The NYT had an article about a plan to allow some workers in Germany to retire early and collect full benefits from their version of Social Security. According to the article, workers who have paid into the system for 45 years will be able to start collecting full benefits at age 63 instead of the standard age of 65. (This is being raised to 67, as is the case in the United States.)
While the piece provides interesting background about the economic and political context for this decision, it gives no context for the numbers in the piece, which will therefore be meaningless to the overwhelming majority of NYT readers. For example, it tells readers that 6,000 workers have already applied for early benefits and that 200,000 are projected to be eligible. It is unlikely that many readers have a good sense of how large these numbers are relative to Germany’s workforce. (According to the OECD, employment in Germany is roughly 40 million. This means that the 6,000 current applicants amount to 0.015 percent of total employment. If all 200,000 eligible workers took advantage of early retirement it would be equal to 0.5 percent of total employment.)
The piece later tells readers:
“The costs of the early retirement, estimated to grow over the next decade to €3 billion from about €1 billion, or to $4.1 billion from $1.4 billion.”
It is unlikely that many readers have much sense of how important 1 billion euros is to Germany’s budget today or how important 3 billion euros will be a decade from now. Germany’s current budget is roughly 1.3 trillion euros, which means that the cost of early retirement is roughly 0.08 percent of current spending. The projected 3 billion euro cost would be roughly 0.18 percent of projected spending.
It should have been a simple matter for the paper to put these numbers in a context that would make them understandable to readers, instead of just putting in numbers that will be almost meaningless to everyone who reads them. The paper’s Public Editor Margaret Sullivan made this point herself last fall and apparently got agreement from the NYT editors. Yet, for some reason practices seem not to have changed.
This is getting almost like the Twilight Zone. We have a journalistic practice that everyone agrees is wrong, that is easy to change, but nonetheless persists. What is going on here?
Note: this piece was corrected to say “full benefits.” Thanks DC Analyst.
The NYT had an article about a plan to allow some workers in Germany to retire early and collect full benefits from their version of Social Security. According to the article, workers who have paid into the system for 45 years will be able to start collecting full benefits at age 63 instead of the standard age of 65. (This is being raised to 67, as is the case in the United States.)
While the piece provides interesting background about the economic and political context for this decision, it gives no context for the numbers in the piece, which will therefore be meaningless to the overwhelming majority of NYT readers. For example, it tells readers that 6,000 workers have already applied for early benefits and that 200,000 are projected to be eligible. It is unlikely that many readers have a good sense of how large these numbers are relative to Germany’s workforce. (According to the OECD, employment in Germany is roughly 40 million. This means that the 6,000 current applicants amount to 0.015 percent of total employment. If all 200,000 eligible workers took advantage of early retirement it would be equal to 0.5 percent of total employment.)
The piece later tells readers:
“The costs of the early retirement, estimated to grow over the next decade to €3 billion from about €1 billion, or to $4.1 billion from $1.4 billion.”
It is unlikely that many readers have much sense of how important 1 billion euros is to Germany’s budget today or how important 3 billion euros will be a decade from now. Germany’s current budget is roughly 1.3 trillion euros, which means that the cost of early retirement is roughly 0.08 percent of current spending. The projected 3 billion euro cost would be roughly 0.18 percent of projected spending.
It should have been a simple matter for the paper to put these numbers in a context that would make them understandable to readers, instead of just putting in numbers that will be almost meaningless to everyone who reads them. The paper’s Public Editor Margaret Sullivan made this point herself last fall and apparently got agreement from the NYT editors. Yet, for some reason practices seem not to have changed.
This is getting almost like the Twilight Zone. We have a journalistic practice that everyone agrees is wrong, that is easy to change, but nonetheless persists. What is going on here?
Note: this piece was corrected to say “full benefits.” Thanks DC Analyst.
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Neil Irwin has a piece noting housing’s importance in the downturn, which gets things half right. First, housing is typically important in economic cycles, as he says, but the picture is quite different than Irwin implies.
In a typical recession housing construction falls because it is very sensitive to interest rates. Most recessions are brought on by the Fed raising interest rates to slow the economy. In these cases the decline in housing is a deliberate outcome of Fed policy, not an accidental outcome to be avoided.
In contrast, the most recent downturn was brought on by a collapse of a housing bubble. This made it qualitatively different from most prior downturns (the 2001 recession was also bubble induced) in several different ways.
First, construction was proceeding at an extraordinary rate of more than 6.0 percent of GDP before the collapse, compared to an average rate of just over 4.0 percent of GDP. This meant that housing contracted far more than it would in a typical downturn. Furthermore, because of the overbuilding of the bubble years, housing fell further than normal, hitting levels just above 2.0 percent of GDP. And, because the downturn was not brought on by a rise of interest rates it could not be reversed by a drop in interest rates.
