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).

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The NYT is once again confused about the story of deflation, telling readers that it's bad news for Japan that the yen has recently risen in value since a higher yen reduces import prices, increasing the risk of deflation. While a higher valued yen is a problem because it makes Japan's goods and services less competitive internationally, and therefore worsens the trade deficit, its impact on the inflation rate is of little consequence for the economy.

The impact on the trade balance is straightforward and direct. The higher valued yen will make Japanese made goods and services more expensive to people in other countries, so they will buy less of them. On the other hand, imports will be cheaper for people living in Japan, so they will buy more imports. The net effect is to worsen the trade balance, decreasing demand in the economy.

However, the effect of lower import prices on the inflation rate is likely to have little effect on demand. While it is often claimed that deflation hurts demand because it leads consumers to delay purchases with the idea that the price will be lower due to waiting, as a practical matter, this makes almost no sense.

If the deflation rate is -1.0 percent (much larger than Japan has seen in recent years), it means that consumers can save themselves 1.0 percent of the price of a product by delaying a purchase for a year. On a $20,000 car, a consumer can save $200 if they wait a year. On a $500 television set, they will save $5.00 and on a $30 shirt, they will save 30 cents. If the deflation rate is half this much (-0.5 percent), the savings will be half of these sums. It is unlikely that many people will put off purchases for such savings.

The more likely impact will be on investment. The issue here is the real interest rate, the difference between the rate of interest firms must pay and the rate of increase in the price of the products they are selling.

Suppose that a company was selling a product for $1000 (or the yen equivalent price), with $100 of the cost of the production of this product due to imported items. Suppose that its costs of production were $800, leaving a profit of $200 on each item. Now imagine that a 10 percent rise in the yen leads the price of the imported inputs to fall to $90. If the drop in the price of imported inputs is fully passed on to consumers, then the price of the product falls to $990, leaving profit margins unchanged.

In this case, the company has the same incentive to invest after the rise in the value of the yen as it did before the rise in the value of the yen. The one-time drop in prices is not a problem. (If the drop in the price of imported inputs is not fully passed on, then the increased profit margin would increase the incentive to invest.) This would only be an issue if it was expected that the yen would keep rising leading to continuing falls in the price of the product. For this reason, a reduction in the inflation rate, or even deflation, that is the result of lower import prices should not be bad news for Japan's economy.

Just to remind folks, the problem of deflation is actually a problem of the inflation rate being too low. Since it is difficult to push nominal interest rates below zero, or at least much below zero, when inflation is low there are limits to how much the central bank can boost the economy with low real interest rates. When the inflation rate declines or turns negative due to a drop in oil prices or other imports, it does not affect the real interest rate as seen by firms. For this reason, the drop in import prices is not the problem implied by this article.

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The first paragraph in a Reuters article on the April consumer price index (CPI) told readers:

"U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year."

Before the cheering for another Fed rate hike gets too loud it would be worth looking at the data more closely. The core CPI has risen modestly in recent months, however inflation is still below the Fed's 2.0 percent target using its chosen measure, the personal consumption expenditure deflator. And, since 2.0 percent is supposed to be an average, not a ceiling, we have a long way to go up before the Fed needs to move, assuming it takes its own target seriously.

But it's also worth noting that even the very modest evidence of acceleration in inflation may be largely illusory. The rise in the core CPI has been driven by rising housing costs. Here's the change in a measure of the core CPI that excludes shelter costs.

CPI without Food, Shelter, and Energy

Core CPI

Source: Bureau of Labor Statistics.

See the acceleration? This measure has been trailing off the last two months and in any case never got as high as it was in late 2011. It has remained under 2.0 percent since the middle of 2012.

The story with housing is that shortages of supply are pushing up prices. If this is bothering the Fed, it is not going to fix the problem by raising interest rates. (Higher rates mean less housing construction — check your intro textbook.) In short, contrary to what the folks at Reuters might tell you, there is not much of a case here for higher interest rates.

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That is the impression that readers may take away from an article discussing the potential for self-driving trucks. The article notes that 3 million people work as truckers and warns of the risk that these people face from displacement due to this technology.

In fact, technology has always displaced workers from jobs. This is the basis for higher wages, as the remaining workers got the benefit of productivity growth in the form of higher wages. Higher wages allowed them to buy more goods and services, thereby creating new jobs that could be filled by the displaced workers. Alternatively, if hours per worker are reduced, then the gains in productivity can result in the same number of people being employed, with workers enjoying the benefits of productivity growth in more leisure.

