James Stewart has a piece in the NYT telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, "imagine Argentina, but much worse." The article includes several assertions that are misleading or false.

First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country's GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina's GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.

argentina 2fredgraph

Argentina's economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.

At one point the piece refers to the views of Yanis Varoufakis, Greece's finance minister, on the difficulties of leaving the euro. It relies on what it describes as a "recent blogpost." Actually the post is from 2012.

To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:

“But they’ve already cut prices and tourism has gone up. But it hasn’t really helped because total revenue hasn’t gone up.”

Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can't increase revenue from fishing the piece tells readers:

"The European Union has strict quotas to prevent overfishing."

However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that's true, the EU limits on fishing would be irrelevant.

The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika's terms. 

In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.

 

Addendum

I should have also mentioned that the pre-default decline has been much sharper in Greece than in Argentina, over 25 percent in Greece, compared to less than 10.0 percent in Argentina. This should mean that Greece has much more room to bounce back if it regains control over its fiscal and monetary policy.

Recent comments

  • Guest - Mohan

    When it comes to these two currencies, it is absolutely vital that we stay careful, if we make one mistake it can be graveyard, so that’s why been careful is the most important part of working. I am doing trading with OctaFX broker and due to their low spread of 0.2 pips, high leverage up to 1.500 ...
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  • Guest - pieceofcake

    and for sure - the so called Troika did a lot of stupid things - and for sure the debt should be (offically) - forgiving - instead of pushing it so far forwrd into the future - that everybody hopes it will be soon forgotten... BUT if the other 18 European States aren't able to change NOW the mindbog...
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  • Guest - pieceofcake

    and I nearly missed that one: 'if it regains control over its fiscal and monetary policy.' God forbid - as it could become as big as a disaster if I -(ME) would regain control over my fiscal and monetary policy - I probably would bankrupt myself again with handbags...?
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Okay, that may not have been the headline, but careful readers would see this is the case. The NYT ran a piece complaining that plans by the Greek government to raise business taxes, as opposed to further cuts to pensions and other spending, could hurt business.

The poster child for this argument is Thanos Tziritis, the owner of a family business that produces and exports a wide range of construction materials. The piece goes through the various complaints of Mr. Tziritis, at one point telling readers:

"Still, it took 20 months to get all the permissions and licenses to begin construction, as papers moved back and forth between Thessaloniki and Athens.

"One reason for the delay, Mr. Tziritis said he was told, was that one of the government employees examining the request was on maternity leave and no one else was authorized to look at that specific Isomat file. The project remained in limbo for more than six months until the civil servant returned to work."

Presumably one of the reasons that no one else could fill in for the government employee examining the construction request was that Greece was forced to cut back on the number of employees. It may well be the case that Greece regulations are excessive, but until they are reformed cutting back on the number of people involved in the review process is likely to slow investment and growth, as this article indicates.

The article bizarrely implies that Greece has been resistant to making budget cuts, complaining:

"The I.M.F., in particular, is upset that its demands for spending reductions have been ignored.

"'All expenditure measures have been replaced by taxes on capital and labor,' said a fund official who spoke on the condition of anonymity. 'This is very growth unfriendly.'"

In fact, total government spending has fallen by more than one-third since 2009, according to I.M.F. data.

It is also worth noting that, in violation on NYT policy, there is no reason given for why the fund official was granted anonymity.

Recent comments

  • Guest - pieceofcake

    'The choice ultimately rests with the Greek people.' How true - how true - and I'm so glad that Prof. Krugman wrote: 'Breaking Greece' - Now we all can be asssured that it won't happen. -(the data says so - as whatever Paul Krugmans predicts about Greece - won't happen 100 percent)...
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  • Guest - Joe Emersberger

    and here is Krugman in fine form exposing years of Troika malevolence in Greece. The chart he posts really says it all. http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/?smid=tw-share&_r=0 I know some people may say its "gross incompetence" instead of malvolence but I don't think t...
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  • Guest - Joe Emersberger

    Dean Have you seen the Costas Lapavitsas op-ed in the Guardian? Greece is being blackmailed. Exiting the eurozone is its way out http://www.theguardian.com/commentisfree/2015/jun/25/greece-blackmailed-eurozone-troika-syriza-common-currency#img-1 Looks like pressure from within Syriza's most left...
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The Washington Post ran a piece on Glenn Hubbard, the chief economic adviser to President George W. Bush and now an adviser to Jeb Bush, which ignored much of Mr. Hubbard's history. For example, it told readers:

"Hubbard believes that for too long, the United States has only experienced rapid growth in the midst of what he calls 'bubble economies,' which don't deliver broadly shared prosperity to workers. For example, he blames the Federal Reserve for stoking a bubble in the mid-2000s by keeping interest rates too low for too long."

