CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press

Beat the Press

 facebook_logo  Subscribe by E-mail  


David Brooks Doesn't Have Access to Much Data on Economics or Politics Print
Tuesday, 26 April 2011 04:09

David Brooks is worried because:

"Raising taxes on the rich is popular, but nearly every other measure that might be taken to address the fiscal crisis is deeply unpopular. Sixty-three percent of Americans oppose raising the debt ceiling; similar majorities oppose measures to make that sort of thing unnecessary."

Actually this is not true. Insofar as it is necessary to deal with long-term budget issues there is is widespread support for most of the measures that would be required. Polls consistently show majority support for a quick end to the wars in both Iraq and Afghanistan, as well as sharp cuts in the military budget. Polls also show support for negotiating Medicare drug prices with the prescription drug industry, as well as opening up the Medicare program for anyone who chose to buy into it.

These measures and the others put forward in the Progressive Caucus budget last week would be sufficient to reach a balanced budget in a decade. Brooks apparently does not approve of the items in the Progressive Caucus budget, but that is not the case of the public at large.

This budget does not even include other items that would produce large budget savings that would almost certainly produce no negative public reaction. For example, Congress could require the Fed to buy and hold substantial amounts of government debt. If the Fed held $3 trillion in debt (a bit more than its current holdings) throughout the decade, it would save close to $1.5 trillion in interest. (The Fed refunds the interest on the debt it holds to the Treasury.) It can offset the potential inflationary impact of increasing reserves by raising reserve requirements.

There are also huge potential long-term savings from allowing Medicare beneficiaries to buy into the health care systems of countries that provide care more efficiently (i.e. everyone). The savings could be split between the government and the beneficiary. This would hand beneficiaries tens or even hundreds of thousands of dollars over their retirement while saving taxpayers an equal amount. It is difficult to see why there would be opposition from the general public to giving beneficiaries this choice.

In short, people who are familiar with the numbers know that the middle class can easily live with the changes that might be needed to address long-term budget problems. The wealthy and powerful interest groups, like the insurance and pharmaceutical industries, are the more obvious problem.

Brooks also gets some basic facts wrong. The stagnation of middle class incomes is not new. It dates from mid-70s. Furthermore, the middle class has not consumed lavishly, as he claims. They don't have the money to spend lavishly. It has been the wealthy, who have benefited from a huge upward redistribution of income over the last three decades, who have been spending lavishly.

It is also worth noting that Brooks is warning of a potential calamity if the deficit is not addressed. He apparently is not aware of the collapse of the housing bubble which has cost tens of millions of workers their jobs and wiped out much of the savings of tens of middle class families. If he were, he would know that the crisis is here now.

 
The Washington Post Runs a Front Page Editorial Against Europe's Welfare State Print
Monday, 25 April 2011 07:12

The Washington Post has frequently editorialized against welfare state measures in both Europe and the United States. It does not hesitate to use its news section to advance its editorial position. It did so today with a front page article stating that the welfare state benefits that Europeans have come to expect:

"increasingly appear to be luxuries the continent can no longer afford."

The article includes a large number of inaccurate assertions to try to make this case. First, it is important to note that Europe is getting richer, not poorer. Every year the productivity of its workforce increases by approximately 1.5 percent. This means that each worker is producing 1.5 percent more for each hour of work. With productivity growing  through time it is difficult to see why Europe would be less able to afford a welfare state in the future than it is today.

The article also cites globalization as a reason that Europe will be unable to afford a welfare state. Again, globalization is supposed to make countries richer, not poorer, so it is difficult to see why increased opportunities from trade should make a welfare state less affordable.

The article also points to the economic crisis as a reason that countries can no longer afford the welfare state. This is very confused thinking. The economic crisis stems from inadequate demand. The demand that was being driven by the housing bubbles in the United States and Europe disappeared with the collapse of these bubbles.

The current problem facing the United States and Europe is too little demand, not too much. Welfare state supports help to increase demand and generate more employment and output. The Post would have a better argument if Europe faced too much demand generating shortages and inflation -- the opposite of the situation it faces today.

The article makes fundamental mistakes in logic elsewhere as well. It tells readers that:

"an hour of work costs $43 on average in France, compared with $36 in neighboring countries that also use the European currency, the euro, giving those other countries, particularly Germany, the edge in globalized competition."

Actually, whether or not France can support paying its factory workers an average of $43 in compensation depends on their relative productivity. There are many workers who get much higher pay. For example, many Wall Street executives get compensated at the rate of more than $1000 an hour. However, in the current system, their employers can apparently make a profit paying these wages. Since France maintains near balanced trade (unlike the U.S., which has a large deficit), it seems that its wages are competitive.

