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Did Republican Proposals to End Medicare and Medicaid Put More Pressure on President Obama to Proposal Deficit Reduction Print
Monday, 11 April 2011 04:08

Nearly every public opinion poll ever taken has shown that Medicare and Medicaid are enormously popular programs. People in all demographic and political groups support these programs by large majorities. Even the vast majority of Republicans support these programs.

This is why it is peculiar to see the Washington Post tell readers that:

"House Republicans upped the pressure on the president last week when they introduced a plan to slash government spending by $6 trillion more than the president’s plan over the next decade — largely by shrinking Medicare and Medicaid."

Given that the Republican plan to essentially end Medicare and Medicaid is likely to be enormously unpopular in addition to being bad policy (it would add more than $20 trillion to the cost to the country of buying Medicare equivalent policies for the next 75 years) it is hard to see why this would place additional pressure on President Obama to do anything. Would it increase pressure on Republicans to support tax increases on the wealthy if President Obama proposed large tax increases on the middle class?

The claim that President Obama is now under increased pressure to propose cuts to Social Security, Medicare, and Medicaid coincides with the Washington Post's political position (they want to see President Obama propose large cuts to the budget), but there is zero evidence presented in the article to support this claim.

 
Problems of Reading Comprehension at Zero Hedge: No One Advocated Default Print
Sunday, 10 April 2011 14:59

I don't like to use this blog to settle personal scores, but I think it is important to clear up a serious misrepresentation that stemmed from an earlier post. Zero Hedge has me advocating default on the national debt because I had the audacity to point out that the world will not end if the U.S. defaults on its debt.

It did not occur to me that anyone could think that saying "the world will not end if we do X," is the same as saying "we should do X," but apparently the folks at Zero Hedge cannot see the distinction. Let me try to clarify. Defaulting on the national debt is very bad policy. It would lead to a financial crisis, as I said in my prior post. This would lead to a severe downturn in the economy and a big jump in the unemployment rate.

However the economy would eventually recover. The underlying factors that determine the country's wealth -- the physical stock of capital, the skills of the workforce, the state of technical knowledge -- will still be there following a default.

For this reason I would consider some policies worse than default. Representative Ryan's plan for ending Medicare as we know it would fit this bill. It would mean that people who spent their entire life working could not count on decent health care in their old age.

In my view, if the Republicans say "end Medicare or default," then the correct response for President Obama is "I'll see you after the crash." My guess is that in this scenario we don't get a default. Rather we get Jamie Dimon screaming his lungs out at the Republican leadership, and we get the Republicans running to compromise with their tails between their legs.

But, this assessment could be wrong. Still, in my view there has to be a bottom line. I draw the line before the elimination of Medicare.

I'm afraid that I don't really understand the opposite position. Is it the view of Zero Hedge that nothing is worse than defaulting on the national debt? If Speaker Boehner wants to bring back slavery as a condition of raising the debt ceiling should President Obama sign the bill? (We'll worry about the 13th amendment later.) If they agree that bringing back slavery is worse than defaulting on the national debt then is Zero Hedge also an advocate of default? 

If we want to have a serious argument on this issue it is going to have to be based on what I actually said, not positions that Zero Hedge has invented for me.

 

 

 
Fox on 15th (a.k.a "The Washington Post") Still Has Not Heard About the Recession Print
Sunday, 10 April 2011 07:29

They did it again! The Washington Post had a front page article devoted to the budget debate that never once mentioned the job loss that is expected to result from budget cuts at a point where the economy is still far below full employment.

According to estimates from Mark Zandi, the original package put forward by the Republican leadership would have cost 700,000 jobs. Since the final package had cuts that were roughly two thirds as large, the implied job loss would be around 450,000. It is incredible that a major newspaper could discuss the budget without ever once mentioning its impact on the economy.

The Post, which has long supported big cuts to Social Security and Medicare and other social programs, directly misrepresented reality to push its agenda. It told readers:

"the battle was fought on turf far more hospitable to Republicans, given the country’s concerns about spending that contributed to the Democrats losing the House in November."

Every post-election poll showed that the main concern of voters last November was jobs. As in JOBS!!!!, the one item that is not mentioned once in this article. Instead, the article tells readers that:

"The coming battle, which will be about fiscal priorities and society’s values as much as it is about controlling government spending."

The Post presents no evidence that the battle is about "society's values." Most obviously the battle is about redistributing trillions of dollars of income from ordinary workers to the health insurance industry and health care providers.

According to the Congressional Budget Office, the public would have to pay an extra $20 trillion over the next 75 years (an amount that is approximately equal to 4 times the projected Social Security shortfall) if Representative Ryan's plan for a Medicare voucher system is adopted. There may be questions of values here, but most immediately the question is whether we want to take money from low and middle income people and give it to these industries.

