The Washington Post has established itself over many decades as a major mouthpiece of elite opinion. Its editorial pages argue strongly for the interests of the wealthy, with scarcely concealed contempt for people who have to work for a living. (They do support alms for the poor, hence they are okay with programs like food stamps and TANF.)
This attitude has been shown many times over the years, but perhaps never more clearly than in its editorial on the bailout of General Motors and Chrysler, where it fumed about auto workers who earned $56,650 a year. By contrast, it was an ardent supporter of the Wall Street bailout, which was largely about helping people who make this much money in a day.
In fact, the Post helped to conceal one of the major scams that was used to pass the bailout, the claim that the commercial paper market was shutting down. When people were saying that the economy was at the edge of collapse following the Lehman bankruptcy, the commercial paper market was the most immediate issue.
Many large profitable companies (e.g. Verizon or Boeing) were dependent on issuing commercial paper to meet their monthly bills such as payroll, utility bills, and payments to suppliers. If these companies could not get the credit needed to make these payments, the economy really would collapse. What most of the country, and almost certainly most members of Congress, did not know at the time the bailout was approved was that Ben Bernanke and the Fed single-handedly had the ability to support the commercial paper market. The weekend after Congress approved the TARP, Ben Bernanke announced the creation of the Commercial Paper Funding Facility. Congress would have had a much more informed debate about whether it wanted to save Wall Street if it knew the Fed had this power before it voted, but folks like the Washington Post editorial board didn't want any delays before the Wall Street folks got the money.
The paper must have assumed everyone knew the answer to this question since it didn't bother to put these budget numbers in any context, like expressing them as a share of the total budget. These numbers appeared in an article on the fiscal situations of states this year.
Incredibly, the article threw out numbers for budget shortfalls and gave readers no context whatsoever. While the Post undoubtedly has a well-educated readership, it is not likely that many are familiar with the relative sizes of different state budgets.
The Post's reporter could have taken five minutes to look up these numbers. This would have made it possible to tell readers that Kansas' $1 billion shortfall is a bit more than 4 percent of its $24 billion budget, while Pennsylvania's $1.8 billion gap is a bit more than 1.3 percent of its $130 billion budget.
Is there some reason that a reporter can't spare the few minutes necessary to write these numbers in a way that would make them meaningful to most of the people who read them? Is there some reason that the Post's editors don't demand they put numbers in context rather than writing numbers that are meaningless to almost everyone who reads them?
According to inside reports, the main reason the Washington Post opposes nuclear war is because of its impact on the budget deficit. The paper's never ending obsession with the budget deficit, even as it is clear that we have been suffering from a deficit that is too small, is a testament to the ability of people to ignore reality.
Ruth Marcus treated us to another example of this obsession when she warned of a restructuring of Medicare payments that comes at the cost of:
"a whopping half-a-trillion dollars over the next 20 years... ."
A bit of context might be helpful here. While none of us will see a half trillion dollars in our lifetime, the federal government will see considerably more than this over the next twenty years.
The Congressional Budget Office projects GDP will be more than $550 trillion over the next two decades, making this whopping sum less than 0.1 percent of GDP over this period. Federal revenue will be roughly $100 trillion so this comes to around half of one percent of projected revenue. That's hardly trivial, but if it's "whopping," then whopping ain't what it used to be.
It is also worth noting that if Ruth Marcus and the Washington Post are really concerned about budget deficits, they could support more expansionary policy from the Fed. In addition to giving millions of workers jobs and tens of millions the bargaining power they need to get pay increases, lower unemployment due to expansionary Fed policy can easily knock $2 trillion off the size of the deficit over the next decade. That's four times "whopping." (It could also support trade policy that reduces health care costs by exposing doctors to international competition and weakens patent protection for drugs.)
Neil Irwin had an interesting Upshot piece that noted polling data showing people do not favor much higher taxes on the rich. It questioned why it was that people were opposed to redistribution even though inequality has become a major national concern.
