At a time when we are seeing the slowest productivity growth on record the NYT decided to devote a Room for Debate section to the question of how we will deal with surging productivity (called “automation” in the description). Blaming the problems of high unemployment and low wages on automation has certain attractive features. It makes our major social problems the result of the development of technology rather than bad economic policy. This is a longer topic (yes, it will be addressed in my forthcoming book), but let’s just say that it is not only Donald Trump’s supporters who have a tenuous grip on reality.
At a time when we are seeing the slowest productivity growth on record the NYT decided to devote a Room for Debate section to the question of how we will deal with surging productivity (called “automation” in the description). Blaming the problems of high unemployment and low wages on automation has certain attractive features. It makes our major social problems the result of the development of technology rather than bad economic policy. This is a longer topic (yes, it will be addressed in my forthcoming book), but let’s just say that it is not only Donald Trump’s supporters who have a tenuous grip on reality.
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Economists just hate to let the data get in the way of a good morality tale. For this reason we keep seeing stories about the problem of men not working, and in particular less-educated men not working. The big theme here is that technology has eliminated the need for the sort of work these less-educated men do. We got another example in this genre from Justin Fox in a Bloomberg piece.
The big problem with this story is that there has been a decline in employment rates for both men and women, including those with college degrees, since 2000. Furthermore, if we focus on less-educated workers (those without college degrees) the drop in prime-age employment rates has been larger for women than for men. (The Fox piece tries to make a case for the technology story with data that refuse to cooperate. A chart in the piece that is supposed to show men dropping out of the labor force everywhere, shows that in Canada the rate of non-participation went from 9.5 percent in 1995 to 9.5 percent in 2015. In Germany it fell from 8.4 percent in 1995 to 7.6 percent in 2015.)
This suggests that the problem is a lack of demand in the economy, not the destruction of jobs held by less-educated men due to technology. The remedy in this case would be create more demand by policies like getting the government to run larger budget deficits or by getting the trade deficit down through a lower valued dollar. We can also look to create more jobs by reducing the duration of the average work year through policies like paid sick days and family leave and mandated vacation time. In this story, we certainly wouldn’t want the Fed to deliberately slow the economy and rate of job creation with higher interest rates.
It is worth noting that the dismal labor market prospects of formerly incarcerated people is a real issue. The piece is right to highlight this issue, it just cannot explain the larger falloff in employment rates over the last 15 years.
Economists just hate to let the data get in the way of a good morality tale. For this reason we keep seeing stories about the problem of men not working, and in particular less-educated men not working. The big theme here is that technology has eliminated the need for the sort of work these less-educated men do. We got another example in this genre from Justin Fox in a Bloomberg piece.
The big problem with this story is that there has been a decline in employment rates for both men and women, including those with college degrees, since 2000. Furthermore, if we focus on less-educated workers (those without college degrees) the drop in prime-age employment rates has been larger for women than for men. (The Fox piece tries to make a case for the technology story with data that refuse to cooperate. A chart in the piece that is supposed to show men dropping out of the labor force everywhere, shows that in Canada the rate of non-participation went from 9.5 percent in 1995 to 9.5 percent in 2015. In Germany it fell from 8.4 percent in 1995 to 7.6 percent in 2015.)
This suggests that the problem is a lack of demand in the economy, not the destruction of jobs held by less-educated men due to technology. The remedy in this case would be create more demand by policies like getting the government to run larger budget deficits or by getting the trade deficit down through a lower valued dollar. We can also look to create more jobs by reducing the duration of the average work year through policies like paid sick days and family leave and mandated vacation time. In this story, we certainly wouldn’t want the Fed to deliberately slow the economy and rate of job creation with higher interest rates.
It is worth noting that the dismal labor market prospects of formerly incarcerated people is a real issue. The piece is right to highlight this issue, it just cannot explain the larger falloff in employment rates over the last 15 years.
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The NYT had a major article on the problems of the health care exchanges established under the Affordable Care Act (ACA). The piece implied that the problem is that too many people are opting to go without insurance, even bringing up the silly old line about the lack of young healthy people. (The exchanges need healthy people, it doesn’t matter if they are young. In fact, older healthy people are more profitable since they pay higher premiums.)
In fact, fewer people are going without insurance than had been predicted when the ACA was passed. In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015. (The 2012 projections also assumed that all states would expand Medicaid since it preceded the Supreme Court ruling that allowed states to opt out.)
