• Economic Crisis and RecoveryCrisis económica y recuperaciónEconomic PolicyInflationUnited StatesEE. UU.
We got a lot of new data on the economy last week and we will get more this week. Most of what we saw was pretty good from the standpoint of stable growth and slowing inflation, but there is still much ambiguity and serious grounds for concerns about the future.
First, the most important release from last week was the third quarter GDP data. It showed the economy growing at a 2.6 percent annual rate. This is a very healthy rate of growth and follows small declines reported in the prior two quarters.
The growth also should mean that we are again seeing positive productivity growth after seeing a record pace of decline reported in the first half of 2022. Productivity data are always erratic, and the numbers from the first half should not be accepted at face value (reported growth in the fourth quarter of 2021 was an impossibly high 6.3 percent), but there can be little doubt that productivity in the first half of this year was very bad.
The 2.6 percent growth in third quarter GDP was roughly equal to reported growth in hours in the payroll data, but there was sharp fall in the number of people who reported being self-employed. This should imply productivity growth in the neighborhood of 1.0 percent. We will get the actual figure this week when the Bureau of Labor Statistics reports third quarter productivity data.
A 1.0 percent rate of productivity growth is not great, but hugely better than the declines reported in the first half of the year. Productivity was likely weakened in the first half by supply chain problems, huge turnover, and possibly some labor hoarding. These problems should have been less of an issue in the third quarter, and even more so going forward, as the economy is operating closer to normal in most sectors.
Weak productivity would be a major factor raising costs for businesses and thereby creating inflationary pressure in the economy. If we are back on a normal productivity path, this would be a big positive for inflation prospects going forward.
Inflation Data
We also got the release last week of the September data on the Personal Consumption Expenditure Deflator (PCE). This was a mixed picture. The overall PCE rose 0.3 percent, while the core PCE rose 0.5 percent. Both numbers were the same as the August figures, and clearly well above the Federal Reserve Board’s 2.0 percent inflation target.
However, there is some cause for hope that the direction will be downward in the months ahead. First, we know a major factor pushing up current inflation, and especially core inflation is rent. Rent’s weight in the PCE is less than in the CPI, but nonetheless it is a huge factor.
The positive story here is that several private indexes that measure rents on marketed units show rental inflation slowing sharply in recent months. Research from the Bureau Labor Statistics shows that these indexes lead the CPI and PCE by close to a year. This means that we will continue to see rapid increases in rent in the official indices through the rest of this year and into 2023, but can be fairly certain that rental inflation will slow sharply to more normal rates over the course of the year.[1]
We are still seeing a mixed picture in the core goods indexes, with some important items, like vehicles, still showing substantial price increases. However, there is good reason to believe that this will turn around in the not distant future as well.
The price of imported goods has been falling rapidly in recent months. Since April, the index for non-fuel imports has fallen by 2.0 percent. This translates into a 4.7 percent annual rate of decline. By contrast, non-fuel imports prices rose at a 7.2 percent annual rate. Imports are almost 16 percent of our economy, and a much larger share of the goods sector. A huge shift in import prices from rapid increases to rapid declines has to impact the pace of inflation in the goods sector.
This switch will be amplified by the sharp reduction in shipping costs in recent months. After soaring due to supply chain issues last year, shipping costs have declined almost 70 percent from their pandemic peaks. This means that we are likely to see the inflation rate in goods fall sharply in the months ahead and quite likely turn negative.
The other big question mark in the course of inflation is non-shelter services. Here too we are likely to see a good picture. Outside of shelter, inflation in core services is relatively moderate and seems to be headed downward.
Here’s the picture.
As can be seen, the inflation rate in these non-shelter core services is relatively modest. The quarter over quarter rate was 3.07 percent. The rate for the last three months was even lower at 2.7 percent. Perhaps more important than the levels here is the direction of change. Inflation in these services seems to be heading lower, not higher, as many inflation hawks have warned.
If we envision a scenario where inflation in non-shelter services remain more or less at its current pace, where the official shelter indexes follow the private indexes for marketed units, and we see low or falling prices for goods, we will be close to the Fed’s 2.0 percent inflation target.
Wage Growth
The most important news on inflation in the next week will be the job growth and wage growth in the October employment report released on Friday. Job growth has been slowing, which was inevitable as the economy approached full employment.
It is likely that job growth will slow further from the 265,000 gain reported for September. The October number is likely to be close to 200,000, which is near a pace that would be sustainable with an economy that is near full employment.
However, the most important number in the October report will be wage growth. There is no plausible story where the economy sustains a high rate of inflation, if wages are only growing at a moderate pace.
We already got some evidence of slowing wage growth in the Employment Cost Index (ECI) for the third quarter that was released last week. That showed private sector compensation increasing at a 4.4 percent annual rate in the third quarter, down from a 6.0 percent annual rate in the second quarter. This pace is still too high to be consistent with the Fed’s 2.0 percent inflation target, but the direction of change is important. The rate of wage growth is clearly slowing even with unemployment rates at very low levels and vacancy rates at historic highs.
The other major wage series that we rely upon is the average hourly earnings (AHE) series, which will be part of Friday’s report. This series differs from the ECI by looking at average wages for all workers. The ECI holds the mix of industry and occupations constant. The change in mix generally does not have much impact, but the two indices have often differed a great deal in the pandemic recession and recovery.
In the downturn, the AHE series showed much more rapid wage gains because many of the lowest paid workers lost their jobs. This raised the average wage by changing the composition of the workforce, even if the pay of people in each occupation and industry did not change. During the recovery this composition effect went the other way, as low-paid workers got their jobs back.
There was also an issue where many workers may have gotten a pay increase by changing their job title. If a worker at a fast food restaurant was promoted to assistant night manager, but their work did not change at all, the associated pay increase would be picked up in the AHE series, but not in the ECI.
Anyhow, the AHE does show evidence of rapidly slowing wage growth. In the last two months, the AHE has grown at just a 0.3 percent rate. This translates into a 3.6 percent rate of annual wage growth. The monthly data are erratic and subject to large revisions, so these numbers must be treated as provisional.
However, if they hold up through the revisions in the October report, and wage growth in the October data is consistent with the prior two months, then we will have pretty solid evidence that wage growth has slowed sharply. In fact, a 3.6 percent annual rate is only slightly higher than the 3.4 percent rate we saw in 2019, when the inflation rate was comfortably under the Fed’s 2.0 percent target.
If the rate of wage growth is in fact 3.6 percent, it is almost impossible to envision a scenario in which inflation remains uncomfortably high. We would need to see a sustained redistribution of income from wages to profits that has never happened before. In short, if wage growth is now near a 3.6 percent annual rate, the Fed has done its job.
Is a Recession Coming?
While the headline GDP growth figure was very positive, many analysts pointed to the fact that it was entirely driven by trade. Rising exports and falling imports added 2.77 percentage points to the quarter’s growth. No one expects that the trade deficit will continue to decline, as a rising dollar makes our goods less competitive internationally. Also, the economies of our trading partners are likely to sink into recession in the next year, due to rising interest rates and the impact of the war in Ukraine. This will seriously dampen demand for our exports.
This means the main source of strength in the third quarter data will not be present in future quarters, however that does not mean the economy’s prospects are entirely negative. First, inventory accumulation, the other major erratic component in GDP, subtracted 0.7 percentage points from the quarter’s growth. We had been seeing extraordinarily rapid inventory accumulation in the prior three quarters, so some drop in the pace of accumulation was not a surprise.
The rate of accumulation in the third quarter was pretty much normal for an economy growing at a moderate pace. Since overall inventory to sales ratios are now close to normal (high in some areas, still very low for vehicles), we may expect comparable rates of accumulation going forward, unless the economy sinks into recession.
The big risk here is the impact of the Fed’s rate hikes. These rate hikes are a major factor in the dollar’s rise, which will be pushing net exports lower. The other area that has been clearly impacted by rate hikes is residential construction. It has fallen at double digit rates the last two quarters and is now 15.1 percent below its peak for the pandemic recovery in the first quarter of 2021.
There are two factors behind this fall. One is the plunge in mortgage refinancing. The fees associated with mortgage issuance are included in residential investment. While purchase mortgages have fallen due to the rise in interest rates, refinancing has virtually stopped after a huge boom in 2020 and 2021. This falloff has been a big factor in the decline in residential investment, but now that refinancing has basically stopped, it can’t fall further.
The other factor is a drop in housing starts. Housing starts are down by almost 20 percent from their peak last year. This will eventually depress construction, but it has not had much impact to date. There is a huge backlog of unfinished houses due to supply chain issues that delayed construction. The number of homes under construction in September was actually higher than at any point in the recovery.
At some point the decline in starts will result in a fall in residential construction, but that will not be in the current quarter, and quite possibly not until the second quarter of 2023. This means that we may see little further decline in residential construction for the next two quarters. The decline in this component in the third quarter subtracted 1.37 percentage points from the quarter’s growth. It is very unlikely residential construction will have a comparable negative impact in the next two quarters.
