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The Primary Cause of Social Security's Bleak Outlook Is Upward Redistribution Print
Tuesday, 24 April 2012 05:27

In an article on the release of the 2012 Social Security trustees report the Washington Post told readers that:

"Social Security’s bleak outlook is primarily driven by the ever-larger numbers of people in the baby boom generation entering retirement."

Actually the fact that baby boomers would enter retirement is not news. Back in 1983, the Greenspan Commission knew that the baby boomers would retire, yet they still projected that the program would be able to pay all promised benefits into the 2050s.

The main reason that the program's finances have deteriorated relative to the projected path is that wage growth has not kept pace with the path projected. This is in part due to the fact that productivity growth slowed in the 80s, before accelerating again in the mid-90s and in part due to the fact that much more wage income now goes to people earning above the taxable cap.

In 1983 only 10 percent of wage income fell above the cap and escaped taxation. Now more than 18 percent of wage income is above the cap.

Remember When Mexico Presented a Contrast to Argentina? Print
Tuesday, 24 April 2012 00:45
It seems like just yesterday when Mexico was being held up as a paragon of free enterprise, in contrast to Argentina, which was nationalizing its oil company. (Okay, it was two days ago.) Anyhow, it seems that Mexico's government is preparing to impose new restrictions on its state-owned oil company.
The Right's Inventive Approach to Income Inequality Print
Sunday, 22 April 2012 23:58

Just as it refuses to accept global warming or evolution, much of the right is busy trying to deny the evidence on income inequality. As Thomas Edsall notes in his column today, they don't have much of a case.

The big point that they are hitting on these days is that most middle income and poor people get health insurance, either from their employer or the government, which costs lots of money. If we add in this expense to their cash income, then the rise in inequality does not seem as large.

There are two important points to consider on this issue. The cost of health insurance is money being paid to highly paid medical specialists, insurers, and drug companies. It seems a bit perverse to argue that the poor are actually doing better than we thought because we are paying lots of money to cardiologists.

The other point is to keep in mind is that if we look at health outcomes like life expectancy, then it adds to the view that inequality is increasing. While all income groups shared more or less equally in the gains in life expectancy in the three decades immediately following World War II, a hugely disproportionate share of the gains have gone to the top in last three decades.

This suggests that if we measure what low and middle income people get by way of health care, instead of what the government and employers pay, the growth of inequality might be even worse than the commonly used data indicate.

Robert Samuelson Has Never Heard of Paul Krugman (or Me) Print
Sunday, 22 April 2012 23:33

Regular readers of the Washington Post know that they have a hard time getting information at the newspaper, buried as it is in the center of the national's capital. Robert Samuelson gave more evidence of this problem in his column today on the renewed difficulties facing Spain.

Samuelson told readers:

"in truth, no one has a neat solution to end Europe’s financial nightmare."

Actually, many of us have proposed what would seem like a pretty neat solution, have the European Central Bank guarantee Spain's debt. That would immediately push the interest rates paid by the Spanish government down to the levels paid by the German government. That would make Spain's debt burden easily sustainable.

Spain does need to re-establish its competitiveness which can best be done within the euro zone by having a somewhat higher rate of inflation in Germany and other core countries. If Spain can sustain a lower rate of inflation than the core countries then it will be able to get its current account deficit with other euro zone nations back to a reasonably level.

Samuelson should know that many prominent economists have advocated this sort of solution. He may think it is a bad option for some reason, but then he should present the reason. As it stands, his column makes it sound as though he has no clue on the nature of the debate over euro zone policy.

Postal Service's Business Failures Might Have Something to Do With Political Connections of Competitors Print
Sunday, 22 April 2012 20:07

A NYT article on the financial difficulties of the Postal Service concluded with a comment from Art Sackler,  the chairman of the Coalition for a 21st Century Postal Service:

"They haven’t had a good track record when it comes to developing new lines of business."

This organization is identified as "a mailing industry group that includes companies like FedEx."

It might have been worth reminding readers that FedEx and UPS have in the past used their political power to limit the ability of the Postal Service to compete with them. A few years back the Postal Service had a successful ad campaign that highlighted the fact that its express service was much cheaper than FedEx or UPS.

These companies then went to court to try to stop the campaign. After they lost their court case, they then went to Congress, which helped to persuade the Postal Service to end this particular ad campaign. At least in this particular case the Postal Service's main problem was a lack of political clout, not a bad business model.

The Washington Post Doesn't Like Populist Governments in Latin America Print
Sunday, 22 April 2012 11:05

In keeping with its new journalism model of eviscerating the distinction between news and editorial positions, the Washington Post told readers in a news article that “populism is running out of gas in Latin America,” using the words of Arturo Porzecanski, a Uruguayan economist who teaches at American University in Washington. Mr. Porzecanski is one of several critical voices used as sources for the piece.  (The only statement from a supporter of the populist governments is a comment from Venezuela's oil minister, which appears to have been given at a press conference.) 

