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.
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.
A NYT article on Xiaomi, a fast-growing Chinese start-up that is now the number three seller of cell phones in the world, included the fascinating sentence:
"Xiaomi does not yet have much of a patent portfolio, leaving it vulnerable to lawsuits from competitors."
On its face, this sentence should have left readers baffled. Why would the lack of a patent portfolio make a company vulnerable to lawsuits? The answer of course is that patents are used as a harassing tactic. The idea is to bury your competitor with patent suits in the hope that one may actually get past summary judgement and go to trial. This can be time-consuming and expensive for a small company.
The advantage of having a large patent portfolio in this context is that you get to play tit for tat. You turn around and throw a pile of patent suits back at your competitor. The fight usually ends with both sides agreeing to drop suits, and occasionally some licensing fees being paid.
From an economic standpoint, these patent wars are a complete waste, but they nonetheless may prove profitable for a company that fights effectively. It's too bad that our "free traders" are so opposed to free trade, otherwise we could reduce this source of waste and upward redistribution (patent lawyers tend to be one percenters).
Yes Toto, we're back in Kansas and we're discovering some folks really don't believe in reporting that provides meaningful information to readers. After all, what will most people make of an article on projected deficits in Kansas that told readers about Governor Brownback's schedule of tax cuts which are, "projected to cost $7 billion through the end of the 2019 fiscal year?" We are also told that the state faces a shortfall of nearly $280 million in the current fiscal year, which the governor proposes to address by, "cutting more than $70 million in agency spending and transferring more than $200 million into the state general fund from various reserves to plug the gap through the fiscal year ending in June."
Do you feel informed? In case you were one of the small minority of NYT readers who have no clue how large Kansas' budget is, the projection for the current fiscal year is roughly $14 billion, which puts the shortfall at 2 percent of projected spending. The $650 million shortfall projected for next year would be more than 4.0 percent of the state's budget.
The piece also refers to a $8 billion shortfall in the state's pension funding. This comes to less than 0.3 percent of the state's projected gross state product over the next three decades, the standard planning period for pension funds. The piece also tells readers about the governor's plans to make "changes" to the pension fund in order to "create a more sustainable long-term budget."
These sorts of changes would mean cuts, as in lower pensions or higher employee contributions. It is understandable that the governor and his allies would prefer euphemisms to conceal their agenda. It is not clear why the NYT would share the same motivations.
George Will began a Washington Post column on tax reform by bemoaning the fact that we have defined success downward. He notes the celebration over the 321,000 job gain reported for November, then tells readers:
"In the 1960s, there were nine months in which more than 300,000 jobs were added, the last being June 1969, when there were about 117 million fewer Americans than there are now ."
While Will is right about the low bar for success (we should be seeing very rapid job growth following a steep downturn like the 2008-2009 recession), the sixties do not support his case for a need to cut tax rates. Through most of the 1960s the top individual tax rate was 70 percent, while the corporate rate was 50 percent. That compares to a top individual rate of 41 percent today, and a corporate tax rate of 35 percent. The top marginal tax rate in the first two months when we had 300k plus job gains was 90 percent. If Will wants to make the case for lower tax rates spurring job growth, he should not be citing the sixties.
Will then goes on to complain that one third of the people approaching retirement have no savings. This is indeed a serious problem, but it is hard to see it being cured by tax reform. Most of these people would have been in the zero, ten, or fifteen percent bracket for most of their working lives. Furthermore, they would have had the opportunity to put as much money as they plausibly would have been able into a tax deferred 401(k). It is very difficult to envision a tax reform that will enable these people to qualitatively increase their savings. Their main problem is not enough income, with close to four decades of stagnant wages.
Will also says the real estate industry really should support tax reform even if it caps the exemption for the mortgage interest deduction, because faster economic growth will lead to higher home prices. Both parts of this are wrong. Douglas Holtz-Eakin, who had been President George W. Bush's chief economist, examined all the standard macroeconomic models for the impact of large tax cuts on growth when he was head of the Congressional Budget Office. He found that even the most extreme assumptions implied that large tax cuts had only a modest effect on growth.
Furthermore, economic growth is not associated with higher house prices. House prices only kept pace with inflation during the years of rapid growth in the 1950s and 1960s.
The Washington Post ran part one of what promises to be a very good series on the plight of the middle class in the United States over the last four decades. After noting the lack of wage growth in the 2000s the piece tells readers:
"Jobs came back more slowly, if at all. Even before the 2008 crisis, the 2000s were on track to be the weakest decade for job creation since the Labor Department started tracking the statistics. The great mystery is: What happened? Why did the economy stop boosting ordinary Americans in the way it once did?"
