Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).
As is widely known the Washington Post never misses an opportunity to blame the victims of policy for bad outcomes, rather than rich and powerful folks who design policy. We are treated to yet another example of this charade with the Post running a major article that claims that video games are a major reason that fewer young men are working today than 15 years ago.
The basic story is that many young men, particularly those with less education, have dropped out of the labor force in the last 15 years. According to survey data, they appear to be spending much of their time playing video games. They also report to be relatively happy. See, all you people who thought it was a bad economy are mistaken, the problem is the video games are just too much fun.
Okay, that's a great Trumpian level of analysis, but let's get back to the real world. Less-educated young men are not the only group with declines in employment rates. In fact, the drop in employment rates among less-educated women over the last 15 years has been even sharper. Furthermore there has been a decline in employment rates among all groups of prime age workers (25-54), even those with college degrees.
This general drop in employment rates might suggest that the real problem is a lack of demand. In other words, young men are not working for the same reason young women are not working, the Washington Post and other advocates of austerity have been successful in reducing demand in the economy by reducing the government budget deficit. So the problem has little to do with video games, the problem is the policy, but hey, if the Post can use video games to distract attention from what its favored policies are doing to people -- why not?
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You don't remember casting that vote? Well, you didn't actually cast it, but if you have a 401(k) someone like Blackrock CEO Larry Fink cast the vote for you.
Most middle income people have 401(k)s for their retirement and most of this money is in mutual funds. These mutual funds have control over the proxy votes for the shares they hold. This means that funds like Blackrock, which has more than $5 trillion in assets, have enormous say over the distribution of income in this country. And, as Gretchen Morgenson points out in her NYT column this morning, these folks almost always endorse outlandish pay packages for CEOs. As they say in Wall Street circles, what's a few million dollars between friends.
So, if you're upset about an economy where the rich keep getting richer, just remember, you voted for it, sort of.Add a comment
The NYT did what we should expect newspapers to do when reporting on presidential campaigns, it told readers that Donald Trump's energy plans don't make any sense. In the first paragraph of a piece on a speech Donald Trump gave in Pittsburgh, the NYT told readers that his promise to increase production of both coal and natural gas is "impossible." This is of course true, since the fuels are substitutes. In fact, the main reason coal production has fallen sharply in the last five years has been the boom in low cost natural gas from fracking. If we increase the latter further, then it is almost inevitable that it will result in a further drop in coal production.
Mr. Trump may not know he is promising the impossible, but now NYT readers do.Add a comment
Fareed Zakaria used his Washington Post column to tell readers that there are no simple solutions, it's just too complicated. The point is that the gods have condemned us to suffer slow growth and rising inequality. In addition to making the absurd point that we should be worried because people are having fewer kids (just imagine, the robots will take all the jobs and we won't have any workers) Zakaria tells us that nothing seems to work.
"Facing these forces [globalization, an aging workforce, and technology], leaders have no easy path to restore growth and revive their countries. Deep, radical reforms are unpopular and in this climate do not seem to lead to roaring growth. Ireland, Portugal and Mexico have all enacted broad market reforms, and yet, growth has not come booming back. Japan has spent hundreds of billions on stimulus plans and yet it is just muddling along. Thus, even the leaders who come to office with strong public approval and much promise find themselves trapped by the same forces. Very quickly their approval ratings begin to drop and new populist anger grows. Italy’s reformist prime minister, Matteo Renzi, has seen his numbers fall below 30 percent. The populist Greek leader, Alexis Tsipras, is down to 19 percent."
Well, that seems to cover the bases, right? Except that there is a lot to show for the stimulus in Japan (which could be far more aggressive, since the country has negative long-term interest rates and is still facing near zero inflation). Since Abe took over at the end of 2012 the employment-to-population ratio in Japan has risen by 2.5 percentage points. This would be the equivalent of adding 6.2 million jobs in excess of the endogenous growth in the population in the United States. By contrast, the employment-to-population ratio has risen by just 1.1 percentage point in the United States over this period, in spite of the strong job growth of the last three years.
