Nope, I’m not kidding. His column today is devoted to “the follower problem.” He is upset that people are cynical and don’t seem to trust the elites. Brooks tells us:
“I don’t know if America has a leadership problem; it certainly has a followership problem. Vast majorities of Americans don’t trust their institutions. That’s not mostly because our institutions perform much worse than they did in 1925 and 1955, when they were widely trusted.”
Let’s leave aside 1925 since it was a very different world. In 1955 the economy was growing at a healthy pace with workers up and down the income ladder sharing in the prosperity. They were seeing rapidly rising living standards and it was a virtual certainty that children would enjoy much better standards of living than their parents.
Brooks may have missed it, but the economy collapsed in 2008. This was not due to any external event like a massive drought or asteroid strike, it was due to fact that the people who design economic policy were too brain-dead to see the largest financial bubble in the history of the world.
The result of this failure is that tens of millions of people are unemployed, underemployed, or out of the workforce altogether. Millions more are facing the loss of their homes. And a huge cohort of baby boomers, many of whom spent their lives working at decent paying jobs, are approaching retirement with nothing to support them but their Social Security.
The amazing part of this story is that the people most responsible for the disaster are still doing just great. Robert Rubin and Alan Greenspan are both very wealthy (the former more so than the latter) and still highly regarded for their views on economic policy. The Wall Street folks that pumped up the bubble and often wrecked their companies in the process are still hugely wealthy. (Think of Lehman’s Richard Fuld or Bear Stearn’s James Cayne.) And all the well-paid economists at the Fed, the Treasury, and the ECB who were completely out to lunch when it came to understanding the economy are still well-paid economists who are mostly still misunderstanding the economy.
What could the masses possibly have to complain about?
Nope, I’m not kidding. His column today is devoted to “the follower problem.” He is upset that people are cynical and don’t seem to trust the elites. Brooks tells us:
“I don’t know if America has a leadership problem; it certainly has a followership problem. Vast majorities of Americans don’t trust their institutions. That’s not mostly because our institutions perform much worse than they did in 1925 and 1955, when they were widely trusted.”
Let’s leave aside 1925 since it was a very different world. In 1955 the economy was growing at a healthy pace with workers up and down the income ladder sharing in the prosperity. They were seeing rapidly rising living standards and it was a virtual certainty that children would enjoy much better standards of living than their parents.
Brooks may have missed it, but the economy collapsed in 2008. This was not due to any external event like a massive drought or asteroid strike, it was due to fact that the people who design economic policy were too brain-dead to see the largest financial bubble in the history of the world.
The result of this failure is that tens of millions of people are unemployed, underemployed, or out of the workforce altogether. Millions more are facing the loss of their homes. And a huge cohort of baby boomers, many of whom spent their lives working at decent paying jobs, are approaching retirement with nothing to support them but their Social Security.
The amazing part of this story is that the people most responsible for the disaster are still doing just great. Robert Rubin and Alan Greenspan are both very wealthy (the former more so than the latter) and still highly regarded for their views on economic policy. The Wall Street folks that pumped up the bubble and often wrecked their companies in the process are still hugely wealthy. (Think of Lehman’s Richard Fuld or Bear Stearn’s James Cayne.) And all the well-paid economists at the Fed, the Treasury, and the ECB who were completely out to lunch when it came to understanding the economy are still well-paid economists who are mostly still misunderstanding the economy.
What could the masses possibly have to complain about?
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The NYT reports that Governor Romney will strongly push school vouchers if he gets into the White House. It told readers:
“Now Mr. Romney is taking his party back to its ideological roots by emphasizing a lesser role for Washington, replacing top-down mandates with a belief in market mechanisms.”
Top down mandates are a policy. The policy is not replaced with beliefs, it is replaced with other policies. In this case, the piece tells us the policy is a voucher that can be used for private schools. While the article repeatedly assures readers that the motive is an ideological belief in markets, there is another possibility that goes completely unmentioned in this article.
There are companies that profit from running private schools. Such companies could make large amounts of money if the Federal government were to pressure state and local governments to give students a voucher that could be used in their schools.
It is possible that Romney and his advisers are motivated by the desire to appease people running for profit schools rather than an ideological belief in the idea that market forces will somehow fix education for low income student. This possibility seems especially plausible since there is now considerable evidence that increased use of market mechanisms will not improve the quality of education.
