Tag: economics

Mailvox: the challenge of reading graphs

Phoenician attempts economics again, hilarity once more ensues:

Brief clue, Dipshit, if your argument is based on a discontinuity –

(” And in fact, the deleterious effects on wages of women entering the work force was largely hidden until 1973, when men finally stopped leaving the work force in numbers sufficient to conceal what was happening.”)
– and the actual data shows no such discontinuity but a fairly smooth and continuing trend instead, then your argument is disproven.

You’re
in the situation of someone who claims that rising icecream sales in
May are caused by the Easter Bunny and, when shown the Easter Bunny
doesn’t actually exists, goes out to prove that more icecream is being
sold than you originally stated.

Yes, that may be true – real
wages may be actually less than you stated before – but your
‘explanation” for that has been shown to be crap.

Because you’re a misogynist little dickhead who can’t let go of your bigotry, Dipshit.

Some readers don’t understand why I often respond directly to Phony and would prefer that I simply ban him from commenting. But he serves a useful purpose, which is to illustrate the way people on the Left often communicate in a dismissive, superior, and insulting tone that is meant to convince people that they know what they are talking about.

It’s related to the way that they are forever claiming that their opponents are stupid without providing any evidence for it, thereby implying that they themselves are much more intelligent. But the fact of the matter, as Phony often demonstrates, their level of knowledge doesn’t even rise to the level of Wikipedia and it is usually quite easy to show that they don’t understand what the evidence they have mustered in a brief Google search actually means.

What Phony was attempting to do here is try to salvage his incorrect position that “if women are producing more value than they get paid for, as seems
reasonable in a capitalist society, then the wages paid will go up”.  This is exactly backward, as it happens, because increased productivity actually reduces wages, as it reduces the amount of labor required to produce the same amount of goods, thereby reducing demand for labor as well as its price.

And in his desperate flailing about to attempt to defend himself by prove both me and the law of supply and demand wrong, he cited this graph from the Federal Reserve while claiming it showed me to be “a liar AND a fool.”  Which is bizarre, since it shows exactly what I described, a continuing plunge in the male labor participation rate from 1950 to the present.

What Phony didn’t understand is that my argument isn’t based on any discontinuity and that to understand the net effect of female employment on wages, it isn’t enough to simply look at the declining male participation rate, however continuous, one has to take into account the increasing female participation rate and the population growth rate as well.  Or, better yet, do what I did back in 2006 and actually do the math rather than simply looking at the pretty pictures.

It’s not enough to note that the lines appear to cross, which they actually don’t. Wages didn’t stagnate from 1950 to 1975 because the number of men leaving the labor force in excess of the growth of the population was roughly equivalent to the number of women entering it. Consider: 45.8 percent of 65+ men worked in 1950. By 1980, only 19 percent did, a number that has remained basically flat ever since. With women, the biggest change was from the 25-34 demographic, as only 34 percent worked in 1950 compared to 65.5 percent in 1980.  In sum, by 1980, 27 million additional women had entered the labor force and the female percentage of the labor force rose from 29.6 percent to 42.5 percent. And don’t forget that inexperienced female workers tend to command considerably less salary than the most experienced male ones; a simple exchange of younger women for older men would tend to reduce wages in itself.

The current female share of the labor force is 46.9 percent. So, it is easy to see that the larger part of the male-to-female labor exchange took place prior to 1980. In fact, we can safely conclude that the crossover point was reached in 1973 because that’s when average wages peaked.  As the first chart indicates, men were still leaving the workforce, and women were still entering it at that time, but combined with the slowdown of economic growth that began in the 70s, the point at which the net wage-depressing effect had become statistically obvious had been reached.  If you look at the actual data, you can see that the crossover point was likely sometime between Q4 1972 and Q2 1973, when men temporarily stopped leaving the labor force for two years even as the pace of women entering it jumped up by two percentage points in a matter of months.