While the piece notes that Hubbard had been an adviser to Bush during part of this period, it neglects to tell readers that he never said anything about the housing bubble. In other words, Hubbard's analysis is 100 percent hindsight, he completely missed the $8 trillion housing bubble, the collapse of which has devastated the economy.

He is also mistaken in claiming that bubbles cannot lead to "broadly shared prosperity to workers." During the 1990s stock bubble, the unemployment rate eventually fell as low as 4.0 percent. During these years workers at the middle and bottom of the wage distribution saw healthy wage gains. The problem is that this growth could not be enduring, since it was based on a bubble.

It also would have been useful to remind readers that Hubbard had done excellent research indicating the Bush tax cuts would not be likely to have the promised effect of increasing investment. Hubbard's research showed that investment is very unresponsive to reductions in the interest rate. The stated goal of tax cuts directed at high income households was to give them more incentive to save and thereby lower interest rates. If investment is unresponsive to a reduction in interest rates, then this is unlikely to be an effective route to boosting investment and growth.

 

Addendum:

My colleague, Nicholas Buffie, calls my attention to a paper that Professor Hubbard co-authored for Goldman Sach's Global Markets Institute in 2004, near the peak of the bubble. The executive summary of the paper told readers:

“The ascendancy of the US capital markets — including increasing depth of US stock, bond, and derivative markets — has improved the allocation of capital and of risk throughout the US economy. Evidence includes the higher returns on capital in the US compared to elsewhere; the persistent, large inflows of capital to the US from abroad; the enhanced stability of the US banking system; and the ability of new companies to raise funds. The same conclusions apply to the United Kingdom, where the capital markets are also well-developed.” [emphasis added]

“The development of the capital markets has also facilitated a revolution in housing finance. As a result, the proportion of households in the US that own their homes has risen substantially over the past decade.”

“The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur. As a result, upward spikes in the unemployment rate have occurred less frequently and have become less severe.”

Recent comments

  • Guest - MightyMike

    I question whether the stock bubble played a large role in the prosperity of the late 1990s. First, we usually here that the wealth effect from rising equity values is not very large. Most stocks are owned by rich people and they don't significantly increase their consumption in response to rises in...
    1 Like
  • Guest - JF

    I saw this as a strat comm piece designed to re-position Hubbard so he can be seen to be more centrist. This is another The Washington Post apologia piece in line with its change in ownership and its alignment to speak, and subtly too, for those of high Net Worth. Check out this Texas discussion f...
    1 Like
  • Guest - Bart

    If investment is very unresponsive to low interest rates, why does Yellen keep giving money away to the Banksters? Is the free money sustaining any growth in housing?
    1 Like
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Emily Badger had an interesting discussion of the decline of homeownership in Wonkblog. However the piece neglected to mention one of the most important reasons why people might opt to rent rather than own: the insecurity of their employment situation.

It is usually not a good idea to spend the large overhead costs associated with buying a home unless you have a secure job where you can expect to stay many years into the future. As stable jobs become rarer in the economy (median job tenure has fallen sharply over the last three decades), homeownership is likely to make sense for a smaller segment of the population. If the trend towards shorter job tenure continues we should see further declines in the ownership rate in the years ahead.

The piece also errors in implying that rental prices are rising substantially faster than other prices. For these sorts of comparisons it is best to use the owner equivalent rent (OER) measure, which pulls out utilities that are often included in the rent measure.

CPI housing fredgraph

The graph shows that this measure of rent has somewhat outpaced core inflation over the last few years, but this followed several years in which OER rose less rapidly than the core rate of inflation. Since January of 2006, the OER has risen by 3.0 percentage points more than the core inflation rate.

Recent comments

  • Guest - PeonInChief

    First, it's more likely that millennials are in the same position as younger boomers, who graduated from college during the energy crisis and the 1981-2 recession. Younger boomers are less likely to own homes than their older or younger peers, and are less likely to have children. (The Joint Cente...
    1 Like
  • Productivitiy has increased tremendously. Wages have not kept up with productivity. Housing prices are spiking again. Banks can make more money in the stock market than by selling mortgages. Why would it be a surprise that millennials choose to rent?
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  • Guest - washunate

    Job insecurity is an interesting variable to consider, and I'm surprised (well, not really) the Washington Post didn't include it. Their headline itself is ridiculously misleading as the majority of households are owners, not renters. However, shorter tenure strikes me as not the most important fac...
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Michael Fletcher had a short piece highlighting the huge gulf in the economic status of whites and African Americans. While the piece rightly points out that there are no simple remedies to eliminate the gap, one of the charts suggests a policy that can make a huge difference.

