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$29,100 a Year Is the Good Life? Print
Sunday, 05 October 2014 07:24

Kevin Carey had a good piece in Upshot on the college programs training people as "medical assistant." The point of the piece is that the market for people with this training is saturated, so that most of the people coming out of these programs are not able to find full-time work. It notes that almost a third of the students who graduated the program in one school ended up defaulting on their loans.

The blame here clearly rests with schools that are deceptive about the job prospects of graduates. This is especially the case with the for-profit colleges that thrive off government loans and then leave students and taxpayers with the bill.

However the part that many may find disturbing is that the ostensible pot of gold here is the median annual wage currently earned by medical assistants is just $29,100. While Carey's point is that most new grads can't hope to earn anything like this sum, earning $29,100 hardly seems like hitting the jackpot. If this is based on a full-time full-year job it comes to roughly $14.50 an hour. If the minimum wage had kept pace with productivity growth over the last 45 years it would be around $17 an hour. 

Carey is right that the government should crack down on colleges that rip off both students and taxpayers, but it speaks volumes about the current state of the labor market that a job paying $14.50 an hour is something that young people would aspire to get. 

In Washington Policy Circles the Trade Deficit Is Like Sex Used to Be, No One Is Supposed to Talk About It Print
Saturday, 04 October 2014 07:14

That is perhaps an unfair headline for a comment on a generally interesting and useful piece on the sources of future job growth by Jim Tankersley, but the general pattern of reporting in the Post and elsewhere seems to demand it. Tankersley's piece is asking what we should expect to be the drivers of job growth in the decade ahead. He notes that in the past increased consumption had been the main driver of growth. The piece argues that the consumption share of GDP is unlikely to rise further in the future (safe bet), but then says that the changing composition of consumption may be a force driving job growth. Specifically, a turn away from purchases of goods, many of which are imported, to services like education and health care may mean that more people are employed in the United States.

The essential part missing from this discussion is any mention of the trade deficit. One of the reasons that consumption grew so rapidly in the prior twenty years was that the United States had a large trade deficit. This was in turn made possible by an over-valued dollar, which was the result of explicit government policy both here (Robert Rubin touted his "high dollar" policy) and abroad (think of countries like China buying up hundreds of billions of U.S. government bonds).

For those who never had any economics or are in high level policy positions, an over-valued dollar has an enormous effect on the balance of trade. If the dollar is over-valued by 20 percent it has roughly the same impact as imposing a 20 percent tariff on all U.S. exports and providing a 20 percent subsidy on imports. There is nothing in policymakers' bag of tricks that can come close to having the same impact on trade as a reduction in the value of the dollar. Anyone who argues otherwise (think of people pushing the TPP or TTIP) are either showing their ignorance or not telling the truth.

Furthermore, the trade deficit is the main reason the economy is below its potential and we are not at full employment. We currently have a trade deficit of more than 3 percent of GDP (@ $520 billion a year). This is money people in the United States are spending that is creating demand in other countries, not in the United States. That creates a huge gap in demand. If we count the multiplier effects, it would come to around 4.5 percent of GDP ($780 billion a year), which would translate into more than 6 million jobs. This gap can be filled with more government spending, more investment, or bubble driven housing construction, but as a practical matter it is not easy to raise these other components of demand. (The obstacle to increased government spending is political not economic.)

This is all basic national income accounting. In other words, it is definitional, it can't be wrong. The only problem is that people don't understand it. And it seems that many of the people who don't understand it are in policymaking positions.

WaPo Complains About Budget Ignorance, But Doesn't Take Any Responsibility Print
Friday, 03 October 2014 17:09

Christopher Ingraham had a piece in the Post's Wonkblog in which he reports on a Pew poll showing the public has no idea where their tax dollars are going. The poll found that one third of respondents thought foreign aid was the biggest item in the budget. In fact, it accounts for less than one percent of spending.

While we can decry the ignorance of the American people, the media deserves much of the blame in the same way that teachers are held responsible for the poor performance of their students. (Actually, there is a far better case against the media.) News outlets like the Post routinely report on budget items in millions and billions of dollars. Often the sums refer to multi-year expenditures, sometimes not even making the time period covered clear to readers.

For the vast majority of readers these numbers are completely meaningless. Even well-educated people have no idea what it means when they see that we are going to spend $190 billion on transportation over the next six years.

The media could be far more informative in their reporting if they made a point of putting these numbers in some context, most obviously expressing them as a share of the total budget. Most people would understand what it meant if an article said that we were spending 1.0 percent of the budget on transportation over the next six years.

In effect, the Post is the bad teacher making fun of their student for not knowing anything. It ain't pretty.

The Unrepentant Inflation Hawks and Obamacare Foes Print
Friday, 03 October 2014 04:21

Bloomberg News did a thing of simple and rare beauty. It went to the 23 economists who signed a letter to Fed Chair Ben Bernanke in November of 2010 warning of inflation and other dire consequences from its policy of quantitative easing. It urged him to reverse course.

