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Debt and Interest Rates: Isn't There a Bond Market in the United States? Print
Friday, 15 April 2011 21:55

The NYT contrasted the situation of the United Kingdom when it sells its debt to the United States:

"In that sense, comparing the British and American deficit-cutting plans becomes a bit more difficult. In Europe the bond market is the ultimate judge of deficit-reduction plans. In the United States, by contrast, the global demand for Treasury bills, and the benefits of the Federal Reserve Board’s easy-money “quantitative easing” policy, have kept 10-year bond yields well below those of Britain."

Let's see, the bond market determines interest rates for British debt and who exactly is determining the interest rate on U.S. debt, "global demand?" In both cases the bond market determines interest rates, although the exact set of factors will differ. It is interesting that the interest rates on U.K. and U.S. debt is almost exactly the same at the moment, which suggests that the markets view them as equally risky.

 
Brooks Bemoans the Lack of a Free Lunch for Representative Ryan Print
Friday, 15 April 2011 04:05

That would be at the White House of course. Brooks is upset that:

"It is sad, although not strange, that in today’s Washington they have never had a serious private conversation. The president has never invited Ryan over even for lunch."

Brooks goes on to tell us five things that Ryan "believes" that Obama does not.

"First, he believes that aging populations, expensive new health care technologies and the extravagant political promises have made the current welfare state model unsustainable. Fundamental reform is necessary or the whole thing will collapse, here and in Europe.

Second, he believes that seniors and the middle class cannot be excused from the benefit cuts that will have to be imposed to rebalance these systems. Third, he believes that health care costs will not be brought under control until consumers take responsibility for their decisions and providers have market-based incentives to reduce prices.

Fourth, he believes that tax increases should not be part of these reforms because the economic costs outweigh the gains. Fifth, he does not believe government can nurture growth and reduce wage stagnation with targeted investments."

 

Let's look at some of these points more closely.

Number one is certainly a very peculiar belief given the fact that Japan and most countries in Europe in have much older populations than the U.S. and are still showing comparable rates of productivity growth. It would be interesting to know what sort of timeline he envisions for this scenario since it would take many decades for the age composition of the United States population to catch up to its older neighbors, all of whom continue to see growing economies.

The second belief only makes sense if the first one is true, which the evidence in the world does not support in any obvious way.

The third belief is contradicted by the experience of the dozens of countries who have comparable quality health care systems to the United States and pay less than half as much per person. Most, if not all, of them rely less on co-payments and other patient contributions than the United States. It is also worth noting that if the United States had the same per person health care costs as any other wealthy country, it would be looking at huge budget surpluses rather than deficits.

The fourth belief assumes that there are no areas where the government can possibly do things better than the market. Ryan and Brooks may not understand this point, so I will explain.

If the government can provide a service like health care insurance or retirement pensions more efficiently than the private sector, as a vast body of evidence suggests, then it means that we would either want higher taxes or a less efficient economy. It does appear that Ryan would prefer the latter. His Medicare proposal would add more than $30 trillion to the country's health care costs over Medicare's 75-year planning period. This amount, which reflects the pure increase in costs, not the shift from the government to beneficiaries, is almost 6 times the projected shortfall in the Social Security program.

The fifth point seems to imply that Ryan thinks that in 2011 we have somehow stumbled on the optimal level of government support for infrastructure, education, and research and development. I suppose God may have spoken to Representative Ryan, but the rest of us might view the optimal degree of government support as a matter to be determined by evidence at each point in time. This means the level could be very different in 1961, 2011, and 2041 depending on the possibilities available.

As Brooks has described Representative Ryan's positions, it seems that the Congressman holds many views that are contradicted by a vast body of evidence. Representative Ryan may be a very nice guy (I met him once in his district where we debated Social Security privatization. He seemed nice enough.), but do we really think it's important for President Obama to spend his time and the taxpayers' money having lunch with someone who is so out of touch with reality?

 
NPR Longs for the Prosperity of the 1830s Print
Friday, 15 April 2011 04:01

I'm not kidding. At the top of the hour intro to Morning Edition they told listeners that the United States paid off its debt in 1835 and was debt free. It then added "too bad it only lasted for a year."

Most economists and analysts would evaluate the well-being of an economy and society by its per capita income, life expectancy, literacy rates and other such measures. NPR apparently uses the debt level of its government.

 
Dana Milbank, Washington Post Fashion Correspondent, Wonders What the World Would Look Like If It Was Run By Progressives Print
Thursday, 14 April 2011 22:11

Dana Milbank has apparently been assigned to the fashion beat at the Washington Post. His column on a rally at which the Progressive Caucus outlined their budget proposal, noted that caucus Chairman Raul Grijalva was,  "wearing a tie that hung loose from his neck and ended five inches above his waistband." He went on to tell readers that he was unimpressed with the group's platform encouraging readers to speculate what would happen "if progressives ran the world."

Let's see, I suppose that we could have ten years of zero job growth, 25 million people unemployed, underemployed or out of the workforce altogether, declining real wages, millions of homeowners losing their homes, and tens of millions of homeowners underwater.