The chart shows the overall unemployment rate and the unemployment rate for whites and African Americans. The unemployment rate for African Americans is consistently twice as high as the unemployment rate for whites. This means that a drop in the unemployment rate for whites of one percentage point would likely be associated with a drop of two percentage points in the unemployment rate for African Americans.

For African American teens the ratio is typically six to one. This means that a Federal Reserve Board policy of letting the unemployment rate fall as low as possible is likely to have large payoffs for African Americans, especially for young people trying to get a step up in the labor market. This may not eliminate the gap in status between whites and African Americans, but a commitment to a full employment policy may go a substantial distance in that direction.

Recent comments

  • This post shows the importance of full employment. However, the Fed and monetary policy have not been accomplish this despite years of low interest rates. The only effective policy available to the government is its own job creation via public spending--at this point unlikely, but it is important to...
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  • I agree in that to me it seems that the fed is mostly to blame, but do you think the minimum wage has any affect at all on the unemployment rate?
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  • Guest - washunate

    The Fed has been doing ZIRP for years and owns trillions of dollars of treasury and mortgage backed securities. What is the Fed not doing to promote full employment? The employment problem is that we're doing the wrong work managed in the wrong ways, not that there isn't enough total work going on. ...
    1 Like
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The Wall Street Journal was good enough to give us "our entitlement problem for the next generation in one CBO chart." The featured chart shows the projected discounted cost of Medicare benefits compared with the discounted value of the taxes paid in. It shows that the former is around three times the latter for the baby boom cohorts.

While this may look like the baby boomers are getting a real bonanza on their health care the real story is that the doctors and the drug companies are getting a real windfall at the expense of the rest of the country. Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. There is little evidence they provide anything in the form of better service for this money, they just get much richer.

The doctors and other providers are able to largely limit domestic competition through their control of licensing and the setting of health care standards. They also obstruct any efforts to open up health care to international competition for example by allowing Medicare beneficiaries to buy into the health care systems of other countries (yes, this would have to be negotiated -- sort of like the TPP) or by increasing the number of foreign trained doctors who practice in the United States.

Anyhow, if we paid the same per person amount for health care as people in other wealthy countries, most of the gap between the cost of Medicare and Medicare taxes would disappear. Therefore we can more accurately say this is a picture of our health care cost problem in one graph. The power of the health care providers makes it very difficult politically to fix this problem, but it should at least be possible to talk about it.

Recent comments

  • Guest - Rachel

    The US has 2.5 physicians per 1000, according to the World Bank. In contrast, Italy has 3.8, France 3.2 Germany 3.9, Argentina 3.9. Even England has more physicians than we have. And of course all these physicians are paid less than in the US. The problem, I'm afraid, is that this shortage-and-...
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  • Here is my proposal to deal with spending: This is a compromise between advocates of government provided health insurance and those against: The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty li...
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  • Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. This is the problem that politicians should have addressed. I like love Deans solutions but our politicians are too corrupt for them. We never should have allowed our corrupt politician...
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I see that I have to disagree with Brad DeLong again. Brad wants to see the 2008 downturn as a uniquely bad event due to the overextension of credit and the ensuing financial collapse. I see it as overwhelmingly a story of a burst housing bubble and the resulting fallout in the real sector.

First off, in this piece Brad seems to want to attribute the worldwide downturn to the collapse of the housing bubble in the U.S. This seems more than a bit bizarre, since countries like Spain and Ireland arguably had bigger bubbles and bigger collapses than the U.S.

The collapse in the U.S. may have happened first and triggered the collapse in other countries, but this would only be in the sense that the U.S. collapse might have alerted lenders to the possibility that house prices can fall. Presumably the bankers would have discovered this basic economic fact at some point regardless of what happened in the United States.

Recent comments

  • Guest - Ian

    another reason the 2001 recession was mild with respect to economic growth is that consumer credit remained robust due to the housing bubble. if you look at the federal reserve measure of total outstanding consumer credit, it usually remains flat during recessions (1974, 1981, 1991, ...). In 2002, h...
    0 Like
  • You are absolutely right. It is not an accident that the Great Depression, the Great Recession, and Japan's Lost Decade were all preceded by burst asset bubbles. The mechanism that links the bursting bubble to the recession is sharp drops in consumption caused by consumers seeking to recoup their de...
    0 Like
  • Guest - Tom Mcinerney

    My recollection of 2001 crash is that it (1) was massive; and that in ensuing policy debates Paul Krugman {ca 2002/2003 ?} observed that (2) Mr Greenspan's move to ease monetary policy was justifiable , given the apparent risk/trend of 'deflation', which I'd not previously been aware of. Also , in ...
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The NYT had a piece on efforts to encourage doctors to assess the price and relative effectiveness of drugs when writing prescriptions for cancer patients. It notes that drug companies charge $10,000-$30,000 a month for many of the new cancer drugs. It then comments on the suggestion that doctors should take these costs into account in deciding treatment:

"Evaluating the latter cost would put doctors in the role of being stewards of societal resources. That is somewhat of a controversial role for doctors, since it might conflict with their duty to the patient in front of them."

