This one needs a really big “oy.” The lead headline of the Huffington Post tells readers that “child poverty higher now than great recession.” This is based on an AP story headlined “more U.S. children are living in poverty than during the great recession.” This article is in turn based on the annual Kids Count Data Book that is produced by the Annie E. Casey Foundation.
It turns out that this is not quite the story as the second paragraph of the article indicates:
“Twenty-two percent of American children were living in poverty in 2013 compared with 18 percent in 2008, according to the latest Kids Count Data Book, with poverty rates nearly double among African-Americans and American Indians and problems most severe in South and Southwest.”
Note the comparison is with 2008, the beginning of the recession, not the trough of the recession in 2010. By any measure the recovery from this recession has been slow and weak. (It is hard to recover from recessions caused by bursting asset bubbles.)
Almost eight years after its onset we would still need another three million jobs to restore the prime age employment rate to its pre-crisis level. And median wages are still below their pre-crisis level. But the child poverty rate is at least moving in the right direction in the recovery, even if way too slowly. And even the pre-recession level was ridiculously high. Anyhow, the real story is bad enough, it’s not necessary to exaggerate.
This one needs a really big “oy.” The lead headline of the Huffington Post tells readers that “child poverty higher now than great recession.” This is based on an AP story headlined “more U.S. children are living in poverty than during the great recession.” This article is in turn based on the annual Kids Count Data Book that is produced by the Annie E. Casey Foundation.
It turns out that this is not quite the story as the second paragraph of the article indicates:
“Twenty-two percent of American children were living in poverty in 2013 compared with 18 percent in 2008, according to the latest Kids Count Data Book, with poverty rates nearly double among African-Americans and American Indians and problems most severe in South and Southwest.”
Note the comparison is with 2008, the beginning of the recession, not the trough of the recession in 2010. By any measure the recovery from this recession has been slow and weak. (It is hard to recover from recessions caused by bursting asset bubbles.)
Almost eight years after its onset we would still need another three million jobs to restore the prime age employment rate to its pre-crisis level. And median wages are still below their pre-crisis level. But the child poverty rate is at least moving in the right direction in the recovery, even if way too slowly. And even the pre-recession level was ridiculously high. Anyhow, the real story is bad enough, it’s not necessary to exaggerate.
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I see that Brad takes issue with my prior post arguing that the bubble-driven recession of 2001 and the more recent one in 2008 were really bad news which could not be easily escaped.
“You need to rebalance, but competent policymakers can balance the economy up, near full employment, rather than balancing the economy down. And from late 2005 to the end of 2007 the balancing-up process was put in motion and, in fact, 3/4 accomplished.
“There is no reason why moving three million workers from pounding nails in Nevada and support occupations to making exports, building infrastructure, and serving as home-health aides and barefoot doctors needs to be associated with a lost decade and, apparently, permanently reduced employment. A lower value of the currency can boost exports. Loan guarantees and burden-sharing can get state governments into the infrastructure business. A surtax on the rich can employ a lot of home health aides and barefoot doctors. If these roads were foreclosed, they were foreclosed by the laws of American politics, not the laws of economics.
“And the lack of successful and rapid rebalancing–the weak post-2001 recovery–was also, overwhelmingly, a matter of choice: to use tax cuts rather than infrastructure and other social capital-building forms of spending on the government side, and to direct the dollar earnings of foreigners selling us imports into funding house construction rather than buying exports on the private-spending side.”
I would agree with this mostly, but say that it misses the point. (I disagree on the 3/4 accomplished part in the first paragraph, but that is secondary.) We do not have a political environment in which we can run deficits of the size needed to correct large imbalances, nor can we address chronic trade deficits by getting the dollar down. For this reason, bubbles are really bad news because when (not if) they burst we lack the ability to address the resulting shortfall in demand.
