 2009 and 2010, as the American economy largely stagnated, wages in Manhattan increased by 11.9 percent, more than any large county."

This passage brought to mind Vernon Henderson's pioneering work on large cities and favoritism. He writes:

This enhanced role of government in the urbanization process over the years has resulted in a corresponding bias, where certain regions and cities are heavily favored in terms of capital and fiscal allocations, giving favored regions a cost advantage.

New York is wonderful, but it has been given an enormous cost advantage in the aftermath of the financial crisis. It's institutions received cheap capital in the form of TARP; a near zero Federal Funds Rate also amounts to a large subsidy for financial institutions. Banks can currently make profits just by playing the yield curve. These profits have helped restore Wall Street bonuses (and hence incomes of everyone else in Manhattan), but that doesn't mean they reflect productive activity.

I don't want to make too much of this: TARP was necessary, and the low Federal Funds rate is necessary too. New York is a great and resilient city. But it is also home to many too big to fail institutions, and thus has political and financial advantages that, say, Chicago and San Francisco lack.

Even in principle, figuring out a fair tax system is hard

How does one set up a system such that everyone pays their fair share of taxes? Let us suppose that a "fair" tax is one where everyone gives up the same share of utility to pay for public goods. One could formulate this such that

U(X(L)-L-t)/U(X(L)-L) = K

The idea is that the fraction of utility one keeps after taxes is the same for everyone. X is consumption; the amount one gets to consume is a function of effort, L. To make things easy, we will assume people consumer their incomes, so that income and consumption are the same. Assume that utility function has the shape U' > 0 and U" < 0. K is dependent on how much society wishes to spend on public goods.

Just this simple formulation presents three problems. First, the fair rate of progressivity will be a function of the magnitude of U". For instance, if we assume log utility, U' = 1/(X-L) = U" = -1/(X-L)^2. This means U" gets very small very rapidly, which also means that the need to increase marginal tax rates in income to maintain the above definition of fairness gets quite small. We do know that taking money away from people at or below subsistence levels of income will lead to substantial diminution of utility, but beyond that point it is hard to say how sharply progressive taxes need to be in order to be fair.

Second, the correspondence between consumption and effort is not one-to-one. If the correlation between consumption and effort is less than one--and I will go out on a limb and say that it certainly is--taxing income actually only approximates taxing utility. The lower the correlation, the worse the approximation.

Finally, defining effort is a problem. As Matthew Yglesias notes, NYU professors make a lot less money than Wall Street bankers, but their life might well be better. Perhaps I am wrong, but it seems to me that the -L in a steel worker, coal miner, or line worker is a lot bigger than mine, and so looking at income alone is adequate for approximating utility.

So what to do? Here is why, despite my liberal leanings, I find a flat tax with a large exemption and a large earned income tax credit appealing. The rate would have to be sufficient to raise revenue, and would apply equally to all type of income. Deductions would be limited. Such a set up would assure that Warren Buffett would pay no less a share of his income than anyone else. Bob Hall proposed a similar plan 15 years ago. I would dress it up with the earned income tax credit.

Two GOP Governors stuck in a 1950s Economy

I heard Wisconsin governor Scott Walker speak in Madison a few months ago. His economic strategy for the state? Smokestack chasing and belittling Illinois--in fact, I think he said "Illinois" (followed by various synonyms for "sucks") more often than he said "Wisconsin." He did say he loved teachers though--sort of the way husbands say they love their wives after they are arrested for assaulting them.

Now Rick Perry says in his campaign announcment:

The change we seek will never emanate out of Washington, D.C. It will come from the windswept prairies of Middle America, the farms and factories across this great land, from the hearts and minds of the goodhearted Americans who will accept not a future that is less than our past…patriots who will not be consigned to a fate of less freedom in exchange for more government. We do not have to accept our current circumstances. We will change them. We are Americans.

Farms now produce a little more than one percent of GDP. And while the US is still the world's leading manufacturer by output, automation has continued to reduce jobs in manufactuning--a reduction that will continue in the years to come, regardless of the health of the economy.

Where does change come from? From Silicon Valley. From Route 128. From the Research Triangle. From labs at Cal Tech and MIT and, yes, the University of Wisconsin and the University of Texas. Also from Hollywood, from fashion designers in New York, from sneaker designers in Oregon, and, like-it-ot not, from Pharmaceutical Companies in New Jersey, New York and Indianapolis. These are things we do that the rest of the world envies. These are things that happen in cities. And yet not a word about any of it.

