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 Washington Post repeated one of the major myths about the recovery in an article in the March employment report when it told readers:
"In the long shadow of the recession, the share of the population in the work force sunk to 62.4 percent in September, the lowest level in nearly 40 years. The government calculates that number by counting the people who have a job or are actively looking for one. That means students, retirees and stay-at-home parents are generally not considered part of the labor force.
"Indeed, the shrinking of America's workforce is largely due to broader demographic shifts. The labor force peaked at 67.3 percent of the popuation in 2000 and has been drifting downward ever since. The biggest driver has been the retirement of Baby Boomers, who are turning 65 at the rate of 10,000 each day. Young people are also staying in school longer and less likely to work during their studies."
Actually, the main reason the labor force participation rate (LFPR) has fallen has been a drop in the LFPR among prime age workers (ages 25–54). This peaked in 2000 at 82.8 percent in early 2000. In September of 2015 it bottomed out at 79.2 percent, 3.6 percentage points below its 2000 peak. The drop in LFPR in the recession and weak recovery has been primarily a story of workers in their prime working years leaving the labor force, not baby boomers retiring or young people staying in school longer.
The piece also cites reports by Wells Fargo and the Kansas City Federal Reserve Bank indicating that those with more education are doing much better in finding work in the recovery. This is not clear from the data. In the last year the employment rate of people with college degrees has not changed, while it fell by 0.6 percentage points for those with some college.
By contrast, the employment rate for people with just high school degrees fell by just 0.1 percentage point. It rose by 1.7 percentage points for workers without high school degrees. This gap is even more striking since the retiring baby boomers are less-educated on average than younger workers, so their retirement should be having a disproportionate effect in reducing the employment rate of less-educated workers.
Note: Link corrected.Add a comment
It is sometimes difficult to distinguish between the paid content and the news stories in the NYT. Farhad Manjoo’s piece on Uber’s new carpooling service could leave any reader confused. Manjoo seems to have taken everything Uber said about this service at face value, just as one would expect in paid content.
We can start with the story that sets up the piece. The story is that Abby is going from San Francisco Tenderloin district to the Noe Valley, a trip which the piece tells us would ordinarily take about 25 minutes by car. She decides to use UberPool instead of driving. Before the UberPool trip ends, it picks up four other passengers. According to the article, the total trip takes 55 minutes (not all of it with Abby, who gets out before the last stop) and covers 10 miles.
The piece then tells readers:
'In total, Uber collected about $48 for the ride, of which the driver kept $35. The company had collapsed five separate rides into a single trip, saving about six miles of travel and removing several cars from the road.'
That might be Uber’s story, but let’s look at this more seriously. The driver has to pay for gas, insurance, and depreciation on the car. The I.R.S. puts these costs at an average of 54 cents a mile. We know the trip covered ten miles, but the driver also has to get to the start point and back from the end point. Let’s conservatively say that adds five miles for a total 15 miles driven. This comes to $8.10, which reduces the hourly pay rate for this ride to $26.90. That’s still not too bad, but remember, this is for the time the driver actually has people in the car. If he has to wait another half hour for his next fare, then the hourly rate falls to $17.90. Keep in mind this is in a city with high living costs where the minimum wage is being raised to $15.00 an hour.Add a comment
Most newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently The New York Times does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.
Both the article and the study itself seem intended to scare more than inform. For example, the piece tells readers:
"Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.
"That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are 'not on government balance sheets,' Citigroup said."
Okay folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?
The NYT has committed itself to putting numbers in context, where is the context here? Virtually none of the NYT's readers has any clue how large a burden $78 trillion is for the OECD countries over the rest of the century. The article did not inform readers with this comment, it tried to scare them. That is not journalism.
For those who are keeping score, GDP in these countries for the next 80 years will be around $2,000 trillion (very rough approximation, not a careful calculation) so we're talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.
Furthermore, the whole treatment of the expense as an "unfunded" liability is problematic. Suppose the United States spends 7 percent of its GDP on education (roughly current spending) and this share is projected to rise to 8 percent over coming decades. We can treat the commitment to educating our children as an "unfunded liability," after all we don't have any money set aside from prior years to fund it.
But since we are already spending the 7 percent on education every year, the additional burden will just be the boost to 8 percent. That is a burden of 1 percentage point of GDP or roughly half the cost of the increase in annual military spending associated with the wars in Iraq and Afghanistan.
