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  


Fast Food Prices Could Go Up Print
Thursday, 04 September 2014 04:46

The Washington Post thinks it has found a fatal flaw in the argument that fast food workers should have higher wages:

"The problem: Fast food is a low-profit margin business. How low? According to Yahoo Finance, 2.4 percent. Just look at the headline: 'Fast-Food Chains Aren’t as Rich as Protesters Think.'"

It is likely that most of the people organizing the push for higher wages in the industry are fully aware of "the problem." If workers got higher wages they would presumably be offset to some extent by lower profits, lower pay for top management, increases in productivity, but there would also be some increase in higher prices.

This would reverse a process whereby fast food prices would have dropped relative to the price of other goods as the wages of workers in the industry fell relative to the economy-wide average. There is no obvious "problem" with this reversal. It essentially means that those on the bottom would enjoy higher real wages and living standards, while those on top would see a relative decline in their living standards. It would only be a relative decline, except for those at the very top, since if the economy is growing normally, higher paid workers could still get a share of productivity gains. 

 
Good Story in U.S. Job Market Depends Largely on Ignoring People Who Drop Out of the Labor Force Print
Wednesday, 03 September 2014 14:45

Wonkblog had a post telling readers that the U.S. labor market is doing better in the recovery than the labor market in most other wealthy countries.  While this is true if we look at unemployment rates, is far less clear if the focus is employment rates (EPOP), the percentage of the population who is working.

This is true even we control for demographics. The EPOP for prime age men (ages 25-54) in the United States is still down 3.7 percentage points from its pre-recession level. By comparison, in Japan the EPOP for prime age men is up by 2.0 percentage points and in Germany it's up by 3.3 percentage points. 

France has seen a drop in its EPOP from pre-recession levels, but only 0.7 percentage points -- still much better than the U.S. In fact, with a drop of in its EPOP for prime age men of 2.7 percentage points, the euro zone as a whole is doing better than the United States, in spite of the inclusion of crisis countries like Spain and Greece with double-digit drops in EPOPS.

In short, the case that the U.S. labor market has fared better than the labor markets in most other wealthy countries is much weaker than this piece indicates.

 

Thanks to Seth Ackerman for calling this one to my attention.

 
Actually, the Chinese Can Do the High-Skilled Jobs at Lower Cost Too Print
Tuesday, 02 September 2014 05:46

Joe Nocera had a good piece discussing the plight of factory workers in the United States subjected to low cost competition from China and other developing countries. He argues that the government has done too little to help the workers and the communities that have suffered from such competition. However his prescription, that workers should get more skills, is somewhat misleading.

While it is always better to have a more skilled workforce, one of the main reasons that more skilled workers have done better in the era of globalization is that they have been largely protected from the same sort of competition faced by less-educated workers. While trade agreements were explicitly designed to put manufacturing workers in direct competition with the low-paid workers in the developing world, there has been no similar effort to subject our doctors, dentists, lawyers and other highly paid professionals to the same sort of competition.

Trade agreements could have focused on reducing barriers that make it difficult for qualified professionals from the developing world to work in the United States. For example, we could have fully transparent sets of standards to become a doctor or lawyer in the United States, with tests administered in other countries (by U.S. certified test givers). Anyone from Mexico, India, or China who passed these tests would have the same ability to work in the United States as someone who grew up in Kansas.

The potential benefits to consumers and the economy would run into the hundreds of billions of dollars annually. And this would have the effect of shifting income downward rather than upward. (Yes folks, we can design a mechanism to reimburse developing countries for the professionals they educated who come here, which would ensure they gain as well.)

Trade agreements did not put professionals into competition because they are a powerful enough lobby to block such actions. However it is important to be clear in our understanding. It was not "globalization" that redistributed income upward. It was a pattern of trade that was intended to put downward pressure on the wages of the bulk of the population while protecting those at the top.

 

Addendum:


Just a few quick points - doctors and lawyers (especially doctors) are not members of the middle class in the normal usage of the term. About 25 percent of doctors are in the one percent and the vast majority are in the top two percent. If the rest of us are going to get more, they must be among the group that gets less.

Second, lower wages for manufacturing workers have translated into lower prices. Part of it has gone to profits, but shirts and cars are cheaper than they would be if we didn't have low-paid labor doing much of the work.

Finally, there is no way that a lower valued dollar is going to bring us to developing country living standards as fans of arithmetic everywhere can verify. Imports are equal to roughly 20 percent of our GDP. Suppose a 30 percent drop in the dollar leads to a 20 percent rise in import prices (both very large changes). This implies that we can buy 4 percent less than we did previously. That still leaves us far ahead of Mexico and China. And for debt-phobia fans, we are saving this amount today by borrowing.

 
Is Japan's Aging Population Really Going to Shrink Into Oblivion? Print
Tuesday, 02 September 2014 05:39

That's what a Reuters story on the NYT website said Japanese leaders are troubled by. The piece told readers:

"Policymakers are also pledging to draft a vision of how to keep Japan's ageing population from shrinking into oblivion, holding the line at 100 million in 2060, a 20 percent drop from now."

