That would appear to be the implication of his comment in a WSJ column that:

"Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable home work time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market."

According to the OECD, the average work year for a German worker is just 77.6 percent as long as for a U.S. worker (1388 hours per year compared with 1788 hours per year). However their per capita income is more than 83 percent as high as in the United States.

If Germans are doing nontaxable home work then this would not be picked up in its official GDP data. If this nontaxable homework is on average at least 75 percent as productive as the taxable work that German's perform, then a measure of GDP that included this work would show that Germany has a higher per capita income than the United States.

Recent comments

  • Guest - Blissex

    «higher per capita income that the USA.» «higher inequality in the U.S. skews that figure higher? How about median income» First of all news reports and economic discussions are by old conventions always from the point of view of investors, and for investors what matters is total sales growth, not ...
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  • Guest - Blissex

    If 22% of USA nominal GDP in the USA is the result of hedonic "improvements" as J Stiglitz and the BEA state, with German GDP not being hedonically "improved" then per-capita "unadjusted" GDP is roughly the same in both countries. But somehow very few people are willing to point out that USA nomina...
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  • Also there is a demand even in the USA to work more than 40 hours a week among blue collar workers whose employers strongly avoid paying overtime, is met with home work or with second jobs. Which includes cost of moving from job to job. It is my observation that many people prefer more money and les...
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Paul Krugman questions whether there is an existence of positive relationship between equality and growth. He rightly cautions those on the left against being too quick to accept the existence of such a relationship.

He uses a simple graph showing the relationship between inequality and growth per working age person in the years 1985 to 2007. His takeaway is that there is not much of a positive relationship, but there clearly is no negative relationship between equality and growth. In other words, the people who argue that we need to have more inequality to support stronger growth have a hard case to make using this simple comparison.

I would suggest taking the analysis one step further. One big difference between countries over this period is the extent to which they opted to take the benefits from growth in more leisure time. There are large differences in the decline in the length of the average work year across countries.

Using the OECD data (which is not perfect for international comparisons) we find that relatively equal France saw a decline in average work hours of 10.2 percent over this period. Denmark had a decline of 5.3 percent, and West Germany had a drop of 15.9 percent. These would translate into annual increases in GDP per potential work hour of 0.5, 0.2, and 0.8 percentage points, respectively. 

By contrast, in the relatively unequal U.K. the drop in average hours was 4.7 percent, in Canada 3.1 percent, and in the U.S. 2.2 percent. These translates in gains in annual GDP per potential hour worked of 0.2, 0.1, and 0.1 percentage points, respectively.

Would looking at GDP per potential hour worked strengthen the positive correlation between equality and growth? I don't have time to check that one just now, but a quick eyeballing of the data suggests that it is possible. This still would not be conclusive evidence that equality is good for growth, but it would be interesting. And, it is an important reminder that there is nothing wrong with taking the benefits of higher productivity in the form of leisure rather than income. The planet will thank you for it.

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  • Guest - Nick Batzdorf

    There's "growth per working age person" and there's "growth *to* each working age person."
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  • Guest - djb

    there are many factors that one could look at I can believe that people cannot be treated well , and that this would not increase overall wealth more than treating people poorly and of course on the other hand it you practice increasing equality like communism where hard work , talent and drive a...
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  • Guest - JimV

    In answer to a previous commenter as to who is concerned about inequality vs. growth: the Randians (followers of Ayn Rand, such as Rand Paul and many other conservatives). In the myth of John Galt, the little people keep the one-in-a-million supermen from achieving their full potential (by imposing ...
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The Washington Post ran a column by Steven Woloshin and Lisa Schwartz complaining about drug companies inventing diseases to market their products for unapproved uses. The immediate target is the marketing campaign for testosterone supplements to treat "Low-T." Low-T comes down to a set of symptoms that are essentially those associated with aging. Aging cannot be treated effectively with testosterone supplements.

While the column calls for more effective regulation from the Food and Drug Administration, the underlying problem are patent monopolies that allow companies to make enormous profits by pushing their drugs for unapproved uses. When a patent monopoly provides such incredible incentives (patent protected drugs can sell for prices that are several thousand percent above the free market price), it is unrealistic to think that government regulation will be effective in changing behavior.

This is like the Soviet Union trying to prevent people from selling blue jeans on the black market. It didn't work. In the case of patent protected drugs, the incentives are much larger. And, the health costs can be enormous, since the drugs being pushed may actually be harmful.

Recent comments

  • Guest - M. Gamble

    I have read with interest your comments on patents and pharmaceuticals. It has made me think about patents, copy rights, etc. I have been a software developer for at least 20 years. When I first published a program, the method was to have it copyrighted. You sent a couple of pages of code and explan...
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  • Guest - Last Mover

    This is like the Soviet Union trying to prevent people from selling blue jeans on the black market. It's not the same to the extent the black market price could be subject to competitive pressure combined with the fact that jeans are purchased to wear as jeans, not for other invented uses like "livi...
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  • Guest - Steve Stein

    "Last month my company both invented and cured restless eye syndrome. Ka-ching, ya blinky chumps!" - Bernadette, "The Big Bang Theory"
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Just kidding, in a piece noting high levels of youth disengagement from the labor market (neither employed, nor looking for work) Samuelson complains:

"Those with jobs subsidize their usually better-off elders through Social Security and Medicare payroll taxes."