The NYT reports that Governor Romney will strongly push school vouchers if he gets into the White House. It told readers:
“Now Mr. Romney is taking his party back to its ideological roots by emphasizing a lesser role for Washington, replacing top-down mandates with a belief in market mechanisms.”
Top down mandates are a policy. The policy is not replaced with beliefs, it is replaced with other policies. In this case, the piece tells us the policy is a voucher that can be used for private schools. While the article repeatedly assures readers that the motive is an ideological belief in markets, there is another possibility that goes completely unmentioned in this article.
There are companies that profit from running private schools. Such companies could make large amounts of money if the Federal government were to pressure state and local governments to give students a voucher that could be used in their schools.
It is possible that Romney and his advisers are motivated by the desire to appease people running for profit schools rather than an ideological belief in the idea that market forces will somehow fix education for low income student. This possibility seems especially plausible since there is now considerable evidence that increased use of market mechanisms will not improve the quality of education.
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Bruce Bartlett is a decent person and an honest economist. A former Reagan and Bush I administration official, he now regularly berates Republican politicians for making nonsensical assertions about the economy. However in his NYT blogpost today he may go a bit overboard in telling readers:
“The projected surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration.
The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals.”
This leaves out the main cause of the budget surpluses at the end of the decade, the stock bubble.
This point can be easily seen from examining the Congressional Budget Office (CBO) projections from May of 1996 for the 2000 fiscal year. At that time, the Clinton tax increases were all passed into law, so these were fully incorporated into the budget projects. So were the spending restraints.
So what did CBO tell us? Its projections show that in the spending constraint scenario (discretionary spending would only rise in step with inflation) the deficit would be equal to 2.7 percent of GDP in 2000 (Summary Table 3). Instead we had a budget surplus of 2.4 percent of GDP (Table 1-1), a shift of 5.1 percentage points.
In today’s economy this would be equivalent to an unexpected drop in the annual deficit of $780 billion. This shift $780 billion drop was not due to policy changes but rather to the extra growth and tax collections spurred by the stock bubble.
On the tax side, we see that CBO projected that revenue would be equal to 18.6 percent of GDP in 1996 (Table 2-3). It turned out that revenue in 2000 was equal to 20.6 percent of GDP (Table 1-2). This differences of 2 percentages of GDP was not due to any change in tax policy, it was due to faster than expected growth and the large amount of capital gains taxes collected as a result of the bubble. (It is likely that some of the capital gains showed up as ordinary income and were taxed as ordinary income. This could explain the jump in the statistical discrepancy at the end of the 90s and the unexplained rise in tax collections in those years.)
On the spending side, non-interest outlays ended up being 15.9 percent of GDP (Table 1-2), they had been projected at 18.2 percent of GDP in 1996 (Table 2-5). While there were some factors that lead to lower than expected spending, most notably slower than projected growth in health care costs, by far the biggest reason for the drop in spending as a share of GDP was the faster than projected growth in GDP.
In 1996, GDP was projected to be $9,094 billion in 2000 (Table 1-2). It ended up being $9,828 billion (Table 1-2). With GDP 8.1 percent higher than projected, the same level of nominal spending would be 8.1 percent less measured as a share of GDP. This means that if we spent exactly the same number of dollars projected in 1996, then spending would have ended up as 16.4 percent of GDP in 2000 rather than the 18.2 percent projected.
The remaining factor was the lower than projected interest payments. Because deficits were lower than projected in the years 1996-1999, interest on the debt only cost us 2.3 percent of GDP rather than the 3.1 percent projected in 1996.
In short, the hero of the budget surplus story was the stock bubble, not President Clinton’s tax cuts and budget restraint. This is important not only in dishing out praise for the surplus, it is also essential to a proper understanding of the economy.
Bubbles are not sustainable, by definition. The stock bubble began to burst in 2000. By the summer of 2002 stocks had fallen to roughly half of their peak values destroying $10 trillion in wealth. This gave us a recession which, although officially short and mild, led to the longest period without net job creation since the Great Depression (until the current downturn).
The ending of this bubble was the biggest factor turning the surplus into a deficit. The Bush tax cuts were very much secondary in this picture, as were his wars and the Medicare drug plan. The Bush administration might deserve serious grief for all three of these, but they were not the story of the end of the Clinton era surpluses. The end of the stock bubble was the end of the budget surpluses and that one cannot be blamed on President Bush.
