That is what readers of his column will undoubtedly conclude when they see him say that if President Obama agrees to a deal with large reductions in spending:
“Credit markets would find it reassuring that the federal government is not completely paralyzed.”
Those who have access to information about credit markets know that they are already very reassured as demonstrated by their willingness to hold U.S. government debt at extremely low interest rates. The interest rate on 10-year Treasury bonds has been hovering near 3.0 percent. It is unlikely that any deal on the budget will lower this significantly or that any further reduction in rates would have a noticeable impact on the economy.
That is what readers of his column will undoubtedly conclude when they see him say that if President Obama agrees to a deal with large reductions in spending:
“Credit markets would find it reassuring that the federal government is not completely paralyzed.”
Those who have access to information about credit markets know that they are already very reassured as demonstrated by their willingness to hold U.S. government debt at extremely low interest rates. The interest rate on 10-year Treasury bonds has been hovering near 3.0 percent. It is unlikely that any deal on the budget will lower this significantly or that any further reduction in rates would have a noticeable impact on the economy.
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Readers of the Washington Post article on a meeting between a group of business leaders and President Obama’s chief of staff William Daley must be wondering how the Post knew that the executives were “exasperated,” as the Post told readers in the third paragraph.
The Post told readers that the executives had complaints over environmental regulations and stalled “free-trade deals.” (What the Post describes as a “free-trade deal” would be described as a “trade deal” by neutral reporters rather than advocates. These deals have little to do with creating free trade between the countries involved.)
Of course businesses will always want more profit and if they looking “exasperated” helps them get their way with a weak president and a gullible media, they will look as exasperated as possible. In reality, the profit share of income is at record highs, so environmental regulations of the Obama administration and the stalled trade deals are not having too much of a negative impact on the bottom line.
The article also described the May jobs report as “surprisingly glum.” While it was glum, there was nothing surprising about it to people who follow the economy. There was considerable evidence of weakness in the economy and the labor market prior to the release of the report, most importantly a jump in the number of weekly unemployment claims to averages well above 400,000. This number of claims is inconsistent with strong job growth.
Readers of the Washington Post article on a meeting between a group of business leaders and President Obama’s chief of staff William Daley must be wondering how the Post knew that the executives were “exasperated,” as the Post told readers in the third paragraph.
The Post told readers that the executives had complaints over environmental regulations and stalled “free-trade deals.” (What the Post describes as a “free-trade deal” would be described as a “trade deal” by neutral reporters rather than advocates. These deals have little to do with creating free trade between the countries involved.)
Of course businesses will always want more profit and if they looking “exasperated” helps them get their way with a weak president and a gullible media, they will look as exasperated as possible. In reality, the profit share of income is at record highs, so environmental regulations of the Obama administration and the stalled trade deals are not having too much of a negative impact on the bottom line.
The article also described the May jobs report as “surprisingly glum.” While it was glum, there was nothing surprising about it to people who follow the economy. There was considerable evidence of weakness in the economy and the labor market prior to the release of the report, most importantly a jump in the number of weekly unemployment claims to averages well above 400,000. This number of claims is inconsistent with strong job growth.
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Thanks for the kind wishes. Oregon is beautiful.
Thanks for the kind wishes. Oregon is beautiful.
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This is the implication of his statement in a NYT column that:
“loans from emerging economies are keeping the debt-challenged United States economy on life support.”
Is that so? Suppose that emerging economies announced tomorrow that there will be no more loans to the United States. There would be two responses. First, interest rates in the U.S. would rise. Second, the dollar would plummet, especially against the currencies of countries like China, which have been buying U.S. bonds (e.g. lending money) as part of a deliberate policy to keep down the value of their currency against the dollar. Will these events sink the U.S. economy?
First, it’s not clear how high U.S. interest rates will go, since U.S. Treasury bonds remain one of the few safe assets for investors around the world. However, if rates did start to rise precipitously then the Fed could engage in a QE3 and buy huge amounts of debt.
Could this lead to inflation? It is unlikely given the massive amount of excess capacity and huge numbers of unemployed workers in the U.S. economy. However, even if it did lead to an uptick in inflation, this would be a good thing since it would help relieve the debt burden of homeowners and help to spur growth. This argument was made not long ago by an economist named Ken Rogoff.
