Max Ehrenfreund had an interesting column reporting on research that showed the prices of goods purchased by higher income households fell more rapidly than the prices of goods purchased by lower income households. The basic argument is that new goods introduced into the market tend to be targeted towards higher end households. These new goods put downward pressure on the prices of the older goods with which they are competing. Since these are goods disproportionately purchased by higher end households (e.g. craft beers), it means the goods they consume rise less rapidly in price.
This story is actually not new. Two decades ago there was an effort to reduce Social Security by claiming that the consumer price index (CPI) overstates the true rate of inflation. (Social Security benefits are indexed to the CPI after workers retire.) One of the main arguments for an overstatement was that the new goods that were declining rapidly in price often did not enter the CPI basket until after their most rapid period of price decline. The poster child for this argument was the cell phone, which didn’t get into the index due to a fluke until 1998, when almost half of all households owned a cell phone. (Due to changes in procedures, this sort of mistake is virtually impossible with the current methodology.)
However, with the cell phone and other new items, the first purchasers who would enjoy these large price declines would be overwhelmingly high end individuals. The new goods argument might be a compelling case that the CPI overstates the rate of inflation experienced by the wealthy, but the story is much less plausible for the less well off segment of the population. The failure to include the cell phone in the CPI did not lead to any overstatement whatsoever in the rate of inflation experienced by the half of the population that didn’t own a cell phone, as some of us tried to point out at the time.
There are likely to be continuing battles over the rate of inflation experienced by different groups. There has been some research arguing that the poor actually see a lower rate of inflation than wealthy households. (See Shawn Fremstad’s analysis here.) Many elite types, like the Washington Post editorial board, continue to argue that Social Security should be cut because the CPI overstates the true rate of inflation. Unfortunately, all of these people oppose constructing an elderly CPI that would determine the extent to which this claim is true. Anyhow, it is apparently much easier to cut benefits for people by changing the measurements than by actually voting directly for benefit cuts, so look for many more battles over the measurement of inflation in the years ahead.
Max Ehrenfreund had an interesting column reporting on research that showed the prices of goods purchased by higher income households fell more rapidly than the prices of goods purchased by lower income households. The basic argument is that new goods introduced into the market tend to be targeted towards higher end households. These new goods put downward pressure on the prices of the older goods with which they are competing. Since these are goods disproportionately purchased by higher end households (e.g. craft beers), it means the goods they consume rise less rapidly in price.
This story is actually not new. Two decades ago there was an effort to reduce Social Security by claiming that the consumer price index (CPI) overstates the true rate of inflation. (Social Security benefits are indexed to the CPI after workers retire.) One of the main arguments for an overstatement was that the new goods that were declining rapidly in price often did not enter the CPI basket until after their most rapid period of price decline. The poster child for this argument was the cell phone, which didn’t get into the index due to a fluke until 1998, when almost half of all households owned a cell phone. (Due to changes in procedures, this sort of mistake is virtually impossible with the current methodology.)
However, with the cell phone and other new items, the first purchasers who would enjoy these large price declines would be overwhelmingly high end individuals. The new goods argument might be a compelling case that the CPI overstates the rate of inflation experienced by the wealthy, but the story is much less plausible for the less well off segment of the population. The failure to include the cell phone in the CPI did not lead to any overstatement whatsoever in the rate of inflation experienced by the half of the population that didn’t own a cell phone, as some of us tried to point out at the time.
There are likely to be continuing battles over the rate of inflation experienced by different groups. There has been some research arguing that the poor actually see a lower rate of inflation than wealthy households. (See Shawn Fremstad’s analysis here.) Many elite types, like the Washington Post editorial board, continue to argue that Social Security should be cut because the CPI overstates the true rate of inflation. Unfortunately, all of these people oppose constructing an elderly CPI that would determine the extent to which this claim is true. Anyhow, it is apparently much easier to cut benefits for people by changing the measurements than by actually voting directly for benefit cuts, so look for many more battles over the measurement of inflation in the years ahead.
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Economists have been largely puzzled by the sharp slowdown in productivity growth over the last decade. (Sorry, robot fans, they aren’t taking jobs yet.) Anyhow, productivity growth has fallen from nearly 3.0 percent annually from 1995 to 2005, to less than 1.0 percent over the last decade. We’ve actually seen negative growth over the last two years.
Anyhow, there are no widely accepted explanations for this sharp falloff. (My story is that in a weak labor market with workers desperate to find jobs, many employers are hiring them at very low productivity jobs. Think of the midnight shift at a convenience store or the greeters are Walmart. In a stronger economy, these workers would move to higher paying jobs and these low productivity jobs would go unfilled.)
The NYT reports on a possible way of increasing productivity, shorten work hours. It reports on the situation in Gothenburg, Sweden, where the city put in place a 6-hour workday for public employees last year. According to the piece, the workers hugely value the shorter workday. They claim that it has improved the quality of their lives and also made them more productive workers.
While there is no hard data to support this contention, the one numerical example given seems to support the claim. The article reports on a hospital that had 89 workers before the experiment started, which hired an additional 15 workers to compensate for the shorter workdays. If all of the 89 workers had previously put in 8-hours days, and all 104 workers (counting the 15 new hires) now work 6-hour days, this would imply an 14.1 percent increase in productivity, assuming no change in output. This would be an enormous gain — more than the U.S. economy has gained over the last decade. In fact, the piece indicates there actually has been an increase in output, implying an even larger gain in productivity.
In general, it is not easy to find ways to increase productivity. The standard recipes involve investing in more capital and better education and training for the workforce. While both of these routes are good, they are expensive and the gains will typically take a long period of time to be realized. If shortening work hours actually does lead to gains in productivity, this would be a remarkably easy route to accomplish this goal. And, it would make workers’ lives much better.
Economists have been largely puzzled by the sharp slowdown in productivity growth over the last decade. (Sorry, robot fans, they aren’t taking jobs yet.) Anyhow, productivity growth has fallen from nearly 3.0 percent annually from 1995 to 2005, to less than 1.0 percent over the last decade. We’ve actually seen negative growth over the last two years.
Anyhow, there are no widely accepted explanations for this sharp falloff. (My story is that in a weak labor market with workers desperate to find jobs, many employers are hiring them at very low productivity jobs. Think of the midnight shift at a convenience store or the greeters are Walmart. In a stronger economy, these workers would move to higher paying jobs and these low productivity jobs would go unfilled.)
The NYT reports on a possible way of increasing productivity, shorten work hours. It reports on the situation in Gothenburg, Sweden, where the city put in place a 6-hour workday for public employees last year. According to the piece, the workers hugely value the shorter workday. They claim that it has improved the quality of their lives and also made them more productive workers.
While there is no hard data to support this contention, the one numerical example given seems to support the claim. The article reports on a hospital that had 89 workers before the experiment started, which hired an additional 15 workers to compensate for the shorter workdays. If all of the 89 workers had previously put in 8-hours days, and all 104 workers (counting the 15 new hires) now work 6-hour days, this would imply an 14.1 percent increase in productivity, assuming no change in output. This would be an enormous gain — more than the U.S. economy has gained over the last decade. In fact, the piece indicates there actually has been an increase in output, implying an even larger gain in productivity.
In general, it is not easy to find ways to increase productivity. The standard recipes involve investing in more capital and better education and training for the workforce. While both of these routes are good, they are expensive and the gains will typically take a long period of time to be realized. If shortening work hours actually does lead to gains in productivity, this would be a remarkably easy route to accomplish this goal. And, it would make workers’ lives much better.
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The NYT is once again confused about the story of deflation, telling readers that it’s bad news for Japan that the yen has recently risen in value since a higher yen reduces import prices, increasing the risk of deflation. While a higher valued yen is a problem because it makes Japan’s goods and services less competitive internationally, and therefore worsens the trade deficit, its impact on the inflation rate is of little consequence for the economy.
The impact on the trade balance is straightforward and direct. The higher valued yen will make Japanese made goods and services more expensive to people in other countries, so they will buy less of them. On the other hand, imports will be cheaper for people living in Japan, so they will buy more imports. The net effect is to worsen the trade balance, decreasing demand in the economy.
However, the effect of lower import prices on the inflation rate is likely to have little effect on demand. While it is often claimed that deflation hurts demand because it leads consumers to delay purchases with the idea that the price will be lower due to waiting, as a practical matter, this makes almost no sense.
