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People Don't Move for Jobs When There Are No Jobs Print
Sunday, 31 July 2011 10:04

The Wall Street Journal claimed that a main reason that the economy is growing slowly and not creating jobs is that people are not willing to move because they are often underwater in their homes. The evidence that it presents to support this assertion is dubious.

First, it notes that only 2.9 million people moved for a job in 2009 compared to 4.5 million in 1999. There are two major differences between these years. First, the work force was considerably older in 2009 with most of the baby boomers in their 50s and 60s. These workers are much less likely to move than younger workers.

More importantly, the economy lost 5 million jobs in 2009. It created 3 million jobs in 1999. This means that there were many fewer jobs to move for in 2009 than in 1999.

The best evidence that the sort of housing lock discussed in this article is creating a problem would be to show large sections of the country with rapidly rising wages. Offhand, it would be difficult to identify any significant region where this is the case and the article certainly does not identify one. (It does note an employer in South Dakota who complains about being unable to find workers, but it doesn't report the wages he is offering.)

A recent analysis of the Bureau of Labor Statistics Displaced Workers Survey found no evidence that homeowners in states that had seen sharp declines in house prices were any less likely to move to get a new job than other homeowners. It would be useful if articles like this one based its judgments on data instead of anecdotes.

The NYT Wants the U.S. to Have Slower Growth Print
Sunday, 31 July 2011 07:12

That would seem to be the implication of the advice in an article that we should follow Canada's model for dealing with our deficit. According to the NYT, Canada did things right when it decided to get its deficit down in 1994, doing a comprehensive review of its spending.

Since that was almost 20 years ago, we have some basis for assessing how things turned out. According to the OECD's data on productivity growth (the main determinant of living standards), it doesn't seem that Canada has done very well. Its productivity growth has averaged just 1.0 percent annually from 1994 to 2010. This compares to 1.8 percent in the United States. Canada's rate of productivity growth is behind the 1.5 percent rate for Greece and Portugal and even behind the 1.1 percent rate for Japan, although it is better than the 0.7 percent rate for Spain.

If the United States had experienced the same productivity growth as Canada over the last 17 years, we would be on average 12.6 percent poorer today. Insofar as the weaker growth can be attributed to Canada's fiscal consolidation we can say that the path advocated by the NYT is equivalent to imposing a 12.6 percentage point income tax increase on the United States.

The article also refers to the surpluses at the end of the Clinton years and the expectation that the United States would pay off its debt. Economists who know national income accounting (an essential part of economics that unfortunately seems little known by economists) did not believe that the United States would pay off its debt.

The large budget surpluses projected by the Congressional Budget Office in the context of continuing trade deficits implied large dissaving by the private sector. (This is an accounting identity -- it must be true.) It was very unlikely that either households would have large negative savings rates, especially as the baby boom cohorts were approaching retirement. And, it was also very unlikely that there would be an enormous investment boom even as the country was sending much of its manufacturing sector overseas.

Therefore, it was easy to predict that we would not see the surpluses that were projected at the end of the Clinton years. Unfortunately, economists never suffer any career consequences for being completely wrong. Therefore most still have not learned the basic national income accounting that is taught in every introductory class.

While the Country Slept: Financial Industry Profits Go Through the Roof Print
Saturday, 30 July 2011 07:54

Okay, the country wasn't exactly sleeping, it was watching the Boehner-Tea Party charade about whether we should default on the national debt. While this process captivated the nation, the Commerce Department released new data on GDP. The pathetic second quarter GDP number, combined with the sharp downward revision to the first quarter got some attention. The 0.8 average growth rate over the first half of the year is well below the 2.5 percent rate needed to keep even with the rate of growth of the labor force. This means that rather than making up ground lost in the recession, we are actually going the wrong way. The economy is falling further below its potential and unemployment is likely to continue to rise.

While this situation got some attention in the news reports, all the accounts I saw completely missed the upward revision to profits. The revised data showed sharply higher profits for both 2009 and 2010. In fact, in the revised data, profits accounted for 23.8 percent of income in the domestic corporate sector in 2010. This is more than a full percentage above the previous peak. Within the corporate sector, the financial industry is the big winner, accounting for 31.7 percent of corporate profits in 2010. This movement in profits is no doubt attributable to all the regulations and taxes imposed by President Obama.

Anyhow, you didn't hear about this from the media because they had to present you with the latest from Tea Party gang, but there are some people who do actually look at economic data.

Robert Samuelson Redefines "Wealthy" Print
Friday, 29 July 2011 16:27

The Washington Post once ran a front page piece questioning whether people who earned $250,000 a year, President Obama's cutoff for his no tax hike pledge, were really rich. However, it also features Robert Samuelson on its opinion page telling readers that seniors with income of $30,000 a year are wealthy. I'm not kidding.

