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Does the Average Hiker Spend $4,000 a Year on Equipment and Hiking? Print
Sunday, 07 September 2014 04:21

I'm a big fan of nature and hiking, but that number doesn't sound quite right to me. The Washington Post had an article on the recreation business in which it told readers that the country spends $646 billion a year on outdoor recreation and related spending. This figures comes to a bit more than $2,000 per person. If we assume that half of the public doesn't really do anything that fits the bill, then this means the other half spend $4,000 per person per year on outdoor recreation. That comes to $16,000 per year for a family of four.

Let's see, you can a pretty nice tent for a few hundred dollars, hiking boots can cost $150-$200, a good sleeping bag in the same range. That could get us to $700, but of course you don't buy these things every year. If you assume they last an average of 3-4 years, these items will only get you about $200 per year, less than one twentieth of the way to our $4,000 target.

According to the article, the $646 billion figure came from an industry group. The link does not go to a report that could explain how they got the number, but rather a map showing a state by state breakdown. It's not clear how the industry group came up with its number, but it's virtually certain they included many items that most of us would not consider spending on outdoor recreation. The Post should be a bit more careful in uncritically accepting numbers from industry groups.



Robert Salzberg points me to a link later in the piece that goes to the study itself. The study shows that the bulk of its $646 billion in spending is based on food, entertainment, lodging, and travel related expenses. This presumably means that if someone flies across country to visit family members and also goes to a national park then the study would count the air fare and the money spent on lodging throughout their trip. The study does not describe the methodology in full, but it does give a non-working URL as the location of a technical report.

Economists Who Understand Economics Didn't See the August Jobs Report as an Outlier Print
Saturday, 06 September 2014 07:51

The Washington Post article on the August job report, which showed the economy adding 142,000 jobs in August, told readers:

"Economists, however, were quick to caution that the weak jobs number is an outlier at a time of several other stronger measures of economic activity, including auto sales — which soared in August — and exports. Markets were little-changed on the news and ended the day in positive territory.

'I don’t believe the numbers,' said Tim Hopper, chief economist at TIAA-CREF. 'Not only are they very weak, they just don’t match anything else that’s in the market right now.'"

Actually, the numbers match the market very well. The economy grew at a 1.1 percent annual rate in the first half of the year. Faster growth in the second half of the year might bring the rate for the whole year to 2.0 percent. If we assume that productivity growth is 1.5 percent, this would imply an increase in the demand for labor of 0.5 percent. That translates into 700,000 jobs for the year or roughly 60,000 a month.

Even if we assume productivity growth of just 1.0 percent (this is well below the rate we saw even in the slowdown years from 1973-1995), the implied rate of job creation would just be 1.4 million a year, or 120,000 a month.

The article gives no explanation of why any economist would expect a much faster rate of job growth when the economy is growing so slowly.

The Pent-Up Wage Growth Story: Why Does Janet Yellen Say These Things? Print
Friday, 05 September 2014 09:45

Federal Reserve Board Chair Janet Yellen is a serious scholar of economics. That means that she wants to hear a range of arguments and consider them carefully. Unfortunately we don't live in a political world where such concern with the truth is the norm. 

For this reason it is unfortunate that Yellen speculated in her Jackson Hole speech last month that one reason for weak wage growth could be pent-up real wage declines. The argument is that if we think that firms would have lowered real wages, but could not because they did not want to impose nominal wage cuts, then there should be a number of workers whose real wages are higher than is justified by their productivity.

The implication of this story is that when labor markets tighten, these workers will initially see no nominal increase in wages since it will take some time for their real wages to fall to a level in line with productivity. But then we get a story where we end this pent-up wage decline and then these workers would again see nominal wage growth. This is then presented as a kicker to inflation.

It's reasonable for Yellen to consider such issues, but naturally the inflation hawks are seeing this story as yet another argument for slamming  down brakes on the economy and job growth. Most of us would believe as a fairly simple story that in a tighter labor market there is more upward pressure on wages and therefore somewhat more risk of inflation. But how is this changed by the pent-up wage decline story?

What percent of the workforce do we think can be in this boat, 5 percent, 10 percent, 20 percent? It seems hard to imagine it would be much over 10 percent of the workforce that could conceivably be in this situation, especially when we consider that 4 million workers, roughly 3 percent of the workforce, leave their jobs every month.

But let's say that we have 10 percent of the workforce who have some degree of pent-up wage declines. The issue is what happens when this ends? The first thing we have to remember is that the pent-up declines won't end all at once. Workers would have different degrees of pent-up wage declines.