PPD 498 Fall Syllabus

PPD 498: Senior Honors Seminar in Policy, Planning and Development
University of Southern California
Professor Richard K. Green
richarkg@usc.edu
Keynesian.richard@gmail.com
213-740-4093

This is a senior honors course on topics in Urban Development. This emphasis of the course is on reading, presenting and critically reviewing some classics, old and new, on issues important to those who wish to do research on cities and their regions.

The requirements of the course are three:
(1) Doing the reading before class and participating in class. Your performance in participating will determine 1/3 of your grade.

(2) Leading a ½ hour class discussion on a reading of your choice. You will need to get clearance from me on the reading, and you must let me know your proposed reading by October 1, 2010. This will determine another 1/3 of your grade.

(3) A critical literature review of a topic of interest to you involving an urban topic. The lit review must discuss a minimum of five papers (more would be better) and should be 15-20 double spaced, 12-font, pages long. This will determine the final 1/3 of your grade.

All of USC’s academic conduct rules apply to this course; because you are choosing to be in it, I am assuming this will not be an issue with any of you.

Topics and Readings
August 25 Lenses of Social Science
George Orwell, Why I write.

September 1 New York
Jane Jacobs, The Death and Life of Great American Cities I

September 8 Growth in Cities
Jane Jacobs, The Death and Life of Great American Cities II
John Quigley (1998) Urban Diversity and Economic Growth, Journal of Economic Perspectives, 12(2):127-38.

September 15 Urbanization and Development
J. Vernon Henderson (2004), Urbanization and Growth, Brown University Working Paper
Marianne Fay and Charlotte Opal (1999), Urbanization without Growth, World Bank Research Working Paper.

September 22 Sprawl
Reid Ewing (1997), Is Los Angeles-Style Sprawl Desirable? Journal of the American Planning Association, 63:1, 107-126.
Peter Gordon and Harry Richardson (1997) Are Compact Cities a Desirable Planning Goal? Journal of the American Planning Association, 63:1, 95-106.
George Galster, Royce Hansen, Michael Ratcliffe, Harold Wolman, Stephen Coleman and Jason Freihage (2001), Wrestling Sprawl to the Ground, Housing Policy Debate, 12(4), 681-717.

September 29 Anti-Sprawl
Ed Glaeser, The Triumph of the City I

October 6 Agglomeration
Ed Glaeser, The Triumph of the City II
Paul Krugman, Development, Geography and Economic Theory

October 13 Guest

October 20 Housing
Stephen Malpezzi (1996) , Housing Prices, Externalities and Regulation in US Metropolitan Areas, Journal of Housing Research, 7(2) 209-242.
Richard K. Green (1996), Should the Stagnant Homeownership Rate be a Source of Concern, Regional Science and Urban Economics.

October 27 Cities and Health
Charles Rosenberg, The Cholera Years.

November 3
William Cronon, Nature’s Metropolis I

November 10
William Cronon, Nature’s Metropolis II

November 17
Student Led Discussions I

December 1
Student Led Discussions II

Current Construction of the New World Trade Center Site

Around 8.3 million square feet of space is currently under construction at the World Trade Center Site. To put this in context, downtown St. Louis and downtown Milwaukee both have a total of 11 million square feet of office space, so New York is building the equivalent of a medium city downtown in less than 5 years.

Is this too much building? Perhaps not. The other contextual number is the amount of current space in Manhattan; the total is about 350 million square feet. So by building a downtown St. Louis, Manhattan is expanding its office market by only two to three percent.

Jeremy Stein for Fed Governor

Mark Thoma writes that the administration is considering nominating Richard Clarida and Jeremy Stein for the Federal Reserver Board. He cites an encouraging Clarida speech, but writes, "I know less about Stein, so I'll withhold judgment for the moment."

Personally, I am a big fan of Stein's work. The shortest way to explain why is to list the titles of his five most cited papers:

Herd Behavior and Investment

A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets

Rick Management: Coordinating Investment and Financing Policies

Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies

Internal Capital Markets and the Competition for Corporate Resources.

Stein has spent his career trying to figure out how capital markets really work instead of pledging fealty to models that don't work very well. I can't think of a better intellectual qualification for a Federal Reserve Board member.