There is a similar story with investment in non-residential structures. Investment in non-residential structures fell at a 15.3 percent annual rate, subtracting 0.41 percentage points from the third quarter’s growth. Investment in non-residential structures has been falling sharply since the start of the pandemic.
The issue here is that the huge increase in remote work has reduced demand for office space and the increase in online shopping has reduced demand for retail space. While these changes are likely to be permanent, there is a floor as to how far construction will fall.
Investment in non-residential structures is now almost 27.0 percent below its pre-pandemic level. Office construction is down 35.2 percent from its peak, which was in the first quarter of 2020. Construction of shopping centers is down almost 40 percent. And construction of power generation facilities, a very large category in structures, is down almost 43 percent. I’m not sure of the reason for this drop (the plunge began when Trump was still in the White House), but it seems unlikely to continue.
In short, we are likely to see the drag on growth from this sector lesson in the quarters ahead. Even if non-residential construction continues to fall, it is not likely to have anywhere near as large an impact in future quarters.
This leaves consumption and government spending. Consumption grew at a modest 1.4 percent rate in third quarter. A 2.8 percent rise in consumption of services offset a 1.2 percent decline in goods purchases. High interest rates, and reduced home purchases, will dampen demand for vehicles and household appliances and furniture. However, it may not be enough to slow demand much further. This is especially the case with vehicles where a backlog of orders may keep sales up for the next two quarters.
Government spending grew at a 2.4 percent rate in the third quarter. It grew sharply at the peak of the pandemic and then fell back to more normal levels in recent quarters. It presumably will grow at roughly a 2.0 percent rate in the quarters ahead.
In short, there is a real risk of recession, especially if interest rates continue to rise, however it hardly seems like a done deal at this point. Construction, both residential and non-residential, may be less of a drag on growth in the quarters ahead. However, net exports will almost certainly be a large negative. The big risk is that the deterioration in the trade deficit will be so large as to offset positive growth in the domestic economy.
Can the Fed Pause?
The economy is definitely seeing a large impact from the Fed’s rate hikes to date. However, these hikes may not be sufficient to throw it back into recession. If it continues an aggressive path of hikes, then the risk of recession and high unemployment become far more likely.
A large rate hike at the November meeting is all but certain, however if the October employment report again shows a modest pace of wage growth, there will be solid evidence that the Fed has done its job. If the pace of wage growth remains moderate, then the Fed does not need to fear a story of a wage-price spiral, like we saw in the 1970s. In short, the October employment report may provide a very solid basis for the Fed pausing its plans for future rate hikes.
[1] I should note that several economists, most notably Jason Furman, made this point last year in arguing that inflation would rise in 2022. I had thought the rise indicated by the private indexes would be offset by the impact of large-scale evictions when the federal pandemic moratorium ended. The Census Bureau’s Pulse Survey indicated that an extraordinarily high percentage of renters believed they faced an immediate threat of eviction. There was in fact no huge surge in evictions after the moratoriums ended. The gap between the survey and the actual outcome likely reflects a huge skewing in responses in a survey with a response rate near 5.0 percent.
We got a lot of new data on the economy last week and we will get more this week. Most of what we saw was pretty good from the standpoint of stable growth and slowing inflation, but there is still much ambiguity and serious grounds for concerns about the future.
First, the most important release from last week was the third quarter GDP data. It showed the economy growing at a 2.6 percent annual rate. This is a very healthy rate of growth and follows small declines reported in the prior two quarters.
The growth also should mean that we are again seeing positive productivity growth after seeing a record pace of decline reported in the first half of 2022. Productivity data are always erratic, and the numbers from the first half should not be accepted at face value (reported growth in the fourth quarter of 2021 was an impossibly high 6.3 percent), but there can be little doubt that productivity in the first half of this year was very bad.
The 2.6 percent growth in third quarter GDP was roughly equal to reported growth in hours in the payroll data, but there was sharp fall in the number of people who reported being self-employed. This should imply productivity growth in the neighborhood of 1.0 percent. We will get the actual figure this week when the Bureau of Labor Statistics reports third quarter productivity data.
A 1.0 percent rate of productivity growth is not great, but hugely better than the declines reported in the first half of the year. Productivity was likely weakened in the first half by supply chain problems, huge turnover, and possibly some labor hoarding. These problems should have been less of an issue in the third quarter, and even more so going forward, as the economy is operating closer to normal in most sectors.
Weak productivity would be a major factor raising costs for businesses and thereby creating inflationary pressure in the economy. If we are back on a normal productivity path, this would be a big positive for inflation prospects going forward.
Inflation Data
We also got the release last week of the September data on the Personal Consumption Expenditure Deflator (PCE). This was a mixed picture. The overall PCE rose 0.3 percent, while the core PCE rose 0.5 percent. Both numbers were the same as the August figures, and clearly well above the Federal Reserve Board’s 2.0 percent inflation target.
However, there is some cause for hope that the direction will be downward in the months ahead. First, we know a major factor pushing up current inflation, and especially core inflation is rent. Rent’s weight in the PCE is less than in the CPI, but nonetheless it is a huge factor.
The positive story here is that several private indexes that measure rents on marketed units show rental inflation slowing sharply in recent months. Research from the Bureau Labor Statistics shows that these indexes lead the CPI and PCE by close to a year. This means that we will continue to see rapid increases in rent in the official indices through the rest of this year and into 2023, but can be fairly certain that rental inflation will slow sharply to more normal rates over the course of the year.[1]
We are still seeing a mixed picture in the core goods indexes, with some important items, like vehicles, still showing substantial price increases. However, there is good reason to believe that this will turn around in the not distant future as well.
The price of imported goods has been falling rapidly in recent months. Since April, the index for non-fuel imports has fallen by 2.0 percent. This translates into a 4.7 percent annual rate of decline. By contrast, non-fuel imports prices rose at a 7.2 percent annual rate. Imports are almost 16 percent of our economy, and a much larger share of the goods sector. A huge shift in import prices from rapid increases to rapid declines has to impact the pace of inflation in the goods sector.
This switch will be amplified by the sharp reduction in shipping costs in recent months. After soaring due to supply chain issues last year, shipping costs have declined almost 70 percent from their pandemic peaks. This means that we are likely to see the inflation rate in goods fall sharply in the months ahead and quite likely turn negative.
The other big question mark in the course of inflation is non-shelter services. Here too we are likely to see a good picture. Outside of shelter, inflation in core services is relatively moderate and seems to be headed downward.
Here’s the picture.
As can be seen, the inflation rate in these non-shelter core services is relatively modest. The quarter over quarter rate was 3.07 percent. The rate for the last three months was even lower at 2.7 percent. Perhaps more important than the levels here is the direction of change. Inflation in these services seems to be heading lower, not higher, as many inflation hawks have warned.
If we envision a scenario where inflation in non-shelter services remain more or less at its current pace, where the official shelter indexes follow the private indexes for marketed units, and we see low or falling prices for goods, we will be close to the Fed’s 2.0 percent inflation target.
Wage Growth
The most important news on inflation in the next week will be the job growth and wage growth in the October employment report released on Friday. Job growth has been slowing, which was inevitable as the economy approached full employment.
It is likely that job growth will slow further from the 265,000 gain reported for September. The October number is likely to be close to 200,000, which is near a pace that would be sustainable with an economy that is near full employment.
However, the most important number in the October report will be wage growth. There is no plausible story where the economy sustains a high rate of inflation, if wages are only growing at a moderate pace.
We already got some evidence of slowing wage growth in the Employment Cost Index (ECI) for the third quarter that was released last week. That showed private sector compensation increasing at a 4.4 percent annual rate in the third quarter, down from a 6.0 percent annual rate in the second quarter. This pace is still too high to be consistent with the Fed’s 2.0 percent inflation target, but the direction of change is important. The rate of wage growth is clearly slowing even with unemployment rates at very low levels and vacancy rates at historic highs.
The other major wage series that we rely upon is the average hourly earnings (AHE) series, which will be part of Friday’s report. This series differs from the ECI by looking at average wages for all workers. The ECI holds the mix of industry and occupations constant. The change in mix generally does not have much impact, but the two indices have often differed a great deal in the pandemic recession and recovery.
In the downturn, the AHE series showed much more rapid wage gains because many of the lowest paid workers lost their jobs. This raised the average wage by changing the composition of the workforce, even if the pay of people in each occupation and industry did not change. During the recovery this composition effect went the other way, as low-paid workers got their jobs back.
There was also an issue where many workers may have gotten a pay increase by changing their job title. If a worker at a fast food restaurant was promoted to assistant night manager, but their work did not change at all, the associated pay increase would be picked up in the AHE series, but not in the ECI.
