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The Post's Jihad Against Social Security Print
Sunday, 10 July 2011 10:19

The Post continued its Jihad against Social Security by trying to take the poor hostage. The subhead of its lead editorial told readers:

"The never-cut liberals insist that Social Security grow forever — and thereby would hurt the poor."

There is nothing in this piece that connects the opposition to Social Security cuts to hurting the poor. In the event that nothing is ever done to change the program and it begins to face a shortfall in a quarter century, the amount of additional revenue needed to fully fund the program would be far less than the cost of the wars in Iraq and Afghanistan. It is not clear why the Post thinks that at a time when the elderly's share of the electorate is roughly 50 percent larger than it is today, Congress would not come up with the funds to maintain benefits. It is certainly hard to understand why Congress would not maintain funding for poor.

The Post is also badly misleading readers when it says that "Social Security grow forever." The main reason that Social Security is projected to grow is that the economy is projected to grow. Benefits actually are being cut as the age for full benefits is being raised from 65 to 67. From 2035 to the end of the century, Social Security benefits are projected to remain almost constant as a share of GDP.

 
Robert Samuelson Gets One Right Print
Sunday, 10 July 2011 10:10

Washington Post columnist Robert Samuelson got one right today when he criticized Mark Zandi for his "good news" in the June jobs report. Zandi apparently highlighted the fact that the rise in joblessness reported for June was entirely attributable to an increase in the number of people who reported quitting their jobs voluntarily.

Samuelson correctly pointed out that this number is erratic, although his concern about the fact that this increase only appeared in the seasonally adjusted data is silly. It is common for this number to jump up or down by 0.2-0.4 percentage points month to month. Unless there is a pronounced movement over several months, these monthly fluctuations are best ignored. Zandi should know this and Samuelson is right to call him on it. 

 
Investment Banker Peter Peterson Appears Incognito In the Washington Post Print
Sunday, 10 July 2011 09:55

The Washington Post allowed Wall Street investment banker Peter Peterson to push his decades long crusade to gut Social Security and Medicare in his disguise as president of the Peter G. Peterson Foundation. Given the Post's often-felt need to identify individuals and organizations who get funding from labor (sometimes wrongly), it should have identified Mr. Peterson by his past affiliation with the Blackstone Group, one of Wall Street's biggest private equity firms. Mr. Peterson is also known for having pocketed tens of millions of dollars through the fund manager's tax break.

As part of his crusade Peterson told readers:

"With the doubling of our senior population, entitlements will account for 100 percent of the long-term growth in federal non-interest spending as a percentage of gross domestic product. Any credible fiscal plan must include their reform."

This is true because the Congressional Budget Office projects by assumption that there will be no increase in any other category of government spending except Social Security, Medicare, Medicaid and other entitlements. Either Mr. Peterson does not know this, in which case it is difficult to understand why the Post would print the views of someone who has no knowledge whatsoever of the budget. Alternatively, Peterson knows this fact and is deliberately deceiving the Post's readers, in which case it is equally unclear why the Post would print such a piece.

Of course, as every budget expert knows, the real problem with the long-term budget is the projection of exploding health care costs. If the country's per person health care costs were the same as those in other wealthy countries then we would be looking at huge surpluses in the long-term, not deficits.

 
We Need 90,000 Jobs Per Month to Keep Pace With the Growth of the Population Print
Saturday, 09 July 2011 05:54

In an article on the June employment report the NYT told readers that the economy needs 150,000 jobs per month to keep pace with the growth in the population. Actually, the Congressional Budget Office projects that the underlying rate of labor force growth is now just 0.7 percent annually. This comes to roughly 1,050,000 a year or just under 90,000 a month.

This is fortunate since the economy has created less than 1.8 million jobs in the 16 months since it first began adding jobs again in February of 2010. If we needed to create 150,000 jobs a month then we would have needed 2.4 million jobs to keep even with the growth of the labor force, so we would be considerable further behind where we were in February 2010. As it stands, we are roughly treading water with job growth that has been pretty much even with the growth of the population over this period.

 
Charles Krauthhammer Doesn't Know That There Was No Deficit Commission Report Print
Friday, 08 July 2011 05:52

This one should be simple enough even for a Washington Post columnist, but apparently not. Krauthammer is apparently referring to the report of the deficit commission's co-chairs, Erskine Bowles and Alan Simpson. The report did not get the necessary majority to be approved by the commission and there was not even a vote taken by the deadline.

Of course Krauthammer also apparently missed the collapse of the housing bubble and resulting economic collapse, since he blames President Obama for the deficit. He obviously is not a very observant person. He also thinks that a comment by Congressional Budget Office (CBO) director Doug Elmensdorf that CBO does not score speeches is "devastating." The point that Mr. Elemensdorf was making apparently went over Krauthammer's head.

It takes time and effort for CBO to score something. When a fully worked out proposal is in place and laid out they can score it. They cannot score every new twist and turn in policy debates. It is not clear why this obvious truth would be seen as "devastating."

 
Contrary to What the NYT Asserts, Not All Economists Believe that Pension Funds Assume Too High a Rate of Return Print
Friday, 08 July 2011 05:30

The NYT, which has repeatedly printed news stories implying that public pensions are hugely underfunded, wrongly implied that economists all agree that public pensions have overly optimistic return assumptions for their pension funds. This is not true. In fact, most pensions are now making assumptions that are completely consistent with the expected return on their assets based on widely accepted projections for the growth of the economy and the growth of profits.

In fact, it is almost impossible to produce a plausible set of returns (capital gains and dividend payouts) that is consistent with a substantially lower rate of return than what the pension funds are assuming. If the economists who claim that the pension funds are assuming too high a rate of return believed what they say, then they should be able to write out return projections that would support this contention in just a few minutes. Given the trillions of dollars at stake in this debate, laying out a set of return projections would seem to be a reasonable price for being taken seriously.

