Licensing Requirements: Can We Talk About Doctors?

June 19, 2016

19 Junio 2016

The NYT had two articles on occupational licensing requirements today and there was not one mention of the restrictions that lead us to pay twice as much for our doctors as other wealthy countries. It is illegal to practice medicine in the United States unless you completed a U.S. residency program. In other words, under the law, all of those doctors trained in Canada, Germany, the United Kingdom and other wealthy countries can’t be trusted to provide people in the United States with medical care.

This is called “protectionism.” We all know it is stupid, self-defeating, backward looking, etc. when it comes to steelworkers, textile workers, and other workers who tend to be less educated. But somehow all our great proponents of free trade can’t seem to notice the protectionism that benefits doctors. And this is real money. The average pay of doctors in the United States is more than $250,000 a year. If they were paid in line with the average for other wealthy countries the savings would be on the order or $100 billion a year or a bit more than $700 per household.

Anyhow, it striking to see the topic of unnecessary occupational licensing restrictions being addressed but zero discussion of the most costly one of them all. Hasn’t the NYT heard about doctors?

FWIW, our dentists are over-protected and over-paid also. Until recently, dentists have to graduate a U.S. dental school to practice in the U.S. In the last few years, we began to allow graduates of dental schools in Canada.

Perhaps at some point our doctors and dentists will have to get by without protectionism and learn to compete in the global economy — but reporters will probably have to notice first.

The NYT had two articles on occupational licensing requirements today and there was not one mention of the restrictions that lead us to pay twice as much for our doctors as other wealthy countries. It is illegal to practice medicine in the United States unless you completed a U.S. residency program. In other words, under the law, all of those doctors trained in Canada, Germany, the United Kingdom and other wealthy countries can’t be trusted to provide people in the United States with medical care.

This is called “protectionism.” We all know it is stupid, self-defeating, backward looking, etc. when it comes to steelworkers, textile workers, and other workers who tend to be less educated. But somehow all our great proponents of free trade can’t seem to notice the protectionism that benefits doctors. And this is real money. The average pay of doctors in the United States is more than $250,000 a year. If they were paid in line with the average for other wealthy countries the savings would be on the order or $100 billion a year or a bit more than $700 per household.

Anyhow, it striking to see the topic of unnecessary occupational licensing restrictions being addressed but zero discussion of the most costly one of them all. Hasn’t the NYT heard about doctors?

FWIW, our dentists are over-protected and over-paid also. Until recently, dentists have to graduate a U.S. dental school to practice in the U.S. In the last few years, we began to allow graduates of dental schools in Canada.

Perhaps at some point our doctors and dentists will have to get by without protectionism and learn to compete in the global economy — but reporters will probably have to notice first.

Causes of Stagnation: Mankiw's Big Five

By CEPRCEPR

June 18, 2016

18 Junio 2016

Greg Mankiw used his NYT column to discuss the weak growth the U.S. economy has experienced over the last decade and goes through five explanations. To my view there's not much complicated about the story. We lost a huge amount of demand when the housing bubble collapsed and there is nothing to replace it. That is essentially #4, presented as secular stagnation by Larry Summers. Regular BTP readers know the story well, so let me briefly comment on the other four. The first one, that the economy actually is growing rapidly but we are missing it because the gains are not picked up in our measurements, really flunks the laugh test. The items identified are things like getting music and information free on the web or being able to use our smart phones as cameras. These are great things, but if you try to put a price tag on them (in the old days most people would buy a cheap camera every ten years or so), they are pretty small. Furthermore, there were always benefits from new products that weren't being picked up (also costs — try getting by without a cell phone — the need for a cell phone and the monthly service is not included as a negative in the data), what these folks have to show is that the annual size of these benefits has increased. If you want to be generous, give them a 0.1 percentage point of GDP and tell them to shut up. The crisis hangover story is also widely told. Firms are scared to invest, banks are scared to lend. This one also seems to defy the data. First, until the recent downturn in investment following the collapse of oil prices and the rise in the trade deficit following the run-up in the dollar, investment was pretty much back to its pre-recession share of GDP. Banks are also lending at their pre-recession rate. So it's a nice story to humor reporters, but there is nothing in the world to support it.

Paul Krugman, Brexit, and Unaccountable Government

By CEPRCEPR

June 18, 2016

18 Junio 2016

Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further. If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union. The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank's 2.0 percent. (For those arguing that this was the bank's exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank's job to maintain financial stability and promote growth.)

