Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

With much chatter over the past week about the White House suggesting an employer-side payroll tax cut to stimulate the economy and hiring, let's look at what CEPR's Dean Baker (currently on vacation) said about the Schumer-Hatch employer tax credit for new hires that was in effect for much of 2010:

There has been extensive research on the impact of the minimum wage on employment, almost all of which finds that the 15-20 percent increase in the cost of labor that resulted from recent increases in the minimum wage have led to no measurable decline in employment. If a 15-20 percent increase in the cost of labor does not cause firms to cutback employment, then we can’t believe that the 6.2 percent decline in the cost of labor from the Schumer-Hatch bill will lead to any noticeable increase in employment.

Recently, the Economix blog in the New York Times noted about this policy:

Congress passed a temporary job creation tax cut last year that does not seem to have been terribly effective.

Remember:  That tax credit was for the full 6.2% in payroll taxes paid by employers, while the current idea being floated is for a cut of only 2%, so we can assume the effect would be even more miniscule.

Are there tax cuts that could work better?

Does the phrase "Making Work Pay" ring a bell?  At the end of last year, the Making Work Pay tax credit ended.  As CEPR's Shawn Fremstad pointed out earlier this year, that policy was more progressive than a payroll tax cut, providing greater relative financial relief to low-income and disabled workers, who are more likely to spend any extra money in their pockets than those with higher incomes.

And there's an employer tax credit for work-sharing, another idea from Dean Baker. The Nation magazine this week calls it one of The Five Smartest Congressional Bills You've Never Heard Of:

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Energy prices fell in May, resulting in the slowest rate of increase in the Consumer Price Index since last November, according to the latest Bureau of Labor Statistics' reports on the consumer price, import/export price and producer price indexes. Energy prices had increased 26.4 percent since last June and 42.5 percent since the end of 2008.  However, prices had fallen rapidly in the second half of 2008 and are now 8.3 percent below their July 2008 peak. In regards to the May numbers, while we should not expect a sustained fall, it seems that energy inflation is abating.

Nonagricultural export prices rose 0.5 percent in May and have now risen 7.0 percent over the past 12 months.  While fuel accounts for about 7.6 percent of this index, driving up prices over this period, the dollar has also fallen 8.8 percent in the last year.  Consequently, the price seen by purchasers of U.S. exports in local currency has fallen by 2.4 relative to May 2010. The effect of the fall in the dollar on trade prices has resulted in conditions favorable to a reduction in the trade deficit.  Though the immediate mechanism is slightly higher inflation, the possibility of increased exports and domestic substitution of foreign goods bring welcome opportunities for the U.S. economy.

For more, check out our latest Prices Byte.

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Famous conservative economist Milton Friedman used to compare an expansionary monetary policy to the government (the Fed in this case) dropping dollar bills from a helicopter. As it is well known, that led many to call Ben Bernanke "Helicopter Ben" because of the large increase in the monetary base that he has presided over to prevent a more serious credit crunch and to save the big banks from themselves.

Nowadays many analysts, including Mr. Larry Summers, think that not much more can be achieved with expansionary monetary policy. The U.S. economy is badly in need of a new fiscal stimulus. There is a great economic, political and ideological debate over whether a new stimulus would be necessary, efficient and/or politically acceptable in the present circumstances.

Many conservatives are very much against a new stimulus, almost as much as they one day were in favor of the second war against Iraq. Perhaps it would be easier to convince them to support a new stimulus by reminding them of a little-known but quite interesting fiscal stimulus operation that happened during the Bush Administration.

It appears that during May 2004 the U.S. government sent to Iraq military cargo planes full of U.S. dollars in cash to help with the "recovery" of the Iraqi economy. It is reported that 21 flights of Hercules C-130 planes full of 100-dollar bills took place. The amount of the "stimulus" appears to have been something like 12 billion dollars. The money was distributed widely among U.S. "contractors" and Iraqi ministries. It seems also that of that money, about 6.6 billion dollars has vanished without a trace and remains unaccounted for even today.

Now that must have made the operation particularly stimulating, especially for American "contractors." It seems that it is time to relive this operation. Bring on the C-130 planes. Forget "Helicopter Ben." What we need now is "Hercules Geithner."

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The following reports on labor-market policy were released over the past week.

