That’s basically zero right now (and higher inflation would be good — reducing the debt of homeowners and lowering real interest rates), but if Operation Twist boosts growth and increases employment then it threatens inflation in the same way as printing money. Someone has to straighten out the Post.
That’s basically zero right now (and higher inflation would be good — reducing the debt of homeowners and lowering real interest rates), but if Operation Twist boosts growth and increases employment then it threatens inflation in the same way as printing money. Someone has to straighten out the Post.
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The PBS Newshour last night included a segment on state and local pension liabilities. While it included Josh Rauh, one of the people who has been most visible raising alarms about the condition of state pensions, it did not include the voice of anyone who was prepared to defend the financial situation of state pensions.
This meant, for example, that when Rauh told viewers that unfunded liabilities came to $9,000 for every U.S. household, there was no one to point out that this comes to less than 0.3 percent of projected household income over the next 30 years, the relevant time frame for paying off this unfunded liability. It is likely that listeners would be less concerned if they were given this additional piece of information.
There was also no one to point out that pension funds are simply assuming that their asset mix will get their historic rate of return when they assume an 8.0 percent. Contrary to Ruah’s statement:
“Anybody who’s looked at their own accounts lately know that that’s very difficult particularly in an environment where bonds, 10-year Treasury bonds are yielding 1.6 percent.”
A knowledgeable person could have reminded readers that the price to earnings ratios for stock have now fallen back to their long-term average. While it was in fact foolish for pensions to assume 8.0 percent returns when the PEs were inflated in the 90s and the last decade, as some of us pointed out at the time, it is difficult to construct a plausible scenario now where pension assets will provide a return that is much below 8.0 percent.
Unfortunately, because the show did not have a balanced panel, there was no one to make these points to viewers.
The PBS Newshour last night included a segment on state and local pension liabilities. While it included Josh Rauh, one of the people who has been most visible raising alarms about the condition of state pensions, it did not include the voice of anyone who was prepared to defend the financial situation of state pensions.
This meant, for example, that when Rauh told viewers that unfunded liabilities came to $9,000 for every U.S. household, there was no one to point out that this comes to less than 0.3 percent of projected household income over the next 30 years, the relevant time frame for paying off this unfunded liability. It is likely that listeners would be less concerned if they were given this additional piece of information.
There was also no one to point out that pension funds are simply assuming that their asset mix will get their historic rate of return when they assume an 8.0 percent. Contrary to Ruah’s statement:
“Anybody who’s looked at their own accounts lately know that that’s very difficult particularly in an environment where bonds, 10-year Treasury bonds are yielding 1.6 percent.”
A knowledgeable person could have reminded readers that the price to earnings ratios for stock have now fallen back to their long-term average. While it was in fact foolish for pensions to assume 8.0 percent returns when the PEs were inflated in the 90s and the last decade, as some of us pointed out at the time, it is difficult to construct a plausible scenario now where pension assets will provide a return that is much below 8.0 percent.
Unfortunately, because the show did not have a balanced panel, there was no one to make these points to viewers.
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There is a lengthy and painful debate over at the Trichordist over whether young people are being immoral when they listen to music that they didn’t pay for. The lead piece “letter to Emily” explains to a young woman how she has an obligation to pay for the music she listens to. The piece accurately documents the dismal economic plight of most musicians. It then throws in the statistics that are familiar to those of us who follow the issue closely:
Recorded music revenue is down 64% since 1999.
Per capita spending on music is 47% lower than it was in 1973!!
The number of professional musicians has fallen 25% since 2000.
Of the 75,000 albums released in 2010 only 2,000 sold more than 5,000 copies. Only 1,000 sold more than 10,000 copies. Without going into details, 10,000 albums is about the point where independent artists begin to go into the black on professional album production, marketing and promotion.
