Saturday, November 11, 2023
GPT vs Collge grad -- SAT -- and Labor Market Performance Contest
Tuesday, October 31, 2023
Krugman: Autoworkers Strike a Blow for Equality
It’s not officially over yet, but the United Auto Workers appear to have won a significant victory. The union, which began rolling strikes on Sept. 15, now has tentative agreements with Ford, Stellantis (which I still think of as Chrysler) and, finally, General Motors.
All three agreements involve a roughly 25 percent wage increase over the next four and a half years, plus other significant concessions. Autoworkers are a much smaller share of the work force than they were in Detroit’s heyday, but they’re still a significant part of the economy.
Furthermore, this apparent union victory follows on significant organized-labor wins in other industries in recent months, notably a big settlement with United Parcel Service, where the Teamsters represent more than 300,000 employees.
And maybe, just maybe, union victories in 2023 will prove to be a milestone on the way back to a less unequal nation.
Some history you should know: Baby boomers like me grew up in a nation that was far less polarized economically than the one we live in today. We weren’t as much of a middle-class society as we liked to imagine, but in the 1960s we were a country in which many blue-collar workers had incomes they considered middle class, while extremes of wealth were far less than they have since become. For example, chief executives of major corporations were paid “only” 15 times as much as their average workers, compared with more than 200 times as much as their average workers now.
Most people, I suspect, believed — if they thought about it at all — that a relatively middle-class society had evolved gradually from the excesses of the Gilded Age, and that it was the natural end state of a mature market economy.
However, a revelatory 1991 paper by Claudia Goldin (who just won a richly deserved Nobel) and Robert Margo showed that a relatively equal America emerged not gradually but suddenly, with an abrupt narrowing of income differentials in the 1940s — what the authors called the Great Compression. The initial compression no doubt had a lot to do with wartime economic controls. But income gaps remained narrow for decades after these controls were lifted; overall income inequality didn’t really take off again until around 1980.
Why did a fairly flat income distribution persist? No doubt there were multiple reasons, but surely one important factor was that the combination of war and a favorable political environment led to a huge surge in unionization. Unions are a force for greater wage equality; they also help enforce the “outrage constraint” that used to limit executive compensation.
Conversely, the decline of unions, which now represent less than 7 percent of private-sector workers, must have played a role in the coming of the Second Gilded Age we live in now.
The great decline of unions wasn’t a necessary consequence of globalization and technological progress. Unions remain strong in some nations; in Scandinavia, the great majority of workers are still union members. What happened in America was that workers’ bargaining power was held back by the combination of a persistently slack labor market, with sluggish recoveries from recessions and an unfavorable political environment — let’s not forget that early in his presidency, Ronald Reagan crushed the air traffic controllers’ union, and his administration was consistently hostile to union organizing.
But this time is different. Research by David Autor, Arindrajit Dube and Annie McGrew shows that a rapid recovery that has brought unemployment near to a 50-year low seems to have empowered lower-wage workers, producing an “unexpected compression” in wage gaps that has eliminated around a quarter of the rise in inequality over the previous four decades. The strong job market has probably encouraged unions to stake out more aggressive bargaining positions, a stance that so far seems to be working.
By the way, I constantly encounter people who believe that the recent economic recovery has disproportionately benefited the affluent. The truth is exactly the opposite.
The political ground also seems to be shifting. Public approval of unions is at its highest point since 1965, and Joe Biden, in a presidential first, joined an autoworker picket line in Michigan in September to show support.
None of what’s happening now seems remotely big enough to produce a second Great Compression. It might, however, be enough to produce a Lesser Compression — a partial reversal of the great rise in inequality since 1980.
Of course, this doesn’t have to happen. A recession could undermine workers’ bargaining power. If Donald Trump, who also visited Michigan but spoke at a nonunion shop, returns to the White House, you can be sure that his policies will be anti-union and anti-worker. And Mike Johnson, the new speaker of the House, has an almost perfect record of opposing policies supported by unions.
So the future is, as always, uncertain. But we might, just might, be seeing America finally turn back toward the kind of widely shared prosperity we used to take for granted.
Friday, September 22, 2023
Dean Baker: A High National Debt Can be Bad News, Sort of Like a High Stock Market
A High National Debt Can be Bad News, Sort of Like a High Stock Market
The media have been giving considerable attention to the national debt in the last year or so. They have some cause, it has been rising rapidly, and more importantly, the interest burden of the debt has increased sharply since the Fed began raising rates last year. But, if we want to be serious, rather than just write scary headlines, we have to ask why the debt is a problem.
