The Washington Post gained notoriety in the last decade by relying on David Lereah as its main source the housing market. Lereah was the chief economist for the National Association of Realtors and author of Why the Real Estate Boom Will Not Bust and How You Can Profit from It. It continues to follow the pattern of relying on a narrow group of economists, most of whom seem to specialize in repeating what the others are saying.
It devoted a major news article to explaining why “$2 gasoline isn’t having the economic impact everyone thought it would.” According to the piece, the main problem is that people have increased their savings:
“Kathy A. Jones, Schwab’s chief strategist on credit markets, said that consumers have increased their savings as oil prices have dropped. And as the savings rate has gradually edged higher, Jones said, the use of credit cards has declined. According to the Bureau of Economic Analysis, the personal savings rate climbed to 5.6 and 5.5 percent respectively in October and November, the highest rates in three years.”
Actually, the saving rate is poorly measured since it depends on a measure of income that is subject to large revisions. If we take spending as a share of GDP, we find that it was 68.33 percent in the first three quarters of 2015, down trivially from its 68.4 percent measure in 2014 and almost identical to the 68.37 percent share in 2013. In other words, the data (as opposed to the economists) say people are spending pretty much what we should expect them to spend. If we want to find the sources of weak growth, we should look elsewhere.
While the piece correctly identifies equipment investment as one of the other sources of weakness, remarkably it ignores the trade deficit. Measured in 2009 dollars, the trade deficit rose from $442.5 billion in 2014 to $546.1 billion in the first three quarters of 2015. Assuming a multiplier on net exports of 1.5 this rise in the trade deficit would be sufficient to knock roughly a percentage point off GDP growth in 2015.
It is remarkable that the Post would not include this sharp rise in the trade deficit in a discussion of the economy’s weak growth in 2015. In this context, it is probably worth noting that the Post is a strong proponent of the Trans-Pacific Partnership (TPP). Supporters of the TPP tend to ignore the trade deficit and its impact on growth and jobs.
The Washington Post gained notoriety in the last decade by relying on David Lereah as its main source the housing market. Lereah was the chief economist for the National Association of Realtors and author of Why the Real Estate Boom Will Not Bust and How You Can Profit from It. It continues to follow the pattern of relying on a narrow group of economists, most of whom seem to specialize in repeating what the others are saying.
It devoted a major news article to explaining why “$2 gasoline isn’t having the economic impact everyone thought it would.” According to the piece, the main problem is that people have increased their savings:
“Kathy A. Jones, Schwab’s chief strategist on credit markets, said that consumers have increased their savings as oil prices have dropped. And as the savings rate has gradually edged higher, Jones said, the use of credit cards has declined. According to the Bureau of Economic Analysis, the personal savings rate climbed to 5.6 and 5.5 percent respectively in October and November, the highest rates in three years.”
Actually, the saving rate is poorly measured since it depends on a measure of income that is subject to large revisions. If we take spending as a share of GDP, we find that it was 68.33 percent in the first three quarters of 2015, down trivially from its 68.4 percent measure in 2014 and almost identical to the 68.37 percent share in 2013. In other words, the data (as opposed to the economists) say people are spending pretty much what we should expect them to spend. If we want to find the sources of weak growth, we should look elsewhere.
While the piece correctly identifies equipment investment as one of the other sources of weakness, remarkably it ignores the trade deficit. Measured in 2009 dollars, the trade deficit rose from $442.5 billion in 2014 to $546.1 billion in the first three quarters of 2015. Assuming a multiplier on net exports of 1.5 this rise in the trade deficit would be sufficient to knock roughly a percentage point off GDP growth in 2015.
It is remarkable that the Post would not include this sharp rise in the trade deficit in a discussion of the economy’s weak growth in 2015. In this context, it is probably worth noting that the Post is a strong proponent of the Trans-Pacific Partnership (TPP). Supporters of the TPP tend to ignore the trade deficit and its impact on growth and jobs.
Read More Leer más Join the discussion Participa en la discusión
Austin Frakt has an interesting discussion in the NYT of patterns in clinical testing of cancer drugs suggesting a bias towards testing drugs treating late-stage patients with little chance of survival as opposed to more promising drugs treating people at early stages or even prevention. However the remedies involve a less demanding testing process by the Food and Drug Administration and increased use of marketing exclusivity to provide more incentive to testing.
Incredibly, there is no discussion of publicly funded clinical trials. In addition to overcoming the bias reported in the piece, publicly funded trials would also have the advantage that the drugs would be available at generic prices as soon as they are approved. In addition, all of the data from the trials would be fully available to other researchers and physicians to help in their prescribing choices.
