Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

There has been much press around President Biden’s demands that China not support Russia in its invasion of Ukraine. The implication of these demands is that the United States has the ability to punish China economically in a way that imposes more pain on China than on us. That may be true for now, but it’s not clear it will be true much longer, and it may not even prove to be true at present.

It is common to refer to China as the world’s second largest economy, after the United States. However, using a purchasing power parity measure, China’s GDP actually passed US GDP in 2016. The IMF projects that it will be more than one third larger by 2026, the last year of its projection period.

Source: IMF

The purchasing power parity measure, in contrast to the more commonly cited exchange rate measure, applies a common set of prices for all the goods and services produced in both economies. Most economists view purchasing power parity measures as a better measure of the strength of an economy, since it is measuring what is actually produced. The exchange rate measure can fluctuate hugely as a country’s currency moves up or down in financial markets. It also will understate a country’s GDP if it is deliberately holding down the value of its currency.

It is worth noting that on a per capita basis China is still much poorer than the United States. It has nearly four times as many people, so its per capita GDP is still less than one-third of the per capita GDP in the United States. Nonetheless, its economic power in the world depends more on its overall GDP than its per capita GDP.

This fact means that Biden is effectively threatening an economy with a bigger GDP than the United States. Any major economic sanctions, such as a sharp reduction in imports, will have large negative effects on the US economy as well, especially in the context of an economy that is still unwinding the supply chain disruptions caused by the pandemic.

The United States would be helped in this sort of confrontation by the fact that Biden can likely count on the support of wealthy allies in Western Europe and Japan, as well as pockets elsewhere in the world. Adding in the economies of US allies, Biden can still command an economic bloc that is larger than China.

But, it is important to remember that China also has allies. This list includes major Asian countries such as Pakistan and Iran, as well as many countries throughout Africa and Latin America, who resent the way the United States and West Europe have treated them over the last two hundred years.

For now, Biden’s economic bloc is almost certainly larger than Xi’s, but that still doesn’t mean that he is better positioned to impose economic pain on China than the other way around. As best we can tell, Xi doesn’t have to worry about opposition within China, at least as long as he isn’t facing a complete economic collapse.

By contrast, we can be absolutely certain that the Republican Party will jump on every price increase and shortage that results from any sanctions imposed by Biden or Chinese counter measures. The Republican attacks will also be supported by most media outlets, who will either embrace them wholeheartedly or do a he said/she said that leaves it to their audience to determine whether economic pain is due to Biden’s inept management of the economy or his efforts to punish China. Given that the political consequences likely mean defeat in the 2022 and 2024 elections for Biden and the Democrats, it is not clear Biden has the better position in an economic confrontation with China.

Getting Beyond Russia’s Invasion

If we can envision a world after the invasion has been resolved in some manner, we will still have major choices to make on our relationship with China. There are many who would like to maintain a stance of confrontation similar to our relationship with the Soviet Union in the Cold War. That is a story that is not likely to turn out well for the United States or the world.

As noted above, China’s economy is already larger than the US economy and the gap will, in all probability, grow considerably in coming decades. This means that the story that we can build up our military and spend China into the ground, which we arguably did with the Soviet Union, simply is not plausible.

We are more likely to spend ourselves into the ground in that story. We need a different strategy. Rather than one of ongoing confrontation, we need one of selective cooperation, where we work with China where we have clear common interests.

The most obvious places where common interests exist is with climate change and health care. The United States, China, and the whole world would benefit from shared and open research in these areas, so that the whole world can quickly adopt innovations, wherever they occur.

This would imply some sort of international agreement on committing funds for research, based on countries’ size and wealth. The details of such an agreement would be contentious, but those who have failed negotiations on the Trans-Pacific Partnership and other trade deals know that negotiations on the current system of intellectual property rules are also very contentious.

There would be enormous benefits from having all new climate technologies transferred at zero cost, without the markups for government-granted patent monopolies or related protections. This should hugely accelerate the pace at which clean energy and electric cars are adopted.

There is a similar story with medical technologies. Without government-granted monopolies, nearly all drugs, vaccines and medical equipment would be cheap.[1] All but the poorest people in the world would find them affordable, and meeting the needs of the poor would be a doable task for international aid organizations.   

Protecting “Our” Intellectual Property

When I propose this route in dealing with China, I almost invariably encounter the complaint that we are giving away our intellectual property. This indicates some very serious confusion.

The intellectual property at issue does not belong to any “us,” it belongs to Bill Gates, Pfizer, and Moderna, which has created at least five billionaires since the beginning of the pandemic. In fact, our system of patents and copyrights has been a major cause of the growth in inequality over the last four decades.

It would be incredibly foolish, from a progressive perspective, if we were to confront China in order to protect this antiquated and inequitable system. Bizarrely, rather than contesting intellectual property rules that increase inequality, many are looking to regain manufacturing jobs that were lost to trade with China and other countries, in the last few decades.

This strategy is bizarre because it ignores the changes in the quality of manufacturing jobs over this period, in large part due to trade. Four decades ago, manufacturing was a heavily unionized sector. As a result, jobs in manufacturing paid considerably more than jobs in other industries.

This is no longer true. The unionization rate in manufacturing is only slightly higher than the unionization rate in the private sector as a whole. The wage premium in manufacturing has largely disappeared.

Source: Bureau of Labor Statistics.

 

If progressives were to embrace a path of confrontation with China, that has protection of intellectual property at its center, in exchange for some not especially good jobs in manufacturing, it would be a real lose-lose-lose story for anyone who cares about inequality and peace. We really should not go down that route. It is important that we can have a serious discussion on these issues now.

[1] Nondisclosure agreements, which allow companies to protect industrial secrets, would be unenforceable on publicly funded research in these areas.  

There has been much press around President Biden’s demands that China not support Russia in its invasion of Ukraine. The implication of these demands is that the United States has the ability to punish China economically in a way that imposes more pain on China than on us. That may be true for now, but it’s not clear it will be true much longer, and it may not even prove to be true at present.

It is common to refer to China as the world’s second largest economy, after the United States. However, using a purchasing power parity measure, China’s GDP actually passed US GDP in 2016. The IMF projects that it will be more than one third larger by 2026, the last year of its projection period.

Source: IMF

The purchasing power parity measure, in contrast to the more commonly cited exchange rate measure, applies a common set of prices for all the goods and services produced in both economies. Most economists view purchasing power parity measures as a better measure of the strength of an economy, since it is measuring what is actually produced. The exchange rate measure can fluctuate hugely as a country’s currency moves up or down in financial markets. It also will understate a country’s GDP if it is deliberately holding down the value of its currency.

It is worth noting that on a per capita basis China is still much poorer than the United States. It has nearly four times as many people, so its per capita GDP is still less than one-third of the per capita GDP in the United States. Nonetheless, its economic power in the world depends more on its overall GDP than its per capita GDP.

