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).
The NYT's Dealbook section ran an interesting column on the "risks of unfettered capitalism" by St. John University Law Professor Jeff Sovern. The piece lists a number of abuses by corporations, including Volkswagen's diesel scandal, Vioxx, and predatory lending. While Sovern is right in arguing for the need to rein in these abuses, it's questionable whether this is an issue of "unfettered" capitalism.
In the case of Volkswagen, they deliberately lied to their customers about the product they were buying. Many of the people buying Volkswagen's diesel cars were buying them explicitly because they wanted an environmentally friendly cars. It is not clear that it is accurate to call a system of capitalism "unfettered" if companies are allowed to lie to make money from their customers. Would this mean that in "unfettered" capitalism, airlines could charge people in advance for a plane ticket and then not actually give them a seat on the plane? That would be equating unfettered capitalism with legalized fraud.
In the case of Vioxx, Merck was alleged to have deliberately withheld evidence that the arthritis drug posed risks to patients with heart conditions. Its motivation was to increase sales. The reason that Merck had such a large incentive to increase sales was that the government gave them a patent monopoly that allowed it to sell Vioxx at a price that was several thousand percent above its free market price.
Without this patent monopoly, Merck's profit margin on Vioxx would have been comparable to the margins that companies make selling paper cups and pencils. These sorts of profit margins would not likely have provided the sort of incentive to conceal evidence at the risk of patients' health and life. It is hard to see how a government-granted patent monopoly can be seen as unfettered capitalism.
In the case of predatory lending, the question is whether companies can use deceptive practices to get people to take out loans if they do not fully understand the terms. The logic here is that smart people trained in law can write complicated contracts that a typical customer is not likely to be able to understand without spending a great deal of time and effort reviewing it.
If we allow for complex contracts with consumers to be enforceable, then we are providing an incentive for highly trained lawyers to spend a great deal of time figuring out how to design complex, deceptive contracts. We also then will effectively force consumers to spend far more time reviewing contracts to ensure that they are not being ripped off. This is an enormous waste of resources which is also likely to result in an upward redistribution of income.
As is the case here, in many instances where people claim they are talking about unfettered capitalism, they are actually talking about one person's "right" to dump their sewage on their neighbor's lawn. The dumper is invariably more powerful than the dumpee. It gives the issue way more respect than it deserves to ascribe to it a principle like "unfettered capitalism." It's really just a question of whether we want a system where the rich are allowed to rip off everyone else.Add a comment
This short piece on Japan's GDP growth reminded me that I wanted to post a graph showing the rise in Japan's employment rate under Abe. Here's the basic picture showing the employment-to-population ratio (EPOP) for people between the ages of 16 and 64 since 2000.
As can seen, Japan's EPOP fell following the 2001 recession. It had made up lost ground by 2005 and continued to rise until 2007. It stagnated for roughly two years and then rose somewhat before starting to drop again in 2011. It was falling when Abe took over in December of 2012.
Since then the EPOP has risen by 2.5 percentage points. This is a huge gain that would be equivalent to another 6.2 million jobs in the United States. Japan's growth has certainly not be inspiring under Abe, but this increase in employment is quite impressive. By this measure, Abenomics has been very successful.Add a comment
Robert Samuelson used his column this week to note my friend Josh Biven's piece on the reason for the weak recovery. Biven puts the blame on insufficient government spending, noting that government spending per capita has been much weaker in this recovery than in prior recoveries. Samuelson says Biven could be right but then argues that maybe there is another explanation.
Samuelson offers the possibility that higher government spending in past downturns may have been the result of more rapid economic growth rather than the cause. He notes that the stimulus failed to lead to sustained growth in this recovery, despite its large size. He then offers three possible explanations:
"Some economists see a broad slowdown in technological advances (despite the Internet) whose adverse effects were masked by easy credit. Another theory is that the costs of the welfare state and regulation have come home to roost; they allegedly discourage risk-taking, business investment and work. Another view is that the financial crisis and the Great Recession so scared consumers and businesses that they are reluctant to spend."
