This was one of the main points of a column that Andy Puzder, the CEO of Hardee’s parent company CKE Restaurants, made in a WSJ column today. The column was complaining over President Obama’s decision to raise the salary floor where overtime rules in the Fair Labor Standards Act (FSLA) may not apply. The current floor is $24,000 a year. Anyone getting lower pay than this is automatically covered by the FSLA overtime provisions.
Puzder is concerned that many of his branch managers will be covered by the FSLA overtime rules under the new floor that Obama will set. He tells readers that his managers start at around $36,000 a year and as high as $65,000, with an average around $45,000.
If the minimum wage had kept pace with economy-wide productivity growth since 1968 it would be over $17 an hour today. This means that, at $18 an hour, Hardee’s entry level pay for the people it calls managers would be just slightly above a productivity adjusted minimum wage. And this calculation assumes that it managers put in just 40 hours a week. If they typically put in more hours than they would likely be earning less than 1968 minimum wage, adjusted for productivity growth.
This was one of the main points of a column that Andy Puzder, the CEO of Hardee’s parent company CKE Restaurants, made in a WSJ column today. The column was complaining over President Obama’s decision to raise the salary floor where overtime rules in the Fair Labor Standards Act (FSLA) may not apply. The current floor is $24,000 a year. Anyone getting lower pay than this is automatically covered by the FSLA overtime provisions.
Puzder is concerned that many of his branch managers will be covered by the FSLA overtime rules under the new floor that Obama will set. He tells readers that his managers start at around $36,000 a year and as high as $65,000, with an average around $45,000.
If the minimum wage had kept pace with economy-wide productivity growth since 1968 it would be over $17 an hour today. This means that, at $18 an hour, Hardee’s entry level pay for the people it calls managers would be just slightly above a productivity adjusted minimum wage. And this calculation assumes that it managers put in just 40 hours a week. If they typically put in more hours than they would likely be earning less than 1968 minimum wage, adjusted for productivity growth.
Read More Leer más Join the discussion Participa en la discusión
That what readers of Andrew Sorkin’s column on management bonuses at Coca-Cola will be asking. Sorkin cites analysis from money manager David Winters showing that Coca-Cola has set aside $24 billion as bonuses for senior management in recent years. The 2013 set asides alone came to an average of more than $2 million for each eligible person.
Richard M. Daley is a director of Coca-Cola. As a director it is his job to make sure that management does not rip off shareholders by paying themselves excessive salaries. He was paid almost $180,000 last year for his work as a director. People may be asking now what exactly he did for this money.
That what readers of Andrew Sorkin’s column on management bonuses at Coca-Cola will be asking. Sorkin cites analysis from money manager David Winters showing that Coca-Cola has set aside $24 billion as bonuses for senior management in recent years. The 2013 set asides alone came to an average of more than $2 million for each eligible person.
Richard M. Daley is a director of Coca-Cola. As a director it is his job to make sure that management does not rip off shareholders by paying themselves excessive salaries. He was paid almost $180,000 last year for his work as a director. People may be asking now what exactly he did for this money.
Read More Leer más Join the discussion Participa en la discusión
Brad DeLong and Paul Krugman are having some back and forth on the problem of secular stagnation and what it would have taken to avoid a prolonged period of high unemployment. I thought I would weigh in quickly since I have a better track record on this stuff than either of them.
The basic story going into the crash was that we had an economy that was being driven by the housing bubble. This was both directly through residential construction and indirectly through the consumption that followed from $8 trillion of bubble generated housing equity. Residential construction expanded to a record high of more than 6 percent of GDP at a time when demographics would have implied its share would be shrinking. This led to enormous overbuilding, which is why construction hit record lows following the crash. (There was a smaller bubble in non-residential real estate that also burst in the crash.)
Consumption also predictably plummeted. This is known as the housing wealth effect. (I learned about this in grad school, didn’t anyone else?) Anyhow, when people saw their homes soar in value many spent in part based on this wealth. This might have meant doing cash out refinancing, a story that obsessed Alan Greenspan during the bubble years. It might mean a home equity loan, or it might just mean not putting money into a retirement account because your house is saving for you.
