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George Will's History Lesson: Life Expectancy Has Usually Been Less Than 60 Years Print
Thursday, 12 May 2011 05:20

George Will is very proud of himself because he found an anti-Ryan protester who didn't know that the 18th century refers to the 1700s and not the 1800s. This provides the basis for his lecture to progressive baby boomers, including President Obama, who think that the security provided by Medicare and Social Security is somehow intrinsic to the country.

Will rightly points out that these programs are relatively new to the country. After all, Social Security has been around for less than a third of the country's existence (dated from 1776) and Medicare for less than a quarter.

Of course Will could have pointed out that it is a relatively new phenomenon for people to have a life expectancy beyond age 60. For the vast majority of the country's history life expectancy was considerably shorter. He can include the expectation that people will live into their 80s and 90s into his list of progressive conceits that ignore history.

If he wanted to look at the actual proposal on the table, the Congressional Budget Office's analysis of the Ryan plan shows that it will hugely increase the cost of buying Medicare equivalent policies. Its projections show that the cost of such plans would rise by more than $34 trillion over the program's 75-year planning period. This is equivalent to almost 7 times the size of the projected Social Security shortfall. This projected additional cost comes to $110,000 for every man, woman, and child in the country.

But, this is talking about the impact of a policy going forward, not history, so Will is not interested.

 
Alan Greenspan is Baaaaaaack! And Criticizing President Obama Print
Wednesday, 11 May 2011 07:40

Alan Greenspan, the central banker who gained international notoriety for being unable to see the largest asset bubble in the history of the world, is again giving advice on the economy. Bloomberg News tells us that:

"Greenspan said the deficit is one reason that corporate investment as a share of profits is lower than historical patterns, in an interview on CNBC’s Squawk Box on Dec. 3, 2010.

'Approximately one-third of the decline in capital investment as a share of cash flow is directly attributable to” the “crowding out by U.S. Treasury borrowing.'"

Greenspan is right that investment as a share of profits is below its historic average, but this was also true for most of his tenure as Federal Reserve Board chairman.

Click for a Larger Version

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Source: Bureau of Economic Analysis.

It is also worth noting that investment is depressed right now in part because of the bubble in non-residential real estate. This led to enormous overbuilding in most areas of non-residential construction leading to very high vacancy rates. As a result, non-residential construction is at extraordinarily low levels. Apparently Mr. Greenspan is still unaware of this bubble.

 
The Washington Post Is Badly Confused About President Obama's Deficit Commission Print
Wednesday, 11 May 2011 04:59

In its lead front page article, the Washington Post (a.k.a. Fox on 15th Street) referred to a proposal by the "the bipartisan commission" that President Obama appointed to deal with the deficit. In fact, there was no proposal by the commission. The commission never even voted on a plan because it did not have the required majority.

The proposal referred to in this article was in fact a plan put forward by the commission's co-chairs, former Senator Alan Simpson and Morgan Stanley Director Erskine Bowles. The Post badly misleads readers by implying that this plan had the support of the commission.

It is also worth noting that Post has chosen to completely ignore numerous public statements by Mr. Simpson in which he indicates that he has very little knowledge of the Social Security program and the budget issues facing the country. The public would likely give less credence to a deficit plan co-authored by someone with little knowledge of many of the issues addressed by the plan. The Bowles-Simpson plan does coincide with many of the positions argued in Washington Post editorials.

 
Geithner Agrees to Increase U.S. Indebtedness to China In Exchange for Higher Profits for the Financial Industry Print
Wednesday, 11 May 2011 05:13

This is what the Washington Post reported in an article on a set of agreements negotiated by Treasury Secretary Timothy Geithner and the Chinese government, although it did not explain this point to readers. The article told readers that:

"The agreement included action on some long-standing issues — including initial moves by China toward opening its financial sector by allowing U.S. and other foreign firms to sell auto insurance, sell mutual funds and other investments, and underwrite corporate bonds."

The United States has also been pushing for China to raise the value of its currency against the dollar [thanks Downpuppy]. The over-valuation of the dollar against the yuan is the reason that the United States borrows money from China.

The high value of the dollar makes imports cheap, causing people in the United States to buy more imports from China. It also makes U.S. exports more expensive to people living in China, leading them to buy less of our exports. The resulting trade deficit is financed by borrowing from China.

Many politicians have sought to appeal to racist sentiments by citing this borrowing from China in their push to reduce budget deficits. The Washington Post has also followed this path in both its news and opinion pages. As long as the dollar remains over-valued, the United States will continue to run large trade deficits and continue to borrow from abroad, whether or not it has a budget deficit. (The foreign borrowing would be in the form of purchases of private assets or outstanding government debt, if the United States did not run a budget deficit in future years.)

When Secretary Geithner or other U.S. officials negotiate with the Chinese government they place priorities on their agenda items. Obviously Mr. Geithner placed a greater priority on gaining increased access for the financial industry (i.e. the big Wall Street banks) than he did on lowering the value of the dollar and reducing foreign borrowing.