Let's deal with these issues in turn. First, Samuelson does have a reasonable point on the cause and effect story. State and local governments were seeing more rapid revenue growth in prior recoveries, so it would not be surprising that their spending grew more rapidly. Bivens is undoubtedly right that austerity at all levels of government slowed growth, but the issue is not quite as simple as it first appears.
On Samuelson's three points, he is right that many economists point to a broad slowdown in technological advances. While this is a very big issue, one point that should bother anyone taking it seriously is that the slowdown seems to have hit most of the world at the same time. Some countries, like the United States, were much further along in adopting the new technologies of the prior decade than countries like Greece. The fact that we all are experiencing a productivity slowdown at the same time nonetheless suggests that it is not the lack of technology that is the problem.Add a comment
Yes folks, this is yet another example of the which way is up problem in economics, which seems to badly afflict the Washington Post opinion pages. It's the old story of someone being told that its incredibly hot and humid outside and then rushing to put on hat, gloves, and an extra sweater.
The Labor Department released new data on productivity growth this week showing that in the second quarter of 2016 productivity actually fell for the third consecutive quarter. While this decline is likely an anomaly, and may even be reversed in revisions to the data, productivity growth has been extraordinarily slow the last six years, averaging less then 0.5 percent annually. This compares to rates of 3.0 percent annual growth in the decade from 1995 to 2005 and 2.9 percent in the long Golden Age from 1947 to 1973. Even the 1.4 percent rate of the slowdown years (1973 to 1995) looks great compared to the recent productivity performance.
Given this pattern of weak productivity growth, we would naturally expect to see David Ignatius on the Post's oped page warning us that rapid productivity growth is going to cost huge numbers of jobs, in a column titled, "the brave new world of robots and lost jobs." Ignatius notes job insecurity and concerns that people are losing jobs to trade.
He then tells readers:
"A look at the numbers suggests that the country is having the wrong economic debate this year. Employment security won’t come from renegotiating trade deals, as Donald Trump said in a speech Monday in Detroit, or rebuilding infrastructure, as Hillary Clinton argued in Warren, Mich., on Thursday. These are palliatives.
"The deeper problem facing the United States is how to provide meaningful work and good wages for the tens of millions of truck drivers, accountants, factory workers and office clerks whose jobs will disappear in coming years because of robots, driverless vehicles and 'machine learning' systems."
Of course "a look at the numbers" tells us the opposite, as noted above. These new technologies are thus far having a minimal impact on reducing the demand for labor. That could of course change, which would be a great thing, it would open the door for higher wages and more rapid improvement in living standards.
One of the studies that he cites projects that automation could cost us as much as 47 percent of current jobs over the next two decades. While Ignatius calls this a "automation bomb," this rate of job loss translates into 3.1 percent annual productivity growth, roughly the same pace as during the long Golden Age. That was a period of low unemployment and rapidly rising real wages and living standards, which can also mean more leisure and shorter work years. Are you scared yet?Add a comment
The NYT had an interesting piece on the pharmaceutical market in India, which just began recognizing patent monopolies on drugs a decade ago. Corruption and abusive sales practices of the sort described in the piece are exactly what economic theory predicts when tariffs of several hundred or several thousand percent are imposed in a market. While "free traders" like to ignore the harm from patent monopolies that raise the price of the protected items by these amounts, the market does not care whether the cause of an artifically high price is called a "patent" or a "tariff," it has the same effect.Add a comment
The NYT had an interesting piece charting the career paths of Bill and Hillary Clinton, and the extent to which they may have had financial concerns earlier in their lives. Unfortunately, the piece does not adjust for inflation, so it may have misled readers about how well off the Clinton's actually were.
For example, the piece tells readers that after Bill Clinton lost his re-election bid in 1980:
"The Clintons had stretched their finances to afford the $112,000 home, which was down the hill from the city’s old-money mansions."