This will not happen if the government pursues policies that keep workers from sharing in the benefits of productivity growth, for example by raising interest rates to reduce employment or if it pursues anti-union policies to undermine workers bargaining power. However, in these cases the problem is the policies, not the technology.

At a time when productivity growth has fallen to almost zero, workers should welcome technology that has the promise of substantial gains in productivity. Of course, they should also demand policies that will allow them to share in the gains.

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Robert Samuelson used his column today to argue against included environmental, equity considerations, or other factors in the measure of the gross domestic product. He is completely right.

Over the decades there have been many efforts to change the measure of GDP to include other factors that we should value under the argument that the output of goods and services is not everything. Of course, the output of goods and services is not everything, but the problem is trying to use GDP as a comprehensive measure of well being. It isn't, and anyone who imagines it is a comprehensive measure of well-being is badly confused.

GDP is a measure of economic output, which is useful to know, but hardly sufficient to tell us whether a country and its people are doing well. A country can have rapid GDP growth, but if it all goes to the richest one percent, it would be hard to see that as a good story. Or if rapid GDP growth went along with extreme environmental degradation, it also would not mean the population was doing well.

The measure of GDP is useful in assessing the health of an economy and society in the same way that weight is a useful measure in assessing a person's health. If a person is five feet and ten inches and weighs 300 pounds, then it is likely they have a problem. On the other hand, they can weigh 160 pounds and still have an inoperable tumor. We would want to know the person's weight to assess their condition, but it will not tell us everything we need to know to evaluate their health.

In the same vein, we identify countries with high per capita GDP, but enormous inequality. It is hard to view these as success stories, since most of the population would not be benefiting from the strength of the economy. However, if a country has a very low per capita GDP or has seen little or no growth over the last two decades, it is unlikely that its population is doing very well. Some countries may consciously choose to have lower GDP for very good reasons. Workers in West Europe put in about 20 percent fewer hours on average than workers in the United States. This allows them to have paid sick days, paid family leave, and 4–6 weeks a year of vacation. Having more family time and leisure are good reasons for sacrificing some amount of output. 

In short, GDP is a useful but limited measure. The problem is not with GDP, but with people who might see it as a comprehensive measure of well-being. It isn't.

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The Washington Post ran a piece on the dispute in France over weakening labor protections for workers. The piece told readers the law removing protections (such as weakening rules on the 35-hour workweek) is:

"...an attempt to combat unemployment — an issue all over Europe that is especially acute in France, where the rate has stubbornly lingered over 10 percent for some time now, just below its high in the mid-1990s."

It is far from obvious that weakening protections will be an effective way to reduce unemployment. The most obvious reason that France has high unemployment today is weak demand as a result of the austerity policies demanded by Germany and the European Union. If the issue is structural problems in the labor market it's hard to explain how France was able to have much lower unemployment rates in 2005–2007 when it had all the same structural problems in the labor market.

The piece also exaggerates the extent to which France's labor market has failed to adjust following the crisis. According to the OECD, the employment to population ratio (EPOP) in France for people between the ages 16 and 65 is 63.9 percent, 1.0 percentage point below its pre-crisis peak of 64.9 percent. By comparison, the EPOP in the United States is 69.3 percent, 2.7 percentage points below its pre-crisis level. The difference is explained by the fact that more U.S. workers have dropped out of the labor market in the last eight years.

There is a similar story among young people (ages 16–24) where the EPOP in the United States is down by 5.3 percentage points. By comparison, in France it is only down by 2.6 percentage points, albeit from a much lower start point. (French college students don't pay tuition and receive a stipend from the government, as a result, they generally don't work while in school.)

The most obvious way to reduce unemployment in France would be to increase government spending and/or improve the trade balance by reducing the value of the country's currency. Both of these options now appear to be precluded by the decisions of the country's leaders, however; this is the cause of high unemployment in France, not the 35-hour workweek.

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Back in the old days reporters and editors tried to eliminate excess words from news articles to make them as short as possible. That's why it is interesting to see the Washington Post go the other way. In an article assessing the presidential race it told readers:

"Clinton performed poorly against Sen. Bernie Sanders of Vermont in Democratic primaries in this part of the country — partly because of her past support for free-trade agreements and partly because Sanders’s promises to focus on economic issues and income inequality resonated with voters.'