This might help to explain why Mr. Abe's approval rating is at 60 percent, a marked contrast with the rating of other leaders on Zakaria's list. One can debate whether or not Keynesian-style stimulus is simple, but the world looks much less complicated if we talk about the real world honestly and not ignore facts that contradict our message.
I will have much more to say countering the Zakaria/mainstream establishment line in my forthcoming book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, coming soon to a website near you.Add a comment
Paul Krugman used his column to berate reporters for not highlighting when candidates are lying. The basic point is that reporters are in a position to know that a candidate is saying something that is outright false, whereas the typical reader/viewer likely doesn't have the time to check the truth of a particular claim. Not doing this basic service encourages lying, since candidates will freely change positions and make claims that are not true if they know they will not pay a price for lying.
The immediate context is the presidential debate next Monday. Krugman notes in passing that reporters tend to pass on fact checking and instead engage in theater criticism:
"One all-too-common response to such attacks involves abdicating responsibility for fact-checking entirely, and replacing it with theater criticism: Never mind whether what the candidate said is true or false, how did it play? How did he or she 'come across'? What were the 'optics'?
"But theater criticism is the job of theater critics; news reporting should tell the public what really happened, not be devoted to speculation about how other people might react to what happened."
This is a point I have often made in the past. I would carry the complaint even a step further than Krugman. Not only is theater criticism the job of theater critics, the amateur criticism in which highly paid reporters engage is the sort of thing we all do all the time. All of us engage in conversations with people over the course of our lives. In doing so, we are constantly assessing their confidence, whether they are acting defensive, whether they are forceful, and whether they appear sincere. Reporters have no comparative advantage in this area.
We will have roughly 100 million people watching the debate on Monday night. There is no reason to believe that the judgement of the reporters covering the debate on the relative confidence and outward sincerity of Donald Trump and Hillary Clinton will be any more accurate and insightful than the judgement of the typical viewer among the 100 million.
By contrast, most of the 100 million will not know if Trump has yet again changed his tax proposal, has made up new stories about the origins of birtherism, or is saying nothing coherent on trade policy. This is where reporters can add value. They should save the theater criticism for their family and friends.Add a comment
Nashville's public radio station complained that the construction companies simply can't find workers. This is in spite of the fact that they pay $12 an hour to start and that the pay could go as high as $22 an hour for the most experienced workers.
It is interesting that the radio station has decided that this is the pay construction workers should get even though the market seems to be saying that the pay should be higher. This raises the question of whether the station would complain about a doctors shortage if no doctors answered the call at a $30 an hour pay rate. (Their actual pay averages more than $250,000 a year, although most put in far more than 40 hours a week.)
Just as a point of reference, if the minimum wage had kept pace with productivity growth over the last fifty years it would be over $18 an hour now. So Nashville's public radio station apparently believes that as a matter of principle (it's not the market) construction workers should be earning less than a productivity adjusted minimum wage. It is also worth noting that these are jobs that typically carried some wage premium — as opposed to working at a fast food restaurant — both because they often require considerable skills and then tend to be physically demanding and dangerous.Add a comment
The Trans-Pacific Partnership (TPP) has little to do with free trade. The trade barriers between the United States and the other countries are already very low, with few exceptions. In fact, the United States already has trade deals with six of the 11 countries in the TPP. The TPP is primarily about installing a corporate-friendly structure of regulation, as well as increasing protectionist barriers in the form of stronger and longer patent and copyright and related protections. (It doesn't matter if you and your friends like patent and copyright protection, they are still protectionism.)
President Obama is pulling out all the stops in pushing the TPP and it seems the NYT has decided to abandon journalistic principles to join this effort. It featured a confused article reporting that people in the United States favored trade, which randomly flipped back and forth between the terms "trade," "trade agreements," and "free trade." As everyone, except apparently the people who work for the NYT, knows these are not the same thing.
