Paul Krugman, among many others, has been denouncing the decision by Federal Reserve Board Chairman Ben Bernanke to discuss plans for backing away from the current pace of quantitative easing. While I agree completely with his logic, I am bit less concerned about the downside than he seems to be.
Krugman is certainly right that there is no reason to be talking of tapering right now. We are close to 9 million jobs below the trend level of employment. By the Congressional Budget Office’s estimate we are still 6 percentage points below potential GDP, which corresponds to $1 trillion a year in lost output. Furthermore, inflation is low and falling. We would better off if it were somewhat higher since this would lower the real interest rate and reduce debt burdens. In this context, it is difficult to see any upside to talk of tapering.
And Krugman is also right about the market’s strong reaction. The interest rate on both 10-year Treasury bonds and 30-year mortgages is up by more than a percentage point from the pre-taper talk levels. That is not helpful for the economy right now.
However, I am also not convinced that it is all that harmful. To my mind, the greatest benefit of low interest rates was the refinancing boom that it allowed. This freed up tens of billions of dollars for consumption. The refinancing process itself also generates economic activity in the form of legal fees, payments for appraisals and other costs (i.e. waste) associated with the refinancing process. Refinancing will quickly slow to a trickle with mortgage rates now over 4.5 percent.
But refinancing was always a self-limiting process. At some point everyone who could profitably refinance a mortgage at 3.5 percent will have done so. We surely must have been reaching this point so that refinancing would have slowed in the second half of 2013 and 2014 with or without the Fed taper.
Higher interest rates will also dampen the rise in housing prices. That is not a bad thing in my view. House prices are back at their trend levels in most parts of the country. In many areas they were growing at ridiculous rates (30-50 percent annually). If that had continued, we would have seen many local bubbles develop. If the rise in rates slows these price increases, that is good news in my book. A new bubble in Las Vegas or Phoenix would not move the national economy, but no one in their right mind could want to see another group of homeowners in these cities caught up again in a bubble, paying 20-30 percent above the trend price for their home.
Perhaps the biggest negative effect of the Fed taper will be its impact on the value of the dollar. The dollar has risen around 5 percent from pre-taper levels against other major currencies. That will make U.S. goods less competitive and increase the trade deficit. Since trade is the fundamental imbalance in the U.S. economy right now, this is exactly the wrong way to go.
Long and short, this was a bad move by the Fed and pushes the economy in the wrong direction, but the impact will probably be limited. Consider the taper a mistake by Bernanke, but I wouldn’t suggest he jump off a bridge over this one.
Paul Krugman, among many others, has been denouncing the decision by Federal Reserve Board Chairman Ben Bernanke to discuss plans for backing away from the current pace of quantitative easing. While I agree completely with his logic, I am bit less concerned about the downside than he seems to be.
Krugman is certainly right that there is no reason to be talking of tapering right now. We are close to 9 million jobs below the trend level of employment. By the Congressional Budget Office’s estimate we are still 6 percentage points below potential GDP, which corresponds to $1 trillion a year in lost output. Furthermore, inflation is low and falling. We would better off if it were somewhat higher since this would lower the real interest rate and reduce debt burdens. In this context, it is difficult to see any upside to talk of tapering.
And Krugman is also right about the market’s strong reaction. The interest rate on both 10-year Treasury bonds and 30-year mortgages is up by more than a percentage point from the pre-taper talk levels. That is not helpful for the economy right now.
However, I am also not convinced that it is all that harmful. To my mind, the greatest benefit of low interest rates was the refinancing boom that it allowed. This freed up tens of billions of dollars for consumption. The refinancing process itself also generates economic activity in the form of legal fees, payments for appraisals and other costs (i.e. waste) associated with the refinancing process. Refinancing will quickly slow to a trickle with mortgage rates now over 4.5 percent.
But refinancing was always a self-limiting process. At some point everyone who could profitably refinance a mortgage at 3.5 percent will have done so. We surely must have been reaching this point so that refinancing would have slowed in the second half of 2013 and 2014 with or without the Fed taper.
