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  

NYT's Bizarre Discussion of Consumption and Jobs Print
Tuesday, 07 October 2014 04:17

The Bureau of Labor Statistics came out with new projections of consumption driven employment. This seems to have created serious confusion at the NYT. Contrary to what the article seems to imply, this study is not making projections of macroeconomic growth. It is assuming a growth rate (2.6 percent annual average over the next decade) and then indicating how it will be divided. By contrast, the article seems to be asking whether the growth assumption is plausible.

Even for this latter purpose the article is badly off. It never once mentions the saving rate. If we want to assess the rate of consumption growth we really do need to know the saving rate. If it is very low, as was the case at the peak of the bubble, it means that it is unlikely that consumption growth will keep pace with income growth and extremely unlikely that it will exceed the rate of income growth. (Some of the discussion seems to imply that there is a question as to whether consumption will increase, as opposed to the rate of increase. There is no question on the former. It will be higher ten years from now than it is today.)

Finally, the piece never discusses the trade deficit. This must be a reflection of the ban on discussing the trade deficit in elite circles. This is unfortunate since graduates of intro econ classes everywhere know that net exports are one of the components of demand. Currently they are a large drain on demand since the country has an annual trade deficit of around $500 billion a year (@ 3 percent of GDP). This has the same impact on demand as if consumers were spending $500 billion less a year (actually more, since much of that spending would go to imports). It is incredible that a piece discussing job growth over the next decade would never mention the trade deficit.


NYT Gives Up Distinction Between Editorializing and Reporting in Covering Pro-Business French Minister Print
Tuesday, 07 October 2014 03:54

Back in the good old days newspapers used to try to keep their opinions on the editorial page and try to stick to the facts on the news page. (I know, that's never neutral.) But the NYT didn't look like it was trying in its profile of Emmanuel Macron, the newly appointed minister of the economy in France.

As the piece tells us, Mr. Macron is pro-business. That seems to be agreed upon by all. However it also tells us that he "is bent on modernizing the country’s social model." It's clear that Macron wants to make cuts in France's social spending. Does that necessarily mean "modernizing." If this distinction is difficult to follow, imagine someone who advocates cutting the military budget in the United States or to breaking up the large banks and taxing the financial sector in a way that treated it like other sectors (as advocated by the I.M.F.). Is it plausible the NYT would describe such a person as wanting to "modernize" defense or finance?

In a similar vein the piece makes pronouncements on economic policy for which it has no obvious justification. It told readers:

"But behind the scenes, he called on Mr. Macron as an informal adviser to assure the business community that he was also open to reforms that would help companies create jobs and lift France from moribund growth.

"Mr. Macron’s first move was to urge Mr. Hollande to drop a proposal to tax incomes above €1 million at 75 percent, warning it would damage France’s image and turn the country into 'Cuba without the sun.'"

Is there any evidence stopping the 75 percent tax rate on very high income individuals would cost jobs? The NYT could make a major splash in the economics profession if it produced such evidence. (It is a disputed topic, but many of the countries' top public finance economists, like Peter Diamond and Emmanual Saez, have supported tax rates this high.) While there is no doubt that this tax rate would hurt folks like Mr. Macron's former colleagues at Rothschild, it's economic impact is far from clear.

The piece also tried to cover up an incredible statement from someone in a high political position in France. It told readers:

"It did not help that Mr. Macron made a major faux pas right out of the gate, in a radio interview, referring to the plight of 'illiterate' workers at a factory that was closing in northern France, because they would have few other options. The remark, though perhaps well intentioned, deepened an impression that he was out of touch with the Socialist base."

An important fact that the paper should have told readers is that these workers were almost certainly not illiterate. While they certainly did not enjoy the same elite education as Mr. Macron, France has a highly-educated workforce. While he is right that due to economic mismanagement these workers likely have few job options, it is unusual for a top political official to publicly and wrongly denigrate a significant segment within society. 

Jason Millman Thinks Firefighters Should Be Paid Millions of Dollars a Year Print
Monday, 06 October 2014 19:13

That would be the logic of his Wonkblog column arguing that specialty drugs are worth the cost. The basic point is that some of these specialty drugs constitute radical breakthroughs that substantially extend or improve the quality of life. The $84,000 Hepatitis C drug Sovaldi is the case in point. After all, isn't it worth a great deal of money to save a life?

By this same logic when the firefighter shows up at our burning house with our family and dogs inside we would gladly pay her millions of dollars if we had the money or insurance that covered the cost. Certainly saving their lives would be worth the cost.

Of course we don't typically pay firefighters millions of dollars a year. Rather than negotiating a payment at the point where our house is burning down and our families' lives are at stake we pay them a salary. Saving the lives of our family members is part of their jobs. We don't hand over our life savings when they show up at the door, they have already been paid.

If we had a little clear thinking in policy circles it would be the same story with prescription drugs. It doesn't cost Gilead Sciences (the patent holder for Sovaldi) $84,000 to manufacture each patient's dosage. Based on the price of generics elsewhere, it probably only costs about 1 percent of this amount. Almost all of this  $84,000 price tag is ostensibly due to Gilead Sciences need to recoup research costs, which it can do because the government issued it a patent monopoly. (This means competitors get arrested if they try to produce the drug without Gilead Sciences' permission.)

Financing drug research with patent monopolies is equivalent to arranging terms to pay firefighters when they show up at our burning house, except it makes less sense. Unlike the case of the burning house, which we can usually see pretty clearly, patients don't really know how effective the drugs are that the pharmaceutical companies try to sell us. After all, they are the ones who did the research. The have to show results to the Food and Drug Administration to get approval, but what they disclose to the public is up to them. And when you can make $83,000 on every sale ($84,000 minus $1,000 for production costs) there is a substantial incentive not to disclose information that may raise questions about your drug's safety and effectiveness. And, if you don't think drug companies would conceal information, then you probably have not been alive very long.

We would be stuck if patent monopolies were the only way to finance research, but fortunately they are not. There are many other ways to support research funding, most obviously through public funding, like the $30 billion that goes to the National Institutes of Health (NIH) every year. There is no reason in principle that the public money used to support research could not be doubled or tripled. The research could even be done by the same drug companies who do research now. The difference is that they would be paid upfront. In this situation all their findings would be fully available to the public and all patents would be placed in the public domain. Then we could all buy generic Sovaldi at $1000 a dosage and we wouldn't have to waste so much time debating the value of a human life.

The drug industry will of course fight this change to the death. They will pay billions to politicians and advocates to argue that we could never have successful research without patents. After all, if government bureaucrats touch the money then it is worthless (except for the $30 billion that goes to NIH, which they always lobby to increase).

Anyhow, we all recognize the power of the pharmaceutical industry and the corruption of the political system. But folks should know that the problem of high-priced specialty drugs is a result of this corruption, not some inherent paradox of modern life.


If Only the Washington Post Could Get Its Hand on the Social Security Trustees Report Print
Sunday, 05 October 2014 20:25

It might help editorial page editor Fred Hiatt understand how the budget works. He is appalled because "reactionary defenders" of Social Security think that seniors should be able to get the benefits they paid for. (I wonder if it's reactionary to think that Peter Peterson type billionaires should be able to get the interest on the government bonds that they paid for.)

Anyhow, the basis for Hiatt's fury is that John Podesta, now a top advisor to President Obama, is boasting about entitlements having been brought under control. To Hiatt this is outrageous.

"Federal debt has reached 74 percent of the economy’s annual output (GDP), 'a higher percentage than at any point in U.S. history except a brief period around World War II,' the CBO says, 'and almost twice the percentage at the end of 2008.' With no change in policy, that percentage will hold steady or decline a bit for a couple of years and then start rising again, to a dangerous 78 percent by 2024 and an insupportable 106 percent by 2039."

Yep, the debt is much higher today than in 2008, so what? Millions of people lost their jobs due to the collapse of the economy. The deficits of the last six years created demand that would not otherwise have been there. It led to more growth and put people back to work. To those in the real world, people losing their jobs and losing their homes, would be the big story. This means kids growing up with unemployed parents and maybe hustling from house to house or even living on the street. But hey, Fred Hiatt wants us to worry about the deficit in 2039.

Just to be clear, the gloom and doom story is all Hiatt's not CBO's, although some readers may be confused by the presentation. There is no obvious negative consequence to a debt to GDP ratio of 74 percent, although readers can get that Fred Hiatt doesn't like it. Nor is there any obvious negative consequence to a debt to GDP of 78 percent by 2024, even if Fred Hiatt calls it "dangerous."

And the assertion that a debt to GDP ratio of 106 percent is insupportable is just Fred Hiatt's invention. There are many countries that have much higher debt to GDP ratios today (Japan's is more than twice as high) and continue to pay very low interest rates on long-term debt. In other words, Fred Hiatt is just like the little kid who who is worried about the monster under his bed when the lights are turned off. Undoubtedly it is very real to him, but when you turn on the lights you can see there is nothing there.



Defending Economics from Robert Samuelson - See Addendum on China and the Dollar Print
Sunday, 05 October 2014 19:44

I am not usually inclined to defend the economics profession, but Robert Samuelson brings out my defensive impulse in his discussion of Financial Time columnist Martin Wolf's new book (which I have not read). Before getting to the main matter at hand, it's worth making a couple of other points.

First, Samuelson tells us that Wolf's explanation of the financial crisis goes via the way of the U.S. trade deficit:

"The trade-surplus countries couldn’t spend all their export earnings, so they plowed the excesses into dollar investments (prominently: U.S. Treasury bonds) and euro securities. This flood of money reduced interest rates. The resulting easy credit induced dubious lending, led by housing mortgages."

This is partly right and partly wrong. (I don't know if the problem is in Wolf's book or Samuels' retelling.) The wrong part is the claim that the trade surplus countries couldn't spend all their export earnings. This makes no sense on its face. They have no need to spend their export earnings. If they have dollars that they don't want they just dump the dollars. It's just like if someone who has shares of a stock they don't want. They dump the stock.

What happened in this period is that foreign central banks bought the dollars from their exporters and then used the money to buy up U.S. government bonds. This was a conscious decision to prop up the value of the dollar against their currencies. This was done to preserve their export advantages.

If they had just sat back and let the market clear, the dollar would have fallen and the U.S. trade deficit would have shrunk. This is all pretty much econ 101 stuff that Wolf should have gotten straight (perhaps he did).

The part that is completely right is that the gap in demand created by the trade deficit (our spending was creating demand in Europe and China, not the United States) created a huge hole in demand that could be filled by the housing bubble. If we had something closer to balanced trade back in the middle of the last decade then the buildup of a housing bubble would have almost certainly led to higher interest rates and higher inflation. This would have choked off the bubble before it grew too large. So in this sense, Wolf is 100 percent on the money in blaming the bubble on the trade deficit.



$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.


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

Page 11 of 403

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.