In fact, not only did Bernanke not reverse course, he doubled down with two subsequent rounds of quantitative easing. And four years later the inflation rate is still below the Fed's 2.0 percent target. So Bloomberg decided to ask the 23 signers whether they had been mistaken. While most of the signers declined to comment, the ten who did all insisted that they had been right. Obviously these folks have no intention of letting reality influence their views about the world.

I was reminded of this issue when I read Michael Gerson's column on the need of low-income children for attention from adults who care. Gerson notes that most low-income parents are overwhelmed with the struggles of making ends meet and it's not reasonable to expect more from them.

While Gerson's realism on this point should be appreciated, there has been an important change in this area that deserves attention. There has been a sharp increase in the percentage of young parents who voluntarily work part-time. The obvious explanation is the availability of insurance through Obamacare. These parents can now either get insurance through the exchanges or the expansion of Medicaid.

Now that parents don't need to work full-time to get insurance many appear to be choosing to work part-time so they can spend more time with their kids. That would seem to be good news from almost anyone's perspective. After all, as Gerson reminds us, it isn't just liberals who think that it's a good thing that parents have the time to look after their kids. 

So now that we are getting evidence that Obamacare is not just extending insurance coverage and helping to contain health care costs, but also making it easier for parents to balance the demands of work and family, will we see the opponents changing their minds?


Note: Typo in headline corrected, thanks L.ol.

"Drill, Baby, Drill" The Slogan for Uber and the Sharing Economy? Print
Friday, 03 October 2014 03:49

In her Washington Post column Catherine Rampell raises an obvious but generally neglected point in discussions of Uber and Lyft. Many cities strictly regulate the number of taxis on the road with a medallion system. The cost of these medallions, which license someone to operate a taxi, typically run into the hundreds of thousands of dollars. Economists are prone to see this system as a form of protectionism, which is designed to increase the profits of the cab companies and perhaps to raise the wages of drivers. 

This view is correct, however it doesn't follow that we should necessarily want as many cabs on the road as possible. As I noted earlier this week, we may want to ensure that drivers can at least earn the minimum wage, which likely would involve some restriction on supply. 

However there also is a very important environmental issue. The more cabs we have sitting around waiting for passengers, or worse driving through the streets, the more will be the emissions of greenhouse gases (GHG). The effect will amplified by the fact that cabs will add to congestion, slowing down traffic and causing other cars to emit more GHG. Also, as Rampell notes, lower cost and more readily available cabs will encourage people to use taxis instead of taking public transit, walking, or riding a bike.

These externalities can be addressed with appropriate carbon taxes and subsidies for public transportation, but we don't have appropriate carbon taxes and subsidies for public transportation, nor are we likely to have them for the foreseeable future. Therefore, regulation of taxi services like Uber needs to take these externalities into account.

Failing to take these externalities into account is just bad economics, no matter how many prominent economists say otherwise.


More on Corporate Taxes Print
Thursday, 02 October 2014 04:59

Eduardo Porter has a good piece discussing the increasing problem of the evasion of corporate income taxes. At one point he notes that some people have called for eliminating the corporate income tax altogether and making up the lost revenue with higher taxes on the wealthy. 

Porter dismisses this idea by saying that it would be politically difficult to raise taxes on wealthy individuals by enough to make up the lost revenue. He then adds:

"Mr. Saint-Amans [the head of the OECD's Center for Tax Policy and Administration] said he feared that without the corporate income tax, income taxation would fall apart entirely as the wealthy could avoid taxation by becoming companies, inserting several corporate layers between themselves and their money."

This problem should be reasonably manageable. If there was some minimal annual fee that companies paid for tax exempt status (I had previously suggested $1 million but $250k might be sufficient), very few people would find it profitable to engage in such tax gaming. This should make it relatively easy for the I.R.S. to investigate the companies that file for this status and ensure that they are real companies and not just tax scams. The problem would not be qualitatively different than what the I.R.S. faces now with 501(c) tax exempt organizations.

This would also likely have minimal impact on real businesses. The small businesses that might not find this worthwhile likely would not be owned by people in top tax brackets anyhow, or alternatively have few profits to show in their first years. Many of these businesses are not now incorporated, so little would change in their situation. The point is that a real business of any size would have no problem paying this fee without impairing its operations.

The issue about the politics of raising individual tax rates is real, but it should be possible to design a system that would minimize the opportunities for gaming of the sort described here.

Krugman Too Generous to Germany: Wages Didn't Fall Print
Thursday, 02 October 2014 04:23

Paul Krugman had a short blogpost in which he criticizes Hans-Werner Sinn, the head of a prominent German think tank, for insisting that the southern European countries have to go through deflation in order to restore competitiveness, rather than Germany having somewhat higher inflation. Sinn effectively says that these countries must do what Germany did in the last decade.

