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NYT: It's Already Been Decided, Social Security Will Be Cut Print
Thursday, 17 March 2011 04:47

The NYT told readers this morning:

"Once this year’s budget battle is settled, Congress will move on to potentially bigger fights over whether to raise the national debt limit and how to rein in the costs of Medicare, Medicaid and Social Security."

Wow, huge majorities oppose cuts to Social Security (Medicare also), but the only debate in Congress is over "how" to cut the program. So much for democracy in America.

 
Power Breakfast: Presents Debate on Evolution and the Shape of the Earth Print
Thursday, 17 March 2011 04:37

The Power Breakfast segment this morning on WAMU, my local NPR affiliate, told listeners that the debate on reducing the country's dependence on foreign energy was between people who wanted to increase supply by increased drilling and those who favored conservation. This is not true. There is not enough reserves of oil or gas to make more than a small difference in U.S. dependence on imported energy.

A news organization would point this fact out, since it is the job of reporters to know this fact. Unlike listeners, they are paid to know this information. Unfortunately, Power Breakfast led listeners to believe that the country has an option of being energy independent if it were only willing to put its environment at risk. While increased drilling may be able to wreck the environment it can have no noticeable effect on the country's need for foreign oil. Reporters old enough to remember the BP spill in the Gulf understand what is at issue.

 
Does Kent Conrad Know the Economy Is In a Downturn? Print
Wednesday, 16 March 2011 04:54
It seems from his comments on Marketplace Radio that Senator Conrad doesn't realize that the economy is in a serious downturn. If he did, his complaint that the government borrows 40 cents of every dollar it spends would make no sense. The reason that the economy has a large deficit at present is that the economy has an 8.9 percent unemployment rate and is operating well below its potential level of output. If the government were not borrowing 40 cents of every dollar it spends the economy would be weaker and the country would have a higher unemployment rate. Senator Conrad should have been asked about this issue during his interview.
 
It Was the Bubble, not Subprime, That Sank Fannie and Freddie Print
Wednesday, 16 March 2011 04:46
The NYT told readers that Fannie Mae and Freddie Mac collapsed due to their movement into the subprime and Alt-A market in 2005 to regain market share. While the move into lower quality mortgages worsened their situation, Fannie and Freddie would have suffered very large losses even if they had stuck to their traditional market. The collapse of the housing bubble led to record default rates on all mortgages. The majority of mortgages in default now are on prime loans.
 
Public Employees Living the Good Life Print
Wednesday, 16 March 2011 04:32
The NYT had a good piece describing the lives of some of the Ohio employees who its governor thinks are overpaid.
 
NPR Joins Drive to Cut Social Security Print
Tuesday, 15 March 2011 19:48

NPR ran a piece that largely accepted untrue or misleading Republican assertions about Social Security. The piece told readers that:

"Republicans also believe [emphasis added] the very best time to fix Social Security is now, during a time of divided government when both Democrats and Republicans can share ownership of any changes."

Actually, NPR's reporters/editors have no clue what Republicans "believe." They are just making this up. The Republicans in question (like Democrats) are politicians. They say things that advance their political agenda whether or not they actually believe them. Competent reporters know this and don't try to tell their audience that these politicians actually believe their assertions; competent reporters just report the assertions and let their audience make up their own mind as to whether the politicians believe what they are saying. 

It is also not a fact that Social Security needs to be fixed in any meaningful sense of the term. The Congressional Budget Office projects that the program can pay all benefits for the next 28 years with no changes whatsoever and can pay nearly 80 percent of projected benefits indefinitely into the future, even if nothing is ever done to change the program.

The article includes a statement from Alabama Senator Richard Shelby noting that Social Security paid out more in benefits than it took in taxes last year: "

"Social Security is now at the tipping point, the first step of a long, slow march to insolvency if we don't do something about it."

It would have been worth noting that this actually was part of the design of the program. The reason that payroll taxes were raised to a point where they exceeded benefits was to cover the cost of the baby boomers' retirement, which meant that there would be points like the present where benefits exceeded taxes. Otherwise, the increase in the payroll taxes in the 1980s made no sense. It would have been appropriate to point out to listeners that Mr. Shelby either does not understand the program or is deliberately trying to mislead the public.

Similarly, the segment included an assertion from Oklahoma Senator Tom Coburn that money was stolen from Social Security:

"The fact is ... $2.8 trillion was stolen from Social Security .., The money was spent. It's broke. And we're going to have to fund $2.8 trillion over the next 20 years just to make the payments that we've got. I would think most people would think we ought to fix that."

Actually, not a penny was stolen from Social Security. Social Security lent money to the federal government by buying bonds, just as individuals, private corporations and banks do all the time. When an individual or company buys a bond from the government, it doesn't matter to them at all (except as citizens) whether or how the government spends the money. The government owes the exact same money regardless.