The reason that the health care exchanges have had lower than predicted enrollments is that fewer employers have dropped employer based insurance than expected. This is the sort of thing that a major article on unexpected problems in the exchanges should have noted.
The NYT had a major article on the problems of the health care exchanges established under the Affordable Care Act (ACA). The piece implied that the problem is that too many people are opting to go without insurance, even bringing up the silly old line about the lack of young healthy people. (The exchanges need healthy people, it doesn’t matter if they are young. In fact, older healthy people are more profitable since they pay higher premiums.)
In fact, fewer people are going without insurance than had been predicted when the ACA was passed. In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015. (The 2012 projections also assumed that all states would expand Medicaid since it preceded the Supreme Court ruling that allowed states to opt out.)
The reason that the health care exchanges have had lower than predicted enrollments is that fewer employers have dropped employer based insurance than expected. This is the sort of thing that a major article on unexpected problems in the exchanges should have noted.
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Gretchen Morgenson had an interesting piece pointing out that it is rare that corporate boards ever clawback substantial sums from CEOs involved in illegal or inappropriate activity. (The immediate context is the clawback of some future performance pay from Wells Fargo CEO John Stumpf.) The issue, as Morgenson presents it, is that boards don’t generally do clawbacks except where it is legally required.
The point is that boards do not want to do clawbacks. This raises the obvious question as to why boards would not want to clawback money from CEOs?
Corporate boards are supposed to be working for shareholders. If they have a legal basis for getting extra money for shareholders by taking back pay from a CEO, they should want to do it. The assumption in Morgenson’s piece, which is undoubtedly accurate, is that the boards are allied with the CEO. They don’t want to take away from money from him/her unless they are forced to by the law.
This is the context in which CEOs like John Stumpf can earn close to $20 million a year, more than 500 times the pay of the median worker. And then we can count on leading policy experts to tell us the problem is that most workers lack the skills to compete in the modern economy.
Gretchen Morgenson had an interesting piece pointing out that it is rare that corporate boards ever clawback substantial sums from CEOs involved in illegal or inappropriate activity. (The immediate context is the clawback of some future performance pay from Wells Fargo CEO John Stumpf.) The issue, as Morgenson presents it, is that boards don’t generally do clawbacks except where it is legally required.
The point is that boards do not want to do clawbacks. This raises the obvious question as to why boards would not want to clawback money from CEOs?
Corporate boards are supposed to be working for shareholders. If they have a legal basis for getting extra money for shareholders by taking back pay from a CEO, they should want to do it. The assumption in Morgenson’s piece, which is undoubtedly accurate, is that the boards are allied with the CEO. They don’t want to take away from money from him/her unless they are forced to by the law.
This is the context in which CEOs like John Stumpf can earn close to $20 million a year, more than 500 times the pay of the median worker. And then we can count on leading policy experts to tell us the problem is that most workers lack the skills to compete in the modern economy.
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A headline of a NYT business section piece confidently told its readers that “China manipulates its currency, but not in the way Trump claims.” The gist of the argument is that China has recently sold off some of its foreign exchange reserves in order to raise the value of its currency. It goes on to assert that because the inflow of foreign investment into China has slowed, its currency should fall if left to market forces.
Actually, China still holds well over $4 trillion in foreign reserves counting the money in its sovereign wealth fund. Given standard rules of thumb, a country with China’s level of imports would be expected to hold between $500 billion and $1 trillion in foreign reserves. These additional holds of reserves have the effect of keeping down the value of China’s currency, just as Donald Trump claims. (I will not vouch for the fact that this is what Trump is thinking when he complains about currency management.)
It is also worth noting that even though China’s economy has slowed, it is still growing far faster than the economies in Europe, Japan, and the United States. This would be expected to lead to an inflow of capital to China, which would correspond to China running a trade deficit. Instead, China is continuing to run a trade surplus of between 2–3 percent of GDP.
In short, Trump is much closer to the mark on this one than the NYT.
A headline of a NYT business section piece confidently told its readers that “China manipulates its currency, but not in the way Trump claims.” The gist of the argument is that China has recently sold off some of its foreign exchange reserves in order to raise the value of its currency. It goes on to assert that because the inflow of foreign investment into China has slowed, its currency should fall if left to market forces.
