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U.S. lags badly in employment of prime-age workers

May 13, 2015 3 comments

from Dean Baker

In 2006, before the recession hit, there was not much difference in the employment rate for prime-age (ages 25–54) workers in the United States and other wealthy countries. The employment to population ratio (EPOP) for prime age workers in the United States was 79.8 percent. That was slightly below the 81.2 percent rate in France and the United Kingdom, but slightly above the 78.8 percent rate in Germany.

However, the recession has seriously altered the patterns of employment of prime age workers. According to the latest OECD quarterly data, Germany and Japan both now have EPOPs for prime age workers that are well above their pre-recession levels, at 83.4 percent and 82.6 percent, respectively. The EPOP for prime age workers in the U.K. has risen slightly to 82.3 percent, while it has fallen slightly to 80.4 percent in France.

Read more…

Categories: The Economy

Pain versus gain: Argentina, Greece, and Paul Volcker

May 7, 2015 1 comment

from Dean Baker

The NYT has a column by Uki Goni, warning of the bad things that will face Greece if it defaults. The default by Argentina in December of 2001 provides the basis for his warnings.

“Economic activity was paralyzed, supermarket prices soared and pharmaceutical companies withdrew their products as the peso lost three-quarters of its value against the dollar. With private medical insurance firms virtually bankrupt and the public health system on the brink of collapse, badly needed drugs for cancer, H.I.V. and heart conditions soon became scarce. Insulin for the country’s estimated 300,000 diabetics disappeared from drugstore shelves.

“With the economy in free fall, about half the country’s population was below the poverty line.”

There is no doubt that the people of Argentina suffered serious hardship due to the default. However it is important to recognize that they were suffering severe hardship even before the default. The economy contracted by 8.4 percent since its peak in 1998, and contracted by 4.4 percent in 2001 alone. The unemployment rate had risen to more than 19.0 percent. Even worse, there was no end in sight.  Read more…

Categories: The Economy

The man who completely missed the housing bubble and was convinced financial disruption would be restricted to the subprime market deserves two seven-figure sinecures?

May 6, 2015 2 comments

from Dean Baker

I hate to be picking on Matt O’Brien again, but come on, this is setting the bar pretty goddamn low. He began a piece reporting on a consulting gig that Bernanke will have the bond fund Pimco by telling readers:

“If anyone deserves two seven-figure sinecures, it’s Ben Bernanke.”

I won’t go over the full indictment of Ben Bernanke and will give him credit for a reasonably good job trying to boost the economy post-crash in the wake of the outraged opposition of the right-wing, but let’s get real. The housing bubble and ensuing crash were not natural disasters like Hurricane Katrina. Read more…

Is the stock market in another bubble?

May 1, 2015 5 comments

from Dean Baker

The stock market has recovered sharply from the lows hit in the financial crisis. All the major indices are at or near record highs. This has led many analysts to worry about a new bubble in the stock market. These concerns are misplaced.

Before going through the data, I should point out that I am not afraid to warn of bubbles. In the late 1990s, I clearly and repeatedlywarned of the stock bubble. I argued that its collapse was likely to lead to a recession, the end of the Clinton-era budget surpluses, and pose serious problems for pensions. In the last decade I was yelling about the dangers from the housing bubble as early as 2002. 

I recognize the dangers of bubbles and have been at the forefront of those calling attention to them. However, it is necessary to view the picture with clear eyes, and not scream “fire” every time someone lights a cigarette.  Read more…

Categories: Uncategorized

Correction to Mankiw: Economists actually agree, just because you call something “free trade” doesn’t make it free trade

April 29, 2015 2 comments

from Dean Baker

Greg Mankiw joined the parade of prominent people saying silly things to help push fast-track trade authority through Congress. He headlined a column:

“Economists actually agree on this point: The Wisdom of Free Trade.”

The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).

It’s nice that Mankiw has apparently gotten out his bag of economist’s holy water and blessed them both as free trade agreements, but that doesn’t make it true. (Hey, I want to have the Congress Gives $1 Trillion to Dean Baker Free Trade Act. As an economist in good standing, Mankiw will have to support this free trade measure.) Read more…

Categories: Uncategorized

The simple progressive economic agenda for Hillary Clinton (or anyone else

April 21, 2015 6 comments

from Dean Baker

In the week since Secretary Clinton announced she is entering the presidential race, there have been numerous stories asking about the agenda she will adopt in her campaign. In her announcement video, she indicated she wanted to be a champion for the average worker against the wealthy.

While many policies will be needed to improve the situation of the poor and middle class, there are three simple ones that could make a big difference: a more competitive dollar, a Federal Reserve Board committed to full employment, and a financial transactions tax to rein in Wall Street. If Clinton or any other presidential candidate wants to level the playing field, these policies would be a great place to start.  Read more…

Categories: Uncategorized

The end of the U.S. boom

April 16, 2015 1 comment

from Dean Baker

The Labor Department reported the U.S. economy created 126,000 jobs in March. This was a sharp slowdown from the 290,000 average over the prior three months. This relatively weak jobs report led many economic analysts to comment that the economy may not be as strong as they had believed.

This reassessment is welcome, but it really raises the question of why so many professional economists and economic reporters could be so badly mistaken about the strength of the economy. There never was much basis for claiming a boom in the U.S. economy and the people claiming otherwise were relying on a very selective reading of the data.

Just starting with the most basic measure, real GDP in the United States grew at just a 2.2 percent annual rate in the fourth quarter of 2014. This is a pace roughly in line with most estimates of the economy’s potential rate of growth. This means that the economy was just keeping up with the growth in its potential, filling none of the large gap between potential GDP and actual GDP that still persists from the 2008–2009 recession.  Read more…

Categories: The Economy

The sharing economy needs a public option

March 31, 2015 1 comment

from Dean Baker

So-called “sharing economy” companies such as Uber, Airbnb and Task Rabbit are posing policy headaches for governments around the world. Their argument that they should be exempt from existing regulations because their services are ordered over the web does not make much sense, but it provides an adequate fig leaf for politicians seeking campaign contributions from these highly capitalized newcomers.

For those who have missed the hype, “sharing economy” refers to a wide variety of companies that use the web to connect consumers and providers. While there is not reliable data on its size, in part because it is not well-defined, Airbnb now boasts far more room listings than Hilton or Marriott, and Uber has quickly grown to be the largest taxi service in the world.

Part of the response to the innovations associated with these sharing economy companies should be to modernize regulations. It is reasonable to regulate taxi services in ways that ensure that cars are safe and drivers are competent and responsible. It is also reasonable to regulate rented rooms to ensure they are not fire traps. Similarly, both should be regulated in ways that ensure access to the handicapped and prevents discrimination. In addition, employees in these companies should be covered by workers compensation and protected by minimum wage and overtime rules.  Read more…

Categories: Uncategorized

Big stakes on drug patents

March 20, 2015 1 comment

from Dean Baker

Last fall, India’s new Prime Minister, Narendra Modi, met with President Obama in Washington. According to the public accounts, the meeting was friendly with both sides hoping for stronger diplomatic and economic ties. The Obama administration was eager to report that India had agreed to set up a working group to re-examine its patent laws, with the implicit goal of making them stronger.

This item got little attention in the United States, but it was big news in India. India has the world’s leading generic drug industry. It not only supplies the billion-plus population of India; it also provides high-quality, low-cost generic drugs to much of the developing world.

A large part of the reason for the success of India’s generic industry is its treatment of patents. It had eliminated patents on drugs back in the 1970s in order to promote the development of the generic industry. As required by the TRIPS accord, India reintroduced patent protection in 2005, however it typically applies much stricter standards than in the United States and Europe. Read more…

Categories: Uncategorized

Evidence of intelligent life in the economics profession

March 3, 2015 8 comments

from Dean Baker

Last month, former Clinton Treasury Secretary and top Obama adviser Larry Summers ripped into those arguing that more education is the answer to the country’s inequality problems:

“The core problem is that there aren’t enough jobs. If you help some people, you could help them get the jobs, but then someone else won’t get the jobs. Unless you’re doing things that have things that are affecting the demand for jobs, you’re helping people win a race to get a finite number of jobs.”

He made these comments at a conference put on by the Robert Rubin funded Hamilton Project held at the Brookings Institution.

If the significance of these comments is not clear, the most important economic figure of the mainstream of the Democratic Party was demolishing one of the party’s central themes over the last two decades. He was arguing that the problems of the labor force — weak employment opportunities, stagnant wages, and rising inequality — were not going to be addressed by increasing the education and skills of the workforce. Rather, the problem was the overall state of the economy.

The standard education story puts the blame for stagnant wages on workers. Read more…

Greece does battle with creationist economics: can Germany be brought into the 21st Century?

February 17, 2015 6 comments

from Dean Baker

Europeans have been amused in recent weeks by the difficulty that Republican presidential candidates have with the theory of evolution. But these cognitive problems will only matter if one of these people gets into the White House and still finds himself unable to distinguish myth from reality. By contrast, Europe is already suffering enormous pain because the people setting economic policy prefer morality tales to economic reality.

This is the story of the confrontation between Greece and the leadership of the European Union. The northern European countries, most importantly Germany, insist on punishing Greece as a profligate spender. They insist on massive debt payments from Greece to the European Union and other official creditors to make up for excessive borrowing in prior years.

The current program requires that Greece’s tax revenues exceed non-interest government spending by 4.0 percent of GDP, the equivalent of $720 billion a year in the United States. This money is pulled out of Greece’s economy and sent to its creditors. Making matters worse, because Greece is locked into the euro at present, it is not able to regain competitiveness by lowering the value of its currency relative to the richer countries in Europe.

The result of the German program for Greece has been an economic downturn that makes the Great Depression in the United States look like a bad day. Seven years after the start of the downturn Greece’s economy is more than 23 percent smaller than its peak in 2007. Read more…

Categories: Greece

Greece needs an exit option

February 5, 2015 9 comments

from Dean Baker

Every fan of the market knows the importance of exit. If your breakfast cereal is too bland, you can buy a different brand of cereal. If your barber charges too much, you can look for a new barber who will charge less. The option to leave is crucial since it forces the cereal producer and the barber to try to please their customers in order to keep them.

The same logic applies to Greece’s position in the euro. The country’s newly elected Syriza-led government intends to press the European Union (EU) for concessions that will allow it to restart its economy. The policies that have been imposed by the EU on Greece since the crisis could win a Nobel Prize for economic mismanagement.

Since the pre-recession peak in 2007, the Greek economy has contracted by more than 23 percent. By comparison, in the Great Depression the U.S. economy bottomed out in 1933 at 26 percent below the 1929 GDP level. However the next year the economy grew by 10 percent and by 1936 it had already made back all the ground it lost. If Greece sustains its 2014 growth rate it will return to its 2007 level of output just before 2050. If the U.S. economy had taken the same hit as Greece, GDP would be lower by more than $4 trillion, implying a loss of annual output of more than $13,000 per person. Read more…

Categories: Uncategorized

Paul Krugman and the Swiss Movement

January 21, 2015 1 comment

from Dean Baker

Paul Krugman is still upset over the decision by Switzerland’s central bank to end its peg to the euro and allow the value of the Swiss franc to rise. Since some of us non-hyper-inflation worriers don’t share his anger, perhaps it worth explaining the difference in views.

Krugman sees the peg as a sort of quantitative easing. He argues it was working (Switzerland’s economy has largely recovered), so there was no reason to abandon it. He sees the basis for abandonment as a needless fear over inflation and possibly a concern about central bank losses. (The Swiss central bank is partly private. Sound familiar?)

Krugman may well be right about the reasons that Switzerland’s central bank abandoned its peg, but that doesn’t mean that it was wrong to do so. Read more…

Categories: The Economy

The profit on the TARP and Bernie Madoff

December 31, 2014 5 comments

from Dean Baker

For folks like Timothy Geithner it is a big thing to boast about the profit the government made on the TARP. We got more of this children’s story in the NYT yesterday in an article reporting on the end of the TARP. It is worth understanding the meaning of profit in this context.

The basic story is fairly simple. The TARP was a program through which we lent otherwise bankrupt banks, and actually bankrupt auto companies, hundreds of billions of dollars at interest rates that were far below the market rate. However the interest was higher than what the government paid on its borrowing, therefore Timothy Geithner gets to run around saying that we made a profit.

Before you start thinking that this is a great idea and we should give all the government’s money to the Wall Street banks, imagine that we had given the same money to an different institution, Bernie Madoff’s investment fund. As we all know, Madoff’s fund was bankrupt at the time because he was running it as a Ponzi, the new investors paid off the earlier investors. He hadn’t made a penny on actual investment in years. Read more…

Categories: The Economy

The incompetence of economic policy makers: why U.S. women are leaving the labor force

December 15, 2014 Leave a comment

from Dean Baker

The NYT seems intent on hiding the elephant in the living room. Yesterday it gave us a piece on why men are leaving the labor force, today it gives us a piece on why women are leaving the labor force.

Both articles raise some interesting and important issues. The article on women and work in particular gives an excellent discussion of how most other wealthy countries are far ahead of the United States in providing support for working mothers in the form of paid family leave, paid sick days, and affordable child care. (These are all areas in which CEPR has done considerable research.) 

The failure of the United States to meet the needs of working parents largely explains why so many countries have passed the United States in the percentage of prime age (ages 25-54) women who are employed. This figure now stands at 69.9 percent in the United States. By comparison, it is 78.4 percent in Denmark, 76.1 percent in France, and 72.0 percent in Japan. Read more…

Categories: Uncategorized

Seven years after: why this recovery is still a turkey

November 27, 2014 1 comment

from Dean Baker

December will mark the seventh anniversary of the beginning of the recession brought on by the collapse of the housing bubble. Usually an economy would be fully recovered from the impact of a recession seven years after its onset. Unfortunately, this is not close to being the case now.

It would still take another 7-8 million jobs to bring the percentage of the population employed back to its pre-recession level. The 5.8 percent unemployment rate (compared to 4.5 percent before the recession) doesn’t reflect the true weakness of the labor force since so many people have dropped out of the labor force. Furthermore, more than 7 million people are working part-time who would like full-time jobs. This is an increase of almost 3 million from the pre-recession level.

It’s not just the labor market that shows the economy’s slack. According to the Congressional Budget Office (CBO), the economy is still operating close to 4.0 percentage points below its potential. This translates into roughly $700 billion a year being thrown in the garbage because we don’t have enough demand in the economy. That comes to more than $2,000 per year for every person in the country. Read more…

Categories: The Economy

Italy’s stagnation: the need to share the pain

November 15, 2014 6 comments

from Dean Baker

According to the plan designed for Italy by the European Commission, Italy must regain competitiveness with Germany by forcing down wages. A prolonged period of high unemployment is an essential part of this process.

There can be little doubt that the main problem with Italy’s economy is a lack of demand. When the housing bubbles that were driving the euro zone economies burst in 2008, there was nothing to replace this source of demand. Italy joined other countries in the euro zone and around the world in using fiscal stimulus to boost demand, but then was forced to revert to austerity in 2010.

Its economy has been shrinking ever since, as would be predicted by textbook Keynesian economics. GDP in 2014 is projected to be almost 9.0 percent less than the 2007 peak. According to the I.M.F.’s projections, which have consistently been overly optimistic, Italy’s GDP will still be 3.5 percent below the 2007 level in 2019. This would imply twelve years with cumulative negative growth, a performance far worse than any major country saw in the Great Depression.

The shrinkage of the economy has been disastrous for Italy’s workers. The employment rate for prime age workers is down by almost six full percentage points. The employment rate for young people is down by ten percentage points, translating into youth unemployment rates of close to 40 percent.

Of course the pain for workers is the strategy. The plan designed for Italy by the European Commission is have Italy regain competitiveness with Germany by forcing down wages. A prolonged period of high unemployment is an essential part of this process. Read more…

Categories: Uncategorized

If shareholders stopped letting CEOs rip them off it would reduce inequality

November 12, 2014 2 comments

from Dean Baker

Eduardo Porter has an interesting discussion of inequality, based in large part on the views of M.I.T. Professor Robert Solow. Solow views it as unlikely that it will be possible politically any time soon to have tax and transfer policies that do much to lesson inequality. However he does hold out the hope that changes in corporate practices could lessen before tax inequality.

This is an extremely important point. There is considerable research showing that CEOs and other top management essentially ripoff shareholders, taking advantage of their insider power to give themselves pay that has little to do with their productivity, measured as the return they give to shareholders. (Lucian Bebchuk has a good summary of the issues.) If shareholders can better gain control of their companies, they might cut pay by 50 percent or more, bringing CEO pay in the United States in line with pay in other wealthy countries. Read more…

Categories: income inequality

The reality is that changes in productivity swamp the impact of demographic change.

November 10, 2014 2 comments

from Dean Baker

Tyler Cowen is worried that rich countries won’t have enough people to do the work. This concern seems more than a bit off the mark given that almost every rich country continues to have large numbers of unemployed and underemployed workers, but I suppose pondering this question can at least create some jobs for economists. Anyhow, two of the countries Cowen highlights are Japan, which he tells us has seen a declining working age population since 1997 and China, where he warns about the difficulties that working couples will face supporting four parents as well as their own children.

Taking these in turn, a key part of the story that Cowen leaves out is hours worked. These vary hugely across countries and across time within countries. For example, the OECD reports the average work year in Germany at 1388 hours in 2013. By comparison South Korea, which has a comparable per capita income, had an average work year of 2163 hours in 2012.

This means that in terms of hours worked, each worker in Korea puts in 55 percent more hours than a worker in Germany. If Germany felt it was short of workers, obviously they could try to encourage their workforce to put in more hours. If they just made up half the difference with Korea it would be equivalent to a 28 percent increase in their workforce. That is equivalent to an awful lot of additional kids.

This is directly relevant to the Japan story, since the OECD reports that the average work year in Japan has declined by 7.0 percent since 1997, the year its working age population began to decline. This doesn’t suggest that a shortage of workers has been a major problem for Japan. Read more…

Categories: jobs

Full employment: The recovery’s missing ingredient

November 4, 2014 5 comments

from Dean Baker

Federal Reserve Chairman Janet Yellen gave a speech a few weeks ago that was doubly unusual.

First, she provided a welcome and trenchant analysis of inequality, focusing on the stagnant income and wealth of middle- and low-income families relative to the top few percent. For the nation’s chief economist to elevate this issue is an important contribution in its own right.

Second, she declined to mention the critical role of slack labor markets in these outcomes. In what is a rare case for her, the word “unemployment” was not even mentioned in the speech. The omission was especially noticeable as Yellen, to her credit, has so consistently pointed out the extent of remaining slack in the U.S. job market.

Unemployment is down and gross domestic product is up, yet there isn’t much progress in real wages and incomes of most working families. While many reasons have been set forth to explain this unfortunate disconnect, including globalization and technological change as well as unmet skill demands and the Federal Reserve’s asset-buying program, our research suggests that the main factor behind both stagnant real wages and rising inequality is the absence of full employment. Truly tight labor markets — an unemployment rate closer to 4 percent than 6 percent — would not only boost real wages, but would give a larger lift to the lowest-paid workers and those with the least bargaining clout, pushing back on stagnation and inequality. Read more…

Categories: The Economy, unemployment
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