Amazingly, it seems that the media managed to completely ignore the sharp upward revision to profit shares reported on Wednesday. This one is pretty simple. By redefining many corporate expenses for research and creative work as investment, which depreciates through time rather than being a one-time cost, profits will be increased. As a result of this change the profit share in recent years was revised sharply upward. The after-tax share of profits in net corporate income for each of the last three years was higher than at any previous point in the post-war era.
Is there some reason that this fact was not mentioned in any of the reporting on the GDP?
Amazingly, it seems that the media managed to completely ignore the sharp upward revision to profit shares reported on Wednesday. This one is pretty simple. By redefining many corporate expenses for research and creative work as investment, which depreciates through time rather than being a one-time cost, profits will be increased. As a result of this change the profit share in recent years was revised sharply upward. The after-tax share of profits in net corporate income for each of the last three years was higher than at any previous point in the post-war era.
Is there some reason that this fact was not mentioned in any of the reporting on the GDP?
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Many political figures opposed to the ACA have made a big point of complaining that the delay of employer sanctions and the lack of enforcement mechanisms will make it easy for individuals to cheat the system and take advantage of the subsidies in the health care exchanges. This was a big complaint previously made by speaker Boehner and repeated today by Michael Gerson. It’s worth noting what this cheating would mean and the incentives provided to workers.
The deal is supposed to be that workers are eligible to join the exchanges and get income based subsidies, if their employer does not offer them an affordable (based on their income) insurance policy at work. Because the government is not prepared to enforce the employer sanctions for not insuring workers and does not have data on the nature of the insurance offered to workers entering the exchanges, there could be some workers who enter the exchanges and get subsidies who actually are offered affordable insurance from their employer.
The issue here is how many people do we think will fall into this boat. To take an extreme example, suppose a worker has an employer that pays the full premium for their insurance. What incentive would this worker have to lie their way into the exchange so that they could get a plan that is subsidized by the government?
If the worker is in a low-income household then the subsidy could be close to 100 percent. In this case, if the insurance offered through the exchange is better than what the employer offers (do opponents of the ACA think this will often be true?) then the worker would have an incentive to lie their way into the exchange, but otherwise they would be better off taking the deal from their employer.
Of course most employers do not pay 100 percent of the premium, but the cases where workers are likely to get a better deal through the exchanges than what they would get from an employer who offers a plan that fits the ACA definition of affordable are likely to be relatively limited. Therefore the idea that there will be massive cheating by this measure seems unlikely.
By contrast, if ACA opponents are actually worried about the government being ripped off, there are many small business owners who list personal expenses, such as a car purchased primarily for personal use, as business expenses. They list these items as business expenses, thereby having taxpayers pick up the tab.
The money lost to the government through this tax dodge is almost certainly at least an order of magnitude greater than the money that could potentially be lost through improper subsidies. (For the math here, if a business owner is in the 39.6 percent tax bracket and buys a $30,000 car, this will cost taxpayers almost $12,000.) Anyhow, if opponents of the ACA are generally concerned about the government being ripped off, they might focus their attention on improper reporting by small business owners. There is a lot more money here than in improper ACA subsidies.
Many political figures opposed to the ACA have made a big point of complaining that the delay of employer sanctions and the lack of enforcement mechanisms will make it easy for individuals to cheat the system and take advantage of the subsidies in the health care exchanges. This was a big complaint previously made by speaker Boehner and repeated today by Michael Gerson. It’s worth noting what this cheating would mean and the incentives provided to workers.
The deal is supposed to be that workers are eligible to join the exchanges and get income based subsidies, if their employer does not offer them an affordable (based on their income) insurance policy at work. Because the government is not prepared to enforce the employer sanctions for not insuring workers and does not have data on the nature of the insurance offered to workers entering the exchanges, there could be some workers who enter the exchanges and get subsidies who actually are offered affordable insurance from their employer.
The issue here is how many people do we think will fall into this boat. To take an extreme example, suppose a worker has an employer that pays the full premium for their insurance. What incentive would this worker have to lie their way into the exchange so that they could get a plan that is subsidized by the government?
