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The Federal Reserve Board has more direct control over the economy than any other institution in the country. When it decides to raise interest rates to slow the economy, it can ensure that millions of workers don’t get jobs and prevent tens of millions more from getting the bargaining power they need to gain wage increases. For this reason, it is very important who is making the calls on interest rates and who they are listening to.
Robert Rubin, who served as Treasury secretary in the Clinton administration, weighed in today in the NYT to argue for the status quo. There are a few important background points on Rubin that are worth mentioning before getting into the substance.
First. Robert Rubin was a main architect of the high dollar policy that led to the explosion of the trade deficit in the last decade. This led to the loss of millions of manufacturing jobs and decimating communities across the Midwest. Second, Rubin was a major advocate of financial deregulation during his years in the Clinton administration. Finally, Rubin was a direct beneficiary of deregulation, since he left the administration to take a top job at Citigroup. He made over $100 million in this position before he resigned in the financial crisis when bad loans had essentially put Citigroup into bankruptcy. (It was saved by government bailouts.)
Rubin touts the current apolitical nature of the Fed. He warns about:
“Efforts to denigrate the integrity of the Fed’s work, and to inject groundless opinion, politics and ideology, must be rejected by the board — and that means governors and other members of the Federal Open Market Committee must be willing to withstand aggressive attacks.”
It is important to recognize that the Fed is currently dominated by people with close ties to the financial industry. The Fed Open Market Committee (FOMC) which determines interest rate policy has 19 members. While 7 are governors appointed by the president and approved by Congress (only 4 of the governor seats are currently filled), 12 are presidents of the district banks. These bank presidents are appointed through a process dominated by the banks in the district. (Only 5 of the 12 presidents have a vote at any one time, but all 12 participate in discussions.)
It seems bizarre to describe this process as apolitical or imply there is great integrity here. Rubin’s claim is particularly ironic in light of the fact that one of the bank presidents was just forced to resign after admitting to leaking confidential information on interest rate policy to a financial analyst.
There is good reason for the public to be unhappy about the Fed’s excessive concern over inflation over the last four decades and inadequate attention to unemployment. This arguably reflects the interests of the financial industry, which often stands to lose from higher inflation and have little interest in the level of employment. It is understandable that someone who has made his fortune in the financial industry would want to protect the status quo with the Fed, but there is little reason for the rest of us to take him seriously.
The Federal Reserve Board has more direct control over the economy than any other institution in the country. When it decides to raise interest rates to slow the economy, it can ensure that millions of workers don’t get jobs and prevent tens of millions more from getting the bargaining power they need to gain wage increases. For this reason, it is very important who is making the calls on interest rates and who they are listening to.
Robert Rubin, who served as Treasury secretary in the Clinton administration, weighed in today in the NYT to argue for the status quo. There are a few important background points on Rubin that are worth mentioning before getting into the substance.
First. Robert Rubin was a main architect of the high dollar policy that led to the explosion of the trade deficit in the last decade. This led to the loss of millions of manufacturing jobs and decimating communities across the Midwest. Second, Rubin was a major advocate of financial deregulation during his years in the Clinton administration. Finally, Rubin was a direct beneficiary of deregulation, since he left the administration to take a top job at Citigroup. He made over $100 million in this position before he resigned in the financial crisis when bad loans had essentially put Citigroup into bankruptcy. (It was saved by government bailouts.)
Rubin touts the current apolitical nature of the Fed. He warns about:
“Efforts to denigrate the integrity of the Fed’s work, and to inject groundless opinion, politics and ideology, must be rejected by the board — and that means governors and other members of the Federal Open Market Committee must be willing to withstand aggressive attacks.”
It is important to recognize that the Fed is currently dominated by people with close ties to the financial industry. The Fed Open Market Committee (FOMC) which determines interest rate policy has 19 members. While 7 are governors appointed by the president and approved by Congress (only 4 of the governor seats are currently filled), 12 are presidents of the district banks. These bank presidents are appointed through a process dominated by the banks in the district. (Only 5 of the 12 presidents have a vote at any one time, but all 12 participate in discussions.)
It seems bizarre to describe this process as apolitical or imply there is great integrity here. Rubin’s claim is particularly ironic in light of the fact that one of the bank presidents was just forced to resign after admitting to leaking confidential information on interest rate policy to a financial analyst.
There is good reason for the public to be unhappy about the Fed’s excessive concern over inflation over the last four decades and inadequate attention to unemployment. This arguably reflects the interests of the financial industry, which often stands to lose from higher inflation and have little interest in the level of employment. It is understandable that someone who has made his fortune in the financial industry would want to protect the status quo with the Fed, but there is little reason for the rest of us to take him seriously.
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The Washington Post and other major news outlets are strong supporters of the trade policy pursued by administrations of both political parties. They routinely allow their position on this issue to spill over into their news reporting, touting the policy as “free trade.” We got yet another example of this in the Washington Post today.
