There he goes again, Paul Krugman is ignoring history to make the Republicans look better. His column today takes issue with Republican front-runner Mitt Romney’s claim that the economy has lost 2 million jobs during the Obama administration. Krugman points out that all the job loss took place in the first six months of the Obama administration. When President Obama took office the economy was losing 700,000 jobs a month. The rate of job growth slowed in the late spring and summer, coinciding with the stimulus beginning to kick in. By the end of the year employment had stabilized. It has been rising slowly in the subsequent two years.
Source: Bureau of Labor Statistics.
Krugman points out that the Republicans routinely talk about the job growth record of President Bush beginning in 2003, ignoring the first two years of his administration during which the economy lost over 2 million jobs. However, Krugman ignores the fact that Republicans also routinely talked about the job growth record of President Reagan as beginning in 1983, ignoring the first two years of the Reagan administration. This was also a period in which the economy lost more than 2 million jobs.
In short, it is standard practice for Republicans to ignore the beginning of a president’s term, attributing the bad events of that period to their predecessor. In President Obama’s case, Mitt Romney is applying a different and obviously absurd standard that holds him responsible for the economic collapse that was already in process at the time he took office. (Romney would be right to say that the job growth under President Obama has been pathetic.)
There he goes again, Paul Krugman is ignoring history to make the Republicans look better. His column today takes issue with Republican front-runner Mitt Romney’s claim that the economy has lost 2 million jobs during the Obama administration. Krugman points out that all the job loss took place in the first six months of the Obama administration. When President Obama took office the economy was losing 700,000 jobs a month. The rate of job growth slowed in the late spring and summer, coinciding with the stimulus beginning to kick in. By the end of the year employment had stabilized. It has been rising slowly in the subsequent two years.
Source: Bureau of Labor Statistics.
Krugman points out that the Republicans routinely talk about the job growth record of President Bush beginning in 2003, ignoring the first two years of his administration during which the economy lost over 2 million jobs. However, Krugman ignores the fact that Republicans also routinely talked about the job growth record of President Reagan as beginning in 1983, ignoring the first two years of the Reagan administration. This was also a period in which the economy lost more than 2 million jobs.
In short, it is standard practice for Republicans to ignore the beginning of a president’s term, attributing the bad events of that period to their predecessor. In President Obama’s case, Mitt Romney is applying a different and obviously absurd standard that holds him responsible for the economic collapse that was already in process at the time he took office. (Romney would be right to say that the job growth under President Obama has been pathetic.)
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Suppose that a candidate, with no evidence whatsoever, accuses his opponent of being a child molester. Should the media simply report the accusation and the corresponding denial and not point out the fact that there is no evidence for the accusation?
This is the standard that the NYT uses in reporting Mitt Romney’s claim that:
“Mr. Obama seeks a ‘European-style welfare state’ to redistribute wealth and create ‘equal outcomes’ regardless of individual effort and success.”
The article points out that President Obama’s supporters object to this characterization of his policies, but it fails to note that there is no evidence whatsoever for Romney’s claim. In making this assertion, Romney is just making things up.
The media are being irresponsible when they imply that there is credence to a totally fabricated assertion. The responsible way to report on Romney’s accusation is that he is inventing charges against President Obama, just as if he started calling President Obama a child molester based on no evidence whatsoever.
Suppose that a candidate, with no evidence whatsoever, accuses his opponent of being a child molester. Should the media simply report the accusation and the corresponding denial and not point out the fact that there is no evidence for the accusation?
This is the standard that the NYT uses in reporting Mitt Romney’s claim that:
“Mr. Obama seeks a ‘European-style welfare state’ to redistribute wealth and create ‘equal outcomes’ regardless of individual effort and success.”
The article points out that President Obama’s supporters object to this characterization of his policies, but it fails to note that there is no evidence whatsoever for Romney’s claim. In making this assertion, Romney is just making things up.
The media are being irresponsible when they imply that there is credence to a totally fabricated assertion. The responsible way to report on Romney’s accusation is that he is inventing charges against President Obama, just as if he started calling President Obama a child molester based on no evidence whatsoever.
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All the news reports on the December jobs data are very upbeat about the 200,000 jobs reported for December. The phrase for the day is “better than expected.” However, as someone who told friends and family it would be 165,000, I see it as slightly worse than expected.
Look at the data boys and girls. We created 42,200 courier jobs in December. Was there really a big surge in hiring in the courier industry? Well, the Bureau of Labor Statistics showed a surge of more than 50,000 new courier jobs last December, all of which were gone in January and then some. In other words, pull out our 42,000 courier jobs and we are looking at job growth of 158,000, not much to celebrate.
