Yes, the bottom is really falling out in China, prepare for another Great Depression there. I won’t claim any great expertise on China’s economy, but the exasperated reporting on the recent fall in China’s stock market should also note that it followed an enormous boom. Undoubtedly many people who bought into this boom will be hurt, but it’s not clear that it is a disaster for China’s economy if it’s stock market returns to its level of five months ago.
It is also worth noting that its market had a far sharper drop in 2008. Its economy continued to grow strongly after the crash, although it did require a large government stimulus program.
Yes, the bottom is really falling out in China, prepare for another Great Depression there. I won’t claim any great expertise on China’s economy, but the exasperated reporting on the recent fall in China’s stock market should also note that it followed an enormous boom. Undoubtedly many people who bought into this boom will be hurt, but it’s not clear that it is a disaster for China’s economy if it’s stock market returns to its level of five months ago.
It is also worth noting that its market had a far sharper drop in 2008. Its economy continued to grow strongly after the crash, although it did require a large government stimulus program.
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With the prospect of Grexit increasing, there have been numerous news stories pronouncing this as a disaster for Greece. There have also been many accounts telling us that Greece will not have the same positive prospects as Argentina.
As Paul Krugman reminds us Argentina recovered fairly quickly after it broke the link between its currency and the dollar. As he points out, the real disaster was in the period leading up to the break.
While many people have emphasized ways in which Argentina has advantages in this break relative to Greece, that was not a general perception at the time. The general story back at the end of 2001 and 2002 was that Argentina faced disaster.
For example, on January 1, 2002 we got this NYT piece headlined, “Argentina drifts leaderless as economic collapse looms.”
Here are the first three paragraphs:
“Without a president, a cabinet or a functioning government, Argentina drifted rudderless today, as people waited for the Peronist party to resolve its bitter internal differences over who should run the country and for how long.
“The surprise resignation of the interim president, Adolfo Rodríguez Saá, late Sunday means that by Tuesday Argentina is likely to have its fifth leader in less than two weeks, counting temporary caretakers.
“But with bank accounts partly frozen, a moratorium on payment of the foreign debt and political leaders clearly at a loss for what to do, the possibility of an economic collapse loomed as an even larger concern. All day long, nervous depositors lined up outside banks in hopes of withdrawing some of their money.”
There was another dire piece on Janauary 4th after a new government had been installed. Among other things, this piece told readers:
“Though most Argentines earn their salaries in pesos, an estimated 80 percent of all debts here were contracted in dollars. That raises the specter of widespread bankruptcies if ordinary Argentines are suddenly forced to pay 30 or 40 percent more pesos to meet their obligations.”
Yes, Argentina did have its own currency before the devaluation, but it faced the same sort of debt problem that Greece will face with many debts denominated in a currency that will suddenly be worth much more relative to people’s pay checks.
Anyhow, this is not to claim that a break with the euro will be easy or that Greece will necessarily do as well as Argentina in the aftermath. But it is important to remember that many people were predicting absolute disaster for Argentina at the time of its default and they were proven wrong. Perhaps these folks’ judgements about economics have improved in the last thirteen years, but I wouldn’t bet on it.
With the prospect of Grexit increasing, there have been numerous news stories pronouncing this as a disaster for Greece. There have also been many accounts telling us that Greece will not have the same positive prospects as Argentina.
As Paul Krugman reminds us Argentina recovered fairly quickly after it broke the link between its currency and the dollar. As he points out, the real disaster was in the period leading up to the break.
While many people have emphasized ways in which Argentina has advantages in this break relative to Greece, that was not a general perception at the time. The general story back at the end of 2001 and 2002 was that Argentina faced disaster.
For example, on January 1, 2002 we got this NYT piece headlined, “Argentina drifts leaderless as economic collapse looms.”
Here are the first three paragraphs:
“Without a president, a cabinet or a functioning government, Argentina drifted rudderless today, as people waited for the Peronist party to resolve its bitter internal differences over who should run the country and for how long.
“The surprise resignation of the interim president, Adolfo Rodríguez Saá, late Sunday means that by Tuesday Argentina is likely to have its fifth leader in less than two weeks, counting temporary caretakers.
