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George Will: A Man Impervious to the Evidence In His Own Column Print
Saturday, 22 March 2014 07:37

There are many ideologues who have their own set of truths, who refuse to listen to any evidence that points in a different direction. However George Will is in a class all by himself. He refuses to pay attention to the evidence that he himself puts forward.

Exhibit A is a classic Will rant at the left for being unwilling to consider the cultural factors that affect poverty. The hero of this piece is Daniel Patrick Moynihan:

"In March 1965, Moynihan, then 37 and assistant secretary of labor, wrote that 'the center of the tangle of pathology' in inner cities — this was five months before the Watts riots — was the fact that 23.6 percent of black children were born to single women, compared with just 3.07 percent of white children."

Will then goes on to tell readers:

"Forty-nine years later, 41 percent of all American children are born out of wedlock; almost half of all first births are to unmarried women, as are 54 percent and 72 percent of all Hispanic and black births, respectively."

If we follow Will's link we find that 29 percent of non-Hispanic white children are born out of wedlock today.That's considerably higher than the 23.6 percent of black children born out of wedlock in 1965 that Moynihan thought was the explanation for their poverty. Yet the poverty rate for white children today is less than 10 percent. It was over 40 percent for African American children in the mid-1960s.

If black children in 1965 had a poverty rate that is more than four times the poverty rate for white children in 2012, despite their lower rate of births to unmarried mothers, this would seem pretty solid evidence that being born to an unmarried mother is not the main factor in determining child poverty.

The far more important factor is the earnings potential for the children's parent(s). This is determined by the factors that Will discourages us from considering, such as macroeconomic policy, trade policy, policies toward labor organizing, and other policy choices that will determine the health of the labor market facing parents of young children. Of course their access to health care and quality child care will also be important factors determining the children's well-being which are picked up in the Census Bureau's supplemental poverty measure. 

And it is easy to show that government policy has made poverty worse on this score. The fall in employment rates following the 2001 recession was associated with a rise in poverty. The much sharper fall in employment rates following the 2008 recession was associated with an even larger rise in poverty. The decision of Congress to run high unemployment budgets (i.e. lower deficits) also will predictably result in a higher poverty rate for children.

There is a different and trivially true point that perhaps Will is trying to make in his column. Children with two loving committed parents will fare better in life on average than children who only have one parent.

Many liberals don't find this very useful from a policy perspective because they don't think the government is very good at creating and preserving good marriages. However we do know how to run economic policies that will reduce the unemployment rate.

Silly Yellen Bashing at the WaPo Print
Friday, 21 March 2014 00:20

The campaign to install Larry Summers instead of Janet Yellen as Fed chair was chock full of sexist innuendo as pundits speculated as to whether Yellen had the gravitas to hold down the job. The Washington Post's editorial on Yellen's first press conference showed that such attitudes continue in elite Washington circles.

The headline complained:

"In Fed media event, Yellen isn't able to control the message."

The piece itself told readers:

"Mr. Bernanke’s successor, Janet Yellen, met with reporters Wednesday and, bluntly, it didn’t go all that smoothly. Responding to a question, Ms. Yellen hinted that the Fed might start raising interest rates above zero “around six months” after phasing out the current bond-buying stimulus program; bond markets quickly sold off, which was almost certainly not what Ms. Yellen intended. Ms. Yellen also assured investors that there was no great significance to the Fed’s decision, announced Wednesday, to back off its previous plan to raise rates after unemployment hit 6.5 percent. But markets looked past her words to other Fed officials’ own interest-rate forecasts and drew contrary conclusions."

If you missed the earthquake in bond markets that was the basis for the Post's editorial you can be forgiven. The economy will probably miss it too. The linked article reports that yield on two-year Treasury notes climbed 7 basis points to 0.42 percent. This is a lot in percentage terms, but its economic impact is close to zero. The yield on ten-year Treasury bonds, which has far more impact on the economy, was little changed. It is still under 2.8 percent and has remained in pretty much the same range for the last month and a half, down from just over 3.0 percent in December.

In other words, if Yellen misspoke there was little obvious consequence. By contrast, her predecessor Ben Bernanke did spark a sharp rise in long-term interest rates with his famous taper talk last June. Partly as a result of this talk, the yield on ten-year bonds rose by more than one percentage point over a two-month period. While this rise in long-term rates did not appear to be his intention, it appears to have taken the air out of an incipient bubble in the housing market. In that sense, it may have been a remarkably good move, even if it was an unintended outcome.