Of course the policy is very far from free trade. We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)
As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.
While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.
We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly. Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country.
It is also worth noting patent protection results in exactly the sort of corruption that would be expected from a huge government imposed tariff. (When patents raise the price of a drug by a factor of 100 or more, as is often the case, it is equivalent to a tariff of 10,000 percent.) The result is that pharmaceutical companies often make payoffs to doctors to promote their drugs or conceal evidence that their drugs are less effective than claimed or even harmful.
The Washington Post and other major news outlets are strong supporters of the trade policy pursued by administrations of both political parties. They routinely allow their position on this issue to spill over into their news reporting, touting the policy as “free trade.” We got yet another example of this in the Washington Post today.
Of course the policy is very far from free trade. We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)
As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.
While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.
We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly. Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country.
It is also worth noting patent protection results in exactly the sort of corruption that would be expected from a huge government imposed tariff. (When patents raise the price of a drug by a factor of 100 or more, as is often the case, it is equivalent to a tariff of 10,000 percent.) The result is that pharmaceutical companies often make payoffs to doctors to promote their drugs or conceal evidence that their drugs are less effective than claimed or even harmful.
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The Republicans have been working hard to find a way to repeal the Affordable Care Act (ACA) that doesn’t leave most of their members of Congress unemployed. The basic problem is that their campaign against the ACA for the last seven years was a complete lie. They claimed that people were paying too much money for policies that were inadequate, leading people to believe that they had a way to provide better coverage for less money. They don’t.
Unfortunately, NPR might have led listeners to believe otherwise in an interview with Mike Johnson, a Republican representative from Louisiana. Johnson explained that they would get premiums down by allowing insurers to exclude people with health conditions from their pool. This is more or less the situation we had before the ACA.
Most people are healthy and have few medical bills. Insurers are very happy to insure these people, since they essentially are just sending the companies money. The problem has always been the the roughly 10 percent of the population with substantial medical bills. Insurers don’t want to insure these people, since their health care costs serious money. Of course, these are the people who most need insurance.
Johnson acknowledged that these people will face higher premiums under his plan, but then said that they had set aside $15 billion in their bill for subsidies for these people. Was this information helpful to you?
It didn’t do much for me, since he didn’t even tell us the time frame for this $15 billion. Budget numbers are often expressed over ten year periods reflecting the Congressional Budget Office’s 10-year planning horizon. Was this a ten year number or a one year number? My guess is the former, but I really don’t know. Hey, so we’re off by a factor of ten, what’s the big deal?
But it gets worse. What’s the need here? Anyone know how far $15 billion will go over either a one year or ten year horizon?
To fill in the perspective a serious reporter would have given, the average annual health care costs for the 10 percent most costly patients is more than $50,000 a year. We’re talking about 32 million people, so that comes to more than $1.5 trillion a year.
Many of these people are on Medicare, and some are covered by employer provided insurance, so many will not end up in these high risk pools and need subsidies. But, let’s say that one third of them do end up in these pools. That means the cost would be $500 billion a year for these folks’ health care. Mr. Johnson is proposing a subsidy of between $1.5 billion and $15 billion to help these people cover their insurance.
Got the picture now?
The Republicans have been working hard to find a way to repeal the Affordable Care Act (ACA) that doesn’t leave most of their members of Congress unemployed. The basic problem is that their campaign against the ACA for the last seven years was a complete lie. They claimed that people were paying too much money for policies that were inadequate, leading people to believe that they had a way to provide better coverage for less money. They don’t.
Unfortunately, NPR might have led listeners to believe otherwise in an interview with Mike Johnson, a Republican representative from Louisiana. Johnson explained that they would get premiums down by allowing insurers to exclude people with health conditions from their pool. This is more or less the situation we had before the ACA.
Most people are healthy and have few medical bills. Insurers are very happy to insure these people, since they essentially are just sending the companies money. The problem has always been the the roughly 10 percent of the population with substantial medical bills. Insurers don’t want to insure these people, since their health care costs serious money. Of course, these are the people who most need insurance.
Johnson acknowledged that these people will face higher premiums under his plan, but then said that they had set aside $15 billion in their bill for subsidies for these people. Was this information helpful to you?
It didn’t do much for me, since he didn’t even tell us the time frame for this $15 billion. Budget numbers are often expressed over ten year periods reflecting the Congressional Budget Office’s 10-year planning horizon. Was this a ten year number or a one year number? My guess is the former, but I really don’t know. Hey, so we’re off by a factor of ten, what’s the big deal?
But it gets worse. What’s the need here? Anyone know how far $15 billion will go over either a one year or ten year horizon?
To fill in the perspective a serious reporter would have given, the average annual health care costs for the 10 percent most costly patients is more than $50,000 a year. We’re talking about 32 million people, so that comes to more than $1.5 trillion a year.
