There have been numerous articles and columns about how China is going to suffer because of its one child policy. The story is that there will be very few workers to support the growing population of retirees.
Well, just when you thought it couldn’t get any worse, it turns out that robots are coming to take the jobs of the few workers China still has. How are they ever going to be able to support their retirees now?
Yes, these are completely opposite stories. It’s too hot and too cold. It’s too wet and too dry.
Look, there can be some truth to either of these stories. The first story is one where there is a problem of too little supply. Everyone is retired and there are not enough workers left to care for the elderly.
The second story is one of too little demand. The robots are doing all the work so no one has a paycheck to pay for the things they need. In this story, the robots are caring for the retirees, we don’t need any workers to do it.
The fact that both of these stories can be told by people with claims to being serious speaks volumes about the state of economic debate in policy circles. Why do people put up with economists?
There have been numerous articles and columns about how China is going to suffer because of its one child policy. The story is that there will be very few workers to support the growing population of retirees.
Well, just when you thought it couldn’t get any worse, it turns out that robots are coming to take the jobs of the few workers China still has. How are they ever going to be able to support their retirees now?
Yes, these are completely opposite stories. It’s too hot and too cold. It’s too wet and too dry.
Look, there can be some truth to either of these stories. The first story is one where there is a problem of too little supply. Everyone is retired and there are not enough workers left to care for the elderly.
The second story is one of too little demand. The robots are doing all the work so no one has a paycheck to pay for the things they need. In this story, the robots are caring for the retirees, we don’t need any workers to do it.
The fact that both of these stories can be told by people with claims to being serious speaks volumes about the state of economic debate in policy circles. Why do people put up with economists?
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The NYT told readers that the budget deficit in the first nine months of the 2015 fiscal year was $365.2 billion and is projected to be $486 billion for the whole year. Feel informed?
Odds are that most readers don’t have much basis for determining whether this deficit is big or small (yes, it is lots of money). In times past the NYT had committed itself to putting numbers like this in some context that would make it understandable to readers. For fans of such context, the deficit is a bit less than 2.7 percent of GDP. It is somewhat smaller by this measure than last year’s deficit and is causing the debt to GDP ratio to edge downward.
That might have been useful information for readers. As it is, the NYT told readers that the deficit is a really big number.
The NYT told readers that the budget deficit in the first nine months of the 2015 fiscal year was $365.2 billion and is projected to be $486 billion for the whole year. Feel informed?
Odds are that most readers don’t have much basis for determining whether this deficit is big or small (yes, it is lots of money). In times past the NYT had committed itself to putting numbers like this in some context that would make it understandable to readers. For fans of such context, the deficit is a bit less than 2.7 percent of GDP. It is somewhat smaller by this measure than last year’s deficit and is causing the debt to GDP ratio to edge downward.
That might have been useful information for readers. As it is, the NYT told readers that the deficit is a really big number.
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The man who said he endorses any trade deal that has the words “free trade,” and said that the Germans would insist Greeks work shorter hours as a condition of a bailout is talking about economics again.
Citing a McKinsey study, Friedman tells readers:
“Millions of people can’t find work, ‘yet sectors from technology to health care cannot find people to fill open positions. Many who do work feel overqualified or underutilized.'”
The situation where workers can’t find work or take jobs for which they are overqualified is what would be expected in an economy that is suffering from a lack of demand. The best remedy for a lack of demand is to generate more demand (i.e. spend money). The government can do this by running larger budget deficits. We can also generate more demand by reducing the size of the trade deficit through a lower valued dollar. We can also create demand for more workers by creating incentives for reducing the average number of hours that each worker works in a year, as Germany has done. All of these are fairly simple stories that don’t require using big data or the new complex matching programs that Friedman is touting.
What about the sectors that cannot find people to fill positions? Well skepticism is in order here. Where do we see rapidly rising wages? The answer is pretty much nowhere. This suggests that sectors are not really having trouble filling positions. Higher pay is how employers ordinarily attract more workers, if employers aren’t raising wages then we can reasonably assume they don’t think they have trouble getting the workers they need. That doesn’t mean employers don’t complain. They are always looking for handouts from the government and complaining is the best way to get them.