A major problem with this sort of analysis is that it treats distribution as though it is only a function of tax policy. This is clearly secondary. The upward redistribution of the last 35 years was overwhelmingly the result of government policies that structured the market to favor the wealthy.
For example, trade policy has been quite explicitly designed to put manufacturing workers in direct competition with low-paid workers in the developing world. The predicted and actual effect of this policy is to reduce their wages and also the wages of non-college educated workers more generally. By contrast, doctors and other highly-paid professionals (who comprise much of the one percent) have been largely protected from international competition. The argument for exposing these professionals to competition is the same as the argument for trade more generally: it will lead to lower prices and more economic growth. But because of the political power of these groups, free trade in the services of doctors and other professionals is not even discussed in polite circles.
The Federal Reserve Board has also quite explicitly adopted policies that keep unemployment higher than in the years prior to 1980. Higher rates of unemployment not only deny workers jobs, but they also reduce their bargaining power, thereby preventing them from getting wage increases. The government's labor policies have also been much more hostile to workers over the last three decades, making it far more difficult to form unions. And, the government handed out trillions of dollars in below-market interest rate loans to rescue Wall Street banks and prevent the market from working its magic.
Given a whole set of policies that have redistributed a massive amount of income upward, it is understandable that many people would not trust the government to be taxing the rich to help the poor and middle class.
Apparently the NYT feels it has to protect Chris Christie from his unpopular proposals. In an article on the Republican presidential candidates, it told readers:
"He [Christie] has not spent as much time in New Hampshire as some other candidates, and he chose to focus on introducing his own policy ideas, like major changes to Social Security, Medicare and Medicaid."
Christie has proposed raising the normal retirement age to 69, which is equivalent to a 12 percent cut in benefits. He would also raise the early retirement age, when people are first eligible for benefits, from 62 to 64. In addition, he would cut benefits for people with income over $80,000 a year and eliminate them altogether for people with incomes over $200,000.
These are very serious cuts to Social Security. The NYT should be reporting what Governor Christie is proposing for Social Security, not using euphemisms to hide the substance of the plan he has put forward.
Note: Numbers corrected, thanks John.
The NYT gave us yet another account of how the machines are taking our jobs. This one carries the warning that they are taking the jobs of highly educated workers as well, not just less-educated workers. This story apparently carries lot of appeal among elite types (i.e. people who write for the NYT) even if it has little basis in reality.
We have a very good way to measure the extent to which machines are taking our jobs. It's called "productivity growth." It means the extent to which we can produce more output with the same amount of human labor. If the machines are taking our jobs, productivity growth should be very fast.
It isn't. Productivity growth was very fast in the years from 1947-73. It grew at a pace of roughly 3.0 percent annually. This was a period of strong wage growth and low unemployment. It then fell to around 1.5 percent annually from 1973-1995. There was then a pick-up to close to 3.0 percent annually in the years from 1995 to 2005. (For some technical reasons, like a faster pace of depreciation in the more recent period, the 1947-73 productivity growth was much stronger.) Since 2005 productivity growth has fallen to an average rate of about 1.5 percent. In the last two years it has been under 1.0 percent.
While it is likely that the weak productivity growth is at least partly due to the weak growth of the economy, it is clear that rapid productivity growth is not the cause of weak labor demand. In other words, the machines are only taking our jobs in the NYT, this is not a problem in the economy.
This point matters because if machines our taking our jobs then the problem of high unemployment and stagnant wage growth is a technology story. If the story is not machines then it implies the problem is bad economic policy. For example, bad macroeconomic policy has limited demand, trade policy has been designed to put downward pressure on the wages of middle income workers while protecting highly educated professionals, and the government subsidizes the Wall Street boys and girls with bailouts and tax favors. The evidence supports the policy view but the NYT and other major news outlets continue to promote the technology story anyhow.
