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The Washington Post Still Can't Get It Right, Health Exchanges Need Healthy People, It Doesn't Matter If They Are Young Print
Tuesday, 21 January 2014 07:56

Why is hard to understand that a healthy person who pays $6,000 a year into the insurance system is more helpful to its finances than a healthy person who pays $2,000 a year? That is the basic story when it comes to older people in the exchanges (ages 55-64) and younger people. The average premium for this older group is three times as much as for the younger group. Large portions of both age groups will require little or no health care services over the course of a year.

This is why it makes relatively little difference if the exchanges have a skewing of enrollees by age, as a Kaiser report showed last year. It does matter hugely if there is a skewing by health condition with only less healthy people signing up. This is why it is annoying to see the Post once again tell readers:

"If not enough young and healthy people sign up on the federal and state insurance marketplaces, that could lead to a cycle of increasing premiums and decreasing enrollment, or what some call a 'death spiral.'"

The word "young" just takes up space and makes the article less accurate. The program could face a death spiral if enough healthy people do not sign up. It doesn't matter whether or not they are young.

Nocera Gets Growth Badly Wrong Print
Tuesday, 21 January 2014 05:43

Joe Nocera makes an important point very badly in his column today. He contrasts a sharp reduction in poverty in Brazil over the last dozen years with continued high unemployment in the United States. Nocera then notes Brazil's recent growth slowdown, which he attributes to slow productivity growth. He then notes the rapid growth in the United States in the third quarter and continually rising productivity and concludes that growth may not be the most important goal of the economy.

While the point is well taken, Nocera discussion of growth in the United States and Brazil is completely wrong. While growth in Brazil has not been especially strong for a developing country, it did not manage to achieve its reductions in poverty without growth. According to the IMF, Brazil's growth has averaged 3.5 percent in the years from 2002-2013. This is far from the rates that countries like Thailand and China have maintained, but it is very far from zero. It is unlikely that Brazil could have accomplished anywhere near as much poverty reduction if its growth had been zero.

In the case of the United States, high unemployment is directly connected to slow growth. While we had one quarter of relatively good growth (4.0 percent is not especially strong for an economy recovering from a severe downturn), economic growth has generally been weak in this recovery. In the years 2010-2012 the growth rate averaged just 2.4 percent, which is roughly the same as the economy's potential growth rate. This means that the economy was making up almost none of the ground lost in the downturn. Insofar as we were able to achieve reductions in the unemployment rate it was the result of lower than normal productivity growth and people dropping out of the labor force.

By contrast, in the three years following the 1974-75 recession, growth averaged 5.2 percent. In the three years after the 1981-82 recession, growth averaged 5.4 percent. There is no reason to believe that if we saw faster growth we would not see more rapid reductions in unemployment. The problem with the third quarter growth figure was that it has not been sustained. If I'm driving across country I get there more quickly if I drive 70 MPH than if I drive 50 MPH. But it doesn't make much difference if I drive 70 MPH for just 10 minutes. Nocera seems to think that it should.

The Unbearable Presumptuousness of Right-Wing Elites Print
Monday, 20 January 2014 20:24

The NYT treated its readers to the French version of Le Grande Bargain, with a column by Sylvie Kauffman, the editorial director and former editor in chief of Le Monde. Ms. Kauffman's piece, "the unbearable lightness of Hollande," is devoted to the indecisiveness of the French president both in his policies and apparently in his personal life.

Her main complaint is:

"Perplexed by their president’s economic indecisiveness since he took office, the French now learn that he is equally indecisive in his private life. And they have found out at the worst moment. After hesitating to address squarely the issue of radical economic reforms, after avoiding to cut public spending to reduce the fiscal deficit, after procrastinating on measures needed to restore the competitiveness of French companies, the president, having lost 20 months, finally decided that it was time to do all of the above."

Hmmm, Hollande put off Kauffman's radical economic reforms and spending cuts for 20 months and this perplexed the French? Well if Hollande ran on an agenda of cutting social spending to go along with tax cuts, it certainly was not widely reported in the United States. I haven't checked back issues of Le Monde (my French is mixed at best), but my guess is that Ms. Kauffman's paper did not report any such commitments from Hollande either.

In fact, what was reported on Hollande's campaign was a promise to break with austerity and to follow the precepts of modern economics. This means increasing deficits in a downturn, not cutting them. There is no evidence that the private sector will make up for the demand lost due to reductions in the deficit. In fact, there is now a large body of evidence, much of it produced by the International Monetary Fund, showing that the program demanded by Kauffman will lead to slower growth and more unemployment.

