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Home Publications Blogs Beat the Press Fun With Robert Samuelson: The Good News Is Bad News

Fun With Robert Samuelson: The Good News Is Bad News

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Monday, 28 January 2013 05:00

It's always entertaining to read Robert Samuelson's columns on Monday mornings. They are so deliciously orthogonal to reality. Today's column, asking whether America is in decline, is another gem.

He starts with a set of "good news" items from a paper issued by Goldman Sachs:

"For starters, the U.S. economy is still the world’s largest by a long shot. Gross domestic product (GDP) is almost $16 trillion, “nearly double the second largest (China), 2.5 times the third largest (Japan).” Per capita GDP is about $50,000; although 10 other countries have higher figures, most of the countries are small — say, Luxembourg."

That sounds good, except that having double the GDP of China depends on looking at exchange rate measures of GDP. This figure is inflated by the over-valued dollar and under-valued yuan. Using the purchasing power parity measure of GDP, the gap is much smaller, with the IMF projecting it will go the other way by 2017. According to some estimates China's GDP is already larger than ours, so it's probably best to keep this celebration short.

It is true that the U.S. has a higher per capita income than Germany, France, and most other wealthy countries. But by far the main reason for this gap is that we work about 25 percent more on average than workers in Western Europe who all get 4-6 weeks a year vacation, paid parental leave, and paid sick days. This is far more an issue of a different trade-off between work and leisure than a question of people in the United States being richer.

Next we get the good news about our massive energy resources:

"In turn, the oil and gas boom bolsters employment. A study by IHS , a consulting firm, estimates that it has already created 1.7 million direct and indirect jobs. By 2020, there should be 1.3 million more, reckons IHS."

Ignoring the issue of pollution from drilling out this windfall, it is important to put these jobs numbers in perspective. These are gross jobs, not net jobs. In other words, the vast majority of the 3 million jobs that IHS is promising us in oil and gas by 2020 are not additional jobs to those that would otherwise exist in the absence of these resources. These are jobs that displace jobs in education, medical research, health care, and other sectors. Samuelson may be excited that more people will be employed digging gas wells in 2020 and fewer educating the young, but the economic and social benefits of this reallocation of workers are not obvious.

Then we have the fact that we will be younger than other countries:

"American workers will remain younger and more energetic than their rapidly aging rivals. By 2050, workers’ median age in China and Japan will be about 50, a decade higher than in America."

Yeah, you probably jumped ahead on this one. A main reason that we will be younger is that we have shorter life expectancies. The good news just keeps coming.

Then we have the U.S. as the prime destination for highly educated emigrants:

"Moreover, the United States attracts motivated immigrants, including 'highly educated talent.' A Gallup survey of 151 countries found the United States was the top choice for those wanting to move, at 23 percent. At 7 percent, the United Kingdom was second."

Let's see, the U.S. population is roughly five times as large as the U.K.'s population. That means if the poll reflects actual immigration patterns, then the U.K. will draw 50 percent more highly educated workers relative to the size of its population as the United States.

If Samuelson's good news is not quite as good as he would like us to believe, the bad news is also not as bad:

"The truth is that most of the affluent world — again, the United States, Europe and Japan — faces similar threats.

First: Their welfare states are overwhelmed. Aging societies face a collision between promised benefits and acceptable taxes. Either the first must be cut, or the second must be raised."

Actually, if per person health care costs in the United States were remotely comparable to those in other countries then there would be little problem paying for the welfare state in the United States. We would be looking at long-term budget surpluses rather than deficits. And, if our government is too corrupt to reform the U.S. health care system we can always look to take advantage of the more efficient health care systems elsewhere through increased trade in health care services.

Then we have problem number two:

"Second: Economic management is breaking down. Before the 2007-09 financial crisis, most economists thought they could avoid deep slumps and engineer acceptable recoveries. Confidence has given way to contentious disagreements. Policies are improvised."

Yes, this would be the problem that deficit hawks, like Samuelson and his friends at the Washington Post, have managed to brush aside all the evidence and successfully block measures to restore the economy to full employment. Samuelson is right that it is a big problem that such people are taken seriously in policy circles, but this has been a longstanding problem, not something that has just arisen in the last few years.

Finally we get a big "huh?"

"Third: Global markets have run ahead of global politics. Countries depend increasingly on international trade and money flows. But globalized commerce is menaced by nationalistic, ethnic, religious and political differences among nations."