The Phonies of the world can point their finger and call names all they like. But it should be abundantly clear that what they call misogyny and bigotry is simply economic reality. The facts are what they are.  The addition of 55.3 million women to the labor force since 1950 has done exactly what one would expect a 315 percent increase in the supply of female labor to do in driving down its price. Whether one thinks that is a good thing or a bad thing depends upon one’s perspective, but what one cannot reasonably do is to deny that it happened.

UPDATE: Perhaps the graph below will help those who can’t seem to understand anything but pictures. Probably not, but if you still can’t get the concept after seeing this, I have to conclude you’re simply incapable of it. Note that these are based on the actual BLS numbers, adding the male and female participation rates as a percentage of the actual civilian population that year. The magic number with regards to wage rate growth appears to be around 60, as the 59.85 percent in January 1973 marked the very last time the total labor participation rate as a percentage of the civilian non-institutional population was below 60 percent.

It should be fascinating to hear Phoney and others attempt to explain the mysterious inverse correlation between the labor force participation rate and the weekly wages while simultaneously denying the law of supply and demand.

Forbes on falling wages

I always enjoy it when various anklebiters try to Beli-check me by attacking an economics post. Because I don’t make these things up, it’s always easy to cite others who are saying the same thing. In this case, Forbes is pointing out that real falling American wages are actually worse than they appear in dollar terms.

Today’s minimum wage employee works 12 percent longer to earn a gallon of milk compared to 1965, according to the Bureau of Labor Statistics. Today’s senior engineer works almost twice as long to buy a gallon of gasoline, according to the Department of Energy.

So, in real terms, wages have fallen. The drop is larger than it appears. Look at costs to see why.

Dairy farm statistics show that a cow produces two and a half times the milk compared to yesteryear’s cow and the Department of Commerce reports that labor per cow has fallen by two thirds. These two improvements alone—there are others—eliminate about 87 percent of the effort to make milk.

Efficiency is not the only way for companies to reduce costs. Businesses also remove certain features that consumers don’t want to pay for. For example, milk used to be delivered to a home in a glass bottle. Today it comes in cheap plastic containers that consumers pick up at the store. A more recent example is wine, which is moving from expensive corks to cheaper screw tops.

Yet as fewer labor hours go into producing goods, workers work longer to buy the goods. Using the hour as a measure of costs, we can calculate how much more work a wage earner must produce to buy milk today. But it’s harder to measure the reduction of work that goes into production. We know that it’s less by empirical evidence, but we only get a sense of it.

By switching to gold, we can measure both wages and prices on an absolute scale—in ounces—and we can make precise comparisons. To convert the price of anything to gold, just divide the price by the current gold price. For example, in 2011 if a big-screen TV was $785, then divide that by the gold price of that year; the television set cost half an ounce of gold.

The bottom line is that, in terms of gold, wages have fallen by about 87 percent. To get a stronger sense of what that means, consider that back in 1965, the minimum wage was 71 ounces of gold per year. In 2011, the senior engineer earned the equivalent of 63 ounces in gold. So, measured in gold, we see that senior engineers now earn less than what unskilled laborers earned back in 1965.

That’s right: today’s highly skilled professional is making less in real, comparative terms than yesterday’s unskilled worker.

Now, this is not entirely the result of women entering the labor force en masse. But that is one of the primary contributing factors.  One of these days, I’ll go through the issue and rank those factors.  But my guess is that it is probably number three, after increasingly free trade and the consequences of government fiscal and regulatory policies.

Hawks and doves at the Fed

Female managers tend to seek consensus, and it looks as if we can be certain that Yellen will have whatever organizational support she requires to keep the Fed’s monetary policy as expansionary as possible.  Notice that she is considered to be even more dovish than Helicopter Ben. And one of the newcomers, Kocherlakota, is arguably even worse.  In 2011, he claimed that the Federal Reserve didn’t cause the housing bubble, and worse, that he was “agnostic” with regards to what did cause it.

So, we not only have Tweedledim at the Fed, but Tweedledimmer voting to support her futile attempts to print credit in 2014.

