Folks who follow the economy might have thought that cutbacks in government spending, the continued weakness of construction, or the large trade deficits were the causes of the slow recovery, but the WSJ has the real scoop: it’s workers going on disability. The WSJ ran a piece headlined,”Workers Stuck in Disability Stunt Economic Recovery,” that told readers:
“The unexpectedly large number of American workers who piled into the Social Security Administration’s disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues.
Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth and sustain a baby boomer generation headed to retirement”
Let’s see how this one is supposed to work. According to the Bureau of Labor Statistics were 11.7 million people who were counted as unemployed last month. This means that they were actively looking for work. On the other hand, a separate survey of firms showed that there were 3.3 million job openings. This means that there were 3.2 workers looking for jobs for every opening that was listed. We also know that there are millions of other workers who would like a job, and are not on disability, but have given up looking for work because they don’t see any jobs available.
Okay, so now we put the Wall Street Journal’s news division in charge of the disability program and they throw 9 million workers off disability. How exactly does this create more jobs? Are the companies that were already seeing many applicants for each job openings going to start offering more jobs when this ratio increases further?
Keep in mind that most of the additional applicants do have serious disabilities, only 40 percent of applicants for disability are approved, as the WSJ article notes. Also, one-third of these had to go through an appeals process. So almost all of these people will have some condition that at least seriously impairs their work ability, even if it does not make it altogether impossible to work.
So the WSJ apparently wants us to believe that when these 9 million people are thrown off disability — people with bad backs, severe fatigue, terminal cancer — companies will suddenly start offering millions of additional jobs. That’s an interesting economic theory.
Folks who follow the economy might have thought that cutbacks in government spending, the continued weakness of construction, or the large trade deficits were the causes of the slow recovery, but the WSJ has the real scoop: it’s workers going on disability. The WSJ ran a piece headlined,”Workers Stuck in Disability Stunt Economic Recovery,” that told readers:
“The unexpectedly large number of American workers who piled into the Social Security Administration’s disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues.
Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth and sustain a baby boomer generation headed to retirement”
Let’s see how this one is supposed to work. According to the Bureau of Labor Statistics were 11.7 million people who were counted as unemployed last month. This means that they were actively looking for work. On the other hand, a separate survey of firms showed that there were 3.3 million job openings. This means that there were 3.2 workers looking for jobs for every opening that was listed. We also know that there are millions of other workers who would like a job, and are not on disability, but have given up looking for work because they don’t see any jobs available.
Okay, so now we put the Wall Street Journal’s news division in charge of the disability program and they throw 9 million workers off disability. How exactly does this create more jobs? Are the companies that were already seeing many applicants for each job openings going to start offering more jobs when this ratio increases further?
Keep in mind that most of the additional applicants do have serious disabilities, only 40 percent of applicants for disability are approved, as the WSJ article notes. Also, one-third of these had to go through an appeals process. So almost all of these people will have some condition that at least seriously impairs their work ability, even if it does not make it altogether impossible to work.
So the WSJ apparently wants us to believe that when these 9 million people are thrown off disability — people with bad backs, severe fatigue, terminal cancer — companies will suddenly start offering millions of additional jobs. That’s an interesting economic theory.
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Dylan Matthews had a nice piece explaining why we need not worry about current deficits and the relatively high debt to GDP ratio. He left out one very important reason, probably to avoid making prominent economists look stupid.
The debt to GDP ratio is to some extent an arbitrary number. The point here is that the price of long-term debt (e.g. 10-year and 30-year bonds) fluctuates with the interest rate. Currently bond prices are very high because interest rates are very low. However if interest rates rise back to more normal levels, as the Congressional Budget Office and others project, then the price of bonds issued at today’s low rates will plummet.
This can be seen by playing with any standard bond calculator. This would mean that we could buy back the bonds we issue in today’s low interest environment at discount rates of 20 percent, 30 percent, possibly even 40 percent. This would allow us to instantly shave hundreds of billions fo dollars, maybe even trillions, off the size of the debt. (Matthews’ colleague Allan Sloan made this point in a slightly different context a few months back.)
