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Mark Gongloff   |   February 4, 2014   10:00 AM ET

People have been buzzing about a new study suggesting the U.S. job market is in better shape than we think. If that doesn't sound right to you, that's because it's probably not.

The alarming shrinkage of America's labor force since the Great Recession is mainly just a function of Baby Boomers retiring, according to a paper by economists at the New York Federal Reserve.

If these economists are right, then that means the recent swift drop in the official unemployment rate is a real sign of job-market health and not a function of people giving up on finding work. It also means that "slack" in the labor market could disappear more quickly than anybody expects. That could cause inflation pressures to rise suddenly, forcing Fed policy makers to raise interest rates to cool down the economy much sooner than they expected.

Before we break down why this is wrong, let's look at what we mean by labor-force shrinkage. Here's a chart of the labor-force participation rate, the percentage of working-age Americans either working or looking for work. (Story continues after chart of shrinkage.)


As you can see, labor-force participation has been falling since the start of the 21st century, but really collapsed after the recession, to the lowest levels since 1978. It has seemed obvious -- and previous studies have shown -- that a big reason for the dizzying drop in the labor force was a weak recovery and a lack of good job opportunities. Labor-force participation is trending down anyway because of Baby Boomer retirements, sure, but clearly something else happened after the recession.

Here's another way of looking at it: This is the employment-population ratio, the percentage of adult Americans with a job. As you can see, it collapsed to 30-year lows during the recession and has never recovered. (Story continues after chart.)


The New York Fed economists say this particular chart is misleading because it doesn't account for a mass of retirees. To fix this, they built a model, like economists do. And the model decided that waaaay too many many people were working just before the recession, demonstrated by the red line in the chart below. (Story continues after the New York Fed's chart.)

ny fed model

The current state of the job market, in other words, is more less as it should be, like it or not.

"What this does is in effect build the Lesser Depression into your definition of normal," Paul Krugman wrote in a blog post in response to the study.

But if the job market was overheated before the recession, as the New York Fed's model says, then inflation pressures should have been rising. Instead, they were falling, Krugman noted. Krugman suggested that Baby Boomer retirements account for only about 40 percent of the drop in labor-force participation since the recession. Chalk the rest of it up to sluggish demand.

An even bigger problem with the study, which both Krugman and Bloomberg View's Matthew Klein pointed out: It fails to account for the fact that young people's share of the labor force has shrunk since the recession, while older people have taken a bigger share.

"Americans 55 and older didn’t lose their jobs during the recession to the extent that younger ones did," Klein wrote. "In fact, the proportion of older Americans with a job is higher now than in 2006, partly because it is harder to retire than in the past when asset prices were high and rising."

The New York Fed study will be unusually influential because it emerges from, you know, the Fed. It will almost certainly be read closely by Fed Chair Janet Yellen and other people with the power to move interest rates and the economy. Are they willing to bet the recovery on it being right?

Mark Gongloff   |   January 31, 2014    9:59 AM ET

Professional horrible person Peter Schiff is SO DISAPPOINTED with The Daily Show, you guys.

The so-called "comedy program" tricked its audience, using words that Schiff innocently expelled from his face hole, into believing that Schiff thinks the "mentally retarded" deserve to earn $2 an hour, according to a blog post by Schiff on Thursday. That is not at all what Schiff meant! What Schiff really meant, he explained, is that... um... the "intellectually disabled," or whatever it's OK to call such people these days without the whole world jumping down your throat about it, should make $2 an hour.

Do you see the difference? Yeah, me neither.

Schiff, former Ron Paul adviser, failed senatorial candidate and CEO of the money management firm Euro Pacific Capital, appeared on The Daily Show earlier this week to explain how the minimum wage is a communist evil that will have us all eating out of dumpsters any day now. When Schiff is not constantly, wrongly warning that the U.S. dollar is about to collapse, he is pulling ridiculous stunts to illustrate his hatred for the minimum wage, like harassing shoppers in a Walmart parking lot. His Daily Show appearance was just the latest such stunt.

