Kevin Drum

The Economy and the Auto Industry

| Thu Aug. 25, 2011 1:09 PM EDT

In the LA Times today, Jerry Hirsch digs into the Commerce Department's report that orders for autos and auto parts rose 11.5% in July, the most in eight years:

After a massive restructuring and several high-profile bankruptcies, a leaner, more aggressive auto industry is making a comeback, hiring workers and ramping up manufacturing plants. From a trough two years ago, Ford Motor Co., General Motors Co., Chrysler Group and other auto companies have added almost 90,000 manufacturing jobs, a 14% increase, according to federal employment data.

....Dealers are having a banner year, making more money per sale than they have in years and hiring back some workers shed during the recession. "I have been adding dozens of employees for sales and sales support," said Mike Bowsher, who owns Chevrolet and Buick dealerships in Atlanta; Nashville, Tenn.; and Orlando, Fla. "The economy is crazy, but our retail business is still growing and getting better."

....Auto sales peaked at about 17 million in 2000 and held near that level until 2007 before crashing to just 10.4 million two years later. They were heading back into the 13-million range — helped by a wave of new models, low interest rates and improving consumer confidence — only to be upended by the Japanese earthquake in March...."If you see a 13-million-unit sales rate in the fourth quarter, that would help a lot," said Shulman, senior economist at the UCLA Anderson Forecast. "It would be very hard to see how the U.S. would go into recession with cars selling at that rate."

Some of the immediate rebound is due to pent-up demand following the Japanese tsunami, but in general it seems like a fairly durable response to an aging auto fleet. And it's benefiting American employment due in large part to the Obama administration's surprisingly agile rescue of GM and Chrysler. Taken as a whole, it probably saved upwards of a million jobs economy-wide. You can throw this into the mix with Medicare cost control and higher CAFE standards for cars and light trucks as things that Obama doesn't get enough credit for.

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Peak Earnings

| Thu Aug. 25, 2011 11:54 AM EDT

Stuart Staniford directed me today to a report from the Georgetown University Center on Education and the Workforce about the distribution of earnings throughout the workforce (here). It's got lots of interesting stuff, including basic data about the value of education. On average, workers with a college degree earn 74% more over their lifetimes than workers with only a high school diploma. And workers with a high school diploma earn 34% more than high school dropouts.

But for some reason, the chart below drew my eye. It shows the trajectory of earnings from age 25 through 65, and most people hit their peak earning power around age 45. But there are two big outliers at the very top and very bottom. The earnings of those with professional degrees rise very steeply and max out at age 37, after which they go nowhere. Conversely, although high school dropouts don't make much, their earnings rise steadily for quite a long time, not peaking until about age 53. Also: people with Associate's degrees have an oddly delayed peak until about age 50.

This is, needless to say, one of the least important pieces of information in the report, but it seemed sort of interesting to me. Discussion?

Public Debt and the Great Meltdown

| Thu Aug. 25, 2011 10:23 AM EDT

According to Paul Krugman, Germany's finance minister, Wolfgang Schäuble, gave a speech today in which he said:

It’s actually undisputed among economists worldwide that one of the main causes – if not the main cause – of the turbulence – not just now, but already in 2008 – was excessive public debt everywhere in the world.

Say what? Krugman points out that he and Brad DeLong and Christina Romer, among others, dispute this, but I'd go much, much further. Two years ago I jotted down a list of all the common explanations for the financial meltdown that were then making the rounds, and out of 18 items there wasn't a single one related to public debt. That doesn't mean that literally no one was talking about this, but it does mean that it was uncommon enough that I hadn't heard it. That makes it pretty uncommon.

Now, since then, there's no question that Ken Rogoff and Carmen Reinhart have popularized the notion that public debt is bad news for economic recovery. But as far as I know, even they don't suggest that it was the cause of the 2008 collapse. So what is Schäuble talking about? Well, Ambrose Evans-Pritchard reports on things that a few other Germans are saying today:

German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds. In a cannon shot across Europe’s bows, he warned that Germany is reaching bailout exhaustion and cannot allow its own democracy to be undermined by EU mayhem.