The first concern to dispel is the idea that the country somehow has to pay off its debt. Our national debt is in dollars, which the government prints. Unless something truly bizarre happens, we will always be able to print the dollars needed to pay interest and principal on government bonds.
We could have some story that if our economy collapses people could lose confidence in our debt. That is true, but a bit nuts. If our economy collapses, we should be worried about our economy collapsing, the debt is really beside the point.
The more serious issue is that rising interest payments will be a burden. This is a real issue, but there are several important qualifications. First, in spite of the large debt, even relative to the size of the economy, interest payments relative to GDP are not especially high. Currently, interest payments relative to GDP were just hitting 2.8 percent last quarter. They are still below the 4.4 percent share reached in the early 1990s. And, for history fans, this burden did not prevent the 1990s from being a period of general prosperity.
Military Spending
The second point is that we do need to put this burden in a bit of perspective since it is often treated as a generational issue. Suppose the interest burden does rise to three or four percent of GDP, or even higher. Is that an unbearable burden?
Back in my younger days, we use to spend a much larger share of the budget on the military. In the 1950s and 1960s military spending was generally over 8.0 percent of GDP. At the peak of the Vietnam War it exceeded 10.0 percent of GDP. It dropped in the 1970s, but the Cold War buildup under Reagan again pushed it above 6.0 percent of GDP.
Military spending is currently under 3.0 percent of GDP. Suppose a magician came down and eliminated the national debt so we no longer had to pay any interest, but forced us to increase spending on the military to 6.0 percent of GDP. Are we now better off? Can we tell our children that they should be happy?
What we should care about with military spending is that we are secure as a country. If that can be accomplished spending less than 3.0 percent of GDP on the military, then we are much better off than in a world where we are spending 6.0 percent of GDP on the military.
The amount of spending it takes to make us secure, and what that means, are obviously debatable points, but the basic logic is not. From the standpoint of maintaining and improving our living standards, spending on the military is the same thing as throwing money down the toilet.
This is an important point that needs to be yelled loudly at the people anxious to have a New Cold War with China. They also need to recognize that the Soviet economy peaked at around 60 percent of the size of the U.S. economy. The Chinese economy is already more than 20 percent larger using a purchasing power parity measure of GDP. This means that Cold War-type competition with China is likely to be incredibly expensive, even assuming we never get into an actual hot war.
Global Warming: Will We Celebrate Containing the Debt if the Planet Burns?
The third point on this generational issue is that we need to look around at the country and the world. Global warming is having a large and devastating effect on the environment. We are seeing an unprecedented wave of extreme weather events, including droughts, dangerous heat waves, hurricanes and flooding. This will only get worse through time.
It is great that Biden put the country on a path toward clean energy with the Inflation Reduction Act, but we will need to do much more. Thankfully, the rest of the world, and especially China, is far ahead of us. The idea that somehow the debt is an overriding generational issue, when we are facing the destruction of the planet, is something that can only be taken seriously by our policy elites. Our success in limiting global warming will have infinitely more relevance to the quality of the lives seen by our children and grandchildren than anything that happens with the national debt.
Why Spend Money When We Can Just Issue Patent Monopolies?
The fourth point is that direct spending is only one way the government pays for things. The government supports a huge amount of innovation and creative work by awarding patent and copyright monopolies. While these monopolies are one way to provide incentives, they also carry an enormous cost. In the case of prescription drugs alone, they likely cost the country more than $400 billion a year (more than $3,000 per family, each year) in higher drug prices. We will spend over $570 billion this year for drugs that would likely cost us less than $100 billion if they were sold in a free market without patent monopolies or related protections.
If we look at the impact of these government-granted monopolies in other industries, like medical equipment, computers, software, video games, and movies, they almost certainly add more than $1 trillion a year to what households pay for goods and services. For some reason, the people screaming about the debt literally never say a word about the costs the government imposes on us by issuing patent and copyright monopolies.
And, these costs are interchangeable. For example, we can spend more money on government-funded research in developing prescription drugs and require that drugs developed as a result are available as generics sold in a free market. In the standard deficit accounting, we would only pick up the extra cost from the government-funded research. We would not see the savings from cheaper drugs, except insofar as the government paid less for buying drugs.
We could also go the other way. We could give out patent or copyright monopolies as a way to fund various government services. For example, we could give the Social Security trust fund a patent monopoly on ice that lasts for 1000 years. It could finance benefits by charging licensing fees for using ice. That would save the government around $1 trillion a year in Social Security spending. That should make the deficit hawks very happy.
Yeah, that would be absurdly inefficient and be a license for all sorts of corruption. But so is our current patent system, which does things like encourage drug companies to push opioids and lie about the effectiveness of their drugs. But, we know the deficit hawks, and many in the media who push their handouts, don’t care about efficiency, they just want lower debt. So, the patent monopoly on ice should be good with them.
Debt and Stock Prices
Okay, but I promised to say how a higher debt can be bad news like higher stock prices. This requires a little bit of Econ 101. The serious story of how higher debt is bad is that it can lead to higher interest payments.
The “can” here is important. The debt-to-GDP ratio rose considerably in the Great Recession and the years immediately following, but the ratio of interest payments to GDP fell. This was because we had very low interest rates in these years. The Fed deliberately kept rates near zero because it was combatting weak growth and high unemployment, as we faced a period of secular stagnation.
We don’t know yet whether the economy will return to something like secular stagnation as the impact of the pandemic fades into the distance. Some of the factors that led to this stagnation, most notably slower population and labor force growth, and an upward skewed distribution of income, are still present. However, we have seen some reversal of the upward redistribution of income, as wage growth has been strongest for those at the bottom of the wage ladder. But, we don’t know how far this trend will go. We also don’t know if the full increase in profit shares will be reversed.
The impact of new technologies, most notably AI, is still very much unclear. If they do have a substantial impact on productivity growth, then we may again see rising unemployment and a need for the Fed to push rates lower. Also, as we switch to clean technologies, there will be less demand for fossil fuels and many of the associated services. Of course, these technologies may also be associated with an investment boom that will increase demand for labor.
There are reasonable arguments on both sides of the secular stagnation issue, but let’s assume that the Fed does not return to its zero-interest policy, but rather we get an interest rate structure that looks something like what we saw just before the pandemic. In that context, we will see higher interest payments as a share of GDP.
It is worth thinking for a moment why this would be bad. As the Modern Monetary Theory people remind us, the problem of a government deficit is not the financing – we can always print the money – the problem is that it can be inflationary, since it can lead to too much demand in the economy.
Interest payments on the debt don’t directly create demand in the economy. They create demand only when people spend the interest payments. Insofar as the payments are made to high-income people with low propensities to consume, they will have a relatively limited impact on spending and demand. But not all interest payments go to rich people, and even rich people will spend some fraction of their interest.
So, the problem of higher interest payments on the debt is increased consumption demand, which can create inflationary pressures in the economy. This gets us to the problem of a rising stock market.
While some people think of the stock market as a way to raise money for investment, most firms rarely raise money through this channel. In fact, companies typically go public as way for the initial investors to cash out their gains. The main economic impact of a rising stock market is not on investment but rather on consumption.
There is a well-known, stock wealth effect that is usually estimated at between 3 to 4 percent. This means that an additional dollar of stock wealth leads to an increase in annual consumption of 3 to 4 cents. Households currently hold around $30 trillion in stock wealth. If the stock market rises by 20 percent, that would create another $6 trillion in stock wealth.
Assuming that people spend 3-4 percent of this new wealth, we would see an increase in annual consumption of between $180 billion and $240 billion. If we are concerned about excess demand creating inflationary pressures in the economy, then we should be worried about the impact of this rise in stock wealth.
In that sense, a rising stock market is bad news for the economy in the same way as increased interest payments on government debt. If we assume that 70 percent of interest payments are spent, then a 20 percent rise in the stock market will create roughly the same inflationary pressure as $300 billion in additional interest payments.
So, if we are worried that interest on the debt will be leading to inflation, we should also be reporting the bad news on inflation every time we see a big run-up in stock prices. In short, interest on the debt can be a problem, but it gets far more attention than items that are much bigger problems in any realistic assessment of the situation.
Saturday, August 5, 2023
Playing Games with GDP Numbers: China’s Growth Has Not Slowed to a Crawl
Playing Games with GDP Numbers: China’s Growth Has Not Slowed to a Crawl
Dean Baker, via Patreon
GDP growth in the United States is always reported as an annual rate. This means that if the economy grew 0.5 percent from the first quarter to the second quarter, it would be universally reported as 2.0 percent growth, with reporters always giving the annual rate. This is basically four times the quarterly rate. (It’s actually the first quarter’s growth rate taken to the fourth power, but this will be the same for small numbers.)