The article also attributes an obviously untrue assertion to an economist featured in the piece:

"As a result, he [French economist Michel Godet] said, French workers on average show up at the office or factory 620 hours a year, compared with about 700 in Germany and 870 in the United States." These numbers would be approximately accurate if 1000 was added to each one.

 
For Robert Samuelson Being an Adult Doesn't Include Taxing Rich People, Reining in Finance, or Controlling Health Care Costs Print
Monday, 25 April 2011 05:22

Robert Samuelson decided to lecture President Obama on being an adult today. He wants President Obama to take big steps to reduce the budget deficit. Interestingly, all of the ways that Samuelson suggests for reducing the budget deficit, such as cutting Social Security and Medicare benefits or raising gas taxes, hurt middle income people. Apparently, this is Samuelson's view of what adults do.

Increased taxes on the rich are not on his list nor are taxes on financial speculation. These might seem obvious ways to reduce the deficit since the share of the wealthy in national income has increased by so much in the last decade as has the financial sector's share of total output. But Samuelson apparently does not believe that adults tax rich people or the financial industry. It also doesn't seem as though adults talk about cutting the military budget, since this doesn't come up in Samuelson's article either. Nor does constraining health care costs, which is by far the most important contributor to the country's projected long-term deficit problem.

In criticizing President Obama for not doing anything about the deficit Samuelson apparently has not noticed that if President Obama's health care reform is left in place it is projected to do a great deal to reduce future deficits. CBO's extended baseline shows spending, measured as a share of GDP, increasing by roughly 15 percent over the next 25 years, not the one-third claimed by Samuelson. This extended baseline assumes that the law is followed.


 
The Post Hasn't Noticed the Recession Print
Monday, 25 April 2011 05:07

If they had, they would have mentioned it in the context of Indiana Governor Mitch Daniels' comparison of the Bush era deficits to the current deficit. Daniels, who was director of the Office of Management and Budget under President Bush, made the comparison in saying that the deficits that he presided over in this position were small compared to current deficit.

This is true, but the reason is that the recession created by the collapse of the housing bubble was much deeper than the recession created by the collapse of the stock market bubble that President Bush faced when he took office. Not mentioning this fact is like blaming a city for its excessive use of water, without mentioning that it was combating a major forest fire. This is an important piece of information that should have been given to readers.

 
Pharma Tracks Doctors' Prescribing Patterns Print
Monday, 25 April 2011 04:50
The NYT reports on how drug companies are getting access to databases that allow them to track individual doctors' prescribing practices. This information can be helpful in better pitching their drugs to doctors. This is yet another abuse of the sort that economists predict happens when the government imposes monopolies (i.e. patents) that raise prices far above marginal cost. If economists paid attention to the $300 billion industry, they would be looking for more efficient mechanisms for financing prescription drug research.
 
More Scare Stories on the Deficit to Get Folks to Give Up Their Social Security and Medicare Print
Sunday, 24 April 2011 11:28

Steven Pearlstein did his part for the Wall Street crusade to get people to surrender their Social Security and Medicare. He warned readers that if we don't follow the Wall Street deficit reduction agenda, the dollar could enter a free fall. I would say that this is one of the silliest things the paper has ever published, but this is the Washington Post that we are talking about.

Anyhow, let's put on our thinking caps and try to envision what Pearlstein's scare story would look like. Currently, the euro is equal to around 1.45 dollars, there are approximately 6.5 yuan to a dollar and around 80 yen. Suppose we don't follow the Wall Streeters' wishes. Will the dollar fall to 3 to a euro, will it only be worth 3.5 yuan and 40 yen?

Does anyone think this story is plausible? We supposedly have been begging China to raise the value of its currency by 20 percent. Is China's leadership suddenly going to sit back and let the yuan rise by 100 percent? What happens to China's export market in this story? The same is the case for our other trading partners. Europe will lose its export market in the U.S. and suddenly U.S. made goods would be hyper-competitive in Europe's domestic market. Japan, Canada and everyone else would face the same situation.

These countries will not allow their economies to be destroyed by the loss of the U.S. export market and a surge of imports from the United States. They will undoubtedly take steps to stop and reverse any free fall of the dollar, if we did begin to see one.

In other words Pearlstein and the others are peddling total nonsense when they try to push this scare story. The bottom line is that they want to cut benefits to the middle class. They don't have a good story to sell a policy that will be harmful to large segments of the population, especially when the Peter Petersons of the world are making out like bandits. So they make stuff up.

