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There is No Evidence for the "Structural Unemployment" Story Print
Monday, 20 September 2010 04:57

There is an effort by many of the economists who could not see the $8 trillion housing bubble that wrecked the economy to say that there is nothing that we can do about the damage because unemployment is structural, not cyclical. This means that the problem is that workers have the wrong skills for the jobs that are available or are in the wrong location. If this is the case, then the problem is not insufficient demand, the problem is with the workers who are unemployed. (Yes, this is another "blame the workers" story.)

The NYT lent space to Narayana R. Kocherlakota, president of the Minneapolis Fed, to present this argument. Mr. Kocherlakota referred to statistics showing a large number of job openings.

Actually, the statistics do not show that the number of job openings is anywhere close to the number of unemployed workers. The most recent data show the number of openings at just over 3 million, a bit more than 1 opening for every 5 unemployed workers. This is still down by more than one-third from pre-recession levels.

It is also worth noting that we don't see evidence of the other factors that would be consistent with growing structural unemployment. This mismatch story would imply that there are sectors of the economy in which wages are rising rapidly and average hours per worker are increasing, as employers increase hours due to their inability to find qualified workers. There is no major sector of the economy that fits this description.


[Addendum: the original mistakenly said "one opening for every unemployed worker," rather than one opening for every five unemployed workers. Thanks to Tom for catching this.]

 
Robert Samuelson Is Worried About 12,000 Jobs in the Gulf Oil Industry? Print
Monday, 20 September 2010 04:37

Robert Samuelson is apparently very worried about the loss of "up to 12,000" jobs due to President Obama's temporary moratorium on oil drilling in the Gulf. For context, this job loss is less than 0.01 percent of total employment. It is a bit more than a typical day's job growth in the years 1996-2000.

Samuelson is also concerned about President Obama's plan to allow President Bush's tax cut for the wealthy to expire. He cites figures from Mark Zandi, that the wealthiest 2 percent of the population "represent almost a quarter of all consumer spending" (italics in original).

While it is true that the richest 2 percent impose a hugely disproportionate strain on the economy's resources, the relevant issue is their marginal propensity to consume. All studies, including those by Zandi, show that the marginal propensity of the rich to consume is very low. In other words, if we give Bill Gates another $20 million in tax breaks, it is unlikely to affect his consumption to any significant extent. 

Samuelson also points out that many small business owners will be affected by the end of the Bush tax cuts. The vast majority of the small business owners who are affected will see a trivial increase in their tax bill. The Joint Tax Committee of Congress projected that the average tax hit on tax filers with incomes between $200,000 and $500,000 (the vast majority of the affected small businesses) would see an increase in their taxes of just $500. This is unlikely to have much impact on their hiring and growth. It is also worth noting that the higher Clinton era tax rates were in place in the late 90s when the economy was generating more than 8,000 jobs a day.

 
What Does a "Stabilized" Housing Market Mean to the Washington Post? Print
Monday, 20 September 2010 04:29

The Washington Post told readers that this week's reports on home sales are expected to show increases which it describes as "a sign the U.S. real estate market is stabilizing." It's not clear what the Post means by stabilizing.

While the number of homes being sold each month is likely to remain reasonably even in the months ahead, prices are likely to resume their fall. They still have another 15-20 percent to drop in order for the bubble to fully deflate and prices to return to their long-term trend.

It would be helpful if the Post did not rely exclusively on experts who completely missed the $8 trillion housing bubble. During the years the bubble was expanding the Post's main source on the housing market was David Lereah, the chief economist of the National Association of Realtors, and the author of Why the Housing Boom Will Not Bust and How You Can Profit from It.

 
The U.S. Can Unilaterally Lower the Value of the Dollar Print
Saturday, 18 September 2010 22:43

The NYT had a useful piece on the exchange rate between the Chinese yuan and the U.S. dollar, however it ignored the fact that the United States does not have to ask China to raise the value of its currency. The United States could unilaterally set a lower value for the dollar against the yuan.

For example, it could announce that it would exchange dollars at the rate of 5 yuan to a dollar beginning at some date in the future. While it is illegal for Chinese firms and individuals to take large amounts of currency out of the country, it is likely that many would be able to evade the law for this sort of profit.

If the U.S. were to offer this exchange rate, it is likely that it would quickly become the effective exchange rate. More importantly, if the United States made clear to China that it was prepared to go this route, then it is likely that China would negotiate a path toward a lower valued dollar.

 
Does the NYT Allow Its Reporters to Talk About Drug Patents? Print
Saturday, 18 September 2010 22:26

Readers of an article on clinical trials for a new melanoma drug might think that the NYT prohibits such discussion. The gist of the NYT article is that some people may end up dying because they were selected for the control group rather than the treatment group for an effective drug.

A more serious article would have explored the comment buried in the middle of the article:

"The surest way to get the F.D.A.’s endorsement for a broader market was a controlled trial. And with its competitors rushing to get similar drugs to market, the findings of such a trial might give Roche an advantage in marketing its version as the only one proven to prolong survival."

This is an incredible statement that largely negates the point of the article. Is the purpose of the clinical test to get Roche more profit or is to find out more information about the effectiveness of a drug? Readers do not know.