That home would cost a bit more than $280,000 in today's dollars.
A bit further down the piece tells readers that Hillary took a job at a law firm for $55,000 a year. That would be roughly $158,000 a year in today's dollars. It also refers to them earning $18,000 a year each as law professors in Fayetteville in 1975. That would be a bit more than $135,000 in today's dollars for their combined income.
The $100,000 that Hillary Clinton reportedly made speculating in cattle futures in 1978 would be more than $330,000 in today's dollars.
The $33,500 that Bill Clinton earned Arkansas's governor in 1978 would be just under $112,000 in today's dollars and their combined income of $51,200 for that year would be just over $170,000. The $297,000 they reported as combined income 1992 would be equal to more than $490,000 in today's dollars.
It is also worth noting that Arkansas is one of the poorest states in the country and has a much lower cost of living than wealthier areas like the Northeast or California.
Thanks to Keane Bhatt for calling this to my attention.
Note: The professor salary adjustment was corrected to clearly indicate it refers to their combined income.Add a comment
The NYT weakly posed this question in an article reporting on the proliferation of scripted TV shows coming largely from newcomers like Netflix. The concerns expressed about too much TV were more than a bit bizarre. For example, it told readers:
"sharing Mr. Landgraf’s [CEO at FX Networks] concern, some TV executives have said that they also felt audiences were becoming fatigued and having a difficult time finding the best shows out of the glut."
Really? People are getting tired from going through the listings of all the shows? Do they get tired from going through listings of books? I suppose it's possible, but it seems more likely that people would watch shows that they happen to hear good things about and ignore the rest.
There is a plausible story to tell about the proliferation of shows. With many more shows commanding an audience, there will be fewer shows that will command the sort of audience that would justify big budget productions. That means fewer writers, actors, directors will be able to command big paychecks.
This is certainly bad news for the tiny group in the big paycheck crowd, but it is great news for all writers, actors, directors that will be able to make a decent living in the smaller audience productions. And, since this will have been the result of people opting to watch the smaller audience productions, it's hard to see why we should be troubled by the situation (unless we work for the big paycheck crowd).Add a comment
The NYT ran a Reuters piece on the future of drug pricing. Guess what? No one is talking about good old-fashioned free market prices. The word from Reuters is that in the future drug companies will be paid based on the benefits provided by their drugs, not a per pill charge. As described in the piece, drug companies would be compensated by insurers for the use of their drugs based on the average improvement in health per patient treated.
As the piece hints, this will be an incredible burden to calculate, especially for drugs that are used on limited numbers of patients who may also suffer from multiple conditions. The situation gets even more complicated when we take into account the possibility that a drug could have serious side-effects that won't be discovered until many years after it is in use. I suppose in that situation we go back and collect the payments that were made to the company earlier from the shareholders and their children.
For some reason, the idea of just funding the research upfront and putting in the public domain seems to be out of bounds. Reuters, and implicitly the NYT, would apparently prefer all sorts of bizarre bureaucratic fixes rather than something that would almost certainly be far simpler and cheaper and not leave sick people struggling to find ways to pay for drugs that are necessary for their life or health.Add a comment
There is apparently a very big market for spreading the story that trade has not been a major factor behind manufacturing job loss and wage stagnation. How else to explain the massive supply of such pieces?
Robert Samuelson gave us his latest contribution is his weekly Washington Post column. The trick is to say that productivity has been the major factor costing us jobs in manufacturing therefore we shouldn't be upset about job loss due to trade. This is one of those trivially true arguments. Yes, we have seen productivity growth in manufacturing throughout the post-war period, and that is a good thing. (It means we can see higher wages and living standards.) But the period in which we saw rapid job loss in manufacturing was the period in which the trade deficit grew rapidly from 2000–2007. (I deliberately left off the post-crash period to avoid confusion.)
Jobs in Manufacturing
Source: Bureau of Labor Statistics.
