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Money Talks Illustration by Oliver Munday, The New Yorker

GDP grew more than expected last quarter, jobless claims remain low, and one survey-based index says manufacturing activity hit a three-year high in July. Here are a few other stories from the week’s economic news:

  • The verdict on the July jobs report is that it was a “mild disappointment.” Non-farm payroll employment rose by 209,000 last month, below gains of 298,000 in June and 229,000 in May. Since the start of the year, the labor force has grown by an average of 126,000 people per month. Over the same period, job gains have averaged 230,000 per month. If sustained, that difference is enough to keep the unemployment rate falling by more than 0.1 point per month. The unemployment rate did nudge up a bit in July, to 6.2 percent from 6.1 percent, but that follows an outsized 0.6-point drop between March to June. While unemployment is down from a peak of 10.0 percent during the recession, Justin Wolfers, writing for the Upshot, says it is still way too high. Wolfers observes that if you were to line up all the unemployed people in the country, they would stretch from New York to San Francisco. That is a striking visual, but what does it mean for the economy? Following the recession, unemployment peaked at 15 million people. That number is down to 9.7 million now, but it is still higher than the low of 6.8 million prior to the recession. AIER’s Business-Cycle Conditions analysis suggests the economy will strengthen in the second half of the year, which should keep the employment picture improving.

  • The latest Long-Term Budget Outlook from the Congressional Budget Office has sparked a debate about projections for the government’s debt burden. The CBO says the U.S. debt-to-GDP ratio is set to rise from 74 percent now to either 100 percent or 180 percent by the late 2030s, depending on which scenario you trust. Writing for Barron’s, Gene Epstein warns, “The fiscal ship of state is in danger of hitting an iceberg.” The crisis is not imminent, he says, but considering how long it takes Washington to act on problems, politicians should get to work now. But in The New York Times, Paul Krugman argues that the budget projections are “distinctly non-alarming.” He points out that the baseline scenario leaves the debt ratio in 2039 no higher than it was at the end of World War II. He also cites CBO estimates that the debt ratio could be stabilized with modest spending cuts starting as late as 2020. Which story is correct? The Wall Street Journal points out that the budget forecasting exercise is “tricky,” given so many unknowns about the future path of the economy, interest rates, and health-care spending. What’s more, economists don’t agree on a “magic threshold” above which debt holds back economic growth. That makes the CBO’s unreliable forecasts particularly hard to evaluate.
  • Ever find yourself confused by jargon in the financial and business press? You’re not alone. In the New Yorker this week, John Lanchester says that when reading about the economy and financial markets, many people are “left wondering whether somebody is trying to con you, or to obfuscate and blather so that you can’t tell what’s being talked about.” Lanchester says there’s no sinister plot to deceive readers. Rather, the problem is that few people are taught how to speak the language of money. As we discussed in a recent MPI post, the U.S. lags behind most developed nations in financial literacy. “Incomprehension is a form of consent,” Lanchester warns. “If we allow ourselves not to understand this language, we are signing off on the way the world works today.” Improving financial literacy is one of AIER’s key missions. You can read about some of our efforts here.

[Image above: The New Yorker]

One Comment Post a comment
  1. I appreciate the jargon piece. I think it less the fault of readers and more the fault of writers. Many are, indeed, trying to con the reader, others are trying to sound intelligent. But the biggest problem is inadequate writing. Most educated people understand the concepts of values and trade offs. Economic and financial writers need to help people assess the costs of various options in plain language.

    We can always do better, but it is what we aspire to here at AIER.


    August 1, 2014

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