That’s the headline of a Washington Post piece that told readers that more than one quarter of the workers who have found new jobs in the recovery are working in temporary positions according to government data. (It also refers to private surveys that show a higher percentage.)
The only problem with this story is that employment in the temporary help sector is still down by almost 20 percent from its pre-recession level, as can be seen in the chart accompanying the piece. As Texas Governor Rick Perry says, “oops.”
That’s the headline of a Washington Post piece that told readers that more than one quarter of the workers who have found new jobs in the recovery are working in temporary positions according to government data. (It also refers to private surveys that show a higher percentage.)
The only problem with this story is that employment in the temporary help sector is still down by almost 20 percent from its pre-recession level, as can be seen in the chart accompanying the piece. As Texas Governor Rick Perry says, “oops.”
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The Washington Post told readers that the manufacturing industry is suffering from incompetent managers and therefore is not hiring as many workers as it should. According to the Post, managers don’t realize that it is necessary to raise wages to attract more workers and instead are whining that they can’t get the workers they need to fill vacancies.
While the Post describes the situation as a being a “shortage,” the data make it clear that the problem is simply incompetent managers. As managers should know, the way to get more workers is to offer higher wages, however this clearly is not happening in the manufacturing sector. The wages of production workers in durable goods sector has been trailing the rate of inflation for several years.
Change in Average Hourly Wage of Production Non-Supervisory Workers, Durable Goods Manufacturing
Source: Bureau of Labor Statistics.
The article reports that a skilled operator-programmer in one of the manufacturing sectors profiled in the article earns just $18-$28 an hour ($36,000-$56,000 annually). By contrast, last week the Post reported that even family practitioners earned almost $210,000 a year, while the median annual earnings for doctors in other specializations could be more than twice as high. If the managers of manufacturing companies do not understand how markets work, as the Post claims, then it is likely to seriously damage the future prospects for manufacturing in the United States.
The Washington Post told readers that the manufacturing industry is suffering from incompetent managers and therefore is not hiring as many workers as it should. According to the Post, managers don’t realize that it is necessary to raise wages to attract more workers and instead are whining that they can’t get the workers they need to fill vacancies.
While the Post describes the situation as a being a “shortage,” the data make it clear that the problem is simply incompetent managers. As managers should know, the way to get more workers is to offer higher wages, however this clearly is not happening in the manufacturing sector. The wages of production workers in durable goods sector has been trailing the rate of inflation for several years.
Change in Average Hourly Wage of Production Non-Supervisory Workers, Durable Goods Manufacturing
Source: Bureau of Labor Statistics.
The article reports that a skilled operator-programmer in one of the manufacturing sectors profiled in the article earns just $18-$28 an hour ($36,000-$56,000 annually). By contrast, last week the Post reported that even family practitioners earned almost $210,000 a year, while the median annual earnings for doctors in other specializations could be more than twice as high. If the managers of manufacturing companies do not understand how markets work, as the Post claims, then it is likely to seriously damage the future prospects for manufacturing in the United States.
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The NYT had a very good piece from Barry Schwartz, one of my former college professors, asking this question. The context is whether the Bain Capitals of the world should be allowed to downsize without any consideration for workers or the community.
The United States is the only wealthy country that allows companies to dump long-serving workers at will. It might be reasonable to require some amount of severance pay when they fire long-serving workers (e.g. 2 weeks per year of work). This would nor prevent downsizing where there are large efficiency gains, however it may prevent some cases where the gains are marginal.
The NYT had a very good piece from Barry Schwartz, one of my former college professors, asking this question. The context is whether the Bain Capitals of the world should be allowed to downsize without any consideration for workers or the community.
The United States is the only wealthy country that allows companies to dump long-serving workers at will. It might be reasonable to require some amount of severance pay when they fire long-serving workers (e.g. 2 weeks per year of work). This would nor prevent downsizing where there are large efficiency gains, however it may prevent some cases where the gains are marginal.
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Thomas Friedman gave readers his pseudo endorsement of a candidate for president today. The person is David Walker, who headed up the Government Accountability Office from 1998 to 2008 before leaving to take the helm as president of the Peter G. Peterson Foundation. He later left that organization to head up another Peter Peterson funded venture.
