CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press

Beat the Press

 facebook_logo  Subscribe by E-mail  

Overstating the Decline in Wage Share Print
Friday, 03 February 2012 06:49

An NYT Economix blognote overstated the effective decline in the labor share of national income over the last three decades by using gross national income rather than net national income. The note shares the labor compensation share declining by 4-5 percentage points over this period. 

However, the depreciation share of gross domestic product rose by roughly 2 percentage points over this period. If we assume that this increase came proportionately from the capital and labor share of income, then the rise in the depreciation share would lead to a 1.2 percentage point reduction in the labor compensation share of gross national income.

Much of the loss of income by ordinary workers has been due to increased pay of CEOs, doctors, and other highly paid workers. This is still included as part of labor income.

The Post Hopes for Job Loss in San Francisco, May be Disappointed Print
Friday, 03 February 2012 06:37

A Washington Post editorial on indexing the minimum wage told readers:

"at the margins, minimum-wage increases probably destroy jobs in small restaurants, landscaping and janitorial firms."

It then added:

"as the city of San Francisco, which has just imposed a highest-in-the-nation $10.24 minimum, may soon find out."

Whether or not the first claim is accurate, the warning to San Francisco clearly is not. San Francisco first put its city-wide minimum wage in place in 2004. Since that time, it has risen in step with inflation. If the minimum wage was going to cost jobs the city should have seen the job loss already. Research on this issue failed to find any evidence of job loss -- but the Post can still hope.

Unless We Stop Consuming Manufacturing Goods, or Other Countries Give Us Stuff for Free, Manufacturing Jobs Will Increase Print
Friday, 03 February 2012 06:14

It would have been worth including an explicit discussion of the trade deficit in the context of an assessment of employment prospects in manufacturing. At the moment, China and other developing countries are deliberately running large trade surpluses as a way to boost domestic demand. To do so, they are buying up huge amounts of dollars assets that essentially give them no real return. It is likely that at some point they will figure out how to generate demand domestically (e.g. hand out money to their citizens) and therefore will not have to pay people in the United States to buy their goods.

At that point we will either have to make our manufacturing goods ourselves or find a way to pay for the goods we import. The people who think that we will be able to pay for imported manufacturing goods with service exports have not examined the data. There is not a plausible story where increased U.S. exports of tourism (this is an export in national accounts), financial services or other components of the service sector will pay for our imports of manufactured goods.

Housing Is Not a Drag on the Recovery Print
Thursday, 02 February 2012 06:11

The Morning Edition piece on President Obama's new mortgage refinancing proposal implied that the housing market is a major drag on the economy. This is misleading.

The housing bubble was the motor of the economy during the last business cycle. It did this both by leading to a construction boom and by propelling consumption through the creation of $8 trillion of ephemeral equity. Now that the bubble has burst it can no longer play this role, however it is inaccurate to describe it as a drag on the economy.



Since the comments suggest some confusion, let me be clear on what I mean by housing is not a drag on the recovery. The graph below shows real expenditures on residential construction over the last two years.


                                 Source: Bureau of Economic Analysis.

Note the direction that spending on residential construction (sorry, mislabeled the graph) has been going. That's right, it has been going up! This is why some of us say that housing is not a drag on the recovery.

Now will housing be the force that leads out of the recovery? No, and it would be extremely foolish to expect otherwise, as I have written about endlessly. We got into this downturn because of the housing bubble. This led to a huge amount of overbuilding of housing. It will take years to wind this down to a more normal level.

This is exact opposite of a typical recovery which is led by housing. That is because a typical recession is caused by the Fed raising rates to slow the economy. That has the effect of slowing housing construction. When the Fed decides to take its foot off the break and lower interest rates to boost the economy, there is major pent up demand, which leads to a boom in housing. That is not the story here.

The wealth created by the housing bubble also led to a consumption boom. This is the long-known and widely forgotten housing wealth effect. This consumption boom is also not coming back for the simple reason that the housing bubble is not coming back.

Okay, so the collapse of the housing bubble caused the recession, which I probably have said more than any other person on the planet. But, at the moment housing is not a drag on the economy, it is adding to growth, even if it is not adding as much as we might like.

Can't the Washington Post Talk to Anyone Who Understands the Housing Market? Print
Thursday, 02 February 2012 05:40

The Washington Post distinguished itself during the run-up of the housing bubble by relying on David Lereah, the chief economist with the National Association of Realtors, and author of Why the Real Estate Boom Will Not Bust and How You Can Profit from It, as its main source on the real estate market. It seems that it is continuing its policy of not using anyone knowledgeable about the housing market as a source for its articles on housing.

Its piece on President Obama's new plan for mortgage refinancing implies that house prices will somehow rise back to their bubble levels. People who know about the housing market would tell readers that this would be like expecting the Nasdaq to bounce back to 5000 following its crash in 2000-2002. Unfortunately such voices continue to be excluded from the Post's coverage of the housing market.

