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Why Don't We Import Doctors to Deal With Shortages? Print
Tuesday, 26 March 2013 04:38

It is bizarre that the idea of bringing in more foreign doctors as a way to drive down wages is never discussed. Readers of a front page Washington Post article on using nurses for some of tasks currently done by doctors must have been puzzled by this omission.

While allowing nurses to do work for which they are qualified would seem to be a win-win for everyone but doctors, it seems especially strange that this piece never raised the possibility of bringing in more foreign trained doctors as a way to drive down wages and save patients and the public money. This is done all the time in the case of nurses. Many nurses are brought in from developing countries, most notably the Philippines, as a way to drive down the wages of nurses.

There is no justification for not having the same approach to foreign doctors. Obviously doctors as a group are more wealthy and powerful than nurses, but news outlets are not supposed to adjust the news to suit the desires of the rich and powerful.

Planet Money Misses the Boat on Social Security Disability (Updated with Graph) Print
Monday, 25 March 2013 14:06

Last week This American Life had a piece on the increase in the number of people on Social Security disability. While the segment had many interesting stories, and presented useful background, it got some of the basics wrong.

While the story did note the impact of the economic downturn on disability claims, it failed to recognize the actual importance of the economic collapse. Instead the piece turned to a variety of other explanations, for example citing the 1996 welfare reform bill.

If we go back to the projections in the 1996 Social Security trustees report, the disability program was projected to cost 1.93 percent of payroll in 2005. As it turned out, the program cost just 1.85 percent of payroll in 2005, about 4 percent less than the trustees had projected in 1996. The program's cost did explode in the downturn, rising to 2.43 percent of payroll in 2011, with a projection of 2.48 percent of payroll for last year.


Social Security Trustees Reports, 1996 and 2012.

However the explanation for this increase seems pretty clear -- the economy is down almost 9 million jobs from its trend growth path. People who would have otherwise been employed find themselves desperate for any means of support due to the inept economic policy that sank the economy. This is a simple explanation that doesn't require examining the moral turpitude of beneficiaries or evidence of corrupt or negligent administrators. Fix the economy and you would remove much of the burden on the program. It is also striking that the projections in the 2012 Trustees Report show the costs again falling below the level projected in 1996 once the unemployment rate gets back down to a more normal level.

Of course that doesn't mean the program was working perfectly before the economic collapse. There were undoubtedly many people getting disability payments who should not have been and also many people who were wrongly denied benefits. The system is grossly understaffed. As a result, many claims take way too long to be processed and often the wrong decision is made.

However, it seems more than a bit of a reach to explain expanding disability roles on some of the items covered in the segment. For example, the welfare reform bill was passed after the projections in the 1996 Trustees report were made. Yet, in 1996 the trustees still projected that disability would cost more a decade later than turned out to be the case. If welfare reform had the effect discussed in the segment, the error should have been in the other direction.

As we say here in the nation's capitol, it's the economy, stupid.

How Do You Think About U.S. Manufacturing? Print
Monday, 25 March 2013 11:35

Dylan Mathews promised that "this chart will change how you think about U.S. manufacturing." The piece actually has two charts, but neither rises to the bar.

Both charts come from a new book by Robert Z. Lawrence and Lawrence Edwards: Rising Tide: Is Growth in Emerging Economies Good for the United States?. I've not seen the book, but I am familiar with Lawrence as a long-time optimist about the state of the economy and one who pooh poohs the idea that trade might hurt large segments of the workforce. He also seems prepared to ignore substantial evidence, using standard methodology, that shows it does.

Anyhow, the first chart shows a trend line with a rapid decline in manufacturing over the last 5 decades. According to the chart, we are pretty much right on trend. I hate to be picky here, but the fitted portion of the trend-line, which runs from 1961 to 1979, lies almost entirely above the actual data points for these years. That is not supposed to happen, which makes one wonder a bit about this trend. One might also wonder whether it is reasonable to expect a linear relationship. Will manufacturing employment really be zero in 26 years? We might expect a flattening curve as the manufacturing employment share gets small.

But let's leave these quibbles aside, the more striking part is the second graph that tells us the decline in manufacturing is happening everywhere. The chart shows us that Germany, the Netherlands, and Sweden also had sharp declines in manufacturing employment since 1973.

Let's just pick Germany here for comparison purposes. Eyeballing the chart we see that the manufacturing share of employment in Germany fell from roughly 36 percent in 1973 to 24 percent in 2011. Let's call it a decline of one-third.