Of course workers pay for these benefits. On average workers pay slightly more for their Social Security than the benefits they can expect to get back in retirement. They pay less than the cost of Medicare benefits, but this is because protectionists dominate policy in the United States and keep trade barriers in place that keep health care costs close to twice as high in other wealthy countries. Therefore it would be more accurate to say that their payroll taxes subsidize the income of doctors and drug companies.

It is true that in the current year Social Security and Medicare beneficiaries are not paying for their benefits, but if we ignore past payments, as Samuelson appears to be doing, then we should also ignore the fact that Peter Peterson and other wealthy people paid for the government bonds they own. From this perspective, we can then say that the interest paid on government bonds is simply a subsidy to the people who collect it.

Samuelson is right to note the high rates of non-employment among young people. The obvious solution would be to have government have big stimulus programs that could employ millions of young people. Unfortunately, deficit hawks (like Robert Samuelson) have forced government to go in the opposite direction and pursue policies of austerity.

In light of Samuelson's complain about subsidies for the old, it is worth noting his comment:

"To be sure, there are correctives. ... Older workers will retire or die, opening up permanent slots for the young."

The rate at which older workers retire will depend in large part on whether they can survive on their Social Security benefits. If these are made less generous, then we would expect fewer older workers to retire, leaving fewer jobs for young people.

 

Recent comments

  • Guest - skeptonomist

    Young people working produce things and these are used by old people who are not working - you can call this a "subsidy" but this is how it's always going to work. There are basically two ways to do this with the current monetary/tax system. Young people can take part of their earnings and pay int...
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  • Social Security is a welfare program that was disguised as a Ponzi scheme to make it palatable to the voters. We should continue in the direction that we have been going, narrowing the difference in payout between high and low earners. This will make the system less costly to all. Eventually all ret...
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  • They pay less than the cost of Medicare benefits, but this is because protectionists dominate policy in the United States and keep trade barriers in place that keep health care costs close to twice as high in other wealthy countries. Therefore it would be more accurate to say that their payroll tax...
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In his Upshot piece discussing the May jobs report, Neil Irwin noted both the healthy job growth and the implication for productivity growth. I was troubled by the same issue when I wrote up the jobs report yesterday.

The point here is quite simple, we are seeing relatively rapid job growth, just under 2.0 percent over the last year, when the rate of economic growth is quite weak. The drop in first quarter GDP was clearly an anomaly. (One of the great pointless economic debates of all time is whether the bad number is due to unusually bad weather or an inadequate seasonal adjustment.) But even pulling this out, we are looking at an economy that at best is only growing at a bit more than 2.0 percent annually.

The implication, as arithmetic fans everywhere are quick to point out, is that productivity growth is far under 1.0 percent and possibly close to zero. This seems really hard to believe. You don't have to ascribe to the robots will take all our jobs view to believe that the trend rate of productivity has to be at least 1.5 percent and quite possibly over 2.0 percent.

Productivity had grown at almost a 3.0 percent annual rate from 1995 to 2005. While that may have been a one-time spurt, even in the years of the slowdown, from 1973 to 1995, productivity still grew at a 1.5 percent annual rate.

There is always a substantial cyclical element to productivity growth. Firms are less concerned about maximizing output per worker when workers are cheap and plentiful. There also is some skewing as desperate workers take jobs in low pay and low productivity sectors like restaurants. By my calculation, this skewing knocked about 0.2 percentage points off of annual productivity growth since 2007. That is some of the story, but clearly there is much else going on.

Anyhow, it is good to see people getting jobs, but we should want to see a better pace of productivity growth. It is also important to remember that we still have a long way to go on the jobs front. While a 5.5 percent unemployment rate may not sound too bad, the employment rate for prime age workers (ages 25-54) is still down by 3.0 percentage points from its pre-recession level and 4.0 percentage points from its 2000 level. It is not plausible that all of these people just decided that they don't feel like working.

This means that we still have far to go before we have fully recovered from the downturn. The Fed should keep this in mind when it considers putting its foot on the brakes by raising interest rates.

Recent comments

  • Guest - Scott Moore

    I actually think this makes sense, in that workers sitting around, waiting for work, is not productive. I also like the argument that service jobs are difficult to make more productive. Companies such as McDonald's and Walmart are pulling back or trying to adapt to a new market and not doing well, w...
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  • Guest - Sirus

    We have a ways to go? Nope, nada and no. Employment's base is 125,000 a month. Healthy growth non-boom 175,000. 250,000 of last year is not sustainable. You keep on trying to compare eras to the Boomers dead man bounce. US population has been declining since the 1920's outside the bounce.
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  • Guest - Dave

    Productivity growth is prosperous for the beneficiaries only. It is a positive thing for humans in general, assuming they can manage their political system to make it work. There are productivity increases occurring in the world, but few of them are taking place in the US.
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No, Krauthammer didn't actually come out in support of free trade. Instead he wants us to be concerned that doctors in the United States are quitting (to become shoe salespeople?) because they don't like Obamacare.

