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News reporting should not be a he said, she said affair when it comes to factual matters. In principle, reporters have the time to determine the truth, readers do not.
For this reason, it was disappointing to read in an otherwise good NYT article on the push for higher wages at Walmart:
“Retail workers ages 25 to 54 who work full time for at least three consecutive months make an average of $38,376 a year, slightly more than full-time workers in nonretail jobs, the group [the National Retail Federation] said.”
This was the effort by the retailers to claim that they actually pay good wages. The problem with letting this claim appear with no context is that readers have no idea what percent of the industry’s workers are classified as “full-time” and work for more than three months at the same store. The classification of full-time is central here.
The report does shed some additional light on this issue. It tells readers that 23.3 percent of the workers in the industry are between the ages of 16-24. It estimates that 30.5 percent are part-time and 32.2 percent are classified as unstable, meaning that they aren’t employed for three consecutive months. While there is substantial overlap in these three categories, it is also important to realize that employees over age 55 are not included in the industry group’s $38,376 average annual wage either. In other words, this average is among workers who comprise a minority, and likely a relatively small minority, of industry employees. It would have been helpful if the NYT article had pointed this fact out to readers.
News reporting should not be a he said, she said affair when it comes to factual matters. In principle, reporters have the time to determine the truth, readers do not.
For this reason, it was disappointing to read in an otherwise good NYT article on the push for higher wages at Walmart:
“Retail workers ages 25 to 54 who work full time for at least three consecutive months make an average of $38,376 a year, slightly more than full-time workers in nonretail jobs, the group [the National Retail Federation] said.”
This was the effort by the retailers to claim that they actually pay good wages. The problem with letting this claim appear with no context is that readers have no idea what percent of the industry’s workers are classified as “full-time” and work for more than three months at the same store. The classification of full-time is central here.
The report does shed some additional light on this issue. It tells readers that 23.3 percent of the workers in the industry are between the ages of 16-24. It estimates that 30.5 percent are part-time and 32.2 percent are classified as unstable, meaning that they aren’t employed for three consecutive months. While there is substantial overlap in these three categories, it is also important to realize that employees over age 55 are not included in the industry group’s $38,376 average annual wage either. In other words, this average is among workers who comprise a minority, and likely a relatively small minority, of industry employees. It would have been helpful if the NYT article had pointed this fact out to readers.
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That is a fact that would have been worth mentioning in a Washington Post article on plans by Fannie Mae and Freddie Mac to lower the down payment requirements on the mortgages they purchase. The delinquency rate, which closely follows the default rate, is several times higher for people who put 5 percent or less down on a house than for people who put 20 percent or more down.
Contrary to what some folks seem to believe, getting moderate income people into a home that they subsequently lose to foreclosure or a distressed sale is not an effective way for them to build wealth, even if it does help build the wealth of the banks.
That is a fact that would have been worth mentioning in a Washington Post article on plans by Fannie Mae and Freddie Mac to lower the down payment requirements on the mortgages they purchase. The delinquency rate, which closely follows the default rate, is several times higher for people who put 5 percent or less down on a house than for people who put 20 percent or more down.
Contrary to what some folks seem to believe, getting moderate income people into a home that they subsequently lose to foreclosure or a distressed sale is not an effective way for them to build wealth, even if it does help build the wealth of the banks.
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Steven Pearlstein is usually pretty astute in his comments on the economy, but not today. In his complaint about Yellen’s lose monetary policy he tells readers:
“With stock and bond prices back around record levels, however, and the recession long since ended, output, employment and business lending are above where they were at the height of the bubble. That is why the Fed has been winding down the extraordinary measures it took during the recession of buying up vast quantities of Treasury and home-mortgage bonds.”
Umm, no, this is just about 100 percent wrong. The Fed is not targeting the stock market, it’s not even particularly targeting the bond market, although lower interest rates (interest rates and bond prices are inversely related) do help the economy. And the fact that employment and business lending are above pre-recession levels has almost nothing to do with the time of day.
