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).
Roger Cohen showed us yet again that it seems our children aren't learning when it comes to basic arithmetic skills. He used his NYT column to lecture the people of Catalan on their bad manners in seeking to become independent of Spain over the objections of both the national government and the European Union.
"The Catalan lurch is of its time. Yes, it’s about Catalan self-determination. But it’s also of a piece with the anti-establishment, anti-elitist, disruption-at-any-cost upheavals that have been buffeting and undermining the postwar liberal order in Europe.
"Of course, it’s precisely that order — embodied in the European Union and by the presence of the United States as an offsetting power in Europe — that over the past four decades has ushered Spain, and Catalonia within it, to a degree of prosperity and democratic stability unimaginable at Franco’s death. Spain is a poster child for European integration. So, of course, is Catalonia.
"But we have entered the Age of Amnesia."
So Cohen says that the European Union and the current world order have ushered in a period of unimaginable prosperity for Catalan and Spain, but the dumb masses just can't remember how bad things were in the bad old days because of their amnesia. Well, let's check the numbers.Add a comment
Paul Krugman again went after Paul Ryan for the lack of specifics in his proposals for eliminating the national debt. As he reminds us, centrist commentators widely praised these proposals at the time as serious budget plans.
While Krugman is absolutely right on the tax side (Ryan says that he will offset lower tax rates by eliminating unspecified tax loopholes), he should give Ryan credit for what he actually proposes on the spending side. As I have pointed out elsewhere, Ryan has essentially proposed eliminating the federal government other than Social Security, Medicare and other health programs, and the military.
"This fact can be found in the Congressional Budget Office's (CBO) analysis of Ryan's budget (page 16, Table 2). The analysis shows Ryan's budget shrinking everything other than Social Security and Medicare and other health care programs to 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase. That leaves zero for everything else.
"Included in everything else is the Justice Department, the National Park System, the State Department, the Department of Education, the Food and Drug Administration, Food Stamps, the National Institutes of Health, and just about everything else that the government does. Just to be clear, CBO did this analysis under Ryan's supervision. He never indicated any displeasure with its assessment. In fact he boasted about the fact that CBO showed his budget paying off the national debt."
So the Washington press corps favorite thoughtful conservative wants to get rid of almost the entire federal government. Let's give Mr. Ryan credit for what he is proposing. It is specific, it just happens to be crazy.Add a comment
The NYT had an interesting piece by Sheri Berman on the decline of the center-left in Europe. It points to the sharp drop in the support for social democratic parties across the continent, with many parties that used to lead government barely getting above 20 percent of the vote. Voters apparently see little reason to support these parties. A similar story could be told about the center-left in the United States, although the money they command may allow them to still control the Democratic Party.
To carry her observations a bit further, these center-left parties have been largely complicit in the policies that have redistributed income upward over the last four decades. Tony Blair in the U.K., Gerhard Schroeder, and Bill Clinton were all associated with policies that benefited the financial industry at the expense of the rest of society.
The center-left parties have all been supportive of longer and stronger patent and copyright monopolies, which give money to Bill Gates and other incredibly rich people, as well as more educated workers generally, at the expense of workers with less education who would provide the traditional base for center-left parties. These parties, especially the Democrats under Clinton, supported trade deals which were designed to redistribute income from less-educated workers to capital and the most highly educated workers.
And, these parties have generally supported fiscal and monetary policies that have had the effect of keeping unemployment high in order to minimize the risk of inflation. By reducing workers' bargaining power, these policies have put downward pressure on the wages of the bulk of the workforce. (Yes, these points and more are covered in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Anyhow, it is not surprising that workers will not support political parties that are committed to taking money out of their pockets and giving it to the rich. If this continues to be the agenda of center-left parties, they are not likely to have much of a future.Add a comment
A NYT article on the debate in Europe over regulating Uber and other "gig economy" companies raised the possibility that Uber may stop doing business in the United Kingdom if it was required to treat its workers as employees:
"If the ruling is upheld [that Uber workers are employees], it could hit the business model on which Uber, Deliveroo and similar online platforms rely. That may mean a major recalibration of the gig economy, or it may drive companies out of those countries which choose to impose stiffer regulation.
