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SOPA Will Cost Jobs! The NYT Should Talk to an Economist, not the Chamber of Commerce Print
Thursday, 15 December 2011 05:42

Standard economic models show that tariffs cost jobs. The reason is that they make consumers pay more money for the protected product. This pulls money away that could be spent in other areas. If the spending took place elsewhere, it would create more jobs than the additional money earned by the protected industry.

The same logic applies to increasingly stringent protections for copyright, except the economic waste and resulting job loss is likely to be much larger. Tariffs rarely raise the price of products by more than 15-20 percent. Copyright can make items very costly that could otherwise be available for free or nearly free. This implies a tariff of several thousand percent or higher.

In addition, there are enormous costs associated with copyright enforcement, with both the public and private sector required to make substantial expenditures to prevent unauthorized copies of copyrighted material from being circulated. This amounts to a waste of resources that could instead go to productive activity.

Copyright and its enforcement can be thought of as being analogous to toll booths, which can be used as a way to finance road construction. If the only way we have to finance road construction is toll booths, then we absolutely need toll booths to pay the road-builders.

However, once we have roads that are financed through other mechanisms (e.g. government funding), then it becomes increasingly difficult to collect money at the tollbooths since people will opt to use the free roads. We could go the route that many in Congress want to take with the Stop Online Piracy Act (SOPA), which effectively amounts to building toll booths that are harder to get around and imposing tough penalties on those who try to take free roads.

This gets more money for the people who build and operate toll booths, but may not do very much to help the people who build roads. Alternatively, we could try to find ways to get more money directly to the road-builders without spending vast sums erecting bigger more expensive toll booths and being more punitive to those who use free roads.

If the NYT had relied on an economist rather than the Chamber of Commerce, it would know that the SOPA is likely to cost large numbers of jobs rather than create jobs because of the costs it imposes on the economy and the money it will drain out of consumers' pockets.  

 
NYT Forgot to Mention That Ryan's Medicare Plan Raises Costs Print
Thursday, 15 December 2011 05:21

The NYT neglected to mention that the Congressional Budget Office has repeatedly found that adopting plans providing more choice within Medicare, like the one by Representative Paul Ryan and Senator Ron Wyden touted in this article, raise rather than lower the cost of providing care. The basic problem is that private insurers are very good at cherry picking patients -- better than government bureaucrats in preventing cherry picking. This means that private insurers will find ways to get patients who cost them less than the average payment, or less than the average risk-adjusted payment, for Medicare beneficiaries.

This is the reason that Medicare Advantage and its precedessor in the 90s, Medicare Plus Choice, raised the cost of Medicare. The Congressional Budget Office has also found that private insurers are less effective in controlling costs, which is why they projected that Representative Ryan's proposal for privatizing Medicare would increase the cost of providing Medicare equivalent policies by $34 trillion over the program's 75-year planning period. 

 
NYT Presents Good Analysis of State Tax Breaks for Business Print
Wednesday, 14 December 2011 05:18
Businesses are increasingly playing a game of telling states that they will shut their doors and move elsewhere unless they get tax breaks. This is the old "why not?" philosophy. Good piece in the NYT on the issue.
 
7-8 Percent Pension Returns Are Not "Hopeful" Print
Tuesday, 13 December 2011 22:54

There are more arithmetic problems at the NYT. It noted that pension returns have been very low in recent years and then commented:

"Pension plans hope to make up these lost years and reach performance targets that in some cases are still set at a hopeful 7 to 8 percent a year."

Bizarrely, the NYT seems to think that low returns in the recent past should imply low returns in the future. In fact, the exact opposite is true.

The low returns in the recent past were the result of a drop in stock prices. This means that price to earnings ratios in the stock market are much lower than in the past. That means that investors are paying much less for a dollar of future earnings now than they did 4 years ago. It would have made much more sense for the NYT to refer to 7-8 percent return assumptions as "hopeful" in 2007 than it does today.

 
Bruce Bartlett Uncovers the Most Misleading Poll Question of All Times Print
Tuesday, 13 December 2011 08:17

Bartlett found a poll ( I beleive an NYT poll) that asked the extent to which people agree or disagreed with the statement:

"it is the responsibility of government to reduce income differences."

Since we live in a country in which the government pursues a wide range of policies that increase income differences, most poll takers could not help but be confused by this sort of question. After all, we have a government that subsidizes Wall Street by providing too big to fail protection and massive subsidies when the doofuses bring their banks to the brink of ruin. It grants drug companies patent monopolies that raise the price of drugs by hundreds of billions of dollars above the free market price.

We have a trade policy that is designed to put our manufacturing workers in direct competition with the lowest paid workers in the developing world while protecting our most highly educated workers from the same competition. And, we have a central bank (the Fed), which deliberately acts to throw people out of work to ensure that inflation doesn't reduce profits in the financial sector.

Most people would probably be happy to have a government that did not increase income differences. Asking them about a government that reduces income differences no doubt would strike poll takers as a bizarre question.

