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

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Steve Mufson picked up the Washington elite's quest to get more money for some of the country's biggest corporations by telling readers that the Export-Import Bank is not really corporate welfare because it makes a profit.

"It isn’t much welfare; the bank has an excellent lending record — a default rate of 0.175 percent as of September 2014 and a 50 percent recovery rate on defaulted loans — and the appropriation for about $110 million covers administrative expenses."

This displays the sort of basic confusion on economics that readers have come to expect from the Washington Post. The point is that the government is subsidizing loans to some of the largest companies in the country. By relying on the creditworthiness of the U.S. government, the Ex-Im Bank is allowing a small number of huge companies, who always account for the overwhelming majority of Ex-Im bank lending, to get loans at below the market rate. This is similar to Fannie Mae and Freddie Mac which allow mortgage holders to get mortgages at a below market rate by providing a government guarantee.

This is a clear subsidy outside of Washington Post land. If it serves a public purpose, for example promoting homeownership, then it is arguably a good policy. But the nonsense and name-calling being put forth to justify the Ex-Im bank hardly make the case.

Anyhow, since the honchos will undoubtedly keep pushing the Ex-Im Bank until Boeing gets its money, how about a compromise? Any company that gets below market interest loans as a result of Ex-Im bank subsidies has to agree not to pay its top executives more than 10 times the president's salary ($400k) for a five year period. That's a $4 million hard cap on all compensation. The company's top execs and all board members sign a certification to this effect promising them 10 years hard time if they lie.

What do you say folks? Can the CEO of Boeing and GE get by on $4 million a year? There are jobs at stake, right?

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The NYT apparently thinks it has a big news story in its article telling readers that companies use temporary visas to bring over tech workers who learn skills and then transfer them to workplaces in India and other countries. The jobs are then shifted overseas to take advantage of lower cost labor.

This is one of the main goals of the trade agreements the United States has signed over the last three decades. The point has been to allow U.S. firms to take advantage of lower cost labor in the developing world. For the most part this has meant shifting manufacturing jobs, like those in the steel and auto industry. However the same logic of the gains from trade applies to more highly skilled jobs, like the tech jobs discussed in this article.

It's not clear why the NYT thinks this is news, this is what is supposed to be the result of recent trade deals. Those who are displaced by foreign competition are obviously losers, but the rest of the economy benefits by having lower priced goods and services.

On net, workers who tend to be similar to the ones being displaced are losers when this displacement happens on a large scale due to the overall effect on wages. Those who are largely protected from foreign competition (by protectionist restrictions, not economic laws), like doctors and lawyers, benefit. It's not clear why the NYT thinks it has news here, it is reporting on how trade policy has been designed to work.

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Yesterday, Republican presidential candidate Donald Trump released his plan for changing the tax code. The basic story is that he would give big tax cuts across the board, with the largest tax cuts going to the wealthy. He assured everyone that it will be revenue neutral since it would lead to a huge spurt of economic growth. (His number was 6.0 percent, topping Jeb Bush's 4.0 percent by two full percentage points.)

Many of the reports on the plan did note the growth assumption and pointed out that few, if any, economists took it seriously. As a practical matter, we have seen this one before. Ronald Reagan put in place a large tax cut in the 1980s and George W. Bush did the same in the last decade. You have to try very hard to find a positive growth effect from either. Certainly no one could make the case with a straight face that these sorts of proposals could even get us to Bush's 4.0 percent number, much less Trump's 6.0 percent.

But apart from what the tax cuts may or may not be able to do in terms of growth, there is also the matter of how the Federal Reserve Board would react. If that sounds strange to you then you should be very angry at the reporters at your favorite news outlet, because they should have been talking about this.

Suppose that Donald Trump's tax cut really is the magic elixir that would get the economy to 6.0 percent annual growth. But what if the people at the Fed's Open Market Committee (FOMC) don't recognize this fact? Suppose the FOMC thinks the economy is still bound by the pre-Trump tax cut rules and believes that inflation will start to accelerate out of control if the unemployment rate falls much below its current 5.1 percent level.