[Addendum: I see from the comments that I may have to do some real Clinton bashing. A few simple points here.
1) The 1996 projections took account of all the steps Clinton took to balance the budget. All the deficit reduction beyond this was due to the bubble.
2) The pick up in productivity growth, which began in the middle of 1995 (long before balanced budget glory), continued all through the Bush years. Anyone who wants to claim Clinton’s balanced budgets spurred the surge in productivity, which was then destroyed by Bush deficits has a really big quarrel with the data. The story doesn’t fit at all.
3) The deficit did fall sharply under President Bush as the economy recovered from the 2001 recession, until the collapse of the housing bubble brought on the recession in 2008. Yes, the deficit was brought down by housing bubble driven growth. On the other hand, in the absence of this bubble, the downturn from the collapse of the Clinton era stock bubble would have lasted longer. Blame who you like on that one, but them’s the facts.
Anyhow, I’m not getting paid by either side in this story. I have been using the same analysis of the economy for the last 15 years. If that proves inconvenient for supporters of President Obama or Clinton that is their problem.]
Bruce Bartlett is a decent person and an honest economist. A former Reagan and Bush I administration official, he now regularly berates Republican politicians for making nonsensical assertions about the economy. However in his NYT blogpost today he may go a bit overboard in telling readers:
“The projected surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration.
The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals.”
This leaves out the main cause of the budget surpluses at the end of the decade, the stock bubble.
This point can be easily seen from examining the Congressional Budget Office (CBO) projections from May of 1996 for the 2000 fiscal year. At that time, the Clinton tax increases were all passed into law, so these were fully incorporated into the budget projects. So were the spending restraints.
So what did CBO tell us? Its projections show that in the spending constraint scenario (discretionary spending would only rise in step with inflation) the deficit would be equal to 2.7 percent of GDP in 2000 (Summary Table 3). Instead we had a budget surplus of 2.4 percent of GDP (Table 1-1), a shift of 5.1 percentage points.
In today’s economy this would be equivalent to an unexpected drop in the annual deficit of $780 billion. This shift $780 billion drop was not due to policy changes but rather to the extra growth and tax collections spurred by the stock bubble.
On the tax side, we see that CBO projected that revenue would be equal to 18.6 percent of GDP in 1996 (Table 2-3). It turned out that revenue in 2000 was equal to 20.6 percent of GDP (Table 1-2). This differences of 2 percentages of GDP was not due to any change in tax policy, it was due to faster than expected growth and the large amount of capital gains taxes collected as a result of the bubble. (It is likely that some of the capital gains showed up as ordinary income and were taxed as ordinary income. This could explain the jump in the statistical discrepancy at the end of the 90s and the unexplained rise in tax collections in those years.)
On the spending side, non-interest outlays ended up being 15.9 percent of GDP (Table 1-2), they had been projected at 18.2 percent of GDP in 1996 (Table 2-5). While there were some factors that lead to lower than expected spending, most notably slower than projected growth in health care costs, by far the biggest reason for the drop in spending as a share of GDP was the faster than projected growth in GDP.
In 1996, GDP was projected to be $9,094 billion in 2000 (Table 1-2). It ended up being $9,828 billion (Table 1-2). With GDP 8.1 percent higher than projected, the same level of nominal spending would be 8.1 percent less measured as a share of GDP. This means that if we spent exactly the same number of dollars projected in 1996, then spending would have ended up as 16.4 percent of GDP in 2000 rather than the 18.2 percent projected.
The remaining factor was the lower than projected interest payments. Because deficits were lower than projected in the years 1996-1999, interest on the debt only cost us 2.3 percent of GDP rather than the 3.1 percent projected in 1996.
In short, the hero of the budget surplus story was the stock bubble, not President Clinton’s tax cuts and budget restraint. This is important not only in dishing out praise for the surplus, it is also essential to a proper understanding of the economy.
Bubbles are not sustainable, by definition. The stock bubble began to burst in 2000. By the summer of 2002 stocks had fallen to roughly half of their peak values destroying $10 trillion in wealth. This gave us a recession which, although officially short and mild, led to the longest period without net job creation since the Great Depression (until the current downturn).
The ending of this bubble was the biggest factor turning the surplus into a deficit. The Bush tax cuts were very much secondary in this picture, as were his wars and the Medicare drug plan. The Bush administration might deserve serious grief for all three of these, but they were not the story of the end of the Clinton era surpluses. The end of the stock bubble was the end of the budget surpluses and that one cannot be blamed on President Bush.
