Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
New house sales were down 5.5 percent in September from their August level and by 13.2 percent from year-ago levels. This is pretty much the textbook story of crowding out from the tax cut.
The story holds that if the government runs large deficits when the economy is near full employment, it will lead to higher interest rates. Higher rates then discourage home buying and construction, investment, and raise the value of the dollar, thereby increasing the trade deficit. These factors together offset the stimulus from the tax cut and eventually leave GDP pretty much the same as it would be without the tax cut, and possibly lower over the long-run.
Of course, it is important to note the role played by the Federal Reserve Board in this story. It has raised repeatedly, partly in response to the boost to growth caused by the tax cut. It has also indicated that it intends to continue to raise rates unless growth slows substantially.
The Fed would justify its rate hikes by claiming the need to prevent a rise in the inflation rate. While this could be right, there is a huge amount of uncertainty about the risk of inflation. To my view, we would be much better off waiting with the rate hikes, and seeing how low the unemployment rate could go, and only begin to raise rates after there is clear evidence of rising inflation. But, I’m not running the Fed.
Anyhow, we are clearly seeing the impact on housing. Mortgage interest rates were just over 3.9 percent last October. Today they are 4.7 percent. This is the main factor weakening the housing market.
And, while the monthly sales data are erratic, we have developed a large backlog of unsold houses, so that the inventory is now equal to 7.1 months of sales. This is the highest inventory since early 2011. This is virtually certain to lead to further declines in construction in the months ahead.
New house sales were down 5.5 percent in September from their August level and by 13.2 percent from year-ago levels. This is pretty much the textbook story of crowding out from the tax cut.
The story holds that if the government runs large deficits when the economy is near full employment, it will lead to higher interest rates. Higher rates then discourage home buying and construction, investment, and raise the value of the dollar, thereby increasing the trade deficit. These factors together offset the stimulus from the tax cut and eventually leave GDP pretty much the same as it would be without the tax cut, and possibly lower over the long-run.
Of course, it is important to note the role played by the Federal Reserve Board in this story. It has raised repeatedly, partly in response to the boost to growth caused by the tax cut. It has also indicated that it intends to continue to raise rates unless growth slows substantially.
The Fed would justify its rate hikes by claiming the need to prevent a rise in the inflation rate. While this could be right, there is a huge amount of uncertainty about the risk of inflation. To my view, we would be much better off waiting with the rate hikes, and seeing how low the unemployment rate could go, and only begin to raise rates after there is clear evidence of rising inflation. But, I’m not running the Fed.
Anyhow, we are clearly seeing the impact on housing. Mortgage interest rates were just over 3.9 percent last October. Today they are 4.7 percent. This is the main factor weakening the housing market.
And, while the monthly sales data are erratic, we have developed a large backlog of unsold houses, so that the inventory is now equal to 7.1 months of sales. This is the highest inventory since early 2011. This is virtually certain to lead to further declines in construction in the months ahead.
Read More Leer más Join the discussion Participa en la discusión
The NYT had an interesting piece noting the differences between the way Sears and other large employers of the last century treated their workers and the way Amazon treats its workers. The focus of the piece is a profit sharing plan which gave 10 percent of Sears before-tax profits to workers in the form of a retirement fund that purchased company stock.
While this plan did allow many employees to accumulate substantial assets to support themselves in retirement, it is worth noting that a similar commitment would not have the same impact for Amazon workers. Amazon made $3 billion in profit last year. Ten percent of this figure would be $300 million. If it divided this sum equally among its 500,000 employees, that would come to $600 each.
While this is not an altogether trivial sum, it is not likely to provide for a very generous retirement. It amounts to 2.0 percent of the annual earnings of a full-time worker getting $15 an hour.
The NYT had an interesting piece noting the differences between the way Sears and other large employers of the last century treated their workers and the way Amazon treats its workers. The focus of the piece is a profit sharing plan which gave 10 percent of Sears before-tax profits to workers in the form of a retirement fund that purchased company stock.
While this plan did allow many employees to accumulate substantial assets to support themselves in retirement, it is worth noting that a similar commitment would not have the same impact for Amazon workers. Amazon made $3 billion in profit last year. Ten percent of this figure would be $300 million. If it divided this sum equally among its 500,000 employees, that would come to $600 each.
While this is not an altogether trivial sum, it is not likely to provide for a very generous retirement. It amounts to 2.0 percent of the annual earnings of a full-time worker getting $15 an hour.
