Okay, some cheap WAPO bashing this morning, an article on Bernanke’s speech at Jackson Hole, described a rate of job growth of 150,000 a month or more as “robust.” Sorry, that isn’t close to right.
The economy is down by more than 9.5 million jobs from its trend path. We need roughly 100,000 jobs per month to keep pace with the growth of the labor force. This means that at 150,000 jobs per month, we are making up the jobs shortfall at the rate of 50,000 a month. At this pace it will take us close to 16 years to get back to the economy’s trend job growth path. A rate of job creation that gets us to full employment in 2028 is not robust.
For the young’uns out there, or those with bad memories we created 250,000 jobs per month over the last four years of the Clinton administration, and that was starting with an unemployment rate below 6.0 percent. We should not subject our economic policymakers to the soft bigotry of low expectations.
Okay, some cheap WAPO bashing this morning, an article on Bernanke’s speech at Jackson Hole, described a rate of job growth of 150,000 a month or more as “robust.” Sorry, that isn’t close to right.
The economy is down by more than 9.5 million jobs from its trend path. We need roughly 100,000 jobs per month to keep pace with the growth of the labor force. This means that at 150,000 jobs per month, we are making up the jobs shortfall at the rate of 50,000 a month. At this pace it will take us close to 16 years to get back to the economy’s trend job growth path. A rate of job creation that gets us to full employment in 2028 is not robust.
For the young’uns out there, or those with bad memories we created 250,000 jobs per month over the last four years of the Clinton administration, and that was starting with an unemployment rate below 6.0 percent. We should not subject our economic policymakers to the soft bigotry of low expectations.
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That is the only conclusion that readers of David Brooks’ column could reach. After all, he tells us:
“Today’s Republican Party unabashedly celebrates this ambition and definition of success. Speaker after speaker at the convention in Tampa, Fla., celebrated the striver, who started small, struggled hard, looked within and became wealthy. …
Republicans promised to get government out of the way. Reduce the burden of debt. Offer Americans an open field and a fair chance to let their ambition run.”
He then adds:
“On the one hand, you see the Republicans taking the initiative, offering rejuvenating reform. On the other hand, you see an exhausted Democratic Party, which says: We don’t have an agenda, but we really don’t like theirs. Given these options, the choice is pretty clear.”
If Brooks was as old as he looks he would remember that back in 1980 Ronald Reagan promised to cut taxes and get government out of the way. However he must not be old enough to have been following politics way back then.
Of course if Brooks was as old as he looked, he certainly would be able to remember back to 2000, when George W. Bush promised to cut taxes and get government out of the way. However Brooks must not be old enough to have been following politics back in 2000 either.
If he were old enough to remember Reagan, or at least Bush, he would realize that Governor Romney and Representative Ryan are simply rehashing tired old rhetoric about individuals striving to succeed and how this benefits everyone. He would remember that we tried their route. The 1980s we had what was at the time the slowest decade of growth since the Great Depression, and the growth we had overwhelmingly went to those at the top. Workers in the middle and bottom of the distribution saw their wages stagnate.
We then went the same route in the last decade. This led to a completely lost decade for the economy, with the worst downturn since the Great Depression (which happened before President Obama took office).
While it is certainly fair to blame the Democrats for not being full of creative ideas, the reason that we are facing the economic disaster we now have is due to the fact that we followed the path that Romney and Ryan are now pushing. If Brooks were as old as he looks he could be blamed for having so little knowledge of the country’s recent political history, but this young man will just have to do a bit more homework so that he can recognize rehashed rhetoric and old tired ideas.
That is the only conclusion that readers of David Brooks’ column could reach. After all, he tells us:
“Today’s Republican Party unabashedly celebrates this ambition and definition of success. Speaker after speaker at the convention in Tampa, Fla., celebrated the striver, who started small, struggled hard, looked within and became wealthy. …
Republicans promised to get government out of the way. Reduce the burden of debt. Offer Americans an open field and a fair chance to let their ambition run.”
