They’re really lowering the bar big time over at the Washington Post. An editorial condemning the Greek government and urging Greek voters to accept the last offer from its creditors told readers, “the Greek economy had started to perk up prior to Mr. Tsipras’s ascendance.”
The Greek economy did grow in 2014. According to the I.M.F., the per capita growth rate last year was 1.4 percent. Since per capita income in Greece is down by almost 25 percent from its 2007 level, at the 2014 growth rate the country will be back to its 2007 income level by 2035.
The piece also called on the government for further cuts in what it described as Greece’s “unsustainable pensions.” These pensions have already been cut by more than 40 percent and now average less than 700 euros (@ $800) a month. The pensions may well be unsustainable under the macroeconomic policies being imposed by Greece’s creditors, but this is primarily because these policies have pushed Greece into a depression. The result has been a sharp reduction in the number of workers paying into the pension system and a big increase in the number of workers collecting pensions, since many have been forced by economic conditions to retiree early.
Using the I.M.F. projections from April 2008 as a benchmark, the policies pursued by the euro zone leadership will have the cost the region more than $10 trillion (@ $30,000 per person) by the end of 2015. In this context it is interesting that the Washington Post condemns the Greek government as being irresponsible.
They’re really lowering the bar big time over at the Washington Post. An editorial condemning the Greek government and urging Greek voters to accept the last offer from its creditors told readers, “the Greek economy had started to perk up prior to Mr. Tsipras’s ascendance.”
The Greek economy did grow in 2014. According to the I.M.F., the per capita growth rate last year was 1.4 percent. Since per capita income in Greece is down by almost 25 percent from its 2007 level, at the 2014 growth rate the country will be back to its 2007 income level by 2035.
The piece also called on the government for further cuts in what it described as Greece’s “unsustainable pensions.” These pensions have already been cut by more than 40 percent and now average less than 700 euros (@ $800) a month. The pensions may well be unsustainable under the macroeconomic policies being imposed by Greece’s creditors, but this is primarily because these policies have pushed Greece into a depression. The result has been a sharp reduction in the number of workers paying into the pension system and a big increase in the number of workers collecting pensions, since many have been forced by economic conditions to retiree early.
Using the I.M.F. projections from April 2008 as a benchmark, the policies pursued by the euro zone leadership will have the cost the region more than $10 trillion (@ $30,000 per person) by the end of 2015. In this context it is interesting that the Washington Post condemns the Greek government as being irresponsible.
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In response to questions from people everywhere, I will share a couple of quick thoughts on the possible departure of Greece from the euro. First, several people have raised the possibility of Greece being thrown out of the euro.
There is no way that Greece can literally be thrown out of the euro in the sense of being prohibited from using the euro. Any country has the option to use any currency it chooses. This was an issue that came up in the referendum over Scottish independence. The independence movement wanted to leave the United Kingdom but to continue to use the British pound as its currency. U.K. Prime Minister David Cameron said that the Scots could not keep the pound if they left the United Kingdom.
This was not true, unless the U.K. was prepared to invade Scotland and physically prevent their banks and stores from using the pound. The Bank of England could refuse to support any of the Scottish banks, which would make it highly undesirable for them to use the pound, in addition to the fact that the U.K. would not be setting monetary policy for the benefit of Scotland, but Scotland would certainly have the option to continue to use the pound for their currency.
In this vein, there are several countries around the world that use the dollar for their currency, including Panama, Ecuador, and Zimbabwe. They did not need to get permission from the United States to use the dollar, they just opted to do it (in the case of Ecuador and Zimbabwe to end hyperinflation).
In this way, Greece will have the option to keep the euro indefinitely. It is difficult to see why it would want to if it lacks the support of the European Central Bank, since it would almost certainly mean a substantially worsening of its economy from its current Great Depression levels of output. However if Greece’s leaders decide that keeping the euro is more important than reviving the economy, the eurozone authorities cannot keep them from doing it, short of an armed invasion.
In response to questions from people everywhere, I will share a couple of quick thoughts on the possible departure of Greece from the euro. First, several people have raised the possibility of Greece being thrown out of the euro.
There is no way that Greece can literally be thrown out of the euro in the sense of being prohibited from using the euro. Any country has the option to use any currency it chooses. This was an issue that came up in the referendum over Scottish independence. The independence movement wanted to leave the United Kingdom but to continue to use the British pound as its currency. U.K. Prime Minister David Cameron said that the Scots could not keep the pound if they left the United Kingdom.
This was not true, unless the U.K. was prepared to invade Scotland and physically prevent their banks and stores from using the pound. The Bank of England could refuse to support any of the Scottish banks, which would make it highly undesirable for them to use the pound, in addition to the fact that the U.K. would not be setting monetary policy for the benefit of Scotland, but Scotland would certainly have the option to continue to use the pound for their currency.