Of course there would be no point to this sort of bond buyback since it would leave the country’s interest burden (now near a post-World War II low) unchanged. However, for those economists and politicians who worship debt-to-GDP ratios, such bond buybacks should be a godsend. So, we can promise them that we do this sort of bond back and then we can spend what is needed to get the economy going again without having these annoying people getting in the way.
Dylan Matthews had a nice piece explaining why we need not worry about current deficits and the relatively high debt to GDP ratio. He left out one very important reason, probably to avoid making prominent economists look stupid.
The debt to GDP ratio is to some extent an arbitrary number. The point here is that the price of long-term debt (e.g. 10-year and 30-year bonds) fluctuates with the interest rate. Currently bond prices are very high because interest rates are very low. However if interest rates rise back to more normal levels, as the Congressional Budget Office and others project, then the price of bonds issued at today’s low rates will plummet.
This can be seen by playing with any standard bond calculator. This would mean that we could buy back the bonds we issue in today’s low interest environment at discount rates of 20 percent, 30 percent, possibly even 40 percent. This would allow us to instantly shave hundreds of billions fo dollars, maybe even trillions, off the size of the debt. (Matthews’ colleague Allan Sloan made this point in a slightly different context a few months back.)
Of course there would be no point to this sort of bond buyback since it would leave the country’s interest burden (now near a post-World War II low) unchanged. However, for those economists and politicians who worship debt-to-GDP ratios, such bond buybacks should be a godsend. So, we can promise them that we do this sort of bond back and then we can spend what is needed to get the economy going again without having these annoying people getting in the way.
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This simple point is shown nicely in a graph in Catherine Rampell’s Economix blogpost. The point is simple. Restaurants always want to hire people at low pay and with few benefits. In a weak labor market they can. When we have periods of low unemployment, like the late 1990s and 2005-2007, workers have better options.
This simple point is shown nicely in a graph in Catherine Rampell’s Economix blogpost. The point is simple. Restaurants always want to hire people at low pay and with few benefits. In a weak labor market they can. When we have periods of low unemployment, like the late 1990s and 2005-2007, workers have better options.
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Gretchen Morgenson reports on limited progress in reining in excessive CEO pay. Here’s the promotion for Director Watch, CEPR’s entry in the area.
Gretchen Morgenson reports on limited progress in reining in excessive CEO pay. Here’s the promotion for Director Watch, CEPR’s entry in the area.
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The Washington Post has a lengthy piece discussing the new Office of Financial Research that was set up as part of Dodd-Frank. The purpose of the office is ostensibly to prevent another financial crisis. The article focuses on the supposedly brilliant people who are staffing or advising the office and sophisticated tools that they intend to use on their job.
In fact, it was only necessary to have someone familiar with basic arithmetic and economics to prevent this crisis. It was easy to see that house prices had become grossly out of line with economic fundamentals during the bubble years. It was also easy to see that this bubble was driving the economy as residential construction rose to record shares of GDP and the wealth from bubble generated housing equity pushed consumption to record shares of disposable income.
The collapse of this bubble was the basis for the crisis. If we had seen all the same crazy financial schemes without the bubble, the consequences of their implosion for the economy would have been minimal. By contrast, if the bubble had grown to the same level without crazy financing, its collapse would have still led to a severe recession.
There are many people in positions of power and authority who like to focus on the financial aspects of the crisis because it makes it appear complicated and gives them an excuse for having failed to recognize it in advance and taking steps to stop it. The reality is that it was all very simple and the people in positions of responsibility were simply too incompetent and/or corrupt to do anything to prevent this disaster.
The Washington Post has a lengthy piece discussing the new Office of Financial Research that was set up as part of Dodd-Frank. The purpose of the office is ostensibly to prevent another financial crisis. The article focuses on the supposedly brilliant people who are staffing or advising the office and sophisticated tools that they intend to use on their job.
In fact, it was only necessary to have someone familiar with basic arithmetic and economics to prevent this crisis. It was easy to see that house prices had become grossly out of line with economic fundamentals during the bubble years. It was also easy to see that this bubble was driving the economy as residential construction rose to record shares of GDP and the wealth from bubble generated housing equity pushed consumption to record shares of disposable income.
The collapse of this bubble was the basis for the crisis. If we had seen all the same crazy financial schemes without the bubble, the consequences of their implosion for the economy would have been minimal. By contrast, if the bubble had grown to the same level without crazy financing, its collapse would have still led to a severe recession.
There are many people in positions of power and authority who like to focus on the financial aspects of the crisis because it makes it appear complicated and gives them an excuse for having failed to recognize it in advance and taking steps to stop it. The reality is that it was all very simple and the people in positions of responsibility were simply too incompetent and/or corrupt to do anything to prevent this disaster.
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It might have been worth making this point in an article on President Obama’s budget proposal that tells readers of his plan to cut Social Security by reducing the annual cost of living adjustment. It would have been worth putting this proposal in some context, since many readers may not understand its consequences.
President Obama’s proposal would reduce benefits by 0.3 percent for each year after a worker retires. After ten years benefits would be cut by 3.0 percent, after twenty years 6.0 percent, and after 30 years 9.0 percent. Over a twenty year retirement, the average cut would be 3.0 percent.
This cut would be a bigger hit to the typical retiree’s income than President Obama’s tax increases at the end of 2012 were to the typical person affected. A couple earning $500,000 a year would pay an additional 4.6 percentage points on income above $450,000. This would amount to $2,300 a year (4.6 percent of $50,000). That is less than 0.5 percent of their pre-tax income and around a 0.6 percent reduction in their after-tax income.
By comparison, Social Security is about 70 percent of the income of a typical retiree. Since President Obama’s proposal would lead to a 3 percent cut in Social Security benefits, it would reduce the income of the typical retiree by more than 2.0 percent, more than three times the size of the hit from the tax increase to the wealthy.
Source: Author’s Calculations.
It might have been worth making this point in an article on President Obama’s budget proposal that tells readers of his plan to cut Social Security by reducing the annual cost of living adjustment. It would have been worth putting this proposal in some context, since many readers may not understand its consequences.
President Obama’s proposal would reduce benefits by 0.3 percent for each year after a worker retires. After ten years benefits would be cut by 3.0 percent, after twenty years 6.0 percent, and after 30 years 9.0 percent. Over a twenty year retirement, the average cut would be 3.0 percent.
This cut would be a bigger hit to the typical retiree’s income than President Obama’s tax increases at the end of 2012 were to the typical person affected. A couple earning $500,000 a year would pay an additional 4.6 percentage points on income above $450,000. This would amount to $2,300 a year (4.6 percent of $50,000). That is less than 0.5 percent of their pre-tax income and around a 0.6 percent reduction in their after-tax income.
By comparison, Social Security is about 70 percent of the income of a typical retiree. Since President Obama’s proposal would lead to a 3 percent cut in Social Security benefits, it would reduce the income of the typical retiree by more than 2.0 percent, more than three times the size of the hit from the tax increase to the wealthy.
Source: Author’s Calculations.
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In a piece on the new initiative by Japan’s central bank to raise its inflation rate to 2.0 percent, the Washington Post told readers:
“The risks are known but impossible to quantify: of inflation remaining tame until it roars out of control, or of asset bubbles creeping into unexpected parts of the economy as investors take advantage of cheap money worldwide to make ever-riskier bets.”
While central banks, like the bank of Japan and the Fed, have displayed an enormous lack of competence in recognizing and countering asset bubbles, there are no known instances of inflation remaining tame until it “roars out control,” apart from countries victimized by war or natural disaster. This horror story seems to be entirely an invention of the Post (or its unnamed sources).