Of course, these were not actually "free-trade" deals. They didn't free trade in many areas, like physicians and dentists' services. And, they increased protectionism in some areas, making patents and copyrights stronger and longer. Therefore, it is inaccurate to describe deals like NAFTA, CAFTA, or the Trans-Pacific Partnership as "free-trade" agreements. And, it adds an unnecessary word.

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The Washington Post really, really doesn't like Bernie Sanders and they miss no opportunity to display this dislike. For this reason, it is not surprising that they had a field day highlighting a report from the Tax Policy Center showing that his program would increase the debt by $18 trillion over the course of a decade. As the folks at Fairness and Accuracy in Reporting (FAIR) noted, this study was good for four different pieces over a seven hour period.

The main story in the Tax Policy Center analysis was that Sanders universal Medicare program would cost far more than he assumes. While they have some basis for their pessimism, it would have been reasonable to note that Sanders has some basis for his numbers. Specifically, other countries that have single-payer type systems have costs that are comparable to what Sanders assumes in his projections.

Of course getting from here to there is hardly an easy task and the Post and anyone else would be right to be skeptical about whether it could be done smoothly. But an honest discussion would make this point clearly. In other words, if we could make our health care system work as well as the systems in the United Kingdom, Denmark, or Canada, then Sanders would be right about the cost.

The Tax Policy Center is saying that it can't be done. Again, they could be right, but it is not obvious that our government is that much more incompetent and/or corrupt than the governments in these other countries. In any case, the job of a newspaper should be to provide information to readers, which the Post has clearly done in its single-minded crusade to trash Bernie Sanders and his agenda.

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It would be nice if the Washington Post tried to hire more reporters and fewer mind readers. In a piece explaining that presumptive Republican presidential nominee Donald Trump opposes the privatization of Medicare and Social Security championed by House Speaker Paul Ryan, the Post told readers:

"First, Medicare: Many Republicans think the expensive federal system that guarantees unlimited health-care coverage to those 65 and older threatens to bankrupt the nation without spending cuts or significantly higher taxes" (emphasis added).

Reporters don't know what Republican politicians think, they just know what they say. It would be best if the Post tried to restrict itself to reporting on the latter. As far as the substance, the Post is once again trying to push a story with no basis in reality that implies future generations will be worse off than today's workers and retirees due to the cost of Social Security and Medicare. To advance this view it uncritically presents the account of Representative David Schweikert, a proponent of privatizing Medicare.

"'I don’t care about my grandkids,' Rep. David Schweikert (R-Ariz.) recalled one voter saying at a town-hall meeting, after Schweikert had explained that entitlements needed to be cut so debt would not overwhelm future generations. 'I want every dime,' the man said."

In fact, all the economic projections from official sources, like the Congressional Budget Office (CBO) and the Social Security Trustees, show that on average this person's grandkids will be hugely richer than the voter to whom Rep. Schweikert referred. The main threat to their living standards is the continuation of the policies that have been redistributing income upwards over the last thirty five years, such as high unemployment, trade policies that protect doctors, lawyers, and other highly paid professionals while deliberately exposing less educated workers to competition, and stronger and longer patent and copyright protections. Most Republicans strongly support these policies, which should make a reporter question whether the well-being of our grandchildren could be the real reason they support privatizing Medicare.

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That would seem to be the implication of an article warning about the economic consequences of lower birth rates. The piece notes the falloff in birth rates following the recession and points out that it has not recovered. It presents the prospect of fewer young people as a serious economic problem.

It, of course, is a serious problem if people feel that they are too financially insecure to have children; however, it is difficult to see any obvious economic problems resulting from that decision. A declining population means less pollution, less strain on the infrastructure, and lower priced housing. (Germany is held up as a horror story with its low birth rate. It is worth noting that housing costs have risen much less rapidly in Germany over the last two decades than in the United States.) If our children end up spending a smaller share of their income on housing costs than we do, this is not a problem.

 

 

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Ruth Marcus used her column today to present the speech that House Speaker Paul Ryan should give to the Republican convention in order to disassociate himself from Donald Trump. She has Paul Ryan being somewhat less than honest.

Most notably, she wants Ryan to say:

"I have spent my life believing in, and fighting for, the ideals of the Republican Party: limited government, fiscal responsibility, free trade and free markets, the United States’ role as the world’s most important force for peace and liberty. It is not clear to me which, if any, of those convictions Mr. Trump shares."

