This fact would have been worth mentioning in a USA Today piece that discussed Core Logic’s data showing a sharp price decline in November. The piece included projections from Global Insights and Moody’s Analytics that house prices would decline by a further 5.0 percent over the course of 2011.
The most recent data show house prices dropping at a rate of close to 1.0 percent a month. Prices in the bottom third of the housing market are falling at 2 or 3 times this rate in several cities according to the Case-Shiller data. This suggests that the plunge is being driven by the end of the first-time buyers tax credit, since the bottom tier would be the portion of the market most affected by the credit.
It is reasonable to think that the rapid price declines in the bottom tier will be a drag on prices in the middle and top tier, since the sellers of bottom tier homes are buyers of higher end homes. This would imply that price declines are more likely to accelerate in the immediate future rather than slow.
This fact would have been worth mentioning in a USA Today piece that discussed Core Logic’s data showing a sharp price decline in November. The piece included projections from Global Insights and Moody’s Analytics that house prices would decline by a further 5.0 percent over the course of 2011.
The most recent data show house prices dropping at a rate of close to 1.0 percent a month. Prices in the bottom third of the housing market are falling at 2 or 3 times this rate in several cities according to the Case-Shiller data. This suggests that the plunge is being driven by the end of the first-time buyers tax credit, since the bottom tier would be the portion of the market most affected by the credit.
It is reasonable to think that the rapid price declines in the bottom tier will be a drag on prices in the middle and top tier, since the sellers of bottom tier homes are buyers of higher end homes. This would imply that price declines are more likely to accelerate in the immediate future rather than slow.
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An NYT piece on Germany’s growth for 2010 told readers that the country’s unemployment rate is 7.2 percent. This is the rate using the German government’s measure. However, this measure includes part-time workers who want full-time employment as being unemployed.
The better measure is the OECD harmonized unemployment rate, which uses largely the same methodology as the Labor Department in the United States. This measure shows Germany’s unemployment rate at 6.7 percent.
The article also cites a German economist’s projection that the German economy grew 0.6 percent in the 4th quarter compared to 0.7 percent in the third quarter. It would have been helpful to annualize these numbers, since GDP is always reported in the United States as an annualized growth rate. The annualized growth rate based on these numbers would be approximately 2.8 percent in the 3rd quarter and 2.4 percent in the 4th quarter.
[Thanks to Seth for the correction — DB]
An NYT piece on Germany’s growth for 2010 told readers that the country’s unemployment rate is 7.2 percent. This is the rate using the German government’s measure. However, this measure includes part-time workers who want full-time employment as being unemployed.
The better measure is the OECD harmonized unemployment rate, which uses largely the same methodology as the Labor Department in the United States. This measure shows Germany’s unemployment rate at 6.7 percent.
The article also cites a German economist’s projection that the German economy grew 0.6 percent in the 4th quarter compared to 0.7 percent in the third quarter. It would have been helpful to annualize these numbers, since GDP is always reported in the United States as an annualized growth rate. The annualized growth rate based on these numbers would be approximately 2.8 percent in the 3rd quarter and 2.4 percent in the 4th quarter.
[Thanks to Seth for the correction — DB]
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The NYT reported that China’s consumer price index (CPI) understates inflation because it includes an outdated set of goods and services. It is worth noting that this has been a reason that many economists have argued that the CPI in the United States overstates inflation.
The prices of new goods and services tend to fall rapidly in the first year or two that they appear on the market (think of CD players or cell phones). If these sharp price declines are not included in a price index then it is likely to overstate the true rate of inflation.
The NYT reported that China’s consumer price index (CPI) understates inflation because it includes an outdated set of goods and services. It is worth noting that this has been a reason that many economists have argued that the CPI in the United States overstates inflation.
The prices of new goods and services tend to fall rapidly in the first year or two that they appear on the market (think of CD players or cell phones). If these sharp price declines are not included in a price index then it is likely to overstate the true rate of inflation.
