Morning Edition had a segment with journalist Phillip Longman who told listeners that the world was suffering from having too few children [sorry, no link yet]. Longman wrongly said that European countries now have large budget deficits because they have too few workers and large pension obligations.
This is not true. European countries have large budget deficits because their economies collapsed as a result of the collapse of housing bubbles in countries like Spain, the United Kingdom, and Ireland. This can be easily shown by the fact that almost all of these countries had moderate budget deficits or surpluses just a few years ago, when their demographics were almost exactly the same.
The prospect of stagnant or declining populations actually offers many benefits for densely populated countries. It means that there will be less strain on infrastructure and natural resources (a larger percent of the population can have beachfront property). It also means that it will be easier for to meet targets on greenhouse gas emissions.
It would be useful if Morning Edition tried to make sure that the people it brings on to speak on economic issues at least had some knowledge of the economy.
Morning Edition had a segment with journalist Phillip Longman who told listeners that the world was suffering from having too few children [sorry, no link yet]. Longman wrongly said that European countries now have large budget deficits because they have too few workers and large pension obligations.
This is not true. European countries have large budget deficits because their economies collapsed as a result of the collapse of housing bubbles in countries like Spain, the United Kingdom, and Ireland. This can be easily shown by the fact that almost all of these countries had moderate budget deficits or surpluses just a few years ago, when their demographics were almost exactly the same.
The prospect of stagnant or declining populations actually offers many benefits for densely populated countries. It means that there will be less strain on infrastructure and natural resources (a larger percent of the population can have beachfront property). It also means that it will be easier for to meet targets on greenhouse gas emissions.
It would be useful if Morning Edition tried to make sure that the people it brings on to speak on economic issues at least had some knowledge of the economy.
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Robert Samuelson devoted his column today to decrying the lack of confidence in the U.S. economy. While confidence is indeed low, this largely reflects the prolonged downturn. Contrary to what Samuelson suggests, there is nothing surprising about the lack of confidence given the most prolonged period of high unemployment since the Great Depression.
In fact, given the weakness of demand, consumption and investment are both surprisingly high. The saving rate is hovering near 5.0 percent, well below the pre-bubble average of more than 8.0 percent, suggesting that consumers are more willing to spend relative to their income than was the case in the 50s, 60s, 70s, and 80s. The share of GDP devoted to investment in equipment and software is almost back to its pre-recession level.
The obvious problem in the economy, including the low rate of start-ups that is troubling Samuelson, is a lack of demand. This is best met by government stimulus, since government spending puts money in people’s pockets and, contrary to what many politicians assert, people do work for the government, which means that the government can create jobs. If the government created enough demand in the economy, as it did during World War II, there is no reason to believe that firms would not invest more and that more start-ups would come into existence.
Robert Samuelson devoted his column today to decrying the lack of confidence in the U.S. economy. While confidence is indeed low, this largely reflects the prolonged downturn. Contrary to what Samuelson suggests, there is nothing surprising about the lack of confidence given the most prolonged period of high unemployment since the Great Depression.
In fact, given the weakness of demand, consumption and investment are both surprisingly high. The saving rate is hovering near 5.0 percent, well below the pre-bubble average of more than 8.0 percent, suggesting that consumers are more willing to spend relative to their income than was the case in the 50s, 60s, 70s, and 80s. The share of GDP devoted to investment in equipment and software is almost back to its pre-recession level.
The obvious problem in the economy, including the low rate of start-ups that is troubling Samuelson, is a lack of demand. This is best met by government stimulus, since government spending puts money in people’s pockets and, contrary to what many politicians assert, people do work for the government, which means that the government can create jobs. If the government created enough demand in the economy, as it did during World War II, there is no reason to believe that firms would not invest more and that more start-ups would come into existence.
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It would have been helpful if the NYT had made this point in an article that discussed the failure of Greece to meet deficit targets set by the “troika,” the European Central Bank (ECB), the IMF, and the European Commission. The austerity conditions that the troika imposed on Greece and its trading partners coupled with excessively restrictive monetary policy by the ECB has slowed growth within Greece.
