July 27, 2012 (GDP Byte)

Elaine K. Hill, a doctoral candidate in Cornell University’s department of applied economics and management, found evidence that fracking is associated with the frequency of low birth weight babies. The findings of her study implied that for mothers living close to a fracking site, the probability of a low birth weight baby increased by 25 percent. 

While this might be important information for government officials and the general public to have when considering restrictions on fracking, New York Times reporter Andrew Revkin is outraged that an unpublished study is being widely circulated and could impact public policy. From his blogpost, it sounds like Revkin gave Hill a really serious grilling about the ethics of allowing her unpublished study to influence debate on a major national issue. (Don't you wish reporters would just once give the same sort of grilling to Jamie Dimon or some other corporate honcho?)

There are two problems with Revkin's outrage. First, while he wants to be a real tough guy and show that this study should not be taken seriously, absolutely nothing in his piece calls into question the main findings of the research. Revkin presents at some length the views of David Ropeik, who Wikepedia identifies as "an independent consultant to government, business, trade associations, consumer groups, and educational institutions."

While Ropeik appears angered about Hill's speculation on how fracking might affect the number of low birth weight children, he gives no reason whatsoever to question the main finding. Specifically, Ropeik does not in any way question the statistical relationship that Hill found between fracking and low birth weight children. If the study was as bad as he seems to think it is, it should have been easy to find at least some potential flaws in its statistical analysis. Apparently he didn't.

This post is in response to a recent segment on NPR's Planet Money in which a panel of economists, which included Dean Baker, made recommendations for a dream presidential economic platform. Dean writes that disagreements between the five economists on the panel should be noted, as the resulting fake presidential candidate "will have to do a bit more work to get my vote, even if I did help to design the platform."

I do feel there were some important aspects of these issues that listeners may not fully appreciate that I would like to lay out.

First, while I fully endorse the view expressed in the segment that a tax deduction for employer provided health care makes no sense abstractly, there is a historical basis for this deduction that makes it difficult to change. Workers, and especially unionized workers, have often explicitly given up higher wages for better health care benefits. If they were to lose employer provided health care benefits, there is no guarantee that their wages would rise by a corresponding amount. While all good economists believe that there is trade-off between wages and benefits, that does not mean that the trade-off is always one-to-one and immediate.

I would be worried that if we were to eliminate the health care deduction in an environment like the current one, in which high unemployment has badly weakened workers' bargaining power, it would result in a net reduction in workers' compensation. In my view, that can't be a good thing at a time where we have already seen such a large upward redistribution of income.

The Honorable Pat Toomey
502 Hart Senate Office Building
Washington, D.C. 20510

Dear Senator Toomey:

I read through the talk on the budget that you gave at the Brookings Institution this week. The talk included several comments on Social Security that were at least misleading, if not actually wrong.

First, on page five of the transcript you lumped Social Security in with Medicare and other health care programs and said that collectively they are unsustainable. This is misleading for several reasons.

Most importantly, the cost of Social Security is projected to rise much less rapidly than the costs of health care programs. And, after the mid-2030s, Social Security’s costs are projected to remain virtually constant as a share of GDP through the rest of the century. There is nothing about these projections that imply this will be an unsustainable burden.

Furthermore, because of the way in which Social Security is financed, under the law it cannot contribute to the deficit. The Congressional Budget Office’s (CBO) most recent projections show that the program will be fully funded from its dedicated stream of tax revenues through 2038, with no changes whatsoever. (The Social Security Trustees project 2033 as the date of trust fund exhaustion.)

This means that for the next quarter-century, CBO projects that Social Security will be fully funded from its designated tax and the interest and principal from the bonds bought with surplus revenue from this tax. If we reach 2038 and the fund is depleted as projected, then under the law Social Security would not be able to pay full benefits. (The payable benefit would be about 80 percent of the scheduled benefit, which would still be considerably higher than what current retirees receive.) Social Security would not be able to make payments in excess of the money coming into the system, and thereby add to the deficit, unless Congress were to vote to change the law and allow Social Security to spend from general revenue.

According to NYT reporter Jason DeParle: “there are suggestions that the absence of a father in the house makes it harder for children to climb the economic ladder.” To support this proposition, he cites an “unpublished analysis” of the effects of single

There is an interesting column by Betsey Stevenson and Justin Wolfers circulating on the web that could pass under the title "all economists agree." While I would add my name to most of the propositions on the list, at the risk of losing my economist license, I have to disagree with their comments on the TARP.