Since our doctors get paid on average roughly twice as much as those in other wealthy countries and even more relative to doctors in less developed countries, there should be little problem attracting large numbers of people willing to train to U.S. standards and work as doctors in the United States, even if it means filling out annoying forms.

However, since protectionists dominate trade policy, we are not likely to see an opening of physicians to foreign competition. While our trade negotiators are happy to craft deals that put manufacturing workers in competition with low paid workers in the developing world, they do not want to do the same with doctors. Instead, we are supposed to be worried that doctors are unhappy even though many are in the richest one percent of the country and the vast majority are in the richest two percent.

Recent comments

  • Guest - David E.H. Smith

    Medical "Arrangements' Separate from Global Treaties. *** TPP & Global Treaties/'Arrangements’. Teaching the Gordan Gekkos’ of Wall St., Congress, et al, some Humility & Integrity by Quantification? 2 Republican Senators Admit that They Have read the TPP. Should Congressmen & Parliament...
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  • Guest - JDM

    Has Mr. K never seen the insurance firms, from multle companies, that were part of US medical care before Obamacare? Doctors' offices often had to employ extra people just to deal with them. This is not a new thing. If Mr. K really does want this problem to be virtually eliminated, he should be p...
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  • Guest - watermelonpunch

    I think Krauthammer doesn't know the difference between "quitting" and "RETIRING".
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An AP article in the Washington Post on the release of Commerce Department data showing a sharp drop in the trade deficit in April concluded with a discussion of the Trans-Pacific Partnership (TPP). The piece told readers:

"Obama and backers of the trade deal argue that it would open huge markets to U.S. goods by lowering tariffs and other trade barriers. But critics, including labor and environmental groups, say that the trade agreement would subject American workers to unfair competition from countries with lower standards for both labor rights and environmental protections."

Actually critics also dispute the assertion that the TPP "would open huge markets." Most of the countries included in the TPP already have trade deals with the United States, so there is likely to be little increase in access to their markets. Of the remaining countries, Japan is by far the most important, but Japan's tariffs on U.S. exports are already low, so the gains from lowering these barriers further is likely to be limited. The remaining countries all have relatively small economies. Their size coupled with their distance from the United States makes it implausible that the United States will have any substantial increase in exports as a result of the TPP.

Recent comments

  • Guest - Procopius

    In reply to Dave: When the guy selling the used car tells you it was owned by a little old lady from Pasadena who only drove it to church on Sundays, do you think he believes he is telling you the truth? When C Plus Augustus told you, "Our nation does not torture," do you (now) think he believed he ...
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  • Guest - Dave

    I think what concerns me most is that the rhetoric from the administration itself is fundamentally deceptive. It makes it quite likely that the top doesn't really understand the ways in which it is being deceived by exaggerated technical arguments from industry leaders. The statement that 95% of m...
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  • National survey shows 42% support Fast Track, 55% oppose it. ~
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The Washington Post is apparently pulling out all the stops in pushing its agenda on trade. It ran a front page news story that included several heroic acts of mind reading and flagrant misrepresentations to help push the deal to its readers.

In the later category, the second paragraph told readers:

"members of the New Democrat Coalition [a group of centrist Democrats in Congress] heard from frustrated tech executives who pleaded with them to help boost global growth and demanded to know why the president’s party was not lining up behind his trade push."

In fact the tech executives were not pleading with them to help "boost global growth," or if they were they were not being honest. There are no models that show the TPP having more than a trivial impact on global growth. In fact, the United States Department of Agriculture projected that the impact on growth in the United States would be too small to measure.

If the tech executives were pleading with the New Democratic Coalition to "boost global growth" it was an argument of the form, "give me money, it will be good for the economy." The reality is that they of course want a deal that they helped craft to make themselves richer.

Contrary to the assertions in this article, the TPP is absolutely not about expanding trade. In fact, it increases protectionism in important areas in the form of stronger and longer patent and copyright protections. No models have sought to estimate the costs to the economy of these government granted monopolies. It is likely these costs are substantial since they can raise the price of the protected items by a hundredfold or more. (The patent protected price of the Hepatitis C drug Sovaldi is $84,000 per treatment in the United States. A high quality generic is available in India for less than $1000.) This increase in prices is equivalent to a 10,000 percent tariff. It leads to exactly the sort of distortions and corruption that economists predict from high tariffs.

