The Federal Reserve Board yesterday raised interest rates. According to comments from Chair Jerome Powell and other Fed board members, they believe that the unemployment rate is approaching, if not below, levels where it could trigger inflation. The hike yesterday, along with prior hikes and projected future hikes, was done with the intention of keeping the unemployment rate from getting so low that inflation would start to spiral upward.
This is not the same as “express[ing] confidence that raising borrowing costs now won’t hurt growth,” which is the view attributed to Fed officials in the NYT’s “Thursday Briefing” section. The point of raising interest rates is to slow growth, so they absolutely believe that higher interest rates will hurt growth. The point is that the Fed wants to slow growth because it is worried that more rapid growth, and the resulting further decline in unemployment, will trigger inflation.
Chair Powell did say that he didn’t expect higher borrowing costs to choke off growth, but that is not the same as saying that he doesn’t believe it will slow growth.
Thanks to Robert Salzberg for calling this to my attention.
The Federal Reserve Board yesterday raised interest rates. According to comments from Chair Jerome Powell and other Fed board members, they believe that the unemployment rate is approaching, if not below, levels where it could trigger inflation. The hike yesterday, along with prior hikes and projected future hikes, was done with the intention of keeping the unemployment rate from getting so low that inflation would start to spiral upward.
This is not the same as “express[ing] confidence that raising borrowing costs now won’t hurt growth,” which is the view attributed to Fed officials in the NYT’s “Thursday Briefing” section. The point of raising interest rates is to slow growth, so they absolutely believe that higher interest rates will hurt growth. The point is that the Fed wants to slow growth because it is worried that more rapid growth, and the resulting further decline in unemployment, will trigger inflation.
Chair Powell did say that he didn’t expect higher borrowing costs to choke off growth, but that is not the same as saying that he doesn’t believe it will slow growth.
Thanks to Robert Salzberg for calling this to my attention.
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Neil Irwin had an interesting piece discussing various proposals that would ensure that workers share in productivity gains if we start to see massive job displacement due to robots (not much to date). At one point, he says this list would imply more activist government. This is not true. Most of the proposals (which can be found in my 2016 [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ) involve different ways in which the government would structure the market, not necessarily more intervention.
For example, weaker and shorter patents and copyrights actually imply less government intervention in the market. Patents and copyrights are of course government granted monopolies that raise the prices of protected items by several thousand percent, sometimes tens of thousands of percent. Reducing this protection is a move towards a freer market.
Monetary policy that targets full employment is no more “activist” than monetary policy that focuses on keeping inflation down, it is simply a question of priorities. The question is whether the government is working towards ensuring that workers can get jobs or whether it is focused on protecting the wealth of the wealthy.
Work sharing is an alternative to unemployment insurance. With standard unemployment insurance, the government is effectively paying workers half their salary to be completely unemployed. By contrast, work sharing involves half of the wages lost from being partially unemployed due to a cutback in hours. While this is arguably better for workers and employers, since it keeps workers attached to the labor force, this arrangement does not in any obvious way imply more activist government.
It is striking that the rules that set in place the current market structure and the resulting upward redistribution are somehow regarded as natural and that efforts to alter them are regarded as “activist.” In fact, the upward redistribution of the last four decades was engineered by a series of policy shifts, not any natural process of market evolution.
Neil Irwin had an interesting piece discussing various proposals that would ensure that workers share in productivity gains if we start to see massive job displacement due to robots (not much to date). At one point, he says this list would imply more activist government. This is not true. Most of the proposals (which can be found in my 2016 [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ) involve different ways in which the government would structure the market, not necessarily more intervention.
For example, weaker and shorter patents and copyrights actually imply less government intervention in the market. Patents and copyrights are of course government granted monopolies that raise the prices of protected items by several thousand percent, sometimes tens of thousands of percent. Reducing this protection is a move towards a freer market.