Actually, China still holds well over $4 trillion in foreign reserves counting the money in its sovereign wealth fund. Given standard rules of thumb, a country with China’s level of imports would be expected to hold between $500 billion and $1 trillion in foreign reserves. These additional holds of reserves have the effect of keeping down the value of China’s currency, just as Donald Trump claims. (I will not vouch for the fact that this is what Trump is thinking when he complains about currency management.)
It is also worth noting that even though China’s economy has slowed, it is still growing far faster than the economies in Europe, Japan, and the United States. This would be expected to lead to an inflow of capital to China, which would correspond to China running a trade deficit. Instead, China is continuing to run a trade surplus of between 2–3 percent of GDP.
In short, Trump is much closer to the mark on this one than the NYT.
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In an article reporting on Senate Majority leader Mitch McConnell’s statement that he will not bring up the Trans-Pacific Partnership (TPP) in a lame duck session of Congress, the Post asserted:
“Some Republican lawmakers typically inclined to support trade deals have objected to some provisions in the TPP that could hurt tobacco and pharmaceutical companies.”
Actually, there are no provisions in the deal as now written that “hurt” tobacco and pharmaceutical companies. The provisions in question don’t help the industries as much as they would like.
In the case of the tobacco industry, it is not guaranteed the same access to investor state dispute settlement tribunals as other industries. The pharmaceutical industry only got a guarantee of the equivalent of eight years of marketing exclusivity as protection against biosimilar drugs. While the industry wanted this protection for 12 years, it currently has no guarantee of protection, so the issue is one of how much it will gain.
It is understandable that powerful interests would look to get as much as possible out of a trade and regulatory pact like the TPP, but it is highly misleading to report their failure to get everything they want as being hurt by the deal.
In an article reporting on Senate Majority leader Mitch McConnell’s statement that he will not bring up the Trans-Pacific Partnership (TPP) in a lame duck session of Congress, the Post asserted:
“Some Republican lawmakers typically inclined to support trade deals have objected to some provisions in the TPP that could hurt tobacco and pharmaceutical companies.”
Actually, there are no provisions in the deal as now written that “hurt” tobacco and pharmaceutical companies. The provisions in question don’t help the industries as much as they would like.
In the case of the tobacco industry, it is not guaranteed the same access to investor state dispute settlement tribunals as other industries. The pharmaceutical industry only got a guarantee of the equivalent of eight years of marketing exclusivity as protection against biosimilar drugs. While the industry wanted this protection for 12 years, it currently has no guarantee of protection, so the issue is one of how much it will gain.
It is understandable that powerful interests would look to get as much as possible out of a trade and regulatory pact like the TPP, but it is highly misleading to report their failure to get everything they want as being hurt by the deal.
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We have seen a number of sharp swings in oil prices over the last two decades. Clearly the underlying fundamentals of the market are the main factor in determining the price, but the fact that Wall Street-types spend tens of billions of dollars speculating on the stuff can also play a role.
NPR assured us otherwise in a Morning Edition segment today. They gave a comment from an economist who said the impact of speculation was essentially zero, effectively mocking all the folks who complained about it.
This position is not one universally held by economists. For example, this paper from the St. Louis Federal Reserve Bank analyzed recent movements in oil prices. It found that speculation had the effect of exaggerating movements in both directions by around 15 percent. The implication is that when oil prices hit their all time high of $150 a barrel in 2008, speculation might have been responsible for more than $20 of this price. This would cost U.S. consumers more than $12 billion over the course of a year if the impact lasted that long. This is equal to 0.08 percent of GDP at the time or more than one third of the gains the International Trade Commission projects for the Trans-Pacific Partnership.
While the paper still supports the idea that the fundamentals of supply and demand are the main factors determining price, it does provide evidence that speculation can play an important role. If the analysis in this paper is correct, then people would not be wrong to be bothered by speculation in the oil market.
We have seen a number of sharp swings in oil prices over the last two decades. Clearly the underlying fundamentals of the market are the main factor in determining the price, but the fact that Wall Street-types spend tens of billions of dollars speculating on the stuff can also play a role.
NPR assured us otherwise in a Morning Edition segment today. They gave a comment from an economist who said the impact of speculation was essentially zero, effectively mocking all the folks who complained about it.
