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Good Piece On Perry and the Texas Economic Miracle Print
Monday, 15 August 2011 13:34
The NYT did a nice job outlining the issues in an assessment of the economic performance of Texas under Governor Perry. The piece is not an exhaustive (no short news story could be), but it touched the main points at issue.
Fun With Robert Samuelson Print
Monday, 15 August 2011 05:00

It's always fun to read Robert Samuelson's column on Monday morning to see what silliness he is pushing to justify cuts to Social Security and Medicare. Today he has his plan for balancing the budget over the next decade (the country's most important problem for people who never heard about unemployment).

As part of his argument for cutting benefits for the elderly Samuelson tells us that, "in 2008, the median net worth of married elderly couples was $385,000." (Actually, if we check his source, it looks like the year is 2007.)

Okay boys and girls, can anyone think of anything that might have affected the net worth of the elderly between 2007 and today? Apparently no one at the Post has noticed anything or they might have suggested that Samuelson try to use more recent data in his column.

Naturally, Samuelson doesn't suggest doing anything about the real cause of his deficit crisis story, exploding private sector health care costs. Nor does he consider any measures that might hurt the Wall Street folks that helped inflate the housing bubble that wrecked the economy. But who would expect more from Samuelson or Fox on 15th Street?

WAPO Should Make Clear, Constraints on Monetary and Fiscal Policy Are Political Print
Monday, 15 August 2011 04:47

A front page Washington Post piece was headlined, "Geithner, Bernanke Have Little in Arsenal to Fight New Crisis." This piece should have made it clear to readers that the obstacles to additional action are political not economic. All the obstacles noted in the piece are political in nature. The one possible exception is the S&P downgrade of U.S. government debt, which does not appear to be an obstacle at all. The markets laughed off this downgrade, sending U.S. bond prices soaring on the first trading day after the announcement.

A better headline for this piece would have been, "Political Obstacles Obstruct Response to Economic Crisis."

NYT Tries to Explain Why Unusually High Levels of Consumption Are Not Even Higher Print
Monday, 15 August 2011 04:20

One of the bizarre statements that is routinely repeated by people who should know better is that consumers are not spending and that is one of the reasons that the recovery has been so weak. The NYT has a piece along these lines this morning. The reason why this argument is bizarre is that consumption is still unusually high, not low.

The saving rate out of disposable income has been averaging just over 5 percent for the last 3 years. This is above the near zero rate at the peak of the housing bubble, but still well below the 8.0 percent average that households averaged for most of the post-war period prior to the growth of the stock bubble in the 90s and the housing bubble in the last decade. (Due to measurement issues, specifically capital gains showing up as income in the national income accounts, the official data likely understate the drop in savings at the peak of the bubbles and the subsequent rise since the crash.)

The predicted result of the ephemeral wealth created by these bubbles would be a surge in consumption, which implies a drop in the saving rate. Now that both bubbles have deflated we should expect the saving rate to return to normal levels or perhaps even somewhat higher as households must make up for the years when they did not save adequately.

This is one of the reasons that competent economists saw these bubbles as so dangerous. Once the economy gets on a specific growth path it is difficult to change courses. Specifically, it is not easy to find a source of demand to replace $600 billion or so in lost consumption coupled with $600 billion in lost bubble-driven construction demand.

Click for Larger Image.


Source: Bureau of Economic Analysis.

Perry's Growth Failure in Texas Print
Sunday, 14 August 2011 20:08

After getting my numbers wrong last time, I thought I would take one more look. Folks love to look at per capita GDP growth as a measure of economic progress. It's certainly not everything, but it does tell you something.

So how does Texas look under Governor Perry compared to his predecessors? Using data from the Bureau of Economic Analysis (I had to chain these two series), I get that in the years 1987-2000 per capita GDP growth averaged 2.2 percent in the U.S. as a whole. In Texas it averaged 2.8 percent, a 0.6 percentage point gap. However, in the years 2000-2010 the gap goes the other way. Per capita GDP in the U.S. as a whole grew at an average rate of 0.6 percent, while it grew at a 0.5 percent rate in Texas, a difference of 0.1 percentage point in favor of the U.S. 

Texas_growth_27052_image002Source: Bureau of Economic Analysis.

What does this say about Governor Perry's success as the steward of the Texas economy? It doesn't tell us much. There are all sorts of reasons that Texas's per capita GDP growth might have slowed relative to the rest of the country that have nothing to do with the effectiveness of Perry's policies. However, if we are looking for quick comparisons, per capita GDP growth is a common one, and it goes the wrong way for the Perry economic miracle story. 

The Post Gets It Right on the Debt Downgrade and the Stock Market Print
Sunday, 14 August 2011 16:35
The Post featured an Outlook piece by Liaquat Ahmat that made the obvious point that Standard and Poor's downgrade could not plausibly be blamed for the stock market plunge. The downgrade most immediately was an assessment of the creditworthiness of U.S. government bonds. These soared in price. The most obvious basis for the plunge in stock prices was the fear of the break-up of the euro and a financial freeze-up of the type that followed the bankruptcy of Lehman in the fall of 2008.
Republicans Say That Tax Increases are "Job Killers," the WAPO Doesn't Know What They Believe Print
Sunday, 14 August 2011 16:28

More journalism 101 for the Washington Post. It told readers in a front page story that tax increases on the wealthy

"are considered 'job-killing' and off-limits by many Republicans."

Of course Republicans call tax increases job killers, but politicians often say things that they do not believe to be true. Many members of Congress are old enough to remember the 90s when the economy created 3 million jobs a year even though the higher Clinton era tax rates were in effect.