What about the falling dollar part of the story? Actually, this is what both the Obama and Bush administrations supposedly have been requesting/demanding from China. A lower dollar is essential for getting the trade deficit down. Everything else is chicken feed. There is nothing in any economist’s bag of tricks that will have as much impact on the trade deficit as a 20 percent decline in the value of the dollar.
This should be a headline item in every newspaper every day, since the trade deficit is tied directly to the budget deficit. If the U.S. has a trade deficit, then it must have negative national saving. (It’s an accounting identity.) This means either negative private savings (e.g. the zero household savings rate of the housing bubble years) or large government budget deficits.
This means that if deficit whiners understood economics, they would all be demanding a lower-valued dollar. In short, the emerging economies have no weapons against the U.S. They would do us and the world a great favor if they stopped lending us money.
This is the implication of his statement in a NYT column that:
“loans from emerging economies are keeping the debt-challenged United States economy on life support.”
Is that so? Suppose that emerging economies announced tomorrow that there will be no more loans to the United States. There would be two responses. First, interest rates in the U.S. would rise. Second, the dollar would plummet, especially against the currencies of countries like China, which have been buying U.S. bonds (e.g. lending money) as part of a deliberate policy to keep down the value of their currency against the dollar. Will these events sink the U.S. economy?
First, it’s not clear how high U.S. interest rates will go, since U.S. Treasury bonds remain one of the few safe assets for investors around the world. However, if rates did start to rise precipitously then the Fed could engage in a QE3 and buy huge amounts of debt.
Could this lead to inflation? It is unlikely given the massive amount of excess capacity and huge numbers of unemployed workers in the U.S. economy. However, even if it did lead to an uptick in inflation, this would be a good thing since it would help relieve the debt burden of homeowners and help to spur growth. This argument was made not long ago by an economist named Ken Rogoff.
What about the falling dollar part of the story? Actually, this is what both the Obama and Bush administrations supposedly have been requesting/demanding from China. A lower dollar is essential for getting the trade deficit down. Everything else is chicken feed. There is nothing in any economist’s bag of tricks that will have as much impact on the trade deficit as a 20 percent decline in the value of the dollar.
This should be a headline item in every newspaper every day, since the trade deficit is tied directly to the budget deficit. If the U.S. has a trade deficit, then it must have negative national saving. (It’s an accounting identity.) This means either negative private savings (e.g. the zero household savings rate of the housing bubble years) or large government budget deficits.
This means that if deficit whiners understood economics, they would all be demanding a lower-valued dollar. In short, the emerging economies have no weapons against the U.S. They would do us and the world a great favor if they stopped lending us money.
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The NYT told readers that many states are planning to increase employee contributions to their pensions. One of the reasons is that legislators are hearing:
“tales of six-figure pensions and public employees comfortably retiring in their early 50s.”
This is true because the media have been repeating tales circulated by right-wing and business organizations who are attacking public sector workers and public sector unions. In fact, the vast majority of public sector workers do not retiree in their early 50s and do not enjoy especially generous benefits.
For example, in New York state, which is featured prominently in this article, the average benefit in 2010 paid by the state’s main pension program was $18,300. Most of the workers who retiree in their early 50s are public safety employees like police and firefighters.
If the media had been doing a competent job reporting on this issue, legislators would be hearing tales of 70-year old retirees trying to get by on less than $20,000 a year. (Roughly 30 percent of public sector employees do not get Social Security.)
The article also includes the bizarre assertion that, “the era of generous compensation for public-sector employees is ending.” In fact, after adjusting for education and experience the compensation for public employees is slightly less than for their private sector counterparts.
This article also cites a Pew Center study that refers to a public pension shortfall of more than $1 trillion. It would have been worth noting that this shortfall is equal to approximately 0.25 percent of projected GDP over the next 30 years (the time horizon for most pensions). It also would have been worth noting this study found that New York state’s pension is 100 percent funded, contrary to the assertion cited in the article by New York Governor Andrew Cuomo that its pension is unsustainable. The article should have corrected Mr. Cuomo on this point.