Higher interest rates will also dampen the rise in housing prices. That is not a bad thing in my view. House prices are back at their trend levels in most parts of the country. In many areas they were growing at ridiculous rates (30-50 percent annually). If that had continued, we would have seen many local bubbles develop. If the rise in rates slows these price increases, that is good news in my book. A new bubble in Las Vegas or Phoenix would not move the national economy, but no one in their right mind could want to see another group of homeowners in these cities caught up again in a bubble, paying 20-30 percent above the trend price for their home.
Perhaps the biggest negative effect of the Fed taper will be its impact on the value of the dollar. The dollar has risen around 5 percent from pre-taper levels against other major currencies. That will make U.S. goods less competitive and increase the trade deficit. Since trade is the fundamental imbalance in the U.S. economy right now, this is exactly the wrong way to go.
Long and short, this was a bad move by the Fed and pushes the economy in the wrong direction, but the impact will probably be limited. Consider the taper a mistake by Bernanke, but I wouldn’t suggest he jump off a bridge over this one.
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I should be happy. Robert Samuelson has a good column that centers on the “No Vacation Nation Revisited” report that CEPR published a couple of months ago.
Samuelson picks up the report’s main points. There has been a huge divergence in work hours between the United States and other wealthy countries over the last three decades. In other wealthy countries all workers are guaranteed 4 or more weeks a year of paid vacation. In the United States there are no legal guarantees of paid vacation or leave. Better paid workers typically have paid vacation and holidays, but part-time and lower paid workers often have no paid leave. The result is that Americans work on average about 20 percent more hours a year than do workers in several other wealthy countries.
It was very nice to see Samuelson pick up on these points. But then he concluded:
“We could follow other advanced societies and legislate minimum vacations. This is a debate worth having — sometime in the future but not now. We need to remember the obvious: Paid leaves mean compensating people for doing nothing. There are consequences. The most likely are less hiring (because higher labor costs deter employers from adding workers) or eroding wages (because employers offset the extra costs by squeezing wages). It’s doubtful that mandated vacations would create many, if any, extra jobs. Europe has longer vacations — and higher unemployment. One is not the solution for the other.”
Samuelson is exactly right that there is trade-off in the sense that we can’t think that paid time off doesn’t come largely at the expense of lower wages. However, it does not follow that now is a bad time to be debating such policies.
If we remember the economy’s basic problem right now is a lack of demand, then this would be an excellent time to consider such policies. This is exactly the time when reduced hours actually are likely to translate fairly directly into more employment. It is when the economy is fully employed that reduced hours are likely to create issues with inflation.
And the idea of raising employer costs should hardly be a major matter of concern when profit margins are at record levels. We absolutely want to raise employer costs — shifting income from corporate profits to wage earners. We can debate how much impact paid leave would have in increasing workers’ compensation, but insofar as it does, that’s a positive and not a negative.
The comparison of unemployment rates with Europe is silly. The United States actually did not have a lower unemployment rate going into the downturn. And it certainly does not have a lower unemployment rate now than several of the slackard countries like Germany and Austria, which have unemployment rates of 5.3 percent 4.7 percent, respectively.
The main reason that Europe as a whole has a higher unemployment rate than the United States is because the prices in the peripheral European countries are hugely out of line with prices in the core countries. As long as these countries stay in the euro, this price gap can only be corrected by higher inflation in the core countries or massive unemployment squeezing down wages in the peripheral countries. The European Central Bank (ECB) has opted for the latter route.
It is ridiculous to blame the high unemployment caused by the ECB on Europe’s policies on paid leave. It is especially odd that Samuelson would attempt to do so since he has written on exactly this topic.
So great to see Samuelson picking up a CEPR paper and a very important issue, but his take on implications could use a bit more work when he’s back from vacation.
I should be happy. Robert Samuelson has a good column that centers on the “No Vacation Nation Revisited” report that CEPR published a couple of months ago.
