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).
That is what readers of his column on the budget standoff undoubtedly concluded when they read his line:
"It’s a pity, because the outlines of the needed deal are clear."
He then lists a number of items which would not obviously be in most people's outlines, such as reduction in the top tax rate from 39.6 percent to 30.0 percent, and "sizable cuts in Social Security and Medicare." The latter might be viewed as especially surprising since an overwhelming majority of people across the political spectrum are opposed to cuts in Social Security and Medicare.
As a policy matter, with the vast majority of retirees just scraping by now, the idea of imposing further hardship would not seem to make a lot of sense. According to the Pew Research Center, the median near retiree household will not even have enough wealth to pay off their mortgage (their median wealth is just $162,000 compared to a median house price of more than $180,000).
This means that if a typical household used all of their wealth, including all their retirement accounts and selling their car, they would still have a small mortgage left over and would be entirely dependent on a Social Security check that averages just over $1,200 a month for their income. While highly touted in media outlets like the Washington Post, the number of affluent elderly (incomes over $100,000) are few and far between. Cutting their benefits would have little impact on the finances of Social Security and Medicare or the federal budget.
Given these facts, how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare? I gave my answer.Add a comment
Unfortunately it is in an otherwise useful column by Thomas Edsall on evolving political attitudes. The second to the last sentence tells reader that:
"Nonetheless, the overarching division remains, and the battle lines are drawn over how to distribute the costs of the looming fiscal crisis."
But those wondering about the nature of the costly fiscal crisis to which Edsall is referring would follow the link to a Wall Street Journal piece on the fiscal showdown over the end of the Bush tax cuts and the sequester of spending that are scheduled to occurr at the end of the year. This crisis is one of excessive deficit reduction, it is resolved by smaller tax increases and smaller cuts in spending.
In other words, the crisis is that we are taking too much money away from people, which will hurt the economy. The crisis will be resolved by taking less money away from people. It is the opposite of a "costly fiscal crisis." Instead, we will be faced with a costly economic crisis if the tax increases and spending cuts are allowed to take effect.Add a comment
The evidence presented in Thomas Friedman's column today would lead readers to believe that the economy's biggest problem is that companies are being run by executives who are so ignorant of economics that they don't know that the way to attract more workers is to raise wages. The column begins with the story of Traci Tapini, who with her sister is co-president of Wyoming Machine. For some reason Friedman assures us Tapini "is not your usual C.E.O."
According to Friedman, back in 2009, when the economy was collapsing and unemployment was soaring Tapini had to struggle to find 10 welders that she needed to meet an order from the military. She could not find workers with the right skills, which now includes not only the ability to make a good weld, but also a knowledge of metallurgy. Eventually she found a welder who had passed the American Welding Society Certified Welding Inspector exam and was able to train the other welders.
Friedman tells readers:
"Welding 'is a $20-an-hour job with health care, paid vacations and full benefits,' said Tapani, but 'you have to have science and math. I can’t think of any job in my sheet metal fabrication company where math is not important. If you work in a manufacturing facility, you use math every day; you need to compute angles and understand what happens to a piece of metal when it’s bent to a certain angle.'
Who knew? Welding is now a STEM job — that is, a job that requires knowledge of science, technology, engineering and math."
The obvious problem in this story is that Tapini apparently doesn't understand that you have to pay more money to get highly skilled workers. If the minimum wage had risen in step with inflation and productivity since the late sixties, it would be almost $20 an hour today. Back in the late sixties, a typical minimum wage worker would have a high school degree or less. Now, according to Friedman, we have CEOs who think that they can get highly skilled workers at the some productivity adjusted wage as someone who would have had limited literacy and numeracy skills 45 years ago. If we applied the same standard to doctors, they would be averaging around $100,000 a year today (instead of around $250,000). If employers really do have such poor understanding of how markets work then it will certainly be a serious impediment to economic growth in the years ahead.Add a comment
After warning readers of the dire consequences of waiting until after January 1 to reach a deal on taxes and spending, the Post told readers that the markets don't seem to share its concerns. This was a good honest assessment of what to date seems to be largely a non-response to the dire warnings emanating from Washington policy circles about THE FISCAL CLIFF!!!!!!!!Add a comment
I'm not kidding, that's the headline of a blog post:
"this graph should scare you."
The Post reports on a new study from the Congressional Budget Office (CBO) which shows that GDP growth in this recovery has been considerably weaker than the average of prior recoveries. It's not entirely clear why the graph from CBO is supposed to be scary. After all, don't most people already know the economy stinks?
And the reason is pretty simple, we don't have any source of demand to replace the $1 trillion or so of annual construction and consumption demand that was generated by the housing bubble. So CBO's graph doesn't seem to be giving us any new information.
Perhaps we are supposed to be scared by CBO's assessment that two-thirds of the reason for slower growth is slower potential GDP growth, with only one-third is due to slower demand growth. This could be seen as somewhat scar. After all, if the economy really has much less growth potential that would be bad news, but on closer inspection there is not much "there" there.
Half of CBO's estimated slowing of potential GDP growth is due to slower labor force growth. This is the story of the retirement of the baby boom cohorts. As a baby boomer who one day expects to retire, this never struck me as especially scary and it certainly is not news. Everyone other than former Senator Alan Simpson (who seems to have first discovered the baby boom cohort when he sat on President Obama's deficit commission) knew that we would have a big wave of baby boomer retirements about 50 years ago.
We have two stories here. One is slower population growth. This pays us all sorts of dividends in reduced crowding and less pollution which are mostly not picked up in GDP measures. While some folks around this town (Washington) go nuts over slower population growth or, even worse, declining populations, I consider this outcome as 100 percent positive. (It is not good if people who want children feel that they are unable to afford them.)
The other story is a rising ratio of dependents (retired and young) to workers. This is somewhat of a drag on living standards, but hardly a disaster. The graph below shows the projected negative impact on after-tax wages of the increase in the ratio of retirees to workers compared with the positive impact of various rates of productivity growth.
Source: Social Security Trustees Report and author's calculations.
Are you scared yet?Add a comment
The paper has a huge front page story showing the hit to the economy from each of the components of the showdown (e.g. the specific tax cuts that are ending and the various spending cuts). The problem is that what the article shows as the hit to the economy is the hit if nothing is done all year, it has zero, nothing, nada, to do with the impact of letting the December 31st deadline pass, with the tax increases and spending cuts reversed early in 2013. It is unlikely that many USA Today readers will recognize this fact and therefore will be badly misled by this front page article. (Given this fact, it is difficult to see why USA Today would devote so much space to this graph.)
The Republicans are working hard to try to build up fears around this deadline because they know that President Obama will be in a much better negotiating position after the end of the year. The USA Today piece fits with this agenda.
Add a comment
The Washington Post has been as aggressive as any Republican in Congress in hyping the dangers of letting the Bush tax cuts expire. It has run numerous front page pieces telling readers of the dire consequences of letting January 1 pass without a deal (e.g. here and here). Today Wonkblog warned of us the real bad news of going off the fiscal cliff!!!!!!!
Just in case you didn't understand the Post's official line on this, the headline of the piece is "the economy (probably) can't survive a short dive into austerity crisis." It starts with some clearly mistaken economics. It calculates the hit to the economy of higher tax with-holdings for the month of January.
"In a narrow sense, a short voyage off the cliff shouldn’t crush the economy too badly. The CBO estimates that the full brunt of the policies add up to about $56 billion a month, which is a lot of money — about 4 percent of GDP — but should, in theory at least, do only modest damage to the economy if it lasted only a few weeks. One month of austerity along those lines would subtract only about a third of a percentage point from growth for the full year, before accounting for multiplier effects.
For comparison, the U.S. economy grew at a 1.8 percent rate over the last year; if a single month of fiscal cliff-style austerity had been in place, that number would have been more like 1.4 percent."
The problem with this arithmetic is that consumption is unlikely to respond in any measurable way to a one-month tax hike. There is a big debate among economists as to how much consumption responds to temporary tax cuts, like the Make Work Pay tax cut that was part of the initial stimulus package. Many economists, especially those who seem to be most worried about the "fiscal cliff" right now, argue that consumption responds little or not at all to tax cuts that are scheduled to be in effect for a year or two. One doesn't have to agree with this strong position to accept the view that a one month increase in taxes will have a minimal impact on people's consumption patterns.
This is especially likely if the tax increase is likely to be reversed the next month, which would almost certainly be the case, as the column acknowledges in the next sentence. So, this arithmetic exercise gets us essential zero hit from jumping over the fiscal cliff.Add a comment
It's so cute to see all the serious people who are so worried about economic crises that do not exist. They are constantly telling us how the "job creators" (a.k.a. rich people) who run businesses are just so nervous and uncertain they don't know what to do. The current concern is that taxes could rise at the end of the year and government spending will fall.
Of course this would be bad news, but would it be a crisis? As many people have pointed out, this is called "deficit reduction," which is exactly what most of the people now complaining about an imminent crisis have been advocating. The tax increases and spending cuts would weaken the economy and, if left in place over the course of the year, would sharply slow growth and likely push the economy into a recession.
But none of this happens in January. In fact, almost nothing happens in January except the Bush tax cuts expire, substantially improving President Obama's bargaining position. This is bad news for Republicans, but so what?
Hence we have David Brooks telling us this morning:
"The first thing to say about this strategy [letting the tax cuts expire] is that it is irresponsible. The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff. It’s reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results."
Is there any evidence for this assertion whatsoever? "Europe may crater." What on earth does Brooks mean by this? People will not want to hold euros because the U.S. economy might be slowing slightly (we're talking January, not the whole year)?Add a comment
It seems that WonkBlog is picking up some of the Washington Post's bad habits. The Post was a strong supporter of NAFTA when the trade agreement was being debated, virtually closing its news and opinion pages to critics of the deal. In the almost two decades since NAFTA passed the Post has run numerous pieces touting the benefits of the agreement for both Mexico and the United States.
The praise has been especially off the mark in the case of Mexico. In spite of having the lowest per capita growth of any country in Latin America over the last decade, the Post has routinely run pieces highlighting the boom in Mexico and the country's growing middle class (e.g. see here and here). The Post even claimed in a 2007 editorial that Mexico's GDP had quadrupled since 1988. (The actual growth number was 83 percent.)
WonkBlog has a piece that cites a new paper and claims that NAFTA has been good for all involved, showing GDP and wage gains for Canada, Mexico, and the U.S. While this is in fact the conclusion of the study, it would have been worth including some qualifying remarks.
For example, the study explicitly assumes that there is only one type of labor. (The bottom of page 26 explains that in the modeling exercise there is "one wage per
country.") This simplifying assumption can be useful for some purposes, but if the question is whether NAFTA might have hurt less-educated workers (e.g. autoworkers and steelworkers) to the benefit of more highly educated workers (e.g. doctors and lawyers), it cannot be answered with a model where there is one type of labor.
This upward redistribution is exactly what fans of the Stolper-Samuelson theorem would expect from a trade agreement like NAFTA. Therefore this model can not be used to tell us whether NAFTA would have had one of the negative effects predicted by economic theory.
The other big item missing from this model is the impact of stronger patent and copyright protections. NAFTA required Mexico to develop a U.S. style patent system which substantially raised the cost of prescription drugs and other products in Mexico. This model makes no effort to measure the impact of this increased protectionism on the Mexican economy directly, or indirectly on the other two economies. Insofar as this interference with the free market led to higher prices and increased distortions, it would be expected to slow growth, but obviously that effect cannot be picked up in this model.
In short, the model highlighted in this post can be useful for some purposes but it cannot possibly provide a basis for telling us whether NAFTA was on net good or bad for the United States, Mexico, and Canada.
An earlier verison referred to "Wongblog."Add a comment
In case any Washington Post readers were unsure, Robert Samuelson used his column today to tell readers that he doesn't like Social Security and Medicare. The piece begins by telling readers:
"If you doubt there’s an American welfare state, you should read the new study by demographer Nicholas Eberstadt, whose blizzard of numbers demonstrates otherwise. A welfare state transfers income from some people to other people to improve the recipients’ well-being. In 1935, these transfers were less than 3 percent of the economy; now they’re almost 20 percent."
Samuelson goes on to tell us how awful this is because these transfers:
1) take money from other government programs;
2) undermine work incentives and thereby reduce growth; and
3) encourage gaming.
Let's take each of these one by one.
If we start with the biggest government transfer program, Social Security, it would be interesting to know how it takes money from other programs. It is financed by a designated tax. Maybe he thinks that people would be just as happy to pay their Social Security taxes to support the Pentagon, but that is not what polls show. In the case of Social Security, and likely most of the other transfer programs despised by Samuelson, the tax revenue is there because the programs are there. Most taxpayers don't like the things that Samuelson apparently wants to spend money on as much as he does.
Of course if it is possible to lie to people and use taxes designated for Social Security for other purposes, then there can be more money for Samuelson's agenda. But this is a discussion of how to deceive the public, not a debate over social programs.
Samuelson also claims that there is a tendency for these programs to expand over time. In fact over the last three decade Social Security has gotten considerably less generous. The age for getting full benefits has already been raised from 65 to 66 and in another decade will be 67. Also, changes to the way the consumer price index is constructed have reduced the annual cost of living adjustment by approximately 0.5 percentage point.
In the case of Medicare, benefits were extended to cover prescription drugs, but this only became an issue because government granted patent monopolies sent the price of drugs through the roof. Drugs were not included in the original program in 1966 because their cost was trivial, but patent monopolies for drug companies now allow them to sell drugs at prices that are close to $250 billion a year above the free market price. Serious people might worry more about all the waste associated with these patent monopolies than the fact that the government is helping seniors pick up the tab for their drugs.
As far as the second point, anything that makes people wealthier reduces work incentives. The fact that so many people on Wall Street are able to play financial games and make fortunes in their 20s and 30s undermines their work incentive by allowing them to retire early. Why should we be concerned if people opt for a modest Social Security benefit rather than working? After all, they did pay for it.Add a comment
The Washington Post is throwing all journalistic norms aside in its drive to cut Social Security and Medicare. It continues to hype the budget standoff as an ominous "fiscal cliff" and tells readers on the front page of its web site that it could provide a "magic moment" in which Social Security and Medicare can be cut. The piece begins by telling readers:
"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of stagnating incomes, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement."
Okay I tricked you, this is the Washington Post which doesn't acknowledge economic realities like stagnating income. The piece actually began:
"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of profligacy, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement (emphasis added)."
This departure from reality gives you the gist of the story. The piece continues:
"Lawmakers recoiled from the blunt prescriptions of Democrat Erskine Bowles and Republican Alan K. Simpson. But their plan has since been heralded by both parties as a model of clear-eyed sacrifice, and policymakers say the moment has come to live up to its promise."
Well, yes people have praised their plan. They have also ridiculed it. For example it proposes immediate cuts in Social Security benefits that would be a larger share of the income of the typical beneficiary than President Obama's proposed tax increases on the top 2 percent would be for most of the affected taxpayers. It also proposes increasing the age for Medicare eligibility, even though this would add tens of billions to the country's health care costs over the next decade. And, it proposed a minimum Social Security benefit for low wage earners that few low wage earners would actually qualify for due to the number of working years required to qualify.
There were many other carefully detailed criticisms from people who did not find the plan "startling" nor saw the need to "dig the nation" out of a debt that was almost entirely due to the economic plunge caused by the collapse of the housing bubble. As all budget wonks know the deficits were just over 1.0 percent of GDP prior to the economic collapse and were projected to stay low for the near future, until the collapse of the housing bubble sank the economy.
Source: Congressional Budget Office.Add a comment
Former Federal Reserve Board Chairman Paul Volcker is a hero to the inside Washington crowd for having brought down inflation from its double-digit levels of the late 1970s. Never mind that this drop in the inflation rate occurred in every other country in the world also. We still must praise Volcker.
We also should not be bothered by the fact that his policy pushed the unemployment rate to almost 11 percent. This was necessary pain that those outside the elite just had to endure for the good of the country as a whole. We also are not supposed to be bothered by what his high interest policies did to heavily indebted developing countries.
But putting all this aside, the Volcker worshippers should at least be able to get the basic facts right. Steven Pearlstein flunks the test in a WAPO book review when he tells readers:
"By the time he stepped down as Fed chairman in 1987, Volcker had managed to wring inflation out of the American psyche and bring the country’s trade account and the government’s budget much closer toward balance."
This is not true, the trade deficit in fact soared during the Volcker years as shown below.
Source: Bureau of Economic Analysis.
Expressed as a share of GDP, the trade deficit went from 0.8 percent in 1979 to 3.0 percent in 1987. It really shouldn't be hard to get this one right.
In response to several comments below I have corrected the graph to show the "surplus" not deficit becoming more negative under Volcker. This was arguably the direct result of his Fed policy, since a predicted result of higher interest rates is a rise in the value of the dollar which makes U.S. goods less competitive internationally.Add a comment
What is wrong with these people who keep talking about a Bowles-Simpson Commission report? This one is not a debatable point. There was no Bowles-Simpson Commission report. That's a fact, just like the fact that Governor Romney lost the election.
Look it up. The by-laws of the commission say:
"The Commission shall vote on the approval of a final report containing a set of recommendations to achieve the objectives set forth in the Charter no later than December 1, 2010. The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission."
There was no vote on anything by December 1, 2010 and there was no report that had the approval of 14 of the 18 members of the commission. Therefore there was no commission report. The correct way to refer to the document in question is the report of the co-chairs.
Today's guilty parties are David Leonhardt at the NYT and Steve Pearlstein at the Post. Come on folks, a lot of Republicans really wanted Romney to get elected, but that doesn't make him president. And, no matter how much you guys like the Bowles-Simpson report, there was no report from the commission. Let's get back to reality.Add a comment
The voters might have told the Republicans that they would have to compromise on their position on taxes, but the Washington Post told them that they don't. The paper used a news article to imply that congressional Republicans are showing flexibility when they are just repeating the same position they have been putting forward for years. The article told readers:
"chastened Republican leaders have lined up behind Boehner to offer a compromise on taxes, until now a major stumbling block."
Actually the Republicans are not offering a compromise, they are offering the same position that they offered before and that Governor Romney put forward in his presidential campaign. They are proposing to eliminate some loopholes in exchange for a reduction in tax rates. If the Washington Post is successful in convincing the public that this longstanding Republican position is a compromise, then there will be no need for them to offer a real compromise.Add a comment
Yahoo’s short “Just Explain It” video on Social Security seriously misrepresented the financial situation of the program. The segment misled viewers on both the magnitude of the demographic changes affecting the programs finances and also the impact of the projected shortfall.
The piece told viewers:
“Back in 1950, there were 7.11 workers per retiree. That number today is 4.5 and in 30 years, economists estimate that number will be 2.6 workers for every retiree.”
The Social Security trustees report actually puts the ratio of covered workers to retirees at 16.5 to 1 in 1950 and just 2.8 in 2012. It is projected to be 2.2 in 30 years.
The difference is important because most of the drop in the ratio of workers to retirees has already occurred. Astute readers will note that on average workers and retirees both enjoy considerably higher living standards today than in 1950 in spite of the sharp decline in the ratio of workers to retirees.
The reason this happened is that the impact of productivity growth swamps in raising living standards swamps any negative impact of demographic changes in lowering living standards. As the chart below shows, the gains from even modest rates of productivity growth vastly exceed the impact of the projected decline in the ratio of workers to retirees.
Source: Social Security Administration and author's calculations.
It is true that most workers have seen little benefit from the gains in productivity growth over the last three decades. This has been due to the huge upward redistribution of income over this period. If this pattern continues then there will be grounds for worrying about the living standards of most of our children and grandchildren. However, this highlights the need to address the policies that have increased inequality and not to waste time worrying about demographic issues.
Finally the piece badly misrepresents the meaning of the shortfall in the Social Security trust fund projected for 2033. This projected shortfall does not mean that the program would pay zero benefits, it means that it could only pay about 75 percent of scheduled benefits (closer to 80 percent in the Congressional Budget Office projections).Add a comment
The issue arises because Morning Edition decided to lead off its top of the hour news segment by telling listeners of the number of days until we hit the "fiscal cliff." While one could view this as a random fact, like the number of days until the winter solstice or Super Bowl XLVII, but that is presumably not how it was intended. Most likely this number would be viewed as a countdown against an important deadline.
Of course the end of the year is not an important deadline as every budget expert knows. If there is no deal by the end of the year, we will be subject to a higher rate of tax withholding come January 1, 2013. Since most of us will not get a paycheck on New Year's Day, we will not be immediately affected by the higher rate of withholding. We would only see an impact when we got our first paycheck of the year in the middle or the end of the month. If Congress and the President work out a deal before that point, there will be no increase in withholding.
Even if a deal is not reached in time to affect the first paycheck, if they come to an agreement later in the month, the extra withholding can be paid back in the second or third paycheck. This is likely to have a minimal impact on the economy, since most people will not change their spending patterns if they expect to get any extra withholding refunded in the near future. For people literally living paycheck to paycheck the extra withholding will be a hardship, but the impact on the economy will be minimal.
There is a similar story with government spending. If it looks like a deal will be reached, President Obama need not adjust the flow of spending at all in January.
For these reasons, there is no special importance to the January 1 deadline. There are of course many political figures, such as the corporate CEOs in the Campaign to Fix the Debt, who are trying to create a crisis atmosphere in order to force an early deal. They hope that this crisis atmosphere can create an environment in which hugely unpopular actions, like cutting Social Security and Medicare, will be possible.
If people at NPR want to support this political effort then they should do it in explicitly labeled commentary. They should not hijack the news section to advance their political agenda.Add a comment
The Washington Post is intensifying its push for cuts to Social Security and Medicare apparently hoping for action in the lame duck Congressional session. Today a story in the news section told readers:
"On entitlements, Obama has offered significant changes to Medicare, including letting the eligibility age to rise from 65 to 67."
The passive tense in this sentence might confuse readers. President Obama proposed raising the eligibility age for Medicare from 65 to 67. This is not something that happens absent his effort to stop it, like the rise of the oceans due to global warming. Obama would be the agent of this increase in the age of eligibility. Experienced reporters and editors usually would not make this sort of mistake.
The next sentence tells readers:
"He has also supported applying a less generous measure of inflation to Social Security benefits."
Okay, does everyone know what this means? I suspect that only a small minority of Post readers understands that "applying a less generous measure of inflation" implies a cut in the annual cost of living adjustment of 0.3 percentage points. This cut would be cumulative so that after being retired 10 years a beneficiary would see a cut of approximately 3 percent, after 20 years the cut would 6 percent and after 30 years it would be 9 percent.
Newspapers are supposed to be trying to inform their readers. It is difficult to believe that the Post's terminology in this sentence was its best effort at informing readers of the meaning of this proposal. It is perhaps worth noting that this proposed cut in benefits is hugely unpopular.
At another point the Post discussed the contours of the budget dispute and told readers:
"one of the sticking points remains relevant: Although Democrats wanted to increase the tab [revenue increases] for taxpayers by $800 billion, Republicans wanted at least some of the money to come from economic growth, ...."
A real newspaper would write the second part of this sentence:
"Republicans wanted to claim at least some of the money would come from economic growth"
Undoubtedly both Republicans and Democrats would be happy if the government got additional revenue as a result of more rapid economic growth. The difference is that the Republicans want to score the additional revenue as part of the budget agreement, making assumptions about the impact of lower tax rates on growth that may not be warranted by the evidence. Most Post readers probably would not understand this fact.Add a comment
It is fashionable in elite circles to talk say that the aging of the population will bankrupt the country as a result of the higher costs it will impose on Social Security and Medicare (referred to as "entitlements.") It makes you seem a knowledgeable and concerned person to issue dire warnings along these lines.
Of course it is utter nonsense as everyone familiar with the projections knows. The projected rise in Social Security spending due to aging would increase the annual cost of the program by 1.2 percentage points of GDP over the next two decades, roughly two thirds of the increase in military spending associated with the wars in Afghanistan and Iraq. The aging of the population would actually have less impact on Medicare's costs, except that it is coupled with the expectation that per person health care costs will continue to rise much more rapidly than inflation. However, this means that the Medicare cost problem is a health care cost problem, not a problem due to the aging of the population.
Given this reality is difficult to see why the NYT allowed Jonathan Haidt to say in his oped column:
"we do face bankruptcy when the baby boomers retire and a shrinking percentage of workers must pay the ever growing expenses of a ballooning class of retirees. Yet the Democrats want to “protect” older Americans, students and almost everyone else from the need to sacrifice."
Haidt obviously wants to make middle class workers sacrifice more than they already have with three decades of wage stagnation, but his rationale is entirely his own invention. There are no remotely plausible projections that show the retirement of the baby boomers bankrupting the country. Insofar as there will be budget problems they are due to the costs of a broken health care system. This requires fixing the health care system, for example by paying doctors and drug companies less.Add a comment
The NYT has an article that discussed the possibility that China's economy will be less focused on investment and more focused on consumption and improving the quality of life of the Chinese people. It notes the extraordinary share of GDP in China that is devoted to investment and includes a graph that shows in the 1980s both Japan and South Korea also had an extraordinary share of GDP devoted to investment. It then tells readers that:
"Growth in Japan and South Korea started to slow and eventually tumbled after investment peaked. The big question now is when China will run into the same limits, ..."
This is not quite right. While Japan did have a sharp slowdown in growth following the collapse of its stock and real estate bubbles in 1990, South Korea has continued to maintain a healthy growth rate following the peak of investment in 1990. The point is important, because the NYT characterization of the situation implies that China faces an inevitable crisis while the experience of South Korea suggests that China could transition to a path of healthy growth that is less driven by investment.Add a comment
It's best to ignore personal slights in Washington and elsewhere, but this one goes beyond my personal feelings. In a review of Nate Silver's new book, Noam Scheiber notes the effectiveness with which Silver uses data to analyze a wide range of policy issues and then tells us:
"it’s not hard to imagine Silver and his ilk one day letting the air out of an inflating housing bubble."
Yeah, right. It shouldn't be too hard to imagine since that is what some of us were trying to do from 2002 onward. The remarkable story here is that we were ignored at the time and are apparently still ignored even after the fact by people who have the credentials to write in the NYT.
There is an interesting sociology of knowledge story here. How is that history can be completely rewritten? The problem was not that people were not making the case that we had an unsustainable housing bubble. The problem was that people with authority chose to ignore the people making the case that there was a bubble. And even now they can claim that the people warning about the bubble did not exist.
This works out well for the bubble deniers since it makes it easier to claim the "who could have known?" defense. But it is not true, and it is outrageous that Scheiber could ignorantly write something like this and the NYT book editor could allow it into print.Add a comment
Michael Gerson used his column today to make a bizarre attack on the NYT's polling analyst Nate Silver. He complains to readers:
"Silver’s prediction is not an innovation; it is trend taken to its absurd extreme. He is doing little more than weighting and aggregating state polls and combining them with various historical assumptions to project a future outcome to project a future outcome with exaggerated, attention-grabbing exactitude. His work is better summarized as an 86.3 percent confidence that the state polls are correct."
Actually Silver is doing nothing more than weighting and aggregating state polls and combining them with various historical assumptions. He is very clear on this. Gerson can go to Silver's website and find in great detail the methodology that Silver uses for weighting various polls based on their past track records. Gerson apparently thinks this is an indictment, complaining about Silver's precise 86.3 percent probability estimate.
The real problem here is simply that Gerson does not understand what Silver is doing. Silver's 86.3 percent prediction is premised on the assumption that the polls do not contain a systemic bias and that there is not some event(s) that radically shifts the attitude of the electorate between the last round of polls and the election. With these assumptions we can treat the polls as comparable to the draw of white and black marbles out of a huge jar.
If we take enough draws of 1000 balls (you're welcome to use a different number) and the average of each of these draws is that 50.5 percent of the marbles are black, we can begin to say with great confidence (which can be specified with many decimal points) that the majority of the marbles in this huge jar are in fact black. This is what Nate is doing. He does adjust the draws -- some polls consistently find more white or black marbles than the average of the other polls. Unless these polls have proved to be accurate in these divergences, Nate makes an adjustment for their tendency to find too many white or black balls. This process is the value-added that Nate provides over a simple averaging of the various polls.
This doesn't guarantee that Nate will prove right. There could be some systemic bias in the polls. This would be comparable to a situation where the black balls are heavier and therefore fall to the bottom and are less likely to be in the draw. The way to argue this case is to present a reason for why the polls could be biased. There are possible stories here: voters with only a cell phone may be undercounted, the assumptions about who is a likely voter may prove wrong, or the polls may be undercounting Spanish speaking voters.
These factors, and others, could lead to a systemic bias in the polls. But if Gerson, or anyone else, thinks this is the issue now, then it is incumbent on them to make the case, not get angry at Silver for using statistical methods.
The real problem is that Gerson just seems to have difficulty with numbers. He concludes his piece by telling readers:
"And so, at the election’s close, we talk of Silver’s statistical model and the likely turnout in Cuyahoga County, Ohio, and relatively little about poverty, social mobility or unsustainable debt."
Yes, it would be great if we had more discussion of poverty and social mobility throughout the campaign and beyond. It's hard to blame Silver for the lack of such discussion. The pre-Silver elections were not exactly dominated by serious discussions of major national issues. I recall in the 1988 presidential election when the big issues in the race between George H.W. Bush and Michael Dukakis were Willy Horton and the pledge of allegiance.
As far as the third item on Gerson's list, unsustainable debt, this is where his knowledge of math again fails him. Here is the ratio of interest payments to GDP over the last four decades:
Source: Congressional Budget Office.
As can be seen, the debt burden is very far from unsustainable, the interest burden is near its post-war low. In other words Gerson is angry because he thinks that somehow Silver's polling analysis has diverted the country from discussing a non-existent problem.
Add a comment