That’s because Larry Summers is right and John Taylor is just obscuring reality. The NYT did a disservice when it reported on Larry Summers’ concern for a period of secular stagnation that predated the downturn and then gave Taylor’s response:
“If Mr. Summers’s theory is accurate, said John B. Taylor, a Stanford economist who served in Republican presidential administrations, ‘You would have expected the economy to not have been working so well before the crisis. He says it wasn’t. I say it was.’
“Mr. Taylor said that such measures as inflation, housing investment and unemployment showed a strong economy leading up to the crisis.”
Actually the story of secular stagnation is totally consistent with one where growth can be temporarily spurred by a housing bubble. The growth created by the bubble can bring down unemployment and raise output to near capacity, but it is not sustainable. There is nothing that Taylor said that is in anyway inconsistent with a story of secular stagnation.
That’s because Larry Summers is right and John Taylor is just obscuring reality. The NYT did a disservice when it reported on Larry Summers’ concern for a period of secular stagnation that predated the downturn and then gave Taylor’s response:
“If Mr. Summers’s theory is accurate, said John B. Taylor, a Stanford economist who served in Republican presidential administrations, ‘You would have expected the economy to not have been working so well before the crisis. He says it wasn’t. I say it was.’
“Mr. Taylor said that such measures as inflation, housing investment and unemployment showed a strong economy leading up to the crisis.”
Actually the story of secular stagnation is totally consistent with one where growth can be temporarily spurred by a housing bubble. The growth created by the bubble can bring down unemployment and raise output to near capacity, but it is not sustainable. There is nothing that Taylor said that is in anyway inconsistent with a story of secular stagnation.
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Stanford Professor and former Bush administration economist John Taylor is taking strong exception to the secular stagnation argument being put forward by Larry Summers, Paul Krugman, and right-thinking economists everywhere. His alternative explanation for an unusually weak recovery and a decade of poor growth is excessively expansionary monetary policy and policy uncertainty due to items like the Affordable Care Act and Dodd-Frank. Both of these lines of argument are a bit hard to follow.
On the excessively expansionary monetary policy point, the usual evidence is accelerating inflation. We see the opposite over the last decade, low and falling inflation. The expansionary monetary policy has been a direct response to the weak economy over this period. Taylor seems to miss this, asserting in his paper:
“The federal funds rate was 1.0 percent in 2003 when the inflation rate was about 2.0 percent and the economy was operating pretty close to normal.”
Actually the economy was far from being close to normal. It was still shedding jobs until September of 2003, almost two years after the official recession was over. The employment to population ratio at the end of 2003 was still almost 2.5 percentage points below its pre-recession level, a larger falloff than at any point in the 1990-91 downturn. It seems more than a bit of a stretch to say the economy was operating close to normal. (My explanation is that we were having trouble recovering from the collapse of the stock bubble.)
Taylor then follows Peter Wallison in blaming Fannie Mae, Freddie Mac, and the Community Re-investment Act for the housing bubble even though the worst loans were securitized by private investment banks like Goldman Sachs and Bear Stearns. The GSEs lost massive market share in the bubble years to the subprime issuers.
Then we get that Affordable Care Act and Dodd-Frank are preventing firms from investing and hiring. There is no real explanation of how this is supposed to be occurring. First off, non-residential investment is almost back to its pre-recession share of GDP, so it seems like Taylor is trying to explain a gap that does not exist. The same applies to hiring. If there were a fear of hiring then we should be seeing the length of the average workweek rising far above historic levels, as employers substitute more hours for more workers. We don’t.
If the Affordable Care Act is actually discouraging hiring can we get some hint as to where to look for evidence. Presumably it would be at mid-size firms that didn’t previously provide insurance but might now be forced to by employer sanctions under the ACA. Is there any evidence this is happening? Taylor certainly doesn’t present any.
The same is true with Dodd-Frank. Do we see less hiring and growth in the financial sector than we would have in the absence of the new legislation? If so, Taylor does not make the case. Is it harder for non-financial firms to borrow as a result of Dodd-Frank? This is certainly not in any obvious way true.
In short, Taylor’s argument is primarily one of yelling “uncertainty, ACA, Dodd-Frank bad.” It may sell in some circles, but it is not a serious economic argument.
