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The Trans-Pacific Partnership Could Reduce Trade Print
Tuesday, 11 November 2014 05:47

The NYT told readers misled readers in its description of the Trans-Pacific Partnership (TPP). It told readers:

"The American plan [the TPP] would require each country to open even some of its most fiercely protected markets to foreign goods and services, which could produce a surge in trade."

While the agreement is pursuing some trade openings, notably in agriculture, it is not clear how far they will go since there is much political resistance to these openings. On the other hand, it also calls for increased protectionism in the form of stronger patent and copyright monopolies. These will raise prices; they are equivalent to privately imposed taxes.(Generic drugs can sell for less than one percent of the patent protected versions, implying a tax equivalent of more than 10,000 percent on the free market price.)

By raising prices and reducing purchasing power the result can be a reduction in trade. Without seeing the final deal, the NYT has no ability to assess whether the trade increasing aspects to the deal will be larger than the trade impairing aspects of the deal. In other words, the "surge in trade" is just making stuff up.

 
In Terms of Covering People on the Exchanges, There May Not Be Much Difference Between the Uninsured and the Previously Insured Print
Tuesday, 11 November 2014 05:31

The NYT likely misled readers in the concluding paragraph of an article on projections for enrollment in the health care exchanges next year. It concluded:

"In a brief analysis of coverage trends, the Department of Health and Human Services said Monday that 'most of the new marketplace enrollment for 2015 is likely to come from the ranks of the uninsured,' rather than from people who previously bought insurance on their own outside the exchanges."

Actually, people routinely go between being uninsured and insured primarily because they find and leave jobs that provide insurance. Every month roughly 4.4 million workers leave a job. Many of these workers are leaving jobs with insurance and becoming uninsured. If these people sign up for the exchanges after going two or three months without insurance, should they be viewed as uninsured or as people who previously had insurance from another source? It's not clear that this distinction is very meaningful.

 
The It's Hard to Get Good Help Crowd Promotes Population Growth Print
Sunday, 09 November 2014 10:07

Tyler Cowen is worried that rich countries won't have enough people to do the work. This concern seems more than a bit off the mark given that almost every rich country continues to have large numbers of unemployed and underemployed workers, but I suppose pondering this question can at least create some jobs for economists. Anyhow, two of the countries Cowen highlights are Japan, which he tells us has seen a declining working age population since 1997 and China, where he warns about the difficulties that working couples will face supporting four parents as well as their own children.

Taking these in turn, a key part of the story that Cowen leaves out is hours worked. These vary hugely across countries and across time within countries. For example, the OECD reports the average work year in Germany at 1388 hours in 2013. By comparison South Korea, which has a comparable per capita income, had an average work year of 2163 hours in 2012.

This means that in terms of hours worked, each worker in Korea puts in 55 percent more hours than a worker in Germany. If Germany felt it was short of workers, obviously they could try to encourage their workforce to put in more hours. If they just made up half the difference with Korea it would be equivalent to a 28 percent increase in their workforce. That is equivalent to an awful lot of additional kids.

This is directly relevant to the Japan story, since the OECD reports that the average work year in Japan has declined by 7.0 percent since 1997, the year its working age population began to decline. This doesn't suggest that a shortage of workers has been a major problem for Japan.

Turning to China, we should first recognize that Cowen is using a bit of hyperbole. He doesn't really think that the typical Chinese couple will be supporting four parents. However China is seeing a rapidly aging population, so somewhere in the next two decades, the ratio of workers to retirees may fall to near two to one, which will also be the ratio in the United States at that time.

The key issue in this story is the standard of living at which China's elderly will be supported. The International Labor Organization reports that real wages in China have been growing at double digit rates. This means that workers have seen enormously rapid increases in living standards over their working lifetime. Over a five year period, real wages would have increased 60 percent, assuming a 10 percent rate of annual wage growth. This means if a person has been retired five years, and had a standard of living equal to 80 percent her last working year (this is much better than most U.S. retirees can expect), it would be just half of a current workers' pay. At this rate of wage growth, sustaining this retiree's standard of living would require 30.8 percent of the worker's pay after 10 years, and less than 12 percent after 20 years.

Read more...

 

 
WaPo's Factchecker Grades Obama Harshly on Obamacare Print
Sunday, 09 November 2014 09:39

Washington Post Fact Checker gave President Obama three Pinocchios for claiming in a press conference that the Affordable Care Act was responsible for the slowdown in health care costs overall and the slowdown in Medicare costs in particular. This seems more than a bit harsh.

First, there are some clear misstatements, Obama referred to savings on Medicare and Medicaid, even though he just said "Medicare." Also, he was referring to projected savings in 2020, even though his comments implied that these were the savings that we are seeing today. However these were off the cuff comments in a press conference, as Kessler notes. In prepared speeches Obama has presented these number accurately.

