Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.

If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.

On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.

In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.

Recent comments

  • I figure that CEOs are like pro ball players. You have a few real stars and all the “B” players you are ever going to need. The stars are going to be stars anyway because that’s what they are made of and this is their one time around to show it off. The “B” players are better than the rest of us but...
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  • Guest - Procopius

    It's the sanctity of contracts thing. We saw it when AIG paid their "retention" bonuses to the guys who had already left the company.
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  • Guest - djb

    ok samuelson got everything he has whoring for the rich, now he is just really old
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Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece's leftist government for what Will considers its lack of realism and ineptitude. Then he points out:

"Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ....

"It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money."

But the problem with Will's logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.

It is therefore difficult to understand how this is a "socialist smashup." All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.

The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a "crony capitalism smashup." It only fits the bill of a "socialist smashup" in Will's imagination.

Recent comments

  • Guest - Guest M.W. Pender

    I was in Athens, Greece in 1992 visiting with a fellow MBA schoolmate. He was then working in marketing with a large US corporation. I asked him then how Greece as a country was doing? He said that if the wealthy would pay their share of taxes, it would be a lot better. The IMF and the World Bank ...
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  • Guest - Guest M.W. Pender

    I was in Athens, Greece in 1992 visiting with a fellow MBA schoolmate. He was then working in marketing with a large US corporation. I asked him how Greece as a country was doing? He said that if the wealthy would pay their share of taxes, it would be a lot better. The IMF and the World Bank shoul...
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  • Guest - jim

    George Will should hang out with Oliver Blanchard. Blanchard wrote in his blog that Greece spends 16% of its GDP on pensions(numbers surely inflated by the amount of austerity the IMF proposed) and then questioned "why have a pension system?" truly scary to think how clueless the IMF is.
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The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.

He then asks the obvious question as to why employers don't raise wages if they aren't getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.

This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.

For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.

We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don't realize they can attract more skilled workers by offering higher wages.

It's got to be pretty much one or the other; take your pick.

Recent comments

  • Here's a theory. Call it New York City Landlord Economic Bias. Rents steadily soar in NYC in part because landlords -- independently of one another and en masse -- assume that rents must always go up. It doesn't matter what's happening with their costs or with the ability of tenants to pay; rents mu...
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  • Guest - MacCruiskeen

    Even for star athletes there's a business rationale behind those numbers--the owner wants a winning team that will sell tickets, merchandise, and ads on tv broadcasts. So they have to think, how much will Peyton Manning or LeBron James or whoever is the it guy of the moment increase that revenue? An...
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  • It is an old problem: Proverbs 20:14 "It's no good, it's no good!" says the buyer-- then goes off and boasts about the purchase. Employers will never go around saying how many great employees they can get for low wages. Employees will never go around saying how many great jobs they can get with h...
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The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.

This table compares the I.M.F.'s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.

 Gap from 2007 Level 

 

Per capita GDP

Employment

U.S. equivalent

Ireland

-4.40%

-8.90%

-13.35M

Italy

-11.50%

-3.10%

-4.65M

Portugal

-4.60%

-11.50%

-16.7M

Spain

-5.10%

-14%

-21.0M

Source: I.M.F.

This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.

The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.

Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.

Recent comments

  • Guest - john

    Dear CEPR, I can never read user comments on your site, because on my computer and my smart phone they always appear with a large image imposed over the top left section of the commenter's text. the image is a light grey square with a blank rounded figure inside, almost like a child's drawing of a h...
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  • Guest - dax

    "'The euro - premature, incomplete, badly designed, and including too many heterogeneous economies and societies - was flawed from the beginning." Yes, but the alternative would be even more domination by the United States. Americans of course like that idea, but Europeans hate it.
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  • Guest - pieceofcake

    'The euro - premature, incomplete, badly designed, and including too many heterogeneous economies and societies - was flawed from the beginning, and Italy, for one, should never have joined.' So Italy should have kept its 50 000 Lire bills? Now how would that have been helped? And when will peop...
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In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:

"President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis."

It's interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don't say what they actually think.

For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.

Lane continues:

"Labor is waging this counter-majoritarian battle [against fast-track] in the name of 'working people,' who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous 'bad' trade deals.

"Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force."

The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It's an interesting position, but understandable from someone who can read the president's mind.