"Outside Europe, there have been signs of that happening: Uber threatened to leave Quebec this month if the government there pressed ahead with tougher standards for drivers."
While the article implies that the departure of Uber would be a bad outcome for the people of the United Kingdom and Quebec there is no reason to think this is the case unless they happen to be large holders of Uber stock. There are plenty of other companies that apparently are better able to deal with regulations than Uber. They would presumably fill any gap created by Uber's departure.
We saw this last year when Austin imposed a law requiring that drivers for services like Uber and Lyft be finger-printed, just like other taxi drivers. The two companies sponsored a ballot initiative in the city and spend a huge amount of money pushing their opposition to fingerprinting. They also threatened to leave if the initiative failed.
The initiative was defeated and both companies stopped serving the city. The gap created was quickly filled by a number of start-ups that apparently were able to deal with the fingerprinting requirement. (Uber then lobbied the Texas legislature to have the Austin rule overturned.) Anyhow, the prospect of Uber ending its operations in an area should be seen an opportunity for local start-ups, not a threat.
Note: An earlier version of this post said that Uber CEO Dara Koshrowshahi was on the board of the NYT. He resigned this position on September 7th.Add a comment
We know the NYT has to practice affirmative action for conservative columnists. Otherwise, they would never have any on their opinion pages, but they might have gone too far with Bret Stephens. The guy apparently knows literally nothing about the economy and is so ignorant he doesn't even know how little he knows.
In his latest column he touts the good economic news under Donald Trump:
"The Dow keeps hitting record highs, and the economy is finally growing above the 3 percent mark."
This is meant to say that things are going great for the country. The new highs in the stock market are good news for the roughly 25 percent of the country that holds substantial amounts of stock. For the rest of the country, they make less difference than the outcome of this Sunday's football games.
As fans of Econ 101 know, the stock market is a measure of expected future profits, that is when it is not in a bubble driven by irrational exuberance. So the current expectation is that after-tax corporate profits will be a larger share of future income. That's great news for large shareholders. And guess where those larger expected profits will come from? Are you celebrating yet?
The second part of this sentence is perhaps even worse than the first part. "The economy is finally growing above the 3 percent mark." No, the economy is not growing above the 3 percent mark, we had one quarter of growth above the 3.1 percent mark. We have had many quarters of growth above the 3.0 percent mark in this recovery.
Economic growth tends to fluctuate quarter by quarter. Those old enough to remember will recall that growth in the first quarter was just 1.2 percent. That explains part of the stronger growth in the current quarter, as weak sales of durable goods in the first quarter led to strong growth in sales in the second quarter.
Anyhow, Stephens apparently seems to think that the 3.1 percent growth in the second quarter implies that the economy is now on a growth path of above 3.0 percent. If there is any economist who agrees with this assessment, they are keeping a very low profile. For what it's worth, the most recent projection for third quarter GDP, based on the data we have to date, is 2.3 percent.
Note: An earlier version put the 3.1 percent growth as being in the third quarter. This was reported GDP for the second quarter. Thanks to Boris Soroker.Add a comment
This is in effect what they did when they criticized an analysis of the proposal by the non-partisan Tax Policy Center. An NYT article on the analysis, which showed the plan would lead to massive tax breaks for the wealthy and a large increase in the deficit, referred to the Republican response:
"Republicans quickly dismissed the analysis, saying the tax cut framework needs detail before it can be accurately assessed. A nine-page proposal for a tax overhaul, announced by Mr. Trump and Republican leaders in Congress on Wednesday, did not include income levels for its three personal income brackets. It left the door open to a fourth level of taxation for high-income taxpayers, and it did not specify the size of an enhanced child tax credit.
"'This analysis is based on guesswork and biased assumptions designed to promote the authors’ point of view — rather actual detail from a bill that has not yet been written by the committees,' said Antonia Ferrier, a spokeswoman for Senator Mitch McConnell of Kentucky, the majority leader."
