The Bureau of Labor Statistics reported that its benchmark revision to its job numbers shows that the economy created 501,000 fewer jobs between March of 2018 and March of 2019 than previously reported. There are a few points to be made about this number.
First, there is nothing fishy here. Trump has zero to do with the data that comes from the Bureau of Labor Statistics (BLS). The BLS is staffed by committed professionals who would surely raise a big stink if Trump tried to tamper with the data.
I should also point out that it would be exceedingly difficult for someone to change the data if they did not have a very good idea what they were doing, and even then they would almost certainly have to bring dozens of people in on the scheme. If someone did something like just add 100,000 to the monthly job growth number, they would be nailed in a minute. Other numbers would not fit and it would be easy to see that the fake number was out of line.
Anyhow, the revision is based on state unemployment insurance filings, which give a virtual census of payroll employment in the United States. The original data comes from the BLS’ monthly Current Employment Situation survey. This is a large survey of businesses, but it is a survey, so that means there will be some error.
The next issue is why the survey would be so far off. (The 501,000 reduction is much larger than a normal revision.) In addition to the survey results, BLS imputes figures for “births” and “deaths” of firms. Births refer to new firms, which could not be included in the sample because they are new. Deaths are the firms that go out of business and aren’t so polite as to answer the survey before they shut their doors.
BLS imputes numbers for births and deaths using a model that estimates these data based on growth in output and related factors. It usually is reasonably accurate, but in this case, it clearly was not. (I’ll make a small criticism of BLS here: They typically show the error as a percent of total employment, which makes it look small. It came to 0.3 percent last year. But what we really are measuring with the survey is the change in employment, which was just over 2 million, which means the error was 25 percent. That is a big deal.)
In short, what this revision means is that we saw more firms die or fewer new firms formed than the model projected. (Actually, the issue is jobs, not firms, but presumably, these go together.) That may mean nothing or could suggest that either or both, more firms are going out of business or fewer firms are being started than we should expect, given other factors in the economy.
That brings us to my last point, when we have large downward revisions, it usually is associated with a recession. The downward revision in 2009 was over 900,000 and in 2002 it was over 300,000. It is unlikely that we will find that we were actually in a recession between March of 2018 and March of 2019, but add this to the list of worrying data points. It seems that something is not right with the economy.
The Bureau of Labor Statistics reported that its benchmark revision to its job numbers shows that the economy created 501,000 fewer jobs between March of 2018 and March of 2019 than previously reported. There are a few points to be made about this number.
First, there is nothing fishy here. Trump has zero to do with the data that comes from the Bureau of Labor Statistics (BLS). The BLS is staffed by committed professionals who would surely raise a big stink if Trump tried to tamper with the data.
I should also point out that it would be exceedingly difficult for someone to change the data if they did not have a very good idea what they were doing, and even then they would almost certainly have to bring dozens of people in on the scheme. If someone did something like just add 100,000 to the monthly job growth number, they would be nailed in a minute. Other numbers would not fit and it would be easy to see that the fake number was out of line.
Anyhow, the revision is based on state unemployment insurance filings, which give a virtual census of payroll employment in the United States. The original data comes from the BLS’ monthly Current Employment Situation survey. This is a large survey of businesses, but it is a survey, so that means there will be some error.
The next issue is why the survey would be so far off. (The 501,000 reduction is much larger than a normal revision.) In addition to the survey results, BLS imputes figures for “births” and “deaths” of firms. Births refer to new firms, which could not be included in the sample because they are new. Deaths are the firms that go out of business and aren’t so polite as to answer the survey before they shut their doors.
BLS imputes numbers for births and deaths using a model that estimates these data based on growth in output and related factors. It usually is reasonably accurate, but in this case, it clearly was not. (I’ll make a small criticism of BLS here: They typically show the error as a percent of total employment, which makes it look small. It came to 0.3 percent last year. But what we really are measuring with the survey is the change in employment, which was just over 2 million, which means the error was 25 percent. That is a big deal.)
In short, what this revision means is that we saw more firms die or fewer new firms formed than the model projected. (Actually, the issue is jobs, not firms, but presumably, these go together.) That may mean nothing or could suggest that either or both, more firms are going out of business or fewer firms are being started than we should expect, given other factors in the economy.