Recent comments

  • Guest - chmoore

    Isn't it more useful to focus on what Obama actually has done, as an indicator of what he will do going forward?....as opposed to speculating on what he thinks or believes? He's signed into law some things beneficial to the general public (both social and financial), but reserved for the financial ...
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  • Guest - John Wright

    Larry Signor wrote: "As Yogi so eloquently put it, "It's hard to make predictions, especially about the future"." I believe you may be "mis-remembering" the quote. Danish Nobel physicist Niels Bohr reportedly said "Prediction is very difficult, especially if it's about the future." Maybe Yogi did...
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  • Guest - John Wright

    I suggest all TPP editorials/comments should begin with a disclosure. Begin: TPP comment Disclosure The TPP is being negotiated as a non publicly disclosed agreement. Select international corporate and government negotiators have access to the text and some politicians have restricted access. I...
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The NYT apparently is doing its part to try to push the Trans-Pacific Partnership (TPP). Today it ran a piece warning people in its headline "failure of Obama's Trans-Pacific trade deal could hurt U.S. influence in Asia." The piece presented the views of a variety of individuals who said the failure of the TPP would damage the standing of the United States in the region.

Remarkably the piece did not include the views of anyone who had a different opinion. This is remarkable because we know from the leaked chapters that there have been important objections to at least parts of the TPP from most of the countries in the deal. For example, all the countries disagreed with much of what the United States was pressing in the form of stronger and longer patent protection for prescription drugs. Australia objected so strongly to the investor state dispute settlement mechanism that they indicated that this provision would not apply to the country. (It's not clear that this is final.)

Surely the NYT could have found someone in these countries who thinks that negatives, like higher drug prices and an extra-judicial legal system that can over-ride laws passed at the national and sub-national level, over-ride any gains from the modest tariff reductions in the TPP. For some reason the NYT opted not to present the views of any opponents of the TPP, wrongly implying to its readers that everyone believes that the failure of the TPP would be a serious negative.

The piece also included the wonderful line:

"The White House and its Republican free-trade allies in Congress are searching for ways to revive a bill that would extend aid to workers displaced by global trade agreements."

The phrase "free-trade" is not accurate and does not belong in this piece.

Recent comments

  • Guest - skeptonomist

    saurabh: My point is general, not an argument in favor of the TPP. The US drug industry, which does still employ some people in the US, recoups research costs through patents, and there is no reason to allow other countries to make use of that research without compensation. Any trade agreement whi...
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  • Guest - saurabh

    @skeptonomist: How exactly is the American taxpayer recouping costs by extending patent protections to send more.money to drug companies? I might buy your argument if that money actually went to research, but this is probably the least efficient way we have to support drug development.
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  • Guest - dick c

    You would think the people pushing this thing would trot out something in it that benefits average people, unless perhaps there just isn't anything. Provisions that somewhat help some of the people hurt by these agreements don't count as something on the plus side.
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The Washington chattering class is really upset that the Trans-Pacific Partnership (TPP) looks like it's going down. David Brooks pulls out all the stops today, using his NYT column to yell at "Tea Party" Democrats for not supporting the fast-track authority that would facilitate the passage of the TPP.

Unfortunately, Brooks was largely unarmed with facts when it came to the attack. To start, he tells readers;

"The North American Free Trade Agreement, for example, probably didn’t affect the American economy too much. But the Mexican economy has taken off. With more opportunities, Mexican workers feel less need to sneak into the U.S."

If the Mexican economy has taken off since NAFTA they managed to conceal this fact from the I.M.F. and other keepers of official statistics. Here is the path of per capita GDP in the United States and Mexico post-NAFTA.

Book10 12779 image001

                            Source: International Monetary Fund.

Developing countries like Mexico are supposed to have more rapid growth than rich countries like the United States. Instead the gap has increased by about five percentage points since NAFTA as growth in the U.S. has exceeded growth in Mexico since NAFTA took effect. (The chart shows growth in international dollars, not adjusted for inflation.)

Brooks also seems to be inventive in his assessment of patterns of immigration. According to the Migration Policy Institute the number of Mexican immigrants to the United States rose from 4.3 million in 1990 to 11.7 million by 2010.

