Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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This Monday morning's gift comes in a column discussing the state of battle in the War on Poverty. He tells readers:

"Worse, the breakdown of marriage and spread of single-parent households suggest that poverty may grow. From 1963 to 2012, the share of families with children under 18 headed by a single parent tripled to 32 percent. It’s 26 percent among whites, 34 percent among Hispanics and 59 percent among African Americans. Just why is murky. Low-income men may flunk as attractive marriage mates. Or, “women can live independently more easily rather than put up with less satisfactory marriages,” as Brookings’s Isabel Sawhill says. Regardless of the causes and despite many exceptions, children in single-parent households face a harder future. They’re more likely to drop out of school, get pregnant before age 20 or be unemployed. Poverty becomes self-perpetuating."

The fallacy is that children are more likely to face hardship if their parents separate as oppose to remain together in a bad marriage. This point is easy to see.

Suppose that one third of marriages are very bad and possibly abusive, however it is illegal to get a divorce so that all parents remain married. Now suppose laws and norms change so that these parents can now divorce. In this case, we would have one-third of parents (mostly women) raising children on their own. Since these parents are the sole support of their kids, it wouldn't be surprising that their children would have a more difficult time than children who could benefit from the financial and emotional support of two loving parents. In addition, because the most troubled families had broken up, the married couples after the change in laws and norms would provide more nurturing families on average than before the change.

While a simple comparison of children in two-parent families and single-parent would undoubtedly show that children in two-parent families are doing better. However, it is wrong to infer from this fact that the children in single-parent families are doing poorly because their parents broke up. Whether or not children of parents who have a bad relationship are better off if they stay together is far more questionable.

The most obvious way to deal with the problems faced by children in single-parent families is to improve public supports such as quality child care and paid sick days. Countries that have such supports do not see the same story in child outcomes as the United States.

 

 

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It is interesting who signs up for Obamacare and who doesn't, but the idea that we need the "young invincibles" to save the program is just flat out wrong as a recent analysis by the Kaiser Family Foundation showed.  For this reason it was disappointing to see this piece by Sarah Kliff in Wonkblog this morning.

There is a big issue as to whether enrollment is skewing by health. If sick people disproportionately sign up for the program then it will make its finances untenable. But age really doesn't matter much in this story. A healthy older person will on average pay three times as much to support the program as a healthy young person, with neither getting any significant payback since they are healthy.

That's the arithmetic, it's about as simple as it gets.

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That's what readers everywhere are asking after seeing Thomas Friedman's column touting the new world in which technology will not only replace less-skilled workers, but will also make workers with considerable skills redundant. This view is 180 degrees at odds with the view often expressed in Thomas Friedman's columns that we are facing a period of serious scarcity due to the burden of supporting a massive generation of retired baby boomers (for example here and here). If robots are going to make it so that we don't need any workers then we should be delighted that so many baby boomers are retiring since this will at least open up some jobs for young people. (Of course we could all just work fewer hours, but that is far too simple a solution for big thinkers.)

While the prospect of a huge surge in productivity growth described in Friedman's piece would be great news (we could easily feed and house the world and stop global warming) there is no evidence of it in the data. Productivity growth has averaged just 1.3 percent annually over the last four years, far below the growth rate of the prior decade and even below the 1.5 percent growth rate in the years of the productivity slowdown from 1973 to 1995.

Note; Productivity numbers corrected, thanks LSTB.

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The lead editorial in the Washington Post today called on Congress to approve "fast-track" authority which would require that new trade deals be put to a vote on an accelerated timetable without any possibility of amendment. It made this argument based on the proposition that such deals could boost growth and create jobs.

This assertion is extremely misleading at best. It is questionable whether such deals will have any positive impact on growth at all and the potential gains would be trivial in any case. One of the deals that would likely come up under fast-track authority is an EU-U.S. trade agreement. A study (Table 16) by the Centre for Economic Policy Research in the U.K. (which is supportive of the deal) concluded that in its mid-point scenario GDP would be 0.27 percentage points higher in 2027 as a result of the deal. This implies a boost to annual growth of 0.015 percentage point, an amount that is far too small to be picked up in our measurements of GDP.

This figure should be viewed as optimistic since it doesn't take account of any losses that might result from higher prices for pharmaceuticals and other products as a result of stronger protections for patents and other intellectual property claims. When these measures are taken into account it is very likely that this deal will be a net drag on growth. The same is true of the Trans-Pacific Partnership, the other major deal likely to be come up under this fast-track authorization.

Both deals are not really about "free-trade" even though the Post uses this term repeatedly. In most cases the formal trade barriers between the United States and the countries in the agreements are already very low. These deals are in fact primarily about putting in place a structure of regulation that will over-ride national and sub-national governmental bodies. In some cases, such as with intellectual property protections, these regulations are 180 degrees at odds with free trade. They will raise prices and reduce the flow of goods and services.

In other cases, the regulations will likely restrict the ability to impose legitimate health, safety, and environmental regulations. For example, they may make it more difficult to regulate fracking to ensure that oil and gas companies don't pollute groundwater. They may also make it more difficult to impose restrictions that would have prevented the sort of chemical spills that have denied much of West Virginia drinking water in the last week. These deals may also limit the ability of regulators to rein in the financial sector to prevent the types of abuses that fed the housing bubble and led to the financial crisis.

These are the sorts of issues that are at stake with the agreements that will likely come up under fast-track authority. The Post is seriously misleading its readers by calling them "free-trade" deals and claiming that they would have any noticeable impact on jobs and growth. In this respect, it is probably worth noting that many of the Post's major advertisers, such as drug companies and defense contractors, stand to be big gainers from these deals.

