It’s vacation time. I’m off until Wednesday March 25th. And remember, until then, don’t believe anything you read in the newspaper.
It’s vacation time. I’m off until Wednesday March 25th. And remember, until then, don’t believe anything you read in the newspaper.
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The Federal Reserve Board released data on profits for 2014 this week. The good news, for those who are not Mitt Romney-types, is that the profit share fell in 2014 from its 2013 peak. Before-tax profits were 0.6 percentage points lower as a share of GDP than they had been in 2013. After-tax profits were 1.2 percentage points lower.
Source: Federal Reserve Board.
There are several points worth noting here. First, the drop in profits as the labor market has begun to tighten some lends credence to the view that a substantial portion of the rise in corporate profits was cyclical, not secular.
The point is that we are not seeing a surge in profit shares because of the inherent dynamic of capitalism. We are seeing a rise in profit shares because incompetents who couldn’t see an $8 trillion housing bubble were running the economy. When the bubble burst and the economy collapsed, the resulting weakness in the labor market led to a huge rise in profit shares.
Folks may point to a similar rise in profit shares in the earlier part of the last decade. For those old enough to remember, this also followed the collapse of an asset bubble. And contrary to popular belief, the resulting recession was actually very severe from the standpoint of the labor market. We did not get back the jobs lost in the downturn until January of 2005. This was the longest stretch without net job growth since the Great Depression, until the current downturn. In short, weak labor markets lead to high profits.
This takes us to the Federal Reserve Board. The plan to raise interest rates is a plan to weaken job growth. And, it looks like it also might mean a plan to prevent profit shares from falling and wage shares from rising.
That might sound like bad news to most folks, but of course most folks will probably never hear it. We’ll just hear highly paid economist types wringing their hands over the rise in inequality. No doubt the major foundations will make large grants to researchers trying to understand the problem.
The Federal Reserve Board released data on profits for 2014 this week. The good news, for those who are not Mitt Romney-types, is that the profit share fell in 2014 from its 2013 peak. Before-tax profits were 0.6 percentage points lower as a share of GDP than they had been in 2013. After-tax profits were 1.2 percentage points lower.
Source: Federal Reserve Board.
There are several points worth noting here. First, the drop in profits as the labor market has begun to tighten some lends credence to the view that a substantial portion of the rise in corporate profits was cyclical, not secular.
The point is that we are not seeing a surge in profit shares because of the inherent dynamic of capitalism. We are seeing a rise in profit shares because incompetents who couldn’t see an $8 trillion housing bubble were running the economy. When the bubble burst and the economy collapsed, the resulting weakness in the labor market led to a huge rise in profit shares.
Folks may point to a similar rise in profit shares in the earlier part of the last decade. For those old enough to remember, this also followed the collapse of an asset bubble. And contrary to popular belief, the resulting recession was actually very severe from the standpoint of the labor market. We did not get back the jobs lost in the downturn until January of 2005. This was the longest stretch without net job growth since the Great Depression, until the current downturn. In short, weak labor markets lead to high profits.
This takes us to the Federal Reserve Board. The plan to raise interest rates is a plan to weaken job growth. And, it looks like it also might mean a plan to prevent profit shares from falling and wage shares from rising.
That might sound like bad news to most folks, but of course most folks will probably never hear it. We’ll just hear highly paid economist types wringing their hands over the rise in inequality. No doubt the major foundations will make large grants to researchers trying to understand the problem.
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Lydia DePillis and Jim Tankersley had an interesting wonkblog piece on how even mainstream Democrats are now at least paying lip service to the argument that unions are necessary to reduce inequality. The piece includes a pro-union statement from Robert Rubin who it describes as someone “whom liberals consider overly friendly to Wall Street.”
This misrepresents Rubin’s background. Robert Rubin was a top executive at Goldman Sachs before coming to the Clinton administration. After leaving the Clinton administration he went to Citigroup where he made tens of millions of dollars from the marketing of subprime mortgage backed securities. The reason that Robert Rubin has influence in policy debates is because he is very rich from the money he made on Wall Street and he can get other very rich Wall Street types to donate money to Democratic candidates and favored causes. Given his background, referring to Robert Rubin as someone who is “close to Wall Street” would be like referring to Rich Trumka as someone who is close to organized labor.
