In the middle of Washington it can be difficult to get your hands on publicly available government documents. This is undoubtedly why George Will continues to misrepresent what President Obama’s economic advisers said about the stimulus package.
On This Week, ABC’s Sunday morning talk show, Will claimed that Obama’s advisers told him that if he did the stimulus that the unemployment rate would never get above 8.0 percent. Actually, if Will could find the publicly available document written in early January by Christine Romer, the head of the Council of Economic Advisers and Jared Bernstein, Vice-President Biden’s chief economist, he would know that they said the stimulus would create between 3-4 million jobs.
They expected that this rate of job creation would keep the unemployment rate from rising above 8.0 percent. While the stimulus package that got through Congress was somewhat smaller and less stimulatory (more tax cuts, less spending) than the package President Obama proposed, most independent analyses put the job impact in the 2-3 million range.
What Obama’s advisers got wrong in a big way was the severity of the downturn. The economy lost more than 3.1 million jobs in the first four months of 2009. This was a much sharper falloff than they had anticipated, as is clear from reading the document. The stimulus did create roughly the number of jobs projected, the problem was that we needed 10-12 million jobs, not 2-3 million.
President Obama’s team can and should be criticized for underestimating the severity of the downturn (like most of the economics profession). However, none of the evidence to date suggests that they were wrong about the effectiveness of the stimulus.
In the middle of Washington it can be difficult to get your hands on publicly available government documents. This is undoubtedly why George Will continues to misrepresent what President Obama’s economic advisers said about the stimulus package.
On This Week, ABC’s Sunday morning talk show, Will claimed that Obama’s advisers told him that if he did the stimulus that the unemployment rate would never get above 8.0 percent. Actually, if Will could find the publicly available document written in early January by Christine Romer, the head of the Council of Economic Advisers and Jared Bernstein, Vice-President Biden’s chief economist, he would know that they said the stimulus would create between 3-4 million jobs.
They expected that this rate of job creation would keep the unemployment rate from rising above 8.0 percent. While the stimulus package that got through Congress was somewhat smaller and less stimulatory (more tax cuts, less spending) than the package President Obama proposed, most independent analyses put the job impact in the 2-3 million range.
What Obama’s advisers got wrong in a big way was the severity of the downturn. The economy lost more than 3.1 million jobs in the first four months of 2009. This was a much sharper falloff than they had anticipated, as is clear from reading the document. The stimulus did create roughly the number of jobs projected, the problem was that we needed 10-12 million jobs, not 2-3 million.
President Obama’s team can and should be criticized for underestimating the severity of the downturn (like most of the economics profession). However, none of the evidence to date suggests that they were wrong about the effectiveness of the stimulus.
Read More Leer más Join the discussion Participa en la discusión
A NYT piece on another possible round of court battles over the Affordable Care Act (ACA) told readers:
“White House officials have repeatedly underestimated opposition to the health care law. They predicted that public support for the law would grow as people learned more about it.”
This implies that people have learned about the ACA. That does not appear to be the case. According to poll conducted last fall by Kaiser only 45 percent of people knew that the ACA did not create panels that would make decisions about end of life care for Medicare patients. Only 25 percent knew that the bill did not require firms with less than 50 employees to provide insurance for their workers. Only 42 percent knew that the bill does not provide insurance to undocumented workers.
In short, the evidence suggests that the media has done a very poor job in educating the public about the specifics of the plan. (Michelle Rhee would fire all the reporters immediately.) We do not know how people will respond if they learn more about the ACA because this far they have not.
A NYT piece on another possible round of court battles over the Affordable Care Act (ACA) told readers:
“White House officials have repeatedly underestimated opposition to the health care law. They predicted that public support for the law would grow as people learned more about it.”
This implies that people have learned about the ACA. That does not appear to be the case. According to poll conducted last fall by Kaiser only 45 percent of people knew that the ACA did not create panels that would make decisions about end of life care for Medicare patients. Only 25 percent knew that the bill did not require firms with less than 50 employees to provide insurance for their workers. Only 42 percent knew that the bill does not provide insurance to undocumented workers.
In short, the evidence suggests that the media has done a very poor job in educating the public about the specifics of the plan. (Michelle Rhee would fire all the reporters immediately.) We do not know how people will respond if they learn more about the ACA because this far they have not.