It is important to note that doctors are not exactly in the role of deciding whether resources would be allocated to developing these cancer drugs, since that decision would have already been made. The resources devoted to developing the drugs have already been used at the point where doctors are deciding whether to prescribe them. The doctors' decision only determines how much drug companies will profit as a result of committing these resources.

This is an important distinction. Obviously profits will affect the drug companies decisions on future research, but at the point where the drug exists, it costs society very little to make it available to every patient who would benefit. It is only due to patent monopolies that we get such a sharp divergence between the price facing the patient or insurer and the cost to society.

Recent comments

  • Guest - saurabh

    The oncologists are probably not the villains here (disclaimer: I work with a bunch of oncologists). Their main interest is getting their patients treated, and the cost of drugs is a huge barrier to achieving this; it's quite common and routine for doctors to collectively demand lower drug prices, i...
    2 Like
  • Guest - Tom Stickler

    Patents protect more than just drugs and software. When I think of the time and money involved in perfecting the intellectual property covered by the patents with my name attached, I am glad that no one can just copy my inventions and compete without that expense.
    0 Like
  • Guest - Ethan

    An intersting article on this subject is "Overkill"by Atul Gawande in the May 11 New Yorker magazine. See also an earlier article by the same author, "The Cost Conundrum" in the May 1, 2009, New Yorker.
    1 Like
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An NYT article on the prospects of a deal between Greece and its creditors left this item off its list of the risks from Greece leaving the euro. If Greece were to leave the euro, its exports, most importantly tourism, would be hyper-competitive. This would likely lead to a huge increase in its business as travelers from Europe and the United States opt to visit Greece rather than other tourist destinations.

This could lead to the same sort of rebound that Iceland saw after its initial collapse. This would be hugely embarrassing to the I.M.F., the European Commission, and the European Central Bank, which have forced Greece to endure a depression and demand policies that will likely leave it with depression levels of unemployment for at least another decade.

This outcome will be especially painful for political leaders in countries like Spain and Portugal, both because they have imposed comparable depressions on their own populations and also because they will be directly hit by the loss of tourism to Greece. From their perspective, a successful Grexit would be the worst possible outcome.

Recent comments

  • Guest - pieceofcake

    And I just don't get it - I mean everybody who has the slightest idea about economics - knows ' that lower prices -(in the aggregate) increase demand - as the idea that debasing a currency increases demand. And both theories make a lot of sense and no sense at all under certain condition. For exampl...
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  • Guest - pieceofcake

    'I know that the idea of a lower price increasing demand might sound strange, but there actually is lots of evidence for this in the world.' Doesn't sound strange at all - as the American (Walmart) economy seems to be entirely based on it - while there are other options - which are based on the hig...
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  • Guest - Dean Baker

    "Sure people fly, but you're telling me a Chinese is going to switch from visiting Spain because Greece has become cheaper? " Yes Dax, you got it. Millions of people decide on a destination based on a variety of factors. Some may go to Spain no matter what because they love Spain. But many are decid...
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Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.

If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.

On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.

In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.

Recent comments

  • I figure that CEOs are like pro ball players. You have a few real stars and all the “B” players you are ever going to need. The stars are going to be stars anyway because that’s what they are made of and this is their one time around to show it off. The “B” players are better than the rest of us but...
    0 Like
  • Guest - Procopius

    It's the sanctity of contracts thing. We saw it when AIG paid their "retention" bonuses to the guys who had already left the company.
    0 Like
  • Guest - djb

    ok samuelson got everything he has whoring for the rich, now he is just really old
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Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece's leftist government for what Will considers its lack of realism and ineptitude. Then he points out:

"Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ....

"It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money."

But the problem with Will's logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.

It is therefore difficult to understand how this is a "socialist smashup." All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.

The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a "crony capitalism smashup." It only fits the bill of a "socialist smashup" in Will's imagination.

