The NYT did what we should expect newspapers to do when reporting on presidential campaigns, it told readers that Donald Trump’s energy plans don’t make any sense. In the first paragraph of a piece on a speech Donald Trump gave in Pittsburgh, the NYT told readers that his promise to increase production of both coal and natural gas is “impossible.” This is of course true, since the fuels are substitutes. In fact, the main reason coal production has fallen sharply in the last five years has been the boom in low cost natural gas from fracking. If we increase the latter further, then it is almost inevitable that it will result in a further drop in coal production.
Mr. Trump may not know he is promising the impossible, but now NYT readers do.
The NYT did what we should expect newspapers to do when reporting on presidential campaigns, it told readers that Donald Trump’s energy plans don’t make any sense. In the first paragraph of a piece on a speech Donald Trump gave in Pittsburgh, the NYT told readers that his promise to increase production of both coal and natural gas is “impossible.” This is of course true, since the fuels are substitutes. In fact, the main reason coal production has fallen sharply in the last five years has been the boom in low cost natural gas from fracking. If we increase the latter further, then it is almost inevitable that it will result in a further drop in coal production.
Mr. Trump may not know he is promising the impossible, but now NYT readers do.
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I am waiting for the Washington Post to make this obvious point. (The same is probably true about wherever Post owner Jeff Bezos lives.) The reason we should expect this piece is that the paper ran a piece that effectively pronounced people who refuse to sell their houses to accommodate development as anti-social characters who are driving up housing costs for everyone else.
The claim is true. If people will make land available at a lower cost to developers then it will reduce the cost of building more housing units. While some of the gains from cheaper land will go into the developers’ pockets, some of it will undoubtedly be passed on in lower rents, as more units will put downward pressure on prices.
All of this is true, exactly as the Post piece says. However, the same argument applies to the land held by Bill Gates and other rich people. If they would make it available to developers at a low cost then it would mean that there could be more housing, which would put downward pressure on prices.
There is an argument that Gates and other rich people may be willing to make their land available at the market price, but this would be extremely expensive and therefore not help efforts to provide low cost housing. However, for someone who owns a home, it can be argued that the market price is the price at which they would be willing to sell it. (Markets are supposed to be about free exchange.) If they are not willing to sell the property at a low price, then the situation is not qualitatively different from Bill Gates being unwilling to sell his estate at a low price.
The issue here seems to be that Gates and other rich people are deemed to be entitled to their large plots of land, even if it makes housing less affordable, whereas the typical person is not. We are supposed to think that the non-affluent person insisting that their property rights be respected — even at the cost of raising housing costs for others — is a bad person. But because Bill Gates is rich, we don’t talk about his impact on housing prices.
I am waiting for the Washington Post to make this obvious point. (The same is probably true about wherever Post owner Jeff Bezos lives.) The reason we should expect this piece is that the paper ran a piece that effectively pronounced people who refuse to sell their houses to accommodate development as anti-social characters who are driving up housing costs for everyone else.
The claim is true. If people will make land available at a lower cost to developers then it will reduce the cost of building more housing units. While some of the gains from cheaper land will go into the developers’ pockets, some of it will undoubtedly be passed on in lower rents, as more units will put downward pressure on prices.
All of this is true, exactly as the Post piece says. However, the same argument applies to the land held by Bill Gates and other rich people. If they would make it available to developers at a low cost then it would mean that there could be more housing, which would put downward pressure on prices.
There is an argument that Gates and other rich people may be willing to make their land available at the market price, but this would be extremely expensive and therefore not help efforts to provide low cost housing. However, for someone who owns a home, it can be argued that the market price is the price at which they would be willing to sell it. (Markets are supposed to be about free exchange.) If they are not willing to sell the property at a low price, then the situation is not qualitatively different from Bill Gates being unwilling to sell his estate at a low price.
The issue here seems to be that Gates and other rich people are deemed to be entitled to their large plots of land, even if it makes housing less affordable, whereas the typical person is not. We are supposed to think that the non-affluent person insisting that their property rights be respected — even at the cost of raising housing costs for others — is a bad person. But because Bill Gates is rich, we don’t talk about his impact on housing prices.
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Europe and the United States both shifted their fiscal policies from stimulus to austerity in 2011. Most economists see this as a major factor explaining the weak recovery from the 2008–2009 recession. Incredibly, in his latest Washington Post column assessing the weakness of the economy, Robert Samuelson never mentions the shift to austerity.
Actually, the column is more than a bit confused since it starts by making the case that the Fed actually should be raising interest rates since the economy is now at or near full employment. This is an argument that the economy is now strong and risks inflation due to too much demand.
