The United States has really awful policies on child care and parental leave. This makes it very hard for parents, and especially mothers, since they invariably get stuck with most of the responsibilities, to raise kids.
This is an outrage as Amy Westervelt points out in her Guardian column. But a declining birth rate, as the supposed downside for those of us not raising kids or thinking about it, doesn’t pass the laugh test.
The prospect of less traffic congestion, less crowded parks and beaches, and lower house prices doesn’t have me quaking in my boots. It’s not clear what the point is here. In a good society, people should be able to have kids if they want to and not have to worry about a life of stress and poverty, but if we have fewer kids because people’s priorities are elsewhere, so what?
The United States has really awful policies on child care and parental leave. This makes it very hard for parents, and especially mothers, since they invariably get stuck with most of the responsibilities, to raise kids.
This is an outrage as Amy Westervelt points out in her Guardian column. But a declining birth rate, as the supposed downside for those of us not raising kids or thinking about it, doesn’t pass the laugh test.
The prospect of less traffic congestion, less crowded parks and beaches, and lower house prices doesn’t have me quaking in my boots. It’s not clear what the point is here. In a good society, people should be able to have kids if they want to and not have to worry about a life of stress and poverty, but if we have fewer kids because people’s priorities are elsewhere, so what?
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With Donald Trump declaring a truce in his “trade war” with China, it might be a good time to check the charts. According to data from the Commerce Department, the US trade deficit with China was $91.9 billion in the first three months of 2018. That’s up from $78.8 billion in 2017 and $77.9 billion in 2016.
There are problems with this figure, as many people have noted. First, it is overstated due to the fact that we count the full value of a product exported from China, even though it may have just been assembled there, with most of the value originating elsewhere. The classic example is an iPhone, where the phone is assembled in China, but the bulk of the value is from items and intellectual property that are imported to China.
This is a real problem with the Commerce Department data, but there is also an analogous issue on the other side. Many of the goods we import from the European Union, Japan, and other countries have components that were made in China. My guess is that the net would still imply a reduction in our trade deficit with China, but probably not a huge one.
The other big issue is that many intellectual products never appear in our exports at all. When Apple contracts with Foxconn to produce its phones with China, the value of its software is not counted as an export. Some of this is due to inherent difficulties in measurement. (If Apple licensed Foxconn to produce the phones, the license would show up as export.) Some of the problem is due to tax avoidance, where companies attribute the value of the intellectual work to tax havens like Ireland, even if it was actually performed in the United States.
In any case, these problems in measurement are longstanding and almost certainly do not affect the direction of change. So as it stands now, Trump has taken us $13.1 billion deeper in the hole in terms of our trade deficit with China ($52.4 billion on an annual basis) compared to where things sat when he took office. We’ll see how things change following the truce.
With Donald Trump declaring a truce in his “trade war” with China, it might be a good time to check the charts. According to data from the Commerce Department, the US trade deficit with China was $91.9 billion in the first three months of 2018. That’s up from $78.8 billion in 2017 and $77.9 billion in 2016.
There are problems with this figure, as many people have noted. First, it is overstated due to the fact that we count the full value of a product exported from China, even though it may have just been assembled there, with most of the value originating elsewhere. The classic example is an iPhone, where the phone is assembled in China, but the bulk of the value is from items and intellectual property that are imported to China.
This is a real problem with the Commerce Department data, but there is also an analogous issue on the other side. Many of the goods we import from the European Union, Japan, and other countries have components that were made in China. My guess is that the net would still imply a reduction in our trade deficit with China, but probably not a huge one.
The other big issue is that many intellectual products never appear in our exports at all. When Apple contracts with Foxconn to produce its phones with China, the value of its software is not counted as an export. Some of this is due to inherent difficulties in measurement. (If Apple licensed Foxconn to produce the phones, the license would show up as export.) Some of the problem is due to tax avoidance, where companies attribute the value of the intellectual work to tax havens like Ireland, even if it was actually performed in the United States.