“But with bank accounts partly frozen, a moratorium on payment of the foreign debt and political leaders clearly at a loss for what to do, the possibility of an economic collapse loomed as an even larger concern. All day long, nervous depositors lined up outside banks in hopes of withdrawing some of their money.”
There was another dire piece on Janauary 4th after a new government had been installed. Among other things, this piece told readers:
“Though most Argentines earn their salaries in pesos, an estimated 80 percent of all debts here were contracted in dollars. That raises the specter of widespread bankruptcies if ordinary Argentines are suddenly forced to pay 30 or 40 percent more pesos to meet their obligations.”
Yes, Argentina did have its own currency before the devaluation, but it faced the same sort of debt problem that Greece will face with many debts denominated in a currency that will suddenly be worth much more relative to people’s pay checks.
Anyhow, this is not to claim that a break with the euro will be easy or that Greece will necessarily do as well as Argentina in the aftermath. But it is important to remember that many people were predicting absolute disaster for Argentina at the time of its default and they were proven wrong. Perhaps these folks’ judgements about economics have improved in the last thirteen years, but I wouldn’t bet on it.
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Yep, some things never change. Robert Samuelson tells us the tragic story of Greece: it needs to reduce its debt, but to do so it has to raise taxes and/or cut spending. That slows growth, which raises unemployment and also lowers its GDP, quite possibly raising its debt-to-GDP ratio. After telling us that there is no easy exit from this problem for Greece, Samuelson goes on:
“But it’s important to note that Greece’s predicament, though extreme, is shared by many major countries, including the United States, Japan, France and other European nations. …
“When only a few countries are over-indebted (meaning they cannot borrow from private markets at reasonable interest rates), this isn’t necessarily true. Countries can dampen domestic consumption and rely on export-led growth to take up the slack and limit unemployment. Nor is debt automatically bad. It has obvious productive uses: to fight severe recessions; to pay for wars and other emergencies; to finance public “investments” (roads, schools, research).
“Unfortunately, this standard view of government debt — we’re not talking about household and business debt — does not fully apply now. The reason is that numerous countries face similar problems.”
So Samuelson thinks that many countries cannot borrow at reasonable interest rates? That’s not what I read in the newspapers.
Let’s see, according to the Economist, the United States can borrow long-term at less than 2.3 percent interest. That’s less than half of the rate during those wonderful Clinton years when we were paying down the debt. Canada can do even better, paying just 1.7 percent. Those no-good-lazy-croissant-eating French types can borrow at a less than a 1.3 percent rate. The frugal Germans have to pay just 0.8 percent, a bit more than the hugely indebted Japanese who can get away with paying less than 0.5 percent.
In short, almost everyone other than Greece can borrow at extremely low interest rates. (Those high rates are their euro zone dividend.) Rather than being some difficult conundrum as Samuelson tries to tell his readers, this story is about as simple as it gets. The world is suffering from a huge shortfall in demand. We need people, businesses, and/or governments to spend money.
Unfortunately, the deficit gestapos are preventing more spending for reasons that defy logic but undoubtedly make sense to them. Anyhow, this is a really simple story, even if there is a lot of money to be made in trying to make it appear complicated.
Yep, some things never change. Robert Samuelson tells us the tragic story of Greece: it needs to reduce its debt, but to do so it has to raise taxes and/or cut spending. That slows growth, which raises unemployment and also lowers its GDP, quite possibly raising its debt-to-GDP ratio. After telling us that there is no easy exit from this problem for Greece, Samuelson goes on:
“But it’s important to note that Greece’s predicament, though extreme, is shared by many major countries, including the United States, Japan, France and other European nations. …
“When only a few countries are over-indebted (meaning they cannot borrow from private markets at reasonable interest rates), this isn’t necessarily true. Countries can dampen domestic consumption and rely on export-led growth to take up the slack and limit unemployment. Nor is debt automatically bad. It has obvious productive uses: to fight severe recessions; to pay for wars and other emergencies; to finance public “investments” (roads, schools, research).
“Unfortunately, this standard view of government debt — we’re not talking about household and business debt — does not fully apply now. The reason is that numerous countries face similar problems.”