For those worried about the inefficiency of government testing, the process could be contracted out to private companies, just as the Defense Department contracts out the development of weapon systems. (A big advantage of drug testing over weapon development is that there is no excuse for secrecy in drug testing. Complete openness should be a condition of any contracts.)
The reluctance to consider public funding for clinical trials seems to stem from some strange belief that if the government touches the money, then the resulting process is hopelessly inefficient. It is difficult to understand the basis for such a view.
Austin Frakt has an interesting discussion in the NYT of patterns in clinical testing of cancer drugs suggesting a bias towards testing drugs treating late-stage patients with little chance of survival as opposed to more promising drugs treating people at early stages or even prevention. However the remedies involve a less demanding testing process by the Food and Drug Administration and increased use of marketing exclusivity to provide more incentive to testing.
Incredibly, there is no discussion of publicly funded clinical trials. In addition to overcoming the bias reported in the piece, publicly funded trials would also have the advantage that the drugs would be available at generic prices as soon as they are approved. In addition, all of the data from the trials would be fully available to other researchers and physicians to help in their prescribing choices.
For those worried about the inefficiency of government testing, the process could be contracted out to private companies, just as the Defense Department contracts out the development of weapon systems. (A big advantage of drug testing over weapon development is that there is no excuse for secrecy in drug testing. Complete openness should be a condition of any contracts.)
The reluctance to consider public funding for clinical trials seems to stem from some strange belief that if the government touches the money, then the resulting process is hopelessly inefficient. It is difficult to understand the basis for such a view.
Read More Leer más Join the discussion Participa en la discusión
The NYT headlined an article on the drop in unemployment insurance claims, “Jobless claims near 42-year low as labor market tightens.” While it would be good news if fewer people were filing for unemployment insurance because they were not losing their jobs, this is only part of the story behind the drop in claims. Due to tighter restrictions on unemployment insurance, a much smaller share of the unemployed are eligible for benefits than in prior decades.
For example, in the most recent month, just under 2.2 million people were collecting benefits out of 7.9 million unemployed, which means that 29.1 percent of the unemployed were collected benefits. If we go back to November of 1973 (42 years ago), 1.7 million people were getting benefits out of unemployed population of 4.3 million, for a ratio of 39.5 percent.
Part of the drop in claims in recent years is due to the improvement in the labor market, but part of the decline is due to fewer people being eligible. One can debate whether the tighter restrictions are desirable, but this is clearly a separate issue from a tightening of the labor market.
The NYT headlined an article on the drop in unemployment insurance claims, “Jobless claims near 42-year low as labor market tightens.” While it would be good news if fewer people were filing for unemployment insurance because they were not losing their jobs, this is only part of the story behind the drop in claims. Due to tighter restrictions on unemployment insurance, a much smaller share of the unemployed are eligible for benefits than in prior decades.
For example, in the most recent month, just under 2.2 million people were collecting benefits out of 7.9 million unemployed, which means that 29.1 percent of the unemployed were collected benefits. If we go back to November of 1973 (42 years ago), 1.7 million people were getting benefits out of unemployed population of 4.3 million, for a ratio of 39.5 percent.
Part of the drop in claims in recent years is due to the improvement in the labor market, but part of the decline is due to fewer people being eligible. One can debate whether the tighter restrictions are desirable, but this is clearly a separate issue from a tightening of the labor market.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
I am going to do a bit of nitpicking on a Paul Krugman post on the Affordable Care Act (ACA). Krugman notes the continued progress of the ACA in reducing the number of uninsured and keeping costs down. Krugman basic points are right, the ACA is working and its opponents are determined to ignore its success.
The basis of the nitpick is that among the positive items, Krugman tells us that “the pool is getting younger.” The problem with this comment is that the age of the enrollees really does not matter much, what matters is their health. It’s true that on average young people have lower health care costs, but they also pay much lower premiums. The ratio of payments for the oldest group (ages 55-64) to the youngest is three to one for an average policy. The ratio of average costs is roughly 3.5 to 1.
This means that it matters somewhat for the ACA if the distribution skews older, but not very much. The Kaiser Family Foundation did the arithmetic a few years ago and found that even an extreme age skewing only raised costs by 2 percent. What matters much more is if there is a skewing by health. The difference in costs within each age group swamp the differences between age groups.