This fact means that Biden is effectively threatening an economy with a bigger GDP than the United States. Any major economic sanctions, such as a sharp reduction in imports, will have large negative effects on the US economy as well, especially in the context of an economy that is still unwinding the supply chain disruptions caused by the pandemic.

The United States would be helped in this sort of confrontation by the fact that Biden can likely count on the support of wealthy allies in Western Europe and Japan, as well as pockets elsewhere in the world. Adding in the economies of US allies, Biden can still command an economic bloc that is larger than China.

But, it is important to remember that China also has allies. This list includes major Asian countries such as Pakistan and Iran, as well as many countries throughout Africa and Latin America, who resent the way the United States and West Europe have treated them over the last two hundred years.

For now, Biden’s economic bloc is almost certainly larger than Xi’s, but that still doesn’t mean that he is better positioned to impose economic pain on China than the other way around. As best we can tell, Xi doesn’t have to worry about opposition within China, at least as long as he isn’t facing a complete economic collapse.

By contrast, we can be absolutely certain that the Republican Party will jump on every price increase and shortage that results from any sanctions imposed by Biden or Chinese counter measures. The Republican attacks will also be supported by most media outlets, who will either embrace them wholeheartedly or do a he said/she said that leaves it to their audience to determine whether economic pain is due to Biden’s inept management of the economy or his efforts to punish China. Given that the political consequences likely mean defeat in the 2022 and 2024 elections for Biden and the Democrats, it is not clear Biden has the better position in an economic confrontation with China.

Getting Beyond Russia’s Invasion

If we can envision a world after the invasion has been resolved in some manner, we will still have major choices to make on our relationship with China. There are many who would like to maintain a stance of confrontation similar to our relationship with the Soviet Union in the Cold War. That is a story that is not likely to turn out well for the United States or the world.

As noted above, China’s economy is already larger than the US economy and the gap will, in all probability, grow considerably in coming decades. This means that the story that we can build up our military and spend China into the ground, which we arguably did with the Soviet Union, simply is not plausible.

We are more likely to spend ourselves into the ground in that story. We need a different strategy. Rather than one of ongoing confrontation, we need one of selective cooperation, where we work with China where we have clear common interests.

The most obvious places where common interests exist is with climate change and health care. The United States, China, and the whole world would benefit from shared and open research in these areas, so that the whole world can quickly adopt innovations, wherever they occur.

This would imply some sort of international agreement on committing funds for research, based on countries’ size and wealth. The details of such an agreement would be contentious, but those who have failed negotiations on the Trans-Pacific Partnership and other trade deals know that negotiations on the current system of intellectual property rules are also very contentious.

There would be enormous benefits from having all new climate technologies transferred at zero cost, without the markups for government-granted patent monopolies or related protections. This should hugely accelerate the pace at which clean energy and electric cars are adopted.

There is a similar story with medical technologies. Without government-granted monopolies, nearly all drugs, vaccines and medical equipment would be cheap.[1] All but the poorest people in the world would find them affordable, and meeting the needs of the poor would be a doable task for international aid organizations.   

Protecting “Our” Intellectual Property

When I propose this route in dealing with China, I almost invariably encounter the complaint that we are giving away our intellectual property. This indicates some very serious confusion.

The intellectual property at issue does not belong to any “us,” it belongs to Bill Gates, Pfizer, and Moderna, which has created at least five billionaires since the beginning of the pandemic. In fact, our system of patents and copyrights has been a major cause of the growth in inequality over the last four decades.

It would be incredibly foolish, from a progressive perspective, if we were to confront China in order to protect this antiquated and inequitable system. Bizarrely, rather than contesting intellectual property rules that increase inequality, many are looking to regain manufacturing jobs that were lost to trade with China and other countries, in the last few decades.

This strategy is bizarre because it ignores the changes in the quality of manufacturing jobs over this period, in large part due to trade. Four decades ago, manufacturing was a heavily unionized sector. As a result, jobs in manufacturing paid considerably more than jobs in other industries.

This is no longer true. The unionization rate in manufacturing is only slightly higher than the unionization rate in the private sector as a whole. The wage premium in manufacturing has largely disappeared.

Source: Bureau of Labor Statistics.

 

If progressives were to embrace a path of confrontation with China, that has protection of intellectual property at its center, in exchange for some not especially good jobs in manufacturing, it would be a real lose-lose-lose story for anyone who cares about inequality and peace. We really should not go down that route. It is important that we can have a serious discussion on these issues now.

[1] Nondisclosure agreements, which allow companies to protect industrial secrets, would be unenforceable on publicly funded research in these areas.  

The debate over inflation has taken a bizarre twist in the last couple of weeks. Russia’s invasion of Ukraine, and the threat of much of its oil being removed from world markets, has sent the price of oil and other commodities soaring. In addition, a new outbreak of COVID-19 in China has led to shutdowns in many of the country’s major manufacturing plants. This means that supply chain problems are likely to persist longer in the future than many of us have expected.

In addition to being bad news for the people of Ukraine and those infected in China, these events are also bad news for the US economy. They mean that inflationary pressures in many sectors will persist for some time into the future, and possibly get worse.

Bizarrely, these events also seem to have produced a new round of “I told you so’s” from the inflation hawks. I’m not quite sure what the hawks think they told us in this story.

If they forecast the war in Ukraine, they deserve credit for their perceptive understanding of international relations. If they recognized both, that the virus would mutate into new strains, and that China would maintain its zero COVID-19 policy, they were more on top of matters than most of our epidemiologists. But I’m not sure what this has to do with the claim that Biden’s stimulus would lead to runaway inflation.

Even if there had been no stimulus package, the threat of Russia’s oil being withdrawn from world markets would have led to a sharp surge in the price of oil. Similarly, losing a substantial quantity of imported products and parts from China would lead to shortages and production disruptions whether or not Congress had passed Biden’s stimulus.

As many of us have repeatedly pointed out, almost all wealthy countries have seen big jumps in their inflation rates, even though their economies were not boosted by Biden’s stimulus package. In the United Kingdom, the central bank now expects its inflation rate to cross 8.0 percent. Perhaps the inflation hawks want to blame this on Biden’s stimulus as well, but that really doesn’t pass the laugh test.

There will be serious economic fallout from the war in Ukraine, as well as future waves of the pandemic. We will need to find effective ways to deal with these problems. However, sharp increases in interest rates by the Fed are not a cure to either problem. They may be able to reduce inflation, by pushing the unemployment rate higher, and thereby pushing down workers’ wages, but most would likely view this as a solution that is worse than the problem.

We should look for ways to address the prospect of less oil on world markets, such as paying individuals and countries to use less oil. We also should look to better ways to contain the pandemic, first and foremost by getting the world vaccinated.

