Archive for the Category Labor markets


Happy talk on the economy

In 2016, conservative commentators told us that Trump was doing well because the economy was performing so poorly, especially for average Americans.  Trump said the same thing, using terms like “American carnage” in his inaugural address.  Now we are told that the economy is doing well.  Here’s Jim Geraghty of the National Review:

If the economy is still humming like this in November, and incumbent Republicans perform badly in the midterms, it will blow up the conventional political wisdom of, “it’s the economy, stupid.” Those of us who are not fans of the daily drama and perpetual controversies of this White House will have evidence to support the argument that Trump’s tweets and tirades are not just silly distractions; they’re enough to counteract what would be a key political strength for most administrations.

And of course Trump engaged in his usual hyperbole in his recent State of the Union.

I’m going to try to bend over backwards to be fair to both sides.  I think you can make a reasonable argument for each of the assertions made above, for 2016 and 2017.  What you cannot do is simultaneously claim that both assertions are true.  After all, jobs were the key issue that people used in 2016, when describing the plight of average Americans.  And job growth in 2017 actually reached the lowest levels in years (the graph shows year over year percentage change in payroll employment):

That’s not a bad performance, just no sign that the jobs crisis we were told about in 2016 has been solved.  Remember when Trump said the “true” unemployment rate was anywhere from 20% to 40%?  His supporters can’t now claim that job growth slowed in 2017 because we are running out of workers.

Inevitably, some commenters will misread this post.  They’ll accuse me of saying the economy is not doing very well, even though I never said the economy is not doing very well.

Or they’ll cherry pick other indicators.  Some, such as stock prices, are of no relevance to this post.  Stocks did extremely well under Obama, and obviously were not a part of the economic “carnage” that Trump referred to in January of last year. Some will point to other indicators.  But for every indicator that’s gotten modestly better in 2017 (RGDP) you can find another that’s gotten modestly worse (from a Trumpian perspective):

That means that the final 2017 U.S. deficit with China/HKG may be up 17%-18% from the $280 billion consolidated China/HKG deficit recorded for 2016.

If you believe the Autor, Dorn and Hanson study of the impact of China trade, (or perhaps I should say how it’s been interpreted, their claims are more nuanced); this is really bad news for the US economy, and especially for the blue collar Trump voters.  As Forbes correctly notes, however, our ballooning trade deficit with China is actually good news for the US economy (and, I would add, even for Trump voters.)  Another way of putting it is that the entire Trump campaign was built on misinformation, and that’s really, really good news.  (And I’m not going to exempt the conservative intellectual establishment (especially non-economist intellectuals), which to some extent bought into the claims that trade was hurting average Americans.) So which is it?  Is the trade deficit with China a big problem?  Or is the economy doing better?  Trump would say both, but you can’t have it both ways.

I think people need to stand back and look at things objectively, the view from 30,000 feet.  When you do so you see an economy that is gradually growing, a bit better than in 2016 (in my view due to better public policies), but not dramatically different from what was occurring during recent years.

Why does this matter?  After all, everyone entitled to describe the economy any way they wish.  The problem occurs when you start to make inferences about things like the midterm elections.  Notice that Geraghty suggests that if the economy is the deciding issue, the GOP should do well in 2018.  But if that were the case then the Democrats should have done well in 2016.  His post is written as if the stuff that Trump says, or that gets reported on Fox News, is actually true.  But it’s not true.  The economy is not that much different from a year ago.

PS.  The problem of bias reminds me of a wonderful Eliezer Yudkowsky post of fairness:

The notion that you can “be fair to one side but not the other”, that what’s called “fairness” is a kind of favor you do for people you like, says that even the *instinctive* sense people had of law-as-game-theory is being lost in the modern memetic collapse. People are being exposed to so many social-media-viral depictions of the Other Side defecting, and viewpoints exclusively from Our Side without any leavening of any other viewpoint that might ask for a game-theoretic compromise, that they’re losing the ability to appreciate the kind of anecdotes they used to tell in ancient China.

Unfortunately, the post is hard to excerpt–you really need to read the whole thing.

PPS.  Hypermind is currently forecasting 4.6% NGDP growth from 2017:Q1 to 2018:Q1.  If my math is correct, that implies about a 4% annualized growth rate in the first quarter of 2018.  The implied RGDP forecast is probably about 2%, or a bit higher.  The Blue Chip consensus has first quarter RGDP growth coming in around 2.6%.  But the Atlanta Fed is forecasting 5.4% RGDP growth in Q1.  It will be an interesting quarter to watch.

HT:  Craig Fratrik


Why is inflation so low?

I have a new piece on low inflation in US News and World Report:

Surprisingly, the recent undershoot of inflation had occurred during a period when the Fed has been raising interest rates, a policy that is normally aimed at slowing, not increasing, inflation. It’s as if a ship captain responded to persistent headwinds by turning the rudder in the wrong direction.