In any case, these problems in measurement are longstanding and almost certainly do not affect the direction of change. So as it stands now, Trump has taken us $13.1 billion deeper in the hole in terms of our trade deficit with China ($52.4 billion on an annual basis) compared to where things sat when he took office. We’ll see how things change following the truce.
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That’s what a story in the Financial Times tells readers. I don’t think they have much of a case.
The argument is attributed to Hal Varian, Google’s chief economist and a former professor of mine when I was in grad school at Michigan. According to Varian, if we accurately counted the value of software in smartphones it would add $200 billion to US exports, cutting our trade deficit in half.
The first item to point out is that our trade deficit is currently running at an annual rate of $640 billion, not the $400 billion claimed by Varian. A $200 billion reduction is still large, but it would imply cutting the deficit by a bit more than 30 percent, not half.
But the more important issue is the logic of the argument. Varian points out that, while Apple has proprietary software, for which it charges for its use, Google makes its software available for free, but demands ad placement in exchange for its use. This means that Apple’s software should be accounted for in our exports, but Google’s would not. This is indeed a problem, but perhaps not as much of one as Varian implies. (It is worth noting that the value of the software is in principle already counted in our National Accounts, so the Varian critique would imply no change in GDP, but that exports are understated and domestic investment is overstated.)
In effect, he is saying that Google is being compensated for its software by the ads that are subsequently sold on the phone. By contrast, Apple has been fully compensated at the point of sale. If we had proper accounting, then we would also count the value of Google’s software at the point of sale. But look at what happens in subsequent years.
Suppose the Android phone is sold in some third country. Google will be collecting ad revenue from these phones for their full working lives. This ad revenue would then, in principle, (there is an important accounting issue I will address in a moment) be attributed to Google and count as an exported service. By contrast, the Apple phone does not directly generate any further revenue for Apple. This means that we should effectively be picking up the value of Google’s software in Android phones through the ad revenue the phone generates in subsequent years. There is still an issue of timing, and also a definitional one (perhaps the original transfer of software should have been booked as an investment), but we are capturing the value of the software exported in the subsequent income flows from the advertising.
This would not be the case if the Android phone is imported back into the United States since the ad revenue is all domestic income. But there is no problem here because the imported phone costs less than it would have had the software been proprietary like Apple’s. In short, there is not really a major issue here.
Now, there is a very important secondary point. Let’s hypothesize that all of Google’s innovation for its Android phone comes out of its Mountain View campus in California. Suppose to minimize their taxes, Google attributes most of the value and subsequent profits to its subsidiary in low-tax Ireland.
In this case, we would be understating the value of US exports, since the subsequent flows of income would be showing up at Google’s Irish subsidiary, not its Mountain View campus. Clearly, there is much of this sort of gaming taking place, as most of the big tech companies seem to do a surprising share of their innovative work in low-tax countries, although it probably does not get you to $200 billion a year. (And here is my easy fix for this problem, if anyone is interested in a fix.)
That’s what a story in the Financial Times tells readers. I don’t think they have much of a case.
The argument is attributed to Hal Varian, Google’s chief economist and a former professor of mine when I was in grad school at Michigan. According to Varian, if we accurately counted the value of software in smartphones it would add $200 billion to US exports, cutting our trade deficit in half.
The first item to point out is that our trade deficit is currently running at an annual rate of $640 billion, not the $400 billion claimed by Varian. A $200 billion reduction is still large, but it would imply cutting the deficit by a bit more than 30 percent, not half.
But the more important issue is the logic of the argument. Varian points out that, while Apple has proprietary software, for which it charges for its use, Google makes its software available for free, but demands ad placement in exchange for its use. This means that Apple’s software should be accounted for in our exports, but Google’s would not. This is indeed a problem, but perhaps not as much of one as Varian implies. (It is worth noting that the value of the software is in principle already counted in our National Accounts, so the Varian critique would imply no change in GDP, but that exports are understated and domestic investment is overstated.)
In effect, he is saying that Google is being compensated for its software by the ads that are subsequently sold on the phone. By contrast, Apple has been fully compensated at the point of sale. If we had proper accounting, then we would also count the value of Google’s software at the point of sale. But look at what happens in subsequent years.
Suppose the Android phone is sold in some third country. Google will be collecting ad revenue from these phones for their full working lives. This ad revenue would then, in principle, (there is an important accounting issue I will address in a moment) be attributed to Google and count as an exported service. By contrast, the Apple phone does not directly generate any further revenue for Apple. This means that we should effectively be picking up the value of Google’s software in Android phones through the ad revenue the phone generates in subsequent years. There is still an issue of timing, and also a definitional one (perhaps the original transfer of software should have been booked as an investment), but we are capturing the value of the software exported in the subsequent income flows from the advertising.
This would not be the case if the Android phone is imported back into the United States since the ad revenue is all domestic income. But there is no problem here because the imported phone costs less than it would have had the software been proprietary like Apple’s. In short, there is not really a major issue here.
Now, there is a very important secondary point. Let’s hypothesize that all of Google’s innovation for its Android phone comes out of its Mountain View campus in California. Suppose to minimize their taxes, Google attributes most of the value and subsequent profits to its subsidiary in low-tax Ireland.
In this case, we would be understating the value of US exports, since the subsequent flows of income would be showing up at Google’s Irish subsidiary, not its Mountain View campus. Clearly, there is much of this sort of gaming taking place, as most of the big tech companies seem to do a surprising share of their innovative work in low-tax countries, although it probably does not get you to $200 billion a year. (And here is my easy fix for this problem, if anyone is interested in a fix.)
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It’s really great that Tthe New York Times’ reporters are able to read people’s minds, especially when it comes to Donald Trump. After all, the guy constantly contradicts himself and makes assertions that clearly are not true, so it might be difficult for most of us to know what he really believes.
But NYT reporters can cut through the confusion with their mind reading powers. An article on the failure of a House Republican bill for renewing food stamps and farm subsidies told readers:
“[…]he [Rep. K. Michael Conaway, chair of the House Agriculture Committee] also sought to accommodate the White House and outside conservative groups, which demanded new election-year initiatives to reduce the rolls of the Supplemental Nutrition Assistance Program, or SNAP, which Mr. Trump regards, along with Medicaid and housing aid, as ‘welfare.'”
It’s good to know that Trump actually believes that the $126 a month that people collect in food stamps are welfare, as opposed to just being something he says to denigrate low- and moderate-income people for his base.
It’s really great that Tthe New York Times’ reporters are able to read people’s minds, especially when it comes to Donald Trump. After all, the guy constantly contradicts himself and makes assertions that clearly are not true, so it might be difficult for most of us to know what he really believes.
But NYT reporters can cut through the confusion with their mind reading powers. An article on the failure of a House Republican bill for renewing food stamps and farm subsidies told readers:
“[…]he [Rep. K. Michael Conaway, chair of the House Agriculture Committee] also sought to accommodate the White House and outside conservative groups, which demanded new election-year initiatives to reduce the rolls of the Supplemental Nutrition Assistance Program, or SNAP, which Mr. Trump regards, along with Medicaid and housing aid, as ‘welfare.'”
It’s good to know that Trump actually believes that the $126 a month that people collect in food stamps are welfare, as opposed to just being something he says to denigrate low- and moderate-income people for his base.
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The NYT had a column by Christina Gibson-Davis and Christine Percheski telling readers that wealth inequality had grown much more among families with children than among the elderly. While there is little doubt that inequality has increased hugely over the last three decades (they look at the period from 1989 to 2013), with the implications they describe for inter-generational mobility, there are serious problems with their use of wealth.
