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It's great that the Washington Post lets Robert Samuelson run the same columns again and again. Otherwise he might have to work for his paycheck.

Today's column is a rerun of the senior bashing piece. The premise is that we can never raise taxes and that we are too stupid and/or corrupt to get our health care costs in line with the rest of the world. And, if these two claims prove to be true, then voila, spending on seniors will crowd out other spending in the budget. 

It's not clear why anyone would think we will never be able to raise taxes ever again. Reagan signed into law a large increase in Social Security taxes. Clinton raised income taxes, as did Obama. We also have polling results showing that the public would support increases in the payroll tax to sustain benefits.

As a practical matter, if we restored normal wage growth, so that wages rose in step with productivity, it's difficult to see why it would be so difficult to take 10-20 percent of wage growth in some years to meet the cost of an aging population. If Samuelson knows some reason why this is impossible he is not sharing it with readers.

We also pay more than twice as much per person for our health care as people in other wealthy countries. We have nothing to show for this extra spending in terms of outcome. It is difficult to see why we will never be able to get our costs in line. Do protectionists so dominate U.S. politics that we will never be able to open up our health care system to international competition, if we are unable to fix it?

In short Samuelson is telling us that we have to beat up our seniors because we can never raise taxes and never fix our health care system. Furthermore, Samuelson complains that those of us who don't want to join him in beating up seniors are engaged in a "charade":

"Both liberals and conservatives are complicit in this charade, but liberals are more so because their unwillingness to discuss Social Security and Medicare benefits candidly is the crux of the budget stalemate."

Of course liberals and conservatives are discussing Social Security and Medicare. They just aren't saying the things that Robert Samuelson likes so he just insists they are saying nothing.

Actually, if someone wants to assess Samuelson's credibility, he gives a line that tells readers everything they need to know:

"The military is being weakened. As a share of national income, defense spending is projected to fall by 40 percent from 2010 to 2024."

Yes, well we were fighting two wars in 2010. The projections for 2024 assume that we will not be fighting any wars. That is a big deal if you were trying to make an honest comparison of military spending in 2010 and 2024, but this is a Robert Samuelson column.

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Yes, this was one of the points of Obamacare, at least for some of us. Many people find themselves stuck in jobs they hate because they need health care insurance and can't see any other way to get it. The Washington Post tells us that some workers are recognizing their new freedom as a result of being able to buy affordable insurance on the individual market.

This is great news in my book, but I see from the article that my friend Douglas Holtz-Eakin is unhappy.

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If you want to see an economist get really angry, suggest imposing a 20 percent temporary tariff on imported steel, as President Bush did in 2002. He can quickly produce the charts showing how this will lead to an inefficient outcome.

If you want to see an economist get really confused, ask him how the story is different with a drug patent that allows a company to charge a price that is several thousand percent above the free market price. Of course you can use the exact same chart to show the inefficiencies, except with the drug patent the scale would be two orders of magnitude larger.

But economists don't get concerned for some reason about drugs selling for above market prices, even though the gap between the patent-protected prices and the free market prices is now running into the hundreds of billions annually. They will inevitably mumble about how we need patents to provide incentives to develop new drugs, as though they could not conceive of any other mechanism.

This is why this little piece on the potential use of vitamin C as a cancer treatment is so interesting. It refers to some promising results from scientists at the University of Kansas then tells readers:

"One potential hurdle is that pharmaceutical companies are unlikely to fund trials of intravenous vitamin C because there is no ability to patent natural products."

The conclusion is then that the government will have to finance large-scale clinical trials to determine the effectiveness of vitamin C as a cancer treatment.

The specifics of the vitamin C case are fascinating in themselves, but what is more striking is what this says about our division of research responsibilities between the public and private sector. The assumption of patent supporters is that somehow Pfizer, Merck, and the rest are hugely more efficient when they do patent supported research than when research is done through other funding mechanisms. (The issue here is patent support, not public versus private, since the government could pay Pfizer and Merck to do research.) 