Samuelson picks up the report’s main points. There has been a huge divergence in work hours between the United States and other wealthy countries over the last three decades. In other wealthy countries all workers are guaranteed 4 or more weeks a year of paid vacation. In the United States there are no legal guarantees of paid vacation or leave. Better paid workers typically have paid vacation and holidays, but part-time and lower paid workers often have no paid leave. The result is that Americans work on average about 20 percent more hours a year than do workers in several other wealthy countries.
It was very nice to see Samuelson pick up on these points. But then he concluded:
“We could follow other advanced societies and legislate minimum vacations. This is a debate worth having — sometime in the future but not now. We need to remember the obvious: Paid leaves mean compensating people for doing nothing. There are consequences. The most likely are less hiring (because higher labor costs deter employers from adding workers) or eroding wages (because employers offset the extra costs by squeezing wages). It’s doubtful that mandated vacations would create many, if any, extra jobs. Europe has longer vacations — and higher unemployment. One is not the solution for the other.”
Samuelson is exactly right that there is trade-off in the sense that we can’t think that paid time off doesn’t come largely at the expense of lower wages. However, it does not follow that now is a bad time to be debating such policies.
If we remember the economy’s basic problem right now is a lack of demand, then this would be an excellent time to consider such policies. This is exactly the time when reduced hours actually are likely to translate fairly directly into more employment. It is when the economy is fully employed that reduced hours are likely to create issues with inflation.
And the idea of raising employer costs should hardly be a major matter of concern when profit margins are at record levels. We absolutely want to raise employer costs — shifting income from corporate profits to wage earners. We can debate how much impact paid leave would have in increasing workers’ compensation, but insofar as it does, that’s a positive and not a negative.
The comparison of unemployment rates with Europe is silly. The United States actually did not have a lower unemployment rate going into the downturn. And it certainly does not have a lower unemployment rate now than several of the slackard countries like Germany and Austria, which have unemployment rates of 5.3 percent 4.7 percent, respectively.
The main reason that Europe as a whole has a higher unemployment rate than the United States is because the prices in the peripheral European countries are hugely out of line with prices in the core countries. As long as these countries stay in the euro, this price gap can only be corrected by higher inflation in the core countries or massive unemployment squeezing down wages in the peripheral countries. The European Central Bank (ECB) has opted for the latter route.
It is ridiculous to blame the high unemployment caused by the ECB on Europe’s policies on paid leave. It is especially odd that Samuelson would attempt to do so since he has written on exactly this topic.
So great to see Samuelson picking up a CEPR paper and a very important issue, but his take on implications could use a bit more work when he’s back from vacation.
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The NYT tells us that it is good news that we are seeing higher unemployment and slower growth than would otherwise be the case as a result of partisan gridlock in Congress. Of course it did not put it in quite those terms, but an article on Congressional gridlock told readers:
“The upside of inaction is its impact on deficit spending. Total discretionary spending in the fiscal year that ends Sept. 30 will be about $70 billion below the previous year’s — the first such drop since fiscal 1996, another year of sharply divided government. In June, the federal government shed 5,000 jobs, according to jobs data released on Friday.”
According to the Congressional Budget Office and most independent analysts the impact of this deficit reduction has been slow the economy in 2013 by more than a percentage point which would translate in somewhere around 700,000 fewer jobs. Of course the NYT may think this is good news, but that sort of comment is usually put in an editorial not a news story.
Thanks to Josh Greenstein for calling this one to my attention.
The NYT tells us that it is good news that we are seeing higher unemployment and slower growth than would otherwise be the case as a result of partisan gridlock in Congress. Of course it did not put it in quite those terms, but an article on Congressional gridlock told readers:
“The upside of inaction is its impact on deficit spending. Total discretionary spending in the fiscal year that ends Sept. 30 will be about $70 billion below the previous year’s — the first such drop since fiscal 1996, another year of sharply divided government. In June, the federal government shed 5,000 jobs, according to jobs data released on Friday.”
According to the Congressional Budget Office and most independent analysts the impact of this deficit reduction has been slow the economy in 2013 by more than a percentage point which would translate in somewhere around 700,000 fewer jobs. Of course the NYT may think this is good news, but that sort of comment is usually put in an editorial not a news story.
