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'Choosing' to Work Part-Time Print
Written by Milla Sanes   
Friday, 21 December 2012 13:00

As we noted in an earlier post, the overall rate of part-time employment has not moved much over the past four decades. Another thing that has remained fairly constant over this time is that women work part-time at nearly double the rate of men.

womenpt-a-new

As the figure below demonstrates, the main reason for higher part-time rates among women is that they “choose” part-time jobs for what the Bureau of Labor Statistics calls "noneconomic" reasons. When it comes to those who involuntarily work part-time, men and women are at increasingly identical rates.

womenpt-b-new

This "voluntary" difference between women and men in part-time jobs stems mostly from gender inequality in the home, rather than the workplace. Even as women’s standing in the workforce has improved over the years, women continue to hold part-time jobs at a nearly constant rate. Women "choose" part-time jobs primarily because they are more compatible with their outsized unpaid work responsibilities including household work and childcare. When asked why they work part time, women answer “Child care problems” at more than seven times the rate that men do, and are almost four times more likely than men to cite “Other family/personal obligations.” In fact, of the people who usually work part-time and answered “Child care problems” as their reason why, 94.6 percent were women.

womenpt-c-new

At least with respect to this aspect of workplace inequality – and almost certainly with respect to others as well – further progress for women depends on reducing the long-standing gender disparities in housework, child-care, and other forms of care work.

This post corrects an earlier version that contained data errors in the first two graphs.

 
A Message from Dean, Mark and CEPR Staff Print
Written by Dawn Lobell   
Thursday, 20 December 2012 15:00

Dear Friend of CEPR,

It’s that time of year, the time when we ask all of our friends to support CEPR with a year-end donation. Thanks to all of you who have supported us throughout the years. We really do rely on your gifts to help fund our research, analysis, outreach, publications – everything we do.

When you donate to CEPR, you can be assured that your gift will be used wisely. Whether it’s calling for the UN to take responsibility for bringing cholera to Haiti or calling out the elites who use “fiscal cliff” scare stories to hide their true agenda, CEPR is there, out in front, providing fact-based research and well-reasoned analysis and pushing back on the mainstream media spin.

You can also be assured that your gift will be used effectively. This year we are especially proud to have once again been the most cost-effective think tank. CEPR ranked first in media hits per budget dollar of all major think tanks in 2011, based on an analysis of Fairness and Accuracy in Reporting’s 2011 think tank media citation rankings and organizational budgets.  CEPR also ranked first in web traffic per budget dollar in 2011, getting more than twice the number of hits as its closest competitor.

With the support of people like you, we have been, as The Guardian put it, “a professional thorn in the side of orthodoxy” for the past dozen years. Your gift will help us to continue to speak and write the economic truth for many more years to come. And we’ll do it more efficiently, too.

Best wishes for a healthy holiday season, and a very happy new year,

Mark, Dean and CEPR Staff (and dogs)

Olive with scarf

 
Nick Kristof Needs to Stop Spouting (and Tweeting) Shoddy Statistics About Young People with Severe Disabilities Print
Written by Shawn Fremstad   
Thursday, 20 December 2012 12:15

I wrote last week about Nick Kristof's irresponsible call to cut Supplemental Security Income for severely disabled children. Since then Kristof has received an outpouring of criticism for the numerous errors of fact he made in the story as well as his oddly timed embrace of the Romney 2012 campaign's "anti-entitlement strategy." On the fact-checking front, notable responses include ones by Community Legal Services in Philadelphia, Kathy Ruffing and LaDonna Pavetti of CBPP, and University of Chicago prof and health policy expert Harold Pollack.

Since then Kristof has only doubled down, although limiting himself to the 140 characters allowed by Twitter, including by pompously citing —in Chinese of course!—one of Chairman Mao's maxims ("实 事求是" or seek truth from facts") and reiterating some shoddy statistics included in his initial article: "But when 8% of poor kids get SSI & 2/3 then graduate immediately to adult disability, you're perpetuating poverty."

