There is something incredibly otherworldly about current economic policy debates. We are sitting here with almost 10 percent of our workforce unemployed. Let’s repeat that so even a policy wonk can understand it: almost 10 percent of the workforce is unemployed. That means people with the skills and desire to work cannot find jobs. The problem is too few jobs, too much supply of labor, got it?
Nonetheless, there is now a national fixation on the problems of an aging population. The story is that we will have too few workers to support too many retirees. That’s a problem of too little labor.
At a time when we have the greatest oversupply of labor since the Great Depression, we are now supposed to be terrified that in a few very short years we will not have enough labor. Is that possible?
Not if we know arithmetic. The NYT gave us a little glimpse of this horror story in its Economix blog today. It showed that the ratio of dependents (defined as people over 64 or under 20) to working age people (those between the ages of 20 and 64) is supposed to rise from 0.67 today to 0.74 in 2020, and 0.83 in 2030; pretty scary, right?
Well suppose we defined a slightly different dependency ratio. This will be the ratio of people who are not working to the people who are. The idea being that people who are working must support the people who are not, regardless of their age.
In 2010, this ratio stands at 1.22. We have 139.4 million people working and 170.1 million not working. However, if we assume that we get back to near full employment and the labor force grows as the Congressional Budget Office projects and population grows as the Census Department projects, this dependency ratio will have fallen to 1.05 in 2020 and then rise to 1.07 by 2030. So, are we scared yet?
There is something incredibly otherworldly about current economic policy debates. We are sitting here with almost 10 percent of our workforce unemployed. Let’s repeat that so even a policy wonk can understand it: almost 10 percent of the workforce is unemployed. That means people with the skills and desire to work cannot find jobs. The problem is too few jobs, too much supply of labor, got it?
Nonetheless, there is now a national fixation on the problems of an aging population. The story is that we will have too few workers to support too many retirees. That’s a problem of too little labor.
At a time when we have the greatest oversupply of labor since the Great Depression, we are now supposed to be terrified that in a few very short years we will not have enough labor. Is that possible?
Not if we know arithmetic. The NYT gave us a little glimpse of this horror story in its Economix blog today. It showed that the ratio of dependents (defined as people over 64 or under 20) to working age people (those between the ages of 20 and 64) is supposed to rise from 0.67 today to 0.74 in 2020, and 0.83 in 2030; pretty scary, right?
Well suppose we defined a slightly different dependency ratio. This will be the ratio of people who are not working to the people who are. The idea being that people who are working must support the people who are not, regardless of their age.
In 2010, this ratio stands at 1.22. We have 139.4 million people working and 170.1 million not working. However, if we assume that we get back to near full employment and the labor force grows as the Congressional Budget Office projects and population grows as the Census Department projects, this dependency ratio will have fallen to 1.05 in 2020 and then rise to 1.07 by 2030. So, are we scared yet?
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It would be nice if the media didn’t feel the need to rely almost exclusively on economists who are continually surprised by the economy. The Commerce Department’s release of May data on retail spending surprised many economists by its weakness as noted by both the Post and the Times.
Economists who know economics were not surprised. Prior to the recession consumer spending was propelled by the $8 trillion in housing wealth created the bubble. This is the well-known housing wealth effect that economists were supposed to learn in their under-graduate training: annual consumption increases by 5-7 cents for every dollar of housing wealth. The bubble sent consumption soaring and pushed saving rates to record lows.
Now that most of the bubble wealth has disappeared, consumption is returning to more normal levels. Even now the savings rate , at around 4.0 percent, is well below its levels before the stock and housing bubbles, which averaged more than 8.0 percent. In fact, with most of the huge baby boom cohort in its 50s, with very little wealth accumulated for retirement, the demographics should be heavily tilted towards saving. This is why the small subgroup of economists who know economics are asking why consumption is so high, rather than so low.
Reporters should recognize that the economics profession doesn’t have the same sort of internal controls as other occupations, like custodians or retail clerks, Therefore many economists are not good sources for information about the economy.
It would be nice if the media didn’t feel the need to rely almost exclusively on economists who are continually surprised by the economy. The Commerce Department’s release of May data on retail spending surprised many economists by its weakness as noted by both the Post and the Times.
Economists who know economics were not surprised. Prior to the recession consumer spending was propelled by the $8 trillion in housing wealth created the bubble. This is the well-known housing wealth effect that economists were supposed to learn in their under-graduate training: annual consumption increases by 5-7 cents for every dollar of housing wealth. The bubble sent consumption soaring and pushed saving rates to record lows.
Now that most of the bubble wealth has disappeared, consumption is returning to more normal levels. Even now the savings rate , at around 4.0 percent, is well below its levels before the stock and housing bubbles, which averaged more than 8.0 percent. In fact, with most of the huge baby boom cohort in its 50s, with very little wealth accumulated for retirement, the demographics should be heavily tilted towards saving. This is why the small subgroup of economists who know economics are asking why consumption is so high, rather than so low.