Beyond the typical, incorrect CEO arguments about how raising the minimum wage will cause soaring inflation and mass layoffs because supply-demand-herpaderp, Schiff added a new wrinkle in his Daily Show chat: Some people are just worth more money than others. "You're worth what you're worth," he told correspondent Samantha Bee. And among the "less-worthy" humans Schiff included the, how do you say, "mentally retarded."

This naturally brought about a Schiffstorm (GET IT????) of criticism and mockery. But Peter Schiff explained himself on Thursday, using more words:

Of the more than four hours of taped discussion I conducted, the producers chose to only use about 75 seconds of my comments. Of those, my use of the words "mentally retarded" (when Samantha Bee asked me who might be willing to work for $2 per hour -- a figure she suggested) has come to define the entire interview.

Man, use an offensive slur one time, and you're just immediately painted forever as somebody who uses offensive slurs to describe other human beings. Tell us more, Peter Schiff:

Although I had no intention of offending anyone, I just couldn’t remember the politically correct term currently in use (it is "intellectually disabled"). Assuming she knew it, Bee could have prompted me with the correct term, but she chose not to.

Just as you suspected: This is all Samantha Bee's fault. WHY DOES SAMANTHA BEE HATE THE DISABLED???

In fact, the entire Daily Show hates the disabled and wants them to never work again, Schiff further explained:

In fact, it's "The Daily Show" that wants to tell the intellectually disabled they are worthless, as they want to make it illegal for them to have jobs

You see, if America's Job Creators could not pay disabled people insultingly low wages, then they simply would never hire them again, according to Schiff:

I further explained that since such individuals typically live with their parents or other caretakers, they are not working to support themselves or anyone else. They are working for the self-esteem associated with having a job -- the pride of working and making a contribution. Many of the jobs they perform may seem mundane to those of normal intelligence, but they are often the most enjoyable and rewarding aspects of the lives of people with intellectual disabilities. I pointed out that if the federal minimum wages were to apply to them, a great many of those opportunities would vanish. Others may disagree, but I believe a job for such a person at $2 per hour is better than no job at all.

And sadly, believe it or freaking not, Schiff's "logic" is actually the law of the land. Since 1938, it has been possible for employers to ask the Labor Department to give them a pass on paying minimum wages to the disabled.

But here's the thing about jobs: A job is worth what a job is worth, regardless of the person who does it. If you think it's worth $X an hour, then anybody capable of doing such a job -- and plenty of so-called "disabled" people are perfectly capable of handling typically minimum-wage tasks, and a whole lot more -- should get that wage, regardless of their disability.

Because of that terrible 1938 law, and the Peter Schiffs of the world, a lot of people who should be getting paid the minimum wage or more are actually being abused and exploited. For freedom.

Mark Gongloff   |   January 29, 2014   11:38 AM ET

So Yahoo just reported its quarterly earnings! Let's go to CEO Marissa Mayer for all the exciting details!

marissa mayer

Oh. Oh, my. I see.

This is a screenshot of the live stream of Yahoo's earnings webcast on Tuesday afternoon, which was apparently recorded in the bathroom of the lobby of the Bratislava Sheraton.

To be fair, this is just one instant from a video in which Mayer did not constantly look like her kitten had just drowned.

But she has plainly seen happier days. And the call was surely a grim slog for Mayer, now 18 months on the job of reversing this Internet behemoth's sinking fortunes.

Mayer warned her task would take years. Yahoo's revenue fell 6 percent in the fourth quarter from a year ago, and profits were down, too, once you strip away the proceeds of some patent sales. Alarmingly, Yahoo's ad revenue is sagging even as the industry expands around it. Mayer also had to admit that one of her key hires -- former Chief Operating Officer Henrique de Castro, who was chucked overboard last week -- was "regrettable."

The company's stock price was down 7 percent on Wednesday morning.

So, yeah, this picture sort of says it all.

(h/t to BuzzFeed's Matt Lynley, who tweeted another great Mayer screenshot Tuesday afternoon, inspiring this post.)

Mark Gongloff   |   January 27, 2014   12:53 PM ET

Maybe you thought rich maniac Thomas Perkins was kidding or drunk when he wrote that the Poors were basically Nazis preparing to Holocaust him to death. But no: He has doubled down on this claim in a new email to Bloomberg.