Stanford Professor and former Bush administration economist John Taylor is taking strong exception to the secular stagnation argument being put forward by Larry Summers, Paul Krugman, and right-thinking economists everywhere. His alternative explanation for an unusually weak recovery and a decade of poor growth is excessively expansionary monetary policy and policy uncertainty due to items like the Affordable Care Act and Dodd-Frank. Both of these lines of argument are a bit hard to follow.
On the excessively expansionary monetary policy point, the usual evidence is accelerating inflation. We see the opposite over the last decade, low and falling inflation. The expansionary monetary policy has been a direct response to the weak economy over this period. Taylor seems to miss this, asserting in his paper:
“The federal funds rate was 1.0 percent in 2003 when the inflation rate was about 2.0 percent and the economy was operating pretty close to normal.”
Actually the economy was far from being close to normal. It was still shedding jobs until September of 2003, almost two years after the official recession was over. The employment to population ratio at the end of 2003 was still almost 2.5 percentage points below its pre-recession level, a larger falloff than at any point in the 1990-91 downturn. It seems more than a bit of a stretch to say the economy was operating close to normal. (My explanation is that we were having trouble recovering from the collapse of the stock bubble.)
Taylor then follows Peter Wallison in blaming Fannie Mae, Freddie Mac, and the Community Re-investment Act for the housing bubble even though the worst loans were securitized by private investment banks like Goldman Sachs and Bear Stearns. The GSEs lost massive market share in the bubble years to the subprime issuers.
Then we get that Affordable Care Act and Dodd-Frank are preventing firms from investing and hiring. There is no real explanation of how this is supposed to be occurring. First off, non-residential investment is almost back to its pre-recession share of GDP, so it seems like Taylor is trying to explain a gap that does not exist. The same applies to hiring. If there were a fear of hiring then we should be seeing the length of the average workweek rising far above historic levels, as employers substitute more hours for more workers. We don’t.
If the Affordable Care Act is actually discouraging hiring can we get some hint as to where to look for evidence. Presumably it would be at mid-size firms that didn’t previously provide insurance but might now be forced to by employer sanctions under the ACA. Is there any evidence this is happening? Taylor certainly doesn’t present any.
The same is true with Dodd-Frank. Do we see less hiring and growth in the financial sector than we would have in the absence of the new legislation? If so, Taylor does not make the case. Is it harder for non-financial firms to borrow as a result of Dodd-Frank? This is certainly not in any obvious way true.
In short, Taylor’s argument is primarily one of yelling “uncertainty, ACA, Dodd-Frank bad.” It may sell in some circles, but it is not a serious economic argument.
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Greg Mankiw uses his column today to take on the minimum wage. He criticizes President Obama for citing studies showing that the minimum wage has little or no effect on employment and points to studies finding that a higher minimum wage will lead to modest declines in employment. (See John Schmitt’s excellent paper for a quick review of the state of the research.) Mankiw says that we should think of the minimum wage as a hidden tax that hits low wage employers.
Mankiw argues that if we want to help out the working poor then the best way to do it is to have an explicit tax and use it to fund a higher Earned Income Tax Credit (EITC). He argues that the EITC is a fairer and more efficient way to help low wage workers.
Let’s give this one a bit of thought. First of all, Jared Bernstein has already made the obvious point that the EITC and minimum wage should be seen as complementary policies. If we raise the minimum wage then the EITC costs us less. This should be important, especially to people like Greg Mankiw, who on other days argue for lower taxes because they create economic distortions and reduce output. Since the low tax Greg Mankiw and his allies are likely to reappear in public debates when the issue is not raising the minimum wage, we should be mindful of how much money the government spends on the EITC.
We can also think about the incidence of the burdens from a higher minimum wage versus a higher EITC. In the latter case we would presumably be looking at an increase in the income tax as the source of revenue. (Mankiw may want to cut Social Security and Medicare, but let’s not make this more complicated than necessary.) Since we will probably not be getting too much more out of the one percent in the current political environment, the funding for the EITC would have to come from more middle class types.
By contrast, the money to pay a higher minimum wage comes from several sources. As John Schmitt discusses in his paper, some of the higher wage will be passed on in higher prices. That will be like a tax in its incidence, as we all will pay a bit more for fast food and other items purchased from employers with a large share of low-wage workers.
However some of this will come out of the record corporate profits that we have seen in recent years. The Walton family may see their net worth fall by 10-20 percent, perhaps even slipping below $100 billion. (Handkerchiefs are on sale in aisle three). And part of the higher cost will be made up in higher productivity as turnover drops and employers learn how to use workers more efficiently.