Walker has been in the public over for more than a decade as a result of his crusade against the government budget deficit. In fact, he led a “fiscal wake-up tour” around the country in the years 2004-2008 to try to call attention to the problem of the budget deficit.
The great irony of this tour is that the deficit was not actually a big problem at the time, falling to just over 1.0 percent of GDP by 2007. The real problem facing the country was the housing bubble, which was growing ever larger. Unfortunately, people like David Walker and his merry band of deficit hawks, financed by the likes of Peter Peterson, sucked up much of the oxygen for coverage of economic issues. There were many news shows and stories devoted to their apocalyptic warnings of budget doom. There was no time to waste talking to people yelling about things like an $8 trillion housing bubble.
Of course one of the ironies of this story is that the bursting of the housing bubble led to an economic collapse which resulted in much bigger deficits than anything that Walker and his crew ever warned about. One of the other ironies is that being completely wrong about the nature of the problems facing the economy does not seem to have affected Walker’s standing in public debates one iota, at least it sure hasn’t in Thomas Friedman’s world.
Thomas Friedman gave readers his pseudo endorsement of a candidate for president today. The person is David Walker, who headed up the Government Accountability Office from 1998 to 2008 before leaving to take the helm as president of the Peter G. Peterson Foundation. He later left that organization to head up another Peter Peterson funded venture.
Walker has been in the public over for more than a decade as a result of his crusade against the government budget deficit. In fact, he led a “fiscal wake-up tour” around the country in the years 2004-2008 to try to call attention to the problem of the budget deficit.
The great irony of this tour is that the deficit was not actually a big problem at the time, falling to just over 1.0 percent of GDP by 2007. The real problem facing the country was the housing bubble, which was growing ever larger. Unfortunately, people like David Walker and his merry band of deficit hawks, financed by the likes of Peter Peterson, sucked up much of the oxygen for coverage of economic issues. There were many news shows and stories devoted to their apocalyptic warnings of budget doom. There was no time to waste talking to people yelling about things like an $8 trillion housing bubble.
Of course one of the ironies of this story is that the bursting of the housing bubble led to an economic collapse which resulted in much bigger deficits than anything that Walker and his crew ever warned about. One of the other ironies is that being completely wrong about the nature of the problems facing the economy does not seem to have affected Walker’s standing in public debates one iota, at least it sure hasn’t in Thomas Friedman’s world.
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In a newspaper that relies on the same old crew of reliably wrong experts for the vast majority of its economic reporting, it’s good to see this piece by Dylan Matthews on Modern Monetary Theory (MMT). I’ve had many people ask me my assessment of MMT.
I consider many of the leading proponents of MMT to be friends and generally find myself on the same side of political debates. However, I have to confess to being a bit unclear as to what exactly separates MMT from the good old Keynesian economics I learned in my youth.
My reading of Keynes is that economies will often be constrained by demand, absent intervention from the government. That means that expansionary fiscal and/or monetary policy will often be in order to keep an economy running near full employment.
I see three channels through which expansionary policy can boost demand. One is that budget deficits can lead to more demand directly by increasing government spending and indirectly through more consumption spending induced by tax cuts. The second channel is that lower interest rates from the Fed can boost demand by increasing consumption and investment. The third is that a lower-valued dollar can lead to increased net exports.
I don’t think that MMTers dispute the existence of these three channels of boosting demand, all of which can be found in the writings of the true Maestro (Keynes). They tend to focus on channel number one for reasons that I confess not to fully understand. This pushes them toward larger government deficits than we would see if we also aggressively used channels two and three.
I think most of the conventional arguments over the deficit are very much wrongheaded, but on the other hand, a large deficit is not an end in itself. I suppose my preference for also pushing channel two and especially channel three is what separates me from the MMT crew.
Addendum:
There a lot of good comments here. I don’t have time to respond to all of them, but I will just grab a couple.
Paul,
You’re not disputing that Keynes thought we could affect aggregate demand by the lowering the value of the currency, you seem to be arguing that he didn’t think it was appropriate to do so. I would certainly agree that under some circumstances it would be inappropriate, but the idea that it would be at all times inappropriate seems absurd.
If a slow growing country had a current account deficit equal to 20 percent of GDP, should it do nothing to try to correct it by lowering the value of the currency? I have not read everything that Keynes wrote, so maybe somewhere he says that, but if he did, then I would have to disagree.
