The NYT had a very good piece on how government cutbacks in spending and employment have slowed the recovery. At one point it presents the view of Tyler Cowen, an economics professor at George Mason University, that:
“military contractors and personnel might be able to find new jobs with relative ease, because unemployment rates are fairly low for well-educated workers.”
While workers with college degrees do have lower unemployment rates than less educated workers, the current unemployment rate is close to twice its pre-recession level.
Unemployment Rate for College Graduates
![[Unemployment Rate for People With at Least a College Degree. Source: Bureau of Labor Statistics.]](/images/stories/blogs/college_grads.jpg)
Source: Bureau of Labor Statistics.
Note: Typo corrected.
The NYT had a very good piece on how government cutbacks in spending and employment have slowed the recovery. At one point it presents the view of Tyler Cowen, an economics professor at George Mason University, that:
“military contractors and personnel might be able to find new jobs with relative ease, because unemployment rates are fairly low for well-educated workers.”
While workers with college degrees do have lower unemployment rates than less educated workers, the current unemployment rate is close to twice its pre-recession level.
Unemployment Rate for College Graduates
Source: Bureau of Labor Statistics.
Note: Typo corrected.
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At least it is for those who want to see its economy grow. In a context where the government is cutting back spending in an already depressed economy, the boost in net exports that would be expected to be the result of a lower valued currency is pretty much the only plausible source for an increase in demand. It would have been useful to mention this fact in an article that implied the fall in the pound is bad news for the UK.
At least it is for those who want to see its economy grow. In a context where the government is cutting back spending in an already depressed economy, the boost in net exports that would be expected to be the result of a lower valued currency is pretty much the only plausible source for an increase in demand. It would have been useful to mention this fact in an article that implied the fall in the pound is bad news for the UK.
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That might seem to be the definition given the way they are often featured in news accounts. A NYT piece on the results of the election in Italy, in which a comedian received almost a quarter of the votes, told readers:
“Few experts anticipated the depth of anger displayed by Italian voters over the austerity that Mr. Monti, the technocrat beloved by other European leaders but resented at home for pushing tax increases and spending cuts, represented. The electorate chose two men convicted of crimes — Mr. Berlusconi and Mr. Grillo — over the one Italian leader in whom the rest of Europe had put great faith.”
It is interesting that the experts were surprised. There have been large protests against the austerity measures across southern Europe. And, there was a clear shift away from the centrist parties in earlier elections in Greece. It is not clear why experts would be surprised to see a similar development in Italy.
Of course experts in economics were almost all surprised by the largest economic downturn since the Great Depression. It seems that the word may not mean what people think it means.
At one point, the piece notes that interest rates could again rise on Italian debt, imposing serious strains on its budget, commenting:
“Market pressures could nevertheless return to Italy and other euro zone countries.”
It is somewhat misleading to describe the prospect of higher interest rates as simply “market pressures.” The European Central Bank (ECB) has the ability to keep down the interest rate on the debt of Italy and other euro zone countries or to make it rise. If these countries come to see higher interest rates it will be the result of a policy decision by the ECB, not simply the random workings of the market.
That might seem to be the definition given the way they are often featured in news accounts. A NYT piece on the results of the election in Italy, in which a comedian received almost a quarter of the votes, told readers:
“Few experts anticipated the depth of anger displayed by Italian voters over the austerity that Mr. Monti, the technocrat beloved by other European leaders but resented at home for pushing tax increases and spending cuts, represented. The electorate chose two men convicted of crimes — Mr. Berlusconi and Mr. Grillo — over the one Italian leader in whom the rest of Europe had put great faith.”
It is interesting that the experts were surprised. There have been large protests against the austerity measures across southern Europe. And, there was a clear shift away from the centrist parties in earlier elections in Greece. It is not clear why experts would be surprised to see a similar development in Italy.
Of course experts in economics were almost all surprised by the largest economic downturn since the Great Depression. It seems that the word may not mean what people think it means.
At one point, the piece notes that interest rates could again rise on Italian debt, imposing serious strains on its budget, commenting:
“Market pressures could nevertheless return to Italy and other euro zone countries.”
It is somewhat misleading to describe the prospect of higher interest rates as simply “market pressures.” The European Central Bank (ECB) has the ability to keep down the interest rate on the debt of Italy and other euro zone countries or to make it rise. If these countries come to see higher interest rates it will be the result of a policy decision by the ECB, not simply the random workings of the market.
