Andrew Sorkin used his Dealbook column to tell readers that the 2008 bailout “worked.” That is of course true if the definition of success is to keep the Wall Street banks in business and operating as they had prior to the crisis. It is far less apparent that the bailout worked from the standpoint of the economy as a whole.
The piece presents comments from then Treasury Secretary Henry Paulson expressing the concern that if bailout money had been tied to real conditions, such as a plan to break up the large banks and real restrictions on executive compensation, then the non-troubled banks would not have taken it. The obvious response would be “who cares?”
If a bank that wasn’t troubled didn’t take the bailout money, there is no obvious reason that should have bothered anyone. For some reason media outlets have not chosen to discuss the 180 degree shift in policy between the TARP bailout in the fall of 2008 and the stress tests in March of 2009. Under the TARP bailout, Paulson tried to conceal the condition of each bank insisting that all the large banks take bailout funds whether they needed them or not.
By contrast, the stress tests were ostensibly designed to expose the condition of each bank, showing the extent to which it was vulnerable as a result of the collapse of the housing bubble. If the stress tests were the right policy, then the TARP secrecy was the wrong policy.
It is also important to note that TARP was actually a small portion of a much larger bailout. The Fed made trillions of dollars of short-term loans available to banks at below market interest rates. The Federal Deposit Insurance Corporation also allowed for large amounts of long-term borrowing. In addition, the government’s actions made the implicit “too big to fail” policy quite explicit. Investors came to accept that in the post-Lehman period the federal government would not allow another major bank to fail.
All of these forms of government assistance to the banks could have come with conditions. Most, if not all, of the major banks would have had little choice to accept them since the alternative would have been bankruptcy. Paulson and Democratic leadership in Congress decided not to impose any real conditions on access to bailout funds, a policy continued in the Obama presidency.
Andrew Sorkin used his Dealbook column to tell readers that the 2008 bailout “worked.” That is of course true if the definition of success is to keep the Wall Street banks in business and operating as they had prior to the crisis. It is far less apparent that the bailout worked from the standpoint of the economy as a whole.
The piece presents comments from then Treasury Secretary Henry Paulson expressing the concern that if bailout money had been tied to real conditions, such as a plan to break up the large banks and real restrictions on executive compensation, then the non-troubled banks would not have taken it. The obvious response would be “who cares?”
If a bank that wasn’t troubled didn’t take the bailout money, there is no obvious reason that should have bothered anyone. For some reason media outlets have not chosen to discuss the 180 degree shift in policy between the TARP bailout in the fall of 2008 and the stress tests in March of 2009. Under the TARP bailout, Paulson tried to conceal the condition of each bank insisting that all the large banks take bailout funds whether they needed them or not.
By contrast, the stress tests were ostensibly designed to expose the condition of each bank, showing the extent to which it was vulnerable as a result of the collapse of the housing bubble. If the stress tests were the right policy, then the TARP secrecy was the wrong policy.
It is also important to note that TARP was actually a small portion of a much larger bailout. The Fed made trillions of dollars of short-term loans available to banks at below market interest rates. The Federal Deposit Insurance Corporation also allowed for large amounts of long-term borrowing. In addition, the government’s actions made the implicit “too big to fail” policy quite explicit. Investors came to accept that in the post-Lehman period the federal government would not allow another major bank to fail.
All of these forms of government assistance to the banks could have come with conditions. Most, if not all, of the major banks would have had little choice to accept them since the alternative would have been bankruptcy. Paulson and Democratic leadership in Congress decided not to impose any real conditions on access to bailout funds, a policy continued in the Obama presidency.
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Robert Samuelson repeats two common myths in his discussion of the battle over the successor to Ben Bernanke as Fed chair. He tells readers that the 2001 recession was mild by historical standards and that Bernanke might have prevented another Great Depression with his actions in 2008-2009.