And what bad thing happens if Japan continues to become a less crowded island through the rest of the century and beyond, more room at the beach and less pollution? 

 
Medicare and Medicaid Could Increase Competition Print
Monday, 01 September 2014 07:24

Austin Frakt had an interesting piece in the Upshot section of the NYT reporting research finding that show substantial reduction in health care premiums when there is more competition in the market. The implication is that prices could fall substantially in the exchanges where there are a small numbers of insurers and especially in states like New Hampshire or West Virginia where there is only a single insurer in the market.

At the end of the piece Frakt notes that more insurers appear to be entering the exchanges in 2015 than in their first year of operation. He also suggests some policies that the federal government could pursue to encourage more competition. In addition to the policies Frakt listed, in principle the federal government could also allow Medicare and/or Medicaid to offer plans for purchase in the market in areas with less than a specified number of insurers. This should ensure people the option to have a reasonably priced plan.

At the start of the piece Frakt refers to President Obama's pledge that his health care plan would lower family premiums by as much as $2,500 a year. It is worth noting that per person health care costs in the United States in 2014 are around 15 percent less than had been projected in 2008. This would be a savings in the neighborhood of  more than $2,000 a year for a typical family plan. Clearly not all of these savings can be attributed to the Affordable Care Act, but people are paying considerably less for health care in 2014 than had been expected in 2008.

 
CBO Projects Lower Deficits: Dana Milbank Derides Politicians for Not Having the Courage to Kick Old People in the Face Print
Saturday, 30 August 2014 09:12

Folks who are not DC insiders might think it would take courage to stand up to the rich people who have done so well (and caused so much harm) over the last three decades. Or, we might think it would take courage to standup to nonsense about budget deficits to point out that we need larger deficits now to create the demand necessary to bring the economy back to full employment. (Yes, we all love the private sector, but the private sector doesn't create jobs for love.) Taking those positions might seem to require courage, but in DC insider circles real courage is demanding that we cut Social Security and Medicare; and that is independent of any of the facts.

Hence we see Dana Milbank telling us that new CBO projections, showing that deficits will be lower over the next decade than in the prior set of projections,"threw cold water on my tranquility." He went on to say the new report was "downright bone-chilling" and that the "top-line conclusions were grim enough, if not catastrophic." It's scary to think what his reaction would have been if the new projections showed a worsening picture.

But his real horror story is that the debt to GDP ratio will be over 77 percent in a decade. Wow, and this means what? Milbank was on vacation so he probably missed the collapse of the housing bubble and the worst downturn since the Great Depression. That really was (and is) bone-chilling and catastrophic, but apparently not the sort of thing that worries DC insider types.

Just for purposes of comparison, just about every country in the euro zone has debt to GDP ratios well above 77 percent and many are borrowing at lower interest rates than the United States. Japan has a debt to GDP ratio more than three times as high and borrows long-term at less than a one percent interest rate. So, these debt numbers might make good scare stories for the DC insider crowd, but they have nothing to do with real world economics.

There are of course things we should be worried about, like continued slow growth and high unemployment, but the best remedy for that would be a higher budget deficit or a lower valued dollar that would reduce the trade deficit. We should also worry about the fact that we pay twice as much for our health care per person than people in other wealthy countries with nothing to show for it in terms of outcomes. If we fixed health care that would also take care of the budget deficit, shifting the projected deficits to surpluses. 

But fixing health care would mean taking money away from drug companies, doctors, medical equipment suppliers and insurers. The Post doesn't pay people to push taking away money from those interest groups,, just seniors.  

 

 
More Cheap Thoughts on the Corporate Income Tax Print
Friday, 29 August 2014 15:17

The exchange I had with Jared Bernstein and subsequent comments by others have led to me do more thinking on the corporate income tax. First, just to respond to various notes and comments, I was not all upset that Jared and I disagreed. Jared is an old friend and a very good economist. I value his views, which is why I write books with him. I learned from his comments and I appreciate his concern for losing revenue even if it doesn't over-ride my my reasons for thinking that eliminating the corporate income tax (CIT) is a good idea.

I think the most useful way to think of the CIT is an optional levy placed on corporate income. We tell corporations that they have to pay 35 percent of their income in taxes to the government. It's optional in the sense that we allow them to cut this amount by two-thirds, if they instead pay one-third of this levy to Wall Street investment banks, accounting firms, and tax lawyers. (Using 2014 numbers  nominal corporate tax liability would be roughly 6 percent of GDP or $1,050 billion, with actual tax collections around 2.0 percent of GDP or $350 billion.) This is roughly how the tax boils down, with the Government Accountability Office estimating that companies pay about 13.0 percent of their income in taxes to the government, compared to the 35 percent nominal tax rate. This means that 22 percentage points of the profits, that in principle are owed as taxes, are escaping taxation by the government.

In fairness, I don't know how much corporate America is actually paying to escape its taxes. (Someone have a good study to send me?) Essentially, I am just assuming that they spend half of their tax savings on avoidance costs. 