Suppose that all drug test results were fully public and the patents were placed in the public domain. Would the same issues still exist?

Readers of this article have no idea as to whether the clinical test in question is being done for purely competitive reasons or whether it is necessary to determine the effectiveness of a specific treatment. A serious piece would make this issue clear. Unfortunately, this piece seeks to exploit the tragedy of a young man's death for no obvious purpose whatsoever.

 
Inflation Can Be Good: Washington Post Gets One Right! Print
Saturday, 18 September 2010 08:33

The Washington Post ran an article with the headline: "how a touch of inflation could boost the economy." Give them credit for finally getting something about the economy right.

Of course the article did not go so far as to mention the idea of the Fed deliberately targeting a higher inflation rate in the range of 3-4 percent. This policy has been advocated by such well-known radicals as Greg Mankiw, President Bush's former top economic advisor, Olivier Blanchard, the chief economist at the IMF, and Federal Reserve Board Chairman Ben Bernanke.

 
Washington Post Does Not Understand How Currency Values Affect Trade Print
Saturday, 18 September 2010 08:17

For some reason the people at the Washington Post cannot figure out how currency values affect trade. This is the only conclusion that can be drawn from a front page article that reports on Germany's success, relative to the United States, in exporting to China.

The article does not once mention the relative values of the euro and the dollar in talking about the surge in Germany's exports. At the risk of boring those who have taken an intro econ class, the relationship is very simple and fundamental.

China must buy the currency of the exporting country in order to buy the goods that are being exported. If the foreign currency costs more (measured in yuan, the Chinese currency), then the export costs more. The dollar has risen by roughly 20 percent against the euro since the start of the crisis. This means that to people living in China, the goods exported from the United States have risen in cost by 20 percent relative to the price of goods exported from Germany. It would be comparable to a situation in which China slapped a tariff of 20 percent on all goods exported from the United States.

A serious discussion of Germany's relative success in exporting to China would mention this change in currency values, just as it would mention a 20 percent Chinese tariffs on imports from the United States, if one existed. While Germany has pursued other policies that have helped to support its manufacturing sector, these have not changed appreciably in the last three years and therefore cannot explain the recent surge in exports.

It is also worth noting that Germany's growth since the crisis has actually been slightly slower than that of the United States. The reason why its unemployment rate is lower than the rate in the United States (it has actually below its pre-recession level) is due to Germany's labor market policy. Its efforts to encourage firms to retain workers, including its promotion of worksharing, have been enormously successful in sustaining employment so that German workers have not suffered in the same way as U.S. workers from this downturn. (It is also worth noting that Germany's unemployment rate is 6.9 percent using the standardized methodology in place in the United States, not the 7.6 percent reported in this article.)

 
More Class Hatred at the Washington Post Print
Saturday, 18 September 2010 07:49

Most of the elite have contempt for the portion of the American population that does not have at least 6-figure incomes, however the Washington Post stands out in its willingness to express this contempt so openly. Back in the fall of 2008, when the government was crafting bailouts worth tens of millions of dollars to the likes of Robert Rubin, Lloyd Blankfein, and other well-connected Wall Street types, the Post was frothing at the idea that the government might help protect the jobs of autoworkers earning $27 an hour.

This contempt was fully visible again today when the Post ran an editorial complaining that UAW members who were employees of Delphi, GM's former auto parts division, would get their full pensions. By contrast, the editorial complained that Delphi's management personnel had their pension plan taken over by the Pension Benefit Guarantee Corporation (PBGC) and as a result would get just "pennies on the dollar."

We all know how infuriating it must be to the Post that ordinary working people might get pensions that can sustain a middle class living standard, but they are entitled to their class hatred. However the "pennies on the dollar" claim is more than a bit of a stretch. The PBGC guarantees a benefit of up to $4,500 a month for a worker retiring at age 65. That may be "pennies on the dollar" in Washington Post land, but it's more than most of the rest of us can expect to live on in retirement.

It's true that workers who retire at younger ages will likely take substantial hits on their pension, but this is more likely to be an issue for UAW members who do manual labor on the factory floor than the management personnel who hold desk jobs. The latter are certainly better positioned to work into their 60s than the former.

 
The Reagan-Bush Tax Cuts: What Reporters are Supposed to Do #4376 Print
Friday, 17 September 2010 15:59

Jay Bookman, at the Atlanta Journal Constitution did a very simple analysis of the benefits of Reagan-Bush style tax cuts. He compared the growth of investment and growth in the low-tax Reagan-Bush years with the higher tax Clinton years. Read the piece to see what it shows.

No, it's not conclusive. There were many factors other than tax rates at work. But, if the tax cuts really did have a big effect in boosting growth, they would counteract most of these other factors.

 
Another Washington Post Deficit Editorial in the News Section Print
Friday, 17 September 2010 08:48

The Washington Post had a page two article discussing the prospects for the renewal of the Bush tax cuts. In the middle of the piece it notes that many Democrats are supporting President Obama's plan to phase out the tax cuts for the wealthy, "given the gravity of the country's deficit problems."

The "gravity" of the country's deficit problems is the Post's invention, not something that either exists in the world or is attributed as an expressed concern by any of the actors discussed in the article. This sort of statement belongs on the opinion page, not in the news section.

 
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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.

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