 
Defaulting on the Debt Is Not the End of the World Print
Saturday, 09 April 2011 18:28

The NYT had a piece on the implications of the United States hitting its debt ceiling and running the risk of defaulting on its debt. The article exclusively presented the views of people who portrayed hitting the debt ceiling and defaulting on the debt as being an end of world scenario.

It would have been useful to present the view of people who do not consider a default on the national debt to be the worst possible outcome. While there can be little doubt that a default on the U.S. debt would lead to a financial crisis and would likely permanently reduce the role of the U.S. financial industry in world markets, it is also likely the case that the United States would rebound and possible rebound quickly from a default.

The experience of Argentina may be instructive in this respect. Argentina defaulted on its debt at the end of 2001. Its economy fell sharply in the first quarter of 2002 but had stabilized by the summer and was growing strongly by the end of the year. By the end of 2003 it had recovered its lost output. Its economy continued to grow strongly until the world recession in 2009 brought it to a near standstill.

Book1_22628_image001

Source: IMF.

While there can be no guarantee that the U.S. economy would bounce back from the financial crisis following a default as quickly as did Argentina, it's unlikely that U.S. policymakers are too much less competent than those in Argentina.

Readers should be made aware of the fact that countries do sometimes default and they can subsequently recover and prosper. Many people may consider the short-term pain stemming from a debt default to be preferable to the long-term costs that might come from policies adopted to prevent default.

For example, if Congress were to approve a Medicare plan along the lines proposed by House Budget Committee Chairman Paul Ryan, this would be subjecting tens of millions of middle class retirees to a retirement without adequate health care insurance and potentially devastating medical bills. Plans being put forward to cut Social Security could have similar consequences. Compared to these outcomes, a financial crisis and the subsequent slump that follows may seem like a relatively small cost.   

It is also worth noting that two of the people whose views were presented in this article, Jamie Dimon, the CEO of J.P. Morgan, and Robert Rubin, a former top executive at Citigroup, are both individuals whose situation is likely to make them view a debt default as an end of the world event. Both institutions would likely not survive a debt default. For the people whose wealth depends on the health of Wall Street financial firms, a default on the U.S. debt is probably one of the worst conceivable events in the world, however this group is tiny minority of the U.S. population. 

 

Addendum: Here is my response to Zero Hedge.

 
400,000 Newly Unemployed Workers Celebrate Budget Agreement Print
Saturday, 09 April 2011 13:16

Has anyone told the White House press corps about the economic downturn? We have 8.8 percent [thanks Tony] of the workforce unemployed, more than 8 million people employed part-time who would like full-time jobs, and millions more who have given up looking for work altogether.

The reason is simple: there is not enough demand in the economy. When we cut government spending, there is less demand in the economy. As we used to say in intro econ class: Y = C+I+G+X-M. That means that GDP is equal to the sum of consumption, investment, government spending and net exports. If we cut government spending, then we have reduced demand, unless we think there are a lot of firms who will be inspired to hire people because the government is cutting back its spending.

Moody's estimated that the original Republican plan for $61 billion in cuts would lead to a loss of 700,000 jobs. Goldman Sachs had a similar number. Since the final deal had a bit less than two-thirds of these cuts, the implication is that somewhat more than 400,000 workers will lose their jobs.

And the remarkable part of the story is that these newly unemployed workers are not even mentioned in the coverage in the NYT, the Post, or it seems anywhere else. Hey why ruin a great budget drama by talking about the people who will have their lives ruined?

 
The Washington Post is Worried that Japan Will Get Less Crowded Print
Saturday, 09 April 2011 07:52

I'm not kidding. Of course those who know anything about Japan recognize that the country is very densely populated and has high housing prices as a result. (Some of this also stems from a conscious effort to maintain farm land through high subsidies.) Anyhow, the prospect of less crowded cities and lower housing costs probably would not look bad to most Japanese, but it has the Washington Post terrified.

The Post tells us that the money spent on rebuilding from the earthquake and tsunami may pull funds away from programs intended to promote population growth. The article manages to combine both the concern with lack of jobs and lack of population. Japan's economy must be in really bad shape if it is simultaneously suffering from too little demand and too little supply of labor. Read about it only in the Washington Post.

The article also includes this gem:

"Hard-hit coastal towns such as Minamisoma and Rikuzentakata had been shrinking for decades, consolidating schools and struggling to provide adequate jobs for the young people who wanted to remain. The dearth of youth in rural areas will complicate long-term rebuilding efforts, observers say; even if infrastructure is rebuilt, will anybody live there?"

Ummm, I hate to spoil a crisis, but if people don't want to live in the towns destroyed by the disasters, why would anyone want to rebuild them? That doesn't seem very complicated, just common sense.

