Read More Leer más Join the discussion Participa en la discusión
Neil Irwin had a good post on the latest Case-Shiller house price data. he argued that the flat, or even modestly declining house prices are good news. This means that prices are now more or less following a normal pattern where they move pretty much in step with the economy.
This is right, with one important qualification. The Case-Shiller tiered price indexes show some worrying numbers in some cities for the bottom third of the housing market. Prices for the bottom tier fell by 0.7 percent in San Francisco in June. In Atlanta, the index showed a drop of 1.3 percent and in Minneapolis the decline was 4.0 percent. This may just be a monthly blip, but there is a real risk that in some areas this could be the beginning of another plunge in low-end house prices.
House prices for the bottom tier have been on a real roller coaster ride for some time. They were inflated in the bubble years by subprime loans and then plummeted when this source of lending collapsed. Then they were propped up by one of the most hare-brained policies of all-time, the first-time homebuyers tax credit. Predictably, prices in the bottom tier plummeted again when the credit ended. (Typical of the honesty people came to expect from Timothy Geithner, his book had a chart (p 304) which showed the uptick in house prices caused by the credit, but ends before the subsequent fall.)
Price recovered again and began to rise rapidly through the first half of 2013. There was a real danger of a new bubble forming, but then Bernanke’s famous taper talk took the wind out of the market. The concern now is that with investors leaving the market prices in the bottom tier in some cities will take another major hit. This is not likely to have much of an effect on the national economy but could be bad news for moderate income homeowners that bought in near a temporary peak.
Neil Irwin had a good post on the latest Case-Shiller house price data. he argued that the flat, or even modestly declining house prices are good news. This means that prices are now more or less following a normal pattern where they move pretty much in step with the economy.
This is right, with one important qualification. The Case-Shiller tiered price indexes show some worrying numbers in some cities for the bottom third of the housing market. Prices for the bottom tier fell by 0.7 percent in San Francisco in June. In Atlanta, the index showed a drop of 1.3 percent and in Minneapolis the decline was 4.0 percent. This may just be a monthly blip, but there is a real risk that in some areas this could be the beginning of another plunge in low-end house prices.
House prices for the bottom tier have been on a real roller coaster ride for some time. They were inflated in the bubble years by subprime loans and then plummeted when this source of lending collapsed. Then they were propped up by one of the most hare-brained policies of all-time, the first-time homebuyers tax credit. Predictably, prices in the bottom tier plummeted again when the credit ended. (Typical of the honesty people came to expect from Timothy Geithner, his book had a chart (p 304) which showed the uptick in house prices caused by the credit, but ends before the subsequent fall.)
Price recovered again and began to rise rapidly through the first half of 2013. There was a real danger of a new bubble forming, but then Bernanke’s famous taper talk took the wind out of the market. The concern now is that with investors leaving the market prices in the bottom tier in some cities will take another major hit. This is not likely to have much of an effect on the national economy but could be bad news for moderate income homeowners that bought in near a temporary peak.
Read More Leer más Join the discussion Participa en la discusión
Jared has a few more points in response to my least post — certainly very reasonable concerns. As far as his comparison of me to Mr. Burns, I’ll just say “excellent!”
Jared has a few more points in response to my least post — certainly very reasonable concerns. As far as his comparison of me to Mr. Burns, I’ll just say “excellent!”
Read More Leer más Join the discussion Participa en la discusión
The headline of the Washington Post piece on the new budget projections from the Congressional Budget Office (CBO) told readers, “CBO: Deficit falls to $506 billion in 2014, but debt continues to rise.”
Both parts of this are wrong if the comparison is the most recent prior set of projections. The deficit projected for 2014 is actually somewhat higher in the most recent projections, $506 billion compared to $492 billion in the projections made in April. Both figures are below last year’s deficit of $680 billion. Measured as a share of GDP the deficit fell from 4.1 percent in 2013 to 2.9 percent in the most recent projections for 2014.
However the debt numbers in the new projections are lower than the debt numbers in the prior set. CBO now projects that the debt will be 77.2 percent of GDP at the end of the projection period in 2024. It previous had projected a debt to GDP ratio of 78.1 percent.