Ryan actually doesn't want limited government, he actually wants pretty much no government. He has repeatedly introduced budgets that call for eliminating all of the federal government except Social Security, Medicare, Medicaid, and the military by 2050. His budgets provide zero funding for the Justice Department, the State Department, the Food and Drug Administration, the National Institutes of Health, the Education Department, the National Park Service and everything else we think of as the federal government.

As a big supporter of stronger and longer patent and copyright protection, it is hard to see how Ryan can claim to be a supporter of free trade and free markets. As far as fiscal responsibility, Ryan has proposed huge tax cuts that would go disproportionately to the wealthy, which he claims will be offset by ending deductions which he has never named.

She also has a reference to Social Security and Medicare, with Ryan then saying that he wants to "get entitlement spending under control." If Ryan were being honest he would of course tell the convention that he wants to privatize both programs.

It's not clear why Ms. Marcus thinks it's appropriate for Ryan to misrepresent his fundamental political positions in this address to the Republican convention.

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The New York Times had a piece on Puerto Rico's financial problems which argued that they are a harbinger for the problems facing many state and local governments. In the process it managed to mix many different stories in a way that does not make much sense.

For example, it reported on the problems of deteriorating infrastructure in many cities and states, specifically citing the case of the troubled Metro transit system in Washington, DC. Infrastructure has historically been an area in which the federal government took substantial responsibility. Unfortunately, it has chosen not to step up its efforts in the last decade, even as the economy has been well below its full employment level of output. The decision by the federal government not to spend money cost the country hundreds of billions of dollars in lost output and needlessly kept millions of people from working. It also means that cities and states will face expensive repair bills and lost economic output in the future due to problems with infrastructure.

The piece also quoted former lieutenant governor Richard Ravitch saying, “New York City has $85 billion of retiree health obligations all by itself.” To put this in context, the city's annual output is over $600 billion. Since this obligation will have to be met over the next three or four decades, Ravitch is referring to a commitment that is equal to roughly 0.5 percent of future income. This is hardly trivial, but not obviously an impossible burden.

The piece then refers to public pension funds in states like New Jersey and Illinois that are badly underfunded. In this context, it notes a warning from the Illinois Supreme Court from 1917 that the pension funds might run into trouble. The origins of these states' current funding problem date to the stock bubble of the 1990s. They opted to put little or nothing into their pension funds as the stock market soared to record highs. Effectively, the rise in the market was making the contributions for them.

When the market crashed in 2000–2002, the pensions were suddenly much more poorly funded. However, the economy was also in a recession and state and local governments were squeezed for cash. Some, like Illinois and New Jersey, chose to forego part of their required contribution, perhaps in the hope that the stock bubble would return. It didn't.

In any case, given the recent origins of the severe pension shortfalls in Illinois, New Jersey, and a few other states, it is probably fair to say that the 1917 warnings were wrong, unless the Court somehow foresaw the stock bubble and crash and its impact on pension funds.

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All Things Considered got things badly wrong in talking about the government debt last night. As most folks know, Donald Trump seemed to imply that he would threaten to default on the debt in order to force creditors to take write-downs on their bonds. He then clarified what he meant, saying that if interest rates rise, he would look to buy back government bonds at a discount.

For some reason, this left NPR befuddled:

"It's not clear how that would work, though, since the cash-strapped government would have to borrow more money at rising interest rates to buy back its old debt. Holtz-Eakin was left scratching his head."

It's actually very clear how this would work. The government would borrow money at higher interest rates (it doesn't matter if interest rates are rising), to buy back bonds whose market value is less than their nominal value. This is a very simple story, when interest rates rise, the market rise of bonds already issued falls. This would allow the government to reduce the nominal value of its outstanding debt, even if it doesn't reduce its interest burden.

If it seems strange to people that the government would care about reducing the nominal value of its debt, then they haven't been paying attention to policy debates in Washington over the last decade. There has been a huge amount of energy devoted to keeping down the debt-to-GDP ratio. In fact, there was a widely held view in policy circles that if the debt-to-GDP ratio exceeded 90 percent, then the economy would face a prolonged period of slow growth. This view was first espoused by Carmen Reinhart and Ken Rogoff, two prominent Harvard professors. It was frequently referenced in publications like the New York Times, Washington Post, and undoubtedly mentioned on NPR. It was also a main justification for the budget cuts put in place in 2011.