Thanks to Josh Greenstein for calling this one to my attention.
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On the right side of the political spectrum it has become an article of faith that the employer mandates in the Obama health care plan reduced work hours and delayed hiring. In order to preserve his standing on the right, Ross Douthat included this mantra in his column today, asserting that this was the reason the Obama administration delayed the imposition of the mandate until 2015.
Of course there is zero evidence for this claim. If the mandate was affecting hours or hiring we should have seen a falloff in both beginning in January of 2013. Under the law at the time, the number of full-time employees in calendar year 2013 would be the basis for the penalties assigned to firms. If these penalties were deemed onerous enough to influence hiring and hour decisions, that is when we would begin to see the impact.
One would struggle in vain to find any evidence of an impact. The economy added an average of 202,000 jobs a month in the first half of 2013, up slightly from an average of 183,000 a month in 2012. The workweek has averaged 34.5 hours in 2013, up a small fraction from 2012.
(Btw, those who believe the job killer story should be expecting a hiring boom in the second half of 2013 since the mandate is no longer applicable to this year’s employment. Employers don’t have to worry about crossing lines for 2014 because roughly 4 percent of workers leave their jobs every month. This means that if an additional employee or two pushes an employer over the 50 workers threshold in 2013, they will have no problem getting back below it in 2014. Businesses know this fact, even if the people who report on them don’t.)
It would be quite surprising if there were any employment impact. Well over 90 percent of the firms that employ more than 50 workers already provide insurance for their workers, so they would be unaffected by the mandate. The cost per worker for the firms that declined to buy insurance and pay the penalty would be $2,000. (If they bought insurance for workers, the expenditure would presumably come largely out of workers’ pay.)
Even if we take a minimum wage worker putting in just 30 hours a week, this cost would still only amount to only 17.7 percent of their annual wage. This figure falls to 13.2 percent if we assume a 40 hour work week. There is considerable research showing that increases in the minimum wage of this size have no measurable effect on employment. Given this reality, it is implausible that the administration was concerned about the “job-killer” impact of the employer mandate.
It is more likely that they were concerned that the measure would be very difficult to enforce. Not only does it require knowing how many hours a specific worker puts in over the year, the penalty also depends on the workers’ family income, since it depends on whether or not they qualify for subsidies in the exchanges. This means that an employer would owe no penalty for not providing insurance to a worker married to a rich doctor, but would face a penalty if the worker gets divorced and experiences a sharp drop in income.
This sort of provision makes little sense in principle and will be extremely difficult to enforce in practice. It almost certainly would have been restructured or removed altogether from the final bill if it had passed in a more normal fashion, but because of the political situation at the time there was no opportunity to change it.
So contrary to the obligatory “job-killer” refrain of those on the right, the Obama administration was almost certainly not concerned about the employment impact of this provision in its decision to delay its implementation. They just recognized that it would be very difficult to enforce and made very little sense in terms of the larger structure of the policy.
On the right side of the political spectrum it has become an article of faith that the employer mandates in the Obama health care plan reduced work hours and delayed hiring. In order to preserve his standing on the right, Ross Douthat included this mantra in his column today, asserting that this was the reason the Obama administration delayed the imposition of the mandate until 2015.
Of course there is zero evidence for this claim. If the mandate was affecting hours or hiring we should have seen a falloff in both beginning in January of 2013. Under the law at the time, the number of full-time employees in calendar year 2013 would be the basis for the penalties assigned to firms. If these penalties were deemed onerous enough to influence hiring and hour decisions, that is when we would begin to see the impact.
One would struggle in vain to find any evidence of an impact. The economy added an average of 202,000 jobs a month in the first half of 2013, up slightly from an average of 183,000 a month in 2012. The workweek has averaged 34.5 hours in 2013, up a small fraction from 2012.
(Btw, those who believe the job killer story should be expecting a hiring boom in the second half of 2013 since the mandate is no longer applicable to this year’s employment. Employers don’t have to worry about crossing lines for 2014 because roughly 4 percent of workers leave their jobs every month. This means that if an additional employee or two pushes an employer over the 50 workers threshold in 2013, they will have no problem getting back below it in 2014. Businesses know this fact, even if the people who report on them don’t.)
