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).
In her Washington Post column, Catherine Rampell repeats some ill-founded conventional wisdom in telling readers that French president Emmanuel Macron's plans to weaken labor unions and reduce restrictions on laying off workers are the path to revitalizing France's economy. In fact, this claim is not supported by the evidence. There is little evidence that strong unions or labor market protections are associated with high unemployment.
The most obvious reason that France has had high unemployment is the turn to austerity in 2010 following the economic crisis. As a result of the cutbacks in government spending, there was no source of demand to replace the demand generated by asset bubbles prior to the crisis. For some reason, this fact is rarely mentioned in reporting on France's economy.
It is also worth noting that France's "stagnant labor market" has a much higher employment rate for prime age (ages 25 to 54) workers than the U.S. labor market (79.7 percent in France compared to 78.2 percent in the United States). This fact would seem to undermine the case that regulations are seriously hampering France's labor market.Add a comment
Thomas Edsall's NYT piece is ostensibly bad news for Democrats since it argues that the working-class populism among non-college educated Trump voters is anti-government. He argues this means that they are suspicious of government programs Democrats favor that redistribute from the wealthy to poor and working class.
While Edsall presents this as insoluble problem for Democrats looking to rebuild majority support, that is not really the case. The upward redistribution of the last four decades has been driven by government policies. It can be reversed by different government policies, which does not necessarily mean more government.
The first and most obvious item on this list of policies is Federal Reserve Board monetary policy. Right now the Federal Reserve Board is in the process of raising interest rates. The point of this policy is to slow the economy and reduce the pace of job growth. This is ostensibly because the Fed is concerned about inflation getting too high, but the immediate effect of the policy is to keep people from getting jobs and reducing the bargaining power of those who do have jobs.
A Fed that doesn't raise interest rates doesn't imply any bigger government than a Fed that does raise interest rates. In the decades immediately following World War II, when most workers shared in the gains from economic growth, The Fed was more committed to full employment and less concerned about inflation. There is no reason that Democrats could not champion a more worker-friendly Fed.
There is a similar story with trade policy. While it will not be possible to get back or even most of the millions of jobs lost to trade in the last decade, the United States could pursue policies that get the trade deficit closer to balance. A trade deficit in the range of 1.0 percent of GDP ($190 billion), instead of the current trade deficit of around 3 percent of GDP (around $550 billion) would imply another 1–2 million manufacturing jobs. This would provide a substantial boost to the labor market for workers without college degrees.Add a comment
A Washington Post editorial praised Ohio's decision to sue pharmaceutical companies for promoting opioid pain medication. The claim being made in the suit is that the companies minimized the risk of addiction in order to increase their market.
Incredibly, the piece does not mention the protectionism that gives these drug companies the incentive to push their drugs for improper uses. Government-granted patent monopolies allow the companies to sell their drugs for twenty, thirty, or forty times the free market price. When a government granted monopoly allows a drug company to raise its price by a factor of forty over the free market price it has the same distortionary effects as a trade tariff of 4,000 percent.
While the Post would be very quick to condemn anyone who proposed placing a 10 or 20 percent tariffs on shoes or steel to protect the domestic industry, it is apparently unconcerned about the much larger distortions that result from market barriers that are hundreds of times larger in the case of prescription drugs.
As a result of this protectionism, the country will spend more than $440 billion (around $1,300 per person) for drugs that would likely sell for less than $80 billion in a free market. In addition, this protectionism gives drug companies incentive to lie about the effectiveness and safety of their drugs, as we clearly see in the case of opiod painkillers.
Unfortunately, the Post is so committed to protectionism in this case that it does not want to even talk about the root cause of the problem.Add a comment
The NYT featured yet another piece on a country, in this case Japan, facing a future with a lower population. The piece warns that it will be difficult to maintain economic growth with a declining population and that Japan's labor shortage would get more severe.
This doesn't sound like too bad of a story to people familiar with economics. Thus far the labor shortage has not been serious enough to cause wages to rise in Japan. If it eventually does get more severe and wages do rise then it just would mean that some of the least productive jobs would go unfilled. For example, perhaps Tokyo would no longer pay workers to shove people into overcrowded subway cars.