Let's say that the pent-up declines end over 3 years. This means that in each of those three years, if we start from our 10 percent number, 3.3 percent of the workforce suddenly goes from seing zero nominal wage increases to seeing 2.0 percent pay hikes in order to have their wages keep pace with inflation. And this raises the overall rate of inflation by 0.07 percentage points. Get out the wheelbarrows of money, hyperinflation is just around the corner.

The Mythical Downward Spiral of Deflation Print
Friday, 05 September 2014 05:08

A useful NYT article on the latest moves by the European Central Bank's to try to prop up the euro zone economy included a comment near the end:

"Thursday’s moves signaled that at least one European institution is doing all it can to avert the threat of deflation — the pernicious downward spiral of prices that often leads to high unemployment."

Actually there is no basis for the fears of this sort of downward spiral. As the piece correctly points out, the euro zone economy is already suffering from very low inflation. With many long-term loans contracted with the expectation of much higher rates of inflation, the current near zero rate of inflation is imposing serious burdens on debtors. The low rate of inflation also means a higher real interest rate for firms considering investments for the future.

Crossing zero from low rates of inflation to low rates of deflation doesn't change this story. Having a lower rate of inflation makes matters worse, but there is no particular importance to crossing zero. (At low rates of inflation, the prices of many goods and services are already falling.)

There could be a problem if there was a downward spiral with deflation leading to more unemployment, leading to more deflation, but we have not seen anything like this in a wealthy country since the Great Depression. Even Japan never really saw anything along these lines. It's inflation rate fell to -1.0 percent in 1999, was -0.7 percent in 2000, and peaked at -1.5 percent in 2001. It became positive again in 2004 and remained positive, with the exception of 2005 until the economic crisis in 2009.

There was no tendency for the rate of deflation to continue to get more rapid during this period. In other words, there is zero reason to think that anything qualitatively different happens to an economy if the inflation rate turns negative, except that in a weak economy a lower inflation rate is worse than a higher one.

Is Any High-Speed Rail Project "Ambitious?" Print
Friday, 05 September 2014 04:48

That's the question millions are asking after seeing the NYT article on the debate between California governor Jerry Brown and Neel T. Kaskari. The piece told readers:

"Again and again, Mr. Kashkari criticized the ambitious high-speed rail project from San Francisco to Los Angeles that Mr. Brown has pushed even as it has lost popularity with voters and some lawmakers, and even as Republicans in Washington have said they would refuse to fund it."

Other than giving us the NYT's assessment of the project it is not clear what information the word "ambitious" provides to readers.

NPR Gets Putin and Russian Economic Growth and Corruption Backwards Print
Friday, 05 September 2014 04:29

An interview on Morning Edition with Edward Lucas, senior editor at The Economist and author of The New Cold War, likely mislead listeners about the path of the Russian economy and corruption under President Putin's period in power. Lucas implied that Russians are likely to be very unhappy about the current state of the economy and public services and angered over the extent of corruption in the country.

While undoubtedly there is much corruption in Russia under Putin, corruption did not begin with Putin. According to the World Bank (Table 4.3A), Russia got $8.3 billion for all the assets it privatized in the 1990s. This was a period in which it sold off the vast majority of the industry built up during the Soviet years, as well as much of its oil and natural resources. By comparison, Snapchat currently has a market value of $10 billion. During this period well-connected people were able to become billionaires by buying assets at prices far below the market level.

This was also a period in which Russia's economy collapsed. According to data from the International Monetary Fund, Russia's economy shrank by almost 30 percent during President Yeltsin's tenure. (This is about six times the drop in GDP the U.S. saw in the Great Recession.) Since Putin came to power in 1999 it has more than doubled in size. This economic performance likely explains much of the support shown for Putin in public opinion polls.

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                                       Source: International Monetary Fund.


Note: Name of president corrected -- the decline took place under Yeltsin, not Putin. Thanks Daniel. Also, Putin came to power in 1999, not 1998 as previously written.

Fast Food Prices Could Go Up Print
Thursday, 04 September 2014 04:46

The Washington Post thinks it has found a fatal flaw in the argument that fast food workers should have higher wages:

"The problem: Fast food is a low-profit margin business. How low? According to Yahoo Finance, 2.4 percent. Just look at the headline: 'Fast-Food Chains Aren’t as Rich as Protesters Think.'"

It is likely that most of the people organizing the push for higher wages in the industry are fully aware of "the problem." If workers got higher wages they would presumably be offset to some extent by lower profits, lower pay for top management, increases in productivity, but there would also be some increase in higher prices.