Monetary policy that targets full employment is no more “activist” than monetary policy that focuses on keeping inflation down, it is simply a question of priorities. The question is whether the government is working towards ensuring that workers can get jobs or whether it is focused on protecting the wealth of the wealthy.
Work sharing is an alternative to unemployment insurance. With standard unemployment insurance, the government is effectively paying workers half their salary to be completely unemployed. By contrast, work sharing involves half of the wages lost from being partially unemployed due to a cutback in hours. While this is arguably better for workers and employers, since it keeps workers attached to the labor force, this arrangement does not in any obvious way imply more activist government.
It is striking that the rules that set in place the current market structure and the resulting upward redistribution are somehow regarded as natural and that efforts to alter them are regarded as “activist.” In fact, the upward redistribution of the last four decades was engineered by a series of policy shifts, not any natural process of market evolution.
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Not deliberately of course, but he once again used his column to demand that Congress take steps to cut Social Security and Medicare. He denounced the politicians who don’t share his agenda of making the lives of seniors harder as “cowards.” Okay, nothing unusual here.
But let’s take a step back into reality. The economy is hugely poorer today than it would have been if in the wake of the Great Recession we had effective stimulus. (Of course, we would be even better off if the folks running in the economy in the last decade knew some economics. Then they could have taken steps to counter the growth of the housing bubble, so we never would have had the Great Recession.)
The weak stimulus meant that unemployment was higher for a longer period of time than necessary. Many people lost skills and some ended up permanently unemployed. We also saw much less investment than we would have otherwise. As a result, the economy is more than 10 percent smaller today than had been projected back in 2008, before the depth of the crisis became apparent.
This loss in output comes to more than $6,000 per person annually. People who have taken Econ 101 know that it doesn’t make a difference to a person’s take-home pay if you tax their income by 10 percent or whether we cut their before-tax income by 10 percent. Robert Samuelson and his deficit hawk friends cut workers’ before-tax income by 10 percent with their push for austerity, which helped to put a check on effective stimulus. Now, they are deriding politicians as cowards for not wanting to go along with the other half of this agenda, cutting back the Social Security and Medicare benefits that these workers are counting on in their retirement.
It is also worth noting the warped logic in Samuelson and other deficit hawks arguments. Their measure of inter-generational equity is exclusively taxes. So if we hand down a wrecked environment, decrepit infrastructure, and shut down our schools, Samuelson would still have us scoring well on inter-generational equity as long as we haven’t raised taxes.
Samuelson and his Washington Post gang also are denialists in refusing to acknowledge that taxes are not the only way the government pays for things. The government grants patent and copyright monopolies, which effectively allow their holders to apply taxes on a wide range of items like prescription drugs, medical equipment, and software. In the case of prescription drugs alone, the gap between the patent prices we pay and the free market price comes close $400 billion a year (2 percent of GDP).
Presumably, Samuelson and the other deficit hawks don’t like to talk about patent and copyright monopolies because the beneficiaries are their friends. But people who actually care about economics and society’s well-being can’t be so selective in deciding to ignore such enormously important implicit taxes.
Note: Typos corrected from an earlier version, thanks Robert Salzberg.
Not deliberately of course, but he once again used his column to demand that Congress take steps to cut Social Security and Medicare. He denounced the politicians who don’t share his agenda of making the lives of seniors harder as “cowards.” Okay, nothing unusual here.
But let’s take a step back into reality. The economy is hugely poorer today than it would have been if in the wake of the Great Recession we had effective stimulus. (Of course, we would be even better off if the folks running in the economy in the last decade knew some economics. Then they could have taken steps to counter the growth of the housing bubble, so we never would have had the Great Recession.)
The weak stimulus meant that unemployment was higher for a longer period of time than necessary. Many people lost skills and some ended up permanently unemployed. We also saw much less investment than we would have otherwise. As a result, the economy is more than 10 percent smaller today than had been projected back in 2008, before the depth of the crisis became apparent.
