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Credit Rating Agencies that Were Paid to Rate Subprime MBS as Investment Grade Threated to Downgrade U.S. Debt Print
Friday, 15 July 2011 04:33

Forgiveness is wonderful, but forgetfulness has no place in policy debates. The idea that the Moody's and Standard and Poors should be seen as impartial arbiters of the creditworthiness of the U.S. government, whose integrity and judgement is beyond question, does not pass the laugh test.

Their warnings over possible debt downgrades associated with delays in raising the debt ceiling may be made in good faith. Certainly the failure to raise the ceiling by August 2 would be very bad news for the creditworthiness of U.S. debt. But, their recent history suggests that any statement from these companies must be viewed with a bit of skepticism.

It is also worth noting that the markets have often not agreed with the rating agencies' assessments. Both have downgraded Japan's debt, yet the country can still sell 10-year bonds at interest rates of less than 1.5 percent.

 
Is David Brooks Really Clueless About the Inefficiency of the U.S. Health Care System? Print
Friday, 15 July 2011 03:56

David Brooks appears to have made a remarkable leap forward today. He told readers, "the fiscal crisis is driven largely by health care costs."

Yes, after writing endless columns about out-of-control government spending and the wild liberals in the Democratic Party, someone apparently got David Brooks to look at the budget numbers. And, he saw what every budget wonk knows. While the current deficits are overwhelmingly the result of the devastation caused by the collapse of the housing bubble, the longer term shortfall is entirely the result of the projected rise in health care costs.

However, it seems that no one told Brooks that the problem is not that people in the United States are getting too much care, the problem is that we are paying too much for the care we get. The United States pays close to twice as much for its drugs, its doctors, its medical equipment as people in other wealthy countries. As a result, our per person health care costs are more than twice the average of other wealthy countries, even though they all enjoy longer life expectancies. 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, not deficits.

This means that Brooks' discussion of our willingness to die when life loses its joys is beside the point. The choices around the end of life are important and difficult, but that is not our health care cost problem. Our health care cost problem is the cesspool corruption that we rely upon for our health care.

Brooks has made a huge step forward by recognizing that the fiscal problem is not one of government spending generally, but rather spending on health care. Now he has to make another huge step forward to recognize that our health care system is a money pit that is better at transferring money to providers than giving care to the public.

 
The NYT Makes It Up to Cover Up for Republicans Print
Thursday, 14 July 2011 21:29

In an opinion piece that appeared as a front page news story, the NYT told readers that the debt ceiling battle is "a war over government." The first sentence tells readers that:

"intense exchanges this week between the two parties have made it clear that this is not so much a negotiation over dollars and cents as a broader clash between the two parties over the size and role of government."

This is 100 percent the interpretation of the reporter/editor. This is the sort of piece that newspapers ordinarily put on the editorial pages.

While it is certainly possible that the two sides have different views of government, that is hardly clear from the available evidence. By all accounts, it was President Obama who put cuts to Social Security on the table, not the Republicans. And the polls consistently show that the vast majority of Republicans, like the vast majority of Democrats, are opposed to cuts in both Social Security and Medicare. It is not clear that this is really a source of divide between the two parties even if their leadership may go in somewhat different directions.

The most obvious difference between the two parties, which the Republicans have stated repeatedly, is that they don't want anyone, especially rich people, to pay higher taxes. In other words, the Republicans want rich people to have more money.

Given that this has been set as an explicit line in the sand by the Republicans, it is difficult to understand how the NYT can ignore their claim and instead tell readers that this is somehow a philosophical dispute about the size and role of government. It is especially hard to understand how it can do this in a "news" story.

 
Amazon, the Leader of the Tax Cheat Industry Print
Thursday, 14 July 2011 04:59

Amazon is known throughout the world as one of the most innovative tax cheats anywhere. It makes its profit largely by allowing customers to avoid state sales taxes and sharing the savings. States are now taking steps to crack down on this scam, requiring Internet retailers with any ties to in-state businesses to start collecting taxes on their sales in the state. California took this route this month.

The NYT had an article highlighting Amazon's efforts to fight back to protect its loophole, which includes a plan to place an initiative on California's ballot. In laying out Amazon's argument, the piece includes an unanswered argument from Amazon, that the law places a huge burden on small Internet retailers by requiring them to collect taxes in hundreds of different jurisdictions.

The piece should have reminded readers that there are services that will handle the tax collection for smaller businesses for a modest fee. These services are comparable to the payroll companies that small businesses often rely upon to get tax and benefit payments handled correctly.

Amazon has a history of putting out absurd arguments to protect its tax loophole. It had previously argued that it lacked the technical competence to keep track of the different tax provisions in all the jurisdictions where it sold products. This argument was contradicted by the fact that retailers like Wal-Mart and Target seem to have relatively little problem getting tax collections mostly right. Presumably, the programmers at the these traditional brick and mortar retailers are not that much more competent than the crew at Amazon. 

Given Amazon's history, the NYT should not present its claims to readers without including a response.

 
The United States Will Never Be Like Greece, # 24,763 Print
Thursday, 14 July 2011 06:59

The Washington Post, which regularly uses both its editorial and news pages to push for budget cuts, has a front page article today that warns the United States could end up like Greece. The article includes a quote from University of Maryland economist Peter Morici, telling readers that:

"If Congress raises the debt ceiling without a long-term plan for reducing the federal deficit, he added, 'they’ll never solve the problem, and we’ll end up like Greece.'"