The claim that there is not yet enough information available to evaluate the plan is incredibly damning to the Republican leadership who crafted it. They spent months working on the plan. As their comment indicates, there are still important aspects of the plan that need to be filled in.
This should warrant a separate article telling readers what the Republicans were doing when they were supposed to be working on their tax plan. If the idea is that they will just decide major aspects of the tax plan in the last days before Congress votes (they plan to vote this fall) then it means they intend to put in place major changes in the U.S. tax code in a way that doesn't allow for serious public debate. This fact deserves attention.Add a comment
Neil Irwin seems to get a bit lost in his concerns about treating owners of pass-through businesses fairly. His NYT Upshot column argues that there is a problem where we are left with a choice between large-scale evasion, treating them unfairly, and micro-monitoring their behavior. The story is actually far simpler than he presents it.
The basic story is that the tax rate on a pass-through business is zero. The business itself pays no taxes, all its income is passed on to its owner(s) to be taxed at the individual rate. As it stands now, the income from pass-through businesses is treated as ordinary income and taxed at the same rate as labor income.
The Republicans are proposing to put a cap on the tax for income from pass-through businesses at 25 percent. This means that high-income people who own pass-through businesses will be able to pay taxes at a 10 percentage point lower rate than the 35 percent top marginal rate they are proposing. (The savings are 14.6 percentage points compared to the current 39.6 percent top marginal tax rate.)
Irwin correctly points out that this gap will be an invitation for every high-end earner to set up a pass-through business so that they can pay a 25 percent tax rate on their income rather than a 35 percent rate. Treasury Secretary Mnunchin has noted this problem but said that the I.R.S. will scrutinize pass-through corporations to prevent this sort of scamming. (Mnuchin's claim must be taken with a continent worth of salt. The Republicans have worked for the last two decades to do everything they can to weaken the I.R.S.'s enforcement powers.)
While Irwin recognizes the incentive this structure creates for gaming and also the difficulty of enforcement, he seems to accept that there is some inequity that the lower tax rate on pass-through income would address. This is not true.
Irwin is concerned that genuine pass-through income is income from capital, which we tax at a lower rate than income from labor. The current maximum tax rate on dividends and capital gains is 20 percent, compared to the rate of 39.6 percent on labor income. He argues that by taxing pass-through income at the rate on ordinary income we would be imposing too high a rate on the capital income from these companies.Add a comment
The Fed has been raising interest rates for the last 21 months with the idea that it wanted to slow growth in order to prevent inflation. It has now begun the process of selling off assets, which will also have the effect of raising interest rates and slowing growth.
While the need to slow growth is premised on the fear that inflation will rise to a higher than the desired rate, the data refuse to cooperate. The Bureau of Economic Analysis released data for the personal consumption expenditure deflator (PCE) this morning. The year over year rate of inflation in the core PCE, which is the focus of the Fed, fell to 1.3 percent, from 1.4 percent in July. (The annualized rate for the last three months compared to the prior three months was slightly higher at 1.4 percent.)
Anyhow, it is difficult to see any basis for the Fed's concern that the inflation rate will exceed its target of a 2.0 percent average rate. At least for now, it is going in the wrong direction.Add a comment
In elite circles you are supposed to be for anything called a "free trade" agreement, otherwise, people will call you names. And names really hurt highly educated people. This is why most highly educated people supported the Trans-Pacific Partnership (TPP), even though they had no clue what was in it. As NYT columnist Thomas Friedman famously said:
"I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, 'Mr. Friedman, is there any free trade agreement you’d oppose?' I said, 'No, absolutely not.' I said, 'You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.'"
The rationale given for the TPP has constantly shifted in response to the political climate. It was originally pushed for its economic benefits in terms of more growth and jobs. However, no serious analysis could show anything other than trivial benefits for the economy.
While removing trade barriers might generally be good for growth, there are relatively few barriers remaining between the United States and the other eleven countries in the TPP. It already has trade agreements with six of these countries.