This loss in output comes to more than $6,000 per person annually. People who have taken Econ 101 know that it doesn’t make a difference to a person’s take-home pay if you tax their income by 10 percent or whether we cut their before-tax income by 10 percent. Robert Samuelson and his deficit hawk friends cut workers’ before-tax income by 10 percent with their push for austerity, which helped to put a check on effective stimulus. Now, they are deriding politicians as cowards for not wanting to go along with the other half of this agenda, cutting back the Social Security and Medicare benefits that these workers are counting on in their retirement.
It is also worth noting the warped logic in Samuelson and other deficit hawks arguments. Their measure of inter-generational equity is exclusively taxes. So if we hand down a wrecked environment, decrepit infrastructure, and shut down our schools, Samuelson would still have us scoring well on inter-generational equity as long as we haven’t raised taxes.
Samuelson and his Washington Post gang also are denialists in refusing to acknowledge that taxes are not the only way the government pays for things. The government grants patent and copyright monopolies, which effectively allow their holders to apply taxes on a wide range of items like prescription drugs, medical equipment, and software. In the case of prescription drugs alone, the gap between the patent prices we pay and the free market price comes close $400 billion a year (2 percent of GDP).
Presumably, Samuelson and the other deficit hawks don’t like to talk about patent and copyright monopolies because the beneficiaries are their friends. But people who actually care about economics and society’s well-being can’t be so selective in deciding to ignore such enormously important implicit taxes.
Note: Typos corrected from an earlier version, thanks Robert Salzberg.
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The NYT had a good piece highlighting new research by Gabriel Zucman, Thomas Torslov, and Ludvig Wier indicating that multinationals may be shifting as much as 40 percent of their profits to tax havens. This is a pretty serious problem if we actually expect companies to pay their taxes.
As I have pointed in the past, there is actually a very simple mechanism that would pretty much block this sort of tax avoidance. If companies were required to give the government non-voting shares in an amount equal to the targeted tax rate, then it would be virtually impossible for them to escape their income tax liability without also defrauding their shareholders. But I realize this is probably too simple to be taken seriously.
The NYT had a good piece highlighting new research by Gabriel Zucman, Thomas Torslov, and Ludvig Wier indicating that multinationals may be shifting as much as 40 percent of their profits to tax havens. This is a pretty serious problem if we actually expect companies to pay their taxes.
As I have pointed in the past, there is actually a very simple mechanism that would pretty much block this sort of tax avoidance. If companies were required to give the government non-voting shares in an amount equal to the targeted tax rate, then it would be virtually impossible for them to escape their income tax liability without also defrauding their shareholders. But I realize this is probably too simple to be taken seriously.
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It’s well-known that intellectuals have a hard time dealing with new ideas. And, for better or worse, the NYT’s editorial writers are intellectuals.
This made it painful to read its editorial criticizing the Food and Drug Administration’s (FDA) efforts to hasten the approval of new drugs. The piece makes many important points about the problems with an accelerated drug approval process. This increases the risk that drugs will be approved that are of little benefit and possibly even harmful.
While it notes the inevitable tradeoff between the desire to quickly make new drugs available to patients who can be helped and ensuring their safety and effectiveness, it misses the fundamental problem with having the testing done by a company with a financial interest in pushing drugs whether or not they are safe and effective.
This is an especially serious problem given the enormous asymmetry in the information available to the drug company doing the testing and both the FDA and the larger community of researchers. The decision to conceal or misrepresent test results has proven enormously harmful to the public in recent decades, most notably in reference to evidence that the new generation of opioid drugs are addictive.
The obvious solution to this problem would have the government take responsibility for funding clinical testing. The government could still contract out the testing process, but if it took possession of all rights to the drugs, so that they would be available as generics when they were approved, there would be no one with an interest in misrepresenting the research results. (This would not preclude drug companies for paying for their own tests on drugs to which they maintained patent monopolies, but these drugs would be subject to much greater scrutiny for approval. They would also face the risk of competing with drugs that are every bit as effective selling at generic prices.)