He then adds:
“On the one hand, you see the Republicans taking the initiative, offering rejuvenating reform. On the other hand, you see an exhausted Democratic Party, which says: We don’t have an agenda, but we really don’t like theirs. Given these options, the choice is pretty clear.”
If Brooks was as old as he looks he would remember that back in 1980 Ronald Reagan promised to cut taxes and get government out of the way. However he must not be old enough to have been following politics way back then.
Of course if Brooks was as old as he looked, he certainly would be able to remember back to 2000, when George W. Bush promised to cut taxes and get government out of the way. However Brooks must not be old enough to have been following politics back in 2000 either.
If he were old enough to remember Reagan, or at least Bush, he would realize that Governor Romney and Representative Ryan are simply rehashing tired old rhetoric about individuals striving to succeed and how this benefits everyone. He would remember that we tried their route. The 1980s we had what was at the time the slowest decade of growth since the Great Depression, and the growth we had overwhelmingly went to those at the top. Workers in the middle and bottom of the distribution saw their wages stagnate.
We then went the same route in the last decade. This led to a completely lost decade for the economy, with the worst downturn since the Great Depression (which happened before President Obama took office).
While it is certainly fair to blame the Democrats for not being full of creative ideas, the reason that we are facing the economic disaster we now have is due to the fact that we followed the path that Romney and Ryan are now pushing. If Brooks were as old as he looks he could be blamed for having so little knowledge of the country’s recent political history, but this young man will just have to do a bit more homework so that he can recognize rehashed rhetoric and old tired ideas.
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The NYT notes that the new jobs being created in the upturn tend to be low-paying jobs. This is not surprising. The jobs that are created in large part reflect the state of the labor market. No one will work the midnight shift at the local 7-11 for the minimum wage if they have the opportunity to get relatively good paying jobs in manufacturing, construction, or health care.
High unemployment leads to lower wages for most workers both by lowering the wages in their jobs and leading to a mix that has more lower paying jobs than would be the case if the economy was near full employment. (This was the point of my book with Jared Bernstein, The Benefits of Full Employment.)
High unemployment tends to have less effect on the most highly educated workers since few doctors and lawyers are laid off when the economy goes into recession. (Although this downturn may have had some downward effect even on the wages of lawyers.) This is why macroeconomic policy has to be very much understood as a class biased policy. When the ineptitude of the Fed allowed the housing bubble to grow to incredibly dangerous proportions, it was the livelihoods of tens of millions low and middle-income workers that were being put at risk, along with their savings, which were overwhelmingly in their homes.
In the same vein, the Fed’s new commitment to target 2.0 percent inflation, implicitly at the cost of higher unemployment, is a promise to throw low and middle class people out of work in order to put downward pressure on their wages to keep inflation from rising above its target level. The impact of this policy is likely to dwarf the impact of federal tax policy in its impact on most non-rich Americans.
The NYT notes that the new jobs being created in the upturn tend to be low-paying jobs. This is not surprising. The jobs that are created in large part reflect the state of the labor market. No one will work the midnight shift at the local 7-11 for the minimum wage if they have the opportunity to get relatively good paying jobs in manufacturing, construction, or health care.
High unemployment leads to lower wages for most workers both by lowering the wages in their jobs and leading to a mix that has more lower paying jobs than would be the case if the economy was near full employment. (This was the point of my book with Jared Bernstein, The Benefits of Full Employment.)
High unemployment tends to have less effect on the most highly educated workers since few doctors and lawyers are laid off when the economy goes into recession. (Although this downturn may have had some downward effect even on the wages of lawyers.) This is why macroeconomic policy has to be very much understood as a class biased policy. When the ineptitude of the Fed allowed the housing bubble to grow to incredibly dangerous proportions, it was the livelihoods of tens of millions low and middle-income workers that were being put at risk, along with their savings, which were overwhelmingly in their homes.
In the same vein, the Fed’s new commitment to target 2.0 percent inflation, implicitly at the cost of higher unemployment, is a promise to throw low and middle class people out of work in order to put downward pressure on their wages to keep inflation from rising above its target level. The impact of this policy is likely to dwarf the impact of federal tax policy in its impact on most non-rich Americans.
