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Is Peter Peterson a Major Driver of the Country's Debt? Print
Tuesday, 12 July 2011 07:17

Let's imagine that Wall Street investment banker and long-time Social Security foe Peter Peterson had $1 billion in government bonds (also known as "IOUs"). Suppose that he decided to sell them. According to Glenn Kessler, the Washington Post's fact checker, this would create a burden for the U.S. government.

This sale of bonds would displace other bonds that the United States might want to sell in the financial market. This would lead to higher interest rates on U.S. debt. Therefore Mr. Peterson is contributing to our deficit problem.

That may seem more than a little silly to readers, which it is. Yet, this is the same way in which Kessler says that Social Security will be creating a fiscal burden. The program has bought $2.6 trillion in government bonds which are part of the $14.3 trillion debt subject to the debt ceiling. It will be relying on the interest from these bonds to pay for some benefits for the next decade, just as Mr. Peterson may use interest from government bonds that he holds to pay for his living expenses or funding his anti-Social Security agenda.

After 2022 the program will begin selling off its bonds. This will have the same effect on the market as if Mr. Peterson were selling his bonds. In Peterson's case he will directly sell his bond into the market, in the case of the Social Security program it will sell a bond to the government which will have to get the money by selling a new bond in the market (unless it raised taxes or cut spending to cover the price of the bonds).

Kessler also gets wrong the baseline for the projected longer-term shortfall for Social Security. After 2036 the program is projected to only have enough money to pay a bit less than 80 percent of scheduled benefits. However, if the law is never changed, then the program would only pay the benefits that could be financed through incoming Social Security tax revenue. The general fund would not be tapped to cover the shortfall.

Of course Congress could change the law, but budget debates usually start from the law as written, not as some individual might imagine it will be changed in the future. In this sense, it is 100 percent accurate to say that Social Security does not now nor will it in the future contribute to the deficit. Congress could change the law so at some point it does contribute to the deficit, but that is just a guessing game, not the current reality.

David Brooks Says All We Can Do Is Sit Back and Throw People Off Medicare Print
Tuesday, 12 July 2011 04:10

David Brooks is such a moderate guy. He doesn't have the hubris of people who think that we can control risk, boost growth and employment, or never raise taxes. He just thinks that we have to reduce Social Security and Medicare.

And Speaker Boehner and President Obama apparently agree with him. They were reportedly prepared to raise the age of eligibility for Medicare from age 65 to age 67. Unfortunately, the people who think that we can never raise taxes and the people who support Medicare and Social Security obstructed this deal. David Brooks thinks this is a real tragedy.

Of course people who have the hubris to know arithmetic were probably less upset about not seeing this deal go through. It is extremely expensive for people in their 60s to get health care insurance.

Many struggle through their early and mid-60s, just hanging on until they reach age 65 and have the government pick up most of their health care costs through Medicare. Insurance for someone in their 60s with any moderately serious medical condition can easily be $20,000 or $30,000 a year.

People who have the hubris to know arithmetic also know that the real problem is the broken health care system in the United States. If the United States had the same per person health care costs as any other wealthy country, then we would be facing huge budget surpluses, not deficits.

If policy was not controlled by protectionists like David Brooks, then we would just allow seniors to buy into other countries' health care systems and allow them to split the savings with the government. This would be a huge win-win for all involved except the U.S. health care industry. Because of its power, this sort of trade is never debated publicly and people like Brooks are scared to even mention it.

People who have the hubris to know arithmetic would also point out to Brooks that the "huge" stimulus did not fail because they knew from the onset that it was nowhere near large enough. The annual stimulus was around $300 billion in each of 2009 and 2010. The loss in annual demand from the collapse of the housing bubble was around $1.4 trillion. Followers of arithmetic know that $1.4 trillion is considerably larger than $300 billion, therefore they did not expect the stimulus to be anywhere near sufficient to boost the economy back to full employment.

Douthat Is Hiding the Military Budget Print
Monday, 11 July 2011 07:19

Ross Douthat did a little pundit sleight of hand when he told readers that:

"For decades, the tug-of-war between left and right has kept government’s share of the economy nearly constant, around 19 percent of G.D.P. But in what you might call the revenge of Lyndon Johnson, the ballooning cost of Medicare is poised to tilt the debate decisively toward liberalism."

