Robert Samuelson apparently believes it would have based on his column today calling for more military spending. There are a few points worth noting about this piece.
First Samuelson compares current spending at 3.4 percent to the post-World War II average of 5.5 percent of GDP. For most of the post-war period we were engaged in a military build-up to counter a rival super-power (the Soviet Union). The average also includes long periods of actual war (Korea, Vietnam, Iraq I and II, and Afghanistan). It should not be surprising that at a time when the country is not nearly as engaged in armed conflicts, and faces no major foe, it would spend less on its military.
Samuelson apparently wants the money for the military to come at least in part from spending on seniors, commenting at the end: “Democrats who will cut almost anything except retirement spending.”
The cuts to retirement spending that Samuelson wants are problematic. Social Security taxes are designated for Social Security. Samuelson might not have a problem taxing people for Social Security and then using the money for the military, but the public might have a problem with that idea, as would the people who depend on their votes.
There are substantial potential savings in Medicare, but this is because the United States pays more than twice as much per person for its health care as other wealthy countries. However getting savings would require cutting the incomes of doctors, drug companies, and medical equipment suppliers. These are all very powerful lobbies which Congress is reluctant to challenge. While Samuelson implies that the issue is seniors getting benefits that are too generous, the cost issue to the government is that we pay too much for the same benefits that people get in all wealthy countries.
Robert Samuelson apparently believes it would have based on his column today calling for more military spending. There are a few points worth noting about this piece.
First Samuelson compares current spending at 3.4 percent to the post-World War II average of 5.5 percent of GDP. For most of the post-war period we were engaged in a military build-up to counter a rival super-power (the Soviet Union). The average also includes long periods of actual war (Korea, Vietnam, Iraq I and II, and Afghanistan). It should not be surprising that at a time when the country is not nearly as engaged in armed conflicts, and faces no major foe, it would spend less on its military.
Samuelson apparently wants the money for the military to come at least in part from spending on seniors, commenting at the end: “Democrats who will cut almost anything except retirement spending.”
The cuts to retirement spending that Samuelson wants are problematic. Social Security taxes are designated for Social Security. Samuelson might not have a problem taxing people for Social Security and then using the money for the military, but the public might have a problem with that idea, as would the people who depend on their votes.
There are substantial potential savings in Medicare, but this is because the United States pays more than twice as much per person for its health care as other wealthy countries. However getting savings would require cutting the incomes of doctors, drug companies, and medical equipment suppliers. These are all very powerful lobbies which Congress is reluctant to challenge. While Samuelson implies that the issue is seniors getting benefits that are too generous, the cost issue to the government is that we pay too much for the same benefits that people get in all wealthy countries.
Read More Leer más Join the discussion Participa en la discusión
The NYT gave readers only part of the story in an article on the Democratic primary race for governor of Rhode Island. It notes that state Treasurer Gina M. Raimondo is currently the frontrunner.
It then told readers in reference to Raimondo:
“The ‘tough choice’ was her overhaul of the state’s pension system in 2011. She marshaled the state’s Democratic political establishment to increase the retirement age, cut benefits and suspend annual cost-of-living adjustments for state employees until the finances of the underfunded system improved. The move was meant to save $4 billion over two decades and slow state property tax increases. …
“The pension overhaul is now at the center of a primary race for governor that has become one of the most divisive in the country.”
Raimondo did not just cut benefits. She also invested a large portion of the state pension fund with hedge funds and private equity companies under terms that were not disclosed to the public. (Raimondo formerly worked with a hedge fund.) The state’s major newspaper has sued (unsuccessfully) to force disclosure of this information.
However the issue is not just cuts to the benefits promised public sector workers. There is also a question of whether the state’s pension funds are being used to enrich Wall Street.
The NYT gave readers only part of the story in an article on the Democratic primary race for governor of Rhode Island. It notes that state Treasurer Gina M. Raimondo is currently the frontrunner.
It then told readers in reference to Raimondo:
“The ‘tough choice’ was her overhaul of the state’s pension system in 2011. She marshaled the state’s Democratic political establishment to increase the retirement age, cut benefits and suspend annual cost-of-living adjustments for state employees until the finances of the underfunded system improved. The move was meant to save $4 billion over two decades and slow state property tax increases. …
“The pension overhaul is now at the center of a primary race for governor that has become one of the most divisive in the country.”