All of these facts are right. That should tell us that we have a system that doesn’t work. We can harangue Emily about being an immoral person, but that is not a serious response. The copyright system might have been fine for 16th century Venice but it is not a viable way to support creative work in the Internet Age and we are not going to change that by preaching to the heretics.
The serious route is to find an alternative mechanism. I have proposed one, an Artistic Freedom Voucher. This is essentially an individual tax credit, modeled on the charitable deduction, that would allow everyone to give a certain sum (e.g. $150) to the creative worker(s) or organization who they most like. The condition of getting the money would be that a creative worker register with the I.R.S. just like a charity or non-profit must register and give up their ability to get copyright protection for a period of time (e.g. 5 years).
It is a simple, low-bureaucracy way to get tens of billions of dollars a year to support creative workers. I am sure that there are other better ways to do this, but the point is that copyright is dying fast.
Creative workers can get upset about that fact and scream at the Emilys of the world for being immoral or they can try to think of a way of developing a model that works in the Internet Age.
There is a lengthy and painful debate over at the Trichordist over whether young people are being immoral when they listen to music that they didn’t pay for. The lead piece “letter to Emily” explains to a young woman how she has an obligation to pay for the music she listens to. The piece accurately documents the dismal economic plight of most musicians. It then throws in the statistics that are familiar to those of us who follow the issue closely:
Recorded music revenue is down 64% since 1999.
Per capita spending on music is 47% lower than it was in 1973!!
The number of professional musicians has fallen 25% since 2000.
Of the 75,000 albums released in 2010 only 2,000 sold more than 5,000 copies. Only 1,000 sold more than 10,000 copies. Without going into details, 10,000 albums is about the point where independent artists begin to go into the black on professional album production, marketing and promotion.
All of these facts are right. That should tell us that we have a system that doesn’t work. We can harangue Emily about being an immoral person, but that is not a serious response. The copyright system might have been fine for 16th century Venice but it is not a viable way to support creative work in the Internet Age and we are not going to change that by preaching to the heretics.
The serious route is to find an alternative mechanism. I have proposed one, an Artistic Freedom Voucher. This is essentially an individual tax credit, modeled on the charitable deduction, that would allow everyone to give a certain sum (e.g. $150) to the creative worker(s) or organization who they most like. The condition of getting the money would be that a creative worker register with the I.R.S. just like a charity or non-profit must register and give up their ability to get copyright protection for a period of time (e.g. 5 years).
It is a simple, low-bureaucracy way to get tens of billions of dollars a year to support creative workers. I am sure that there are other better ways to do this, but the point is that copyright is dying fast.
Creative workers can get upset about that fact and scream at the Emilys of the world for being immoral or they can try to think of a way of developing a model that works in the Internet Age.
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Well, he didn’t say that exactly, but we can infer it from his column. In this piece he again called for President Obama to embrace the deficit reduction plan put forward by former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.
One of the central features of the Bowles-Simpson plan is a reduction in the annual cost of living adjustment for Social Security by 0.3 percentage points. After ten years this implies a cut in benefits of 3 percent. After twenty years it implies a cut in benefits of 6 percent. If we assume that the average beneficiary will collect benefits for twenty years, then the average fall in benefits will be 3 percent over a retiree’s lifetime.
Roughly a third of beneficiaries rely on Social Security for 90 percent or more of their income. For these people this change in the cost of living adjustment would be equivalent to a 3 percentage point increase in their income taxes. They would see a much sharper decline in their income than say a person earning $300,000 a year would from seeing the expiration of the Bush tax cuts.
Obviously Friedman does not believe that the cut in Social Security benefits that he is advocating is a big deal. Therefore we can infer that he also does not view the smaller percentage cut in income that would result from ending the Bush tax cuts as a big deal.
It is worth noting that Friedman continually harangues Obama for not doing what he in fact already has done. Friedman wants Obama to be brave and embrace a package involving major budget cuts. Obama has in fact repeatedly indicated his willingness to support the Bowles-Simpson plan.
