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  


The Damage From the Housing Bubble: How Much Did the Greenspan-Rubin Gang Cost Us? Print
Tuesday, 21 January 2014 21:21

Eduardo Porter asks how much the housing bubble and its collapse cost us in his column today. (He actually asks about the financial crisis, but this was secondary. The damage was caused by the loss of demand driven by bubble wealth in a context where we had nothing to replace it.) Porter throws out some estimates from different sources, but there are some fairly straightforward ways to get some numbers from authoritative sources.

We can use as a starting point the Congressional Budget Office's projections for GDP growth from 2008, before it recognized the damage from the collapse of the bubble. We can then compare these projections with the most recent projections from last year.

If we just take the dollar losses through 2013 we get $7.6 trillion, in 2013 dollars. This is just economic losses, it does not include any effort to quantify the pain that workers or their families have suffered from being unemployed or losing their homes. This comes to roughly $25,000 for every person in the country. Alternatively, it is 190 times as much as the Republicans hoped to save from their cuts to food stamps over the next decade.

Many folks around Washington like to talk about 75 year numbers, which is the period over which we project Social Security and Medicare spending and revenue. If we assume that the economy's growth rate in years after 2018 is not affected by the collapse of the bubble, then the cumulative loss in output through 2089 as a result of the collapse of the Greenspan-Rubin bubble would be $66.3 trillion. This amount is almost seven times the size of the projected Social Security shortfall.

If we really want to have fun, we can sum the shortfall over the infinite horizon, an accounting technique that is gaining popularity among those advocating cuts to Social Security and Medicare. The loss over the infinite horizon due to the Greenspan-Rubin bubble would be over $140 trillion, or more than $400,000 for every man, woman, and child in the country.

Obviously these numbers are very speculative but the basic story is very simple. If you want to have a big political battle in Washington, start yelling about people freeloading on food stamps, but if you actually care about where the real money is, look at the massive wreckage being done by the Wall Street boys and incompetent policy makers in Washington.

 
Andrew Ross Sorkin: Top Executives Run Their Companies to Reduce Inequality Print
Tuesday, 21 January 2014 11:36

It amazing what you can learn reading the New York Times. Andrew Ross Sorkin devoted his column today to the annual World Economic Forum held in Davos, Switzerland. He goes through a list of top executives of major companies and then tells readers:

"Whatever their reasons for staying away, the leaders of some of the largest and most transformative companies are demonstrating, with their absence, the difficulty of convening a global conversation with all the main stakeholders. Given that one of the themes this year is how to address economic inequality, it would be helpful to have the world’s largest employers participate in that discussion, not to mention a sampling of rank-and-file workers, who never receive an invitation."

It's not clear why Sorkin thinks that the top executives of the world's largest companies would have something special to say about addressing economic inequality. After all, these are the people who are pushing hardest to increase inequality. This is a bit like bemoaning the failure of tobacco company representatives to show up at a meeting devoted to ending smoking.

Most of us think that these executives focus on getting rich themselves and possibly enriching their shareholders. If they place a lot of emphasis on reducing inequality that would be news to many of us. For example, does the head of a major corporation come to a board meeting and tell the directors:

"sales and profits are down, but we've reduced global inequality."

That would be news if it were the case, but somehow I doubt it. It is reasonable to assume that corporations are trying to make money, which is why their directors have little interest in even pretending they care about inequality.

 
The Washington Post Still Can't Get It Right, Health Exchanges Need Healthy People, It Doesn't Matter If They Are Young Print
Tuesday, 21 January 2014 07:56

Why is hard to understand that a healthy person who pays $6,000 a year into the insurance system is more helpful to its finances than a healthy person who pays $2,000 a year? That is the basic story when it comes to older people in the exchanges (ages 55-64) and younger people. The average premium for this older group is three times as much as for the younger group. Large portions of both age groups will require little or no health care services over the course of a year.

This is why it makes relatively little difference if the exchanges have a skewing of enrollees by age, as a Kaiser report showed last year. It does matter hugely if there is a skewing by health condition with only less healthy people signing up. This is why it is annoying to see the Post once again tell readers:

"If not enough young and healthy people sign up on the federal and state insurance marketplaces, that could lead to a cycle of increasing premiums and decreasing enrollment, or what some call a 'death spiral.'"

The word "young" just takes up space and makes the article less accurate. The program could face a death spiral if enough healthy people do not sign up. It doesn't matter whether or not they are young.

 
Nocera Gets Growth Badly Wrong Print
Tuesday, 21 January 2014 05:43

Joe Nocera makes an important point very badly in his column today. He contrasts a sharp reduction in poverty in Brazil over the last dozen years with continued high unemployment in the United States. Nocera then notes Brazil's recent growth slowdown, which he attributes to slow productivity growth. He then notes the rapid growth in the United States in the third quarter and continually rising productivity and concludes that growth may not be the most important goal of the economy.