The article got both of these points right.
The headline of the Washington Post piece on the new budget projections from the Congressional Budget Office (CBO) told readers, “CBO: Deficit falls to $506 billion in 2014, but debt continues to rise.”
Both parts of this are wrong if the comparison is the most recent prior set of projections. The deficit projected for 2014 is actually somewhat higher in the most recent projections, $506 billion compared to $492 billion in the projections made in April. Both figures are below last year’s deficit of $680 billion. Measured as a share of GDP the deficit fell from 4.1 percent in 2013 to 2.9 percent in the most recent projections for 2014.
However the debt numbers in the new projections are lower than the debt numbers in the prior set. CBO now projects that the debt will be 77.2 percent of GDP at the end of the projection period in 2024. It previous had projected a debt to GDP ratio of 78.1 percent.
The article got both of these points right.
Read More Leer más Join the discussion Participa en la discusión
It’s always nice when a prominent economist and the NYT pick up on a line of work that we started at CEPR. That is why we are all happy to see David Leonhardt’s piece on a new paper by Alan Krueger, the former head of President Obama’s Council of Economic Advisers.
The gist of the piece is that Krueger has discovered that many people do not respond to the Current Population Survey (CPS), the main survey used to measure the unemployment rate. Krueger discovered that the unemployment rates are higher for people the first month that they are in the survey than in later months. (People are in the survey for four months, then out for eight months and then back for four months.) The implication is that people who are not responding may be more likely to be unemployed than people who are responding.
This fits well with analysis done by John Schmitt and me nine years ago. That work noted a sharp gap between the employment rates reported in the 2000 Census and the employment rates reported in the CPS for the overlapping months, with the CPS rates being much higher. (The Census has a response rate close to 99 percent, whereas the coverage rate for the CPS is under 90 percent overall. It is under 70 percent for young black men.) The analysis focused on employment rates because employment is much more well-defined than unemployment.
The analysis also noted that the gap was largest for the groups with the lowest coverage rates. In particular the gap was largest for young black men, with the CPS showing an employment rate that was 8.0 percentage points higher than the Census data for the same month. Our conclusion was that the people who respond to the survey are more likely to be employed than the people who don’t respond. It’s good to see that Krueger appears to have concurred in this finding nine years later.
Note: Link and president corrected.
It’s always nice when a prominent economist and the NYT pick up on a line of work that we started at CEPR. That is why we are all happy to see David Leonhardt’s piece on a new paper by Alan Krueger, the former head of President Obama’s Council of Economic Advisers.
The gist of the piece is that Krueger has discovered that many people do not respond to the Current Population Survey (CPS), the main survey used to measure the unemployment rate. Krueger discovered that the unemployment rates are higher for people the first month that they are in the survey than in later months. (People are in the survey for four months, then out for eight months and then back for four months.) The implication is that people who are not responding may be more likely to be unemployed than people who are responding.
This fits well with analysis done by John Schmitt and me nine years ago. That work noted a sharp gap between the employment rates reported in the 2000 Census and the employment rates reported in the CPS for the overlapping months, with the CPS rates being much higher. (The Census has a response rate close to 99 percent, whereas the coverage rate for the CPS is under 90 percent overall. It is under 70 percent for young black men.) The analysis focused on employment rates because employment is much more well-defined than unemployment.
The analysis also noted that the gap was largest for the groups with the lowest coverage rates. In particular the gap was largest for young black men, with the CPS showing an employment rate that was 8.0 percentage points higher than the Census data for the same month. Our conclusion was that the people who respond to the survey are more likely to be employed than the people who don’t respond. It’s good to see that Krueger appears to have concurred in this finding nine years later.
Note: Link and president corrected.
Read More Leer más Join the discussion Participa en la discusión
A New York Times article on the role that the debate over the Export-Import Bank is playing in the North Carolina senate race told readers that the bank:
“says it makes a profit and supported more than 200,000 jobs with $37.4 billion in transactions last year.”
