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Teen employment and the minimum wage: sixty years of experience
by Tyler Cowen on January 21, 2014 at 5:08 am in Data Source, Economics, History | Permalink
Kevin Erdmann relates:
There is much more here. Kevin concludes: “Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?”
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Now let's see why there would still be enormous income inequality.
1. Suppose everyone had identical lifetime wage income and inherited no money. Also assume all investments were risk-free. Incomes would still vary greatly due to different preferences regarding current vs. future consumption (i.e. different saving preferences.)
2. Suppose everyone was exactly like me; in the poorest quintile from age 18-26, then the second, then the third, eventually the top, before falling back on retirement. Also assume these identical people were born in different years. Again, no economic inequality (lifetime) but large annual income inequality.
3. Imagine everyone was a farmer with similar land, and there were alternating good years and bad years, which varied by location. When farmers made money in the east they lost money in the west. Over any five year period income averaged out to be roughly identical, but each year farmers made large incomes in some areas, and losses in others. No economic inequality in a long run sense, but plenty of annual income inequality.
4. Let's say everyone made an identical unrealized capital gain of $5000 each year, but they differed as to when they actually sold their asset and realized the capital gain. Again, no economic inequality but lots of measured income inequality, as only realized capital gains go into the income data.
5. Let's say some people went to school much longer than others. They earned a compensating differential in income to reward them for the disutility of their extra studying. Again, no economic inequality in a utility sense but lots of income inequality.
6. Let's assume some people make more money, but only because they live in an areas with a higher cost of living, perhaps due to higher heating bills in the winter. Again, no economic inequality but lots of income inequality.
7. Let's assume that preferences differ, and that some people are less materialistic. They earn less money because they prefer to maintain more spiritual values. Here I'm thinking of groups like the Amish.
8. The underground economy.
Is all this nitpicking, or are these distortions important? The first item suggests that we really ought to be looking at the present value of wage income, or the present value of consumption. In that case capital income would not count. I don't think I need to convince anyone that capital income hugely distorts the numbers of the top one percent.
Item two suggests age is an important factor, which might distort our results. The second poorest town in America is Athens, Ohio, which is full of middle class college students with low incomes. Are they really poor? That's a judgment call. But I'd guess that their lifetime incomes are quite respectable.
The first poorest town in America is almost entirely composed of Hasidic Jews, which (according to the NYT) are choosing to live a rather non-materialistic lifestyle. That's item 7.
And yes, the fact that we measure realized capital gains rather than unrealized cap gains makes income look much more unequal than it is. Bob Murphy asks me how I can hate income and love NGDP (national income.) Do capital gains go into NGDP?
Many (liberals) object that this exercise misses the point. BUT WHAT ABOUT THE BANKSTERS!!??!! They say even if income data has problems, there is no better alternative, and in any case inequality is clearly getting much worse by any reasonable measure. I don't accept that view. We do have a better measure---consumption. But even consumption is not perfect because of the lifecycle problem I discussed. It will still overstate economic inequality.
Nonetheless, if we use consumption data then the change in inequality is much less clear. Some studies show increased consumption inequality, some don't. FWIW, in my view the consumption gap between the middle class and rich has widened over my lifetime, and the consumption gap between the middle class and poor has narrowed. Since I care much more about poverty than the middle class/rich gap, I'm not particularly dismayed by the changes we've seen in recent decades.
Some liberals claim it's about political power, which correlates with income more than consumption. I doubt it. Public policy is less pro-rich than when Reagan was president (for instance MTRs on the rich have risen sharply since 1987), and yet income is much less equal than when Reagan was President. I see no evidence that income inequality correlates with more political power for the rich, as compared to consumption inequality. (That's not to deny that the rich have more political power, they do.)
However I do favor public policies that would lead to greater economic equality (for utilitarian reasons):
1. Wage subsidies for low wage workers. 2. Less barriers to entry (less zoning, weaker IP restrictions, no occupational licensing, etc.)
Normally when inequality widens it should be self-correcting. The relatively poor will see a bigger gap, and work harder to boost their standing in society. Thus if the gap between the consumption bundle of college grads and non-college grads gets wider, then more people will get college degrees. This may not work for two reasons:
1. Barriers to entry.
2. Talent gaps.
You may have noticed that one of my policy suggestions addresses barriers to entry, and the other addresses talent gaps. And here's the final irony. A wage subsidy that reduces economic inequality actually raises income inequality, at least if you measure income net of the subsidy (which is how we do it.) If you are convinced that I am wrong and want to hold on to the income inequality data, then you ought to oppose my wage subsidy proposal---it will make inequality "worse."
PS. Josh Barro has an excellent post on a supply-side agenda for the 21st century. The emphasis is on lots of deregulation and cuts in implicit marginal tax rates. However I found this remark unfortunate:
We're going to need a new supply side economics that encourages people to work, invest and innovate.
That doesn't mean conservatives' agenda of tax cuts and federal deregulation, which aims at problems that were addressed in the 1970s or never existed at all.
Barro will find very little support for his agenda among politicians of either party. However he will find lots of support among both liberal and conservative intellectuals.
PPS. Whenever I do posts like this I get commenters saying "Sumner's trying to deny America has lots of inequality," or "Sumner's saying the typical poor person in America is Hasidic Jew." I'm used to it by now.
Two-Track Future Imperils Global Growth
'Squeezed Middle' Chafes as Superrich, World's Poorest Reap Globalization's Benefits; Capital Becoming King Again
By
Stephen Fidler
connect
Updated Jan. 21, 2014 11:17 p.m. ET
Police patrol outside the Congress Center in Davos, Switzerland, site of the World Economic Forum. Unequal income and wealth distribution is likely to be a major theme of this year's annual meeting. Keystone/Associated Press
Globalization has made the world a more equal place, lifting the economic fortunes of billions of poor people over the last quarter century. Here's the rub: At the same time, it has made richer countries more unequal—squeezing the incomes of the poor and the middle class.
For a while, the financial crisis appeared to have reversed the trend toward more inequality in industrialized countries. But the latest data suggest it was only a brief interruption.
In about 2010, the pre-crisis trends reasserted themselves, as government stimulus gave way to austerity, unemployment benefits ran out and—most importantly—the actions of central banks boosted returns on financial assets, helping the better off.
As central banks pumped unprecedented sums of money into western economies, the super-rich have thrived as prices of high-end properties in cities such as London and New York have rocketed and equity markets soared.
Figures compiled by Emmanuel Saez of University of California Berkeley and Thomas Piketty of Paris School of Economics showed that in 2012 the top 10% took half of all income earned in the U.S. That's the highest since 1917, the first year for which there is reasonable data.
"I think we have a political problem. At some point, the middle classes in rich countries could turn against globalization," says Mr. Piketty. A world order in which a majority of people benefits—but an influential minority doesn't— may not be sustainable for long.
Some experts see such disparities becoming even more entrenched in the richer economies—with the divisions between the very rich and the rest being decided by whether they have access to capital. If they are right, developed societies will return in some ways to the world of the 18th and 19th centuries.
In that world, real wealth comes through finding a rich spouse or inheriting property. The 20th-century idea of wealth being largely dependent on a career of well-paid hard work will fade.
The World Economic Forum's Global Risks Report, published ahead of this week's annual meeting in Davos, Switzerland, and built on a survey of worldwide experts, identifies severe income disparity as the world-wide risk most likely to manifest itself over the next decade.
Members of the "squeezed middle" in developed countries are already making their voices heard, some throwing their weight behind anti-establishment and nationalist political movements that oppose globalization.
Most of this group are still privileged compared with the majority of humanity. But compared with the richest people in their own societies—the 1% so well represented at this week's meeting in Davos—they are falling further behind.
Branko Milanovic, a former World Bank economist now with the City University of New York, says data from household surveys show that, from 1988 to 2008, real incomes of the poorest 50% in the U.S. grew just 23%.
Their counterparts in the bottom 50% in Germany and Japan fared worse, the poorest Japanese seeing their real incomes fall by 2% in real terms. Meanwhile, incomes of the top 1% of Americans grew 113%, a figure that other studies suggest may be an underestimate.
"National inequalities, almost everywhere except Latin America, have gone up," Mr. Milanovic says.
Globally though, the new working and middle classes of emerging economies such as China, India and Brazil have emerged as big beneficiaries of the last 20 years. The biggest losers are the world's poorest 5%, many in Africa.
International bodies such as the Organization for Economic Co-operation and Development argue that more unequal income and wealth distributions within economies erode social cohesion and increase the scope for internal conflict.
The reasons for rising inequality are several-fold. Globalization delivers a financial hit to the unskilled, whose labor comes in direct competition with lower-paid workers in developing economies. Highly skilled labor tends to be the major beneficiary of technological advances. The rise of the financial sector, where top bankers have been able to cream off huge remuneration, appears to be another factor. But perhaps the most influential is the growing importance of access to capital.
Cash for Kidneys: The Case for a Market for Organs
There is a clear remedy for the growing shortage of organ donors, say Gary S. Becker and Julio J. Elias
By
Gary S. Becker and
Julio J. Elias
Jan. 17, 2014 6:45 p.m. ET
In 2012, 95,000 American men, women and children were on the waiting list for new kidneys, the most commonly transplanted organ. Yet only about 16,500 kidney transplant operations were performed that year. Taking into account the number of people who die while waiting for a transplant, this implies an average wait of 4.5 years for a kidney transplant in the U.S.
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The situation is far worse than it was just a decade ago, when nearly 54,000 people were on the waiting list, with an average wait of 2.9 years. For all the recent attention devoted to the health-care overhaul, the long and growing waiting times for tens of thousands of individuals who badly need organ transplants hasn't been addressed.
Finding a way to increase the supply of organs would reduce wait times and deaths, and it would greatly ease the suffering that many sick individuals now endure while they hope for a transplant. The most effective change, we believe, would be to provide compensation to people who give their organs—that is, we recommend establishing a market for organs.
Organ transplants are one of the extraordinary developments of modern science. They began in 1954 with a kidney transplant performed at Brigham & Women's hospital in Boston. But the practice only took off in the 1970s with the development of immunosuppressive drugs that could prevent the rejection of transplanted organs. Since then, the number of kidney and other organ transplants has grown rapidly, but not nearly as rapidly as the growth in the number of people with defective organs who need transplants. The result has been longer and longer delays to receive organs.
Many of those waiting for kidneys are on dialysis, and life expectancy while on dialysis isn't long. For example, people age 45 to 49 live, on average, eight additional years if they remain on dialysis, but they live an additional 23 years if they get a kidney transplant. That is why in 2012, almost 4,500 persons died while waiting for kidney transplants. Although some of those waiting would have died anyway, the great majority died because they were unable to replace their defective kidneys quickly enough.
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The toll on those waiting for kidneys and on their families is enormous, from both greatly reduced life expectancy and the many hardships of being on dialysis. Most of those on dialysis cannot work, and the annual cost of dialysis averages about $80,000. The total cost over the average 4.5-year waiting period before receiving a kidney transplant is $350,000, which is much larger than the $150,000 cost of the transplant itself.
Individuals can live a normal life with only one kidney, so about 34% of all kidneys used in transplants come from live donors. The majority of transplant kidneys come from parents, children, siblings and other relatives of those who need transplants. The rest come from individuals who want to help those in need of transplants.
In recent years, kidney exchanges—in which pairs of living would-be donors and recipients who prove incompatible look for another pair or pairs of donors and recipients who would be compatible for transplants, cutting their wait time—have become more widespread. Although these exchanges have grown rapidly in the U.S. since 2005, they still account for only 9% of live donations and just 3% of all kidney donations, including after-death donations. The relatively minor role of exchanges in total donations isn't an accident, because exchanges are really a form of barter, and barter is always an inefficient way to arrange transactions.
Exhortations and other efforts to encourage more organ donations have failed to significantly close the large gap between supply and demand. For example, some countries use an implied consent approach, in which organs from cadavers are assumed to be available for transplant unless, before death, individuals indicate that they don't want their organs to be used. (The U.S. continues to use informed consent, requiring people to make an active declaration of their wish to donate.) In our own highly preliminary study of a few countries—Argentina, Austria, Brazil, Chile and Denmark—that have made the shift to implied consent from informed consent or vice versa, we found that the switch didn't lead to consistent changes in the number of transplant surgeries.
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A surgeon stands next to a monitor showing a donor kidney in 2012. The average cost of a kidney transplant is $150,000. Annual cost of dialysis: $80,000 Reuters
Other studies have found more positive effects from switching to implied consent, but none of the effects would be large enough to eliminate the sizable shortfall in the supply of organs in the U.S. That shortfall isn't just an American problem. It exists in most other countries as well, even when they use different methods to procure organs and have different cultures and traditions.
Paying donors for their organs would finally eliminate the supply-demand gap. In particular, sufficient payment to kidney donors would increase the supply of kidneys by a large percentage, without greatly increasing the total cost of a kidney transplant.
We have estimated how much individuals would need to be paid for kidneys to be willing to sell them for transplants. These estimates take account of the slight risk to donors from transplant surgery, the number of weeks of work lost during the surgery and recovery periods, and the small risk of reduction in the quality of life.
Our conclusion is that a very large number of both live and cadaveric kidney donations would be available by paying about $15,000 for each kidney. That estimate isn't exact, and the true cost could be as high as $25,000 or as low as $5,000—but even the high estimate wouldn't increase the total cost of kidney transplants by a large percentage.