Yes, we have wars and conflicts. Is this new? Is it worse today than 20 or 30 years ago? Will it be worse in the future? I wouldn't necessarily argue the opposite, it's just that Samuelson presents zero evidence that things are getting worse in this area.

Anyhow, there you have it: classic Robert Samuelson. The good news is largely bad and the bad news doesn't make much sense. Enjoy your week!

 

 

 

 

Comments (11)Add Comment
George Will, the Unforced Error Expert of the Economy
written by Last Mover, January 28, 2013 5:17
George Will thinks the economy works like his beloved baseball where winners are rewarded and losers are punished like players in a free market that's actually competitive, where the game scores and individual performance statistics tell the story.

This model is then projected onto the economy to screen out all its faults and failures that provides George Will a living where no hits or runs batted in are necessary, just unforced errors.
...
written by Last Mover, January 28, 2013 6:26
Oops, oh well, if the shoe fits ...
We're number #1/the use of GNP
written by Jennifer, January 28, 2013 8:33
The value to a resident of a country that has the largest GNP is probably about as valuable as having a number one sports team. It has never been clear to me the usefulness of this statistic to most people, i.e. the 99%.
Life expectancies
written by Dennis Doubleday, January 28, 2013 9:21
We are lower than Japan, but China is much lower than we are. In China the demographic difference must be due to the one-child policy.
...
written by Steve Hamlin, January 28, 2013 9:37
(I love Dean's blog, keep up the good fight, just a few corrections)

Dean wrote: "These are jobs that displace jobs in education, medical research, health care, and other sectors."

If labor markets aren't operating at maximum employment, this is not true. Does creating a job for an unemployed person take a employee away from another industry? Isn't this similar to the "crowding out of capital" fallacy in less-than hot markets?

---

Dean wrote: "By 2050, workers' median age in China and Japan will be about 50, a decade higher than in America...A main reason that we will be younger is that we have shorter life expectancies."

You cherry-picked Japanese life expectancy. Current life expectancy at birth is 83.91 for Japan, 78.49 for the United States, and 74.84 for China, for a China+Japan life expectancy of 75.63 (weighted average by population).

So, current life expectancy in the U.S. is LONGER than that of China+Japan.

I have no idea what those countries' life expectancies will be in 2050; I doubt Dean does either.
now we can add leisure into total GDP?
written by pete, January 28, 2013 10:40
European income is misstated because we don't add in the value of leisure...Wow, when I suggested that leisure had value I was abused. Basically, when someone is unemployed, they collect an unemployment check and consume 40 or more hours of additional leisure. Thus, to get them to go to work you have to pay them more than the unemployment check plus the value of leisure. This is traditional labor econ.

Of course, the work week is mandated in Europe, so we don't know the real effect. Probably there are folks doing part time unreported work to make up the difference, much like unemployed can do here. I mean if the undocumented can stand outside the Home Depot and find work, why can't the unemployed.
...
written by skeptonomist, January 28, 2013 10:59
It's not clear why expansion of oil and gas would reduce jobs in in education, medical research and health care, but it probably does affect coal and other areas of energy. Availability of cheap gas probably reduces the pressure to develop alternative energy sources. In the 2012 election Republicans tried to pin job losses in the coal industry on the EPA's interdiction of new coal-fired generating plants, but any actual losses were more likely due to the availability of gas from fracking.
Isn't China still developing?
written by Force Majeure, January 28, 2013 5:29
Re: weighted life expectancy comparison, wouldn't you expect China's life expectancy to rise as it "matures" economically? They'll likely have more MRI machines per capita and that sort of thing by 2050.
...
written by watermelonpunch, January 28, 2013 9:38
Why need we celebrate having a bigger GDP at all? Is it bigger GDP or bust?

As for displacing workers in a less than full employment situation... I think there very well could be a lot of inefficient allocation & undesirable displacement in our labour situation RIGHT NOW.
Oil and Gas Jobs are displacement because models assume full employment
written by Dean, January 29, 2013 3:42
Skeptonomist,

the standard models all assume that we will have a fully employed economy at the end of the decade. The availability of cheap oil and gas would have a very modest effect on the full employment level of employment (maybe 100k at most), that means the rest of the jobs associated with oil and gas production are displaced from elsewhere.
China vs US vs Japan life expectancy data
written by David, January 29, 2013 10:40
It's hard to tell from this graph but in 50 years, one can expect China to surpass the US:

http://data.worldbank.org/indi...aEmail_EXT

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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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