In this vein, there are several countries around the world that use the dollar for their currency, including Panama, Ecuador, and Zimbabwe. They did not need to get permission from the United States to use the dollar, they just opted to do it (in the case of Ecuador and Zimbabwe to end hyperinflation).
In this way, Greece will have the option to keep the euro indefinitely. It is difficult to see why it would want to if it lacks the support of the European Central Bank, since it would almost certainly mean a substantially worsening of its economy from its current Great Depression levels of output. However if Greece’s leaders decide that keeping the euro is more important than reviving the economy, the eurozone authorities cannot keep them from doing it, short of an armed invasion.
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The Wall Street Journal passed along warnings from the Bank of International Settlements (BIS) that central banks should start to curtail monetary expansion and that governments need to reduce their debt levels. The piece tells readers:
“The BIS has issued similar warnings in recent years concerning an overreliance on monetary policy, but its advice has gone largely unheeded.”
It is worth noting that the BIS has been consistently wrong in prior years, warning as early as 2011 about the prospects of higher inflation due to expansionary monetary policy:
“But despite the obvious near-term price pressures, break-even inflation expectations at distant horizons remained relatively stable, suggesting that central banks’ long-term credibility was intact, at least for the time being.
“But controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy
rates.”
Since that date, the major central banks of the world have been struggling with lower than desired inflation and doing whatever they could to raise the rate of inflation. It would have been helpful to readers to point out that the BIS has been hugely wrong in its past warnings, so people in policy positions appear to have been right to ignore them. This is likely still the case.
The Wall Street Journal passed along warnings from the Bank of International Settlements (BIS) that central banks should start to curtail monetary expansion and that governments need to reduce their debt levels. The piece tells readers:
“The BIS has issued similar warnings in recent years concerning an overreliance on monetary policy, but its advice has gone largely unheeded.”
It is worth noting that the BIS has been consistently wrong in prior years, warning as early as 2011 about the prospects of higher inflation due to expansionary monetary policy:
“But despite the obvious near-term price pressures, break-even inflation expectations at distant horizons remained relatively stable, suggesting that central banks’ long-term credibility was intact, at least for the time being.
“But controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy
rates.”
Since that date, the major central banks of the world have been struggling with lower than desired inflation and doing whatever they could to raise the rate of inflation. It would have been helpful to readers to point out that the BIS has been hugely wrong in its past warnings, so people in policy positions appear to have been right to ignore them. This is likely still the case.
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That’s what readers are asking after seeing a NYT piece on reactions to the Supreme Court’s ruling upholding the insurance subsidies in the Affordable Care Act (ACA). The piece gives comments from a number of people including John Kasich, the governor of Ohio and a likely candidate for the Republican presidential nomination.
“More typical was the response from Gov. John Kasich of Ohio, a likely Republican presidential candidate.
“‘The law has driven up Ohio’s health insurance costs significantly,’ he said, ‘and I remain convinced that Congress should repeal it and replace it with something that actually reduces costs.'”
There has been a sharp slowdown in the rate of health care cost growth across the country. While this slowdown preceded the passage of the ACA, the law has likely been a factor contributing to the slower growth in costs. If Ohio is actually seeing rising insurance costs due to the ACA then it would be an outlier from the experience in the rest of the country.
If this is the case, it would be interesting to know the reason for the higher costs in Ohio. Alternatively, Kasich may just be saying this for political purposes.
That’s what readers are asking after seeing a NYT piece on reactions to the Supreme Court’s ruling upholding the insurance subsidies in the Affordable Care Act (ACA). The piece gives comments from a number of people including John Kasich, the governor of Ohio and a likely candidate for the Republican presidential nomination.
“More typical was the response from Gov. John Kasich of Ohio, a likely Republican presidential candidate.
“‘The law has driven up Ohio’s health insurance costs significantly,’ he said, ‘and I remain convinced that Congress should repeal it and replace it with something that actually reduces costs.'”
There has been a sharp slowdown in the rate of health care cost growth across the country. While this slowdown preceded the passage of the ACA, the law has likely been a factor contributing to the slower growth in costs. If Ohio is actually seeing rising insurance costs due to the ACA then it would be an outlier from the experience in the rest of the country.
If this is the case, it would be interesting to know the reason for the higher costs in Ohio. Alternatively, Kasich may just be saying this for political purposes.
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The NYT finished a piece on the status of negotiations on Greece’s debt with the comment:
“The bigger fear is that a Greek default could force the country eventually to be the first to leave the 19-nation euro currency union and threaten the regional integrity of the broader European Union.”