“In the Nazi area it was racial demonization, now it is class demonization,” typed Perkins, according to a Bloomberg article on Monday.

Perkins is also having difficulty understanding why the media is not more concerned about Occupy Wall Street protestors -- who break windows at luxury-car dealerships and Wells Fargo branches, which is exactly like Kristallnacht! -- than about brave wealthy people who discuss important issues, such as whether poor people are really Nazis.

Perkins, co-founder of Silicon Valley venture-capital firm Kleiner Perkins Caufield and Byers, was responding to the uproar he sparked last week when he first wondered out loud -- on the op-ed page of The Wall Street Journal, naturally -- whether the Poors might not all be Nazis.

His comments were so outrageous that even Perkins' fellow rich people recoiled. The firm he founded, Kleiner Perkins, tweeted:

Perkins did his old firm a giant solid by confirming to Bloomberg that he had long ago left their reservation, emailing that their "philosophies and strategies have drifted so far apart that now my name means little on the door.”

It is easy and fun to make fun of Perkins, whom a French court once convicted of committing manslaughter WITH HIS GODDAMN YACHT and who has written a bodice-ripper called Sex And The Single Zillionaire, which Rupert Murdoch hailed as “Fun, fast -- a great read!"

But to dismiss Perkins as a deranged lunatic is to overlook the fact that he is far from alone. As David Sirota pointed out at Pando Daily, Perkins is just the latest in a long line of rich people comparing progressives to Nazis, part of a widespread campaign to get us all to "pity the billionaire," as author Thomas Frank puts it.

Update: As further evidence that Perkins has lots of company in the Nazi-spotting game, another wealthy venture capitalist, Tim Draper, has ridden to Perkins' rescue, telling Business Insider that Perkins "is a brilliant man, and he is identifying schadenfreude, something that continues to be a thorn in humanity’s side. The bitter taste of envy brings us all down."

Mark Gongloff   |   January 24, 2014    8:09 AM ET

Turns out that more education does not necessarily mean more pay.

Low-wage workers are a lot more educated than they were nearly 50 years ago, but they are making much less, according to a new study by the Economic Policy Institute, a left-leaning think tank.

Here is an infographic with all the numbers (words continue after graphic):

low wage education

The standard-issue Thomas-Friedman solution to our major economic woes -- no jobs, income inequality, terrible wages -- is for low-wage workers to just go and get themselves an edumacation already. Smarten up, get new skills, and the jobs and higher wages will come, while the cares and worries of globalization, offshoring and outsourcing will just wash away. It's also an argument against raising the minimum wage -- if workers were worth more, by being smarter, then the Invisible Hand would pay them more.

Except it's not necessarily true. Particularly since the Great Recession, highly educated people have ended up taking low-paying McJobs, mainly because those have been the most plentiful.

This is also a longer-term trend: Workers are better-educated and more productive, meaning they can produce more in fewer hours. That has helped boost corporate profits to record highs, while wages have stagnated.

Mark Gongloff   |   January 23, 2014   10:26 AM ET

We all know American wages are too low and growing too slowly. But it took Goldman Sachs, of all things, to point out just how historically bad wage growth really is.

Since the Great Recession, wages have been growing at a rate of only about 2 percent per year -- the slowest since at least 1965, according to a new research note by Goldman economist Jan Hatzius. (Story continues below Goldman's chart of grim sadness, courtesy of Business Insider.)

wage growth

That's the bad news: Wage growth is barely keeping up with inflation.

Now, the even worse news: Wage growth probably isn't going to speed up any time soon, according to Hatzius. He expects a surge in Corporate America's productivity, meaning companies will be able to squeeze more stuff out of fewer worker hours.

Companies are already running lean: The Wall Street Journal's Theo Francis had a frustrating story on Thursday about how companies are still, five years after the recession, not seeing enough demand to increase hiring in any significant way.

All of this non-hiring leaves "slack" in the labor market, which is why the price of labor -- wages -- is so low.

Hatzius notes that history also suggests wages won't grow very quickly, if the past 30 years are any guide.