So Mankiw’s EITC option has the middle class paying more through higher taxes, while the minimum wage route has much of the cost being met through lower corporate profits and greater efficiency. This distributional impact should be front and center on the table.
There is another part of the story that should feature in the discussion. Mankiw sees a higher minimum wage as a tax on low wage employers. However the reason that we have so many people who are willing to work for $7.25 an hour at places like Walmart and McDonalds is because they can’t get better paying jobs elsewhere. And the reason they can’t get better paying jobs is that we have a government policy to run budgets that are not consistent with full employment.
In other words, we could spend more and/or tax less and thereby increase demand in the economy. This would increase output and employment and give these low-paid workers more employment options. However as a matter of policy we decided to have federal budgets that led to higher rates of unemployment. Rather than seeing the minimum wage as a tax on low-wage employers, we can see the government’s high unemployment policy as a subsidy to low-wage employers. (Yes, this is a sales pitch for the free book I wrote with Jared.)
The point is that we have no virgin markets where the chips just fall where they may without the heavy hand of government. The question is who does that hand favor. Mankiw wants it to help the one percent, Jared and I would rather see it work to the benefit of the rest of the population.
Greg Mankiw uses his column today to take on the minimum wage. He criticizes President Obama for citing studies showing that the minimum wage has little or no effect on employment and points to studies finding that a higher minimum wage will lead to modest declines in employment. (See John Schmitt’s excellent paper for a quick review of the state of the research.) Mankiw says that we should think of the minimum wage as a hidden tax that hits low wage employers.
Mankiw argues that if we want to help out the working poor then the best way to do it is to have an explicit tax and use it to fund a higher Earned Income Tax Credit (EITC). He argues that the EITC is a fairer and more efficient way to help low wage workers.
Let’s give this one a bit of thought. First of all, Jared Bernstein has already made the obvious point that the EITC and minimum wage should be seen as complementary policies. If we raise the minimum wage then the EITC costs us less. This should be important, especially to people like Greg Mankiw, who on other days argue for lower taxes because they create economic distortions and reduce output. Since the low tax Greg Mankiw and his allies are likely to reappear in public debates when the issue is not raising the minimum wage, we should be mindful of how much money the government spends on the EITC.
We can also think about the incidence of the burdens from a higher minimum wage versus a higher EITC. In the latter case we would presumably be looking at an increase in the income tax as the source of revenue. (Mankiw may want to cut Social Security and Medicare, but let’s not make this more complicated than necessary.) Since we will probably not be getting too much more out of the one percent in the current political environment, the funding for the EITC would have to come from more middle class types.
By contrast, the money to pay a higher minimum wage comes from several sources. As John Schmitt discusses in his paper, some of the higher wage will be passed on in higher prices. That will be like a tax in its incidence, as we all will pay a bit more for fast food and other items purchased from employers with a large share of low-wage workers.
However some of this will come out of the record corporate profits that we have seen in recent years. The Walton family may see their net worth fall by 10-20 percent, perhaps even slipping below $100 billion. (Handkerchiefs are on sale in aisle three). And part of the higher cost will be made up in higher productivity as turnover drops and employers learn how to use workers more efficiently.
So Mankiw’s EITC option has the middle class paying more through higher taxes, while the minimum wage route has much of the cost being met through lower corporate profits and greater efficiency. This distributional impact should be front and center on the table.
There is another part of the story that should feature in the discussion. Mankiw sees a higher minimum wage as a tax on low wage employers. However the reason that we have so many people who are willing to work for $7.25 an hour at places like Walmart and McDonalds is because they can’t get better paying jobs elsewhere. And the reason they can’t get better paying jobs is that we have a government policy to run budgets that are not consistent with full employment.
In other words, we could spend more and/or tax less and thereby increase demand in the economy. This would increase output and employment and give these low-paid workers more employment options. However as a matter of policy we decided to have federal budgets that led to higher rates of unemployment. Rather than seeing the minimum wage as a tax on low-wage employers, we can see the government’s high unemployment policy as a subsidy to low-wage employers. (Yes, this is a sales pitch for the free book I wrote with Jared.)
The point is that we have no virgin markets where the chips just fall where they may without the heavy hand of government. The question is who does that hand favor. Mankiw wants it to help the one percent, Jared and I would rather see it work to the benefit of the rest of the population.