In any case, when the $8 trillion in bubble generated equity disappeared so did the consumption that it was driving. You can’t borrow against equity that isn’t there. This cost the economy between $400 billion and $600 billion (@ 3-4 percent of GDP) in annual consumption expenditures. Between the lost construction and lost consumption, it was necessary to replace close to 8 percent of GDP. The effect of lost tax revenue in forcing cutbacks at the state and local level raised the demand loss by another percentage point or so.
Some of this gap would be filled as excess inventory of housing gradually faded and the vacancy rates came back to more normal levels. We’re getting there, but still have some way to go. Some would be filled by a drop in the trade deficit, which now sits at around 3 percent of GDP, compared to a level of almost 6 percent of GDP before the crisis.
The government could fill the remaining gap with additional spending, but our cult of low-deficit politicians is insisting that they would rather keep people from getting jobs, so this ain’t going to happen. Low interest rates are of course a good route to spark demand, and if we could lower real rates further with a higher inflation rate, that would be good news. But that one also doesn’t seem very promising.
The other part of the demand story would be to make more progress on the trade deficit. This one is not rocket science, a lower dollar means a lower trade deficit (more econ 101). The issue of lowering the dollar is often posed as a matter of getting tough with the Chinese and force them to stop “manipulating” their currency.
We actually don’t have to hide in the dark and wait to catch China in the act and then bring them to justice. China very openly maintains its currency at a level that is well below the market rate. They set a target for their exchange rate and they maintain it by buying up massive amount of foreign assets, such as U.S. government bonds. We don’t have to catch them in the act, all of this is completely open and involves trillions of dollars of asset purchases.
It is also not a matter of bringing China to justice over the issue. China has found maintaining an under-valued currency to be a useful development strategy, but they also find other policies to be useful to their development strategy, like not enforcing foreign patent and copyrights or not opening their financial markets to companies like Goldman Sachs.
This suggests an obvious path for getting China to allow the dollar to fall against its currency. We simply tell them that we don’t care if they enforce Pfizer and Merck’s patents or Microsoft’s copyrights. We also tell them they don’t have to open up their financial markets to Goldman Sachs, J.P. Morgan and the other Wall Street behemoths, we just want them to raise the value of their currency.
Again, this path may not be politically viable either because of the relative power of the drug companies and banks as opposed to tens of millions of unemployed and under-employed workers, but let’s at least get the cards on the table. As fans of national income accounting everywhere know, we will not be able to get to potential GDP without large budget deficits as long as we have large trade deficits (assuming no more bubbles).
There is one other item that must be on the full employment agenda especially as we approach the big March 31 deadline for Obamacare. If we reduce the supply of labor we can also get to full employment. Obamacare will be a useful step in this direction since it will give millions of workers the option not to work or to work fewer hours since they will not have to get health insurance through their jobs. This means that parents of young children will be able to spend more time with their kids, people suffering from illnesses or disabilities will be able to rest more and work less, and many older workers will be able to retire early.
There are other ways we can go to accommodate people’s needs and thereby reduce the labor supply. For example more paid sick days would be good news, as would be paid family and medical leave. Many state and local governments are leading the way in these areas. Also, some paid vacation would be nice. Four weeks has been the norm in Europe for decades with some countries guaranteeing as much as six weeks of paid vacation. (Yep, it’s all in the good book.)
Anyhow, there are always things that can be done. The key point is to first understand where we are. And the most important take away is that millions are suffering now not because we are too poor, but we are too rich. We don’t need all the workers we have. This provides enormous opportunities for making people’s lives better, if we just had the political will.
Brad DeLong and Paul Krugman are having some back and forth on the problem of secular stagnation and what it would have taken to avoid a prolonged period of high unemployment. I thought I would weigh in quickly since I have a better track record on this stuff than either of them.
The basic story going into the crash was that we had an economy that was being driven by the housing bubble. This was both directly through residential construction and indirectly through the consumption that followed from $8 trillion of bubble generated housing equity. Residential construction expanded to a record high of more than 6 percent of GDP at a time when demographics would have implied its share would be shrinking. This led to enormous overbuilding, which is why construction hit record lows following the crash. (There was a smaller bubble in non-residential real estate that also burst in the crash.)
Consumption also predictably plummeted. This is known as the housing wealth effect. (I learned about this in grad school, didn’t anyone else?) Anyhow, when people saw their homes soar in value many spent in part based on this wealth. This might have meant doing cash out refinancing, a story that obsessed Alan Greenspan during the bubble years. It might mean a home equity loan, or it might just mean not putting money into a retirement account because your house is saving for you.