So patent supporters believe that we can have efficient public funding through the National Institutes of Health (NIH) for basic research. (NIH gets $30 billion a year, which everyone seems to agree is money very well spent.) And they recognize that occasionally it will be necessary to do research on non-patentable products because these may provide effective treatments or cures. But somehow it is efficient for the government to grant patent monopolies that both lock up the product and also many important research findings for decades. 

It would be interesting to see a theory of how science develops that would support the efficient patent argument. On its face, it is hard to see anything there besides drug money.

 

Thanks to Jon Schwartz for calling this one to my attention.

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The NYT noted that wages have been growing slowly in the recovery, which it argues also explains slow consumption growth. It then blamed weak wage growth on an uneducated workforce;

"The problem for economic growth in general, and wage growth in particular, is that only one-third of the American work force — 50.4 million out of 155 million — have a college degree or more. By contrast, there are approximately 73 million workers who have a high school diploma or some college, and 11 million workers who did not finish high school.

"With many less educated workers chasing a limited number of new jobs, employers have little reason to increase wages. 'It’s just an extremely competitive environment for workers, where people have little negotiating power,' Mr. Harris said." [Mr. Harris is identified as a Bank of America Merrill Lynch economist.]

This story doesn't fit the data. In the last year the average hourly wage of production and non-supervisory workers rose by 2.2 percent. This group, which accounts for just over 80 percent of the workforce, is overwhelmingly composed of people without college degrees. The average hourly wage for all workers, which includes supervisory workers who mostly do have college degrees, rose by just 1.9 percent in the last year. This means that wages for supervisory workers actually rose somewhat more slowly on average than did wages for non-supervisory workers, the exact opposite of what the article claims.

In fact there is no evidence that businesses are having a hard time finding college educated workers. While the piece notes that the unemployment rate for college educated workers is just over 3.0 percent, it was 2.0 percent before the recession in 2006-2007 and just 1.7 percent in 2000. In fact, the current unemployment rate among college grads is as high as at any point it hit following the 2001 recession. There is simply no evidence to support the claim that we are facing a shortage of college educated workers or that these workers are seeing a healthy pace of wage growth.

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The Wall Street Journal reported on the weak January jobs number. It's sure that Obamacare is somehow responsible, it just can't quite get a clear story together.

The article begins:

"A hiring chill hit the U.S. labor market for the second straight month in January, reflecting employers' reluctance to take on new workers despite some of the nation's strongest economic growth in years."

So the story is that the economy is growing rapidly, but firms for some reasons are not hiring workers. We get that more explicitly a couple of paragraphs down.

"The report left several puzzles unanswered, including the dichotomy of solid growth and weak hiring. Throughout the recovery, businesses have been able to boost production at a faster pace than employment. That trend could also be supporting GDP growth despite the hiring slowdown."

So businesses have been scared away from hiring and are instead increasing productivity. So let's look at that soaring productivity growth.

prod

                                               Source: Bureau of Labor Statistics.

Yeah, well not quite. Productivity growth has been 1.7 percent over the last year. That's well below the 2.8 percent average in the decade before the downturn and spectre of Obamacare haunted the business world.

If productivity growth doesn't explain the lack of hiring maybe firms are increasing hours to avoid having to commit themselves to hiring new workers. That one won't help either. The average weekly workweek was 34.4 hours in January, that's above the lows hit in 2009 and 2010, but still below the 34.5-34.6 range we saw in 2007. And the average workweek actually has fallen since November. So the WSJ wants to tell us that firms are seeing increased demand for labor and aren't meeting it through hiring, but apparently also are not meeting it through productivity growth or increased hours: very interesting.

After giving us a bit more information about the new jobs numbers the article returns to Obamacare:

"The health-care sector added just 1,500 jobs in January after a gain of 1,100 jobs in December. The sector had supplied a steady stream of jobs for years, raising more questions about whether the rollout of the Affordable Care Act last fall is restraining hiring.

