Relevant and even prescient commentary on news, politics and the economy.

What’s behind stalled nonsupervisory wage growth?

by New Deal democrat

What’s behind stalled nonsupervisory wage growth?

Wage growth for nonsupervisory workers nominally has been stuck in the +2.3% to +2.5% range (or worse) for three years.  Why?

Over the weekend I was cleaning out some old graphs, and came across this one from the Atlanta Fed, suggesting that the Phillips Curve (the tradeoff between unemployment and inflation) is very much alive, with the tweak that the amount of wage growth follows a decline in the unemployment rate with a one year lag:

The red line is the progression of the Phillips Curve since the beginning of 2011. The dotted line indicates that the Altanta Fed’s model was calling for a significant acceleration of wage growth between the spring of 2016 and spring this year.  [NOTE: all of the discussion in this post is about nominal, not inflation-adjusted wage growth, which has an awful lot to do with the volatility of gas prices.]

Except when we look at wages for nonsupervisory workers, that really hasn’t happened, at least not through February.  The below graph compares the YoY change in the unemployment rate (blue) and YoY wage growth for nonsupervisory workers (red):

As noted above, wage growth has been stuck at between 2.3% YoY and 2.5% YoY with some (mainly negative) exceptions since the end of 2013.

Using the U6 underemployment rate to capture the broader picture doesn’t change the outcome:


So, what’s going on?

Comments (0) | |

Housing, production, and JOLTS all good news

by New Deal democrat

Housing, production, and JOLTS all good news

We’ve had a good run of economic news this week.

First, in the leading housing sector, both of the most important datapoints made new highs.  Single family permits, which are just as leading as permits overall, but much less volatile, made yet another post-recession high.  Further, the three month rolling average of housing starts, which are more volatile and a little less leading, but represent actual economic activity, also made a new post-recession high:


The headline number for industrial production for February was flat, but once again that was due to the seasonally-adjusted big

Comments (9) | |

It Takes “Alternative Math” to Claim That Redistribution Is Futile

Via Economists View (some of the comments are worth review as Deirdre McCloskey comments).  Also see below Peter Dorman’s   Review of Economism: Bad Economics and the Rise of Inequality by James Kwak at Econospeak.

Adam M. Finkel at RegBlog:

It Takes “Alternative Math” to Claim That Redistribution Is Futile: The unequal distribution of costs and benefits across society is one of the hottest topics in the regulatory arena—and one that, regretfully, has sparked fundamentally flawed arguments, threatening to distort and obscure much-needed discussion about redistributive policies. …

Although all policies have redistributive effects, some ideologies are viscerally, even militantly, opposed to government interventions that benefit the poor, whether by intention or even as a side effect of an otherwise sound policy. …

Comments (17) | |

The Battle for Healthcare in the US

In 2026, an estimated 52 million would be uninsured in the US, a dramatic reversal from the 2016 uninsured count of 28/29 million. Pretty much, the Republicans will put healthcare back to the way it was pre-2014 if Paul Ryan’s bill is passed by Congress and Donald signs the bill in its present form.

- By 2018, 14 million could be uninsured with many of the uninsured practicing the tyranny of a minority, as John S. Mill might call it, upon the rest of the insured population as they drop out. Others will simply lose healthcare insurance as states withdraw from the Medicaid expansion and employers drop the coverage they were required to carry as they had 50 or more employees. Many of today’s insured will be unable to afford the increased premiums due to smaller subsidies. The elderly will be faced with smaller subsidies and a higher 5:1 ratio premium, which is up from the present 3:1 under the ACA program.

- Doctors, clinics, and hospitals have seen increased numbers of patients coming through the front door rather than the rear door due to the expansion of Medicaid to 138% FPL and subsidies for healthcare insurance to those under 400% FPL. My own PCP has seen many new patients who have never been to a doctor before except at the ER. With the proposed reversal of the mandate to have healthcare insurance and the dropping of Medicaid, it will fall upon hospitals and doctors to still provide stabilizing care as defined by law to all who arrive at their door. Except this time, the subsidizing payments for care for the uninsured to hospitals and clinics will not be available as it was reduced with the advent of the PPACA. It appears the AHA is not too pleased with Paul Ryan’s AHCA bill either.

