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Article Artículo

NYT Effort to Fill the Insatiable Market for Financial Crisis Stories: William D. Cohan Edition

Prior to the collapse of the housing bubble and the resulting financial crisis there was little interest in major news outlets in pieces warning about the bubble and the risks it posed to the economy. These days there seems to be a large demand for such pieces. Unfortunately, in choosing these pieces, news outlets seem little better informed today than they were in the housing bubble years.

Today’s contribution comes from William D. Cohan and appears in the New York Times. The center of his story is corporate debt. The argument is that we have a large amount of debt that has been taken on at very low interest rates. If interest rates go up, then many debtors will be unable to pay their debts and we will be back in the 2008 financial crisis.

To get the ball rolling, Cohan pulls off one of the best bait and switches I have seen for a long time. He tells readers:

“The $30 trillion domestic stock market seems to get all the attention. When the stock market sets new highs, we instinctively feel things are good and getting better. When it tanks, as happened in the initial months of the 2008 financial crisis, we think things are going to hell.

“But the larger domestic debt market — at around $41 trillion for the bond market alone — reveals more about our nation’s financial health.”

This is a great bait and switch because he uses the $41 trillion figure for the bond market, but the rest of the piece is essentially devoted to corporate debt. Most of the $41 trillion in bonds either comes from the federal government ($17 trillion), Fannie and Freddie ($6.7 trillion), and state and local governments ($3.1 trillion). The portion that is attributable to non-financial corporations, which is the focus of the piece, comes to $6.2 trillion.

CEPR / August 09, 2018

Article Artículo

NYT Falls Victim to Trump Derangement Syndrome in Warning of Clouds for the Economy

Donald Trump provides no shortage of grounds for criticism, but the NYT is really grasping at straws in it editorial headlined, "clouds darken Trump's sunny economic view." The confusion that characterizes the piece starts in the first paragraph when it tells us "the stock market seemed unimpressed" by the 157,000 jobs reported for July.

This is bizarre for two reasons. First, a major complaint of the piece is that workers are not getting their share of productivity gains, instead, it is going to profits. While this is true (although the revised data do show a substantial shift from profits to wages in the last three years), the story of stagnant wages and rising profits should lead to a higher stock market, other things equal.

If shareholders believe that Trump policies will shift income from wages to profits, this would be a reason for the market to rise. If we are supposed to be impressed by the market's decline then this could mean shareholders are worried about future profits. This is again a case where it is worth pointing out that the stock market is not the economy.

The other point is that monthly jobs data are erratic. It is common for bad months to be followed by good months and vice versa. This is why economists typically focus on job growth over several months, as opposed to a single month.

We created 268,000 jobs in May and 248,000 jobs in June. Both numbers were revised upward with the July data. This gives us an average of 224,000 new jobs over the last three months. That is a pretty damn good story by any measure.

CEPR / August 07, 2018

Article Artículo

The Story of Stagnant Wage Growth

This recovery has not been great for workers. They have seen modest real wage gains over the last five years, but these gains have not come close to making up the ground lost in the recession and the first years of the recovery.

Nonetheless, real wages have been growing for most of the last five years. The last month has been an exception to this pattern, not because nominal wages have grown less, but because we had a large jump in energy prices, which has depressed real wage growth. Here's picture for the last five years.

fredgraph1

As can be seen, there is a very modest acceleration in the rate of average hourly wage growth over this period from just over 2.0 percent in the middle of 2013 to 2.7 percent in the most recent data. Real wage growth, which is the difference between the rate of wage growth and the rate of inflation, as measured by the Consumer Price Index, has mostly been positive, with the exception of a few months at the end of 2016 and beginning of 2017 and last month.

CEPR / August 04, 2018

Article Artículo

China and the United States: Who Has More Innovation to "Steal?"

One of the truly amazing aspects of Donald Trump's trade war with China is how all the pundits agree that we have a legitimate beef with China over stealing "our" intellectual property. This is true pretty much across the board, even among the harshest critics of Trump and his tariffs. As I have argued almost alone, this one needs a bit more thought.

First, the "our" part of the story needs some examination. The vast majority of us don't own any substantial amount of intellectual property that is being compromised by China's practices, Somehow we are supposed to be concerned that Boeing, Microsoft, Pfizer, Disney, and the rest are seeing lower profits because China doesn't follow the rules they want them to follow.

Sorry folks, these are not the homes teams that we are supposed to root for in baseball. These are huge multinationals that have made their largest shareholders and top executives incredibly rich. The rest of us are supposed to want to stick it to China to make these people even richer?

It's actually even worse. The simple story is that if China has to pay less money to Boeing et al. for their intellectual property claims they will have more money to buy other things from the United States, like soybeans and whiskey. Tell me again about "our" intellectual property.

CEPR / August 04, 2018