The numerator in this debt-to-GDP ratio is the nominal debt, the number that could be reduced by exactly the sort of financial engineering that Donald Trump proposed. For this reason it is difficult to understand why Trump's proposal would have left Douglas Holtz-Eakin (a former head of the Congressional Budget Office and chief economist for George W. Bush) scratching his head.

Of course it is silly to be worried about the ratio of nominal debt to GDP, but that can't erase the fact that this ratio has been a central concern in policy circles for some time. It doesn't speak well of our media that they only recognize that the debt-to-GDP ratio doesn't matter when the point is raised by Donald Trump, but not when it is raised by elite economists and top policy makers. (Erskine Bowles and Alan Simpson frequently made reference to the 90 percent figure when they chaired President Obama's deficit commission.)

What matters much more than the ratio of debt to GDP is the ratio of interest payments to GDP. If we net out the interest refunded by the Federal Reserve Board, this ratio now stands at 0.8 percent of GDP. By comparison, it was more than 3.0 percent of GDP in the early 1990s. These numbers don't fit the deficit crisis story widely preached in the media, but if we want to get serious, that would be the number to focus on.

Addendum:

In case you were wondering how anyone could be concerned about the ratio of nominal debt to GDP, here is NPR on the topic back in 2011. 

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It really is amazing what you can find in the Washington Post's opinion pages. The latest is Robert Samuelson complaining that the problem with the weak recovery is that people are saving too much. This is amazing for two reasons: first, it is not true, and second if people saved less they would have even less money to support themselves in retirement.

Starting with the first point, the saving rate is actually quite low by historical standards. It is just over 5.0 percent. The only periods in which it was lower was when the wealth generated by the stock bubble in the 1990s and the housing bubble in the last decade pushed the saving rate somewhat lower. For most of the 1960s and 1970s it was over 10.0 percent. Even in the 1980s it averaged more than 7.0 percent. (No, there should not be a downward trend in saving rates, unless you think that people will eventually have zero money in retirement.)

fred savings
If we want to see the origins of the economy's shortfall of demand, the trade deficit is the obvious place to look. If the trade deficit was 1.0 percent of GDP, as opposed to its current 3.0 percent of GDP, this would have the same impact on demand as a drop in the savings rate of 2.5 percentage points. The standard route for getting a lower trade deficit is a lower valued dollar, but apparently no one is supposed to make this point in the Washington Post's opinion pages. (The savings rate is likely overstated at present. There is a large gap between the income side measure of GDP and the output side. This likely reflects some amount of capital gains wrongly being recorded as ordinary income. If income is overstated, it would cause the reported savings rate to be higher than the true saving rate.)

The other reason why the complaint about excessive savings is bizarre is that Samuelson, like most of the rest of his colleagues in the opinion section, regularly calls for cutting Social Security and Medicare. So apparently Samuelson both wants retirees to have less personal savings to support themselves at the same time they have less support from public social insurance programs: only in the Washington Post.

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I guess we can get a pretty good sense of the priorities of the folks at ABC News from the headline of a piece on the costs of replacing the country's lead water pipes. The headline noted the price for Flint and then warned of the "colossal price tag for a US-wide remedy."

The piece gives two estimates of the cost. One puts the costs at between a few billion dollars and fifty billion dollars. The other puts it at $30 billion. If we take the latter figure and assume that the pipes will be replaced over the next decade, the cost would come to roughly 0.025 percent of GDP. (GDP will average roughly $20 trillion, in 2016 dollars, over the next decade.) 

To give some points of comparison, we spend roughly 3.5 percent of GDP on the military. Patent protection for prescription drugs raise their cost by close to 2.0 percent of GDP. And, protected our doctors from international competition raises our annual health care bill by 0.5 percent of GDP.

Note: An earlier version wrongly put average GDP over the next decade at $20 billion.

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I see Greg Mankiw used his NYT column to tell folks that politicians are spinning tales when they say the economy is rigged. I would say that economists spin tales when they tell you it is not. (Mankiw and I just ran through this argument on a panel in Boston last week.) Let's quickly run through the main points.

First, the overall level of employment is a political decision. We would have many more people employed today if the deficit hawks had not seized control of fiscal policy back in 2011 and turned the dial toward austerity. The beneficiaries of higher employment are disproportionately those at the middle and bottom of the income distribution: people with less education and African Americans and Hispanics. So the politicians pushing austerity decided that millions of people at the middle and bottom would not have jobs.