Off topic, a couple National Review pieces caught my attention:

In Rome in 1973, a grandson of the richest man in the world, J. Paul Getty, was kidnapped. In All the Money in the World, director Ridley Scott’s bizarre take on this story, Getty is the villain, while the kidnappers are simply dutiful professionals tasked with carrying out their unfortunate mission as best they can despite Getty’s intransigence about paying them ransom.

They don’t use the term ‘nepotism’, but that’s what this is all about.  Nepotism is frowned on in the US and Northern Europe; indeed favoring your relatives at the expense of society is viewed as completely unethical.  In most of the world things are exactly the opposite; it’s viewed as unethical not to favor the well being of one’s grandchildren over the best interest of society.

I doubt that many Sicilians would agree with me, but my utilitarian value system forces me to view Getty as a hero, not a villain.  The world would be a better place if everyone viewed things as I do, and no one paid ransom to kidnappers.  (That doesn’t mean I’d refuse to pay ransom, just that I’d be a hero if I did.  I never claimed that I’m a hero.)

Hollywood often promotes utilitarian values, but this is less true in the case of economic issues.  In those cases, Hollywood focuses on the “seen”, not the “unseen”.

Here’s the excellent Ramesh Ponnuru in the National Review:

Many Republicans credit Trump for presiding over a strong economy, too. It’s a point that requires some context. Job growth has not been quite as fast as it was in Obama’s last year, but you’d expect it to slow after an expansion this long.

That’s a defensible argument, but only if you assume that the entire alt-right/Trump campaign was built on a pack of lies.  Recall the economic “carnage” that Trump referred to in his inaugural address.  Recall the claims of 30% to 40% unemployment.  Recall the claims that downtrodden unemployed workers in West Virginia, Wisconsin, Pennsylvania and Michigan voted for Trump out of desperation.

So yes, it’s possible that job growth slowed in 2017 because Obama left Trump with an American job market that was already “Great Again.”  I’m not going to take a position either way on this issue; just point out that Trumpistas can’t have it both ways.

US News has a new article pointing out that the legalization of pot in Colorado did not lead to the total disaster predicted by drug warriors:

Over at Econlog I have a recent post discussing Portugal, which has decriminalized the use of all drugs.  Heroin addiction has fallen sharply, again just the opposite of what the drug warriors predicted.

I’d have a tad more respect for conservative Republicans like Jeff Sessions if they spent less time gloating over tax cuts for corporations, and instead expressed a bit of remorse over the millions of lives they have ruined with their punitive policies.  Policies that we now know were ineffective.  Here’s one example from Reason magazine:

About a year later she was picked up in another undercover sting.  This time, having turned 18, she was arrested for prostitution (a misdemeanor) and possessing a small quantity of marijuana (a felony).  The conviction shattered her dreams of someday becoming a nurse.

Now, she says, “I’m a single mother with a felony and I will be labeled a loser and a whore for the rest of my life.”  Mere months ago, she was being exploited.  Today, for the same behavior, she’s a criminal.

HT:  Ben Cole

Why Trump failed to create jobs

As a candidate, Trump dismissed the stock market boom as a mere “bubble”.  His focus was on the labor market, which was a “disaster”.  He would create lots of jobs.

Immediately after the election, there were a few good economic data points, and the Trump people argued that the economy was already improving under the influence of more positive expectations created by his victory.  So let’s go with that assumption, and look at the economy in the 12 months since the election.  Here is the rise in payroll employment over the past 12 months, as well as during the previous 4 years:

11/16 to 11/17:   2.071 million

11/15 to 11/16:   2.324 million

11/14 to 11/15:   2.729 million

11/13 to 11/14:   2.793 million

11/12 to 11/13:  2.499 million

So why has job growth slowed under Trump?  After all, Trump claimed the “true” unemployment rate was 30% or 40%, so there’s obviously lots of labor market slack.  Right?

Of course I’m being sarcastic.  Both liberals and conservatives claimed there was lots of labor market slack, and they were both wrong.  Liberals made that claim to justify expansionary monetary and fiscal policies, and conservatives wanted discredit the economic performance under Obama.  In fact, we are nearing full employment.  I expect one more decent year in 2018, and then job growth will become extremely slow beginning in 2019.  RGDP growth will also slow in 2019.  I say that because the tax cut will provide a modest boost to the economy in 2018, but not much after that.

Interestingly, this poor job growth occurred despite some very positive tailwinds:

1. Manufacturing employment actually picked up slightly, as the fracking boom resumed and lots of manufacturing jobs are related to that industry.

2. NGDP and RGDP growth has been a bit better in 2017.

3.  There’s been a bit of deregulation.

Despite these factors, we are simply running out of bodies.  Job growth will continue to slow sharply over the next few years, especially in 2019.

Other Trump promises that won’t be kept:

1.  Repeal Obamacare.

2.  Build the wall.

3.  Build infrastructure.

4.  Cut the top personal income tax rate from 43.4%  to 25%.  (Trump will increase it.)

5.  Lock her up.

However Trump will succeed in continuing to move the GOP from being a party of economic/foreign policy/social conservatives, to a paranoid conspiracy theory mongering, fake news, anti-intellectual, pro coal, white nationalist party whose leadership endorses people who long for the days of slavery, want to ban Muslims from Congress and say gays should be locked up.

PS.  Read this horrifying article about what they plan to do with capital gains taxes—increase the rate and make the system far more complex.

Steph Curry and Steve’s Bike Shop

Here’s the PR statement put out by the Republicans:

The Tax Cuts and Jobs Act includes specific safeguards to prevent tax avoidance and help ensure taxpayers of all income levels play by the rules under this new fairer, simpler tax system. Our legislation will ensure this much-needed tax relief goes to the local job creators it’s designed to help by distinguishing between the individual wage income of NBA All-Star Stephen Curry and the pass-through business income of Steve’s Bike Shop.

Is it true that Steve creates jobs while Curry does not?  Not really.  In a sense both people create jobs.  Because of Steve and Steph, some cashiers have jobs at Steve’s bike shop and some concession stand people have jobs at the Golden State arena.  So certain specific jobs are created by their actions.

On the other hand, neither cause the job total in America to be higher than otherwise.  Those employed at the bike shop and basketball arena would have jobs somewhere else if not for Steve and Steph (due to monetary offset.)

The real argument for the lower pass through rate (if I understand it correctly) is that capital income should not be taxed at all, and a portion of business income is capital income.

Why is Curry the only person mentioned in the GOP document, and why in a less than favorable way?  I’m not sure.  In my view, Steph Curry is far more valuable to society than Steve (for standard diamond/water paradox reasons).  But I’d guess that many GOP voters resent the high incomes earned by African-America athletes, especially those who don’t seem grateful to America.  This is probably why Trump keeps picking a fight with the NFL—he knows it appeals to his base.  It’s all part of our stupid culture wars.

Some have argued that high wage earners often benefit from government subsidies, such as government funding of sports arenas.  That’s true, but businesses also get massive government subsidies, and only a very tiny share of Steph Curry’s income is due to these subsides; it mostly reflects his extremely high productivity (which leads to big TV ratings).  I have no problem with taxing high wage earners like Steph Curry at a 50% or 60% rate, but let’s not kid ourselves and claim that businesses are somehow more virtuous that high wage earners.  Productivity is productivity, whether from white businesses or African-American workers.  And Steph is way more productive than Steve.

PS.  It’s not good when the very first bullet point in your PR document is inaccurate:

The Tax Cuts and Jobs Act delivers tax relief at every income level – while maintaining the top 39.6% tax rate on high-income earners.

This post explains why.

Abe reasons from a price change

Here’s the FT:

Shinzo Abe has demanded Japanese companies lift pay by three per cent next year as he uses his big victory in last week’s election to intensify his push to boost the country’s economy.

The Japanese prime minister’s decision to give a specific number marks a deepening of government interference in private sector wage settlements. Last year, Mr Abe simply called for pay rises at least as great as the year before.

Would higher wages be good for the Japanese economy?  It depends.  If the higher wages are achieved through more aggregate demand, then they might be associated with higher employment.  If implemented via less aggregate supply (as Abe proposes), they will lower employment.

Consider the following two options:

If the BOJ adopts an expansionary monetary policy, boosting NGDP, then the demand for labor will increase.  This will boost growth, increase wages, and employment will rise to point B.

If the BOJ does not boost NGDP but Abe pressures firms into raises wages anyway, then employment will decline to point C.

It’s very demoralizing that top officials in Japan the US and Europe continue to make the EC101 error of reasoning from a price change.  Over and over again.

Why do we even bother teaching EC101 in colleges?  What’s the point?

PS.  Now that taxes are in the news let me agree with Jeff Flake, who is calling for tax reform, not tax cuts.

Tax reform would be one of the very best things the GOP could do right now.  Tax cuts would be among the very worst moves they could make.

It’s often said that the modern GOP exists for one purpose only, to enact tax cuts.  I don’t think people have fully internalized the implication of that truth.  If and when the GOP does enact tax cuts and/or reform, it will no longer have a reason to exist.  Tax reform might end up being a major achievement, or it might not.  But either way the enactment of a major tax bill will mark the end of the modern GOP.  They will no longer have a reason to exist.

I have no idea what will take it’s place.  Perhaps a white nationalist Bannonite party.  National socialists.  But whatever it is, it won’t be the modern GOP—which will be dead.

PPS.  On the graph, I forget to label points B and C as a 3% wage gain.