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The NYT badly misinformed readers by telling them that Obama was easing up on Federal Housing Authority lending rules to fix a “lagging” housing market. Actually home sales are slightly above their population adjusted pre-bubble level. In fact, if we took account of demographics (the increasing portion of elderly that is constantly used as a justification of low employment rates) then house sales are above pre-bubble levels. Also, inflation-adjusted house prices are 15-20 percent above trend levels.
It is true that builders are not building as many homes as would be expected, but this is explained by vacancy rates that are still relatively high. The lower homeownership rate is likely the function of the weak labor market and also that the “flexible” labor market touted by most economists means that people have to change jobs frequently, which often means moving. People who have to sell their home shortly after buying it end up building wealth for the real estate and financial industry, not their family, which is an important reason why fewer people are becoming homebuyers.
This piece also wrongly asserts that, “rents are soaring.” This is not true by the usual definition of “soaring.” The Bureau of Labor Statistics owners’ equivalent rent measure rose 2.7 percent over the last year. This measure excludes utility fees that are often included in apartment rents, which is appropriate since homeowners also have to pay for utilities.
Owners’ Equivalent Rent: Percent Change Over Prior 12 Months
Source: Bureau of Labor Statistics.
The NYT badly misinformed readers by telling them that Obama was easing up on Federal Housing Authority lending rules to fix a “lagging” housing market. Actually home sales are slightly above their population adjusted pre-bubble level. In fact, if we took account of demographics (the increasing portion of elderly that is constantly used as a justification of low employment rates) then house sales are above pre-bubble levels. Also, inflation-adjusted house prices are 15-20 percent above trend levels.
It is true that builders are not building as many homes as would be expected, but this is explained by vacancy rates that are still relatively high. The lower homeownership rate is likely the function of the weak labor market and also that the “flexible” labor market touted by most economists means that people have to change jobs frequently, which often means moving. People who have to sell their home shortly after buying it end up building wealth for the real estate and financial industry, not their family, which is an important reason why fewer people are becoming homebuyers.
This piece also wrongly asserts that, “rents are soaring.” This is not true by the usual definition of “soaring.” The Bureau of Labor Statistics owners’ equivalent rent measure rose 2.7 percent over the last year. This measure excludes utility fees that are often included in apartment rents, which is appropriate since homeowners also have to pay for utilities.
Owners’ Equivalent Rent: Percent Change Over Prior 12 Months
Source: Bureau of Labor Statistics.
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A NYT article on the recent drop in the value of the euro against the dollar carried the bizarre headline, “falling euro fans fears of a recession.” The headline is strange, because the drop in the euro will not cause a recession. In fact, it will help the economy by boosting net exports from the euro zone, as the article itself states.
Several other points in the article are also seriously confused. It asserts:
“There is also the fact that eurozone countries tend to be net importers of oil and natural gas — which is usually priced in dollars — meaning that their weak currency may not buy as much fuel in the future.”
The fact that oil is typically priced in dollars really has nothing to do with the time of day. The price of oil has fallen by roughly 50 percent over the last year measured in dollars. The euro has fallen by a bit more than 10 percent, which means that oil has fallen by roughly 45 percent measured in euros.
The fact that the euro zone produces relatively little oil is a huge benefit in this story relative to the United States. While consumers in both the U.S. and the euro zone will be benefited by the plunge in oil prices, the United States has areas of the country like Texas, North Dakota, and Alaska, that are heavily dependent on oil production. These regions will be badly hurt by the drop in oil prices.
The article also notes that Europe may be hurt by a slowdown in growth elsewhere in the world, referring to the “region’s dependence on trade.” Actually the euro zone as a whole doesn’t depend much more on trade with the rest of the world than the United States. The vast majority of trade of euro zone countries is with other euro zone countries, therefore a slowdown in growth elsewhere in the world will not do more harm to the euro zone than the United States.
A NYT article on the recent drop in the value of the euro against the dollar carried the bizarre headline, “falling euro fans fears of a recession.” The headline is strange, because the drop in the euro will not cause a recession. In fact, it will help the economy by boosting net exports from the euro zone, as the article itself states.
