Catching up on links

December 12th, 2017 at 9:24 am

A number of pieces you might want to check out:

–I use the Illinois gubernatorial election, dominated by candidates with $ to burn, to raise concerns about money in politics: are these elections or auctions?

–The Trump admin is stealthily taking down the guardrails intended to regulate against the shampoo economy: bubble, bust, repeat. Over at the NYT.

–Riffing off of last weeks employment report, which showed solid job growth but weak wage growth, I use a simple model to show nominal wage growth should be faster given our low unemployment rate.

Source: BLS, my analysis

In my brevity re the above post, I left out a key factor right now that’s partially holding back nominal wage growth: slow productivity growth. That shaves about half-a-percent off the forecast, but it doesn’t fully explain the gap. On the other hand, in a more detailed model, Fed Chair Yellen finds slow productivity growth largely offsets diminished slack.

Measurement aside, the point is that slow productivity growth is a clear drag on wage growth. In that regard, if the recent acceleration in productivity growth should hold–it’s way too soon to tell–that should bump up wage growth. However, as I’ve argued forever, in our age of inequality, what helps at the average doesn’t fully pass through to the median.

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15 comments in reply to "Catching up on links"

  1. elkern says:

    Thanks for the Wa-Po piece; you’re good, which is why I check your blog daily. (wry grin, ’cause you’re famous and I’m not).

    Via Biss, you compare Elections to Auctions, and rightly so. I’m curious if the rise in election expenditures parallels the leaps in Art Auction prices and the prices in other sectors where the 1% spends their money.

    You have presumably noted that the QE stimulus went has not shown up as runaway inflation in general. My theory – not mine alone, duh – is that (almost) all that money went into the top sector of the economy, which is not strongly connected to the larger economy. Prices for bread, milk, and the other stuff us regular folks buy haven’t gone up that much since 2008 because we don’t have more money to pay for it. Prices for Art, Polo Ponies, Polo Pony Therapy (h/t to Dr. J, see Wa-Po), Stocks, T-Bills, Real Estate, and the other places where the rich store/spend their money have increased dramatically.

    So it makes sense that elections are now viewed as investments. Ouch…

    The Gini is out of the bottle. We’re screwed.

  2. elkern says:

    And another thing, regarding working-class people running for office…

    Long ago, in a galaxy far away, I ran for State Rep. At some point, I realized that I couldn’t afford to win: the job paid about $24K /yr, and the weird hours would have forced me to quit my day job. A little research revealed that most of the State Reps were…
    – Lawyers
    – Restaurant owners
    – Union Reps
    – Real Estate agents
    …or other people with flexible hours.

    And for most people these days – whether paid Hourly or Salary – “flexible hours” means being available when the Company wants you, not when you want to be. (yeah, OK, “Gig Economy”, blah blah blah, that might work for kids who don’t have kids yet).

    Now the “wage” (and benefits!) for US House of Rep would be a nice raise for me; but who gets elected to Federal office without years of experience at the Local and State level? Oh, yeah, people who fund their own campaign…

    And also, Legislator/Politician really is job class that requires an unusual set of skills, knowledge, and experience. Few hourly jobs would help someone develop those skills, and few working people have the spare time & resources to develop them on their own.

    Bottom line: expecting working-class people to fix our political mess is a silly fantasy.

  3. Smith says:

    Yellen is wrong on productivity, wrong on slack, wrong on demographics.
    Productivity is probably more the result of growth, and not the cause of growth, both for wages and the economy in general. Sometimes, a few times, this blog has given notice, an awareness, a concern, some due to the dialectic nature, virtuous cycle of growth and productivity. But that is definitely not the case or message expressed in the above post. Just the opposite, woe onto the economy plagued by low productivity, a cause of weak performance, it says. It also makes little sense to highlight recent productivity gains, no matter the caveats given, since the increase to 1.5% is to a still historically low rate, quarterly metrics are consistently inconsistent, volatile, and often changing direction. One would expect more of return to the mean or bounce above, after last year’s under reported historic zero increase.
    Regarding slack offset by productivity, the message from Yellen and this blog is that unemployment is slow, which sharply discounts all the comments previously left that pointed to prime age workforce participation still near a million short of even the unremarkable 2000s, and lower than any time pre recession since 1986. Know who thinks I may have a point? Those brilliant idiots that Yellen admires for in her footnote:
    “See Daly and Hobijn (2017) and Daly, Hobijn, and Pyle (2016), who also point to the retirement of baby boomers as a factor holding down wage growth.”
    They’re brilliant when they agree with me that new entrants like those from prime age workforce return, and suppress wages or measurement of wages. They’re idiots when they cite retiring boomer effect who mathematically could be replaced by workers making zero in wages and have no effect. Again that’s to measure the bump not the whole cohort, the increase over previous year’s retirements.
    Again, nothing about inequality, yet since 2015 national income went up 5% and hourly wages down 1%. That’s 750,000 billion a year, or $75,000 a year to the 1 million 1% who make no less than $450,000. But this blog want’s to talk productivity and wage mystery instead. As if the missing extra 3/4 trillion per year spent by working people isn’t the real answer.

