A Washington Post piece on the future of Fannie Mae and Freddie Mac allowed the debate to be framed by Ellen Seidman, a senior fellow at the Urban Institute:
“‘You’ve got an ideological right that wants no government guarantee at all, except grudgingly through the Federal Housing Administration,’ she says. ‘And you have sort of everybody else wanting some sort of guarantee.'”
Actually, I wouldn’t fully fit Seidman’s definition of the ideological right because I would be happy to have Fannie and Freddie continue as essentially government owned companies. This is a case where there are economies of scale in having one or two actors as the secondary market and no problems of moral hazard in a context where all the profits go to the government.
However, there is a good argument for leaving the market to the private sector if it is not politically feasible to keep Fannie and Freddie in their current state. Devolving to some sort of convoluted mix of private banks with public guarantees both raises costs (come on folks — put on your economist’s hat, we do not want a lot of money being made in mortgage finance) and problems of moral hazard.
Will our regulators be able to ensure that the banks issuing mortgage backed securities aren’t able to offload risk on the government? Not in any world I’ve seen.
It would be worth taking the risk if there were some important end being served, but what is the end here? People will still be able to get mortgages without a government guarantee and they will even be able to get 30-year fixed rate mortgages. (Ever hear of the jumbo mortgage market? There are 30-year fixed rate mortgages there and no government guarantee.)
Mortgages will cost more absent a guarantee. So what? The subsidy of lower cost mortgages goes disproportionately to people who take out bigger mortgages, in other words better off people. Now that’s a great government program, it gives more money to higher income people than lower income people. You would have to be a right-wing ideologue to oppose that one.
We already subsidize home ownership through the mortgage interest deduction. If we want to increase the subsidy we can make the deduction more generous. This would also allow us to target the subsidy better.
The sort of public-private mixes advocated by Seidman’s “everybody else” are about subsidizing mortgage backed securities, not homeownership. And as much as I hate to disagree with the Washington Post, I don’t think opposing government subsidies for mortgage backed securities puts me on the ideological right.
A Washington Post piece on the future of Fannie Mae and Freddie Mac allowed the debate to be framed by Ellen Seidman, a senior fellow at the Urban Institute:
“‘You’ve got an ideological right that wants no government guarantee at all, except grudgingly through the Federal Housing Administration,’ she says. ‘And you have sort of everybody else wanting some sort of guarantee.'”
Actually, I wouldn’t fully fit Seidman’s definition of the ideological right because I would be happy to have Fannie and Freddie continue as essentially government owned companies. This is a case where there are economies of scale in having one or two actors as the secondary market and no problems of moral hazard in a context where all the profits go to the government.
However, there is a good argument for leaving the market to the private sector if it is not politically feasible to keep Fannie and Freddie in their current state. Devolving to some sort of convoluted mix of private banks with public guarantees both raises costs (come on folks — put on your economist’s hat, we do not want a lot of money being made in mortgage finance) and problems of moral hazard.
Will our regulators be able to ensure that the banks issuing mortgage backed securities aren’t able to offload risk on the government? Not in any world I’ve seen.
It would be worth taking the risk if there were some important end being served, but what is the end here? People will still be able to get mortgages without a government guarantee and they will even be able to get 30-year fixed rate mortgages. (Ever hear of the jumbo mortgage market? There are 30-year fixed rate mortgages there and no government guarantee.)
Mortgages will cost more absent a guarantee. So what? The subsidy of lower cost mortgages goes disproportionately to people who take out bigger mortgages, in other words better off people. Now that’s a great government program, it gives more money to higher income people than lower income people. You would have to be a right-wing ideologue to oppose that one.
We already subsidize home ownership through the mortgage interest deduction. If we want to increase the subsidy we can make the deduction more generous. This would also allow us to target the subsidy better.
The sort of public-private mixes advocated by Seidman’s “everybody else” are about subsidizing mortgage backed securities, not homeownership. And as much as I hate to disagree with the Washington Post, I don’t think opposing government subsidies for mortgage backed securities puts me on the ideological right.
