The celebrations over the economy’s strong performance are really getting out of hand. That makes it incumbent on those of us who have access to government data and know arithmetic to work harder to set the record straight.
The basic point is a simple one. The economy is recovering, and at least recently, at a relatively rapid pace. I say “relatively” because if we saw the same job growth rates as we did after steep recessions in prior decades we would be seeing 500,000 to 600,000 jobs a month, but hey 257,000 is better than we had been seeing until 2014.
So this is good news. The problem is that the Wall Street boys (e.g. Robert Rubin, Alan Greenspan, etc.) created a really really deep hole. So things are getting better, but we have a very long way to go to get back to anything we can consider a normal labor market and economy.
There are many different measures that can be cited to make this point. The employment to population ratio for prime age workers (between the ages 25-54) is almost three full percentage points below its pre-recession level. (This gets around the claim that the problem is baby boomers retiring. These people are not leaving the labor force to retire.) The number of people who report working part-time involuntarily is still close to 2 million (@50 percent) above pre-recession levels.
But my favorite measure is the quit rate, the percentage of unemployment due to people who voluntarily quit their jobs. This is very useful because it is a real measure of people voting with their feet. The quit rate is telling us the extent to which workers have enough confidence in their job prospects to tell their asshole boss to get lost and then walk out the door.
In a good labor market people are willing to do this. In a bad labor market the risk is just too great. Workers are worried that it may be months, or longer, before they get a new job. So what do the data say?
Well, the quit rate is up a great deal from the troughs of the Great Recession. It had been as low as 5.6 percent in the middle of 2009 just after the economy had shed almost 8 million jobs. In the January data it was up to 9.5 percent. But this only looks good by comparison. The quit rate had been hovering just under 12.0 percent in the two years prior to the recession.
And for those old enough to remember, that was not exactly a great job market. Wages were at best inching ahead of inflation. if we go back to the late 1990s, which really was a good job market, the quit rate was over 13.0 percent and even got as high as 15.2 percent in April of 2000 Here’s the picture.
Voluntary Job Leavers as a Percent of the Unemployed
Source: Bureau of Labor Statistics.
So the moral of this story is that yes, things are definitely getting better, but no things are not good. And we know this, not because some overpaid economist or pundit says so, but because workers are voting with their feet.
So it’s your call. You can believe the expert (who couldn’t see an $8 trillion housing bubble) on your favorite news outlet, or you can believe the people who actually have their jobs on the line.
The celebrations over the economy’s strong performance are really getting out of hand. That makes it incumbent on those of us who have access to government data and know arithmetic to work harder to set the record straight.
The basic point is a simple one. The economy is recovering, and at least recently, at a relatively rapid pace. I say “relatively” because if we saw the same job growth rates as we did after steep recessions in prior decades we would be seeing 500,000 to 600,000 jobs a month, but hey 257,000 is better than we had been seeing until 2014.
So this is good news. The problem is that the Wall Street boys (e.g. Robert Rubin, Alan Greenspan, etc.) created a really really deep hole. So things are getting better, but we have a very long way to go to get back to anything we can consider a normal labor market and economy.
There are many different measures that can be cited to make this point. The employment to population ratio for prime age workers (between the ages 25-54) is almost three full percentage points below its pre-recession level. (This gets around the claim that the problem is baby boomers retiring. These people are not leaving the labor force to retire.) The number of people who report working part-time involuntarily is still close to 2 million (@50 percent) above pre-recession levels.
But my favorite measure is the quit rate, the percentage of unemployment due to people who voluntarily quit their jobs. This is very useful because it is a real measure of people voting with their feet. The quit rate is telling us the extent to which workers have enough confidence in their job prospects to tell their asshole boss to get lost and then walk out the door.
In a good labor market people are willing to do this. In a bad labor market the risk is just too great. Workers are worried that it may be months, or longer, before they get a new job. So what do the data say?
Well, the quit rate is up a great deal from the troughs of the Great Recession. It had been as low as 5.6 percent in the middle of 2009 just after the economy had shed almost 8 million jobs. In the January data it was up to 9.5 percent. But this only looks good by comparison. The quit rate had been hovering just under 12.0 percent in the two years prior to the recession.
