Matt Yglesias is on the money when he points out that when progressives want workers to get more money, they must implicitly want someone else to get less. Now there is a real real big exception to this point, that being the current economic slump. In a context where the economy is producing at a rate that is around 6 percent (@ $1 trillion) below its potential, then we can literally talk about a situation in which we expand the pie and there is more for everyone.
This is why the concern about waste in the stimulus was so absurd. If the issue was whether we had spending that was partially wasteful or no spending, then the answer is spending that is partially wasteful. Otherwise the resources would just sit idle (meaning more workers are unemployed) and we get to celebrate that we didn’t put people to work on partially wasteful projects. (Of course less wasteful is always better than more wasteful.)
But if we envision one day being back in a world where the economy is operating near its potential, the good guys getting more means the bad guys getting less. The right eats, breathes, and sleeps with this logic. They understand that when they push down autoworkers’ or school teachers’ wages, there is more for them. They understand that cutting Medicare or Social Security means more for them.
If progressives want to secure more income for ordinary working types and the poor then it will have to come at the expense of someone else. I have my list (CEOs and their friends, doctors and lawyers, Wall Street financial types, bringing corporate profits back to earth would also be a good idea). Others may have a different list. But if there is no one who is going to lose out in progressive policy post-full employment, then there is no one who is going to win either.
Of course at the speed we are getting to full employment many of us won’t have to worry about this problem in our working lifetime.
Addendum:
After reading the comments, let me make the point a bit more clearly. The right has found ways to use the market to kick our asses. Progressives should find ways to use the market to kick their asses. These ways are all over the place: opening up trade in health care, making it easier for foreign doctors and lawyers to practice in the country, make the financial sector pay the same sort of taxes as every other sector, ending too big to fail in the banking industry, etc. These are mechanisms that require the government to get out of the way (in the case of financial sector taxes — not privileging one sector over others). If Occupy Wall Street was saying these things they were not very effective in getting their message out.
Matt Yglesias is on the money when he points out that when progressives want workers to get more money, they must implicitly want someone else to get less. Now there is a real real big exception to this point, that being the current economic slump. In a context where the economy is producing at a rate that is around 6 percent (@ $1 trillion) below its potential, then we can literally talk about a situation in which we expand the pie and there is more for everyone.
This is why the concern about waste in the stimulus was so absurd. If the issue was whether we had spending that was partially wasteful or no spending, then the answer is spending that is partially wasteful. Otherwise the resources would just sit idle (meaning more workers are unemployed) and we get to celebrate that we didn’t put people to work on partially wasteful projects. (Of course less wasteful is always better than more wasteful.)
But if we envision one day being back in a world where the economy is operating near its potential, the good guys getting more means the bad guys getting less. The right eats, breathes, and sleeps with this logic. They understand that when they push down autoworkers’ or school teachers’ wages, there is more for them. They understand that cutting Medicare or Social Security means more for them.
If progressives want to secure more income for ordinary working types and the poor then it will have to come at the expense of someone else. I have my list (CEOs and their friends, doctors and lawyers, Wall Street financial types, bringing corporate profits back to earth would also be a good idea). Others may have a different list. But if there is no one who is going to lose out in progressive policy post-full employment, then there is no one who is going to win either.
Of course at the speed we are getting to full employment many of us won’t have to worry about this problem in our working lifetime.
Addendum:
After reading the comments, let me make the point a bit more clearly. The right has found ways to use the market to kick our asses. Progressives should find ways to use the market to kick their asses. These ways are all over the place: opening up trade in health care, making it easier for foreign doctors and lawyers to practice in the country, make the financial sector pay the same sort of taxes as every other sector, ending too big to fail in the banking industry, etc. These are mechanisms that require the government to get out of the way (in the case of financial sector taxes — not privileging one sector over others). If Occupy Wall Street was saying these things they were not very effective in getting their message out.
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The NYT has a good piece on new research that finds employers are being far more selective in their hiring. The research finds that employers are willing to interview more people and take longer in the process now than in the past.
This research is very useful because it helps to explain a seeming anomaly in the data. There had been a clear rightward shift in the Beveridge Curve in recent years, showing that there were more job vacancies at the same level of unemployment. This would often be taken as a problem of structural unemployment. However, we don’t see any of the other signs of structural unemployment, most importantly, major sectors of the economy with rapidly rising wages.
