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AP Reports that 99.8 Percent of Social Security Disability Payments Were Proper Print
Saturday, 15 November 2014 09:34

If you doubt that AP would write a story to make this point, you guessed correctly. AP actually decided it was REALLY BIG NEWS that Social Security's inspector general found evidence that 0.2 percent of payments were improper.

The news service devoted a major article to reporting that $2 billion in benefit payments over the last seven years appear to have been given to people who did not qualify for disability. The piece neglected to mention that the program paid out close to $900 billion in benefits over that period. This means that improper payments identified in the inspector general's report were less than 0.3 percent of the total payments in the program.

Since the piece does not provide any context it is likely that many people will be led to believe that the disability program is rife with fraud when in fact the report is indicating the opposite. It would be great if improper payments were zero, but in a program that pays out $140 billion in benefits every year, this is not going to happen. It makes sense to try to reduce improper payments as much as possible, but it doesn't make sense to spend $10 billion to eliminate $2 billion in improper payments.

It is also important to note that there are undoubtedly people who should be getting disability who have been wrongfully denied benefit. We could have workers dying of cancer or unable to work due a heart attack or stroke or other disability who an a judge somehow decided was not eligible. If we put more pressure on judges to turn down claims then there will be more people improperly denied benefits.

There is another important point to keep in mind when the media decided to highlight relatively small amounts of waste or improper payments in government programs. AP has this information because the government investigated its own payment practices and issued a public report. Walmart, GE, and other private companies don't disclose instances of fraud and improper payments so we aren't likely to read AP stories about the waste and abuse in the private sector. (They could do their own investigations, but that's another story.)

Anyhow, if we start hearing political hysteria over $2 BILLION in improper disability payments over the coming months, remember to have sympathy for the folks who have problems with big numbers. 

NYT Reports That Some Health Insurers Are Raising Their Prices and Some High School Kids Are Smoking Marijuana Print
Friday, 14 November 2014 23:32

This one should be in the "you must be kidding category." The New York Times has a front page story with the headline, "Cost of Coverage Under the Affordable Care Act (ACA) to Increase in 2015." Hmm, that would mean that 2015 is just like 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007 ... you get the idea. Costs of health care have always gone up, apparently the Affordable Care Act didn't change this fact. NYT headlines ain't what they used to be.

The substance of the article, insofar as there is any, is not much better. There are places in the country where some plans had large increases in prices. That is unfortunate, but if the NYT had a bit more experienced reporters, they would know that there were frequent incidents of large increases in insurance premiums before the ACA. Given that there are literally thousands of different plans, it would be surprising if some did not have large increases.

While the article focused exclusively on the plans and areas with large increases (which are mostly sparsely populated cities and counties), it could have also focused on the areas in its own chart with small premium increases or even decreases. For example, the chart shows that the average premium in Cook County, IL (which includes Chicago) raised its premium by 1.0 percent in 2015. The average premium in Cuyahoga County, OH (which includes Cleveland) fell by 1.6 percent. And, the average premium in Bergen County, just outside of New York City, fell by 0.9 percent.

Information on the overall pattern of premium increases is news. The New York Times really didn't need to hire reporters to know that some insurers raised their rates on some plans by a large amount.

Actually, Republicans Are Pushing for More Restrictions on Trade Print
Friday, 14 November 2014 14:21

It is bizarre how many people can't seem to understand that patent and copyright protection are "protection" and not free trade. It doesn't matter if your friends are the ones who benefit from them or even if you think these forms of protection are good for the economy. They are still forms of protection. By giving firms and/or individuals monopolies, they are 180 degrees at odds with free trade.

This is why everyone should be very angry when the NYT told readers that:

"Mr. Obama has made clear he intends to work with congressional Republicans to push for fewer restrictions on trade."

This is not true. He is going to push for trade deals that will reduce some restrictions and raise others. It is entirely possible that the economic impact of the increased restrictions will exceed the impact of the reductions. (If the NYT has a basis for arguing the opposite, it has not shared it with readers.)

These trade deals will also impose a regulatory structure on a wide range of issues (e.g. the environment, work place safety, privacy) that will supersede domestic laws and regulations. It should be possible to report on these deals accurately.

Paying Off Student Debt Is Saving Print
Friday, 14 November 2014 07:55

Hate to be the econ nerd here, but this is the sort of thing that folks writing on economics should get straight. (The failure by econ writers to get such things right is one reason that Jonathan Gruber thinks the public is "stupid.") Anyhow, Catherine Rampell messes this one up in an otherwise reasonable piece discussing differences in saving rates by age.