Lydia DePillis and Jim Tankersley had an interesting wonkblog piece on how even mainstream Democrats are now at least paying lip service to the argument that unions are necessary to reduce inequality. The piece includes a pro-union statement from Robert Rubin who it describes as someone “whom liberals consider overly friendly to Wall Street.”
This misrepresents Rubin’s background. Robert Rubin was a top executive at Goldman Sachs before coming to the Clinton administration. After leaving the Clinton administration he went to Citigroup where he made tens of millions of dollars from the marketing of subprime mortgage backed securities. The reason that Robert Rubin has influence in policy debates is because he is very rich from the money he made on Wall Street and he can get other very rich Wall Street types to donate money to Democratic candidates and favored causes. Given his background, referring to Robert Rubin as someone who is “close to Wall Street” would be like referring to Rich Trumka as someone who is close to organized labor.
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That would be unless the business in the oil industry. A NYT piece on the drop in inflation across Asia seems confused on this point. It notes the sharp decline in the inflation rate across the region, which is mostly due to lower oil prices, and raises the concern that this may discourage businesses from investing.
This logic doesn’t work insofar as the lower inflation is simply due to lower oil prices. From the standpoint of a business considering a new investment what matters is the price of the product it sells, not prices in general. If the price of cars is expected to rise by 2 percent a year, then businesses will take this projected rate of inflation into account in planning their investment. The fact that lower oil prices will reduce the overall rate of inflation should not affect its decision, except insofar as lower oil prices could mean that consumers have more money to spend on cars.
The basic story here is straightforward, lower oil prices are good for promoting growth except in countries that are large producers of oil. They are of course awful from the standpoint of the environment. (In addition to increasing oil consumption and greenhouse gas emissions directly, lower oil prices will also discourage investment in clean energy.)
That would be unless the business in the oil industry. A NYT piece on the drop in inflation across Asia seems confused on this point. It notes the sharp decline in the inflation rate across the region, which is mostly due to lower oil prices, and raises the concern that this may discourage businesses from investing.
This logic doesn’t work insofar as the lower inflation is simply due to lower oil prices. From the standpoint of a business considering a new investment what matters is the price of the product it sells, not prices in general. If the price of cars is expected to rise by 2 percent a year, then businesses will take this projected rate of inflation into account in planning their investment. The fact that lower oil prices will reduce the overall rate of inflation should not affect its decision, except insofar as lower oil prices could mean that consumers have more money to spend on cars.
The basic story here is straightforward, lower oil prices are good for promoting growth except in countries that are large producers of oil. They are of course awful from the standpoint of the environment. (In addition to increasing oil consumption and greenhouse gas emissions directly, lower oil prices will also discourage investment in clean energy.)
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The silly things you read in the NYT! It really doesn’t matter what units oil is priced in. We get a market price that is determined by supply and demand. This will be higher measured in euros any time the euro falls in value simply because at the same price measured in other currencies, oil will cost more euros.
It would only matter if the price were in dollars if there were long-term contracts that are specified in dollars. In some cases, companies will have long-term contracts, but not all of these are in dollars. Countries and companies can contract for oil in any terms they want. They can do it yen, pounds, even peanut butter.
The silly things you read in the NYT! It really doesn’t matter what units oil is priced in. We get a market price that is determined by supply and demand. This will be higher measured in euros any time the euro falls in value simply because at the same price measured in other currencies, oil will cost more euros.
It would only matter if the price were in dollars if there were long-term contracts that are specified in dollars. In some cases, companies will have long-term contracts, but not all of these are in dollars. Countries and companies can contract for oil in any terms they want. They can do it yen, pounds, even peanut butter.
