ATLAS STUMBLES Inequality and Macroeconomics at a Crossroads, DiMartino Booth, Federal Reserve, Money Strong

Atlas Stumbles — Inequality and Macroeconomics at a Crossroads

“If you don’t know, the thing to do is not to get scared, but to learn.” 

“Man’s mind is his basic tool of survival. Life is given to him, survival is not.” 

“I like to deal with somebody who has no illusions about getting favors.”

Red-blooded Americans read these lines and, if in polite company, resist the urge to beat their chests. These mantras say all that need be said of the virtues of honesty, integrity, productivity, grit, independence, pride and liberty itself. Accurately attribute the quotes to Ayn Rand’s Atlas Shrugged, however, and some pause for a moment of reticence, gently reminded of the need to be politically correct.

The need to be ‘PC’ was not even in accepted vernacular back in 1957, when Rand’s book was being vilified by critics. The tome was labeled a testament to hatred and cruelty, a soulless slaying of the welfare state. As fate would have it, a rich rebuttal in the form of a letter to the editor of the New York Times would make history: “‘Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should.”

That the vehement defense was penned by one Alan Greenspan might go down as one of the most malevolent mockeries writ from an era in central banking heralded by the Rand acolyte himself. It rings as impolite in its bluntness, but it was Greenspan who most bastardized Rand’s basic premise, that innovators and producers build model economies.

Every tragedy has a beginning. At the outset of this particular saga was the moral hazard born of Greenspan’s fascination with the stock market. He was literally in awe of those Rand would have characterized as perfect producers, Wall Street’s Masters of the Universe who consumed what they killed. It’s one thing to admire, but quite another to allow yourself to be intimidated when you are tasked with regulating the world in which the Masters reside.

And yet, in the weeks and months that followed the crash of 1987, the newly minted Federal Reserve Chairman directed the New York Fed to leak to bond trading desks the Fed’s plans to inject liquidity into the system. By sanctioning the front running of the Fed, Greenspan had effectively invited the Wall Street’s foxes into the hen house to feast on preordained profits.

Stop and think for a moment about the regime change this heralded, the alteration thrust upon the principle of risk-taking, of markets’ duty-bound and noble tradition of price discovery. Greenspan flipped the very law of nature on its head for those who had been schooled to live and die off the consequences of their trades, come what may. To be shielded from the ramifications of their actions denunciated everything Wall Street did and should represent.

And yet, here we are, 30 years later. Thanks to the bounteous harvest of moral hazard sown by Greenspan’s original sin, far too many of Wall Street’s innovative producers have devolved into the looters Rand so decried in her tribute to capitalism. Rather than create anything of lasting value, today’s Wall Street leeches what it can from the bottomless, fetid supply of the moral hazard manufactured by central bankers.

If only it just ended there it would be bad enough. But politicians long ago opted to tie their fates and fortunes to the same poisoned central bank dealer. As far as they’re concerned, the monies that keep them in office need be fungible and nothing else.

And so, the Stygian tale turns, sustained by trillions upon trillions of dollars of debilitating debt taken on along the way. The central banks print money. The investment banks pocket fees. The tab swells. Add it all up and global credit sums to $220 trillion today, up from $150 trillion at the onset of the financial crisis. Narrow your focus to the four largest developed markets, those most active on the money-printing stage, and you find that $34 trillion of debt has amassed since then. Call the chart below simple if you will, but sometimes one line says more than enough.

Sum of Central Bank Balance Sheets and
Cumulative Budget Deficits for the United States,
Eurozone, the United Kingdom and Japan ($Trillions)

CENTRAL BANK ASSETS

In the words of the Deutsche Bank analysts who created the graph: “Another way of looking at this is the extra amount of stimulus over and above living within our means (no money printed, no deficits) seen since the Great Financial Crisis. In the end, $34 trillion of stimulus and Quantitative Easing has delivered very low growth, subdued inflation and sky-high asset prices around the globe. This is unprecedented territory and how can anyone estimate what the fallout will be when we normalize again?”

In all actuality, the very same Deutsche analysts answered their own question in the same report that produced that daunting chart above, of debt built to nowhere, akin to that pork-financed bridge, also to nowhere, so pilloried in the media years ago. The fallout will be anger — unprecedented, immeasurable levels of unrequited anger among the masses that know all too well that the economy’s designated producers have become looters, robbing them of a passageway out of the hell on earth they’ve come to know as subsistence care of entrepreneurship and innovation succumbing to slow, sad deaths.