By the way, even 200,000 jobs would not be much to celebrate. Job growth averaged almost 250,000 a month for the years 1996-2000. Coming out of a steep recession, we should be expecting job growth in the 300k-400k monthly range. Unfortunately, there has been a huge effort to lower expectations so that we come to accept dismal economic performance as the best we can do. (The double-dip recession crew deserve a special flogging in this story.)
All the news reports on the December jobs data are very upbeat about the 200,000 jobs reported for December. The phrase for the day is “better than expected.” However, as someone who told friends and family it would be 165,000, I see it as slightly worse than expected.
Look at the data boys and girls. We created 42,200 courier jobs in December. Was there really a big surge in hiring in the courier industry? Well, the Bureau of Labor Statistics showed a surge of more than 50,000 new courier jobs last December, all of which were gone in January and then some. In other words, pull out our 42,000 courier jobs and we are looking at job growth of 158,000, not much to celebrate.
By the way, even 200,000 jobs would not be much to celebrate. Job growth averaged almost 250,000 a month for the years 1996-2000. Coming out of a steep recession, we should be expecting job growth in the 300k-400k monthly range. Unfortunately, there has been a huge effort to lower expectations so that we come to accept dismal economic performance as the best we can do. (The double-dip recession crew deserve a special flogging in this story.)
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People are inclined to give much more legitimacy to market outcomes than policy outcomes engineered by governments. That is why there is a whole industry devoted to convincing people that the upward redistribution of income over the last three decades, which has given the bulk of economic gains to the One Percent, is really just the result of the natural workings of the market.
David Ignatius is one of the people who works in this industry. His Post column today urges readers to contemplate the awful thought that, quoting Francis Fukuyama:
“What if the further development of technology and globalization undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?”
It is very useful to the One Percent to pretend that their wealth and the near stagnation in living standards for everyone else is just the result of “the further development of technology and globalization.” However this has nothing to do with reality.
Globalization has hurt the living standards of the middle class because it was designed to have this effect. Trade agreements like NAFTA were quite explicitly designed to make it as easy as possible for General Electric and other manufacturers to set up operations in the developing world and export their output back to the United States. This has the effect of putting U.S. manufacturing workers in direct competition with low-paid workers in the developing world.
We could have designed these deals to put our doctors, lawyers, economists and other highly paid professionals in direct competition with their much lower paid counterparts in the developing world. We could have constructed trade deals that remove all the obstacles that make it difficult for students in China, India, and elsewhere and to train to U.S. standards and then practice their professions in the United States.
If globalization had followed this path it would have produced enormous benefits to both the middle class and the economy as a whole. We would be able to get health care, university education and many other services provided by highly paid professionals at much lower cost.
In the same vein it is not technology by itself that has made some people very rich. It is largely government-granted patent and copyright monopolies that have made people rich. These polices are becoming increasingly inefficient mechanisms for supporting innovation and creative work.
In the case of prescription drugs alone, patent monopolies raise costs by more than $250 billion (@1.7 percent of GDP) a year compared to a situation in which drugs were sold in a free market. This amount is roughly 5 times as much as the amount that is at stake with extending the Bush tax cuts to the richest 2 percent of taxpayers. There are more efficient mechanisms for financing drug research however this topic is largely excluded from public debate.
The great fortunes that have been made on Wall Street come in part from implicit too-big-to-fail insurance from the government, exemption from fraud laws, and being granted special tax treatment. Even the International Monetary Fund has noted that the financial sector in the U.S. and elsewhere faces a much lower tax burden than other sectors.
If a town has twenty gambling casinos and 19 of them pay heavy taxes, then we would expect the 20th casino to enjoy much higher profits. This is a significant part of the story of the high pay and big profits on Wall Street.
There is a much longer list of ways in which the government redistributes income upwards. It is cute how people like Fukuyama and Ignatius pretend that the upward redistribution was just the natural workings of the market and then wring their hands over the unfortunate implications, but this is kids’ stuff. Serious people need not pay attention to such nonsense.
People are inclined to give much more legitimacy to market outcomes than policy outcomes engineered by governments. That is why there is a whole industry devoted to convincing people that the upward redistribution of income over the last three decades, which has given the bulk of economic gains to the One Percent, is really just the result of the natural workings of the market.
David Ignatius is one of the people who works in this industry. His Post column today urges readers to contemplate the awful thought that, quoting Francis Fukuyama:
“What if the further development of technology and globalization undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?”
