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by on September 28, 2013 at 4:14 pm in Uncategorized | Permalink

1 Eva September 28, 2013 at 5:15 pm

2. Well, they’re guaranteeing the bills will be used up in the club…. Who wants to take some marked money back home? Advertizing, but also reducing their outside value.

2 Nikki September 28, 2013 at 5:50 pm

Why would anybody not want to take marked money back home? Spend the bills on a trip. Feed them to a vending machine. Donate them to charity. Deposit them to your bank account, via an ATM if necessary. Money is a convention. In this case the agreement is challenged by the businesses that refuse to accept the stained bills, not by the strip club. Much ado about nothing, really.

3 Vernunft September 28, 2013 at 8:15 pm

You answered yourself, and seriously didn’t get it?

They are ruining the value for many other things.

4 Mark Thorson September 28, 2013 at 9:49 pm

The wife might see them.

5 Nikki September 28, 2013 at 5:22 pm

#2: Is it legal for businesses to reject those bills?

6 Dan Weber September 28, 2013 at 7:55 pm

The general rule is that you can refuse any currency you want before a transaction takes place.

If you owe a debt to someone, though, the note is legal tender for it, and they can either accept it or cancel the debt.

I don’t know if they have to accept bills they suspect are counterfeit.

Source: reading lots of internet articles about paying people with a million pennies

7 Sean September 28, 2013 at 11:38 pm

Well, apparently, it’s legal for the PA Turnpike to reject a $5 bill if the toll taker thinks that the ketchup that spilled on it earlier looks too much like blood, thus forcing you to pay by mail when you get home. Sorry. Just happened to me. Still irritated.

8 Peter September 28, 2013 at 5:33 pm

They’re a marketing gimmick for Casa Diablo, a Northwest Portland strip club that is taking U.S. currency and smearing it with blood-red ink.
Casa Diablo has made headlines in Portland for its vegan menu

If they wanted to be REALLY innovative they’d hire some strippers who actually look like adult women instead of like prepubescent little girls. Of course that will never happen.

9 Kabal September 28, 2013 at 9:33 pm

The strippers are adult women and I bet they look it.

Female looks tend to peak between late teens and mid-twenties. Your bitterness won’t change that, although you keep trying.

10 Cliff September 29, 2013 at 12:25 am

+1 Never got this particular trope. “Pre-pubescent”? Really?

11 anon September 29, 2013 at 1:26 am

He means it literally.

12 Peter September 29, 2013 at 12:28 am

I don’t think you quite get my point. Chance are someone will explain it.

13 Therapsid September 29, 2013 at 2:16 am

Peter – we’d rather you explain it. Are you seriously suggesting that strippers in their 20’s don’t look like adult women?

14 ivvenalis September 29, 2013 at 3:02 am

Peter is the Internet’s most renowned champion of pubic hair.

15 BC September 28, 2013 at 5:53 pm

Re: 5. So, there has been a “deep and broad based” decline in expectations of future nominal income (nominal GDP). Doesn’t that support market monetarists’ contention that monetary policy has been too tight since the Fed has not done enough to raise NGDP expectations? If we had an NGDP futures market, do Figures 1, 2a, and 2b suggest that people would be net buying NGDP bonds or selling NGDP bonds back to the Fed right now? In turn, what does that suggest about tapering? Ironic that this piece should be published on the Federal Reserve’s website, no?

16 Claudia Sahm September 28, 2013 at 6:29 pm

BC, I do not think it is ironic. I, as a Board economist, have been using this data on income expectations for some time to think about consumer spending. And yes, I would say my findings here are consistent with a large demand shock; however, the persistence of the downshift and the possibility that pre-recession expectations were overly optimistic does not make the policy prescriptions (fiscal or monetary) clear cut. And of course, this is just one indicator, one study.

17 Tyler Cowen September 28, 2013 at 7:00 pm

They are no less consistent with supply shocks, noting that stronger supply would drive stronger demand…

18 Claudia Sahm September 28, 2013 at 7:38 pm

Well my “one study” caveat also implied “one person’s inference.” Identification is tricky here, but there should be ways to trace out the effects of shocks (to supply or demand), particularly when the direct effects may vary across households. But I agree there is nothing conclusive about my work.