However Kessler's main complaint is that Obama seems to be implying that the ACA is responsible for the slowdown in health care cost growth when at most it was an important contributor. The point is reasonable, but the question is whether this is a three Pinocchio misrepresentation.

After all, the vast majority of health economists do believe that the ACA has been an important factor in slowing cost growth. The main competing explanation is the recession. That is a plausible explanation for slowing growth in 2008, 2009, and possibly even 2010, but it really is not plausible in more recent years. People may put off care when they lose their jobs, which would explain a one-time reduction in cost growth. However this can't explain continued slow growth. After all, we don't think more people are putting off care in 2014 than in 2010.

Furthermore, health care cost growth has continued to undercut projections even in more recent years when the projections were made with the full knowledge of the recession. In this respect, it is worth noting Kessler's reference to a projection that health care costs in 2014 would rise 5.6 percent from their 2013 level. In the first three quarters of 2014, spending on health care services (roughly 90 percent of spending) is up by 2.8 percent from 2013 levels. Plausible projections of fourth quarter spending are likely to push the year over year increase slightly above 3.0 percent, but this is still well below the growth rate that was projected last year.

It is fair to call President Obama on the carpet for claiming the ACA did more to contain costs than is actually the case, but can anyone doubt that if health care costs had risen more rapidly than in the past that the ACA would get the blame in the public mind, even if other factors were clearly more important? In the context of modern politics, President Obama's claims about the cost-savings from the ACA seem like relatively minor exaggerations, not a three Pinocchio offense.

 
The Size of Detroit Workers Pension Cuts Print
Saturday, 08 November 2014 09:55

The articles reporting on the cuts to Detroit city workers pensions resulting from its bankruptcy have not generally conveyed the true size of the cuts to readers. The pieces usually note an immediate cut of 4.5 percent to pensions and then point out that the agreement ends the cost of living adjustment to pension.

This latter provision is likely to prove far more important. If the workers' contracts had provided for full indexation, and we assume that inflation averages 2.0 percent in the years ahead, a worker who lives on their pension for twenty years will see a cumulative cut in benefits of around 15 percent as a result of the ending of the cost of living adjustment (COLA). In the twentieth year their pension will be one-third less than in the current year. If they collect their pension for thirty years their pension will be cut by more than 45 percent as a result of the ending of the COLA.

Their sacrifice will be far larger than that demanded of the executives of Wall Street banks, which were effectively bankrupt during the financial crisis.  

 
Washington Post Misrepresents Issues in Obamacare Supreme Court Case Print
Saturday, 08 November 2014 08:21

The Washington Post fundamentally misrepresented the issues in a front page piece on the decision by the Supreme Court to hear a case contesting whether people in the federal exchanges created by the Affordable Care Act (ACA) qualify for subsidies. The case stems from awkward wording in one part of the law that describes subsidies going to people in the exchanges created by the states. The opponents of the law argue this means that people enrolled in the exchanges created by the federal government are not eligible for subsidies.

While the piece points out that supporters say that the subsidies are an essential part of the ACA, it should have also pointed out that other parts of the law are clearly written as though subsidies would be paid out to be people in the exchanges created by the federal government. Their point is that when the law is read as a whole there is no ambiguity that subsidies are supposed to go to people in the federal exchanges.

In this respect it is also worth noting that when the Congressional Budget Office and other independent observers tried to project the cost of the ACA they all assumed that people in the federal exchanges would be getting subsidies. It seems that no one had any confusion about the intent of the law in this respect.

The Post should have clearly presented the legal argument of the supporters of the ACA.

 
Will Ending Tipping Increase Saving? Print
Friday, 07 November 2014 05:49

Catherine Rampell has a nice piece in the Post outlining some of the problems with having workers rely on tips for much of their pay. She comments in passing that because people may underestimate the cost of eating at restaurants they may eat out more often, which would provide a boost to the economy by creating more demand.

If this was really true, then the saving cultists who want people to save more money should all be pushing for an end to tipping. (In an economy where we are faced with inadequate demand, which is certainly true today, less demand would slow growth.) As a practical matter, if people spent less on restaurants it would probably mean for the most part that they spent more on something else, but if this line can get the saving gang to oppose tipping, it's fine by me. 

 
More Editorializing About the Budget in the NYT's News Section Print
Thursday, 06 November 2014 15:03

The NYT is pushing so hard for budget cuts that it is prepared to ignore journalistic standards to make its case. An article about the possibilities for collaboration between President Obama and the Republican Congress included a number of assertions that were just opinion or inventions.

The piece begins by telling readers:

"After years of clashes and a grudging truce, fiscal and economic policy was brought back to center stage by the wave of Republican electoral victories on Tuesday, with both President Obama and the new congressional leadership expressing hope that deals can be reached to simplify the tax code, promote trade and eliminate the budget deficit."