This research provides an alternative explanation. Because they are many qualified job applicants, firms can have the luxury of being selective. It is also likely that waiting will pay off, which is not likely the case in a period with low unemployment, where qualified applicants are few and far between.
This one also gives me some satisfaction since I had previously speculated that this could be the case.
The NYT has a good piece on new research that finds employers are being far more selective in their hiring. The research finds that employers are willing to interview more people and take longer in the process now than in the past.
This research is very useful because it helps to explain a seeming anomaly in the data. There had been a clear rightward shift in the Beveridge Curve in recent years, showing that there were more job vacancies at the same level of unemployment. This would often be taken as a problem of structural unemployment. However, we don’t see any of the other signs of structural unemployment, most importantly, major sectors of the economy with rapidly rising wages.
This research provides an alternative explanation. Because they are many qualified job applicants, firms can have the luxury of being selective. It is also likely that waiting will pay off, which is not likely the case in a period with low unemployment, where qualified applicants are few and far between.
This one also gives me some satisfaction since I had previously speculated that this could be the case.
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This one should be mandatory reading for reporters as well as anyone else who comments on the topic.
This one should be mandatory reading for reporters as well as anyone else who comments on the topic.
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Glenn Kessler used his Factcheck column to take Senator Barbara Boxer to task for giving the Democrats credit for the budget surpluses at the end of the Clinton administration. Kessler rightly points out that the spending cuts and tax increases put in place by the Clinton administration would not have moved the budget to a surplus had it not been for the boom that was driven by the stock bubble. I have made the same point in other contexts.
There is one important part of the picture that Kessler leaves out. In the 1995 projections that he cites, it was assumed that the unemployment rate could not fall below 6.0 percent. The idea was that in order to prevent inflation, the Fed would slam on the breaks by raising interest rates. This would slow growth and prevent the unemployment rate from getting or staying below this target unemployment rate.
The budget projections might have been right if someone other than Alan Greenspan had been at the Fed at the time. Greenspan, who is not an orthodox economist, decided to let the unemployment rate fall below the 6.0 percent target because he saw no evidence of inflation. He had to argue with the Clinton appointees to the Fed who wanted to raise interest rates to head off inflation.
It was really due to Greenspan’s policies that the unemployment rate was allowed to fall to 5.0 percent and eventually to 4.0 percent as a year-round average in 2000. This allowed millions of people to work who would not have otherwise had a job. The tight labor market also allowed for large gains in real wages for workers at the middle and bottom of the wage distribution for the first time in a quarter century. Oh, and for the DC policy wonks, it also gave us a budget surplus.
Anyhow, if we want to give credit to someone for the budget surpluses at the end of the Clinton administration it really should be Alan Greenspan (who I trash every other day of the week). It was only because he was willing to ignore the dogma in the economics profession that we were allowed to see what the world looks like when we have something resembling full employment.
Glenn Kessler used his Factcheck column to take Senator Barbara Boxer to task for giving the Democrats credit for the budget surpluses at the end of the Clinton administration. Kessler rightly points out that the spending cuts and tax increases put in place by the Clinton administration would not have moved the budget to a surplus had it not been for the boom that was driven by the stock bubble. I have made the same point in other contexts.
There is one important part of the picture that Kessler leaves out. In the 1995 projections that he cites, it was assumed that the unemployment rate could not fall below 6.0 percent. The idea was that in order to prevent inflation, the Fed would slam on the breaks by raising interest rates. This would slow growth and prevent the unemployment rate from getting or staying below this target unemployment rate.
The budget projections might have been right if someone other than Alan Greenspan had been at the Fed at the time. Greenspan, who is not an orthodox economist, decided to let the unemployment rate fall below the 6.0 percent target because he saw no evidence of inflation. He had to argue with the Clinton appointees to the Fed who wanted to raise interest rates to head off inflation.
It was really due to Greenspan’s policies that the unemployment rate was allowed to fall to 5.0 percent and eventually to 4.0 percent as a year-round average in 2000. This allowed millions of people to work who would not have otherwise had a job. The tight labor market also allowed for large gains in real wages for workers at the middle and bottom of the wage distribution for the first time in a quarter century. Oh, and for the DC policy wonks, it also gave us a budget surplus.