I find it harder to see a supply-side story with this data, given the broad-based nature of the decline in expectations. The most plausible supply-side story to me (maybe you have a better one) is that permanent income growth for many (polarization, tech change, etc.) had been slowing for some time and households did not recognize it / accept it. Their income expectations had been too optimistic and they used credit to fill the gap. Then the financial crisis and recession gave them a wakeup call and expectations adjusted sharply down to the low growth reality. It is possible and may well be a piece of the puzzle; however, I find the downshift at all education levels and across all age groups at odds with this hypothesis. It looks more like a pessimism/uncertainty shock to me and yet I suspect the demand vs supply debate matters less now than whether it’s temporary or permanent.

Oh and not that this will surprise, but I asked Scott Sumner about this once and he said: “Lower nominal income expectations is 100% demand shock”

19 Ryan September 29, 2013 at 9:30 am

“I find the downshift at all education levels and across all age groups at odds with [the supply shock] hypothesis.” I admit that I’m not sure what is meant by “demand shock” and “supply shock.” Those are well-defined words in models because we literally model them as exogenous processes that hit the economy, which is useful in many contexts. But here, I don’t see how a broad-based decline in income expectations across many groups is evidence of one over the other. Maybe those arguing for each could explain the specific nature of the “shock” they have in mind rather than just using the supply or demand label.

It seems to me that a broad spike in unwarranted (and maybe short-term) pessimism may be observationally equivalent to a broad adjustment of perceptions of permanent income to more accurate views (did the survey you used ask any questions that would allow us to distinguish between these?). I think the main purpose of the demand shock vs. supply shock debate is to derive policy implications, with demand shocks being amenable to fiscal/monetary policy. In my mind, if the shift in expectations is “permanent,” I have a really hard time thinking of what kind of policy would cause people to revise their views of their permanent income upward–even if those views are “wrong” or something. What is the mechanism through which monetary policy accomplishes this? I know the market monetarist answer, which is that higher expectations of nominal GDP will convince regular people that their own lifetime income is higher than they thought (I always check nominal GDP forecasts when I do my budget planning; don’t you?). But we have a lot of hand waving going on here. And are we really certain that “nominal” is a key word here? Remember, not everyone in the surveys reads Scott Sumner’s blog. Sure, the questions are asking about nominal income; but the respondents could be thinking about real production capacity. I think Sumner has inadvertently convinced people that every event is evidence of demand shortfall and can be cured with higher nominal GDP expectations.

I’m just trying to articulate my confusion. I think it’s important to get this right, because in my view your blog post gives us one of the more important stylized facts of the current situation.

20 Claudia Sahm September 29, 2013 at 10:34 am

Ryan, you (and Tyler) make fair points. I agree that supply versus demand debate is fairly vacuous here without specifying the possible shocks and my short analysis is not conclusive. I tried to sketch out one possible supply shock in my last comment related to skill-biased technological change … median income has stagnated, but not at the top … I would have expected to see much more pronounced, permanent adjustments in less educated, younger workers. Of course, there are other supply shocks, maybe related to credit supply, that could have a broader impact.

It is true that long-standing trends are sometimes “uncovered” in recessions but the timing here also looks a lot like a (understandable) freak-out over in the crisis/Great Recession. And these survey measures have very slowly been improving. I will add that the survey has separate questions about real income expectations and those responses show broadly similar trends. The paper Mark cited below is a very good one to get an in-depth treatment of the survey measures.

21 Ryan September 29, 2013 at 5:00 pm

Thanks, I should have read your comment more carefully. I see what you’re saying–if the supply shock story is about technology, we wouldn’t expect the income pessimism to be so pervasive across groups. A different “supply shock” story is needed to explain the data.

22 Mark A. Sadowski September 28, 2013 at 9:01 pm

Here’s a Chicago Fed paper on the same subject:

Expected income growth and the Great Recession
Eric French, Taylor Kelley, and An Qi

Plus David Beckworth did posts in April and May on this topic.

23 dearieme September 28, 2013 at 9:07 pm

“It’s against federal law to deface U.S. currency with the intent to make it unusable.” Why?

24 Ronald Brak September 28, 2013 at 10:30 pm

Because its vandalism of public property. If one goes slapping red paint on street lights, hospitals, and police cars one tends to get in trouble for that too. I’m pretty astounded that the business is continuing to do this after being warned. But then, because of your question, I guess a lot of people don’t realize the $2 bills are public property in the US. We had a stink in Australia because someone asked the Prime Minister to autograph an Australian dollar note and he did.

