The Post featured an interesting piece by William Frey which contrasts the ethnic and racial composition of the baby boom cohorts with those under age 30. At one point the piece tells readers:
“Between now and 2030, there will be an absolute decline of 10 million (mostly baby-boom) whites from the ranks of our working-age population.
“Those ranks can be replenished only by the growing minority youth population. Much of this growth will occur because of births, regardless of immigration trends.”
There is no obvious reason that these 10 million retired workers need to be replaced. There are tens of millions of people employed at relatively low productivity jobs like the late shifts at convenience stores, valets at restaurants and hotels, and housekeepers at hotels. If we lost 10 million workers, then many of these jobs could simply go unfilled without any major disruption to the economy or society. Workers would instead occupy more productive higher-paying jobs. The wages in these positions would also rise to keep workers from moving into other areas. (Of course at present, we have close to 15 million unemployed workers, so the retirement of 10 million workers need not cause any dislocation.)
This is not an argument for failing to properly educate and train young people of all ethnic backgrounds, but the claim that there is some crisis presented by the retirement of the baby boomers is mistaken.
The Post featured an interesting piece by William Frey which contrasts the ethnic and racial composition of the baby boom cohorts with those under age 30. At one point the piece tells readers:
“Between now and 2030, there will be an absolute decline of 10 million (mostly baby-boom) whites from the ranks of our working-age population.
“Those ranks can be replenished only by the growing minority youth population. Much of this growth will occur because of births, regardless of immigration trends.”
There is no obvious reason that these 10 million retired workers need to be replaced. There are tens of millions of people employed at relatively low productivity jobs like the late shifts at convenience stores, valets at restaurants and hotels, and housekeepers at hotels. If we lost 10 million workers, then many of these jobs could simply go unfilled without any major disruption to the economy or society. Workers would instead occupy more productive higher-paying jobs. The wages in these positions would also rise to keep workers from moving into other areas. (Of course at present, we have close to 15 million unemployed workers, so the retirement of 10 million workers need not cause any dislocation.)
This is not an argument for failing to properly educate and train young people of all ethnic backgrounds, but the claim that there is some crisis presented by the retirement of the baby boomers is mistaken.
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Economists seem to specialize in saying silly things about the economy. In a NYT article that discussed the prospect of consumers leading a recovery, Nigel Gault, chief domestic economist at IHS Global Insight, is cited as saying that it would take a jump in employment to bring about a rebound in house sales.
It is difficult to understand why any economist would expect sales to move substantially above current levels. Existing home sales have been around 4.6 million in recent months. By comparison, in the relatively healthy pre-bubble economy of the mid 90s existing home sales averaged a bit more than 3.5 million. This means that sales are already close to 30 percent above their pre-bubble level even though population has only increased by around 10 percent over this period. It is hard to imagine why any economist would expect sales to be so much higher now than in the pre-bubble period.
It’s also worth noting that savings rate remains far below its long-term average which means that consumer spending is high relative to their disposable income. It is not clear why economists would expect consumer spending to go still higher, which would imply a lower savings rate.
This seems especially unlikely since the huge baby boom cohort is approaching retirement with very little savings. We might expect to see baby boomers saving a higher than normal share of their income in their remaining years in the workforce.
Economists seem to specialize in saying silly things about the economy. In a NYT article that discussed the prospect of consumers leading a recovery, Nigel Gault, chief domestic economist at IHS Global Insight, is cited as saying that it would take a jump in employment to bring about a rebound in house sales.
It is difficult to understand why any economist would expect sales to move substantially above current levels. Existing home sales have been around 4.6 million in recent months. By comparison, in the relatively healthy pre-bubble economy of the mid 90s existing home sales averaged a bit more than 3.5 million. This means that sales are already close to 30 percent above their pre-bubble level even though population has only increased by around 10 percent over this period. It is hard to imagine why any economist would expect sales to be so much higher now than in the pre-bubble period.
It’s also worth noting that savings rate remains far below its long-term average which means that consumer spending is high relative to their disposable income. It is not clear why economists would expect consumer spending to go still higher, which would imply a lower savings rate.
This seems especially unlikely since the huge baby boom cohort is approaching retirement with very little savings. We might expect to see baby boomers saving a higher than normal share of their income in their remaining years in the workforce.