And for those old enough to remember, that was not exactly a great job market. Wages were at best inching ahead of inflation. if we go back to the late 1990s, which really was a good job market, the quit rate was over 13.0 percent and even got as high as 15.2 percent in April of 2000 Here’s the picture.
Voluntary Job Leavers as a Percent of the Unemployed
Source: Bureau of Labor Statistics.
So the moral of this story is that yes, things are definitely getting better, but no things are not good. And we know this, not because some overpaid economist or pundit says so, but because workers are voting with their feet.
So it’s your call. You can believe the expert (who couldn’t see an $8 trillion housing bubble) on your favorite news outlet, or you can believe the people who actually have their jobs on the line.
Read More Leer más Join the discussion Participa en la discusión
The NYT led readers to believe that meeting Greece’s demand for changing the terms of its debt is far more difficult than is actually the case. It told readers:
“Writing down government debts, or stretching out when they need to repaid, causes losses for the institutions and individuals that hold the securities. Banks hold billions of euros in government bonds and, to make sure the banks remain stable, money would need to be found to replenish the big losses that the banks would suffer. Richer countries would have to agree to provide such funds. Taxpayers there may object, adding support to political parties that oppose much of what the European Union stands for and wants to achieve.”
In fact, well over 80 percent of Greece’s debt is held by the I.M.F., European Central Bank, and other official institutions. Concessions made by these entities could hugely reduce Greece’s debt burden while leaving private debt holders unaffected. These concessions need not cost taxpayers a euro, since the European Central Bank knows how to print euros, which it can and is doing.
If taxpayers are upset it is because they have not learned basic economics which speaks to the quality of the European educational system, not Greece’s debts. It is also worth pointing out that in lending Greece money, the official institutions effectively bailed out incompetent bankers who made bad loans to Greece.
The NYT led readers to believe that meeting Greece’s demand for changing the terms of its debt is far more difficult than is actually the case. It told readers:
“Writing down government debts, or stretching out when they need to repaid, causes losses for the institutions and individuals that hold the securities. Banks hold billions of euros in government bonds and, to make sure the banks remain stable, money would need to be found to replenish the big losses that the banks would suffer. Richer countries would have to agree to provide such funds. Taxpayers there may object, adding support to political parties that oppose much of what the European Union stands for and wants to achieve.”
In fact, well over 80 percent of Greece’s debt is held by the I.M.F., European Central Bank, and other official institutions. Concessions made by these entities could hugely reduce Greece’s debt burden while leaving private debt holders unaffected. These concessions need not cost taxpayers a euro, since the European Central Bank knows how to print euros, which it can and is doing.
If taxpayers are upset it is because they have not learned basic economics which speaks to the quality of the European educational system, not Greece’s debts. It is also worth pointing out that in lending Greece money, the official institutions effectively bailed out incompetent bankers who made bad loans to Greece.
Read More Leer más Join the discussion Participa en la discusión
That is the logical conclusion that would be drawn from an article headlined that “U.S. home price gains weakened in December on slower sales.”
The piece begins:
“U.S. home values rose at a modest pace in December, a sign there are too few potential buyers to bid up prices.
“Real estate data provider CoreLogic says home prices rose 5 percent in December from 12 months earlier. That is down from the 5.5 percent price gain recorded in November. It’s much lower than the double-digit gains that occurred last year.”
Actually, since U.S. house prices are already above their trend level, this is a sign that the market is stabilizing, as one might expect following a sharp tumble and a rapid upswing in prices. Over the long-term house prices have risen roughly in step with the overall rate of inflation. Since inflation was around 1.0 percent in 2014, house prices are still rising considerably more rapidly that would be expected based on their long-term trend. This is the opposite of the story conveyed in this article.
That is the logical conclusion that would be drawn from an article headlined that “U.S. home price gains weakened in December on slower sales.”
The piece begins:
“U.S. home values rose at a modest pace in December, a sign there are too few potential buyers to bid up prices.
“Real estate data provider CoreLogic says home prices rose 5 percent in December from 12 months earlier. That is down from the 5.5 percent price gain recorded in November. It’s much lower than the double-digit gains that occurred last year.”
