Donald Marron
Nations that enjoy high standards of living have high productivity. But how they achieve that productivity varies. (Organization for Economic Cooperation and Development)
Rich nations' secret: Work harder. Work smarter. Or both.
This week the Organization for Economic Cooperation and Development released its annual Going for Growth report. The purpose of G4G is to benchmark economic performance among the OECD member countries and suggest pro-growth policy reforms.
My favorite chart in the report (click on chart above) examines how GDP per capita differs so much across countries:
The first column of bars shows how GDP per capita in each country stacks up relative to a benchmark equal to the average level of the 15 richest OECD countries in 2008. (Fun fact: In prior years, the OECD used the United States as the benchmark.) As you can see, the United States has the third highest level of per capita income, topped only by Luxembourg and Norway. Looking lower down, you can see that, on average, the GDP per capita of the EU19 countries is more than 20% lower than the benchmark and more than 30% lower than in the United States.
There are two basic ways that a country can achieve a high level of GDP per capita: People can work a lot (i.e., high labor hours per person) or people can work productively (i.e., high output per hour worked). The second and third columns of bars disaggregate the income differences into those two components.
The second column shows that there are significant differences among the countries in the average number of hours worked per person. As you might expect, people in the United States work slightly more than the benchmark average of the richest 15 OECD countries. People work substantially more, on average, in some nations, most notably South Korea, Iceland, and the Czech Republic. People work substantially less in Turkey, France, and Belgium. (Keep in mind that these figures are average hours per person, so they are influenced by the age distribution of the population as well as the number of hours worked by working-age people.)
The third column shows that there are even larger differences among the countries in productivity. Most notably, all of the countries with low per capita incomes have relatively low productivity.
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Sens. Charles Schumer (D) of New York (l.) and John Kerry (D) of Massachusetts (c.), talk with Senate Majority Leader Harry Reid (D) of Nevada following a 60 to 40 Senate cloture vote on healthcare reform Dec. 21, 2009. The Congressional Budget Office has recently updated the expected costs of that bill. (Harry Hamburg/AP Photo/File)
How much does the Senate health bill cost?
Earlier yesterday the Congressional Budget Office released an updated analysis of the Senate health bill. The update reflects all the amendments that were adopted during Senate consideration of the bill, some technical adjustments, and the assumption that the bill would be enacted in the spring of 2010 (rather than December 2009, as previously assumed).
The bottom line is that not much has changed. The near-term costs of the bill have increased somewhat, but the budget story remains essentially the same.
The health care debate seems to have moved on from budget issues. For example, the big news today was that the Senate Parliamentarian announced that the legislative strategy of using reconciliation to pass a second health care bill will work–at least as far as he is concerned–only if the Senate bill is first passed by the House and signed into law by the President.
Nonetheless, as a public service let me offer a quick summary of the budget impacts of the bill over the next ten years here.
There are four things you should take away from this table:
1. The Senate bill costs about $971 billion — not $875 billion — over the next ten years. As long-term readers know, one of my pet peeves is that the media (and many policymakers) use the phrase “cost of the health care bill” when they should be saying “cost of the provisions in the health care bill that expand health insurance coverage.” This distinction is important because all the health bills also contain provisions that have nothing to do with expanding insurance coverage. The Senate bill, for example, would help fill in the doughnut hole in Medicare Part D, fund more community health centers, and fund prevention efforts, among other things. These efforts may be worthy, but they aren’t free. Thus while the media reports that the bill costs $875 billion, I estimate that the real cost is about $971 billion. That figures includes the $875 billion being spent to increase health insurance coverage plus $94 billion in new spending on other health initiatives and $2 billion in new tax cuts.
2. The Senate bill will reduce the deficit by $118 billion over the next ten years. The bill contains more than $1 trillion in offsets, including $251 billion in tax increases related to health insurance coverage (e.g., the tax on “Cadillac” health plans, penalties on some employers, and penalties on some uninsured individuals), $266 billion in tax increases unrelated to health insurance coverage (e.g., higher Medicare payroll taxes on wages above $200,000), and $572 billion in spending reductions (e.g., lower Medicare payment rates for some providers).
