The Washington Post ran a piece titled, “the April Fool’s Economy,” that began by telling readers:
“The economic recovery has faked us out before.”
It continued:
“In 2012 and 2011, seemingly strong momentum in the first half of the year gave way to summer slumps. Will the third try be the charm? Or is this just another prank — one that’s getting old fast.”
Huh?
In 2011 the economy grew at a 2.5 percent annual rate in the second quarter and just a 0.1 percent rate in the first quarter for a first half average of 1.3 percent. This is way below the trend growth rate, which is between 2.2 percent and 2.5 percent. Job growth was a bit better, averaging 196,000 a month, but that’s only slightly better than the average of 180,000 jobs a month for all of 2011 and 2012. It’s not clear what people who saw strong momentum in the first half of 2011 could have been looking at.
The beginning of 2012 was somewhat stronger, with job growth averaging 240,000 a month from October to March. GDP growth also looked better over this period, growing 4.1 percent in the 4th quarter and 2.0 percent in the first quarter. But serious analysts noted at the time that the job growth data was inflated by better than usual winter weather, which would lead to slower growth in the spring.
Maybe if the Post relied on analysts with a better understanding of the economy it wouldn’t be so susceptible to April Fool’s jokes.
The Washington Post ran a piece titled, “the April Fool’s Economy,” that began by telling readers:
“The economic recovery has faked us out before.”
It continued:
“In 2012 and 2011, seemingly strong momentum in the first half of the year gave way to summer slumps. Will the third try be the charm? Or is this just another prank — one that’s getting old fast.”
Huh?
In 2011 the economy grew at a 2.5 percent annual rate in the second quarter and just a 0.1 percent rate in the first quarter for a first half average of 1.3 percent. This is way below the trend growth rate, which is between 2.2 percent and 2.5 percent. Job growth was a bit better, averaging 196,000 a month, but that’s only slightly better than the average of 180,000 jobs a month for all of 2011 and 2012. It’s not clear what people who saw strong momentum in the first half of 2011 could have been looking at.
The beginning of 2012 was somewhat stronger, with job growth averaging 240,000 a month from October to March. GDP growth also looked better over this period, growing 4.1 percent in the 4th quarter and 2.0 percent in the first quarter. But serious analysts noted at the time that the job growth data was inflated by better than usual winter weather, which would lead to slower growth in the spring.
Maybe if the Post relied on analysts with a better understanding of the economy it wouldn’t be so susceptible to April Fool’s jokes.
Read More Leer más Join the discussion Participa en la discusión
The austerity gang who are trying to wreck Europe’s economy must be furious at the NYT. They managed to get the unemployment rate up to 12.0 percent, a truly historic achievement. Europe had not seen unemployment reach this level since the Great Depression, more than 70 years ago.
However in its article reporting on the new data, NYT told readers:
“The European labor market has now declined for 22 straight months, making this the worst downturn since the early 1990s, Jennifer McKeown, an economist in London with Capital Economics, wrote in a note.”
Come on, unemployment in the euro zone countries peaked at 10.9 percent in 1994. That downturn can’t come close to the damage done by the current austerity crew. I trust that they will demand a correction from the NYT.
The austerity gang who are trying to wreck Europe’s economy must be furious at the NYT. They managed to get the unemployment rate up to 12.0 percent, a truly historic achievement. Europe had not seen unemployment reach this level since the Great Depression, more than 70 years ago.
However in its article reporting on the new data, NYT told readers:
“The European labor market has now declined for 22 straight months, making this the worst downturn since the early 1990s, Jennifer McKeown, an economist in London with Capital Economics, wrote in a note.”
Come on, unemployment in the euro zone countries peaked at 10.9 percent in 1994. That downturn can’t come close to the damage done by the current austerity crew. I trust that they will demand a correction from the NYT.
Read More Leer más Join the discussion Participa en la discusión
The Post told readers that drug companies would try to punish India for a Supreme Court ruling that denied Novartis, a Swiss drug company, a patent for its cancer drug, Glivec. The court determined that the drug involved only a minor modification of an earlier invention and therefore was not entitled to a patent monopoly. As a result, generic producers in India are able to produce and sell the drug for less than one-tenth its patent protected price.
In discussing the implications of the decision, the piece told readers:
“Many international drug companies have said that the Novartis trial was crucial to addressing the rapidly growing perception around the world that India’s patent protection system for drugs is weak. Such perceptions, many patent advocates say, will adversely affect foreign investment in India, especially by global drug companies that are eyeing the huge market in this nation of 1.2 billion people.”
There is no economic reason that this court decision would affect the drug industry’s investment at all. Drug companies will get the exact same patent protection for their drugs in India and every other country in the world regardless of where they conduct their research. If India was the most profitable place for a drug company to conduct its research before this patent decision then it is still the most profitable place for a drug company to conduct its research.
The only basis for shifting investment would be to punish India, presumably with the hope that if enough investment shifts India may change its patent laws. This means that drug companies and their shareholders (e.g. university and foundation endowments and public sector pension funds) are foregoing profits today in the hope that they can inflict enough punishment on India to change its patent laws. That is a striking claim and the Washington Post did its readers a service by calling it to public attention, even if the Post may not have understood the implications of what it printed.
The Post told readers that drug companies would try to punish India for a Supreme Court ruling that denied Novartis, a Swiss drug company, a patent for its cancer drug, Glivec. The court determined that the drug involved only a minor modification of an earlier invention and therefore was not entitled to a patent monopoly. As a result, generic producers in India are able to produce and sell the drug for less than one-tenth its patent protected price.
In discussing the implications of the decision, the piece told readers:
“Many international drug companies have said that the Novartis trial was crucial to addressing the rapidly growing perception around the world that India’s patent protection system for drugs is weak. Such perceptions, many patent advocates say, will adversely affect foreign investment in India, especially by global drug companies that are eyeing the huge market in this nation of 1.2 billion people.”
There is no economic reason that this court decision would affect the drug industry’s investment at all. Drug companies will get the exact same patent protection for their drugs in India and every other country in the world regardless of where they conduct their research. If India was the most profitable place for a drug company to conduct its research before this patent decision then it is still the most profitable place for a drug company to conduct its research.
The only basis for shifting investment would be to punish India, presumably with the hope that if enough investment shifts India may change its patent laws. This means that drug companies and their shareholders (e.g. university and foundation endowments and public sector pension funds) are foregoing profits today in the hope that they can inflict enough punishment on India to change its patent laws. That is a striking claim and the Washington Post did its readers a service by calling it to public attention, even if the Post may not have understood the implications of what it printed.
Read More Leer más Join the discussion Participa en la discusión
Anyone who thought David Stockman’s screed in the Sunday NYT against fiat money and the New Deal was an isolated incident has to contend with Roger Farmer’s call for bringing back the housing bubble in the Financial Times. It’s obviously nutty season at the major news outlets.
So boys and girls, get out those columns calling for a universal currency, the switch to seashell standard, and 28 cent a gallon gasoline. The major media outlets are waiting.
Anyone who thought David Stockman’s screed in the Sunday NYT against fiat money and the New Deal was an isolated incident has to contend with Roger Farmer’s call for bringing back the housing bubble in the Financial Times. It’s obviously nutty season at the major news outlets.
So boys and girls, get out those columns calling for a universal currency, the switch to seashell standard, and 28 cent a gallon gasoline. The major media outlets are waiting.
Read More Leer más Join the discussion Participa en la discusión
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.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
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.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
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.
Read More Leer más Join the discussion Participa en la discusión
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.
Read More Leer más Join the discussion Participa en la discusión
