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

Following several weeks of meetings and internal deliberations, a special “high-level commission” has presented the General Assembly of the Organization of American States (OAS) with a long-awaited report on Honduras.  Mandated by a June 8 resolution agreed to at the OAS ministerial meeting in Lima, Peru, the report presents an analysis of the current situation in Honduras and a series of recommendations on how to address the enduring political crisis and the attacks that target media and activists associated with the political opposition.

Honduras’ membership in the OAS was suspended following the military coup that illegally removed the government of President Manuel Zelaya from power on June 28th of last year.  A number of member countries – including most of South America’s governments – are still opposed to the lifting of the suspension and the implicit objective of this new report is to chart a course for Honduras’ full reincorporation into the hemispheric body.

More than an accurate description of the situation on the ground in Honduras, the report provides a fascinating snapshot of the political tug-of-war still taking place between key Honduran and regional actors.

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“Pajama people are boring me to pieces
They make me feel like I am wasting my time.”

-- Frank Zappa, “Po-jama People

Now comes Larry Rohter of the New York Times, with a 3,000-word, hyper-ventilating yet boring diatribe excoriating Oliver Stone and especially me, and defending his previous 1,658-word attempt in the Times to discredit our film, South of the Border. Rother writes with the old-fashioned arrogance of someone who has spend most of his journalistic career in the pre-Internet age, when it was not so easy to find out when someone is flat wrong, or blowing smoke, with just the click of a mouse on a hyperlink.

Today, you can click here and here. That takes care of at least 80 percent of Rohter’s “argument.”

As for the rest: if you scrape away the insults (there are quite a lot of them, Rohter is an angry man!) and the 1950s McCarthyite rhetoric (“loyal stenographers” of [insert official enemy here])—well, there isn’t a lot of substance there.

But wait: hold the Joomla!! I have discovered an “egregious error and specious claim;” in fact it makes Rohter’s latest response “so riddled with errors, misrepresentations, fabrications and fraudulent statistics as to be useless except as an example of over-the-top propaganda.”

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Our friends at the Economic Policy Institute have already done a pretty good job burying the claim from Reinhart-Rogoff that high ratios of debt to GDP will lead to lower growth, but in DC, no bad theory stays dead for long. With that in mind, let's throw a little more dirt on the grave.

The Reinhart-Rogoff analysis is conducted entirely in terms of GDP growth. Back in the old days, economists used to focus on per capita GDP. The idea being that what mattered is output relative to the population. The people of Denmark are much richer on average than people in China even though China's GDP is more than 20 times higher. The reason is that China's population is more than 200 times as large as Denmark's. 

As many critics of R&R have noted, their sample of developed countries with high debt to GDP ratios is very small. Many of the obvious cases (e.g. Japan in the 90s and the 00s) can be readily explained as countries where slow growth led to high debt to GDP ratios. However, in many of the cases, such as Japan and Italy in recent years, the high debt countries are also countries with little or no population growth.

This means that we would expect a slower rate of GDP growth, other things equal. While there is undoubtedly some endogeneity to population growth (e.g. higher GDP growth leads to more immigration), we should still expect the benefits of growth to show up in higher per capita income.

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It has been generally standard fare in the media to refer to Venezuela’s Globovision as the “sole opposition-aligned television channel,” as the AP has put it.  Rarely, if ever, is the actual reporting of Globovision put into context, which makes yesterday’s Los Angeles Times article all the more amazing.  Chris Kraul and Mery Mogollon write:
The Caracas-based opposition news and opinion channel's newsreaders and reporters — who make no pretense of impartiality and remain undeterred by harassment and threats of a takeover — regularly blast the president with obviously slanted coverage while giving opposition politicians free and usually unchallenged rein to vent.
The article goes on to mention some of the regular fare that a viewer comes across while watching Globovision. An opposition leader calling for Chavez to be “investigated for treason”, or equating the exhumation of Simon Bolivar last week to witchcraft, and calling it a "pornographic spectacle." Even broadcasting calls to “rise up against the government.” 

While the article is impressive for its accurate description of the bias and slant in Globovision’s coverage, it could be strengthened by adding more historical context, and by pushing back on the myth that it is the “last independent,” or “only opposition” TV station in Venezuela.

During the coup in April 2002 almost all of Venezuela’s private media actively participated in overthrowing the democratically elected Chavez. This included manipulating footage to make it appear as though Chavez supporters were responsible for the killing of innocent civilians, and airing cartoons rather than covering the mass mobilization that brought Chavez back to power. In fact, the day after the coup on the opposition station Venevision, a number of coup supporters appeared, with one explicitly thanking the media, including Globovision and other private stations for their role in overthrowing Chavez.

Globovision is frequently referred to as the last independent television station that is critical of Chavez and, though the LA Times doesn’t state this explicitly, it does leave the reader with the sense that Globovision is the last remaining independent station.  However, there are a number of other independent stations both local and national and these account for a much larger share of the overall market than the country’s state owned television and radio. Nationally there is Venevision and Televen, for example.

Although the Los Angeles Times article is a real breakthrough in the coverage of Venezuelan media, it only scratches the surface of some of the broader issues around the behavior of the private, opposition media in Venezuela

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CEPR Fights Deficit Hysteria, Both Here and Abroad

CEPR’s latest paper, “Alternatives to Fiscal Austerity in Spain” by CEPR Co-Director Mark Weisbrot and Research Assistant Juan Montecino shows that Spain, under pressure to cut spending and raise taxes while its economy is barely recovering, might be better off with a continued stimulus. "The planned budget cuts and tax increases in Spain are not only unnecessary, but socially and economically destructive," said Weisbrot. "They also could easily leave Spain with a worse debt problem than they would have with a continued fiscal stimulus." Mark points out that there are no convincing economic arguments against further global stimulus in his recent Guardian column.

CEPR Co-Director Dean Baker has also been busy countering the deficit hawks and fighting the anti-stimulus talking points. This recently released issue brief notes how the Congressional Budget Office has changed its modeling to worsen the potential impact of deficits and debt on private investment.  Dean also uses his Guardian column to point out the absurdity of addressing the deficit when so many are unemployed.  On Amy Goodman's Democracy Now, he talks about the deficit hawks and their desire to cut Social Security. In this video, he debated Douglas Holtz-Eakin on the expiration of the Bush tax cuts (he also discussed US tax policy on NPR’s On Point.). And on CNBC, he explains what the July jobs report means for economic recovery.

CEPR Responds to Critics as South of the Border Opens Across the US

Oliver Stone’s latest documentary, "South of the Border", co-written by Mark Weisbrot, is showing to large audiences in various US cities and recently opened in Dallas, Houston, Phoenix, and New Orleans. This coming weekend, the film opens in Seattle, Minneapolis, Santa Barbara and Portland, OR. Mark traveled to Chicago and the San Francisco bay area earlier this month to talk about the film. You can hear him talk about the film here, here, here and here.

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This isn't true for older workers: while women's labor force participation has risen dramatically over the past half century, the difference between overall male and female employment rates is still about 10 percentage points. During the current recession, however, younger workers have seen that gender gap disappear.

Employment to Population Ratios of Workers Aged 16-24, by Gender, 1948-2010

Above is a picture of monthly employment rates for young men and women -- the proportion of those between the ages of 16 and 24 who had jobs. Where the two lines in the picture cross, in late 2009 and early 2010, employment rates for both groups became essentially the same.

During the 1950s, around 65 percent of young men were employed, compared to about 40 percent of young women. Huge increases in female labor market participation in the 1960s and 1970s more than halved the employment gap. By the late 1990s, additional employment of young women brought the gap to less than 5 percentage points. Employment opportunities shrank for both young men and women after the recession of 2001, and during the current recession, employment for young men plummeted faster than for young women.

Why did the employment gap disappear for younger workers but not for older ones? One reason is that the housing bubble burst in 2006-2007 and took construction jobs with it. Many of those jobs were held by young men. During the peak of housing bubble, about 13.7 percent of employed males, young or old, had jobs in the construction industry. In 2009, that figure had fallen to 12.2 percent for older males, but to only 9.2 percent for young males. Female construction employment fell too, of course, but less than 2 percent of females had construction jobs even during the bubble.

Now suppose we magically added those lost construction jobs back into the 2009 economy. Not much would change for female employment rates. They would stay the same at 55.8-55.9 percent for older women, and at about 47.0-47.3 percent for younger women. Older male employment rates would rise from 68.1 percent to 69.6 percent, but young male employment would jump from 46.7 percent to 50.0 percent. That is, the young male employment rate would rise from being about the same as to well above the female rate.

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Yes Saturday Night Live fans, Emily Litella is back! For those too young or too old to remember, Emily Litella was the frumpy commentator on Saturday Night Live’s “Weekend Update.” She would go invariably go into a tirade over some misunderstood word or phrase. Ms. Litella would then be corrected by Jane Curtin, the news show’s impeccably dressed anchor (e.g. that’s endangered “species,” not feces), and then conclude with, “never mind.”

It appears that Ms. Litella has been reincarnated in the form of America Speaks. America Speaks is an organization that was funded by the Peter G. Peterson Foundation to host a series of town halls around the country to discuss the country’s long-term budget problems. The format was rigged so as to force people to support cuts to Social Security and Medicare.

For example, America Speaks told participants that health care reform was off the table so that the only way to save budget dollars was to cut back programs like Medicare and Medicaid. So that participants would not get ideas about taxing Wall Street, the America Speaks budget booklet underestimated the revenue potentially available from a tax on financial speculation by an order of magnitude.

In spite of the rigged deck, the event did not turn out quite as planned. Progressive national organizations like the Campaign for America’s Future and, along with many state level groups, worked to get supporters at the town halls. As a result, cutting Social Security and Medicare proved to be relatively unpopular routes for reducing the deficit, whereas cutting defense spending and higher taxes on the wealthy and Wall Street proved quite popular.

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A high-level meeting in Venezuela earlier this month, in which senior Latin American and Caribbean diplomats from 32 countries discussed the creation of a new forum for regional concertation, slipped under the radar of the entire U.S. media.  Indeed, the only English-language report on the event that appeared in the mainstream media was filed by the French press agency AFP which informed its limited US readership that the meeting participants had decided that Venezuela and Chile would be heading “a new regional bloc that will include all countries in the Americas except Canada and the United States.”  This and other concrete steps agreed to at the Venezuelan meeting – including the Caracas Plan of Action - provided a clear demonstration that the 32 governments were determined to push ahead with the project for a Community of Latin American and Caribbean States (Spanish acronym CELAC).

Let’s go back for a moment to February 23rd when the CELAC project was first hatched at a summit in Cancun to which every Latin American and Caribbean government was invited with the exception of the de facto government of Honduras.  Mexican President Felipe Calderon convened the summit in a context of mounting frustration with US policy and with the Washington-based Organization of American States (OAS), particularly around the issue of the Honduras coup.  For instance, while regional groupings like UNASUR (the Union of South American Nations) and the Rio Group announced late last year that they wouldn’t recognize elections held under the Honduran coup regime, the US blocked any resolution of this sort in the OAS and unilaterally announced its decision to recognize the November elections several weeks before they occurred.

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Today's most e-mailed article on the New York Times website is "Biggest Defaulters on Mortgages Are the Rich" -- in a nutshell, homeowners with loans over $1 million are more likely to have stopped paying their mortgages than those with more modest homes.  As law professor Brent White states, the wealthy "may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest.”

As argued in the New York Times, businesses and banks -- and now we know, also the wealthiest homeowners -- make such decisions in their own financial interest regularly, so "to put the onus for restraint on ordinary homeowners seems rather strange."  And as pointed out in the Wall Street Journal, homeowners who give up their mortgages for cheaper rental payments end up with extra cash to spend each month, a "stealth stimulus" for the economy. 

CEPR co-director Dean Baker's Right to Rent (R2R) proposal would provide path for ordinary homeowners to escape underwater mortgages, while being able to stay in their homes and communities -- preventing neighborhood blight.  Under R2R, those facing foreclosure would have the option to remain in their homes for a substantial period of time as renters paying the market rent. There are also numerous advantages in enacting R2R: it is simple, it can take effect immediately, it requires no taxpayer dollars, and it creates no new bureaucracy.

Reps. Grijalva and Kaptur have introduced an R2R bill in Congress, and publications including The Nation, LA Times, Washington Post, and New York Times have published pieces about the concept.  Bloggers, including Baseline Scenario, Felix Salmon and Ezra Klein have pointed out that even conservative economists agree that R2R makes sense.

Helping underwater borrowers stay in their homes?  Check.  Prevent the blight of abandoned homes?  Check.  Stimulate the economy?  Check.  Let's hope good commonsense ideas like Right to Rent can be implemented to help the millions of Americans facing foreclosure.

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The NYT devoted a long story to touting the work of Ken Rogoff and Carmen Reinhart on financial crises. At one point the article comments that:

"Although their book is studiously nonideological, and is more focused on patterns than on policy recommendations, it has become fodder for the highly charged debate over the recent growth in government debt."

Actually, much of the fodder for the public debate has been over a separate paper that claims that economies perform more poorly once their debt to GDP ratio exceeds 90 percent. Mr Rogoff and Ms. Reinhart have declined to adhere to standard ethics within the economics profession and have refused to share the data on which they base their conclusion with other researchers.

Later, the article asserts that:

"In the years before and during Mr. Rogoff’s tenure [as chied economist with the IMF], critics including the prominent economist Joseph Stiglitz accused the I.M.F. of having a cold-hearted, doctrinaire approach to its work in poorer countries. Some of that criticism still clings to Mr. Rogoff. For his part, he contends that the I.M.F. did what it could for countries with intractable problems, and that the critics’ approaches would have made troubled economies even weaker."

Mr. Rogoff's critics did not just accuse him of being cold-hearted. During his tenure at the IMF, Argentina went from being an IMF poster child to being an outlaw when it defaulted on its debt in December of 2001. In the years prior to its default, the IMF consistently erred on the high side in its projections of growth for Argentina. In the years after it defaulted the IMF's projections consistently underestimated Argentina's growth by large amounts. It would be almost impossible to produce this pattern of errors if the IMF was not using political criteria in its growth projections for Argentina. 


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Larry Rohter, whose attempt to discredit our documentary “South of the Border” took up most of the front page of the New York Times Arts section last Saturday, is not backing down. We responded by showing that every one of his alleged “questions of accuracy” was actually a mistake on his part. But facts apparently do not mean much to this guy. In a letter posted June 29, he writes that the filmmakers:

“are offended and embarrassed at having their many errors and inaccuracies disclosed. Rather than owning up to those mistakes, they’ve chosen to double down and up the ante. Where they might merely have been mistaken before, they are now lying outright, the letter you link to below being the prime example.”

He is digging himself a deeper hole. Let’s look at the claims he is stubbornly defending, just so there is no ambiguity here about who is completely wrong, and being dishonest in this debate.

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Oliver Stone’s new documentary, “South of the Border” – co-written by CEPR’s Mark Weisbrot – opened in U.S. theaters last week, starting with New York last weekend where it had the highest average theater earnings for a U.S. film in the country. Now audiences in LA, Pasadena, Santa Ana and Northern Virginia will get a chance to see the film, with Q and A sessions with Stone in LA today and Mark in Arlington today and tomorrow.

The film explores themes familiar to readers of Mark’s op-ed’s and columns: the new independence of South American nations from Washington, most notably from the U.S. State Department and international financial institutions (most importantly, the International Monetary Fund). The film also focuses on why U.S. relations with the region have deteriorated to such a degree; U.S. involvement in the 2002 coup d’Etat against Hugo Chavez – documented in the film and the film’s website – is contrasted with statements from leaders such as Brazilian president Lula da Silva and Ecuadorian president Rafael Correa on their request for respect and treatment as equals by the U.S.

This background, meanwhile, is complemented by a number of clips from major U.S. TV news programs that refer – in many cases in straight reporting (not opinion) – to Chavez and Bolivian president Evo Morales as “dictators”, assert that Chavez is a “declared enemy” of the U.S., and other jingoistic statements. As the audience sees these clips, Stone ponders why the U.S. seeks to “create enemies”, with a short summary of the U.S. media’s complicity in allowing the Bush administration to mislead the country into war as a reminder of how the State Department sets the tone in international relations. The parallels between this event and relations with Venezuela are further explored in an interview of Chavez in which he suggests that both the U.S. invasion of Iraq and U.S. support for the 2002 Venezuelan coup had the same motive: oil.

Not surprisingly, the film is not a favorite of many major U.S. media outlets so far, but interest in the film is growing, with new theater showings being booked and several recent TV and radio interviews with Oliver Stone, Mark, and other filmmakers taking a closer look at the film and the important issues it covers. As some reviewers and commentators have noted, the film explores a topic that the major U.S. media has largely missed so far: the new and enduring independence of much of Latin America from the United States. Go see the film and decide for yourself whether you think this is a story worth telling.

Follow this link to see when South of the Border is playing near you.

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If you regularly read CEPR co-director Dean Baker's columns, you already know that the President's National Commission on Fiscal Responsibility and Reform (a.k.a. the Catfood Commission on FireDogLake) is stacked with deficit hawks (a.k.a. Zombies on Paul Krugman's blog) who are intent on gutting Social Security, under the guise of reducing federal budget deficits.  This Saturday, the billionaire deficit hawk Pete Peterson is largely bankrolling an organization called AmericaSpeaks to conduct Town Hall meetings in 20 cities across the nation to "find common ground on tough choices about our federal budget." 

Even worse, AmericaSpeaks will be presenting the results of these meetings just four days later at the next meeting of the Fiscal Commission in Washington DC.  Groups such as MoveOn, AARP and the AFL-CIO are planning to leaflet outside the Town Hall meetings on Saturday.  And experts across the nation, including Dean Baker, are expressing their misgivings about these Pete Peterson-funded events.

A closer look at the  discussion materials for the Town Hall meetings shows that Saturday's game will be played with a stacked deck.  They claim to include input from a broad range of view points in order to frame an intelligent discussion of the nation's long-term budget problems.  But, as CEPR's analyses of AmericaSpeaks' Federal Budget 101 and Options Workbook detail, their guides do not live up to their hype. 

For example, the materials do not discuss the cause of the recent explosion of the deficit, the collapse of the housing bubble -- the downturn resulting from this collapse will add more than $4 trillion to the national debt between 2007 and 2017. And while the guides note that most of the growth in future budget deficits is due health care costs, they do not explain the full extent to which the deficits are the result of the inefficiency of our health care system. If our per person health care costs were the same as any for any other wealthy country, then the U.S. would face huge surpluses rather than deficits. Add a comment

When Bolivian Foreign Minister David Choquehuanca and U.S. Assistant Secretary of State Arturo Valenzuela met at the beginning of the month, it appeared that relations between the US and Bolivia were on the verge of being normalized following an 18-month diplomatic chill. Choquehuanca announced to the press that "the two sides are 99% done with a pact that would allow the exchange of ambassadors." President Evo Morales declared his own hope that the two countries would now "advance with this new framework agreement for full diplomatic, trade and investment relations."

But hope for improved relations appeared to be dashed two weeks later when President Morales angrily accused the US Agency for International Development (USAID) of financing groups opposed to his government. "If USAID continues working in this way," he said, "I will not hesitate to expel them because we have dignity and sovereignty, and we are not going to allow any interference."

Some may see Morales' recent statements as evidence that he isn't serious about seeing the agreement with the U.S. finalized and signed and, instead, is more interested in stoking nationalistic sentiment and strengthening his anti-imperialist image among his supporters. However, it is worth noting that Morales' latest statements are consistent with criticism that the Bolivian government has directed at USAID since at least 2006. Declassified documents uncovered by investigative journalist Jeremy Bigwood through the Freedom of Information Act (FOIA) show that, as early as 2002, USAID funded a "Political Party Reform Project" designed to "serve as a counterweight to [Evo Morales'] radical MAS [party] or its successors." Though USAID has refused to reveal which political organizations have received funding since Evo Morales' election in 2006, the FOIA documents point to possible funding of opposition groups that engaged in violent tactics and sparked an explosive political crisis in September of 2008. Moreover, given the US government's record for funding opposition groups in Venezuela, the country with which Bolivia has the closest relations, it is perfectly understandable that President Morales is deeply suspicious of USAID's Bolivia program.

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Social Security Works' Alex Lawson had a wonderful exchange with former Senator Alan Simpson, the co-chair of President Obama's deficit commission, about Social Security. Alex politely peppered the former senator with reasonable questions about his views on Social Security, which led Mr. Simpson to alternately curse and lecture Lawson about the structure of the program.

In the course of an 8 minute exchange, Mr. Simpson repeatedly expressed the view that the government was somehow unaware (at least until recently) of either the baby boom cohort's existance or that life expectancy was increasing. He kept repeating, as though he had just discovered it, that life expectancy had increased from 57 when Social Security was started in 1937 to 78 years for today's newborns.

But the best part of the show was Mr. Simpson's discussion of the bonds held by the trust fund. Simpson was anxious to tell Lawson that we had spent the money. They had a bit of back and forth over what the money was spent on. (Simpson emphasized spending on highways and infrastructure, Lawson pointed to the money spent on wars in Iraq and Afghanistan and the Bush tax cuts.) But, both agreed that the money had been spent.

Simpson then implied that Social Security was broke because the money had been spent. Lawson pointed out that the trust fund held U.S. government bonds that are backed up by the full faith and credit of the U.S. government. Simpson acknowledged this point, even completed Lawson's sentence.

So, if the bonds held by the trust fund are backed up by the full faith and credit of the U.S. government, then what is the problem? The trust fund contains bonds that must be repaid just like the bonds held by Citigroup, Goldman Sachs, and rich people like Peter Peterson.

Where will the government get the money to repay the bonds held by Social Security? It will probably get the money from the same place it gets the money to repay the bonds held by Citigroup, Goldman Sachs, and rich people like Peter Peterson. We never ask where the government will get the money when Goldman Sachs or Peter Peterson want to cash in their bonds, why on earth would we ask that question when the issue is cashing in the bonds held by Social Security?

So, we have the land of non-sequitors where we keep hearing about an issue that has nothing to do with the health or solvency of Social Security. I just keep thinking of that old Billy Preston song.


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Sunday, the Cato Institute's Michael Tanner wrote, "[T]he Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs."

This is no less true for any other government bond. When billionaires like investment banker Pete Peterson buy government bonds, nothing is said about where the government will get the money to pay back Pete Peterson.

At the same time, it is doubtful that Peterson views his bonds as mere IOUs, but rather purchased with the understanding that the government would pay him back later with interest. Similarly, for 27 years Social Security taxes paid for both current beneficiaries and government bonds with the understanding the bond money would be paid back later, with interest.

Tanner continues, "Even if Congress can find a way to redeem the bonds..." implying that the government is likely to default on some or all of this debt. If the government is faced with the possibility of default, there is nothing special about the bonds held in the Trust Fund that would make them more vulnerable to default than any other bond. Tanner could instill the same fear in Pete Peterson, Goldman Sachs, or any other holder of government debt.

Finally, Tanner asserts that "Thanks to the economic downturn, Social Security is running a temporary cash-flow deficit." While payroll tax receipts have been low on account of high unemployment, Tanner's assertion is incorrect. Social Security paid out more than it received in February and March because its income is not evenly credited on a monthly basis. To say that Social Security is running a cash-flow deficit is like saying that I am running a cash-flow deficit because I haven't been paid since the end of May.

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The World Cup kicks off today in South Africa at 10am Eastern Time. The whole world will be watching and there is no shortage of good online guides. One I particularly like is at The Guardian site. And, here's the schedule as posted at the official FIFA web site.

But, if you're wondering how the 32 nations with teams in the tournament compare off the field, there is really only one place to turn. Thad Williamson has pulled together data on the participating countries' level of political freedoms (well, at least as judged by Freedom House), their level of "Human Development" (as measured by the United Nation's Human Development Index), per capita GDP, economic inequality, and life expectancy.

Williamson concludes: "While ... real world inequalities of income and development impact the likelihood of nations qualifying for the tournament, the World Cup is far more egalitarian and inclusive than other prominent international arenas in which real power is wielded." Add a comment

In a paper released earlier today, John Schmitt, Sarika Gupta, and I looked at the issue of incarceration in the United States. In 2008, more than 2.3 million people were behind bars in U.S. prisons and jails. This translates to a rate of 753 per 100,000 people, which is more than seven times higher than the median (102) in rich countries that make up the OECD. (Iceland has the lowest rate at 44, while Poland has the second-highest at 224.) This is also much higher than rates that we have seen in our own past. In 1980, when the U.S. incarceration rate was already at a historical high, it was 220 per 100,000 people.

This dramatic increase has not come cheaply: in 1982, state and local governments spent nearly $17 billion (in 2008 dollars) on corrections. In 2008, they spent just over $67 billion. (In fact, just the rise over this period in state-level expenditures on incarceration amounts to one-sixth of CBPP’s projected state budget shortfall in 2010.) What is going on?

You might think that rising crime might be behind the big jump in incarceration. However, the data just don't make the case. The graph below shows the change in violent and property crime along with the incarcerated population and the overall population, all indexed to their level in 1980. While both violent and property crime did increase until the early 1990s, from that point on, crime dropped off even as the incarceration rate continued its steady climb. If the incarceration rate were simply a function of crime, then it would have decreased as well.


On the other hand, could the higher incarceration rate be causing the drop in crime since the early 1990s? This does not appear to be the case either. Don Stemen of the Vera Institute for Justice conducted an extensive review of the existing literature in 2007 and came to this conclusion: "The most sophisticated analyses generally agree that increased incarceration rates have some effect on reducing crime, but the scope of that impact is limited: a 10 percent increase in incarceration is associated with a 2 to 4 percent drop in crime. Moreover, analysts are nearly unanimous in their conclusion that continued growth in incarceration will prevent considerably fewer, if any, crimes than past increases did and will cost taxpayers substantially more to achieve."

Where does that leave us? All indications point to deliberate policy choices – a politically safe "tough on crime" approach created an inflexible legal framework that simply locked people up and kept them there longer.

We prefer a "smart on crime" approach. Mandatory minimum sentences, three strikes laws, and truth-in-sentencing laws have contributed substantially to the growing numbers of non-violent offenders in prisons and jails. Repealing these laws and reinstating greater judicial discretion would allow non-violent offenders to be sentenced to shorter terms or to serve in community corrections programs (such as parole or probation) in lieu of prison or jail. We estimate that if 50% of non-violent offenders were placed on probation or parole, $14.9 billion – about one quarter – could be shaved off the current state and local corrections budgets.

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Maggie Haberman and Ben Smith have a piece at Politico on how politicians seeking to cut state budgets are taking aim at state and local government workers.

One of the political footballs here is whether state and local employees are paid "too much." The right and, increasingly, the mainstream media have emphasized that, on average, state and local workers make substantially more than private-sector workers.

On average, this is true. But, just over 50 percent of state and local workers have a four-year college degree (or more), compared to only about 30 percent in the private sector. And the typical state and local worker is about four years older (and therefore has about four years more labor market experience) than the typical private-sector worker. Once you control for just these two factors, the average state and local worker earns *less* than a comparable private-sector worker. (For details, see (1) Keith Bender and John Heywood, "Out of Balance?" and (2) my recent report for CEPR, "The Wage Penalty for State and Local Government Employees.")

These analyses refer to wages and salaries only. There are no data that would allow a comparable analysis that includes benefits, but Bender and Heywood do a good job showing that factoring in benefits doesn't change the picture much. (I make the same argument less formally here, too).

There are a lot of reasons that benefits don't change the picture that much, but one is that about 30 percent of state and local workers do not participate in Social Security. As a result a significant chunk of S&L pension spending goes just to make up for their employees' loss of Social Security income in retirement.

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In 2002, the Bush administration decided that the federal government needed to get in the business of promoting (heterosexual) marriage and proposed a new federal program—the Healthy Marriage Initiative—dedicated to that purpose. In 2005, the Republican-controlled Congress authorized the program and appropriated $500 million for it over five years. Although some conservative libertarians opposed the program, other conservative think tanks, including the Heritage Foundation, lobbied strongly for it as part of a conservative approach to welfare reform.

The first rigorous evaluation of a program funded with these dollars has just come out, and shows—surprise, surprise—that it's a failure. Conducted by Mathematica Policy Research, the evaluation assigned 5,000 unmarried couples—ones who were romantically involved and either expecting a baby together or already had a baby younger than three months—to program or control groups in eight U.S. cities. The program group received three services: 1) group sessions on relationship skills; 2) individual support from family coordinators; and 3) assessment and referral to support services. The group sessions were the core of the program—in essence, program participants received roughly 20 hours of "relationship skills education" that control group participants did not. The random-assignment structure of the evaluation allowed the researchers to isolate the effects these services had outcomes including marriage, living together, domestic violence, and relationship quality.

