The NYT had a major editorial arguing against the rush by Republicans (and some Democrats) to selectively deregulate the financial sector. (It is important to note that the industry doesn’t want to eliminate government protections that benefit it, like deposit insurance or the Fed’s support in a crisis.) The gist of the piece is that we are lurching towards another 2008–09 financial crisis. (It is titled “inviting the next financial crisis.”)
The highlight of this argument is the high value of the stock market:
“Consider the stock market, which has shot up after the tax cut was enacted; the S.&P. 500 stock index closed at a new high on Friday. Many analysts argue that the market is not overvalued and has room to run — comments eerily similar to what Wall Street’s salesmen were saying in 2007 and 2008. Yet, the market appears to be more overvalued now than it was before the crisis, according to an indicator created by Robert Shiller, the Yale economist who won a Nobel Prize for his work on bubbles in the stock and real estate markets. His data show that the S.&.P 500 stock index has an adjusted price-to-earnings ratio of 32.29, which indicates that investors are willing to pay $32.29 for $1 of corporate profits. In 2007 and 2008, that ratio never reached 28.”
There are two big problems with this story. The first is that Shiller “adjusted price-to-earnings” ratio is probably not a good guide right now. The 10-year look back period includes the very low profit years of the recession. It also doesn’t pick up the fact that profits have jumped around 15 percent this year because of the tax cut.
It would be great news if Congress were to repeal the tax cut, it is not leading to the promised boom in investment, but that doesn’t seem likely any time soon. It also would be great if profits were eroded due to wage gains. This has been happening to some extent over the last four years, but very slowly. The ratio of stock prices to current earnings is less than 19. That is somewhat above the historic average, which is less than 15, but not hugely out of line, especially in a low interest rate environment.
The other problem with this scare story is that nothing terrible happens if the stock market falls 20–30 percent. We got a recession in 2001 from the bubble bursting because it had led to an investment boom and a consumption boom. That is not true today as both investment and consumption are at very moderate levels. There would likely be little economic fallout from even a large decline in the stock market and it would drastically reduce wealth inequality.
This doesn’t mean the NYT is wrong about the Republicans’ regulatory changes. They will increase economic waste and redistribute income upward. The financial sector is providing an intermediate good. It allocates capital. It is not a good like education or housing where we, in principle, want more. We would like the financial sector to be as small as possible to serve its economic purpose. The Republican agenda will lead to a more bloated financial sector.
However, the idea of the next crisis being around the corner shows that the NYT still has not learned the lesson of the last crisis. A major crisis like the crash in 2008–09 does not just sneak up on us. It was the result of policymakers at the Fed and elsewhere ignoring evidence that was almost impossible to miss about the growth of the housing bubble and the impact it was having on the economy.
It is convenient for many people to act as though this was difficult to see at the time. It is not true.
The NYT had a major editorial arguing against the rush by Republicans (and some Democrats) to selectively deregulate the financial sector. (It is important to note that the industry doesn’t want to eliminate government protections that benefit it, like deposit insurance or the Fed’s support in a crisis.) The gist of the piece is that we are lurching towards another 2008–09 financial crisis. (It is titled “inviting the next financial crisis.”)
The highlight of this argument is the high value of the stock market:
“Consider the stock market, which has shot up after the tax cut was enacted; the S.&P. 500 stock index closed at a new high on Friday. Many analysts argue that the market is not overvalued and has room to run — comments eerily similar to what Wall Street’s salesmen were saying in 2007 and 2008. Yet, the market appears to be more overvalued now than it was before the crisis, according to an indicator created by Robert Shiller, the Yale economist who won a Nobel Prize for his work on bubbles in the stock and real estate markets. His data show that the S.&.P 500 stock index has an adjusted price-to-earnings ratio of 32.29, which indicates that investors are willing to pay $32.29 for $1 of corporate profits. In 2007 and 2008, that ratio never reached 28.”
There are two big problems with this story. The first is that Shiller “adjusted price-to-earnings” ratio is probably not a good guide right now. The 10-year look back period includes the very low profit years of the recession. It also doesn’t pick up the fact that profits have jumped around 15 percent this year because of the tax cut.
It would be great news if Congress were to repeal the tax cut, it is not leading to the promised boom in investment, but that doesn’t seem likely any time soon. It also would be great if profits were eroded due to wage gains. This has been happening to some extent over the last four years, but very slowly. The ratio of stock prices to current earnings is less than 19. That is somewhat above the historic average, which is less than 15, but not hugely out of line, especially in a low interest rate environment.