Reporters should recognize that the economics profession doesn’t have the same sort of internal controls as other occupations, like custodians or retail clerks, Therefore many economists are not good sources for information about the economy.
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I often think it’s too bad that Social Security isn’t a private company. If it were, it could sue Marketplace Radio for libel for this sort of reporting. Does Marketplace’s host have any idea what she is talking about when she says: “Social Security is in such a sorry state”? According to the Congressional Budget Office the program can pay all benefits for the next 34 years with no changes whatsoever and even after that can pay more than 75 percent of benefits indefinitely. The program is in much better shape in this respect that it was in the 40s, 50s, 60s, or 70s. So what on earth is this person talking about? Can Marketplace Radio pay all its expenses for the next 34 years?
Marketplace’s expert then tells us that Social Security will probably be means-tested. This idea is extremely unpopular among both the public and policy experts, so it would be interesting to know the basis for this assessment. She also recommends raising the retirement age, apparently unaware of the fact that the retirement age has already been raised to 67. She also is apparently unaware of the fact that the vast majority of the huge baby boom cohort has almost nothing saved for retirement and therefore will be almost entirely dependent on Social Security.
I often think it’s too bad that Social Security isn’t a private company. If it were, it could sue Marketplace Radio for libel for this sort of reporting. Does Marketplace’s host have any idea what she is talking about when she says: “Social Security is in such a sorry state”? According to the Congressional Budget Office the program can pay all benefits for the next 34 years with no changes whatsoever and even after that can pay more than 75 percent of benefits indefinitely. The program is in much better shape in this respect that it was in the 40s, 50s, 60s, or 70s. So what on earth is this person talking about? Can Marketplace Radio pay all its expenses for the next 34 years?
Marketplace’s expert then tells us that Social Security will probably be means-tested. This idea is extremely unpopular among both the public and policy experts, so it would be interesting to know the basis for this assessment. She also recommends raising the retirement age, apparently unaware of the fact that the retirement age has already been raised to 67. She also is apparently unaware of the fact that the vast majority of the huge baby boom cohort has almost nothing saved for retirement and therefore will be almost entirely dependent on Social Security.
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For more than a month BP was telling the world that the rate of leakage from its well was just 5,000 barrels a day. It now appears that the size of the leak is actually an order of magnitude greater. How could BP be so far off the mark? Did they really not have a clue? (What do people get paid for at this company?) Or, where they deliberately not telling the truth?
And the question that we ask here at BP, why aren’t the media asking this obvious question?
For more than a month BP was telling the world that the rate of leakage from its well was just 5,000 barrels a day. It now appears that the size of the leak is actually an order of magnitude greater. How could BP be so far off the mark? Did they really not have a clue? (What do people get paid for at this company?) Or, where they deliberately not telling the truth?
And the question that we ask here at BP, why aren’t the media asking this obvious question?
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The Washington Post is famous for relying on David Lereah, the chief economist for the National Association of Realtors (NAR) and the author of Why the Housing Boom Will Not Bust and How You can Profit from It, as its main source for information on the housing market during the bubble. It apparently still has not learned that the NAR is not a neutral source of information on the housing market.
It printed without question an assertion from Lawrence Yun, Mr. Lereah’s successor, that as many 180,000 people who qualify for the first-time homebuyers credit (which also applied to some existing owners), may have signed a contract by April 30th (meeting one deadline), but be unable to close by June 30th, a second requirement for the credit.
Let’s look at this one. The number of existing homes sold in April was about 470,000. Since it generally takes 6-8 weeks between contracts and closings, this implies there were about 470,000 homes contracted in February. The pending sales index rose by about 13.5 percent between February and April, which means that there were about 540,000 existing homes placed under contract in April. The Commerce Department reports that there were 48,000 new homes put under contract April for a total of 590,000 homes.
Many of these homes would not qualify for the credit either because the buyer previously owned a home (but not long enough to qualify for the move-up credit) or due to the income caps. If we assume that 75 percent of the homes contracted in April qualify for the credit, this would mean that roughly 440,000 people signed contracts in April who qualify for the credit.
Mr. Yun’s claim that 180,000 people who signed contracts before the deadline may not be able to close by June 30th would mean that more than 40 percent of these buyers are in this situation. While there was somewhat of a surge in buying in April, it did not approach the levels reached at the peak of the bubble in 2005-2006. It is therefore difficult to believe that it could have created too much of a backlog of paperwork. Furthermore, the mortgage applications index indicates that sales plummeted after the end of the month, so there would be few new sales for mortgage processors to deal with.
