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Floyd Norris had an interesting piece noting the incongruity between the relatively strong job growth we saw in the first half of 2014 and the near zero or possibly negative GDP growth for the period. (First quarter growth was -2.9 percent, second quarter growth will be positive, but quite possibly less than 2.9 percent.) While it is easy to explain the drop in first quarter GDP as an anomaly driven by falling inventories and bad weather, it is still difficult to reconcile with a rate of job growth of 230,000 a month.
At least part of this story is likely due to quirks in the data. One prominent quirk that has been overlooked has been the pattern of health care spending. Much has been made of the fact that spending on health care services fell in the first quarter, something we have not seen since the 1960s. While this drop is striking, it is somewhat less so when we look at the fourth quarter data.
The Bureau of Economic Analysis (BEA) reports that nominal spending on health care services rose at a 7.6 percent annual rate in the fourth quarter of 2013. This is almost twice the average pace for the prior two years. (I use nominal since I think “real” spending is of questionable meaning in health care. If we are given more of a drug that has no beneficial effect or have more unnecessary tests or procedures, real spending will increase. If better research ends this spending, it appears as a reduction in real spending even if this might be associated with better health.)
Taken on their face, the BEA numbers show a big surge in health care spending in the fourth quarter followed by an almost unprecedented reduction in spending in the first quarter. We could believe that this accurately describes what happened in the economy, or alternatively we can believe that the fourth quarter number overstated the actual increase in spending. I would lean toward the latter view. The data are never perfect and by definition, any overstatement in spending growth in one quarter leads to an understatement of growth in the next quarter.
Anyhow, that’s my story on health care spending. But the GDP growth data and the jobs data are still seriously out of line.
Floyd Norris had an interesting piece noting the incongruity between the relatively strong job growth we saw in the first half of 2014 and the near zero or possibly negative GDP growth for the period. (First quarter growth was -2.9 percent, second quarter growth will be positive, but quite possibly less than 2.9 percent.) While it is easy to explain the drop in first quarter GDP as an anomaly driven by falling inventories and bad weather, it is still difficult to reconcile with a rate of job growth of 230,000 a month.
At least part of this story is likely due to quirks in the data. One prominent quirk that has been overlooked has been the pattern of health care spending. Much has been made of the fact that spending on health care services fell in the first quarter, something we have not seen since the 1960s. While this drop is striking, it is somewhat less so when we look at the fourth quarter data.
The Bureau of Economic Analysis (BEA) reports that nominal spending on health care services rose at a 7.6 percent annual rate in the fourth quarter of 2013. This is almost twice the average pace for the prior two years. (I use nominal since I think “real” spending is of questionable meaning in health care. If we are given more of a drug that has no beneficial effect or have more unnecessary tests or procedures, real spending will increase. If better research ends this spending, it appears as a reduction in real spending even if this might be associated with better health.)
Taken on their face, the BEA numbers show a big surge in health care spending in the fourth quarter followed by an almost unprecedented reduction in spending in the first quarter. We could believe that this accurately describes what happened in the economy, or alternatively we can believe that the fourth quarter number overstated the actual increase in spending. I would lean toward the latter view. The data are never perfect and by definition, any overstatement in spending growth in one quarter leads to an understatement of growth in the next quarter.
Anyhow, that’s my story on health care spending. But the GDP growth data and the jobs data are still seriously out of line.
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In a Wonkblog post Matt O’Brien discusses central bank efforts to deal with bubbles. His starting point is the decision by the central bank in Sweden to begin raising interest rates in 2010, ostensibly to head off the development of a bubble there.
There are two points worth noting here. First, it is difficult to imagine what the central bankers were drinking in Sweden when they decided to start shooting at bubbles. A bubble that threatens the economy is a bubble that moves the economy. If there is a bubble in Uber stock or the price of hops, there is little consequence to the economy when the bubbles burst.
The crashes of the stock bubble and the housing bubble led to recessions because these bubbles were driving the economy. This was easy to see in the data in both cases. In the first case, the investment share of GDP hit the highest level in more than two decades as people were able to raise billions in IPOs for utterly nonsense dot.coms. Consumption surged to then record shares of income as the stock wealth effect caused spending to surge. This boost to the economy disappeared when the bubble burst.
There was a similar story with the housing bubble. Residential construction hit a record share of GDP, roughly 50 percent above its average over the prior two decades. Consumption surged to an even higher share of income, driven by the housing wealth effect. And, when this bubble burst we got the Great Recession.
There were no obvious distortions in the Swedish economy when its central bank started shooting at bubbles. Its savings rate was relatively high and the country had a huge trade surplus (as opposed to deficits in bubble driven economies like the U.S. and Spain). The bubbles that really matter are not hard to see. Economists like to pretend otherwise since almost all of them missed the last one, but that reflects the competence of economists, not the inherent difficulty in recognizing bubbles.