When the government pays back the bonds held by the Social Security trust fund it will effectively be replacing the bonds held by the trust fund with other bonds. The borrowing took place when the government sold bonds to the Social Security trust fund in the first place. It is not new borrowing when the government repays the bonds held by the Social Security trust fund.

 
The Hill Has a Problem With Theory and Practice Print
Tuesday, 15 March 2011 07:28

The Hill told readers today that:

"The [Social Security] trust fund itself has a theoretical $2.6 trillion surplus, but that money has been spent by the federal government like general revenues."

It is not clear what information the paper thinks is added by the word "theoretical." It is possible to add the word to almost any sentence (e.g. "Washington has a theoretical basketball team"). When something actually exists in the world, calling it "theoretical" is presumably intended to impugn it in some way.

Of course the trust fund does exist in the world, it is held in the form of U.S. government bonds. These bonds are referred to as "IOUs" in the Hill piece. It is highly unusual to refer to bonds of private corporations or government bonds as IOUs.

The article also makes the bizarre assertion that: "the payback [use of interest on the bonds held in the trust fund to pay Social Security benefits] has arrived at a very difficult time, when Washington is running a $1.6 trillion budget deficit." Actually, the interest rate on government debt is very low right now. This means that it is in fact a very good time for the government to be replacing the bonds held by Social Security with other bonds.

Readers can assume, based on these comments, that the Hill does not like Social Security and wants to see benefits cut. Usually this sort of editorializing is left to the opinion pages but apparently the Hill could not contain its animosity towards the program.

 
Fox on 15th (a.k.a. the Washington Post) Pushes Its Trade Agenda Print
Tuesday, 15 March 2011 04:49

The Washington Post is going into high gear pushing its trade agenda. It ran an editorial that included the term "free trade" in both the headline and the first sentence. While proponents of these deals like to call them "free" trade pacts, this is not accurate. They do little or nothing to reduce the barriers to trade in highly paid professional services, like those provided by physicians and lawyers, and they increase many forms of protectionism, most notably patent and copyright protection.

But the Post wants these deals to pass, so if calling them "free trade" pacts advances the cause, this is a small matter. After all, this is a newspaper that told readers that Mexico's GDP quadrupled between 1988 and 2007 to make its case that NAFTA was a huge success. The actual growth was 81 percent. Given the paper's willingness to ignore truth in the pursuit of its trade agenda, calling the pacts "free trade" deals is a relatively minor matter.

 
The Mysteries of Labor Composition Print
Monday, 14 March 2011 11:10

David Leonhardt had a blogpost last week that left some of us here at CEPR stumped. It had two graphs, one on top of the other, showing patterns in wages since the start of the recession. The top graph showed wage gains by educational attainment. This showed that college grads had an increase of about 1.5 percent in their real weekly earnings, while everyone else saw modest declines. The second graph showed real wage growth by income cutoffs. Those at the 90th percentile saw real wage gains of 8.0 percent, but everyone else also saw modest wage gains as well.

At first glance, these seemed inconsistent and we thought that Leonhardt had made a mistake. After checking his data, we saw that he was exactly right. The explanation was a change in the composition of the employed workforce. There was a sharp drop in employment among workers without high school degrees and those with just a high school degree between 2007 and 2010. On the other hand, the number of people employed who had advanced degrees actually increased slightly.

 

educational_mix2_31489_image001

Source: Bureau of Labor Statistics.

 

What happened here is that the change in composition means that much of the bottom portion of the workforce is no longer employed. Therefore the 90th percentile worker in 2010, might have been the 92nd percentile worker in 2007. And, in 2007 the 92nd percentile worker earned 6.3 percent more than the 90th percentile worker.

So, what looks like a big rise in wages for higher-end workers is in fact the result of comparing different workers. This is worth keeping in mind. The wage growth at the middle and lower-end of the income distribution in the late 90s looks even better when we consider that many less educated workers found jobs in this period. 

 
Washington Post Decides That the Markets Are Wrong About Japan Print
Monday, 14 March 2011 08:59

The financial markets seem relatively unconcerned about Japan's fiscal situation as evidenced by the fact that investors are willing to buy 10-year Treasury bonds from the Japanese government at an interest rate around 1.4 percent. Nonetheless, the Washington Post told readers that:

"Japan is already groaning under government debt equal to twice its yearly economic output."

As a result of the low interest rate on its debt, Japan's interest burden is actually smaller measured as a share of GDP than the interest burden in the United States. Also, close to half of Japan's debt is held by its central bank. The interest paid on debt held by the central bank is refunded to the government and therefore imposes no burden on Japan's budget.

Also, Japan has no fears whatsoever of inflation. As the article notes toward the end, many forecasters project that the economy will weaken further as a result of the earthquake/tsunami and cause another burst of deflation.

 
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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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