In effect, Kaufman is telling NYT readers that she finds it unbearable that a French president, who was elected on a platform going 180 degrees in the opposite direction, waited 20 months to embrace the economic policies that she favors; policies that have been shown to slow growth and raise unemployment.

Undoubtedly being the editorial director or editor in chief of Le Monde is a very important and prestigious position in France. Just as people like Peter Peterson and his fellow corporate chieftains in Fix the Debt feel that their policy perspectives should over-ride the views of the vast majority of the public and the state of knowledge in the economics profession, Ms. Kauffman feels the same way with respect to the French people.

I suppose elites everywhere never had much use for democracy or inconvenient truth. Get me some freedom fries.

Real Supporters of the "Free Market" Do Not Believe that Companies Can Pollute Drinking Water With Impunity Print
Monday, 20 January 2014 08:43

A Washington Post article on the issues involved in relationship to the chemical spill in West Virginia identified the Competitiveness Policy Institute as a "free-market think tank" in presenting its views opposing increased regulation of dangerous chemical. This is inaccurate.

Supporters of the free market do not believe that others can damage life and property with impunity. For example, it is not consistent with a free market to think that anyone can dump toxic chemicals on Bill Gates' lawn. Protection of life and property are fundamentals of free market economics.

In this case, it is likely that the company responsible, Freedom Industries, will largely escape responsibility for the damage it caused with its actions since it declared bankruptcy. This means that the victims of the spill were effectively forced to give money to Freedom Industries. This is antithetical to free market principles. A think tank that supports such outcomes should be labeled as a proponent of upward redistribution, not a supporter of free markets.


Typo corrected, thanks Dax.

NYT Tells Us Where Our Tax Dollars Go Print
Monday, 20 January 2014 08:35

The NYT has a very nice (in substance, not appearance) chart on per person spending on a wide variety of government programs. readers would find that the military budget costs us $1,802 per person, Medicare $1,591, and Head Start $27. I was disappointed not to see TANF mentioned, which I would eyeball at around $55 per person and the Corporation for Public Broadcasting at around $1.50 per person.

Anyhow, it is great to see this chart, but this should be the standard way to express budget numbers, not something special for holidays. This is providing readers with information. Telling readers that we are projected to spend $8.1 trillion on Medicare over the next decade is just a silly fraternity ritual that budget reporters like to do. It is not informing readers.

Highly Paid Medical Specialists: Beneficiaries of Protectionism Print
Monday, 20 January 2014 08:30

Actually this excellent piece only talks about the first part of the picture, the outlandish paychecks that many medical specialists receive. Most news outlets are too committed to protectionism to discuss the idea of subjecting our doctors to the same sort of international competition as autoworkers or textile workers.

George Will Comes Out Against Freedom of Contract Print
Sunday, 19 January 2014 09:07

George Will took a strong stand against freedom of contract in his column today. Usually freedom of contract is viewed as a pillar of a market economy, but Will apparently objects to this freedom when used by workers.

The specific context is the issue of whether public sector workers can sign a contract that requires all the workers who receive the benefit of union representation to share in the cost of this representation. Under the law, if a union represents a bargaining unit, then it must represent every worker in the unit, regardless of whether the worker supports the union or not. This means that the union not only secures the same wages and benefits for all workers in the unit, it also must represent all workers in any grievance or disciplinary action taken by the employer, even if a specific worker does not support the union.

Since the law requires unions to represent all workers, they have often sought contracts that require all the workers in a bargaining unit to pay a fee to cover the cost of this representation, even though they still have the option not to join the union. It is this contract requirement that draws Will's ire, claiming that it violates the first amendment rights of workers who do not support the union.

It is worth putting Will's complaint here in a larger context. If a worker is employed by Koch Industries, Will would certainly argue that the Koch brothers could take the gains from their stock in the company and use it for supporting right-wing political candidates or whatever purpose they want. He would even argue that the company could directly spend its profits on supporting right-wing candidates, as allowed under the Citizens United Supreme Court ruling. In fact, he would say that Koch could require the worker to attend a right-wing rally and yell support for their causes as a condition of employment.

Will would say that none of these actions by the Koch brothers violate first amendment rights because the worker has the option not to work for Koch Industries. For some bizarre reason he is unwilling to apply the same logic in the context of contractual obligations put in place by fellow employees.