It would be quite surprising if there were any employment impact. Well over 90 percent of the firms that employ more than 50 workers already provide insurance for their workers, so they would be unaffected by the mandate. The cost per worker for the firms that declined to buy insurance and pay the penalty would be $2,000. (If they bought insurance for workers, the expenditure would presumably come largely out of workers’ pay.)
Even if we take a minimum wage worker putting in just 30 hours a week, this cost would still only amount to only 17.7 percent of their annual wage. This figure falls to 13.2 percent if we assume a 40 hour work week. There is considerable research showing that increases in the minimum wage of this size have no measurable effect on employment. Given this reality, it is implausible that the administration was concerned about the “job-killer” impact of the employer mandate.
It is more likely that they were concerned that the measure would be very difficult to enforce. Not only does it require knowing how many hours a specific worker puts in over the year, the penalty also depends on the workers’ family income, since it depends on whether or not they qualify for subsidies in the exchanges. This means that an employer would owe no penalty for not providing insurance to a worker married to a rich doctor, but would face a penalty if the worker gets divorced and experiences a sharp drop in income.
This sort of provision makes little sense in principle and will be extremely difficult to enforce in practice. It almost certainly would have been restructured or removed altogether from the final bill if it had passed in a more normal fashion, but because of the political situation at the time there was no opportunity to change it.
So contrary to the obligatory “job-killer” refrain of those on the right, the Obama administration was almost certainly not concerned about the employment impact of this provision in its decision to delay its implementation. They just recognized that it would be very difficult to enforce and made very little sense in terms of the larger structure of the policy.
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The Wall Street Journal had a piece touting the broad nature of the job growth in Friday’s jobs report. The piece noted that average hourly wages rose 10 cents last month and are now up by 2.2 percent from year ago levels. It then added:
“However, that may have more to do with overtime pay than real wage increases, said Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School and director of its Center for Human Resources. The Labor Department distinguishes regular pay from overtime only for manufacturing jobs.
‘I don’t see a lot of wage pressure yet on the economy,’ Mr. Cappelli said. “No one’s talking about raising wages.'”
While Cappelli is right about the weakness of the labor market, he is mistaken about the importance of overtime pay in the June increase. The amount of overtime hours did not rise in manufacturing, where is it most frequently used. Also, there was no increase in the length of the average workweek more generally.
The more obvious explanation is that the pay increases went to higher end workers. Average hourly wages for production and non-supervisory workers (roughly 82 percent of the workforce) rose by just 5 cents. This means that the pay of supervisory and other non-production workers must have risen by an average of more than 25 cents in June.
In contrast to the view expressed in this piece, job growth was narrowly concentrated in June. Restaurants, retail, and temporary employment accounted for more than half of the job gains in June for the third month in a row. These are also among the lowest paying sectors in the economy. Workers tend to take jobs in these sectors only when no other jobs are available.
The Wall Street Journal had a piece touting the broad nature of the job growth in Friday’s jobs report. The piece noted that average hourly wages rose 10 cents last month and are now up by 2.2 percent from year ago levels. It then added:
“However, that may have more to do with overtime pay than real wage increases, said Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School and director of its Center for Human Resources. The Labor Department distinguishes regular pay from overtime only for manufacturing jobs.
‘I don’t see a lot of wage pressure yet on the economy,’ Mr. Cappelli said. “No one’s talking about raising wages.'”
While Cappelli is right about the weakness of the labor market, he is mistaken about the importance of overtime pay in the June increase. The amount of overtime hours did not rise in manufacturing, where is it most frequently used. Also, there was no increase in the length of the average workweek more generally.
The more obvious explanation is that the pay increases went to higher end workers. Average hourly wages for production and non-supervisory workers (roughly 82 percent of the workforce) rose by just 5 cents. This means that the pay of supervisory and other non-production workers must have risen by an average of more than 25 cents in June.