Several other points in the article are also seriously confused. It asserts:
“There is also the fact that eurozone countries tend to be net importers of oil and natural gas — which is usually priced in dollars — meaning that their weak currency may not buy as much fuel in the future.”
The fact that oil is typically priced in dollars really has nothing to do with the time of day. The price of oil has fallen by roughly 50 percent over the last year measured in dollars. The euro has fallen by a bit more than 10 percent, which means that oil has fallen by roughly 45 percent measured in euros.
The fact that the euro zone produces relatively little oil is a huge benefit in this story relative to the United States. While consumers in both the U.S. and the euro zone will be benefited by the plunge in oil prices, the United States has areas of the country like Texas, North Dakota, and Alaska, that are heavily dependent on oil production. These regions will be badly hurt by the drop in oil prices.
The article also notes that Europe may be hurt by a slowdown in growth elsewhere in the world, referring to the “region’s dependence on trade.” Actually the euro zone as a whole doesn’t depend much more on trade with the rest of the world than the United States. The vast majority of trade of euro zone countries is with other euro zone countries, therefore a slowdown in growth elsewhere in the world will not do more harm to the euro zone than the United States.
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It is often said that the environmental movement has less creativity than a dead clam. Nothing demonstrates this point better than the lack of interest in promoting pay by the mile auto insurance.
I am reminded of this issue by a piece on Morning Edition that discussed how the recent drop in gas prices will be associated with thousands of more deaths in traffic accidents. The point is simple: people will be driving more and faster, therefore there will be more accidents and more deaths.
This brings up pay by the mile insurance since the point of the piece is that high gas prices gave people an incentive to drive less and more slowly. If insurance were on a pay by the mile basis it would also give people an incentive to drive less and ideally more safely.
The arithmetic is straightforward and striking. The average insurance policy is around $1,000 a year. The average driver puts in roughly 10,000 miles a year on their car. (These are rough numbers, but last time I checked they were in the ballpark.) This comes to 10 cents if insurance were paid on a per mile basis.
If a typical car gets 20 miles a gallon, then having insurance paid on a per mile basis is the equivalent of a $2.00 a gallon gas tax in discouraging driving. That should be a big deal and the sort of thing that environmentalists should be pushing for, since it is likely far more politically feasible than a $2.00 a gallon gas tax.
Just to be clear, this is not on average increasing insurance costs. It will redistribute them from people who drive relatively little to people who drive a lot. (Insurers already have some differences based on miles driven, but they don’t come close to reflecting the actual difference in risks — as they will tell you.)
Also, charging per mile doesn’t prevent insurance companies from factoring in driving records or distinguishing between rural and urban miles. The insurers know where people live and they know their driving records. These could be easily factored in when setting the per mile rates.
Anyhow, a modest subsidy for people to buy pay by the mile policies could go a long way in changing incentives and reducing driving and greenhouse gas emissions. (Note the adverse selection goes in the right direction here. Low mileage drivers would opt for pay by the mile policies leaving high mileage high risk drivers in the conventional insurance pool.)
This should have been an obvious policy to push for those who want to stop global warming, but it might require a bit of new thinking.
It is often said that the environmental movement has less creativity than a dead clam. Nothing demonstrates this point better than the lack of interest in promoting pay by the mile auto insurance.
I am reminded of this issue by a piece on Morning Edition that discussed how the recent drop in gas prices will be associated with thousands of more deaths in traffic accidents. The point is simple: people will be driving more and faster, therefore there will be more accidents and more deaths.
This brings up pay by the mile insurance since the point of the piece is that high gas prices gave people an incentive to drive less and more slowly. If insurance were on a pay by the mile basis it would also give people an incentive to drive less and ideally more safely.
The arithmetic is straightforward and striking. The average insurance policy is around $1,000 a year. The average driver puts in roughly 10,000 miles a year on their car. (These are rough numbers, but last time I checked they were in the ballpark.) This comes to 10 cents if insurance were paid on a per mile basis.
If a typical car gets 20 miles a gallon, then having insurance paid on a per mile basis is the equivalent of a $2.00 a gallon gas tax in discouraging driving. That should be a big deal and the sort of thing that environmentalists should be pushing for, since it is likely far more politically feasible than a $2.00 a gallon gas tax.
