Gretchen Morgensen has an excellent piece in the NYT reporting on the revolving door between Wall Street banks and the Obama administration and the lobbying effort to dismantle Fannie Mae and Freddie Mac. These banks hope to be able to take over the business of the two mortgage giants with a system under which the government would guarantee 90 percent of the value of the mortgage backed securities they issued. While the piece does a very good job detailing the financial connections of the individuals behind this push, there are several important points which make the case against "reform" even stronger than presented in the piece.

To start, the piece tells readers:

"For all the problems associated with Fannie and Freddie, some housing experts say, allowing the nation’s largest banks to assume greater control of the mortgage market would most likely increase costs for borrowers."

Actually, just about all housing experts agree that the privatized system would raise costs. Wall Street types get paid more than government employees and shareholders expect a profit. Therefore, we can be pretty safe in assuming a privatized system will have higher costs. The range of estimates in a Washington Post article from last year was that it would increase mortgage interest rates by between 0.5–2.0 percentage points. (I put myself near the bottom of that range.) If the roughly $6 trillion in mortgage debt on Fannie and Freddie's books were all switched to this privatized system, the additional cost would be $30 billion a year, assuming the bottom end of this range. That is more than the federal government spends on the TANF program each year.

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  • Guest - MHerlihy

    It has become a political dogma that "Fannie and Freddie are a problem"; the line is parroted religiously, without basis. F&F in fact have been the best tool to promote middle class home ownership ever devised. (One could debate the policy issue about the encouragement of middle class home owner...
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  • Guest - Bart

    Good for Gretchen Morgensen, but this is the second straight day of depressing articles from the Times. Yesterday it was the spending bill that our law makers are loading with toxic riders, tax cuts and write-offs that apparently some Democrats are eager to support.
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  • Guest - pete

    Profits go to the hundreds of 1%ers who work for F&F, as well as the bond holders who got bailed out. There is no reason for 35% of Americans who rent houses to subsidize the 65% who own homes. Privatizing mortgage insurance would place the costs on the home owners where it belongs. Currently...
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Paul Krugman and Larry Summers both have very good columns this morning noting the economy's continuing weakness and warning against excessive rate hikes by the Fed. While I fully agree with their assessment of the state of the economy and the dangers of Fed rate hikes, I think they are overly pessimistic about the Fed's scope for action if the economy weakens.

While the Fed did adopt unorthodox monetary policy in this recession in the form of quantitative easing, the buying of long-term debt, it has another tool at its disposal that it chose not to use. Specifically, instead of just targeting the overnight interest rate (now zero), the Fed could have targeted a longer term interest rate.

For example, it could set a target of 1.0 percent as the interest rate for the 5-year Treasury note, committing itself to buy more notes to push up the price, and push down the interest rate to keep it at 1.0 percent. It could even do the same with 10-year Treasury notes.

This is an idea that Joe Gagnon at the Peterson Institute for International Economics put forward at the depth of the recession, but for some reason there was little interest in policy circles. The only obvious risk of going the interest rate targeting route is that it could be inflationary if it led to too rapid an expansion, but excessively high inflation will not be our problem if the economy were to again weaken. Furthermore, if it turned out that targeting was prompting too much growth, the Fed could quickly reverse course and let the interest rate rise back to the market level.

Of course, it would be best if we could count on fiscal policy to play a role in getting us back to full employment (lowering supply through reduced workweeks and work years should also be on the agenda), but the Fed does have more ammunition buried away in the basement and we should be pressing them to use it if the need arises.

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  • Forget monetary and/or fiscal policy — it’s the labor-market-al policy, stupid (to all of us; to borrow a familiar phrase from somewhere). As long as unopposed ownership monopsony (unopposed by labor union monopoly) mercilessly squeezes wages and benefits down … … squeezing what is squeezed out of...
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  • Guest - RGC

    Targeting a longer term rate would still require borrowing by private parties. Why would that help anymore than QE? And why promote the myth that the Fed can "push on a rope"?
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A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, "determined to tighten spending and balance the budget in a program to grow the economy." The piece does not indicate how budget cuts in the current economic situation are supposed to "grow the economy."

As the article points out, Denmark's economy is suffering from a lack of demand.

"Shortly after taking over in June, the new government was forced to cut its forecast for economic growth to 1.5 percent this year and 1.9 percent in 2016, citing a slow recovery in domestic demand."

Cutting spending on clean technologies means less demand, not more. This would mean that the government's plans to reduce its subsidies are in direct conflict with its stated desire to increase growth.