We had productivity growth all through this period, but there was relatively little change in employment in manufacturing until the trade deficit began to explode due to the over-valued dollar at the end of the Clinton presidency. It's cute how Samuelson and so many other elite types try to tell us that trade hasn't been a big issue, but as he says in his piece, "we are being fed a largely false narrative on globalization." It's too bad our elites have such an aversion to dealing with the real world.
It is also important to note that the Samuelson types are the biggest protectionists in this story. These wall builders are not bothered by rules that prevent doctors from practicing medicine in the United States unless they have completed a residency program in the United States and prevents dentists from practicing unless they have gone to a U.S. dental school (or recently, a Canadian dental school). These protectionist barriers cause us to pay twice as much for our doctors and dentists as people in other wealthy countries, adding more than $100 billion a year (@ $700 per family) to our annual medical bill.
It would be nice if the Post and the rest of the media would occasionally provide some space to free traders.
I should mention that if we want to replace the jobs lost to a trade deficit, we should want to see a larger budget deficit. Unfortunately, deficit hawks like Robert Samuelson, the Washington Post, and the rest of the Peter Peterson crew have prevented us from running budget deficits large enough to get the economy back to full employment.Add a comment
The NYT is inadvertently doing a good job convincing people that the Trans-Pacific Partnership (TPP) is a really bad deal. (I'm picking on the TPP because that is the trade deal currently on the agenda.) The reason that the NYT is making readers believe that the TPP is a really bad deal is that it is obviously lying to push the case for trade — and you don't have to lie if you have a real case.
The outright lie in this case is its effort to trivialize the job loss due to trade in the United States. Its editorial, titled "the rage for trade," (okay, I misread it, only the people against trade "rage") told readers:
"Many economists believe that automation has had a much bigger impact. They point out that other industrialized countries like Germany and Japan have also lost manufacturing jobs even though they, unlike the United States, export more than they import. Between 1990 and 2014, the number of manufacturing jobs fell by 34 percent in Japan, 31 percent in the United States and 25 percent in Germany, according to an April report by the Congressional Research Service."
See, everyone is losing jobs in manufacturing, only those racist Trump backers would see it as an issue with trade.
Now let's imagine that the folks at the NYT editorial board are capable of tying their own shoes. Then they would know that the labor force in the United States is growing much more rapidly than the labor force in Japan and Germany. According to the Bureau of Labor Statistics, the U.S. labor force was more than 25 percent larger in 2014 than in 1990. According to data from the OECD, Japan's labor force was about 3 percent larger in 2014. Germany's labor force was about 5.0 percent larger.
Other things equal, because of the much more rapid growth in the labor force, we would expect much more rapid growth (or smaller decline) in the number of manufacturing jobs in the United States. The fact we actually lost a larger share of our manufacturing jobs than Germany and almost as large a share as Japan, means that manufacturing fell far more rapidly as a share of total employment in the United States than in these other countries.
Economists who "point out that other industrialized countries like Germany and Japan have also lost manufacturing jobs" understand this basic arithmetic point, as presumably do the editorial writers at the NYT. The only reason to ignore it, and imply that the decline in manufacturing in the three countries has been comparable, and has nothing to do with trade, is to deceive readers.Add a comment
That's what folks who saw his letter to the editor in the Washington Post must be asking. The letter derided the idea of funding free college tuition with a modest tax on trades of stocks, bonds, and derivatives. Chilton tells readers:
"A tax on financial trading activity has been tried in other nations, where it failed miserably. Trading (and the jobs and economic activity associated with it) moves to nations without such a tax. Trading these days takes place on computers, not on physical trading floors. When market migration inevitably occurs, anticipated revenue to fund programs (free college or anything else) evaporates. That’s not conjecture. That’s what has transpired in Germany, Japan, Switzerland, Sweden and Italy. Why would we jeopardize what are the most coveted markets on the planet?"