It would have been worth including the views of someone other than the bank who could have put these claims in context. If companies did not have access to the Bank’s loans at below market interest rates, most of these sales would still take place. The companies would just have lower profit margins. As a result, the number of jobs that would be lost is a fraction of the number cited here.
Furthermore, in standard models it would be expected that with fewer exports subsidized by the bank, the dollar would fall in value, which would make other exports more profitable. The net effect on jobs and GDP would be close to zero and quite possibly positive. It would be possible to construct the exact same story about any industry that is subsidized by the government with loans offered at below market interest rates.
A New York Times article on the role that the debate over the Export-Import Bank is playing in the North Carolina senate race told readers that the bank:
“says it makes a profit and supported more than 200,000 jobs with $37.4 billion in transactions last year.”
It would have been worth including the views of someone other than the bank who could have put these claims in context. If companies did not have access to the Bank’s loans at below market interest rates, most of these sales would still take place. The companies would just have lower profit margins. As a result, the number of jobs that would be lost is a fraction of the number cited here.
Furthermore, in standard models it would be expected that with fewer exports subsidized by the bank, the dollar would fall in value, which would make other exports more profitable. The net effect on jobs and GDP would be close to zero and quite possibly positive. It would be possible to construct the exact same story about any industry that is subsidized by the government with loans offered at below market interest rates.
Read More Leer más Join the discussion Participa en la discusión
A Vox piece on soaring textbook prices told readers:
“And the college textbook market has changed, too. Publishers used to spread out the cost of a new edition over five years before publishing the next edition and starting the cycle over. Since the publishing industry began consolidating in the 1980s — five major publishers now control 80 percent of the market — competition has become keener, and the window before a new edition has narrowed from five years to three. That means higher prices so that publishers can recoup the costs and make a profit.”
Let’s see, competition has become keener as the industry got more concentrated, causing prices to rise? That doesn’t sound like the textbook economics I learned.
This sounds more like a story where an industry grew more oligopolistic. Rather than competing on price, textbook makers compete on quality (or the appearance of quality — to keep the analogy to the prescription drug industry used in the piece). There is an implicit agreement not to try to undercut each other on price, since the big five recognize they would all end up losers in that story.
This sounds like a case where a bit of anti-trust action might do lots of good. Alternatively, a small amount of public funding for open source textbook production may wipe out the bastards altogether.
A Vox piece on soaring textbook prices told readers:
“And the college textbook market has changed, too. Publishers used to spread out the cost of a new edition over five years before publishing the next edition and starting the cycle over. Since the publishing industry began consolidating in the 1980s — five major publishers now control 80 percent of the market — competition has become keener, and the window before a new edition has narrowed from five years to three. That means higher prices so that publishers can recoup the costs and make a profit.”
Let’s see, competition has become keener as the industry got more concentrated, causing prices to rise? That doesn’t sound like the textbook economics I learned.
This sounds more like a story where an industry grew more oligopolistic. Rather than competing on price, textbook makers compete on quality (or the appearance of quality — to keep the analogy to the prescription drug industry used in the piece). There is an implicit agreement not to try to undercut each other on price, since the big five recognize they would all end up losers in that story.
This sounds like a case where a bit of anti-trust action might do lots of good. Alternatively, a small amount of public funding for open source textbook production may wipe out the bastards altogether.
Read More Leer más Join the discussion Participa en la discusión
That’s right, you might have thought there was a debate on whether the neo-liberal policies pursued by Brazil and other Latin American countries promoted or retarded growth, but the NYT settled the issue. It refers to the policies put in place by Social Democratic Party from 1994-2002 and then tells readers:
“The measures vanquished galloping inflation, opening the way for the next decade’s growth.”
This voice of authority should perhaps explain why it took seven years of moderate inflation before growth could pick up. Inflation fell back to 6.9 percent in 1997 (it had been over 1000 percent), the growth rate crossed 5.0 percent in 2004 and remained at a respectable pace until the world financial crisis led to a recession in 2009.