If the worker is in a low-income household then the subsidy could be close to 100 percent. In this case, if the insurance offered through the exchange is better than what the employer offers (do opponents of the ACA think this will often be true?) then the worker would have an incentive to lie their way into the exchange, but otherwise they would be better off taking the deal from their employer.
Of course most employers do not pay 100 percent of the premium, but the cases where workers are likely to get a better deal through the exchanges than what they would get from an employer who offers a plan that fits the ACA definition of affordable are likely to be relatively limited. Therefore the idea that there will be massive cheating by this measure seems unlikely.
By contrast, if ACA opponents are actually worried about the government being ripped off, there are many small business owners who list personal expenses, such as a car purchased primarily for personal use, as business expenses. They list these items as business expenses, thereby having taxpayers pick up the tab.
The money lost to the government through this tax dodge is almost certainly at least an order of magnitude greater than the money that could potentially be lost through improper subsidies. (For the math here, if a business owner is in the 39.6 percent tax bracket and buys a $30,000 car, this will cost taxpayers almost $12,000.) Anyhow, if opponents of the ACA are generally concerned about the government being ripped off, they might focus their attention on improper reporting by small business owners. There is a lot more money here than in improper ACA subsidies.
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NYT had a good piece highlighting the wave of strikes taking place in fast-food restaurants across the country. One item could use some clarification.
At one point the piece notes that some labor leaders scoff at the idea that these workers could be unionized based on the fact that their turnover rate is 75 percent. If fast-food workers were paid a minimum of $15 an hour, the central demand of the strikes, then it is likely their turnover would be considerably lower.
NYT had a good piece highlighting the wave of strikes taking place in fast-food restaurants across the country. One item could use some clarification.
At one point the piece notes that some labor leaders scoff at the idea that these workers could be unionized based on the fact that their turnover rate is 75 percent. If fast-food workers were paid a minimum of $15 an hour, the central demand of the strikes, then it is likely their turnover would be considerably lower.
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George Will had the obligatory union bashing piece, titled “Detroit’s death by democracy,” in the Post today. Will’s story is that unions used their political power to get unaffordable contracts from the city government, thereby pushing it into bankruptcy.
For some reason he neglects to show the evidence of the union workers’ bloated pay: wages that average $42,000 a year for non-uniform personnel and pensions of $18,500 a year. I suppose you might be able to get workers for less, but this probably is not most people’s vision of the good life.
The main reason that Detroit died were structural factors that were determined largely outside of Detroit’s city government. Certainly a high dollar policy that made U.S. cars less competitive, contributed a great deal to Detroit’s decline. The growth of a parasitic financial sector that drew talented people away from productive industries like autos also played a role. And the economic collapse in 2008 that resulted from these folks’ greed and incompetence was also a really important factor.
Race also played a major role, with whites fleeing in large numbers to the suburbs beginning in the 1950s. This cost the city much of its tax base and left it with sections of the city that were large depopulated but still required city services (look at Detroit on Google maps).
However Will has a point about democracy doing in Detroit. Detroit’s representatives in Congress and their allies will push their case for federal aid in saving the city. But they are speaking with the wrong currency in Washington. This will be a question of the voting power of Detroit residents and the people who sympathize with them.
By contrast, when Goldman Sachs, Citigroup, and other Wall Street behemoths were facing death in 2008 they had strong advocates at the very top levels in the White House and Congress in both parties (e.g. Larry Summers and Henry Paulson). They did not need votes, they had the money to buy power. And of course they got the government to cough up the cash and guarantees that they needed to get through the crises they had created.
So Will is absolutely right in blaming Detroit’s death on democracy. The city simply doesn’t have the right currency to survive in the political system today.
George Will had the obligatory union bashing piece, titled “Detroit’s death by democracy,” in the Post today. Will’s story is that unions used their political power to get unaffordable contracts from the city government, thereby pushing it into bankruptcy.
For some reason he neglects to show the evidence of the union workers’ bloated pay: wages that average $42,000 a year for non-uniform personnel and pensions of $18,500 a year. I suppose you might be able to get workers for less, but this probably is not most people’s vision of the good life.