Mailvox: econo-ignorati

I’m not sure which is more impressive, the ability of those who don’t wish to see the obvious to not see it, or the stubborn determination of the inept anklebiter to think that this time, for sure, he’s going to be able to prove me wrong.

Irish Farmer doesn’t appear to understand what is meant by either “wages” or “consumption”:

If women were consumers before they entered the workforce, then who’s money were they consuming with? Mens? Parents’? In that case, those wages were already practically depressed by the fact that men and/or parents were providing women with a sort of salary. 

No. Wages are not reduced by consumption. Wages are reduced by increased supply of labor or decreased demand for labor.  Because consumption tends to increase demand for labor, it tends to increase wages. He digs himself deeper by failing to understand that a consumer is a consumer regardless of whether the consumer is in the labor force or not:

I think it’s simplistic to say, “Women were still consumers.” I’ll admit I don’t have the answers to these questions, but they still come to mind: Isn’t it possible that women workers created new markets, created increase consumption in some way? Can you really just say, “It was the exact same level of consumption now as it was in the ’50s”?

It is not only not simplistic to point out that women were, and continued to be, consumers before, during, and after they entered the labor force, it is absolutely idiotic to attempt to claim otherwise. None of this is equivalent, in any way, to saying anything about “the exact same level of consumption as in the 1950s”.  In fact, a moment’s thought will make it apparent that an increased number of women entering the work force will tend to reduce consumption in the short term; perhaps the women here can help us out.  Do you do tend to do most of your shopping when you are at work or when you are not at work?

Moreover, the reduced number of children produced by working women has unquestionably meant less consumption and less demand for labor in the long term as well. The mitigating effect on the labor supply of fewer children will not suffice to counterbalance this, since children are consumers for 18+ years before they enter the labor force.

And Phony not only reveals that he doesn’t know anything about economics, but he’s a relative newbie here. He’s clearly unaware of the fact that I addressed his objection back in 2006 as well as again earlier this year.

You’re making the implicit assumption, Dipshit, that they don’t produce anything for the wages they get. If they *are* producing more value than they get paid for, as seems reasonable in a capitalist society, then the wages paid will go up but be spent purchasing even more goods.

By your “logic”, Dipshit, the best America could do would be to have one person working to produce goods for 300 million consumers – after all, if anyone else enters the workforce, it will lower wages…

You talk about the post-1950 rise in female employment. So tell us, Dipshit, how come real wages continued to rise (in line with productivity) between 1950 and 1975 or so?

First, I am quite obviously not making the implicit assumption that women don’t produce anything for the wages they receive.  Second, if we apply his own logic, then the fact that real wages have not gone up since 1973 forces us to conclude that women are not producing more value than they are paid for. Third, my logic doesn’t suggest anything of the sort.

And fourth, in answer to his question, I quote myself from seven years ago:

“In the perfect world of economic modeling, it would make no difference
if men or women were working. And in fact, the deleterious effects on
wages of women entering the work force was largely hidden until 1973,
when men finally stopped leaving the work force in numbers sufficient to
conceal what was happening. In fact, one could characterize the period
from 1950 to 1973 as women working so that men over 60 could play golf.
The BLS numbers make this clear.”

TL;DR

Ms Wolf could have saved herself considerable trouble had she simply titled her book: Supply and Demand: How Seventy Million Working Women Created a Lower-Paid Society. With a few simple graphs, she probably could have wrapped the whole thing up in less than 10 pages.

I always find it remarkable, and perhaps even a little depressing, how few people are able to grasp that the primary consequence of the addition of 70 million working women, all of whom were already consumers, to the labor force, could never have been anything else but to lower wages. 

One can debate whether female workers are more or less productive than male workers, and one can certainly debate whether the societal effects were beneficial or negative, but the one thing that cannot be denied, on logical, theoretical, historical, or empirical grounds, is that the post-1950 doubling of the female labor force has had a severely depressing effect on American wages.

Mailvox: what could possibly go wrong?