Recent comments

  • Guest - chmoore

    Isn't it interesting that TPP - which is not economically friendly for working class Americans - is coming to a head in roughly the same time frame as state & local gvts starting to pass higher minimum wages?
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  • Guest - Dave

    I now regret voting for Obama. It would have been a better outcome to have a Democratic minority willing to filibuster a bad Republican president than a Democratic minority unwilling to filibuster a bad Democratic president.
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  • Guest - foosion

    Trade policies such as the TPP are a major priority for Republicans and business groups. If Obama is going to give them this gift, the rational thing would be to get some progress on traditional Democratic priorities in exchange. That he isn't doing so is one reason for opposition and speaks volume...
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The NYT ran a column on helping low income homeowners by Elysse Cherry, the chief executive of Boston Community Capital. The piece includes various proposals designed to help low income homeowners who were hit by the collapse of the housing bubble, but it also includes the bizarre complaint:

"In many areas, housing prices are stuck below their inflated pre-bubble levels. Until we deal with this fact, entire communities will continue to struggle with high foreclosure rates and a lack of economic mobility. ....

"However, the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth, according to government data. Meanwhile, real wages for most Americans have been flat or falling for decades. Absent an extraordinary increase in income for low-income families, home prices in low-income areas aren’t going anywhere.

"This disparity between high- and low-income neighborhoods is evident in the numbers. The Standard & Poor’s/Case-Shiller National Home Price Index for March was over the March 2004 index, and national median home prices, according to the real estate website Zillow, are just over what they were 10 years ago."

There are two problems with this complaint. First, it is factually wrong, or at least misleading. The weak price performance of lower cost homes depends very much on the time window being considered. If homeowners bought near the peak of the bubble, which disproportionately affected lower income neighborhoods, then their prices would still be depressed, however if they bought before the bubble they would be doing quite well.

Recent comments

  • Elysse Cherry also ignores the fact that, in urban areas like New York City, there are disproportionately large numbers of renters -- especially towards the lower end of the income/wealth ladder. Full two thirds of New York City residents are in rental units. Those who are not in public housing actu...
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  • This is the kind of thing that plays to teh bias of home owners and so is a winning strategy in journalism and politics. Thanks for trying to get people to think even to their own hurt. We need cheaper housing not more expensive housing. If all counties adopt slow growth policies where will people l...
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  • Guest - dax

    "High house prices are direct transfer from future generations of homeowners to the current generation. (It's the same story with high stock prices.) " This fits in with the complaint I have often made about the young subsidizing the old. In other areas Dean has tended to push back against this cl...
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American Enterprise economist Andrew Biggs again warned about public pension funding in a Wall Street Journal piece. He’s not altogether wrong. Biggs points out that many states continue to badly underfund their pensions. He also cautions against pension funds taking too much risk with their investments. These points are well taken, but I would raise a few issues about Bigg’s argument.

First, it’s good to see that Kansas is Bigg’s poster child as one of the states with a poorly funded pension plan looking for higher market returns rather than making its required contributions. This is worth noting because Kansas is one of the most Republican states in the country, with a very conservative governor. It certainly it is not a hotbed of public sector unionism. This point is important. It was not public sector unions that caused states to have problems with pension funding, it was bad management by elected officials, both Democrats and Republicans.

Second, Biggs somewhat misrepresents the issues on returns. He argues the return assumptions used by public pension plans are considerably higher than the recommendations of a group of investment consultants and asset managers. However the asset mix for which this group made their projections was a portfolio of 70 percent equities and 30 percent bonds. The mix of assets held by pensions tends to be oriented towards somewhat higher return assets, with holdings in private equity and venture capital. The returns assumed by the pension funds are much closer the returns recently recommended in a report by the Pension Consulting Alliance.

It is also worth noting one source of confusion in these comparisons. Many pension funds assume higher rates of inflation than we have been seeing recently or are expected in the future. For example, the Kansas plan cited by Biggs assumes a 3.0 percent average rate of inflation over its planning horizon. The Congressional Budget Office and most other forecasters assume a 2.0 percent inflation rate. The difference in inflation assumptions should translate one to one into differences in returns. In other words, a 6.0 percent return assumption with a 2.0 percent inflation rate translates into a 7.0 percent return assumption with a 3.0 percent inflation rate.

However Biggs is right to raise a flag about some of the risky investments being pursued by pension funds. Private equity and venture capital can both be very risky. In the past these investments have provided a better return than the overall market, but pension funds would be wise to exercise caution if they are relying on this continuing in the future.

Recent comments

  • Guest - pete

    Good call Dean. Of course who better to chair a committee on looking at the 2007/2008 crash than the former head of Calpers who argued for increased benefits because of increased return expectations in the late 1990s!!! Were you ranting against these increases in the late 1990s?
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  • Guest - tew

    If someone is going to talk about the return assumptions, then the conversation should include private pensions at large corporations. Are the return assumptions at public pensions different from private ones? If so, is there a good reason for the difference?
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  • Guest - skeptonomist

    The general outlook for returns over the medium term is pretty bleak to a considerable extent because of Fed manipulations. It has driven interest rates down to levels not seen since the early 40's, which in turn has helped to push stock prices up to levels which also have rarely been seen before a...
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It is amazing how economic reporters continue to repeat nonsense about deflation. As fans of arithmetic and logic everywhere know, deflation is bad for the same reason a lower rate of inflation is bad. It raises the real interest rate at a time when we want a lower real interest rate and it increases the real value of debt when we want to see the real value of debt reduced. (The real interest rate is the nominal interest minus the inflation rate.) 