Let's do some 实事求是'ing of own on this last claim:

"8% of poor kids get SSI":  No, it's half that—less than 3.9% of low-income kids receive SSI. Kristof got 8% from a truth seeker affiliated with AEI who manufactured it by dividing the number of children receiving SSI (1.28 million in 2011)  by the number of children living below the federal poverty line (16.1 million in 2011). This would be fine if SSI were limited to kids with incomes below the federal poverty line, but it's not. In fact, about half or more of the children receiving SSI have incomes above the federal poverty line, mostly between 100-200% of the poverty line. So, an accurate SSI participation statistic would use the number of low-income kids below 200% of the poverty line (32.7 million in 2011). Dividing the 1.28 million kids receiving SSI by the 32.7 million kids under 200 percent of poverty gets us 3.9% not 8%.

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The Chained CPI is a Bad Deal for Kids and Low-Income Working-Age Adults Too Print
Written by Shawn Fremstad   
Wednesday, 19 December 2012 18:04

Criticism of proposals to shift to the Chained CPI have focused almost exclusively on how the switch would harm seniors. But as Alan Barber and Nicole recently noted in a CEPR brief, the switch would also harm people with disabilities, children, and low-income working-age adults in the here and now, not just after they retire. 

This is an issue that deserves vastly more attention than it has received to date, including from anti-poverty advocates and researchers like me. The shift to the Chained CPI would harm low-income children and non-elderly adults because a long list of means-tested benefits currently use a non-chained CPI, typically the CPI-U, to adjust eligibility standards and/or benefits amounts. For example, as the Congressional Research Service (CRS) detailed in a report last year, in addition to Social Security, the following major federal benefit benefit programs include inflation-indexing elements that rely on the non-chained CPI-U or CPI-W:

—Medicaid;

—Supplemental Security Income (providing supplemental income for severely disabled children and adults);

—the Earned Income Tax Credit;

—the Child Tax Credit (refundable portion for low-income workers with children);

—the Supplemental Nutritional Assistance Program (SNAP or food stamps);

—Child Nutrition Programs, including school meals.

Moreover, a much longer list of programs big and small for low-income kids, working-age adults, and people with disabilities—more than 50 programs according to CRS—have income eligibility standards, benefits, or other elements that are tied to the federal poverty income guidelines published by HHS each year. As you may have guessed by now, these guidelines are currently indexed annual based on the non-chained CPI-U. 

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Thoughts on the Chained CPI, Social Security, and the Budget Print
Written by Dean Baker   
Monday, 17 December 2012 21:43

According to reliable sources, the Obama administration is seriously contemplating a deal under which the annual cost of living adjustment for Social Security benefits would be indexed to the chained consumer price index rather than the CPI for wage and clerical workers (CPI-W) to which it is now indexed. This will lead to a reduction in benefits of approximately 0.3 percentage points annually. This loss would be cumulative through time so that after 10 years the cut would be roughly 3 percent, after 20 years 6 percent, and after 30 years 9 percent. If a typical senior collects benefits for twenty years, then the average reduction in benefits will be roughly 3 percent.  

There are a few quick points worth addressing:

  1. The claim that the chained CPI provides a more accurate measure of the cost of living;
  2. Whether Social Security benefits are now and will in the future be sufficient to allow for a decent standard of living for retirees; and
  3. Whether this is a reasonable way to be dealing with concerns over the budget.

This are taken in turn below.

Is the Chained CPI More Accurate?

While many policy types and pundits have claimed that the chained CPI would provide a more accurate measure of the cost of living for seniors, they have no basis for this claim. The chained CPI is ostensibly more accurate for the population as whole because it picks up the effect of consumer substitution as people change from consuming goods that increase rapidly in price to goods with less rapid price increases.

While this is a reasonable way to construct a price index, it may not be reasonable to apply the consumption patterns and the substitution patterns among the population as a whole to the elderly. The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index (CPI-E) which reflects the consumption patterns of people over age 62. This index has shown a rate of inflation that averages 0.2-0.3 percentage points higher than the CPI-W.