There is a clear logic to try to keeping trade imbalances in check. Resources will be very poorly used if they are diverted from countries where investment gives high returns to countries where investment gives low returns. Also, paths of growth are not easily reversed. If the U.S. has a path of growth that is based on other countries giving us 20 percent of what we consume and then for whatever they opt to change this practice (e.g. they start using this money domestically) then it can lead to very serious disruptions to the U.S. economy.
So, I don’t think Keynes had the view that any level of current account deficit/surplus was just fine, but if he did, then he was mistaken.
There is no disagreement on the point on the monetary channel:
“If a reduction in the rate of interest was capable of proving an effective remedy by itself, it might be possible to achieve a recovery without the elapse of any considerable interval of time and by means more or less directly under the control of the monetary authority. But, in fact, this is not usually the case.”
Of course, I was not advocating using the monetary channel alone, so I’m in complete agreement with Keynes here.
Peter,
I’ve read both Godley and Lerner’s work (not all of it). I like much of what I’ve read, but i’m afraid that I don’t really see where it differs from Keynes.
Eric,
Good meeting you also. Channel 2 is indirect, but can be strong and certainly has been a help in this downturn. Channel 3 only in a vague sense requires the rest of the world to go along. The Fed can buy vast quantities of foreign currencies (e.g. trillions of dollars) just as they buy vast quantities of dollars. This can force them to hold enormous of dollars purchased at an over-valued price in order to maintain the value of their own currency. They might opt to keep buying dollars, but they could at the end of the day pay an enormous price for doing so.
In a newspaper that relies on the same old crew of reliably wrong experts for the vast majority of its economic reporting, it’s good to see this piece by Dylan Matthews on Modern Monetary Theory (MMT). I’ve had many people ask me my assessment of MMT.
I consider many of the leading proponents of MMT to be friends and generally find myself on the same side of political debates. However, I have to confess to being a bit unclear as to what exactly separates MMT from the good old Keynesian economics I learned in my youth.
My reading of Keynes is that economies will often be constrained by demand, absent intervention from the government. That means that expansionary fiscal and/or monetary policy will often be in order to keep an economy running near full employment.
I see three channels through which expansionary policy can boost demand. One is that budget deficits can lead to more demand directly by increasing government spending and indirectly through more consumption spending induced by tax cuts. The second channel is that lower interest rates from the Fed can boost demand by increasing consumption and investment. The third is that a lower-valued dollar can lead to increased net exports.
I don’t think that MMTers dispute the existence of these three channels of boosting demand, all of which can be found in the writings of the true Maestro (Keynes). They tend to focus on channel number one for reasons that I confess not to fully understand. This pushes them toward larger government deficits than we would see if we also aggressively used channels two and three.
I think most of the conventional arguments over the deficit are very much wrongheaded, but on the other hand, a large deficit is not an end in itself. I suppose my preference for also pushing channel two and especially channel three is what separates me from the MMT crew.
Addendum:
There a lot of good comments here. I don’t have time to respond to all of them, but I will just grab a couple.
Paul,
You’re not disputing that Keynes thought we could affect aggregate demand by the lowering the value of the currency, you seem to be arguing that he didn’t think it was appropriate to do so. I would certainly agree that under some circumstances it would be inappropriate, but the idea that it would be at all times inappropriate seems absurd.
If a slow growing country had a current account deficit equal to 20 percent of GDP, should it do nothing to try to correct it by lowering the value of the currency? I have not read everything that Keynes wrote, so maybe somewhere he says that, but if he did, then I would have to disagree.
There is a clear logic to try to keeping trade imbalances in check. Resources will be very poorly used if they are diverted from countries where investment gives high returns to countries where investment gives low returns. Also, paths of growth are not easily reversed. If the U.S. has a path of growth that is based on other countries giving us 20 percent of what we consume and then for whatever they opt to change this practice (e.g. they start using this money domestically) then it can lead to very serious disruptions to the U.S. economy.
So, I don’t think Keynes had the view that any level of current account deficit/surplus was just fine, but if he did, then he was mistaken.
There is no disagreement on the point on the monetary channel:
“If a reduction in the rate of interest was capable of proving an effective remedy by itself, it might be possible to achieve a recovery without the elapse of any considerable interval of time and by means more or less directly under the control of the monetary authority. But, in fact, this is not usually the case.”
