Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is a Senior Economist at the Center for Economic and Policy Research (CEPR).

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Morning Edition included a discussion this morning (no link yet) with WSJ economics editor David Wessel and the Economist's economics editor Zanny Mintos Beddes. When the discussion turned to housing, David Wessel said that in retrospect we underestimated the extent to which housing would be a drag on the economy.

Actually, those who understood the housing market were saying at the beginning of the downturn and before that the collapse of the housing bubble would be a serious and longterm drag on the economy. It was easy to see that the loss of $8 trillion in housing wealth would substantially reduce consumption and that the enormous overbuilding during the boom was going to lead to a prolonged period of depressed construction. Wessel simply failed to study the factors driving the economy. There was no need for hindsight on this one.

At one point Zanny Mintos Beddes held out the possibility that resurgent residential construction might provide a boost to the economy in the near future. That seem unlikely since the vacancy rate is still near record highs.

[I just stumbled onto this one by chance. People who did their homework did not need hindsight.]

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Two years ago the Republican party adopted a requirement that every time a party member used the word "regulation" it had to be preceded by the phrase "job-killing." Those who failed to comply were thrown out of the party.

The Post has a nice front page piece looking at the evidence that regulations are in fact serious job killers. The piece reports what almost all economists would acknowledge: regulations both eliminate and create jobs. Their net effect tends to be small.

Tell that to your favorite job creator.

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Some folks are still missing the $8 trillion housing bubble and Robert Samuelson seems to be one of them. In reviewing the housing market it is important to notice that there is a very different story by regions. In many areas (e.g. Las Vegas and Phoenix), bubbles have fully deflated and we should look for house prices to stabilize and even rise some in the years ahead. In other areas, like Los Angeles and Boston, there is likely still some air in the bubble. In these markets, prices are likely to fall in the years ahead. This can be seen as a good thing, since it will make homes more affordable for new buyers.

It would be foolish to envision a single national housing market since different regions have very different dynamics. As a result, it would be very wrong-headed to try to design a single policy -- for example promoting higher prices -- for the nation as a whole.

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A front page Washington Post article told readers:

"Analysts, however, said the United States could risk another downgrade of its credit rating and do further damage to business and consumer confidence if the supercommittee process implodes in a chaotic display of partisan rancor — for example, if a deal is approved by the supercommittee but is killed on the House floor. And analysts are deeply concerned that lawmakers could 'de-trigger' the automatic cuts, undoing even the modest steps Congress has so far taken to tame the soaring debt."

It would be interesting to know who these analysts are so that readers could know if these are the same people who could not see the $8 trillion housing bubble that collapsed and wrecked the economy. It would be also worth knowing if these analysts were among the group who claimed two years ago that large deficits would send interest rates on Treasury bonds soaring. Readers should be told if the experts whom the Post relies upon for its stories are primarily known for their misunderstanding of the economy.

The piece also includes the unsupported assertion that:

"the numbers obscure a larger ideological divide. Democrats are willing to trim spending on health and retirement programs in exchange for an overhaul of the tax code that would generate significantly more revenue, with most of the burden borne by the nation’s wealthiest households.

"Republicans want to overhaul the tax code but lower the top rate from 35 percent to 28 percent and leave preferential rates untouched for capital gains and dividends. Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, said that approach would almost certainly guarantee lower taxes for the wealthy."

There is no evidence whatsoever in this statement or elsewhere in the article of any ideological divide. The evidence is that the Republicans are more directly responsive to the demands of the wealthy whereas Democrats feel the need to also be responsive the interests of other segments of the population. If there are ideological issues here, the piece offers no insight as to what they might be.

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It is misleading to imply, as Morning Edition did, that Ayn Rand's philosophy was about free markets. The idea of promoting oneself at the expense of others, advocated by Rand, is consistent with taking advantage of whatever support one is able to get from the government in this process.