3. The near-term budget savings are exaggerated by the inclusion of the CLASS Act; adjusting for that, the ten-year deficit reduction is $48 billion. Another item familiar to long-time readers, the CLASS Act would create an insurance program for long-term care. Premium income, which reduces the reported deficit, would start much faster than benefit payouts, so the program generates surpluses in the near-term. But it won’t in the long-run. So most budgeteers view the inclusion of the CLASS Act here as a gimmick. Netting out the $70 billion in budget savings from the CLASS Act, and you have deficit reduction of $48 billion over the next decade.
4. The bill would increase the Federal commitment to health care over the next ten years. CBO created this metric to reflect the fact that the Federal government supports health care both through spending programs and through tax subsidies, most notably that for employer-provided health insurance. CBO finds that the combination of these efforts will expand during the first ten years of the bill. If the entire bill executes as written, however, CBO expects that the federal commitment to health care will decline in the second decade.
Note: CBO does not calculate a total cost figure for the health bills. The bills include dozens of policy changes, and it would be difficult (perhaps impossible) to allocate all their impacts to specific provisions. Thus, my figures should be considered approximate. I calculated the $94 billion figure for additional spending by adding up all the individual line items in Table 4 of the cost estimate that increased direct spending, with a couple of exceptions. First, I did not include the interaction effects that CBO lists as the end of the estimate because I was not sure how to allocate them; the interactions are large and could have a material effect on my estimate, potentially up or down. Second, there was one policy that led to both spending increases and spending decreases; I included the net spending increase in my figure. I am certainly open to other suggestions about how to add up the other spending in the bill. It’s also worth noting that I have taken as given CBO’s estimate of the gross cost of expanding coverage. There are some nuances in the calculation of that figure (e.g., the treatment of payments in a reinsurance program) that I need to understand better. I made similar calculations for the $2 billion in tax cuts itemized in the JCT analysis of the bill.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
A Google logo is displayed at the National Retail Federation convention in New York on Jan. 11. Google has recently improved its presentation of public data. (AP Photo/Mark Lennihan/File)
Google’s public data: Much improved
Google recently released some major improvements in its public data efforts. If you click on over to Public Data, you will find a much broader range of data sets including economic information from the OECD and World Bank, key economic statistics for the United States, and some education statistics for California. Google has also included more tools for visualizing these data, from standard line charts to the evolving bubble charts that have made Hans Rosling such a hit at TED.
As an example, I made a flash chart of state unemployment rates from 1990 to the present. Puerto Rico (which counts as a state for these purposes), Michigan, Nevada, and Rhode Island currently have the highest unemployment rates, so I thought it would be interesting to see how they stacked up against the other states over the past twenty years.
I can't embed Flash, but if you click here and then click play, you will see the evolution of state unemployment rates over time. (Spoiler alert: All those colored bars move sharply upward toward the end of the “movie”.)
Long-time readers may recall my series of posts criticizing Google for directing its users to unemployment data that have not been seasonally adjusted. Happily, Google now allows the user to use either seasonally adjusted or non adjusted data. Two cheers for Google.
Why only two cheers rather than three? Because Google still directs unsuspecting users to unadjusted data–without the ability to switch to seasonally adjusted–if they do a Google search on “unemployment rate United States“. That’s a big deal, particularly for February 2010 when the official unemployment rate was 9.7%, but the unadjusted figure reported by Google was 10.4%.
Clearly, the two parts of Public Data need to integrate a bit more.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
A view of Nevada Fall and Liberty Cap from the John Muir Trail in Yosemite National Park. The US makes a point of not placing a dollar value on such stewardship and heritage assets. But the US does have $1 trillion in financial assets it could sell off. (Ben Arnoldy / The Christian Science Monitor / File)
Sorry, Germany. Greece won't sell Corfu. Wanna buy Yosemite?
Several German lawmakers hit a nerve last week with their suggestion that Greece sell some of its assets in order to cut its debts. The German newspaper Bild summarized this line of reasoning quite memorably: “We give you cash, you give us Corfu.”
That zinger has prompted a cottage industry of possibly humorous efforts to tote up what Greece should consider selling. For example, the Christian Science Monitor has a slide show of the top ten items it thinks that Greece could sell, including the Parthenon and the Acropolis.
