I hate to get picky on the numbers, but the unemployment rate was 7.8 percent in January of 2009 when President Obama took office. The Labor Department reported that it was 5.5 percent in March. Since 5.5 percent is more than two-thirds of 7.8 percent, the NYT was seriously exaggerating in its article on Hilary Clinton's announcement of her candidacy when it gave President Obama credit for:

"getting the country out of the worst financial crisis since the Great Depression and cutting the unemployment rate nearly in half."

Of course the unemployment did continue rising through President Obama's first year in office, eventually peaking at 10.0 percent in October of 2009. President Obama certainly cannot be blamed for this increase since the direction of the economy was already set at the time he entered the White House. But by the same token, he cannot be given full credit for the subsequent reduction in unemployment, since much of this would have happened regardless of what policies were pursued.

So if we take the statement literally about cutting unemployment nearly in half, it's wrong. If we try to honestly award credit, based on what President Obama's policies accomplished, it is also wrong.

Furthermore, it is worth noting that the real problem was the collapse of the housing bubble that was driving the economy, not a financial crisis. There was and is no easy source of demand to fill the gap created by the collapse of the bubble. The underlying gap in demand is in turn attributable to the $500 billion trade deficit (@ 3.0 percent of GDP), which is in turn due to the over-valued dollar. The over-valued dollar has its origins in the high dollar policy and the bailout from the East Asian financial crisis that was engineered by Treasury Secretary Robert Rubin during the Bill Clinton administration.

The piece also errs when it tells readers:

"And she [Secretary Clinton] intends to address stagnant wages and income inequality in new ways; one potential proposal would offer incentives to corporations that allow employees to share in profits."

The NYT does not know that Clinton really sees incentives for profit sharing as a way to address wage stagnation and inequality. There are much more obvious and direct ways, like a full employment policy by the Fed and a financial transactions tax which would hit many of the top incomes on Wall Street. The NYT just knows that Clinton says she intends to address stagnant wages and income inequality with incentives for profit sharing. It should stick to reporting what it knows, and refrain from presenting its speculation as truth. 

No, that actually is not what the column asked. The question was instead whether people on TANF or food stamps should be able to buy steak or spend their money in other ways that politicians consider lavish.

It seems that if we think the government has a right to dictate people's spending habits based on giving them $1,600 a year in food stamps (the average benefit per recipient), there should also be a case for dictating their spending habits if we give them thousands of times as much in tax breaks, as would be the case with the fund managers' tax break.

For those not familiar with it, the fund managers' tax break (also known as the carried interest tax deduction) allows managers of hedge funds and private equity funds, as well as other types of investment funds, to pay the lower capital gains tax rate instead of the tax rate on ordinary income. In order to get this lower tax rate they have to be paid on a commission, like a car salesperson or a realtor. While other workers who get paid in part on commission still have to pay the same tax rate on their income, because of their enormous political power fund managers like Mitt Romney were able to get Congress to give them a special lower tax rate.

The gains to these fund managers can be enormous; it is not uncommon for successful managers like Romney to pocket $10 million a year. With a tax rate on normal income of 39.6 percent and a capital gains tax rate of 20 percent, this implies a government handout of $1,960,000 a year (@1230 years of food stamps). Some of the most successful fund managers pocket over $100 million a year, which implies a handout of more than $19,600,000 a year (@12,300 years of food stamps). If the government wants to tell people who get food stamps how they should spend their money, it certainly seems reasonable to tell people who can get thousands of times as much through tax breaks how they should spend their money.

For those who have trouble understanding that a tax break is the same as a welfare-type benefit, imagine that we lived in a condo and every unit was required to pay $500 a month to cover the cost of electricity, heating, maintenance, and other normal expenses. If the condo association decided that the people living in one unit did not have to pay their fees, that would be the same as handing them $500 a month, or at least it would be in the land where the laws of arithmetic apply. Of course we have a serious problem of climate change deniers in American political life, why shouldn't we also have a problem of arithmetic deniers?

