Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

I remember talking to a progressive group a bit more than a decade ago, arguing for the merits of a financial transactions tax (FTT). After I laid out the case, someone asked me if we had lost the opportunity to push for an FTT now that the financial crisis was over. I assured the person that we could count on the financial sector to give us more scandals that would create opportunities for reform.

Shortly after, we were rewarded with the trading scandal from the aptly named investment company, MF Global. It seems that FTX has given us yet another great case study of greed and corruption in the financial sector.

The financial sector was and is a happy home for those seeking big bucks and who don’t mind bending or breaking the rules to fill their pockets. Corporate America is not generally known as a center of virtue, but in most other sectors, there is at least a product by which a company can be evaluated. Does the auto industry produce cars that are safe and drive well? Does the airline industry get people to their destinations on time?

These are metrics that can be applied in a reasonably straightforward way. But what does the financial sector do? In fact, there are metrics, but they are not as straightforward, and we literally never see the business press applying them to the sector.

Finance and Trucking: Big is Bad

At the most basic level, finance is an intermediate good. This distinguishes the financial sector from sectors like health care, housing, or agriculture. Finance does not directly produce anything of value to households. Its value to the economy is that it facilitates transactions and allocates capital. These functions are tremendously important, but they are not valuable in themselves. They are valuable because of their service to the productive economy.

In this way, finance can be considered similar to the trucking industry. Trucking is enormously important to the economy in getting goods to consumers and essential inputs to manufacturers and service providers. But it does not directly produce value. We only benefit from having more workers and trucks if they allow the industry to serve its function better. That means getting goods to their destination more quickly or getting them there with less damage or spoilage.

This is the same story with finance. We benefit from having more resources in finance only insofar as they allow it to service the productive economy better. That means facilitating payments to make them easier and quicker and better allocating capital to its most productive uses.

Serious Bloat in Finance

The financial sector has exploded in size in the last half-century. The broad finance, insurance, and real estate sector has more than doubled as a share of GDP over the last half-century, increasing from 5.5 percent of GDP in 1971 to 12.0 percent in 2021.[1] The additional 6.5 percent of GDP being devoted to finance in 2021 is equivalent to more than $1.4 trillion being absorbed by the sector. This comes to more than $11,800 a year for an average family.

The more narrow securities and commodity trading sector, along with investment funds and trusts, more than quadrupled as a share of GDP, rising from 0.55 percent of GDP in 1971 to 2.56 percent in 2021. This increase of 2.0 percentage points of GDP comes to more than $500 billion a year in the current economy, or almost $4,400 a year per family. This is more than half the size of the military budget.

Clearly, the financial sector is a far larger drain on the economy today than fifty years ago. It is also a major source of inequality. The list of the country’s billionaires is chock full of people, like Stephan Schwarzman and Peter Thiel, who made fortunes in hedge funds, private equity funds, and other financial entities. In short, the data are clear: the financial sector is taking up a far larger share of the economy’s resources than it did a half-century ago, and it is a major factor in generating inequality,

Finance: What Is it Good For?

The big question is, what are we getting for all the extra resources the financial sector is taking from the rest of us? This is asking about the extent to which our means of payments have been improved and the extent to which we better allocate capital today than we would be with a smaller financial sector.

On the first question, clearly we have developed better mechanisms for paying our bills and carrying on other transactions, but the biggest developments are hardly new. Direct deposit of our paychecks and automatic payments for bills are great innovations that save lots of time for both sides of the transactions. However, these innovations date back more than four decades.

The same holds with credit cards and debit cards. The overwhelming majority of transactions are now made with these cards, but this is not especially new technology. Credit cards were already widely available in 1971, even if they were nowhere near as ubiquitous as they are today.   

We can give the financial sector credit for the increase in the convenience of our system of payments, but how much is this worth? Is the time saved from using credit cards or having a direct deposit of your payments worth $11,800 a year to you? That seems a bit steep. I suspect given the option, most people would prefer an extra $11,800 in their paycheck and be given the check by hand rather than having it deposited automatically in their bank account.   

How about the other part of the financial sector’s function, allocating capital to its best uses? There is no simple way to evaluate how effective our enlarged financial sector has been in allocating capital, primarily because we don’t have a counterfactual. We can’t point to an America with a smaller financial sector over the last half-century. (Steven Cecchetti and Enisse Kharroubbi did a cross-country analysis which found a larger financial sector boosted growth, but after reaching a certain size relative to the economy, it was a drag on growth.)

We can make a comparison of productivity growth in recent decades with productivity growth in the decades before the financial sector was consuming such a large share of the country’s output. In the years from the beginning of the Bureau of Labor Statistics productivity series in 1947 to 1972, productivity growth averaged 2.8 percent annually. From 1972 to 2022, productivity growth averaged just 1.8 percent.

If anything, productivity growth has slowed further as the financial sector has expanded relative to the economy. While there was a strong decade of productivity growth from 1995 to 2005, in the years from 2005 to 2019, productivity growth averaged just 1.4 percent.

The expanded financial sector may not be responsible for the slowing of productivity growth, and it’s certainly possible that it would have slowed even more without a larger financial sector. But, it is not easy to make the case that the financial sector has somehow led to faster productivity growth.  

FTX, Crypto, Rent-Seeking, and Fraud

Suppose the growth of the financial sector has not led to corresponding benefits to the productive economy. In that case, we should view it as a source of waste and inefficiency, just as we would view a massive increase in the size of the trucking industry without any benefits in terms of improved delivery times. From the standpoint of policy, we should be looking at every opportunity to whittle down the size of the financial sector to reduce waste in the economy.

Applying a financial transactions tax, similar to the sales tax paid in other sectors, would be a great place to start. Getting rid of tax preferences that provide government subsidies to private equity and hedge funds is another great policy option. Also, simplifying the corporate tax code to reduce the money made by tax gaming should also be a priority.

As a general rule, we should be doing everything possible to reduce the size of the financial sector, as long as we are not jeopardizing its ability to serve the productive economy. The message here for dealing with crypto should be very clear.

There is zero reason to encourage the growth of crypto. If people want to play around with crypto, that is their right, just like people can gamble at casinos or horse races. But the idea that the government should look to foster the growth of crypto, as many politicians have advocated, would be like the government encouraging alcohol or tobacco addiction.

While crypto may help facilitate criminal transactions (apparently this is no longer clearly true), it serves no legitimate purpose. In a world of scammers, it should not be surprising that we would see a sham exchange like FTX that seems to have defrauded its customers big time.

The proper government response is not to encourage people to gamble in crypto by regulating the industry and making it safer for ordinary people to throw their money in the toilet. The proper response is to throw the fraudsters in jail and tell people they invest in crypto at their own risk. If they want to engage in honest gambling, let them go to Vegas.   

If our politicians actually had any interest in economic efficiency, they would be engaged in an all-out push to downsize the financial industry and free up hundreds of billions of dollars for productive uses. Unfortunately, their flirtation with crypto scammers is a symptom of the larger problem. The finance industry has bought their collaboration, and politicians of both parties will continue to run interference for the financial industry as long as the campaign contributions are coming in.

[1] These data are taken from National Income and Product Accounts Table 6.2B, with the total share being Line 52 divided by Line 1 for 1971 and Table 6.2D, Lines 57 and 62, divided Line 1 for 2021. For the narrow securities and commodity trading sector, and holding and trust accounts, the calculation uses Line 55 and Line 59, divided by Line 1 for 1971. For 2021, it uses Line 59 and Line 61, divided by Line 1. These tables only give data on labor compensation. The implicit assumption is that the industry’s value added is proportional to labor compensation in the sector. While this will not be precisely accurate, it should be reasonably close.  

I remember talking to a progressive group a bit more than a decade ago, arguing for the merits of a financial transactions tax (FTT). After I laid out the case, someone asked me if we had lost the opportunity to push for an FTT now that the financial crisis was over. I assured the person that we could count on the financial sector to give us more scandals that would create opportunities for reform.

Shortly after, we were rewarded with the trading scandal from the aptly named investment company, MF Global. It seems that FTX has given us yet another great case study of greed and corruption in the financial sector.

The financial sector was and is a happy home for those seeking big bucks and who don’t mind bending or breaking the rules to fill their pockets. Corporate America is not generally known as a center of virtue, but in most other sectors, there is at least a product by which a company can be evaluated. Does the auto industry produce cars that are safe and drive well? Does the airline industry get people to their destinations on time?

These are metrics that can be applied in a reasonably straightforward way. But what does the financial sector do? In fact, there are metrics, but they are not as straightforward, and we literally never see the business press applying them to the sector.

Finance and Trucking: Big is Bad

At the most basic level, finance is an intermediate good. This distinguishes the financial sector from sectors like health care, housing, or agriculture. Finance does not directly produce anything of value to households. Its value to the economy is that it facilitates transactions and allocates capital. These functions are tremendously important, but they are not valuable in themselves. They are valuable because of their service to the productive economy.

In this way, finance can be considered similar to the trucking industry. Trucking is enormously important to the economy in getting goods to consumers and essential inputs to manufacturers and service providers. But it does not directly produce value. We only benefit from having more workers and trucks if they allow the industry to serve its function better. That means getting goods to their destination more quickly or getting them there with less damage or spoilage.

This is the same story with finance. We benefit from having more resources in finance only insofar as they allow it to service the productive economy better. That means facilitating payments to make them easier and quicker and better allocating capital to its most productive uses.