Anyhow, if we want to give credit to someone for the budget surpluses at the end of the Clinton administration it really should be Alan Greenspan (who I trash every other day of the week). It was only because he was willing to ignore the dogma in the economics profession that we were allowed to see what the world looks like when we have something resembling full employment.
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The Washington Post had a front page piece today warning that the spread of robots in the workplace may displace large numbers of workers. Incredibly, the piece never once mentions the implication of the displacement story for the demographic nightmare stories that endlessly fill its news and opinion pages.
Remember, the demographic nightmare story is that because of lower birth rates and longer life expectancies we are going to see a fall in the ratio of workers to retirees, from 3 to 1 today, to just 2 to 1 in 20 years. So, this is a story where we are suffering from a severe labor shortage. All of us aging baby boomers will be laying in our own waste because there is no one to change our bedpans.
Okay, now we have the story of sophisticated robots that will be able to replace human laborers in a wide variety of activities. The Post tells us that we should be worried about unemployment. Not really, because anyone who has read an intro econ textbook in the last 70 years knows that creating demand in an economy is very simple. Governments can run deficits. And if we need lots of demand, then we can run large deficits.
These deficits will give us the money we need to buy the output generated by sophisticated robots. And, when it is necessary, we will have the sophisticated robots changing our bedpans.
Of course there is a political problem. Folks like Peter Peterson and Washington Post don’t want us to run deficits. They would rather see workers be unemployed. But hey, this is not the fault of the robots.
Advanced robots are simply another form of the productivity growth that we should all know and love. It increases the potential wealth of society. It is certainly possible that the rich and powerful will use their control over the political process to deny the bulk of the population the benefits of productivity growth, as they have largely done for the last 30 years, but the blame should be focused on the rich and powerful, not the robots. You might as well lash out at the wheel.
The Washington Post had a front page piece today warning that the spread of robots in the workplace may displace large numbers of workers. Incredibly, the piece never once mentions the implication of the displacement story for the demographic nightmare stories that endlessly fill its news and opinion pages.
Remember, the demographic nightmare story is that because of lower birth rates and longer life expectancies we are going to see a fall in the ratio of workers to retirees, from 3 to 1 today, to just 2 to 1 in 20 years. So, this is a story where we are suffering from a severe labor shortage. All of us aging baby boomers will be laying in our own waste because there is no one to change our bedpans.
Okay, now we have the story of sophisticated robots that will be able to replace human laborers in a wide variety of activities. The Post tells us that we should be worried about unemployment. Not really, because anyone who has read an intro econ textbook in the last 70 years knows that creating demand in an economy is very simple. Governments can run deficits. And if we need lots of demand, then we can run large deficits.
These deficits will give us the money we need to buy the output generated by sophisticated robots. And, when it is necessary, we will have the sophisticated robots changing our bedpans.
Of course there is a political problem. Folks like Peter Peterson and Washington Post don’t want us to run deficits. They would rather see workers be unemployed. But hey, this is not the fault of the robots.
Advanced robots are simply another form of the productivity growth that we should all know and love. It increases the potential wealth of society. It is certainly possible that the rich and powerful will use their control over the political process to deny the bulk of the population the benefits of productivity growth, as they have largely done for the last 30 years, but the blame should be focused on the rich and powerful, not the robots. You might as well lash out at the wheel.
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As its readers know, the Washington Post really really wants to see big cuts in Medicare and Social Security and is happy to use its news pages to advance this agenda. In a budget piece today, it told readers:
“In a flurry of meetings and phone calls over the past few days, Obama has courted more than half a dozen Republicans in the Senate, telling them that he is ready to overhaul expensive health and retirement programs if they agree to raise taxes to tame the national debt” [emphasis added].
If the Post was not trying to push its Big Deal agenda, it would have told readers that Obama is willing to cut health care retirement programs. The issue here is reducing government payments, not changing the color of the forms used. It also would not use the adjective “expensive.” While the country does pay a lot of money for Medicare and Medicaid, because it pays doctors and other providers much more than they get elsewhere, Social Security is actually relatively cheap compared to other countries’ public pension programs.
Also, an objective newspaper would not have inserted the word “tame” since the data do not support the case that the debt is somehow out of control. The ratio of debt to GDP has been rising only because the collapse of the housing bubble led to a severe downturn. Had it not been for this downturn, the ratio would have fallen through most of the decade. The ratio of interest to GDP is near a post-war low.