Raimondo did not just cut benefits. She also invested a large portion of the state pension fund with hedge funds and private equity companies under terms that were not disclosed to the public. (Raimondo formerly worked with a hedge fund.) The state’s major newspaper has sued (unsuccessfully) to force disclosure of this information.
However the issue is not just cuts to the benefits promised public sector workers. There is also a question of whether the state’s pension funds are being used to enrich Wall Street.
Read More Leer más Join the discussion Participa en la discusión
The proponents of fracking have made many big claims about its economic benefits. In addition to lower cost electricity, we are also supposed to get energy independence and a boom in jobs. The NYT picked up this theme with an article that touted an “energy boom” that is lifting the heartland. The piece claims that fracking related jobs have revitalized Ohio’s economy with Youngstown being at the center of the action.
The piece tells readers:
“Here in Ohio, in an arc stretching south from Youngstown past Canton and into the rural parts of the state where much of the natural gas is being drawn from shale deep underground, entire sectors like manufacturing, hotels, real estate and even law are being reshaped. A series of recent economic indicators, including factory hiring, shows momentum building nationally in the manufacturing sector.”
“New energy production is ‘a real game-changer in terms of the U.S. economy,’ said Katy George, who leads the global manufacturing practice at McKinsey & Company, the consulting firm. ‘It also creates an opportunity for regions of the country to renew themselves.'”
That sounds really impressive. Unfortunately the data do not seem to agree. The Bureau of Labor Statistics shows that manufacturing employment in Youngstown is still down by more than 12 percent from its pre-recession level as shown in the figure below. There is a comparable story with Canton.
Manufacturing Employment in Youngstown
Source: Bureau of Labor Statistics.
While fracking jobs may have helped bring these areas up from the troughs they experienced at the bottom of the downturn, employment in both metropolitan areas is still far below 2007 levels. No one thought either city was booming at that time. In short, the data do not seem consistent with the story told in this article.
The proponents of fracking have made many big claims about its economic benefits. In addition to lower cost electricity, we are also supposed to get energy independence and a boom in jobs. The NYT picked up this theme with an article that touted an “energy boom” that is lifting the heartland. The piece claims that fracking related jobs have revitalized Ohio’s economy with Youngstown being at the center of the action.
The piece tells readers:
“Here in Ohio, in an arc stretching south from Youngstown past Canton and into the rural parts of the state where much of the natural gas is being drawn from shale deep underground, entire sectors like manufacturing, hotels, real estate and even law are being reshaped. A series of recent economic indicators, including factory hiring, shows momentum building nationally in the manufacturing sector.”
“New energy production is ‘a real game-changer in terms of the U.S. economy,’ said Katy George, who leads the global manufacturing practice at McKinsey & Company, the consulting firm. ‘It also creates an opportunity for regions of the country to renew themselves.'”
That sounds really impressive. Unfortunately the data do not seem to agree. The Bureau of Labor Statistics shows that manufacturing employment in Youngstown is still down by more than 12 percent from its pre-recession level as shown in the figure below. There is a comparable story with Canton.
Manufacturing Employment in Youngstown
Source: Bureau of Labor Statistics.
While fracking jobs may have helped bring these areas up from the troughs they experienced at the bottom of the downturn, employment in both metropolitan areas is still far below 2007 levels. No one thought either city was booming at that time. In short, the data do not seem consistent with the story told in this article.
Read More Leer más Join the discussion Participa en la discusión
I’m a big fan of nature and hiking, but that number doesn’t sound quite right to me. The Washington Post had an article on the recreation business in which it told readers that the country spends $646 billion a year on outdoor recreation and related spending. This figures comes to a bit more than $2,000 per person. If we assume that half of the public doesn’t really do anything that fits the bill, then this means the other half spend $4,000 per person per year on outdoor recreation. That comes to $16,000 per year for a family of four.
Let’s see, you can a pretty nice tent for a few hundred dollars, hiking boots can cost $150-$200, a good sleeping bag in the same range. That could get us to $700, but of course you don’t buy these things every year. If you assume they last an average of 3-4 years, these items will only get you about $200 per year, less than one twentieth of the way to our $4,000 target.