For example, the top executives of Wall Street banks are happy to take advantage of the implicit government guarantee given to too-big-to-fail banks as well as the explicit guarantee that is given through deposit insurance in addition to the support given by the Federal Reserve Board through access to its discount window and other facilities. It is politically advantageous for people who benefit from these and other types of government support to claim that they are advocates of free markets even if it is not true.  

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The NYT reported that the supercommittee remains deadlocked on taxes. It reports that Republicans are willing to agree to $250-$300 billion in tax increases by eliminating loopholes in exchange for reducing the top tax rate to 28 percent instead of allowing it to rise back to the Clinton era level of 39.6 percent. While the piece notes that this would be a windfall for high income taxpayers, it would have been worth reminding readers that the sums being proposed are less than 2 percent of the projected $17 trillion adjusted gross income of the richest 1 percent over the next decade. By contrast, there is bi-partisan support for cutting the annual Social Security cost of living adjustment by an amount that would reduce average benefits by close to 3 percent.

The piece including comments from Morgan Stanley director Erskine Bowles without identifying his association with the giant Wall Street bank.

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Adam Davidson has a piece in the NYT magazine about how the middle class will have to take a hit to deal with the country’s deficit. It’s a bit quick to reach this conclusion.  

First, the piece too quickly dismisses the possibility of getting substantial additional tax revenue from the wealthy. It presents the income share for those earning more than $1 million as $700 billion, saying that if we increase the tax rate on this group by 10 percentage points (from roughly 30 percent to 40 percent), then this yields just $70 billion a year.

However, if we lower our bar slightly and look to the top 1 percent of households, with adjusted gross incomes of more than $400,000, and update the data to 2012 (from 2009), then we get adjusted gross income for this group of more than $1.4 trillion. Increasing the tax take on this group by 10 percentage points nets us $140 billion a year. If the income of the top 1 percent keeps pace with the projected growth of the economy over the decade, this scenario would get us more than $1.7 trillion over the course of the decade, before counting interest savings. Of course there would be some supply response, so we would collect less revenue than these straight line calculations imply, but it is possible to get a very long way towards whatever budget target we have by increasing taxes on the wealthy.

There are also other ways to address much of the shortfall. In the case of defense, the baseline projects that military spending will average 4 percent of GDP over the next decade. We had been spending 3 percent of GDP on defense in 2000, and the share had been projected to drop further over the course of the decade. If military spending averaged 3 percent of GDP over the next decade, that would save us $2 trillion before interest savings. There are reasons that people may not want to go that low (also reasons to go lower:  CATO used to advocate a budget about half this size), and it may take time to reduce Defense Department budgets, but it should not be absurd to imagine that we could get by with the same sort of military budget (relative to our economy) that we actually had a decade ago.

Another way in which we could have substantial savings that would be relatively painless is to have the Fed simply keep the bonds that it has purchased as part of its various quantitative easing operations. It currently holds around $3 trillion in bonds. The interest on these bonds is paid to the Fed and then refunded to the Treasury. Last year it refunded close to $80 billion in interest. The projections show that the Fed will sell off these bonds over the next few years so that these interest earnings will fall sharply. However, if it continued to hold the assets, over the course of a decade it could save the government around $800 billion in interest payments. The Fed might have to take other measures to contain inflation (the immediate reason for selling the assets would ostensibly be to raise interest rates and slow the economy), but it has other tools to accomplish this goal, most obviously raising reserve requirements. (The Chinese central bank uses reserve requirements as a main tool for controlling inflation.)

Finally, the big story in any serious discussion of the long-term budget is health care. We pay twice as much per person as people do in other wealthy countries. Since more than half of the tab for our health care is paid by the government, our broken health care system becomes a budget problem. If we paid the same amount per person for our health care as people in other wealthy countries, we would be looking at long-term budget surpluses rather than deficits. The reason that we pay so much more is not that we get better outcomes – we don’t generally. Rather it is that we pay too much to drug companies, hospitals, medical specialists, and others in the health care industry.