This is really simply stuff and that is a big problem in dealing with it. Economists want things to be difficult as do the liberal billionaires who fund economic research and policy analysis. Rather than trying to figure out a way to try to make it clear that we have to get the government to spend money or to drive down the value of the dollar, we will see tens of millions spent on developing new economic theory. Oh well, at least it will help to stimulate the economy.
I see that Brad takes issue with my prior post arguing that the bubble-driven recession of 2001 and the more recent one in 2008 were really bad news which could not be easily escaped.
“You need to rebalance, but competent policymakers can balance the economy up, near full employment, rather than balancing the economy down. And from late 2005 to the end of 2007 the balancing-up process was put in motion and, in fact, 3/4 accomplished.
“There is no reason why moving three million workers from pounding nails in Nevada and support occupations to making exports, building infrastructure, and serving as home-health aides and barefoot doctors needs to be associated with a lost decade and, apparently, permanently reduced employment. A lower value of the currency can boost exports. Loan guarantees and burden-sharing can get state governments into the infrastructure business. A surtax on the rich can employ a lot of home health aides and barefoot doctors. If these roads were foreclosed, they were foreclosed by the laws of American politics, not the laws of economics.
“And the lack of successful and rapid rebalancing–the weak post-2001 recovery–was also, overwhelmingly, a matter of choice: to use tax cuts rather than infrastructure and other social capital-building forms of spending on the government side, and to direct the dollar earnings of foreigners selling us imports into funding house construction rather than buying exports on the private-spending side.”
I would agree with this mostly, but say that it misses the point. (I disagree on the 3/4 accomplished part in the first paragraph, but that is secondary.) We do not have a political environment in which we can run deficits of the size needed to correct large imbalances, nor can we address chronic trade deficits by getting the dollar down. For this reason, bubbles are really bad news because when (not if) they burst we lack the ability to address the resulting shortfall in demand.
This is really simply stuff and that is a big problem in dealing with it. Economists want things to be difficult as do the liberal billionaires who fund economic research and policy analysis. Rather than trying to figure out a way to try to make it clear that we have to get the government to spend money or to drive down the value of the dollar, we will see tens of millions spent on developing new economic theory. Oh well, at least it will help to stimulate the economy.
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Uber is once again dipping its toe into the world of innovative social science. Folks may recall that earlier this year it commissioned Alan Krueger, one of the country’s leading labor economists and formerly President Obama’s chief economist, to do an analysis of Uber drivers’ pay. While Uber shared data with Kreuger on drivers’ gross receipts, it did not share data on miles driven. This meant that Krueger was left comparing the gross receipts of its drivers with the net income of cab drivers in the incumbent taxi industry. The gross receipts do not deduct costs borne by the driver, such as gas, depreciation on the car, and insurance.
Not surprisingly, the gross receipts of Uber drivers were higher than the net income of drivers for the incumbent tax industry. It’s not clear if this comparison would hold up if Krueger had done an apples to apples comparison where he deducted expenses for Uber drivers, but he couldn’t do this, since Uber didn’t give him the miles data.
In keeping with this approach to social science Uber has commissioned a new study that purports to show that it provides better service to minorities than the incumbent taxi industry. The test was to have someone order an Uber car in a heavily minority community on their smartphone, and compare the time it takes to get their pickup with the time it takes someone calling for a taxi from an incumbent company. Uber found that its service was markedly faster than the service of the incumbent industry.
Before anyone celebrates over this finding that Uber has eliminated or at least reduced discrimination in taxi service, a bit of thinking is required. To order an Uber car it is necessary to have both a smart phone and a credit card. A substantial portion of the low income and minority populations lack one or the other.
The Uber study effectively asked the question of whether Uber provides better service to a screened portion of the minority community, using a screening mechanism that is likely to weed out the poorer portion of this community. Furthermore, Uber knew of this screening, since it is how their cars are summoned. The incumbent taxi companies in its study did not know of the screening.
If we think that discrimination against minorities is a mixture of race, ethnicity, and class, the Uber study effectively used a screening mechanism that largely eliminated the class aspect of the matter, at least for the Uber drivers. In this context, the result is not very surprising.