While it is certainly the case that in some contexts lower government spending can lead to lower interest rates, which will spur consumption and investment (the Danish Kroner is tied to the euro, so interest rates have no effect on the exchange rate), this is hardly a plausible story in the case of Denmark. The interest rate on its 10-year government bonds is currently 0.91 percent. By comparison, the rate in the United States is 2.27 percent. In this context, it is unlikely that cuts to government spending can have much of a further effect in lower interest rates, nor that any further reduction in rates would have a noticeable effect on spending.

 

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  • Guest - KeithOk

    Maybe they think cuts to solar and wind energy will free up all the free-market fundamentalists who are whining about the subsidies and allow them to spend there time on more productive endeavors. Personally, I'm not very optimistic about the success of this strategy.
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  • Guest - Dean Baker

    Pete, In response to your comment: "Cutting off the subsidy means all the steel or aluminum or carbon fibre that went into windmills can be used someplace else like bridges." There is already plenty of unused steel, aluminum, and carbon fiber. Why would you think that having any more of it will sudd...
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  • Guest - Dean Baker

    Pete, the question is how the resources freed up by the government end up getting used by the private sector. In Denmark, like almost every other country, there are already plenty of idle resources. What mechanism do you envision that will lead the private sector to use these idle resources if the ...
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The context is Nigeria's economic relationship with China. The NYT complains to readers that China is providing goods at a lower cost than other other countries or the country's domestic industry.

"Chinese goods are so dominant that consumers have few other choices."

The article points out that the goods are of varying quality and some, in the case of electronic items, may pose safety problems. Of course, the reason that consumers have few other choices is that the Chinese products sell for much lower prices than the goods produced by competitors.

The piece also complains that China's firms are willing to accept a lower return on investment in Nigeria:

"The risks [associated with investing in Nigeria] have prompted Western companies to demand very fat profits before putting money into the country — returns on the order of 25 to 40 percent a year. Their Chinese counterparts have been willing to accept 10 percent or less."

The piece points out that low cost Chinese imports have displaced hundreds of thousands of manufacturing workers in Nigeria. While this is likely true, this is an entirely predictable outcome of the removal of trade barriers, a process that the NYT usually celebrates in both its opinion and news pages.

The standard argument is that the gains from consumers in the form of lower prices easily exceed the losses to the workers who lose their jobs. There may be an issue of redirecting some of these gains to help the unemployed workers, but the country as a whole still gains. It is striking that the NYT seems reluctant to accept economic orthodoxy on trade when it comes to China's role in Nigeria and the rest of Africa.

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  • Guest - Dave

    http://www.huffingtonpost.com/james-p-hoffa/labor-unions-tpp_b_8740856.html The unions need our help. The current narrative from the left is that free trade is great but the TPP is bad. This is a false narrative. The TPP is bad, but free trade can also be bad. This false narrative is held by ev...
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  • Guest - Dean Baker

    Dave, two quick points. First, China's workers have seen enormous improvements in living standards over the last quarter century. If you don't acknowledge this, you're not looking at reality. The second point is that the NYT is still very much a fan of free trade, it is just complaining that it doe...
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  • Guest - Dave

    What's the confusion? Sorry Dean, but if you're still holding to the idea that unrestricted free trade is good because it is efficient, then you're part of the problem. At least somebody at the NYT is beginning to see the light. What economists don't understand is that people don't generally want...
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The Post has an interesting piece discussing Janet Yellen's tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen's Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.

It would have been worth noting that these critics have been repeatedly proven wrong. They have been complaining about loose monetary policy for over five years yet the inflation rate has consistently been well below the Fed's 2.0 percent target. This information would have been useful to readers trying to evaluate the seriousness of their complaints.

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  • The voters do understand the monetary system. The politicians want to get elected. It is simple as that. BTW the last few days, a url with www in it will not get to your web page.
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  • Guest - JF

    The Senator Sanders views and these notions from the far-other-side are coming around to touch each other in terms of looking at the reasons there is a Central Bank. How interesting. Of course, the far-other-side may be just shilling the "don't throw me in that briar patch" cry of a far-right who ...
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The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China's government of $60 billion in aid to Africa.

The third paragraph told readers:

"Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi said that 'China has the strong political commitment to supporting Africa in achieving development and prosperity.'"

Okay folks, get those scorecards ready. In standard textbook theory, poor countries are supposed to run trade deficits with rich countries. The story goes that capital is plentiful in rich countries while it's scare in poor countries. Rich countries should therefore lend capital to poor countries where it will get a better return.