But most of the piece then turns to the argument that central banks can’t boost the economy the way they had in the past. He tells readers:
“One explanation lies in the high and unsustainable debts that fueled the Great Recession. “Debt recoveries are not the same as ordinary business cycle recoveries,” Harvard economist Carmen Reinhart [yes, that is Reinhart of the famous Reinhart and Rogoff Excel spreadsheet error that helped launch worldwide austerity because they couldn’t be bothered to check their calculations] recently told a conference at the Peterson Institute. Consumers and companies cut debt loads and rebuild savings. Lenders are more restrained in their lending; borrowers are more restrained in their borrowing. All this curbs spending.
“A variant — one often made by this reporter — is that the recession’s severity, almost entirely unanticipated by economists, business leaders and government officials, has made households and enterprises more precautionary and protective. They save more and spend less to shield themselves against future slumps and unpredicted calamities.”
The problem with both variants of the “reluctant to spend” story is that neither households nor businesses were especially reluctant to spend, as those with access to Commerce Department data know. The figure below shows consumption as a share of GDP. As can be seen, it has been near post-war highs in the years since the recession, as the savings rate has been unusually low. The investment share of GDP has also been comparable to the pre-recession level. Housing construction has been depressed — for the mysterious reason that there was severe overbuilding in the bubble years.
In addition to the austerity which sharply reduced demand from the government the other factor depressing demand (which is not allowed to be mentioned in the pages of the Washington Post) is the trade deficit. The U.S. is still running a trade deficit of roughly $500 billion a year (@ 2.8 percent of GDP). This has the same impact on demand in the economy as if government spending were cut by an additional $500 billion. The demand generated by the housing bubble filled this demand gap, but in the absence of the bubble, there is nothing to fill the gap.
All of this is pretty simple and straightforward, but our elite types don’t like us talking about the trade deficit as a problem. So, we end up with folks like Robert Samuelson telling us it is all very mysterious.
Europe and the United States both shifted their fiscal policies from stimulus to austerity in 2011. Most economists see this as a major factor explaining the weak recovery from the 2008–2009 recession. Incredibly, in his latest Washington Post column assessing the weakness of the economy, Robert Samuelson never mentions the shift to austerity.
Actually, the column is more than a bit confused since it starts by making the case that the Fed actually should be raising interest rates since the economy is now at or near full employment. This is an argument that the economy is now strong and risks inflation due to too much demand.
But most of the piece then turns to the argument that central banks can’t boost the economy the way they had in the past. He tells readers:
“One explanation lies in the high and unsustainable debts that fueled the Great Recession. “Debt recoveries are not the same as ordinary business cycle recoveries,” Harvard economist Carmen Reinhart [yes, that is Reinhart of the famous Reinhart and Rogoff Excel spreadsheet error that helped launch worldwide austerity because they couldn’t be bothered to check their calculations] recently told a conference at the Peterson Institute. Consumers and companies cut debt loads and rebuild savings. Lenders are more restrained in their lending; borrowers are more restrained in their borrowing. All this curbs spending.
“A variant — one often made by this reporter — is that the recession’s severity, almost entirely unanticipated by economists, business leaders and government officials, has made households and enterprises more precautionary and protective. They save more and spend less to shield themselves against future slumps and unpredicted calamities.”
The problem with both variants of the “reluctant to spend” story is that neither households nor businesses were especially reluctant to spend, as those with access to Commerce Department data know. The figure below shows consumption as a share of GDP. As can be seen, it has been near post-war highs in the years since the recession, as the savings rate has been unusually low. The investment share of GDP has also been comparable to the pre-recession level. Housing construction has been depressed — for the mysterious reason that there was severe overbuilding in the bubble years.
In addition to the austerity which sharply reduced demand from the government the other factor depressing demand (which is not allowed to be mentioned in the pages of the Washington Post) is the trade deficit. The U.S. is still running a trade deficit of roughly $500 billion a year (@ 2.8 percent of GDP). This has the same impact on demand in the economy as if government spending were cut by an additional $500 billion. The demand generated by the housing bubble filled this demand gap, but in the absence of the bubble, there is nothing to fill the gap.
All of this is pretty simple and straightforward, but our elite types don’t like us talking about the trade deficit as a problem. So, we end up with folks like Robert Samuelson telling us it is all very mysterious.
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The NYT seems determined to do the equivalent of birtherism with public pensions, implying that there is some conspiracy in the way they do their accounting. The paper ran a major business section article today headlined, “a sour surprise for public pensions: two sets of books.”
The “surprise” should hardly be a surprise to anyone familiar with public pension systems. Pensions calculate liabilities based on the expected rates of return for the assets they hold. This calculation tells governments how much they should expect to put into the fund each year on order to meet their obligations to their retirees. If they do their projections correctly (this is not an issue raised in the piece) then this should be the number that governments are most interested in.