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The United States doesn’t understand much about free markets. If it did, people here would realize that patents and copyrights are big government, not the free market. China is trying to teach this lesson to Apple. As the Post reports, a Chinese firm is filing a patent infringement lawsuit against Apple.
This is undoubtedly the first of many such suits. Strong patent laws are likely to create many high-paying jobs for lawyers, however they are almost certainly an impediment to innovation in the 21st century. Unfortunately, because protectionists so completely dominate public debate, fundamental reform of patent policy is not even being considered by leading political figures in either political party.
The United States doesn’t understand much about free markets. If it did, people here would realize that patents and copyrights are big government, not the free market. China is trying to teach this lesson to Apple. As the Post reports, a Chinese firm is filing a patent infringement lawsuit against Apple.
This is undoubtedly the first of many such suits. Strong patent laws are likely to create many high-paying jobs for lawyers, however they are almost certainly an impediment to innovation in the 21st century. Unfortunately, because protectionists so completely dominate public debate, fundamental reform of patent policy is not even being considered by leading political figures in either political party.
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A lengthy NYT Magazine piece reports on the increasing number of couples where the women earns more than the man. It notes that one reason is that women are graduating college in higher numbers. At one point it presents the views of Michael Greenstone, an economist at M.I.T. and director of the Hamilton Project:
“An important long-term issue is that men are not doing as well as women in keeping up with the demands of the global economy. … It’s a first-order mystery for social scientists, why women have more clearly heard the message that the economy has changed and men have such a hard time hearing it or responding.”
Actually it is not as much of a mystery to people who know the data. There is considerable wage dispersion for both men with college degrees and men with just high school degrees. As a result, even though on average college grads earn much more than men with just a high school degree, there are many men with college degrees who earn less than people with just high school degrees. My colleague John Schmitt and Heather Boushey found that in 2009, 20 percent of recent college grads earned less than the average high school graduate.
Stepping back a bit, it is likely that the marginal high school grad, who is debating going to college, would be near the top of the wage distribution for people with just high school degrees. On the other hand, if they were to go to college, they would likely be towards the bottom of the distribution of people with college degrees. Given the expense and opportunity cost of going to college, it might be a very reasonable decision for this person not to opt to go to college.
If the NYT had found someone more familiar with the data, they could have explained this point to readers.
A lengthy NYT Magazine piece reports on the increasing number of couples where the women earns more than the man. It notes that one reason is that women are graduating college in higher numbers. At one point it presents the views of Michael Greenstone, an economist at M.I.T. and director of the Hamilton Project:
“An important long-term issue is that men are not doing as well as women in keeping up with the demands of the global economy. … It’s a first-order mystery for social scientists, why women have more clearly heard the message that the economy has changed and men have such a hard time hearing it or responding.”
Actually it is not as much of a mystery to people who know the data. There is considerable wage dispersion for both men with college degrees and men with just high school degrees. As a result, even though on average college grads earn much more than men with just a high school degree, there are many men with college degrees who earn less than people with just high school degrees. My colleague John Schmitt and Heather Boushey found that in 2009, 20 percent of recent college grads earned less than the average high school graduate.
Stepping back a bit, it is likely that the marginal high school grad, who is debating going to college, would be near the top of the wage distribution for people with just high school degrees. On the other hand, if they were to go to college, they would likely be towards the bottom of the distribution of people with college degrees. Given the expense and opportunity cost of going to college, it might be a very reasonable decision for this person not to opt to go to college.
If the NYT had found someone more familiar with the data, they could have explained this point to readers.
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Most of the media have been doing fluff pieces on Representative Ryan ever since he was announced as Governor Romney’s pick for his VP candidate. (My favorite is this Post piece which waxes eloquently on his use of the word “baseline.”) Just in case any reporters decide to do any real reporting, I’d suggest they try taking issue with his account of the crushing debt burden that we are passing on to our children.