....The blistering attack follows equally harsh words by the Bundesbank in its monthly report. The bank slammed the ECB’s bond purchases and also warned that the EU’s broader bail-out machinery violates EU treaties and lacks “democratic legitimacy”.

....Chancellor Angela Merkel has struggled all this week to placate angry critics of her bailout policies within the Christian Democrat (CDU) party. Labour minister Ursula von der Leyen said countries that need rescues should be forced to put up their “gold reserves and industrial assets” as collateral, a sign that rising figures within the CDU are staking out eurosceptic positions as popular fury mounts.

....Mr Wulff said Germany’s public debt has reached 83pc of GDP and asked who will “rescue the rescuers?” as the dominoes keep falling. “We Germans mustn’t allow an inflated sense of the strength of the rescuers to take hold,” he said.

So: Germany is (understandably) unhappy about having to bail out the PIIGS and equally unhappy that this rescue will probably require them to substantially increase their own public debt. Politically, this means they need to badmouth public debt, so that's what they're doing. Schäuble is just taking a bit more dramatic license about it than the others. That will probably earn him points both at home and with the GOP's deficit hawks here in America, but it doesn't make him right. Debt was indeed a major cause of the 2008 financial collapse, but not the public variety. The private financial sector managed it all on its own.

Shooting Yourself in the Foot as Political Strategy

| Thu Aug. 25, 2011 9:23 AM EDT

Starbucks CEO Howard Schultz has gotten a lot of press for his campaign to get CEOs to halt all political contributions until politicians in Washington, DC, stop their insane bickering. Except it's not really bickering that he and his fellow corporate titans are upset about:

More than 100 business leaders have signed onto Starbucks CEO Howard Schultz’s pledge to stop making donations to incumbents until Washington gridlock eases, sending a message to lawmakers that they must make real progress in reining in deficit spending.

…In all, more than 100 business leaders have agreed to the pledge, which not only has leaders agreeing to stop campaign contributions until lawmakers “strike a bipartisan, balanced long-term debt deal that addresses both entitlements and revenues,” but also has the leaders agree to find ways to accelerate job growth in their companies and the economy as a whole.

I'm not sure that spending their personal fortunes on mansion upgrades instead of political contributions is quite the cri de coeur these guys seem to think it is, but whatever. As a PR device—and what is politics besides PR?—it seems to be getting some attention. So more power to them.

As usual, though, I'm sort of flummoxed by the substantive thinking on display here. I mean, I assume these guys are all bright and politically aware. Which means they must know perfectly well that one party in Washington is already willing, however grudgingly, to cut a debt deal that addresses both entitlements and revenues. In fact, the leader of this party has spent the last several months leading his own PR campaign to sell precisely this "balanced approach."

And then there's the other political party in Washington. This one relentlessly mocks the "balanced approach" as yet another big government giveaway. Its presidential candidates unanimously agree that they'd oppose a deal that includes $10 in real spending cuts for every $1 in increased revenue. Its leader in the House walked away from several opportunities to strike an ambitious deal based on an 85-15 split of cuts vs. revenue increases. Its leader in the Senate declared himself delighted with the debt ceiling debacle, saying his party learned it's "a hostage that's worth ransoming." And the rest of its congressional leaders have all sworn blood oaths not to compromise on their pledge to never ever raise taxes under any circumstances.

This description of recent events isn't really controversial or especially inflected by partisan hackery on my part. Everyone knows this is how the deal went down earlier this month. Republicans are pretty proud of it, in fact. So in exactly what way are Schultz and his fellow boycotters seeking a "bipartisan" agreement? They aren't. What they really want, if their own words are to be taken seriously, is for the Republican Party to agree to tax hikes as part of any future debt deal.

And for some reason they've decided that Republicans will cave in on this if they announce their intention to withhold all political contributions to both parties this year. Seriously? My guess is that the GOP leadership is laughing its ass off over this. If this kind of strategic thinking is typical of these rock-jawed titans of American industry, it's no wonder our country is in such trouble.