Few countries have ever allowed the open purchase and sale of organs, but Iran permits the sale of kidneys by living donors. Scattered and incomplete evidence from Iran indicates that the price of kidneys there is about $4,000 and that waiting times to get kidneys have been largely eliminated. Since Iran's per capita income is one-quarter of that of the U.S., this evidence supports our $15,000 estimate. Other countries are also starting to think along these lines: Singapore and Australia have recently introduced limited payments to live donors that compensate mainly for time lost from work.
Since the number of kidneys available at a reasonable price would be far more than needed to close the gap between the demand and supply of kidneys, there would no longer be any significant waiting time to get a kidney transplant. The number of people on dialysis would decline dramatically, and deaths due to long waits for a transplant would essentially disappear.
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Today, finding a compatible kidney isn't easy. There are four basic blood types, and tissue matching is complex and involves the combination of six proteins. Blood and tissue type determine the chance that a kidney will help a recipient in the long run. But the sale of organs would result in a large supply of most kidney types, and with large numbers of kidneys available, transplant surgeries could be arranged to suit the health of recipients (and donors) because surgeons would be confident that compatible kidneys would be available.
The system that we're proposing would include payment to individuals who agree that their organs can be used after they die. This is important because transplants for heart and lungs and most liver transplants only use organs from the deceased. Under a new system, individuals would sell their organs "forward" (that is, for future use), with payment going to their heirs after their organs are harvested. Relatives sometimes refuse to have organs used even when a deceased family member has explicitly requested it, and they would be more inclined to honor such wishes if they received substantial compensation for their assent.
The idea of paying organ donors has met with strong opposition from some (but not all) transplant surgeons and other doctors, as well as various academics, political leaders and others. Critics have claimed that paying for organs would be ineffective, that payment would be immoral because it involves the sale of body parts and that the main donors would be the desperate poor, who could come to regret their decision. In short, critics believe that monetary payments for organs would be repugnant.
But the claim that payments would be ineffective in eliminating the shortage of organs isn't consistent with what we know about the supply of other parts of the body for medical use. For example, the U.S. allows market-determined payments to surrogate mothers—and surrogacy takes time, involves great discomfort and is somewhat risky. Yet in the U.S., the average payment to a surrogate mother is only about $20,000.
Another illuminating example is the all-volunteer U.S. military. Critics once asserted that it wouldn't be possible to get enough capable volunteers by offering them only reasonable pay, especially in wartime. But the all-volunteer force has worked well in the U.S., even during wars, and the cost of these recruits hasn't been excessive.
Whether paying donors is immoral because it involves the sale of organs is a much more subjective matter, but we question this assertion, given the very serious problems with the present system. Any claim about the supposed immorality of organ sales should be weighed against the morality of preventing thousands of deaths each year and improving the quality of life of those waiting for organs. How can paying for organs to increase their supply be more immoral than the injustice of the present system?
Under the type of system we propose, safeguards could be created against impulsive behavior or exploitation. For example, to reduce the likelihood of rash donations, a period of three months or longer could be required before someone would be allowed to donate their kidneys or other organs. This would give donors a chance to re-evaluate their decisions, and they could change their minds at any time before the surgery. They could also receive guidance from counselors on the wisdom of these decisions.
Though the poor would be more likely to sell their kidneys and other organs, they also suffer more than others from the current scarcity. Today, the rich often don't wait as long as others for organs since some of them go to countries such as India, where they can arrange for transplants in the underground medical sector, and others (such as the late Steve Jobs ) manage to jump the queue by having residence in several states or other means. The sale of organs would make them more available to the poor, and Medicaid could help pay for the added cost of transplant surgery.
The altruistic giving of organs might decline with an open market, since the incentive to give organs to a relative, friend or anyone else would be weaker when organs are readily available to buy. On the other hand, the altruistic giving of money to those in need of organs could increase to help them pay for the cost of organ transplants.
Paying for organs would lead to more transplants—and thereby, perhaps, to a large increase in the overall medical costs of transplantation. But it would save the cost of dialysis for people waiting for kidney transplants and other costs to individuals waiting for other organs. More important, it would prevent thousands of deaths and improve the quality of life among those who now must wait years before getting the organs they need.
Initially, a market in the purchase and sale of organs would seem strange, and many might continue to consider that market "repugnant." Over time, however, the sale of organs would grow to be accepted, just as the voluntary military now has widespread support.
Eventually, the advantages of allowing payment for organs would become obvious. At that point, people will wonder why it took so long to adopt such an obvious and sensible solution to the shortage of organs for transplant.
Mr. Becker is a Nobel Prize-winning professor of economics at the University of Chicago and a senior fellow at the Hoover Institution. Mr. Elias is an economics professor at the Universidad del CEMA in Argentina.
China's Economic Growth Slows to 7.7%
Deceleration Comes as Leaders Plan to Introduce Measures Aimed at Reducing Dependence on Investment, Trade
·
By
Bob Davis And
William Kazer
connect
Updated Jan. 20, 2014 7:18 a.m. ET http://online.wsj.com/news/articles/SB10001424052702304757004579331422321628250
A slew of economic problems, including excessive local debt, marred China's economic growth in 2013. Citibank China economist Minggao Shen tells Deborah Kan what hurdles the country faces in jump starting growth in 2014.
BEIJING—China's growth prospects this year depend on the gains it can chalk up from exports and the pains that come from trying to remake the world's No. 2 economy.
China is one of the most powerful engines of global growth, but one that no longer operates at full throttle. On Monday, Beijing reported that its gross domestic product last year grew 7.7%, matching 2012's rate. China economists generally forecast economic growth of somewhere between 7% and 8% this year too.
Read More at China Real Time
Those figures are well below the double-digit gains China chalked up over the last 30 years. China's leaders are beginning to address the costs from that rapid growth, including pollution, wasted spending, corruption and financial fragility. But the changes include such growth-inhibiting measures as clamping down on credit growth, shuttering factories in industries plagued by overcapacity and cleaning up local government debt.
"China's leadership has recognized that China needs to change its growth model," said former World Bank President Robert Zoellick, who was meeting in Beijing on Monday with top government and business leaders.
"It won't be a Big Bang process. We'll see, in Chinese fashion, a series of steps, which if successful will pick up momentum," said Mr. Zoellick, who heads Goldman Sachs' international advisory board.
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A Chinese worker uses a cellphone as he sits by the roadside near a construction site in Beijing. Agence France-Presse/Getty Images
In the fourth quarter of 2013, China's economy grew 7.7% from a year ago, slower than the 7.8% it posted in the third quarter, according to data released Monday by China's National Bureau of Statistics. That translates into 7.4% growth on a quarter-to-quarter annualized basis, the way most major economies report growth. China doesn't release a similar figure.
A number of economists expect that deceleration to continue in the first quarter of the year, as investment slows and China looks to deflate what appear to be property bubbles in its largest cities. In March, China is expected to adopt a target for growth—likely to be 7.5%, say economists—which could signal how its leaders hope to balance growth with reform efforts.
China's leaders have said they want to remake the economy so it relies less on heavy investment in real estate, infrastructure and capital-intensive industries and exports abroad. They have outlined proposals to boost domestic consumption by giving peasants more rights to land and liberalizing the financial sector so more lending is directed to small businesses.
There has been little movement so far on those fronts. Instead, the leaders' early acts have sometimes undermined growth, including a high-profile attack on government corruption and conspicuous consumption. Retail sales advanced 13.1% in 2013, down from a gain of 14.3% in 2012, and the most modest gain since 2005.
Su Peng, a Beijing flower retailer, says his company ran a loss in 2013 as flower sales plummeted, which he blamed on the anticorruption drive. "There was no profit last year," he said. "We just try to keep the business running."
Vivian Liu, an administrative staffer at a Beijing university, says the austerity campaign hit her as well. "We used to have some kind of bonus or what we call a 'festival fee' during all big festival periods, but last year we didn't get any," she said.
One bright spot for China in the coming year is international trade as economies in the U.S. and Europe improve. The World Bank expects world trade to grow 4.6% this year, compared with a 3.1% increase in 2013, and other analysts forecast a bigger pickup.
China is poised to become the world's largest trader, likely passing the U.S. last year. Exports grew 7.9% in 2013 compared with the year-ago period. Louis Kuijs, a China analyst at Royal Bank of Scotland, RBS.LN -2.06% expects exports to pick up by at least one percentage point.
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Xiang Xiaoyun, chief executive of Kaicheng Shoes Co. in the southeast China city of Wenzhou, said that exports to the U.S. have started to pick up, but making a profit is tough. Higher costs of labor and materials and an appreciating currency "are big headaches," he said.
Other factors could limit a pickup. In the second half of last year China began to curb the growth of new lending and to shutter steel factories as part of an effort to reduce China's financial vulnerability. Over the past five years, the growth in China's lending—some of which has gone to finance steel mills and other projects swamped by overcapacity—has matched bubbles in the U.S., Europe, South Korea and Japan, which ended in deep recession in those countries.
Few mainstream economists predict a crisis in the coming year. But any government effort to slow the increase in credit could hinder growth in the shorter term. Investment in fixed assets like buildings and factory equipment last year totaled 43.65 trillion yuan, a gain of 19.6%. That is down from 20.7% growth in 2012 and slower than any year in the past decade, according to Moody's Analytics.
Mr. Kuijs, of RBS, expects the credit tapering to continue but at a moderate pace out of concern that too big a hit would batter the economy.
Last year, real estate was a surprising bright spot. Housing prices and sales in major Chinese cities shot up as home buyers concluded that the government was easing property curbs. Residential and commercial property sales totaled 8.14 trillion yuan ($1.3 trillion) in 2013—up more than 26% from 2012.
But few property analysts expect the pace to continue. James Macdonald, head of research at Savills China in Shanghai, a property consulting firm, forecast that growth in housing prices and sales would "moderate this year."
—Liyan Qi, Lilian Lin, Kersten Zhang and Esther Fung contributed to this article.
Write to Bob Davis at bob.davis@wsj.com and William Kazer at william.kazer@wsj.com
Minimum-Wage Mirage?
By Robert Samuelson - January 17, 2014
WASHINGTON -- This minimum wage business is tricky. On its face, raising the minimum seems an easy way to fight poverty. Just pay low-wage workers more. After all, some scholarly research finds that, within reasonable limits, there's no job penalty. A higher minimum doesn't reduce employment much, if at all. By and large, that's the position of the Obama administration, congressional Democrats and liberal groups. Unfortunately, it may not be that simple.
Democrats propose raising the present federal minimum of $7.25 an hour to $8.20 this year, $9.15 in 2015 and $10.10 in 2016. Assuming no job losses, almost 28 million workers would benefit by 2016, estimates the Economic Policy Institute, a liberal think tank. That's about 17 million now below the proposed minimums, plus another 11 million slightly better-paid workers would also get increases to keep them above the minimum.
Someone working 40 hours a week at the minimum would see annual wages go from $15,080 now to $21,008 in 2016. Today's annual wage is about 20 percent below the federal poverty line for a family of three, while the 2016 wage would slightly be above for a family of three (though not of four), says EPI. Not all workers would receive big increases, because many work part-time (46 percent), don't stay for a full year or are already above the minimum. Still, wage gains could be sizable.
Economist John Schmitt of the Center for Economic and Policy Research, another left-leaning think tank, says that recent minimum-wage studies find that "modest increases" have "little or no employment effect." Businesses turn to other ways of absorbing the added costs rather than reducing payrolls or workers' hours, he says. Better-paid workers mean less turnover. This cuts firms' recruitment and training costs; it also raises workers' productivity, because they're more familiar with their jobs. Finally, firms adopt "small price increases."
All this sounds plausible; it may also be incomplete.
For starters, the minimum wage is a blunt instrument to aid the poor because it covers many workers from families that are well above the federal poverty line. By the administration's figures, 53 percent of workers who would benefit from a higher minimum come from families with incomes above $35,000, including 22 percent with incomes exceeding $75,000.
Next, economists still disagree on the job effect. In studies -- and their review of other studies -- economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve conclude that higher minimums do weaken low-wage employment. Under plausible assumptions, even a small effect (say, a 1 percent job loss for each 10 percent increase in the minimum) implies nearly a million fewer jobs over three years.
But scholarly research, regardless of conclusions, may be beside the point. Businesses don't consult studies to decide what to do. They respond based on their own economic outlook. They may not react to a higher minimum now as in the past. Two realities suggest this.
First, the proposed increase is huge. By 2016, it's almost 40 percent. Similar gains in the past usually occurred when high inflation advanced all wages rapidly. The minimum mainly kept pace. That's not true today. Compared to average wages, the proposed hike in the minimum appears to be the largest since the 1960s.
Second, businesses have been reluctant job creators. They curb hiring at the least pretext. They seem obsessed with cost control. The Great Recession and 2008-09 financial crisis spawned so much fear that they changed, at least temporarily, behavior. Firms are more cautious.
Would employers take the minimum's steep costs in stride -- or react by cutting hiring and automating more low-paid jobs (example: supermarket checkouts)? That's the crucial question. And which matter more for low-income workers: added jobs or higher incomes? There's a powerful symbolism to raising the minimum, but the notion that it can be boosted sharply without any job penalty may be a mirage.
//
(c) 2014, The Washington Post Writers Group
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How We Won -- and Lost -- the War on Poverty
By Robert Samuelson - January 13, 2014
WASHINGTON -- We are awash in retrospectives of the "War on Poverty," launched 50 years ago this month by Lyndon Johnson. A furious debate has developed between those (mostly liberals) who consider the war an important, if incomplete, triumph and those (mostly conservatives) who judge it a wasteful defeat. In reality, we both won and lost the War on Poverty. This is an ambiguous truth that our acrimonious political culture has trouble accepting.