The main reason for the higher rate of inflation is that the elderly devote a larger share of their income to health care, which has generally risen more rapidly in price than other items. It is also likely that the elderly are less able to substitute between goods, both due to the nature of the items they consume and their limited mobility, so the substitutions assumed in the chained CPI might be especially inappropriate for the elderly population.

While the CPI-E is just an experimental index, if the concern is really accuracy, then the logical route to go would be for the BLS to construct a full elderly CPI. While this would involve some expense, we will be indexing more than $10 trillion in Social Security benefits over the next decade. It makes sense to try to get the indexation formula right.

Read more...

 

 
Labor Market Policy Research Reports, December 8 – 14, 2012 Print
Written by Mark Azic   
Friday, 14 December 2012 16:00

Here’s a roundup of labor market research reports released over the past week:


Center for American Progress

Michigan ‘Right-to-Work’ Bill Is the Wrong Economics for the Middle Class
Adam Hersh, Heather Boushey and David Madland


Center for Economic Policy and Research

The Chained CPI: A Painful Cut in Social Security Benefits and a Stealth Tax Hike
Alan Barber and Nicole Woo


Economic Policy Institute

New Louisiana Retirement Plan is Bad for Workers and Taxpayers
Monique Morrissey

 
Real Poverty Really Did Rise During Recent Recession Print
Written by Shawn Fremstad   
Thursday, 13 December 2012 11:00

Casey Mulligan digs himself in deeper with a follow-up post on his argument that: 1) the expansion of social insurance programs in response to the recession was a big problem because it "erased" unemployed American’s incentives to work; and 2) the best evidence of this is that the individual poverty rate, when measured using one of several experimental poverty measures, rather than the official measure, did not rise between 2007 and 2011.

There are just a few teensy problems with his argument. I’ll focus here on his assumption that poverty did not rise. The chart below tracks the poverty, using the official and two experimental measures, from 2005 to 2011 for people 18-64. I focus on working-age adults because they are the group that seems most relevant when it comes to incentives to work. 

The chart shows that poverty really did increase between 2007 and 2011 for working-age adults. The darker olive green line (second from top) is the poverty rate using the experimental measure Mulligan points to in support of his argument—as you can see, it’s higher in 2011 than in 2007.

off-exp-poverty-rates-measures-2012-12

Similarly, the top-most green line uses another experimental poverty measure, one that includes what I think is a slightly better treatment of health care needs. This measure also shows an increase in poverty.

So, if work incentives are what you care about and you like these experimental measures, poverty, for the relevant age group, increased between 2005-2011.

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Nicholas Kristof Bravely Urges Congress to Cut Supplemental Security for Children with Severe Disabilities Print
Written by Shawn Fremstad   
Monday, 10 December 2012 11:45

In Sunday’s New York Times, Nicholas Kristof tells us that he hopes “budget negotiations in Washington may offer us a chance to take money from SSI [Supplemental Security for low-income children with severe disabilities] and invest it in early childhood initiatives.” In essence, we need destroy an effective social insurance program for children with severe disabilities in order to … Save the Children!

In the real world, these two things — basic economic supports for low-income parents caring for severely disabled children and educational initiatives — are complementary. As Rebecca Vallas and I have documented, in papers for the National Academy of Social Insurance and the Center for American Progress, the data show that Supplemental Security reduces family economic insecurity and supports parents’ efforts to best care for their severely disabled children.

But in Kristof’s World, which based on his opinion piece, appears to be located in the small, all-white and staunchly Red-voter Breathitt County in rural Kentucky, economic support for parents caring for disabled children and early childhood programs only work at cross purposes. Citing anecdotal evidence from a sample of one person living there as well as the testimony of a long-standing critic of Supplemental Security who has proposed block granting it, Kristof sensationally claims that parents are “profiting from children’s illiteracy” and pulling their kids out of literacy classes in order to keep them disabled and eligible for Supplemental Security.