In a piece titled "Why Are We In This Debt Fix? It's the elderly stupid," Samuelson tells readers:

"some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more."

Let's see, we have retirees who have their Social Security checks, plus a stash of $207,000. If someone at age 62 were to take that $207,000 and buy an annuity this money would get them about $15,000 a year. Add in $14,000 from Social Security and they are living the good life on $29,000 a year. And remember, 75 percent of the elderly have less than this.

To be fair, many of the people with $207,000 in savings will be older than 62 so their money will go further, but it is hard to believe that anyone can think of this as a cutoff for being wealthy, or at least anyone other than Robert Samuelson and his colleagues at the Washington Post.

It's Stupid to Talk About Demography When Countries Suffer from Inadequate Demand Print
Friday, 29 July 2011 05:17

The NYT told us "it's the demography stupid" as the explanation for the economic crisis afflicting the United States and the world. This piece is truly remarkable for its ability to confuse just about every basic economic fact relevant to the crisis.

The fundamental problem facing the U.S. and European economies is the lack of sufficient demand to fully employ their workers and their productive capacity. There are few economists who dispute that if there were more demand, there would be more employment and output.

The key feature of the "demography stupid" story is that the ratio of the elderly to the working population is too high. This means that workers do not have much left in wages for themselves after the taxes or capital earnings of the elderly are pulled out of the economy.

Of course this is 180 degrees at odd with the problem the U.S. and European economies face. If the elderly suddenly went on a huge buying binge it would create millions of jobs for younger workers. In the current economic situation the young would be better off if the elderly either had more money or there were more elderly spending money.

The article also seems oblivious to productivity growth which is by far the most important factor determining living standards. Increases in productivity, which have averaged more than 2.0 percent annually in the United States over the last 15 years, swamp the impact of changing demographics. This is the reason why the United States has been able to have substantial increases in living standards even as it has experienced a continual rise in the ratio of retirees to workers (although this has been partially offset by declines in the ratio of children to workers).

The failure to understand productivity growth also leads to the bizarre claim that China faces a problem because of its slow growing population. China has been experiencing productivity growth in excess of 7 percent annually. At this rate output per worker will nearly quadruple after 20 years.

With this pace of productivity growth, if workers were taxed to the extent necessary to provide retirees with incomes equal to 70 percent of the before-tax wage of the average worker, after-tax wages could still quintuple over 30 years even if the ratio of workers to retirees dropped from 5 to 2 over this period. This is a much faster drop in the ratio than any country has ever experienced. People writing on economic issues for the NYT should know about productivity growth.

This piece also seems to have little understanding of the impact of population growth on living standards. People who have heard of global warming recognize that larger populations will make it more difficult to limit greenhouse gas emissions. Countries that have lower population growth, or even negative population growth, will find it easier to hit emission targets than countries with rapidly growing populations.

Lower population growth also contributes to well-being in ways that are often not accurately measured in national income data. For example, public transportation and recreational facilities are likely to be less crowded. We know that people are willing to pay more for less crowded planes, trains, buses, or beaches, however this quality improvement is not picked up in most price indexes.

Finally, it is striking that the piece relies on former Treasury Secretary and top Citigroup executive Robert Rubin as an authority on this issue. Mr. Rubin is best known for putting the U.S. on a high dollar path that led to the enormous trade deficit and the huge economic imbalances that eventually crashed the economy. He also pushed for the deregulation of the financial industry, which helped to facilitate the financial crisis. As a top executive of Citigroup he personally pocketed over $100 million dollars as the bank plunged into insolvency, eventually requiring multiple bailouts from taxpayers. This is not the sort of person who would usually be presented as an authority.

It's a Debt Ceiling Crisis, Not a Debt Crisis Print
Friday, 29 July 2011 04:45

The NYT headlined a section that gave some facts on the size of the debt, its holders, and the reaching of the debt ceiling, "Charting the American Debt Crisis." Actually, there is no debt crisis. Investors were willing to lend the U.S. government trillions of dollars at very low interest rates. There is no evidence that this was about to change any time soon. The United States and other countries have had much higher debt burdens and still faced no problem borrowing.

The problems at the moment stem from the refusal of Congress to raise the debt ceiling. This would be like a family where one member burned the check book (assuming no Internet banking). The problem is arranging to get new checks, not that there is no money in the account. The NYT should be able to keep this straight.

New York Times Puts Another Anti-Social Security Editorial In the News Section Print
Friday, 29 July 2011 04:10

The NYT again complained in its news section that Congress did not make cuts to Social Security, Medicare, and Medicaid, telling readers that the debt reduction plans under consideration "defer tough decisions." (Here's the previous editorial.) It then turns to Robert Bixby, the executive director of the Peter Peterson-funded Concord Coalition, to tell readers that the real budget problems are the entitlement programs, Medicare, Medicaid, and Social Security.

