Folks may remember that the Republicans sold their tax plan, which centered on a big cut in corporate taxes, with the promise that it will lead to a flood of investment. This would mean higher productivity growth and therefore higher wages. Well, we aren’t really seeing much evidence of that increase to date, but that doesn’t stop the Trump White House from making the claims anyhow.
While noting that unemployment has continued the long downward path begun during the Obama years (just kidding), the White House Council of Economic Advisers (CEA) takes full credit for the recent lows in the overall and black unemployment rates. It also touts the 9.2 percent growth in business fixed investment in the first quarter as evidence that companies are rushing to invest as a result of the tax cut.
This one doesn’t work for two reasons. First, if we were going to see anything like the investment boom promised in the selling of the tax cut we should be seeing growth two or three times this rate. Second, the pace of investment growth in the first quarter is not especially strong. The figure below shows the year over year change in non-residential fixed investment since 2000.
The 9.1 percent year over year growth in the first quarter of 2018 is respectable but hardly indicates any sort of boom. It is well below the growth we saw between the second quarter of 2010 and the second quarter of 2012, which averaged over 15 percent. And even much of the modest uptick that we have seen in the last year is due to oil and gas drilling. This has more to do with higher world energy prices (and the higher gas price we pay at the pump) than the Republican tax plan.
This is not the only boast in the piece that is not quite right. The CEA also takes credit for a boom in manufacturing employment, and especially employment in durable goods manufacturing.
“This uptick in current and future business investment may help explain the sharp rise in durable-goods employment that began with the President’s election but accelerated in November of last year, just before the Tax Cuts and Jobs Act passed Congress (see figure).”
There has been an uptick in durable goods manufacturing employment in the last year or so, but nothing especially out of the ordinary. Here’s the picture if we look at hours worked.
Durable Goods Manufacturing: Index of Aggregate Weekly Hours (percent change, year-over-year)
Source: Bureau of Labor Statistics.
Here also we can see a respectable uptick in hours worked, although no better than what we saw between the middle of 2013 and the end of 2014 when a plunge in world oil prices led to a falloff of employment in energy-related industries. And of course, growth is much weaker than in 2011 and most of 2012.
One item that is worth noting that is not mentioned by the CEA is a sharp decline in the index for May of this year. The index of hours worked in durable goods manufacturing fell by 0.6 percent in the month. While the monthly data are erratic, this could be a sign of weakening demand. Employers often cut back hours before they cut back workers. The job growth in manufacturing is the weakest since last September, so perhaps we are seeing a falloff of growth in the sector.
Anyhow, we’ll have to see whether the pace of manufacturing job growth slows further, but it is clear we are not seeing anything like the boom promised by the promoters of the Republican tax cut.
Folks may remember that the Republicans sold their tax plan, which centered on a big cut in corporate taxes, with the promise that it will lead to a flood of investment. This would mean higher productivity growth and therefore higher wages. Well, we aren’t really seeing much evidence of that increase to date, but that doesn’t stop the Trump White House from making the claims anyhow.
While noting that unemployment has continued the long downward path begun during the Obama years (just kidding), the White House Council of Economic Advisers (CEA) takes full credit for the recent lows in the overall and black unemployment rates. It also touts the 9.2 percent growth in business fixed investment in the first quarter as evidence that companies are rushing to invest as a result of the tax cut.
This one doesn’t work for two reasons. First, if we were going to see anything like the investment boom promised in the selling of the tax cut we should be seeing growth two or three times this rate. Second, the pace of investment growth in the first quarter is not especially strong. The figure below shows the year over year change in non-residential fixed investment since 2000.
The 9.1 percent year over year growth in the first quarter of 2018 is respectable but hardly indicates any sort of boom. It is well below the growth we saw between the second quarter of 2010 and the second quarter of 2012, which averaged over 15 percent. And even much of the modest uptick that we have seen in the last year is due to oil and gas drilling. This has more to do with higher world energy prices (and the higher gas price we pay at the pump) than the Republican tax plan.
This is not the only boast in the piece that is not quite right. The CEA also takes credit for a boom in manufacturing employment, and especially employment in durable goods manufacturing.
“This uptick in current and future business investment may help explain the sharp rise in durable-goods employment that began with the President’s election but accelerated in November of last year, just before the Tax Cuts and Jobs Act passed Congress (see figure).”
There has been an uptick in durable goods manufacturing employment in the last year or so, but nothing especially out of the ordinary. Here’s the picture if we look at hours worked.