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The Post had a useful article on the growing wealth gap between whites and African Americans. It notes various factors such as higher unemployment rates and smaller inheritances that prevent African Americans from accumulating wealth. However the piece concludes by saying:
“Many experts say housing is still the best way for Americans of all races to build wealth. But it is critical for families to have low-cost financing so they can have predictable housing costs going forward and build wealth over time.
‘If done right and responsibly, homeownership is a very important piece of the wealth puzzle for the long term,’ said Reid Cramer, director of the Asset Building Program at the New America Foundation.”
It would have been worth pointing out that almost all of these experts also pushed homeownership as a wealth building strategy at the peak of the bubble. Those who followed the advice of these experts were virtually certain to see large losses in home values that would wipe out much or all of their wealth.
Even when housing is not in a bubble, for many individuals who are not in a stable job or family situation, homeownership is likely to be a very bad way to build wealth. There are large transactions costs associated with homeownership, typically around 10 percent of the purchase price. (That’s combining buy and sell side costs.)
If a person cannot expect to stay in a home for at least five years, they are unlikely to cover these costs. In such situations they would be better off renting and trying to save the extra money they would have paid on a mortgage and other ownership costs.
The Post had a useful article on the growing wealth gap between whites and African Americans. It notes various factors such as higher unemployment rates and smaller inheritances that prevent African Americans from accumulating wealth. However the piece concludes by saying:
“Many experts say housing is still the best way for Americans of all races to build wealth. But it is critical for families to have low-cost financing so they can have predictable housing costs going forward and build wealth over time.
‘If done right and responsibly, homeownership is a very important piece of the wealth puzzle for the long term,’ said Reid Cramer, director of the Asset Building Program at the New America Foundation.”
It would have been worth pointing out that almost all of these experts also pushed homeownership as a wealth building strategy at the peak of the bubble. Those who followed the advice of these experts were virtually certain to see large losses in home values that would wipe out much or all of their wealth.
Even when housing is not in a bubble, for many individuals who are not in a stable job or family situation, homeownership is likely to be a very bad way to build wealth. There are large transactions costs associated with homeownership, typically around 10 percent of the purchase price. (That’s combining buy and sell side costs.)
If a person cannot expect to stay in a home for at least five years, they are unlikely to cover these costs. In such situations they would be better off renting and trying to save the extra money they would have paid on a mortgage and other ownership costs.
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Paul Krugman is engaged in battle with the 90 percent zombie: the claim that economies go to hell when their ratio of debt to GDP exceeds 90 percent. He makes the obvious point that it is really impossible to untangle cause and effect with such a small sample. The countries that had debt to GDP ratios above 90 percent all had other major problems that likely would have impeded growth even if they had no debt.
I have written numerous times as to why this claim is beyond silly. Among other things, government can sell off assets that would substantially reduce their debt. In the old days governments used to sell off the right to collect certain taxes. We do something similar today with patent and copyright monopolies. Anyhow, if we used these routes to get our debt to GDP ratio below 90 percent, would everyone be happy?
However, to my mind, the bullet to zombie head in this story is the fact that we can easily change the debt to GDP ratio with some simple and costless debt management. If interest rates rise as projected, we would have the opportunity to buy back trillions of dollars of the debt issued in the current low interest rate environment at sharp discounts. Suppose we bought back $4 trillion in long-term debt at a price of $3 trillion because higher interest rates lowered the price of the outstanding bonds.
This would immediately chop 6 percentage points off our debt to GDP ratio. If that pushed us from 92 percent of GDP to 86 percent of GDP, is everything now hunky dory? According to the 90 percent zombie story it would be. For folks more grounded in reality this is a waste of time.
Paul Krugman is engaged in battle with the 90 percent zombie: the claim that economies go to hell when their ratio of debt to GDP exceeds 90 percent. He makes the obvious point that it is really impossible to untangle cause and effect with such a small sample. The countries that had debt to GDP ratios above 90 percent all had other major problems that likely would have impeded growth even if they had no debt.