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An article on efforts to persuade President Obama to drop his proposal for adopting the chained CPI for indexing Social Security benefits told readers:

"liberal policy experts estimate [the change] could cost seniors thousands of dollars in benefits over their lifetimes."

This is not something that just liberal policy experts have estimated, it is a fact. The proposal would reduce annual benefits after retirement by roughly 0.25 percentage points a year compared with the current index. That would lead to a reduction in benefits of several thousand dollars for a worker who lives to collect benefits for twenty or thirty years. This is how the change would save the government money.

 

Note: I wrongly attributed this to Politico in the original post. Thanks to Robert Salzberg for catching the mistake.

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Brad Plummer reports on a study from the Urban Institute which purports to explain the drop in labor force participation as a story of fewer people entering the workforce after a period of being out of the workforce, as opposed to more people leaving. This explanation actually is not supported by the results shown in the study. 

The study finds only a very slight falloff in the entry rate for prime age men (Table 2), even though there has been a sharp falloff in their labor force participation rate. On the other hand it shows the sharpest declines in entry for older workers, who in fact have seen a decline in labor force participation. This suggests that the study's sample is not reflecting larger labor force conditions. (The study uses the Survey on Income and Program Participation, which has a considerably smaller sample size that the Current Population Survey that is conventionally used for labor market analysis. There is likely also a problem with people dropping out of the survey, who are likely to be a particularly large share of those dropping out of the labor force.)

It's also worth noting that their analysis only looked at the falloff in labor force participation rate in one year, from 2010 to 2011. In that year we saw a drop 0.6 percentage points of a total falloff of 2.1 percentage points for prime age women and 0.7 percentage points of a total falloff of 3.4 percentage points for prime age men.

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Some strange items got into the coverage of the December employment report. The Washington Post noted the weak job numbers and then told readers:

"The unemployment rate dropped to 6.7 percent, but mostly because many people gave up looking for work, possibly deterred by a combination of cold weather, the holiday season and the expiration of long-term unemployment benefits. (To qualify for the benefit, an applicant must be trying to find a job.)"

The data are always seasonally adjusted. This means that cold weather would not by itself affect the data unless the weather was extraordinarily cold for December in large parts of the country. This was not the case. Similarly, the holiday season occurs every year in December, this cannot explain more people dropping out of the labor force this year than in prior years.

The ending of benefits is a plausible explanation, but not for December. One million three hundred thousand people saw their benefits expire on January 1, but this should not have affected their job searching behavior in December. At the time, they did not even know that their benefits would necessarily expire since bills for renewal were still being debated in Congress.

The NYT article on the report had the strange comment:

"In the larger political picture, the December jobs report started the 2014 election year with a thud for President Obama, with half of Americans disapproving of the job he is doing and Democrats facing a tough “six-year itch” election. Since World War II the party in the White House has lost, on average, 29 seats in the House in its second midterm. Democrats were already struggling to recover from the Affordable Care Act’s disastrous rollout."

There will be 9 more jobs reports released between now and the November election. It is highly unlikely that any significant number of people's votes in that election will be significantly affected by the December jobs report.

It is striking that neither report noticed that the labor force participation rate for African American men fell to the lowest level on record in the December report.

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Michael Gerson tells readers:

"The tie between single-parent households and poverty is an economic, not a moral, assertion. Poor single parents naturally find it harder to hold full-time jobs and invest in the welfare of their children."

While this is true, it does not follow that the answer is to somehow force couples to stay together in bad and possibly abusive relationships, as Gerson seems to imply. The difficulty faced by children in single-parent families can be seen as a problem of adequate supports in the form of affordable child care or guarantees of paid time off for sick days and family leave. In other countries where such support does exist, children in single-parent families do not face nearly the same handicap as they do in the United States. (See Shawn Fremstad's discussion here and here.)

The other key pillars in Gerson's argument about poverty also don't stand up well to the facts.

"This is a type of poverty that Johnson could not foresee: a decline in blue-collar jobs, rooted in global trends, requiring workers to gain skills that schools could not reliably impart, leaving whole communities economically depressed and isolated, while many children were deprived of economically stable and supportive two-parent families, leading to dangerously stalled social mobility and creating divisions of class that are inconsistent with the American ideal."

Globalization did not just happen. There was a conscious decision to put manufacturing workers in direct competition with low-paid workers in the developing world, while largely protecting highly paid professionals like doctors and lawyers. This had the predicted effect of redistributing income upward. There also is little evidence that technology has had more impact in displacing less educated workers in the last three decades than in prior decades. 

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The NYT had a piece touting the improvement in the state of the economy. It notes that many economists now expect the economy to grow at close to a 3.0 percent annual rate in 2014. While this is considerably better than the growth rate over the prior four years, it is not an especially strong growth rate for a badly depressed economy.

The Congressional Budget Office estimates that the economy is still operating at a level of output that is roughly 6.0 percent below its potential. With potential GDP growing at a 2.2-2.4 percent annual rate, a 3.0 percent growth rate means that we are making up this gap at the rate of 0.6-0.8 percentage points a year. At this pace it would between 7.5-10.0 years to get back to potential GDP. 

The piece also begins by noting that exports hit a new record high in the most recent data. Actually exports generally grow, except in a severe world slump like the 2008 crash. For this reason exports almost always hit a new record high every month.

exports

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The Washington Post dives into the really big numbers game today telling readers about a compromise between Democrats and Republicans in Congress that will lead to $9 billion in cuts to the food stamp program over the next decade. If you're expecting a big tax cut from eliminating this spending on food stamps, you might want to wait a bit before spending the windfall. 

If we go CEPR's nifty responsible budget reporting calculator we find that this cut comes to 0.019 percent of federal spending over this period. In other words, the cuts may mean a lot to the people affected. They don't mean much to the overall budget. (But hey, Washington Post readers knew that, right?)

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