That brings us to my last point, when we have large downward revisions, it usually is associated with a recession. The downward revision in 2009 was over 900,000 and in 2002 it was over 300,000. It is unlikely that we will find that we were actually in a recession between March of 2018 and March of 2019, but add this to the list of worrying data points. It seems that something is not right with the economy.
Read More Leer más Join the discussion Participa en la discusión
In a very interesting column in the Wall Street Journal, Peter Bach and Mark Trusheim argue that biosimilar drugs have been ineffective in providing effective competition for biological drugs. The gist of the argument is that the testing process required for a biosimilar is lengthy and expensive.
Furthermore, this testing requires a large number of patients for clinical trials. This can lead to the perverse situation where testing for a biosimilar could be pulling potential patients from being used in a trial for a potentially important innovative drug.
If we think of patients with specific diseases who are available for clinical trials to be a limited resource, then it poses a serious problem for having biosimilars as an effective mechanism for bringing down the price of biologic drugs through competition. (Standard generics don’t need clinical tests, they just have to demonstrate chemical equivalence.)
Bach and Trusheim argue for price controls as the best alternative. While this is reasonable given the current funding system, it is difficult to believe that the government will somehow be getting it right, in terms of awarding the right price to appropriately compensate companies for their drugs. (Not that they are rewarded correctly now; their payments are already largely politically determined.)
It would make far more sense just to do the funding upfront on long-term contracts, with all results in the public domain. In the case of biologic drugs, where there really cannot be effective competitors for the reasons Bach and Trusheim explain, having a single supplier on contract and guaranteed a normal mark-up over production costs should do the trick.
In this story, biologic drugs would sell for hundreds of dollars, or perhaps low thousands, for a year’s dosage, not hundreds of thousands. (For more, see Rigged, chapter 5 [it’s free].)
In a very interesting column in the Wall Street Journal, Peter Bach and Mark Trusheim argue that biosimilar drugs have been ineffective in providing effective competition for biological drugs. The gist of the argument is that the testing process required for a biosimilar is lengthy and expensive.
Furthermore, this testing requires a large number of patients for clinical trials. This can lead to the perverse situation where testing for a biosimilar could be pulling potential patients from being used in a trial for a potentially important innovative drug.
If we think of patients with specific diseases who are available for clinical trials to be a limited resource, then it poses a serious problem for having biosimilars as an effective mechanism for bringing down the price of biologic drugs through competition. (Standard generics don’t need clinical tests, they just have to demonstrate chemical equivalence.)
Bach and Trusheim argue for price controls as the best alternative. While this is reasonable given the current funding system, it is difficult to believe that the government will somehow be getting it right, in terms of awarding the right price to appropriately compensate companies for their drugs. (Not that they are rewarded correctly now; their payments are already largely politically determined.)
It would make far more sense just to do the funding upfront on long-term contracts, with all results in the public domain. In the case of biologic drugs, where there really cannot be effective competitors for the reasons Bach and Trusheim explain, having a single supplier on contract and guaranteed a normal mark-up over production costs should do the trick.
In this story, biologic drugs would sell for hundreds of dollars, or perhaps low thousands, for a year’s dosage, not hundreds of thousands. (For more, see Rigged, chapter 5 [it’s free].)
Read More Leer más Join the discussion Participa en la discusión
The Washington Post had a major front-page article announcing in the headline “Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations.” The piece refers to a statement by the Business Roundtable, a group comprising many of the country’s largest companies, which argues for an alleged shift in direction.
The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer-term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty-year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO pay, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle-class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.
More importantly, excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.
It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don’t in any obvious way now have.
The Washington Post had a major front-page article announcing in the headline “Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations.” The piece refers to a statement by the Business Roundtable, a group comprising many of the country’s largest companies, which argues for an alleged shift in direction.
The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer-term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty-year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.
Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO pay, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle-class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.
More importantly, excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.
It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don’t in any obvious way now have.
Read More Leer más Join the discussion Participa en la discusión
Paul Krugman already jumped on this New York Times piece, but the paper really deserves a thrashing for it. The story is that Germany’s economy had been driving the eurozone economy. It now appears on the edge of recession, having shrunk at a 0.4 percent annual rate in the second quarter. The article then asks whether the rest of the eurozone will now be able to support Germany’s economy and restore it to growth.