Of course, it is possible that we have a serious skills gap, as Friedman tells us in the very next sentence in his piece. However it is among corporate managers who don’t understand how labor markets work. They apparently don’t understand that if they can’t get the workers they need then they have to offer higher pay. Maybe a two week training course for top managers could do the trick?
Note: This is slightly revised from a version earlier this morning.
The man who said he endorses any trade deal that has the words “free trade,” and said that the Germans would insist Greeks work shorter hours as a condition of a bailout is talking about economics again.
Citing a McKinsey study, Friedman tells readers:
“Millions of people can’t find work, ‘yet sectors from technology to health care cannot find people to fill open positions. Many who do work feel overqualified or underutilized.'”
The situation where workers can’t find work or take jobs for which they are overqualified is what would be expected in an economy that is suffering from a lack of demand. The best remedy for a lack of demand is to generate more demand (i.e. spend money). The government can do this by running larger budget deficits. We can also generate more demand by reducing the size of the trade deficit through a lower valued dollar. We can also create demand for more workers by creating incentives for reducing the average number of hours that each worker works in a year, as Germany has done. All of these are fairly simple stories that don’t require using big data or the new complex matching programs that Friedman is touting.
What about the sectors that cannot find people to fill positions? Well skepticism is in order here. Where do we see rapidly rising wages? The answer is pretty much nowhere. This suggests that sectors are not really having trouble filling positions. Higher pay is how employers ordinarily attract more workers, if employers aren’t raising wages then we can reasonably assume they don’t think they have trouble getting the workers they need. That doesn’t mean employers don’t complain. They are always looking for handouts from the government and complaining is the best way to get them.
Of course, it is possible that we have a serious skills gap, as Friedman tells us in the very next sentence in his piece. However it is among corporate managers who don’t understand how labor markets work. They apparently don’t understand that if they can’t get the workers they need then they have to offer higher pay. Maybe a two week training course for top managers could do the trick?
Note: This is slightly revised from a version earlier this morning.
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Yes folks, it’s desperation time for the supporters of the Trans-Pacific Partnership (TPP). To get this sucker through they will say anything, because hey, making stuff up for the cause always sells in official Washington.
In his Washington Post column, George Will argued for the TPP because we need it to increase growth. He pointed to the 0.7 percent drop in GDP in the first quarter as illustrating the problem. (This decline was of course mostly due to the weather, but whatever.) If we view this reported drop in GDP as the problem, and the TPP as the solution, then according to the most optimistic estimates available, we will have eliminated roughly half the problem more than a decade from now when the effects of the TPP are fully felt. According to projections from the Peterson Institute for International Economics, the TPP will eventually increase GDP by 0.38 percentage points.
This study shows gains that are more than twice as large as an earlier version. An analysis by the United States Department of Agriculture showed minimal gains.
These analyses are all likely to overstate the gains from the TPP since none of them factor in the higher costs for drugs and other products as a result of the stronger and longer patent and copyright protections in the TPP. These protections are equivalent to massive tariffs barriers. In the case of prescription drugs, patents can raise the price a hundredfold, the equivalent of a tariff of 10,000 percent. And, as econ textbook fans everywhere know, tariff barriers lead to distortions and corruption.
It is quite likely that if these higher prices were factored into the analysis, the TPP would be shown to reduce growth. (We spend over $400 billion a year on pharmaceuticals alone, or 2.2 percent of GDP.) But no one would want the evidence to undermine a trade deal that will give more money to rich people.
Yes folks, it’s desperation time for the supporters of the Trans-Pacific Partnership (TPP). To get this sucker through they will say anything, because hey, making stuff up for the cause always sells in official Washington.