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NYT columnist David Leonhardt told readers that:
“For the United States, the No. 1 problem with China’s economy is probably intellectual property theft.”
Both parts of this assertion are questionable. First, the notion of “intellectual property theft” only exists relative to specific intellectual property laws. China’s laws are not the same as those in the United States, so much of the unauthorized use of creative and intellectual work in China may not be in violation of China’s laws and therefore is not “theft.”
More importantly, the enforcement of U.S.-type patent and copyright protections would lead to much higher prices for items like prescription drugs, computers, and computer software. This would slow growth in China, meaning its imports from the United States would increase less rapidly than if it did not respect U.S.-type patents and copyrights.
The increased outflow from China of payments for royalties and licensing fees would also tend to depress the value of the yuan compared to where it would otherwise be. This means that Chinese manufactured goods would sell for lower prices relative to U.S. manufactured goods. This would be a bad outcome from the standpoint of U.S. manufacturing workers.
In short, the failure of China to enforce U.S.-type protections for intellectual property may be a problem for people who would benefit from patent fees and royalties from copyrights, it does not follow that the United States as a whole is harmed by China’s free market approach.
It is also worth noting that, unlike the removal of protectionist barriers in China, which could lead to large gains for Chinese consumers, the imposition of stronger intellectual property rules will lead to much higher consumer prices. This is important because consumers would be a potential ally in the removal of import tariffs or quotas. They are likely to be strongly opposed to more rigorous protections of patents and copyrights.
NYT columnist David Leonhardt told readers that:
“For the United States, the No. 1 problem with China’s economy is probably intellectual property theft.”
Both parts of this assertion are questionable. First, the notion of “intellectual property theft” only exists relative to specific intellectual property laws. China’s laws are not the same as those in the United States, so much of the unauthorized use of creative and intellectual work in China may not be in violation of China’s laws and therefore is not “theft.”
More importantly, the enforcement of U.S.-type patent and copyright protections would lead to much higher prices for items like prescription drugs, computers, and computer software. This would slow growth in China, meaning its imports from the United States would increase less rapidly than if it did not respect U.S.-type patents and copyrights.
The increased outflow from China of payments for royalties and licensing fees would also tend to depress the value of the yuan compared to where it would otherwise be. This means that Chinese manufactured goods would sell for lower prices relative to U.S. manufactured goods. This would be a bad outcome from the standpoint of U.S. manufacturing workers.
In short, the failure of China to enforce U.S.-type protections for intellectual property may be a problem for people who would benefit from patent fees and royalties from copyrights, it does not follow that the United States as a whole is harmed by China’s free market approach.
It is also worth noting that, unlike the removal of protectionist barriers in China, which could lead to large gains for Chinese consumers, the imposition of stronger intellectual property rules will lead to much higher consumer prices. This is important because consumers would be a potential ally in the removal of import tariffs or quotas. They are likely to be strongly opposed to more rigorous protections of patents and copyrights.
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The Washington Post described the group Third Way as “moderate.” In fact, the group advocates many positions, such as cutting Social Security and Medicare, that put them well to the right of the bulk of the U.S. public. The group may want to characterize its views as centrist, but this is not accurate.
The Washington Post described the group Third Way as “moderate.” In fact, the group advocates many positions, such as cutting Social Security and Medicare, that put them well to the right of the bulk of the U.S. public. The group may want to characterize its views as centrist, but this is not accurate.
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Individuals are generally risk-averse. This is why they buy items like life insurance and health insurance. On average, people pay more for these protections than they get in benefits. This means that they fear bad outcomes (e.g. early death or severe illness) and that they are willing to forgo income to protect against this situation.
The fact that individuals are risk averse explains why state and local governments can benefit by offering workers defined benefit pensions. Since governments generally do not go out of business, they can provide pensions that smooth out fluctuations in the market. This is of great value to individual workers, who do not want to take the risk that the stock market will be down at the point when they retire.
Therefore, state and local governments can offer workers defined benefit pensions that impose little risk, if properly managed. Since the guarantee is of considerable value to workers, it means that these governments will have to pay workers somewhat less than would otherwise be the case. Therefore a defined benefit pension should save state and local governments money.