So Samuelson thinks that many countries cannot borrow at reasonable interest rates? That’s not what I read in the newspapers.
Let’s see, according to the Economist, the United States can borrow long-term at less than 2.3 percent interest. That’s less than half of the rate during those wonderful Clinton years when we were paying down the debt. Canada can do even better, paying just 1.7 percent. Those no-good-lazy-croissant-eating French types can borrow at a less than a 1.3 percent rate. The frugal Germans have to pay just 0.8 percent, a bit more than the hugely indebted Japanese who can get away with paying less than 0.5 percent.
In short, almost everyone other than Greece can borrow at extremely low interest rates. (Those high rates are their euro zone dividend.) Rather than being some difficult conundrum as Samuelson tries to tell his readers, this story is about as simple as it gets. The world is suffering from a huge shortfall in demand. We need people, businesses, and/or governments to spend money.
Unfortunately, the deficit gestapos are preventing more spending for reasons that defy logic but undoubtedly make sense to them. Anyhow, this is a really simple story, even if there is a lot of money to be made in trying to make it appear complicated.
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Neil Irwin generally has insightful economic analysis in his NYT Upshot pieces, however he strikes out in his turn to power politics today. He tells readers:
“German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece. Many economists at the International Monetary Fund and American officials would argue it is entirely sensible. The fact is that the time for those debates is over for now; we’re in a realm of power politics, not substantive economic policy debates.
“The choice for leaders of Germany, France and the rest of Europe will look something like this:
“If they tolerate the Greek government’s demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.”
Actually, the choice for leaders of France and the rest of Europe does not look like this.
It may be true that, “German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece.” German leaders do show considerable evidence of having no understanding of economics. This is why they are taking positions that put them at odds with economists at the I.M.F. and just about everywhere else. The evidence of the last five years contradicts their claims about the economy as completely as possible, but it appears that many people in top positions in Germany are genuinely flat-earthers who simply can’t accept that the world is round and that the euro zone economy is suffering from a shortfall of demand and need not worry about debt.
However, there is no reason to believe that leaders in France and the rest of Europe suffer from the same learning disability. Therefore, they may recognize that the main reason Greece has been forced to borrow large amounts of money over the last five years and run up its debt has not been its profligate spending, but rather the strangling of its economy.
Sharp cutbacks in government spending led to a huge reduction in demand. Since Greece is in the euro, there was little possibility for much increase net exports through a reduction in the value of its currency. Also, since the other euro zone countries were also pursuing austerity, they would not provide growing markets for Greek exports. In this context, it was virtually inevitable that Greece’s economy would contract sharply. This means bringing in less tax revenue. It also leads to more spending for things like pensions, as workers who are unable to find jobs opt to retire earlier than they would have otherwise and start collecting their pension.
The leaders of France and the rest of Europe may understand the basic economics here. This means that rather than blessing profligate spending, a turn to favor Greece means rejecting failed economic theories that have devastated the euro zone’s economy. This would mean pushing for higher spending in the core countries, especially Germany, and pursuing other mechanisms for increasing demand.
Neil Irwin generally has insightful economic analysis in his NYT Upshot pieces, however he strikes out in his turn to power politics today. He tells readers:
“German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece. Many economists at the International Monetary Fund and American officials would argue it is entirely sensible. The fact is that the time for those debates is over for now; we’re in a realm of power politics, not substantive economic policy debates.
“The choice for leaders of Germany, France and the rest of Europe will look something like this:
“If they tolerate the Greek government’s demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.”
Actually, the choice for leaders of France and the rest of Europe does not look like this.
It may be true that, “German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece.” German leaders do show considerable evidence of having no understanding of economics. This is why they are taking positions that put them at odds with economists at the I.M.F. and just about everywhere else. The evidence of the last five years contradicts their claims about the economy as completely as possible, but it appears that many people in top positions in Germany are genuinely flat-earthers who simply can’t accept that the world is round and that the euro zone economy is suffering from a shortfall of demand and need not worry about debt.
However, there is no reason to believe that leaders in France and the rest of Europe suffer from the same learning disability. Therefore, they may recognize that the main reason Greece has been forced to borrow large amounts of money over the last five years and run up its debt has not been its profligate spending, but rather the strangling of its economy.