That’s right, you might have thought there was a debate on whether the neo-liberal policies pursued by Brazil and other Latin American countries promoted or retarded growth, but the NYT settled the issue. It refers to the policies put in place by Social Democratic Party from 1994-2002 and then tells readers:
“The measures vanquished galloping inflation, opening the way for the next decade’s growth.”
This voice of authority should perhaps explain why it took seven years of moderate inflation before growth could pick up. Inflation fell back to 6.9 percent in 1997 (it had been over 1000 percent), the growth rate crossed 5.0 percent in 2004 and remained at a respectable pace until the world financial crisis led to a recession in 2009.
Read More Leer más Join the discussion Participa en la discusión
My friend Jared Bernstein had a piece in the NYT warning against plans to eliminate the corporate income tax. He argues that the corporate income is paid primarily by owners of capital, who in turn are primarily wealthy people. Therefore, if we eliminate the corporate income tax we will be giving a big tax break to the wealthy.
This is largely true. Eliminating the corporate income tax without some major increases in the personal tax rates for high income people would be a big gift to the wealthy. And as much as we would all like to help our favorite billionaires, they are probably not the ones most in need of a hand at the moment.
But the story on elimination may be a bit brighter than Jared implies. First, it is important to remember that not all of the corporate income tax comes out of corporate profits. Due to feedback effects (less investment), some portion will come out of wages. The model used by the Tax Policy Center of the Urban Institute and Brookings Institution put the split at 80 percent profits and 20 percent wages. This means that if we lose $100 billion in corporate income taxes we are effectively losing $80 billion in revenue from rich people.
But even this is somewhat of an overstatement. If companies had $80 billion in additional after-tax profits, then they would pay roughly half of this out in dividends, or $40 billion. If we assume for simplicity that all of this is paid to high end individuals, then we will tax back 20 percent of this amount or $8 billion. (Dividends are taxed at roughly half of the rate of normal income. This would presumably change if we eliminated the corporate income tax.) This means the net loss of revenue from rich people is $72 billion.
Now let’s consider the tax evasion industry that is created by the corporate income tax. The corporate income tax use to raise close to 4.0 percent of GDP. In recent years it has been less than 2.0 percent even though corporate profits are at a record high as a share of income. Part of the drop is explained by a drop in the top tax rate from 50 percent to 35 percent. However most of this decline is explained by more effective forms of tax avoidance or evasion. (Avoidance is legal.)
The question is, how much will a company pay to avoid paying $100 in income taxes? The answer is up to $99.99. There are a lot of companies that are paying lots of money to avoid paying corporate income taxes. It is likely that a very substantial portion of that lost 2.0 percentage points of GDP in corporate income taxes ($350 billion a year in today’s economy) is instead being paid to the income tax avoidance industry (a.k.a. the financial sector).
To take one important example, much of the bread and butter of the private equity industry is bringing creative tax schemes to smaller businesses that lacked the expertise to do it themselves. To personalize this some, think of Mitt Romney. Much of the story of his wealth was the corporate income tax. By devising clever schemes that allowed businesses his firm took over to escape the tax, he was able to resell these businesses at an enormous profit. In this way, the corporate income tax is not just a way of taking money from rich people, it is also a way to give money to rich people by creating enormous profit opportunities in altogether unproductive areas of the economy.
And Mitt Romney’s wealth has direct ramifications for the rest of us. Suppose Mitt Romney spends a big chunk of his wealth building a big new house. In the context of a depressed economy, any spending is good for growth and jobs, so his consumption is a net plus just like anyone else’s consumption. However as we start to get to the point where the inflation hawks are bringing enough pressure to bear on the Fed to force it to raise interest rates and slow the economy, Romney’s construction project will effectively be crowding out other spending. The Fed will be raising rates sooner than it otherwise would have because of the riches Romney accumulated from designing ways to avoid the corporate income tax.
If we assume that roughly half of the drop in corporate income tax is now income for the tax avoidance industry, then this means that we are giving them 1.0 percent of GDP to raise 1.15 percent of GDP (0.72*1.6 percent of GDP raised in corporate income taxes) in taxes from rich people.
In this fuller context, the corporate income tax is a much more questionable proposition. It seems very plausible that we could design a system that will raise as much money from the rich with an increase in personal tax rates, while at the same time destroying the tax avoidance industry.