Steve Jobs

| Thu Aug. 25, 2011 12:48 AM EDT

I've never been susceptible to the Steve Jobs reality distortion field. The only time I ever used an Apple product was in the late 80s, when my company bought a bunch of Mac SEs. I hated mine and was delighted when we finally gave up on them.

So my admiration for the guy is completely dispassionate. But genuine nonetheless. He was largely responsible for the Apple II, the Macintosh, the iPod, the iPhone, and the iPad. That's five dazzling, smash hit products in four completely different product areas. Toss in Pixar and it's six huge successes in five areas. I'm honestly not sure that any other businessman/inventor/product designer in the past century has a record quite that brilliant. We're not likely to see his equal anytime soon.

Yet Another Look at Texas

| Wed Aug. 24, 2011 9:09 PM EDT

Hey, it's Texas Miracle time again! The latest analysis comes from Goldman Sachs, which concludes that Texas is indeed a positive outlier when it comes to employment. In the chart on the right, where the gray blob represents the normal range of state employment, Texas is the gold line just above the normal range. That's good news for Texas, but sadly, it's where the good news stops for Rick Perry's claim to economic superstardom. The report concludes that three factors are overwhelmingly responsible for good employment performance over the past three years:

  • Lack of a housing bubble. Texas really does have something to teach us on this score — namely that sensible government regulation of the mortgage market is a pretty good idea — but this is not exactly something Perry is eager to preach about. (And he wasn't responsible for it anyway.)
  • An oil industry. 'Nuff said. Lucky is lucky.
  • Lots of high-end services and technology. Actually, I suspect Texas has done fairly well on this score over the past decade, but it's still not a leader of the pack. Texas-wise, housing and oil are the big story here.

And what wasn't responsible for strong employment performance? Here's the list:

  • State income tax rates
  • State property tax rates
  • State spending as a share of the economy

Goldman analyst Zach Pandl's conclusion:

For the national economy we see two main lessons. First, because housing and mortgage credit are central to the weakness around the country, these issues should probably continue to receive attention from policymakers. Second, because the outperformance of a few states is closely related to natural resource exposure it is not easily replicable elsewhere.

Roger that. Fix the housing mess and — well, that's about it, unless we suddenly discover oil in Arizona and Florida. Since that's not likely, how about if we just focus on the housing mess instead?

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Something in the Water at National Review?

| Wed Aug. 24, 2011 4:35 PM EDT

John Derbyshire responds to my post about science yesterday:

I see from that Kevin Drum piece that our own Kevin [Williamson] linked to, that at least one liberal has already sold the pass, or at least half of it, on the heritability of intelligence. (Though Drum, along with the rest of liberaldom, is still clinging for dear life to the dubious Turkheimer paper I had some words for here.) What price, then, those grand liberal plans to Fix The Schools, Kevin (Drum)?

These National Review guys sure are weird. I'm pretty sure that none of them read me regularly — and there's no reason they should — but first Williamson and now Derbyshire seem awfully sure that they know all about me anyway. What's the deal with that? Liberal I may be, but I've been writing about the genetic basis of cognitive traits for years and have been a skeptic of school reform plans nearly as long.1 They can disagree with me all they want, but if they're going to do any more than that they should at least have the courtesy of figuring out what I actually think about stuff.

1Though I am a fan of intensive early interventions.

Helping the Environment by Cutting Spending

| Wed Aug. 24, 2011 3:22 PM EDT

Michael Grunwald commends to our attention the latest release of the Green Scissors report on "wasteful and environmentally harmful spending":

[The report] is practically a laundry list of my governmental pet peeves. The groups share my contempt for corn ethanol, “the granddaddy of wasteful alternative fuels,” as well as farm subsidies in general and a particularly egregious giveaway to Brazilian cotton farmers in particular. They also tee off on my favorite bureaucratic target, the Army Corps of Engineers, singling out my favorite Corps flood-control boondoggle, my favorite Corps lock expansion boondoggle, and an equally egregious Corps boondoggle that I don’t even joke about, because it’s wasting more than a billion dollars just a stone’s throw from the flimsy Corps levees that failed during Hurricane Katrina.