That's the question millions are asking after reading Matthew Yglesias' piece arguing that former Obama political adviser David Plouffe is cashing in the right way by working as a lobbyist for Uber. Matt argues that Plouffe is getting rich by openly arguing for a cause that he believes in. I'm not convinced.
First, Matt argues that if Plouffe thought the incumbent taxi industry was mostly right in its battles with Uber, then he could have gone to work lobbying for them. While this is true, my guess is that the incumbent cab industry would have a hard time coming up with the same sort of paycheck as Uber, a company with a $40 billion market capitalization. I doubt the industry collectively can come close to matching a $40 billion market capitalization. Furthermore, given the difficulties of coordination, it is extremely unlikely that their association would be able to toss around the same sort of cash for lobbyists as Uber even if the incumbents collectively had the same resources.
The other more important reason why I'm not convinced that Plouffe believes that he is on the side of the angels, is that the angels don't have to cheat to make their case. Here I'm referring to the study that Alan Krueger, the former head of Obama's Council of Economic Advisers, did on the pay of Uber drivers. Uber gave Kreuger data on drivers' gross earnings per trip, as well as the number of trips they did per hour. This allowed Krueger to calculate that they grossed on average $6.00 an hour more than the net earnings of drivers for the incumbent cab industry.
What Krueger could not do was make a comparison of net earnings. While there is no way for Uber to know exactly how much it costs its drivers for each mile driven, we do have data on this issue. (The IRS puts the cost at 57 cents per mile.) This means that if we know the length of an average trip, then we could get a pretty good estimate of the net earnings of Uber drivers. (Actually, we would still need to factor in miles driven to and from pick-ups and dropoffs.)
Unfortunately, Krueger tells us that he didn't have data on average miles per trip. Of course Uber would have very good data on miles per trip. If Kreuger didn't have the data it's because Uber chose not to give it to him. Presumably Uber opted not to share the data on miles per trip because it knew the data would make them look bad. Therefore, it opted to withhold these data from Kreuger so he could not do a full analysis.
Getting back to Plouffe's motives, if he really believed in the virtues of Uber, then he should not have a problem with Uber giving all the data to Kreuger and letting him tell the whole story. The fact that Uber withheld the data indicates that Plouffe and the folks at Uber feel they have something to hide and therefore don't entirely believe in the merits of their case. (I'm assuming that Plouffe was involved in arranging this study.)
So I'm afraid I can't agree with Matt here. My guess is that Plouffe went with the highest bidder.
It's repeal the estate tax season, which means we are hearing all sorts of nonsense about how the tax forces people to sell their family farm or business. It should be self-evident that this is nonsense since no one owes a penny of tax on an estate worth less than $5.4 million. And, just to be clear, this is net of debt. If the "family farm" is worth $10 million, but comes with $5 million in debt, then the net worth is $5 million, meaning the kids get it after paying zero in tax.
But if you still think that families are losing their farms because of the tax, then it's worth going back to an old NYT story by David Cay Johnston. Johnston called the American Farm Bureau, a major lobbyist against the tax, and asked to be put in contact with someone who had lost their farm due to the estate tax. The Farm Bureau could not produce a single family anywhere in the country who had lost their farm as a result of the tax.
In short, families do not lose farms or businesses due to the estate tax. They lose them because the next generation doesn't feel like operating them. This is just one more story that politicians tell in order to justify reducing taxes on the very wealthy. The media should point this fact out.
The NYT gave Germany's finance minister, Wolfgang Schauble, the opportunity to lay out his government's position on austerity in a column today. I don't have time to go through the piece in detail (there is not much new here), but I will make a couple of points.
First, Schauble touts the reform record of Spain and Ireland, Germany's star pupils. It's worth noting that, rather than being spendthrifts, both countries had budget surpluses before the crisis and had debt to GDP ratios well below Germany's. Nonetheless they are still being forced to pay an enormous cost. The I.M.F. projects that both countries will first exceed their pre-crisis level of per capita income in 2018, that's a performance considerably worse than the United States in the Great Depression. Even then, Spain is still projected to face an unemployment rate of 18.8 percent. Both countries have seen enormous cuts to public services and faced large tax increases. And, these are Schauble's success stories.