Actually, since U.S. house prices are already above their trend level, this is a sign that the market is stabilizing, as one might expect following a sharp tumble and a rapid upswing in prices. Over the long-term house prices have risen roughly in step with the overall rate of inflation. Since inflation was around 1.0 percent in 2014, house prices are still rising considerably more rapidly that would be expected based on their long-term trend. This is the opposite of the story conveyed in this article.
Read More Leer más Join the discussion Participa en la discusión
Economists and economic reporters are fortunate they don’t work in an occupation like dishwashing or truck driving where job security and promotion depend on performance. If they did, most of the folks currently employed would be on the street after missing little things like an $8 trillion housing bubble.
But no reason to recount old history. Remember all those stories of the booming U.S. economy? Well, they are likely to be just memories. The December trade data was released today. It showed a monthly deficit of $46.6 billion, up from an originally reported $39.0 billion in November (revised up to $38.8 billion in this report).
This will likely push the revised 4th quarter GDP growth to below 2.0 percent. Weak durable good shipments for December reported yesterday will also lower 4th quarter GDP. In short, it don’t look like much of a boom.
For fans of national income accounting (i.e. people who live in the real world), the rise in the trade deficit is very troubling. This is the core cause of secular stagnation. This is U.S. generated demand that is creating demand elsewhere. There is no easy mechanism to replace it. We could have larger budget deficits, but that goes against the fashions in Washington policy circles. That means, in the absence of another bubble, we can look to an underemployed economy persisting for some time.
Economists and economic reporters are fortunate they don’t work in an occupation like dishwashing or truck driving where job security and promotion depend on performance. If they did, most of the folks currently employed would be on the street after missing little things like an $8 trillion housing bubble.
But no reason to recount old history. Remember all those stories of the booming U.S. economy? Well, they are likely to be just memories. The December trade data was released today. It showed a monthly deficit of $46.6 billion, up from an originally reported $39.0 billion in November (revised up to $38.8 billion in this report).
This will likely push the revised 4th quarter GDP growth to below 2.0 percent. Weak durable good shipments for December reported yesterday will also lower 4th quarter GDP. In short, it don’t look like much of a boom.
For fans of national income accounting (i.e. people who live in the real world), the rise in the trade deficit is very troubling. This is the core cause of secular stagnation. This is U.S. generated demand that is creating demand elsewhere. There is no easy mechanism to replace it. We could have larger budget deficits, but that goes against the fashions in Washington policy circles. That means, in the absence of another bubble, we can look to an underemployed economy persisting for some time.
Read More Leer más Join the discussion Participa en la discusión
There has been concern expressed in some circles about the growing ratio of debt to GDP in countries around the world. Neil Irwin has a piece on this issue in today’s Upshot section of the NYT.
Such concerns are seriously misplaced for a simple reason: the market value of debt is inversely related to the interest rate. The point here is a simple one. Imagine an infinitely lived bond that pays $50 a year in interest. If the prevailing interest in the market for long-term debt is 5 percent, the price of this this bond will be $1,000. However if the interest rate were to rise to 10 percent, the price of the bond would be just $500.
At present, interest rates worldwide are very low by historical standards. This has created a situation in which the market value of debt is very high. However if interest rates were to rise, then the market value of this debt would plummet.
Consider the case of Japan, which can now issue 10-year bonds paying just 0.3 percent interest. If the interest rate on 10-year debt rose to 3.0 percent (still a very low level) the market value of this debt would fall by close to one-third (the exact decline would depend on the timing of the increase). The decline in the market value of longer term debt would be even greater.
The same story applies to private debt. if interest rates were to rise and companies were troubled by the amount of debt they had outstanding they could just issue new bonds and buy up the existing debt at large discounts, thereby reducing their debt burden.
If we want to take a serious look at the extent to which debt is imposing a constraint on economies around the world we should look at the ratio of interest to GDP. That doesn’t look very frightening in the U.S. and I suspect there is a similar story in most other countries around the world.
Addendum:
I should also point out that high debt burdens are actually in part a direct outcome of low interest rates. Low interest rates mean it’s cheap to borrow, therefore governments, businesses, and households will borrow more. That is actually what we should want to see in a downturn, it means more demand in the economy.