We can’t keep on this course on either the public or private side. The real question is whether we look to save money by having people get fewer services or we look to save money by paying providers less. The former could mean, for example, giving seniors a Medicare voucher that we know will not be sufficient to cover the cost of care for most people. In this case, they will just have to do without some amount of care.

The other route involves restructuring the health care system. This is incredibly difficult politically as was seen in the debate over President Obama's health care plan. Nonetheless, in the long-run serious reform is the only option, since the alternative is that large numbers of people (including very middle class people) will not be able to get decent care.

One route to get around the political obstacles is to rely on trade. (Here is a short piece I wrote on trade in health care with Jagdeesh Baghwati.) If we make it easy for people to go abroad for health care and open our doors to qualified foreign doctors, we will eventually be able to undermine the ability of the providers’ lobbies to block reform.

Even before trade has much impact on the structure of the health care industry there are enormous opportunities for large budget savings in health care costs that focus on reducing payments to providers (e.g. lower prescription drug prices in Medicare). These payment cuts would not in any obvious way lead to reduced services.

In short, there is little reason to be talking about imposing increased burdens on the middle class any time soon. For the near term, the budget deficit is clearly not a problem. The financial markets are willing to lend the country large amounts of money at very low rates. Over a longer term, the deficit will pose more of an issue, but most of this pressure will come from health care costs. If these costs can be contained, and we get additional revenue from the top 1 percent and restrain the military budget, then the need for the middle class to bear additional burdens can be pushed out well into the future.

At some point, we likely will need more revenue from the middle class since we will probably want to increase government spending in some areas like infrastructure, education, and research and development. However, this is not a near-term prospect and quite possibly not even something that will be necessary over the course of a decade. Furthermore, if the need for additional revenue comes at a time when the unemployment rate is again down in a 4-5 percent range and real wages are rising, it will be much easier for the middle class to bear.

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The Washington Post, which once told readers that Mexico's GDP had quadruped between 1987 and 2007 to bolster its case for NAFTA (the actual increase was 83 percent), was in the exaggerated numbers again mode yesterday in discussing the impact of a trade agreement on Japan. In reporting the projections from a model, the article told readers that as a result of the trade agreement (inaccurately described as a "free trade" agreement):

"consumer prices would drop 39 percent."

There is no model that would show this sort of effect for consumer prices as a whole. It is possible that it meant food prices, although even this impact would be quite dramatic. Food accounts for 13.7 percent of consumer expenditures in the United States. The narrower "food at home" category accounts for 7.8 percent. Since Japan has considerably higher food prices, both these numbers are presumably higher in Japan. If a trade agreement actually dropped food prices in Japan by 40 percent, this would imply a dramatic increase in the standard of living for most people in Japan.

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Floyd Norris has an interesting piece discussing the credit default market in European debt. He notes that the volume of issuance has not increased in recent months even as spread between the interest paid on the bonds of heavily indebted countries and Germany has increased. (France is an exception, which is easily explained by people wanting to bet that its situation will deteriorate.)

Norris explains the limited issuance as likely being the result of the way in which Greece's debt is being restructured. The banks holding Greek bonds are being coerced by European to accept 50 cents on the dollar. However, this is not considered a default event that would trigger the payment on a credit default swap. The reason is that the banks are agreeing to accept this lower payment, the Greek government has not actually defaulted on a payment owed. Since this would likely be the pattern for the resolution of other sovereign debt crises, a credit default swap will be of little value. 

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An NYT piece on Japan's plans to join trade talks that include the United States and other Asian countries used the phrase "free trade" six times, including in the headline. These deals will not lead to literal free trade, since they are unlikely to do much reduce the barriers that protect highly paid professionals like doctors and lawyers. Also, they are also likely result in the increase of some protectionists barriers, most notably patent and copyright protection, which are high priorities for the United States.

Therefore it would be more accurate to simply call them "trade" agreements. This would also save space.