Note: typos and calculations corrected, thanks to Robert Salzberg. The calculations in this post ignore the 3.8 percent investor tax from the Affordable Care Act that would be imposed on most capital gains income, as well as the 0.9 percentage point tax that would be applied to most wage earnings of high income individuals. Together these taxes would lower the gap between the tax rate on ordinary income and capital gains income by 2.9 percentage points.

I see that Bloomberg has apparently decided to give Megan McArdle infinite space to tell its readers that she doesn't like the Social Security trust fund. Well, they have to fill their website with something.

Just to keep things short and simple, there are two ways to think about the trust fund. First, we can follow the law as written. Under the law, designated Social Security taxes and only designated Social Security taxes can be used to pay Social Security benefits. Money from the taxes that is unspent in the year collected is put in the trust fund for further use. The law is pretty clear on this. I have not heard even Antonin Scalia attempt to argue otherwise.

The other way to think about the trust fund is that it is an irrelevancy. At some time in the past the politicians in Washington thought it would be cute for us to pay for Social Security out of its designated tax and the trust fund, but hey, who cares? There is only one government, so it really doesn't matter which pocket the money comes out of, so the trust fund is irrelevant to anything.

While there are good reasons for choosing one or the other of these views, both have the advantage of being consistent. Both also have the advantage of telling us that there is no necessary reason to worry about Social Security's finances just now. In the first case, the projections show the fund will be able to pay full benefits through 2033 with no changes whatsoever. We could of course worry about Social Security's finances sooner if we want, but some folks might think that problems like unemployment and stagnant wages are more pressing.

By the second view there is no reason to worry about Social Security's finances because the premise is that it doesn't have its own finances. Hey, there's just one government, who cares which pocket the money comes out of? In this view it makes no more sense to worry about Social Security's finances than it does to worry about the finances of the defense or state departments. It's all part of the government.

There can only be an issue if we let people just make it up as they go along, effectively saying that Social Security has to be financed by its own taxes, but the program doesn't get to use surpluses from prior years to pay current year's benefits. There is not any obvious logic to this position, and it has no basis in current law, but its proponents are welcome to lobby their representatives in Congress to have the law re-written as they would like it. Until then, we need not worry about the status of the trust fund or the solvency of Social Security.


Note: The spelling of Antonin Scalia has been corrected, thanks Ken.

The National Journal reported that roughly 0.000008 percent of Social Security benefits over the years 2006-2008 were paid to people who had been committed to institutions as sexual predators. Under the law, these people (18 were uncovered, in total) are ineligible for Social Security benefits.

The National Journal and its reporters are now waiting for the Pulitzer Prize.

That's what Yahoo Finance effectively told us in the headline of a piece on the Labor Department's release of new data from its Job Opening and Labor Turnover Survey. The headline said, "U.S. jobs opening data points to skills mismatch." The evidence was a modest rise in the overall rate of job openings from 3.4 percent to 3.5 percent. But if this is evidence of a skills mismatch then the biggest problem is in the restaurant sector where the jobs opening rate was 5.1 percent. Apparently there are just not enough people who know how to wait tables and wash dishes.

If we used the standard economist measure, we would be looking for rising wages as evidence of skills mismatch. There is not much evidence of that anywhere, as is pointed out later in the article.

That's the question Megan McArdle raises in her Bloomberg column condemning efforts to raise Social Security benefits. McArdle tells readers:

"Now, I don't want to get mired in the tired old arguments about whether the trust fund is "real" -- whether it's a stupid accounting abstraction or a profound moral promise on the part of the U.S. government -- because this obscures the actual point we need to be concerned with: If we want to pay Social Security beneficiaries more money than we are collecting in payroll taxes, the money has to come from somewhere, and ultimately, that "somewhere" is the United States taxpayer. It is supremely irrelevant whether that money flows through the "trust fund" or Uncle Sam holds an annual ceremony in which the trustees are handed one of those giant checks they present to lottery winners; we still need to find the money to make good on that check."