Representative Ryan seems impressed by big numbers (i.e. trillions), but seems to have difficulty with simple concepts. If we look at the ratio of our interest burden as share of GDP, it is close to 1.5 percent. This is near its low point for the post-war era.
Source: Congressional Budget Office.
In other words, instead of having a burden that is at a record high, the interest burden that we are now facing is near a post-war low. How can a budget wonk be so far from reality?
In fact, if we factor in the $80 billion in interest earnings that the Fed is refunding to the Treasury each year, the net interest burden is only about 1.0 percent of GDP, its lowest level since World War II.
There is one other item that should have caught the attention of reporters. Ryan hyped the fact that one of the major rating agencies downgraded the debt of the U.S. government. (The other two did not.) However the financial markets have been willing to lend the United States trillions of dollars at the lowest interest rate since World War II.
What sort of Ayn Rand follower takes the judgement of the bureaucrats and accountants in a credit-rating agency over the views of millions of investors putting trillions of dollars of their own money on the line? Let’s face it, Ryan is a wuss.
Most of the media have been doing fluff pieces on Representative Ryan ever since he was announced as Governor Romney’s pick for his VP candidate. (My favorite is this Post piece which waxes eloquently on his use of the word “baseline.”) Just in case any reporters decide to do any real reporting, I’d suggest they try taking issue with his account of the crushing debt burden that we are passing on to our children.
Representative Ryan seems impressed by big numbers (i.e. trillions), but seems to have difficulty with simple concepts. If we look at the ratio of our interest burden as share of GDP, it is close to 1.5 percent. This is near its low point for the post-war era.
Source: Congressional Budget Office.
In other words, instead of having a burden that is at a record high, the interest burden that we are now facing is near a post-war low. How can a budget wonk be so far from reality?
In fact, if we factor in the $80 billion in interest earnings that the Fed is refunding to the Treasury each year, the net interest burden is only about 1.0 percent of GDP, its lowest level since World War II.
There is one other item that should have caught the attention of reporters. Ryan hyped the fact that one of the major rating agencies downgraded the debt of the U.S. government. (The other two did not.) However the financial markets have been willing to lend the United States trillions of dollars at the lowest interest rate since World War II.
What sort of Ayn Rand follower takes the judgement of the bureaucrats and accountants in a credit-rating agency over the views of millions of investors putting trillions of dollars of their own money on the line? Let’s face it, Ryan is a wuss.
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Morgan Stanley director Erskine Bowles got a couple of big things wrong in a “Room for Debate” comment in the NYT. First he refers to “our commission’s plan.” His commission did not produce a plan. To produce a plan it would have needed 14 votes. The plan that he and his co-chair, Alan Simpson, developed only got the support of 11 members of the commission.
He also refers to the crisis that will result from not taking steps to reduce the deficit as “the most predictable economic crisis in history.” Actually, the most predictable crisis in economic history was the downturn that we are now suffering from due to the collapse of the housing bubble. It was easy to see that the bubble would burst and lead to a large downturn, since there was no easy way to replace the $1.4 trillion in annual demand generated by the bubble.
There is no obvious crisis associated with the current budget path. It would be helpful if Bowles could spell out what he envisions, since a country that has its own currency faces no prospect of ever seeing a crisis like that facing Greece or Ireland, which don’t have their own currency. It is also worth noting that the interest burden on the debt, net of payments from the Fed to the Treasury, is only around 1.0 percent. This is the lowest that it has been in the post-war era.
Morgan Stanley director Erskine Bowles got a couple of big things wrong in a “Room for Debate” comment in the NYT. First he refers to “our commission’s plan.” His commission did not produce a plan. To produce a plan it would have needed 14 votes. The plan that he and his co-chair, Alan Simpson, developed only got the support of 11 members of the commission.
He also refers to the crisis that will result from not taking steps to reduce the deficit as “the most predictable economic crisis in history.” Actually, the most predictable crisis in economic history was the downturn that we are now suffering from due to the collapse of the housing bubble. It was easy to see that the bubble would burst and lead to a large downturn, since there was no easy way to replace the $1.4 trillion in annual demand generated by the bubble.
