The Washington Post had a major column by Steve Pearlstein on the front page of its Outlook section headlined, "Is Capitalism Moral?" The piece notes the sharp upward redistribution of income over the last three decades and asks whether we should just being willing to accept market outcomes.

Of course this question is absurd on its face. The upward redistribution of the last three decades was the result of deliberate government policies designed to redistribute income upward; it was not the natural workings of the market.

For example, trade policy was quite explicitly intended to place segments of the U.S. workforce in direct competition with low paid workers in Mexico, China and other developing countries. The predicted and actual result of this policy has been to push down the wages the bottom 50-70 percent of the workforce to the benefit of those at the top.

This was hardly the free market. We could have adopted trade policies that were designed to put doctors, lawyers and other highly paid professionals in direct competition with their much lower paid counterparts in the developing world. If we had done this, doctors in the U.S. might be earning closer to $100,000 a year rather than the current average of more than $250,000 annually. This would transfer more than $100 billion annually to the rest of the country in the form of lower health care costs.

The government also strengthened and lengthened the periods of monopoly protection provided by both patents and copyrights. This has hugely increased the amount of rents being paid to high-end earners, the pharmaceutical industry and the entertainment industry at the expense of everyone else.

The NYT had an interesting piece on new research from the Urban Institute showing that young people are faring very poorly in the economy. In presenting the list of problems facing young workers it included the collapse of the housing bubble.

In fact this was great news for young people in terms of their ability to buy homes. (The impact on the economy was of course devastating.) Since the overwhelming majority of young workers were not homeowners prior to the collapse of the bubble, the drop in prices means that they can buy a home for close to 30 percent less than what they would have paid 6 or 7 years ago. This is effectively a transfer of tens of thousands of dollars from older generations to the young. This is very good news for them.

That could have been the title of a Washington Post editorial that criticizes the budget produced by Senate Democrats because it doesn't address the possibility that we will have a rising debt to GDP ratio in 2023. After all, millions of lives are being ruined by the high unemployment that resulted from the ineptitude of the people that the Post views as experts on the economy. The Post is completely unconcerned about this crisis. Instead it is very upset that Senate Democrats are not worried about projections for 2023 and beyond of a rising debt to GDP ratio.

It is worth remembering that back in 2000 there was a major debate in Washington over the date at which the federal government would pay off the national debt. The Washington Post was a major actor in this debate.

Btw, the Post has this classic included in its list of ways to deal with Social Security:

"a more realistic inflation adjustment."

Of course the Washington Post does not have a clue as to whether its preferred price index better reflects the rate of inflation seen by Social Security beneficiaries. All it knows is that it will show a lower rate of inflation and therefore cut benefits. You've gotta love these folks.

This is what reporters/columnists are supposed to do. His column is not an endorsement, it just lays out the benefits and downsides of a serious budget. What a novel idea.

Addendum:

I noted the comments below on Zandi's concern that stimulus is not needed because the economy is kicking into a higher gear. FWIW, Zandi has seen the economy kicking into a higher gear numerous times over the last four years.

For example, in December of 2010 he told David Leonhardt:

"In my previous baseline I expected real G.D.P. growth of 2.8 percent in 2011 and 4.2 percent in 2012, ... I’m now expecting real G.D.P. growth of 3.9 percent in 2011 and 3.4 percent in 2012."

Actual growth in 2011 was 2.0 percent and in 2012 1.6 percent.

An NYT article in April of 2012 told readers:

"'I’m relatively optimistic,' said Mark Zandi, the chief economist at Moody’s Analytics, who released a note this week showing unemployment dropping faster than he previously forecast. As for the more dire claims about an economy on the brink, 'I don’t really take those seriously.'"

The average growth rate over the next three quarters was 1.5 percent.

It is worth taking this track record into account in assessing Zandi's view of the benefits of stimulus at present. He has been seriously overly optimistic in his past forecasts.

Steve Rattner wants someone to stop stealing from our kids according to the headline of his blog post in the NYT. The finger should be pointed backwards in Rattner's case because if anyone is going to jeopardize the living standards of our kids, it is wealthy people like Mr. Rattner.

We have seen an enormous upward redistribution of income over the last three decades. As a result most workers have seen little of the benefits of economic growth. If this upward redistribution continues, then our children are unlikely to see much of the gains of growth in the future.

Rather than have people focus on the policies that have led to this upward redistribution (trade policy, too big to fail banks, patent policy etc.), wealthy people like Rattner use their money and power to try to divert attention to the cost of Social Security and Medicare. They have thrown enormous resources into trying to scare people with the prospective burdens posed by these programs. For example, Rattner today tells us that with Social Security:

"The present value of the unfunded liability is 'only' $9 trillion."

Are you scared yet? After all, it's "only" $9 trillion. Didn't you love that sarcasm? Yes, $9 trillion is a lot of money, none of us will ever see that much money, even Bill Gates or Warren Buffet. But if we are having a serious discussion, we would talk about this as a share of future income. It's about 0.7 percent of future GDP. Does that scare you?