Stevenson and Wolfers ask us to:

"consider the widely despised bank bailouts. Populist politicians on both sides have taken to pounding the table against them (in many cases, only after voting for them). But while the public may not like them, there’s a striking consensus that they helped: The same survey found no economists willing to dispute the idea that the bailouts lowered unemployment."

Okay, let's try to put a bit of context here. The Wall Street banks were on life support in the fall of 2008. Without trillions of dollars of government loans and guarantees (much more came from the Fed than the TARP money that went through the Treasury), they would be dead, deceased, pushing up daisies, out of business. The boys and girls getting those huge paychecks on Wall Street were at Uncle Sam's doorstep pleading for help. There was no one else to save them from destitution.

In this context there were three main choices. One was to drag out Mitt Romney and give them a lecture about the free market and tell them the government is not about giving people stuff. In this case the banks go under leading to a full-fledged financial melt-down. In this story, the economy certainly takes a bigger immediate hit, but the advantage is that we have a Wall Street free world. Goldman Sachs, Citigroup, Morgan Stanley, J.P. Morgan and the rest would be history. They are in receivership, waiting to broken up and sold off. This parasitic sector that has led to so much waste, corruption and inequality is no longer a drag on the economy. Consider this short-term pain for long-term gain. (Just kidding about the Romney part, he supported the bailout.) 

The second choice is hand over the money, which is the route we took. Oh yeah, Congress did put conditions on the money, but we know that was just for show. One of the most disgusting things I've seen in my years in Washington were the excellent stories on how executive compensation was treated in the TARP that the Washington Post and Wall Street Journal ran after the TARP passed.

Dean Baker
Al Jazeera English, July 24, 2012

Martha Mendoza and Trenton Daniel of the Associated Press reported over the weekend on the state of U.S. reconstruction efforts in Haiti. The report is based largely on documents obtained through Freedom of Information Act requests. Mendoza and Daniel write:

Until now, comprehensive details about who is receiving U.S. funds and how they are spending them have not been released. Contracts, budgets and a 300-item spreadsheet obtained by The Associated Press under a Freedom of Information Act request show:

- Of the $988 million spent so far, a quarter went toward debt relief to unburden the hemisphere's poorest nation of repayments. But after Haiti's loans were paid off, the government began borrowing again: $657 million so far, largely for oil imports rather than development projects.

- Less than 12 percent of the reconstruction money sent to Haiti after the earthquake has gone toward energy, shelter, ports or other infrastructure. At least a third, $329 million, went to projects that were awarded before the 2010 catastrophe and had little to do with the recovery - such as HIV/AIDS programs.

- Half of the $1.8 billion the U.S. promised for rebuilding is still in the Treasury, its disbursement stymied by an understaffed U.S. Embassy in Port-au-Prince in the months after the quake and by a Haitian government that was barely functional for more than a year.

- Despite State Department promises to keep spending public, some members of Congress and watchdogs say they aren't getting detailed information about how the millions are being spent, as dozens of contractors working for the U.S. government in Haiti leave a complex money trail.

Searching for evidence of success after more than two years and two billion dollars, the AP found lasting results hard to come by as “projects fundamental to Haiti's transformation out of poverty, such as permanent housing and electric plants in the heavily hit capital of Port-au-Prince have not taken off.” Attempting to preempt the AP article, Mark Feierstein, Assistant Administrator for Latin America and Thomas C. Adams, Haiti Special Coordinator at the U.S. Department of State wrote an article, “Progress in Haiti” to combat what they believe to be an unfair portrayal of U.S. reconstruction efforts.

Housing

Mendoza and Daniel note that the reconstruction plan laid out a number of benchmarks, 40 of which were due to be reached this month. But while some benchmarks have been achieved, many have not. One area of particular concern is the provision of shelter. While Adams and Feierstein point to the decrease in the camp population as the first sign of success, AP reports:

Meanwhile, 390,000 people are still homeless. The U.S. promised to rebuild or replace thousands of destroyed homes, but so far has not built even one new permanent house. Auditors say land disputes, lack of USAID oversight and no clear plan have hampered the housing effort. USAID contested that critique.

The State Department says 29,100 transitional shelters have been built, to which residents are adding floors, walls or roofs to make permanent homes, although homes once again vulnerable to natural disasters. U.S. funds also supported 27,000 households as they moved in with friends or families, and repaired 5,800 of the 35,000 damaged homes they had planned to complete with partners by July 2012. Also by this month the U.S. had planned to help resolve 40,000 to 80,000 land disputes, but at latest count had helped 10,400.

As we have previously pointed out, the provision of new shelter options cannot explain the majority of the decrease in the camp population, and many of those that have left the camps have found themselves in even more precarious living conditions, this time out of sight of the humanitarian community.