While the length and severity of the official recession in 2001 would imply that it was mild, at the time it was the longest period without job growth since Great Depression. Arguably the Fed was up against the zero bound with its monetary policy as it reduced the federal funds rate to 1.0 percent for two years. While there was still room to go further since the rate was still above zero, most economists see little additional benefit from the drop from 1.0 percent to 0.0 percent. In fact, many economists have said that the European Central Bank was against the zero lower bound when it had lowered its overnight rate to 1.0 percent.
It’s difficult to see how anything Bernanke did or did not do in 2008-2009 could have condemned the country to another Great Depression, defined as a decade of double digit unemployment. The United States eventually got out of the last Great Depression through the massive spending associated with World War II. There is no economic reason that the United States cannot undertake the same sort of spending today.
If Bernanke had allowed a complete financial collapse (putting the Wall Street banks forever out of our misery), the government could have begun to pump up the economy the next day with a massive burst of spending. If there were political obstacles, these could have been overcome by telling people that spending on education, infrastructure, energy conservation and other areas was necessary to protect us from an invasion by Martians, as Paul Krugman has suggested.
Robert Samuelson repeats two common myths in his discussion of the battle over the successor to Ben Bernanke as Fed chair. He tells readers that the 2001 recession was mild by historical standards and that Bernanke might have prevented another Great Depression with his actions in 2008-2009.
While the length and severity of the official recession in 2001 would imply that it was mild, at the time it was the longest period without job growth since Great Depression. Arguably the Fed was up against the zero bound with its monetary policy as it reduced the federal funds rate to 1.0 percent for two years. While there was still room to go further since the rate was still above zero, most economists see little additional benefit from the drop from 1.0 percent to 0.0 percent. In fact, many economists have said that the European Central Bank was against the zero lower bound when it had lowered its overnight rate to 1.0 percent.
It’s difficult to see how anything Bernanke did or did not do in 2008-2009 could have condemned the country to another Great Depression, defined as a decade of double digit unemployment. The United States eventually got out of the last Great Depression through the massive spending associated with World War II. There is no economic reason that the United States cannot undertake the same sort of spending today.
If Bernanke had allowed a complete financial collapse (putting the Wall Street banks forever out of our misery), the government could have begun to pump up the economy the next day with a massive burst of spending. If there were political obstacles, these could have been overcome by telling people that spending on education, infrastructure, energy conservation and other areas was necessary to protect us from an invasion by Martians, as Paul Krugman has suggested.
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We are hearing endless accounts of how technology is displacing middle wage jobs (e.g. see the piece by David Autor and David Dorn in the NYT today). That would be work like manufacturing jobs, bookkeeping jobs, and other jobs that used to provide a middle class standard of living. It’s a comforting story for the people who control the media, but it happens not to be true.
The story told by Autor and Dorn is that technology displaces these jobs putting downward pressure on the wages of formerly middle class workers. At the same time it creates more jobs for the people who program the machines, hence we see higher wages for high end workers.
This story is comforting to the affluent because it means that the upward redistribution of income that we have been seeing is simply an inevitable outcome of technological progress. It might be unfortunate, but what are we supposed to do, smash the machines?
This story should strike people as absurd on its face if they are interested in anything other than a rationale for inequality. After all, how many of the winners in today’s economy are actually programming the robots, as the story implies. The group of big winners includes many doctors, lawyers, and dentists, most of whom have no more computer skills than your average high school senior.
They keep their position not by mastering the technology, but rather through the old-fashion way, restricting supply. They use professional barriers and trade restrictions to limit competition. That’s much easier than mastering the latest in computer technology.
This sort of abuse of market power applies to a large share, if not the majority, of the winners in today’s economy. In fact, if anyone really gave a damn, they could see that the Autor-Dorn story simply does not fit the pattern of job creation that we have seen in the last decade. Their occupation analysis would show that low earning occupations have been the big job gainers since 2000. The employment share of the highest earning occupations has actually fallen slightly over this period.
However that story provides less comfort to the rich and powerful. It implies that upward redistribution is something that they did, rather than something that just happened. Therefore we will not likely see these data featured prominently in news stories and opinion pieces.