While the point is well taken, Nocera discussion of growth in the United States and Brazil is completely wrong. While growth in Brazil has not been especially strong for a developing country, it did not manage to achieve its reductions in poverty without growth. According to the IMF, Brazil's growth has averaged 3.5 percent in the years from 2002-2013. This is far from the rates that countries like Thailand and China have maintained, but it is very far from zero. It is unlikely that Brazil could have accomplished anywhere near as much poverty reduction if its growth had been zero.

In the case of the United States, high unemployment is directly connected to slow growth. While we had one quarter of relatively good growth (4.0 percent is not especially strong for an economy recovering from a severe downturn), economic growth has generally been weak in this recovery. In the years 2010-2012 the growth rate averaged just 2.4 percent, which is roughly the same as the economy's potential growth rate. This means that the economy was making up almost none of the ground lost in the downturn. Insofar as we were able to achieve reductions in the unemployment rate it was the result of lower than normal productivity growth and people dropping out of the labor force.

By contrast, in the three years following the 1974-75 recession, growth averaged 5.2 percent. In the three years after the 1981-82 recession, growth averaged 5.4 percent. There is no reason to believe that if we saw faster growth we would not see more rapid reductions in unemployment. The problem with the third quarter growth figure was that it has not been sustained. If I'm driving across country I get there more quickly if I drive 70 MPH than if I drive 50 MPH. But it doesn't make much difference if I drive 70 MPH for just 10 minutes. Nocera seems to think that it should.

 
The Unbearable Presumptuousness of Right-Wing Elites Print
Monday, 20 January 2014 20:24

The NYT treated its readers to the French version of Le Grande Bargain, with a column by Sylvie Kauffman, the editorial director and former editor in chief of Le Monde. Ms. Kauffman's piece, "the unbearable lightness of Hollande," is devoted to the indecisiveness of the French president both in his policies and apparently in his personal life.

Her main complaint is:

"Perplexed by their president’s economic indecisiveness since he took office, the French now learn that he is equally indecisive in his private life. And they have found out at the worst moment. After hesitating to address squarely the issue of radical economic reforms, after avoiding to cut public spending to reduce the fiscal deficit, after procrastinating on measures needed to restore the competitiveness of French companies, the president, having lost 20 months, finally decided that it was time to do all of the above."

Hmmm, Hollande put off Kauffman's radical economic reforms and spending cuts for 20 months and this perplexed the French? Well if Hollande ran on an agenda of cutting social spending to go along with tax cuts, it certainly was not widely reported in the United States. I haven't checked back issues of Le Monde (my French is mixed at best), but my guess is that Ms. Kauffman's paper did not report any such commitments from Hollande either.

In fact, what was reported on Hollande's campaign was a promise to break with austerity and to follow the precepts of modern economics. This means increasing deficits in a downturn, not cutting them. There is no evidence that the private sector will make up for the demand lost due to reductions in the deficit. In fact, there is now a large body of evidence, much of it produced by the International Monetary Fund, showing that the program demanded by Kauffman will lead to slower growth and more unemployment.

In effect, Kaufman is telling NYT readers that she finds it unbearable that a French president, who was elected on a platform going 180 degrees in the opposite direction, waited 20 months to embrace the economic policies that she favors; policies that have been shown to slow growth and raise unemployment.

Undoubtedly being the editorial director or editor in chief of Le Monde is a very important and prestigious position in France. Just as people like Peter Peterson and his fellow corporate chieftains in Fix the Debt feel that their policy perspectives should over-ride the views of the vast majority of the public and the state of knowledge in the economics profession, Ms. Kauffman feels the same way with respect to the French people.

I suppose elites everywhere never had much use for democracy or inconvenient truth. Get me some freedom fries.

 
Real Supporters of the "Free Market" Do Not Believe that Companies Can Pollute Drinking Water With Impunity Print
Monday, 20 January 2014 08:43

A Washington Post article on the issues involved in relationship to the chemical spill in West Virginia identified the Competitiveness Policy Institute as a "free-market think tank" in presenting its views opposing increased regulation of dangerous chemical. This is inaccurate.

Supporters of the free market do not believe that others can damage life and property with impunity. For example, it is not consistent with a free market to think that anyone can dump toxic chemicals on Bill Gates' lawn. Protection of life and property are fundamentals of free market economics.

In this case, it is likely that the company responsible, Freedom Industries, will largely escape responsibility for the damage it caused with its actions since it declared bankruptcy. This means that the victims of the spill were effectively forced to give money to Freedom Industries. This is antithetical to free market principles. A think tank that supports such outcomes should be labeled as a proponent of upward redistribution, not a supporter of free markets.

 

Typo corrected, thanks Dax.