In any case, when the $8 trillion in bubble generated equity disappeared so did the consumption that it was driving. You can’t borrow against equity that isn’t there. This cost the economy between $400 billion and $600 billion (@ 3-4 percent of GDP) in annual consumption expenditures. Between the lost construction and lost consumption, it was necessary to replace close to 8 percent of GDP. The effect of lost tax revenue in forcing cutbacks at the state and local level raised the demand loss by another percentage point or so.
Some of this gap would be filled as excess inventory of housing gradually faded and the vacancy rates came back to more normal levels. We’re getting there, but still have some way to go. Some would be filled by a drop in the trade deficit, which now sits at around 3 percent of GDP, compared to a level of almost 6 percent of GDP before the crisis.
The government could fill the remaining gap with additional spending, but our cult of low-deficit politicians is insisting that they would rather keep people from getting jobs, so this ain’t going to happen. Low interest rates are of course a good route to spark demand, and if we could lower real rates further with a higher inflation rate, that would be good news. But that one also doesn’t seem very promising.
The other part of the demand story would be to make more progress on the trade deficit. This one is not rocket science, a lower dollar means a lower trade deficit (more econ 101). The issue of lowering the dollar is often posed as a matter of getting tough with the Chinese and force them to stop “manipulating” their currency.
We actually don’t have to hide in the dark and wait to catch China in the act and then bring them to justice. China very openly maintains its currency at a level that is well below the market rate. They set a target for their exchange rate and they maintain it by buying up massive amount of foreign assets, such as U.S. government bonds. We don’t have to catch them in the act, all of this is completely open and involves trillions of dollars of asset purchases.
It is also not a matter of bringing China to justice over the issue. China has found maintaining an under-valued currency to be a useful development strategy, but they also find other policies to be useful to their development strategy, like not enforcing foreign patent and copyrights or not opening their financial markets to companies like Goldman Sachs.
This suggests an obvious path for getting China to allow the dollar to fall against its currency. We simply tell them that we don’t care if they enforce Pfizer and Merck’s patents or Microsoft’s copyrights. We also tell them they don’t have to open up their financial markets to Goldman Sachs, J.P. Morgan and the other Wall Street behemoths, we just want them to raise the value of their currency.
Again, this path may not be politically viable either because of the relative power of the drug companies and banks as opposed to tens of millions of unemployed and under-employed workers, but let’s at least get the cards on the table. As fans of national income accounting everywhere know, we will not be able to get to potential GDP without large budget deficits as long as we have large trade deficits (assuming no more bubbles).
There is one other item that must be on the full employment agenda especially as we approach the big March 31 deadline for Obamacare. If we reduce the supply of labor we can also get to full employment. Obamacare will be a useful step in this direction since it will give millions of workers the option not to work or to work fewer hours since they will not have to get health insurance through their jobs. This means that parents of young children will be able to spend more time with their kids, people suffering from illnesses or disabilities will be able to rest more and work less, and many older workers will be able to retire early.
There are other ways we can go to accommodate people’s needs and thereby reduce the labor supply. For example more paid sick days would be good news, as would be paid family and medical leave. Many state and local governments are leading the way in these areas. Also, some paid vacation would be nice. Four weeks has been the norm in Europe for decades with some countries guaranteeing as much as six weeks of paid vacation. (Yep, it’s all in the good book.)
Anyhow, there are always things that can be done. The key point is to first understand where we are. And the most important take away is that millions are suffering now not because we are too poor, but we are too rich. We don’t need all the workers we have. This provides enormous opportunities for making people’s lives better, if we just had the political will.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post had a major piece that discussed the ethics of efforts to use public pressure to force drug companies to make expensive drugs available to patients at affordable prices. Remarkably it never discussed the role of patent monopolies.
In the case that was the immediate focus of the article, a young boy who was suffering from cancer and seemed likely to benefit from a drug that was still in the experimental stage, it does not appear that patent protection was a major factor. However in many cases patients will face exorbitant prices for a life-saving drug that they may not be able to afford because the drug is subject to patent protection.
In such cases it is the patent that creates the moral dilemma raised in this article. If the drug were sold at its free market price it would likely be affordable to most patients. This is one of the perversities of patent financed drug research. While drugs can be expensive to develop, they are generally cheap to manufacture. It would be desirable for drugs to be sold at their free market price if some alternative mechanism (e.g. NIH funding) could be used to finance their development.