Sharp cutbacks in government spending led to a huge reduction in demand. Since Greece is in the euro, there was little possibility for much increase net exports through a reduction in the value of its currency. Also, since the other euro zone countries were also pursuing austerity, they would not provide growing markets for Greek exports. In this context, it was virtually inevitable that Greece’s economy would contract sharply. This means bringing in less tax revenue. It also leads to more spending for things like pensions, as workers who are unable to find jobs opt to retire earlier than they would have otherwise and start collecting their pension.
The leaders of France and the rest of Europe may understand the basic economics here. This means that rather than blessing profligate spending, a turn to favor Greece means rejecting failed economic theories that have devastated the euro zone’s economy. This would mean pushing for higher spending in the core countries, especially Germany, and pursuing other mechanisms for increasing demand.
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Philosophers have debated the nature of knowledge for millenniums, but it turns out that the Washington Post has the secret. In a mostly useful article on the high and rising prices of prescription drugs it told readers:
“Patents are necessary to encourage companies to innovate, but they also slow the progress of cheaper generic versions of drugs to market, and allow drug companies to charge much more in the interim than they could if they had more competition.”
Hmm, patents are necessary to encourage companies to innovate? There is no other mechanism? Do U.S. defense contractors innovate? They may get patents, but they are mostly paid on contract. If there is a reason that people will refuse to innovate for money, but will only innovate with the incentive of a patent monopoly, it would be interesting to know what it is.
As a practical matter, patents are an incredibly inefficient mechanism for financing drug research for reasons mentioned in this article and others. If the research costs were paid upfront all of these amazing new drugs would be cheap to patients and we would not have to waste time fighting over who would pay the tab. (At the point the drug has been developed, the costs have already been paid. Why not make the drug available at the marginal cost? That is the economist’s approach.)
Paying for research upfront would also have the advantage that all the findings would be in the public domain. This means that doctors would be better informed about which drug might be best for their patients. It would also mean that money would not be wasted pursuing paths that had already been shown to be dead ends. In addition, since no one is getting huge patent rents from having people use their drugs, upfront funding would take away the incentive to deceive the public about the safety and effectiveness of drugs, which has led to so much needless suffering.
Rather than trying to tell people that we need patents to finance research, a lengthy piece like this could at least have noted that many economists, such as Nobel laureate Joe Stiglitz, have argued for more efficient alternatives to the patent system. This is exactly the sort of article where this issue should be raised.
Philosophers have debated the nature of knowledge for millenniums, but it turns out that the Washington Post has the secret. In a mostly useful article on the high and rising prices of prescription drugs it told readers:
“Patents are necessary to encourage companies to innovate, but they also slow the progress of cheaper generic versions of drugs to market, and allow drug companies to charge much more in the interim than they could if they had more competition.”
Hmm, patents are necessary to encourage companies to innovate? There is no other mechanism? Do U.S. defense contractors innovate? They may get patents, but they are mostly paid on contract. If there is a reason that people will refuse to innovate for money, but will only innovate with the incentive of a patent monopoly, it would be interesting to know what it is.
As a practical matter, patents are an incredibly inefficient mechanism for financing drug research for reasons mentioned in this article and others. If the research costs were paid upfront all of these amazing new drugs would be cheap to patients and we would not have to waste time fighting over who would pay the tab. (At the point the drug has been developed, the costs have already been paid. Why not make the drug available at the marginal cost? That is the economist’s approach.)
Paying for research upfront would also have the advantage that all the findings would be in the public domain. This means that doctors would be better informed about which drug might be best for their patients. It would also mean that money would not be wasted pursuing paths that had already been shown to be dead ends. In addition, since no one is getting huge patent rents from having people use their drugs, upfront funding would take away the incentive to deceive the public about the safety and effectiveness of drugs, which has led to so much needless suffering.
Rather than trying to tell people that we need patents to finance research, a lengthy piece like this could at least have noted that many economists, such as Nobel laureate Joe Stiglitz, have argued for more efficient alternatives to the patent system. This is exactly the sort of article where this issue should be raised.