If the deflation rate is -1.0 percent (much larger than Japan has seen in recent years), it means that consumers can save themselves 1.0 percent of the price of a product by delaying a purchase for a year. On a $20,000 car, a consumer can save $200 if they wait a year. On a $500 television set, they will save $5.00 and on a $30 shirt, they will save 30 cents. If the deflation rate is half this much (-0.5 percent), the savings will be half of these sums. It is unlikely that many people will put off purchases for such savings.
The more likely impact will be on investment. The issue here is the real interest rate, the difference between the rate of interest firms must pay and the rate of increase in the price of the products they are selling.
Suppose that a company was selling a product for $1000 (or the yen equivalent price), with $100 of the cost of the production of this product due to imported items. Suppose that its costs of production were $800, leaving a profit of $200 on each item. Now imagine that a 10 percent rise in the yen leads the price of the imported inputs to fall to $90. If the drop in the price of imported inputs is fully passed on to consumers, then the price of the product falls to $990, leaving profit margins unchanged.
In this case, the company has the same incentive to invest after the rise in the value of the yen as it did before the rise in the value of the yen. The one-time drop in prices is not a problem. (If the drop in the price of imported inputs is not fully passed on, then the increased profit margin would increase the incentive to invest.) This would only be an issue if it was expected that the yen would keep rising leading to continuing falls in the price of the product. For this reason, a reduction in the inflation rate, or even deflation, that is the result of lower import prices should not be bad news for Japan’s economy.
Just to remind folks, the problem of deflation is actually a problem of the inflation rate being too low. Since it is difficult to push nominal interest rates below zero, or at least much below zero, when inflation is low there are limits to how much the central bank can boost the economy with low real interest rates. When the inflation rate declines or turns negative due to a drop in oil prices or other imports, it does not affect the real interest rate as seen by firms. For this reason, the drop in import prices is not the problem implied by this article.
The NYT is once again confused about the story of deflation, telling readers that it’s bad news for Japan that the yen has recently risen in value since a higher yen reduces import prices, increasing the risk of deflation. While a higher valued yen is a problem because it makes Japan’s goods and services less competitive internationally, and therefore worsens the trade deficit, its impact on the inflation rate is of little consequence for the economy.
The impact on the trade balance is straightforward and direct. The higher valued yen will make Japanese made goods and services more expensive to people in other countries, so they will buy less of them. On the other hand, imports will be cheaper for people living in Japan, so they will buy more imports. The net effect is to worsen the trade balance, decreasing demand in the economy.
However, the effect of lower import prices on the inflation rate is likely to have little effect on demand. While it is often claimed that deflation hurts demand because it leads consumers to delay purchases with the idea that the price will be lower due to waiting, as a practical matter, this makes almost no sense.
If the deflation rate is -1.0 percent (much larger than Japan has seen in recent years), it means that consumers can save themselves 1.0 percent of the price of a product by delaying a purchase for a year. On a $20,000 car, a consumer can save $200 if they wait a year. On a $500 television set, they will save $5.00 and on a $30 shirt, they will save 30 cents. If the deflation rate is half this much (-0.5 percent), the savings will be half of these sums. It is unlikely that many people will put off purchases for such savings.
The more likely impact will be on investment. The issue here is the real interest rate, the difference between the rate of interest firms must pay and the rate of increase in the price of the products they are selling.
Suppose that a company was selling a product for $1000 (or the yen equivalent price), with $100 of the cost of the production of this product due to imported items. Suppose that its costs of production were $800, leaving a profit of $200 on each item. Now imagine that a 10 percent rise in the yen leads the price of the imported inputs to fall to $90. If the drop in the price of imported inputs is fully passed on to consumers, then the price of the product falls to $990, leaving profit margins unchanged.
In this case, the company has the same incentive to invest after the rise in the value of the yen as it did before the rise in the value of the yen. The one-time drop in prices is not a problem. (If the drop in the price of imported inputs is not fully passed on, then the increased profit margin would increase the incentive to invest.) This would only be an issue if it was expected that the yen would keep rising leading to continuing falls in the price of the product. For this reason, a reduction in the inflation rate, or even deflation, that is the result of lower import prices should not be bad news for Japan’s economy.
Just to remind folks, the problem of deflation is actually a problem of the inflation rate being too low. Since it is difficult to push nominal interest rates below zero, or at least much below zero, when inflation is low there are limits to how much the central bank can boost the economy with low real interest rates. When the inflation rate declines or turns negative due to a drop in oil prices or other imports, it does not affect the real interest rate as seen by firms. For this reason, the drop in import prices is not the problem implied by this article.