Anyhow, it is striking that the WaPo didn't see the need to rebuke Bernanke for what appeared to major unintended consequences from a press conference, while Yellen does draw its wrath for a possibly mistake that will have virtually no economic impact.

The Health Care Exchanges Need Healthy People, It Doesn't Matter If They Are Young, #65,412 Print
Thursday, 20 March 2014 03:57

How can we stop the country's leading newspaper from repeating nonsense? To paraphrase a former president, "there they go again." A front page article on the Obama administration's efforts to sign up young people before the deadline told readers:

"And there is concern that the administration still needs a larger proportion of 18- to 34-year-olds, the young and presumably healthy people whom insurance companies need as customers in order to keep premiums reasonable for everyone."

The simple fact, as shown in this analysis by the Kaiser family Foundation, is that the potential age skewing of enrollment matters little for the cost of the program. Younger people are on average healthier than older people, but they also pay much less in premiums. The difference in premiums doesn't fully capture the difference in costs, but the gap between premiums and average cost has relatively little impact on the finances of the program. It matters much more if there is a skewing by health condition.

Most older people are also healthy. A substantial portion of people in the oldest age bracket (55-64) will have few or no claims on their insurer. Since these healthy older people pay three times as much on average for insurance as young people it matters much more whether they sign up for the exchanges than healthy young people. 

Can We Kill the "Young Invincibles" Story? Print
Wednesday, 19 March 2014 05:10

Bloomberg View columnist Megan McArdle gives us yet another rendition of the story of young invincibles killing Obamacare, (literally, it is the headline of the piece). Remarkably, the column actually notes the Kaiser Family Foundation analysis showing that young invincibles really don't matter much for the program. This analysis points out that because young people pay much less in premiums than older people, it really doesn't matter much whether they don't sign up in proportion to their population.

The column then cites a column by Seth Chandler, which argues that a skewing by subsidy size could indeed cause problems for the program. Chandler's analysis is undoubtedly correct and acknowledged explicitly in the Kaiser analysis. If only people receiving large subsidies of all ages sign up for the program then it will face problems, just as would be the case if only people with bad health signed up for the program. However neither Chandler nor McArdle present any reason to believe that such skewing would be correlated with the sign-up patterns of the young invincibles.

The Chandler piece also takes issue with the conclusion of the Kaiser analysis that the 2.0 percent increase in insurer costs that would result from an extreme skewing by age would be unlikely to lead to a death spiral for the system, pointing out that any increase in costs makes a death spiral more likely. While this is true, it is worth noting for comparison purposes that per capita health care costs in 2014 are about 10 percent lower than was projected in 2008. In other words, this 2.0 percent increase is only a little bit larger than average error in annual health care cost projections.

Thanks to Aaron Beeman for calling my attention to this one.

China Isn't as Rich as They Say, and Making U.S. Workers Poorer Didn't Help Print
Wednesday, 19 March 2014 04:40

In a piece discussing patterns in world growth over the last three decades Eduardo Porter told NYT readers:

"What’s happened is that while income growth stalled for middle-class workers in developed countries and surged for people in the 1 percent, it also grew sharply for hundreds of millions of workers in China, India and other Asian countries. In the late 1980s, for instance, workers in the middle of China’s urban income distribution made 56 percent of the median American income, according to Mr. Milanovic’s calculations. By 2008, that figure rose to 71 percent."

It is unlikely that people in the middle of the income distribution in urban areas of China had an income that was 71 percent of median in the United States in 2008. According to the Penn World Tables, per capita income on a purchasing power parity basis (the appropriate measure for comparisons of living standards), per capita income in the United States in 2011 was over $42,000. It was just under $8,000 in China. Overall, income is somewhat more unequally distributed in China than in the U.S., but urban areas have far higher living standards than rural areas. However even if we say this doubles the income of middle income urban Chinese, this would still only get them to 40 percent of the average in the United States.

While China's workers have enjoyed enormous gains in living standards over the last three decades, their standard of living is still well below the median in the United States. These gains have continued since 2008, with per capita income in China rising by nearly 60 percent in the last six years according to the I.M.F.