In fact, the TPP actually increases protectionist barriers in the form of longer and stronger patent and copyright and related protections. For some reason, the economic analyses don't include the negative effects of increasing these protections, even though their impact on the prices of the affected products, most importantly prescription drugs, dwarfs the impact of lowering a tariff of one or two percentage points to zero.
Since economics won't sell the TPP, the alternative is to make it a geo-political pact, with the main target being China. The NYT goes this route with an article that tweaks Donald Trump for his opposition to the TPP.
"Faced with such an enemy, one might imagine the United States would gather allies in a concerted effort to contain China’s mercantilist ambitions. Except that Mr. Trump, in one of his earliest actions, revoked American participation in the Trans-Pacific Partnership, a pact promoted by his predecessor as a means of doing precisely that. He walked away while extracting no discernible benefits from China."
The main problem with seeing the TPP as a pact designed as a weapon against China is that it doesn't seem to have been designed that way. Most obviously, the rules of origin (ROO) provisions, which determine which items can benefit from the preferential treatment provided by the TPP, are extremely weak. For example, the ROO in the TPP require originating content of between 45 percent and 55 percent for vehicles and engines and some other car parts. For most parts, the requirement is between 35 and 45 percent. These TPP ROO are considerably weaker than the ones in NAFTA, which required 62.5 percent content from the countries in the agreement.
This matters in reference to China since China is likely to be the main provider of inputs from countries outside the pact. This means that for some car parts, China can legally provide 65 percent of the value, and still get favorable treatment through the TPP. Given the ability of companies to fudge numbers presented to customs agents, we can envision the share of Chinese content rising to 70 or 75 percent, and still getting preferential treatment under the TPP. This doesn't sound like a pact designed in opposition to China.Add a comment
Dana Milbank had a column in the paper with the headline, "Is it really ethical to expect Tom Price to fly coach?" (The title is slightly different in the online edition.) The problem with this title is that the issue is not whether Price should fly coach or first class, the issue is his use of private jets for government travel.
People reading the piece would learn this fact, but of course, a large percent of readers will only see the headline. (Since this is a Dana Milbank column, that is likely to be a very large percent.) These readers will think this is a relatively trivial point about whether cabinet secretaries should be able to fly first class, as opposed to the actual issue of taking a private plane, which might cost one hundred times as much.Add a comment
There has been much bizarre reporting on the Republican proposal for a big cut in taxes on income from pass-through businesses. The proposal would have a top tax rate on the income from pass-through businesses at 25 percent. This is routinely reported as a cut in taxes on businesses.
This makes zero sense as any fan of English and logic should be able to see right away. The tax cut is on income from "pass-through" businesses, as in businesses that don't pay taxes. The tax break is for the individual that gets the money, not the business, which already pays zero tax.
Furthermore, since the overwhelming majority of the people who get income from pass-through businesses are not especially rich, they are already paying taxes at a 25 percent rate or less. The only people who would benefit from this lower tax rate are high-income people who are in a higher tax bracket.
It is bizarre that this is reported as a reduction in a tax on business. These businesses already pay zero tax. Their tax can't be reduced further unless the government were to have a policy of subsidizing them.
This is a proposal to tax individual income received from owning a business at a lower rate than other income. This means that a lawyer who works for a law firm and receives a salary would be taxed at a higher rate than a lawyer who formed a pass-through corporation and received income from this corporation.
This difference in tax rates, based on the source of income, is pretty much a textbook example of bad tax policy. It gives a strong incentive for people to play games with the tax system. This is a pure waste of resources on unproductive activity. It will slow economic growth.
It also makes the system less progressive since the only people who will be able to take advantage of these tax tricks are relatively wealthy. In addition, the people who run the tax gaming will also make lots of money since they will get a cut of the tax savings. Tax gaming is a major source of inequality since the people who run the tax games get rich. (Think of private equity partners.)
