United States of Student Debt (2 graphs)

from David Ruccio

In order to afford purchases of the higher education commodity, students and their families are going further and further into debt—and having more and more difficulty paying off their student loans.

According to the New York Times,

The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities

Prizes as mechanism to fund innovation: We all lose

from Dean Baker

There has been increased interest in prize funds as a way to finance innovation in recent years, especially in the pharmaceutical industry. While a prize fund is preferable to the current patent system, which is also a type of prize system, it is far from an optimal way to finance research.

A prize system has two fundamental problems. The first is that there is little reason to believe that the recipients of the prizes will be the persons who actually most deserve to be rewarded. The second problem is that it creates a structure of incentives that undermines innovation.

Doggie paddle economy

from Peter Radford

Remember the doggie paddle? That’s what the economy’s doing. Lots of effort. Lots of splashing about. Even more huffing and puffing. All to little or no avail. We’re going nowhere. And we’re not going there very quickly.

On Tuesday we learned from the Institute for Supply Management that the manufacturing sector has lost momentum. Less than half of our factories are reporting growing business. The ISM index slipped very slightly to 49.6% in August from july’s 46.8%. That decline is meaningless, but that fact that both months saw readings below 50% is not. Obviously manufacturing is not as robust as it was earlier in the year. The combination of Europe’s continuing woes, and our own tepid growth more than explains why factories are not expecting more business. Still there is no sign of a collapse, so we can add this news to the steady trickle of mediocrity that is now all too familiar. 

Union membership in 21 wealthy countries (2 graphs)

from David Ruccio

Clearly, unionization rates in the United States and Canada have diverged considerably since 1970. The question is, why?

The 15 most viewed posts of the last 90 days

15. The Crisis in 1000 words—or less 

14. “The average income of the bottom 90 percent fell 13.5 percent.”

13. What utter self-serving drivel, Brad Delong!

12. Comparisons of income distribution in the USA in 2007 and England in the 17th century (2 charts)

11. Who are the 1 percent in the USA and how much do they make? (2 charts)

 

Studying economics at UWS

from Steve Keen

I gave the talk below last Sunday at UWS’s Open Day, as an intoduction to economics for prospective university students. Preparing it made me reflect on the great good fortune I had to be appointed to UWS.

This might evoke a “Huh?” response from the usual suspects on such issues–why be pleased about being appointed to a second-rate University (and in an out-of-the-way place like Sydney to boot)? It’s because the Economics & Finance program at UWS has been almost unique amongst economics departments around the world in deliberately pursuing a “pluralist” approach to economics. 

What’s really happening in Greece?

Well, It’s Draghi-day today. According to expectations, he will announce that countries like Greece will have to stick to the deals. But can they?

A. The Greece current account is improving by leaps and bounds
B. But despite this, unemployment is still increasing with leaps and bounds, too (7%-points in one year… That’s one in fourteen people, in one year)).
C. And they have already done more than their fair share of belt-tightening (actually much more than the Irish, this darling of the right…), see graph 1.

The question is of course: “can a country where unemployment is increasing by leaps and bounds and where retail sales have been declining with 10% a year for several years in a stretch be expected to cut the government deficit even faster (as fast as the Baltic states, darlings of the right…) than it is already doing?”. No, of course. But you can of course use the situation to force such a country to suspend the (control of the) rule of law when it comes to labour….

Meta: ‘retail sales’ is not equal to ‘total consumption’, which also includes water, electricity and housing. It does include internet sales, however.

Canada proves the decline of unions is not inevitable

from Dean Baker

In polite circles in Washington it is common to view unions as a quaint anachronism. They may have made sense back when most workers had little education and worked in factories, but there really is no place for them in a 21st century economy. From this perspective, the sharp decline in union membership that we have seen in the last three decades is simply a natural process, sort of like the development of more powerful computers.

There is evidence that suggests otherwise, most notably that many other wealthy countries still have very high rates of unionization. The share of the workforce represented by unions is 80 percent or higher in many European countries.

In the midst of the Second Great Depression, government employment should be increasing, but in the US it’s actually decreasing. (2 Graphs)

from David Ruccio

For average hours worked per person annually in employment the USA ranks 22nd out of 30

Decline of the USA     (Al Jazeera’s review)   

Lessons from Canada: Union membership in the US and Canada 1920 – 2009 (2 graphics)

from John Schmitt

My CEPR colleague, Kris Warner, has a new paper on what we can learn about labor law here in the United States from the experience of our neighbors in Canada.