The recession began almost 7 years ago. Economies typically grow. This means that we would expect that in 2014 we would expect that employment and lending would be much higher than they were in the fall of 2007. The Fed is not looking to get back to pre-recession levels, it is looking to get back to the economy’s potential level of output.
And, we have large amounts of data showing that we are still very far from the potential level of output. The share of the prime age population (ages 25-54) that is employed is still down by more than 3.0 percentage points from pre-recession level. The share of the workforce that would like full-time jobs but can only get part-time employment is more than 40 percent above pre-recession levels. And the weakness of the labor market is still preventing most workers from seeing real wage growth which would allow them to share in the benefits of economic growth. Also, there is zero evidence of any inflationary pressure in the economy.
For these reasons, which Yellen and other people at the Fed talk about all the time, the Fed is keeping its foot on the accelerator rather the brake. This has nothing to do with Pearlstein’s fantasies about a “Yellen put” supporting the stock market.
Steven Pearlstein is usually pretty astute in his comments on the economy, but not today. In his complaint about Yellen’s lose monetary policy he tells readers:
“With stock and bond prices back around record levels, however, and the recession long since ended, output, employment and business lending are above where they were at the height of the bubble. That is why the Fed has been winding down the extraordinary measures it took during the recession of buying up vast quantities of Treasury and home-mortgage bonds.”
Umm, no, this is just about 100 percent wrong. The Fed is not targeting the stock market, it’s not even particularly targeting the bond market, although lower interest rates (interest rates and bond prices are inversely related) do help the economy. And the fact that employment and business lending are above pre-recession levels has almost nothing to do with the time of day.
The recession began almost 7 years ago. Economies typically grow. This means that we would expect that in 2014 we would expect that employment and lending would be much higher than they were in the fall of 2007. The Fed is not looking to get back to pre-recession levels, it is looking to get back to the economy’s potential level of output.
And, we have large amounts of data showing that we are still very far from the potential level of output. The share of the prime age population (ages 25-54) that is employed is still down by more than 3.0 percentage points from pre-recession level. The share of the workforce that would like full-time jobs but can only get part-time employment is more than 40 percent above pre-recession levels. And the weakness of the labor market is still preventing most workers from seeing real wage growth which would allow them to share in the benefits of economic growth. Also, there is zero evidence of any inflationary pressure in the economy.
For these reasons, which Yellen and other people at the Fed talk about all the time, the Fed is keeping its foot on the accelerator rather the brake. This has nothing to do with Pearlstein’s fantasies about a “Yellen put” supporting the stock market.
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Yes, Robert Samuelson is warning about debt again. Apparently the sharp drop in interest rates around the world leads him to believe that investors are about to lose confidence in the ability of countries to repay their debt.
It’s great that we have Samuelson to give us these warnings, otherwise people might think that low interest rates (i.e. high bond prices) meant the markets were telling us that there is not enough debt. After all, high prices usually means demand exceeds supply.
Thankfully Jeff Bezos and the Washington Post give us Robert Samuelson to tell us to ignore textbook economics, don’t get any ideas about boosting the economy by building up infrastructure and other public investments.
“Can we avoid a global debt trap and regain faster economic growth rates that foster stability and human well-being? Whatever debt’s virtues as a first response to deep slumps, it has its limits. We cannot promote prosperity simply by piling new debts atop the old. We need to build a stronger economic foundation.”
Instead we should just be really worried because Robert Samuelson apparently has no clue what is going on.
Addendum:
It is perhaps worth reminding folks that interest payments in many cases are quite low at present, even though debt might be high. For example, even though Japan has a debt to GDP ratio of close 250 percent, its interest payments are less than 0.8 percent of GDP. In the U.S. interest payments on publicly held debt are a bit over 1.0 percent of GDP, well below the levels hit in the early 1990s. While many people raise the alarm that interest rates might rise and suddenly increase this burden, they ignore the fact that if interest rates rise, the market value of debt falls. In other words, if the interest rate on long-term debt issued by Japan were to jump to 2.0 percent from the current level of around 0.6 percent, the price of its debt would fall. Depending on the exact issue price and maturity, the drop could easily be more than 50 percent. This would go a long way toward making the current debt burdens appear much less dramatic. In short, there isn’t much of a scare story here.