That sounds pretty authoritative — guess a financial transactions tax (FTT) is a bad idea. Except, it doesn't have any basis in reality. Many countries, including the United States, long raised substantial revenue from taxing financial transactions. Even now, the United States has a tax of 0.00218 percent on stock trades which raises $500 million a year to fund the Securities and Exchange Commission.
There are many other countries that still have FTTs in place and raise a substantial sum of money as a result. One notable financial backwater on this list is the United Kingdom, where the tax consistently raises a bit more than 0.2 percent of GDP (more than $40 billion a year in the U.S.). The markets in China, Hong Kong, and India also have FTTs, so it's not clear where Mr. Chilton expects our trades will go. (A partial list of the money raised by FTTs in different countries can be found in Table 1.)
It's true that a FTT will downsize our financial markets by eliminating excessive trading, but for fans of economics this is good news. We wouldn't want five million truckers moving goods back and forth across the country if one million could do the job. The same story applies to financial markets. If we can effectively allocate capital with half as many trades as we have today, why wouldn't we want to see the gain in efficiency?
Correction: The Securities and Exchange Commission fee was originally listed as 0.0042 percent.Add a comment
The Washington Post had a good column on the soaring prices of orphan drugs. Orphan drugs are drugs to treat conditions that affect less than 200,000 people. To encourage drug companies to research these drugs, the government picks up the half the cost of the clinical testing, pays the fees to bring it through the FDA approval process and then gives the drug companies seven years of marketing exclusivity.
The piece reported on how drug companies are increasingly getting orphan status for their drugs, even for drugs that have long been on the market (new uses), and how the prices for these drugs is going through the roof. According to the piece, the average annual cost for newly approved orphan drugs is $112,000.
Remarkably, the piece never mentioned one obvious solution to this problem: the government could also pay for the other half of the cost of the clinical tests. In this case, the drug would be available at generic prices, which would likely be less than one percent of the cost of the average new orphan drugs. The marketing monopolies now given to drug companies create equivalent distortions and incentives for corruption as 10,000 percent tariffs. (The market doesn't care whether the price is raised due to a tariff or a patent monopoly, the impact is the same.)
It is difficult to believe that the piece never mentioned the public funding option. The tests could still be performed by private companies, the difference is that all the results would be in the public domain for other researchers and doctors to see, and that the drug would likely sell for hundreds of dollars rather than more than a hundred thousand dollars. (It is probably worth mentioning in this context that the Washington Post gets considerable revenue from drug company ads.)Add a comment
It's hard to resist a good challenge and the Washington Post gave us one this morning in an editorial pushing the Trans-Pacific Partnership (TPP). The editorial criticized TPP opponents and praised President Obama for continuing to push the deal. It tells readers:
"Mr. Obama refused to back down on the merits of the issues, noting that other countries, not the United States, would do most of the market-opening under the TPP and challenging opponents to explain how 'existing trading rules are better for issues like labor rights and environmental rights than they would be if we got TPP passed.'"
Okay, here's how we are better off with existing trade rules than the largely unenforceable provisions on labor and environmental standards in the TPP.
1) The TPP creates an extra-judicial process (investor-state dispute settlement [ISDS] tribunals) whereby foreign investors can sue governments for imposing environmental, health and safety, and even labor regulations. Under the TPP, these tribunals are supposed to follow the far-right wing doctrine of compensating for regulatory takings. This means, for example, that if a state or county restricts fracking for environmental reasons, they would have to compensate a foreign company for profits that it lost as a result of not being allowed to frack or the additional expense resulting from the standards imposed. The ISDS tribunals are not bound by precedent, nor are their decisions subject to appeal.
