Read More Leer más Join the discussion Participa en la discusión
All those people who thought the government puts Warren Buffett to shame in picking winning companies must be embarrassed after reading Charles Lane’s column in the Washington Post this morning. Lane told readers what a disaster Fisker Automotive proved to be, an electric car company that received $529 million in low-interest loans from the government in 2009. The company is now at the edge of bankruptcy.
Lane tells us that that the mistake was compounded by the fact that the loan made it easier for Fisker to attract private capital:
“All told, Fisker attracted $1.1?billion in private investment, the vast majority of which took place after it got the DOE loan. …
“In other words, that’s more than a billion dollars in capital that can’t create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker.”
There are two important points here. First, the economy was in a free fall in 2009. There was a ton of capital available for investment. The idea that the $1.1 billion that Fisker attracted from private investors was somehow pulled away from other investments is fanciful at best. In more normal times there is an argument that government subsidized loans are pulling capital away from other areas of the economy. That was not a plausible story in 2009 nor is it a plausible story now. (We have a way of measuring this problem, it’s called “interest rates.”)
The other point is that it was inevitable that Obama’s green energy program would produce some losers. So does Warren Buffett’s investment portfolio. If Lane felt the same way about Berkshire Hathaway as he does about the government’s investments he would be running columns telling us that Warren Buffett is inept because of his large investments in the oil company ConocoPhillips at the peak of the boom in oil prices in 2008.
Government investments in promoting technology will always be a mixed bag with both winners and losers. Anyone who wants to look at the question seriously would have to look at all the companies that received support and do a cumulative cost-benefit analysis. This assessment would be broader than just the return on investment, it would also look at spillover effects. (Ever hear of the Internet?) Such an analysis would have to take into account timing. For example, the opportunity cost of investments made in 2009 was close to zero since the resources would have otherwise been wasted.
However government programs of this sort will always have to deal with the enormous ideological bias of the media. This means that it is inevitable that they will face a Charles Lane who will find a loser to highlight and tell people:
“The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, ‘government is a crappy VC.'”
For this reason, caution in such programs is well-advised.
All those people who thought the government puts Warren Buffett to shame in picking winning companies must be embarrassed after reading Charles Lane’s column in the Washington Post this morning. Lane told readers what a disaster Fisker Automotive proved to be, an electric car company that received $529 million in low-interest loans from the government in 2009. The company is now at the edge of bankruptcy.
Lane tells us that that the mistake was compounded by the fact that the loan made it easier for Fisker to attract private capital:
“All told, Fisker attracted $1.1?billion in private investment, the vast majority of which took place after it got the DOE loan. …
“In other words, that’s more than a billion dollars in capital that can’t create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker.”
There are two important points here. First, the economy was in a free fall in 2009. There was a ton of capital available for investment. The idea that the $1.1 billion that Fisker attracted from private investors was somehow pulled away from other investments is fanciful at best. In more normal times there is an argument that government subsidized loans are pulling capital away from other areas of the economy. That was not a plausible story in 2009 nor is it a plausible story now. (We have a way of measuring this problem, it’s called “interest rates.”)
The other point is that it was inevitable that Obama’s green energy program would produce some losers. So does Warren Buffett’s investment portfolio. If Lane felt the same way about Berkshire Hathaway as he does about the government’s investments he would be running columns telling us that Warren Buffett is inept because of his large investments in the oil company ConocoPhillips at the peak of the boom in oil prices in 2008.
Government investments in promoting technology will always be a mixed bag with both winners and losers. Anyone who wants to look at the question seriously would have to look at all the companies that received support and do a cumulative cost-benefit analysis. This assessment would be broader than just the return on investment, it would also look at spillover effects. (Ever hear of the Internet?) Such an analysis would have to take into account timing. For example, the opportunity cost of investments made in 2009 was close to zero since the resources would have otherwise been wasted.
However government programs of this sort will always have to deal with the enormous ideological bias of the media. This means that it is inevitable that they will face a Charles Lane who will find a loser to highlight and tell people:
“The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, ‘government is a crappy VC.'”
For this reason, caution in such programs is well-advised.
Read More Leer más Join the discussion Participa en la discusión
In an article about problems with the implementation of Obamacare the NYT tells readers:
“Uncertainty over the law’s future hung over employers and investors throughout 2012. ‘It impeded the recovery,’ said the economist Mark Zandi.”