William Malkasian

My boss from 1987-1990, while I was finishing my dissertation and before I became an assistant professor, was Bill Malkasian. Bill introduced me to the world of real estate, and for that I will be ever grateful.

When I think of the people in the world who have taught me a lot, only members of my family supersede Bill. He helped me learn, in the phrase of Paul Krugman, how to "listen to the gentiles." He also helped make me a more sympathetic person, and allowed me to appreciate skills in others that I would otherwise have not appreciated.

Bill is leaving his position as president of the Wisconsin Realtors Association after more than 30 years in order to provide strategic planning consulting to real estate groups around the country (Bill also taught me the value of strategic planning). WRA will miss him a lot, but the rest of the country will be better off.

Anti-stimulus

The Government Component of the National Income and Product Accounts for the past 6 quarters (QI 2010 through Q2 2011):

21	Government consumption expenditures and gross investment	-1.2	3.7	1.0	-2.8	-5.9	-1.1
22	Federal	2.8	8.8	3.2	-3.0	-9.4	2.2
23	National defense	0.5	6.0	5.7	-5.9	-12.6	7.3
24	Nondefense	7.8	14.7	-1.8	3.1	-2.7	-7.3
25	State and local	-3.9	0.4	-0.5	-2.7	-3.4	-3.4

Anyone see a problem here? It's not like we have seen a rip-roaring "crowding-in" of the private sector. For those who think we should cut government spending, well, we are, and more is to come thanks to the debt-ceiling deal. I hope I am wrong about this, but it is hard to see how this leads to a recovery in jobs any time soon.

Paul Krugman lives his words

I hope that readers will forgive a personal anecdote.

Over the weekend, Paul Krugman wrote a blogpost entitled "Pulling Rank:"

I don’t have time right now to track down all the examples, but if you look at how many freshwater macroeconomists have responded to Keynesian arguments in this crisis, you find over and over again that they resort to assertions of privilege — basically, I am a famous macroeconomic expert and you aren’t — rather than really addressing the issues. And this is so ingrained a response, apparently, that they use it in situations where it’s truly ridiculous: Lucas accusing Christy Romer of not understanding basic macro, then demonstrating that he doesn’t understand Ricardian equivalence; Barro belittling the credentials of yours truly, just after forgetting that there was rationing and investment controls during World War II.

Now for the anecdote part. When I was a Ph.D. student in economics at Wisconsin, my advisor, Bob Baldwin, invited me to present a piece of our joint work at an NBER Conference called "Trade Policy Issues and Empirical Analysis."

I remember the night before the presentation--I had gotten to meet many of the people whose papers I had read in my graduate classes: Leamer, Feenstra, Rodrick...and Krugman. It was at once a thrilling and scary experience, and when I went to bed that night, contemplating my audience for the next day, the fear took over from the thrill. Let's just say that by the time morning rolled around, I am guessing my stomach had never been emptier.

I gave the presentation, and as best as I can tell, it went reasonably well. I very much doubt he would remember it, but afterward Krugman, the young MIT full professor new trade theory rock star, came up to me, the nobody, Wisconsin graduate student, to give me encouragement and advice on the paper. He was very respectful--even collegial. I will never forget it.

Robert Barro channels Marie Antoinette

In his Wall Street Journal column this morning, Barro argues that after a generation of policies that have increased income and wealth disparities, what we really need are policies that further increase income and wealth disparities. For the sake of "liberals," however, he would countenance an exemption in his proposed VAT for food. I guess he is not willing to consider the importance of such an exemption to, say, people who don't have a lot of income.

Barro is among a class of economists to whom the median American is invisible. They could all be played in the movies by Lionel Barrymore.

Labor Statistics and Confidence Intervals

According to the BLS establishment survey, non-farm private and public employment rose by 117,000 jobs in July. http://bls.gov/news.release/empsit.b.htm. This number was better than the consensus forecast of growth of 85,000 jobs. It led at least one business economist to say we have "avoided the precipice."

But can a monthly number really tell us that? The technical notes for the employment report says the 90 percent confidence interval for the establishment survey is 100,000 jobs. This means the estimate has a standard error of about 100,000/1.64 or about 61,000 jobs. To the distance between the consensus forecast and the actual number reported is slightly more than 1/2 a standard deviation. This means we can be only about 60 percent sure that the employment number was better than forecast, which is a little better than a coin flip.

Container-Ship Plunge Signals U.S. Slowdown.

San Pedro and Long Beach are the largest container ports in the US.

real estate