In contrast to the view expressed in this piece, job growth was narrowly concentrated in June. Restaurants, retail, and temporary employment accounted for more than half of the job gains in June for the third month in a row. These are also among the lowest paying sectors in the economy. Workers tend to take jobs in these sectors only when no other jobs are available.
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Of course all well-educated NYT reading types know the answer to that question is France. After all, the NYT ran an oped just last week telling young French people that they better get out of the country. (Actually, the idea of spending time in other countries is probably good advice for young people everywhere, if they can afford to do it.)
But in fact those who knowingly huff about the high youth unemployment rate in France are primarily displaying their ignorance. France does have a substantially higher youth unemployment rate than the United States, but this is almost entirely due to the fact that a smaller share of French young people work. France has generous support for higher education so most college students do not work. By contrast nearly all college students in the United States work.
If we just look at the percentage of young people who are unemployed it is almost identical in the two countries. According to the OECD, the unemployment rate for people between the ages of 15-24 in France was 23.8 percent in 2012. With a labor force participation rate of 37.8 percent, this means that 9.0 percent of this age group was unemployed last year.
The unemployment rate for this age group in the United States was 16.2 percent. But the labor force participation rate for people between the ages of 15-24 in the United States was 54.9 percent. This means that 8.9 percent of the people in this age group were unemployed in the United States.
Before anyone breaks out the champagne to celebrate our narrow victory over the French, there is one other item to consider. In France, their survey coverage is almost complete. People are used to dealing with the government and are comfortable answering surveys. That is not the case in the United States. The coverage rate (the percentage of targeted households who respond) for the Current Population Survey (CPS) is just 88 percent. (The CPS is the survey used in the United States for measuring unemployment.)
It is considerably lower for people who are likely to be unemployed. For example it is less than 70 percent for young African American men. This means that the U.S. data almost certainly understate our true unemployment rate, if we assume that the people who don’t respond to the survey are more likely to be unemployed than the people who do. This fact will be more widely recognized as soon as an important economist decides to pay attention to it.
Anyhow, the long and short is that it is almost certainly the case that a higher percentage of young people are unemployed in the United States than in France. Tell that one to your croissant munching, NYT reading friends.
Of course all well-educated NYT reading types know the answer to that question is France. After all, the NYT ran an oped just last week telling young French people that they better get out of the country. (Actually, the idea of spending time in other countries is probably good advice for young people everywhere, if they can afford to do it.)
But in fact those who knowingly huff about the high youth unemployment rate in France are primarily displaying their ignorance. France does have a substantially higher youth unemployment rate than the United States, but this is almost entirely due to the fact that a smaller share of French young people work. France has generous support for higher education so most college students do not work. By contrast nearly all college students in the United States work.
If we just look at the percentage of young people who are unemployed it is almost identical in the two countries. According to the OECD, the unemployment rate for people between the ages of 15-24 in France was 23.8 percent in 2012. With a labor force participation rate of 37.8 percent, this means that 9.0 percent of this age group was unemployed last year.
The unemployment rate for this age group in the United States was 16.2 percent. But the labor force participation rate for people between the ages of 15-24 in the United States was 54.9 percent. This means that 8.9 percent of the people in this age group were unemployed in the United States.
Before anyone breaks out the champagne to celebrate our narrow victory over the French, there is one other item to consider. In France, their survey coverage is almost complete. People are used to dealing with the government and are comfortable answering surveys. That is not the case in the United States. The coverage rate (the percentage of targeted households who respond) for the Current Population Survey (CPS) is just 88 percent. (The CPS is the survey used in the United States for measuring unemployment.)
It is considerably lower for people who are likely to be unemployed. For example it is less than 70 percent for young African American men. This means that the U.S. data almost certainly understate our true unemployment rate, if we assume that the people who don’t respond to the survey are more likely to be unemployed than the people who do. This fact will be more widely recognized as soon as an important economist decides to pay attention to it.
Anyhow, the long and short is that it is almost certainly the case that a higher percentage of young people are unemployed in the United States than in France. Tell that one to your croissant munching, NYT reading friends.