    • Smith says:

      A few typos in there sorry, but also needing clarification, Daly and Hobijn are disparaged for saying boomer retirements suppress wages metrics, period. The slightly run on sentence muddles the source of an opposing view. The part about boomers “who mathematically could be replaced by workers making zero” is offered in stark contrast their opinion. The zero effect is based on numbers. I have yet to see any counter argument that says an extra 30,000 to 60,000 retirements of experienced workers would affect wages.

      • Smith says:

        Yeah more typos, but anyway, the 30,000 to 60,000 is per year, in a 150 million workforce. You multiply 135,000,000 (adjusted for part time workers) x average wages x hours, and then 134,940,000 x average wages x hours, and see the difference. But it’s easier to just multiply 134,940,000/135,000,000 x $20.00 to see the full boomer effect everyone’s talking about. It’s a whole penny. (.05%)

        It’s possible I’ve gone astray, please let me know any mistakes in logic or math.

    • Smith says:

      K, population grew 2% since 2015 so $750 billion should be $450 billion, but still wages dropped 1% so add back half of that and we’re $600 billion going somewhere other than wages, didn’t check hours either. Hours are up nearly 4%. Kicks us back to $300,000 billion a year (but nearly a $1 trillion for the three years cumulatively).

  4. Smith says:

    Here is a link from today where Krugman’s take on the current state of the economy reinforces my argument. He asks “What Happens if the Tax Bill Is a Revenue Disaster?” and answers, not much. Why? Because contrary to Yellen and others, he sees the slack in the economy, and need for greater demand, which won’t be provided efficiently by tax cuts, but unlikely to cause inflation. So aside from slack, he kind of brings inequality into the anti tax cut argument too. Paul Krugman DEC. 12, 2017

    But of course you were reminded of this ten days earlier by me, well schooled by Krugman (from his blog in his more lucid moments) to recognize a consistent argument.
    Krugman does say Republicans will try to cut benefits, but predicts they won’t succeed. See how this works, Democrats have Republicans to cut taxes on the rich for them, Republicans have Democrats to stop them from gutting safety net programs. It’s a nice cozy arrangement they’ve got going.

    Here’s what I said against the argument that tax cuts mean tax hikes instead of the just larger deficits.
    “Also, it’s hypocritical to say the tax cuts must be paid for, but increased social and infrastructure spending that Krugman and Summers advocate to offset sec stag don’t. It’s a $20 trillion economy, so $200 billion deficit adds an extra 1% a year, which at full capacity adds 1% additional inflation. Fortunately due to the weak recover during the Obama years (whosever fault it was) estimates vary from a few percent to ten percent under capacity.”

  5. Fred Dole says:

    Again, it is the Boomer withdrawal. I am sorry Jared, that is putting downward pressure on BLS stats. Period. Never before has the BLS ever had to contend with this cohort makeup. You simply can’t have your analysis without talking about it.

    Intro wage growth is up to 3.2-3 right now. That is fact. The outro’s have become detached from that level due to the amount of cohort going outro. That means full employment is 3% this cycle. It wasn’t until early 1998 and mid-06 that the previous 2 expansion hit full employment and by this time next year, with the U-6 likely falling into the 7-7.5% range, we will see wages firm up on BLS stats. But we can’t get much above 3%. The cohort deleveraging won’t allow it. 10 years from now, when the Gen X is going outro and Millies are hitting peak earning years the intro from say a mild recession in the early 20’s should go back to what it was pre-2007 by the end of the 20’s.