The researchers found that the program had no effect on the likelihood of couples staying together or getting married, and no effect on relationship quality (measured by variables including subjective relationship happiness) or other measured variables. There was some difference in effects by location—one of the eight sites had generally positive effects, while another had generally negative ones (including an increase in domestic violence). The researchers note that the site with positive effects (Oklahoma City) differed from the other ones in that it included already married couples, while the site with the negative effects (Baltimore) served a higher share of couples in less committed and more tenuous relationships than other sites.

There were some reported positive effects for couples in which both partners are African American, but, on closer examination, these turn out to be underwhelming. The program did not increase the share of African American couples who were romantically involved, living together, or married. Of the six statistically significant positive impacts for African Americans, most were related to "relationship quality," only one was significant at the .01 level, and the effects themselves don't look particularly large. For example, the one outcome significant at the .01 level was an increase in the "use of constructive conflict behaviors," which, as measured by a 4-point scale, was 3.22 for the program group compared to 3.14 for the control group. Moreover, the Baltimore site, which had negative results, had the highest share (92%) of African Americans. In sum, I'm pretty skeptical that the overall apparent positive results for African American couples are real rather than random.

The Healthy Marriage Initiative was funded through 2010 with money originally diverted from other more productive uses, including child care assistance and social insurance for low-wage workers. That was a mistake then, and, given these findings, one that shouldn't be repeated going forward.

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The deficit hawks have been working themselves into a frenzy in recent weeks over the prospect that the country will come out of the recession with a huge debt. They have convinced much of the policy elite (admittedly, a very gullible crew) that the United States is on the edge of becoming Greece, unable to pay its bills and forced to negotiate with the IMF, Moody’s, or other creditor creatures to avoid bankruptcy.

There is more than a little absurdity in this picture. The United States has about as much in common with Greece as it does with the robot in the old television show, “Lost in Space,” in other words, basically nothing. Greece is a relatively small economy that is very dependent on imports and does not print its own currency. The U.S. is a huge, still largely self-contained economy that does print its own current. If we’re looking for comparisons, Greece is much more like Arkansas than it is like the United States.

But, there is at least a grain of truth in the deficit hawks scare stories. If we follow the deficit path projected by the Congressional Budget Office, by 2020 we will have a debt to GDP ratio of close to 90 percent. This is far from a crisis – we have had higher ratios in the past and many countries currently have far higher ratios and have no problem whatsoever servicing their debt in international financial markets.

However, we will be paying out a much large share of our budget in interest payment on the debt in this scenario, with interest payments rising from less than 2 percent of GDP at present to close to 5 percent by 2020 – roughly the same share as at the beginning of the Clinton administration. Other things equal, it would be better not to have to pay so much interest to bondholders.

There is a simple way to prevent this rise in the interest burden. We can simply have the Federal Reserve Board buy and hold large amount of the debt issued to finance the recovery. The Fed is already buying much of the debt, but as a matter of policy Congress could dictate that it buy more and continue to hold the debt indefinitely.

This would mean that the interest on these bonds would be paid to the Fed, which would in turn refund the money back to the Treasury, thereby creating no net interest burden. If the Fed bought and held an amount equal to 20 percent of GDP (approximately $3 trillion), it could save the country $150 billion annually in interest payments.

In ordinary times this would be considered a dangerous practice since it could lead to inflation. However, few economists see inflation as a serious threat with the unemployment rate near 10 percent. In fact, we would almost certainly be better off with a somewhat higher inflation rate (3-4 percent) than the very low rate we are now seeing, since it would reduce the debt burden on homeowners and lower real interest rates.

Over the longer term, if inflation did appear to be a problem, the Fed could respond by gradually raising banks’ reserve requirements, thereby preventing the extra reserves in the system from leading to excess demand and higher prices.

In short, there is no reason that the county need bear an additional interest burden as a result of measures taken to pull the economy out of the downturn. This spending is creating demand for otherwise idle resources, not leading to excess demand in the economy.

This is a serious discussion that Congress and the country should be having right now rather than the absurd debate about plans for cutting Social Security and other important programs. But, we are not having this discussion because the deficit hawks are trying to convince us that we are like Greece and the financial markets have given us no alternative to these cuts. As the robot on Lost in Space used to say: “warning! Warning!”

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