There is a similar story with public pensions. In the case of Social Security, the U.S. is currently spending about 5.0 percent of GDP on the program, up from 4.0 percent in 2000. Spending is projected to rise by another percentage point over the next 10–15 years, are you scared?
Almost every item mentioned in this article seems intended to scare from the very paragraph:
"When Detroit went bankrupt in 2013, investors were shocked to learn that the city had promised pensions worth billions more than anyone knew — creating a financial pileup that ultimately meant big, unexpected losses for Detroit’s bondholders."
Investors were shocked, really? Are the people who invest trillions of dollars morons? The books of Detroit's pension system were publicly available. The problem was not the actuarial accounting blamed in this piece, the problem was simply that Detroit was a bankrupt city unable to meet its obligations because of a tax base that crashed as it lost two-thirds of its population.
If there were any investors who were shocked by Detroit's pension liabilities then the NYT should do a major piece profiling these people. They are almost certainly way over their heads in jobs that pay six and seven figure salaries.
Finally, there is little doubt that the Citibank piece itself is intended as a promotional piece for the financial industry. After detailing the alleged crisis facing public pension funds, Citibank tells readers:
"Finally, the silver lining of the pensions crisis is for product providers such as insurers and asset managers. Private pension assets are forecast to grow $5–$11 trillion over the next 10–30 years and strong growth is forecast in insurance pension buy-outs, private pension schemes, and asset and guaranteed retirement income solutions."
The one small hint that readers get in the article that this study was an industry promotion piece comes when we are told:
"For years there have been frequent reports of pension systems rife with pay-to-play deals, improper payouts, overly risky investment strategies and other problems. But the Citigroup researchers looked beyond such scandals and depicted the worldwide accumulation of giant, invisible pension obligations as a matter of simple demographics."
Of course, it might have been more useful if instead of telling readers that the study, "looked beyond such scandals," to tell readers that the study ignored such scandals.Add a comment
Eduardo Porter had an interesting piece in the NYT in which he argued that NAFTA actually saved jobs for auto workers in the United States. The argument is that by allowing U.S. manufacturers to have easier access to low cost labor in Mexico for part of their operation, they were able to keep a larger market share than would otherwise be the case.
The same would apply to foreign manufacturers choosing to locate operations in the United States rather than staying in Europe, Japan, or elsewhere. The argument is that better access to low cost labor in Mexico made locating part of their operating in the United States more attractive.
Currently we import roughly $100 billion a year in cars and parts from Mexico, this compares to total domestic production of around $500 billion. Porter argues that on net, because NAFTA improved the competitiveness of the U.S. industry, it actually saved jobs. This is not impossible, but it does seem implausible. I headlined the case of doctors to see an analogous story.
Suppose that we have large numbers of people going to other countries for major medical procedures to take advantage of the fact that the cost is typically less than half as much and sometimes less than one tenth as much for comparable quality care. (Imagine saving $200,000 on open heart surgery by having the operation in Germany. Most of these surgeries are done on a non-emergency basis, so it is possible.)
In this scenario, suppose that we have a somewhat different NAFTA that made it much easier for Mexican doctors to train to U.S. standards and come practice in the United States. Let’s imagine 200,000 Mexican doctors, or roughly one fifth of our total, chose to take advantage of this opportunity.Add a comment
I'm tied up with many other things, but since folks asked, I will give a quick comment/explanation of the Vox analysis of Bernie Sanders' tax plans. For those who haven't seen it, Vox put together a calculator that allows people to plug in their income and then see how their tax bill would change under the tax plans proposed by Donald Trump, Ted Cruz, Hillary Clinton, and Bernie Sanders. For the first two, most people get tax cuts. There is little change with Clinton, but big tax increases with Sanders.
For example, I took a single person with one kid, who earns $30,000 a year. According to the tax calculator, this person would see an increase in their tax bill of $3,680 as a result of the Sanders' tax package. I can't quite follow the math here, because the calculator says that Sanders plan gives this a person a tax rate of 18.1 percent, compared with 10.3 percent for the current system. This implies an increase in the tax rate of 7.8 percentage points of this person's income. But 7.8 percentage points of $30,000 would get you $2,340 not the $3,680 indicated by the calculator.