It would have been useful if this piece had discussed the way in which the mechanism we use to finance drug research can lead to the sort of ethical dilemmas it discusses. In this context it is probably worth mentioning that the Washington Post gets considerable revenue from drug company advertising.
Note: Typos corrected, thanks Robert Salzberg.
The Washington Post had a major piece that discussed the ethics of efforts to use public pressure to force drug companies to make expensive drugs available to patients at affordable prices. Remarkably it never discussed the role of patent monopolies.
In the case that was the immediate focus of the article, a young boy who was suffering from cancer and seemed likely to benefit from a drug that was still in the experimental stage, it does not appear that patent protection was a major factor. However in many cases patients will face exorbitant prices for a life-saving drug that they may not be able to afford because the drug is subject to patent protection.
In such cases it is the patent that creates the moral dilemma raised in this article. If the drug were sold at its free market price it would likely be affordable to most patients. This is one of the perversities of patent financed drug research. While drugs can be expensive to develop, they are generally cheap to manufacture. It would be desirable for drugs to be sold at their free market price if some alternative mechanism (e.g. NIH funding) could be used to finance their development.
It would have been useful if this piece had discussed the way in which the mechanism we use to finance drug research can lead to the sort of ethical dilemmas it discusses. In this context it is probably worth mentioning that the Washington Post gets considerable revenue from drug company advertising.
Note: Typos corrected, thanks Robert Salzberg.
Read More Leer más Join the discussion Participa en la discusión
In his column “when the scientist is also a philosopher,” Greg Mankiw tells us about his preference for not having the government interfere in consensual exchanges between individuals. He warns readers that economists who advocate such interventions also have a political philosophy about achieving certain outcomes (i.e. less inequality).
The wisdom of not interfering with consensual exchanges implies that is possible to have exchanges in which the government has not already played a huge role in setting the terms of the exchange. This is clearly not true.
For example, the number of jobs is very directly determined by government policy. We would have millions more jobs in the economy today if the government had not decided to run a high unemployment policy by reducing the size of the budget deficit. One can argue for the merits of deficit reduction, but this was a political choice where a lower deficit number was judged to be more important than letting millions of people have jobs.
In the same vein, we could have pursued policies to get the trade deficit closer to balance. If we had emphasized reducing the value of the dollar in our negotiations with trading partners, instead of things like patent protection for prescription drugs, copyright protection for Microsoft and Hollywood, and access to financial markets for Goldman Sachs, we would also have millions more people employed.
Furthermore, we could have structured trade agreements to put our doctors and lawyers in direct competition with their counterparts in the developing world (who would train to our standards) then globalization would not have been a factor increasing inequality. Instead it would have brought down the wages of the most highly skilled workers, while producing huge economic gains by lowering the cost of health care and other services. This would also have improved the bargaining situation of most of the workforce at the expense of business.
Mankiw is misleading readers by implying that we have the option to have consensual exchanges that are not shaped in very large ways by the government. (This is the topic of my free book, The End of Loser Liberalism: Making Markets Progressive.) In the last three decades, most of that shaping has been done to redistribute income upward.
In his column “when the scientist is also a philosopher,” Greg Mankiw tells us about his preference for not having the government interfere in consensual exchanges between individuals. He warns readers that economists who advocate such interventions also have a political philosophy about achieving certain outcomes (i.e. less inequality).
The wisdom of not interfering with consensual exchanges implies that is possible to have exchanges in which the government has not already played a huge role in setting the terms of the exchange. This is clearly not true.
For example, the number of jobs is very directly determined by government policy. We would have millions more jobs in the economy today if the government had not decided to run a high unemployment policy by reducing the size of the budget deficit. One can argue for the merits of deficit reduction, but this was a political choice where a lower deficit number was judged to be more important than letting millions of people have jobs.
In the same vein, we could have pursued policies to get the trade deficit closer to balance. If we had emphasized reducing the value of the dollar in our negotiations with trading partners, instead of things like patent protection for prescription drugs, copyright protection for Microsoft and Hollywood, and access to financial markets for Goldman Sachs, we would also have millions more people employed.