While publicly funded drug testing would seem an obvious way to deal with a serious health issue, it would require the sort of new thinking that intellectuals find very difficult.
It’s well-known that intellectuals have a hard time dealing with new ideas. And, for better or worse, the NYT’s editorial writers are intellectuals.
This made it painful to read its editorial criticizing the Food and Drug Administration’s (FDA) efforts to hasten the approval of new drugs. The piece makes many important points about the problems with an accelerated drug approval process. This increases the risk that drugs will be approved that are of little benefit and possibly even harmful.
While it notes the inevitable tradeoff between the desire to quickly make new drugs available to patients who can be helped and ensuring their safety and effectiveness, it misses the fundamental problem with having the testing done by a company with a financial interest in pushing drugs whether or not they are safe and effective.
This is an especially serious problem given the enormous asymmetry in the information available to the drug company doing the testing and both the FDA and the larger community of researchers. The decision to conceal or misrepresent test results has proven enormously harmful to the public in recent decades, most notably in reference to evidence that the new generation of opioid drugs are addictive.
The obvious solution to this problem would have the government take responsibility for funding clinical testing. The government could still contract out the testing process, but if it took possession of all rights to the drugs, so that they would be available as generics when they were approved, there would be no one with an interest in misrepresenting the research results. (This would not preclude drug companies for paying for their own tests on drugs to which they maintained patent monopolies, but these drugs would be subject to much greater scrutiny for approval. They would also face the risk of competing with drugs that are every bit as effective selling at generic prices.)
While publicly funded drug testing would seem an obvious way to deal with a serious health issue, it would require the sort of new thinking that intellectuals find very difficult.
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Dentists in the United States earn on average a bit more than $200,000 a year. This is roughly twice the average in other wealthy countries like Canada and Germany, although still less than the $250,000 average for doctors. Their pay is more than 13 times what a minimum wage worker would take home in a year.
The conventional story for this sort of inequality is that dentists have highly valued skills in today’s economy, whereas most minimum wage workers don’t. As an alternative, let me suggest that we have a whole array of policies, from trade, immigration, labor, and monetary policies that are designed to keep the pay of minimum wage workers down. By contrast, dentists and other highly paid professionals are winners from these policies. (Yes, this is the topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Are Structured to Make the Rich Richer.)
The Washington Post had a piece on the limited access to dental care in many parts of the United States, focusing on a small town in rural West Virginia. While it is an interesting piece, one of the items that is striking is that it never once mentions the possibility of bringing in more foreign dentists to alleviate the shortage it describes and to bring down the price of dental care. (Yes, that means dentists get paid less.)
The Post has run many pieces over the years on how immigrant workers are needed to ensure an adequate supply of farm labor, high tech workers, and even seasonal workers at vacation resorts. It is a bit hard to understand why it would not occur to its reporters and editors to see foreign workers as a possible route for alleviating a shortage of dentists.
This is especially striking since the United States has strong protectionist barriers in place that raise the cost of dental care. We prohibit dentists from practicing in the United States unless they graduate from a US dental school. (We recently have allowed graduates of a limited number of Canadian dental schools to practice in the US also.)
It is absurd to imagine that there are not tens of thousands of well-qualified dentists in places like Germany, France, and other countries. Many would likely welcome the opportunity to double their pay by working in the United States, at least for a few years, if not their whole career.
Needless to say, we can count on much more genuflecting in the Post and elsewhere about designing policies that can reverse inequality. It’s fascinating to see how they refuse to ever discuss the policies that cause inequality.
Dentists in the United States earn on average a bit more than $200,000 a year. This is roughly twice the average in other wealthy countries like Canada and Germany, although still less than the $250,000 average for doctors. Their pay is more than 13 times what a minimum wage worker would take home in a year.