This position is not one universally held by economists. For example, this paper from the St. Louis Federal Reserve Bank analyzed recent movements in oil prices. It found that speculation had the effect of exaggerating movements in both directions by around 15 percent. The implication is that when oil prices hit their all time high of $150 a barrel in 2008, speculation might have been responsible for more than $20 of this price. This would cost U.S. consumers more than $12 billion over the course of a year if the impact lasted that long. This is equal to 0.08 percent of GDP at the time or more than one third of the gains the International Trade Commission projects for the Trans-Pacific Partnership.
While the paper still supports the idea that the fundamentals of supply and demand are the main factors determining price, it does provide evidence that speculation can play an important role. If the analysis in this paper is correct, then people would not be wrong to be bothered by speculation in the oil market.
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The establishment types are pulling out all the stops in trying to resuscitate the Trans-Pacific Partnership. Hence we get a report from the OECD on the declining growth rate of world trade and a front page article highlighting the report in the Washington Post.
I haven’t read the report carefully, but it is worth making two quick points. First, trade has grown rapidly as share of world GDP from 1970 to the 2008 crash. (Interestingly, the world economy was growing more rapidly in the 1960s when there was little increase in the ratio of trade to GDP.) It was virtually inevitable that the rate of growth of trade would slow. Once the volume of trade is very large relative to the economy, it is hard for it to grow too much further.
In other words, once we have removed all the barriers in trade between the U.S. and Canada, we will have seen most of the expected growth in trade and in subsequent years we would expect trade to grow pretty much at the same pace as the economy. If we want to see more trade, then make the economies grow faster, say with larger budget deficits providing stimulus.
The other point is that many economists have argued that GDP growth is being substantially understated due to measurement error. The basic story is that we are getting lots of items free over the Internet that we used to pay for. These free items are not counted in GDP even though the costly ones they replace would have been.
I am a skeptic on this one. Clearly there is some truth to the story, but I doubt it amounts to more than 0.1 percentage point of GDP growth and almost certainly not more than 0.2 percentage points. Nonetheless, the argument is taken seriously by many. Jan Hatzius, the chief economist at Goldman Sachs, argues that the understatement could be as much as 0.75 percentage points.
Whatever the true story, the measurement error occurs overwhelmingly in items likely to be subject to international trade (e.g. music and videos transferred over the web.) This means that however much we are understating GDP growth due to measurement error of this sort, we are likely understating trade growth by close to twice this amount. That could help to explain a substantial portion of the reported slowing of trade growth.
It is also worth noting that stronger and longer patent and copyright protection (as required in trade deals like the TPP), which can be equivalent to tariffs of several thousand percent on the protected items, would be expected to slow both overall economic growth and the volume of international trade.
The establishment types are pulling out all the stops in trying to resuscitate the Trans-Pacific Partnership. Hence we get a report from the OECD on the declining growth rate of world trade and a front page article highlighting the report in the Washington Post.
I haven’t read the report carefully, but it is worth making two quick points. First, trade has grown rapidly as share of world GDP from 1970 to the 2008 crash. (Interestingly, the world economy was growing more rapidly in the 1960s when there was little increase in the ratio of trade to GDP.) It was virtually inevitable that the rate of growth of trade would slow. Once the volume of trade is very large relative to the economy, it is hard for it to grow too much further.
In other words, once we have removed all the barriers in trade between the U.S. and Canada, we will have seen most of the expected growth in trade and in subsequent years we would expect trade to grow pretty much at the same pace as the economy. If we want to see more trade, then make the economies grow faster, say with larger budget deficits providing stimulus.
The other point is that many economists have argued that GDP growth is being substantially understated due to measurement error. The basic story is that we are getting lots of items free over the Internet that we used to pay for. These free items are not counted in GDP even though the costly ones they replace would have been.
I am a skeptic on this one. Clearly there is some truth to the story, but I doubt it amounts to more than 0.1 percentage point of GDP growth and almost certainly not more than 0.2 percentage points. Nonetheless, the argument is taken seriously by many. Jan Hatzius, the chief economist at Goldman Sachs, argues that the understatement could be as much as 0.75 percentage points.
Whatever the true story, the measurement error occurs overwhelmingly in items likely to be subject to international trade (e.g. music and videos transferred over the web.) This means that however much we are understating GDP growth due to measurement error of this sort, we are likely understating trade growth by close to twice this amount. That could help to explain a substantial portion of the reported slowing of trade growth.
It is also worth noting that stronger and longer patent and copyright protection (as required in trade deals like the TPP), which can be equivalent to tariffs of several thousand percent on the protected items, would be expected to slow both overall economic growth and the volume of international trade.
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