 
The Ryan Plan DOES Pose a Risk to Younger Americans, This is Not Just Something Democrats Say Print
Wednesday, 11 May 2011 04:47

The non-partisan Congressional Budget Office projects that the Ryan plan will cause the cost of buying Medicare-equivalent insurance policies to exceed the median income of retirees shortly after it is implemented. This means that an independent analyst has determined that the plan poses a risk to the security of those under age 55 who would be subject to Ryan's Medicare program.

Therefore the NYT is inaccurate when it reports that:

"Ms. Hochul, the Erie County clerk [a Democratic congressional candidate in a special election in upstate New York], argues that the Republican plan poses a risk to older residents."

This "risk" is not just something that Ms. Hochul argues, it is something that she is calling attention to, since this is a fact that has been determined by independent analysts. However the risk is actually to younger residents (those under age 55), not to  older residents who would be less affected by the Ryan plan. (It does leave in place the donut hole in the prescription drug benefit.)

 
Debt Default Would be Death for Wall Street, not the Country Print
Tuesday, 10 May 2011 05:27

A front page Washington Post article included an assertion from Roger Altman, who is identified as "a private-equity investor who served in the Clinton Treasury Department," that defaulting on the national debt would be the "financial equivalent of suicide."

It is worth noting that Wall Street would be especially hard hit by a debt default. While a default would almost certainly lead to a severe financial crisis, even worse than the one in the fall of 2008, the rest of the economy would most certainly recover. We would have the same capital stock, infrastructure, state of technical knowledge and skilled labor force after the crisis as before.

However, the Wall Street banks would almost certainly not recover. They would almost certainly end up in bankruptcy. Their successors would probably never be as powerful in international finance as the current group of institutions. For this reason, Altman and other Wall Street financiers have far more to fear from a default than does the rest of the country. It would have been useful to include a wider range of perspectives on the impact of a debt default.

 
USA Today Tells Readers that Used Car Prices are at Record Highs Print
Tuesday, 10 May 2011 05:12

This assertion is strange for two reasons. First, since prices generally rise through time (we have modest rates of inflation, not deflation), most prices will be at record highs most of the time. In other words, it is likely that the price of tables, hair cuts, bread and most other goods and services are at or near record highs.

The other reason why the assertion is strange is that it does not appear to be true. The Bureau of Labor Statistics (BLS) price index for used cars actually shows that they are lower, in nominal terms, than they had been in the late 90s (the graph shows nominal prices).

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It is possible that the measures followed by USA Today do not track the BLS data closely because BLS makes quality adjustments in comparing prices. For example, if a car comes with a better braking system or sound system than the prior year's model, this will be factored into the price. A straight price comparison of the newer car with the older car may show a price increase, but when a value is assigned to these improved features, it may turn out that the price has remained the same or even fallen.

 
NPR Does a He Said/She Said on Debit Card Swipe Fees Print
Tuesday, 10 May 2011 04:34

NPR did a classic he said/she said piece on the battle over debit card swipe fees. It gave people the line from the banks about how they will have to cut back on services to customers if fees are reduced. It also presented the line from retailers on how most of the savings will be passed on to consumers. It presented no independent analysis. (It is likely that most of the $12 billion in savings will be passed on to consumers.) This would have been useful since most listeners do not have more time to evaluate this issue than NPR's reporters.

 
David Brooks Mendaciously Refuses to Look at Evidence on the Relative Efficiency of Private and Public Sector Health Care Costs Print
Tuesday, 10 May 2011 04:08

David Brooks is very angry that Democrats are relying on the Congressional Budget Office's analysis of the Medicare privatization plan put forward by Representative Paul Ryan and approved by the Republican House. This analysis shows that the Ryan plan would increase the cost of buying Medicare-equivalent policies by $34 trillion over the program's 75-year planning period. This increased cost is almost 7 times the size of the projected Social Security shortfall.

Brooks wants Democrats to ignore the evidence that shifting from a public Medicare program to private insurers will increase costs and instead accept his claims that Ryan's plan will save money. He describes their refusal to follow his faith-based policy as "mendacity."

Interestingly, Brooks discusses the increasing number of prime age men who are not employed without ever once mentioning the criminal justice system. A hugely disproportionate share of non-employed prime age men have spent time in jail or prison. The enormous growth in incarceration rates over the last three decades (the number of prisoners has more than quadrupled since 1980) is almost certainly an important factor in declining employment rates.

 
Robert Samuelson Continues His Reign of Error: Relies on Realtors for Predictions on Housing Prices Print
Monday, 09 May 2011 04:37

Robert Samuelson pulled a Washington Post special, reporting that:

"Young buyers 'will be able to enter the housing market at bargain prices,' argues NAR [National Association of Realtors] economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says."

Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.

Relying on the NAR for predictions on the housing market is the standard practice at the Washington Post. All through the build up of the housing bubble, its main source on the housing market was then NAR chief economist David Lereah, who was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

Read more...

 

 
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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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