Furthermore, we could have structured trade agreements to put our doctors and lawyers in direct competition with their counterparts in the developing world (who would train to our standards) then globalization would not have been a factor increasing inequality. Instead it would have brought down the wages of the most highly skilled workers, while producing huge economic gains by lowering the cost of health care and other services. This would also have improved the bargaining situation of most of the workforce at the expense of business.
Mankiw is misleading readers by implying that we have the option to have consensual exchanges that are not shaped in very large ways by the government. (This is the topic of my free book, The End of Loser Liberalism: Making Markets Progressive.) In the last three decades, most of that shaping has been done to redistribute income upward.
Read More Leer más Join the discussion Participa en la discusión
There are many ideologues who have their own set of truths, who refuse to listen to any evidence that points in a different direction. However George Will is in a class all by himself. He refuses to pay attention to the evidence that he himself puts forward.
Exhibit A is a classic Will rant at the left for being unwilling to consider the cultural factors that affect poverty. The hero of this piece is Daniel Patrick Moynihan:
“In March 1965, Moynihan, then 37 and assistant secretary of labor, wrote that ‘the center of the tangle of pathology’ in inner cities — this was five months before the Watts riots — was the fact that 23.6 percent of black children were born to single women, compared with just 3.07 percent of white children.”
Will then goes on to tell readers:
“Forty-nine years later, 41 percent of all American children are born out of wedlock; almost half of all first births are to unmarried women, as are 54?percent and 72 percent of all Hispanic and black births, respectively.”
If we follow Will’s link we find that 29 percent of non-Hispanic white children are born out of wedlock today.That’s considerably higher than the 23.6 percent of black children born out of wedlock in 1965 that Moynihan thought was the explanation for their poverty. Yet the poverty rate for white children today is less than 10 percent. It was over 40 percent for African American children in the mid-1960s.
If black children in 1965 had a poverty rate that is more than four times the poverty rate for white children in 2012, despite their lower rate of births to unmarried mothers, this would seem pretty solid evidence that being born to an unmarried mother is not the main factor in determining child poverty.
The far more important factor is the earnings potential for the children’s parent(s). This is determined by the factors that Will discourages us from considering, such as macroeconomic policy, trade policy, policies toward labor organizing, and other policy choices that will determine the health of the labor market facing parents of young children. Of course their access to health care and quality child care will also be important factors determining the children’s well-being which are picked up in the Census Bureau’s supplemental poverty measure.
And it is easy to show that government policy has made poverty worse on this score. The fall in employment rates following the 2001 recession was associated with a rise in poverty. The much sharper fall in employment rates following the 2008 recession was associated with an even larger rise in poverty. The decision of Congress to run high unemployment budgets (i.e. lower deficits) also will predictably result in a higher poverty rate for children.
There is a different and trivially true point that perhaps Will is trying to make in his column. Children with two loving committed parents will fare better in life on average than children who only have one parent.
Many liberals don’t find this very useful from a policy perspective because they don’t think the government is very good at creating and preserving good marriages. However we do know how to run economic policies that will reduce the unemployment rate.
There are many ideologues who have their own set of truths, who refuse to listen to any evidence that points in a different direction. However George Will is in a class all by himself. He refuses to pay attention to the evidence that he himself puts forward.
Exhibit A is a classic Will rant at the left for being unwilling to consider the cultural factors that affect poverty. The hero of this piece is Daniel Patrick Moynihan:
“In March 1965, Moynihan, then 37 and assistant secretary of labor, wrote that ‘the center of the tangle of pathology’ in inner cities — this was five months before the Watts riots — was the fact that 23.6 percent of black children were born to single women, compared with just 3.07 percent of white children.”
Will then goes on to tell readers:
“Forty-nine years later, 41 percent of all American children are born out of wedlock; almost half of all first births are to unmarried women, as are 54?percent and 72 percent of all Hispanic and black births, respectively.”
If we follow Will’s link we find that 29 percent of non-Hispanic white children are born out of wedlock today.That’s considerably higher than the 23.6 percent of black children born out of wedlock in 1965 that Moynihan thought was the explanation for their poverty. Yet the poverty rate for white children today is less than 10 percent. It was over 40 percent for African American children in the mid-1960s.
If black children in 1965 had a poverty rate that is more than four times the poverty rate for white children in 2012, despite their lower rate of births to unmarried mothers, this would seem pretty solid evidence that being born to an unmarried mother is not the main factor in determining child poverty.