In this case, we would expect to see the Fed raise interest rates sharply as they saw the Trump tax cuts boosting growth. Higher interest rates would slow house buying and new construction, discourage car sales, and put a crimp in both public and private investment. If the Fed raises interest rates high enough, it could fully offset the boost that Trump's tax cut is giving to the economy. In this case, even though the Trump tax cuts might have been the best thing for the economy since the Internet (okay, better than the Internet), we wouldn't see any dividend because the Fed would not allow it.

For this reason, the Fed's likely response to a tax cut is a fundamental question that reporters should be asking. If the Fed is likely to simply slam on the brakes to offset any possible stimulus, then a tax plan will have little prospect of providing a growth dividend.

Since the press have been obsessing (rightly) over the possibility that the Fed is about to embark on a series of rate hikes, it would be reasonable to believe that someone would think to bring together the Fed's interest rate policy and the candidate's economic plans. Thus far it seems no reporters have discovered the connection.  

 

Note: Typo corrected.

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In his interview with Donald Trump on 60 Minutes, CBS reporter Scott Pelley felt the need to assert that Social Security is "a basket case." Actually, according to the latest Social Security trustees report it can pay all scheduled benefits through 2033 with no changes whatsoever. If nothing is ever done to the program it is always projected to be able to pay retirees a larger real benefit than what they get today, or more than 75 percent of scheduled benefits. If we put in place tax increases comparable to those in the 1980s (equal to less than 10 percent of projected wage growth over the next three decades), the program would be fully funded indefinitely.

Given these facts, it would be interesting to know the basis for Pelley's decision to call the program a basket case. Its prospects over the next two decades are almost certainly better than those of his network.

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It must be nice to have a trade group that is so powerful that it can get newspapers like the Washington Post to parrot your line even when it is not true. The folks at Pharma will presumably be toasting a Wonkblog piece that told readers:

"The drug industry trade group keeps reminding the public that drug spending has been holding steady for years, at about 10 percent of the total health-care pie. They point to that as evidence that drugs are a special area of the health care industry, unlike almost any other sector, where competition occurs and prices actually go down over time."

That's great, we're supposed to debate why drug prices have been holding steady as a share of total health care spending. That will be a classic Washington Post debate, since drug prices have actually been rising considerably faster than overall health care spending. As noted last week:

"According to the National Income and Product Accounts (Table 2.4.5U) prescription drug spending increased at average annual rate of 6.3 percent over the years from 2004 to 2014, rising from $203.6 billion in 2004 to $374.7 billion in 2014 (Line 122). By contrast, spending on health care services rose at annual rate of 4.7 percent over this period, going from $1240.1 billion in 2004 to $1954.0 billion in 2014 (Line 168)."

Furthermore, over the last five years the gap in growth rates is even larger, with prescription drug spending rising at a 6.2 percent annual rate and spending on health care services rising at just a 3.7 percent annual rate.

So we can follow the Washington Post and debate why 3.7 percent is the same as 6.2 percent or we could talk about developing a more efficient and less corrupt method of financing drug research. We don't need to hand out government granted patent monopolies to finance research, we can pay for the research upfront.

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Yeah, we all want our children to enjoy a more comfortable life than we do, but how much more comfortable does it have to be before we feel we have failed them? The Social Security Trustees project that before tax wages will be on average 55 percent higher in real terms than they are today. Suppose that we have a huge 5 percentage point increase in taxes to pay for Social Security and Medicare? That still leaves wages in thirty years more than 45 percent higher than they are today. Would that be unfair to our kids?

