It seems as though the Washington Post’s editorial board is losing sleep over inflation. Its lead editorial notes the recent rise in commodity prices and then warns that:
“Core inflation does indeed remain well within the Fed’s safety range, but it has nevertheless begun trending upward, and one leading forecaster, Deutsche Bank Economic Research, says it could hit 2.1 percent, the upper limit of the Fed’s usual target range, by the end of 2011. That could force the Fed to raise interest rates, slowing growth before unemployment has returned to pre-recession levels, in order to preserve its inflation-fighting credibility.”
Actually, 2.1 percent inflation is not “the upper limit of the Fed’s usual target range.” The Fed never explicitly set a target range and there are a range of views among the Fed’s open market committee (the body that sets interest rates) as to how high inflation can go before it poses any problem to the economy. For example, back in 1999 Chairman Ben Bernanke argued that in comparable circumstances Japan’s central bank should deliberately target a higher rate of inflation in the range of 3-4 percent to lower real interest rates.
As a practical matter, the inflation rate has rarely been below 2.1 percent. As can be seen, there was only one year in the decades of both the 80s and the 90s when the inflation rate was below the level that the Post wants the Fed to have as the top end of its target range.
Source: Bureau of Labor Statistics.
There is no obvious reason that the Fed should feel “forced” to raise interest rates if the core inflation rate happens to edge above 2.0 percent to preserve its credibility. Such an increase in interest rates would mean throwing more people out of work.
There are already tens of millions of people who have lost their jobs and/or their homes because of the Fed’s mismanagement of the economy. There is no reason that the Fed should deliberately put more people out of work just because the Post editors and their friends have irrational fears about inflation.
It seems as though the Washington Post’s editorial board is losing sleep over inflation. Its lead editorial notes the recent rise in commodity prices and then warns that:
“Core inflation does indeed remain well within the Fed’s safety range, but it has nevertheless begun trending upward, and one leading forecaster, Deutsche Bank Economic Research, says it could hit 2.1 percent, the upper limit of the Fed’s usual target range, by the end of 2011. That could force the Fed to raise interest rates, slowing growth before unemployment has returned to pre-recession levels, in order to preserve its inflation-fighting credibility.”
Actually, 2.1 percent inflation is not “the upper limit of the Fed’s usual target range.” The Fed never explicitly set a target range and there are a range of views among the Fed’s open market committee (the body that sets interest rates) as to how high inflation can go before it poses any problem to the economy. For example, back in 1999 Chairman Ben Bernanke argued that in comparable circumstances Japan’s central bank should deliberately target a higher rate of inflation in the range of 3-4 percent to lower real interest rates.
As a practical matter, the inflation rate has rarely been below 2.1 percent. As can be seen, there was only one year in the decades of both the 80s and the 90s when the inflation rate was below the level that the Post wants the Fed to have as the top end of its target range.
Source: Bureau of Labor Statistics.
There is no obvious reason that the Fed should feel “forced” to raise interest rates if the core inflation rate happens to edge above 2.0 percent to preserve its credibility. Such an increase in interest rates would mean throwing more people out of work.
There are already tens of millions of people who have lost their jobs and/or their homes because of the Fed’s mismanagement of the economy. There is no reason that the Fed should deliberately put more people out of work just because the Post editors and their friends have irrational fears about inflation.
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An NYT article discussing the impact of higher oil prices on the economy told readers that:
“As a general rule of thumb, every $10 increase in the price of a barrel of oil reduces the growth of the gross domestic product by half a percentage point within two years.”
There is no source cited for this rule of thumb, which implies an extraordinarily large impact of oil prices on GDP. For example, the fall of oil prices from an average of $91 a barrel in 2008 to $53 a barrel in 2009 should have added almost two percentage points to GDP growth in the last two years.
The article later gives a more conventional rule of thumb, that each 1 cent increase in gas prices takes $1 billion out of consumers’ pockets. These two rules of thumb appear inconsistent. A $10 increase in the price of a barrel of oil would imply an increase in gas prices of about 25 cents. This would reduce the money available for other consumption by about $25 billion a year. If the impact is doubled to account for other uses of oil (e.g. home heating, electricity, etc.) this would reduce the money available for spending by $50 billion, approximately 0.3 percent off GDP.
Of course the reduction in spending will not be 100 percent of the higher price of oil, many consumers will dip into their savings, just as they would in response to a temporary tax increase. In addition, some of the gain from higher oil prices goes to U.S. producers of oil, either as domestic production or importers with higher profits. While higher earnings for producers will have less impact on increasing spending than higher oil prices will have on reducing spending, the impact will not be zero.
On net, it is unlikely that the actual impact of a $10 increase in the price of a barrel of oil would be even half as large as the rule of thumb described in this article. A substantial rise in the price of oil would still have a substantial impact on the economy, but not nearly as much as this article claims.