Populism itself is coming home to roost and it will present itself as the macroeconomic challenge of the ages.

No doubt, ‘populism’ is a subjective force, all but impossible to quantify. Thankfully, that didn’t stop the Deutsche analysts from giving it a go. To wit, they weighed populist votes and population size in seven large countries over the last century, specifically those of France, Italy, Spain, the United Kingdom, Japan, Germany and the presidential elections within the United States. Qualifiers included parties that espouse communism, nationalist policies tied to immigration and militarism and leaders with dominating, charismatic personalities rather than well-defined policy positions. In Europe, anti-NATO and Euro-skeptic tendencies were also captured while in the United States, anti-corporate progressives that defied the establishment made the cut.

It’s noteworthy that these general themes, in one form or another, have withstood the test of time, answering the question as to whether we can’t all just get along. (Apparently not.)

Discount what you will. Net out what you like. No matter how you slice it, prior to the last decade, populism is off the charts. No period in modern history compares to what we’re witnessing today save the epoch set off by the stock market crash of 1929 that culminated with World War II, with, by the way, the Great Depression sandwiched in between.

Populism Index Against the Backdrop of
Developed Market Financial Crises

Populism index

Hats off to the team at Deutsche for resisting hyperbole in the face of the immutable message delivered in the graph: “While the consequence of the recent rise in populism hasn’t yet destabilized financial markets, the level of uncertainty will surely remain high while such parties remain realistic power brokers in major national elections. (Populism’s) rise surely increases the risk to the current world order and could set off a financial crisis at some point soon.”

It’s that last point that finally brings this week’s subtitle into context. The gravity of populism’s root cause, inequality, is no longer purely political tinder. It’s all about the economy.

The good news is the beginnings of an epiphany is dawning on the have’s. Mega hedge fund magnate Ray Dalio in particular, a man whose net worth crests $17 billion, has voiced concern. In a recent interview, Dalio said that he thought inequality was the most daunting challenge on the horizon, one on par with the period from 1935-1940.

“If you carve out that lower 40 percent, not only has there been no income growth, but death rates are rising because of opiate use, suicide and because they’re losing jobs,” Dalio said. “This is the biggest issue of our time – the biggest economic issue, the biggest political issue and the biggest social issue.”

Dalio is right. And though he’s gone as far as saying the Fed is poised to commit a policy error akin to 1937, he’s not vociferous enough in his criticism of Fed policy for engineering the fine mess in which the country finds itself.

Thankfully, I’m not alone in my indictment of the Fed. In the words of an economist worthy of the deepest respect, Judy Shelton, Janet Yellen’s concern for the plight of the forgotten masses is, “rich.” I recently caught up with Shelton and she had this to say, in a clear rebuttal of the fawning accolades being showered on Yellen as her time at the Fed comes to a blessed end: “While it’s nice that Janet Yellen cares about the issue, I think she should have been more forthcoming in acknowledging the Fed’s own role.”

Shelton’s eloquence shines through in Beware a Magnanimous Fed, an opinion piece she wrote three years ago in reaction to the following naïve statement made by Yellen:  “Although we work through financial markets, our goal is to help Main Street, not Wall Street.” Shelton’s reply follows.

“The problem with Yellen’s public display of benevolent concern over income and wealth inequality is that it implies she means to do something about it. This is worrisome because she views the Fed as a force for good rather than as a distorting government interloper into private-sector credit markets whose clumsy efforts skew financial rewards to savvy corporate strategists and sophisticated investors.

If Yellen wants to restore the free-market values rooted in our nation’s history, she needs to pay heed to the telling correlation between wealth inequality — at its highest level in the past 100 years, higher than for much of American history before then — and the creation of the Federal Reserve in 1913. It’s unbecoming to preach the virtues of equality of opportunity when Americans see only too well who most benefits from monetary favoritism and who is most punished by the inequality of access to vital financial capital.”

It’s doubtful Ayn Rand herself could have said it better. Shelton’s refutation of Yellen’s premise is all the more prescient given the results of the presidential election. The masses may not be able to identify zero interest rate policy and quantitative easing as culprits by name. But their actions speak volumes to their shared revelation that the enemy has been identified and it is indeed within.

