Following in the footsteps of his colleague at the Post, Dylan Matthews, Robert Samuelson devoted a column to a new book on trade by Robert Lawrence, complaining that we don’t give enough credit to trade. I won’t rehash the basic points that Samuelson gets wrong. However it is probably worth going through the basic story as to how trade can lead to overall gains to the economy and yet hurt large groups of workers.
Suppose that we diverted 6 percent of the current flow of immigrants so that instead of being farmworkers and custodians they were doctors trained to U.S. standards. After a decade we would have an additional 800,000 doctors, roughly doubling the current supply. Let’s imagine that this cut their (service adjusted) average pay in half to $125,000 a year.
In this story, we would save $100 billion a year in what we pay doctors. This would imply an enormous benefit to the economy in the form of lower health care costs.
Even doctors would benefit from having to pay less for health care for themselves and their families. Of course their savings on health care costs would be swamped in its impact on their living standards by their reduction in pay. (Maybe we could get some economists and economic columnists to tell the doctors that they are stupid for opposing trade agreements because of the huge savings they see on health care, just as they tell manufacturing workers that they are stupid for not appreciating the benefits of low cost imported manufactured goods.)
Anyhow, this is the basic story on trade in the U.S. over the last three decades. It has been designed to put non-college educated workers in direct competition with their counterparts in the developing world, while largely protecting the most highly educated workers. The predicted and actual result from this structure of trade is to reduce their wages, redistributing income to corporate profits and highly educated professionals.
Following in the footsteps of his colleague at the Post, Dylan Matthews, Robert Samuelson devoted a column to a new book on trade by Robert Lawrence, complaining that we don’t give enough credit to trade. I won’t rehash the basic points that Samuelson gets wrong. However it is probably worth going through the basic story as to how trade can lead to overall gains to the economy and yet hurt large groups of workers.
Suppose that we diverted 6 percent of the current flow of immigrants so that instead of being farmworkers and custodians they were doctors trained to U.S. standards. After a decade we would have an additional 800,000 doctors, roughly doubling the current supply. Let’s imagine that this cut their (service adjusted) average pay in half to $125,000 a year.
In this story, we would save $100 billion a year in what we pay doctors. This would imply an enormous benefit to the economy in the form of lower health care costs.
Even doctors would benefit from having to pay less for health care for themselves and their families. Of course their savings on health care costs would be swamped in its impact on their living standards by their reduction in pay. (Maybe we could get some economists and economic columnists to tell the doctors that they are stupid for opposing trade agreements because of the huge savings they see on health care, just as they tell manufacturing workers that they are stupid for not appreciating the benefits of low cost imported manufactured goods.)
Anyhow, this is the basic story on trade in the U.S. over the last three decades. It has been designed to put non-college educated workers in direct competition with their counterparts in the developing world, while largely protecting the most highly educated workers. The predicted and actual result from this structure of trade is to reduce their wages, redistributing income to corporate profits and highly educated professionals.
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It’s always nice when a major news outlet picks up on work by CEPR, even if it takes a year and some other economist to produce similar findings. Therefore, I was naturally happy to see this piece in the Wall Street Journal reporting that almost 300,000 college educated workers are earning the minimum wage.
The WSJ piece is based on a new paper by three Canadian economists that finds that many college educated workers are employed at jobs that don’t require college degrees. This is bad news not only for the college educated workers, but also for less-educated workers who are displaced by these college educated workers.
My colleagues at CEPR, John Schmitt and Janelle Jones, had done a short paper last April pointing out that minimum wage workers were much more likely to be college educated and have considerably more work experience than in prior decades. I’m glad to see that the WSJ has finally discovered this news.
It’s always nice when a major news outlet picks up on work by CEPR, even if it takes a year and some other economist to produce similar findings. Therefore, I was naturally happy to see this piece in the Wall Street Journal reporting that almost 300,000 college educated workers are earning the minimum wage.
The WSJ piece is based on a new paper by three Canadian economists that finds that many college educated workers are employed at jobs that don’t require college degrees. This is bad news not only for the college educated workers, but also for less-educated workers who are displaced by these college educated workers.
My colleagues at CEPR, John Schmitt and Janelle Jones, had done a short paper last April pointing out that minimum wage workers were much more likely to be college educated and have considerably more work experience than in prior decades. I’m glad to see that the WSJ has finally discovered this news.
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The Washington Post published excerpts from reporter Neil Irwin’s new book, The Alchemists: Three Central Bankers and a World on Fire, under the headline, “three days that saved the world financial system.” The headline is seriously misleading since it may cause readers to believe the world somehow would have lacked a financial system if the central bankers in Irwin’s story had not succeeded in their efforts.