The Post should restrain itself to telling readers what politicians say and do; it does not know what they actually think.

Germany Uses Work Sharing Print
Sunday, 14 August 2011 07:48

Roger Cohen has an interesting column touting the performance of Germany compared to the United States in the years since the onset of the crisis. He concludes by suggesting that Germany can save the United States with its ideas as to how to manage an economy and society.

While Cohen mentions several important differences between the United States and Germany, remarkably he did not mention Germany's work sharing system. Even though growth in Germany and the United States has been comparable since the beginning of the downturn, Germany has actually seen a decline in its unemployment rate of more than half a percentage point from the pre-recession level.

This is due to the fact that Germany encourages firms to reduce work hours rather than lay people off. In a standard arrangement, workers may put in 20 percent fewer hours and end up taking home 4 percent less pay. Most of the difference comes from a government unemployment benefit that is converted to a subsidy for short-time work. The company is also expected to make up some of the pay. This system is very popular across the political spectrum in Germany. It has been embraced by the conservative government although it was originally put forward by a Social Democratic minister in the previous unity government.

Did Rick Perry Sink the Texas Economy? (Corrected Version) Print
Saturday, 13 August 2011 13:59

Sorry, folks I made a very bad mistake on this one. (Lesson: always double-check your commands in an Excel spreadsheet.) It turns out that Texas maintained and actually increased the gap between its rate of job growth and the rest of the country during the Perry years.

Over the years from 1987 to 2001, annual job growth in Texas averaged 2.8 percent. This is 0.8 percentage points higher than the growth rate for the economy as a whole. In the ten years since Governor Perry took office job growth has averaged just over 1.0 percent annually, during a period in which employment in the country as a whole actually shrank slightly. This makes the gap in the Perry years just under 1.1 percent. This means that, at least by the measure of job growth, Perry does have something to show in Texas.

(If you're looking for me, I'm the guy wearing a paper bag over his head. Thanks to Sam123 for prompting me to recheck my numbers.)



Source: Bureau of Labor Statistics and author's calculations.

Why Does the NYT Think It's So Cool To Beat Up on Seniors? Print
Friday, 12 August 2011 06:58

The NYT decided to have a special dialogue around a letter to the editor that called on President Obama to take "decisive action" on the economy. Remarkably, only one item on the list of decisive actions, investing in infrastructure, would have any positive impact on jobs and even this would be limited. While investing in infrastructure is a very good idea, there are not very many people who can be usefully employed on infrastructure projects in the next two years.

It takes time to plan a project and many projects, like building high speed rail, are only going to be built over many years. This means that even the most aggressive infrastructure program will only have a limited impact on jobs in the rest of 2011, 2012, and even 2013. If we want to see substantial reductions in unemployment over the next two years we will need more decisive action than this.

The rest of the items in the letter all involve reducing the deficit. While some of the proposals are very reasonable, like ending the war in Afghanistan and raising taxes on the wealthy, these will certainly not help create jobs. The list also contains two profoundly silly proposals, means-testing Social Security and raising the age of Medicare eligibility to 67.

The idea of cutting Social Security is especially off-base since the latest projections from the Congressional Budget Office show that the program is fully funded through the year 2038 with no changes whatsoever. Even after this date, the program would always be able to pay more than 80 percent of scheduled benefits. Given the overall health of the program, proposals for cuts are effectively taking away benefits that people have already paid for. 

In addition to the fact that such cuts would be unnecessary and arguably unfair it also is worth noting that means-testing is an especially bad way to make cuts. While investment banker Peter Peterson likes to go around the country boasting that he doesn't need his Social Security, the reality is that there are very few rich elderly people like Mr. Peterson. In order to have any noticeable impact on the program's finances, a means-test would have to hit very middle income people -- people with incomes in the neighborhood of $40,000 a year.

Even then the impact would be very limited. To have a major impact on the program's expenses it would probably be necessary to move the means-test down to people with incomes around $30,000 a year. This would not fit most people's definition of rich.

The proposal to raise the age of Medicare eligibility is also incredibly misguided. It is extremely expensive for seniors to get health care insurance. Many workers struggle to stay on jobs until age 65 when they can first qualify for Medicare. This proposal would push the bar out two years. Those who lose their jobs or can't find jobs will generally not be able to afford insurance, which could easily exceed $20,000 a year for those with even minor pre-existing conditions.

Rather than looking to reduce benefits the more obvious way to go with Medicare is to reduce the cost of care. The United States pays more than twice as much per person for its health care as the average for other wealthy countries. If we could get our costs down to those of other countries we would be facing huge long-run budget surpluses, not deficits. One way to get lower costs would be to allow Medicare beneficiaries to buy into the more efficient health care systems in other countries. The enormous potential savings could be split between the government and the beneficiary.

It is perverse that the NYT thinks it is reasonable to have major cuts to programs that affect retirees or near retirees. These people were especially hard hit by the collapse of the housing bubble. Many of them saw most of their life's savings disappear as their house price plummeted. Insofar as we need revenue (which we clearly do not now), the most obvious place would be to tax the people who profited most from the bubble, the Wall Street crew.

A tax on financial speculation could easily raise more than $100 billion a year. Congress could also instruct the Federal Reserve Board to hold onto the $3 trillion in assets that it has acquired as part of its quantitative easing program. This could save the government more than $100 billion a year in interest payments later in the decade. In short, it is not difficult to find money for people who are not afraid of going after the rich and powerful.

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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.