It’s difficult to see what this uncertainty would be and who exactly would be affected. The vast majority of large firms, the ones who employ more than 50 people and would face new obligations under the Affordable Care Act (ACA), already provide workers with health insurance. There seems little basis for the often expressed concern that firms can put themselves over the line by hiring a 50th worker, given the fact that firms can fire workers at any time for no reason in the United States. The firms that don’t provide health care seem especially unlikely to be worried about dismissing a worker in order to avoid costs imposed by the ACA. (There is also a large amount of turnover, so a firm near the threshold could almost certainly quickly fall below the 50 person cutoff through attrition.
News reports have routinely repeated assertions from economists about uncertainty affecting the economy which have subsequently proven to be without foundation. For example, there were numerous reports in the business press last fall which claimed that uncertainty over the “fiscal cliff” was leading firms to delay investment. As it turned out, investment grew at a 13.2 percent annual rate in the fourth quarter of 2012. It grew at just a 2.1 percent rate in the first quarter of 2013.
When reporters present economists’ assertions about uncertainty having an impact on the economy they should press them for evidence for this claim. That could prevent news stories from misleading readers in the future.
In an article about problems with the implementation of Obamacare the NYT tells readers:
“Uncertainty over the law’s future hung over employers and investors throughout 2012. ‘It impeded the recovery,’ said the economist Mark Zandi.”
It’s difficult to see what this uncertainty would be and who exactly would be affected. The vast majority of large firms, the ones who employ more than 50 people and would face new obligations under the Affordable Care Act (ACA), already provide workers with health insurance. There seems little basis for the often expressed concern that firms can put themselves over the line by hiring a 50th worker, given the fact that firms can fire workers at any time for no reason in the United States. The firms that don’t provide health care seem especially unlikely to be worried about dismissing a worker in order to avoid costs imposed by the ACA. (There is also a large amount of turnover, so a firm near the threshold could almost certainly quickly fall below the 50 person cutoff through attrition.
News reports have routinely repeated assertions from economists about uncertainty affecting the economy which have subsequently proven to be without foundation. For example, there were numerous reports in the business press last fall which claimed that uncertainty over the “fiscal cliff” was leading firms to delay investment. As it turned out, investment grew at a 13.2 percent annual rate in the fourth quarter of 2012. It grew at just a 2.1 percent rate in the first quarter of 2013.
When reporters present economists’ assertions about uncertainty having an impact on the economy they should press them for evidence for this claim. That could prevent news stories from misleading readers in the future.
Read More Leer más Join the discussion Participa en la discusión
A front page Washington Post article (print edition) had the headline “in impatient Europe, some see more debt as answer.” It would be interesting to know on what basis the Post has determined that Europeans are impatient. Would it, for example, consider Americans impatient because they voted Jimmy Carter out of office when the economy was doing poorly in 1980 or George H.W. Bush in 1992? It is common for people to be upset by economic policies that are causing recessions and high unemployment, this might better be called “common sense” than “impatience.”
The article also editorializes in the second paragraph, describing Europe as the “debt-ridden continent.” It would be at least as appropriate to describe it as the unemployment-ridden continent” given the double-digit unemployment in many countries. It also questionable whether “debt-ridden” is an accurate description since in many countries the interest burden is not especially high. Arguably this is the best measure of the burden of the debt.
A front page Washington Post article (print edition) had the headline “in impatient Europe, some see more debt as answer.” It would be interesting to know on what basis the Post has determined that Europeans are impatient. Would it, for example, consider Americans impatient because they voted Jimmy Carter out of office when the economy was doing poorly in 1980 or George H.W. Bush in 1992? It is common for people to be upset by economic policies that are causing recessions and high unemployment, this might better be called “common sense” than “impatience.”
The article also editorializes in the second paragraph, describing Europe as the “debt-ridden continent.” It would be at least as appropriate to describe it as the unemployment-ridden continent” given the double-digit unemployment in many countries. It also questionable whether “debt-ridden” is an accurate description since in many countries the interest burden is not especially high. Arguably this is the best measure of the burden of the debt.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Betsey Stevenson and Justin Wolfers are offering their assistance as referees in the debate over the Reinhart and Rogoff (R&R) spreadsheet error. They tell us:
“It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.”