Of course we would all like those who disagree with us in major debates to simply disregard their arguments and accept what we are saying as true. But most of us just don't possess the power to force our opponents to concede the truth of our position, even when if we use ad hominems to belittle their arguments.

In the case of the Social Security trust fund, the tired old argument stems from the legal structure of the program whereby it is financed exclusively by its designated tax, including the surpluses from taxes in prior years. McArdle tells us that bonds purchased with prior years' surpluses don't matter, the government still has to cough up the money in the current year. The same logic applies to the bonds held by rich people like Peter Peterson. The government has to cough up the money to pay him the interest this year on whatever bonds he holds.

If McArdle wants to declare it "supremely irrelevant" that the payments for Social Security come from bonds held by the trust fund, then with equal validity we can declare it supremely irrelevant that Peterson paid for the bonds he owns. After all, this would just get us into tired old arguments about moral obligations to bondholders.

McArdle could contend that we have to pay Peterson his interest because otherwise no one would ever buy U.S. government bonds again, but this point actually is directly in line with tired old arguments about moral obligations. The logic of this assertion is that if we don't meet obligations to past bondholders, then no one will trust us to meet our obligations to future bondholders.

Suppose people apply the same logic to the taxes they pay for Social Security benefits. If we don't follow the law and pay people the benefits they have earned, then they may be more likely to try to avoid paying Social Security taxes in the future. They certainly will be less likely to approve tax increases to fund the program, if they have no reason to believe that the taxes will actually be used for the program, as required under law.

But McArdle doesn't want to have this sort of discussion. Readers are just supposed to accept her pronouncements as true.


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Glenn Kessler has a difficult job. He is asked to assess claims that often arise in the middle of heated political debates. Inevitably his judgements will leave some unhappy. I sometimes fall into the unhappy camp, as is the case today with his assessment of Public Citizen's claims on the job impact of the Korea-U.S. Free Trade Agreement. He gave Public Citizen a whopping four pinocchios in saying that the deal led to the loss of 85,000 jobs.

Before getting to the substance, let me say that I have known Kessler for years, and I'm sure he reached this assessment in good faith. I have discussed many issues with him over the years (including a related trade issue) and I have always felt that he was trying to determine the facts of the situation. In this case, I just think he got it wrong.

He raises several objections to Public Citizen's number. Just briefly listing them, he is concerned about:

1) the relationship between the estimates of jobs per dollar of exports and jobs per dollar of imports;

2) the years chosen as endpoints for the Public Citizen analysis;

3) the nature of the counterfactual (i.e. what would have happened in the absence of the trade deal); and

4) Public Citizen's exclusion of re-exports from the calculation.

There is some validity to all of these concerns, but none of these issues individually or collectively undermine the basic story in the Public Citizen report.

Starting with the estimates of jobs per dollar, these are always very crude. Public Citizen took their estimate of jobs per dollar from a report from International Trade Commission which calculated how many jobs would be generated by a projected increase in exports associated with the U.S.-Korea Free Trade Agreement. Kessler points out that this estimate is from 2007 so it would be out of date by 2012, when the deal first took effect. Furthermore, it was an estimate of jobs per dollar of exports, not imports.

Both of these points are true, but not likely of much consequence. The original estimate of jobs per dollar of exports is at best a crude approximation rather than a carefully constructed number. Certainly no one could rule out that the true number in 2007 may have been 10 percent higher or 10 percent lower. Ideally we would have separate estimate for the jobs lost in the industries competing with imports, but it is unlikely to be hugely different. (Most exports and imports are manufactured goods.) Furthermore, U.S. imports tend to be somewhat less capital intensive than U.S. exports, which means that there are likely to be more jobs lost per million dollars of imports than are gained per million dollars of exports.