Recent comments

  • Guest - John Puma

    I would no sooner read what "our Mr Brooks" had to say than pierce both eyes but, given the summary above, is the traditionally whiney Dave getting a bit shrill in his dotage?
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  • Guest - Dryly 42

    "David Brooks warns of economic collapse and war without TPP". Now wait just a minute here. We did not have TPP during the Bush II-Cheney administration and we had economic collapse and war. This is proof positive we can do it without TPP>
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  • Guest - Deanna Johnston Clark

    We boomers saw hysterical neighbors take out loans and build concrete bunkers to live in for months after the ICBMs brought the nukes from the Evil Empire. We aren't easily fooled by the EXACT SAME WORDS from today's shrieking propaganda pundits. Everybody known now we live in government by multi...
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Matt O'Brien treated us to a classic case of bad reasoning by economists. A survey of elite economists (you know, the type of people that couldn't see an $8 trillion housing bubble) found that the vast majority said that the official income data understated the increase in the standard of living for the middle class over the last 35 years.

The explanation for this view is that new goods like cell phones and the Internet have vastly improved our standard of living in ways that are not picked up in the data. O'Brien suggests a thought experiment that has been put forward by this elite group. Would you be willing to trade an income of $50,000 in 2015 for an inflation adjusted $100,000 income in 1980, knowing that you can only buy the goods and services available in 1980?

The implication is that most of us would say no, since it would mean giving up our cell phones, Ipads and Ipods, smartphone cameras, wifi, and all sorts of other neat things. This may well be true, but there are two reasons why the economists raising this point flunk cost of living 101.

The first point is a narrow one. These folks are upset that our price indexes don't have a way of picking up the benefits of new goods like television, refrigerators, and the polio vaccine. (Sorry, guess those are pretty old now. But the point is that important new goods are not new.) But good economists know that price indexes also don't pick up the cost of these new goods. To be specific, we can complain that the consumer price index doesn't pick up the gain from the wonders of a cell phone. That's true. But it also doesn't pick up the cost of buying the phone and paying for monthly service. (It picks up the change in these costs once they are included in the price basket, but not the initial cost.) With an important qualification that we will get to momentarily, we can assume the benefits are greater than the cost since people opt to buy cell phones, but that gap is much less than just counting the benefits alone, which it seems is how our elite economists view the issue.

The second point is that we adjust our society and living patterns around the technology we have. Ask someone who lived in the suburbs in the 1960s how they would feel living without a car. It would be pretty awful, but just 30 years earlier most middle class families did not have a car or think they needed one. To take a slightly more recent example, imagine living without air conditioning in the summer. Most middle class families did fifty years ago.

We have constructed a society that is built around cell phones and the Internet. Asking people to go without these items would be a real hardship because they have become integrated into their lives. Does this mean that we are better off in a society with these things than without? It probably does, but asking how our Internet/cell phone addict would do in a world without the Internet or cell phones is a silly question.

There is one more point worth mentioning. Our elite economist friends presumably don't want to believe that well-being is relative. This could be important because there is a much sharper gap between the living standards of the rich and famous in 2015 than in 1980. Some people may take this into account in their assessment of their well-being. In other words they may feel deprived to some extent because their living standards are so much lower relative to the rich than was the case in 1980. We know the elite economists don't want people to think like this, but some of the ignorant masses might anyhow. Maybe if they just took more economics...

Recent comments

  • Guest - watermelonpunch

    I would rather live in 1980 with access to the preventative health care of that time, than live in 2010 with a cell phone & internet, but no access to the preventative health care... that would wind up costing more and causing more hardship in 2015, and could possibly lead to an earlier death. ...
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  • Guest - AlanInAZ

    My salary in 1980 was the equivalent of $100,000 today so I know what life was like in New York on that salary. I could not afford a house because of super high interest rates and high down payment requirements. Taxes were much higher than today and the infrastructure in the metro region was terri...
    1
  • To answer some of the negativism above. USA infrastructure has never been better, it is certainly better than it was in 1980. There are only a few countries with better (Germany, Japan, Switzerland and maybe a few more.) The war on poverty was won. See: http://conversableeconomist.blogspot.com/2013...
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Wow, it's the sharing economy, everything is new and different. Hey, they don't have to pay the fees that those stupid old taxi companies do, because you order them on the Internet.

Sorry to be a bit negative early on a Monday morning, but I was just reading in the Washington Post that Uber is arguing that it should not have to pay the same fees as traditional taxi companies to pick people up at airports. Uber says the fees are too high.

I have no strong opinion about the size of these fees, which are effectively a tax on taxi travel that is used to support the operation of the airport. However, there is no basis for Uber paying lower fees than their competitors in traditional taxi companies, even if it is cooler.

This is the sort of tripe that doesn't pass the laugh test as serious policy. There is much about the regulation of the taxi industry that is archaic and should be changed, but the goal should be a uniform system of regulation, not a system that leaves the traditional sector heavily encumbered by regulation and allows Uber to do whatever it wants.