Anyhow, there is no reason for the media to help this tax cut proposal gain public support by calling it a tax cut on business. It isn't.Add a comment
You won't see that headline even though it is a very plausible explanation of their actions. The reason is that newspapers will say that we can't know the motives of politicians.
That is a good practice for newspapers to follow, but unfortunately, they don't. During the tax debate, there have already been any number of stories that have told that us that Republicans "believe" that their tax cuts will boost growth or that they are proposing tax cuts "in order to" revitalize the economy. For some reason, they are fine with attributing motives when the effect is to put these politicians in a positive light, even if they refuse as a matter of principle to attribute motives when it would reflect poorly on them.
Of course, Republicans do say that their motive is to promote economic growth, but let's imagine for a moment that their true motive is making their wealthy contributors even richer. Do we think Paul Ryan will announce his latest tax cut proposal by telling the public how much it will give to the Koch brothers and the Mercers?
That doesn't seem very likely. He would instead make some claim about how the tax cuts benefit the public as a whole, regardless of how implausible it might be.
And in this case, it is pretty implausible. At best tax cuts can have a very modest impact in boosting growth. The best analysis of this issue was done by the Congressional Budget Office in 2005 when it was headed by Douglas Holtz-Eakin, a Republican economist who was the chief economic adviser to Senator McCain in his presidential campaign. His analysis found that using the most favorable set of assumptions, additional growth could temporarily replace one-third of lost revenue. This revenue increase was largely offset by slower growth in the longer term.
So accepting the Republicans' claims as to their true beliefs also requires accepting that they believe something that is not true. While this is possible, instead of engaging in speculation that assumes Republicans are ignoramuses when it comes to the economy, why not just stick to reporting what they say?Add a comment
This is an important point that was left out of a NYT piece discussing Janet Yellen plans for the Federal Reserve Board's interest rate policy. The piece gave Yellen's comment that it would be bad policy to wait until inflation was at 2.0 percent before more aggressively raising interest rates.
While Yellen may have been using shorthand, as she has repeatedly pointed out, the Fed views the 2.0 percent average inflation as a target. The 2.0 percent figure is not viewed as a ceiling. This means that it should be prepared to tolerate and even want periods in which inflation is somewhat above 2.0 percent. Since there will be a recession at some point, and inflation is expected to fall in a recession, to maintain a 2.0 percent average inflation rate, the rate should be somewhat above 2.0 percent before the next recession.
Given this reality, the Fed has been falling substantially short of the inflation target it set for itself.Add a comment
Well, sort of, at least you can say that if the NYT columnist had any idea of what he was talking about. Friedman filled his column today with typical Friedmanesque nonsense, which included this paragraph:
"We’re going through a change in the 'climate' of globalization — going from an interconnected world to an interdependent one, from a world of walls where you build your wealth by hoarding the most resources to a world of webs where you build your wealth by having the most connections to the flow of ideas, networks, innovators and entrepreneurs. In this interdependent world, connectivity leads to prosperity and isolation leads to poverty. We got rich by being 'America Connected' not 'America First' (emphasis in original)."
If it's actually the case that we build wealth by "having the most connections" and not having walls and hoarding, then we certainly should be opposed to patent and copyright monopolies. These monopolies, which often take the form of walls (paywalls), are quite explicitly designed to limit connections. They are hoarding.
Of course, Mr. Friedman has probably never given a moment's thought to the efficiency of patent and copyright protection in the modern world. After all, he is not expected to have serious ideas on important issues, he is just a newspaper columnist.Add a comment
My friend and occasional co-author, Jared Bernstein, had a piece in the NYT saying that Republicans don't care about budget deficits. The evidence certainly supports that view. As Jared points out, they repeatedly push through large tax cuts that come with no offsetting cuts in spending. As fans of arithmetic everywhere know, if you spend the same amount (sometimes they increase spending, by appropriating more money for things like prisons, walls, and the military), and take in less money, then you have a larger deficit.
Presumably, people who keep acting to raise the budget deficit, don't care about high budget deficits. I'll add two points here.