There is no obvious crisis associated with the current budget path. It would be helpful if Bowles could spell out what he envisions, since a country that has its own currency faces no prospect of ever seeing a crisis like that facing Greece or Ireland, which don’t have their own currency. It is also worth noting that the interest burden on the debt, net of payments from the Fed to the Treasury, is only around 1.0 percent. This is the lowest that it has been in the post-war era.
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It really is bizarre, but apparently the NYT doesn’t know what line of work President Obama is in. Perhaps they think he is a jazz singer, a mystery writer, who knows? While the rest of us know that President Obama is a politician, the NYT somehow thinks he is a philosopher. It told readers this in the very first sentence of a front page article on Representative Ryan’s acceptance speech at the Republican convention referring to “President Obama’s governing philosophy.”
The article never explains how it came to the conclusion that President Obama has a governing philosophy. While a philosopher might have a governing philosophy, a politician responds to political pressures from powerful interest group. President Obama very obviously does the latter, the NYT gives us no information as to why it thinks that President Obama is a philosopher.
This piece also erred by following Representative Ryan in referring to his accusation about President Obama’s failure, “to act on the recommendations of his own bipartisan debt commission.” While the article did point out that as a member of the commission, Representative Ryan had voted against the plan put forward by the commission co-chairs, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, it did not point out that the plan actually was not adopted by the commission. To have been approved, the report would have needed the support of 14 members of the commission. It only had the support of 11 members. It is therefore inaccurate to refer to the report as coming from the commission.
The piece also does a he said/she said segment on Medicare, telling readers:
“Mr. Ryan made it clear that he would portray the Romney-Ryan ticket as protecting Medicare, not ‘raiding it,’ as he said Democrats would, saying his own mother’s reliance on the program should be proof of his commitment to it.”
Many readers may not realize that both Governor Romney and Representative Ryan have proposed replacing Medicare with a voucher program. This voucher system would not assure beneficiaries that they would have the money to afford a policy equivalent to the current Medicare program.
It really is bizarre, but apparently the NYT doesn’t know what line of work President Obama is in. Perhaps they think he is a jazz singer, a mystery writer, who knows? While the rest of us know that President Obama is a politician, the NYT somehow thinks he is a philosopher. It told readers this in the very first sentence of a front page article on Representative Ryan’s acceptance speech at the Republican convention referring to “President Obama’s governing philosophy.”
The article never explains how it came to the conclusion that President Obama has a governing philosophy. While a philosopher might have a governing philosophy, a politician responds to political pressures from powerful interest group. President Obama very obviously does the latter, the NYT gives us no information as to why it thinks that President Obama is a philosopher.
This piece also erred by following Representative Ryan in referring to his accusation about President Obama’s failure, “to act on the recommendations of his own bipartisan debt commission.” While the article did point out that as a member of the commission, Representative Ryan had voted against the plan put forward by the commission co-chairs, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, it did not point out that the plan actually was not adopted by the commission. To have been approved, the report would have needed the support of 14 members of the commission. It only had the support of 11 members. It is therefore inaccurate to refer to the report as coming from the commission.
The piece also does a he said/she said segment on Medicare, telling readers:
“Mr. Ryan made it clear that he would portray the Romney-Ryan ticket as protecting Medicare, not ‘raiding it,’ as he said Democrats would, saying his own mother’s reliance on the program should be proof of his commitment to it.”
Many readers may not realize that both Governor Romney and Representative Ryan have proposed replacing Medicare with a voucher program. This voucher system would not assure beneficiaries that they would have the money to afford a policy equivalent to the current Medicare program.
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An article reporting on the Commerce Department’s release of data showing a small upward revision in second quarter GDP told readers that Federal Reserve Board Chairman Ben Bernanke faces a “delicate decision” in deciding whether to take further steps to boost the economy. While the piece notes the economy’s continuing weakness, it tells readers:
“More aggressive steps to stimulate the economy will also draw criticism from Republicans, who have demanded that Mr. Bernanke forswear additional monetary moves for now.”