Read More Leer más Join the discussion Participa en la discusión
In the middle of an article that is largely devoted to discussing the absurdity of Republicans attacks on the Affordable Care Act’s cost controls for Medicare, given their repeated efforts to slash funding for the program, the NYT told readers:
“such talk underscores how far Republicans and Democrats are from truly squaring with the public about curbing the growth of the major entitlement programs: Medicare, Medicaid and, to a lesser extent, Social Security.”
While the NYT might want to see the growth of Social Security spending curbed, there is no obvious reason that it is necessary. In fact, given the loss of savings among older workers due to the collapse of the housing bubble and the downturn, there are strong arguments for increasing the generosity of benefits.
According to the Congressional Budget Office the program is full funded until 2038 with no changes whatsoever. The increased revenue needed to keep the program fully funded for the rest of the century is a bit more than 5 percent of projected wage growth over the next three decades.
Polls have consistently indicated that people would rather pay higher Social Security taxes than see a cut in benefits. The claim that there is somehow a need to curb the growth of Social Security spending is an expression of the political views of the NYT. It is not a reflection of the finances of the program.
While there is a need to restrain the cost growth of Medicare this is due to the fact that health care costs in the United States are so out of line with costs elsewhere in the world. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits.
In the middle of an article that is largely devoted to discussing the absurdity of Republicans attacks on the Affordable Care Act’s cost controls for Medicare, given their repeated efforts to slash funding for the program, the NYT told readers:
“such talk underscores how far Republicans and Democrats are from truly squaring with the public about curbing the growth of the major entitlement programs: Medicare, Medicaid and, to a lesser extent, Social Security.”
While the NYT might want to see the growth of Social Security spending curbed, there is no obvious reason that it is necessary. In fact, given the loss of savings among older workers due to the collapse of the housing bubble and the downturn, there are strong arguments for increasing the generosity of benefits.
According to the Congressional Budget Office the program is full funded until 2038 with no changes whatsoever. The increased revenue needed to keep the program fully funded for the rest of the century is a bit more than 5 percent of projected wage growth over the next three decades.
Polls have consistently indicated that people would rather pay higher Social Security taxes than see a cut in benefits. The claim that there is somehow a need to curb the growth of Social Security spending is an expression of the political views of the NYT. It is not a reflection of the finances of the program.
While there is a need to restrain the cost growth of Medicare this is due to the fact that health care costs in the United States are so out of line with costs elsewhere in the world. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits.
Read More Leer más Join the discussion Participa en la discusión
They may not realize this fact, but that is the logical implication of comments in both the NYT and Washington Post articles on the Friday jobs reports. Both papers complained that high debt burdens are depressing consumption, which would otherwise lead to more demand and more jobs.
In fact, the saving rate is currently under 4.0 percent. In the decades prior to the stock and housing bubbles the saving rate averaged over 8.0 percent. A 4.0 percent saving rate implies that workers are accumulating very little wealth for retirement. It is difficult to see why it would be viewed as a positive development if they saved even less, especially since both papers have repeatedly argued for cuts in Social Security in their news sections.
The NYT article included a quote from Andrew Tilton, a senior United States economist at Goldman Sachs, claiming that the euro zone’s problems have shaved a percentage point off U.S. growth. This is a dubious claim. U.S. exports to euro zone countries are less than 2 percent of GDP. Even if the crisis reduced exports by 10 percent the direct impact would be less than 0.2 percentage points of GDP.
Furthermore, the euro zone crisis has caused investors to turn to dollar assets as a safe haven. Interest rates on long-term government bonds plunged last summer in response to the flaring up of the crisis in Italy. It is likely that long-term rates in the United States are at least 50 basis points (0.5 percentage points) lower as a result of the euro zone crisis. This would offset much, if not all, of the loss in demand due to reduced exports to the euro zone.
They may not realize this fact, but that is the logical implication of comments in both the NYT and Washington Post articles on the Friday jobs reports. Both papers complained that high debt burdens are depressing consumption, which would otherwise lead to more demand and more jobs.
