CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press

Beat the Press

 facebook_logo  Subscribe by E-mail  


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. 

 
If We Didn't Have Patents, How Would Major Companies Be Able to Harass Innovative Start-Ups? Print
Monday, 15 December 2014 07:50

A NYT article on Xiaomi, a fast-growing Chinese start-up that is now the number three seller of cell phones in the world, included the fascinating sentence:

"Xiaomi does not yet have much of a patent portfolio, leaving it vulnerable to lawsuits from competitors."

On its face, this sentence should have left readers baffled. Why would the lack of a patent portfolio make a company vulnerable to lawsuits? The answer of course is that patents are used as a harassing tactic. The idea is to bury your competitor with patent suits in the hope that one may actually get past summary judgement and go to trial. This can be time-consuming and expensive for a small company.

The advantage of having a large patent portfolio in this context is that you get to play tit for tat. You turn around and throw a pile of patent suits back at your competitor. The fight usually ends with both sides agreeing to drop suits, and occasionally some licensing fees being paid.

From an economic standpoint, these patent wars are a complete waste, but they nonetheless may prove profitable for a company that fights effectively. It's too bad that our "free traders" are so opposed to free trade, otherwise we could reduce this source of waste and upward redistribution (patent lawyers tend to be one percenters).

 
NYT Brings Adventures in Uninformative Budget Reporting to Kansas Print
Monday, 15 December 2014 05:43

Yes Toto, we're back in Kansas and we're discovering some folks really don't believe in reporting that provides meaningful information to readers. After all, what will most people make of an article on projected deficits in Kansas that told readers about Governor Brownback's schedule of tax cuts which are, "projected to cost $7 billion through the end of the 2019 fiscal year?" We are also told that the state faces a shortfall of nearly $280 million in the current fiscal year, which the governor proposes to address by, "cutting more than $70 million in agency spending and transferring more than $200 million into the state general fund from various reserves to plug the gap through the fiscal year ending in June."

Do you feel informed? In case you were one of the small minority of NYT readers who have no clue how large Kansas' budget is, the projection for the current fiscal year is roughly $14 billion, which puts the shortfall at 2 percent of projected spending. The $650 million shortfall projected for next year would be more than 4.0 percent of the state's budget.

The piece also refers to a $8 billion shortfall in the state's pension funding. This comes to less than 0.3 percent of the state's projected gross state product over the next three decades, the standard planning period for pension funds. The piece also tells readers about the governor's plans to make "changes" to the pension fund in order to "create a more sustainable long-term budget."

These sorts of changes would mean cuts, as in lower pensions or higher employee contributions. It is understandable that the governor and his allies would prefer euphemisms to conceal their agenda. It is not clear why the NYT would share the same motivations.

 

 
George Will and Tax Reform: If Only He Were Old Enough to Remember the Sixties Print
Sunday, 14 December 2014 17:34

George Will began a Washington Post column on tax reform by bemoaning the fact that we have defined success downward. He notes the celebration over the 321,000 job gain reported for November, then tells readers:

"In the 1960s, there were nine months in which more than 300,000 jobs were added, the last being June 1969, when there were about 117 million fewer Americans than there are now ."

While Will is right about the low bar for success (we should be seeing very rapid job growth following a steep downturn like the 2008-2009 recession), the sixties do not support his case for a need to cut tax rates. Through most of the 1960s the top individual tax rate was 70 percent, while the corporate rate was 50 percent. That compares to a top individual rate of 41 percent today, and a corporate tax rate of 35 percent. The top marginal tax rate in the first two months when we had 300k plus job gains was 90 percent. If Will wants to make the case for lower tax rates spurring job growth, he should not be citing the sixties.

Will then goes on to complain that one third of the people approaching retirement have no savings. This is indeed a serious problem, but it is hard to see it being cured by tax reform. Most of these people would have been in the zero, ten, or fifteen percent bracket for most of their working lives. Furthermore, they would have had the opportunity to put as much money as they plausibly would have been able into a tax deferred 401(k). It is very difficult to envision a tax reform that will enable these people to qualitatively increase their savings. Their main problem is not enough income, with close to four decades of stagnant wages.

Will also says the real estate industry really should support tax reform even if it caps the exemption for the mortgage interest deduction, because faster economic growth will lead to higher home prices. Both parts of this are wrong. Douglas Holtz-Eakin, who had been President George W. Bush's chief economist, examined all the standard macroeconomic models for the impact of large tax cuts on growth when he was head of the Congressional Budget Office. He found that even the most extreme assumptions implied that large tax cuts had only a modest effect on growth. 

Furthermore, economic growth is not associated with higher house prices. House prices only kept pace with inflation during the years of rapid growth in the 1950s and 1960s.

 
What's Complicated About a Government That Works to Benefit Rich People? Print
Sunday, 14 December 2014 07:53

The Washington Post ran part one of what promises to be a very good series on the plight of the middle class in the United States over the last four decades. After noting the lack of wage growth in the 2000s the piece tells readers:

"Jobs came back more slowly, if at all. Even before the 2008 crisis, the 2000s were on track to be the weakest decade for job creation since the Labor Department started tracking the statistics. The great mystery is: What happened? Why did the economy stop boosting ordinary Americans in the way it once did?"