Durable Goods Manufacturing: Index of Aggregate Weekly Hours (percent change, year-over-year)
Source: Bureau of Labor Statistics.
Here also we can see a respectable uptick in hours worked, although no better than what we saw between the middle of 2013 and the end of 2014 when a plunge in world oil prices led to a falloff of employment in energy-related industries. And of course, growth is much weaker than in 2011 and most of 2012.
One item that is worth noting that is not mentioned by the CEA is a sharp decline in the index for May of this year. The index of hours worked in durable goods manufacturing fell by 0.6 percent in the month. While the monthly data are erratic, this could be a sign of weakening demand. Employers often cut back hours before they cut back workers. The job growth in manufacturing is the weakest since last September, so perhaps we are seeing a falloff of growth in the sector.
Anyhow, we’ll have to see whether the pace of manufacturing job growth slows further, but it is clear we are not seeing anything like the boom promised by the promoters of the Republican tax cut.
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The Washington Post reported on new research indicating that racial resentment is a major factor in the political support for cuts to TANF, food stamps, and other social welfare programs. While this is undoubtedly true, it is likely that widespread ignorance about the amount of money going to these programs is also a major factor.
Polls consistently show that people hugely overestimate the amount of money that the federal government is spending on various welfare programs. People routinely answer that they think these programs take up 30–50 percent of the budget. The actual figure would be in the neighborhood 3–10 percent, depending on how Medicaid is counted. While some of this exaggeration is attributable to racial bias, where people want to believe that their money is going to people of color, many liberals who support these programs also hugely exaggerate their size.
Part of the reason for the exaggeration is that the media routinely report spending in raw numbers that are absolutely meaningless to almost everyone who hears them. When the media report that we are spending $16.5 billion a year on TANF, that sounds like a huge amount of money to most people who hear it.
On the other hand, if the media cared about informing people, rather than stupid fraternity ritual reporting, it could tell people that we spend less than 0.4 percent of the budget on TANF. Unfortunately, reporters almost never put these huge numbers in any context where their audience will understand it, even though everyone acknowledges that no one can make any sense of $16.5 billion without context.
It is not easy to find effective ways to combat racial prejudice. It is easy to put big numbers in context. It is really sad that so many people who complain about racial prejudice are too damn lazy to take the few seconds needed to put big numbers in context.
The Washington Post reported on new research indicating that racial resentment is a major factor in the political support for cuts to TANF, food stamps, and other social welfare programs. While this is undoubtedly true, it is likely that widespread ignorance about the amount of money going to these programs is also a major factor.
Polls consistently show that people hugely overestimate the amount of money that the federal government is spending on various welfare programs. People routinely answer that they think these programs take up 30–50 percent of the budget. The actual figure would be in the neighborhood 3–10 percent, depending on how Medicaid is counted. While some of this exaggeration is attributable to racial bias, where people want to believe that their money is going to people of color, many liberals who support these programs also hugely exaggerate their size.
Part of the reason for the exaggeration is that the media routinely report spending in raw numbers that are absolutely meaningless to almost everyone who hears them. When the media report that we are spending $16.5 billion a year on TANF, that sounds like a huge amount of money to most people who hear it.
On the other hand, if the media cared about informing people, rather than stupid fraternity ritual reporting, it could tell people that we spend less than 0.4 percent of the budget on TANF. Unfortunately, reporters almost never put these huge numbers in any context where their audience will understand it, even though everyone acknowledges that no one can make any sense of $16.5 billion without context.
It is not easy to find effective ways to combat racial prejudice. It is easy to put big numbers in context. It is really sad that so many people who complain about racial prejudice are too damn lazy to take the few seconds needed to put big numbers in context.
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In an NYT Upshot piece, Neil Irwin outlined the risks that are posed to the US and world economy if Italy were to leave the euro. While the scenarios he sketches are plausible, there are two more positive scenarios worth considering.
First, it is possible that Italy is able to arrange an orderly withdrawal from the euro. In this scenario, there would presumably be some arrangement where the debt is partially written down, or there is some grace period on payments, which would amount to the same thing. This makes it easier for Italy to get through the transition period and possibly get back on a path to healthy growth.
While this seems unlikely, it is worth noting that German Finance Minister Wolfgang Schäuble proposed such an arrangement to the Greek finance minister in the spring of 2015. It doesn’t seem inconceivable that they would adopt a similar view to Italy.