In others words, Will is fine with any conditions that employers want to impose as a condition of employment, but somehow sees it as a first amendment violation if co-workers sign a contract that imposes conditions of employment. This is denying workers the right to freedom of contract.

UK Homeownership Program Big Winner, Just Like Subprime Lending Print
Sunday, 19 January 2014 08:48

The Washington Post used a standard that would have shown subprime loans to be a great boon to tell readers that a housing program by the conservative government in the UK has been a "winner." The Post's declaration of the program as a winner is based on the fact that the program, which allows people to buy homes with a 5 percent down payment, has allowed many people to buy homes who could not otherwise afford them. This was true of zero down subprime mortgages issued during the housing bubble years also.

The Post is also confused in its assessment of bubble conditions in the UK. The article implies that existence of a bubble depends on the rate of price increase as opposed to the level of prices, based on this view it tells readers that there may be a bubble in London, but little risk in the rest of the country.

The chart accompanying the piece shows rapidly rising prices in the London market, with prices rising at a more modest pace in the rest of the country and still below their bubble peak in 2007. However the level of prices in the UK is shown as being more than five and a half times its 1983 level. This implies an inflation adjusted increase in house prices of almost 140 percent over the last three decades. Rents have shown no comparable increase, which indicates that house prices are not being driven by the fundamentals of the housing market.

At some point it is likely that house prices will fall to a level more consistent with the fundamentals of the UK housing market. At that time, the beneficiaries of the Conservatives' homeownership program will be winners in the same way that subprime purchasers in the United States were winners following the crash here.

It is also worth noting that the increase in consumer spending mentioned in this article is likely directly related to the renewed run-up in house prices. People are likely spending against the wealth in their home. This is the well-documented housing wealth effect which shows people increasing annual consumption by between 5-7 cents for each additional dollar of housing wealth. This wealth effect was the reason that the savings rate fell to nearly zero at the peak of the bubble and then rose sharply after house prices collapsed in 2007-2008.

Property Rights, Regulation, and Brain Dead Environmentalists Print
Saturday, 18 January 2014 09:35

The company (incredibly named "Freedom Industries") responsible for the massive chemical spill in West Virginia that left hundreds of thousands of people without drinking water declared bankruptcy yesterday. This means that all of the people who had to suffer through days without water, and some who became seriously ill from drinking contaminated water, will likely not be compensated by this company for the damage it caused them.

Many people have referred to this spill as a failure of government regulation and blamed free-market fundamentalism. All of these folks should get checks from the various industry groups for major polluters.

Last I looked, believers in the free market supported property rights. Property rights mean not having someone else throw their waste on your property. If this is a difficult concept to understand, try erecting a slaughterhouse where the waste gets dumped on Bill Gates' front lawn. It's a safe bet that you will quickly be given a court order to stop immediately. If you ignore it, you will quickly find yourself in jail.

Are Bill Gates and other rich people who will have those who pollute their property thrown in jail believers in big government? For some reason this view that they have a right to not have people pollute their property and have the government enforce it gets put down as being part of free market fundamentalism. But when a West Virginia coal processing plant throws its waste into people's drinking water this is a question of government regulation?

It is easy to see how it is an advantage to rich people and to those who would like to be able to pollute with others bearing the cost to have these issues seen as fundamentally different in nature. But it is hard to see any logic that would justify this difference. And it is hard to see why anyone who doesn't want corporations to be able to pollute with impunity would accept this distinction.

People who don't want polluters to be able to operate with impunity are no more nor less market fundamentalists than Bill Gates when he has people arrested for dumping waste on his lawn. The only difference is whose rights are being respected.

Rising Prices for Apparel: Good News for Workers? Print
Saturday, 18 January 2014 09:14

Floyd Norris has an interesting piece showing that apparel prices are now rising more rapidly than other prices, after almost three decades in which they sharply trailed other prices. This is potentially very good news for most of the country's workers.

The forces at play here are the fall in the value of the dollar and the rise in wages in developing countries, most importantly China. While the availability of low-paid manufacturing workers in the developing world has placed severe downward pressure on wages over the last three decades, as these wages rise this pressure may be alleviated in the years ahead. There is a still a large gap in wages, but the recent relative rise in apparel prices indicates that this gap is narrowing. This will make U.S. workers better positioned to share in the gains of economic growth going forward.

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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.