The main reason that Detroit died were structural factors that were determined largely outside of Detroit’s city government. Certainly a high dollar policy that made U.S. cars less competitive, contributed a great deal to Detroit’s decline. The growth of a parasitic financial sector that drew talented people away from productive industries like autos also played a role. And the economic collapse in 2008 that resulted from these folks’ greed and incompetence was also a really important factor.
Race also played a major role, with whites fleeing in large numbers to the suburbs beginning in the 1950s. This cost the city much of its tax base and left it with sections of the city that were large depopulated but still required city services (look at Detroit on Google maps).
However Will has a point about democracy doing in Detroit. Detroit’s representatives in Congress and their allies will push their case for federal aid in saving the city. But they are speaking with the wrong currency in Washington. This will be a question of the voting power of Detroit residents and the people who sympathize with them.
By contrast, when Goldman Sachs, Citigroup, and other Wall Street behemoths were facing death in 2008 they had strong advocates at the very top levels in the White House and Congress in both parties (e.g. Larry Summers and Henry Paulson). They did not need votes, they had the money to buy power. And of course they got the government to cough up the cash and guarantees that they needed to get through the crises they had created.
So Will is absolutely right in blaming Detroit’s death on democracy. The city simply doesn’t have the right currency to survive in the political system today.
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According to Ezra Klein, a major plus in the case for Larry Summers as Fed chair is his experience dealing with financial crises. While it is true that he took a leadership role in dealing with far more crises than Janet Yellen, the other leading contender for the job, it is hard to believe that his record in this area would be a plus if he was being graded by the outcomes.
Starting with the Mexican peso crisis in 1994, Summers helped to negotiate a deal that protected big investors in Mexico’s debt, like Goldman Sachs. Mexico suffered a severe downturn in the immediate aftermath of the crisis and has had the slowest per capita GDP growth of any country in Latin America in the two decades since the crisis. That one doesn’t look like much of a success story.
Then we can go to the East Asian financial crisis in 1997. As even the IMF now admits, Summers and the rest of the Committee to Save the World (CSW) largely misdiagnosed the crisis. They saw it as a problem of economies that were badly misbalanced as opposed to being largely an issue of liquidity and confidence. Malaysia broke with the IMF and applied capital controls, which were roundly rejected by Larry Summers, and managed to escape some of the worst effects of the adjustment.
The deal for the East Asian countries was that they had to repay their debts in full. In order to do so, the currencies of the countries in the region plummeted against the dollar and their exports to the U.S. soared.
It was not only East Asian countries that hugely increased their exports to the United States. Because of the harsh terms imposed by the Summers-IMF gang, developing countries throughout the world began to accumulate foreign exchange (i.e. dollars) like crazy as insurance, so that they would not be put in the same situation as the East Asian countries in dealing with the IMF.
This led to a huge run-up in the dollar. That in turn caused the trade deficit to explode, reaching a peak of almost 6.0 percent of GDP (@$960 billion in today’s economy) in 2006. The trade deficit has been the fundamental imbalance in the U.S. economy. It means that a huge amount of the income generated in the United States is being spent overseas rather than creating demand domestically.
In the 1990s this hole in demand was filled by the demand generated by the stock bubble. In the last decade it was filled by the demand generated by the housing bubble. Currently the demand gap is being partially filled by the budget deficit and partially going unfilled, leaving millions unemployed. This outcome hardly seems like an item to put on Summers’ boast sheet.
Finally we have Summers’ role in the 2008-2009 financial crisis. Summers was one of the people who pushed the Democrats in Congress to accept the no (real) conditions TARP bailout given to them by Henry Paulson. Once in the White House he was the staunch defender of the bankrupt banks belligerently challenging anyone who proposed letting the market work its magic and put these behemoths out of our misery. As a result of Summers’ work the too big to fail banks are bigger and more profitable than ever.
In fact, if we want a serious assessment of Larry Summers performance as a crisis manager we might ask what happens when countries don’t take his advice. Probably the best example in this category would be Russia in 1998. The CSW had been struggling with the Yeltsin government for years to keep them paying their bills and maintain the ruble’s link to the dollar. In the summer of 1998, Yeltsin gave up the effort. He abandoned the link to the dollar and temporarily defaulted on Russia’s debt.