But now, the good news, if you are a company and/or a shareholder: Slow wage growth means companies have been able to keep churning out profits despite a weak economy, lousy overseas markets and an inability to raise prices. That's the main reason the major U.S. stock indexes have roared to record highs, even when the economy still feels weak to most of us.

And it's why CEOs and shareholders keep getting richer, while the rest of us keep falling further behind.

Mark Gongloff   |   January 21, 2014    2:11 PM ET

Big banks are perfectly safe these days, unless you count all those weapons of mass financial destruction they've got lying around. And who's counting those? Certainly not the banks.

Some in Washington are doing a premature victory dance over the relatively gentle new regulations that have been applied to Wall Street since the financial crisis. But the job of regulating one of the of central causes of that crisis -- the trading of derivatives -- is far from finished.

The world's biggest banks still can't fully account for all the risks they're taking when they trade derivatives, according to a report last week by a group of 10 of the world's financial watchodgs, including the Federal Reserve.

Derivatives, in case you don't know, are essentially side-bets that banks and hedge funds and other investors make with each other on the prices of things trading in other markets. These other things include everything from corn prices to subprime mortgages. Sometimes derivatives are helpful ways to buy insurance against wild price swings (see corn futures, for example). Sometimes they're dangerous ways to feed Wall Street's addiction to obscene bonuses (see subprime mortgage-backed securities, for example). Sometimes they're both!

Though banks these days aren't trading too many subprime mortgage-backed securities -- the derivatives that blew up the world last time -- they're still trading plenty of other such stuff, including the credit-default swaps that recently cost JPMorgan Chase $6 billion in the London Whale debacle. Even years after the crisis, JPMorgan didn't see that one coming.

And JPMorgan is probably not alone, according to this new regulatory report. Heck, banks can't even always identify who's on the other side of their trades -- which, as you can imagine, is somewhat vital information.

"Five years after the financial crisis, firms' progress toward consistent, timely and accurate reporting of top counterparty exposures fails to meet supervisory expectations as well as industry self-identified best practices," the regulators wrote.

English translation: Banks still aren't doing a good job of understanding what could happen to them when derivatives -- what Warren Buffett once called "weapons of mass financial destruction" -- go horribly wrong. In fact, they're doing such a bad job of it that they don't even live up to the lax standards the banks have set for themselves.

Why do we care about this? Because the financial crisis got really ugly during the Lehman Brothers meltdown when banks suddenly realized they didn't understand just how exposed they were to huge losses on derivatives trades with Lehman and others. That led to a panic that caused global financial markets to basically shut down for a little while, in what was the worst crisis since the Great Depression.

And it could happen again, given that the problems still have not been solved.

"On derivatives, the global financial system was flying blind," Francesco Guerrera, financial editor of The Wall Street Journal, wrote on Monday. "It still is, albeit less so, according to the 10 regulators."

As Guerrera pointed out, the same regulators that Politico recently declared won a "blowout" victory over Wall Street are still "fairly toothless" when it comes to making banks keep track of their derivatives trades. Banks, in what has become a standard refrain, moan that it is too costly to keep up with all the pesky paperwork required.

And yet banks have spared no expense in trying to keep derivatives trading as hard-to-follow as possible. That's because banks find it easier to make money in opaque markets -- even if it means risking the occasional financial crisis.

Mark Gongloff   |   January 16, 2014    2:44 PM ET

We did it, America! Our broke, dysfunctional government has somehow pulled itself together long enough to soundly defeat powerful, wealthy Wall Street, turning the financial industry into a squeaking little gerbil. At least, that is what finance wants you to think.

Politico's Ben White seems convinced: On Thursday, he declared victory in what he described as Washington's tireless quest to tame Wall Street after the financial crisis.

"In 2009, Washington went to war against big Wall Street banks hoping to blow up the kind of high-risk, high-reward strategies that helped spark the financial crisis," White wrote. "Five years later, that war is largely over. And Washington won in a blowout."

This is wrong on many levels, and dangerously so. Banks are vigorously waving the white flag in hopes that we will forget how they are by some measures bigger than ever, and at least as powerful as ever in what is still an ongoing war with Washington -- a war they actually started.

"That's ridiculous," Stanford professor Anat Admati, co-author of The Bankers' New Clothes, emailed when asked about White's story. "Nice narrative but false."