The flip side of this flow of capital (it is an accounting identity) is that poor countries run trade deficits with rich countries. These trade deficits allow the poor countries to build up their infrastructure and capital stock while still have enough goods and services to meet the needs of their populations. If relatively better off countries like China are willing to give money, rather than lend it, the developing country trade deficits should be even larger.

This means that folks who believe the textbook trade theory should see the widening of the trade deficits that African nations are running with China as evidence that they are gaining from the relationship, not as evidence that the relationship is lopsided.

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  • Guest - ltr

    Correcting: These trade deficits allow the poor countries to build up their infrastructure and capital stock while still hav[ing] enough goods and services
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It has become a common practice for reporters to refer to former Secretary of State Hillary Clinton's proposal to spend $275 billion on infrastructure. Is this a lot of money? My guess is that almost no one reading the number has a clue. Certainly Secretary Clinton wants people to think it is a major commitment.

While there is no obvious yes or no answer, it would help first of all if reporters started by giving a time frame. Spending $275 billion over one year is a much larger commitment than $275 billion over 10 years. The proposal would spend this money out over five years, making the annual amount $55 billion a year.

By comparison, the new highway bill calls for spending just over $60 billion annually on infrastructure over the next five years, so Clinton's proposal would nearly double current spending. As a share of the total budget it is still not a huge deal. With government spending projected to average around $4.7 trillion over the first five years of a Clinton administration, the proposal would amount to a bit less than 1.2 percent of projected spending. Measured as a share of projected GDP, it would be roughly 0.2 percent. And, it would come to roughly $170 a year per person in spending. 

There are other ways to measure this sum, including looking at past levels of spending or relative to estimates of the need for new infrastructure. Reporters have much room to pick and choose on this one, but telling us that Clinton wants to spend $275 billion on infrastructure really is not providing information.

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  • Guest - John Wright

    How about stating as a percentage of the estimated expense of the Iraq War? Per Bloomberg on March 1, 2008, "Nobel economics laureate Joseph Stiglitz, author of a new book that claims the Iraq war will cost the U.S. more than $3 trillion, said the final tally is likely to climb much higher than tha...
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  • Senator Bernie Sanders (the ranking member of the Senate Budget Committee) is proposing a $1 trillion infrastructure plan over five years. His presidential campaign cited a Joint Committee on Taxation estimate for Sanders’s Corporate Tax Dodging Prevention Act, which would raise more than $113 billi...
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  • Guest - Dave

    Why not increase that by about 50%? It is a drop in the bucket for what we'd get in return over the long haul: http://www.businessinsider.com/how-much-it-would-cost-google-to-build-a-cable-network-2012-12 Politicians like to say that the US isn't declining, but we've fallen way behind in technolo...
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Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.

The problem is that this analysis does not consider the realities of the banked population. Banks have millions (tens of millions?) of customers with relatively low balances. These customers are marginally profitable to the banks. (Often the banks profit on fees from these people, like overdraft charges.)

If banks had to pay interest on reserves then these accounts would be even less desirable for banks, since they now would have to pay interest on the reserves that the small account holders had brought to their bank. For this reason, they may opt to raise their fees for opening and maintaining a bank account. The result would be that more people would be getting by without bank accounts.

Any serious discussion of negative interest rates has to deal with this problem.

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  • Guest - Benedict@Large

    The only reason for negative interest rates is because the reigning macroeconomic philosophy is broken. Simply abandon this paradigm, and the need for negative rates goes away. Milton Friedan is dead. It is time to bury him.
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  • Dean, I agree, Though there is an interesting (current) experience in Switzerland: Despite negative money market rates, mortgage rates have not fallen; they have even risen slightly, the banks have been reluctant to pass on negative interest rates; as a result, banks’ liability margins have droppe...
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  • Guest - Dave

    The mail problem as I see it is that all reserves are treated the same. The excess reserves we're interested in pushing out the door are the much larger deposits. Nobody was listening when I proposed several solutions to this problem, including a completely different way of simulating negative int...
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Matt Yglesias is trying to convince people that we should not be mad at Alan Greenspan, the Bush administration economic policy team, and the economics profession for missing the housing bubble that sank the economy. He says that "financial bubbles are much harder to spot than people realize" and argues that the subsequent history shows that I actually was wrong in identifying a housing bubble in 2002.

There are two important points that need to be made here. First, my claim has always been that identifying asset bubbles that move the economy is in fact easy. This both narrows the scope for observation and also gives us more evidence against which to check the assessment. In terms of narrowing the scope, I would not hazard a guess as to whether there is a bubble in the market for platinum or barley. You would need to do lots of homework about these specific industries and also the prospects for related sectors that could provide platinum or barley substitutes, as well as the industries that use these commodities as inputs.