Crossing zero means nothing, which should be obvious to anyone who has given the issue a moment's thought. The inflation rate is a sum of millions of different price changes. When it is near zero, many prices are already falling. When it crosses zero and becomes negative, that means a somewhat larger share of prices are falling. So what? Since prices are quality adjusted, the prices people pay may still be rising.

Anyhow, the NYT added to the silliness yet again when it told readers that price declines in the euro zone due to falling energy prices are a potential problem. Let's think this one through for a moment. Suppose that prices are rising at a 1.0 percent annual rate. Given the weakness of the euro zone economy that is lower than would be desirable, but let's use that as a starting point.

Now let's have energy prices fall at a 40 percent annual rate so that prices are now falling at a 1.0 percent annual rate. Let's assume that the rate of inflation for non-energy prices has not changed.

Now how does this make things worse? People used to be pay more for gas and heat, with most of that money ending up outside of the euro zone. With the lower prices, this money stays in their pocket for them to spend on other things. In terms of debt burdens, if wages are rising in step with inflation, then the real value of debt to workers is being eroded at exactly the same rate as before. And since non-energy prices are still rising at the same pace, the real interest rate for investment outside the energy sector has not changed.

So what is the problem? It would be great if the NYT could get someone other than deflation cultists to do their economic reporting.

 

Recent comments

  • Guest - Phil

    Wages probably track inflation no matter where that inflation comes from. See: wage-price spiral on the back of rising oil prices in the 1970s.
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  • Dean, I fully agree that worrying about deflation due to falling energy prices is silly. However, as an old nonlinear dynamics complexity guy, I am more open to the idea that there is very likely a basin of attraction boundary for macodynamics in the vicinity of zero inflation, which may mov...
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The NYT apparently thinks this is a common practice. An article discussing a Supreme Court ruling that a second mortgage could not be discharged in a chapter 7 bankruptcy filing even when the homeowner's first mortgage vastly exceeded the value of the house, told readers:

"a ruling in favor of the homeowners might have made banks and other lenders less willing to extend second mortgages in the future."

In a foreclosure, a first mortgage must be paid in full before a dollar can be paid on a second mortgage. In the case before the court, the first mortgage was for $183,000, while the home was valued at $98,000. The homeowner therefore argued that the second mortgage was effectively unsecured debt that should be discharged in bankruptcy.

A ruling in favor of the homeowner would only affect banks' lending behavior if they think there is a substantial probability that a home will fall below the value of a first mortgage. If they do believe this risk to be large enough to affect their lending, then it is probably best for the homeowner and the economy more generally that the second mortgage not be issued.

Recent comments

  • Guest - Dave

    I find this to be absolutely outrageous. Why the entire pop ululation hasn't flooded wall street and the supreme court, and discharged the criminals that hold these posts, I really don't know.
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  • Guest - Ethan

    Most states allow a "deficiency judgment" against the debtor and his other property if the collateral does not sell for enough to cover the debt. Some states do not allow a deficiency judgement if the collateral is the debtor's principal residence.
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  • Guest - skeptonomist

    Is it common for banks to issue a second mortgage if there is risk of bankruptcy or price collapse? According to a WSJ piece, "About 2.1 million underwater homeowners had second liens at the end of the second quarter of 2014, said lawyers for Bank of America". (BofA would never lie, would they?). ...
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Robert Samuelson used his Monday column to tell readers that the problem with the economy is that we are suffering the psychological fallout of the Great Recession:

"My main explanation for this — as I’ve argued before — is the hangover from the 2008-2009 financial crisis and the Great Recession. These events changed economic psychology, precisely because they were unanticipated and horrific. They transcended the experience of most Americans (that is, anyone who hadn’t lived through the Great Depression). Corporate executives and consumers alike became more defensive; they saved and hoarded a bit more. If a novel calamity struck once, it could strike again. They’d better prepare."

The problem is that the data refuses to agree with his psychoanalysis. As I pointed out yesterday, consumption is actually higher as a share of GDP than it was before the downturn, indicating that fear is not keeping households from consuming in any obvious way.

Samuelson also points to the rise in temporary employment as evidence that firms are scared to commit themselves to permanent employees. The problem with this one is that temporary employment as a share of total employment is just rising back to the levels of the late 1990s, a time when the economy was booming.

If we look at the narrow category of temporary employment agencies, the Bureau of Labor Statistics (BLS) reports the number stood at 2,880,000 in April. That compares to 2,605,000 in December of 1999. Measured as a share of total employment, it stood at 2.03 percent in December of 1999, compared with 2.04 percent of total employment in April.

