Dean Baker
Truthout, November 12, 2012

Dean Baker
Al Jazeera English, November 12, 2012

It's so cute to see all the serious people who are so worried about economic crises that do not exist. They are constantly telling us how the "job creators" (a.k.a. rich people) who run businesses are just so nervous and uncertain they don't know what to do. The current concern is that taxes could rise at the end of the year and government spending will fall.

Of course this would be bad news, but would it be a crisis? As many people have pointed out, this is called "deficit reduction," which is exactly what most of the people now complaining about an imminent crisis have been advocating. The tax increases and spending cuts would weaken the economy and, if left in place over the course of the year, would sharply slow growth and likely push the economy into a recession.

But none of this happens in January. In fact, almost nothing happens in January except the Bush tax cuts expire, substantially improving President Obama's bargaining position. This is bad news for Republicans, but so what?

Hence we have David Brooks telling us this morning:

"The first thing to say about this strategy [letting the tax cuts expire] is that it is irresponsible. The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff. It’s reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results."

Is there any evidence for this assertion whatsoever? "Europe may crater." What on earth does Brooks mean by this? People will not want to hold euros because the U.S. economy might be slowing slightly (we're talking January, not the whole year)?

In case any Washington Post readers were unsure, Robert Samuelson used his column today to tell readers that he doesn't like Social Security and Medicare. The piece begins by telling readers:

"If you doubt there’s an American welfare state, you should read the new study by demographer Nicholas Eberstadt, whose blizzard of numbers demonstrates otherwise. A welfare state transfers income from some people to other people to improve the recipients’ well-being. In 1935, these transfers were less than 3 percent of the economy; now they’re almost 20 percent."

Samuelson goes on to tell us how awful this is because these transfers:

1) take money from other government programs;

2) undermine work incentives and thereby reduce growth; and

3) encourage gaming.

Let's take each of these one by one.

If we start with the biggest government transfer program, Social Security, it would be interesting to know how it takes money from other programs. It is financed by a designated tax. Maybe he thinks that people would be just as happy to pay their Social Security taxes to support the Pentagon, but that is not what polls show. In the case of Social Security, and likely most of the other transfer programs despised by Samuelson, the tax revenue is there because the programs are there. Most taxpayers don't like the things that Samuelson apparently wants to spend money on as much as he does.

Of course if it is possible to lie to people and use taxes designated for Social Security for other purposes, then there can be more money for Samuelson's agenda. But this is a discussion of how to deceive the public, not a debate over social programs.

Samuelson also claims that there is a tendency for these programs to expand over time. In fact over the last three decade Social Security has gotten considerably less generous. The age for getting full benefits has already been raised from 65 to 66 and in another decade will be 67. Also, changes to the way the consumer price index is constructed have reduced the annual cost of living adjustment by approximately 0.5 percentage point.

In the case of Medicare, benefits were extended to cover prescription drugs, but this only became an issue because government granted patent monopolies sent the price of drugs through the roof. Drugs were not included in the original program in 1966 because their cost was trivial, but patent monopolies for drug companies now allow them to sell drugs at prices that are close to $250 billion a year above the free market price. Serious people might worry more about all the waste associated with these patent monopolies than the fact that the government is helping seniors pick up the tab for their drugs.

As far as the second point, anything that makes people wealthier reduces work incentives. The fact that so many people on Wall Street are able to play financial games and make fortunes in their 20s and 30s undermines their work incentive by allowing them to retire early. Why should we be concerned if people opt for a modest Social Security benefit rather than working? After all, they did pay for it.

The Washington Post is throwing all journalistic norms aside in its drive to cut Social Security and Medicare. It continues to hype the budget standoff as an ominous "fiscal cliff" and tells readers on the front page of its web site that it could provide a "magic moment" in which Social Security and Medicare can be cut. The piece begins by telling readers:

"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of stagnating incomes, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement."

Okay I tricked you, this is the Washington Post which doesn't acknowledge economic realities like stagnating income. The piece actually began:

"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of profligacy, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement (emphasis added)."

This departure from reality gives you the gist of the story. The piece continues:

"Lawmakers recoiled from the blunt prescriptions of Democrat Erskine Bowles and Republican Alan K. Simpson. But their plan has since been heralded by both parties as a model of clear-eyed sacrifice, and policymakers say the moment has come to live up to its promise."

Well, yes people have praised their plan. They have also ridiculed it. For example it proposes immediate cuts in Social Security benefits that would be a larger share of the income of the typical beneficiary than President Obama's proposed tax increases on the top 2 percent would be for most of the affected taxpayers. It also proposes increasing the age for Medicare eligibility, even though this would add tens of billions to the country's health care costs over the next decade. And, it proposed a minimum Social Security benefit for low wage earners that few low wage earners would actually qualify for due to the number of working years required to qualify.

There were many other carefully detailed criticisms from people who did not find the plan "startling" nor saw the need to "dig the nation" out of a debt that was almost entirely due to the economic plunge caused by the collapse of the housing bubble. As all budget wonks know the deficits were just over 1.0 percent of GDP prior to the economic collapse and were projected to stay low for the near future, until the collapse of the housing bubble sank the economy.

Source: Congressional Budget Office.

Yahoo’s short “Just Explain It” video on Social Security seriously misrepresented the financial situation of the program. The segment misled viewers on both the magnitude of the demographic  changes affecting  the programs finances and also the impact of the projected shortfall.