The piece also asserts that:
“there was more skepticism of Obama’s motives”
among many Republicans. Of course the Post does not know whether Republicans really were skeptical of President Obama’s motives, they just know that Republicans claimed to be skeptical. It is not good reporting to accept assertions from politicians at face value, since they are not always truthful.
As its readers know, the Washington Post really really wants to see big cuts in Medicare and Social Security and is happy to use its news pages to advance this agenda. In a budget piece today, it told readers:
“In a flurry of meetings and phone calls over the past few days, Obama has courted more than half a dozen Republicans in the Senate, telling them that he is ready to overhaul expensive health and retirement programs if they agree to raise taxes to tame the national debt” [emphasis added].
If the Post was not trying to push its Big Deal agenda, it would have told readers that Obama is willing to cut health care retirement programs. The issue here is reducing government payments, not changing the color of the forms used. It also would not use the adjective “expensive.” While the country does pay a lot of money for Medicare and Medicaid, because it pays doctors and other providers much more than they get elsewhere, Social Security is actually relatively cheap compared to other countries’ public pension programs.
Also, an objective newspaper would not have inserted the word “tame” since the data do not support the case that the debt is somehow out of control. The ratio of debt to GDP has been rising only because the collapse of the housing bubble led to a severe downturn. Had it not been for this downturn, the ratio would have fallen through most of the decade. The ratio of interest to GDP is near a post-war low.
The piece also asserts that:
“there was more skepticism of Obama’s motives”
among many Republicans. Of course the Post does not know whether Republicans really were skeptical of President Obama’s motives, they just know that Republicans claimed to be skeptical. It is not good reporting to accept assertions from politicians at face value, since they are not always truthful.
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I see that Brad has a post saying that the economy was adjusting nicely to the bursting of the housing bubble until the financial crisis set in. He notes that housing construction fell by 2.5 percentage points of GDP between 2005 and 2008. This was replaced by an increase in gross exports of 2.0 pp of GDP and increase in equipment investment of 0.5 pp. Everything was moving along nicely until the financial crisis in 2008.
I see things a bit differently. First, gross exports don’t create jobs, net exports do. When we move an auto assembly plant from Ohio to Mexico, we are not creating additional jobs with the car parts exported to Mexico. That’s intro textbook stuff. If we look at the net export picture, the gain is only about 1 pp of GDP. Furthermore, it is hard to see the improvement in the trade picture having gone very much further without a further decline in the dollar. (That was a possibility, but far from a certainty — it depends on policy decisions elsewhere.)
The rest of the gap was made up by a surge in non-residential construction (can you say bubble?), which rose by more than 33 percent as a share of GDP, or more than 1 pp of GDP. This boom led to considerable overbuilding in retail, office space and most other categories of non-residential construction. Assuming the burst of spending in non-residential construction was another bubble, then the portion of the demand gap filled through this channel was destined to be temporary. It was inevitable that this bubble would also burst and we would need something else to make up the hole in demand.
The other factor in the mix is the drop off in consumption. Savings rates had been driven to nearly zero by the wealth created by the housing bubble. It seems to me inevitable that consumption would fall in response to the disappearance of this wealth. The financial crisis gave us a Wily E. Coyote moment where everyone stopped spending at the same time, but I would argue that this just brought the decline in spending forward in time.
The savings rate remains much higher today than at the peak of the bubble, although still low by historic standards. (It’s currently around 4.0 percent, the pre-bubble average was over 8.0 percent.) We have two alternative hypotheses here. I gather Brad would say that people are spending at a lower rate because they are still freaked out by the financial crisis. I would argue that they are spending at a lower rate for the same reason that homeless people don’t spend, they don’t have the money.
Homeowners are down $8 trillion in housing equity as a result of the crash. I would expect that loss of wealth to have a substantial impact on their spending. I gather Brad does not.
[Correction: The earlier version said “net exports” in the first paragraph.]
I see that Brad has a post saying that the economy was adjusting nicely to the bursting of the housing bubble until the financial crisis set in. He notes that housing construction fell by 2.5 percentage points of GDP between 2005 and 2008. This was replaced by an increase in gross exports of 2.0 pp of GDP and increase in equipment investment of 0.5 pp. Everything was moving along nicely until the financial crisis in 2008.