If we use the somewhat broader category of employment services, BLS reports the number at 3,547,000 in April. That compared to 3,776,000 in December of 1999. Measured as a share of total employment, jobs at employment service agencies fell from 3.77 percent in December of 1999 to 3.55 percent in April.

In short, if employment in temporary agencies is supposed to be a measure of insecurity, it doesn't appear to be going in the right direction to make Samuelson's point.

 

Addendum:

The most obvious explanation for the continuing weakness of the economy is that there is nothing to fill the gap in demand created by a $500 billion annual trade deficit (@ 3 percent of GDP). In the last decade, the demand generated by the housing bubble filled the gap, while in the 1990s the demand from a stock bubble filled the gap. In the absence of another bubble and a refusal to run large budget deficits, there is no obvious source of demand to fill this gap.

Unfortunately this explanation is far too simple to be used by economists or those writing on economy.

Recent comments

  • Guest - JF

    Dean Baker, Thanks for the response, good to see. Sorry I've been off elsewhere so it 18 hours later apparently. I thought your original comment on Expenditures was that it was following a good trend line as before, but here you say that we have weak demand. You've also pointed to income being c...
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  • Guest - Dave

    The level of government spending and investment is and always will be a politically charged issue. There's no proper amount of government investment, no fixed size, etc… Yes, because much of the debt holding back spending is owned by the banks, the only way to increase investment is with governmen...
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  • Guest - Justin

    (See your comment below.) Dean, it appears that the current configuration of this site allows any jerk (e.g. me) to edit, or delete anyone's comments. Just FYI.
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Undoubtedly millions of readers are wondering about the NYT's use of the term when it told readers that one of the goals of the Trans-Pacific Partnership (TPP) is to, "protect intellectual property from theft." Actually one of the goals of the TPP is to strengthen and lengthen patent and copyright protections.

After this is done, those who do not respect the new laws can be accused of "theft," however it makes no sense to accuse someone of theft for breaking laws that do not exist. The NYT may want strong and long protections, but a newspaper should not be calling people who do not adhere to its views of intellectual property "thieves."

 

Recent comments

  • Guest - FoonTheElder

    I have little sympathy for big companies who send their products to China or other countries with race-to-the-bottom wages and then complain about their patents or products being stolen and copied. They send their property to be produced in places known for blatant copying and theft and then expe...
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  • Guest - Alex

    Actually the NYT would be wrong to refer to the act as "theft" even if these countries had similar laws to the US. These folks are charged with copyright infringement in the US, not theft, because US common law requires the element of conversion (i.e., that the person stolen from can no longer use w...
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  • Guest - s ken brown

    Keynes noted that rentiers serve a purpose else they wouldn't exist. Also that they would become obsolete and pass away just like craft guilds. That was 75 years ago so I think it's about time. They won't go without a fight. The patent/copyright parts of TPP are a provocation in this fight and I hop...
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As the world awaits the final word on the negotiations between Greece and its creditors, it's worth a quick flashback to 2010 and the report of Alan Simpson and Erskine Bowles, the co-chairs of President Obama's deficit commission. (This report is often referred to as a report of the commission. That is not true. The by-laws clearly state that to issue a report it was necessary to have the support of 12 of the 16 commission members. While no formal vote was ever taken, the co-chairs' report only had the support of 10 members.)

Anyhow, getting back to matters at hand, one of the Simpson-Bowles proposals was to raise the normal retirement age for Social Security to 69 from its current level of 66 (soon to be 67). The report recognized that many people work in physically demanding and/or dangerous jobs where it would be unreasonable to expect people to work this late in life. It therefore proposed having special lower retirement ages for certain occupations.

The reason this is relevant to Greece is that one of the sticking points at the moment is the reform of Greece's public pension system. One of the main issues is that the current system allows people in many occupations to start collecting benefits well before the normal retirement age. For example, hairdressers are apparently among this group because they are exposed to dangerous chemicals on the job.

While the Greek system was a universal target of ridicule among serious minded people everywhere, many of these same people embraced the Simpson-Bowles report as a gem of thoughtful, non-partisan, policy-making. The ability to ignore the fact that the supposedly thoughtful Bowles-Simpson gang were advocating the adoption of a pension system subject to universal ridicule is yet another example of the lack of seriousness of the serious people. 

Recent comments

  • Jebediah wants to raise Social Security...err the retirement age, too. How do people like he and Rick Scott get to be Florida's governor?? ~
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  • Guest - Bart

    I didn't know that the Bowels report proposed having special lower retirement ages for certain occupations. One can imagine the fun that would involve: "Roofers have the most difficult work" "Oh, but what about a roofer's time on flat as opposed to pointed roofs" and how Social Security would have...
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A NYT article reported on a turn to the right of politics in France and in much of the rest of Europe. Remarkably, the piece never once mentioned the decision by the European Central Bank (ECB) to impose a policy of austerity and high unemployment on the continent. Since the mainstream left parties do not want to challenge the ECB, this means they have few plausible routes for reducing unemployment and restoring wage growth for the bulk of the population.