Furthermore, in a weaker labor market, it is harder for those at the middle and bottom to get pay increases. So the shift to austerity also meant that tens of millions of workers would have to work for lower pay. Read all about it in my book with Jared Bernstein (free, and worth it).  

The second way in which it is rigged is our trade policy. First there is the size of the trade deficit. This is the result of policy choices. Instead of forcing our trading partners to respect Bill Gates copyrights and Pfizer's patents, we could have insisted they raise the value of their currency to move towards more balanced trade. But Bill Gates and Pfizer have more power in setting trade policy than ordinary workers.

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As the media erupt in fury over Donald Trump's comments on the debt, it is worth taking the opportunity to remind people that the interest burden on the national debt is near a post-World War II low. While the debt-to-GDP ratio rose sharply in the Great Recession, because interest rates are extremely low, we face an unusually low interest burden. 

This fact has largely been missing from reporting on the issue. For example a Washington Post piece warning of the end of the world if Trump tried to negotiate on the debt, told readers that the government would pay roughly $255 billion this year in interest on the debt. This includes the $113 billion that the Federal Reserve Board will receive and refund back to the Treasury. That leaves a net interest burden of $142 billion, a bit less than 0.8 percent of GDP. By comparison, the interest burden was over 3.0 percent of GDP in the early 1990s.

It is also worth noting that we actually could buy back debt at a discount if interest rates rose. When interest rates rise, the market value of long-term debt falls. This means that the government could issue new debt, which would pay a higher interest rate, to buy back debt with a higher face value, thereby reducing its debt, but leaving its interest burden unchanged. 

There is no economic reason to do this sort of financial engineering, but there are people who worry about debt to GDP ratios apart from the interest burden, like Harvard economics professors, the Washington Post editorial page writers, and Washington budget wonks. As a result, this sort of financial engineering may be a useful way to alleviate concerns on the debt and free up public money for productive uses.

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Paul Krugman complains that the media have not exposed the inconsistencies in Paul Ryan's budgets. While there is some truth to that (Ryan never identifies any of the loopholes he would close to cover the cost of lower tax rates), it is more serious that it never reports what Ryan actually proposes.

Ryan's budgets, as analyzed by the Congressional Budget Office under his direction, call for eliminating the whole of the federal government by 2050, except for Social Security, Medicare and Medicaid, and the military. This is implied by his reducing everything except Social Security, Medicare, and Medicaid to 3.5 percent of GDP, roughly the current size of the military budget. That leaves zero for the Justice Department, the State Department, the Food and Drug Administration, the National Institutes of Health, the Education Department, the National Park Service and everything else we think of as the federal government.

While Krugman is right in calling attention to proposals to pay for large tax cuts with the elimination of unnamed deductions, it seems more serious that Speaker Ryan is a person who wants to phase out the federal government. That is about as radical a position as you can find in D.C. and Ryan has repeated it many times. (He boasts how CBO scored his plan as eliminating the federal debt.)

Next to no one seems to know that Ryan is an abolitionist. It is difficult to see how someone espousing this view can be seen as a moderate conservative.

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The Washington Post had a piece noting that it is unlikely that the economy will produce the 1 million new jobs in manufacturing by 2016, as promised by President Obama in 2012. The piece is implies that this was an unrealistic promise that Obama should not have made. In fact, the economy had lost more than 2 million manufacturing jobs in the recession, so it was very reasonable to expect that it would get at least half of these jobs back, as it had in prior recoveries.

Jobs in Manufacturing

manu jobs2

                                                 Source: Bureau of Labor Statistics.

The main reason why we did not recover more manufacturing jobs is that the non-oil trade deficit increased by more than 1 percent of GDP since 2012. If the deficit had remained constant as a share of GDP, then we would have easily exceeded the one million jobs target.

The piece also mentioned that President Obama had increased spending on community colleges by $2 billion over the last four years. This is a bit more than 0.01 percent of federal spending over this period.

Note:

As Ryan Denniston rightly points out in his comment, expressing the spending on community colleges as a share of the total budget is not very helpful. As a better point of reference, the American Association of Community Colleges put the number of people taking courses at community colleges at 12.8 million in the fall of 2012. This means that the $500 million in addition annual spending secured by President Obama would come to a bit less than $40 per student per year.

