Read More Leer más Join the discussion Participa en la discusión
The August jobs numbers were mostly good with one big exception, a 0.3 percentage point rise in the unemployment rate to 3.8 percent. This is still a relatively low rate. Coming out of the Great Recession, many economists argued that the unemployment rate could not get below 5.0 percent without triggering spiraling inflation, so an unemployment rate below 4.0 percent looks pretty good by comparison. In fact, this is our 19th consecutive month with unemployment below 4.0 percent, a record unmatched since the end of the 1960s.
While it’s hard to get too upset about the level of unemployment, a 0.3 pp jump in a single month is disconcerting. However, on closer look, the story may not be that bad. The jump in unemployment was due to a big jump in people in the labor force, not a spike in layoffs.
The labor force reportedly grew by 736,000 in August, which would come to 8.8 million at an annual rate. Needless to say, this did not really happen. There was no event in the world that would have plausibly led to this sort of leap in labor force participation, so we have to recognize that the differences in the household survey data between July and August were largely driven by errors in the data.
If we ignore the July to August change and just compare August levels with prior months, there does not look to be much cause for concern. There were 2,914,000 workers who reported being unemployed in August as a result of losing a job. That is up by almost 300,000 from the July level, but only 14,000 from the June level. In fact, it is actually 46,000 below the May level. Clearly, there is no evidence of a surge in layoffs driving the unemployment rate higher.
The main reason why unemployment is higher than earlier in the year is that more people report being unemployed who are reentrants to the workforce or new entrants. The number of unemployed reentrants in August was 150k above the average for the first seven months of the year, while the number of unemployed new entrants was 80k higher. Insofar as there is a story of higher unemployment in August it is one where the economy is not generating enough jobs to employ all the people entering the workforce.
But, other data don’t square with that story. Most notably, the establishment survey showed the economy generating 187,000 jobs in August. The numbers from the prior two months were revised down, so that the three-month average stood at just 150k, but even this figure implies a considerably faster pace than most projections of potential labor force growth.
The Congressional Budget Office (CBO) puts the potential growth in the labor force at less than 1 million a year over the next three years, which implies a rate of employment growth of less than 90,000 a month. So, if CBO is anywhere close to the mark, 150k jobs a month should be more than enough to keep the unemployment rate from rising. It’s also worth noting that the household survey showed employment rising by 220k in August.
The weekly data on new and continuing unemployment claims are also inconsistent with any appreciable rise in unemployment. The four-week moving average for new unemployment claims stood at 231k for the most recent week, which is lower than its been for most of the last five months. The number of continuing claims stood at 1,692k, the lowest level since the start of February. There is no evidence here of any uptick in the number of people having difficulty finding jobs.
Wage Growth, Productivity, and Inflation
The other big issue of concern with this month’s jobs report was whether there was evidence of faster wage growth, which could trigger a reacceleration of inflation. The news was clearly good on this front. Wage growth slowed modestly, with the three-month annual rate dropping from 4.9 percent in the three months ending in July to 4.5 percent in the three months ending in August.
This is probably still somewhat faster than would be consistent with the Fed’s 2.0 percent inflation target, but not by much. There were several periods in 2018-19 when the rate of wage growth approached 4.0 percent. There also is still some room for the profit share to shrink back to its pre-pandemic level, which means that we could have more rapid wage growth, without seeing it passed on in prices. And, we have even further to go with profit shares if we target the pre-Great Recession shares.
The only serious basis for Fed concern would be if wage growth seemed to accelerating. That is clearly not the case with the data in the Average Hourly Earnings series in the jobs report. Since this was the only wage series that had shown any evidence of acceleration, the Fed should be reasonably comfortable that accelerating wage growth will not reignite inflation.
The other piece of good news on the inflation front is that it seems that the strong productivity growth number we saw in the second quarter will be repeated in the current quarter. The index of aggregate weekly hours rose 0.4 percent in August, but that was after dropping 0.2 percent in July. It is on course to show a gain of 0.3-0.4 percent for the quarter, translating into an annualized rate of 1.2 to 1.6 percent.
GDP to date has come in very strong with the GDPNow model putting growth for the quarter at over 5.0 percent, as of August 31. That will surely come down with data from August and September, but if the quarter’s growth ends up over 3.0 percent, it will translate into another very good productivity number.