Anyhow, the AHE does show evidence of rapidly slowing wage growth. In the last two months, the AHE has grown at just a 0.3 percent rate. This translates into a 3.6 percent rate of annual wage growth. The monthly data are erratic and subject to large revisions, so these numbers must be treated as provisional.
However, if they hold up through the revisions in the October report, and wage growth in the October data is consistent with the prior two months, then we will have pretty solid evidence that wage growth has slowed sharply. In fact, a 3.6 percent annual rate is only slightly higher than the 3.4 percent rate we saw in 2019, when the inflation rate was comfortably under the Fed’s 2.0 percent target.
If the rate of wage growth is in fact 3.6 percent, it is almost impossible to envision a scenario in which inflation remains uncomfortably high. We would need to see a sustained redistribution of income from wages to profits that has never happened before. In short, if wage growth is now near a 3.6 percent annual rate, the Fed has done its job.
Is a Recession Coming?
While the headline GDP growth figure was very positive, many analysts pointed to the fact that it was entirely driven by trade. Rising exports and falling imports added 2.77 percentage points to the quarter’s growth. No one expects that the trade deficit will continue to decline, as a rising dollar makes our goods less competitive internationally. Also, the economies of our trading partners are likely to sink into recession in the next year, due to rising interest rates and the impact of the war in Ukraine. This will seriously dampen demand for our exports.
This means the main source of strength in the third quarter data will not be present in future quarters, however that does not mean the economy’s prospects are entirely negative. First, inventory accumulation, the other major erratic component in GDP, subtracted 0.7 percentage points from the quarter’s growth. We had been seeing extraordinarily rapid inventory accumulation in the prior three quarters, so some drop in the pace of accumulation was not a surprise.
The rate of accumulation in the third quarter was pretty much normal for an economy growing at a moderate pace. Since overall inventory to sales ratios are now close to normal (high in some areas, still very low for vehicles), we may expect comparable rates of accumulation going forward, unless the economy sinks into recession.
The big risk here is the impact of the Fed’s rate hikes. These rate hikes are a major factor in the dollar’s rise, which will be pushing net exports lower. The other area that has been clearly impacted by rate hikes is residential construction. It has fallen at double digit rates the last two quarters and is now 15.1 percent below its peak for the pandemic recovery in the first quarter of 2021.
There are two factors behind this fall. One is the plunge in mortgage refinancing. The fees associated with mortgage issuance are included in residential investment. While purchase mortgages have fallen due to the rise in interest rates, refinancing has virtually stopped after a huge boom in 2020 and 2021. This falloff has been a big factor in the decline in residential investment, but now that refinancing has basically stopped, it can’t fall further.
The other factor is a drop in housing starts. Housing starts are down by almost 20 percent from their peak last year. This will eventually depress construction, but it has not had much impact to date. There is a huge backlog of unfinished houses due to supply chain issues that delayed construction. The number of homes under construction in September was actually higher than at any point in the recovery.
At some point the decline in starts will result in a fall in residential construction, but that will not be in the current quarter, and quite possibly not until the second quarter of 2023. This means that we may see little further decline in residential construction for the next two quarters. The decline in this component in the third quarter subtracted 1.37 percentage points from the quarter’s growth. It is very unlikely residential construction will have a comparable negative impact in the next two quarters.
There is a similar story with investment in non-residential structures. Investment in non-residential structures fell at a 15.3 percent annual rate, subtracting 0.41 percentage points from the third quarter’s growth. Investment in non-residential structures has been falling sharply since the start of the pandemic.
The issue here is that the huge increase in remote work has reduced demand for office space and the increase in online shopping has reduced demand for retail space. While these changes are likely to be permanent, there is a floor as to how far construction will fall.
Investment in non-residential structures is now almost 27.0 percent below its pre-pandemic level. Office construction is down 35.2 percent from its peak, which was in the first quarter of 2020. Construction of shopping centers is down almost 40 percent. And construction of power generation facilities, a very large category in structures, is down almost 43 percent. I’m not sure of the reason for this drop (the plunge began when Trump was still in the White House), but it seems unlikely to continue.
In short, we are likely to see the drag on growth from this sector lesson in the quarters ahead. Even if non-residential construction continues to fall, it is not likely to have anywhere near as large an impact in future quarters.
This leaves consumption and government spending. Consumption grew at a modest 1.4 percent rate in third quarter. A 2.8 percent rise in consumption of services offset a 1.2 percent decline in goods purchases. High interest rates, and reduced home purchases, will dampen demand for vehicles and household appliances and furniture. However, it may not be enough to slow demand much further. This is especially the case with vehicles where a backlog of orders may keep sales up for the next two quarters.
Government spending grew at a 2.4 percent rate in the third quarter. It grew sharply at the peak of the pandemic and then fell back to more normal levels in recent quarters. It presumably will grow at roughly a 2.0 percent rate in the quarters ahead.
In short, there is a real risk of recession, especially if interest rates continue to rise, however it hardly seems like a done deal at this point. Construction, both residential and non-residential, may be less of a drag on growth in the quarters ahead. However, net exports will almost certainly be a large negative. The big risk is that the deterioration in the trade deficit will be so large as to offset positive growth in the domestic economy.
Can the Fed Pause?
The economy is definitely seeing a large impact from the Fed’s rate hikes to date. However, these hikes may not be sufficient to throw it back into recession. If it continues an aggressive path of hikes, then the risk of recession and high unemployment become far more likely.
A large rate hike at the November meeting is all but certain, however if the October employment report again shows a modest pace of wage growth, there will be solid evidence that the Fed has done its job. If the pace of wage growth remains moderate, then the Fed does not need to fear a story of a wage-price spiral, like we saw in the 1970s. In short, the October employment report may provide a very solid basis for the Fed pausing its plans for future rate hikes.
[1] I should note that several economists, most notably Jason Furman, made this point last year in arguing that inflation would rise in 2022. I had thought the rise indicated by the private indexes would be offset by the impact of large-scale evictions when the federal pandemic moratorium ended. The Census Bureau’s Pulse Survey indicated that an extraordinarily high percentage of renters believed they faced an immediate threat of eviction. There was in fact no huge surge in evictions after the moratoriums ended. The gap between the survey and the actual outcome likely reflects a huge skewing in responses in a survey with a response rate near 5.0 percent.
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• BudgetGovernmentEl GobiernoHealth and Social ProgramsLos Programas Sociales y de SaludUnited StatesEE. UU.
Unlike Republicans of today, former House Speaker Paul Ryan used PowerPoints and pretended to believe in arithmetic. This led many centrist pundit types to say that he was a serious policy wonk.
Ezra Klein and Mark Leibovich apparently are still pushing this line. On one of Ezra’s shows this week, both warmly agreed:
“MARK LEIBOVICH: You might be challenging me, but I basically agree with you 100 percent. So I mean, I would agree. I mean, I think Paul Ryan was criticized a great deal. He was dismissed as a lightweight. I’ve been criticized over the years for taking him, I think, more seriously than many people in the media did.
“At least there was a policy framework around then.”
As some of us argued at the time, Paul Ryan desperately did not want his proposals to be taken seriously because they were a joke. Here’s the picture from the Congressional Budget Office’s analysis of his budget proposal, which Ryan directed. (This means he was telling them what to put into it.)
Note that in 2050 Ryan’s budget projected that total government spending would be 14.25 percent of GDP. At that time he was saying he wanted to leave Social Security alone. (Earlier he had pushed a proposal for privatizing the program.) The Social Security Trustees projected that Social Security in 2050 would cost just under 6.0 percent of GDP. The Congressional Budget Office projected that Ryan’s plans for Medicare and other federal health care programs would leave spending at just under 5.0 percent of GDP.
This means that Ryan’s budget left around 3.5 percent of GDP for the military and all other government programs. Since Ryan was not an advocate of big cuts from the military’s budget, which is around 3.0 percent of GDP, this left 0.5 percent of GDP for everything else in the federal budget.
This means all spending on the Justice Department, education, SNAP, infrastructure, research, the environment, and everything else in the federal budget would come to just 0.5 percent of GDP or roughly $130 billion a year in today’s economy (roughly 40 percent more than the current SNAP budget).
Ryan effectively was proposing shutting down the federal government, apart from Social Security, pared back health care programs, and the military. If Ryan was serious about this plan, he never made a big point of defending it in public. In short, Ryan was a lightweight who did not want his proposals to be taken seriously, and thankfully, most people other than centrist pundits did not.
Unlike Republicans of today, former House Speaker Paul Ryan used PowerPoints and pretended to believe in arithmetic. This led many centrist pundit types to say that he was a serious policy wonk.
Ezra Klein and Mark Leibovich apparently are still pushing this line. On one of Ezra’s shows this week, both warmly agreed:
“MARK LEIBOVICH: You might be challenging me, but I basically agree with you 100 percent. So I mean, I would agree. I mean, I think Paul Ryan was criticized a great deal. He was dismissed as a lightweight. I’ve been criticized over the years for taking him, I think, more seriously than many people in the media did.