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An NYT article discussing the impact of the European sovereign debt crisis on the U.S. economy raised the possibility that it could lead to a fall in the stock market, which would then slow consumption. It is worth noting that consumption tends to respond with a lag to changes in the stock values, and even then the impact is relatively limited.

For example, the tech crash began in March of 2000, however consumption rose by 3.8 percent, 4.0 percent, and 3.6 percent in the following three quarters. If a euro meltdown were to take a big toll on the U.S. stock market before the end of the year (more than it already has), then its impact through this channel would not be felt much before the end of 2012.

It is also worth noting that the impact over lower stock prices on consumption is not likely to be very large in any case. The stock wealth effect on annual consumption is usually estimated at between 3-4 percent. If stock prices fell by 25 percent because of a meltdown in the euro zone, this would reduce stock wealth by around $4.5 trillion. Using the higher end 4 percent estimate, this would imply a reduction in annual consumption of $180 billion or 1.2 percentage points of GDP. This is hardly trivial, but given that the actual effects are likely to be less than this, the effect of a euro meltdown on stock prices is probably not going to be the biggest cause for concern from the standpoint of economic growth.

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Earlier this week I did a post that criticized reporters for unquestioningly accepting the findings of a report from the Pew Research Center that purported to a show a growing gap in wealth between people over age 65 and people under age 35. I argued that this report misrepresented this gap and gave numbers on the change in wealth by age cohort that did not show as marked a gap as the Pew numbers.

It turns out that the numbers I gave in that post were incorrect. I had used the Federal Reserve Board's 1983 and 2009 Surveys of Consumer Finance (SCF) as the basis for my calculations. Paul Taylor, one of the authors of the study, pointed out to me that the 1983 data had been subsequently revised. The revised data leads to a lower increase in median wealth for several  age cohorts. Here is the rate of growth in wealth by age cohort using the revised data:

   Median Net Worth   
   (thousands of 2009 dollars)  
  1983 2009 Percent
Age of head (2007)     Change
Under 35 14.2 9.0 -36.6%
35–44 83.2 69.4 -16.6%
45–54 115.9 150.4 29.8%
55–64 141.0 222.3 57.7%
65–74 127.4 205.5 61.3%
75 or more 83.2 191.0 129.6%

Source: Survey of Consumer Finance, 1983 and 2009.

This gives us a different picture than the numbers I had in the earlier post, although it still gives a different picture than the Pew study. (The Pew analysis used a different survey, the Survey of Program and Participation.) The SCF data show the 55-64 cohort faring almost as well as the 65-74 cohort, whereas the Pew study showed them with just a 10 percent gain. The 45-54 cohort shows a gain of 29.8 percent in the SCF data whereas the Pew analysis showed them with a drop in real wealth of 10 percent.

I will also point out three of the points that I raised in objecting to the sort of comparison of wealth growth over time in the Pew report. First, this analysis takes no account of defined benefit pensions. It is likely that the median older household would have had at least some income from a defined benefit pension in 1983. This is becoming increasing rare now. This means that most of these households will have only their income from Social Security, and whatever income they can derive from their wealth to support them in retirement. (The discounted value of a defined benefit pension of $10,000 a year over 20 years of retirement is roughly $150,000.) 

The price of the median home is currently around $170,000. This means that the $205,500 held by the median household headed by someone between ages 65-74 would be enough to pay off the mortgage on the median home (remember, these numbers include home equity) and leave about $35,000 to supplement the household's Social Security income (@$1,300 a month) throughout their retirement. 

The second problem is that the under 35 group includes many people who are still in college. The rise in college enrollment over the last quarter century would almost certainly have the effect of pushing the wealth for this group downward. People in college will generally not be accumulating wealth; in fact they are likely to be accumulating debt. Still, a 28 year-old with $15,000 in debt and a college degree is almost certainly better off than a 28 year-old with $15,000 in the bank and just a high school degree. In other words wealth is not an especially good measure of living standards or well-being for the youngest age group.