It would have been helpful to tell readers who has these fears. After all, the current policies being imposed by the European Central Bank and the EU have cost the region millions of jobs and trillions of euros in lost output and threaten a whole generation’s economic future. It is hard to see why anyone would fear the possibility that these policies may be reversed.
The NYT finished a piece on the status of negotiations on Greece’s debt with the comment:
“The bigger fear is that a Greek default could force the country eventually to be the first to leave the 19-nation euro currency union and threaten the regional integrity of the broader European Union.”
It would have been helpful to tell readers who has these fears. After all, the current policies being imposed by the European Central Bank and the EU have cost the region millions of jobs and trillions of euros in lost output and threaten a whole generation’s economic future. It is hard to see why anyone would fear the possibility that these policies may be reversed.
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James Stewart has a piece in the NYT telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, “imagine Argentina, but much worse.” The article includes several assertions that are misleading or false.
First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country’s GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina’s GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.
Argentina’s economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.
At one point the piece refers to the views of Yanis Varoufakis, Greece’s finance minister, on the difficulties of leaving the euro. It relies on what it describes as a “recent blogpost.” Actually the post is from 2012.
To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:
“But they’ve already cut prices and tourism has gone up. But it hasn’t really helped because total revenue hasn’t gone up.”
Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can’t increase revenue from fishing the piece tells readers:
“The European Union has strict quotas to prevent overfishing.”
However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that’s true, the EU limits on fishing would be irrelevant.
The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika’s terms.
In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.
Addendum
I should have also mentioned that the pre-default decline has been much sharper in Greece than in Argentina, over 25 percent in Greece, compared to less than 10.0 percent in Argentina. This should mean that Greece has much more room to bounce back if it regains control over its fiscal and monetary policy.
James Stewart has a piece in the NYT telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, “imagine Argentina, but much worse.” The article includes several assertions that are misleading or false.
First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country’s GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina’s GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.
Argentina’s economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.
At one point the piece refers to the views of Yanis Varoufakis, Greece’s finance minister, on the difficulties of leaving the euro. It relies on what it describes as a “recent blogpost.” Actually the post is from 2012.
To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:
“But they’ve already cut prices and tourism has gone up. But it hasn’t really helped because total revenue hasn’t gone up.”
Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can’t increase revenue from fishing the piece tells readers:
“The European Union has strict quotas to prevent overfishing.”
However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that’s true, the EU limits on fishing would be irrelevant.
The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika’s terms.
In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.
Addendum
I should have also mentioned that the pre-default decline has been much sharper in Greece than in Argentina, over 25 percent in Greece, compared to less than 10.0 percent in Argentina. This should mean that Greece has much more room to bounce back if it regains control over its fiscal and monetary policy.
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Okay, that may not have been the headline, but careful readers would see this is the case. The NYT ran a piece complaining that plans by the Greek government to raise business taxes, as opposed to further cuts to pensions and other spending, could hurt business.
The poster child for this argument is Thanos Tziritis, the owner of a family business that produces and exports a wide range of construction materials. The piece goes through the various complaints of Mr. Tziritis, at one point telling readers:
“Still, it took 20 months to get all the permissions and licenses to begin construction, as papers moved back and forth between Thessaloniki and Athens.
“One reason for the delay, Mr. Tziritis said he was told, was that one of the government employees examining the request was on maternity leave and no one else was authorized to look at that specific Isomat file. The project remained in limbo for more than six months until the civil servant returned to work.”
Presumably one of the reasons that no one else could fill in for the government employee examining the construction request was that Greece was forced to cut back on the number of employees. It may well be the case that Greece regulations are excessive, but until they are reformed cutting back on the number of people involved in the review process is likely to slow investment and growth, as this article indicates.
The article bizarrely implies that Greece has been resistant to making budget cuts, complaining:
“The I.M.F., in particular, is upset that its demands for spending reductions have been ignored.
“‘All expenditure measures have been replaced by taxes on capital and labor,’ said a fund official who spoke on the condition of anonymity. ‘This is very growth unfriendly.'”
In fact, total government spending has fallen by more than one-third since 2009, according to I.M.F. data.
It is also worth noting that, in violation on NYT policy, there is no reason given for why the fund official was granted anonymity.
Okay, that may not have been the headline, but careful readers would see this is the case. The NYT ran a piece complaining that plans by the Greek government to raise business taxes, as opposed to further cuts to pensions and other spending, could hurt business.
The poster child for this argument is Thanos Tziritis, the owner of a family business that produces and exports a wide range of construction materials. The piece goes through the various complaints of Mr. Tziritis, at one point telling readers:
“Still, it took 20 months to get all the permissions and licenses to begin construction, as papers moved back and forth between Thessaloniki and Athens.