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Now you know why your tax bill is so high. I’m not kidding, the NYT had a news article highlighting a study by the Government Accountability Office that found over the four and half years from October 2007 to April of 2012, $10.6 million was paid in subsidies to farmers who were dead. Using CEPR’s really cool budget calculator it was possible to quickly determine that this number was less than 0.0001 percent of federal spending over this period. (Okay, I cheated. I treated the current year’s budget as being equal to the budgets for 2007-2012, but I divided the $10.6 million by 4.0 instead of 4.5 to compensate for the lower budgets in these years.)
Anyhow, it would have been useful to put the $10.6 million in context so readers would know how important it is to the budget. It also could have compared the improper payments to the size of the farm program. The government would have paid out roughly $80 billion in subsidies over this period, which means the payments to dead people would have been a bit more than 0.013 percent of total payments. It is also worth noting that some of this money was recovered.
It would be desirable to eliminate all improper payments in government programs, but it is implausible that a program that sends out tens of billions of dollars a year in subsidies will not have some errors. The job of the media is to report on these errors in a way that makes their importance meaningful to readers. The NYT flunked badly on this score with this article.
Now you know why your tax bill is so high. I’m not kidding, the NYT had a news article highlighting a study by the Government Accountability Office that found over the four and half years from October 2007 to April of 2012, $10.6 million was paid in subsidies to farmers who were dead. Using CEPR’s really cool budget calculator it was possible to quickly determine that this number was less than 0.0001 percent of federal spending over this period. (Okay, I cheated. I treated the current year’s budget as being equal to the budgets for 2007-2012, but I divided the $10.6 million by 4.0 instead of 4.5 to compensate for the lower budgets in these years.)
Anyhow, it would have been useful to put the $10.6 million in context so readers would know how important it is to the budget. It also could have compared the improper payments to the size of the farm program. The government would have paid out roughly $80 billion in subsidies over this period, which means the payments to dead people would have been a bit more than 0.013 percent of total payments. It is also worth noting that some of this money was recovered.
It would be desirable to eliminate all improper payments in government programs, but it is implausible that a program that sends out tens of billions of dollars a year in subsidies will not have some errors. The job of the media is to report on these errors in a way that makes their importance meaningful to readers. The NYT flunked badly on this score with this article.
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Most people are sophisticated enough when it comes to politics that they know politicians can’t always be taken at their word. Unfortunately, the people who write for major news outlets apparently lack this sophistication. That is the reason an AP article in the Washington Post warned readers that Republicans may oppose a proposal for reforming the corporate income tax because:
“they have long insisted on tying corporate and individual tax reform so that small business owners who use the individual tax code would be offered cuts along with large corporations.”
The Republicans claim that their interest in reforming the individual tax code is to help small businesses, but there is no reason to believe this is true. The vast majority of small businesses would receive little or no benefit from Republican proposals to change the tax code, which center on reducing the top tax brackets. In addition, the vast majority of the people who would benefit from reductions in the top tax bracket are not small business owners.
It is of course possible that Republicans are focused on reducing the top tax brackets as a way to help small business owners. But it is also possible that Republicans just say that they want to help small business owners because it sounds better politically than saying that their platform calls for giving more money to rich people.
Most people are sophisticated enough when it comes to politics that they know politicians can’t always be taken at their word. Unfortunately, the people who write for major news outlets apparently lack this sophistication. That is the reason an AP article in the Washington Post warned readers that Republicans may oppose a proposal for reforming the corporate income tax because:
“they have long insisted on tying corporate and individual tax reform so that small business owners who use the individual tax code would be offered cuts along with large corporations.”
The Republicans claim that their interest in reforming the individual tax code is to help small businesses, but there is no reason to believe this is true. The vast majority of small businesses would receive little or no benefit from Republican proposals to change the tax code, which center on reducing the top tax brackets. In addition, the vast majority of the people who would benefit from reductions in the top tax bracket are not small business owners.