Robert Samuelson is Optimistic About the Economy Print
Monday, 25 March 2013 04:52

Well, at least someone is. Let's look at his case:

"The long-dormant housing market is reviving. Home prices and sales are up; homebuilders are increasing production to satisfy rising demand. Personal finances have improved. Loans have been repaid or written off. Since year-end 2009, the ratio of household debt to disposable income has dropped from 130 percent to 111 percent, according to Federal Reserve data. It’s probably still declining. Over the same period, a rising stock market and higher home values have increased household wealth by almost $10 trillion.

"The other piece of good news is the job market. 'The last five months . . . we’ve seen over 200,000 jobs a month in the private sector,' Fed Chairman Ben Bernanke noted last week at a news conference. 'Unemployment [insurance] claims are at the lowest level they’ve been since the crisis.'

"So two large sources of middle-class anxiety and insecurity — jobs and wealth — are slowly easing. The share of 'underwater' homeowners (with mortgages exceeding the value of their homes) has dropped from 21.2 percent in mid-2009 to 14.8 percent in the third quarter of 2012, reports Moody’s Analytics."

Starting with the household debt story, it is important to realize that consumption was unusually high relative to disposable income at the peak of the bubble. It is unlikely to return to such heights unless the bubble returns, which it is not close to doing (thankfully in my view). The vast majority of the wealth created since 2009 has been in the stock market which has doubled in value. The housing market, which was still falling in 2009, is roughly back to its 2009 levels.



Fred Hiatt Bemoans the Fact that We Are Unlikely to Get an Economic Crisis to Advance His Agenda Print
Monday, 25 March 2013 04:06

Nope, I'm not kidding. In his column today, Hiatt complained that no one seems to be moving forward on his deficit reduction agenda. He then told readers:

"What could shake them out of their own devices? One possibility, a fiscal hawk in the Obama administration told me almost wistfully, would be a 'minor market event.' A stock market plunge, an interest rate spike, a race to the exits by America’s foreign lenders — just enough to spook Congress.

"But as long as the Federal Reserve is gobbling up U.S. debt to keep interest rates low, such a mishap seems unlikely."

Yes, it must be awful when you have a view of the economy that the economy refuses to corroborate. (In fairness, Hiatt, does add that such a market event could spin out of control, so "it is not really to be wished for.")

As usual, Hiatt is upset that President Obama is not pushing hard enough for cuts to Social Security and Medicare. While he does give Obama credit for proposing some cuts to Medicare (what happened to the chained CPI?), what really has him upset is that President Obama doesn't talk about inflicting pain:



Neither the NYT nor Washington Post Has Heard About Unemployment Print
Saturday, 23 March 2013 07:24

It's apparently hard to find out about the state of the U.S. economy in the nation's capital. That is the only way to explain the fact that in their articles on the budget passed by the Senate last night, neither the NYT or Washington Post said one word about how the budget would affect the economy over the next decade.

This one should have been pretty basic and simple. As tens of millions of graduates of intro economics classes know, GDP is equal to the sum of consumption, investment, government spending and net exports. Currently, annual GDP is close to $1 trillion below its potential according to the estimate from the Congressional Budget Office because private sector demand plunged following the collapse of the housing bubble.

While conservative politicians run around yelling mumbo jumbo about making the job creators happy, there is no plausible story that private sector demand will rise enough to fill this gap any time soon. That means that government has to fill the gap by running large deficits. Its failure to do so has meant that the economy is down almost 9 million jobs from its trend growth path and millions of people are needlessly suffering from unemployment.

However, neither the NYT or Post could be bothered mentioning the millions who are suffering unemployment as the direct result of government policy. Instead the NYT told us in the first sentence that the budget will:

"trim spending gingerly and leave the government still deeply in the debt a decade from now."

Yes, that is important for readers to know -- by the NYT's criteria the country will be "deeply in debt" a decade from now. What ever happened to the distinction between news and opinion pages?



An Aging Population and Drying Paint: Things People Worry About in Washington Print
Thursday, 21 March 2013 13:45

From reading the newspapers and blogs you would think everything must be great in the country. Hey, no problems of mass unemployment, poverty, folks losing their homes, etc. How else can we explain the obsession with an aging population?

Yes, the population is aging, just as it has been aging over the last century. Yeah, we're living longer. You got any bad news for me?