There really should not have been much mystery about housing being in a bubble. There was a huge unprecedented run-up in house prices that broke with a century long trend in which nationwide house prices had just kept pace with the overall rate of inflation. There was no plausible basis in the fundamentals of the housing market for this run-up, with income and population growth both relatively weak. And, rent just kept pace with inflation during the bubble years.
The effect of the bubble on consumption was also predictable. The bubble created trillions of dollars of ephemeral housing wealth. This led to a surge in consumption due to the housing wealth effect, pushing the savings rate to record lows. When the bubble burst, consumption fell as the housing wealth disappeared, but the saving rate is in fact still relatively low, contrary to what is often asserted in the media. There is no reason that we should expect people to be consuming a larger share of their income than is currently the case. The only mystery about the current state of the economy is why anyone would see any mystery
Neil Irwin has a piece noting housing’s importance in the downturn, which gets things half right. First, housing is typically important in economic cycles, as he says, but the picture is quite different than Irwin implies.
In a typical recession housing construction falls because it is very sensitive to interest rates. Most recessions are brought on by the Fed raising interest rates to slow the economy. In these cases the decline in housing is a deliberate outcome of Fed policy, not an accidental outcome to be avoided.
In contrast, the most recent downturn was brought on by a collapse of a housing bubble. This made it qualitatively different from most prior downturns (the 2001 recession was also bubble induced) in several different ways.
First, construction was proceeding at an extraordinary rate of more than 6.0 percent of GDP before the collapse, compared to an average rate of just over 4.0 percent of GDP. This meant that housing contracted far more than it would in a typical downturn. Furthermore, because of the overbuilding of the bubble years, housing fell further than normal, hitting levels just above 2.0 percent of GDP. And, because the downturn was not brought on by a rise of interest rates it could not be reversed by a drop in interest rates.
There really should not have been much mystery about housing being in a bubble. There was a huge unprecedented run-up in house prices that broke with a century long trend in which nationwide house prices had just kept pace with the overall rate of inflation. There was no plausible basis in the fundamentals of the housing market for this run-up, with income and population growth both relatively weak. And, rent just kept pace with inflation during the bubble years.
The effect of the bubble on consumption was also predictable. The bubble created trillions of dollars of ephemeral housing wealth. This led to a surge in consumption due to the housing wealth effect, pushing the savings rate to record lows. When the bubble burst, consumption fell as the housing wealth disappeared, but the saving rate is in fact still relatively low, contrary to what is often asserted in the media. There is no reason that we should expect people to be consuming a larger share of their income than is currently the case. The only mystery about the current state of the economy is why anyone would see any mystery
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Quarterly GDP data are erratic and profit data in particular are subject to large revisions, but hey it’s still worth noting a big drop in profit shares reported for the first quarter of 2014. The data released by the Commerce Department last week showed the profit share falling from just over 21 percent of net value added in the corporate sector in the last quarter of 2013 to less than 19 percent in the first quarter of 2014. Here’s the picture.
It’s too early to make much of this drop in profit shares. It is also a bit disconcerting that it is all attributable to a drop in the capital consumption adjustment, the difference between accounting depreciation and economic depreciation as measured by the Commerce Department. (In other words, the Commerce Department is showing a larger gap between what firms record for accounting purposes and the actual rate of depreciation of capital.)
Anyhow, with all the appropriate caveats, this may be the first sign that the sharp rise in profit shares in this century is being reversed, or as Gerald Ford once said, our long national nightmare is over.
Quarterly GDP data are erratic and profit data in particular are subject to large revisions, but hey it’s still worth noting a big drop in profit shares reported for the first quarter of 2014. The data released by the Commerce Department last week showed the profit share falling from just over 21 percent of net value added in the corporate sector in the last quarter of 2013 to less than 19 percent in the first quarter of 2014. Here’s the picture.
It’s too early to make much of this drop in profit shares. It is also a bit disconcerting that it is all attributable to a drop in the capital consumption adjustment, the difference between accounting depreciation and economic depreciation as measured by the Commerce Department. (In other words, the Commerce Department is showing a larger gap between what firms record for accounting purposes and the actual rate of depreciation of capital.)
Anyhow, with all the appropriate caveats, this may be the first sign that the sharp rise in profit shares in this century is being reversed, or as Gerald Ford once said, our long national nightmare is over.
