YELLEN | Perfect Choice for Fed

Janet Yellen, President Obama's

nominee for Fed Chair

The appointment of Janet Yellen is perfect because she is pragmatic, eyes on the data, and concerned about unemployment as well as inflation. She is not one of those central bankers who consider the unemployment problem to be a secondary concern.

Also, because she is a woman, we won't be hearing so many complaints about "100 years of patriarchy at the Fed".

While the Phillips Curve has given way in academic circles to the concept of a non-accelerating-inflation rate of unemployment (the NAIRU), the two desirables of low inflation and low unemployment remain the twin objectives of the Fed, with low inflation being the traditional central bank goal and a low-unemployment goal having been added by the Employment Act of 1946.

Inflation appears to be under control, so the "doves" on the Federal Open Market Committee believe that it is not yet time to "taper" the Quantitative Easing program that has been designed to encourage economic growth. The idea is to keep long-term interest rates low by providing a ready secondary market for long-term Treasuries, thereby lowering yields on all long-term instruments and providing inexpensive capital for job-creation.

In a fine interview a few hours ago on Charlie Rose, Professor Yellen emphasized that the Federal Reserve is working on behalf of all Americans. The implication of that is that containing inflation satisfies the concerns of those who hold debt, i.e., wealthier Americans. Unemployment, however, is more prevalent among poorer people and it creates poverty.

That, in a word, is why the doves tend to be liberal Democrats and the "inflation hawks" tend to be more banker-oriented. Yellen is close to Bernanke on this spectrum, but more dovish than Bernanke has appeared to be recently in his effort to preserve consensus.

The target rate for interest rates continues to be near the zero bound because inflation is coming in below the 2 percent target that Chairman Bernanke announced at the beginning of 2012. Right now 6.5 percent still appears to be the target unemployment rate, and we are not there yet, although we lack the September number because of the government shutdown. By the standards of the targets, based on the data, Janet Yellen is in the right place on the dove-hawk perch.

A few critics from the left note that she did not oppose the 1999 takedown of the Glass-Steagall Act, but then neither did Senator Schumer and other key Democrats. No one fully foresaw how things would play out through 2008. It was the London Economist that in 1999 observed correctly that if the investment banking (and other non-bank financial) foxes were allowed to mingle with the banks, the investment banks – or preferably the entire financial system including the investment banks – should be regulated. For more on this period, see this post from 2008.

JUSTICE | Teenagers in Prison? Bad for the Economy

About 71,000 teenagers are incarcerated (2010 data), i.e., 2.3 per thousand teenagers (10-19). The USA spends $6 billion a year keeping juveniles in prison. The average direct cost of keeping a teenager in prison is $88,000 per year.

When teenagers are put in prison, two effects follow:

• They are less likely to finish high school.
• They are more likely to return to incarceration as an adult - recidivism is high.

So a community that is tough on its teenagers and is quick to incarcerate is likely to be a community where fewer high school students graduate and more adults are in prison. This is a dual drag on their economy.

Alternatives to incarceration for offenses by teenagers reduce the effects described above. These alternatives include

• Electronic monitoring.
• Well-enforced curfews. (As in Illinois.)

The authors of the above research, Anna Aizer and Joseph Doyle, Jr., do not place a value on the deterrent effect of incarceration, because recent evidence suggests that this effect is weak.

The research is in NBER Working Paper #19102, available from www.nber.org/papers.

NYC | Money > 2:1 for de Blasio

Bill de Blasio with an early campaigner. Photo

 by JT Marlin.

Once it was clear that Bill de Blasio had come from way behind to be the favorite in the NYC mayoral primary, the conventional wisdom was that de Blasio for Mayor would be a hard sell to the NYC establishment and that business money would flow to his opponent, Joe Lhota.

That seemed to be the pattern for the first two weeks after the primary on September 10. Lhota raised more money than de Blasio during that period. It wasn't clear where the Thompson and Quinn votes would go. A report came out saying that one-quarter or more of the Quinn votes would go to Lhota.

But two things happened next:

(1) By September 24, polls were out from the NY Times/Siena College and Quinnipiac pollsters that both gave de Blasio a three-to-one advantage. If Quinn votes were going to Lhota, they were thin on the ground.

(2) During the next two weeks, de Blasio has been raising more than twice as much as Lhota, as the table below shows.

	de Blasio	Lhota
Dem, GOP primaries, 9/10	$6,800K	$3,800K
First 2 weeks after primary	$153K	$156K
Since polls showed 3-1 deB	$635K	$280K

Source: NYC Campaign Finance Board filings

The latest poll in October shows deBlasio's advantage has climbed to 3.5 to one. Lhota has become a long shot. De Blasio's campaign team and consultants, having pulled off an upset, are not likely to be caught napping in the short campaign before the general election.

