Okay, since it seems the WSJ is recycling a NYT piece, I will recycle a blog post.
Most newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently The New York Times does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.
Both the article and the study itself seem intended to scare more than inform. For example, the piece tells readers:
“Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.
“That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are ‘not on government balance sheets,’ Citigroup said.”
Okay folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?
The NYT has committed itself to putting numbers in context, where is the context here? Virtually none of the NYT’s readers has any clue how large a burden $78 trillion is for the OECD countries over the rest of the century. The article did not inform readers with this comment, it tried to scare them. That is not journalism.
For those who are keeping score, GDP in these countries for the next 80 years will be around $2,000 trillion (very rough approximation, not a careful calculation) so we’re talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.
Furthermore, the whole treatment of the expense as an “unfunded” liability is problematic. Suppose the United States spends 7 percent of its GDP on education (roughly current spending) and this share is projected to rise to 8 percent over coming decades. We can treat the commitment to educating our children as an “unfunded liability,” after all we don’t have any money set aside from prior years to fund it.
But since we are already spending the 7 percent on education every year, the additional burden will just be the boost to 8 percent. That is a burden of 1 percentage point of GDP or roughly half the cost of the increase in annual military spending associated with the wars in Iraq and Afghanistan.
There is a similar story with public pensions. In the case of Social Security, the U.S. is currently spending about 5.0 percent of GDP on the program, up from 4.0 percent in 2000. Spending is projected to rise by another percentage point over the next 10–15 years, are you scared?
Almost every item mentioned in this article seems intended to scare from the very paragraph:
“When Detroit went bankrupt in 2013, investors were shocked to learn that the city had promised pensions worth billions more than anyone knew — creating a financial pileup that ultimately meant big, unexpected losses for Detroit’s bondholders.”
Investors were shocked, really? Are the people who invest trillions of dollars morons? The books of Detroit’s pension system were publicly available. The problem was not the actuarial accounting blamed in this piece, the problem was simply that Detroit was a bankrupt city unable to meet its obligations because of a tax base that crashed as it lost two-thirds of its population.
If there were any investors who were shocked by Detroit’s pension liabilities then the NYT should do a major piece profiling these people. They are almost certainly way over their heads in jobs that pay six and seven figure salaries.
Finally, there is little doubt that the Citibank piece itself is intended as a promotional piece for the financial industry. After detailing the alleged crisis facing public pension funds, Citibank tells readers:
“Finally, the silver lining of the pensions crisis is for product providers such as insurers and asset managers. Private pension assets are forecast to grow $5–$11 trillion over the next 10–30 years and strong growth is forecast in insurance pension buy-outs, private pension schemes, and asset and guaranteed retirement income solutions.”
The one small hint that readers get in the article that this study was an industry promotion piece comes when we are told:
“For years there have been frequent reports of pension systems rife with pay-to-play deals, improper payouts, overly risky investment strategies and other problems. But the Citigroup researchers looked beyond such scandals and depicted the worldwide accumulation of giant, invisible pension obligations as a matter of simple demographics.”
Of course, it might have been more useful if instead of telling readers that the study, “looked beyond such scandals,” to tell readers that the study ignored such scandals.
Okay, since it seems the WSJ is recycling a NYT piece, I will recycle a blog post.
Most newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently The New York Times does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.
Both the article and the study itself seem intended to scare more than inform. For example, the piece tells readers:
“Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.
“That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are ‘not on government balance sheets,’ Citigroup said.”
Okay folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?
The NYT has committed itself to putting numbers in context, where is the context here? Virtually none of the NYT’s readers has any clue how large a burden $78 trillion is for the OECD countries over the rest of the century. The article did not inform readers with this comment, it tried to scare them. That is not journalism.
For those who are keeping score, GDP in these countries for the next 80 years will be around $2,000 trillion (very rough approximation, not a careful calculation) so we’re talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.
Furthermore, the whole treatment of the expense as an “unfunded” liability is problematic. Suppose the United States spends 7 percent of its GDP on education (roughly current spending) and this share is projected to rise to 8 percent over coming decades. We can treat the commitment to educating our children as an “unfunded liability,” after all we don’t have any money set aside from prior years to fund it.
But since we are already spending the 7 percent on education every year, the additional burden will just be the boost to 8 percent. That is a burden of 1 percentage point of GDP or roughly half the cost of the increase in annual military spending associated with the wars in Iraq and Afghanistan.
There is a similar story with public pensions. In the case of Social Security, the U.S. is currently spending about 5.0 percent of GDP on the program, up from 4.0 percent in 2000. Spending is projected to rise by another percentage point over the next 10–15 years, are you scared?