Recent comments

  • Guest - Guest M.W. Pender

    I was in Athens, Greece in 1992 visiting with a fellow MBA schoolmate. He was then working in marketing with a large US corporation. I asked him then how Greece as a country was doing? He said that if the wealthy would pay their share of taxes, it would be a lot better. The IMF and the World Bank ...
    2 Like
  • Guest - Guest M.W. Pender

    I was in Athens, Greece in 1992 visiting with a fellow MBA schoolmate. He was then working in marketing with a large US corporation. I asked him how Greece as a country was doing? He said that if the wealthy would pay their share of taxes, it would be a lot better. The IMF and the World Bank shoul...
    0 Like
  • Guest - jim

    George Will should hang out with Oliver Blanchard. Blanchard wrote in his blog that Greece spends 16% of its GDP on pensions(numbers surely inflated by the amount of austerity the IMF proposed) and then questioned "why have a pension system?" truly scary to think how clueless the IMF is.
    0 Like
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The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.

He then asks the obvious question as to why employers don't raise wages if they aren't getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.

This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.

For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.

We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don't realize they can attract more skilled workers by offering higher wages.

It's got to be pretty much one or the other; take your pick.

Recent comments

  • Here's a theory. Call it New York City Landlord Economic Bias. Rents steadily soar in NYC in part because landlords -- independently of one another and en masse -- assume that rents must always go up. It doesn't matter what's happening with their costs or with the ability of tenants to pay; rents mu...
    0 Like
  • Guest - MacCruiskeen

    Even for star athletes there's a business rationale behind those numbers--the owner wants a winning team that will sell tickets, merchandise, and ads on tv broadcasts. So they have to think, how much will Peyton Manning or LeBron James or whoever is the it guy of the moment increase that revenue? An...
    0 Like
  • It is an old problem: Proverbs 20:14 "It's no good, it's no good!" says the buyer-- then goes off and boasts about the purchase. Employers will never go around saying how many great employees they can get for low wages. Employees will never go around saying how many great jobs they can get with h...
    0 Like
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The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.

This table compares the I.M.F.'s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.

 Gap from 2007 Level 

 

Per capita GDP

Employment

U.S. equivalent

Ireland

-4.40%

-8.90%

-13.35M

Italy

-11.50%

-3.10%

-4.65M

Portugal

-4.60%

-11.50%

-16.7M

Spain

-5.10%

-14%

-21.0M

Source: I.M.F.

This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.

The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.

Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.

Recent comments

  • Guest - john

    Dear CEPR, I can never read user comments on your site, because on my computer and my smart phone they always appear with a large image imposed over the top left section of the commenter's text. the image is a light grey square with a blank rounded figure inside, almost like a child's drawing of a h...
    0 Like
  • Guest - dax

    "'The euro - premature, incomplete, badly designed, and including too many heterogeneous economies and societies - was flawed from the beginning." Yes, but the alternative would be even more domination by the United States. Americans of course like that idea, but Europeans hate it.
    0 Like
  • Guest - pieceofcake

    'The euro - premature, incomplete, badly designed, and including too many heterogeneous economies and societies - was flawed from the beginning, and Italy, for one, should never have joined.' So Italy should have kept its 50 000 Lire bills? Now how would that have been helped? And when will peop...
    0 Like
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In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:

"President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis."

It's interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don't say what they actually think.

For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.

Lane continues:

"Labor is waging this counter-majoritarian battle [against fast-track] in the name of 'working people,' who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous 'bad' trade deals.

"Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force."

The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It's an interesting position, but understandable from someone who can read the president's mind.

Recent comments

  • Guest - chmoore

    Isn't it more useful to focus on what Obama actually has done, as an indicator of what he will do going forward?....as opposed to speculating on what he thinks or believes? He's signed into law some things beneficial to the general public (both social and financial), but reserved for the financial ...
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  • Guest - John Wright

    Larry Signor wrote: "As Yogi so eloquently put it, "It's hard to make predictions, especially about the future"." I believe you may be "mis-remembering" the quote. Danish Nobel physicist Niels Bohr reportedly said "Prediction is very difficult, especially if it's about the future." Maybe Yogi did...
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  • Guest - John Wright

    I suggest all TPP editorials/comments should begin with a disclosure. Begin: TPP comment Disclosure The TPP is being negotiated as a non publicly disclosed agreement. Select international corporate and government negotiators have access to the text and some politicians have restricted access. I...
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The NYT apparently is doing its part to try to push the Trans-Pacific Partnership (TPP). Today it ran a piece warning people in its headline "failure of Obama's Trans-Pacific trade deal could hurt U.S. influence in Asia." The piece presented the views of a variety of individuals who said the failure of the TPP would damage the standing of the United States in the region.

Remarkably the piece did not include the views of anyone who had a different opinion. This is remarkable because we know from the leaked chapters that there have been important objections to at least parts of the TPP from most of the countries in the deal. For example, all the countries disagreed with much of what the United States was pressing in the form of stronger and longer patent protection for prescription drugs. Australia objected so strongly to the investor state dispute settlement mechanism that they indicated that this provision would not apply to the country. (It's not clear that this is final.)