It is of course ironic to be reading about this in a newspaper owned by Jeff Bezos, who became one of the richest people in the world through his ownership in a company that does not collect the same sales tax as its brick and mortar competitors. Its savings on sales tax collections almost certainly exceeds its cumulative profits since it came into existence.

Recent comments

  • Guest - tew

    Yes, Uber is arbitraging and externalizing costs and risks. However, though not mentioned in this article, the new ruling in California that would require Uber to treat drivers as employees is going to be counterproductive for the drivers and for the economy as a whole. They are trying to force fit...
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  • Guest - s ken brown

    I don't get this at all. Taxi law/regulation is all ineffectual? All those folks who for decades were busting a gut to comply could have just said screw it and took anybody anywhere in any vehicle for any price? I am for change but this is ludicrous. Just because you ordered it on the internet won't...
    1
  • Guest - Scott

    There was an article in the Boston Globe earlier this year about Uber and taxi drivers, which compared their take-home income. One of the most interesting things was that while the taxi driver paid commercial auto insurance, the Uber driver did not. This is a major contributor to the lower prices, w...
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That's what folks are asking after reading Peter Baker's "news analysis" that told readers the Trans-Pacific Partnership (TPP):

"was a way to leave behind a positive legacy abroad, one that could be measured, he hoped, by the number of lives improved rather than by the number of bodies left behind."

The discussion implies that the TPP is a way to pull together the countries of East Asia as allies. However, one of the main purposes of the TPP is to create stronger and longer patent and copyright protection. This will most importantly raise the cost of prescription drugs, but the prices of many other items will also rise due to increased protection.

We know that these increased protections were heavily contested by most of the other countries in the TPP due to the leaked chapters from Wikileaks which indicate where the countries disagree. It is difficult to see how making our trade partners in Asia pay more for drugs is a way to win their political allegiance. Ironically, insofar as higher drug prices keep patients from getting access to drugs, especially in developing countries, the TPP would be a policy whose impact could be measured by the number of bodies left behind.

Recent comments

  • Guest - John Yard

    That's exactly what this country needs : higher drug prices . It is a confession by pharma that their model does not work.
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  • Guest - dick c

    If India were to join in an agreement like the TPP, what would we expect to happen to their inexpensive hepatitis C drug's pricing? Would Gilead be able to go go after them in a supra-national tribunal?
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  • Guest - John Wright

    This piece talks about Obama partially securing his legacy with the TPP, but if Obama looks at Bill Clinton's legacy, NAFTA is not discussed in glowing terms. The benefits/costs of TPP will be difficult to determine, just has it has been for NAFTA, hence the problem Clinton has with his NAFTA legac...
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I've been speaking and writing on financial transactions taxes for close to a quarter century. Most people don't find the concept that difficult to understand, but apparently Fred Hiatt does. In a column bemoaning the sidetracking of Obamanomics, Hiatt tells readers that Obama:

"has a targeted version of the left’s beloved financial transactions tax, too: a levy on the largest banks proportional to the riskiness of their liabilities."

Actually, the bank tax has nothing to do with a financial transactions tax. The bank tax is intended to compensate for the implicit subsidy given to large banks that markets view as too big to fail. Since investors assume that the government will bail the banks out if they get into trouble they are willing to lend to them at a substantially lower interest rate than would otherwise be the case. The tax is intended to offset this subsidy although the size of the tax proposed by Obama is an order of magnitude smaller than size of the implicit subsidy, which the I.M.F. recently estimated at $50 billion a year.

In contrast, a financial transactions tax is intended to reduce the excessive amount of trading in financial markets. While this trading uses economic resources, it contributes nothing to the productive economy. A recent analysis from the Bank of International Settlements found that countries with very large financial sectors, like the United States, experience slower growth. A financial transactions tax would go far toward reducing the amount of excessive trading in the financial sector.

Recent comments

  • Guest - JF

    Last sentence forgot to replace the word not, when editing. It is supposed to read, proper word shown capitalized below: "Not sure that makes common sense particularly when you recognize that the bank-money privilege mentioned in the first paragraph means we do not need to be concerned that, at so...
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  • Guest - JF

    Banks also hold the privilege to create credit/money at their volition backed by the Federal Reserve's duty to supply the cash when needed. So they sell a product; namely, money, for which they have no cost (99+% Gross Margin business). A good business in which to invest your "capital" - some risk...
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  • Guest - djb

    From the general theory Ch 12 Part VI "That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average Americ...
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The media seem to be getting better about referring to the Trans-Pacific Partnership as a "free-trade" agreement. Many articles now refer to it more neutrally as a "trade pact." The Washington Post sort of split the difference today in describing it as a "a sweeping free-trade and regulatory pact," but this still requires some further push back.

