The NYT Magazine has an interesting piece on Postville, Iowa, a small town whose major employer is a meatpacking plant. Postville gained notoriety in 2008 because of a raid on the plant by immigration authorities that resulted in dozens of undocumented workers being arrested and deported.
At one point the article notes the low pay and bad working conditions in the industry and explains that only immigrants would be willing to take these jobs. Actually the pay in the meatpacking industry was not always bad. In the 70s the meatpacking industry was heavily unionized. The jobs were fairly well paying for workers with relatively education and generally had pensions and health care insurance.
During the 80s, many union plants were closed, driven out by lower paying non-union facilities that often operated with immigrant workers. While meatpacking may inevitably be an unpleasant job, there is nothing about the work that necessitates that it pay poorly.
The NYT Magazine has an interesting piece on Postville, Iowa, a small town whose major employer is a meatpacking plant. Postville gained notoriety in 2008 because of a raid on the plant by immigration authorities that resulted in dozens of undocumented workers being arrested and deported.
At one point the article notes the low pay and bad working conditions in the industry and explains that only immigrants would be willing to take these jobs. Actually the pay in the meatpacking industry was not always bad. In the 70s the meatpacking industry was heavily unionized. The jobs were fairly well paying for workers with relatively education and generally had pensions and health care insurance.
During the 80s, many union plants were closed, driven out by lower paying non-union facilities that often operated with immigrant workers. While meatpacking may inevitably be an unpleasant job, there is nothing about the work that necessitates that it pay poorly.
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The NYT had a piece on the potential impact that uncertainty around the extension of tax cuts and the imposition of legislated spending reductions might be affecting the economy. At one point it tells readers that:
“Outside the military contracting industry, the fiscal cliff has not received the same amount of attention.”
Of course the reason that the impact of spending cuts on the military contracting industry has received attention is that the industry has paid lobbyists to hype its impact. They have circulated studies making outlandish claims about the jobs impact.
While cutting spending on the military in the middle of a downturn will lead to job loss, cutting spending on anything, even if the cuts were on totally pointless spending, would lead to job loss. In fact, since military spending is more capital intensive than most other sectors of the economy, cuts in this sector are likely to lead to less job loss than cuts in other areas of government spending.
As far as the general contention that uncertainty is slowing growth, this does not seem to be supported by recent data that shows a substantial uptick in new capital goods orders. If businesses are uncertain about the future, this is the most obvious place that the uncertainty would appear. If uncertainty were affecting employment we should expect a sharp rise in the ratio of new temp workers to new workers overall. We don’t see this.
The NYT had a piece on the potential impact that uncertainty around the extension of tax cuts and the imposition of legislated spending reductions might be affecting the economy. At one point it tells readers that:
“Outside the military contracting industry, the fiscal cliff has not received the same amount of attention.”
Of course the reason that the impact of spending cuts on the military contracting industry has received attention is that the industry has paid lobbyists to hype its impact. They have circulated studies making outlandish claims about the jobs impact.
While cutting spending on the military in the middle of a downturn will lead to job loss, cutting spending on anything, even if the cuts were on totally pointless spending, would lead to job loss. In fact, since military spending is more capital intensive than most other sectors of the economy, cuts in this sector are likely to lead to less job loss than cuts in other areas of government spending.
As far as the general contention that uncertainty is slowing growth, this does not seem to be supported by recent data that shows a substantial uptick in new capital goods orders. If businesses are uncertain about the future, this is the most obvious place that the uncertainty would appear. If uncertainty were affecting employment we should expect a sharp rise in the ratio of new temp workers to new workers overall. We don’t see this.
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That is the reality, it would have been an appropriate headline.
That is the reality, it would have been an appropriate headline.
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It appears that both President Obama and Governor Romney are going to be accusing each other of being offshorers in the fall campaign. Both have a case, even if not exactly the one they are making.
Obama’s case on Romney being an offshorer is that the companies owned by Bain Capital shipped many jobs overseas. Romney counters that the offshoring began after he had given up his role as a top executive at Bain, although he did still have a substantial stake in the company. He said that while he was running things the company only did domestic outsourcing, they did not ship jobs overseas.
As a practical matter, this would have a similar effect on the wages of the workers affected. Most workers in the economy probably earn some economic rent. This means that if we were to put their position up for competitive bidding to the whole world, there would be someone who was willing to the do their job for less money.
Fortunately for most of us, our jobs generally don’t come up for competitive bidding so we can continue to enjoy this wage premium in bliss. Bain Capital’s outsourcing put workers’ jobs up for this sort of competitive bidding. Whether the auction was purely domestic, as Romney contends, or whether it involved the whole world, is secondary. Ordinary workers would see their pay cut.
Romney has focused his attack on President Obama on the claim that some stimulus dollars went overseas. This is surely true, since it would have been impossible to ensure that all stimulus spending remained in the United States. (Congress did include a “buy America” provision in the stimulus bill, which would have had the effect of reducing the portion of the stimulus spent outside of the country.) The more important question has been the general direction of President Obama’s trade policy and the extent to which it imposes some groups of workers to competitive bidding for their jobs.
This is where Romney has the better case, although it is not clear that he would pursue any different policy. The trade policy of President Obama, like that of his immediate predecessors Presidents Bush and Clinton, has been focused on placing manufacturing workers in direct competition with low paid workers in the developing world. This has the effect of depressing their wages since firms can either directly or indirectly hire workers in developing countries who are paid a fraction of the wages of workers in the United States.
At the same time, his trade policy has done little or nothing to expose highly educated professionals like doctors and lawyers to the same competition. This policy has the predicted and actual effect of depressing the wages of less educated workers relative to the most highly paid workers. This policy is exacerbated by maintaining an over-valued dollar, which further depresses the wages of those workers exposed to international competition to the benefit of those who are largely protected.
President Obama has also done nothing to combat the corruption in the corporate governance structure whereby corporate board members are paid hundreds of thousands of thousands a dollars a year to look the other way as top management pillages the company. A policy that subjects less educated workers to the most vigorous possible competition, while maintaining protection for those at the top will redistribute income upward, as we have seen over the last three decades. Both candidates seem to largely support such policies.
It appears that both President Obama and Governor Romney are going to be accusing each other of being offshorers in the fall campaign. Both have a case, even if not exactly the one they are making.
Obama’s case on Romney being an offshorer is that the companies owned by Bain Capital shipped many jobs overseas. Romney counters that the offshoring began after he had given up his role as a top executive at Bain, although he did still have a substantial stake in the company. He said that while he was running things the company only did domestic outsourcing, they did not ship jobs overseas.
As a practical matter, this would have a similar effect on the wages of the workers affected. Most workers in the economy probably earn some economic rent. This means that if we were to put their position up for competitive bidding to the whole world, there would be someone who was willing to the do their job for less money.
Fortunately for most of us, our jobs generally don’t come up for competitive bidding so we can continue to enjoy this wage premium in bliss. Bain Capital’s outsourcing put workers’ jobs up for this sort of competitive bidding. Whether the auction was purely domestic, as Romney contends, or whether it involved the whole world, is secondary. Ordinary workers would see their pay cut.
Romney has focused his attack on President Obama on the claim that some stimulus dollars went overseas. This is surely true, since it would have been impossible to ensure that all stimulus spending remained in the United States. (Congress did include a “buy America” provision in the stimulus bill, which would have had the effect of reducing the portion of the stimulus spent outside of the country.) The more important question has been the general direction of President Obama’s trade policy and the extent to which it imposes some groups of workers to competitive bidding for their jobs.
This is where Romney has the better case, although it is not clear that he would pursue any different policy. The trade policy of President Obama, like that of his immediate predecessors Presidents Bush and Clinton, has been focused on placing manufacturing workers in direct competition with low paid workers in the developing world. This has the effect of depressing their wages since firms can either directly or indirectly hire workers in developing countries who are paid a fraction of the wages of workers in the United States.
At the same time, his trade policy has done little or nothing to expose highly educated professionals like doctors and lawyers to the same competition. This policy has the predicted and actual effect of depressing the wages of less educated workers relative to the most highly paid workers. This policy is exacerbated by maintaining an over-valued dollar, which further depresses the wages of those workers exposed to international competition to the benefit of those who are largely protected.
President Obama has also done nothing to combat the corruption in the corporate governance structure whereby corporate board members are paid hundreds of thousands of thousands a dollars a year to look the other way as top management pillages the company. A policy that subjects less educated workers to the most vigorous possible competition, while maintaining protection for those at the top will redistribute income upward, as we have seen over the last three decades. Both candidates seem to largely support such policies.
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David Brooks deserves to be congratulated. He has discovered that the children of less affluent people don’t have the same opportunities as the children of the wealthy. While most of us have long known this, David Brooks still deserves credit for being open to evidence. Better late than never.
Of course he still seems to have some problems figuring out what to do about this fact. He tells readers:
“Political candidates will have to spend less time trying to exploit class divisions and more time trying to remedy them — less time calling their opponents out of touch elitists, and more time coming up with agendas that comprehensively address the problem.”
How does this work exactly? If someone proposes taxes on wealthy people to pay for better education for the less wealthy, doesn’t this require talking about class divisions? If we were to change rules on corporate governance so that top management could not rip off shareholders and other stakeholders, wouldn’t this require discussion of class? If we were to impose a financial speculation tax that would crack down on pointless trading and sleaze dealings (e.g. the LIBOR liars) in the financial sector, wouldn’t we have to talk about class? If we adopted trade policies that subjected doctors and other highly paid professionals to the same international competition as autoworkers and textile workers, wouldn’t we also have to talk about class?
Brooks apparently finds discussion of class painful, but it is difficult to understand how one would address the “opportunity gap” he describes without this discussion.
It is also worth noting that the problem of paying too much for benefits for the elderly is not quite what he describes. The problem is not that our elderly are getting excessively generous benefits, the problem is that we are paying too much to doctors and other health care providers. If our per person health care costs were comparable to those in other countries, then our programs for the elderly would not pose a serious burden.
David Brooks deserves to be congratulated. He has discovered that the children of less affluent people don’t have the same opportunities as the children of the wealthy. While most of us have long known this, David Brooks still deserves credit for being open to evidence. Better late than never.
Of course he still seems to have some problems figuring out what to do about this fact. He tells readers:
“Political candidates will have to spend less time trying to exploit class divisions and more time trying to remedy them — less time calling their opponents out of touch elitists, and more time coming up with agendas that comprehensively address the problem.”
How does this work exactly? If someone proposes taxes on wealthy people to pay for better education for the less wealthy, doesn’t this require talking about class divisions? If we were to change rules on corporate governance so that top management could not rip off shareholders and other stakeholders, wouldn’t this require discussion of class? If we were to impose a financial speculation tax that would crack down on pointless trading and sleaze dealings (e.g. the LIBOR liars) in the financial sector, wouldn’t we have to talk about class? If we adopted trade policies that subjected doctors and other highly paid professionals to the same international competition as autoworkers and textile workers, wouldn’t we also have to talk about class?
Brooks apparently finds discussion of class painful, but it is difficult to understand how one would address the “opportunity gap” he describes without this discussion.
It is also worth noting that the problem of paying too much for benefits for the elderly is not quite what he describes. The problem is not that our elderly are getting excessively generous benefits, the problem is that we are paying too much to doctors and other health care providers. If our per person health care costs were comparable to those in other countries, then our programs for the elderly would not pose a serious burden.
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The NYT must assume that its readers know all about the policy impact of allowing the Bush tax cuts on the richest 2 percent of the population. That is the only possible explanation for an article that reported what various political actors had to say about this idea without telling readers what is actually true.
For example, the piece told readers that:
“He [President Obama] said that 98 percent of households and 97 percent of small businesses would receive a tax cut under his plan. But Republicans said the president’s proposal would amount to a broad tax on small businesses because many business owners report their profits as personal income.”
It would have been worth pointing out that President Obama’s claim that 97 percent of small businesses would not see any tax increase under this proposal. Furthermore, even for the most businesses that did pay a higher tax the increase would be trivial.
This is because the tax is a marginal tax. A business owner who earned $300,000 a year, enough to be subject to a higher tax under the Obama plan, would see her taxes increase by approximately 0.5 percent of her income.
The piece also refers to a proposal put forward by House Minority Leader Nancy Pelosi to have the cutoff for those subject to higher taxes be people with incomes above $1 million rather than the $250,000 cutoff set by President Obama. It would have been worth telling readers that would lose more than 40 percent of the revenue projected to be raised under Obama’s tax proposal. It also would have been worth noting that the biggest gainers under the Pelosi plan would be the 0.1 percent of households with incomes over $1 million.
It also is worth noting that impact of the Obama tax increase on families $250,000-$500,000 would be substantially less than the impact of the change to the Social Security indexation formula advocated in the Bowles-Simpson plan and supported by many leaders in the Democratic Party. The proposed change in the inflation adjustment to a chain consumer price index, would reduce benefits by 0.3 percent a year compared to the current formula. After ten years this would reduce benefits by 3 percent, after 20 years by 6 percent. If an average beneficiary survives 20 years, their average cut in benefits would be approximately 3 percent.
Apparently many Democrats, who are unwilling to impose even a trivial tax increase on people earning more than $500,000 a year are willing to cut Social Security for people getting by on monthly checks that average less than $1,200 a month.
The NYT must assume that its readers know all about the policy impact of allowing the Bush tax cuts on the richest 2 percent of the population. That is the only possible explanation for an article that reported what various political actors had to say about this idea without telling readers what is actually true.
For example, the piece told readers that:
“He [President Obama] said that 98 percent of households and 97 percent of small businesses would receive a tax cut under his plan. But Republicans said the president’s proposal would amount to a broad tax on small businesses because many business owners report their profits as personal income.”
It would have been worth pointing out that President Obama’s claim that 97 percent of small businesses would not see any tax increase under this proposal. Furthermore, even for the most businesses that did pay a higher tax the increase would be trivial.
This is because the tax is a marginal tax. A business owner who earned $300,000 a year, enough to be subject to a higher tax under the Obama plan, would see her taxes increase by approximately 0.5 percent of her income.
The piece also refers to a proposal put forward by House Minority Leader Nancy Pelosi to have the cutoff for those subject to higher taxes be people with incomes above $1 million rather than the $250,000 cutoff set by President Obama. It would have been worth telling readers that would lose more than 40 percent of the revenue projected to be raised under Obama’s tax proposal. It also would have been worth noting that the biggest gainers under the Pelosi plan would be the 0.1 percent of households with incomes over $1 million.
It also is worth noting that impact of the Obama tax increase on families $250,000-$500,000 would be substantially less than the impact of the change to the Social Security indexation formula advocated in the Bowles-Simpson plan and supported by many leaders in the Democratic Party. The proposed change in the inflation adjustment to a chain consumer price index, would reduce benefits by 0.3 percent a year compared to the current formula. After ten years this would reduce benefits by 3 percent, after 20 years by 6 percent. If an average beneficiary survives 20 years, their average cut in benefits would be approximately 3 percent.
Apparently many Democrats, who are unwilling to impose even a trivial tax increase on people earning more than $500,000 a year are willing to cut Social Security for people getting by on monthly checks that average less than $1,200 a month.
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Folks in Washington like to think that their silly dramas have much more impact on the world than they in fact do. The battle over extending the debt ceiling last year is a case in point, with its sequel, the 2013 Fiscal Cliff, providing another example.
Ezra Klein traced a slowdown in the economy last year to the uncertainty resulting from the battle over the debt ceiling. He tells readers:
“Early in the year, the recovery seemed to be proceeding smoothly. In February, the economy added 220,000 jobs. In March, it added 246,000 jobs. And in April, 251,000 jobs. But as summer approached, and as markets shuddered over the Republican threat to breach the debt ceiling, the economy sputtered. Between May and August, the nation never added more than 100,000 jobs a month. And then, in September, the month after the debt ceiling was resolved, the economy sped back up and added more than 200,000 jobs.”
He then goes on to give data on consumer confidence showing a fall in the months where consumers were supposed to be concerned about the debt ceiling. While this might sound as though it supports the case that concerns about the debt ceiling cratered the economy, the data on what people actually did (not what they said) indicates otherwise.
The chart below shows saving as a percent of disposable income. See the surge in the saving rate as the debt ceiling battle reached its crescendo in June and July? Me neither.
Source: Bureau of Economic Analysis.
Suppose we look at the trend in spending on durable goods. These are big ticket items like cars and refrigerators, certainly not the sort of expenditure that worried consumers are likely to make if they could avoid it. Here we do see a falloff in July as people saw catastrophe about to hit, but durable good spending continues to fall after people got the all clear in early August. This one doesn’t seem to quite fit the worried consumer story either. (The data here are nominal, which is appropriate in this context since it reflects what people are willing to spend. It is unlikely that consumers are very aware of monthly price changes, especially in durable goods, since these will often be dominated by quality adjustments. The latter are calculated by the Bureau of Labor Statistics and may not be entirely apparent to consumers at the time.)
Source: Bureau of Economic Analysis.
So if consumer spending didn’t fall through the floor what explains the dropoff in job creation? Typically there is some lag between GDP growth and job creation. GDP grew 2.5 percent in the third quarter and 2.3 percent in the fourth quarter. That fell to 0.4 percent in the first quarter, followed by 1.3 percent growth in the second quarter.
And why did GDP growth slow? Try the end of the stimulus. Government spending shrank at an annual rate of 2.8 in the fourth quarter of 2010, followed by drops of 5.9 percent in the first quarter and 0.9 percent in the second quarter. After being a boost to growth in the second half of 2009 and the first half of 2010, the government sector became a major drag on growth in the first half of 2011.
As I have argued elsewhere, consumer confidence measures largely reflect what people in the media are saying about the economy. They often have little to do with what consumers are doing.
Folks in Washington like to think that their silly dramas have much more impact on the world than they in fact do. The battle over extending the debt ceiling last year is a case in point, with its sequel, the 2013 Fiscal Cliff, providing another example.
Ezra Klein traced a slowdown in the economy last year to the uncertainty resulting from the battle over the debt ceiling. He tells readers:
“Early in the year, the recovery seemed to be proceeding smoothly. In February, the economy added 220,000 jobs. In March, it added 246,000 jobs. And in April, 251,000 jobs. But as summer approached, and as markets shuddered over the Republican threat to breach the debt ceiling, the economy sputtered. Between May and August, the nation never added more than 100,000 jobs a month. And then, in September, the month after the debt ceiling was resolved, the economy sped back up and added more than 200,000 jobs.”
He then goes on to give data on consumer confidence showing a fall in the months where consumers were supposed to be concerned about the debt ceiling. While this might sound as though it supports the case that concerns about the debt ceiling cratered the economy, the data on what people actually did (not what they said) indicates otherwise.
The chart below shows saving as a percent of disposable income. See the surge in the saving rate as the debt ceiling battle reached its crescendo in June and July? Me neither.
Source: Bureau of Economic Analysis.
Suppose we look at the trend in spending on durable goods. These are big ticket items like cars and refrigerators, certainly not the sort of expenditure that worried consumers are likely to make if they could avoid it. Here we do see a falloff in July as people saw catastrophe about to hit, but durable good spending continues to fall after people got the all clear in early August. This one doesn’t seem to quite fit the worried consumer story either. (The data here are nominal, which is appropriate in this context since it reflects what people are willing to spend. It is unlikely that consumers are very aware of monthly price changes, especially in durable goods, since these will often be dominated by quality adjustments. The latter are calculated by the Bureau of Labor Statistics and may not be entirely apparent to consumers at the time.)
Source: Bureau of Economic Analysis.
So if consumer spending didn’t fall through the floor what explains the dropoff in job creation? Typically there is some lag between GDP growth and job creation. GDP grew 2.5 percent in the third quarter and 2.3 percent in the fourth quarter. That fell to 0.4 percent in the first quarter, followed by 1.3 percent growth in the second quarter.
And why did GDP growth slow? Try the end of the stimulus. Government spending shrank at an annual rate of 2.8 in the fourth quarter of 2010, followed by drops of 5.9 percent in the first quarter and 0.9 percent in the second quarter. After being a boost to growth in the second half of 2009 and the first half of 2010, the government sector became a major drag on growth in the first half of 2011.
As I have argued elsewhere, consumer confidence measures largely reflect what people in the media are saying about the economy. They often have little to do with what consumers are doing.
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That fact should have mentioned in a NYT article that touted an 11.2 percent jump in credit card debt in May. Much of this increase was offsetting a 4.9 percent decline reported for April.
That fact should have mentioned in a NYT article that touted an 11.2 percent jump in credit card debt in May. Much of this increase was offsetting a 4.9 percent decline reported for April.
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The Post had a major front page article about how subprime loans threaten to undermine the prospects of African Americans for a decade. While African Americans do face discrimination in lending and are more likely to be given a subprime loan than whites with comparable credit and employment history, the real problem stemmed from the fact that so many bought homes in the middle of a housing bubble.
If someone bought a home at a bubble-inflated price that could be twice as much as its trend level, it would have a devastating impact on their finances, regardless of what type of mortgage they had. The big problem was that just about everyone in a position of authority was denying that there was a bubble and in fact helping to promote it.
For example, the Washington Post’s main, and often only, source in articles on the housing market was David Lereah, the chief economist at the National Association of Realtors and the author of the 2006 best seller, Why the Housing Boom Will not Bust and How You Can Profit from It.
Another popular source for major media outlets was the Joint Center for Housing Studies at Harvard University which felt the need to dismiss evidence of a housing bubble in its 2003 report on the state of the housing market. While many homeowners may have suffered as a result of taking the Harvard Center’s advice seriously, unfortunately the media does not consider its track record important. It continues to be used as a main source of expertise on the state of the housing market by major news outlets such as National Public Radio.
The Post had a major front page article about how subprime loans threaten to undermine the prospects of African Americans for a decade. While African Americans do face discrimination in lending and are more likely to be given a subprime loan than whites with comparable credit and employment history, the real problem stemmed from the fact that so many bought homes in the middle of a housing bubble.
If someone bought a home at a bubble-inflated price that could be twice as much as its trend level, it would have a devastating impact on their finances, regardless of what type of mortgage they had. The big problem was that just about everyone in a position of authority was denying that there was a bubble and in fact helping to promote it.
For example, the Washington Post’s main, and often only, source in articles on the housing market was David Lereah, the chief economist at the National Association of Realtors and the author of the 2006 best seller, Why the Housing Boom Will not Bust and How You Can Profit from It.
Another popular source for major media outlets was the Joint Center for Housing Studies at Harvard University which felt the need to dismiss evidence of a housing bubble in its 2003 report on the state of the housing market. While many homeowners may have suffered as a result of taking the Harvard Center’s advice seriously, unfortunately the media does not consider its track record important. It continues to be used as a main source of expertise on the state of the housing market by major news outlets such as National Public Radio.
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