I was eagerly (okay, maybe not the right word) awaiting the data revisions that accompanied the 2nd quarter GDP report that came out yesterday. One of the items that often gets substantially revised is profits. I was surprised that initial reports showed the profit share increasing slightly in 2018 from 2017. That surprised me both because I had expected a tight labor market to allow workers to reclaim some of the share they lost to capital in the weak labor market following the Great Recession and because wage growth appeared to be somewhat outpacing productivity growth.
The revised data show a different picture. They show that the profit share fell by 0.4 percentage points in 2018, which means a total drop of 3.2 percentage points from their 2014 peak. If this pace of decline continues, then by 2022 the profit share will be pretty much back to its normal level.
This is good news for workers and also matters hugely for how we think about the economy. There have been many who argue that the shift from wages to profits, which began early in the last decade (I would argue the total is distorted by phony profits earned by the financial industry in the bubble years), is due to increasing monopoly power. This is the story of huge firms like Google, Apple, and Facebook dominating markets. On the other side, many of us think that the bigger story is weaker worker bargaining power due to declining unionization, weaker labor protections, and high unemployment.
If the first group is right, the key to restoring the labor share is breaking up the monopolies. If the second group is right, then the key is to restore workers’ bargaining power, most immediately by maintaining a tight labor market. (Higher unionization rates would be great, as are increasing employment protections, but these are a bigger lift than keeping the Fed from raising interest rates excessively.)
The latest data make it look like the weak labor market gang is correct. Of course, there are still good reasons for breaking up monopolies. Also, data will be revised again next year, so the picture may look different in July of 2020.
Btw, as best I can tell, the revised profit data got zero attention in reporting on the GDP release.
I was eagerly (okay, maybe not the right word) awaiting the data revisions that accompanied the 2nd quarter GDP report that came out yesterday. One of the items that often gets substantially revised is profits. I was surprised that initial reports showed the profit share increasing slightly in 2018 from 2017. That surprised me both because I had expected a tight labor market to allow workers to reclaim some of the share they lost to capital in the weak labor market following the Great Recession and because wage growth appeared to be somewhat outpacing productivity growth.
The revised data show a different picture. They show that the profit share fell by 0.4 percentage points in 2018, which means a total drop of 3.2 percentage points from their 2014 peak. If this pace of decline continues, then by 2022 the profit share will be pretty much back to its normal level.
This is good news for workers and also matters hugely for how we think about the economy. There have been many who argue that the shift from wages to profits, which began early in the last decade (I would argue the total is distorted by phony profits earned by the financial industry in the bubble years), is due to increasing monopoly power. This is the story of huge firms like Google, Apple, and Facebook dominating markets. On the other side, many of us think that the bigger story is weaker worker bargaining power due to declining unionization, weaker labor protections, and high unemployment.
If the first group is right, the key to restoring the labor share is breaking up the monopolies. If the second group is right, then the key is to restore workers’ bargaining power, most immediately by maintaining a tight labor market. (Higher unionization rates would be great, as are increasing employment protections, but these are a bigger lift than keeping the Fed from raising interest rates excessively.)
The latest data make it look like the weak labor market gang is correct. Of course, there are still good reasons for breaking up monopolies. Also, data will be revised again next year, so the picture may look different in July of 2020.
Btw, as best I can tell, the revised profit data got zero attention in reporting on the GDP release.
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I can’t say I know anyone who reads Thomas Friedman, but I suppose such people must exist since the NYT keeps running his column. Anyhow, while the guy probably hasn’t had a real insight for at least two decades, his column this week really paves new ground in absurdity.
The piece boldly tells readers in the headline, “the answers to our problems aren’t as simple as left or right,” this followed with the subhead, “the old binary choices no longer work.”
The piece is then filled with small-bore ideas that completely ignore the debates that actually are taking place on the issues he is addressing. More importantly, he completely ignores the fact that the right has soared into unreality land and shows no interest in returning.
To be specific, the right insists that climate change is not happening because, because, well, just because they don’t feel like doing anything about it. Is there someone who could tell Friedman this fact?
The right also has no interest in economic policy other than giving more money to rich people. So great ideas for improving the plight of poor children or the position of women in the workforce or anything else that the rest of us might think of as positive are simply off the agenda.
The fact that the right is quite explicitly uninterested in any positive policy changes is obvious to anyone who reads papers like the New York Times. Fortunately for Thomas Friedman, you don’t have to read the New York Times to have a column in it. You can just spew nonsense that is totally divorced from reality and collect your paycheck.