Given that this plan implies a big hit to many low and moderate income people, and is enthusiastically embraced by DC pundit class, once can question how brave it is to embrace it. But Friedman is essentially making a career out of haranguing Obama to do something he has already done.
Well, he didn’t say that exactly, but we can infer it from his column. In this piece he again called for President Obama to embrace the deficit reduction plan put forward by former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.
One of the central features of the Bowles-Simpson plan is a reduction in the annual cost of living adjustment for Social Security by 0.3 percentage points. After ten years this implies a cut in benefits of 3 percent. After twenty years it implies a cut in benefits of 6 percent. If we assume that the average beneficiary will collect benefits for twenty years, then the average fall in benefits will be 3 percent over a retiree’s lifetime.
Roughly a third of beneficiaries rely on Social Security for 90 percent or more of their income. For these people this change in the cost of living adjustment would be equivalent to a 3 percentage point increase in their income taxes. They would see a much sharper decline in their income than say a person earning $300,000 a year would from seeing the expiration of the Bush tax cuts.
Obviously Friedman does not believe that the cut in Social Security benefits that he is advocating is a big deal. Therefore we can infer that he also does not view the smaller percentage cut in income that would result from ending the Bush tax cuts as a big deal.
It is worth noting that Friedman continually harangues Obama for not doing what he in fact already has done. Friedman wants Obama to be brave and embrace a package involving major budget cuts. Obama has in fact repeatedly indicated his willingness to support the Bowles-Simpson plan.
Given that this plan implies a big hit to many low and moderate income people, and is enthusiastically embraced by DC pundit class, once can question how brave it is to embrace it. But Friedman is essentially making a career out of haranguing Obama to do something he has already done.
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The euro zone crisis is very bad news for the people of the region, especially in the peripheral countries where unemployment is soaring well into the double digits. However its impact on the economic situation in the United States has been hugely exaggerated, as in this NYT article that told readers:
“With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spending and the austerity programs that have been imposed on Greece and the other struggling euro zone economies.”
In fact, exports to the euro zone countries are less than 1.5 percent of GDP. Even if these were to fall by 10 percent (a huge decline) it would have only a minimal impact on growth in the United States. Also, the euro zone crises has helped to lower interest rates in the United States as investors turn to Treasury bonds as a safe haven. This has had a modest positive impact on growth in the United States.
Of course the situation would be different if there were a complete meltdown in the euro zone. This could lead to a Lehman-type financial crisis, which would be a serious hit to growth.
The euro zone crisis is very bad news for the people of the region, especially in the peripheral countries where unemployment is soaring well into the double digits. However its impact on the economic situation in the United States has been hugely exaggerated, as in this NYT article that told readers:
“With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spending and the austerity programs that have been imposed on Greece and the other struggling euro zone economies.”
In fact, exports to the euro zone countries are less than 1.5 percent of GDP. Even if these were to fall by 10 percent (a huge decline) it would have only a minimal impact on growth in the United States. Also, the euro zone crises has helped to lower interest rates in the United States as investors turn to Treasury bonds as a safe haven. This has had a modest positive impact on growth in the United States.
Of course the situation would be different if there were a complete meltdown in the euro zone. This could lead to a Lehman-type financial crisis, which would be a serious hit to growth.
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The Post told readers that with the Federal Reserve Board’s “Operation Twist” (selling short-term debt to buy longer term debt):
“the Fed is able to bring down more stubborn long-term rates — from corporate loans to mortgages — without “printing more money” to do so. Increasing the money supply increases the chance of inflation, which invites political criticism.”
This is not true. Anything the Fed does to boost demand in the economy increases the risk of inflation. As a practical matter, the idea that there would be a problem of inflation in an economy with so much excess capacity is almost absurd on its face. But if printing money raises fears of inflation, then so should another round of operation twist.