CEPR is proposing that Uber finance a study where we compare the amount of time it takes people in minority communities to get an Uber car or a taxi ordered from an incumbent service, where the passenger does not have a credit card and orders over the phone. It will be interesting to see what we find.
Uber is once again dipping its toe into the world of innovative social science. Folks may recall that earlier this year it commissioned Alan Krueger, one of the country’s leading labor economists and formerly President Obama’s chief economist, to do an analysis of Uber drivers’ pay. While Uber shared data with Kreuger on drivers’ gross receipts, it did not share data on miles driven. This meant that Krueger was left comparing the gross receipts of its drivers with the net income of cab drivers in the incumbent taxi industry. The gross receipts do not deduct costs borne by the driver, such as gas, depreciation on the car, and insurance.
Not surprisingly, the gross receipts of Uber drivers were higher than the net income of drivers for the incumbent tax industry. It’s not clear if this comparison would hold up if Krueger had done an apples to apples comparison where he deducted expenses for Uber drivers, but he couldn’t do this, since Uber didn’t give him the miles data.
In keeping with this approach to social science Uber has commissioned a new study that purports to show that it provides better service to minorities than the incumbent taxi industry. The test was to have someone order an Uber car in a heavily minority community on their smartphone, and compare the time it takes to get their pickup with the time it takes someone calling for a taxi from an incumbent company. Uber found that its service was markedly faster than the service of the incumbent industry.
Before anyone celebrates over this finding that Uber has eliminated or at least reduced discrimination in taxi service, a bit of thinking is required. To order an Uber car it is necessary to have both a smart phone and a credit card. A substantial portion of the low income and minority populations lack one or the other.
The Uber study effectively asked the question of whether Uber provides better service to a screened portion of the minority community, using a screening mechanism that is likely to weed out the poorer portion of this community. Furthermore, Uber knew of this screening, since it is how their cars are summoned. The incumbent taxi companies in its study did not know of the screening.
If we think that discrimination against minorities is a mixture of race, ethnicity, and class, the Uber study effectively used a screening mechanism that largely eliminated the class aspect of the matter, at least for the Uber drivers. In this context, the result is not very surprising.
CEPR is proposing that Uber finance a study where we compare the amount of time it takes people in minority communities to get an Uber car or a taxi ordered from an incumbent service, where the passenger does not have a credit card and orders over the phone. It will be interesting to see what we find.
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That’s what millions of readers are asking after reading a NYT article on the fallout from Germany’s hardline in negotiations with Greece over its debt. The piece noted the lukewarm support given to Greece from France and Italy. It told readers:
“France and Italy struggle with some of the same problems as Greece: low growth, youth unemployment, rigid labor markets, bloated state bureaucracies and social welfare systems too generous now, when people live longer, to be supported by current revenue.”
It’s hard to see the basis for this assertion. According to the I.M.F., France has a structural budget deficit of 2.0 percent of GDP, Italy’s structural deficit is just 0.3 percent of GDP. Deficits of this size could be sustained indefinitely.
Both countries are running larger actual deficits at present because their economies are operating below full employment, even by the I.M.F.’s measure. (This measure is based on averaging recent output levels, so that a prolonged downturn will imply a lower level of potential output.) This suggests that the main source of budget problems for France and Italy is the contractionary fiscal policies being imposed on the euro zone by Germany and the European Central Bank, not excessive welfare state spending.
That’s what millions of readers are asking after reading a NYT article on the fallout from Germany’s hardline in negotiations with Greece over its debt. The piece noted the lukewarm support given to Greece from France and Italy. It told readers:
“France and Italy struggle with some of the same problems as Greece: low growth, youth unemployment, rigid labor markets, bloated state bureaucracies and social welfare systems too generous now, when people live longer, to be supported by current revenue.”
It’s hard to see the basis for this assertion. According to the I.M.F., France has a structural budget deficit of 2.0 percent of GDP, Italy’s structural deficit is just 0.3 percent of GDP. Deficits of this size could be sustained indefinitely.
