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European Union Imposes a Tax on Digital Transactions Equal to 0.006 Percent of GDP Print
Friday, 02 January 2015 08:11

The NYT reported that the European Union (EU) will start collecting a tax on digital transactions in 2015 that is expected to raise $1 billion this year. For those who are not very familiar with the size of the EU economy, it is projected to be close to $19 trillion in 2015, which means that the revenue from this tax will be a bit less than 0.006 percent of GDP.

Is That $224 Billion Over One Year or Ten Years? Print
Friday, 02 January 2015 06:31

That's what millions of readers of Ron Haskins' column in the NYT on designing effective social programs will be asking. The column tells readers:

"When John M. Bridgeland led Mr. Bush’s Domestic Policy Council, he was amazed to find 339 federal programs for disadvantaged youth, administered by 12 departments and agencies, at a cost of $224 billion."

The piece doesn't indicate whether this spending is for one or ten years. (My guess is the latter, but I'm not really sure without looking at the research to see what is included.) Also, unless folks have a good memory, they are unlikely to know how important this spending was to the government and the economy. The budget was just under $1,800 billion in 2000, which would make the spending close to 12 percent of the budget for one-year. Projected spending for the ten-year budget horizon was over $20 trillion, which would have made the spending in question close to 1.0 percent of projected spending.

Ron Haskins is a serious researcher raising an important point, but it would be helpful if this number were expressed in a way that provided meaningful information to readers.

It Is Important That Women Can Combine Work and Family Obligations, We Don't Need More Kids: Japan Edition Print
Friday, 02 January 2015 06:09

The it's hard to get good help crowd keep trying to push the bizarre line that the world is running out of people. This theme appears in a NYT piece on Japan's efforts to end gender discrimination in the work place and to make it easier for women to hold on to jobs as they raise children. For example, it tells readers:

"The national birthrate is just 1.4 children per woman, among the lowest in the world and well below the level needed to ward off a sharp decline in population in the coming decades. And when Japanese women do have children, they quit their jobs more often than mothers in other industrialized countries, leaving a hole in an already dwindling work force."

There is no obvious problem with a declining work force. This means that there will be more demand for the workers Japan does have. They will shift from relatively low productivity jobs (e.g. the midnight shift at a convenience story or parking cars at restaurants) into higher productivity and higher paying jobs that otherwise might go vacant. From the standpoint of the well-being of the Japanese population, this is good news since it is likely to increase pay for most workers, even if it means less overall growth. It is per capita income that is relevant for well-being, not total GDP. People in Denmark are much wealthier than people in Bangladesh, in spite of the higher GDP in the latter.

Also, it is important to note that in even modest increase in productivity growth will swamp the impact of plausible differences in the dependency ratios that would result from more children. (Also, the relevant dependency ratio includes dependent children.) It is also necessary to remember that hours worked can various enormously. Since the collapse of its bubbles in 1990 the length of the average work year has declined by almost 15 percent in Japan, the equivalent of more than seven weeks of annual vacation. This is not a pattern we would expect to see in a country suffering from a shortage of workers.

Finally, a smaller population will make it easier for Japan to reduce its greenhouse emissions, helping to contain global warming. It will also make a densely populated island less crowded.

Frank Bruni Thinks The Rich Get Their Money from Social Security and Medicare Print
Thursday, 01 January 2015 17:42

That's what readers of his column on Rhode Island Governor Gina Raimondo would likely conclude. The column has the subhead, "Gina Raimondo's approach to income inequality."

There is not much in the piece that directly addresses income inequality as most of us would think about it. The piece highlights Raimondo's cuts to the pensions of public sector workers. This is not a group of people that ordinarily is considered to be among the rich. While the piece tells us that she "framed the cutbacks as progressive," it doesn't follow that they are in fact progressive. (The piece neglected to mention that under Raimondo's plan hedge funds may make large profits on handling the state's pension fund money at the expense of public sector workers and taxpayers.)

The piece then tells readers that the pension cuts:

"provided a template for how politicians in Washington could try to rein in Social Security and Medicare spending, if they wished."

The piece also indicates that Raimondo is either incredibly naive or dishonest. It reports:

"She said that she has told Wall Street titans point blank that they should be paying higher federal taxes and leveling the playing field, but with this message: 'I need you to double down on America. We need you. We need your brains, we need your money, we need your engagement — not because it’s Wall Street versus Main Street, but because you’re some of the smartest, richest people in the world, and you need to be a part of fixing America, because you want to live in an America that’s the best country in the world.'"

Wall Street titans make investment choices based on profits, not admonitions from politicians. If Raimondo doesn't understand this fact, she is dangerously naive. If she does, then her comment was meant to deceive the public.

The Dead Young Invincibles: Obamacare Needs Healthy People, the Older the Better Print
Tuesday, 30 December 2014 16:29

The NYT apparently still doesn't know that the young invincibles are dead. The idea that Obamacare needed young healthy people to enroll is one of the big myths that was killed in 2014. For the economics of the system to work, it needs healthy people to sign up. It is actually better for the system if they are older and healthy than younger and healthy because older people pay higher premiums.

Unfortunately the NYT is still confused on this basic point. In an article reporting on the situation with Obamacare in Kentucky, the NYT told readers:

"supporters say the private insurance exchanges will need robust business, including young and healthy customers that help balance the cost of sicker ones, to thrive."

The point here is that it really doesn't matter whether the people are young, it matters that some healthy people, who pay more in premiums than they get back in benefits, join the system.

What's the Approval Rating for Obamacare Among People Who Don't Believe in Death Panels? Print
Tuesday, 30 December 2014 09:50

That's a question millions are asking after seeing the results of a Kaiser Family Foundation poll that showed that 41 percent of the public believes the Affordable Care Act created

"a government panel to make decisions about end-of-life care for people on Medicare."

An equal number knew that no such panel existed and the rest didn't know. If we assume that support for Obamacare among the 41 percent who believe in death panels is in the single digits, then support among the people who know that the ACA did not create death panels must be well over 70 percent.

Actually, Income Growth for the Middle Class Is No Mystery Print
Tuesday, 30 December 2014 09:30

A NYT article on efforts to overcome stagnating incomes for the middle class bizarrely skipped over the most obvious and proven method: low unemployment. The problem shows up in the very first sentence, which tells readers:

"For average American families, the United States economy is like a football team that cannot move the ball, and has not been able to for 30 years."

Actually, the football team moved the ball very well in the years from 1996 to 2001, when families at middle and bottom of the income ladder saw large wage gains. In fact, this five year period accounted for all the growth in wage income for middle class families since 1980. The problem was that the recession that began in 2001 following the collapse of the stock market bubble led to higher unemployment and took away workers bargaining power.

But there is zero reason to believe that if we again got the unemployment rate down to the levels of the late 1990s that we would not again see income growth for middle and lower income families. Bringing back the football analogy, this discussion is like bringing in a new quarterback just before half-time, who quickly leads the team to a touchdown. The coach then brings in the old quarterback in the second half. As he watches his team flounder, he is just perplexed as to what he can do to develop some offense.

We do know the answer, it's involves bringing the economy back to full employment. That will likely require more demand, with the most obvious sources being a larger budget deficit or a smaller trade deficit. (The proven way to lower the trade deficit is a lower-valued dollar, an item found in every intro text book but almost never mentioned in policy circles.) If taboos on discussion of budget deficits and trade deficits prevent us from going the route of increased demand we can look to follow the German model and lower the unemployment rate by reducing the supply of labor. This would mean work-sharing, paid sick days and family leave, and other mechanisms that reduce the average number of hours per worker.

Anyhow, we do know how to increase income growth for the middle class, even if we're not supposed to talk about it in polite circles.

Robert Samuelson Thinks That Because He Is Confused About the Economy, Everyone Else Is Also Print
Monday, 29 December 2014 06:27

Robert Samuelson has a really serious problem of projecting his own conceptual confusions on others. In his column this morning he repeatedly uses "we" when he actually means "I."

"We overestimated our ability to control the economic environment. What we have learned is that outside events — here, the financial crisis and Great Recession — can overwhelm collective protections and discredit conventional beliefs. The economy is more random, unstable and insecure than we imagined. It is less susceptible to policy engineering."

Of course "we" did not overestimate the government's ability to control the economy. Some of us were completely aware of the dangers posed by the housing bubble and the amount of stimulus that would be needed to bring the economy back to full employment. As we pointed out, the Fed should have taken steps to burst the housing bubble, starting with public warnings like the ones that Federal Reserve Board Chair Janet Yellen made last summer in reference to junk bonds and social media company stocks. The Fed also could have used its regulatory power to crack down on fraudulent mortgages that were being securitized in huge numbers.

This is not the only error in Samuelson's piece. He also mistaken argues that because most government benefits go to the poor and middle class:

"it is not possible to pretend that the whole superstructure of government has somehow been turned against the middle class. This is not just a distortion of reality; it is the converse of reality."