GV writes to observe that the USA is about to experiment with an economic application of Hultgreen-Curie Syndrome:

I was listing to the radio when I heard the news that Janet Yellen would be named the next fed chair.  I went online to confirm this story and found this news story by NBC News.

It appears you were right about what you wrote in your blog post on 9/16/2013 entitled The job no one wants.  You wrote that you assumed it would be Janet Yellen.  It’s funny how the link to the NBC news story talks about her being the first women to head the central bank and some of her accomplishment but it leaves out the quote you put at the end of that blog post were she said the following;

 “For my own part I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
– Janet Yellen, 2010

With someone like that in charge what could possibly go wrong.

Christine Lagarde at the IMF and Janet Yellen at the Fed. This should be an interesting test of whether putting women in charge will make it all better. I wouldn’t mind being wrong, for all of our sakes, but I’m not terribly sanguine about the probabilities here.

Ambrose Evans-Pritchard summarizes: “So there we have it. The next chairman of the Fed is going to track the labour participation rate. Money will stay loose.”

A lesson in channel

Ilya Somin doesn’t appear to understand how distribution and retail prices work:

This is a request to readers who may have contacts at Amazon, or
work there. Amazon recently inexplicably raised the price for the
Kindle version of my book Democracy
and Political Ignorance from the initial $15.37 to
20.19, even though (judging by Amazon’s own rankings) the Kindle
version was doing well at the initial price. The new price is way
too high, relative to the Kindle prices for comparable books. It
is in neither Amazon’s interest nor mine to charge a price so high
that hardly anyone will buy the Kindle version.

I have tried to contact Amazon about this. But it seems
impossible to reach anyone in authority through their website for
authors. I suspect that among our intrepid readers there could be
some who have contacts at Amazon who may be able to help. All I
need is to speak to a person who has the power to lower the price
for as little as 10-15 minutes or even just exchange e-mails with
him or her. The case for lowering the price is strong enough that
it won’t require any more time than that to explain it. However,
the issue does need to be addressed relatively quickly because the
official publication date for the book is approaching. 

I took a look at the book.  The issue is immediately apparent:

Digital List Price: $27.95
Kindle Price: $20.19
Print List Price: $90.00
        
Somin’s actual problem is that his publisher has set the list price too high.  Amazon has the right to decide whatever discount it wants to set below the list price; if Somin wants the price to the consumer to be around $15, then he should set the price around $17.99.  It’s simply not any of his business what Amazon’s margin is; since Amazon is trying to get their margins up, it should come as no surprise that they are not offering discounts quite as steep as they have historically offered.

And it’s ridiculous for him to complain that Amazon should be decreasing its profit margin while he and his publisher refuse to reduce their own.  If the case for lowering the price is strong, then he should be asking his publisher to lower its price, not expecting Amazon to slash its margins.

More gasoline

With the flames threatening to die down, Ben Bernanke decides to pour more on the fire:

The Federal Reserve has decided against reducing its stimulus for the
U.S. economy, saying it will continue to buy $85 billion a month in
bonds because it thinks the economy still needs the support. The Fed said in a statement Wednesday that it held off on tapering
because it wants to see more conclusive evidence that the recovery will
be sustained. Stocks spiked after the Fed released the statement at the end of its two-day policy meeting.

(laughs) Apparently the Fed lost their nerve when they saw stocks plunging in anticipation of the end of QE IV. The Fed knows deflation and credit collapse is lurking right around the corner and they are desperately attempting to stave it off. What they think will save them, I don’t know, but we appear to be rapidly approaching a potentially critical nexus with prospective war in Syria, yet another debt ceiling showdown with the Republicans running the risk of looking even more foolish than they usually do when they cave for a third straight year, and the possibility of a Hultgreen-Curie scenario at the Fed.

Why central bankers never learn

Zerohedge reports on India’s central bank digging its hole deeper:

With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing.

At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank, pointedly referred to a recent book, This Time is Different: Eight Centuries of Financial Folly, and conceded that policymakers rarely learn from their mistakes. He conceded that:

        “… in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur.”