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The Washington Post did an assessment of which states had the largest share of their eligible population enroll in the exchanges and which states were least successful. California topped the charts with 42 percent of the eligible population followed by Vermont. Picking up the rear was Hawaii, where it tells us less than 15 percent of the eligible population enrolled.
There is a big problem with the Post’s scorecard. The states didn’t start in the same place. In last place Hawaii only 8 percent of its population was uninsured. By contrast, in California 19 percent of its population was uninsured. This means that even with the differences in ACA enrollment Hawaii likely still have a higher insurance rate than California.
While the piece notes Hawaii’s problems in setting up its exchange, it is also the case that as the share of the population who is uninsured gets lower, it becomes more difficult to enroll the people who remain uninsured. These people are likely resistant to signing up for insurance or have difficulties navigating bureaucracies. Therefore it should not be surprising that Hawaii did not do well on this measure.
The piece also highlights enrollments of people 18-32. While there had been much hype around enrolling “young invincibles,” as Kaiser has shown the difference in premiums largely reflects the differences in health care costs. It really doesn’t matter much for the finances of the program how many young people enroll, although it is good to see them getting insurance.
The Washington Post did an assessment of which states had the largest share of their eligible population enroll in the exchanges and which states were least successful. California topped the charts with 42 percent of the eligible population followed by Vermont. Picking up the rear was Hawaii, where it tells us less than 15 percent of the eligible population enrolled.
There is a big problem with the Post’s scorecard. The states didn’t start in the same place. In last place Hawaii only 8 percent of its population was uninsured. By contrast, in California 19 percent of its population was uninsured. This means that even with the differences in ACA enrollment Hawaii likely still have a higher insurance rate than California.
While the piece notes Hawaii’s problems in setting up its exchange, it is also the case that as the share of the population who is uninsured gets lower, it becomes more difficult to enroll the people who remain uninsured. These people are likely resistant to signing up for insurance or have difficulties navigating bureaucracies. Therefore it should not be surprising that Hawaii did not do well on this measure.
The piece also highlights enrollments of people 18-32. While there had been much hype around enrolling “young invincibles,” as Kaiser has shown the difference in premiums largely reflects the differences in health care costs. It really doesn’t matter much for the finances of the program how many young people enroll, although it is good to see them getting insurance.
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Kevin Carey has an interesting piece in the NYT’s Upshot section which notes evidence that U.S. college grads seem to perform markedly worse on standardized exams than their counterparts in other countries. While this discussion is interesting his conclusion is completely wrong.
He concludes by telling readers:
“This reality should worry anyone who believes — as many economists do — that America’s long-term prosperity rests in substantial part on its store of human capital. The relatively high pay of American workers will start to erode as more jobs are exposed to harsh competition in global labor markets. It will be increasingly dangerous to believe that only our K-12 schools have serious problems.”
Actually economists would believe the exact opposite of what he asserts. If college graduates in other countries are better educated than our college graduates, and therefore more productive, then this will make us richer as a country. We will be made richer by the fact that we can get the goods and services they produce at a lower cost than would be the case if their college graduates were less educated than ours. This is good news in standard trade models.
Of course the implication is that college grads in other countries will be wealthier than college grads in the United States, but we are made better off, not worse off, by the fact that other countries have well-educated college grads. An editor at the NYT should have caught such a basic mistake.
Note: I see from comments that many are convinced that higher productivity elsewhere makes us poorer. This should not in general be true. Whatever we purchase from abroad is almost by definition better or cheaper, or we wouldn’t be buying it. That makes us richer. There is the issue of unemployment created by increased imports. In the standard model (which most economists adhere to far more religiously than I do), the rise in imports should lead to downward pressure on the dollar, which will lead us to export more and import less of other goods and services. That will bring us back to full employment.
There is a distributional issue, the people displaced will make less than they had previously while everyone else will in principle earn more. Note that this displacement goes the opposite direction of displacement in prior decades when trade was structured to put our manufacturing workers in direct competition with lower paid workers elsewhere. This tended to put downward pressure on less-educated workers, whereas implicitly we are seeing a story here where our college-educated workers may suffer in international competition.
It is also worth noting that nothing about this story can drive our wages to developing country levels. There are different ways we can tell this story, but perhaps the simplest is to point out that 80 percent of what we consume is produced here. The fact that we can get some items at very low cost due to cheap labor in the developing world is not going to lower productivity for the portion of our economy responsible for this 80 percent of our consumption. Unless you have a story about redistribution from wages to profits that is about 10 times as large as what we have actually seen there is no way that we would see developing country wages.
Kevin Carey has an interesting piece in the NYT’s Upshot section which notes evidence that U.S. college grads seem to perform markedly worse on standardized exams than their counterparts in other countries. While this discussion is interesting his conclusion is completely wrong.