Of course, I was not advocating using the monetary channel alone, so I’m in complete agreement with Keynes here.
Peter,
I’ve read both Godley and Lerner’s work (not all of it). I like much of what I’ve read, but i’m afraid that I don’t really see where it differs from Keynes.
Eric,
Good meeting you also. Channel 2 is indirect, but can be strong and certainly has been a help in this downturn. Channel 3 only in a vague sense requires the rest of the world to go along. The Fed can buy vast quantities of foreign currencies (e.g. trillions of dollars) just as they buy vast quantities of dollars. This can force them to hold enormous of dollars purchased at an over-valued price in order to maintain the value of their own currency. They might opt to keep buying dollars, but they could at the end of the day pay an enormous price for doing so.
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It doesn’t seem so from an article that it ran on export subsidies offered in the form of loan guarantees from the export-import bank. The article highlights the purchase of Boeing plans with government subsidized loans by an Indian airline. The Indian airline then drove Delta out of a key route.
While the article talked to several economists on the wisdom of using loans guarantees to subsidize exports, it never once mentioned reducing the value of the dollar as an alternative. In fact, a decline in currency values is supposed to be the mechanism through which countries adjust to trade deficits in a system of floating exchange rates. For this reason, it is bizarre that the issue was never raised as an alternative route toward increasing net exports.
The article also implied that these loans are somehow a unique way in which the government picks winners and losers. The government has a wide range of policies (e.g. patent protection, too big to fail bank subsidies, protection for highly paid professionals) that put in a situation of picking winners and losers. This is a standard practice in the U.S. economy, not an exception as the Post article implies.
[Thanks to Joseph Seydl for the tip.]
It doesn’t seem so from an article that it ran on export subsidies offered in the form of loan guarantees from the export-import bank. The article highlights the purchase of Boeing plans with government subsidized loans by an Indian airline. The Indian airline then drove Delta out of a key route.
While the article talked to several economists on the wisdom of using loans guarantees to subsidize exports, it never once mentioned reducing the value of the dollar as an alternative. In fact, a decline in currency values is supposed to be the mechanism through which countries adjust to trade deficits in a system of floating exchange rates. For this reason, it is bizarre that the issue was never raised as an alternative route toward increasing net exports.
The article also implied that these loans are somehow a unique way in which the government picks winners and losers. The government has a wide range of policies (e.g. patent protection, too big to fail bank subsidies, protection for highly paid professionals) that put in a situation of picking winners and losers. This is a standard practice in the U.S. economy, not an exception as the Post article implies.
[Thanks to Joseph Seydl for the tip.]
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David Leonhardt has an interesting piece that asks whether currency values should still be an important issue between the United States and China, suggesting that China’s appropriation of U.S. technology and intellectual products should be a more important issue. There is an important class aspect to this question that the piece overlooks.
From the standpoint of manufacturing workers and those whose wages might be affected by an increased demand for manufacturing workers (e.g. those without college degrees), the lower the value of the dollar against the Chinese currency the better. For this group, it matters little that China may not pay Microsoft the fees that it is claiming. In fact, it could very well be beneficial to these workers if China does not respect U.S. intellectual property claims since it will mean that they can buy products produced in China at a lower cost.
The situation is of course the opposite with the highly educated workers who will likely get increased pay if China adopts a strong intellectual property system. The shareholders of the affected companies will benefit as well.
This disparity in interests is undoubtedly central in the Obama administration’s negotiations with China. It understands that the more it can get in terms of enforcement of intellectual property claims, the less it will get in terms of appreciation of China’s currency. There also is the very real market consideration that if China is paying more in royalties and licensing fees to the United States, then its currency will have a lower value than would otherwise be the case, disadvantaging U.S. manufacturing workers.
David Leonhardt has an interesting piece that asks whether currency values should still be an important issue between the United States and China, suggesting that China’s appropriation of U.S. technology and intellectual products should be a more important issue. There is an important class aspect to this question that the piece overlooks.
From the standpoint of manufacturing workers and those whose wages might be affected by an increased demand for manufacturing workers (e.g. those without college degrees), the lower the value of the dollar against the Chinese currency the better. For this group, it matters little that China may not pay Microsoft the fees that it is claiming. In fact, it could very well be beneficial to these workers if China does not respect U.S. intellectual property claims since it will mean that they can buy products produced in China at a lower cost.