We won in the sense that programs for the poor have dramatically reduced hardship and have kept millions from destitution. To those who think that Washington mainly serves "fat cats," Ron Haskins of the Brookings Institution says: Look at the numbers. In 2011, he estimates, federal spending dedicated to the poor averaged $13,000 for every person below government's poverty line, now $23,000 for a family of four.
Similarly, the Congressional Budget Office reports that, in inflation-adjusted dollars, spending on the largest "means-tested" programs (eligibility set by low income) increased from $55 billion in 1972 to $588 billion in 2012. Most of these programs -- including Medicaid, the earned-income tax credit (EITC) and Pell college grants -- didn't exist in 1964. They represent a sixth of federal spending and 4 percent of the economy (gross domestic product), up from 1 percent in 1972. Even this significantly understates spending on the poor, because it omits Social Security and Medicare benefits, which also go to the non-poor.
The War on Poverty is often branded a failure because the share of Americans below the official poverty line has barely budged. In 1982, at the end of a harsh recession, it was 15 percent. In 2010, after the Great Recession, it was 15 percent.
The trouble is that the official poverty rate is a lousy indicator of people's material well-being. It misses all that the poor get -- their total consumption. It counts cash transfers from government but not non-cash transfers (food stamps, school lunches) and tax refunds under the EITC. Some income is under-reported; also, the official poverty line overstates price increases and, therefore, understates purchasing power.
Eliminating these defects, economists Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame built a consumption-based index that estimates the 2010 poverty rate at about 5 percent.
People at the bottom aren't well-off, but they're better off than they once were. Among the official poor, half have computers, 43 percent have central air conditioning and 36 percent have dishwashers, report Meyer and Sullivan. These advances are especially impressive because the massive immigration of unskilled Hispanic workers inflated the ranks of the poor. From 1990 to 2007, all the increase in official poverty was among Hispanics.
But this wasn't the war LBJ envisioned -- and we lost that war, which aimed to catapult the poor into the economic mainstream. The root problem, Johnson said, was that many poor didn't have "a fair chance to develop their own capacities." Government would remove the obstacles holding them back through "better schools ... health ... training." Thus liberated, most poor people would become more productive, independent and middle class. A phrase at the time was "a hand up, not a handout."
This failed dismally. America remains a tiered society with millions at the bottom still living more chaotic and vulnerable lives. Government's capacity to boost them into the mainstream was oversold. Although Head Start produces some gains for 3- and 4-year-olds, improvements dissipate quickly; one study found most disappeared by third grade. Schools are continually "reformed," because they don't produce better results.
The War on Poverty became the welfare state.
Worse, the breakdown of marriage and spread of single-parent households suggest that poverty may grow.
From 1963 to 2012, the share of families with children under 18 headed by a single parent tripled to 32 percent. It's 26 percent among whites, 34 percent among Hispanics and 59 percent among African-Americans. Just why is murky. Low-income men may flunk as attractive marriage mates. Or, "women can live independently more easily rather than put up with less satisfactory marriages," as Brookings' Isabel Sawhill says. Regardless of the causes and despite many exceptions, children in single-parent households face a harder future. They're more likely to drop out of school, get pregnant before age 20 or be unemployed.
Poverty becomes self-perpetuating.
The War on Poverty's success at strengthening the social safety net -- a boon in the Great Recession -- should not obscure its failure as an engine of self-improvement. Government is fairly good at handing out money; it's less good at changing behavior. The two roles intersect. If the safety net is too generous, it will weaken work incentives. If it's too stingy, it will condone suffering. This tale of two wars has left the fight against poverty in a costly and unsatisfying stalemate.
//
(c) 2014, The Washington Post Writers Group
Page Printed from: http://www.realclearpolitics.com/articles/2014/01/13/how_we_won_--_and_lost_--_the_war_on_poverty_121197.html at January 17, 2014 - 08:44:50 AM CST
Can't Find Skilled Workers? Start an Apprentice Program
In Switzerland, 70% of young people age 15-19 are training for hundreds of occupations. Among German youth: 65%.
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Peter Downs
Jan. 16, 2014 7:17 p.m. ET
One key element to a competitive workforce almost entirely overlooked in the U.S. is apprenticeships. These days, American businesses typically want someone else—trade schools, community colleges, universities or even the federal government—to train their future employees. If potential future job seekers haven't been provided with the training they need, many businesses expect job seekers to take all the responsibility on themselves, often taking on serious debt without any guarantee of future employment.
Worse, in the face of greater competition, many American employers are slashing training budgets and running employment software that rejects every applicant who doesn't already have the perfect combination of training and experience to perform the job on day one. Then employers lament that job applicants don't already know how to do the jobs that they want them to do. So shortsighted is this attitude that some construction companies that don't support apprenticeship programs complain that companies that do have such programs aren't training enough new workers. Yes, you read that right.
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This sense of entitlement contrasts sharply with attitudes in some of the world's most competitive countries, where businesses are highly involved in preparing future workers through apprenticeships. In Switzerland, 70% of young people age 15-19 apprentice in hundreds of occupations, including baking, banking, health care, retail trade and clerical careers. In Germany, 65% of youth are in apprenticeships; in Austria 55%. All three countries have youth unemployment rates less than half of America's 16%.
Last year, Greece, Italy, Latvia, Portugal, the Slovak Republic and Spain all asked Germany to help them set up similar systems. In 1997, Britain introduced a program called Modern Apprenticeships, based on the German model, and enrollment has increased every year. It now stands at 858,900. In 2012, the U.K. added apprenticeship programs for commercial pilots, lawyers, engineers and accountants that are considered the equivalent of a college education.
The U.S. is headed in the opposite direction. The number of apprenticeship programs has fallen by one-third in the last decade. With only 330,578 registered apprentices in 2013, the U.S. had less than 40% of the number in Britain, a country one-fifth as populous.
There are glimmers of hope that the U.S.—or at least some savvy industries—might be starting to embrace apprenticeship. In St. Louis, technology entrepreneur Jim McKelvey convinced several large employers last year—including Enterprise, Monsanto MON -0.28% and Rawlings —that it doesn't take a college education to become good at computer programming. What it takes is working with an experienced programmer.
These employers joined with Mr. McKelvey to set up what is essentially an apprenticeship program called LaunchCode. The program takes people with basic programming skills, pays them $15 an hour, and pairs them with experienced programmers for two years to give them the training to secure jobs as coders.
Some employers think apprenticeships could also work in other high-tech, high-growth industries. In recent years, the U.S. Office for Apprenticeships has registered new apprenticeship programs in information technology, health care, biotechnology and geospatial technology.
There is evidence that such apprenticeships can do more than just train young people for future careers: They can also improve student academic performance. In the few U.S. school districts that have offered apprenticeships, high-school juniors and seniors who have been apprentices have improved in the classroom.
In the Bayless School District in suburban St. Louis, for example, students who entered the district's Middle Apprenticeship Program with the Carpenters' Union had better attendance than before entering the program. The mean grade point average for these students was 1.7 at the end of their sophomore year, before they entered the apprenticeship program. By senior year, it was 3.13. They graduated with better attendance and better grades than did a group of similar students who weren't in the program.
John Gaal, director of this particular apprenticeship program, credits the academic improvement to "relevance." In other words, the students saw how their classes were relevant to the careers they wanted to pursue.
To the extent that the American business community is involved in education reform, they are typically investing in faddish reforms such as banning tenure, that, even if passed, would do little to ensure the competitiveness of the nation's workforce. If this same money and effort went into pushing for a two-track education system—college or apprenticeship—it would do far more to produce students prepared to compete in the 21st-century economy.
Mr. Downs is the editor of St. Louis Construction News & Review, a construction-trade magazine, and author of "Schoolhouse Shams: Myths and Misinformation in School Reform" (Rowman & Littlefield, 2013).
1:05 pm
Jan 16, 2014 http://blogs.wsj.com/economics/2014/01/16/where-are-the-u-s-s-millionaires/?mod=WSJ_hps_MIDDLENexttoWhatsNewsForth
Where Are the U.S.’s Millionaires?
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The state making the fastest climb up the millionaire rankings doesn’t have a single Tiffany or Saks Fifth Avenue store. The closest BMW dealership is a six-hour drive from the capital.
Welcome to North Dakota, which jumped 14 spots in the annual rankings of millionaire households per capita released by Phoenix Marketing International. The firm derives its figures from a combination of data from the Federal Reserve, Census Bureau and polling firm Nielsen Co. (See a slideshow of the top 10 states)
There were approximately 53,000 more millionaire households in the U.S. last year than in 2012, according to Phoenix, a market research firm based in Rhinebeck, N.Y. About 6.15 million millionaire households are spread across the U.S., according to the report. That means 1 in every 20 households in the U.S. has more than $1 million in investable assets. Those figures don’t include the value of real estate.
Large movements for many states made the latest millionaire rankings unusual. Maine climbed 11 spots over a single year to No. 25 in 2013. Louisiana jumped 10 to No. 32. Meanwhile, Nevada fell 20 spots to No. 39. Arizona, Florida, Idaho and Michigan all fell by more than 10 positions. From 2011 to 2012, no state changed its rank by more than two positions.
The big swings may suggest economic recovery may have become more uneven last year, said David Thompson, a managing director at Phoenix. “Maine and Louisiana are two states that have seen big turnarounds in their economies,” he said. “In Nevada, the data suggests the state is still feeling the effects of the downturn.”
But no state had a bigger surge than North Dakota. In 2012, North Dakota ranked 43rd, one spot behind Alabama. Last year, it moved up to 29th, one ahead of Florida. North Dakota’s energy boom, especially in the Bakken shale region, is driving the state’s wealth gains. But its people in the oil patch aren’t about to flaunt it.
“The only way you know a Bakken millionaire is he’ll be driving a new truck and might have taken his wife on vacation,” said Kelvin Hullet, president of the chamber of commerce in Bismarck, the state capital.
Mr. Hullet said the energy, health care and technology sectors are all growing in the state — pushing up paychecks of both the working class and affluent. The state’s unemployment rate was 2.6% in November, according to the Labor Department. That was the lowest in the nation by a percentage point.
The result has been a rapid expansion of retailers, restaurants and housing, Mr. Hullet said. But Bismarck hasn’t turned into West Egg. “I’ve seen the occasional Bentley,” he said. “But mostly, North Dakota is the type of place where someone can be very wealthy and you’d never know it.”
The top of the overall rankings didn’t change much. Maryland was No. 1 for the third consecutive year, with 7.7% of households holding more than $1 million in assets. New Jersey, Connecticut and Hawaii followed. Those four states, in various orders, have led the rankings every year since 2006.
Phoenix uses the data to inform clients, which include wealth-management firms.
Related: David Thompson of Phoenix Marketing International joins the News Hub.