Okay, but let's ignore the math problem and get to the underlying issues. Most of the basis for this tax increase for moderate income workers is Sanders' tax to pay for his universal Medicare plan. This would impose a payroll tax on employers of 6.2 percent and a 2.2 tax on individuals for income in excess of the standard deduction (roughly $9,500 for this person). There is also a 0.2 percentage point tax increase to cover the cost of paid family leave. In addition, some of the other taxes will have feedback that will affect moderate income earners, but these taxes are the bulk of the story.Add a comment
The prospect of Donald Trump getting the Republican presidential nomination is dominating media attention these days, with some cause, but this has meant that evidence of a weakening economy has been largely ignored. We have seen a series of reports in the last month suggesting that the economy is likely to perform considerably worse than the 2.5 percent growth rate predicted by most economists at the start of the year. (The Congressional Budget Office's projection was 2.7 percent.)
The most recent bad news was February's data on personal income and consumption. It showed real growth in spending for the month of 0.2 percent. While that is not too bad, January's figure was revised down from 0.4 percent to zero. Given that consumption is 70 percent of GDP, this is not good news on the growth front.
Other evidence of weakness comes from trade, where it seems that the deficit is continuing to expand in the first quarter due to a high dollar and weak growth elsewhere. Non-defense capital goods shipments, which is the largest category in investment, is running behind 2015 levels. Residential construction is holding up, but showing little, if any, increase over the second half of 2015. My bet is that we will see a serious downturn in the non-residential sector as some serious overbuilding of office space in many cities dampens irrational exuberance. Government spending may provide a modest boost in the quarter and year, but austerity fever still dominates politics at all levels.
In short, we could be looking at growth that is close to 1.0 percent for the year. The Atlanta Fed's GDPNow puts first quarter growth at just 0.6 percent. It is hard to see how such slow growth can be consistent with rapid job growth and a continuing drop in the unemployment rate, although I have been surprised in this area before. (Basically, it would mean that productivity growth is falling to zero or turning negative.)
Anyhow, the spate of weak economic reports deserve more attention than they have gotten. It could be bad news for lots of people.
By the way, I actually don't think a recession is likely, just exceptionally slow growth. The use of the R word was click bait to get you away from the Trump stories.Add a comment
Neil Irwin takes issue with Donald Trump using the trade surplus between countries as a scorecard on trade. He is largely right with a couple of important qualifications.
Irwin notes that a country with a trade surplus should see its currency rise against the dollar if it doesn’t reinvest the money in dollar assets. He then comments that if it does reinvest the money in dollar assets, whether or not it benefits the United States depends on what the money is used for. As Irwin points out, in the last decade the money was used in large part to invest in residential housing and to inflate the housing bubble. This was of course not useful.
But there is a deeper point here. In an era of “secular stagnation,” which means there is not enough demand in the economy, the foreign assets may in effect be invested in nothing. Most of the foreign capital that went into the United States in the housing bubble years did not get directly invested in housing. It was invested in government bonds and short-term deposits.
These investments don’t directly create any jobs; they are simply assets on a balance sheet. Insofar as foreigners invest their surplus dollars in U.S. assets not directly linked to employment (which will generally be the case) a trade deficit will be associated with higher unemployment, unless the economy has some other force generating employment to offset it.
Currently we are running an annual trade deficit of around $540 billion (@ 3 percent of GDP). This could be offset by spending more on education, infrastructure, clean technology or other areas, but the Very Serious People will not let us run larger budget deficits. In that context, it is quite reasonable to link a trade deficit to higher unemployment, so Trump is not wrong in that respect.
I know that no one reads the Washington Post's opinion pages for their insights on economic issues, but can't we hope for at least some connection with reality. In his column today warning that productivity growth is likely to be weak forever more, George Will told readers:
"America’s entitlement state is buckling beneath the pressure of an aging population retiring into Social Security and Medicare during chronically slow economic growth."
The entitlement state is "buckling." If we tried to make sense of this assertion it presumably means that excessive spending on these programs is leading to high interest rates and/or high inflation. The problem is that we are creating more demand than the economy is able to supply. The only problem with this analysis is that long-term interest rates remain near post-World War II lows and inflation remains well below even the Fed's unnecessarily low 2.0 percent target.
The only evidence the entitlement state is "buckling" from these programs seems to be the complaints from the folks at the Post and other Very Serious People. This does not appear to be a problem that exists in the real world.