It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China's exports. In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.

Also, policies that would promote equality in the United States could also yield large benefits for China. For example, weaker patent and copyright rules would make drugs and other products cheaper for people in China, giving their workers more purchasing power, while also reducing the patent rents received by the wealthy in the United States.

Nate Silver Gets the Story Partly Right on Social Security and Medicare Print
Tuesday, 18 March 2014 07:22

In his new and improved FiveThirtyEight Nate Silver examines the sources of increases in government spending over recent decades and identifies Social Security, Medicare, and Medicaid as the culprits. He then notes that these are effectively insurance programs. He then concludes that this explains the decline in trust for government:

"Nevertheless, the declining level of trust in government since the 1970s is a fairly close mirror for the growth in spending on social insurance as a share of the gross domestic product and of overall government expenditures. We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

"Most of us don’t much care for our insurance broker."

There is a big problem with this story. Social Security, Medicare, and Medicaid are all hugely popular programs across the political spectrum. If the public thought this was all the government did with their money, the government would likely be very popular. In fact, many people often discount these programs from the government as in the famous line from older Tea Party supporters that the government should keep its hands off their Medicare.

In fact, the public hugely misperceives where government tax dollars are spent, as polls consistently show. For example a 2010 poll found, the public on average believes that 27 percent of the budget goes to foreign aid. The actual number is less than 1.0 percent. A CNN poll from the same year found that the median respondent thought that food stamps accounted for 10 percent of the budget, while subsidies to the Corporation for Public Broadcasting accounted for 5 percent of the budget. (The actual number is less than 0.01 percent.)

Since the public huge exaggerates the portion of the budget that goes to many non-insurance programs, it is likely that its view of the government is more a result of its attitude toward these programs. The latter is in turn probably more negative than would otherwise be the case because of the exaggerated view of the amount of money these programs receive.

Anyhow, the piece does a good job explaining what is and what is not growing in the budget, but since most people are clueless on these facts (largely to due to the pathetic quality of budget reporting), the piece strikes out badly in its explanation of public opinion.

NYT Says That the Rise of Manufacturing Output Almost to December Levels Is Grounds for the Fed to Tighten Print
Monday, 17 March 2014 17:04

The headline of the piece was "manufacturing gains likely to spur Fed's stimulus cuts." The actual news was that manufacturing output was reported as rising 0.8 percent in February, reversing most of a 0.9 percent decline in January. It's a bit hard to see this as solid growth. If we add in December, manufacturing has grown at a 0.4 percent annual rate over the last three months.

Manufacturing output is just 1.5 percent above its year ago level. This has led to a drop in the capacity utilization rate of 0.1 percentage point to 76.4 percent. It is pretty hard to see this as an argument for cutting back stimulus.

In Coverage of Health Care Reform Washington Post Substitutes Republican Talking Points for Reality Print
Monday, 17 March 2014 06:55

The Washington Post told readers that the Republicans are putting together an alternative to the Affordable Care Act (ACA). Unfortunately it substituted Republican talking points for an actual description of the plan.

At one point the article told readers:

"They would prefer to see a shift away from the federal government and to the states, with an emphasis on getting more consumers on private plans."

In fact the Republican plan explicitly takes away authority from the states. It would have the federal government require states to accept insurance plans offered by other states. This is 180 degrees at odds with what the Post told readers.

This would be comparable to requiring the United States to allow insurance plans from insurers regulated in the Cayman Islands, Panama, or some other tax/regulatory havens. That would take away control from the United States government. This should have been pretty obvious to the Post reporters.

The other part of this claim is also bizarre. The ACA requires that people buy health care insurance from private insurers. What could it possibly mean to say that the Republicans have:

"an emphasis on getting more consumers on private plans."

This is presumably a line that was focus group tested for appeal, since the Republicans have routinely referred to the ACA as a government takeover of the health care system. However it has no basis in reality and no place in a news article, except as a quote. Even in that case a responsible newspaper would point out to readers that the assertion is not true.

Robert Samuelson Doesn't Have Access to Government Data Print
Monday, 17 March 2014 05:02

That wouldn't be such a big problem if he didn't write on economic issues. This time the problem affects his discussion of past and future efforts at boosting the economy.

