The Fox Butterfield Report

Here’s another one:

WASHINGTON — U.S. consumer sentiment slipped this month but remains at healthy levels, the University of Michigan said Friday.

Michigan’s index of consumer sentiment fell to 93.1 in July from 96.1 the previous month.

Richard Curtin, chief economist for the survey, blamed the drop on the “disappointing pace of economic growth.”

Let’s see. Wages grow at the slowest rate since Reagan was president. Consumer sentiment declines. Could these things possibly be related?

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Your Economics Quiz

Snap quiz. When the supply of labor goes down to the demand for labor, all other things being equal do you expect the price of labor to increase, decrease, or remain the same?

Okay now read this:

U.S. labor costs in the second quarter recorded their smallest increase in 33 years amid tepid gains in the private sector, but it likely was a temporary setback against the backdrop of diminishing labor market slack.

The unexpectedly smaller rise reported by the Labor Department on Friday will probably not dampen speculation that the Federal Reserve is set to raise interest rates later this year. The U.S. labor market is fast approaching full employment.

The Employment Cost Index, the broadest measure of labor costs, edged up 0.2 percent, the Labor Department said. That was the smallest gain since the series started in the second quarter of 1982 and followed a 0.7 percent rise in the first quarter.

“This data has periodically proved to be very lumpy and the sharp deceleration is inconsistent with other measures of wage inflation that are trending higher, not falling off a cliff,” said Eric Green, chief economist at TD Securities in New York.

Economists polled by Reuters had forecast the employment cost index, which is widely viewed by policymakers and economists as one of the better measures of labor market slack, rising 0.6 percent in the second quarter.

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Don’t Worry—Be Happy!

That’s Drew Altman’s message about the increase in the rate of increase in healthcare costs:

Rather like a broken record, I have been warning for years that historically low rates of increase in health-care spending would not last. Now it’s time for a different warning: The higher rates of growth now expected are moderate and should be seen in context. Media outlets–especially headline writers–should take care not to dramatize them.

The chart above shows why. Whatever the wishful thinking, the slowed rates of 2008 to 2013 did not represent a watershed period when we had some secret formula for controlling growth in health spending; they were an aberration. Spending grew by an average annual per capita rate of 3.1% during that period, compared with much higher rates in the past and a projected 4.9% average growth rate for 2014 to 2024. But the projected 2014-24 growth rate is moderate by historical standards, and a bounce back to the higher growth rates of the past is unlikely given the many changes in the marketplace and in public programs aimed at restraining costs and producing greater value per health-care dollar. The increases in premiums that employers and most Americans pay for group coverage are likely to remain moderate for the immediate future.

The “moderate increases” he’s talking about are between three and four times the rate of increase in costs in the rest of the economy and three to four times the rate of increase in wages outside the healthcare sector.

At the risk of becoming a broken record myself, healthcare’s privileged position in being as highly subsidized as it is (to the tune of something between 50% and 75% of all healthcare spending coming from government in one way or another) makes it something of a sure thing. That siphons away investment that might go to sectors that employ more people per dollar income and might actually raise wages for the 90% of Americans who aren’t seeing much in the wage of wage increases. Its high degree of subsidization creates a built-in thirst for ever higher taxes, something that also threatens economic activity.

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Up, Up, Up and Away!

Remember those decreases in the rate of increase in healthcare spending? Looks like those have come to an end:

After several years of historically low, sub-4 percent growth, national health spending is now expected to rise at 5.5 percent in 2014—the highest its been since 2007—actuaries at the federal government’s Centers for Medicare and Medicaid Services (CMS) reported yesterday. The report further projects that growth will increase slightly, on average, over the next decade, to 5.8 percent. The authors write that the latest growth estimate “primarily reflects” the effects of the health law’s major coverage expansions, as well as renewed economic growth and an aging population. Of these factors, Obamacare is the most significant, at least for the moment. The accelerated growth in 2014, the authors write, was “mostly driven by health insurance coverage expansions under the ACA, as 8.4 million Americans are anticipated to have gained insurance coverage primarily through Medicaid or the new health insurance Marketplaces.”