But throwing millions out of work, to drive down the wages of tens of millions, is not a clever way to deal with these problems.

The debate over inflation has taken a bizarre twist in the last couple of weeks. Russia’s invasion of Ukraine, and the threat of much of its oil being removed from world markets, has sent the price of oil and other commodities soaring. In addition, a new outbreak of COVID-19 in China has led to shutdowns in many of the country’s major manufacturing plants. This means that supply chain problems are likely to persist longer in the future than many of us have expected.

In addition to being bad news for the people of Ukraine and those infected in China, these events are also bad news for the US economy. They mean that inflationary pressures in many sectors will persist for some time into the future, and possibly get worse.

Bizarrely, these events also seem to have produced a new round of “I told you so’s” from the inflation hawks. I’m not quite sure what the hawks think they told us in this story.

If they forecast the war in Ukraine, they deserve credit for their perceptive understanding of international relations. If they recognized both, that the virus would mutate into new strains, and that China would maintain its zero COVID-19 policy, they were more on top of matters than most of our epidemiologists. But I’m not sure what this has to do with the claim that Biden’s stimulus would lead to runaway inflation.

Even if there had been no stimulus package, the threat of Russia’s oil being withdrawn from world markets would have led to a sharp surge in the price of oil. Similarly, losing a substantial quantity of imported products and parts from China would lead to shortages and production disruptions whether or not Congress had passed Biden’s stimulus.

As many of us have repeatedly pointed out, almost all wealthy countries have seen big jumps in their inflation rates, even though their economies were not boosted by Biden’s stimulus package. In the United Kingdom, the central bank now expects its inflation rate to cross 8.0 percent. Perhaps the inflation hawks want to blame this on Biden’s stimulus as well, but that really doesn’t pass the laugh test.

There will be serious economic fallout from the war in Ukraine, as well as future waves of the pandemic. We will need to find effective ways to deal with these problems. However, sharp increases in interest rates by the Fed are not a cure to either problem. They may be able to reduce inflation, by pushing the unemployment rate higher, and thereby pushing down workers’ wages, but most would likely view this as a solution that is worse than the problem.

We should look for ways to address the prospect of less oil on world markets, such as paying individuals and countries to use less oil. We also should look to better ways to contain the pandemic, first and foremost by getting the world vaccinated.

But throwing millions out of work, to drive down the wages of tens of millions, is not a clever way to deal with these problems.

(This post contains corrections to three minimum wage articles published in January 2020, July 2020, February 4, 2021, and August 2021.)

It’s not just prominent Harvard professors who make Excel spreadsheet errors. I managed to do it myself a couple of years ago. I wrote a post that calculated the minimum wage would have been over $24 an hour in 2020 if it had kept pace with productivity growth since its real value peaked in 1968. That error was repeated in a later post in 2020 and contributed to a calculation error of $26 an hour in a 2021 post.

The point made in these posts was that the minimum wage had in fact risen in step with productivity growth from 1938, when the national minimum wage was first established, until 1968. Since 1968, the minimum wage has not even kept pace with inflation. The post argued that it is not unreasonable to imagine a world where the minimum wage had kept pace with productivity over the last 54 years, even if changes in the structure of the economy mean that this would not be possible in the immediate future.

Anyhow, it turns out my calculation was wrong. My friend, Josh Bivens, the research director at the Economic Policy Institute, was doing his own calculation and came up with a considerably lower number. After checking my own calculations, I discovered the spreadsheet error. When I corrected the error, I came up with $21.50 as a year-round average for the productivity adjusted minimum wage in 2020 and $23 in 2021.

I’m not happy that I got the number wrong. CEPR prides itself on getting numbers right, but I’m glad that Josh caught the error and that I can correct it now. At least it did not become the centerpiece in the case for global austerity that cost millions of workers their jobs.

(This post contains corrections to three minimum wage articles published in January 2020, July 2020, February 4, 2021, and August 2021.)

It’s not just prominent Harvard professors who make Excel spreadsheet errors. I managed to do it myself a couple of years ago. I wrote a post that calculated the minimum wage would have been over $24 an hour in 2020 if it had kept pace with productivity growth since its real value peaked in 1968. That error was repeated in a later post in 2020 and contributed to a calculation error of $26 an hour in a 2021 post.

The point made in these posts was that the minimum wage had in fact risen in step with productivity growth from 1938, when the national minimum wage was first established, until 1968. Since 1968, the minimum wage has not even kept pace with inflation. The post argued that it is not unreasonable to imagine a world where the minimum wage had kept pace with productivity over the last 54 years, even if changes in the structure of the economy mean that this would not be possible in the immediate future.

Anyhow, it turns out my calculation was wrong. My friend, Josh Bivens, the research director at the Economic Policy Institute, was doing his own calculation and came up with a considerably lower number. After checking my own calculations, I discovered the spreadsheet error. When I corrected the error, I came up with $21.50 as a year-round average for the productivity adjusted minimum wage in 2020 and $23 in 2021.

I’m not happy that I got the number wrong. CEPR prides itself on getting numbers right, but I’m glad that Josh caught the error and that I can correct it now. At least it did not become the centerpiece in the case for global austerity that cost millions of workers their jobs.

With bad news on oil prices, and a new wave of COVID-19 shutdowns in China, the inflation hawks are getting really excited. After all, higher oil prices and further supply disruptions are sure to add to the inflation the economy is already seeing. I guess they were right with their warnings.

Okay, let’s get back to Planet Earth. The large stimulus package that President Biden pushed through last year undoubtedly added to inflation in the economy, but it also quickly got the economy back to something close to full employment. If we had not had a big package, maybe the inflation rate would be a couple points lower, but the unemployment rate might be closer to 5.8 percent, rather than the 3.8 percent reported for February.

The point that many of us keep making is that most of the inflation we have seen over the last year was due to the reopening from the pandemic, not the stimulus package. A simple picture makes this point well. Inflation jumped pretty much everywhere across the OECD.

The rise in the United States was somewhat higher than average, but not hugely so. And countries like Spain and Belgium, which did not have huge stimulus packages, actually have higher rates of inflation.

So, what about the current issue with surging oil prices and new supply disruptions in China? First, the jump in oil prices associated with the war in Ukraine is likely not as bad as previously advertised. The big risk for oil prices was the withdrawal of Russia’s oil from world markets, which could result either from European sanctions or a unilateral decision by Russia to stop exporting its oil.

Neither of these scenarios seems very plausible. Europe doesn’t seem likely to join the U.S. sanctions on Russian oil, but even if it did, Russia’s oil would not disappear from world markets. Russia would look to sell its oil to China, India, and other countries not imposing sanctions. The oil that these countries would have otherwise been importing from Middle East or elsewhere, would instead be available to Europe and the United States.