While the article notes that the slower than expected growth is the cause of Greece failing to meet the targets set by the troika, it does not explain that the troika itself is largely responsible for the slower than expected growth. While the economic officials in key positions in the troika have a long track record of dismal failure (hence the current downturn), top officials in these bureaucracies are rarely punished for poor performance. As a result, they can keep repeating the same mistakes more or less indefinitely.
It would have been helpful if the NYT had made this point in an article that discussed the failure of Greece to meet deficit targets set by the “troika,” the European Central Bank (ECB), the IMF, and the European Commission. The austerity conditions that the troika imposed on Greece and its trading partners coupled with excessively restrictive monetary policy by the ECB has slowed growth within Greece.
While the article notes that the slower than expected growth is the cause of Greece failing to meet the targets set by the troika, it does not explain that the troika itself is largely responsible for the slower than expected growth. While the economic officials in key positions in the troika have a long track record of dismal failure (hence the current downturn), top officials in these bureaucracies are rarely punished for poor performance. As a result, they can keep repeating the same mistakes more or less indefinitely.
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Those who just read the headline of Friedman’s column, “how did the robot end up with my job?” will be disappointed if they are expecting an improvement in the quality of columns appearing on the NYT oped page. It turns out that Friedman was just speaking metaphorically.
Friedman yet again gives us a big picture that is completely out of focus:
“In the last decade, we have gone from a connected world (thanks to the end of the cold war, globalization and the Internet) to a hyperconnected world (thanks to those same forces expanding even faster). And it matters. The connected world was a challenge to blue-collar workers in the industrialized West. They had to compete with a bigger pool of cheap labor. The hyperconnected world is now a challenge to white-collar workers. They have to compete with a bigger pool of cheap geniuses — some of whom are people and some are now robots, microchips and software-guided machines.”
Of course this is in part true. We have structured our economy so that the vast pool of low cost labor in the developing world has directly or indirectly brought down the wages of autoworkers, textile workers, retail workers, and custodians. However, it has not had the same effect on the wages of doctors, lawyers, dentists or most other highly educated professionals. Nor has it prevented the nation’s capital from being chock full of “six-figure buffoons,” people with no discernible skill other than being able to ingratiate themselves to those with money and power and therefore earn salaries well in excess of $100,000 a year.
Nor has globalization and technology prevented clowns, like Hewlett-Packard’s Leo Apotheker, from wrecking major companies and then walking away with tens or even hundreds of millions of dollars as a reward. In Mr. Apotheker’s case, bringing one of the country’s leading technology companies to the brink of disaster was worth $23 million (@1590 minimum wage work years). And globalization and technology have not prevented Wall Street types like Richard Fuld or Robert Rubin from pocketing hundreds of millions as they brought both their companies and the economy to ruin.
A robot columnist might try to explain such striking facts about the U.S. economy. International competition has been a major force depressing the wage and income of most of the population, yet a small group at the top has been able to game the system to largely protect themselves from such competition. But apparently we will not be reading about this fundamental feature of the U.S. economy on the NYT oped page; Thomas Friedman still has his column.
Those who just read the headline of Friedman’s column, “how did the robot end up with my job?” will be disappointed if they are expecting an improvement in the quality of columns appearing on the NYT oped page. It turns out that Friedman was just speaking metaphorically.
Friedman yet again gives us a big picture that is completely out of focus:
“In the last decade, we have gone from a connected world (thanks to the end of the cold war, globalization and the Internet) to a hyperconnected world (thanks to those same forces expanding even faster). And it matters. The connected world was a challenge to blue-collar workers in the industrialized West. They had to compete with a bigger pool of cheap labor. The hyperconnected world is now a challenge to white-collar workers. They have to compete with a bigger pool of cheap geniuses — some of whom are people and some are now robots, microchips and software-guided machines.”
Of course this is in part true. We have structured our economy so that the vast pool of low cost labor in the developing world has directly or indirectly brought down the wages of autoworkers, textile workers, retail workers, and custodians. However, it has not had the same effect on the wages of doctors, lawyers, dentists or most other highly educated professionals. Nor has it prevented the nation’s capital from being chock full of “six-figure buffoons,” people with no discernible skill other than being able to ingratiate themselves to those with money and power and therefore earn salaries well in excess of $100,000 a year.