I see things a bit differently. First, gross exports don’t create jobs, net exports do. When we move an auto assembly plant from Ohio to Mexico, we are not creating additional jobs with the car parts exported to Mexico. That’s intro textbook stuff. If we look at the net export picture, the gain is only about 1 pp of GDP. Furthermore, it is hard to see the improvement in the trade picture having gone very much further without a further decline in the dollar. (That was a possibility, but far from a certainty — it depends on policy decisions elsewhere.)
The rest of the gap was made up by a surge in non-residential construction (can you say bubble?), which rose by more than 33 percent as a share of GDP, or more than 1 pp of GDP. This boom led to considerable overbuilding in retail, office space and most other categories of non-residential construction. Assuming the burst of spending in non-residential construction was another bubble, then the portion of the demand gap filled through this channel was destined to be temporary. It was inevitable that this bubble would also burst and we would need something else to make up the hole in demand.
The other factor in the mix is the drop off in consumption. Savings rates had been driven to nearly zero by the wealth created by the housing bubble. It seems to me inevitable that consumption would fall in response to the disappearance of this wealth. The financial crisis gave us a Wily E. Coyote moment where everyone stopped spending at the same time, but I would argue that this just brought the decline in spending forward in time.
The savings rate remains much higher today than at the peak of the bubble, although still low by historic standards. (It’s currently around 4.0 percent, the pre-bubble average was over 8.0 percent.) We have two alternative hypotheses here. I gather Brad would say that people are spending at a lower rate because they are still freaked out by the financial crisis. I would argue that they are spending at a lower rate for the same reason that homeless people don’t spend, they don’t have the money.
Homeowners are down $8 trillion in housing equity as a result of the crash. I would expect that loss of wealth to have a substantial impact on their spending. I gather Brad does not.
[Correction: The earlier version said “net exports” in the first paragraph.]
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It’s extremely unfair that shoe salespeople have to pay taxes on their income at the same rate as other workers. After all, they must work with shoe buyers, achieve an alignment of interest, and then get them to buy the shoes. Clearly this means that they should be taxed at the lower capital gains rate rather than the ordinary earnings rate that factory workers and school teachers pay.
Yes, this is nuts, but because very rich people run pension and hedge funds, the NYT feels the need to treat this stuff seriously. Therefore it gave Steve Judge, the chief executive of the Private Equity Growth Capital Council the opportunity to say that shoes salespeople shouldn’t have to be taxed at the same rate as everyone else. (Sorry, I meant rich equity and hedge fund managers.)
This one does not come close to passing the laugh test. The point here is very simple. When you get paid for work, whether you are school teacher, a shoe salesperson, or a hedge fund manager, this is earned income and should be taxed as such.
If hedge and private equity fund managers want to invest in their funds they are free to do so and can have their subsequent income taxed at the lower capital gains rate. This is really simple — even a hedge fund or private equity fund manager should be able to understand this. It is not a complicated issue no matter how much people may get paid to make it complicated.
Note: Typo corrected, thanks Tom.
It’s extremely unfair that shoe salespeople have to pay taxes on their income at the same rate as other workers. After all, they must work with shoe buyers, achieve an alignment of interest, and then get them to buy the shoes. Clearly this means that they should be taxed at the lower capital gains rate rather than the ordinary earnings rate that factory workers and school teachers pay.
Yes, this is nuts, but because very rich people run pension and hedge funds, the NYT feels the need to treat this stuff seriously. Therefore it gave Steve Judge, the chief executive of the Private Equity Growth Capital Council the opportunity to say that shoes salespeople shouldn’t have to be taxed at the same rate as everyone else. (Sorry, I meant rich equity and hedge fund managers.)
This one does not come close to passing the laugh test. The point here is very simple. When you get paid for work, whether you are school teacher, a shoe salesperson, or a hedge fund manager, this is earned income and should be taxed as such.
If hedge and private equity fund managers want to invest in their funds they are free to do so and can have their subsequent income taxed at the lower capital gains rate. This is really simple — even a hedge fund or private equity fund manager should be able to understand this. It is not a complicated issue no matter how much people may get paid to make it complicated.
Note: Typo corrected, thanks Tom.
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