This matters because it is important to get a proper understanding of the progress of the ACA and what matters. I recall a few years ago talking with some twenty somethings who were saying that they didn’t plan to sign up for the exchanges. They were putting it as sort of a threat because they didn’t like the ACA. (They were single payer supporters — so am I.) I encouraged them to sign up because I thought it was good that they had insurance, but explained it was far more important if the 60-year-olds in good health sign up than if they did.
If this sounds strange, think of the premium as a tax that varies by age. There are large numbers of people of all ages with near zero health care expenses, but the older ones pay a tax that is three times as high as the younger ones pay. In this case, it clearly matters much more that we get the older healthy people into the pool than the younger ones.
Anyhow, this is a relatively small point, but people should be clear on what it is at issue. We should kill the “young invincible” myth for good.
I am going to do a bit of nitpicking on a Paul Krugman post on the Affordable Care Act (ACA). Krugman notes the continued progress of the ACA in reducing the number of uninsured and keeping costs down. Krugman basic points are right, the ACA is working and its opponents are determined to ignore its success.
The basis of the nitpick is that among the positive items, Krugman tells us that “the pool is getting younger.” The problem with this comment is that the age of the enrollees really does not matter much, what matters is their health. It’s true that on average young people have lower health care costs, but they also pay much lower premiums. The ratio of payments for the oldest group (ages 55-64) to the youngest is three to one for an average policy. The ratio of average costs is roughly 3.5 to 1.
This means that it matters somewhat for the ACA if the distribution skews older, but not very much. The Kaiser Family Foundation did the arithmetic a few years ago and found that even an extreme age skewing only raised costs by 2 percent. What matters much more is if there is a skewing by health. The difference in costs within each age group swamp the differences between age groups.
This matters because it is important to get a proper understanding of the progress of the ACA and what matters. I recall a few years ago talking with some twenty somethings who were saying that they didn’t plan to sign up for the exchanges. They were putting it as sort of a threat because they didn’t like the ACA. (They were single payer supporters — so am I.) I encouraged them to sign up because I thought it was good that they had insurance, but explained it was far more important if the 60-year-olds in good health sign up than if they did.
If this sounds strange, think of the premium as a tax that varies by age. There are large numbers of people of all ages with near zero health care expenses, but the older ones pay a tax that is three times as high as the younger ones pay. In this case, it clearly matters much more that we get the older healthy people into the pool than the younger ones.
Anyhow, this is a relatively small point, but people should be clear on what it is at issue. We should kill the “young invincible” myth for good.
Read More Leer más Join the discussion Participa en la discusión
Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.
Addendum:
Since folks asked, roughly 40 percent of the shortfall projected by the Social Security trustees would not be there if there had not been a massive upward redistribution of income over the last three decades. The story is here.
Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.
Addendum:
Since folks asked, roughly 40 percent of the shortfall projected by the Social Security trustees would not be there if there had not been a massive upward redistribution of income over the last three decades. The story is here.
Read More Leer más Join the discussion Participa en la discusión
By Cherrie Bucknor and Dean Baker
Those of us unhappy with the Fed rate hike this month frequently point to the sharp drop in employment rates (EPOP) compared with the pre-recession level. The overall employment rate (the percentage of the adult population with jobs) is still down by more than 3.0 percentage points from pre-recession peaks. Even if the unemployment rate is not far above the pre-recession level, there remains a very large gap in the percent of the population that is working. This doesn’t show up in the unemployment rate because many people have dropped out of the labor force and are not looking for work, and therefore are not counted as unemployed.
One response is that because of the aging of the population many baby boomers are now retired and have no interest in working. A way to get around this issue is to restrict the comparison to the prime age population, people between the ages of 25–54. These people are not likely to be retired. This gives us pretty much the same story: the EPOP for prime age workers was down by 2.9 percentage points in November compared with its peak pre-recession level.
The next argument is that we have many prime age workers who have dropped out because they don’t have the skills needed to find work in today’s economy. This one might seem peculiar because these workers apparently did have the skills back in 2007 and the economy has not changed that much in the last eight years. But we can also test this one fairly easily.
If the drop in labor force participation was explained by less-skilled workers leaving the labor force then we should see most of the drop in employment rate among less-educated workers, with little or no change in employment rates for more educated workers. That is not what the data show.
Source: Authors’ analysis of Current Population Survey.