As for any aspirations to attain the American Dream, they’ve long since been crushed by repeated iterations of subprime debt illusions ending in tears. Call the two dichotomous headlines from the November 15th issue of the Wall Street Journal Exhibits A & B: Household Debt Hits a New High and More Americans Feel Like a Million Dollars.

If you haven’t yet got the picture, it might be time for a courtesy call to your friendly neighborhood ophthalmologist. As for what lies ahead, populism appears to be taking a nasty turn for the worse. And though the problem is clearly as close to home as it can be, our shared national dilemma is anything but local.

Look no further than my paternal family’s homeland. Radical no longer suffices for the long-repressed Italians seeking relief at the polls. The far right, it would appear, is now rearing its hateful, ugly head. Be on the lookout for more of these headlines as oppression spreads in the way only nasty infestations can.

On a more practical level, it strikes me as untoward to bandy about investment ideas while pondering such heavy prospects. If you’ll indulge me some grace, it’s safe to say defense contractors will have no challenge keeping the lights on in the years to come.

In the end, our collective deliverance can only come from strong leadership that refuses to balk at the grave challenges that lie ahead. To call one last time on Rand’s sagacity, “Evil is impotent and has no power but that which we let it extort from us.”

 

Danielle DiMartino Booth, Central Bankers, Money Strong LLC, Federal Reserve, Debt, Trojan Horse, Fed Up,

Beware of Central Bankers Bearing Gifts

Ulysses’s reputation preceded him.

   ‘O unhappy citizens, what madness?

Do you think the enemy’s sailed away? Or do you think

any Greek gift’s free of treachery? Is that Ulysses’s reputation?

Either there are Greeks in hiding, concealed by the wood,

or it’s been built as a machine to use against our walls,

or spy on our homes, or fall on the city from above,

or it hides some other trick: Trojans, don’t trust this horse.

Whatever it is, I’m afraid of Greeks even those bearing gifts.’

Virgil, The Aeneid Book II

So warned Laocoön to no avail, and that was with Cassandra’s corroboration. As reward for his prescient prudence, the Trojan priest and his twin sons were crushed to death by two sea serpents. It would seem the Greeks had no intention of relinquishing hold of ancient Anatolia, a critical continental crossroad where Europe and Asia’s borders meet, a natural target for conquering civilizations.

Thankfully, history has made history of menacing machinations crafted with the aim of undermining the opposition. If only… History is rife with exceptions starting with most politicians on Planet Earth and more recently, central bankers.

In what can only be characterized as Mission Creep raised to the power of infinity, the Federal Reserve’s last Federal Open Market Committee Minutes warned that “equity prices are quite high relative to standard valuation measures.”

Let’s see. Where does the stock market fit into Congress’ statutory requirements that the Fed’s objectives be: “maximum employment, stable prices and moderate long-term interest rates”? You neither, huh?

The Minutes also indicated that, “equity price indexes increased over the intermeeting period.” Is it the slightest bit alarming that monetary policymakers are nodding to a phenomena that’s been in place since March 2009 as having just occurred to them? Are we pondering pure coincidence or is this exactly what it appears to be — political pandering?

This from CNBC:  FOMC Minutes have unleashed the word “valuation’ as it pertains to equities six times since Alan Greenspan, a self-described obsessive observer of the stock market, first uttered the words, “irrational exuberance.” In every instance, stocks were hit over the next 12 months.

Could it be that Janet Yellen, who in 2008 said the Minutes should be used, “to provide quantitative information on our expectations” knew exactly what she was doing, that she planted the word ‘valuation’ to send the President a pointed message with nothing less than perfect precision?

You may be thinking our new leader has more than enough on his agenda to be worried about a threat to the stock market from the likes of academics he not so long ago publicly derided. If Trump cares about staying in the good graces of those who put him in office, he will fight the temptation to pivot on the Fed. He’s been in office long enough to have made a move to begin filling the three open seats on the Federal Reserve Board.

More to the point, in the event Trump hasn’t been apprised, the Fed has the economy by the short hairs. And, yes, it was, is, and will be about the economy, at least among those who voted him into office, many of whom remain angry and anxious, but not stupid.