However, the piece highlights “the second set of books.” This is market value of pension funds assets and liabilities. This is where the pensions would sit today if they wanted to cash out of the system, which is exactly the situation described in the piece. The market value would make a pension look considerably worse, since they would have to use a lower discount rate (typically the interest rate paid on either Treasury bonds or municipal bonds) to assess the liability of the funds.
The fact that the latter would show a worse situation for pensions is hardly a secret, nor is it particularly hard to determine the larger liability, at least to a close approximation. If anyone has a knowledge of the projected stream of payouts for a pension, it is a simple matter to throw this up on Excel spreadsheet and apply a different discount rate to it.
In other words, this is a great non-scandal, just like President Obama’s real birth certificate.
The NYT seems determined to do the equivalent of birtherism with public pensions, implying that there is some conspiracy in the way they do their accounting. The paper ran a major business section article today headlined, “a sour surprise for public pensions: two sets of books.”
The “surprise” should hardly be a surprise to anyone familiar with public pension systems. Pensions calculate liabilities based on the expected rates of return for the assets they hold. This calculation tells governments how much they should expect to put into the fund each year on order to meet their obligations to their retirees. If they do their projections correctly (this is not an issue raised in the piece) then this should be the number that governments are most interested in.
However, the piece highlights “the second set of books.” This is market value of pension funds assets and liabilities. This is where the pensions would sit today if they wanted to cash out of the system, which is exactly the situation described in the piece. The market value would make a pension look considerably worse, since they would have to use a lower discount rate (typically the interest rate paid on either Treasury bonds or municipal bonds) to assess the liability of the funds.
The fact that the latter would show a worse situation for pensions is hardly a secret, nor is it particularly hard to determine the larger liability, at least to a close approximation. If anyone has a knowledge of the projected stream of payouts for a pension, it is a simple matter to throw this up on Excel spreadsheet and apply a different discount rate to it.
In other words, this is a great non-scandal, just like President Obama’s real birth certificate.
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The NYT had a good article on the lobbying effort by Mylan, the manufacturer of EpiPen, to have its product labeled as a preventive drug by the federal government. If EpiPen can get this label, then insurers will not be allowed to require patients to make a copayment. This means that patients will not directly see the price of the drug, although it will be passed on in the form of higher insurance premiums. Mylan is betting that this will make it easier to charge prices that are several thousand percent above its cost of production.
The piece reports on Mylan’s intensive lobbying campaign to gain preventive status. Mylan has paid for research, paid consulting fees to academics, and paid patient advocacy groups to promote use of EpiPen and help gain it the status of a preventive medicine.
This is exactly the sort of corruption that is predicted by economic theory when government intervention creates a large gap between the protected price and the free market price. While EpiPen would likely sell for $10–$20 in a free market, its patent protection allows it to sell for several thousand percent above this price. Economic theory predicts that a tariff of 10–20 percent will provide incentives for the beneficiaries to lobby to increase the benefits of this protection. In the same way a patent monopoly that raises the price of the protected product by 2000 percent will provide similar incentives, except they will be several orders of magnitude larger.
This is relevant to the Trans-Pacific Partnership (TPP) since one of its main outcomes will be to make patents and related protections, especially for prescription drugs, longer and stronger. While its proponents, including the news sections of major newspapers like the NYT, call the TPP a “free trade” agreement, most tariff barriers between the countries in the deal are already low. The effects of increased patent and related protections will almost certainly have a greater impact than the modest reduction in tariffs provided for in the deal.
Therefore the TPP can more accurately be thought of as a protectionism pact. It will increase the number and importance of EpiPen-type incidents in the United States and other countries in the TPP.
The NYT had a good article on the lobbying effort by Mylan, the manufacturer of EpiPen, to have its product labeled as a preventive drug by the federal government. If EpiPen can get this label, then insurers will not be allowed to require patients to make a copayment. This means that patients will not directly see the price of the drug, although it will be passed on in the form of higher insurance premiums. Mylan is betting that this will make it easier to charge prices that are several thousand percent above its cost of production.
The piece reports on Mylan’s intensive lobbying campaign to gain preventive status. Mylan has paid for research, paid consulting fees to academics, and paid patient advocacy groups to promote use of EpiPen and help gain it the status of a preventive medicine.
This is exactly the sort of corruption that is predicted by economic theory when government intervention creates a large gap between the protected price and the free market price. While EpiPen would likely sell for $10–$20 in a free market, its patent protection allows it to sell for several thousand percent above this price. Economic theory predicts that a tariff of 10–20 percent will provide incentives for the beneficiaries to lobby to increase the benefits of this protection. In the same way a patent monopoly that raises the price of the protected product by 2000 percent will provide similar incentives, except they will be several orders of magnitude larger.
