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If You Can Find a Way to Show Middle Income Families Are Gaining, the Washington Post Will Give You Lots of Coverage Print
Thursday, 18 December 2014 16:53

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

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



A Bit More on Chronic Lyme Disease: Scientists Ignoring the Science Print
Thursday, 18 December 2014 09:31

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

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

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



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

Schumer Should Focus on Keeping Government from Redistributing Income Upward Print
Thursday, 18 December 2014 05:43

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

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

Productivity Growth (year over year change)


                                            Source: Bureau of Labor Statistics.

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

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



NYT Badly Confused About Monthly Wage Data Print
Wednesday, 17 December 2014 08:05

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

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

Democrats' Record on the Economy Print
Wednesday, 17 December 2014 05:41

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

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

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

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

The Washington Post Wants Japan to Fire Workers Print
Tuesday, 16 December 2014 08:23

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

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

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

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

It's Hard to Get Information About the Economy at the Washington Post: Michael Gerson Edition Print
Tuesday, 16 December 2014 08:13

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

Gerson then adds:

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

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


If Workers are Struggling to Keep Pace With Robots So Is the Bureau of Labor Statistics Print
Tuesday, 16 December 2014 07:49

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

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

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

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

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

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

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

Wage Income Rose to a Record High and the Tree in My Back Yard Is Taller Than Ever Before Print
Tuesday, 16 December 2014 05:48

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

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

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

real wages

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

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




Health Care Cost Slowdown Persists In Spite of Projections Print
Monday, 15 December 2014 11:12

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

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

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

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

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.