Employment Policy Research Network

Economic Analysis of Labor Markets and Labor Law: An Institutional/Industrial Relations Perspective
Bruce Kaufman


Political Economy Research Institute

Fighting Austerity and Reclaiming a Future for State and Local Governments
Robert Pollin and Jeff Thompson


Institute for Women's Policy Research

Pay Secrecy and Wage Discrimination
Ariane Hegewisch, Claudia Williams and Robert Drago, Ph.D.

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Over the past month, the Center for Economic and Policy Research, Drum Major Institute for Public Policy, Economic Policy Institute, Employment Policy Research Network, Political Economy Research Institute, and The Roosevelt Institute have released reports on issues relating to labor-market policy.


Center for Economic and Policy Research

Labor Market Policy in the Great Recession: Some Lessons from Denmark and Germany
John Schmitt


Drum Major Institute for Public Policy

Low Wage Jobs Dominate NYC Job Growth
John Petro

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The unemployment rate climbed back up to 9.1 percent in May, as the rate of private-sector job growth slowed to just 83,000, according to the latest Bureau of Labor Statistics employment report. The prior two months data were also revised downward, lowering the average job growth for the last three months to 160,000, approximately 70,000 more than what is needed to keep pace with the growth of the labor force.

The weakness in the private sector goes along with a government sector that lost 29,000 jobs in May and has lost an average of 24,300 jobs over the last three months. State and local governments will continue to make cutbacks, and there is a strong likelihood of further cuts in federal spending in the fiscal year beginning Oct. 1. Without new stimulus, the unemployment rate may continue to creep upward.

For more information, check out our latest Jobs Byte.

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The following newsletter highlights CEPR's latest research, publications, events and much more.

CEPR on Greece and the Eurozone

CEPR Co-Director Mark Weisbrot wrote an op-ed that was published in the New York Times (CEPR’s first op-ed to appear in the print edition). The op-ed, titled “Why Greece Should Reject the Euro”, argues that Greece should at least consider leaving the euro. The op-ed received a great deal of attention from the press, including this blog post by New York Times columnist Paul Krugman. Krugman gives Mark kudos for suggesting that Greece consider abandoning the euro, but he stops short of endorsing the idea. Mark countered with this Guardian column, where he defends his position, stating: “Whether or not these countries decide to rethink the euro itself, simply reconsidering – in all of Europe – the right-wing economic policies of the eurozone authorities would be a big step forward for the region.” Mark also discussed the Greek debt crisis with Andrea Catherwood on Bloomberg Television's "Last Word", with Theo Caldwell on Sun News’ “The Caldwell Account,” and other programs.

Mark also published an article on solving the euro crisis that appeared in The Nation. CEPR Co-Director Dean Baker weighed in as well, penning this article on the European Central Bank.

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Yesterday, CEPR was honored to present some our research at the 2011 Asian American and Pacific Islander Summit, hosted by the Congressional Asian Pacific American Caucus (CAPAC) and House Democratic Leadership.

CEPR's presention, titled The AAPI Perspective on the Recession and the Recovery (pdf), was part of the Summit's Economic Development and Housing Panel.

Our main points were:

1. AAPIs suffered just as much as other racial/ethnic groups in the recession.

2. Aggregate data about AAPIs mask remarkable diversity within the AAPI community.

3. “Good policy requires good data.”  There is a need for better disaggregated data about AAPIs.

4. CEPR will release a major report about AAPI workers in July.  This presentation is a preview of that work.

For example, the slide below shows that from 2006 (the year before the recession started) to 2009, the median income of AAPIs dropped about the same as other groups:

AAPI-HHincome

And this slide points out that, while the aggregate data show that AAPIs have the lowest unemployment rate, it actually masks a wide range of unemployment rates among AAPI ethnic subgroups:

AAPI-unemployment

Click here (pdf) to view the entire presentation.