[Addendum: I see from the comments that I may have to do some real Clinton bashing. A few simple points here.
1) The 1996 projections took account of all the steps Clinton took to balance the budget. All the deficit reduction beyond this was due to the bubble.
2) The pick up in productivity growth, which began in the middle of 1995 (long before balanced budget glory), continued all through the Bush years. Anyone who wants to claim Clinton’s balanced budgets spurred the surge in productivity, which was then destroyed by Bush deficits has a really big quarrel with the data. The story doesn’t fit at all.
3) The deficit did fall sharply under President Bush as the economy recovered from the 2001 recession, until the collapse of the housing bubble brought on the recession in 2008. Yes, the deficit was brought down by housing bubble driven growth. On the other hand, in the absence of this bubble, the downturn from the collapse of the Clinton era stock bubble would have lasted longer. Blame who you like on that one, but them’s the facts.
Anyhow, I’m not getting paid by either side in this story. I have been using the same analysis of the economy for the last 15 years. If that proves inconvenient for supporters of President Obama or Clinton that is their problem.]
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Robert Samuelson tells readers today:
“the economies of many European countries are no longer strong enough to support their welfare states.”
This would be more obviously true if Europe seemed to be suffering from a problem of excess demand. That would be a story in which government spending on the welfare state was driving up interest rates and crowding out private investment and consumption.
Nowhere in Europe do we see anything that resembles this story. Instead we see an economic collapse that resulted from the decision by incompetent central bankers (none of whom lost their jobs) to ignore the growth of dangerous asset bubbles across the continent. When these bubbles burst, there was no source of demand to replace the demand generated by the bubble.
Folks who understand economics know that it is difficult for the private economy to quickly replace large amounts of demand. For example, in Spain the construction and consumption demand generated by the housing bubble likely exceeded 10 percent of GDP. There is no mechanism that will cause the private economy to quickly generate 10 percent worth of GDP of additional demand, even if we are very nice to the job creators.
This left the government as the only source of demand for the economy. In the longer term the euro zone countries might see additional investment demand as capital shifts to new sectors and in principle increased net exports. In the case of the peripheral euro zone countries like Spain, most of this increase will come from reduced imports from core countries. However the short-term need for government spending leads to large budget deficits.
None of this tells us anything about the excesses of welfare states. While every welfare state can use reforms, like every non-welfare state, there is nothing about this story that tells us the welfare states are excessive. And, it is worth noting that the countries with the most generous welfare states in Europe are doing relatively well.
While Samuelson wants readers to believe that there is no alternative to cutting back welfare states as he tells us that Germany isn’t strong enough to rescue the peripheral countries, he ignores the obvious route through which the peripheral countries could be saved. If Germany allowed the European Central Bank (ECB) to guarantee the debt of Spain and other debt troubled countries it would quickly reduce their interest burden to a sustainable level. The ECB would also have to foster higher rates of inflation in Germany and other core countries to restore the competitiveness of the peripheral countries.
In fact, this path is necessary regardless of whether or not the peripheral countries cut back their welfare states. The peripheral countries have huge trade deficits with the core countries. This will not change even if they sharply reduce the size of their welfare states.
Samuelson’s welfare-state-cutting crusade is like telling someone who spends $1000 a month more than they earn every month to lose 20 pounds. Regardless of whether or not the person is in fact 20 pounds overweight, the weight loss is not going to affect their bank balance.
With Samuelson’s story, the key problem is that the peripheral countries have large trade deficits with Germany. This can only be addressed by Germany running a higher inflation rate than the peripheral countries for a period of time. (This will primarily affect the import side for the peripheral countries, not exports to Germany, which bizarrely is Samuelson’s focus.) Whether or not these countries pare back their welfare states is really beside the point.
Robert Samuelson tells readers today:
“the economies of many European countries are no longer strong enough to support their welfare states.”
This would be more obviously true if Europe seemed to be suffering from a problem of excess demand. That would be a story in which government spending on the welfare state was driving up interest rates and crowding out private investment and consumption.
Nowhere in Europe do we see anything that resembles this story. Instead we see an economic collapse that resulted from the decision by incompetent central bankers (none of whom lost their jobs) to ignore the growth of dangerous asset bubbles across the continent. When these bubbles burst, there was no source of demand to replace the demand generated by the bubble.