These data are erratic and subject to large revisions, but it is always good to have another quarter where productivity goes in the right direction. In any case, it is one more item arguing that the Fed can hold tight on any further rate hikes. All the data suggest that inflation is continuing to slow, with a drop in rental inflation, the biggest single component in the index, a virtual certainty given the slowdown of inflation in marketed units. Inflation may still be above the Fed’s 2.0 percent target by the end of the year, but it should be close enough that the Fed can declare victory.
Recession Fears?
There were many predictions of recession earlier in the year, given the Fed’s extraordinary pace of tightening. While it was certainly reasonable to worry about the impact of these hikes, it was difficult to see the path through which they would cause a recession.
The main channels through which rate hikes led to recessions in the past were a slowing of construction, especially residential construction, and a drop in net exports due to a rise in the value of the dollar. We have seen relatively little impact on either channel to date.
The rise in interest rates has reduced housing starts, which peaked at an annual rate of more than 1.8 million last April, and then fell to less than 1.4 million this spring. However, due to the huge backlog of unfinished homes created by supply chain problems, the number of units under construction is still larger than it was back in March of 2022 when the Fed started its rate hikes.
There is a similar story with non-residential construction. There had already been a big falloff in office and retail construction at the start of the pandemic, so these sectors had little room to fall further. On the other hand, the CHIPS Act and the Inflation Reduction Act provided a huge boost to factory construction. As a result, non-residential construction has been rising rapidly this year. In August, construction added 22,000 jobs.
Rate hikes have also not had the normal effect on the dollar for two reasons. First, the dollar had already risen considerably against other major currencies following the passage of the American Rescue Plan at the start of the Biden administration and then again following the Russian invasion of Ukraine. This meant that the dollar did not have as much room to rise further as would ordinarily be the case.
The other factor was the rise in interest rates by other major central banks. Since all rates were going up more or less together, the higher rates in the U.S. did not have much impact.
Without a rise in the dollar, there was no reason to expect the sort of fall in net exports that might ordinarily follow a sharp rise in interest rates by the Fed. Since there has been no major drop in net exports, there has not been a fall in manufacturing output and employment. The number of jobs in the sector rose by 16,000 in August.
With construction and manufacturing, the two most cyclical sectors in the economy, still adding jobs, it is difficult to see how we can get a recession. This doesn’t mean the Fed’s rate hikes have had no impact on the economy. They brought an end to the refinancing boom that had taken place in 2020-21. This directly had an impact on jobs by reducing employment in the financial sector. Jobs in credit intermediation and related activities are down by almost 70,000 from where it was in March of 2022.
The loss of this source of credit also likely had some impact on slowing consumption, as many people did cash-out refinancing, where they borrowed against their home equity to undertake a major purchase, such as buying a car or remodeling their house. In addition, some of the money people saved from lower interest payments would have gone into consumption.
However, this impact has been fairly limited, as consumption has continued to grow at a healthy pace based on real wage growth. In any case, it’s hard to see a recession in the cards.
Probably the biggest cause for concern would be further problems in the financial sector due to losses that banks have on their books from government bonds and other long-term loans. Write-downs on loans to commercial real estate will also be a problem.
For this reason, it would be great if the Fed could signal that it is at the end of its round of rate hikes. They obviously are concerned about declaring a premature victory in their battle against inflation, after being slow to recognize the problem, but they don’t somehow even the score by making a mistake in the opposite direction.
At the very least, Chair Powell should more explicitly acknowledge the progress made to date, as other FOMC members have done, most notably Raphael Bostic. Anything that can produce a modest reduction in long-term rates will reduce the risk of a financial meltdown that could pose a series problem for the economy next year.
The August jobs numbers were mostly good with one big exception, a 0.3 percentage point rise in the unemployment rate to 3.8 percent. This is still a relatively low rate. Coming out of the Great Recession, many economists argued that the unemployment rate could not get below 5.0 percent without triggering spiraling inflation, so an unemployment rate below 4.0 percent looks pretty good by comparison. In fact, this is our 19th consecutive month with unemployment below 4.0 percent, a record unmatched since the end of the 1960s.
While it’s hard to get too upset about the level of unemployment, a 0.3 pp jump in a single month is disconcerting. However, on closer look, the story may not be that bad. The jump in unemployment was due to a big jump in people in the labor force, not a spike in layoffs.
The labor force reportedly grew by 736,000 in August, which would come to 8.8 million at an annual rate. Needless to say, this did not really happen. There was no event in the world that would have plausibly led to this sort of leap in labor force participation, so we have to recognize that the differences in the household survey data between July and August were largely driven by errors in the data.
