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  


Really Big Numbers and Early Retirement in Germany Print
Tuesday, 01 July 2014 04:31

The NYT had an article about a plan to allow some workers in Germany to retire early and collect full benefits from their version of Social Security. According to the article, workers who have paid into the system for 45 years will be able to start collecting full benefits at age 63 instead of the standard age of 65. (This is being raised to 67, as is the case in the United States.)

While the piece provides interesting background about the economic and political context for this decision, it gives no context for the numbers in the piece, which will therefore be meaningless to the overwhelming majority of NYT readers. For example, it tells readers that 6,000 workers have already applied for early benefits and that 200,000 are projected to be eligible. It is unlikely that many readers have a good sense of how large these numbers are relative to Germany's workforce. (According to the OECD, employment in Germany is roughly 40 million. This means that the 6,000 current applicants amount to 0.015 percent of total employment. If all 200,000 eligible workers took advantage of early retirement it would be equal to 0.5 percent of total employment.)

The piece later tells readers:

"The costs of the early retirement, estimated to grow over the next decade to €3 billion from about €1 billion, or to $4.1 billion from $1.4 billion."

It is unlikely that many readers have much sense of how important 1 billion euros is to Germany's budget today or how important 3 billion euros will be a decade from now. Germany's current budget is roughly 1.3 trillion euros, which means that the cost of early retirement is roughly 0.08 percent of current spending. The projected 3 billion euro cost would be roughly 0.18 percent of projected spending.

It should have been a simple matter for the paper to put these numbers in a context that would make them understandable to readers, instead of just putting in numbers that will be almost meaningless to everyone who reads them. The paper's Public Editor Margaret Sullivan made this point herself last fall and apparently got agreement from the NYT editors. Yet, for some reason practices seem not to have changed.

This is getting almost like the Twilight Zone. We have a journalistic practice that everyone agrees is wrong, that is easy to change, but nonetheless persists. What is going on here?

 

Note: this piece was corrected to say "full benefits." Thanks DC Analyst.

 
The Case for Bashing Tony Blair Print
Tuesday, 01 July 2014 03:57

It seems that Matthew D'Ancona is upset that people are criticizing former Prime Minister Tony Blair, who is apparently making vast sums in a second career in the financial industry and on the speaking circuit. There are several points worth noting.

First, as is the case with Bill Clinton, his generational counterpart in the United States, the public certainly has good cause to be upset that Blair set the economy on a path of bubble driven growth, even if the bubble blew on the watch of his successor. The public also has the right to be furious that Blair, like President Bush in the United States, misled his country into war in Iraq.

Both of these factors should be enough to tarnish Blair's public standing well past his lifetime, but the immediate topic is the fortune that he is amassing in his career as a former Prime Minister. There are two issues here. First, it is difficult to avoid the perception that Blair, like Clinton and now former Treasury Secretary Timothy Geithner, are cashing in on the connections that they have made in their political careers. It seems more plausible that Blair and Geithner are attractive as employees in the financial industry because of who they know, as opposed to their business acumen. Also, the lavish speaking fees these people earn can be at least as much to curry favor as opposed to an immense desire to hear their wisdom.

But let's give Blair and Co. the benefit of the doubt and assume that there are no quid pro quos for the hundreds of millions being thrown their way. There is still a separate issue. Suppose that Tony Blair had spent his political career sounding more like Elizabeth Warren than Bill Clinton. Would the big bucks still be flowing in his direction?

My guess is that the answer is no. Blair, like Clinton and Geithner, is eligible to get incredibly wealthy in his second career because he has pursued policies that were hugely favorable to the financial industry. This is a serious problem.

If we give our political leaders credit for a tiny bit of foresight, they would recognize that they stand to become enormously wealthy if they pursue policies favorable to the financial sector and other big business interests. On the other hand, if they pursue more balanced policies they will just enjoy the retirement of a very well paid professional. D'Ancona wants us to believe that this fact could not possibly affect the policies they pursue while in office, and he is angry at those who might think otherwise.

 
Robert Samuelson Wants People to Be Unemployed: The Economics of the Economics of the Great Recession Print
Sunday, 29 June 2014 19:37

The basic story of the Great Recession is about as simple as they come. The economy was being driven by a housing bubble and the bubble burst. The combination of the loss of housing construction, due to the enormous overbuilding of the bubble years, and the loss of the consumption that had been driven by bubble generated housing wealth, created a gap in annual demand of more than $1 trillion. That's all simple and easy.

And what did economists think would fill that gap in demand, manna from heaven? Did they expect another building boom even when vacancy rates were at record highs? Better go study the basics of supply and demand. Did they expect investment to soar at a time of massive excess capacity? That one would not be supported by any studies of the determinants of investment I have seen. Would consumers just ignore the $8 trillion in housing wealth they saw vanish and spend just as though nothing had changed?

None of these sound remotely plausible, so what did economists think would fill a trillion dollar gap in annual spending? Of course the government could do it with more spending and/or tax cuts, but since we have a religious cult in Washington that says it is better to keep millions out of work than to run deficits, this was a political impossibility. (Of course we could have a lower valued dollar to reduce the trade deficit, but economists try to ignore the $500 billion trade deficit. That's another part of the cult.)

Anyhow, we have a simple story as to why we are facing a severe downturn. And of course it was simple to see the bubble. House prices had risen by more than 70 percent in real terms, breaking with a century long trend in which they had just kept pace with inflation. There clearly was nothing in the fundamentals to justify this sudden price surge. Income growth was weak as was population growth. And, there was no shortage of housing as indicated by both record vacancy rates and the fact that there was no increase in real rents.

In short, this is about as easy and simple as it gets and nearly every economist in the country completely blew it. For this the economics profession has enormous grounds for embarrassment. It's sort of like the fire department that rushes to the burning school building and watches in horror as it goes up in flames because they had forgotten to turn on the fire hydrant. No one would want to own up to that mistake. Nor are economists anxious to own up to the horrible economic disaster that happened because they were utterly clueless about basic economics.

Read more...

 

 
The Post Has Problems With Its Scorecard in Assessing State Enrollment in the ACA Print
Sunday, 29 June 2014 15:32

The Washington Post did an assessment of which states had the largest share of their eligible population enroll in the exchanges and which states were least successful. California topped the charts with 42 percent of the eligible population followed by Vermont. Picking up the rear was Hawaii, where it tells us less than 15 percent of the eligible population enrolled.

There is a big problem with the Post's scorecard. The states didn't start in the same place. In last place Hawaii only 8 percent of its population was uninsured. By contrast, in California 19 percent of its population was uninsured. This means that even with the differences in ACA enrollment Hawaii likely still have a higher insurance rate than California.

While the piece notes Hawaii's problems in setting up its exchange, it is also the case that as the share of the population who is uninsured gets lower, it becomes more difficult to enroll the people who remain uninsured. These people are likely resistant to signing up for insurance or have difficulties navigating bureaucracies. Therefore it should not be surprising that Hawaii did not do well on this measure.

The piece also highlights enrollments of people 18-32. While there had been much hype around enrolling "young invincibles," as Kaiser has shown the difference in premiums largely reflects the differences in health care costs. It really doesn't matter much for the finances of the program how many young people enroll, although it is good to see them getting insurance.

 
Problems With Measuring Health Care in GDP Didn't Begin With Obamacare Print
Saturday, 28 June 2014 08:02

Neil Irwin's Upshot column rightly points to the fact that Obamacare may have an ambiguous effect on the economy over the next few years. The point is that we want to slow health care cost growth, but in a weak economy less spending on health care means lower GDP and fewer jobs.

This is true, but this is part of a larger story. Since the economy is operating well below its potential and millions of workers are unemployed or underemployed, anything that creates demand would boost GDP. This is the old pay people to dig holes and fill them up again story. We could do that and increase employment and output. Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil's work. Anyhow, the health care story should be seen as part of the larger stimulus/deficit story.

The other point is that we have always had problems measuring health care. Suppose Pfizer develops a great new drug called "Placebo" that is supposed to cure depression. It sells $170 billion worth of this drug in 2014. This would be an addition to GDP of approximately 1.0 percentage point. Now suppose that a whistle-blower reveals Pfizer's secret test results that show Placebo doesn't do anything. Sales plunge to zero in 2015. GDP has just fallen by 1.0 percentage point. 

Much of health care spending has this character. We value our health, but we measure what we pay for. If we are healthier because of better diet and more exercise, and therefore spend less on heart related drugs and procedures, this counts as a drop in GDP. And many procedures and drugs really don't improve our health, just like Pfizer's Placebo drug. So, there will be many issues associated with measuring the economic impact of Obamacare, but it is wrong to imagine that we didn't previously have problems measuring the output of the health care sector.

 
Faulty Labor Economics at the NYT Print
Saturday, 28 June 2014 07:45

Kevin Carey has an interesting piece in the NYT's Upshot section which notes evidence that U.S. college grads seem to perform markedly worse on standardized exams than their counterparts in other countries. While this discussion is interesting his conclusion is completely wrong.

He concludes by telling readers:

"This reality should worry anyone who believes — as many economists do — that America’s long-term prosperity rests in substantial part on its store of human capital. The relatively high pay of American workers will start to erode as more jobs are exposed to harsh competition in global labor markets. It will be increasingly dangerous to believe that only our K-12 schools have serious problems."