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Several new labor market research reports were released this week:

Economic Policy Institute

We're Not Broke nor Will We Be
Lawrence Mishel

Center on Budget and Policy Priorities

Ryan Medicaid Block Grant Would Cause Severe Reductions in Health Care and Long-Term Care for Seniors, People with Disabilities, and Children
January Angeles

Institute for Women's Policy Research

Maternity, Paternity and Adoption Leave in the United States
Annamaria Sundbye, Ariane Hegewisch

National Employment law Project

An Assessment of Methods and Findings of the New York City Economic Developement Corporation's Living Wage Study
Sylvia Allegretto, T. William Lester, David Howell, Jeanette Wicks-Lim, Stephanie Luce, Robert Pollin, Michael Reich, Paul Sonn, Annette Bernhardt, James parrot, Michele Mattingly, Bettina Damiani, Brad Lander

Political Economy Research Institute

Conditions for Workers at Target: Estimates for a Proposed California Supercenter
Jeanette Wicks-Lim

The Roosevelt Institute

Dramtatic Job Revisions Bust Structural Unemployment Myths
Mike Konczal

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The obvious answer is because it doesn’t matter. Those pushing for cuts in Social Security and the other big items on the right’s agenda can get the basic facts about Social Security, the budget and the economy wrong over and over again and it doesn’t in any way affect their standing in the public debate on these issues. One need only look at the career of former Senator Alan Simpson, who has repeatedly shown that he doesn’t have the most basic understanding of the finances of the Social Security system, yet is still seen as a respected voice on this topic.

In keeping with this “ignore the facts” approach, the Progressive Policy Institute recently released a paper by Sylvester Schieber telling readers that Franklin Roosevelt would be pushing large cuts in Social Security benefits for middle income workers. Schieber and the Progressive Policy Institute have been pushing cuts to Social Security for close to two decades so it is not exactly surprising that they would be trying to take advantage of the current hysteria around the budget deficit to push their agenda on this topic.

What is interesting is that in their eagerness to take money away from ordinary working people they showed even more disregard for the facts than usual. They referred to the Center for Economic and Policy Research as “a research arm of the AFL-CIO.”

Why would Mr. Schieber and the Progressive Policy Institute think that CEPR is a research arm of the AFL-CIO? CEPR lists our funders on its website, which clearly states that “CEPR does not receive any funding from corporations, unions, or foreign governments”.   Neither the AFL-CIO nor any individual unions appear on this page. Or, they could have looked to the 990 forms filed with the IRS every year. In fact, CEPR provides a link to our financial forms on the sidebar on nearly every page of our website.

It’s possible that Schieber and the Progressive Policy Institute live in some crazy fantasy world, but it’s more likely that they just assumed that because CEPR has been aggressive in telling the truth and confronting misinformation from Wall Street funded organizations, that it must be on the payroll of the AFL-CIO.

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Many Latin America watchers were thrown for a loop last month when a bilateral meeting in Cartagena, Colombia between Presidents Hugo Chavez of Venezuela and Juan Manuel Santos of Colombia suddenly metamorphosed into a trilateral encounter that included Porfirio Lobo, the controversial president of Honduras.  It was hard enough grappling with the image of Chavez and Santos, considered to be arch-enemies only a year ago, slapping one another on the back and heralding warm relations between their countries.  Now it appeared that Chavez had also warmed up to Lobo, the leader of a government that Venezuela and many other South American countries had refused to recognize since the coup of June 28, 2009 that toppled democratically-elected president Manuel Zelaya.

Various media outlets were quick to suggest that, as a result of the friendly meeting, Chavez was prepared to back the return of Honduras to the Organization of American States (OAS).  Since Venezuela had been the most outspoken critic of Honduras’ post-coup governments, it seemed conceivable that in no time the country would recover the seat that it had lost by unanimous decision of the OAS’ thirty-three members following the 2009 coup.

But soon more details emerged from the meeting that suggested that there were still significant hurdles ahead for Lobo.  Chávez had not in fact agreed to support Honduras’ immediate return to the OAS.  Instead the three leaders had drawn up a road map for Honduras’ possible return with the direct input of exiled former president Mel Zelaya, who was reached by phone during the meeting.   As had occurred in previous negotiations, a series of conditions were put forward with the understanding that their fulfillment would open the door to OAS re-entry.

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Core inflation remained low last month as the Consumer Price Index rose 0.4 percent in April and at a 6.2 percent annualized rate over the last three months, according to the Bureau of Labor Statistics' latest report on the consumer price and the producer price indexes. A rapid increase in energy prices continues to drive headline inflation. Energy prices were up 2.2 percent last month and were at a 42.8 percent annualized rate over the last three months as they recovered from 2008, when they fell 35 percent in just five months. Energy prices currently stand at 7 percent below the peak in July of that year.

With core inflation remaining low and real hourly earnings flat or falling over the last six months, there is little general concern of rapid price increases.  (The average real wage has fallen 1.6 percent in the last two years.) As energy prices return to their 2008 levels, some slowing of headline inflation may result.