Both countries are running larger actual deficits at present because their economies are operating below full employment, even by the I.M.F.’s measure. (This measure is based on averaging recent output levels, so that a prolonged downturn will imply a lower level of potential output.) This suggests that the main source of budget problems for France and Italy is the contractionary fiscal policies being imposed on the euro zone by Germany and the European Central Bank, not excessive welfare state spending.
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Just after announcing his candidacy for the Republican presidential nomination Scott Walker denounced the left for not having any real ideas for workers. According to Walker:
“They’ve just got really lame ideas, things like the minimum wage. Instead of focusing on that, we need to talk about how we give people the skills and the education, the qualifications they need to take on careers that pay far more than minimum wage.”
In his Washington Post “The Fix” column, Philip Bump largely endorsed this perspective.
“If the purpose the minimum wage is meant to serve is to lift people out of poverty, Pew points out that Walker’s right: Most minimum wages aren’t high enough to do that. The minimum wage is indeed lame, in the sense that it’s relatively impotent. Earning a minimum wage in 2014 was enough for a single person not to live in poverty, but not anyone with a family — and not everywhere across the country.”
There are a few points worth noting here. First, “the left” has many ideas for helping workers other than just the minimum wage. For example, many on the left have pushed for a full employment policy, which would mean having a Federal Reserve Board policy that allows the unemployment rate to continue to fall until there is clear evidence of inflation rather than preemptively raising interest rates to slow growth. It would also mean having trade policies designed to reduce the trade deficit (i.e. a lower valued dollar) which would provide a strong boost to jobs. It would also mean spending on infrastructure and education, which would also help to create jobs and have long-term growth benefits.
The left also favors policies that allow workers who want to be represented by unions to organize. This has a well known impact on wages, especially for less educated workers.
As far the denunciation of the minimum wage as “lame,” this is a policy that could put thousands of dollars a year into the pockets of low wage workers. For arithmetic fans, a three dollar an hour increase in the minimum wage would mean $6,000 a year for a full year worker. Since Bump seems to prefer per household measures to per worker measures, if a household has two workers earning near the minimum wage for a total of 3000 hours a year, a three dollar increase would imply $9,000 in additional income. It’s unlikely these people would think of the minimum wage as lame.
The last point is that Bump apparently doesn’t realize that Walker’s focus on skills and education are not new and are also shared by the left. The left has long led the way in pushing for public support for improved education. Even now, President Obama has put proposals forward for universal pre-K education and reducing the cost of college. Unions have not only supported education in the public sector, they routinely require training and upskilling of workers in their contracts.
If Walker has some new ideas on skills and education, then it would be worth hearing them, but Bump gives no indication that Walker did anything other than say the words as a way to denounce the left. In short, if Bump had more knowledge about history and current politics he would not join Walker in his name calling.
Addendum
It is worth noting that as governor of Wisconsin, Walker has targeted unions, trying to weaken them in both the public and private sectors. He has also attacked the University of Wisconsin, one of the top public unversities in the country. Insofar as he is committed to a path of upward mobility for workers, these actions go in the opposite direction.
Just after announcing his candidacy for the Republican presidential nomination Scott Walker denounced the left for not having any real ideas for workers. According to Walker:
“They’ve just got really lame ideas, things like the minimum wage. Instead of focusing on that, we need to talk about how we give people the skills and the education, the qualifications they need to take on careers that pay far more than minimum wage.”
In his Washington Post “The Fix” column, Philip Bump largely endorsed this perspective.
“If the purpose the minimum wage is meant to serve is to lift people out of poverty, Pew points out that Walker’s right: Most minimum wages aren’t high enough to do that. The minimum wage is indeed lame, in the sense that it’s relatively impotent. Earning a minimum wage in 2014 was enough for a single person not to live in poverty, but not anyone with a family — and not everywhere across the country.”