If we ignore the July to August change and just compare August levels with prior months, there does not look to be much cause for concern. There were 2,914,000 workers who reported being unemployed in August as a result of losing a job. That is up by almost 300,000 from the July level, but only 14,000 from the June level. In fact, it is actually 46,000 below the May level. Clearly, there is no evidence of a surge in layoffs driving the unemployment rate higher.
The main reason why unemployment is higher than earlier in the year is that more people report being unemployed who are reentrants to the workforce or new entrants. The number of unemployed reentrants in August was 150k above the average for the first seven months of the year, while the number of unemployed new entrants was 80k higher. Insofar as there is a story of higher unemployment in August it is one where the economy is not generating enough jobs to employ all the people entering the workforce.
But, other data don’t square with that story. Most notably, the establishment survey showed the economy generating 187,000 jobs in August. The numbers from the prior two months were revised down, so that the three-month average stood at just 150k, but even this figure implies a considerably faster pace than most projections of potential labor force growth.
The Congressional Budget Office (CBO) puts the potential growth in the labor force at less than 1 million a year over the next three years, which implies a rate of employment growth of less than 90,000 a month. So, if CBO is anywhere close to the mark, 150k jobs a month should be more than enough to keep the unemployment rate from rising. It’s also worth noting that the household survey showed employment rising by 220k in August.
The weekly data on new and continuing unemployment claims are also inconsistent with any appreciable rise in unemployment. The four-week moving average for new unemployment claims stood at 231k for the most recent week, which is lower than its been for most of the last five months. The number of continuing claims stood at 1,692k, the lowest level since the start of February. There is no evidence here of any uptick in the number of people having difficulty finding jobs.
Wage Growth, Productivity, and Inflation
The other big issue of concern with this month’s jobs report was whether there was evidence of faster wage growth, which could trigger a reacceleration of inflation. The news was clearly good on this front. Wage growth slowed modestly, with the three-month annual rate dropping from 4.9 percent in the three months ending in July to 4.5 percent in the three months ending in August.
This is probably still somewhat faster than would be consistent with the Fed’s 2.0 percent inflation target, but not by much. There were several periods in 2018-19 when the rate of wage growth approached 4.0 percent. There also is still some room for the profit share to shrink back to its pre-pandemic level, which means that we could have more rapid wage growth, without seeing it passed on in prices. And, we have even further to go with profit shares if we target the pre-Great Recession shares.
The only serious basis for Fed concern would be if wage growth seemed to accelerating. That is clearly not the case with the data in the Average Hourly Earnings series in the jobs report. Since this was the only wage series that had shown any evidence of acceleration, the Fed should be reasonably comfortable that accelerating wage growth will not reignite inflation.
The other piece of good news on the inflation front is that it seems that the strong productivity growth number we saw in the second quarter will be repeated in the current quarter. The index of aggregate weekly hours rose 0.4 percent in August, but that was after dropping 0.2 percent in July. It is on course to show a gain of 0.3-0.4 percent for the quarter, translating into an annualized rate of 1.2 to 1.6 percent.
GDP to date has come in very strong with the GDPNow model putting growth for the quarter at over 5.0 percent, as of August 31. That will surely come down with data from August and September, but if the quarter’s growth ends up over 3.0 percent, it will translate into another very good productivity number.
These data are erratic and subject to large revisions, but it is always good to have another quarter where productivity goes in the right direction. In any case, it is one more item arguing that the Fed can hold tight on any further rate hikes. All the data suggest that inflation is continuing to slow, with a drop in rental inflation, the biggest single component in the index, a virtual certainty given the slowdown of inflation in marketed units. Inflation may still be above the Fed’s 2.0 percent target by the end of the year, but it should be close enough that the Fed can declare victory.
Recession Fears?
There were many predictions of recession earlier in the year, given the Fed’s extraordinary pace of tightening. While it was certainly reasonable to worry about the impact of these hikes, it was difficult to see the path through which they would cause a recession.
The main channels through which rate hikes led to recessions in the past were a slowing of construction, especially residential construction, and a drop in net exports due to a rise in the value of the dollar. We have seen relatively little impact on either channel to date.
The rise in interest rates has reduced housing starts, which peaked at an annual rate of more than 1.8 million last April, and then fell to less than 1.4 million this spring. However, due to the huge backlog of unfinished homes created by supply chain problems, the number of units under construction is still larger than it was back in March of 2022 when the Fed started its rate hikes.