According to the article, the $646 billion figure came from an industry group. The link does not go to a report that could explain how they got the number, but rather a map showing a state by state breakdown. It’s not clear how the industry group came up with its number, but it’s virtually certain they included many items that most of us would not consider spending on outdoor recreation. The Post should be a bit more careful in uncritically accepting numbers from industry groups.
Correction:
Robert Salzberg points me to a link later in the piece that goes to the study itself. The study shows that the bulk of its $646 billion in spending is based on food, entertainment, lodging, and travel related expenses. This presumably means that if someone flies across country to visit family members and also goes to a national park then the study would count the air fare and the money spent on lodging throughout their trip. The study does not describe the methodology in full, but it does give a non-working URL as the location of a technical report.
I’m a big fan of nature and hiking, but that number doesn’t sound quite right to me. The Washington Post had an article on the recreation business in which it told readers that the country spends $646 billion a year on outdoor recreation and related spending. This figures comes to a bit more than $2,000 per person. If we assume that half of the public doesn’t really do anything that fits the bill, then this means the other half spend $4,000 per person per year on outdoor recreation. That comes to $16,000 per year for a family of four.
Let’s see, you can a pretty nice tent for a few hundred dollars, hiking boots can cost $150-$200, a good sleeping bag in the same range. That could get us to $700, but of course you don’t buy these things every year. If you assume they last an average of 3-4 years, these items will only get you about $200 per year, less than one twentieth of the way to our $4,000 target.
According to the article, the $646 billion figure came from an industry group. The link does not go to a report that could explain how they got the number, but rather a map showing a state by state breakdown. It’s not clear how the industry group came up with its number, but it’s virtually certain they included many items that most of us would not consider spending on outdoor recreation. The Post should be a bit more careful in uncritically accepting numbers from industry groups.
Correction:
Robert Salzberg points me to a link later in the piece that goes to the study itself. The study shows that the bulk of its $646 billion in spending is based on food, entertainment, lodging, and travel related expenses. This presumably means that if someone flies across country to visit family members and also goes to a national park then the study would count the air fare and the money spent on lodging throughout their trip. The study does not describe the methodology in full, but it does give a non-working URL as the location of a technical report.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post article on the August job report, which showed the economy adding 142,000 jobs in August, told readers:
“Economists, however, were quick to caution that the weak jobs number is an outlier at a time of several other stronger measures of economic activity, including auto sales — which soared in August — and exports. Markets were little-changed on the news and ended the day in positive territory.
‘I don’t believe the numbers,’ said Tim Hopper, chief economist at TIAA-CREF. ‘Not only are they very weak, they just don’t match anything else that’s in the market right now.'”
Actually, the numbers match the market very well. The economy grew at a 1.1 percent annual rate in the first half of the year. Faster growth in the second half of the year might bring the rate for the whole year to 2.0 percent. If we assume that productivity growth is 1.5 percent, this would imply an increase in the demand for labor of 0.5 percent. That translates into 700,000 jobs for the year or roughly 60,000 a month.
Even if we assume productivity growth of just 1.0 percent (this is well below the rate we saw even in the slowdown years from 1973-1995), the implied rate of job creation would just be 1.4 million a year, or 120,000 a month.
The article gives no explanation of why any economist would expect a much faster rate of job growth when the economy is growing so slowly.
The Washington Post article on the August job report, which showed the economy adding 142,000 jobs in August, told readers:
“Economists, however, were quick to caution that the weak jobs number is an outlier at a time of several other stronger measures of economic activity, including auto sales — which soared in August — and exports. Markets were little-changed on the news and ended the day in positive territory.
‘I don’t believe the numbers,’ said Tim Hopper, chief economist at TIAA-CREF. ‘Not only are they very weak, they just don’t match anything else that’s in the market right now.'”
Actually, the numbers match the market very well. The economy grew at a 1.1 percent annual rate in the first half of the year. Faster growth in the second half of the year might bring the rate for the whole year to 2.0 percent. If we assume that productivity growth is 1.5 percent, this would imply an increase in the demand for labor of 0.5 percent. That translates into 700,000 jobs for the year or roughly 60,000 a month.
Even if we assume productivity growth of just 1.0 percent (this is well below the rate we saw even in the slowdown years from 1973-1995), the implied rate of job creation would just be 1.4 million a year, or 120,000 a month.