These avoidance costs have real economic consequences. We are paying people lots of money to do activities that have zero value to the economy even though they are hugely valuable to their corporate employers. The people working on tax scams at the major accounting firms, or working out inversion mergers at Goldman Sachs, or creating new tax shelters at private equity companies could all be employed doing something productive. This is like giving companies a tax credit to pay people to dig holes and fill them up again. The difference is that these are highly educated people and they are getting paid really big bucks for the pointless hole-digging.

Read more...

 

 
1.1 Percent First Half GDP Growth is Not Much Grounds for Celebration Print
Friday, 29 August 2014 07:12

The NYT had a piece on the upward revision of second quarter GDP data to a growth rate of 4.2 percent from 4.0 percent in the advance report. It would have been worth reminding readers that the jump was a reversal from a weather induced plunge of 2.1 percent in the first quarter. This leaves the economy growing at annual rate of just 1.1 percent for the first half of the year. Even if the growth rate is 3.0 percent for the second half that would still leave year-round growth at just 2.0 percent. This is below almost all estimates of the economy's potential which means that rather than making up ground lost during the recession, the economy is falling further below its potential level of output.

The piece also is a bit off in a couple of other areas. It noted the upward revision to investment and told readers:

"Since the economy emerged from the recession five years ago, companies have been hesitant to spend heavily on new capacity, but these figures and other recent data indicate that is finally changing."

Actually the revised 8.4 percent growth rate for investment is not especially impressive. There have been many previous quarters in the recovery where investment grew more rapidly. For example, in the second, third, and fourth quarters of 2011 investment grew at 8.8 percent, 19.4 percent, and  9.5 percent annual rates, respectively. As recenly as the fourth quarter of last year it grew at a 10.4 percent annual rate, so the most recent quarterly rate is not impressive, especially since it follows growth of just 1.6 percent in the first quarter.

One area where it paints an overly pessimistic picture is in reporting the split between wages and profits:

"Despite the faster overall growth rate, businesses still seem to be benefiting more from the economy’s upward trajectory than many individual consumers are.

"The revision on Thursday, for example, lowered the estimate of workers’ wage and salary growth slightly in the first half of 2014, with income rising 5.8 percent in the second quarter. Corporate profits, on the other hand, jumped 8 percent in the second quarter, the Commerce Department said."

The comparison with the first quarter is misleading. The profit data are always erratic and the first quarter showed a surprisingly large drop in profits. If the comparison is made with the second quarter of 2013 nominal before-tax profits are actually down by 0.3 percent. By contrast, labor compensation is up by 4.4 percent. These data are too erratic to make much of this shift, but the numbers actually suggest some redistribution from capital to labor over the last year.

 

 
NPR Celebrates France's President For Accepting Mass Unemployment Print
Friday, 29 August 2014 07:03

A Morning Edition report on French President Francois Hollande's decision to reshuffle his cabinet and eliminate members who complained about the cutbacks in government spending that are slowing growth and destroying jobs, treated him as a potential hero for trying to restructure France's labor market. This coverage directly contradicts economics, since there is no plausible story whereby the economic gains from whatever restructuring Mr. Hollande is able to engineer will be more than a small fraction of the losses it is incurring due to austerity being imposed by Germany on the whole euro zone. This austerity will have cost France several trillion dollars in lost output by the end of the decade.

 
NYT Does Free Promotion for Oil Industry Print
Friday, 29 August 2014 05:19

The NYT noted that gas prices remain relatively low in spite of the fighting taking place in or near several major oil producers. In an article entitled "a new American oil bonanza, it told readers:

"The reason for the improved economics of road travel can be found 10,000 feet below the ground here, where the South Texas Eagle Ford shale is providing more than a million new barrels of oil supplies to the world market every day. United States refinery production in recent weeks reached record highs and left supply depots flush, cushioning the impact of all the instability surrounding traditional global oil fields."

The piece also includes a chart showing daily production at around 2.5 million barrels more than its pre-recession level. While this increased production has undoubtedly had an impact on world prices (it is world prices that matter -- oil is bought and sold in the global market), so has declines in demand. There has been a sharp drop in vehicle miles driven compared with projected travel.

                                                           

                                       Vehicle Miles Traveled: Total and Per Capita

http://www.ssti.us/wp/wp-content/uploads/2014/02/2014-VMT-chart.jpg

                                                       Figure 1. VMT trends for the United States through 2013. Source: FHWA and Census Bureau.

If per person consumption had risen in line with the projected trend, it would be around 15 percent higher than it is today. Since U.S. oil consumption is around 19.0 million barrels a day (not all of it is for gasoline), this means that the reduction in driving below its trend path is saving us around 2.5 million barrels of oil a day, roughly the same amount as the increase in production.

In other words, this article could have been dedicated to the bonanza from conservation and told readers how all the happy people interviewed are enjoying lower gas prices because many people across the country (and the world) are now driving less than was projected based on prior trends. The piece then could have focused on mass transit or other factors that are leading people to drive less. (unfortunately, one of these would be the weak economy.)

 
<< Start < Prev 11 12 13 14 15 16 17 18 19 20 Next > End >>

Page 11 of 396

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