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Sums and differences

Several mostly-unrelated stories that hooked up in my brain.

I live in Queens, NYC, and the Queensborough Public Library has been making the news lately: the Library Director is earning $391K and spending hundreds of thousands of dollars renovating his executive suites and building himself a private outdoor smoking deck, while the rank-and-file library staff haven't gotten a raise in four years, nor a new hire in five. The Union and some of the City Council (led by one who used to work at the Queensborough Public Library himself) find this outrageously unfair.

I tried to imagine what the Director could possibly be thinking to do things like this. His job is to manage the Library's finances, among other things, and the more money he saves the Library (e.g. by not hiring anybody or giving anybody a raise), the better he's doing his job and therefore the more pay and perks he deserves. The very actions he's criticized for doing while paying himself more are precisely why he's paying himself more.

The Union and some of the City Council are concerned with the difference between his salary and those of rank-and-file staff, while he's concerned with the sum. A large difference is bad if you're concerned about fairness and propping up the working class; a large sum is bad if you're concerned with city finances and taxes.

Second, there was a CBO report last week predicting that Obamacare, through subsidies and the partial decoupling of insurance from employment, would lead to the equivalent of 2 million fewer people working in the U.S. Republicans, naturally, spun this as "We told you so: Obamacare will cost 2 million jobs." Which wasn't technically correct: the predicted effect is that people with jobs will voluntarily leave them, or work fewer hours, because now they can without losing their insurance. (Others will presumably change jobs, for the same reason, but that's not part of the 2 million figure.) If anything, this will make it easier to find jobs because fewer other people are competing with you for the same job.

Yet in a sense, the Republicans are correct: with the equivalent of 2 million fewer people in the labor market, 2 million fewer jobs will be done (under the usual Republican assumption that all economies are running at capacity, and there is no such thing as involuntary unemployment), which means a reduced GDP.  (Even without that assumption, one suspects that not all of the workers removed from the labor force will be replaced from the unemployment rolls, so it still means fewer jobs being done and a reduced GDP.)

In other words, the same prediction is bad if you're concerned about total GDP, or good if you're concerned about any given person's ability to find work (the difference between you and the rest of the work force). More generally, a decreased labor force is good if you're still in it yourself, and bad if you're trying to hire from it.

Third: I'm reminded of dear old Ronald Reagan, who, while running against the incumbent Jimmy Carter, invented something called the "misery index", the sum of the inflation rate and the prime interest rate. Which didn't make a lot of sense even to my 16-year-old self, since high inflation is bad for lenders, while high interest is bad for borrowers; the only person whom both of them would hurt is somebody storing lots of cash under the bed.

What's more meaningful, for most purposes, is the difference between interest rates and inflation, known to economists as the "real interest rate": high real interest rates encourage saving and investing, while low real interest rates encourage spending and borrowing.  The current economy could really use more spending and borrowing, but the millionaires in Congress and the billionaires backing them would prefer to be rewarded for saving and investing, so they've done everything in their power to drive real interest rates back up.


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