This is relevant to the Trans-Pacific Partnership (TPP) since one of its main outcomes will be to make patents and related protections, especially for prescription drugs, longer and stronger. While its proponents, including the news sections of major newspapers like the NYT, call the TPP a “free trade” agreement, most tariff barriers between the countries in the deal are already low. The effects of increased patent and related protections will almost certainly have a greater impact than the modest reduction in tariffs provided for in the deal.
Therefore the TPP can more accurately be thought of as a protectionism pact. It will increase the number and importance of EpiPen-type incidents in the United States and other countries in the TPP.
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This is another problem with numbers story. Steve Inskeep interviewed Daniel Garza of the Libre Initiative, a Republican group targeting Latino voters in Nevada and Florida, on Morning Edition on Tuesday. In making his case Mr. Garza brought up the issue of the minimum wage:
“On the issue of minimum wage, which is one that is always used as, you know, you don’t care for decent wages, here is a case where you have Latino minorities who are at 20 percent unemployment and you want to double the cost to hire them by doubling the minimum wage. How is that going to help young Latinos?”
According to the Bureau of Labor Statistics, the unemployment rate for Hispanics in August was 5.6 percent. Even if Mr. Garza was referring to Hispanic teens, he is still a fair bit off. The unemployment rate for Hispanic teens was 15.0 percent in August, up from 14.5 percent in July.
This is another problem with numbers story. Steve Inskeep interviewed Daniel Garza of the Libre Initiative, a Republican group targeting Latino voters in Nevada and Florida, on Morning Edition on Tuesday. In making his case Mr. Garza brought up the issue of the minimum wage:
“On the issue of minimum wage, which is one that is always used as, you know, you don’t care for decent wages, here is a case where you have Latino minorities who are at 20 percent unemployment and you want to double the cost to hire them by doubling the minimum wage. How is that going to help young Latinos?”
According to the Bureau of Labor Statistics, the unemployment rate for Hispanics in August was 5.6 percent. Even if Mr. Garza was referring to Hispanic teens, he is still a fair bit off. The unemployment rate for Hispanic teens was 15.0 percent in August, up from 14.5 percent in July.
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In a blog post earlier this week, former Fed Chair Ben Bernanke argued for a policy of negative nominal interest rates as being preferable to a higher inflation target for boosting the economy in a severe slump. While his concerns about the downsides of a higher inflation target seem somewhat overblown, there is an important negative aspect to his proposal for negative rates that his post overlooks.
If banks have to pay money on the reserves they hold, then they have less incentive to acquire deposits. This could have a large impact on their willingness to keep smaller checking and saving accounts for low- and moderate-income people. They often lose money on these accounts already, but may consider the losses worth bearing in the hope that these customers may have larger accounts in the future and/or rely on the bank for profitable services.
If interest rates on reserves turn negative, then the losses on these accounts would be even larger. This could result in banks charging for accounts that are now free and raising their fees on services for which they already charge. As a result, many low- and moderate-income people are likely to give up their bank accounts.
According to the FDIC, there were 9.6 million households without bank accounts in 2013. This number could grow substantially if banks had to start paying interest on the reserves they held.
There are potential remedies for this situation. Banks could be required to offer basic banking services at little or no cost, with other customers effectively subsidizing this service. Alternatively, we could adopt a system of postal banking which would allow low- and moderate-income households to get basic banking services through the post office.
Either of these routes would offset the risk that negative interest rates could lead to a larger unbanked population. However, without these fixes in place, the prospect of a much larger unbanked population is major downside to a policy of negative interest rates.
In a blog post earlier this week, former Fed Chair Ben Bernanke argued for a policy of negative nominal interest rates as being preferable to a higher inflation target for boosting the economy in a severe slump. While his concerns about the downsides of a higher inflation target seem somewhat overblown, there is an important negative aspect to his proposal for negative rates that his post overlooks.
If banks have to pay money on the reserves they hold, then they have less incentive to acquire deposits. This could have a large impact on their willingness to keep smaller checking and saving accounts for low- and moderate-income people. They often lose money on these accounts already, but may consider the losses worth bearing in the hope that these customers may have larger accounts in the future and/or rely on the bank for profitable services.
If interest rates on reserves turn negative, then the losses on these accounts would be even larger. This could result in banks charging for accounts that are now free and raising their fees on services for which they already charge. As a result, many low- and moderate-income people are likely to give up their bank accounts.
According to the FDIC, there were 9.6 million households without bank accounts in 2013. This number could grow substantially if banks had to start paying interest on the reserves they held.
There are potential remedies for this situation. Banks could be required to offer basic banking services at little or no cost, with other customers effectively subsidizing this service. Alternatively, we could adopt a system of postal banking which would allow low- and moderate-income households to get basic banking services through the post office.
Either of these routes would offset the risk that negative interest rates could lead to a larger unbanked population. However, without these fixes in place, the prospect of a much larger unbanked population is major downside to a policy of negative interest rates.
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