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The Washington Post, which has decided to abandon journalism for the cause of bashing Bernie Sanders, included this bizarre comment in a piece on the failure of the college headed by Jane Sanders, Senator Sanders’ wife:
“…many observers wonder whether the septuagenarian socialist even fully understands how the economy works. His inability to explain how he’d break up the big banks during the disastrous sit-down with the New York Daily News editorial board last month remains a good data point in the case that he is in over his head on policy.”
Actually, Senator Sanders (the septuagenarian above — ageism in the service of Sanders-bashing is cool at the Post), explained exactly how he would break up the big banks. He said that he would have the banks break themselves up. The logic is simple. The banks know the most efficient way to break themselves into smaller pieces and the incentive to do so is in order to preserve shareholder value. The government’s role is to give them size target(s), timelines, and penalty schedules for failing to meet the targets.
It does seem like someone is over their head in this story and it’s not the Senator from Vermont.
The Washington Post, which has decided to abandon journalism for the cause of bashing Bernie Sanders, included this bizarre comment in a piece on the failure of the college headed by Jane Sanders, Senator Sanders’ wife:
“…many observers wonder whether the septuagenarian socialist even fully understands how the economy works. His inability to explain how he’d break up the big banks during the disastrous sit-down with the New York Daily News editorial board last month remains a good data point in the case that he is in over his head on policy.”
Actually, Senator Sanders (the septuagenarian above — ageism in the service of Sanders-bashing is cool at the Post), explained exactly how he would break up the big banks. He said that he would have the banks break themselves up. The logic is simple. The banks know the most efficient way to break themselves into smaller pieces and the incentive to do so is in order to preserve shareholder value. The government’s role is to give them size target(s), timelines, and penalty schedules for failing to meet the targets.
It does seem like someone is over their head in this story and it’s not the Senator from Vermont.
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That is the impression that readers may take away from an article discussing the potential for self-driving trucks. The article notes that 3 million people work as truckers and warns of the risk that these people face from displacement due to this technology.
In fact, technology has always displaced workers from jobs. This is the basis for higher wages, as the remaining workers got the benefit of productivity growth in the form of higher wages. Higher wages allowed them to buy more goods and services, thereby creating new jobs that could be filled by the displaced workers. Alternatively, if hours per worker are reduced, then the gains in productivity can result in the same number of people being employed, with workers enjoying the benefits of productivity growth in more leisure.
This will not happen if the government pursues policies that keep workers from sharing in the benefits of productivity growth, for example by raising interest rates to reduce employment or if it pursues anti-union policies to undermine workers bargaining power. However, in these cases the problem is the policies, not the technology.
At a time when productivity growth has fallen to almost zero, workers should welcome technology that has the promise of substantial gains in productivity. Of course, they should also demand policies that will allow them to share in the gains.
That is the impression that readers may take away from an article discussing the potential for self-driving trucks. The article notes that 3 million people work as truckers and warns of the risk that these people face from displacement due to this technology.
In fact, technology has always displaced workers from jobs. This is the basis for higher wages, as the remaining workers got the benefit of productivity growth in the form of higher wages. Higher wages allowed them to buy more goods and services, thereby creating new jobs that could be filled by the displaced workers. Alternatively, if hours per worker are reduced, then the gains in productivity can result in the same number of people being employed, with workers enjoying the benefits of productivity growth in more leisure.
This will not happen if the government pursues policies that keep workers from sharing in the benefits of productivity growth, for example by raising interest rates to reduce employment or if it pursues anti-union policies to undermine workers bargaining power. However, in these cases the problem is the policies, not the technology.
At a time when productivity growth has fallen to almost zero, workers should welcome technology that has the promise of substantial gains in productivity. Of course, they should also demand policies that will allow them to share in the gains.
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The first paragraph in a Reuters article on the April consumer price index (CPI) told readers:
“U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year.”
Before the cheering for another Fed rate hike gets too loud it would be worth looking at the data more closely. The core CPI has risen modestly in recent months, however inflation is still below the Fed’s 2.0 percent target using its chosen measure, the personal consumption expenditure deflator. And, since 2.0 percent is supposed to be an average, not a ceiling, we have a long way to go up before the Fed needs to move, assuming it takes its own target seriously.