It is very useful to the One Percent to pretend that their wealth and the near stagnation in living standards for everyone else is just the result of “the further development of technology and globalization.” However this has nothing to do with reality.
Globalization has hurt the living standards of the middle class because it was designed to have this effect. Trade agreements like NAFTA were quite explicitly designed to make it as easy as possible for General Electric and other manufacturers to set up operations in the developing world and export their output back to the United States. This has the effect of putting U.S. manufacturing workers in direct competition with low-paid workers in the developing world.
We could have designed these deals to put our doctors, lawyers, economists and other highly paid professionals in direct competition with their much lower paid counterparts in the developing world. We could have constructed trade deals that remove all the obstacles that make it difficult for students in China, India, and elsewhere and to train to U.S. standards and then practice their professions in the United States.
If globalization had followed this path it would have produced enormous benefits to both the middle class and the economy as a whole. We would be able to get health care, university education and many other services provided by highly paid professionals at much lower cost.
In the same vein it is not technology by itself that has made some people very rich. It is largely government-granted patent and copyright monopolies that have made people rich. These polices are becoming increasingly inefficient mechanisms for supporting innovation and creative work.
In the case of prescription drugs alone, patent monopolies raise costs by more than $250 billion (@1.7 percent of GDP) a year compared to a situation in which drugs were sold in a free market. This amount is roughly 5 times as much as the amount that is at stake with extending the Bush tax cuts to the richest 2 percent of taxpayers. There are more efficient mechanisms for financing drug research however this topic is largely excluded from public debate.
The great fortunes that have been made on Wall Street come in part from implicit too-big-to-fail insurance from the government, exemption from fraud laws, and being granted special tax treatment. Even the International Monetary Fund has noted that the financial sector in the U.S. and elsewhere faces a much lower tax burden than other sectors.
If a town has twenty gambling casinos and 19 of them pay heavy taxes, then we would expect the 20th casino to enjoy much higher profits. This is a significant part of the story of the high pay and big profits on Wall Street.
There is a much longer list of ways in which the government redistributes income upwards. It is cute how people like Fukuyama and Ignatius pretend that the upward redistribution was just the natural workings of the market and then wring their hands over the unfortunate implications, but this is kids’ stuff. Serious people need not pay attention to such nonsense.
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The New York Times misled readers today by telling them that Germany’s unemployment rate is 6.8 percent. This number is the official German measure of unemployment. It is not directly comparable to the U.S. measure of unemployment primarily because it counts people who are working part-time, but would like full-time jobs, as being unemployed.
There is no excuse for presenting this measure without clarifying the difference with the U.S. measure of unemployment. It is actually simple to get a measure that is comparable to the U.S. measure since the OECD publishes a harmonized unemployment rate series that uses a similar methodology to the Bureau of Labor Statistics. This measure shows that Germany’s unemployment rate was 5.5 percent in October, more than a full percentage below the number reported by the NYT.
The New York Times misled readers today by telling them that Germany’s unemployment rate is 6.8 percent. This number is the official German measure of unemployment. It is not directly comparable to the U.S. measure of unemployment primarily because it counts people who are working part-time, but would like full-time jobs, as being unemployed.
There is no excuse for presenting this measure without clarifying the difference with the U.S. measure of unemployment. It is actually simple to get a measure that is comparable to the U.S. measure since the OECD publishes a harmonized unemployment rate series that uses a similar methodology to the Bureau of Labor Statistics. This measure shows that Germany’s unemployment rate was 5.5 percent in October, more than a full percentage below the number reported by the NYT.
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Meyerson was trying to make the point that Germany is doing better than the U.S. in spite of its generous welfare state and lower level of inequality. But he used the official German unemployment rate to make his case, telling readers that Germany’s unemployment rate was 6.5 percent in October. The OECD reports that Germany’s harmonized unemployment rate, which uses the same methodology as the Bureau of Labor Statistics in the United States, was 5.5 percent in October. The OECD data makes his case even stronger. This is the same mistake made by the NYT today.
Meyerson was trying to make the point that Germany is doing better than the U.S. in spite of its generous welfare state and lower level of inequality. But he used the official German unemployment rate to make his case, telling readers that Germany’s unemployment rate was 6.5 percent in October. The OECD reports that Germany’s harmonized unemployment rate, which uses the same methodology as the Bureau of Labor Statistics in the United States, was 5.5 percent in October. The OECD data makes his case even stronger. This is the same mistake made by the NYT today.
