I know we all share that fear every time we are in a huge traffic jam or face a forever long line at the grocery store. This fear appears at the end of an Arthur Brooks column berating a country that just elected Donald Trump for being unwilling to take risks. (Okay, it was a foolish risk, but you can’t argue it wasn’t a risk.)
Brooks tells us that the reluctance to take risks:
“Family formation, perhaps the ultimate personal leap of faith, looks to be another victim of this imprudent hesitation. Census Bureau demographers recently reported that while only a quarter of 24- to 29-year-olds were unmarried in the 1980s, almost half of that age group is unmarried today. And delaying the jump to adulthood has real social consequences. Last August, the Centers for Disease Control announced that the United States fertility rate had fallen to its lowest point since they began calculating it in 1909.”
I don’t see the problem here. Certainly, it is important that people feel they have sufficient security and support to have children if they want them. This means secure incomes, access to health care, and access to child care so that parents of young children have the ability to work. But if large numbers of young people still choose not to have kids, so what? Brooks may be worried about running out of people, but fans of arithmetic don’t share this concern.
It’s striking that just last month the New York Times ran a column warning that we were going to be running out of jobs because robots were taking all of them. It speaks to the unbelievably bad state of economics that the country’s leading newspaper somehow thinks that the arguments that we are running out of people and that we are running out of jobs are both plausible. This would be comparable to a situation in the medical profession in which, depending on the doctor we see, we will find out that we are 50 pounds overweight and desperately need to go on a diet or 50 pounds underweight and need to start eating more.
If the medical profession routinely produced such diametrically opposed diagnoses most people would probably stop seeing doctors and save their money for something more useful. Unfortunately, we seem destined to waste an ever large share of our money paying the salaries of economists.
I know we all share that fear every time we are in a huge traffic jam or face a forever long line at the grocery store. This fear appears at the end of an Arthur Brooks column berating a country that just elected Donald Trump for being unwilling to take risks. (Okay, it was a foolish risk, but you can’t argue it wasn’t a risk.)
Brooks tells us that the reluctance to take risks:
“Family formation, perhaps the ultimate personal leap of faith, looks to be another victim of this imprudent hesitation. Census Bureau demographers recently reported that while only a quarter of 24- to 29-year-olds were unmarried in the 1980s, almost half of that age group is unmarried today. And delaying the jump to adulthood has real social consequences. Last August, the Centers for Disease Control announced that the United States fertility rate had fallen to its lowest point since they began calculating it in 1909.”
I don’t see the problem here. Certainly, it is important that people feel they have sufficient security and support to have children if they want them. This means secure incomes, access to health care, and access to child care so that parents of young children have the ability to work. But if large numbers of young people still choose not to have kids, so what? Brooks may be worried about running out of people, but fans of arithmetic don’t share this concern.
It’s striking that just last month the New York Times ran a column warning that we were going to be running out of jobs because robots were taking all of them. It speaks to the unbelievably bad state of economics that the country’s leading newspaper somehow thinks that the arguments that we are running out of people and that we are running out of jobs are both plausible. This would be comparable to a situation in the medical profession in which, depending on the doctor we see, we will find out that we are 50 pounds overweight and desperately need to go on a diet or 50 pounds underweight and need to start eating more.
If the medical profession routinely produced such diametrically opposed diagnoses most people would probably stop seeing doctors and save their money for something more useful. Unfortunately, we seem destined to waste an ever large share of our money paying the salaries of economists.
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Thomas Heath used his column to give readers some incredibly bad investment advice. The piece titled, “a first lesson on the stock market: don’t run from a good sale,” told readers that the recent dip in the market makes this a good time to buy stock. This makes no sense.
Whether or not it is a good time to buy stocks depends on the price of stock relative to the fundamentals of the market. This means current price-to-earnings ratios and the prospect for future earnings growth. Current price-to-earnings ratios, at well over 20 to 1 by most measures, are high by historical standards. Most economists are not projecting especially good profit growth in the years ahead, but a big tax cut may allow shareholders to keep a larger portion of their gains, which would make stock more valuable.
But the point is not whether it is a good or bad time to buy stock, the point is the fact that stock prices have fallen really doesn’t tell you anything. In March of 2000, the Nasdaq peaked at just over 5000. It fell back from this peak, so that a month or so out it was at 4,000. By Heath’s investment advice, everyone should have taken advantage of this big sale. After all, prices were down 20 percent from their peak.