In fact, the saving rate is currently under 4.0 percent. In the decades prior to the stock and housing bubbles the saving rate averaged over 8.0 percent. A 4.0 percent saving rate implies that workers are accumulating very little wealth for retirement. It is difficult to see why it would be viewed as a positive development if they saved even less, especially since both papers have repeatedly argued for cuts in Social Security in their news sections.
The NYT article included a quote from Andrew Tilton, a senior United States economist at Goldman Sachs, claiming that the euro zone’s problems have shaved a percentage point off U.S. growth. This is a dubious claim. U.S. exports to euro zone countries are less than 2 percent of GDP. Even if the crisis reduced exports by 10 percent the direct impact would be less than 0.2 percentage points of GDP.
Furthermore, the euro zone crisis has caused investors to turn to dollar assets as a safe haven. Interest rates on long-term government bonds plunged last summer in response to the flaring up of the crisis in Italy. It is likely that long-term rates in the United States are at least 50 basis points (0.5 percentage points) lower as a result of the euro zone crisis. This would offset much, if not all, of the loss in demand due to reduced exports to the euro zone.
Read More Leer más Join the discussion Participa en la discusión
Washington Post blogger Sarah Kliff tried to find a silver lining in the weak June jobs report. She pointed to the 0.1 hour increase in the length of the average workweek and the 6 cent increase in the average hourly wage. This is not much on which to hang your hat.
The length of the average workweek slips up or down by 0.1 hours pretty much at random. In fact it had fallen by 0.1 hour to 34.4 hours in May, after having been 35.5 hours for several months. This is hard to get very excited about.
The 6 cent rise in the average hourly wage is better news, however these numbers are very erratic and are subject to substantial revisions. (May’s number was revised up by 3 cents in the June data.) Over a longer period, there is not much here to boast about.
The note refers to a 45 cent increase in the average hourly wage over the last year. This is a rise of 1.95 percent, roughly in step with inflation over this period. It’s better that wages keep pace with inflation than if they don’t, but this still means that workers are not sharing in any of the benefits of the economy’s increase in productivity.
In this respect it is worth noting the average wage of production and non-supervisory workers increased by just 1.49 percent over the last year. This group, which consists of more than 80 percent of private sector employees, tends to be somewhat less educated and experienced than the labor force as a whole. The gap between the overall average wage and the earnings of non-supervisory workers implies that more highly educated workers have gotten a disproportionate share of the wage growth over the last year. The wages for the bulk of the workforce have not even kept pace with inflation.
Washington Post blogger Sarah Kliff tried to find a silver lining in the weak June jobs report. She pointed to the 0.1 hour increase in the length of the average workweek and the 6 cent increase in the average hourly wage. This is not much on which to hang your hat.
The length of the average workweek slips up or down by 0.1 hours pretty much at random. In fact it had fallen by 0.1 hour to 34.4 hours in May, after having been 35.5 hours for several months. This is hard to get very excited about.
The 6 cent rise in the average hourly wage is better news, however these numbers are very erratic and are subject to substantial revisions. (May’s number was revised up by 3 cents in the June data.) Over a longer period, there is not much here to boast about.
The note refers to a 45 cent increase in the average hourly wage over the last year. This is a rise of 1.95 percent, roughly in step with inflation over this period. It’s better that wages keep pace with inflation than if they don’t, but this still means that workers are not sharing in any of the benefits of the economy’s increase in productivity.
In this respect it is worth noting the average wage of production and non-supervisory workers increased by just 1.49 percent over the last year. This group, which consists of more than 80 percent of private sector employees, tends to be somewhat less educated and experienced than the labor force as a whole. The gap between the overall average wage and the earnings of non-supervisory workers implies that more highly educated workers have gotten a disproportionate share of the wage growth over the last year. The wages for the bulk of the workforce have not even kept pace with inflation.
Read More Leer más Join the discussion Participa en la discusión
In a piece that has the word “explainer” in its headline, the post proceeds to mis-explain the LIBOR scandal to its readers. The second paragraph tells readers:
“This is a big deal. Remember that JP Morgan scandal a few months back? That was mostly JP Morgan hurting itself. The LIBOR scandal was Barclay’s making money by hurting you.”