It is hard to believe that many people in the United States would be opposed to trade. Imports and exports combined are more than a quarter of GDP. Many of the products we now import, like coffee, would either not be available at all, or extremely expensive without trade. It's difficult to believe that many people in the United States would support autarky as an alternative to the current system.
If people are asked about "trade agreements," it is not clear what they think they are referring to. The United States has been involved in hundreds of trade agreements over the last seven decades. These agreements hugely reduced trade barriers between the U.S. and the rest of the world, leading to large increases in trade and large drops in price. Of course most of these benefits accrued before 1980, but it seems unlikely that many of the people polled on the topic would have a clear idea of the costs and benefits of the trade deals negotiated since World War II.
When it comes to the TPP, there is very little by way of free trade promotion in this deal. As noted, most barriers between the member countries are already low. This is why the non-partisan International Trade Commission (ITC) projected that the gains to GDP when the effect of the deal is mostly felt in 2032 will be just over 0.2 percent of GDP. This is just over a month of normal economic growth.Add a comment
I am waiting for the Washington Post to make this obvious point. (The same is probably true about wherever Post owner Jeff Bezos lives.) The reason we should expect this piece is that the paper ran a piece that effectively pronounced people who refuse to sell their houses to accommodate development as anti-social characters who are driving up housing costs for everyone else.
The claim is true. If people will make land available at a lower cost to developers then it will reduce the cost of building more housing units. While some of the gains from cheaper land will go into the developers' pockets, some of it will undoubtedly be passed on in lower rents, as more units will put downward pressure on prices.
All of this is true, exactly as the Post piece says. However, the same argument applies to the land held by Bill Gates and other rich people. If they would make it available to developers at a low cost then it would mean that there could be more housing, which would put downward pressure on prices.
There is an argument that Gates and other rich people may be willing to make their land available at the market price, but this would be extremely expensive and therefore not help efforts to provide low cost housing. However, for someone who owns a home, it can be argued that the market price is the price at which they would be willing to sell it. (Markets are supposed to be about free exchange.) If they are not willing to sell the property at a low price, then the situation is not qualitatively different from Bill Gates being unwilling to sell his estate at a low price.
The issue here seems to be that Gates and other rich people are deemed to be entitled to their large plots of land, even if it makes housing less affordable, whereas the typical person is not. We are supposed to think that the non-affluent person insisting that their property rights be respected — even at the cost of raising housing costs for others — is a bad person. But because Bill Gates is rich, we don't talk about his impact on housing prices.Add a comment
Europe and the United States both shifted their fiscal policies from stimulus to austerity in 2011. Most economists see this as a major factor explaining the weak recovery from the 2008–2009 recession. Incredibly, in his latest Washington Post column assessing the weakness of the economy, Robert Samuelson never mentions the shift to austerity.
Actually, the column is more than a bit confused since it starts by making the case that the Fed actually should be raising interest rates since the economy is now at or near full employment. This is an argument that the economy is now strong and risks inflation due to too much demand.
But most of the piece then turns to the argument that central banks can't boost the economy the way they had in the past. He tells readers:
"One explanation lies in the high and unsustainable debts that fueled the Great Recession. “Debt recoveries are not the same as ordinary business cycle recoveries,” Harvard economist Carmen Reinhart [yes, that is Reinhart of the famous Reinhart and Rogoff Excel spreadsheet error that helped launch worldwide austerity because they couldn't be bothered to check their calculations] recently told a conference at the Peterson Institute. Consumers and companies cut debt loads and rebuild savings. Lenders are more restrained in their lending; borrowers are more restrained in their borrowing. All this curbs spending.
"A variant — one often made by this reporter — is that the recession’s severity, almost entirely unanticipated by economists, business leaders and government officials, has made households and enterprises more precautionary and protective. They save more and spend less to shield themselves against future slumps and unpredicted calamities."