It's not clear what is mysterious in this story. The economy was being driven by bubbles in both the late 1990s and the 2000s. When the stock bubble burst the only way to replace the demand was the housing bubble. When the housing bubble burst there was nothing to replace the more than $1 trillion in lost demand due to the collapse of residential construction and housing wealth driven consumption, as some of us said at the time.
The only mysterious aspect to this story is what anyone thought could replace this demand. Did they anticipate purchases of U.S.made goods and services by Martians?
More generally we have had a government committed to redistributing income upward for the last three decades. Currently President Obama is pursuing a trade deal that is designed to raise the price of drugs (current spending is around $400 billion a year -- this is real money) and get more money for the entertainment and software industry. He refuses to include any steps designed to reduce the trade deficit (i.e. lower the value of the dollar) which would be one obvious way to replace the demand lost by the collapse of the housing bubble.
And, these trade deals are likely to do almost nothing to increase trade in highly paid professional services, like those provided by doctors. (Many doctors are in the top one percent and virtually all are in the top two percent.) This allows pundits to run around saying that workers are losing out to an inevitable process of globalization and somehow never notice that doctors and other highly paid professionals have been deliberately protected.
And the Federal Reserve Board seems likely to raise interest rates next year for the purpose of slowing growth, which will prevent workers from getting jobs and seeing pay increases. The Fed has helped to keep the unemployment rate much higher in the years since 1980 than in the decades before as Jared Bernstein and I point out in our book.
In short, it seems pretty obvious what has happened to the middle class. The government has designed policies to help the rich at their expense. It's not clear what part of this story is mysterious.
Ron Lieber had a well-reasoned "Your Money" piece in the NYT that discussed the merits and pitfalls of buying a home with a low down payment. However it may have misled readers about the findings of the research.
It noted that some people have raised concerns about the risks of default on low down payment mortgages (it linked to a post by me) and then it referred to others disputing that low down payments are associated with higher risks, using "fresher data." The fresher data in question is a study by the Urban Institute which actually shows a strong inverse relationship between the size of the down payment and default risk for every year analyzed.
For example, in 2001, people with strong credit scores (FICO above 750) had a 0.2 percent default rate if they put 20 percent or more down on their house, their default rate was six times as high, 1.2 percent, if their down payment was between 3-5 percent. For people with low credit scores (below 700), the default rate was 2.2 percent with a down payment of 20 percent or more, it was 5.1 percent for a down payment between 3-5 percent.
The comparable numbers for 2007 were 4.5 percent for people with strong credit scores and 20 percent or more down, compared to 13.5 percent for people with strong credit ratings and 3-5 percent down. For people with low credits scores, and putting 20 percent or more down, the default rate was 20.9 percent compared to 30.6 percent for those putting 3-5 percent down.
The way the study implies a weak relationship between down payment and default risk is by comparing default rates for people who put between 5-10 percent down and people who put 3-5 percent down. Since almost all the the people in the former category are putting just 5 percent down, the study is effectively telling us that the default rate is not much higher if people put 3 percent rather than 5 percent down. This is probably true.
Due to Japan's national debt, which is well more than twice its GDP, Japan's children are burdened with interest payments that are close to 0.8 percent of GDP. That sounds pretty awful right? How are the kids going to be able to make it?
If the sarcasm isn't obvious, then you need some basis of comparison here. The interest burden in the United States is now 1.4 percent of GDP. When our children were really being crushed by the burden of the debt back in the early 1990s the interest burden peaked at a bit more than 3.0 percent of GDP, a bit less than four times Japan's current burden. In fact, the figure of 0.8 percent of GDP overstates the true burden since much of this money is paid to Japan's central bank and then refunded to the government.
The prompt for this discussion is an article in the Washington Post about the prospects for Japan's Prime Minister Shinzo Abe and his economic program, now that he has called snap elections. To get an assessment of the impact of Japan's debt on the welfare of future generations the Post turned to Kayoko Kamiya, who is identified as "a 43-year-old housewife."
"Well, we are only shifting the burden to my children, so it’s tricky, ... Raising the tax [a consumption tax increase that had been scheduled to go into effect in April, but now has been delayed by Abe] earlier would make things at least easier later. I feel unsure if it’s right that the current generation doesn’t take care of the debt."
The piece also tells us that the bond rating agencies (yes, those people who rated subprime mortgage backed securities as Aaa) are threatening to downgrade Japan's debt. It might have been worth pointing out that the financial markets appear to disagree with the bond rating agencies. The interest rate on 10-year Japanese government bonds is 0.40 percent.