The other point concerns the impact of structural problems on growth. In fact, many labor market protections have little or no impact on growth, but even where regulations lead to inefficiencies they do not necessary prevent an economy from having healthy growth. An obvious example is the health care system in the United States, where protections for doctors, drug companies, medical equipment suppliers and other providers may add as much as 8 percentage points of GDP to our health care costs (@$1.4 trillion a year). These distortions obviously slow growth, but they have not prevented the U.S. from having a relatively good economic performance over most of the last four decades.
The same is likely true of many of the distortions that have Schauble upset. Some of these may in fact slow growth in Greece, Spain. and other crisis countries. However, they would not prevent them from having functioning economies, if German did not insist on macroeconomic policies that strangled growth.
Like many other folks connected with the Washington Post, columnist Charles Lane wants to cut Social Security. He used his column today to argue that New Jersey governor Chris Christie and Massachusetts senator Elizabeth Warren want to address the shortfall in Social Security in essentially the same way, but progressives are too dumb to recognize this fact.
"The irony is that the progressive plan and Christie’s plan are equivalent, at least in their very broad financial strokes. Both claim to match Social Security resources and obligations over time, and to accomplish this progressively; that is, with upper-income folks bearing a relatively higher share of the adjustment costs."
While Lane may see Christie’s proposal to means-test Social Security benefits as being essentially the same as Warren’s plan to eliminate the cap on wage income subject to the Social Security tax, the numbers indicate otherwise. Christie has said that he would means-test benefits on people with income above $80,000 with the idea of phasing out all benefits for people with incomes over $200,000. If we assume that these people have benefits of roughly $30,000 a year (this is a bit less than the average benefit projected for a high income earner in 2025), this means that we would be phasing out $30,000 in benefits over an income span of $120,000 (the difference between the $200,000 end point and the $80,000 start point). That is equivalent to a 25 percentage point increase in the marginal tax rate for retirees whose income falls within this band.
Under the Christie plan, retirees with incomes above $200,000 would see no further cuts than those with incomes of $200,000 since they will have already lost all of their Social Security. This means that those with income of $2 million or even $20 million would face the same income loss as those with income of $200,000. Of course his plan also does not affect at all people who are still working and not collecting Social Security.
There is also the issue of taking away a benefit that workers have paid for. After all, we could means-test interest payments on government bonds, but that apparently does not bother either Christie or Lane. In addition, we are likely to see substantial distortions as upper income retirees find ways to hide income (e.g. buy a condo for winter vacations rather than use investment income to pay for a hotel). But such distortions apparently do not matter to Lane and Christie, even though they are likely to substantially reduce the savings from means-testing.
Thomas Edsall presents some interesting polling results in his NYT column indicating less public support for government policies to redistribute income even as the distribution of income is becoming increasingly unequal. He argues that this presents a paradox for Democrats who are concerned about inequality.
Actually the situation is less paradoxical when we consider the possibility that government policies are largely responsible for growing inequality. This is most obvious is with the bailout of the financial industry in 2008. Without the help of the TARP and the Fed, Goldman Sachs, Citigroup, Morgan Stanley, and most of the other Wall Street behemoths would be out of business. This would have drastically reduced the wealth and income of many of the richest people in the country.
The government has also redistributed income upward by supporting an over-valued dollar that has eliminated millions of manufacturing jobs and put downward pressure on the wages of non-college educated workers more generally. In addition, a Federal Reserve Board policy that raises interest rates to keep people from getting jobs any time the labor market gets tight enough to support wage growth has also had the effect of reducing the wages of most workers.
Also our trade policy of selective protectionism, which exposes manufacturing workers to competition with the lowest paid workers in the world, while largely protecting doctors, lawyers, and other highly paid professionals (who comprise much of the one percent), has the effect of redistributing income upward. Similarly, our policy of patent protection redistributes hundreds of billions of dollars a year from ordinary workers to drug companies and other beneficiaries of these government-granted monopolies.