Robert Samuelson says it is. He wants us to raise the age at which we would qualify for Social Security to further tilt the income equation in favor of our kids. He says the problem is that middle-income people are living longer than low-income people. While raising the age of eligibility might seem to hurt lower-income people who don't live as long, he says we can make benefits for the low-income elderly more generous, just as we have done with TANF. (Okay, Samuelson didn't include the last part about TANF.)  

Anyhow, the story of a growing gap in life expectancies is a problem of inequality. Similarly, the reason that many of us would not take for granted that our children will have before-tax wages that are 55 percent higher than today is due to inequality (as in the one percent). The rich got most of the benefits of growth over the last 35 years and it is very possible that they will get most of the benefits over the next 35 years.

And to address this problem, Robert Samuelson wants us to take away Social Security benefits from the middle class and make them work longer. Yes, that make sense. As the ad says, "only in the Washington Post."

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Everyone knows that the Washington Post wants to see Social Security and Medicare cut. The paper is constantly pushing this agenda in both its news and opinion pages. But how did the Post decide that President Obama shares this agenda? 

It made this assertion in an article headlined, "Obama and Boehner both craved compromise -- but could never reach it."  The piece tells readers:

"Those virtues [a desire to compromise for the national good] never resulted in progress, though, even on some of the political goals the men shared: lasting fiscal reforms, a meaningful immigration bill, keeping the government open at times of fiscal disagreement."

The "lasting fiscal reforms" the Post is referring to here include its desired cuts in Social Security and Medicare. It is not clear why the Post would claim these cuts as a political goal of President Obama. He never claimed cuts to these programs as goals in his two presidential campaigns, nor did he ever try to promote cuts during his years in the Senate.

It is true that he was prepared to agree to cuts as part of a compromise with the Republicans in Congress, but that is hardly evidence that he saw such cuts as an end in itself. It is also worth noting in this respect (since the Post apparently doesn't have access to such information) that the reductions in projected Medicare spending from lower cost growth vastly exceed the savings from the cuts that were proposed in the 2011 standoff between President Obama and the Republicans in Congress.

This means that if the point was to save the government money, we have already achieved more than the savings that would have come from the cuts being proposed. Of course if the point is to cut benefits to make life harder for seniors receiving Medicare, then further cuts would still be appropriate.

 

Note:

I see many people disagree with this one. Let me clarify my point. I am fully aware that Obama was prepared to go along with cuts to Social Security and Medicare. I spent a lot of time writing and arguing that this was a bad idea. The question is whether this was a priority that he set for himself.

He certainly never put it forward as a reason to put him in the White House, as in saying "if you elect me, I will cut SS and Medicare," or a more politic "I will reform entitlements." In terms of his aides statements on the issue, they always said that the cuts Obama was willing to agree to were compromises in order to preserve funding in other areas and to end the Bush tax cuts for the wealthy.

I really have no clue what is in Obama's heart of hearts and I suspect the Washington Post does not either. For this reason, it should not asserting that he "craved" cutting benefits. 

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Federal Reserve Chair Janet Yellen gave a speech yesterday in which she referred to the value of the Fed's 2.0 percent inflation target and warned of the uncertainty caused by any effort to raise the target to a higher rate. While having more stable prices is undoubtedly better than having less stable prices, it is a bit bizarre how this 2.0 percent has become the object of worship.

First, to those who care about such things it should be disconcerting that the inflation rate has been consistently below 2.0 percent for the last six years. That might suggest the 2.0 percent target is not all that meaningful. People who expected 2.0 percent inflation would have been shown wrong.

But what seems more striking is that while domestic inflation might be relatively stable, the rate of change of import prices is far from stable. The chart below shows the rate of change of non-oil import prices over the last three decades.

Change in Non-Oil Import Prices (prior 12 months)

 

EIUIREXPET 175218 1443196584726

Source: Bureau of Labor Statistics.

As can be seen the inflation rate for non-oil import prices fluctuate widely, for example going from -4.2 percent in the period from March 2001 to March 2002 to positive 2.4 percent in the following twelve months. (The fluctations would be larger if we included oil.) Since imports are more than 15 percent of the economy, how can these sorts of fluctuations not pose a problem, but a gradual increase from 2.0 percent to 4.0 percent inflation be a big deal? If there is some logic to the commonly held view that Yellen is espousing, it is hard to see.

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Your choices are a professor holding a chair endowed by a pharmaceutical testing company and the Bureau of Economic Analysis (BEA). The professor, Darius Lakdawalla, holds the Quintiles chair at the School of Pharmacy at the University of Southern California. In an NYT "Room for Debate" piece on pharmaceutical prices (I was also a contributor), Lakdawalla told readers:

"[D]rug spending has been growing no faster than overall health care spending over the past 10 years."

That is not what the good people at BEA say. According to the National Income and Product Accounts (Table 2.4.5U) prescription drug spending increased at average annual rate of 6.3 percent over the years from 2004 to 2014, rising from $203.6 billion in 2004 to $374.7 billion in 2014 (Line 122). By contrast, spending on health care services rose at annual rate of 4.7 percent over this period, going from $1240.1 billion in 2004 to $1954.0 billion in 2014 (Line 168). This is shown below.

Book2 25033 image001

Source: Bureau of Economic Analysis.

The BEA data seem to be showing a very different story that what Professor Lakdawalla is telling us. In fact, over the last five years the gap in growth rates is even larger, with prescription drug spending rising at a 6.2 percent annual rate and spending on health care services rising at just a 3.7 percent annual rate. That difference could explain why presidential candidates apparently feel the need to talk about the cost of prescription drugs.

 

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There is an annoying tendency among elite types to assume that their ignorance on important issues is shared by others. Washington Post columnist Robert Samuelson gave us a great example of the effort to project his misunderstanding of the economy when he told readers:

"Over the past decade, there has been a profound shift in its public standing. Before the 2008–09 financial crisis, the Fed enjoyed enormous prestige and freedom of action. All the Fed had to do, it seemed, was tweak short-term interest rates to keep expansions long and recessions short. What’s clear now is that we vastly exaggerated the Fed’s powers of economic management."

Sorry folks, but Samuelson is describing his own need for rethinking, not the need for those with a better understanding of the economy. We had recalled the weak recovery from the 2001 recession. While the GDP recovery was impressive, the labor market recovery was not. While the recession officially ended in December of 2001, we continued to lose jobs all through 2002 and until September of 2003. We didn't get back the jobs lost in the downturn until January of 2005. At the time this was the longest period without job growth since the Great Depression. The Fed's pushing its short-term interest rate down to just 1.0 percent did not seem to help much.

This led us to be very concerned about the difficulty in recovering from the recession that would inevitably follow the collapse of the housing bubble, which was visible to those with clear eyes long before it burst. So the confusion on these issues belongs to Samuelson, not to "we."

Unfortunately his confusion continues. He tells readers that the economy is near full employment. This is only true if we think that millions of people in their thirties and forties have opted for early retirement since the beginning of the recession. These people have dropped out of the labor force and are therefore not counted as unemployed. The amount of involuntary part-time and quit rates are still both at recession levels.

He then says:

"the financial crisis and Great Recession so traumatized consumers and businesses that they reined in their spending and risk-taking."

Nope, consumption is actually very high relative to disposable income or GDP. This is a fact that is well know to those with access to government GDP data (i.e. everyone). Similarly, the investment share of GDP is pretty much back to its pre-recession level.

The explanation for the continued doldrums is actually very simple. We have nothing to fill the demand gap created by a trade deficit of 3 percent of GDP (@ $500 billion a year). In the last decade we had the housing bubble, but in the absence of the bubble, there is no easy way to fill that gap. We could do it with budget deficits, but that gets our friends at the Post really upset. Instead, we get high unemployment and weak wage growth, and people are unhappy. It's all so complicated.