The whole paper is worth a read, but I particularly like two of the graphs.

The first shows that Canada and the United States were on a very similar unionization path from about 1920 through the 1960s. At that point, unionization rates in the two countries diverged sharply. 

For current account balance as a percentage of GDP the USA ranks 25th out of 30

Decline of the USA     (Al Jazeera’s review)  

“Trans-Pacific Partnership” is Washington speak for corruption and theft

from Dean Baker

“Free trade” is a sacred mantra in Washington. If anything is labeled as being “free trade” then everyone in the Washington establishment is required to bow down and support it. Otherwise they are excommunicated from the list of respectable people and exiled to the land of protectionist Neanderthals.

This is essential background to understanding what is going on with the Trans-Pacific Partnership Agreement (TPP), a pact that the United States is negotiating with Australia, Canada, Japan and eight other countries in the Pacific region. The agreement is packaged as a “free trade” agreement. This label will force all of the respectable types in Washington to support it. 

German capital in Spain (total and change)

From Sapere Aude! and Querschuesse: German capital in Spain (assets, including loans owned by German banks).

Total, billion Euro as well as percentage change.

There is more where that came from: Source

Revolt of the rich? (2 graphs)

from David Ruccio

Mainstream economists and politicians don’t like to talk about it. But Mike Lofgren is willing to admit, in the pages of the American Conservative, that what we’re witnessing is a revolt of the rich.

Stephen Schwarzman, the hedge fund billionaire CEO of the Blackstone Group who hired Rod Stewart for his $5-million birthday party, believes it is the rabble who are socially irresponsible. Speaking about low-income citizens who pay no income tax, he says: “You have to have skin in the game. I’m not saying how much people should do. But we should all be part of the system.”

But millions of Americans who do not pay federal income taxes do pay federal payroll taxes. These taxes are regressive, and the dirty little secret is that over the last several decades they have made up a greater and greater share of federal revenues. In 1950, payroll and other federal retirement contributions constituted 10.9 percent of all federal revenues. By 2007, the last “normal” economic year before federal revenues began falling, they made up 33.9 percent. By contrast, corporate income taxes were 26.4 percent of federal revenues in 1950. By 2007 they had fallen to 14.4 percent. So who has skin in the game?

I’d put it a bit differently: what we have before us is a revolt of the corporations. And it’s been going on for most of the postwar period:

Minimum wage raise is the least we can do to civilize America

from Mark Weisbrot

The federal minimum wage is just $7.25 an hour and hasn’t been raised in three years. But a raise is much more overdue than that. If we look at the minimum wage 44 years ago, and simply adjust it for inflation, it would be more than $10 today.

This is another ugly symptom of what has gone wrong in America over the past 35-40 years. From 1979-2007 about 60 percent of the income gains have gone to the now infamous 1 percent at the top, with the majority of those gains going to the top 0.1 percent – people who made, on average, $5.6 million per year.

But some of the worst effects of giving more to those who have most have affected people toward the bottom of the income ladder, and there is no excuse for it. Productivity – the amount that a worker produces in an hour has more than doubled over the past 44 years. When the minimum wage doesn’t rise, or falls in terms of its purchasing power, it means that these millions of low-income workers are not sharing in the gains from improved technology, knowledge and organization.

For ratio of female to male income the USA ranks 12th out of 30

Decline of the USA      (Al Jazeera’s review)  

Does the European Central Bank target the wrong inflation-metric – and therewith overstate inflation?

from Merijn Knibbe

Economists are asking why, considering the ‘output gap’ (read: high and increasing unemployment), inflation isn’t lower. Part of the answer: economists are looking at the wrong metric. The consumption price level indeed does not seem to respond to the increasing output gap. But other price levels do. Average inflation is lower than before the crisis, contrary to consumer price inflation. Which means that monetary policy is more restrictive than generally understood (while consumers pay the bill).

Still getting the housing bubble wrong (2 graphs)

from Dean Baker

The collapse of the housing bubble led to the downturn. However that does not mean that housing is the road out, or at least not unless we expect to see another bubble. Ezra Klein presents this mistaken view in his column.

The basic story is very simple. (Remember, the purpose of economics is to make simple things complicated so as to exclude most of the public from debates on the most important policy issues that affect their lives.) The economy in the bubble years was driven by the bubble. The huge run-up in house prices led to an extraordinary building boom. Residential construction, which is ordinarily 3-4 percent of GDP rose to more than 6 percent of GDP at the peak of the boom in 2005.

Wall Street performance since 1900 by US president

from David Ruccio