The claim is that LIBOR liars cost people money by inflating the LIBOR rate, thereby causing people to pay more on mortgages, car loans and other debts that were tied to the LIBOR. The problem with this claim is that there is no evidence that the mis-reported LIBOR rates had an upward bias. In fact during the financial crisis they were understating the true rate.
This means on average, there is no reason to believe that people paid more on their loans because of the lies than they would have in an honest market. Some people undoubtedly did pay slightly more, but others paid slightly less. And, since the direction of the lies was systematically downward in the crisis period, consumers may have actually benefited from this scam.
The LIBOR scandal is primarily about bankers ripping each other off by using false information to make their trades winners. The bankers deserve to go to jail for this fraud, but their main victims were other traders.
The public did lose in this story but the loss is primarily from resources being devoted to game playing and nonsense in the financial sector which instead could have been devoted to building up the economy. In this sense, the financial sector can be thought of as the equivalent of a massive government agency devoted to promulgating waste, fraud and abuse. The money used to fund this department would be a pointless drag on the economy, just like our bloated financial sector.
In a piece that has the word “explainer” in its headline, the post proceeds to mis-explain the LIBOR scandal to its readers. The second paragraph tells readers:
“This is a big deal. Remember that JP Morgan scandal a few months back? That was mostly JP Morgan hurting itself. The LIBOR scandal was Barclay’s making money by hurting you.”
The claim is that LIBOR liars cost people money by inflating the LIBOR rate, thereby causing people to pay more on mortgages, car loans and other debts that were tied to the LIBOR. The problem with this claim is that there is no evidence that the mis-reported LIBOR rates had an upward bias. In fact during the financial crisis they were understating the true rate.
This means on average, there is no reason to believe that people paid more on their loans because of the lies than they would have in an honest market. Some people undoubtedly did pay slightly more, but others paid slightly less. And, since the direction of the lies was systematically downward in the crisis period, consumers may have actually benefited from this scam.
The LIBOR scandal is primarily about bankers ripping each other off by using false information to make their trades winners. The bankers deserve to go to jail for this fraud, but their main victims were other traders.
The public did lose in this story but the loss is primarily from resources being devoted to game playing and nonsense in the financial sector which instead could have been devoted to building up the economy. In this sense, the financial sector can be thought of as the equivalent of a massive government agency devoted to promulgating waste, fraud and abuse. The money used to fund this department would be a pointless drag on the economy, just like our bloated financial sector.
Read More Leer más Join the discussion Participa en la discusión
The NYT reported on the worsening delivery record at the Postal Service as it makes plans for further job cuts and the shutdown of hundreds of processing centers. At one point the article told readers:
“A decline in mail volume, particularly first-class mail, which accounts for the bulk of revenue, has produced steady losses for the Postal Service — an average of $1 billion a month in the first half of the fiscal year — and forced it to propose closing about half its processing centers and cutting hundreds of thousands of jobs.”
Actually, the biggest factor in this loss is the requirement that Congress put into law in 2006 that the Postal Service prefund its retiree health benefits. Prior to this date, the Postal Service was following the practice that prevailed in the private sector of paying for retiree health benefits out of current income. Not only did Congress require that the Postal Service prefund its system, it also required a very rapid rate of build-up (10 years) and that make much more pessimistic assumptions about costs than private funds. In addition, the Postal Service is handicapped by the fact that it can only invest in public debt, unlike private funds that can invest in equities and other higher yielding assets.
The NYT reported on the worsening delivery record at the Postal Service as it makes plans for further job cuts and the shutdown of hundreds of processing centers. At one point the article told readers:
“A decline in mail volume, particularly first-class mail, which accounts for the bulk of revenue, has produced steady losses for the Postal Service — an average of $1 billion a month in the first half of the fiscal year — and forced it to propose closing about half its processing centers and cutting hundreds of thousands of jobs.”
Actually, the biggest factor in this loss is the requirement that Congress put into law in 2006 that the Postal Service prefund its retiree health benefits. Prior to this date, the Postal Service was following the practice that prevailed in the private sector of paying for retiree health benefits out of current income. Not only did Congress require that the Postal Service prefund its system, it also required a very rapid rate of build-up (10 years) and that make much more pessimistic assumptions about costs than private funds. In addition, the Postal Service is handicapped by the fact that it can only invest in public debt, unlike private funds that can invest in equities and other higher yielding assets.