There is a similar story with non-residential construction. There had already been a big falloff in office and retail construction at the start of the pandemic, so these sectors had little room to fall further. On the other hand, the CHIPS Act and the Inflation Reduction Act provided a huge boost to factory construction. As a result, non-residential construction has been rising rapidly this year. In August, construction added 22,000 jobs.
Rate hikes have also not had the normal effect on the dollar for two reasons. First, the dollar had already risen considerably against other major currencies following the passage of the American Rescue Plan at the start of the Biden administration and then again following the Russian invasion of Ukraine. This meant that the dollar did not have as much room to rise further as would ordinarily be the case.
The other factor was the rise in interest rates by other major central banks. Since all rates were going up more or less together, the higher rates in the U.S. did not have much impact.
Without a rise in the dollar, there was no reason to expect the sort of fall in net exports that might ordinarily follow a sharp rise in interest rates by the Fed. Since there has been no major drop in net exports, there has not been a fall in manufacturing output and employment. The number of jobs in the sector rose by 16,000 in August.
With construction and manufacturing, the two most cyclical sectors in the economy, still adding jobs, it is difficult to see how we can get a recession. This doesn’t mean the Fed’s rate hikes have had no impact on the economy. They brought an end to the refinancing boom that had taken place in 2020-21. This directly had an impact on jobs by reducing employment in the financial sector. Jobs in credit intermediation and related activities are down by almost 70,000 from where it was in March of 2022.
The loss of this source of credit also likely had some impact on slowing consumption, as many people did cash-out refinancing, where they borrowed against their home equity to undertake a major purchase, such as buying a car or remodeling their house. In addition, some of the money people saved from lower interest payments would have gone into consumption.
However, this impact has been fairly limited, as consumption has continued to grow at a healthy pace based on real wage growth. In any case, it’s hard to see a recession in the cards.
Probably the biggest cause for concern would be further problems in the financial sector due to losses that banks have on their books from government bonds and other long-term loans. Write-downs on loans to commercial real estate will also be a problem.
For this reason, it would be great if the Fed could signal that it is at the end of its round of rate hikes. They obviously are concerned about declaring a premature victory in their battle against inflation, after being slow to recognize the problem, but they don’t somehow even the score by making a mistake in the opposite direction.
At the very least, Chair Powell should more explicitly acknowledge the progress made to date, as other FOMC members have done, most notably Raphael Bostic. Anything that can produce a modest reduction in long-term rates will reduce the risk of a financial meltdown that could pose a series problem for the economy next year.
Read More Leer más Join the discussion Participa en la discusión
• ElectionsEleccionesUnited StatesEE. UU.
Read More Leer más Join the discussion Participa en la discusión
There are lengthy articles in all the major news outlets on the list of drugs whose prices will be subject to negotiation by Medicare. Many of these pieces discuss negotiation as a form of government interference with the market. This is a case where we really need to step back a second and get a clearer picture of what is going on.
The reason drugs are expensive in the first place is that they have government-granted patent monopolies or related protections. There are few drugs that are actually expensive to manufacture and distribute. This means that without government-imposed barriers, most drugs would be cheap. Prices of patented drugs fall by 90 percent or more after enough generics have time to enter the market.
In short, the drug companies and politicians who are angry about Medicare negotiating drug prices are not upset about government interference in the market. They are angry about an interference that will lower drug prices and reduce the industry’s profits.
There is an argument that we need high drug prices to give the industry an incentive to develop new drugs. This is true, but we can ask how high prices have to be. There is also the option to substitute public money for patent monopoly-supported research, as we did when we paid Moderna to develop a Covid vaccine.
We could look to apply this approach more widely, paying for the research upfront and then having the drugs developed available as generics from the day they are approved. The pharmaceutical industry probably would not like this approach, but it is a way that we can get drugs at reasonable prices.
There are lengthy articles in all the major news outlets on the list of drugs whose prices will be subject to negotiation by Medicare. Many of these pieces discuss negotiation as a form of government interference with the market. This is a case where we really need to step back a second and get a clearer picture of what is going on.
The reason drugs are expensive in the first place is that they have government-granted patent monopolies or related protections. There are few drugs that are actually expensive to manufacture and distribute. This means that without government-imposed barriers, most drugs would be cheap. Prices of patented drugs fall by 90 percent or more after enough generics have time to enter the market.