They are still waiting for an advocate who sees through the average data right through to the galling truth that absent executive pay, incomes remain in decline. They pine for a leader who can like debt all he wants to get deals done, but doesn’t force it down the economy’s throat to generate economic growth of the most fleeting nature. They may not be able to identify the enemy within by name but they have every right to expect their President does, that he has the gumption to stand up to the Fed and deliver his People from the shackles of indentured servitude.

It might even be a good thing, for working Americans who’ve long sensed the economy has abandoned them, that Trump has a beef with the media and two savvy guys from Goldman Sachs helping steer the economy. Together they should be able to glean the facts from the data the Fed insists are so much “good news.”

Consider, if you will, a fresh report on the state of consumer finance released by the New York Fed. At $12.73 trillion, household debt sits at a record high. We’re told to look the other way, that it’s a nominal figure and more importantly that debt as a percentage of gross domestic product (GDP) is nowhere near where it was back in the bad old days of 2007.

‘Tis true that household debt is no longer 95 percent of GDP which was the case when it peaked in the fourth quarter of 2007. Before resuming its climb to its current 80-percent level, it got as low as 78 percent of GDP.  But let’s hold off on the austerity bubbly for the moment. Since record keeping began in 1952, when the record low of 23 percent was recorded, debt-to-GDP has averaged 56 percent.

As for the red herring that households have tightened their belts, while that is the case for a minority, the bulk of deleveraging that’s taken place has been the result of the past decade’s 10 million and counting foreclosures. (For those of you still keeping count, some 91,000 individuals had ‘foreclosure’ added to their credit reports in the first three months of this year, an uptick from 2016’s fourth quarter.)

The deleveraging, by the way, ended years ago. Aggregate household debt is 14 percent above the low it hit in the second quarter of 2013. And we’re not talking about mortgages here.

Drawing hard conclusions is a bit of a stretch as it really depends on your perspective. You make the call. How secured by anything of value is the type of debt households have taken on since mortgage lending standards tightened like a vise on would-be homebuyers? Credit card debt is an easy enough call. But what about that car loan? Checked your trade-in value lately? (Not recommended if you’ve had a bad day.) As for that festering $1.3 trillion mountain of student debt? Did someone say ‘perspective’?

The bottom line is we still have too much debt and precious little to show for it.

In return, we get this from the NY Fed’s President Bill Dudley: “Homeownership represents an important means of wealth accumulation, with housing equity being the principal form of wealth for most households.” (Isn’t that a good thing?)

He goes on to observe that, “Changes in the way we finance higher education, with an increased reliance on student debt, may have important implications for the housing market and the distribution of wealth.” (You think?)

And finally, out of the other side of his mouth, he has this gem of a recommendation to kick start the economy: “Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers and would provide a boost to economic growth.” (Wait, wasn’t all that home equity borrowing what pushed debt up to its record highs and drove the economy into the Great Financial Crisis?)

It’s critical to note that Corporate America is also drowning in record levels of debt – nonfinancial corporate debt within a hair of $6 trillion. And though it was nary mentioned in the campaign by either party, at $20 trillion, Uncle Sam himself is up to his eyeballs in hock.

Hopefully you can see Trump’s once in a century chance to reshape the warped thinking inside the Fed. He has the tremendous power to redirect the meme by draining the debt swamp that makes our government beholden to foreign lenders, our corporations less competitive on the global stage and our households seething at their inhibited upward mobility. Talk about Making America Great Again, for ALL Americans.

Without a doubt, this will be one of Trump’s toughest tests, and yes, the Fed can easily take down the stock market in retaliation; they could even follow through on threats to shrink the balance sheet. It would be as if someone flipped a switch and we veered from Quantitative Pleasing to Quantitative Plaguing.

And what politician in their right mind wants plague visited upon their economy on their watch? Ask any of Trump’s predecessors and they’ll shoot you straight. Passing legislation with ultra-easy monetary policy and fluffy stock prices on your side sure as heck beats the alternative.

But in the end, it just buys time, not Greatness.

Artificially low interest rates might be as alluring as that Trojan Horse was to the people of Troy. But let’s put their experience to better use and not dismiss Laocoön’s words as the tragic Trojans did. Let us all Beware of Central Bankers Bearing Gifts.

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Give Me Liberty or Give Me Debt!