We’re also on the same page when it comes to the nuclear industry’s cradle-to-grave government support, as well as those ridiculous rural airport subsidies that Congressman John Mica took hostage during a recent standoff with Senate Democrats over FAA funding. Unfortunately, the hostages didn’t get shot this time.

Green Scissors is an amalgam of liberal, conservative, and good-government groups, and you won't likely agree with every one of their recommendations. But after skimming through the report I found a lot to like. They claim to have found $380 billion in wasteful spending over five years, and even if only half of their recommendations are worthwhile that still amounts to nearly $40 billion per year. The entire report is here. The table below shows just their targeted cuts in fossil fuel subsidies. They've also got sections for nuclear energy, alternative energy, agriculture, transportation, and land management. Bon appetit.

Putting a Stake Through the Retirement Age Zombie

| Wed Aug. 24, 2011 1:28 PM EDT

A few days ago I wrote about the perennial popularity of raising the retirement age for Social Security and Medicare. It's a bad idea that doesn't save very much money, is savagely unfair to the poor, and in the case of Medicare, does nothing to rein in cost growth, which is our biggest problem. But it's an easy sound bite, so it sticks around forever even though there are loads of better ways of addressing entitlement spending.

Here's a nice little chart from CBPP (based on data from the Kaiser Family Foundation) that illustrates this for Medicare. Here's what it shows:

  • If the Medicare eligibility age were raised to 67, it would produce net savings of $5.7 billion. That's a whopping 1% of total Medicare spending. The reason the number is so low is that a lot of 65-66 year-olds would end up on Medicaid or in Obamacare's subsidized healthcare exchanges. The feds pay either way.
  • But wait! Although the federal government would save a bit of money, employers would end up spending $4.5 billion more and seniors themselves would spend $3.7 billion more.
  • In the end, the federal government would end up with only tiny savings, and those savings would be more than made up by higher spending elsewhere. The net effect on the healthcare system as a whole would be an increase of $5.7 billion, not a decrease.

This is just a bad, bad, zombie idea. It might be worth arguing over the methodology here if the numbers were big enough to matter, but they aren't. Even in the best case, raising the Medicare eligibility age would have an insignificant effect on the federal budget.

The more time we spend on this, the less time we're spending on ideas that might actually accomplish something. It's time to move on.

Check Your Blood Pressure!

| Wed Aug. 24, 2011 12:51 PM EDT

Via Atrios, I see that doctors in Britain want to change the way they measure blood pressure:

More than a quarter of patients may have been misdiagnosed for high blood pressure, a finding that will see the way doctors identify hypertension changed for the first time in more than a century....Currently patients have a number of appointments to have their blood pressure checked, and it is estimated that 25% suffer from "white-coat hypertension" — a syndrome in which people show elevated blood pressure in a surgery or hospital but nowhere else.

....Although there is no debate over the existence of white coat syndrome, some researchers argue that even mild exercise can influence readings and patients should be at home when an assessment is made.

I can vouch for both of these. I have mild hypertension,1 but it turns into severe hypertension whenever I'm in a doctor's office: my blood pressure routinely registers 20 points higher there than anywhere else. The effect is so reliable that I don't even react anymore when attendants record my blood pressure before a visit and produce their usual startling results. Likewise, I discovered years ago that if I walked up to the local drugstore, my blood pressure registered 10-15 points lower on their machine compared to readings after driving over.

The British answer, apparently, is to make people wear a blood pressure monitoring system for a full day. My answer is to own a blood pressure monitor that's been checked and calibrated by my doctor. This works great and it only cost 50 bucks. But it only works great if you actually use it, and I guess that's a common problem. Perhaps 24-hour blood pressure boxes are in all our futures.

1Nicely controlled at the moment, thanks for asking.