This would reverse a process whereby fast food prices would have dropped relative to the price of other goods as the wages of workers in the industry fell relative to the economy-wide average. There is no obvious "problem" with this reversal. It essentially means that those on the bottom would enjoy higher real wages and living standards, while those on top would see a relative decline in their living standards. It would only be a relative decline, except for those at the very top, since if the economy is growing normally, higher paid workers could still get a share of productivity gains. 

Good Story in U.S. Job Market Depends Largely on Ignoring People Who Drop Out of the Labor Force Print
Wednesday, 03 September 2014 14:45

Wonkblog had a post telling readers that the U.S. labor market is doing better in the recovery than the labor market in most other wealthy countries.  While this is true if we look at unemployment rates, is far less clear if the focus is employment rates (EPOP), the percentage of the population who is working.

This is true even we control for demographics. The EPOP for prime age men (ages 25-54) in the United States is still down 3.7 percentage points from its pre-recession level. By comparison, in Japan the EPOP for prime age men is up by 2.0 percentage points and in Germany it's up by 3.3 percentage points. 

France has seen a drop in its EPOP from pre-recession levels, but only 0.7 percentage points -- still much better than the U.S. In fact, with a drop of in its EPOP for prime age men of 2.7 percentage points, the euro zone as a whole is doing better than the United States, in spite of the inclusion of crisis countries like Spain and Greece with double-digit drops in EPOPS.

In short, the case that the U.S. labor market has fared better than the labor markets in most other wealthy countries is much weaker than this piece indicates.


Thanks to Seth Ackerman for calling this one to my attention.

Actually, the Chinese Can Do the High-Skilled Jobs at Lower Cost Too Print
Tuesday, 02 September 2014 05:46

Joe Nocera had a good piece discussing the plight of factory workers in the United States subjected to low cost competition from China and other developing countries. He argues that the government has done too little to help the workers and the communities that have suffered from such competition. However his prescription, that workers should get more skills, is somewhat misleading.

While it is always better to have a more skilled workforce, one of the main reasons that more skilled workers have done better in the era of globalization is that they have been largely protected from the same sort of competition faced by less-educated workers. While trade agreements were explicitly designed to put manufacturing workers in direct competition with the low-paid workers in the developing world, there has been no similar effort to subject our doctors, dentists, lawyers and other highly paid professionals to the same sort of competition.

Trade agreements could have focused on reducing barriers that make it difficult for qualified professionals from the developing world to work in the United States. For example, we could have fully transparent sets of standards to become a doctor or lawyer in the United States, with tests administered in other countries (by U.S. certified test givers). Anyone from Mexico, India, or China who passed these tests would have the same ability to work in the United States as someone who grew up in Kansas.

The potential benefits to consumers and the economy would run into the hundreds of billions of dollars annually. And this would have the effect of shifting income downward rather than upward. (Yes folks, we can design a mechanism to reimburse developing countries for the professionals they educated who come here, which would ensure they gain as well.)

Trade agreements did not put professionals into competition because they are a powerful enough lobby to block such actions. However it is important to be clear in our understanding. It was not "globalization" that redistributed income upward. It was a pattern of trade that was intended to put downward pressure on the wages of the bulk of the population while protecting those at the top.



Just a few quick points - doctors and lawyers (especially doctors) are not members of the middle class in the normal usage of the term. About 25 percent of doctors are in the one percent and the vast majority are in the top two percent. If the rest of us are going to get more, they must be among the group that gets less.

Second, lower wages for manufacturing workers have translated into lower prices. Part of it has gone to profits, but shirts and cars are cheaper than they would be if we didn't have low-paid labor doing much of the work.

Finally, there is no way that a lower valued dollar is going to bring us to developing country living standards as fans of arithmetic everywhere can verify. Imports are equal to roughly 20 percent of our GDP. Suppose a 30 percent drop in the dollar leads to a 20 percent rise in import prices (both very large changes). This implies that we can buy 4 percent less than we did previously. That still leaves us far ahead of Mexico and China. And for debt-phobia fans, we are saving this amount today by borrowing.

Is Japan's Aging Population Really Going to Shrink Into Oblivion? Print
Tuesday, 02 September 2014 05:39

That's what a Reuters story on the NYT website said Japanese leaders are troubled by. The piece told readers:

"Policymakers are also pledging to draft a vision of how to keep Japan's ageing population from shrinking into oblivion, holding the line at 100 million in 2060, a 20 percent drop from now."

And what bad thing happens if Japan continues to become a less crowded island through the rest of the century and beyond, more room at the beach and less pollution? 

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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.