Robert Samuelson has a really serious problem of projecting his own conceptual confusions on others. In his column this morning he repeatedly uses "we" when he actually means "I."

"We overestimated our ability to control the economic environment. What we have learned is that outside events — here, the financial crisis and Great Recession — can overwhelm collective protections and discredit conventional beliefs. The economy is more random, unstable and insecure than we imagined. It is less susceptible to policy engineering."

Of course "we" did not overestimate the government's ability to control the economy. Some of us were completely aware of the dangers posed by the housing bubble and the amount of stimulus that would be needed to bring the economy back to full employment. As we pointed out, the Fed should have taken steps to burst the housing bubble, starting with public warnings like the ones that Federal Reserve Board Chair Janet Yellen made last summer in reference to junk bonds and social media company stocks. The Fed also could have used its regulatory power to crack down on fraudulent mortgages that were being securitized in huge numbers.

This is not the only error in Samuelson's piece. He also mistaken argues that because most government benefits go to the poor and middle class:

"it is not possible to pretend that the whole superstructure of government has somehow been turned against the middle class. This is not just a distortion of reality; it is the converse of reality."

In fact the government has structured the market over the last three decades in ways that cause most income to flow upward. For example its trade deals have been focused on putting less educated workers in direct competition with the lowest paid workers in the world. This has the predicted and actual effect of driving down their wages. At the same time, highly paid professionals, like doctors and lawyers, are largely protected from international competition. The government has also had longer and stronger patent protection, causing middle class people and the government to pay hundreds of billions more for prescription drugs than would be the case in a free market. The benefits from these forms of protectionism disproportionately go to the wealthy.

Many newspapers require that people writing columns carefully document the factual claims they make. The Washington Post is not in this category as readers of Steve Moore's column touting the wisdom of the Laffer Curve must know. I won't go into the details of the misrepresentations in the piece. Paul Krugman has done some of this work here, and PGL at Econospeak adds more.

I will just make a couple of quick additional points. First, no one ever disputed that high tax rates have a negative incentive effect on work and savings. The question is the size of this effect. The basic story of the Reagan era does not provide much reason to believe that this negative effect was large. Growth of employment was slower in the 1980s than in the 1970s, savings rates fell, and the investment share of GDP fell to its lowest levels in the post-war era. There are other factors that can explain all of these developments, but it is pretty hard to make a case that lower tax rates were a major elixir for growth when all the key variables that were supposed to be affected went in the wrong direction.

The second point is that timing is everything. Moore likes to have the world begin in 1982. This was the trough of the steepest downturn in the post-war era. Economies typically bounce back from steep downturns with steep upturns (not in the most recent one, because that was the result of a collapsed bubble). For this reason the recovery is primarily a measure of the severity of the downturn. The more honest way to measure an economy's performance is comparing it to the prior business cycle peak.

By this measure, the 1980s had slower growth then high tax days of the 1970s and much worse growth than the higher tax days of the 1960s. The world looks a bit better if we start at 1982, but that is not a serious way to assess the Reagan performance.

This reminds me of a time when I was on a radio show with Moore. Then too he was touting the wonders of the Reagan boom. I pointed out that the 1970s had better growth than the 1980s and offered Moore a $100 bet on the topic. Moore accepted and then touted the 1982 to 1989 growth rate. When I pointed out that the 1980s began in 1980, Moore got upset.

Unfortunately for Moore and other Laffer-Reagan backers, the 1980s still begin in 1980.

People in places like rural Kansas and downtown Washington, DC often have a misplaced trust in authority and elected officials. They are inclined to take their comments at face value, not realizing that these people often have ulterior motives.

The Washington Post gave us an example of this confusion in a front page article on President Obama's effort to push the Trans-Pacific Partnership (TPP), which it repeatedly refers to as a "free-trade" pact. The piece follows the administration's line in telling readers that "the president threw his full support behind the pact as part of a broader effort to rebalance U.S. foreign policy to the fast-growing Asia-Pacific region."

This assertion makes little sense since the administration is simultaneously pursuing a similar trade pact, the Trans-Atlantic Trade and Investment Pact, with Europe. What both deals have in common is that they are primarily about imposing a business-friendly structure of regulation on both our trading partners and the United States. The more plausible explanation is that President Obama is trying to get more business support for the Democratic Party.