Surely the NYT could have found someone in these countries who thinks that negatives, like higher drug prices and an extra-judicial legal system that can over-ride laws passed at the national and sub-national level, over-ride any gains from the modest tariff reductions in the TPP. For some reason the NYT opted not to present the views of any opponents of the TPP, wrongly implying to its readers that everyone believes that the failure of the TPP would be a serious negative.

The piece also included the wonderful line:

"The White House and its Republican free-trade allies in Congress are searching for ways to revive a bill that would extend aid to workers displaced by global trade agreements."

The phrase "free-trade" is not accurate and does not belong in this piece.

Recent comments

  • Guest - skeptonomist

    saurabh: My point is general, not an argument in favor of the TPP. The US drug industry, which does still employ some people in the US, recoups research costs through patents, and there is no reason to allow other countries to make use of that research without compensation. Any trade agreement whi...
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  • Guest - saurabh

    @skeptonomist: How exactly is the American taxpayer recouping costs by extending patent protections to send more.money to drug companies? I might buy your argument if that money actually went to research, but this is probably the least efficient way we have to support drug development.
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  • Guest - dick c

    You would think the people pushing this thing would trot out something in it that benefits average people, unless perhaps there just isn't anything. Provisions that somewhat help some of the people hurt by these agreements don't count as something on the plus side.
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The Washington chattering class is really upset that the Trans-Pacific Partnership (TPP) looks like it's going down. David Brooks pulls out all the stops today, using his NYT column to yell at "Tea Party" Democrats for not supporting the fast-track authority that would facilitate the passage of the TPP.

Unfortunately, Brooks was largely unarmed with facts when it came to the attack. To start, he tells readers;

"The North American Free Trade Agreement, for example, probably didn’t affect the American economy too much. But the Mexican economy has taken off. With more opportunities, Mexican workers feel less need to sneak into the U.S."

If the Mexican economy has taken off since NAFTA they managed to conceal this fact from the I.M.F. and other keepers of official statistics. Here is the path of per capita GDP in the United States and Mexico post-NAFTA.

Book10 12779 image001

                            Source: International Monetary Fund.

Developing countries like Mexico are supposed to have more rapid growth than rich countries like the United States. Instead the gap has increased by about five percentage points since NAFTA as growth in the U.S. has exceeded growth in Mexico since NAFTA took effect. (The chart shows growth in international dollars, not adjusted for inflation.)

Brooks also seems to be inventive in his assessment of patterns of immigration. According to the Migration Policy Institute the number of Mexican immigrants to the United States rose from 4.3 million in 1990 to 11.7 million by 2010.

Recent comments

  • Guest - John Puma

    I would no sooner read what "our Mr Brooks" had to say than pierce both eyes but, given the summary above, is the traditionally whiney Dave getting a bit shrill in his dotage?
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  • Guest - Dryly 42

    "David Brooks warns of economic collapse and war without TPP". Now wait just a minute here. We did not have TPP during the Bush II-Cheney administration and we had economic collapse and war. This is proof positive we can do it without TPP>
    3 Like
  • Guest - Deanna Johnston Clark

    We boomers saw hysterical neighbors take out loans and build concrete bunkers to live in for months after the ICBMs brought the nukes from the Evil Empire. We aren't easily fooled by the EXACT SAME WORDS from today's shrieking propaganda pundits. Everybody known now we live in government by multi...
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Matt O'Brien treated us to a classic case of bad reasoning by economists. A survey of elite economists (you know, the type of people that couldn't see an $8 trillion housing bubble) found that the vast majority said that the official income data understated the increase in the standard of living for the middle class over the last 35 years.

The explanation for this view is that new goods like cell phones and the Internet have vastly improved our standard of living in ways that are not picked up in the data. O'Brien suggests a thought experiment that has been put forward by this elite group. Would you be willing to trade an income of $50,000 in 2015 for an inflation adjusted $100,000 income in 1980, knowing that you can only buy the goods and services available in 1980?

The implication is that most of us would say no, since it would mean giving up our cell phones, Ipads and Ipods, smartphone cameras, wifi, and all sorts of other neat things. This may well be true, but there are two reasons why the economists raising this point flunk cost of living 101.

The first point is a narrow one. These folks are upset that our price indexes don't have a way of picking up the benefits of new goods like television, refrigerators, and the polio vaccine. (Sorry, guess those are pretty old now. But the point is that important new goods are not new.) But good economists know that price indexes also don't pick up the cost of these new goods. To be specific, we can complain that the consumer price index doesn't pick up the gain from the wonders of a cell phone. That's true. But it also doesn't pick up the cost of buying the phone and paying for monthly service. (It picks up the change in these costs once they are included in the price basket, but not the initial cost.) With an important qualification that we will get to momentarily, we can assume the benefits are greater than the cost since people opt to buy cell phones, but that gap is much less than just counting the benefits alone, which it seems is how our elite economists view the issue.