As far as GDP growth, economists usually care about GDP per capita as a measure of living standards, not total GDP. This is why Denmark is a richer country than India, even though India has a much larger GDP. (The piece does note this point in passing in the second to the last paragraph.)
It is worth reminding readers that growth in productivity swamps the impact of demographics. If Japan can sustain a 1.5 percent pace of productivity growth, then output per worker hour would be 80 percent higher in forty years. Even in a very extreme demographic change, say going from three workers per retiree to 1.8 workers per retiree, this would still allow for a 17 percent rise in average living standards over this period. (This assumes retirees consume 80 percent as much as workers on average.) And this does not account for the benefits from less strain on the infrastructure and the natural environment. Nor does it take account of the lower ratio of dependent children to workers.
If Japan can sustain productivity growth of 2.0 percent annually (well below the 3.0 percent Golden Age pace in the United States from 1947 to 1973 and again from 1995 to 2005), then the living standards of workers and retirees could rise by 42 percent over this period, in spite of the rising ratio of retirees to workers. Presumably the folks who are concerned about the job-killing robots expect that productivity growth will be considerably more rapid.Add a comment
At a time when an ever larger share of national income is going to the richest one percent, and large segments of the working class population are seeing rising mortality rates, the Washington Post naturally turns to the country's most pressing problem: the number of people receiving disability payments from the government.
Its second piece on the topic profiled a family with multiple generations receiving disability benefits. It seemed to go out of its way to include every possible negative aspect of their lives in order to give an unfavorable view of the family and leave readers with the impression that the country has a serious problem of families who do nothing but collect disability checks generation after generation.
The piece begins with a horrible story of young children playing with a puppy and then accidentally dropping it to the floor. They originally think the puppy was killed from the drop, but apparently it was only stunned and managed to survive. Then we get the story of the mother telling the kids to grab sodas to bring to a Sunday morning church service.
We then get the poetic description of the rural Missouri countryside where this family lives:
Add a comment
"She saw that gravel road turn into another and another. She saw trailers, dirt-battered and deteriorating. She saw land as flat as it was empty, land that migrant workers traveled hundreds of miles to cultivate, reaping both that year’s watermelon harvest and jobs that few in the community were willing to do."
Many folks might have thought Donald Trump had abandoned his pledge about "draining the swamp" when he began filling his administration with Goldman Sachs alums and other Wall Street-types and reversed all the ethics rules put in place for the last five decades to prevent corruption. But the Washington Post tells us this is not true.
According to the Washington Post "draining the swamp" just meant firing government workers. So apparently if Wall Streeters and rich folks (including Trump family and friends) rip the taxpayers off for millions and billions in corrupt deals, it is okay as long as he fires government employees making five-figure salaries or maybe in a few cases, six-figure salaries.
So, Trump voters are apparently cool with being ripped off to put more money in the pockets of really rich people. They only get upset when their tax dollars are used to provide middle-income jobs for people doing things like cleaning up the environment or keeping our national parks in good shape. It's good we have the Washington Post to tell us this.Add a comment
One of the largely overlooked implications of Friday's weak job report is that it likely means that we will see a strong rebound in productivity growth for the second quarter. GDP growth is likely to bounce back from the first quarter's weak 1.2 percent number, most likely coming in between 3.0 percent to 4.0 percent. With the rate of growth of hours worked likely less than 1.0 percent, we will be looking at productivity growth in the 2.0 percent to 3.0 percent range for the quarter.
Here are three quick thoughts:
1) Quarterly productivity data are hugely erratic, so most likely a rebound in a single quarter means nothing. It is entirely possible that the third quarter will put us back on our weak 1.0 percent productivity growth path.
2) I am betting that productivity growth will pick up as the labor market tightens further (or perhaps I should say "if" the labor market tightens further), as workers move from low-paying, low-productivity jobs (e.g. greeters at Walmart and the midnight shift at a convenience store) into higher paying, high-productivity jobs.