The other problem with this scare story is that nothing terrible happens if the stock market falls 20–30 percent. We got a recession in 2001 from the bubble bursting because it had led to an investment boom and a consumption boom. That is not true today as both investment and consumption are at very moderate levels. There would likely be little economic fallout from even a large decline in the stock market and it would drastically reduce wealth inequality.
This doesn’t mean the NYT is wrong about the Republicans’ regulatory changes. They will increase economic waste and redistribute income upward. The financial sector is providing an intermediate good. It allocates capital. It is not a good like education or housing where we, in principle, want more. We would like the financial sector to be as small as possible to serve its economic purpose. The Republican agenda will lead to a more bloated financial sector.
However, the idea of the next crisis being around the corner shows that the NYT still has not learned the lesson of the last crisis. A major crisis like the crash in 2008–09 does not just sneak up on us. It was the result of policymakers at the Fed and elsewhere ignoring evidence that was almost impossible to miss about the growth of the housing bubble and the impact it was having on the economy.
It is convenient for many people to act as though this was difficult to see at the time. It is not true.
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The headline of an NYT article on the Trump administration’s plan to overhaul the Jobs Corps program told readers that the program cost $1.7 billion. Since almost none of the NYT’s readers has any idea of the size of the federal budget, this headline was really providing no information whatsoever.
In fact, since $1.7 billion is a very large amount of money to people who are not Bill Gates or Jeff Bezos, it likely misled many readers into believing that this program is a major expenditure for the federal government. In fact, the program comes to roughly 0.04 percent of total federal spending. The fact that it is not a large share of the budget is not a reason to support a program that is wasteful or to not try to have it run better, but it is wrong to think that the federal government has a major commitment to job training or that such spending is a big part of people’s tax bills.
Addendum:
As was pointed out to me, this piece also includes some serious mind reading. We are told, “Progressives see it as an enduring commitment to the poor rooted in a golden age of liberalism. Conservative lawmakers support Job Corps because it encourages low-income young people to work hard.” It would be simple enough to say that the program enjoys support across the political spectrum, noting that progressives “say” they value the commitment to the poor, while conservatives “say” they like the fact that it encourages hard work.
As the piece points out, the actual payments are made to contractors, many of whom are politically connected. This is a plausible alternative explanation for support.
The headline of an NYT article on the Trump administration’s plan to overhaul the Jobs Corps program told readers that the program cost $1.7 billion. Since almost none of the NYT’s readers has any idea of the size of the federal budget, this headline was really providing no information whatsoever.
In fact, since $1.7 billion is a very large amount of money to people who are not Bill Gates or Jeff Bezos, it likely misled many readers into believing that this program is a major expenditure for the federal government. In fact, the program comes to roughly 0.04 percent of total federal spending. The fact that it is not a large share of the budget is not a reason to support a program that is wasteful or to not try to have it run better, but it is wrong to think that the federal government has a major commitment to job training or that such spending is a big part of people’s tax bills.
Addendum:
As was pointed out to me, this piece also includes some serious mind reading. We are told, “Progressives see it as an enduring commitment to the poor rooted in a golden age of liberalism. Conservative lawmakers support Job Corps because it encourages low-income young people to work hard.” It would be simple enough to say that the program enjoys support across the political spectrum, noting that progressives “say” they value the commitment to the poor, while conservatives “say” they like the fact that it encourages hard work.
As the piece points out, the actual payments are made to contractors, many of whom are politically connected. This is a plausible alternative explanation for support.
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As we know, Donald Trump is not very good with numbers. He gave more evidence of this fact when he told a campaign rally in West Virginia:
“When I came, we were heading in a certain direction that was going to allow China to be bigger than us in a very short period of time …That’s not going to happen anymore.”
Actually, China’s economy is already considerably bigger than the US economy. Using the purchasing power parity measure, which is recommended by most economists and the CIA World Factbook, China’s economy is already more than 25 percent larger than the US economy. It is also worth noting that there are no growth projections from any remotely reputable source that show the US economy growing more rapidly than China’s economy.
As we know, Donald Trump is not very good with numbers. He gave more evidence of this fact when he told a campaign rally in West Virginia:
“When I came, we were heading in a certain direction that was going to allow China to be bigger than us in a very short period of time …That’s not going to happen anymore.”