There clearly would be costs associated with this sort of reshuffling, but nothing close to the costs of losing Russia’s exports of five million barrels a day. The markets seem to have figured this out, as oil prices have plunged by more than thirty dollars from their peak last week.

The other big source of higher inflation is the new round of COVID-19 shutdowns in China. These shutdowns have hit several cities that are major sources of exports of a wide variety of manufactured goods. This will worsen the supply chain problems we have been seeing over the last year. It’s clearly not good news for the economy (and obviously bad news for the people in China getting COVID-19).

Anyhow, the question that all of us, including the Fed, should be asking, is whether these stories would be better if Biden had not boosted the economy and we still had something like a 5.8 percent unemployment rate? It’s hard to see how the answer to that question is yes.

The price of oil is determined on the world market. If Russia’s exports were withdrawn from the market, slightly lower demand from the United States would make very little difference. We still would be looking at a big jump in oil prices.

The same applies to the COVID-19 shutdowns in China. Would the pandemic not be spreading there if Biden hadn’t passed his stimulus package? We would still be facing pretty much the same supply chain problems even if the unemployment rate were 5.8 percent.

In short, the inflation hawks may be enjoying a victory lap, but the facts don’t support their case. We are seeing higher inflation primarily because of factors that have nothing to do with Biden’s stimulus package. We would not be better off if we faced slightly lower inflation with another 3 million people out of work.

With bad news on oil prices, and a new wave of COVID-19 shutdowns in China, the inflation hawks are getting really excited. After all, higher oil prices and further supply disruptions are sure to add to the inflation the economy is already seeing. I guess they were right with their warnings.

Okay, let’s get back to Planet Earth. The large stimulus package that President Biden pushed through last year undoubtedly added to inflation in the economy, but it also quickly got the economy back to something close to full employment. If we had not had a big package, maybe the inflation rate would be a couple points lower, but the unemployment rate might be closer to 5.8 percent, rather than the 3.8 percent reported for February.

The point that many of us keep making is that most of the inflation we have seen over the last year was due to the reopening from the pandemic, not the stimulus package. A simple picture makes this point well. Inflation jumped pretty much everywhere across the OECD.

The rise in the United States was somewhat higher than average, but not hugely so. And countries like Spain and Belgium, which did not have huge stimulus packages, actually have higher rates of inflation.

So, what about the current issue with surging oil prices and new supply disruptions in China? First, the jump in oil prices associated with the war in Ukraine is likely not as bad as previously advertised. The big risk for oil prices was the withdrawal of Russia’s oil from world markets, which could result either from European sanctions or a unilateral decision by Russia to stop exporting its oil.

Neither of these scenarios seems very plausible. Europe doesn’t seem likely to join the U.S. sanctions on Russian oil, but even if it did, Russia’s oil would not disappear from world markets. Russia would look to sell its oil to China, India, and other countries not imposing sanctions. The oil that these countries would have otherwise been importing from Middle East or elsewhere, would instead be available to Europe and the United States.

There clearly would be costs associated with this sort of reshuffling, but nothing close to the costs of losing Russia’s exports of five million barrels a day. The markets seem to have figured this out, as oil prices have plunged by more than thirty dollars from their peak last week.

The other big source of higher inflation is the new round of COVID-19 shutdowns in China. These shutdowns have hit several cities that are major sources of exports of a wide variety of manufactured goods. This will worsen the supply chain problems we have been seeing over the last year. It’s clearly not good news for the economy (and obviously bad news for the people in China getting COVID-19).

Anyhow, the question that all of us, including the Fed, should be asking, is whether these stories would be better if Biden had not boosted the economy and we still had something like a 5.8 percent unemployment rate? It’s hard to see how the answer to that question is yes.

The price of oil is determined on the world market. If Russia’s exports were withdrawn from the market, slightly lower demand from the United States would make very little difference. We still would be looking at a big jump in oil prices.

The same applies to the COVID-19 shutdowns in China. Would the pandemic not be spreading there if Biden hadn’t passed his stimulus package? We would still be facing pretty much the same supply chain problems even if the unemployment rate were 5.8 percent.

In short, the inflation hawks may be enjoying a victory lap, but the facts don’t support their case. We are seeing higher inflation primarily because of factors that have nothing to do with Biden’s stimulus package. We would not be better off if we faced slightly lower inflation with another 3 million people out of work.

The jump in the Consumer Price Index (CPI) we saw in February was bad news. The overall CPI rose by 0.8 percent for the month, while the core rate increased 0.5 percent. This brought the year-over-year inflation rate to 7.9 percent overall and 6.4 percent in the core.

However, the report was disappointing even beyond the bottom line numbers. Many of us have been banking on the idea that we would soon see a reversal in the prices of items where prices have been driven up by supply chain issues. The idea is that if a clogged supply chain was responsible for the rise in prices, then prices should come back down when the supply chain becomes unclogged.

But, I’ve been saying this for a while, prices in most areas have not started to come down. In fact, the prices of many of these items are continuing to rise. After being flat in January, new vehicle prices rose by 0.3 percent in February, bringing their increase since the pandemic began to 13.7 percent. Apparel prices rose by 0.7 percent for the month and are now up 6.6 percent over the last year. The price of appliances also went up 0.7 percent, bringing their rise since the pandemic began to 15.2 percent.

So, should Jerome Powell put on his Paul Volcker outfit and push interest rates through the roof? I would argue that, while modest rate hikes are appropriate, it is too soon to bring out the heavy artillery.

Why I Still Believe Inflation Will Fall

There are three main reasons why inflation is likely to be falling in the months ahead. Just to be clear, I’m focusing on monthly rates of inflation, not year-over-year rates. We don’t know how to change the past.

A Shift in Income Shares Back from Profits to Wages

In the 1970s inflation, there was a very plausible story of a wage-price spiral where companies were raising prices in response to higher wages to protect their profit margins. Profit shares were in fact lower than in the 1960s.

The opposite has happened in the pandemic. The profit share of national income for 2021 was 1.1 percentage points higher than in 2020, this is an 8.5 percent increase in the profit share. There is a plausible explanation for this rise in the context of shortages faced during the pandemic. Higher prices ration excess demand. But if we envision that the shortages will end at some point, it is reasonable to believe that this shift from wages to profits will be reversed, unless we think that conditions of competition in the economy have been permanently changed as a result of the pandemic.

This issue gets to the claim that monopoly power has been a major factor in the inflation we have seen in the last year. If companies have been able to take advantage of the pandemic to use their market power to increase their profits, then we may expect that the profit share will stay near its current level. By contrast, if we think that prices rose in the pandemic because of real shortages, and not especially due to market power, then we would expect the profit share to fall back to the pre-pandemic level when the shortages are alleviated.