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Morning Edition had a segment on the state of the economy and the prospects for further stimulus. The discussion was framed by former Obama National Economic Advisor Larry Summers who told listeners that the economy seemed to be taking off last winter, but now seems much weaker. This position seemed to be confirmed by Alan Krueger, the current head of President Obama’s council of economic advisers.
It would have been helpful to include the views of someone who noticed that the weather was the main factor driving the stronger growth in the winter months. Those who pay attention to the weather knew that the economy’s growth would slow in the spring since the stronger growth in the winter was effectively borrowed against growth in the spring.
The segment also included comments from Maya Macguineas, the head of the Committee for a Responsible Federal Budget. She said that she did not think another round of stimulus would work. It would have been interesting if she was asked why. There is no obvious reason why increased demand from the government would not boost growth and employment.
Morning Edition had a segment on the state of the economy and the prospects for further stimulus. The discussion was framed by former Obama National Economic Advisor Larry Summers who told listeners that the economy seemed to be taking off last winter, but now seems much weaker. This position seemed to be confirmed by Alan Krueger, the current head of President Obama’s council of economic advisers.
It would have been helpful to include the views of someone who noticed that the weather was the main factor driving the stronger growth in the winter months. Those who pay attention to the weather knew that the economy’s growth would slow in the spring since the stronger growth in the winter was effectively borrowed against growth in the spring.
The segment also included comments from Maya Macguineas, the head of the Committee for a Responsible Federal Budget. She said that she did not think another round of stimulus would work. It would have been interesting if she was asked why. There is no obvious reason why increased demand from the government would not boost growth and employment.
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It may seem incredible, but there are occasions in politics where people sometimes don’t tell the truth. That is why newspapers are supposed to report what people say and do and not tell readers the motives behind their statements and actions, since they don’t know their motives.
The NYT blew it today in a piece on Republican efforts to repeal a tax on medical equipment that is part of the Affordable Care Act when it told readers:
“In anticipation of the tax, some manufacturers have announced plans to lay off workers or reorganize operations.”
The NYT does not know that manufacturers announced layoff plans “in anticipation of the tax.” An alternative explanation is that they announced layoffs in the hope of influencing the vote in Congress.
As a practical matter, it is unlikely that this tax will substantially reduce the demand for medical equipment. If the cost of MRIs and other such devices rise by 2 percent (90 percent of the size of the tax) it is unlikely that the demand for these products will fall by much. Therefore there would be little reason for layoffs and it is hardly likely that medical supply firms would feel the need to make their plans for adjusting the size of their workforce so far in advance and before they know how much demand will actually decline.
In short, it is far more plausible that the announcement of layoffs is a political stunt rather than a response to economic conditions. And, the NYT cooperated with the industry in promoting this stunt.
It may seem incredible, but there are occasions in politics where people sometimes don’t tell the truth. That is why newspapers are supposed to report what people say and do and not tell readers the motives behind their statements and actions, since they don’t know their motives.
The NYT blew it today in a piece on Republican efforts to repeal a tax on medical equipment that is part of the Affordable Care Act when it told readers:
“In anticipation of the tax, some manufacturers have announced plans to lay off workers or reorganize operations.”
The NYT does not know that manufacturers announced layoff plans “in anticipation of the tax.” An alternative explanation is that they announced layoffs in the hope of influencing the vote in Congress.
As a practical matter, it is unlikely that this tax will substantially reduce the demand for medical equipment. If the cost of MRIs and other such devices rise by 2 percent (90 percent of the size of the tax) it is unlikely that the demand for these products will fall by much. Therefore there would be little reason for layoffs and it is hardly likely that medical supply firms would feel the need to make their plans for adjusting the size of their workforce so far in advance and before they know how much demand will actually decline.
In short, it is far more plausible that the announcement of layoffs is a political stunt rather than a response to economic conditions. And, the NYT cooperated with the industry in promoting this stunt.
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No one expects great insights from the people who write on economic issues on the Post’s opinion pages, but Fareed Zakaria’s latest piece is an extraordinary exercise in confusion. Zakaria is anxious to tell us that tax cuts “don’t work,” but he never tells readers what he means by “work.”
The story on tax cuts is pretty simple: people either spend the money or they save it. Whether or not tax cuts “work” will depend on the extent to which they do one or the other and the extent to which we want them to do one or the other. The latter point is key.
When the economy is very weak, like the present (also in 2001-2003), then we would like to see additional demand. If we give people big tax cuts and they then spend the money, then this is exactly what we would want to see. The increased consumption provides a boost to demand and leads to more growth and jobs.
In the current downturn, an analysis by my colleague David Rosnick indicates that 50-70 cents of each dollar of tax cuts were spent. Zakaria’s piece seems to imply that spending was close to zero. This claim would seem absurd on its face given that many households are living on the edge and would not have the option to save their tax cuts even if they wanted to.
Of course, this doesn’t mean tax cuts are an especially effective form of stimulus. If the government were to spend money on teachers, roads or in other areas, then 100 cents on the dollar are directly added to the economy. Most of what is paid out is respent. So the story is that tax cuts “work” in this context, just not very well.
The other question is whether tax cuts “work” when the economy is not in a downturn. Both the Reagan and Bush tax cuts were sold as supply-side tax cuts. They would give people more incentive to work and invest. For the latter to be the case we would want people to save their tax cuts. However, it seems that people generally spend their tax cuts.
It would be very difficult to make the case that either the Reagan or Bush tax cuts worked as a spur to investment. Investment fell sharply as a share of GDP in the 80s from the 70s and in the 00s from the 90s. While there were other factors that can explain both declines, clearly the tax cuts could not have had much of a positive effect on investment given its fall in both cases.
It is not clear how Governor Romney is pitching his tax cut. His explanation seems to vary by the day and the audience. If Zakaria wanted to write a piece that was useful for readers he might have tried to clarify what he meant by “work,” unfortunately all we get here is a story that essentially says that Zakaria doesn’t like tax cuts.
The print version of the piece refers to the “Simpson-Bowles commission’s plan.” Of course there was no commission plan since no proposal received the necessary majority to be approved. The web version correctly identifies the plan as simply being the proposal of the commission’s co-chairs former Senator Alan Simpson and former Morgan Stanley director Erskine Bowles. It’s good to see that the web version got this right although it is unfortunate that many people will read the incorrect print version.
No one expects great insights from the people who write on economic issues on the Post’s opinion pages, but Fareed Zakaria’s latest piece is an extraordinary exercise in confusion. Zakaria is anxious to tell us that tax cuts “don’t work,” but he never tells readers what he means by “work.”
The story on tax cuts is pretty simple: people either spend the money or they save it. Whether or not tax cuts “work” will depend on the extent to which they do one or the other and the extent to which we want them to do one or the other. The latter point is key.
When the economy is very weak, like the present (also in 2001-2003), then we would like to see additional demand. If we give people big tax cuts and they then spend the money, then this is exactly what we would want to see. The increased consumption provides a boost to demand and leads to more growth and jobs.
In the current downturn, an analysis by my colleague David Rosnick indicates that 50-70 cents of each dollar of tax cuts were spent. Zakaria’s piece seems to imply that spending was close to zero. This claim would seem absurd on its face given that many households are living on the edge and would not have the option to save their tax cuts even if they wanted to.
Of course, this doesn’t mean tax cuts are an especially effective form of stimulus. If the government were to spend money on teachers, roads or in other areas, then 100 cents on the dollar are directly added to the economy. Most of what is paid out is respent. So the story is that tax cuts “work” in this context, just not very well.
The other question is whether tax cuts “work” when the economy is not in a downturn. Both the Reagan and Bush tax cuts were sold as supply-side tax cuts. They would give people more incentive to work and invest. For the latter to be the case we would want people to save their tax cuts. However, it seems that people generally spend their tax cuts.
It would be very difficult to make the case that either the Reagan or Bush tax cuts worked as a spur to investment. Investment fell sharply as a share of GDP in the 80s from the 70s and in the 00s from the 90s. While there were other factors that can explain both declines, clearly the tax cuts could not have had much of a positive effect on investment given its fall in both cases.