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The NYT headlined a front page piece, “health insurance companies seek big rate increases for 2016.” The piece told readers insurance companies “are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.” It then goes on to list specific instances where insurers are seeking large rate increases.
There are several problems with this story. First, it does not try to give any sort of weighting which would give a basis for the assessing the typical increase seen by people getting insurance through the exchanges. This matters both because some plans have more people enrolled than others and also because the percentage increase makes a much bigger difference for older people with high average premiums than for younger people. The average cost for a plan for people in the oldest age group (55–64) is three times as much as the average for people in the under 35 age group. If people in the latter age group see a 20 percent rise in their premiums it will imply a much smaller dollar increase than for the former group.
Since the article made no effort to assess the number of people in plans requesting large premium increases nor the amount of the premiums, there is no way to assess the increase in the premium for the typical person. The article does refer to a study by the Kaiser Family Foundation, and notes that it finds relatively small increases for the second lowest cost plan. However, it does not give readers the amount of increase found in this study and points out that to avoid a large increase it may be necessary to change plans, which could also mean changing doctors.
The Kaiser study found that the premium for the second lowest cost silver plan (the benchmark for subsidies in the exchanges) is projected to rise by 4.4 percent between 2015 and 2016 in the eleven cities it examined. It also is important to note that even staying in the same plan does not guarantee that a patient can continue to see their doctor, since doctors often leave plans.
The article also misrepresents the issue of the health of beneficiaries telling readers:
“Some say the marketplaces have not attracted enough healthy young people.”
Actually, it doesn’t matter whether people are young, it matters whether they are healthy. A healthy older person pays on average three times as much to insurers as a healthy young person and gets the same amount back in payments. Also, the losses described in this article would be largely offset by the backstops put in place in the ACA for insurers that enroll less healthy patients.
As the Kaiser report points out:
“Some of this remaining uncertainty is mitigated by the ACA’s “3 R’s” programs. These programs – risk adjustment, reinsurance, and risk corridors – redistribute risk among insurance carriers so that plans that enroll disproportionately sicker or higher-cost enrollees can be prevented from having to significantly raise premiums.”
There is a real issue here, since people should not have to be constantly changing plans to ensure that they have affordable insurance, however this article does little to indicate the extent to which this is actually a problem, although it is likely to scare many readers.
Thanks to Robert Salzberg for calling this article to my attention.
The NYT headlined a front page piece, “health insurance companies seek big rate increases for 2016.” The piece told readers insurance companies “are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.” It then goes on to list specific instances where insurers are seeking large rate increases.
There are several problems with this story. First, it does not try to give any sort of weighting which would give a basis for the assessing the typical increase seen by people getting insurance through the exchanges. This matters both because some plans have more people enrolled than others and also because the percentage increase makes a much bigger difference for older people with high average premiums than for younger people. The average cost for a plan for people in the oldest age group (55–64) is three times as much as the average for people in the under 35 age group. If people in the latter age group see a 20 percent rise in their premiums it will imply a much smaller dollar increase than for the former group.
Since the article made no effort to assess the number of people in plans requesting large premium increases nor the amount of the premiums, there is no way to assess the increase in the premium for the typical person. The article does refer to a study by the Kaiser Family Foundation, and notes that it finds relatively small increases for the second lowest cost plan. However, it does not give readers the amount of increase found in this study and points out that to avoid a large increase it may be necessary to change plans, which could also mean changing doctors.
The Kaiser study found that the premium for the second lowest cost silver plan (the benchmark for subsidies in the exchanges) is projected to rise by 4.4 percent between 2015 and 2016 in the eleven cities it examined. It also is important to note that even staying in the same plan does not guarantee that a patient can continue to see their doctor, since doctors often leave plans.
The article also misrepresents the issue of the health of beneficiaries telling readers:
“Some say the marketplaces have not attracted enough healthy young people.”
Actually, it doesn’t matter whether people are young, it matters whether they are healthy. A healthy older person pays on average three times as much to insurers as a healthy young person and gets the same amount back in payments. Also, the losses described in this article would be largely offset by the backstops put in place in the ACA for insurers that enroll less healthy patients.