For more, check out our latest Prices Byte.

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This week, we post links to reports from Center on Budget and Policy Priorities and Economic Policy Institute.

Center on Budget and Policy Prioirities

Ryan Medicaid Block Grant Would Cause Severe Reductions in Health Care and Long-Term Care for Seniors, People with Disabilities, and Children
January Angeles


Economic Policy Institute

Heading South: U.S.-Mexico Trade and Job Displacement after NAFTA
Robert E. Scott

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Even though the economy created 244,400 new jobs in April, the unemployment rate returned to 9.0 percent, according to the Bureau of Labor Statistics' latest employment report. Last month was the third consecutive month of job growth in excess of 200,000, with an average of 233,000 per month. While the growth is encouraging, the rise in employment last month benefited from one-time factors that will not be repeated, such as job growth for retail and restaurants inflated by the later-than-usual Easter.

The April rise in unemployment was almost certainly just a measurement error that partially reversed the extraordinarily rapid decline reported in December and January. Over the last year, the household survey shows employment growth of just 764,000 (adjusted for the change in population controls). This compares to an increase of 1,313,000 jobs reported in the establishment survey. We should have expected labor force growth of roughly 1,000,000 over this period. This implies that the job growth we have seen should have only led to a drop in unemployment of 0.2 percentage points, not the 0.8 percentage point drop we actually saw over the last year.

For more information, read our latest Jobs Byte.

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Over at Heritage, Diane Katz makes a tiny little error today in her piece on the regulation of energy use by appliances.  Arguing that the “standby mode” on microwave ovens consumes a minuscule amount of energy over the course of a year, Katz writes:

"But a typical U.S. household consumes about 11,000 KWh of electricity per year. Based on testing done by the department, a microwave oven in “standby mode” consumes an average of just 2.65 watts of power. On an annualized basis, that constitutes a mere .006452 KWh of electricity."

Indeed, 0.006452 kWh per year is not a large amount of power—merely 0.00006 percent of typical household consumption.  By comparison, 0.00006 percent of all federal spending ($3.7 trillion in 2011) comes to $2.2 million— about equal to seven minutes of spending on the wars in Afghanistan and Iraq ($159 billion).

Unfortunately, 2.65 Watts actually comes to 23.2 kilowatt-hours per year— a figure 3600 times larger.  Thus, a single unused microwave accounts for 0.2 percent of the annual electricity in the typical household.

If that still seems small, consider that 0.2 percent of all federal spending comes to $7.8 billion—a figure 87 times larger than the federal government’s funding of NPR ($90 million.)

UPDATE: Katz has corrected the error.

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Paul Krugman is on target, as usual, in his Friday post on Argentina’s experience and the Euro zone.  However, there are some details worth adding.
 


First, Argentina’s remarkable expansion, in which it grew 63 percent over six years, was only export-led for the first six months.  It also got a boost from the devaluation in the form of billions of dollars of capital that had fled during the 1998-2002 recession, coming back into the country because the peso was now worth about a third of its previous level against the dollar. So this is also a benefit of devaluation, but not in the current account.


Most importantly, the vast majority of the benefits that Argentina got from the collapse of the currency and accompanying events did not come from net exports. It came from other policy changes, including macroeconomic policy, that were not possible while the fixed peso/dollar exchange rate was being maintained. This is particularly relevant for Europe because the same is true for the trapped Euro zone countries (and Latvia and Estonia, with currencies pegged to the Euro) currently suffering through the Argentine (pre-2002) –style “internal devaluation.” Much worse than the effect of an overvalued exchange rate on the net exports of Spain, Greece, Ireland, Portugal, or Latvia are the pro-cyclical fiscal and monetary policies that they are tied to by the European authorities. 
 


Returning to Krugman’s table for a moment, most of the adjustment of the current account in Argentina took place the hard way, through one of the worst recessions in the 20th century.  In 2002, which registers a GDP decline of 10.8 percent year-over-year (although recovery began in the second quarter), it is worth noting that the size of the 8.5 percent of GDP current account surplus is mostly the result of measurement associated with the devaluation (i.e. Argentina’s GDP measured in dollars had fallen by more than two thirds). The world-record sovereign debt default ($95 billion) also boosted the current account by cutting foreign debt service, and this too – Greece take notice – was essential for the recovery.
 