3) If productivity growth does pick up, it will be good for workers. We had 3.0 percent annual productivity growth from 1947 to 1973 and again from 1995 to 2005. In the first period, we had low unemployment and broadly shared wage gains. The same was true in the years from 1996 to 2001, until the collapse of the stock bubble threw us into a recession.
Strong productivity growth coupled with sound economic policy (e.g. the Fed not raising interest rates to keep people from getting jobs) creates the basis for rapidly improving standards of living. We need not worry about it leading to mass unemployment if the folks in charge of economic policy have a clue.Add a comment
Yes folks, your friend on the Washington Post opinion page, George Will, wants to reduce your tax burden. He argues that the Corporation for Public Broadcasting (CPB) is a waste of taxpayer dollars. It is forcing average taxpayers to foot the bill for radio and TV shows that members of Congress value.
Naturally, Mr. Will is concerned about the burden that CPB is putting on the pocketbook of Joe and Jill Sixpack. He tells us that it has cost the country $12 billion. Most people may not offhand have a good sense of how much $12 billion is. Unlike Post owner Jeff Bezos (who got rich from his company's exemption from having to collect sales taxes), they don't have that sort of money. They may also not realize that Will was referring to cumulative spending on CPB over 50 years.
If Will was interested in more honest discussion of the burden imposed by the appropriation for CPB, he could have told readers that the annual spending of $445 million (0.013 percent of total spending), comes to roughly $1.40 per person per year. This means that if we zero out the appropriation, Joe and Jill Sixpack can get themselves another third of a six pack with the savings.
It might have also been worth mentioning in this context the tax deduction for charitable contributions. If someone like the Koch brothers decide to donate $1 billion to their favorite think tank producing nonsense denying global warming, Joe and Jill Sixpack will have to pick up the tab for 40 cents on the dollar, or $400 million, since the Koch brothers will have reduced their tax liability by this amount. Post readers are looking forward to the Will column highlighting the unfairness of a system that makes average taxpayers pick up the tab for whatever it is that the Koch brothers and other billionaires want us to watch.Add a comment
The NYT had a very good article on how the fossil fuel industry and other rich donors got the Republican party to be committed to denying the reality of global warming, Unfortunately, the article carried a headline that asserted the Republicans "view" climate change as fake science.
There is nothing in the article to indicate what Republicans actually believe about climate change. There is no reason not to assume that the Republican leadership believes anything different about climate change than the vast majority of educated people in the United States. The article explains how in order to advance their careers in politics they have an interest in denying the reality of climate change. It says nothing about what they believe to be true.Add a comment
The NYT had an article on Yahoo CEO's $239 million payout for her five years as CEO of Yahoo. The article says that from the standpoint of shareholders, since the value of the company's stock tripled, she earned her pay. This assessment is extremely misleading. It would be like saying that a firefighter getting paid $10 million earned her pay, because she got three people out of a burning house.
The question is not just the return to the shareholders, but the return compared to what they would have gotten had the next person in line been CEO. As the piece points out, the vast majority (perhaps all) of the gains to shareholders were due to the increase in the value of its stock holdings in Alibaba Group and Yahoo Japan. Ms. Mayer had virtually nothing to do with the rise in value of these holdings, although there were some legal issues that needed to be resolved to allow Yahoo shareholders to reap these gains.
While the resolution of these issues was important to shareholders, lawyers usually are not paid $48 million a year. And of course, Yahoo did actually have to pay lawyers to resolve these issues in any case.
As far as turning around Yahoo's core business, the piece concludes that Mayer failed, but it was likely impossible in any case. While this assessment may be accurate, it doesn't make sense from the shareholder's standpoint to pay someone $239 million to do something that is impossible.
It actually would have been possible to structure a contract for a CEO that based their pay on the rise in Yahoo's stock value net of its holdings in Alibaba Group and Yahoo Japan. (The contract could have even included a performance bonus of $5 to $10 million for overseeing the resolution of the legal issues with these holdings — pretty good pay for very part-time work.) Such a contract would almost certainly have left Ms. Mayer with a much smaller paycheck and Yahoo shareholders with more money.