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The NYT had a retrospective on the 50th anniversary of the war on poverty. One item that is worth noting is that the poverty rate actually fell sharply through the sixties and into the early seventies. Then the economy was derailed by the oil price shocks and the recessions that followed in 1974-75 and then again at the end of the 1970s. Then President Reagan got elected and surrendered.
Since the poverty rate is ostensibly based on an absolute living standard, the failure to make any progress over the last fifty years really is striking. If we had seen the same growth rate over this period with no increase in inequality, poverty would have been almost completely eliminated. The rise in inequality over the last three decades explains the lack of progress on reducing poverty.
The NYT had a retrospective on the 50th anniversary of the war on poverty. One item that is worth noting is that the poverty rate actually fell sharply through the sixties and into the early seventies. Then the economy was derailed by the oil price shocks and the recessions that followed in 1974-75 and then again at the end of the 1970s. Then President Reagan got elected and surrendered.
Since the poverty rate is ostensibly based on an absolute living standard, the failure to make any progress over the last fifty years really is striking. If we had seen the same growth rate over this period with no increase in inequality, poverty would have been almost completely eliminated. The rise in inequality over the last three decades explains the lack of progress on reducing poverty.
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Thomas Friedman once again pronounces a pox on both their houses, demanding that Republicans and Democrats compromise and embrace his agenda for moving the country forward. The big problem is that because Thomas Friedman apparently doesn’t believe in doing homework, he doesn’t actually have an agenda that would move the country forward.
Taking his items in turn, he calls for an investment agenda, with the qualification:
“But this near-term investment should be paired with long-term entitlement reductions, defense cuts and tax reform that would be phased in gradually as the economy improves, so we do not add to the already heavy fiscal burden on our children, deprive them of future investment resources or leave our economy vulnerable to unforeseen shocks, future recessions or the stresses that are sure to come when all the baby boomers retire.”
Now the folks who have done their homework know that projections for Medicare and Medicaid spending have been sharply reduced in the last five years as the Congressional Budget Office and other forecasters have incorporated part of the slowdown in cost growth that we have seen over this period. This means that the deficit projections for 10-15 years out don’t look nearly as scary as they did in the recent past. The reduction in projected cost growth exceeds the savings from almost any remotely feasible cut that might have been proposed five years ago.
On the Social Security side of the entitlement ledger, most older workers have almost nothing saved for retirement because people with names like Greenspan, Rubin, and Summers are not very competent at running an economy (another example of the skills shortage). This means that it is not practical to talk about cuts to Social Security for anyone retiring in the near future since this is the bulk of what most retirees will be living on. In fact, those who did their homework know that many people in Congress and across the country are now talking about increasing benefits. We can cut our children and grandchildren’s Social Security, but this is a dubious way to propose to help them.
Then we have Thomas Friedman’s energy agenda:
“We should exploit our new natural gas bounty, but only by pairing it with the highest environmental extraction rules and a national, steadily rising, renewable energy portfolio standard that would ensure that natural gas replaces coal — not solar, wind or other renewables. That way shale gas becomes a bridge to a cleaner energy future, not just an addiction to a less dirty, climate-destabilizing fossil fuel.”
Friedman apparently has not done his homework here either. Andrew Revkin, who certainly is not a knee-jerk enviro-type, devoted a blogpost to a new study indicating that fracking results in much higher emissions of methane gas than had previously been believed. While this study is not conclusive, its findings certainly deserve to be taken seriously. Unless they can be shown to be mistaken, it is wrong to imagine shale gas to be the bridge fuel Friedman claims.
Then we are told:
“In some cities, teachers’ unions really are holding up education reform.”
Really, the problem is teachers’ unions? Well, large chunks of the country don’t have any teachers’ unions to block reform. Yet, we don’t hear of Texas and Alabama beating out Finland (which does have teachers’ unions) for top rankings on standardized tests or other measures of student performance. Teachers’ unions have often come into conflict with self-proclaimed reformers. While the unions may have obstructed their agenda (which often seems largely focused on weakening teachers’ unions), it is far from clear that this has had negative outcomes for students. In the Chicago teachers’ strike in 2012, the most noteworthy recent confrontation, the parents overwhelmingly sided with the teachers, so apparently they haven’t been clued in on the benefits of reform.
Next we get Thomas Friedman’s theory of wage inequality:
“Finally, the merger of globalization and the information-technology revolution has shrunk the basis of the old middle class — the high-wage, middle-skilled job. Increasingly, there are only high-wage, high-skilled jobs.”
That’s a nice try, but the data don’t fit Thoams Friedman’s little hyper-connected technology driven story. My friends Larry Mishel, John Schmitt, and Heidi Shierholz looked at this issue very carefully. In the last decade the jobs that have been growing most rapidly are actually low-skilled occupations. If we want to look for reasons for wage inequality we might try items like declining unionization rates and high unemployment.
So Friedman is surely right that we should not view compromise as a 4-letter word, but that doesn’t mean we should agree on a policy agenda that is not grounded in evidence.
Thomas Friedman once again pronounces a pox on both their houses, demanding that Republicans and Democrats compromise and embrace his agenda for moving the country forward. The big problem is that because Thomas Friedman apparently doesn’t believe in doing homework, he doesn’t actually have an agenda that would move the country forward.
Taking his items in turn, he calls for an investment agenda, with the qualification:
“But this near-term investment should be paired with long-term entitlement reductions, defense cuts and tax reform that would be phased in gradually as the economy improves, so we do not add to the already heavy fiscal burden on our children, deprive them of future investment resources or leave our economy vulnerable to unforeseen shocks, future recessions or the stresses that are sure to come when all the baby boomers retire.”
Now the folks who have done their homework know that projections for Medicare and Medicaid spending have been sharply reduced in the last five years as the Congressional Budget Office and other forecasters have incorporated part of the slowdown in cost growth that we have seen over this period. This means that the deficit projections for 10-15 years out don’t look nearly as scary as they did in the recent past. The reduction in projected cost growth exceeds the savings from almost any remotely feasible cut that might have been proposed five years ago.
On the Social Security side of the entitlement ledger, most older workers have almost nothing saved for retirement because people with names like Greenspan, Rubin, and Summers are not very competent at running an economy (another example of the skills shortage). This means that it is not practical to talk about cuts to Social Security for anyone retiring in the near future since this is the bulk of what most retirees will be living on. In fact, those who did their homework know that many people in Congress and across the country are now talking about increasing benefits. We can cut our children and grandchildren’s Social Security, but this is a dubious way to propose to help them.
Then we have Thomas Friedman’s energy agenda:
“We should exploit our new natural gas bounty, but only by pairing it with the highest environmental extraction rules and a national, steadily rising, renewable energy portfolio standard that would ensure that natural gas replaces coal — not solar, wind or other renewables. That way shale gas becomes a bridge to a cleaner energy future, not just an addiction to a less dirty, climate-destabilizing fossil fuel.”
Friedman apparently has not done his homework here either. Andrew Revkin, who certainly is not a knee-jerk enviro-type, devoted a blogpost to a new study indicating that fracking results in much higher emissions of methane gas than had previously been believed. While this study is not conclusive, its findings certainly deserve to be taken seriously. Unless they can be shown to be mistaken, it is wrong to imagine shale gas to be the bridge fuel Friedman claims.
Then we are told:
“In some cities, teachers’ unions really are holding up education reform.”
Really, the problem is teachers’ unions? Well, large chunks of the country don’t have any teachers’ unions to block reform. Yet, we don’t hear of Texas and Alabama beating out Finland (which does have teachers’ unions) for top rankings on standardized tests or other measures of student performance. Teachers’ unions have often come into conflict with self-proclaimed reformers. While the unions may have obstructed their agenda (which often seems largely focused on weakening teachers’ unions), it is far from clear that this has had negative outcomes for students. In the Chicago teachers’ strike in 2012, the most noteworthy recent confrontation, the parents overwhelmingly sided with the teachers, so apparently they haven’t been clued in on the benefits of reform.
Next we get Thomas Friedman’s theory of wage inequality:
“Finally, the merger of globalization and the information-technology revolution has shrunk the basis of the old middle class — the high-wage, middle-skilled job. Increasingly, there are only high-wage, high-skilled jobs.”
That’s a nice try, but the data don’t fit Thoams Friedman’s little hyper-connected technology driven story. My friends Larry Mishel, John Schmitt, and Heidi Shierholz looked at this issue very carefully. In the last decade the jobs that have been growing most rapidly are actually low-skilled occupations. If we want to look for reasons for wage inequality we might try items like declining unionization rates and high unemployment.