In short, the drug companies and politicians who are angry about Medicare negotiating drug prices are not upset about government interference in the market. They are angry about an interference that will lower drug prices and reduce the industry’s profits.
There is an argument that we need high drug prices to give the industry an incentive to develop new drugs. This is true, but we can ask how high prices have to be. There is also the option to substitute public money for patent monopoly-supported research, as we did when we paid Moderna to develop a Covid vaccine.
We could look to apply this approach more widely, paying for the research upfront and then having the drugs developed available as generics from the day they are approved. The pharmaceutical industry probably would not like this approach, but it is a way that we can get drugs at reasonable prices.
Read More Leer más Join the discussion Participa en la discusión
That would be the implication of a claim about China’s population reported in Peter Coy’s NYT column. Coy cites the views of Yi Fuxian, an expert on China’s demography. According to Yi, China’s published statistics overstate birthrates and population. Yi puts China’s current population at 1.28 billion, almost 10.0 percent less than the official figure of 1.41 billion.
If Yi is correct about China’s population, and China’s GDP has been measured accurately, then it would mean that its per capita GDP would be roughly 10.0 percent higher than current estimates. The I.M.F. puts China’s per capita for 2023 GDP at $19,073 in international dollars. That is a bit less than Mexico’s figure of $19,430.
But if Yi is right about China’s population, then its per capita GDP would be almost $21,000 this year, roughly $1,500 higher than Mexico’s. This is pretty striking, since at the start of the century, China’s per capita GDP was $3,430, less than one-fifth of Mexico’s. (These are in constant international dollars, so they are adjusted for the effects of inflation.)
Yi and others have argued that China is facing a period of stagnation where its per capita income will grow slowly in the years ahead. That could be right, but the immediate implication of his claims for the present is that China’s growth has been even more spectacular than the official data indicate.
That would be the implication of a claim about China’s population reported in Peter Coy’s NYT column. Coy cites the views of Yi Fuxian, an expert on China’s demography. According to Yi, China’s published statistics overstate birthrates and population. Yi puts China’s current population at 1.28 billion, almost 10.0 percent less than the official figure of 1.41 billion.
If Yi is correct about China’s population, and China’s GDP has been measured accurately, then it would mean that its per capita GDP would be roughly 10.0 percent higher than current estimates. The I.M.F. puts China’s per capita for 2023 GDP at $19,073 in international dollars. That is a bit less than Mexico’s figure of $19,430.
But if Yi is right about China’s population, then its per capita GDP would be almost $21,000 this year, roughly $1,500 higher than Mexico’s. This is pretty striking, since at the start of the century, China’s per capita GDP was $3,430, less than one-fifth of Mexico’s. (These are in constant international dollars, so they are adjusted for the effects of inflation.)
Yi and others have argued that China is facing a period of stagnation where its per capita income will grow slowly in the years ahead. That could be right, but the immediate implication of his claims for the present is that China’s growth has been even more spectacular than the official data indicate.
Read More Leer más Join the discussion Participa en la discusión
• Globalization and TradeGlobalización y comercio
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The discussion of AI continues to be almost otherworldly. We often see a contrast between the idea that AI will “assist” workers in doing their job and that AI will replace them. Pro tip: When AI assists workers, it is replacing them.
The story here is actually pretty simple. Suppose we can get AI to write legal briefs. As many people are quick to point out, AI programs make mistakes. This means that someone would likely not want a brief written by an AI program turned into a judge on their behalf.
However, an AI program can save a lawyer an enormous amount of time. It can write a brief, citing all the relevant cases. A lawyer can then look it over, check that the cases are cited correctly, and make sure that the arguments are sound, and then turn it into the judge. This will likely save a lawyer many hours compared to the situation where they have to write the brief from scratch.
So, AI is assisting lawyers, sounds great! But think this one through for a moment. Suppose having the use of an AI program allows the typical lawyer to double their output. With AI, they can produce briefs, write contracts, or do other legal tasks in half the time it took them without AI.
If each lawyer can do twice as much work in an hour or a day, then we need many fewer lawyers. If they can literally double their output, then it would cut the need for lawyers in half.
The real world is of course never that simple. Lawyers doing twice as much work could require more people to hire lawyers, since people might sue for things they would not have sued for otherwise, and then the person being sued has to hire a lawyer. But, as a general rule, if each lawyer can do twice as much work in an hour, we will need fewer lawyers.