Folks who understand economics know that it is difficult for the private economy to quickly replace large amounts of demand. For example, in Spain the construction and consumption demand generated by the housing bubble likely exceeded 10 percent of GDP. There is no mechanism that will cause the private economy to quickly generate 10 percent worth of GDP of additional demand, even if we are very nice to the job creators.
This left the government as the only source of demand for the economy. In the longer term the euro zone countries might see additional investment demand as capital shifts to new sectors and in principle increased net exports. In the case of the peripheral euro zone countries like Spain, most of this increase will come from reduced imports from core countries. However the short-term need for government spending leads to large budget deficits.
None of this tells us anything about the excesses of welfare states. While every welfare state can use reforms, like every non-welfare state, there is nothing about this story that tells us the welfare states are excessive. And, it is worth noting that the countries with the most generous welfare states in Europe are doing relatively well.
While Samuelson wants readers to believe that there is no alternative to cutting back welfare states as he tells us that Germany isn’t strong enough to rescue the peripheral countries, he ignores the obvious route through which the peripheral countries could be saved. If Germany allowed the European Central Bank (ECB) to guarantee the debt of Spain and other debt troubled countries it would quickly reduce their interest burden to a sustainable level. The ECB would also have to foster higher rates of inflation in Germany and other core countries to restore the competitiveness of the peripheral countries.
In fact, this path is necessary regardless of whether or not the peripheral countries cut back their welfare states. The peripheral countries have huge trade deficits with the core countries. This will not change even if they sharply reduce the size of their welfare states.
Samuelson’s welfare-state-cutting crusade is like telling someone who spends $1000 a month more than they earn every month to lose 20 pounds. Regardless of whether or not the person is in fact 20 pounds overweight, the weight loss is not going to affect their bank balance.
With Samuelson’s story, the key problem is that the peripheral countries have large trade deficits with Germany. This can only be addressed by Germany running a higher inflation rate than the peripheral countries for a period of time. (This will primarily affect the import side for the peripheral countries, not exports to Germany, which bizarrely is Samuelson’s focus.) Whether or not these countries pare back their welfare states is really beside the point.
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To the great dismay of the IMF, the ECB, and proponents of austerity everywhere, the world is in danger of finding out the truth about Latvia. The austerity gang has been touting Latvia as a model of successful austerity hoping that no one would be able find the tiny country on a map.
But, the game is over. Mark Weisbrot pointed out that Latvia both did not really follow the austerity plan (the IMF went along with a weakened plan) and is not much of a success story. Its GDP is still well below its pre-recession level and close to 10 percent of its workforce left the country in search of work elsewhere. In addition to Mark, Paul Krugman and Ronald Janssen of European Trade Union Confederation are on the job.
Sooner or later the austerity crew will find a successful model to tout, right?
To the great dismay of the IMF, the ECB, and proponents of austerity everywhere, the world is in danger of finding out the truth about Latvia. The austerity gang has been touting Latvia as a model of successful austerity hoping that no one would be able find the tiny country on a map.
But, the game is over. Mark Weisbrot pointed out that Latvia both did not really follow the austerity plan (the IMF went along with a weakened plan) and is not much of a success story. Its GDP is still well below its pre-recession level and close to 10 percent of its workforce left the country in search of work elsewhere. In addition to Mark, Paul Krugman and Ronald Janssen of European Trade Union Confederation are on the job.
Sooner or later the austerity crew will find a successful model to tout, right?
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A group of investors has a novel way of forcing mortgage write-downs. They want county governments to condemn the mortgages on underwater homes allowing them to be bought out of mortgage pools at fair market value. Their plan is to then issue new mortgages to current homeowners that reflect the market value of their homes.
It’s a neat idea. I can’t vouch for the legality of this approach, but serious people have spent a lot of time developing it. If it works, it could allow hundreds of thousands of homeowners to get out from underneath crushing debt burdens.
A group of investors has a novel way of forcing mortgage write-downs. They want county governments to condemn the mortgages on underwater homes allowing them to be bought out of mortgage pools at fair market value. Their plan is to then issue new mortgages to current homeowners that reflect the market value of their homes.
It’s a neat idea. I can’t vouch for the legality of this approach, but serious people have spent a lot of time developing it. If it works, it could allow hundreds of thousands of homeowners to get out from underneath crushing debt burdens.
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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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