But it’s also worth noting that even the very modest evidence of acceleration in inflation may be largely illusory. The rise in the core CPI has been driven by rising housing costs. Here’s the change in a measure of the core CPI that excludes shelter costs.
CPI without Food, Shelter, and Energy
Source: Bureau of Labor Statistics.
See the acceleration? This measure has been trailing off the last two months and in any case never got as high as it was in late 2011. It has remained under 2.0 percent since the middle of 2012.
The story with housing is that shortages of supply are pushing up prices. If this is bothering the Fed, it is not going to fix the problem by raising interest rates. (Higher rates mean less housing construction — check your intro textbook.) In short, contrary to what the folks at Reuters might tell you, there is not much of a case here for higher interest rates.
The first paragraph in a Reuters article on the April consumer price index (CPI) told readers:
“U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year.”
Before the cheering for another Fed rate hike gets too loud it would be worth looking at the data more closely. The core CPI has risen modestly in recent months, however inflation is still below the Fed’s 2.0 percent target using its chosen measure, the personal consumption expenditure deflator. And, since 2.0 percent is supposed to be an average, not a ceiling, we have a long way to go up before the Fed needs to move, assuming it takes its own target seriously.
But it’s also worth noting that even the very modest evidence of acceleration in inflation may be largely illusory. The rise in the core CPI has been driven by rising housing costs. Here’s the change in a measure of the core CPI that excludes shelter costs.
CPI without Food, Shelter, and Energy
Source: Bureau of Labor Statistics.
See the acceleration? This measure has been trailing off the last two months and in any case never got as high as it was in late 2011. It has remained under 2.0 percent since the middle of 2012.
The story with housing is that shortages of supply are pushing up prices. If this is bothering the Fed, it is not going to fix the problem by raising interest rates. (Higher rates mean less housing construction — check your intro textbook.) In short, contrary to what the folks at Reuters might tell you, there is not much of a case here for higher interest rates.
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Robert Samuelson used his column today to argue against included environmental, equity considerations, or other factors in the measure of the gross domestic product. He is completely right.
Over the decades there have been many efforts to change the measure of GDP to include other factors that we should value under the argument that the output of goods and services is not everything. Of course, the output of goods and services is not everything, but the problem is trying to use GDP as a comprehensive measure of well being. It isn’t, and anyone who imagines it is a comprehensive measure of well-being is badly confused.
GDP is a measure of economic output, which is useful to know, but hardly sufficient to tell us whether a country and its people are doing well. A country can have rapid GDP growth, but if it all goes to the richest one percent, it would be hard to see that as a good story. Or if rapid GDP growth went along with extreme environmental degradation, it also would not mean the population was doing well.
The measure of GDP is useful in assessing the health of an economy and society in the same way that weight is a useful measure in assessing a person’s health. If a person is five feet and ten inches and weighs 300 pounds, then it is likely they have a problem. On the other hand, they can weigh 160 pounds and still have an inoperable tumor. We would want to know the person’s weight to assess their condition, but it will not tell us everything we need to know to evaluate their health.
In the same vein, we identify countries with high per capita GDP, but enormous inequality. It is hard to view these as success stories, since most of the population would not be benefiting from the strength of the economy. However, if a country has a very low per capita GDP or has seen little or no growth over the last two decades, it is unlikely that its population is doing very well. Some countries may consciously choose to have lower GDP for very good reasons. Workers in West Europe put in about 20 percent fewer hours on average than workers in the United States. This allows them to have paid sick days, paid family leave, and 4–6 weeks a year of vacation. Having more family time and leisure are good reasons for sacrificing some amount of output.
In short, GDP is a useful but limited measure. The problem is not with GDP, but with people who might see it as a comprehensive measure of well-being. It isn’t.
Robert Samuelson used his column today to argue against included environmental, equity considerations, or other factors in the measure of the gross domestic product. He is completely right.
Over the decades there have been many efforts to change the measure of GDP to include other factors that we should value under the argument that the output of goods and services is not everything. Of course, the output of goods and services is not everything, but the problem is trying to use GDP as a comprehensive measure of well being. It isn’t, and anyone who imagines it is a comprehensive measure of well-being is badly confused.