The wild card will be the independent messages from donors to Citizens United-type campaign funds trying to influence the election without having to reveal their identity. While these messages are a potential menace to any candidate, they are less targeted because they are prohibited from engaging in "express advocacy" for a client against another candidate -- and they are therefore likely to be less effective than direct campaign messages.

CONGRESS | House leaders reassure furloughed feds

Not about the money.

Oct. 5, 2013–It's the 2014 Federal Fiscal Year.

The House today unanimously passed a bill to ensure that the 800,000 furloughed Federal workers will be paid retroactively for the time they are not working, since Monday night, during the government shutdown.

Senate leaders indicate they are likely to pass the bill.

What a relief for Federal workers.

So, Mr. Boehner, it's not actually about the money?!

Who knew?

Um... so it is really about... ?

NYC | $ per Vote–de Blasio Lowest, $24

Bill de Blasio is the most efficient campaign spender so far this year, based on figures provided by Sam Roberts on p. A20 of today's New York Times, supplemented by my own historical investigation.

De Blasio spent $24 per vote (the same amount that Peter Minuit paid the Lenape or Canarsee Indians in goods for all of Manhattan, Battery not included) to campaign for the Democratic nomination for Mayor from the office of Public Advocate.

Thompson, two-time former City Comptroller, spent $36 per vote. Quinn spent $60 per vote. The Democrats were all more efficient in their spending than the Republicans, except for Anthony Weiner.

	Party	$ Million	$ per Vote	Votes
de Blasio	D	6.8	24	283,333
Thompson	D	6.6	36	183,333
Quinn	D	6.6	60	110,000
Liu	D	3.2	68	47,059
Lhota	R	3.8	119	31,933
Bloomberg, 2009	R	102.0	174	586,207
Weiner	D	6.6	190	34,737
Lauder, 1989	R	13.0	352	36,908
Catsimatidis	R	10.4	419	24,821

John Catsimatidis now outranks Ronald Lauder on spending per vote. Catsimatidis may be the biggest NYC mayoral campaign spender in history based on results, $419 per vote.

Ronald Lauder's 1989 primary campaign, costing $352 per vote, was at the time described as the most expensive campaign per vote in U.S. history.

The high cost of Mayor Bloomberg's 2009 campaign is also clear from this table - $174 per vote, $102 million total - 15 times the total amount that Bill de Blasio spent becoming the Democratic nominee for Mayor this year.

But Linda McMahon spent $454 per vote in the 2010 Connecticut GOP primary for U.S. Senate. She won it but then lost the general election with spending of $95 per vote - the most spent in any state or local general election in 2010.

In New York State, the most costly primary was the $3.1 million battle between Chris Cox and Randy Altschuler in NY District 1. Altschuler won, spending $191 per vote (Cox spent $195 per vote), but went on to lose to incumbent Tim Bishop, spending another $2 million for a $23-per-vote cost in the general election.

The success of the de Blasio primary campaign, if followed up by similar success in the faceoff with Lhota next month, will boost the already-strong credentials of de Blasio's campaign consultants -

• John de Cecato of AKPD Message and Media, founded by David Axelrod (de Cecato prepared the famous ad featuring Dante and his Afro). 
• Anna Greenberg of Greenberg Quinlan Rosner Research, which did the polling for the de Blasio campaign. 
• Joe Rospars of Blue State Digital, the people who were brought together for the Howard Dean campaign in 2004, got behind Barack Obama in 2008 and signed up 13 million supporters for him online, raising $500 million via Quick Donate.

Of course, the campaign consultants should not get all the credit for the success of the candidate. Some of that should go to Mr. de Blasio himself, his Wellesley College wife Chirlane McCray, and their two impressive children.

NYC | Lhota v de Blasio on the Economy

Joe Lhota (L) and Bill de Blasio (R).

In preparation for the Primary, City Limits magazine collected the views of mayoral candidates on economic development.

Given that the two main candidates are now facing off in the General Election in less than five weeks, these views are worth consulting again, this time more attentively.

Joe Lhota (Republican nominee for Mayor of New York City)

• "Diversify our economy and provide an environment conducive to job creation and the elevation of the standard of living in all five boroughs."

• "Create a climate that will encourage and sustain job growth, including reducing burdensome regulations and taxes that stifle private sector growth."

Bill de Blasio (Democratic nominee for Mayor of New York City)

• Reform or eliminate corporate tax breaks to save the city $250 million and devote it to CUNY

•  Form cohesive system from currently disjointed job training and placement programs, especially for less-skilled workers

• Expand CTE high schools

• Use better zoning enforcement and infrastructure investment to promote manufacturing

• Strengthen “neglected" sectors by building economic development hubs in each neighborhood and launching loan and investment funds to provide capital to local start-ups

• Reduce fines on small businesses and increase their chances of landing city contracts

• Expand sick day coverage, push for higher wages through city contracts and provide better work-rights enforcement