Douthat has to assign a very loose meaning to "around." In fact, the Reagan military build-up caused spending to hit 23 percent in the mid 80s. It then fell back to 18 percent under President Clinton due to the peace dividend and cutbacks in various categories of domestic spending, including public investment.


The run up in the last four years is of course response to the downturn created by the collapse of the housing bubble.

The chart points out that swings in military spending have been a big factor raising spending. If spending fell from its current level (@4.6 percent of GDP) to the 3.0 percent level at the end of the Clinton years, this would free up considerable money for other purposes or lower spending.

It is also worth noting that the major factor driving up Medicare costs is the broken health care system. If people in the United States paid the same amount per person for health care as people living in other wealthy countries we would have surpluses, not deficits in the long-term. It's not clear that giving huge excess payments to health care providers is an especially liberal position.

[Thanks to Adam Jones for catching this one.]

Robert Samuelson Covers Up for the Health Care Industry Print
Monday, 11 July 2011 07:10

Robert Samuelson did one of the great pox on both your houses pieces at which the Post excels. He criticized the right, as personified by Grover Norquist, for being unwilling to raise taxes. Then he trashed my friends at the Center on Budget and Policy Priorities for refusing to produce a balanced budget, which he argues would have to show large cuts in Social Security and Medicare.

Those of us who don't work for the Post, and therefore are free to speak honestly about the deficit, know that the whole long-term deficit problem is the story of the broken U.S. health care system. If the United States paid the same amount per person for its health care as people in any other wealthy country we would be looking at long-term budget surpluses, not deficits.

Of course the short-term deficit story is about the downturn caused by the collapse of the housing bubble, which the Post apparently still has not noticed.

WAPO Talks About Social Security "Changes" Print
Monday, 11 July 2011 05:06

Usually it is the politicians who use euphemisms to try to conceal the impact of their policies. However, the Washington Post decided to help them along in a front page article when it twice referred to Social Security "changes" that could be part of the budget agreement.

Of course "changes" don't reduce the deficit unless they are cuts. President Obama and the congressional leadership were discussing plans to cut Social Security. These cuts are likely to be very unpopular, so it is likely that they would rather have the public not realize that they were debating cuts to Social Security.

Since the Post's editorial position also supports cuts to Social Security, the paper apparently decided to help the politicians along in this effort. This is why the Post is known as Fox on 15th Street.

Interestingly, the Post never once referred to tax "changes," rather than increases. It even allowed Don Stewart, Senate Minority Leader Mitch McConnell’s deputy chief of staff for communications, to refer to "massive tax increases," without pointing out that none [thanks Jim A.] of the tax increases put forward by President Obama would raise taxes above their late 90s level when the economy was adding 3 million jobs a year.

Washington Post reporters have the time to look up tax increases and assess their importance. Washington Post readers do not.

There Was No Deficit Commission Report, Why Do Post Columnists Feel the Need to Lie About This? Print
Sunday, 10 July 2011 13:50

I know we are not supposed to say "lie" in Washington, but this is really getting tiresome. There was no report from President Obama's deficit commission. The rules under which the commission could issue a report were very clear. It had to have the support of 14 of the 18 members in a vote that took place by December 1, 2010. There was no vote taken by that date, although 12 of the 18 members did indicate their support for a report produced by the commission co-chairs, Erskine Bowles and Alan Simpson, on December 2.

This means that there was no commission report. Therefore, when Dan Balz tells Washington Post readers about the recommendations of the deficit commission, he either has no clue what he is talking about or he is deliberately deceiving Washington Post readers. If he wants to be honest, he is welcome to refer to it as a report of the co-chairs and to even point out that the report had support of 12 of the 18 commissioners, but it is simply not accurate to describe it as a report of the commission.

Btw, the headline of the piece describes the failure to reach agreement on a big deficit reduction package as a "lost opportunity." Those reading through the piece would find that one element of this lost opportunity is the failure to raise the age of eligibility for Medicare. Wow, just think, if only Speaker Boehner and President Obama could have gotten their act together people aged 65 and 66 could now be paying for their own health care. We're all really going to regret this lost opportunity.

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.

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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.