We are hearing endless accounts of how technology is displacing middle wage jobs (e.g. see the piece by David Autor and David Dorn in the NYT today). That would be work like manufacturing jobs, bookkeeping jobs, and other jobs that used to provide a middle class standard of living. It’s a comforting story for the people who control the media, but it happens not to be true.
The story told by Autor and Dorn is that technology displaces these jobs putting downward pressure on the wages of formerly middle class workers. At the same time it creates more jobs for the people who program the machines, hence we see higher wages for high end workers.
This story is comforting to the affluent because it means that the upward redistribution of income that we have been seeing is simply an inevitable outcome of technological progress. It might be unfortunate, but what are we supposed to do, smash the machines?
This story should strike people as absurd on its face if they are interested in anything other than a rationale for inequality. After all, how many of the winners in today’s economy are actually programming the robots, as the story implies. The group of big winners includes many doctors, lawyers, and dentists, most of whom have no more computer skills than your average high school senior.
They keep their position not by mastering the technology, but rather through the old-fashion way, restricting supply. They use professional barriers and trade restrictions to limit competition. That’s much easier than mastering the latest in computer technology.
This sort of abuse of market power applies to a large share, if not the majority, of the winners in today’s economy. In fact, if anyone really gave a damn, they could see that the Autor-Dorn story simply does not fit the pattern of job creation that we have seen in the last decade. Their occupation analysis would show that low earning occupations have been the big job gainers since 2000. The employment share of the highest earning occupations has actually fallen slightly over this period.
However that story provides less comfort to the rich and powerful. It implies that upward redistribution is something that they did, rather than something that just happened. Therefore we will not likely see these data featured prominently in news stories and opinion pieces.
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The Washington Post’s housing reporting during the bubble years became world famous for its reliance on David Lereah as its main source for information on the housing market. Lereah, in addition to being the chief economist of the National Association of Realtors, was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Somehow it never occurred to the great minds at the Washington Post that Lereah may have any motive other than dispensing information about the housing market.
Apparently the learning process is very slow over at Fox on 15th Street. Today’s article on the sharp drop in new home sales in July prominently featured the views of Lawrence Yun, Lereah’s successor at the National Association of Realtors. We also got wisdom from the chief economist of the National Association of Homebuilders, as well as the views of several people employed directly by builders. There is no source from outside of the industry.
Among the tidbits of knowledge that readers could not find elsewhere is the news that builders are struggling to keep up with demand. That tidbit comes to us courtesy of Mr. Yun, who according to the Post said, “the pace of building needs to be at least 50 percent faster than it is now to meet demand.”
The piece continues:
“Builders say they’re trying to keep up. Economists expect that it will take two years for construction to get back to normal levels — about 1.2 million to 1.5 million homes per year. …
“Builders are facing three issues borne of the housing crisis: a labor shortage, a dearth of available land and tighter lending standards.”
There you have it, there is a shortage of construction workers. What happened to structural unemployment? Believers in structural unemployment would say things like the problem is that we have too many people who have skills as construction workers, but not enough who are trained to do X, where X is supposed to be an unidentified sector of the economy where we have a labor shortage.
Okay, this makes no sense. The idea that builders can’t put up enough houses is ridiculous. There continues to be a far higher than normal number of vacant units, indicating that the market is still experiencing excess supply, not excess demand. Excess demand shows up in rising prices, just as shortages of labor show up in rising wages, something that we have not seen in the construction industry in recent years.
There was actually a very interesting story in the July new homes sales numbers. It is the first major data release that reveals the response of the housing markets to the recent jump in mortgage interest rates. New home sales measure contracts signed, most other housing data is based on completed sales. Since there is typically a 6-8 week gap between the signing of a contract and a closing, other data on the housing market are still giving us information about contracts that were signed before the jump in interest rates.