In his Washington Post column, George Will argued for the TPP because we need it to increase growth. He pointed to the 0.7 percent drop in GDP in the first quarter as illustrating the problem. (This decline was of course mostly due to the weather, but whatever.) If we view this reported drop in GDP as the problem, and the TPP as the solution, then according to the most optimistic estimates available, we will have eliminated roughly half the problem more than a decade from now when the effects of the TPP are fully felt. According to projections from the Peterson Institute for International Economics, the TPP will eventually increase GDP by 0.38 percentage points.
This study shows gains that are more than twice as large as an earlier version. An analysis by the United States Department of Agriculture showed minimal gains.
These analyses are all likely to overstate the gains from the TPP since none of them factor in the higher costs for drugs and other products as a result of the stronger and longer patent and copyright protections in the TPP. These protections are equivalent to massive tariffs barriers. In the case of prescription drugs, patents can raise the price a hundredfold, the equivalent of a tariff of 10,000 percent. And, as econ textbook fans everywhere know, tariff barriers lead to distortions and corruption.
It is quite likely that if these higher prices were factored into the analysis, the TPP would be shown to reduce growth. (We spend over $400 billion a year on pharmaceuticals alone, or 2.2 percent of GDP.) But no one would want the evidence to undermine a trade deal that will give more money to rich people.
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Economic reporting is far too focused on short-term fluctuations that often have little relationship to the underlying trend growth in the economy. Last fall this focus led to many celebrations of a turn around in the economy with many pronouncements that the United States was back on top in terms of growth.
The celebrations quickly turned to despair as bad winter weather led to a drop in GDP in the first quarter. There was much hand-wringing over why consumers were not spending their dividend from lower gas prices. (Somehow the hand-wringers never bothered to notice that consumption was at a near record high as a share of the GDP.)
This hand-wringing hit its peak earlier this month with this “letter to stingy American consumers” in the Wall Street Journal. In the letter the WSJ begged consumers to start spending again. Apparently they got the message retroactively. The Commerce Department reported today that retail sales jumped 1.2 percent in May, with April’s data revised up from no change to an increase of 0.2 percent.
So it looks like consumers are again spending their cheap-gas dividend and the economy is safely back on its slow growth track. Needless to say, we will probably have another round of celebrations as people look at the strong growth in May and tout a new boom, forgetting that the cause is a bounceback from the winter weakness. At least it gives economists and economics reporters something to do.
Economic reporting is far too focused on short-term fluctuations that often have little relationship to the underlying trend growth in the economy. Last fall this focus led to many celebrations of a turn around in the economy with many pronouncements that the United States was back on top in terms of growth.
The celebrations quickly turned to despair as bad winter weather led to a drop in GDP in the first quarter. There was much hand-wringing over why consumers were not spending their dividend from lower gas prices. (Somehow the hand-wringers never bothered to notice that consumption was at a near record high as a share of the GDP.)
This hand-wringing hit its peak earlier this month with this “letter to stingy American consumers” in the Wall Street Journal. In the letter the WSJ begged consumers to start spending again. Apparently they got the message retroactively. The Commerce Department reported today that retail sales jumped 1.2 percent in May, with April’s data revised up from no change to an increase of 0.2 percent.
So it looks like consumers are again spending their cheap-gas dividend and the economy is safely back on its slow growth track. Needless to say, we will probably have another round of celebrations as people look at the strong growth in May and tout a new boom, forgetting that the cause is a bounceback from the winter weakness. At least it gives economists and economics reporters something to do.
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Several news articles have reported on the potential costs of the Obama administration’s plans to forgive some of the student debt associated with Corinthian Colleges. Corinthian is a for-profit college that recently went bankrupt. It has been accused of using fraudulent tactics to get students to take out large loans to pay for its tuition.
In projecting the costs to the government, these pieces neglect to take account of the positive effect on incentives that eliminating this debt would have. As it stands, heavily indebted students could expect to have a large portion of any money they earn taken away from them to repay their debts. This acts as a strong disincentive to work (or possibly an incentive to work off the books) in the same way that a high tax rate would provide a disincentive to work.