Good work, if you can get it.
I can’t say I know anyone who reads Thomas Friedman, but I suppose such people must exist since the NYT keeps running his column. Anyhow, while the guy probably hasn’t had a real insight for at least two decades, his column this week really paves new ground in absurdity.
The piece boldly tells readers in the headline, “the answers to our problems aren’t as simple as left or right,” this followed with the subhead, “the old binary choices no longer work.”
The piece is then filled with small-bore ideas that completely ignore the debates that actually are taking place on the issues he is addressing. More importantly, he completely ignores the fact that the right has soared into unreality land and shows no interest in returning.
To be specific, the right insists that climate change is not happening because, because, well, just because they don’t feel like doing anything about it. Is there someone who could tell Friedman this fact?
The right also has no interest in economic policy other than giving more money to rich people. So great ideas for improving the plight of poor children or the position of women in the workforce or anything else that the rest of us might think of as positive are simply off the agenda.
The fact that the right is quite explicitly uninterested in any positive policy changes is obvious to anyone who reads papers like the New York Times. Fortunately for Thomas Friedman, you don’t have to read the New York Times to have a column in it. You can just spew nonsense that is totally divorced from reality and collect your paycheck.
Good work, if you can get it.
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Hey, but why would anyone expect otherwise from the Washington Post. The piece gave the outlines of a budget deal between House Speaker Nancy Pelosi and the White House, which is intended to avoid hitting the debt ceiling.
According to the article:
“Agreeing on new spending levels also avoids onerous budget caps that would otherwise snap into place automatically under an Obama-era deal, and indiscriminately slash $126 billion from domestic and Pentagon budgets.”
Is this $126 billion over one year or two years? That is not entirely clear from the piece, but it looks like a two-year figure. So how big a deal would this be? My guess is almost none of the Post’s readers has any idea how much money the government is projected to spend in the effect categories (discretionary domestic and defense spending) over the next two fiscal years.
According to the Congressional Budget Office, if spending in these categories increased with inflation, it would come to a bit more than $2.7 trillion over the next two years. This means the cuts would have been a bit more than 4.5 percent of spending.
It would be helpful if the Post’s budget articles put numbers in a context that is meaningful to their readers.
Hey, but why would anyone expect otherwise from the Washington Post. The piece gave the outlines of a budget deal between House Speaker Nancy Pelosi and the White House, which is intended to avoid hitting the debt ceiling.
According to the article:
“Agreeing on new spending levels also avoids onerous budget caps that would otherwise snap into place automatically under an Obama-era deal, and indiscriminately slash $126 billion from domestic and Pentagon budgets.”
Is this $126 billion over one year or two years? That is not entirely clear from the piece, but it looks like a two-year figure. So how big a deal would this be? My guess is almost none of the Post’s readers has any idea how much money the government is projected to spend in the effect categories (discretionary domestic and defense spending) over the next two fiscal years.
According to the Congressional Budget Office, if spending in these categories increased with inflation, it would come to a bit more than $2.7 trillion over the next two years. This means the cuts would have been a bit more than 4.5 percent of spending.
It would be helpful if the Post’s budget articles put numbers in a context that is meaningful to their readers.
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The New York Times ran a piece warning retirees thinking of moving overseas that Medicare will not cover their medical expenses in other countries. This is true, but the NYT piece never once pointed out that this is conscious policy, not something that just happened.
Readers of the paper may recall that it reports on trade agreements all the time. These trade agreements cover a wide range of issues, including things like enforcing patent and copyright monopolies and rules on Internet commerce and privacy.
If anyone in the United States in a position of power cared, then it would be possible to include transferring Medicare payments to other countries, to allow people to buy into other nations’ health care system on the list of topics being negotiated. This doesn’t happen because, unlike access to cheap labor for manufactured goods, there is no one in power who wants to make it easier for people in the United States to take advantage of lower cost and more efficient health care systems elsewhere.
While such a policy could potentially save the U.S. government an enormous amount of money on Medicare (costs in other rich countries average less than half as much per person), the health care industry would scream bloody murder if any politician attempted to implement free trade in health care services. “Free trade,” as it is conventionally used in U.S. policy debates, just means removing barriers that protect less educated workers from foreign competition.
The New York Times, like other mainstream publications will not even allow free trade to be discussed in its pages in contexts where it might hurt the interests of the wealthy.
The New York Times ran a piece warning retirees thinking of moving overseas that Medicare will not cover their medical expenses in other countries. This is true, but the NYT piece never once pointed out that this is conscious policy, not something that just happened.