The problem with this story, as Paul points out, is that Germany has been running massive current account surpluses. This means that rather than being a source of demand for its trading partners, it has been a net drain of demand. The items that Italy, Spain, Greece, and other eurozone countries import from Germany more than outweigh the demand created by their exports to Germany. The other eurozone countries have been effectively supporting demand in Germany rather than the other way around.
It’s also worth pointing out here that Germany directly made life worse for the other eurozone countries by using its power in the European Union to force austerity on them when they should have been running large deficits to boost their economies. That continues to be the case today, which is why there are negative interest rates on the long-term debt of Germany and several other eurozone countries.
There is a small point in the piece’s favor, Germany’s current account surplus has been falling somewhat in the last four years. It peaked at 8.9 percent of GDP in 2015 and is projected to be 7.1 percent of GDP in 2019. This drop in the trade surplus would be providing a boost to Germany’s trading partners, but it is a relatively new development. The rapid increase in Germany’s current account surplus in the years from 2009 to 2015 was a serious impediment to recovery in the eurozone.
As a sidebar, it worth mentioning that this piece reports the growth rate of Germany and other countries mentioned in the piece at quarterly rates. While it is standard practice in Europe to report quarterly growth figures at quarterly rates, it is never done in the United States where they are always reported at annual rates. Since the point of a news article is to convey information to readers, it would be helpful if the paper would convert the quarterly growth rates into annual rates.
This is a very simple process. For low growth rates like those discussed in this piece, multiplying by four will usually be adequate for converting a quarterly growth rate into an annual rate. To be more precise, it is only necessary to take the growth rate to the fourth power. Presumably, the NYT has people capable of doing this calculation.
Paul Krugman already jumped on this New York Times piece, but the paper really deserves a thrashing for it. The story is that Germany’s economy had been driving the eurozone economy. It now appears on the edge of recession, having shrunk at a 0.4 percent annual rate in the second quarter. The article then asks whether the rest of the eurozone will now be able to support Germany’s economy and restore it to growth.
The problem with this story, as Paul points out, is that Germany has been running massive current account surpluses. This means that rather than being a source of demand for its trading partners, it has been a net drain of demand. The items that Italy, Spain, Greece, and other eurozone countries import from Germany more than outweigh the demand created by their exports to Germany. The other eurozone countries have been effectively supporting demand in Germany rather than the other way around.
It’s also worth pointing out here that Germany directly made life worse for the other eurozone countries by using its power in the European Union to force austerity on them when they should have been running large deficits to boost their economies. That continues to be the case today, which is why there are negative interest rates on the long-term debt of Germany and several other eurozone countries.
There is a small point in the piece’s favor, Germany’s current account surplus has been falling somewhat in the last four years. It peaked at 8.9 percent of GDP in 2015 and is projected to be 7.1 percent of GDP in 2019. This drop in the trade surplus would be providing a boost to Germany’s trading partners, but it is a relatively new development. The rapid increase in Germany’s current account surplus in the years from 2009 to 2015 was a serious impediment to recovery in the eurozone.
As a sidebar, it worth mentioning that this piece reports the growth rate of Germany and other countries mentioned in the piece at quarterly rates. While it is standard practice in Europe to report quarterly growth figures at quarterly rates, it is never done in the United States where they are always reported at annual rates. Since the point of a news article is to convey information to readers, it would be helpful if the paper would convert the quarterly growth rates into annual rates.
This is a very simple process. For low growth rates like those discussed in this piece, multiplying by four will usually be adequate for converting a quarterly growth rate into an annual rate. To be more precise, it is only necessary to take the growth rate to the fourth power. Presumably, the NYT has people capable of doing this calculation.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
It was big news when the interest rate on the 10-year Treasury bond fell below the interest rate on a 2-year note earlier this week. This interest rate inversion has generally signaled a recession in the near future. While I am skeptical of the causality here, the bond markets do have good reason to expect a weaker economy in the immediate future, which will presumably mean future rate cuts by the Fed.