First, the media, including often the NYT, cover for Republicans on this issue by telling their audience that Republicans "believe" that lower taxes increase growth, thereby raising enough revenue to offset the tax cut. This is incredibly irresponsible reporting. (You could even call it "fake news.")
Reporters don't know what the politicians believe. When they assert politicians "believe" something to be true, they are just making things up. As we all know, politicians don't always tell the truth. Reporters know what politicians say, not what they believe. Furthermore, since the assertion is so obviously not true, it seems unlikely that many Republican politicians really believe it.
The responsible way to report on this issue is to tell readers that a politician "claims" or "says" that tax cuts will pay for themselves with stronger growth. (A BTP reader told me of an exchange with a NYT reporter in which the reporter said that the NYT doesn't use the word "claims," because it implies that the person may not be telling the truth. If this is the case, that is an unfortunate feature of NYT's reporting.)Add a comment
The debate over prescription drug pricing is a great testament to how deeply propaganda can affect people's thinkings. The NYT had a piece on lowering prescription drug prices by Jay Hancock, a reporter for Kaiser News Service.
Hancock runs through a range of mechanisms that the government can pursue to make drug prices lower. Incredibly, he never mentions what would almost certainly be the most simple route: stop making drugs expensive with patent monopolies.
Drugs are almost invariably cheap to manufacture. The reason they are expensive is that we give drug companies patent monopolies and related protections which severely restrict competition in the market. We will spend roughly $450 billion this year on prescription drugs. If drugs were sold in a free market, without patents or related protections, these drugs would almost certainly cost less than $80 billion. The difference of $370 billion is a bit less than 2.0 percent of GDP, it is more than five times the annual food stamp budget. In other words, it is real money.
We do have to pay for the research, but there are other more efficient mechanisms, most obviously direct government funding. We currently spend more than $30 billion a year on research through the National Institutes of Health. If we tripled this figure we could likely replace the $50 billion that the industry claims to spend on research each year. (A mechanism for funding is described in my book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].)
Anyhow, it is incredible that the idea of not having the government grant the monopolies that make drugs expensive in the first place never even made Hancock's list. This is not a new idea, it has been pushed by Nobel Prize-winning economist Joe Stiglitz, cited as a route for future funding by a UN panel, and even considered seriously by an OECD meeting on the topic. It should at least warrant a few sentences in what is supposed to a far-reaching NYT piece on drug pricing.Add a comment
I have a hot tip for Washington Post reporters: politicians aren't always honest. As a result when they say they believe something, it doesn't mean they really believe it.
This means that the Washington Post likely misled its readers in a discussion of Republican tax cut proposals when it told them:
"Republicans believe the corporate rate cut and other incentives will stimulate economic growth, offsetting the revenue loss."
The reality is the Washington Post's reporters have no clue what the Republicans pushing tax cuts really believe about the impact of tax cuts on growth. If these Republicans were at all familiar with with the evidence, they would not expect their tax cuts to have much, if any, positive impact on growth.
So while it is possible that Republicans believe in something that is not true, it is possible that they are deliberately deceiving the public. It is also possible that they have no clue whatsoever about the impact of tax cuts on the economy, just as they have no clue about the impact of their health care proposals. They are simply voting as their funders are telling them to.
Newspapers are supposed to report the facts, not make them up, as the Post is doing here.Add a comment
With the Republicans promising big tax cuts for their wealthy backers, we are again hearing talk about the budget deficit and national debt. Needless to say, most is pretty badly confused.
At the most basic level, insofar as there is a burden of the debt, it is the interest payments on the debt. This is the amount of money that the government has to cough up each year to pay bondholders as opposed to using for other purposes.
While the debt is high relative to GDP, interest on the debt is actually fairly low. It is currently around 0.8 percent of GDP, or roughly $160 billion a year. This is near a post-World War II low. In the 1990s, the interest peaked at more than 3.0 percent of GDP.