My friend Jared Bernstein had a piece in the NYT warning against plans to eliminate the corporate income tax. He argues that the corporate income is paid primarily by owners of capital, who in turn are primarily wealthy people. Therefore, if we eliminate the corporate income tax we will be giving a big tax break to the wealthy.
This is largely true. Eliminating the corporate income tax without some major increases in the personal tax rates for high income people would be a big gift to the wealthy. And as much as we would all like to help our favorite billionaires, they are probably not the ones most in need of a hand at the moment.
But the story on elimination may be a bit brighter than Jared implies. First, it is important to remember that not all of the corporate income tax comes out of corporate profits. Due to feedback effects (less investment), some portion will come out of wages. The model used by the Tax Policy Center of the Urban Institute and Brookings Institution put the split at 80 percent profits and 20 percent wages. This means that if we lose $100 billion in corporate income taxes we are effectively losing $80 billion in revenue from rich people.
But even this is somewhat of an overstatement. If companies had $80 billion in additional after-tax profits, then they would pay roughly half of this out in dividends, or $40 billion. If we assume for simplicity that all of this is paid to high end individuals, then we will tax back 20 percent of this amount or $8 billion. (Dividends are taxed at roughly half of the rate of normal income. This would presumably change if we eliminated the corporate income tax.) This means the net loss of revenue from rich people is $72 billion.
Now let’s consider the tax evasion industry that is created by the corporate income tax. The corporate income tax use to raise close to 4.0 percent of GDP. In recent years it has been less than 2.0 percent even though corporate profits are at a record high as a share of income. Part of the drop is explained by a drop in the top tax rate from 50 percent to 35 percent. However most of this decline is explained by more effective forms of tax avoidance or evasion. (Avoidance is legal.)
The question is, how much will a company pay to avoid paying $100 in income taxes? The answer is up to $99.99. There are a lot of companies that are paying lots of money to avoid paying corporate income taxes. It is likely that a very substantial portion of that lost 2.0 percentage points of GDP in corporate income taxes ($350 billion a year in today’s economy) is instead being paid to the income tax avoidance industry (a.k.a. the financial sector).
To take one important example, much of the bread and butter of the private equity industry is bringing creative tax schemes to smaller businesses that lacked the expertise to do it themselves. To personalize this some, think of Mitt Romney. Much of the story of his wealth was the corporate income tax. By devising clever schemes that allowed businesses his firm took over to escape the tax, he was able to resell these businesses at an enormous profit. In this way, the corporate income tax is not just a way of taking money from rich people, it is also a way to give money to rich people by creating enormous profit opportunities in altogether unproductive areas of the economy.
And Mitt Romney’s wealth has direct ramifications for the rest of us. Suppose Mitt Romney spends a big chunk of his wealth building a big new house. In the context of a depressed economy, any spending is good for growth and jobs, so his consumption is a net plus just like anyone else’s consumption. However as we start to get to the point where the inflation hawks are bringing enough pressure to bear on the Fed to force it to raise interest rates and slow the economy, Romney’s construction project will effectively be crowding out other spending. The Fed will be raising rates sooner than it otherwise would have because of the riches Romney accumulated from designing ways to avoid the corporate income tax.
If we assume that roughly half of the drop in corporate income tax is now income for the tax avoidance industry, then this means that we are giving them 1.0 percent of GDP to raise 1.15 percent of GDP (0.72*1.6 percent of GDP raised in corporate income taxes) in taxes from rich people.
In this fuller context, the corporate income tax is a much more questionable proposition. It seems very plausible that we could design a system that will raise as much money from the rich with an increase in personal tax rates, while at the same time destroying the tax avoidance industry.
Read More Leer más Join the discussion Participa en la discusión
The usually astute Matthew Yglesias falls off the track with his discussion of David Autor’s latest paper on technology and wages. For background, Autor is the guru of the job polarization story: the idea that technology is destroying middle-paying jobs leaving only those at the top and bottom. He presented a new paper at the Fed’s annual conference at Jackson Hole which reassesses his prior work.
