President Calls Current System Unfair to Blacks
Michael A. Fletcher
Washington Post, February 11, 2005, Page A3


Tighter Bankruptcy Law Favored
Kathleen Day
Washington Post, February 11, 2005, Page A5

The first article reports on the Bush administration’s claim that African-Americans get a bad deal on Social Security because they have shorter life expectancies than whites and therefore collect Social Security for fewer years than whites. The second article reports on efforts to tighten bankruptcy laws so that it is more difficult to use bankruptcy to escape debt.

It is worth noting that many of the poorest African-Americans (those most likely to die young) die in debt. In such cases, under President Bush’s proposal for private accounts, the money in the accounts will go to finance companies or other creditors, not to workers’ heirs. It is also worth noting that Bush’s plan requires that retirees use their accounts to buy annuities that are at least large enough to provide a poverty level income. This requirement will force a typical African-American man to use up his entire account to buy such an annuity, leaving nothing to pass onto heirs (see “Empty Promise: The Benefit of Private Accounts to African-American Men of Private Accounts Under President Bush’s Social Security Plan”). 

It is also worth noting that it would take 45 years to fully phase in President Bush’s Social Security proposal. While African-American men have substantially shorter life expectancies than white men at present, it is reasonable to believe that this gap can be largely or completely eliminated over this period, if government policy made racial equality a high priority. 

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Medicare Drug Benefit May Cost $1.2 Trillion
Ceci Connolly and Mike Allen
Washington Post, February 9, 2005, Page A1

This article reports on new estimates of the cost of the Medicare drug bill. It also includes discussion of Treasury Secretary Jack Snow’s congressional testimony on Social Security. At one point it reports Mr. Snow’s assertion that Social Security “is offering empty promises to future generations.” It is worth noting that under both the trustees' and the Congressional Budget Office's projections, Social Security would always be able to pay a benefit that is higher than the price-indexed benefit proposed by President Bush’s Social Security commission.

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Social Security Problems Not a Crisis, Most Say
Richard Morin and Dale Russakoff
Washington Post, February 10, 2005, Page A1

This article reports on a poll that examined public attitudes towards Social Security. The article implies that there is some necessity to take action to fix Social Security’s projected imbalances, commenting that “experts agree that without new revenue coming in or less flowing out as benefits – or both – the Social Security system will not be able to pay all its promised benefits, perhaps as early as 2042." 

Actually, there is no such agreement among experts. For example, Robert Gordon, a professor at Northwestern University and one of the country’s most prominent economists, recently wrote an article in which he argued that reasonable projections of immigration and productivity growth show that the system will be fully solvent throughout its seventy-five year planning horizon.

It is also important to note that the time horizon of any projected shortfall is essential. It is not common, or- even necessarily reasonable, to become very worried about distant events that cannot be projected with any certainty. The non-partisan Congressional Budget Office projects that the program will be fully solvent for 47 years into the future, with no changes whatsoever. By contrast, the program has required major changes in every decade from the forties through the eighties. However, the media and the politicians of that era did not constantly concern themselves with the far more immediate shortfalls facing Social Security at the time. 

The article includes several other assertions that are inaccurate. For example it asserts that people  “incorrectly believe that retirees, on average, receive less in benefits than they contributed to the system.” Actually, the calculation of whether retirees receive more or less than they paid in depends on the interest rate used in making the calculation. At a 3.0 percent real interest, most current retirees would receive somewhat less than they paid in, while at a 2.0 percent interest rate, most would receive more. However, it is not obvious which rate should be used (higher or lower rates could also be applied).

The article also asserts that the public is wrong in believing that the “the cost of living has been rising faster than wages.” The article is mistaken on this point. It is referring to two indexes used by the Social Security Administration for calculating indexes, a wage index (average indexed monthly earnings [AIME]) and a price index (the consumer price index [CPI]). While it is true that the AIME has consistently risen more rapidly than the CPI, this doesn’t mean that wages for most workers have outpaced inflation. The wage for the typical worker has risen much less rapidly than the wage for the average worker, as income has been redistributed upward over the last quarter century. 

Also, the CPI is not necessarily a measure of the cost of living as perceived by the public. For example, if workers have to pay more money for their health insurance because their employer pays less (or the insurance covers more expensive drugs and procedures), this would not be picked up by the CPI. The CPI also does not include the cost of buying a home – it assesses rent instead. And the CPI adjusts for quality in ways that may not be apparent to consumers. This means for example that the CPI shows car prices declining over the last several years, even though new car prices have been rising at a pace close to 3 percent annually.

It is important to distinguish between numbers as measured by indexes and the real world. The switch from the wage index to the price index would lead to a cut in benefits – even though the wages that people are getting may not rise as rapidly as their perceived cost-of-living.  