Washington Post columnist Steven Pearlstein has apparently never learned this basic economics lesson, hence his diatribe in the paper today.
Individuals are generally risk-averse. This is why they buy items like life insurance and health insurance. On average, people pay more for these protections than they get in benefits. This means that they fear bad outcomes (e.g. early death or severe illness) and that they are willing to forgo income to protect against this situation.
The fact that individuals are risk averse explains why state and local governments can benefit by offering workers defined benefit pensions. Since governments generally do not go out of business, they can provide pensions that smooth out fluctuations in the market. This is of great value to individual workers, who do not want to take the risk that the stock market will be down at the point when they retire.
Therefore, state and local governments can offer workers defined benefit pensions that impose little risk, if properly managed. Since the guarantee is of considerable value to workers, it means that these governments will have to pay workers somewhat less than would otherwise be the case. Therefore a defined benefit pension should save state and local governments money.
Washington Post columnist Steven Pearlstein has apparently never learned this basic economics lesson, hence his diatribe in the paper today.
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The NYT reported on the Federal Reserve Board’s payment of $78.4 billion to the Treasury in 2010. The Fed earned this money on the mortgage-backed securities and government bonds that it bought to boost the economy. The payment is equal to almost 40 percent of the net interest paid out by the federal government last year.
The government’s budget projections show the Fed’s payments to the Treasury shrinking drastically over the next decade. However, it is worth noting this is a policy choice.
The Federal Reserve could buy and hold more debt in the year ahead, thereby alleviating the interest burden on future budgets created by the deficits needed to boost the economy out of recession. To limit the potential inflationary impact of the additional reserves placed in the system the Fed could raise the reserve requirements banks. If the country was having an honest debate on the long-term deficit, in which everything is “on the table,” then this would be one of the items on the policy agenda. It is worth noting that banks would not want to see their reserve requirements raised.
The NYT reported on the Federal Reserve Board’s payment of $78.4 billion to the Treasury in 2010. The Fed earned this money on the mortgage-backed securities and government bonds that it bought to boost the economy. The payment is equal to almost 40 percent of the net interest paid out by the federal government last year.
The government’s budget projections show the Fed’s payments to the Treasury shrinking drastically over the next decade. However, it is worth noting this is a policy choice.
The Federal Reserve could buy and hold more debt in the year ahead, thereby alleviating the interest burden on future budgets created by the deficits needed to boost the economy out of recession. To limit the potential inflationary impact of the additional reserves placed in the system the Fed could raise the reserve requirements banks. If the country was having an honest debate on the long-term deficit, in which everything is “on the table,” then this would be one of the items on the policy agenda. It is worth noting that banks would not want to see their reserve requirements raised.
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A front page Washington Post article assessed the amount of stimulus that would likely be coming from the 2 percentage point cut in the payroll tax. While the article did note that many low-income workers will actually be paying more in tax in 2011 than 2010, because of the expiration of the $400 Making Work Pay tax credit, it failed to note the more important point for this discussion, that most workers will see little change in their tax liability.
For example, a worker with the median annual earnings (@ $31,000) would receive a tax cut of $620 as a result of the reduction in the payroll tax. Since they are losing the $400 Making Work Pay tax credit, their net tax cut would be $220 over the course of the year. This is the amount of additional income that could provide a potential stimulus to the economy, not the full $620.
The article failed to make this correction, for example reporting projections of the tax cut’s impact from Mark Zandi at Moody’s Analytics that did not incorporate the impact of the ending of the Making Work Pay tax credit. The Zandi projections show the boost to the economy compared to a situation in which there was no tax cut at all, not the incremental boost associated with the difference between the payroll tax cut and the Making Work Pay tax credit.
The piece also inaccurately depicted the current 5.3 percent savings rate. It noted that this savings rate is well above the near zero rate that existed at the peak of the housing bubble, however it did not mention that the current saving rate is still well below the post-war average of 8 percent. Given that the current rate is still lower than normal, and that many near retirees have just seen much of their wealth disappear with the collapse of the housing bubble, it is more reasonable to expect that the saving rate will go up than down.