Almost every item mentioned in this article seems intended to scare from the very paragraph:
“When Detroit went bankrupt in 2013, investors were shocked to learn that the city had promised pensions worth billions more than anyone knew — creating a financial pileup that ultimately meant big, unexpected losses for Detroit’s bondholders.”
Investors were shocked, really? Are the people who invest trillions of dollars morons? The books of Detroit’s pension system were publicly available. The problem was not the actuarial accounting blamed in this piece, the problem was simply that Detroit was a bankrupt city unable to meet its obligations because of a tax base that crashed as it lost two-thirds of its population.
If there were any investors who were shocked by Detroit’s pension liabilities then the NYT should do a major piece profiling these people. They are almost certainly way over their heads in jobs that pay six and seven figure salaries.
Finally, there is little doubt that the Citibank piece itself is intended as a promotional piece for the financial industry. After detailing the alleged crisis facing public pension funds, Citibank tells readers:
“Finally, the silver lining of the pensions crisis is for product providers such as insurers and asset managers. Private pension assets are forecast to grow $5–$11 trillion over the next 10–30 years and strong growth is forecast in insurance pension buy-outs, private pension schemes, and asset and guaranteed retirement income solutions.”
The one small hint that readers get in the article that this study was an industry promotion piece comes when we are told:
“For years there have been frequent reports of pension systems rife with pay-to-play deals, improper payouts, overly risky investment strategies and other problems. But the Citigroup researchers looked beyond such scandals and depicted the worldwide accumulation of giant, invisible pension obligations as a matter of simple demographics.”
Of course, it might have been more useful if instead of telling readers that the study, “looked beyond such scandals,” to tell readers that the study ignored such scandals.
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The prospect of Donald Trump getting the Republican presidential nomination is dominating media attention these days, with some cause, but this has meant that evidence of a weakening economy has been largely ignored. We have seen a series of reports in the last month suggesting that the economy is likely to perform considerably worse than the 2.5 percent growth rate predicted by most economists at the start of the year. (The Congressional Budget Office‘s projection was 2.7 percent.)
The most recent bad news was February’s data on personal income and consumption. It showed real growth in spending for the month of 0.2 percent. While that is not too bad, January’s figure was revised down from 0.4 percent to zero. Given that consumption is 70 percent of GDP, this is not good news on the growth front.
Other evidence of weakness comes from trade, where it seems that the deficit is continuing to expand in the first quarter due to a high dollar and weak growth elsewhere. Non-defense capital goods shipments, which is the largest category in investment, is running behind 2015 levels. Residential construction is holding up, but showing little, if any, increase over the second half of 2015. My bet is that we will see a serious downturn in the non-residential sector as some serious overbuilding of office space in many cities dampens irrational exuberance. Government spending may provide a modest boost in the quarter and year, but austerity fever still dominates politics at all levels.
In short, we could be looking at growth that is close to 1.0 percent for the year. The Atlanta Fed’s GDPNow puts first quarter growth at just 0.6 percent. It is hard to see how such slow growth can be consistent with rapid job growth and a continuing drop in the unemployment rate, although I have been surprised in this area before. (Basically, it would mean that productivity growth is falling to zero or turning negative.)
Anyhow, the spate of weak economic reports deserve more attention than they have gotten. It could be bad news for lots of people.
By the way, I actually don’t think a recession is likely, just exceptionally slow growth. The use of the R word was click bait to get you away from the Trump stories.
The prospect of Donald Trump getting the Republican presidential nomination is dominating media attention these days, with some cause, but this has meant that evidence of a weakening economy has been largely ignored. We have seen a series of reports in the last month suggesting that the economy is likely to perform considerably worse than the 2.5 percent growth rate predicted by most economists at the start of the year. (The Congressional Budget Office‘s projection was 2.7 percent.)
The most recent bad news was February’s data on personal income and consumption. It showed real growth in spending for the month of 0.2 percent. While that is not too bad, January’s figure was revised down from 0.4 percent to zero. Given that consumption is 70 percent of GDP, this is not good news on the growth front.
Other evidence of weakness comes from trade, where it seems that the deficit is continuing to expand in the first quarter due to a high dollar and weak growth elsewhere. Non-defense capital goods shipments, which is the largest category in investment, is running behind 2015 levels. Residential construction is holding up, but showing little, if any, increase over the second half of 2015. My bet is that we will see a serious downturn in the non-residential sector as some serious overbuilding of office space in many cities dampens irrational exuberance. Government spending may provide a modest boost in the quarter and year, but austerity fever still dominates politics at all levels.
In short, we could be looking at growth that is close to 1.0 percent for the year. The Atlanta Fed’s GDPNow puts first quarter growth at just 0.6 percent. It is hard to see how such slow growth can be consistent with rapid job growth and a continuing drop in the unemployment rate, although I have been surprised in this area before. (Basically, it would mean that productivity growth is falling to zero or turning negative.)