25 dearieme September 29, 2013 at 10:33 am

“Because its vandalism of public property.” What a preposterous state of affairs. Your dollar in your wallet is legally owned by the US government? Did those demi-gods, the Founding Fathers, live in vain?

“If one goes slapping red paint on street lights, hospitals, and police cars” – that seems to be a pretty lame analogy. If you slapped red paint on an ex-police car that is now yours, nobody would give a hoot, surely?

26 Ronald Brak September 29, 2013 at 10:50 pm

Dearieme, are you saying that US notes aren’t public property? I’m sorry, I assumed they were. It seems odd to me if they aren’t. If they are private property what’s to stop people damaging them or stamping them with advertising if they wish? And if they are private property why are there laws against doing that? Are notes and coins what we here might call heritage listed – people can own them but they are not legally allowed to change them?

27 Norman Pfyster September 28, 2013 at 10:54 pm

Because the government never read the “Armchair Economist” and doesn’t understand monetary economics?

I have problems with a law that gives the discretion to the government to create a violation of the law, since it is the Federal Reserve itself that has ordered banks to reject the bills as unusable.

28 Tom T. September 29, 2013 at 1:33 pm

The threatened criminal prosecution is simply silly. Obviously he has no intent to make the bills unusable — he wants them to circulate as advertising.

29 Ronald Brak September 29, 2013 at 10:59 pm

If club was destroyng bills, provided they cost less than $2 to make and distribute, then it wouldn’t be a problem. They would basically be giving money to the United States. But by distributing them after defacing them they are increasing everyone’s transaction costs. People are going to be wondering if it is a real two dollar note, is it contaminated with blood, they may not be accepted, and so on. By increasing transaction costs they are making $2 notes more penny like and wasting other people’s time and energy. That is the real problem.

30 dearieme September 28, 2013 at 9:09 pm

“Obamacare mostly works by getting young and healthy people to spend more on health care than they otherwise would, thus subsidizing older and sicker people. You can argue that this is unfair, or that it’s merely a down-payment on their own future as old and sick people.” It’s quite droll to make them pay for the delay in getting their inheritances.

31 Boonton September 29, 2013 at 9:54 am

I always enjoy the attempt by some critics of Obamacare to suggest it’s unfair because healthy people pay for sick people. I’m waiting to hear a proposal from someone that makes sick people pay for sick people instead of healthy people. While we are at it, perhaps people who are being robbed can be the only ones who pay for police. Only people under direct attack from a foreign power can pay for national defense. Only people whose houses are on fire can pay for the fire department.

32 Norman Pfyster September 29, 2013 at 10:21 am

If you understand the difference between a public good and a private good, you might enjoy the critics even more.

33 BC September 29, 2013 at 12:55 pm

In the context of health insurance, “healthy people” and “sick people” can be viewed as shorthand for “actuarially cheap to insure” and “actuarially expensive to insure”, i.e., healthy and sick in expectation. Obamacare works by getting actuarially cheap to insure people to pay premiums that are significantly more than their expected claims so that actuarially expensive to insure people can pay less than their expected claims. A pre-existing condition, whether age or something else, that is known at the beginning of an insurance term raises the actuarially expected claims over the life of that insurance term. (Interpret “expected claims” here to include pro-rated administrative cost and cost of capital (profit) so, please, no red herrings about how everyone must pay more than their expected claims to pay for these items; I’m talking here about the amount in excess of what is needed to cover these items.)

The analogy here would be whether people that drive more expensive cars that are on a high-theft list should pay more for comprehensive auto insurance than those who drive less expensive, low-theft cars, whether people whose houses are in flood plains should pay more for flood insurance than those whose houses will likely never experience a flood, etc. (Also, please no red herrings about how people can choose which car they drive or which house they buy. If one inherited a house on a flood plain, should that person pay lower insurance premiums because they never chose the house? Regardless of choice, the house costs more actuarially to insure. The beneficiary of the insurance needs to pay the actuarial cost; this is not a moral judgement about owning a home on a flood plain.)

34 Dan Weber September 29, 2013 at 2:51 pm

It’s an interesting attempt to substitute the author’s use of “young and healthy” for “healthy.”

I’d be thrilled if each age cohort took care of itself, even if within that cohort the healthy were subsidizing the sick. Otherwise it’s a big transfer from today’s youth to today’s aged, when toady’s aged could be most transfered-to generation in history.