GDP is a measure of economic output, which is useful to know, but hardly sufficient to tell us whether a country and its people are doing well. A country can have rapid GDP growth, but if it all goes to the richest one percent, it would be hard to see that as a good story. Or if rapid GDP growth went along with extreme environmental degradation, it also would not mean the population was doing well.
The measure of GDP is useful in assessing the health of an economy and society in the same way that weight is a useful measure in assessing a person’s health. If a person is five feet and ten inches and weighs 300 pounds, then it is likely they have a problem. On the other hand, they can weigh 160 pounds and still have an inoperable tumor. We would want to know the person’s weight to assess their condition, but it will not tell us everything we need to know to evaluate their health.
In the same vein, we identify countries with high per capita GDP, but enormous inequality. It is hard to view these as success stories, since most of the population would not be benefiting from the strength of the economy. However, if a country has a very low per capita GDP or has seen little or no growth over the last two decades, it is unlikely that its population is doing very well. Some countries may consciously choose to have lower GDP for very good reasons. Workers in West Europe put in about 20 percent fewer hours on average than workers in the United States. This allows them to have paid sick days, paid family leave, and 4–6 weeks a year of vacation. Having more family time and leisure are good reasons for sacrificing some amount of output.
In short, GDP is a useful but limited measure. The problem is not with GDP, but with people who might see it as a comprehensive measure of well-being. It isn’t.
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Back in the old days reporters and editors tried to eliminate excess words from news articles to make them as short as possible. That’s why it is interesting to see the Washington Post go the other way. In an article assessing the presidential race it told readers:
“Clinton performed poorly against Sen. Bernie Sanders of Vermont in Democratic primaries in this part of the country — partly because of her past support for free-trade agreements and partly because Sanders’s promises to focus on economic issues and income inequality resonated with voters.’
Of course, these were not actually “free-trade” deals. They didn’t free trade in many areas, like physicians and dentists’ services. And, they increased protectionism in some areas, making patents and copyrights stronger and longer. Therefore, it is inaccurate to describe deals like NAFTA, CAFTA, or the Trans-Pacific Partnership as “free-trade” agreements. And, it adds an unnecessary word.
Back in the old days reporters and editors tried to eliminate excess words from news articles to make them as short as possible. That’s why it is interesting to see the Washington Post go the other way. In an article assessing the presidential race it told readers:
“Clinton performed poorly against Sen. Bernie Sanders of Vermont in Democratic primaries in this part of the country — partly because of her past support for free-trade agreements and partly because Sanders’s promises to focus on economic issues and income inequality resonated with voters.’
Of course, these were not actually “free-trade” deals. They didn’t free trade in many areas, like physicians and dentists’ services. And, they increased protectionism in some areas, making patents and copyrights stronger and longer. Therefore, it is inaccurate to describe deals like NAFTA, CAFTA, or the Trans-Pacific Partnership as “free-trade” agreements. And, it adds an unnecessary word.
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The Washington Post ran a piece on the dispute in France over weakening labor protections for workers. The piece told readers the law removing protections (such as weakening rules on the 35-hour workweek) is:
“…an attempt to combat unemployment — an issue all over Europe that is especially acute in France, where the rate has stubbornly lingered over 10 percent for some time now, just below its high in the mid-1990s.”
It is far from obvious that weakening protections will be an effective way to reduce unemployment. The most obvious reason that France has high unemployment today is weak demand as a result of the austerity policies demanded by Germany and the European Union. If the issue is structural problems in the labor market it’s hard to explain how France was able to have much lower unemployment rates in 2005–2007 when it had all the same structural problems in the labor market.
The piece also exaggerates the extent to which France’s labor market has failed to adjust following the crisis. According to the OECD, the employment to population ratio (EPOP) in France for people between the ages 16 and 65 is 63.9 percent, 1.0 percentage point below its pre-crisis peak of 64.9 percent. By comparison, the EPOP in the United States is 69.3 percent, 2.7 percentage points below its pre-crisis level. The difference is explained by the fact that more U.S. workers have dropped out of the labor market in the last eight years.
There is a similar story among young people (ages 16–24) where the EPOP in the United States is down by 5.3 percentage points. By comparison, in France it is only down by 2.6 percentage points, albeit from a much lower start point. (French college students don’t pay tuition and receive a stipend from the government, as a result, they generally don’t work while in school.)