Anyhow, the spate of weak economic reports deserve more attention than they have gotten. It could be bad news for lots of people.
By the way, I actually don’t think a recession is likely, just exceptionally slow growth. The use of the R word was click bait to get you away from the Trump stories.
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Dan Balz ignored more than a decade of Speaker of the House Paul Ryan’s writing and work in politics in an analysis that contrasts Ryan’s “conservative, problem-solving party” with “a Cruz-style radical anti-government party content with blowing things up as they now stand.” If Balz had paid any attention to the budgets that Paul Ryan eagerly touted as head of the House Budget Committee he would know that there is no one who has a better claim to being “anti-government” and “blowing things up as they now stand” than Mr. Ryan.
Ryan’s budgets essentially proposed eliminating everything the government does except for Social Security, Medicare, Medicaid, and the military. The Congressional Budget Office’s analysis of the his budget, which Ryan directed, showed that it would reduce all discretionary spending, plus non-Medicare and Medicaid entitlements to just 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase.
This means the Ryan budget called for eliminating everything else the government does, such as build and maintain infrastructure, monitor food and drug safety, support basic research in health care and other areas, protect the environment, and support early childhood education and nutrition. If eliminating just about the entire government is not “radical anti-government” it is hard to know what would be.
Balz owes Speaker Ryan an apology.
Dan Balz ignored more than a decade of Speaker of the House Paul Ryan’s writing and work in politics in an analysis that contrasts Ryan’s “conservative, problem-solving party” with “a Cruz-style radical anti-government party content with blowing things up as they now stand.” If Balz had paid any attention to the budgets that Paul Ryan eagerly touted as head of the House Budget Committee he would know that there is no one who has a better claim to being “anti-government” and “blowing things up as they now stand” than Mr. Ryan.
Ryan’s budgets essentially proposed eliminating everything the government does except for Social Security, Medicare, Medicaid, and the military. The Congressional Budget Office’s analysis of the his budget, which Ryan directed, showed that it would reduce all discretionary spending, plus non-Medicare and Medicaid entitlements to just 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase.
This means the Ryan budget called for eliminating everything else the government does, such as build and maintain infrastructure, monitor food and drug safety, support basic research in health care and other areas, protect the environment, and support early childhood education and nutrition. If eliminating just about the entire government is not “radical anti-government” it is hard to know what would be.
Balz owes Speaker Ryan an apology.
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I know that no one reads the Washington Post’s opinion pages for their insights on economic issues, but can’t we hope for at least some connection with reality. In his column today warning that productivity growth is likely to be weak forever more, George Will told readers:
“America’s entitlement state is buckling beneath the pressure of an aging population retiring into Social Security and Medicare during chronically slow economic growth.”
The entitlement state is “buckling.” If we tried to make sense of this assertion it presumably means that excessive spending on these programs is leading to high interest rates and/or high inflation. The problem is that we are creating more demand than the economy is able to supply. The only problem with this analysis is that long-term interest rates remain near post-World War II lows and inflation remains well below even the Fed’s unnecessarily low 2.0 percent target.
The only evidence the entitlement state is “buckling” from these programs seems to be the complaints from the folks at the Post and other Very Serious People. This does not appear to be a problem that exists in the real world.
On the more general claim about future productivity growth, which Will takes from Robert Gordon, it is worth recounting the past record of Gordon and other economists. There were three major shifts in productivity trends in the post-war era. There was a sharp slowdown in 1973, an upturn in 1995, and then a slowdown again beginning somewhere between 2005 and 2007.
No one saw the 1973 slowdown coming. More than forty years later there is no agreed upon explanation as to its cause. There were very few economists who saw the 1995 pick-up coming, although it is generally accepted that the information technology boom was its cause. Almost no one saw the slowdown coming in 2005-2007, and there is no agreement as to its cause.
Given the past record of economists (including Robert Gordon) in projecting the future path of productivity growth, we might be skeptical about a book that projects slow productivity growth for the indefinite future.
I know that no one reads the Washington Post’s opinion pages for their insights on economic issues, but can’t we hope for at least some connection with reality. In his column today warning that productivity growth is likely to be weak forever more, George Will told readers:
“America’s entitlement state is buckling beneath the pressure of an aging population retiring into Social Security and Medicare during chronically slow economic growth.”
The entitlement state is “buckling.” If we tried to make sense of this assertion it presumably means that excessive spending on these programs is leading to high interest rates and/or high inflation. The problem is that we are creating more demand than the economy is able to supply. The only problem with this analysis is that long-term interest rates remain near post-World War II lows and inflation remains well below even the Fed’s unnecessarily low 2.0 percent target.