Argentina also instituted some other important heterodox policies that helped restore fiscal balance, including a windfall profits tax on exporters who benefited from the devaluation. 
 


All this does not take away from Krugman’s main point, that devaluation was a necessary and important part of Argentina’s recovery, and that there are important lessons in this for the European periphery. But there is one point on which I would disagree. Krugman writes:


“There may be no easy alternative given the way the euro is set up: no country can even think about exiting without triggering a huge bank run.”

No European bank run triggered by a country exiting from the Euro could be anywhere near as bad as the collapse of the banking system in Argentina that followed their abandonment of the fixed exchange rate and default. If it is going to take Greece, as projected by the IMF, more than 10 years to reach their pre-crisis level of output (it took Argentina 3 years), then exiting the Euro may very well be a better option. Perhaps even more importantly, the European authorities have enough money to help all of the peripheral countries recover through counter-cyclical, rather then pro-cyclical policies. Although all of their situations are different, I would think that a responsible leader in Greece, Ireland, Portugal or Spain would use the threat of exit (and default) to force the European authorities to help them, instead of punishing them.

 

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There is an incredible amount of sanctimonious garbage going around Washington about the horrors of the deficit and the debt. In fact, there is so much nonsense that it would be impossible to ever run out of frequently repeated assertions to ridicule.

One assertion that has gotten insufficient derision is that Clinton and/or the Gingrich Congress (pick your "hero") took the tough steps needed to balance the budget. Some of us are old enough to remember the 90s. That isn't quite what happened.

If we go back in 1996, we see that the Congressional Budget Office (CBO) was still projecting a large deficit for the year 2000. In May of 1996 CBO projected that the deficit in 2000 would be $244 billion or 2.7 percent of GDP. It turned out that we actually ran a surplus in 2000 of $232 billion, or roughly 2.4 percent of GDP. This involves a shift from deficit to surplus of $476 billion or 5.1 percentage points of GDP. This would be equivalent to reducing the annual deficit by $750 billion in 2011.

The reason for picking 1996 as the year to look at projections is that the Clinton tax increases were already law, and therefore included in the baseline projections at that point. The same is true of most of the spending cuts demanded by the Gingrich Congress. Here's CBO's assessment of the changes that moved us from large projected deficits to a large budget surplus.

CBO_projections_96-00_11873_image001

Source: Congressional Budget Office and authors' calculations.

As the chart shows, all of the improvement in the budget between 1996 and 2000 was due to the fact that the economy performed much better than expected and that CBO had been overly pessimistic about trends in government spending and tax collections. The legislative changes added by Congress in this period actually went the wrong way. So, we did not actually move from large deficits to surpluses by tax increases and/or spending cuts, we did it through a strong economy and some good luck with the cost of government programs and tax collections. (The biggest part of this picture is that Alan Greenspan ignored the orthodoxy in the economics profession and allowed the unemployment rate to decline by almost 2 percentage points below the conventionally accepted estimates of the NAIRU*, but we won't talk about that.)

*Non-Accelerating Inflation Rate of Unemployment

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In this update, we post links to recent reports from the Center for American Progress, Center for Law and Social Policy, Economic Policy Institute, Employment Policy Research Network, Institute for Women's Policy Research, and Political Economy Research Institute.


Center for American Progress

Revitalizing the Golden State: Why Legalization over Deportation Could Mean to California and Los Angeles County
Dr. Raul Hinojosa-Ojeda and Marshall Fitz


Center for Law and Social Policy

Giving Credit Where Credit is Due: Creating a Competency-Based Qualifications Framework for Postsecondary Education and Training
Evelyn Ganzglass. Keith Bird, and Heath Prince


Economic Policy Institute

Depressed States: Unemployment Rate Near 20% for Some Groups
Algernon Austin

The Class of 2011: Young Workers Face a Dire Labor Market Without a Safety Net
Heidi Shierholz and Kathryn Anne Edwards


Employment Policy Research Network

High-Performance Work Practices and Sustainable Economic Growth
Eileen Appelbaum, Jody Hoffer Gittell, Carrie Leana


Institute for Women's Policy Research

Women, Poverty, and Economic Insecurity in Wisconsin and the Milwaukee-Waukesha-West Allis MSA
Claudia Williams and Ariane Hegewisch


Political Economy Research Institute

Searching for the Supposed Benefits of Higher Inequality: Impacts of Rising Top Shares on the Standard of Living of Low and Middle-Income Families
Jeff Thompson and Elias Leight

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The following highlights CEPR's latest research, publications, events and much more.