 
Has God Been Talking to the Washington Post? Print
Thursday, 14 April 2011 04:57

In its article covering President Obama's speech on the budget yesterday the Washington Post told readers that:

"Obama acknowledged that the debt must be tackled faster than he has previously proposed."

It is only possible to "acknowledge" something which is true. The Post obviously believes it is true that "the debt must be tackled faster than he has previously proposed," but that does not make it so. This is the Post's opinion. A real newspaper would have reported that President Obama "said that the debt must be tackled faster than he has previously proposed." It would not have implied that its view of the world is the unquestioned reality, especially in a front page news story.

Remarkably, the coverage of the President's speech in both the Post and the NYT included no mention of the recession. The main reason that the deficit has soared in the last three years is because of the economic collapse that followed the crash of the housing bubble.

If the deficit is reduced substantially before the economy has gotten back to near full employment levels of output the main effect will be to slow growth and throw more people out of work. This fact was never mentioned in either piece even though President Obama proposes to have his deficit reduction targets to become binding in fiscal year 2014, a point at which the unemployment rate is still projected to be 7.2 percent. By contrast, the first stimulus package was put into law under President George W. Bush when the unemployment rate was just 4.7 percent.

Both articles made reference to the deficit reduction plan from the President's deficit commission. This is wrong. There was no plan from the commission. The co-chairs of the commission, Erskine Bowles and Alan Simpson, never put their plan up for a vote because they knew they lacked the majority needed for passage. The plan referred to in these articles is only the proposal of the two co-chairs. It is not the plan of the commission.

This should be a simple point for a major newspaper to get right.

 
Misrepresenting the Policy Debate on China: Is the NYT Covering Up for Obama Print
Thursday, 14 April 2011 04:29

The NYT discussed the agenda of an upcoming meeting of G-20 finance ministers. It focused on efforts to pressure China to raise the value of its currency.

This discussion implied that the United States must depend on its ability to pressure China to change its currency policy. In fact, the United States does not have to rely on China changing its policy, it can force a change with unilateral action.

Specifically, just as China sets an official exchange rate of the yuan against the dollar that is below the market value of the yuan, the U.S. could set an exchange rate of the dollar against the yuan that is equal to the market value of the yuan.

This could mean, for example that the Treasury Department would announce a policy whereby it would buy yuan at the rate of 4 yuan for a dollar. This compares to the rate of 6.7 yuan to a dollar supported by China's government. While it would be illegal under China's laws for its nationals to take advantage of this exchange rate, it is likely that many businesses and wealthy individuals would find ways to evade the law. This would make the exchange rate set by the Treasury the effective exchange rate in the market.

It is a policy decision by the Obama administration not to take this route. This should have been pointed out by the article. Obviously the Obama administration has chosen to not really push aggressively to raise the value of China's currency.

China's government knows that the U.S. can take these steps and has chosen not to, therefore it may infer that the push to raise the value of its currency is not really a priority and is instead being done for political purposes. This NYT article supports the Obama administration's efforts to mislead the public on this topic.

 
Dana Milbank Missed the Health Care Reform Act Print
Wednesday, 13 April 2011 07:22

This is the only thing that readers can infer from his reference to President Obama's "refusal to propose a viable solution" to the debt problem. In fact, the Congressional Budget Office projects that the health care bill approved by Congress last year will trim tens of trillions of dollars off the long-term deficit. One can only conclude that Milbank wasn't aware of the bill in making this accusation.

 
WSJ Mixes Data With Invented Story Lines When It Comes to Health Care Print
Wednesday, 13 April 2011 06:57

The WSJ had a nice piece showing that United States pays far more per person for health care than other wealthy countries, even though they all enjoy longer life expectancies than we do. After presenting the data, the article then tells readers:

"Among the things that do matter [for controlling costs]: Consumers need to have some skin in the game, through mechanisms such as co-payments."

Actually, in most, if not all, of the countries in the WSJ chart, patients typically have lower co-payments/cost-sharing than is the norm in the United States. This would not seem to be an essential part of controlling costs.

 
How Are Ordinary People Responding to Higher Gas Prices? The Post Asks Someone With An Au Pair from France Print
Wednesday, 13 April 2011 04:59

I'm not kidding. The rest of the article actually is reasonable, but we get this from a person on the street interview:

"'We have an au pair from France, and she recently filled up our minivan and gave me a bill for $70,' said Melanie Janin, a mother of three from Bethesda. 'I was like, Oh, my God.' ”

 
Is the NYT Lobbying for Senator Wyden's Plan to Undermine Employer Insurance Pools? Print
Tuesday, 12 April 2011 21:10

It sure looks that way since it presents the removal of a provision in the health care bill pushed by Senator Wyden as a victory for special interests. This removal was part of the final budget deal.

The provision would have allowed healthy workers to opt out of their company's insurance plans, leaving only older and sicker workers. This is an effective way to undermine employer provided benefits, which was presumably Senator Wyden's intention in pushing this proposal.

While the NYT gave extensive space to Senator Wyden complain about the removal of his provision as a victory for special interests, and gratuitously added the irrelevant information that the provision cost the government nothing, it did not interview anyone who opposed the provision for the article.

 
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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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