As a more general rule these shrinking population stories are just plain silly. The impact of even modest rates of productivity growth on increasing wealth per capita swamp the impact of rising dependency ratios in reducing per capita wealth.

When workforces shrink, the less productive jobs go unfilled. This is the way a market economy works. That is why half of our workforce no longer is employed in agriculture. It would be great if the Post would stop bombarding readers about an invented crisis of a less crowded Japan.

 
The Washington Post (a.k.a. Fox on 15th) Has Not Heard About the Recession Print
Saturday, 09 April 2011 07:27

That is what readers of its analysis of the budget deal would conclude. It told readers:

"Once in the battle, Obama and his party felt pressure to show they heard the message that many Americans believe the government spends too much and that deficits are unsustainable. As a result, the president and congressional Democrats were forced to agree to much larger spending cuts than they had wanted, rather than appear resistant to popular will."

Actually, almost all of the polling data on the election showed that jobs were by far the most important issue as people went to vote. The deficit trailed by a large margin.

According to analysis from Moody's Analytics and Goldman Sachs, the original package of $61 billion in cuts put forward by the Republicans would lead to a loss of over 700,000 jobs. (The logic is simple. There is less spending, therefore fewer people are employed. Even a Washington Post reporter should be able to get that one.) Since the final package includes roughly two-thirds of these cuts, it is reasonable to infer that it will lead to a loss of close to 500,000 jobs.

Remarkably the Post's analysis says nothing, nada, zero about the jobs impact of this bill. When it comes to ignoring the message expressed in the election last fall it would be difficult to think of a better example.

 
From Foot Fetishes to Footnote Fetishes: Krauthammer on Ryan Print
Friday, 08 April 2011 18:25

We all know the line about history repeating itself. The first time is tragedy, but at this point we are well past farce. Ezra Klein calls attention, via Paul Krugman, to the fact Charles Krauthammer is impressed by Paul Ryan's use of 37 footnotes in his budget plan.

With the prospect of a government shutdown facing the country it's hard not to think of Dick Morris, the architect of President Clinton's triangulation strategy between the Republicans majority in Congress and the Democratic minority in Congress. Clinton had to break his ties to Morris when he was caught with a prostitute, with whom he apparently engaged in strange activities with her feet.

But the footnotes are far less important that Krauthammer's substantive errors which he kindly numbered for readers. His error number 1 is a criticism of Ryan's critics for claiming that Ryan's cuts would hurt the poor. Krauthammer's trump card is the foolishness of the liberals who complained about Clinton's welfare reform, singling out Peter Edelman who resigned from the administration in protest over the policy. We are told that:

"Within five years child poverty had declined by more than 2.5 million — one of the reasons the 1996 welfare reform is considered one of the social policy successes of our time."

The decline in child poverty was real, but it is more typically attributed to the unemployment rate dropping to 4.0 percent in the late 90s boom. More recently, the child poverty rate has risen back to its mid-90s level, meaning that we have made no progress in eliminating child poverty over the last 15 years. One of the reasons that Edelman and others objected to welfare reform is that the new TANF program that replaced the old welfare system would not guarantee that resources would expand during a recession when they were most needed. On this score, it looks like Edelman was exactly right.

In error number 2, Krauthammer complains about the people who have attacked Ryan's Medicare plan as privatization. He tells us that:

"instead of paying the health provider directly (fee-for-service), Medicare would give seniors about $15,000 of 'premium support,' letting the recipient choose among a menu of approved health insurance plans."

In fact the premium support is set at $8,000 per person in 2022. That translates into $6,100 a year in today's dollars. According to the Congressional Budget Office (CBO), this will be enough to pay less than 40 percent of the cost of a Medicare equivalent benefit in 2022. The assessment of CBO, based on the experiment with Medicare Advantage (we have tried this before) and an examination of the private health insurance market, is that Ryan's plan will raise, not lower, Medicare costs.

Krauthammer touts the lower than expected cost of Medicare Part D. The main reason that this program cost less than expected is that drug prices in general have risen less rapidly than had been projected. This in turn is due to the fact that many blockbuster drugs have gone off patent, leading to lower prices now that they face generic competition. The industry has produced few important new drugs in the last few years thereby reducing the upward pressure on costs.

Finally we have Krauthammer's error number 3:

"The final charge — cutting taxes for the rich — is the most scurrilous. That would be the same as calling the Ronald Reagan-Bill Bradley 1986 tax reform 'cutting taxes for the rich.' In fact, it was designed for revenue neutrality. It cut rates — and for everyone — by eliminating loopholes, including corrupt exemptions and economically counterproductive tax expenditures, to yield what is generally considered by left and right an extraordinarily successful piece of economic legislation."