In these areas and others the government has acted to redistribute income upward. A politician who wanted to reduce inequality could focus on having less government action in these areas. That would be consistent with the polls cited by Edsall indicating that the public wanted a smaller role for the government.
The Washington Post has long been completely gung ho for trade deals. Whether this stems from some sort of religious fervor or a desire to help wealthy friends and advertisers is not clear. What is clear is that the paper routinely departs from reality in pushing their trade agenda.
It did this most famously back in 2007 when a lead editorial proclaiming the virtues of NAFTA asserted that Mexico's GDP had quadrupled in the prior 20 years. According to the I.M.F., Mexico's growth was actually just 83 percent over this period.
In keeping with this pattern of cheerleading of trade deals, it ran an article on President Obama's "evolution" on trade that treated his support of the Trans-Pacific Partnership (TPP) as an intellectual journey. It never once suggested that he might be supporting the deal out of a desire to appease powerful business interests. (The piece does note the political pressures to oppose the deal from unions and others who have been harmed by trade.)
Whatever President Obama's personal views on trade, as everyone in Washington knows, presidents are constrained by political forces. (Why can't we have a big stimulus that would restore full employment?) Politicians don't get elected to the presidency or other offices based on their political philosophy; they get elected as a result of gaining the support of powerful interest groups.
There are many powerful business groups that have been directly involved in negotiated the TPP. They are writing rules protecting investment from regulations of different types, ensuring market access for our banks, telecommunications companies and other industries, and increasing the length and strength of patent and copyright protection. (The latter changes are forms of protectionism, which is why it is wrong for this article to describe the TPP as a "free trade" pact.)
It is incredibly irresponsible to not mention the pressure from these business groups to complete the TPP. This pressure will almost certainly have more impact on the Obama administration's trade policy and the votes of Democrats in Congress than President Obama's political philosophy.
That probably should have been the headline of a Politico article [sorry, behind paywall] on a letter signed by 13 former Democratic governors urging Congress to approve fast-track trade authority to facilitate the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP). The most newsworthy aspect of the letter is that the governors apparently do not understand the basic economics of trade.
In the letter the governors tell members of Congress:
"We've seen firsthand the benefits of trade to our communities. Increased exports have been a major component of economic development across all 50 states, adding $760 billion to our economy between 2009 and 2014 -- one-third of our total growth. And this growth has supported 1.8 million new jobs and raised wages (up to 18 percent on average) for real people that we've met -- the manufacturing worker in Kentucky, the computer technician in Massachusetts, the dairy farmer in Wisconsin -- whose jobs are related to exports."
This paragraph implies that the governors don't realize that it is net exports, not exports, that add to growth and employment. To see this distinction, if the manufacturing worker in Kentucky they saw first hand, was producing a part for a car that used to be assembled in Ohio, but is now assembled in Mexico, she would have one of the jobs the governors are attributing to exports. Of course the assembly worker in Ohio has now lost her job, but apparently the Democratic governors don't know about him. This lost job would be picked up if we looked at net exports, since we would subtract the full value of the car when it was imported back from Mexico.
If the governors had done their arithmetic right, instead of boasting about the $760 billion increase in exports, they would have been complaining about the $140 billion decline in net exports, since imports rose by $890 billion between 2009 and 2014. This means that trade was a drag on growth in the recovery, costing the country jobs and putting downward pressure on wages.
It is extraordinary when people who have held important public positions (one of the signers is former Health and Human Services Secretary Kathleen Sebelius) show themselves to be completely ignorant on such a fundamental policy issue. Politico should have called its readers' attention to these former governors misunderstanding of the way in which trade affects the economy, jobs, and wages.