The other point is that central banks do have many tools other than interest rates to attack bubbles. My favorite is talk.
I know it doesn’t sound sophisticated and it’s not terribly mathematical, but I suspect it would have a very large impact on the housing market if Janet Yellen were to say that she thought house prices were over-valued and that the Fed would be prepared to take steps to bring prices in line with fundamentals. Note that I am referring to an explicit warning backed up by Fed research, not a mumbled “irrational exuberance” subsequently qualified by incoherent gibberish. I would certainly take such a warning seriously if I was thinking of buying a house.
I know this view is dismissed by economists, but it’s hard to see the downside of trying this path. The worst I’ve heard is that this could damage the Fed’s credibility if house prices didn’t fall. Given that we have lost many trillions of dollars of output and millions of people have seen their lives ruined from the collapse of the housing bubble and the ensuing recession, the risk of the Fed’s credibility seems a small price to pay in such circumstances.
In a Wonkblog post Matt O’Brien discusses central bank efforts to deal with bubbles. His starting point is the decision by the central bank in Sweden to begin raising interest rates in 2010, ostensibly to head off the development of a bubble there.
There are two points worth noting here. First, it is difficult to imagine what the central bankers were drinking in Sweden when they decided to start shooting at bubbles. A bubble that threatens the economy is a bubble that moves the economy. If there is a bubble in Uber stock or the price of hops, there is little consequence to the economy when the bubbles burst.
The crashes of the stock bubble and the housing bubble led to recessions because these bubbles were driving the economy. This was easy to see in the data in both cases. In the first case, the investment share of GDP hit the highest level in more than two decades as people were able to raise billions in IPOs for utterly nonsense dot.coms. Consumption surged to then record shares of income as the stock wealth effect caused spending to surge. This boost to the economy disappeared when the bubble burst.
There was a similar story with the housing bubble. Residential construction hit a record share of GDP, roughly 50 percent above its average over the prior two decades. Consumption surged to an even higher share of income, driven by the housing wealth effect. And, when this bubble burst we got the Great Recession.
There were no obvious distortions in the Swedish economy when its central bank started shooting at bubbles. Its savings rate was relatively high and the country had a huge trade surplus (as opposed to deficits in bubble driven economies like the U.S. and Spain). The bubbles that really matter are not hard to see. Economists like to pretend otherwise since almost all of them missed the last one, but that reflects the competence of economists, not the inherent difficulty in recognizing bubbles.
The other point is that central banks do have many tools other than interest rates to attack bubbles. My favorite is talk.
I know it doesn’t sound sophisticated and it’s not terribly mathematical, but I suspect it would have a very large impact on the housing market if Janet Yellen were to say that she thought house prices were over-valued and that the Fed would be prepared to take steps to bring prices in line with fundamentals. Note that I am referring to an explicit warning backed up by Fed research, not a mumbled “irrational exuberance” subsequently qualified by incoherent gibberish. I would certainly take such a warning seriously if I was thinking of buying a house.
I know this view is dismissed by economists, but it’s hard to see the downside of trying this path. The worst I’ve heard is that this could damage the Fed’s credibility if house prices didn’t fall. Given that we have lost many trillions of dollars of output and millions of people have seen their lives ruined from the collapse of the housing bubble and the ensuing recession, the risk of the Fed’s credibility seems a small price to pay in such circumstances.
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Most readers expect better than silly cliches from the New York Times. That is why it was striking to see an article on Svalbard, a small town in northern Norway, tell readers:
“But it [Svalbard] shuns the leftist, leveling consensus that according to conservative critics has made working almost a lifestyle choice in the rest of Norway.”
Hmmm, a leveling consensus that makes working a lifestyle choice? A quick visit over to the OECD’s website tells us that 75.1 percent of the people in Norway between the ages of 16 to 65 opt for the working lifestyle. That’s more than 7.0 percentage points above the 68.0 percent share of this age group that works in the United States.
It’s understandable that some people will say silly things about the Scandinavian welfare state, just as some people make silly statements about almost everything. However we don’t expect the NYT just to repeat whatever silly assertion that a reporter happened to overhear. That is not news.
Thanks to David Dyssegaard Kallick for calling this one to my attention.
Most readers expect better than silly cliches from the New York Times. That is why it was striking to see an article on Svalbard, a small town in northern Norway, tell readers:
“But it [Svalbard] shuns the leftist, leveling consensus that according to conservative critics has made working almost a lifestyle choice in the rest of Norway.”
Hmmm, a leveling consensus that makes working a lifestyle choice? A quick visit over to the OECD’s website tells us that 75.1 percent of the people in Norway between the ages of 16 to 65 opt for the working lifestyle. That’s more than 7.0 percentage points above the 68.0 percent share of this age group that works in the United States.