Actually, China’s economy is already considerably bigger than the US economy. Using the purchasing power parity measure, which is recommended by most economists and the CIA World Factbook, China’s economy is already more than 25 percent larger than the US economy. It is also worth noting that there are no growth projections from any remotely reputable source that show the US economy growing more rapidly than China’s economy.
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That’s apparently a big concern of the Chinese government, at least according to this NYT article. An inadequate supply of housing has also led to high rents, according to the article. This is yet another reason for the government to be concerned about a declining population.
That’s apparently a big concern of the Chinese government, at least according to this NYT article. An inadequate supply of housing has also led to high rents, according to the article. This is yet another reason for the government to be concerned about a declining population.
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This is one of the main items in a Washington Post article on the Maryland crab industry. While the gist of the piece is that many of the crab packagers on Maryland’s eastern shore are struggling because they can’t get enough workers as a result of a reduction in the number H2-B visas available, the piece says that the crabbers have increased wages in order to attract more workers.
If the point of the limiting immigration in this sector was to raise wages, then the limits seem to have been successful, according to the evidence presented in the piece. It is entirely possible that some crabbers will go out of business as a result. That is the way capitalism works. Businesses that can’t make a profit paying the prevailing wage go under. This is the reason that the country has only a tiny fraction of the number of family farms that it did a century ago.
This is one of the main items in a Washington Post article on the Maryland crab industry. While the gist of the piece is that many of the crab packagers on Maryland’s eastern shore are struggling because they can’t get enough workers as a result of a reduction in the number H2-B visas available, the piece says that the crabbers have increased wages in order to attract more workers.
If the point of the limiting immigration in this sector was to raise wages, then the limits seem to have been successful, according to the evidence presented in the piece. It is entirely possible that some crabbers will go out of business as a result. That is the way capitalism works. Businesses that can’t make a profit paying the prevailing wage go under. This is the reason that the country has only a tiny fraction of the number of family farms that it did a century ago.
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A Washington Post article on Republican politicians’ apparent willingness to accept Donald Trump’s racist comments told readers:
“Trump and his allies frequently counter by offering economic data that they say is favorable to minorities, seeking to separate Trump’s harsh rhetoric from his policy agenda.”
This comment implies that Trump’s policy agenda has somehow been helpful to blacks and other minorities. It is true that the economy has continued to grow during the Trump administration. It has also generated jobs and had a falling unemployment rate, although at a somewhat less rapid pace than at the end of the Obama administration. And a tight labor market does disproportionately benefit blacks and other minorities.
But it doesn’t follow that these gains have anything to do with Trump’s policies. Unless he deliberately tried to derail the economy it would have continued to create jobs in the last year and a half. Furthermore, almost all his economic policies, starting with his tax cuts, have disproportionately benefited the rich, who are overwhelmingly white. In his policy agenda, Trump has pushed proposals that will make it harder for minorities to get into college, to buy homes, and to get non-predatory loans.
For this reason, it is highly inaccurate for the Post to imply that minorities have benefited from the Trump policy agenda. They have benefited from a strong economy in spite of Trump’s policy agenda.
A Washington Post article on Republican politicians’ apparent willingness to accept Donald Trump’s racist comments told readers:
“Trump and his allies frequently counter by offering economic data that they say is favorable to minorities, seeking to separate Trump’s harsh rhetoric from his policy agenda.”
This comment implies that Trump’s policy agenda has somehow been helpful to blacks and other minorities. It is true that the economy has continued to grow during the Trump administration. It has also generated jobs and had a falling unemployment rate, although at a somewhat less rapid pace than at the end of the Obama administration. And a tight labor market does disproportionately benefit blacks and other minorities.
But it doesn’t follow that these gains have anything to do with Trump’s policies. Unless he deliberately tried to derail the economy it would have continued to create jobs in the last year and a half. Furthermore, almost all his economic policies, starting with his tax cuts, have disproportionately benefited the rich, who are overwhelmingly white. In his policy agenda, Trump has pushed proposals that will make it harder for minorities to get into college, to buy homes, and to get non-predatory loans.
For this reason, it is highly inaccurate for the Post to imply that minorities have benefited from the Trump policy agenda. They have benefited from a strong economy in spite of Trump’s policy agenda.