- Our new Health and Human Services Secretary Tom Price had this to say; “You’re falling into the same old trap of individuals who are measuring the success of Medicaid by how much money we put into it. We ought not be measuring programs by how much money we put into it, we ought to be measuring them by whether or not they work.” Or take one aspirin and you will be alright in the morning. Interestingly, Republicans are happy with constituents paying a surcharge/mandate for not having healthcare insurance or healthcare. And if they suddenly have to have healthcare insurance, they pay the penalty to private companies rather than use it to fund subsidies. Who would have thought?

- Medicaid currently is not working according to Tom Price and as many as one in three doctors are not accepting Medicaid patients. That part is partially true. In a survey of its membership, the American Academy of Family Physicians discovered 68% of its members accepting new Medicaid patients in 2016. This is the highest level of Medicaid acceptance since 2004. The same argument was made for Medicare in the past. As Health Beat’s Maggie Mahar has said, “if Medicare is the largest business in town, are you going to ignore it or work within its confines?”

- Mr. Price argues on behalf of states claiming the granting of greater flexibility would result in better results and quality. My own observations with Michigan Medicaid when there was no Federal Government expansion disagrees with Tom Price’s claims. Michigan State Senator Joseph Hune said it all in one sentence when he stated; “I am ‘sick to his stomach with the expansion of Medicaid in Michigan.” Even with the expansion, the state legislature delayed the implementation of it to the following year so they could go on Christmas vacation and lost $thousands in Federal aid. This occurred in a state which can not fix its roads and bridges, argues about replacing Flint lead pipes, and wastes money going to 6th District COA and SCOTUS because it does not like rulings conflicting with its absurd beliefs. After all, Hune and his associates have their healthcare for life having been in the legislature for short periods of time; why should 600,000 Michigan residents matter to Hune and his associates.

Pre-Michigan expansion in order for adults to be insured and they had to be working. If they were working they had to be making just so much in order to be eligible. If they were not working, they were ineligible. Michigan and State Senator Joe Hune did their damnest to block people from access to healthcare. If this is Tom Price’s better results and quality, it did not work then and will only make it worse now.

- Joan Aker at Georgetown University Healthcare Policy Institute puts greater state flexibility into perspective:

“So in practical terms what does that mean? States could get new flexibility to limit enrollment. They could gain the ability to limit enrollment directly by imposing enrollment caps or rolling back eligibility; or indirectly by putting up barriers such as imposing work requirements or lockout periods, which reduce enrollment. States could also gain more flexibility in determining what benefits people receive (in the case of children this might mean limits on the child-centered EPSDT benefit) or on how much families have to pay for those services (including premiums, cost-sharing or spend down rules before seniors qualify for long term services and supports). In fact, one piece of this so-called “flexibility” that is included in the repeal bill would allow states to require seniors to spend down even more of their assets before qualifying for long-term care services and supports by placing restrictions on how much equity seniors can have in their homes.” We did this in Michigan already and pre-PPACA.

- The AHCA penalizes the poor and elderly more severely than the ACA did. The ACA has a penalty for not getting healthcare insurance, which is based on the income of the uninsured and is paid yearly at tax time. The AHCA also has a penalty for not getting healthcare insurance. It is based upon the premium you would pay, not income, and each person pays the same penalty regardless on income; however if you are older, the 5:1 ratio will apply to your penalty. As I showed using a Avalere* chart, a 27 year old person making $11,880 annually would be paying $695 at tax time under the ACA and under the AHCA plan $1,006 for a bronze plan.

If the insured was 50 years old and made $11,880 annually, the penalty under the ACA is determined by income and remains the same; however under the AHCA, the penalty under a Bronze plan format jumps to $1,713. This is an ~ $700 difference between a 27 year old and a 50 year old. If it is a Silver plan add ~100 dollars for a 27 year old and ~ $250 for a 50 year old. Whether 27 or 50 and making $11,880 annually; the payment is harsh and is harder to pay the larger it gets.

As I get more information I will pass it on. There is much going on at a rapid pace and it takes a bit to gather it up.

*After leaving the White House Office of Management and Budget in 2000, Dan Mendelson founded what is today Avalere firm and initially named it The Health Strategies Consultancy LLC.