The conventional story for this sort of inequality is that dentists have highly valued skills in today’s economy, whereas most minimum wage workers don’t. As an alternative, let me suggest that we have a whole array of policies, from trade, immigration, labor, and monetary policies that are designed to keep the pay of minimum wage workers down. By contrast, dentists and other highly paid professionals are winners from these policies. (Yes, this is the topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Are Structured to Make the Rich Richer.)
The Washington Post had a piece on the limited access to dental care in many parts of the United States, focusing on a small town in rural West Virginia. While it is an interesting piece, one of the items that is striking is that it never once mentions the possibility of bringing in more foreign dentists to alleviate the shortage it describes and to bring down the price of dental care. (Yes, that means dentists get paid less.)
The Post has run many pieces over the years on how immigrant workers are needed to ensure an adequate supply of farm labor, high tech workers, and even seasonal workers at vacation resorts. It is a bit hard to understand why it would not occur to its reporters and editors to see foreign workers as a possible route for alleviating a shortage of dentists.
This is especially striking since the United States has strong protectionist barriers in place that raise the cost of dental care. We prohibit dentists from practicing in the United States unless they graduate from a US dental school. (We recently have allowed graduates of a limited number of Canadian dental schools to practice in the US also.)
It is absurd to imagine that there are not tens of thousands of well-qualified dentists in places like Germany, France, and other countries. Many would likely welcome the opportunity to double their pay by working in the United States, at least for a few years, if not their whole career.
Needless to say, we can count on much more genuflecting in the Post and elsewhere about designing policies that can reverse inequality. It’s fascinating to see how they refuse to ever discuss the policies that cause inequality.
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The Washington Post may have wanted to make this point more clearly in reporting on Donald Trump’s statements as he headed off to the G–7 meeting in Canada. The piece noted Trump’s Twitter comment:
“‘Take down your tariffs & barriers or we will more than match you!’ he wrote on Twitter. He did not specify what products he could seek to target.”
Tariffs are of course excise taxes. The government imposes taxes on a specific product. In the 19th century, these taxes were the major source of revenue for the US government.
The imposition of tariffs may be a useful strategy to force concessions from trading partners, but that seems an unlikely outcome given Trump’s ill-defined and continually changing demands. In any case, his main weapon is to make US consumers pay more for a wide range of products.
This piece also contains the bizarre assertion that:
“His [Trump’s] view is that other countries have imposed unfair tariffs limiting US imports for decades but that the United States has unwittingly allowed those countries to bring low-cost goods into the United States, hurting US companies and American workers.”
The Washington Post’s reporters do not know what Trump’s “view” is or that he even has anything that can be called a view. They know what he says and does. This is what real newspapers report. Leave the mind reading to the tabloids.
The Washington Post may have wanted to make this point more clearly in reporting on Donald Trump’s statements as he headed off to the G–7 meeting in Canada. The piece noted Trump’s Twitter comment:
“‘Take down your tariffs & barriers or we will more than match you!’ he wrote on Twitter. He did not specify what products he could seek to target.”
Tariffs are of course excise taxes. The government imposes taxes on a specific product. In the 19th century, these taxes were the major source of revenue for the US government.
The imposition of tariffs may be a useful strategy to force concessions from trading partners, but that seems an unlikely outcome given Trump’s ill-defined and continually changing demands. In any case, his main weapon is to make US consumers pay more for a wide range of products.
This piece also contains the bizarre assertion that:
“His [Trump’s] view is that other countries have imposed unfair tariffs limiting US imports for decades but that the United States has unwittingly allowed those countries to bring low-cost goods into the United States, hurting US companies and American workers.”
The Washington Post’s reporters do not know what Trump’s “view” is or that he even has anything that can be called a view. They know what he says and does. This is what real newspapers report. Leave the mind reading to the tabloids.
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