We know that the TPP will increase patent and copyright protections. These protections cover a large portion of the economy, most importantly prescription drugs, but also a wide variety of chemicals, tech products, and recorded movies, music, and video games.

We don't know how much trade barriers will be reduced by the TPP. (The deal is secret.) Since the United States already has trade deals with most of the countries in the TPP, it is unlikely that it will lead to a further reduction in the barriers with these countries. This means the TPP will likely only reduce the barriers with the remaining five countries which include Japan, with whom the barriers are already relatively low, and four countries with whom the U.S. has relatively little trade.

There is no basis for assuming that the reduction in barriers with this group of countries will have greater economic significant than the increase in patent and copyright protection. Therefore, the reporters who call the TPP a "free-trade" agreement are simply editorializing, expressing their support for the pact. They do not have any evidence to support this characterization.

Recent comments

  • I'm a bit confused about why there's not a scandal for Lou Barletta exploding right now.
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  • Guest - John Wright

    The NYTimes has an article titled "Business Leaders React with Dismay to Defeat of Trade Bill" http://www.nytimes.com/2015/06/13/business/business-leaders-react-with-dismay-to-defeat-of-trade-bill.html It has quotes that "Manufacturers will not back down in this fight for expanded trade" and "It i...
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  • Guest - John Puma

    The machinations of congress are almost as opaque as the TPP itself. But, as I understand it, the ONLY thing rejected was the acknowledgement that the TPP could hurt US workers AND that $700 million would be taken from Medicare to alleviate that harm. I hardly think this precludes reconsideration ...
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Regular readers of the NYT opinion pages must really be wondering what is going on in China. Just a few days ago the paper ran a piece giving us the terrible news that robots are taking all the jobs. According to a column by Martin Ford, China is rapidly bringing robots into its factories, leading to massive displacement of manufacturing workers. Ford tells readers:

"Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries."

This left us all wondering what China would do with all these workers displaced by robots. But today we discover that China is relaxing its one-child policy, not out of human rights considerations but because it doesn't have enough people:

"Something had to be done. China’s population has stabilized at around 1.4 billion, but people over 60 now make up more than 13 percent of the population, and the percentage of people 14 years of age and under shrunk at least 6 percent between 2000 and 2010, reaching a new low of 16.4 percent in 2013. The rapid decline of China’s fertility rate — which has plunged to 1.6 percent, way below the 2.1 percent replacement rate — could stunt the country’s future economic growth. The declining working-age population will no longer be able to support the increasingly older Chinese population."

Let's contemplate that last sentence for a moment: a declining working-age population won't be able to support a growing population of retirees. This is the sort of tripe that gets repeated endlessly by the folks who want to cut Social Security. Remember the robots? We don't need as many workers to support retirees today as we did 20 or 30 years ago because of productivity growth. That has always been true. The robots and other improvements in technology allow each worker to be more productive.

In fact, productivity growth has occurred at an incredibly rapid pace in China over the last three decades so there is no reason that retirees can't maintain the standard of living they had during their working years while still allowing future generations of workers to experience rapid increases in living standards. The people who can't understand this fact need to do some more homework in economics before they start writing op-ed columns on the topic. 

Recent comments

  • Guest - MS

    Fewer workers per retiree means that, if wages go up with productivity (let's say thanks to the robots), average retirement benefits as a share of wages must come down or average workers contributions as a share of wages must go up. What am I missing? Or are you taking the approach that lower benefi...
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  • Guest - Jack

    First of all our Social Security program does not rely upon one generation supporting the previous generation's retirees. Retirees receiving benefits are funded by the Social Security Trust Fund which holds the FICA taxes paid over the working lives of all of its participants. Each working genera...
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  • Guest - floyd

    Increased productivity equals social security increases?
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The Wall Street Journal ran a piece headlined, "as minimum wages rise, small firms get squeezed." Most readers probably would expect a story of how small businesses are being hit by higher minimum wages. But the business that provides the framing for the story doesn't seem to fit the bill at all:

"Hannah Joseph dreams of bringing gourmet grilled hot dogs to food lovers coast to coast. But she now rules out owning any new restaurants beyond the two she and her husband currently operate in Indianapolis.

