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The Washington Post article on the December jobs numbers told readers:
“Though there were nascent signs of wage growth in November, the data from December showed average hourly earnings slid backward by five cents, to $24.57.
“That wage decrease over the past month, a surprise to economists, indicates that the nation has not yet reached ‘full employment’ — a condition in which demand from employers is broad enough that workers have a degree of leverage and a chance to see pay raises.”
This comment earns a really big OY!
No, the drop in average hourly earnings should not have been a surprise to economists. As some of us were screaming following the November jump in hourly wages, the monthly data are erratic. As I pointed out at the time, the jump reported in November followed two months of very weak wage growth. It simply is not plausible to think that millions of employers who were being tightfisted September and October suddenly got really generous with their workers in November. The world doesn’t work that way.
The more obvious explanation is that the monthly changes are driven largely by measurement error. A weak number in one month is likely to lead to a strong number the next (and vice versa) because a weak number likely understated the true rate of wage growth. If the next month’s number then accurately measures the true wage, then it will appear like a large jump. This is a regular pattern that anyone who follows the data (e.g. economists) would know.
The point about full employment is also seriously off. The employment to population ratio is still close to four percentage points below its pre-recession level. And, contrary to the protestations about this being due to the retirement of the baby boomers, the decline is largely due to prime age workers (age 25-54) leaving the labor force. And it’s a bit hard to believe that all these people in their 30s and 40s just decided they no longer feel like working. In addition, the number of people involuntarily working part-time is still up by more than 2 million from its pre-recession level.
In other words, we are still very far from what would have been considered full employment back in the good old days of the Bush presidency. Folks should be very upset if the Fed starts raising interest rates to slow the economy and keep people from getting jobs.
This piece also misleads readers in saying:
“Another strong sector was professional and business services — accountants, architects, consultants — which added 52,000 positions. The pick-up in better-paying industries is in noted contrast to periods earlier in the recovery, when growth was concentrated in part-time positions and the retail and health sectors.”
Actually, most of the growth in the professional and business services sector (67.7 percent) was in the relatively low-paying administrative and waste services categories.
The Washington Post article on the December jobs numbers told readers:
“Though there were nascent signs of wage growth in November, the data from December showed average hourly earnings slid backward by five cents, to $24.57.
“That wage decrease over the past month, a surprise to economists, indicates that the nation has not yet reached ‘full employment’ — a condition in which demand from employers is broad enough that workers have a degree of leverage and a chance to see pay raises.”
This comment earns a really big OY!
No, the drop in average hourly earnings should not have been a surprise to economists. As some of us were screaming following the November jump in hourly wages, the monthly data are erratic. As I pointed out at the time, the jump reported in November followed two months of very weak wage growth. It simply is not plausible to think that millions of employers who were being tightfisted September and October suddenly got really generous with their workers in November. The world doesn’t work that way.
The more obvious explanation is that the monthly changes are driven largely by measurement error. A weak number in one month is likely to lead to a strong number the next (and vice versa) because a weak number likely understated the true rate of wage growth. If the next month’s number then accurately measures the true wage, then it will appear like a large jump. This is a regular pattern that anyone who follows the data (e.g. economists) would know.
The point about full employment is also seriously off. The employment to population ratio is still close to four percentage points below its pre-recession level. And, contrary to the protestations about this being due to the retirement of the baby boomers, the decline is largely due to prime age workers (age 25-54) leaving the labor force. And it’s a bit hard to believe that all these people in their 30s and 40s just decided they no longer feel like working. In addition, the number of people involuntarily working part-time is still up by more than 2 million from its pre-recession level.
In other words, we are still very far from what would have been considered full employment back in the good old days of the Bush presidency. Folks should be very upset if the Fed starts raising interest rates to slow the economy and keep people from getting jobs.
This piece also misleads readers in saying:
“Another strong sector was professional and business services — accountants, architects, consultants — which added 52,000 positions. The pick-up in better-paying industries is in noted contrast to periods earlier in the recovery, when growth was concentrated in part-time positions and the retail and health sectors.”
Actually, most of the growth in the professional and business services sector (67.7 percent) was in the relatively low-paying administrative and waste services categories.