|
Alabama
|
1,905,886
|
80,138
|
4.20%
|
0.14 pct. pts
|
|
Alaska
|
269,890
|
18,209
|
6.75%
|
0.28 pct. pts
|
|
Arizona
|
2,453,991
|
108,682
|
4.43%
|
-0.58 pct. pts
|
|
Arkansas
|
1,167,428
|
43,588
|
3.73%
|
0.25 pct. pts
|
|
California
|
12,883,977
|
777,624
|
6.04%
|
-0.05 pct. pts
|
|
Colorado
|
2,057,819
|
113,914
|
5.54%
|
0.02 pct. pts
|
|
Connecticut
|
1,376,955
|
100,754
|
7.32%
|
0.11 pct. pts
|
|
Delaware
|
349,794
|
21,679
|
6.20%
|
0.33 pct. pts
|
|
District of Columbia
|
284,867
|
17,378
|
6.10%
|
0.08 pct. pts
|
|
Florida
|
7,631,375
|
348,623
|
4.57%
|
-0.46 pct. pts
|
|
Georgia
|
3,694,439
|
163,144
|
4.42%
|
-0.20 pct. pts
|
|
Hawaii
|
466,705
|
33,520
|
7.18%
|
-0.11 pct. pts
|
|
Idaho
|
595,106
|
22,379
|
3.76%
|
-0.44 pct. pts
|
|
Illinois
|
4,884,048
|
270,414
|
5.54%
|
0.04 pct. pts
|
|
Indiana
|
2,532,022
|
101,789
|
4.02%
|
-0.24 pct. pts
|
|
Iowa
|
1,239,152
|
58,095
|
4.69%
|
0.28 pct. pts
|
|
Kansas
|
1,128,776
|
54,266
|
4.81%
|
0.17 pct. pts
|
|
Kentucky
|
1,748,832
|
67,068
|
3.84%
|
0.05 pct. pts
|
|
Louisiana
|
1,774,060
|
79,681
|
4.49%
|
0.35 pct. pts
|
|
Maine
|
560,006
|
26,276
|
4.69%
|
0.41 pct. pts
|
|
Maryland
|
2,199,912
|
169,287
|
7.70%
|
0.39 pct. pts
|
|
Massachusetts
|
2,587,868
|
174,225
|
6.73%
|
0.22 pct. pts
|
|
Michigan
|
3,883,070
|
169,991
|
4.38%
|
-0.27 pct. pts
|
|
Minnesota
|
2,131,481
|
118,410
|
5.56%
|
0.11 pct. pts
|
|
Mississippi
|
1,128,842
|
40,955
|
3.63%
|
0.14 pct. pts
|
|
Missouri
|
2,399,696
|
106,390
|
4.43%
|
0.07 pct. pts
|
|
Montana
|
420,800
|
18,106
|
4.30%
|
0.24 pct. pts
|
|
Nebraska
|
736,877
|
34,916
|
4.74%
|
0.32 pct. pts
|
|
Nevada
|
1,022,478
|
44,437
|
4.35%
|
-0.78 pct. pts
|
|
New Hampshire
|
522,867
|
33,867
|
6.48%
|
0.39 pct. pts
|
|
New Jersey
|
3,238,448
|
242,647
|
7.49%
|
0.22 pct. pts
|
|
New Mexico
|
815,453
|
37,957
|
4.65%
|
0.28 pct. pts
|
|
New York
|
7,408,730
|
429,153
|
5.79%
|
0.11 pct. pts
|
|
North Carolina
|
3,853,043
|
158,447
|
4.11%
|
-0.05 pct. pts
|
|
North Dakota
|
293,994
|
13,494
|
4.59%
|
0.53 pct. pts
|
|
Ohio
|
4,625,934
|
204,121
|
4.41%
|
-0.01 pct. pts
|
|
Oklahoma
|
1,496,646
|
62,233
|
4.16%
|
0.17 pct. pts
|
|
Oregon
|
1,559,406
|
70,731
|
4.54%
|
-0.22 pct. pts
|
|
Pennsylvania
|
5,060,354
|
265,350
|
5.24%
|
0.27 pct. pts
|
|
Rhode Island
|
413,196
|
22,845
|
5.53%
|
0.08 pct. pts
|
|
South Carolina
|
1,852,786
|
76,831
|
4.15%
|
-0.06 pct. pts
|
|
South Dakota
|
333,001
|
14,553
|
4.37%
|
0.35 pct. pts
|
|
Tennessee
|
2,542,865
|
101,465
|
3.99%
|
-0.04 pct. pts
|
|
Texas
|
9,336,438
|
456,949
|
4.89%
|
0.16 pct. pts
|
|
Utah
|
917,043
|
45,393
|
4.95%
|
-0.23 pct. pts
|
|
Vermont
|
259,015
|
13,630
|
5.26%
|
0.25 pct. pts
|
|
Virginia
|
3,137,169
|
208,187
|
6.64%
|
0.28 pct. pts
|
|
Washington
|
2,711,326
|
155,668
|
5.74%
|
0.21 pct. pts
|
|
West Virginia
|
767,945
|
29,367
|
3.82%
|
0.22 pct. pts
|
|
Wisconsin
|
2,312,821
|
106,647
|
4.61%
|
-0.02 pct. pts
|
|
Wyoming
|
231,877
|
12,058
|
5.20%
|
0.22 pct. pts
|
Source: Phoenix Marketing International
January 15, 2014http://townhall.com/columnists/walterewilliams/2014/01/15/income-inequality-n1778202
Income Inequality
Walter E. Williams
1/15/2014 12:01:00 AM - Walter E. Williams
Democrats plan to demagogue income inequality and the wealth gap for political gain in this year's elections. Most of what's said about income inequality is stupid or, at best, ill-informed. Much to their disgrace, economists focusing on measures of income inequality bring little light to the issue. Let's look at it.
Income is a result of something. As such, results alone cannot establish whether there is fairness or justice. Take a simple example to make the point. Suppose Tom, Dick and Harry play a weekly game of poker. The result is: Tom wins 75 percent of the time. Dick and Harry, respectively, win 15 percent and 10 percent of the time. Knowing only the game's result permits us to say absolutely nothing as to whether there has been poker fairness or justice. Tom's disproportionate winnings are consistent with his being either an astute player or a clever cheater.
To determine whether there has been poker justice, the game's process must be examined. Process questions we might ask are: Were Hoyle's rules obeyed; were the cards unmarked; were the cards dealt from the top of the deck; and did the players play voluntarily? If these questions yield affirmative answers, there was poker fairness and justice, regardless of the game's result, even with Tom's winning 75 percent of the time.
Similarly, income is a result of something. In a free society, for the most part, income is a result of one's capacity to serve his fellow man and the value his fellow man places on that service. Say I mow your lawn and you pay me $50. That $50 might be seen as a certificate of performance. Why? It serves as evidence that I served my fellow man and enables me to make a claim on what he produces when I visit the grocer. Google founders Sergey Brin and Larry Page are multibillionaires. Just as in the case of my serving my fellow man by mowing his lawn, they served their fellow man. The difference is they served many more of their fellow men and did so far more effectively than I and hence have received many more "certificates of performance," which enables them to make greater claims on what their fellow man produces, such as big houses, cars and jets.
Brin and Page and people like them created wealth by producing services that improve the lives of millions upon millions of people all around the globe. Should people who have improved our lives be held up to ridicule and scorn because they have higher income than most of us? Should Congress confiscate part of their wealth in the name of fairness and income redistribution?
Except in many instances when government rigs the game with crony capitalism, income is mostly a result of one's productivity and the value that people place on that productivity. Far more important than income inequality is productivity inequality. That suggests that if there's anything to be done about income inequality, we should focus on how to give people greater capacity to serve their fellow man, namely raise their productivity.
To accomplish that goal, let's look at a few things that we shouldn't do. Becoming a taxicab owner-operator lies within the grasp of many, but in New York City, one must be able to get a license (medallion), which costs $700,000. There are hundreds of examples of government restrictions that reduce opportunity. What about the grossly fraudulent education received by so many minority youngsters? And then we handicap them further with laws that mandate that businesses pay them wages that exceed their productivity, which denies them on-the-job training.
Think back to my poker example. If one is concerned about the game's result, which is more just, taking some of Tom's winnings and redistributing them to Dick and Harry or teaching Dick and Harry how to play better? If left to politicians, they'd prefer redistribution. That way, they could get their hands on some of Tom's winnings. That's far more rewarding to them than raising Dick's and Harry's productivity.
http://blogs.wsj.com/economics/2014/01/15/for-recent-grads-good-jobs-really-are-hard-to-find/
6:58 am
Jan 15, 2014
For Recent Grads, Good Jobs Really Are Hard to Find
By
Anecdotal accounts of young college grads working as baristas, bartenders or retail clerks are widespread, provoking questions about the economic logic of going to college, particularly if doing so means taking on a lot of debt.
Now come some economists from the Federal Reserve Bank of New York with evidence that college grads between 22 years old and 27 years really are finding it tougher to find jobs that require a bachelor’s degree than has been the case in the past.
“Such difficulties are not a new phenomenon,” the economists say in an essay published in the New York Fed’s latest Current Issues. “Individuals just beginning their careers often need time to transition into the labor market.”
But that transition has been becoming more difficult for the past 15 years, they say. “Job prospects for recent college graduates have indeed worsened.”
Click image for larger view.
WSJ.COM
Using Census Bureau and Labor Department data, the economists find that the fraction of college grads between 22 and 27 who were working in jobs that don’t generally require a bachelor’s degree rose to 46% during the 1990-91 recession, fell significantly during the 1990s boom and was down to 34% by 2001. This “underemployment rate” rose sharply after the 2001 recession and rose further after the 2007-09 recession, the economists find. It stood at 44% in 2012.
Underemployment is most acute for those immediately out of college: 56% of 22-year-old college grads in 2009-2011 were working in jobs that didn’t require college degrees, substantially higher than in 1990 and in 2001. Historical data suggest many of them will find better jobs before they turn 30.
Researchers Jaison Abel, Richard Deitz and Yaqin Su emphasize that their findings don’t undercut the economic wisdom of going to college: “While it appears that the labor market has become more challenging for recent college graduates, it is much worse for young people who don’t have a college degree.”
Indeed, the government snapshot of the job market in December found that 7.7% of those over age 25 who had only a high school diploma were unemployed, but only 3.3% of those with four-year college or graduate degrees were unemployed.
There has been speculation that college grads are taking jobs that don’t generally require a four-year degree, but pay well nonetheless, such as electrician or machinist or dental hygienist. The New York Fed economists find, however, that the share of underemployed college grads in such jobs has been falling, and the share in low-wage jobs has been rising. They also find that the share of college grads working part-time has been rising.
The New York Fed economists don’t offer much explanation as to why the share of college grads who are underemployed is rising. They note that economists Paul Beaudry and David Green of the University of British Columbia and Benjamin Sand of York University argue that, in a major reversal, technology-driven demand for tasks usually associated with college degrees — jobs in which workers exploit the power of computers as opposed to those in which computers replace human labor – began to decline around 2000.
But Lawrence Katz, a Harvard University economist who has long studied the supply and demand of educated workers, challenges the argument and says that the trend favoring skilled and educated workers almost certainly continues to increase. “I suspect we will continue to see lots of major technological changes transforming the work force and giving high returns to abstract skills, people skills and creativity,” he said.
He pointed to recent research by British economists that the wages of both American and British workers with post-graduate degrees have been increasing faster than wages of those with only four-year degrees.
Mr. Katz acknowledged, though, that there are indications that the rate of growth in demand for educated workers slowed during the 2000s. And measures of the changing nature of work in the U.S. suggest that there was less of a shift toward tasks that generally require college-level skills in the 2000s than in the previous three decades, according to a recent report, “Dancing with Robots: Human Skills for Computerized Work,” by Frank Levy of MIT and Richard Murnane of Harvard.
Reinforcing research by others, Mr. Abel and the other New York Fed economists find that those who major in engineering, math, computers and other technical fields as well as those in growing parts of the economy such as health and education tend to do better. Those who major in leisure and hospitality, communications, liberal arts, social sciences and business are more likely to be underemployed after they graduate.
Among leisure and hospitality majors in their 20s, 63% were working in jobs that generally require a college degree; only 38% of those with technology majors were doing so. (The researchers note that this may reflect a tendency of sharper college students to pursue technical majors.) These trends, the economists say, bolster the case for giving college students more and better information about the likelihood of finding a job in particular fields before the students choose their majors.
David Wessel is a contributing correspondent to The Wall Street Journal and director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. He can be reached at dwessel@brookings.edu
http://online.wsj.com/news/articles/SB10001424052702304049704579320923283435010?mod=WSJ_Opinion_AboveLEFTTop
Net Neutralized
The D.C. Circuit tosses the FCC's latest attempt to regulate the Web.
Jan. 14, 2014 7:45 p.m. ET
Another day, another judicial rebuke to the Obama Administration's abusive rule-making habits. On Tuesday, a three-judge panel of the D.C. Circuit tossed out as illegal the Federal Communications Commission's bald attempt to regulate the Internet.
For those keeping score at home, that means the FCC is now zero for two in its attempts to impose "net neutrality" rules on the Internet. Net neutrality travels under the guise of ordering Internet service providers like Verizon VZ +0.11% and Comcast CMCSA +1.25% not to discriminate against content providers. In reality it's a government attempt to dictate how these providers must manage their Internet pipes and how much they can charge companies for using those pipes.
Enlarge Image
Former Federal Communications Commission Chairman Julius Genachowski Bloomberg News
Silicon Valley kingpins like net neutrality because it means Verizon can't charge Google's GOOG +2.35% YouTube or Netflix NFLX +0.34% more for using more capacity or faster speeds. This makes no more economic sense than forcing a cable company to charge one price no matter how many channels a consumer subscribes to, or saying a retailer can't charge more for two dresses than for one. It also means less innovation and slower broadband rollout because Internet companies are less sure of their return on investment.
President Obama nonetheless made net neutrality one of his 2008 campaign pledges, but he tried and failed to get even a Democratic Congress to pass legislation. No matter, because former FCC Chairman Julius Genachowski took up the dirty work and jammed the rule through the commission on a partisan 3-2 vote in December 2010.
Now the three judges, two of them Democratic appointees, have concluded that this power grab exceeded the FCC's legal authority as some of us argued at the time. Their ruling throws out the entire regulation except for its disclosure requirements.
Alas, there is a catch in Wednesday's ruling, as Judge Laurence Silberman noted in his separate opinion. Judge Silberman agreed with Judges David Tatel and Judith Rogers on overturning the rules. But he dissented from Judge Tatel's majority opinion that offers the FCC a loophole for further regulation by saying the agency has the power to regulate the Internet as long as it doesn't treat service providers the way it does common telephone carriers.
Judge Silberman notes that the FCC could return to exploit this, and he explains with an extensive legal and economic analysis why he thinks this interpretation is wrong. The good news is that this offers other judges a legal road map for opposing the Tatel-Rogers logic if the FCC tempts the law by trying to reimpose net neutrality.
It's also a warning to new FCC Chairman Tom Wheeler, a liberal and net neutrality devotee, that he should think twice about seeking review of Wednesday's ruling by either the entire D.C. Circuit or the Supreme Court. Judge Silberman carries a bigger legal stick than his two comrades.
Mr. Wheeler would be better off to accept strike two and move on. An appeal risks an even bigger judicial smackdown if the Supreme Court sides with Mr. Silberman, and passing another rule would take months and a great deal of political capital. As former FCC Commissioner Robert McDowell notes nearby, the FCC and other federal agencies have plenty of other regulatory and enforcement power to police Internet abuses or anti-competitive behavior. These include antitrust and consumer protection laws.
The larger reality is that the Internet has succeeded in bringing an entire new world to consumers under the current light regulatory model. Broadband has spread to most of the country save its most rural areas, and content services are proliferating. The biggest obstacle to this progress would be political intervention that impeded innovation in the name of a false equity that serves only the giants of Silicon Valley. Mr. Wheeler shouldn't waste his tenure on a lost legal cause.
http://online.wsj.com/news/articles/SB10001424052702304603704579321872259884420
German Economic Growth Fails to Gain Impetus
Economists Predict Stronger Year Ahead
By
Nina Adam
Updated Jan. 15, 2014 5:39 a.m. ET
A worker operates a precision winding machine at Alterfil Naehfaden company in Oederan, Germany, on Jan. 6. European Pressphoto Agency
FRANKFURT—German economic growth failed to gain momentum in the fourth quarter of 2013, according to a first estimate by the statistics office, but economists predict stronger growth this year as the country's export outlook brightens.