 
NYT Tells Us Where Our Tax Dollars Go Print
Monday, 20 January 2014 08:35

The NYT has a very nice (in substance, not appearance) chart on per person spending on a wide variety of government programs. readers would find that the military budget costs us $1,802 per person, Medicare $1,591, and Head Start $27. I was disappointed not to see TANF mentioned, which I would eyeball at around $55 per person and the Corporation for Public Broadcasting at around $1.50 per person.

Anyhow, it is great to see this chart, but this should be the standard way to express budget numbers, not something special for holidays. This is providing readers with information. Telling readers that we are projected to spend $8.1 trillion on Medicare over the next decade is just a silly fraternity ritual that budget reporters like to do. It is not informing readers.

 
Highly Paid Medical Specialists: Beneficiaries of Protectionism Print
Monday, 20 January 2014 08:30

Actually this excellent piece only talks about the first part of the picture, the outlandish paychecks that many medical specialists receive. Most news outlets are too committed to protectionism to discuss the idea of subjecting our doctors to the same sort of international competition as autoworkers or textile workers.

 
George Will Comes Out Against Freedom of Contract Print
Sunday, 19 January 2014 09:07

George Will took a strong stand against freedom of contract in his column today. Usually freedom of contract is viewed as a pillar of a market economy, but Will apparently objects to this freedom when used by workers.

The specific context is the issue of whether public sector workers can sign a contract that requires all the workers who receive the benefit of union representation to share in the cost of this representation. Under the law, if a union represents a bargaining unit, then it must represent every worker in the unit, regardless of whether the worker supports the union or not. This means that the union not only secures the same wages and benefits for all workers in the unit, it also must represent all workers in any grievance or disciplinary action taken by the employer, even if a specific worker does not support the union.

Since the law requires unions to represent all workers, they have often sought contracts that require all the workers in a bargaining unit to pay a fee to cover the cost of this representation, even though they still have the option not to join the union. It is this contract requirement that draws Will's ire, claiming that it violates the first amendment rights of workers who do not support the union.

It is worth putting Will's complaint here in a larger context. If a worker is employed by Koch Industries, Will would certainly argue that the Koch brothers could take the gains from their stock in the company and use it for supporting right-wing political candidates or whatever purpose they want. He would even argue that the company could directly spend its profits on supporting right-wing candidates, as allowed under the Citizens United Supreme Court ruling. In fact, he would say that Koch could require the worker to attend a right-wing rally and yell support for their causes as a condition of employment.

Will would say that none of these actions by the Koch brothers violate first amendment rights because the worker has the option not to work for Koch Industries. For some bizarre reason he is unwilling to apply the same logic in the context of contractual obligations put in place by fellow employees.

In others words, Will is fine with any conditions that employers want to impose as a condition of employment, but somehow sees it as a first amendment violation if co-workers sign a contract that imposes conditions of employment. This is denying workers the right to freedom of contract.

 
UK Homeownership Program Big Winner, Just Like Subprime Lending Print
Sunday, 19 January 2014 08:48

The Washington Post used a standard that would have shown subprime loans to be a great boon to tell readers that a housing program by the conservative government in the UK has been a "winner." The Post's declaration of the program as a winner is based on the fact that the program, which allows people to buy homes with a 5 percent down payment, has allowed many people to buy homes who could not otherwise afford them. This was true of zero down subprime mortgages issued during the housing bubble years also.

The Post is also confused in its assessment of bubble conditions in the UK. The article implies that existence of a bubble depends on the rate of price increase as opposed to the level of prices, based on this view it tells readers that there may be a bubble in London, but little risk in the rest of the country.

The chart accompanying the piece shows rapidly rising prices in the London market, with prices rising at a more modest pace in the rest of the country and still below their bubble peak in 2007. However the level of prices in the UK is shown as being more than five and a half times its 1983 level. This implies an inflation adjusted increase in house prices of almost 140 percent over the last three decades. Rents have shown no comparable increase, which indicates that house prices are not being driven by the fundamentals of the housing market.

At some point it is likely that house prices will fall to a level more consistent with the fundamentals of the UK housing market. At that time, the beneficiaries of the Conservatives' homeownership program will be winners in the same way that subprime purchasers in the United States were winners following the crash here.

It is also worth noting that the increase in consumer spending mentioned in this article is likely directly related to the renewed run-up in house prices. People are likely spending against the wealth in their home. This is the well-documented housing wealth effect which shows people increasing annual consumption by between 5-7 cents for each additional dollar of housing wealth. This wealth effect was the reason that the savings rate fell to nearly zero at the peak of the bubble and then rose sharply after house prices collapsed in 2007-2008.

 
<< Start < Prev 11 12 13 14 15 16 17 18 19 20 Next > End >>

Page 20 of 361

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