Read More Leer más Join the discussion Participa en la discusión
The NYT Magazine has a piece discussing Greece prospects for increasing its exports. While it will certainly have to increase its exports to have a sustainable trade deficit, it is worth noting that a lack of exports was not Greece main problem.
From the inception of the euro in 1998 until the crisis hit in 2008, there was only one year in which Greece’s exports fell (2002). In three years, exports grew at a double digit rate.
Greece has a serious trade deficit because its imports grew even more rapidly. The return to sustainable deficits will almost certainly mean that Greeks will again have to produce domestically some of the items that now import and do without others (e.g. fewer Mercedes).
Fifteen years ago the country had sustainable trade deficits. Its exports are considerably higher today than they were then. This should mean that there is considerable room for adjustment on the import side.
The NYT Magazine has a piece discussing Greece prospects for increasing its exports. While it will certainly have to increase its exports to have a sustainable trade deficit, it is worth noting that a lack of exports was not Greece main problem.
From the inception of the euro in 1998 until the crisis hit in 2008, there was only one year in which Greece’s exports fell (2002). In three years, exports grew at a double digit rate.
Greece has a serious trade deficit because its imports grew even more rapidly. The return to sustainable deficits will almost certainly mean that Greeks will again have to produce domestically some of the items that now import and do without others (e.g. fewer Mercedes).
Fifteen years ago the country had sustainable trade deficits. Its exports are considerably higher today than they were then. This should mean that there is considerable room for adjustment on the import side.
Read More Leer más Join the discussion Participa en la discusión
In his column today George Will argued that teachers in Chicago were being reasonable in objecting to the large implicit pay cuts that would result if they were required to put in roughly 30 percent more hours for no increase in pay. However, he also implied that teachers in Chicago are currently overpaid.
This is not clear. Government workers in general get roughly the same compensation as private sector workers after adjusting for education and experience. Will refers to the generous pensions that Chicago teachers receive without having to make an employee contribution. However, this benefit is compensation for a wage that is lower than comparably educated private sector workers.
Will also is in error in taking Chicago Mayor Rahm Emanuel’s assertion at face value, that more charter schools will improve the quality of education. At this point there is considerable research that shows that students in charter schools perform no better on average than students in public schools. Presumably Emanuel is aware of this research, which suggests that he has some other motive for his confrontation with the teachers union.
It is also worth noting that if Mayor Emanuel is correct that Chicago’s schools are in awful shape then it speaks poorly of the person who ran them for almost a decade, President Obama’s education secretary Arne Duncan.
Finally, Will is confused about the affiliation of the Chicago Teachers Union. He begins his column by telling readers:
“The name of the nation’s largest labor union — the National Education Association — seems calculated to blur the fact that it is a teachers union. In this blunt city, however, the teachers union candidly calls itself the Chicago Teachers Union.”
The reason why the teachers union in Chicago is so blunt is that it is affiliated with the American Federation of Teachers, not the National Education Association.
In his column today George Will argued that teachers in Chicago were being reasonable in objecting to the large implicit pay cuts that would result if they were required to put in roughly 30 percent more hours for no increase in pay. However, he also implied that teachers in Chicago are currently overpaid.
This is not clear. Government workers in general get roughly the same compensation as private sector workers after adjusting for education and experience. Will refers to the generous pensions that Chicago teachers receive without having to make an employee contribution. However, this benefit is compensation for a wage that is lower than comparably educated private sector workers.
Will also is in error in taking Chicago Mayor Rahm Emanuel’s assertion at face value, that more charter schools will improve the quality of education. At this point there is considerable research that shows that students in charter schools perform no better on average than students in public schools. Presumably Emanuel is aware of this research, which suggests that he has some other motive for his confrontation with the teachers union.
It is also worth noting that if Mayor Emanuel is correct that Chicago’s schools are in awful shape then it speaks poorly of the person who ran them for almost a decade, President Obama’s education secretary Arne Duncan.
Finally, Will is confused about the affiliation of the Chicago Teachers Union. He begins his column by telling readers:
“The name of the nation’s largest labor union — the National Education Association — seems calculated to blur the fact that it is a teachers union. In this blunt city, however, the teachers union candidly calls itself the Chicago Teachers Union.”