The problem with both variants of the "reluctant to spend" story is that neither households nor businesses were especially reluctant to spend, as those with access to Commerce Department data know. The figure below shows consumption as a share of GDP. As can be seen, it has been near post-war highs in the years since the recession, as the savings rate has been unusually low. The investment share of GDP has also been comparable to the pre-recession level. Housing construction has been depressed — for the mysterious reason that there was severe overbuilding in the bubble years.
In addition to the austerity which sharply reduced demand from the government the other factor depressing demand (which is not allowed to be mentioned in the pages of the Washington Post) is the trade deficit. The U.S. is still running a trade deficit of roughly $500 billion a year (@ 2.8 percent of GDP). This has the same impact on demand in the economy as if government spending were cut by an additional $500 billion. The demand generated by the housing bubble filled this demand gap, but in the absence of the bubble, there is nothing to fill the gap.
All of this is pretty simple and straightforward, but our elite types don't like us talking about the trade deficit as a problem. So, we end up with folks like Robert Samuelson telling us it is all very mysterious.Add a comment
The NYT had an article discussing proposals by Hillary Clinton and Donald Trump to increase spending on infrastructure. The article likely left many readers confused.
First, it briefly described the two candidates' proposals:
"Mrs. Clinton has said that if she is elected president, her administration would seek to spend $250 billion over five years on repairing and improving the nation’s infrastructure — not just ports but roads, bridges, energy systems and high-speed broadband — and would put an additional $25 billion toward a national infrastructure bank to spur related business investments. Mr. Trump said he wanted to go even bigger, saying his administration would spend at least twice as much as Mrs. Clinton."
It is unlikely many readers have a very good idea of how much money $250 billion is over the next five years. This comes to $50 billion a year, which is a bit less than 1.2 percent of projected federal spending over this period, or roughly 0.25 percent of projected GDP. Donald Trump's proposal is presumably twice as much. (It is not clear exactly how the $25 billion infrastructure bank would work, so it's not easy to come up with a figure for the related spending.)
The piece also somewhat misrepresented the argument being put forward by former Treasury Secretary Larry Summers:
"Today, with maintenance lacking and interest rates low, a host of influential economists, including Lawrence H. Summers, who served as Treasury secretary under President Bill Clinton, argue that America’s need for better infrastructure is so great that it could increase its debt load and still come out ahead.
"In a telephone interview, Mr. Summers laid out his case: The federal government can borrow at something like 1.0 percent interest a year, and through enhanced productivity it would reap something like 3 percent a year in higher tax receipts."
There are two separate issues at stake. First, it is possible that additional spending on infrastructure will lead to an increase in GDP, but also require more taxes in the future. Suppose that if we spent an additional 0.25 percent of GDP on infrastructure over the next five years it would result in GDP being 0.1 percent larger in subsequent years (a very low rate of return) than would otherwise be the case.Add a comment
The NYT seems determined to do the equivalent of birtherism with public pensions, implying that there is some conspiracy in the way they do their accounting. The paper ran a major business section article today headlined, "a sour surprise for public pensions: two sets of books."
The "surprise" should hardly be a surprise to anyone familiar with public pension systems. Pensions calculate liabilities based on the expected rates of return for the assets they hold. This calculation tells governments how much they should expect to put into the fund each year on order to meet their obligations to their retirees. If they do their projections correctly (this is not an issue raised in the piece) then this should be the number that governments are most interested in.
However, the piece highlights "the second set of books." This is market value of pension funds assets and liabilities. This is where the pensions would sit today if they wanted to cash out of the system, which is exactly the situation described in the piece. The market value would make a pension look considerably worse, since they would have to use a lower discount rate (typically the interest rate paid on either Treasury bonds or municipal bonds) to assess the liability of the funds.
The fact that the latter would show a worse situation for pensions is hardly a secret, nor is it particularly hard to determine the larger liability, at least to a close approximation. If anyone has a knowledge of the projected stream of payouts for a pension, it is a simple matter to throw this up on Excel spreadsheet and apply a different discount rate to it.