On the more general claim about future productivity growth, which Will takes from Robert Gordon, it is worth recounting the past record of Gordon and other economists. There were three major shifts in productivity trends in the post-war era. There was a sharp slowdown in 1973, an upturn in 1995, and then a slowdown again beginning somewhere between 2005 and 2007.
No one saw the 1973 slowdown coming. More than forty years later there is no agreed upon explanation as to its cause. There were very few economists who saw the 1995 pick-up coming, although it is generally accepted that the information technology boom was its cause. Almost no one saw the slowdown coming in 2005-2007, and there is no agreement as to its cause.
Given the past record of economists (including Robert Gordon) in projecting the future path of productivity growth, we might be skeptical about a book that projects slow productivity growth for the indefinite future.Add a comment
Dan Balz ignored more than a decade of Speaker of the House Paul Ryan's writing and work in politics in an analysis that contrasts Ryan's "conservative, problem-solving party" with "a Cruz-style radical anti-government party content with blowing things up as they now stand." If Balz had paid any attention to the budgets that Paul Ryan eagerly touted as head of the House Budget Committee he would know that there is no one who has a better claim to being "anti-government" and "blowing things up as they now stand" than Mr. Ryan.
Ryan's budgets essentially proposed eliminating everything the government does except for Social Security, Medicare, Medicaid, and the military. The Congressional Budget Office's analysis of the his budget, which Ryan directed, showed that it would reduce all discretionary spending, plus non-Medicare and Medicaid entitlements to just 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase.
This means the Ryan budget called for eliminating everything else the government does, such as build and maintain infrastructure, monitor food and drug safety, support basic research in health care and other areas, protect the environment, and support early childhood education and nutrition. If eliminating just about the entire government is not "radical anti-government" it is hard to know what would be.
Balz owes Speaker Ryan an apology.Add a comment
According to a Foreign Affairs piece by Council on Foreign Relations Fellow Thomas Bollyky, the major pharmaceutical companies are being run by people who don’t know what they are doing. While they have devoted a large amount of time and resources to putting strong language on patent and related protections in U.S. trade agreements, including the recently concluded Trans-Pacific Partnership (TPP), Bollyky claims that these deals really don’t have much impact on drug prices in the partner countries. If Bollyky is right, the executives of Pfizer, Merck, and other major drug companies are just wasting energy that could be better devoted to other pursuits.
Unfortunately, Bollyky’s piece seems more designed to push the TPP than to seriously examine the extent to which drug prices in the member countries are likely to be affected by the deal. His main method for establishing his case is to look at past trade agreements that imposed tighter patent and related protections for prescription drugs and show that there was no sharp jump in drug prices immediately following the signing of an agreement. This is not a surprise.
In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.
Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union. Apparently the executives of European drug companies also waste their time trying to impose these rules in trade deals.Add a comment
Everyone knows that reasonable people are supposed to hate protectionism, that is of course unless it's for doctors and lawyers, who lack the skills necessary to compete in the world economy (or drug patents). But that shouldn't mean that an ostensibly serious newspaper (I'm feeling generous today) gets to say whatever it wants to trash the policy.
Today we have the spectacle of the Washington Post telling us that Donald Trump's plan to impose 45 percent tariffs on imports from China coupled with his plan to impose 35 percent tariffs on imports from Mexico would cost us 7 million jobs if the countries retaliate and 3.5 million if they don't. This is supposedly the output that Mark Zandi got, the chief economist of Moody's Analytics, when he plugged these tariffs into their model. That seems more than a bit high to me. The logic of the tariffs is that they make it more expensive to import items from these countries, but the extent to which they raise prices here depends both on the extent to which we can substitute domestic production or can find other foreign sources.
The latter is likely to be especially important, since many of the items produced by both countries can be readily found elsewhere. In fact an analysis by the Peterson Institute of tariffs the U.S. imposed on imports of tires from China found that the tires were almost entirely replaced by imports from other countries. For this reason, the impact on consumers from tariffs imposed on these countries is likely to be substantially limited by the availability of imports from other countries and/or our ability to produce these items domestically.
But just to get a crude idea, let's assume that the price of our imports rise by half of the amount of the tariff. This is almost certainly a huge overstatement since for many imports the price rise will be just a small fraction of the size of the tariff, since there are alternative sources and even in the extreme cases the suppliers will almost certainly have to eat some of the tariff in the form of lower profit margins.Add a comment
Seriously, that is what they said, more or less. An AP news article on the latest revision to fourth quarter GDP data told readers:
"Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis."
It is not clear what about this drop in corporate profits is supposed to be worrisome. Corporate profits had risen at the expense of wages during the downturn. The profit share of national income is still well above its pre-recession level. Companies continue to have more profit than they know what to do with, since investment is still slightly below its pre-recession share of GDP, so there is not a plausible story that companies will somehow have to curtail investment due to shrinking profits. So why is AP worried that workers are getting back some of the income share they lost during the downturn.
As the piece notes, consumption was revised upward. The saving rate was reported as 5.0 percent in the fourth quarter, not much different from the 4.8 percent rate recorded in 2013, the low for recovery. The Post and other media outlets gave extensive coverage to economists explaining why consumers were being cautious and not spending their dividend from falling energy prices. The data now indicate that they were not being cautious, that they were pretty much spending it at the same rate as other income. (Well, at least it kept some economists employed.)
Add a comment
The wage share of GDP has recovered close to half of the ground lost in the downturn. Combining economy-wide wages and corporate profits, the wage share fell by 3.6 percentage points between 2007 and 2012. The data for 2015 show that the wage share has increased by 1.6 percentage points since its trough in 2012. This indicates that a tighter labor market is now allowing workers to achieve some gains at the expense of corporate profits.
This means a huge amount for Federal Reserve Board policy going forward. If the Fed raises interest rates to slow growth and job creation, it can prevent workers from recovering the ground they lost in the downturn.
It is striking that only one presidential candidate, Senator Bernie Sanders, has raised this issue. The others have for some reason chosen not to discuss the Federal Reserve Board and its impact on workers' living standards. (Senator Ted Cruz has discussed the Fed, but said that he wants to bring the gold standard. This would prevent the Fed from taking any steps to boost the economy in a downturn.)Add a comment
That's what readers would learn from reading this NYT piece on a Chinese scientist living in exile in Wisconsin, Yi Fuxian, who has been a critic of China's family planning policies. According to the piece, Dr. Yi has warned that China will see a rapid decline in population which will prevent its economy from ever surpassing the United States.
It is not clear what metric Dr. Yi would be using. Presumably he means in GDP, but he is then too late for his warning. According to the I.M.F., China's economy is already more than 10 percent larger than the U.S. economy using a purchasing power parity measure of GDP (15 percent including Hong Kong). According to its projections, China's economy will be more than 30 percent larger by the end of the decade.
While the media like to hype the impact of rising ratios of retirees to workers as somehow devastating to the economy, arithmetic fans know that the impact of demographics is swamped by the impact of productivity growth. If this sounds complicated, 150 years ago more than half of the U.S. population was working in agriculture. Today less than one percent of the workforce is in agriculture, yet we have plenty of food. It makes sense to promote concerns about demographics if the goal is to cut back benefits for seniors, but not if the intention is to discuss economic reality.Add a comment
Is there an editor at the NYT who insists that reporters arbitrarily throw in unneeded and inaccurate adjectives to make their articles longer? An article on President Obama's trip to Argentina twice referred to the Free Trade Area of the Americas as a "free-trade" agreement. Most of the deal was about putting in place a common regulatory structure, not trade. It also increased some forms of protectionism in the forms of stronger and longer patents and copyright protection. The piece could have been shorter and more accurate if it had left out the word "free."Add a comment
Arthur Brooks, the President of the American Enterprise Institute and a regular New York Times columnist told readers that he doesn't have access to the Internet. This admission came in the context of a published exchange with Gail Collins, another New York Times columnist.
This fact was revealed in the context of a discussion of the Republican presidential candidates' proposals to have large tax cuts and then make up the lost revenue from waste, fraud, and abuse. Brooks acknowledged this was ridiculous, but then commented:
"The cognitive dissonance isn’t just on the Republican side, however. Sanders proposes showering cash out of helicopters, and as far as I can tell, he is really only proposing higher taxes on the much-regretted billionaires. The truth is that middle-class taxes would have to rise under his spending scenarios."
Actually, if Brooks had access to the Internet he would have been able to discover that Senator Sanders has actually proposed very specific tax increases on the non-billionaire population. He has proposed an increase in the payroll tax to finance his proposal for paid family leave and he also proposed an increase in the payroll tax to pay for his universal Medicare plan.