The same story applies to anywhere else we might want to use AI. If an AI program can calculate a company’s taxes, then we will likely need fewer accountants, even if we still want an accountant to check the work. Same for engineers, architects, and workers in a wide range of other occupations. In all of these cases, “assisting” means replacing. If we can increase the productivity of workers in these occupations, we can reduce the need for these professional workers.
To my view, this is great. Government policy has been designed to depress the pay of less-educated workers for decades. We have made it as easy as possible to import manufactured goods, produced by low-paid workers in the developing world. This has the predicted and actual effect of reducing employment in manufacturing in the United States and reducing the pay for the jobs that remain.
We have also made patent and copyright monopolies longer and stronger over the last half-century. This increases the pay for those in a position to benefit from these government-granted monopolies. People in policy positions like to say that the big paychecks enjoyed by folks like Bill Gates, the Moderna billionaires, and others are due to technology, but that is just a fairy tale they tell to make themselves feel good. It was due to the rigging of the market.
Anyhow, it will be great if AI allows those lower down the educational ladder to capture more of the benefits of technology. The professionals who take a hit won’t be happy, but neither were the millions of manufacturing workers who lost their jobs due to our trade policies or the tens of millions who had to accept lower pay.
By the way, one last piece of silliness that comes up with AI. We don’t have to worry that no one will have jobs. We can always work fewer hours, which is an important way that people in Western Europe have taken the benefits of productivity growth, with an average work year now roughly 20 percent shorter than in the United States. Also, hasn’t anyone heard about the demographic crisis of falling populations?
The discussion of AI continues to be almost otherworldly. We often see a contrast between the idea that AI will “assist” workers in doing their job and that AI will replace them. Pro tip: When AI assists workers, it is replacing them.
The story here is actually pretty simple. Suppose we can get AI to write legal briefs. As many people are quick to point out, AI programs make mistakes. This means that someone would likely not want a brief written by an AI program turned into a judge on their behalf.
However, an AI program can save a lawyer an enormous amount of time. It can write a brief, citing all the relevant cases. A lawyer can then look it over, check that the cases are cited correctly, and make sure that the arguments are sound, and then turn it into the judge. This will likely save a lawyer many hours compared to the situation where they have to write the brief from scratch.
So, AI is assisting lawyers, sounds great! But think this one through for a moment. Suppose having the use of an AI program allows the typical lawyer to double their output. With AI, they can produce briefs, write contracts, or do other legal tasks in half the time it took them without AI.
If each lawyer can do twice as much work in an hour or a day, then we need many fewer lawyers. If they can literally double their output, then it would cut the need for lawyers in half.
The real world is of course never that simple. Lawyers doing twice as much work could require more people to hire lawyers, since people might sue for things they would not have sued for otherwise, and then the person being sued has to hire a lawyer. But, as a general rule, if each lawyer can do twice as much work in an hour, we will need fewer lawyers.
The same story applies to anywhere else we might want to use AI. If an AI program can calculate a company’s taxes, then we will likely need fewer accountants, even if we still want an accountant to check the work. Same for engineers, architects, and workers in a wide range of other occupations. In all of these cases, “assisting” means replacing. If we can increase the productivity of workers in these occupations, we can reduce the need for these professional workers.
To my view, this is great. Government policy has been designed to depress the pay of less-educated workers for decades. We have made it as easy as possible to import manufactured goods, produced by low-paid workers in the developing world. This has the predicted and actual effect of reducing employment in manufacturing in the United States and reducing the pay for the jobs that remain.
We have also made patent and copyright monopolies longer and stronger over the last half-century. This increases the pay for those in a position to benefit from these government-granted monopolies. People in policy positions like to say that the big paychecks enjoyed by folks like Bill Gates, the Moderna billionaires, and others are due to technology, but that is just a fairy tale they tell to make themselves feel good. It was due to the rigging of the market.
Anyhow, it will be great if AI allows those lower down the educational ladder to capture more of the benefits of technology. The professionals who take a hit won’t be happy, but neither were the millions of manufacturing workers who lost their jobs due to our trade policies or the tens of millions who had to accept lower pay.
By the way, one last piece of silliness that comes up with AI. We don’t have to worry that no one will have jobs. We can always work fewer hours, which is an important way that people in Western Europe have taken the benefits of productivity growth, with an average work year now roughly 20 percent shorter than in the United States. Also, hasn’t anyone heard about the demographic crisis of falling populations?
