I have not generally been in the business of defending Amazon, but I thought I would throw in a word or two of clarification around Donald Trump’s claim that the U.S. Postal Service is “dumber and poorer” because of its deal with Amazon. Trump’s claim is based on a Citigroup study that found that Postal Service loses an average of $1.46 on each package it ships for Amazon. The Postal Service claims that it profits from its arrangement with Amazon and that it would lose business if it raises its rates.
There actually is a very simple explanation for the differing assessments. The Postal Service has a huge amount of fixed costs in the form of retiree benefits and especially retiree health benefits. Congress has required that the Postal Service pre-fund 75 years of retiree health benefits. This requirement sets the Postal Service apart from private businesses, who do little or no pre-funding of retiree health benefits. It also accounts for almost all of the Postal Service’s losses over the last decade.
But the accounting issue is independent of this requirement imposed by Congress. Essentially what the Citigroup study did was impute the largely fixed cost of retiree health benefits to the various sections of the Postal Service’s business. If these costs are imputed to its delivery of packages for Amazon, the Citigroup study finds they are coming up short by $1.46 a package.
But this is just bad economics. The question for the Postal Service is whether it is recovering its marginal costs — the additional amount spent on labor, gas, wear and tear on vehicles, etc. — with the prices it is charging Amazon. The Postal Service claims it does (I have not tried to check their calculations), and if that is true, the Postal Service is coming out ahead from its deal with Amazon.
So the loss claimed by the Citigroup study is clearly wrong and Donald Trump is wrong to be using it to attack the Postal Service, Amazon, and Jeff Bezos. On the other hand, Amazon has gotten a subsidy worth tens of billions of dollars since its creation as a result of not being required to collect sales taxes in most states for most of its existence. This subsidy almost certainly exceeds its cumulative profits since it was created, so people do have serious cause to complain about Amazon.
I have not generally been in the business of defending Amazon, but I thought I would throw in a word or two of clarification around Donald Trump’s claim that the U.S. Postal Service is “dumber and poorer” because of its deal with Amazon. Trump’s claim is based on a Citigroup study that found that Postal Service loses an average of $1.46 on each package it ships for Amazon. The Postal Service claims that it profits from its arrangement with Amazon and that it would lose business if it raises its rates.
There actually is a very simple explanation for the differing assessments. The Postal Service has a huge amount of fixed costs in the form of retiree benefits and especially retiree health benefits. Congress has required that the Postal Service pre-fund 75 years of retiree health benefits. This requirement sets the Postal Service apart from private businesses, who do little or no pre-funding of retiree health benefits. It also accounts for almost all of the Postal Service’s losses over the last decade.
But the accounting issue is independent of this requirement imposed by Congress. Essentially what the Citigroup study did was impute the largely fixed cost of retiree health benefits to the various sections of the Postal Service’s business. If these costs are imputed to its delivery of packages for Amazon, the Citigroup study finds they are coming up short by $1.46 a package.
But this is just bad economics. The question for the Postal Service is whether it is recovering its marginal costs — the additional amount spent on labor, gas, wear and tear on vehicles, etc. — with the prices it is charging Amazon. The Postal Service claims it does (I have not tried to check their calculations), and if that is true, the Postal Service is coming out ahead from its deal with Amazon.
So the loss claimed by the Citigroup study is clearly wrong and Donald Trump is wrong to be using it to attack the Postal Service, Amazon, and Jeff Bezos. On the other hand, Amazon has gotten a subsidy worth tens of billions of dollars since its creation as a result of not being required to collect sales taxes in most states for most of its existence. This subsidy almost certainly exceeds its cumulative profits since it was created, so people do have serious cause to complain about Amazon.
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The Washington Post ran an article telling readers that employers are finding it difficult to attract qualified workers. As the piece says:
“Firms that save money from the tax cuts may simply be unable to find more workers to hire at the price they are willing to pay.”