2) The TPP imposes stronger and longer patent and copyright protection. These protectionist measures are likely to do far more to raise barriers to trade (patent and copyright monopolies are interventions in the free market, even if the Washington Post likes them) than the other measures in the TPP do to reduce them. In addition to the enormous economic distortions associated with barriers that are often equivalent to tariffs of 1000 percent or even 10,000 percent (e.g. raising the price of a patented drug to 100 times the generic price), TPP rules may make it more difficult for millions of people to get essential medicines.Add a comment
Charles Lane gets the story on homeownership at least partly right in his Washington Post column today. It is not necessarily bad that fewer people are homeowners, if the drop is due to people with very little equity in serious danger of losing their home. It is also worth adding that in an economy where few people can count on stable employment, homeownership is not necessarily a plus, since it can make it more difficult for unemployed workers to move to areas with more jobs.
However Lane gets a few other things badly wrong. He gives readers the happy news on home equity:
"Contrary to entrenched conventional wisdom, however, the ongoing decline of the homeownership rate is actually good news.
"Here’s why: Thanks to recovering real estate values, today’s homeowners as a group have the same equity in their property — roughly 58 percent — that the record-size cohort did back in late 2004, according to the Federal Reserve. Ergo, there’s now more equity, on a per- household basis; current homeowners’ tenure is that much more sustainable and secure."
This is misleading both because it relies on averages, thereby ignoring distribution, and also 2004 was in fact a really bad year for home equity. If we look at medians, and adjust for age (an important factor in an aging population), the situation does not look so happy.
According to the Federal Reserve Board's 2013 Survey of Consumer Finance, the most recent one available, the median homeowner between the age of 55 to 64 had an equity stake equal to $54,600. That's down from $71,000 in 2001 and $81,000 in 1989 (all numbers in 2013 dollars). For those between the ages of 45–54, median equity stake was just $35,900, compares to $52,100 in 2001 and $72,200 in 1989. In the 35–44 age group median equity was $23,200 in 2013, $43,800 in 2001, and $63,500 in 1989.
All these numbers are made worse by the fact that the homeownership rate within each age group was considerably lower in 2013 than in prior years. This means that the median homeowner was considerably higher up in the overall distribution of income in 2013 than in the comparison years. It is also worth noting that people have less wealth outside of their home as well, indicating that they have not opted to invest elsewhere as an alternative to homeownership.
The other item on which Lane misleads readers is the comparison to European countries where the homeownership rate is considerably lower. These countries have much stronger rules protecting renters from eviction and excessive rent increases. This makes their renters much more secure relative to renters in the United States. Given the lack of protection for renters in most areas in the United States, it is understandable that many would see homeownership as the only way to have secure housing.
In any case, Lane is right that it is not necessarily a bad thing that fewer people are shelling out large amounts of money in realtor fees and closing costs on homes that they are unable to keep. Unfortunately, this does not appear to be because people have decided that renting is a better option.Add a comment
Many folks remember Thomas Friedman as the person who argued that Germany would insist that Greeks work less as a condition of getting new loans. They may also remember him as the person who doesn't know that in a free market, when an item is in short supply, the price is supposed to rise. This is why he can continually complains about shortages of skilled labor even though the pay of skilled workers is not rising.
Economics may not be Friedman's strong suit, but he is back at it again today complaining that Hillary Clinton doesn't have an economic growth strategy. He notes that she is promoting infrastructure investment, both as a way to generate demand and also provide a basis for further growth, but then argues that her pledge to give small businesses easier access to credit will come up short:
"To do that, though, would run smack into the anti-bank sentiment of the Democratic Party, since small community banks provide about half the loans to small businesses, and it is precisely those banks that have been most choked by the post-2008 regulations. We need to prevent recklessness, not risk-taking."
Okay, so Thomas Friedman is arguing that the big problem facing small businesses is that they can't get credit, and the main reason for that is those nasty Dodd-Frank regulations that are handcuffing community bankers. That's an interesting argument. Let's see if that fits what the small businesses themselves say.
The National Federal of Independent Businesses has been surveying small businesses for more than thirty years. Here's the latest statement on credit conditions from its June report:Add a comment
I probably shouldn't make too much of a deal about the edging lower part, after all, we're just talking a few hundredths of a percentage point, but the real issue is that the inflation rate is not edging higher. The Fed has a target of a 2.0 percent average inflation rate for the core personal consumption expenditure deflator. This measure on inflation rate has been well below 2.0 percent ever since the recession began. There had been some evidence that it was rising as the unemployment rate and the labor market tightened.