Serious Bloat in Finance

The financial sector has exploded in size in the last half-century. The broad finance, insurance, and real estate sector has more than doubled as a share of GDP over the last half-century, increasing from 5.5 percent of GDP in 1971 to 12.0 percent in 2021.[1] The additional 6.5 percent of GDP being devoted to finance in 2021 is equivalent to more than $1.4 trillion being absorbed by the sector. This comes to more than $11,800 a year for an average family.

The more narrow securities and commodity trading sector, along with investment funds and trusts, more than quadrupled as a share of GDP, rising from 0.55 percent of GDP in 1971 to 2.56 percent in 2021. This increase of 2.0 percentage points of GDP comes to more than $500 billion a year in the current economy, or almost $4,400 a year per family. This is more than half the size of the military budget.

Clearly, the financial sector is a far larger drain on the economy today than fifty years ago. It is also a major source of inequality. The list of the country’s billionaires is chock full of people, like Stephan Schwarzman and Peter Thiel, who made fortunes in hedge funds, private equity funds, and other financial entities. In short, the data are clear: the financial sector is taking up a far larger share of the economy’s resources than it did a half-century ago, and it is a major factor in generating inequality,

Finance: What Is it Good For?

The big question is, what are we getting for all the extra resources the financial sector is taking from the rest of us? This is asking about the extent to which our means of payments have been improved and the extent to which we better allocate capital today than we would be with a smaller financial sector.

On the first question, clearly we have developed better mechanisms for paying our bills and carrying on other transactions, but the biggest developments are hardly new. Direct deposit of our paychecks and automatic payments for bills are great innovations that save lots of time for both sides of the transactions. However, these innovations date back more than four decades.

The same holds with credit cards and debit cards. The overwhelming majority of transactions are now made with these cards, but this is not especially new technology. Credit cards were already widely available in 1971, even if they were nowhere near as ubiquitous as they are today.   

We can give the financial sector credit for the increase in the convenience of our system of payments, but how much is this worth? Is the time saved from using credit cards or having a direct deposit of your payments worth $11,800 a year to you? That seems a bit steep. I suspect given the option, most people would prefer an extra $11,800 in their paycheck and be given the check by hand rather than having it deposited automatically in their bank account.   

How about the other part of the financial sector’s function, allocating capital to its best uses? There is no simple way to evaluate how effective our enlarged financial sector has been in allocating capital, primarily because we don’t have a counterfactual. We can’t point to an America with a smaller financial sector over the last half-century. (Steven Cecchetti and Enisse Kharroubbi did a cross-country analysis which found a larger financial sector boosted growth, but after reaching a certain size relative to the economy, it was a drag on growth.)

We can make a comparison of productivity growth in recent decades with productivity growth in the decades before the financial sector was consuming such a large share of the country’s output. In the years from the beginning of the Bureau of Labor Statistics productivity series in 1947 to 1972, productivity growth averaged 2.8 percent annually. From 1972 to 2022, productivity growth averaged just 1.8 percent.

If anything, productivity growth has slowed further as the financial sector has expanded relative to the economy. While there was a strong decade of productivity growth from 1995 to 2005, in the years from 2005 to 2019, productivity growth averaged just 1.4 percent.

The expanded financial sector may not be responsible for the slowing of productivity growth, and it’s certainly possible that it would have slowed even more without a larger financial sector. But, it is not easy to make the case that the financial sector has somehow led to faster productivity growth.  

FTX, Crypto, Rent-Seeking, and Fraud

Suppose the growth of the financial sector has not led to corresponding benefits to the productive economy. In that case, we should view it as a source of waste and inefficiency, just as we would view a massive increase in the size of the trucking industry without any benefits in terms of improved delivery times. From the standpoint of policy, we should be looking at every opportunity to whittle down the size of the financial sector to reduce waste in the economy.

Applying a financial transactions tax, similar to the sales tax paid in other sectors, would be a great place to start. Getting rid of tax preferences that provide government subsidies to private equity and hedge funds is another great policy option. Also, simplifying the corporate tax code to reduce the money made by tax gaming should also be a priority.

As a general rule, we should be doing everything possible to reduce the size of the financial sector, as long as we are not jeopardizing its ability to serve the productive economy. The message here for dealing with crypto should be very clear.

There is zero reason to encourage the growth of crypto. If people want to play around with crypto, that is their right, just like people can gamble at casinos or horse races. But the idea that the government should look to foster the growth of crypto, as many politicians have advocated, would be like the government encouraging alcohol or tobacco addiction.

While crypto may help facilitate criminal transactions (apparently this is no longer clearly true), it serves no legitimate purpose. In a world of scammers, it should not be surprising that we would see a sham exchange like FTX that seems to have defrauded its customers big time.

The proper government response is not to encourage people to gamble in crypto by regulating the industry and making it safer for ordinary people to throw their money in the toilet. The proper response is to throw the fraudsters in jail and tell people they invest in crypto at their own risk. If they want to engage in honest gambling, let them go to Vegas.   

If our politicians actually had any interest in economic efficiency, they would be engaged in an all-out push to downsize the financial industry and free up hundreds of billions of dollars for productive uses. Unfortunately, their flirtation with crypto scammers is a symptom of the larger problem. The finance industry has bought their collaboration, and politicians of both parties will continue to run interference for the financial industry as long as the campaign contributions are coming in.

[1] These data are taken from National Income and Product Accounts Table 6.2B, with the total share being Line 52 divided by Line 1 for 1971 and Table 6.2D, Lines 57 and 62, divided Line 1 for 2021. For the narrow securities and commodity trading sector, and holding and trust accounts, the calculation uses Line 55 and Line 59, divided by Line 1 for 1971. For 2021, it uses Line 59 and Line 61, divided by Line 1. These tables only give data on labor compensation. The implicit assumption is that the industry’s value added is proportional to labor compensation in the sector. While this will not be precisely accurate, it should be reasonably close.  

It seems the New York Times views government data with the same suspicion that people used to view the data disseminated by the Soviet Union in Stalin’s day. It ran yet another piece telling its readers that young people have been priced out of the housing market and may never be able to own a home.

“For most younger Americans, the entree to homeownership, a rite of passage for many adults, has been blocked by forces beyond their control. They have been competing in a market unlike any other, one defined by the largest run-up on home prices in modern history blunted only by the steepest climb in home mortgage rates in decades. As first-time buyers scramble to cobble together money for down payments and closing costs, they are competing in a market with an anemic inventory against investors and repeat home buyers flush with cash.”

The Bureau of Labor Statistics see things somewhat differently. Here’s the picture on homeownership for people between the ages of 25 and 34. It shows the homeownership rate for this group rising from 41 percent in 2019 to 44 percent in 2021.

 

 

 

 

The quarterly data, which is released by the Census Bureau, shows the homeownership rate for households under age 35 have continued to rise for the first three quarters of 2022. To be clear, the recent run-up in mortgage rates is certainly making it difficult for young people, and everyone else, to buy homes. But this comes against a backdrop of rapid increases in homeownership for young people, as well as Blacks and Hispanics. The assertion in this article, that homeownership has become out of reach for most young people is 180 degrees at odds with the reality.

It seems the New York Times views government data with the same suspicion that people used to view the data disseminated by the Soviet Union in Stalin’s day. It ran yet another piece telling its readers that young people have been priced out of the housing market and may never be able to own a home.

“For most younger Americans, the entree to homeownership, a rite of passage for many adults, has been blocked by forces beyond their control. They have been competing in a market unlike any other, one defined by the largest run-up on home prices in modern history blunted only by the steepest climb in home mortgage rates in decades. As first-time buyers scramble to cobble together money for down payments and closing costs, they are competing in a market with an anemic inventory against investors and repeat home buyers flush with cash.”

The Bureau of Labor Statistics see things somewhat differently. Here’s the picture on homeownership for people between the ages of 25 and 34. It shows the homeownership rate for this group rising from 41 percent in 2019 to 44 percent in 2021.

 

 

 

 

The quarterly data, which is released by the Census Bureau, shows the homeownership rate for households under age 35 have continued to rise for the first three quarters of 2022. To be clear, the recent run-up in mortgage rates is certainly making it difficult for young people, and everyone else, to buy homes. But this comes against a backdrop of rapid increases in homeownership for young people, as well as Blacks and Hispanics. The assertion in this article, that homeownership has become out of reach for most young people is 180 degrees at odds with the reality.

Back in the 1990s we had ostensibly serious budget debates that were centered on avoiding a dark future where the deficits either soared to infinity or taxes took up all of our income. Private equity billionaire Peter Peterson provided much of the fuel for these debates. His money supported austerity promoting outfits like the Concord Coalition and the Committee for a Responsible Federal Budget. He also wrote several books that were deficit scare classics, like Will America Grow Up Before It Grows Old: How the Coming Social Security Crisis Threatens You, Your Family, and Your Country.

As some of us pointed out at the time, the heart of the austerity gang’s scare stories was not actually Social Security or the aging of the population, but rather projections of rapid growth in per person health care costs continuing for many decades into the future. This rapid growth was projected for both public and private sector costs.

If health care costs actually followed the projected growth path, it would devastate the economy, regardless of whether we paid for it through public programs like Medicare and Medicaid, or through private health care insurance and out-of-pocket spending. (Per person spending in public programs was actually rising less rapidly in the public sector programs than in the private sector.) The real issue had nothing to do with the government budget, it was fixing the health care system.

Anyhow, there actually is a good story here that has gotten far less attention than it deserves. Health care spending has not grown anywhere near as fast as had been projected. I previously did a piece showing that health care spending has actually fallen as a share of GDP since the pandemic. I decided to go back to 2000 and show the picture over the longer term.[1]

Source: Bureau of Economic Analysis and author’s calculations.