First, it is important to note that while the authors’ research shows a much larger increase in inequality among families with children than the elderly, they still find that the top one percent of elderly households has more than twice the wealth of the top one percent of households with children. The next 9 percent of the elderly households actually saw a considerably more rapid percentage increase in wealth over this period than was the case for the next 9 percent of the distribution for families with children.
While the bottom 50 percent of the elderly distribution look to be in much better shape in terms of their wealth than the bottom 50 percent of the distribution for families with children (median wealth of $46,020 for the elderly, an inflation-adjusted gain of 70 percent, compared with debt of $233 for families with children) on closer analysis this is much less clear. An elderly household was far more likely to have some income from a defined benefit pension in 1989 than in 2013. They were also more likely to have retiree health benefits. Furthermore, the amount of health care spending not covered by Medicare would be much higher in 2013 than in 1989. In addition, Social Security benefits are lower relative to workers’ wages in 2013 than was the case in 1989. When these factors are taken into account (we would take the discounted value of these benefit reductions), it is not obvious that the median elderly household would have more wealth in 2013 than in 1989.
Wealth is also a problematic measure for families with children. The families at the bottom by this measure are likely to be recent graduates of elite programs like Harvard business school. These families would have borrowed heavily to earn their degrees, but would not have much work experience to pay off their debt and accumulate assets. Many recent college grads would also have negative wealth. While some of these people will face serious problems paying back their debt, most will have much higher paying jobs than non-college educated members of their cohorts and have much better life prospects.
Also, since there is a huge age aspect to wealth (on average, people have much more wealth in their 40s than in the 20s or 30s) the fact that many people are having children at an older age is likely to be a huge contributor to wealth inequality among families with children. This would especially be the case if more educated families tend to be the ones having children at older ages.
None of this should be taken to minimize the problem of inequality or the difficulties that children from low- and moderate-income families face in obtaining a decent education and in their subsequent careers. However, trends in wealth inequality are probably not a very good way to access these difficulties.
The NYT had a column by Christina Gibson-Davis and Christine Percheski telling readers that wealth inequality had grown much more among families with children than among the elderly. While there is little doubt that inequality has increased hugely over the last three decades (they look at the period from 1989 to 2013), with the implications they describe for inter-generational mobility, there are serious problems with their use of wealth.
First, it is important to note that while the authors’ research shows a much larger increase in inequality among families with children than the elderly, they still find that the top one percent of elderly households has more than twice the wealth of the top one percent of households with children. The next 9 percent of the elderly households actually saw a considerably more rapid percentage increase in wealth over this period than was the case for the next 9 percent of the distribution for families with children.
While the bottom 50 percent of the elderly distribution look to be in much better shape in terms of their wealth than the bottom 50 percent of the distribution for families with children (median wealth of $46,020 for the elderly, an inflation-adjusted gain of 70 percent, compared with debt of $233 for families with children) on closer analysis this is much less clear. An elderly household was far more likely to have some income from a defined benefit pension in 1989 than in 2013. They were also more likely to have retiree health benefits. Furthermore, the amount of health care spending not covered by Medicare would be much higher in 2013 than in 1989. In addition, Social Security benefits are lower relative to workers’ wages in 2013 than was the case in 1989. When these factors are taken into account (we would take the discounted value of these benefit reductions), it is not obvious that the median elderly household would have more wealth in 2013 than in 1989.
Wealth is also a problematic measure for families with children. The families at the bottom by this measure are likely to be recent graduates of elite programs like Harvard business school. These families would have borrowed heavily to earn their degrees, but would not have much work experience to pay off their debt and accumulate assets. Many recent college grads would also have negative wealth. While some of these people will face serious problems paying back their debt, most will have much higher paying jobs than non-college educated members of their cohorts and have much better life prospects.