"The health law has curbed hiring at Pita Pit USA Inc.'s 220 sandwich shops, said Peter Riggs, a vice president at the Coeur d'Alene, Idaho, firm. 'We're not quite sure what the unintended consequences of the Affordable Care Act will be,' he said. 'We have an ongoing commitment to the people we've already hired, but we're more wary than in the past about hiring too many new people.'"

This is more than a bit bizarre. One of the goals of Obamacare is to restrain cost growth in health care. This will likely mean restraining employment growth in the health care sector. That is a point of the Affordable Care Act (ACA), not an unfortunate consequence.

On the other hand there is a totally separate question as to whether the ACA would reduce hiring in other sectors. The WSJ again tells us it has found a business person who claims this is the case, but the data do not support the claim that this is a more general problem.

Anyhow, everyone should know that the WSJ is working hard to convince us that Obamacare is really bad for job growth. One day they may have some evidence to support this view. Btw, this is a news article.

Note: Typo fixed -- thanks Jennifer.

 

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Many people who should know better have been placing far too much emphasis on the weather as an explanation for weak economic data. Cold weather and snow do slow economic activity as people don't like to go shopping or to restaurants in sub-zero weather or blizzards. But cold weather and snow are normal parts of a winter in the Northeast-Midwest. This means their impact is already included in the seasonal adjustment factors for December and January.

The weather will only have an impact on the data if this winter is notably worse than recent winters. I'm not a meteorologist, but that doesn't seem so obviously the case to me. In other words, it's not clear that the weather has had much impact on the data we have been seeing. 

I'll also add that it's hard to understand the claim from Ian Shepardson that with last year's seasonal adjustment factors (these change slightly year to year), we would have seen 265,000 jobs rather than the 113,000 reported by the Bureau of Labor Statistics (BLS). In the unadjusted data BLS showed a loss of 2,870,000 this year from December to January compared to a loss of 2,864,000 last year. Last January's seasonally adjusted jobs number was 197,000.

Given the difference in the unadjusted numbers, at first glance that would look like we would have seasonally adjusted growth of 191,000 using last year's factors. The actual number will not be simply additive because of differences in seasonal factors across sectors. Still is it hard to believe these differences would get us another 74,000 jobs. 

Of course what seasonal factors give, they also take away. (On average, seasonal adjustments have to be zero.) In the seasonally adjusted data we created 149,000 fewer jobs in December of 2013 than in December of 2012. In the unadjusted data the difference was 194,000. If we want to say that we have the wrong seasonal factors so we should be happier about the January numbers, then we would have be more unhappy about weak December numbers.

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That's just in case you are like the vast majority of New York Times readers and have no clue how much $6 billion is. New York Times reporters do not have the ten seconds it takes to go to CEPR's Responsible Budget Reporting calculator and make their stories informative to readers.

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It's really great that we have National Public Radio. With the interest burden of the debt near a post-war low, and interest rates still at historically low levels, many of us might think that we could focus on other problems. (Netting out interest refunded by the Fed, interest payments are well below 1.0 percent of GDP.) After all, we have an economy that is still down close to 8 million jobs from trend levels, with long-term unemployment rates near post-World War II highs. As a result, millions of children are being raised by parents who lack the means to properly care for them. And of course we are wrecking the planet with greenhouse gas emissions.

Yes, many of us might be thinking about issues along these lines, but thankfully we have NPR to tell us:

"the national debt — how much the country owes from accumulating deficits from year to year — is still a huge problem. At 74 percent of GDP, it's the highest since 1950, and it's projected to grow."

And how do we know this is a huge problem? Well, we heard it from Maya MacGuineas, president of the Committee for a Responsible Federal Budget. (The transcript tells us that MacGuineas "heads the campaign to fix the debt." It should read "Campaign to Fix the Debt." This is an organization of corporate CEOs who decided that the debt needs fixing. Fixing the debt is not some objective need that is universally recognized, as this description might imply.)

MacGuineas complains:

""Because we've been so irresponsible for years, our hands are kind of tied as a country."