Yes, Robert Samuelson is warning about debt again. Apparently the sharp drop in interest rates around the world leads him to believe that investors are about to lose confidence in the ability of countries to repay their debt.
It’s great that we have Samuelson to give us these warnings, otherwise people might think that low interest rates (i.e. high bond prices) meant the markets were telling us that there is not enough debt. After all, high prices usually means demand exceeds supply.
Thankfully Jeff Bezos and the Washington Post give us Robert Samuelson to tell us to ignore textbook economics, don’t get any ideas about boosting the economy by building up infrastructure and other public investments.
“Can we avoid a global debt trap and regain faster economic growth rates that foster stability and human well-being? Whatever debt’s virtues as a first response to deep slumps, it has its limits. We cannot promote prosperity simply by piling new debts atop the old. We need to build a stronger economic foundation.”
Instead we should just be really worried because Robert Samuelson apparently has no clue what is going on.
Addendum:
It is perhaps worth reminding folks that interest payments in many cases are quite low at present, even though debt might be high. For example, even though Japan has a debt to GDP ratio of close 250 percent, its interest payments are less than 0.8 percent of GDP. In the U.S. interest payments on publicly held debt are a bit over 1.0 percent of GDP, well below the levels hit in the early 1990s. While many people raise the alarm that interest rates might rise and suddenly increase this burden, they ignore the fact that if interest rates rise, the market value of debt falls. In other words, if the interest rate on long-term debt issued by Japan were to jump to 2.0 percent from the current level of around 0.6 percent, the price of its debt would fall. Depending on the exact issue price and maturity, the drop could easily be more than 50 percent. This would go a long way toward making the current debt burdens appear much less dramatic. In short, there isn’t much of a scare story here.
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Some of the ideas of elite pundit types are truly amazing. Roger Cohen’s NYT column today was about the fact that China’s influence in Asia is rising at the expense of the United States. He tells readers:
“A new Chinese assertiveness in the South China Sea and elsewhere is palpable. By contrast, the United States seems less focused on the region since former Secretary of State Hillary Clinton left office.”
The reality is that China has a larger economy than the United States. Its economy is already about 4 percent larger (adding in Hong Kong) and in five years it will be more than 25 percent larger and the gap is projected to continue to grow rapidly. Cohen apparently thinks that the personal interests of the secretary of state can overcome these differences in relative size.
Incredibly, among the specific policies that ranks high on his list for restoring U.S. influence in Asia is the Trans-Pacific Partnership (TPP), which Cohen describes as an ambitious free-trade agreement for the region. He blames President Obama for his “underwhelming” commitment to the pact.
In fact the TPP is very far from being a free trade deal. It’s mostly about imposing a business friendly regulatory structure on the parties to the agreement. High on the list are a series of measures that would strengthen patent monopolies and related protections, especially in the case of prescription drugs. Of course protectionism is the opposite of free trade. It means higher prices to consumers and slower growth. But apparently to Cohen, forcing consumers throughout the region (and the United States) to pay higher prices for Pfizer’s drugs is the key to restoring U.S. influence in Asia.
Some of the ideas of elite pundit types are truly amazing. Roger Cohen’s NYT column today was about the fact that China’s influence in Asia is rising at the expense of the United States. He tells readers:
“A new Chinese assertiveness in the South China Sea and elsewhere is palpable. By contrast, the United States seems less focused on the region since former Secretary of State Hillary Clinton left office.”
The reality is that China has a larger economy than the United States. Its economy is already about 4 percent larger (adding in Hong Kong) and in five years it will be more than 25 percent larger and the gap is projected to continue to grow rapidly. Cohen apparently thinks that the personal interests of the secretary of state can overcome these differences in relative size.