Germany's gross domestic product—a measure of goods and services produced across the economy—expanded 0.4% in 2013, following growth of 0.7% in 2012, the Federal Statistics Office said on Wednesday. The economy grew 0.5% when taking account of the number of working days each year.
Based on the full-year figures, GDP increased around 0.25% in the three months through December—about the same rate as the third quarter—according to the statistics office, which is due to publish fourth-quarter national accounts in mid-February.
Behind Germany's export success is an outsize global sales-promotion network that is helping to boost a trade surplus that has become a source of friction with its European and U.S. allies. Read more.
More
"The annual growth number is weaker than I thought, but it isn't indicative for 2014," said Citigroup economist Ebrahim Rahbari. "We expect the German economy to expand by 2% in 2014 and 1.9% in 2015, exceeding growth in virtually all other euro-zone countries except perhaps for Ireland."
An expansion of 2% would mark the highest rate since 2011, when Europe's largest economy grew 3.3%.
Forecasts of a growth acceleration this year are based partly on an upbeat mood among German businesses and investors, with manufacturers winning more orders, signaling a pickup in industrial production in the months ahead.
Economists have also said Germany's high level of employment will likely underpin consumer spending, which already pulled the economy along last year.
The rest of the euro zone isn't doing as well. Staff at the European Central Bank projected in December that euro-zone GDP declined 0.4% in 2013, but predicted growth of 1.1% and 1.5% for 2014 and 2015, respectively.
Germany's growth last year relied on domestic demand, as private consumption rose 0.9% and government spending increased 1.1%, the statistics office said.
Net trade, however, reduced GDP growth, as exports—the traditional driver of economic growth in Germany—increased a meager 0.6%, while imports climbed 1.3%.
Corporate investment was weak too, with spending on machinery and equipment down 2.2% from a year earlier.
"It appears the crisis in the euro zone put the brakes on the German economy," the statistics office's head, Roderich Egeler, told a news conference on Wednesday, adding that domestic demand wasn't able to fully compensate.
Ralph Wiechers, the chief economist of German engineering-industry federation VDMA, sees better times ahead. Engineering companies will likely benefit from a recovery in German corporate investment and a pickup in key export markets such as the U.S. and China, as well as the euro zone's gradual recovery from recession, he said.
Germany's car makers gathering at the Detroit auto show also expressed optimism. Daimler AG DAI.XE +2.14% said this week it is hoping for record sales of its Mercedes-Benz brand this year. Chief Executive Dieter Zetsche predicted global car sales will rise 4% this year, with a 5% increase in the U.S. and a 1% to 2% increase in Europe.
—Harriet Torry contributed to this article.
Write to Nina Adam at nina.adam@wsj.com
Jan 15, 2014http://blogs.wsj.com/moneybeat/2014/01/15/yuan-set-to-hit-6-vs-dollar-this-year/?mod=WSJ__MIDDLENexttoWhatsNewsFifth
Yuan Set to Hit 6 vs. Dollar This Year
By Fiona Law
Villagers stand by a wall of money in southwest China’s Sichuan province, Jan. 14.
Agence France-Presse/Getty Images
China’s currency, the yuan, is set to hit 6 against the U.S. dollar this year, analysts and investors say.
“We expect the yuan to pass the number 6 against the dollar, marking a new era for the currency and coinciding with faster [renminbi] reforms and liberalization,” said Justin Chan, HSBC’s co-head of markets Asia-Pacific.
The offshore traded yuan, known as CNH (H stands for Hong Kong), is likely to reach the milestone before its onshore counterpart, the CNY, thanks to overseas investors’ bullish views on China.
Wednesday, the CNH was trading at 6.0200 to a dollar and the CNY was at 6.0442. While the difference between the two is small, there has been a recent uptick in offshore demand for the currency, analysts and traders say.
Chinese authorities say the yuan — known officially as the renminbi — is close to fair value, though critics in the U.S. and elsewhere say it is still undervalued and gives Chinese exporters an unfair trade advantage.
Since July 2005, when Beijing shifted from a currency peg against the dollar to a managed float based on a basket of currencies, the yuan has climbed 34% against the dollar. Analysts expect it to appreciate 2.5%-3% in 2014, hitting 6 against the dollar midway through the year.
Beijing says it is committed to liberalizing its currency regime.
China has an “underlying goal of achieving an eventual balance of currency supply and demand,” said Patrick Bennett, Hong Kong-based macro strategist at CIBC World Markets. “All argue for ongoing gradual appreciation,” albeit at a slower pace than previously, he added.
China’s record high foreign exchange reserves – $3.82 trillion at the end of 2013 – add upward pressure on the currency.
The strengthening yuan has dented China’s exports, which rose 4.3% year-on-year in December, down from 12.7% in November. The yuan gained 0.6% against the dollar last month after being flat in November. There were, however, possible distortions in the year-earlier exports figure, which many economists have attributed to so-called hot-money inflows misreported as trade.
“It is an unusual situation for China to keep the currency resilient, given the U.S. dollar is strong and all Asian central banks want [their currencies] to shadow against the dollar,” said Tim Condon, head of Asia-Pacific research at ING.
“China is forcing a policy to improve its economic structure, especially to push exporters to move up their technological ladder. And this process is not complete yet,” he added.
In 2010, in a bid to promote the yuan’s global use, Beijing removed some barriers for the currency to flow into the offshore market, appointing Hong Kong as the main hub for the currency to change hands freely. This offshore yuan market has been supported by overseas hedge funds and companies optimistic about the currency’s future.
“For the first time, corporate flow in [offshore yuan] options has clearly overtaken that in [Hong Kong dollar] options and may even exceed [Hong Kong dollar] option flow by twice the amount,” Standard Chartered PLC’s senior forex strategist Robert Minikin said.
Global fund managers’ increased interest in dim sum bonds, or yuan-denominated bonds issued outside mainland China, is also boosting demand for the currency offshore, Mr. Minikin added.
America's Dwindling Economic Freedom
Regulation, taxes and debt knock the U.S. out of the world's top 10.
By
Terry Miller
Jan. 13, 2014 8:05 p.m. ET http://online.wsj.com/news/articles/SB10001424052702303848104579308811265028066?mod=WSJ_Opinion_LEADTop
World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.
For 20 years, the index has measured a nation's commitment to free enterprise on a scale of 0 to 100 by evaluating 10 categories, including fiscal soundness, government size and property rights. These commitments have powerful effects: Countries achieving higher levels of economic freedom consistently and measurably outperform others in economic growth, long-term prosperity and social progress. Botswana, for example, has made gains through low tax rates and political stability.
Those losing freedom, on the other hand, risk economic stagnation, high unemployment and deteriorating social conditions. For instance, heavy-handed government intervention in Brazil's economy continues to limit mobility and fuel a sense of injustice.
Enlarge Image
Getty Images
It's not hard to see why the U.S. is losing ground. Even marginal tax rates exceeding 43% cannot finance runaway government spending, which has caused the national debt to skyrocket. The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and national prosperity.
But as the U.S. economy languishes, many countries are leaping ahead, thanks to policies that enhance economic freedom—the same ones that made the U.S. economy the most powerful in the world. Governments in 114 countries have taken steps in the past year to increase the economic freedom of their citizens. Forty-three countries, from every part of the world, have now reached their highest economic freedom ranking in the index's history.
Hong Kong continues to dominate the list, followed by Singapore, Australia, Switzerland, New Zealand and Canada. These are the only countries to earn the index's "economically free" designation. Mauritius earned top honors among African countries and Chile excelled in Latin America. Despite the turmoil in the Middle East, several Gulf states, led by Bahrain, earned designation as "mostly free."
A realignment is under way in Europe, according to the index's findings. Eighteen European nations, including Germany, Sweden, Georgia and Poland, have reached new highs in economic freedom. By contrast, five others—Greece, Italy, France, Cyprus and the United Kingdom—registered scores lower than they received when the index started two decades ago.
The most improved players are in Eastern Europe, including Estonia, Lithuania and the Czech Republic. These countries have gained the most economic freedom over the past two decades. And it's no surprise: Those who have lived under communism have no trouble recognizing the benefits of a free-market system. But countries that have experimented with milder forms of socialism, such as Sweden, Denmark and Canada, also have made impressive moves toward greater economic freedom, with gains near 10 points or higher on the index scale. Sweden, for instance, is now ranked 20th out of 178 countries, up from 34th out of 140 countries in 1996.
The U.S. and the U.K, historically champions of free enterprise, have suffered the most pronounced declines. Both countries now fall in the "mostly free" category. Some of the worst performers are in Latin America, particularly Venezuela, Argentina, Ecuador and Bolivia. All are governed by crony-populist regimes pushing policies that have made property rights less secure, spending unsustainable and inflation evermore threatening.
Despite financial crises and recessions, the global economy has expanded by nearly 70% in 20 years, to $54 trillion in 2012 from $32 trillion in 1993. Hundreds of millions of people have left grinding poverty behind as their economies have become freer. But it is an appalling, avoidable human tragedy how many of the world's peoples remain unfree—and poor.
The record of increasing economic freedom elsewhere makes it inexcusable that a country like the U.S. continues to pursue policies antithetical to its own growth, while wielding its influence to encourage other countries to chart the same disastrous course. The 2014 Index of Economic Freedom documents a world-wide race to enhance economic opportunity through greater freedom—and this year's index demonstrates that the U.S. needs a drastic change in direction.
Mr. Miller is the director of the Center for International Trade and Economics at the Heritage Foundation.
**********Jan 14/20********
********** Feb 2,**************
3:05 pm
Jan 31, 2014 http://blogs.wsj.com/economics/2014/01/31/the-history-of-the-imf-and-greeces-bailout/
The History of the IMF and Greece’s Bailout
By
While euro zone and International Monetary Fund officials secretly debate how to deal with Greece’s ever-controversial bailout, it might prove instructive to go back to the genesis of the program.
In 2010, the IMF agreed to jointly bailout Athens, despite deep internal divisions over whether it would work. Some IMF staff and nearly a third of the board’s executive directors raised major objections to the bailout’s design. In varying degrees, a raft of executive directors complained that growth projections were unrealistic. Some said debt restructuring was likely needed to ensure success. Many said too much of the painful adjustment burden was placed on the Greeks while asking nothing from its European creditors. Some officials at the IMF questioned whether the program would put too much political and social stress on the country.
But, with the U.S., Germany, France and other major European executive directors fearing that a debt restructuring would hit their banks and cause widespread contagion, the largest IMF shareholders won the day.
“The Greek bailout was not a program for Greece, but for the euro zone itself,” one participant at the 2010 meeting said in a recent interview.
The fund has since said that, while there were clearly some notable successes, “there were also notable failures.”
Under the second bailout, private creditors eventually took a loss on their holdings. But the IMF said last year that without additional debt relief by euro zone governments, Greece’s debt burden could smother the country’s economy.
Greece’s economic adjustment is one of the largest in modern history. For many Greeks, it has been excruciating; youth unemployment in Greece to nearly 60%. Germany continues to lead an effort opposing debt relief.
The Wall Street Journal already published a selection of key excerpts from a host of IMF documents on the 2010 bailout.
But due to popular demand, here’s a full summary of the minutes from the May 9, 2010 meeting prepared by fund officials and marked “Strictly Confidential.” (Highlights and scribbles are by your correspondent.)
*********Feb 8********
U.S. Adds 113,000 Jobs, in Latest Worrying Sign on Growth
Unemployment Falls to 6.6% as Labor Market Plods Along
y
Eric Morath And
Josh Mitchell
connect
Feb. 7, 2014 8:36 a.m. ET http://online.wsj.com/news/articles/SB10001424052702304680904579368562158283286?mod=WSJ_hp_LEFTTopStories
WASHINGTON—The labor market in January registered weak gains for the second straight month, a slowdown that could heighten fears about the economic recovery and may lead some to call on the Federal Reserve to reconsider its easy-money strategy.
U.S. payrolls increased by a seasonally adjusted 113,000 in January, the Labor Department said Friday. Job growth improved compared with December's gain, which was revised up by just 1,000 to 75,000, but was well below last year's average pace. The November increase was recast up by 33,000 to 274,000.
The January gain is weak compared to the 200,000-plus jobs added on average between August and November.
Real Time Economics
The unemployment rate, obtained through a separate survey, fell to 6.6% last month from 6.7% in December, the Labor Department said. The number of Americans who were employed and those part of the wider labor force both rose slightly.
Economists had expected a gain of 189,000 jobs and a 6.6% jobless rate, according to a Dow Jones Newswires survey.
December's weak payroll figure, and signs of weakness in the housing sector and emerging markets, sparked fears that 2014 could get off to a disappointing start.
January's report may heighten the concerns.
Consecutive weak employment reports could increase calls for the Fed to re-evaluate the wind-down of its bond-buying program. The Fed voted last month to reduce the pace of its monthly bond purchases by another $10 billion, $65 billion, despite December's disappointing payroll report. A continued step down of stimulus could be challenged given other signs of slowing growth and still mild inflation.
Before Friday's report, forecasting firm Macroeconomic Advisers said gross domestic product would expand at a 1.9% annualized pace in the first quarter. That would be a slowdown from 3.2% growth in the fourth quarter.
