The NYT has a strange piece which treats the idea of a four day work week as a sort of alien concept that perhaps we will see in the 22nd century. It is bizarre because there has been a consistent shortening of the length of work years for well over a century. In Germany, France, and other northern European countries the average work year is between 1400 and 1500 hours. This is due to the fact that workers are now guaranteed 5 to 6 weeks a year of vacation, in addition to paid sick days and paid family leave. The United States has been to a large extent an outlier in that it has seen relatively little reduction in work time over the last four decades.
Presumably, this long trend towards shorter work years will continue. While it may not take the form of a four day work week, workers in many countries have already seen an equivalent reduction in work hours. It is also worth noting that if it really turns out that robots will eliminate many of the jobs that now exist (the productivity data point in the opposite direction) then shorter work years is an obvious way to keep people employed.
The NYT has a strange piece which treats the idea of a four day work week as a sort of alien concept that perhaps we will see in the 22nd century. It is bizarre because there has been a consistent shortening of the length of work years for well over a century. In Germany, France, and other northern European countries the average work year is between 1400 and 1500 hours. This is due to the fact that workers are now guaranteed 5 to 6 weeks a year of vacation, in addition to paid sick days and paid family leave. The United States has been to a large extent an outlier in that it has seen relatively little reduction in work time over the last four decades.
Presumably, this long trend towards shorter work years will continue. While it may not take the form of a four day work week, workers in many countries have already seen an equivalent reduction in work hours. It is also worth noting that if it really turns out that robots will eliminate many of the jobs that now exist (the productivity data point in the opposite direction) then shorter work years is an obvious way to keep people employed.
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Last week Joe Stiglitz wrote a piece that included criticisms of the Obama administration for having an inadequate stimulus in response to the Great Recession. Larry Summers, who had been head of Obama’s National Economic Council responded by defending the administration. Stiglitz had a follow-up response to Summers.
Both Stiglitz and Summers are very capable of speaking for themselves so I won’t try to summarize their arguments, but I do want to take issue with one point in Summers’ piece. In his response to Stiglitz, at one point Summers comments:
“He was a signatory to a November 19, 2008 letter also signed by noted progressives James K. Galbraith, Dean Baker, and Larry Mishel calling for a stimulus of $300–$400 billion — less than half of what the Obama administration proposed. So matters were less clear in prospect than in retrospect.”
This is a serious misrepresentation of the letter, which I had helped to draft and circulate. This letter was very clearly referring to a one-year stimulus. It urged leaders in Congress to quickly pass a stimulus:
“The potential severity of the downturn suggests that a boost to demand on the order of 2.0-3.0 percent of GDP ($300-$400 billion) would be appropriate, with the goal being to get this money spent quickly.”
Comparing the sums in a one-year stimulus to the multi-year stimulus request put forward by the Obama administration is comparing apples to oranges.
Furthermore, this letter had been drafted in early October, before we knew the full severity of the downturn following the collapse of the Lehman. At the time of the drafting, we were looking at a job loss of 159,000 reported for September. At the point where the Obama administration was crafting its stimulus package in January of 2009, it was looking at job losses of more than 1.5 million over the prior three months. And the September job loss figure had been revised upward to more than 400,000.
To misrepresent our letter to justify the size of the Obama administration’s stimulus request involves, at the least, an extremely sloppy reading of a one-page document.
Last week Joe Stiglitz wrote a piece that included criticisms of the Obama administration for having an inadequate stimulus in response to the Great Recession. Larry Summers, who had been head of Obama’s National Economic Council responded by defending the administration. Stiglitz had a follow-up response to Summers.
Both Stiglitz and Summers are very capable of speaking for themselves so I won’t try to summarize their arguments, but I do want to take issue with one point in Summers’ piece. In his response to Stiglitz, at one point Summers comments:
“He was a signatory to a November 19, 2008 letter also signed by noted progressives James K. Galbraith, Dean Baker, and Larry Mishel calling for a stimulus of $300–$400 billion — less than half of what the Obama administration proposed. So matters were less clear in prospect than in retrospect.”