On the second point, Kessler takes issue with where Public Citizen decided the trade agreement's impact would first be felt. There will always be some ambiguity on this sort of question because businesses will start responding once they are sure the deal will go into effect, even before it actually is in place. Whatever date one picks, it is pretty hard not to see a clear pattern of rising deficits around the time of the deal. Here's the data from the Commerce Department going back to 2007.


Korea trade deficit 32525 image001

                Source: U.S. Department of Commerce.

The deal was ratified in late 2011 and went into effect in March of 2012. Whatever date we want to pick as the point at which the deal first started having an effect on trade, there seems no way of escaping the fact that there was a large increase in the deficit after that point.

The NYT article discussing Republican efforts to limit the Fed's power to boost the economy presented an overly narrow view of the issue of the Fed's independence. It contrasted efforts by Democrats to make the Fed more accountable to the president and the Congress, with Republican efforts to make the regional Feds stronger by giving the banks more control. The latter was described as increasing Fed independence.

In fact, the Republican path would make the Fed more dependent on the financial industry. This has been a serious problem in the past. Undoubtedly the Fed's failure to crackdown on the housing bubble was due in part to the fact that the financial industry was making a fortune on the issuance and securitization of junk mortgages.

A Fed that is overly dependent on the financial industry is also likely to be more prone to raise unemployment in order to reduce the risk of inflation. The cost of this policy would be millions of fewer jobs and lower wages for tens of millions of workers.

If we want a Fed that can act in the interest of the general public it makes sense to try to increase its independence from the financial industry. The Fed is an unusual regulatory agency in that members of the regulated industry sit directly on the board of its regulator. By contrast, other industries have to hire lobbyists to influence their regulators.

Robert Samuelson comes down largely in the right place in arguing that the Fed should err on the side of raising employment in a context where we don't know how far the unemployment rate can fall before triggering inflationary pressures. However, his warning that bad things happen if the Fed gets too carried away pushing high employment is misplaced.

First it is worth reminding everyone that the economics profession was far more confident (with far more evidence) back in the 1990s that the unemployment rate could not get much below 6.0 percent without leading to accelerating inflation. The profession was completely wrong in that belief as Alan Greenspan was able to prove by letting the unemployment rate fall to 4.0 percent as a year-round average for 2000 (without accelerating inflation).

The stories that the quest for full employment leads to bad things needs important qualifications. The main bad things in the 1970s were the OPEC price increases that quadrupled the price of oil in 1973-1974 and again in 1978-1980. These price increases would have led to enormous economic disruption even if the Fed had not been trying to sustain a high employment economy.

The other two bad stories, the stock bubble in the late 1990s and the housing bubble in the last decade both stemmed from an incredible failure of oversight by the Fed and other regulators. Both bubbles were easily seen by anyone with open eyes, and the recessions that would be caused by their collapse was 100 percent predictable.

The issue here is simply finding competent people to serve at the Fed and the relevant regulatory agencies. There has been much written about the skills shortage in the United States, but it should be possible to train enough people with the necessary skills to fill the small number of positions in question.

Tyler Cowen used his Upshot piece this week to tell us that the real issue is not inequality, but rather mobility. We want to make sure that our children have the opportunity to enjoy better lives than we do. And for this we should focus on productivity growth which is the main determinant of wealth in the long-run.

This piece ranks high in terms of being misleading. First, even though productivity growth has been relatively slow since 1973, the key point is that most of the population has seen few of the gains of the productivity growth that we have seen over the last forty years. Had they shared equally in the productivity gains over this period, the median wage would be close to 50 percent higher than it is today. The minimum wage would be more than twice as high. If we have more rapid productivity growth over the next four decades, but we see the top 1.0 percent again getting the same share as it has since 1980, then most people will benefit little from this growth.

The next point that comes directly from this first point is that it is far from clear that inequality does not itself impede productivity growth. While it can of course be coincidence, it is striking that the period of rapid productivity growth was a period of relative equality. At the very least it is hard to make the case that we have experienced some productivity dividend from the inequality of the post-1980 period.

And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.