The Washington Post again pushed for approval of the Trans-Pacific Partnership (TPP) in an editorial urging Congress to pass fast track trade authority. Now wanting to waste time with arguments, it jumps straight to ad hominems:
"To the measure’s far more numerous critics on the left, the TPP is yet another corporation-friendly bargain that will destroy American jobs, as the North American Free Trade Agreement, also passed pursuant to fast-track authority, allegedly did.
"These are old anti-trade arguments that aren’t convincing even before you account for the fact that the TPP is about geopolitics as well as economics."
Yeah, well arithmetic and logic are pretty old too, that's probably why they don't get a friendly reception at the Washington Post. Of course the trade deal is in fact corporation-friendly, since that is primarily who is at the negotiating table. They are taking the opportunity to write rules that they expect will increase their profits.
Many of the rules have nothing to do with trade, but rather limit countries' ability to impose various types of consumer and health safety regulation. In fact, some of the most important parts of the deal are explicitly anti-trade, such as the chapter on intellectual property which will strengthen patent and copyright protections. These monopolies obstruct trade and increase costs.
Although he didn't single it out, readers may conclude that it is on his list of outmoded innovations that his "reform conservatives" intend to overcome. He begins his piece by noting Hilary Clinton's campaign announcement then comments inaccurately about progressive Democratic leaders:
"Joe Biden? Jerry Brown? Elizabeth Warren? All fight for Social Security while qualifying for their full checks." (Warren does not turn age 66, and therefore qualify for full benefits, until June.)
The piece continues:
"Democrats today have a geriatric agenda. Equal-pay arguments were avant-garde in 1963. The minimum wage was groundbreaking economic policy in 1938. Democrats propose to increase the payout of a Social Security system created in 1935."
The nature of this argument is more than a bit bizarre. After all, ideas like equality and democracy are pretty old too, would Gerson denounce these also as "geriatric?"
But then we get to the heroes of Gerson's piece. These are people like Senator Marco Rubio and his reform conservative agenda. This agenda accepts the current pattern of inequality, but then offers an expanded income tax credit and payroll tax cuts to help those at the bottom.
How Gerson finds this new is hard to understand. After all, the idea of wage subsidies is more than two centuries old. That isn't an indictment of wage subsidies as a policy, it just means that it is absurd to treat them as new.
The most bizarre part of Gerson's piece is his acceptance of inequality as simply being the work of the market.
I hate to get picky on the numbers, but the unemployment rate was 7.8 percent in January of 2009 when President Obama took office. The Labor Department reported that it was 5.5 percent in March. Since 5.5 percent is more than two-thirds of 7.8 percent, the NYT was seriously exaggerating in its article on Hilary Clinton's announcement of her candidacy when it gave President Obama credit for:
"getting the country out of the worst financial crisis since the Great Depression and cutting the unemployment rate nearly in half."
Of course the unemployment did continue rising through President Obama's first year in office, eventually peaking at 10.0 percent in October of 2009. President Obama certainly cannot be blamed for this increase since the direction of the economy was already set at the time he entered the White House. But by the same token, he cannot be given full credit for the subsequent reduction in unemployment, since much of this would have happened regardless of what policies were pursued.
So if we take the statement literally about cutting unemployment nearly in half, it's wrong. If we try to honestly award credit, based on what President Obama's policies accomplished, it is also wrong.
Furthermore, it is worth noting that the real problem was the collapse of the housing bubble that was driving the economy, not a financial crisis. There was and is no easy source of demand to fill the gap created by the collapse of the bubble. The underlying gap in demand is in turn attributable to the $500 billion trade deficit (@ 3.0 percent of GDP), which is in turn due to the over-valued dollar. The over-valued dollar has its origins in the high dollar policy and the bailout from the East Asian financial crisis that was engineered by Treasury Secretary Robert Rubin during the Bill Clinton administration.
The piece also errs when it tells readers:
"And she [Secretary Clinton] intends to address stagnant wages and income inequality in new ways; one potential proposal would offer incentives to corporations that allow employees to share in profits."