As it is, shareholders effectively gave up roughly 0.4 percent of the value of the company to cover her pay over the last five years. This can be thought of as the CEO tax.Add a comment
That's the question that Neil Irwin poses in his Upshot piece. He points to the drop in the unemployment rate to 4.3 percent, coupled with a drop in the labor force participation rate, and the weak job growth of the last three months. The argument is that these factors taken together could mean that there just are not that many more people interested in working.
This is a possibility, but there are some important data points pointing in the opposite direction. First, it is worth noting that the biggest drop in the employment-to-population ratio (EPOP) occurred among women between the ages of 25 to 34. Their EPOP fell by 0.9 percentage points in May, from 72.3 percent to 71.4 percent. This is not a group that anyone expects to be dropping out of the labor force in large numbers. This looks like a fluke, which indicates the decline in EPOP reported for May may just be due to measurement error rather than something that actually exists in the world. (These data are erratic, so a movement like this is not uncommon.)
In terms of factors pointing the other way, wage growth actually appears to be slowing, with the year-over-year rate of increase in the hourly wage dropping to 2.5 percent compared with 2.7 percent earlier in the year. If we take the average of the last three months compared with the average of the prior three months, the annual rate is just 2.2 percent. We don't expect wage growth to be slowing as the labor market gets tighter.
Similarly, the percentage of unemployment due to people voluntarily quitting their jobs is relatively low at 11.7 percent. This is below the pre-recession levels, which often exceeded 12.0 percent and far below the peaks hit in 2000, which got above 15 percent. Workers still seem reluctant to leave a job if they don't have a new job lined up.
There also is no increase in the length of the workweek. At 34.4 hours the average workweek is 0.1 hour shorter than its duration two years ago. We would expect employers to try to be getting more hours out of each worker if they were having trouble finding new workers.
In short, while 4.3 percent is a relatively low unemployment rate (and below most economists' estimates of full employment) there are important ways in which the labor market does not look like one at full employment. Hopefully, the Federal Reserve Board will give us the opportunity to learn the answer to this question.Add a comment
The NYT rightly criticized Donald Trump's decision to pull the U.S. out of the Paris climate agreement, but part of its criticism is not right. It dismissed the idea that reducing greenhouse gas emissions would lead to job loss as "nonsense" that comes from "industry-friendly sources." While the claim that reducing greenhouse gas emissions will lead to job loss may be nonsense, it is, in fact, the result that comes from standard economic models that are used all the time to project the impact of regulation policy, tax policy, health care, and trade policy.
These models are all full employment models, which means that everyone who wants to work at the market wage for their skills has a job. The way that reducing greenhouse gases reduces employment is by reducing the real wage. For example, if gas and electricity cost more, and wages have not risen to account for this increase, the real wage will be less. In these models, at a lower real wage fewer people will decide to work.
So, if complying with our Paris commitments causes the real wage to be 1.0 percent lower, then this may lead 0.5 percent fewer people to want to work, which translates into roughly 800,000 fewer people working. (These numbers are hypothetical, not taken from actual models.) So when Trump is citing models showing job loss associated with reducing greenhouse gas emissions, he is actually relying on mainstream economics (there is still a considerable range in this modeling, as some is almost deliberately dishonest).
There is one other point worth making on this topic. The military spending that Trump is so fond of also kills jobs in these models. Pre-Iraq War, we were on a path to be spending around 2.0 percent of GDP on the military. Instead, we're looking at 3.3 percent now. A decade ago, CEPR contracted with Global Insight, one of the main econometric consulting firms, to project the impact of a sustained increase of 1.0 percentage point of GDP increase in military spending. It cost 700,000 jobs after two decades, mostly in construction and manufacturing.
In short, people may well want to reject the projections from these models — their track records have been pretty bad — but Trump is not just making this stuff up. And, the same sorts of models are widely used in other contexts (can you say "Trans-Pacific Partnership?").Add a comment
The Washington Post shamelessly uses both its news and opinion pages to push trade agreements. It famously even lied about Mexico's GDP growth to tout the benefits of NAFTA, absurdly claiming it had quadrupled between 1987 and 2007 (the actual figure was 83 percent, according to the International Monetary Fund).