The second point is that we adjust our society and living patterns around the technology we have. Ask someone who lived in the suburbs in the 1960s how they would feel living without a car. It would be pretty awful, but just 30 years earlier most middle class families did not have a car or think they needed one. To take a slightly more recent example, imagine living without air conditioning in the summer. Most middle class families did fifty years ago.

We have constructed a society that is built around cell phones and the Internet. Asking people to go without these items would be a real hardship because they have become integrated into their lives. Does this mean that we are better off in a society with these things than without? It probably does, but asking how our Internet/cell phone addict would do in a world without the Internet or cell phones is a silly question.

There is one more point worth mentioning. Our elite economist friends presumably don't want to believe that well-being is relative. This could be important because there is a much sharper gap between the living standards of the rich and famous in 2015 than in 1980. Some people may take this into account in their assessment of their well-being. In other words they may feel deprived to some extent because their living standards are so much lower relative to the rich than was the case in 1980. We know the elite economists don't want people to think like this, but some of the ignorant masses might anyhow. Maybe if they just took more economics...

Recent comments

  • Guest - watermelonpunch

    I would rather live in 1980 with access to the preventative health care of that time, than live in 2010 with a cell phone & internet, but no access to the preventative health care... that would wind up costing more and causing more hardship in 2015, and could possibly lead to an earlier death. ...
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  • Guest - AlanInAZ

    My salary in 1980 was the equivalent of $100,000 today so I know what life was like in New York on that salary. I could not afford a house because of super high interest rates and high down payment requirements. Taxes were much higher than today and the infrastructure in the metro region was terri...
    1 Like
  • To answer some of the negativism above. USA infrastructure has never been better, it is certainly better than it was in 1980. There are only a few countries with better (Germany, Japan, Switzerland and maybe a few more.) The war on poverty was won. See: http://conversableeconomist.blogspot.com/2013...
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Wow, it's the sharing economy, everything is new and different. Hey, they don't have to pay the fees that those stupid old taxi companies do, because you order them on the Internet.

Sorry to be a bit negative early on a Monday morning, but I was just reading in the Washington Post that Uber is arguing that it should not have to pay the same fees as traditional taxi companies to pick people up at airports. Uber says the fees are too high.

I have no strong opinion about the size of these fees, which are effectively a tax on taxi travel that is used to support the operation of the airport. However, there is no basis for Uber paying lower fees than their competitors in traditional taxi companies, even if it is cooler.

This is the sort of tripe that doesn't pass the laugh test as serious policy. There is much about the regulation of the taxi industry that is archaic and should be changed, but the goal should be a uniform system of regulation, not a system that leaves the traditional sector heavily encumbered by regulation and allows Uber to do whatever it wants.

It is of course ironic to be reading about this in a newspaper owned by Jeff Bezos, who became one of the richest people in the world through his ownership in a company that does not collect the same sales tax as its brick and mortar competitors. Its savings on sales tax collections almost certainly exceeds its cumulative profits since it came into existence.

Recent comments

  • Guest - tew

    Yes, Uber is arbitraging and externalizing costs and risks. However, though not mentioned in this article, the new ruling in California that would require Uber to treat drivers as employees is going to be counterproductive for the drivers and for the economy as a whole. They are trying to force fit...
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  • Guest - s ken brown

    I don't get this at all. Taxi law/regulation is all ineffectual? All those folks who for decades were busting a gut to comply could have just said screw it and took anybody anywhere in any vehicle for any price? I am for change but this is ludicrous. Just because you ordered it on the internet won't...
    1 Like
  • Guest - Scott

    There was an article in the Boston Globe earlier this year about Uber and taxi drivers, which compared their take-home income. One of the most interesting things was that while the taxi driver paid commercial auto insurance, the Uber driver did not. This is a major contributor to the lower prices, w...
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That's what folks are asking after reading Peter Baker's "news analysis" that told readers the Trans-Pacific Partnership (TPP):

"was a way to leave behind a positive legacy abroad, one that could be measured, he hoped, by the number of lives improved rather than by the number of bodies left behind."

The discussion implies that the TPP is a way to pull together the countries of East Asia as allies. However, one of the main purposes of the TPP is to create stronger and longer patent and copyright protection. This will most importantly raise the cost of prescription drugs, but the prices of many other items will also rise due to increased protection.