This is really the core of the problem. There is apparently a huge skills gap among employers at firms across the country. They don’t seem to understand basic market principles. If they want to hire more workers, then they have to offer higher wages.
There are always workers out there. They may work for a competitor or live in another city, but for a high enough wage they will change jobs or move. According to the Post piece, many employers don’t seem to understand this basic fact, leaving them unable to get the workers they say they need.
The Post piece suggests this problem is widespread. It notes manufacturing and trucking as areas facing serious labor shortages. According to the Bureau of Labor Statistics, the average hourly wage in manufacturing has risen by just 1.6 percent over the last year. That is slightly less than inflation over this period. The average hourly wage has risen by 4.4 percent in trucking over the last year, but this increase comes after a rise of just 1.0 percent in 2016 and a modest decline in 2015. If competent employers were facing a labor shortage, wages would be rising far more rapidly.
It is also worth noting that these labor shortage pieces are 180 degrees at odds with the “robots taking our jobs” story. That is a story of a labor glut. It is incredible that we often see these stories of labor shortages and labor glut running side by side. It would be like having an article warning of bone-chilling cold right next to an article talking about a record heat wave. In principle, one or the other can be the case, but both cannot be true at the same time.
The Washington Post ran an article telling readers that employers are finding it difficult to attract qualified workers. As the piece says:
“Firms that save money from the tax cuts may simply be unable to find more workers to hire at the price they are willing to pay.”
This is really the core of the problem. There is apparently a huge skills gap among employers at firms across the country. They don’t seem to understand basic market principles. If they want to hire more workers, then they have to offer higher wages.
There are always workers out there. They may work for a competitor or live in another city, but for a high enough wage they will change jobs or move. According to the Post piece, many employers don’t seem to understand this basic fact, leaving them unable to get the workers they say they need.
The Post piece suggests this problem is widespread. It notes manufacturing and trucking as areas facing serious labor shortages. According to the Bureau of Labor Statistics, the average hourly wage in manufacturing has risen by just 1.6 percent over the last year. That is slightly less than inflation over this period. The average hourly wage has risen by 4.4 percent in trucking over the last year, but this increase comes after a rise of just 1.0 percent in 2016 and a modest decline in 2015. If competent employers were facing a labor shortage, wages would be rising far more rapidly.
It is also worth noting that these labor shortage pieces are 180 degrees at odds with the “robots taking our jobs” story. That is a story of a labor glut. It is incredible that we often see these stories of labor shortages and labor glut running side by side. It would be like having an article warning of bone-chilling cold right next to an article talking about a record heat wave. In principle, one or the other can be the case, but both cannot be true at the same time.
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The New York Times had an article on President Trump’s plans to cut the US contribution to the United Nations. The article told readers:
“Under a formula tied to economic size and other measurements established under an article of the United Nations Charter, the United States is responsible for 22 percent of the United Nations operating budget, the largest contribution. It paid about $1.2 billion of the 2016-2017 budget of $5.4 billion.
“The United States also is the largest single financial contributor, at 28.5 percent, to a separate budget for United Nations peacekeeping operations, which totals $6.8 billion in the 2017-2018 budget finalized in June.”
This might have led readers to believe that the combined total of slightly less than $3.1 billion is a substantial cost to US taxpayers. In fact, it is slightly less than 0.08 percent of projected federal spending in 2018. While the value of this spending can be debated, it will not lead to major savings to the government if it is cut back or even eliminated altogether.
It would have been helpful if the NYT had made some effort to put this number in context since virtually none of its readers has any idea of the importance of this level of spending as it is written in the piece.
The New York Times had an article on President Trump’s plans to cut the US contribution to the United Nations. The article told readers:
“Under a formula tied to economic size and other measurements established under an article of the United Nations Charter, the United States is responsible for 22 percent of the United Nations operating budget, the largest contribution. It paid about $1.2 billion of the 2016-2017 budget of $5.4 billion.
