Tag Archives: economy

Thomas Piketty Says That r > g. But Is It, Really?

by CarleyFreehill Posted on May 14, 2014

Mother Jones

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I’ve mentioned before that I have a few misgivings about Thomas Piketty’s thesis in Capital in the 21st Century. One of my misgivings is pretty basic: Piketty argues that r (the return on capital) is historically greater than g (the economic growth rate). Since the rich own most of the capital, this means that the rich accumulate wealth faster than everyone else, which in turn means that rising income inequality is inevitable. But as capital accumulates, surely the return on capital should decline? After all, that’s what happens in every other market when there’s a glut of supply.

Piketty briefly addresses this objection, and concludes that although r will indeed decrease as capital accumulates, it won’t decrease much. But is that true? Larry Summers doesn’t think so:

Piketty’s rather fatalistic and certainly dismal view of capitalism can be challenged on two levels. It presumes, first, that the return to capital diminishes slowly, if at all, as wealth is accumulated and, second, that the returns to wealth are all reinvested. Whatever may have been the case historically, neither of these premises is likely correct as a guide to thinking about the American economy today.

Economists universally believe in the law of diminishing returns. As capital accumulates, the incremental return on an additional unit of capital declines. The crucial question goes to what is technically referred to as the elasticity of substitution….Piketty argues that the economic literature supports his assumption that returns diminish slowly (in technical parlance, that the elasticity of substitution is greater than 1), and so capital’s share rises with capital accumulation. But I think he misreads the literature by conflating gross and net returns to capital. It is plausible that as the capital stock grows, the increment of output produced declines slowly, but there can be no question that depreciation increases proportionally. And it is the return net of depreciation that is relevant for capital accumulation. I know of no study suggesting that measuring output in net terms, the elasticity of substitution is greater than 1, and I know of quite a few suggesting the contrary.

There are other objections to Piketty’s thesis, but it seems to me that this is one of the key criticisms—perhaps the key criticism. If r > g isn’t inevitably true, or even if it’s only slightly true (that is, r is only slightly greater than g), then everything falls apart. I suspect that this is going to be one of the main technical battlegrounds in the macro literature as Piketty’s theory gets hashed out over the next few years.

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Thomas Piketty Says That r > g. But Is It, Really?

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Who Deserves Credit for Reducing the Federal Deficit?

by FinlayBales Posted on May 12, 2014

Mother Jones

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Hey, looky here! Steve Benen highlights the chart on the right, which shows that President Obama is making steady progress reducing the massive federal deficit that was rung up in FY2009 by George Bush and the Republican Party. Nice work, Obama!

But wait. Does this seem a wee bit unfair? Fine. You’re right. Bush wasn’t responsible for the deficit. The Great Recession was responsible for the deficit. Nor is Obama (or Boehner or McConnell or anyone else) responsible for the reduction in the deficit. That happened because the economy started to recover. That’s it. That’s the whole story. Deficits always go up during recessions and they always go down after recessions end. Tax and spending policy makes a difference, but not much of one. Taxes and spending almost always go down during recessions, and they almost always go back up during recoveries.

However, with the deficit now around 3 percent of GDP, we’re back in fairly normal territory, which means that tax and spending policy does make a difference. (Until the next recession, anyway.) However, there’s an iron law that everyone should remember but nobody ever does. Here it is:

If we drive the deficit down to zero, then private savings have to equal our trade balance.

In other words, if we run a trade deficit, then we’ll have negative private savings. If we want positive private savings (and we do), then we either have to run a trade surplus or else we have to offset private savings with a big budget deficit. There is no way around this. It’s an accounting identity. So whenever you hear someone yakking away about the horrors of the federal deficit, ask them what they want in its place. There’s no hedging on this. You either want a trade surplus (no more living beyond our means!) or negative private savings (bad for growth). It’s one or the other, whether you like it or not.

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Who Deserves Credit for Reducing the Federal Deficit?

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Charts: How Work Email Has Taken Over Our Personal Lives

by CandacePapst Posted on May 6, 2014

Mother Jones

It’s dinnertime, and you know its just wrong to be checking your email. Your spouse and kids are giving you the stink-eye. But it’ll just take a minute. One minute. Seriously. There’s just this super-quick thing from the boss that you’ve gotta deal with.