In other words, this is a great non-scandal, just like President Obama's real birth certificate.Add a comment
The NYT had a good article on the lobbying effort by Mylan, the manufacturer of EpiPen, to have its product labeled as a preventive drug by the federal government. If EpiPen can get this label, then insurers will not be allowed to require patients to make a copayment. This means that patients will not directly see the price of the drug, although it will be passed on in the form of higher insurance premiums. Mylan is betting that this will make it easier to charge prices that are several thousand percent above its cost of production.
The piece reports on Mylan's intensive lobbying campaign to gain preventive status. Mylan has paid for research, paid consulting fees to academics, and paid patient advocacy groups to promote use of EpiPen and help gain it the status of a preventive medicine.
This is exactly the sort of corruption that is predicted by economic theory when government intervention creates a large gap between the protected price and the free market price. While EpiPen would likely sell for $10–$20 in a free market, its patent protection allows it to sell for several thousand percent above this price. Economic theory predicts that a tariff of 10–20 percent will provide incentives for the beneficiaries to lobby to increase the benefits of this protection. In the same way a patent monopoly that raises the price of the protected product by 2000 percent will provide similar incentives, except they will be several orders of magnitude larger.
This is relevant to the Trans-Pacific Partnership (TPP) since one of its main outcomes will be to make patents and related protections, especially for prescription drugs, longer and stronger. While its proponents, including the news sections of major newspapers like the NYT, call the TPP a "free trade" agreement, most tariff barriers between the countries in the deal are already low. The effects of increased patent and related protections will almost certainly have a greater impact than the modest reduction in tariffs provided for in the deal.
Therefore the TPP can more accurately be thought of as a protectionism pact. It will increase the number and importance of EpiPen-type incidents in the United States and other countries in the TPP.Add a comment
Honesty goes out the door when a major trade deal is being debated. This means that politicians, academics, and major news outlets, like the NYT, discard normal standards to push the trade pact. The basic point is that lots of profits are on the line for the corporations for whom the deal was negotiated, and in that situation, truth is a luxury that can't be afforded.
In this vein, we get the NYT Magazine piece by Nathaniel Popper asking in its title, "how much do we really know about trade?" The story in this piece is that opening the U.S. market to developing countries has led to huge reductions of poverty in the developing world. He gives the example of Vietnam:
"A young Canadian economist at Wilfrid Laurier University, Brian McCaig, studied what happened in Vietnam immediately after the United States slashed tariffs on goods from that country in 2001 — a bilateral trade agreement similar to many others before and since that have opened up the United States to manufactured goods from Asia. He found that over the next three years, as the value of apparel and clothing accessories going to the United States from Vietnam rose by 277 percent, the poverty level in Vietnam fell to 19.5 percent from 28.9 percent, twice as fast as it had fallen in the preceding four years and enough to lift about seven million people out of poverty. This wasn’t American food-stamp poverty those Vietnamese were escaping; it was malnourished, dollar-a-day poverty."
Popper goes on to describe the enormous growth in China and the improvements in living standards it has meant for hundreds of millions of people. He then points out that opening to the developing world has also meant lower cost goods for moderate income people in the United States, but then we get back to the developing world:
"He [M.I.T. economist David Autor] told me that whatever the virtues or costs in the United States, they pale in comparison with the basic humanitarian benefits that people in places like China and Vietnam have experienced as a result of trade with the United States. 'The gains to the people who benefited are so enormous — they were destitute, and now they were brought into the global middle class,' Autor says. 'The fact that there are adverse consequences in the United States should be taken seriously, but it doesn’t tilt the balance.'"
Okay, let's get the story here straight. Developing countries owe their growth to the fact that they ran large trade surpluses with the United States. It's great that so many economists will make this sort of assertion since it runs 180 degrees at odds with standard trade theory.