Ideally, governments would take advantage of low interest rates to invest in infrastructure, research and development, and education. Businesses are taking advantage of low interest rates in part to invest and in part to buy other companies. It’s cheap, why shouldn’t they borrow to buy up shares? Households aren’t borrowing against home equity like they did in the bubble years, but undoubtedly many are taking advantage of low interest rates to pay their kids’ education or other spending.
Anyhow, we can look to arithmetic and logic to see the impact and cause of higher debt to GDP ratios. Alternatively, we can ignore arithmetic and logic and yell about the debt and the sky falling. It’s your choice.
There has been concern expressed in some circles about the growing ratio of debt to GDP in countries around the world. Neil Irwin has a piece on this issue in today’s Upshot section of the NYT.
Such concerns are seriously misplaced for a simple reason: the market value of debt is inversely related to the interest rate. The point here is a simple one. Imagine an infinitely lived bond that pays $50 a year in interest. If the prevailing interest in the market for long-term debt is 5 percent, the price of this this bond will be $1,000. However if the interest rate were to rise to 10 percent, the price of the bond would be just $500.
At present, interest rates worldwide are very low by historical standards. This has created a situation in which the market value of debt is very high. However if interest rates were to rise, then the market value of this debt would plummet.
Consider the case of Japan, which can now issue 10-year bonds paying just 0.3 percent interest. If the interest rate on 10-year debt rose to 3.0 percent (still a very low level) the market value of this debt would fall by close to one-third (the exact decline would depend on the timing of the increase). The decline in the market value of longer term debt would be even greater.
The same story applies to private debt. if interest rates were to rise and companies were troubled by the amount of debt they had outstanding they could just issue new bonds and buy up the existing debt at large discounts, thereby reducing their debt burden.
If we want to take a serious look at the extent to which debt is imposing a constraint on economies around the world we should look at the ratio of interest to GDP. That doesn’t look very frightening in the U.S. and I suspect there is a similar story in most other countries around the world.
Addendum:
I should also point out that high debt burdens are actually in part a direct outcome of low interest rates. Low interest rates mean it’s cheap to borrow, therefore governments, businesses, and households will borrow more. That is actually what we should want to see in a downturn, it means more demand in the economy.
Ideally, governments would take advantage of low interest rates to invest in infrastructure, research and development, and education. Businesses are taking advantage of low interest rates in part to invest and in part to buy other companies. It’s cheap, why shouldn’t they borrow to buy up shares? Households aren’t borrowing against home equity like they did in the bubble years, but undoubtedly many are taking advantage of low interest rates to pay their kids’ education or other spending.
Anyhow, we can look to arithmetic and logic to see the impact and cause of higher debt to GDP ratios. Alternatively, we can ignore arithmetic and logic and yell about the debt and the sky falling. It’s your choice.
Read More Leer más Join the discussion Participa en la discusión
When politicians make assertions that are clearly not true, it would be useful if reporters pointed this fact out to readers. Reporters have time to verify claims by politicians, their readers do not.
For this reason, the NYT failed its readers when it reported on the Republican House vote to repeal the Affordable Care Act (ACA) because:
“Republicans said the law was driving up insurance premiums, burdening consumers with high out-of-pocket costs and leading some employers to cut back workers’ hours so that employers would not have to pay for their coverage.”
All the evidence in fact points in the opposite direction. Insurance premiums have been rising less rapidly, the rate of growth of out-of-pocket costs has also slowed, and there is no evidence that employers are cutting back workers hours because of the ACA, although there is evidence that workers are voluntarily choosing to work less because they no longer need to work full-time to get insurance through an employer.
Many readers may not realize that the Republicans’ claims were not true. The NYT should have made this fact clear.
When politicians make assertions that are clearly not true, it would be useful if reporters pointed this fact out to readers. Reporters have time to verify claims by politicians, their readers do not.
For this reason, the NYT failed its readers when it reported on the Republican House vote to repeal the Affordable Care Act (ACA) because:
“Republicans said the law was driving up insurance premiums, burdening consumers with high out-of-pocket costs and leading some employers to cut back workers’ hours so that employers would not have to pay for their coverage.”