American workers, especially white-collar workers, are becoming an army of smartphone addicts, and we beat ourselves up even as we indulge in the rudest of modern habits. But we’re not entirely to blame for our weakness, as Clive Thompson reports in the latest issue of Mother Jones. Much of the encroachment of technology into our lives is driven by work, and workplace demands are escalating as a direct result of the so-called convenience that Steve Jobs has placed in our pockets. As Thompson notes in his must-read essay, “You could view off-hours email as one of the growing labor issues of our time.” So here are a few stats that outline the issue, and one that suggests how smart companies might help address it.

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Charts: How Work Email Has Taken Over Our Personal Lives

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April Had the Lowest Jobless Rate Since Obama Took Office

by SherylTrumper Posted on May 2, 2014

Mother Jones

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The economy added 288,000 jobs in April, according to new data released Friday by the Labor Department. The unemployment rate plummeted from 6.7 percent to 6.3 percent—which is the lowest jobless rate since President Barack Obama took office at the start of the great recession.

Economists had forecasted April jobs gains of 218,000 and an unemployment rate of 6.6 percent.

The number of unemployed people dropped by 733,000 people, and the total number of Americans who are either unemployed, have given up looking for work, or are working part-time because they can’t find full-time work fell from 12.7 percent to 12.3 percent last month. The jobs report brought more good news. Employment gains for February and March were revised upwards by a total of 36,000. Part of the healthy gain was due to warmer weather, which boosted seasonal employment.

Now for the not-so-good news. Another reason the unemployment rate fell is because April saw a decline in the workforce participation rate, which is the number of Americans who are working or looking for work. That number fell by 806,000 last month. The decrease in the labor force was partly due to the fact that Republicans refused to renew federal unemployment benefits for the long-term unemployed. Jobless Americans are required to prove they are actively searching for work in order to continue receiving unemployment insurance; once there’s less of a motivation to search, many give up looking.

The construction and retail sectors saw the largest increase in employment, with jobs gains of 32,000 and 35,000, respectively. Professional and business services added 75,000 jobs. And the economy took on a total of 15,000 government jobs.

Good or bad, you can take most of this information with a grain of salt, if you want. As Neil Irwin explained Thursday in the New York Times, businesses, journalists, and stock traders place way too much weight on the monthly jobs numbers, given the “statistical noise” in each report. In order to determine how many people are employed in the US, for example, the Labor Department conducts a huge monthly survey of 144,000 employers who employ about a third of all non-farm workers. Sampling errors are inherent in these surveys, Irwin explains, because the results are not representative of all the nation’s employers. And each monthly jobs report is released before all the survey data is in, so researchers have to fill in gaps with estimates that may later end up being wrong. “Even when the economy is moving in a clear direction,” Irwin writes, “the noise in month-to-month changes can be big enough to obscure any trend.”

If you want longer-term trends that you can bank on, here are a few. We’ve had roughly zero net job growth over the past seven years, because gains in employment have been offset by population growth. The unemployment rate is still above the historical average for this stage of an economic recovery, Annie Lowrey noted in the New York Times Friday. And the black unemployment rate is stuck at more than double the white jobless rate.

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April Had the Lowest Jobless Rate Since Obama Took Office

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Don’t Take the April Jobs Numbers Too Seriously

by AdanPrimrose Posted on May 2, 2014

Mother Jones

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In the previous post, I mentioned that although the unemployment rate was down in April, this wasn’t so much because lots of people had suddenly found work. It’s mostly because a lot of people dropped out of the labor force and were no longer counted in the statistics. Think of it this way: If 93 people out of a labor force of 100 have jobs, the unemployment rate is 7 percent. But if one of those unemployed people gives up and exits the labor force entirely, then the labor force shrinks to 99 people. Now, 93 out of 99 people have jobs. That’s an unemployment rate of 6 percent even though the exact same number of people have jobs.

The labor force participation rate measures how many people in the total population are part of the labor force (i.e., working or looking for work). That number went way down in April. This produced a smaller labor force, which is the main reason the unemployment rate declined so dramatically. But there are two things to keep in mind: (a) the participation rate has been shrinking steadily for a long time, and (b) it’s a pretty volatile number from month to month. The chart below shows both things. The participation rate has been steadily shrinking since 2000, and it’s been shrinking even faster ever since the end of the Great Recession. And the big drop in April? As you can see from the tail end of the chart, the participation rate hasn’t actually changed since October. It’s just been bouncing up and down.

Bottom line: Don’t take the April numbers too seriously. The long-term trends are important, but there’s so much noise in the month-to-month numbers that you can’t draw too many conclusions from them.