The terms of the pacts will supersede laws put in place by both national and sub-national governments, creating an investor-state dispute settlement mechanism. Foreign corporations would be able to contest laws at every level of government at these tribunals. Their rulings could not be over-turned by domestic courts. Incredibly, the Post article made no mention of these tribunals even though they have been a major cause of opposition to the agreements.

The piece also repeatedly refers to the TPP as liberalizing trade. This is not at all clear. Most of the trade barriers between the United States and the countries in the agreement are already low. While the TPP will reduce many of these barriers further, it will also increase protectionist barriers in the form of patent and copyright protection. It is entirely possible that the increase in protectionism due to stricter and longer protections in these areas will most than offset any reduction in the remaining tariff and quota barriers.

It is also worth noting that the deal will likely include nothing about regulating currency values. The decision of many developing countries to deliberately keep their currencies low against the dollar has been the major factor sustaining the U.S. trade deficit, which is now more than $500 billion annually (@ 3 percent of GDP). This loss of demand is the major cause of the "secular stagnation" that economists like Larry Summers have been writing about lately. Opponents of this trade deal have argued that currency should be included in the pact given the enormous damage caused by the resulting trade deficits.

Confused thinking on inflation continues to abound, and not just from the folks convinced that hyper-inflation is just around the corner or already here. Recall that until recently we were supposed to be terrified that those low inflation rates in the euro zone might shift from being small positives to small negatives, and then the world would end.

Fortunately the I.M.F., among others, is now pointing out that the problem is simply an inflation rate that is too low. An inflation rate of -0.5 is more too low low than inflation of 0.5 percent, but this is just in the same way that an inflation rate of 0.5 percent is more too low than an inflation rate of 1.5 percent. The problem is that we would like the inflation rate to be higher to both facilitate declines in real wages in sectors seeing less demand (commentators please note, the issue of real wages being too high is in certain sectors, not a general problem) and to reduce the real value of outstanding debt. A higher rate of inflation will also reduce the real interest rate, which will encourage firms to invest more.

This brings us to a Reuters story that ran in the NYT telling readers that falling oil prices will make it harder for Japan to hit its 2.0 percent inflation target, therefore implying that low oil prices are bad for Japan's economy. Let's think this one through for a moment.

First, if we check the base paths, we see that Japan is almost 100 percent dependent on imported oil. This is different from the U.S. which has a substantial oil producing sector. That should make the story pretty unambiguous. In the U.S. we can say that areas like North Dakota and Texas might take a hit, even if other parts of the country will benefit from lower oil prices. Japan doesn't have a North Dakota or Texas, which means that they are only looking at paying less for their energy.

So how is this bad? Well, the Reuters piece says it means lower inflation. This is true, but we have to think of why lower inflation could be a problem. Let's imagine that if the price of oil were unchanged, then Japan's central bank would be hitting its 2.0 percent inflation target. Now because of lower oil prices, the overall rate of inflation will come in substantially under 2.0 percent.

That's right, he complains that Elizabeth Warren opposed Larry Summers' nomination for Federal Reserve Board chair even though he played a central role in designing the policies that led to the housing bubble and the subsequent collapse. Yep, that's just irresponsible populism to hold someone responsible for policies that are likely to cost us more than $10 trillion in lost output and lead to millions of ruined lives.

I hate to put a damper on the party, but the some of the reporting on the economy is getting a bit out of hand. The Post gave us an example, with a piece on the revised fourth quarter GDP numbers headlined, "Robust Economic Growth in the third quarter raises hopes that a boom is on horizon." That's not what Mr. Arithmetic says.

First, just to be clear, the third quarter numbers were definitely good news. Five percent GDP growth is a solid economic performance by any measure, so there is no doubt that it is a big step forward by any measure. The economy is clearly growing, and likely at a reasonably respectable rate. The issue is whether the term "boom" is appropriate.

As this article and other reporting notes, the third quarter follows a strong second quarter of 4.6 percent growth, which in turn followed a first quarter where GDP shrank by 2.1 percent. The piece dismisses the drop in first quarter GDP as the result of bad weather. This is surely true, but the strong growth in the subsequent two quarters is clearly related to the drop in the first quarter. The growth in these quarters was a reversal of the decline in the first quarter.

If we take the average growth over the last three quarters, we get a 2.5 percent annual growth rate. This isn't bad, but it's hardly anything to write home about. If we assume the economy has a potential growth rate (the rate of growth of the labor force plus productivity) in the range of 2.2-2.4 percent, then with the 2014 growth rate we are filling the gap in output at the rate of between 0.1-0.3  percentage points a year. CBO estimates that the gap between potential GDP and actual GDP is still close to 4 percentage points. This means that at the 2014 growth rate we can look to fill that gap in somewhere between 13 and 40 years. Perhaps we should put a hold on that champagne.

I see that John Cochrane is once again attacking Keynesian economics, giving an “autopsy for Keynesians” in the Wall Street Journal. His central line is that Keynesian economics has been repeatedly proven wrong in the recovery. He sees the U.K.’s turn to austerity as a brilliant success; and the continued U.S. growth, in spite of deficit reduction, as further proof of the failures of Keynesian economics. He tells us that even Greece and Italy are sticking with the euro, rejecting the course of “devaluation and inflation.”

I understand that Cochrane’s polemic is directed at Paul Krugman, but as a card carrying Keynesian, I will take up the defense. First, it requires some serious re-writing of history to pronounce the Keynesians wrong at every turn in this recession and recovery. Going back to the days of Great Moderation, some of us Keynesian types noticed the economy was being driven by a housing bubble long before the beginning of the Great Recession.

I’m not sure where bubbles fit in Cochrane’s world, but in this economy they are run-ups in asset prices that are not consistent with the fundamentals of the market. In most cases they are not of great consequence for the economy as a whole, only for the markets directly affected. However when the market is a massive market, like the U.S. housing market, and the bubble grows to the neighborhood of $8 trillion (@ $10 trillion in today’s economy), it is a big deal. The housing bubble raised residential construction to a record share of GDP. The associated wealth effect led to a huge consumption boom with the saving rate pushed to a record low.

When the bubble burst, there was no component of GDP that would magically replace these sources of demand. The outcome was a severe recession. The real world followed pretty well on this Keynesian’s line of thinking.

Cochrane somehow thinks the Keynesians blundered in believing that the stimulus would set everything right:

“Our first big stimulus fell flat, leaving Keynesians to argue that the recession would have been worse otherwise.”

Well, some of us were arguing at the time that the stimulus was far too small to get the economy back on its feet, so we were hardly surprised when our prognostications proved correct. (Krugman made the same case in a far more visible forum.)

Neil Irwin had an interesting piece in the Upshot section of the NYT on the origins of 2.0 percent as an inflation target for central banks. He concludes the piece by arguing that, while the target may be too low, it would be very difficult to move away from it.

There are a few issues worth noting on this point. First, the 2 percent target has not been precisely defined in most countries. In the United States, Fed chairs have been quick to note that it is an average, not a ceiling. This means that they could easily run an inflation rate above 2.0 percent for a number of years without violating their rule. If we had inflation about 2.0 percent for 4-5 years, and then the Fed announced that the recent inflation rate was in fact the target rate, it is not obvious that this would cause any great harm. The question would be whether people's expectations are based more on the target than on the inflation rates they have actually been seeing in the world.

This raises a second point, central banks, including the Fed, have been consistently undershooting their target since the start of the recession. If their credibility depends on hitting the target, then they should have lost a great deal of credibility in the last 7 years. Polls on expectations also seem to indicate that most people's expectations are based more on recent inflation rates than on targets.

A third point is that while targeting may be useful for bringing down inflation, inflation rates fell throughout the world in both countries that targeted inflation and those that didn't. If targeting can bring down inflation at a lower cost in terms of unemployment, then it would be a positive, but if it also prevents central banks from actions to boost the economy out of a downturn, then the loss can be far more than offsetting.

Finally, the piece ends with a discussion of central bank credibility, quoting Princeton economist and former Fed Vice-Chair Alan Blinder:

"Central bankers have invested a lot and established a great deal of credibility on their 2 percent inflation target, and I think they’re right to be very hesitant to give it up. If you change from 2 percent to 3 percent, how does the market know you won’t change 3 to 4?"

It is entirely possible that central bankers would find it too embarrassing to reverse course and adopt a policy that is better for the economy and the country. (Jean-Claude Trichet, the first head of the European Central Bank, patted himself on the back when he retired from the bank in 2011 even though the euro zone was still in the midst of a potentially fatal financial crisis. He pointed out that they had kept inflation below its 2.0 percent target.) In this case, it would be essential that elected leaders dictate to the central bankers that they have to swallow their pride and give up some of their hard-earned credibility.