There are a few points worth noting here. First, “the left” has many ideas for helping workers other than just the minimum wage. For example, many on the left have pushed for a full employment policy, which would mean having a Federal Reserve Board policy that allows the unemployment rate to continue to fall until there is clear evidence of inflation rather than preemptively raising interest rates to slow growth. It would also mean having trade policies designed to reduce the trade deficit (i.e. a lower valued dollar) which would provide a strong boost to jobs. It would also mean spending on infrastructure and education, which would also help to create jobs and have long-term growth benefits.
The left also favors policies that allow workers who want to be represented by unions to organize. This has a well known impact on wages, especially for less educated workers.
As far the denunciation of the minimum wage as “lame,” this is a policy that could put thousands of dollars a year into the pockets of low wage workers. For arithmetic fans, a three dollar an hour increase in the minimum wage would mean $6,000 a year for a full year worker. Since Bump seems to prefer per household measures to per worker measures, if a household has two workers earning near the minimum wage for a total of 3000 hours a year, a three dollar increase would imply $9,000 in additional income. It’s unlikely these people would think of the minimum wage as lame.
The last point is that Bump apparently doesn’t realize that Walker’s focus on skills and education are not new and are also shared by the left. The left has long led the way in pushing for public support for improved education. Even now, President Obama has put proposals forward for universal pre-K education and reducing the cost of college. Unions have not only supported education in the public sector, they routinely require training and upskilling of workers in their contracts.
If Walker has some new ideas on skills and education, then it would be worth hearing them, but Bump gives no indication that Walker did anything other than say the words as a way to denounce the left. In short, if Bump had more knowledge about history and current politics he would not join Walker in his name calling.
Addendum
It is worth noting that as governor of Wisconsin, Walker has targeted unions, trying to weaken them in both the public and private sectors. He has also attacked the University of Wisconsin, one of the top public unversities in the country. Insofar as he is committed to a path of upward mobility for workers, these actions go in the opposite direction.
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The Washington Post had a major piece describing what it called a “global competition” by oil producers to stay in business even as prices remain low. The piece seems to imply that the strategy of Saudi Arabia in this competition is to pump enough oil to keep prices low, thereby driving out competitors. They would then raise their prices once the competition is gone.
This strategy does not make sense. A prolonged period of low prices may push some of their competitors into bankruptcy, like Continental Resources, the fracking company at the center of the piece, but the oil would still be there. This means that if prices rose enough to make shale oil profitable again, then new competitors will buy up the land and the equipment of the bankrupt companies and start producing oil again. While this process will take some time, it is at most a matter of a couple of years and quite possibly considerably less.
Given the current situation in the oil market, Saudi Arabia can likely have a large market share or can have high prices. There is not a plausible scenario in which it can have both.
The Washington Post had a major piece describing what it called a “global competition” by oil producers to stay in business even as prices remain low. The piece seems to imply that the strategy of Saudi Arabia in this competition is to pump enough oil to keep prices low, thereby driving out competitors. They would then raise their prices once the competition is gone.
This strategy does not make sense. A prolonged period of low prices may push some of their competitors into bankruptcy, like Continental Resources, the fracking company at the center of the piece, but the oil would still be there. This means that if prices rose enough to make shale oil profitable again, then new competitors will buy up the land and the equipment of the bankrupt companies and start producing oil again. While this process will take some time, it is at most a matter of a couple of years and quite possibly considerably less.
Given the current situation in the oil market, Saudi Arabia can likely have a large market share or can have high prices. There is not a plausible scenario in which it can have both.
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In a NYT column Steve Rattner argues that the conditions being imposed on Greece by Germany as a condition of its bailout are for its own good. While Greece undoubtedly needs to reform its economy in many ways, Rattner ignores the extent to which austerity, both within the country and the euro zone as a whole, have worsened Greece’s economy. This is both true in a macro sense, in that cuts in government spending and increased taxes reduce GDP and employment, but also the resulting depression worsens other problems, like the public pension system.