In the event you’ve already binge-watched House of Cards Season Four, don’t be so quick to tune Netflix out. Instead, restore your faith in mankind and search for Brothers in War, a gripping National Geographic Vietnam War documentary that recounts the journey of Charlie Company. Though two-thirds of those who served in combat in Vietnam were volunteers, the draftees featured in Brothers were one of the last groups to go through basic training and sent to the front lines together, in this case to the unforgiving Mekong Delta. Some 50 years later in the making of this film, they reunite and marvel at their lasting bond. But most of all, these boys, now seniors, ask what gift of fate allowed them to return home at all, unlike so many of their comrades who made the ultimate sacrifice.

Among the unalienable rights generations of U.S. soldiers have fought to preserve is that of liberty, both ours and that of those in foreign lands. Little could many of those who served in the Vietnam era have known how terribly that very freedom for them as individuals would be impinged upon in their lifetimes. Among workers who are roughly the age of Vietnam veterans, 65 and older, those who work because they have to now exceed those working by choice by a factor of 2 to 1.

Several culprits contributing to their delayed retirements are easily identifiable, chiefly being a lack of savings and income. But these are merely symptoms and don’t get at the root cause of the disease. At its contaminated core is a fundamental change in our culture which has for many, blocked the pathway to achieving the American Dream. That change is an acceptance of debt, rather than investment, to power economic growth.

Evidence of this transformation has shoved its way onto front pages in recent months. Fresh data out of the New York Federal Reserve show that debt among older Americans more than doubled in the 12 years ending 2015. Specifically, the average 65-year old has 47 percent more mortgage debt and 29 percent more auto debt than 65-year olds did in 2003. Over that same period, their labor force participation rate increased to over 19 percent from 13 percent, while that of the entire labor force went in the opposite direction.

As an aside, in the event the allure of a demographic explanation appeals, seniors’ increased debt loads are not directly attributable to longer life expectancy, though that argument would be convenient. The fact is, it’s difficult to retire when your savings have been ravaged and you’re shouldering more debt.

The shame of it is, it didn’t have to be this way. The economy could have been growing organically for the past 30 years in the same vein some of the world’s most successful companies have, from the inside out, by way of reinvestment. Granted, economic growth that stems from the disciplined redeployment of earnings is not as easy to maintain. But by the same token, it leads to far less violence in the business cycle.

Austrian economists refer to the serial boom and bust cycles spawned by prolonged periods of artificially low interest rates as malinvestment. How has this scourge manifested itself since the late 1980s, as today’s Wall Street came of age, with the birth of the Greenspan put? Without getting into the nitty gritty of each iteration, a whole heck of a lot of financialization took place, for lack of a more accepted existing term.

Financial institutions and capital markets worldwide came to dominate the economic landscape by lending into every nook and cranny regulators would knowingly or inadvertently allow credit to seep. Think of the numerous emerging market debt crises, Long Term Capital Management, the dotcom revolution, the commodities supercycle, the housing bubble and finally today’s mammoth credit bubble in its various forms.

In the case of the U.S. economy, the most damning conviction of malinvestment is productivity growth that’s threatening to flat line; it ended last year up 0.5 percent over the last three months of 2014. For comparative purposes, the 30-year average is 1.9 percent.

My former colleagues at The Liscio Report, Philippa Dunne and Doug Henwood, have done extensive work on the origins of declining productivity. They found the most obvious cause to be a lack of investment on companies’ part noting that at 6.0 percent of gross domestic product (GDP), equipment and software spending is below the 1950-2015 average. “The series seems to have topped out for this cycle at levels comparable to earlier recession lows,” they remarked.

Is it that companies are simply low on cash? Not hardly, they’re just directing that cash to share buybacks and buying each other out. “That may make some people happy for a while, but it doesn’t have the feel of a long-term strategy about it,” Dunne and Henwood observed. Indeed.

But there’s something much more subtle at work according to two recently published papers, both of which are footnoted at the bottom of this piece. The first paper links shifts in the composition of the workforce to credit booms and the financial crises that inevitably follow based on 21 episodes in advanced economies since 1969.

Not only does the temporary misallocation of investment do damage during the boom period – think of all those construction jobs that were created during the boom-boom days of the housing mania. The protracted, as opposed to plain vanilla, recessions that follow credit crises also act as a drag on underlying productivity. Income levels take appreciably longer to bounce back limiting both the ability to rebuild savings and splurge on that extra something without incurring even more debt.