Read More Leer más Join the discussion Participa en la discusión
Most candidates would not make a huge tax hike a center piece in their presidential campaign, but Donald Trump is not your typical presidential candidate. In case people missed it, Trump floated the idea of imposing 10 percent tariffs across the board on all imports with a group of people who have served as his economic advisers.
It’s not clear whether this tariff is supposed to be in addition to current tariffs or a replacement. In the case of items coming in from China, it would actually imply a cut from the current tariff rate, which averages 19 percent now. It’s also not clear whether it would apply to imports of services, most of which are not subject to tariffs.
Recognizing these ambiguities, let’s say that the tariff is an addition to current tariffs and applies to all goods imports, but not services. This can give us a rough estimate of how much Trump’s tariffs will be increasing taxes for people in the United States.
The Congressional Budget Office projects that we will import $49.3 trillion of goods and services over the decade from 2025 to 2034. (I increased the projection for 2033 by 3.4 percent, the prior year’s growth rate, to get the figure for 2034.) If we assume that 81.8 percent of these imports will be goods (the share for the first half of 2023), then goods imports will be $40.3 trillion over this period.
The tariff will have some impact on both the quantity of imports and the prices received by the countries that export to us. I have assumed that the quantity of imports falls by 10 percent in response to the tariffs, while the price of imports falls by 1.0 percent. Here is the picture for the amount of revenue – the taxes – that we will be paying year by year as a result of Trump’s tariffs.
Source: Congressional Budget Office and author’s calculations.
The sum for the period is a bit under $3.6 trillion. It is a bit more than 0.9 percent of GDP over this period. This would be a substantial sum out of people’s pockets ($11,000 per person), and would likely be a substantial drag on GDP growth.
Note: An earlier version assumed import prices dropped by 10 percent in response to the tariffs. I had meant to assume that the price decline was 10 percent of the tariff, or 1 percent of the pre-tariff price.
Most candidates would not make a huge tax hike a center piece in their presidential campaign, but Donald Trump is not your typical presidential candidate. In case people missed it, Trump floated the idea of imposing 10 percent tariffs across the board on all imports with a group of people who have served as his economic advisers.
It’s not clear whether this tariff is supposed to be in addition to current tariffs or a replacement. In the case of items coming in from China, it would actually imply a cut from the current tariff rate, which averages 19 percent now. It’s also not clear whether it would apply to imports of services, most of which are not subject to tariffs.
Recognizing these ambiguities, let’s say that the tariff is an addition to current tariffs and applies to all goods imports, but not services. This can give us a rough estimate of how much Trump’s tariffs will be increasing taxes for people in the United States.
The Congressional Budget Office projects that we will import $49.3 trillion of goods and services over the decade from 2025 to 2034. (I increased the projection for 2033 by 3.4 percent, the prior year’s growth rate, to get the figure for 2034.) If we assume that 81.8 percent of these imports will be goods (the share for the first half of 2023), then goods imports will be $40.3 trillion over this period.
The tariff will have some impact on both the quantity of imports and the prices received by the countries that export to us. I have assumed that the quantity of imports falls by 10 percent in response to the tariffs, while the price of imports falls by 1.0 percent. Here is the picture for the amount of revenue – the taxes – that we will be paying year by year as a result of Trump’s tariffs.
Source: Congressional Budget Office and author’s calculations.
The sum for the period is a bit under $3.6 trillion. It is a bit more than 0.9 percent of GDP over this period. This would be a substantial sum out of people’s pockets ($11,000 per person), and would likely be a substantial drag on GDP growth.
Note: An earlier version assumed import prices dropped by 10 percent in response to the tariffs. I had meant to assume that the price decline was 10 percent of the tariff, or 1 percent of the pre-tariff price.
Read More Leer más Join the discussion Participa en la discusión
Shawn Fain, the president of the United Auto Workers, said that he viewed the 40 percent pay increases received by the auto industry’s CEOs as a benchmark for the pay increase the union’s members should be receiving in their next contract. It’s not clear if he intends to make the pay of the CEOs and other top management a topic in negotiations, but it would be great if he did.
While there has been some shift from wages to profits over the last four decades, most of the upward redistribution went from ordinary workers to high-end workers like CEOs and other top managers, Wall Street types, and the elite in the tech sector. If the union can put some serious downward pressure on the pay of top management it could be a big step in reversing this upward redistribution.
The problem with CEO pay is that there is no effective check on it. For ordinary workers, managers know that they can boost the company’s profits if they can force workers to accept lower pay. But, there is no one trying to force lower pay on top management.