Of course the reality is that Social Security is projected to be fully solvent for the next quarter century with no changes whatsoever. Even after that date the trustees' projections show that it will be able to pay almost 80 percent of benefits indefinitely.

Medicare and Medicaid show much more rapid cost growth, however the problem with these programs is the projected growth of private sector health care costs. The United States already pays more than twice as much per person for health care as other wealthy countries. This gap is projected to grow in the decades ahead. If the health care system is not fixed it will have a devastating impact on the economy regardless of what is done with the public sector health care program. By contrast, if we fix our health care system, then there is no long-run deficit problem.

Does Everyone Know How Much $2.2 Trillion Is Over the Next Decade? Print
Thursday, 28 July 2011 05:10

It seems unlikely that many people, even among the relatively well-educated readers of the New York Times and Washington Post, have much clue as to how much money is at stake in the battle over the debt ceiling. As some points of reference, the government is projected to spend roughly $46 trillion over the next decade. This means that $2.2 trillion in cuts would be around 4.8 percent of projected spending.

However, the impact is likely to be much larger on specific portions of the budget. If Social Security, Medicare, and Medicaid are left off the table, and most of the cuts come from the discretionary portion of the budget (which includes most government investment in infrastructure, education and research), then $2.2 trillion in cuts would come to 15.2 percent of projected spending. There is also the question of the division of the cuts between domestic discretionary spending and military spending. In the extreme case where all the cuts came from the domestic side of the budget, the cuts would be 32.8 percent of projected spending.

Finally, it is worth asking how large these proposed cuts are relative to the size of the economy. GDP is projected to be almost $200 trillion over the next decade. This means that if the government could raise taxes by an amount equal to 1.1 percent of projected income it would raise enough money to the spending cuts being debated by Congress.

Tell NPR, It's a Debt Ceiling Crisis, Not a Debt Crisis Print
Thursday, 28 July 2011 04:29

NPR misrepresented the nature of the crisis in a comment introducing a Morning Edition segment on the pending default of Jefferson County, Alabama. It referred to the country suffering a debt crisis. This is not accurate.

The problem is one of Congress refusing to raise the debt ceiling. This would be comparable to someone losing their checkbook even if they had still had $20,000 in their account. They may face a problem getting money out of their account until they get more checks (or learn on-line banking), but there is no problem of a lack of a funds.

The United States will be in a comparable situation after August 2. No one thinks that it would have problems getting the money needed to pay its bills by borrowing in financial markets. The only problem is that Congress will have denied the government the legal authority to pay its bills.

Mulligan’s Tale for Older Workers Is Easily Explained by Shifts in Relative Demand Print
Wednesday, 27 July 2011 07:23

I’m glad to see that Casey Mulligan responded to my earlier post responding to his argument that the rise in employment among seniors indicates that the overall drop in overall employment is explained by supply factors, not demand factors.  I countered by pointing out that if this were true, then we would expect that there was decline in earnings for seniors relative to earnings for other workers. The data show the opposite, median weekly earnings for seniors actually rose somewhat more rapidly than for prime age workers (ages 25-44).

Mulligan counters by arguing that if it was a demand shift then it is difficult to explain the fact that the unemployment rate for seniors rose during the recession, albeit not as rapidly as for the population as a whole.

There are two problems with Mulligan’s analysis. First, there need be only a relative demand shift, not an absolute increase in demand to explain the events we are seeing. The idea is that employers are quicker to lay off newer employees, who tend to be younger, and to hold on to older employees. This may be both because they are more experienced and also simply due to institutional factors that lead employers to encourage loyalty.

An analogous situation can be seen with employment patterns among college grads. As can be seen, there has been some increase in employment among college grads since the recession began.


Source: Bureau of Labor Statistics.


However, note also that there unemployment rate has risen, as is the case with older workers.


Source: Bureau of Labor Statistics.

This can easily be explained by a shift in relative demand, where less educated workers are laid off before college educated workers.

The other part of this story for both college educated workers and older workers is that there is a supply issue. There has been a long-term trend of rising employment rates among workers over age 55. Part of this is attributable to the fact that these workers are increasingly educated and are likely to have jobs where they are able and willing to work later in life. And part of the increase is undoubtedly attributable to fact that these workers are less likely to have pensions and retiree health care benefits than in past decades and therefore need to work to pay the bills.

The issue here is what do employment patterns look like relative to the trend. Here it is clear that there has been a falloff in the rate of employment growth. If employment of people over age 55 had stayed on its 2002-2007 trend, it would be about 400,000 higher today. This dropoff is approximately 2.7 percent of current employment among this group.



Source: Bureau of Labor Statistics.

This is consistent with the story that a senior workforce that is more highly educated and more committed to the labor market than was the case in prior years is having trouble finding jobs just like the rest of population. It sure looks like demand to me.

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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.