December 4, 2015

December 4, 2015 (Jobs Byte)

Mark WeisbrotFolha de Sao Paulo, December 3, 2015

December 2015, David Rosnick

Matt Yglesias is trying to convince people that we should not be mad at Alan Greenspan, the Bush administration economic policy team, and the economics profession for missing the housing bubble that sank the economy. He says that "financial bubbles are much harder to spot than people realize" and argues that the subsequent history shows that I actually was wrong in identifying a housing bubble in 2002.

There are two important points that need to be made here. First, my claim has always been that identifying asset bubbles that move the economy is in fact easy. This both narrows the scope for observation and also gives us more evidence against which to check the assessment. In terms of narrowing the scope, I would not hazard a guess as to whether there is a bubble in the market for platinum or barley. You would need to do lots of homework about these specific industries and also the prospects for related sectors that could provide platinum or barley substitutes, as well as the industries that use these commodities as inputs.

In looking at the housing market in 2002, it was possible to see that sale prices had diverged sharply from rents. While sale prices had already risen by more 30 percent compared with their long-term trend, rents had gone nowhere. Also, the vacancy rate in the housing market was at record highs. This strongly suggested that house prices were not being driven by the fundamentals. (Weak income growth also seemed inconsistent with surging house prices.) If families suddenly wanted to commit so much more of their income to housing, why wasn't it affecting rents and why were so many valuable units sitting empty?

And, the housing market was clearly driving the economy. Housing construction was reaching a record share of GDP. This was not something that would be expected when most of the baby boom cohort was looking to downsize as kids moved out of their homes. Also, the housing wealth created by the bubble was leading to a consumption boom, driving savings rates even lower than they had been at the peak of the stock bubble.

I'll confess that I did not expect the bubble to continue as long as it did. I learned from my experience with the stock bubble that the timing of the bursting is pretty much unknowable, but it never occurred to me that Greenspan and other financial regulators would allow the proliferation of junk mortgages to the level they reached in 2004–2006, the peak bubble years.

Contrary to the "who could have known?" alibis told by the folks setting policy, the abusive mortgages being pushed at the time were hardly a secret. The financial press were full of accounts of NINJA loans, where "NINJA" stands for no-income, no job, and no assets. Anyone who cared to know, realized that millions of mortgages were being issued that could only be supported if house prices continued to rise. 

Anyhow, it was inexcusable for the folks at the Fed, at the Council of Economic Advisers, and other policy posts to have been blindsided by the bubble and the damage that would be caused by its collapse. If dishwashers had failed so miserably at their jobs, they would all be unemployed today. Fortunately for economists, they don't have the same level of accountability.

On Friday, the Bureau of Labor Statistics will release its latest jobs report. This month’s report is of special significance given that the Federal Reserve may raise interest rates in mid-December.

News reports typically cite three numbers from each jobs report: the unemployment rate, the number of jobs created, and the number of private-sector jobs created. By themselves, these figures provide an incomplete picture of the labor market. Here are five additional measures worth watching. Hyperlinks have been included so that anyone wishing to check these figures can do so easily on Friday.

Mark WeisbrotHuffington Post, December 1, 2015

Mark WeisbrotAlternet, November 30, 2015

Mark Weisbrot
Huffpost Voces, 30 de noviembre, 2015

Andrew Biggs has a piece in Forbes arguing that the standard estimates of retirees income are flawed because they ignore payouts from defined contribution (DC) accounts like 401(k)s and IRAs. Biggs has a point. There is a fundamental asymmetry in the treatment of traditional defined benefit pensions, which send retirees a check every month, and defined contribution pensions from which retirees must make withdrawals. The checks are generally counted as income on our surveys, the withdrawals often are not.

For this reason Biggs is correct to note that measures derived from the Current Population Survey (CPS), which the Social Security Administration uses for its Income of the Aged report, are likely biased downward. The question is how large the bias is. Based on IRS data, Biggs calculates that the correct number for retiree income might be more than 80 percent higher than the income reported by the CPS, an average understatement of almost $6,000 per person. That would be real money.

There are three reasons to think there might be less here than Biggs suggests.

1) Biggs used 2012 as the basis for his calculations, since this was the most recent year for which the IRS provided data on the over 65 population. It turns out that 2012 is a bad year from which to make extrapolations for reasons that every good tax-hating right-winger should know. The tax rate on high-income households was raised in 2013. This means that if you were one of those households, you would probably have wanted to take more from your IRA in 2012 at the lower tax rate.

If we look at the overall taxable withdrawals from IRAs, there was a drop from $230.8 billion in 2012 to $213.6 billion in 2013. Biggs' extrapolation would have shown an increase in 2013 to roughly $242 billion, an overstatement of more than 13 percent.

Eileen AppelbaumThe Hill, November 30, 2015

Dean Baker
Truthout, November 30, 2015