This opens the stage for right-wing nationalist parties, which promise a better economic situation by blaming immigrants for the weak economy. It also forces the traditional left parties to the center since they must accede to the ECB's demand for austere budgets and labor market reforms.

The United States will be in the same situation if the Federal Reserve Board starts raising interest rates to slow the economy and keep the labor market so weak that most workers cannot get wage gains.

Economists may not be very good at understanding the economy, but they are quite good at finding ways to keep themselves employed, generally at very high wages. The Washington Post treated us to one such make work project as it reported on a change in consumer psychology due to the recession that has left:

"Americans of all ages less willing to inject their money back into the economy in the form of vacations, clothing and nights out.

"It’s a sharp contrast to the 1990s, when consumers spent freely as their wages rose robustly, and the 2000s, when Americans funded more lavish lifestyles with easy access to credit cards and home-equity loans."

 

Really? That sounds like a startling development. Let's see if we can find it in the data.

cons gdp

The chart shows consumption as a percentage of GDP. I went back to the late fifties so folks can see the longer term picture. People are spending far more today relative to the size of the economy than they did in the sixties, seventies, eighties, or even nineties. In fact, consumer expenditures are higher now relative to the size of economy than they were in the housing bubble days.

So, let's ask about that psychology story. Apparently the concern is that we fell from a ratio of 68.8 percent in the first quarter of last year all the way down to 68.6 percent in the most recent quarter. My guess is that modest decline is best explained by unusually bad weather in the first quarter that discouraged people from shopping and going out for meals. Also, extraordinarily strong car sales in the second half of 2014 probably let to some falloff in the first quarter since people who buy a new car in the fall generally don't buy another one in the winter.

But hey, I don't want to see a lot of unemployed economists. There should be lots of work in looking for a plunge in consumption that isn't there.

 

Recent comments

  • Guest - Dean Baker

    Joe, the deleveraging story is largely wrong. Obviously people who are under water in their mortgages are not borrowing, but the economic impact of this has been hugely exaggerated. It's really bad news for these people, but its economic impact of these people not borrowing is just not that great. ...
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  • Guest - JSeydl

    but do you also believe the household debt boom of the 2000s boosted consumption? If so there's a problem with the logic. Households have been deleveraging since 2006, but inequality remained high and even rose from 2006-present. thus we should have seen consumption-gdp fall after 2006. it didn't so...
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  • Guest - Dean Baker

    A couple of quick points here. First, the upward trend in the ratio of consumption to GDP in the last three decades is not something that is normal. If it continues it means that either government spending and investment are going to zero, or we have a generous foreign country or countries that is h...
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Many folks are dismissing the negative GDP number from the first quarter by arguing that the Commerce Department's seasonal adjustment is faulty. According to some estimates a correct seasonal adjustment could add as much as 0.8 percentage points, which would be enough to bring the first quarter GDP into positive territory.

However seasonal adjustments must sum to one over the course of the year. In other words, if weather and other regular seasonal factors are more of a drag on first quarter growth than the Commerce Department acknowledges in its current seasonal adjustment, then the Commerce Department must be understating the extent to which weather and other seasonal factors provide a boost to growth in other quarters. The cost of saying that the first quarters (this and prior years) is better than the data show is that it means the data for other quarters are worse than the current methodology indicate. In other words, this will not qualitatively change our assessment of how fast the economy is growing, even if it may shift the timing between quarters.

Recent comments

  • Guest - tom

    what do the year over year numbers say?
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  • Guest - Ellis

    Six years into the recovery, all one can say is that the economy doesn't seem to be showing any dynamism, except for producing a trillion dollars in dividends and stock buybacks. Otherwise it's stagnating, like the drip from a corroded sewer pipe.
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  • Guest - fledermaus

    Well they've adjusted inflation and unemployment to match the happy economy that only exists in their heads, might as well go whole hog and jimmy the GDP number as well.
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John Delaney, a Democratic congressperson from Maryland, argued against a "left-wing" Tea Party in a Washington Post column today. He gets many things badly wrong, like arguing:

"bipartisan tax reform that would free up the trillions of dollars of trapped overseas cash" which he says could be used for infrastructure spending. Sorry, corporations do have trillions in profits that they record as being overseas to avoid taxes, but the idea that we have some formula that would turn all this money into tax revenue for infrastructure is more than a bit loopy. He also seems to think that a modest expansion of Social Security, as proposed by people like Senators Elizabeth Warren and Bernie Sanders, would impose some impossible tax burden.

But my favorite part is when he denounces the opponents of the Trans-Pacific Partnership (TPP) as protectionists. I must confess to not knowing exactly what is in the agreement (it is secret), but we do know from Wikileaks that an important part of the TPP is increasing protectionism in the form of stronger and longer copyright and patent protection.

Since we already have trade agreements with most of the countries in the TPP, there will not be very much by way of tariff reduction in the TPP. In other words, the trade liberalization parts of the TPP will be relatively minor. Given this fact, it is entirely possible that the increase in copyright and patent protections will have more economic impact than the modest reductions in the remaining tariff barriers. (Remember patent protection can increase the price of a drug by a hundredfold, the equivalent of a 10,000 percent tariff barrier.)