This is a serious misrepresentation of the letter, which I had helped to draft and circulate. This letter was very clearly referring to a one-year stimulus. It urged leaders in Congress to quickly pass a stimulus:
“The potential severity of the downturn suggests that a boost to demand on the order of 2.0-3.0 percent of GDP ($300-$400 billion) would be appropriate, with the goal being to get this money spent quickly.”
Comparing the sums in a one-year stimulus to the multi-year stimulus request put forward by the Obama administration is comparing apples to oranges.
Furthermore, this letter had been drafted in early October, before we knew the full severity of the downturn following the collapse of the Lehman. At the time of the drafting, we were looking at a job loss of 159,000 reported for September. At the point where the Obama administration was crafting its stimulus package in January of 2009, it was looking at job losses of more than 1.5 million over the prior three months. And the September job loss figure had been revised upward to more than 400,000.
To misrepresent our letter to justify the size of the Obama administration’s stimulus request involves, at the least, an extremely sloppy reading of a one-page document.
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That was one of the items on the list of factors adding to inflationary pressures in China in this NYT article, but it doesn’t seem very plausible. China is on track to import a bit less than $140 billion worth of goods and services from the United States this year. This is less than 1.0 percent of China’s GDP measured at its exchange rate value. (Using a purchasing power parity measure this would be about 0.6 percent.)
Suppose that China’s trade war tariffs add 30 percent to the price of these imports (a very high assumption). This would push up the overall price level by 0.3 percentage points. However, we are continually reminded that much of China’s exports are primarily foreign value-added. Let’s assume that 40 percent of US exports to China end up as value-added in exports either to the US or third countries. This means that the 30 percent rise in price due to tariffs would add 0.18 percentage points to the price level. That is not exactly soaring inflation.
The fact that the yuan has fallen about 6.0 percent against the dollar over the last six months will almost certainly have more impact on China’s inflation rate. The decline in the value of the yuan was not mentioned in the piece.
That was one of the items on the list of factors adding to inflationary pressures in China in this NYT article, but it doesn’t seem very plausible. China is on track to import a bit less than $140 billion worth of goods and services from the United States this year. This is less than 1.0 percent of China’s GDP measured at its exchange rate value. (Using a purchasing power parity measure this would be about 0.6 percent.)
Suppose that China’s trade war tariffs add 30 percent to the price of these imports (a very high assumption). This would push up the overall price level by 0.3 percentage points. However, we are continually reminded that much of China’s exports are primarily foreign value-added. Let’s assume that 40 percent of US exports to China end up as value-added in exports either to the US or third countries. This means that the 30 percent rise in price due to tariffs would add 0.18 percentage points to the price level. That is not exactly soaring inflation.
The fact that the yuan has fallen about 6.0 percent against the dollar over the last six months will almost certainly have more impact on China’s inflation rate. The decline in the value of the yuan was not mentioned in the piece.
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Ten years ago we saw the culmination of a period of ungodly economic mismanagement with the collapse of Lehman Brothers and a full-fledged financial crisis. The folks who led us into this disaster rushed to do triage and tend to the most important problem: saving the bankrupt banks.
They also had to cover their tracks. They insisted that the financial crisis was some sort of fluke event — a lot of bad things went wrong simultaneously — and who could have predicted or prevented that? They had a lot of assistance in this coverup because almost all the people who did and wrote about economics at the time also missed the housing bubble and the harm that its inevitable collapse would cause.
The coverup continues to the present, largely because the same people who messed up in the years leading up to the crash are still in positions of authority. They are still the ones writing and talking about economics in major news outlets. So we can expect a lot of “who could have known?” drivel in the weeks ahead.
CEPR will be putting out a paper soon showing once again how the bubble was easy to recognize as was the fact that its collapse would be a disaster. Today I will just share one chart that shows much of the story.