“The United States also is the largest single financial contributor, at 28.5 percent, to a separate budget for United Nations peacekeeping operations, which totals $6.8 billion in the 2017-2018 budget finalized in June.”
This might have led readers to believe that the combined total of slightly less than $3.1 billion is a substantial cost to US taxpayers. In fact, it is slightly less than 0.08 percent of projected federal spending in 2018. While the value of this spending can be debated, it will not lead to major savings to the government if it is cut back or even eliminated altogether.
It would have been helpful if the NYT had made some effort to put this number in context since virtually none of its readers has any idea of the importance of this level of spending as it is written in the piece.
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Most economists didn’t accept the view that the corporate tax cuts pushed through by the Trump administration and the Republican Congress would lead to a large increase in investment in the United States. (See, for example, this piece by Larry Summers.) This is why few accepted the claim that the additional growth from the tax cut would offset much or all of the revenue lost.
However, The New York Times appears to have accepted the Trump administration’s view in an article arguing that European countries may start cutting taxes as well in order to remain competitive. The piece presents the views of two top executives of major foreign companies arguing that other countries will have to respond by also lowering their corporate tax rates.
It is not surprising that executives of major foreign corporations would argue that their companies need tax cuts. After all, the political philosophy that rich people need tax cuts goes beyond the United States. The NYT should have included the views on this topic of someone who does not stand to profit in a major way from large tax cuts elsewhere.
Most economists didn’t accept the view that the corporate tax cuts pushed through by the Trump administration and the Republican Congress would lead to a large increase in investment in the United States. (See, for example, this piece by Larry Summers.) This is why few accepted the claim that the additional growth from the tax cut would offset much or all of the revenue lost.
However, The New York Times appears to have accepted the Trump administration’s view in an article arguing that European countries may start cutting taxes as well in order to remain competitive. The piece presents the views of two top executives of major foreign companies arguing that other countries will have to respond by also lowering their corporate tax rates.
It is not surprising that executives of major foreign corporations would argue that their companies need tax cuts. After all, the political philosophy that rich people need tax cuts goes beyond the United States. The NYT should have included the views on this topic of someone who does not stand to profit in a major way from large tax cuts elsewhere.
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The Republicans in Congress and Donald Trump were really hoping to sock it to the blue states like California and New York, which voted against him by large margins. This is what limiting the deduction for state and local income and property taxes is all about. These states also have relatively high taxes because they try to do things like provide people with decent health care and education.
However, it is not difficult to design a way around the Trump scam. States can impose state-level, employer-side payroll taxes. For the most part, these taxes would be deducted from workers’ pay (e.g. if an employer has to pay a 5 percent payroll tax, she will likely reduce her workers’ pay by 5 percent), but this has the great advantage that workers will not be taxed on money that they don’t see.
If the income tax is reduced by the same amount as the payroll tax, the state gets the same amount of money, the worker ends up in the same place and the Republicans don’t get to screw the blue states. Oh yeah, the federal government ends up with less revenue, but that will be happening anyhow as the accountants and tax lawyers get to their games.
The Republicans in Congress and Donald Trump were really hoping to sock it to the blue states like California and New York, which voted against him by large margins. This is what limiting the deduction for state and local income and property taxes is all about. These states also have relatively high taxes because they try to do things like provide people with decent health care and education.
However, it is not difficult to design a way around the Trump scam. States can impose state-level, employer-side payroll taxes. For the most part, these taxes would be deducted from workers’ pay (e.g. if an employer has to pay a 5 percent payroll tax, she will likely reduce her workers’ pay by 5 percent), but this has the great advantage that workers will not be taxed on money that they don’t see.
If the income tax is reduced by the same amount as the payroll tax, the state gets the same amount of money, the worker ends up in the same place and the Republicans don’t get to screw the blue states. Oh yeah, the federal government ends up with less revenue, but that will be happening anyhow as the accountants and tax lawyers get to their games.