Of course, there is a venerable traditional of mainstream journalists spreading folkloric urban (and now rural) myths about Supplemental Security. The cycle is well-established—first, mainstream journalists claim that parents are “coaching their children” to appear disabled (prominent in the 1990s) or that parents are medicating their children to make them seem disabled (the most recent scare pre-Kristof), then investigators at GAO, SSA, and other places study the issue empirically rather than just relying on a few anecdotal tales and find that the claims are unfounded. So, for example, with the most recent medication scare, GAO found that children who took medication were actually less likely to qualify for SSI than those who did not. Meanwhile, resources and attention are diverted from focusing on the real-world ways we could make programs like Supplemental Security even more effective for disabled kids and their parents. And so it goes.

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The Nonsense About a Demographic Crisis Print
Written by Dean Baker   
Saturday, 08 December 2012 23:45

One of themes that recurs endlessly in news coverage is that the United States and other countries face a disastrous threat to their living standards as a result of a falling ratio of workers to retirees. This is one that can be easily dismissed with some simple arithmetic.

A falling ratio of workers to retirees means that a larger chunk of what each worker produces must be put aside to a support the retired population. (Btw, this is true regardless of whether or not we have a Social Security or Medicare system. The only issue is whether retirees are able to maintain something resembling normal living standards.) However, that does not imply that the working population must see a drop in their living standards.

Fans of arithmetic might note that the ratio of workers to retirees fell from 5 to 1 in the early sixties to 3 to 1 in the early 90s. This sharp drop in the ratio of workers to retirees did not prevent both workers and retirees from enjoying substantial improvements in living standards over this period. The reason is that productivity growth, what each workers produces in an hour of work, swamped the impact of a falling ratio of workers to retirees.

That will also be the case as the ratio of workers to retirees falls from the current 3 to 1 to a bit under 2 to 1 over the next 23 years under any plausible assumption about productivity growth. The chart below compares the impact of the decline in the ratio of workers to retirees in reducing the living standards with the impact of productivity growth in raising living standards, assuming that the average retiree consumes 85 percent as much as the average worker.

living-standards-2012-2035

Source: Author's calculations.

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Labor Market Policy Research Reports, December 1 – 7, 2012 Print
Written by Mark Azic   
Friday, 07 December 2012 16:11

Here’s a roundup of labor market research reports released over the past week:


Employment Policy Institute

Employer-Sponsored Health Insurance Coverage Continues to Decline in a New Decade
Elise Gould

Green ‘Sequester’ is Already Costing U.S. Jobs
Josh Bivens


Employment Policy Research Network

How Youth Are Put at Risk by Parents’ Low-Wage Jobs
Lisa Dodson and Randy Albelda

 
Some Politicians Were Not Paying Attention in Class Print
Written by Dawn Lobell   
Friday, 07 December 2012 13:56

This holiday season, CEPR decided that the best gift we could give would be to offer a free Econ 101 class to all those in need. And since there are so many in need, we had a hard time deciding where to begin.

Alan Simpson in class


We decided to start with the deficit hawks, that group of powerful elites who have continuously misled the public, the press and the policymakers on the true nature of U.S. debt (while also convincing millions of Americans that Social Security is the cause of large deficits and therefore needs to be cut).

With your help, we can teach the likes of Alan Simpson, Erskine Bowles, Peter Peterson, and the rest of the class of 2013 these basic economic concepts:

       And, last but not least:

Your donation will help us to continue to push back against the misinformation and spin that make up most of the media coverage of these and a host of other economic issues. Click here to help support CEPR’s research, analysis, media and outreach.

And most importantly, our educational programs. This holiday season, help us send them back to school.