Just to be clear, this is not on average increasing insurance costs. It will redistribute them from people who drive relatively little to people who drive a lot. (Insurers already have some differences based on miles driven, but they don’t come close to reflecting the actual difference in risks — as they will tell you.)
Also, charging per mile doesn’t prevent insurance companies from factoring in driving records or distinguishing between rural and urban miles. The insurers know where people live and they know their driving records. These could be easily factored in when setting the per mile rates.
Anyhow, a modest subsidy for people to buy pay by the mile policies could go a long way in changing incentives and reducing driving and greenhouse gas emissions. (Note the adverse selection goes in the right direction here. Low mileage drivers would opt for pay by the mile policies leaving high mileage high risk drivers in the conventional insurance pool.)
This should have been an obvious policy to push for those who want to stop global warming, but it might require a bit of new thinking.
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Robert Samuelson gave his assessment of where the economy stands in his column this morning. At one point he tells readers that if the economy creates 230,000 jobs a month, by the end of the year it will be approaching full employment.
Even if the economy adds 230,000 jobs a month in 2015, by the end of the year it will still be more than 3 million jobs below what the Congressional Budget Office (CBO) and other forecasters projected before the downturn. That would imply that the economy would still be far below full employment.
Of course it is possible that CBO’s projections about the labor force from 2008 were wrong, but this raises the obvious question of when CBO stopped being wrong. It is not obvious that it has learned more about the economy and the labor market in the last seven years, therefore it is not clear that its current assessment of the labor market should be treated as more accurate than its assessment from 2008.
Also, contrary to what is asserted in the article, Japan has been seeing rapid growth in employment under its new stimulus policies. In fact, its employment to population ratio has risen more than twice as much as the U.S. ratio since the end of 2012 when it adopted these policies. It is likely to again see healthy growth in 2015 now that it has put off a scheduled increase in the sales tax.
Robert Samuelson gave his assessment of where the economy stands in his column this morning. At one point he tells readers that if the economy creates 230,000 jobs a month, by the end of the year it will be approaching full employment.
Even if the economy adds 230,000 jobs a month in 2015, by the end of the year it will still be more than 3 million jobs below what the Congressional Budget Office (CBO) and other forecasters projected before the downturn. That would imply that the economy would still be far below full employment.
Of course it is possible that CBO’s projections about the labor force from 2008 were wrong, but this raises the obvious question of when CBO stopped being wrong. It is not obvious that it has learned more about the economy and the labor market in the last seven years, therefore it is not clear that its current assessment of the labor market should be treated as more accurate than its assessment from 2008.
Also, contrary to what is asserted in the article, Japan has been seeing rapid growth in employment under its new stimulus policies. In fact, its employment to population ratio has risen more than twice as much as the U.S. ratio since the end of 2012 when it adopted these policies. It is likely to again see healthy growth in 2015 now that it has put off a scheduled increase in the sales tax.
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Bob Kuttner has a column in the Huffington Post warning of the dangers of the Trans-Atlantic Trade and Investment Pact (TTIP). Kuttner correctly points out that the deal is not really about reducing trade barriers, which are already minimal, but rather about locking in place a business-friendly structure of regulation (wrongly described as “deregulation”).
At one point Kuttner refers to projections that the TTIP will increase GDP in the EU and U.S. by 0.5 percent. It is important to note that this projection is for the period after the deal is fully implemented, more than a decade after it is signed. That means the projection implies an increase in the growth rate of less than 0.05 percentage points annually, an amount far too small to be measured accurately.
It is also worth noting that this projection does not incorporate any negative impact from the protectionist parts of the TTIP. The deal is likely to strengthen patent and copyright protections, leading to higher prices for drugs, software, and other products, all of which will be a drain on consumers and a drag on growth.
Bob Kuttner has a column in the Huffington Post warning of the dangers of the Trans-Atlantic Trade and Investment Pact (TTIP). Kuttner correctly points out that the deal is not really about reducing trade barriers, which are already minimal, but rather about locking in place a business-friendly structure of regulation (wrongly described as “deregulation”).
At one point Kuttner refers to projections that the TTIP will increase GDP in the EU and U.S. by 0.5 percent. It is important to note that this projection is for the period after the deal is fully implemented, more than a decade after it is signed. That means the projection implies an increase in the growth rate of less than 0.05 percentage points annually, an amount far too small to be measured accurately.
It is also worth noting that this projection does not incorporate any negative impact from the protectionist parts of the TTIP. The deal is likely to strengthen patent and copyright protections, leading to higher prices for drugs, software, and other products, all of which will be a drain on consumers and a drag on growth.
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That’s what readers of a NYT article on the drop in the value of the euro would conclude. The piece told readers that the recent rise in the dollar is:
“A strong dollar is a welcome reflection of a United States economy that is growing and adding jobs at a faster clip than many of its peers.”
Of course a strong dollar will make U.S. goods and services less competitive internationally, leading to a rise in the trade deficit. the drop in the trade deficit in the third quarter added 0.8 percentage points to the quarter’s growth. It is likely that the rise in the deficit in the fourth quarter will subtract at least that much from the growth rate. In an economy that, according to the Congressional Budget Office, is still operating at a level of output that is almost 4 percentage points (@ $600 billion a year) below its potential level of output, and is down close to 6 million jobs from its trend path, it is bizarre to call a rise in the dollar that will slow growth as “welcome.”
This article gets many other issues wrong as well. It tells readers;
“To jump-start growth and avoid deflation, many analysts say the most powerful policy arrow in Mr. Draghi’s quiver is to talk the euro sharply downward, which would bolster exports, increase the price of imports and ultimately, it is hoped, stimulate an increase in inflation.”
There is no reason to believe that Mr. Drago is in particular trying to avoid deflation unless he is a member of some bizarre cult of zero worshippers. Having the inflation rate cross zero doesn’t make any difference, the problem is that the inflation rate in the euro zone is too low. Draghi wants to raise the inflation rate, it’s that simple.
The piece also notes a shift in bank reserves from euros to dollars and comments that it, “could signal a long-term preference on the part of central bankers for high-yielding dollars in favor of less lucrative euros.”
Actually central banks usually are not especially interested in the returns on their reserve holdings and they certainly are not making long-term plans since they shift their holdings all the time. If there is a return issue at hand, some central banks may have made the bet that the euro would fall in the short-term against the dollar. Now that the euro has lost considerable ground, they may make a decision to start shifting back to euros from dollars.
Remarkably in the discussion of relative currency values the piece never refers to the trade deficit in the United States. This deficit is the primary cause of the secular stagnation, or lack of demand, that many economists have now determined to be the country’s main economic problem. The trade deficit pulls more than $500 billion in demand out of the economy every year. From an economic standpoint it has the same impact as if people suddenly decided to cut back their annual consumption by $500 billion. There is no easy way to replace this demand domestically, which is why the United States economy remains severely depressed more than seven years after the recession began.
That’s what readers of a NYT article on the drop in the value of the euro would conclude. The piece told readers that the recent rise in the dollar is:
“A strong dollar is a welcome reflection of a United States economy that is growing and adding jobs at a faster clip than many of its peers.”
Of course a strong dollar will make U.S. goods and services less competitive internationally, leading to a rise in the trade deficit. the drop in the trade deficit in the third quarter added 0.8 percentage points to the quarter’s growth. It is likely that the rise in the deficit in the fourth quarter will subtract at least that much from the growth rate. In an economy that, according to the Congressional Budget Office, is still operating at a level of output that is almost 4 percentage points (@ $600 billion a year) below its potential level of output, and is down close to 6 million jobs from its trend path, it is bizarre to call a rise in the dollar that will slow growth as “welcome.”
This article gets many other issues wrong as well. It tells readers;
“To jump-start growth and avoid deflation, many analysts say the most powerful policy arrow in Mr. Draghi’s quiver is to talk the euro sharply downward, which would bolster exports, increase the price of imports and ultimately, it is hoped, stimulate an increase in inflation.”
There is no reason to believe that Mr. Drago is in particular trying to avoid deflation unless he is a member of some bizarre cult of zero worshippers. Having the inflation rate cross zero doesn’t make any difference, the problem is that the inflation rate in the euro zone is too low. Draghi wants to raise the inflation rate, it’s that simple.