There are two points worth noting here. First, overall demand in the economy is not out of line with longer term trends. Real personal consumption expenditures in January were 4.6 percent higher than in January of 2019. This translates into growth of 2.3 percent annually. That is a level of demand that the economy should be easily able to meet without the disruptions of the pandemic.

The major problem in meeting demand has been a shift in consumption from services to goods. Goods consumption was 16.9 percent higher in January than two years ago, and durable goods consumption was 24.3 percent higher. By contrast, consumption of services was still 0.8 percent lower than in January of 2019. The basic story is that the pandemic prevented people from spending money on restaurants, travel, and other services. Instead they bought cars, new refrigerators, and other types of goods.

This created strains on the production and delivery systems that we would have not seen if demand had been more balanced. (This is the distinction between blaming “supply chains” as opposed to simply too much demand.) These strains are likely to be alleviated as demand shifts back to services and the manufacturing and distribution networks are able to work through bottlenecks. It also helps that companies will not have to deal with widespread absences due to illness if the pandemic remains relatively contained.

Therefore, it is still reasonable to believe that the strains on supply chains will be alleviated in the not too distant future. (I know, I said that last fall too.) If we believe that our manufacturing and distribution systems have not been permanently damaged by the pandemic, we should be able to meet future demand without excessive strains on our production networks. That should mean prices falling in many areas.

Just to repeat an example I have used before, the price of apparel is up 6.6 percent from its year ago level. The vast majority of the apparel we buy is imported. The index for imported apparel prices (which does not include shipping costs) has risen by less than 2.0 percent over the last year. This implies that most of the jump in apparel prices is due to higher shipping costs. If our supply system gets back to normal, we should expect shipping costs to decline, and presumably domestic apparel prices will fall back in line with import prices. This is a story that we are likely to see with cars, refrigerators, and a wide variety of other items.

The other item worth noting is that beef prices are up 23.9 percent from February 2020 to February 2022. This is striking because demand for beef has fallen back to pre-pandemic levels. This jump is clearly not due to excessive demand for beef. (Demand had risen sharply in 2020 as people stopped going to restaurants and bought more food at home. Real restaurant spending is now slightly above its pre-pandemic level.)  

The continued high price of beef reflects either continuing problems in the supply chain, which are raising shipping costs, or a change in the state of competition in the industry. If it’s the former, we should expect beef prices to come down over the course of the year. In the latter case, high beef prices may persist, unless stronger antitrust measures are taken.  

Productivity Growth

We have seen an uptick in productivity growth the last three years, with growth averaging 2.3 percent annually since the fourth quarter of 2018, compared to a rate of just 0.8 percent over the prior eight years. This is the opposite of the 1970s, where we saw productivity growth fall from an average of 2.5 percent over the prior quarter century to just 1.0 percent in the years from 1973 to 1980.

In the seventies, workers had been accustomed to seeing real wage growth roughly in line with productivity growth. Real wage growth in excess of 2.0 percent annually was no longer possible in an economy with annual productivity growth of just 1.0 percent. This was a major factor in the wage-price spiral we saw in the decade.

At present, we are seeing the opposite story. The increase in productivity growth means that workers can see real wage growth in excess of 2.0 percent annually, without causing inflation. This is in effect the flip side of the shift from wages to profits over the last two years. Real wages have risen in this period, but by far less than the increase in productivity. This leaves plenty of room for real wages to rise without a corresponding increase in prices.

Predictions of productivity growth have a terrible track record, so I won’t try to put forward any here. I will say that there are reasons for believing the uptick seen in the last three years could continue.

First, many companies have been forced to find ways to be more efficient, since they often couldn’t get the workers they needed, and faced major disruptions due to pandemic restrictions. The restaurant industry provides an obvious example. Its real output in the fourth quarter of 2021 was more than 2.0 percent higher than in the fourth quarter of 2019, even though the index of hours worked in the industry was more than 7.0 percent lower.

In the same way that restaurants have been able to find ways to serve more meals with fewer workers, other industries are developing new methods of doing business. We are seeing more use of online services and new technology that can enable businesses to be more efficient. Replacing business travel with Zoom meetings is probably the most obvious and important example of this sort of gain.

It’s also important to realize that many of the gains will not be picked up in conventional measures of GDP and productivity. The increased frequency of work from home is the biggest source of such gains. Workers are seeing tens of billions in savings on work-related expenses, such as commuting, business clothes, and dry cleaning. This is in addition to the hundreds of millions of hours saved commuting.

There are gains in other areas as well. The use of telemedicine has exploded in the pandemic. This not only saves the costs of traveling to and from health care providers, but also the distress that people in poor health may experience from having to endure what can be a difficult trip for them.

Similarly, the spread of online car retailers, which save people from having to endure a trip to a dealership, can be a large gain in well-being for many people. This also would not be picked in measures of GDP or productivity.

These are just some prominent examples of innovations that are taking place across the economy. They provide reason to believe that the uptick in productivity growth over the last three years may continue, but best guesses on productivity growth have proved wrong in the past, so we can’t take faster productivity growth for granted.

Slowing Nominal Wage Growth

The final reason that we don’t seem likely to see the sort of wage-price spiral we had in the 1970s is that wage growth appears to be moderating. It would be foolish to make too much of one month’s data, but the average hourly wage was flat in February. The year-over-year increase in the average hourly wage was 5.1 percent, down from a peak of 5.5 percent in January and 5.4 percent in October.

There has been a sharper slowing in some of lower paying industries that had seen the sharpest gains. For example, the year-over-year wage gains for production and nonsupervisory workers in restaurants were 14.3 percent in February, down from 16.6 percent in December.

Given how erratic the wage data are, especially with the complication of the composition effect from the pandemic shutdowns (it depressed wage growth a great deal in the middle of 2021, less so in more recent months), it would be wrong to make much of this modest evidence of a slowdown in wage growth. However, we do not seem to be seeing evidence of accelerating wage growth, which would be the story of a wage-price spiral.  

As many of us have argued previously, it is unlikely that we will see the sort of wage-price spiral we saw in the seventies because of changes in the structure of the labor market. In the 1970s, more than 20 percent of the private sector workforce was unionized. Now, it’s just over 6.0 percent.

We also have a much more globalized economy. This makes its difficult to have sharply higher inflation rates in the United States than in our trading partners. If the price of cars, steel, and other items produced in the United States rises much more than the price of the same items produced Germany, Japan, and China, then we will import much more and buy less of domestically produced goods. That would put serious downward pressure on prices and wages.

A fall in the dollar against the value of other currencies will offset differences in inflation rates. However, contrary to what many inflation hawks predicted, the dollar rose over the last year (even before the Russian invasion of Ukraine). This is clearly inconsistent with the wage-price spiral story.

Conclusion: Don’t Panic Over Inflation

High rates of inflation have definitely persisted for longer than I expected. I still don’t think there is cause for panic about the sort of high and rising inflation we saw in the 1970s.