Thanks for your support,
Dean, Mark and CEPR Staff

 
Unemployment Falls, But Slow Job Growth Mixed With Deficit Reduction Could Make for an Even Slower Recovery Print
Written by CEPR   
Friday, 07 December 2012 12:45

The unemployment rate fell to 7.7 percent in November, its lowest level since December of 2008. However, the immediate cause was a drop of 350,000 in the size of the labor market as reported employment actually fell by 122,000, according to the Bureau of Labor Statistics' latest employment report. The establishment survey reported job growth of 146,000, but with growth in the prior two months revised downward by 49,000, this brings the average over the last three months to 139,000. This means the economy is creating jobs at a rate that is a bit faster than what is needed to keep pace with the growth of the labor market.

Retail was the biggest job gainer in November, adding 53,000 jobs in November, 33,000 of which were in clothing. After showing little change for the prior three years, the retail sector has added 140,000 jobs over the last three months, with clothing being responsible for almost half (68,000) of these jobs. Some of these gains are almost certainly the result of changing seasonal patterns with retailers pulling forward holiday hiring. That suggests weaker growth going forward. The November jobs report show pretty much the same picture as what we have been seeing over the last six months: At the current pace, we would not see the economy returning to full employment for another decade, perhaps longer if there were to be severe deficit reduction as a result of the current negotiations between President Obama and Congress.

For a more in-depth analysis, check out the latest Jobs Byte.

 
Santorum’s Three Things to Avoid Poverty: The Very Serious Person’s Version of Makers vs. Takers Print
Written by Shawn Fremstad   
Wednesday, 05 December 2012 16:30

­Ross Douthat writes: “Rick Santorum’s … campaign trail riff about how much people improve their odds of staying out of poverty just by graduating from high school, taking full-time work and (above all) getting married before having kids has pretty solid data behind it.” (Santorum’s specific argument, as he put it in his RNC speech, was that “if you don’t do these three things you’re 38 times more likely to end up in poverty” compared with people who do all three of them.) 

Actually, Santorum’s three-things argument is a gross distortion of economic insecurity in the United States. One designed, much in the same way as the infamous makers vs. takers argument (which Santorum also obliquely referenced in his speech), to divide Americans and blame working-class people for being economically insecure.

Let’s review some of the facts:

  1. The three-things argument implies that most adults living in poverty didn’t bother to graduate from high school. However, if we look at actual data, as I did in this post, it turns out that the vast majority of adults with below-poverty incomes—7 out of every 10—are high school graduates. And more than one out of every three have a college degree or some education beyond high school. One of the more notable things about poverty trends since the 1970s—and something you never hear from Very Serious People—is that poverty has remained high in recent decades despite a large increase in educational attainment. As a result, people living below the poverty line today are better educated than ever —in 1979, only about 4 in 10 had a high school degree.

  2. The three-things argument implies that most parents of children living below the poverty line aren’t married. But, as I recently detailed, about 1 out of every 2 are, um, married. Only 39 percent of parents in poverty have never been married. A related point here: the argument implies that it is marriage before having a child that matters most, but we know from other research that young mothers who marry shotgun style have high divorce rates, and they and their children often end up worse off than young mothers who don't rush to get married. As demographer Andrew Cherlin has argued, the best advice to give young people isn’t “get thee married!”, it’s slow down when it comes to family formation, even if that means not rushing into marriage or remarrying if you’re a single parent.

  3. Because it has never been adjusted for increases in typical living standards, the federal poverty line has “defined deprivation down” over the last several decades. This skews our picture of poverty in a way that plays into makers vs. takers arguments like Santorum’s three things. If we use a contemporary poverty line, one adjusted to equal the same percentage of median income as the original poverty line (about $34,000 for a family of four), the already high share of adults in poverty who have high school diplomas and/or are married increases even more. 

  4. Among the most relevant and pressing poverty risks today is the decline in middle-class jobs. This isn’t just an individual risk, it’s one that affects the health of our entire economy—when workers aren’t compensated adequately to spend enough on the basics, our whole economy suffers. Very Serious People should spend more time worrying about the impact that the decline of labor unions has had on families and less time worrying about marital unions.