The bubble led to an unprecedented run-up in house prices (with no accompanying rise in real rents), which in turn led to residential construction hitting 6.5 percent of GDP, more than two full percentage points above the long-term average. (But hey, who could have noticed that?)
In addition, the bubble-driven increase in housing wealth led to an unprecedented consumption boom as people spent based on their housing wealth. (This is called the “housing wealth effect” which was very old news by the time I was in graduate school in the 1980s.) This consumption boom could be seen in the plunge in the savings rate which is reported monthly by the Commerce Department. That fell to a low of 2.2 percent in 2005. That compares to an average in the years before the stock wealth effect drove down the savings rate in the 1990s of more than 7.0 percent. It is currently also hovering near 7.0 percent. (FWIW, savings data are subject to large revisions. At the time, the savings rate in 2005 was reported as -0.4 percent [Table 10]).
The question everyone should ask the “who could have known?” crowd is how could you miss the unprecedented run-up in house prices. Even more importantly, how did you miss the extent to which it was driving the economy through the construction and consumption boom? And finally, what on earth did you think would replace more than 5.0 percentage points of GDP worth of lost demand ($1,000 billion in today’s economy) when this housing bubble burst?
Those are pretty simple questions, but you won’t see people asking them in major news outlets. They have too much stake in maintaining the myth that people managing the economy really know what they are doing and the crash and financial crisis were fluke events that could not be foreseen. It ain’t so.
Ten years ago we saw the culmination of a period of ungodly economic mismanagement with the collapse of Lehman Brothers and a full-fledged financial crisis. The folks who led us into this disaster rushed to do triage and tend to the most important problem: saving the bankrupt banks.
They also had to cover their tracks. They insisted that the financial crisis was some sort of fluke event — a lot of bad things went wrong simultaneously — and who could have predicted or prevented that? They had a lot of assistance in this coverup because almost all the people who did and wrote about economics at the time also missed the housing bubble and the harm that its inevitable collapse would cause.
The coverup continues to the present, largely because the same people who messed up in the years leading up to the crash are still in positions of authority. They are still the ones writing and talking about economics in major news outlets. So we can expect a lot of “who could have known?” drivel in the weeks ahead.
CEPR will be putting out a paper soon showing once again how the bubble was easy to recognize as was the fact that its collapse would be a disaster. Today I will just share one chart that shows much of the story.
The bubble led to an unprecedented run-up in house prices (with no accompanying rise in real rents), which in turn led to residential construction hitting 6.5 percent of GDP, more than two full percentage points above the long-term average. (But hey, who could have noticed that?)
In addition, the bubble-driven increase in housing wealth led to an unprecedented consumption boom as people spent based on their housing wealth. (This is called the “housing wealth effect” which was very old news by the time I was in graduate school in the 1980s.) This consumption boom could be seen in the plunge in the savings rate which is reported monthly by the Commerce Department. That fell to a low of 2.2 percent in 2005. That compares to an average in the years before the stock wealth effect drove down the savings rate in the 1990s of more than 7.0 percent. It is currently also hovering near 7.0 percent. (FWIW, savings data are subject to large revisions. At the time, the savings rate in 2005 was reported as -0.4 percent [Table 10]).
The question everyone should ask the “who could have known?” crowd is how could you miss the unprecedented run-up in house prices. Even more importantly, how did you miss the extent to which it was driving the economy through the construction and consumption boom? And finally, what on earth did you think would replace more than 5.0 percentage points of GDP worth of lost demand ($1,000 billion in today’s economy) when this housing bubble burst?
Those are pretty simple questions, but you won’t see people asking them in major news outlets. They have too much stake in maintaining the myth that people managing the economy really know what they are doing and the crash and financial crisis were fluke events that could not be foreseen. It ain’t so.
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In an NYT piece assessing the state of the labor market after Friday jobs report, Neil Irwin notes that the employment rate for prime age workers (ages 25 to 54) stood at 79.3 percent in August. That is the same as the 79.3 percent rate in February, indicating that there had been no increase over a six-month period.