The most obvious way to reduce unemployment in France would be to increase government spending and/or improve the trade balance by reducing the value of the country’s currency. Both of these options now appear to be precluded by the decisions of the country’s leaders, however; this is the cause of high unemployment in France, not the 35-hour workweek.
The Washington Post ran a piece on the dispute in France over weakening labor protections for workers. The piece told readers the law removing protections (such as weakening rules on the 35-hour workweek) is:
“…an attempt to combat unemployment — an issue all over Europe that is especially acute in France, where the rate has stubbornly lingered over 10 percent for some time now, just below its high in the mid-1990s.”
It is far from obvious that weakening protections will be an effective way to reduce unemployment. The most obvious reason that France has high unemployment today is weak demand as a result of the austerity policies demanded by Germany and the European Union. If the issue is structural problems in the labor market it’s hard to explain how France was able to have much lower unemployment rates in 2005–2007 when it had all the same structural problems in the labor market.
The piece also exaggerates the extent to which France’s labor market has failed to adjust following the crisis. According to the OECD, the employment to population ratio (EPOP) in France for people between the ages 16 and 65 is 63.9 percent, 1.0 percentage point below its pre-crisis peak of 64.9 percent. By comparison, the EPOP in the United States is 69.3 percent, 2.7 percentage points below its pre-crisis level. The difference is explained by the fact that more U.S. workers have dropped out of the labor market in the last eight years.
There is a similar story among young people (ages 16–24) where the EPOP in the United States is down by 5.3 percentage points. By comparison, in France it is only down by 2.6 percentage points, albeit from a much lower start point. (French college students don’t pay tuition and receive a stipend from the government, as a result, they generally don’t work while in school.)
The most obvious way to reduce unemployment in France would be to increase government spending and/or improve the trade balance by reducing the value of the country’s currency. Both of these options now appear to be precluded by the decisions of the country’s leaders, however; this is the cause of high unemployment in France, not the 35-hour workweek.
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The Washington Post really, really doesn’t like Bernie Sanders and they miss no opportunity to display this dislike. For this reason, it is not surprising that they had a field day highlighting a report from the Tax Policy Center showing that his program would increase the debt by $18 trillion over the course of a decade. As the folks at Fairness and Accuracy in Reporting (FAIR) noted, this study was good for four different pieces over a seven hour period.
The main story in the Tax Policy Center analysis was that Sanders universal Medicare program would cost far more than he assumes. While they have some basis for their pessimism, it would have been reasonable to note that Sanders has some basis for his numbers. Specifically, other countries that have single-payer type systems have costs that are comparable to what Sanders assumes in his projections.
Of course getting from here to there is hardly an easy task and the Post and anyone else would be right to be skeptical about whether it could be done smoothly. But an honest discussion would make this point clearly. In other words, if we could make our health care system work as well as the systems in the United Kingdom, Denmark, or Canada, then Sanders would be right about the cost.
The Tax Policy Center is saying that it can’t be done. Again, they could be right, but it is not obvious that our government is that much more incompetent and/or corrupt than the governments in these other countries. In any case, the job of a newspaper should be to provide information to readers, which the Post has clearly done in its single-minded crusade to trash Bernie Sanders and his agenda.
The Washington Post really, really doesn’t like Bernie Sanders and they miss no opportunity to display this dislike. For this reason, it is not surprising that they had a field day highlighting a report from the Tax Policy Center showing that his program would increase the debt by $18 trillion over the course of a decade. As the folks at Fairness and Accuracy in Reporting (FAIR) noted, this study was good for four different pieces over a seven hour period.
The main story in the Tax Policy Center analysis was that Sanders universal Medicare program would cost far more than he assumes. While they have some basis for their pessimism, it would have been reasonable to note that Sanders has some basis for his numbers. Specifically, other countries that have single-payer type systems have costs that are comparable to what Sanders assumes in his projections.
Of course getting from here to there is hardly an easy task and the Post and anyone else would be right to be skeptical about whether it could be done smoothly. But an honest discussion would make this point clearly. In other words, if we could make our health care system work as well as the systems in the United Kingdom, Denmark, or Canada, then Sanders would be right about the cost.
The Tax Policy Center is saying that it can’t be done. Again, they could be right, but it is not obvious that our government is that much more incompetent and/or corrupt than the governments in these other countries. In any case, the job of a newspaper should be to provide information to readers, which the Post has clearly done in its single-minded crusade to trash Bernie Sanders and his agenda.
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