Steven Pearlstein Wants You to Lose Your Job

By CEPRCEPR

June 17, 2016

17 Junio 2016

That's right, he's upset that the Federal Reserve Board didn't raise interest rates this week. He tells readers: "Until a year or two ago, there was good reason for the Fed to continue with its extraordinary monetary policy. But with the U.S. economy nearly back to full employment, and incomes rising, and core inflation running close to 2 percent, it’s well past the time to start easing back on the stimulus by raising rates." The idea here is that we need to start raising rates or the labor market will get so tight that we will have problems with rising inflation. Or so it seems. But then we get: "This isn’t about preventing future inflation — right now, all the signals are that that risk is pretty low. But it is about weaning the U.S. and global economy off an addiction to zero interest rates that have badly distorted the price of financial assets relative to the price of everything else." Okay, so we don't actually have a problem with inflation, we have a problem with the price of financial assets being distorted. Pearlstein never quite fills in the details, but implicitly he is saying that we have problems with asset bubbles.

Those CBO Interest Rate and Deficit Projections

By CEPRCEPR

June 17, 2016

17 Junio 2016

Back in January, when the Congressional Budget Office (CBO) issued its annual Budget and Economic Outlook, the Washington Post and other deficit hawk types seized on the projections of rising deficits and debt to GDP ratios in the latter part of its 10-year projections. There was another round of cries for deficit reduction, with cuts to Social Security and Medicare again holding center stage.

Some of us took the opportunity to point out that the projections of rising deficits hinged almost entirely on CBO’s projections that interest rates would rise sharply in the next few years. In effect, it assumed that interest rates would soon return to levels that were similar to their pre-crash levels. CBO had made the same assumption in its prior six Budget and Economic Outlooks. It had been wrong.

It now looks like it will be wrong again, at least for its 2016 prediction on rates. It projected in January that the 10-year Treasury bond rate would average 2.8 percent. It has averaged less than 2.0 percent through the first five and half months of the year and is currently hovering near 1.6 percent.

This means that if interest rates are going to return to “normal” or near normal levels, it is likely to be further in the future than previously believed. Don’t bet on that causing the deficit hawks to give up their attacks on Social Security and Medicare, but hopefully the rest of the world will take them even less seriously than is currently the case.

One final point: it would be good if interest rates did rise because it would mean the economy was getting stronger, so there is no reason to celebrate low interest rates. However, in the context of an economy than is still far from having recovered from the collapse of the housing bubble, low interest rates are better than high interest rates.

Back in January, when the Congressional Budget Office (CBO) issued its annual Budget and Economic Outlook, the Washington Post and other deficit hawk types seized on the projections of rising deficits and debt to GDP ratios in the latter part of its 10-year projections. There was another round of cries for deficit reduction, with cuts to Social Security and Medicare again holding center stage.

Some of us took the opportunity to point out that the projections of rising deficits hinged almost entirely on CBO’s projections that interest rates would rise sharply in the next few years. In effect, it assumed that interest rates would soon return to levels that were similar to their pre-crash levels. CBO had made the same assumption in its prior six Budget and Economic Outlooks. It had been wrong.

It now looks like it will be wrong again, at least for its 2016 prediction on rates. It projected in January that the 10-year Treasury bond rate would average 2.8 percent. It has averaged less than 2.0 percent through the first five and half months of the year and is currently hovering near 1.6 percent.

This means that if interest rates are going to return to “normal” or near normal levels, it is likely to be further in the future than previously believed. Don’t bet on that causing the deficit hawks to give up their attacks on Social Security and Medicare, but hopefully the rest of the world will take them even less seriously than is currently the case.

One final point: it would be good if interest rates did rise because it would mean the economy was getting stronger, so there is no reason to celebrate low interest rates. However, in the context of an economy than is still far from having recovered from the collapse of the housing bubble, low interest rates are better than high interest rates.

Doesn't Anyone Pay Attention to Bad News from the Fed?

By CEPRCEPR

June 16, 2016

16 Junio 2016

No, I’m not talking about its decision not to raise interest rates yesterday, I mean the release of May data on industrial production. The data showed a decline in manufacturing output in May of 0.4 percent. The output levels for both March and April were also revised downward. Over the last three months production has been declining at a 2.4 percent annual rate.

This indicates that the manufacturing sector continues to be a drag on the economy and is likely to mean further job losses in the months ahead. The report is yet another warning that the economy is not moving along at a healthy pace.

No, I’m not talking about its decision not to raise interest rates yesterday, I mean the release of May data on industrial production. The data showed a decline in manufacturing output in May of 0.4 percent. The output levels for both March and April were also revised downward. Over the last three months production has been declining at a 2.4 percent annual rate.

This indicates that the manufacturing sector continues to be a drag on the economy and is likely to mean further job losses in the months ahead. The report is yet another warning that the economy is not moving along at a healthy pace.