The other possibility is that Germany may give up its religious dogmatism on austerity and commit itself to running more expansionary policies. If Germany’s economy were to grow rapidly and to have a somewhat higher rate of inflation, its increased demand for imports could provide a substantial boost to Italy and other eurozone economies.
Of course, both of these prospects seem unlikely, but it is worth noting that there are some good outcomes that could result from a government in Italy that contemplates leaving the euro.
In an NYT Upshot piece, Neil Irwin outlined the risks that are posed to the US and world economy if Italy were to leave the euro. While the scenarios he sketches are plausible, there are two more positive scenarios worth considering.
First, it is possible that Italy is able to arrange an orderly withdrawal from the euro. In this scenario, there would presumably be some arrangement where the debt is partially written down, or there is some grace period on payments, which would amount to the same thing. This makes it easier for Italy to get through the transition period and possibly get back on a path to healthy growth.
While this seems unlikely, it is worth noting that German Finance Minister Wolfgang Schäuble proposed such an arrangement to the Greek finance minister in the spring of 2015. It doesn’t seem inconceivable that they would adopt a similar view to Italy.
The other possibility is that Germany may give up its religious dogmatism on austerity and commit itself to running more expansionary policies. If Germany’s economy were to grow rapidly and to have a somewhat higher rate of inflation, its increased demand for imports could provide a substantial boost to Italy and other eurozone economies.
Of course, both of these prospects seem unlikely, but it is worth noting that there are some good outcomes that could result from a government in Italy that contemplates leaving the euro.
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Every student who has taken an Econ 101 class knows how a 20 percent tariff leads to corruption. So, why is anyone in the world surprised that the patent monopoly the government gave to Purdue Pharma on OxyContin lead the company to ignore evidence that the drug was being misused?
Hey folks, people respond to incentives. If we give them a patent monopoly that allows them to sell a drug at a price that is several thousand percent above its free market price, then drug companies will try to push the drug as widely as possible. This means ignoring evidence that the drug might be less effective than claimed or even harmful.
Come on, every serious person must understand this fact. Is it really necessary to pretend we are surprised?
Every student who has taken an Econ 101 class knows how a 20 percent tariff leads to corruption. So, why is anyone in the world surprised that the patent monopoly the government gave to Purdue Pharma on OxyContin lead the company to ignore evidence that the drug was being misused?
Hey folks, people respond to incentives. If we give them a patent monopoly that allows them to sell a drug at a price that is several thousand percent above its free market price, then drug companies will try to push the drug as widely as possible. This means ignoring evidence that the drug might be less effective than claimed or even harmful.
Come on, every serious person must understand this fact. Is it really necessary to pretend we are surprised?
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An NYT article discussing the possibility that Italy will leave the eurozone told readers that this decision would defy economic logic. It noted the various downsides for Italy of leaving the euro and then told readers:
“As demonstrated by the Brexit vote, which numerous analyses showed would not be good for Britain’s health, economic logic does not always prevail.”
It’s not at all clear that “economic logic” would dictate that Italy is better off in the euro than outside it. Italy’s economy has stagnated as a result of having little control over its fiscal, monetary, or exchange rate policy. It has consistently performed far worse than “experts” had projected. For example, in 2010 the IMF had projected that its per capita income would be 3.0 percent higher by 2015 (the last year of the projection) than it was in 2010.
Instead, its per capita income was more than 4.0 percent lower in 2015 than in 2010. This difference of 7 percentage points would be equivalent to $4,200 per person in the United States. Italy has still not recovered to its pre-crisis level of income.
The article also asserts that Italy would have trouble paying its euro-denominated debt if it were to leave the euro. While this is true, it is also likely that creditors would accept a partial write-down of the debt. If they are in a situation where they know that they can not recover the full value of their debt, it makes sense to accept a partial payment, which the country would be able to make.
Of course, the creditors may decide to be vindicated and demand full repayment as punishment to Italy for leaving the euro. As the article said, “economic logic does not always prevail.”
An NYT article discussing the possibility that Italy will leave the eurozone told readers that this decision would defy economic logic. It noted the various downsides for Italy of leaving the euro and then told readers:
“As demonstrated by the Brexit vote, which numerous analyses showed would not be good for Britain’s health, economic logic does not always prevail.”