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The nonsense is flowing thick and heavy now that Congress has just voted to hand the bulk of a $1.5 trillion tax cut to the richest people in the country. Vox is out front getting its two cents in, telling us the big problem is the government debt built up by the baby boomers and the Social Security and Medicare that they plan to collect.The context is an interview with Bruce Gibney who is hawking a new book blaming the baby boomers for everything evil.
The confusion is thick and heavy here. For example, Gibney whines about the debt-to-GDP ratio. Fans of economics might refer him to burden of servicing the debt, which is less than 1.0 percent of GDP after subtracting the money rebated by the Federal Reserve Board to the Treasury. By comparison, it was more than 3.0 percent of GDP in the 1990s. It is also worth noting that this burden did not prevent the 1990s from being a very prosperous decade by almost any measure.
Then we get the usual complaint about Social Security and Medicare. Yeah, isn’t it outrageous how boomers think that they should be able to have an income and health care after a lifetime working? For what it is worth, boomers get a much worse return on their Social Security than the generations that preceded them, both because they paid a much higher tax rate during their working life and also because of the increase in the normal retirement age from 65 to 67.
Medicare is expensive, but that is because we pay twice as much for our doctors, drugs, and medical equipment as people in other countries. This is a big deal, but not one that has boomers as the villains.
Incredibly, in calculating debt Gibney somehow has not noticed the cost of patent and copyright monopolies that the government grants as a way of paying for innovation. In the case of prescription drugs alone, this costs around $370 billion a year, roughly equal to 40 percent of Social Security spending. (This issue is discussed in Chapter 5 of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
If we want to talk about harm to future generations we should also talk about the completely unnecessary austerity pushed by the deficit hawks in the years following the 2008 crash. This has cost us more than $1 trillion a year in lost output ($3,000 per person, per year).
We live in a society where the rich are running wild trying to take everything they can from the rest of us and put in their own pockets. So naturally, that increases the demand for people like Gibney who try to get people to beat up their parents and grandparents and ignore this massive heist by the rich.
The nonsense is flowing thick and heavy now that Congress has just voted to hand the bulk of a $1.5 trillion tax cut to the richest people in the country. Vox is out front getting its two cents in, telling us the big problem is the government debt built up by the baby boomers and the Social Security and Medicare that they plan to collect.The context is an interview with Bruce Gibney who is hawking a new book blaming the baby boomers for everything evil.
The confusion is thick and heavy here. For example, Gibney whines about the debt-to-GDP ratio. Fans of economics might refer him to burden of servicing the debt, which is less than 1.0 percent of GDP after subtracting the money rebated by the Federal Reserve Board to the Treasury. By comparison, it was more than 3.0 percent of GDP in the 1990s. It is also worth noting that this burden did not prevent the 1990s from being a very prosperous decade by almost any measure.
Then we get the usual complaint about Social Security and Medicare. Yeah, isn’t it outrageous how boomers think that they should be able to have an income and health care after a lifetime working? For what it is worth, boomers get a much worse return on their Social Security than the generations that preceded them, both because they paid a much higher tax rate during their working life and also because of the increase in the normal retirement age from 65 to 67.
Medicare is expensive, but that is because we pay twice as much for our doctors, drugs, and medical equipment as people in other countries. This is a big deal, but not one that has boomers as the villains.
Incredibly, in calculating debt Gibney somehow has not noticed the cost of patent and copyright monopolies that the government grants as a way of paying for innovation. In the case of prescription drugs alone, this costs around $370 billion a year, roughly equal to 40 percent of Social Security spending. (This issue is discussed in Chapter 5 of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
If we want to talk about harm to future generations we should also talk about the completely unnecessary austerity pushed by the deficit hawks in the years following the 2008 crash. This has cost us more than $1 trillion a year in lost output ($3,000 per person, per year).