The July data indicate that the interest rate hike had a big effect on the market. Given the extraordinary rate of price increases that we had been seeing, which were threatening to push many markets back into bubble territory, this is clearly good news. But you wouldn’t find anything about this issue in Jeff Bezos’ newspaper.
The Washington Post’s housing reporting during the bubble years became world famous for its reliance on David Lereah as its main source for information on the housing market. Lereah, in addition to being the chief economist of the National Association of Realtors, was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Somehow it never occurred to the great minds at the Washington Post that Lereah may have any motive other than dispensing information about the housing market.
Apparently the learning process is very slow over at Fox on 15th Street. Today’s article on the sharp drop in new home sales in July prominently featured the views of Lawrence Yun, Lereah’s successor at the National Association of Realtors. We also got wisdom from the chief economist of the National Association of Homebuilders, as well as the views of several people employed directly by builders. There is no source from outside of the industry.
Among the tidbits of knowledge that readers could not find elsewhere is the news that builders are struggling to keep up with demand. That tidbit comes to us courtesy of Mr. Yun, who according to the Post said, “the pace of building needs to be at least 50 percent faster than it is now to meet demand.”
The piece continues:
“Builders say they’re trying to keep up. Economists expect that it will take two years for construction to get back to normal levels — about 1.2 million to 1.5 million homes per year. …
“Builders are facing three issues borne of the housing crisis: a labor shortage, a dearth of available land and tighter lending standards.”
There you have it, there is a shortage of construction workers. What happened to structural unemployment? Believers in structural unemployment would say things like the problem is that we have too many people who have skills as construction workers, but not enough who are trained to do X, where X is supposed to be an unidentified sector of the economy where we have a labor shortage.
Okay, this makes no sense. The idea that builders can’t put up enough houses is ridiculous. There continues to be a far higher than normal number of vacant units, indicating that the market is still experiencing excess supply, not excess demand. Excess demand shows up in rising prices, just as shortages of labor show up in rising wages, something that we have not seen in the construction industry in recent years.
There was actually a very interesting story in the July new homes sales numbers. It is the first major data release that reveals the response of the housing markets to the recent jump in mortgage interest rates. New home sales measure contracts signed, most other housing data is based on completed sales. Since there is typically a 6-8 week gap between the signing of a contract and a closing, other data on the housing market are still giving us information about contracts that were signed before the jump in interest rates.
The July data indicate that the interest rate hike had a big effect on the market. Given the extraordinary rate of price increases that we had been seeing, which were threatening to push many markets back into bubble territory, this is clearly good news. But you wouldn’t find anything about this issue in Jeff Bezos’ newspaper.
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Sorry, we’re trying out some catchy lines to help the Republicans in their effort to stop Obamacare. They keep pressing the one about how it is causing businesses to shift to part-time workers to avoid the employer sanctions. The basis for these sanctions was originally supposed to be the number of workers employed for an average of more than 30 hours a week in 2013, however in early July the Obama administration announced that it would put off the sanctions for a year.
Nonetheless, we still have many folks pushing the part-time line. Reporters seem to buy it, even if the data don’t.
For example, Reuters told us that “three out of every four of the nearly 1 million hires this year are part-time.”
That’s not what our friends at the Bureau of Labor Statistics (BLS) report. If we look at the household survey (which gives us part-time employment), there were 1,119,000 more people employed in July than in January of 2012. According to the survey, the number of people involuntarily working part-time (i.e. would prefer full-time employment) increased by 327,000 over this period. The number of people voluntarily working part-time increased by 365,000 over this period. That gives us 692,000 in total. That would be 61.8 percent, which is considerably less than three quarters.
However their story gets worse if we look at the data more closely. These numbers are always erratic. There actually was a sharp fall in the number of people who reported working part-time at the end of 2012 which makes rise in 2013 look larger. If we use July 2012 as the basis of our comparison, then involuntary part-time unemployment is unchanged, while voluntary part-time is up by 282,000. By comparison, total employment is up 966,000. This means that part-time employment accounted for 29.2 percent of the jobs created over the last year.
