The Washington Post had a nice piece on the potential impact of the recovery of the housing market on the economy. The piece reasonably assumes that construction returns to its long-term trend share of GDP, rather than getting back to its bubble levels of the last decade. In this case it will make a substantial contribution to the recovery, although it still will not possible to return to full employment without large budget deficits, unless there is a substantial reduction in the size of the trade deficit.
The Washington Post had a nice piece on the potential impact of the recovery of the housing market on the economy. The piece reasonably assumes that construction returns to its long-term trend share of GDP, rather than getting back to its bubble levels of the last decade. In this case it will make a substantial contribution to the recovery, although it still will not possible to return to full employment without large budget deficits, unless there is a substantial reduction in the size of the trade deficit.
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There is a serious effort by corporate honchos to cut Social Security and Medicare in the lame duck session of Congress. As has been reporting in several major media outlets, this campaign has raised tens of millions of dollars for this purpose.
Readers of a NYT “fact-check” on the presidential debate were no doubt wondering whether the paper had sold space to this campaign. The fact-check was addressing the question of whether Governor Romney wanted to increase military spending by $2.3 trillion over the course of the decade. At one point the piece told readers:
“The drop in military budgets as a share of G.D.P. is due less to any reductions for the Pentagon and more to the fact that a growing piece of the federal budget pie is being consumed by spending for entitlement programs like Medicare, Medicaid and Social Security as more baby boomers reach retirement age.”
Of course that one makes no sense. Increased spending on Medicare, Medicaid and Social Security will raise their percentage of the budget and therefore could explain a decline in military spending as a share of the budget. It can only explain a decline in military spending as a share of GDP if spending on these programs raises GDP. While that is possible in a depressed economy, like the one we have seen the last 5 years, that is not the argument that we usually hear about these programs.
Furthermore, the Congressional Budget Office and other agencies do not project that the economy will remain depressed throughout the decade. Therefore this is assertion is not true in the context of the generally used budget projections. Presumably it just reflected a willingness of the NYT to get in a standard jibe about the growth of these programs, but skeptics may see the hand of the corporate campaign.
Thanks to Robert Naiman for calling this to my attention.
There is a serious effort by corporate honchos to cut Social Security and Medicare in the lame duck session of Congress. As has been reporting in several major media outlets, this campaign has raised tens of millions of dollars for this purpose.
Readers of a NYT “fact-check” on the presidential debate were no doubt wondering whether the paper had sold space to this campaign. The fact-check was addressing the question of whether Governor Romney wanted to increase military spending by $2.3 trillion over the course of the decade. At one point the piece told readers:
“The drop in military budgets as a share of G.D.P. is due less to any reductions for the Pentagon and more to the fact that a growing piece of the federal budget pie is being consumed by spending for entitlement programs like Medicare, Medicaid and Social Security as more baby boomers reach retirement age.”
Of course that one makes no sense. Increased spending on Medicare, Medicaid and Social Security will raise their percentage of the budget and therefore could explain a decline in military spending as a share of the budget. It can only explain a decline in military spending as a share of GDP if spending on these programs raises GDP. While that is possible in a depressed economy, like the one we have seen the last 5 years, that is not the argument that we usually hear about these programs.
Furthermore, the Congressional Budget Office and other agencies do not project that the economy will remain depressed throughout the decade. Therefore this is assertion is not true in the context of the generally used budget projections. Presumably it just reflected a willingness of the NYT to get in a standard jibe about the growth of these programs, but skeptics may see the hand of the corporate campaign.
Thanks to Robert Naiman for calling this to my attention.
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A Washington Post fact check on the debate commented on a debate question on outsourcing:
“But economists are unanimous that trade, including outsourcing, is hugely beneficial to economic growth at home and abroad.”
This is highly misleading for two reasons. First, economists are unanimous in agreeing that trade could have major distributional consequences. And some prominent economists, such as Paul Krugman, have argued that the recent pattern of trade for the United States has had negative distributional consequences for large segment of the U.S. workforce.
The second reason that it is misleading is that economists are unanimous in believing that in the context of below full employment economy, like the one we have seen the last five years, a larger trade deficit implies lower growth and fewer jobs. In this context outsourcing hurts the economy.
A Washington Post fact check on the debate commented on a debate question on outsourcing:
“But economists are unanimous that trade, including outsourcing, is hugely beneficial to economic growth at home and abroad.”
This is highly misleading for two reasons. First, economists are unanimous in agreeing that trade could have major distributional consequences. And some prominent economists, such as Paul Krugman, have argued that the recent pattern of trade for the United States has had negative distributional consequences for large segment of the U.S. workforce.
The second reason that it is misleading is that economists are unanimous in believing that in the context of below full employment economy, like the one we have seen the last five years, a larger trade deficit implies lower growth and fewer jobs. In this context outsourcing hurts the economy.
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That what people who saw this NPR Planet Money piece must be wondering. The problem is that the United States, as a result of its loss of manufacturing production, now has a large annual trade deficit of $600 billion or 4 percent of GDP. If were closer to full employment it would likely be around 5 percent of GDP, or $750 billion.