As can be seen, the overall EPOP is lower than the EPOP for people with college or advanced degrees. It has also dropped the most, falling by 3.3 percentage points from its 2007 level and 4.8 percentage points from its 2000 level. But the EPOP for prime age workers with college degrees has also fallen sharply, dropping by 1.7 percentage points from its 2007 level and 2.7 percentage points from the 2000 level. Even people with advanced degrees have seen substantial drops in employment with a decline in their EPOP of 1.6 percentage points from 2007 and 2.9 percentage points from 2000.
What should we make of these drops in employment among the most highly educated workers? We could twist the skills argument and say that even though these people are highly educated, they got their degrees in the wrong areas. Or, we could just say that we have a serious shortfall in demand in the economy and that it is not showing up in the unemployment rate because so many people have given up looking for work.
Or, we could say that millions of prime age workers suddenly decided they would take a long vacation. A shortfall in demand seems more likely and the Fed’s rate hike does not help in this case.
By Cherrie Bucknor and Dean Baker
Those of us unhappy with the Fed rate hike this month frequently point to the sharp drop in employment rates (EPOP) compared with the pre-recession level. The overall employment rate (the percentage of the adult population with jobs) is still down by more than 3.0 percentage points from pre-recession peaks. Even if the unemployment rate is not far above the pre-recession level, there remains a very large gap in the percent of the population that is working. This doesn’t show up in the unemployment rate because many people have dropped out of the labor force and are not looking for work, and therefore are not counted as unemployed.
One response is that because of the aging of the population many baby boomers are now retired and have no interest in working. A way to get around this issue is to restrict the comparison to the prime age population, people between the ages of 25–54. These people are not likely to be retired. This gives us pretty much the same story: the EPOP for prime age workers was down by 2.9 percentage points in November compared with its peak pre-recession level.
The next argument is that we have many prime age workers who have dropped out because they don’t have the skills needed to find work in today’s economy. This one might seem peculiar because these workers apparently did have the skills back in 2007 and the economy has not changed that much in the last eight years. But we can also test this one fairly easily.
If the drop in labor force participation was explained by less-skilled workers leaving the labor force then we should see most of the drop in employment rate among less-educated workers, with little or no change in employment rates for more educated workers. That is not what the data show.
Source: Authors’ analysis of Current Population Survey.
As can be seen, the overall EPOP is lower than the EPOP for people with college or advanced degrees. It has also dropped the most, falling by 3.3 percentage points from its 2007 level and 4.8 percentage points from its 2000 level. But the EPOP for prime age workers with college degrees has also fallen sharply, dropping by 1.7 percentage points from its 2007 level and 2.7 percentage points from the 2000 level. Even people with advanced degrees have seen substantial drops in employment with a decline in their EPOP of 1.6 percentage points from 2007 and 2.9 percentage points from 2000.
What should we make of these drops in employment among the most highly educated workers? We could twist the skills argument and say that even though these people are highly educated, they got their degrees in the wrong areas. Or, we could just say that we have a serious shortfall in demand in the economy and that it is not showing up in the unemployment rate because so many people have given up looking for work.
Or, we could say that millions of prime age workers suddenly decided they would take a long vacation. A shortfall in demand seems more likely and the Fed’s rate hike does not help in this case.
Read More Leer más Join the discussion Participa en la discusión
A NYT article on the uncertain politics in Spain following an election which left no obvious path to a majority government noted that the outcome was in large part a revolt against the austerity imposed on the country. There have been similar revolts in Greece and Portugal. The piece points out the popular discontent and tells readers:
“As the result in Greece showed, even anti-austerity parties have to answer to financial markets and balance national budgets, and the numbers are still deeply stacked against the policies of the old left and their heavy spending on welfare states.”
The countries of southern Europe actually had relatively less developed welfare states. The countries with heavy spending on welfare states are mostly in northern Europe. They have relatively small budget deficits and face extremely low interest rates in financial markets. The difference between these countries and the countries in southern Europe is that the latter collect less money in tax revenue.
It is also worth noting that, least in the case of Spain, the problems with deficits followed the crisis. Before 2008, the country was running budget surpluses and had a very low national debt.
It is also worth mentioning that it is not the financial markets that are constraining Spain and other southern European governments. The decision by Germany and other northern European countries to deliberately keep their rates of inflation very low is requiring the southern European countries to adjust trade imbalances through deflation and austerity.
If these countries still had their own currencies, they would simply allow the value to decline. Within a currency union, it would be expected that the surplus countries would share in the adjustment process by having moderately higher rates of inflation, but Germany and its followers have refused to accept this responsibility.