The NYT told readers that many states are planning to increase employee contributions to their pensions. One of the reasons is that legislators are hearing:
“tales of six-figure pensions and public employees comfortably retiring in their early 50s.”
This is true because the media have been repeating tales circulated by right-wing and business organizations who are attacking public sector workers and public sector unions. In fact, the vast majority of public sector workers do not retiree in their early 50s and do not enjoy especially generous benefits.
For example, in New York state, which is featured prominently in this article, the average benefit in 2010 paid by the state’s main pension program was $18,300. Most of the workers who retiree in their early 50s are public safety employees like police and firefighters.
If the media had been doing a competent job reporting on this issue, legislators would be hearing tales of 70-year old retirees trying to get by on less than $20,000 a year. (Roughly 30 percent of public sector employees do not get Social Security.)
The article also includes the bizarre assertion that, “the era of generous compensation for public-sector employees is ending.” In fact, after adjusting for education and experience the compensation for public employees is slightly less than for their private sector counterparts.
This article also cites a Pew Center study that refers to a public pension shortfall of more than $1 trillion. It would have been worth noting that this shortfall is equal to approximately 0.25 percent of projected GDP over the next 30 years (the time horizon for most pensions). It also would have been worth noting this study found that New York state’s pension is 100 percent funded, contrary to the assertion cited in the article by New York Governor Andrew Cuomo that its pension is unsustainable. The article should have corrected Mr. Cuomo on this point.
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If you are an advocate pushing for the new trade pacts with South Korea, Colombia, and Panama you might call them “free trade” pacts. The idea of “free trade” has considerable resonance with an important segment of the public (i.e. business people). However, the deals do not free all trade (don’t expect to see a flood of Korean doctors into the United States) and they actually increase many barriers, most importantly by strengthening intellectual property protection. So, when the Post calls the deals “free trade” pacts it is acting in its role as an advocate, not as a newspaper.
The Post also tells readers:
“The Korea deal is expected to generate more than $10 billion in additional annual sales for U.S. companies.”
Actually people hold expectations. The Post doesn’t tell us which people. This is important, since many people’s expectations prove to be unjustified. For example, many “expected” NAFTA to lead to a U.S. trade surplus with Mexico, creating hundreds of thousands of jobs. These expectations proved to be wrong. It would be interesting to know if the same people are the ones who expect $10 billion in additional annual sales from the Korea trade pact.
If you are an advocate pushing for the new trade pacts with South Korea, Colombia, and Panama you might call them “free trade” pacts. The idea of “free trade” has considerable resonance with an important segment of the public (i.e. business people). However, the deals do not free all trade (don’t expect to see a flood of Korean doctors into the United States) and they actually increase many barriers, most importantly by strengthening intellectual property protection. So, when the Post calls the deals “free trade” pacts it is acting in its role as an advocate, not as a newspaper.
The Post also tells readers:
“The Korea deal is expected to generate more than $10 billion in additional annual sales for U.S. companies.”
Actually people hold expectations. The Post doesn’t tell us which people. This is important, since many people’s expectations prove to be unjustified. For example, many “expected” NAFTA to lead to a U.S. trade surplus with Mexico, creating hundreds of thousands of jobs. These expectations proved to be wrong. It would be interesting to know if the same people are the ones who expect $10 billion in additional annual sales from the Korea trade pact.
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It was bad enough that the Washington Post could not see the housing bubble on the way up. As a result, it totally missed the most predictable economic disaster in the history of the world.
If anyone at the paper knew arithmetic, they would have noticed that nationwide house prices had sharply diverged from a 100-year long trend, rising by more than 70 percent in excess of the overall rate of inflation. The paper would have also noticed that there was no remotely plausible explanation for this run-up on either the demand or supply side of the housing market. They also would have noticed that rents had remained virtually flat during this period (adjusted for inflation). And, they would have noticed that the country had a record vacancy rate as early as 2002, the opposite of the shortage that would be expected if the run-up in house prices was driven by fundamentals.
Of course, since the Post’s main (and often only) source on the housing market was David Lereah, the chief economist at the National Association of Realtors (NAR) and the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit from It, it is perhaps not surprising that the Post managed to completely overlook the $8 trillion housing bubble that wrecked the economy. Lereah was paid by the NAR to promote real estate. The Post apparently thought that he was supposed to be providing unbiased assessments of the state of the housing market.