He concludes by telling readers:
“This reality should worry anyone who believes — as many economists do — that America’s long-term prosperity rests in substantial part on its store of human capital. The relatively high pay of American workers will start to erode as more jobs are exposed to harsh competition in global labor markets. It will be increasingly dangerous to believe that only our K-12 schools have serious problems.”
Actually economists would believe the exact opposite of what he asserts. If college graduates in other countries are better educated than our college graduates, and therefore more productive, then this will make us richer as a country. We will be made richer by the fact that we can get the goods and services they produce at a lower cost than would be the case if their college graduates were less educated than ours. This is good news in standard trade models.
Of course the implication is that college grads in other countries will be wealthier than college grads in the United States, but we are made better off, not worse off, by the fact that other countries have well-educated college grads. An editor at the NYT should have caught such a basic mistake.
Note: I see from comments that many are convinced that higher productivity elsewhere makes us poorer. This should not in general be true. Whatever we purchase from abroad is almost by definition better or cheaper, or we wouldn’t be buying it. That makes us richer. There is the issue of unemployment created by increased imports. In the standard model (which most economists adhere to far more religiously than I do), the rise in imports should lead to downward pressure on the dollar, which will lead us to export more and import less of other goods and services. That will bring us back to full employment.
There is a distributional issue, the people displaced will make less than they had previously while everyone else will in principle earn more. Note that this displacement goes the opposite direction of displacement in prior decades when trade was structured to put our manufacturing workers in direct competition with lower paid workers elsewhere. This tended to put downward pressure on less-educated workers, whereas implicitly we are seeing a story here where our college-educated workers may suffer in international competition.
It is also worth noting that nothing about this story can drive our wages to developing country levels. There are different ways we can tell this story, but perhaps the simplest is to point out that 80 percent of what we consume is produced here. The fact that we can get some items at very low cost due to cheap labor in the developing world is not going to lower productivity for the portion of our economy responsible for this 80 percent of our consumption. Unless you have a story about redistribution from wages to profits that is about 10 times as large as what we have actually seen there is no way that we would see developing country wages.
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Neil Irwin’s Upshot column rightly points to the fact that Obamacare may have an ambiguous effect on the economy over the next few years. The point is that we want to slow health care cost growth, but in a weak economy less spending on health care means lower GDP and fewer jobs.
This is true, but this is part of a larger story. Since the economy is operating well below its potential and millions of workers are unemployed or underemployed, anything that creates demand would boost GDP. This is the old pay people to dig holes and fill them up again story. We could do that and increase employment and output. Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil’s work. Anyhow, the health care story should be seen as part of the larger stimulus/deficit story.
The other point is that we have always had problems measuring health care. Suppose Pfizer develops a great new drug called “Placebo” that is supposed to cure depression. It sells $170 billion worth of this drug in 2014. This would be an addition to GDP of approximately 1.0 percentage point. Now suppose that a whistle-blower reveals Pfizer’s secret test results that show Placebo doesn’t do anything. Sales plunge to zero in 2015. GDP has just fallen by 1.0 percentage point.
Much of health care spending has this character. We value our health, but we measure what we pay for. If we are healthier because of better diet and more exercise, and therefore spend less on heart related drugs and procedures, this counts as a drop in GDP. And many procedures and drugs really don’t improve our health, just like Pfizer’s Placebo drug. So, there will be many issues associated with measuring the economic impact of Obamacare, but it is wrong to imagine that we didn’t previously have problems measuring the output of the health care sector.
Neil Irwin’s Upshot column rightly points to the fact that Obamacare may have an ambiguous effect on the economy over the next few years. The point is that we want to slow health care cost growth, but in a weak economy less spending on health care means lower GDP and fewer jobs.
This is true, but this is part of a larger story. Since the economy is operating well below its potential and millions of workers are unemployed or underemployed, anything that creates demand would boost GDP. This is the old pay people to dig holes and fill them up again story. We could do that and increase employment and output. Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil’s work. Anyhow, the health care story should be seen as part of the larger stimulus/deficit story.
The other point is that we have always had problems measuring health care. Suppose Pfizer develops a great new drug called “Placebo” that is supposed to cure depression. It sells $170 billion worth of this drug in 2014. This would be an addition to GDP of approximately 1.0 percentage point. Now suppose that a whistle-blower reveals Pfizer’s secret test results that show Placebo doesn’t do anything. Sales plunge to zero in 2015. GDP has just fallen by 1.0 percentage point.