35 ThomasH September 29, 2013 at 11:45 am

It also works by increasing taxpayer funding of health care for poor people and (hopefully) reducing expenditures by allowing more experimentation with linking payments to outcome, which is fine by me.

36 Insight September 28, 2013 at 9:28 pm

“or that it’s merely a down-payment on their own future as old and sick people”

So today’s old and sick people aren’t covered, right?

37 prior_approval September 29, 2013 at 12:05 am

They are – it is called Medicare for old people, and if employed, you are paying for it.

In other words, the young and uninsured are already paying for the health care of the old – without even having the benefit of actually paying for their own health care insurance.

38 Cliff September 29, 2013 at 12:29 am

That’s a different set of old people, obviously. “Even older people” if you will

39 prior_approval September 29, 2013 at 6:17 am

There is no different set of old people – there might only be a discussion of whether someone is old at 58 or 62 or 66.

All Americans born before 1948 are currently covered by Medicare – which includes everyone that is old by one arbitrary definition (everyone at 65 is old in terms of Medicare and Social Security, a definition American society has used for more than a generation). It might not include everyone, if one uses a different arbitrary definition of ‘old,’ such as everyone over 55 is old. (Strangely, very few of the 55 year old boomers will actually accept that definition, it must be noted.)

40 Cliff September 29, 2013 at 10:10 am

There’s one set of old people who are on Medicare and being subsidized through Medicare taxes. There’s another set of old people who are not yet on Medicare and who are being subsidized by Obamacare premiums. Get it?

41 mulp September 29, 2013 at 12:54 pm

The Medicare Act created Medicaid which uses Federal income tax revenue to pay some or all of health care for the poor young and poor disabled young and all. And amendments expanded that to cover those with certain chronic conditions unconditionally, and to more poor young.

Over the past half century, We the People have been paying for all ages incrementally based on carving out new groups of “deserving” from the “undeserving” masses with special categories of funding and mandates under the titles created by the Medicare Act.

For example, under the Medicare titles is a provision mandating free health care for anyone showing up at a Medicare funded facility in need of urgent care whether they can pay or not. Reagan signed into law when passed by Congress. Congress then put pressure on these Medicare facilities to collect money from those they treated without having insurance, and that has created an expanded debt collection industry going after poor people for thousands and tens of thousands of medical bills that they will never be able to pay given the jobs they can get. But that debt collection industry opens up the pocket book for others to pay the bills of the poor and uninsured.

I have yet to see a conservative offer a “free market solution” equivalent to that for auto repair, which I have seen conservatives compare to health care: when your car is towed in and you can’t pay to fix it, the towing company or auto shop takes possession of the car and sells it in whole or parts to recover their sunk costs and even earn a profit.

When conservatives introduce a health care bill that authorizes doctors and hospitals to sell the patients in whole or in part to the highest bidder, then I will believe conservatives actually consider health care something the free market can handle. Such a law could solve the organ supply problem for transplants – the young invincibles would not buy insurance and the stupid would drive drunk and get injured and end up at the hospital with no means to pay his bills, so he could be euthanized and his body parts sold off.

42 Boonton September 29, 2013 at 10:01 am

Let’ say I work at a company, a big one. The company provides health care and it costs about $5,000 to the employer and $1200 to the employee, so $6200 per person. To make it very simple, let’s just say if some magic pill was invented that made everyone healthy 100% of the time making healthcare obsolete the company would just give everyone a $6200 cash raise. So in essence, me and all my coworkers are paying $6200 a year for health coverage. (I suspect the actual impact would be a bit different but I don’t think it changes the outcome of the analysis)

This is a huge company with lots of people. Some people do nothing, maybe a single doctor’s visit once a year. Others have serious problems and are spending tens, even hundreds of thousands of dollars per year. Clearly the healthy are paying for the sick. I spent $6200 so far this year and only saw the doctor once for maybe a $100 appointment and $200 in bloodwork. That means $5900 has been contributed towards coworkers with chemotherapy or having babies or with spouses or kids who need an operation.

43 Marie September 29, 2013 at 8:36 pm

You are right that the claim that the young and healthy are unfairly going to pay for the old and sick is really lame.