It’s not at all clear that “economic logic” would dictate that Italy is better off in the euro than outside it. Italy’s economy has stagnated as a result of having little control over its fiscal, monetary, or exchange rate policy. It has consistently performed far worse than “experts” had projected. For example, in 2010 the IMF had projected that its per capita income would be 3.0 percent higher by 2015 (the last year of the projection) than it was in 2010.
Instead, its per capita income was more than 4.0 percent lower in 2015 than in 2010. This difference of 7 percentage points would be equivalent to $4,200 per person in the United States. Italy has still not recovered to its pre-crisis level of income.
The article also asserts that Italy would have trouble paying its euro-denominated debt if it were to leave the euro. While this is true, it is also likely that creditors would accept a partial write-down of the debt. If they are in a situation where they know that they can not recover the full value of their debt, it makes sense to accept a partial payment, which the country would be able to make.
Of course, the creditors may decide to be vindicated and demand full repayment as punishment to Italy for leaving the euro. As the article said, “economic logic does not always prevail.”
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(Okay, that’s not exactly what he said.) If you were worried that the pharmaceutical companies were not taking enough of your money, the Republicans have the answer for you. They pushed through the “Right to Try Act,” which will allow people with a terminal illness easier access to drugs that the Federal Drug Administration has not determined to be effective.
While Thiessen sees this as a great thing in his Washington Post column, the obvious problem is that with the incentive provided by government-granted patent monopolies, drug companies will be lying more than ever about the effectiveness of their drugs. As fans of capitalism know, corporations are there to make a profit.
If a drug company can tell a patient dying of cancer that their drug can save them, they can look to charge hundreds of thousands or even millions for the drug. If a person or their family can pick up the tab, or they can get an insurer or the government to pay the bill, they will. (Yes, they can be sued for lying. Good luck with that one.)
Yeah, so what if it actually is ineffective? Wasn’t it worth getting people’s hopes up for nothing and draining their life’s savings?
Yes, Mr. Thiessen is right. Thank the Republicans.
(Okay, that’s not exactly what he said.) If you were worried that the pharmaceutical companies were not taking enough of your money, the Republicans have the answer for you. They pushed through the “Right to Try Act,” which will allow people with a terminal illness easier access to drugs that the Federal Drug Administration has not determined to be effective.
While Thiessen sees this as a great thing in his Washington Post column, the obvious problem is that with the incentive provided by government-granted patent monopolies, drug companies will be lying more than ever about the effectiveness of their drugs. As fans of capitalism know, corporations are there to make a profit.
If a drug company can tell a patient dying of cancer that their drug can save them, they can look to charge hundreds of thousands or even millions for the drug. If a person or their family can pick up the tab, or they can get an insurer or the government to pay the bill, they will. (Yes, they can be sued for lying. Good luck with that one.)
Yeah, so what if it actually is ineffective? Wasn’t it worth getting people’s hopes up for nothing and draining their life’s savings?
Yes, Mr. Thiessen is right. Thank the Republicans.
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It is absolutely bizarre how the media continually feel the need to tell us what politicians think. The Washington Post was on the job today in an article that discussed Donald Trump’s threat to impose 25 percent tariffs on imported cars for national security. The article told readers:
“The president holds an expansive view of national security, describing imported products like steel or passenger sedans as worrisome threats to the United States.”
Really? How does the Post know that the president even has a view on national security?
This is a person that shows virtually zero evidence of coherent thought on anything. For five years he ran around the country insisting that President Obama was born in Kenya. He claims that global warming is a hoax invented by China to destroy the US economy.
If the Post has any reason to believe that Trump has a coherent view on anything, it should share it with its readers. Otherwise, it should stop fabricating things. Or as Donald Trump would say “Fake News!”
It is absolutely bizarre how the media continually feel the need to tell us what politicians think. The Washington Post was on the job today in an article that discussed Donald Trump’s threat to impose 25 percent tariffs on imported cars for national security. The article told readers:
“The president holds an expansive view of national security, describing imported products like steel or passenger sedans as worrisome threats to the United States.”
Really? How does the Post know that the president even has a view on national security?
This is a person that shows virtually zero evidence of coherent thought on anything. For five years he ran around the country insisting that President Obama was born in Kenya. He claims that global warming is a hoax invented by China to destroy the US economy.
If the Post has any reason to believe that Trump has a coherent view on anything, it should share it with its readers. Otherwise, it should stop fabricating things. Or as Donald Trump would say “Fake News!”
