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We Need 90,000 Jobs Per Month to Keep Pace With the Growth of the Population Print
Saturday, 09 July 2011 05:54

In an article on the June employment report the NYT told readers that the economy needs 150,000 jobs per month to keep pace with the growth in the population. Actually, the Congressional Budget Office projects that the underlying rate of labor force growth is now just 0.7 percent annually. This comes to roughly 1,050,000 a year or just under 90,000 a month.

This is fortunate since the economy has created less than 1.8 million jobs in the 16 months since it first began adding jobs again in February of 2010. If we needed to create 150,000 jobs a month then we would have needed 2.4 million jobs to keep even with the growth of the labor force, so we would be considerable further behind where we were in February 2010. As it stands, we are roughly treading water with job growth that has been pretty much even with the growth of the population over this period.

 
Charles Krauthhammer Doesn't Know That There Was No Deficit Commission Report Print
Friday, 08 July 2011 05:52

This one should be simple enough even for a Washington Post columnist, but apparently not. Krauthammer is apparently referring to the report of the deficit commission's co-chairs, Erskine Bowles and Alan Simpson. The report did not get the necessary majority to be approved by the commission and there was not even a vote taken by the deadline.

Of course Krauthammer also apparently missed the collapse of the housing bubble and resulting economic collapse, since he blames President Obama for the deficit. He obviously is not a very observant person. He also thinks that a comment by Congressional Budget Office (CBO) director Doug Elmensdorf that CBO does not score speeches is "devastating." The point that Mr. Elemensdorf was making apparently went over Krauthammer's head.

It takes time and effort for CBO to score something. When a fully worked out proposal is in place and laid out they can score it. They cannot score every new twist and turn in policy debates. It is not clear why this obvious truth would be seen as "devastating."

 
Contrary to What the NYT Asserts, Not All Economists Believe that Pension Funds Assume Too High a Rate of Return Print
Friday, 08 July 2011 05:30

The NYT, which has repeatedly printed news stories implying that public pensions are hugely underfunded, wrongly implied that economists all agree that public pensions have overly optimistic return assumptions for their pension funds. This is not true. In fact, most pensions are now making assumptions that are completely consistent with the expected return on their assets based on widely accepted projections for the growth of the economy and the growth of profits.

In fact, it is almost impossible to produce a plausible set of returns (capital gains and dividend payouts) that is consistent with a substantially lower rate of return than what the pension funds are assuming. If the economists who claim that the pension funds are assuming too high a rate of return believed what they say, then they should be able to write out return projections that would support this contention in just a few minutes. Given the trillions of dollars at stake in this debate, laying out a set of return projections would seem to be a reasonable price for being taken seriously.

This argument is explained more fully in a 2005 Brookings Paper that I co-authored with Paul Krugman and Brad DeLong.

 
How Does the NYT Know What Senator Coburn "Believes" About Measures of Inflation? Print
Friday, 08 July 2011 05:14

That's what millions of NYT readers are asking after they saw the assertion:

"Republicans are concerned about the growth of entitlement programs, including Social Security and Medicare. Some, like Senator Tom Coburn of Oklahoma, support the idea of an alternative measure of inflation, known as the chain-weighted version of the Consumer Price Index, because they believe it is more accurate."

It is certainly possible that Senator Coburn and others supporting a lower cost of living adjustment actually believe that the alternative inflation index is more accurate, however it is also possible that they just want to cut benefits and couldn't care less whether the alternative index is more accurate or not. The NYT made a very strong assertion by saying these politicians are motivated by their beliefs about price indexes. It presents zero evidence to support this assertion. 

 
The Costs of Copyright Protection Print
Friday, 08 July 2011 05:04

Will the NYT ever include any economic analysis of the costs imposed on the economy by copyright enforcement? As a result of this form of protectionism, books, music, video material, computer software and other items that would otherwise be instantly available at zero cost, instead can cost consumers large amounts of money. This dwarfs the economics costs that result from most forms of trade protection, which rarely raises the price of items by more than 10-20 percent. 

