Reporters continually discuss deflation as though something magical will happen if the rate of price growth crosses zero, and turns negative. This is silly. The point is that a lower rate of inflation raises real interest rates at a time when we want lower real interest rates. We can’t lower nominal rates below zero, so any decline in the inflation rate right now is bad news.
In this sense, 0.5 percent inflation is worse than 1.5 percent inflation. The situation gets still worse if this goes to a negative inflation rate of -0.5 percent. But the drop from 0.5 percent to -0.5 percent is no worse than the drop from 1.5 percent to 0.5 percent.
This is important to understand because the fixation on deflation implies that somehow everything is okay as long as our inflation rate is still positive. That is not true: the economy is suffering from an enormous output gap leading to tens of millions of people needlessly facing unemployment or underemployment.
Reporters continually discuss deflation as though something magical will happen if the rate of price growth crosses zero, and turns negative. This is silly. The point is that a lower rate of inflation raises real interest rates at a time when we want lower real interest rates. We can’t lower nominal rates below zero, so any decline in the inflation rate right now is bad news.
In this sense, 0.5 percent inflation is worse than 1.5 percent inflation. The situation gets still worse if this goes to a negative inflation rate of -0.5 percent. But the drop from 0.5 percent to -0.5 percent is no worse than the drop from 1.5 percent to 0.5 percent.
This is important to understand because the fixation on deflation implies that somehow everything is okay as long as our inflation rate is still positive. That is not true: the economy is suffering from an enormous output gap leading to tens of millions of people needlessly facing unemployment or underemployment.
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Yes, in the strange but true category, we have a columnist with a major national newspaper worrying that population growth in the United States could slow or even reverse. Yes, I have the same fear every time I push my way into the metro at the rush hour or get caught in a huge traffic jam. Imagine how awful it would be if cities were less crowded. It could make housing cheaper, reduce pressure on water and other resources and cut greenhouse gas emissions. Shortages of workers would drive up wages as the least productive jobs go unfilled (e.g. the midnight shift at 7-11 and parking valets at upscale restaurants). It’s a looming catastrophe if ever there was one.
Samuelson bizarrely thinks that slower or negative population growth will hurt the economy. He thinks that it will slow demand growth. There are two simple problems with this story. First, we are in an international economy, so if demand in the U.S. economy is growing less rapidly then we can sell our output elsewhere. The other problem is the big “so what?”
If we can produce everything we want in the United States and still not fully employ our workforce then we can all get longer vacations and have shorter workweeks. In a functioning economic system, having too much is not a problem — you just work less. In the Netherlands they figured this out — they use work sharing rather than layoffs to deal with inadequate demand. As a result its unemployment rate is close to 4.0 percent. In Germany, work sharing has been so effective that its unemployment rate is lower today than it was at the start of the downturn.
See, this is really simple for countries that have competent people guiding their economy. It is only inept economic policy that makes a shortage of demand a disaster for people and the economy. Too bad Samuelson won’t discuss this failure of economic policy.
Yes, in the strange but true category, we have a columnist with a major national newspaper worrying that population growth in the United States could slow or even reverse. Yes, I have the same fear every time I push my way into the metro at the rush hour or get caught in a huge traffic jam. Imagine how awful it would be if cities were less crowded. It could make housing cheaper, reduce pressure on water and other resources and cut greenhouse gas emissions. Shortages of workers would drive up wages as the least productive jobs go unfilled (e.g. the midnight shift at 7-11 and parking valets at upscale restaurants). It’s a looming catastrophe if ever there was one.
Samuelson bizarrely thinks that slower or negative population growth will hurt the economy. He thinks that it will slow demand growth. There are two simple problems with this story. First, we are in an international economy, so if demand in the U.S. economy is growing less rapidly then we can sell our output elsewhere. The other problem is the big “so what?”
If we can produce everything we want in the United States and still not fully employ our workforce then we can all get longer vacations and have shorter workweeks. In a functioning economic system, having too much is not a problem — you just work less. In the Netherlands they figured this out — they use work sharing rather than layoffs to deal with inadequate demand. As a result its unemployment rate is close to 4.0 percent. In Germany, work sharing has been so effective that its unemployment rate is lower today than it was at the start of the downturn.
See, this is really simple for countries that have competent people guiding their economy. It is only inept economic policy that makes a shortage of demand a disaster for people and the economy. Too bad Samuelson won’t discuss this failure of economic policy.
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Morning Edition had a piece on people who hire undocumented workers to do tasks like landscaping their yards or cleaning their toilets. It quoted one person as saying that they hire immigrants rather than U.S. citizens or green card holders because she “believes American prices are inflated.”