In looking at the housing market in 2002, it was possible to see that sale prices had diverged sharply from rents. While sale prices had already risen by more 30 percent compared with their long-term trend, rents had gone nowhere. Also, the vacancy rate in the housing market was at record highs. This strongly suggested that house prices were not being driven by the fundamentals. (Weak income growth also seemed inconsistent with surging house prices.) If families suddenly wanted to commit so much more of their income to housing, why wasn't it affecting rents and why were so many valuable units sitting empty?

And, the housing market was clearly driving the economy. Housing construction was reaching a record share of GDP. This was not something that would be expected when most of the baby boom cohort was looking to downsize as kids moved out of their homes. Also, the housing wealth created by the bubble was leading to a consumption boom, driving savings rates even lower than they had been at the peak of the stock bubble.

I'll confess that I did not expect the bubble to continue as long as it did. I learned from my experience with the stock bubble that the timing of the bursting is pretty much unknowable, but it never occurred to me that Greenspan and other financial regulators would allow the proliferation of junk mortgages to the level they reached in 2004–2006, the peak bubble years.

Contrary to the "who could have known?" alibis told by the folks setting policy, the abusive mortgages being pushed at the time were hardly a secret. The financial press were full of accounts of NINJA loans, where "NINJA" stands for no-income, no job, and no assets. Anyone who cared to know, realized that millions of mortgages were being issued that could only be supported if house prices continued to rise. 

Anyhow, it was inexcusable for the folks at the Fed, at the Council of Economic Advisers, and other policy posts to have been blindsided by the bubble and the damage that would be caused by its collapse. If dishwashers had failed so miserably at their jobs, they would all be unemployed today. Fortunately for economists, they don't have the same level of accountability.

Recent comments

  • The fall in interest rates had much to do with the initial rise in prices so debt service to rents would be a more appropriate variable, though by 2003 I too was expecting slowing. I also expect it now, or another bubble from here.
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  • If Congress simply passed a law today that it was illegal to make a mortgage with an interest rate under 7%, I believe you are right and housing prices would fall.
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  • Guest - bill

    One last point. Your 2002 paper was well thought out and well argued. I agreed with it at the time and I am not criticizing your methodology. My disagreement is that I believe that the prediction turned out to be incorrect and I am truly puzzled as to why you don't see it that way. I think Keyn...
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The Washington Post has long expressed outrage over the fact that unionized auto workers can get $28 an hour. Therefore it is hardly surprising to see editorial page writer Charles Lane with a column complaining that "the United Auto Workers sell out nonunion auto workers."

The piece starts out by acknowledging that the AFL-CIO opposes tax provisions and trade agreements (wrongly called free trade agreements — apparently Lane has not heard about the increases in patent and copyright protection in these pacts) that encourage outsourcing. He could have also noted that it has argued for measures against currency management and promoted labor rights elsewhere, also measures that work against outsourcing. And, it would be appropriate to note in this context its support for measures that help the workforce as a whole, like Social Security, Medicare, unemployment insurance, and the Affordable Care Act.

But in spite of this seeming support for the workforce as a whole, Lane decides he going to prove to his readers that the United Auto Workers supports outsourcing. His smoking gun is the argument that if the union had agreed to lower pay for its workers at the Big Three, then they might shift fewer jobs to Mexico.

Lane's water pistol here is shooting blanks. As he himself notes in the piece, even the non-union car manufacturers are shifting jobs to Mexico. They have cheaper wages there, companies will therefore try to do this. Essentially, Lane is arguing that unions sellout non-union workers by pushing for higher wages for their workers because if unionized workers got low pay in the United States, there would be less incentive to look overseas for cheap labor. That may be compelling logic at the Washington Post, but probably not anywhere else in the world.

It is worth noting that the Washington Post has never once run either an opinion piece or news article on the protectionist measures that allow U.S. doctors to earn on average twice as much as their counterparts in other wealthy countries. This costs the country nearly $100 billion a year in higher health care costs, or just under $800 a household.

It is probably also worth noting that manufacturing compensation is on average more than 30 percent higher in Germany and several other European countries than in the United States. And unions in general are associated with lower levels of inequality, according to the International Monetary Fund.

But hey, Charles Lane and the Washington Post are outraged that auto workers can earn $28 an hour.