At the moment we are able to run these deficits because countries like China are willing to subsidize their exports to the U.S. by spending hundreds of billions of dollars every year to buy U.S. bonds and other assets. This keeps up the price of the dollar relative to their currencies, which makes their goods cheap for people in the United States.
While it is very generous of these countries to subsidize our consumption, it is unlikely they will do so forever. These subsidies keep up demand for their products in the United States, but they could also use the same money to subsidize the purchase of goods and services by their own people. This could lead to substantial improvements in the living standards of the people in the countries who are sustaining the over-valued dollar.
If these countries stopped propping up the dollar then the dollar would presumably fall to a level that it is roughly consistent with balanced trade. This would almost certainly mean a large increase in manufactured exports as well as increased domestic production to replace imports of manufactured goods. Roughly 70 percent of U.S. trade is in goods, and most of these goods involve some degree of manufacturing (as opposed to raw agricultural products or mining output).
It is difficult to imagine an adjustment to more balanced trade that doesn’t involve a large increase in production of U.S. manufactured goods. While our trade surplus on services can increase, it seems unlikely that it could go too far towards filling this gap. Also, it is not clear how many more people in the United States will want to work as housekeepers and table servers, since tourism is by far the largest category of service exports, accounting for more than a quarter of the total (travel plus passenger fares).
If we moved to balanced trade and manufacturing adjusted in accordance to its share of total trade, it would imply an increase in manufacturing output of close to 30 percent. Unless we have extraordinary gains in productivity, this would mean considerably more employment in the sector.
That what people who saw this NPR Planet Money piece must be wondering. The problem is that the United States, as a result of its loss of manufacturing production, now has a large annual trade deficit of $600 billion or 4 percent of GDP. If were closer to full employment it would likely be around 5 percent of GDP, or $750 billion.
At the moment we are able to run these deficits because countries like China are willing to subsidize their exports to the U.S. by spending hundreds of billions of dollars every year to buy U.S. bonds and other assets. This keeps up the price of the dollar relative to their currencies, which makes their goods cheap for people in the United States.
While it is very generous of these countries to subsidize our consumption, it is unlikely they will do so forever. These subsidies keep up demand for their products in the United States, but they could also use the same money to subsidize the purchase of goods and services by their own people. This could lead to substantial improvements in the living standards of the people in the countries who are sustaining the over-valued dollar.
If these countries stopped propping up the dollar then the dollar would presumably fall to a level that it is roughly consistent with balanced trade. This would almost certainly mean a large increase in manufactured exports as well as increased domestic production to replace imports of manufactured goods. Roughly 70 percent of U.S. trade is in goods, and most of these goods involve some degree of manufacturing (as opposed to raw agricultural products or mining output).
It is difficult to imagine an adjustment to more balanced trade that doesn’t involve a large increase in production of U.S. manufactured goods. While our trade surplus on services can increase, it seems unlikely that it could go too far towards filling this gap. Also, it is not clear how many more people in the United States will want to work as housekeepers and table servers, since tourism is by far the largest category of service exports, accounting for more than a quarter of the total (travel plus passenger fares).
If we moved to balanced trade and manufacturing adjusted in accordance to its share of total trade, it would imply an increase in manufacturing output of close to 30 percent. Unless we have extraordinary gains in productivity, this would mean considerably more employment in the sector.
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Andrew Ross Sorkin uses his column today to highlight the troubles of those suffering the most from the downturn: the CEOs of major banks who bought up failing competitors in the midst of the financial crisis. Jamie Dimon, J.P. Morgan’s CEO, get center stage for having to deal with Bear Stearns’ legal liabilities, but Sorkin also has some tears for Wells Fargo, which bought up Wachovia, and Bank of America, which took over Merrill Lynch.
While Sorkin apparently feels sorry for the burdens imposed on these banks and their bosses, those of us who are less sentimental might remember that these are people who all draw 8 figure paychecks. They are supposed to know what they are doing. For example, Sorkin presents Dimon’s perspective:
“Mr. Dimon is clearly frustrated. Had Bear Stearns filed for bankruptcy, he said, there ‘would be no money. There would be no lawsuits. There would be no stock-drop lawsuits, there would be no class actions, there would be no mortgage lawsuits because there would be no money. But we bought it.’ ….
“‘When the government helped save General Motors by providing money and guarantees as part of its bankruptcy, ‘they absolved G.M. of all prior legal liability,’ Mr. Dimon said in an earnings conference call with investors and analysts on Friday. ‘So the government’s being a little inconsistent here.'”
Actually, there is no inconsistency here whatsoever. Mr. Dimon negotiated the terms under which he took over Bear Stearns. He did not arrange for a bankruptcy of the latter or some other measure that would have absolved J.P. Morgan from the companies’ legal liabilities. Presumably Dimon understood this fact at the time of the takeover, as did the CEOs of the other banks.