The reason why the teachers union in Chicago is so blunt is that it is affiliated with the American Federation of Teachers, not the National Education Association.
Read More Leer más Join the discussion Participa en la discusión
The solution to the euro zone crisis is a topic that is hotly debated among economists. Some have argued that the debt troubled countries in the periphery must undergo years of austerity and high unemployment with the idea that this will eventually lower wages and prices enough to allow them to regain competitiveness with Germany and other countries in northern Europe. Other economists have maintained that the only practical solution is for the Germany and other northern European countries to have a period of moderately higher inflation (e.g. 4-5 percent) so that the peripheral countries could regain competitiveness by having very low inflation rates.
It is possible to find many people in both camps as well as some who have not made up their mind. However, in effort to clear up the confusion, a New York Times piece profiling Mario Draghi and his role at the ECB gave us the answer. The article told readers:
“The sweet spot Mr. Draghi must negotiate now is between the monetary hawks, especially in Germany, who say he has abused his power by going far beyond his inflation-fighting mandate, and the soft-money doves who say his failure is not going far enough to rescue the euro.
“Mr. Draghi in turn has urged politicians to do more, dismayed by the way they eased up on their reform drives once the flood of cheap loans to banks calmed markets for a few months. The lesson was that big injections of cash from the European Central Bank produce little more than a sugar high unless they are accompanied by fundamental reforms to the currency union’s architecture, changes that would convince investors that the euro zone is built for the long haul.”
Okay, so the NYT says the key is fundamental reforms. It might be helpful if the paper explained how it reached this conclusion and what evidence it has for its position. For example, are there any cases where countries have successfully pursued these “fundamental reforms” within a currency union to regain competitiveness? (Ireland, a one-time poster child for advocates of fundamental reforms, just saw its unemployment rate rise to 14.9 percent, a new high for the downturn.)
The sort of pronouncements about the best cure for the crisis are best left for the opinion section or expressed as statements from people involved in the debate. While the NYT’s reporters and editors are undoubtedly quite competent at their job, readers may not want to accept on faith their assertions about what needs to be done to end the debt crisis in Europe.
The solution to the euro zone crisis is a topic that is hotly debated among economists. Some have argued that the debt troubled countries in the periphery must undergo years of austerity and high unemployment with the idea that this will eventually lower wages and prices enough to allow them to regain competitiveness with Germany and other countries in northern Europe. Other economists have maintained that the only practical solution is for the Germany and other northern European countries to have a period of moderately higher inflation (e.g. 4-5 percent) so that the peripheral countries could regain competitiveness by having very low inflation rates.
It is possible to find many people in both camps as well as some who have not made up their mind. However, in effort to clear up the confusion, a New York Times piece profiling Mario Draghi and his role at the ECB gave us the answer. The article told readers:
“The sweet spot Mr. Draghi must negotiate now is between the monetary hawks, especially in Germany, who say he has abused his power by going far beyond his inflation-fighting mandate, and the soft-money doves who say his failure is not going far enough to rescue the euro.
“Mr. Draghi in turn has urged politicians to do more, dismayed by the way they eased up on their reform drives once the flood of cheap loans to banks calmed markets for a few months. The lesson was that big injections of cash from the European Central Bank produce little more than a sugar high unless they are accompanied by fundamental reforms to the currency union’s architecture, changes that would convince investors that the euro zone is built for the long haul.”
Okay, so the NYT says the key is fundamental reforms. It might be helpful if the paper explained how it reached this conclusion and what evidence it has for its position. For example, are there any cases where countries have successfully pursued these “fundamental reforms” within a currency union to regain competitiveness? (Ireland, a one-time poster child for advocates of fundamental reforms, just saw its unemployment rate rise to 14.9 percent, a new high for the downturn.)
The sort of pronouncements about the best cure for the crisis are best left for the opinion section or expressed as statements from people involved in the debate. While the NYT’s reporters and editors are undoubtedly quite competent at their job, readers may not want to accept on faith their assertions about what needs to be done to end the debt crisis in Europe.
Read More Leer más Join the discussion Participa en la discusión