As tens of millions of unemployed workers say, you can't eat central bank credibility.



It is also worth noting that we had very rapid growth throughout the OECD countries in the 1950s and 1960s in spite of the lack of inflation targets and uneven rates of inflation throughout this period. It is possible that growth would have been even more rapid if the inflation rate had been more stable, but clearly erratic movements in the inflation rate did not preclude rapid economic growth.

For folks like Timothy Geithner it is a big thing to boast about the profit the government made on the TARP. We got more of this children's story in the NYT yesterday in an article reporting on the end of the TARP. It is worth understanding the meaning of profit in this context.

The basic story is fairly simple. The TARP was a program through which we lent otherwise bankrupt banks, and actually bankrupt auto companies, hundreds of billions of dollars at interest rates that were far below the market rate. However the interest was higher than what the government paid on its borrowing, therefore Timothy Geithner gets to run around saying that we made a profit.

Before you start thinking that this is a great idea and we should give all the government's money to the Wall Street banks, imagine that we had given the same money to an different institution, Bernie Madoff's investment fund. As we all know, Madoff's fund was bankrupt at the time because he was running it as a Ponzi, the new investors paid off the earlier investors. He hadn't made a penny on actual investment in years.

But, if the government had lent him tens of billions of dollars at the rates charged to the Wall Street banks, and furthermore given the Timothy Geithner "no more Lehmans" guarantee (this meant that the government would not allow another major bank to fail), then Madoff would be able to invest the money borrowed from the government in the stock market. In fact, with the no more Lehman's guarantee he could have borrowed tens or hundreds of billions more from other sources and invested this in the stock market as well. (If he had been a favored bank, he could have also taken advantage of below market interest rate loans from the Fed.)

After a few years, Madoff would have made enough money to cover his shortfall. He could then both repay his investors and repay the loans to the government. This would have then allowed Timothy Geithner to boast about how we made a profit on the loans to Bernie Madoff.

The reality is that the boast of a profit in this context is pretty damn silly. The question is whether an important public purpose was served by rescuing the Wall Street banks from their own greed.

That's a hard one to see. Geithner and Co. trot out the Second Great Depression scare story, but this is just another children's story. We have known how to get out of a depression since Keynes, it's called spending money. And even Republicans are down with stimulus in a severe downturn. The first stimulus was signed by George W. Bush when the unemployment rate was 4.7 percent.

So TARP was about using the government to save the Wall Street banks from the market, end of story. There is no reason for anyone to care that Timothy Geithner gets to say we made a profit on the deal. We could have made a profit on rescuing Bernie Madoff too.


A NYT article on China's growth seems to have gotten data from the International Monetary Fund backward. It told readers:

"On the purchasing power basis, the I.M.F. forecasts the American economy at $17.6 trillion this year, while China’s is estimated at $17.4 trillion."

That's not what my I.M.F. data say. On my screen, it is China with $17.6 trillion and the U.S. with $17.4 trillion. Of course if we add in Hong Kong (which also appears to be under China's control), China would be over $18.0 trillion in 2014. FWIW, if we look to 2019, the last year in the I.M.F. projections, China's GDP is put at $26.9 trillion compared to $22.1 trillion for the United States. At that point, if these numbers prove accurate, the comparison will not even be close. 

A chart accompanying a Washington Post article on Russia under Putin tells readers that Russia's per capita GDP rose from $1,771 when Putin took power in 1998, to $14,611 in 2013. This would imply an increase in per capita GDP of 725 percent in 15 years for an annual rate of more than 15 percent. Such rapid growth in income would be unprecedented in world history. If it were true, then Russians would have cause to hold Putin's accomplishments in awe. Of course it isn't (although there was a substantial increase in Russian GDP over this period), so Putin doesn't have quite as much to boast about as the Post's chart implies.


I should have provided a bit more context here as many of the comments point out. There is actually a measure of GDP where the Post's numbers would be correct. It is by taking an exchange rate measure of GDP that converts rubles into dollars and does not control for inflation. This measure is largely meaningless, since most Russians are not buying most of their goods and services in dollars. They are paying in rubles.

The performance by a real GDP measure is still impressive. According to the IMF's data, overall real GDP has increased by 105.7 percent between 1998 and 2014, a 4.6 percent annual rate. Much of this was just bounceback from the collapse of the economy following the break-up of the Soviet Union, but there is little doubt that most people in Russia would consider themselves much better off today than when Putin took office.

Anyhow, some alarm bells should have been going off at the Post when they were putting in a chart showing an increase in per capita GDP of more than 700 percent in 16 years. Some folks were clearly asleep on the job.

While the Washington Post might generally be sympathetic to the idea of giving a few bread crumbs to the hungry and having shelters for the homeless, it hates the idea that middle class people should be able to enjoy a decent standard of living and share in the gains of economic growth. This explains its never ending quest to cut Social Security and Medicare along with the pensions of public sector workers. This stems from a basic philosophical principle that a dollar that is in the pocket of a middle class person is a dollar that could be in the pocket of the rich.

In keeping with this theme the Post decided to highlight a new paper by Steve Rose. (Note: Steve is a friend and a decent person, who just happens to be wrong.) Steve's paper shows that middle income families made substantial gains in income over the last 40 years, contrary to what so many of us have been saying. To get this result, Steve includes the value of government benefits, like Social Security and Medicare, at the price the government pays. He also ignores the sharp rise in the number of workers per family and uses a different price deflator than is generally used. 

Last week I had a blogpost commenting on a snide article in Slate that ridiculed the possibility that people could have chronic Lyme disease for which long-term antibiotic treatment could be useful. (Here's a similar piece in Slate.) As I pointed out in that post, the science on chronic Lyme is far less settled than our snide columnist claimed.

Since then I was sent a study that found clear evidence that long-term antibiotic treatment is effective in alleviating the symptoms of chronic Lyme. But apparently the true disbelievers will not allow their views on chronic Lyme to be swayed by new evidence.

Anyhow, the larger context for this discussion is that efforts in trade agreements like the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Pact to take away regulatory authority from democratically elected officials and turn them over to scientists should be viewed with caution. Unfortunately our scientists often act in ways that show very little respect for science. (Yes, this is probably more true in economics than anywhere.)



To the folks warning about making claims based on a single study, please go back to my prior post. That post referred to a study that reviewed all the widely cited studies that purportedly show that long-term antibiotic treatment is ineffective. The study noted here is an additional piece of information brought to my attention since that post.

There is a bizarre cult in Washington policy circles that likes to say that the markets are causing inequality, but the government can reverse the problem. E.J. Dionne treated up to an example of this cult, declaring that New York Senator Charles Schumer is a main ally. The basic story is that technology and trade have displaced large numbers of middle class workers, and thereby redistributed income upward, but government can redress this problem.

Every part of this story is wrong. Let' start with technology. Yes, computers are wonderful. Robots will displace workers. But let me tell folks a little secret. Technology has been displacing workers (i.e. costing jobs) for decades, in fact centuries. This is not new. This is not new. (I repeated that in case any pundit types are reading.) The question is the rate at which workers are being displaced. And here the news is the opposite of what we are being told. Technology is actually having less effect in recent years than in prior years because productivity growth has slowed as shown in this beautiful graph from the good people at the Bureau of Labor Statistics.

Productivity Growth (year over year change)


                                            Source: Bureau of Labor Statistics.

Productivity growth has averaged less than 1.5 percent over the last decade. This compares to more than 2.7 percent in the quarter century from 1947 to 1973. Yes, we all know stories about robots or computers making this or that job obsolete. The point is that if we bothered to look we would know many more such stories about jobs in the 1940, 1950s, and 1960s. The fact that we may not is simply a result of ignorance or laziness. And our ignorance cannot change what is true in the world.

In short, we do not have a technology story, how about a trade story? Yep, we can find low paid manufacturing workers in places like Mexico, Vietnam, and China who are costing jobs for steel workers and auto workers in the United States. The problem is that if you think this is just a natural process, then you have not been doing much thinking.

The NYT was seriously misled by the jump in the average hourly wage reported last month, headlining an article, "Economic Recovery Spreads to the Middle Class." The basis for the headline is the 0.4 percent increase in the average hourly wage reported in November. As fans of wage data everywhere know, the monthly data are very erratic. In fact, the November increase followed two months of weak wage growth. As a result, the annual rate of increase in wages for the most recent three months (September, October, November) compared to the prior three months was just 1.8 percent. That is below the 2.1 percent rate over the last year.