    Jared, you cannot do this analysis without the adjustments. The intro wage is doing well. Not quite peak potential, but improved greatly over 2013.

    • Jared Bernstein says:

      Meh. I suspect there’s something to that but look at the Atlanta wage tracker, prime-age workers.

      It looks like it’s been pretty stuck for the past year. Granted, this series is a tricky bit of work (see notes; I wrote about it on the blog somewhere too).

      • Smith says:

        No the math says there is nothing to that. It’s not tricky to see the difference year to year in retirements for boomers is below 60,000. 149,940,00/150,000,000 = .04 percent. That’s if their replacements get zero in salary. That’s if everyone born in 1961 retired this year at the age of 56. That’s if everyone younger than them stop receiving the same wage increase that every worker older than them ever received.
        There is no logic in claiming a boomer withdrawal based on demographics. We are only concerned with year over year changes. The numbers are too small. The math doesn’t add up. It’s not complicated.

        • Smith says:

          Also, aren’t Daly and Hobijn (2017) and Daly, Hobijn, and Pyle (2016) showing that workers re entering the job market are as expected dragging down average wage rates?

  6. Smith says:

    Links, really great links, from Dean Baker, catch up on this, will you…

    Dean Baker had this to say today about productivity:
    “Ryan Avent had a nice piece in the NYT this morning pushing the argument that Jared Bernstein, Josh Bivens, and I (among others) have been making for years, that higher wages can be a force driving more rapid productivity growth.”

    This is a mischaracterization in many respects.
    Ryan Avent still has the idea that innovation is central to productivity. Higher wages merely provide greater incentive to search for that innovation.
    Jared Bernstein, our hero, tends to argue in a similar manner that higher wages give added incentive.
    Baker himself promotes the same idea at length this morning, of higher wages creating greater costs, which employers then seek to offset with greater productivity.
    Bivens however raises a different point, which is more direct, backed by data, and has a long history. He gives priority to economic growth and greater demand providing the incentive for investment. That is a different idea than cost of labor. He includes increasing cost of labor as a factor contributing to incentive for productivity. But demand plays the central role. He provides lots of data. He doesn’t cite Verdoorn, but the idea is not new.
    I’ve made this point about growth and demand on this blog previously, and given Verdoorn’s Law (from 1949) linking growth and productivity as evidence.
    Here is an excerpt from the wikipedia article on Verdoorn’s work:
    “Verdoorn’s law differs from “the usual hypothesis … that the growth of productivity is mainly to be explained by the progress of knowledge in science and technology”,[5] as it typically is in neoclassical models of growth (e.g. the Solow model). Verdoorn’s law is usually associated with cumulative causation models of growth, in which demand rather than supply determine the pace of accumulation.”

    I bring a slight but obvious nuance to the issue too, saying increasing wages would add to demand and that would drive productivity. That’s a different mechanism than increasing wages creating higher costs. Increased population also adds to growth, and creates incentive for investment.

    Somewhat puzzling is Bivens wondering about (TFP) Total Factor Productivity growth (associated with technology) without mentioning the dramatic fall in R&D, now 1/3 of the 1960s and 1/2 of the 1990s. Part of the explanation could also be that TFP is more sensitive to productivity growth, a sort of threshold exists, its rise is not linear.

    Yet none of this is rocket science, or anything new, why is it buried. Why couldn’t the New York Times run a story on weak demand causing zero productivity for all of 2016, and mention Verdoorn from 1949, or Keynes from the 1930s?

    Links as promised:
    Dean Baker at CEPR
    Ryan Avent at NY Times
    Jared Bernstein at Washington Post
    Josh Bivens at EPI (had not seen previously)
    Smith asks about demand a few days ago
    “How come you buy into higher wages increasing costs motivating productivity to offset costs, but never mention the route of higher wages creating more demand motivating need for productivity to meet supply. Is there data on this?”

    • Smith says:

      Again, the R&D story is huge and vastly under reported, as was the zero productivity growth we notched for 2016. Even if you restored research in basic science immediately, it takes years if not decades to affect productivity, meaning it should not be delayed, and helps explain time lags.

  7. Perplexed says:

    We should stop calling this a democracy until it actually is one; until then it’s just a form of propaganda:

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