“At least there was a policy framework around then.”
As some of us argued at the time, Paul Ryan desperately did not want his proposals to be taken seriously because they were a joke. Here’s the picture from the Congressional Budget Office’s analysis of his budget proposal, which Ryan directed. (This means he was telling them what to put into it.)
Note that in 2050 Ryan’s budget projected that total government spending would be 14.25 percent of GDP. At that time he was saying he wanted to leave Social Security alone. (Earlier he had pushed a proposal for privatizing the program.) The Social Security Trustees projected that Social Security in 2050 would cost just under 6.0 percent of GDP. The Congressional Budget Office projected that Ryan’s plans for Medicare and other federal health care programs would leave spending at just under 5.0 percent of GDP.
This means that Ryan’s budget left around 3.5 percent of GDP for the military and all other government programs. Since Ryan was not an advocate of big cuts from the military’s budget, which is around 3.0 percent of GDP, this left 0.5 percent of GDP for everything else in the federal budget.
This means all spending on the Justice Department, education, SNAP, infrastructure, research, the environment, and everything else in the federal budget would come to just 0.5 percent of GDP or roughly $130 billion a year in today’s economy (roughly 40 percent more than the current SNAP budget).
Ryan effectively was proposing shutting down the federal government, apart from Social Security, pared back health care programs, and the military. If Ryan was serious about this plan, he never made a big point of defending it in public. In short, Ryan was a lightweight who did not want his proposals to be taken seriously, and thankfully, most people other than centrist pundits did not.
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• GovernmentEl GobiernoUnited StatesEE. UU.
There is an old saying that intellectuals have a hard time with new ideas. The pursuit of campaign finance reform by many progressives is probably the best example of this difficulty.
Many progressives have argued for the urgency of getting money out of politics to prevent the corrupting influence of major corporations and generic rich people on the political process. They are absolutely right to call attention to how money corrupts democracy, but their proposed solution is a complete dead end, as Mr. Musk has tried to show us.
First of all, we all know at this point that we have a Supreme Court that wants to do everything it can to promote the interests of the rich. They have ruled repeatedly that efforts to limit political contributions from the rich are unconstitutional restrictions on speech.
We can yell all we like about the absurdity of this position, but that is what six justices on the Supreme Court say, and that is all that matters. Yeah, one day the six right-wing justices will leave the court, and if we are lucky and have a Democratic president, and Mitch McConnell doesn’t control the Senate, they can appoint people who want to protect democracy. Of course, that day could be well into the second half of the century.
Oh yeah, we can pack the court, have a Democratic president pick six new justices. That’s a great plan for the 22nd century. If we want to be serious, we are going to have to live with a Supreme Court that will block serious efforts at limiting political contributions for the foreseeable future.
But apart from the political obstacles to campaign finance reform, Musk’s takeover of Twitter should have made the irrelevance of such efforts completely clear to anyone who didn’t see it already. Let’s suppose that we somehow manage to limit how much the rich and very rich can contribute to political campaigns, do we have a plan to prevent billionaire fascists like Rupert Murdoch from setting up television networks? Do we have a plan to keep a right-wing jerk like Musk from taking over a major social media platform?
Unless we have a plan to keep people with clear political agendas from owning major media outlets, which would almost certainly violate the First Amendment as anyone understands it, we will not be keeping money out of politics. After all, if we keep rich people from buying ads for their favored candidates, but they get to own newspapers, television networks, and social media platforms that push their candidates, and trash their opponents, 24-7 in “news” segments, have we accomplished anything?
That point should have been pretty obvious long ago, but for whatever reason it has not sunk in. Yes, political ads can be effective and make a difference in campaigns, but if we can somehow limit how many ads the rich can buy, did we think they would just slink away and stop trying to influence politics?
Unfortunately for progressives, the rich will not be as stupid as we might want them to be. If we close off one channel for them to use their money, they will look to use other channels, as Musk is now doing.
There Is an Alternative: Equalize Up
Fortunately, there is another route. If we can’t keep the rich from spending endless money to corrupt politics, we can give the masses the means to compete.
The basic story is to give ordinary people some amount of money to contribute to the candidates they support. This is not a far out idea. Seattle has been doing this for several years in its local races with its “democracy vouchers.” These vouchers give voters $100 to contribute to candidates in local elections, who agree to certain restrictions on contributions and spending. Candidates who agree to these terms, and can garner substantial support, can get enough money to be competitive.
Other states and cities have gone a similar route with “super-matches” of small contributions. For example, a New York City program provides for public support that can be as much as eight times a small donor’s contribution, for candidates that agree to restrictions on donations and spending. These sorts of programs can be extended and expanded, where the political support for implementation exists.
There is also the problem of the media. After all, it will be hard to get people to support progressive candidates if the only thing they ever see on television or the Internet is some fantasy scandal involving Hunter Biden.
We can go the same route here, give money to the average person to support the media outlet of their choice. There are several proposals currently being pushed along these lines.[1] While none of us individually can hope to match the influence that an Elon Musk can buy with his $200 billion, 70 million, people with a voucher of $200 each, can spend $14 billion a year pushing out views and news that challenge the rich people’s tall tales. That’s roughly equal to what was spent in total on political campaigns in 2020. This should be sufficient to allow progressive candidates to compete.
It’s also worth noting that we are not talking about ridiculous sums of money for the government. If 200 million people used a $200 voucher to support creative work and/or political campaigns, it would cost $40 billion a year. This is less than 0.8 percent of the federal budget and less than what the government loses each year due to the tax deduction for charitable contributions.
So, we are not talking about crazy amounts of money. Also, even MAGA judges have not generally tried to claim that giving normal people a voice in the political process violates the First Amendment. And, this route has the great advantage that the changes can be implemented piecemeal. We can go state by state, city by city, and look to increase the political power of the masses wherever we can.
To be clear, this is not going to be easy. The deep-red states are not about to support measures that would give ordinary people, and especially Blacks and Latinos, more voice in politics. And even in blue states, such measures will be a serious lift. But this is a route that is viable, unlike trying to directly limit the influence of the rich in politics.
This is also not the only route that can be useful. We do have anti-trust laws on the books, which may be useful in limiting the influence of some media conglomerates. In addition, a repeal of Section 230 may make things a bit more difficult for Elon Musk and his friends.
But the key point is that we need to be fighting for policies that will make a difference if we win. Fighting for limits on what the rich can spend on political campaigns is a losing effort and serious progressives should have better things to do with their time.
[1] I favor a broader “creative work” tax credit, both because it would be hard to draw lines as to what constitutes “news” and also because this would be a good way to support musicians, writers, and other creative workers.
There is an old saying that intellectuals have a hard time with new ideas. The pursuit of campaign finance reform by many progressives is probably the best example of this difficulty.
Many progressives have argued for the urgency of getting money out of politics to prevent the corrupting influence of major corporations and generic rich people on the political process. They are absolutely right to call attention to how money corrupts democracy, but their proposed solution is a complete dead end, as Mr. Musk has tried to show us.
First of all, we all know at this point that we have a Supreme Court that wants to do everything it can to promote the interests of the rich. They have ruled repeatedly that efforts to limit political contributions from the rich are unconstitutional restrictions on speech.
We can yell all we like about the absurdity of this position, but that is what six justices on the Supreme Court say, and that is all that matters. Yeah, one day the six right-wing justices will leave the court, and if we are lucky and have a Democratic president, and Mitch McConnell doesn’t control the Senate, they can appoint people who want to protect democracy. Of course, that day could be well into the second half of the century.
Oh yeah, we can pack the court, have a Democratic president pick six new justices. That’s a great plan for the 22nd century. If we want to be serious, we are going to have to live with a Supreme Court that will block serious efforts at limiting political contributions for the foreseeable future.
But apart from the political obstacles to campaign finance reform, Musk’s takeover of Twitter should have made the irrelevance of such efforts completely clear to anyone who didn’t see it already. Let’s suppose that we somehow manage to limit how much the rich and very rich can contribute to political campaigns, do we have a plan to prevent billionaire fascists like Rupert Murdoch from setting up television networks? Do we have a plan to keep a right-wing jerk like Musk from taking over a major social media platform?
Unless we have a plan to keep people with clear political agendas from owning major media outlets, which would almost certainly violate the First Amendment as anyone understands it, we will not be keeping money out of politics. After all, if we keep rich people from buying ads for their favored candidates, but they get to own newspapers, television networks, and social media platforms that push their candidates, and trash their opponents, 24-7 in “news” segments, have we accomplished anything?
That point should have been pretty obvious long ago, but for whatever reason it has not sunk in. Yes, political ads can be effective and make a difference in campaigns, but if we can somehow limit how many ads the rich can buy, did we think they would just slink away and stop trying to influence politics?