It is of course possible that Republicans are focused on reducing the top tax brackets as a way to help small business owners. But it is also possible that Republicans just say that they want to help small business owners because it sounds better politically than saying that their platform calls for giving more money to rich people.
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The NYT caught this one itself, but it still is worth noting. An article discussing hospitals’ efforts to promote themselves included a quote from Dr. Eric Topol, chief academic officer at Scripps Health in California:
“We’re pushing $3 trillion in health expenditures, and one-third of that is waste.”
The piece originally said $3 billion in health expenditures. Of course mistakes happen, but you have to wonder if the NYT’s editors would have missed the error if the original sentence told readers that:
“We’re pushing $3 billion in health expenditures [0.0188 percent of GDP], and one-third of that is waste.”
It seems unlikely that one would have found its way into print. Just as the $3 billion or $ 3 trillion number, without any context, are not meaningful to the vast majority of NYT readers, they also are not very meaningful to the NYT’s editors either.
Thanks to Francois Furstenberg for calling this one to my attention.
The NYT caught this one itself, but it still is worth noting. An article discussing hospitals’ efforts to promote themselves included a quote from Dr. Eric Topol, chief academic officer at Scripps Health in California:
“We’re pushing $3 trillion in health expenditures, and one-third of that is waste.”
The piece originally said $3 billion in health expenditures. Of course mistakes happen, but you have to wonder if the NYT’s editors would have missed the error if the original sentence told readers that:
“We’re pushing $3 billion in health expenditures [0.0188 percent of GDP], and one-third of that is waste.”
It seems unlikely that one would have found its way into print. Just as the $3 billion or $ 3 trillion number, without any context, are not meaningful to the vast majority of NYT readers, they also are not very meaningful to the NYT’s editors either.
Thanks to Francois Furstenberg for calling this one to my attention.
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Inspired by Noah Smith’s tweets, I thought I would give a quick response to Brad DeLong’s post arguing that better housing policy offers a quick way to fill much of the gap created by the collapse of the bubble. Brad has two contentions. First that years of very low building has led to huge pent-up demand for new housing units and second that if underwater homeowners could refinance their homes then we would see much more consumption.
Taking these in turn, Brad uses a trend line for housing construction to say that netting out the oversupply of the bubble years and the undersupply of more recent years, that we are way below trend. I would question the accuracy of the trend since the aging of the population might suggest a sharply lower rate of construction. (Also the increasing share of income going to medical care logically implies a decreasing share to everything else — presumably housing would be affected by this.)
Anyhow, we have direct data on the extent of over or underbuilding, the vacancy data compiled by the Census. This shows that vacancy rates are down from the peaks reached in 2009-2010, but still well above pre-bubble levels. That doesn’t sound like a market with lots of pent-up demand.
As far as the consumption story from allowing underwater homeowners to refinance and write-down debt, a little arithmetic would quickly destroy the illusions here. There are roughly 10 million underwater homeowners. Suppose they all refinanced tomorrow. How much more would they then consume?
The median income for homeowners is around $70,000. (I’m assuming that the average income for underwater homeowners is close to the median, meaning that it’s below the overall average.) Suppose that refinancing and coming above water allowed them to increase their annual consumption by $5,000 each on average, which would be a huge increase for a family with an income of $70k.
This would imply an increase in annual consumption of $50 billion. If we assume a multiplier of 1.5 that will add $75 billion, or a bit less than 0.5 percentage points, to annual GDP. This would be helpful, but not exactly a game-changer.
Long and short, we absolutely should have done more to help underwater homeowners as a matter of fairness, as I advocated from the beginning of the crisis. But it is unrealistic to imagine that this would have hugely altered the course of the recession.
Inspired by Noah Smith’s tweets, I thought I would give a quick response to Brad DeLong’s post arguing that better housing policy offers a quick way to fill much of the gap created by the collapse of the bubble. Brad has two contentions. First that years of very low building has led to huge pent-up demand for new housing units and second that if underwater homeowners could refinance their homes then we would see much more consumption.