Nor has globalization and technology prevented clowns, like Hewlett-Packard’s Leo Apotheker, from wrecking major companies and then walking away with tens or even hundreds of millions of dollars as a reward. In Mr. Apotheker’s case, bringing one of the country’s leading technology companies to the brink of disaster was worth $23 million (@1590 minimum wage work years). And globalization and technology have not prevented Wall Street types like Richard Fuld or Robert Rubin from pocketing hundreds of millions as they brought both their companies and the economy to ruin.
A robot columnist might try to explain such striking facts about the U.S. economy. International competition has been a major force depressing the wage and income of most of the population, yet a small group at the top has been able to game the system to largely protect themselves from such competition. But apparently we will not be reading about this fundamental feature of the U.S. economy on the NYT oped page; Thomas Friedman still has his column.
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Morgan Stanley Director Erskine Bowles, along with his sidekick former Senator Alan Simpson, once again used the Washington Post oped page to call for cuts to Social Security and Medicare. The two made the call in the context of a piece urging the congressional “supercommittee” to produce a large deficit reduction package.
They argued that it was necessary for cuts in “entitlements” to be part of any deficit package. “Entitlements” is the preferred euphemism for Social Security and Medicare for people who want to cut Social Security and Medicare.
It is once again interesting to note that in a call for shared sacrifice, Bowles and Simpson once again never mention the possibility of financial speculation tax (FST), which could raise over $1.5 trillion over the course of the next decade. Such a tax has been used in the UK for centuries and a proposal for such a tax has recently been put forward by the European Commission. It is remarkable that the elite political figures in the United States show so little interest in an FST.
The Bowles-Simpson piece also includes a bizarre criticism of President Obama’s deficit reduction proposal complaining that:
“while it does (barely) stabilize the debt, it does so at a dangerously high level and with no margin for error.”
Since Congress approves budgets every single year, and often makes major budget adjustments between budgets, it is not clear why Bowles and Simpson think they mean by “with no margin for error.” If a budget plan approved by the current Congress fails to meet deficit targets for budgets 8-10 years in the future, Congress will have plenty of time to make whatever adjustments it views as necessary.
Of course as every budget analyst knows, the whole long-term budget problem is the result of our broken health care system. If the United States paid a comparable amount per person for its health care as people do in any other wealthy country, we would be looking at huge surpluses, not deficit. This point is rarely mentioned by Bowles and Simpson.
Morgan Stanley Director Erskine Bowles, along with his sidekick former Senator Alan Simpson, once again used the Washington Post oped page to call for cuts to Social Security and Medicare. The two made the call in the context of a piece urging the congressional “supercommittee” to produce a large deficit reduction package.
They argued that it was necessary for cuts in “entitlements” to be part of any deficit package. “Entitlements” is the preferred euphemism for Social Security and Medicare for people who want to cut Social Security and Medicare.
It is once again interesting to note that in a call for shared sacrifice, Bowles and Simpson once again never mention the possibility of financial speculation tax (FST), which could raise over $1.5 trillion over the course of the next decade. Such a tax has been used in the UK for centuries and a proposal for such a tax has recently been put forward by the European Commission. It is remarkable that the elite political figures in the United States show so little interest in an FST.
The Bowles-Simpson piece also includes a bizarre criticism of President Obama’s deficit reduction proposal complaining that:
“while it does (barely) stabilize the debt, it does so at a dangerously high level and with no margin for error.”
Since Congress approves budgets every single year, and often makes major budget adjustments between budgets, it is not clear why Bowles and Simpson think they mean by “with no margin for error.” If a budget plan approved by the current Congress fails to meet deficit targets for budgets 8-10 years in the future, Congress will have plenty of time to make whatever adjustments it views as necessary.
Of course as every budget analyst knows, the whole long-term budget problem is the result of our broken health care system. If the United States paid a comparable amount per person for its health care as people do in any other wealthy country, we would be looking at huge surpluses, not deficit. This point is rarely mentioned by Bowles and Simpson.