It is reasonable for the Federal Reserve Board to start on a path of moderate rate hikes. The economy is clearly near full employment, so measures aimed at slowing the pace of economic and job growth are appropriate. At the same time, it does not make sense to try to jack up the rate of unemployment to slow wage and price growth.

It’s worth asking what conditions might be the cause for more concern. First, if we saw more instances like the beef industry, where demand has returned to pre-pandemic levels, but prices remain hugely above pre-pandemic levels. I don’t expect prices to fall back fully to pre-pandemic levels, but if we see supply chain problems resolved, we should see a substantial movement in that direction.

Similarly, if we see a further shift toward profit shares, it would be very concerning. This means both that workers are not getting their share of the gains of economic growth, and also that prices are becoming detached from costs.

If we do see this shift, it would be a strong argument for more aggressive antitrust measures. There already is a strong case, but a further shift to profits would mean that monopoly power is a key source of inflation. We also need to remember that profit data are erratic and subject to large revisions, so one or two quarters of data may not be telling us an accurate story.

Finally, if nominal wage growth accelerates, we should be concerned. It’s great to see workers getting wage gains, but if we see hourly wage growth approach double-digits, it virtually guarantees inflation rates that are uncomfortably high.

In short, there are real grounds for being concerned about the inflation we have been seeing, but we have a long way to go before seeing a 1970s wage-price spiral.   

 

The jump in the Consumer Price Index (CPI) we saw in February was bad news. The overall CPI rose by 0.8 percent for the month, while the core rate increased 0.5 percent. This brought the year-over-year inflation rate to 7.9 percent overall and 6.4 percent in the core.

However, the report was disappointing even beyond the bottom line numbers. Many of us have been banking on the idea that we would soon see a reversal in the prices of items where prices have been driven up by supply chain issues. The idea is that if a clogged supply chain was responsible for the rise in prices, then prices should come back down when the supply chain becomes unclogged.

But, I’ve been saying this for a while, prices in most areas have not started to come down. In fact, the prices of many of these items are continuing to rise. After being flat in January, new vehicle prices rose by 0.3 percent in February, bringing their increase since the pandemic began to 13.7 percent. Apparel prices rose by 0.7 percent for the month and are now up 6.6 percent over the last year. The price of appliances also went up 0.7 percent, bringing their rise since the pandemic began to 15.2 percent.

So, should Jerome Powell put on his Paul Volcker outfit and push interest rates through the roof? I would argue that, while modest rate hikes are appropriate, it is too soon to bring out the heavy artillery.

Why I Still Believe Inflation Will Fall

There are three main reasons why inflation is likely to be falling in the months ahead. Just to be clear, I’m focusing on monthly rates of inflation, not year-over-year rates. We don’t know how to change the past.

A Shift in Income Shares Back from Profits to Wages

In the 1970s inflation, there was a very plausible story of a wage-price spiral where companies were raising prices in response to higher wages to protect their profit margins. Profit shares were in fact lower than in the 1960s.

The opposite has happened in the pandemic. The profit share of national income for 2021 was 1.1 percentage points higher than in 2020, this is an 8.5 percent increase in the profit share. There is a plausible explanation for this rise in the context of shortages faced during the pandemic. Higher prices ration excess demand. But if we envision that the shortages will end at some point, it is reasonable to believe that this shift from wages to profits will be reversed, unless we think that conditions of competition in the economy have been permanently changed as a result of the pandemic.

This issue gets to the claim that monopoly power has been a major factor in the inflation we have seen in the last year. If companies have been able to take advantage of the pandemic to use their market power to increase their profits, then we may expect that the profit share will stay near its current level. By contrast, if we think that prices rose in the pandemic because of real shortages, and not especially due to market power, then we would expect the profit share to fall back to the pre-pandemic level when the shortages are alleviated.

There are two points worth noting here. First, overall demand in the economy is not out of line with longer term trends. Real personal consumption expenditures in January were 4.6 percent higher than in January of 2019. This translates into growth of 2.3 percent annually. That is a level of demand that the economy should be easily able to meet without the disruptions of the pandemic.

The major problem in meeting demand has been a shift in consumption from services to goods. Goods consumption was 16.9 percent higher in January than two years ago, and durable goods consumption was 24.3 percent higher. By contrast, consumption of services was still 0.8 percent lower than in January of 2019. The basic story is that the pandemic prevented people from spending money on restaurants, travel, and other services. Instead they bought cars, new refrigerators, and other types of goods.

This created strains on the production and delivery systems that we would have not seen if demand had been more balanced. (This is the distinction between blaming “supply chains” as opposed to simply too much demand.) These strains are likely to be alleviated as demand shifts back to services and the manufacturing and distribution networks are able to work through bottlenecks. It also helps that companies will not have to deal with widespread absences due to illness if the pandemic remains relatively contained.

Therefore, it is still reasonable to believe that the strains on supply chains will be alleviated in the not too distant future. (I know, I said that last fall too.) If we believe that our manufacturing and distribution systems have not been permanently damaged by the pandemic, we should be able to meet future demand without excessive strains on our production networks. That should mean prices falling in many areas.

Just to repeat an example I have used before, the price of apparel is up 6.6 percent from its year ago level. The vast majority of the apparel we buy is imported. The index for imported apparel prices (which does not include shipping costs) has risen by less than 2.0 percent over the last year. This implies that most of the jump in apparel prices is due to higher shipping costs. If our supply system gets back to normal, we should expect shipping costs to decline, and presumably domestic apparel prices will fall back in line with import prices. This is a story that we are likely to see with cars, refrigerators, and a wide variety of other items.

The other item worth noting is that beef prices are up 23.9 percent from February 2020 to February 2022. This is striking because demand for beef has fallen back to pre-pandemic levels. This jump is clearly not due to excessive demand for beef. (Demand had risen sharply in 2020 as people stopped going to restaurants and bought more food at home. Real restaurant spending is now slightly above its pre-pandemic level.)  

The continued high price of beef reflects either continuing problems in the supply chain, which are raising shipping costs, or a change in the state of competition in the industry. If it’s the former, we should expect beef prices to come down over the course of the year. In the latter case, high beef prices may persist, unless stronger antitrust measures are taken.  

Productivity Growth

We have seen an uptick in productivity growth the last three years, with growth averaging 2.3 percent annually since the fourth quarter of 2018, compared to a rate of just 0.8 percent over the prior eight years. This is the opposite of the 1970s, where we saw productivity growth fall from an average of 2.5 percent over the prior quarter century to just 1.0 percent in the years from 1973 to 1980.

In the seventies, workers had been accustomed to seeing real wage growth roughly in line with productivity growth. Real wage growth in excess of 2.0 percent annually was no longer possible in an economy with annual productivity growth of just 1.0 percent. This was a major factor in the wage-price spiral we saw in the decade.