However, the June data show the core inflation rate at just 1.57 percent over the last year, that is slightly below its reading in prior months. It is very hard to see any story where inflation is about to rise substantially and go above the 2.0 percent target. (And remember, the target is an average, so some period above 2.0 percent is consistent with the target, making up for the years of below 2.0 percent inflation.)
Anyhow, with the inflation rate below the target and showing no signs of accelerating, why would the Fed look to raise rates and slow the economy? If there was a plausible story where inflation could soon pose a serious problem, then a rate hike would be a debatable proposition. But we are in an economy where the labor market continues to show weakness by many measures (low employment rate for prime age workers, high numbers of people involuntarily working part-time, low quit rate, long durations of unemployment spells, and slow wage growth). So what possible basis would the Fed have for raising rates?Add a comment
A NYT article on the prospects for the federal budget deficit under the next president told readers:
"Even without new spending, the federal budget deficit is expected to rise. By 2020, the Congressional Budget Office estimates, the deficit will hit nearly $800 billion, or about 3.7 percent of expected economic output, as increasing entitlement costs for retiring baby boomers take their toll on federal coffers."
Actually, the main reason the deficit is projected to rise is the Congressional Budget Office's (CBO) projection that interest rates will rise. As a result if higher interest rates, the net interest burden is projected to rise by 1.4 percentage points of GDP between 2016 and 2020 (Summary Table 1). This increase is divided into a 0.9 percentage point rise in interest payments and a 0.5 percentage point drop in revenue that the Fed refunds to the Treasury from the interest it receives on the bonds it holds.
The implication is that if the Fed doesn't raise interest rates and sell off its assets then we would not see this rise in the interest burden or the size of the budget deficit. On this point, it is worth noting that CBO has consistently overstated the rise in interest rates since 2010. It appears to have done so again in its 2016 projections.Add a comment
Hey folks, I saved you all from a Martian invasion, you really should be thankful. And Robert Samuelson says we were saved from a second Great Depression by the actions of the Federal Reserve Board. Yes, both claims are lies, but Samuelson's lie is more transparent than my lie.
The point here is a simple one, we know how to get out a depression. It's called "spending money." We got out of the last Great Depression by spending lots of money on fighting World War II. But guess what, the economy doesn't care what we spend money on, it responds in the same way. So if we instead had spent 20 percent of GDP on building highways, housing, hospitals, and providing education and child care it also would have led to double-digit economic growth and below 3.0 percent unemployment.
So anyone who claims that we risked a second Great Depression if the Fed and the Treasury Department had not saved the Wall Street banks is saying that the politicians in Washington are too brain dead to figure out how to spend money even when the alternative is double-digit unemployment. Note that tax cuts count in this story too. So the second Great Depression argument is that the Democrats and Republicans could not possibly figure out a mix of tax cuts and spending that would provide a large boost of demand to the economy.
I will confess to not having a great deal of respect for most politicians, but I have seen many of them tie their shoes. I find it more than a bit far-fetched to claim that they would not ever (a second Great Depression implies years of double-digit unemployment, not just a short downturn) figure out that they need to agree to a package of tax cuts and spending to boost the economy.
Anyhow, this proposition is at the core of the second Great Depression claim, so if you don't think that the members of Congress are complete morons, then you can't believe the second Great Depression story. The point is important because in the fall of 2008 we had the option to clean out the Wall Street cesspool in one fell swoop by allowing the market to work its magic. Most, if not all, of the major Wall Street banks would be out of business.Add a comment
Max Ehrenfreund had an interesting piece reporting on a new analysis of the first round of wage increases from Seattle's $15 an hour minimum wage law. The higher wage is being phased in between 2015 and 2020. The study found modest average wage gains of 73 cents an hour for low wage workers. The effect was limited in part because the strong economy helped to boost wages, so the minimum wage had less effect than otherwise might have been expected.