The NYT does not know that Clinton really sees incentives for profit sharing as a way to address wage stagnation and inequality. There are much more obvious and direct ways, like a full employment policy by the Fed and a financial transactions tax which would hit many of the top incomes on Wall Street. The NYT just knows that Clinton says she intends to address stagnant wages and income inequality with incentives for profit sharing. It should stick to reporting what it knows, and refrain from presenting its speculation as truth.
No, that actually is not what the column asked. The question was instead whether people on TANF or food stamps should be able to buy steak or spend their money in other ways that politicians consider lavish.
It seems that if we think the government has a right to dictate people's spending habits based on giving them $1,600 a year in food stamps (the average benefit per recipient), there should also be a case for dictating their spending habits if we give them thousands of times as much in tax breaks, as would be the case with the fund managers' tax break.
For those not familiar with it, the fund managers' tax break (also known as the carried interest tax deduction) allows managers of hedge funds and private equity funds, as well as other types of investment funds, to pay the lower capital gains tax rate instead of the tax rate on ordinary income. In order to get this lower tax rate they have to be paid on a commission, like a car salesperson or a realtor. While other workers who get paid in part on commission still have to pay the same tax rate on their income, because of their enormous political power fund managers like Mitt Romney were able to get Congress to give them a special lower tax rate.
The gains to these fund managers can be enormous; it is not uncommon for successful managers like Romney to pocket $10 million a year. With a tax rate on normal income of 39.6 percent and a capital gains tax rate of 20 percent, this implies a government handout of $1,960,000 a year (@1230 years of food stamps). Some of the most successful fund managers pocket over $100 million a year, which implies a handout of more than $19,600,000 a year (@12,300 years of food stamps). If the government wants to tell people who get food stamps how they should spend their money, it certainly seems reasonable to tell people who can get thousands of times as much through tax breaks how they should spend their money.
For those who have trouble understanding that a tax break is the same as a welfare-type benefit, imagine that we lived in a condo and every unit was required to pay $500 a month to cover the cost of electricity, heating, maintenance, and other normal expenses. If the condo association decided that the people living in one unit did not have to pay their fees, that would be the same as handing them $500 a month, or at least it would be in the land where the laws of arithmetic apply. Of course we have a serious problem of climate change deniers in American political life, why shouldn't we also have a problem of arithmetic deniers?
Note: typos and calculations corrected, thanks to Robert Salzberg. The calculations in this post ignore the 3.8 percent investor tax from the Affordable Care Act that would be imposed on most capital gains income, as well as the 0.9 percentage point tax that would be applied to most wage earnings of high income individuals. Together these taxes would lower the gap between the tax rate on ordinary income and capital gains income by 2.9 percentage points.
I see that Bloomberg has apparently decided to give Megan McArdle infinite space to tell its readers that she doesn't like the Social Security trust fund. Well, they have to fill their website with something.
Just to keep things short and simple, there are two ways to think about the trust fund. First, we can follow the law as written. Under the law, designated Social Security taxes and only designated Social Security taxes can be used to pay Social Security benefits. Money from the taxes that is unspent in the year collected is put in the trust fund for further use. The law is pretty clear on this. I have not heard even Antonin Scalia attempt to argue otherwise.
The other way to think about the trust fund is that it is an irrelevancy. At some time in the past the politicians in Washington thought it would be cute for us to pay for Social Security out of its designated tax and the trust fund, but hey, who cares? There is only one government, so it really doesn't matter which pocket the money comes out of, so the trust fund is irrelevant to anything.
While there are good reasons for choosing one or the other of these views, both have the advantage of being consistent. Both also have the advantage of telling us that there is no necessary reason to worry about Social Security's finances just now. In the first case, the projections show the fund will be able to pay full benefits through 2033 with no changes whatsoever. We could of course worry about Social Security's finances sooner if we want, but some folks might think that problems like unemployment and stagnant wages are more pressing.