Rattner includes a table showing that pensions in Greece are 16.2 percent of GDP, the highest in Europe. However pension spending as a share of GDP has risen sharply as a result of the downturn. In 2007, according to the OECD pension spending in Greece was 12.1 percent of GDP, less than France’s 12.5 percent and Italy’s 14.0 percent. In fact, Greece’s pension spending was not very much larger as a share of GDP than Germany’s 10.6 percent.
Since GDP has contracted by more than 25 percent, the ratio of pension spending to GDP would rise by roughly a third if it had stayed constant. (Pensions have actually been cut sharply under previous austerity programs.) The surge in unemployment, now over 25 percent, has also raised pension costs. Many people who would prefer to be working instead retired early and started collecting their pensions because they couldn’t find jobs.
This is a direct result of the austerity that Germany has imposed on Greece and one reason why the Greeks are not as appreciative of Germany as Rattner thinks they should be.
In a NYT column Steve Rattner argues that the conditions being imposed on Greece by Germany as a condition of its bailout are for its own good. While Greece undoubtedly needs to reform its economy in many ways, Rattner ignores the extent to which austerity, both within the country and the euro zone as a whole, have worsened Greece’s economy. This is both true in a macro sense, in that cuts in government spending and increased taxes reduce GDP and employment, but also the resulting depression worsens other problems, like the public pension system.
Rattner includes a table showing that pensions in Greece are 16.2 percent of GDP, the highest in Europe. However pension spending as a share of GDP has risen sharply as a result of the downturn. In 2007, according to the OECD pension spending in Greece was 12.1 percent of GDP, less than France’s 12.5 percent and Italy’s 14.0 percent. In fact, Greece’s pension spending was not very much larger as a share of GDP than Germany’s 10.6 percent.
Since GDP has contracted by more than 25 percent, the ratio of pension spending to GDP would rise by roughly a third if it had stayed constant. (Pensions have actually been cut sharply under previous austerity programs.) The surge in unemployment, now over 25 percent, has also raised pension costs. Many people who would prefer to be working instead retired early and started collecting their pensions because they couldn’t find jobs.
This is a direct result of the austerity that Germany has imposed on Greece and one reason why the Greeks are not as appreciative of Germany as Rattner thinks they should be.
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As they say at the Post, don’t let the data bother you, or so it would seem with yet another article bemoaning the lack of consumption. The proximate cause was a Commerce Department report showing weaker retail sales in June after a big jump in May. The piece explained to readers:
“The figures suggest that Americans are still reluctant to spend freely, possibly restrained by memories of the Great Recession.
“‘Household caution still appears to be holding back a more rapid pace of spending growth,’ Michael Feroli, an economist at JPMorgan Chase, said in a note to clients.”
Here’s the slightly longer term picture.
For the record, there is no economist who wants to argue that the consumption share of GDP should continue to rise. The logical implication of such an argument is that investment, government spending, and net exports would continue to decline as a share of GDP. So we should look at levels, not changes here. And the level is actually higher than it was before consumers were scarred by memories of the Great Recession.
Btw, the folks who think that people need to save more for retirement, which include me, think that consumption is too high relative to income, not too low. That is definitional. Savings are the income that is not consumed.
As they say at the Post, don’t let the data bother you, or so it would seem with yet another article bemoaning the lack of consumption. The proximate cause was a Commerce Department report showing weaker retail sales in June after a big jump in May. The piece explained to readers:
“The figures suggest that Americans are still reluctant to spend freely, possibly restrained by memories of the Great Recession.
“‘Household caution still appears to be holding back a more rapid pace of spending growth,’ Michael Feroli, an economist at JPMorgan Chase, said in a note to clients.”
Here’s the slightly longer term picture.
For the record, there is no economist who wants to argue that the consumption share of GDP should continue to rise. The logical implication of such an argument is that investment, government spending, and net exports would continue to decline as a share of GDP. So we should look at levels, not changes here. And the level is actually higher than it was before consumers were scarred by memories of the Great Recession.