An NYT article discussing the impact of higher oil prices on the economy told readers that:
“As a general rule of thumb, every $10 increase in the price of a barrel of oil reduces the growth of the gross domestic product by half a percentage point within two years.”
There is no source cited for this rule of thumb, which implies an extraordinarily large impact of oil prices on GDP. For example, the fall of oil prices from an average of $91 a barrel in 2008 to $53 a barrel in 2009 should have added almost two percentage points to GDP growth in the last two years.
The article later gives a more conventional rule of thumb, that each 1 cent increase in gas prices takes $1 billion out of consumers’ pockets. These two rules of thumb appear inconsistent. A $10 increase in the price of a barrel of oil would imply an increase in gas prices of about 25 cents. This would reduce the money available for other consumption by about $25 billion a year. If the impact is doubled to account for other uses of oil (e.g. home heating, electricity, etc.) this would reduce the money available for spending by $50 billion, approximately 0.3 percent off GDP.
Of course the reduction in spending will not be 100 percent of the higher price of oil, many consumers will dip into their savings, just as they would in response to a temporary tax increase. In addition, some of the gain from higher oil prices goes to U.S. producers of oil, either as domestic production or importers with higher profits. While higher earnings for producers will have less impact on increasing spending than higher oil prices will have on reducing spending, the impact will not be zero.
On net, it is unlikely that the actual impact of a $10 increase in the price of a barrel of oil would be even half as large as the rule of thumb described in this article. A substantial rise in the price of oil would still have a substantial impact on the economy, but not nearly as much as this article claims.
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He told listeners this morning that the government deficit problem is a health care problem. It’s too bad that people in Washington can’t hear this.
He told listeners this morning that the government deficit problem is a health care problem. It’s too bad that people in Washington can’t hear this.
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According to the Washington Post it does. The Post reported on the modest rise in existing home sales in January reported by the National Association of Realtors. The increase in sales was accompanied by a sharp plunge in prices with the median sale price now 13.1 percent below the recent high set in June.
As the article suggests, it appears that many investors were buying up foreclosed properties at low prices. This is a necessary part of the return to normal in the housing market, but it is a bit misleading to describe this story as reflecting an improved economy.
According to the Washington Post it does. The Post reported on the modest rise in existing home sales in January reported by the National Association of Realtors. The increase in sales was accompanied by a sharp plunge in prices with the median sale price now 13.1 percent below the recent high set in June.
As the article suggests, it appears that many investors were buying up foreclosed properties at low prices. This is a necessary part of the return to normal in the housing market, but it is a bit misleading to describe this story as reflecting an improved economy.
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The hoary phrase “right to work” has been appearing frequently in news reporting on the efforts by many Republican governors to weaken the power of public sector workers. This phrase, while very useful for opponents of unions, fundamentally misrepresents what is at issue.
There are absolutely no circumstances in which someone is denied the “right to work” in the absence of the laws that go under this name. These laws are actually about restricting the freedom of contract. Under U.S. labor law, unions are required to represent all the workers in a bargaining unit that they represent, regardless of whether or not they belong to the union.
This means that workers who opt not to join a union still benefit from the union’s representation. This is true both in the sense that non-members get the same contract that union members receive (the contract can’t specify one wage scale for union members and another for non-members) and also the union is required to defend the rights guaranteed to non-members on the contract. For example, if a non-member is fired or in any other way sanctioned, the union is required under the law to defend their rights as described in the contract.
In other words, U.S. labor law requires that the union incur costs to represent workers in a bargaining unit whether or not they choose to join the union. Not surprisingly, unions like to sign contracts that require workers to pay for this representation. This is a condition of employment just like employers impose conditions of employment (you don’t like the pay, go work somewhere else).
So called “right to work” laws prohibit unions and employers from signing contracts that require workers to pay for their union representation. In this sense they could more accurately be termed “right to freeload,” since they guarantee that workers will have the opportunity to benefit from union representation without paying for it.
The hoary phrase “right to work” has been appearing frequently in news reporting on the efforts by many Republican governors to weaken the power of public sector workers. This phrase, while very useful for opponents of unions, fundamentally misrepresents what is at issue.
There are absolutely no circumstances in which someone is denied the “right to work” in the absence of the laws that go under this name. These laws are actually about restricting the freedom of contract. Under U.S. labor law, unions are required to represent all the workers in a bargaining unit that they represent, regardless of whether or not they belong to the union.
This means that workers who opt not to join a union still benefit from the union’s representation. This is true both in the sense that non-members get the same contract that union members receive (the contract can’t specify one wage scale for union members and another for non-members) and also the union is required to defend the rights guaranteed to non-members on the contract. For example, if a non-member is fired or in any other way sanctioned, the union is required under the law to defend their rights as described in the contract.