The word from the Summer’s crew, which was dutifully repeated in the business press, was that Russia’s economy would go down the tubes. While it did fall sharply in 1998, it made up all the lost ground in 1999 and then grew by more than 10 percent in 2000. In fact, Russia enjoyed a decade of exceptionally strong growth before the economic crisis in 2009 finally sent it into recession. The Russians probably do not miss the wisdom of Larry Summers.
In short, if we look at Larry Summers track record in dealing with crises it is pretty abysmal. But on attendance, he gets an “A.”
According to Ezra Klein, a major plus in the case for Larry Summers as Fed chair is his experience dealing with financial crises. While it is true that he took a leadership role in dealing with far more crises than Janet Yellen, the other leading contender for the job, it is hard to believe that his record in this area would be a plus if he was being graded by the outcomes.
Starting with the Mexican peso crisis in 1994, Summers helped to negotiate a deal that protected big investors in Mexico’s debt, like Goldman Sachs. Mexico suffered a severe downturn in the immediate aftermath of the crisis and has had the slowest per capita GDP growth of any country in Latin America in the two decades since the crisis. That one doesn’t look like much of a success story.
Then we can go to the East Asian financial crisis in 1997. As even the IMF now admits, Summers and the rest of the Committee to Save the World (CSW) largely misdiagnosed the crisis. They saw it as a problem of economies that were badly misbalanced as opposed to being largely an issue of liquidity and confidence. Malaysia broke with the IMF and applied capital controls, which were roundly rejected by Larry Summers, and managed to escape some of the worst effects of the adjustment.
The deal for the East Asian countries was that they had to repay their debts in full. In order to do so, the currencies of the countries in the region plummeted against the dollar and their exports to the U.S. soared.
It was not only East Asian countries that hugely increased their exports to the United States. Because of the harsh terms imposed by the Summers-IMF gang, developing countries throughout the world began to accumulate foreign exchange (i.e. dollars) like crazy as insurance, so that they would not be put in the same situation as the East Asian countries in dealing with the IMF.
This led to a huge run-up in the dollar. That in turn caused the trade deficit to explode, reaching a peak of almost 6.0 percent of GDP (@$960 billion in today’s economy) in 2006. The trade deficit has been the fundamental imbalance in the U.S. economy. It means that a huge amount of the income generated in the United States is being spent overseas rather than creating demand domestically.
In the 1990s this hole in demand was filled by the demand generated by the stock bubble. In the last decade it was filled by the demand generated by the housing bubble. Currently the demand gap is being partially filled by the budget deficit and partially going unfilled, leaving millions unemployed. This outcome hardly seems like an item to put on Summers’ boast sheet.
Finally we have Summers’ role in the 2008-2009 financial crisis. Summers was one of the people who pushed the Democrats in Congress to accept the no (real) conditions TARP bailout given to them by Henry Paulson. Once in the White House he was the staunch defender of the bankrupt banks belligerently challenging anyone who proposed letting the market work its magic and put these behemoths out of our misery. As a result of Summers’ work the too big to fail banks are bigger and more profitable than ever.
In fact, if we want a serious assessment of Larry Summers performance as a crisis manager we might ask what happens when countries don’t take his advice. Probably the best example in this category would be Russia in 1998. The CSW had been struggling with the Yeltsin government for years to keep them paying their bills and maintain the ruble’s link to the dollar. In the summer of 1998, Yeltsin gave up the effort. He abandoned the link to the dollar and temporarily defaulted on Russia’s debt.
The word from the Summer’s crew, which was dutifully repeated in the business press, was that Russia’s economy would go down the tubes. While it did fall sharply in 1998, it made up all the lost ground in 1999 and then grew by more than 10 percent in 2000. In fact, Russia enjoyed a decade of exceptionally strong growth before the economic crisis in 2009 finally sent it into recession. The Russians probably do not miss the wisdom of Larry Summers.
In short, if we look at Larry Summers track record in dealing with crises it is pretty abysmal. But on attendance, he gets an “A.”
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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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