It is also worth noting that part-time is defined by BLS as working less than 35 hours a week. Since companies would still have been forced to pay a penalty for workers putting in 30-34 hours, we should be seeing an increase in the number of workers putting in just under 30 hours a week if Obamacare is having the bad effect promised by its opponents. Helene Jorgensen and I looked at this issue a couple of months back. We found that, at least through April, the number of people working 26-29 hours a week was actually slightly lower in 2013 than in 2012. Oh well.
Thanks to Michael Ash for calling this one to my attention.
Sorry, we’re trying out some catchy lines to help the Republicans in their effort to stop Obamacare. They keep pressing the one about how it is causing businesses to shift to part-time workers to avoid the employer sanctions. The basis for these sanctions was originally supposed to be the number of workers employed for an average of more than 30 hours a week in 2013, however in early July the Obama administration announced that it would put off the sanctions for a year.
Nonetheless, we still have many folks pushing the part-time line. Reporters seem to buy it, even if the data don’t.
For example, Reuters told us that “three out of every four of the nearly 1 million hires this year are part-time.”
That’s not what our friends at the Bureau of Labor Statistics (BLS) report. If we look at the household survey (which gives us part-time employment), there were 1,119,000 more people employed in July than in January of 2012. According to the survey, the number of people involuntarily working part-time (i.e. would prefer full-time employment) increased by 327,000 over this period. The number of people voluntarily working part-time increased by 365,000 over this period. That gives us 692,000 in total. That would be 61.8 percent, which is considerably less than three quarters.
However their story gets worse if we look at the data more closely. These numbers are always erratic. There actually was a sharp fall in the number of people who reported working part-time at the end of 2012 which makes rise in 2013 look larger. If we use July 2012 as the basis of our comparison, then involuntary part-time unemployment is unchanged, while voluntary part-time is up by 282,000. By comparison, total employment is up 966,000. This means that part-time employment accounted for 29.2 percent of the jobs created over the last year.
It is also worth noting that part-time is defined by BLS as working less than 35 hours a week. Since companies would still have been forced to pay a penalty for workers putting in 30-34 hours, we should be seeing an increase in the number of workers putting in just under 30 hours a week if Obamacare is having the bad effect promised by its opponents. Helene Jorgensen and I looked at this issue a couple of months back. We found that, at least through April, the number of people working 26-29 hours a week was actually slightly lower in 2013 than in 2012. Oh well.
Thanks to Michael Ash for calling this one to my attention.
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Wonkblog had an interesting piece noting the fact that the number of people collecting unemployment benefits is falling faster than the number of new unemployment insurance claims. It attributed this fact to the growing number of unemployed workers who have exhausted their benefits. The reduction in the duration of benefits has also increased this number.
There is a third reason that the percentage of unemployed workers collecting benefits may decline. Many workers who lose their jobs now will have had little work experience in the last two years, which means that they may not qualify for benefits. In other words, if a worker had been laid off in 2008 or 2009, when the economy was losing 700,000 jobs a month, and since then has only been able to find intermittent and part-time work, they likely will not meet even the work requirements to collect benefits. Relatively few laid off workers would have been in this situation at the start of the recession, but it is likely that many workers are now.
(Note: Typos corrected.)
Wonkblog had an interesting piece noting the fact that the number of people collecting unemployment benefits is falling faster than the number of new unemployment insurance claims. It attributed this fact to the growing number of unemployed workers who have exhausted their benefits. The reduction in the duration of benefits has also increased this number.
There is a third reason that the percentage of unemployed workers collecting benefits may decline. Many workers who lose their jobs now will have had little work experience in the last two years, which means that they may not qualify for benefits. In other words, if a worker had been laid off in 2008 or 2009, when the economy was losing 700,000 jobs a month, and since then has only been able to find intermittent and part-time work, they likely will not meet even the work requirements to collect benefits. Relatively few laid off workers would have been in this situation at the start of the recession, but it is likely that many workers are now.