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David Brooks used his column today to complain about Hillary Clinton's lack of imagination. (She will face a candidate in the general election with considerable imagination.) One of his highlights is that she has no plan to deal with the problem faced by coal miners and their communities as a result of the loss of coal mining jobs. He tells readers:

"A few decades ago there were 175,000 coal jobs in the U.S. Now there are 57,000. That economic dislocation has hit local economies in the form of shuttered storefronts and abandoned bank buildings."

While the numbers are accurate, readers may have been misled about timing. The vast majority of the job loss took place more than two decades ago and had nothing to do with recent measures to reduce greenhouse gas emissions.

Jobs in the Coal Mining Industry

coal mining jobs

Source: Bureau of Labor Statistics.

Of course this doesn't change the seriousness of the problem for the workers and communities affected, but it is important that readers be clear on its cause. The effect of measures to reduce greenhouse gas emissions are a relatively minor part of this story.

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Trying to make sense of Donald Trump's comments can be a risky business, but it is actually possible that he got it right and the NYT's Neil Irwin got it wrong on dealing with the national debt. Irwin had a NYT Upshot piece in which he discussed Trump's comments on monetary policy. Trump essentially endorsed the low interest rate policy being pursued by Janet Yellen and indicated that he would seek to appoint a Fed chair who would continue to follow this policy. (FWIW, we have yet to hear anything from Secretary Clinton on what sort of people she might appoint to the Fed.)

Irwin goes through Trump's logic on low interest rates and agrees that it is essentially right. But then he turns to Trump's comments on buying back debt at a discount:

"But Mr. Trump also suggested something that would represent a radical shift in United States policy if we take him seriously. 'I’ve borrowed knowing that you can pay back with discounts,' he said. He added, 'Now we’re in a different situation with the country, but I would borrow knowing that if the economy crashed, you could make a deal.'"

If Trump is suggesting that we will get bondholders to take a haircut on debt because the government would otherwise go bankrupt (something Trump has repeatedly done with businesses he owns) then Irwin is right. This would be a radical departure and is frankly almost inconceivable (we could just print the money).

But there is a way this can make sense. If interest rates rise, the situation Trump described, the market value of long-term debt falls. For example, a 30-year bond issued in 2015 at an interest rate of less than 3.0 percent, might sell for less than 70 percent of its nominal value if the long-term interest rate crosses 6 or 7 percent, which it certainly could.

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It is bizarre how many people feel the need to claim that a large trade deficit in manufactured goods does not cost manufacturing jobs. You can argue all sorts of things about the merits of trade, and even make a story about how a trade deficit is good (pretty hard, when we're below full employment), but it is almost impossible to tell a story that the explosion of the trade deficit between 1997 and 2006 did not cost manufacturing jobs.

Nonetheless that is the story the NYT gave its readers when discussing Indiana's economy just before the primaries this week. It presents the views of Michael J. Hicks, director of the Center for Business and Economic Research at Ball State University in Muncie, Indiana:

"Factory jobs have declined, he added, but not because of trade deals with other countries as Mr. Trump and Mr. Sanders assert, but because Indiana factories are increasingly efficient and fewer workers are needed.

"'Manufacturing employment peaked in 1973,' he said, adding that since then the productivity of Indiana factory workers has climbed 250 percent. 'We need far fewer workers, and a very different type of worker, too.'"

In the country as whole manufacturing employment peaked in the early 1970s, but then remained more or less constant, while falling as a share of total employment since the labor force grew. However employment fell sharply in the years from 2000 to 2006. While there was productivity growth in manufacturing over the years 2000 to 2006, that was also true for the years 1973 to 2000. The difference in the years 2000 to 2006 was the sharp rise in the trade deficit.

This was also the story in manufacturing employment in Indiana, as can be seen in the graph below.

Manufacturing Employment in Indiana

Indiana man

                                                                    Source: Bureau of Labor Statistics.

As can be seen, manufacturing employment had been rising through the 1990s recovery. It peaked in December of 1999 at 672,200 and then fell to 556,700 by December of 2006, a drop of almost 20 percent. Employment fell further during the 2008-2009 recession, although it has recovered the ground lost. Anyhow, the data certainly seems to support the case that Indiana lost a large number of jobs due to trade in the years 1999-2006, it's not clear why the NYT would want to deny this fact.

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