In other words, U.S. labor law requires that the union incur costs to represent workers in a bargaining unit whether or not they choose to join the union. Not surprisingly, unions like to sign contracts that require workers to pay for this representation. This is a condition of employment just like employers impose conditions of employment (you don’t like the pay, go work somewhere else).
So called “right to work” laws prohibit unions and employers from signing contracts that require workers to pay for their union representation. In this sense they could more accurately be termed “right to freeload,” since they guarantee that workers will have the opportunity to benefit from union representation without paying for it.
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That’s what readers of a front page Washington Post article are undoubtedly asking after reading the first sentence:
“Is Rep. Harold Rogers the right man to break Congress’s addiction to spending?”
There is nothing in the article that explains an “addiction to spending.” It does describe efforts by members of Congress to get projects for their districts for which they can take credit, but it does not provide any evidence that this has been a major problem for either the federal budget or the economy. Virtually all budget experts agree that narrowly defined pork barrel spending, of the sort described in this article, is a small share of the total spending. Many projects are actually useful — members of Congress just want to circumvent the normal appropriation process so that they can take credit for it.
It would have been more reasonable to begin a piece with a phrase like “fear of deficits” as the disease that Congress needs to overcome, since tens of millions of people are now unemployed or underemployed because Congress has a seemingly irrational fear of running larger budget deficits.
That’s what readers of a front page Washington Post article are undoubtedly asking after reading the first sentence:
“Is Rep. Harold Rogers the right man to break Congress’s addiction to spending?”
There is nothing in the article that explains an “addiction to spending.” It does describe efforts by members of Congress to get projects for their districts for which they can take credit, but it does not provide any evidence that this has been a major problem for either the federal budget or the economy. Virtually all budget experts agree that narrowly defined pork barrel spending, of the sort described in this article, is a small share of the total spending. Many projects are actually useful — members of Congress just want to circumvent the normal appropriation process so that they can take credit for it.
It would have been more reasonable to begin a piece with a phrase like “fear of deficits” as the disease that Congress needs to overcome, since tens of millions of people are now unemployed or underemployed because Congress has a seemingly irrational fear of running larger budget deficits.
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The Washington Post (a.ka. “Fox on 15th Street”) long ago gave up any pretense of objectivity in its budget coverage. Today it ran a news article which can best be described as a tirade against budget deficits and debt, since it contained no real news. The article relies exclusively on deficit hawks as sources. It presents no one who could put current deficits/debt in context.
Had it gotten a broader range of opinions readers would have known that the claim that growth slows when a country’s debt to GDP crosses 90 percent is dubious, since most of the countries in this group are like Japan, in the sense that their debt to GDP ratio rose because they were growing slowly. Japan’s government actually had a very small debt before its stock and housing bubbles burst in 1990.
A wider range of sources would have pointed out that it is the combination of public and private sector debt together that pose a burden on an economy. Right now the U.S. is seeing its private sector debt diminish. They might have also pointed out that the Federal Reserve Board can and does hold large amounts of government debt, so that it poses no interest burden for taxpayers.
And, they would have also pointed out that productivity growth ultimately determines a country’s standard of living in the long-run. Current and projected future levels of productivity are far higher than the deficit hawks ever dreamed possible in the mid-90s, so what are they whining about?
The Washington Post (a.ka. “Fox on 15th Street”) long ago gave up any pretense of objectivity in its budget coverage. Today it ran a news article which can best be described as a tirade against budget deficits and debt, since it contained no real news. The article relies exclusively on deficit hawks as sources. It presents no one who could put current deficits/debt in context.
Had it gotten a broader range of opinions readers would have known that the claim that growth slows when a country’s debt to GDP crosses 90 percent is dubious, since most of the countries in this group are like Japan, in the sense that their debt to GDP ratio rose because they were growing slowly. Japan’s government actually had a very small debt before its stock and housing bubbles burst in 1990.
A wider range of sources would have pointed out that it is the combination of public and private sector debt together that pose a burden on an economy. Right now the U.S. is seeing its private sector debt diminish. They might have also pointed out that the Federal Reserve Board can and does hold large amounts of government debt, so that it poses no interest burden for taxpayers.
And, they would have also pointed out that productivity growth ultimately determines a country’s standard of living in the long-run. Current and projected future levels of productivity are far higher than the deficit hawks ever dreamed possible in the mid-90s, so what are they whining about?
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Let’s all have a hearty round of laughter at David Brooks’ expense. He doesn’t know that employer side payments for benefits like pensions and health care come out of workers’ wages. In his column today, he tells his readers that public employees in Wisconsin should have to pay for these benefits just like private sector. Apparently he doesn’t know that they already do.
Go into any economics department and tell the faculty that you think employers should have to pay more for workers’ Social Security benefits. The ridicule with which that suggestion would be greeted should be heaped on Mr. Brooks for failing to understand basic economics. And of course, we actually have data that show that the higher benefits received by public sector workers in Wisconsin are more than fully offset by lower pay.