We live in a society where the rich are running wild trying to take everything they can from the rest of us and put in their own pockets. So naturally, that increases the demand for people like Gibney who try to get people to beat up their parents and grandparents and ignore this massive heist by the rich.
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In a rare, serious column discussing various proposals to improve labor market outcomes, David Brooks makes the common “problem with men” mistake. The piece refers to men dropping out of the labor force at alarming rates and then endorses programs to induce men to get over cultural stereotypes and apply for jobs in fast-growing occupations dominated by women, like nursing and teaching.
Actually, the labor market experience of less-educated men has not been very different from the experience of less educated women, as was shown in a recent paper by Brian Dew. The employment rate for men between the ages of 25 and 34 with a high school degree or less is down by 8.2 percentage points from its peak in 1999. For women, it is down by 6.9 percentage points.
For less-educated workers between the ages of 35 and 44 the employment rate is down by 4.1 percentage points from a 1999 peak for men and 9.7 percentage points for women. For older prime-age workers (45 and 54) the employment rate is down 3.3 percentage points from a 2000 peak for men and by 6.7 percentage points for women.
The fact that there have been sharp declines in employment rates for both less-educated men and women indicates the problem is more likely a problem of weak demand than some gender-specific problem with men. Nonetheless, policies to overcome gender stereotypes are a good thing, as are policies to end sexual harassment and other factors that keep women out of many higher paying jobs.
In a rare, serious column discussing various proposals to improve labor market outcomes, David Brooks makes the common “problem with men” mistake. The piece refers to men dropping out of the labor force at alarming rates and then endorses programs to induce men to get over cultural stereotypes and apply for jobs in fast-growing occupations dominated by women, like nursing and teaching.
Actually, the labor market experience of less-educated men has not been very different from the experience of less educated women, as was shown in a recent paper by Brian Dew. The employment rate for men between the ages of 25 and 34 with a high school degree or less is down by 8.2 percentage points from its peak in 1999. For women, it is down by 6.9 percentage points.
For less-educated workers between the ages of 35 and 44 the employment rate is down by 4.1 percentage points from a 1999 peak for men and 9.7 percentage points for women. For older prime-age workers (45 and 54) the employment rate is down 3.3 percentage points from a 2000 peak for men and by 6.7 percentage points for women.
The fact that there have been sharp declines in employment rates for both less-educated men and women indicates the problem is more likely a problem of weak demand than some gender-specific problem with men. Nonetheless, policies to overcome gender stereotypes are a good thing, as are policies to end sexual harassment and other factors that keep women out of many higher paying jobs.
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An article in the NYT on China’s plans to create a market for trading permits to emit greenhouse gases told readers that China has the world’s second-largest economy after the United States. According to the International Monetary Fund’s estimates, China’s economy is currently more than 20 percent larger than the U.S. economy, using a purchasing power parity measure. This measure, which applies a common set of prices to the goods and services produced in both countries, is clearly the correct measure of output to use in an analysis of greenhouse gas emissions.
The piece also wrongly asserts that:
“Chinese emissions per person are still somewhat less than the average per capita figure in the United States, although the gap has been narrowing.”
While it is true that the gap in per person emissions has been narrowing, the U.S. still emits more than twice as much per person as China.
An article in the NYT on China’s plans to create a market for trading permits to emit greenhouse gases told readers that China has the world’s second-largest economy after the United States. According to the International Monetary Fund’s estimates, China’s economy is currently more than 20 percent larger than the U.S. economy, using a purchasing power parity measure. This measure, which applies a common set of prices to the goods and services produced in both countries, is clearly the correct measure of output to use in an analysis of greenhouse gas emissions.
The piece also wrongly asserts that:
“Chinese emissions per person are still somewhat less than the average per capita figure in the United States, although the gap has been narrowing.”
While it is true that the gap in per person emissions has been narrowing, the U.S. still emits more than twice as much per person as China.
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