Until it is shown otherwise, it is reasonable to call the TPP a protectionist pact. We know that it will increase protectionism in important areas. We don't know how much it will liberalize trade and therefore have zero basis for assuming that on net it moves in the direction of freer trade.

So Mr. Delaney, if it's name-calling time, right back at you. As a TPP supporter, you are a protectionist.

Recent comments

  • Guest - Gerry Flaychy

    The increase in price because of protectionism is not compensated by an increase in goods and services received, so that the consumer is deprived from the goods and services that he would have bought with this extra money. In other words, he is poorer. Secondly, the producers and their employees, ...
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  • Guest - djb

    Delaney is lying to his constituents in saying that he is a democrat, he should be honest and switch parties
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  • Guest - Ethan

    I still don't understand the need to keep it secret from the American people. Our negotiators must have told the negotiators on the other side what we want. What advantage would be lost if we the people were also told? And the negotiators on the other side already know what they have put on the tabl...
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Morning Edition had a segment on computer tablets that many restaurants are now placing on dining tables which allow people to order and pay their bill without needing a waiter or waitress. The point of the piece is that these tablets are likely to cost the jobs of many table servers.

While this is true, we have always seen productivity growth. (That is what it means to displace workers with robots or computers.) Contrary to what you might believe from reports like this on NPR, productivity growth has actually been very slow in the last decade, as in the opposite of robots taking our jobs. Here's the data on productivity in the restaurant industry over the last three decades.

                                Productivity in the Restaurant Industry: 1987-2013

restaurant-prod

                                    Source: Bureau of Labor Statistics.

As can be seen, productivity increased relatively rapidly in the restaurant industry from 1996 to 2006. Since 2006 productivity has actually fallen in the industry. That means that restaurants are getting less money for each hour of their employees' work. It might be interesting to hear a segment on why we seem to have such low productivity (i.e. negative) growth in sectors like restaurants rather than implying that we are seeing the opposite story.

 

Recent comments

  • Guest - Patience

    Is it possible that less availability of undocumented labor (due to harsher immigration law enforcement) means that restaurants have to pay workers more, thus lowering productivity?
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  • Guest - ezra abrams

    how about posting data (number of employees) which actually supports your point ? the productivity is some second order function; how about less make work for blog posters ?
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  • Guest - watermelonpunch

    They gotta find some way to make it true the story that less college educated workers will be employed in restaurants this year! No reason to mention those few less will just instead work low level clerical jobs which pay less than those with an 8th grade education made in the same jobs 30 years ag...
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Brendan Nyhan had an interesting piece in the NYT's Upshot section in which he discussed how "free trade" policies get pushed by presidents and approved by Congress even though most middle income and lower income people are opposed to them. Nyhan refers to research showing that wealthier people overwhelmingly support "free trade," and politicians are likely to act in ways that reflect their views even when this means going against the majority.

While this is interesting and important research, it misses an important part of the story. Our trade agreements have not been about liberalizing trade in all areas, as Nyhan asserts. While trade policy has been quite explicitly designed to put U.S. manufacturing workers in direct competition with low paid workers in the developing world, it has largely left in place or even increased the protections that keep doctors and other highly paid professsionals from other countries from working in the United States.

Trade theory predicts enormous economic gains from allowing freer trade in these professionals, but because trade policy is designed largely by and for wealthy people, removing barriers to foreign professionals working in the United States rarely gets on the agenda in trade deals. Unfortunately it also doesn't get mentioned in the media's discussion of the issue either.

Trade deals also increase protections in the form of patent and copyright protection. These are direct transfers of money from the bulk of the population to those who benefit from these royalties and licensing fee. Most of the people in the latter category are wealthy.

The fact that the trade deals do not conform to economists' definitions of "free trade," but are instead designed to redistribute income upward, likely explains much of the hostility of low and middle income people to "free trade." It is worth pointing out, that in responding to these polls, the public is not referring to the economic concept of "free trade," but rather real world policies that have little to do with the economic concept. It is understandable that the politicians pushing the trade deals would use the economic concept of "free trade" to promote their deals, it is less clear why reporters and commentators would adopt the same approach.

Recent comments

  • IMHO this is Dean's great contribution to the economics discussion. He gets people like me, a free trade advocate, to think more completely about trade.The AMA (other professional organizations too) not only protects from foreign competition but though scope of practice laws from internal competitio...
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  • Guest - Last Mover

    The wealthy don't believe in free trade as much as they believe in the free taking of economic rent which does not add value, which they call free trade. It does not add value because it is not necessary through higher prices to draw into production the resources in question. Nothing is given up b...
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  • Guest - JF

    Contributions As a Percentage of Net Worth? Can the media and academics tell meaningful stories on simple stats - or are they avoiding this for some reasons? One thing I would like the 'media' to do is to express the collections from govt 'ways and means' as a percentage of Net Worth (by tax type, ...
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