Read More Leer más Join the discussion Participa en la discusión
Ernie Tedeschi has a very useful piece in the NYT Upshot section noting that wage growth is still far below its 1990s boom pace, even though unemployment is actually slightly lower. He notes that the slowdown is pretty much across the board, hitting all demographic groups and industries and occupations. This rules out stories that seek to explain this slowdown as a result of some group of workers lacking the right skills.
He notes three plausible stories that could explain weaker wage growth. One is that the labor market still does not look as tight as the late 1990s if we look at employment rates of prime-age workers (ages 25 to 54) instead of unemployment rates. This reflects people dropping out of the labor force who may still want to work.
The second is weaker productivity growth. Productivity increased at close to a 3.0 percent annual rate in the 1990s boom. In recent years, it has been just over 1.0 percent. It is worth noting that a tight labor market could itself lead to more productivity growth as employers feel more need to economize on labor. We did see strong productivity growth in the second quarter and are likely to see another strong quarter in the third quarter, but these numbers are erratic, so we can’t celebrate just yet.
The third point is the weakening of workers bargaining power, first and foremost from a decline in unionization rates. The fact that the national minimum wage has not been increased for almost a decade would also be a factor.
There is one other point on this topic that is worth mentioning. As Joe Gagnon has pointed out, if we look at acceleration rather than rates of growth, the current period does not look that different than the 1990s boom. In the 1990s, year-over-year wage growth bottomed out at 2.3 percent in 1993, they peaked at 4.3 percent in 1997 and at several subsequent points. This is an increase of 2.0 percentage points, as seen below.
Percentage Increase in Average Hourly Wage for Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
By comparison, year-over-year wage growth bottomed out at 1.2 percent in 2012. It peaked at 2.9 percent in August, an increase of 1.7 percentage points. That is still less than the 2.0 percentage point increase in the rate of wage growth in the nineties boom, but not very much less.
It is also worth noting that the annualized rate of growth comparing the last three months (July, August, September) with the prior three months (April, May, June) is 3.3 percent. This measure is erratic, but I would be willing to bet on some modest acceleration, which will make the increase in wage growth in the current period almost identical to the rise in the 1990s. None of this should make workers feel great, there is still lots ground to make up from the Great Recession, but we may be moving in the right direction.
Ernie Tedeschi has a very useful piece in the NYT Upshot section noting that wage growth is still far below its 1990s boom pace, even though unemployment is actually slightly lower. He notes that the slowdown is pretty much across the board, hitting all demographic groups and industries and occupations. This rules out stories that seek to explain this slowdown as a result of some group of workers lacking the right skills.
He notes three plausible stories that could explain weaker wage growth. One is that the labor market still does not look as tight as the late 1990s if we look at employment rates of prime-age workers (ages 25 to 54) instead of unemployment rates. This reflects people dropping out of the labor force who may still want to work.
The second is weaker productivity growth. Productivity increased at close to a 3.0 percent annual rate in the 1990s boom. In recent years, it has been just over 1.0 percent. It is worth noting that a tight labor market could itself lead to more productivity growth as employers feel more need to economize on labor. We did see strong productivity growth in the second quarter and are likely to see another strong quarter in the third quarter, but these numbers are erratic, so we can’t celebrate just yet.
The third point is the weakening of workers bargaining power, first and foremost from a decline in unionization rates. The fact that the national minimum wage has not been increased for almost a decade would also be a factor.
There is one other point on this topic that is worth mentioning. As Joe Gagnon has pointed out, if we look at acceleration rather than rates of growth, the current period does not look that different than the 1990s boom. In the 1990s, year-over-year wage growth bottomed out at 2.3 percent in 1993, they peaked at 4.3 percent in 1997 and at several subsequent points. This is an increase of 2.0 percentage points, as seen below.
Percentage Increase in Average Hourly Wage for Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
By comparison, year-over-year wage growth bottomed out at 1.2 percent in 2012. It peaked at 2.9 percent in August, an increase of 1.7 percentage points. That is still less than the 2.0 percentage point increase in the rate of wage growth in the nineties boom, but not very much less.
It is also worth noting that the annualized rate of growth comparing the last three months (July, August, September) with the prior three months (April, May, June) is 3.3 percent. This measure is erratic, but I would be willing to bet on some modest acceleration, which will make the increase in wage growth in the current period almost identical to the rise in the 1990s. None of this should make workers feel great, there is still lots ground to make up from the Great Recession, but we may be moving in the right direction.
Read More Leer más Join the discussion Participa en la discusión
The reporting on Trump’s regulatory reform really fell down big time. The Trump administration has been boasting about $23 billion in savings over the indefinite future. As this Bloomberg article points out, this comes to $1.64 billion per year.