All the evidence in fact points in the opposite direction. Insurance premiums have been rising less rapidly, the rate of growth of out-of-pocket costs has also slowed, and there is no evidence that employers are cutting back workers hours because of the ACA, although there is evidence that workers are voluntarily choosing to work less because they no longer need to work full-time to get insurance through an employer.
Many readers may not realize that the Republicans’ claims were not true. The NYT should have made this fact clear.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post might have misled readers with its discussion of efforts to end the conflict of interest inherent in the current system where banks issuing mortgage backed securities hire the agencies that rate their debt. It told readers:
“Congress debated that idea when it put together the sweeping financial overhaul law in response to the 2008 crisis. But lawmakers pushing the idea were unable to include it into the final legislation.”
The Senate actually overwhelmingly approved (65 votes) an amendment from Senator Al Franken that would have had the Securities and Exchange Commission pick the rating agency assigned to assess newly issued debt. The provision was stripped out in the conference committee, apparently with the support of then Secretary of the Treasury, Timothy Geithner.
The main substantive argument against the Franken amendment was that the SEC may send over an auditor who was not qualified to rate a new issue. This raises the obvious question of why an investment bank would be trying to market a bond issue that a professional auditor at a major credit rating agency could not understand.
The Washington Post might have misled readers with its discussion of efforts to end the conflict of interest inherent in the current system where banks issuing mortgage backed securities hire the agencies that rate their debt. It told readers:
“Congress debated that idea when it put together the sweeping financial overhaul law in response to the 2008 crisis. But lawmakers pushing the idea were unable to include it into the final legislation.”
The Senate actually overwhelmingly approved (65 votes) an amendment from Senator Al Franken that would have had the Securities and Exchange Commission pick the rating agency assigned to assess newly issued debt. The provision was stripped out in the conference committee, apparently with the support of then Secretary of the Treasury, Timothy Geithner.
The main substantive argument against the Franken amendment was that the SEC may send over an auditor who was not qualified to rate a new issue. This raises the obvious question of why an investment bank would be trying to market a bond issue that a professional auditor at a major credit rating agency could not understand.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Actually the Post’s budget piece didn’t tell readers that. Instead it said:
“All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare.”
Pretty damn scary, huh? Just think of that — adding $5.7 trillion to the debt, and interest payments that will be larger than spending on any program other than Social Security and Medicare! Sounds like we’re going to hell in a handbasket.
If the point of the story was to convey information rather than advancing its deficit cutting agenda (which seems aimed largely at Social Security and Medicare), the paper would have told readers that the interest tab projected for 2025 is 3.0 percent of GDP. Before you scream about what we are doing to our children, consider that interest payments were 3.0 percent of GDP or more every year from 1985 to 1997, except 1994 when they were 2.9 percent. (These numbers are in the same document, Table E-6). These payments were larger than spending on any program except the military and Social Security.
Unlike the NYT, the Post makes almost no effort to put the budget numbers in any context, expressing terms almost exclusively in billions and trillions which they know are meaningless to almost all their readers. It’s just another way of saying that the government spends and borrows lots of money, the sort of claim that papers are supposed to leave to the opinion pages.
Actually the Post’s budget piece didn’t tell readers that. Instead it said:
“All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare.”
Pretty damn scary, huh? Just think of that — adding $5.7 trillion to the debt, and interest payments that will be larger than spending on any program other than Social Security and Medicare! Sounds like we’re going to hell in a handbasket.
If the point of the story was to convey information rather than advancing its deficit cutting agenda (which seems aimed largely at Social Security and Medicare), the paper would have told readers that the interest tab projected for 2025 is 3.0 percent of GDP. Before you scream about what we are doing to our children, consider that interest payments were 3.0 percent of GDP or more every year from 1985 to 1997, except 1994 when they were 2.9 percent. (These numbers are in the same document, Table E-6). These payments were larger than spending on any program except the military and Social Security.
Unlike the NYT, the Post makes almost no effort to put the budget numbers in any context, expressing terms almost exclusively in billions and trillions which they know are meaningless to almost all their readers. It’s just another way of saying that the government spends and borrows lots of money, the sort of claim that papers are supposed to leave to the opinion pages.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