The latest data is a change from the fall, when job creation had sped up compared with the summer. That was in line with an economy that perked up, posting the strongest second-half growth since 2003.
For all of last year, the economy added an average of 194,000 jobs per month, according to updated figures, the Labor Department said. That's stronger than the 182,000 pace previously estimated. However, the pace in the past three months slowed to 154,000.
The change to last year's numbers in part reflects the Labor Department's annual benchmark revision, which incorporates newly available tax records. From April 2012 to March 2013, the U.S. payrolls included 369,000 more jobs than previously believed. Much of that increase was due to the reclassification of certain private household workers that were previously not counted.
Last month, construction payrolls grew by 48,000 compared with December's decrease of 22,000. The industry is hit harder than others by frigid temperatures. The December slowdown in the category suggested last month's overall figures were held back by unseasonably cold weather. Temperatures remained bitter in much of the country last month, but the week of the Labor Department's survey actually had warmer-than0-normal temperatures, J.P. Morgan Chase economist Daniel Silver said Thursday.
Manufacturing payrolls expanded by 21,000 last month and leisure and hospitality jobs grew by 24,000.
Those gains were largely offset by weakness in other categories.
Retail employment fell by 13,000, a decline in the category that expanded rapidly most of last year. Health-care payrolls, another growing field in 2013, barely inched up last month.
Employment at all levels of government fell by 29,000 in January.
Friday's report showed the labor-force participation rate rose to 63.0% from 62.8% in December, though the figure remains near a 35-year low.
The number of Americans unemployed for 27 weeks or longer fell by 232,000 in January. The latest data could partially reflect that more than 1 million Americans lost extended federal unemployment benefits at the end of December. To receive payments, beneficiaries had to actively look for work, and as a result were counted as part of the labor force. The drop in long-term unemployed might indicate they've now stopped looking.
A broader measure of unemployment that includes people working part time who want full-time jobs and people who are marginally attached to the labor force stood at 12.7% in January. That is down from 13.1% in December and 14.4% a year earlier.
Write to Eric Morath at eric.morath@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com
8:45 am
Feb 7, 2014 http://blogs.wsj.com/economics/2014/02/07/highlights-from-the-january-jobs-report/
Highlights From the January Jobs Report
By
Here are highlights from the January employment report, which showed weak gains for the second straight month with an increase of 113,000 jobs.
December weakness reaffirmed: December job growth was revised up only slightly, to 75,000 from an initially reported 74,000. That marked the weakest month of job creation in 2013. Many analysts have suggested December’s weak reading reflected a temporary blip due to unusually cold weather or flaws in the government’s seasonal adjustments of the data. The latest revision could heighten fears the labor market and economy abruptly weakened at the end of last year after robust growth in the fall. December’s figure will be revised further in next month’s report.
Jobless rate drops again: The unemployment rate ticked down a tenth of a percentage point to 6.6%. Other signs pointed to some progress. The number of Americans employed rose a bit, while the ranks of the unemployed fell. The labor-force participation rate clicked up 0.2 percentage point to 63.0%. That’s still historically weak–0.6 point below the level a year ago and hovering near 35-year lows.
Fed threshold approaches: The jobless rate moved even closer to the 6.5% threshold Federal Reserve policy makers have discussed as an indicator for when it will begin considering raising interest rates. That’s happened quicker than Fed officials had predicted. However, the broad picture suggests the labor market has weakened in recent months rather than strengthened. Fed officials have emphasized the jobless rate is one of many economic measures they study in plotting their next moves and that it might obscure the labor market’s true health.
Back-to-back weak jobs reports will surely raise the heat on new Fed Chairwoman Janet Yellen. The Fed has cut its bond-buying program at its previous two meetings, leaving it at $65 billion a month from $85 billion in December. Fed officials have signaled they will make additional cuts in coming months should the economy continue to make progress. But two months of weak jobs data–along with other signs of weakening in the factory and housing sectors–will provide a big test for Yellen: Whether to stay the course on winding down or to step back.
Government cuts continue: January would have looked a bit better without cuts in the public sector. Government employment fell by 29,000. The federal government cut 12,000 jobs, three-quarters of them due to cuts at the U.S. Postal Service. Over the past year, federal government employment has fallen by 85,000, or 3%, the Labor Department said.
Manufacturing: Employment in the factory sector climbed by 21,000, an unspectacular figure that nonetheless could ease fears of a major manufacturing slowdown in the world’s biggest economy. A report earlier this week showed a key purchasing manager’s index unexpectedly fell sharply in January. Turmoil in markets overseas over new concerns about emerging economies is stoking worries that U. S. factories could be hit, dinging the U.S. recovery. An earlier report this week showed exports weakened in December. But so far the sector remains in growth mode.
Student Loan Debt a Serious Problem
February 6, 2014
The student loan default rate has been climbing since the recession, says CNBC.
- Of 2012 graduates, 71 percent had student loans with an average debt of $29,400.
- A May 2013 report from the Consumer Financial Protect Bureau estimates outstanding student loans to be at $1.2 trillion.
- Students are also falling behind on their monthly payments -- the 90-day delinquency rate increased from 10.9 percent to 11.8 percent in the third quarter of 2013.
President Obama's State of the Union speech referenced the Health Care and Education Reconciliation Act, a new law that imposes a 10 percent cap on monthly student loan payments relative to income. The law goes into effect this year. Students who start college in 2014 can elect to repay their loans on an income basis with this 10 percent cap in place, rather than the 15 percent income cap that exists under current law.
Moreover, the new plan allows student balances to be forgiven after 20 years of monthly payments for most borrowers, while the remaining debts of military personnel, teachers, nurses and public service workers will be forgiven after only 10 years.
But the president's plan does little to solve the root of the problem. Unlike other debts, student loans are not dischargeable in bankruptcy, and many young people don't understand the true weight of the debts they owe.
- Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, said that too many students do not grasp the financial impact of their borrowing. "Young people don't really understand the repercussions of taking on loans. It is a serious commitment and will affect you for many years," she said.
- Many experts say more needs to be done in high schools and colleges to teach students about personal finance, so they don't find themselves drowning in debt later.
Source: Elaine Pofeldt, "Obama's Education Focus Overlooks Next Financial Contagion," CNBC.com, January 29, 2014.
http://online.wsj.com/news/articles/SB10001424052702304632204579340791661356108?mod=ITP_opinion_0
I Gave Away a Kidney. Would You Sell One?
In 2012, 4,903 Americans died while hoping for a kidney. There are 77,000 people on the waiting list.
·
· 24 Comments
By
Dimitri Linde
Feb. 5, 2014 6:59 p.m. ET
Seven weeks ago, at 6:30 a.m. on Dec. 19, I was admitted for surgery at the Brigham and Women's Hospital in Boston. I swapped my street clothes for a hospital gown, and an hour later I was sucking down oxygen from a mask that drowsed me as no breath of air ever has. By the time I came to at 5 p.m., my right kidney was halfway across the country, being implanted in a middle-aged woman an algorithm selected for me.
There are more than 77,000 Americans currently on waiting lists for a kidney and, unlike the woman that got mine, many won't get one. In 2012 fewer than 17,000 of those waitlisted received a transplant, and 4,903 would-be recipients died while waiting.
Life on the waitlist is grim. Transplant candidates typically undergo dialysis sessions three times a week, lasting four to five hours each. The sessions weaken patients to the degree that 71% discontinue work after starting. Treatments dispirit too: Those on dialysis experience clinical depression at a rate four times the national average. Absent finding a living donor, individuals on the list can expect a three to five year wait for a cadaver match. Nearly half die three years after starting dialysis.
Enlarge Image
Getty Images/Photo Researchers RM
Two policies would address the shortfall of kidneys in the U.S.: instituting a priority-scoring system for donors and their kin and paying donors.
Israel pioneered the former in 2012. Prioritizing organ allocation by donor status—a system that economist Alex Tabarrok termed "no give, no take"—incentivized people to register as organ donors. It also removed a hurdle to living donation: The incentive to abstain because of a hypothetical (What if my son needs a kidney?) went away since the policy guarantees that a donor's kin will be prioritized in the event that they need a transplant. The results? Both living and deceased donations have gone up, and the number of people who have died on the waitlist fell by 30% between 2010 and 2013.
To obviate the kidney shortage, we should heed the recommendation of Nobel Prize-winning economist Gary Becker and others by making it legal to compensate donors. Currently, the National Organ Transplant Act bans the "sale" of any human organs in the U.S. Those who oppose compensation object to its ramifications for donors and society. They argue that the poor will be exploited, and that people should give out of the goodness of their hearts.
But these lofty sentiments ignore the fact that 18 transplant candidates die each day. As the legal scholar Richard Epstein has put it: "Only a bioethicist could prefer a world in which we have 1,000 altruists per annum and over 6,500 excess deaths over one in which we have no altruists and no excess deaths."
Yet absent such policy changes, which have little traction in Washington, right now transplant chains are the best tool to facilitate donations. Chains begin with a would-be recipient identifying a donor—say, a man with polycystic kidney disease and his wife. In most cases, a potential donor doesn't have a compatible blood and tissue type with the intended recipient, so this spousal pair would likely be a poor match. (Incompatibility can marginalize the life span of the transplant, or preclude the body from accepting it at all.)
That's where organizations like the National Kidney Registry, a nonprofit computerized matching service, come in. The NKR and similar nonprofits work with hospitals across the U.S. to create large national exchanges, linking incompatible and poorly compatible pairs to highly compatible counterparts elsewhere. Additionally, by working with living donors, these matching services furnish kidneys that endure, on average, twice as long as equally compatible cadaver transplants.
Through groups like NKR, altruistic donors—people willing to donate to an anonymous person—initiate "donor chains," catalyzing multiple donations. Inspired by reading about a 60-person chain begun by such a donor, I entrusted the NKR to select my recipient. Their software churned up a highly compatible match for me more than a thousand miles away. Concurrent with receiving a kidney, my recipient's incompatible donor gave to a commensurately strong match. A courier delivered this donor's organ to a third hospital in yet another region of the country, completing the exchanges. (The average NKR chain yields six transplants.)
I donated with some hesitation. The laparoscopic surgery to remove a kidney, though far less invasive than conventional surgery, still carries a mortality risk of 0.03% (that's three deaths for every 10,000 procedures). But accepting a small potential for harm in the service of doing good is hardly unique: More than 1.4 million Americans do so every day in the military, a choice that also saves lives.
Donors can give safely into their 70s, but at 25 years old and healthy, with no dependents to support, I had an ideal profile. There was also no financial burden on me: Donors are not liable for any costs. The recipient's health insurance incurs the expense of the donor's pre-op, surgery and post-op recovery, as well as any unanticipated complications in the following year.
Living with one kidney, donors are advised against consuming gym supplements and the class of pharmaceuticals that includes ibuprofen. Otherwise, there are no permanent dietary or lifestyle prohibitions. My remaining kidney will grow to provide 80% of the renal function realized with two. In the long term, donors don't face a heightened risk of developing kidney disease. If they later require a transplant—because of bruising, cancer or disease that would have shut down both kidneys—donors receive priority on the waiting list.
So how did I fare? By 9:30 the morning after my surgery, I'd taken a lap around the hospital floor, a bit ornery with my nurse for not escorting me sooner. Twenty-four hours later, another nurse detached the IVs from my arms and processed my hospital dismissal. By Christmas Day, I was standing upright, walking briskly for as long as I cared to, no longer sore.
I lost a few days of vacation and took a rain check on a trip to Tortola that I couldn't afford. Meanwhile, I enabled two people to receive lifesaving transplants.
Could this be you?
Mr. Linde lives in Cambridge, Mass.
2:50 pm
Feb 6, 2014 http://blogs.wsj.com/economics/2014/02/06/is-u-s-unemployment-really-much-better-than-the-euro-zones/
Is U.S. Unemployment Really Much Better Than the Euro Zone’s?
By Ben Leubsdorf
The U.S. labor market looks like it’s recovering faster than its European counterpart, but maybe not as much as it appears, according to a new analysis from the Federal Reserve Bank of New York.
Unemployment in both the euro area and the U.S. peaked around 10% in 2010. Since then, the rate has risen to 12% in Europe but fallen to 6.7% in the U.S., wrote researchers Thomas Klitgaard and Richard Peck on the New York Fed’s Liberty Street Economics blog Wednesday. By that measure, the U.S. looks like it’s doing much better.
But the broader employment-to-population ratio—the share of the working-age, civilian non-institutional population that is employed– showed little change in the U.S. and some decline in Europe over that same period. “This measure of the labor markets does not exhibit any of the gains suggested by the U.S. unemployment rate, with employment only growing in line with the population,” wrote Mr. Klitgaard and Mr. Peck.
The big difference? Labor force participation.
The unemployment rate measures the number of people without jobs as a share of the labor force. But a person has to be actively searching for a job to be counted as unemployed. People who have stopped looking aren’t considered unemployed or part of the labor force, even if they would like a job. As jobless people leave the labor force for whatever reason(such as retirement, going back to school, going on disability or caring for family), fewer people are counted as unemployed.
People have been leaving the workforce in the U.S., but in Europe, the participation rate hasn’t changed much. The rate for European women is actually up about 2%, largely because women over the age of 45 joined the workforce.
“The drop in labor force participation in the United States has accentuated the fall in the U.S. unemployment rate and widened the gap between the unemployment rates of the two economies,” Mr. Klitgaard and Mr. Peck wrote. “If the euro area had seen a drop in the labor force participation rate proportional to the decline experienced by the United States, its unemployment rate would be about 9.5 percent, below where it was at the beginning of the sovereign debt crisis.”
http://online.wsj.com/news/articles/SB10001424052702303942404579363031389777984?mod=WSJ_Opinion_AboveLEFTTop
Fewer Jobless Benefits, More Jobs
North Carolina offers a market test of incentives to work—or not.