So Friedman is surely right that we should not view compromise as a 4-letter word, but that doesn’t mean we should agree on a policy agenda that is not grounded in evidence.
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I can’t find a doctor to work for me for $30 an hour. According to the NYT this would mean that the United States has a doctor shortage. That appears to be the logic of a major article asserting that Europe’s economy is suffering from a shortage of skilled workers even as its unemployment rate is near 12 percent.
The piece never once mentions the trends in wages for workers with the skills that are allegedly in short supply. As a practical matter, there has been a shift from wages to profits over the last three decades which accelerated with the downturn. In the United States, which also supposedly suffers from a skills shortage, even workers with degrees in science, math, and engineering, are not seeing their wages keep pace with economy-wide productivity growth.
It is understandable that employers will always want lower cost labor just as most of us would be happy to save money by having qualified doctors work for us at $30 an hour. However the desire of companies to increase profits further doesn’t mean there is a shortage of skilled workers anymore than the lack of doctors willing to work for $30 an hour implies a shortage of doctors.
I can’t find a doctor to work for me for $30 an hour. According to the NYT this would mean that the United States has a doctor shortage. That appears to be the logic of a major article asserting that Europe’s economy is suffering from a shortage of skilled workers even as its unemployment rate is near 12 percent.
The piece never once mentions the trends in wages for workers with the skills that are allegedly in short supply. As a practical matter, there has been a shift from wages to profits over the last three decades which accelerated with the downturn. In the United States, which also supposedly suffers from a skills shortage, even workers with degrees in science, math, and engineering, are not seeing their wages keep pace with economy-wide productivity growth.
It is understandable that employers will always want lower cost labor just as most of us would be happy to save money by having qualified doctors work for us at $30 an hour. However the desire of companies to increase profits further doesn’t mean there is a shortage of skilled workers anymore than the lack of doctors willing to work for $30 an hour implies a shortage of doctors.
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Uwe Reinhardt has a useful blogpost taking issue with a Wall Street Journal editorial on the Affordable Care Act (ACA). The editorial had complained that the ACA steals $156 billion from the Medicare Advantage program, the portion of Medicare run by private insurers.
Reinhardt points out that this $156 billion in reduced payments is over a ten year period, a point missing from the editorial. That’s around 2.0 percent of projected Medicare spending over this period. The other key point in Reinhardt’s piece is that this reduction in payments for Medicare Advantage simply involves leveling the playing field so that the federal government will pay the same amount for each beneficiary in the Medicare Advantage program as in the traditional fee for service program.
Towards the end of the piece Reinhardt notes that, given the WSJ’s ideology, it is understandable that it would object to this leveling of the playing field. While this is true, this is not where a market oriented ideology would take them. If the WSJ editors were confident in the superiority of private sector insurers, they would not feel that they needed a subsidy compared with the traditional government program. The WSJ position only makes sense if the view of the editors is that it is the responsibility of government to redistribute money to the private insurers and implicitly their shareholders and top executives.
Uwe Reinhardt has a useful blogpost taking issue with a Wall Street Journal editorial on the Affordable Care Act (ACA). The editorial had complained that the ACA steals $156 billion from the Medicare Advantage program, the portion of Medicare run by private insurers.
Reinhardt points out that this $156 billion in reduced payments is over a ten year period, a point missing from the editorial. That’s around 2.0 percent of projected Medicare spending over this period. The other key point in Reinhardt’s piece is that this reduction in payments for Medicare Advantage simply involves leveling the playing field so that the federal government will pay the same amount for each beneficiary in the Medicare Advantage program as in the traditional fee for service program.
Towards the end of the piece Reinhardt notes that, given the WSJ’s ideology, it is understandable that it would object to this leveling of the playing field. While this is true, this is not where a market oriented ideology would take them. If the WSJ editors were confident in the superiority of private sector insurers, they would not feel that they needed a subsidy compared with the traditional government program. The WSJ position only makes sense if the view of the editors is that it is the responsibility of government to redistribute money to the private insurers and implicitly their shareholders and top executives.
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Simon Johnson has a good post on how a bloated financial sector is often a curse to rich countries like the United States. The piece can use a small correction.
It gives South Korea as an example of a middle income country in which manufacturing still is a dominant force. South Korea really should be viewed as an advanced country. It’s per capita income is higher than Italy’s and only about 10 percent lower than the United Kingdom’s.