Tags: , Comments (2) | |

Where Should We Put Economic Empiricism on the Hubris-Humility Spectrum?

by Peter Dorman (originally published at Econospeak)

Where Should We Put Economic Empiricism on the Hubris-Humility Spectrum?
A bit of a kerfuffle has broken out over the claim that, as economics gets more empirical, it also gets more reliable. Russ Roberts says that, in the name of empiricism, economists are trotting out contested results to adjudicate questions that are vastly more complicated than their methods can allow for, and that they should acquire a bit more humility instead. Balderdash, says Noah Smith: whatever lack of humility is evinced by researchers who jump the gun in empirical work is swept away by the tsunami of hubris issuing from those who have only vague, unsubstantiated assumptions about how the world “really” works. Cowen rebuts, arguing that motivated, hubristic reasoning can seize on empiricism just as readily as any other academic raw material. Smith retorts, going halfway to meet Cowen, but expressing optimism that empirical methods carry their own antibody against motivated bs and will pull knowledge in a more realistic direction over time.

So what do I say? (I thought you’d never ask.) First, Roberts is simply recycling, for a forgetful age, the now-ancient claim of Hayek regarding the Fatal Conceit. I agree that it is desirable to not be Fatally Conceited, although it is widely recognized, I think, that, as he drew it, Hayek’s circle of unknowability is both too wide (not respecting degrees of evidence) and too narrow (sweeping assumptions about market process). Roberts can challenge me on this if he wants, but I see Fatal Conceit-ism in just about every paragraph of his post.

Comments (3) | |

Should The Complacent Class Be Called The Fearful Class?

by Barkley Rosser  (originally from Econospeak)

Should The Complacent Class Be Called The Fearful Class?

Tyler Cowen has published his most successful book yet, The Complacent Class, now on the Washington Post nonfiction bestseller list and getting reviewed by everybody from The Economist to the New York Times and on.  It is the Book de Jour that all are commenting on one way or another.  Is America declining because so many of its people have become complacent?  (Shame on them.)

The book has much to offer.  It is chock  full of many interesting facts, although many of them Tyler has publicized at one point or another on his blog, Marginal  Revolution.  He even pushes some newly fashionable ideas that have been in the dark for too long, such as a sort of cyclical theory of history.  And he certainly makes the case that there are lots of trends that seem to show the American people not being as energetic or adventurous as they used to be, with headline data including reduced interstate migration, reduced changing of jobs, reduced patenting, and reduced entrepreneurial startups, among other things.  He does note some external matters that may be adding to some of this, with building codes and land use restriction in economically dynamic urban areas a big culprit as it makes it harder for many to take advantage of the high paying jobs in those areas.  He has also noted that we may be running out of new scientific knowledge to learn or discover, which makes it harder to find dramatic things to patent, and indeed he wrote a previous book about this, blaming this as a major reason for secular stagnation.

But the big question is whether the title is an accurate representation of what is in the book, which has come up in a series of inconclusive blogposts about “Who is the Complacent Class?”  Frankly, it is not clear  that there is one, or if there is one, they are not the people who are responsible for the data he puts forth as supposedly claiming there is one.  If there is a complacent class in the US, it is the top 1 or 2 percent of the wealth and income distribution, who get lots of attention, but who are not the people who are not moving across state lines or changing jobs.  That is going on in the other 98 percent mostly.

Tags: Comments (16) | |

The Role of Experts in Public Debate

Jonathan Portes asks, “What’s the role of experts in the public debate?” He assumes it is his prerogative, as an expert, to define that role:

I think we have three really important functions.

First, to explain our basic concepts and most important insights in plain English. Famously, Paul Samuelson, the founder of modern macroeconomics, was asked whether economics told us anything that was true but not obvious.  It took him a couple of years, but eventually he gave an excellent and topical example – simply the theory of comparative advantage.

Similarly, I often say that the most useful thing I did in my 6 years as Chief Economist  at DWP was to explain the lump of labour fallacy – that there isn’t a fixed number of jobs in the economy, and increased immigration or more women working adds to both labour demand and labour supply – to six successive Secretaries of State. So that’s the first.

Second is to call bullshit.

O.K. I call bullshit. What Portes explained “to six successive Secretaries of State” was a figment of the imagination of a late 18th century Lancashire magistrate, a self-styled “friend to the poor” who couldn’t understand why poor people got so upset about having their wages cut or losing their jobs — to the extent they would go around throwing rocks through windows, breaking machines and burning down factories — when it was obvious to him that it was all for the best and in the long run we would all be better off… or else dead.