As the Kaiser report points out:
“Some of this remaining uncertainty is mitigated by the ACA’s “3 R’s” programs. These programs – risk adjustment, reinsurance, and risk corridors – redistribute risk among insurance carriers so that plans that enroll disproportionately sicker or higher-cost enrollees can be prevented from having to significantly raise premiums.”
There is a real issue here, since people should not have to be constantly changing plans to ensure that they have affordable insurance, however this article does little to indicate the extent to which this is actually a problem, although it is likely to scare many readers.
Thanks to Robert Salzberg for calling this article to my attention.
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Since several commentators have raised questions about the similarities between the debt situations of Greece and Puerto Rico, it is worth pointing out some important ways in which they differ. Puerto Rico gets the benefit of several important federal government programs which will continue regardless of the finances of its own government. This means that if its own government ceases to exist due to financial paralysis, the people of Puerto Rico can still count on their monthly Social Security checks, their Medicare payments for their health care, and food stamps for low-income families. The people of Greece do not receive any comparable benefit from the European Union.
The banks and financial system in Puerto Rico is also supported by the FDIC, the Fed, and Fannie Mae and Freddie Mac. This means that if every bank in Puerto Rico goes belly up because its economy is a wreck, all the depositors can still count on getting their money back up to the FDIC limit. If the housing market collapses, people will still be able to buy homes because Fannie Mae and Freddie Mac are prepared to buy up the mortgages.
The bulk of aid to Greece has taken the form of the I.M.F., the E.U., and the E.C.B. making payments to Greece’s creditors. This was initially the banks who were bailed out of their bad loans and more recently to themselves. It has not gone to help the Greek people. If the Syriza government were offered terms comparable to those Puerto Rico now has, the only fight would be over how quickly they could get a pen to sign the deal.
This doesn’t mean Puerto Rico doesn’t have very serious economic problems as a result of being tied to the U.S. dollar, but it has a range of supports that are beyond the dreams of the people of Greece.
Since several commentators have raised questions about the similarities between the debt situations of Greece and Puerto Rico, it is worth pointing out some important ways in which they differ. Puerto Rico gets the benefit of several important federal government programs which will continue regardless of the finances of its own government. This means that if its own government ceases to exist due to financial paralysis, the people of Puerto Rico can still count on their monthly Social Security checks, their Medicare payments for their health care, and food stamps for low-income families. The people of Greece do not receive any comparable benefit from the European Union.
The banks and financial system in Puerto Rico is also supported by the FDIC, the Fed, and Fannie Mae and Freddie Mac. This means that if every bank in Puerto Rico goes belly up because its economy is a wreck, all the depositors can still count on getting their money back up to the FDIC limit. If the housing market collapses, people will still be able to buy homes because Fannie Mae and Freddie Mac are prepared to buy up the mortgages.
The bulk of aid to Greece has taken the form of the I.M.F., the E.U., and the E.C.B. making payments to Greece’s creditors. This was initially the banks who were bailed out of their bad loans and more recently to themselves. It has not gone to help the Greek people. If the Syriza government were offered terms comparable to those Puerto Rico now has, the only fight would be over how quickly they could get a pen to sign the deal.
This doesn’t mean Puerto Rico doesn’t have very serious economic problems as a result of being tied to the U.S. dollar, but it has a range of supports that are beyond the dreams of the people of Greece.
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Remember the robots that are going to take all our jobs leaving us unemployed? Apparently they don’t have robots in Europe. That’s the story readers would get from a mostly useful set of charts in the Washington Post comparing Greece and Germany.
Underneath the chart comparing the populations of the two countries the article tells readers:
“Despite the difference, both countries share a troubling trend: a shrinking population. Europe is experiencing a demographic time bomb as the continent ages and birth rates fall, leading to questions about whether there will be enough workers to power a dynamic economy in the decades to come.”
This is of course 180 degrees at odds with the robots making us all unemployed story. That is a story of too many workers. The Post is telling us here a story of too few workers. It is possible for one or the other to be true, but not both. Only a D.C. policy wonk could possibly take both problems seriously.