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The textbook story of why the Trump tax cut would be bad for the economy is that it would lead to higher interest rates, which would discourage investment and construction. (It should also lead to a rise in the dollar against foreign currency, which increases the size of the trade deficit.)
Given the textbook story, it would have been reasonable to expect that the weak housing start data reported by the Commerce Department on Thursday would get some attention. While the Wall Street Journal was on the job, both The New York Times and The Washington Post seem to have ignored the numbers.
The basic story is that July starts were up slightly from June, but still 1.4 percent below year-ago levels. The monthly data are erratic, but over the last three months, starts have averaged 1,215,000 at an annual rate. That compares to an annual rate of 1,317,000 in the first three months of the year.
While this drop is not a disastrous falloff, it does mean that folks who were hoping that increased supply would put downward pressure on housing costs are likely to be disappointed. I know it’s summer, but it would have been worth finding someone to take a few minutes to write up the July data.
The textbook story of why the Trump tax cut would be bad for the economy is that it would lead to higher interest rates, which would discourage investment and construction. (It should also lead to a rise in the dollar against foreign currency, which increases the size of the trade deficit.)
Given the textbook story, it would have been reasonable to expect that the weak housing start data reported by the Commerce Department on Thursday would get some attention. While the Wall Street Journal was on the job, both The New York Times and The Washington Post seem to have ignored the numbers.
The basic story is that July starts were up slightly from June, but still 1.4 percent below year-ago levels. The monthly data are erratic, but over the last three months, starts have averaged 1,215,000 at an annual rate. That compares to an annual rate of 1,317,000 in the first three months of the year.
While this drop is not a disastrous falloff, it does mean that folks who were hoping that increased supply would put downward pressure on housing costs are likely to be disappointed. I know it’s summer, but it would have been worth finding someone to take a few minutes to write up the July data.
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A piece on the status of NAFTA told readers about “the extent of administration officials’ frustration with Canada.” Sorry folks, the NYT really has no idea about the actual extent of the Trump administration officials’ frustration with Canada. They know what these people say and what they do.
As folks familiar with politics know, statements from political figures do not always reflect what they think.
A piece on the status of NAFTA told readers about “the extent of administration officials’ frustration with Canada.” Sorry folks, the NYT really has no idea about the actual extent of the Trump administration officials’ frustration with Canada. They know what these people say and what they do.
As folks familiar with politics know, statements from political figures do not always reflect what they think.
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I already did a tweet on this, but thought it was worth posting here. Jake Tapper did a completely inaccurate fact check on Bernie Sanders and Alexandria Ocasio-Cortez over their claim that a study by a right-wing think tank showed that Medicare for all would save the country $2 trillion over a decade (roughly 0.8 percent of GDP). Tapper misrepresented their comments to say that they claimed the study would save the government $2 trillion. He then points out that the study showed Medicare for all would hugely increase the cost of healthcare to the government.
Of course, the cost to the government will increase if it takes responsibility for the bulk of healthcare payments in the country. No one is contesting this point. The question is what happens to the cost of healthcare to the country as a whole. Sanders and Ocasio-Cortez were accurately citing one of the scenarios in the study on this point.
Tapper owes it to Sanders and Ocasio-Cortez, and more importantly to his audience, to correct himself on this one. It’s a straightforward point and he really should be able to get it right.
Note: I earlier had termed the fact check “dishonest.” This implies I know Tapper’s motives, which I don’t. I changed the term to “inaccurate.”
I already did a tweet on this, but thought it was worth posting here. Jake Tapper did a completely inaccurate fact check on Bernie Sanders and Alexandria Ocasio-Cortez over their claim that a study by a right-wing think tank showed that Medicare for all would save the country $2 trillion over a decade (roughly 0.8 percent of GDP). Tapper misrepresented their comments to say that they claimed the study would save the government $2 trillion. He then points out that the study showed Medicare for all would hugely increase the cost of healthcare to the government.
Of course, the cost to the government will increase if it takes responsibility for the bulk of healthcare payments in the country. No one is contesting this point. The question is what happens to the cost of healthcare to the country as a whole. Sanders and Ocasio-Cortez were accurately citing one of the scenarios in the study on this point.
Tapper owes it to Sanders and Ocasio-Cortez, and more importantly to his audience, to correct himself on this one. It’s a straightforward point and he really should be able to get it right.
Note: I earlier had termed the fact check “dishonest.” This implies I know Tapper’s motives, which I don’t. I changed the term to “inaccurate.”
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