A front page Washington Post article assessed the amount of stimulus that would likely be coming from the 2 percentage point cut in the payroll tax. While the article did note that many low-income workers will actually be paying more in tax in 2011 than 2010, because of the expiration of the $400 Making Work Pay tax credit, it failed to note the more important point for this discussion, that most workers will see little change in their tax liability.
For example, a worker with the median annual earnings (@ $31,000) would receive a tax cut of $620 as a result of the reduction in the payroll tax. Since they are losing the $400 Making Work Pay tax credit, their net tax cut would be $220 over the course of the year. This is the amount of additional income that could provide a potential stimulus to the economy, not the full $620.
The article failed to make this correction, for example reporting projections of the tax cut’s impact from Mark Zandi at Moody’s Analytics that did not incorporate the impact of the ending of the Making Work Pay tax credit. The Zandi projections show the boost to the economy compared to a situation in which there was no tax cut at all, not the incremental boost associated with the difference between the payroll tax cut and the Making Work Pay tax credit.
The piece also inaccurately depicted the current 5.3 percent savings rate. It noted that this savings rate is well above the near zero rate that existed at the peak of the housing bubble, however it did not mention that the current saving rate is still well below the post-war average of 8 percent. Given that the current rate is still lower than normal, and that many near retirees have just seen much of their wealth disappear with the collapse of the housing bubble, it is more reasonable to expect that the saving rate will go up than down.
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The NYT reported that conservatives criticize the Fed’s new round of quantitative easing (QE2) for, “printing money, financing the federal deficit and devaluing the dollar.” The devaluing of the dollar is in fact one of the main goals of QE2, not an unfortunate outcome as the piece later notes. One of the ways in which QE2 would boost the economy is by making U.S. goods more competitive internationally by lowering the value of the dollar.
The NYT reported that conservatives criticize the Fed’s new round of quantitative easing (QE2) for, “printing money, financing the federal deficit and devaluing the dollar.” The devaluing of the dollar is in fact one of the main goals of QE2, not an unfortunate outcome as the piece later notes. One of the ways in which QE2 would boost the economy is by making U.S. goods more competitive internationally by lowering the value of the dollar.
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Most of the thousands of economists gathered this weekend at the annual convention of the American Economics Association in Denver would probably agree with MIT economist David Autor, that the big problem facing the U.S. labor market is that our workforce is not being adequately educated. Autor claims that most of the new jobs that are being created are at the top and the bottom of the skills level. His recipe is to have more people go to college and earn advance degrees.
By contrast, the NYT devoted a lengthy article to tell readers about the dismal job market facing young lawyers. It reports that many recent graduates of law schools that are below the top tier can only find very low paying legal jobs, if they find any within the professional at all.
It is worth noting that if Autor is right, then the NYT has seriously misrepresented the state of the legal market. Alternatively, the economy could simply be suffering from a situation in which there are too few jobs in total. This would mean that the fundamental problem is not the skills of the workforce but rather the skills of the people designing economic policy.
Most of the thousands of economists gathered this weekend at the annual convention of the American Economics Association in Denver would probably agree with MIT economist David Autor, that the big problem facing the U.S. labor market is that our workforce is not being adequately educated. Autor claims that most of the new jobs that are being created are at the top and the bottom of the skills level. His recipe is to have more people go to college and earn advance degrees.
By contrast, the NYT devoted a lengthy article to tell readers about the dismal job market facing young lawyers. It reports that many recent graduates of law schools that are below the top tier can only find very low paying legal jobs, if they find any within the professional at all.
It is worth noting that if Autor is right, then the NYT has seriously misrepresented the state of the legal market. Alternatively, the economy could simply be suffering from a situation in which there are too few jobs in total. This would mean that the fundamental problem is not the skills of the workforce but rather the skills of the people designing economic policy.
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