Many people overstate the interest burden because they ignore the money that the Federal Reserve Board refunds to the government, which is presently around $90 billion a year. The Fed is collecting a substantial portion of the interest paid by the federal government due to the fact that it holds a large amount of government bonds. It keeps some of the interest to fund its operations and then rebates the rest to the Treasury.
Incredibly, there has been literally no coverage in major news outlets of the budgetary implications of the Fed's plans to reduce its asset holdings. When the Fed sells off these assets, the interest will instead be paid out to the people who buy the bonds rather than refunded to the Treasury. The difference could come to as much as $600 billion over the next decade, roughly the amount of money at stake with Obamacare repeal, but no one seems to care.Add a comment
The Washington Post misled readers in its discussion of Republican claims that its tax cuts will lead to a large boost to GDP growth. The piece quotes Kent Smetters, an economist at the University of Pennsylvania, as saying the Republican growth projections did not take account of debt. This is wrong.
The real issue is whether the projections take account of how close the U.S. economy is to its potential level of output. If the current level of demand is near the point where the economy is hitting serious supply constraints, then the Republican tax cuts will not have much impact on growth. On the other hand, if there is still considerable excess capacity in the form of unemployed and underemployed workers, then it may be possible to increase growth by increasing demand, such as the tax cuts.
Debt is a meaningless concept in this context. Debt would only matter insofar as the flow of income in the form of interest payments on bonds create a source of demand that pull resources away from other uses. With interest payments near a post-war low as a share of GDP, this should not be a major issue for the foreseeable future.
Also, direct debt is only one way in which the government commits flows of future income. Government-granted patent and copyright monopolies are actually much more important in determining future flows of income than debt. In the case of prescription drugs alone, patent and related protections raise the price of drugs by close to $370 billion a year over the free market price, a bit less than 2.0 percent of GDP. This is considerably larger than the current interest burden of the debt, which is approximately 1.6 percent of GDP, net of money refunded from the Federal Reserve Board to the Treasury.
These monopolies are effectively like privately collected taxes. The government grants them as a way to pay for research and creative work. If anyone were really concerned about the burden created by government debt, they would factor in the cost of these monopolies to the public. The decision not to include the costs from patent and copyright monopolies in assessments of the debt makes for a fundamentally dishonest discussion of the issue.Add a comment
Paul Krugman does a nice job dissecting the logic, or lack thereof, of Republican efforts to dismantle Obamacare. He points out that one of the games played by the Republicans is claiming that the Graham-Cassidy bill would increase Medicaid spending. It makes this claim based on the fact that nominal Medicaid spending would increase under the bill. While this is true, the bill would hugely cut spending compared with the baseline which factors in both projected increases in the number of people covered and the medical cost inflation.
It might be harder to get away with this cheap trick if papers like the New York Times used budget reporting to actually inform readers. As it is, budget reporting usually doesn't put numbers in any context, which makes them absolutely meaningless to the vast majority of readers. This point was acknowledged a few years back by both Margaret Sullivan and David Leonhardt, who were at the time the NYT's public editor and Washington editor.
In spite of the acknowledgment that its budget reporting does nothing to inform the vast majority of its readers, the paper has done nothing to change the practice. (Does the paper really find it hard to find reporters who know basic arithmetic?) As a result, it is much easier for Republicans to lie when they want to do something like massively cutting back Medicaid spending.Add a comment
It is more than a bit bizarre that no one seems to pay any attention to the budgetary implications of the Fed's decision to start selling off its assets. The impact is potentially fairly large in the scheme of things, possibly as much as $600 billion over the next decade. This is equal to roughly 0.5 percent of GDP. It's pretty much the same number at stake in the various Obamacare repeal efforts.
For some reason, none, as in absolutely zero, of the news stories I have seen or heard about the asset sales mentioned its impact on the budget. It was the same story back in June when the Fed raised the issue at its meeting that month.
It's a bit hard to understand how reporters at the New York Times, Washington Post, NPR, and elsewhere can independently decide that adding hundreds of billions of dollars to the budget deficit over the next decade is not worth mentioning. (The basic story can be found here.)Add a comment