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Article Artículo

David Leonhardt on the Fleecing of Millennials

David Leonhardt used his column to give us a story about how the millennials are the big losers and the oldsters are the big winners in today's economy. The piece shows trends in the growth of income and wealth which show the over 65 group doing very well and everyone else not. This is not a quite a simple granny-basher column, Leonhardt does come around at the end and tells readers:

"But the country’s biggest economic problems aren’t about hordes of greedy old people profiting off the young. They’re about an economy that showers much of its bounty on the already affluent, at the expense of most Americans — and of our future. The young pay the biggest price for these inequities."

Nonetheless, there are a couple of points that are misleading and need some qualification.

First, when it comes to the median income of people over age 65, it is important to note that this is much more likely to reflect the income of a household with at least one worker than would have been the case a quarter century earlier. The percentage of people between the ages of 65 to 69 who are working rose from 21.0 percent in 1994 to 31.9 percent in 2018. For people between the ages of 70 to 74 it rose from 11.3 percent to 18.9 percent.

 Employment to Population Ratio 70–74 Years

LNU02324941 1209526 1548700252833

Source: Bureau of Labor Statistics.

This increase in employment among older workers is not all negative. In many cases, it is due to the fact that older people are more likely to be in good health and to be working at jobs they enjoy. But in many cases, these are people who are working because they have no other way to make ends meet. In these cases, it is not an apples-to-apples comparison to say that the income of an older worker in 2018 is higher than a non-working retiree 25 years earlier.

CEPR / January 28, 2019

Article Artículo

Andrew Van Dam Tells Us CBO Is Wrong, Productivity Growth Is About to Soar

That is the gist of a piece telling us that automation (a.k.a. productivity growth) will surge in the next recession. Since the Congressional Budget Office (CBO) and most other forecasters project continued slow productivity growth, the prediction of an imminent surge in automation goes against standard views in the economics profession.

I have to say, the basic story here is hard to follow. Here are the first two paragraphs:

"Robots’ infiltration of the workforce doesn’t happen gradually, at the pace of technology. It happens in surges, when companies are given strong incentives to tackle the difficult task of automation.

"Typically, those incentives occur during recessions. Employers slash payrolls going into a downturn and, out of necessity, turn to software or machinery to take over the tasks once performed by their laid-off workers as business begins to recover."

This one has to draw a really big "huh?'

Employers need to turn to automation out of necessity because they are laying off workers? How about if they didn't lay off workers, then they wouldn't need to replace them with automation.

In the old days, we used to think that the incentive to automate was greatest in the upturn when labor is tight and wages are high. In the downturn, workers are willing to work for lower pay because they have few other options. Why would companies see this as the time to automate?

CEPR / January 24, 2019

Article Artículo

Financial Transaction Tax

Jack Bogle, Vanguard, and Financial Transactions Taxes

(This post originally appeared on my Patreon page.)

Last week, Jack Bogle, who founded Vanguard Funds, died at the age of 89. Bogle was widely praised in his obituaries (including by me) for starting Vanguard, which now has over $5 trillion in assets.

Bogle’s innovation was the recognition that most people lose money by trading. This is regardless of whether it is their own trading or they have an actively managed mutual fund. The fact is that the vast majority of people do not beat the market. This means that the money people spend in trading is essentially money thrown in the garbage.

The main asset offered by Vanguard is low-cost index funds. The idea is that investors buy an index fund that will closely track major market indexes like the S&P 500. By minimizing trading and other administrative expenses, people investing in Vanguard funds will maximize the returns on their investment.

The annual fees on many of Vanguard’s fund are in the neighborhood of 0.1 percent. By contrast, people often pay 1–2 percentage points of their assets, each year, in trading costs and fees for ordinary mutual funds. Simple arithmetic shows the enormous amount that Vanguard investors save. If we assume that alternative funds would charge 1.0 percentage point more than Vanguard, then Vanguard’s investors are saving over $50 billion a year compared to alternative funds.

The total savings would be considerably higher when we include the fact that other companies now also offer low-cost index funds in order to compete with Vanguard. It’s fair to say that Bogle has had a big impact on the ability of middle class people to save for their retirement.

CEPR / January 24, 2019

Article Artículo

Maxine Waters’ Financial Services Committee Pledges to Hold Banks, Trump Accountable

On January 16th, Rep. Maxine Waters (D–CA), the new chair of the House Financial Services Committee, laid out an extensive agenda in a speech at the Center for American Progress. Greeted by a crowded room of supporters, press, and curious activists, Waters was received warmly as she took her place behind the podium. Before delving into her agenda, Waters offered consolation to the several hundred thousand federal workers currently working without pay or placed on unpaid leave due to the longest government shutdown in US history. Her comforting words fell short of veiling her skepticism toward Trump and his administration, which seemed to echo the emotions and fuel the eagerness for accountability of everyone under her voice.

CEPR and Adewale Maye / January 23, 2019

Union Membership Byte Artículo

Unions

Workers

Union Membership Byte 2019
On January 18, 2019, the Bureau of Labor Statistics (BLS) released data on union membership for 2018. Using additional analysis of the raw data, this paper discusses recent developments in union membership.

Hayley Brown and Hye Jin Rho / January 18, 2019

Article Artículo

The Trump Tax Cut Is Even Worse Than They Say

(This piece was originally posted on my Patreon page.)

Jim Tankersley had a nice piece in the New York Times last week pointing out that the tax cut pushed through by the Republicans in 2017 is leading to a sharp drop in tax revenue. While this was widely predicted by most analysts, it goes against the Trump administration’s claims that the tax cut would pay for itself.

Looking at full-year data for calendar year 2018, Tankersley points out that revenue was $183 billion (5.6 percent) below what the Congressional Budget Office (CBO) had projected for the year before the tax cut was passed into law. This is a substantial falloff in revenue by any standard, but there are two reasons the picture is even worse than this falloff implies.

The first is that we actually did see a jump in growth in 2018 pretty much in line with what the Trump administration predicted. The tax cut really did stimulate the economy. It put a lot of money in the economy (mostly going to those at the top) and people spent much of this money. The result was that the growth rate accelerated from around 2.0 percent the prior three years to over 3.0 percent in 2018. (We don’t have 4th quarter data yet, which may be delayed by the shutdown, but growth should be over 3.0 percent.)

The jump in growth in 2018 means that the drop in revenue was not due to the economy being weaker than expected, it was due to the fact that the tax rate had fallen by a larger amount than the boost to growth. In fairness to the Trump administration, they had also projected a falloff in revenue due to the tax cut in 2018, but not one that was as large as what we saw.

CEPR / January 18, 2019