It would have been worth pointing out that the United States cannot end up like Greece because the United States, unlike Greece, has its own currency. Greece is like the state of Ohio. If it has a shortfall it has to borrow in financial markets. Ohio can appeal to the federal government for assistance, just as Greece can turn to the EU, the ECB, and the IMF, but both have to accept whatever terms these bodies impose as a condition for their support.

By contrast, the U.S. government is always free to buy up debt issued in its own currency through the Fed. In principle, this could lead to a problem of inflation, however the economy is very far from reaching this point with a vast amount of unemployed labor and under-utilized capacity.

Of course, the U.S. government also has no difficulty whatsoever borrowing in financial markets. It is currently able to sell long-term debt at interest rates just over 3 percent. This means that the people investing trillions of dollars in these markets do not share Mr. Morici's assessment of the fiscal situation of the U.S. government.

It would have been worth presenting the views of someone who could tell the difference between the United States and Greece in this article.

 
The New York Times Doesn't Like Medicare Print
Thursday, 14 July 2011 04:46

That's what readers of the NYT's box on "issues holding up debt ceiling agreement" would conclude. The box tells readers that:

"Officials have said that the program, which provides health care to people 65 and older, is not sustainable in its current form."

This is not true. There is no, as in zero, none, official document that says the program is not sustainable in its current form. There are official documents that show the program will need additional revenue at some point. The ACA passed by Congress last year reduced the projected shortfall in the program by more than 75 percent.

As it stands, the projected shortfall over the program's 75-year planning horizon is less than 0.4 percent of GDP. This is less than one quarter of the cost of the wars in Iraq and Afghanistan.

 
China Threatens to Raise the Value of the Yuan Print
Thursday, 14 July 2011 04:39

Yes, the United States has officially been asking (demanding?, begging?) China to raise the value of its currency against the dollar. Yet, the media continually threaten the country with the story that China may sour on the U.S. and stop buying U.S. debt if we don't get our budget deficit down.

However, if China stopped buying U.S. debt it would lead to a rise of the yuan against the dollar. This is exactly what the Obama administration has ostensibly been asking them to do.

In other words, China has no leverage in this picture. Their implicit threat is to do exactly what we supposedly want them to do. So why is the media trying to scare us?

 
Kristof Perpetuates the Clinton Budget Myth Print
Thursday, 14 July 2011 04:26

Nicholas Kristof is mostly on the mark in his column this morning, but he does repeat the Clinton fiscal responsibility balanced the budget myth. This is not true.

An examination of the Congressional Budget Office's (CBO) projections from the 1990s shows that in 1996 CBO still projected a deficit of 2.7 percent of GDP for fiscal year 2000. Instead, we had a surplus of 2.4 percent of GDP, a shift of 5.1 percentage points of GDP (@$750 billion in today's economy).

This shift did not come about from tax increases or spending cuts. CBO estimates that the tax and spending changes between 1996 and 2000 added $10 billion to the year 2000 deficit. The shift was entirely attributable to faster than expected economic growth and especially the decision by Federal Reserve Board chairman to allow the unemployment rate to fall to 4.0 percent.

CBO had projected an unemployment rate of 6.0 percent for 2000. This was the conventional estimate of the NAIRU (non-accelerating inflation rate of unemployment) at the time. It was only because Greenspan ignored this nearly universally held view in the economics profession (and the Clinton appointees to the Fed) that the economy was able to grow enough to get the unemployment rate down to 4.0 percent and to bring the budget from deficit to surplus.

This is an important piece of history that is routinely buried.

 
Post Does a Nice Job on Social Security and the Debt Ceiling Print
Thursday, 14 July 2011 04:12
Glenn Kessler, the Post's Fact Checker, did a nice job trying to pin down the law on whether Social Security benefits can still be paid once we have hit the debt ceiling. This is a tough one because payment of benefits would draw down the trust fund, which is part of the $14.3 trillion debt, dollar for dollar. This means that they would not add to the debt and push the government over the ceiling. Still, it is not entirely clear that the payments would be kosher.
 
It's Supposed to be Funny, but Do We Really Need to Bring China Into the Debt Ceiling Clown Show? Print
Wednesday, 13 July 2011 16:25

That's what folks should be asking Jon Stewart. The United States as a country owes China money because it has a trade deficit. The trade deficit means that United States would be borrowing from China even if it had a balanced budget, as for example was the case in 1999 and 2000. The fact that China happens to hold a lot of Treasury bonds simply is the result of what U.S. assets they choose to hold. They could, and do, also buy private bonds, stock and other assets.

Of course the trade deficit is high due to the over-valued dollar. This in turn is partly the result of the fact that China and other countries have a policy of keeping the dollar high by buying up assets like U.S. Treasury bonds.

All of this may be way too much depth for a comedy show, but how about leaving China out of the story? We have a lot of China bashers in this country. There are reasons to object to many of China's policies (I certainly do), but do we need to throw China into the picture gratuitously? After all, John Boehner, Eric Cantor, and Barack Obama would seem to provide plenty of comedic material.

 
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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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