  5. Another especially relevant and pressing poverty risk today involves raising children. Married, middle-aged people are not magically protected from this risk. As I’ve shown, among married prime-age adults, those caring for children are 56 percent more likely to be living below $34,000 (the contemporary poverty line), than those not caring for children. There are more impoverished, married parents with children in this age group (5.7 million) than there are people who haven’t done any of Santorum’s three things. So, maybe Very Serious People should spend more time thinking about them.

  6. Finally, Bob Dole’s appearance on the Senate floor yesterday, in an unsuccessful attempt to get more than a handful of conservatives to support the Convention on the Rights of Persons with Disabilities, reminded me of the extent to which Very Serious People here in D.C. don’t take disability into account when talking about poverty. According to Census annual poverty data for 2011, adults with disabilities are more than twice as likely to be impoverished as non-disabled adults. But at a recent Brookings Institute event on the 2011 poverty data, marriage was mentioned seven times, while disability was never mentioned. (For more on the poverty-disability connection, see my 2009 paper).
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Labor Market Policy Research Reports, November 17 – 30, 2012 Print
Written by Mark Azic   
Monday, 03 December 2012 16:00

Here's a roundup of labor market research reports released over the past two weeks:


Center for American Progress

Workers Deserve Equal Access to Paid Leave and Workplace Flexibility
Sarah Jane Glynn and Jane Farrell

Working Parents’ Lack of Access to Paid Leave and Workplace Flexibility
Sarah Jane Glynn

Latinos Least Likely to Have Paid Leave or Workplace Flexibility
Sarah Jane Glynn and Jane Farrell


Center for Economic Policy and Research

More Good Jobs
Shawn Fremstad

Debt, Deficits, and Demographics: Why We Can Afford the Social Contract
Dean Baker


Demos

State Guaranteed Retirement Accounts
Teresa Ghilarducci, Robert Hiltonsmith, Lauren Schmitz

Retail’s Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Overall Economy
Catherine Ruetschlin

Read more...

 

 
Young, Educated and Jobless in America? Print
Written by John Schmitt   
Monday, 03 December 2012 15:15

Today's New York Times has a piece by Steven Erlanger on the "Young, Educated and Jobless in France" that gets most of the facts right, but still might leave its readers with the wrong idea about the real labor-market challenges facing Europe and the United States.

The story focuses on the plight of young, college graduates in France (and several other European countries) who have been unable to find work despite their college degrees and other postsecondary training.

The initial focus is on young people (15-29 year olds) who are unemployed. But, many young people are still in school, which can make interpreting official unemployment rates tricky. (For a discussion of why this is the case, see this article that David Howell and I wrote for The American Prospect back in 2006.)

Erlanger doesn't acknowledge the problems with the unemployment rate when applied to young people, but he does introduce a much better measure of labor-market performance for young people, the NEET:

"[In addition to the unemployed] There is another category: those who are 'not in employment, education or training,' or NEETs, as the Organization for Economic Cooperation and Development calls them."

The idea is that, from a societal point of view, we might be just as happy — even happier — if young people are in postsecondary training, college, or graduate school rather than in work.

The NEET tells us in one number just how many young people are disconnected from both work and school (including training programs). As the NYT notes:

"In Spain ... 23.7 percent of those 15 to 29 have simply given up [on school or work] ... In France, it’s 16.7 percent — nearly two million young people who have given up; in Italy, 20.5 percent."
Read more...

 

 
CEPR News November 2012 Print
Written by Dawn Lobell   
Friday, 30 November 2012 14:05

The following highlights CEPR's latest research, publications, events and much more.

CEPR on the So-called “Fiscal Cliff

CEPR weighed in on the “Fiscal Cliff” debate, reminding everyone that – as CEPR Co-director Dean Baker noted in this Guardian column – “the Fiscal cliff hysteria is manipulated by self-serving deficit hawks”. Dean also debunked the fiscal cliff scare story in this piece in Salon; this one in the Huffington Post; this op-ed in Al Jazeera; this article in Politico; thesethreeposts in the CEPR Blog and several posts, including this one and this one in his own blog, Beat the Press. Here is Dean on the Nightly Business Report debating the fiscal cliff with Douglas Holtz-Eakin, and he also set the record straight on CNBC’s The Kudlow Report…twice.