In a piece providing an assessment of the economy's performance under Abe, it would have been worth noting that Japan's employment rate has risen by 2.2 percentage points since Abe took office at the end of the 2012. This would be the equivalent of adding more than 5 million workers in the United States.
This piece wrongly asserts that Japan has been in a deflationary spiral over the last 15 years. This is not true. It has consistently had very low inflation rates that did in some years turn negative. However, the deflation rate never exceeded -1.0 percent and it has not accelerated, as would be implied by a delfationary spiral. The basic problem in Japan is the same as in Europe, the inflation rate has been too low over the last two decades.
The NYT seems intent on hiding the elephant in the living room. Yesterday it gave us a piece on why men are leaving the labor force, today it gives us a piece on why women are leaving the labor force.
Both articles raise some interesting and important issues. The article on women and work in particular gives an excellent discussion of how most other wealthy countries are far ahead of the United States in providing support for working mothers in the form of paid family leave, paid sick days, and affordable child care. (These are all areas in which CEPR has done considerable research.)
The failure of the United States to meet the needs of working parents largely explains why so many countries have passed the United States in the percentage of prime age (ages 25-54) women who are employed. This figure now stands at 69.9 percent in the United States. By comparison, it is 78.4 percent in Denmark, 76.1 percent in France, and 72.0 percent in Japan.
But the failure of the United States to meet the needs of working parents doesn't respond to the headline of the piece, "why U.S. women are leaving jobs behind." The answer to this question is very clearly the state of the economy. After all, the employment to population ratio (EPOP) for prime age women peaked in 2000 at 74.2 percent, coincidentally the peak of the business cycle. After the stock bubble burst and threw the economy into recession in 2001 the EPOP for prime age women declined. It bottomed out at 71.8 percent in 2004 and then started to rise as the economy began to create jobs again. It peaked at 72.5 percent in 2006 and 2007 and then tumbled to a low of 69.0 percent in 2011. Since then it has inched up gradually as the labor market has begun to recover from the downturn.
Anyhow, it is good to see the NYT draw attention to the failure of the United States to provide adequate support for working families which leads to unnecessary hardships for both parents and children. But it is seriously misleading to imply that the causes of the drop in employment of women in this century can be found anywhere other than the failed macroeconomic policies originating in Washington.
In other words, U.S. women are leaving the labor force because Alan Greenspan and other financial regulators and the economics profession were too incompetent to recognize an $8 trillion housing bubble. And they are leaving the labor force because Washington politics are dominated by a cult of balanced budgets. This cult is so powerful that even the politicians who know it is nonsense are scared to challenge it. Washington politics is also dominated by powerful interest groups (e.g. Walmart, General Electric, the financial industry) who benefit from an over-valued dollar and don't care about the millions of jobs lost due to the resulting trade deficit.
Anyhow, these macroeconomic forces are not really questionable. Unfortunately they are rarely discussed in the media. Stories like the one today and yesterday badly mislead the public by largely ignoring these forces.
A NYT article on a change in other countries' attitudes towards the United States role in global warming negotiations seriously understated the basis for other countries' anger toward the United States on this issue. It referred to reactions to President Obama's inability to get Congress to pass a law to reduce greenhouse gas emissions:
"the United States went back to being viewed as the world’s largest economy and largest historic greenhouse gas polluter, refusing to change course."
Actually, if the United States were just polluting in the same ratio to GDP as other wealthy countries that would be an enormous step forward. However, we have taken few of the steps that Europe has done over the last four decades to reduce energy consumption. In addition, because we have taken gains in productivity growth rather than leisure, we emit more than twice as much greenhouse gas (GHG) as people in western Europe, even though we have comparable living standards.
If it were just a question of the U.S. emitting a lot of GHG because we are the world's largest economy, those concerned about global warming would be much more pleasantly disposed toward the United States.
The NYT had an interesting piece on the decline in employment rates among prime age male workers. While it discusses many of the causes of this decline, it missed the most obvious: policy decisions that have depressed demand in the economy. Many readers of the piece may wrongly believe that the current low employment rate is primarily the result of a long-term trend. This is not true.
From 1979 to 2000 the employment to population ratio (EPOP) fell by 2.1 percentage points. If it had continued this pace of decline, it would have fallen by roughly 1.4 percentage points since 2000. In fact, it has dropped by 5.1 percentage points. The most obvious explanation for this more rapid rate of decline is weak demand. The weakness of demand is in turn caused by a decision to keep down the size of the budget deficit and to sustain an over-valued dollar. These are both policy decisions made in Washington that have nothing to do with the character and skills of the workers who do not have jobs.