It is reasonable to believe that these former students will work more and pay more taxes if their debt is forgiven. This would offset some of the money that the government would lose by forgiving the debt. While this offset is not likely to be close to the face value of the debt, it is very plausible that in many cases the additional tax revenue would be comparable to what the government would eventually collect on the debt if it were not forgiven. (Much of the debt will never be repaid regardless of whether the government forgives it.) In other words, forgiving the debt of former Corinthian students may be much less than indicated in these pieces.
Several news articles have reported on the potential costs of the Obama administration’s plans to forgive some of the student debt associated with Corinthian Colleges. Corinthian is a for-profit college that recently went bankrupt. It has been accused of using fraudulent tactics to get students to take out large loans to pay for its tuition.
In projecting the costs to the government, these pieces neglect to take account of the positive effect on incentives that eliminating this debt would have. As it stands, heavily indebted students could expect to have a large portion of any money they earn taken away from them to repay their debts. This acts as a strong disincentive to work (or possibly an incentive to work off the books) in the same way that a high tax rate would provide a disincentive to work.
It is reasonable to believe that these former students will work more and pay more taxes if their debt is forgiven. This would offset some of the money that the government would lose by forgiving the debt. While this offset is not likely to be close to the face value of the debt, it is very plausible that in many cases the additional tax revenue would be comparable to what the government would eventually collect on the debt if it were not forgiven. (Much of the debt will never be repaid regardless of whether the government forgives it.) In other words, forgiving the debt of former Corinthian students may be much less than indicated in these pieces.
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There is a widely circulated story in policy circles that public sector unions are to blame for underfunded public pensions. The story is that the unions effectively make deals with politicians they support to get generous pensions and leave the funding for people to deal with in the future.
In fact, there is little evidence to support this story, as many states with weak or no public sector unions rank near the bottom in pension funding, while some states with strong unions, like New York and Wisconsin, have pensions that are near full funding. Nonetheless, the story is still widely believed.
A ruling by New Jersey’s Supreme Court yesterday should help to kill this story once and for all. The basic issue was whether the unions could hold the governor to an agreement where he had agreed to make payments into the pension funds in exchange for concessions from the workers. The court said no, the governor and the legislature could not be bound by any deal.
In other words, whether or not required payments are made to pensions, at least in New Jersey, is entirely up to the legislature and the governor. The unions have no voice in the matter.
It should be pretty hard to blame the unions in this situation, but that doesn’t mean folks will stop doing it.
There is a widely circulated story in policy circles that public sector unions are to blame for underfunded public pensions. The story is that the unions effectively make deals with politicians they support to get generous pensions and leave the funding for people to deal with in the future.
In fact, there is little evidence to support this story, as many states with weak or no public sector unions rank near the bottom in pension funding, while some states with strong unions, like New York and Wisconsin, have pensions that are near full funding. Nonetheless, the story is still widely believed.
A ruling by New Jersey’s Supreme Court yesterday should help to kill this story once and for all. The basic issue was whether the unions could hold the governor to an agreement where he had agreed to make payments into the pension funds in exchange for concessions from the workers. The court said no, the governor and the legislature could not be bound by any deal.
In other words, whether or not required payments are made to pensions, at least in New Jersey, is entirely up to the legislature and the governor. The unions have no voice in the matter.
It should be pretty hard to blame the unions in this situation, but that doesn’t mean folks will stop doing it.
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No one expects much consistency from Washington politicians or the Washington Post, but the latest episode in the Trans-Pacific Partnership (TPP) should be over the top even for this crew. Wikileaks published the text of a leaked health care annex. The annex spells out a set of rules that public health care programs must follow in deciding which drugs and procedures to cover. This will be subject to review and in principle can be contested through the investor state dispute settlement (ISDS) tribunals.
This means that if Pfizer comes up with a drug, for which it charges $150,000 per treatment, that is no more effective than the generic that costs $100 per treatment, it can contest the decision of Medicare or another country’s health service not to pay for it. And, if it loses in the review process, it can take the complaint to an ISDS panel where it will get to appoint one of the three members.
Needless to say, this process is likely to raise the costs of Medicare and other public health systems considerably. That will undoubtedly lead to more calls for austerity from folks like the WaPo and other supporters of TPP, since we all know we can’t afford the exploding cost of Medicare.