If CEOs of our largest banks do not understand such simple concepts perhaps the remedy is remedial education. Maybe we should require CEOs of banks with more than $500 billion in assets to take course on legal liabilities for acquired companies. Or, perhaps they need the equivalent of a Consumer Financial Products Protection Bureau which will ensure that they do not stumble into deals that turn out to be bad for them.
One last point that is worth remembering. Had it not been for the special assistance provided by the Fed, the Treasury, and the FDIC at the peak of the financial crisis, it is likely that all of the major Wall Street bank CEOs would be among the nation’s unemployed today. It is understandable that they would want more from the government (“job creators” always do), but it can be a bit difficult for those who are less sentimental than Mr. Sorkin to take their whining seriously.
Andrew Ross Sorkin uses his column today to highlight the troubles of those suffering the most from the downturn: the CEOs of major banks who bought up failing competitors in the midst of the financial crisis. Jamie Dimon, J.P. Morgan’s CEO, get center stage for having to deal with Bear Stearns’ legal liabilities, but Sorkin also has some tears for Wells Fargo, which bought up Wachovia, and Bank of America, which took over Merrill Lynch.
While Sorkin apparently feels sorry for the burdens imposed on these banks and their bosses, those of us who are less sentimental might remember that these are people who all draw 8 figure paychecks. They are supposed to know what they are doing. For example, Sorkin presents Dimon’s perspective:
“Mr. Dimon is clearly frustrated. Had Bear Stearns filed for bankruptcy, he said, there ‘would be no money. There would be no lawsuits. There would be no stock-drop lawsuits, there would be no class actions, there would be no mortgage lawsuits because there would be no money. But we bought it.’ ….
“‘When the government helped save General Motors by providing money and guarantees as part of its bankruptcy, ‘they absolved G.M. of all prior legal liability,’ Mr. Dimon said in an earnings conference call with investors and analysts on Friday. ‘So the government’s being a little inconsistent here.'”
Actually, there is no inconsistency here whatsoever. Mr. Dimon negotiated the terms under which he took over Bear Stearns. He did not arrange for a bankruptcy of the latter or some other measure that would have absolved J.P. Morgan from the companies’ legal liabilities. Presumably Dimon understood this fact at the time of the takeover, as did the CEOs of the other banks.
If CEOs of our largest banks do not understand such simple concepts perhaps the remedy is remedial education. Maybe we should require CEOs of banks with more than $500 billion in assets to take course on legal liabilities for acquired companies. Or, perhaps they need the equivalent of a Consumer Financial Products Protection Bureau which will ensure that they do not stumble into deals that turn out to be bad for them.
One last point that is worth remembering. Had it not been for the special assistance provided by the Fed, the Treasury, and the FDIC at the peak of the financial crisis, it is likely that all of the major Wall Street bank CEOs would be among the nation’s unemployed today. It is understandable that they would want more from the government (“job creators” always do), but it can be a bit difficult for those who are less sentimental than Mr. Sorkin to take their whining seriously.
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Yes, that is absurd and even offensive, but since the NYT is going in for gross exaggeration to scare its readers about the budget, I thought I would play along. A NYT piece on the budget deficit told readers that:
“But even if Democrats and the financial markets go along with the delay [a decision to put off any longer term plans on taxes and spending if Romney wins the election], the months before Mr. Romney’s swearing-in could be as crucial to his presidency as the transition period was for Mr. Obama four years ago, when the economic crisis led him to draft a big stimulus package while President George W. Bush still occupied the White House.”
This is wrong. The economy was losing 700,000 jobs a month in the period between the election and when President Obama took office. His decision to push a stimulus, which in the context should not be called “big,” kept several million more people from losing their job. His decision shortly after the passage of the stimulus to “pivot to deficit reduction,” has likely ensured that millions of people will be needlessly unemployed for much of a decade.
It is difficult to imagine the set of events in a transition to a Romney administration that could have anywhere near the same consequence.
Yes, that is absurd and even offensive, but since the NYT is going in for gross exaggeration to scare its readers about the budget, I thought I would play along. A NYT piece on the budget deficit told readers that:
“But even if Democrats and the financial markets go along with the delay [a decision to put off any longer term plans on taxes and spending if Romney wins the election], the months before Mr. Romney’s swearing-in could be as crucial to his presidency as the transition period was for Mr. Obama four years ago, when the economic crisis led him to draft a big stimulus package while President George W. Bush still occupied the White House.”
This is wrong. The economy was losing 700,000 jobs a month in the period between the election and when President Obama took office. His decision to push a stimulus, which in the context should not be called “big,” kept several million more people from losing their job. His decision shortly after the passage of the stimulus to “pivot to deficit reduction,” has likely ensured that millions of people will be needlessly unemployed for much of a decade.
It is difficult to imagine the set of events in a transition to a Romney administration that could have anywhere near the same consequence.
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I wouldn’t try taking the deduction, but apparently banks and other corporate crooks are often able to deduct the settlements in civil actions from their taxes. Good piece in the Post calling attention to this issue.
I wouldn’t try taking the deduction, but apparently banks and other corporate crooks are often able to deduct the settlements in civil actions from their taxes. Good piece in the Post calling attention to this issue.
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