Simon Johnson has a good post on how a bloated financial sector is often a curse to rich countries like the United States. The piece can use a small correction.
It gives South Korea as an example of a middle income country in which manufacturing still is a dominant force. South Korea really should be viewed as an advanced country. It’s per capita income is higher than Italy’s and only about 10 percent lower than the United Kingdom’s.
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Sarah Kliff has a useful discussion of the changes in the insurance market brought about by Obamacare. It points out that Obamacare will end discrimination based on pre-existing conditions. While there will still be substantial differences in cost based on age, people will pay the same premiums regardless of their health.
However the piece is a bit misleading in its exclusive focus on the individual insurance market. The vast majority of the working age population gets insurance through their employer. With employer based insurance workers effectively pay the same for their insurance regardless of their health. (The premium paid by the employer is ultimately paid by the worker, since it comes out of wages. Employers don’t just give away insurance.)
This is important in the context of the debate around Obamacare since there has been considerable attention given the fact that the young to some extent subsidize the old, since the premium structure does not fully reflect the differences in average costs by age. Insofar as this cross-subsidy exists, Obamacare is just replicating a situation that has long been present in the much larger employer provided insurance system.
It is also worth noting that the subsidy from the healthy of all ages to the less healthy dwarfs the age-based subsidy. This is of course the purpose of the program: to make insurance affordable to the people who need it.
Sarah Kliff has a useful discussion of the changes in the insurance market brought about by Obamacare. It points out that Obamacare will end discrimination based on pre-existing conditions. While there will still be substantial differences in cost based on age, people will pay the same premiums regardless of their health.
However the piece is a bit misleading in its exclusive focus on the individual insurance market. The vast majority of the working age population gets insurance through their employer. With employer based insurance workers effectively pay the same for their insurance regardless of their health. (The premium paid by the employer is ultimately paid by the worker, since it comes out of wages. Employers don’t just give away insurance.)
This is important in the context of the debate around Obamacare since there has been considerable attention given the fact that the young to some extent subsidize the old, since the premium structure does not fully reflect the differences in average costs by age. Insofar as this cross-subsidy exists, Obamacare is just replicating a situation that has long been present in the much larger employer provided insurance system.
It is also worth noting that the subsidy from the healthy of all ages to the less healthy dwarfs the age-based subsidy. This is of course the purpose of the program: to make insurance affordable to the people who need it.
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That is not exactly what he said, but that is what his comments in a Washington Post interview mean. Dimon said that the United States is suffering from a skills gap where firms can’t find workers with the skills they need. Dimon claimed that this skills shortage could be raising the unemployment rate by 1-2 percentage points.
In a market economy when there is a shortage of particular item, in this case skilled workers, the price is supposed to rise. There is no substantial sector of labor market seeing wages that are even keeping pace with overall productivity growth, much less rising due to shortages.
If firms really have slots going open because they can’t find workers with the skills they need then the problem is that we have employers who don’t understand how markets work. If they raised wages firms could attract skilled workers away from their competitors and more workers would try to acquire the necessary skills for their open positions. Perhaps if CEOs were required to take introductory economics courses we could solve this problem.
As a practical matter, we see no evidence to support Dimon’s assertion. There are no major occupational groupings with high ratios of vacancies to unemployed workers, nor do we see increases in the length of workweeks, which is another way that employers would deal with a shortage of skilled workers.
That is not exactly what he said, but that is what his comments in a Washington Post interview mean. Dimon said that the United States is suffering from a skills gap where firms can’t find workers with the skills they need. Dimon claimed that this skills shortage could be raising the unemployment rate by 1-2 percentage points.
In a market economy when there is a shortage of particular item, in this case skilled workers, the price is supposed to rise. There is no substantial sector of labor market seeing wages that are even keeping pace with overall productivity growth, much less rising due to shortages.
If firms really have slots going open because they can’t find workers with the skills they need then the problem is that we have employers who don’t understand how markets work. If they raised wages firms could attract skilled workers away from their competitors and more workers would try to acquire the necessary skills for their open positions. Perhaps if CEOs were required to take introductory economics courses we could solve this problem.
As a practical matter, we see no evidence to support Dimon’s assertion. There are no major occupational groupings with high ratios of vacancies to unemployed workers, nor do we see increases in the length of workweeks, which is another way that employers would deal with a shortage of skilled workers.
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