Sanders does propose to have the bulk of the revenue for his agenda come from taxing the wealthy, but he is quite explicit on this point. The wealthy have been the big gainers from economic growth over the last 35 years, so it doesn't seem absurd on its face to envision that they should bear the bulk of the burden from any need for increased revenue.
Since this conversation expressed a concern with unrealistic proposals from the presidential candidates it is surprising that no one mentioned the Federal Reserve Board. Several candidates have suggested that they would have substantially more rapid growth and job creation. The Fed has made it quite clear that it does not want to see more rapid job creation. They have expressed concern that if the unemployment rate fell substantially below current levels that it would lead to an inflationary spiral. In order to ensure that such a spiral does not develop most members of the Federal Reserve Board's Open Market Committee (FOMC) have indicated a willingness to raise interest rates to keep the unemployment rate from falling.
Given the views of FOMC members, any candidate who indicates a desire to substantially lower the unemployment rate without addressing the Fed's plans is engaged in magical thinking. (Senator Sanders has criticized the Fed's plans to raise interest rates.) For some reason no one in the media has chosen to write about this obvious inconsistency in the plans of the presidential candidates.
Thanks to Robert Salzberg for calling this to my attention.Add a comment
No one reads the Washington Post opinion page to learn about the economy. People read it to learn what the Very Serious People have to say about the world. Michael Gerson gave us the latest edition in a column attacking Bernie Sanders and Donald Trump.
Readers learned that this was about the Very Serious People view of the world rather than economic reality in the second paragraph.
"The past several decades have seen both dramatic increases in productivity and the fading of the traditional, American, middle-class dream. The globalization of labor markets (creating competition with skilled workers abroad) and new technology and automation (hollowing out whole categories of labor at home) have placed downward pressure on wages and put a relentless emphasis on acquiring new skills."
Both parts of this assertion are wrong. First, the past several decades have actually been a period of relatively slow increases in productivity growth, as our good friends at the Bureau of Labor Statistics will tell anyone who visits their website. (CEPR offers free tours for Washington Post columnists and editorial writers.) In the years since 1980, when inequality first began to grow, productivity growth has averaged 1.9 percent a year. That is down from 2.5 percent annual growth in the years from 1947 when wages at the middle and bottom grew as fast or faster than those at the top.
Source: Bureau of Labor Statistics.
Gerson doesn't just get the basic story of productivity growth 180 degrees backward, he also gets the story of globalization wrong. Our manufacturing workers saw their pay lowered by globalization because that was the purpose of the trade agreements we negotiated. The point was to make it as easy as possible to relocate factories in Mexico, China, and other developing countries, putting our workers in direct competition with low-paid workers who were often willing to work for less than one-tenth the wages of our workers.
At the same time we left in place or even increased the barriers that protect doctors, dentists, and lawyers from having to compete with their lower paid counterparts in the developing world or even other rich countries. (Apparently our trade negotiators think that doctors and lawyers lack the skills necessary to compete in the world economy.) For example, doctors still have to complete a U.S. residency program to practice in the United States and dentists have go a U.S. dental school. (We recently starting allowing graduates of Canadian dental schools to practice here as well.)Add a comment
At a time when the income inequality is growing ever larger in most wealthy countries the market for work that highlights inequality between generations is growing rapidly. After all, if young people are spending their time yelling about their parents' and grandparents' pensions they won't have any time to get mad about all the money the one percent are taking.
The Wall Street Journal did its part today with a piece telling readers that "older people do better than those of working age." While there is some truth to the story (more in Europe than in the United States), it is primarily because European governments have decided to keep tens of millions of people from working through austerity policies.
At a time when near zero inflation and record low interest rates show that the countries of the regions are suffering from a severe lack of demand the European Commission is pushing countries to cut deficits in order to lower demand still further. Complaining that older people are doing better than the workers who are either unemployed or forced to work in low wage jobs as a result of the weak labor market is like giving someone a severe beating and then noting the better health enjoyed by retirees than the beating victim. It's undoubtedly true, but what exactly is the point?
The piece also suffers from serious lapse in economic reasoning. After touting the relatively high living standards of retirees, it tells readers:
"Younger workers are grappling with flat or falling pay, decreased job security and less-affordable housing, sapping the spending power that helps fuel the economy."