The situation is of course the opposite with the highly educated workers who will likely get increased pay if China adopts a strong intellectual property system. The shareholders of the affected companies will benefit as well.
This disparity in interests is undoubtedly central in the Obama administration’s negotiations with China. It understands that the more it can get in terms of enforcement of intellectual property claims, the less it will get in terms of appreciation of China’s currency. There also is the very real market consideration that if China is paying more in royalties and licensing fees to the United States, then its currency will have a lower value than would otherwise be the case, disadvantaging U.S. manufacturing workers.
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The NYT had an article on the response in the UK to warnings from Moody’s that it may downgrade the country’s debt because of the country’s week economy. It is worth noting that it has been roughly 20 months since the Conservative-led UK government first began to implement its austerity program. President Obama saw a resounding electoral defeat in November of 2010, 20 months after Congress passed his stimulus program.
The NYT had an article on the response in the UK to warnings from Moody’s that it may downgrade the country’s debt because of the country’s week economy. It is worth noting that it has been roughly 20 months since the Conservative-led UK government first began to implement its austerity program. President Obama saw a resounding electoral defeat in November of 2010, 20 months after Congress passed his stimulus program.
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Japan’s central bank took the extraordinary move of targeting a higher rate of inflation, setting a 1.0 percent inflation target. This should have been front page news.
The idea of a central bank setting an inflation target above its current level, in the hope of raising inflationary expectations, dates back to a paper by Paul Krugman in the late 90s. (Federal Reserve Board Chairman Ben Bernanke endorsed the same policy when he was still a professor at Princeton.) The logic is that if the central bank can credibly commit itself to a higher inflation target then the commitment could create self-fulfilling expectations. Businesses would invest and consumers would spend based on the expectation of higher inflation, which would mean a lower real interest rate. The increased business activity would then lead the inflation targeted by the bank.
This decision by the Japanese central bank will provide an opportunity to test whether such targeting can work. If it proves successful, it may lead to more pressure on other central banks (like the Fed) to go this route.
Japan’s central bank took the extraordinary move of targeting a higher rate of inflation, setting a 1.0 percent inflation target. This should have been front page news.
The idea of a central bank setting an inflation target above its current level, in the hope of raising inflationary expectations, dates back to a paper by Paul Krugman in the late 90s. (Federal Reserve Board Chairman Ben Bernanke endorsed the same policy when he was still a professor at Princeton.) The logic is that if the central bank can credibly commit itself to a higher inflation target then the commitment could create self-fulfilling expectations. Businesses would invest and consumers would spend based on the expectation of higher inflation, which would mean a lower real interest rate. The increased business activity would then lead the inflation targeted by the bank.
This decision by the Japanese central bank will provide an opportunity to test whether such targeting can work. If it proves successful, it may lead to more pressure on other central banks (like the Fed) to go this route.
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A Washington Post article on the problems of restructuring of Greece’s debt discussed factors that affect country’s ability to carry debt. It neglected to mention the issue of whether it borrows in currency it issues. If a country is like the United States or Japan, and borrows almost entirely in its own currency, then it would only default on its debt as a political decision (e.g. it refuses to extend a debt ceiling, authorizing the debt to be paid).
Since it issues its own currency, it can always issue the currency needed to finance its debt. There markets seem to understand this point very well. The countries that issue debt in their own currency (e.g. Sweden, Denmark, the UK) consistently enjoy lower interest rates on their debt than countries with comparable debt burdens who do not have their own currency.
A Washington Post article on the problems of restructuring of Greece’s debt discussed factors that affect country’s ability to carry debt. It neglected to mention the issue of whether it borrows in currency it issues. If a country is like the United States or Japan, and borrows almost entirely in its own currency, then it would only default on its debt as a political decision (e.g. it refuses to extend a debt ceiling, authorizing the debt to be paid).
Since it issues its own currency, it can always issue the currency needed to finance its debt. There markets seem to understand this point very well. The countries that issue debt in their own currency (e.g. Sweden, Denmark, the UK) consistently enjoy lower interest rates on their debt than countries with comparable debt burdens who do not have their own currency.
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