Unfortunately for progressives, the rich will not be as stupid as we might want them to be. If we close off one channel for them to use their money, they will look to use other channels, as Musk is now doing.
There Is an Alternative: Equalize Up
Fortunately, there is another route. If we can’t keep the rich from spending endless money to corrupt politics, we can give the masses the means to compete.
The basic story is to give ordinary people some amount of money to contribute to the candidates they support. This is not a far out idea. Seattle has been doing this for several years in its local races with its “democracy vouchers.” These vouchers give voters $100 to contribute to candidates in local elections, who agree to certain restrictions on contributions and spending. Candidates who agree to these terms, and can garner substantial support, can get enough money to be competitive.
Other states and cities have gone a similar route with “super-matches” of small contributions. For example, a New York City program provides for public support that can be as much as eight times a small donor’s contribution, for candidates that agree to restrictions on donations and spending. These sorts of programs can be extended and expanded, where the political support for implementation exists.
There is also the problem of the media. After all, it will be hard to get people to support progressive candidates if the only thing they ever see on television or the Internet is some fantasy scandal involving Hunter Biden.
We can go the same route here, give money to the average person to support the media outlet of their choice. There are several proposals currently being pushed along these lines.[1] While none of us individually can hope to match the influence that an Elon Musk can buy with his $200 billion, 70 million, people with a voucher of $200 each, can spend $14 billion a year pushing out views and news that challenge the rich people’s tall tales. That’s roughly equal to what was spent in total on political campaigns in 2020. This should be sufficient to allow progressive candidates to compete.
It’s also worth noting that we are not talking about ridiculous sums of money for the government. If 200 million people used a $200 voucher to support creative work and/or political campaigns, it would cost $40 billion a year. This is less than 0.8 percent of the federal budget and less than what the government loses each year due to the tax deduction for charitable contributions.
So, we are not talking about crazy amounts of money. Also, even MAGA judges have not generally tried to claim that giving normal people a voice in the political process violates the First Amendment. And, this route has the great advantage that the changes can be implemented piecemeal. We can go state by state, city by city, and look to increase the political power of the masses wherever we can.
To be clear, this is not going to be easy. The deep-red states are not about to support measures that would give ordinary people, and especially Blacks and Latinos, more voice in politics. And even in blue states, such measures will be a serious lift. But this is a route that is viable, unlike trying to directly limit the influence of the rich in politics.
This is also not the only route that can be useful. We do have anti-trust laws on the books, which may be useful in limiting the influence of some media conglomerates. In addition, a repeal of Section 230 may make things a bit more difficult for Elon Musk and his friends.
But the key point is that we need to be fighting for policies that will make a difference if we win. Fighting for limits on what the rich can spend on political campaigns is a losing effort and serious progressives should have better things to do with their time.
[1] I favor a broader “creative work” tax credit, both because it would be hard to draw lines as to what constitutes “news” and also because this would be a good way to support musicians, writers, and other creative workers.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónInflationUnited StatesEE. UU.
I’m not kidding, it literally began a piece on falling gas prices by telling listeners:
“Gas prices are falling, but don’t give credit to Biden.”
Obviously, there are many factors that affect gas prices, but one of them was President Biden’s decision several months ago to release oil from the country’s strategic petroleum reserves. The piece effectively acknowledges this fact even as it was telling listeners not to give Biden credit.
Here’s a chunk of the segment:
“CHANG: [Show host Aisla Chang] Interesting. OK. But President Biden made a big speech about gas prices, and he announced, like, another release from the Strategic Petroleum Reserves. Did that actually help push prices down, too?
DOMONOSKE: [NPR reporter Camila Domonoske] Yeah. This latest announcement, it was really more of an update about the decision that was announced months ago. There wasn’t any new oil involved. Here’s Patrick De Haan from the price tracking app GasBuddy.
PATRICK DE HAAN: [expert with price tracking app GasBuddy] Because it wasn’t a new announcement. The market had been expecting that. It’s really not moving the needle.”
The gist of this brief exchange is that Biden’s latest announcement that he was releasing oil from the Strategic Petroleum Reserves was not lowering prices because he had earlier committed himself to this release.
Okay, so De Haan is actually quite explicitly saying that Biden’s release of oil from the reserves is lowering prices. He was just saying that his latest announcement did not have an effect because the markets already expected this release.
That means in reality land, Biden does deserve credit for falling gas prices, even if NPR doesn’t want its listeners to give him credit.
I’m not kidding, it literally began a piece on falling gas prices by telling listeners:
“Gas prices are falling, but don’t give credit to Biden.”
Obviously, there are many factors that affect gas prices, but one of them was President Biden’s decision several months ago to release oil from the country’s strategic petroleum reserves. The piece effectively acknowledges this fact even as it was telling listeners not to give Biden credit.
Here’s a chunk of the segment:
“CHANG: [Show host Aisla Chang] Interesting. OK. But President Biden made a big speech about gas prices, and he announced, like, another release from the Strategic Petroleum Reserves. Did that actually help push prices down, too?
DOMONOSKE: [NPR reporter Camila Domonoske] Yeah. This latest announcement, it was really more of an update about the decision that was announced months ago. There wasn’t any new oil involved. Here’s Patrick De Haan from the price tracking app GasBuddy.
PATRICK DE HAAN: [expert with price tracking app GasBuddy] Because it wasn’t a new announcement. The market had been expecting that. It’s really not moving the needle.”
The gist of this brief exchange is that Biden’s latest announcement that he was releasing oil from the Strategic Petroleum Reserves was not lowering prices because he had earlier committed himself to this release.
Okay, so De Haan is actually quite explicitly saying that Biden’s release of oil from the reserves is lowering prices. He was just saying that his latest announcement did not have an effect because the markets already expected this release.
That means in reality land, Biden does deserve credit for falling gas prices, even if NPR doesn’t want its listeners to give him credit.
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• Economic GrowthEl DesarolloUnited StatesEE. UU.
The NYT doesn’t like the Democrats’ economic policies, and they make this very clear in their news section. Their latest salvo referred to President Obama’s 2009 stimulus package as “huge.”
“After Democrats passed a huge economic stimulus bill, other economic measures like legislation to help consumers trade in their ‘clunker’ cars for more efficient models, and a landmark regulation of Wall Street, they could say they had made progress on the economy.”
In retrospect, most economists have argued that the stimulus was too small. (Some of us said that at the time.) As a result, it took us almost a decade to get back to something approaching full employment. The NYT should just have said it didn’t like the stimulus package.
The NYT doesn’t like the Democrats’ economic policies, and they make this very clear in their news section. Their latest salvo referred to President Obama’s 2009 stimulus package as “huge.”
“After Democrats passed a huge economic stimulus bill, other economic measures like legislation to help consumers trade in their ‘clunker’ cars for more efficient models, and a landmark regulation of Wall Street, they could say they had made progress on the economy.”
In retrospect, most economists have argued that the stimulus was too small. (Some of us said that at the time.) As a result, it took us almost a decade to get back to something approaching full employment. The NYT should just have said it didn’t like the stimulus package.
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• Economic Crisis and RecoveryCrisis económica y recuperación
When the Washington Post’s news editors take a position, they are prepared to go to great lengths to follow through. As regular BTP readers know, the paper has decided the economy has been awful ever since President Biden took office.
This means that the paper has downplayed or ignored, the unprecedented pace of job growth, the unemployment rate reaching of a 50-year low, the rise in real wages for workers at the bottom, the sharp drop in the number of uninsured, and savings of thousands of dollars a year in interest costs by tens of millions of homeowners refinancing their mortgages. Instead, the Post has decided the story would be inflation belting hardworking families, even if it had to play a bit fast and loose with the data to make this case.
The Post went a step further today with a piece that preemptively sought to discredit the positive GDP report that we are likely to see from the Commerce Department on Thursday. The headline of the piece told readers:
“U.S. economy likely grew a lot last quarter. Most people didn’t notice.”
Of course, this is true in a trivial sense. People don’t directly notice GDP unless they happen to be data nerds who regularly read the monthly reports released by the Commerce Department. What they do notice are things like jobs and wage growth.
On these matters, it is a bit hard to understand what the Post can possibly mean by its assertion that “most people didn’t notice.” The economy created 1.1 million jobs in the quarter. People couldn’t notice that?
The unemployment rate hit 3.5 percent, the lowest level since the late 1960s. The Post doesn’t think people could notice that it is relatively easy to find jobs?
They also saw healthy growth in real wages. The average hourly wage rose 1.1 percent over the last three months. That exceeded the 0.4 percent inflation reported by the consumer price index by 0.7 percentage points. That translates into a 2.8 percent annual rate of real wage growth. That’s really good by any standard.
So, what the hell does the Post mean by people won’t notice? I sure can’t think of any real world substance to that assertion.