The only evidence the entitlement state is “buckling” from these programs seems to be the complaints from the folks at the Post and other Very Serious People. This does not appear to be a problem that exists in the real world.
On the more general claim about future productivity growth, which Will takes from Robert Gordon, it is worth recounting the past record of Gordon and other economists. There were three major shifts in productivity trends in the post-war era. There was a sharp slowdown in 1973, an upturn in 1995, and then a slowdown again beginning somewhere between 2005 and 2007.
No one saw the 1973 slowdown coming. More than forty years later there is no agreed upon explanation as to its cause. There were very few economists who saw the 1995 pick-up coming, although it is generally accepted that the information technology boom was its cause. Almost no one saw the slowdown coming in 2005-2007, and there is no agreement as to its cause.
Given the past record of economists (including Robert Gordon) in projecting the future path of productivity growth, we might be skeptical about a book that projects slow productivity growth for the indefinite future.
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The wage share of GDP has recovered close to half of the ground lost in the downturn. Combining economy-wide wages and corporate profits, the wage share fell by 3.6 percentage points between 2007 and 2012. The data for 2015 show that the wage share has increased by 1.6 percentage points since its trough in 2012. This indicates that a tighter labor market is now allowing workers to achieve some gains at the expense of corporate profits.
This means a huge amount for Federal Reserve Board policy going forward. If the Fed raises interest rates to slow growth and job creation, it can prevent workers from recovering the ground they lost in the downturn.
It is striking that only one presidential candidate, Senator Bernie Sanders, has raised this issue. The others have for some reason chosen not to discuss the Federal Reserve Board and its impact on workers’ living standards. (Senator Ted Cruz has discussed the Fed, but said that he wants to bring the gold standard. This would prevent the Fed from taking any steps to boost the economy in a downturn.)
The wage share of GDP has recovered close to half of the ground lost in the downturn. Combining economy-wide wages and corporate profits, the wage share fell by 3.6 percentage points between 2007 and 2012. The data for 2015 show that the wage share has increased by 1.6 percentage points since its trough in 2012. This indicates that a tighter labor market is now allowing workers to achieve some gains at the expense of corporate profits.
This means a huge amount for Federal Reserve Board policy going forward. If the Fed raises interest rates to slow growth and job creation, it can prevent workers from recovering the ground they lost in the downturn.
It is striking that only one presidential candidate, Senator Bernie Sanders, has raised this issue. The others have for some reason chosen not to discuss the Federal Reserve Board and its impact on workers’ living standards. (Senator Ted Cruz has discussed the Fed, but said that he wants to bring the gold standard. This would prevent the Fed from taking any steps to boost the economy in a downturn.)
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Seriously, that is what they said, more or less. An AP news article on the latest revision to fourth quarter GDP data told readers:
“Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis.”
It is not clear what about this drop in corporate profits is supposed to be worrisome. Corporate profits had risen at the expense of wages during the downturn. The profit share of national income is still well above its pre-recession level. Companies continue to have more profit than they know what to do with, since investment is still slightly below its pre-recession share of GDP, so there is not a plausible story that companies will somehow have to curtail investment due to shrinking profits. So why is AP worried that workers are getting back some of the income share they lost during the downturn.
As the piece notes, consumption was revised upward. The saving rate was reported as 5.0 percent in the fourth quarter, not much different from the 4.8 percent rate recorded in 2013, the low for recovery. The Post and other media outlets gave extensive coverage to economists explaining why consumers were being cautious and not spending their dividend from falling energy prices. The data now indicate that they were not being cautious, that they were pretty much spending it at the same rate as other income. (Well, at least it kept some economists employed.)
Seriously, that is what they said, more or less. An AP news article on the latest revision to fourth quarter GDP data told readers:
“Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis.”
It is not clear what about this drop in corporate profits is supposed to be worrisome. Corporate profits had risen at the expense of wages during the downturn. The profit share of national income is still well above its pre-recession level. Companies continue to have more profit than they know what to do with, since investment is still slightly below its pre-recession share of GDP, so there is not a plausible story that companies will somehow have to curtail investment due to shrinking profits. So why is AP worried that workers are getting back some of the income share they lost during the downturn.
As the piece notes, consumption was revised upward. The saving rate was reported as 5.0 percent in the fourth quarter, not much different from the 4.8 percent rate recorded in 2013, the low for recovery. The Post and other media outlets gave extensive coverage to economists explaining why consumers were being cautious and not spending their dividend from falling energy prices. The data now indicate that they were not being cautious, that they were pretty much spending it at the same rate as other income. (Well, at least it kept some economists employed.)
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