Finally, I objected to the highlighting in the report of the ratios of wealth of the oldest cohorts to the youngest. This can create a misleading impression, since the young have so little wealth. (The story was more dramatic with Pew's data since it showed a substantial decline in the wealth of the young.)

When the denominator is small it is easy to have a large percent changes. For example, if a country's inflation rate goes from 0.5 percent to 1.0 percent, we can say that its inflation rate has doubled. However, it would be wrong to imply that this is somehow of greater concern than a rise in the inflation rate from 3.0 percent to 5.0 percent, even though the latter is just a 67 percent increase. 

The basic story is that young people rarely have a meaningful amount of wealth. Their well-being is going to be far more dependent on their employment and earnings prospects than the amount of wealth that they have at age 30. In the current economy the latter don't look especially good, but the wealth measure just is not giving us much information.

Finally, I should apologize to Paul Taylor and his co-authors. I think the study is seriously flawed for the reasons listed above and others. However, I should have given them credit for carrying through their research in good faith. I do not know that their intentions were to promote the idea of a generational war, even if others are using this research for that end.


Note: A post earlier this afternoon had incorrectly adjusted for inflation. Paul Taylor called this to my attention.

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That could have been the headline of a Washington Post article reporting the results of a new poll on public support for subsidies alternative energy. The poll found that a large majority (68 percent) of those asked favored federal support for the development of alternative energy. It found that even 53 percent of Republicans supported funding for alternative energy.

These numbers are down from past polls, but this result would hardly be surprising given the attention that the media has given the Solyndra bankruptcy. While it would have been reasonable to highlight the fact that alternative energy continues to enjoy strong support across the political spectrum, the Post headline was instead:

"Poll finds fewer back U.S. aid for alternative energy."

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The NYT outlined the origins of Europe's sovereign debt crisis in a front page piece. The article leaves out a very important part of the story.

The prolonged downturn has substantially worsened the crisis. High unemployment and slow or negative growth has reduced tax collections and increased transfer payments, making deficits much larger than would otherwise be the case. This could be countered if the European Central Bank (ECB) had pursued more aggressive monetary expansion.

Also, the demands of the ECB that heavily indebted countries adopt harsh austerity programs has slowed growth both in the countries adopted these programs and across Europe. For these reasons, the ECB should be cited as one of the main causes of the crisis.

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Barry Ritholz has a nice takedown of Mayor Bloomberg's claim that Congress forced the banks to make lots of money by selling bad mortgages. As Barry rightly points out, this is not a story that serious people can tell. It's like denying climate change or evolution.

However, there are two items worth correcting in Ritholz's account. First, the core problem facing the economy today is not the legacy of the financial crisis, it is the bursting of the housing bubble. While it was a lot of fun watching the banks fall like dominos in the fall of 2008, and seeing all the honchos who told us this could never happen staying up late on weekends trying to stem the crash, this is really secondary in the story of the economy's current problems.

Whatever the problems of the banking system, they are not holding down the economy. Creditworthy borrowers (by pre-bubble standards) can get mortgages at record low interest rates. The same is true for larger corporations who borrow directly on credit markets. Even few smaller businesses report access to credit as major problem.

Rather the economy's problem is that there is no source of demand to replace the consumption driven by housing bubble wealth that has now disappeared or the housing construction that resulted from hugely inflated bubble prices. We would be in pretty much the same situation today even if there had been no financial crisis. This can be seen by the example of other countries, most notably Spain, who had a much better regulated financial system. Like the United States, Spain had a huge housing bubble that burst, and as a result it is still facing double digit unemployment even though it had no financial crisis.

The other item that needs correction is Ritholz's comment that Greenspan and the rest believe that leaving the market to run itself is the best way to manage the economy. In fact, Greenspan and other alleged free marketers have no interest whatsoever in the free market. They totally support explicit insurance, in the form of deposit insurance and implicit insurance in the form of "too big to fail" guarantees. The banks have taken advantage of the latter insurance in a big way in the last three years.

What we are really fighting over is not a free market, but rather whether the banks will have to pay for the insurance that they get from the government and also face restrictions on their actions as a result of this insurance. (The company that insures my house prohibits me from setting up a fireworks factory in the basement.)

It is understandable that banks, that want to get their government insurance for free, would like to pretend that they just want a free market, but people who don't share the banks' agenda should be not be fooled by this claim.

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In an article on the deliberations of the supercommittee the NYT told readers that a Republican plan would raise money by charging "higher Medicare premiums for high-income people." While the article does not give an exact cutoff for high income, it is likely that it is no higher than $80,000 and possibly as low as $40,000. (Many proposals for reducing Social Security benefits for "high income" beneficiaries would lower benefits for people with incomes of just $30,000.)

It is worth noting that "high income" can mean something very different when the topic is the benefits that workers get in retirement than when the topic is income taxes. Most major media outlets have run pieces questioning whether $250,000 (the floor set by President Obama for people subject to tax increases) is really wealthy.

The reason that the cutoffs for benefits cuts are fairly low is that there are few elderly households with high incomes and per person benefits are not very different for the highest income household and the lowest income household. If $250,000 were set as a floor for subjecting seniors to benefit cuts, it would save almost no money. The only way to save substantial money from this sort of means-testing is by cutting benefits for seniors who anyone would view as middle class.  

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The New York Times has a front page piece that discusses the debt crises facing Greece and Italy and discusses them in the context of "unresponsive political cultures." While both countries have serious problems with tax evasion and political corruption, this is not the political culture that most immediately threatens the financial stability of the euro zone and the world.

The most obvious threat stems from the political culture in Germany, which is driving the policy coming out of the European Central Bank (ECB). While it has long been obvious to observers across the political spectrum that the solution to the debt problem involves restructuring of the debt of most heavily indebted countries, guarantees of the sovereign debt of the other heavily indebted countries, and a strongly stimulative monetary and fiscal policy to allow countries to grow as they make reforms, Germany's political culture is preventing the ECB from adopting a reasonable policy toward the situation.

Instead, it has been fixated on trying to punish the debtor countries. This has made matters worse, as austerity measures slow growth both within the heavily indebted countries and across the continent. Slower growth leads to larger deficits, causing these countries to consistently miss their deficit targets. 

The German political culture also seems to include a bizarre paranoia about inflation. This paralyzing fear can be incredibly damaging in the current situation. If the NYT wants to explain how political culture is worsening the crisis in the euro zone it has focused on the wrong countries.

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Perhaps I missed it, but I didn't see any coverage of the Census Bureau's release of data on vacancy rates for the third quarter. It's a mixed picture.

The vacancy rate for rental units had fallen sharply in the second quarter from 9.7 percent to 9.2 percent. However this was completely reversed in the latest data, which showed a 9.8 percent vacancy rate. This is still down from the 11.1 percent peak reached two years ago, but far above historic vacancy rates. The vacancy rate for ownership units was little changed at 2.4 percent. This is down from a peak of 2.9 percent in the fourth quarter of 2008, but almost a full percentage point above the average from the pre-bubble period.

The vacancy data certainly suggest that any hopes of an upturn in housing any time soon are seriously misplaced. There is along way to go before the excess supply is depleted. Add a comment

That is what readers of his column touting Mitt Romney's Medicare plan would likely believe. Romney's plan calls for allowing people to opt for private insurers instead of the traditional Medicare system. This is already allowed, with beneficiaries being allowed to sign up with private insurers under the Medicare Advantage program. The Congressional Budget Office estimates that Medicare Advantage raises the per person cost by 5-10 percent.

The main difference between the existing Medicare Advantage program and the plan being pushed by Romney is that Romney would provide a voucher that would not be large enough to cover the full cost of the existing Medicare program.

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All Things Considered did a major piece on a study from the Pew Research Center which showed substantial increase in the median wealth of people over age 65 from 1983 to 2009, while wealth among those under 35 actually fell. The Pew study was seriously misleading for several reasons.

First, the wealth of all groups except the young rose. In other words, it is not just the wealthy who saw an increase in their wealth over this period. The Federal Reserve Board's Survey of Consumer Finance (a different survey) shows that the median wealth of households aged 35-44 rose by almost 25 percent over this period, median wealth for households between the ages of 45 to 54 rose by 60 percent, and more than 100 percent for people between 55 and 64. Of course much of this wealth is simply defined contribution pensions (which do get counted) displacing defined benefit (DB) pensions,
which don't get counted.

It is remarkable that the researchers at Pew did not make a point of discussing the role of DB pensions since it is likely that the decline of DB pensions likely offsets much of the rise in wealth. It is also very misleading to highlight the percentage decline in the wealth of the young, since they had very little wealth even in 1983. If the median young household had $10 in wealth in 1983 and this fell to $1 in 2009, this would be a 90 percent drop in wealth. However, it would be foolish to highlight this decline. The basic story is that young people had little wealth in both periods. 

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Robert Samuelson gave us a true Washington Post (a.k.a. Fox on 15th Street) classic in his column today. He tells us that the right is unrealistic because it thinks that it can solve the deficit problem by cutting government waste. The left is unrealistic because they think they can solve the deficit problem by cutting the military and taxing the rich. This means ..... drumroll please .....


Okay, as we know, the Post always looks for what they identify as the center of the political spectrum, which it substitutes for the truth. While Samuelson concludes that all right-thinking people support cuts to Social Security and Medicare and increased taxes on the middle class, let's try looking at the evidence instead of hunting for the political center.

First, the evidence suggests that there is no deficit crisis, there is a jobs crisis. We have more than 25 million people unemployed, underemployed, or out of the workforce altogether. This is causing us to lose nearly $1 trillion a year in potential output in addition to the enormous strain it imposes on the unemployed and their families. And the effect of prolonged unemployment is likely to leave many of these people permanently unemployed.

Meanwhile the bond markets keep yelling at us to borrow more money. The interest rate on 10-year Treasury bonds is just a bit over 2.0 percent. In other words, the evidence is that we need not do anything about the deficit any time soon. What we need to do is spend money on jobs programs, assisting state and local governments, infrastructure, retrofitting buildings to make them more energy efficient and on other important needs.

Okay, but one day we will have a deficit problem if the Congressional Budget Office's projections are correct. If the folks who looked for truth in the center instead looked for truth in the data, they would see the whole shortfall is due to our broken health care system. If we paid the same amount per person for our health care as people in other wealthy countries then we would be looking at huge budget surpluses, not deficits.

Sure, it's not easy to fix health care, but is that an excuse for not talking about it? And some things may not be all that difficult. What's wrong with a little free trade in health care? Does the center have to be so protectionist?

In terms of other deficit issues, if we got our military budget to the same share of GDP as it was in pre-September 11th days we would save more than $2 trillion over the next decade. If we imposed a tax on financial speculation, like the one that the UK currently has on stock trades and the European Union is considering for a wide range of assets, then we can get as much as $1.5 trillion in revenue over the next decade.

And we can have the Federal Reserve Board simply hold all those bonds that it has been buying the last few years as part of its quantitative easing program. The interest paid on these bonds is refunded from the Fed to the Treasury, meaning that it has no net cost to the government. That could save us around $800 billion in interest over the decade.

In short, if we look at the evidence rather than hunt for the political center, we see a very different world. We see first that there is no current deficit crisis. Then we see that there are many possible solutions to whatever deficit problem may exist in the long-term that do not require whacking middle class and lower income workers who have been the victims of national economic policy over the last three decades.

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