In this op-ed for the McClatchy News service that appeared in Newsday, the Providence Journal and several other newspapers across the country, CEPR Co-director Mark Weisbrot reminds everyone that employment, not deficit reduction, should be top priority for the government. CEPR Domestic Communications Director Alan Barber answered no to the question “Is Going Over the 'Fiscal Cliff' Necessarily the Worst Outcome?” for U.S. News and World Report’s Debate Club, and Senior Economist Eileen Appelbaum wrote this critique of a story that appeared on NPR featuring the CEO of Ceasar’s calling for cuts to Social Security. And CEPR’s Director of Domestic Policy Nicole Woo corrected fiscal cliff notes in this segment of Let's Talk About It! 

In this CEPR blog post, Dean explains, again, that the high deficits of the last 5 years are the result of an economic collapse, not profligate spending or huge tax cuts. Dean also published a paper for the New America Foundation, titled “Debt, Deficits, and Demographics: Why We Can Afford the Social Contract,” that addresses inaccurate thinking on short terms deficits and shows that horror stories about long term debt are almost entirely a function of projected increases in health care costs.

Read more...

 

 
Economics 101 for the Debt Fixers Print
Written by Dean Baker   
Friday, 30 November 2012 06:33

Many economists have pointed out that the Campaign to Fix the Debt and the rest of the austerity crew seem badly confused about basic economics. The most obvious item that they seem to be missing is that large current deficits are the result of the downturn that was caused by the collapse of the housing bubble.

We did not go on a sudden spending spree and tax cutting orgy in 2008. The deficits exploded from a completely sustainable 1.2 percent of GDP in 2007 to levels close to 10 percent of GDP in 2009 and 2010 because the downturn sent tax collections plummeting and increased spending on programs like unemployment insurance. Were it not for the downturn, the deficits would again be relatively small. Rather than posing a risk to the economy, the deficits are sustaining demand and growth, keeping unemployment lower than it would otherwise be.

The markets understand this, which is why investors are willing to lend the United States trillions of dollars at interest rates that are just over 1.5 percent. But this is far from the only problem with the debt fixers' understanding of the economy.

While they obsess about the debt as imposing a burden of future interest payments on our children (who will also receive these future interest payments), they somehow manage to ignore other commitments that the government is making for the future. The most important one is patent and copyright monopolies. While these payments do not appear in the government's books, they imply enormous flows of income from the rest of us to patent and copyright holders.

In the case of pharmaceuticals alone, patent monopolies are likely to lead to a transfer of more than $3 trillion over the next decade from consumers to the pharmaceutical industry. If we added in flows of income stemming from patents and copyrights in other sectors, like crop seeds, software, recorded music and video material, the sums would almost certainly be 2 or 3 times as large. In other words, it is real money.

Furthermore, there can be real trade-offs between the official debt and the patent rents. Suppose that we could have the government spend $500 billion in upfront research on developing new drugs (in addition to the $300 billion we are already projected to spend) to replace the research by the industry. If we could then buy all drugs at the free market price we would save ourselves $2.5 trillion over the decade ($3 trillion in reduced drug costs, minus the $500 billion in government research spending). 

While that policy would be a clear winner to folks who know economics, it would flunk in the debt fixers' calculations since they only pay attention to the $500 billion addition to the government debt, not commitments like providing patent monopolies for long periods of time. Now if someone could just teach this simple point to the debt fixers then maybe they would be using their millions to push better policy.

 

 
How to Get $500 Million: Play Powerball or Become a CEO Print
Written by Nicole Woo   
Wednesday, 28 November 2012 16:20

Across the nation, lines are winding down streets and around corners as folks wait to buy a ticket for Powerball's $550 million dollar jackpot, the second-largest in U.S. history.  While that seems like an unimaginable amount of riches for typical Americans, it's what many corporate CEOs regularly make in a just few years.