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  • Guest - Michael Foley

    Those pesky auto workers with their endless demands for a dignified level of pay! Why, when I was a lad I worked at a Ford plant in Michigan and only made $7/hour! True, the year was 1977, which I see by the BLS' CPI calculator is equal to $27.47/hr in today's dollars. But still....53 cents more per...
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  • Mr. Lane should only be taken seriously when he goes after the many and varied police unions. i.e. never
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  • Guest - Dennis

    I wonder what Charles Lane earns for writing this drivel--$50/hour, $100/hour? Bezos could definitely get it for less.
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Eduardo Porter discusses whether a no growth economy is feasible as a solution to addressing global warming. While he is largely right about the practicality of no-growth economy, there are a couple of points worth adding.

As a practical matter, it is just simple arithmetic that a larger world population will require fewer greenhouse gas (GHG) emissions per person. For this reason, a shrinking world population, or least more slowly growing one, would make it easier to hit emissions targets.

The second point is that historically people having taken the dividend of productivity gains in a mix of more lesiure and higher income. Given the strong correlation between income and GHG it would be desirable to structure policy to give people more incentive to take the benefits of productivity growth in leisure.

There has been a huge difference in this area between Europe and the United States over the 35 years. Europeans can almost all count on 4–6 weeks a year of paid vacation, paid family leave and sick days, and often shorter workweeks. As a result, the average work year in Europe has 20 percent fewer hours than in the United States. These countries have much lower levels of GHG per person than the United States. Policies that push the United States in this direction and push Europe further in the direction of more leisure should help to reduce GHG emissions.

As a definitional matter, better software, education, and health care would all be forms of economic growth. It is difficult to see why anyone would be opposed to such gains.

Recent comments

  • Guest - John Wright

    I suggest we have an accounting problem with economic growth, in that the world does not account for the negative externality of climate change from economic growth. As I remember, there was a description of "negative value added" to raw materials in the old Soviet Union as good leather was conve...
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  • Guest - jbmoore

    A major nuclear war would drastically reduce GHG emissions along with the benefit of cooling the planet possibly ushering in a new ice age. It would be devastating to the global economy and human population, though. No one is advocating such a thing, but current economic and foreign policies, or the...
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  • Guest - Sandwichman

    Offing "The Agenda" Before the Agenda Offs Us (an imaginary dialogue with Dean Baker) Dean Baker: "The time has long since passed when we should be arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it." ...
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Most economists argue that the Fed's quantitative easing policy, in which it bought up more than $3 trillion in government bonds and mortgage backed securities, is still helping to keep interest rates down even though the Fed has stopped buying these assets. The argument is that by holding a large stock of bonds the Fed is keeping their price higher than would otherwise be the case. And higher bond price mean lower interest rates.

While economists generally accept this view that the holding of a large stock of assets matters with U.S. interest rates, rather than just the flow of purchases, they don't seem to apply the same logic to currency prices. This NYT article on the Chinese Renminbi becoming an international currency never mentions the fact that China's central bank still holds more than $3 trillion in foreign exchange in discussing whether the renminbi is a freely floating currency.

If we believe that economics works the same way with currency values as with interest rates, then we have to believe that the decision by the Chinese central bank to continue to hold large amounts of dollars and other foreign currencies is raising their value relative to the renminbi compared to a situation where the bank held a more normal amount of reserves. This matters, since the implication is that the renminbi is still well below the level it would be at if the exchange rate was set without central bank interventions.

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  • Guest - JF

    The FED is NOT - NOT - redeeming the public debt holdings as they mature. They have authority in law to roll-over the principal amounts. So they continue to buy, and this has continuing influence - though what influence is less certain to me at least. It could redeem the principal, which via an o...
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  • Guest - Anon

    Your RSS feed stopped working a few days ago :-(
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Andrew Biggs has a piece in Forbes arguing that the standard estimates of retirees income are flawed because they ignore payouts from defined contribution (DC) accounts like 401(k)s and IRAs. Biggs has a point. There is a fundamental asymmetry in the treatment of traditional defined benefit pensions, which send retirees a check every month, and defined contribution pensions from which retirees must make withdrawals. The checks are generally counted as income on our surveys, the withdrawals often are not.

For this reason Biggs is correct to note that measures derived from the Current Population Survey (CPS), which the Social Security Administration uses for its Income of the Aged report, are likely biased downward. The question is how large the bias is. Based on IRS data, Biggs calculates that the correct number for retiree income might be more than 80 percent higher than the income reported by the CPS, an average understatement of almost $6,000 per person. That would be real money.

There are three reasons to think there might be less here than Biggs suggests.

1) Biggs used 2012 as the basis for his calculations, since this was the most recent year for which the IRS provided data on the over 65 population. It turns out that 2012 is a bad year from which to make extrapolations for reasons that every good tax-hating right-winger should know. The tax rate on high-income households was raised in 2013. This means that if you were one of those households, you would probably have wanted to take more from your IRA in 2012 at the lower tax rate.

If we look at the overall taxable withdrawals from IRAs, there was a drop from $230.8 billion in 2012 to $213.6 billion in 2013. Biggs' extrapolation would have shown an increase in 2013 to roughly $242 billion, an overstatement of more than 13 percent.

I'm serious, here's how he begins his column (titled "Generational warfare, anyone?") this morning:

"An enduring puzzle of our politics is why there isn’t more generational conflict. By all rights, younger Americans should be resentful. Not only have they been tossed into the worst economy since the 1930s, but also there’s an informal consensus that the government, whatever else it does, should protect every cent of Social Security and Medicare benefits for the elderly. These priorities seem lopsided and unfair."

Yeah, think about that one. We have seen an enormous upward redistribution over the last 35 years. Without this upward redistribution the wages of a typical worker would be more than 40 percent higher today. This money has gone to Wall Street types—you know the folks who sunk the economy and then got us to bail out their banks when the market would have sank them. The money has gone to CEOs who put in their friends as corporate directors. The friends then return the favor by paying the CEOs tens of millions of dollars a year.

The money has gone to drug companies who use their political power to get Congress to give them stronger and longer patent protection and folks like President Obama's trade team to extend this protection around the world. It has gone to doctors and dentists who have used their political power to strengthen the protectionist barriers that ensure them ever higher pay. And it goes to folks like Samuelson's employer, Jeff Bezos, who has pocketed around $4 billion as a result of the exemption of Amazon from the requirement to collect state sales taxes.

But Samuelson and his friends are disappointed and puzzled that they can't get young people angry over their parents' and grandparents' $1,200 a month Social Security check. Life is tough.

Recent comments

  • Guest - JF

    I think maybe I want Samuelson to write some more - it is so poorly done it will harm his political agenda. The generation he wanst to incense have faced some of the same things the currently retiring boomers faced (and Samuelson was 1945, not in the boomer group, instead in the post-war group who ...
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  • Guest - Leonard Stockmann

    People like Samuelson are frustrated that they cannot stir up generational warfare -- the young just don't seem to resent their elders enough to demand cutbacks in Social Security, Medicare, and so on. Part of this lack of millennials' resentment, we can hope, may come from their recognition of the...
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  • Guest - John Wright

    Samuelson's appeal for generational warfare on SS is a lost cause in part because of statistics he quotes in this column. He mentions that 36% of women aged 18 to 34 and 43% of men in the same age group live with their families, so these people, assuming their families are receiving social securit...
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I am going to submit a piece to the Washington Monthly about how astronomers should support science. After reading Robert Atkinson's Washington Monthly piece on progressives and productivity, I'm convinced its editors would find its thesis compelling.

The Atkinson piece is more than a little annoying since it paints an imaginary image of progressives that exists only in Atkinson's head. Atkinson tells us that progressives should support productivity growth, after first going through some bizarre nonsense on the path of wages and productivity. (Wages have diverged sharply from productivity over the last three decades. This is measured using hourly wages and productivity. Someone would only bring family income into this calculation, as Atkinson does, if they are either confused or dishonest.)

Every progressive I know would very much like to see more productivity growth. The most immediate way to secure more productivity growth would be to have faster economic growth. This is both likely to spur investment and also shift workers from low paying, low productivity jobs to higher paying, higher productivity jobs. This is exactly what happened in the late 1990s when the Fed allowed the unemployment rate to fall to 4.0 percent, ignoring the widely held view in the mainstream of the economics profession that unemployment could not fall below 6.0 percent without leading to spiraling inflation.

Most of the progressives I know are actively leaning on the Fed to not raise interest rates and instead allow the unemployment rate to continue to fall. Where are the centrists and conservatives who supposedly care about productivity on this one? When is Atkinson?

The Washington Post had an article on a new report from the Government Accountability Office which noted that most clinical trials don't report differences in outcome by gender. This could be another advantage of publicly funded clinical trials. The government could make a condition of financing that all the baseline characteristics of the participants in trials (e.g. gender, age, weight, etc.) be publicly disclosed along with the outcomes. This would allow other researchers and doctors to better determine which drugs might be best for their patients.

Of course, the other major advantage of having the government pay for the trials (after buying up all rights to the drugs) is that successful drugs would be immediately available at generic prices. It would not be necessary for hand wringing over paying tens or hundreds of thousands of dollars for drugs like Sovaldi or the new generation of cancer drugs coming on the market. It also wouldn't then be necessary for the Obama administration to send its trade negotiators overseas to beat up our trading partners demanding stronger and longer patent and related protections for prescription drugs.

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  • Guest - Ethan

    The recent move by the AMA to call for restrictions on drug company advertising aimed at patients/consumers brings to mind a question: What s the ratio of drug company advertisng expenditures to drug company research expenditures? The answer may take some digging, as I feel some advertising expens...
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Steven Pearlstein has some useful ideas for limiting the rise in college costs, but he leaves an obvious item off the list. How about a hard cap on the pay of university presidents and other high level university employees?

The president of the United States gets $400,000 a year. That seems like a reasonable target. (This would be a hard cap, including all bonuses, deferred comp, etc. There is no reason to waste time with a cap that can be easily evaded.)

This would not be an interference with the market determination of pay. The deal would be that this cap would apply at public colleges and universities and also private schools that get tax-exempt status. If a school doesn't want to get money from the government, either in direct payments or tax subsidies, it would be free to pay its top management whatever it wanted.

Of course schools would scream bloody murder since many now give their presidents compensation packages that are three or four times this amount. But, life is tough. Just as U.S. manufacturing workers have had to adjust to a world where they compete with workers in the developing world earning $1 an hour, or less, university presidents may have to adjust to a world in which taxpayers will not subsidize their pay without limit.

While some of the current crop of presidents may take their deferred compensation and walk, there are many talented and hardworking people who would gladly take a job that pays ten times what the median worker makes in a year. Besides, since we keep hearing cries from the Washington Post crowd about the need to tighten our belts, what could be a better place to start? 

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  • Guest - skeptonomist

    Having highly progressive income tax rates has the effect of putting a cap on compensation everywhere. This avoids the problem of restrictions applied only to institutions which get money (directly) from the government. Why should companies, universities or other non-profits pay humongous salaries i...
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The Washington Post, which has in the past expressed outrage over items like auto workers getting paid $28 an hour and people receiving disability benefits, is again pursuing its drive for higher unemployment. The context is an editorial denouncing former Secretary of State Hillary Clinton's "pander" to middle class voters.

The specific issue is Clinton's promise to increase government spending in various areas while ruling out a tax increase on families earning less than $250,000 a year. The Post tells readers that this promise will be impossible to keep:

"To the contrary, if the U.S. government is to do all those things and still reduce its long-term debt to a more manageable share of the total economy, middle- and upper-middle-class Americans are going to have to contribute more, not less."

While the Post does have a good point on a pledge that sets promises to protect people earning more than 97 percent of the public from any tax increases (the $250,000 threshold), the idea that the current level of the debt is unmanageable has as much basis in reality as creationism. The interest rate on 10-year U.S. Treasury bonds is just 2.2 percent. This is three full percentage points below the rates we saw in the late 1990s when the government was running budget surpluses. The current interest burden of the debt, net of payments from the Federal Reserve Board, is well under 1.0 percent of GDP. This compares to a burden of more than 3.0 percent of GDP in the early 1990s.

In other words, the Post has zero, nothing, nada, to support its contention that the current level of the debt is somehow unmanageable. This claim deserves to be derided for the sort of flat earth economics it is.

And, it needs to be pointed out that cutting the budget (or raising taxes) in a context where the economy is below full employment means reducing demand. This means reducing employment and increasing unemployment, especially in a context where there is no plausible story that interest rates will decline enough to induce an offsetting increase in demand.

So once again we see the Post pushing a policy with the predictable effect of hurting workers. It wants lower deficits and debt which will mean higher unemployment and lower wages. And, it is upset that Hillary Clinton doesn't seem to share its agenda.

Susan Dynarski had an interesting piece in the NYT on the relative effectiveness of charter schools in inner city and suburban neighborhoods. She reported on the findings from her own work, as well as others, that charter schools tend to result in higher achievement levels for inner city children, but had no effect on outcomes for children in suburban areas.

While this finding is interesting, it is important to note an important limitation to much of the research that has been done. Dynarski describes the nature of the tests:

"In the case of charter schools, researchers have found an innovative way to overcome selection bias: analyzing the admission lotteries that charters are required to run when they have more applicants than seats.

"Each lottery serves as a randomized trial, the gold standard of research methods. Random assignment lets us compare apples to apples: Lottery winners and losers are identical, on average, when they apply. Any differences that emerge after the lottery can safely be attributed to charter attendance."