The proponents of the Trans-Pacific Partnership (TPP) are doing everything they can to try to push their case as they prepare for the fast-track vote before Congress this month. Today, Roger Altman, a Wall Street investment banker and former Clinton administration Treasury official weighed with a NYT column, co-authored by Richard Haass, the President of the Council on Foreign Relations.

They begin by giving us three myths, all of which happen to be accurate depictions of reality. The first "myth" is that trade agreements have hurt U.S. manufacturing workers and thereby the labor market more generally. Altman and Haas cite work by M.I.T. economist David Autor showing that trade with China has reduced manufacturing employment by 21 percent, but then assert that the problem is trade not trade agreements. They tell us:

"the United States does not have a bilateral trade deal with China."

Of course if China became a party to the TPP the United States would still not have a bilateral trade agreement with China. (That's right, the TPP is a multilateral trade agreement, not a bilateral trade agreement.) This indicates the level of silliness to which TPP proponents must turn to push their case. As a practical matter, a trade agreement, the WTO, was enormously important in the increase in China's exports to the United States. China joined the WTO at the end of 2001, three years later the U.S. trade deficit with China had nearly doubled from $83 billion to $162 billion.

One of the few pleasures of the dismal science is getting to watch the surprised faces of economists and economic analysts when things don't turn out as they expect. NAFTA didn't lead to a boom in Mexico, who could have imagined? The 1990s stock bubble burst and took the economy and those big budget surpluses with it, how could that be? The housing bubble exploded, sending house prices plummeting and the financial system into the abyss, who could have imagined?

We got a smaller item in this sequence in response to yesterday's weak job report. The 126,000 jobs reported for March was far below most analysts' expectations. This report, coupled with weak data in other areas, is now leading many to question the predictions of an economic boom. One especially visible questioner was Wonkblog's Matt O'Brien. He told readers:

"the depressing message is that things weren't as good as we thought they were [emphasis added]."

I am going to beat up on Matt for the use of the plural here. Some of us knew that things were not very good and we said that repeatedly. For example, here I am back in early February making fun of Matt for telling readers that the U.S. economy is booming. I don't mean to make this personal. Matt was pretty much in tune with most people writing about the economy at the time, he was just perhaps a bit more forthright in putting his assessment into print.

Suppose our leading physicists told us that fire will either lead to high temperatures that will cause burns or very low temperatures that would lead to hypothermia and frostbite, they couldn't be sure. This would be pretty much the state of macroeconomic debate in the United States and the world.

For decades we have heard endless accounts of how the retirement of the baby boomers was going to devastate the economy. The story was that the cost of their Medicare and Social Security would be an enormous drain of resources from the rest of the economy. We would have to raise taxes and/or run large budget deficits. We would have to pull away resources from infrastructure, educating our children and other vital needs. This is a story of too much demand.

Now we have a story of secular stagnation that is also suppose to stem from retiring baby boomers. This is a story whereby the slower growth in the labor force leads to less need for investment. With less investment there is less demand in the economy, leaving the economy well below its full employment level of output. This is a story of too little demand.

The incredible part of this story for folks standing by as observers should be that they are being told directly opposing stories by people who have great standing in the economics profession. The amazing part of the story is that almost no one seems to recognize this simple fact.

(My answer is that both sides are largely wrong. We will have plenty of resources to cover the costs of the baby boomers retirement. The impact of the growth in the ratio of retirees to workers is swamped by the impact of productivity growth. On the demand side, the impact of the trade deficit swamps the impact of any demographic related investment slowdown.)

That would be an implication of research by Tufts University professor Joseph DiMasi. He found that it cost an average of $2.6 billion to develop a new drug in the United States. By contrast, the Wall Street Journal reported that a company in China developed a new cancer drug for just $70 million, less than 3 percent of DiMasi's estimate.