However, this may be less compelling as an argument that the labor force is hitting its limits than it initially seems. In August of 2017, the employment rate (EPOP) for prime-age workers stood at 78.4 percent, which also turns out to be the same rate as in February of 2017. In August of 2016, it stood at 77.8 percent, which was also its level in February of 2016. And, in August of 2015, it stood at 77.2 percent. The EPOP for prime-age workers in February of 2015 was also 77.2 percent.
Here’s the picture for the last four years.
Prime Age Employment to Population Ratio
Source: Bureau of Labor Statistics
The data are seasonally adjusted, so the fact that EPOPs have a habit of being the same in August as February can’t be blamed on seasonal factors. It is simply a weird coincidence. But, this should be a warning against putting much stock in the view that the economy is hitting its limits based on the August employment data.
As the good book says, the household data are highly erratic. When you see a weird movement in one month’s data, it is most likely a fluke. You should want to see two or three months before believing it is actually telling us something about the world.
In an NYT piece assessing the state of the labor market after Friday jobs report, Neil Irwin notes that the employment rate for prime age workers (ages 25 to 54) stood at 79.3 percent in August. That is the same as the 79.3 percent rate in February, indicating that there had been no increase over a six-month period.
However, this may be less compelling as an argument that the labor force is hitting its limits than it initially seems. In August of 2017, the employment rate (EPOP) for prime-age workers stood at 78.4 percent, which also turns out to be the same rate as in February of 2017. In August of 2016, it stood at 77.8 percent, which was also its level in February of 2016. And, in August of 2015, it stood at 77.2 percent. The EPOP for prime-age workers in February of 2015 was also 77.2 percent.
Here’s the picture for the last four years.
Prime Age Employment to Population Ratio
Source: Bureau of Labor Statistics
The data are seasonally adjusted, so the fact that EPOPs have a habit of being the same in August as February can’t be blamed on seasonal factors. It is simply a weird coincidence. But, this should be a warning against putting much stock in the view that the economy is hitting its limits based on the August employment data.
As the good book says, the household data are highly erratic. When you see a weird movement in one month’s data, it is most likely a fluke. You should want to see two or three months before believing it is actually telling us something about the world.
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The New York Times had a piece on how education secretary Betty DeVos is trying to block state efforts to prevent abusive practices by student loan servicers after she had weakened federal protections. Her argument is the same one that the federal government used to weaken state rules on mortgage lending practices during the housing bubble years — that federal law preempts state law.
I’ll leave it to the lawyers to decide the legal question here, but the economic one is straightforward. If servicers can make money from abusive practices (e.g. harassing phone calls, illegal threats, and charging arbitrary fees), they will. That is what we expect in a free market economy, businesses try to maximize profit.
While the piece treats this as a consumer protection issue, which it is, it is also one of economic efficiency. If it is possible to make lots of money by ripping off students in servicing their loans, then businesses will devote resources to ripping off students rather than something productive.
Think of it like making stealing cars legal. If people could make lots of money by stealing cars, many will quit their day job and spend their time stealing other people’s cars.
We should also understand the issue of government-issued or government-insured student loans for tuition at for-profit universities the same way. Many of these universities provide little in the way of education and do not give students a marketable skill. As a result, the default rate on loans at many of these schools is often over 40 or 50 percent.
For these for-profit colleges, the students are simply intermediaries to access to government money. They allow students to make tuition payments which they could not possibly do otherwise. The students basically get nothing for their money, but in a world where the government requires no accountability from the schools, this doesn’t matter.
It seems that for Betty DeVos, the point of the student loan program is to make the people who own these for-profit colleges richer with taxpayer money. In this respect, it is probably worth noting that she made the dean of DeVry University, one of the biggest for-profits with a very high default rate, head of the student loan fraud division at the Education Department.
The New York Times had a piece on how education secretary Betty DeVos is trying to block state efforts to prevent abusive practices by student loan servicers after she had weakened federal protections. Her argument is the same one that the federal government used to weaken state rules on mortgage lending practices during the housing bubble years — that federal law preempts state law.