While it might be beneficial to the Republicans to have a weak economy over the next two months, it is not Bernanke’s job to help them win the election. The Federal Reserve Board is supposed to target full employment and price stability. Since there is no evidence whatsoever of significant inflationary pressures in the economy, the Fed should be focused on the full employment part of the mandate.
The Fed’s charter does not say anything about not boosting the economy in a context where its actions could have an impact on the election. There can be little dispute that the economy is operating well below full employment which means that the Fed should be focused on increasing employment, even if the Republicans don’t want to see more job growth before the election. (As a practical matter, the Fed’s actions at its next meeting in mid-September are unlikely to have a noticeable impact on the economy by the election.)
An article reporting on the Commerce Department’s release of data showing a small upward revision in second quarter GDP told readers that Federal Reserve Board Chairman Ben Bernanke faces a “delicate decision” in deciding whether to take further steps to boost the economy. While the piece notes the economy’s continuing weakness, it tells readers:
“More aggressive steps to stimulate the economy will also draw criticism from Republicans, who have demanded that Mr. Bernanke forswear additional monetary moves for now.”
While it might be beneficial to the Republicans to have a weak economy over the next two months, it is not Bernanke’s job to help them win the election. The Federal Reserve Board is supposed to target full employment and price stability. Since there is no evidence whatsoever of significant inflationary pressures in the economy, the Fed should be focused on the full employment part of the mandate.
The Fed’s charter does not say anything about not boosting the economy in a context where its actions could have an impact on the election. There can be little dispute that the economy is operating well below full employment which means that the Fed should be focused on increasing employment, even if the Republicans don’t want to see more job growth before the election. (As a practical matter, the Fed’s actions at its next meeting in mid-September are unlikely to have a noticeable impact on the economy by the election.)
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In a blog post yesterday Case Mulligan told readers:
“In reality, cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs.”
Unfortunately Mulligan provides no evidence to back up his version of reality. By contrast, Jesse Rothstein, an economist at Berkeley, looked at the behavior of unemployed workers. He found that at most, the supply-side effect from the extended duration of unemployment benefits in this downturn increased measured unemployment by 0.1-0.5 percentage points. Furthermore, most of this increase was due to keeping workers looking for work and therefore being counted as unemployed. (When a worker stops looking for work, they are no longer counted as being unemployed.)
Rothstein’s calculations are only designed to pick up the incentive effect that Mulligan focuses on in his blog post. Since the benefits gave workers tens of billions of dollars that they would not have otherwise, they undoubtedly had a large demand side effect. The Congressional Budget Office estimates the multiplier for unemployment benefits as being 1.6, meaning that the $40 billion a year in extended benefits (roughly the amount at stake) would lead to an increase in GDP of $64 billion or more than 0.4 percent of GDP. If the increase in employment is proportionate, it would imply 560,000 additional jobs. This would swamp the negative supply side effect that Rothstein found in his research.
In a blog post yesterday Case Mulligan told readers:
“In reality, cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs.”
Unfortunately Mulligan provides no evidence to back up his version of reality. By contrast, Jesse Rothstein, an economist at Berkeley, looked at the behavior of unemployed workers. He found that at most, the supply-side effect from the extended duration of unemployment benefits in this downturn increased measured unemployment by 0.1-0.5 percentage points. Furthermore, most of this increase was due to keeping workers looking for work and therefore being counted as unemployed. (When a worker stops looking for work, they are no longer counted as being unemployed.)
Rothstein’s calculations are only designed to pick up the incentive effect that Mulligan focuses on in his blog post. Since the benefits gave workers tens of billions of dollars that they would not have otherwise, they undoubtedly had a large demand side effect. The Congressional Budget Office estimates the multiplier for unemployment benefits as being 1.6, meaning that the $40 billion a year in extended benefits (roughly the amount at stake) would lead to an increase in GDP of $64 billion or more than 0.4 percent of GDP. If the increase in employment is proportionate, it would imply 560,000 additional jobs. This would swamp the negative supply side effect that Rothstein found in his research.
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