(Note: Typos corrected.)
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I just thought I’d ask since the paper apparently decided to tell readers that the government’s health and retirement programs are expensive. This information is given in the context of an article on a plan by House Speaker John Boehner to offer a short-term continuing resolution that will maintain funding for the government into the new fiscal year that begins on October 1.
The article told readers:
“Obama and other Democrats are eager to turn off the sequester and have offered a plan to replace the savings with a mix of tax increases and reforms to expensive health and retirement programs.”
The piece did not tell readers how it determined that these programs are expensive. They clearly take up a large share of the budget, but that true statement is not well-conveyed by the adjective “expensive.”
I just thought I’d ask since the paper apparently decided to tell readers that the government’s health and retirement programs are expensive. This information is given in the context of an article on a plan by House Speaker John Boehner to offer a short-term continuing resolution that will maintain funding for the government into the new fiscal year that begins on October 1.
The article told readers:
“Obama and other Democrats are eager to turn off the sequester and have offered a plan to replace the savings with a mix of tax increases and reforms to expensive health and retirement programs.”
The piece did not tell readers how it determined that these programs are expensive. They clearly take up a large share of the budget, but that true statement is not well-conveyed by the adjective “expensive.”
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Laura Tyson has a NYT Economix blog post that highlights the success of Japan’s policy of running large budget deficits. While Japan has a gross debt of almost 250 percent of GDP (more than twice the ratio in the U.S.), the government has embarked on an ambitious stimulus plan to boost its economy. In the two quarters this plan has been in place Japan’s economy has grown at 3.0 percent annual rate (3.1 percent per capita). By comparison, in the United States, where deficit reduction has been the guiding policy, the economy has grown at just a 1.4 percent annual rate (0.7 percent per capita).
Tyson notes that one of the main goals of the current policy is to bring more Japanese women into the labor force. It tells readers that the gap in employment rates in Japan between men and women is 25 percentage points.
Actually, this comment refers to data that does not reflect the current situation in Japan. The employment rate among women has increased substantially in recent years. According to the OECD, the employment rate for prime age women (ages 25-54) in Japan was 69.2 percent last year. This implies a gap in employment rates between women and men of 22.3 percentage points in Japan compared to just 13.3 percentage points in the United States. However, this difference is explained entirely by a lower employment rate for men in the United States, as the employment rate for prime age women in the United States is also 69.2 percent.
In fact, since the employment rate for women aged 16-64 in Japan has risen by 1.3 percentage points in the first half of 2013 from its year-round average in 2012, the employment rate for prime age women in Japan is now almost certainly higher than in the United States.
Laura Tyson has a NYT Economix blog post that highlights the success of Japan’s policy of running large budget deficits. While Japan has a gross debt of almost 250 percent of GDP (more than twice the ratio in the U.S.), the government has embarked on an ambitious stimulus plan to boost its economy. In the two quarters this plan has been in place Japan’s economy has grown at 3.0 percent annual rate (3.1 percent per capita). By comparison, in the United States, where deficit reduction has been the guiding policy, the economy has grown at just a 1.4 percent annual rate (0.7 percent per capita).
Tyson notes that one of the main goals of the current policy is to bring more Japanese women into the labor force. It tells readers that the gap in employment rates in Japan between men and women is 25 percentage points.
Actually, this comment refers to data that does not reflect the current situation in Japan. The employment rate among women has increased substantially in recent years. According to the OECD, the employment rate for prime age women (ages 25-54) in Japan was 69.2 percent last year. This implies a gap in employment rates between women and men of 22.3 percentage points in Japan compared to just 13.3 percentage points in the United States. However, this difference is explained entirely by a lower employment rate for men in the United States, as the employment rate for prime age women in the United States is also 69.2 percent.
In fact, since the employment rate for women aged 16-64 in Japan has risen by 1.3 percentage points in the first half of 2013 from its year-round average in 2012, the employment rate for prime age women in Japan is now almost certainly higher than in the United States.
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