Capital is plentiful in rich countries, it is scarce in poor countries. This means that it is supposed to flow from slow growing rich countries, where it gets a low return, to fast-growing developing countries where it gets a high return. This means rich countries should run have a capital account deficit with developing countries as capital flows out. That would correspond to rich countries running trade surpluses with developing countries. Developing countries would be running trade deficits that would allow them to build up their capital stocks at the same time they maintain the living standards of their populations.
Now we have Mr. Popper and his crew of economists telling us that the opposite had to happen to allow the poor in developing world to escape poverty. It's interesting that they think we have to throw away long established trade theory.Add a comment
By Cherrie Bucknor and Dean Baker
The 4.9 percent unemployment rate is getting close to most economists’ estimates of full employment. In fact, it is below many estimates from recent years and some current ones. Many policy types, including some at the Federal Reserve Board, take this as evidence that it’s necessary to raise interest rates in order to keep the unemployment rate from falling too low and triggering a round of spiraling inflation.
The argument on the other side is first and foremost there is zero evidence that inflation is about to start spiraling upward. The Fed’s key measure, the core personal consumption expenditure deflator, remains well below the Fed’s target and shows no evidence of acceleration. The same is true of most wage growth measures.
But there is also good reason for skepticism on the current unemployment rate as a useful measure of labor market tightness. Other measures of labor market tightness, such as the percentage of workers employed part-time for economic reasons and the share of unemployment due to voluntary quits, remain close to recession levels.
Most importantly, there has been a sharp drop in labor force participation rates. As a result, in spite of the relatively low unemployment rate, the employment rate is still close to 3.0 percentage points below its pre-recession level. This story holds up even if we restrict ourselves to looking at prime-age workers (between the ages of 25–54), with an EPOP that is close to 2.0 percentage points below pre-recession levels and almost 4.0 percentage points below 2000 peaks.
The response of the proponents of higher interest rates has been to attribute this drop to a problem with prime-age men rather than a lack of demand in the economy. For example, Tyler Cowen argued that less educated men were watching Internet porn and playing video games rather than working. The problem with this explanation is that the decline in EPOPs is comparable for non-college educated men and women. There is also a decline in EPOPs since 2000 for both college educated men and women, albeit a smaller one than for their less-educated counterparts.
In a blog post earlier this week, former Fed Chair Ben Bernanke argued for a policy of negative nominal interest rates as being preferable to a higher inflation target for boosting the economy in a severe slump. While his concerns about the downsides of a higher inflation target seem somewhat overblown, there is an important negative aspect to his proposal for negative rates that his post overlooks.
If banks have to pay money on the reserves they hold, then they have less incentive to acquire deposits. This could have a large impact on their willingness to keep smaller checking and saving accounts for low- and moderate-income people. They often lose money on these accounts already, but may consider the losses worth bearing in the hope that these customers may have larger accounts in the future and/or rely on the bank for profitable services.
If interest rates on reserves turn negative, then the losses on these accounts would be even larger. This could result in banks charging for accounts that are now free and raising their fees on services for which they already charge. As a result, many low- and moderate-income people are likely to give up their bank accounts.
According to the FDIC, there were 9.6 million households without bank accounts in 2013. This number could grow substantially if banks had to start paying interest on the reserves they held.
There are potential remedies for this situation. Banks could be required to offer basic banking services at little or no cost, with other customers effectively subsidizing this service. Alternatively, we could adopt a system of postal banking which would allow low- and moderate-income households to get basic banking services through the post office.
Either of these routes would offset the risk that negative interest rates could lead to a larger unbanked population. However, without these fixes in place, the prospect of a much larger unbanked population is major downside to a policy of negative interest rates.Add a comment
This is another problem with numbers story. Steve Inskeep interviewed Daniel Garza of the Libre Initiative, a Republican group targeting Latino voters in Nevada and Florida, on Morning Edition on Tuesday. In making his case Mr. Garza brought up the issue of the minimum wage:
"On the issue of minimum wage, which is one that is always used as, you know, you don't care for decent wages, here is a case where you have Latino minorities who are at 20 percent unemployment and you want to double the cost to hire them by doubling the minimum wage. How is that going to help young Latinos?"