"To think that the war is over is just contradicted by the facts from one end of Washington to the other," said Dennis Kelleher, chief executive of Better Markets, a Washington nonprofit group pushing for financial reform. Just hours after White's piece was published on Thursday, Kelleher posted a rebuttal to it on The Huffington Post.

Kelleher was actually quoted in White's piece because Kelleher believes, as do most humanoids with eyeballs, that at least some things on Wall Street have changed since the crisis.

White used Kelleher's quote to defeat a straw man: It is really hard to find anybody who believes that absolutely nothing has changed on Wall Street. Banks have been ordered to hold more capital for protection against future crises. They are shedding some of their riskier businesses. They are trimming down, in other words. That is a good thing, given how bloated and powerful the financial industry got before the crisis.

But the financial industry is still too bloated and powerful. That is one big thing that has not really changed much since the crisis. The biggest banks are bigger than ever, with more concentrated power, and risk, than before the crisis.

White noted that bank profits from certain risky activities have fallen since 2007. And yet they have made up for it pretty well: Finance took in about 27 percent of all corporate profits in the U.S. in the third quarter of 2013, a bigger percentage than in 2007, according to a HuffPost calculation using figures from the Commerce Department.

Finance's share of corporate profits is lower than a recent peak of 37 percent calculated by HuffPost for the third quarter of 2009 -- a time when banks were raking in cash while the rest of the economy suffered. But the industry still hoards a far bigger share of the economy than is justified by what it actually does for the economy: Finance adds only about 12 percent of the value of gross domestic product, based on Commerce Department figures, while pulling in more than a quarter of the profits.

finance share Data via the Department of Commerce

Goldman Sachs' fourth-quarter 2013 profit report stood out to White as proof of his thesis. The bank's net revenue in trading bonds, derivatives, currencies and commodities tumbled to $9 billion last year from $16 billion in 2007, according to White.

But that decline is not entirely, or even mostly, Washington's fault. It is cheating to compare the money banks made in credit trading just at the top of the wildest credit bubble in modern times to the aftermath of that credit bubble. Of course banks are going to earn less shuffling those pieces of paper around now than in the pre-crisis era, because many of them -- subprime mortgage derivatives, in particular -- are no longer traded in any significant way. Of course banks are going to take fewer risks -- meaning less profit -- just after teetering on the edge of the abyss because of their earlier risk-taking.

And it should hardly be shocking that banks might struggle to turn a profit during the long, slow slog that has been this economic recovery, a recovery often hampered by Washington ineptitude. (That is one way, I guess, you could realistically argue that Washington has indeed defeated Wall Street.)

Mostly, Wall Street has defeated itself: As White pointed out, JPMorgan Chase's own "London Whale" debacle helped convince regulators to tighten the fetters on bank risk-taking last year with a tougher-than-expected "Volcker Rule." The credit bubble that banks helped inflate left a debt overhang that has taken years to whittle away, leaving little demand for new loans in the meantime.

And yet, somehow, despite all of these hurdles -- loan demand dead in the water, risk-taking curbed, higher capital requirements, the cruel words of President Barack Obama, Occupy Wall Street and Huffington Post hacks -- banks have continued to rake in the profits.

The Federal Reserve has helped, by keeping borrowing costs low and helping fuel rallies in stocks, bonds and other risky assets. And of course the banks continue to take some profit-making risks, because that is just what they do. JPMorgan, once thought to be the best-managed bank in the known universe, vomited up $6 billion in just a few months in 2012 betting on credit default swaps.

A new study by economists from the University of Washington and the University of Michigan found that the banks that took bailout money after the crisis took more risks with that money, often in ways that were perfectly acceptable to regulators.

"These banks appear safer according to regulatory ratios, but show a significant increase in volatility and default risk," the study's authors wrote.

Despite falling into disrepute, banks still have political power and a vast lobbying army. Behind the scenes, even as some of us declare victory and move on, banks are continuing to work new loopholes into the Dodd-Frank financial reform legislation and its most hated provision, the Volcker Rule.