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Don’t Take the April Jobs Numbers Too Seriously

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Anger at the Plutocracy Isn’t Strong Enough to Make a Big Difference in November

by Veta68O Posted on April 30, 2014

Mother Jones

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Greg Sargent writes today that the Democratic strategy of going after the Koch brothers isn’t about the Kochs per se, but “a gamble on what swing voters think has happened to the economy, and on the reasons struggling Americans think they aren’t getting ahead”:

Dems are making an argument about what has happened to the economy, and which party actually has a plan to do something about it. Today’s NBC/WSJ poll finds support for the general idea that the economy is not distributing gains fairly and is rigged against ordinary Americans….The Democratic case is that the all-Obamacare-all-the-time message is merely meant to mask the GOP’s lack of any actual affirmative economic agenda, and even reveals the GOP’s priorities remain to roll back any efforts by Dems to ameliorate economic insecurity.

….I don’t know if the Dem strategy will work.

I think Sargent’s skepticism is warranted. The problem is that the NBC/WSJ poll he mentions doesn’t find an awful lot of evidence for seething anger. Here are the basic results:

Those are not really huge margins. The first question in particular is one they’ve been asking for two decades, and 55-39 is a very typical result, especially during times of economic weakness.

Given this, and given the extreme difficulty of a party in power taking advantage of economic discontent, will the Democratic strategy of bludgeoning Republicans over their plutocratic leanings work? I doubt it. Specific agenda items like a higher minimum wage, health care success stories, and universal pre-K seem more likely to work. At the margins, a bit of Koch bashing and a few high-profile Wall Street indictments might help a bit too, but only as an added fillip.

Oh, and a nice, short, decisive war against some minor global bad guy would also do wonders. In October, maybe.

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Anger at the Plutocracy Isn’t Strong Enough to Make a Big Difference in November

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US Economy Tanks Completely in the First Quarter

by CharoleBlohm Posted on April 30, 2014

Mother Jones

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The economy took a huge dive in the first quarter. It grew at such a slow annualized rate, 0.1 percent, that I had to enlarge my usual FRED chart just so you could see the tiny bar on the far right. The full BEA report is here.

So what happened? Consumer expenditures actually increased reasonably well. Government consumption was about flat, which isn’t too unusual these days. But fixed investment—including housing—tanked, inventories shrank, and exports plummeted. That was enough to swamp the strong gains in consumer spending.

It’s hard to draw any positive conclusions from this. Cold weather is getting some of the blame, but I always take weather-based excuses with a big grain of salt. Basically, the economy is still really sluggish. Job growth is OK but not great and wage growth is positive but only barely. Despite that, here’s what the Wall Street Journal has to say:

The latest figures come as Federal Reserve officials conclude at two-day meeting Wednesday. The numbers aren’t likely to have a large influence on policy, given the expectations for improved growth later in the year. Officials, however, are closely monitoring inflation measures. Persistently low inflation could complicate the Fed’s decisions about how to wind down its bond-buying program this year and when to raise benchmark interest rates from near zero.

Yeesh. Crappy GDP growth, sluggish job growth, and persistently low inflation “aren’t likely to have a large influence on policy.” Then what the hell would have a large influence on policy? Needless to say, a GDP report like this is music to Republican ears, so we certainly can’t expect Congress to react in any productive way. That means the Fed is all we’ve got. But apparently we don’t have them either.

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US Economy Tanks Completely in the First Quarter

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Kill the Penny, Save the Economy!

by Finley11Wjxpzza Posted on April 29, 2014

Mother Jones

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Ryan Cooper is annoyed by coins. They’re too much trouble, and they just pile up in the penny jar at home. I used to feel that way, but now that my local supermarket has a Coinstar machine, I don’t care anymore. I throw my coins into the machine every few months, and within a minute I get an Amazon gift card or something for the full value of the change. No muss, no fuss, no more rolling up coins.

Still, Cooper thinks we could do better if we not only got rid of the penny, but got rid of all our other small change too:

Here’s my solution: multiply the face value of every U.S. coin by 10. A penny will be worth 10 cents, a nickel 50 cents, a dime one dollar, a quarter $2.50, and a dollar coin 10 bucks. (We could also reinvent the half-dollar, which is barely produced now, as a nice $5 coin.)