Readers of the paper may recall that it reports on trade agreements all the time. These trade agreements cover a wide range of issues, including things like enforcing patent and copyright monopolies and rules on Internet commerce and privacy.
If anyone in the United States in a position of power cared, then it would be possible to include transferring Medicare payments to other countries, to allow people to buy into other nations’ health care system on the list of topics being negotiated. This doesn’t happen because, unlike access to cheap labor for manufactured goods, there is no one in power who wants to make it easier for people in the United States to take advantage of lower cost and more efficient health care systems elsewhere.
While such a policy could potentially save the U.S. government an enormous amount of money on Medicare (costs in other rich countries average less than half as much per person), the health care industry would scream bloody murder if any politician attempted to implement free trade in health care services. “Free trade,” as it is conventionally used in U.S. policy debates, just means removing barriers that protect less educated workers from foreign competition.
The New York Times, like other mainstream publications will not even allow free trade to be discussed in its pages in contexts where it might hurt the interests of the wealthy.
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Austin Frakt had a peculiar piece in the NYT Upshot section, which told readers, “there is no single, best policy for drug prices.” The piece is peculiar because for some reason Frakt opts not to even consider the policy of direct public funding for research, which would then allow all new drugs to be sold at generic prices.
While there are problems with any system, direct funding, which could be done through various mechanisms, would permanently end the problem of high-priced drugs. With the research costs paid upfront, the price of the drugs would simply cover the manufacturing cost with normal profits. In nearly all cases, this would mean prices would be low, generally less than 10 percent of current prices for patent-protected drugs and in some cases less than 1 percent.
This is also not a far-out idea. It has long been pushed by several prominent economists, most notably Joe Stiglitz. The idea of delinking drug prices from research costs has also been pushed in international forums by China, India, and many other developing countries. In fact, if Trump were pursuing his trade war with China in the interest of working people, instead of the rich, such a shift in funding for drug research could well be an outcome.
In any case, it is bizarre that a piece that purports to be an overview of ways to lower drug prices would not even mention this issue.
Austin Frakt had a peculiar piece in the NYT Upshot section, which told readers, “there is no single, best policy for drug prices.” The piece is peculiar because for some reason Frakt opts not to even consider the policy of direct public funding for research, which would then allow all new drugs to be sold at generic prices.
While there are problems with any system, direct funding, which could be done through various mechanisms, would permanently end the problem of high-priced drugs. With the research costs paid upfront, the price of the drugs would simply cover the manufacturing cost with normal profits. In nearly all cases, this would mean prices would be low, generally less than 10 percent of current prices for patent-protected drugs and in some cases less than 1 percent.
This is also not a far-out idea. It has long been pushed by several prominent economists, most notably Joe Stiglitz. The idea of delinking drug prices from research costs has also been pushed in international forums by China, India, and many other developing countries. In fact, if Trump were pursuing his trade war with China in the interest of working people, instead of the rich, such a shift in funding for drug research could well be an outcome.
In any case, it is bizarre that a piece that purports to be an overview of ways to lower drug prices would not even mention this issue.
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The NYT had a column by Eliza Griswold talking about the prospect of job loss in coal mining areas due to efforts to restrict greenhouse gas emissions. While it is often traumatic for workers to lose jobs, especially long-held jobs, it is important to realize that relatively few jobs are at stake in the coal mining industry.
For example, in Pennsylvania, one of the states mentioned in the piece, the Bureau of Labor Statistics reports that there are now 5,000 coal mining jobs in the state. The state has over 6 million workers, which means that coal mining accounts for roughly 0.08 percent of employment in the state. Kentucky has 5,800 jobs in coal mining, with total employment of 1,950,000. That comes to a bit more than 0.3 percent of total employment. Even in West Virginia, the heart of coal country, there are only 23,000 jobs in coal mining out of a total of 740,000 jobs. This comes to a bit more than 3.0 percent of total employment.
In all three states, there were sharp drops in employment in the industry in the past, which drastically reduced the importance of coal mining employment. It is a bit peculiar that the earlier declines in coal mining employment, which were primarily due to productivity growth (specifically, replacing underground mining with strip mining — a policy often opposed by environmentalists), received relatively little attention in the media or from politicians. By contrast, the prospect of considerably smaller future declines due to efforts to reduce greenhouse gas emissions is drawing extensive attention.
The NYT had a column by Eliza Griswold talking about the prospect of job loss in coal mining areas due to efforts to restrict greenhouse gas emissions. While it is often traumatic for workers to lose jobs, especially long-held jobs, it is important to realize that relatively few jobs are at stake in the coal mining industry.
