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).
Robert Samuelson devoted his column this morning to discussing the fate of Fannie Mae and Freddie Mac (F&F). He notes that both are still effectively owned by the government even though almost everyone agreed years ago that they should be wound down and eliminated.
The complaint against leaving F&F public is that it leaves the government exposed to the sort of liabilities that led us to spend more than $180 billion bailing out F&F in 2008–2009. This badly misunderstands the dynamics of housing finance.
First, on the money used to bail out F&F, we ended up making a profit using the standard accounting that the media employs for bank bailouts. The government collected more money from F&F than it loaned it. This is of course a silly criterion, since the government is among the world's lowest cost borrowers, so it can generally make money by lending at interest rates between its cost of borrowing and the cost of borrowing for the businesses to which it is lending money. (This is the story of how the Export-Import Bank is profitable.)
The issue here is that the government is allocating capital by making subsidized loans available to favored companies in the case of the Export-Import Bank or the housing sector in the case of F&F. This has a cost in the form of higher priced capital to other borrowers, even if this does not appear as a budget item. Anyhow, the issue should be less the bailout money than whether F&F helped fuel the housing bubble, and if there is an alternative structure that would make such irrational exuberance less likely.
On the first question, there can be no doubt that F&F contributed to the bubble (they did finance 40 percent of new loans), but they were followers rather than leaders. The worst loans were financed by the investment banks that bundled them into their own mortgage backed securities. The business press derided F&F at the time for losing market share to more nimble private sector competitors. When F&F did start to move more aggressively into the subprime market it was for pursuit of profit (they were privately-held profit-making companies at the time), not because they were trying to serve the public good.Add a comment
The NYT devoted an article to a report put out by the British Bankers' Association that claimed that new regulations were making the British industry less competitive internationally. This is presented as being a serious problem that should concern people.
In fact, people who believe in free trade should not care any more about the possibility that the U.K. will lose jobs in finance to foreign competition than if it loses jobs in textile manufacturing to foreign competition. The standard free trade argument — that all right-minded people are supposed to accept — is that the economy operates at full employment. This means that if bankers lose their jobs to international competition they will simply shift over to the sectors in which the U.K. has a comparative advantage. Only a knuckle-dragging Neanderthal protectionist would worry about losing jobs in textile manufacturing or banking to international competition.
It also would have been helpful if the NYT included the views of a critic of the banking industry in this article.Add a comment
The Planet Money team had a nice segment pointing on the Trans-Pacific Partnership (TPP). The piece pointed out that the TPP has no enforceable language on currency management.
While the deal is ostensibly about eliminating tariffs and other trade barriers, controlling currency values can be an effective way to impose barriers to trade. If a country intervenes in currency markets to lower the value of its currency by 10 percent it has an impact that is comparable to imposing a 10 percent tariff on all imports and giving out a 10 percent subsidy on all exports. There is nothing in the TPP that will prevent the parties in the agreement from protecting their industry through this mechanism.Add a comment
Josh Barro had a very nice discussion of the issues involved in simplifying the income tax code, as proposed by most of the Republican presidential candidates. He concludes with a discussion of what would probably the greatest simplification for most taxpayers: have the I.R.S. prepare returns that could be corrected by taxpayers if they thought there was an error.
This is now done in some European countries, such as Denmark and Spain. As Barro explains, it could also be done here, for people who file the standard deduction, which is most taxpayers. Barro points out that the number using the standard deduction could be increased by eliminating some deductions. This is true, but it would also be possible to increase the number of people taking the standard deduction by increasing its size.