The article doesn’t tell listeners what any of the employers in the piece do, but it is an absolute certainty that there would be a huge number of qualified people around the world who would be willing to do their jobs at a much lower wage than they receive. However, most people who work in occupations requiring more education enjoy much more protection from immigrant workers than people who landscape yards or clean toilets.
The position of the people interviewed in this piece is that they are entitled to protection from competition to keep their wages high, while they should be able to hire workers from the developing world at low wages to save money. It would have been helpful if the piece had elucidated their view more clearly.
Morning Edition had a piece on people who hire undocumented workers to do tasks like landscaping their yards or cleaning their toilets. It quoted one person as saying that they hire immigrants rather than U.S. citizens or green card holders because she “believes American prices are inflated.”
The article doesn’t tell listeners what any of the employers in the piece do, but it is an absolute certainty that there would be a huge number of qualified people around the world who would be willing to do their jobs at a much lower wage than they receive. However, most people who work in occupations requiring more education enjoy much more protection from immigrant workers than people who landscape yards or clean toilets.
The position of the people interviewed in this piece is that they are entitled to protection from competition to keep their wages high, while they should be able to hire workers from the developing world at low wages to save money. It would have been helpful if the piece had elucidated their view more clearly.
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Why do reporters feel the need to indiscriminately label unauthorized copies as “counterfeits”? The distinction is very simple and important. A copy where the consumer understands that they are not getting the brand product is not counterfeit, regardless of whether or not there is an infringement of an individual or company’s intellectual property protections. This distinction is important because the consumer is clearly benefiting in this case. The consumer is preferring to purchase the copy rather than the brand product.
By contrast, an actual counterfeit product is ripping off the consumer. The consumer is an ally in combatting counterfeits, whereas consumers benefit from the opportunity to buy unauthorized copies.
This simple distinction is lost at the the Washington Post. It describes markets in China as selling “counterfeit” products when it is very clear that consumers realize that they are not purchasing the brand product.
Why do reporters feel the need to indiscriminately label unauthorized copies as “counterfeits”? The distinction is very simple and important. A copy where the consumer understands that they are not getting the brand product is not counterfeit, regardless of whether or not there is an infringement of an individual or company’s intellectual property protections. This distinction is important because the consumer is clearly benefiting in this case. The consumer is preferring to purchase the copy rather than the brand product.
By contrast, an actual counterfeit product is ripping off the consumer. The consumer is an ally in combatting counterfeits, whereas consumers benefit from the opportunity to buy unauthorized copies.
This simple distinction is lost at the the Washington Post. It describes markets in China as selling “counterfeit” products when it is very clear that consumers realize that they are not purchasing the brand product.
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As noted below, the NYT declared class war against school teachers and custodians, arguing that the public must focus on taking away their pensions. The prior note left out a very important point — if the economists who make projections of pension returns knew arithmetic, then the pension funds would not be facing these huge shortfalls.
These “experts,” all of whom draw high salaries in their working careers and much higher pensions than public employees (think of people like Harvard Professor Martin Feldstein, Boston University Professor Lawrence Kotlikoff, and Steve Goss the Chief Actuary for Social Security), all asserted that stocks would average 7.0 percent real returns even when the market was at its bubble peaks. If the market had performed as they had projected, then these pension funds would be just fine today.
In short, the biggest problem with these pension funds is that they listened to the country’s leading economic experts in planning for the future. Unfortunately, the workers and the taxpayers will pay for the incompetence of the experts. The experts themselves are protected.
As noted below, the NYT declared class war against school teachers and custodians, arguing that the public must focus on taking away their pensions. The prior note left out a very important point — if the economists who make projections of pension returns knew arithmetic, then the pension funds would not be facing these huge shortfalls.
These “experts,” all of whom draw high salaries in their working careers and much higher pensions than public employees (think of people like Harvard Professor Martin Feldstein, Boston University Professor Lawrence Kotlikoff, and Steve Goss the Chief Actuary for Social Security), all asserted that stocks would average 7.0 percent real returns even when the market was at its bubble peaks. If the market had performed as they had projected, then these pension funds would be just fine today.
In short, the biggest problem with these pension funds is that they listened to the country’s leading economic experts in planning for the future. Unfortunately, the workers and the taxpayers will pay for the incompetence of the experts. The experts themselves are protected.
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The NYT has a very good piece on the Minerals Management Service and the culture at the agency that led to a disregard of safety and environmental concerns. However, it gets an important point dead wrong at the very beginning. It begins by discussing a lease auction held in March of 1997 and tells readers that this was a period of rising oil prices.
That’s not what the data show. Oil prices had been weak throughout the 90s and were headed down in March of 1997. At that point, in inflation-adjusted dollars, oil prices were near their lowest level of the post-war period. This can be seen as a secondary issue in terms of the article’s main focus, but it is important to recognize that the world was not suffering from anything resembling an oil shortage at the time that that the government began this renewed push to open the Gulf to drilling.
