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Paul Krugman, Bernie Sanders, and the Experts

I have tremendous respect for Paul Krugman. I also consider him a friend. For these reasons I am not eager to pick a fight with him, but there is something about his criticisms of Bernie Sanders that really bothered me.

In a blog post last week, Krugman told readers:

“As far as I can tell, every serious progressive policy expert on either health care or financial reform who has weighed in on the primary seems to lean Hillary.”

While I already had some fun with the idea of Krugman revoking the credentials of everyone who works in these areas who does not back Clinton, the appeal to the authority of the “experts” is more than a bit annoying. The reason is that the “experts” do not have a very good track record of late and still have a long way to go to win back the public’s trust.

To start with the obvious, almost none of the experts saw the 2008 collapse coming. Almost all of them dismissed the idea that there was a housing bubble and even the few that grudgingly acknowledged the possibility of a bubble insisted that it could not have much consequence for the economy.

Given the devastation wreaked by the collapse of this bubble, this failure is comparable to weather forecasters missing Hurricane Katrina. Just to be clear, I don’t mean failing to recognize the full severity of the storm, I mean missing the hurricane altogether and forecasting nothing but blue skies for the day it hit. The public could be forgiven for not wanting to trust future forecasts.

Dean Baker / January 31, 2016

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Understanding the Trump/Sanders Constituencies: Inequality Is Something the Elites Did

John Judis has an interesting piece in Vox on the success so far of Donald Trump and Bernie Sanders. They have garnered the support of large numbers of voters who are disaffected with the agenda pushed by the mainstream in both parties. Judis argues that this agenda, which he alternatively describes as “neo-liberal” or “free market,” has been responsible for the rising economic insecurity of the white middle class. This insecurity has led Republicans to embrace Trump’s nationalistic and often racist agenda as well as Sanders’ openly left-wing agenda of a radically expanded welfare state.

There is an important point that Judis leaves out of his story. The policies that have led to so much upward redistribution were not simply “free market,” they were policies that were designed to redistribute income upward.

Starting with trade, the agreements pushed by presidents from both parties did not subject all areas equally to international competition. They quite explicitly put less-educated workers in direct competition with low-paid workers in the developing world by making it as easy as possible to set up factories in Mexico, China, and elsewhere and ship the products without barriers back to the United States. The predicted and actual effect of this sort of trade is to reduce the number of jobs and wages for manufacturing workers. And, by denying workers opportunities in manufacturing, this also puts downward pressure on the wages in the service sectors where former manufacturing workers then looked for jobs.

Real free trade agreements would have made it easier for people in India, China, and elsewhere to train to U.S. standards and then work as doctors, dentists, lawyers and in other highly paid professions in the United States. Instead, the barriers in these professions were largely left in place or even increased.

Driving down the wages of these high-end professionals would have reduced the cost of health care, dental care, and legal services. This raises the real wages of other workers. If the wages of doctors in the United States were reduced to the level of doctors in Europe, it would reduce what we pay our doctors by roughly $100 billion a year. This would be sufficient to add almost $1,000 a year to the paycheck of every worker in the bottom 70 percent of the workforce.

Dean Baker / January 30, 2016

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Cheap Thoughts on Productivity Growth

It continues to amaze me that we have people simultaneously running around terrified that the robots will take all the jobs and at the same time that we will not have enough workers to support a growing population of retirees. (In some cases, it is the same people.) In the first case, productivity would have to go through the roof for a job shortage to be a problem. In the second case, it would have to go through the floor, since even modest rates of productivity growth swamp the impact of the aging of the population.

Thomas Edsall struggled with this issue earlier this week when a cyber-attack was preventing me from getting in my two cents. Now that I’m back, let me firmly throw my hat in with the middle position.

First, the robots taking all the jobs story is almost absurd on its face. How fast do we think productivity will grow that demand and reduced hours cannot keep pace? Productivity grew at a 3.0 percent annual rate from 1947 to 1973. We saw rapid growth in pay and living standards and very low rates of unemployment. Do we think the story would have looked worse if annual productivity growth was 4.0 percent?

It is almost impossible to imagine a story where productivity growth suddenly jumps from its current rate of less than 1.0 percent annually to a pace so rapid that we are losing jobs left and right due to improvements in technology. It is possible to tell a story where the Fed raises interest rates to slow the economy and job creation even as technology is displacing more and more workers.