Taking these in turn, Brad uses a trend line for housing construction to say that netting out the oversupply of the bubble years and the undersupply of more recent years, that we are way below trend. I would question the accuracy of the trend since the aging of the population might suggest a sharply lower rate of construction. (Also the increasing share of income going to medical care logically implies a decreasing share to everything else — presumably housing would be affected by this.)
Anyhow, we have direct data on the extent of over or underbuilding, the vacancy data compiled by the Census. This shows that vacancy rates are down from the peaks reached in 2009-2010, but still well above pre-bubble levels. That doesn’t sound like a market with lots of pent-up demand.
As far as the consumption story from allowing underwater homeowners to refinance and write-down debt, a little arithmetic would quickly destroy the illusions here. There are roughly 10 million underwater homeowners. Suppose they all refinanced tomorrow. How much more would they then consume?
The median income for homeowners is around $70,000. (I’m assuming that the average income for underwater homeowners is close to the median, meaning that it’s below the overall average.) Suppose that refinancing and coming above water allowed them to increase their annual consumption by $5,000 each on average, which would be a huge increase for a family with an income of $70k.
This would imply an increase in annual consumption of $50 billion. If we assume a multiplier of 1.5 that will add $75 billion, or a bit less than 0.5 percentage points, to annual GDP. This would be helpful, but not exactly a game-changer.
Long and short, we absolutely should have done more to help underwater homeowners as a matter of fairness, as I advocated from the beginning of the crisis. But it is unrealistic to imagine that this would have hugely altered the course of the recession.
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Does God speak directly to the NYT? If not, how can it justify telling readers in a news article:
“But some basic decisions need to be made, starting with whether to try again for a broader deal to tackle deficit spending long term with significant changes to entitlement programs and more tax revenue.”
Those of us who just look at the data and official projections would never know such things. The deficit is currently at relatively modest levels compared to the size of the economy and is projected to remain so for the next decade. That would suggest that no basic decisions need to be made any time soon. Congress can go this year doing nothing about entitlement programs, it can go next year doing nothing about entitlement programs, and the year after and the year after.
In fact, current projections for government spending and deficits suggest that there is no urgency whatsoever about making changes to entitlement programs. So unless God has spoken, the NYT is misleading readers when it asserts that “some basic decisions need to be made.”
This piece also apparently suffers from the same sort of inability to say “cuts” in Social Security and Medicare that often afflicts politicians advocating such cuts.
In the fifth paragraph it tells readers:
“In the Senate, a glimmer of hope has appeared for a bipartisan deal to end the automatic across-the-board spending cuts known as sequestration and shift some of those savings to entitlement programs like Medicare and Social Security.”
So in this case it expresses “hope” that the sequestration “cuts” will be replaced by “savings” in programs like Medicare and Social Security.
In the fourth to the last paragraph, the piece presents the possibility that “cuts” can be offset with “subtle changes” to Social Security and Medicare:
“The group [of Republican and Democratic senators] appears to be closing in on a modest agreement to replace deep and automatic cuts to defense and domestic programs at Congress’s annual funding discretion with more subtle changes to entitlement — or ‘mandatory’ — programs.”
Then after quoting Senator Corker [a member of the group] referring to “mandatory savings,” the piece comes back with its grand pronouncement about the need for decisions about “significant changes.”
Of course outside of euphemism land, “cuts” will be needed to replace “cuts” if the goal is to leave the deficit the same. Generic changes will not suffice.
Thanks to Robert Salzberg for calling this one to my attention.
Does God speak directly to the NYT? If not, how can it justify telling readers in a news article:
“But some basic decisions need to be made, starting with whether to try again for a broader deal to tackle deficit spending long term with significant changes to entitlement programs and more tax revenue.”
Those of us who just look at the data and official projections would never know such things. The deficit is currently at relatively modest levels compared to the size of the economy and is projected to remain so for the next decade. That would suggest that no basic decisions need to be made any time soon. Congress can go this year doing nothing about entitlement programs, it can go next year doing nothing about entitlement programs, and the year after and the year after.