Matt’s take on this paper has Autor telling us that robots may not take our jobs, but they will cut our pay. That isn’t the story as I see it. Technology always devalues some jobs while increasing the productivity and wages of other jobs (that’s why average wages are higher today than they were 100 years ago). New technologies like robots will not be different in this respect.
What’s new and newsworthy in the Autor paper is the acknowledgement that his occupation story really cannot explain trends in wage inequality. Here’s a figure from Autor’s paper that Matt uses in his post.
/cdn3.vox-cdn.com/uploads/chorus_asset/file/666874/Screen_Shot_2014-08-22_at_2.55.29_PM.0.png)
Note that there is no job polarization in the period 2000-2007 and only very modest high end job growth in the period 2007-2012. The main story in these periods is the growth in the share of low-end occupations. Yet we continued to see a sharp increase in high end wages relative to everyone else.
This is a problem not only for the post-2000 period, but for the whole period. If high-end wages increase relative to other wages when their occupation share is not rising in the period 2000-2012, why would we think that the mix of occupations explains wage trends in earlier periods? And of course the sharpest increase in shares is for occupations at the bottom end of the skills distribution, the workers who have seen the sharpest drop in relative wages in the years since 2000 as well as the longer period since 1979.
In other words, there is no link between changes in occupation shares and wage trends, a point that my friends and colleagues, Larry Mishel, John Schmitt, and Heidi Shierholz, have been making for several years. These points in Autor’s new paper appeared in their paper, Don’t Blame the Robots. (Autor was a discussant of an earlier version of this paper at the American Economic Association meetings in 2013, although it is not cited in his new paper.)
Anyhow, given the eagerness with which the punditry embraced Autor’s hollowing out of the middle story, the fact that he has now moved away from it should be big news. This means that the economics profession does not have a way to blame the growth of wage inequality on technology. And if it wasn’t technology that gave us inequality, then we might start thinking about policy.
The usually astute Matthew Yglesias falls off the track with his discussion of David Autor’s latest paper on technology and wages. For background, Autor is the guru of the job polarization story: the idea that technology is destroying middle-paying jobs leaving only those at the top and bottom. He presented a new paper at the Fed’s annual conference at Jackson Hole which reassesses his prior work.
Matt’s take on this paper has Autor telling us that robots may not take our jobs, but they will cut our pay. That isn’t the story as I see it. Technology always devalues some jobs while increasing the productivity and wages of other jobs (that’s why average wages are higher today than they were 100 years ago). New technologies like robots will not be different in this respect.
What’s new and newsworthy in the Autor paper is the acknowledgement that his occupation story really cannot explain trends in wage inequality. Here’s a figure from Autor’s paper that Matt uses in his post.
Note that there is no job polarization in the period 2000-2007 and only very modest high end job growth in the period 2007-2012. The main story in these periods is the growth in the share of low-end occupations. Yet we continued to see a sharp increase in high end wages relative to everyone else.
This is a problem not only for the post-2000 period, but for the whole period. If high-end wages increase relative to other wages when their occupation share is not rising in the period 2000-2012, why would we think that the mix of occupations explains wage trends in earlier periods? And of course the sharpest increase in shares is for occupations at the bottom end of the skills distribution, the workers who have seen the sharpest drop in relative wages in the years since 2000 as well as the longer period since 1979.
In other words, there is no link between changes in occupation shares and wage trends, a point that my friends and colleagues, Larry Mishel, John Schmitt, and Heidi Shierholz, have been making for several years. These points in Autor’s new paper appeared in their paper, Don’t Blame the Robots. (Autor was a discussant of an earlier version of this paper at the American Economic Association meetings in 2013, although it is not cited in his new paper.)
Anyhow, given the eagerness with which the punditry embraced Autor’s hollowing out of the middle story, the fact that he has now moved away from it should be big news. This means that the economics profession does not have a way to blame the growth of wage inequality on technology. And if it wasn’t technology that gave us inequality, then we might start thinking about policy.
Read More Leer más Join the discussion Participa en la discusión