CEPR on Budgets, Compromises and Cuts
With the budget talks dominating the media this past month, CEPR worked overtime to counter misleading claims from the deficit hawk crowd. As CEPR Co-Director Dean Baker said in this op-ed on CNN.com, the focus should be on jobs, not the deficit. Dean took particular issue with the “courageous” Paul Ryan’s budget plan. CEPR published two papers on the Ryan plan.  The first clearly demonstrates how the Medicare portion of the plan shifts rising costs to beneficiaries. According to Dean, “Ballooning health care costs continue to be the main source of the rise in future deficits. The Ryan plan does nothing to address the projected explosion in health care costs. Instead it just shifts the burden of these costs more squarely on the shoulders of seniors.”

The most recent paper, “Representative Ryan’s $30 Trillion Medicare Waste Tax”, takes the analysis one step further to show that the Ryan proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan. The paper was mentioned in this article in The Progressive and in this post on Talking Points Memo.

Dean discussed the Ryan plan with Rachel Maddow and the Real News, authoredseveral columns on the plan, and was quoted in several news articles and blogs, including this one by Paul Krugman.

Dean also weighed in on President Obama’s budget plan, here in a CEPR press release, here in the New York Times’ Op-Ed section “Room for Debate”, here in the Wall Street Journal online and here on the Rachel Maddow show, where Dean re-iterated that all the talk of deficit reduction ignores the current problem of 25 million people under- or unemployed. Dean also appeared on the Diane Rehm Show where he discussed these issues as well as the debate over raising the debt ceiling.

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The facts are very clear on this: The public would hate Rep. Ryan's Medicare plan, if they realized what it is. Every poll shows that the public overwhelmingly supports the Medicare program in its current form. This is true across the board. Even the overwhelming majority of Republicans support keeping Medicare in its current form.

The Ryan plan is quite explicitly designed to end Medicare as we know it in the same way that Jonas Salk designed a vaccine to eliminate polio. There is no real question here, it gets rid of the Medicare system for anyone under age 55 today and replaces it with a voucher.

The projections from the Congressional Budget Office show that the Ryan plan would raise the cost of buying Medicare equivalent policies by $34 trillion over Medicare's 75-year planning period. This sum comes to $110,000 for every man, woman, and child in the country. It is almost seven times as large as the projected Social Security shortfall that makes the Washington pundits so excited.

This $34 trillion is pure waste. It is the Congressional Budget Office's projection of the additional payments to insurers, drug companies, hospitals and other health care providers that would result from relying on private insurers instead of the traditional Medicare program. In addition, Ryan's plan would also transfer about $4 trillion in costs from the government to beneficiaries.

Unfortunately, very few media outlets believe it is their responsibility to provide information about government policies. They obviously believe that the typical person has more time and ability to analyze budget proposals than their reporters. As a result, most of the public still doesn't realize that the Republican majority in the House of Representatives voted to end Medicare.

So the question is whether a group of activists can go around the media and explain the general public what their representatives in Congress are trying to do. In the pre-Internet Age, they wouldn't have a chance. However, with the vast majority of families now on the web, it is possible that these protests will be successful in calling attention to the Republicans' plan to end Medicare. With luck, the media may even pull a reporter or two from Trump-birther beat and have them analyze the Ryan plan.

This post originally appeared on POLITICO's The Arena.

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In the first quarter of 2011 car sales advanced at a slower pace, causing GDP growth to fall from 3.1 percent in the fourth quarter of 2010 to 1.8 percent, according to the latest Bureau of Economic Analysis' report on the Gross Domestic Product. Declining sales slowed the rate of consumption growth from 4.0 to 2.7 percent. In addition, unusually bad weather had an effect on construction, subtracting 0.72 percentage points from growth in the quarter.

Investment in equipment and software, however, maintained strong growth, rising at an 11.6 percent annual rate. Equipment and software investment were equal to 7.4 percent of GDP in the quarter, just 0.5 percentage points below the pre-recession level. This is remarkably strong given the amount of excess capacity in most sectors of the economy. While it might not sustain its double-digit growth rate, it is likely to remain healthy throughout the year as the investment tax credit pulls investment forward.

For more information, read our latest GDP Byte.

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