The second paper examines the effects of startups, or a lack thereof, on productivity growth. The break in startup activity, such as that which accompanied the 2009 financial crisis, has left a lasting impact on GDP and productivity growth. While startup activity has recovered from its 2009 lows, it remains at the average level that prevailed prior to the crisis, from 1976-2007.

Looking back, Census Bureau data leave little doubt as to how much damage has been exacted as debt has unseated investment as the main driver of the U.S. economy. Newly formed firms represented as much as 16 percent of the total in the late 1970s; that share had declined to eight percent by 2011.

As for the prognosis for future start-up activity, stabilization at a low level may be as good as it gets for the current cycle. In the fourth quarter, venture capital financing fell by 30 percent in dollar terms while the number of transactions declined by 13 percent over the prior three months.

The startups that are lucky enough to survive their first year are otherwise known as small businesses. In February, their reported optimism on the outlook fell to a two-year low according to the National Federation of Independent Businesses. Plans to hire and increase capital spending fell in concert with the number of those reporting they expected improvement in the economy holding stubbornly steady at the lowest level since November 2013.

“The small business sector is not headed up with any strength,” said Bill Dunkelberg who heads up the NFIB. “(it’s) just treading water waiting for a good reason to invest in the future.” That certainly doesn’t portend for a strong rebound in productivity.

One dot that has yet to be connected to complete this picture is how this decline in productivity has impacted households. As pointed out in the Financial Times last week, after adjusting for inflation, median U.S. household income in 2014 was $53,657, about where it was in 1996. Though it will be interesting to see the 2015 numbers once they’re released, the latest data through February show no signs of a pick-up.

That could have to do with the types of jobs that have been created over roughly the same period. Dunne and Henwood were kind enough to run the numbers. What they found: Since 1994, the ‘eat, drink and get sick’ sectors of the workforce, as they like to call them, have seen their share of the labor force pie grow by about a third. Since then, the long decline in manufacturing has continued, with its share nearly halved, while that of trade, transportation, warehousing and utilities has shrunk by a third.

It stands to reason that the industries most supported by flat incomes are those that require the least in the way of disposable incomes. As for the ‘get sick’ sector’s job growth, it’s simply a reflection of the aging and growing of the population. And so, Americans take what little they’ve got left after covering the roof over their head, the cost of which has relentlessly marched upwards thanks to cheap debt financing, and spend the remainder on doctors’ bills and a night out at their eatery of choice.

The irony is working Americans have never been so well educated. They could be doing so much more. But that’s what a lost generation of corporate investment gets an economy – plenty of degree holders but not enough high paying jobs to go around. If only this too hadn’t been financed by debt. The latest figures show government-owned student loans as a percentage of consumer debt now exceed 27 percent.

There is however a silver lining: while the average 30-year old is shouldered with three times as much student debt as in 2003, these borrowers carry so much less in the way of mortgage, credit card and car loan balances that their overall debt loads are lighter than they were 12 years ago.

Granted, this isn’t all by choice; access to mortgage debt has been restricted. Nevertheless, the glass is half full interpretation suggests the beginnings of a tide shift in our culture. What if Millennials prove to be the first generation to reject debt as a way of life and tell central bankers what they can do with their overreaching influence?

That would be a welcome first step and a fitting salute to past generations who have fought and sometimes paid the ultimate price to uphold the principles of our founding fathers. If only it wasn’t the case that so many of the survivors of our country’s hard fought battles today find themselves with so little financial freedom.

Life, liberty and the pursuit of happiness might not come so easy to the current generation’s more fiscally prudent pioneers. But their brand of prosperity, which harkens to a bygone era that should never have gone by, might just stand the test of time and be that much more rewarding in the end.

 

Bank for International Settlements Working Paper No. 534: Labour reallocation and productivity dynamics; financial causes, real consequences by Claudio Borio, Enisse Kharroubi, Christian Upper and Fabrizio Zampolli, December 2015.

The Federal Reserve Bank of Chicago: Firm Entry and Macroeconomic Dynamics: A State-level Analysis by François Gourio, Todd Messer, and Michael Siemer, January 2016.