I have written numerous times as to why this claim is beyond silly. Among other things, government can sell off assets that would substantially reduce their debt. In the old days governments used to sell off the right to collect certain taxes. We do something similar today with patent and copyright monopolies. Anyhow, if we used these routes to get our debt to GDP ratio below 90 percent, would everyone be happy?
However, to my mind, the bullet to zombie head in this story is the fact that we can easily change the debt to GDP ratio with some simple and costless debt management. If interest rates rise as projected, we would have the opportunity to buy back trillions of dollars of the debt issued in the current low interest rate environment at sharp discounts. Suppose we bought back $4 trillion in long-term debt at a price of $3 trillion because higher interest rates lowered the price of the outstanding bonds.
This would immediately chop 6 percentage points off our debt to GDP ratio. If that pushed us from 92 percent of GDP to 86 percent of GDP, is everything now hunky dory? According to the 90 percent zombie story it would be. For folks more grounded in reality this is a waste of time.
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The NYT reported on questions from Senate Republicans on the investments of Jack Lew, President Obama’s nominee to be Treasury Secretary. The questions focused on whether Lew had taken advantage of tax havens in the Cayman Islands. It then told readers:
“Privately, officials involved in the confirmation process called the spate of attacks on Mr. Lew politically motivated, arguing that the Cayman Islands criticisms are a direct reprisal for attacks leveled at Mitt Romney during the presidential campaign for his offshore bank accounts.”
It’s not obvious why “officials involved in the confirmation process” could not make their views known on the record or why the NYT should print their views if they insist on being off the record. The article also cites Lew’s assertion that he did not enjoy any tax advantage because of the investment’s location in the Cayman Islands and his claim that he lost money on the investment.
While the claim that he lost money is obviously intended to imply that there was nothing improper about the investment, the piece should have pointed out to readers that this is a non-sequitur. Suppose that Lew was offered the opportunity to buy $1 million in lottery tickets at half price as a way of making a payoff to him. The fact that Lew may still have lost money on his tickets would not change the fact that he had accepted a payoff. It would have been helpful if the NYT had reminded readers of this logic.
The NYT reported on questions from Senate Republicans on the investments of Jack Lew, President Obama’s nominee to be Treasury Secretary. The questions focused on whether Lew had taken advantage of tax havens in the Cayman Islands. It then told readers:
“Privately, officials involved in the confirmation process called the spate of attacks on Mr. Lew politically motivated, arguing that the Cayman Islands criticisms are a direct reprisal for attacks leveled at Mitt Romney during the presidential campaign for his offshore bank accounts.”
It’s not obvious why “officials involved in the confirmation process” could not make their views known on the record or why the NYT should print their views if they insist on being off the record. The article also cites Lew’s assertion that he did not enjoy any tax advantage because of the investment’s location in the Cayman Islands and his claim that he lost money on the investment.
While the claim that he lost money is obviously intended to imply that there was nothing improper about the investment, the piece should have pointed out to readers that this is a non-sequitur. Suppose that Lew was offered the opportunity to buy $1 million in lottery tickets at half price as a way of making a payoff to him. The fact that Lew may still have lost money on his tickets would not change the fact that he had accepted a payoff. It would have been helpful if the NYT had reminded readers of this logic.
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In this century Mexico has had the slowest per capita GDP growth of any country in Latin America. It has made almost no progress in reducing poverty and it is plagued by drug gangs and corruption. But Thomas Friedman sees a Mexico that doesn’t show up in the data:
“In India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.”
How does he come to this conclusion? Well one of the big factors in Friedman’s story is that wages for workers in Mexico are falling behind wages elsewhere:
“with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia.”
While Mexico might not do well by standard economic measures, Friedman points out that it does very well when it comes to signing trade agreements;
“Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil.”
In this same vein, Friedman excitedly quotes the Financial Times:
“Today, Mexico exports more manufactured products than the rest of Latin America put together.”
Let’s assume this is true. Much of what Mexico exports are products like cars where it imports most of the parts. These are then assembled in Mexico and exported back to the United States. This assembly doesn’t add much to Mexico’s economy, but if for some reason you think that exports by themselves are a measure of economic success, you can score big through this route.
After telling readers that people in Mexico use Twitter, Friedman then comments that U.S. companies are investing more in Mexico, “which is one reason Mexico grew last year at 3.9 percent.” Friedman apparently doesn’t realize that 3.9 percent was not an especially rapid growth rate for Latin America last year.