That's a bit less than half of the cost of the wars in Afghanistan and Iraq over the last decade, that's hardly trivial, but that expense would not impoverish our kids. Medicare and Medicaid are projected to cost more but that has nothing to do with the old stealing from the young, their higher costs are the result of doctors, drug companies, medical supply companies and other providers in the industry charging us two to three times as much as their counterparts in other wealthy countries. If we paid the same amount per person for our health care as people in other wealthy countries then we would be looking at long-term budget surpluses rather than deficits.

Yes, boys and girls and Arnold Schwarzenegger fans everywhere, a strong dollar does not mean a healthy economy, contrary to what Neil Irwin told us today in the Washington Post. In fact, fans of arithmetic and believers in accounting identities know that an over-valued dollar is at the root of our current economic problems. While believers in the Confidence Fairy think that investment will reach new highs as a share of GDP, and/or consumers will spend even when they have little wealth, those of us who follow data know that the only way to make up the demand shortfall created by trade deficit is with a large budget deficit. However, the Serious People say that we can't have a large budget deficit, so that means we get high unemployment.

The only serious way to get the trade deficit down is get the dollar down. That will make our exports cheaper to people living in other countries and make imports more expensive for people in the United States. That means more exports and fewer imports, and therefore a smaller trade deficit. (For those folks who were looking to the trade agreements, the idea that these will reduce the trade deficit is just something that the Serious People tell to children.)

Anyhow, it is easy to show there is no direct relationship between the health of the economy and the strength of the dollar. In fact, the recovery in the first half of the Clinton administration was based to a substantial extent on the idea that a lower deficit would lead to a lower valued dollar and therefore more net exports. And, this largely worked as shown below.

Then Robert Rubin took over at Treasury and pushed his high dollar policy giving us record trade deficits along with a stock and housing bubble. You know the rest of the story.

The Washington Post had an article that touted Ireland's success with its austerity program, which has allowed it to sell long-term bonds in financial markets at reasonable interest rates. The article questions whether Ireland can be an example for the rest of Europe with the first sentence posing the question:

"In Europe’s grand battle over growth vs. austerity, has Ireland proved that austerity works?"

While it is undoubtedly good news that the Irish government can re-enter credit markets, it is worth noting that the unemployment rate in Ireland is still 14.7 percent, down very slightly from its recession peak. This is still 10 full percentage points above the pre-recession level. This is supposed to prove that austerity works?

Paul Howard celebrates the lower than projected cost of the Medicare prescription drug program and attributes it to the role of private insurers. In fact, the main reason that Part D has cost less than projected is that the rate of increase in drug prices overall has been far less than projected. This in turn is attributable to a sharp fall in the number of breakthrough drugs.

If Howard wants to blame the collapse of innovation on the use of private insurers to deliver the Medicare drug benefit then he may have a case that the private insurers were central to controlling costs. Otherwise, he's killing electrons for nothing.

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

Given the disastrous failure of the economics profession to warn of the housing bubble, it is amazing that the country has not rounded up the lot of us (I'll go too) and chased us out of the country. Unfortunately, we still have a profession continuing to use its authority to spread confusion rather than enlightenment. 

Thomas Edsall and his readers are the victims today. In an interesting discussion of trends in poverty, Edsall includes a reference to work by Bruce Meyer and James Sullivan that shows poverty among the elderly has fallen to just 3.2 percent using a consumption based measure of poverty. There are many issues that can be raised about this analysis, as my colleague Shawn Fremstad has pointed out.

However perhaps the most fundamental point for purposes of Edsall's analysis, which explicitly compares poverty rates among the young and the old, is the fact that Meyer and Sullivan:

"report results using an adjusted CPIU-RS that subtracts 0.8 percentage points from the growth in the CPI-U-RS index each year (p 17)."

Okay, if the meaning of this line is not immediately clear, Meyer and Sullivan are assuming that actual rate of annual inflation is 0.8 percentage points less than official data show. This claim is debatable, but its implications are not. If we have been overstating inflation by 0.8 percentage point each year, then we have been understating real income growth by 0.8 percentage points.

This claim lies at the center of Meyer and Sullivan's claim that poverty has fallen sharply. Their adjustment would mean that income has risen by roughly 8 percent more over the last decade than official data show and 16 percent more over the last two decades. (I'm ignoring compounding to keep this simple.) This additional rise in income (or consumption) gets a lot of people over the poverty line.

The Meyer and Sullivan assumption has another important implication which they do not discuss in this paper and apparently did not discuss in their conversations with Mr. Edsall. If income is growing more rapidly than the official data indicate then people were much poorer in the recent past than official data indicate.

Good complaint, maybe she can talk to the Washington Post's editorial board who are such huge supporters of NAFTA that they decided that Mexico's GDP had quadrupled from 1987 to 2007. The data show a rise of just 83 percent. It would be great if the country had newspapers that didn't insist on inventing their own reality to advance their agenda.