I call bullshit because what Portes explained to six successive Secretaries of State was simply the return of the repressed — the obverse of “Say’s Law” (which was neither Say’s nor a Law) that “supply creates its own demand,” which John Maynard Keynes demolished in The General Theory of Employment, Interest and Money and that John Kenneth Galbraith subsequently declared “sank without trace” in the wake of Keynes’s demolition of it.

I call bullshit because when Paul Samuelson resurrected the defunct fallacy claim that Portes explained to six successive Secretaries of State, he did so on the condition that governments pursued the sorts of “Keynesian” job-creating policies that the discredited principle of “supply creates its own demand” insisted were both unnecessary and counter-productive.

But the lump of labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy. If proper and sound monetary, fiscal, and pricing policies are being vigorously promulgated, we need not resign ourselves to mass unemployment. And although technological unemployment is not to be shrugged off lightly, its optimal solution lies in offsetting policies that create adequate job opportunities and new skills.

[Incidentally, as Robert Schiller has noted, the promised prevention of mass unemployment by vigorous policy intervention did not imply the preservation of wage levels. Schiller cited the following passage from the Samuelson textbook,  "...a decrease in the demand for a particular kind of labor because of technological shifts in an industry can he adapted to -- lower relative wages and migration of labor and capital will eventually provide new jobs for the displaced workers."]

I call bullshit because what Portes explained to six successive Secretaries of State was not even Paul Samuelson’s policy-animated zombie lump-of-labour fallacy but a supply-side, anti-inflationary retrofit cobbled together by Richard Layard and associates and touted by Tony Blair and Gerhard Schroeder as the Third Way “new supply-side agenda for the left.” Central to that agenda were tax cuts to promote economic growth and “active labour market policies” to foster non-inflationary expansion of employment by making conditions more “flexible” and lower-waged:

Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. …

Encourage employers to offer ‘entry’ jobs to the labour market by lowering the burden of tax and social security contributions on low-paid jobs. …

Adjustment will be the easier, the more labour and product markets are working properly. Barriers to employment in relatively low productivity sectors need to be lowered if employees displaced by the productivity gains that are an inherent feature of structural change are to find jobs elsewhere. The labour market needs a low-wage sector in order to make low-skill jobs available.

I call bullshit because in defending the outcomes of supply-side labour policies, Portes soft-pedaled the stated low-wage objectives of the Third Way agenda. In a London Review of Books review, Portes admitted that “it may drive down wages for the low-skilled, but the effect is small compared to that of other factors (technological change, the national minimum wage and so on).” In the Third Way supply-side agenda, however, a low-wage sector was promoted as a desirable feature — making more low-skill jobs available — not a trivial bug to be brushed aside. In other words, in “driving down wages for the low skilled” the policy was achieving exactly what it was intended to but Portes was “too discreet” to admit that was the stated objectives of the policy.

Comments (4) | |

Trumpcare Saves Social Security By Killing People!

by Barkley Rosser  (originally from Econospeak)

Trumpcare Saves Social Security By Killing People!

Yes, there it is in black and white in Table 3 footnote f on p. 33 of the Congressional Budget Office (CBO) official report on the proposed American Health Care Act, aka Trumpcare. Between now and 2026 spending by the Social Security Administration is projected to decline by $3 billion if Trumpcare passes. This is due to a projected 1 out of 830 people dying who would not under the status quo, this based on a study of what happened to death rates in Massachusetts after Romneycare came in. The projected deaths are about 17,000 in 2018 and up to about 29,000 in 2026.

Another great thing? There will be a reduction in accumulated deficits of about $300 billion, with a reduction of revenues of about $0.9 trillion and a reduction of outlays of about $1.2 trillion. The former will be due to cuts in taxes on high income people while the latter will be due to eliminating subsidies to help poorer people pay for health insurance on the exchanges as well as cutbacks in Medicaid spending for even poorer people. How fortunate can we get?

Barkley Rosser

Comments (21) | |

Measures of underemployment continue to show improvement

by New Deal democrat

Measures of underemployment continue to show improvement

The unemployment rate, at 4.7%, is generally acknowledged to be decent, although not great.  But what of the underemployed?

Typically as an economy expands, the U6 (unemployed + underemployed) rate has declined more than the U3 (unemployed only) rate, as shown on the below graph which subtracts U3 from U6, thus leaving us with just the underemployed:

As the recovery matures, the two move in tandem.  As the economy weakens into a recession, the underemployed tend to feel it fist, as U6 increases more than U3.

So the good news for now is that U6 is still declining more than U3.

Comments (0) | |