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It seems the paper is having more than a few problems with logic these days. (See yesterday’s concern that inflation in the euro zone will drop from a small positive to a small negative.) An article on the rise of Podemos, a left populist party in Spain, discussed Podemos’ program:
“The program also calls for new taxes on the wealthy and on financial transactions. It promises higher pensions and salaries, as well as a rise in spending on health care, education and other social services — without, however, elaborating on how those plans would be paid for.”
Presumably a main reason for new taxes on the wealthy and on financial transactions is to pay for the spending on health care, education, and other social services. It is also worth noting that the program calls for a shortening of the workweek (mentioned in the previous paragraph) which should help spread the work that is available. This wiill reduce Spain’s unemployment rate (currently close to 24 percent) thereby reducing the need for some public transfer payments like unemployment benefits.
At one point the piece tells readers about the boast of Mariano Rajoy, Spain’s current prime minister, that the country had the fastest growth in the euro zone last year at 1.4 percent. The piece did not tell readers that even with this growth Spain is still projected to have a per capita GDP in 2019 that is more than one percent lower than it was in 2007 before the recession. This would imply a far worse and more prolonged downturn than the United States experienced in the Great Depression. The I.M.F. projects the unemployment rate in 2019 will be 18.5 percent.
The piece also neglected to tell readers that Spain had been running budget surpluses before the recession. Unlike Greece, Spain did not have a problem with a profligate public sector. Its problem was a huge housing bubble and construction boom financed in large part by irresponsible German banks.
The article also at one point notes that a part of Podemos program is:
“revising the statutes of the European Central Bank to make full employment one of its goals.”
It would have been worth pointing out that this change would make the goals of the European Central Bank (ECB) the same as the goals of the Federal Reserve Board. The Fed has a dual mandate of price stability and high employment. Currently the ECB’s only mandate is to keep the inflation rate below 2.0 percent. As a result, its first president, Jean Claude Trichet, patted himself on the back when he left his post in 2011. Even though the euro zone’s economy was in shambles, he could boast that the bank had met its inflation target.
It seems the paper is having more than a few problems with logic these days. (See yesterday’s concern that inflation in the euro zone will drop from a small positive to a small negative.) An article on the rise of Podemos, a left populist party in Spain, discussed Podemos’ program:
“The program also calls for new taxes on the wealthy and on financial transactions. It promises higher pensions and salaries, as well as a rise in spending on health care, education and other social services — without, however, elaborating on how those plans would be paid for.”
Presumably a main reason for new taxes on the wealthy and on financial transactions is to pay for the spending on health care, education, and other social services. It is also worth noting that the program calls for a shortening of the workweek (mentioned in the previous paragraph) which should help spread the work that is available. This wiill reduce Spain’s unemployment rate (currently close to 24 percent) thereby reducing the need for some public transfer payments like unemployment benefits.
At one point the piece tells readers about the boast of Mariano Rajoy, Spain’s current prime minister, that the country had the fastest growth in the euro zone last year at 1.4 percent. The piece did not tell readers that even with this growth Spain is still projected to have a per capita GDP in 2019 that is more than one percent lower than it was in 2007 before the recession. This would imply a far worse and more prolonged downturn than the United States experienced in the Great Depression. The I.M.F. projects the unemployment rate in 2019 will be 18.5 percent.
The piece also neglected to tell readers that Spain had been running budget surpluses before the recession. Unlike Greece, Spain did not have a problem with a profligate public sector. Its problem was a huge housing bubble and construction boom financed in large part by irresponsible German banks.
The article also at one point notes that a part of Podemos program is:
“revising the statutes of the European Central Bank to make full employment one of its goals.”
It would have been worth pointing out that this change would make the goals of the European Central Bank (ECB) the same as the goals of the Federal Reserve Board. The Fed has a dual mandate of price stability and high employment. Currently the ECB’s only mandate is to keep the inflation rate below 2.0 percent. As a result, its first president, Jean Claude Trichet, patted himself on the back when he left his post in 2011. Even though the euro zone’s economy was in shambles, he could boast that the bank had met its inflation target.