If the paper is making the point that the economy is not out of the woods, that’s fine, but a totally different issue than how things looked in the third quarter. We have had high inflation and we have a Federal Reserve Board raising rates aggressively to slow inflation down.
The rate hikes are slowing growth and weakening the economy. They will likely raise the unemployment rate in the months ahead and quite possibly could throw the economy into a recession.
This is definitely a risk and could be a really bad story, however the third quarter GDP could be very good news on this front. In the first half of this year productivity growth tanked. The most recent data show productivity declining at a 7.1 percent annual rate in the first quarter and a 4.1 percent rate in the second quarter. This is the largest two quarter decline ever reported. The reasons for this drop are not clear, the surge in omicron probably explains part of it, as does the rapid turnover in the labor market. Supply chain disruptions were likely also a major factor.
But, regardless of the cause, the decline in productivity in the first half of 2022 was a major source of inflationary pressure. Employers, who were getting less output for each hour of work, were seeing their costs soar.
The healthy GDP growth we are expecting for the third quarter means that productivity will likely again be on a path of at least modest positive growth. This will help alleviate inflationary pressure in the economy by reducing labor costs.
Of course, we should never make too much of one quarter’s productivity data. The numbers are erratic and are subject to large revisions. Nonetheless the data we will be getting for this quarter will be good news and a huge turnaround from the productivity numbers we saw in the first half of 2022.
But Washington Post readers are not likely to hear about this productivity turnaround. It doesn’t fit with the Biden bad economy story it is pushing.
When the Washington Post’s news editors take a position, they are prepared to go to great lengths to follow through. As regular BTP readers know, the paper has decided the economy has been awful ever since President Biden took office.
This means that the paper has downplayed or ignored, the unprecedented pace of job growth, the unemployment rate reaching of a 50-year low, the rise in real wages for workers at the bottom, the sharp drop in the number of uninsured, and savings of thousands of dollars a year in interest costs by tens of millions of homeowners refinancing their mortgages. Instead, the Post has decided the story would be inflation belting hardworking families, even if it had to play a bit fast and loose with the data to make this case.
The Post went a step further today with a piece that preemptively sought to discredit the positive GDP report that we are likely to see from the Commerce Department on Thursday. The headline of the piece told readers:
“U.S. economy likely grew a lot last quarter. Most people didn’t notice.”
Of course, this is true in a trivial sense. People don’t directly notice GDP unless they happen to be data nerds who regularly read the monthly reports released by the Commerce Department. What they do notice are things like jobs and wage growth.
On these matters, it is a bit hard to understand what the Post can possibly mean by its assertion that “most people didn’t notice.” The economy created 1.1 million jobs in the quarter. People couldn’t notice that?
The unemployment rate hit 3.5 percent, the lowest level since the late 1960s. The Post doesn’t think people could notice that it is relatively easy to find jobs?
They also saw healthy growth in real wages. The average hourly wage rose 1.1 percent over the last three months. That exceeded the 0.4 percent inflation reported by the consumer price index by 0.7 percentage points. That translates into a 2.8 percent annual rate of real wage growth. That’s really good by any standard.
So, what the hell does the Post mean by people won’t notice? I sure can’t think of any real world substance to that assertion.
If the paper is making the point that the economy is not out of the woods, that’s fine, but a totally different issue than how things looked in the third quarter. We have had high inflation and we have a Federal Reserve Board raising rates aggressively to slow inflation down.
The rate hikes are slowing growth and weakening the economy. They will likely raise the unemployment rate in the months ahead and quite possibly could throw the economy into a recession.
This is definitely a risk and could be a really bad story, however the third quarter GDP could be very good news on this front. In the first half of this year productivity growth tanked. The most recent data show productivity declining at a 7.1 percent annual rate in the first quarter and a 4.1 percent rate in the second quarter. This is the largest two quarter decline ever reported. The reasons for this drop are not clear, the surge in omicron probably explains part of it, as does the rapid turnover in the labor market. Supply chain disruptions were likely also a major factor.
But, regardless of the cause, the decline in productivity in the first half of 2022 was a major source of inflationary pressure. Employers, who were getting less output for each hour of work, were seeing their costs soar.
The healthy GDP growth we are expecting for the third quarter means that productivity will likely again be on a path of at least modest positive growth. This will help alleviate inflationary pressure in the economy by reducing labor costs.
Of course, we should never make too much of one quarter’s productivity data. The numbers are erratic and are subject to large revisions. Nonetheless the data we will be getting for this quarter will be good news and a huge turnaround from the productivity numbers we saw in the first half of 2022.
But Washington Post readers are not likely to hear about this productivity turnaround. It doesn’t fit with the Biden bad economy story it is pushing.
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• DebtEconomic Crisis and RecoveryCrisis económica y recuperaciónEducationUnited StatesEE. UU.
Correction: Okay, this is a big blunder on my part. The full projected cost of the student loan debt forgiveness actually was included in the 2022 budget. I had not considered the possibility that this was the case since it implied the deficit for fiscal 2022 was under $1 trillion, without this accounting. Since there was still considerable pandemic-related spending in this fiscal year, that has not occurred to me as a possibility. This means that apart from this accounting peculiarity, the deficit fell from $2.8 trillion in 2021 to $1.0 trillion in 2022, a decline of 64 percent.
The New York Times continued in its trashing of the economy under President Biden, implying that the 40-year cost of his student loan forgiveness plan will be incurred over a single year. An article reporting on the sharp drop in the deficit in fiscal year 2022, which just ended at the start of the month, included a quote from a statement by Maya MacGuineas, the president of the Committee for a Responsible Federal Budget:
“In fact, the deficit would have been almost $400 billion lower had the Biden administration not decided to enact an inflationary, costly, and regressive student debt cancellation plan in August, ….”
This is not true, as every budget expert knows. The $400 billion figure refers to the Congressional Budget Office’s estimate of the cost of debt forgiveness over the next forty years, not its cost in fiscal year 2022, which was in fact zero.
Since most people probably do not have a good idea of how much $400 billion over forty years is, if the NYT was interested in informing its readers, it could have expressed the sum as a share of GDP. According to the CBO projections, the cost of forgiveness peaks at a bit more than 0.09 percent of GDP in the years 2023-25. That is less than one-thirtieth of the military budget. It falls to around 0.07 percent of GDP by 2032 and then drops further to 0.02 percent of GDP by 2042.
The piece also includes the bizarre complaint that “Treasury Department figures released earlier this month revealed that America’s gross national debt exceeded $31 trillion for the first time, a milestone that the Biden administration did not observe with any fanfare.”
First, since debt has almost always risen in the 80 years since the start of World War II, every debt number we hit will be “for the first time.” It’s not clear why the NYT felt the need to include these words.
It is also bizarre that they see $31 trillion as some important milestone that they criticize the Biden administration for not acknowledging. After all, it didn’t acknowledge hitting $30,897,300 million either.
We have a right to expect more serious budget reporting from the country’s leading newspaper.
Correction: Okay, this is a big blunder on my part. The full projected cost of the student loan debt forgiveness actually was included in the 2022 budget. I had not considered the possibility that this was the case since it implied the deficit for fiscal 2022 was under $1 trillion, without this accounting. Since there was still considerable pandemic-related spending in this fiscal year, that has not occurred to me as a possibility. This means that apart from this accounting peculiarity, the deficit fell from $2.8 trillion in 2021 to $1.0 trillion in 2022, a decline of 64 percent.
The New York Times continued in its trashing of the economy under President Biden, implying that the 40-year cost of his student loan forgiveness plan will be incurred over a single year. An article reporting on the sharp drop in the deficit in fiscal year 2022, which just ended at the start of the month, included a quote from a statement by Maya MacGuineas, the president of the Committee for a Responsible Federal Budget:
“In fact, the deficit would have been almost $400 billion lower had the Biden administration not decided to enact an inflationary, costly, and regressive student debt cancellation plan in August, ….”
This is not true, as every budget expert knows. The $400 billion figure refers to the Congressional Budget Office’s estimate of the cost of debt forgiveness over the next forty years, not its cost in fiscal year 2022, which was in fact zero.
Since most people probably do not have a good idea of how much $400 billion over forty years is, if the NYT was interested in informing its readers, it could have expressed the sum as a share of GDP. According to the CBO projections, the cost of forgiveness peaks at a bit more than 0.09 percent of GDP in the years 2023-25. That is less than one-thirtieth of the military budget. It falls to around 0.07 percent of GDP by 2032 and then drops further to 0.02 percent of GDP by 2042.
The piece also includes the bizarre complaint that “Treasury Department figures released earlier this month revealed that America’s gross national debt exceeded $31 trillion for the first time, a milestone that the Biden administration did not observe with any fanfare.”
First, since debt has almost always risen in the 80 years since the start of World War II, every debt number we hit will be “for the first time.” It’s not clear why the NYT felt the need to include these words.