It's Hard to Raise Interest Rates When the Economy Is Weak

By CEPRCEPR

June 15, 2016

15 Junio 2016

There have been several pieces in the media complaining that the Fed is having a hard time raising interest rates from their current unusually low level. This is true, but the basic story here is quite simple: the economy remains very weak.

The growth rate has averaged just 2.0 percent for the last five years and may well fall below that pace in 2016. That is not an environment in which it makes sense for the Fed to be raising interest rates.

The recent news reports make it sound like the problem is that the Fed can’t raise interest rates, as though this is a goal in itself. The real point is that we should want to see a strong economy in which it might be necessary for the Fed to raise interest rates to prevent overheating. The fact that the economy is not stronger means that people are unable to get jobs, or full-time jobs, or jobs that fully utlilize their skills.

It also means that we are foregoing an enormous amount of potential output. We could be devoting resources to the spread of clean energy, educating our kids, or providing better health care. But because there is not enough demand in the economy, resources just sit idle.

This is a real and huge problem. The fact that the Fed can’t raise interest rates? Sorry, not in the same ballpark.

There have been several pieces in the media complaining that the Fed is having a hard time raising interest rates from their current unusually low level. This is true, but the basic story here is quite simple: the economy remains very weak.

The growth rate has averaged just 2.0 percent for the last five years and may well fall below that pace in 2016. That is not an environment in which it makes sense for the Fed to be raising interest rates.

The recent news reports make it sound like the problem is that the Fed can’t raise interest rates, as though this is a goal in itself. The real point is that we should want to see a strong economy in which it might be necessary for the Fed to raise interest rates to prevent overheating. The fact that the economy is not stronger means that people are unable to get jobs, or full-time jobs, or jobs that fully utlilize their skills.

It also means that we are foregoing an enormous amount of potential output. We could be devoting resources to the spread of clean energy, educating our kids, or providing better health care. But because there is not enough demand in the economy, resources just sit idle.

This is a real and huge problem. The fact that the Fed can’t raise interest rates? Sorry, not in the same ballpark.

Robert Samuelson Resumes the Attack on Social Security

By CEPRCEPR

June 14, 2016

14 Junio 2016

It undoubtedly was very disappointing for Robert Samuelson, the Washington Post, and the rest of the Very Serious People (VSP) to see President Obama's call for increasing Social Security. For the time being, their plans to attack Social Security and Medicare seem completely dead in the water. After all, President Obama had earlier been a grand bargainer, willing to put both Social Security and Medicare on the table, now he actually wants to increase benefits. And even Donald Trump, the presumptive Republican presidential nominee, says he is opposed to cuts, at least for the moment. But it is important to remember that in our nation’s capital, no bad idea stays dead for long. For that reason, no one should view Robert Samuelson’s latest column as an admission of defeat. It is a call for resurrection. So let’s get out that stake and see if we can nail this vampire once and for all. The basic theme is the standard one: it is an effort to divert class warfare into generational warfare. Over the last four decades we have seen the greatest upward redistribution of income in the history of the world. Rather than have the losers blame the gainers, Robert Samuelson wants them to be angry at their parents. Samuelson’s basic story is that the elderly are actually doing quite well; therefore, we should be looking to take money away from them rather than give them more. His main piece of evidence is a subjective question on well-being which shows the over age 65 age group consistently answers that they are most satisfied with their financial situation. There are many points that can be made about this sort of subjective assessment. The most obvious is that the sense of satisfaction depends on expectations. People who are in retirement or the last years of their working career have little hope of substantial improvements in their living standard, so it may not be surprising that most would answer they are satisfied with what they have. Younger people can of course hope for, and in fact expect, better times ahead as they advance in their career. In fact, there is useful information in this survey and it goes in the opposite direction of Samuelson’s complaints. If we look at recent and near retirees, the group between the ages of 50 to 64, we see a sharp decline in their sense of satisfaction over the period since the survey began in 1972. In 2014, the most recent year in the survey, just 25.2 percent of those in this age group expressed satisfaction with their financial situation. This is down from 38.4 percent in 1972 and a peak of 41.4 percent in 1978.

10 Years on the Beat

By CEPRCEPR

June 06, 2016

06 Junio 2016

That’s right, CEPR Co-Director Dean Baker has been Beating the Press for 10 years now (and that doesn’t include the commentary on economic reporting he did for 10 years before that).

This means 10 years of waking up every morning — even on weekends! — at 4:30AM, combing through The New York Times, The Wall Street Journal, The Washington Post (or as he has been known to say, Fox on 15th street) and other major new outlets. 10 years of dismantling bogus economic theory. 10 years of uncovering the ideological bias behind misrepresentation of data and revealing the spin that promotes narrow interests.