"The reason: high staffing costs, and growing competition for low-wage workers.

"'I don’t want to deal with more employees,' said Ms. Joseph, co-owner of King David Dogs, whose 10 or so staffers start at $7.50 an hour, 25 cents above the federal minimum."

As the piece notes, the minimum wage in Indiana is just the federal minimum of $7.25 an hour and has not been raised in six years. The restaurant apparently is not bound by the minimum, since it is already paying 25 cents an hour more than the minimum, presumably to attract and retain workers.

Insofar as Hannah Joseph is being forced to scale back her plans it seems likely that it is mostly the result of a poorly conceived business strategy. She apparently underestimated the cost of labor and presumably other expenses. That likely would have been the case even if no one was raising the minimum wage, unless the Fed threw the economy back into a recession with high interest rates.

Recent comments

  • Guest - Shaun Snapp

    Its interesting that giving 100% of the business owner's perspective is considered balanced journalism. It is as if the only important criteria is the dreams of the business owner. This is a laughable article that should be criticized widely as it underlines a standard viewpoint of coverage of this ...
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  • Guest - FoonTheElder

    Contrary to the right wing propaganda, not every job is a job worth having. Low wage employers are using taxpayer subsidies to fund their underpaid labor in the race to the bottom of the wage scale. Size of the business is irrelevant. Walmart is so used to the system they've created that they oft...
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  • Guest - Jack

    Why is it thought to be appropriate (by those who think in WSJ terms) to build a business on the backs of low paid workers? If you can't make a business work while paying a real living wage then go home and get another job. Or is less pay for the workers really a way to simply increase the profits...
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The NYT has a fascinating piece on how a Chinese drug company appears to have developed a successful treatment for Ebola, the use of which is being threatened by U.S. researchers complaining about patent infringement. The basic story is that the Chinese company used information in a U.S. patent to help develop their drug, which appears to be an effective treatment for Ebola. The patent holders are now upset that the Chinese company is making their drug widely available to Ebola victims, in some cases to people who would otherwise be taking part in controlled clinical trials. (In a controlled trial, half of the people are given a placebo, which can be a serious issue when treating a disease with a high fatality rate.) 

Anyhow, it is difficult to believe that progress would not advance more rapidly if researchers did not try to bottle up their findings with patent protection. This is the sort of protection that will be increased in the Trans-Pacific Partnership (TPP). The impact of this protectionism in raising drug prices and impeding scientific progress has not been considered in the widely cited analysis of the TPP's impact.

Recent comments

  • Dean needs to learn to be more selective when applying examples to state his case. Otherwise, he may actually do more harm than good. Using an example of a Chinese drug company that has supposedly created an effective treatment for Ebola discounts the fact that Chinese products are highly toxic. Fur...
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  • Guest - Mary Malone

    If the Chinese used information that didn't result from their own (Chinese) investigations and studies--in this case, info in a US/Canada patent--then it is not "using" information, it is STEALING information. To call it "using" is self-serving and attempting to cover-up the Chinese wrong-doing....
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  • Guest - John Puma

    I'm hardly in favor of patents but, in this case, it was precisely a patent the Chinese consulted to assist in development of its purportedly efficacious Ebola treatment.
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Economic reporting is far too focused on short-term fluctuations that often have little relationship to the underlying trend growth in the economy. Last fall this focus led to many celebrations of a turn around in the economy with many pronouncements that the United States was back on top in terms of growth.

The celebrations quickly turned to despair as bad winter weather led to a drop in GDP in the first quarter. There was much hand-wringing over why consumers were not spending their dividend from lower gas prices. (Somehow the hand-wringers never bothered to notice that consumption was at a near record high as a share of the GDP.)

This hand-wringing hit its peak earlier this month with this "letter to stingy American consumers" in the Wall Street Journal. In the letter the WSJ begged consumers to start spending again. Apparently they got the message retroactively. The Commerce Department reported today that retail sales jumped 1.2 percent in May, with April's data revised up from no change to an increase of 0.2 percent.

So it looks like consumers are again spending their cheap-gas dividend and the economy is safely back on its slow growth track. Needless to say, we will probably have another round of celebrations as people look at the strong growth in May and tout a new boom, forgetting that the cause is a bounceback from the winter weakness. At least it gives economists and economics reporters something to do. 