This article on efforts by Internet providers to crack down on unauthorized duplication of copyrighted material would have benefited from some economic analysis.

 
Bill Clinton and Mrs. O'Leary Print
Friday, 08 July 2011 04:37

According to legend, the Great Chicago Fire of 1871 was started when Mrs. O'Leary's cow knocked over a latern in her barn setting it on fire. While Mrs. O'Leary certainly didn't set the fire on purpose, she is probably not the person we would consult on fire control. In the same vein, it is reasonable to ask why anyone would consult Bill Clinton about the country's current economic problems.

While the economy performed well during the second half of the Clinton administration, it was building up the imbalances that laid the basis for the current crisis. The late 90s growth was driven by a stock bubble which led a consumption boom. When the bubble burst, the economy went into a prolonged downturn. It did not create any jobs from March of 2001 to September of 2003. The jobs lost in the downturn were not gained back until the beginning of 2005, at the time the longest period without job growth since the Great Depression.

Furthermore, when the economy finally did begin creating jobs it was driven by the housing bubble. While the bubble itself cannot be blamed on the Clinton administration, it is responsible for the imbalances that laid its basis. Robert Rubin, Clinton's treasury secretary, consciously pursued a high dollar policy. He used the U.S. control over the IMF to bring it about.

A high dollar makes U.S. goods less competitive in world markets. If the dollar rises by 20 percent it has roughly the same impact as putting a 20 percent tariff on all our exports and giving a 20 percent subsidy on all our imports. This sort of increase in the value of the dollar has way more impact on trade flow than any trade agreement possibly could.

Rubin's high dollar policy meant that the U.S. would run a large trade deficit. If the country has a trade deficit, then it absolutely must have negative national savings. (This is an accounting identity, it has to be true.) Negative national savings means that we must have either large government budget deficits or very low private savings, as was the case at the peak of the housing bubble, when the savings rate hit zero.

It is likely that President Clinton does not understand this basic economics. He recently lectured the public on how to create manufacturing jobs through trade, apparently not realizing the country was losing manufacturing jobs due to the soaring trade deficit during the last three years of his administration. This means that he may not know that he is giving bad advice, but that still doesn't mean that there is any reason for the media to want to seek it out.

 
Cheap Tricks on Social Security Print
Friday, 08 July 2011 04:08

The business-backed group Third Way has been making a big point of going after Social Security lately. Today it had a column telling us that Social Security is in crisis, even though the most recent projections from the Social Security trustees show that the program can pay full scheduled benefits with no changes whatsoever for a quarter century. Even after that point, the program would always be able to pay a higher benefit than what current retirees receive.

Third Way's crisis argument hinges on the fact that the program is paying out more in benefits than it collects in taxes. In other words, it is relying on interest from the $2.6 trillion trust fund that it has built up over the last quarter century. To term this a crisis would be like saying that Bill Gates had a crisis because he dipped into his $50 billion in assets to build some new play houses for his kids. The trust fund was built up for the explicit purpose of supporting the program. It makes no sense to say that using it is a crisis.

It is also worth noting that even if we waited until 2036 and the program actually faced a shortfall, the amount of additional revenue needed to sustain the program's full benefits past this shortfall would be trivial compared to costs like the increase in military spending associated with the wars in Afghanistan and Iraq. 

Third Way also is being somewhat deceptive in describing its proposed Social Security cuts as progressive. The cuts would hurt all beneficiaries, although the largest cuts would be for people like nurses and firefighters who might have averaged $60,000 to $70,000 in wages over their working lifetime.

While these cuts might technically be progressive for the program (they will reduce Bill Gates benefits by a larger proportion than the benefits of minimum wage worker), they will certainly have a larger impact on the living standards of low and middle income retirees than wealthy retirees. (They will reduce the retirement income of a low wage worker by a far larger proportion than the retirement income of Bill Gates.)