Given the enormous difference in costs, the United States and the world economy would be much better served if we shifted drug development to efficient countries like China. The United States should instead focus on producing goods and services in which it has a comparative advantage. Unfortunately, our trade deals have been pushing in the opposite direction, trying quite explicitly to protect the U.S. drug industry by increasing the strength of patent and related protection. Of course the best outcome would be to move away from research financed by patent monopolies and moving toward more modern and efficient mechanisms.

(The $70 million estimate may not include any discounting for money spent in the past. The proper methodology would impute interest to money spent ten years ago as opposed to yesterday. It also is only the cost for a successful drug. It doesn't factor in the cost of failures, as does DiMasi's estimate.)

Josh Barro comments on the exchange between former Federal Reserve Board Chair Ben Bernanke and Larry Summers and Paul Krugman. The key issue is whether the main problem with inadequate demand stems from the trade deficit or weak consumption and investment demand. I weighed in earlier on Bernanke's side.

Josh's question for Bernanke is that if the problem is the trade deficit, what do we do about it? Of course the main reason for the trade deficit is the over-valued dollar, which makes our goods and services less competitive internationally. This in turn is the result of the decision by other central banks, most importantly China's, to buy up large amounts of U.S. government bonds.

As Josh notes, some folks, like me, have urged that there be rules on currency values in trade deals like the Trans-Pacific Partnership (TPP). Bernanke rejects this route saying that it would be too complicated. (Hey, if you want complicated, try the TPP chapter on intellectual property.)

While currency rules would be fairly simple by trade agreement standards, Bernanke is right, we don't have to use trade deals like TPP to address the problem of an over-valued currency. Bernanke's proposed alternative is to "ask nicely."

Well, that's not exactly the way things work in international negotiations. Obviously China and the other countries who are deliberately propping up the dollar against their currency see it as being in their interest to do so. They are not going to hurt their economies, if they view this as the outcome of ending their currency intervention, just because President Obama asked nicely.

Charles Lane doesn't want the Postal Service to get involved in banking. That much is clear from his column, even if his argument doesn't necessarily support the case.

The argument seems mostly that the government can't compete with the dynamic private sector, although he also seems to worry about the opposite:

"(Yes, postal banking also undermines check-cashing liquor stores and pawn shops, a desirable goal if you buy into the stereotype that these are unscrupulous exploiters, as opposed to family-run small businesses, that the government would be crushing.)"

Hmmm, some of these operations are sizable chains. But yes, some are also family run, like the juice loan racket. Not sure of the point here exactly, but certainly a well-run postal bank would put a lot of sleazy operators out of business.

I see that Paul Krugman and Larry Summers are debating Ben Bernanke on the relative importance of weak domestic demand and our trade deficit in explaining shortfalls in demand. I have a busy morning, but let me throw in a quick tidbit and pronounce our former Fed chair the winner.

Suppose that our trade deficit was 1.0 percent of GDP (@$180 billion) instead of 3.0 percent of GDP (@$540 billion). Does anyone doubt that this difference of two percentage points of GDP would make a massive difference in employment and output in the United States? Where I come from it would have the same impact as a $360 billion (@ $4 trillion over a decade) government infrastructure program. That would go far towards getting us to full employment.

It's always a great day when I have the opportunity to have a substantive exchange with the incredibly erudite Brad DeLong, especially when I am quite sure that I am right. Brad is convinced that the fiinancial crisis is the evil doer responsible for our prolonged downturn instead of the good old-fashioned housing bubble often featured in these pages. He points to the surge in non-residential investment coming in 2007 and 2008. He argues that this surge, along with a rise in exports, would have offset the fall in residential construction and consumption, had it not been for the financial crisis.

I see a somewhat different picture.

Bubble 6310 image001

                                Source: Bureau of Economic Analysis.


The difference between my graph and Brad's is that I have pulled out construction from non-residential investment and shown net exports, rather than just exports. This is helpful because it shows that the surge in non-residential investment was entirely a surge in non-residential construction. This component rose from 2.6 percent of GDP at the start of 2005 to 3.8 percent of GDP in the fourth quarter of 2008. The rest of the non-residential investment component hovered near 9.6 percent over this period. In other words, it was going nowhere.