Incredibly, among the specific policies that ranks high on his list for restoring U.S. influence in Asia is the Trans-Pacific Partnership (TPP), which Cohen describes as an ambitious free-trade agreement for the region. He blames President Obama for his “underwhelming” commitment to the pact.
In fact the TPP is very far from being a free trade deal. It’s mostly about imposing a business friendly regulatory structure on the parties to the agreement. High on the list are a series of measures that would strengthen patent monopolies and related protections, especially in the case of prescription drugs. Of course protectionism is the opposite of free trade. It means higher prices to consumers and slower growth. But apparently to Cohen, forcing consumers throughout the region (and the United States) to pay higher prices for Pfizer’s drugs is the key to restoring U.S. influence in Asia.
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We all know that the Wall Street types find it hard to get by without a helping hand from the government (like the bailouts), but many people don’t realize all the different ways in which the financial industry manages to siphon away income from the productive economy. Floyd Norris has an interesting piece about a lawsuit coming before the Supreme Court in which an employer (Edison International) is being sued by its workers for deliberately picking a 401(k) plan with high administrative costs.
There is a procedural issue which the court must decide about how far back in time plaintiffs can go for bringing a suit. However there is also an important substantive issue. The workers are claiming that the company deliberately chose a higher cost plan, with the fees coming out of workers’ accounts, because the fund manager gave Edison a kickback.
There is a considerable amount of money at stake with this issue. Norris puts the gap in costs at roughly one-third of a percentage point. If this were applied to the more $8 trillion currently held in 401(k) type accounts, it would come to more than $25 billion a year. This is effectively money taken away from workers and given to the financial industry. This is a bit more than 30 percent of what the government is projected to spend on food stamps this year.
We all know that the Wall Street types find it hard to get by without a helping hand from the government (like the bailouts), but many people don’t realize all the different ways in which the financial industry manages to siphon away income from the productive economy. Floyd Norris has an interesting piece about a lawsuit coming before the Supreme Court in which an employer (Edison International) is being sued by its workers for deliberately picking a 401(k) plan with high administrative costs.
There is a procedural issue which the court must decide about how far back in time plaintiffs can go for bringing a suit. However there is also an important substantive issue. The workers are claiming that the company deliberately chose a higher cost plan, with the fees coming out of workers’ accounts, because the fund manager gave Edison a kickback.
There is a considerable amount of money at stake with this issue. Norris puts the gap in costs at roughly one-third of a percentage point. If this were applied to the more $8 trillion currently held in 401(k) type accounts, it would come to more than $25 billion a year. This is effectively money taken away from workers and given to the financial industry. This is a bit more than 30 percent of what the government is projected to spend on food stamps this year.
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The NYT had an interesting piece about growing opposition to Germany’s creationist economics. The piece reports that France and Italy are leading the opposition to German’s insistence that austerity is the key to economic growth, in the face of massive amounts of evidence showing that the euro zone needs stimulus to boost growth.
At one point the piece points to worries over “the prospect of falling into a deflationary trap.” It is difficult to see what anyone would be worried about. The euro zone already has an inflation rate that is far too low. The latest data show inflation to be 0.4 percent over the last year, well below its 2.0 percent target, which is itself almost certainly too low to allow for effective monetary policy given the severity of the downturn.
Lower inflation will make matters worse, but nothing happens when the number turns negative. In other words, whatever concerns people have about a future of negative inflation they should already have now about a current inflation rate that is far too low.
The NYT had an interesting piece about growing opposition to Germany’s creationist economics. The piece reports that France and Italy are leading the opposition to German’s insistence that austerity is the key to economic growth, in the face of massive amounts of evidence showing that the euro zone needs stimulus to boost growth.
At one point the piece points to worries over “the prospect of falling into a deflationary trap.” It is difficult to see what anyone would be worried about. The euro zone already has an inflation rate that is far too low. The latest data show inflation to be 0.4 percent over the last year, well below its 2.0 percent target, which is itself almost certainly too low to allow for effective monetary policy given the severity of the downturn.