In short, there is little reason to believe that the vast majority of sales qualifying for the credit could not be completed within two months of the contract date. (Remember also, sales were spread over the month. Someone who signed on April 15th has more almost 11 weeks to meet the deadline.) Mr. Yun’s estimate likely exaggerates the number of people in this situation by an order of magnitude. The Post should learn that people who work for trade associations are not good sources for unbiased information.
The Washington Post is famous for relying on David Lereah, the chief economist for the National Association of Realtors (NAR) and the author of Why the Housing Boom Will Not Bust and How You can Profit from It, as its main source for information on the housing market during the bubble. It apparently still has not learned that the NAR is not a neutral source of information on the housing market.
It printed without question an assertion from Lawrence Yun, Mr. Lereah’s successor, that as many 180,000 people who qualify for the first-time homebuyers credit (which also applied to some existing owners), may have signed a contract by April 30th (meeting one deadline), but be unable to close by June 30th, a second requirement for the credit.
Let’s look at this one. The number of existing homes sold in April was about 470,000. Since it generally takes 6-8 weeks between contracts and closings, this implies there were about 470,000 homes contracted in February. The pending sales index rose by about 13.5 percent between February and April, which means that there were about 540,000 existing homes placed under contract in April. The Commerce Department reports that there were 48,000 new homes put under contract April for a total of 590,000 homes.
Many of these homes would not qualify for the credit either because the buyer previously owned a home (but not long enough to qualify for the move-up credit) or due to the income caps. If we assume that 75 percent of the homes contracted in April qualify for the credit, this would mean that roughly 440,000 people signed contracts in April who qualify for the credit.
Mr. Yun’s claim that 180,000 people who signed contracts before the deadline may not be able to close by June 30th would mean that more than 40 percent of these buyers are in this situation. While there was somewhat of a surge in buying in April, it did not approach the levels reached at the peak of the bubble in 2005-2006. It is therefore difficult to believe that it could have created too much of a backlog of paperwork. Furthermore, the mortgage applications index indicates that sales plummeted after the end of the month, so there would be few new sales for mortgage processors to deal with.
In short, there is little reason to believe that the vast majority of sales qualifying for the credit could not be completed within two months of the contract date. (Remember also, sales were spread over the month. Someone who signed on April 15th has more almost 11 weeks to meet the deadline.) Mr. Yun’s estimate likely exaggerates the number of people in this situation by an order of magnitude. The Post should learn that people who work for trade associations are not good sources for unbiased information.
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It’s great that the Post is able to find the truth in such matters. It told readers:
“For all of Wall Street’s money and power, it has been a different army of lobbyists that has proven most effective over the past year in shaping the financial overhaul legislation on Capitol Hill. Again and again, big banks have been outpaced by small-town interests, proving that even when it comes to overhauling financial regulation, politics really is local.”
Let’s see, two years ago the big banks were rescued from bankruptcy by the helping hand of Big Government. Today, they are again making record profits and awarding record bonuses to top executives. Congress never seriously considered breaking them up and taking away the implicit government security blanket of “too big to fail,” a subsidy that could be as much as $36 billion a year. It also is unlikely to impose the sort of Glass-Steagall separations that would prevent the big banks from speculating with taxpayer insured dollars.
Some people might think that this outcome suggests that the big banks are calling the shots. Thankfully we have the Post to tell us otherwise.
It’s great that the Post is able to find the truth in such matters. It told readers:
“For all of Wall Street’s money and power, it has been a different army of lobbyists that has proven most effective over the past year in shaping the financial overhaul legislation on Capitol Hill. Again and again, big banks have been outpaced by small-town interests, proving that even when it comes to overhauling financial regulation, politics really is local.”
Let’s see, two years ago the big banks were rescued from bankruptcy by the helping hand of Big Government. Today, they are again making record profits and awarding record bonuses to top executives. Congress never seriously considered breaking them up and taking away the implicit government security blanket of “too big to fail,” a subsidy that could be as much as $36 billion a year. It also is unlikely to impose the sort of Glass-Steagall separations that would prevent the big banks from speculating with taxpayer insured dollars.
Some people might think that this outcome suggests that the big banks are calling the shots. Thankfully we have the Post to tell us otherwise.
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That’s a question that NPR listeners might ask after being told that the differences between organized labor and President Obama were due to the President’s political pragmatism. Many of the differences stem from President Obama’s willingness to serve the interests of powerful business groups such as the pharmaceutical industry, the insurance industry, and the big banks. President Obama’s positions may be viewed as politically “pragmatic” in that these are very powerful interests who can badly hurt politicians who cross them, but they are not politically pragmatic in terms of being responses to public sentiment. It would have been useful if this report had made that distinction.
That’s a question that NPR listeners might ask after being told that the differences between organized labor and President Obama were due to the President’s political pragmatism. Many of the differences stem from President Obama’s willingness to serve the interests of powerful business groups such as the pharmaceutical industry, the insurance industry, and the big banks. President Obama’s positions may be viewed as politically “pragmatic” in that these are very powerful interests who can badly hurt politicians who cross them, but they are not politically pragmatic in terms of being responses to public sentiment. It would have been useful if this report had made that distinction.