If you followed the Heath investment strategy you would have lost more than two thirds of your money as the Nasdaq eventually bottomed out at just over 1200 in the fall of 2002. While the Nasdaq did eventually come back and is now near 6,400, this would not have provided much of a return if you bought in at 4,000. Adjusted for inflation, this would give a real return of just over 11.0 percent over a seventeen year period. Dividends would add to this modestly, but since most Nasdaq stocks pay little or no dividend, the return would still be extraordinarily low over this period.
The moral of this story is that if the price of an over-valued asset falls, it is less over-valued, but a drop in price does not mean that the asset is under-valued. An investment advice column should show a little clearer thinking on this issue.
Thomas Heath used his column to give readers some incredibly bad investment advice. The piece titled, “a first lesson on the stock market: don’t run from a good sale,” told readers that the recent dip in the market makes this a good time to buy stock. This makes no sense.
Whether or not it is a good time to buy stocks depends on the price of stock relative to the fundamentals of the market. This means current price-to-earnings ratios and the prospect for future earnings growth. Current price-to-earnings ratios, at well over 20 to 1 by most measures, are high by historical standards. Most economists are not projecting especially good profit growth in the years ahead, but a big tax cut may allow shareholders to keep a larger portion of their gains, which would make stock more valuable.
But the point is not whether it is a good or bad time to buy stock, the point is the fact that stock prices have fallen really doesn’t tell you anything. In March of 2000, the Nasdaq peaked at just over 5000. It fell back from this peak, so that a month or so out it was at 4,000. By Heath’s investment advice, everyone should have taken advantage of this big sale. After all, prices were down 20 percent from their peak.
If you followed the Heath investment strategy you would have lost more than two thirds of your money as the Nasdaq eventually bottomed out at just over 1200 in the fall of 2002. While the Nasdaq did eventually come back and is now near 6,400, this would not have provided much of a return if you bought in at 4,000. Adjusted for inflation, this would give a real return of just over 11.0 percent over a seventeen year period. Dividends would add to this modestly, but since most Nasdaq stocks pay little or no dividend, the return would still be extraordinarily low over this period.
The moral of this story is that if the price of an over-valued asset falls, it is less over-valued, but a drop in price does not mean that the asset is under-valued. An investment advice column should show a little clearer thinking on this issue.
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The Washington Post has devoted enormous resources to trying to convince its readers that the federal government’s disability programs are in crisis. And it has no qualms about misrepresenting the data to make its case.
Today we got a great example in a question and answer session in reference to its latest major feature piece. In answer to the question, “what’s the problem?” it tells readers:
“The program for disabled workers, which Congress had to rescue from insolvency in 2015, is estimated to go broke again sometime over the next decade or so. The government this year is expected to spend $192 billion on disability payments — more than the combined total that will be spent on welfare, unemployment benefits, housing subsidies and food stamps.”
The assertion that the program will go broke is extremely misleading. Even if Congress never did anything it could still pay will over 90 percent of projected benefits for more than two decades into the future and even at the end of the 75-year planning period, it is still projected to be able to pay over 80 percent of scheduled benefits.
This is an important point since many politicians have advocated cutting benefits to keep the program fully funded. If the point is to ensure to prevent benefits from being cut due to a shortfall, cutting benefits to make up the gap doesn’t help.
It is also worth noting that the $192 billion figure includes the Supplemental Security Income (SSI) program which is funded out of general revenue, not a payroll tax. While it can make sense to combine the programs as disability programs, in doing so it would be worth noting the third program in this category, workers’ compensation. Most states have substantially reduced the generosity of their Workers Compensation programs over the last three decades. As a result, the total amount spent on disability as a share of GDP has not increased by very much over this period.
The comparison to “welfare, unemployment benefits, housing subsidies and food stamps” is also misleading, since we actually spend very little on these programs even though the public perception is that they comprise a large share of the budget. The Post presumably knows the public hugely overestimates the share of the budget spent on these programs so why would it use them as a base of comparison, unless the point is to create the impression that these disability programs are a very big share of the budget.