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Peter Goodman had a very good NYT piece detailing how budget cutbacks are undermining the welfare state in the United Kingdom. However, at one point the piece warns that the UK’s experience could be a wider warning for a future where “robots [are] substituting for human labor.”
Actually, the UK’s problem has been just the opposite. It has had extremely low productivity growth. Since the Great Recession, productivity growth has averaged less than 1.0 percent annually according to the OECD. This weak growth can actually provide some basis for an argument for austerity (not much, if workers had more bargaining power and higher pay, the country might see more rapid productivity growth). If productivity growth had been more rapid, then the government could easily spend more money without any fears of inflation.
Peter Goodman had a very good NYT piece detailing how budget cutbacks are undermining the welfare state in the United Kingdom. However, at one point the piece warns that the UK’s experience could be a wider warning for a future where “robots [are] substituting for human labor.”
Actually, the UK’s problem has been just the opposite. It has had extremely low productivity growth. Since the Great Recession, productivity growth has averaged less than 1.0 percent annually according to the OECD. This weak growth can actually provide some basis for an argument for austerity (not much, if workers had more bargaining power and higher pay, the country might see more rapid productivity growth). If productivity growth had been more rapid, then the government could easily spend more money without any fears of inflation.
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The headline of the Washington Post article should have us all worried, “America has a massive truck driver shortage. Here’s why few want an $80,000 job.” That sounds pretty dramatic.
The article does begin by telling us about Joyce Brenny, who runs a trucking business in Minnesota, who supposedly pays many of her drivers more than $80,000 a year. (It doesn’t indicate if she is the source for this number.) However, folks who read a few paragraphs down discover:
“A few drivers told The Washington Post that they earn $100,000, but many said their annual pay is less than $50,000 (government statistics say median pay for the industry is $42,000).”
In other words, if Ms. Brenny is actually paying her drivers $80,000 a year, she is very much an outlier. The typical driver makes barely half of this amount, which is a likely explanation for any shortage of truckers that might exist. (For a point of reference, the annual pay of a truck driver would be about half of what many CEOs earn in a day and roughly one-tenth of a what a top line politician would get for a one-hour speech to a major bank.)
It also seems that folks who run trucking companies have a hard time understanding how labor markets are supposed to work. Here is the average hourly wage, adjusted for inflation, in the trucking industry:
Trucking Industry: Average Hourly Wage, Adjusted for Inflation
Source: Bureau of Labor Statistics.
According to the Bureau of Labor Statistics, the average hourly pay for truck drivers is actually down from its level of two years ago. While it is up by roughly 5.0 percent from its level a decade ago, it is down by more than 7.0 percent from the peaks hit in the late 1990s.
This seems like yet one more case where we have employers whining about worker shortages because they are unwilling to pay the market wage. And, it seems the Washington Post is aggressively pushing the employers’ case even if it means misrepresenting the facts.
The headline of the Washington Post article should have us all worried, “America has a massive truck driver shortage. Here’s why few want an $80,000 job.” That sounds pretty dramatic.
The article does begin by telling us about Joyce Brenny, who runs a trucking business in Minnesota, who supposedly pays many of her drivers more than $80,000 a year. (It doesn’t indicate if she is the source for this number.) However, folks who read a few paragraphs down discover:
“A few drivers told The Washington Post that they earn $100,000, but many said their annual pay is less than $50,000 (government statistics say median pay for the industry is $42,000).”
In other words, if Ms. Brenny is actually paying her drivers $80,000 a year, she is very much an outlier. The typical driver makes barely half of this amount, which is a likely explanation for any shortage of truckers that might exist. (For a point of reference, the annual pay of a truck driver would be about half of what many CEOs earn in a day and roughly one-tenth of a what a top line politician would get for a one-hour speech to a major bank.)
It also seems that folks who run trucking companies have a hard time understanding how labor markets are supposed to work. Here is the average hourly wage, adjusted for inflation, in the trucking industry:
Trucking Industry: Average Hourly Wage, Adjusted for Inflation
Source: Bureau of Labor Statistics.
According to the Bureau of Labor Statistics, the average hourly pay for truck drivers is actually down from its level of two years ago. While it is up by roughly 5.0 percent from its level a decade ago, it is down by more than 7.0 percent from the peaks hit in the late 1990s.
This seems like yet one more case where we have employers whining about worker shortages because they are unwilling to pay the market wage. And, it seems the Washington Post is aggressively pushing the employers’ case even if it means misrepresenting the facts.
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