The Washington Post ran a piece on Glenn Hubbard, the chief economic adviser to President George W. Bush and now an adviser to Jeb Bush, which ignored much of Mr. Hubbard’s history. For example, it told readers:
“Hubbard believes that for too long, the United States has only experienced rapid growth in the midst of what he calls ‘bubble economies,’ which don’t deliver broadly shared prosperity to workers. For example, he blames the Federal Reserve for stoking a bubble in the mid-2000s by keeping interest rates too low for too long.”
While the piece notes that Hubbard had been an adviser to Bush during part of this period, it neglects to tell readers that he never said anything about the housing bubble. In other words, Hubbard’s analysis is 100 percent hindsight, he completely missed the $8 trillion housing bubble, the collapse of which has devastated the economy.
He is also mistaken in claiming that bubbles cannot lead to “broadly shared prosperity to workers.” During the 1990s stock bubble, the unemployment rate eventually fell as low as 4.0 percent. During these years workers at the middle and bottom of the wage distribution saw healthy wage gains. The problem is that this growth could not be enduring, since it was based on a bubble.
It also would have been useful to remind readers that Hubbard had done excellent research indicating the Bush tax cuts would not be likely to have the promised effect of increasing investment. Hubbard’s research showed that investment is very unresponsive to reductions in the interest rate. The stated goal of tax cuts directed at high income households was to give them more incentive to save and thereby lower interest rates. If investment is unresponsive to a reduction in interest rates, then this is unlikely to be an effective route to boosting investment and growth.
Addendum:
My colleague, Nicholas Buffie, calls my attention to a paper that Professor Hubbard co-authored for Goldman Sach’s Global Markets Institute in 2004, near the peak of the bubble. The executive summary of the paper told readers:
“The ascendancy of the US capital markets — including increasing depth of US stock, bond, and derivative markets — has improved the allocation of capital and of risk throughout the US economy. Evidence includes the higher returns on capital in the US compared to elsewhere; the persistent, large inflows of capital to the US from abroad; the enhanced stability of the US banking system; and the ability of new companies to raise funds. The same conclusions apply to the United Kingdom, where the capital markets are also well-developed.” [emphasis added]
“The development of the capital markets has also facilitated a revolution in housing finance. As a result, the proportion of households in the US that own their homes has risen substantially over the past decade.”
“The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur. As a result, upward spikes in the unemployment rate have occurred less frequently and have become less severe.”
The Washington Post ran a piece on Glenn Hubbard, the chief economic adviser to President George W. Bush and now an adviser to Jeb Bush, which ignored much of Mr. Hubbard’s history. For example, it told readers:
“Hubbard believes that for too long, the United States has only experienced rapid growth in the midst of what he calls ‘bubble economies,’ which don’t deliver broadly shared prosperity to workers. For example, he blames the Federal Reserve for stoking a bubble in the mid-2000s by keeping interest rates too low for too long.”
While the piece notes that Hubbard had been an adviser to Bush during part of this period, it neglects to tell readers that he never said anything about the housing bubble. In other words, Hubbard’s analysis is 100 percent hindsight, he completely missed the $8 trillion housing bubble, the collapse of which has devastated the economy.
He is also mistaken in claiming that bubbles cannot lead to “broadly shared prosperity to workers.” During the 1990s stock bubble, the unemployment rate eventually fell as low as 4.0 percent. During these years workers at the middle and bottom of the wage distribution saw healthy wage gains. The problem is that this growth could not be enduring, since it was based on a bubble.
It also would have been useful to remind readers that Hubbard had done excellent research indicating the Bush tax cuts would not be likely to have the promised effect of increasing investment. Hubbard’s research showed that investment is very unresponsive to reductions in the interest rate. The stated goal of tax cuts directed at high income households was to give them more incentive to save and thereby lower interest rates. If investment is unresponsive to a reduction in interest rates, then this is unlikely to be an effective route to boosting investment and growth.
Addendum:
My colleague, Nicholas Buffie, calls my attention to a paper that Professor Hubbard co-authored for Goldman Sach’s Global Markets Institute in 2004, near the peak of the bubble. The executive summary of the paper told readers:
“The ascendancy of the US capital markets — including increasing depth of US stock, bond, and derivative markets — has improved the allocation of capital and of risk throughout the US economy. Evidence includes the higher returns on capital in the US compared to elsewhere; the persistent, large inflows of capital to the US from abroad; the enhanced stability of the US banking system; and the ability of new companies to raise funds. The same conclusions apply to the United Kingdom, where the capital markets are also well-developed.” [emphasis added]
“The development of the capital markets has also facilitated a revolution in housing finance. As a result, the proportion of households in the US that own their homes has risen substantially over the past decade.”