We know that these increased protections were heavily contested by most of the other countries in the TPP due to the leaked chapters from Wikileaks which indicate where the countries disagree. It is difficult to see how making our trade partners in Asia pay more for drugs is a way to win their political allegiance. Ironically, insofar as higher drug prices keep patients from getting access to drugs, especially in developing countries, the TPP would be a policy whose impact could be measured by the number of bodies left behind.

Recent comments

  • Guest - John Yard

    That's exactly what this country needs : higher drug prices . It is a confession by pharma that their model does not work.
    0 Like
  • Guest - dick c

    If India were to join in an agreement like the TPP, what would we expect to happen to their inexpensive hepatitis C drug's pricing? Would Gilead be able to go go after them in a supra-national tribunal?
    0 Like
  • Guest - John Wright

    This piece talks about Obama partially securing his legacy with the TPP, but if Obama looks at Bill Clinton's legacy, NAFTA is not discussed in glowing terms. The benefits/costs of TPP will be difficult to determine, just has it has been for NAFTA, hence the problem Clinton has with his NAFTA legac...
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I've been speaking and writing on financial transactions taxes for close to a quarter century. Most people don't find the concept that difficult to understand, but apparently Fred Hiatt does. In a column bemoaning the sidetracking of Obamanomics, Hiatt tells readers that Obama:

"has a targeted version of the left’s beloved financial transactions tax, too: a levy on the largest banks proportional to the riskiness of their liabilities."

Actually, the bank tax has nothing to do with a financial transactions tax. The bank tax is intended to compensate for the implicit subsidy given to large banks that markets view as too big to fail. Since investors assume that the government will bail the banks out if they get into trouble they are willing to lend to them at a substantially lower interest rate than would otherwise be the case. The tax is intended to offset this subsidy although the size of the tax proposed by Obama is an order of magnitude smaller than size of the implicit subsidy, which the I.M.F. recently estimated at $50 billion a year.

In contrast, a financial transactions tax is intended to reduce the excessive amount of trading in financial markets. While this trading uses economic resources, it contributes nothing to the productive economy. A recent analysis from the Bank of International Settlements found that countries with very large financial sectors, like the United States, experience slower growth. A financial transactions tax would go far toward reducing the amount of excessive trading in the financial sector.

Recent comments

  • Guest - JF

    Last sentence forgot to replace the word not, when editing. It is supposed to read, proper word shown capitalized below: "Not sure that makes common sense particularly when you recognize that the bank-money privilege mentioned in the first paragraph means we do not need to be concerned that, at so...
    0 Like
  • Guest - JF

    Banks also hold the privilege to create credit/money at their volition backed by the Federal Reserve's duty to supply the cash when needed. So they sell a product; namely, money, for which they have no cost (99+% Gross Margin business). A good business in which to invest your "capital" - some risk...
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  • Guest - djb

    From the general theory Ch 12 Part VI "That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average Americ...
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The media seem to be getting better about referring to the Trans-Pacific Partnership as a "free-trade" agreement. Many articles now refer to it more neutrally as a "trade pact." The Washington Post sort of split the difference today in describing it as a "a sweeping free-trade and regulatory pact," but this still requires some further push back.

We know that the TPP will increase patent and copyright protections. These protections cover a large portion of the economy, most importantly prescription drugs, but also a wide variety of chemicals, tech products, and recorded movies, music, and video games.

We don't know how much trade barriers will be reduced by the TPP. (The deal is secret.) Since the United States already has trade deals with most of the countries in the TPP, it is unlikely that it will lead to a further reduction in the barriers with these countries. This means the TPP will likely only reduce the barriers with the remaining five countries which include Japan, with whom the barriers are already relatively low, and four countries with whom the U.S. has relatively little trade.

There is no basis for assuming that the reduction in barriers with this group of countries will have greater economic significant than the increase in patent and copyright protection. Therefore, the reporters who call the TPP a "free-trade" agreement are simply editorializing, expressing their support for the pact. They do not have any evidence to support this characterization.

Recent comments

  • I'm a bit confused about why there's not a scandal for Lou Barletta exploding right now.
    0 Like
  • Guest - John Wright

    The NYTimes has an article titled "Business Leaders React with Dismay to Defeat of Trade Bill" http://www.nytimes.com/2015/06/13/business/business-leaders-react-with-dismay-to-defeat-of-trade-bill.html It has quotes that "Manufacturers will not back down in this fight for expanded trade" and "It i...
    1 Like
  • Guest - John Puma

    The machinations of congress are almost as opaque as the TPP itself. But, as I understand it, the ONLY thing rejected was the acknowledgement that the TPP could hurt US workers AND that $700 million would be taken from Medicare to alleviate that harm. I hardly think this precludes reconsideration ...
    1 Like
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