The data do not seem to agree with Mr. Porzecanski. The piece mentions 11 countries in Latin America, 5 of which (Argentina, Bolivia, Ecuador, Nicaragua, and Venezuela) it identifies as populist. The chart below shows per capita GDP growth in each country either from 2000-2011 or from the year when a populist government assumed power until 2011.


Source: International Monetary Fund.

There is certainly no case here that the populist governments, as identified by the Post, are doing worse than the Post favorites. Argentina ranks first among the whole group with an average per capita growth rate that avearges almost 6.0 percentage points above WAPO favorite Mexico. Bolivia and Ecuador are very much in the middle of the pack, even though the relatively brief period of populist rule includes the years of the world economic crisis. (Ecuador's growth would put it above both Chile and Colombia for the period that overlaps with populist rule and Uruguay's growth puts it above Chile for the period of overlap.) Even relatively slow-growing Venezuela has seen more rapid growth under populist rule than in the prior two decades when per capita GDP fell.

There has also been a substantial reduction in inequality in the countries the Post identified as populist (as opposed to an increase in inequality in Mexico). This means that the typical person in these countries has likely seen a sharp improvement in living standards.

Ironically the context for this piece is the decision by Argentina's government to re-nationalize the largest oil company in the country. (It had been privatized in the 90s.) Several of the countries held up by the Post as models, notably Brazil and Mexico, already have state owned oil companies.

European Budget Deficits Did Not "Balloon" in the Credit Bubble of the Last Decade Print
Sunday, 22 April 2012 09:02

Fox on 15th Street is on the loose again. A Washington Post article on renewed worries over European sovereign debt referred to:

"massive cuts in government spending aimed at reducing deficits that ballooned during the credit bubble of the past decade."

No, the deficits did not balloon during the bubble. Greece and Portugal did run large deficits in the bubble years. However Italy's debt to GDP ratio was falling and the other two crisis countries, Spain and Ireland, were running budget surpluses.

How can a Washington Post reporter not know these facts? How can an editor allow this assertion to get into print? We know that claims like this fit the Post's obsession with deficits, but the paper should show a bit more respect for the facts.

Thomas Friedman Wants the People Who Gave Us the Housing Bubble to Have More Power Print
Sunday, 22 April 2012 08:46

Thomas Friedman once again derides partisanship and division in his column today. (Can you really get paid at the NYT for writing the same column over and over again? I used to make my students write new papers if they expected credit.) Anyhow, he mourns the divisiveness of U.S. politics and tells us that we need (relying on Frank Fukuyama):

"'If we are to get out of our present paralysis, we need not only strong leadership, but changes in institutional rules,' argues Fukuyama. These would include eliminating senatorial holds and the filibuster for routine legislation and having budgets drawn up by a much smaller supercommittee of legislators — like those that handle military base closings — with 'heavy technocratic input from a nonpartisan agency like the Congressional Budget Office,' insulated from interest-group pressures and put before Congress in a single, unamendable, up-or-down vote."

Those of us familiar with economics shiver when we hear a call for more "technocratic input" that is not accountable to democratic control. After all, it was the economic technocrats who insisted that everything was just fine as the housing bubble expanded to ever more dangerous levels.

Is there any reason to believe that the technocrats involved in economic policy making today are any more competent than the crew in charge from 2002-2008? There is no obvious evidence that this is the case, after all, it is largely the same crew.

Why would anyone in their right mind want to give the people who drove the economy off a cliff more power? Maybe when they get the economy back to full employment we can have this discussion, but as long as so many people are out of work, our economic experts should feel lucky to be employed. The last thing we should be considering is giving them more power. 

Economic Problems in Venezuela Did Not Begin With Chavez Print
Saturday, 21 April 2012 17:06

A NYT piece on shortages in Venezuela told readers:

"Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities."

This may give the impression that Venezuela's economy was strong before Hugo Chavez came to power in 1998. This is not true. According to the I.M.F., per capita income was actually 11.8 percent lower in 1998 than it had been 18 years earlier in 1980. Since Chavez came to power per capita income has risen by 4.9 percent. While this is hardly robust growth, since it was accompanied by greater equality in the distribution of income there can be little doubt that most Venezuelans have fared better under Chavez than under his predecessors.


Source: International Monetary Fund.

Does the Additional Support for IMF Come With Expectation that Europe Will Jettison Austerity? Print
Saturday, 21 April 2012 16:51

That seemed to be what the NYT was telling readers in an article that began by noting the difficulties that the Dutch government is facing in pushing its austerity plan. The piece noted that a number of countries had committed an additional $430 billion to the IMF for dealing with fallout from the eurozone debt crisis, then added:

"But that money comes with the understanding that Europe will be vigilant in fighting off speculative attacks, bringing down unwieldy budgets and spurring growth."

The most obvious mechanism for spurring growth is ending austerity. However, the European Central Bank and the IMF do not appear to give any hint that they have this intention. If they continue to press government to "bring down unwiedly budgets," then they are taking steps to slow growth. If they don't understand this fact, then they are in the wrong line of work.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.