It actually would not be hard to convey the spending in a way that would be meaningful to most readers. It is equal to roughly 1.0 percent of GDP. It is a bit less than 5.0 percent of total federal spending. Alternatively, it is a bit more than 30 percent of projected military spending for 2017.
The Washington Post has devoted enormous resources to trying to convince its readers that the federal government’s disability programs are in crisis. And it has no qualms about misrepresenting the data to make its case.
Today we got a great example in a question and answer session in reference to its latest major feature piece. In answer to the question, “what’s the problem?” it tells readers:
“The program for disabled workers, which Congress had to rescue from insolvency in 2015, is estimated to go broke again sometime over the next decade or so. The government this year is expected to spend $192 billion on disability payments — more than the combined total that will be spent on welfare, unemployment benefits, housing subsidies and food stamps.”
The assertion that the program will go broke is extremely misleading. Even if Congress never did anything it could still pay will over 90 percent of projected benefits for more than two decades into the future and even at the end of the 75-year planning period, it is still projected to be able to pay over 80 percent of scheduled benefits.
This is an important point since many politicians have advocated cutting benefits to keep the program fully funded. If the point is to ensure to prevent benefits from being cut due to a shortfall, cutting benefits to make up the gap doesn’t help.
It is also worth noting that the $192 billion figure includes the Supplemental Security Income (SSI) program which is funded out of general revenue, not a payroll tax. While it can make sense to combine the programs as disability programs, in doing so it would be worth noting the third program in this category, workers’ compensation. Most states have substantially reduced the generosity of their Workers Compensation programs over the last three decades. As a result, the total amount spent on disability as a share of GDP has not increased by very much over this period.
The comparison to “welfare, unemployment benefits, housing subsidies and food stamps” is also misleading, since we actually spend very little on these programs even though the public perception is that they comprise a large share of the budget. The Post presumably knows the public hugely overestimates the share of the budget spent on these programs so why would it use them as a base of comparison, unless the point is to create the impression that these disability programs are a very big share of the budget.
It actually would not be hard to convey the spending in a way that would be meaningful to most readers. It is equal to roughly 1.0 percent of GDP. It is a bit less than 5.0 percent of total federal spending. Alternatively, it is a bit more than 30 percent of projected military spending for 2017.
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Catherine Rampell has a nice column pointing out how Republican efforts to block suits against companies that abuse their customers effectively deny customers the opportunity to use the legal system when they are wronged. The argument is well-taken but it doesn’t go far enough. Donald Trump and the Republicans are also encouraging waste that will be a drag on economic growth,
The point here is simple, although it always gets lost in the discussion. Good economists assume that people are motivated by money. If you’re a reasonably competent lawyer you can write contracts in ways that the typical consumer will either not understand or not take the time to read. If you put in wording in these contracts that screws the consumer, then you make a lot of money for your employer which they will be happy to share with you.
The implication, for people who believe in free markets and economic incentives, is that if we allow people to make money by writing deceptive contracts that screw people, then they will write deceptive contracts that screw people. This means that instead of doing something productive for the economy, we will have many highly educated people devoted their skills to an activity with zero economic value. In fact, their work actually has negative economic value, since consumers will know they have to spend time scrutinizing contracts if they don’t want to be screwed.
So the opponents of the Consumer Financial Protection Bureau and related measures to protect consumers are not just arguing for another way to redistribute upward, they are arguing for a policy that increases waste and slows economic growth. But hey, no one ever said that we couldn’t get greater inequality without having to sacrifice economic growth.
Catherine Rampell has a nice column pointing out how Republican efforts to block suits against companies that abuse their customers effectively deny customers the opportunity to use the legal system when they are wronged. The argument is well-taken but it doesn’t go far enough. Donald Trump and the Republicans are also encouraging waste that will be a drag on economic growth,
The point here is simple, although it always gets lost in the discussion. Good economists assume that people are motivated by money. If you’re a reasonably competent lawyer you can write contracts in ways that the typical consumer will either not understand or not take the time to read. If you put in wording in these contracts that screws the consumer, then you make a lot of money for your employer which they will be happy to share with you.
The implication, for people who believe in free markets and economic incentives, is that if we allow people to make money by writing deceptive contracts that screw people, then they will write deceptive contracts that screw people. This means that instead of doing something productive for the economy, we will have many highly educated people devoted their skills to an activity with zero economic value. In fact, their work actually has negative economic value, since consumers will know they have to spend time scrutinizing contracts if they don’t want to be screwed.
So the opponents of the Consumer Financial Protection Bureau and related measures to protect consumers are not just arguing for another way to redistribute upward, they are arguing for a policy that increases waste and slows economic growth. But hey, no one ever said that we couldn’t get greater inequality without having to sacrifice economic growth.
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Everyone who has been through an intro econ class knows how bad a 20 percent tariff on steel or clothes is. So naturally, all economists are outraged by patent monopolies for prescription drugs, which are the equivalent of tariffs of thousands of percent. Okay, that’s not true; economists seem to only get upset about the tariffs on steel and clothes.
Nonetheless, the textbooks are right: patent monopolies lead to massive corruption. The NYT has a good piece on their increased lobbying efforts in the era of Trump.
Everyone who has been through an intro econ class knows how bad a 20 percent tariff on steel or clothes is. So naturally, all economists are outraged by patent monopolies for prescription drugs, which are the equivalent of tariffs of thousands of percent. Okay, that’s not true; economists seem to only get upset about the tariffs on steel and clothes.
Nonetheless, the textbooks are right: patent monopolies lead to massive corruption. The NYT has a good piece on their increased lobbying efforts in the era of Trump.
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Most economists would probably agree that a tax reform that cleaned up loopholes could provide a boost to growth. Most would probably also agree that the 1986 tax reform was more good than bad in this respect. (Lowering the top individual tax rate to 28 percent would fall in the “bad” category for many of us.) But it is unlikely that many would endorse the claim in James B. Stewart’s column that after the tax reform:
“The economy (and the stock market) soared.”
This one is clearly wrong. Growth in the five years following the passage of the tax cut was considerably worse than in the ten years preceding it or the next ten years as shown below.
Source: Bureau of Economic Analysis.
Growth in the five years following the tax reform averaged just 2.6 percent. That compares to 3.5 percent in the five years preceding the reform and 3.4 percent in the subsequent five years. It accelerated to 3.7 percent in the next five year period. I suppose some folks may want to claim the late 1990s boom was due to the 1986 tax reform, but the price of that sort of delayed effect means that the Johnson-Nixon administrations deserve credit for the 1980s growth and the current weak growth should be laid at the doorstep of George W. Bush.
There are of course complicating factors and the tax reform could have been a boost to growth that was offset by other factors, but the simple claim that we cut taxes and the economy boomed is clearly not true.
Most economists would probably agree that a tax reform that cleaned up loopholes could provide a boost to growth. Most would probably also agree that the 1986 tax reform was more good than bad in this respect. (Lowering the top individual tax rate to 28 percent would fall in the “bad” category for many of us.) But it is unlikely that many would endorse the claim in James B. Stewart’s column that after the tax reform:
“The economy (and the stock market) soared.”
This one is clearly wrong. Growth in the five years following the passage of the tax cut was considerably worse than in the ten years preceding it or the next ten years as shown below.
Source: Bureau of Economic Analysis.
Growth in the five years following the tax reform averaged just 2.6 percent. That compares to 3.5 percent in the five years preceding the reform and 3.4 percent in the subsequent five years. It accelerated to 3.7 percent in the next five year period. I suppose some folks may want to claim the late 1990s boom was due to the 1986 tax reform, but the price of that sort of delayed effect means that the Johnson-Nixon administrations deserve credit for the 1980s growth and the current weak growth should be laid at the doorstep of George W. Bush.
There are of course complicating factors and the tax reform could have been a boost to growth that was offset by other factors, but the simple claim that we cut taxes and the economy boomed is clearly not true.
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It would have been useful if the NYT had clarified the strategy being proposed by President Trump and Republicans in this piece headlined “‘let Obamacare fail,’ Trump says as G.O.P. health bill collapses.” There is no reason to think that Obamacare as written into law with the Affordable Care Act would fail. The exchanges are actually working pretty well in the states with Democratic governors committed to making the law work. The problem of insurers dropping out of the exchanges leaving no competition is overwhelmingly a red state problem where Republican politicians have sought to sabotage the program.