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I see my friends Paul Krugman and Brad DeLong are arguing over whether the pressure from the banking industry for the Fed to raise interest rates is the result of their calculation that higher interest rates would raise their profits or is it just ignorance of the way the economy works. Krugman argues the former and DeLong the latter. I would mostly agree with Krugman, but for a slightly different reason.

I don't see the clear link, claimed by Krugman, between higher Fed interest rates and higher net lending margins for banks (the difference between the interest rate they charge on loans and the interest rate they pay on deposits). Such a link may exist, but his data don't show it. On the other hand, I think it is still not hard to make a case for banks' self-interest in following a tight money policy.

An unexpected rise in the inflation rate is clearly harmful to banks' bottom line. This will lead to a rise in long-term interest rates and loss in the value of their outstanding debt. This is very bad news for them.

While we (the three of us) can agree that such a jump in inflation is highly unlikely in the current economic situation, it is not zero. Furthermore, a stronger economy increases this risk. If we assume that the banks care little about lower unemployment (they may not be bothered by lower unemployment, but high unemployment is not something they wake up every morning worrying about), then they are faced with a trade-off between a greater risk of something they really fear and something to which they are largely indifferent. It shouldn't be surprising that they want to the Fed to act to ensure the event they really fear (higher inflation) does not happen. Hence the push to raise interest rates.

I suspect also there is a strong desire to head off any idea that the government can shape the economy in important ways. There is enormous value for the rich to believe that they got where they are through their talent and hard work and that those facing difficult economic times lack these qualities. It makes for a much more troubling world view to suggest that tens of millions of people might be struggling because of bad fiscal policy from the government and inept monetary policy by the Fed.

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The Washington Post ran an editorial yesterday worrying about the end of globalization. It told readers:

"Freshly released data from the World Trade Organization and other economic forecasts show that the world is on course for its third consecutive year in which growth in global trade will be lower than overall economic growth, which is itself anemic, according to the Wall Street Journal. The last such three-year streak ended in 1985."

There are several aspects to this that are striking. First, the comparison with the three years ending in 1985 is interesting since the U.S. economy grew very rapidly from 1982 to 1985. The economy had been in the middle of a steep recession in 1982. It had a sharp recovery over the next three years with growth averaging 5.4 percent. If the U.S. economy suffered from this period of weaker trade, it's difficult to see how.

The second point is a simple question of logic and arithmetic. When trade barriers are removed we expect to see rapid growth in trade. Once most barriers have been removed, the rate of growth is likely to slow, since trade is already very large. It is unlikely that we will see rapid growth in trade between the 15 original members of the European Union, since most of the barriers to trade were removed more than twenty years ago.

The third point concerns relative prices. In the United States, trade has fallen very slightly as a share of GDP from 2011 to 2014 (from 17.7 percent to 17.67 percent) even though real exports and imports both grew far more rapidly than real GDP over this period. Exports grew by 9.9 percent, while imports grew 7.3 percent. By comparison, GDP grew 6.3 percent.

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Joe Nocera seems to be obsessed with promoting the Export-Import Bank. Today he put out at least his fourth column on the topic, although this time he did refrain from calling his opponents "idiotic."

His story is that Republican opponents of the bank are "job-killers." (I'm not sure if this also applies to us non-Republican opponents.) Let's think this one through for a moment.

The basic story is that we have huge companies like General Electric and Caterpillar that get the vast majority of the subsidized loans from the Ex-Im Bank. Does that sound like handouts to huge companies? Nope, Nocera tells us just because these huge companies get all the money doesn't mean that they are the beneficiaries:

"'At a time when we want to compete around the world, it is hard to believe what is happening in the U.S. Congress,' said Jeff Immelt, the chief executive of General Electric.

"'The ultimate irony is that we are on the verge of an American manufacturing renaissance,' bemoaned Jim McNerney, the chairman of Boeing. 'Yet this action is causing companies to start looking outside the U.S. instead.'