This is not true. Had a financial collapse actually been the outcome, the central banks had the ability to take over failed banks and restart the system. (This is what the FDIC does all the time.) We would most likely see something similar to what Argentina experienced when it defaulted on its debt in December 2001 and broke the link of its currency to the dollar or what Cyprus is seeing today.
Presumably banks would be shut for a relatively short period of time until the regulators could do some preliminary workarounds. Then people would only be allowed access to a limited portion of their deposits, as is now the case in Cyprus. This situation might persist for weeks or possibly months as more money would gradually be freed up for withdrawal.
If Argentina is viewed as the model, this situation would likely lead to a sharp downturn, but then a quick bounce back. By the summer of 2003 Argentina had made up all of the ground lost in the downturn. It was growing rapidly at the time and continued to grow rapidly until the world recession brought growth to a standstill in 2009.
Source: International Monetary Fund.
While the immediate hit from the financial collapse would have almost certainly been worse than what Europe and the rest of the world saw in the immediate wake of the initial euro zone crisis, the euro zone and world economy would almost certainly be much better off today if the central bankers had simply allowed the system to collapse. (This assumes that they are as competent as the economic policymakers in Argentina.)
In this sense, the heroes in Irwin’s book can be seen as saving the bankers, who would have been wiped out in a financial collapse, but not really doing much to benefit the rest of society.
The Washington Post published excerpts from reporter Neil Irwin’s new book, The Alchemists: Three Central Bankers and a World on Fire, under the headline, “three days that saved the world financial system.” The headline is seriously misleading since it may cause readers to believe the world somehow would have lacked a financial system if the central bankers in Irwin’s story had not succeeded in their efforts.
This is not true. Had a financial collapse actually been the outcome, the central banks had the ability to take over failed banks and restart the system. (This is what the FDIC does all the time.) We would most likely see something similar to what Argentina experienced when it defaulted on its debt in December 2001 and broke the link of its currency to the dollar or what Cyprus is seeing today.
Presumably banks would be shut for a relatively short period of time until the regulators could do some preliminary workarounds. Then people would only be allowed access to a limited portion of their deposits, as is now the case in Cyprus. This situation might persist for weeks or possibly months as more money would gradually be freed up for withdrawal.
If Argentina is viewed as the model, this situation would likely lead to a sharp downturn, but then a quick bounce back. By the summer of 2003 Argentina had made up all of the ground lost in the downturn. It was growing rapidly at the time and continued to grow rapidly until the world recession brought growth to a standstill in 2009.
Source: International Monetary Fund.
While the immediate hit from the financial collapse would have almost certainly been worse than what Europe and the rest of the world saw in the immediate wake of the initial euro zone crisis, the euro zone and world economy would almost certainly be much better off today if the central bankers had simply allowed the system to collapse. (This assumes that they are as competent as the economic policymakers in Argentina.)
In this sense, the heroes in Irwin’s book can be seen as saving the bankers, who would have been wiped out in a financial collapse, but not really doing much to benefit the rest of society.
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The revised GDP data for the fourth quarter released yesterday showed the profit share of corporate income hitting 25.6 percent. This is the highest since it stood at 25.8 percent in 1951. However if we look at the after-tax share of 19.2 percent, we would have to go back to 20.8 percent share in 1930 to find a higher number, excepting of course the 19.3 percent number hit last year.
To put this in context, the after-tax profit share was just 14.5 percent in Reagan’s Morning in America days. The difference would have come to roughly $330 billion last year. To put this in the 10-year budgetary window that is the standard framework in Washington these days, the rise in after-tax corporate profits since the Reagan era can be seen as equivalent to a $5.0 trillion tax on the nation’s workers.
This surge in profits in a weak economy (profits tend to move with the cycle) is striking but readers of the Washington Post version of AP piece on the data wouldn’t know anything about it. This piece includes no mention of the jump in corporate profits in 2012.
There are a few other issues that the piece could have better presented to readers. It noted that:
“The fourth quarter was hurt by the sharpest fall in defense spending in 40 years.”
It would have been useful to point out that defense spending reportedly rose at an extraordinary 12.9 percent annual rate in the third quarter. Defense spending is often erratic from quarter to quarter; this is why it is important to put sharp changes in context. The same applies to the GDP growth numbers more generally. The 0.4 percent growth rate for the fourth quarter looks like a sharp slowdown from the 3.1 percent rate in the third quarter, but the growth rate of final demand (which excludes inventory fluctuations) was little changed, falling from 2.4 percent in the third quarter to 1.9 percent in the fourth quarter.
This piece also highlights the drop in unemployment claims in recent weeks to their lowest level since the downturn began (although there was a jump last week). While this decline is good news, there is an important caution. As the period of high unemployment drags on, a larger percentage of newly laid off workers will not qualify for unemployment benefits. The reason is that many of the people laid off are likely to have been unemployed for substantial stretches in last two years and therefore ineligible for benefits. It would require a careful analysis of data on individual work histories to determine the exact impact of recent stretches of unemployment on eligibility. But if the share of ineligible workers among the newly unemployed has increased by 5 percentage points since the start of the downturn, it would mean that the same number of layoffs would translate into roughly 20,000 fewer claims.
The revised GDP data for the fourth quarter released yesterday showed the profit share of corporate income hitting 25.6 percent. This is the highest since it stood at 25.8 percent in 1951. However if we look at the after-tax share of 19.2 percent, we would have to go back to 20.8 percent share in 1930 to find a higher number, excepting of course the 19.3 percent number hit last year.
To put this in context, the after-tax profit share was just 14.5 percent in Reagan’s Morning in America days. The difference would have come to roughly $330 billion last year. To put this in the 10-year budgetary window that is the standard framework in Washington these days, the rise in after-tax corporate profits since the Reagan era can be seen as equivalent to a $5.0 trillion tax on the nation’s workers.
This surge in profits in a weak economy (profits tend to move with the cycle) is striking but readers of the Washington Post version of AP piece on the data wouldn’t know anything about it. This piece includes no mention of the jump in corporate profits in 2012.
There are a few other issues that the piece could have better presented to readers. It noted that:
“The fourth quarter was hurt by the sharpest fall in defense spending in 40 years.”
It would have been useful to point out that defense spending reportedly rose at an extraordinary 12.9 percent annual rate in the third quarter. Defense spending is often erratic from quarter to quarter; this is why it is important to put sharp changes in context. The same applies to the GDP growth numbers more generally. The 0.4 percent growth rate for the fourth quarter looks like a sharp slowdown from the 3.1 percent rate in the third quarter, but the growth rate of final demand (which excludes inventory fluctuations) was little changed, falling from 2.4 percent in the third quarter to 1.9 percent in the fourth quarter.
This piece also highlights the drop in unemployment claims in recent weeks to their lowest level since the downturn began (although there was a jump last week). While this decline is good news, there is an important caution. As the period of high unemployment drags on, a larger percentage of newly laid off workers will not qualify for unemployment benefits. The reason is that many of the people laid off are likely to have been unemployed for substantial stretches in last two years and therefore ineligible for benefits. It would require a careful analysis of data on individual work histories to determine the exact impact of recent stretches of unemployment on eligibility. But if the share of ineligible workers among the newly unemployed has increased by 5 percentage points since the start of the downturn, it would mean that the same number of layoffs would translate into roughly 20,000 fewer claims.
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The Conference Board’s index of consumer confidence fell in March. What is noteworthy for those following the economy is that the current conditions index dropped by 3.5 points to 57.9. This component is the one that actually tracks current consumption reasonably closely, so it is giving us information about the economy.
By contrast the future expectations component is highly erratic and bears little relationship to actual consumption patterns. Reporters generally don’t make a point of distinguishing between these two components. This can lead them to misinform the public about the economy.
For example there were many stories last fall highlighting falls in the index based on the future expectations index. These drops were undoubtedly attributable to media accounts warning of the end of the world if we went off the “fiscal cliff.” As we now know, consumption spending held up just fine through the fall.
The recent drop in the current conditions index however should be taken as a serious warning that consumers may be tightening their belts. That would not be a surprising response to the ending of the payroll tax cut, plus some amount of layoffs and cutbacks associated with the sequester.
This is just one report among many, but it does suggest that the recovery optimists singing about having finally turned the corner may be wrong.
The Conference Board’s index of consumer confidence fell in March. What is noteworthy for those following the economy is that the current conditions index dropped by 3.5 points to 57.9. This component is the one that actually tracks current consumption reasonably closely, so it is giving us information about the economy.
By contrast the future expectations component is highly erratic and bears little relationship to actual consumption patterns. Reporters generally don’t make a point of distinguishing between these two components. This can lead them to misinform the public about the economy.
For example there were many stories last fall highlighting falls in the index based on the future expectations index. These drops were undoubtedly attributable to media accounts warning of the end of the world if we went off the “fiscal cliff.” As we now know, consumption spending held up just fine through the fall.
The recent drop in the current conditions index however should be taken as a serious warning that consumers may be tightening their belts. That would not be a surprising response to the ending of the payroll tax cut, plus some amount of layoffs and cutbacks associated with the sequester.