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The NYT had a brief discussion of Modern Monetary Theory (MMT) today in the context of a profile of Warren Mosler, one of its major proponents. The profile includes a dismissive comment from Mark Thoma, a professor at the University of Oregon and the creator of the blog, The Economist’s View:
“They deny the fact that the government use of real resources can drive the real interest rate up … I think it’s just nuts.”
This description is not exactly right. MMT advocates would say that the Fed can keep real interest rates from rising by targeting the interest rate, printing whatever amount of money is needed to keep the interest rate (even a long-term interest rate) at the targeted level. In a context of excess demand, this would quickly lead to a serious problem with inflation.
The MMT remedy for inflation would be to increase taxes and thereby reduce demand. If this is done successfully then the government’s demand for resources is offset by reduced private sector demand. In that situation there need not be any upward pressure on interest rates.
The main difference in this respect between MMT and more conventional Keynesians is that the latter would rely on both interest rates and taxes to limit demand and prevent inflation. Proponents of MMT would rely exclusively on taxes.
The NYT had a brief discussion of Modern Monetary Theory (MMT) today in the context of a profile of Warren Mosler, one of its major proponents. The profile includes a dismissive comment from Mark Thoma, a professor at the University of Oregon and the creator of the blog, The Economist’s View:
“They deny the fact that the government use of real resources can drive the real interest rate up … I think it’s just nuts.”
This description is not exactly right. MMT advocates would say that the Fed can keep real interest rates from rising by targeting the interest rate, printing whatever amount of money is needed to keep the interest rate (even a long-term interest rate) at the targeted level. In a context of excess demand, this would quickly lead to a serious problem with inflation.
The MMT remedy for inflation would be to increase taxes and thereby reduce demand. If this is done successfully then the government’s demand for resources is offset by reduced private sector demand. In that situation there need not be any upward pressure on interest rates.
The main difference in this respect between MMT and more conventional Keynesians is that the latter would rely on both interest rates and taxes to limit demand and prevent inflation. Proponents of MMT would rely exclusively on taxes.
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On a day when most analysts were touting the 195,000 new jobs reported for June as better than expected, the Washington Post warned that things are about to take a sharp turn for the worse. It told readers:
“In addition, an index compiled by Gallup showed that job creation the past two months has been at the highest level since April 2008.”
Of course April 2008 was after the recession had already begun and the economy was losing jobs. The Labor Department reported a loss of 215,000 jobs in April and a loss of 649,000 for the three months from February to May of 2008. While the Post piece writes up the comparison to April of 2008 as positive, in fact it is a pretty awful story.
Hopefully this is just another case of folks getting their numbers seriously messed up (a pretty common occurrence in economic analysis), not an actual survey suggesting the economy is heading into another recession.
Note: It appears the Washington Post has taken down the original article. I guess that means we do not have to fear the survey results it initially reported.
On a day when most analysts were touting the 195,000 new jobs reported for June as better than expected, the Washington Post warned that things are about to take a sharp turn for the worse. It told readers:
“In addition, an index compiled by Gallup showed that job creation the past two months has been at the highest level since April 2008.”
Of course April 2008 was after the recession had already begun and the economy was losing jobs. The Labor Department reported a loss of 215,000 jobs in April and a loss of 649,000 for the three months from February to May of 2008. While the Post piece writes up the comparison to April of 2008 as positive, in fact it is a pretty awful story.
Hopefully this is just another case of folks getting their numbers seriously messed up (a pretty common occurrence in economic analysis), not an actual survey suggesting the economy is heading into another recession.
Note: It appears the Washington Post has taken down the original article. I guess that means we do not have to fear the survey results it initially reported.
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The NYT had a blogpost discussing the possible impact of immigration reform on Social Security. While the post did include statements from a couple of economists saying the impact would be small, its use of dollar amounts without any context might have misled many readers. The post told readers:
“The Center for American Progress, a supporter of immigration reform, says if 70 percent of illegal immigrants are eligible for legal status under the bill, they will contribute $500 billion on net in 36 years — the period that the baby boomers will put a strain on the system.”