In fact, current projections for government spending and deficits suggest that there is no urgency whatsoever about making changes to entitlement programs. So unless God has spoken, the NYT is misleading readers when it asserts that “some basic decisions need to be made.”
This piece also apparently suffers from the same sort of inability to say “cuts” in Social Security and Medicare that often afflicts politicians advocating such cuts.
In the fifth paragraph it tells readers:
“In the Senate, a glimmer of hope has appeared for a bipartisan deal to end the automatic across-the-board spending cuts known as sequestration and shift some of those savings to entitlement programs like Medicare and Social Security.”
So in this case it expresses “hope” that the sequestration “cuts” will be replaced by “savings” in programs like Medicare and Social Security.
In the fourth to the last paragraph, the piece presents the possibility that “cuts” can be offset with “subtle changes” to Social Security and Medicare:
“The group [of Republican and Democratic senators] appears to be closing in on a modest agreement to replace deep and automatic cuts to defense and domestic programs at Congress’s annual funding discretion with more subtle changes to entitlement — or ‘mandatory’ — programs.”
Then after quoting Senator Corker [a member of the group] referring to “mandatory savings,” the piece comes back with its grand pronouncement about the need for decisions about “significant changes.”
Of course outside of euphemism land, “cuts” will be needed to replace “cuts” if the goal is to leave the deficit the same. Generic changes will not suffice.
Thanks to Robert Salzberg for calling this one to my attention.
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The Washington Post had a piece discussing views at the Fed about the prospect of either vice-chair Janet Yellen or Larry Summers taking over as chair. At one point the piece discusses the arithmetic of votes on the 12 person open market committee that decides monetary policy. It tells readers:
“The chair sets the tone of the discussion. The Fed staff members who prepare economic projections and the range of policy options work directly for the chair. And the Washington-based governors usually go along with the Fed leader’s wishes (none has dissented since 2005), giving the chair a head start in putting together a majority.
“So, at the end of the day, the Fed chairman can get the policy that he or she wishes. But the ability to persuade and firm up support still matters. If a policy change was regularly enacted on close votes, say 7 to 5, it would send a message to markets that no one was really in charge.”
This is a bit misleading. First votes are usually, unanimous so there are not a lot of dissenting votes to examine. Furthermore, Bernanke took over as Fed chair in January 2006, so most of the votes since 2005 have been during his tenure. Of course Bernanke has made a point of consulting closely with his colleagues, as the piece notes, so it is not surprising that he would not have pushed positions that prompted one of the other governors to dissent.
Finally, the arithmetic is likely to be a bit different than is implied in this piece if Summers is appointed. There is already one vacancy on the board of governors. Another governor, Sarah Bloom Raskin, is reportedly considering a top position at Treasury. If she were to take this appointment that would create a second vacancy. Finally, there is a reasonably chance that Yellen would leave if she were passed over for Summers. That would create a third vacancy.
This administration has been very slow in filling Fed vacancies. This is partly due to Republican obstruction tactics and partly to a slow nomination process within the administration. Given this history, it is entirely possible that the vacancies could remain for well over a year. That would mean that the Open Market Committee would include 5 district bank presidents with voting power (all 12 presidents sit in on the meetings) and 4 governors. If Summers tried to get his way without pulling along any bank presidents he would face a serious risk of being outvoted.
The Washington Post had a piece discussing views at the Fed about the prospect of either vice-chair Janet Yellen or Larry Summers taking over as chair. At one point the piece discusses the arithmetic of votes on the 12 person open market committee that decides monetary policy. It tells readers:
“The chair sets the tone of the discussion. The Fed staff members who prepare economic projections and the range of policy options work directly for the chair. And the Washington-based governors usually go along with the Fed leader’s wishes (none has dissented since 2005), giving the chair a head start in putting together a majority.