At present, we are seeing the opposite story. The increase in productivity growth means that workers can see real wage growth in excess of 2.0 percent annually, without causing inflation. This is in effect the flip side of the shift from wages to profits over the last two years. Real wages have risen in this period, but by far less than the increase in productivity. This leaves plenty of room for real wages to rise without a corresponding increase in prices.

Predictions of productivity growth have a terrible track record, so I won’t try to put forward any here. I will say that there are reasons for believing the uptick seen in the last three years could continue.

First, many companies have been forced to find ways to be more efficient, since they often couldn’t get the workers they needed, and faced major disruptions due to pandemic restrictions. The restaurant industry provides an obvious example. Its real output in the fourth quarter of 2021 was more than 2.0 percent higher than in the fourth quarter of 2019, even though the index of hours worked in the industry was more than 7.0 percent lower.

In the same way that restaurants have been able to find ways to serve more meals with fewer workers, other industries are developing new methods of doing business. We are seeing more use of online services and new technology that can enable businesses to be more efficient. Replacing business travel with Zoom meetings is probably the most obvious and important example of this sort of gain.

It’s also important to realize that many of the gains will not be picked up in conventional measures of GDP and productivity. The increased frequency of work from home is the biggest source of such gains. Workers are seeing tens of billions in savings on work-related expenses, such as commuting, business clothes, and dry cleaning. This is in addition to the hundreds of millions of hours saved commuting.

There are gains in other areas as well. The use of telemedicine has exploded in the pandemic. This not only saves the costs of traveling to and from health care providers, but also the distress that people in poor health may experience from having to endure what can be a difficult trip for them.

Similarly, the spread of online car retailers, which save people from having to endure a trip to a dealership, can be a large gain in well-being for many people. This also would not be picked in measures of GDP or productivity.

These are just some prominent examples of innovations that are taking place across the economy. They provide reason to believe that the uptick in productivity growth over the last three years may continue, but best guesses on productivity growth have proved wrong in the past, so we can’t take faster productivity growth for granted.

Slowing Nominal Wage Growth

The final reason that we don’t seem likely to see the sort of wage-price spiral we had in the 1970s is that wage growth appears to be moderating. It would be foolish to make too much of one month’s data, but the average hourly wage was flat in February. The year-over-year increase in the average hourly wage was 5.1 percent, down from a peak of 5.5 percent in January and 5.4 percent in October.

There has been a sharper slowing in some of lower paying industries that had seen the sharpest gains. For example, the year-over-year wage gains for production and nonsupervisory workers in restaurants were 14.3 percent in February, down from 16.6 percent in December.

Given how erratic the wage data are, especially with the complication of the composition effect from the pandemic shutdowns (it depressed wage growth a great deal in the middle of 2021, less so in more recent months), it would be wrong to make much of this modest evidence of a slowdown in wage growth. However, we do not seem to be seeing evidence of accelerating wage growth, which would be the story of a wage-price spiral.  

As many of us have argued previously, it is unlikely that we will see the sort of wage-price spiral we saw in the seventies because of changes in the structure of the labor market. In the 1970s, more than 20 percent of the private sector workforce was unionized. Now, it’s just over 6.0 percent.

We also have a much more globalized economy. This makes its difficult to have sharply higher inflation rates in the United States than in our trading partners. If the price of cars, steel, and other items produced in the United States rises much more than the price of the same items produced Germany, Japan, and China, then we will import much more and buy less of domestically produced goods. That would put serious downward pressure on prices and wages.

A fall in the dollar against the value of other currencies will offset differences in inflation rates. However, contrary to what many inflation hawks predicted, the dollar rose over the last year (even before the Russian invasion of Ukraine). This is clearly inconsistent with the wage-price spiral story.

Conclusion: Don’t Panic Over Inflation

High rates of inflation have definitely persisted for longer than I expected. I still don’t think there is cause for panic about the sort of high and rising inflation we saw in the 1970s.

It is reasonable for the Federal Reserve Board to start on a path of moderate rate hikes. The economy is clearly near full employment, so measures aimed at slowing the pace of economic and job growth are appropriate. At the same time, it does not make sense to try to jack up the rate of unemployment to slow wage and price growth.

It’s worth asking what conditions might be the cause for more concern. First, if we saw more instances like the beef industry, where demand has returned to pre-pandemic levels, but prices remain hugely above pre-pandemic levels. I don’t expect prices to fall back fully to pre-pandemic levels, but if we see supply chain problems resolved, we should see a substantial movement in that direction.

Similarly, if we see a further shift toward profit shares, it would be very concerning. This means both that workers are not getting their share of the gains of economic growth, and also that prices are becoming detached from costs.

If we do see this shift, it would be a strong argument for more aggressive antitrust measures. There already is a strong case, but a further shift to profits would mean that monopoly power is a key source of inflation. We also need to remember that profit data are erratic and subject to large revisions, so one or two quarters of data may not be telling us an accurate story.

Finally, if nominal wage growth accelerates, we should be concerned. It’s great to see workers getting wage gains, but if we see hourly wage growth approach double-digits, it virtually guarantees inflation rates that are uncomfortably high.

In short, there are real grounds for being concerned about the inflation we have been seeing, but we have a long way to go before seeing a 1970s wage-price spiral.   

 

In an article about the difficulty the Biden administration faces in getting more funding to deal with the pandemic, the NYT told readers:

“At issue is whether the White House has provided the level of detail desired by Republicans about the trillions of dollars in Covid relief spending that Congress previously authorized.”

Unless the NYT’s reporters have mind reading capabilities, they don’t know what level of detail Republicans desire, they know what they are requesting. It would be good if they would restrict themselves to reporting on what politicians say and do, not what they think.

In an article about the difficulty the Biden administration faces in getting more funding to deal with the pandemic, the NYT told readers:

“At issue is whether the White House has provided the level of detail desired by Republicans about the trillions of dollars in Covid relief spending that Congress previously authorized.”

Unless the NYT’s reporters have mind reading capabilities, they don’t know what level of detail Republicans desire, they know what they are requesting. It would be good if they would restrict themselves to reporting on what politicians say and do, not what they think.

Sanctions

The Opera Singer and the Sanctions

The decision of the New York Metropolitan Opera to not host Russian opera singer Anna Netrebko, unless she explicitly repudiates Vladimir Putin, has received a great deal of attention. The issue is whether it is appropriate to effectively sanction artistic performers and athletes over the decision by Putin to invade Ukraine.  

This may be an easier call in the case of Netrebko than some others, since it seems that she has associated with Putin repeatedly, and her career was advanced by this association. But the issue arises with performing artists and athletes more generally. After all, they weren’t involved in Putin’s decision to attack Ukraine, why should they be punished for Putin’s murderous attack on a neighboring country?