Unfortunately, because of the power of H&R Block, few politicians are likely to propose this simplification that would be an enormous benefit to tens of millions of taxpayers. As Barro points out, none of the Republican simplifiers have it on their agenda.Add a comment
When a columnist uses your blog name in his title, he has to expect a response, right? Egan is unhappy about attacks on reporters and reporting from both the left and right. I am not going to particularly defend the targets of Egan’s criticism, but I will say that people have very good reason to be angry at the media. And here I am referring to elite outlets like the NYT, Washington Post, National Public Radio, not the small town journalists working at “poverty-level wages” who Egan grabs as a cover. (This reminds me of Walmart and McDonald’s touting the small businesses that will be hurt by a higher minimum wage. It’s not the story and everyone knows it.) I will stick to economic reporting, since that is my turf.
First, these news outlets cover economic issues almost entirely from an insider perspective. This means that the news is what people at the White House, the Fed, or the leadership in Congress want to be the news. And, it is overwhelmingly told from their perspective.
This means, for example, that trade deals like the Trans-Pacific Partnership (TPP) are often wrongly described as “free trade” deals. And it is often assumed, sometimes explicitly, that the point of these deals is to increase growth. Of course the deals are not at all “free trade,” since a main purpose of all recent U.S. trade agreements has been to increase patent and copyright protection. These are forms of protectionism. They serve a purpose in providing incentives for innovation and creative work, but they are nonetheless forms of protectionism.
It is simply wrong to describe patents and copyrights as “free trade.” Calling them free trade distracts from a serious discussion of their impact on the economy, inequality, and public health, after all, we are all supposed to support free trade.
Interestingly, the costs of these forms of protectionism are left out of almost every economic model that attempts to estimate the TPP’s impact on economic growth? This cost would almost certainly be a large negative. If patent protection raises the price of a drug fifty-fold (not uncommon) it has the same impact on the market as a 5000 percent tariff. Why do reporters never point this out?
The assumption that these deals are about increasing growth is also unwarranted. The negotiating parties are industry groups like the pharmaceutical industry, the financial industry, and the entertainment industry. These groups are interested in promoting profits for their industries not economic growth. Why is this so hard for reporters to acknowledge?Add a comment
I mention this because some of the reporting on this topic might have misled some people. For example, the NYT recently told readers:
"All three candidates [Clinton, O'Malley, and Sanders] support a financial transaction tax to limit high-frequency trading." [emphasis in original]
While Clinton has proposed a tax on high frequency trading, which is almost certainly unworkable, the other two candidates have actually proposed financial transactions taxes. The taxes they have proposed would raise between $600 billion and $2 trillion over the next decade. Virtually all of this money would come out of the pockets of the financial industry, since its primary impact would be to reduce trading volume. For the vast majority of investors, the savings from reduced trading would be equal or greater than the taxes paid on their trades.
The taxes proposed by Sanders and O'Malley would be a huge hit to Wall Street, bringing it back to the size, relative to the economy, that it was at two or three decades ago. Secretary Clinton has explicitly chosen not to go in this direction.
It is important for the public to recognize this difference. While the other two candidates are proposing measures that would be a major hit to the financial industry, Secretary Clinton is not. Voters should recognize this distinction in their positions; the reporting almost seems designed to hide it. [The Wall Street Journal committed a similar sin, although the error was not quite as egregious.]Add a comment
Thomas Friedman, who once said that Germany would demand Greeks work like Germans as a condition of bailout funds (Greeks now work many more hours on average), allowed his column to stray into economics again today. Not surprisingly, he gets some of the big things wrong.
He starts by going after Donald Trump. While Trump has said many things on economic issues that bear little relationship to reality, Friedman attacks him on one that does. Friedman recounts an interview in which Trump said that he would provide universal health care insurance. Trump is then asked how he will pay for it. Friedman presents Trump's answer along with his own comment:
"'The government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most [part] it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors, with great companies — and they can have their doctors, they can have plans, they can have everything.'
"I just love that last line: 'They can have their doctors, they can have plans, they can have everything!'"
The irony of Friedman's comment is that Trump's claim is not far from being true, if the United States were to adopt a more efficient health care system. The United States pays more than twice as much per person for its health care as other wealthy countries, with little obvious benefit in terms of outcomes.