The article gives no explanation of why any economist would expect a much faster rate of job growth when the economy is growing so slowly.
Read More Leer más Join the discussion Participa en la discusión
An interview on Morning Edition with Edward Lucas, senior editor at The Economist and author of The New Cold War, likely mislead listeners about the path of the Russian economy and corruption under President Putin’s period in power. Lucas implied that Russians are likely to be very unhappy about the current state of the economy and public services and angered over the extent of corruption in the country.
While undoubtedly there is much corruption in Russia under Putin, corruption did not begin with Putin. According to the World Bank (Table 4.3A), Russia got $8.3 billion for all the assets it privatized in the 1990s. This was a period in which it sold off the vast majority of the industry built up during the Soviet years, as well as much of its oil and natural resources. By comparison, Snapchat currently has a market value of $10 billion. During this period well-connected people were able to become billionaires by buying assets at prices far below the market level.
This was also a period in which Russia’s economy collapsed. According to data from the International Monetary Fund, Russia’s economy shrank by almost 30 percent during President Yeltsin’s tenure. (This is about six times the drop in GDP the U.S. saw in the Great Recession.) Since Putin came to power in 1999 it has more than doubled in size. This economic performance likely explains much of the support shown for Putin in public opinion polls.
Source: International Monetary Fund.
Note: Name of president corrected — the decline took place under Yeltsin, not Putin. Thanks Daniel. Also, Putin came to power in 1999, not 1998 as previously written.
An interview on Morning Edition with Edward Lucas, senior editor at The Economist and author of The New Cold War, likely mislead listeners about the path of the Russian economy and corruption under President Putin’s period in power. Lucas implied that Russians are likely to be very unhappy about the current state of the economy and public services and angered over the extent of corruption in the country.
While undoubtedly there is much corruption in Russia under Putin, corruption did not begin with Putin. According to the World Bank (Table 4.3A), Russia got $8.3 billion for all the assets it privatized in the 1990s. This was a period in which it sold off the vast majority of the industry built up during the Soviet years, as well as much of its oil and natural resources. By comparison, Snapchat currently has a market value of $10 billion. During this period well-connected people were able to become billionaires by buying assets at prices far below the market level.
This was also a period in which Russia’s economy collapsed. According to data from the International Monetary Fund, Russia’s economy shrank by almost 30 percent during President Yeltsin’s tenure. (This is about six times the drop in GDP the U.S. saw in the Great Recession.) Since Putin came to power in 1999 it has more than doubled in size. This economic performance likely explains much of the support shown for Putin in public opinion polls.
Source: International Monetary Fund.
Note: Name of president corrected — the decline took place under Yeltsin, not Putin. Thanks Daniel. Also, Putin came to power in 1999, not 1998 as previously written.
Read More Leer más Join the discussion Participa en la discusión
That’s the question millions are asking after seeing the NYT article on the debate between California governor Jerry Brown and Neel T. Kaskari. The piece told readers:
“Again and again, Mr. Kashkari criticized the ambitious high-speed rail project from San Francisco to Los Angeles that Mr. Brown has pushed even as it has lost popularity with voters and some lawmakers, and even as Republicans in Washington have said they would refuse to fund it.”
Other than giving us the NYT’s assessment of the project it is not clear what information the word “ambitious” provides to readers.
That’s the question millions are asking after seeing the NYT article on the debate between California governor Jerry Brown and Neel T. Kaskari. The piece told readers:
“Again and again, Mr. Kashkari criticized the ambitious high-speed rail project from San Francisco to Los Angeles that Mr. Brown has pushed even as it has lost popularity with voters and some lawmakers, and even as Republicans in Washington have said they would refuse to fund it.”
Other than giving us the NYT’s assessment of the project it is not clear what information the word “ambitious” provides to readers.
Read More Leer más Join the discussion Participa en la discusión
A useful NYT article on the latest moves by the European Central Bank’s to try to prop up the euro zone economy included a comment near the end:
“Thursday’s moves signaled that at least one European institution is doing all it can to avert the threat of deflation — the pernicious downward spiral of prices that often leads to high unemployment.”