As a practical matter, we are likely to see productivity growth in the future comparable to what we have seen in the past. At the low end, it would be around 1.5 percent a year. At the high end we could envision getting back to the Golden Age (1947–73) rates of growth of 3.0 percent. The low end would still leave us easily able to care for our aging population and enjoy rising standard of livings. (Guess what, we have always had an aging population.) The high end should allow for more rapid improvements in living standards but there is no more reason to think that it would lead to mass unemployment than did the Golden Age productivity growth.
Remember the robots that are going to take all our jobs leaving us unemployed? Apparently they don’t have robots in Europe. That’s the story readers would get from a mostly useful set of charts in the Washington Post comparing Greece and Germany.
Underneath the chart comparing the populations of the two countries the article tells readers:
“Despite the difference, both countries share a troubling trend: a shrinking population. Europe is experiencing a demographic time bomb as the continent ages and birth rates fall, leading to questions about whether there will be enough workers to power a dynamic economy in the decades to come.”
This is of course 180 degrees at odds with the robots making us all unemployed story. That is a story of too many workers. The Post is telling us here a story of too few workers. It is possible for one or the other to be true, but not both. Only a D.C. policy wonk could possibly take both problems seriously.
As a practical matter, we are likely to see productivity growth in the future comparable to what we have seen in the past. At the low end, it would be around 1.5 percent a year. At the high end we could envision getting back to the Golden Age (1947–73) rates of growth of 3.0 percent. The low end would still leave us easily able to care for our aging population and enjoy rising standard of livings. (Guess what, we have always had an aging population.) The high end should allow for more rapid improvements in living standards but there is no more reason to think that it would lead to mass unemployment than did the Golden Age productivity growth.
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The introduction to a Morning Edition segment on the response in Spain (sorry, no link) told listeners that Spain was undergoing austerity to pay down its “massive debt.” This is inaccurate. Spain did not have anything that can be remotely described as massive debt before the austerity policies imposed on the country by its creditors.
Prior to the collapse of the country’s housing bubble, Spain’s debt to GDP ratio was 26 percent, just over one-third of the U.S. level. It was running surpluses of more than 2.0 percent of GDP, the equivalent of a budget surplus of roughly $350 billion a year in the United States. (Its worth noting that Greece’s debt to GDP ratio was a much more manageable 107 percent of GDP before the crisis and austerity pushed it to 170 percent of GDP.)
The segment also is a bit out of line with reality in touting Spain’s economic success under austerity. It boasted that Spain had the strongest growth in the euro zone. This is an extremely low bar. Spain’s growth rate did not cross 3.0 percent last year and is not projected to do so this year. By contrast, it averaged almost 4.0 percent in the last two years before the crash. Countries recovering from steep downturns are expected to have faster than normal growth.
According to the I.M.F.’s growth projections (which have consistently proven to be overly optimistic) Spain’s per capita income will not surpass its 2007 level until 2018. This is a considerably worse than the situation faced by the United States in the Great Depression. The OECD puts Spain’s unemployment rate at 22.7 percent as of April.
The introduction to a Morning Edition segment on the response in Spain (sorry, no link) told listeners that Spain was undergoing austerity to pay down its “massive debt.” This is inaccurate. Spain did not have anything that can be remotely described as massive debt before the austerity policies imposed on the country by its creditors.
Prior to the collapse of the country’s housing bubble, Spain’s debt to GDP ratio was 26 percent, just over one-third of the U.S. level. It was running surpluses of more than 2.0 percent of GDP, the equivalent of a budget surplus of roughly $350 billion a year in the United States. (Its worth noting that Greece’s debt to GDP ratio was a much more manageable 107 percent of GDP before the crisis and austerity pushed it to 170 percent of GDP.)
The segment also is a bit out of line with reality in touting Spain’s economic success under austerity. It boasted that Spain had the strongest growth in the euro zone. This is an extremely low bar. Spain’s growth rate did not cross 3.0 percent last year and is not projected to do so this year. By contrast, it averaged almost 4.0 percent in the last two years before the crash. Countries recovering from steep downturns are expected to have faster than normal growth.
According to the I.M.F.’s growth projections (which have consistently proven to be overly optimistic) Spain’s per capita income will not surpass its 2007 level until 2018. This is a considerably worse than the situation faced by the United States in the Great Depression. The OECD puts Spain’s unemployment rate at 22.7 percent as of April.
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