Today we have Kevin Drum and Ezra Klein giving us the bad news. It seems Medicare's costs are projected to increase by 2.5 percentage points of GDP over the next 22 years and most of this (1.7 percentage points) is due to aging, not excess health care cost growth. Should we be worried?

Let's look at a somewhat different graph than the one they highlight.


Source: Congressional Budget Office.

What this graph tells us is that Medicare's costs, measured as a share of GDP, increased as much in the last 22 years as they are projected to increase due to aging in the next 22 years. The rest of the increase (0.8 percentage points) is due to projected excess health care cost growth. In other words, the impact of aging alone is no more of a problem going forward than the increase in Medicare costs was for us in the last 22 years. The reason that the total cost growth is projected to be greater is entirely due to the projections of excess health care cost growth.

There are a couple of other points to be made. We would cut our health care costs roughly in half if we paid as much for our health care as any other wealthy country. This would seem to argue for increased trade in health care services. Currently the Obama administration is negotiating major trade agreements with both the European Union and with Asian countries in the Trans Pacific Partnership. How much do you want to bet that more trade in health care services is not on the list of items being addressed? When it comes to doctors and other health care providers our Washington elite types are as hard core Neanderthal protectionist as they come.

The other point is that if workers got their share of projected productivity growth over this period, wages would be around 40 percent higher in 2035 than they are today. How much do you want to bet that workers would prefer before-tax wages that are 40 percent higher with another 2 percentage points pulled out for Medicare, than stagnant wages and no tax increases?

In other words, why are serious people wasting time over this nonsense? There is much more at stake in controlling health care costs and ensuring that workers get their share of productivity growth than there is with aging.

It's the Dispersion Stupid: Why Men Don't Go to College Print
Thursday, 21 March 2013 12:55

The NYT tells us that economists are struggling with cultural explanations for the fact that men's college enrollment rates have been lagging so far behind those of women. The issue is that we have seen a sharp increase in the gap between the wages of college and high school graduates over the last three decades. What economics tells us it that this rising return to a college education should cause more people to go to college.

This is exactly what has happened with women as their rate of college enrollment and completion has increased rapidly over this period. However that has not been the case with men, who now have much lower enrollment and completion rates.

That would seem to pose somewhat of a mystery. Why do women respond to price signals but not men? M.I.T. economist David Autor seeks to find the answer in cultural differences. While there may be some truth to his explanations, there is a more simple and obvious explanation.

My colleague John Schmitt and former colleague Heather Boushey looked at this issue a couple of years ago. They noted that there was a far larger dispersion in the wages of men with college degrees than was the case with women. In fact, there was a substantial overlap between the distribution of wages of men without college degrees and men with college degrees.

This means that while on average men will have higher earnings with a college degree than without one, for a substantial portion of men this is not true. Presumably the marginal college student (the one who is deliberating over going to college versus starting their career) is more likely to be in this group of losers among college grads than the typical college student who never contemplated not attending college.

Since there is a much greater risk for men than women (who don't have the same dispersion of wages among college grads) of ending up as losers by going to college, it should not be surprising that fewer men than women would opt to go to college. So the story is really simple, you just need a bit of economics and statistics to get there.

The Fed Has Better Memory Than Reporters Covering It Print
Thursday, 21 March 2013 04:53

That would seem to be the case based on much of the news coverage of the Fed's decision to continue its quantitative easing program. Many pieces have highlighted relatively positive economic reports in recent months, most notably job creation numbers. Fortunately the Fed seems to have a much better knowledge of the data than the reporters who cover it. While job growth over the last few months has been somewhat higher than the average for the recovery, it does not stand out as being especially strong.

In the last three months jobs growth has averaged 192,000. By contrast, it averaged 271,000 for the same three months a year ago. Apparently the Fed has access to this data, which it used in its decision on continuing its quantitative easing policy.


Monthly Job Growth


Source: Bureau of Labor Statistics.


Note: First sentence corrected in response to comment.

Inaccurate Appraisals Don't On Average Prevent Home Purchases Print
Wednesday, 20 March 2013 05:14

A Morning Edition piece on the housing market blamed difficulties in the housing market in part on people being unable to get mortgages because of inaccurate appraisals. In fact, this should not on average reduce sales. While some sales will be prevented by an appraisal that wrongly comes in too low, some sales will go through that should not because an inaccurate appraisal comes in too high. Unless there is some reason there is a low side bias to the appraisals, inaccuracy by itself should not affect total sales.

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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.