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E.J. Dionne is upset about Republican plans to have the Congressional Budget Office (CBO) use dynamic scoring in assessing the effects of tax cuts. He tells readers that dynamic scoring:
“will make it easier for the Republicans to shower money on their favored constituencies while pretending to be fiscally responsible. Dynamic scoring, the Center on Budget and Policy Priorities noted, ‘could facilitate congressional passage of large rate cuts in tax reform by making the rate cuts appear — on paper — less expensive than under a traditional cost estimate.’
“To understand the dynamic-scoring game, imagine a formula based on the idea that because infrastructure spending boosts the economy — which it most certainly does — we should pretend that an expenditure of $100 billion is actually, say, only $80 billion.”
Dynamic scoring means taking account of the growth effects of tax cuts and incorporating them into budget estimates. This is actually a very reasonable thing to do. When Douglas Holtz-Eakin, a conservative Republican economist, was head of CBO, he put out an analysis of the impact of dynamic scoring on budget estimates. The analysis found that the impact of a simple estimate of the impact of a tax cut on growth was small and in fact negative.
The analysis did find larger positive impacts if the tax cut assumption was coupled with other assumptions, such as a later tax increase, which would give people more incentive to work in the period of low taxes. However these modeling exercises showing growth were not in fact analyzing the policy being considered, which was simply a tax cut.
The issue created in this context has nothing to do with dynamic scoring, it is a question of honest scoring. That should be the real concern. If the Republicans want to follow Holtz-Eakin’s analysis and incorporate the negative impact that tax cuts have on growth then there is no reason for anyone to object. However if they just want CBO to make up numbers, their plan is objectionable. But the issue is not dynamic scoring.
This brings up the other side of the equation raised by Dionne. Government investment in infrastructure, education, and research and development does in fact have an impact on growth and CBO should be taking it into account in its projections. Under CBO’s current methodology, if the government stopped spending any money on improving and maintaining the infrastructure or on educating our children it would show up as a boost to the economy.
In CBO’s models, the reduced government spending would free up resources, some of which would end up as private investment. That would lead to higher productivity and more growth. There is something seriously wrong with modeling that implies we could grow the economy better if we stop maintaining our roads and educating our kids.
Finally it is worth taking issue with the use of “fiscally responsible.” The absurd conceptions of fiscal responsibility in place in Washington today are costing the jobs of millions of kids’ parents. This policy, which is ruining the lives of mutiple generations, should not be characterized as “responsible.” Washington politics may make it impossible to beat back deficit fetishism, but there is no reason that serious people should treat it as reasonable policy.
E.J. Dionne is upset about Republican plans to have the Congressional Budget Office (CBO) use dynamic scoring in assessing the effects of tax cuts. He tells readers that dynamic scoring:
“will make it easier for the Republicans to shower money on their favored constituencies while pretending to be fiscally responsible. Dynamic scoring, the Center on Budget and Policy Priorities noted, ‘could facilitate congressional passage of large rate cuts in tax reform by making the rate cuts appear — on paper — less expensive than under a traditional cost estimate.’
“To understand the dynamic-scoring game, imagine a formula based on the idea that because infrastructure spending boosts the economy — which it most certainly does — we should pretend that an expenditure of $100 billion is actually, say, only $80 billion.”
Dynamic scoring means taking account of the growth effects of tax cuts and incorporating them into budget estimates. This is actually a very reasonable thing to do. When Douglas Holtz-Eakin, a conservative Republican economist, was head of CBO, he put out an analysis of the impact of dynamic scoring on budget estimates. The analysis found that the impact of a simple estimate of the impact of a tax cut on growth was small and in fact negative.
The analysis did find larger positive impacts if the tax cut assumption was coupled with other assumptions, such as a later tax increase, which would give people more incentive to work in the period of low taxes. However these modeling exercises showing growth were not in fact analyzing the policy being considered, which was simply a tax cut.