This is a theme that policymakers have been pondering for a while. More than a year ago, at what was ostensibly a celebration of an updated book on the economic reforms catalyzed by the 1991 debacle, Subbarao warned that the dangers sparking that crisis – ballooning fiscal and current account deficits – were once again lurking. At the same time, a high-ranking commerce ministry official told a group of business leaders that economic indicators were provoking “a sense of déjà vu.” Worried that conditions were ripe for a replay of the 1991 crisis, he exclaimed:

        “Why are we dodging these [policy challenges]? In 1991, we were candid enough to take these decisions. The quicker we take these decisions, the better it would be, instead of acting like ostriches.”

The reason is fairly simple. Men have a very difficult time understanding things when their continued financial well-being depends upon them failing to understand them.

Bound by Zero: the Hall paper

Like Karl Denninger, I found the conclusion of Fed economist Robert Hall’s paper to be fascinating, both for what it did and did not say:

4.4 The deflation nightmare

So far, inflation has fallen only slightly and remains in positive territory. Fears in early 2009 that rapid deflation might break out and cause the economy to collapse as in 1929 to 1933 proved unfounded, luckily. I have advanced the hypothesis that rampant price-cutting has failed to appear because businesses are in equilibrium and perceive that price-cutting has bigger costs than benefits. If the hypothesis is wrong and businesses are finally responding to five years of slack by cutting prices, the generally optimistic tone of this section could be quite mistaken. The bottom could fall out of the economy as it did in the Great Depression.

5 Concluding Remarks

The central danger in the next two years is that the Fed will yield to the intensifying pressure to raise interest rates and contract its portfolio well before the economy is back to normal. The worst step the Fed could take would be to raise the interest rate it pays on reserves. The analysis of this paper focusing on the zero lower bound applies equally to a reserve rate above zero. Every percentage point increase in the reserve rate drives the real interest rate up and contracts the economy by the principles discussed here.

With respect to policies that might lower the probability of a repetition of the multi-trillion dollar disaster of the past five years, it is true that a policy of higher chronic inflation would have given monetary policy more headroom for expansion to counteract the decline in output demand and to prevent it from causing a decline in output. But I see that response as distinctly second-best. Much preferable are policies to maintain a robust financial system that responds smoothly to declines in real-estate prices. Requiring more capital in fi nancial institutions is an important part of good policy, but to determine the amount of capital, there is no substitute in a modern financial system for frequent and rigorous stress-testing.

Derivatives create exposures that are not recorded as leverage, but are fully apparent in stress tests. With a stable, bullet-proof fi nancial system, policies of low inflation are quite safe.

I have explained, repeatedly, why we haven’t seen deflation set in yet.  Credit is still expanding, only at a rate insufficient to provide for either economic growth or private sector jobs. Sans the 114% increase in Federal sector debt and the over the last five years, instead of credit disinflation we would have seen actual deflation.   There are no signs that either the 7% decline in Household debt or 20% decline in Financial sector debt are going to change, so the federal government has no choice but to keep doubling its spending every four years just to hold its ground.

Unsurprisingly, lacking any model to account for credit, Paul Krugman isn’t quite sure exactly what to make of it. But I suspect Hall knows better, which is why he admits that if his hypothesis is wrong, “the generally optimistic tone of this section could be quite mistaken”.

It is mistaken. Other than idiot college students who don’t know any better and whose debt servitude is guaranteed by the government, do you know anyone who is increasing their debt?

This problem of the Zero Bound was long predicted by every economist who warned of the impossibility of “pushing on a string”.  Cutting interest rates can stimulate borrowing, and the subsequent creation of credit, until they cannot be cut anymore.  I, and numerous others, pointed this out, but the Krugmans of the world argued that the Zero Bound was not binding.

But eventually, the long run always arrives.  Everyone wants to know exactly when the economy will hit the ground towards which it is falling, but I can’t say because that depends upon how long the Fed and the Federal government are willing to try to keep trying to flap their arms instead of bracing for impact.