What is perhaps is even more remarkable is that the Post, acting like a low-IQ dog, is unable to learn from its mistakes. It still relies on the new chief economist at the NAR, Lawrence Yun, as its main source of information on the housing market. And, as Dan Balz tells us in his column today, it is still utterly clueless about the housing bubble.
Balz’s complaints against the economy’s performance in the Obama years is that the unemployment rate remains high and that house prices are continuing to fall. While the former complaint is a tremendous indictment of the Obama administration, the latter complaint is like blaming President Obama for gravity. House prices must decline by about 10 percent more to be back on their long-term trend. While there is no magic to the trend (prices could end up somewhat higher or somewhat lower), there is no reason to think that the end point will be higher given the enormous oversupply of housing in the country. (Vacancy rates are still at a near-record.)
In other words, anyone who understood the housing market should anticipate that the bubble will fully deflate, leaving house prices roughly at their trend level. Obama can be blamed for not doing more to help the people who are losing their homes (Right to Rent would have been a costless, non-bureaucratic route) but certainly not for the decline in house prices itself.
Furthermore, what possible policy goal is served by high housing prices? This is a redistribution of wealth from people who don’t own homes to people who do, with the people owning the most expensive homes benefiting the most. It is understandable that a right-wing Republican might push for this sort of upward redistribution; it is difficult to see why an ostensibly progressive Democrat would want it. Would Balz have President Obama run for re-election on his “unaffordable housing” policy?
The big question that millions are asking is, will the Post will be able to figure out the housing bubble before it goes out of business? Place your bets!
It was bad enough that the Washington Post could not see the housing bubble on the way up. As a result, it totally missed the most predictable economic disaster in the history of the world.
If anyone at the paper knew arithmetic, they would have noticed that nationwide house prices had sharply diverged from a 100-year long trend, rising by more than 70 percent in excess of the overall rate of inflation. The paper would have also noticed that there was no remotely plausible explanation for this run-up on either the demand or supply side of the housing market. They also would have noticed that rents had remained virtually flat during this period (adjusted for inflation). And, they would have noticed that the country had a record vacancy rate as early as 2002, the opposite of the shortage that would be expected if the run-up in house prices was driven by fundamentals.
Of course, since the Post’s main (and often only) source on the housing market was David Lereah, the chief economist at the National Association of Realtors (NAR) and the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit from It, it is perhaps not surprising that the Post managed to completely overlook the $8 trillion housing bubble that wrecked the economy. Lereah was paid by the NAR to promote real estate. The Post apparently thought that he was supposed to be providing unbiased assessments of the state of the housing market.
What is perhaps is even more remarkable is that the Post, acting like a low-IQ dog, is unable to learn from its mistakes. It still relies on the new chief economist at the NAR, Lawrence Yun, as its main source of information on the housing market. And, as Dan Balz tells us in his column today, it is still utterly clueless about the housing bubble.
Balz’s complaints against the economy’s performance in the Obama years is that the unemployment rate remains high and that house prices are continuing to fall. While the former complaint is a tremendous indictment of the Obama administration, the latter complaint is like blaming President Obama for gravity. House prices must decline by about 10 percent more to be back on their long-term trend. While there is no magic to the trend (prices could end up somewhat higher or somewhat lower), there is no reason to think that the end point will be higher given the enormous oversupply of housing in the country. (Vacancy rates are still at a near-record.)
In other words, anyone who understood the housing market should anticipate that the bubble will fully deflate, leaving house prices roughly at their trend level. Obama can be blamed for not doing more to help the people who are losing their homes (Right to Rent would have been a costless, non-bureaucratic route) but certainly not for the decline in house prices itself.
Furthermore, what possible policy goal is served by high housing prices? This is a redistribution of wealth from people who don’t own homes to people who do, with the people owning the most expensive homes benefiting the most. It is understandable that a right-wing Republican might push for this sort of upward redistribution; it is difficult to see why an ostensibly progressive Democrat would want it. Would Balz have President Obama run for re-election on his “unaffordable housing” policy?