Samuelson seems to think that investment and consumption are depressed because of businesses and consumers fears about the economy. If he had access to the economic data, he would know that non-residential investment is almost back to its pre-recession share of GDP (12.3 percent in the most recent quarter compared to an average of 12.8 percent in the years 2005-2007). Given the large amount of excess capacity in most manufacturing sectors, this doesn't suggest much business pessimism. The consumption share of GDP is at near record highs, exceeded only by the 2011 and 2012 shares, which were boosted by the payroll tax cut.

So neither business investment nor consumption show any evidence of weakness due to pessimism. The obvious basis for continuing weakness is that housing construction is still depressed due to the overbuilding of the bubble years and continued high vacancy rates. Also consumption is lower relative to disposable income than it was during the bubble years because households have lost close to $8 trillion in bubble generated housing equity. Ultimately the problem is that the economy needs some extraordinary source of demand (e.g. large budget deficits or asset bubbles) to replace the $500 billion in annual demand lost to the trade deficit.

The piece also cites John Taylor's work to claim that the tax cuts that were part of the stimulus had no effect on consumption. Research by David Rosnick and me shows that Taylor's results on this issue are not robust. Minor changes in specification lead to the conclusion that the tax cuts had a substantial impact on consumption and growth.

Are Average Weekly Hours Really Plummeting? Print
Sunday, 16 March 2014 19:47

Last week we were being warned that the labor market was too tight and an outbreak of inflation was imminent. Today, Edward Lazear, formerly chief economist in the Bush administration, is telling us that labor demand is plummeting as shown by a reduction in the length of the average workweek. Okay so the labor market is too tight and too weak, that looks really bad. Given that economists also tell us that robots will take all our jobs and that a growing population of retirees will leave us with a shortage of workers it is remarkable that the public doesn't insist on hanging us all.

But Lazear does raise an interesting point that deserves to be considered. The Labor Department's establishment survey shows a notable decline in the length of the average workweek from 34.5 hours in November (he picks September as his starting point) to 34.2 hours in February. In work time, this is equivalent to a loss of more than 1 million jobs. As a result of this drop in hours, the index of total hours worked actually shows a decline of 0.1 percent since September and 0.6 percent since November. What do we make of this?

There are two questions that come up. First how reliable are these data and second, are they consistent with other data?

On the first point, there are grounds for skepticism. As Lazear notes in the piece, weather could have been a factor in shortening workweeks in February. Much of the Northeast-Midwest was hit by unusually bad weather that may have led people to miss a day or two of work. If we look back over the last three decades, there are other instances of comparable declines in the length of the average workweek that don't seem to correspond to downturns in the economy.

For example, we saw the same drop from 34.5 hours in December of 1994 to 34.2 hours in May of 1995, a period when the recovery was moving along at a healthy pace. (These data refer to the hours of production and non-supervisory workers, since the all workers index does not go back before 2006.) The average workweek declined from 34.7 hours to 34.4 hours between January of 1989 and May of 1989, again a period where the economy was still growing at a healthy rate. And it fell from 34.8 hours in November of 1987 to 34.5 hours in March of 1988. There was an even sharper drop from 35.0 hours in January of 1986 to 34.6 hours in July of 1986. In short, we have seen these sorts of drops before even as the economy was growing and adding jobs at a healthy pace. 

The other question is whether the data are consistent with what we see in other series. Here the answer is clearly no. The separate survey of households shows that the number of people employed part-time (defined as less than 35 hours a week) has actually fallen by more than 0.3 percent since September. This survey is much less reliable than the establishment data. Also, it is possible that workers may working fewer hours but not crossing the 35 hour threshold to be classified as part-time. (We could also directly analyze the micro data, but that's more effort than I am prepared to put into this question just now.) Anyhow, the published data from the household survey clearly gives no support to the declining hours story.

So, what should we make of this drop in hours? For the moment, the answer should be not much. Let's see what happens in the next two months. There is a story that Obamacare will lead to a reduction in the length of the average workweek, as many people will no longer need to work a full-time job to get health care insurance. That is one of the good things about the Affordable Care Act in my book. However, a reduction in hours for this reason should be largely offset by an increase in the number of jobs. If that proves to be the case, that will be good news.


Note: Typos fixed, thanks Robert Salzberg.

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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.