 The piece told viewers:

“Back in 1950, there were 7.11 workers per retiree. That number today is 4.5 and in 30 years, economists estimate that number will be 2.6 workers for every retiree.”

The Social Security trustees report actually puts the ratio of covered workers to retirees at 16.5 to 1 in 1950 and just 2.8 in 2012. It is projected to be 2.2 in 30 years.

The difference is important because most of the drop in the ratio of workers to retirees has already occurred. Astute readers will note that on average workers and retirees both enjoy considerably higher living standards today than in 1950 in spite of the sharp decline in the ratio of workers to retirees.

The reason this happened is that the impact of productivity growth swamps in raising living standards swamps any negative impact of demographic changes in lowering living standards. As the chart below shows, the gains from even modest rates of productivity growth vastly exceed the impact of the projected decline in the ratio of workers to retirees.  

                       Source: Social Security Administration and author's calculations.

It is true that most workers have seen little benefit from the gains in productivity growth over the last three decades. This has been due to the huge upward redistribution of income over this period. If this pattern continues then there will be grounds for worrying about the living standards of most of our children and grandchildren. However, this highlights the need to address the policies that have increased inequality and not to waste time worrying about demographic issues.

Finally the piece badly misrepresents the meaning of the shortfall in the Social Security trust fund projected for 2033. This projected shortfall does not mean that the program would pay zero benefits, it means that it could only pay about 75 percent of scheduled benefits (closer to 80 percent in the Congressional Budget Office projections).

Tuesday’s elections could bring some changes to U.S.-Latin America policy, but how significant they are remains to be seen. At the administration level, Obama’s second term is likely to continue the 12 years of the “war on drugs,” support for coups d’etat, funding of opposition groups in left-leaning countries, promotion of “free trade” deals and other policies that characterized the Bush administration’s approach to Latin America and which were carried on by Obama. As we have previously noted, the Obama administration has largely left Latin America policy to the State Department – itself a clear sign that it was a low priority compared to the Middle East, Asia, Europe and other regions.

It was other votes that could spell some changes in U.S.-Latin American relations. Some vocal Latin American policy proponents on the right were defeated, but committee leadership changes could result in a more right-leaning policy. Meanwhile, landmark referendums to legalize recreational marijuana use in two states – Colorado and Washington – could have an impact beyond the U.S. borders, depending on how the Federal government reacts to them.

First, Congressman Cornelius Harvey McGillicuddy IV, aka Connie Mack, lost his Senate bid to incumbent Bill Nelson (D – FL). Since Mack gave up his House seat in order to run for Senate, this means that Mack will no longer chair the Western Hemisphere Subcommittee of the House Foreign Affairs Committee, and therefore will have to abandon his dream of having Venezuela declared a state sponsor of terrorism. He will be gone from Congress, but not forgotten – his entertaining conspiracy theories will still be available online for anyone that likes a good story, as will video of his classic dust-up with former Minnesota Governor Jesse Ventura on Larry King Live. Mack’s chairmanship of the subcommittee will likely go to Rep. Michael McCaul (R – TX), currently the vice-chair.

Speaking of conspiracy theorists, Mack’s like-minded Florida neighbor, Allen West (a Republican from the 22nd District who has said there’s 81 communists in the House of Representatives) may also be on his way out, pending final election results.

Dean Baker
The Guardian Unlimited, November 8, 2012

An Argentine judge ordered Chevron’s assets embargoed in an effort to enforce an Ecuadorean court ruling, reports the Associated Press. Plaintiffs, who have waged a decades long legal battle against Chevron, have taken their fight outside the country to wherever Chevron has assets. Enrique Bruchou, the Argentina lawyer on the case, told reporters, “This is a ruling that sets an example. What we're telling the world is that in Latin America we want to demand that whoever comes to exploit does it following the same health an environmental standards as they do in their countries of origin.” Other than Argentina, the plaintiffs have filed suit in Canada, Brazil and Colombia.

State legislation legalizing recreational marijuana use in Washington and Colorado may impact Latin American countries drug war policies, reports McClatchy. The legislation, which the Mexican Institute for Competitiveness found would significantly reduce drug cartel profits, is a “game-changer”, according to Kasia Malinowska-Sempruch, the director of the global drug-policy program of the Open Society Foundation. Alejandro Hope, who co-authored the study, noted that, “Politically and symbolically, this is really powerful. My guess is that this will accelerate some countries’ efforts to have a legal marijuana regime.” The head of incoming president Enrique Pena-Nieto’s transition team told the AP: "Obviously we can't handle a product that is illegal in Mexico, trying to stop its transfer to the United States, when in the United States, at least in part of the United States, it now has a different status…These important modifications change somewhat the rules of the game in the relationship with the United States…I think that we have to carry out a review of our joint policies in regards to drug trafficking and security in general."

Three laborers were killed in Honduras this past week over a land conflict in the Bajo Aguan region, reports EFE. A 2011 report by the International Federation for Human Rights noted that the “The government has converted the area of these agrarian conflicts in Bajo Aguán into a war zone.” EFE points out that some 70 peasants have been killed in the past few years in fights with security personnel and guards from wealthy landowners. Last year an agreement was reached to give some 4,000 hectares of land to the landless families in the region, yet the agreement has yet to be implemented. MUCA, an organization representing the rural workers, released a statement:  “MUCA repudiates ... these cowardly acts of intimidation against the peasants and calls on the regime of (President Porfirio) Lobo to stop this violence against the laborers of Bajo Aguan.” Professor Dana Frank has written extensively about the conflict previously.