The big question that millions are asking is, will the Post will be able to figure out the housing bubble before it goes out of business? Place your bets!
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I will be on vacation and not blogging until Thursday, June 16.
So until then, don’t believe anything you read in the newspaper.
I will be on vacation and not blogging until Thursday, June 16.
So until then, don’t believe anything you read in the newspaper.
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The NYT continues to operate under the bizarre illusion that Congress is filled with philosophers. It headlined a piece today on the stalemate over budget and economic policy, “War of Ideas on U.S. Budget Overshadows Job Struggle.” Of course Congress is actually composed of politicians who get their office by appealing to important interest groups.
If the debate were actually one of ideas, as claimed in this article, then it would be possible to use evidence. For example, the article tells readers:
“Republicans said the slow pace of hiring in May underscored the need for sharp cuts in federal spending and regulation to spur corporate investment. …
“They argue that Democratic efforts to revive growth through public spending programs have failed as the economy remained weak and unemployment high almost two years after the end of the .
“‘You talk to job creators around the country like we have,’ House Speaker John A. Boehner said Friday. ‘They’ll tell you the overtaxing, overregulating and overspending that’s going on here in Washington is creating uncertainty and holding them back.'”
There are several specific testable claims in these assertions. For example, Mr. Boehner claims that overtaxing and overregulating are big problems for businesses. It would have been appropriate to ask him what he is talking about.
Taxes are actually lower today than they were in the late 90s when the economy was growing rapidly and adding 250,000 jobs a month. If Mr. Boehner’s view is that taxes are preventing firms from adding jobs, then he must have a good reason for believing that the lower tax rates of 2011 are a bigger problem that the higher tax rates of 1996-2000. The NYT deprived its readers of Mr. Boehner’s thoughts on this key issue.
It would also have been helpful to identify the regulations that Mr. Boehner considers to be major obstacles to hiring. There have been relatively few major increases in regulation since President Obama took office. The most important concern health care and these will have relatively little effect until 2014.
It is not plausible that a regulation that does not take effect for another 2 and 1/2 years would discourage hiring today, especially since turnover in most businesses is rapid enough that firms can easily shed through attrition any workers that prove to be unprofitable in a context of the new health care regulations. And of course, firms could always just increase average hours and hire temps, neither of which they are doing. This suggests that the problem is lack of demand, not regulations.
There is also research on the impact of President Obama’s stimulus package on jobs. If the NYT is going to feature the political battle as a war of ideas it should present evidence on which ideas are right. (NYT reporters have time to find this evidence, its readers generally do not.) For example, a study of the stimulus’s employment impact by two Dartmouth professors found that it likely had a larger employment effect than expected. The problem was that the stimulus was far too small, leading to a net expansion (federal stimulus minus state and local cutbacks) of government spending and tax cuts of around $150 billion a year against a contraction in annual demand in the private sector due to the collapse of the housing bubble of close to $1.2 trillion.
This is the sort of discussion that would appear in a genuine discussion of a battle of ideas. Of course, it is silly to imagine that members of Congress are really arguing about ideas. They are trying to position themselves for re-election. Battles of ideas take place in college philosophy departments, not between elected officials.
The NYT continues to operate under the bizarre illusion that Congress is filled with philosophers. It headlined a piece today on the stalemate over budget and economic policy, “War of Ideas on U.S. Budget Overshadows Job Struggle.” Of course Congress is actually composed of politicians who get their office by appealing to important interest groups.
If the debate were actually one of ideas, as claimed in this article, then it would be possible to use evidence. For example, the article tells readers:
“Republicans said the slow pace of hiring in May underscored the need for sharp cuts in federal spending and regulation to spur corporate investment. …
“They argue that Democratic efforts to revive growth through public spending programs have failed as the economy remained weak and unemployment high almost two years after the end of the .
“‘You talk to job creators around the country like we have,’ House Speaker John A. Boehner said Friday. ‘They’ll tell you the overtaxing, overregulating and overspending that’s going on here in Washington is creating uncertainty and holding them back.'”
There are several specific testable claims in these assertions. For example, Mr. Boehner claims that overtaxing and overregulating are big problems for businesses. It would have been appropriate to ask him what he is talking about.
