Remember the robots that are going to take all our jobs leaving us unemployed? Apparently they don’t have robots in Europe. That’s the story readers would get from a mostly useful set of charts in the Washington Post comparing Greece and Germany.
Underneath the chart comparing the populations of the two countries the article tells readers:
“Despite the difference, both countries share a troubling trend: a shrinking population. Europe is experiencing a demographic time bomb as the continent ages and birth rates fall, leading to questions about whether there will be enough workers to power a dynamic economy in the decades to come.”
This is of course 180 degrees at odds with the robots making us all unemployed story. That is a story of too many workers. The Post is telling us here a story of too few workers. It is possible for one or the other to be true, but not both. Only a D.C. policy wonk could possibly take both problems seriously.
As a practical matter, we are likely to see productivity growth in the future comparable to what we have seen in the past. At the low end, it would be around 1.5 percent a year. At the high end we could envision getting back to the Golden Age (1947–73) rates of growth of 3.0 percent. The low end would still leave us easily able to care for our aging population and enjoy rising standard of livings. (Guess what, we have always had an aging population.) The high end should allow for more rapid improvements in living standards but there is no more reason to think that it would lead to mass unemployment than did the Golden Age productivity growth.
Remember the robots that are going to take all our jobs leaving us unemployed? Apparently they don’t have robots in Europe. That’s the story readers would get from a mostly useful set of charts in the Washington Post comparing Greece and Germany.
Underneath the chart comparing the populations of the two countries the article tells readers:
“Despite the difference, both countries share a troubling trend: a shrinking population. Europe is experiencing a demographic time bomb as the continent ages and birth rates fall, leading to questions about whether there will be enough workers to power a dynamic economy in the decades to come.”
This is of course 180 degrees at odds with the robots making us all unemployed story. That is a story of too many workers. The Post is telling us here a story of too few workers. It is possible for one or the other to be true, but not both. Only a D.C. policy wonk could possibly take both problems seriously.
As a practical matter, we are likely to see productivity growth in the future comparable to what we have seen in the past. At the low end, it would be around 1.5 percent a year. At the high end we could envision getting back to the Golden Age (1947–73) rates of growth of 3.0 percent. The low end would still leave us easily able to care for our aging population and enjoy rising standard of livings. (Guess what, we have always had an aging population.) The high end should allow for more rapid improvements in living standards but there is no more reason to think that it would lead to mass unemployment than did the Golden Age productivity growth.
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The introduction to a Morning Edition segment on the response in Spain (sorry, no link) told listeners that Spain was undergoing austerity to pay down its “massive debt.” This is inaccurate. Spain did not have anything that can be remotely described as massive debt before the austerity policies imposed on the country by its creditors.
Prior to the collapse of the country’s housing bubble, Spain’s debt to GDP ratio was 26 percent, just over one-third of the U.S. level. It was running surpluses of more than 2.0 percent of GDP, the equivalent of a budget surplus of roughly $350 billion a year in the United States. (Its worth noting that Greece’s debt to GDP ratio was a much more manageable 107 percent of GDP before the crisis and austerity pushed it to 170 percent of GDP.)
The segment also is a bit out of line with reality in touting Spain’s economic success under austerity. It boasted that Spain had the strongest growth in the euro zone. This is an extremely low bar. Spain’s growth rate did not cross 3.0 percent last year and is not projected to do so this year. By contrast, it averaged almost 4.0 percent in the last two years before the crash. Countries recovering from steep downturns are expected to have faster than normal growth.
According to the I.M.F.’s growth projections (which have consistently proven to be overly optimistic) Spain’s per capita income will not surpass its 2007 level until 2018. This is a considerably worse than the situation faced by the United States in the Great Depression. The OECD puts Spain’s unemployment rate at 22.7 percent as of April.
The introduction to a Morning Edition segment on the response in Spain (sorry, no link) told listeners that Spain was undergoing austerity to pay down its “massive debt.” This is inaccurate. Spain did not have anything that can be remotely described as massive debt before the austerity policies imposed on the country by its creditors.
Prior to the collapse of the country’s housing bubble, Spain’s debt to GDP ratio was 26 percent, just over one-third of the U.S. level. It was running surpluses of more than 2.0 percent of GDP, the equivalent of a budget surplus of roughly $350 billion a year in the United States. (Its worth noting that Greece’s debt to GDP ratio was a much more manageable 107 percent of GDP before the crisis and austerity pushed it to 170 percent of GDP.)
The segment also is a bit out of line with reality in touting Spain’s economic success under austerity. It boasted that Spain had the strongest growth in the euro zone. This is an extremely low bar. Spain’s growth rate did not cross 3.0 percent last year and is not projected to do so this year. By contrast, it averaged almost 4.0 percent in the last two years before the crash. Countries recovering from steep downturns are expected to have faster than normal growth.
According to the I.M.F.’s growth projections (which have consistently proven to be overly optimistic) Spain’s per capita income will not surpass its 2007 level until 2018. This is a considerably worse than the situation faced by the United States in the Great Depression. The OECD puts Spain’s unemployment rate at 22.7 percent as of April.
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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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