The Institute for Policy Studies (IPS) recently exposed "The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks" and listed the taxable compensation of the CEOs involved in it.  The list is topped by Leon Black of Apollo Global Management, a private equity fund. He made $215 million last year and was in the news for spending $120 million on a single famous painting.

IPS also released "Executive Excess 2012: The CEO Hands in Uncle Sam's Pocket," highlighting the corporate executives who've reaped the highest pay.  That list is led by James Mulva of ConocoPhillips, who took home almost $146 million in taxable pay in 2011.

The Associated Press analyzed the compensation packages at S&P 500 companies to identify the 50 highest-paid CEOs. Number one on that list is David Simon of the Simon Property Group, who made $137 million last year.

And Apple's Tim Cook recorded the highest compensation on record in the Wall Street Journal's annual CEO pay survey. In August 2011, he was awarded a $378 million annual pay package, mostly from a million shares of Apple stock. Since then, Apple's share price has exploded, so that part of his pay is today worth $583 million (more than the Powerball jackpot!).

Add up the pay of any three of the CEOs above, and you get about $500 million (or much more) for just one year of work. They don't need Powerball to get hundreds of millions of dollars; they just need to keep being CEOs.

While it's nice to dream about what we'd do if any of us won the lottery, this is also a good day to think about how corporate CEO pay packages have risen so unbelievably sky-high.  And while you're at it, check out the IPS reports for concrete proposals to bring them back to down to earth.

 
Sign Language from the Invisible Hand? How Do We Know That We Need to Reduce the Deficit by $4 Trillion Over the Next Decade Print
Written by Dean Baker   
Monday, 26 November 2012 22:10

Millions are no doubt wondering how we know that the government has to reduce deficits by $4 trillion over the next decade. This appears to be the magic number that underlies the budget discussions between President Obama and the Republicans in Congress, and it is widely accepted by Serious People everywhere, but where did this magic number come from?

One place where it gained prominence was in the report authored by Morgan Stanley director Erskine Bowles and former senator Alan Simpson, the co-chairs of President Obama's deficit commission. However, many other people have touted this $4 trillion number as the appropriate limit on the country's debt burden.

The attachment to a particular debt number seems more than a bit peculiar for a number of reasons. The first and most obvious is that the financial markets don't seem the least bit bothered by the current levels of debt and prospective future levels of debt. They presumably understand what most people in the Washington policy debate do not, the high deficits of the last 5 years are the result of an economic collapse, not profligate spending or huge tax cuts. This is why the interest rate on long-term Treasury bonds is at post-war lows.

The markets recognize that if the economy recovered, then deficits would again be at manageable levels. In the mean time, low interest rates reflect the fact there is little demand for capital.

However beyond the economic facts, the Washington debt mongers also seem confused on what the debt means. The proximate burden of the debt on the government is the amount of interest that we pay. Instead of being very high, this is in fact near a post-war low. 

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The States and Full Employment Print
Written by John Schmitt   
Monday, 26 November 2012 13:45

State governments spend a lot of money — usually in the form of tax breaks for companies — trying to bring jobs to their states. The problem with this kind of race-to-the-bottom strategy is that the most they can hope to achieve is to shift jobs from one state to another, leaving total national employment unchanged.

When it comes to state employment, the real drivers of success or failure lie almost completely beyond the reach of state governments. The overwhelming determinants of state employment are monetary and fiscal policy, which are set entirely at the federal level.

The chart below helps to illustrate the point. The third and longest bar in the figure shows the unemployment rate in each of the 50 states and the District of Columbia in 2010, the worst year in the labor market in the recent recession. Not only was the overall unemployment rate high (9.6 percent), but the range in unemployment rates across states was large – from under 4 percent in North Dakota, to over 12 percent in California, Michigan, and Nevada.

Click for larger version

state-unemployment-2012

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