If the problem in the economy is a lack of spending power (it is), then the relatively high pensions of retirees is helping. After all, the economy doesn't care whether a euro is spent by a young person or a retiree, it creates the same amount of demand.
Apparently this piece can't decide why retirees' pensions are bad for the economy, it just wants to convince readers that they are evil.Add a comment
It is apparently very appealing to many people to think that the loss of jobs in manufacturing and the resulting downward pressure on the wages of large segments of the working class was simply an inevitable result of globalization. For example, in an otherwise excellent piece on the closing of a Carrier factory in Indiana that makes heating and cooling equipment, the NYT told readers:
"The relentless loss of American manufacturing jobs, however, goes back nearly half a century, driven largely by forces beyond the control of any president. The advances of technology, the diffusion of industrial expertise around the world, the availability of cheap labor and the rise of China as a manufacturing powerhouse would have disrupted the nation’s industrial heartland even without new trade deals."
Actually, presidents could have sought to put in place the same sort of barriers that protect our doctors, lawyers, and other professionals from foreign competition. There are millions of very bright people in Mexico, India, China and other developing countries who would be happy to train to U.S. standards and work as doctors and lawyes in the United States. However, because these groups have far more political power than manufacturing workers, we have maintained walls that largely prevent foreign professionals from competing with our own doctors and lawyers.
The result is that these professionals have seen substantial increases in real wages over the last four decades and the rest of us pay hundreds of billions of dollars more each year for health care, legal services, and other items. The cost to the economy from this protectionism is almost certainly an order of magnitude greater than any potential gains from a trade deal like the Trans-Pacific Partnership. In spite of the enormous economic costs, the power of these professions largely prevents economists or the media from even discussing the protectionism enjoyed by professionals.
Thanks to Keane Bhatt for calling this one to my attention.Add a comment
President Obama's allies in the media are working hard laying the groundwork for Congressional approval of the Trans-Pacific Partnership (TPP). Robert Samuelson did his part with a column warning that it would be "dangerous" if the next president repudiated the TPP. I suppose the piece is worth some brownie points with the administration, but it doesn't make much sense.
He tells readers:
"The United States has had continuous annual trade deficits since 1976, well before the North American Free Trade Agreement (1994) and China’s joining the World Trade Organization (2001). The explanation is that the dollar is widely used to settle trade transactions, to make cross-border investments and — for governments — to hold as international reserves.
"The resulting dollar demand on foreign exchange markets raises the dollar’s value in relation to other currencies. This makes U.S. exports more expensive and imports into the United States cheaper."
There is a big difference between the relatively modest trade deficit (@ 1 percent of GDP) the United States ran in most of the years from 1976 to 1997 and the much larger trade deficits the United States ran in the years after the East Asian financial crisis in 1997. This was when developing countries began accumulating massive amounts of reserves. As a result the deficit expanded to a peak of almost 6 percent of GDP and is now somewhat over $500 billion (@ 3 percent of GDP).Add a comment
I generally restrict my comments on this blog to economic issues. But the Post really went over the top in its criticisms of Donna Edwards when it endorsed her opponent Chris Van Hollen in the race for the Democratic nomination the fill the open Maryland senate seat.
Before commenting, I should say that I know Representative Edwards and consider her somewhat of a friend. I also know and like her opponent, with whom I went to college many years ago.
Anyhow, the Post complained that Edwards is too ideological and uncompromising. By contrast, it argued that Van Hollen can make the compromises needed to get things done. The editorial told readers:
"Her allergy to compromise, comparable to the disdain expressed by tea party Republicans, is what has brought Congress to a standstill. She is proof that doctrinaire ideology is alive and well on both sides of the aisle."
Comparing Representative Edwards to the Tea Party is way over the top. The Tea Party denies reality in fundamental areas. It insists that human caused global warming is not happening. The Tea Party contends the 2008 economic collapse was because the government forced banks to make loans to minorities. It also complains that government spending is out of control on programs other than the ones Tea Party supporters like (Social Security, Medicare and Medicaid, and the military).
If the Post can identify an issue where Edwards has been comparably out of touch with reality then they should share it with readers. Otherwise they owe Ms. Edwards an apology. The Post may think Edwards approach is unproductive, but that is not the same thing as bringing your own reality to policy debates.Add a comment