Lower inflation will make matters worse, but nothing happens when the number turns negative. In other words, whatever concerns people have about a future of negative inflation they should already have now about a current inflation rate that is far too low.
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I have a pretty good track record in warning about bubbles and the damage their collapse will cause. I warned frequently and as loudly as I could about the stock bubble in the late 1990s. I quite explicitly predicted that its collapse would lead to a recession (e.g here and here). (This recession was far more serious than generally recognized — 4 years with zero net job creation). I also predicted that the collapse would cause troubles for the pension funds whose projections effectively assumed that the stock bubble would grow ever larger.
I was the earliest and clearest warner of the housing bubble. Also pointing out as early as 2002 that it would likely lead to serious trouble for Fannie and Freddie (that was easy), as well as many banks who would be stuck holding the bag at the time of the bust.
Given my past concern about bubbles, I am quite open to the view expressed by David Leonhardt in his Upshot piece that the stock market is over-valued. Leonhardt is right that price to earnings ratios are somewhat higher than their historic average. (I make comparisons of the current market valuation against average profit shares of GDP — that gets rid of the impact of the extraordinarily high profit share of recent years and the lows of the downturn.) However the key item left out of Leonhardt’s analysis is that interest rates are extraordinary low.
The decision to hold stock depends on what alternatives are available. If someone is considering buying a 10-year Treasury bond they would be looking at a nominal return of just over 2.0 percent and a real return of around 0.5 percent. By comparison, in 2000, when price-to-earnings ratios were around 30 percent higher, the nominal return on 10-year Treasury bonds was around 6.0 percent, for a real return of around 3.5 percent. To most folks those numbers would make bonds look considerably more attractive back in 2000, and therefore make stocks less attractive.
The takeaway for fans of arithmetic everywhere is that stock prices are indeed high. If you are expecting the market to give its historic 7.0 percent real returns, contact me immediately so I can sell you some swamp land in Florida. But if you are expecting a collapse like we saw in 2000-2002 or in the housing market from 2007-2011, you are going to be seriously disappointed.
I have a pretty good track record in warning about bubbles and the damage their collapse will cause. I warned frequently and as loudly as I could about the stock bubble in the late 1990s. I quite explicitly predicted that its collapse would lead to a recession (e.g here and here). (This recession was far more serious than generally recognized — 4 years with zero net job creation). I also predicted that the collapse would cause troubles for the pension funds whose projections effectively assumed that the stock bubble would grow ever larger.
I was the earliest and clearest warner of the housing bubble. Also pointing out as early as 2002 that it would likely lead to serious trouble for Fannie and Freddie (that was easy), as well as many banks who would be stuck holding the bag at the time of the bust.
Given my past concern about bubbles, I am quite open to the view expressed by David Leonhardt in his Upshot piece that the stock market is over-valued. Leonhardt is right that price to earnings ratios are somewhat higher than their historic average. (I make comparisons of the current market valuation against average profit shares of GDP — that gets rid of the impact of the extraordinarily high profit share of recent years and the lows of the downturn.) However the key item left out of Leonhardt’s analysis is that interest rates are extraordinary low.
The decision to hold stock depends on what alternatives are available. If someone is considering buying a 10-year Treasury bond they would be looking at a nominal return of just over 2.0 percent and a real return of around 0.5 percent. By comparison, in 2000, when price-to-earnings ratios were around 30 percent higher, the nominal return on 10-year Treasury bonds was around 6.0 percent, for a real return of around 3.5 percent. To most folks those numbers would make bonds look considerably more attractive back in 2000, and therefore make stocks less attractive.
The takeaway for fans of arithmetic everywhere is that stock prices are indeed high. If you are expecting the market to give its historic 7.0 percent real returns, contact me immediately so I can sell you some swamp land in Florida. But if you are expecting a collapse like we saw in 2000-2002 or in the housing market from 2007-2011, you are going to be seriously disappointed.