It is also worth noting that often repeated claim that the system is suffering badly from a lack of young healthy people signing up, as implied by this Washington Post editorial, is badly confused. The number of uninsured has actually fallen by more than the Congressional Budget Office projected, so there is no story of a massive problem of people not signing up for insurance. There is a problem that more people are still on employer provided insurance and not in the exchanges. Since these people are relatively healthy (they are mostly working full time and many are older, meaning they would pay higher premiums), their loss to the exchanges may be an issue.
However, the arithmetic shows that more young healthy people signing up could not make that much difference to the program. Suppose another 2 million overwhelmingly healthy people signed up for the exchanges. This would be a massive increase, since there are probably not much more than 2 million young healthy people who are not currently insured. (They have to also be citizens or legal residents to qualify.) The average premium for a bronze plan (presumably what healthy people who don’t really want insurance would buy) is $2,700 a year. If we assume that insurers would pocket half of this money as profit, that comes to a net gain to insurers of $2.7 billion a year.
We are supposed to believe this is what determines whether Obamacare sinks or floats?
It would have been useful if the NYT had clarified the strategy being proposed by President Trump and Republicans in this piece headlined “‘let Obamacare fail,’ Trump says as G.O.P. health bill collapses.” There is no reason to think that Obamacare as written into law with the Affordable Care Act would fail. The exchanges are actually working pretty well in the states with Democratic governors committed to making the law work. The problem of insurers dropping out of the exchanges leaving no competition is overwhelmingly a red state problem where Republican politicians have sought to sabotage the program.
It is also worth noting that often repeated claim that the system is suffering badly from a lack of young healthy people signing up, as implied by this Washington Post editorial, is badly confused. The number of uninsured has actually fallen by more than the Congressional Budget Office projected, so there is no story of a massive problem of people not signing up for insurance. There is a problem that more people are still on employer provided insurance and not in the exchanges. Since these people are relatively healthy (they are mostly working full time and many are older, meaning they would pay higher premiums), their loss to the exchanges may be an issue.
However, the arithmetic shows that more young healthy people signing up could not make that much difference to the program. Suppose another 2 million overwhelmingly healthy people signed up for the exchanges. This would be a massive increase, since there are probably not much more than 2 million young healthy people who are not currently insured. (They have to also be citizens or legal residents to qualify.) The average premium for a bronze plan (presumably what healthy people who don’t really want insurance would buy) is $2,700 a year. If we assume that insurers would pocket half of this money as profit, that comes to a net gain to insurers of $2.7 billion a year.
We are supposed to believe this is what determines whether Obamacare sinks or floats?
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A news analysis in the NYT by Jennifer Steinhauer argued that Republicans were rediscovering an old truth in their effort to repeal the Affordable Care Act, that it is hard to take away benefits that the government has given. While the point is surely right, the piece left out an important point, the Republican effort was based on a lie.
Republicans, and especially President Trump, rallied public support for repeal of the Affordable Care Act (ACA) based on the complaint that it wasn’t generous enough. They argued that the premiums and deductibles were too high, their plan would give people better insurance.
This was a complete lie, but many people who had legitimate complaints about ACA likely backed Trump and other Republicans with the expectation that they would give them better insurance. Since this is clearly the opposite of what repeal is about, it makes it especially difficult for the Republicans to tell the people who voted for them expecting better insurance that they will have to pay much more money for worse insurance.
This is the situation the Republicans now find themselves in. Essentially, they have to own up to the fact that they have been lying for seven years about the central item on their political agenda.
A news analysis in the NYT by Jennifer Steinhauer argued that Republicans were rediscovering an old truth in their effort to repeal the Affordable Care Act, that it is hard to take away benefits that the government has given. While the point is surely right, the piece left out an important point, the Republican effort was based on a lie.
Republicans, and especially President Trump, rallied public support for repeal of the Affordable Care Act (ACA) based on the complaint that it wasn’t generous enough. They argued that the premiums and deductibles were too high, their plan would give people better insurance.
This was a complete lie, but many people who had legitimate complaints about ACA likely backed Trump and other Republicans with the expectation that they would give them better insurance. Since this is clearly the opposite of what repeal is about, it makes it especially difficult for the Republicans to tell the people who voted for them expecting better insurance that they will have to pay much more money for worse insurance.
This is the situation the Republicans now find themselves in. Essentially, they have to own up to the fact that they have been lying for seven years about the central item on their political agenda.
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