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Peter Orszag and the Drive to Cut Social Security Print
Thursday, 04 November 2010 04:02

Peter Orszag, President Obama's former budget director, seems determined to cut Social Security. Like most people involved in this quest he is prepared to leave the facts behind and is quick to resort to name calling.

He begins his column by telling readers:

"The budget deficit figured prominently in much of the discussion surrounding yesterday’s election."

This is partly true since the media tend to prominently feature the views of people who discuss the budget deficit in all contexts, but it is absolutely false insofar as the implication is that the deficit was an important factor in the Democrats' defeat. All the polls show that high unemployment was the major factor in the Democrats' loss; the deficit was at most a minor issue. 

Orszag goes on to tell readers that progressives should be happy to see Social Security reform on the agenda since:

"the key issue progressives had been concerned about — individual accounts within Social Security — has been definitively won in their favor (for now)."

It might have been helpful if Orszag had used names, since I don't know any progressives who have this as their "key issue." The progressives who are most visible on this issue have been concerned about a Social Security benefit that is already small by international standards being made still smaller.

This issue of accounts divides progressives, since many support some form of government managed saving accounts as a supplement to Social Security. If Social Security is cut and, as a separate matter accounts are established to supplement Social Security income, it is logically identical to an outcome in which a portion of Social Security is explicitly replaced by private accounts. It is not clear whether Orszag is simply confused here or is deliberately trying to mislead readers.

The next item on Orszag's list of reasons for early cuts is:

"acting now would allow changes to take effect more gradually, cushioning the blow."

It is important to understand this argument, since it is unlikely that many who do understand it would endorse it. Given the 75-year planning horizon, if we cut benefits for people who are retiring in the near future, then we will have to raise taxes and/or cut benefits less for people who are working/retiring in later years. In other words, if we squeeze some money out of the current cohort of near retirees, we will have to get less money out of people in 2050 and 2060.

Is this a good idea? Well, we know that the vast majority of near retirees will have almost nothing other than Social Security to support themselves in retirement. The reason is that the people who always talk about budget deficits were too ignorant of the economy to recognize the dangers of an $8 trillion housing bubble. Since these people were controlling economic policy, middle class workers saw much of the wealth they had accumulated as home equity or in their 401(k) disappear. In other words, the deficit hawks who want "changes to take effect more gradually" want to kick again the people whose wealth was destroyed due to the incredible economic mismanagement of these deficit hawks.

By contrast, the Social Security projections show that workers and retirees will on average be about 40 percent richer in 2040 than they are today and about 70 percent richer by 2060. Why exactly is it important to cut benefits from retirees in 2015 or 2020 who will have very little income, so that their far richer children and grandchildren end up with an income 50 years from now that is only 69 percent higher net of taxes rather than say 70 percent? Orszag obviously feels this redistribution from the relatively wealthy to the relatively poor is important, but he certainly doesn't explain why.  

Orszag concludes by referring to "the left's strident opposition to any serious discussion of Social Security reform." So, the people who disagree with Orszag are "strident." The name-calling might be more warranted if Orszag had a better argument.

 

 
Turning Economic Problems Into Fiscal Problems: Washington Post Repeats David Brooks' Freudian Slip Print
Wednesday, 03 November 2010 05:12

Bring out the scientists, we have uncovered evidence that Freudian slips are contagious. BTP readers will recall NYT columnist David Brooks' wonderful Freudian slip from last week in which he noted that President Obama took office in the middle of a "fiscal crisis." Of course, Brooks meant to say "financial crisis," although in his columns he has certainly helped build up the notion that the country faces a fiscal crisis.

Today, the Washington Post committed a similar mistake. In an article headlined "economic concerns overshadow all others," the Post told readers that:

"But one issue is on their minds like no other this year: the economy. Nearly 40 percent of voters in a recent Washington Post poll rated the nation's fiscal situation as their top concern in the days leading to the election, a far higher proportion than those concerned about immigration, health care, Afghanistan, taxes, the deficit or dysfunction in Washington. (emphasis added)"

There is no doubt that the Post meant to say "economic situation" as indicated by the inclusion of the deficit as an issue that mattered less. The Post has worked tirelessly in the last two years to hype concerns about the deficit in both its opinion and news pages. It constantly raises the concern and rarely provides readers with any context that would allow them to meaningfully assess the size and nature of the problem.

In this case, we get to see the obsession in plain view. Both the reporter and the copy-editor somehow could not recognize this obviously wrong assertion.

 
Why Is Thomas Friedman Afraid of Getting Lower Cost High Tech and Financial Services from India and China? Print
Wednesday, 03 November 2010 04:20

His latest column tells us that he had:

" a scary thought .... What if — for all the hype about China, India and globalization — they’re actually underhyped? What if these sleeping giants are just finishing a 20-year process of getting the basic technological and educational infrastructure in place to become innovation hubs and that we haven’t seen anything yet?"

It's difficult to know what in this story Friedman finds scary. The piece raises the prospect of these countries providing better and lower cost financial and technical services than those we currently receive from Wall Street and Silicon Valley.

It is not clear what Friedman's problem is with getting lower cost services. This is the way trade is supposed to benefit economies. Of course, those who work on Wall Street and in Silicon Valley will be hurt, just as steel and auto workers have been hurt by low-cost competition, but the vast majority of the country does not work on Wall Street or in Silicon Valley. 

If there is a point to Friedman's piece, it is very difficult to understand what it could be.