It is not clear how Governor Romney is pitching his tax cut. His explanation seems to vary by the day and the audience. If Zakaria wanted to write a piece that was useful for readers he might have tried to clarify what he meant by “work,” unfortunately all we get here is a story that essentially says that Zakaria doesn’t like tax cuts.
The print version of the piece refers to the “Simpson-Bowles commission’s plan.” Of course there was no commission plan since no proposal received the necessary majority to be approved. The web version correctly identifies the plan as simply being the proposal of the commission’s co-chairs former Senator Alan Simpson and former Morgan Stanley director Erskine Bowles. It’s good to see that the web version got this right although it is unfortunate that many people will read the incorrect print version.
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In a blogpost in the NYT Uwe Reinhardt asked how much we would be willing to pay to extend a person’s life by a year. The examples he refers to in the piece involve drugs that are very expensive, but can be expected to extend life.
This is an unfortunate way to frame the issue. With few exceptions drugs are cheap to produce. The reason they are expensive is because the government gives drug companies patent monopolies. This allows them to charge very high prices for drugs that extend life, since anyone else will be arrested and thrown in jail if they manufacture the drug and offer to sell it at a lower price.
If we adopted a different mechanism for financing drug research, for example expanded government funding for research (we already spend $30 billion a year through the National Institutes of Health) or established a prize fund that would buy out patents, as advocated by Nobel Prize winning economist Joe Stiglitz, then we would not face this situation with drugs. Almost invariably the drug in question would be cheap and making it available to someone who needed it to extend their life would be a no-brainer.
This doesn’t remove all the hard questions. There would still be an issue as to how much we are willing to spend to find cures to cancer and other deadly diseases. We also would face situations where life-saving measures actually did involve substantial resources, such as when highly skilled physicians must spend many hours carrying through a complex operation. However, if we had a better system for financing drug research many of the cases that might pose the moral dilemma raised by Reinhardt would disappear.
In a blogpost in the NYT Uwe Reinhardt asked how much we would be willing to pay to extend a person’s life by a year. The examples he refers to in the piece involve drugs that are very expensive, but can be expected to extend life.
This is an unfortunate way to frame the issue. With few exceptions drugs are cheap to produce. The reason they are expensive is because the government gives drug companies patent monopolies. This allows them to charge very high prices for drugs that extend life, since anyone else will be arrested and thrown in jail if they manufacture the drug and offer to sell it at a lower price.
If we adopted a different mechanism for financing drug research, for example expanded government funding for research (we already spend $30 billion a year through the National Institutes of Health) or established a prize fund that would buy out patents, as advocated by Nobel Prize winning economist Joe Stiglitz, then we would not face this situation with drugs. Almost invariably the drug in question would be cheap and making it available to someone who needed it to extend their life would be a no-brainer.
This doesn’t remove all the hard questions. There would still be an issue as to how much we are willing to spend to find cures to cancer and other deadly diseases. We also would face situations where life-saving measures actually did involve substantial resources, such as when highly skilled physicians must spend many hours carrying through a complex operation. However, if we had a better system for financing drug research many of the cases that might pose the moral dilemma raised by Reinhardt would disappear.
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As we all know, the folks at the Washington Post have some trouble with arithmetic. Back in 2007 a lead editorial on NAFTA told readers that Mexico’s GDP had quadrupled from 1988 to 2007. The actual increase was a bit more than 83 percent.
In the same vein, columnist David Ignatius sang the praises of Turkey’s economy in the paper today. He told readers:
“its economy has grown an annual average of 5.3 percent since 2002, the fastest rate of any country in the Organization for Economic Cooperation and Development; gross domestic product has more than tripled.”
Let’s see, 5.2 percent growth for a decade? That translates into an increase of 66.0 percent in my neighborhood. If we go directly to the IMF’s site we find that Turkey’s GDP has increased by 61.8 percent over this period. That’s pretty good (much better than Mexico), but quite far from tripling.
So chalk up another big arithmetic error in the measurement of developing country GDP in the WAPO. Math is so hard.
As we all know, the folks at the Washington Post have some trouble with arithmetic. Back in 2007 a lead editorial on NAFTA told readers that Mexico’s GDP had quadrupled from 1988 to 2007. The actual increase was a bit more than 83 percent.
