The Washington Post likely misled many readers in an article on a Republican proposal to cut benefits for federal employees. It noted that the proposal calls for federal workers to increase the amount they pay for their pensions by 7 percent of their salary. It then quoted Richard Thissen, the president of the National Active and Retired Federal Employees Association, as saying that the higher contribution is,”nothing more than a pay cut for federal employees.”
This is not just the view of a person representing the affected workers. Virtually all economists would agree that requiring workers to pay more money for the same benefit amounts to a cut in pay. This is not really an arguable point, although the Post’s discussion of the topic likely led many readers to believe it is a matter of opinion.
The piece also errors in referring to the proposals of the “bipartisan Simpson-Bowles committee.” The commission actually did not make any proposals since its by-laws required that to be approved a proposal needed the support of 12 of the 16 members of the commission. Since no proposal got the necessary 12 votes it is inaccurate to refer to recommendations of the commission. The proposal in question was put forward by the co-chairs and had the support of 10 of the 16 commission members.
The Washington Post likely misled many readers in an article on a Republican proposal to cut benefits for federal employees. It noted that the proposal calls for federal workers to increase the amount they pay for their pensions by 7 percent of their salary. It then quoted Richard Thissen, the president of the National Active and Retired Federal Employees Association, as saying that the higher contribution is,”nothing more than a pay cut for federal employees.”
This is not just the view of a person representing the affected workers. Virtually all economists would agree that requiring workers to pay more money for the same benefit amounts to a cut in pay. This is not really an arguable point, although the Post’s discussion of the topic likely led many readers to believe it is a matter of opinion.
The piece also errors in referring to the proposals of the “bipartisan Simpson-Bowles committee.” The commission actually did not make any proposals since its by-laws required that to be approved a proposal needed the support of 12 of the 16 members of the commission. Since no proposal got the necessary 12 votes it is inaccurate to refer to recommendations of the commission. The proposal in question was put forward by the co-chairs and had the support of 10 of the 16 commission members.
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Okay, for the 64,512th time, it is net exports that contribute to GDP, not exports. Apparently this distinction is difficult for people involved in economic policy to understand since they keep making the same mistake.
The point is straightforward. If the United States increases its exports because GM is exporting car parts to be assembled in Mexico and then imported back as a finished car to the United States, it will not be a net job creator. We used to have jobs at assembly plants in the United States. These are being replaced by jobs in assembly plants in Mexico. In this story exports increase, but net exports (exports minus imports) fall. Fans of intro econ know the accounting identity that GDP = C + I + G +(X-M), where the X-M stands for exports minus imports.
This is why the NYT seriously misled readers in an article on the impact of the rising dollar when it wrote:
“the sharp rise of the dollar threatens to undercut one of the principal drivers of the recovery in recent years: strong export growth for American companies.”
While exports have been a positive for growth, imports have been an even larger negative. According to our good friends at the Bureau of Economic Analysis (Table 1.1.2), the fall in net exports reduced growth by 0.22 percentage points in 2014. They added the same amount to growth in 2013, but have been a net negative since 2010. Of course net exports will almost certainly be more of a drag on growth due to the recent rise in the dollar, but it is not true that they had previously been a driver of the recovery.
Okay, for the 64,512th time, it is net exports that contribute to GDP, not exports. Apparently this distinction is difficult for people involved in economic policy to understand since they keep making the same mistake.
The point is straightforward. If the United States increases its exports because GM is exporting car parts to be assembled in Mexico and then imported back as a finished car to the United States, it will not be a net job creator. We used to have jobs at assembly plants in the United States. These are being replaced by jobs in assembly plants in Mexico. In this story exports increase, but net exports (exports minus imports) fall. Fans of intro econ know the accounting identity that GDP = C + I + G +(X-M), where the X-M stands for exports minus imports.
This is why the NYT seriously misled readers in an article on the impact of the rising dollar when it wrote:
“the sharp rise of the dollar threatens to undercut one of the principal drivers of the recovery in recent years: strong export growth for American companies.”
While exports have been a positive for growth, imports have been an even larger negative. According to our good friends at the Bureau of Economic Analysis (Table 1.1.2), the fall in net exports reduced growth by 0.22 percentage points in 2014. They added the same amount to growth in 2013, but have been a net negative since 2010. Of course net exports will almost certainly be more of a drag on growth due to the recent rise in the dollar, but it is not true that they had previously been a driver of the recovery.