Of course the real story is that people on the left have seized on the embarrassing Excel error to bring about a public debate on an incredibly important debate from which they had previously been excluded. Just to remind everyone, R&R is being used as a rationale for cutting Social Security and Medicare as well as many other policies that are slowing growth and creating unemployment across much of the world. The corrected Reinhart and Rogoff spreadsheet does not come close to supporting the grand claims about the dangers of public debt they originally made, nor does it address the serious questions of causality that have followed in the wake of the discovery of their Excel error.
So we have two Harvard professors who used their status to push through work that was central to the most important economic policy debates in decades, based on analysis that was by their own admission incomplete. They also refused to make any of the data available until long after it was being widely cited in these debates. And, they routinely encouraged political figures to infer causality from debt to growth, when they were careful to deny any such claims when challenged by other economists.
And our two referees are disappointed by the conduct of those on the left.
Betsey Stevenson and Justin Wolfers are offering their assistance as referees in the debate over the Reinhart and Rogoff (R&R) spreadsheet error. They tell us:
“It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.”
Of course the real story is that people on the left have seized on the embarrassing Excel error to bring about a public debate on an incredibly important debate from which they had previously been excluded. Just to remind everyone, R&R is being used as a rationale for cutting Social Security and Medicare as well as many other policies that are slowing growth and creating unemployment across much of the world. The corrected Reinhart and Rogoff spreadsheet does not come close to supporting the grand claims about the dangers of public debt they originally made, nor does it address the serious questions of causality that have followed in the wake of the discovery of their Excel error.
So we have two Harvard professors who used their status to push through work that was central to the most important economic policy debates in decades, based on analysis that was by their own admission incomplete. They also refused to make any of the data available until long after it was being widely cited in these debates. And, they routinely encouraged political figures to infer causality from debt to growth, when they were careful to deny any such claims when challenged by other economists.
And our two referees are disappointed by the conduct of those on the left.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post gave Erskine Bowles and Alan Simpson another opportunity to push their case for deficit reduction, which includes plans for cutting Social Security and raising the age of eligibility for Medicare. The Post does not mention Mr. Bowles affiliation with Morgan Stanley. This could have something to do with his persistent refusal to ever include a Wall Street speculation tax in his deficit reduction plans.
Many other countries, including the UK have long had such taxes. Much of the European Union is likely to impose a tax of 0.1 percent on stock trades and 0.01 percent on derivatives. The Joint Tax Committee of Congress has projected that the 0.03 percent tax proposed by Senator Tom Harkin and Representative Peter DeFazio would raise almost $40 billion annually. Counting interest savings, this tax alone would meet almost 20 percent of the arbitrary $2.5 trillion deficit reduction target picked by Bowles and Simpson.
It is also important to note that Bowles and Simpson’s claim about using the chained CPI for the annual Social Security cost-of-living adjustment seems deliberately misleading. They tell readers:
“The plan also includes a shift to the chained consumer price index to provide more accurate indexation of provisions throughout the budget.”
While the chained CPI is arguably a better measure of the rate of inflation seen by the population as a whole, there is no evidence that it provides a better measure of the rate of inflation seen by the elderly. In fact the experimental elderly index constructed by the Bureau of Labor Statistics (BLS) shows that the current measure of inflation understates the rate of inflation seen by the elderly.
If Bowles and Simpson were actually interested in accuracy (as opposed to cutting Social Security benefits), they would propose having the BLS construct a full elderly CPI. They have consistently backed away from this idea, which could lead to higher Social Security benefits.
The Washington Post gave Erskine Bowles and Alan Simpson another opportunity to push their case for deficit reduction, which includes plans for cutting Social Security and raising the age of eligibility for Medicare. The Post does not mention Mr. Bowles affiliation with Morgan Stanley. This could have something to do with his persistent refusal to ever include a Wall Street speculation tax in his deficit reduction plans.
Many other countries, including the UK have long had such taxes. Much of the European Union is likely to impose a tax of 0.1 percent on stock trades and 0.01 percent on derivatives. The Joint Tax Committee of Congress has projected that the 0.03 percent tax proposed by Senator Tom Harkin and Representative Peter DeFazio would raise almost $40 billion annually. Counting interest savings, this tax alone would meet almost 20 percent of the arbitrary $2.5 trillion deficit reduction target picked by Bowles and Simpson.
It is also important to note that Bowles and Simpson’s claim about using the chained CPI for the annual Social Security cost-of-living adjustment seems deliberately misleading. They tell readers:
“The plan also includes a shift to the chained consumer price index to provide more accurate indexation of provisions throughout the budget.”