What this and other articles neglect to mention is that this is not net savings. This figure is the savings to the person subject to the regulation, for example, the homeowner who wants to dump their sewage on their neighbor’s lawn rather than putting in place a proper septic system or getting hooked up to the city sewage system. The savings to the homeowner are likely more than offset by the damage to their neighbor’s property.
The Trump administration has calculated savings that only look at the benefits to corporations in the position of the homeowner. It has not attempted to incorporate the costs of the harm done to others for example by having more polluted air or water.
It would also be useful to put the projected savings in some context since few people have a good idea of how much $1.64 billion annually means to the economy or their pocketbook. This figure is equal to a bit more than 0.005 percent of GDP or a bit more than $5 per person per year. It less than 0.5 percent of the additional money that patients must pay to drug companies each year because of government-granted patent monopolies and related protections.
The reporting on Trump’s regulatory reform really fell down big time. The Trump administration has been boasting about $23 billion in savings over the indefinite future. As this Bloomberg article points out, this comes to $1.64 billion per year.
What this and other articles neglect to mention is that this is not net savings. This figure is the savings to the person subject to the regulation, for example, the homeowner who wants to dump their sewage on their neighbor’s lawn rather than putting in place a proper septic system or getting hooked up to the city sewage system. The savings to the homeowner are likely more than offset by the damage to their neighbor’s property.
The Trump administration has calculated savings that only look at the benefits to corporations in the position of the homeowner. It has not attempted to incorporate the costs of the harm done to others for example by having more polluted air or water.
It would also be useful to put the projected savings in some context since few people have a good idea of how much $1.64 billion annually means to the economy or their pocketbook. This figure is equal to a bit more than 0.005 percent of GDP or a bit more than $5 per person per year. It less than 0.5 percent of the additional money that patients must pay to drug companies each year because of government-granted patent monopolies and related protections.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
For those who were wondering what the conflicting estimates of $300 million a year by Democratic gubernatorial candidate Stacey Abrams and $450 million a year by her Republican opponent, Brian Kemp, would mean for the people of Georgia, these figures might be helpful. The NYT article should have included something like this.
For those who were wondering what the conflicting estimates of $300 million a year by Democratic gubernatorial candidate Stacey Abrams and $450 million a year by her Republican opponent, Brian Kemp, would mean for the people of Georgia, these figures might be helpful. The NYT article should have included something like this.
Read More Leer más Join the discussion Participa en la discusión
The NYT had a piece on how drug companies fear that if the Democrats retake the House, they may work together with Donald Trump to lower drug prices. At one point the piece tells readers;
“The Democrats’ proposal for the government to negotiate drug prices for millions of Medicare patients is their preferred solution. But it would also face the most opposition, from drug makers and Republicans who see it as a step toward price controls.”
It’s great we have NYT reporters who can read the minds of Republican members of Congress so that they can tell us they oppose negotiated drug prices because they “see it as a step toward price controls.” Those of who can’t read minds might have thought that Republicans in Congress oppose negotiated drug prices because it would lower the profits of the drug companies who contribute to their campaigns.
Since this piece discusses a number of mechanisms for containing drug prices, it also would have been worth mentioning a proposal that got the support of 17 Democratic senators (lead sponsors Bernie Sanders and Elizabeth Warren), which would replace government-granted patent monopolies as a mechanism for financing research with direct government funding. This would allow new drugs to be immediately sold at free market prices.
Of course, the drug companies would probably kill to prevent such legislation from passing since they are strongly opposed to a free market in prescription drugs.
The NYT had a piece on how drug companies fear that if the Democrats retake the House, they may work together with Donald Trump to lower drug prices. At one point the piece tells readers;
“The Democrats’ proposal for the government to negotiate drug prices for millions of Medicare patients is their preferred solution. But it would also face the most opposition, from drug makers and Republicans who see it as a step toward price controls.”
It’s great we have NYT reporters who can read the minds of Republican members of Congress so that they can tell us they oppose negotiated drug prices because they “see it as a step toward price controls.” Those of who can’t read minds might have thought that Republicans in Congress oppose negotiated drug prices because it would lower the profits of the drug companies who contribute to their campaigns.
Since this piece discusses a number of mechanisms for containing drug prices, it also would have been worth mentioning a proposal that got the support of 17 Democratic senators (lead sponsors Bernie Sanders and Elizabeth Warren), which would replace government-granted patent monopolies as a mechanism for financing research with direct government funding. This would allow new drugs to be immediately sold at free market prices.
Of course, the drug companies would probably kill to prevent such legislation from passing since they are strongly opposed to a free market in prescription drugs.
Read More Leer más Join the discussion Participa en la discusión