Taxes are actually lower today than they were in the late 90s when the economy was growing rapidly and adding 250,000 jobs a month. If Mr. Boehner’s view is that taxes are preventing firms from adding jobs, then he must have a good reason for believing that the lower tax rates of 2011 are a bigger problem that the higher tax rates of 1996-2000. The NYT deprived its readers of Mr. Boehner’s thoughts on this key issue.
It would also have been helpful to identify the regulations that Mr. Boehner considers to be major obstacles to hiring. There have been relatively few major increases in regulation since President Obama took office. The most important concern health care and these will have relatively little effect until 2014.
It is not plausible that a regulation that does not take effect for another 2 and 1/2 years would discourage hiring today, especially since turnover in most businesses is rapid enough that firms can easily shed through attrition any workers that prove to be unprofitable in a context of the new health care regulations. And of course, firms could always just increase average hours and hire temps, neither of which they are doing. This suggests that the problem is lack of demand, not regulations.
There is also research on the impact of President Obama’s stimulus package on jobs. If the NYT is going to feature the political battle as a war of ideas it should present evidence on which ideas are right. (NYT reporters have time to find this evidence, its readers generally do not.) For example, a study of the stimulus’s employment impact by two Dartmouth professors found that it likely had a larger employment effect than expected. The problem was that the stimulus was far too small, leading to a net expansion (federal stimulus minus state and local cutbacks) of government spending and tax cuts of around $150 billion a year against a contraction in annual demand in the private sector due to the collapse of the housing bubble of close to $1.2 trillion.
This is the sort of discussion that would appear in a genuine discussion of a battle of ideas. Of course, it is silly to imagine that members of Congress are really arguing about ideas. They are trying to position themselves for re-election. Battles of ideas take place in college philosophy departments, not between elected officials.
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The May jobs report was bad news, but it was not as bad as the Washington Post and many other news outlets made it seem. When we get monthly data it is always important to remember that we are pulling out a snapshot from a longer period of time. Firms do not make their hiring and firing decisions over a single month. They have general impressions of how many people they need and they adjust their workforce accordingly.
For this reason it is important to take the 54,000 jobs created in May against the backdrop of 234,000 jobs added in April. Employers who hired many workers in April were likely to add few or none in May. For example, the retail sector reportedly added 64,000 jobs in April. It lost 8,500 in May. Food manufacturing added 6,300 workers in April, it lost 7,000 in May.
It is more likely that the April numbers overstated the underlying rate of job growth in the economy and the May numbers understate it, than there was some huge shift in the economy between the two months. Still, the average rate of job growth over the last three months was just 160,000.
It takes roughly 90,000 jobs a month to keep even with the rate of growth of the labor force. This means that if the economy stayed on this growth path, it would take almost a decade to get back to normal levels of unemployment. Furthermore, with house prices falling again and another round of state and local cutbacks kicking in next month, it is more likely that the job growth will be slowing than speeding up in the months ahead.
The May jobs report was bad news, but it was not as bad as the Washington Post and many other news outlets made it seem. When we get monthly data it is always important to remember that we are pulling out a snapshot from a longer period of time. Firms do not make their hiring and firing decisions over a single month. They have general impressions of how many people they need and they adjust their workforce accordingly.
For this reason it is important to take the 54,000 jobs created in May against the backdrop of 234,000 jobs added in April. Employers who hired many workers in April were likely to add few or none in May. For example, the retail sector reportedly added 64,000 jobs in April. It lost 8,500 in May. Food manufacturing added 6,300 workers in April, it lost 7,000 in May.
It is more likely that the April numbers overstated the underlying rate of job growth in the economy and the May numbers understate it, than there was some huge shift in the economy between the two months. Still, the average rate of job growth over the last three months was just 160,000.
It takes roughly 90,000 jobs a month to keep even with the rate of growth of the labor force. This means that if the economy stayed on this growth path, it would take almost a decade to get back to normal levels of unemployment. Furthermore, with house prices falling again and another round of state and local cutbacks kicking in next month, it is more likely that the job growth will be slowing than speeding up in the months ahead.
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