Whether the slowing rate of increase has always been hotly contended. Fans of the PPACA have been quick to credit the slowing to the law, however tenuous the relationship might be. Offhand I’m guessing they won’t be as quick to accept responsibility for a return to more rapidly rising costs.

My position remains as it has been for decades: healthcare costs rising faster than the non-healthcare rate of inflation is harmful to the economy and unsustainable. The healthcare reform we need is, as it has been, reform that will bring the rate of increase to an affordable pace. Getting more people to carry insurance does not appear, as some of the proponents claims, to reduce that rate of itself. A lot more work will be needed but as long as the PPACA sucks all the air out of the healthcare reform room we’re unlikely to see much movement in the right direction.

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Taking Aim at the TPP

WikiLeaks has made a new dump of secret documents:

TOKYO — The WikiLeaks website published documents Friday that it says show the U.S. government spied on Japanese officials and companies.

The documents include what appear to be five U.S. National Security Agency reports, four of which are marked top-secret, that provide intelligence on Japanese positions on international trade and climate change. They date from 2007 to 2009.

A notation on one of the top-secret reports on climate change before the 2008 G-8 summit is marked for sharing with Australia, Canada, Great Britain and New Zealand, according to WikiLeaks. It’s not clear if it was actually shared.

The organization also posted what it says is an NSA list of 35 Japanese targets for telephone intercepts including the Japanese Cabinet office, Bank of Japan officials, Finance and Trade Ministry numbers, the natural gas division at Mitsubishi, and the petroleum division at Mitsui.

It appears to me that the organization’s target in these leaks is Japanese public opinion with an eye to sabotaging the Trans-Pacific Partnership negotiations.

The TPP negotiations are coming down to the short strokes and, as is usual in negotiations of this sort, the issues left until last are frequently the thorniest. As I’ve mentioned before we already have free trade agreements with most of the substantial economies in the negotiations—except Japan.

I’ll be interested in seeing how these leaks play in Japan. Things are increasingly tense in Japan these days. The economy has become wobbly again and the tensions between Japan and China are rising.

I’d still like to know what we will actually get from Japan in the TPP agreements. I’m not opposed to them but I am skeptical. A majority of Americans support the TPP, at least in principle, while most Japanese share my skepticism. I doubt that the new leaks will help.

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No Growth

The editors of the Wall Street Journal point out the dog in the manger in the BEA’s latest report on U. S. GDP—we have entered a period of slow or no growth:

The news, which most Americans have long felt in slow-growing wages, is that the worst expansion in 70 years has been even weaker than we thought.

The gnomes at the Bureau of Economic Analysis ran the numbers based on new data and analytical methods and downgraded the recovery since 2011 nearly across the board. From 2011 through 2014, the economy grew at a paltry annual rate of 2%, down from the previous estimate of 2.3%. This means the overall U.S. economy is smaller—with GDP slashed by $105 billion in 2013 and $71 billion in 2014 to $17.35 trillion.

Those numbers are abstractions, but another way to put it is that national income, corporate profits and personal income were all revised down. From 2011 through 2014, the average annual growth of real disposable personal income was slashed to 1.5% from 1.8%. That’s a giant cut in the standard of living.

They also have their preferred strategies for increasing growth:

Freeze and roll back stifling regulation. Reform the tax code to unleash investment and raise wages. Modernize America’s creaky 20th-century public institutions, including health care, and K-12 and higher education. Welcome the world’s most talented immigrants to our shores. And restore monetary policy to its appropriate job of maintaining price stability.