That is a good question, but it extends far more widely than the big-name stars who have largely been the focus. The sanctions that the U.S. is imposing on Russia will lead to hardship for tens of millions of people in Russia. Millions of ordinary workers will lose their jobs. These are mostly people who do things like working in restaurants and hotels, retail stores and factories. They will likely find it difficult to pay their rent, buy food, and afford other necessities of life.

Sanctions are a reasonable response to Putin’s invasion, but we should not imagine that there will not innocent victims. Some of these will be the star performers and athletes who will be excluded from much of the world.

But for every one of these stars whose case may get written up in the New York Times there are tens of thousands of retail clerks and factory workers who lose their job because of sanctions. These people deserve our sympathy at least as much as the highly paid international stars. In any case, it is important to remember that sanctions do have collateral damage, even if they may be an effective way to punish Putin for his invasion.  

The decision of the New York Metropolitan Opera to not host Russian opera singer Anna Netrebko, unless she explicitly repudiates Vladimir Putin, has received a great deal of attention. The issue is whether it is appropriate to effectively sanction artistic performers and athletes over the decision by Putin to invade Ukraine.  

This may be an easier call in the case of Netrebko than some others, since it seems that she has associated with Putin repeatedly, and her career was advanced by this association. But the issue arises with performing artists and athletes more generally. After all, they weren’t involved in Putin’s decision to attack Ukraine, why should they be punished for Putin’s murderous attack on a neighboring country?

That is a good question, but it extends far more widely than the big-name stars who have largely been the focus. The sanctions that the U.S. is imposing on Russia will lead to hardship for tens of millions of people in Russia. Millions of ordinary workers will lose their jobs. These are mostly people who do things like working in restaurants and hotels, retail stores and factories. They will likely find it difficult to pay their rent, buy food, and afford other necessities of life.

Sanctions are a reasonable response to Putin’s invasion, but we should not imagine that there will not innocent victims. Some of these will be the star performers and athletes who will be excluded from much of the world.

But for every one of these stars whose case may get written up in the New York Times there are tens of thousands of retail clerks and factory workers who lose their job because of sanctions. These people deserve our sympathy at least as much as the highly paid international stars. In any case, it is important to remember that sanctions do have collateral damage, even if they may be an effective way to punish Putin for his invasion.  

I was wondering that, since it told us in an article subhead, and then in the article itself, that Republicans have “concerns” about federal spending. In the article, the concern was over “excessive” federal spending.

Unless the Washington Post’s reporters are mind readers, they have no idea what Republicans are actually concerned about. Republican politicians, even more so than Democratic politicians, have also demonstrated an extraordinary ability to say things that are not true, so there is basically zero reason to believe that what they claim to be their concerns are their actual concerns.

The way this should be reported is simply to tell readers what the Republicans say, for example refer to “complaints,” rather than try to tell us what they think.

I was wondering that, since it told us in an article subhead, and then in the article itself, that Republicans have “concerns” about federal spending. In the article, the concern was over “excessive” federal spending.

Unless the Washington Post’s reporters are mind readers, they have no idea what Republicans are actually concerned about. Republican politicians, even more so than Democratic politicians, have also demonstrated an extraordinary ability to say things that are not true, so there is basically zero reason to believe that what they claim to be their concerns are their actual concerns.

The way this should be reported is simply to tell readers what the Republicans say, for example refer to “complaints,” rather than try to tell us what they think.

I mention that, because some folks have been saying that only a relatively small share of the population is affected by unemployment. While this is true if we take a snapshot and say that 4.0 percent or so of the workforce is unemployed at a point in time. However, this badly misunderstands how the labor market works.

Six million people lose or leave their job every month. That comes to 72 million a year, or roughly 45 percent of the labor force. Of course, many people lose or leave their job more than once, so the total number of people changing jobs would be considerably less than 72 million. On the other hand, we also have more than 4.5 million people enter or re-enter the labor market every month. In short, rather than just affecting a relatively small group of people, the state of the labor market directly affects a very large share of the population over the course of a year.

I can’t say how people form their views of the economy, but it is simply not true that the level of unemployment and the state of the labor market only affects a small minority of the population. If we combine people who are directly looking for work or changing a job over the course of a year, and their family members, it is almost certainly a majority of the population. People may for some reason not factor in their labor market prospects into their assessment of the economy, but it is not because they are not directly affected by the state of the labor market.

I mention that, because some folks have been saying that only a relatively small share of the population is affected by unemployment. While this is true if we take a snapshot and say that 4.0 percent or so of the workforce is unemployed at a point in time. However, this badly misunderstands how the labor market works.

Six million people lose or leave their job every month. That comes to 72 million a year, or roughly 45 percent of the labor force. Of course, many people lose or leave their job more than once, so the total number of people changing jobs would be considerably less than 72 million. On the other hand, we also have more than 4.5 million people enter or re-enter the labor market every month. In short, rather than just affecting a relatively small group of people, the state of the labor market directly affects a very large share of the population over the course of a year.

I can’t say how people form their views of the economy, but it is simply not true that the level of unemployment and the state of the labor market only affects a small minority of the population. If we combine people who are directly looking for work or changing a job over the course of a year, and their family members, it is almost certainly a majority of the population. People may for some reason not factor in their labor market prospects into their assessment of the economy, but it is not because they are not directly affected by the state of the labor market.

In his State of the Union Address, President Biden claimed the economy creating over 6.5 million jobs in his first year in office, which he said was the most ever. The New York Times boasted about fact-checking this claim. It rated it “partially true.”

The fact-check said: “Biden is correct on the numbers. But the government only started collecting this [sic] data in 1939.”

Okay folks, at the start of 1939, when the government started publishing this series, we had fewer than 30 million jobs by this measure (non-farm, payroll employment). An increase of more than 6.5 million jobs would have been a rise of more than 20 percent. That would be an increase of more than 30 million jobs in today’s labor market.

Does anyone at the NYT think we ever had a year where employment grew by 20 percent? That’s scary, if true.

In his State of the Union Address, President Biden claimed the economy creating over 6.5 million jobs in his first year in office, which he said was the most ever. The New York Times boasted about fact-checking this claim. It rated it “partially true.”

The fact-check said: “Biden is correct on the numbers. But the government only started collecting this [sic] data in 1939.”

Okay folks, at the start of 1939, when the government started publishing this series, we had fewer than 30 million jobs by this measure (non-farm, payroll employment). An increase of more than 6.5 million jobs would have been a rise of more than 20 percent. That would be an increase of more than 30 million jobs in today’s labor market.

Does anyone at the NYT think we ever had a year where employment grew by 20 percent? That’s scary, if true.

Want to search in the archives?

¿Quieres buscar en los archivos?

Click Here Haga clic aquí