The piece also notes a shift in bank reserves from euros to dollars and comments that it, “could signal a long-term preference on the part of central bankers for high-yielding dollars in favor of less lucrative euros.”
Actually central banks usually are not especially interested in the returns on their reserve holdings and they certainly are not making long-term plans since they shift their holdings all the time. If there is a return issue at hand, some central banks may have made the bet that the euro would fall in the short-term against the dollar. Now that the euro has lost considerable ground, they may make a decision to start shifting back to euros from dollars.
Remarkably in the discussion of relative currency values the piece never refers to the trade deficit in the United States. This deficit is the primary cause of the secular stagnation, or lack of demand, that many economists have now determined to be the country’s main economic problem. The trade deficit pulls more than $500 billion in demand out of the economy every year. From an economic standpoint it has the same impact as if people suddenly decided to cut back their annual consumption by $500 billion. There is no easy way to replace this demand domestically, which is why the United States economy remains severely depressed more than seven years after the recession began.
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The it’s hard to get good help crowd keep trying to push the bizarre line that the world is running out of people. This theme appears in a NYT piece on Japan’s efforts to end gender discrimination in the work place and to make it easier for women to hold on to jobs as they raise children. For example, it tells readers:
“The national birthrate is just 1.4 children per woman, among the lowest in the world and well below the level needed to ward off a sharp decline in population in the coming decades. And when Japanese women do have children, they quit their jobs more often than mothers in other industrialized countries, leaving a hole in an already dwindling work force.”
There is no obvious problem with a declining work force. This means that there will be more demand for the workers Japan does have. They will shift from relatively low productivity jobs (e.g. the midnight shift at a convenience story or parking cars at restaurants) into higher productivity and higher paying jobs that otherwise might go vacant. From the standpoint of the well-being of the Japanese population, this is good news since it is likely to increase pay for most workers, even if it means less overall growth. It is per capita income that is relevant for well-being, not total GDP. People in Denmark are much wealthier than people in Bangladesh, in spite of the higher GDP in the latter.
Also, it is important to note that in even modest increase in productivity growth will swamp the impact of plausible differences in the dependency ratios that would result from more children. (Also, the relevant dependency ratio includes dependent children.) It is also necessary to remember that hours worked can various enormously. Since the collapse of its bubbles in 1990 the length of the average work year has declined by almost 15 percent in Japan, the equivalent of more than seven weeks of annual vacation. This is not a pattern we would expect to see in a country suffering from a shortage of workers.
Finally, a smaller population will make it easier for Japan to reduce its greenhouse emissions, helping to contain global warming. It will also make a densely populated island less crowded.
The it’s hard to get good help crowd keep trying to push the bizarre line that the world is running out of people. This theme appears in a NYT piece on Japan’s efforts to end gender discrimination in the work place and to make it easier for women to hold on to jobs as they raise children. For example, it tells readers:
“The national birthrate is just 1.4 children per woman, among the lowest in the world and well below the level needed to ward off a sharp decline in population in the coming decades. And when Japanese women do have children, they quit their jobs more often than mothers in other industrialized countries, leaving a hole in an already dwindling work force.”
There is no obvious problem with a declining work force. This means that there will be more demand for the workers Japan does have. They will shift from relatively low productivity jobs (e.g. the midnight shift at a convenience story or parking cars at restaurants) into higher productivity and higher paying jobs that otherwise might go vacant. From the standpoint of the well-being of the Japanese population, this is good news since it is likely to increase pay for most workers, even if it means less overall growth. It is per capita income that is relevant for well-being, not total GDP. People in Denmark are much wealthier than people in Bangladesh, in spite of the higher GDP in the latter.
Also, it is important to note that in even modest increase in productivity growth will swamp the impact of plausible differences in the dependency ratios that would result from more children. (Also, the relevant dependency ratio includes dependent children.) It is also necessary to remember that hours worked can various enormously. Since the collapse of its bubbles in 1990 the length of the average work year has declined by almost 15 percent in Japan, the equivalent of more than seven weeks of annual vacation. This is not a pattern we would expect to see in a country suffering from a shortage of workers.
Finally, a smaller population will make it easier for Japan to reduce its greenhouse emissions, helping to contain global warming. It will also make a densely populated island less crowded.
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