A NYT article on the uncertain politics in Spain following an election which left no obvious path to a majority government noted that the outcome was in large part a revolt against the austerity imposed on the country. There have been similar revolts in Greece and Portugal. The piece points out the popular discontent and tells readers:
“As the result in Greece showed, even anti-austerity parties have to answer to financial markets and balance national budgets, and the numbers are still deeply stacked against the policies of the old left and their heavy spending on welfare states.”
The countries of southern Europe actually had relatively less developed welfare states. The countries with heavy spending on welfare states are mostly in northern Europe. They have relatively small budget deficits and face extremely low interest rates in financial markets. The difference between these countries and the countries in southern Europe is that the latter collect less money in tax revenue.
It is also worth noting that, least in the case of Spain, the problems with deficits followed the crisis. Before 2008, the country was running budget surpluses and had a very low national debt.
It is also worth mentioning that it is not the financial markets that are constraining Spain and other southern European governments. The decision by Germany and other northern European countries to deliberately keep their rates of inflation very low is requiring the southern European countries to adjust trade imbalances through deflation and austerity.
If these countries still had their own currencies, they would simply allow the value to decline. Within a currency union, it would be expected that the surplus countries would share in the adjustment process by having moderately higher rates of inflation, but Germany and its followers have refused to accept this responsibility.
Read More Leer más Join the discussion Participa en la discusión
This is what the NYT told readers in an article that reported Secretary Clinton wants to embrace her husband’s economic record as president. While the last four years of the Clinton presidency did have low unemployment and rising real wages for workers at the middle and bottom of the income distribution, these gains were driven by the demand generated by the stock bubble.
The bubble led to a surge of investment in high tech, as start-ups were using the money they could raise from issuing stock to finance their investment. (Generally companies first issue stock to allow the founders to cash out some of their profits.) The stock wealth generated by the bubble also led to a consumption boom as savings rate fell to what were at the time record lows.
While the bubble did produce a period of prosperity, its collapse was both inevitable and predictable. While the recession resulting from the crash is usually thought to have been short and mild, it actually led to what was at the time the longest period without job growth since the Great Depression. The economy did not gain back the jobs lost in the recession until January of 2005. At the time, the economy was being propelled by the housing bubble.
Clintonomics set the economy on this path of bubble driven growth through its engineering of the bailout from the East Asian financial crisis. The result of the bailout was a huge run-up in the dollar against other currencies. Developing countries, which had been borrowing capital, switched to become huge lenders of capital as they tried to accumulate all the reserves they could to protect themselves from facing a similar situation as the East Asian countries.
The direct result of the run-up in the dollar was an explosion in size of the U.S. trade deficit, as the over-valued dollar made U.S. produced goods and services less competitive in the world economy. The trade deficit has led to a huge gap in demand (now around $500 billion annually) which can be filled only by large budget deficits or bubble-driven growth.
It is striking that Secretary Clinton would embrace policies that have led to so much pain for large segments of the American public. This could hurt her prospects in getting the nomination or winning the general election.
This is what the NYT told readers in an article that reported Secretary Clinton wants to embrace her husband’s economic record as president. While the last four years of the Clinton presidency did have low unemployment and rising real wages for workers at the middle and bottom of the income distribution, these gains were driven by the demand generated by the stock bubble.
The bubble led to a surge of investment in high tech, as start-ups were using the money they could raise from issuing stock to finance their investment. (Generally companies first issue stock to allow the founders to cash out some of their profits.) The stock wealth generated by the bubble also led to a consumption boom as savings rate fell to what were at the time record lows.
While the bubble did produce a period of prosperity, its collapse was both inevitable and predictable. While the recession resulting from the crash is usually thought to have been short and mild, it actually led to what was at the time the longest period without job growth since the Great Depression. The economy did not gain back the jobs lost in the recession until January of 2005. At the time, the economy was being propelled by the housing bubble.
Clintonomics set the economy on this path of bubble driven growth through its engineering of the bailout from the East Asian financial crisis. The result of the bailout was a huge run-up in the dollar against other currencies. Developing countries, which had been borrowing capital, switched to become huge lenders of capital as they tried to accumulate all the reserves they could to protect themselves from facing a similar situation as the East Asian countries.
The direct result of the run-up in the dollar was an explosion in size of the U.S. trade deficit, as the over-valued dollar made U.S. produced goods and services less competitive in the world economy. The trade deficit has led to a huge gap in demand (now around $500 billion annually) which can be filled only by large budget deficits or bubble-driven growth.
It is striking that Secretary Clinton would embrace policies that have led to so much pain for large segments of the American public. This could hurt her prospects in getting the nomination or winning the general election.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