Of course the bigger mistake in Brooks’ column is the assertion that we are looking at a decade of austerity. This may prove true, but this is a policy choice. We had unbelievably incompetent economic policy in the last decade. The Fed and the Bush administration allowed (arguably encouraged) the growth of an $8 trillion housing bubble. It was fully predictable that it would collapse and lead to a serious recession.
Unfortunately, economic policy continues to be guided by people who were too incompetent to recognize this bubble and the danger it posed. The route out of this downturn is simple: the government needs to spend money to create demand. This is the economy’s problem at the moment, not a scarcity of resources. However, the incompetents control the debate and are now promising us a decade of austerity rather than taking the simple steps that would be needed to get back to full employment.
Let’s all have a hearty round of laughter at David Brooks’ expense. He doesn’t know that employer side payments for benefits like pensions and health care come out of workers’ wages. In his column today, he tells his readers that public employees in Wisconsin should have to pay for these benefits just like private sector. Apparently he doesn’t know that they already do.
Go into any economics department and tell the faculty that you think employers should have to pay more for workers’ Social Security benefits. The ridicule with which that suggestion would be greeted should be heaped on Mr. Brooks for failing to understand basic economics. And of course, we actually have data that show that the higher benefits received by public sector workers in Wisconsin are more than fully offset by lower pay.
Of course the bigger mistake in Brooks’ column is the assertion that we are looking at a decade of austerity. This may prove true, but this is a policy choice. We had unbelievably incompetent economic policy in the last decade. The Fed and the Bush administration allowed (arguably encouraged) the growth of an $8 trillion housing bubble. It was fully predictable that it would collapse and lead to a serious recession.
Unfortunately, economic policy continues to be guided by people who were too incompetent to recognize this bubble and the danger it posed. The route out of this downturn is simple: the government needs to spend money to create demand. This is the economy’s problem at the moment, not a scarcity of resources. However, the incompetents control the debate and are now promising us a decade of austerity rather than taking the simple steps that would be needed to get back to full employment.
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You would not read that line in the New York Times. There are two reasons. The first is that it is not true (at least as far I know). The second is that the NYT would be quickly sued by Microsoft if it said something like this with no support.
However the NYT can say this about governments, which do not have the same ability to use libel suits to correct inaccurate statements. Therefore the NYT felt no qualms about beginning an article on Japan’s stock market with the line:
“’s government finances are on the verge of collapse.”
Of course investors who are putting billions of dollars on the line do not agree with this unsupported assertion. The interest rate on 10-year bonds issued by the Japanese government is less than 1.3 percent. Investors usually demand a higher return from a company or government that they believe is on the verge of collapse.
You would not read that line in the New York Times. There are two reasons. The first is that it is not true (at least as far I know). The second is that the NYT would be quickly sued by Microsoft if it said something like this with no support.
However the NYT can say this about governments, which do not have the same ability to use libel suits to correct inaccurate statements. Therefore the NYT felt no qualms about beginning an article on Japan’s stock market with the line:
“’s government finances are on the verge of collapse.”
Of course investors who are putting billions of dollars on the line do not agree with this unsupported assertion. The interest rate on 10-year bonds issued by the Japanese government is less than 1.3 percent. Investors usually demand a higher return from a company or government that they believe is on the verge of collapse.
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On the Washington Post opinion pages you can make up anything you like as long as you are using it in an argument against working people. Therefore we get columnist Michael Gerson telling readers that:
“public employee unions have the unique power to help pick pliant negotiating partners – by using compulsory dues to elect friendly politicians.”
Nope, that is not true in this country. Unions are prohibited from using dues to pay for campaign contributions. (If Mr. Gerson knows of any violations of the law, I’m sure that there are many ambitious prosecutors who would be happy to hear his evidence.) Unions do make contributions to political campaigns, but these are from voluntary contributions that workers make to their union’s PAC. They are not from their union dues.
As Barry Goldwater once said, “making things up in the service of the wealthy is no vice,” or something like that.
On the Washington Post opinion pages you can make up anything you like as long as you are using it in an argument against working people. Therefore we get columnist Michael Gerson telling readers that:
“public employee unions have the unique power to help pick pliant negotiating partners – by using compulsory dues to elect friendly politicians.”
Nope, that is not true in this country. Unions are prohibited from using dues to pay for campaign contributions. (If Mr. Gerson knows of any violations of the law, I’m sure that there are many ambitious prosecutors who would be happy to hear his evidence.) Unions do make contributions to political campaigns, but these are from voluntary contributions that workers make to their union’s PAC. They are not from their union dues.
As Barry Goldwater once said, “making things up in the service of the wealthy is no vice,” or something like that.
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