But your example doesn’t work entirely, first because you don’t just pay into insurance as a group pooling of resources, you also (even mainly) pay in now as a hedge against an unknown later. Most people will take out at some point.

Also, double all your numbers. Triple the number for blood work.

44 mulp September 29, 2013 at 12:09 pm

But the older people on Medicare paid for the older people when they were young in both the payroll tax and income tax and State taxes, plus paid for the young and unlucky disabled and poor.

But what Republicans have called for is the young continue to pay for the old while looking to a future where they must pay for much more when they are old so the old and near old can pay lower income taxes while getting all the benefits of the the past policy.

Meanwhile, Republicans are arguing that the young should be blocked from getting the same access to health care as the old people had, even if they are disabled and poor.

45 TallDave September 28, 2013 at 11:04 pm

5. Incentives matter. What is high income really worth, today? Think Maslow.

46 Claudia Sahm September 29, 2013 at 10:40 am

TallDave, do you mean people became threshold earners en masse at the recession as a protective strategy … and thus expect/have accepted low income growth going forward? Note this survey question is about income growth … income this coming year versus in the past year, not about striving for a high level of income per se.

47 Ed September 29, 2013 at 12:22 am

#2 – There are other groups that promote the stamping of currency (, Prehaps the problem of this strip club is the manner in which the mark bills (red ink) or that fact that it is a strip club. It seems their bills are being rejected spontaneously by other merchants (possibly due to actions of banks) and the Secret Service is merely reacting in a restrained manner by asking the owner to stop marking the bills.

Anyway, who actually would spend these bills? If you’re a guy, it announces that you’ve just been to a strip club. If you’re a young woman, it announces you are a stripper. Not hard to see why they’re being rejected — while even overtly political messages pass unnoticed.

48 mkt September 29, 2013 at 2:20 am

Which is why it’s in the public interest to prohibit business such as the strip club from defacing bills as a publicity gimmick. Customers and employees become unwilling conveyors of advertising.

Someone, either the owner or the manager of that club, is a marketing genius. They also attract attention for being a vegan strip club, and for having a stripper who’s been exchanging tweets with Cory Booker.

49 Ed September 29, 2013 at 6:08 am

A $2 bill attracts enough attention on its own, so a red $2 just screams out where it’s been.
Now some business complimentary to a strip club should ride on this and advertise a deal to be paid for in $2 bills…say a bar offer a $2 drink special if paid for with a red $2 bill. Or a “club wear” store that sells G-strings and high heels and such could offer a discount for the strippers who pay with $2 bills. Heck, a gung-ho economic student could organize this and study where the strip club economy goes.

50 mkt September 29, 2013 at 11:45 am

Good point. An even better idea: this complementary business which launders those $2 bills could be owned and operated by the same guys who run the $2 bill-defacing strip club. When employees or customers complain about not being able to spend those $2 bills, the manager simply points them to the complementary business.

51 Ted Craig September 29, 2013 at 9:40 am

2. I wonder if this has anything to do with the fact that strip clubs are popular venues for money laundering.

52 ThomasH September 29, 2013 at 10:23 am

Disability payments are a very bad form of a guaranteed minimum income because in order to receive them one has to NOT be working. SNAP is much better in this regard.

53 mulp September 29, 2013 at 12:24 pm

And disability is defined in terms of the ability of the worker to perform work which is largely determined by the kind of work done previously which is determined by one’s education and the job opportunities in the area. If a 50 year old factory worker can sit and assemble parts and factory jobs where she can sit and assemble parts exist, then she is able bodied, but if such jobs do not exist, she will be disabled if the only jobs are standing and stooping the fields because she would collapse. She could physically push paper at a desk, or type into a computer terminal, if she were sufficiently literate, but she isn’t and its unlikely anyone will spend the time training her when so many sufficiently literate and healthy younger (age 40) people are available to work and are also unemployed.

54 Dan Weber September 29, 2013 at 2:54 pm

Yeah, as the article said you have to be not working to get it. I personally know someone who had to quit her sell-stuff-on-ebay business because it was generating so much income she would have lost her disability.

Also, there’s the argument that before you can convince the government you are hopeless you first have to convince yourself that you are hopeless. It’s a pretty rotten thing to do if we want to encourage workforce participation.

55 Andrew September 30, 2013 at 2:04 pm


“Lawmakers have essentially averted a fiasco of their own making.”

To what percent of government action does the above comment apply?

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