Krugman then links to a post which shows that Germany, along with Japan, were the only countries in the OECD to see declining labor costs in the last decade, meaning that this is not easily accomplished. However there is a further point at issue. Germany had falling labor costs not because wages actually fell, but because they did not rise as fast as productivity growth. Germany could sustain healthy rates of productivity growth because the euro zone economy was growing at a healthy pace, driven by the booms in the peripheral countries.

While this boom both raised relative prices in the rest of the euro zone, thereby increasing Germany's competitiveness and creating a rapidly growing market, Germany is determined not to repeat the favor. The slow growth and high unemployment environment in which the peripheral countries find themselves is not conducive to investment and productivity growth. Productivity growth has been extremely weak across most of the OECD, in part due to weaker investment and in part due to the fact that many unemployed workers find themselves forced to take jobs in low productivity sectors (e.g. restaurants and retail).

With very low productivity growth, the only way the peripheral countries can gain competitiveness is to have actual wage declines, something that Germany did not do in the last decade. So Krugman is far too generous in implying that Sinn wants the peripheral countries to follow the example of a lone outlier. He is demanding they do something far more difficult and painful than what Germany did in the last decade.

Economists and Uber Print
Wednesday, 01 October 2014 04:22

Justin Wolfers tells us that economists are unanimous in supporting Uber and Lyft in a NYT piece this morning. He notes a survey of prominent economists which found that 100 percent either agreed or strongly agreed with the proposition:

"Letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare."

This seems like a proposition that it would be difficult to disagree with, albeit with a few caveats. First, I suspect that many economists would want to see some guarantees about handicap access including in the "equal footing" standard. Most cities require that taxi companies have some number of cabs that are handicap accessible. Uber and Lyft make no commitment to serve the handicapped.

Some economists might also like to see some rules on labor conditions applied to Uber and Lyft. For example, should their drivers be able to organize unions like employees? Also, should there be a guarantee that drivers earn at least the minimum wage after covering expenses? It seems rather foolish to have minimum wage laws if companies can just evade them by setting up their employees as independent contractors. (Some folks may claim that Uber and Lyft can't control what their drivers actually earn, but with modern technology this is not really a difficult calculation. If these companies have problems, then perhaps they can be replaced with more computer literate competitors.)

Finally, it is important to realize that at this point Uber and Lyft are largely not subject to the same safety and insurance restrictions as traditional taxis. The latter may be too stringent, but I really doubt that any of these economists would oppose uniform standards.

One last point on the wisdom of economists: how many of these people saw the economic crash coming in 2008?


Note: Typos corrected, thanks Robert Salzberg.

Silly Budget Reporting Goes to France Print
Wednesday, 01 October 2014 04:03

Regular readers of BTP know that expressing budget numbers without context is a pet peeve of mine. The practice is infuriating since almost no readers have any knowledge of the size of the total budget, so they have no clue what it means to cut food stamps by $40 billion over a decade or to spend $180 billion on transportation over the next six years. This problem can be easily remedied expressing budget numbers as a percent of the total budget or as per person expenditures. This would make these numbers instantly understandable to most readers.

I have raised this with numerous reporters and the NYT public editor, Margaret Sullivan. No one has ever tried to claim that these context-less numbers are meaningful to more than a tiny minority of readers. Ms. Sullivan actually embraced the cause and even got then Washington editor David Leonhardt to agree. But nothing seems to have changed.

Today the NYT ran an Associated Press piece that begins:

"France's Socialist government has detailed a 21 billion-euro ($26.5 billion) cost-cutting plan, the deepest-ever spending cuts in the country's modern history."

It later tells us the plan calls for cutting 3.2 billion euros from health spending and 700 million euros from family benefits. So everyone know how important these cuts will be to the French people and economy?

The article is not clear that these are one year cuts, but assuming they are, the 21 billion euro cut would be 1.7 percent of projected spending in 2015. The cut to the health budget would be a bit less that 0.3 percent of spending and the cut to family benefits would be roughly 0.06 percent of total spending. It might be nice to know how large these cuts are relative to total spending in these areas, but that would involve more work than I am prepared to do at this hour. 

Abuses of Patent Monopolies #45,764: Drug Company Payments to Doctors Print
Wednesday, 01 October 2014 03:50

If the government imposed a tariff on imports so that companies could sell their products at prices far above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold. If the government imposes patent monopolies so that drug companies can sell their drugs at prices that are several thousand percent above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold.

Okay, maybe economists would not be that consistent, since they seem to be fond of drug companies. But the NYT tells us about $3.5 billion in payments that drug companies made over 5 months last year to 500,000 health care professionals. That comes to an average of $7,000 per person or $16,800 on annual basis. Do you still think you're getting the best drugs for your health?

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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.