Also, since there is a huge age aspect to wealth (on average, people have much more wealth in their 40s than in the 20s or 30s) the fact that many people are having children at an older age is likely to be a huge contributor to wealth inequality among families with children. This would especially be the case if more educated families tend to be the ones having children at older ages.
None of this should be taken to minimize the problem of inequality or the difficulties that children from low- and moderate-income families face in obtaining a decent education and in their subsequent careers. However, trends in wealth inequality are probably not a very good way to access these difficulties.
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The NYT ran a column highlighting new research by Tim Bartik and Brad Hershbein showing that the earnings premium from graduating college is not the same for everyone. Specifically, the research finds that the premium is lower for people from lower-income families than for people from middle-income families.
It is good to see this divergence in experiences getting attention in the paper. While this has been known to researchers for many years (see this 2010 piece by John Schmitt and Heather Boushey), the NYT in general, and columnist David Leonhardt in particular, have often presented increased college attendance as a panacea for income inequality.
As that paper showed, there was a growing divergence in income outcomes for college graduates among men. (This was less the case among women.) Many, many college grads earned less than high school grads, suggesting that they had gained little income by going to college. Since many incurred substantial debt, college was likely, on net, a losing proposition for them economically.
Also, many people who enter college do not graduate. When the risk of not graduating is taken into account, it is understandable that many young men have chosen not to attend college. Hopefully, this more recent research will make the basic facts about college and earnings more widely known to people in policy circles.
The NYT ran a column highlighting new research by Tim Bartik and Brad Hershbein showing that the earnings premium from graduating college is not the same for everyone. Specifically, the research finds that the premium is lower for people from lower-income families than for people from middle-income families.
It is good to see this divergence in experiences getting attention in the paper. While this has been known to researchers for many years (see this 2010 piece by John Schmitt and Heather Boushey), the NYT in general, and columnist David Leonhardt in particular, have often presented increased college attendance as a panacea for income inequality.
As that paper showed, there was a growing divergence in income outcomes for college graduates among men. (This was less the case among women.) Many, many college grads earned less than high school grads, suggesting that they had gained little income by going to college. Since many incurred substantial debt, college was likely, on net, a losing proposition for them economically.
Also, many people who enter college do not graduate. When the risk of not graduating is taken into account, it is understandable that many young men have chosen not to attend college. Hopefully, this more recent research will make the basic facts about college and earnings more widely known to people in policy circles.
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Kevin Roose had a piece in the NYT about the large number of tech companies that are going public without ever having made a profit. As the piece points out, the strategy is to use low prices to build up a large market niche and then jack up prices once people become dependent on the company.
Roose touts Amazon as a successful model for this strategy:
“Those years of investments paid off, and Amazon is now the second most valuable company in the world, with $1.6 billion in profit last quarter alone.”
While it’s fine for a company to make $1.6 billion in profit for a quarter, Amazon now has a market capitalization of more than $780 billion. Assuming its other quarters are equally profitable, the company has a price to earnings ratio of more than 120 to 1. In order for Amazon’s stock price to make sense, its profits will have to increase by almost a factor of ten from its current level. While this could happen, Roose may want to find another company as an example where its profit growth has already managed to justify the price shareholders paid for the company.
Kevin Roose had a piece in the NYT about the large number of tech companies that are going public without ever having made a profit. As the piece points out, the strategy is to use low prices to build up a large market niche and then jack up prices once people become dependent on the company.
Roose touts Amazon as a successful model for this strategy:
“Those years of investments paid off, and Amazon is now the second most valuable company in the world, with $1.6 billion in profit last quarter alone.”
While it’s fine for a company to make $1.6 billion in profit for a quarter, Amazon now has a market capitalization of more than $780 billion. Assuming its other quarters are equally profitable, the company has a price to earnings ratio of more than 120 to 1. In order for Amazon’s stock price to make sense, its profits will have to increase by almost a factor of ten from its current level. While this could happen, Roose may want to find another company as an example where its profit growth has already managed to justify the price shareholders paid for the company.
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