The issue created in this context has nothing to do with dynamic scoring, it is a question of honest scoring. That should be the real concern. If the Republicans want to follow Holtz-Eakin’s analysis and incorporate the negative impact that tax cuts have on growth then there is no reason for anyone to object. However if they just want CBO to make up numbers, their plan is objectionable. But the issue is not dynamic scoring.
This brings up the other side of the equation raised by Dionne. Government investment in infrastructure, education, and research and development does in fact have an impact on growth and CBO should be taking it into account in its projections. Under CBO’s current methodology, if the government stopped spending any money on improving and maintaining the infrastructure or on educating our children it would show up as a boost to the economy.
In CBO’s models, the reduced government spending would free up resources, some of which would end up as private investment. That would lead to higher productivity and more growth. There is something seriously wrong with modeling that implies we could grow the economy better if we stop maintaining our roads and educating our kids.
Finally it is worth taking issue with the use of “fiscally responsible.” The absurd conceptions of fiscal responsibility in place in Washington today are costing the jobs of millions of kids’ parents. This policy, which is ruining the lives of mutiple generations, should not be characterized as “responsible.” Washington politics may make it impossible to beat back deficit fetishism, but there is no reason that serious people should treat it as reasonable policy.
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The NYT badly misinformed readers by telling them that Obama was easing up on Federal Housing Authority lending rules to fix a “lagging” housing market. Actually home sales are slightly above their population adjusted pre-bubble level. In fact, if we took account of demographics (the increasing portion of elderly that is constantly used as a justification of low employment rates) then house sales are above pre-bubble levels. Also, inflation-adjusted house prices are 15-20 percent above trend levels.
It is true that builders are not building as many homes as would be expected, but this is explained by vacancy rates that are still relatively high. The lower homeownership rate is likely the function of the weak labor market and also that the “flexible” labor market touted by most economists means that people have to change jobs frequently, which often means moving. People who have to sell their home shortly after buying it end up building wealth for the real estate and financial industry, not their family, which is an important reason why fewer people are becoming homebuyers.
This piece also wrongly asserts that, “rents are soaring.” This is not true by the usual definition of “soaring.” The Bureau of Labor Statistics owners’ equivalent rent measure rose 2.7 percent over the last year. This measure excludes utility fees that are often included in apartment rents, which is appropriate since homeowners also have to pay for utilities.
Owners’ Equivalent Rent: Percent Change Over Prior 12 Months
Source: Bureau of Labor Statistics.
The NYT badly misinformed readers by telling them that Obama was easing up on Federal Housing Authority lending rules to fix a “lagging” housing market. Actually home sales are slightly above their population adjusted pre-bubble level. In fact, if we took account of demographics (the increasing portion of elderly that is constantly used as a justification of low employment rates) then house sales are above pre-bubble levels. Also, inflation-adjusted house prices are 15-20 percent above trend levels.
It is true that builders are not building as many homes as would be expected, but this is explained by vacancy rates that are still relatively high. The lower homeownership rate is likely the function of the weak labor market and also that the “flexible” labor market touted by most economists means that people have to change jobs frequently, which often means moving. People who have to sell their home shortly after buying it end up building wealth for the real estate and financial industry, not their family, which is an important reason why fewer people are becoming homebuyers.
This piece also wrongly asserts that, “rents are soaring.” This is not true by the usual definition of “soaring.” The Bureau of Labor Statistics owners’ equivalent rent measure rose 2.7 percent over the last year. This measure excludes utility fees that are often included in apartment rents, which is appropriate since homeowners also have to pay for utilities.
Owners’ Equivalent Rent: Percent Change Over Prior 12 Months
Source: Bureau of Labor Statistics.
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A NYT article on the recent drop in the value of the euro against the dollar carried the bizarre headline, “falling euro fans fears of a recession.” The headline is strange, because the drop in the euro will not cause a recession. In fact, it will help the economy by boosting net exports from the euro zone, as the article itself states.
Several other points in the article are also seriously confused. It asserts:
“There is also the fact that eurozone countries tend to be net importers of oil and natural gas — which is usually priced in dollars — meaning that their weak currency may not buy as much fuel in the future.”