This argument is explained more fully in a 2005 Brookings Paper that I co-authored with Paul Krugman and Brad DeLong.

 
How Does the NYT Know What Senator Coburn "Believes" About Measures of Inflation? Print
Friday, 08 July 2011 05:14

That's what millions of NYT readers are asking after they saw the assertion:

"Republicans are concerned about the growth of entitlement programs, including Social Security and Medicare. Some, like Senator Tom Coburn of Oklahoma, support the idea of an alternative measure of inflation, known as the chain-weighted version of the Consumer Price Index, because they believe it is more accurate."

It is certainly possible that Senator Coburn and others supporting a lower cost of living adjustment actually believe that the alternative inflation index is more accurate, however it is also possible that they just want to cut benefits and couldn't care less whether the alternative index is more accurate or not. The NYT made a very strong assertion by saying these politicians are motivated by their beliefs about price indexes. It presents zero evidence to support this assertion. 

 
The Costs of Copyright Protection Print
Friday, 08 July 2011 05:04

Will the NYT ever include any economic analysis of the costs imposed on the economy by copyright enforcement? As a result of this form of protectionism, books, music, video material, computer software and other items that would otherwise be instantly available at zero cost, instead can cost consumers large amounts of money. This dwarfs the economics costs that result from most forms of trade protection, which rarely raises the price of items by more than 10-20 percent. 

This article on efforts by Internet providers to crack down on unauthorized duplication of copyrighted material would have benefited from some economic analysis.

 
Bill Clinton and Mrs. O'Leary Print
Friday, 08 July 2011 04:37

According to legend, the Great Chicago Fire of 1871 was started when Mrs. O'Leary's cow knocked over a latern in her barn setting it on fire. While Mrs. O'Leary certainly didn't set the fire on purpose, she is probably not the person we would consult on fire control. In the same vein, it is reasonable to ask why anyone would consult Bill Clinton about the country's current economic problems.

While the economy performed well during the second half of the Clinton administration, it was building up the imbalances that laid the basis for the current crisis. The late 90s growth was driven by a stock bubble which led a consumption boom. When the bubble burst, the economy went into a prolonged downturn. It did not create any jobs from March of 2001 to September of 2003. The jobs lost in the downturn were not gained back until the beginning of 2005, at the time the longest period without job growth since the Great Depression.

Furthermore, when the economy finally did begin creating jobs it was driven by the housing bubble. While the bubble itself cannot be blamed on the Clinton administration, it is responsible for the imbalances that laid its basis. Robert Rubin, Clinton's treasury secretary, consciously pursued a high dollar policy. He used the U.S. control over the IMF to bring it about.

A high dollar makes U.S. goods less competitive in world markets. If the dollar rises by 20 percent it has roughly the same impact as putting a 20 percent tariff on all our exports and giving a 20 percent subsidy on all our imports. This sort of increase in the value of the dollar has way more impact on trade flow than any trade agreement possibly could.

Rubin's high dollar policy meant that the U.S. would run a large trade deficit. If the country has a trade deficit, then it absolutely must have negative national savings. (This is an accounting identity, it has to be true.) Negative national savings means that we must have either large government budget deficits or very low private savings, as was the case at the peak of the housing bubble, when the savings rate hit zero.

It is likely that President Clinton does not understand this basic economics. He recently lectured the public on how to create manufacturing jobs through trade, apparently not realizing the country was losing manufacturing jobs due to the soaring trade deficit during the last three years of his administration. This means that he may not know that he is giving bad advice, but that still doesn't mean that there is any reason for the media to want to seek it out.

 
Cheap Tricks on Social Security Print
Friday, 08 July 2011 04:08

The business-backed group Third Way has been making a big point of going after Social Security lately. Today it had a column telling us that Social Security is in crisis, even though the most recent projections from the Social Security trustees show that the program can pay full scheduled benefits with no changes whatsoever for a quarter century. Even after that point, the program would always be able to pay a higher benefit than what current retirees receive.

Third Way's crisis argument hinges on the fact that the program is paying out more in benefits than it collects in taxes. In other words, it is relying on interest from the $2.6 trillion trust fund that it has built up over the last quarter century. To term this a crisis would be like saying that Bill Gates had a crisis because he dipped into his $50 billion in assets to build some new play houses for his kids. The trust fund was built up for the explicit purpose of supporting the program. It makes no sense to say that using it is a crisis.

It is also worth noting that even if we waited until 2036 and the program actually faced a shortfall, the amount of additional revenue needed to sustain the program's full benefits past this shortfall would be trivial compared to costs like the increase in military spending associated with the wars in Afghanistan and Iraq. 

Third Way also is being somewhat deceptive in describing its proposed Social Security cuts as progressive. The cuts would hurt all beneficiaries, although the largest cuts would be for people like nurses and firefighters who might have averaged $60,000 to $70,000 in wages over their working lifetime.

While these cuts might technically be progressive for the program (they will reduce Bill Gates benefits by a larger proportion than the benefits of minimum wage worker), they will certainly have a larger impact on the living standards of low and middle income retirees than wealthy retirees. (They will reduce the retirement income of a low wage worker by a far larger proportion than the retirement income of Bill Gates.)

The focus of the cuts on middle income workers is progressive in the same way that a tax increase of 5 percentage points on workers earning less than $30,000 and 10 percent on income over $30,000 (and capped at $250,000) can be called progressive. On average, higher income workers would be seeing a bigger tax increase than lower income workers, but the people hit hardest do not fit anyone's definition of wealthy.

 
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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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