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The NYT told readers about efforts to require city governments to disclose their pension liabilities in order to be able to continue to issue tax-exempt bonds. While better disclosure of pension liabilities may be desirable, there are important methodological issues that the piece neglects to mention.
The piece notes that Moody’s, the bond-rating agency, is now adjusting pension liabilities reported by city governments in making assessments of their financial situation. The methodology used by Moody’s to make its adjustment ignores the expected return from market assets. Moody’s methodology would have implied that pension funds were hugely over-funded at the peak of the stock bubble in 2000, even though any reasonable assessment of pension liabilities would have predicted very low returns on assets at that point.
If municipalities were to adjust pension contributions to sustain funding targets using the Moody’s methodology it would lead to highly erratic funding patterns. In most cases, governments would have to make large contributions for a number of years and then would have to contribute little or nothing as market returns exceeded the return assumptions used by Moody’s. This would be comparable to having city governments accumulate large bank deposits so that they could pay for their schools or fire departments from the annual interest.
Usually public finance economists advocate funding mechanisms that imply an even flow through time so that no particular cohort of taxpayers is excessively benefited or penalized. The Moody’s methodology, which is also being pushed as part of the bill being debated in Congress, goes in the opposite direction. This fact should have been noted in the piece.
The NYT told readers about efforts to require city governments to disclose their pension liabilities in order to be able to continue to issue tax-exempt bonds. While better disclosure of pension liabilities may be desirable, there are important methodological issues that the piece neglects to mention.
The piece notes that Moody’s, the bond-rating agency, is now adjusting pension liabilities reported by city governments in making assessments of their financial situation. The methodology used by Moody’s to make its adjustment ignores the expected return from market assets. Moody’s methodology would have implied that pension funds were hugely over-funded at the peak of the stock bubble in 2000, even though any reasonable assessment of pension liabilities would have predicted very low returns on assets at that point.
If municipalities were to adjust pension contributions to sustain funding targets using the Moody’s methodology it would lead to highly erratic funding patterns. In most cases, governments would have to make large contributions for a number of years and then would have to contribute little or nothing as market returns exceeded the return assumptions used by Moody’s. This would be comparable to having city governments accumulate large bank deposits so that they could pay for their schools or fire departments from the annual interest.
Usually public finance economists advocate funding mechanisms that imply an even flow through time so that no particular cohort of taxpayers is excessively benefited or penalized. The Moody’s methodology, which is also being pushed as part of the bill being debated in Congress, goes in the opposite direction. This fact should have been noted in the piece.
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Ilyana Kuziemko and Stefanie Stantcheva seem determined to win the contest for greatest out to lunch op-ed column of all time. They note the huge rise in inequality in wealth and income over the last three decades. They tell readers that the public is aware of this increase. However they say that the public doesn’t trust the government to do anything to address inequality:
“Whether or not the rise in inequality has itself lowered Americans’ faith in government, the low opinion in which Americans hold their government may well limit their willingness to connect concern with inequality to government action.”
Sorry folks, but the public is way ahead of our researchers here. The public recognizes that inequality did not just happen, as the our oped authors seem to believe. Inequality was the result of deliberate government policies. For example, we have high unemployment now because of government policies that are reducing demand in the economy. Manufacturing workers lost jobs and have lower wages because of trade policy designed to put them in competition with low-paid workers in the developing world while protecting our doctors and lawyers.
Maybe if social scientists who did surveys understood a bit more economics, they would ask better questions.
Ilyana Kuziemko and Stefanie Stantcheva seem determined to win the contest for greatest out to lunch op-ed column of all time. They note the huge rise in inequality in wealth and income over the last three decades. They tell readers that the public is aware of this increase. However they say that the public doesn’t trust the government to do anything to address inequality:
“Whether or not the rise in inequality has itself lowered Americans’ faith in government, the low opinion in which Americans hold their government may well limit their willingness to connect concern with inequality to government action.”
Sorry folks, but the public is way ahead of our researchers here. The public recognizes that inequality did not just happen, as the our oped authors seem to believe. Inequality was the result of deliberate government policies. For example, we have high unemployment now because of government policies that are reducing demand in the economy. Manufacturing workers lost jobs and have lower wages because of trade policy designed to put them in competition with low-paid workers in the developing world while protecting our doctors and lawyers.
Maybe if social scientists who did surveys understood a bit more economics, they would ask better questions.
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In Carmen Reinhart and Ken Rogoff’s (R&R) famous and now largely discredited “Growth in a Time of Debt,” New Zealand’s -7.6 percent growth (wrongly transcribed as -7.9 percent) in 1951 played an outsized role in their conclusion that high debt led to sharply lower growth. This number carried inordinate weight because R&R had mistakenly left out 4 high debt years for New Zealand in which it had seen healthy growth. Using their country-weighted methodology (each country counts the same, regardless of size or years with high debt) this mistake by itself subtracted 1.5 percentage points from the growth rate of countries in years of high debt.
To make the story better, today I received a tweet that informed me that the -7.6 percent growth New Zealand experienced in 1951 was not in any obvious way attributable to its high debt. In fact, the country suffered from a labor dispute that led to a strike/lockout of waterfront workers that lasted 5 months. Perhaps this dispute can be linked to New Zealand’s high debt at the time, but the connection is far from obvious. This is the sort of problem you get when using very small samples.