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The Washington Post had a column by a millennial columnist complaining about the lack of opportunity. It is striking that the column never once mentioned income inequality.
There is no doubt that millennials will on average be far wealthier than their parents. Output per hour has roughly doubled over the last three decades, meaning that the real wage could be almost twice as high today as it was in 1980. Insofar as the typical millennial is not seeing the benefits of this productivity growth it is due to the fact that so much income has been redistributed upwards, not the result of any generational dynamics.
The Washington Post had a column by a millennial columnist complaining about the lack of opportunity. It is striking that the column never once mentioned income inequality.
There is no doubt that millennials will on average be far wealthier than their parents. Output per hour has roughly doubled over the last three decades, meaning that the real wage could be almost twice as high today as it was in 1980. Insofar as the typical millennial is not seeing the benefits of this productivity growth it is due to the fact that so much income has been redistributed upwards, not the result of any generational dynamics.
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The NYT had an article about the prospects of persistently slower growth in Europe and the U.S. as a result of the current downturn. It told readers that:
“Now, just as the United States economy is held back by households whose mortgages are still underwater and who won’t begin to spend again until they have run down their debts, Europe can’t begin to grow again until its countries learn to live within their means.”
Actually, the United States economy is not being held back by a lack of consumer spending. The ratio of spending to income is still considerably higher than the pre-bubble average as reflected by the lower than normal saving rate. The problem is that the bubble had generated excessive consumption demand, which is not being replaced by any other source of demand.
Source: Bureau of Economic Analysis.
The piece also inaccurately asserts that:
“in Europe it was mainly governments that piled on the debt, facilitated by banks that lent them money by buying up sovereign bonds.”
Actually, Ireland and Spain, two of the most troubled countries, ran budget surpluses in the years preceding the downturn. They ran into trouble because they both had large housing bubbles which burst and left their economies in crisis.
It would also have been useful if the chart showing debt to GDP ratios included Japan. The IMF shows Japan’s debt to GDP ratio at the end of this year as being 229 percent. Excluding Greece, this is almost twice as large as any debt burden shown in the chart. Japan can currently pay just over 1.0 percent interest on its long-term debt. If Japan had been included, it would have suggested that the debt levels may not be as troubling as the piece implies.
The NYT had an article about the prospects of persistently slower growth in Europe and the U.S. as a result of the current downturn. It told readers that:
“Now, just as the United States economy is held back by households whose mortgages are still underwater and who won’t begin to spend again until they have run down their debts, Europe can’t begin to grow again until its countries learn to live within their means.”
Actually, the United States economy is not being held back by a lack of consumer spending. The ratio of spending to income is still considerably higher than the pre-bubble average as reflected by the lower than normal saving rate. The problem is that the bubble had generated excessive consumption demand, which is not being replaced by any other source of demand.
Source: Bureau of Economic Analysis.
The piece also inaccurately asserts that:
“in Europe it was mainly governments that piled on the debt, facilitated by banks that lent them money by buying up sovereign bonds.”
Actually, Ireland and Spain, two of the most troubled countries, ran budget surpluses in the years preceding the downturn. They ran into trouble because they both had large housing bubbles which burst and left their economies in crisis.
It would also have been useful if the chart showing debt to GDP ratios included Japan. The IMF shows Japan’s debt to GDP ratio at the end of this year as being 229 percent. Excluding Greece, this is almost twice as large as any debt burden shown in the chart. Japan can currently pay just over 1.0 percent interest on its long-term debt. If Japan had been included, it would have suggested that the debt levels may not be as troubling as the piece implies.
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They kept spraying water on the wood, but they just couldn’t get the fireplace started. The Post wrote the equivalent in an article on the Greek crisis:
“The government has raised taxes and cut services and is announcing tougher steps every other week. So far it has been to no avail; the economic outlook keeps getting worse, not better.”
When the government pulls money out of the economy by laying off workers, cutting government workers’ pay, and raising taxes, the expected result is a weakened economy. This is exactly what has happened in Greece. It is difficult to understand what the Post meant in saying “to no avail.”