I’ll leave it to the lawyers to decide the legal question here, but the economic one is straightforward. If servicers can make money from abusive practices (e.g. harassing phone calls, illegal threats, and charging arbitrary fees), they will. That is what we expect in a free market economy, businesses try to maximize profit.
While the piece treats this as a consumer protection issue, which it is, it is also one of economic efficiency. If it is possible to make lots of money by ripping off students in servicing their loans, then businesses will devote resources to ripping off students rather than something productive.
Think of it like making stealing cars legal. If people could make lots of money by stealing cars, many will quit their day job and spend their time stealing other people’s cars.
We should also understand the issue of government-issued or government-insured student loans for tuition at for-profit universities the same way. Many of these universities provide little in the way of education and do not give students a marketable skill. As a result, the default rate on loans at many of these schools is often over 40 or 50 percent.
For these for-profit colleges, the students are simply intermediaries to access to government money. They allow students to make tuition payments which they could not possibly do otherwise. The students basically get nothing for their money, but in a world where the government requires no accountability from the schools, this doesn’t matter.
It seems that for Betty DeVos, the point of the student loan program is to make the people who own these for-profit colleges richer with taxpayer money. In this respect, it is probably worth noting that she made the dean of DeVry University, one of the biggest for-profits with a very high default rate, head of the student loan fraud division at the Education Department.
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Robert Samuelson used his Labor Day column to tell us that our pay really didn’t end up in the pockets of rich people. The problem is that it all went to employer-provided health care insurance. The argument is that health care costs have vastly exceeded the overall rate of inflation. Since a standard health care benefit is larger as a share of the pay of a low-wage worker than a high-wage worker, the increased cost of the benefit took away the money that otherwise would have gone into pay increases. He cites a survey (but doesn’t link to it) that purports to show this.
The problem with this story is that it contradicts the data from the Bureau of Labor Statistics which show little change in the share of labor compensation going to employer-provided health insurance. This is true even in lower paying occupations.
For example, the share of compensation going for health benefits for workers in Production, transportation, and material moving occupations went from 8.5 percent in 2004 to 9.8 percent in 2018, according to the Bureau of Labor Statistics Employer Cost for Employee Compensation series. That means that if health insurance costs had remained at a constant share over this period, wages would be approximately 1.4 percentage points higher, adding 0.1 percentage point annually to wage growth. The series actually peaked at 10.4 percent in 2014, which means that declining health care costs should have been adding to wage growth for these workers in the last four years.
There is a similar story for office and administrative support occupations where the wage and salary share of compensation fell from 71.0 percent in 2004 to 69.3 percent in 2018. The latter figure is up from a low of 68.8 percent in 2014. Again, the declining wage share of compensation only explains a small part of the wage stagnation story.
There are three things going on here. First, lower-paid employees are much less likely to have health insurance coverage at their job than was the case two decades ago. Second, they are likely to have less generous coverage, with more deductibles and co-pays. Also, they more often have to pay part of the premium. Finally, in recent years, health care costs have largely moved in step with overall economic growth, which explains their declining share of compensation.
The Washington Post may always have room for people denying that there has been an upward redistribution of income, but it happens not to be true. There has been and it is enormous.
Robert Samuelson used his Labor Day column to tell us that our pay really didn’t end up in the pockets of rich people. The problem is that it all went to employer-provided health care insurance. The argument is that health care costs have vastly exceeded the overall rate of inflation. Since a standard health care benefit is larger as a share of the pay of a low-wage worker than a high-wage worker, the increased cost of the benefit took away the money that otherwise would have gone into pay increases. He cites a survey (but doesn’t link to it) that purports to show this.
The problem with this story is that it contradicts the data from the Bureau of Labor Statistics which show little change in the share of labor compensation going to employer-provided health insurance. This is true even in lower paying occupations.
