Wednesday, June 22, 2011

Maybe This Is Why Americans Don't Understand Economics

Caption: To some economists, making 10 louder doesn't make any sense.

Image credit: Screenshot of this video by Cujo359

So, you might be asking after my latest spanking of Professor Krugman, why do I pick on guys like him and Robert Reich, both of whom are fairly progressive in their outlook? I think the rather obvious reply to that is that those guys aren't fools. They are actually worth reading, and so I read them and sometimes find fault with what they write.

In short, they're smart enough to know better.

For an example of someone who isn't, let's turn to a columnist for the Washington Post, Frank Ahrens. Here's what he wrote in a column a month or so ago about Greek labor, including both civil servants and the labor force at large:
* Greek government workers have received what are called "13th- and 14th-month salaries." That means they work for 12 months, but get paid for 14. Sweet deal, if it doesn't wreck your economy. Oh, wait. It does. So, Greece's back-breaking concession to get the European bailout is not to actually eliminate the 13th- and 14th-month salaries. Oh, no: These will not be Draconian cuts, despite the fact that Draco was Athens's original lawgiver -- they will merely be capped at a flat rate. Henceforth, government workers will get a flat 250 euro ($331) Easter bonus, a 500 euro ($662) Christmas bonus and an additional 250 euro "subsidy leave."

* Under the bailout, Greeks must now work until they are 67 years old. Up until now, they have been able to retire with pensions at -- take a guess -- 65? Nope. 62? Lower. 57? Keep going! 53? Bingo!

Greek debt: Bailout concessions not nearly Spartan enough
These are just the first two points among many, but what I like about them as a means of illustration is how easy they are to look up.

On the first point, let's see what CNN has to say about what the "13th and 14th month" thing really means:
The 14th salary works like this: Greek workers get their annual salary in roughly 14 installments. On top of 12 monthly payments, employees receive double their paychecks in December, right in time for Christmas consumerism. They also receive half of their monthly spending in the spring to shell out on goods for Easter. Then they get another half-salary boost in July, before their traditional summer vacation.

The snag in Greece's salary solution
In short, they're not getting extra money; the money these Greek workers are paid is simply distributed in a somewhat irregular manner. Ahren's assertion that this means Greek civil servants "get paid for 14 [months]" is obvious nonsense. It's like the musician in This Is Spinal Tap who says that an amplifier that has a setting of 11 is louder than one that only goes up to ten.

Which, of course, means that those Greek civil servants are getting a cut in pay, if their pay isn't otherwise redistributed.

If you want some confirmation of how this sort of thing works, then here's a website from the Philippines:
So you are about to receive your yearly bonus from your company and you don’t know how they compute how much 13th month pay you should receive based on how many months you have been working for them. Here is a guideline from Pinoy Lawyer on the what is the correct computation of 13th month pay or Christmas bonus.
13th Month Pay of Resigned or Separated Employee.

An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period.
What is the correct computation of 13th month pay?
It's a well-known phenomenon, even in the U.S., that people tend to spend more at certain times of year, like Christmas. The 13th and 14th month payment schedule just distributes a worker's salary in a way that makes it less of a problem for people who aren't able or willing to save for those times of year. They don't get paid for two months they don't work, and you'd have to be some kind of moron to assume they did without checking, wouldn't you?

Looking that up took almost no time at all, even though I had absolutely no idea what Ahrens was talking about. In contrast to me, though, he still has no idea what he is talking about.

The second point requires a bit more work to confirm. Thankfully, someone did that already:
* Greeks retire early. The figure of 53 years old as an average retirement age is being bandied about. So much, in fact, that it is being seen as fact. The figure actually originates from a lazy comment on the NY Times website. It was then repeated by Fox News and printed on other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available. Looking at Eurostat’s data from 2005 the average age of exit from the labour force in Greece (indicated in the graph below as EL for Ellas) was 61.7; higher than Germany, France or Italy and higher than the EU27 average. Since then Greece have had to raise the minimum age of retirement twice under bail-out conditions and so this figure is likely to rise further.

Democracy vs Mythology: The Battle in Syntagma Square
[links and emphasis from original]

Going by the date on that comment that the quoted article flags, it would appear that it precedes the publication of Ahrens' article by about three hours.

By way of demonstrating how easy it is to look this stuff up, though, I'll just add that the United States Census puts the average retirement age in America at roughly 62 years, very close to the Greek average of 61.7. Complaining that the Greek economy is tanking because it's possible to retire at age 53 in Greece is no more valid than complaining that we're in a depression because it's possible to do that in America.

Which brings me to the other reason I criticize columnists like Reich and Krugman when they get it wrong - we expect them to be right. Most readers don't have time to look all the stuff up that they tell us, to see whether or not they're right. We assume, wrongly as it sometimes happens, that columnists will look that stuff up before they write nonsense in a major newspaper.

Keep that in mind whenever you read a newspaper column, particularly from the benighted assortment of clowns the Washington Post employs in that capacity. They can be wrong, and they quite often are, and they often don't see a problem with that. How else can you explain the nonsense in Ahrens' column?

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