By the second view there is no reason to worry about Social Security's finances because the premise is that it doesn't have its own finances. Hey, there's just one government, who cares which pocket the money comes out of? In this view it makes no more sense to worry about Social Security's finances than it does to worry about the finances of the defense or state departments. It's all part of the government.
There can only be an issue if we let people just make it up as they go along, effectively saying that Social Security has to be financed by its own taxes, but the program doesn't get to use surpluses from prior years to pay current year's benefits. There is not any obvious logic to this position, and it has no basis in current law, but its proponents are welcome to lobby their representatives in Congress to have the law re-written as they would like it. Until then, we need not worry about the status of the trust fund or the solvency of Social Security.
Note: The spelling of Antonin Scalia has been corrected, thanks Ken.
The National Journal reported that roughly 0.000008 percent of Social Security benefits over the years 2006-2008 were paid to people who had been committed to institutions as sexual predators. Under the law, these people (18 were uncovered, in total) are ineligible for Social Security benefits.
The National Journal and its reporters are now waiting for the Pulitzer Prize.
That's what Yahoo Finance effectively told us in the headline of a piece on the Labor Department's release of new data from its Job Opening and Labor Turnover Survey. The headline said, "U.S. jobs opening data points to skills mismatch." The evidence was a modest rise in the overall rate of job openings from 3.4 percent to 3.5 percent. But if this is evidence of a skills mismatch then the biggest problem is in the restaurant sector where the jobs opening rate was 5.1 percent. Apparently there are just not enough people who know how to wait tables and wash dishes.
If we used the standard economist measure, we would be looking for rising wages as evidence of skills mismatch. There is not much evidence of that anywhere, as is pointed out later in the article.
That's the question Megan McArdle raises in her Bloomberg column condemning efforts to raise Social Security benefits. McArdle tells readers:
"Now, I don't want to get mired in the tired old arguments about whether the trust fund is "real" -- whether it's a stupid accounting abstraction or a profound moral promise on the part of the U.S. government -- because this obscures the actual point we need to be concerned with: If we want to pay Social Security beneficiaries more money than we are collecting in payroll taxes, the money has to come from somewhere, and ultimately, that "somewhere" is the United States taxpayer. It is supremely irrelevant whether that money flows through the "trust fund" or Uncle Sam holds an annual ceremony in which the trustees are handed one of those giant checks they present to lottery winners; we still need to find the money to make good on that check."
Of course we would all like those who disagree with us in major debates to simply disregard their arguments and accept what we are saying as true. But most of us just don't possess the power to force our opponents to concede the truth of our position, even when if we use ad hominems to belittle their arguments.
In the case of the Social Security trust fund, the tired old argument stems from the legal structure of the program whereby it is financed exclusively by its designated tax, including the surpluses from taxes in prior years. McArdle tells us that bonds purchased with prior years' surpluses don't matter, the government still has to cough up the money in the current year. The same logic applies to the bonds held by rich people like Peter Peterson. The government has to cough up the money to pay him the interest this year on whatever bonds he holds.
If McArdle wants to declare it "supremely irrelevant" that the payments for Social Security come from bonds held by the trust fund, then with equal validity we can declare it supremely irrelevant that Peterson paid for the bonds he owns. After all, this would just get us into tired old arguments about moral obligations to bondholders.
McArdle could contend that we have to pay Peterson his interest because otherwise no one would ever buy U.S. government bonds again, but this point actually is directly in line with tired old arguments about moral obligations. The logic of this assertion is that if we don't meet obligations to past bondholders, then no one will trust us to meet our obligations to future bondholders.
Suppose people apply the same logic to the taxes they pay for Social Security benefits. If we don't follow the law and pay people the benefits they have earned, then they may be more likely to try to avoid paying Social Security taxes in the future. They certainly will be less likely to approve tax increases to fund the program, if they have no reason to believe that the taxes will actually be used for the program, as required under law.
But McArdle doesn't want to have this sort of discussion. Readers are just supposed to accept her pronouncements as true.