It's not clear what is mysterious in this story. The economy was being driven by bubbles in both the late 1990s and the 2000s. When the stock bubble burst the only way to replace the demand was the housing bubble. When the housing bubble burst there was nothing to replace the more than $1 trillion in lost demand due to the collapse of residential construction and housing wealth driven consumption, as some of us said at the time.

The only mysterious aspect to this story is what anyone thought could replace this demand. Did they anticipate purchases of U.S.made goods and services by Martians?

More generally we have had a government committed to redistributing income upward for the last three decades. Currently President Obama is pursuing a trade deal that is designed to raise the price of drugs (current spending is around $400 billion a year -- this is real money) and get more money for the entertainment and software industry. He refuses to include any steps designed to reduce the trade deficit (i.e. lower the value of the dollar) which would be one obvious way to replace the demand lost by the collapse of the housing bubble.

And, these trade deals are likely to do almost nothing to increase trade in highly paid professional services, like those provided by doctors. (Many doctors are in the top one percent and virtually all are in the top two percent.) This allows pundits to run around saying that workers are losing out to an inevitable process of globalization and somehow never notice that doctors and other highly paid professionals have been deliberately protected.

And the Federal Reserve Board seems likely to raise interest rates next year for the purpose of slowing growth, which will prevent workers from getting jobs and seeing pay increases. The Fed has helped to keep the unemployment rate much higher in the years since 1980 than in the decades before as Jared Bernstein and I point out in our book.

In short, it seems pretty obvious what has happened to the middle class. The government has designed policies to help the rich at their expense. It's  not clear what part of this story is mysterious.

 
What the Fresher Data Show on Down Payments and Mortgage Default Rates Print
Saturday, 13 December 2014 09:36

Ron Lieber had a well-reasoned "Your Money" piece in the NYT that discussed the merits and pitfalls of buying a home with a low down payment. However it may have misled readers about the findings of the research.

It noted that some people have raised concerns about the risks of default on low down payment mortgages (it linked to a post by me) and then it referred to others disputing that low down payments are associated with higher risks, using "fresher data." The fresher data in question is a study by the Urban Institute which actually shows a strong inverse relationship between the size of the down payment and default risk for every year analyzed. 

For example, in 2001, people with strong credit scores (FICO above 750) had a 0.2 percent default rate if they put 20 percent or more down on their house, their default rate was six times as high, 1.2 percent, if their down payment was between 3-5 percent. For people with low credit scores (below 700), the default rate was 2.2 percent with a down payment of 20 percent or more, it was 5.1 percent for a down payment between 3-5 percent.

The comparable numbers for 2007 were 4.5 percent for people with strong credit scores and 20 percent or more down, compared to 13.5 percent for people with strong credit ratings and 3-5 percent down. For people with low credits scores, and putting 20 percent or more down, the default rate was 20.9 percent compared to 30.6 percent for those putting 3-5 percent down.

The way the study implies a weak relationship between down payment and default risk is by comparing default rates for people who put between 5-10 percent down and people who put 3-5 percent down. Since almost all the the people in the former category are putting just 5 percent down, the study is effectively telling us that the default rate is not much higher if people put 3 percent rather than 5 percent down. This is probably true.

 
That Horrible Debt Burden On Japanese Children Print
Saturday, 13 December 2014 09:15

Due to Japan's national debt, which is well more than twice its GDP, Japan's children are burdened with interest payments that are close to 0.8 percent of GDP. That sounds pretty awful right? How are the kids going to be able to make it?

If the sarcasm isn't obvious, then you need some basis of comparison here. The interest burden in the United States is now 1.4 percent of GDP. When our children were really being crushed by the burden of the debt back in the early 1990s the interest burden peaked at a bit more than 3.0 percent of GDP, a bit less than four times Japan's current burden. In fact, the figure of 0.8 percent of GDP overstates the true burden since much of this money is paid to Japan's central bank and then refunded to the government.

The prompt for this discussion is an article in the Washington Post about the prospects for Japan's Prime Minister Shinzo Abe and his economic program, now that he has called snap elections. To get an assessment of the impact of Japan's debt on the welfare of future generations the Post turned to Kayoko Kamiya, who is identified as "a 43-year-old housewife." 

"Well, we are only shifting the burden to my children, so it’s tricky, ... Raising the tax [a consumption tax increase that had been scheduled to go into effect in April, but now has been delayed by Abe] earlier would make things at least easier later. I feel unsure if it’s right that the current generation doesn’t take care of the debt."

The piece also tells us that the bond rating agencies (yes, those people who rated subprime mortgage backed securities as Aaa) are threatening to downgrade Japan's debt. It might have been worth pointing out that the financial markets appear to disagree with the bond rating agencies. The interest rate on 10-year Japanese government bonds is 0.40 percent.

In a piece providing an assessment of the economy's performance under Abe, it would have been worth noting that Japan's employment rate has risen by 2.2 percentage points since Abe took office at the end of the 2012. This would be the equivalent of adding more than 5 million workers in the United States.

 

Addendum:

This piece wrongly asserts that Japan has been in a deflationary spiral over the last 15 years. This is not true. It has consistently had very low inflation rates that did in some years turn negative. However, the deflation rate never exceeded -1.0 percent and it has not accelerated, as would be implied by a delfationary spiral. The basic problem in Japan is the same as in Europe, the inflation rate has been too low over the last two decades.

 
<< Start < Prev 1 2 3 4 5 6 7 8 9 10 Next > End >>

Page 2 of 408

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives