There is a well-funded effort (think Fix the Debt and the Peter G. Peterson Foundation) to distract people from the upward redistribution to the rich through claims that the problem is really the elderly living high on Social Security and Medicare. Catherine Rampell contributed to this effort with a column warning the spending on the elderly threatens to crowd out spending on our children. Just about every claim in the column is either seriously misleading or outright wrong.

To begin with we get these two paragraphs:

"Spending on kids as a share of the budget is projected to decline dramatically in the coming decade — to just 7.8 percent by 2024. If you exclude health spending, spending on children falls in raw, inflation-adjusted dollars, too, not just as a percentage of total spending.

"'Kids’ share of federal spending isn’t tumbling because children are suddenly becoming a smaller fraction of the population. Nor is this happening because we live in an “age of austerity”; the sizes of both the economy and tax revenue are at all-time highs, after accounting for inflation, and are expected to keep growing. Federal spending overall is likewise projected to swell in coming years."

Okay, why would we exclude spending on health care for kids, unless we are trying to deceive readers? After all, the piece doesn't exclude spending on health care when it discusses spending on the elderly. Also, we know that the main avenue for spending on kids is education. This is done primarily at the state and local level. Rampell acknowledges this point later in the piece, but then why the histrionics over the age composition of federal spending?

Also saying that we are not in an age of austerity is bizarre. Tax revenues as a share of GDP have fallen to levels not seen since the 1950s. Yes, the economy is growing and the budget is growing along with it, but what matters are the shares of the GDP going to tax revenue.

Then we are told:

"Entitlements that benefit older Americans increasingly dominate the U.S. budget, and not just because the population of older people is increasing. We’re spending way more per elderly person, too. Per capita federal outlays on children rose by about $4,600 in the last half-century (from $270 in 1960 to $4,894 in 2011, after adjusting for inflation); during the same period, per capita outlays on the elderly rose by about $24,000 (from $4,000 to $27,975).

"The chasm between per capita funding received by seniors — even after taking into account all the taxes they have paid — and children looks likely to widen substantially, given the way Social Security, Medicare and child program benefits are structured."

The numbers for spending on seniors might sound dramatic, but it is important to remember that they paid for their Social Security benefits in full. In fact, according to the Urban Institute, which provided much of the basis for this column, the typical senior will have paid somewhat more in taxes to Social Security over their working lifetime than what they can expect to receive back in benefits. Complaining about what seniors get paid out without noting what they paid in would be like complaining about the interest payments that rich people get on their government bonds without noting that they paid for their bonds.

The following reports on labor market policy were recently released:

 

Center for American Progress

5 Policies for Improving Data Use to Accelerate Veteran Employment
Aneesh Chopra and Ethan Gurwitz

Dean Baker
The Broker, September 22, 2014

Dean Baker
Truthout, September 22, 2014

Robert Samuelson devoted his column to discussing the argument of Northwestern University economist Robert Gordon, who argues that we are destined for a prolonged period of slow growth. Samuelson argues that this could lead to major conflicts over distribution since people will not be able to enjoy rising living standards due to growth.

There are several points worth noting about Gordon's argument. First our ability to predict productivity growth has been virtually zero. There was a huge slowdown in productivity growth in 1973, a pickup in 1995, and possibly another slowdown in 2005. The profession completely missed the slowdown in 1973 and even forty years later there is no universally accepted explanation of why it occurred. The 1995 speedup also caught most economists by surprise, although there is general agreement that it was due to the spread of computers and the Internet.

The 2005 slowdown is not at all universally accepted. While it could mark the end of the 1995 speedup, it could just be due to the weakness of demand following the collapse of the housing bubble. Here also, no one predicted the slowdown. Given this track record, it is reasonable to question the accuracy of Gordon's or anyone's predictions about productivity growth over the long-term future.

It is also important to point out that this view is 180 degrees at odds with the robots taking all our jobs view. The fact that both views can be taken seriously within the economics profession speaks to the state of economics. This would be like a person going to a doctor for a check-up, with the doctor concluding that the patient is seriously obese and must immediately begin a strict diet and exercise regimen. The patient then goes to another doctor for a second opinion. This doctor is concerned about the patient being too thin and prescribes a high calorie diet to allow the patient to put on weight. This is the state of economics' ability to predict productivity.

There are a few other points worth noting. First, the comparison in Samuelson's piece of projected growth rates to growth in the 1950s and 1960s is somewhat misleading. The population was growing more rapidly in the 1950s and 1960s as the country was experiencing the baby boom. It is per capita growth, not total growth that matters for living standards. If growth slows in line with slower population growth, this does not hurt living standards. In fact, slower population growth would be associated with an improvement in living standards insofar as it means less stress on the natural environment and the physical infrastructure.

Influencing the Debate from Outside the Mainstream: Keep it Simple

September 13, 2014, Dean Baker's comments at the 2014 Rethinking Economics NYC Forum

Forum titled “The Role of Economic Models in Public Policymaking”

The government of Bolivia has built a cable car that connects the cities of La Paz and El Alto, giving commuters a much better alternative to the long and congested path they would otherwise have to take in buses and road transportation. Together, these neighboring cities are home to about 2 million people. The cable car, which cost $234 million, was built by the Austrian company Doppelmayr and will have considerable benefits for workers and the environment, and will reduce poverty, if we can judge from precedents with cable car projects in Colombia, Venezuela, and Brazil.

The World Bank notes that:

Urban poverty may be reduced through the contribution which transport makes to the efficiency of the urban economy and so to the overall growth of incomes.  Urban transport policies can also be focused more specifically on meeting the needs of the poor.  Inability to access jobs and services is an important element of the social exclusion which defines urban poverty.  Accessibility is important not only for its role in facilitating regular and stable income-earning employment, but also as a part of the social capital which maintains the social relations forming the safety net of poor people in many societies.

This is very important in a country where the national poverty rate is still 43.4 percent and extreme poverty is 21.6 percent (2012). Traffic congestion for commuters traveling between these two cities has been a real obstacle. As the World Bank asserts, “Inadequate and congested urban transport is damaging to the city economy and harms both rich and poor.”  The relationship between lacking transport and poverty has also been demonstrated and explored in academic research.

In addition, as the Bolivian Agency for Information (ABI) points out, Bolivia’s new cable car will conserve energy and time as well as reduce car accidents.  Some critics in Bolivia, like Rolando Carvajal, point out that the cable car will make only a small difference because it will serve (together with other new transportation initiatives) less than 20 percent of commuters.  Carvajal also claims that the government has been using the cable car as a palliative in an election year, even moving the inauguration of the red line closer to the elections.  But President Evo Morales has no serious challenge to his re-election, and did not need to build a $234 million cable car to assure that he would win. Polls have shown that Morales enjoys considerable support; according to a recent poll carried out by the company Equipos-Mori, Morales is leading with 54 percent and his opponent, Samuel Doria Medina, follows with only 14 percent.

Eileen AppelbaumSeptember 19, 2014