For example, the share of compensation going for health benefits for workers in Production, transportation, and material moving occupations went from 8.5 percent in 2004 to 9.8 percent in 2018, according to the Bureau of Labor Statistics Employer Cost for Employee Compensation series. That means that if health insurance costs had remained at a constant share over this period, wages would be approximately 1.4 percentage points higher, adding 0.1 percentage point annually to wage growth. The series actually peaked at 10.4 percent in 2014, which means that declining health care costs should have been adding to wage growth for these workers in the last four years.
There is a similar story for office and administrative support occupations where the wage and salary share of compensation fell from 71.0 percent in 2004 to 69.3 percent in 2018. The latter figure is up from a low of 68.8 percent in 2014. Again, the declining wage share of compensation only explains a small part of the wage stagnation story.
There are three things going on here. First, lower-paid employees are much less likely to have health insurance coverage at their job than was the case two decades ago. Second, they are likely to have less generous coverage, with more deductibles and co-pays. Also, they more often have to pay part of the premium. Finally, in recent years, health care costs have largely moved in step with overall economic growth, which explains their declining share of compensation.
The Washington Post may always have room for people denying that there has been an upward redistribution of income, but it happens not to be true. There has been and it is enormous.
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Perhaps it has something to do with the ten-year anniversary of the Lehman crash, but we seem to be seeing more financial crisis stories in the media lately. Today’s version comes to us from The New York Times in a column by Bethany McLean, headlined “the next financial crisis lurks underground.” The subhead tells us the basic story:
“Fueled by debt and years of easy credit, America’s energy boom is on shaky footing.”
The piece looks to be a very reasonable discussion of the fracking boom and points out that most fracking operations are not profitable. It describes fracking as essentially a Ponzi scheme, where fracking companies are able to survive by finding suckers to buy their stock. Most frackers don’t actually make enough money to repay their debts and generate a profit.
All of this sounds very plausible, although a jump back to 2014 type oil prices ($100 a barrel or higher) would presumably change this picture. (That’s not a prediction, just noting the arithmetic.) But the problem is that if the Ponzi game ends, where is the financial crisis? We are told:
“Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry’s net debt in 2015 was $200 billion, a 300 percent increase from 2005.”
Okay, so suppose two-thirds this debt goes bad and investors get back fifty cents on the dollar, both pretty extreme assumptions. That comes to $67 billion in losses on $134 billion in debt, an amount equal to 0.34 percent of GDP. Perhaps there is a world where this gives us a financial crisis, but not this one.
Just to be clear, The New York Times picks the headline, not the author of the column. The column is a perfectly reasonable piece on fracking, the headline is not.
Perhaps it has something to do with the ten-year anniversary of the Lehman crash, but we seem to be seeing more financial crisis stories in the media lately. Today’s version comes to us from The New York Times in a column by Bethany McLean, headlined “the next financial crisis lurks underground.” The subhead tells us the basic story:
“Fueled by debt and years of easy credit, America’s energy boom is on shaky footing.”
The piece looks to be a very reasonable discussion of the fracking boom and points out that most fracking operations are not profitable. It describes fracking as essentially a Ponzi scheme, where fracking companies are able to survive by finding suckers to buy their stock. Most frackers don’t actually make enough money to repay their debts and generate a profit.
All of this sounds very plausible, although a jump back to 2014 type oil prices ($100 a barrel or higher) would presumably change this picture. (That’s not a prediction, just noting the arithmetic.) But the problem is that if the Ponzi game ends, where is the financial crisis? We are told:
“Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry’s net debt in 2015 was $200 billion, a 300 percent increase from 2005.”
Okay, so suppose two-thirds this debt goes bad and investors get back fifty cents on the dollar, both pretty extreme assumptions. That comes to $67 billion in losses on $134 billion in debt, an amount equal to 0.34 percent of GDP. Perhaps there is a world where this gives us a financial crisis, but not this one.
Just to be clear, The New York Times picks the headline, not the author of the column. The column is a perfectly reasonable piece on fracking, the headline is not.
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