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Article Artículo

Affordable Care Act

A Little Pre-Election BS From the White House on Income Inequality

I respect Jason Furman, the chair of President Obama's Council of Economic Advisers. I think he is doing a great job in this position. He has called attention to many of the ways in which the government intervenes in the market, like professional licensing (think doctors), intellectual property rules (patents and copyrights), and other restrictions are acting to redistribute income upward. He has also attacked silly myths, like the idea that workers in the U.S. are dropping out of the labor market because of our generous disability program and other benefits. (In a recent report, Jason noted that the U.S. has among the least generous welfare supports of any OECD country, yet it ranks near the bottom in labor force participation rates for prime-age [ages 25–54] men.)

Anyhow, in spite of my respect, I feel the need to call him out on trying to pull the wool over folks' eyes in a recent column. The column touts many of the positive measures (in my view) to help people at the middle and the bottom under the Obama administration, such as expansion of the earned income tax credit, the child tax credit, and most importantly the Affordable Care Act which has extended health insurance coverage to 20 million people and allows people with serious health conditions to get insurance at the same price as every one else. These measures have been paid for by higher taxes on the wealthy. This is all very positive and the Obama administration deserves credit for these measures, even if I would have liked to see it go much further.

However, the reason my BS detector went off is that Furman tried to claim we had turned the corner in some big way on the upward redistribution of income from the last four decades. He tells readers:

"Partly as a result of these policy changes, the top 1 percent’s share of income after taxes was 12 percent in 2013 (the most recent year for which data are available), well below its 2007 peak and roughly equal to its share in 1997."

CEPR / October 15, 2016

Article Artículo

Bloomberg's Halloween Special: Scaring Kids About National Debt

Bloomberg decided to get into the Halloween spirit by warning our kids about the national debt. The piece is headlined "a child born today comes into the world with more debt than you." Bloomberg was going to headline the piece, "kids worried that universe is closer to destruction than when parents were born," but they decided it would be too scary.

The highlight of the piece is a graph showing the rise in the amount of debt per person over the last three and half decades along with the money graph:

"Under current law, U.S. inflation-adjusted debt per person is expected to reach the $66,000 milestone by April 2026, based on Bloomberg calculations of Congressional Budget Office and Census Bureau data."

It adds that the debt would be considerably larger as a result of Donald Trump's tax cuts and slightly larger as a result of Hillary Clinton's tax and spending programs. 

Okay folks, you should be able to guess why this Bloomberg piece is a silly joke.

That's right, it only takes the debt side of the ledger. It's almost impossible to exaggerate how absurd this is. It is an absurdity that no business would ever engage in. I suspect that Microsoft has much more debt than the restaurant down my street. If Bloomberg business coverage was like this piece it would be highlighting Microsoft's massive debt. Furthermore it would be warning that Microsoft's debt is likely to be even larger in a decade. Fortunately Bloomberg doesn't report on Microsoft this way because it has serious business reporters. They would report on Microsoft's debt in relation to its assets and its debt service in relation to its revenue or profits.

Bloomberg could report on the government debt in this way, but it wouldn't have the same effect for Halloween. If it reported on debt in this way, then it would be pretty obvious and totally non-scary that our per capita debt rises through time. Our per capita income rises through time. So what?

And, if Bloomberg cared about actually providing information on the burden of the debt it would be reported on the ratio of debt service to GDP. Currently this is around 0.8 percent of GDP (net of money refunded by the Fed to the Treasury), which is near a post-war low. By comparison, debt service was over 3.0 percent of GDP in the early 1990s when the parents of today's kids were born.

It's also worth noting the absurdity that in the Bloomberg Halloween debt story our children would be better off if we eliminated public schools and funding for their education altogether. After all, this way we could reduce their debt. In fact, they would be even better off if we stopped spending to maintain and improve infrastructure. Hey, who needs airports, roads, bridges, access to the Internet? Let's get the debt down!

CEPR / October 14, 2016

Article Artículo

Bob Dylan Didn’t Like the Masters of War

Today is a good day to salute another, newly christened Nobel laureate who stood up to the war machine, telling the “Masters of War” that he could “see through [their] masks”;  that “even Jesus would never forgive what you do.” (Song below.)

The song was released in 1963, when the antiwar movement in the US was still very small. But millions would hear it, and along with other songs that he wrote and recorded, it would undoubtedly contribute to that movement and its consciousness.

Probably it won’t get a lot of play in the stories about Dylan winning the Nobel Prize. At the moment, the level of media brainwashing on these issues is rather high, with 80 percent of voters in a recent survey saying they thought terrorism was “very important” to their 2016 vote — second only to the economy, at 84 percent.  Since you are much more likely to get killed by lightning than die at the hands of a terrorist, it is no exaggeration to say that the mass media has managed to create a literally delusional reality for millions of Americans.

CEPR / October 13, 2016

Article Artículo

Haiti

Latin America and the Caribbean

World

Elections on Hold in Haiti After Hurricane Matthew

Port-au-Prince, Haiti ? Under the leadership of an interim government since February, Haiti will now wait a little longer to elect a president after Hurricane Matthew struck the island, with 130 mile-per-hour winds and up to two feet of rain last week. Elections scheduled for October 9 have been put on hold, with Haiti’s provision electoral council (CEP) expected to announce a new date on Friday.

As the scale of the damage becomes clearer in Haiti’s rural Tiburon peninsula, where entire communities were left destroyed and under water, negotiations are ongoing in the relatively unscathed capital of Port-au-Prince, where political and economic power has long resided. Pressure is building on Haiti’s besieged interim president Jocelerme Privert to hold the elections in the coming weeks, but an internal assessment of electoral infrastructure obtained by Haiti: Relief and Reconstruction Watch reveals massive damage to voting centers throughout the hardest-hit departments.

Some 30 percent of voting centers remained inaccessible in the most impacted areas according to the report compiled by the Organization of American States (OAS), while of those that were visited, 70 percent were rendered inoperable. The storm-ravaged departments are home to roughly one million of Haiti’s approximately 5.9 million registered voters. Across the country, meanwhile, the government estimates 1.4 million people to be in need of humanitarian assistance.

The CEP met with political parties Monday and has also met with representatives from the international community, Haitian civil society and the government this week. Mathias Pierre, a representative of Platfòm Pitit Dessalines, whose presidential candidate is former Senator Moïse Jean Charles, said that political parties had agreed on October 30 for the new date. But no official decision has been made, as the CEP continues to search for consensus.

Jake Johnston / October 13, 2016

Article Artículo

Inequality

United States

Income Inequality Has Gone Up Whether We Look at Households or Individuals

Last month, the Census Bureau released its annual report on income and poverty in the United States. The report indicated that although lower- and middle-income Americans had seen significant income growth in 2015, those at the top of the income distribution had seen the strongest growth over the past forty years.

The Census Bureau’s most widely-cited statistics on inequality come from data on household income. Various commentators have questioned the validity of citing household income, arguing that the definition of “household” doesn’t take into account differences in factors such as family size. If this is true, it could mean that the rise of economic inequality is more of a statistical aberration than a real phenomenon.

CEPR and Nicolas Buffie / October 12, 2016

Article Artículo

Trump and Trade: He’s Not All Wrong

Given his history of promoting racism, xenophobia, sexism and his recently exposed boasts about sexual assaults, not many people want to be associated with Donald Trump. However, that doesn’t mean everything that comes out of his mouth is wrong.

In the debate on Sunday Donald Trump made a comment to the effect that because of Nafta and other trade deals, “we lost our jobs.” The NYT was quick to say this was wrong.

“We didn’t.

“Employment in the United States has increased steadily over the last seven years, one of the longest periods of economic growth in American history. There are about 10 million more working Americans today than when President Obama took office.

“David Autor, an economist at M.I.T., estimated in a famous paper that increased trade with China did eliminate roughly one million factory jobs in the United States between 2000 and 2007. However, an important implication of his findings is that such job losses largely ended almost a decade ago.

“And there’s no evidence the North American Free Trade Agreement caused similar job losses.

“The Congressional Research Service concluded in 2015 that the ‘net overall effect of Nafta on the U.S. economy appears to have been relatively modest.’”

There are a few things to sort out here. First, the basic point in the first paragraph is absolutely true, although it’s not clear that it’s relevant to the trade debate. The United States economy typically grows and adds jobs, around 1.6 million a year for the last quarter century. So any claim that trade has kept the U.S. from creating jobs is absurd on its face. The actual issue is the rate of job creation and the quality of the jobs.

CEPR / October 11, 2016

Article Artículo

The Washington Post-Peter Peterson Austerity Tax

By Dean Baker and Lara Merling

There have been several efforts by the media and various organizations funded by the Peter G. Peterson Foundation to highlight projected shortfalls in the Social Security trust fund in the context of the presidential campaign. They have argued that candidates should be proposing plans to deal with these shortfalls and in particular that these plans should include cuts to Social Security. Implicitly, or sometimes explicitly, they have argued that the projected tax increases needed to maintain full funding for the program would be too large a burden on taxpayers and the economy.

In this context, it is worth remembering that the economy’s output has fallen sharply relative to the levels projected before the downturn in 2008–2009. If the economy had grown as was projected by the Congressional Budget Office in 2008, it would be more than 10.5 percent larger (almost $2 trillion) than it is today. This lost output comes to more than $6,200 per person for every man, women, and child in the country.

The exact cause of this loss in output is not easy to determine. Usually the economy bounces back from a recession and more or less returns to its trend path of growth. That didn’t happen with this recession. A main reason it didn’t bounce back is that there was no source of demand to replace the demand generated by the housing bubble. The bubble led to a massive boom in construction. It also caused consumption to jump as people spent based on their bubble generated housing wealth.

CEPR / October 10, 2016

Article Artículo

Having the World's Reserve Currency Does Not Mean the U.S. Has to Run Huge Trade Deficits

We can always count on Robert Samuelson to give us some economic misinformation on Monday morning and he didn't let us down this week. In a very balanced column (yes, many tons of sarcasm here) decrying the economic proposals of both Donald Trump and Hillary Clinton he told readers:

"The United States runs chronic trade deficits because the dollar serves as the main global currency. This raises its exchange rate, putting U.S. manufacturers at a disadvantage."

This is wrong at just about every level. First, there are multiple reserve currencies, not just dollars. And, they trade frequently against each other, so there is a limit to how much the dollar will rise relative to the euro, yen, or pound because it is the main reserve currency. So, that is not the biggest part of the story of the trade deficit.

The more important part of the story is that countries are holding much larger reserves relative to their GDP now than they did in the years prior to the East Asian financial crisis in 1997. This is due to the harsh terms of the bailout imposed by the Clinton administration through the I.M.F. As a result of these terms, virtually every country in the developing world in a position to do so began accumulating massive amounts of foreign reserves. This was to avoid ever having to be in the same situation as the East Asian countries and have to rely on the I.M.F. for help.

The result was that instead of being net importers of capital from rich countries and running trade deficits, as standard economic theory would predict, developing countries became large exporters of capital running trade surpluses with rich countries. This was the origin of the "global savings glut" and secular stagnation that many prominent economists have complained about in recent years.

This is all worth mentioning in the context of the rest of Samuelson's piece since he seems obsessed with the idea that we face inadequate supply when the economy's problem is quite obviously one of inadequate demand. In other words, he is recommending that someone on the edge of starvation go on a diet.

His complaint about Hillary Clinton's proposals to expand Social Security and pay for college tuition for poor and middle-class children is that we don't have enough money. The whole story of secular stagnation is that we aren't spending enough money.

CEPR / October 10, 2016