In fact the government has structured the market over the last three decades in ways that cause most income to flow upward. For example its trade deals have been focused on putting less educated workers in direct competition with the lowest paid workers in the world. This has the predicted and actual effect of driving down their wages. At the same time, highly paid professionals, like doctors and lawyers, are largely protected from international competition. The government has also had longer and stronger patent protection, causing middle class people and the government to pay hundreds of billions more for prescription drugs than would be the case in a free market. The benefits from these forms of protectionism disproportionately go to the wealthy.



Creative Arithmetic In Support of Reaganism at the Washington Post Print
Sunday, 28 December 2014 16:00

Many newspapers require that people writing columns carefully document the factual claims they make. The Washington Post is not in this category as readers of Steve Moore's column touting the wisdom of the Laffer Curve must know. I won't go into the details of the misrepresentations in the piece. Paul Krugman has done some of this work here, and PGL at Econospeak adds more.

I will just make a couple of quick additional points. First, no one ever disputed that high tax rates have a negative incentive effect on work and savings. The question is the size of this effect. The basic story of the Reagan era does not provide much reason to believe that this negative effect was large. Growth of employment was slower in the 1980s than in the 1970s, savings rates fell, and the investment share of GDP fell to its lowest levels in the post-war era. There are other factors that can explain all of these developments, but it is pretty hard to make a case that lower tax rates were a major elixir for growth when all the key variables that were supposed to be affected went in the wrong direction.

The second point is that timing is everything. Moore likes to have the world begin in 1982. This was the trough of the steepest downturn in the post-war era. Economies typically bounce back from steep downturns with steep upturns (not in the most recent one, because that was the result of a collapsed bubble). For this reason the recovery is primarily a measure of the severity of the downturn. The more honest way to measure an economy's performance is comparing it to the prior business cycle peak.

By this measure, the 1980s had slower growth then high tax days of the 1970s and much worse growth than the higher tax days of the 1960s. The world looks a bit better if we start at 1982, but that is not a serious way to assess the Reagan performance.

This reminds me of a time when I was on a radio show with Moore. Then too he was touting the wonders of the Reagan boom. I pointed out that the 1970s had better growth than the 1980s and offered Moore a $100 bet on the topic. Moore accepted and then touted the 1982 to 1989 growth rate. When I pointed out that the 1980s began in 1980, Moore got upset.

Unfortunately for Moore and other Laffer-Reagan backers, the 1980s still begin in 1980.

News for Washington Post: Politicians Don't Always Tell the Truth and TPP Is Not a Free-Trade Agreement Print
Saturday, 27 December 2014 08:33

People in places like rural Kansas and downtown Washington, DC often have a misplaced trust in authority and elected officials. They are inclined to take their comments at face value, not realizing that these people often have ulterior motives.

The Washington Post gave us an example of this confusion in a front page article on President Obama's effort to push the Trans-Pacific Partnership (TPP), which it repeatedly refers to as a "free-trade" pact. The piece follows the administration's line in telling readers that "the president threw his full support behind the pact as part of a broader effort to rebalance U.S. foreign policy to the fast-growing Asia-Pacific region."

This assertion makes little sense since the administration is simultaneously pursuing a similar trade pact, the Trans-Atlantic Trade and Investment Pact, with Europe. What both deals have in common is that they are primarily about imposing a business-friendly structure of regulation on both our trading partners and the United States. The more plausible explanation is that President Obama is trying to get more business support for the Democratic Party.

The terms of the pacts will supersede laws put in place by both national and sub-national governments, creating an investor-state dispute settlement mechanism. Foreign corporations would be able to contest laws at every level of government at these tribunals. Their rulings could not be over-turned by domestic courts. Incredibly, the Post article made no mention of these tribunals even though they have been a major cause of opposition to the agreements.

The piece also repeatedly refers to the TPP as liberalizing trade. This is not at all clear. Most of the trade barriers between the United States and the countries in the agreement are already low. While the TPP will reduce many of these barriers further, it will also increase protectionist barriers in the form of patent and copyright protection. It is entirely possible that the increase in protectionism due to stricter and longer protections in these areas will most than offset any reduction in the remaining tariff and quota barriers.

It is also worth noting that the deal will likely include nothing about regulating currency values. The decision of many developing countries to deliberately keep their currencies low against the dollar has been the major factor sustaining the U.S. trade deficit, which is now more than $500 billion annually (@ 3 percent of GDP). This loss of demand is the major cause of the "secular stagnation" that economists like Larry Summers have been writing about lately. Opponents of this trade deal have argued that currency should be included in the pact given the enormous damage caused by the resulting trade deficits.

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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.