"'People complain that the bank only helps big companies,' said Doug Oberhelman, the chairman and C.E.O. of Caterpillar. 'A lot of our suppliers are small. They don’t export, but we do. And if we aren’t exporting, they aren’t selling to us.” He added, “I find it staggering that we would put highly paid export-oriented jobs at risk.'

"What Oberhelman finds 'staggering,' Immelt finds 'hard to believe' and McNerney finds ironic is the refusal of Republican extremists — led by the House Financial Services Committee’s chairman, Jeb Hensarling — to allow a vote on the reauthorization of the Export-Import Bank of the United States, a vote that would pass in a landslide."

Okay, this argument has the form of the government should give me money because it is not really about helping me, I will spend the money on a car, on clothes, and on restaurant meals. If the government doesn't give me money, then I won't spend this money and all the people who would have been employed by this spending will be out of jobs. So it's really about helping them, not me.

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That's what folks must have been speculating about when they read Neil Irwin's account of the Fed's decision to put off a hike in interest rates this week. Near the end of the piece Irwin tells readers:

"As Stanley Fischer, the Fed vice chairman, said in a television interview last month, if the Fed waits until it is absolutely certain it is time to raise rates, it will probably be too late.

"In other words, Fed officials inevitably have to make a decision based on what their models predict, not on cold hard evidence."

Huh? What exactly is the bad thing that happens if it's "too late" when the Fed acts? In the models I know, we start to see some acceleration of inflation. Given that the inflation rate has been well below the Fed's target for most of the last six years, the Fed should want the inflation rate to accelerate, at least if it is following its stated policy of targeting a 2.0 percent average rate of inflation. (This rate is too low, according to folks like I.M.F. chief economist Olivier Blanchard.) The inflation rate could average 3.0 percent over the next four years and still be consistent with the Fed's stated target.

None of the standard models shows a rapid acceleration of inflation as a result of the Fed being "too late." They show the inflation rate increasing very gradually. According to the most recent projections from the Congressional Budget Office being a full percentage point below full employment for a full year would lead to just a 0.3 percentage point rise in the rate of inflation. This would appear to be the cost of being too late in the standard models.

Perhaps Irwin could tell readers what Mr. Fischer was thinking about in giving his warning.

 

Addendum:

The headline writer for this piece deserves some grief for writing that "Yellen blinked" in reference to her decision not to support an interest rate hike. The implication is that this decision was due to a lack of will as opposed to good judgement. This is not the job of the headline writer to determine, nor the implication of the piece. Thanks Jeff for pointing this out.

 

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The Washington Post is apparently disappointed that the Fed did not decide to raise interest rates and slow the pace of economic growth. Its editorial told readers:

"But there are risks [from not raising rates], too, such as the formation of asset bubbles and the sheer loss of credibility the Fed suffers every time it flirts with a new interest rate policy and then doesn’t deliver. The latter risk may have been compounded by the Fed’s so openly acknowledging that its decisions are subject to the vagaries of China’s economic “rebalancing,” and the non transparent policy processes in Beijing upon which that depends."

The second part of this paragraph seems to suggest that the Post is unhappy that Yellen would take into account the impact of the world economy on the United States in her decisions on interest rates. That's an interesting criticism.

But the first part is the fun part. The Post is worried about bubbles? This is a paper that hosted James K. Glassman, co-author of Dow 36,000, through the stock bubble years. In the housing bubble years its main commentator on the real estate market was David Lereah, the chief economist of the National Association of Realtor and the author of the 2005 classic, Why the Housing Boom Will not Bust and How You Can Profit from It.

It would be interesting if the Post's editorial board had evidence of a bubble threatening the economy. If they do, they didn't bother sharing it with their readers. It would be reasonable to expect such evidence before demanding that the Fed raise interest rates to keep workers from getting jobs and pay raises. 

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The Wall Street Journal decided to take Senator Bernie Sanders' presidential campaign seriously enough to calculate the cost of the programs that he proposed. Their price tag was $18 trillion over the next decade. This is presumably supposed to scare people because, let's face it $18 trillion is a really big number.

Much of the fright factor disappears when we realize that $15 trillion of this $18 trillion comes from the WSJ's estimate of the cost of Sanders' universal Medicare program. That is a considerable chunk of change, but as Kevin Drum and others have pointed out this will not be new money out of people's pockets. For the most part this is money that employers are now paying for their workers' health care insurance. Instead, under a universal Medicare system the government would get this money in tax revenue. Since Canada and the other wealthy countries with universal Medicare-type systems all have much lower per capita health care costs than the United States (the average is less than half the cost), in all probability we would be paying less for our health care under the Sanders' system than we do now.

This still leaves $3 trillion for us to get frightened over, and this still looks like a really big number. As a point of reference, GDP over the next decade is projected at roughly $240 trillion. This makes the cost of the rest of Sanders' plans equal to less than 1.3 percent of GDP. 

Should we worry about that? The increase in annual military spending from 2000 to the peaks of Iraq/Afghanistan wars was roughly 1.8 percent of GDP. This was also the size of military buildup that took place under President Reagan. Jeb Bush is proposing to cut taxes by roughly this amount if he gets elected.

In short, the additional spending that Senator Sanders has proposed is not trivial, but we have seen comparable increases in the past for other purposes. We can clearly afford the tab, the question is whether free college, rebuilding the infrastructure, early childhood education and the other items on the list are worth the price.

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Andrew Ross Sorkin has a good piece today pointing out that Jeb Bush's tax plan calls for ending the deductibility for corporate interest payments. Under the current system the tax code effectively gives encouragement for companies to borrow, since the interest they pay is tax deductible.

Private equity companies take advantage of this provision, routinely having the companies they acquire borrow as much as possible, often to make payments to the private equity company. This leaves the acquired company vulnerable to any business downturn, which is why many acquired companies go bankrupt.

The interest deduction is a large part of private equity profits in many cases. Since some private equity partners are among the richest people in the country, ending this deduction would be enormously progressive. It would put an end to a practice that has allowed many private equity partners to make hundreds of millions or even billions by gaming the tax code.

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NPR had a bizarre piece on the Labor Department's new overtime rules which seemed intended to undermine support for them. These rules would increase from $23,660 to $50,440, the floor under which salaried workers would automatically qualify for overtime regardless of their work responsibilities.

While the piece does present the views on the new rules of Vicki Shabo, the vice-president of the National Partnership for Women and Families, the bulk of the piece is devoted to presenting the views of employers. No workers who will be affected by this rule were interviewed.

The discussion of the employers' perspective begins with this little exercise in mind reading:

"But employers do not believe it would be a windfall for workers. They say they will be forced to cut costs in other ways if the proposed rules take effect as written — and that workers may not like those changes."

Of course NPR reporters don't know what employers "believe," they know what they say. And it is understandable that they would tell a reporter that they don't like the rules because they hurt workers, as opposed to the possibility that the new rules may hurt profits or force a cut in their own pay. Remarkably, two of the three employers whose views are presented in this piece work at non-profits, even though the vast majority of the workers affected are employed by for profit businesses.

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The landslide victory of left-wing candidate Jeremy Corbyn for Labor Party leader in the United Kingdom has many establishment types bent out of shape. The Blair-wing of the party was literally obliterated, with Corbyn drawing more than four times the votes of his nearest competitor. After giving the country the war in Iraq and the housing bubble whose collapse led to the 2008-2009 recession and financial crisis, the discontent of the Labour Party's rank and file is understandable.