The World Bank put U.S. annual per person spending at $9,150 in the years 2006–2010. By comparison, Canada spends $5,700, Germany spends $5,000, and the United Kingdom spends $3,600. This enormous gap suggests that the United States could cover the uninsured and pay for it by eliminating the waste in its system.Add a comment
The NYT decided to take on Donald Trump's assertion that the Trans-Pacific Partnership (TPP) is a bad deal for the United States because it doesn't have any provisions on currency manipulation, henceforth referred to as "management." ("Manipulation" implies something that is hidden. Most of the countries who have been candidate "manipulators" have an explicit policy of targeting the exchange rate of their currency against the dollar and buy large amounts of U.S. government bonds to keep the value of their currency down. We don't have to catch them in the middle of the night doing something inappropriate in currency markets. They do in broad daylight where everyone can see it.)
The fact check begins:
"While it is true that the trade deal includes no binding mechanism for dealing with countries that engage in currency manipulation — something that could precipitate sanctions, for example — it does include commitments by signatories to avoid aggressively weakening their currencies to gain market share for their exports."
Actually, the TPP signatories already have similar commitments as members of the I.M.F. It is not clear how the new commitments are qualitatively different and with no enforcement mechanism, it is difficult to believe anyone will take them seriously. We have clear enforcement mechanisms for the rights of investors, obviously they did not feel that vague "commitments" were sufficient. Why should anyone who cares about the trade deficit caused by currency management be obligated to accept a much weaker and likely meaningless provision?
Next we get:
"While many economists agree with Mr. Trump that currency manipulation by our trading partners costs American jobs, they often frown upon the inclusion of strict anticurrency manipulation provisions in the text of trade agreements, arguing that it can be more fruitful to address the problem in bilateral negotiations with the offending country."
Yes, we have been doing bilateral negotiations for decades. We still have a trade deficit of close to 3 percent of GDP (@$500 billion a year). If economists like Paul Krugman, Larry Summers, and Olivier Blanchard are correct, and we face an ongoing problem of secular stagnation, then the trade deficit is creating a major shortfall in demand that can not be easily filled by other components of GDP.
As far as the view of "many economists," economists tend not to take seriously the unemployment and wage declines caused by large trade deficits. It is rarely their friends and families that are affected.
And for the concluding shot:
"Finally, as Senator Rand Paul pointed out, China is not a party to the Trans-Pacific Partnership agreement. In fact, one of the administration’s arguments for passing the agreement is that it would help check China’s influence in the region, and its ability to 'write the rules of the global economy.'"
The NYT strikes out big time here. The plan is to expand the TPP to eventually include China. The idea is to have them play by our rules. If there are not rules on currency management at the time China enters the TPP it is very unlikely it will agree to have them added.
Note: link added, thanks Ltr.Add a comment
Eduardo Porter had a good piece in the NYT today about how India's development needs are likely to lead to a massive increase in its greenhouse gas emissions over the next two decades. This is an interesting issue to think about in the context of secular stagnation.
The problem of secular stagnation is that the United States and other wealthy countries are not creating enough demand to fully employ their labor forces. A great way to increase demand in the U.S. economy would be to pay India to develop using clean energy instead of coal. In effect, the U.S. and other wealthy countries would be covering the difference between the cost of using wind and solar energy. This would both curb emissions and also address the problem of secular stagnation by creating more demand.