While the chained CPI is arguably a better measure of the rate of inflation seen by the population as a whole, there is no evidence that it provides a better measure of the rate of inflation seen by the elderly. In fact the experimental elderly index constructed by the Bureau of Labor Statistics (BLS) shows that the current measure of inflation understates the rate of inflation seen by the elderly.
If Bowles and Simpson were actually interested in accuracy (as opposed to cutting Social Security benefits), they would propose having the BLS construct a full elderly CPI. They have consistently backed away from this idea, which could lead to higher Social Security benefits.
Read More Leer más Join the discussion Participa en la discusión
Yes, he is. In his column today he expresses his anger over a bill that would apply the same sales tax to Internet sales that people pay now when they go to their corner store. He scoffs;
“In a burst of the bipartisanship we are told to revere, a coalition of Republican and Democratic senators rose above party differences last week to affirm class solidarity. They moved toward a tax increase of at least $22 billion to benefit the political class at the state and local levels.”
Let’s see, that political class would be people like Rick Perry, the governor of Texas, and Jerry Brown, the governor of California. The class solidarity here is less than obvious. It’s certainly less visible than George Will’s class solidarity with rich people, including those who make their money by gaming the tax code instead of doing anything productive, as is the issue here.
Addendum:
The sales tax is regressive. It would be great to see it replaced with income taxes. It’s not going to happen whether or not we tax Internet sales. Taxing Internet sales makes the sales tax less regressive because low income people buy less of their stuff on the Internet than high income people. This is simple — whine away, but the story is really really simple. If you want to make the tax system less regressive and you want to make the economy more efficient (why would we subsidize Internet sales at the expense of brick and mortar stores?), then you support having Internet sales subject to state sales taxes.
Yes, he is. In his column today he expresses his anger over a bill that would apply the same sales tax to Internet sales that people pay now when they go to their corner store. He scoffs;
“In a burst of the bipartisanship we are told to revere, a coalition of Republican and Democratic senators rose above party differences last week to affirm class solidarity. They moved toward a tax increase of at least $22 billion to benefit the political class at the state and local levels.”
Let’s see, that political class would be people like Rick Perry, the governor of Texas, and Jerry Brown, the governor of California. The class solidarity here is less than obvious. It’s certainly less visible than George Will’s class solidarity with rich people, including those who make their money by gaming the tax code instead of doing anything productive, as is the issue here.
Addendum:
The sales tax is regressive. It would be great to see it replaced with income taxes. It’s not going to happen whether or not we tax Internet sales. Taxing Internet sales makes the sales tax less regressive because low income people buy less of their stuff on the Internet than high income people. This is simple — whine away, but the story is really really simple. If you want to make the tax system less regressive and you want to make the economy more efficient (why would we subsidize Internet sales at the expense of brick and mortar stores?), then you support having Internet sales subject to state sales taxes.
Read More Leer más Join the discussion Participa en la discusión
That’s what Richard Haass is promising in his Washington Post Outlook piece. He tells readers that the United States is still the world’s largest economy and will be for long into the future.
“This country boasts the world’s largest economy; its annual GDP of almost $16 trillion is nearly one-fourth of global output. Compare this figure with $7 trillion for China and $6 trillion for Japan. Per capita GDP in the United States is close to $50,000, somewhere between six and nine times that of China.”
The problem with the comparison with China is that it relies on market exchange rates. These fluctuate widely and are in part determined politically. (According to Haass’s measure, China could make itself 25 percent richer relative to the U.S. tomorrow if it opted to dump $2 trillion in dollar holdings.)
If the question is what can the economies actually produce then the right measure is purchasing power parity. Haass apparently has also neglected the fact that China now controls Hong Kong, which is not counted in its GDP measure. Turning to the IMF’s data on purchasing power parity GDP we find that the United States has a bit more than three years left as Number 1:
| Country | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|---|
| China | 11,305.769 | 12,405.670 | 13,623.255 | 15,039.001 | 16,647.491 | 18,442.890 | 20,440.875 | 22,641.047 |
| Hong Kong SAR | 357.726 | 369.379 | 386.558 | 411.548 | 438.187 | 467.253 | 498.588 | 532.098 |
| United States | 15,075.675 | 15,684.750 | 16,237.746 | 17,049.027 | 18,012.185 | 19,020.509 | 20,077.908 | 21,101.368 |
Source: International Monetary Fund.