 

 
Post Misses Uptick in Consumer Spending Print
Tuesday, 02 November 2010 05:08
In an article that reported on the Commerce Department's release of consumption data from September, the Washington Post told readers that: "consumer spending was stuck in the doldrums." Actually, the report showed a very high rate of spending relative to income. The saving rate fell from 5.6 percent in August to 5.3 percent in September. Historically the saving rate has averaged more than 8.0 percent, so consumers are currently spending at a high level relative to their income.
 
The NYT Invents Economic Necessities for European Political Parties Print
Tuesday, 02 November 2010 04:57

Many prominent economists, including many with Nobel prizes, believe that Europe's economy, like the world economy, is desperately in need of more demand. Fortunately, the NYT is there to set them right.

It told readers today that social democratic parties in Europe must come to grips with the "necessity" of givebacks by workers. It would be great if the NYT could lay out its economic theory more fully so that those of us less expert in economics could understand how less demand in the current economy will spur growth and employment.

This new economic theory will make exciting reading if the NYT would share it with readers.

 
Deficit Commission Plots to Overhaul Social Security Behind Voters' Backs Print
Tuesday, 02 November 2010 04:44

That is what the NYT reported today, although it used somewhat different language. It told readers that:

"The group, which has a Dec. 1 deadline for recommending how to reduce the annual deficits swelling the federal debt, purposely has done little to date beyond five public hearings, and it has decided nothing lest any decisions leak and blow up in the flammable mix of a campaign year with control of Congress in the balance."

In a democracy, the purpose of elections is supposed to be to have voters determine issues like the future of Social Security and Medicare. According to this article, the members of this commission conspired to keep these issues outside of the election debate.

The article also tells readers that the co-chairs of the commission apparently misled the public in their prior statements. Both former Senator Alan Simpson and Erskine Bowles had given assurances that benefits would not be cut for current Social Security beneficiaries. According to this article, the commission is now considering changing the annual cost of living adjustment formula in a way that would reduce benefits. This reversal of a public commitment by the co-chairs should have been the main topic of a major news article.

 
Should NPR's Funding Be Cut? Print
Tuesday, 02 November 2010 04:37
That's a question that anyone who doesn't work on Wall Street may want to ask after hearing a segment on WAMU's "Power Breakfast" in which the anchor told listeners that failing to cut Social Security and Medicare may be "fiddling why Rome burns."
 
Cheap David Brooks Games Print
Tuesday, 02 November 2010 04:08

David Brooks, who made himself famous by turning the financial crisis into a "fiscal crisis," is back at game playing today. He outlines some of the main features of the Republicans' agenda assuming they get control of the House.

One of the items listed is the repeal of a provision in the health care reform bill that would require a business to file a 1099 every time they bought more than $600 of goods and services from an individual or business. While the Republicans will likely make this change, what Brooks doesn't tell readers is that Democrats would also. This was a provision that shoved into the lengthy bill that its proponents recognized as excessive almost immediately after it was passed. It would have already been repealed had the Republicans not blocked action in order to give themselves an election issue.

The other misleading item featured on Brooks' rather limited agenda for the Republicans is that they will take steps to make health care costs predictable for business. Brooks is revealing either his ignorance or his dishonesty with this one. He obviously is implying that the health care plan makes cost unpredictable for business. In fact, health care costs are already unpredictable for business.

Except in states where regulation prevents it, insurers can change what they charge businesses for health care as much as they feel like. While businesses can change insurers, this is time-consuming and the prices are very unpredictable (there are no price lists -- firms must go through an underwriting process). The Republicans have no plan that will make health care costs predictable for business. In fact, if they eliminate the insurance regulation in the health care reform bill then they will almost certainly be making costs less predictable.

 
What Would Happen if Physicians Left Medicare in Large Numbers? Print
Monday, 01 November 2010 05:07

The answer is that they would get significant cuts in revenue. The Washington Post, which is known for its problems with logic and economics, never made this point as it discussed the possibility of a mass exodus of physicians from the Medicare program. The Post uncritically presented complaints about Medicare's compensation schedule from Cecil B. Wilson, the president of the American Medical Association that Medicare does not pay them enough money. (The article was headlined: "Physicians Face Painful Decision on Medicare.")

While it is possible that any individual physician can make more money by taking patients from private insurers rather than Medicare patients, physicians in aggregate could only make up for the revenue lost by not seeing Medicare patients if there was a large pool of individuals with money or high-paying insurers who do not currently have access to doctors. Of course, people with money in the United States are already seeing doctors, so if physicians en masse turned away from Medicare then they would simply have fewer patients. (This may be the painful decision referred to in the headline.)

 
The Fed Has Credibility? Print
Monday, 01 November 2010 04:44

A Washington Post article discussing the risks associated with another round of quantitative easing raised the possibility that the Fed could lose its credibility if the program does not lead to the intended growth. It implies that the loss of credibility would be a major harm.

It is worth noting that the whole economic collapse came about because of the Fed's failure to notice and/or do anything about an $8 trillion housing bubble. Given this enormous failure, it is not clear how much credibility it currently enjoys among people who follow the economy.

The article also raises the risk that a precipitous fall in the dollar, "could be disastrous." It is difficult to see a scenario in which even the steepest falls in the dollar would be disastrous for the United States. U.S. exporters would suddenly become hyper-competitive (we still export $1 trillion a year in goods and services), while domestically produced goods would drive imports from the shelves. This scenario would likely be disastrous for our trading partners, which is why they would almost certainly intervene in currency markets to prevent the dollar from having a steep and sudden tumble.

 
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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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