The fact that oil is typically priced in dollars really has nothing to do with the time of day. The price of oil has fallen by roughly 50 percent over the last year measured in dollars. The euro has fallen by a bit more than 10 percent, which means that oil has fallen by roughly 45 percent measured in euros.
The fact that the euro zone produces relatively little oil is a huge benefit in this story relative to the United States. While consumers in both the U.S. and the euro zone will be benefited by the plunge in oil prices, the United States has areas of the country like Texas, North Dakota, and Alaska, that are heavily dependent on oil production. These regions will be badly hurt by the drop in oil prices.
The article also notes that Europe may be hurt by a slowdown in growth elsewhere in the world, referring to the “region’s dependence on trade.” Actually the euro zone as a whole doesn’t depend much more on trade with the rest of the world than the United States. The vast majority of trade of euro zone countries is with other euro zone countries, therefore a slowdown in growth elsewhere in the world will not do more harm to the euro zone than the United States.
A NYT article on the recent drop in the value of the euro against the dollar carried the bizarre headline, “falling euro fans fears of a recession.” The headline is strange, because the drop in the euro will not cause a recession. In fact, it will help the economy by boosting net exports from the euro zone, as the article itself states.
Several other points in the article are also seriously confused. It asserts:
“There is also the fact that eurozone countries tend to be net importers of oil and natural gas — which is usually priced in dollars — meaning that their weak currency may not buy as much fuel in the future.”
The fact that oil is typically priced in dollars really has nothing to do with the time of day. The price of oil has fallen by roughly 50 percent over the last year measured in dollars. The euro has fallen by a bit more than 10 percent, which means that oil has fallen by roughly 45 percent measured in euros.
The fact that the euro zone produces relatively little oil is a huge benefit in this story relative to the United States. While consumers in both the U.S. and the euro zone will be benefited by the plunge in oil prices, the United States has areas of the country like Texas, North Dakota, and Alaska, that are heavily dependent on oil production. These regions will be badly hurt by the drop in oil prices.
The article also notes that Europe may be hurt by a slowdown in growth elsewhere in the world, referring to the “region’s dependence on trade.” Actually the euro zone as a whole doesn’t depend much more on trade with the rest of the world than the United States. The vast majority of trade of euro zone countries is with other euro zone countries, therefore a slowdown in growth elsewhere in the world will not do more harm to the euro zone than the United States.
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It is often said that the environmental movement has less creativity than a dead clam. Nothing demonstrates this point better than the lack of interest in promoting pay by the mile auto insurance.
I am reminded of this issue by a piece on Morning Edition that discussed how the recent drop in gas prices will be associated with thousands of more deaths in traffic accidents. The point is simple: people will be driving more and faster, therefore there will be more accidents and more deaths.
This brings up pay by the mile insurance since the point of the piece is that high gas prices gave people an incentive to drive less and more slowly. If insurance were on a pay by the mile basis it would also give people an incentive to drive less and ideally more safely.
The arithmetic is straightforward and striking. The average insurance policy is around $1,000 a year. The average driver puts in roughly 10,000 miles a year on their car. (These are rough numbers, but last time I checked they were in the ballpark.) This comes to 10 cents if insurance were paid on a per mile basis.
If a typical car gets 20 miles a gallon, then having insurance paid on a per mile basis is the equivalent of a $2.00 a gallon gas tax in discouraging driving. That should be a big deal and the sort of thing that environmentalists should be pushing for, since it is likely far more politically feasible than a $2.00 a gallon gas tax.
Just to be clear, this is not on average increasing insurance costs. It will redistribute them from people who drive relatively little to people who drive a lot. (Insurers already have some differences based on miles driven, but they don’t come close to reflecting the actual difference in risks — as they will tell you.)
Also, charging per mile doesn’t prevent insurance companies from factoring in driving records or distinguishing between rural and urban miles. The insurers know where people live and they know their driving records. These could be easily factored in when setting the per mile rates.
Anyhow, a modest subsidy for people to buy pay by the mile policies could go a long way in changing incentives and reducing driving and greenhouse gas emissions. (Note the adverse selection goes in the right direction here. Low mileage drivers would opt for pay by the mile policies leaving high mileage high risk drivers in the conventional insurance pool.)