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The NYT discussed the likely path of fiscal and monetary policy. It noted that it was unlikely that the Fed would adopt a substantially more expansive path concluding with a quote from an economist: “A second round of quantitative easing at the moment would substantially increase inflationary risks.”
It is worth noting that there is no economic theory that shows quantitative easing (the Fed buying long-term bonds) leads to inflation when the unemployment rate is far above normal levels, as is the case at present.
The NYT discussed the likely path of fiscal and monetary policy. It noted that it was unlikely that the Fed would adopt a substantially more expansive path concluding with a quote from an economist: “A second round of quantitative easing at the moment would substantially increase inflationary risks.”
It is worth noting that there is no economic theory that shows quantitative easing (the Fed buying long-term bonds) leads to inflation when the unemployment rate is far above normal levels, as is the case at present.
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That is what the Washington Post argued in an article on President Obama’s deficit commission today. The article told readers that: “Adjusting Social Security benefits is a likely point of consensus, commission members say.” [The word “adjusting” is presumably a typo. The only way to reduce the deficit is by cutting benefits.]
The Social Security trust fund holds more than $2.6 trillion in government bonds. According to the Congressional Budget Office, this money will be sufficient, along with current tax revenue, to pay all scheduled benefits through the year 2044. The decision to cut benefits would effectively mean defaulting on these bonds — denying workers the benefits that they have already paid for through the designated Social Security tax.
The article misrepresents the finances of the program by telling readers that: “Social Security has been self-supporting since 1935, with taxes paid by current workers financing benefits for current retirees.” This has not been true since the Greenspan Commission’s recommendations were implemented in 1983. The commission’s plan raised taxes and the normal retirement age, thereby reducing benefits. This led to a substantial degree of pre-funding, allowing the trust fund to accumulate more than $2.6 trillion in government bonds over the last quarter century.
As a result of this prefunding, the article’s comment later in the paragraph: “Sometime in the next few years, taxes will no longer cover benefits,” has no relevance to anything. Under the law, Social Security benefits are paid out of the trust fund, it makes not an iota of difference whether annual Social Security tax revenue is greater or less than annual benefit payments. This is an invention of the Washington Post and critics of Social Security.
The next paragraph tells readers:
“The program’s defenders argue that there is no crisis: If Treasury would repay billions of dollars in surplus Social Security taxes borrowed over the years, the program could pay full benefits through 2037. But many budget experts question whether supporting the existing benefit structure should be a cash-strapped nation’s first priority.”
It is worth noting that the decision not to “repay billions of dollars in surplus Social Security taxes,” is effectively a decision to default on the portion of the government debt held by the Social Security trust fund. It is worth highlighting this point so that readers understand the position being advocated by “many budget experts.”
That is what the Washington Post argued in an article on President Obama’s deficit commission today. The article told readers that: “Adjusting Social Security benefits is a likely point of consensus, commission members say.” [The word “adjusting” is presumably a typo. The only way to reduce the deficit is by cutting benefits.]
The Social Security trust fund holds more than $2.6 trillion in government bonds. According to the Congressional Budget Office, this money will be sufficient, along with current tax revenue, to pay all scheduled benefits through the year 2044. The decision to cut benefits would effectively mean defaulting on these bonds — denying workers the benefits that they have already paid for through the designated Social Security tax.
The article misrepresents the finances of the program by telling readers that: “Social Security has been self-supporting since 1935, with taxes paid by current workers financing benefits for current retirees.” This has not been true since the Greenspan Commission’s recommendations were implemented in 1983. The commission’s plan raised taxes and the normal retirement age, thereby reducing benefits. This led to a substantial degree of pre-funding, allowing the trust fund to accumulate more than $2.6 trillion in government bonds over the last quarter century.
As a result of this prefunding, the article’s comment later in the paragraph: “Sometime in the next few years, taxes will no longer cover benefits,” has no relevance to anything. Under the law, Social Security benefits are paid out of the trust fund, it makes not an iota of difference whether annual Social Security tax revenue is greater or less than annual benefit payments. This is an invention of the Washington Post and critics of Social Security.
The next paragraph tells readers:
“The program’s defenders argue that there is no crisis: If Treasury would repay billions of dollars in surplus Social Security taxes borrowed over the years, the program could pay full benefits through 2037. But many budget experts question whether supporting the existing benefit structure should be a cash-strapped nation’s first priority.”
It is worth noting that the decision not to “repay billions of dollars in surplus Social Security taxes,” is effectively a decision to default on the portion of the government debt held by the Social Security trust fund. It is worth highlighting this point so that readers understand the position being advocated by “many budget experts.”
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