It’s understandable that some people will say silly things about the Scandinavian welfare state, just as some people make silly statements about almost everything. However we don’t expect the NYT just to repeat whatever silly assertion that a reporter happened to overhear. That is not news.
Thanks to David Dyssegaard Kallick for calling this one to my attention.
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That’s what millions are asking after hearing Morning Edition’s top of the hour news segment (sorry, no link). The segment referred to negotiations over emissions caps for greenhouse gases. It said that China argued that it should not be subject to the same rules that apply to other rich countries.
China was presumably making the argument that it was not a rich country and therefore should not be subject to the same rules as rich countries. While China’s economy is now larger than the U.S. economy on a purchasing power parity basis, since it has four times the population, on a per capita basis it is about fourth as rich. This means both that it has fewer resources to cope with the problem and that the average Chinese person is far less responsible for global warming than the average person in the United States.
It is also worth noting that in an era of secular stagnation, like the one we are in now, spending to slow global warming would increase employment and output. It is not a drain on the economy.
That’s what millions are asking after hearing Morning Edition’s top of the hour news segment (sorry, no link). The segment referred to negotiations over emissions caps for greenhouse gases. It said that China argued that it should not be subject to the same rules that apply to other rich countries.
China was presumably making the argument that it was not a rich country and therefore should not be subject to the same rules as rich countries. While China’s economy is now larger than the U.S. economy on a purchasing power parity basis, since it has four times the population, on a per capita basis it is about fourth as rich. This means both that it has fewer resources to cope with the problem and that the average Chinese person is far less responsible for global warming than the average person in the United States.
It is also worth noting that in an era of secular stagnation, like the one we are in now, spending to slow global warming would increase employment and output. It is not a drain on the economy.
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That one may be helpful if you read the NYT article on President Obama’s request of $3.7 billion from Congress.
That one may be helpful if you read the NYT article on President Obama’s request of $3.7 billion from Congress.
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Regular readers of Beat the Press know that I go into the stratosphere when I see a news story or column that uses numbers in the millions, billions, or trillions and doesn’t provide any context, like relating it to the total budget if it’s a tax or spending item. The reason for my ire is simple: everyone knows that almost no one is going to be able to assign any significance to these Really Big Numbers. Therefore such pieces are providing no information to readers.
On the other hand it is very simple to provide context to readers. Dana Milbank showed how today when he wrote about the $4.2 million dollars that President Obama announced he would spend on a new Excellent Educators for All Initiative, which is supposed to address inequities in the quality of teachers across schools. Milbank pointed out that the commitment amounted to about 0.0001 percent of federal spending. In other words, this is gesture done for show.
By writing that President Obama plans to spend 0.0001 percent of the budget on his Excellent Educators for All Initiative, Milbank is telling readers that this is not a serious plan for addressing educational disparities, it is a public relations gesture. People who just saw the $4.2 million number may be under the mistaken impression that this program could actually make a difference in the quality of education for poor children.
Of course if reporters routinely expressed numbers in context there would be less incentive for politicians to push forward with silly public relations gestures, because everyone would know they are silly gestures. That would be a direct positive effect of this sort of effort at providing readers with real information instead of treating budget reporting as a fraternity ritual in which reporters write down numbers which they know to be meaningless to almost everyone who sees them.
Regular readers of Beat the Press know that I go into the stratosphere when I see a news story or column that uses numbers in the millions, billions, or trillions and doesn’t provide any context, like relating it to the total budget if it’s a tax or spending item. The reason for my ire is simple: everyone knows that almost no one is going to be able to assign any significance to these Really Big Numbers. Therefore such pieces are providing no information to readers.
On the other hand it is very simple to provide context to readers. Dana Milbank showed how today when he wrote about the $4.2 million dollars that President Obama announced he would spend on a new Excellent Educators for All Initiative, which is supposed to address inequities in the quality of teachers across schools. Milbank pointed out that the commitment amounted to about 0.0001 percent of federal spending. In other words, this is gesture done for show.
By writing that President Obama plans to spend 0.0001 percent of the budget on his Excellent Educators for All Initiative, Milbank is telling readers that this is not a serious plan for addressing educational disparities, it is a public relations gesture. People who just saw the $4.2 million number may be under the mistaken impression that this program could actually make a difference in the quality of education for poor children.
Of course if reporters routinely expressed numbers in context there would be less incentive for politicians to push forward with silly public relations gestures, because everyone would know they are silly gestures. That would be a direct positive effect of this sort of effort at providing readers with real information instead of treating budget reporting as a fraternity ritual in which reporters write down numbers which they know to be meaningless to almost everyone who sees them.
Read More Leer más Join the discussion Participa en la discusión
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