That is a plausible story given that we have had several members of the Fed’s Open Market Committee that sets interest rates who have been worried about hyper-inflation. But the problem in that case is crazy-bad Fed policy, not robots taking jobs. And, we do the country a horrible disservice if we imply that the problem is somehow technology rather than the people running the Fed.

On the other side, the techno-pessimists essentially want us to believe that we have few or no opportunities to reduce our need for labor, while still maintaining our living standards. That seems to contradict what I see almost everywhere I go.

To take my favorite easy targets, combined employment in restaurants and retail is just over 27 million out of total private sector employment of 121 million. This comes to a bit over 22 percent. Imagine this was cut in half.

Dean Baker / January 29, 2016

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United States

Workers

Employers Are Hiring People Who Aren’t Unemployed

Percent of Newly Employed Who Were Not In Labor Force In Previous Month

The graph above is interesting. It looks at newly employed persons, a group that includes all new hires except for people who were previously employed. There has been an increasing trend during the recovery for employers to hire people who are not in the labor force rather than people who are unemployed.

Before we proceed any further, it’s worth clarifying the Bureau of Labor Statistics’ definitions of the terms employed, unemployed, and not in the labor force (all persons who are employed or unemployed are part of the labor force):

  • Employed: Someone who has a job and is currently working;
  • Unemployed: Someone who does not have a job, wants one, and has applied for a job within the past four weeks;
  • Not in the Labor Force: Someone who does not have a job and has not applied for a job within the past four weeks.

The graph above does not include people who move from one job to another. (However, it’s worth noting that job mobility has been declining – employers are generally not poaching workers from other firms. This means that employers are not competing to hire workers and therefore not raising wages.) Rather, the graph looks at newly employed persons and asks whether they were unemployed or not in the labor force in the previous month.

CEPR and Nicolas Buffie / January 28, 2016

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Washington Post Takes Wild Swings at Bernie Sanders

It’s not surprising that the Washington Post (owned by billionaire Jeff Bezos) would be unhappy with a presidential candidate running on a platform of taking back the country from the millionaires and billionaires. Therefore the trashing of Senator Bernie Sanders in an editorial, “Bernie Sanders fiction-filled campaign,” was about as predictable as the sun rising.

While there is much here that is misleading, it’s worth focusing on the central theme. The piece tells readers:

“The existence of large banks and lax campaign finance laws explains why working Americans are not thriving, he says, and why the progressive agenda has not advanced. Here is a reality check: Wall Street has already undergone a round of reform, significantly reducing the risks big banks pose to the financial system. The evolution and structure of the world economy, not mere corporate deck-stacking, explained many of the big economic challenges the country still faces. And even with radical campaign finance reform, many Americans and their representatives would still oppose the Sanders agenda.”

Dean Baker / January 28, 2016

Article Artículo

Haiti

Latin America and the Caribbean

World

With Haiti Elections Canceled, Negotiations Begin for What Comes Next

Second-round presidential and legislative runoffs, scheduled for Sunday January 24, were abruptly cancelled on Friday, less than 48 hours before polls were to open. Ruling-party backed Jovenel Moise was set to face off against Jude Celestin, who had pledged to boycott the race. Protests against the election increased throughout the week, culminating in a massive demonstration that made its way to the headquarters of the electoral council (CEP) on Friday morning.

“Jan. 24 is no longer opportune for having elections considering the threats against the electoral infrastructure and on the population who would have to go vote,” said CEP president Pierre Louis Opont in cancelling the election.

But if the threat of violence provided the necessary pretext, the writing was already on the wall. Since fraud and irregularity-marred first-round presidential elections in October (and really, since the violent August legislative elections), a growing chorus of Haitian civil society had spoken out against the continuation of the electoral process as is. An evaluation commission, created by the president, found that only eight percent of tally sheets were free from irregularities or manipulation.

“It is crazy to see that it was contemplated to hold a round in these conditions,” on January 24, said a western official working on election-related matters.

The nine-member electoral council had already seen two members resign and two more suspend their activities (one due to corruption allegations). But on Friday, as calls for the election’s cancellation increased and officials frantically rushed to reach a deal, another CEP member threatened to resign. It would have left the institution without a quorum, rendering it unable to legally sign off on election results.

Jake Johnston / January 26, 2016