While no one (?) takes these suggestions seriously, they do raise an important point. Spending reductions and revenue increases are important when governments face budget pressures, but they are not the only option. Governments can also sell off assets.
Which raises a natural question. If push comes to shove, what could the United States sell in order to cut its debts?
The United States isn’t Greece, of course, and I am far from suggesting that we actually need to start selling. On the other hand, there’s plenty of rhetoric (some coming from me) that the United States should set a target for its publicly-held debt. If we do adopt one, we should keep in mind that asset sales may be one way that policymakers may try to reach it.
So what does the United States own?
That’s a hard question to answer completely, but a good place to start is the Financial Report of the United States Government. According to the 2009 report, the U.S. owned $2.7 trillion in assets at the end of 2009, up from only $2.0 trillion a year earlier. Many of these are off-limits (we aren’t going to sell the Capitol or the USS Nimitz), but some raise interesting questions.
For example, we own an impressive portfolio of financial assets:
- $540 billion in direct loans (e.g., student loans) and mortgage-backed securities
- $240 billion in TARP loans and equity investments (some of which have since be repaid)
- $24 billion in a trust that invested in AIG
- $65 billion in preferred stock in Fannie Mae and Freddie Mac
We also have a tidy amount of gold:
- $250+ billion (The official financial statements report the gold as worth $11 billion, but that’s assuming gold is worth $42 per ounce. Gold prices are now about 25 times higher.)
Throw in another hundred billion or so for the value of the spectrum that we currently give away for free (not included in the financial statements), and we have a bit more than $1 trillion in assets that might conceivably be salable. Of course, whether they would actually yield that trillion is an open question.
What about the ideas of the German lawmakers? Wouldn’t they suggest that we could sell Yosemite or Mount Rushmore as well? How much are they worth?
No one knows. Our nation’s accountants understandably make a point of not placing a dollar value on such “stewardship and heritage assets,” almost all of which should never–and will never–be on the auction block.
There might be a few salable items lurking in there–the United States came close to selling the Presidio in San Francisco a few years back–but the real money is in the financial assets that the government owns.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Morgan Murphy (r.) holds a placard to show her support for same sex couples applying for marriage licenses at the DC Superior Court on March 3 in Washington. The US Supreme Court refused on March 2 to block a law allowing same-sex marriages in Washington DC, clearing the way for the legislation to go into effect Wednesday. (AFP PHOTO/Mandel NGAN)
Love wins: Gay marriage in Washington DC
The photos on the front page of the Washington Post are usually depressing. War, natural disasters, and other tragedies provide a seemingly endless stream of sad or horrifying images.
Not so this morning. When I picked up my paper, the images were joyful, depicting happy same-sex couples who were finally able to apply for marriage licenses in our nation’s capital. I went to the WaPo’s web site and discovered that it has a whole slide show of photos of happy couples.
I often tell my students that, in my humble opinion, one purpose of government is to help people be happy. The DC government did a good job on Wednesday.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Cristian Arriagada leans against his destroyed house in Constitucion, Chile, March 2. A 8.8-magnitude earthquake that struck central Chile early Feb. 27, killed at least 708 people and destroyed or badly damaged 500,000 homes. (Roberto Candia/AP Photo )
Are Chile’s building codes getting too much credit?
Many commentators have pointed to Chile’s stringent building codes as a key reason why the death toll from its earthquake (in the hundreds at this writing) has been so much lower than in Haiti (in the hundreds of thousands).
Unfortunately, much of this commentary confuses two separate concepts: building quality and building codes. Building quality clearly played a key role in minimizing death and damage from the earthquake. Indeed, Chilean buildings are well-known for incorporating earthquake resistance techniques such as the strong columns, weak beams system.
That doesn’t imply, however, that building codes deserve credit for the quality of the buildings. Indeed, I can think of three other factors that likely deserve some credit as well:
- Chile’s wealth. In 2009, per capita income in Chile was eleven times higher than in Haiti. Even in the absence of any building codes, the relatively rich Chileans would not be living in buildings as fragile as those in Haiti.