Actually economists would believe the exact opposite of what he asserts. If college graduates in other countries are better educated than our college graduates, and therefore more productive, then this will make us richer as a country. We will be made richer by the fact that we can get the goods and services they produce at a lower cost than would be the case if their college graduates were less educated than ours. This is good news in standard trade models.

Of course the implication is that college grads in other countries will be wealthier than college grads in the United States, but we are made better off, not worse off, by the fact that other countries have well-educated college grads. An editor at the NYT should have caught such a basic mistake.

 

Note: I see from comments that many are convinced that higher productivity elsewhere makes us poorer. This should not in general be true. Whatever we purchase from abroad is almost by definition better or cheaper, or we wouldn't be buying it. That makes us richer. There is the issue of unemployment created by increased imports. In the standard model (which most economists adhere to far more religiously than I do), the rise in imports should lead to downward pressure on the dollar, which will lead us to export more and import less of other goods and services. That will bring us back to full employment.

There is a distributional issue, the people displaced will make less than they had previously while everyone else will in principle earn more. Note that this displacement goes the opposite direction of displacement in prior decades when trade was structured to put our manufacturing workers in direct competition with lower paid workers elsewhere. This tended to put downward pressure on less-educated workers, whereas implicitly we are seeing a story here where our college-educated workers may suffer in international competition.

It is also worth noting that nothing about this story can drive our wages to developing country levels. There are different ways we can tell this story, but perhaps the simplest is to point out that 80 percent of what we consume is produced here. The fact that we can get some items at very low cost due to cheap labor in the developing world is not going to lower productivity for the portion of our economy responsible for this 80 percent of our consumption. Unless you have a story about redistribution from wages to profits that is about 10 times as large as what we have actually seen there is no way that we would see developing country wages.

 
What Sort of Loans Does the NYT Expect Investment Banks to Be Securitizing? Print
Friday, 27 June 2014 05:23

That's the obvious question that readers should be asking after seeing the paragraph at the end of an article on the Treasury Department's plan to help low income people stay and/or become homeowners:

"The Treasury had promised that Mr. Lew would address the expansion of credit to potential home buyers, millions of whom are unable to get a mortgage with today’s tight standards. No new programs were offered, though Mr. Lew said the Treasury was working to jump-start the all-but-vanished market for private mortgage-backed securities, which would help lenders grow more confident and make more loans."

The clear implication is that lenders would be making loans that don't meet the standards of Fannie Mae or Freddie Mac, but would be packaged into mortgage-backed securities by private issuers. Some folks may be old enough to remember the last time we saw something like this.

 
Trillions of Dollars to Help the Poor? Print
Friday, 27 June 2014 05:11

The NYT had an interesting piece on the persistence of poverty in eastern Kentucky and rural areas more generally. However the piece is seriously misleading when it refers to "the trillions of dollars spent to improve the state of the poor in the United States and promote development." This comment would likely lead readers to believe that we are spending large amounts of money on anti-poverty programs. That is a very questionable claim.

Current spending on TANF, the main federal anti-poverty program is $17.4 billion, less than 0.5 percent of the federal budget. The budget for food stamps, which do not go exclusively to the poor, is around $75 billion or a bit less than 2.0 percent of federal spending. Other anti-poverty programs account for a considerably smaller share of federal spending.

In prior decades anti-poverty programs accounted for a larger share of the budget, but it is misleading to imply that they have ever been a major drain on the public's tax dollar. Anti-poverty programs have always been dwarfed by spending on the military and social insurance programs like Social Security (which does have an enormous impact on poverty).

 

 
NYT Says the European Union Tortured Greece Print
Friday, 27 June 2014 04:41

My mistake, it actually began an article on Jean-Claude Juncker, the likely next president of the European Commission, by referring to the "rescue" of Greece. This seems a rather dubious characterization of an economic program that caused a plunge in Greece's GDP of more than 20 percent and pushed its unemployment rate above 25 percent. Greece would almost certainly have fared much better if it had defaulted on its debt, abandoned the euro, and re-established its own currency. In any case, it is no more appropriate to describe the economic plan that the European Commission imposed on Greece as a "rescue" than as "torture." The NYT would never use the latter term in a news story. It shouldn't use the former term either. 

 
The Drop In Health Care Spending in First Quarter Followed Surge in Fourth Quarter of 2013 Print
Thursday, 26 June 2014 04:49

The NYT noted that a sharp drop in health care spending reduced the first quarter growth rate by 0.16 percentage points. It is important to recognize that this drop followed a surge in health care spending reported for the fourth quarter of 2013 that added 0.62 percentage points to growth in quarter. That compares to an average of 0.28 percentage points for the prior four quarters. It is likely that the data overstated the actual increase in spending in the fourth quarter and therefore also overstated the drop in the first quarter. The average impact of health care spending on growth for the two quarters taken together is almost the same as over the prior four quarters.

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

Page 5 of 377

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