The Washington Post noted the extraordinarily low interest rate environment, beginning by highlighting a Danish bank that has a negative nominal interest rate on mortgages. This means the bank is paying people to take out a mortgage loan.
The piece goes on to discuss a strange world of negative interest rates. It then gives a bizarre quote from Carl Weinberg, an economist at High Frequency Economics:
“This is a credit crunch. And a credit crunch is a known economy-killer.”
Actually, this is 180 degrees at odds with a credit crunch. A credit crunch is when credit is either extremely expensive or unavailable altogether. In the current situation, credit is incredibly plentiful. Banks are paying people to take it, as the article points out. It is not clear what point Mr. Weinberg was trying to make, but what he said did not make any sense.
It was big news when the interest rate on the 10-year Treasury bond fell below the interest rate on a 2-year note earlier this week. This interest rate inversion has generally signaled a recession in the near future. While I am skeptical of the causality here, the bond markets do have good reason to expect a weaker economy in the immediate future, which will presumably mean future rate cuts by the Fed.
The Washington Post noted the extraordinarily low interest rate environment, beginning by highlighting a Danish bank that has a negative nominal interest rate on mortgages. This means the bank is paying people to take out a mortgage loan.
The piece goes on to discuss a strange world of negative interest rates. It then gives a bizarre quote from Carl Weinberg, an economist at High Frequency Economics:
“This is a credit crunch. And a credit crunch is a known economy-killer.”
Actually, this is 180 degrees at odds with a credit crunch. A credit crunch is when credit is either extremely expensive or unavailable altogether. In the current situation, credit is incredibly plentiful. Banks are paying people to take it, as the article points out. It is not clear what point Mr. Weinberg was trying to make, but what he said did not make any sense.
Read More Leer más Join the discussion Participa en la discusión
I am a big fan of expanding the welfare state but I am also a big fan of reality-based analysis. For this reason, it’s hard not to be upset over yet another column telling us that the robots are taking all the jobs and that this will lead to massive inequality.
The first part is more than a little annoying just because it is so completely and unambiguously at odds with reality. Productivity growth, which is the measure of the rate at which robots and other technologies are taking jobs, has been extremely slow in recent years. It has averaged just 1.3 percent annually since 2005. That compares to an annual rate of 3.0 percent from 1995 to 2005 and in the long Golden Age from 1947 to 1973.
In addition, all the official projections from places like the Congressional Budget Office and Social Security Administration assume that productivity growth will remain slow. That could prove wrong, but the people projecting a massive pick up of productivity growth are certainly against the tide here.
But the other part of the story is even more annoying. No, technology does not generate inequality. Our policy on technology generates inequality. We have rules (patent and copyright monopolies) that allow people to own technology.
Bill Gates is incredibly rich because the government will arrest anyone who mass produces copies of Microsoft software without his permission. If anyone could freely reproduce Windows and other software, without even sending a thank you note, Bill Gates would still be working for a living.
The same applies to prescription drugs, medical equipment, and other tech sectors where some people are getting very rich. In all of these cases, these items would be cheap without patent, copyrights, or related monopolies, and no one would be getting hugely rich.
At this point, there are undoubtedly people jumping up and down yelling “without patent and copyright monopolies people would have no incentive to innovate.” This yelling is very helpful in making the point. If we have structured these incentives in ways that lead to great inequality and not very much innovation (as measured by productivity growth) then we should probably be looking to alter our structure of incentives. (Yes this is the topic of chapter of 5 of Rigged [it’s free].)
In any case, this is the point. The inequality that results from technology is the result of our policies on technology, not the technology itself. Maybe one day the New York Times will allow a columnist to state this obvious truth in its opinion section.
I am a big fan of expanding the welfare state but I am also a big fan of reality-based analysis. For this reason, it’s hard not to be upset over yet another column telling us that the robots are taking all the jobs and that this will lead to massive inequality.
The first part is more than a little annoying just because it is so completely and unambiguously at odds with reality. Productivity growth, which is the measure of the rate at which robots and other technologies are taking jobs, has been extremely slow in recent years. It has averaged just 1.3 percent annually since 2005. That compares to an annual rate of 3.0 percent from 1995 to 2005 and in the long Golden Age from 1947 to 1973.
