About Stuart Levine


Economics (General)

November 21, 2008--How Much Does the Average UAW Auto Worker Make?

Hint: It's not the $70.00 an hour that's frequently bruited around in the press. They receive $28.00 an hour before benefits. The $70.00 figure is based upon the benefits all auto workers, including retired workers and their surviving spouses, make. See here:

Now that GM's healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you're going to end up with a very large hourly rate. But it won't mean anything, unless you're trying to be deceptive.

A more complete description of the issue can be found here:

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

The author then went on to say:

Notice how, in this article, I've constantly referred to 2007 figures? There's a good reason. In 2007, the Big Three signed a breakthrough contract with the United Auto Workers (UAW) designed, once and for all, to eliminate the compensation gap between domestic and foreign automakers in the U.S.

The agreement sought to do so, first, by creating a private trust for financing future retiree benefits--effectively removing that burden from the companies' books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.

In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.

October 18, 2008--Who Caused the Subprime Meltdown?

The right is insistent that the subprime meltdown was caused by Fannie Mae and Freddie Mac. False. According to a well-researched article by McClatchey:

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The full article is here.

Update, November 18, 2008

There is now a growing body of commentary that fairly convincingly refutes the "Fannie/Freddie/Liberal Democrats Caused the Meltdown" argument.

One good posting is by Mark Thoma where he states:

Fannie and Freddie became fairly large players in the subprime market, and they got that way by following the rest of the market down in lowering lending standards, etc. But they did not lead it down. Their actions came in response to a significant loss of market share, and it is this loss of market share that motivated them to take on more subprime loans.

We need to understand why the overall market - the part outside of Fannie and Freddie's domain - was able to lower lending standards (and increase their risk exposure in other ways as well), and how regulation which had worked up to that point failed to keep Fannie and Freddie from dutifully responding to the market pressures on behalf of shareholders by duplicating the strategy themselves, but again, they were followers, not leaders.

A recent academic study concludes that:

The dominant policy conclusion that can be drawn from the findings of this paper is that the existence of subprime loan products alone may not merit primary blame for the problems currently being experienced in the housing and mortgage markets. Rather, political and regulatory actions and economic conditions -- which led to a disruption in traditional flows of credit into the market and the relative absence of the GSE‘s during the period 2004-06 -- permitted the spread not only of new private-issue instrument designs and ABS products, but also of weaker underwriting standards to flow in great volumes into the void. These events may be deemed complicit, if not dominant in precipitating the subsequent series of adverse trends which later beset the housing and mortgage markets.

The "GSE's" are "government sponsored entities. That is, Fannie, Freddie and their siblings. In other words, it was not the presence of the GSE's in the market that caused the meltdown, but their absence from the market. Thus, it was primarily the spread of ABS products (that's asset based securities products) that created the problem. And, of course, the manufacturers and peddlers of these products were Merrill Lynch, AIG, Bear Stearns, Lehman Brothers, etc., etc.

Paul Krugman has relevant commentary on the issue here and here.

Update November 19, 2008

I either missed or forgot that part of the Republican attack was directed against ACORN. You see, this overwhelming pressure group forced lenders into making bad loans. False.

As explained by Mike Dunford (and here):

ACORN argued that large numbers of subprime loans were essentially predatory, and fought for regulations that would curtail the worst of those loans. Anyone want to guess what the lenders were arguing?

Here's a gem of a quote from a paywall-protected 23 June 2000 article in American Banker:

For example, Mr. Mozilo said, some aspects of an anti-predatory-lending law passed in North Carolina last year harm the very people such laws are supposed to help.

The law limits the number of points a lender can charge the borrower, he said, and if the lender has a subsidiary that provides ancillary services like credit reports or appraisals, fees for these services are counted toward the limit.

The Mr. Mozillo quoted above is, of course, none other than Mr. Angelo Mozilo of Countrywide lending. That's the same Countrywide that collapsed earlier this year, under the weight of people defaulting on the subprime products that Countrywide had sold them, in many cases unethically.

Dunford's thorough reporting places a good deal of the blame for the crisis at the doorstep of the Bush Administration since:

In late 2003, the Office of the Comptroller of the Currency (OCC) announced that it intended to use powers granted to it by the National Banking Act of 1863 to preempt state oversight. They finalized this rule in January, 2004. The OCC undertook this action in the face of opposition from all 50 state Attorneys General. The OCC justified preempting the states by arguing that the preemption would reduce the burdens faced by banks - the same anti-regulation argument that we've seen time and time again over the last 8 years.

Dunford then concludes:

Banks started making bad loans - not just subprime, but predatory - as a result of demand caused by investment banks that purchased and bundled the loans. Groups, including ACORN, protested, in an effort to bring the practices to a halt. Partly in response to prompting from these groups, several states passed laws in an effort to crack down on predatory lending. Banks and lenders fought against these efforts every step of the way. When they failed to stop the legislation, the Federal Government stepped in to protect the banks from the states. The Federal Government replaced the state efforts with guidelines that are so toothless that they make a jellyfish look like a shark. The banks reduced their underwriting standards even more. Chaos predictably ensued. And the right is trying to blame ACORN for the chaos.

In a subsequent posting, Dunford demolishes the argument that the Community Investment Act created the problem by encouraging banks to lend to subprime lenders:

To sum up, the Community Reinvestment Act was signed more than 25 years before the current subprime crisis erupted. Banks, which are the only financial institutions covered by the CRA, have made a little less than a quarter of the riskier loans. These riskier loans only account for 20% of the total number of CRA-eligible loans that they have been made. The majority of the subprime loans were made by mortgage companies that do not have to comply with the CRA, and 40% of the mortgage loans initiated in the mortgage company sector in 2006 were subprime. The claim that the CRA caused the subprime crisis is nothing short of asinine.