Remember, the complaint about irresponsibility here is in reference to the deficit, not the housing bubble. According to the latest estimates from the Congressional Budget Office the collapse of the bubble will cost us more than $24 trillion ($80,000 per person) through the end of its budget horizon in 2024. NPR didn't really have time to tell us about the housing bubble back in the days when it could have been pricked before its collapse would have been so dangerous. Instead it was telling us about how the deficit was a huge problem. 

The theme that we can't address problems of mobility and growth because of the debt is absurd on its face. The markets are telling us that we can borrow money at near zero real interest rates to fund whatever needs we perceive. If we can actually boost growth and increase mobility with such spending then it is our fear of deficits and debt -- the opposite of the claims in this piece -- that is the problem, not the debt.

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Ralph Nader is nearly 80 years old. And he is probably as sharp as anyone in Washington half of his age. So where does Linda DePillas get off implying that he is senile in his efforts to keep Fannie Mae and Freddie Mac from being eliminated? The piece begins:

"It's not often in Washington that you see wealthy, conservative investor types and their lawyers sitting down with professional affordable housing advocates. But on Wednesday morning, anti-corporate crusader Ralph Nader — now stooped and gray, nearing his 80th birthday — brought them together.

"Their cause? Saving Fannie Mae and Freddie Mac from obliteration.

"It's a herculean effort. Democrats and Republicans don't agree on much these days, but a broad consensus — from Rep. Jeb Hensarling to the White House — has coalesced around the conclusion that the now-hated housing finance agencies need to be junked, and something else built in their place. A bipartisan bill pushed by Senators Mark Warner and Bob Corker and framed around proposals put forward by center-left groups has taken on an air of inevitability, just waiting for a legislative window to move forward."

Wow, a "bipartisan bill," a "broad consensus" of Democrats and Republicans, we probably have not seen so much coming together since the bipartisan support for the deregulation of the 1990s and the celebration of the soaring rates of homeownership during the housing bubble years. That little product of Washington and Wall Street ingenuity now looks destined to cost us more than $24 trillion according to the latest projections from the Congressional Budget Office. What sort of senile old fool could question that? 

The Corker-Warner bill touted in the piece makes the financial deregulation of the 1990s looks like a model of cautious reform by comparison. Instead of having Fannie Mae and Freddie Mac, which are now essentially government-run companies, guaranteeing mortgage backed securities (MBS), it would allow private financial institutions to issue MBS with a government guarantee. The only protection is that the investors would have to eat  the first 10 percent of the losses.

Goldman Sachs, Citigroup, and the rest of the wall Street gang had no problem passing off their dreck in the housing bubble years when investors could not count on any guarantee. Now the Post is telling us that only a senile old fool would question the wisdom of setting the same crew lose again, but this time being able to tell investors that in a worst case scenario they could only lose ten percent. If questioning the wisdom of that approach is senility, we could use a lot more of it in this town.

Here's the more complete picture.

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While the Congressional Budget Office's (CBO) projections of the impact of the Affordable Care Act got the most attention after the release of its new Budget and Economic Outlook, CBO also implicitly raised its estimate of the cost of the crisis created by the collapse of the housing bubble by $1.4 trillion. This is due to the fact that it downgraded its growth projections for later in the decade, for reasons unrelated to the ACA, with the view that more of the impact of the downturn will be enduring long into the future.

The figure below shows the difference between the 2008 projections for annual GDP and the projections from both the 2013 Outlook and the 2014 Outlook. The calculations use CBO's Long-Term Budget Projections for years beyond the budget horizon. The 2014 projections for GDP are adjusted upward for the negative impact that CBO expects the ACA to have on GDP. The 2014 figure is accordingly raised by 0.5 percent from the CBO projection, the 2015 figure is raised by 0.75 percent, and subsequent years by 1.0 percent. (In effect, these projections assume that policy changes other than the ACA have had a neutral effect on growth.)

The cumulative cost of the collapse through the 2024 budget horizon, measured as a gap between projected output in 2008 and the most recent projections, is now $24.6 trillion, as shown below. This is equal to $80,000 for every person in the United States.

CBO-housing bubble 1 24314 image001

                                 Source: CBO and author's calculations.

 

 

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