As can be seen, the share of GDP devoted to health care did rise sharply in the first three years of the century, rising from 13.6 percent at the start of the century to almost 16.0 percent by 2003. It then leveled off until the start of the Great Recession, when it jumped again, hitting 17.5 percent of GDP in 2009. It then leveled off again for several years, following the introduction of Obamacare, before edging up to 18.6 percent in 2016. Since then it was little changed, until it dipped sharply following the pandemic. In the most recent quarter it was just 17.6 percent of GDP, roughly the same share as we saw in 2009.

That was hugely better than was projected back in the Peter Peterson scare stories day. In fact, it was even hugely better than what the Congressional Budget Office (CBO) was predicting back in 2009. CBO’s long-term budget projections from 2009 showed that health care spending would be equal to 33.1 percent of total consumption spending by 2022 (Table F2-2). In fact, my calculations (adjusted for the 0.8 percentage point gap with CMS), show health care spending at just 24.8 percent of current consumption spending.

The gap between the 33.1 percent of consumption projection from CBO and 24.8 percent actual, is equal to more than $1.45 trillion on annual basis. This comes to $11,800 per family each year. Compared to projected path of growth of health care spending from 13 years ago, an average family has an additional $11,800 a year to spend on items other than health care.

This is a huge deal. After all the media have been telling us that families were devastated by inflation that outstripped wage growth by less than 1 percent since the start of the pandemic. Imagine how they would feel if they were paying another $11,800 a year for health care insurance or out-of-pocket spending.

We can debate why health care spending growth slowed so sharply. The Affordable Care Act almost certainly played an important role. The post-pandemic slowdown may reflect a switch to more telemedicine and at home diagnostic tests. (The use of therapeutic equipment has soared in recent years.)

This slower growth may reflect a deterioration in the quality of care. If so, we should see this in health outcome measures over time. We also should not be deceived in thinking that our health care system is now highly efficient. We still spend far more per person than every other wealthy country and more than twice as much as countries like Canada and France.

But, we have dodged the health care horror story that was projected in the 1990s by the Peter Peterson gang and more recently by CBO. And, that is very good news.

[1] These numbers are slightly higher than what the Centers for Medicare and Medicare Services (CMS) report for health care spending as a share of GDP. They showed a figure of 17.6 percent for 2019 (the last year for which data are available), while my calculations come to 18.4 percent. I assume this is due to some double counting, where I may have some government health care spending, which also shows up as consumption. For those wanting to check, I added lines 64, 119, 170, and 273 from NIPA Table 2.4.5U and line 32 from NIPA Table 3.12U. These are therapeutic equipment, pharmaceuticals and other medical products, health care services, and net health care insurance. Line 32 is the government spending on Medicaid and other health care provision. Although the level is somewhat higher than the CMS data indicate presumably the changes over this period follow the changes as measured by CMS reasonably closely.

Back in the 1990s we had ostensibly serious budget debates that were centered on avoiding a dark future where the deficits either soared to infinity or taxes took up all of our income. Private equity billionaire Peter Peterson provided much of the fuel for these debates. His money supported austerity promoting outfits like the Concord Coalition and the Committee for a Responsible Federal Budget. He also wrote several books that were deficit scare classics, like Will America Grow Up Before It Grows Old: How the Coming Social Security Crisis Threatens You, Your Family, and Your Country.

As some of us pointed out at the time, the heart of the austerity gang’s scare stories was not actually Social Security or the aging of the population, but rather projections of rapid growth in per person health care costs continuing for many decades into the future. This rapid growth was projected for both public and private sector costs.

If health care costs actually followed the projected growth path, it would devastate the economy, regardless of whether we paid for it through public programs like Medicare and Medicaid, or through private health care insurance and out-of-pocket spending. (Per person spending in public programs was actually rising less rapidly in the public sector programs than in the private sector.) The real issue had nothing to do with the government budget, it was fixing the health care system.

Anyhow, there actually is a good story here that has gotten far less attention than it deserves. Health care spending has not grown anywhere near as fast as had been projected. I previously did a piece showing that health care spending has actually fallen as a share of GDP since the pandemic. I decided to go back to 2000 and show the picture over the longer term.[1]

Source: Bureau of Economic Analysis and author’s calculations.

As can be seen, the share of GDP devoted to health care did rise sharply in the first three years of the century, rising from 13.6 percent at the start of the century to almost 16.0 percent by 2003. It then leveled off until the start of the Great Recession, when it jumped again, hitting 17.5 percent of GDP in 2009. It then leveled off again for several years, following the introduction of Obamacare, before edging up to 18.6 percent in 2016. Since then it was little changed, until it dipped sharply following the pandemic. In the most recent quarter it was just 17.6 percent of GDP, roughly the same share as we saw in 2009.

That was hugely better than was projected back in the Peter Peterson scare stories day. In fact, it was even hugely better than what the Congressional Budget Office (CBO) was predicting back in 2009. CBO’s long-term budget projections from 2009 showed that health care spending would be equal to 33.1 percent of total consumption spending by 2022 (Table F2-2). In fact, my calculations (adjusted for the 0.8 percentage point gap with CMS), show health care spending at just 24.8 percent of current consumption spending.

The gap between the 33.1 percent of consumption projection from CBO and 24.8 percent actual, is equal to more than $1.45 trillion on annual basis. This comes to $11,800 per family each year. Compared to projected path of growth of health care spending from 13 years ago, an average family has an additional $11,800 a year to spend on items other than health care.

This is a huge deal. After all the media have been telling us that families were devastated by inflation that outstripped wage growth by less than 1 percent since the start of the pandemic. Imagine how they would feel if they were paying another $11,800 a year for health care insurance or out-of-pocket spending.

We can debate why health care spending growth slowed so sharply. The Affordable Care Act almost certainly played an important role. The post-pandemic slowdown may reflect a switch to more telemedicine and at home diagnostic tests. (The use of therapeutic equipment has soared in recent years.)

This slower growth may reflect a deterioration in the quality of care. If so, we should see this in health outcome measures over time. We also should not be deceived in thinking that our health care system is now highly efficient. We still spend far more per person than every other wealthy country and more than twice as much as countries like Canada and France.

But, we have dodged the health care horror story that was projected in the 1990s by the Peter Peterson gang and more recently by CBO. And, that is very good news.

[1] These numbers are slightly higher than what the Centers for Medicare and Medicare Services (CMS) report for health care spending as a share of GDP. They showed a figure of 17.6 percent for 2019 (the last year for which data are available), while my calculations come to 18.4 percent. I assume this is due to some double counting, where I may have some government health care spending, which also shows up as consumption. For those wanting to check, I added lines 64, 119, 170, and 273 from NIPA Table 2.4.5U and line 32 from NIPA Table 3.12U. These are therapeutic equipment, pharmaceuticals and other medical products, health care services, and net health care insurance. Line 32 is the government spending on Medicaid and other health care provision. Although the level is somewhat higher than the CMS data indicate presumably the changes over this period follow the changes as measured by CMS reasonably closely.

At this point, a large majority of non-college educated whites (especially white men) are willing to follow Donald Trump off any cliff. They have open contempt for more educated people (a.k.a. the “elites”) and their institutions, such as universities, mainstream media outlets, and science.

There is no justification for the racism, anti-Semitism, homophobia and other forms of bigotry that Trump has cultivated since he entered politics. But there is a reason why it suddenly has so much appeal, and it’s not just that a Black guy (who many of them voted for) became president. I will again make the case here.

Let’s Imagine a World Where the More Educated Screwed the Less-Educated

We know the data on what has happened to income distribution over the last four decades. To take a simple point of reference, in debates on the minimum wage we often talk about how if it had kept pace with inflation since its peak real value in 1968, the national minimum wage would be over $12 an hour at present, compared to its current $7.25.

However, in the three decades prior to 1968 the minimum wage did not just keep pace with inflation, it rose in step with productivity. That meant that the lowest paid workers shared in the gains of economic growth. If the minimum wage had continued to keep pace with productivity growth, it would be almost $26 an hour in 2022.

That’s worth thinking about for a minute. Imagine the lowest paid workers, the people cleaning toilets in office buildings or bussing dishes in restaurants, earned $52,000 a year if they worked a full-time job for the whole year. A two minimum wage earner couple would be pulling down $104,000 a year. That’s a very different world than the one we have.

The minimum wage story is just part of a larger picture where the wages of more educated workers have diverged sharply from the wages of less-educated workers. Workers with college, and especially advanced degrees, have seen wage gains that have largely kept pace with productivity growth.

For men with just a high school degree, real wages fell by 7.0 percent in the 42 years from 1979 to 2021, a period in which productivity increased by roughly 80 percent.[1] By contrast, the real wages of men with college degrees rose by more than 34 percent, while the pay of men with advanced degrees rose by more than 60 percent. For women with just high school degrees real hourly wages rose by 14 percent over this period, compared to gains of 51 percent for women with college degrees and 55 percent for women with advanced degrees.

Just to be clear, there is no reason to feel sorry for men in this story. In 2021, the pay of women with just a high school degree was only 63 percent of the pay with men with high school degrees. The pay for women with college degrees was 68 percent of the pay of men with college degrees. They have seen faster wage growth, but still have a long way to go to achieve equality with men.

These facts about income trends are not really in dispute. These statistics were calculated by the Economic Policy Institute using data from the Bureau of Labor Statistics, but many other economists have come up with the same basic story.