As every economist knows the story of our deficit in the short-term is the downturn created by the collapse of the housing bubble. The deficit is propping up the economy following the loss of $1.2 trillion in annual demand from private sector.

The deficit story in the long-term is health care. Our health care system is out of control. Fixing health care would end the deficit problem, but this would reduce the income of the insurance industry, the pharmaceutical industry and other powerful interest groups. So, the Washington Post would rather just see people go with out health care. Hey, someone's got to pay.

 
The New York Times Has not Heard About the Budget Deficit Print
Sunday, 24 April 2011 05:18

This is one of the things that readers of an article discussing the impact of the Fed's quantitative easing policy might conclude. The article indicates that the second round of quantitative easing (QE2) has had little effect in boosting economic growth.

While this is likely true -- it had a limited effect in keeping interest rates at already low levels -- the policy of quantitative easing has had a substantial impact on the deficit. As a result of the fact that the Fed holds a large amount of assets, interest that otherwise would have been paid out to the general public is instead paid to the Fed. This money is then refunded to the Treasury.

Last year the Treasury refunded almost $80 billion to the Treasury, an amount that is approximately twice the size of the deficit reduction in the agreement reached earlier this month between President Obama and Congress on a continuing resolution. If the Fed were to continue to hold around $3 trillion in assets it would reduce the deficit by close to $1.5 trillion over the course of the next decade. (It can offset the inflationary impact of the increased reserves in the financial system by raising reserve requirements.) Given the obsession of the media with the budget deficit, it is remarkable that the NYT did not mention this implication of quantitative easing.

This article also wrongly referred to the downturn as a financial crisis. The main reason why the economy is suffering from high unemployment and weak growth is the collapse of the housing bubble. Large firms can now borrow money in financial markets at historically low real interest rates. Few small firms cite credit availability as a major problem in their business. It is difficult to see how the economy would be any different right now if the financial crisis had not occurred.

 
LA Times Makes It Up on Chairman Ryan Print
Saturday, 23 April 2011 22:56

The LA Times told readers that:

"Congress is on its first recess since Republican leaders unveiled a plan to end the federal deficit by dramatically changing Medicare, cutting other government programs and reducing taxes."

Actually the Republicans never produced a plan to "end the federal deficit."

They produced a plan that promised large tax cuts but did not identify any of the taxes that would have to be raised to offset the lost revenue. This is like saying they had a plan to fly to moon because they said they would build a rocket. The whole point is the specifics. How would they build a rocket? How would they raise taxes to meet their revenue targets?

It would have also been worth mentioning that the Congressional Budget Office projections for the Ryan plan imply that it would increase the cost of buying Medicare equivalent insurance policies by $30 trillion over the program's 75-year planning period. This is approximately 6 times the size of the projected Social Security shortfall and comes to almost $100,000 in additional costs for every man, woman, and child in the country. This money would be a transfer from retirees to the insurance and health care industries under the Ryan plan.

 
Will the Protectionists Wipe Out Solo Practitioners in Medicine? Print
Saturday, 23 April 2011 07:30
That is the implication of an NYT article on the decline in the number of physicians in independent family practices. The article argues that long hours and uncertain pay make it unattractive for physicians in the United States. This may be true given the extent to which the doctors' lobbies have been able to limit the number of people licensed to practice medicine in the United States. However, there is a huge supply of people in the developing world who would be willing and able to train to U.S. standards and work under the conditions described in the article. If the Obama administration and Congress were not so completely dominated by protectionists, they would be working to eliminate the barriers that are making it more expensive for people in the United States to get health care.
 
Looniness on Domestic Oil Production, Will the Post Print Anything? Print
Friday, 22 April 2011 05:55

The Washington Post printed an oped column from Alaska Senator Lisa Murkowski arguing for increased domestic oil production. The column directly confuses short-term economic weakness with the impact of long-term oil prices.

It cites Harvard professor and former AIG director Martin Feldstein as supporting the claim that "that if prices remain high, economic growth will languish." In fact, the quote from Feldstein explicitly refers to economic growth this year. There is nothing that the government can do that will in any significant way affect the amount of oil that the U.S. produces this year. Therefore, Feldstein's statement is irrelevant to the issue at hand.

As far as the longer term question, higher oil prices would have a modest impact in slowing growth in most economic forecasting models. However even large increases in domestic production would have little impact on world oil prices (the relevant variable) and therefore have little effect on economic growth. A serious newspaper would not have allowed a columnist to make such misleading assertions.

 
<< Start < Prev 311 312 313 314 315 316 317 318 319 320 Next > End >>

Page 316 of 408

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives