Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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George Will is apparently still obsessed with inflation and very disappointed that the Fed's policy of quantitative easing has not led to hyperinflation thus far. This led him to write a seriously confused column condemning the Fed and its Chairman Ben Bernanke.

Will complains:

"A touch on the tiller here, a nimble reversal there — these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation’s $15.7 trillion economy."

This assertion is incredibly wide of the mark, even getting the size of the economy wrong by $1 trillion. Certainly Bernanke and the Fed are not claiming the ability to fine-tune the economy. If they had this ability then the economy would not currently be operating at a level of output that is $1 trillion below its potential. That is not anywhere in the ballpark of fine-tuning.

The comment that apparently upset Will is Bernanke's claim that the Fed would have no problem raising interest rates and slowing the economy if there was an outbreak of inflation on the horizon. It's not clear why this comment would seem so strange. Inflation only rises very gradually and there has been no problem of inflation growing out of control for more than three decades in the United States or any other wealthy country. This would suggest that Bernanke has some reason for believing that he or his successor will continue to be able to prevent an outbreak of accelerating inflation.

Will is also convinced that the stock market has been artificially inflated by the Fed's quantitative easing and zero interest rate policy. The S&P 500 peaked at over 1550 in the fall of 2007. If it had risen in step with the trend growth rate of GDP it would be over 1950 today, almost 20 percent higher than its current level. For some reason Will never complained about the 2007 stock market level in spite of the fact that it was markedly higher relative to the value of GDP at the time.

 

Note -- typo corrected in first sentence.

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See, nothing gets by those vigilant super-sleuths at the Washington Post. In yet another front page story highlighting government waste the paper told readers that the Agriculture Department spent almost 0.000004 percent of the budget on toner cartridges, the Department of Veterans Affairs spent 0.000014 percent of the budget on artwork, and the Coast Guard spent 0.000004 percent of the budget on cubicle furniture. Of course the Post didn't tell people how large these items were as a share of the federal budget, instead it told readers that the Agriculture Department spent $144,000 on toner cartridges, the Department of Veterans Affairs spent $562,000 on artwork, and the Coast Guard spent $178,000 on cubicle furniture.

These were all end of the fiscal year expenditures. The intention of the paper is clearly to imply that these are examples of wasteful spending but none of the information in the article provides a basis for this assessment. Government office buildings need office furniture, they use printing cartridges, and they also typically have some amount of artwork. This piece provides no evidence whatsoever that these particular expenditures were wasteful, they simply were spending that agencies decided to put through at the end of their fiscal year when they knew they had the money for them.

This may actually have been very prudent spending on the part of the agencies. For example, the Coast Guard may have badly needed new furniture for its cubicles. (Furniture does wear out -- I have been to the WaPo's office, they replace their furniture on occasion.) It may have put off the purchase until it was certain that it could meet its other expenses for the year. Once it was apparent that it had met all essential expenses, the Coast Guard may have then decided to use its remaining funds to buy the needed furniture. This would be very rational budgeting, not evidence of waste.

The whole piece is trying to make a scandal when it really has no evidence to show anything of the sort. That might have been more apparent to readers if it had written the alleged boondoggle spending as a share of the budget rather than trying to impress people with the size of the expenditures.  

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The New York Times told readers that Mayor Bloomberg is right, the data show that the poor have benefited by having more billionaires in the city. The basis for this assessment is that rich people pay a disproportionate share of the city's tax revenues. Therefore by having more rich people, the city has more tax revenue to help out poor people. 

The article even gives readers some basis for quantifying this gain. It tells readers that households with incomes of more than $10 million a year accounted for almost 20 percent of the city's income tax revenue last year. Since the city raised just under $8 billion in income taxes, this means that the rich paid a bit less than $1.6 billion to the city in income taxes.

By comparison, the article tells us that 46 percent of the people in the city have an income of less than 1.5 times the poverty level. With a population of 8.25 million, this implies that roughly 3.8 million people live near or below the poverty line. This means that if all the tax revenue from the wealthy was used to benefit the poor, as opposed to benefiting the wealthy by providing them services or general support for the city infrastructure and services, it would come to $420 per poor person per year.

However tax payments are not the only way that the rich would affect the well-being of the poor. Their demand for housing and other resources (e.g. building space devoted to restaurants, gyms, art galleries, etc) drives up the cost of real estate in New York City. As a result, rent costs the poor more than it would if there were fewer rich people in the city.

It's not easy to calculate what rents would be in the city if the number of rich people had not increased so much under Bloomberg, but they would almost certainly be considerably lower. According to the Bureau of Labor Statistics (BLS), since 2000 rents in the New York have risen by 40.7 percent in the New York metropolitan area compared to 36.2 percent in the country as a whole. The increase in rents in the city itself is almost certainly more than this number, since the BLS figure is for the whole metropolitan area.

The Census Bureau reports that the median rent for the city is $1,125 a month or $13,500 a year. If the presence of such a large number of rich people raised this figure by 10 percent, then rich people cost low and moderate income people $1,350 in higher rents. With an average of 2.7 people per housing unit, this is considerably more than the $1,130 they would get if all the income taxes raised from the rich were redistributed to the poor.

Of course the rich would impose costs on the poor in other ways as well. Because the price of real estate in general is higher due to their demand, all the stores in the city must pay higher rents because of the presence of so many rich people. These higher rents are passed on to low-income people in the price of their food and clothes and everything else they buy.  

If the NYT wanted to do a serious analysis of whether the poor in New York City benefit from having so many rich people in the city, then it would have to examine all the ways in which their presence has an impact on the well-being of the poor. Just looking at tax revenue collected from the rich is an incomplete and obviously biased way to make this assessment. 

 

Note: typos corrected.

 

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Last week I blamed the media in general and the New York Times in particular for the battle over the Republican proposal to cut food stamps. The logic is that the media routinely report that the Republicans want to cut $4 billion from the program. Undoubtedly many people hearing this number believe that it constitutes a major expense for the federal government.

The proposed cut to the program is actually equal to just 0.086 percent of federal spending. In other words, it could make a big difference to the people directly affected, but it makes almost no difference in terms of the overall budget. Very few people understand this fact because $4 billion sounds like a lot of money. The media could help to clear up this confusion by reporting the number as a share of the budget, but they don't do that because -- I don't know. 

Anyhow, for those who would like some further context for this proposed cut to the food stamp program we can consider the impact of raising wages on food stamp spending, specifically the wages of Walmart workers. The pay of many Walmart workers is not much above the minimum wage. As a result, a large percentage of Walmart workers qualify for government benefits like food stamps.

By contrast, if the wages of workers at the bottom end of the labor market had kept pace with productivity growth over the last 45 years it would be almost $17.00 an hour today. In that situation, very few Walmart workers would qualify for government benefits.

Earlier this year, the Democratic staff of the House Committee on Education and the Workforce put together calculations for the range of costs to the government through various programs of a Walmart superstore in Wisconsin that employs 300 workers.  They put a range for the cost of food stamp benefits for a single store at between $96,000 and $219,500.

According to Fortune Magazine, Walmart has 2.1 million employees nationwide, which means that we should multiply these numbers by 7,000 to get a national total. That puts the annual cost of food stamps for the families of Walmart workers at between $670 million and $1.54 billion. The figure below shows the potential savings to taxpayers from raising the wages of Walmart workers to a level where they don't qualify for food stamps with the savings from the Republicans' proposed cuts to the program.

btp-2013-09-28

In short, if the goal is to save taxpayers money on food stamps there are different ways of achieving it. One is to cut benefits, as the Republicans have proposed. The other is to increase wages for low-paid workers so that they no longer qualify for benefits like food stamps.

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If you ever wondered where all the psychics came from who hang their shingles around DC, the answer is that they are probably former Washington Post reporters. The paper again told readers what people think. In an article on how the latest battle over Obamacare has re-energized the Tea Party, the Post told readers:

"Obamacare, which seeks to extend health coverage to millions of uninsured Americans, is viewed by tea party activists as a dangerous new government intrusion. They fear it will reduce their choices of medical providers and burden the weak economy."

Of course the Post has no clue as to how tea party activists actually view Obamacare or what they fear. Many may fear that the government will send death panels into their homes to deny them or their loved ones care since this is what many of their leaders have asserted. A real newspaper would report on what people say and leave speculation about their fears and beliefs to others.

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It's always good to see CEPR's research findings picked up in the NYT even if someone else had to do them. In this case, the NYT reports that the Affordable Care Act is not leading to more part-time work. Yes, we showed that two months ago. But hey, the lag is getting much shorter. After all, we warned that the collapse of the housing bubble could lead to a severe recession and serious financial consequences back in 2002. They didn't begin to take that one seriously until the collapse was already in progress.

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No one expects serious budget or economic analysis on the Washington Post's editorial page, but endorsing a tax and spending freeze until the unemployment rate falls below 6.5 percent (bizarrely called "Jobs First") is an embarrassment even for the Post. Incredibly, neither the Post nor their "No Labels" leaders explain what a freeze even means. Is spending frozen in nominal terms, in real terms? Does it allow for increases in spending in mandatory programs like Social Security and Medicare?

You won't find answers to these basic questions in either the Post's editorial or on the No Labels website. (For those folks who aren't familiar with them, No Labels was started by a bunch of Wall Street types who think that everyone should just stop fighting and agree with them.) 

Anyhow, it is hard to comment much on something that is so vague, but the irony of the "Jobs First" label should be apparent to everyone. In order to get down to 6.5 percent unemployment in a reasonable period of time we are likely to need more government spending. By freezing government spending, the No Labels crew are effectively putting jobs last. But hey, this is the Washington Post editorial page, who cares about economics, logic, or jobs? 

 

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The Washington Post ran an article highlighting new calculations of city pension liabilities from Moody's, the bond rating agency. Moody's is probably best known to most people for rating hundreds of billions of dollars' worth of subprime mortgage backed securities as investment grade during the housing bubble years. It received tens of millions of dollars in fees for these ratings from the investment banks that issued these securities.

The new pension liability figures are obtained by using a discount rate for pension liabilities that is considerably lower than the expected rate of return on pension assets. This methodology increases pension liabilities by around 50 percent compared with the traditional method.

If a pension fund was fully funded according to the new Moody's methodology, but continued to invest in a mix of assets that gave a much higher rate of return than the discount rate used for calculating liabilities, then it would have effectively overfunded its pension. That would mean taxing current taxpayers more than necessary in order to allow future taxpayers to pay substantially less in taxes to finance public services. Usually economists believe that each generation should pay taxes that are roughly proportional to the services they receive. Moody's methodology would not lead to this result if it became the basis for pension funding decisions.

It would have been worth highlighting this point about the Moody's methodology. Most readers are unlikely to be aware of the strange policy implications of following the methodology and thereby assume that governments would be wrong not to accept it.

It is worth noting that public pensions did grossly exaggerate the expected returns on their assets in the stock bubble years of the late 1990s and at the market peaks hit in the last decade. Unfortunately, unlike some of us, Moody's did not point this problem out at the time. One result was that many state and local governments raised their pensions and made additional payouts to workers which would not have been justified if they had used a discount rate that was consistent with the expected return on their assets.     

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We all should be thankful for the vigilance of the Washington Post, otherwise we might not know about an agency in Alaska that could be wasting around $1.8 million a year in federal spending. The Post decided to do a major story on the inspector general of a small development agency in Alaska who wrote a letter to Congress saying that the agency was a waste of money and should be closed.

According to the piece, the agency, the Denali Commission, was the creation of former Alaska Senator Ted Stevens. At one time more than $150 million was flowing through it to finance various projects in Alaska. This flow has been reduced to $10.6 million following Senator Steven's defeat and subsequent death. 

The immediate issue according to the inspector general is not the $10.6 million in projects, many or all of which may be worthwhile, but rather the agency itself. The inspector general complained that it was an unnecessary intermediary for these funds and therefore a waste of taxpayer dollars.

The article indicates that the agency has 12 employees. If we assume that total compensation for each, plus the indirect costs associated with running the office, come to $150,000 a year, then the implied waste would be $1.8 million a year, assuming that no equivalent supervisory structure would need to be established elsewhere in Alaska's government.

If we go to CEPR's incredibly spiffy budget calculator, we see that this spending qualifies as less than 0.0001 percent of the budget. Clearly this article was a good use of a Post's reporter's time and way to consume a large chunk of space in the newspaper.

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The NYT Room for Debate section must have caught many readers by surprise on Thursday when it posed the question of whether economic growth was essential for mobility and it held Mexico up as an example of a dynamic economy. The reason this might have been a surprise is that Mexico has mostly been a growth laggard. It's growth rate has generally been considerably slower than the growth rate of other Latin American countries and is projected to remain slower in the foreseeable future.  

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Paul Krugman has some interesting thoughts on the possibility that the U.S. economy might have a serious problem with secular stagnation that has been remedied in large part over the last two decades by bubble generated demand. This is old hat to some of us, but it's great to see Krugman pursuing this line of thought.

There are two points worth adding on the topic. One important component of demand that has been big-time in the negative category in the last 15 years is net exports. This represents a serious failure of the international financial system. The old textbook story is that capital is supposed to flow from slow growing rich countries to fast growing poor countries where it can receive a higher rate of return and assist these countries in their development. 

The textbook story has never fit the data very well (net capital flows have often been in the opposite direction), but the flows from poor to rich have been especially large in the years following the East Asian financial crisis. The harsh treatment by the I.M.F. of the countries in the region (yes, this was the bailout led by the Committee to Save the World) led to a sharp increase in the accumulation of foreign exchange reserves (i.e. dollars) by developing countries. Countries in Latin America, Asia, and Africa suddenly began to accumulate as much reserves as possible with the idea that this would protect them against ever being in the situation of the East Asian countries.

That led to a large rise in the value of the dollar and a big increase in the size of the U.S. trade deficit. The trade deficit in turn led to a big gap in demand that was filled at the end of the 1990s by the stock bubble and in the last decade by the housing bubble. (A trade deficit means that income generated in the United States is being spent in other countries instead of the United States.) There may well be a problem of secular stagnation even if trade were closer to balanced, but the huge expansion of the trade deficit in the last 15 years clearly aggravated the problem considerably.

The other factor that should be kept in mind is that potential GDP or full employment is not exactly a fixed point in space. One of the big factors that determines the potential level of output is the average number of hours worked per worker. In places like Germany, the Netherlands, and France, the average work year has roughly 20 percent fewer hours than in the United States. This means that to produce the same output, these countries would need  20 percent more workers. (That assumes equal productivity per hour, which is pretty close to being the case.) 

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You know times are bad when people start making a big deal about finding pennies in the street. That seems to be the case these days at the European Central Bank.

According to the New York Times, Joerg Asmussen, an Executive Board member of the European Central Bank, touted the growth potential of a trade agreement between the European Union and the United States. A study by the Centre for Economic and Policy Research in the United Kingdom (no connection to CEPR) found that in a best case scenario a deal would increase GDP in the United States by 0.39 percentage points when the impact is fully felt in 2027 (Table 16). In their more likely middle scenario, the gains to the United States would be 0.21 percent. That would translate into an increase in the annual growth rate of 0.015 percentage points. 

While the gains for Europe might be slightly higher, it is worth noting that this projection does not take account of ways that a deal could slow growth, for example by increasing protections for intellectual property and putting in place investment rules that increase economic rents. It reveals a great deal about current economic prospects that a top policy official in the European Union would be touting such small potential benefits to growth.

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The Washington Post had a lengthy article on Florida Representative Steve Southerland's efforts to cut food stamp spending by $40 billion over the next decade. Since it never put this figure in any context, many readers may have mistakenly been led to believe that there is real money at stake.

While this proposed cut may make a huge difference to the affected population, it will have no noticeable impact on the federal budget. 

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Obamacare may be more confusing than many people realized. Apparently even the NYT is unable to get it straight.

In an article that detailed the cost of the plans in the exchange for various types of families in each of the 50 states, the NYT told readers:

"The figures, almost by definition, provide a favorable view of costs, highlighting the least expensive coverage in each state."

This is clearly not true. The numbers featured in the article were for the second lowest cost silver plan in the exchanges. Silver plans are supposed to cover approximately 70 percent of patients' medical expenses. By definition they would be expected to cost more than bronze plans, which target 60 percent of patients' health care expenses. The silver plans by definition are not the least expensive coverage in the state. (To get a bit technical, the second lowest cost plan is also more expensive than the lowest cost plan.)

The numbers featured in the article (which apparently are being highlighted by the Obama administration) are likely to be typical of the costs that patients will see. As the article notes, there are variations within states and people will have an option to find both higher and lower cost plans, but these numbers are not obviously skewed to either the high or low side.

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That is undoubtedly the question that many NYT readers were asking when they read an article warning that insurance companies in the exchanges were not paying enough money to attract many doctors. At one point the piece told readers;

"Dr. Barbara L. McAneny, a cancer specialist in Albuquerque, said that insurers in the New Mexico exchange were generally paying doctors at Medicare levels, which she said were 'often below our cost of doing business, and definitely below commercial rates.'"

The claim that Medicare payments are "below our cost of doing business" might seem rather dubious to readers since most doctors accept Medicare patients. The median earnings of physicians are well over $200,000 a year (net of malpractice insurance), which means they are heavily represented in the one percent. Given their extraordinary incomes, which they vigorously protect by excluding foreign and domestic competition, it seems implausible that many doctors are willing to lose money by treating Medicare patients.

It is more likely that doctors are getting less than their desired pay when they treat Medicare patients, but still pocketing far more money than the overwhelming majority workers for their time. It would have been useful to clarify this point for readers rather than letting Doctor McAneny's assertion pass unchallenged.

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The hit to Europe's economy from the collapse of its housing bubbles has been larger than the downturn it suffered in the Great Depression. So naturally the assessment of columnist Charles Lane on the Post op-ed page is:

"So far, Merkel has managed the crisis of the euro zone well."

It's not clear what would count as managing the crisis poorly, although Lane does tell us in the next sentence that in his view the breakup of the euro would be the ultimate disaster. If keeping the euro together is the sole criterion, regardless of how many trillions of dollars of lost output results, and however many millions of lives are ruined by prolonged unemployment, then I guess the euro crew is a winner.

Lane's piece is deeply mired in confusion. Early on he tells readers;

"Two contradictory fears threaten these Germans’ contentment: what might happen if the government spends their hard-earned national savings on a bailout for Greece or Italy, and what might happen to Europe if someone doesn’t prop up those spendthrifts."

Of course the most obvious route to restarting Europe's economy would be to have the European Central Bank (ECB) act like a central bank and agree to underwrite the sort of deficits that will be needed to bring Europe's economy back to full employment. This does not require using any of Germany's savings. In fact, by boosting Europe's growth it is likely to increase Germany's "hard-earned national savings."

Lane is also confused about the nature of budget deficits in Europe when referring to Greece and Italy as "spendthrifts." While the former characterization has some real foundation, this description of Italy might seem a bit dubious to folks familiar with the data. Here's a chart showing the primary deficits (this excludes interest payments) of two euro zone countries since 2000.

btp-09-2013-italy-and-germanSource: International Monetary Fund.

If you guessed that Country B, the one that has generally had the larger primary budget surplus, is that spendthrift Italy, you got it right. In fact, Italy has had substantial primary budget surpluses for most of this century. It did have a large debt built up over prior decades which gives it a large interest burden now. The other reason that it has a large interest burden at present is the decision by the ECB to maintain a degree of ambiguity as to whether it would stand behind Italy's debt. If it ended this ambiguity, the interest rate on Italy's debt would be little different than the interest rate on German debt. This would make the country's debt burden easily manageable.

 

Note: Country reversal corrected, thanks Joe.

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This is an impressive accomplishment that deserves some attention.

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Robert Samuelson used his column to tell readers that people in the United States really are different than in other countries. Samuelson wrote:

"One standard question asks respondents to judge which is more important — 'freedom to pursue life’s goals without state interference' or 'state guarantees [that] nobody is in need.' By a 58 percent to 35 percent margin, Americans favored freedom over security, reported a 2011 Pew survey. In Europe, opinion was the opposite. Germans valued protections over freedom 62 percent to 36 percent. The results were similar for France, Britain and Spain."

There are many people in the United States who do not recognize that Medicare is a government program. (Hence the frequent demand from Tea Party conservatives that the government keeps its hands off their Medicare.) It is likely they believe the same about Social Security. These people may highly value the security provided by these programs while at the same time denigrating the importance of state guarantees because they don't recognize the connection of these programs to the state.

Insofar as this is the case, the difference in polling on this question may reflect differences in knowledge rather than differences in values.

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The NYT's responsibility for Republican efforts to cut food stamps may not be immediately obvious, but on closer examination the truth comes out. Look at the basic story: the Republicans want to cut the budget for food stamps. Their proposed cuts don't amount to much in terms of the entire federal budget but they are likely impose considerable hardship to the people affected. If the Republican cuts go through, between 2-4 million very low income people would lose benefits that average $160 a month.

These cuts are likely to be a serious hardship to the people affected. But what do they mean to the rest of us? The answer is not much. No doubt you heard the New York Times and other media outlets reporting that the Republican cuts would reduce projected federal spending by 0.086 percent over the next decade.

If you don't recall hearing that one you probably are not alone. This number has not been featured very prominently in the news reporting on the proposed cuts. Instead, the New York Times and other news outlets routinely refer to the proposed $40 billion in cuts.

This matters a lot. The reality is no one has a clue what $40 billion in spending means over the next decade. There are probably 5-10 thousand budget wonks with their nose in these numbers who can make sense out of hearing that the Republicans want to cut $40 billion in spending over ten years. For just about everyone else, the NYT and other news outlets are just saying that the Republicans want to cut a REALLY BIG NUMBER from food stamps over the next decade.

This is not a debatable point. Polls consistently show that people have no clue as to the total size of the budget. And they have little idea what are the major spending categories that absorb most of their tax dollars. I have raised this issue with many budget reporters and not one has ever tried to claim that any substantial portion of their readers had a clear idea of what budget numbers meant, especially when expressed over 5-10 year periods.

We even got a wonderful demonstration of this problem when Paul Krugman mistakenly took a 10-year proposed cut in food stamps as being a 1-year proposed cut and made it the basis for a NYT column. How many NYT readers are more knowledgeable about the budget and used to dealing with large numbers than Paul Krugman? If the NYT's reporting on the budget can mislead Paul Krugman what does it do for the more typical reader?

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The Washington Post might not be very aggressive when it comes to billionaire too big to fail bankers, hedge and private equity fund swindlers, or pharmaceutical companies exploiting patent monopolies by pushing bad drugs, but when it comes to beating up on people getting $1,150 a month for disability, there is no one tougher. The Post is on the job again today with an editorial warning about the "explosive recent growth" in disability roles. 

The Post conveniently ignores facts and reality in pushing its case. For example, it counters the views of "defenders of the program" with the views of "critics, including a significant number of academic economists." Of course there are a large number of academic economists who are among the defenders of the program, but the Post did not think this point was worth mentioning; it could distract readers.

This sentence continues:

"suggest that the program’s manipulable and inconsistently applied eligibility criteria have enabled millions of people who could work to sign up for benefits instead."

"Millions of people," really? The work linked to in the paper won't give you this number. One careful study that was produced by the University of Michigan a few years ago, identified categories of applicants that it deemed marginally eligible. It found that if this group was denied disability, 28 percent would be working two years later. Since this group accounted for 23 percent of applicants, that would mean 6.4 percent of applicants (28 percent of 23 percent) would be working in two years, if they were denied benefits.

There are currently just under 10 million disability beneficiaries. If we assume that 6.4 percent of these people would be working if they had been denied benefits that comes to 640,000 people. That is considerably short of "millions of people" in places other than the Washington Post opinion pages. Furthermore, the Michigan study found that the share of these marginal refusals who were working four years later fell to 16 percent, so the 640,000 figure is undoubtedly too high based on this analysis.

Of course the other point to keep in mind for those looking to crack down on these freeloaders is that our system will never be perfect. The inappropriate beneficiaries will not identify themselves. Any effort to tighten criteria to ensure that ineligible people don't qualify will inevitably lead to more eligible people wrongly being denied benefits. In other words, the Post's policy could mean that some people with terminal cancer don't get benefits. 

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The Washington Post had an interesting article on the sharp rise in disability rates in the downturn. It would have been helpful to include some additional information.

One important reason for the rise in disability not connected to the recession, is the increase in the normal retirement age. This was increased from 65 for people who turned 62 before 2002, to 66 for people who turned 62 after 2008. The rise in the normal retirement age means that people on disability can collect benefits for an extra year before they have to turn to their Social Security retirement benefits, which will typically be less. The increase in the retirement age would have led to a substantial rise in disability rates even if there had been no underlying change in the incidence of disability.

A second point that would have been worth noting is that it is not easy to get disability. More than 60 percent of applicants are originally ruled ineligible. While many successfully appeal their rejection, the final approval rate is still below 50 percent. It is reasonable to believe that the vast majority of frivolous claims are rejected.

At one point the article discusses the notion put forward by economists David Autor and Mark Duggan that workers with little education may have substantial incentives to turn to disability:

"Benefits are hardly generous. They average $1,130 a month, and recipients are eligible for Medicare after two years. But with workers without a high school diploma earning a median wage of $471 per week, disability benefits are increasingly attractive for the large share of American workers who have seen both their pay and job options constricted.

"In 2004, nearly one in five male high school dropouts between ages 55 and 64 were in the disability program, according to a paper by economists David Autor and Mark Duggan. That rate was more than double that of high school graduates of the same age in the program and more than five times higher than the 3.7 percent of college graduates of that age who collect disability."

While the difference between median earnings and the average disability payment is considerably lower for less-educated workers there are two other important factors that affect disability rates. First, less educated workers are far more likely to have worked at physically demanding jobs that could result in a disability. For example, someone who works as a mover is more likely to develop back problems than an office worker with a desk job.

The other difference is that the jobs that are available to less educated workers are likely to be more physically demanding. A back problem that may be an inconvenience for a desk worker may make it impossible for someone to find work as a custodian or some other low-paying job. These differences undoubtedly explain much of the difference in disability rates by education.

 

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