It is also bizarre that they see $31 trillion as some important milestone that they criticize the Biden administration for not acknowledging. After all, it didn’t acknowledge hitting $30,897,300 million either.
We have a right to expect more serious budget reporting from the country’s leading newspaper.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónInflationJobsTrabajosUnited StatesEE. UU.WorkersSector del trabajo
We know that’s what CNN told people, but that is far from clear from the data. The lowest-paid workers have, on average, been seeing pay increases that exceed inflation. Here’s the picture for production and non-supervisory workers in the hotel and restaurant industry.
Source: Bureau of Labor Statistics.
The graph shows the average hourly wage adjusted for inflation. As can be seen, real wages for these workers, who are among the lowest paid in the economy, is just over 3.0 percent higher than it was before the pandemic. This doesn’t mean that these workers have it great, they are still very low-paid, but it would make less sense to say that they are living “paycheck to paycheck” today than it would have in 2019, when most reporting on the economy was positive. There is a similar story in most other low-paying sectors.
It’s true that workers higher up on the wage ladder have not done quite as well. The average real hourly wage for production and non-supervisory workers for the private sector as a whole is just even with where it was at the start of the pandemic. That’s not great, we would like to see wages rise through time, but it is hardly a disaster.
After all, there have been many periods where wages have not kept pace with inflation. For example, real wages fell 3.9 percent from 1980 to 1989, the period often called “the Reagan boom.”
It’s also worth noting that many workers higher up on the pay ladder likely benefited from the opportunity to refinance their homes before mortgage rates rose. Roughly 20 million homeowners did. If a person with a $200,000 mortgage was able to refinance their home, with a 1.0 percentage point drop in interest rates, they would be saving $2,000 a year. This should go far towards keeping them from having to live paycheck to paycheck.
In short, while many people undoubtedly are being squeezed by inflation, it is not clear why there would be more people living paycheck to paycheck today than before the pandemic, when most news outlets were touting the strong economy. The data just don’t fit the story CNN wants its audience to believe.
We know that’s what CNN told people, but that is far from clear from the data. The lowest-paid workers have, on average, been seeing pay increases that exceed inflation. Here’s the picture for production and non-supervisory workers in the hotel and restaurant industry.
Source: Bureau of Labor Statistics.
The graph shows the average hourly wage adjusted for inflation. As can be seen, real wages for these workers, who are among the lowest paid in the economy, is just over 3.0 percent higher than it was before the pandemic. This doesn’t mean that these workers have it great, they are still very low-paid, but it would make less sense to say that they are living “paycheck to paycheck” today than it would have in 2019, when most reporting on the economy was positive. There is a similar story in most other low-paying sectors.
It’s true that workers higher up on the wage ladder have not done quite as well. The average real hourly wage for production and non-supervisory workers for the private sector as a whole is just even with where it was at the start of the pandemic. That’s not great, we would like to see wages rise through time, but it is hardly a disaster.
After all, there have been many periods where wages have not kept pace with inflation. For example, real wages fell 3.9 percent from 1980 to 1989, the period often called “the Reagan boom.”
It’s also worth noting that many workers higher up on the pay ladder likely benefited from the opportunity to refinance their homes before mortgage rates rose. Roughly 20 million homeowners did. If a person with a $200,000 mortgage was able to refinance their home, with a 1.0 percentage point drop in interest rates, they would be saving $2,000 a year. This should go far towards keeping them from having to live paycheck to paycheck.
In short, while many people undoubtedly are being squeezed by inflation, it is not clear why there would be more people living paycheck to paycheck today than before the pandemic, when most news outlets were touting the strong economy. The data just don’t fit the story CNN wants its audience to believe.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónInflationUnited StatesEE. UU.
Last week I made fun of the Washington Post for writing a piece telling readers about the bad news that retailers are finding themselves with excessive inventories and may have to mark down prices to sell them off. The story is that with supply chain problems from the pandemic largely over, stores have been able to restock their inventories, but now see demand trailing off.
The incredible part of the story is that the piece largely ignored the obvious implication, that consumers are likely to see price reductions in a wide range of goods in the near future. Since INFLATION! has been front and center in economic reporting for the last year and half, the likelihood that people will soon be able to get large discounts on everything from furniture and appliances, to clothes and kitchen items, should be good news. But this likely outcome was completely downplayed to the point of being almost ignored.
The New York Times was apparently determined not to be outdone. It wrote a nearly identical piece telling us about the tough holiday season facing retailers, who may have to accept lower profit margins.
“But discounts eat into retailers’ profit margins, and they have been able to employ that strategy only sparingly in recent years. During last year’s holiday season, in particular, retailers recorded bigger margins thanks to supply chain logjams. Inventory was low, and shoppers were clamoring to get their hands on products. The result: fewer discounts.
“’A lot of that is going to reverse, if not more than reverse, across department stores and specialty apparel,’ said David Silverman, a senior director at Fitch Ratings. ‘Consumers are less compelled to buy, and they’re going to need the call to action.’”
Like the Washington Post article, the piece pretty much ignored the fact that large markdowns will be good news for people troubled by inflation. But, the New York Times one-upped the Post on this one.
It ran its troubled retailers piece on its home page just below a piece headlined, “alarmed by rapid price increases, Fed looks at raising rate again.” While making the case for more aggressive rate hikes from the Fed, the piece told readers:
“And there is little evidence, so far, that the Fed’s policy is working to tamp down price increases.”
It seems like the NYT is very committed to having a diversity of viewpoints in its new section. We can either see a piece telling us that inflation is unrelenting or alternatively read a piece just below it telling us that we can expect sharp price declines in a wide range of goods.
Either way, it’s bad news for Biden.
Last week I made fun of the Washington Post for writing a piece telling readers about the bad news that retailers are finding themselves with excessive inventories and may have to mark down prices to sell them off. The story is that with supply chain problems from the pandemic largely over, stores have been able to restock their inventories, but now see demand trailing off.
The incredible part of the story is that the piece largely ignored the obvious implication, that consumers are likely to see price reductions in a wide range of goods in the near future. Since INFLATION! has been front and center in economic reporting for the last year and half, the likelihood that people will soon be able to get large discounts on everything from furniture and appliances, to clothes and kitchen items, should be good news. But this likely outcome was completely downplayed to the point of being almost ignored.
The New York Times was apparently determined not to be outdone. It wrote a nearly identical piece telling us about the tough holiday season facing retailers, who may have to accept lower profit margins.
“But discounts eat into retailers’ profit margins, and they have been able to employ that strategy only sparingly in recent years. During last year’s holiday season, in particular, retailers recorded bigger margins thanks to supply chain logjams. Inventory was low, and shoppers were clamoring to get their hands on products. The result: fewer discounts.
“’A lot of that is going to reverse, if not more than reverse, across department stores and specialty apparel,’ said David Silverman, a senior director at Fitch Ratings. ‘Consumers are less compelled to buy, and they’re going to need the call to action.’”
Like the Washington Post article, the piece pretty much ignored the fact that large markdowns will be good news for people troubled by inflation. But, the New York Times one-upped the Post on this one.
It ran its troubled retailers piece on its home page just below a piece headlined, “alarmed by rapid price increases, Fed looks at raising rate again.” While making the case for more aggressive rate hikes from the Fed, the piece told readers:
“And there is little evidence, so far, that the Fed’s policy is working to tamp down price increases.”
It seems like the NYT is very committed to having a diversity of viewpoints in its new section. We can either see a piece telling us that inflation is unrelenting or alternatively read a piece just below it telling us that we can expect sharp price declines in a wide range of goods.
Either way, it’s bad news for Biden.
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• Economic Crisis and RecoveryCrisis económica y recuperaciónInflationUnited StatesEE. UU.
The media have been hyping inflation pretty much non-stop for the last year and a half. They tell us that this the only thing people care about. They don’t care about whether they have a job, how much the job pays, whether they have health care, or any other economic issue. People care about inflation: full stop.
And, what do you know, this is bad news for Joe Biden and the Democrats. Yeah, it’s true that pretty much every other wealthy country in the world is facing a comparable rate of inflation, but that doesn’t matter. We have high inflation and it’s Joe Biden’s fault. The Democrats just have to accept this.
The insistence, that inflation is the only economic issue voters care about, reminds me of the situation a quarter century ago when there was a big push by Republicans, and many Democrats, to cut and/or privatize Social Security. The story at the time was that Social Security faced a crisis and something had to be done.
The “liberal” position was that it was best to get out front and propose more modest cuts, which would hit the middle class, while protecting the poor. The concern for the poor was nice, but the fact is that most middle-income people rely on Social Security for most of their retirement income. It is hard to say that the benefits that now average just over $1,600 a month are all that generous. There is not much room for cutting without serious hardship.