White's piece reads a lot like an effort to persuade the Elizabeth Warrens and David Vitters of the world that their work is done, that there is no need to punish these poor banks even more by breaking them up into still-smaller, more manageable pieces. Let's keep the champagne corked.

Mark Gongloff   |   January 14, 2014   11:27 AM ET

A jump in interest rates has had a big impact on the housing market. That's a warning sign for a Federal Reserve seemingly bound and determined to withdraw stimulus from a still-shaky economy.

The mortgage market cratered in the fourth quarter of 2013, Wells Fargo and JPMorgan Chase reported on Tuesday, as higher interest rates all but murdered demand for mortgage refinancing.

The nation's biggest mortgage lender, Wells Fargo, said its mortgage volume tumbled to $50 billion in the quarter, down 60 percent from $125 billion a year ago. The second-biggest lender, JPMorgan Chase, said its mortgage originations, that includes new home purchases and refinancings, fell 54 percent to $23.3 billion from $51.2 billion a year ago. (Story continues after chart of ugliness.)

mortgage pain

These two banks are key indicators for the state of the housing market. Wells Fargo issued nearly 23 percent of all U.S. home loans last year, to JPMorgan Chase's 11 percent, according to industry tracker Inside Mortgage Finance.

And the story they're telling is stark: Higher rates have hurt demand. The average interest rate for a 30-year fixed-rate mortgage has jumped to 4.5 percent from a record low of 3.3 percent in early 2013, according to government-backed mortgage giant Freddie Mac.

This has happened mostly because of the Fed. Central bankers last year repeatedly declared a desire to pare back, or taper, their program to buy $85 billion in mortgage-backed securities and Treasury bonds each month to keep interest rates low. They made good on that promise last month, trimming $10 billion from the program. Despite a still-anemic job market, most economists think the Fed will trim another $10 billion at its next policy meeting, later this month.

Fed Chairman Ben Bernanke and others argued they weren't kicking the props out from under the bond market, but that's sort of what happened: Bond prices fell, and interest rates jumped.

Of course, rates are still relatively low, and the housing market is not exactly in a panic, though sales have dipped. The Fed seems to believe it can slowly remove support from the housing market without causing too much trouble. We're about to find out.

Mark Gongloff   |   January 10, 2014   10:32 AM ET

Before we go high-fiving each other about unemployment falling, we should consider the reasons for it falling, which aren't quite so high-five-worthy.

Unemployment fell to 6.7 percent in December from 7 percent in November, the Bureau of Labor Statistics reported on Friday. Unemployment has plunged from 7.5 percent in June and is way down from a high of 9.9 percent in 2010. All of which is good news.

But: One reason for the big drop in unemployment in December was that many, many people dropped out of the labor force -- 347,000, to be exact. They stopped looking for work, which made them no longer "unemployed" in the eyes of the Bureau of Labor Statistics.

This is the latest episode in what has been a fairly dramatic flight from the labor force since the Great Recession. The "labor-force participation rate," the percentage of working-age people who either have a job or want one, has tumbled to just 62.8 percent, the lowest since 1978. (Story continues below chart.)

labor force

Some of this is due to the fact that Baby Boomers retiring -- but only some. Most of it has to do with the fact that the economy is still too weak to create enough jobs to draw people into the market. This is most clearly evident in the fact that younger people are leaving the labor force, too -- or never even entering it -- because they can't find jobs. That means they're going back to school, keeping house, or eating cereal and binge-watching Netflix. You can see the drop in this chart from the Calculated Risk blog, by way of Brad Plumer at the Washington Post. (Story continues after chart.)

young folks

The steady decline in the labor force is having an impact on unemployment for the first time in recent history, as this chart from San Francisco entrepreneur and author Wolf Richter (by way of the Naked Capitalism blog) shows:


Richter suggests that the shrinking labor force is the main factor pulling unemployment lower. I don't think that's entirely true -- there has been some job growth to help out.

But clearly the falling unemployment rate doesn't tell the full truth about the economy. Even Ben Bernanke has admitted as much. That's one reason the Federal Reserve won't cut interest rates any time soon after unemployment hits the Fed's target of 6.5 percent -- a target that could be reached as soon as next month, at the rate we're going.