The piece notes the negative saving rate reported for people under age 34 and then comments:

"These numbers have inspired various condemnatory headlines and think pieces about my generation’s irresponsible savings deficit. The more sympathetic coverage has at least acknowledged the effects of student loan debt and high youth unemployment, but even those articles came loaded with judgment."

Paying off student loan debt, just like paying off credit card debt or paying down a mortgage, is a form of saving. If young people are actually paying off large amounts of student debt then they would have a high saving rate, not a low saving rate.

The chart accompanying the column is interesting not only for the breakdowns by age, but because it shows the overall saving rate. It shows that the saving rate is actually relatively low, meaning that people are spending a lot. (This would be even clearer if it went back to years before 1990.)

We have heard endless comments from economists and economic reporters trying to explain why people are not spending following the collapse of the housing bubble. The simplest explanation is that they are spending, albeit not at the same levels as when they had $8 trillion of ephemeral bubble wealth driving their consumption. This is one of those points that is far too simple for economists to understand. 

Contrary to G-20 Goals, the United States is Working to Increase Trade Barriers Print
Friday, 14 November 2014 05:59

A NYT article on the G-20 summit describes the goal of such meetings:

"World leaders would work together to remove the roadblocks to economic progress, including corruption, trade restrictions and regulations that discourage hiring and firing."

Actually the United States has been working hard in international negotiations to increase barriers to trade in the form of patent and copyright protection. These barriers can raise prices of drugs and other products by several thousand percent above their free market price, draining money out consumers' pockets. The United States has even been encouraging such perverse practices as extending the length of copyright protection retroactively, in effect trying to give people in the past more incentive to produce creative work.

It is also worth noting that it is questionable whether protections against firing have much impact on hiring and growth. According to the OECD, Germany ranks near the top in the strength of its employment protection. It also has the lowest unemployment rate of any major economy. There is little or no correlation between employment and unemployment rates and the strength of employment protections.

Getting Carried Away in Attacking Refinancing Print
Friday, 14 November 2014 05:37

Bethany McLean goes a bit overboard in arguing against refinancing in a NYT column this morning. She cites data showing that the vast majority of subprime loans in the bubble years were for refinancing homes rather than home purchases.

The data are misleading because many of the subprime loans were issued to be refinanced. Many of these loans carried teaser rates and were pushed with the promise that people could refinance before the teaser rate reset. Many buyers took advantage of this option, often refinancing two or three times as house prices continued to rise. For this reason, it is misleading to imply that subprime loans were not important to home purchases during this period.

The piece also carries the bizarre assertion:

"Mr. Rosner [Joshua Rosner, a managing director at the research consultancy Graham Fisher & Company] also points out that while homeownership peaked in 2004, home prices peaked in 2006, because refinancing drove up prices."

This doesn't make any sense. Refinancing a home cannot drive up its price. The bubble was driven by demand for homes, not the demand for refinancing. The latter can plausibly drive up the price of mortgages, but it doesn't directly affect house prices. (Higher mortgages rates would be expected to lower prices, other things equal.)

Does the Chinese Government Prohibit the NYT from Talking About Drug Patents? Print
Thursday, 13 November 2014 17:19

It seems as though someone must be preventing a discussion of the patent system. The NYT Magazine has a lengthy piece on the slowdown in the development of new drugs. It focuses on one scientist's struggles to perfect a new treatment for diabetes, a process that is likely to take well over twenty years, even in a best case scenario.

One of the issues that contributed to this delay is the fact that a single scientist held the patent on the original innovation, which meant that no other scientists could contribute to the development process. By contrast, if the research had been funded up front and the government had not granted a patent monopoly, anyone would have been able to offer their expertise to help develop a usable treatment. 

This piece provides a useful example of how patent protection can impede the development of drugs compared with alternative funding mechanisms, but the issue is never once mentioned in this piece. Of course ending patent monopolies would also eliminate the incentive of drug companies to push their drugs for inappropriate purposes and to misrepresent their effectiveness and safety. But hey, if the Chinese government doesn't want the NYT to raise these issues, its readers will never hear about them. 