Recent comments

  • Guest - pieceofcake

    The WSJ better begs Americas Rich to share their dough a bit better with "the folks" - that the folks can consume again . It"s only money anywhoo...
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  • Guest - Paul Mathis

    So the WSJ Is Now Controlled by a Bunch of Dirty Keynesians??? Efforts to increase the propensity to consume in order to grow the economy are straight out of The General Theory of Employment, Interest and Money. What happened to the invisible hand of the market that always fixes everything? Hell ...
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Yes folks, it's desperation time for the supporters of the Trans-Pacific Partnership (TPP). To get this sucker through they will say anything, because hey, making stuff up for the cause always sells in official Washington.

In his Washington Post column, George Will argued for the TPP because we need it to increase growth. He pointed to the 0.7 percent drop in GDP in the first quarter as illustrating the problem. (This decline was of course mostly due to the weather, but whatever.) If we view this reported drop in GDP as the problem, and the TPP as the solution, then according to the most optimistic estimates available, we will have eliminated roughly half the problem more than a decade from now when the effects of the TPP are fully felt. According to projections from the Peterson Institute for International Economics, the TPP will eventually increase GDP by 0.38 percentage points.

This study shows gains that are more than twice as large as an earlier version. An analysis by the United States Department of Agriculture showed minimal gains. 

These analyses are all likely to overstate the gains from the TPP since none of them factor in the higher costs for drugs and other products as a result of the stronger and longer patent and copyright protections in the TPP. These protections are equivalent to massive tariffs barriers. In the case of prescription drugs, patents can raise the price a hundredfold, the equivalent of a tariff of 10,000 percent. And, as econ textbook fans everywhere know, tariff barriers lead to distortions and corruption.

It is quite likely that if these higher prices were factored into the analysis, the TPP would be shown to reduce growth. (We spend over $400 billion a year on pharmaceuticals alone, or 2.2 percent of GDP.) But no one would want the evidence to undermine a trade deal that will give more money to rich people.

Recent comments

  • Guest - David e.H. Smith

    I probably agree with Mr. Will except for a few items... TPP, TTIP, CETA & Global Treaties/'Arrangements’; ‘Well, ‘You Should Have Known’ - U.S. president George H.W. Bush Should Congressmen & Parliamentarians Have to Sully Their ‘Beliefs’ & Sales Pitches with ‘Sordid’ Facts that Come f...
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  • Guest - Last Mover

    In the 19th century, Republicans embraced a braid of vices — big government and crony capitalism. Adept at using tariffs to purchase the loyalty of particular constituencies, Republicans opposed free trade. Democrats in the 21st century generally want government, rather than markets, to regulate com...
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  • Guest - John Wright

    It would be good if the conservative George Will called the Obama administration on the carpet for some of the obvious non-free trade aspects of the TPP that are mentioned in the foreign press. I have not seen similar coverage in the US press.. See http://www.afr.com/news/economy/trade/barack-obam...
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The man who said he endorses any trade deal that has the words "free trade," and said that the Germans would insist Greeks work shorter hours as a condition of a bailout is talking about economics again.

Citing a McKinsey study, Friedman tells readers:

"Millions of people can’t find work, 'yet sectors from technology to health care cannot find people to fill open positions. Many who do work feel overqualified or underutilized.'"

The situation where workers can't find work or take jobs for which they are overqualified is what would be expected in an economy that is suffering from a lack of demand. The best remedy for a lack of demand is to generate more demand (i.e. spend money). The government can do this by running larger budget deficits. We can also generate more demand by reducing the size of the trade deficit through a lower valued dollar. We can also create demand for more workers by creating incentives for reducing the average number of hours that each worker works in a year, as Germany has done. All of these are fairly simple stories that don't require using big data or the new complex matching programs that Friedman is touting.

What about the sectors that cannot find people to fill positions? Well skepticism is in order here. Where do we see rapidly rising wages? The answer is pretty much nowhere. This suggests that sectors are not really having trouble filling positions. Higher pay is how employers ordinarily attract more workers, if employers aren't raising wages then we can reasonably assume they don't think they have trouble getting the workers they need. That doesn't mean employers don't complain. They are always looking for handouts from the government and complaining is the best way to get them.

Of course, it is possible that we have a serious skills gap, as Friedman tells us in the very next sentence in his piece. However it is among corporate managers who don't understand how labor markets work. They apparently don't understand that if they can't get the workers they need then they have to offer higher pay. Maybe a two week training course for top managers could do the trick?

 

Note: This is slightly revised from a version earlier this morning. 