“So, at the end of the day, the Fed chairman can get the policy that he or she wishes. But the ability to persuade and firm up support still matters. If a policy change was regularly enacted on close votes, say 7 to 5, it would send a message to markets that no one was really in charge.”
This is a bit misleading. First votes are usually, unanimous so there are not a lot of dissenting votes to examine. Furthermore, Bernanke took over as Fed chair in January 2006, so most of the votes since 2005 have been during his tenure. Of course Bernanke has made a point of consulting closely with his colleagues, as the piece notes, so it is not surprising that he would not have pushed positions that prompted one of the other governors to dissent.
Finally, the arithmetic is likely to be a bit different than is implied in this piece if Summers is appointed. There is already one vacancy on the board of governors. Another governor, Sarah Bloom Raskin, is reportedly considering a top position at Treasury. If she were to take this appointment that would create a second vacancy. Finally, there is a reasonably chance that Yellen would leave if she were passed over for Summers. That would create a third vacancy.
This administration has been very slow in filling Fed vacancies. This is partly due to Republican obstruction tactics and partly to a slow nomination process within the administration. Given this history, it is entirely possible that the vacancies could remain for well over a year. That would mean that the Open Market Committee would include 5 district bank presidents with voting power (all 12 presidents sit in on the meetings) and 4 governors. If Summers tried to get his way without pulling along any bank presidents he would face a serious risk of being outvoted.
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“Which way is up?” reporting makes a big-time appearance in this Washington Post article telling us that Obamacare will create a boom in jobs since workers will have to be hired to steer people through the system. The article reports:
“About 7,000 to 9,000 new customer service agents will be needed to man phones and Web chats for the marketplace, called an exchange, the federal government will run for more than half of the states, a spokesman for the Centers for Medicare and Medicaid Services said. Additional agents will be needed for exchanges run by the states themselves.”
The next paragraph raises the stakes to:
“Altogether, tens of thousands of people could be hired over the next several years to set up and support the online marketplaces, according to some estimates.”
Okay, let’s make it three tens of thousands (a.k.a. 30,000). If we continue to create jobs at the rate of 170,000 a month (an assumption, not a forecast), then we will create 6.1 million jobs. This means that our 30,000 Obamacare jobs will be a bit less than 0.5 percent of net job creation over this period. That’s a plus, but not exactly a boom.
More importantly, the jobs needed to steer people through the system are a waste from the standpoint of the economy as a whole. In an efficient system people can figure out how to get their health care without needing a consultant to guide them through a complex process. The fact that Obamacare may require people for this task means that it is adding waste to the health care system.
In a recession, anything that employs people can be seen as positive since otherwise they would sit home doing nothing. However if we envision at some point that we will be back to something resembling full employment, it would be much better to have a health care system that did not require tens of thousands of workers to explain insurance options to people.
“Which way is up?” reporting makes a big-time appearance in this Washington Post article telling us that Obamacare will create a boom in jobs since workers will have to be hired to steer people through the system. The article reports:
“About 7,000 to 9,000 new customer service agents will be needed to man phones and Web chats for the marketplace, called an exchange, the federal government will run for more than half of the states, a spokesman for the Centers for Medicare and Medicaid Services said. Additional agents will be needed for exchanges run by the states themselves.”
The next paragraph raises the stakes to:
“Altogether, tens of thousands of people could be hired over the next several years to set up and support the online marketplaces, according to some estimates.”
Okay, let’s make it three tens of thousands (a.k.a. 30,000). If we continue to create jobs at the rate of 170,000 a month (an assumption, not a forecast), then we will create 6.1 million jobs. This means that our 30,000 Obamacare jobs will be a bit less than 0.5 percent of net job creation over this period. That’s a plus, but not exactly a boom.
More importantly, the jobs needed to steer people through the system are a waste from the standpoint of the economy as a whole. In an efficient system people can figure out how to get their health care without needing a consultant to guide them through a complex process. The fact that Obamacare may require people for this task means that it is adding waste to the health care system.