But naturally the elite types are fighting back. In this vein we get a lengthy piece in the New Yorker by film critic Anthony Lane warning us of the evils of Jeremy Corbyn. I will leave for others the discussion of Mr. Corbyn's friends and associates. I am mostly interested in Lane's treatment of Corbyn's economic agenda. He tells readers:

"The national deficit would be erased not through austerity, as practiced by the heinous Conservatives, but through taxes on the rich and by what Corbyn calls 'quantitative easing for people.' This means, we are told, that the Bank of England will print more money: an endearing and almost childlike solution, though not one that has met with unqualified success elsewhere."

First off, "quantitative easing for people" is obviously a political slogan. As such, it is not obviously more silly than "putting people first," or "yes we can." The issue is the substance behind the slogan.

What Corbyn is proposing is directly financing spending by printing money. If that is "childlike" then folks like Paul Krugman have a similar affinity for childlike solutions to economic problems. Just last week, in reference to Japan's continuing economic weakness, Krugman told readers:

"What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff. That is, run budget deficits paid for with the printing press."

By stuff, Krugman means things like child care, schools, hospitals, cutting edge Internet, research into clean energy, and other useful items. If the economy is suffering from a lack of demand, the government can directly create it by spending money. And, since the economy is below its potential, it doesn't need tax money to finance this spending, it doesn't even need to borrow, it can simply print the money.

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Josh Barro had an interesting piece where he asked several prominent public finance economists for their assessment of the growth impact of the tax cuts put forward by Jeb Bush as part of his presidential campaign. Barro noted a wide range of opinions, with some expecting little impact and others arguing that it would have a large positive impact on growth.

One of the people in the latter category was Boston University economist Larry Kotlikoff. According to Barro:

"He thought the Bush plan, especially its provision allowing companies to fully and immediately deduct capital expenses from their taxes, would have large and swift economic effects. He said he thought the plan would grow the economy by more than 5 percent, and he thought most of those effects would be felt within the first decade, pointing to Ireland as an example of a country that experienced rapid economic growth after cutting corporate income taxes."

It's interesting that Kotlikoff would seize on the expensing provisions for new investment as being especially important for boosting growth. President Obama actually included expensing of capital investment as part of his stimulus package. He originally continued a limited 50 percent expensing provision that had been part of President Bush's 2008 stimulus package. He then expanded this in 2010 to a full expensing provision for 2011 and 2012.

While equipment investment grew at a 12.2 healthy pace in these years, that is not especially impressive since it was still recovering from a drop of nearly 30 percent in 2008 and 2009. By comparison, in the years 2004–2006, equipment investment grew at an 8.6 percent annual rate. This was in the absence of any comparable tax provision and no remotely comparable recession falloff from which to recover. (In 2012, equipment investment was 4.6 percent above the pre-recession peak in 2007. By comparison, in 2006 it was 19.9 percent higher than its 2000 peak.)

It is also worth noting that a temporary credit is likely to provide more of a boost than a permanent credit. Firms have a strong incentive to move their investment plans forward to take advantage of a temporary tax credit. This incentive would not exist with a permanent credit. Therefore it is reasonable to believe that the boost to investment we saw from changing the tax provision for new investment in 2011-2012 would be larger than the boost we would receive from permanently changing the provision, as Jeb Bush has proposed. 

 

Note: Typos and dates corrected.

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Paul Krugman rightly criticizes the proponents of austerity for claiming Spain as a success story. As Krugman points out, its economy is growing, but it has a long way to go to make up the ground lost in its downturn.

He makes this point in a graph showing log GDP, but this picture is actually too generous. We should care about GDP per capita, and here the story is even worse.

Spain per cap GDP fredgraph


Spain's per capita GDP is still more than 7 percent below its peak in 2007. In fact the current level is roughly the same as in 2003, translating into 11 years of zero growth in per capita GDP. By comparison in 1940, 11 years after the onset of the Great Depression, per capita disposable income was 7 percent higher than its level in 1929.

So with its austerity agenda Spain is doing considerably worse than the United States in its recovery from the Great Depression. Apparently, this now counts at success among the honchos in the euro zone.

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