Okay, so the less-educated segment of the workforce clearly has done poorly in the last four decades, even as economic growth has been reasonably healthy. And, just to be clear, this is not a small group of people who have been left behind. Only around 40 percent of the workforce has a college degree, or more, so the left behinds are the majority of the workforce. (The pay of people with associate degrees, or some other post-secondary education, but not a college degree, has largely tracked that of those with just a high school degree.) This means a large majority of the population has grounds to be unhappy about their economic circumstances in recent decades.

Given this reality, suppose that the poor prospects for non-college educated workers was the result of deliberate policies pushed by the people who control debates on economic policy, as in people with college and advanced degrees. The people who are best positioned to steer economic policy consciously structured it in ways to benefit people like themselves and to screw workers with less education. Would that give the losers in this picture reason to be angry?

Now, suppose also that the people who rigged the system to favor themselves at the expense of the less-educated also lied about the fact they rigged it, and ridiculed the less-educated for not being able to compete in the modern economy. Furthermore, since the winners staff all the major media outlets, they insisted that only the false story, of losers being unable to compete, ever got mentioned in discussions of economic policy.

The less-educated might actually have something to be upset about in this story. And, that would be true even if some of the winners were good liberals who were prepared to pay somewhat higher taxes to provide help to the losers in the form of better health care, low cost or free college, and higher Social Security benefits.

This is basically the story of US politics in the era of Trump. The economic losers hate the winners and distrust the institutions they populate: the media, universities, government agencies. There is a rational basis for distrust. The winners really did screw them and they have concocted nonsense stories to conceal that fact. Of course, that doesn’t mean that every university professor or librarian was in on the scheme, but as a class these people have in fact put in place economic structures that redistribute from the less-educated to those with college and advanced degrees.    

How the Working-Class Was Screwed

I won’t go into great detail on the policies that led to the massive upward redistribution of the last four decades. I’ll just highlight some of the more obvious ones. Regular BTP readers know the story, but those who are interested can read Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free) or see the video series I did with the Institute for New Economic Thinking.

To start with the most obvious way that policy was designed to screw ordinary workers is that we quite explicitly worked to remove barriers to imports of manufactured goods from the developing world. This was intended to make it as easy as possible for US corporations to seek out the lowest cost labor anywhere in the world. This cost the country millions of manufacturing jobs, which had the effect of pushing down the pay of the manufacturing jobs that remained. It also reduced the pay of non-college educated workers more generally, since manufacturing had historically been a source of relatively high-paying jobs for workers without college degrees. As a result of the removal of trade barriers in manufacturing, the unionization rate in manufacturing is now almost the same as in the private sector as a whole and the manufacturing pay premium has largely disappeared.

Note that this is not an issue of “free trade.” We did not look to remove the barriers that protect doctors and other highly paid professionals from international competition. As a result, our doctors not only get paid hugely more than their counterparts in the developing world, they get paid roughly twice as much as their counterparts in Canada, Germany, and other wealthy countries. If we reduced the pay of our doctors to the pay level they get in other wealthy countries, we would save roughly $100 billon a year, a bit less than $1,000 per year per family.

So, the folks designing policy were not interested in free trade. They were interested in structuring trade deals in ways that redistributed income from less educated workers to more highly educated workers and corporations.

The second big policy tool in this upward redistribution is government-granted patent and copyright monopolies. We made these monopolies longer and stronger over the past four decades and also worked hard to impose them on other countries around the world.

The result has been much higher prices for drugs and medical equipment, software and many other items. The higher prices ($400 billion a year in the case of prescription drugs alone) have made a small number of people, such as Bill Gates and the Moderna billionaires, very rich, while shifting a huge amount of income from everyone else to the more educated workers in a position to benefit from these monopolies.

To be clear, it is desirable to have a policy to support innovation and creative work, but we could have structured the mechanisms for these purposes a thousand different ways. We chose to structure the mechanisms in a way that redistributes a massive amount of income upward. And, to make matters worse, virtually all polite discussion of the topic ignores the fact that government-granted patent and copyright monopolies are policy choices, and instead says that the resulting upward redistribution was just “technology.”

To take one other major category, we have structured our financial system in a way that allows it to be an enormous drag on the productive economy and major source of inequality. An efficient financial system is a small one. We want to devote as few resources as possible to running the financial system. Instead, it has exploded relative to the size of the economy over the last four decades. It has also allowed many people to become enormously wealthy running hedges funds, private equity funds, or trading at major banks.  

This is also hardly a free market. The financial sector would be much smaller if trades of stocks and other financial assets were subject to a sales tax, just like sales of TVs and clothes. Private equity funds would lose much of their money if it was more difficult for them to prey on public sector pension funds.

And, to take the most dramatic example of the non-free market basis of financial sector fortunes, the political establishment moved heaven and earth to get a massive bailout of the sector back in 2008, when greed and stupidity threatened to send most of the country’s major banks into bankruptcy. Rather than letting the market work its magic, we got a full court press from major media outlets insisting that the failure to rescue the banks would give us a Second Great Depression.

No one ever bothered to explain how that would work. We got out of the first Great Depression by spending lots of money on World War II. It’s not clear why we couldn’t have spent a lot of money the day after all the Wall Street banks went under to get the economy back on its feet, but the Second Great Depression story did the job, and Wall Street banks were all saved.

The list of policies that redistribute upward is of course much longer. We have a totally corrupt corporate governance structure that allows even mediocre CEOs to get tens of millions a year in their paychecks. Second and third tier execs get correspondingly outrageous paychecks.

We have allowed labor management law to be hugely twisted to favor management. Current practices make it extremely difficult to form a union. There is even a court case now being contested that would allow companies to sue unions that strike for damages.

The basic story is that the upward redistribution of the last four decades has nothing to do with a free market, it was the result of a large number of policy choices. In public debates, there is a widespread pretense that this upward redistribution was just the result of leaving things to the market, but that’s a lie, and the losers in this story have every right in the world to be angry about it.

Why Do the Democrats Get Blamed?

It would be entirely accurate to point out that on the key policy choices noted above, Republicans have not been any better, and are quite often worse. They have always been happy to give more money to the financial industry, the pharmaceutical industry, and other beneficiaries of upward redistribution. So why do working class voters, and especially working-class white voters, blame the Democrats?

Here I am largely speculating, but I would give two reasons. First, the Democrats have been associated with some of the most visible measures in this upward redistribution. It was Bill Clinton that pushed NAFTA through Congress and then got China into the WTO. While it’s true that these measures had more support in Congress from Republicans than Democrats, it is not surprising that people would associate the policies with the president who pushed them.

The second reason is simply that the beneficiaries of these policies are disproportionately Democrats. When people look at professionals in the media, universities, and the government, they see people who are overwhelmingly Democrats. The people who benefit from these policies and then directly spread the nonsense that the upward redistribution was just the natural workings of the market are overwhelmingly associated with the Democratic Party.

This can work to effectively discredit both the Democratic Party and these institutions. The Republicans may not offer a positive economic agenda, but they offer a vehicle for the resentment of working-class voters. They can blame Blacks, immigrants, LGBTQ people, and their elite friends for the troubles facing working class voters.  

Can the Democrats Change Course?

That is obviously a long story, which I won’t try to answer here, but I will make a simple point. For some reason whites without college degrees hate Democrats, while whites with college degrees tend to vote Democratic, by at least small margins. It is possible that it is something that people learn in school that causes them to be so much more sympathetic to Democrats, but it may also reflect their much greater economic opportunities.

If that is the case, it is not necessarily specific policies that Democrats offer that cause people to become Democrats if they graduate college, but rather a change in their outlook on the world. This could mean that if we actually implemented policies that drastically improved the economic prospects of people without college degrees, we would see a much larger share of this group prepared to vote Democratic and support the policies currently being pushed by the Democratic Party.

I’ll be the first to admit that this view is very speculative. I certainly wouldn’t guarantee that if we succeeded in reversing the policies that have led to the upward redistribution of the last four decades that we would see a large uptick in white working-class support for Democrats. But, regardless of the political effect, we should seek to reverse these policies because it is the right thing to do.  

[1] This adjusts for differences in price indices and the coverage of the output deflator and Consumer Price Index.

At this point, a large majority of non-college educated whites (especially white men) are willing to follow Donald Trump off any cliff. They have open contempt for more educated people (a.k.a. the “elites”) and their institutions, such as universities, mainstream media outlets, and science.

There is no justification for the racism, anti-Semitism, homophobia and other forms of bigotry that Trump has cultivated since he entered politics. But there is a reason why it suddenly has so much appeal, and it’s not just that a Black guy (who many of them voted for) became president. I will again make the case here.

Let’s Imagine a World Where the More Educated Screwed the Less-Educated

We know the data on what has happened to income distribution over the last four decades. To take a simple point of reference, in debates on the minimum wage we often talk about how if it had kept pace with inflation since its peak real value in 1968, the national minimum wage would be over $12 an hour at present, compared to its current $7.25.

However, in the three decades prior to 1968 the minimum wage did not just keep pace with inflation, it rose in step with productivity. That meant that the lowest paid workers shared in the gains of economic growth. If the minimum wage had continued to keep pace with productivity growth, it would be almost $26 an hour in 2022.

That’s worth thinking about for a minute. Imagine the lowest paid workers, the people cleaning toilets in office buildings or bussing dishes in restaurants, earned $52,000 a year if they worked a full-time job for the whole year. A two minimum wage earner couple would be pulling down $104,000 a year. That’s a very different world than the one we have.

The minimum wage story is just part of a larger picture where the wages of more educated workers have diverged sharply from the wages of less-educated workers. Workers with college, and especially advanced degrees, have seen wage gains that have largely kept pace with productivity growth.