“The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur. As a result, upward spikes in the unemployment rate have occurred less frequently and have become less severe.”
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An NYT article on the prospects of a deal between Greece and its creditors left this item off its list of the risks from Greece leaving the euro. If Greece were to leave the euro, its exports, most importantly tourism, would be hyper-competitive. This would likely lead to a huge increase in its business as travelers from Europe and the United States opt to visit Greece rather than other tourist destinations.
This could lead to the same sort of rebound that Iceland saw after its initial collapse. This would be hugely embarrassing to the I.M.F., the European Commission, and the European Central Bank, which have forced Greece to endure a depression and demand policies that will likely leave it with depression levels of unemployment for at least another decade.
This outcome will be especially painful for political leaders in countries like Spain and Portugal, both because they have imposed comparable depressions on their own populations and also because they will be directly hit by the loss of tourism to Greece. From their perspective, a successful Grexit would be the worst possible outcome.
An NYT article on the prospects of a deal between Greece and its creditors left this item off its list of the risks from Greece leaving the euro. If Greece were to leave the euro, its exports, most importantly tourism, would be hyper-competitive. This would likely lead to a huge increase in its business as travelers from Europe and the United States opt to visit Greece rather than other tourist destinations.
This could lead to the same sort of rebound that Iceland saw after its initial collapse. This would be hugely embarrassing to the I.M.F., the European Commission, and the European Central Bank, which have forced Greece to endure a depression and demand policies that will likely leave it with depression levels of unemployment for at least another decade.
This outcome will be especially painful for political leaders in countries like Spain and Portugal, both because they have imposed comparable depressions on their own populations and also because they will be directly hit by the loss of tourism to Greece. From their perspective, a successful Grexit would be the worst possible outcome.
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The NYT had a piece on efforts to encourage doctors to assess the price and relative effectiveness of drugs when writing prescriptions for cancer patients. It notes that drug companies charge $10,000-$30,000 a month for many of the new cancer drugs. It then comments on the suggestion that doctors should take these costs into account in deciding treatment:
“Evaluating the latter cost would put doctors in the role of being stewards of societal resources. That is somewhat of a controversial role for doctors, since it might conflict with their duty to the patient in front of them.”
It is important to note that doctors are not exactly in the role of deciding whether resources would be allocated to developing these cancer drugs, since that decision would have already been made. The resources devoted to developing the drugs have already been used at the point where doctors are deciding whether to prescribe them. The doctors’ decision only determines how much drug companies will profit as a result of committing these resources.
This is an important distinction. Obviously profits will affect the drug companies decisions on future research, but at the point where the drug exists, it costs society very little to make it available to every patient who would benefit. It is only due to patent monopolies that we get such a sharp divergence between the price facing the patient or insurer and the cost to society.
The NYT had a piece on efforts to encourage doctors to assess the price and relative effectiveness of drugs when writing prescriptions for cancer patients. It notes that drug companies charge $10,000-$30,000 a month for many of the new cancer drugs. It then comments on the suggestion that doctors should take these costs into account in deciding treatment:
“Evaluating the latter cost would put doctors in the role of being stewards of societal resources. That is somewhat of a controversial role for doctors, since it might conflict with their duty to the patient in front of them.”
It is important to note that doctors are not exactly in the role of deciding whether resources would be allocated to developing these cancer drugs, since that decision would have already been made. The resources devoted to developing the drugs have already been used at the point where doctors are deciding whether to prescribe them. The doctors’ decision only determines how much drug companies will profit as a result of committing these resources.
This is an important distinction. Obviously profits will affect the drug companies decisions on future research, but at the point where the drug exists, it costs society very little to make it available to every patient who would benefit. It is only due to patent monopolies that we get such a sharp divergence between the price facing the patient or insurer and the cost to society.
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The Wall Street Journal was good enough to give us “our entitlement problem for the next generation in one CBO chart.” The featured chart shows the projected discounted cost of Medicare benefits compared with the discounted value of the taxes paid in. It shows that the former is around three times the latter for the baby boom cohorts.
While this may look like the baby boomers are getting a real bonanza on their health care the real story is that the doctors and the drug companies are getting a real windfall at the expense of the rest of the country. Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. There is little evidence they provide anything in the form of better service for this money, they just get much richer.