So what explains this enormous surge (almost a 50 percent increase in own terms) in non-residential construction? It's called a bubble. It would take me a moment to grab the data, but there was a surge in the price of non-residential properties just as the price of housing was going into reverse. Does this sound too dumb for words? Of course it is, but no one ever said that the folks in the banking system had a clue. We saw massive overbuilding in most areas of non-residential construction in this period. Even seven years later you can walk around the downtown of a relatively prosperous city like Washington and still see vacant retail and office space everywhere. This bubble was destined to burst, with or without a financial crisis.

What about net exports? I actually had some hope for net exports filling the gap, with the assumption that the dollar would drop, increasing the relative competitiveness of U.S. goods and services. There is some story here. The dollar had actually been falling since the beginning of the decade. (The over-valued dollar was an evil legacy of the Clinton years.) But the problem was that there were bubbles elsewhere in the world, most notably Europe. This meant a major export market was not going to be there for us. I don't see how we can blame the financial crisis for Europe's housing bubble.

Just to repeat my basic line, if we look at the economy after the financial markets had stabilized (2011 or 2012, pick your year) and ask what component of GDP would be higher if we did not have the financial crisis, it's hard to see a candidate. Brad's pick of non-residential investment doesn't hold water. Perhaps we can claim a bit better picture on net exports if people had not turned to the dollar as a safe haven, but this involved many factors other than the financial crisis. Also, the conscious decision of foreign central banks to prop up the dollar to sustain their export markets has to swamp this effect.

I stand by my housing bubble assessment.



Here's that commercial real estate price index I was looking for. Looks like it might be a good time to start worrying, especially if you're in the U.K.

Second Addendum:

I would also question the extent to which the further decline in house prices and construction was due to the financial crisis, as claimed by Brad in his post. It is not surprising that coming out of a bubble markets overshoot on the downside. It happened following the stock crash in 2000-2002. There was no financial crisis then. And the further decline in construction is easily explained by the overbuilding of the bubble years and the record vacancy rates. No need to talk about a financial crisis here either.

Note: typo corrected, thanks Marko.



The media regularly report the mixed signals from Japan on the state of its recovery (here, for example), but for some reason, they never seem to mention the state of the labor market. The news here is actually quite impressive. Since Shinzo Abe took over as prime minister in 2012 the employment to population ratio (EPOP) for adults under 65 rose by 2.4 percentage points. By comparison, the rise in the EPOP in United States over the same period, which has frequently been celebrated as a boom, was just 1.6 percentage points. Japan's EPOP is now 2.1 percentage points above its pre-recession level. By contrast, the EPOP in the United States is 3.2 percentage points lower for this group of workers.

In Washington policy debates, 90 percent of the story is what adjective gets applied to a particular set of facts (as in the "crushing" burden of the baby boomers' retirement). I know that I am not important enough to determine which adjective gets used, but I can take advantage of the adjectives used by others. If the United States has experienced an employment boom in the last two years, then Japan has experienced something better than a boom. It is remarkable that no news outlet has chosen to mention it.

A generous donor has agreed to give BTP big bucks for every case of a silly article complaining about deflation caused by a drop in energy prices. (I wish.) Anyhow, the NYT gave us another one today, thankfully with at least some qualifying language.

As I've pointed out many times before (most recently here), it doesn't matter if prices are falling if the decline is primarily due to an imported product like oil. The reasons that low inflation or deflation are troubling do not apply. Let's see how long the NYT takes to get it straight and maybe the rest of the media will follow.

Good piece on a study by AARP. (I was a discussant on a panel yesterday.) It will be interesting to see how Obamacare affects this story.

Since older workers can now get insurance through the exchanges, employers will be less concerned about picking up an older worker's health care costs. It will be interesting to see if this has a positive effect on their reemployment prospects.

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