It's not clear where President Obama said that he wanted to "eliminate the budget deficit." He didn't say anything like this in his press conference. Since this would imply throwing millions of people out of work and slowing growth (sorry folks, elections can't change the laws of economics any more than they can change the law of gravity), it's not clear why he would want to eliminate the budget deficit.

When the piece reported that the Republican leadership is:

"considering turning to a parliamentary procedure called reconciliation to cut costs of entitlement programs like Medicare,"

it would have been useful to remind readers that Medicare costs have already fallen sharply relative to recent projections. In fact, the current projections for costs are far below the targets of deficit cutters from earlier in the decade.

The piece also later told readers:

"Fiscal rectitude and tax overhaul are matters that unite all wings of the Republican coalition, from the Tea Party right to the Big Business center. They also have strong adherents among good-government advocates in the Democratic Party’s center left."

It apparently is defining "fiscal rectitude" as throwing people out of work and slower economic growth. This is a NYT definition, not the standard usage of the term.

In the same vein, at one point it tells readers that the national debt, "continues to grow though the annual deficit has receded," implying that this is for some reason a problem. (It isn't for any economic reason.)

This is not the only place where the piece invents its own language. It refers to the trade deals currently being negotiated, the Trans-Atlantic Trade and Investment Pact and the Trans-Pacific Partnership, as "free trade" agreements.  These are not free trade agreements. A major goal of these deals is to increase the strength of patent and copyright protection, especially on prescription drugs. This is 180 degrees at odds with free trade. The paper could increase accuracy and save space by omitting the word "free."

 

Thanks to Robert Salzberg for calling this piece to my attention.

 

Note: Typos corrected, thanks folks.

 

 

 
Minimum Wage Tracks Productivity: Fair Deal on the Minimum Wage Print
Thursday, 06 November 2014 07:34

Charles Lane expresses his pain at the fact that the minimum wage remains hugely popular with large segments of the population. He tells readers:

"It works as a tax on business, whose benefits often accrue to middle-class teenagers, and whose costs — fewer jobs and higher prices — are partly borne by needier intended beneficiaries."

Imagine that, a policy that might have some consequences we don't like -- sort of like any policy that actually exists in the real world. Thankfully, unlike the Earned Income Tax Credit (EITC), which gains enormous popularity among conservatives when the minimum wage is discussed, the minimum wage doesn't lower the wages of large groups of workers and act as a subsidy to low wage employers. And, the EITC also must be paid for, and the usual way we pay for government spending is through taxes. So the EITC also works like a tax, since it will be paid for with taxes. Such is life.(Btw, as folks familiar with the research know, the jobs consequences are minimal and mostly mean people spending more time between jobs since there is high turnover in these jobs.)

Anyhow, Lane wants politicians to stop raising the minimum wage so he proposes indexing it to the rate of inflation. The idea of indexation is good, but Lane has the wrong target. Back in the good old days, when we had 4.0 percent growth and 3.0 percent unemployment, the minimum wage rose in step with productivity. If it had continued to rise in step with productivity since its peak level in 1968 it would be more than $17 an hour today.

Raising the minimum wage in step with productivity makes good economic sense. After all, why shouldn't workers at the bottom of income distribution share in the gains of economic growth. The alternative is an ever-growing gap between minimum wage workers and everyone else. That may be Charles Lane's dream, but that probably is not the world envisioned by most supporters of the minimum wage.

 
Dana Milbank Doesn't Remember the 2006 Election Print
Thursday, 06 November 2014 05:44

It's too bad that the Post's political columnist Dana Milbank does not have a very good memory. He devoted his column to complaining that President Obama didn't offer any change in course yesterday, unlike President Bush after the Republicans lost Congress in 2006. Milbank points out that Obama offered no changes in policy or even in the structure of his cabinet, unlike Bush who dumped Donald Rumsfeld as Defense secretary. 

There is an obvious difference between 2006 and 2014. It was clear in 2006 that the war in Iraq was the main issue contributing to the Republican defeat. Therefore it was reasonable for Bush to offer some change in this policy. What issue would Milbank highlight as causing the Democrats' defeat in 2014 that would warrant a change in course?

Should Obama abandon the push for a higher minimum wage, even though initiatives on this issue won overwhelmingly even in red states? Should he propose repeal of the Affordable Care Act, a position that even Republicans have abandoned? Should he do another push for cuts to Medicare and Social Security, in spite of the fact that most of the Democrats who had pushed cuts got handed their heads on Tuesday? How about getting into a full-fledged land war against ISIS? Perhaps a quarantine on health care workers across the country just in case one of them treated someone with Ebola?

The reality is that the Republicans didn't win by pushing any issues that appeal in a big way to the public, therefore there is nothing that Obama could take away from their victory to bring his administration more in line with public opinion. Certainly if he could advance policies that would do more to bring the economy to full employment and to reverse the upward redistribution of income over the last three decades it would likely garner popular support. However this would almost certainly mean working against the Republicans elected this week rather than with them.

 

 
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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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