The Post told readers that with the Federal Reserve Board’s “Operation Twist” (selling short-term debt to buy longer term debt):
“the Fed is able to bring down more stubborn long-term rates — from corporate loans to mortgages — without “printing more money” to do so. Increasing the money supply increases the chance of inflation, which invites political criticism.”
This is not true. Anything the Fed does to boost demand in the economy increases the risk of inflation. As a practical matter, the idea that there would be a problem of inflation in an economy with so much excess capacity is almost absurd on its face. But if printing money raises fears of inflation, then so should another round of operation twist.
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In an article on the likelihood that the Fed would take steps to boost the economy at its meeting this week the NYT gave readers Governor Romney’s assessment of Fed actions to boost the economy. The article tells readers:
“As for the consequences [of measures to boost the economy], Mr. Romney said the program was ‘not extraordinarily harmful, but it does put in question the future value of the dollar and it will obviously encourage some inflation down the road.'”
Romney has repeatedly said that he would take strong measures against China to pressure it to raise the value of its currency against the dollar. This is the same thing as reducing the value of the dollar since it means that the dollar will fall against the Chinese yuan and almost certainly against the currencies of many other countries who will follow China’s lead.
If Romney really wants to see the value of the dollar fall against China’s currency, as he claims, then it is hard to see why he would be worried that dollar would fall in response to the Fed’s actions. This seems to be exactly the policy he is advocating.
It is also worth noting that a lower valued dollar is the standard mechanism for correcting the trade deficit. Those who want to see the United States borrowing less from foreigners should favor a lower valued dollar.
In an article on the likelihood that the Fed would take steps to boost the economy at its meeting this week the NYT gave readers Governor Romney’s assessment of Fed actions to boost the economy. The article tells readers:
“As for the consequences [of measures to boost the economy], Mr. Romney said the program was ‘not extraordinarily harmful, but it does put in question the future value of the dollar and it will obviously encourage some inflation down the road.'”
Romney has repeatedly said that he would take strong measures against China to pressure it to raise the value of its currency against the dollar. This is the same thing as reducing the value of the dollar since it means that the dollar will fall against the Chinese yuan and almost certainly against the currencies of many other countries who will follow China’s lead.
If Romney really wants to see the value of the dollar fall against China’s currency, as he claims, then it is hard to see why he would be worried that dollar would fall in response to the Fed’s actions. This seems to be exactly the policy he is advocating.
It is also worth noting that a lower valued dollar is the standard mechanism for correcting the trade deficit. Those who want to see the United States borrowing less from foreigners should favor a lower valued dollar.
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The NYT had two pieces today discussing the euro zone crisis, both of which implied that additional funds to support the peripheral countries will have to come from Germany and other core countries. Actually, this route would be problematic because at some point even Germany’s credit would be called into question.
The key to restoring the euro zone to stable growth would be to have the European Central Bank (ECB) back up the debts of the euro zone countries. This would immediately restore the market’s confidence in their debt and sharply reduce interest rates. The only risk from going this route is higher inflation.
Of course higher inflation is a necessary part of the solution to the crisis. The peripheral countries must regain their competitiveness relative to Germany. This can only be done by having prices rise less rapidly in the peripheral countries than in Germany. Since it is not plausible to envision prices declining in the peripheral countries (there is no precedence for such price declines) then prices must rise more rapidly in Germany.
For this reason, the guarantee of peripheral country debts by the ECB would accomplish both major tasks needed to end the crisis. It would immediately end the risk of a default by these countries and also set in motion a process that could restore their competitiveness. And, it would be largely painless for numerate people in Germany and other core euro zone countries.
The NYT had two pieces today discussing the euro zone crisis, both of which implied that additional funds to support the peripheral countries will have to come from Germany and other core countries. Actually, this route would be problematic because at some point even Germany’s credit would be called into question.
The key to restoring the euro zone to stable growth would be to have the European Central Bank (ECB) back up the debts of the euro zone countries. This would immediately restore the market’s confidence in their debt and sharply reduce interest rates. The only risk from going this route is higher inflation.