For example, in Pennsylvania, one of the states mentioned in the piece, the Bureau of Labor Statistics reports that there are now 5,000 coal mining jobs in the state. The state has over 6 million workers, which means that coal mining accounts for roughly 0.08 percent of employment in the state. Kentucky has 5,800 jobs in coal mining, with total employment of 1,950,000. That comes to a bit more than 0.3 percent of total employment. Even in West Virginia, the heart of coal country, there are only 23,000 jobs in coal mining out of a total of 740,000 jobs. This comes to a bit more than 3.0 percent of total employment.
In all three states, there were sharp drops in employment in the industry in the past, which drastically reduced the importance of coal mining employment. It is a bit peculiar that the earlier declines in coal mining employment, which were primarily due to productivity growth (specifically, replacing underground mining with strip mining — a policy often opposed by environmentalists), received relatively little attention in the media or from politicians. By contrast, the prospect of considerably smaller future declines due to efforts to reduce greenhouse gas emissions is drawing extensive attention.
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I am not anxious to defend Donald Trump’s economic performance, but a complaint by Steven Rattner in his New York Times column caught my attention. The column features a graph showing that the ratio of the median wage for blacks has fallen relative to the median wage for white workers since 2016.
This bothered me, because in general the situation for blacks, and other groups who face discrimination, improves in a tight labor market. While it is possible that the plight of blacks has deteriorated due to Trump’s open racism, there is another plausible explanation.
The improvement in the labor market has had a considerably larger impact on employment rates for blacks than for whites. If we compare averages for the first six months of 2019 with the 2016 average, the employment to population ratio for blacks has risen from 56.4 percent to 58.3 percent, a rise of 3.3 percent. For whites, the increase has been from 60.2 percent to 60.8 percent, a rise of 1.0 percent.
The increase in black employment has been a very important gain for hundreds of thousands of black families, but it also means that the composition of black workers has changed somewhat. Let’s assume that the new workers have less education and experience than most of the people working in 2016.
In the extreme case, that they all fell near the bottom of the wage ladder, the increase in employment by 3.3 percent will mean that the median black worker in 2016 is now the 53.3 percentile worker, whereas the 46.7 percentile worker in 2016 is now the median worker.
When we compare medians from 2019 with 2016, we are looking at workers that were considerably further down the income ladder in 2016. This effect would be much smaller with white workers since their employment rates changed by less.
One piece of evidence supporting this story is that Rattner’s graph shows that drop in the ratio of medians under Trump essentially continues a trend that had been in place since 2012 when the labor market began to tighten substantially. To get the fuller picture, we really need to control for factors like education and experience or use longitudinal data sets that track the pay of individual workers through time, but it’s fair to say that Rattner’s graph really is not telling us much.
I am not anxious to defend Donald Trump’s economic performance, but a complaint by Steven Rattner in his New York Times column caught my attention. The column features a graph showing that the ratio of the median wage for blacks has fallen relative to the median wage for white workers since 2016.
This bothered me, because in general the situation for blacks, and other groups who face discrimination, improves in a tight labor market. While it is possible that the plight of blacks has deteriorated due to Trump’s open racism, there is another plausible explanation.
The improvement in the labor market has had a considerably larger impact on employment rates for blacks than for whites. If we compare averages for the first six months of 2019 with the 2016 average, the employment to population ratio for blacks has risen from 56.4 percent to 58.3 percent, a rise of 3.3 percent. For whites, the increase has been from 60.2 percent to 60.8 percent, a rise of 1.0 percent.
The increase in black employment has been a very important gain for hundreds of thousands of black families, but it also means that the composition of black workers has changed somewhat. Let’s assume that the new workers have less education and experience than most of the people working in 2016.
In the extreme case, that they all fell near the bottom of the wage ladder, the increase in employment by 3.3 percent will mean that the median black worker in 2016 is now the 53.3 percentile worker, whereas the 46.7 percentile worker in 2016 is now the median worker.
When we compare medians from 2019 with 2016, we are looking at workers that were considerably further down the income ladder in 2016. This effect would be much smaller with white workers since their employment rates changed by less.
One piece of evidence supporting this story is that Rattner’s graph shows that drop in the ratio of medians under Trump essentially continues a trend that had been in place since 2012 when the labor market began to tighten substantially. To get the fuller picture, we really need to control for factors like education and experience or use longitudinal data sets that track the pay of individual workers through time, but it’s fair to say that Rattner’s graph really is not telling us much.
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