Actually the claim that differences in outcomes, "can safely be attributed to charter attendance," is not true. There are two differences between the students who win the lottery and attend a charter school. One is the issue being examined, that they are attending a charter school. The other is that they are being placed in a school where the other students all have parents who were sufficiently motivated to enter their children in a lottery to try to get them in a better school.

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  • Guest - Larry Signor

    So let us talk about charter schools. Who are they for? Chaiienged children of nonwhite heritage? Bullshit. They are intended for the non-eliite white students as a palliative for the rich. Do we really care about randomizing such a system?
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  • Interesting study on pilot schools – I hadn’t seen that before. I agree that it’s relevant, though it’s important to note, as Dynarski et al. point out, that the charters had smaller class sizes and more extended learning time than pilot shools (they also were much more likely to employ a “No Excus...
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  • The fact that they tend do the same implies that the schools and teachers do not make much difference beyond some level that they all meet. Therefore one could conclude that we should reduce school spending to what it was in the 1960's.
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The election of the conservative candidate to the presidency in Argentina has been cause for celebration in mainstream Washington, as typified by this Washington Post editorial. I won't claim to know which candidate offered the better path for the country going forward, but we should not let the Washington Post types rewrite the past. 

The governments led by the Kirchners have much to show for their twelve years in power. Nestor Kirchner took power in May of 2003, just as Argentina was beginning its recovery from its dramatic default and devaluation at the end of 2001. The I.M.F. was insisting that Argentina return to the austerity path that had led to a horrible recession in the years from 1998 to 2001. Its per capita income had already declined by more than 15 percent at the point of the default making the downturn more than four times as severe as the 2007–2009 recession in the United States. Kirchner said no deal.

Instead he pursued policies to promote growth and employment, with an emphasis on helping those at the bottom end of the income distribution. To the great consternation of the folks at the I.M.F. (where Argentina became known as the "A-word"), his policies largely succeeded. While the I.M.F. kept predicting economic collapse, Argentina's economy grew rapidly. By the middle of 2003 it had already made up all the ground lost following the default and by the end of 2004 its per capita income was above the pre-recession level. And, it was much more evenly distributed.

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  • Dean's question mark in his lede is most appropriate and that represents a lot of the current hopes and fears of the Argentine population today. They do not know what is coming, and hearing Macri say that he will "hold off" making any major changes is not comforting to the Peronists. As a outsid...
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  • Guest - pieceofcake

    and that the WaPo stupidly celebrates some politics -('Hurrah the 'Socialist' have been defeated') - should not be reason for Progressives to defend Corruption Central -(like in Greece) - or in the end you find yourself against anybody who really cries for Argentina.
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  • Guest - pieceofcake

    'growth' and 'currency' - 'currency' and 'growth' -(and 'inflation'- and 'politics') - these are somehow the favorite subjects of progressive American economists - and I also thought it was pretty cool how the Kirchner administration helped their Poor in the beginning but then they -(the Kirchners) ...
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I'm a big fan of mass transit, bikes, and walking, but bad numbers are not the way to get people out of their cars. Someone came up with the statistic that the rate of traffic fatalties is 1.07 deaths per million vehicle miles traveled. Then, the NYT, ABC, NBC, Bloomberg, and AP all picked up this number.

Think about that one for a moment. The average car is driven roughly 10,000 miles a year. If you have 20 friends who are regular drivers, these news outlets want you to believe that one will be killed in a car accident every five years on average. Sound high? 

Well, the correct number is 1.07 fatalities per 100 million miles according to the National Highway Traffic Safety Administration, so they were off by a factor of 100. So be careful driving this holiday weekend, but the risks are not quite as great as some folks are saying.

Thanks to Robert Salzberg for calling this one to my attention.

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  • Guest - Mark Brucker

    I would point out that driving is generally getting safer for a variety of reasons. But not as fast in this country as in other OECD countries. Last time I looked we were doing rather poorly in the rate of progress on this. E.g., from 2000 to 2012 the EU death rate dropped about 55%. Dropped 28% in ...
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  • Guest - Amileoj

    Oh come now, what's a couple of orders of magnitude among journalists? Now's as good a time as any to express my immense thanks to Dean Baker for this blog, and for his tireless work in helping to keep the media horses of the world honest--or, at least, helping to keep the rest of us keenly attuned...
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  • Guest - saurabh

    This line is pervasive in Silicon Valley, where I think the rhetoric flows from robot-worshippers looking to butter up the public for acceptance of driverless car fleets. The more you can convince people that humans are horrible, unsafe drivers, while robots are pristine and perfect and would never ...
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