It is unlikely that many readers have much idea of how large the economy is projected to be over this period or how much Social Security is projected to spend. According to the most recent trustees report, Social Security will spend roughly $100 trillion over between now and 2050. This makes the estimated $500 billion net contribution as a result of immigration reform equal to roughly 0.5 percent of projected spending over this period.
This would have roughly the same impact on the program’s finances as an increase in the payroll tax of 0.07 percentage points. By comparison the tax went up by 2.0 percentage points at the start of 2013 as a result of the end of the payroll tax cut.
If workers get a proportionate share of productivity growth, inflation-adjusted compensation per hour will rise by more than 70 percent over the next 36 years, 1000 times as large as the estimated impact of immigration reform on the finances of the Social Security system.
The NYT had a blogpost discussing the possible impact of immigration reform on Social Security. While the post did include statements from a couple of economists saying the impact would be small, its use of dollar amounts without any context might have misled many readers. The post told readers:
“The Center for American Progress, a supporter of immigration reform, says if 70 percent of illegal immigrants are eligible for legal status under the bill, they will contribute $500 billion on net in 36 years — the period that the baby boomers will put a strain on the system.”
It is unlikely that many readers have much idea of how large the economy is projected to be over this period or how much Social Security is projected to spend. According to the most recent trustees report, Social Security will spend roughly $100 trillion over between now and 2050. This makes the estimated $500 billion net contribution as a result of immigration reform equal to roughly 0.5 percent of projected spending over this period.
This would have roughly the same impact on the program’s finances as an increase in the payroll tax of 0.07 percentage points. By comparison the tax went up by 2.0 percentage points at the start of 2013 as a result of the end of the payroll tax cut.
If workers get a proportionate share of productivity growth, inflation-adjusted compensation per hour will rise by more than 70 percent over the next 36 years, 1000 times as large as the estimated impact of immigration reform on the finances of the Social Security system.
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That’s what they would expect if they ever took their own arguments seriously. The claim that the bill was a job-killer hinged on the notion that the penalties applied to firms with more than 50 workers who did not provide insurance would discourage hiring. The penalties also supposedly encouraged firms to reduce hours since they only applied to workers who worked more than 30 hours a week.
The economy should have already been seeing the negative impact of these requirements (contrary to what is implied in this NYT article) since the penalty provision was supposed to take effect in 2014 based on employment in 2013. This means that if the penalties actually were affecting hiring, then we should soon see a hiring boom as firms need no longer fear being over the 50 worker threshold in 2013. (They need not worry about this year’s hiring pushing them over the cutoff for next year. Roughly 3 percent of the workforce leaves their job every month (roughly half voluntarily and half involuntarily), so if hires in 2013 pushed employers above the threshold, they would have little difficulty getting back under the 50 worker threshold in 2014.
This means that the delay of the imposition of the penalty provides a great test of the extent to which the Affordable Care Act really is a job killer. Anyone taking bets on the size of the hiring surge in the second half of 2013?
That’s what they would expect if they ever took their own arguments seriously. The claim that the bill was a job-killer hinged on the notion that the penalties applied to firms with more than 50 workers who did not provide insurance would discourage hiring. The penalties also supposedly encouraged firms to reduce hours since they only applied to workers who worked more than 30 hours a week.
The economy should have already been seeing the negative impact of these requirements (contrary to what is implied in this NYT article) since the penalty provision was supposed to take effect in 2014 based on employment in 2013. This means that if the penalties actually were affecting hiring, then we should soon see a hiring boom as firms need no longer fear being over the 50 worker threshold in 2013. (They need not worry about this year’s hiring pushing them over the cutoff for next year. Roughly 3 percent of the workforce leaves their job every month (roughly half voluntarily and half involuntarily), so if hires in 2013 pushed employers above the threshold, they would have little difficulty getting back under the 50 worker threshold in 2014.
This means that the delay of the imposition of the penalty provides a great test of the extent to which the Affordable Care Act really is a job killer. Anyone taking bets on the size of the hiring surge in the second half of 2013?
Read More Leer más Join the discussion Participa en la discusión