Recent comments

  • Dean, "Where do we see rapidly rising wages? The answer is pretty much nowhere." I don't know about the "rapidly rising" part but breaking out earnings by educational attainment shows that full-time adult men with advanced degrees are doing OK, while men with less education (about 90% of the total ...
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  • Guest - Ethan

    If company A raises the wage it is offering for posittion X and thus hires an X away from company B, then to fill it's empty position, company B will have to raise it's offered wage. Soon the market will learn that X's make good money, and more people will train to be X's. It's called supply and dem...
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  • Guest - Dean Baker

    Tew, Friedman has no evidence of a skills mismatch. He has people who are over-qualified for their jobs, which fits with the weak demand story. And, he has businesspeople whining. I don't give a damn about business people whining. The evidence of a shortage of skills is rising wages. No rising wage...
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The NYT told readers that the budget deficit in the first nine months of the 2015 fiscal year was $365.2 billion and is projected to be $486 billion for the whole year. Feel informed?

Odds are that most readers don't have much basis for determining whether this deficit is big or small (yes, it is lots of money). In times past the NYT had committed itself to putting numbers like this in some context that would make it understandable to readers. For fans of such context, the deficit is a bit less than 2.7 percent of GDP. It is somewhat smaller by this measure than last year's deficit and is causing the debt to GDP ratio to edge downward.

That might have been useful information for readers. As it is, the NYT told readers that the deficit is a really big number.

Recent comments

  • Guest - medgeek

    Dean, I know you've been at this for quite a while and I'm with you 100%. I'm having a hard time figuring out why they still refuse to put these numbers in context. One possibility is that the writer feels that the denominator (total GDP) is readily available in public sources and the reader can e...
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There have been numerous articles and columns about how China is going to suffer because of its one child policy. The story is that there will be very few workers to support the growing population of retirees.

Well, just when you thought it couldn't get any worse, it turns out that robots are coming to take the jobs of the few workers China still has. How are they ever going to be able to support their retirees now?

Yes, these are completely opposite stories. It's too hot and too cold. It's too wet and too dry.

Look, there can be some truth to either of these stories. The first story is one where there is a problem of too little supply. Everyone is retired and there are not enough workers left to care for the elderly.

The second story is one of too little demand. The robots are doing all the work so no one has a paycheck to pay for the things they need. In this story, the robots are caring for the retirees, we don't need any workers to do it.

The fact that both of these stories can be told by people with claims to being serious speaks volumes about the state of economic debate in policy circles. Why do people put up with economists?

Recent comments

  • Guest - Fed Up

    "Why do people put up with economists?" I rather would not. However, when you tell that to economists or tell economists they are overpaid, you almost always get banned. I need this post for future reference for the people who ban.
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  • Guest - pieceofcake

    'Why do people put up with economists?' BE-cause they are sooo entertaining?
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  • Guest - Michiganmith

    Economists, can't live with them, can't live with them! Just kidding Dean, I read your blog daily and wouldn't know what to do without it.
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No one expects much consistency from Washington politicians or the Washington Post, but the latest episode in the Trans-Pacific Partnership (TPP) should be over the top even for this crew. Wikileaks published the text of a leaked health care annex. The annex spells out a set of rules that public health care programs must follow in deciding which drugs and procedures to cover. This will be subject to review and in principle can be contested through the investor state dispute settlement (ISDS) tribunals.

This means that if Pfizer comes up with a drug, for which it charges $150,000 per treatment, that is no more effective than the generic that costs $100 per treatment, it can contest the decision of Medicare or another country's health service not to pay for it. And, if it loses in the review process, it can take the complaint to an ISDS panel where it will get to appoint one of the three members.

Needless to say, this process is likely to raise the costs of Medicare and other public health systems considerably. That will undoubtedly lead to more calls for austerity from folks like the WaPo and other supporters of TPP, since we all know we can't afford the exploding cost of Medicare.

Recent comments

  • Guest - Last Mover

    Medicare acts as a single payer using its monopsony power to set price for willing providers. This can eliminate the need for useless insurers as bill collectors while achieving the efficiency of competition among providers for whom willingness to take prices set is voluntary. Free market fascists...
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  • Guest - Dave

    This TPA/TPP fiasco is an absolute disaster! When will the march on Washington begin? The solution for our leaders is to stop and do nothing. Pass nothing. Publish the text and call it a term. Yes, we could have more government shutdowns. We could have more hostage taking and more blackmail. ...
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