Given this background, it's not surprising to see a piece that bemoaned the fact that Vietnam will not be able to get the large gains from the Trans-Pacific Partnership (TPP) projected for it in several models:
"Economists say Vietnam would have been one of the biggest winners of the deal. A 2016 study by the Peterson Institute of International Economics found that the Obama-era trade deal would have increased Vietnam’s gross domestic product by 8.1 percent by 2030, the most of any country in the deal, and expanded its exports by nearly a third. Economists expected the deal to expand access to foreign markets for Vietnamese producers of apparel, footwear and seafood, as well as stimulate economic reforms within the country."
While many readers may see the rejection of the TPP by Trump (and likely Congress as well) as a serious misfortune for Vietnam, the good news is that the vast majority of the projected gains for Vietnam came from the reduction or removal of its own tariffs. This is something that the country can, in principle, do tomorrow if it wants those big 8.1 percent gains promised by the model cited.
Furthermore, Vietnam will not have to pay the higher prices for drugs and other items subject to longer and stronger patent and related protections as a result of the TPP. The model cited by the Post forgot to include the impact of the increase in these protections on economic growth. While most of the tariffs being reduced as a result of the TPP were already low, patent and copyright protections often raise the price of the protected items by several thousand percent above the free market price.
The other point worth mentioning is that the computable general equilibrium (CGE) models, like the one used to give this projection of gains for Vietnam from the TPP, have a horrible track record. In the case of the U.S. trade deal with Korea, the version of this model used by the United States International Trade Commission not only failed to predict the explosion in the U.S. trade deficit with Korea which followed the implementation of the deal, its prediction of the industries that would gain or lose from the pact had basically zero correlation with what actually happened.
In other words, there is little reason for Vietnam to spend time worrying about the projections from the CGE models showing it suffered as a result of the TPP's demise. Of course, the models can be useful for advancing a political agenda.Add a comment
I kind of love how ridiculous things get repeated endlessly by people who claim to be informed. In his NYT column, Avik Roy warned us against taking seriously the Congressional Budget Office's (CBO) projections of a surge in the uninsured under the Republican health care plan.
"First, some caution regarding the C.B.O.’s numbers. The C.B.O. is chock-full of committed and talented public servants, but the agency is neither omniscient nor infallible. In 2010, when the Affordable Care Act was signed into law by President Barack Obama, the C.B.O. predicted that by 2017, 23 million Americans would be enrolled in the law’s new insurance exchanges. Only about 11 million actually are.
"That’s because the C.B.O. failed to account for how the A.C.A.’s insurance regulations would drive premiums up for relatively healthy individuals. A new study by researchers at the Department of Health and Human Services finds that for people buying coverage on their own, premiums have more than doubled in the Obamacare era. Most adversely affected have been those whose incomes — while modest — were not low enough to qualify for sufficient amounts of the A.C.A.’s insurance subsidies.
"While the C.B.O. was overly optimistic in 2010 about Obamacare, there’s a strong case that it is being overly pessimistic about the new House bill, the American Health Care Act."
Actually, CBO was overly pessimistic about Obamacare. If we look to CBO's last report on the Affordable Care Act, before the exchanges began operation in 2014, it projected that there would be 29 million people uninsured as of 2017 (Table 3). In its most recent analysis, it puts the number of uninsured in 2017 at 26 million (Table 4). In other words, the number of people who are uninsured under the ACA is 3 million fewer than CBO had predicted back in 2012.
In what world is overestimating the number of uninsured "overly optimistic?" It is true that fewer people are in the exchanges than CBO expected. This is due to the fact that more people have qualified for Medicaid and also more people are receiving employer-provided insurance, as fewer companies than expected dropped coverage.
But, so what? The point was to get people insured, not necessarily to have them insured through the exchanges.
So remember the facts when you read Roy's NYT column giving his prognostications for the Republican health care reform. Here's a guy who couldn't even bother to get the basic numbers on the ACA right.Add a comment
Using arithmetic in economic policy debates is always dangerous, but that would seem to be the implication of the NYT's designation of Germany's $64.8 billion trade surplus with the United States as "mammoth." Since China's $347.0 billion trade surplus was more than five times as large, it would seem that China's surplus has to be five times massive. It usually is not talked about that way in the NYT and elsewhere.