It may turn out that November really is a turning point and we see more rapid wage growth going forward, but given the weakness of the labor market (we are still down 7 million jobs from trend) it is more likely that it was simply a reversal from the unusually low numbers reported the prior two months. It is also worth noting that, contrary to the concern expressed in this article, wages for production and non-supervisory workers have actually been rising somewhat faster than wages for all workers, meaning that less highly paid workers have been seeing relatively larger pay increases in the recovery.

The NYT had a discussion of the debate among Democrats on whether they should take credit for the state of the economy. The piece is somewhat confused. It it includes many variables that either have no impact on most people or are not even measures of economic success.

For example, it refers to the decline in the deficit to less than 3.0 percent of GDP. Since the economy is still far below full employment according to estimates of the Congressional Budget Office and other forecasters, this just means that the government is pulling demand out of the economy. It is not clear why this would be a useful accomplishment for the Democrats to boast about.

It also tells readers that "exports are up." This is especially bizarre, since exports are almost always up and exports are not a measure of economic success. If GM moves an assembly plant from Ohio to Mexico, so that car parts are exported to be assembled in Mexico, exports would be up. Of course the country would have lost the jobs in the Ohio assembly plant and imports would be up even more, leading to a fall in GDP which depends on net exports. Needless to say, the Democrats would look pretty foolish boasting about this.

Remarkably, this piece ignores the importance of the Affordable Care Act (ACA) as an economic benefit to the middle class. Every month more than 4.7 million people leave or lose their job. The vast majority of these people are middle class. Over the course of the year this would imply more than 50 million job changers if there were no repeat changers. (There are.) These people no longer have to worry about getting health care insurance for themselves and their families as a result of the ACA. This provides an enormous amount of economic security to the middle class. It is incredible the piece would not discuss this fact. Access to health insurance certainly matters much more to middle class families than the amount of goods the country exports. 

The Washington Post just hates, hates, hates the idea that ordinary workers (i.e. people who don't earn six, seven, and eight figure salaries) should enjoy any job security. They took this hatred to Japan in their lead editorial, complaining that Japan's Prime Minister Shinzo Abe in a news conference following the re-election of his party pledged to pressure companies to raise wages. The Post told readers:

"a more effective, if less populist, action would be the passage of labor reforms to make hiring and firing easier."

Clearly the Post is focused on the firing part of the picture. Since Abe took office, Japanese companies have had little problem hiring workers. The employment to population ratio has risen by two full percentage points in the less than two years since Abe took office. This would be comparable to an increase in employment in the United States of almost 5 million people. That is almost 1 million more than the job growth we have actually seen over this period.

Apparently the Post's editors thought it would be too crude to just say that it should be easier for Japanese companies to fire workers so it added the comment on hiring to confuse the issue.

I have often commented about the apparent difficulty of obtaining reliable information about the economy in downtown Washington, DC, as demonstrated by the news and reporting in the Washington Post. Michael Gerson gave us more evidence today in his column criticizing populism of the left and right. At one point he mocks Hilary Clinton for her populist rhetoric noting that her ties to Robert Rubin and concerns for the bond market make it unconvincing.

Gerson then adds:

"Some baggage can never be checked. And some of us find her past association with economic sanity to be reassuring."

Of course what Gerson is describing as "economic sanity" are the policies that gave us massive trade deficits, and the stock and housing bubbles. These policies are likely to result in close to ten trillion in lost output over the first two decades of this century. They have resulted in millions of lost jobs and homes. It would difficult to find an example of more disastrous economic policies being pursued in any major developed country. Obviously, if Gerson was able to get data on the economy he would not be associating Robert Rubin's policies with economic sanity. 


The NYT's Upshot section ran a major piece headlined "as robots grow smarter, American workers struggle to keep up." The gist of the piece is that robots are rapidly replacing workers, leading to a lack of jobs. The piece focuses on the drop in employment in the last decade, which it attributes to the spread of robotization and computer technology. It includes comments from several economists pontificating about the impact on the distribution of income.

If robots and computers are leading to the rapid displacement of workers, they are managing to keep it a secret from the Bureau of Labor Statistics (BLS). BLS actually measures the rate at which the economy is becoming more efficient through the use of things like robots and computers, it's called "productivity growth."