Btw, the folks who think that people need to save more for retirement, which include me, think that consumption is too high relative to income, not too low. That is definitional. Savings are the income that is not consumed.
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We’ve been hearing a lot about pensions in Greece lately. These have been a major target of the creditors in their negotiations with Greece. According to a recent article in the New York Times, 60 percent of Greeks receive a pension of less than $9,500 a year. An article in today’s Washington Post may lead people to ask what sort of pensions the top officials at the European Central Bank (ECB) get.
The article briefly recounts how Greece and other crisis countries got themselves into difficulties. The piece includes this strange line:
“The tipping point, though, came in 2010, when markets realized how much these governments now needed to borrow to make up for their bad economies.”
Actually it was not so much a market realization as a statement by the ECB that it was not committed to standing behind the sovereign debt of euro zone members. This led to the sudden realization that the bonds issued by these countries could default.
The fact that serious imbalances were building within the euro zone should not have been difficult for numerate people to recognize. Most of the crisis countries had persistently large current account deficits. (Italy is the major exception.) Portugal’s peaked at 9.5 percent of GDP in 2008, Spain’s at 10.5 percent, and Greece’s at 13.9 percent. These are the sorts of current account deficits that one would expect to see in a fast growing developing country like China (of yeah, they have a large trade surplus), not relatively wealthy countries that are not growing especially rapidly.
This should have led a bank that had the responsibility to maintain financial stability to take steps to try to reverse these imbalances, for example, by dampening the flows of credit that were sustaining it. However the ECB largely ignored the imbalances. When the first ECB president, Jean-Claude Trichet retired in the middle of the crisis in 2011, he patted himself on the back for keeping inflation under the bank’s 2.0 percent target.
Since it is apparently possible to take away the pensions that Greek people spent their life working for, some people may want to know if its possible to take back the much higher pensions earned by top officials at the ECB.
We’ve been hearing a lot about pensions in Greece lately. These have been a major target of the creditors in their negotiations with Greece. According to a recent article in the New York Times, 60 percent of Greeks receive a pension of less than $9,500 a year. An article in today’s Washington Post may lead people to ask what sort of pensions the top officials at the European Central Bank (ECB) get.
The article briefly recounts how Greece and other crisis countries got themselves into difficulties. The piece includes this strange line:
“The tipping point, though, came in 2010, when markets realized how much these governments now needed to borrow to make up for their bad economies.”
Actually it was not so much a market realization as a statement by the ECB that it was not committed to standing behind the sovereign debt of euro zone members. This led to the sudden realization that the bonds issued by these countries could default.
The fact that serious imbalances were building within the euro zone should not have been difficult for numerate people to recognize. Most of the crisis countries had persistently large current account deficits. (Italy is the major exception.) Portugal’s peaked at 9.5 percent of GDP in 2008, Spain’s at 10.5 percent, and Greece’s at 13.9 percent. These are the sorts of current account deficits that one would expect to see in a fast growing developing country like China (of yeah, they have a large trade surplus), not relatively wealthy countries that are not growing especially rapidly.
This should have led a bank that had the responsibility to maintain financial stability to take steps to try to reverse these imbalances, for example, by dampening the flows of credit that were sustaining it. However the ECB largely ignored the imbalances. When the first ECB president, Jean-Claude Trichet retired in the middle of the crisis in 2011, he patted himself on the back for keeping inflation under the bank’s 2.0 percent target.
Since it is apparently possible to take away the pensions that Greek people spent their life working for, some people may want to know if its possible to take back the much higher pensions earned by top officials at the ECB.
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In her WaPo column Catherine Rampell points to the sharp decline in labor force participation rates for prime age workers (ages 25-54) in recent years and looks to the remedies proposed by Jeb Bush and Hillary Clinton. Remarkably neither Rampell nor the candidates discuss the role of the Federal Reserve Board.