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Morning Edition committed one of the seven deadly sins of economic reporting when it told listeners that Europe is hurt and we are helped because oil is priced in dollars and the dollar is rising. (The biggest sin is reporting large budget numbers without any context — which will result in an unpleasant afterlife for most budget reporters.) It actually doesn’t matter that oil is priced in dollars, as some simple arithmetic quickly shows.
Let’s imagine that oil is priced in wheat. Assume the price of a barrel of oil is 20 bushels of wheat. That would translate into roughly $130 a barrel. Now suppose the dollar rises in value against the euro by 25 percent, so that instead of a euro being worth $1.35, it is only worth $1.08. If the price of oil is unchanged in wheat and the price of wheat in unchanged in dollar terms, people in the United States will now be able to buy oil for 25 percent fewer dollars than before, or roughly $104 a barrel. This means we have to give up fewer dollars to get a barrel of oil.
However is Europe hurt in this story? Under the assumptions of a constant dollar price of wheat and a constant wheat price of oil, people living in the euro zone would be paying the same number of euros for a barrel of oil as before. (It would be priced at just over 96 euros a barrel in both cases.)
Now suppose we changed everything and said that instead of being priced in wheat oil really is priced in dollars and the dollar price fell from $130 a barrel to $104 a barrel and the dollar rose by 25 percent against the euro. How is this switch from wheat pricing to dollar pricing any different from the standpoint of people living in the euro zone?
If you answered not at all, you get a free tank of gas. (Bring your copy of BTP to your favorite gas station.)
There is a very minor point that the transactions generally (but not always) take place in dollars. This means that for one millisecond it is necessary for euro zone residents and others to get dollars to buy their oil. This trivially increases the demand for dollars. (You only need the dollar for the millisecond when the transaction occurs.) Also, there is no law that requires oil to be sold for dollars. If a Russian oil company feels like contracting for oil with euro zone customers where the payment takes place in euros, there is nothing to stop them and such transactions do sometimes take place.
Long and short, a higher valued dollar means cheaper oil for people living in the United States. It doesn’t matter that oil is priced in dollars.
Morning Edition committed one of the seven deadly sins of economic reporting when it told listeners that Europe is hurt and we are helped because oil is priced in dollars and the dollar is rising. (The biggest sin is reporting large budget numbers without any context — which will result in an unpleasant afterlife for most budget reporters.) It actually doesn’t matter that oil is priced in dollars, as some simple arithmetic quickly shows.
Let’s imagine that oil is priced in wheat. Assume the price of a barrel of oil is 20 bushels of wheat. That would translate into roughly $130 a barrel. Now suppose the dollar rises in value against the euro by 25 percent, so that instead of a euro being worth $1.35, it is only worth $1.08. If the price of oil is unchanged in wheat and the price of wheat in unchanged in dollar terms, people in the United States will now be able to buy oil for 25 percent fewer dollars than before, or roughly $104 a barrel. This means we have to give up fewer dollars to get a barrel of oil.
However is Europe hurt in this story? Under the assumptions of a constant dollar price of wheat and a constant wheat price of oil, people living in the euro zone would be paying the same number of euros for a barrel of oil as before. (It would be priced at just over 96 euros a barrel in both cases.)
Now suppose we changed everything and said that instead of being priced in wheat oil really is priced in dollars and the dollar price fell from $130 a barrel to $104 a barrel and the dollar rose by 25 percent against the euro. How is this switch from wheat pricing to dollar pricing any different from the standpoint of people living in the euro zone?
If you answered not at all, you get a free tank of gas. (Bring your copy of BTP to your favorite gas station.)
There is a very minor point that the transactions generally (but not always) take place in dollars. This means that for one millisecond it is necessary for euro zone residents and others to get dollars to buy their oil. This trivially increases the demand for dollars. (You only need the dollar for the millisecond when the transaction occurs.) Also, there is no law that requires oil to be sold for dollars. If a Russian oil company feels like contracting for oil with euro zone customers where the payment takes place in euros, there is nothing to stop them and such transactions do sometimes take place.
Long and short, a higher valued dollar means cheaper oil for people living in the United States. It doesn’t matter that oil is priced in dollars.
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