According to the Bureau of Labor Statistics, the unemployment rate for Hispanics in August was 5.6 percent. Even if Mr. Garza was referring to Hispanic teens, he is still a fair bit off. The unemployment rate for Hispanic teens was 15.0 percent in August, up from 14.5 percent in July.Add a comment
That's what a NYT article told readers, although the $1.0 trillion figure may not have been clear. The European Union determined that Apple owes Ireland $14.5 billion in back taxes. While the article indicated that this is a substantial sum, since most readers are probably not familair with the size of Ireland's economy, they likely would not realize how substantial it is.
Since Ireland's GDP is projected to be 229 billion euros this year, the back taxes would be roughly the equivalent of $1 trillion in the U.S. economy. The piece also indicates that with interest included the sum could be $23 billion. This would be the equivalent of $1.5 trillion in the U.S. economy.
Put another way, Ireland's population is just under 4.6 million. This means the $14.5 billion figure would translate into $3,150 for every person in the country. The larger $23 billion figure would come to $5,110 per person.Add a comment
In an article on the prospect of a September interest rate hike by the Fed, the NYT pointed out that Esther George, the President of the Kansas City Federal Reserve Board Bank, expressed concern that low interest rates are fueling financial speculation. She has repeatedly given this as a basis for raising interest rates.
It is worth noting that George has never identified an area where prices are obviously out of line with fundamentals. In the two cases in the last 80 years where the collapse of a speculative bubble led to economic downturns, the stock bubble in the 1990s and the housing bubble in the last decade, it was easy for anyone who looked to recognize the bubbles and that they were moving the economy.
In both cases, the wealth generated by the bubbles led to a consumption boom, which would have been difficult to explain any other way. The stock bubble also led to a surge in tech investment as it was a simple matter for people with the right connections, who had no idea what they were doing, to raise hundreds of millions or even billions by issuing stock in Internet start-ups. In the case of the housing bubbles, residential construction hit a post-war high as a share of GDP even as the country's demographics would have suggested it should have been falling.
For these reasons, it was predictable that a collapse of the bubble would lead to a recession, and an especially serious one in the case of the housing bubble. Also, it was easy to see that both were bubbles. In the late 1990s, bubble the price to earnings ratio reached levels that were twice the normal ratio. For this to make sense it would have required either a sustained growth rate of corporate profits that was hugely faster than any forecasters were predicting or a change in investor attitudes to stock, where they were prepared to accept returns that were the same or less than the returns on government bonds. In the case of the housing bubble, with vacancy rates hitting record highs and rents seeing no real increase whatsoever, it was pretty hard to see the run-up in house prices as anything except a bubble.
Given this recent history, it would be reasonable to ask Ms. George where she sees evidence of a dangerous bubble. If her argument is that she wants to slow growth and keep people from getting jobs because of her fear of bubbles, she should be able to produce some evidence to support this fear. To date, she has not. (It's also worth noting that even if we face the risk of a bubble, it is far from clear that higher interest rates are the best tool for addressing the problem.)Add a comment
In a Sunday editorial the Washington Post touted the strength of the economy. While it got some things right, it also showed some serious confusion.
At the top of the list is its concern for the declining labor force participation rates for prime-age men (ages 25–54). This is not a men's problem, there has also been a comparable decline in the employment rates for prime-age women. (Employment rates are a better measure than participation rates because many people who are not working continue to look for work as long as they are eligible for unemployment benefits. With stricter eligibility rules in place now than a quarter century ago, a smaller share of the non-employed are counting as unemployed. Using the employment rate gets around this problem.)