They point out something worthwhile. Nearly 50% of the present economy and most of the growth is in just three sectors: finance, healthcare, and education. That’s a good part of our problem. All three are heavily subsidized which in turn means that their growth has a demand for ever-greater subsidies “baked in”. They also don’t employ 50% of workers which means that they’re engines for income inequality.

Additionally, a grave problem is that neither political party has any coherent plan for fostering growth. But they have fantasies aplenty.

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Remarkable Forebearance

In my opinion the judge hearing the case over the release of Sec. Clinton’s emails:

A source familiar with what was produced told POLITICO the bulk of what was turned over were news clips forwarded to staff from an outside vendor, which ran between 125 and 150 pages worth of stories each day. The source said those went to both Reines’ official and personal email accounts, leading to boxes upon boxes.

During Leon’s court hearing — part of an ongoing lawsuit filed by the AP that charges the agency with failing to respond to FOIA requests — the State Department often underscored that it does not have a complete record yet of Clinton’s top staff.

During the hearing, Leon grilled the department for failing to respond to the news wire’s requests, vowing to issue a court order to force it to hand over documents more quickly.

The AP had requested documents relating to Abedin’s quasi-government employment status that allowed her to advise Clinton but also work in the private sector. It also asked for Clinton’s schedules, appointments and call logs, among other items.

Leon, a George W. Bush appointee, said he couldn’t understand why State couldn’t simply hand over nearly 5,000 pages of documents relating to Clinton’s schedule.

Hackett explained that although he has 60 full-time staffers working FOIA requests, they handle only paperwork. The actual reviews of emails and memos by which they are approved for public release, are done by a mere 40 former Foreign Services officers — all of whom work part-time.

The judge was flabbergasted: “Is Congress aware that people who do all [State] FOIA requests are part-timers?”

When Hackett suggested the system works well enough, the judge said that’s a “matter of perception.”

is exhibiting remarkable forebearance. If I were in his shoes, I’d already have thrown John Hackett in the clink for contempt with the clear understanding that he’d stay there until all of the documents requested were in hand and that his successor would become his cellmate in a week if the task had not already been accomplished.

It’s like the old story of the mule who could tap dance. A Missouri farmer once claimed he had a mule who could tap dance. A talent scout came all the way to see the remarkable site. The farmer said to the mule, “Dance, mule!”. Nothing. The mule just stood there, chewing his cud. “Dance, mule!” Nothing. The exasperated farmer grabbed a two-by-four and whapped the mule in the middle of his forehead with it as hard as he could and, sure enough, the mule began to tap dance. The talent scout was astonished. “But what’s with the two-by-four?”, he asked? “Wal, first I had to git his attention”, the farmer replied.

Of course, I’ve never been known for a judicial temperament.

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It’s a Small World After All

My own personal idea of Hell is to be trapped on the Disney ride featuring the earworm of this post’s title for eternity. I came very close to experiencing that firsthand, something I may have mentioned in an earlier post. Howsomever, when I read Robert Samuelson’s most recent column I was predisposed to dislike it practically from its first sentence:

To understand the economy, you have to resort to psychology. Throughout the recovery, forecasters — including those at the Federal Reserve and the International Monetary Fund — have repeatedly overestimated the economy’s strength. They’ve predicted faster economic growth than has occurred.

While I agree with Mr. Samuelson that economics is a social science in which psychology plays an important role, unlike physics or chemistry, I don’t think you can explain the underperformance of the U. S. economy solely on the basis of malaise, as he seems to want to do.

The balance of his column consists largely of citing opinion polls citing the opinions of people around the world about their domestic policy. Oddly, Mr. Samuelson alludes to the variation, i.e. that local differences affect local opinions of the economy, but refuses to run with it. Riddle me this: if a declining U. S. public opinion of the economy explains the U. S. economy, how does a rising Chinese opinion of the Chinese economy explain the slowing growth of the Chinese economy? Or the collapse of the Chinese stock market since the start of the year?