This should have been an obvious policy to push for those who want to stop global warming, but it might require a bit of new thinking.
It is often said that the environmental movement has less creativity than a dead clam. Nothing demonstrates this point better than the lack of interest in promoting pay by the mile auto insurance.
I am reminded of this issue by a piece on Morning Edition that discussed how the recent drop in gas prices will be associated with thousands of more deaths in traffic accidents. The point is simple: people will be driving more and faster, therefore there will be more accidents and more deaths.
This brings up pay by the mile insurance since the point of the piece is that high gas prices gave people an incentive to drive less and more slowly. If insurance were on a pay by the mile basis it would also give people an incentive to drive less and ideally more safely.
The arithmetic is straightforward and striking. The average insurance policy is around $1,000 a year. The average driver puts in roughly 10,000 miles a year on their car. (These are rough numbers, but last time I checked they were in the ballpark.) This comes to 10 cents if insurance were paid on a per mile basis.
If a typical car gets 20 miles a gallon, then having insurance paid on a per mile basis is the equivalent of a $2.00 a gallon gas tax in discouraging driving. That should be a big deal and the sort of thing that environmentalists should be pushing for, since it is likely far more politically feasible than a $2.00 a gallon gas tax.
Just to be clear, this is not on average increasing insurance costs. It will redistribute them from people who drive relatively little to people who drive a lot. (Insurers already have some differences based on miles driven, but they don’t come close to reflecting the actual difference in risks — as they will tell you.)
Also, charging per mile doesn’t prevent insurance companies from factoring in driving records or distinguishing between rural and urban miles. The insurers know where people live and they know their driving records. These could be easily factored in when setting the per mile rates.
Anyhow, a modest subsidy for people to buy pay by the mile policies could go a long way in changing incentives and reducing driving and greenhouse gas emissions. (Note the adverse selection goes in the right direction here. Low mileage drivers would opt for pay by the mile policies leaving high mileage high risk drivers in the conventional insurance pool.)
This should have been an obvious policy to push for those who want to stop global warming, but it might require a bit of new thinking.
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Robert Samuelson gave his assessment of where the economy stands in his column this morning. At one point he tells readers that if the economy creates 230,000 jobs a month, by the end of the year it will be approaching full employment.
Even if the economy adds 230,000 jobs a month in 2015, by the end of the year it will still be more than 3 million jobs below what the Congressional Budget Office (CBO) and other forecasters projected before the downturn. That would imply that the economy would still be far below full employment.
Of course it is possible that CBO’s projections about the labor force from 2008 were wrong, but this raises the obvious question of when CBO stopped being wrong. It is not obvious that it has learned more about the economy and the labor market in the last seven years, therefore it is not clear that its current assessment of the labor market should be treated as more accurate than its assessment from 2008.
Also, contrary to what is asserted in the article, Japan has been seeing rapid growth in employment under its new stimulus policies. In fact, its employment to population ratio has risen more than twice as much as the U.S. ratio since the end of 2012 when it adopted these policies. It is likely to again see healthy growth in 2015 now that it has put off a scheduled increase in the sales tax.
Robert Samuelson gave his assessment of where the economy stands in his column this morning. At one point he tells readers that if the economy creates 230,000 jobs a month, by the end of the year it will be approaching full employment.
Even if the economy adds 230,000 jobs a month in 2015, by the end of the year it will still be more than 3 million jobs below what the Congressional Budget Office (CBO) and other forecasters projected before the downturn. That would imply that the economy would still be far below full employment.
Of course it is possible that CBO’s projections about the labor force from 2008 were wrong, but this raises the obvious question of when CBO stopped being wrong. It is not obvious that it has learned more about the economy and the labor market in the last seven years, therefore it is not clear that its current assessment of the labor market should be treated as more accurate than its assessment from 2008.
Also, contrary to what is asserted in the article, Japan has been seeing rapid growth in employment under its new stimulus policies. In fact, its employment to population ratio has risen more than twice as much as the U.S. ratio since the end of 2012 when it adopted these policies. It is likely to again see healthy growth in 2015 now that it has put off a scheduled increase in the sales tax.
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