Remarkably, the piece never focused on the real explanation for Germany's large trade surplus. It insists on running budget surpluses, even though there continues to be widespread unemployment throughout the euro zone. This policy is far more harmful to the other euro zone countries than the United States.
If Germany ran budget deficits it would directly pull in more imports from its euro zone partners (and the United States), thereby boosting demand and output in France, Italy, Greece and elsewhere. It would also see somewhat more rapid inflation, which would make other countries' goods and services relatively more competitive. Also, a more rapidly growing euro zone economy would likely increase the value of the euro, making U.S. goods and services more competitive compared with those produced in the euro zone.
Germany doesn't boost demand in this way apparently because the country is tied up with nearly century old superstitions about inflation. Just as many people in the United States deny global warming in spite of massive evidence that it is real and humans are causing it, millions of Germans, including those in leadership positions, claim that modest increases in the inflation rate could lead to the sort of hyper-inflation the country experienced under Weimar, following World War I. There is absolutely no evidence to support this view, but it seems to guide German economic policy.Add a comment
Housing rent has been outpacing the overall rate of inflation in recent years. This is worth noting both because it is a large portion of the consumption basket and rents do not tend to follow other prices. Rent is primarily a function of the shortage of available units. It does not respond in any immediate way to wage pressures, like other components in the consumption basket. Rental inflation will also not be slowed by higher interest rates. In fact, by reducing construction, higher interest rates may further tighten the supply of housing, leading to higher rental inflation.
If we look at the core personal consumption expenditure deflator excluding rent, it is both well below the Fed's 2.0 percent target and, if anything, is trending lower over the last few years.
Source: Bureau of Economic Analysis.
This raises the question millions are asking: why is the Fed raising interest rates? We know this keeps people from getting jobs and workers, especially those at the bottom of the wage distribution, from getting pay increases. With no problems with inflation on the horizon, this looks like lots of pain for no obvious gain.
Note: An earlier version had the months improperly labeled.Add a comment
There is a widely held view among policy types that drug companies would act like total morons if they did research under a government contract as opposed to having the lure of a patent monopoly. Apparently, this is not true, since it seems that the French drug company Sanofi has developed an effective vaccine doing research that was funded by the U.S. Army. So the theory of knowledge holding that otherwise intelligent people become worthless hacks in the process of drug development if the government is the source of funding is apparently not true.
Of course, this is not entirely a clean test of the proposition since Sanofi will still be given exclusive rights to market the vaccine. Apparently, even when the government is paying for the research upfront and taking all the risk (if the vaccine doesn't work, Sanofi has still been paid), drug companies still need monopolies, because hey, how could they survive in a free market?
If people in policy positions and economists were interested in free markets, they would be very upset by this story.Add a comment
The NYT ran a piece discussing the efforts by various industry groups to ensure that they are not hurt by measures that reduce prescription drug prices. At one point, it listed some of these measures, noting a bill co-sponsored by Senator Bernie Sanders, which would allow drugs to be imported from Canada.
It is worth noting that this bill, which is co-sponsored by sixteen other senators including Elizabeth Warren, Sherrod Brown, and Kirsten Gillibrand, also includes mechanisms that would reduce the cost of drugs by not granting them patent monopolies that make their price high in the first place. One proposal would create a prize fund, which would allow for the patents on important new drugs to be purchased by the government and placed in the public domain. They could then be sold as generics as soon as they are put on the market.
The other provision would have the government finance some clinical trials of drugs after securing all patent rights. In this case, also the new drugs would be sold as generics. By paying for the trials (which would be conducted by private companies under contract), the government would be able to require that all test results were in the public domain.