This will have several beneficial effects: first, it will make change real money again….Second, it will be easy to accomplish. We won’t have to have a big fight with the zinc lobby or Abraham Lincoln fans over whether to stop production of a particular coin, or rebuild all the vending machines around differently-shaped coins.

….Third — and this might be the most contentious part of this proposal — changing coins could be a nice piece of badly-needed economic stimulus. Effectively, we’d be printing up a bunch of new money and handing it to whoever has coins on hand. We’d have to think carefully about the details, but the idea would be to allow people who have old coins to hand them in for fresh new versions worth 10 times as much….How much money are we talking about? According to the Federal Reserve, as of 2010 there was about $40 billion worth of coins in circulation, which constituted 4.3 percent of the U.S. currency stock. We’d be increasing that by $360 billion at a stroke, which would actually be a pretty powerful economic stimulus.

I like this kind of out-of-the-box thinking! Unfortunately, I suspect the biggest beneficiaries wouldn’t be coin hoarders, but banks, which probably own about 90 percent of all circulating coins. (I’m just guessing about that.) Plus, you’d better do this in secret. If you don’t, you’re going to have the damnedest run on Sacagawea dollars ever. You can sign me up for a ton or two right now.

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Kill the Penny, Save the Economy!

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Income Inequality Has Spurred a Boom in Private Security

by OdetteCordeaux Posted on April 27, 2014

Mother Jones

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This is a truly fascinating chart: countries with lots of income inequality—driven largely by the gains of the ultra-rich—also spend more and more of their money on security services. Gotta keep the hoi polloi at bay somehow, after all. However, the researchers who produced the chart also add some appropriately scholarly cautions:

Does the graph show that inequality causes a country to devote more of its labor force to guard labor? It is hard to be sure. It could be that people with a strong commitment to economic justice are, for some unknown reason, also more law-abiding, explaining the difference between Denmark and the United States. But the correlation evident in the graph could be evidence that economic disparities push nations to devote more of their productive capacity to guarding people and property. Fear and distrust of one’s neighbors and fellow citizens fuel the demand for guard labor. Economic disparities can contribute to both. Among the countries shown, a common measure of distrust of strangers is strongly correlated with both the guard-labor fraction and inequality.

Social spending, also, is strongly and inversely correlated with guard labor across the nations shown in the graph. There is a simple economic lesson here: A nation whose policies result in substantial inequalities may end up spending more on guns and getting less butter as a result.

Perhaps this is our dystopian, Piketty-esque future: a small class of ultra-wealthy rentiers; a breakdown of public safety because the rich employ their own private security forces and don’t feel like funding anything further; a retainer class of managerial drones; and then everyone else—sullen and resentful, but kept in line by the hard men in dark glasses toting automatic weapons and driving armored limos.

Actually, probably not. Eventually robots will provide better security services than fragile human beings, so the security forces will be out of jobs too. By then, however, even the ultra-wealthy won’t care if robots produce enough to make life lovely for everyone. Sure, they’ll still want their share of the still-scarce status goods—coastal property, penthouse apartments, original Rembrandts—but beyond that why should they care if everyone lives like kings? They won’t, and we probably will. As long as we don’t all kill ourselves first.

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Income Inequality Has Spurred a Boom in Private Security

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College Doesn’t Pay Off for Everyone

by RichelleButterf Posted on April 25, 2014

Mother Jones

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Why has college enrollment edged downward in recent years? After all, the college premium is still pretty handsome, which makes a university degree a pretty good investment. Dean Baker thinks the answer might lie in how the college premium is distributed:

Work by my colleague John Schmitt and Heather Boushey shows that a substantial proportion of college grads, especially male college grads, earn less than the average high school grad. They found that the lowest earning quintile of recent college grads (ages 25-34) earned less than the average high school grad. The implication is that many young people may be reasonably assessing their risks of not being a winner among college grads and therefore opting not to get additional education. To get more young people to attend college it is important that most can predictably benefit from the additional education, not just that the average pay of college grads rises.

I’m not sure I buy this. Schmitt and Boushey present the chart on the right, and sure enough, the lowest ten percent of college grads (red line) earn less than the average high school grad. But this has always been true. What’s more, it’s actually less true today than in the past. Among both men and women, even the lowest-achieving college grad is relatively better off now than in 1980.

Even if the bottom 10 percent are still worse off than an average high school grad, I’m not sure how a rising trend could lead to lower assessments of the value of college paying off. It seems like there must be more going on here than that.

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College Doesn’t Pay Off for Everyone

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