NYT Gets Germany's Unemployment Rate Wrong, Again Print
Wednesday, 01 February 2012 06:06

People who report on Germany's economy should know that the unemployment rate reported by the government is not calculated the same way as the U.S. unemployment rate. It includes people who are working part-time but would like full-time jobs as being unemployed. This means that the rate reported by the government is not directly comparable to the U.S. rate. This means that the NYT misled readers when it told them that Germany's unemployment rate fell to 6.7 percent in January.

However, the OECD does publish unemployment rates for Germany that are calculated in a similar manner to the U.S. unemployment rate. By this measure, Germany's unemployment rate was 5.5 percent in November. Assuming that the OECD rate followed the same path as the German government rate, German's unemployment rate would be 5.3-5.4 percent today if calculated on a comparable basis to the U.S. rate.

News Flash for NYT Dealbook: Financial Firms Are Not Always Honest Print
Wednesday, 01 February 2012 05:53

Steven M. Davidoff had a Dealbook column complaining about a Dodd-Frank regulation that he argues is slowing the supply of capital to finance corporate takeovers. The issue in question is a requirement that the creator of a collaterized loan obligation (CLO) keep a 5 percent stake in the issue. Davidoff argues that many issuers of CLO's are relatively small businesses and don't have the capital to allow them to hold a 5 percent stake.

He then asks:

"So why add a new regulatory burden? It’s unclear what benefit a “skin in the game” rule would provide, given that C.L.O.’s are more akin to commercial loans, for which Dodd-Frank deems risk-retention rules unnecessary."

The answer is that financial firms can make money by misrepresenting the products they sell. Those who are good at misrepresentation can get very rich. While some misrepresentations may be in violation of the law, it is often difficult to prove that misrepresentations were made to sell a product. This makes even civil litigation difficult, criminal prosecution is rare.

Forcing the creators of CLO's to keep a stake is a way to help ensure that they consider the asset they have created to be good. In principle, the sophisticated institutional investors who buy stakes in CLO's should be able to assess their quality themselves, however one lesson from the housing bubble is that they seem to lack this ability. 

NPR Editorializes Against Growth In Europe Print
Wednesday, 01 February 2012 04:55

A Morning Edition segment on the recent European Union summit was headlined, "Most EU Nations to Sign Pact to Stop Overspending." This is both flat-out wrong and misleading.

It is flat-out wrong because the pact restricts deficits, not spending. It is misleading because it implies that the current crisis was caused by overspending. It wasn't. Most of the crisis countries had declining debt to GDP ratios before the downturn and two, Spain and Ireland, were actually running budget surpluses. The problem was caused by housing bubbles and the inept management of the economy by the European Central Bank.

Rick Scott Promises to Make Florida Do Worse Than the Nation In Job Growth Print
Tuesday, 31 January 2012 16:14

That should have been the headline to the NYT story on Florida governor Rick Scott, if they got their facts right. While it is common for politicians to make big promises and not come through, the NYT reports that Rick Scott is not expecting to even get Florida back to its pre-recession level of employment after 7 years in office.

According to the according to the article, Scott promised to create 700,000 jobs after 7 years in office. If Florida follows this path, it will have 7,862,000 jobs in January of 2018, more than 200,000 less than its pre-recession peak of 8,071,000 jobs in March of 2007. If Florida actually has 2.5 percent fewer jobs in 2018 than it did in 2007, then it is likely to rank near or at the bottom among states in job creation.


Source: Bureau of Labor Statistics.

Instead of calling readers to attention to the meekness of the governor's promise, it effectively did a PR pitch for his performance, telling readers:

"And he has started to deliver. In the past year, more than 100,000 private-sector jobs have been created, and the state ranks third in job growth behind California and Texas, according to the latest Labor Department data."

Of course it should not be terribly surprising that Florida ranks third in job growth, since it is the fourth largest state in population, less than 3 percent behind third place New York.

Bloomberg, on Losing End of Austerity Debate, Continues Fight Print
Tuesday, 31 January 2012 10:54

Imagine George Foreman got up off the floor after being counted out in his fight with Muhammad Ali and started taking wild swings at the champ. This is what Mark Whitehouse, a member of Bloomberg View editorial board, effectively did in a column yesterday.

In response to a Paul Krugman column pointing out that the UK's austerity package has led to a virtual recession, making the current downturn worse for the UK than the Great Depression, Whitehouse calls attention to the decline in the price of credit default swaps on UK debt relative to euro zone countries. He touts the fact that lower interest rate on UK debt will make it easier for the country to get its deficits down to a manageable level.

The missing elephant from Whitehouse's story is that the price of credit default swaps on everyone's debt has fallen relative to the euro zone countries. The relative decline in interest rates on UK debt doesn't speak to the wise policies of the UK government, but rather the foolishness of the European Central Bank, which has done its best to convince markets that it will not act as a lender of last resort and will actually let euro zone countries default on their debt. 

The key issue here is having a central bank that will act as a lender of last resort. This is the reason that not only the United States, but Canada, Sweden, Denmark and even fiscally prudent Japan all enjoy lower interest rates than the UK.

[Thanks to Jim Naureckas for calling this one to my attention.]

<< Start < Prev 241 242 243 244 245 246 247 248 249 250 Next > End >>

Page 244 of 422

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.