Let me propose an alternative explanation for the failure of predictions. The worthies he cites as failing to predict the slower growth we’ve actually experienced because they’re strongly predisposed to believe certain standard models of the economy and those models have lost their predictive power, largely on the basis of globalization.

I’m skeptical that anyone can predict the behavior of the U. S. economy at all but even more skeptical that you can even get the directionality right without taking into account the economies of China, Japan, Germany, the UK, Brazil, and Australia (just to name a few major players).

Does anyone know of scholarship attempting to model the global economy? I know of good models of the U. S. economy but I haven’t checked back with them lately to see how well they’ve been doing, prediction-wise.

I also feel impelled to point out that the tools to regulate the world economy are completely lacking. We’ve adopted a global economy which will remain regulated at the local level to the extent it’s regulated at all. My prediction is hold on to your hats, we’re in for a bumpy ride.

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Brokedown Engine

I have severely mixed feelings about Clive Crooks’s latest column at Bloomberg, at its core elaborate apologetics for two decades (at least) of bad policy. After redefining the problem several times he arrives at the conclusion that maybe wages haven’t lagged productivity that much after all:

For decades after 1970 — contrary to one popular account — labor incomes grew roughly in line with productivity. Over the long haul, far from being irrelevant to well-being, growth in productivity goes far to deciding how poor or prosperous ordinary Americans will be.

However, at the end of his analysis there’s still a gap of about 10% between the increase in productivity and wages.

I think that one of the explanations behind what’s happened over the last 30 years or so is the enormous growth of the financial, healthcare, and education sectors, all of which have had great run-ups in wages, none of which employ a vast number of Americans, and none of which, arguably, have seen much in the way of increases in productivity. Certainly nothing commensurate with the degree to which the increase in wages in those sector have outstripped wage growth in other sectors of the economy.

I guess I shouldn’t be too concerned. Quietly and surreptitiously all of those sectors are or will be disrupted. I won’t be surprised if the 21st century equivalent of manning the barricades isn’t fighting against the holding action defending obsolete business models.

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Nostalgia Economics

Please, please tell me that we’re not going to need to sit through another fifteen months of political candidates giving their visions for the future which, oddly, to me look mired in the past.

The Republicans are pretty clearly stuck in the 1980s. To all appearances they only know one song: tax cuts. IMO the argument for tax cuts at the federal level was much stronger in 1980 than it is today. That there isn’t a national consensus in favor of tax reform is a scandal and an outrage but I’m afraid that whatever shape reform takes and all of the dust has settled there won’t be much in the way of a tax cut. The federal government just has too many obligations, those are going to remain obligations regardless of which party holds the Congress and the White House, and, given the consensus over the kind of budgeting we do, that means that not only a certain amount of revenue but an increasing amount of revenue is required. Protestations to the contrary notwithstanding no Republican president has ever submitted a budget calling for the abolition of any federal department. Although there are differing priorities between the two parties over how to spend money, a dramatic decrease in the size of the federal government just isn’t in the cards.

Democrats should take no solace in their own politicians. You can’t listen to Hillary Clinton’s views on the economy without realizing that she’s hopelessly mired in the 1950s when the Fordist compromise, the grand agreement among Big Government, Big Business, and Big Labor, was at its peak. Big Business is now global and Big Labor is now irrelevant in the private sector.

I do have one question for Sec. Clinton about her recent profit-sharing proposal. If it’s such a good idea, why haven’t the trade unions representing the workers at large, publicly-held companies been clamoring for a greater equity stake in the companies they’re working for? Why don’t they hold significant chunks of their pension funds in the form of the stock in those companies?

The economic conditions of today aren’t those of 1980 or 1950 (or, pace Bernie Sanders, the 1930s). The challenges we face today are those of globalization, disruption, and the vast proportion economy in finance, healthcare, and education, none of which employ enough people to propel either a Fordist or a Reaganite recovery in the economy.

Are the present and future so bleak that they can only stand talking about the past?

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