In Carmen Reinhart and Ken Rogoff’s (R&R) famous and now largely discredited “Growth in a Time of Debt,” New Zealand’s -7.6 percent growth (wrongly transcribed as -7.9 percent) in 1951 played an outsized role in their conclusion that high debt led to sharply lower growth. This number carried inordinate weight because R&R had mistakenly left out 4 high debt years for New Zealand in which it had seen healthy growth. Using their country-weighted methodology (each country counts the same, regardless of size or years with high debt) this mistake by itself subtracted 1.5 percentage points from the growth rate of countries in years of high debt.
To make the story better, today I received a tweet that informed me that the -7.6 percent growth New Zealand experienced in 1951 was not in any obvious way attributable to its high debt. In fact, the country suffered from a labor dispute that led to a strike/lockout of waterfront workers that lasted 5 months. Perhaps this dispute can be linked to New Zealand’s high debt at the time, but the connection is far from obvious. This is the sort of problem you get when using very small samples.
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The NYT had a useful piece on the increase in the number of people working at part-time jobs who would like full-time employment. This is an important measure of under-employment in the downturn that is missed when people just look at the unemployment rate. Since part-time workers often lack benefits like health care insurance, this can be an especially important issue.
However the piece concludes by equating part-time work with flexibility for employers. This is not true. There is no direct relationship between part-time work and flexible hours. A worker who has a regular shift from 1:00-5:00, Monday to Friday, provides no more flexibility to an employer than a worker who works from 9:00-5:00 the same days.
The flexibility comes from the fact that part-time workers are likely to have less bargaining power than full-time workers and therefore may have to accept changes in work hours on short notice. But this is a different issue than being employed part-time.
The NYT had a useful piece on the increase in the number of people working at part-time jobs who would like full-time employment. This is an important measure of under-employment in the downturn that is missed when people just look at the unemployment rate. Since part-time workers often lack benefits like health care insurance, this can be an especially important issue.
However the piece concludes by equating part-time work with flexibility for employers. This is not true. There is no direct relationship between part-time work and flexible hours. A worker who has a regular shift from 1:00-5:00, Monday to Friday, provides no more flexibility to an employer than a worker who works from 9:00-5:00 the same days.
The flexibility comes from the fact that part-time workers are likely to have less bargaining power than full-time workers and therefore may have to accept changes in work hours on short notice. But this is a different issue than being employed part-time.
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The NYT had a piece on the precipitous fall in the price of Apple’s stock since last September. It explained the decline in part by the fact that an unusually large portion of its stockholders are individual investors. These investors were overly enthusiastic about the stock last year and now, according to the piece, excessively pessimistic. It tells readers;
“At its current price, investors are betting that Apple will grow more slowly than the average American company. And they are ignoring the enormous pile of cash that Apple has built up, which it could hand out to shareholders tomorrow if it wanted.”
These two sentences actually are in direct contradiction. Apple has accumulated an extraordinary amount of cash precisely because it does not see good investment opportunities. That is good reason to believe that its profits will grow less rapidly in the future than other companies. Rather than ignoring this cash, investors are likely focused very much on the fact that Apple does not seem able to find good places to use its money.
There is one other point that is worth making about the stock price. It is plausible to tell a story in which Apple’s stock price would be driven to extraordinary levels by ill-informed individual investors. (Although large investors could counter this run-up by shorting Apple stock.) It is less plausible that the price would be driven to irrationally low levels.
Institutional investors do own large amounts of Apple stock and in fact they have considerably less money in Apple today than they did eight months ago. If they viewed Apple stock as being seriously under-valued at its current price then they would rush in to take advantage of a bargain. The fact that this does not appear to be happening suggests that it is not just individual investors who view Apple’s stock price as being too high. The big institutional investors must share this view.
The NYT had a piece on the precipitous fall in the price of Apple’s stock since last September. It explained the decline in part by the fact that an unusually large portion of its stockholders are individual investors. These investors were overly enthusiastic about the stock last year and now, according to the piece, excessively pessimistic. It tells readers;
“At its current price, investors are betting that Apple will grow more slowly than the average American company. And they are ignoring the enormous pile of cash that Apple has built up, which it could hand out to shareholders tomorrow if it wanted.”
These two sentences actually are in direct contradiction. Apple has accumulated an extraordinary amount of cash precisely because it does not see good investment opportunities. That is good reason to believe that its profits will grow less rapidly in the future than other companies. Rather than ignoring this cash, investors are likely focused very much on the fact that Apple does not seem able to find good places to use its money.
There is one other point that is worth making about the stock price. It is plausible to tell a story in which Apple’s stock price would be driven to extraordinary levels by ill-informed individual investors. (Although large investors could counter this run-up by shorting Apple stock.) It is less plausible that the price would be driven to irrationally low levels.
Institutional investors do own large amounts of Apple stock and in fact they have considerably less money in Apple today than they did eight months ago. If they viewed Apple stock as being seriously under-valued at its current price then they would rush in to take advantage of a bargain. The fact that this does not appear to be happening suggests that it is not just individual investors who view Apple’s stock price as being too high. The big institutional investors must share this view.
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