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The NYT reports that Indiana governor Mitch Daniels is pushing legislation that will require workers who support a union to pay extra money to support the cost of representing workers who don’t want to pay for their representation. Under federal labor law, a union is required to represent all the workers in a bargaining unit, whether they opt to join the union or not. This means not only that all workers will receive the full pay and benefits negotiated by the union, but also that the union is required to represent workers who face any sort of disciplinary action.
Since the union is legally obligated to represent all workers in the bargaining unit, in most states workers are able to sign agreements with management that require all workers to pay for this representation. However, some states infringe on workers’ freedom of contract and prohibit such agreements with management. These states require the workers who join a union to pay for the representation of workers who opt not to join.
This restriction on the freedom on contract, which passes under the euphemism “right to work” is being pushed by Indiana governor Mitch Daniels. According to the article, it is likely to be approved by Indiana’s Republican legislature.
It would have been helpful if this piece had made a point of noting that this legislation requires workers who support a union to pay for the benefits received by the workers who opt not to join. It is also important to note that no one is ever required to join or pay for a union they don’t like. As every libertarian knows, a person who doesn’t like unions is completely free to work for an employer where workers are not represented by a union.
The NYT reports that Indiana governor Mitch Daniels is pushing legislation that will require workers who support a union to pay extra money to support the cost of representing workers who don’t want to pay for their representation. Under federal labor law, a union is required to represent all the workers in a bargaining unit, whether they opt to join the union or not. This means not only that all workers will receive the full pay and benefits negotiated by the union, but also that the union is required to represent workers who face any sort of disciplinary action.
Since the union is legally obligated to represent all workers in the bargaining unit, in most states workers are able to sign agreements with management that require all workers to pay for this representation. However, some states infringe on workers’ freedom of contract and prohibit such agreements with management. These states require the workers who join a union to pay for the representation of workers who opt not to join.
This restriction on the freedom on contract, which passes under the euphemism “right to work” is being pushed by Indiana governor Mitch Daniels. According to the article, it is likely to be approved by Indiana’s Republican legislature.
It would have been helpful if this piece had made a point of noting that this legislation requires workers who support a union to pay for the benefits received by the workers who opt not to join. It is also important to note that no one is ever required to join or pay for a union they don’t like. As every libertarian knows, a person who doesn’t like unions is completely free to work for an employer where workers are not represented by a union.
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The NYT did a piece on the prospects for consumer spending in 2012. It listed a number of reasons why spending would be “tepid.” Actually, spending is not tepid, it is actually quite high relative to disposable income as noted by one of the sources in the article.
In the pre-bubble years, savings averaged more than 8.0 percent of disposable income. The saving rate fell sharply due to the wealth effects associated with the run up of stock prices in the 90s and house prices in the 00s. With this wealth now gone, it is reasonable to expect the savings rate to return to its former level, if not higher.
With a savings rate near 4.0 percent, consumption is relatively strong. There is no obvious reason that it should pick up and many that it should fall back, most notably that the huge baby boom cohorts are approaching retirement with almost no savings.
The NYT did a piece on the prospects for consumer spending in 2012. It listed a number of reasons why spending would be “tepid.” Actually, spending is not tepid, it is actually quite high relative to disposable income as noted by one of the sources in the article.
In the pre-bubble years, savings averaged more than 8.0 percent of disposable income. The saving rate fell sharply due to the wealth effects associated with the run up of stock prices in the 90s and house prices in the 00s. With this wealth now gone, it is reasonable to expect the savings rate to return to its former level, if not higher.
With a savings rate near 4.0 percent, consumption is relatively strong. There is no obvious reason that it should pick up and many that it should fall back, most notably that the huge baby boom cohorts are approaching retirement with almost no savings.
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Morning Edition had a piece on the minimum wage hikes that took effect in various states and cities at the start of the year. The piece included an interview with economist David Neumark who referred to research showing that a 10 percent hike in the minimum wage leads to a 1-2 percent drop in employment among minimum wage workers.
While there is research showing no job loss (as noted in the piece by David Cooper, an analyst at the Economic Policy Institute), it is worth noting what the 1-2 percent job loss number would actually mean. Minimum wage jobs tend to be high turnover. A reduction in employment of 1-2 percent would effectively mean that the typical minimum wage worker would spend somewhat more time between jobs rather than workers literally be throwing out of their jobs. In other words, it would mean that the typical minimum wage worker would get 10 percent more pay for each hour worked, but would work 1-2 percent fewer hours.