In a recession, anything that employs people can be seen as positive since otherwise they would sit home doing nothing. However if we envision at some point that we will be back to something resembling full employment, it would be much better to have a health care system that did not require tens of thousands of workers to explain insurance options to people.
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An AP story that ran in the NYT told readers:
“business investment is not likely to help economic growth in the April-June quarter, economists said. That is because the government measures shipments, rather than orders, when calculating business investments’ contribution to growth. Shipments fell in June. But the increase in orders this spring suggests shipments will rise in the July-September quarter and add to growth.”
The first part of this is wrong and the second part is questionable. The data for the months April, May, and June show shipments of non-defense capital goods increasing at a 5.4 percent annual rate compared with shipments in the first quarter. This is a nominal figure, but since inflation in investment goods has been close to zero, this number is likely to be close to the real growth rate for the quarter.
The predicted growth for the third quarter based on the rise in orders in June is also dubious. The main reason for the rise was a jump in aircraft orders. These orders are placed well ahead of expected delivery dates. Aircraft manufacturers will not necessarily up their production schedules in the third quarter simply because they have more orders for planes that may not be delivered until 2016 or even later.
An AP story that ran in the NYT told readers:
“business investment is not likely to help economic growth in the April-June quarter, economists said. That is because the government measures shipments, rather than orders, when calculating business investments’ contribution to growth. Shipments fell in June. But the increase in orders this spring suggests shipments will rise in the July-September quarter and add to growth.”
The first part of this is wrong and the second part is questionable. The data for the months April, May, and June show shipments of non-defense capital goods increasing at a 5.4 percent annual rate compared with shipments in the first quarter. This is a nominal figure, but since inflation in investment goods has been close to zero, this number is likely to be close to the real growth rate for the quarter.
The predicted growth for the third quarter based on the rise in orders in June is also dubious. The main reason for the rise was a jump in aircraft orders. These orders are placed well ahead of expected delivery dates. Aircraft manufacturers will not necessarily up their production schedules in the third quarter simply because they have more orders for planes that may not be delivered until 2016 or even later.
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A Washington Post article noting the IMF’s projections for weak growth and rising unemployment in the euro zone told readers:
“For 2014 as a whole, growth of 0.9 percent is forecast.
That is not only weak, it also masks the continued wide divergence in outcomes among the euro countries, with some nations likely to remain in recession and some growing at a faster pace. The gap in performance — between Germany’s globally competitive export sector and the stalled economies of southern Europe — is one of the region’s chief problems.”
Actually, there is not much of a difference in projected growth across countries for 2014. Germany’s economy is not exactly booming. The IMF projects that it will grow just 1.5 percent in 2014. That is compared to projected growth of 0.7 percent in Spain and 0.5 percent in Italy. The real gap is that Germany has managed to sustain growth since 2009, whereas the economies of Italy and Spain and other peripheral countries have stagnated or shrank.
It is also worth noting that the IMF’s growth projections for the peripheral countries have consistently proved to be overly optimistic because it has underestimated the negative impact that fiscal contraction has on growth.
A Washington Post article noting the IMF’s projections for weak growth and rising unemployment in the euro zone told readers:
“For 2014 as a whole, growth of 0.9 percent is forecast.
That is not only weak, it also masks the continued wide divergence in outcomes among the euro countries, with some nations likely to remain in recession and some growing at a faster pace. The gap in performance — between Germany’s globally competitive export sector and the stalled economies of southern Europe — is one of the region’s chief problems.”
Actually, there is not much of a difference in projected growth across countries for 2014. Germany’s economy is not exactly booming. The IMF projects that it will grow just 1.5 percent in 2014. That is compared to projected growth of 0.7 percent in Spain and 0.5 percent in Italy. The real gap is that Germany has managed to sustain growth since 2009, whereas the economies of Italy and Spain and other peripheral countries have stagnated or shrank.
It is also worth noting that the IMF’s growth projections for the peripheral countries have consistently proved to be overly optimistic because it has underestimated the negative impact that fiscal contraction has on growth.
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