The far more important factor is the earnings potential for the children’s parent(s). This is determined by the factors that Will discourages us from considering, such as macroeconomic policy, trade policy, policies toward labor organizing, and other policy choices that will determine the health of the labor market facing parents of young children. Of course their access to health care and quality child care will also be important factors determining the children’s well-being which are picked up in the Census Bureau’s supplemental poverty measure.
And it is easy to show that government policy has made poverty worse on this score. The fall in employment rates following the 2001 recession was associated with a rise in poverty. The much sharper fall in employment rates following the 2008 recession was associated with an even larger rise in poverty. The decision of Congress to run high unemployment budgets (i.e. lower deficits) also will predictably result in a higher poverty rate for children.
There is a different and trivially true point that perhaps Will is trying to make in his column. Children with two loving committed parents will fare better in life on average than children who only have one parent.
Many liberals don’t find this very useful from a policy perspective because they don’t think the government is very good at creating and preserving good marriages. However we do know how to run economic policies that will reduce the unemployment rate.
Read More Leer más Join the discussion Participa en la discusión
The Post gives us its latest concern about the housing market, telling us that higher interest rates will cause people to stay in their current homes where they have locked in low mortgage rates for long periods of time.
“The higher rates, soaring home prices and a tight inventory have kept potential buyers on the sidelines, hurting the sales of previously owned homes and undermining the recovery of the housing market, a huge contributor to economic growth.”
The problem with this line is that the housing market has recovered pretty much all we should expect. In the mid-1990s, before the bubble began to dominate the market, existing home sales averaged about 3.5 million annually. If we adjust upward by 20 percent for population growth, we should expect existing home sales of around 4.2 million.
In fact, they have been running at around 4.8 million, considerably above trend levels. This is partially offset by lower than trend sales of new homes (this is due to the fact that unusually high vacancy rates are still discouraging new construction). However this piece is focused on explaining a weakness in the housing market that does not exist.
The piece also misrepresents the scenario we would face if interest rates rise further, implying that this will directly make housing less affordable. It ignores the fact that higher interest rates will likely lead to lower house prices. This will not completely offset the impact of higher interest rates on monthly housing costs, but the almost inevitable drop in house prices will alleviate the impact on higher interest rates. It is bizarre that the piece never mentioned this fact.
The Post gives us its latest concern about the housing market, telling us that higher interest rates will cause people to stay in their current homes where they have locked in low mortgage rates for long periods of time.
“The higher rates, soaring home prices and a tight inventory have kept potential buyers on the sidelines, hurting the sales of previously owned homes and undermining the recovery of the housing market, a huge contributor to economic growth.”
The problem with this line is that the housing market has recovered pretty much all we should expect. In the mid-1990s, before the bubble began to dominate the market, existing home sales averaged about 3.5 million annually. If we adjust upward by 20 percent for population growth, we should expect existing home sales of around 4.2 million.
In fact, they have been running at around 4.8 million, considerably above trend levels. This is partially offset by lower than trend sales of new homes (this is due to the fact that unusually high vacancy rates are still discouraging new construction). However this piece is focused on explaining a weakness in the housing market that does not exist.
The piece also misrepresents the scenario we would face if interest rates rise further, implying that this will directly make housing less affordable. It ignores the fact that higher interest rates will likely lead to lower house prices. This will not completely offset the impact of higher interest rates on monthly housing costs, but the almost inevitable drop in house prices will alleviate the impact on higher interest rates. It is bizarre that the piece never mentioned this fact.
Read More Leer más Join the discussion Participa en la discusión
The campaign to install Larry Summers instead of Janet Yellen as Fed chair was chock full of sexist innuendo as pundits speculated as to whether Yellen had the gravitas to hold down the job. The Washington Post’s editorial on Yellen’s first press conference showed that such attitudes continue in elite Washington circles.
The headline complained:
“In Fed media event, Yellen isn’t able to control the message.”
The piece itself told readers:
“Mr. Bernanke’s successor, Janet Yellen, met with reporters Wednesday and, bluntly, it didn’t go all that smoothly. Responding to a question, Ms. Yellen hinted that the Fed might start raising interest rates above zero “around six months” after phasing out the current bond-buying stimulus program; bond markets quickly sold off, which was almost certainly not what Ms. Yellen intended. Ms. Yellen also assured investors that there was no great significance to the Fed’s decision, announced Wednesday, to back off its previous plan to raise rates after unemployment hit 6.5 percent. But markets looked past her words to other Fed officials’ own interest-rate forecasts and drew contrary conclusions.”