- Chile’s history of earthquakes. In 1960, Chile suffered the largest earthquake on record (9.5), killing several thousand people. Even in the absence of any building codes, memories of that quake would have encouraged Chileans to construct more earthquake-resistant buildings. In Haiti, in contrast, the last major earthquake was in 1842, before the memories of any living Haitians.
- Chile’s enforcement of building codes. Building codes are just pieces of paper (or their electronic equivalent). Governments can create all the codes they want, but if unscrupulous officials don’t enforce them—or get bribed to look the other way—they can be next to useless. Chile ranked among the 20 least corrupt nations in the world in 2009; Haiti was among the 12 most corrupt.
My point is not that building codes had no effect. I bet they did. But that’s not the whole story when it comes to building quality. Chileans would have built better buildings than Haitians anyway. And Chileans live in a society where building codes actually get enforced. For both those reasons, we shouldn’t overstate the importance of building codes alone in explaining Chile’s resilience and Haiti’s devastation. Nor should we leap to the conclusion that the way to deal with Haiti’s future earthquake threats is to import Chile’s building code.
My second point is a scientific one. In principle, Chile’s earthquake provides an opportunity for researchers to evaluate just how important building codes have been in protecting Chile’s buildings. Enterprising analysts should look for situations that allow us to identify the effect of building codes versus other factors. For example, much has been made of the building code revisions that Chile adopted in 1995. That suggests one empirical strategy: compare what happened to buildings that were constructed in 1994 to buildings that were constructed in 1996. Did the 1996 ones perform much better? That would suggest that the building codes really helped. Or did 1994 buildings do just as well as the 1996 ones? That would suggest that the codes had little effect, perhaps because they were just capturing practices that were already in use by Chilean builders.
For related discussions, see this piece from Fast Company and this piece from the Infrastructurist. The comments on the second piece include an interesting discussion of the extent to which Chilean buildings would have been earthquake resistant in the absence of building codes. One commentator offers the extreme view that the building codes had no effect, while others offer the other extreme. I think the truth is in the middle.
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Customers ride the escalator during the start of the holiday shopping season in a Best Buy store in Cambridge, Mass., on Nov. 17. The strong gains for the fourth quarter of 2009 are largely do to store and warehouses restocking. (Sarah Beth Glicksteen/The Christian Science Monitor)
Key driver of fourth quarter growth? Inventories
The economy grew briskly last quarter. According to the second estimate by the Bureau of Economic Analysis, gross domestic product increased at a 5.9% annual pace in the fourth quarter of 2009, a bit higher than BEA’s first 5.7% estimate.
As usual, I think the best way to understand this report is to see what sectors contributed the most or least to reported growth:
Almost two-thirds of the growth reflects businesses restocking their shelves and warehouses: inventories accounted for 3.8 percentage points of the overall 5.9% of growth.
Consumer spending grew at a modest 1.7% pace and thus added 1.2 percentage points to overall growth (consumer spending accounts for about 70% of the economy and 70% x 1.7% = 1.2%). That’s down from the previous quarter, when cash-for-clunkers boosted car purchases. Housing investment also slowed, again in the wake of earlier efforts–the tax credit for new home buyers–that had boosted growth in the third quarter.
Business investment in equipment and software showed signs of life, growing at a healthy 18% pace. That added 1.1 percentage points to growth, about half of which was offset by the ongoing decline in business investment in structures.
Government spending fell slightly during the quarter. Stimulus efforts boosted non-defense spending by the federal government, but that increase was more than offset by a decline in defense spending and in state and local spending.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
The US Department of the Treasury, seen here, has announced plans to revitalize its Supplementary Financing Program. (Newscom)
The Fed and the Supplementary Financing Program
As I discussed briefly yesterday, Treasury has announced plans to revitalize its Supplementary Financing Program (SFP), which will effectively mop up $200 billion in excess reserves over the next two months. Even though this is a Treasury action, it strikes me as an important step (with many yet to come) in the Fed’s exit strategy.
The boost in the SFP has created some confusion among observers, however, because of the limited information that Treasury and the Fed have provided about the rationale for the move. Indeed, as one reader pointed out to me, Ben Bernanke makes no mention of the SFP in his prepared testimony today. (Anyone know if he was asked about it in Q&A?)