“One reason for the delay, Mr. Tziritis said he was told, was that one of the government employees examining the request was on maternity leave and no one else was authorized to look at that specific Isomat file. The project remained in limbo for more than six months until the civil servant returned to work.”
Presumably one of the reasons that no one else could fill in for the government employee examining the construction request was that Greece was forced to cut back on the number of employees. It may well be the case that Greece regulations are excessive, but until they are reformed cutting back on the number of people involved in the review process is likely to slow investment and growth, as this article indicates.
The article bizarrely implies that Greece has been resistant to making budget cuts, complaining:
“The I.M.F., in particular, is upset that its demands for spending reductions have been ignored.
“‘All expenditure measures have been replaced by taxes on capital and labor,’ said a fund official who spoke on the condition of anonymity. ‘This is very growth unfriendly.'”
In fact, total government spending has fallen by more than one-third since 2009, according to I.M.F. data.
It is also worth noting that, in violation on NYT policy, there is no reason given for why the fund official was granted anonymity.
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Michael Fletcher had a short piece highlighting the huge gulf in the economic status of whites and African Americans. While the piece rightly points out that there are no simple remedies to eliminate the gap, one of the charts suggests a policy that can make a huge difference.
The chart shows the overall unemployment rate and the unemployment rate for whites and African Americans. The unemployment rate for African Americans is consistently twice as high as the unemployment rate for whites. This means that a drop in the unemployment rate for whites of one percentage point would likely be associated with a drop of two percentage points in the unemployment rate for African Americans.
For African American teens the ratio is typically six to one. This means that a Federal Reserve Board policy of letting the unemployment rate fall as low as possible is likely to have large payoffs for African Americans, especially for young people trying to get a step up in the labor market. This may not eliminate the gap in status between whites and African Americans, but a commitment to a full employment policy may go a substantial distance in that direction.
Michael Fletcher had a short piece highlighting the huge gulf in the economic status of whites and African Americans. While the piece rightly points out that there are no simple remedies to eliminate the gap, one of the charts suggests a policy that can make a huge difference.
The chart shows the overall unemployment rate and the unemployment rate for whites and African Americans. The unemployment rate for African Americans is consistently twice as high as the unemployment rate for whites. This means that a drop in the unemployment rate for whites of one percentage point would likely be associated with a drop of two percentage points in the unemployment rate for African Americans.
For African American teens the ratio is typically six to one. This means that a Federal Reserve Board policy of letting the unemployment rate fall as low as possible is likely to have large payoffs for African Americans, especially for young people trying to get a step up in the labor market. This may not eliminate the gap in status between whites and African Americans, but a commitment to a full employment policy may go a substantial distance in that direction.
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Emily Badger had an interesting discussion of the decline of homeownership in Wonkblog. However the piece neglected to mention one of the most important reasons why people might opt to rent rather than own: the insecurity of their employment situation.
It is usually not a good idea to spend the large overhead costs associated with buying a home unless you have a secure job where you can expect to stay many years into the future. As stable jobs become rarer in the economy (median job tenure has fallen sharply over the last three decades), homeownership is likely to make sense for a smaller segment of the population. If the trend towards shorter job tenure continues we should see further declines in the ownership rate in the years ahead.
The piece also errors in implying that rental prices are rising substantially faster than other prices. For these sorts of comparisons it is best to use the owner equivalent rent (OER) measure, which pulls out utilities that are often included in the rent measure.
The graph shows that this measure of rent has somewhat outpaced core inflation over the last few years, but this followed several years in which OER rose less rapidly than the core rate of inflation. Since January of 2006, the OER has risen by 3.0 percentage points more than the core inflation rate.
Emily Badger had an interesting discussion of the decline of homeownership in Wonkblog. However the piece neglected to mention one of the most important reasons why people might opt to rent rather than own: the insecurity of their employment situation.
It is usually not a good idea to spend the large overhead costs associated with buying a home unless you have a secure job where you can expect to stay many years into the future. As stable jobs become rarer in the economy (median job tenure has fallen sharply over the last three decades), homeownership is likely to make sense for a smaller segment of the population. If the trend towards shorter job tenure continues we should see further declines in the ownership rate in the years ahead.
The piece also errors in implying that rental prices are rising substantially faster than other prices. For these sorts of comparisons it is best to use the owner equivalent rent (OER) measure, which pulls out utilities that are often included in the rent measure.
The graph shows that this measure of rent has somewhat outpaced core inflation over the last few years, but this followed several years in which OER rose less rapidly than the core rate of inflation. Since January of 2006, the OER has risen by 3.0 percentage points more than the core inflation rate.
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