Beat The Press has called out deficit hawks, Social Security slashers, and bubble deniers. Every day for the past 10 years (or close to it anyway) Dean has candidly explained what policies mean for real people.

All of this wouldn’t be possible without your support.

CEPR receives no dedicated funding for our blogs — all funding must come from general support, which is getting harder and harder to come by. With a 24-hour-news cycle and moneyed interests dominating the political world, it is as important as ever that people are informed about the matters that impact them the most.

Won’t you show BTP some 10th Anniversary love by clicking here and donating today? Robert Samuelson will thank you! Well…maybe not, but all of us at CEPR will.

Thanks for your support,

Dean and your friends at CEPR

That’s right, CEPR Co-Director Dean Baker has been Beating the Press for 10 years now (and that doesn’t include the commentary on economic reporting he did for 10 years before that).

This means 10 years of waking up every morning — even on weekends! — at 4:30AM, combing through The New York Times, The Wall Street Journal, The Washington Post (or as he has been known to say, Fox on 15th street) and other major new outlets. 10 years of dismantling bogus economic theory. 10 years of uncovering the ideological bias behind misrepresentation of data and revealing the spin that promotes narrow interests.

Beat The Press has called out deficit hawks, Social Security slashers, and bubble deniers. Every day for the past 10 years (or close to it anyway) Dean has candidly explained what policies mean for real people.

All of this wouldn’t be possible without your support.

CEPR receives no dedicated funding for our blogs — all funding must come from general support, which is getting harder and harder to come by. With a 24-hour-news cycle and moneyed interests dominating the political world, it is as important as ever that people are informed about the matters that impact them the most.

Won’t you show BTP some 10th Anniversary love by clicking here and donating today? Robert Samuelson will thank you! Well…maybe not, but all of us at CEPR will.

Thanks for your support,

Dean and your friends at CEPR

What Does China's Demographic "Problem" Mean?

By CEPRCEPR

June 05, 2016

05 Junio 2016

The NYT has another piece that talks about China’s demographic problem due to an aging population. (In fairness, this is really a sidebar, the piece is mostly arguing that China has failed to get itself on a sustainable growth path.) I went through the arithmetic on this last week.

The basic point is simple: China has had extraordinarily rapid productivity growth over the last three and a half decades. The impact of this growth on raising wages and living standards swamps any conceivable negative effect from a declining ratio of workers to retirees. The math is about as simple as it gets, but I’m still curious how the bad story is supposed to manifest itself.

Keep in mind, the story is supposed to be a labor shortage. What does that mean?

That’s a serious question, how does an economy know it’s having a labor shortage? Presumably it means that the lowest paying jobs end up going unfilled because people have better options. So what? Many retail stores will go out of business, so will some restaurants, and other low wage employers. Why would we care? Remember, no one is going unemployed. These businesses are going under because they can’t find workers willing to work at the wage they are offering. Instead, workers are going to better paying, higher productivity jobs. That’s unfortunate for these businesses, but hey, that’s capitalism.

There is an issue that much of the support for retirees may go through the government, which means that China would have to increase taxes. There may be a Chinese Grover Norquist who will make any tax increases very difficult politically, but that is a political issue, not an economic one. Workers who have seen their real wages double or triple in the last couple of decades can certainly afford to pay somewhat higher taxes to support their retired parents.

So again, what exactly is the problem?

The NYT has another piece that talks about China’s demographic problem due to an aging population. (In fairness, this is really a sidebar, the piece is mostly arguing that China has failed to get itself on a sustainable growth path.) I went through the arithmetic on this last week.

The basic point is simple: China has had extraordinarily rapid productivity growth over the last three and a half decades. The impact of this growth on raising wages and living standards swamps any conceivable negative effect from a declining ratio of workers to retirees. The math is about as simple as it gets, but I’m still curious how the bad story is supposed to manifest itself.

Keep in mind, the story is supposed to be a labor shortage. What does that mean?

That’s a serious question, how does an economy know it’s having a labor shortage? Presumably it means that the lowest paying jobs end up going unfilled because people have better options. So what? Many retail stores will go out of business, so will some restaurants, and other low wage employers. Why would we care? Remember, no one is going unemployed. These businesses are going under because they can’t find workers willing to work at the wage they are offering. Instead, workers are going to better paying, higher productivity jobs. That’s unfortunate for these businesses, but hey, that’s capitalism.

There is an issue that much of the support for retirees may go through the government, which means that China would have to increase taxes. There may be a Chinese Grover Norquist who will make any tax increases very difficult politically, but that is a political issue, not an economic one. Workers who have seen their real wages double or triple in the last couple of decades can certainly afford to pay somewhat higher taxes to support their retired parents.

So again, what exactly is the problem?