 
Ben Bernanke Did Not Save Us from a Second Great Depression Print
Tuesday, 13 December 2011 06:15

The Wall Street Journal felt the need to tell readers that Bernanke's action to provide liquidity to the banking system:

"may have prevented a repeat of the Great Depression."

This is not true. We know how to reinflate an economy after a collapse. It just requires massive amounts of government spending, as happened during World War II. The first Great Depression was not caused just by the failure to counter the initial financial crisis effectively. It was attributable to an inadequate policy response over theh following decade.

The piece also tells readers that Bernanke is worried that businesses are not investing because of concerns about future deficits. He would not have this fear if he looked at the data. Measured as a share of GDP business investment is almost back to its pre-recession level. This is very impressive since we would ordinarily expect that large amounts of excess capacity in many sectors would be depressing investment.

 
Mark Zandi and the NYT Hugely Underestimate the Number of Vacant Homes Print
Tuesday, 13 December 2011 05:58

The NYT cited Mark Zandi as saying the number of vacant homes is roughly 1 million, which he puts as equal to the gap in household formation that resulted from the recession. According to the Commerce Department, if the vacancy rate was back at its pre-bubble level, there would be 3 million fewer vacant units.

Addendum: Calculated Risk argues that Zandi's vacancy number is closer to the mark than the Census number. The core of the argument is that the rate of housing destruction should be much higher than implied by the Census data, based on construction data and the change in the stock of housing.

What I think he is missing is that the construction data only include homes built from scratch. During the bubble years there were a lot of dilapidated structures that were renovated and turned into usable housing units. You also had some commercial and industrial properties that were converted into residential units. These units would not be picked up in the new construction data. The units in these categories could easily fill the gap that CR identifies between a reasonable rate of housing destruction and the numbers implied by calculating the change in the housing stock and subtracting new construction.

 
How Does the NYT Know That Prohibiting Millionaires from Getting Food Stamps Is Part of a Desire to Make the Rich Pay More? Print
Tuesday, 13 December 2011 05:39

The NYT told readers that the Republican proposal to prohibit people with income of more than $1 million a year from receiving food stamps and unemployment insurance:

"demonstrates an increasing desire among members of Congress to find some way to make sure that the wealthiest Americans contribute more to reducing the deficit and paying for middle-class tax relief."

As the piece notes, it is almost impossible to find any millionaire who received food stamps. The article reports that millionaires received a total of $20.8 million in benefits in 2009. This is less than 0.0007 percent of the budget and less than 0.02 percent of the cost of maintaining the Social Security payroll tax cut for another year. It ir roughly equivalent to an increase of 0.01 percent on the income of the richest one percent.

It is far from obvious that the purpose of a proposal that would have almost no impact on the overwhelming majority of rich people is in fact motivated by a desire to "make sure that the wealthiest Americans contribute more to reducing the deficit and paying for middle-class tax relief." In fact, if anyone looks at the numbers, one could get the opposite impression since these proposals are being presented as alternatives to proposals to have a surtax on the income of the richest one percent. Such taxes would be a much greater expense to the richest one percent.

The Republican proposal also has the advantage of undermining the universal character of a program like unemployment benefits, for which the rich made contributions just like everyone else. This could be a first step in means-testing the program, which could then make it into an anti-poverty program rather than an insurance program.

Denying unemployment benefits to millionaires can be seen as comparable to denying the charitable tax deduction to millionaires. They certainly do not need it, but they have as much right to a deduction for charity as anyone else. 

 
Companies that Offer Jobs at Below the Market Wage Can't Find Workers Print
Tuesday, 13 December 2011 05:15

That is what NPR told listeners in a story about AAR Corp on Morning Edition. It told listeners that AAR, which hires mechanics to maintain planes, has had great difficulty attracting workers. According to the piece, its starting wages are between $12-15 an hour ($24,000-$30,000 a year), with wages topping out at $28 an hour ($56,000 a year). It didn't give any information about benefits.

The piece indicated that these are jobs that require a fair amount of skill and involve a considerable degree of responsibility on the workers' part. The piece also noted that competitors often pay $5-$10 more an hour.

In other words, AAR is effectively offering to pay doctors $40 an hour ($80,000 a year) and finding few takers. It is not clear whether this should be taken as evidence of a shortage of doctors.

 
The NYT Does He Said She Said on the Shape of the Earth and Income Inequality Print
Monday, 12 December 2011 22:32

The NYT doesn't know it, but the income of the rich rises and falls with the stock market because [top secret: they own lots of stock.] Sorry, but this piece on the decline in the relative income share of the top 1 percent is beyond silly. We know the income of those at the top drops in relative terms every time the market takes a dip.

Of course the stock market took a plunge in 2009, therefore we knew, even before we got the data, that their share of total income would fall. This is why it is very silly for the NYT to be interviewing people about whether there is now a reversal of the upward redistribution of income over the last three decades.

As they say in some parts, it's the stock market stupid. Don't waste readers time pretending it is anything else.

[Addendum: Larry Mishel picked up on this point and graphed capital gains income for the top 1 percent against the S&P 500.]

 
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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.

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