Over at Econbrowser, Jim Hamilton provides an excellent summary of the SFP and the possible implications of its rebirth. He concluding thoughts:
Still, one is led to wonder whether there might be a connection between today’s announcement about the SFP and last week’s announcement of an increase in the Fed’s discount rate. Numerous Fed officials encouraged us to interpret the latter as a routine and technical management tool. Are the discount hike and SFP renewal separate and purely technical developments, or is something more involved?
If you are interested in these issues, I encourage you to read his entire post.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Lao Tzu, the Chinese philosopher and father of Taoism, is depicted in this detail from 6th century BC artwork. (British Museum/Newscom)
Fed takes third step in exit strategy
As Confucius Lao Tzu once said, a journey of a thousand miles begins with a single step. The Fed faces just such a journey today: returning monetary policy to normal as the economy heals. And in case you didn’t notice, the Fed has already taken three steps down the road.
Step 1 was the termination of various special credit facilities (e.g., the Term Auction Facility) that were created to provide liquidity during the crisis.
Step 2 was last week’s sort-of-surprise announcement that the Fed was increasing the discount rate from 0.5% to 0.75%.
Step 3 is today’s announcement that Treasury is reviving the Supplementary Financing Program (SFP). Over the next two months, Treasury will issue $200 billion in bills for the SFP and then place the proceeds in its account at the Fed. The SFP will thus mop up $200 billion of liquidity that Fed asset purchases have injected into the monetary system.
Treasury began the SFP in September 2008 when the Fed needed help sterilizing the monetary impact of the programs it created to provide liquidity to the financial sector. The program peaked at more than $500 billion in late 2008, and then began to decline as sterilization ceased to be a Fed concern and as the federal debt limit began to loom. With the recent increase of the debt limit, Treasury again has room for the SFP, hence today’s announcement.
Update: Thanks to Brooks for pointing to Lao Tzu as the source of the famous quote; many sites attribute it to Confucius, but those claiming Lao Tzu seem more credible. If you start Googling or Binging this topic, you can also explore such amusing issues as: How do you spell Lao Tzu? Didn’t he really say “a journey of a thousand miles begins beneath one’s feet”? And “wait a minute, the ancient Chinese didn’t use miles, did they?”
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
The Rossio metro station sign in Lisbon, Portugal, is shown here. Portugal classified subsidies to the Lisbon subway as equity purchases in 2001 – just one example of the creative bookkeeping rampant in European countries. (Newscom)
Creative bookkeeping: Not just a Greek problem
A specter is haunting Europe — the specter of creative bookkeeping.
In an article in this morning’s Wall Street Journal (“Debt Deals Haunt Europe“), Charles Forelle and Susanne Craig provide more examples of the “aggressive” bookkeeping that European nations have deployed to satisfy the deficit and debt targets of the Growth and Stability Pact.
Greece, of course, takes honors in the field, not just for its recent use of derivatives to hide liabilities (see my earlier post), but also for other creative moves in the past. For example, the authors report that Greece:
insisted to the Eurostat statistics authority that large portions of its military spending were “confidential” and thus excluded from deficit calculations. In 2000, Greece reported that it spent €828 million ($1.13 billion) on the military—about a fourth of the €3.17 billion it later said it spent. Greece admitted to underreporting military spending by €8.7 billion between 1997 and 2003.
Such shenanigans are hardly unique to the Greeks. Other players include:
– Portugal, which “classified subsidies to the Lisbon subway and other state enterprises as equity purchases” in 2001, and
– France, which “arranged a deal with the soon-to-be privatized France Telecom in 1997 under which the company paid the government a lump sum of more than €5 billion. In return, France agreed to assume pension liabilities for France Telecom workers. The billions from France Telecom helped narrow France’s budget gap.”
– Although dated, these examples illustrate some basic strategies that governments use to conceal the size of their deficits and debts: pretend the spending does not exist (Greece), pretend that spending is really an investment (Portugal), or pretend the future pension liabilities aren’t real (France).
A topic for another day is how these strategies may have been used in the United States. Suffice it to say that strategy three–ignoring future pension costs–iswidespread both in governments and the private sector.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
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