Much of health care spending has this character. We value our health, but we measure what we pay for. If we are healthier because of better diet and more exercise, and therefore spend less on heart related drugs and procedures, this counts as a drop in GDP. And many procedures and drugs really don’t improve our health, just like Pfizer’s Placebo drug. So, there will be many issues associated with measuring the economic impact of Obamacare, but it is wrong to imagine that we didn’t previously have problems measuring the output of the health care sector.
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My mistake, it actually began an article on Jean-Claude Juncker, the likely next president of the European Commission, by referring to the “rescue” of Greece. This seems a rather dubious characterization of an economic program that caused a plunge in Greece’s GDP of more than 20 percent and pushed its unemployment rate above 25 percent. Greece would almost certainly have fared much better if it had defaulted on its debt, abandoned the euro, and re-established its own currency. In any case, it is no more appropriate to describe the economic plan that the European Commission imposed on Greece as a “rescue” than as “torture.” The NYT would never use the latter term in a news story. It shouldn’t use the former term either.
My mistake, it actually began an article on Jean-Claude Juncker, the likely next president of the European Commission, by referring to the “rescue” of Greece. This seems a rather dubious characterization of an economic program that caused a plunge in Greece’s GDP of more than 20 percent and pushed its unemployment rate above 25 percent. Greece would almost certainly have fared much better if it had defaulted on its debt, abandoned the euro, and re-established its own currency. In any case, it is no more appropriate to describe the economic plan that the European Commission imposed on Greece as a “rescue” than as “torture.” The NYT would never use the latter term in a news story. It shouldn’t use the former term either.
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The NYT had an interesting piece on the persistence of poverty in eastern Kentucky and rural areas more generally. However the piece is seriously misleading when it refers to “the trillions of dollars spent to improve the state of the poor in the United States and promote development.” This comment would likely lead readers to believe that we are spending large amounts of money on anti-poverty programs. That is a very questionable claim.
Current spending on TANF, the main federal anti-poverty program is $17.4 billion, less than 0.5 percent of the federal budget. The budget for food stamps, which do not go exclusively to the poor, is around $75 billion or a bit less than 2.0 percent of federal spending. Other anti-poverty programs account for a considerably smaller share of federal spending.
In prior decades anti-poverty programs accounted for a larger share of the budget, but it is misleading to imply that they have ever been a major drain on the public’s tax dollar. Anti-poverty programs have always been dwarfed by spending on the military and social insurance programs like Social Security (which does have an enormous impact on poverty).
The NYT had an interesting piece on the persistence of poverty in eastern Kentucky and rural areas more generally. However the piece is seriously misleading when it refers to “the trillions of dollars spent to improve the state of the poor in the United States and promote development.” This comment would likely lead readers to believe that we are spending large amounts of money on anti-poverty programs. That is a very questionable claim.
Current spending on TANF, the main federal anti-poverty program is $17.4 billion, less than 0.5 percent of the federal budget. The budget for food stamps, which do not go exclusively to the poor, is around $75 billion or a bit less than 2.0 percent of federal spending. Other anti-poverty programs account for a considerably smaller share of federal spending.
In prior decades anti-poverty programs accounted for a larger share of the budget, but it is misleading to imply that they have ever been a major drain on the public’s tax dollar. Anti-poverty programs have always been dwarfed by spending on the military and social insurance programs like Social Security (which does have an enormous impact on poverty).
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That’s the obvious question that readers should be asking after seeing the paragraph at the end of an article on the Treasury Department’s plan to help low income people stay and/or become homeowners:
“The Treasury had promised that Mr. Lew would address the expansion of credit to potential home buyers, millions of whom are unable to get a mortgage with today’s tight standards. No new programs were offered, though Mr. Lew said the Treasury was working to jump-start the all-but-vanished market for private mortgage-backed securities, which would help lenders grow more confident and make more loans.”
The clear implication is that lenders would be making loans that don’t meet the standards of Fannie Mae or Freddie Mac, but would be packaged into mortgage-backed securities by private issuers. Some folks may be old enough to remember the last time we saw something like this.
That’s the obvious question that readers should be asking after seeing the paragraph at the end of an article on the Treasury Department’s plan to help low income people stay and/or become homeowners:
“The Treasury had promised that Mr. Lew would address the expansion of credit to potential home buyers, millions of whom are unable to get a mortgage with today’s tight standards. No new programs were offered, though Mr. Lew said the Treasury was working to jump-start the all-but-vanished market for private mortgage-backed securities, which would help lenders grow more confident and make more loans.”
The clear implication is that lenders would be making loans that don’t meet the standards of Fannie Mae or Freddie Mac, but would be packaged into mortgage-backed securities by private issuers. Some folks may be old enough to remember the last time we saw something like this.
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