No one expects much consistency from Washington politicians or the Washington Post, but the latest episode in the Trans-Pacific Partnership (TPP) should be over the top even for this crew. Wikileaks published the text of a leaked health care annex. The annex spells out a set of rules that public health care programs must follow in deciding which drugs and procedures to cover. This will be subject to review and in principle can be contested through the investor state dispute settlement (ISDS) tribunals.
This means that if Pfizer comes up with a drug, for which it charges $150,000 per treatment, that is no more effective than the generic that costs $100 per treatment, it can contest the decision of Medicare or another country’s health service not to pay for it. And, if it loses in the review process, it can take the complaint to an ISDS panel where it will get to appoint one of the three members.
Needless to say, this process is likely to raise the costs of Medicare and other public health systems considerably. That will undoubtedly lead to more calls for austerity from folks like the WaPo and other supporters of TPP, since we all know we can’t afford the exploding cost of Medicare.
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Just kidding, in a piece noting high levels of youth disengagement from the labor market (neither employed, nor looking for work) Samuelson complains:
“Those with jobs subsidize their usually better-off elders through Social Security and Medicare payroll taxes.”
Of course workers pay for these benefits. On average workers pay slightly more for their Social Security than the benefits they can expect to get back in retirement. They pay less than the cost of Medicare benefits, but this is because protectionists dominate policy in the United States and keep trade barriers in place that keep health care costs close to twice as high in other wealthy countries. Therefore it would be more accurate to say that their payroll taxes subsidize the income of doctors and drug companies.
It is true that in the current year Social Security and Medicare beneficiaries are not paying for their benefits, but if we ignore past payments, as Samuelson appears to be doing, then we should also ignore the fact that Peter Peterson and other wealthy people paid for the government bonds they own. From this perspective, we can then say that the interest paid on government bonds is simply a subsidy to the people who collect it.
Samuelson is right to note the high rates of non-employment among young people. The obvious solution would be to have government have big stimulus programs that could employ millions of young people. Unfortunately, deficit hawks (like Robert Samuelson) have forced government to go in the opposite direction and pursue policies of austerity.
In light of Samuelson’s complain about subsidies for the old, it is worth noting his comment:
“To be sure, there are correctives. … Older workers will retire or die, opening up permanent slots for the young.”
The rate at which older workers retire will depend in large part on whether they can survive on their Social Security benefits. If these are made less generous, then we would expect fewer older workers to retire, leaving fewer jobs for young people.
Just kidding, in a piece noting high levels of youth disengagement from the labor market (neither employed, nor looking for work) Samuelson complains:
“Those with jobs subsidize their usually better-off elders through Social Security and Medicare payroll taxes.”
Of course workers pay for these benefits. On average workers pay slightly more for their Social Security than the benefits they can expect to get back in retirement. They pay less than the cost of Medicare benefits, but this is because protectionists dominate policy in the United States and keep trade barriers in place that keep health care costs close to twice as high in other wealthy countries. Therefore it would be more accurate to say that their payroll taxes subsidize the income of doctors and drug companies.
It is true that in the current year Social Security and Medicare beneficiaries are not paying for their benefits, but if we ignore past payments, as Samuelson appears to be doing, then we should also ignore the fact that Peter Peterson and other wealthy people paid for the government bonds they own. From this perspective, we can then say that the interest paid on government bonds is simply a subsidy to the people who collect it.
Samuelson is right to note the high rates of non-employment among young people. The obvious solution would be to have government have big stimulus programs that could employ millions of young people. Unfortunately, deficit hawks (like Robert Samuelson) have forced government to go in the opposite direction and pursue policies of austerity.
In light of Samuelson’s complain about subsidies for the old, it is worth noting his comment:
“To be sure, there are correctives. … Older workers will retire or die, opening up permanent slots for the young.”
The rate at which older workers retire will depend in large part on whether they can survive on their Social Security benefits. If these are made less generous, then we would expect fewer older workers to retire, leaving fewer jobs for young people.
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