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That is the implication of his column touting the virtues of inequality. Will seems to think that we could not get people to work hard to master skills or to be great innovators if they didn’t have the prospect of earning billions or tens of billions of dollars. But if we look back through history we can identify an enormous number of tremendously talented and creative individuals who did not get fabulously wealthy or even have any plausible hope of getting fabulously wealthy.
Mays was of course well-paid, but adjusting for inflation, his best paychecks would probably be less than one-tenth of the pay of today’s stars. And, there is no shortage of great athletes, writers, musicians, and other performers who never even made Willie Mays type salaries. The same is true of inventors. Jonas Salk, the inventor of the first effective polio vaccine, undoubtedly had a comfortable standard of living, but nothing approaching the wealth of a Bill Gates or even Jamie Dimon.
In fact, if we look back to the period of relative equality from the end of World War II to 1980, the economy made far more rapid progress than it did in the next three and a half decades of rising inequality. If the argument is that people need material incentive to do their best work, then Will has a case. If the argument is that people need the motivation of immense wealth to work hard and innovate, then Will is demonstrably wrong.
Note: Links added, thanks to Robert Salzberg.
That is the implication of his column touting the virtues of inequality. Will seems to think that we could not get people to work hard to master skills or to be great innovators if they didn’t have the prospect of earning billions or tens of billions of dollars. But if we look back through history we can identify an enormous number of tremendously talented and creative individuals who did not get fabulously wealthy or even have any plausible hope of getting fabulously wealthy.
Mays was of course well-paid, but adjusting for inflation, his best paychecks would probably be less than one-tenth of the pay of today’s stars. And, there is no shortage of great athletes, writers, musicians, and other performers who never even made Willie Mays type salaries. The same is true of inventors. Jonas Salk, the inventor of the first effective polio vaccine, undoubtedly had a comfortable standard of living, but nothing approaching the wealth of a Bill Gates or even Jamie Dimon.
In fact, if we look back to the period of relative equality from the end of World War II to 1980, the economy made far more rapid progress than it did in the next three and a half decades of rising inequality. If the argument is that people need material incentive to do their best work, then Will has a case. If the argument is that people need the motivation of immense wealth to work hard and innovate, then Will is demonstrably wrong.
Note: Links added, thanks to Robert Salzberg.
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Just when you thought economics reporting could not get any worse, the NYT leads the way. The headline of a news article told readers that “Japan’s recovery is complicated by a decline in household savings.” The piece reports that consumption is now increasing (barely), but because real wages have not risen, it has led to a decline in household savings. The household saving rate in Japan is now negative. It then tells us that businesses are big savers, but that money is needed to finance the government’s budget deficit.
Okay, now if the NYT could find someone who had taken an intro econ course that person could explain to its reporters and editors that if consumers, businesses, or the government spends more money, it will lead to additional income and employment, and additional saving. If the economy is below full employment, its spending is not limited by its current saving. (If it’s not below full employment then it doesn’t have a problem with a recovery, by definition its economy would have already recovered.)
Anyhow, that’s what folks who learned economics would say.
Just when you thought economics reporting could not get any worse, the NYT leads the way. The headline of a news article told readers that “Japan’s recovery is complicated by a decline in household savings.” The piece reports that consumption is now increasing (barely), but because real wages have not risen, it has led to a decline in household savings. The household saving rate in Japan is now negative. It then tells us that businesses are big savers, but that money is needed to finance the government’s budget deficit.
Okay, now if the NYT could find someone who had taken an intro econ course that person could explain to its reporters and editors that if consumers, businesses, or the government spends more money, it will lead to additional income and employment, and additional saving. If the economy is below full employment, its spending is not limited by its current saving. (If it’s not below full employment then it doesn’t have a problem with a recovery, by definition its economy would have already recovered.)
Anyhow, that’s what folks who learned economics would say.
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At least this is what he says in his column today. The data strongly disagree with him. In the last four years productivity growth has averaged less than 1.0 percent a year. Productivity growth measures the rate at which robots and other technology replace people. In the years from 1995-2005 productivity growth averaged over 2.5 percent annually. In the period from 1947 to 1973 it averaged close to 3.0 percent.