Mark Gongloff   |   January 9, 2014    1:07 PM ET

Six years after the start of the Great Recession, nearly eight million jobs are still missing from the U.S. economy.

That's how many more people would have jobs today if the economy were truly healthy, according to a new study released Thursday by the Economic Policy Institute, a left-leaning think tank. (Story continues after the chart of pain.)

job gap

This estimate is based partly on how many jobs are needed to keep up with the potential growth rate of the labor force -- in other words, how many jobs would be needed to employ all the people who would be actively looking for work if the economy were running at full steam. That gap accounts for about 6.6 million of the missing jobs, in the EPI's estimate. The other 1.3 million missing jobs represent how far we still have to go before we get back to the level of peak employment just before the recession began.

The latest unemployment rate and payroll numbers are due on Friday. Economists think there's a chance the economy could add 250,000 jobs and that the unemployment rate could dip below 7 percent for the first time since November 2008. Both numbers would be good signs -- but the job market would still not be anywhere close to healed.

The lower unemployment rate would be particularly misleading, in fact, because it is based partly on people dropping out of the work force and no longer being counted as unemployed. The economy is not strong enough to create jobs, so labor-force growth is not living up to its potential. If people who have dropped temporarily out of the labor force were still looking for jobs, the real unemployment rate would be 10.3 percent, not 7 percent, according to the EPI.

real unemployment

So, yeah, a long way to go.

Mark Gongloff   |   January 6, 2014    3:24 PM ET

You can hardly blame Carmen Reinhart and Kenneth Rogoff for wishing 2013 never happened, but this is ridiculous.

The Harvard economists, who spent most of last year defending themselves after a grad student discovered huge errors in their seminal pro-austerity research, made yet another error in their latest research report (link automatically downloads PDF): Writing "2014" when they should have written "2013." (Hat tip: Kevin Roose)

In fact, the error is in the very first sentence of the report:


This is hardly a major error, of course: Many of us will probably still be writing "2013" on our checks well past Groundhog Day. It's certainly nothing like the errors that peppered Reinhart and Rogoff's 2010 paper, "Growth In A Time Of Debt," which was used to justify painful austerity measures in the U.S., Europe and U.K. Those mistakes led to crushing economic misery. This one just led to some chuckles on Twitter.

In fact, I'd say the bigger error Reinhart and Rogoff made in connection with this new paper -- which studies the speed of recoveries around the world from the financial crisis -- was letting the New York Times run this very weird photo with its story about their research.


Still, given the nightmare of their 2013, you'd think Reinhart and Rogoff would want to be extra careful in 2014.

Mark Gongloff   |   January 2, 2014   10:11 AM ET

Breaking news: The Wall Street Journal editorial page is full of it.

OK, that's not really news. But an unusually flagrant example of the WSJ editorial page's hogwash artistry caught the world's eye on Thursday, when New York Times columnist Paul Krugman pointed out several big problems with a column published this week by the WSJ's Bret Stephens. Krugman cited an earlier blog post from economist Miles Kimball, who first noted what he called the WSJs "analytical errors."

Stephens, who won the 2013 Pulitzer Prize for commentary, on Monday declared that the United States does not have an income inequality problem, but rather an envy problem. In other words, all of us Poors and Middles are merely jealous of those Riches who are constantly straining their trapezius muscles from nodding too vigorously when reading Stephens' columns. To prove his point, Stephens accused President Obama of misleading the public in a big speech last month about economic mobility and inequality.

"The top 10 percent no longer takes in one-third of our income -- it now takes half," Obama said in the speech.

Stephens declared this statement incorrect in several ways:

Here is a factual error, marred by an analytical error, compounded by a moral error. It's the top 20% that take in just over half of aggregate income, according to the Census Bureau, not the top 10%. That figure is essentially unchanged since the mid-1990s, when Bill Clinton was president. And it isn't dramatically different from 1979, when the top fifth took in 44% of aggregate income.

Besides which, so what? In 1979 the mean household income of the bottom 20% was $4,006. By 2012, it was $11,490. That's an increase of 186%. For the middle class, the increase was 211%. For the top fifth it's 320%. The richer have outpaced the poorer in growing their incomes, just as runners will outpace joggers who will, in turn, outpace walkers. But, as James Taylor might say, the walking man walks.