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Bush Takes Social Security to 2 ‘Town Halls’
David E. Sanger
New York Times, February 11, 2005, Page A17

This article reports on President Bush’s efforts to promote his Social Security agenda. The article quotes President Bush as saying that if nothing is done, there would be “major cuts in benefits.” It is worth noting that all projections show that Social Security will always be able to pay a higher real benefit than what current retirees recieve. 

The Bush administration has argued strenuously that its plan to switch from wage indexing to price indexing, which would mean a large reduction from scheduled benefits, but a constant real benefit, should not be called a “cut” because it keep benefits at or above their current level. It is worth noting that by the Bush administration’s definition of “cut,” President Bush spoke incorrectly when he raised the prospect of benefit cuts. There is no projection that shows benefits ever being cut below current levels or even below the level provided for under his price indexation formula. 

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The Trade Deficit and the Budget Deficit

Greenspan Sees Steadier Trade Gap
Paul Blustein
Washington Post, February 5, 2005, Page E1

This article discusses a speech by Alan Greenspan in which he said that the trade deficit would either stabilize or decline. According to the article, Greenspan anticipated a decline in the trade deficit both because of a decline in the dollar and because he expects the budget deficit to be reduced.

The only way that a lower budget deficit can lead to a reduced trade deficit (apart from its impact in lowering the value of the dollar) is by leading to less growth and therefore less demand for imports. In other words, this means that Greenspan must be anticipating that growth in the United States will slow, when he says that a lower budget deficit should reduce the trade deficit. (The alternative view – that the budget deficit directly affects the trade deficit – would imply that consumers choose between domestic and imported goods based on the size of the budget deficit, an obviously absurd proposition.)

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January Jobs Report

Job Market Gives Hint Of Recovery 
Nell Henderson
Washington Post, February 5, 2005, Page E1

This article reports on the Labor Department’s release of employment data for January. The headline is very much at odds with the data reported for January. The survey reported that just 146,000 new jobs were created in January, about 50,000 less than was generally expected. Job growth data for the two prior months were revised downward as well.

While the article notes that the economy has finally regained the jobs lost in the 2001 recession, it would have been worth noting that total hours worked in the economy are still about 2.0 percent lower than they were prior to the recession. This prolonged downturn in hours worked is unprecedented in the post-World War II era.   

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Copyrights

As Piracy Battle Nears Supreme Court, the Messages Grow
Tom Zeller Jr.
New York Times, February 7, 2005, Page C1

This article reports on a case coming before the Supreme Court on a law that restricts the spread of technology that can be used to make unauthorized reproductions of copyrighted material. The article would have benefited from some discussion of the economic costs associated with copyright enforcement. As digital technology has made it much easier and cheaper to transfer creative and artistic work, copyrights are becoming an increasingly inefficient means of supporting this work – slowing economic growth and costing jobs. It would be appropriate to discuss the relative efficiency of copyrights and potential alternative methods of financing creative work (e.g. see “Artistic Freedom Vouchers: The Internet Age Alternative to Copyrights”).

The Budget

Bush Budget Calls for Cuts In Health Services
Robert Pear
New York Times, February 5, 2005, Page A12

Foreign Aid Boost Is Expected in Bush Budget
Paul Blustein
Washington Post, February 6, 2005, Page A6

White House, Congress to Battle Again Over Domestic Programs
Jonathan Weisman
Washington Post, February 6, 2005, Page A7

President Sends ’06 Budget to Congress
Peter Baker
Washington Post, February 8, 2005, Page A1

President Offers Budget With Broad Cuts
Richard W. Stevenson
New York Times, February 8, 2005, Page A1

These articles report on aspects of President Bush’s 2006 budget. All of the articles report on the budget amounts in dollars terms. As Daniel Okrent, the public editor for the New York Times recently noted (“Numbed by Numbers: When They Just Don’t Add Up,” New York Times, 1-23-05; Section 4, p 3), budget numbers expressed in isolation are virtually meaningless to the vast majority of readers. 

For example, it is very difficult for readers to assess the importance of the $4.1 billion 2005 appropriation for a community development block grant (discussed in the Weisman article) which is being cut in the Bush budget by 40 percent for 2006. It would be more informative to describe the spending as being equal to 0.14 percent of the total federal budget. If budget items were routinely expressed as a share of the federal budget, rather than as a dollar amount, it would provide much more information to readers.

Several of these articles refer to the $427 billion projected deficit for 2005 as a record. While it is the largest deficit in dollar terms, it is equal to just 3.6 percent of GDP. By comparison, the deficit in 1983 hit 6.0 percent of GDP. The total deficit (which includes government borrowing from the Social Security trust fund and the public employees retirement funds) is over $600 billion (approximately 5.0 percent of GDP) and considerably closer to the 1983 record. 

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Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.