They kept spraying water on the wood, but they just couldn’t get the fireplace started. The Post wrote the equivalent in an article on the Greek crisis:
“The government has raised taxes and cut services and is announcing tougher steps every other week. So far it has been to no avail; the economic outlook keeps getting worse, not better.”
When the government pulls money out of the economy by laying off workers, cutting government workers’ pay, and raising taxes, the expected result is a weakened economy. This is exactly what has happened in Greece. It is difficult to understand what the Post meant in saying “to no avail.”
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Close, but not quite; citing no evidence whatsoever, an AP article on plans to impose a financial speculation tax told readers that:
“though the tax could dent growth and employment, it has won a fair degree of support across the 17-country eurozone, including France and Germany, the EU’s two biggest economies.”
This should have caused readers to scratch their heads and some people at AP to get fired.
Okay, we know that rich and powerful people don’t like the idea of taxing financial speculation. A serious news article would just tell us that rich and powerful people don’t like taxing financial speculation, it would not just make things up about the tax slowing growth and job creation as this piece does.
The reality is that the tax rates being discussed would just raise the cost of financial transactions back to where they were in the 80s or even the 90s. Perhaps AP’s reporters/editors don’t have any knowledge of these decades, but we had plenty of growth and job creation back then. If the lower transactions costs of the last 15-20 years have helped growth it would be hard to find evidence for this in the data.
Close, but not quite; citing no evidence whatsoever, an AP article on plans to impose a financial speculation tax told readers that:
“though the tax could dent growth and employment, it has won a fair degree of support across the 17-country eurozone, including France and Germany, the EU’s two biggest economies.”
This should have caused readers to scratch their heads and some people at AP to get fired.
Okay, we know that rich and powerful people don’t like the idea of taxing financial speculation. A serious news article would just tell us that rich and powerful people don’t like taxing financial speculation, it would not just make things up about the tax slowing growth and job creation as this piece does.
The reality is that the tax rates being discussed would just raise the cost of financial transactions back to where they were in the 80s or even the 90s. Perhaps AP’s reporters/editors don’t have any knowledge of these decades, but we had plenty of growth and job creation back then. If the lower transactions costs of the last 15-20 years have helped growth it would be hard to find evidence for this in the data.
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In a useful anti-austerity editorial the NYT makes the mistake of equating the trade surpluses of China and Germany. There is a fundamental difference between these countries. China is a fast growing developing country. In standard economic theory we would expect that it would be a capital importer (meaning it has a trade deficit) since capital gets a much higher return in China than elsewhere. The fact that China and other developing countries are growing by running large trade surpluses and exporting capital reflects the enormous failure of the IMF in setting up a workable international financial system.
On the other hand, it would be expected that a relatively slow growing wealthy country like Germany would have a trade surplus, although not necessarily with other wealthy countries, as is now the case in the euro zone. The Germans apparently have not yet come to grips with the accounting identity that implies that if they run persistent trade surpluses with the other euro zone countries, then Germany will have to continually lend them more money. The only way to avoid this situation would be if the deficit countries within the euro zone had massive surpluses with non-euro zone countries.
In a useful anti-austerity editorial the NYT makes the mistake of equating the trade surpluses of China and Germany. There is a fundamental difference between these countries. China is a fast growing developing country. In standard economic theory we would expect that it would be a capital importer (meaning it has a trade deficit) since capital gets a much higher return in China than elsewhere. The fact that China and other developing countries are growing by running large trade surpluses and exporting capital reflects the enormous failure of the IMF in setting up a workable international financial system.
On the other hand, it would be expected that a relatively slow growing wealthy country like Germany would have a trade surplus, although not necessarily with other wealthy countries, as is now the case in the euro zone. The Germans apparently have not yet come to grips with the accounting identity that implies that if they run persistent trade surpluses with the other euro zone countries, then Germany will have to continually lend them more money. The only way to avoid this situation would be if the deficit countries within the euro zone had massive surpluses with non-euro zone countries.
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