Yes folks, I know that India may not buy the wind turbines and solar panels from the United States. But, if we put more dollars out into the world economy, it should drive down the value of the dollar, which will make our goods and services more competitive internationally. This will improve our trade deficit. (Of course, that assumes that other countries' central banks may choose to hold these dollars to prop up the dollar against their currency. If the United States were not such a weak country, we might be able to use our influence and power to deter this sort of currency management, but the artificially propping up of the dollar would be a real risk, which would limit the extent to which the U.S. would see additional demand.)Add a comment
News reports continue to obsess over the idea that China and other countries might run out of people if they don't increase their birth rates. The implication is that countries won't have enough people to do the necessary work to support a larger population of retirees. (It's worth noting that many of these same people worry about robots taking all the jobs. If it's not obvious that these concerns are 180 degrees opposite then think about it until it is.) Anyhow, the NYT had an article that referred to the expected population gains from China ending its one-child policy which gives an idea of the economic importance of this measure.
The piece told readers:
"Mr. Wang [a vice minister of the National Health and Planning Commission] said that the relaxation of rules governing family size would bring more than 30 million new entrants into the labor force by 2050, and that the proportion of older people in China’s total population would be reduced by about 2 percentage points."
To get some rough idea of the impact of this increase in the size of the working age population, if the ratio of workers to retirees would have been 2.0 to 1 in the baseline, it would be roughly 2.2 to 1 as a result of the increased birthrate. If a retiree's living standard is equal to 80 percent of a worker's living standard, this would imply an increase in the living standard of workers just over 3 percent by 2050 as a result of higher ratio of workers to retirees. This is equivalent to less than six months of growth at China's current pace.
Furthermore, the actual improvement in living standards as a result of the higher birth rate would be considerably less than 3.0 percent, since there will be more dependent children to support in the higher population growth scenario. In addition, the larger population will place greater demands on the infrastructure and the environment. On net, the more rapid population growth could certainly have a negative impact on living standards in 2050, especially if we consider distribution (a greater supply of labor could mean lower wages). However, even before factoring in the negatives, the potential benefits of a larger ratio of workers to retirees are swamped by the impact of economic growth.Add a comment
I was impressed to see the strong reaction to my blog post comparing the productivity of the research done by the Drugs for Neglected Diseases Initiative (DNDI) and research by the pharmaceutical industry supported by patent monopolies. Commentators here and elsewhere insisted that such comparisons were “idiocy” and possibly even dangerous. Many insisted that my explicit assertion that this was not an apples to apples comparison was inadequate, even though I noted important differences in the $2.6 billion in costs attributed to the pharmaceutical industry to develop a new drug with the expenses incurred by DNDI in developing new treatments.
Apparently, in their view making any comparison between the efficiency of the research done by the pharmaceutical industry and other biomedical research is inappropriate. It is understandable that people who profit from the current system of patent monopoly supported drug research might hold that view, but the rest of us who pay for this research in the form of artificially high drug prices must ask these sorts of questions.
First, of course the research supported by government granted patent monopolies and the research done by DNDI is qualitatively different. The drug industry is looking for patentable products from which it can profit; DNDI is doing research that is directly intended to have the greatest possible impact on public health. The question is, on a per dollar basis, which route is a more effective way to promote public health.
Improving public health is the point of biomedical research, not developing new drugs as several commentators seem to believe. The question is whether it is better to spend $2.6 billion developing a drug based on a new chemical entity through patent supported research or to spend this money in areas like developing new treatments with existing drugs, promoting better diets and exercise, or developing new drugs through alternative financing mechanisms.
The comparison between the $2.6 billion estimate of the industry’s cost for developing a new drug and the output from DNDI is informative on this topic, although far from conclusive. (If anyone has any research demonstrating the superior efficiency of patent monopoly financed drug research, I would appreciate the references.)
In fact, the comparison is overly generous to the industry since we pay four or five dollars in higher drug prices for every dollar we get of patent financed research. We are on a path to spend more than $400 billion this year on prescription drugs. If these drugs were sold in a free market without patents or other protections the cost would almost certainly be less than one-fifth this amount. In some cases, the gap in costs between the patent-protected price and the free market price is more than one hundred to one. Sovaldi sells in the United States for $84,000 per treatment. A generic version is available in Bangladesh for less than $1,000. Drugs are almost always cheap to manufacture and distribute, it is patent monopolies that make them expensive.Add a comment
The NYT apparently thinks so, since it ran a front page piece on the difficulty of increasing birth rates in Europe, China, and elsewhere. Let's see, if we have a declining population that means fewer traffic jams, less crowded parks and beaches, and less pollution. Sounds like a crisis to me.
I know the "hard to get good help" crowd is worried about who is going to work as their servants, but for the foreseeable future it looks like we are facing a situation of inadequate demand in the economy (a.k.a. secular stagnation). This means that we do not have enough demand to fully employ the available workforce. If we don't have enough demand to employ the available workforce how is it a problem if the size of the available workforce shrinks?
People should feel confident enough in their economic situation and have sufficient social support in the form of affordable child care and paid leave from work that they can have children if they want. But if the population declines because people opt not to have children, it's difficult to see what the problem is.Add a comment
Tyler Cowen had a piece in the NYT arguing that the mandates in Obamacare may be painful for many moderate-income people who don't qualify for subsidies and don't value the insurance. This is true, but it is also true of almost any policy that would be designed to help low- and moderate-income people.
First, the basic point is that the mandate requires people to buy insurance who might not have otherwise if the law didn't require it. If we give these people credit for acting rationally, they would choose to pay necessary medical expenses out of pocket and to rely on emergency room care rather than pay for an insurance premium. In this case, the mandate is effectively a tax that can be a substantial burden on households who are over the cutoff for subsidies at 350 percent the poverty level. (That would be $41,200 for a single person, $71,300 for a family of three.)
This sort of argument would also apply to a program like Social Security. There are many people who can reasonably expect that they will not enjoy long retirements based on the age at which parents and other relatives have died. Social Security also provides survivors benefits for spouses and dependent children. In addition, it provides disability benefits. But if a person with a short life expectancy does not have children, or they have grown, and either does not have a spouse or the spouse would be entitled to comparable benefits based on their own work history, Social Security will not provide this person with a very good expected payback. We may or may not feel bad about requiring this person to contribute to Social Security, but it is essentially the same sort of dilemma that Cowen raises about Obamacare.Add a comment
In an editorial railing against the Republican Congress for reducing the Fed's reserve fund (which is needed in case they forget how to print money), the Washington Post told readers:
"Central bank independence and fiscal transparency are attributes of a healthy democracy and have been throughout history. Many a banana republic, by contrast, has come to grief using its central bank to facilitate government deficit spending. Post-World War I Germany had a similar problem, if memory serves."
Apparently memory isn't serving the Post's editorial writers very well. The Bank of England did not independently set its monetary policy until 1997. Nonetheless, it somehow it managed to avoid hyperinflation and most people probably would still describe the U.K. as a democracy. There are many other examples of central banks, including the Fed during World War II and for six years afterwards, which were not independent of the elected government. In almost none of these cases did countries suffer from hyperinflation.
On the other side, independent central banks in the United States and Europe somehow managed to overlook enormous housing bubbles, the collapse of which sank their economies. In Europe, the collapse has actually caused more economic damage than the Great Depression. Incredibly, none of the bank officials responsible lost their jobs for their extraordinary incompetence.
Unlike dishwashers, truck drivers, or school teachers, independent central bankers are not held responsible for the quality of their performance. In fact, virtually all of the bankers responsible for this disaster will retire with pensions that are an order of magnitude larger than the Social Security checks that so enrage the Post's editorial writers.Add a comment
As the debate over a Fed interest rate hike heats up, it is worth noting an important distinction between the types of issues being debated. On the one hand there is a debate over what is likely to happen in a scenario in which the Fed soon begins raising interest rates and one in which it does not. On the other hand there is debate over what we want to see happen.
The first question has to do with the likelihood that we will see more rapid wage growth and more rapid inflation if the Fed holds off compared to a scenario in which it starts raising rates. Looking to the 1990s, many of us see the possibility that wages could grow considerably more rapidly without any substantial uptick in inflation. (There was strong real wage growth in the last year due to a plunge in energy prices, but no one expects that to be repeated. Real wage growth in the year ahead will depend on stronger nominal wage growth.)
Since productivity growth has been incredibly weak in recent years, the possibility of stronger real wage growth will depend at least in part on a return of more normal productivity growth, at least in the range of 1.5–2.0 percent. (Where are the robots when we need them?) There is a story that productivity growth may be in part endogenous. This would mean that in a tighter labor market firms have more incentive to economize on labor. Also, in a tighter labor market workers move from low paying, low productivity jobs to higher paying, higher productivity jobs.
There are clear differences among economists in their views on the extent to which a tighter labor market will first translate into higher wage growth, and secondly how much this will translate into higher inflation. However, there is also a difference on what we might want to see. There was a massive shift from wages to profits at the start of the recession. The weakness of the labor market allowed employers to keep pretty much all of the gains in productivity in 2008–2011.
This is a sharp departure from the rise in inequality that we saw in the prior three decades. That was pretty much entirely a story of redistribution of labor income. Money went from assembly line workers and retail clerks to doctors and lawyers, Wall Street bankers, and CEOs.Add a comment
Most young people today are having tough times economically. As we know, the main reason for this fact is that so much income has been redistributed upward over the last thirty five years. (Also, we have a cult of deficit reduction in which our leaders in Washington insist on keeping deficits small even when this means slowing growth and keeping people out of work.) Their parents are not doing notably better, with most approaching retirement with little to support them other than their Social Security and Medicare. The wealth holdings of the middle quintile of households headed by someone between the ages 55–64 averaged $165,700 in 2013. Excluding home equity it was just $89,300.
But Social Security and Medicare are still something. And the guiding philosophy of many in Washington is that a dollar that is in the pocket of a poor or middle-class person is a dollar that could be in the pocket of a rich person. Furthermore, if they can get the kiddies to complain about their parents' Social Security and Medicare they may not notice all the money that the Wall Street gang, the pharmaceutical companies, and the rest are pocketing at their expense.
Hence we get folks like private equity billionaire Peter Peterson devoting much of his fortune to perpetuate attacks on Social Security and Medicare. The Washington Post has also been a major actor in this effort using both its news and opinion pages to advance the cause. Unfortunately, they appear to have enlisted a relatively new economics reporter, Jim Tankersley, who should know better.
Tankersley used his column to complain that "baby boomers are what's wrong with the economy." He adds in the subhead, "they chewed up resources, they ran up the debt, and escaped responsibility."
He lays out the case in the third and fourth paragraph:
Add a comment
"Boomers soaked up a lot of economic opportunity without bothering to preserve much for the generations to come. They burned a lot of cheap fossil fuels, filled the atmosphere with heat-trapping gases, and will probably never pay the costs of averting catastrophic climate change or helping their grandchildren adapt to a warmer world. They took control of Washington at the turn of the millennium, and they used it to rack up a lot of federal debt, even before the Great Recession hit.
"If anyone deserves to pay more to shore up the federal safety net, either through higher taxes or lower benefits, it’s boomers — the generation that was born into some of the strongest job growth in the history of America, gobbled up the best parts, and left its children and grandchildren with some bones to pick through and a big bill to pay. Politicians shouldn’t be talking about holding that generation harmless. They should be asking how future workers can claw back some of the spoils that the “Me Generation” hoarded for itself."
Insanely high drug prices have been in the news lately. We are regularly hearing about new miracle drugs like the Hepatitis C drug Sovaldi. Sovaldi comes with an $84,000 price tag for a 3-month course of treatment. Many of the new cancer drugs cost well over $100,000 for a year's dosage. And of course we had the case of Turing Pharmaceuticals, which raised the price of a Daraprim, an old but important anti-infection drug, by 5000 percent.
These stories of extraordinarily high drug prices are especially painful because they are unnecessary. In almost all cases drugs are cheap to produce. The reason they are expensive is because the government grants them a patent monopoly. (In the case of Daraprim, at the moment Turing is the only licensed manufacturer, even though the drug is off-patent.) Generic Sovaldi is available for just $300 a treatment in Egypt, less than one percent of the U.S. price. Most of the cutting edge cancer drugs would also be available for less than one percent of the U.S. price if they could be sold as generics in a free market.
The rationale for patent monopolies is that the drug companies need high prices to recover their research costs. And, they claim they have very high research costs. According to Joe DiMasi, an economist with close ties to the industry, the research and development costs of the pharmaceutical industry averages almost $2.6 billion for each new drug they produce that is a new molecular entity. (New molecular entities account for only about 15 percent of the new drugs approved by the Food and Drug Administration.)
Patent monopolies are not the only way to support research. There are other mechanisms. For example, the U.S. government spends over $30 billion a year on biomedical research through the National Institutes of Health. There are also various private initiatives that support research.
One such initiative is the Drugs for Neglected Diseases Initiative (DNDI). This is a research network, led by Doctors Without Borders, that was established to develop treatments for diseases that primarily affect poor people in the developing world. It was created in 2002. On their tenth anniversary, DNDI produced a report describing some of their accomplishments. The figure below shows some of the highlights and their price tag and compares them to DiMasi's estimate of what it costs the big pharmaceutical companies to develop a single drug.
Add a comment
As the figure shows, DNDI was able to develop ASAQ, a combination drug for treating Malaria, for $17 million. More than 250 million dosages have been distributed since 2007. It developed Fexinidazole, a new drug candidate and new chemical entity, intended to treat sleeping sickness, at a cost of $38 million. DNDI developed SSG&PM, a combination therapy for visceral leishmaniasis at a cost of $17 million. DNDI's entire budget for its first 10 years of existence was $242 million, less than one-tenth of what DiMasi estimates it costs the pharmaceutical industry to develop a single new drug.
The Washington Post got recent history badly wrong in the third paragraph of its lead front page article when it told readers:
"Three years ago, GOP presidential nominee Mitt Romney and Ryan, his running mate, faced withering Democratic attacks after endorsing dramatic overhauls of Medicare and Social Security that proved unpopular."
Actually, Romney did not endorse an overhaul of Social Security in his 2012 campaign, although Ryan has long been on record as favoring privatization. Presumably, they chose not to raise the issue in the campaign since they knew it would be highly unpopular.
The piece also notes Governor Chris Christie's characterization of himself as a "truth-teller" on Social Security and then reports on his plan to save the system money by means-testing benefits starting at $80,000 and eliminating them entirely for people with incomes over $200,000. The truth is that this cut would only reduce spending by 1.0-1.5 percent. Furthermore, it would effectively increase the marginal tax rate for people in this $80,000-$200,000 range by more than 20 percentage points.
While Romney did not call for privatizing Social Security, he did propose raising the normal retirement age by two years to 69. He also proposed reducing benefits for middle and upper income workers from their currently scheduled levels.Add a comment
That might have been a better headline for a NYT piece on the Trans-Pacific Partnership. As the piece points out, the provisions on labor rights in Vietnam and currency interventions by governments, which have been widely touted by the Obama administration, are not actually enforceable under the terms of the TPP. There are other much less well-defined mechanisms. On the other hand, if Pfizer wants to argue that Australia is not respecting its patent rights or George Lucas wants to complain that Malaysia is not honoring his copyrights on Star Wars, there is recourse through the Investor-State Dispute Settlement mechanism.Add a comment
The Washington Post decided to correct the positive image of Denmark that Senator Bernie Sanders and others have been giving it in recent months. It ran a piece telling readers:
"Why Denmark isn't the Utopian fantasy Bernie Sanders describes."
The piece is centered on an interview with Michael Booth, a food and travel writer who has spent a considerable period of time in the Scandinavian countries.
Much of the piece is focuses on the alleged economic problems of Denmark and the other Scandinavian countries. At one point the interviewer (Ana Swanson) asks:
"Danes are experiencing a rising debt level, and a lower proportion of people working. Are these worrying signs for its economy or the country's model?"
While Denmark's employment rate has been declining, it is still far higher than the employment rate in the United States. The employment rate for prime age workers (ages 25–54) is still more than 5 full percentage points higher than in the United States. If the rate of decline since the 2001 peak continues, it will fall below the current U.S. level in roughly 24 years. (The U.S. rate also fell over this period.) If we take the broader 16–64 age group then the gap falls slightly to 4.7 percentage points.
As far as having an unsustainable debt level, Swanson seems somewhat confused. According to the I.M.F., Denmark's net debt as a percent of its GDP will be 6.3 percent at the end of this year. Sweden has a negative net debt, meaning the government owns more financial assets than the amount of debt it has outstanding. In Norway's case, because of its huge oil assets, the proceeds of which it has largely saved, the government wealth to GDP ratio is almost 270 percent. This would be equivalent to having a public investment fund of more than $40 trillion in the United States.
Some of the other assertions in the piece are either misleading or inaccurate. For example, Booth is quoted as saying:
"Meanwhile, though it is true that these are the most gender-equal societies in the world, they also record the highest rates of violence towards women — only part of which can be explained by high levels of reporting of crime."
Actually, Danish women are far less likely to be murdered by their husbands or boyfriends than women in the United States. Its murder rate is 1.1 per 100,000, compared to 5.5 per 100,000 in the United States.
Later Booth is quoted as saying:
"In Denmark, the quality of the free education and health care is substandard: They are way down on the PISA [Programme for International Student Assessment] educational rankings, have the lowest life expectancy in the region, and the highest rates of death from cancer. And there is broad consensus that the economic model of a public sector and welfare state on this scale is unsustainable."
While Denmark is not among the leaders on either PISA scores or life expectancy, on both measures it is well ahead of the United States. And the "broad consensus that the economic model...is unsustainable" exists only in Booth's head.
Booth is also apparently confused about tax rates around the world. He tells readers:
"Denmark has the highest direct and indirect taxes in the world, and you don’t need to be a high earner to make it into the top tax bracket of 56% (to which you must add 25% value-added tax, the highest energy taxes in the world, car import duty of 180%, and so on)."
Actually France has a top marginal tax rate of 75 percent. The U.S. rate was 90 percent during the Eisenhower administration.
Booth apparently is confused about Denmark's public spending. He tells readers:
"How the money is spent is kept deliberately opaque by the authorities."
Actually, it is not difficult to find a great deal of information about Denmark's money is spent. Much of it can be gotten from the OECD's website.
So we get that Mr. Booth doesn't like Denmark. He tells readers that the food and weather are awful. That may be true, but his analysis of other aspects of Danish society doesn't fit with the data.Add a comment
Hey, better late than never. It was good to see two columns reporting on new data indicating that the Current Population Survey (CPS), the main survey used to measure poverty rates, as well as employment and unemployment, seriously undercounts the number of poor people due to undercoverage in its sample. It's an important point and deserves attention.
We thought so too, which is why John Schmitt was writing about the issue almost a decade ago for CEPR. Schmitt noticed a large gap between employment rates as shown in the CPS and the 2000 Census long-form. The latter was lower with the largest gap for the groups with the lowest coverage rate in the CPS. (Coverage rates in the Census are close to 99 percent due to extensive outreach efforts.) In the case of young African American men the gap was close to 8.0 percentage points.
Anyhow, this is an important issue and it is good to see it get some attention. Of course it would have been better if it got some attention a decade ago.Add a comment