Actually there is no basis for the fears of this sort of downward spiral. As the piece correctly points out, the euro zone economy is already suffering from very low inflation. With many long-term loans contracted with the expectation of much higher rates of inflation, the current near zero rate of inflation is imposing serious burdens on debtors. The low rate of inflation also means a higher real interest rate for firms considering investments for the future.
Crossing zero from low rates of inflation to low rates of deflation doesn’t change this story. Having a lower rate of inflation makes matters worse, but there is no particular importance to crossing zero. (At low rates of inflation, the prices of many goods and services are already falling.)
There could be a problem if there was a downward spiral with deflation leading to more unemployment, leading to more deflation, but we have not seen anything like this in a wealthy country since the Great Depression. Even Japan never really saw anything along these lines. It’s inflation rate fell to -1.0 percent in 1999, was -0.7 percent in 2000, and peaked at -1.5 percent in 2001. It became positive again in 2004 and remained positive, with the exception of 2005 until the economic crisis in 2009.
There was no tendency for the rate of deflation to continue to get more rapid during this period. In other words, there is zero reason to think that anything qualitatively different happens to an economy if the inflation rate turns negative, except that in a weak economy a lower inflation rate is worse than a higher one.
A useful NYT article on the latest moves by the European Central Bank’s to try to prop up the euro zone economy included a comment near the end:
“Thursday’s moves signaled that at least one European institution is doing all it can to avert the threat of deflation — the pernicious downward spiral of prices that often leads to high unemployment.”
Actually there is no basis for the fears of this sort of downward spiral. As the piece correctly points out, the euro zone economy is already suffering from very low inflation. With many long-term loans contracted with the expectation of much higher rates of inflation, the current near zero rate of inflation is imposing serious burdens on debtors. The low rate of inflation also means a higher real interest rate for firms considering investments for the future.
Crossing zero from low rates of inflation to low rates of deflation doesn’t change this story. Having a lower rate of inflation makes matters worse, but there is no particular importance to crossing zero. (At low rates of inflation, the prices of many goods and services are already falling.)
There could be a problem if there was a downward spiral with deflation leading to more unemployment, leading to more deflation, but we have not seen anything like this in a wealthy country since the Great Depression. Even Japan never really saw anything along these lines. It’s inflation rate fell to -1.0 percent in 1999, was -0.7 percent in 2000, and peaked at -1.5 percent in 2001. It became positive again in 2004 and remained positive, with the exception of 2005 until the economic crisis in 2009.
There was no tendency for the rate of deflation to continue to get more rapid during this period. In other words, there is zero reason to think that anything qualitatively different happens to an economy if the inflation rate turns negative, except that in a weak economy a lower inflation rate is worse than a higher one.
Read More Leer más Join the discussion Participa en la discusión
Federal Reserve Board Chair Janet Yellen is a serious scholar of economics. That means that she wants to hear a range of arguments and consider them carefully. Unfortunately we don’t live in a political world where such concern with the truth is the norm.
For this reason it is unfortunate that Yellen speculated in her Jackson Hole speech last month that one reason for weak wage growth could be pent-up real wage declines. The argument is that if we think that firms would have lowered real wages, but could not because they did not want to impose nominal wage cuts, then there should be a number of workers whose real wages are higher than is justified by their productivity.
The implication of this story is that when labor markets tighten, these workers will initially see no nominal increase in wages since it will take some time for their real wages to fall to a level in line with productivity. But then we get a story where we end this pent-up wage decline and then these workers would again see nominal wage growth. This is then presented as a kicker to inflation.
It’s reasonable for Yellen to consider such issues, but naturally the inflation hawks are seeing this story as yet another argument for slamming down brakes on the economy and job growth. Most of us would believe as a fairly simple story that in a tighter labor market there is more upward pressure on wages and therefore somewhat more risk of inflation. But how is this changed by the pent-up wage decline story?
What percent of the workforce do we think can be in this boat, 5 percent, 10 percent, 20 percent? It seems hard to imagine it would be much over 10 percent of the workforce that could conceivably be in this situation, especially when we consider that 4 million workers, roughly 3 percent of the workforce, leave their jobs every month.
But let’s say that we have 10 percent of the workforce who have some degree of pent-up wage declines. The issue is what happens when this ends? The first thing we have to remember is that the pent-up declines won’t end all at once. Workers would have different degrees of pent-up wage declines.