The piece also concluded by saying that a minimum wage hike would have little benefit for most low-income families because most workers with families are earning wages well above the minimum. It asserted that many of the workers helped by the increase will be teenagers in middle income families who work for spending money. In fact, an analysis by Heather Boushey and John Schmitt of the last national law raising the minimum wage found that 70 percent of the people who would benefit were over the age of 20.
Morning Edition had a piece on the minimum wage hikes that took effect in various states and cities at the start of the year. The piece included an interview with economist David Neumark who referred to research showing that a 10 percent hike in the minimum wage leads to a 1-2 percent drop in employment among minimum wage workers.
While there is research showing no job loss (as noted in the piece by David Cooper, an analyst at the Economic Policy Institute), it is worth noting what the 1-2 percent job loss number would actually mean. Minimum wage jobs tend to be high turnover. A reduction in employment of 1-2 percent would effectively mean that the typical minimum wage worker would spend somewhat more time between jobs rather than workers literally be throwing out of their jobs. In other words, it would mean that the typical minimum wage worker would get 10 percent more pay for each hour worked, but would work 1-2 percent fewer hours.
The piece also concluded by saying that a minimum wage hike would have little benefit for most low-income families because most workers with families are earning wages well above the minimum. It asserted that many of the workers helped by the increase will be teenagers in middle income families who work for spending money. In fact, an analysis by Heather Boushey and John Schmitt of the last national law raising the minimum wage found that 70 percent of the people who would benefit were over the age of 20.
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Charles Lane used his Washington Post column today to imply that the presidential election will be a contrast between Mitt Romney pushing pro-growth policies and President Obama trumpeting reduced inequality. While Mitt Romney’s campaign will undoubtedly describe the choice in this manner, what possible basis is there for someone not on Romney’s payroll to frame the choice this way?
There is no clear trade-off between growth and inequality either internationally or in recent U.S. history. Many of the countries that are performing best at the moment, such Denmark, Sweden, and the Netherlands, rank near the top in equality of income distribution. Seriously troubled countries, like Greece, Portugal, and Spain have far more inequality.
In recent U.S. history, the economy performed best in the early post-war decades when income was much more equally distributed. The major economic point at issue between President Obama and Governor Romney is likely to be the fate of the Bush tax cuts for the richest 2 percent. When Reagan lowered taxes in the 80s we got the slowest decade of growth in the post-war era until we got the Bush tax cuts in the 00s.
It would be silly to claim that the relatively bad performance of the economy in 80s was due to the Reagan tax cuts or the awful performance in the 00s was due to the Bush tax cuts, but it would take a considerable stretch to argue that cutting taxes on the rich is in general associated with better growth. While lower tax rates do have a positive effect on incentives, a large body of research shows that the potential impact on growth is likely to be small.
In short, the choice in this election is between a candidate who wants to have lower taxes on the rich and either larger deficits or cuts to social programs and public investment and one who prefers higher taxes on the rich and fewer cuts to social programs and public investment. That is the way people not working for Governor Romney would describe the trade-offs.
Charles Lane used his Washington Post column today to imply that the presidential election will be a contrast between Mitt Romney pushing pro-growth policies and President Obama trumpeting reduced inequality. While Mitt Romney’s campaign will undoubtedly describe the choice in this manner, what possible basis is there for someone not on Romney’s payroll to frame the choice this way?
There is no clear trade-off between growth and inequality either internationally or in recent U.S. history. Many of the countries that are performing best at the moment, such Denmark, Sweden, and the Netherlands, rank near the top in equality of income distribution. Seriously troubled countries, like Greece, Portugal, and Spain have far more inequality.
In recent U.S. history, the economy performed best in the early post-war decades when income was much more equally distributed. The major economic point at issue between President Obama and Governor Romney is likely to be the fate of the Bush tax cuts for the richest 2 percent. When Reagan lowered taxes in the 80s we got the slowest decade of growth in the post-war era until we got the Bush tax cuts in the 00s.
It would be silly to claim that the relatively bad performance of the economy in 80s was due to the Reagan tax cuts or the awful performance in the 00s was due to the Bush tax cuts, but it would take a considerable stretch to argue that cutting taxes on the rich is in general associated with better growth. While lower tax rates do have a positive effect on incentives, a large body of research shows that the potential impact on growth is likely to be small.
In short, the choice in this election is between a candidate who wants to have lower taxes on the rich and either larger deficits or cuts to social programs and public investment and one who prefers higher taxes on the rich and fewer cuts to social programs and public investment. That is the way people not working for Governor Romney would describe the trade-offs.
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