Ostensibly, corporate boards of directors are supposed to be keeping a lid on CEO pay, since in principle they represent shareholders. However, there is little reason to believe that they act as the textbook says Top management typically plays a large role in selecting directors.
And, once a director is appointed they are virtually assured of keeping their job as long as they remain on good terms with the other directors. Directors who are nominated for re-election by the board, win their elections more than 99 percent of the time. This means that they have little incentive to ask pesky questions, like “can we pay our CEO less?”
Being a director pays very well, with the average director of a major company getting pay and options worth several hundred thousand dollars a year for around 400 hours of work. It’s good work, if you can get it.
As a result, most CEOs don’t even see their job as involving reining in the pay of top management. Instead, they view themselves as serving top management, helping them to achieve their goals.
This is a big deal because the high pay received by CEOs and other top management corrupts pay scales throughout the economy. If the CEO is getting $20-$30 million, then the next level of management is likely getting $10-$15 million, and the third-tier executives are likely getting $2-$3 million.
And, these bloated pay structures in the corporate sector spill over to the rest of the economy. The CEOs of major universities or large charities often get $2-$3 million a year, and their top assistants can get pay of close to $1 million. Pay structures have become so distorted that many people now consider it a major sacrifice to work in top government positions that pay around $200,000 a year.
This picture would change radically if we could put some serious downward pressure on the pay of CEOs. If we were back in the world of the 1960s-70s, CEOs would be earning 20 to 30 times the pay of ordinary workers rather than 200-300 times. This would put their pay in the range of $2-$3 million a year. Think of how different the world would look if the CEOs at our largest most successful companies were pocketing $3 million a year, instead of $30 million, or even more.
Mary Barra, the CEO of GM, pocketed just under $29 million last year. Good luck to the union in trying to bring that figure down to earth. They will be doing the whole country a service.
Shawn Fain, the president of the United Auto Workers, said that he viewed the 40 percent pay increases received by the auto industry’s CEOs as a benchmark for the pay increase the union’s members should be receiving in their next contract. It’s not clear if he intends to make the pay of the CEOs and other top management a topic in negotiations, but it would be great if he did.
While there has been some shift from wages to profits over the last four decades, most of the upward redistribution went from ordinary workers to high-end workers like CEOs and other top managers, Wall Street types, and the elite in the tech sector. If the union can put some serious downward pressure on the pay of top management it could be a big step in reversing this upward redistribution.
The problem with CEO pay is that there is no effective check on it. For ordinary workers, managers know that they can boost the company’s profits if they can force workers to accept lower pay. But, there is no one trying to force lower pay on top management.
Ostensibly, corporate boards of directors are supposed to be keeping a lid on CEO pay, since in principle they represent shareholders. However, there is little reason to believe that they act as the textbook says Top management typically plays a large role in selecting directors.
And, once a director is appointed they are virtually assured of keeping their job as long as they remain on good terms with the other directors. Directors who are nominated for re-election by the board, win their elections more than 99 percent of the time. This means that they have little incentive to ask pesky questions, like “can we pay our CEO less?”
Being a director pays very well, with the average director of a major company getting pay and options worth several hundred thousand dollars a year for around 400 hours of work. It’s good work, if you can get it.
As a result, most CEOs don’t even see their job as involving reining in the pay of top management. Instead, they view themselves as serving top management, helping them to achieve their goals.
This is a big deal because the high pay received by CEOs and other top management corrupts pay scales throughout the economy. If the CEO is getting $20-$30 million, then the next level of management is likely getting $10-$15 million, and the third-tier executives are likely getting $2-$3 million.
And, these bloated pay structures in the corporate sector spill over to the rest of the economy. The CEOs of major universities or large charities often get $2-$3 million a year, and their top assistants can get pay of close to $1 million. Pay structures have become so distorted that many people now consider it a major sacrifice to work in top government positions that pay around $200,000 a year.
This picture would change radically if we could put some serious downward pressure on the pay of CEOs. If we were back in the world of the 1960s-70s, CEOs would be earning 20 to 30 times the pay of ordinary workers rather than 200-300 times. This would put their pay in the range of $2-$3 million a year. Think of how different the world would look if the CEOs at our largest most successful companies were pocketing $3 million a year, instead of $30 million, or even more.
Mary Barra, the CEO of GM, pocketed just under $29 million last year. Good luck to the union in trying to bring that figure down to earth. They will be doing the whole country a service.
Read More Leer más Join the discussion Participa en la discusión