There is not much about the drop in labor force participation that is very surprising. It goes along with a weak labor market. When people can’t find a job after enough months or years of looking, they stop trying. Here’s what the picture looks like over the last two decades.
While the story would be somewhat different for men and women, we see that the labor force participation rate (LFPR) rose from the mid-1990s to the late 1990s during the strong labor market of those years. It fell with the 2001 recession and the weak recovery that followed. (We continued to lose jobs until late 2003 and didn’t get back the jobs lost in the downturn until early 2005.) After the labor market started to recover, the LFPR started to rise again, but then fell sharply with the downturn following the collapse of the housing bubble.
It’s great for politicians to round up their favorite usual suspects in trying to explain why so many prime age workers no longer feel like working, but to those not on the campaign payrolls, it seems pretty obvious. We don’t have enough demand in the economy and therefore we don’t have jobs.
This is where the Fed comes in. If the economy were to continue to create 200,000 plus jobs a month, then we can be pretty confident that the LFPR will rise again as it did in the late 1990s. However if the Fed is determined not to allow the unemployment rate to fall below some floor like 5.2 percent, then it will prevent the economy from creating large numbers of jobs. In this case, the LFPR will not rise much regardless of whether we follow the prescriptions of Bush or Clinton, since people will not look for jobs that are not there indefinitely.
It is worth noting in this respect that in the 1990s, the vast majority of economists, including Janet Yellen who was then a member of Fed’s Board of Governors, did not want the Fed to allow the unemployment rate to fall much below 6.0 percent. It was only because then Chair Alan Greenspan was not an orthodox economist that were able to see that the unemployment rate could in fact fall much lower without triggering inflation. (The unemployment rate averaged 4.0 percent in 2000.)
It should seem obvious that Fed’s policy will play a major role in determining the LFPR going forward. It is bizarre that it does not seem to be getting into the debate.
In her WaPo column Catherine Rampell points to the sharp decline in labor force participation rates for prime age workers (ages 25-54) in recent years and looks to the remedies proposed by Jeb Bush and Hillary Clinton. Remarkably neither Rampell nor the candidates discuss the role of the Federal Reserve Board.
There is not much about the drop in labor force participation that is very surprising. It goes along with a weak labor market. When people can’t find a job after enough months or years of looking, they stop trying. Here’s what the picture looks like over the last two decades.
While the story would be somewhat different for men and women, we see that the labor force participation rate (LFPR) rose from the mid-1990s to the late 1990s during the strong labor market of those years. It fell with the 2001 recession and the weak recovery that followed. (We continued to lose jobs until late 2003 and didn’t get back the jobs lost in the downturn until early 2005.) After the labor market started to recover, the LFPR started to rise again, but then fell sharply with the downturn following the collapse of the housing bubble.
It’s great for politicians to round up their favorite usual suspects in trying to explain why so many prime age workers no longer feel like working, but to those not on the campaign payrolls, it seems pretty obvious. We don’t have enough demand in the economy and therefore we don’t have jobs.
This is where the Fed comes in. If the economy were to continue to create 200,000 plus jobs a month, then we can be pretty confident that the LFPR will rise again as it did in the late 1990s. However if the Fed is determined not to allow the unemployment rate to fall below some floor like 5.2 percent, then it will prevent the economy from creating large numbers of jobs. In this case, the LFPR will not rise much regardless of whether we follow the prescriptions of Bush or Clinton, since people will not look for jobs that are not there indefinitely.
It is worth noting in this respect that in the 1990s, the vast majority of economists, including Janet Yellen who was then a member of Fed’s Board of Governors, did not want the Fed to allow the unemployment rate to fall much below 6.0 percent. It was only because then Chair Alan Greenspan was not an orthodox economist that were able to see that the unemployment rate could in fact fall much lower without triggering inflation. (The unemployment rate averaged 4.0 percent in 2000.)
It should seem obvious that Fed’s policy will play a major role in determining the LFPR going forward. It is bizarre that it does not seem to be getting into the debate.
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