As can be seen, the employment rate (EPOP) for prime-age women is down by more than 2.0 percentage points from its pre-recession level and more than 4.0 percentage points from its 2000 peak. This drop is especially striking since the EPOP for women had been rising in the late 1990s and was projected to continue to rise by the Social Security Trustees, the Congressional Budget Office and most other forecasters.
The fact that the EPOP has fallen for prime-age women, and not just men, indicates that the problem is not some peculiarity of prime-age men, but rather a lack of demand in the labor market. This could be remedied by increasing demand in the economy, but this has been prevented by deficit hawks, like the Washington Post and the various Peter Peterson-funded organizations and their followers in Congress. In fact, even in this piece, the government debt is listed as a major problem in spite of the fact that the burden of debt service is near a post-war low.Add a comment
A recurring theme of much of the coverage of support for Donald Trump in Appalachian states is that President Obama's efforts to reduce greenhouse gas emissions, and thereby reduce the use of coal, have led to a large loss of coal mining jobs. This loss of jobs supposedly devastated the economy of the region. Voters hope that Trump will bring back the mining jobs and thereby restore the economy of the region. A New York Times article on support for Trump in Eastern Kentucky repeats this theme.
The problem with the story is that most of the mining jobs in Kentucky were lost long ago. Even when President Obama took office it was a relatively minor source of employment in the state. The figure below shows coal mining jobs in Kentucky. The number had fallen from close to 30,000 at the start of the 1990s to less than 15,000 by the end of the decade. (It had been close to 50,000 in 1980.)
There was somewhat of an uptick as President Obama came into office due to the surge in world oil prices, but this lasted for less than two years. The current employment level of 6,900 is down about 8,500 from the 2007 levels. By comparison, total employment in Kentucky is over 1,900,000. This means the jobs lost in the mining industry over the last decade are a bit less than 0.5 percent of total employment in the state.
The loss of these jobs has undoubtedly been a huge tragedy for the people directly affected and for the communities in which these jobs are located. However, it does not seem plausible that the actual job loss can explain much about political attitudes across the state.Add a comment
A few days ago I argued that one way to get around the tax games that Apple and other corporations play is to require them to turn over a proportion of their stock in the form of non-voting shares. These shares would get the same benefits that any voting shares would receive in the form of dividends and share buybacks, but would give the government no say in the running of the company. This should get rid of most of the opportunities for gaming the tax system and assure the government its targeted percentage of corporate profits.
Bruce Bartlett, who was an economist in the Reagan and Bush I administrations, reminded me of his even simpler approach. Bruce suggests that the government tax corporations at some percentage of their market capitalization on a randomly selected date in the prior calendar quarter.
Suppose that the goal is to get an amount of tax revenue equal to 25 percent of corporate profits (a bit more than we now take in). If the ratio of stock prices to after-tax profits is 24 to 1 (roughly current levels), then the ratio of stock prices to before-tax profit is 18 to 1, implying that profits are 5.6 percent of the share price. If we want to collect 25 percent of the profits in taxes, then we would require companies to pay 1.9 percent of their share price on a randomly selected date from the prior quarter. (Actually, since we are looking at four quarterly payments, each would be one-fourth of this amount, or 0.475 percent of the share price.)
It's difficult to see how corporations can game this one. We also need to have a mechanism for taxing privately held companies. (My addendum would be to have an annual assessment of the company to determine its market value. This would be less precise than actually having a market value to directly rely upon, but there is no reason to assume an obvious bias in the mechanism. Also, if a company felt that the auditors were consistently giving it an excessive valuation, it would provide a strong incentive to go public.)
Anyhow, progressives should be looking for these sort of simple mechanisms for getting the money out of the Apples and other tax schemers in the world. We need the revenue and we also should want to put the tax gaming industry out of business. There are a lot of people getting very rich because of their cleverness in finding ways to get around the tax code. This is a major source of inequality and a waste from an economic standpoint.
Note: Bruce directs me to a 2007 Tax Notes article by Calvin Johnson as the basis for this idea.Add a comment