For men with just a high school degree, real wages fell by 7.0 percent in the 42 years from 1979 to 2021, a period in which productivity increased by roughly 80 percent.[1] By contrast, the real wages of men with college degrees rose by more than 34 percent, while the pay of men with advanced degrees rose by more than 60 percent. For women with just high school degrees real hourly wages rose by 14 percent over this period, compared to gains of 51 percent for women with college degrees and 55 percent for women with advanced degrees.

Just to be clear, there is no reason to feel sorry for men in this story. In 2021, the pay of women with just a high school degree was only 63 percent of the pay with men with high school degrees. The pay for women with college degrees was 68 percent of the pay of men with college degrees. They have seen faster wage growth, but still have a long way to go to achieve equality with men.

These facts about income trends are not really in dispute. These statistics were calculated by the Economic Policy Institute using data from the Bureau of Labor Statistics, but many other economists have come up with the same basic story.

Okay, so the less-educated segment of the workforce clearly has done poorly in the last four decades, even as economic growth has been reasonably healthy. And, just to be clear, this is not a small group of people who have been left behind. Only around 40 percent of the workforce has a college degree, or more, so the left behinds are the majority of the workforce. (The pay of people with associate degrees, or some other post-secondary education, but not a college degree, has largely tracked that of those with just a high school degree.) This means a large majority of the population has grounds to be unhappy about their economic circumstances in recent decades.

Given this reality, suppose that the poor prospects for non-college educated workers was the result of deliberate policies pushed by the people who control debates on economic policy, as in people with college and advanced degrees. The people who are best positioned to steer economic policy consciously structured it in ways to benefit people like themselves and to screw workers with less education. Would that give the losers in this picture reason to be angry?

Now, suppose also that the people who rigged the system to favor themselves at the expense of the less-educated also lied about the fact they rigged it, and ridiculed the less-educated for not being able to compete in the modern economy. Furthermore, since the winners staff all the major media outlets, they insisted that only the false story, of losers being unable to compete, ever got mentioned in discussions of economic policy.

The less-educated might actually have something to be upset about in this story. And, that would be true even if some of the winners were good liberals who were prepared to pay somewhat higher taxes to provide help to the losers in the form of better health care, low cost or free college, and higher Social Security benefits.

This is basically the story of US politics in the era of Trump. The economic losers hate the winners and distrust the institutions they populate: the media, universities, government agencies. There is a rational basis for distrust. The winners really did screw them and they have concocted nonsense stories to conceal that fact. Of course, that doesn’t mean that every university professor or librarian was in on the scheme, but as a class these people have in fact put in place economic structures that redistribute from the less-educated to those with college and advanced degrees.    

How the Working-Class Was Screwed

I won’t go into great detail on the policies that led to the massive upward redistribution of the last four decades. I’ll just highlight some of the more obvious ones. Regular BTP readers know the story, but those who are interested can read Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free) or see the video series I did with the Institute for New Economic Thinking.

To start with the most obvious way that policy was designed to screw ordinary workers is that we quite explicitly worked to remove barriers to imports of manufactured goods from the developing world. This was intended to make it as easy as possible for US corporations to seek out the lowest cost labor anywhere in the world. This cost the country millions of manufacturing jobs, which had the effect of pushing down the pay of the manufacturing jobs that remained. It also reduced the pay of non-college educated workers more generally, since manufacturing had historically been a source of relatively high-paying jobs for workers without college degrees. As a result of the removal of trade barriers in manufacturing, the unionization rate in manufacturing is now almost the same as in the private sector as a whole and the manufacturing pay premium has largely disappeared.

Note that this is not an issue of “free trade.” We did not look to remove the barriers that protect doctors and other highly paid professionals from international competition. As a result, our doctors not only get paid hugely more than their counterparts in the developing world, they get paid roughly twice as much as their counterparts in Canada, Germany, and other wealthy countries. If we reduced the pay of our doctors to the pay level they get in other wealthy countries, we would save roughly $100 billon a year, a bit less than $1,000 per year per family.

So, the folks designing policy were not interested in free trade. They were interested in structuring trade deals in ways that redistributed income from less educated workers to more highly educated workers and corporations.

The second big policy tool in this upward redistribution is government-granted patent and copyright monopolies. We made these monopolies longer and stronger over the past four decades and also worked hard to impose them on other countries around the world.

The result has been much higher prices for drugs and medical equipment, software and many other items. The higher prices ($400 billion a year in the case of prescription drugs alone) have made a small number of people, such as Bill Gates and the Moderna billionaires, very rich, while shifting a huge amount of income from everyone else to the more educated workers in a position to benefit from these monopolies.

To be clear, it is desirable to have a policy to support innovation and creative work, but we could have structured the mechanisms for these purposes a thousand different ways. We chose to structure the mechanisms in a way that redistributes a massive amount of income upward. And, to make matters worse, virtually all polite discussion of the topic ignores the fact that government-granted patent and copyright monopolies are policy choices, and instead says that the resulting upward redistribution was just “technology.”

To take one other major category, we have structured our financial system in a way that allows it to be an enormous drag on the productive economy and major source of inequality. An efficient financial system is a small one. We want to devote as few resources as possible to running the financial system. Instead, it has exploded relative to the size of the economy over the last four decades. It has also allowed many people to become enormously wealthy running hedges funds, private equity funds, or trading at major banks.  

This is also hardly a free market. The financial sector would be much smaller if trades of stocks and other financial assets were subject to a sales tax, just like sales of TVs and clothes. Private equity funds would lose much of their money if it was more difficult for them to prey on public sector pension funds.

And, to take the most dramatic example of the non-free market basis of financial sector fortunes, the political establishment moved heaven and earth to get a massive bailout of the sector back in 2008, when greed and stupidity threatened to send most of the country’s major banks into bankruptcy. Rather than letting the market work its magic, we got a full court press from major media outlets insisting that the failure to rescue the banks would give us a Second Great Depression.

No one ever bothered to explain how that would work. We got out of the first Great Depression by spending lots of money on World War II. It’s not clear why we couldn’t have spent a lot of money the day after all the Wall Street banks went under to get the economy back on its feet, but the Second Great Depression story did the job, and Wall Street banks were all saved.

The list of policies that redistribute upward is of course much longer. We have a totally corrupt corporate governance structure that allows even mediocre CEOs to get tens of millions a year in their paychecks. Second and third tier execs get correspondingly outrageous paychecks.

We have allowed labor management law to be hugely twisted to favor management. Current practices make it extremely difficult to form a union. There is even a court case now being contested that would allow companies to sue unions that strike for damages.

The basic story is that the upward redistribution of the last four decades has nothing to do with a free market, it was the result of a large number of policy choices. In public debates, there is a widespread pretense that this upward redistribution was just the result of leaving things to the market, but that’s a lie, and the losers in this story have every right in the world to be angry about it.

Why Do the Democrats Get Blamed?

It would be entirely accurate to point out that on the key policy choices noted above, Republicans have not been any better, and are quite often worse. They have always been happy to give more money to the financial industry, the pharmaceutical industry, and other beneficiaries of upward redistribution. So why do working class voters, and especially working-class white voters, blame the Democrats?

Here I am largely speculating, but I would give two reasons. First, the Democrats have been associated with some of the most visible measures in this upward redistribution. It was Bill Clinton that pushed NAFTA through Congress and then got China into the WTO. While it’s true that these measures had more support in Congress from Republicans than Democrats, it is not surprising that people would associate the policies with the president who pushed them.

The second reason is simply that the beneficiaries of these policies are disproportionately Democrats. When people look at professionals in the media, universities, and the government, they see people who are overwhelmingly Democrats. The people who benefit from these policies and then directly spread the nonsense that the upward redistribution was just the natural workings of the market are overwhelmingly associated with the Democratic Party.

This can work to effectively discredit both the Democratic Party and these institutions. The Republicans may not offer a positive economic agenda, but they offer a vehicle for the resentment of working-class voters. They can blame Blacks, immigrants, LGBTQ people, and their elite friends for the troubles facing working class voters.  

Can the Democrats Change Course?

That is obviously a long story, which I won’t try to answer here, but I will make a simple point. For some reason whites without college degrees hate Democrats, while whites with college degrees tend to vote Democratic, by at least small margins. It is possible that it is something that people learn in school that causes them to be so much more sympathetic to Democrats, but it may also reflect their much greater economic opportunities.

If that is the case, it is not necessarily specific policies that Democrats offer that cause people to become Democrats if they graduate college, but rather a change in their outlook on the world. This could mean that if we actually implemented policies that drastically improved the economic prospects of people without college degrees, we would see a much larger share of this group prepared to vote Democratic and support the policies currently being pushed by the Democratic Party.

I’ll be the first to admit that this view is very speculative. I certainly wouldn’t guarantee that if we succeeded in reversing the policies that have led to the upward redistribution of the last four decades that we would see a large uptick in white working-class support for Democrats. But, regardless of the political effect, we should seek to reverse these policies because it is the right thing to do.  

[1] This adjusts for differences in price indices and the coverage of the output deflator and Consumer Price Index.

Seriously, that is what a story on Bangladesh’s current economic problems told listeners. The piece was touting Bangladesh’s “economic miracle.” It said that the country went from being a very poor country to being richer than Denmark, which everyone recognizes as a very rich country.

If people didn’t realize that Bangladesh was richer than Denmark, they can be forgiven. According to the International Monetary Fund, Denmark’s per capita income (the most basic measure of economic well-being) is almost 10 times as large as Bangladesh’s.

How did NPR get things so badly wrong? Well, Bangladesh’s population is over 166 million. Denmark’s population is less than 6 million. This means that if we ignore the disparity in size, Bangladesh’s economy is in fact larger than Denmark’s.

However, this has nothing to do with being richer. It is difficult to understand what information NPR thought it was giving to its listeners with its assertion that Bangladesh is richer than Denmark.  

Seriously, that is what a story on Bangladesh’s current economic problems told listeners. The piece was touting Bangladesh’s “economic miracle.” It said that the country went from being a very poor country to being richer than Denmark, which everyone recognizes as a very rich country.

If people didn’t realize that Bangladesh was richer than Denmark, they can be forgiven. According to the International Monetary Fund, Denmark’s per capita income (the most basic measure of economic well-being) is almost 10 times as large as Bangladesh’s.

How did NPR get things so badly wrong? Well, Bangladesh’s population is over 166 million. Denmark’s population is less than 6 million. This means that if we ignore the disparity in size, Bangladesh’s economy is in fact larger than Denmark’s.

However, this has nothing to do with being richer. It is difficult to understand what information NPR thought it was giving to its listeners with its assertion that Bangladesh is richer than Denmark.  

Not much can surprise me these days, but I admit to being somewhat surprised when the near universal reaction to the October jobs report was that the Fed will have to keep raising interest rates. The key issue of course is whether the labor market is so tight that it is creating inflationary pressures in the economy.

The 261,000 job gain reported for the month can be seen as bad news in this respect. It is faster than we can sustain in an economy that is near full employment. But it is not that much faster, and other data indicated a strong, but more normal labor market, like we had in 2019.

The share of unemployment due to voluntary quits fell sharply from the record high reported in September. The 14.6 percent share is lower than in many pre-pandemic months. Average weekly hours remained at a normal pre-pandemic level, after having risen sharply earlier in the recovery. The rise was most likely due to employers having workers put in more hours when they were unable to hire additional staff. Presumably, they are no longer having as much difficulty in hiring.

But the most important argument against further rounds of aggressive rate hikes by the Fed was in the wage data. After seeing moderate growth in the hourly wage in both August and September, we got another moderate number for October. If we take the annualized rate over the last three months, it comes to 3.9 percent, that’s down from an annual rate of more than 6.0 percent last fall.

There are two important points about this wage growth number. The first is that the direction of change is unambiguously downward. Other wage series, like the Employment Cost Index or the unit labor costs from the Bureau of Labor Statistics productivity data show the same story, even if the drop is less dramatic.

The direction of change matters because the path of wage growth is not what would be predicted by either a traditional Phillips Curve model or a Beveridge Curve model. These models imply that we need to either raise the rate of unemployment and/or sharply reduce the number of job openings in order to slow wage growth. Yet wages by pretty much any measure seem to be slowing sharply even with a low unemployment rate and a high ratio of job openings to unemployed workers.

The other point is that the 3.9 percent rate of wage growth we have seen over the last three months is arguably consistent with the Fed’s 2.0 percent inflation target. This is not much higher than the3.4 percent rate we saw in 2019, when inflation was comfortably below this target. Furthermore, there were periods in 2019 where the three-month rate got as high as 3.6 percent.

It is also important to remember that we had a large shift of income shares from wages to profit in the pandemic. We can argue whether this was due to the exploitation of monopoly power or simply an outcome of shortages created by the pandemic and the war, but the shift to profits is undeniable.

Anyhow, as we overcome the disruptions created by the pandemic and Russia’s invasion of Ukraine, we should expect to see some shift back from profits to wages. This is not because businesses are going to happily accept lower margins, but rather because if conditions of competition have not changed from the pre-pandemic period, then we should expect that profit shares will be driven back towards their pre-pandemic level.

Having followed the wage data closely for three decades, I am well aware that the monthly numbers are erratic and also subject to revision. It is entirely possible that when we get the November data, the wage picture will look very different. However, it is also possible that the data we are looking at now accurately reflect the current situation in the labor market.

If that is in fact the case, and wages are growing at a 3.9 percent annual rate, there is a good case that the Fed’s work is done. With prices of imported goods and shipping plunging, and rents due to slow sharply in 2023, we can see inflation close to the Fed’s target in the not distant future.

Given the visible progress in many areas, certainly the Fed can hold off on further rate hikes to see where things currently stand. Everyone recognizes that the full effects of rate hikes are not felt for many months. If the Fed has already raised rates enough to bring inflation down to acceptable levels, further rate hikes will be inflicting needless pain.

The Fed with have another jobs report to look at, as well as two monthly releases of the Consumer Price Index, and much other new data, before making a decision on rates at its December meeting. But the data we got from the October jobs report is certainly consistent with a pause by the Fed.   

Not much can surprise me these days, but I admit to being somewhat surprised when the near universal reaction to the October jobs report was that the Fed will have to keep raising interest rates. The key issue of course is whether the labor market is so tight that it is creating inflationary pressures in the economy.

The 261,000 job gain reported for the month can be seen as bad news in this respect. It is faster than we can sustain in an economy that is near full employment. But it is not that much faster, and other data indicated a strong, but more normal labor market, like we had in 2019.

The share of unemployment due to voluntary quits fell sharply from the record high reported in September. The 14.6 percent share is lower than in many pre-pandemic months. Average weekly hours remained at a normal pre-pandemic level, after having risen sharply earlier in the recovery. The rise was most likely due to employers having workers put in more hours when they were unable to hire additional staff. Presumably, they are no longer having as much difficulty in hiring.

But the most important argument against further rounds of aggressive rate hikes by the Fed was in the wage data. After seeing moderate growth in the hourly wage in both August and September, we got another moderate number for October. If we take the annualized rate over the last three months, it comes to 3.9 percent, that’s down from an annual rate of more than 6.0 percent last fall.

There are two important points about this wage growth number. The first is that the direction of change is unambiguously downward. Other wage series, like the Employment Cost Index or the unit labor costs from the Bureau of Labor Statistics productivity data show the same story, even if the drop is less dramatic.

The direction of change matters because the path of wage growth is not what would be predicted by either a traditional Phillips Curve model or a Beveridge Curve model. These models imply that we need to either raise the rate of unemployment and/or sharply reduce the number of job openings in order to slow wage growth. Yet wages by pretty much any measure seem to be slowing sharply even with a low unemployment rate and a high ratio of job openings to unemployed workers.

The other point is that the 3.9 percent rate of wage growth we have seen over the last three months is arguably consistent with the Fed’s 2.0 percent inflation target. This is not much higher than the3.4 percent rate we saw in 2019, when inflation was comfortably below this target. Furthermore, there were periods in 2019 where the three-month rate got as high as 3.6 percent.

It is also important to remember that we had a large shift of income shares from wages to profit in the pandemic. We can argue whether this was due to the exploitation of monopoly power or simply an outcome of shortages created by the pandemic and the war, but the shift to profits is undeniable.

Anyhow, as we overcome the disruptions created by the pandemic and Russia’s invasion of Ukraine, we should expect to see some shift back from profits to wages. This is not because businesses are going to happily accept lower margins, but rather because if conditions of competition have not changed from the pre-pandemic period, then we should expect that profit shares will be driven back towards their pre-pandemic level.

Having followed the wage data closely for three decades, I am well aware that the monthly numbers are erratic and also subject to revision. It is entirely possible that when we get the November data, the wage picture will look very different. However, it is also possible that the data we are looking at now accurately reflect the current situation in the labor market.

If that is in fact the case, and wages are growing at a 3.9 percent annual rate, there is a good case that the Fed’s work is done. With prices of imported goods and shipping plunging, and rents due to slow sharply in 2023, we can see inflation close to the Fed’s target in the not distant future.

Given the visible progress in many areas, certainly the Fed can hold off on further rate hikes to see where things currently stand. Everyone recognizes that the full effects of rate hikes are not felt for many months. If the Fed has already raised rates enough to bring inflation down to acceptable levels, further rate hikes will be inflicting needless pain.

The Fed with have another jobs report to look at, as well as two monthly releases of the Consumer Price Index, and much other new data, before making a decision on rates at its December meeting. But the data we got from the October jobs report is certainly consistent with a pause by the Fed.   

The Washington Post has been a big supporter of the upward redistribution of the last four decades, openly pushing trade policy, intellectual property policy, and financial policy that give more money to those at the top. Given its general perspective, it should not be surprising that it would use an editorial criticizing China’s zero COVID-19 policy as an opportunity to push mRNA vaccines.

The editorial makes the very reasonable criticism that China’s zero COVID-19 policy has seriously disrupted the lives of hundreds of millions of people. At this point, given the widespread availability of vaccines and treatments, the public health benefits from this policy are limited.

However, it throws in the comment:

“China has also deployed its own vaccines to fight the virus, although the elderly remain undervaccinated, and the shots are not as effective as the mRNA vaccines.”

In its advice section it adds:

“China could purchase doses of mRNA vaccines and get those shots into arms. It was a good sign Friday that China agreed with Germany to allow expats on the mainland to receive the mRNA vaccine made by BioNTech, the partner of Pfizer. The deal should be broadened to include Chinese citizens.”

In fact, research has shown that the differences between the effectiveness in preventing severe illness and death, between the mRNA vaccines and China’s dead virus vaccines is trivial. China does have a real problem in that it has relatively low rates of vaccination among the elderly, the population most vulnerable to COVID-19.

It certainly seems reasonable that the country would make more of an effort to vaccinate and boost this segment of the population. They do not need the mRNA vaccines, however much the Post might like to help its billionaire friends in the pharmaceutical industry.

The Washington Post has been a big supporter of the upward redistribution of the last four decades, openly pushing trade policy, intellectual property policy, and financial policy that give more money to those at the top. Given its general perspective, it should not be surprising that it would use an editorial criticizing China’s zero COVID-19 policy as an opportunity to push mRNA vaccines.

The editorial makes the very reasonable criticism that China’s zero COVID-19 policy has seriously disrupted the lives of hundreds of millions of people. At this point, given the widespread availability of vaccines and treatments, the public health benefits from this policy are limited.

However, it throws in the comment:

“China has also deployed its own vaccines to fight the virus, although the elderly remain undervaccinated, and the shots are not as effective as the mRNA vaccines.”

In its advice section it adds:

“China could purchase doses of mRNA vaccines and get those shots into arms. It was a good sign Friday that China agreed with Germany to allow expats on the mainland to receive the mRNA vaccine made by BioNTech, the partner of Pfizer. The deal should be broadened to include Chinese citizens.”

In fact, research has shown that the differences between the effectiveness in preventing severe illness and death, between the mRNA vaccines and China’s dead virus vaccines is trivial. China does have a real problem in that it has relatively low rates of vaccination among the elderly, the population most vulnerable to COVID-19.

It certainly seems reasonable that the country would make more of an effort to vaccinate and boost this segment of the population. They do not need the mRNA vaccines, however much the Post might like to help its billionaire friends in the pharmaceutical industry.

The New York Times ran a bizarre piece today telling readers that we face a serious threat of wage price spiral:

“Fresh data out on Friday showed that average hourly earnings climbed 4.7 percent over the past year. That is far faster than the 3 percent pace that prevailed before the pandemic, and is so quick that it could make it difficult for inflation to fully fade. Plus, policymakers remain anxious that today’s pressures could yet turn into a spiral in which wages and prices chase each other higher.”

The data really don’t support this story. First, although the year over year rate of wage growth did slow to 3.0 percent just before the pandemic, it was actually considerably higher for much of 2019. For example, in the year from February 2018 to February 2019 the average hourly wage rose by 3.6 percent (from $26.75 to $27.70).

This matters because we know that inflation remained comfortably below the Fed’s 2.0 percent inflation target in 2019, so it is reasonable to use wage growth in that year as a point of reference. And, the fact is that wage growth averaged roughly 3.4 percent over the course of 2019, not 3.0 percent.

The other part of the story missing in this piece is that wage growth has actually slowed sharply over the course of this year, not accelerated as is implied. This is the picture if we take the annual rate of growth in the average hourly earnings series, over three-month periods, dating back to the spring of 2021. (I prefer to compare three-month averages, using the most recent three months with the prior three months, but it seems no one else does this.)

Source: Bureau of Labor Statistics and author’s calculations.

As can be seen, the rate of wage growth by this measure peaked at 6.4 percent in July of 2021. It fluctuated some over the next several months and was still 6.3 percent in November of 2021. Since then it has slowed sharply. In the most recent three-month period, wages were rising at a 3.9 percent annual rate. This is still higher than the 3.6 peak year over year rate of wage growth in 2019, but not by much. (There were three-month periods where the rate was 4.0 percent in 2019.)

In short, the reality is the opposite of what this piece implies, wage-inflation has not been persistently high, but rather has slowed sharply. Part of the confusion stems from using year over year rates of wage growth rather than focusing on a more recent period. The Fed’s rate hikes, which began in March, could not slow the inflation that occurred last fall and winter, but this is what we are including, if we look at the year over year rate. While short-term data are erratic, and subject to revision, if we want a sense of where inflation will be going forward, we need to focus on recent data, not what happened nine or ten months ago.

There is an issue of the changing composition of the workforce, which does affect the rate of wage growth in this series, but this just makes slowdown from last fall more rapid. The economy was adding close to 600,000 jobs a month last fall. That is more than 1.0 percent of the workforce over a three month period. If these jobs paid 15 percent less than the average job, which is plausible since these were largely low-paid workers in sectors like hotels and restaurants, then the change in composition would reduce the average wage by 0.15 percentage point. Annualizing this rate, the change in composition would slow the rate of wage growth by 0.6 percentage points.

While this calculation is very crude, it shows that the change in composition could have substantially slowed the measured rate of wage growth by this measure last fall. This is no longer the case in recent months, as both the rate of job growth has slowed sharply and there is no longer a major skewing in job gains towards lower paid workers. (We added just 6,000 restaurant workers in October.) This means that wage growth has slowed even more sharply than is indicated by these data.

We can see this pattern of slower wage growth in other series as well, although the picture is less clear. The rate of growth of compensation in the Employment Cost Index (ECI) peaked at a 5.6 percent annual rate in the first quarter of 2022. It was down to 4.8 percent for the third quarter. Inflation in the wage component of the ECI peaked at 5.6 percent in the second quarter, it was down to 5.2 percent last quarter. (Wage growth in the ECI was 3.6 percent in the first and third quarter of 2019.)

The rate of growth of unit labor costs in the productivity data has also slowed sharply. This peaked at 8.2 percent in the fourth quarter of 2021. It was 3.8 percent in the third quarter of this year.

In short, by a variety of measures, wage growth has slowed considerably since the Fed began raising interest rates. And, by the most commonly used measure, it is now only modestly higher than a rate that would be consistent with the Fed’s inflation target.

The Fed’s focus on wage growth is reasonable, since over a long period, we can’t expect to maintain a moderate rate of inflation if wages are growing at the rates we saw last fall. However, given the large shift to profits in the pandemic, it would be reasonable to expect some larger than usual gap between the rate of wage growth and inflation, as the profit share falls back to something closer to the pre-pandemic level.

We also know that import prices, which had been a major factor contributing to inflation last year and earlier this year, are now falling rapidly. The price of non-fuel imports rose 7.2 percent in the year from April of 2021 to April of 2022. Since April, non-fuel import prices have fallen by 2.0 percent, a 4.7 percent annual rate of decline. Add to this a drop in shipping costs (which are not included in import prices) of more than 70 percent from their peak, and we should be seeing a major source disinflationary pressure.

Also, private indexes of marketed rents are now showing declines in many cities. And used car prices have begun to fall rapidly.

In short, the Fed actually has much to show for its efforts to combat inflation thus far. The full impact of its rate hikes will not be felt until late in 2023, but by some measures it has already accomplished most of what it needs to reach its inflation target. Most importantly, there is no evidence to date that inflation expectations have become unhinged and that we risk a wage-price spiral. There seems little danger at the moment if the Fed decides to get more data before any more large rate hikes.

The New York Times ran a bizarre piece today telling readers that we face a serious threat of wage price spiral:

“Fresh data out on Friday showed that average hourly earnings climbed 4.7 percent over the past year. That is far faster than the 3 percent pace that prevailed before the pandemic, and is so quick that it could make it difficult for inflation to fully fade. Plus, policymakers remain anxious that today’s pressures could yet turn into a spiral in which wages and prices chase each other higher.”

The data really don’t support this story. First, although the year over year rate of wage growth did slow to 3.0 percent just before the pandemic, it was actually considerably higher for much of 2019. For example, in the year from February 2018 to February 2019 the average hourly wage rose by 3.6 percent (from $26.75 to $27.70).

This matters because we know that inflation remained comfortably below the Fed’s 2.0 percent inflation target in 2019, so it is reasonable to use wage growth in that year as a point of reference. And, the fact is that wage growth averaged roughly 3.4 percent over the course of 2019, not 3.0 percent.

The other part of the story missing in this piece is that wage growth has actually slowed sharply over the course of this year, not accelerated as is implied. This is the picture if we take the annual rate of growth in the average hourly earnings series, over three-month periods, dating back to the spring of 2021. (I prefer to compare three-month averages, using the most recent three months with the prior three months, but it seems no one else does this.)

Source: Bureau of Labor Statistics and author’s calculations.

As can be seen, the rate of wage growth by this measure peaked at 6.4 percent in July of 2021. It fluctuated some over the next several months and was still 6.3 percent in November of 2021. Since then it has slowed sharply. In the most recent three-month period, wages were rising at a 3.9 percent annual rate. This is still higher than the 3.6 peak year over year rate of wage growth in 2019, but not by much. (There were three-month periods where the rate was 4.0 percent in 2019.)

In short, the reality is the opposite of what this piece implies, wage-inflation has not been persistently high, but rather has slowed sharply. Part of the confusion stems from using year over year rates of wage growth rather than focusing on a more recent period. The Fed’s rate hikes, which began in March, could not slow the inflation that occurred last fall and winter, but this is what we are including, if we look at the year over year rate. While short-term data are erratic, and subject to revision, if we want a sense of where inflation will be going forward, we need to focus on recent data, not what happened nine or ten months ago.

There is an issue of the changing composition of the workforce, which does affect the rate of wage growth in this series, but this just makes slowdown from last fall more rapid. The economy was adding close to 600,000 jobs a month last fall. That is more than 1.0 percent of the workforce over a three month period. If these jobs paid 15 percent less than the average job, which is plausible since these were largely low-paid workers in sectors like hotels and restaurants, then the change in composition would reduce the average wage by 0.15 percentage point. Annualizing this rate, the change in composition would slow the rate of wage growth by 0.6 percentage points.

While this calculation is very crude, it shows that the change in composition could have substantially slowed the measured rate of wage growth by this measure last fall. This is no longer the case in recent months, as both the rate of job growth has slowed sharply and there is no longer a major skewing in job gains towards lower paid workers. (We added just 6,000 restaurant workers in October.) This means that wage growth has slowed even more sharply than is indicated by these data.

We can see this pattern of slower wage growth in other series as well, although the picture is less clear. The rate of growth of compensation in the Employment Cost Index (ECI) peaked at a 5.6 percent annual rate in the first quarter of 2022. It was down to 4.8 percent for the third quarter. Inflation in the wage component of the ECI peaked at 5.6 percent in the second quarter, it was down to 5.2 percent last quarter. (Wage growth in the ECI was 3.6 percent in the first and third quarter of 2019.)

The rate of growth of unit labor costs in the productivity data has also slowed sharply. This peaked at 8.2 percent in the fourth quarter of 2021. It was 3.8 percent in the third quarter of this year.

In short, by a variety of measures, wage growth has slowed considerably since the Fed began raising interest rates. And, by the most commonly used measure, it is now only modestly higher than a rate that would be consistent with the Fed’s inflation target.

The Fed’s focus on wage growth is reasonable, since over a long period, we can’t expect to maintain a moderate rate of inflation if wages are growing at the rates we saw last fall. However, given the large shift to profits in the pandemic, it would be reasonable to expect some larger than usual gap between the rate of wage growth and inflation, as the profit share falls back to something closer to the pre-pandemic level.

We also know that import prices, which had been a major factor contributing to inflation last year and earlier this year, are now falling rapidly. The price of non-fuel imports rose 7.2 percent in the year from April of 2021 to April of 2022. Since April, non-fuel import prices have fallen by 2.0 percent, a 4.7 percent annual rate of decline. Add to this a drop in shipping costs (which are not included in import prices) of more than 70 percent from their peak, and we should be seeing a major source disinflationary pressure.

Also, private indexes of marketed rents are now showing declines in many cities. And used car prices have begun to fall rapidly.

In short, the Fed actually has much to show for its efforts to combat inflation thus far. The full impact of its rate hikes will not be felt until late in 2023, but by some measures it has already accomplished most of what it needs to reach its inflation target. Most importantly, there is no evidence to date that inflation expectations have become unhinged and that we risk a wage-price spiral. There seems little danger at the moment if the Fed decides to get more data before any more large rate hikes.

The second paragraph of a Washington Post article on the Republicans’ economic agenda told readers:

“Some fiscal hawks are pushing dramatic spending reforms and overhauls of entitlement programs including Social Security and Medicare, while others are insisting that simply blocking future Democratic legislation and attempting to repeal some of President Biden’s signature achievements will represent enough of a shift toward fiscal responsibility to appease voters.”

While the paragraph is awkward, it implies that voters are demanding big cuts to spending, which could be met by cutting Social Security and Medicare, but it may be possible to appease them with smaller cuts to some of the programs pushed through by President Biden. The Post does not present any evidence that a substantial segment of the population would be happy with cuts to Social Security and Medicare, which polls consistently show enjoy strong support across the political spectrum.

The piece also does not tell readers how it has determined that cuts to the budget would be a “shift to fiscal responsibility.” At the moment, most economists are quite concerned that the economy is headed towards a recession. It is hard to see how cutting spending as an economy heads into recession is fiscally responsibe. It is obviously bad for the economy, almost certainly making a recession worse.

The piece also does a classic Washington Post “he said, she said” in discussing Republican attacks on the I.R.S. budget, which would increase its ability to crack down on tax cheats.

“Rep. Jason T. Smith (R-Missouri), who’s seeking to lead the Ways and Means Committee, said in a statement that Americans want Congress to use the debt ceiling and every other opportunity to tackle rising prices, secure the border and to “repeal the 87,000 new IRS agents Democrats are hiring to target American families.” (The Inflation Reduction Act does not explicitly direct the hiring of more agents, but Republicans argue that the approximately $80 billion it allocated to the agency to boost enforcement and taxpayer services will result in a massive staffing increase.)”

Since almost none of the Washington Post’s readers have any clue what $80 billion over the next decade means, it would have been useful to provide some context. This comes to $8 billion a year, or a bit less than 0.13 percent of federal spending over this period. (The Post piece does not even bother to tell readers that this is spending over a decade, not a single year.)

To put this in more context, the IRS budget has been cut sharply in real terms since 2010. The projected spending from Inflation Reduction Act would just be restoring the real value of the IRS budget to its 2010 level, until larger projected in the years 2029-2031. It would have been useful if the Post had taken the time to actually provide information to readers instead of just repeating politicians’ rhetoric.

It might also have been worth mentioning that the Congressional Budget Office projected that the increase in the I.R.S. budget would raise $200 billion over the decade, by making people pay more of the taxes they owe. Cutting this item would on net increase the deficit by $120 billion over this period, which is hard to square with being fiscally responsible.

The second paragraph of a Washington Post article on the Republicans’ economic agenda told readers:

“Some fiscal hawks are pushing dramatic spending reforms and overhauls of entitlement programs including Social Security and Medicare, while others are insisting that simply blocking future Democratic legislation and attempting to repeal some of President Biden’s signature achievements will represent enough of a shift toward fiscal responsibility to appease voters.”

While the paragraph is awkward, it implies that voters are demanding big cuts to spending, which could be met by cutting Social Security and Medicare, but it may be possible to appease them with smaller cuts to some of the programs pushed through by President Biden. The Post does not present any evidence that a substantial segment of the population would be happy with cuts to Social Security and Medicare, which polls consistently show enjoy strong support across the political spectrum.

The piece also does not tell readers how it has determined that cuts to the budget would be a “shift to fiscal responsibility.” At the moment, most economists are quite concerned that the economy is headed towards a recession. It is hard to see how cutting spending as an economy heads into recession is fiscally responsibe. It is obviously bad for the economy, almost certainly making a recession worse.

The piece also does a classic Washington Post “he said, she said” in discussing Republican attacks on the I.R.S. budget, which would increase its ability to crack down on tax cheats.

“Rep. Jason T. Smith (R-Missouri), who’s seeking to lead the Ways and Means Committee, said in a statement that Americans want Congress to use the debt ceiling and every other opportunity to tackle rising prices, secure the border and to “repeal the 87,000 new IRS agents Democrats are hiring to target American families.” (The Inflation Reduction Act does not explicitly direct the hiring of more agents, but Republicans argue that the approximately $80 billion it allocated to the agency to boost enforcement and taxpayer services will result in a massive staffing increase.)”

Since almost none of the Washington Post’s readers have any clue what $80 billion over the next decade means, it would have been useful to provide some context. This comes to $8 billion a year, or a bit less than 0.13 percent of federal spending over this period. (The Post piece does not even bother to tell readers that this is spending over a decade, not a single year.)

To put this in more context, the IRS budget has been cut sharply in real terms since 2010. The projected spending from Inflation Reduction Act would just be restoring the real value of the IRS budget to its 2010 level, until larger projected in the years 2029-2031. It would have been useful if the Post had taken the time to actually provide information to readers instead of just repeating politicians’ rhetoric.

It might also have been worth mentioning that the Congressional Budget Office projected that the increase in the I.R.S. budget would raise $200 billion over the decade, by making people pay more of the taxes they owe. Cutting this item would on net increase the deficit by $120 billion over this period, which is hard to square with being fiscally responsible.

This time, the NYT is telling us how hard it is for young people and minorities to buy homes now that mortgage interest rates have shot through the roof. The timing is interesting, not only because it is five days before the election, but the article comes the day after the Census Bureau released data for the third quarter on homeownership.

The Census Bureau data gives a picture that is 180 degrees at odds with the NYT story. If we look at homeownership rates for young people (under the age of 35), they are up 1.7 percentage points from before the pandemic, rising from 37.6 percent to 39.3 percent.

The Black homeownership rate rose from 44.0 percent, to 45.2 percent, an increase of 1.2 percentage points. The Hispanic homeownership rate rose by 0.6 percentage points from 48.1 percent to 48.7 percent. And, the homeownership rate for households with income below the median rose 1.3 percentage points from 51.4 percent to 52.7 percent.

In short, we have seen an extraordinary rise in homeownership rates for less advantaged groups in the last two and a half years. But the NYT thought it was important to tell us that young people and minorities are having trouble buying homes now, five days before the election.

To be clear, 7.0 percent mortgage rates will make it difficult for many low- and middle-income people to buy homes, there is little doubt about that. But the rise in mortgage interest rates is a relatively recent story and no one knows how long it will persist.

If the NYT wanted to do a piece pointing out that a period of rapidly rising homeownership for disadvantaged group had come to an end, that would have been a useful and informative story. This piece is not.  

This time, the NYT is telling us how hard it is for young people and minorities to buy homes now that mortgage interest rates have shot through the roof. The timing is interesting, not only because it is five days before the election, but the article comes the day after the Census Bureau released data for the third quarter on homeownership.

The Census Bureau data gives a picture that is 180 degrees at odds with the NYT story. If we look at homeownership rates for young people (under the age of 35), they are up 1.7 percentage points from before the pandemic, rising from 37.6 percent to 39.3 percent.

The Black homeownership rate rose from 44.0 percent, to 45.2 percent, an increase of 1.2 percentage points. The Hispanic homeownership rate rose by 0.6 percentage points from 48.1 percent to 48.7 percent. And, the homeownership rate for households with income below the median rose 1.3 percentage points from 51.4 percent to 52.7 percent.

In short, we have seen an extraordinary rise in homeownership rates for less advantaged groups in the last two and a half years. But the NYT thought it was important to tell us that young people and minorities are having trouble buying homes now, five days before the election.

To be clear, 7.0 percent mortgage rates will make it difficult for many low- and middle-income people to buy homes, there is little doubt about that. But the rise in mortgage interest rates is a relatively recent story and no one knows how long it will persist.

If the NYT wanted to do a piece pointing out that a period of rapidly rising homeownership for disadvantaged group had come to an end, that would have been a useful and informative story. This piece is not.  

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