Feb. 6, 2014 7:03 p.m. ET
There's nothing like a market test to see if government policies work. The latest comes from North Carolina, which was denounced by the usual suspects last year for refusing to extend unemployment benefits and has been rewarded with more jobs and a falling jobless rate.
The Tarheel State let 73 weeks of jobless benefits expire in July, and in a mere six months the jobless rate fell to 6.9% in December from 8.9% in July. That's far more rapidly than the decline in the national rate, which fell to 6.7% from 7.3% in July. North Carolina had trailed the national economy with a much higher rate since the recovery began.
Dan Clifton of Strategas Research Partners adds that employment in North Carolina has increased by 1.3% since the benefits expired, while the national average is only 0.5% over the same period. According to the Bureau of Labor Statistics, the state has added nearly 55,000 new jobs during that period to more than 4,333,000, which appears to be a record high. In December 11,100 net new jobs made North Carolina one of four states with statistically significant job gains.
You would think this would be welcome news, but not to the critics who said it could never happen. Our friends on the left attribute the falling unemployment rate to people quitting the state's labor force. And it's true that the Labor Department reports a decline of more than 40,000 people in North Carolina's labor force from July to December.
But declining participation has been taking place across the country, and the Keynesians have told us not to worry because it's merely due to an aging population. But now they want to use it to discredit job creation in North Carolina. Which is it?
The truth is that falling labor participation is a worry, and it is related in part to the weak economic recovery and incentives not to work such as ObamaCare (as the Congressional Budget Office concluded this week). In North Carolina some workers who might otherwise have taken a job earlier held out as long as the benefits did. Once the benefits expired, they finally took a job, while more discouraged workers may have chosen to acknowledge they were no longer in the job market.
This should surprise no one. Alan Krueger, President Obama's former chief economist, coauthored a 2008 study on the amount of time that unemployed people spent looking for work and found that "job search is inversely related to the generosity of unemployment benefits."
Economists at the National Bureau of Economic Research reported last year that unemployment was worse in places with generous benefits, and not just because workers had less incentive to get on a payroll. The bigger problem is that such benefits discourage businesses from hiring. Since the benefits raise the price at which people are willing to resume working, businesses have to pay higher wages in the "generous" jurisdictions. In response, businesses choose to create jobs elsewhere, or not to create them at all.
And don't forget that expansive jobless benefits are financed with a higher payroll tax on business, also raising the costs of hiring. Avoiding a job-killing tax hike to pay for all this alleged generosity was the reason North Carolina lawmakers embraced reform. The Tarheel reality test is also why Congress is right not to extend jobless benefits again.
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More Men in Prime Working Ages Don't Have Jobs
Technology and Globalization Transform Employment Amid Slow Economic Recovery
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Mark Peters and
David Wessel
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Updated Feb. 5, 2014 11:21 p.m. ET http://online.wsj.com/news/articles/SB10001424052702304027204579334610097660366
Mark Riley, who is out of work, gives away free food as a volunteer on Tuesdays in Little Rock, Ark. Wesley Hitt for The Wall Street Journal
Mark Riley was 53 years old when he lost a job as a grant writer for an Arkansas community college. "I was stunned," he said. "It happened on my daughter's 11th birthday." His boss blamed state budget cuts.
That was almost three years ago and he still hasn't found steady work. Mr. Riley, whose unemployment benefits ran out 14 months ago, says his long and fruitless search is proof employers won't hire men out of work too long.
"We're poor, but we're not broke," Mr. Riley said. "We still have property. We have cars. We have some assets, we just can't liquidate them."
Mr. Riley's frustration is widely shared. More than one in six men ages 25 to 54, prime working years, don't have jobs—a total of 10.4 million. Some are looking for jobs; many aren't. Some had jobs that went overseas or were lost to technology. Some refuse to uproot for work because they are tied down by family needs or tethered to homes worth less than the mortgage. Some rely on government benefits. Others depend on working spouses.
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Having so many men out of work is partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years. It is also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt, economists say.
The trend has been building for decades, according to government data. In the early 1970s, just 6% of American men ages 25 to 54 were without jobs. By late 2007, it was 13%. In 2009, during the worst of the recession, nearly 20% didn't have jobs.
Although the economy is improving and the unemployment rate is falling, 17% of working-age men weren't working in December. More than two-thirds said they weren't looking for work, so the government doesn't label them unemployed. The January snapshot of the job market is due Friday.
For women, the story is different. In the 1950s, only about a third of women ages 25 to 54 had jobs. That rose steadily until the 1990s, and then leveled off for reasons that aren't clear. At last tally, about 70% were working; 30% weren't.
Aaron Miller has gone back to college. Brian Kelly for The Wall Street Journal
Men without jobs stand apart in a society that has long celebrated work and hailed the breadwinners who support their families. "Our culture is one that venerates work, that views work as good for its own sake," said David Autor, a Massachusetts Institute of Technology economist.
The bleak prospects for the long-term unemployed—40% of men looking for jobs say they have been out of work six months or more—alarms policy makers and economists. The longer a person is unemployed, according to historic data, the harder it is to find a job.
Surveys find that most of the jobless spend their days in the same way working men spend weekends—watching TV, working out, sleeping. Economists say part of the problem is that men with few marketable skills and little education can't find work that pays enough to get them off the couch.
Since the early 1970s, the average inflation-adjusted wage for high-school dropouts has fallen about 25%; for high-school graduates with no college degree, it is down about 15%. Simply put, many of the available jobs don't pay enough to get men to take them, particularly if securing a job requires moving, long commutes or surrendering government benefits.
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Economists who had expected the fraction of men working or at least looking for work to be approaching prerecession levels by now are dumbfounded. "It's looking worse and worse," said Johns Hopkins University's Robert Moffett, who has researched the subject. "It's unexpected."
Although 10,000 baby boomers turn 65 every day, these unemployed men are too young for conventional retirement. Many are closer to the start of their working lives.
Kenneth Gilkes Jr. , 29 years old, thought he was on his way to a career in government affairs after earning a master's degree in public administration from the University of Illinois at Chicago in 2008.
But he was laid off from his first job at Chicago public schools. His most recent position, working in community outreach for former Rep. Jesse Jackson Jr. , ended in April with Mr. Jackson's resignation over the misuse of campaign funds. Mr. Gilkes collected $500 a week in unemployment benefits until December, when Congress failed to extend the program. He has spent his savings and now relies on family and friends.
Mr. Gilkes applies for at least two jobs a day, he said, but gets little response, especially when applying online, a common complaint by job seekers. He watches documentaries on successful people for inspiration, he said. Mr. Gilkes shares custody of his 2-year-old daughter with this ex-wife and said the responsibility of fatherhood pushes him to keep looking.
"Sometimes I get discouraged, but, honestly, I can't stop applying," Mr. Gilkes said. "Everyone tells me there's light at the end of the tunnel."
Joseph Maloney, of Chicago, was laid off in 2009, but he hopes to be hired full-time for a tech-support job. Brian Kelly for The Wall Street Journal
For some men, the job market has passed them by. After high school, Joseph Maloney, 51 years old, followed the men in his family to work on Chicago's trading floors. For nearly three decades, he worked in back-office operations for commodity firms. As trading moved from open pits to computer screens, jobs disappeared. Mr. Maloney, to his regret, said for years he didn't keep pace with the changing technology.
Mr. Maloney's son, Joseph Jr., grew up watching his dad leave the house before sunrise. "Work is an ingrained value for him," said the 25-year-old college graduate who works for Teach for America. "Not being able to have that, and satisfy that, has been really tough."
The older Mr. Maloney was laid off in 2009 and turned to temporary jobs. In 2011, he had a heart transplant.
At the advice of his sister-in-law, and because he thought he had a good bedside manner after his experiences as a patient, Mr. Maloney learned to be a dialysis technician at Prairie State College. He looked in vain for jobs in and around Chicago. He learned nurses were in high demand but said he was leery of spending any more money on training.
Over the past year, Mr. Maloney found temporary work as an information-technology support technician at the college where his wife is an executive assistant. His job ended in September, resumed in December and now, he said, he hopes it will be permanent.
The couple restructured their debts, credit card and mortgage, but still lean on family for help some months. The marriage is the second for both, and they have two children in college and a third heading there.
On top of his wife's $45,000 salary and his earnings from the temp job, Mr. Maloney collects about $1,000 a month from Social Security Disability Insurance, a benefit that will end if he lands a full-time job.
Mr. Maloney's desire to return to the workplace is exceptional among the growing ranks of unemployed men who seek and obtain federal disability benefits. The number has grown in the past two decades, despite fewer physically demanding jobs; advances in medicine; and the 1990 Americans with Disabilities Act that requires employers to accommodate workers with disabilities.
In 1989, 3% of men ages 25 to 64 collected federal disability benefits. In 2013, 5.5% did, according to the Social Security Administration, and about half of those—more than two million men—were age 54 or younger. Very few who get these benefits return to work, and even those who apply for disability and are rejected are unlikely to work again, government and academic data show.
Levell Anderson, 52 years old, was so sure he would retire from the military with a comfortable pension that he made his expected last year of service, 2021, part of his email address. But he was discharged from the U.S. Army in May—short of the 20 years required for a full military pension—after he was partially disabled during a training exercise. He now uses a cane to walk.
Mr. Anderson said that without training his disability and high-school education leave him with few ways to earn even half the $65,000-a-year he made as a staff sergeant. "I've got to get back to that level," said the father of three.
For the past few months, Mr. Anderson has applied for veterans' retraining aid, which would pay for community college tuition and provide a stipend.
Mr. Anderson lives on his monthly Army disability check of $1,600 and his wife's hourly wage job at a food-processing plant. They have largely spent their savings. "We are trying to keep our heads above water until I'm able to get back into the workforce," he said.
Veterans typically can find $9-to $12-an-hour jobs in security or customer service, said Dale Prickett, who has worked with vets at a nonprofit community center and a college. The men, he said, are surprised at how tough it is to find $40,000-a-year jobs with a career path: "It is a shot to the gut."
For Mr. Riley, the former college grant writer in Arkansas, Tuesdays are the best day of the week. On those days, he and his unemployed wife volunteer at a food bank, helping give away produce in a poor neighborhood.
"It makes me realize we're better off than some people," Mr. Riley said. "And the volunteers get the leftovers." To make the best use of the free food, Mr. Riley said, he is teaching himself to make canned goods. His latest creation is a jam made from mandarin oranges and habanero peppers.
Mr. Riley holds a master's degree in marketing, and he had been a marketing director at Arkansas' Cossatot Community College in De Queen, Ark.
"Sometimes I feel like he's not trying hard enough, that there should be some kind of job out there," said Mrs. Riley, a former substitute teacher. "He says he wants to wait for the right job. He's been quite depressed over it. Before he was always doing yard work, always busy doing something, now I catch him sitting at the computer."
After losing his job in 2011, Mr. Riley worked to improve a 1919 Craftsman-style house that was eventually appraised at more than twice the $50,000 he paid for it. To avoid foreclosure, he borrowed $14,000 from his retirement savings plan to pay off the mortgage. For income, he and his wife, Beverly, now rent out the house, as well as the attic apartment in the house where they live in Little Rock. Occasionally, the couple earn $12 an hour making phone calls for a public-opinion pollster.
Paying bills is tough. The couple have defaulted on their credit card, and Mr. Riley borrowed $10,000 against his life insurance policy. At Christmas, a fellow parishioner gave the Rileys $300 for presents. His daughter got a laptop, his wife received a food processor. Mr. Riley gave himself drill bits.
Education makes a difference. Of the 25- to 54-year-old men who weren't working last year, about three-quarters stopped their schooling somewhere short of a two-year college degree, compared with about 55% of men with jobs.
Aaron Miller is betting on education to advance. "I was making ends meet, but not really getting ahead," said the 35-year-old Michigan native. "I was never paid enough to save money for an emergency fund, or to buy a new car, or to be able to afford a mortgage."
After high school, Mr. Miller worked about six years for a landscape company. He collected unemployment while taking off winters. In 2007, Mr. Miller moved to Florida to work for a well-drilling company. Overwhelmed with credit card debt after a job-related injury, he filed for bankruptcy protection. Once recovered, Mr. Miller worked assembling X-ray machines. He quit the $32,000-a-year job last year in May to return to Michigan.
Mr. Miller also missed his family and a woman who is now his girlfriend. Quitting work to move back to the Detroit area was a tough decision, he said: "You always worry about what's going to happen if you can't find a job."
Relying on savings and a government loan, Mr. Miller now attends Macomb Community College, aiming for associate degrees in automated technology and electronic engineering, with plans to work in manufacturing, he said, maybe the auto industry. Tuition is low, and the job prospects good. He hopes to finish his two-year degrees in 2016.
Meantime, Mr. Miller has been looking, without success, for part-time work at auto parts and home improvement stores. With his savings depleted, he recently tapped his 401(k) retirement fund.
Mr. Miller's 30-year-old girlfriend is a would-be teacher with a master's degree in education who works at an insurance company call center because she can't find a teaching job in Michigan.
The couple have, so far, postponed milestones of adulthood. She lives with her grandmother. He lives with his parents.
"When you're growing up, everyone says you're going to get a job, then you're going to get married and get a house," Mr. Miller said. "It never works out the way you think it will."