The most interesting question is why, other than the McClatchey article referenced above, have the newspapers been AWOL in covering this debate.

Update December 19, 2008

FDIC Chair Sheila Bair refuted the allegation that the Community Reinvestment Act caused the financial crisis. See here. In her presentation, she noted that:

Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.

October 4, 2008--Unemployment's Really Bad

From Paul Krugman:

Krugman Unemployment Chart

This chart shows U6, the broadest measure of unemployment and underemployment from the Bureau of Labor Statistics. (No data available before 1994.) You can still argue that presidents really don’t have that much influence on the economy. But remember, Bush supporters eagerly claimed that downward stretch from 2003 to 2006 — coinciding with the worst excesses of the housing bubble — as proof that tax cuts work. Live by the business cycle, die by the business cycle.

September 25, 2008--Home Prices

The following chart shows why home prices have a long way to go--down:

WSJ Home Chart

This shows the National Association of Realtors "median existing-home price (seasonally adjusted by Credit Suisse) to median family income." As explained in the WSJ: "The ratio maintained a relatively narrow range from 1981 to 2000, when it started to explode. Assuming that trends in prices and incomes remain constant, Credit Suisse forecasts that home price will return to the historical range some time late next year."

August 3, 2008--Growing Inequality in Income

The years of the Bush Administration have lead to extraordinary growth in income disparity. This is from the WSJ:

WSJ Chart

Read this: During the Bush Years, the bottom 90% of Americans, on an adjusted basis, saw their income fall by 4%. The 90-95 percentile saw real growth of only 2%. The 96-99 percentile saw real growth of only 1%. It was only those in the top 1% income group really had any significant growth. And, even within that group, the top half (that is, those in the top one-half of one percent of the population) really saw their income shoot up.

April 5, 2008--Job Growth

Yesterday, the economic news de jour was about the negative job numbers. Krugman has this chart on the comparable net jobs growth during the Clinton and the Bush II administrations:

ComparativeJobChart No. 1

How many days until January 20, 2009?

March 8, 2008--Real Interest Rates Go Negative

According to James Hamilton of Econobrowser, real interest rates on 2-year Treasury Notes has gone negative. Here's the chart:

NegativeInterestChart No. 1

February 9, 2008

The effort to reduce the use of tobacco is clearly working. See the chart at InfoPlease which shows that per capita consumption (based on those over the age of 18) of cigarettes has fallen from 2,092 in 2000 to 1,691 in 2006. That's a 19.16% decrease. In 2007, because the total number of cigarettes consumed has fallen, there will be a dramatic drop of at least another 3.22%. (This assumes no change in the over 18 population.)

January 28, 2008--Administrations Compared

This chart compares average annual economic growth during various presidential administrations:

Presidential Comparisons

The numbers are as follows:

Kennedy-Johnson -- 5.2%
Clinton -- 3.6%
Reagan -- 3.4%
Carter -- 3.4%
Nixon-Ford -- 2.7%
Bush II --2.6%
Bush I --1.9%

The numbers were drawn from the analysis of Dean Baker.

January 5, 2008--Job Numbers

From Paul Krugman's Blog, this chart showing the employment-population ratio — the percentage of adults with jobs — since the beginning of the Clinton administration:

Krugman Jobs Graph

January 26, 2008--The Falling Dollar

The CBO here has a collection of charts, one of which shows the disaster that has been George Bush:

CBO Dollar Graph

In essence, we have all become poorer due to W.

October 28, 2007--What Goes Up, etc.

Here's why housing prices are going to fall rapidly:


JEC Graph No. 1


The graph is from a report of the majority staff of the Congressional Joint Economic Committee entitled: The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here. (Note: The JEC is not to be confused with the Joint Committee on Taxation. The JCT is, by design, non-partisan. The JEC is not. Thus, this JEC report is issued by the Majority Staff which is answerable to the Democratic majority on the JEC. Nevertheless, the information in the report is factual.)

This chart from the report presents the problem more simply:


JEC Graph No. 2


October 6, 2007--Krugman Gets the Job Numbers Right

Paul Krugman on his blog gets it right with respect to the job numbers:

Over the whole of the Clinton administration, the economy added 22.7 million jobs – 237,000 per month.

Over the whole of the Bush administration to date, the economy added only 5.8 million jobs – 72,000 per month.

The Bushies like to pretend that history began in August 2003, so that they can ignore the job losses early in the administration. But even that doesn’t do the trick. Since August 2003, the economy has added 8.5 million jobs – 172,000 per month. So even by cherry-picking the good Bush years and pretending the bad years never happened, they still can’t match the average rate of job creation under Clinton.

Krugman gives a link to the BLS site here, but the specific site that allows you to make comparisons of non-farm payroll employment is here.

In a subsequent post, Krugman notes that:

There are suspicions that the revisions [in the employment numbers] will be even bigger [than the substantial downward revisions for the year ending March 2007] when they get around to the current period. One telltale sign: if you believe the BLS numbers, employment in residential home construction is down only 3.6% over the past year – and it’s still higher than its average level in 2005, the peak of the housing boom. This despite the fact that housing is in a very deep slump.

Update October 4, 2008

--A year later, his comments seem almost quaint.

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changed December 17, 2008