If you missed the earthquake in bond markets that was the basis for the Post’s editorial you can be forgiven. The economy will probably miss it too. The linked article reports that yield on two-year Treasury notes climbed 7 basis points to 0.42 percent. This is a lot in percentage terms, but its economic impact is close to zero. The yield on ten-year Treasury bonds, which has far more impact on the economy, was little changed. It is still under 2.8 percent and has remained in pretty much the same range for the last month and a half, down from just over 3.0 percent in December.
In other words, if Yellen misspoke there was little obvious consequence. By contrast, her predecessor Ben Bernanke did spark a sharp rise in long-term interest rates with his famous taper talk last June. Partly as a result of this talk, the yield on ten-year bonds rose by more than one percentage point over a two-month period. While this rise in long-term rates did not appear to be his intention, it appears to have taken the air out of an incipient bubble in the housing market. In that sense, it may have been a remarkably good move, even if it was an unintended outcome.
Anyhow, it is striking that the WaPo didn’t see the need to rebuke Bernanke for what appeared to major unintended consequences from a press conference, while Yellen does draw its wrath for a possibly mistake that will have virtually no economic impact.
The campaign to install Larry Summers instead of Janet Yellen as Fed chair was chock full of sexist innuendo as pundits speculated as to whether Yellen had the gravitas to hold down the job. The Washington Post’s editorial on Yellen’s first press conference showed that such attitudes continue in elite Washington circles.
The headline complained:
“In Fed media event, Yellen isn’t able to control the message.”
The piece itself told readers:
“Mr. Bernanke’s successor, Janet Yellen, met with reporters Wednesday and, bluntly, it didn’t go all that smoothly. Responding to a question, Ms. Yellen hinted that the Fed might start raising interest rates above zero “around six months” after phasing out the current bond-buying stimulus program; bond markets quickly sold off, which was almost certainly not what Ms. Yellen intended. Ms. Yellen also assured investors that there was no great significance to the Fed’s decision, announced Wednesday, to back off its previous plan to raise rates after unemployment hit 6.5 percent. But markets looked past her words to other Fed officials’ own interest-rate forecasts and drew contrary conclusions.”
If you missed the earthquake in bond markets that was the basis for the Post’s editorial you can be forgiven. The economy will probably miss it too. The linked article reports that yield on two-year Treasury notes climbed 7 basis points to 0.42 percent. This is a lot in percentage terms, but its economic impact is close to zero. The yield on ten-year Treasury bonds, which has far more impact on the economy, was little changed. It is still under 2.8 percent and has remained in pretty much the same range for the last month and a half, down from just over 3.0 percent in December.
In other words, if Yellen misspoke there was little obvious consequence. By contrast, her predecessor Ben Bernanke did spark a sharp rise in long-term interest rates with his famous taper talk last June. Partly as a result of this talk, the yield on ten-year bonds rose by more than one percentage point over a two-month period. While this rise in long-term rates did not appear to be his intention, it appears to have taken the air out of an incipient bubble in the housing market. In that sense, it may have been a remarkably good move, even if it was an unintended outcome.
Anyhow, it is striking that the WaPo didn’t see the need to rebuke Bernanke for what appeared to major unintended consequences from a press conference, while Yellen does draw its wrath for a possibly mistake that will have virtually no economic impact.
Read More Leer más Join the discussion Participa en la discusión
How can we stop the country’s leading newspaper from repeating nonsense? To paraphrase a former president, “there they go again.” A front page article on the Obama administration’s efforts to sign up young people before the deadline told readers:
“And there is concern that the administration still needs a larger proportion of 18- to 34-year-olds, the young and presumably healthy people whom insurance companies need as customers in order to keep premiums reasonable for everyone.”
The simple fact, as shown in this analysis by the Kaiser family Foundation, is that the potential age skewing of enrollment matters little for the cost of the program. Younger people are on average healthier than older people, but they also pay much less in premiums. The difference in premiums doesn’t fully capture the difference in costs, but the gap between premiums and average cost has relatively little impact on the finances of the program. It matters much more if there is a skewing by health condition.
