It is always cute when a major news outlet decides to blame problems on a policy it doesn’t like in a new story. That is what the Wall Street Journal did today in a news story that told readers Puerto Rico’s main problem is having the same minimum wage as the rest of the United States.
While the minimum wage is clearly high relative to labor productivity in Puerto Rico, its economic performance over the last four decades cannot be reconciled with a story where the minimum wage is the main culprit. Puerto Rico’s minimum wage converged to the U.S. minimum wage over the period 1978 to 1983. In spite of this sharp increase in the minimum wage, Puerto Rico’s unemployment rate fell sharply from the 1970s to the 1980s as its economy experienced strong growth (figures 3 and 4). While the unemployment rate in Puerto Rico remained higher than in the United States, the general direction was downward until the recession hit in 2007.
This simple story suggests that the minimum wage cannot be the main culprit. It is certainly possible that the minimum wage may have led to somewhat higher unemployment than would otherwise be the case, but the cause of the Puerto Rico’s economic crisis must be elsewhere.
Note: An earlier version described the article as a front page story. The article did not run on the front page of the paper.
Further Note: The WSJ had a much fuller account of Puerto Rico’s economic problems earlier in the week.
It is always cute when a major news outlet decides to blame problems on a policy it doesn’t like in a new story. That is what the Wall Street Journal did today in a news story that told readers Puerto Rico’s main problem is having the same minimum wage as the rest of the United States.
While the minimum wage is clearly high relative to labor productivity in Puerto Rico, its economic performance over the last four decades cannot be reconciled with a story where the minimum wage is the main culprit. Puerto Rico’s minimum wage converged to the U.S. minimum wage over the period 1978 to 1983. In spite of this sharp increase in the minimum wage, Puerto Rico’s unemployment rate fell sharply from the 1970s to the 1980s as its economy experienced strong growth (figures 3 and 4). While the unemployment rate in Puerto Rico remained higher than in the United States, the general direction was downward until the recession hit in 2007.
This simple story suggests that the minimum wage cannot be the main culprit. It is certainly possible that the minimum wage may have led to somewhat higher unemployment than would otherwise be the case, but the cause of the Puerto Rico’s economic crisis must be elsewhere.
Note: An earlier version described the article as a front page story. The article did not run on the front page of the paper.
Further Note: The WSJ had a much fuller account of Puerto Rico’s economic problems earlier in the week.
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A NYT article reported on a new commitment by China to reduce its emissions of greenhouse gases. At one point it referred to China as the world’s second largest economy. Actually, using a purchasing power parity measure of GDP, which is the one most economists would use to measure an economy’s size, China passed the United States last year and is now close to 4 percent larger. (China’s economy would be about 6 percent larger if Hong Kong is included.)
In the context of GHG emissions it is important to note that a substantial portion of China’s emissions are associated with producing items for consumption in the United States and elsewhere. China has an overall trade surplus and a large surplus on manufactured goods.
A NYT article reported on a new commitment by China to reduce its emissions of greenhouse gases. At one point it referred to China as the world’s second largest economy. Actually, using a purchasing power parity measure of GDP, which is the one most economists would use to measure an economy’s size, China passed the United States last year and is now close to 4 percent larger. (China’s economy would be about 6 percent larger if Hong Kong is included.)
In the context of GHG emissions it is important to note that a substantial portion of China’s emissions are associated with producing items for consumption in the United States and elsewhere. China has an overall trade surplus and a large surplus on manufactured goods.
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The Washington Post ran a map showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they have not have been accepted into the euro zone.
This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.
The Washington Post ran a map showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they have not have been accepted into the euro zone.
This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.
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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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