But the piece also notes the finding that average work time fell by roughly 15 minutes per week and employment by 1.2 percent. It is important to recognize that this drop in employment does not mean that 1.2 percent low wage workers will have jobs over the course of the year.
These are high turnover jobs. The 1.2 percent drop in employment means that at a point in time, 1.2 percent fewer workers will be employed. What this means for low-wage workers in Seattle is that they can expect to spend more time looking for a new job when they lose or quit their prior job. If they get roughly 7.0 percent more for the hours that they work, but they put in 1–2 percent fewer hours over the course of the year, then they will likely consider themselves better off.
In other words, the finding of some reduction in employment is not necessarily a bad thing. It doesn't mean that 1.2 percent of Seattle low-wage workforce has been condemned to go the whole year without a job.Add a comment
The NYT gave an analysis of changing attitudes towards trade agreements that completely misrepresented the key issues at stake. The headline pretty much said it all, "both parties used to back free trade. Now they bash it."
In fact, the current round of deals being negotiated, most importantly the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Pact (TTIP) have little to do with a conventional free trade agenda of lowering tariff barriers and eliminating quotas. With few exceptions, these barriers are already low or have been eliminated altogether.
Rather these deals are about putting in place a regulatory agenda that is being designed to foster corporate interests. The deals provide a backdoor around the normal legislative process, since many of these measures would not receive the support of democratically elected officials.
The agreements are also protectionist in important ways, making patent and copyright protections stronger and longer. (It doesn't matter if you like these government granted monopolies, they are still protectionist.)
These deals are being largely negotiated in secrecy, with most of the input coming from top corporate executives. Then they are pushed on to the American public as all or nothing propositions, with the proponents arguing not only the economic merits, but rather claiming they are a geo-political necessity.
In the case of the TPP, the Obama administration is now contending that the defeat of the agreement would be devastating to efforts to maintain an alliance of countries to contain China. If this is in fact true, then it is understandable that the public would be outraged over the administration's decision to let corporate interests get all sorts of special favors included in a deal that the administration now says is essential for national security.
It is incredible that the NYT tried to present the current debate as a narrow one over traditional issues of trade and protection. This is obviously not the case and there are no shortage of experts who could have explained this fact to its reporter. A good place to start would be the Nobel Prize-winning economist Paul Krugman, who also happens to be a NYT columnist. Joe Stiglitz, another Nobel Prize-winning economist, could have also explained the nature of these trade agreements to its reporter.
It would be great if the paper tried to do serious reporting on trade rather than just repeating long outdated nonsense about free traders vs. protectionists.Add a comment
The elite types have noticed that the masses are not happy about the economic agenda that they have crafted. Since the elites can’t imagine that the problem has anything to with the fact that their agenda is designed to redistribute income from the masses to the elites, they turn to psychological explanations.
In this vein, Greg Mankiw, a Harvard professor and former chief economist to George W. Bush, used his NYT column to discuss voters’ attitudes toward trade agreements like NAFTA and the Trans-Pacific Partnership (TPP). The research he highlights finds that attitudes towards trade don’t seem to depend on a person’s direct economic stake in trade but rather their perception of how trade affects the economy.
It turns out that the latter is highly correlated with education. Those with college degrees generally believe that trade agreements have been good for the economy and support them, while those with less than college degrees generally believe trade has been harmful and therefore oppose them. Mankiw sees this as good news for the long-term, since as more people graduate college a higher percentage will support trade deals.
Remarkably, the analysis Mankiw relies upon never asked about the location of the respondents, or at least this is not reported. That might have mattered, since a factory worker in an area that has lost a large number of jobs to imports, like Pennsylvania, may be expected to have a more negative attitude toward trade than a factory worker in an area where the economy is relatively healthy, like California. This is likely to be the case even if we controlled for more narrow industries.Add a comment