In all the standard models inflation is a process that builds up gradually over time once an economy is hitting capacity constraints. Economies do not just jump from being severely depressed to having soaring inflation. For this reason, serious people would view this prospect with roughly the same concern as an attack from outer space.
It is also worth noting that this piece places an excessive emphasis on deflation. Japan has occasionally seen modest deflation (a drop in annual prices of less than 1.0 percent annually) over the last two decades. There is no particular importance to having deflation as compared to an inflation rate that is too low.
The issue here is that it would be desirable to have a lower real interest rate given the weakness of Japan’s economy. (The real interest rate is the nominal interest rate minus the inflation rate.) Since the nominal interest rate can never go below zero, the only way to lower the real interest rate is to push inflation higher.
For this reason, deflation is harmful, but only in the same sense that a lower inflation rate is harmful. A decline in the rate of inflation from 0.5 percent to -0.5 percent is no worse than a drop in the inflation rate from 1.5 percent to 0.5 percent. There is no magic about crossing the zero line. It is unfortunate that the Post and other news outlets have fostered so much confusion on this issue.
In a piece on the new initiative by Japan’s central bank to raise its inflation rate to 2.0 percent, the Washington Post told readers:
“The risks are known but impossible to quantify: of inflation remaining tame until it roars out of control, or of asset bubbles creeping into unexpected parts of the economy as investors take advantage of cheap money worldwide to make ever-riskier bets.”
While central banks, like the bank of Japan and the Fed, have displayed an enormous lack of competence in recognizing and countering asset bubbles, there are no known instances of inflation remaining tame until it “roars out control,” apart from countries victimized by war or natural disaster. This horror story seems to be entirely an invention of the Post (or its unnamed sources).
In all the standard models inflation is a process that builds up gradually over time once an economy is hitting capacity constraints. Economies do not just jump from being severely depressed to having soaring inflation. For this reason, serious people would view this prospect with roughly the same concern as an attack from outer space.
It is also worth noting that this piece places an excessive emphasis on deflation. Japan has occasionally seen modest deflation (a drop in annual prices of less than 1.0 percent annually) over the last two decades. There is no particular importance to having deflation as compared to an inflation rate that is too low.
The issue here is that it would be desirable to have a lower real interest rate given the weakness of Japan’s economy. (The real interest rate is the nominal interest rate minus the inflation rate.) Since the nominal interest rate can never go below zero, the only way to lower the real interest rate is to push inflation higher.
For this reason, deflation is harmful, but only in the same sense that a lower inflation rate is harmful. A decline in the rate of inflation from 0.5 percent to -0.5 percent is no worse than a drop in the inflation rate from 1.5 percent to 0.5 percent. There is no magic about crossing the zero line. It is unfortunate that the Post and other news outlets have fostered so much confusion on this issue.
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I hate to be partisan here (seriously — I criticize the Obama administration all the time), but this map showing declines (blue) in mortality rates for women and increases (red) looks a lot like voting patterns. There is a lot of red across the south and Republican Midwest. The blue tends to show up in Democratically dominated states like California and New York and to be most highly concentrated in the Democratic parts of Democratic or mixed states, such as the Chicago metro area in Illinois or the Detroit metro area in Michigan.
Of course there are many factors that determine life expectancy and some of them will not be easily affected by state policies, especially in the short-term. But the relationship shown in the map is striking. Needless to say, if the color pattern were reversed we would be hearing this as the lead news story for the next century.
I hate to be partisan here (seriously — I criticize the Obama administration all the time), but this map showing declines (blue) in mortality rates for women and increases (red) looks a lot like voting patterns. There is a lot of red across the south and Republican Midwest. The blue tends to show up in Democratically dominated states like California and New York and to be most highly concentrated in the Democratic parts of Democratic or mixed states, such as the Chicago metro area in Illinois or the Detroit metro area in Michigan.
Of course there are many factors that determine life expectancy and some of them will not be easily affected by state policies, especially in the short-term. But the relationship shown in the map is striking. Needless to say, if the color pattern were reversed we would be hearing this as the lead news story for the next century.
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