This would allow doctors and other researchers to be able to determine if a particular drug was better for men than women, or appeared to cause bad reactions when mixed with other drugs. As it stands now, drug companies only have an incentive to publicly disclose information that they think will help them market their drugs. If the government paid for some number of clinical trials, it could help to set a new standard of disclosure with its practices, in addition to making new drugs available at generic prices.Add a comment
Okay, it's Memorial Day weekend and maybe the regular crew is on vacation at the NYT, but come on, you don't print GDP growth numbers without adjusting for inflation. The NYT committed this cardinal sin in a column by Simon Tilford telling readers that the United Kingdom actually has a pretty mediocre economy that is likely to perform even worse post-Brexit.
While I'm inclined to agree with the basic argument (with the qualification that there may be a dividend from sinking the financial sector), two of the graphs accompanying the piece likely left readers scratching their heads. The first showed per capita GDP growth since 2000 for Germany, France, Italy, Spain, and the UK. The moral was that the UK was not doing much better than France, which is supposed to have a moribund economy according to popular legend. The second showed a similar story with real wages.
The problem is that neither graph is adjusted for inflation. As a result, we see the shocking story that per capita GDP growth for both France and the UK have increased by more than 35 percent since 2000. Germany's per capita GDP has increased by almost 50 percent.
That would be great news if true, but it's not. Here's the real picture.
Source: International Monetary Fund.
After adjusting for inflation, UK does a bit better relative to France, but 16 percent per capita GDP growth in 15 years is not much to brag about. (I suspect the picture looks less favorable to the UK if we adjust for changes in hours worked.) The story of Italy is especially striking. On a per capita basis, it is almost 7.0 percent poorer than it was at the turn of the century.Add a comment
Andrew Biggs, an economist at the American Enterprise Institute, had a piece in The Hill telling readers that the private 401(k) system is doing just great, while public pension plans and Social Security are in big trouble. The story is we need not worry about most people’s retirement security, we have to worry about the cost of the public retirement system.
There are a few parts of Biggs’ story that don’t quite hold up. Biggs tells us:
“A 2016 Census Bureau study found that — thanks to a 75 percent increase in benefits from private retirement plans — incomes for the median new retiree rose by 58 percent above inflation from 1989 to 2007. Another new study, from economists at the IRS and the Investment Company Institute, finds that the median retiree has an income equal to 103 percent of their income just prior to retirement, far exceeding the 70 percent “replacement rate” that most financial advisors recommend.”
The Census Bureau study actually was just looking at the retirement income of women, not all new retirees. This matters because the median women retiring in 2007 had far more years in the workforce than the median woman hitting retirement age in 1989. Also, women actually did get some increase in their pay over this period, in contrast to the stagnation in pay for men earning near the median. So it matters hugely that this study was only examining women, not all retirees.
It is also important to note that the use of the term “income” is somewhat misleading in this paragraph. It is including as income withdrawals from IRAs and 401(k)s. This is somewhat problematic since this is drawing down past savings, it does not amount to an ongoing flow. The studies cited by Biggs don’t indicate if the pace of drawdown in the years immediately after retirement can be sustained for a retirement that could last 25 years or more. (Biggs is correct to point out that the money taken out of 401(k)s is largely excluded from other data measuring income. While it is wrong to ignore this money, it is not right to treat it as income in the same way that a traditional defined benefit pension is income.)Add a comment
Matt O'Brien's Wonkblog piece might have misled readers on Republicans views on the role of government. O'Brien argued that the reason that the Republicans have such a hard time designing a workable health care plan is:
"Republicans are philosophically opposed to redistribution, but health care is all about redistribution."
This is completely untrue. Republicans push policies all the time that redistribute income upward. They are strong supporters of longer and stronger patent and copyright protection that make ordinary people pay more for everything from prescription drugs and medical equipment to software and video games. They routinely support measures that limit competition in the financial industry (for example, trying to ban state-run retirement plans) that will put more money in the pockets of the financial industry. And they support Federal Reserve Board policy that prevents people from getting jobs and pay increases, thereby redistributing income to employers and higher paid workers.
Republicans are just fine with having the government intervene in markets to redistribute income upward, they just don't like policies that are designed to help the poor and middle class at the expense of the rich. It is wrong to imply, as O'Brien does, they have any other principles in these debates than giving as much money as possible to the rich. (Yes, this is the theme of my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].)Add a comment