Taking year-round averages, the United States is still slightly ahead of the combined projection for China and Hong Kong for 2016, but almost 5 percent lower for 2017. The projection therefore implies that China’s GDP will surpass U.S. GDP sometime in August of 2016. This means that if being number one in this category matters to you, better do your partying now. (Actually, according to some estimates the time for partying may already be over since China’s GDP may already have surpassed the GDP of the United States.)
The comparisons in this piece to West Europe are silly. The main reason that per capita income in the United States is higher than in Western Europe is that the average worker puts in about 20 percent more hours a year. In Western Europe 4-6 weeks a year of vacation is standard (guaranteed in law), as is paid parental leave and paid sick days. In some countries the standard workweek is also well below 40 hours.
Measured on a per hour basis there is little difference in output, although the European Central Bank is working hard to increase the gap with its current policies. Perhaps people in the United States feel better because they work longer hours, but that is not usually considered evidence of a stronger economy.
That’s what Richard Haass is promising in his Washington Post Outlook piece. He tells readers that the United States is still the world’s largest economy and will be for long into the future.
“This country boasts the world’s largest economy; its annual GDP of almost $16 trillion is nearly one-fourth of global output. Compare this figure with $7 trillion for China and $6 trillion for Japan. Per capita GDP in the United States is close to $50,000, somewhere between six and nine times that of China.”
The problem with the comparison with China is that it relies on market exchange rates. These fluctuate widely and are in part determined politically. (According to Haass’s measure, China could make itself 25 percent richer relative to the U.S. tomorrow if it opted to dump $2 trillion in dollar holdings.)
If the question is what can the economies actually produce then the right measure is purchasing power parity. Haass apparently has also neglected the fact that China now controls Hong Kong, which is not counted in its GDP measure. Turning to the IMF’s data on purchasing power parity GDP we find that the United States has a bit more than three years left as Number 1:
| Country | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|---|
| China | 11,305.769 | 12,405.670 | 13,623.255 | 15,039.001 | 16,647.491 | 18,442.890 | 20,440.875 | 22,641.047 |
| Hong Kong SAR | 357.726 | 369.379 | 386.558 | 411.548 | 438.187 | 467.253 | 498.588 | 532.098 |
| United States | 15,075.675 | 15,684.750 | 16,237.746 | 17,049.027 | 18,012.185 | 19,020.509 | 20,077.908 | 21,101.368 |
Source: International Monetary Fund.
Taking year-round averages, the United States is still slightly ahead of the combined projection for China and Hong Kong for 2016, but almost 5 percent lower for 2017. The projection therefore implies that China’s GDP will surpass U.S. GDP sometime in August of 2016. This means that if being number one in this category matters to you, better do your partying now. (Actually, according to some estimates the time for partying may already be over since China’s GDP may already have surpassed the GDP of the United States.)
The comparisons in this piece to West Europe are silly. The main reason that per capita income in the United States is higher than in Western Europe is that the average worker puts in about 20 percent more hours a year. In Western Europe 4-6 weeks a year of vacation is standard (guaranteed in law), as is paid parental leave and paid sick days. In some countries the standard workweek is also well below 40 hours.
Measured on a per hour basis there is little difference in output, although the European Central Bank is working hard to increase the gap with its current policies. Perhaps people in the United States feel better because they work longer hours, but that is not usually considered evidence of a stronger economy.
Read More Leer más Join the discussion Participa en la discusión
I double-checked to see that this is in fact April 28 and not April 1. This does seem to be real, a Washington Post lead editorial on Europe that calls for Germany to ease up on austerity and to allow the peripheral euro zone countries to grow again.
I could nit-pick and point out that the editorial doesn’t get everything right (nothing wrong with Germany running trade surpluses, if the surpluses were with fast-growing countries in the developing world), but we should just sit back and enjoy this one for a moment. Perhaps evidence and logic can actually have an impact on economic policy debates, even at the Washington Post.
I double-checked to see that this is in fact April 28 and not April 1. This does seem to be real, a Washington Post lead editorial on Europe that calls for Germany to ease up on austerity and to allow the peripheral euro zone countries to grow again.
I could nit-pick and point out that the editorial doesn’t get everything right (nothing wrong with Germany running trade surpluses, if the surpluses were with fast-growing countries in the developing world), but we should just sit back and enjoy this one for a moment. Perhaps evidence and logic can actually have an impact on economic policy debates, even at the Washington Post.
Read More Leer más Join the discussion Participa en la discusión