Let’s say that the pent-up declines end over 3 years. This means that in each of those three years, if we start from our 10 percent number, 3.3 percent of the workforce suddenly goes from seing zero nominal wage increases to seeing 2.0 percent pay hikes in order to have their wages keep pace with inflation. And this raises the overall rate of inflation by 0.07 percentage points. Get out the wheelbarrows of money, hyperinflation is just around the corner.
Federal Reserve Board Chair Janet Yellen is a serious scholar of economics. That means that she wants to hear a range of arguments and consider them carefully. Unfortunately we don’t live in a political world where such concern with the truth is the norm.
For this reason it is unfortunate that Yellen speculated in her Jackson Hole speech last month that one reason for weak wage growth could be pent-up real wage declines. The argument is that if we think that firms would have lowered real wages, but could not because they did not want to impose nominal wage cuts, then there should be a number of workers whose real wages are higher than is justified by their productivity.
The implication of this story is that when labor markets tighten, these workers will initially see no nominal increase in wages since it will take some time for their real wages to fall to a level in line with productivity. But then we get a story where we end this pent-up wage decline and then these workers would again see nominal wage growth. This is then presented as a kicker to inflation.
It’s reasonable for Yellen to consider such issues, but naturally the inflation hawks are seeing this story as yet another argument for slamming down brakes on the economy and job growth. Most of us would believe as a fairly simple story that in a tighter labor market there is more upward pressure on wages and therefore somewhat more risk of inflation. But how is this changed by the pent-up wage decline story?
What percent of the workforce do we think can be in this boat, 5 percent, 10 percent, 20 percent? It seems hard to imagine it would be much over 10 percent of the workforce that could conceivably be in this situation, especially when we consider that 4 million workers, roughly 3 percent of the workforce, leave their jobs every month.
But let’s say that we have 10 percent of the workforce who have some degree of pent-up wage declines. The issue is what happens when this ends? The first thing we have to remember is that the pent-up declines won’t end all at once. Workers would have different degrees of pent-up wage declines.
Let’s say that the pent-up declines end over 3 years. This means that in each of those three years, if we start from our 10 percent number, 3.3 percent of the workforce suddenly goes from seing zero nominal wage increases to seeing 2.0 percent pay hikes in order to have their wages keep pace with inflation. And this raises the overall rate of inflation by 0.07 percentage points. Get out the wheelbarrows of money, hyperinflation is just around the corner.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post thinks it has found a fatal flaw in the argument that fast food workers should have higher wages:
“The problem: Fast food is a low-profit margin business. How low? According to Yahoo Finance, 2.4 percent. Just look at the headline: ‘Fast-Food Chains Aren’t as Rich as Protesters Think.'”
It is likely that most of the people organizing the push for higher wages in the industry are fully aware of “the problem.” If workers got higher wages they would presumably be offset to some extent by lower profits, lower pay for top management, increases in productivity, but there would also be some increase in higher prices.
This would reverse a process whereby fast food prices would have dropped relative to the price of other goods as the wages of workers in the industry fell relative to the economy-wide average. There is no obvious “problem” with this reversal. It essentially means that those on the bottom would enjoy higher real wages and living standards, while those on top would see a relative decline in their living standards. It would only be a relative decline, except for those at the very top, since if the economy is growing normally, higher paid workers could still get a share of productivity gains.
The Washington Post thinks it has found a fatal flaw in the argument that fast food workers should have higher wages:
“The problem: Fast food is a low-profit margin business. How low? According to Yahoo Finance, 2.4 percent. Just look at the headline: ‘Fast-Food Chains Aren’t as Rich as Protesters Think.'”
It is likely that most of the people organizing the push for higher wages in the industry are fully aware of “the problem.” If workers got higher wages they would presumably be offset to some extent by lower profits, lower pay for top management, increases in productivity, but there would also be some increase in higher prices.
This would reverse a process whereby fast food prices would have dropped relative to the price of other goods as the wages of workers in the industry fell relative to the economy-wide average. There is no obvious “problem” with this reversal. It essentially means that those on the bottom would enjoy higher real wages and living standards, while those on top would see a relative decline in their living standards. It would only be a relative decline, except for those at the very top, since if the economy is growing normally, higher paid workers could still get a share of productivity gains.
Read More Leer más Join the discussion Participa en la discusión