No, actually it is not designed to be revenue neutral. It is designed to cut taxes on the wealthy. Ryan has not produced a set of loopholes whose elimination would offset the cost of his tax cuts. He just wrote in numbers. When the Tax Policy Center of the Urban Institute and Brooking Institution examined Ryan's tax plan, they found that it came up $2.9 trillion short over the course of the decade. Ryan did not describe a specific set of loopholes to close that they could score, but they would have to be quite large to fill this gap.

I suppose after reading through Ryan's plan, if you can't find much good to say about it, you can always talk about the footnotes.

 
David Brooks Brings You Analysis from Another Planet: Praises Representative Ryan Print
Friday, 08 April 2011 03:46

According to David Brooks, in the days following the release of Representative Ryan's plan to essentially end Medicare and Medicaid to help finance more tax breaks to the wealthy:

"the Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices."

I can't claim to have done a comprehensive survey, but all the Democrats I know think that they were handed the political gift of lifetime, as Representative Ryan has explicitly proposed doing exactly what Democrats have accused Republicans of wanting to do for decades: eliminate health care programs that are essential for middle class workers in order to give more money to their wealthy contributors.

Things may be different on Mr. Brooks' planet, but here in Washington there is no shortage of politicians willing to denounce a plan that would require most seniors to spend most of their income on health care, if they want an insurance package equivalent to the one provided by Medicare. The more obvious shortage is of Republicans who are openly willing to embrace the Ryan plan and say, "yes, we are the party that wants to eliminate Medicare and give more tax breaks to the richest people in the country."

Brooks again ignores the most obvious point that health care is not a sidebar in this story, it is the story. If the United States paid the same amount per person for its health care as do people in other wealthy countries, then we would be looking at huge budget surpluses not deficits.

He also tries to pass off to NYT readers nonsense from his Tea Party friends:

"The president’s health reform plan relies on a centralized board of technocrats to restrict choices. The Ryan plan relies on a premium support model that would allow individuals to exercise greater control over what sorts of procedures they would not be covered for."

Can we get out the extra large ridicule box for this one? There is nothing, as in zero, in President Obama's health care plan that prevents any individual from getting any health care procedure that he or she wants to pay for. The "centralized board of technocrats" he mentions would determine the procedures that Medicare would pay for, not the procedures that individuals could receive.

Obviously this will be a very serious restriction for people who cannot pay for expensive procedures on their own, but Ryan's plan does not change this situation one iota. It gives people a choice of insurance companies, each of which will rely on a board of technocrats to restrict choices.

Using the Tea Party terminology, if President Obama's plan is viewed as creating death panels, then Mr. Ryan's plan gives seniors a choice of death panels and, according to the Congressional Budget Office, we pay trillions more for this choice.

 

Addendum:

Some folks have asked me about the generational equity concerns raised by Brooks who tells readers that:

"two 56-years-olds with average earnings will pay about $140,000 in dedicated Medicare taxes over their lifetimes. They will receive about $430,000 in benefits. This is an immoral imposition on future generations."

There are two important points here. First, most of that $430,000 is over-payments to drug companies, hospitals, doctors and other health care providers. If these two 56-years-olds were buying their health care in Canada, Germany, or any other country with comparable health care outcomes, they would pay less than half as much for their care. Should my older brother feel that he has done me an injustice because the government gets overcharged for his health care? Maybe on Planet Brooks, but that's not an easy one to see here on Earth.

The other point that Brooks seems to have missed is that people are getting richer through time. The lifetime earnings for two average 26-year-olds will be more than $1.3 million greater on average than the average lifetime earnings for today's 56-year-olds. If the 26-year-old gets to pocket this much more cash, simply by virtue of being born later, is there any reason for the 56-year-old to feel they have committed an injustice because they got a better deal on their Medicare?

Now, there is a serious issue of inequality that must be considered. As a result of the fact that a larger share of income is being distributed to those at the top, most 26-year-olds may see little of this $1.3 million gain in earnings. But this is an issue of intra-generational inequality, not inter-generational inequality. On this dimension, Representative Ryan's plan is a huge leap in the wrong direction.

 

 
Nice NYT Piece on Disability Print
Thursday, 07 April 2011 04:58

The NYT had a good piece that reported on the sharp rise in the number of people getting government disability payments over the last two decades. While this is partly due to the aging of the baby boom cohort into the peak years of disability, some of the increase also reflects changes in the economy.

The piece also points out that the disability portion of the Social Security program is much more poorly funded than the much larger retirement and survivor programs. The projected 75-year shortfall in the disability program is more than 16 percent of its income, where it is just over 10 percent of the income of the larger retirement and survivors program.

 
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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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