In the same vein, columnist David Ignatius sang the praises of Turkey’s economy in the paper today. He told readers:
“its economy has grown an annual average of 5.3 percent since 2002, the fastest rate of any country in the Organization for Economic Cooperation and Development; gross domestic product has more than tripled.”
Let’s see, 5.2 percent growth for a decade? That translates into an increase of 66.0 percent in my neighborhood. If we go directly to the IMF’s site we find that Turkey’s GDP has increased by 61.8 percent over this period. That’s pretty good (much better than Mexico), but quite far from tripling.
So chalk up another big arithmetic error in the measurement of developing country GDP in the WAPO. Math is so hard.
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In the 90s, and in the years of the last decade before the housing crash, most economists and pension managers who made projections of stock market returns were making absurdly optimistic assumptions. Because price to earnings ratios in the stock market were well above their historic average it would be impossible for it to give its historic rate of return. This was simple arithmetic, which some of us tried to point out at the time.
Now that the market has plunged, it will be possible for it to produce its historic returns. This basic fact should have been mentioned in this NYT piece on public pension. This means, for example, that when the article tells us that San Diego:
“would require future hires to enroll in a defined-contribution plan, similar to a 401(k) plan. In the future, public employees will be responsible for investing their own retirement money, and if their investments fail, the city’s taxpayers will not have to step in.”
San Diego has probably not saved its taxpayers a penny. It simply means that its workers will have less secure retirements for two reasons. First, workers will face the risk that the market will be down in the year that they retire, a concern that is irrelevant to city governments that in principle live indefinitely. Second, the administrative costs of 401(k)s are typically much higher than for defined benefit pensions. That means more of the workers’ money will go to the financial industry and less to their retirement.
Since workers value a secure retirement, the switch from a traditional pension to a 401(k) will mean that San Diego’s government now will attract less qualified workers, since it has effectively cut their pay, even though it has not saved its taxpayers any money. The NYT should have included the views of an economist who could have explained this simple point to readers.
In the 90s, and in the years of the last decade before the housing crash, most economists and pension managers who made projections of stock market returns were making absurdly optimistic assumptions. Because price to earnings ratios in the stock market were well above their historic average it would be impossible for it to give its historic rate of return. This was simple arithmetic, which some of us tried to point out at the time.
Now that the market has plunged, it will be possible for it to produce its historic returns. This basic fact should have been mentioned in this NYT piece on public pension. This means, for example, that when the article tells us that San Diego:
“would require future hires to enroll in a defined-contribution plan, similar to a 401(k) plan. In the future, public employees will be responsible for investing their own retirement money, and if their investments fail, the city’s taxpayers will not have to step in.”
San Diego has probably not saved its taxpayers a penny. It simply means that its workers will have less secure retirements for two reasons. First, workers will face the risk that the market will be down in the year that they retire, a concern that is irrelevant to city governments that in principle live indefinitely. Second, the administrative costs of 401(k)s are typically much higher than for defined benefit pensions. That means more of the workers’ money will go to the financial industry and less to their retirement.
Since workers value a secure retirement, the switch from a traditional pension to a 401(k) will mean that San Diego’s government now will attract less qualified workers, since it has effectively cut their pay, even though it has not saved its taxpayers any money. The NYT should have included the views of an economist who could have explained this simple point to readers.
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The Washington Post doesn’t leave its readers in doubt over whose side it takes in the class war. It routinely uses both its opinion and news pages to attack ordinary workers and the programs on which they depend, like Social Security and Medicare. It rarely points out obvious facts, like the projections of exploding costs for Medicare are primarily driven by the excessive rents collected by folks like drug companies, suppliers of health care equipment, and highly paid medical specialists.
In keeping with this spirit, the Post told readers about the “need for unions to reorganize” following Scott Walker’s victory in his recall election. By “reorganize” the Post doesn’t mean developing new strategies to protect their members’ interests. It meant accepting lower pay and benefits.
That call would make sense if there was evidence that union pay was substantially out of line with private sector pay. It turns out that this is not the case.
It is also striking how obsessed the Post is over the need to reform unions when it is so little concerned about incredibly larger abuses in the corporate sector. Corporate management routinely rips off its shareholders by appointing boards who are almost completely subservient to management.