The data indicate that we are seeing a slowdown in technology replacing labor (which should allow for rising living standards) rather than the speedup in the robot story. As a practical matter, workers should be far more concerned that the Federal Reserve Board will take their job, by slowing the economy with higher interest rates, than a robot will take their job.
Note: correction made, thanks Ethan.
At least this is what he says in his column today. The data strongly disagree with him. In the last four years productivity growth has averaged less than 1.0 percent a year. Productivity growth measures the rate at which robots and other technology replace people. In the years from 1995-2005 productivity growth averaged over 2.5 percent annually. In the period from 1947 to 1973 it averaged close to 3.0 percent.
The data indicate that we are seeing a slowdown in technology replacing labor (which should allow for rising living standards) rather than the speedup in the robot story. As a practical matter, workers should be far more concerned that the Federal Reserve Board will take their job, by slowing the economy with higher interest rates, than a robot will take their job.
Note: correction made, thanks Ethan.
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It’s vacation time. I’m off until Wednesday March 25th. And remember, until then, don’t believe anything you read in the newspaper.
It’s vacation time. I’m off until Wednesday March 25th. And remember, until then, don’t believe anything you read in the newspaper.
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The Federal Reserve Board released data on profits for 2014 this week. The good news, for those who are not Mitt Romney-types, is that the profit share fell in 2014 from its 2013 peak. Before-tax profits were 0.6 percentage points lower as a share of GDP than they had been in 2013. After-tax profits were 1.2 percentage points lower.
Source: Federal Reserve Board.
There are several points worth noting here. First, the drop in profits as the labor market has begun to tighten some lends credence to the view that a substantial portion of the rise in corporate profits was cyclical, not secular.
The point is that we are not seeing a surge in profit shares because of the inherent dynamic of capitalism. We are seeing a rise in profit shares because incompetents who couldn’t see an $8 trillion housing bubble were running the economy. When the bubble burst and the economy collapsed, the resulting weakness in the labor market led to a huge rise in profit shares.
Folks may point to a similar rise in profit shares in the earlier part of the last decade. For those old enough to remember, this also followed the collapse of an asset bubble. And contrary to popular belief, the resulting recession was actually very severe from the standpoint of the labor market. We did not get back the jobs lost in the downturn until January of 2005. This was the longest stretch without net job growth since the Great Depression, until the current downturn. In short, weak labor markets lead to high profits.
This takes us to the Federal Reserve Board. The plan to raise interest rates is a plan to weaken job growth. And, it looks like it also might mean a plan to prevent profit shares from falling and wage shares from rising.
That might sound like bad news to most folks, but of course most folks will probably never hear it. We’ll just hear highly paid economist types wringing their hands over the rise in inequality. No doubt the major foundations will make large grants to researchers trying to understand the problem.
The Federal Reserve Board released data on profits for 2014 this week. The good news, for those who are not Mitt Romney-types, is that the profit share fell in 2014 from its 2013 peak. Before-tax profits were 0.6 percentage points lower as a share of GDP than they had been in 2013. After-tax profits were 1.2 percentage points lower.
Source: Federal Reserve Board.
There are several points worth noting here. First, the drop in profits as the labor market has begun to tighten some lends credence to the view that a substantial portion of the rise in corporate profits was cyclical, not secular.
The point is that we are not seeing a surge in profit shares because of the inherent dynamic of capitalism. We are seeing a rise in profit shares because incompetents who couldn’t see an $8 trillion housing bubble were running the economy. When the bubble burst and the economy collapsed, the resulting weakness in the labor market led to a huge rise in profit shares.
Folks may point to a similar rise in profit shares in the earlier part of the last decade. For those old enough to remember, this also followed the collapse of an asset bubble. And contrary to popular belief, the resulting recession was actually very severe from the standpoint of the labor market. We did not get back the jobs lost in the downturn until January of 2005. This was the longest stretch without net job growth since the Great Depression, until the current downturn. In short, weak labor markets lead to high profits.
This takes us to the Federal Reserve Board. The plan to raise interest rates is a plan to weaken job growth. And, it looks like it also might mean a plan to prevent profit shares from falling and wage shares from rising.
That might sound like bad news to most folks, but of course most folks will probably never hear it. We’ll just hear highly paid economist types wringing their hands over the rise in inequality. No doubt the major foundations will make large grants to researchers trying to understand the problem.
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