This is a simple and obvious point. It is not something that is debated among reporters or economists, it is just a standard that has become universally accepted.
Many other countries do not report their growth numbers as annual rates. They report a quarter’s growth number at a quarterly rate. That is fine, there is nothing that makes the use of an annual rate better, the point is that everyone should know that the number is being reported as a quarterly rate, if that is the case.
I have often railed at news stories that have reported another country’s growth number, without telling readers that it is a quarterly rate. That obviously gives a very distorted picture.
Fareed Zakaria committed this sin today in a Washington Post column that told people that China’s economy is stuck in a rut. Zakaria told readers:
“China’s economy is in bad shape. Economic growth last quarter came in at 0.8 percent, putting China at risk of missing the government’s target for the year.”
Since Zakaria did give a link for his growth figure it was easy to click through and see that the 0.8 percent figure was in fact a quarterly growth rate. This translates into a 3.2 percent annual rate. Zakaria is right that this growth rate is a disappointment for China, but a 3.2 percent rate is very different from a 0.8 percent rate.
I’m sure Zakaria is well aware of the distinction between a quarterly growth rate and an annual rate. I’m also sure he would not have made this sort of mistake on purpose. He could have made his point just fine using the actual number.
But it does reflect extraordinary sloppiness on Zakaria’s part, as well as the Post’s proofreading system, that this mistake was not caught before it found its way into print. I would hope that the Post would correct it, but I know that the Post’s opinion editors do not care about correcting mistakes.
Sunday, July 23, 2023
Dean Baker: The Chinese Need to Stay Poor because the United States Has Done So Much to Destroy the Planet
Dean Baker -- via Patreon
That line is effectively the conventional wisdom among people in policy circles. If that seems absurd, then you need to think more about how many politicians and intellectual types are approaching climate change.
Just this week, John Kerry, President Biden’s climate envoy, was in China. He was asking the Chinese government to move more quickly in reducing its greenhouse gas emissions. President Xi told Kerry that China was not going to move forward its current target, which is to start reducing emissions by 2030.
I know from Twitter that many people think that Kerry’s request was reasonable and that Xi is jeopardizing the planet with his refusal to move forward China’s schedule for emission reductions. This is in spite of the fact that China is by far the world leader in wind energy, solar energy, and electric cars and that all three are growing at double-digit annual rates.
The basic complaint is that China must start reducing its emissions now because of the crisis facing the planet. To my Twitter friends, the problem is that China is the world’s biggest emitter of greenhouse gas. It doesn’t matter that it has four times the population of the U.S. and emits less than half as much on a per person basis. Nor does it matter that its economy is growing rapidly as it tries to catch up to the living standards enjoyed in the United States and other wealthy countries.
This complaint against China hinges on two sorts of arguments that would be dismissed as nonsense if they were used against the United States.
- Population size doesn’t matter. We care about how much China is emitting on the whole, not per person.
- Levels don’t matter, we only care about rates of change.
Taking these in turn, a line I heard endlessly (maybe it came from Chatgpt) is that the climate doesn’t care about per capita emissions, it only cares about total emissions. I have no idea what people were thinking when they wrote this.
Would it be okay if Djibouti, with a population of just over 1 million had fifty times the emissions it has now, because the climate only cares about total emissions, not per capita? After all, even with fifty times its current emissions, Djibouti would only be admitting a small fraction of what the U.S. emits.
If we said this about every country with a relatively small population, we would have enormously more emissions than is now the case. I assume anyone who actually cares about the future of the planet would not say that it’s okay for small countries to have per capita emissions that are many times larger than the U.S.
Measured in per capita terms, the United States is among the worst emitters on the planet. We only have a prayer of preventing a horrible climate disaster because just about every other country emits far less per capita.
The second argument raises the question of whether historic emissions somehow entitle a country to future emissions. Just writing that sentence seems close to crazy, but that is in fact what many of my Twitter friends seem to believe.
If we only care about changes and not levels, we are effectively saying that high levels of past emissions allow us to have high levels of future emissions. This line becomes even more absurd when we consider that, in general, higher GDP has been associated with higher levels of emissions. In other words, at least historically, as countries have gotten richer, they have emitted more greenhouse gases.
In the context of China, which is no longer poor, but still a rapidly growing developing country, limiting its future emissions growth would effectively be saying that the country doesn’t have the right to reach U.S. standards of living. This sort of restriction applied to poorer countries would be even more onerous. It would mean that poor countries in Sub-Saharan Africa, Latin America, and South Asia should be denied the opportunity to improve the living standards of their populations because they had not had high emissions in prior years.
The story gets even worse when we consider that the only reason that the planet now faces a climate crisis is that the United States and other wealthy countries have spewing vast amounts of greenhouse gases into the atmosphere for decades. If we all still had 19th or 18th century living standards, global warming would not pose an imminent crisis.
Our China critics are effectively saying that China, and implicitly other developing countries, must be denied the opportunity to improve the living standards of their people because we messed up the planet so badly. That might make sense in intellectual circles here, but that is not an argument that is likely to impress people in China or anywhere outside those circles.
Fortunately for the planet, China actually is moving ahead rapidly in promoting clean energy and electric cars. It is now projected to have its emissions peak in 2025, after which they will be headed downward. This is the result of aggressive policies that it has undertaken to control its emissions, policies that are far more aggressive than anything we have put in place here.
The Chinese government apparently has far more concern for the future of the planet than its critics in the United States. If we did want an opportunity to put our money where our mouth is, the United States could adopt a policy of making all the technology that it develops fully open-source, so that everyone in the world could take advantage of it, without concerns about patent monopolies or other protections.
That would help to speed the process of diffusion so that clean technologies could be adopted more quickly around the world. But doing this could actually mean money out of the pocket of intellectual-types here. For that reason, don’t expect to see any discussion of open-sourcing clean technologies in any reputable publication here. Hurting poor people in the developing world might be a fair topic for debate, not taking away money from relatively affluent people here.
Saturday, July 22, 2023
Enlighten Radio Podcasts: Labor Beat Radio: Is it Time for Single Payer?
Thursday, July 20, 2023
notes on the Working Class 1913 - 2002
Size of wc and prop of society 1913 and now
- 1910 total workforce -- 51 million in 1900 census
38,000,000 men13 million women51 million workers1913 total population 97,225,000
- 2020 population 331,4 million
2020 workforce 149.8 million
Comprehensive data by industry do not exist for 1915, but we have information for 1910 from the decennial census. Data from the 1910 Census show that 32 percent of nonfarm jobs were in manufacturing; in 2015, manufacturing accounted for less than 9 percent of total nonfarm employment. The number of people employed in manufacturing was 8 million in 1910 and 12 million in 2015. While employment in manufacturing grew over the past 100 years, employment in other industries grew more.
Transportation and public utilities also declined in percentage terms over the last century, from 13 percent in 1910 to 4 percent in 2015. The number of people employed in transportation and public utilities was 3 million in 1910 and 6 million in 2015.
From 1910 to 2015, employment in mining and the percentage of total employment in mining both decreased. In 1910 there were 1 million people employed in mining, accounting for 4 percent of nonfarm employment; in 2015, the number employed was 25 percent lower than in 1910 and less than 1 percent of total 2015 employment.
Domestic service, such as maids and cooks in private households, accounted for about 9 percent of nonfarm employment in 1915; comparable data for recent years are not available.
Employment in wholesale and retail trade, including eating and drinking places, increased from 3 million (or 13 percent of nonfarm employment) in 1910 to 33 million (23 percent) in 2015.
Far fewer people worked in professional services in 1910. Today’s economy includes professional services related to computers and electronics that didn’t exist a century ago. Fewer than 1 million workers were employed in professional services, accounting for 3 percent of nonfarm employment in 1910. In 2015, 41 million people were employed in professional services, 29 percent of the nonfarm total.
- Over the course of the 20th century, the composition of the labor force shifted from industries dominated by primaryproduction occupations, such as farmers and foresters, to those dominated by professional, technical, and service workers.
- At the turn of the century, about 38 percent of the labor force worked on farms. By the end of the century, that figure was less than 3 percent.
- Likewise, the percent who worked in goods-producing industries, such as mining, manufacturing, andconstruction, decreased from 31 to 19 percent of the workforce.
- Service industries were the growth sector during the 20thcentury, jumping from 31 percent3 of all workers in 1900 to 78 percent4 in 1999.
Include sharecroppers
Sharecropping continued to be a significant institution in many states for decades following the Civil War. By the early 1930s, there were 5.5 million white tenant farmers, sharecroppers, and mixed cropping/laborers in the United States; and 3 million Blacks.
Gdp 1913 to now
Labor movement size relative to wealth distribution over century
Voting rights for labor no data found, except rise in immigrant and informal work, and incarceration has had negative impact.
Bea lumpkin -- shorter work week