At the time, my friend and longtime colleague, Mark Weisbrot and I questioned whether people really saw Social Security as being in crisis. We knew that’s what all the political experts said. I even remember being in a meeting with one of the leading Democratic pollsters, who was very adamant on this point. He recounted his experiences in focus groups, where if you told people that Social Security was not in crisis, they got angry to the point they wanted to throw things at you.
This all struck Mark and me as very strange. After all, how could people become convinced Social Security was in a crisis? Were tens of millions of people reading through the Social Security Trustees Report and studying other long-range projections of demographics and economic growth?
That didn’t strike us as very likely. It seemed more plausible that people thought Social Security was in a crisis because everyone they heard talk about it on TV or the radio said Social Security was in crisis. If that is all you ever hear about Social Security, then you might come to believe the program is in a crisis.
Thankfully, we got through this period without any cuts to Social Security. Mark and I made a minor contribution to preserving the program with our book, Social Security: The Phony Crisis.
What Does This Have to Do with Inflation?
The reason for bringing up this history with Social Security is that the political dynamics around the inflation debate are very similar to the dynamics around Social Security in the 1990s. The media constantly assert that inflation is the only economic issue that people care about. Republicans are happy to go along with this assertion and Democrats are intimidated into silence.
But, just as it was hard to believe that people had studied demographic and economic trends to determine that Social Security faced a crisis, it is also hard to believe that people only care about inflation. After all, it was not ancient history when we had more than 10 million people unemployed. In fact, that was true in January of 2021, the month president Biden took office. The unemployment rate is now down to 3.5 percent, a half-century low. Doesn’t the opportunity to have a job mean anything to people? After all, most people who are working do need a job to pay the bills.
There is also the issue of job quality. While many people are still in low-paying jobs doing unpleasant work, the tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. (This number is for total quits, some people quit more than once, so the actual number of people who quit jobs would be somewhat lower.)
The new opportunities for workers in low-paying jobs has meant that wages have outpaced inflation for workers at the bottom end of the wage ladder. Real average hour earnings for production and non-supervisory workers in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to September of this year.
To be clear, these workers are not doing well. A worker supporting a family on $20,000 a year before the pandemic, will still be struggling if their real earnings increased to $20,800, but they are better off than they were in 2019. The media have largely ignored the story of workers quitting bad jobs for ones that pay better and/or offer better working conditions.
It’s not just workers at the bottom who are doing better today than they were before the pandemic, tens of millions of homeowners were able to take advantage of the low mortgage interest rates that we had until the Fed rate hikes started. They refinanced their homes at rates that were often a percentage point or more below the rate they paid before the pandemic.
This could mean $2000-$3000 a year in interest savings for a typical homeowner. Are we really supposed to believe that these interest savings won’t cover paying $1 more for a gallon of milk at the supermarket? Obviously, no one is happy about paying higher prices for food and other items, but the families that were able to refinance are almost certainly better off today, even with the higher prices, than they were before the pandemic.
There is a similar story with the tens of millions of people who are now able to work from home as a result of changes workplaces implemented in the pandemic. These people are saving thousands of dollars a year in commuting costs. Are we really supposed to believe that these people are all worse off due to inflation, in spite of these savings?
It is worth noting that the average hourly wage has almost kept pace with inflation since the start of the pandemic. It’s down by just 0.7 percent (it dropped 3.9 percent during the “Reagan Boom”), so there is not that much ground that workers need to make up through paying lower mortgage interest or savings on commuting costs.
So, given the economic reality, is it plausible that everyone feels they are being devastated by inflation? That one doesn’t seem to fit, just like the story that everyone believed Social Security was in a crisis back in the 1990s didn’t make sense.
We know politicians can’t stick their necks out and say that inflation isn’t that bad, the media will mercilessly trash them for being out of touch. But people whose jobs don’t prevent them from telling the truth can point out what the data show. Most families are not being devasted by inflation, and that fact will not change no matter how many times the media and Republican politicians assert the opposite.
The media have been hyping inflation pretty much non-stop for the last year and a half. They tell us that this the only thing people care about. They don’t care about whether they have a job, how much the job pays, whether they have health care, or any other economic issue. People care about inflation: full stop.
And, what do you know, this is bad news for Joe Biden and the Democrats. Yeah, it’s true that pretty much every other wealthy country in the world is facing a comparable rate of inflation, but that doesn’t matter. We have high inflation and it’s Joe Biden’s fault. The Democrats just have to accept this.
The insistence, that inflation is the only economic issue voters care about, reminds me of the situation a quarter century ago when there was a big push by Republicans, and many Democrats, to cut and/or privatize Social Security. The story at the time was that Social Security faced a crisis and something had to be done.
The “liberal” position was that it was best to get out front and propose more modest cuts, which would hit the middle class, while protecting the poor. The concern for the poor was nice, but the fact is that most middle-income people rely on Social Security for most of their retirement income. It is hard to say that the benefits that now average just over $1,600 a month are all that generous. There is not much room for cutting without serious hardship.
At the time, my friend and longtime colleague, Mark Weisbrot and I questioned whether people really saw Social Security as being in crisis. We knew that’s what all the political experts said. I even remember being in a meeting with one of the leading Democratic pollsters, who was very adamant on this point. He recounted his experiences in focus groups, where if you told people that Social Security was not in crisis, they got angry to the point they wanted to throw things at you.
This all struck Mark and me as very strange. After all, how could people become convinced Social Security was in a crisis? Were tens of millions of people reading through the Social Security Trustees Report and studying other long-range projections of demographics and economic growth?
That didn’t strike us as very likely. It seemed more plausible that people thought Social Security was in a crisis because everyone they heard talk about it on TV or the radio said Social Security was in crisis. If that is all you ever hear about Social Security, then you might come to believe the program is in a crisis.
Thankfully, we got through this period without any cuts to Social Security. Mark and I made a minor contribution to preserving the program with our book, Social Security: The Phony Crisis.
What Does This Have to Do with Inflation?
The reason for bringing up this history with Social Security is that the political dynamics around the inflation debate are very similar to the dynamics around Social Security in the 1990s. The media constantly assert that inflation is the only economic issue that people care about. Republicans are happy to go along with this assertion and Democrats are intimidated into silence.
But, just as it was hard to believe that people had studied demographic and economic trends to determine that Social Security faced a crisis, it is also hard to believe that people only care about inflation. After all, it was not ancient history when we had more than 10 million people unemployed. In fact, that was true in January of 2021, the month president Biden took office. The unemployment rate is now down to 3.5 percent, a half-century low. Doesn’t the opportunity to have a job mean anything to people? After all, most people who are working do need a job to pay the bills.
There is also the issue of job quality. While many people are still in low-paying jobs doing unpleasant work, the tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. (This number is for total quits, some people quit more than once, so the actual number of people who quit jobs would be somewhat lower.)
The new opportunities for workers in low-paying jobs has meant that wages have outpaced inflation for workers at the bottom end of the wage ladder. Real average hour earnings for production and non-supervisory workers in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to September of this year.
To be clear, these workers are not doing well. A worker supporting a family on $20,000 a year before the pandemic, will still be struggling if their real earnings increased to $20,800, but they are better off than they were in 2019. The media have largely ignored the story of workers quitting bad jobs for ones that pay better and/or offer better working conditions.
It’s not just workers at the bottom who are doing better today than they were before the pandemic, tens of millions of homeowners were able to take advantage of the low mortgage interest rates that we had until the Fed rate hikes started. They refinanced their homes at rates that were often a percentage point or more below the rate they paid before the pandemic.
This could mean $2000-$3000 a year in interest savings for a typical homeowner. Are we really supposed to believe that these interest savings won’t cover paying $1 more for a gallon of milk at the supermarket? Obviously, no one is happy about paying higher prices for food and other items, but the families that were able to refinance are almost certainly better off today, even with the higher prices, than they were before the pandemic.
There is a similar story with the tens of millions of people who are now able to work from home as a result of changes workplaces implemented in the pandemic. These people are saving thousands of dollars a year in commuting costs. Are we really supposed to believe that these people are all worse off due to inflation, in spite of these savings?
It is worth noting that the average hourly wage has almost kept pace with inflation since the start of the pandemic. It’s down by just 0.7 percent (it dropped 3.9 percent during the “Reagan Boom”), so there is not that much ground that workers need to make up through paying lower mortgage interest or savings on commuting costs.
So, given the economic reality, is it plausible that everyone feels they are being devastated by inflation? That one doesn’t seem to fit, just like the story that everyone believed Social Security was in a crisis back in the 1990s didn’t make sense.
We know politicians can’t stick their necks out and say that inflation isn’t that bad, the media will mercilessly trash them for being out of touch. But people whose jobs don’t prevent them from telling the truth can point out what the data show. Most families are not being devasted by inflation, and that fact will not change no matter how many times the media and Republican politicians assert the opposite.
Read More Leer más Join the discussion Participa en la discusión