As James Taylor might also say, the bullshitting man bullshits.

For one thing, when declaring that the average income of the bottom 20 percent had risen 186 percent since 1979, Stephens was not adjusting that income for inflation.

Adjusted for inflation, the average income of the bottom 20 percent of households has actually fallen by nearly 3 percent since 1979, according to Census Bureau data. The average income of the top 20 percent is up nearly 43 percent during that same period. The income of the top five percent is up nearly 64 percent. There's your income inequality right there.

"It is hard to read the 186% figure in this passage in any way that is not egregiously misleading," University of Michigan economist Kimball wrote on Tuesday. "Even on the editorial page, a major newspaper such as the Wall Street Journal has the responsibility to screen out clear analytical errors."

Even on the editorial page!

Krugman on Thursday noted another big error in Stephens' column: Stephens relied on Census data to declare that it is the top 20 percent, not the top 10 percent, that takes home half of all U.S. income. But more precise data on inequality have been compiled from tax returns by the respected economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California-Berkeley. And those numbers do indeed show that the top 10 percent now has half of all U.S. income, Krugman noted.

"In his piece Stephens trashes Obama, accusing him of making a factual error when he did no such thing; then proceeds to commit just about every statistical sin you can imagine in an attempt to minimize the rise in inequality," Krugman wrote. "In the process he leaves his readers more ignorant than they were before."

That last point is maybe the most important takeaway here. Though most everybody knows the WSJ editorial page is full of bunk, some of the page's columnists are nevertheless taken seriously by the "serious" people who help make policy in this country. Those columnists include Holman Jenkins and the Pulitzer-winning Stephens.

When such columnists write such garbage, they help convince our ruling elites that rising inequality is no big deal -- some kind of myth, in fact. They reinforce the long-standing bias among "serious" people that complaining about inequality is just unseemly wealth envy. Shut up and pull yourself up by your damn bootstraps already!

At some point, of course, the problem will get bad enough that it finally makes even the elites believe it. But in the meantime, their ignorance, reinforced by people like Stephens, helps make sure the problem gets worse and worse.

Mark Gongloff   |   December 31, 2013   11:13 AM ET

This has been the best year for the U.S. stock market in at least 16 years. But that great news is meaningless for many Americans.

The Dow Jones Industrial Average ended the year Friday at a record high of 16,576.66, capping a 26 percent gain for 2013, its best yearly performance since 1996, when stocks also rose 26 percent. The broader Standard & Poor's 500-stock index closed with a nearly 30 percent gain, its best since 1997. When you include dividends, stocks posted their best returns since 1995, according to The Wall Street Journal (subscription only). (Story continues after chart, courtesy of Yahoo Finance, of the Dow's 2013 run.)

dow 2013

So are happy days here again, then? It depends. For Corporate America, the days are pretty daggum happy, with profits hitting record highs along with the Dow and S&P 500. Those of us lucky enough to own stocks are, on paper, a bit wealthier than we were a year ago. At least part of the rally in stocks has been driven by signs of a resilient, if not exactly gangbusters, economy. It is a far, far better thing for stocks to be rising than for them to be falling, all in all.

But only about half of Americans own stocks, including those in retirement accounts. Meanwhile, corporate profits are soaring largely because companies have been squeezing costs -- especially labor costs. In the chart below, tracking the change in average hourly wages for private-sector workers against corporate profits and stock prices since the stock market bottomed in March 2009, you'll notice one line is badly lagging. (Story continues after chart.)

people vs profits

You guessed it: The lagging line is your sad hourly earnings. They have barely budged since the market bottomed in 2009, while the Dow has skyrocketed 153 percent. Between November 2012 and November 2013, the latest data available, hourly wages for nonsupervisory workers rose just 2.1 percent, just barely ahead of inflation.

This may be why, despite a steady drumbeat of good news out of the stock market, more than half of Americans still think the economy is getting worse, not better.

Most Wall Street analysts are bullish on 2014, thinking the stock market will turn in another great performance. Here's hoping that it does, and that we all get a bit more of a taste this time.