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David Brooks’ used his column today to bemoan the fact that the vast majority of children of parents with just high school degrees grow up in single parent families. By contrast, the vast majority of children with college educated parents grow up in two parent families. Following Robert Putnam’s new book, he refers to a long list of disadvantages faced by children of non college-educated parents compared with children raised by college-educated parents. His column then turns to the need to have a moral revival to break the spiral whereby disadvantaged children have disadvantaged children.
“Next it will require holding everybody responsible. America is obviously not a country in which the less educated are behaving irresponsibly and the more educated are beacons of virtue. America is a country in which privileged people suffer from their own characteristic forms of self-indulgence: the tendency to self-segregate, the comprehensive failures of leadership in government and industry. Social norms need repair up and down the scale, universally, together and all at once.”
This is an interesting appeal for restoring social norms and responsibility, but apparently Brooks doesn’t intend for it to mean things like locking up, or even criminally prosecuting, bankers who violate the law. But that aside, there are some things that can be done to improve the plight of the disadvantaged other than lecture them on values. Of course better education and child care would be a great place to start. Also, more family-friendly work places would be a good idea, since that might give some single parents more time to spend with their kids, one of the problems cited by Brooks. And then there is the question of letting their parents have jobs.
This is where the Federal Reserve Board comes in. If the Fed starts to raise interest rates over the course of this year, the point will be to keep workers from getting jobs. This is the logic of higher interest rates. They discourage people from buying cars and homes, they discourage businesses from investing, and they discourage state and local government from borrowing for infrastructure and other purposes. With less demand in the economy, there will be fewer jobs and therefore less upward pressure on wages.
The people who are most likely to face job loss and to have their bargaining power undermined are less-educated workers; you know, the ones who David Brooks wants to see have a moral revival. (Yeah, I know he wants that for everyone.) So here we have a story of the advantaged (in fact very advantaged since almost all of the people calling the shots at the Fed are in the one percent) acting to undermine the economic and social condition of poor and working class people.
And folks wonder why the disadvantaged won’t listen to the moral appeals of folks like David Brooks.
David Brooks’ used his column today to bemoan the fact that the vast majority of children of parents with just high school degrees grow up in single parent families. By contrast, the vast majority of children with college educated parents grow up in two parent families. Following Robert Putnam’s new book, he refers to a long list of disadvantages faced by children of non college-educated parents compared with children raised by college-educated parents. His column then turns to the need to have a moral revival to break the spiral whereby disadvantaged children have disadvantaged children.
“Next it will require holding everybody responsible. America is obviously not a country in which the less educated are behaving irresponsibly and the more educated are beacons of virtue. America is a country in which privileged people suffer from their own characteristic forms of self-indulgence: the tendency to self-segregate, the comprehensive failures of leadership in government and industry. Social norms need repair up and down the scale, universally, together and all at once.”
This is an interesting appeal for restoring social norms and responsibility, but apparently Brooks doesn’t intend for it to mean things like locking up, or even criminally prosecuting, bankers who violate the law. But that aside, there are some things that can be done to improve the plight of the disadvantaged other than lecture them on values. Of course better education and child care would be a great place to start. Also, more family-friendly work places would be a good idea, since that might give some single parents more time to spend with their kids, one of the problems cited by Brooks. And then there is the question of letting their parents have jobs.
This is where the Federal Reserve Board comes in. If the Fed starts to raise interest rates over the course of this year, the point will be to keep workers from getting jobs. This is the logic of higher interest rates. They discourage people from buying cars and homes, they discourage businesses from investing, and they discourage state and local government from borrowing for infrastructure and other purposes. With less demand in the economy, there will be fewer jobs and therefore less upward pressure on wages.
The people who are most likely to face job loss and to have their bargaining power undermined are less-educated workers; you know, the ones who David Brooks wants to see have a moral revival. (Yeah, I know he wants that for everyone.) So here we have a story of the advantaged (in fact very advantaged since almost all of the people calling the shots at the Fed are in the one percent) acting to undermine the economic and social condition of poor and working class people.
And folks wonder why the disadvantaged won’t listen to the moral appeals of folks like David Brooks.
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