This is just one report among many, but it does suggest that the recovery optimists singing about having finally turned the corner may be wrong.
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The NYT commits the common sin of making such comparisons in an otherwise useful piece on the economic plight of millennials. It tells us:
“The average net worth of someone 29 to 37 has fallen 21 percent since 1983; the average net worth of someone 56 to 64 has more than doubled.”
Of course we should be looking at medians, not averages, since Bill Gates’ immense wealth doesn’t help the rest of his age cohort. When we look at medians, the rise in wealth for older workers is much smaller, trailing the growth of the economy over this period. However even this number (10 percent for workers between the ages of 55 and 64) hugely overstates the growth in wealth. In 1984 the typical older worker would have had a defined benefit pension, the value of which is not included in these data. A relatively small share of older workers today would have a defined benefit pension. Therefore, this comparison hugely overstates the gains in wealth for older workers over the last quarter century.
Median wealth for those approaching retirement, which includes the value of equity in their home, is roughly $170,000. This means that the median older household can use every penny they have to completely pay off their mortgage. Then they would have nothing left to support themselves in retirement except their Social Security. Everyone should understand this is the positive vision of wealth presented in this piece.
Young people never had much wealth (in 1983, median wealth for young people was around $10,000), so the drop in wealth is not a serious cause for concern. The loss of wealth shown in the Pew study is roughly equivalent to a reduction of $10 in future monthly income or a cut in pay of 7 cents an hour for a full-time worker or 3.5 cents an hour for a two worker household. Their labor market prospects, which are bleak, are the real issue for young people. It is unfortunate that major research centers like the Urban Institute and Pew have issued studies that imply otherwise.
The NYT commits the common sin of making such comparisons in an otherwise useful piece on the economic plight of millennials. It tells us:
“The average net worth of someone 29 to 37 has fallen 21 percent since 1983; the average net worth of someone 56 to 64 has more than doubled.”
Of course we should be looking at medians, not averages, since Bill Gates’ immense wealth doesn’t help the rest of his age cohort. When we look at medians, the rise in wealth for older workers is much smaller, trailing the growth of the economy over this period. However even this number (10 percent for workers between the ages of 55 and 64) hugely overstates the growth in wealth. In 1984 the typical older worker would have had a defined benefit pension, the value of which is not included in these data. A relatively small share of older workers today would have a defined benefit pension. Therefore, this comparison hugely overstates the gains in wealth for older workers over the last quarter century.
Median wealth for those approaching retirement, which includes the value of equity in their home, is roughly $170,000. This means that the median older household can use every penny they have to completely pay off their mortgage. Then they would have nothing left to support themselves in retirement except their Social Security. Everyone should understand this is the positive vision of wealth presented in this piece.
Young people never had much wealth (in 1983, median wealth for young people was around $10,000), so the drop in wealth is not a serious cause for concern. The loss of wealth shown in the Pew study is roughly equivalent to a reduction of $10 in future monthly income or a cut in pay of 7 cents an hour for a full-time worker or 3.5 cents an hour for a two worker household. Their labor market prospects, which are bleak, are the real issue for young people. It is unfortunate that major research centers like the Urban Institute and Pew have issued studies that imply otherwise.
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It is bizarre that the idea of bringing in more foreign doctors as a way to drive down wages is never discussed. Readers of a front page Washington Post article on using nurses for some of tasks currently done by doctors must have been puzzled by this omission.
While allowing nurses to do work for which they are qualified would seem to be a win-win for everyone but doctors, it seems especially strange that this piece never raised the possibility of bringing in more foreign trained doctors as a way to drive down wages and save patients and the public money. This is done all the time in the case of nurses. Many nurses are brought in from developing countries, most notably the Philippines, as a way to drive down the wages of nurses.
There is no justification for not having the same approach to foreign doctors. Obviously doctors as a group are more wealthy and powerful than nurses, but news outlets are not supposed to adjust the news to suit the desires of the rich and powerful.
It is bizarre that the idea of bringing in more foreign doctors as a way to drive down wages is never discussed. Readers of a front page Washington Post article on using nurses for some of tasks currently done by doctors must have been puzzled by this omission.
While allowing nurses to do work for which they are qualified would seem to be a win-win for everyone but doctors, it seems especially strange that this piece never raised the possibility of bringing in more foreign trained doctors as a way to drive down wages and save patients and the public money. This is done all the time in the case of nurses. Many nurses are brought in from developing countries, most notably the Philippines, as a way to drive down the wages of nurses.
There is no justification for not having the same approach to foreign doctors. Obviously doctors as a group are more wealthy and powerful than nurses, but news outlets are not supposed to adjust the news to suit the desires of the rich and powerful.
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