Fans of data know that, contrary to what you read in the NYT, productivity growth has actually been rather slow in recent years. In the last decade it has averaged less than 1.5 percent annually. By comparison, in the twenty six years from 1947 to 1973 productivity growth averaged 2.8 percent annually. Contrary to the concerns expressed in this article, the rapid spread of technology in that period was associated with low rates of unemployment and high rates of wage growth for the bulk of the population.

The more obvious reason for the drop in employment over the last decade is the loss of demand that resulted from the collapse of the housing bubble. (Did they miss this one at the NYT?) That happens to fit the data like a glove, unlike the speculation on productivity.

Also,if we are discussing demand and employment it is probably worth mentioning the trade deficit. This translates into more than $500 billion in lost annual demand (@ 3.0 percent of GDP). The trade deficit implies demand being created in Europe or Japan, not the United States.

What the hell is the problem with papers not being able to talk about the trade deficit, is there censorship on the topic? This is basic national income accounting. This means it is not an arguable point, those who don't recognize the trade deficit as a drain on demand in the context of an economy that is below full employment (as discussed here) are simply wrong. The NYT should be able to find people to write on economics who passed Econ 101.

Finally, the genuflecting about the lack of jobs is especially bizarre in the context of the news stories about the Federal Reserve Board being prepared to raise interest rates. The point of raising interest rates is to slow the economy and keep workers from getting jobs. So if we are worried that technology may be displacing workers, why doesn't someone relay these concerns to the folks at the Fed so that they won't aggrevate the problem by raising interest rates?

Economies typically grow and that means aggregate wage income typically grows. That is why it is a bit bizarre that in laying out the case for a Fed rate hike, Steve Mufson told readers:

"Inflation-adjusted wages and salaries in personal income rose to a record high during October, up 2.9 percent from the year before."

That's pretty much the normal state of affairs, as can be seen.

real wages

The Great Recession was extraordinary in giving us a prolonged period in which inflation-adjusted wages did not grow. The fact that we have finally passed the 2007 level is not much of a case for raising interest rates, which just to be clear, means slowing growth and killing jobs.

On this last point the piece includes a mistaken comment from Gregory Mankiw. He is quoted as saying that the percentage of workers who are willing to quit their jobs without having another job lined up is "looking much closer to normal levels." This is not true. The percentage of unemployment due to people who had voluntarily quit their jobs was 9.1 percent in November. This is above the recession low of 5.5 percent, but it is well below the 11-12 percent range of 2006-2007 and far below the 13-14 percent levels of the late 1990s and 2000, the last time workers saw real wage growth.




Robert Samuelson discusses the slowdown in health care costs in his column today and considers possible explanations. He notes a study from Kaiser Family Foundation which attributes three quarters of the slowdown to the weak economy. This study predicted that spending would accelerate in 2014.

We actually have data on this, since the Bureau of Economic Analysis reports spending through October (Table 2.4.5U, Line 168). Through the first 10 months of 2014 we are on track to see a 3.3 percent increase in spending compared to 2013, down slightly from the 3.5 percent increase last year. (This category accounts for about 70 percent of total spending.) That would suggest that 2014 is not fitting the pattern predicted by the Kaiser analysis, which should raise doubts about the extent to which a weak economy can explain a reduction in spending.

Samuelson also touts the growth of health savings accounts (HSA) as a major factor in reducing costs. He cites data from Kaiser that HSAs went from 4 percent of covered workers in 2006 to 20 percent in 2013.

It is implausible that this growth could explain much of the reduction in costs. Almost by definition the people who sign up for HSAs are people with low expenses. (It doesn't make sense to sign up for an HSA if you anticipate that your bills will exceed the deductible.) The additional 16 percentage points of non-senior individuals who signed up for HSAs almost certainly accounted for only 2-3 percent of total health care spending. This means that even a reduction of 1.0 percentage point of national spending (reducing the growth rate by 0.15 percentage points over the last seven years) would have required a massive reduction in health care spending by these people. 

GuideStar Exchange Gold charity navigator LERA cfc IFPTE

contact us

1611 Connecticut Ave., NW
Suite 400
Washington, DC 20009
(202) 293-5380

let's talk about it

Follow us on Twitter Like us on Facebook Follow us on Tumbler Connect with us on Linkedin Watch us on YouTube Google+ feed rss feed