Of course higher inflation is a necessary part of the solution to the crisis. The peripheral countries must regain their competitiveness relative to Germany. This can only be done by having prices rise less rapidly in the peripheral countries than in Germany. Since it is not plausible to envision prices declining in the peripheral countries (there is no precedence for such price declines) then prices must rise more rapidly in Germany.
For this reason, the guarantee of peripheral country debts by the ECB would accomplish both major tasks needed to end the crisis. It would immediately end the risk of a default by these countries and also set in motion a process that could restore their competitiveness. And, it would be largely painless for numerate people in Germany and other core euro zone countries.
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Dana Milbank devoted his column to the disenchantment of progressives with the current political situation. At one point he comments that:
“the still-lumbering economy has depressed President Obama’s supporters.”
While this is no doubt true, it is worth mentioning that just about all progressives said at the time that the stimulus would be inadequate to restore the economy to a healthy growth path. The collapse of the housing bubble destroyed close to $1.2 trillion in annual demand from construction and consumption. At its peak in 2009 and 2010 the stimulus only replaced about $300 billion in annual spending.
It is discouraging to see so many people suffering unnecessarily, but this outcome is exactly what our analysis predicted at the time. Unfortunately, having a track record of being right is not generally a factor in determining which views carry weight in Washington policy debates.
Dana Milbank devoted his column to the disenchantment of progressives with the current political situation. At one point he comments that:
“the still-lumbering economy has depressed President Obama’s supporters.”
While this is no doubt true, it is worth mentioning that just about all progressives said at the time that the stimulus would be inadequate to restore the economy to a healthy growth path. The collapse of the housing bubble destroyed close to $1.2 trillion in annual demand from construction and consumption. At its peak in 2009 and 2010 the stimulus only replaced about $300 billion in annual spending.
It is discouraging to see so many people suffering unnecessarily, but this outcome is exactly what our analysis predicted at the time. Unfortunately, having a track record of being right is not generally a factor in determining which views carry weight in Washington policy debates.
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The Bureau of Labor Statistics issued its April report for the Job Opening and Labor Turnover Survey (JOLTS) today. It shows a big drop in job openings.
While some folks will no doubt make a big deal out of this report, there are a few things to keep in mind. First, there is a considerable lag in the data. We already knew that employment growth was weak in April and May, so it should not be very surprising that job openings were down in April.
The second point to keep in mind is that most of the drop is due to a March surge. While the number of openings is down by 325,000 compared with March, it is only down by 111,000 against the average of the prior three months — all of which had relatively strong job growth.
The third point is that this again looks to be a regional weather story. Most of the drop is from the Midwest, with the April number down by 92,000 from the Dec-Feb average. This is a story of people being hired in unusually warm winter months so that job openings that would ordinarily exist in the spring are not there.
We should all agree that the economy is not growing fast enough, but those yapping about an economic collapse, double-dip, etc. need to talk to a weatherperson to know which way the wind blows.
The Bureau of Labor Statistics issued its April report for the Job Opening and Labor Turnover Survey (JOLTS) today. It shows a big drop in job openings.
While some folks will no doubt make a big deal out of this report, there are a few things to keep in mind. First, there is a considerable lag in the data. We already knew that employment growth was weak in April and May, so it should not be very surprising that job openings were down in April.
The second point to keep in mind is that most of the drop is due to a March surge. While the number of openings is down by 325,000 compared with March, it is only down by 111,000 against the average of the prior three months — all of which had relatively strong job growth.
The third point is that this again looks to be a regional weather story. Most of the drop is from the Midwest, with the April number down by 92,000 from the Dec-Feb average. This is a story of people being hired in unusually warm winter months so that job openings that would ordinarily exist in the spring are not there.
We should all agree that the economy is not growing fast enough, but those yapping about an economic collapse, double-dip, etc. need to talk to a weatherperson to know which way the wind blows.
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