The focus of the cuts on middle income workers is progressive in the same way that a tax increase of 5 percentage points on workers earning less than $30,000 and 10 percent on income over $30,000 (and capped at $250,000) can be called progressive. On average, higher income workers would be seeing a bigger tax increase than lower income workers, but the people hit hardest do not fit anyone's definition of wealthy.

 
NPR Invents Republican Flexibility In the Absence of Evidence Print
Thursday, 07 July 2011 05:12

NPR decided to do a cutesy piece in which it implied that the debate over the debt ceiling amounted to the semantics of what constitutes a tax increase. It told listeners that there appears to be some movement by Republicans who are now willing to consider the elimination of some tax breaks, although these would have to be offset by reductions in tax rates. In other words, there would be no increase in revenue.

This is ZERO movement. Most Republicans have been on record as being willing to go along with the elimination of some tax breaks in exchange for a reduction in rates. In fact, this is the explicit goal of the Ryan plan which lowers tax rate but promises to offset with the elimination of trillions of dollars of unspecified tax breaks. This bill was approved by the Republicans in the House with just 4 Republicans voting no. It also garnered near unanimous support from Republicans in the Senate.

In short, the notion that there has been some change in the Republican position so that they are now willing to consider tax increases is a complete invention of NPR. It badly misled its listeners with this piece.

 
Do Obama's Advisors Really Not Know About the Housing Bubble? Print
Thursday, 07 July 2011 04:55

This is the point that the Post should have been highlighting in an article about President Obama's comments on the housing market in his twitter townhall yesterday. Nationwide house prices had just tracked the overall rate of inflation from 1896 to 1996. In the decade from 1996 to 2006, house prices outpaced the overall rate of inflation by more than 70 percent.

At the point where President Obama took office, house prices had fallen by about 20 percent from their bubble peaks. Since there is no identifiable change in the fundamentals of the housing market, it is reasonable to expect prices to fall back to their trend levels. However, the article quoted Obama as saying:

“The continuing decline in the housing market is something that hasn’t bottomed out as quickly as we expected.”

This statement reflects a frightening degree of ignorance about the housing market. It should have been the main focus of the article as the Post attempted to determine whether President Obama and his advisers could really not understand the housing bubble, the collapse of which has given the economy the worst downturn since the Great Depression.

 
Front Page at the Washington Post: Employment Rates Are Dropping Less Rapidly for Men Than Women Print
Thursday, 07 July 2011 04:31

There are a large number of organizations that produce interesting research on the labor market on a regular basis (including CEPR). Today the Post ran a front page piece on a study from the Pew Research Center that told readers: "Men Getting Jobs Faster than Women."

Those who read the article would discover that neither men nor women are getting jobs at a very rapid pace. In fact, the employment to population ratio (the percent of people over age 20 who are employed) has fallen for both men and women since the recession ended in June of 2009. It has just fallen more rapidly for women than men, a 1.1 percentage-point decline for women compared to a 0.5 percentage-point decline for men.

Given the slow rate of job growth to date, it is not clear that the pattern of employment growth at present tells us much about what the mix of jobs will look like when (and if) employment grows fast enough to raise the employment rate. This was a peculiar piece of labor market research to highlight, since the Post so rarely discusses the labor market. More obvious research to highlight would include the large and growing research showing that structural unemployment explains at most a small share of the increase in unemployment since the beginning of the recession. This means that the vast majority of unemployment is due to bad economic policy, not a mismatch of workers' skills/location and available jobs.

It would also be interesting to see a discussion of racial patterns in employment. While the employment rate for white men and women have edged up over the last year, employment rates for black men and women are at recession lows.

The Post could also do a piece that covers research the OECD and elsewhere that discusses the effectiveness of work sharing programs in reducing unemployment. Post readers would probably be interested in knowing that Germany's unemployment rate has actually fallen by 0.5 percentage points since the beginning of the recession even though its economy has grown no more than the U.S. economy.

This is due to the fact that it has given firms incentive to reduce work hours rather than lay people off. This policy costs no more than paying unemployment benefits and keeps workers at their job.

 
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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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