In addition, all the official projections from places like the Congressional Budget Office and Social Security Administration assume that productivity growth will remain slow. That could prove wrong, but the people projecting a massive pick up of productivity growth are certainly against the tide here.
But the other part of the story is even more annoying. No, technology does not generate inequality. Our policy on technology generates inequality. We have rules (patent and copyright monopolies) that allow people to own technology.
Bill Gates is incredibly rich because the government will arrest anyone who mass produces copies of Microsoft software without his permission. If anyone could freely reproduce Windows and other software, without even sending a thank you note, Bill Gates would still be working for a living.
The same applies to prescription drugs, medical equipment, and other tech sectors where some people are getting very rich. In all of these cases, these items would be cheap without patent, copyrights, or related monopolies, and no one would be getting hugely rich.
At this point, there are undoubtedly people jumping up and down yelling “without patent and copyright monopolies people would have no incentive to innovate.” This yelling is very helpful in making the point. If we have structured these incentives in ways that lead to great inequality and not very much innovation (as measured by productivity growth) then we should probably be looking to alter our structure of incentives. (Yes this is the topic of chapter of 5 of Rigged [it’s free].)
In any case, this is the point. The inequality that results from technology is the result of our policies on technology, not the technology itself. Maybe one day the New York Times will allow a columnist to state this obvious truth in its opinion section.
Read More Leer más Join the discussion Participa en la discusión
The New York Times has created an absurd dilemma for Democrats; “how to be tougher on trade than Trump.” This framing of the trade issue is utterly bizarre and bears no resemblance to reality.
While Trump has often framed the trade issue as China, Mexico, and other trading partners gaining at the expense of the United States because of “stupid” trade negotiators, this has little to do with trade policy over the last three decades. The United States negotiated trade deals to benefit U.S. corporations. The point of deals like NAFTA was to facilitate outsourcing, so U.S. corporations could take advantage of lower-cost labor in Mexico.
The same was true with admitting China to the W.T.O. This allowed U.S. corporations to move operations to China and also made it possible for retailers like Walmart to set up low-cost supply chains to undercut their competitors. The job loss and trade deficits that resulted from these deals were not accidental outcomes, they were the point of these deals.
U.S. negotiators have also made longer and stronger patent and related protections (which are 180 degrees at odds with “free trade”) central components of recent trade deals. While these provisions mean larger profits for drug companies and the software and entertainment industries, they do not help ordinary workers. In fact, by forcing our trading partners to pay more money for the products from these sectors, they leave them with less money for other exports.
Anyhow, given the reality of our trade policy over the last three decades it is hard to know what being “tough on trade” means. In the Trumpian universe (and apparently at the NYT) this could make sense, but not in the real world. The question is whether our trade policy is designed to help ordinary workers or to increase corporate profits, “tough” is beside the point.
The New York Times has created an absurd dilemma for Democrats; “how to be tougher on trade than Trump.” This framing of the trade issue is utterly bizarre and bears no resemblance to reality.
While Trump has often framed the trade issue as China, Mexico, and other trading partners gaining at the expense of the United States because of “stupid” trade negotiators, this has little to do with trade policy over the last three decades. The United States negotiated trade deals to benefit U.S. corporations. The point of deals like NAFTA was to facilitate outsourcing, so U.S. corporations could take advantage of lower-cost labor in Mexico.
The same was true with admitting China to the W.T.O. This allowed U.S. corporations to move operations to China and also made it possible for retailers like Walmart to set up low-cost supply chains to undercut their competitors. The job loss and trade deficits that resulted from these deals were not accidental outcomes, they were the point of these deals.
U.S. negotiators have also made longer and stronger patent and related protections (which are 180 degrees at odds with “free trade”) central components of recent trade deals. While these provisions mean larger profits for drug companies and the software and entertainment industries, they do not help ordinary workers. In fact, by forcing our trading partners to pay more money for the products from these sectors, they leave them with less money for other exports.
Anyhow, given the reality of our trade policy over the last three decades it is hard to know what being “tough on trade” means. In the Trumpian universe (and apparently at the NYT) this could make sense, but not in the real world. The question is whether our trade policy is designed to help ordinary workers or to increase corporate profits, “tough” is beside the point.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