Write to Mark Peters at mark.peters@wsj.com and David Wessel at capital@wsj.com
Turkey's Tribulations
Erdogan's reaction to a corruption scandal has spooked investors.
Updated Feb. 5, 2014 7:10 p.m. ET http://online.wsj.com/news/articles/SB10001424052702303442704579362781416072554?mod=ITP_opinion_2
Much has been written recently about an incipient crisis in the so-called emerging markets, with special focus on Turkey, until recently a star performer. The lira is down 30% since the beginning of 2013. Last week the central bank more than doubled short-term rates to as much as 12% in a bid to stem the decline. It helped, briefly, but the slide resumed again this week.
So is Ankara another victim of the unwinding of the Ben Bernanke-sponsored carry trade? Yes to a certain extent, but most of Turkey's problems are home grown.
In the 1990s Turkey was notorious for annual inflation rates above 50%, sometimes rising into triple digits, forcing Turks to adapt to a currency in perpetual free-fall. One of the early achievements of Recep Tayyip Erdogan's AK Party, which came to power in 2002, was to stabilize the lira and bring inflation into the high single digits. In 2005 the government lopped six zeros off its bank notes. It was intended to show that the government would no longer tolerate a laughing-stock currency. A harder currency, together with privatizations and economic reforms, helped Turkey's economy double in size between 2004 and 2013.
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Turkey's Prime Minister Recep Tayyip Erdogan Agence France-Presse/Getty Images
Then came a wave of arrests in December in a corruption investigation involving kickbacks for real-estate development, which led to the resignation of three members of Prime Minister Erdogan's cabinet. More damaging has been the PM's reaction to the scandal. In addition to blaming unnamed foreign plotters for the allegations, Mr. Erdogan has aggressively pushed out judges and police who were pressing the investigations.
To close observers of Turkey, all of this was part of a longstanding pattern with Mr. Erdogan. Nonetheless, markets reacted as if they had suddenly discovered that Turkey was more tinpot dictatorship than modern market economy. The Prime Minister's scorched-earth response to the investigators has left investors worried that they'd be no safer than the judges if they ran afoul of the AKP.
As one hedge-fund manager put it to us, "After you fire the judges, corruption doubles in the first year. In the second year, it quadruples." Turks who can move their money abroad also aren't hanging around to see how far the lira will fall this time around.
All this is happening amid what appears to be the bursting of another real-estate bubble. About half the jobs created in Turkey in the past five years have been in construction. As elsewhere in the world, quantitative easing by the Fed and others helped funnel money into a market that was booming. Now, with interest rates rising and money leaving the country, developers are finding themselves without the money to finish projects.
The AKP did a lot right for the Turkish economy when it came to power a decade ago, but the Prime Minister's political thuggishness and fondness for conspiracy theory has put much of that progress at risk. Turkey's economy can survive the bursting of a bubble. But a Prime Minister who trashes the rule of law and treats his political rivals as enemies of the state is, to borrow a financial term, a systemic risk.
http://online.wsj.com/news/articles/SB10001424052702304851104579362530567845104?mod=ITP_pageone_2
Inflation Fuels Crises in Two Latin Nations
Argentina and Venezuela face soaring prices and possible recessions after a decade of unorthodox polices, amid regional headwinds
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By
Taos Turner,
Juan Forero and
John Lyons
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Feb. 5, 2014 7:23 p.m. ET
The funeral home where Fabian Claudio Guasti works is having trouble setting coffin prices amid soaring inflation. Alejandro Kirchuk for The Wall Street Journal
BUENOS AIRES—Funeral home director Carlos Bianchi's dilemma over how much to charge for his coffins goes a long way in illustrating the economic woes plaguing both Argentina and Venezuela.
The Argentine government's currency devaluation last month, which helped spur a global selloff in emerging-market currencies, also sent prices soaring here. What confounds Mr. Bianchi's calculation is that he must use an unsteady and weakening currency, the peso, to buy imported parts for his wares.
"I have to tell customers that I can give you a coffin today, but you'll have to pay for it later, at who-knows-what-price," said Mr. Bianchi, with a cigarette in hand. "Nobody wants to do that."
Both Argentina and Venezuela face soaring inflation and possible recessions that create new headwinds for a region already reeling from China's slowdown and investor pessimism about emerging markets.
Venezuela notched a 56.2% rate in 2013, one of the world's highest rates. Argentina, independent economists say, clocked an approximate 28% rate last year. They expect it to be higher this year following a devaluation.
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Meanwhile, Venezuela looks set to fall into recession as stringent price controls and shortages of imports due to scarcities of hard currency bring economic activity to a standstill. The country's central bank on Wednesday canceled its weekly dollar auction, citing unexplained "anomalies," further constricting imports.
For Argentina, Bank of America BAC +0.90% Merrill Lynch forecasts a 3% contraction, as investment dries up and people spend less because of higher interest rates and decreasing purchasing power.
Alberto Principe, 71 years old, who owns a Hyundai dealership in a tony district near Argentina's championship polo field, lamented that he has seen it before, the boom-bust cycle. "Our cycles are almost biblical," he said. "But just because you're used to inflation doesn't mean it's easier to deal with."
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Car sales had been good in recent years, Mr. Principe said, but new taxes and the devaluation are "lethal," he added, explaining how a Santa Fe Premium SUV, which sold for $63,000 a few months ago, now goes for more than $100,000. "The market has totally shut down," he said.
Many economists say the countries' fading fortunes are a rebuke of the heavy state intervention, price controls and corporate nationalization that have underpinned their policy making for more than a decade.
The nations now risk reviving the kind of out-of-control inflation that characterized Latin America in the "lost decade" of the 1980s but which most experts believed had been tamed for good.
"There is a risk of hyperinflation, of prices really starting to accelerate enormously," said Claudio Loser, an Argentine and former International Monetary Fund economist. "I'm not saying that you'll have hyperinflation, but it's a very plausible scenario. In Venezuela, it's already happening."
When inflation surged in Latin America in past decades—it reached 5,000% in Argentina in 1989—many of the region's trading partners also had fast-rising prices. But that isn't the case today, making Argentina's and Venezuela's outliers in a region likely to feel their pain.
For Brazil, fewer exports of its cars, auto parts, food and manufactured goods to one of its major trading partners, Argentina, stands to further hold back its already slowing economy. Uruguay, whose economy is more dependent on Argentina's, is concerned about a run on Argentine banks and a drop in tourism from its neighbor.
Venezuela, economists say, has started to selectively default—failing to pay European airlines, American oil service companies and Colombian food exporters, among others, as it struggles with fast-depleting reserves.
In Argentina already, many people believe a wave of fast-rising inflation is coming, as stores jack up prices to stay ahead of the falling peso value. "We raised prices by 15% across the board after the devaluation," said a home appliance salesman in a Buenos Aires suburb, Rene Poirier, surrounded by washing machines and refrigerators. "If you don't raise prices, you can get caught and lose money."
Economists say inflation in Argentina and Venezuela can be curtailed by ditching subsidies, price caps and currency controls. But observers of both Argentine President Cristina Kirchner and Venezuela's Nicolás Maduro say they have a political stake in acting contrary to the more orthodox economic policies supported by their U.S. nemesis such as free trade.
Indeed, Mrs. Kirchner's cabinet chief, Jorge Capitanich, this week reiterated threats to fine or shut down businesses that raise prices, telling reporters "unscrupulous store owners and businessmen want to affect the purchasing power of families."
In Venezuela, where the government also vilifies certain businesses, soldiers forced retailers to sell electronics goods at bargain-basement prices; one general guaranteed plasma televisions to all Venezuelans on national TV.
A new agency Mr. Maduro created, the National Superintendence for the Defense of Socio-economic Rights, began deploying 480 inspectors this week to check prices and level sanctions against those who set them too high.
The agency aims to enforce a new law that can lead to a 14-year prison term for those convicted of hoarding products or waging "economic warfare" against the government. "If we have to expropriate, we will expropriate what we have to in order to defend the economy," Mr. Maduro warned businessmen in a rally on Tuesday.
Economists say such measures have backfired. Venezuela could see inflation reach 300% later this year, according to Manuel Suarez-Mier, an economist and former official in Mexico's Central Bank. Though rich in oil, the central government's debt has quadrupled in the 15 years since Mr. Maduro's predecessor, Hugo Chávez, won power, while spending and the printing of money to finance it swelled.
"When inflation reaches a chronic level, say around 50%, it becomes unstable and could follow an explosive path," said Augusto de la Torre, chief economist for Latin America at the World Bank.
Venezuela's inflation woes are in plain sight in Caracas, where high prices and scarcity on store shelves is the norm. "I can't buy because of the price rise," said Jorge Marquez, 25, who was shopping for a tablet on a recent day. "There is a lot of scarcity, and in addition to that, when you find something it's expensive."
—Ezequiel Minaya contributed reporting from Caracas.
Write to Taos Turner at taos.turner@wsj.com and John Lyons at john.lyons@wsj.com
Corrections & Amplifications
The man depicted in a photograph that illustrated this article is Fabian Claudio Guasti, a funeral home employee. Some editions identified him as Carlos Bianchi, the home's director.
Dispute Leads Argentina to Revise Index
Argentina is set to unveil a new inflation index next week after economists disputed the official figures.
By
Juan Forero and
Taos Turner
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Feb. 5, 2014 7:29 p.m. ET http://online.wsj.com/news/articles/SB10001424052702303496804579365320587548530?mod=ITP_pageone_2
BUENOS AIRES—To calculate inflation here, the government surveys supermarkets and clothing stores, collecting prices and figuring an annual rise of 10.9%.
But many businesses and labor unions, as well as multilateral lenders and credit agencies, depend on other sources, among them Graciela Bevacqua, a mathematician. She leads a team of 20 university students, most of them economists, who scour supermarkets and stores several days a month to check prices. Their conclusion: inflation in 2013 rose by more than 27%.
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Ms. Bevacqua is part of a small independent group of economists here who, using mathematical models or conducting their own surveys, have consistently shown that prices rise nearly triple the official rate.
Last year, the International Monetary Fund censured the country over its data, the first sanction of its kind in IMF history. As a result, Argentina is set to unveil a new inflation index next week, though no one knows whether it will match economist expectations.
Now, with prices soaring even more in Argentina in the wake of last month's sharp currency devaluation, the independent economists say they feel vindicated.
"What led me to doing this was the lack of a credible official index of prices," said Ms. Bevacqua, who had overseen the collection of prices for the government until 2007. "You have to try to keep this issue alive in our society."
That has angered President Cristina Kirchner's populist government, which has levied fines and criminal complaints against some of the economists and characterizes them as mercenaries working for opponents out to destabilize the economy.
"The economists speaking to many media companies are undercover agents working for business groups who don't show their face," Jorge Capitanich, Mrs. Kirchner's chief of staff, said on Tuesday. "But they're also undercover agents for political leaders who don't have the courage to say what they really think on radio, TV and in newspapers.Who are the people that are really responsible for raising prices? Unscrupulous companies and unscrupulous businessmen."
Polls have consistently shown that Argentines don't believe the government's figures. Labor unions use the higher inflation rates in bargaining for pay raises, often winning 30% annual raises. Economic consulting firms here say business use them to plan their budgets into the future.
And ordinary people, like Mariel Cobo, who works at a fast-food stand, said she doesn't even consider the government's numbers.
"There are two realities—the one the government wants you to see and the one you see with your own eyes," she said. "There is a big difference between the government's prices and the prices you see on the street. Your salary doesn't get you to the end of the month anymore."
The tussle between the government and those with contrary numbers is felt as investment houses as far away at Europe and the U.S., where economic analysts say they scramble to find accurate figures and dismiss the official numbers as fabrications.
"It didn't take too long for the market to realize what was going on, and independent measures of inflation are important," said Hernan Yellati, head of research and strategy at BancTrust & Co in Miami. "There are different degrees of accuracy, but overall, the market is using those [unofficial] figures."
Compiling data at odds with the government's policies, though, has come with a high price for some. In 2007, several statisticians, field workers and clerks were fired from the state's consumer price collection agency, according to a special prosecutor's investigation that was spurred by complaints from those who were dismissed. Later the government leveled fines of $125,000 and filed a criminal complaint against a handful of economists.
One of them, Jorge Todesca, then sued government officials, including the then-commerce secretary, Guillermo Moreno. Mr. Moreno resigned late last year after a federal court began investigating him for "abuse of power," a case triggered by a complaint filed against him by Mr. Todesca. The cases—against the economists and against Mr. Moreno—are still being argued in court.
"It has been scary to have to go up against the state like this," Mr. Todesca said.
Efforts to reach Mr. Moreno, who is now a diplomat in Italy, have been unsuccessful. The Economy Ministry didn't return phone calls seeking comment.
Most of the work the economists carry out is low-key, released quietly to companies so they can make long-range plans, or consultants or other economists. But a handful also provide their data to Congress, which collects the different estimates and publishes an average monthly inflation rate.
"This was a matter of free speech," said Patricia Bullrich, of the opposition Union For All party, who helped spearheaded the initiative. "If we hadn't done this the result would have been total silence."
Ms. Bevacqua said organizing price surveys isn't easy. It entails deploying the students she leads to supermarkets and green grocers, hair salons and gymnasiums. "What we try to do is reinforce our samples as much as possible," she said, noting that they collect prices on more than 25,000 products a month.
The final result is a consumer-price index she said has consistently shown growing inflation.
"It's hard to put all these numbers in a basket," she said, referring to the government's calculations, "and for them to give you the results you want."
Write to Taos Turner at taos.turner@wsj.com
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