It's also worth noting that wages for the jobs that these men may be able to get would be considerably higher if the government decided to run a high employment policy. As Jared Bernstein and I show in our book, wages for those at the bottom of the income distribution are strongly influenced by the unemployment rate.
I apologize for a bit of a digression here for personal reasons (my wife has chronic Lyme disease), but if you'll bear with me, I think I can make some connections. The immediate prompt for this post is a snide article in Slate by Brian Palmer, warning readers that, "New York is about to change its medical misconduct law to protect quacks."
The "quacks" referred to in the article's sub-headline are doctors who provide long-term antibiotic treatment for people who have chronic Lyme disease. As the article tells us, chronic Lyme does not exist:
"The Infectious Diseases Society of America—the association of scientists and clinicians who study this sort of thing—has repeatedly characterized chronic Lyme disease as 'not based on scientific fact.'"
It's great that Palmer can be so confident of this assertion, but it turns out that the evidence is far weaker than the association of scientists and clinicians who study this sort of thing might lead you to believe. There are actually very few studies that have tried to evaluate the effectiveness of long-term antibiotic treatment of people who believe themselves to be suffering from chronic Lyme.
As explained in an analysis by Brown University researcher Allison DeLong, one of the studies was poorly designed so that it would have been almost impossible for it to have found a significant effect from antibiotic treatment. A second study did find evidence that treatment alleviated symptoms, however this finding was dismissed because the symptoms returned after the treatment stopped. (Effectively this study was testing whether six months of treatment would cure patients, some of whom had years of prior treatment. It really shouldn't have taken too much background in science to know the answer to that one would be no.)
The third study actually did find statistically significant evidence that treatment improved patients' outcomes by its main measure, a survey on fatigue. However it dismissed this finding because the researchers decided that the blind nature of the study had been compromised. When surveyed after the fact, 70 percent of the control group wrongly guessed that they had been treated. However two-thirds of the treatment group somehow recognized that they were being treated. Therefore the researchers decided that they could not accept the results, since the people in the treatment group knew they were being treated.
I'm not making this up. You can find the study here. It was published in a major medical journal and its negative findings are routinely cited by doctors arguing that chronic Lyme disease does not exist and long-term antibiotic treatment is pointless. (If you haven't figured it out yet, the study found exactly what you would want in the comparison between the control and the treatment group. The same percent of people in each group thought they were being treating. This means that the blind nature of the study was not compromised.)
Thomas Edsall has as interesting piece this morning discussing the changing plight of working class whites in the United States and their increasing estrangement from the Democratic Party. He gets much of the story right. Certainly they can no longer be assured of a comfortable middle class existence. And, if they do manage to get middle class jobs, they certainly cannot guarantee that their children will be as lucky.
However some of the argument is misplaced. Edsall notes the sharp growth in single mothers among women without college degrees. He then refers to research showing worse outcomes for children of single parents, implying that the problems for children stem from the increasing ability of parents to get divorced. This does not follow.
To take the simplest story, imagine a world in which no one is allowed to get divorced. Some children grow up in happy families with two committed parents. These children are likely on average to do well in life. On the other hand, some children grow up in dysfunctional families where parents regularly fight and a father may be abusive, alcoholic, or have other serious issues. These children will probably on average do less well in life.
Now suppose we allow couples to divorce. Presumably the happy couples stay together and the unhappy ones get divorced. If we compare outcomes of the children we would likely find that the children raised by two parents do better than the children raised by single mothers. However, it would be wrong to conclude that the problems for the children of single mothers stemmed from the fact that they are divorced, it would stem from the fact that they had been in bad relationships.
Given that divorce and single parents are a reality, the obvious policy response is to ensure that children get the education and support they need regardless of their family background. Good public child care, access to pre-K education, and affordable college education seem like obvious policy responses to these circumstances, along with laws that guarantee family friendly workplaces (e.g. paid sick days and paid family leave). These are policies that the Democrats have typically advocated.
The other set of policies for the white working class that the Democrats could (and sometimes have) advocate have to do with full employment. As Jared Bernstein and I argued in our book, Getting Back to Full Employment (download is free), full employment disproportionately benefits those at the middle and bottom of the wage distribution. The only period in the last four decades where these workers enjoyed sustained real wage gains was in the period of low unemployment from 1996 to 2000. Barring other changes in the economy, we will have to return to unemployment rates below 5.0 percent before most workers will again see substantial real wage gains.
There are three policies that the Democrats can push to again get the unemployment rate down to these low levels. The first involves additional government spending which would boost demand, growth, and employment. Unfortunately, superstitions about budget deficits makes this unlikely in the foreseeable future.