Just to ensure a regional balance, Friedman managed to overstate the cost of the war in Afghanistan by a factor of three by telling readers that:
“We do $1.5 billion a day in trade with Mexico, and we spend $1 billion a day in Afghanistan. Not smart.”
Yes, the war in Afghanistan may not be smart, but CBO puts the price tag at less than $100 billion in 2013.
Anyhow, it is easy to see why the NYT runs Thomas Friedman’s columns. He gives you all sorts of information that you would never find anywhere else.
In this century Mexico has had the slowest per capita GDP growth of any country in Latin America. It has made almost no progress in reducing poverty and it is plagued by drug gangs and corruption. But Thomas Friedman sees a Mexico that doesn’t show up in the data:
“In India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico.”
How does he come to this conclusion? Well one of the big factors in Friedman’s story is that wages for workers in Mexico are falling behind wages elsewhere:
“with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia.”
While Mexico might not do well by standard economic measures, Friedman points out that it does very well when it comes to signing trade agreements;
“Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil.”
In this same vein, Friedman excitedly quotes the Financial Times:
“Today, Mexico exports more manufactured products than the rest of Latin America put together.”
Let’s assume this is true. Much of what Mexico exports are products like cars where it imports most of the parts. These are then assembled in Mexico and exported back to the United States. This assembly doesn’t add much to Mexico’s economy, but if for some reason you think that exports by themselves are a measure of economic success, you can score big through this route.
After telling readers that people in Mexico use Twitter, Friedman then comments that U.S. companies are investing more in Mexico, “which is one reason Mexico grew last year at 3.9 percent.” Friedman apparently doesn’t realize that 3.9 percent was not an especially rapid growth rate for Latin America last year.
Just to ensure a regional balance, Friedman managed to overstate the cost of the war in Afghanistan by a factor of three by telling readers that:
“We do $1.5 billion a day in trade with Mexico, and we spend $1 billion a day in Afghanistan. Not smart.”
Yes, the war in Afghanistan may not be smart, but CBO puts the price tag at less than $100 billion in 2013.
Anyhow, it is easy to see why the NYT runs Thomas Friedman’s columns. He gives you all sorts of information that you would never find anywhere else.
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The Washington Post gave us one of its classics, an opinion piece that struggled with the dilemma of the proper pricing of cancer drugs. While the piece tells readers how the prices of these drugs are bankrupting families, it never once mentions why the prices are so high. The word “patent” does not appear in the column. Of course without patent monopolies most cancer drugs could be easily copied and sold as low-priced generics.
Drugs are expensive to develop, but once they have been developed the cost of producing another dose is almost always very low. In the economists’ dream world, cancer drugs would sell at their cheap marginal cost.
Of course we would need an alternative mechanism for financing the research. Such alternatives do exist. We could have direct public funding similar to the $30 billion that we spend each year to finance research at National Institutes of Health. (That funding could even go through private drug companies, as long as all the research was fully public.)
We could also go the route of a patent buyout system, where patents would be purchased by the government and then put in the public domain. This method has been suggested by Nobel Laureate Joe Stiglitz and actually proposed in a bill by Vermont Senator Bernie Sanders. Unfortunately it is difficult to get information on such proposals in Washington.
The Washington Post gave us one of its classics, an opinion piece that struggled with the dilemma of the proper pricing of cancer drugs. While the piece tells readers how the prices of these drugs are bankrupting families, it never once mentions why the prices are so high. The word “patent” does not appear in the column. Of course without patent monopolies most cancer drugs could be easily copied and sold as low-priced generics.
Drugs are expensive to develop, but once they have been developed the cost of producing another dose is almost always very low. In the economists’ dream world, cancer drugs would sell at their cheap marginal cost.
Of course we would need an alternative mechanism for financing the research. Such alternatives do exist. We could have direct public funding similar to the $30 billion that we spend each year to finance research at National Institutes of Health. (That funding could even go through private drug companies, as long as all the research was fully public.)
We could also go the route of a patent buyout system, where patents would be purchased by the government and then put in the public domain. This method has been suggested by Nobel Laureate Joe Stiglitz and actually proposed in a bill by Vermont Senator Bernie Sanders. Unfortunately it is difficult to get information on such proposals in Washington.
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