The NYT has a very good piece on the Minerals Management Service and the culture at the agency that led to a disregard of safety and environmental concerns. However, it gets an important point dead wrong at the very beginning. It begins by discussing a lease auction held in March of 1997 and tells readers that this was a period of rising oil prices.
That’s not what the data show. Oil prices had been weak throughout the 90s and were headed down in March of 1997. At that point, in inflation-adjusted dollars, oil prices were near their lowest level of the post-war period. This can be seen as a secondary issue in terms of the article’s main focus, but it is important to recognize that the world was not suffering from anything resembling an oil shortage at the time that that the government began this renewed push to open the Gulf to drilling.
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Columnists are given considerably more leeway than reporters, but serious newspapers still expect their pieces to bear some relationship to reality. This is why the Ron Lieber’s column warning of a class war (“The Coming Class War Over Public Pensions“), with government workers as the new “haves,” may leave many readers wondering about the NYT.
We have just seen the Wall Street crew get trillions of dollars of loans and loan guarantees to protect their multi-million dollar salaries and bonuses. The government routinely gets taken left and right by Halliburton and other defense contractors. Doctors and drug companies use their political power to ensure that they can charge far above competitive market prices.
With all these millionaires and billionaires getting even richer at the public’s expense, why would there be a class war over public pensions? Clearly this is Mr. Lieber’s desire, but so what?
Lieber does his best to whip up the hysteria, near the beginning of the article he describes the pension shortfall: “At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.” Since we’re doing the alliterations with “t,” how about throwing in “two” as in a shortfall that is less than 2 percent of projected state and local government spending. Current spending is close to $2 trillion a year. If we assume that a shortfall must be filled over a 30-year period, then this would imply a gap that is less that 2 percent of projected spending over this period.
That is not a trivial sum, but it is not obviously “titanic” or “terrifying,” at least to adults who do not scare easily. The piece does eventually point out that most public pensions are not especially large and that in many cases these pensions are also substitutes for Social Security (many state and local workers are not part of the Social Security system), but that information only appears near the bottom of the piece, long after the call to class war.
The reality is that public pensions are better than private pensions, but this is largely because most private sector workers have little or nothing by way of pensions. With a few notably exceptions (police and fire pensions, along with those of IMF economists, tend to be very generous) most public sector pensions do not provide retirees with an especially high standard of living.
It is more than a little bizarre, and arguably more than a little offensive, that the NYT would publish an explicit call for an attack on the pensions of millions of workers who never earned more than $40,000 or $50,000 a year. This is in a country where people like Erskine Bowles (the co-chair of President Obama’s deficit commission) get $350,000 a year serving as a director of a company (Morgan Stanley) that only exists today because of the generosity of the Fed and the taxpayers when they rescued it in its time of need. (What does a director of Morgan Stanley do to get $350,000 a year?) Of course, the full-time Wall Streeters can pocket 100 times as much.
Mr. Lieber obviously wants to direct public anger at school teachers and custodians rather than the people who hold real power and wealth in this country. It is a pathetic and disgusting exercise and the NYT should be embarrassed to provide Mr. Lieber with the ink and electrons for this effort.
Columnists are given considerably more leeway than reporters, but serious newspapers still expect their pieces to bear some relationship to reality. This is why the Ron Lieber’s column warning of a class war (“The Coming Class War Over Public Pensions“), with government workers as the new “haves,” may leave many readers wondering about the NYT.
We have just seen the Wall Street crew get trillions of dollars of loans and loan guarantees to protect their multi-million dollar salaries and bonuses. The government routinely gets taken left and right by Halliburton and other defense contractors. Doctors and drug companies use their political power to ensure that they can charge far above competitive market prices.
With all these millionaires and billionaires getting even richer at the public’s expense, why would there be a class war over public pensions? Clearly this is Mr. Lieber’s desire, but so what?
Lieber does his best to whip up the hysteria, near the beginning of the article he describes the pension shortfall: “At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.” Since we’re doing the alliterations with “t,” how about throwing in “two” as in a shortfall that is less than 2 percent of projected state and local government spending. Current spending is close to $2 trillion a year. If we assume that a shortfall must be filled over a 30-year period, then this would imply a gap that is less that 2 percent of projected spending over this period.
That is not a trivial sum, but it is not obviously “titanic” or “terrifying,” at least to adults who do not scare easily. The piece does eventually point out that most public pensions are not especially large and that in many cases these pensions are also substitutes for Social Security (many state and local workers are not part of the Social Security system), but that information only appears near the bottom of the piece, long after the call to class war.
The reality is that public pensions are better than private pensions, but this is largely because most private sector workers have little or nothing by way of pensions. With a few notably exceptions (police and fire pensions, along with those of IMF economists, tend to be very generous) most public sector pensions do not provide retirees with an especially high standard of living.
It is more than a little bizarre, and arguably more than a little offensive, that the NYT would publish an explicit call for an attack on the pensions of millions of workers who never earned more than $40,000 or $50,000 a year. This is in a country where people like Erskine Bowles (the co-chair of President Obama’s deficit commission) get $350,000 a year serving as a director of a company (Morgan Stanley) that only exists today because of the generosity of the Fed and the taxpayers when they rescued it in its time of need. (What does a director of Morgan Stanley do to get $350,000 a year?) Of course, the full-time Wall Streeters can pocket 100 times as much.
Mr. Lieber obviously wants to direct public anger at school teachers and custodians rather than the people who hold real power and wealth in this country. It is a pathetic and disgusting exercise and the NYT should be embarrassed to provide Mr. Lieber with the ink and electrons for this effort.
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In its discussion of the weak July jobs report the Post noted that the Fed could take steps to boost the economy. It listed the possibilities as: “pledging to keep interest rates low for even longer than now expected, cutting the interest rate on banks’ reserves, or buying additional mortgage securities.”
These are all relatively modest steps. There are measures that have been proposed that would have much more impact. For example, Greg Mankiw, President Bush’s chief economist, and Oliver Blanchard, the chief economist at the International Monetary Fund, have both suggested that the Fed could set an inflation target of 3-4 percent as a way of lowering the real interest rate.
The Fed could also commit itself to buy and hold a large amount of government debt (e.g. $1 trillion to $3 trillion) to alleviate concerns that the debt will impose large interest burdens on the government in the future, thereby creating more room for aggressive stimulus. The Post should be listing the full range of options that are being put forward in policy debates, not just a small narrow set of relatively inconsequential measures.
It also would have been worth mentioning that the Census still employed 200,000 temporary workers in July. Most of these jobs will disappear in the next two months, which means that the economy will have to generate 100,000 jobs a month in August and September just to keep employment flat.
In its discussion of the weak July jobs report the Post noted that the Fed could take steps to boost the economy. It listed the possibilities as: “pledging to keep interest rates low for even longer than now expected, cutting the interest rate on banks’ reserves, or buying additional mortgage securities.”
These are all relatively modest steps. There are measures that have been proposed that would have much more impact. For example, Greg Mankiw, President Bush’s chief economist, and Oliver Blanchard, the chief economist at the International Monetary Fund, have both suggested that the Fed could set an inflation target of 3-4 percent as a way of lowering the real interest rate.
The Fed could also commit itself to buy and hold a large amount of government debt (e.g. $1 trillion to $3 trillion) to alleviate concerns that the debt will impose large interest burdens on the government in the future, thereby creating more room for aggressive stimulus. The Post should be listing the full range of options that are being put forward in policy debates, not just a small narrow set of relatively inconsequential measures.
It also would have been worth mentioning that the Census still employed 200,000 temporary workers in July. Most of these jobs will disappear in the next two months, which means that the economy will have to generate 100,000 jobs a month in August and September just to keep employment flat.
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The “Buy America” provisions of the stimulus package got huge amounts of ink from the NYT, the Washington Post, and other media outlets, all of which were anxious to feature economists denouncing them as protectionist. For some reason the NYT did not feel the need for similar denunciations in an article reporting on a bill that quite explicitly protects highly-skilled workers by imposing a tax for visas. The bill also is peculiar in that it is structured so that large U.S. companies would escape the tax. Only foreign-owned companies with relatively few U.S. employees would pay the tax.
The “Buy America” provisions of the stimulus package got huge amounts of ink from the NYT, the Washington Post, and other media outlets, all of which were anxious to feature economists denouncing them as protectionist. For some reason the NYT did not feel the need for similar denunciations in an article reporting on a bill that quite explicitly protects highly-skilled workers by imposing a tax for visas. The bill also is peculiar in that it is structured so that large U.S. companies would escape the tax. Only foreign-owned companies with relatively few U.S. employees would pay the tax.
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Apparently not. A lengthy magazine piece that discussed the music industry’s costly efforts to track down restaurants and bars that play copyrighted music without authorization never mentioned the possibility that there could be alternative mechanisms for financing music in the Internet Age. Instead, it held out the hope that new technology may allow the industry to monitor every radio, computer, and cell phone so that Time Warner would know every time one of its copyrighted songs was being played.
Apparently not. A lengthy magazine piece that discussed the music industry’s costly efforts to track down restaurants and bars that play copyrighted music without authorization never mentioned the possibility that there could be alternative mechanisms for financing music in the Internet Age. Instead, it held out the hope that new technology may allow the industry to monitor every radio, computer, and cell phone so that Time Warner would know every time one of its copyrighted songs was being played.
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