Kevin Drum Doesn't Like Postal Banking: A Reply Print
Thursday, 13 November 2014 11:06

I see Kevin Drum is unhappy about my endorsement of postal banking as a way to address the Postal Services financial problems. Kevin correctly points out that the Inspector General’s (IG) argument for postal banking didn’t involve conventional savings and checking accounts, but rather more narrow financial services:

“1) payment mechanisms (i.e., electronic money orders), (2) products to encourage savings, and (3) reloadable prepaid cards. The first is fine, but not really ‘postal banking.’ The second is problematic since even the IG concedes that the reason poor people tend not to save is ‘largely due to a lack of disposable income among the underserved.’ That's quite an understatement, and it's not clear what unique incentives the postal service can offer to encourage savings among people who have no money to save. That leaves prepaid cards—and maybe a good, basic prepaid card sponsored by the federal government is a worthwhile idea. But that's really all we have here.”

Let’s start with these items. The revenues from payment mechanisms and reloadable prepaid cards run into the tens of billions of dollars a year. Much of this comes directly from the government, which now uses a substantial portion of the budget for food stamps and other government transfer programs to pay banks to provide beneficiaries with cards. The Postal Service could almost certainly do this at a lower cost.

More importantly, many low and moderate income people get ripped off by paying exorbitant fees to check cashing services and other intermediaries to get access to their money or to send it to a third party. While the fact that these people may save large amounts of money by using a postal bank, which they might use because they trust the post office, draws a “meh” from Kevin, that sounds like a pretty good thing to me. Imagine paying 50 cents or a dollar to have your $200 pay check cashed instead of the ten dollars that a check cashing service might charge.

Kevin’s right that the biggest obstacle to savings for low and moderate income people is a lack of money. But the fact is that when they do save, they often pay excessive fees to intermediaries. This is a widely recognized problem and there is bipartisan support for creating some sort of low cost saving vehicle that low and moderate income people could use. That doesn’t mean that everyone would say the Postal Service should be the venue for this savings, but there seems no reason to rule it out apriori as a candidate.



Did the Payroll Tax Increase Bite the Dems in the Election? Print
Wednesday, 12 November 2014 14:39

Zachary Goldfarb raises this possibility in a Wonkblog post today. Certainly there is evidence that many voters were unhappy about stagnating incomes, and the payroll tax increase associated with the end of the payroll tax holiday in 2013 contributed to this stagnation.

However as a practical matter, it appears that few people noticed the tax increase at the time it took place. While 28.9 percent of respondents correctly answered a poll saying that their payroll tax was increased in 2013, 19.8 percent said that their taxes were increased in 2014, when there was actually no change in their tax rate. If the 2014 answer gives us the percentage of the population who would have said their taxes increased regardless of what happened, less than 10 percent of the population recognized the tax increase in 2013.

The implication is that voters were upset about income stagnation. The tax increase contributed to this stagnation (although it was just reversing a prior tax cut), but the tax increase was not directly the cause of voter anger because people did not know about it.

The piece also at one point dismisses the idea of any further tax cuts, commenting:

"given the long-term fiscal problems facing Washington, that seems fanciful."

Actually the sharp downward revisions to projections of health care cost growth in recent years had made the projected deficits even for the long-term considerably smaller than they had been prior to the downturn. There is no economic reason that these projected deficits should preclude stimulus to the economy now, even though many may use them as a political excuse for their opposition.

How Did the NYT Decide that 6.75 Percent Pension Returns are "Strong?" Print
Wednesday, 12 November 2014 05:41

That is what millions are asking after reading its piece on the financial status of Detroit's pensions following its bankruptcy. At one point the piece tells readers:

"Contributions to the system will not be nearly enough to cover these payouts, so success depends on strong, consistent investment returns, averaging at least 6.75 percent a year for the next 10 years. Any shortfall will have to ultimately be covered by the taxpayers."

Actually the returns to the pension do not need to be consistent, they need to be on average 6.75 percent a year. Having a year or two of low or even negative returns does not matter as long as they are offset by years of stronger than average returns. The assumed 6.75 percent nominal return is in fact considerably lower than the long-term average for public pension funds, although given current stock valuations, it may be a bit on the high side. (High price to earnings ratios imply lower future returns.)

It would also have been worth noting the extent of the pension cuts that Detroit workers already incurred. Workers agreed to a 4.5 percent across the board cut in pensions. In addition,they gave up a 2.25 percent annual cost of living adjustment. For a retiree who collects her pension for twenty years, this amounts to an almost 18 percent cut in benefits.


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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.