This allows the top executives of even money-losing companies to collect paychecks in the tens of millions of dollars. While the Post is little bothered by this ripoff of the public, it rants endlessly over autoworkers who earn $60,000 a year or public employees who can get pensions of $2,000 a month.
The Washington Post doesn’t leave its readers in doubt over whose side it takes in the class war. It routinely uses both its opinion and news pages to attack ordinary workers and the programs on which they depend, like Social Security and Medicare. It rarely points out obvious facts, like the projections of exploding costs for Medicare are primarily driven by the excessive rents collected by folks like drug companies, suppliers of health care equipment, and highly paid medical specialists.
In keeping with this spirit, the Post told readers about the “need for unions to reorganize” following Scott Walker’s victory in his recall election. By “reorganize” the Post doesn’t mean developing new strategies to protect their members’ interests. It meant accepting lower pay and benefits.
That call would make sense if there was evidence that union pay was substantially out of line with private sector pay. It turns out that this is not the case.
It is also striking how obsessed the Post is over the need to reform unions when it is so little concerned about incredibly larger abuses in the corporate sector. Corporate management routinely rips off its shareholders by appointing boards who are almost completely subservient to management.
This allows the top executives of even money-losing companies to collect paychecks in the tens of millions of dollars. While the Post is little bothered by this ripoff of the public, it rants endlessly over autoworkers who earn $60,000 a year or public employees who can get pensions of $2,000 a month.
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The Post is one of those papers that doesn’t expect the people who write on economics to have any knowledge of the topic. Hence we have Matt Miller telling us this morning about how resolving the euro zone crisis will require that German Chancellor Angela Merkel devise a plan for “apportioning pain.”
Of course the opposite is true. The pain is wholly unnecessary and self-defeating. The obvious way out of the euro crisis is to require that the European Central Bank abandon its obsession with reinforcing its Maginot Line (its 2.0 percent inflation target) and instead act like a central bank.
This would mean guaranteeing the debt of the crisis countries and supporting a higher inflation rate across the euro zone. The former step would allow the crisis countries to borrow at an affordable rate. The latter step would allow them to regain competitiveness within the euro zone. If Spain and Italy can keep their inflation rates near 1.0 percent, while inflation in Germany and northern Europe runs at a 4-5 percent rate (driven by higher wage growth), then the economies of the peripheral countries will soon be competitive again with Germany and other core countries.
This is the only way to resolve the fundamental problem of the euro zone, which is the lack of competitiveness of the peripheral countries. It does not really require pain, except perhaps from psychopaths who suffer from the thought of prices rising 4-5 percent a year rather than 2.0 percent.
It is also worth noting that Miller wrongly says the crisis countries were profligate. While this may be true of Greece and Portugal, it certainly was not true of Ireland and Spain, both of which were running large budget surpluses prior to the crisis.
The Post is one of those papers that doesn’t expect the people who write on economics to have any knowledge of the topic. Hence we have Matt Miller telling us this morning about how resolving the euro zone crisis will require that German Chancellor Angela Merkel devise a plan for “apportioning pain.”
Of course the opposite is true. The pain is wholly unnecessary and self-defeating. The obvious way out of the euro crisis is to require that the European Central Bank abandon its obsession with reinforcing its Maginot Line (its 2.0 percent inflation target) and instead act like a central bank.
This would mean guaranteeing the debt of the crisis countries and supporting a higher inflation rate across the euro zone. The former step would allow the crisis countries to borrow at an affordable rate. The latter step would allow them to regain competitiveness within the euro zone. If Spain and Italy can keep their inflation rates near 1.0 percent, while inflation in Germany and northern Europe runs at a 4-5 percent rate (driven by higher wage growth), then the economies of the peripheral countries will soon be competitive again with Germany and other core countries.
This is the only way to resolve the fundamental problem of the euro zone, which is the lack of competitiveness of the peripheral countries. It does not really require pain, except perhaps from psychopaths who suffer from the thought of prices rising 4-5 percent a year rather than 2.0 percent.
It is also worth noting that Miller wrongly says the crisis countries were profligate. While this may be true of Greece and Portugal, it certainly was not true of Ireland and Spain, both of which were running large budget surpluses prior to the crisis.
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