The doctors and other providers are able to largely limit domestic competition through their control of licensing and the setting of health care standards. They also obstruct any efforts to open up health care to international competition for example by allowing Medicare beneficiaries to buy into the health care systems of other countries (yes, this would have to be negotiated — sort of like the TPP) or by increasing the number of foreign trained doctors who practice in the United States.
Anyhow, if we paid the same per person amount for health care as people in other wealthy countries, most of the gap between the cost of Medicare and Medicare taxes would disappear. Therefore we can more accurately say this is a picture of our health care cost problem in one graph. The power of the health care providers makes it very difficult politically to fix this problem, but it should at least be possible to talk about it.
The Wall Street Journal was good enough to give us “our entitlement problem for the next generation in one CBO chart.” The featured chart shows the projected discounted cost of Medicare benefits compared with the discounted value of the taxes paid in. It shows that the former is around three times the latter for the baby boom cohorts.
While this may look like the baby boomers are getting a real bonanza on their health care the real story is that the doctors and the drug companies are getting a real windfall at the expense of the rest of the country. Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. There is little evidence they provide anything in the form of better service for this money, they just get much richer.
The doctors and other providers are able to largely limit domestic competition through their control of licensing and the setting of health care standards. They also obstruct any efforts to open up health care to international competition for example by allowing Medicare beneficiaries to buy into the health care systems of other countries (yes, this would have to be negotiated — sort of like the TPP) or by increasing the number of foreign trained doctors who practice in the United States.
Anyhow, if we paid the same per person amount for health care as people in other wealthy countries, most of the gap between the cost of Medicare and Medicare taxes would disappear. Therefore we can more accurately say this is a picture of our health care cost problem in one graph. The power of the health care providers makes it very difficult politically to fix this problem, but it should at least be possible to talk about it.
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Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.
If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.
On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.
In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.
Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.
If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.
On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.
In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.
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The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.
He then asks the obvious question as to why employers don’t raise wages if they aren’t getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.
This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.
For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.
We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don’t realize they can attract more skilled workers by offering higher wages.
It’s got to be pretty much one or the other; take your pick.
The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.
He then asks the obvious question as to why employers don’t raise wages if they aren’t getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.
This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.
For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.
We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don’t realize they can attract more skilled workers by offering higher wages.
It’s got to be pretty much one or the other; take your pick.
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Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece’s leftist government for what Will considers its lack of realism and ineptitude. Then he points out:
“Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ….
“It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.”
But the problem with Will’s logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.
It is therefore difficult to understand how this is a “socialist smashup.” All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.
The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a “crony capitalism smashup.” It only fits the bill of a “socialist smashup” in Will’s imagination.
Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece’s leftist government for what Will considers its lack of realism and ineptitude. Then he points out:
“Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ….
“It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.”
But the problem with Will’s logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.
It is therefore difficult to understand how this is a “socialist smashup.” All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.
The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a “crony capitalism smashup.” It only fits the bill of a “socialist smashup” in Will’s imagination.
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The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.
This table compares the I.M.F.’s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.
|
Gap from 2007 Level |
|||
|
|
Per capita GDP |
Employment |
U.S. equivalent |
|
Ireland |
-4.40% |
-8.90% |
-13.35M |
|
Italy |
-11.50% |
-3.10% |
-4.65M |
|
Portugal |
-4.60% |
-11.50% |
-16.7M |
|
Spain |
-5.10% |
-14% |
-21.0M |
Source: I.M.F.
This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.
The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.
Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.
The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.
This table compares the I.M.F.’s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.
|
Gap from 2007 Level |
|||
|
|
Per capita GDP |
Employment |
U.S. equivalent |
|
Ireland |
-4.40% |
-8.90% |
-13.35M |
|
Italy |
-11.50% |
-3.10% |
-4.65M |
|
Portugal |
-4.60% |
-11.50% |
-16.7M |
|
Spain |
-5.10% |
-14% |
-21.0M |
Source: I.M.F.
This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.
The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.
Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.
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In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:
“President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis.”
It’s interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don’t say what they actually think.
For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.
Lane continues:
“Labor is waging this counter-majoritarian battle [against fast-track] in the name of ‘working people,’ who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous ‘bad’ trade deals.
“Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force.”
The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It’s an interesting position, but understandable from someone who can read the president’s mind.
In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:
“President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis.”
It’s interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don’t say what they actually think.
For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.
Lane continues:
“Labor is waging this counter-majoritarian battle [against fast-track] in the name of ‘working people,’ who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous ‘bad’ trade deals.
“Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force.”
The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It’s an interesting position, but understandable from someone who can read the president’s mind.
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