Most older people are also healthy. A substantial portion of people in the oldest age bracket (55-64) will have few or no claims on their insurer. Since these healthy older people pay three times as much on average for insurance as young people it matters much more whether they sign up for the exchanges than healthy young people.
How can we stop the country’s leading newspaper from repeating nonsense? To paraphrase a former president, “there they go again.” A front page article on the Obama administration’s efforts to sign up young people before the deadline told readers:
“And there is concern that the administration still needs a larger proportion of 18- to 34-year-olds, the young and presumably healthy people whom insurance companies need as customers in order to keep premiums reasonable for everyone.”
The simple fact, as shown in this analysis by the Kaiser family Foundation, is that the potential age skewing of enrollment matters little for the cost of the program. Younger people are on average healthier than older people, but they also pay much less in premiums. The difference in premiums doesn’t fully capture the difference in costs, but the gap between premiums and average cost has relatively little impact on the finances of the program. It matters much more if there is a skewing by health condition.
Most older people are also healthy. A substantial portion of people in the oldest age bracket (55-64) will have few or no claims on their insurer. Since these healthy older people pay three times as much on average for insurance as young people it matters much more whether they sign up for the exchanges than healthy young people.
Read More Leer más Join the discussion Participa en la discusión
In a piece discussing patterns in world growth over the last three decades Eduardo Porter told NYT readers:
“What’s happened is that while income growth stalled for middle-class workers in developed countries and surged for people in the 1 percent, it also grew sharply for hundreds of millions of workers in China, India and other Asian countries. In the late 1980s, for instance, workers in the middle of China’s urban income distribution made 56 percent of the median American income, according to Mr. Milanovic’s calculations. By 2008, that figure rose to 71 percent.”
It is unlikely that people in the middle of the income distribution in urban areas of China had an income that was 71 percent of median in the United States in 2008. According to the Penn World Tables, per capita income on a purchasing power parity basis (the appropriate measure for comparisons of living standards), per capita income in the United States in 2011 was over $42,000. It was just under $8,000 in China. Overall, income is somewhat more unequally distributed in China than in the U.S., but urban areas have far higher living standards than rural areas. However even if we say this doubles the income of middle income urban Chinese, this would still only get them to 40 percent of the average in the United States.
While China’s workers have enjoyed enormous gains in living standards over the last three decades, their standard of living is still well below the median in the United States. These gains have continued since 2008, with per capita income in China rising by nearly 60 percent in the last six years according to the I.M.F.
It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China’s exports. In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.
Also, policies that would promote equality in the United States could also yield large benefits for China. For example, weaker patent and copyright rules would make drugs and other products cheaper for people in China, giving their workers more purchasing power, while also reducing the patent rents received by the wealthy in the United States.
In a piece discussing patterns in world growth over the last three decades Eduardo Porter told NYT readers:
“What’s happened is that while income growth stalled for middle-class workers in developed countries and surged for people in the 1 percent, it also grew sharply for hundreds of millions of workers in China, India and other Asian countries. In the late 1980s, for instance, workers in the middle of China’s urban income distribution made 56 percent of the median American income, according to Mr. Milanovic’s calculations. By 2008, that figure rose to 71 percent.”
It is unlikely that people in the middle of the income distribution in urban areas of China had an income that was 71 percent of median in the United States in 2008. According to the Penn World Tables, per capita income on a purchasing power parity basis (the appropriate measure for comparisons of living standards), per capita income in the United States in 2011 was over $42,000. It was just under $8,000 in China. Overall, income is somewhat more unequally distributed in China than in the U.S., but urban areas have far higher living standards than rural areas. However even if we say this doubles the income of middle income urban Chinese, this would still only get them to 40 percent of the average in the United States.
While China’s workers have enjoyed enormous gains in living standards over the last three decades, their standard of living is still well below the median in the United States. These gains have continued since 2008, with per capita income in China rising by nearly 60 percent in the last six years according to the I.M.F.
It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China’s exports. In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.
Also, policies that would promote equality in the United States could also yield large benefits for China. For example, weaker patent and copyright rules would make drugs and other products cheaper for people in China, giving their workers more purchasing power, while also reducing the patent rents received by the wealthy in the United States.
Read More Leer más Join the discussion Participa en la discusión