Many of these people are on Medicare, and some are covered by employer provided insurance, so many will not end up in these high risk pools and need subsidies. But, let’s say that one third of them do end up in these pools. That means the cost would be $500 billion a year for these folks’ health care. Mr. Johnson is proposing a subsidy of between $1.5 billion and $15 billion to help these people cover their insurance.
Got the picture now?
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The Washington Post editorial page is of course famous for absurdly claiming that Mexico’s GDP had quadrupled between 1987 and 2007 in an editorial defending NAFTA. (According to the I.M.F, Mexico’s GDP increased by 83 percent over this period.) Incredibly, the paper still has not corrected this egregious error in its online version.
This is why it is difficult to share the concern of Fred Hiatt, the editorial page editor, that we will see increasingly dishonest public debates. Hiatt and his team at the editorial page have no qualms at all about making up nonsense when pushing their positions. While I’m a big fan of facts and data in public debate, the Post’s editorial page editor is about the last person in the world who should be complaining about dishonest arguments.
Just to pick a trivial point in this piece, Hiatt wants us to be concerned about automation displacing workers. As fans of data know, automation is actually advancing at a record slow pace, with productivity growth averaging just 1.0 percent over the last decade. (This compares to 3.0 percent in the 1947 to 1973 Golden Age and the pick-up from 1995 to 2005.)
If Hiatt is predicting an imminent pick-up, as do some techno-optimists, then he was being dishonest in citing projections from the Congressional Budget Office showing larger budget deficits. If productivity picks up, so will growth and tax revenue, making the budget picture much brighter than what CBO is projecting.
It is also striking to see Hiatt warning about automation, the day after the Post editorial page complained that too many people have stopped working because of an overly generous disability program. That piece told readers:
“…at a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform.”
Okay, so yesterday we had too few workers and today we have too many because of automation. These arguments are complete opposites. The one unifying theme is that the Post is worried that we are being too generous to the poor and middle class.
The Washington Post editorial page is of course famous for absurdly claiming that Mexico’s GDP had quadrupled between 1987 and 2007 in an editorial defending NAFTA. (According to the I.M.F, Mexico’s GDP increased by 83 percent over this period.) Incredibly, the paper still has not corrected this egregious error in its online version.
This is why it is difficult to share the concern of Fred Hiatt, the editorial page editor, that we will see increasingly dishonest public debates. Hiatt and his team at the editorial page have no qualms at all about making up nonsense when pushing their positions. While I’m a big fan of facts and data in public debate, the Post’s editorial page editor is about the last person in the world who should be complaining about dishonest arguments.
Just to pick a trivial point in this piece, Hiatt wants us to be concerned about automation displacing workers. As fans of data know, automation is actually advancing at a record slow pace, with productivity growth averaging just 1.0 percent over the last decade. (This compares to 3.0 percent in the 1947 to 1973 Golden Age and the pick-up from 1995 to 2005.)
If Hiatt is predicting an imminent pick-up, as do some techno-optimists, then he was being dishonest in citing projections from the Congressional Budget Office showing larger budget deficits. If productivity picks up, so will growth and tax revenue, making the budget picture much brighter than what CBO is projecting.
It is also striking to see Hiatt warning about automation, the day after the Post editorial page complained that too many people have stopped working because of an overly generous disability program. That piece told readers:
“…at a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform.”
Okay, so yesterday we had too few workers and today we have too many because of automation. These arguments are complete opposites. The one unifying theme is that the Post is worried that we are being too generous to the poor and middle class.
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At a time of unprecedented inequality, the Washington Post is quick to seize on the country’s real problems: a Social Security disability program that is too generous. The editorial was good enough not to get bogged down in phony arguments. It tells readers explicitly that rampant fraud is not a problem:
“Nor is the program’s growth the result of rampant fraud, as sometimes alleged; structural factors such as population aging explain much recent growth. Nevertheless, at a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform.”
So the problem is that the program is too generous for people who might still be able to work in spite of a disability.
Just to get some orientation, the benefit that the Post considers to be too generous averages $1,170 a month. This was roughly six minutes of pay for our current Secretary of State, in his former job as the head of Exxon-Mobil.
The concern about the low employment rates (EPOP) in the United States is reasonable, but it bears no obvious relationship to the Social Security disability insurance program. The EPOP for prime-age workers (ages 25–54) has fallen by almost four percentage points since 2000, with no increase in the generosity of the disability program. In fact, if we combine the number of workers receiving disability and workers compensation, there has been little change in the share of the working-age population receiving benefits over this period.
In fact, the United States ranks near the bottom of OECD countries in the generosity of its benefits, yet it also ranks near the bottom in the employment rate for prime-age workers. In its most recent data, the OECD put the EPOP for prime-age workers in the United States at 78.2 percent. This compares 83.3 percent for the Netherlands, 84.2 percent for Germany, and 86.0 percent for Sweden, all countries that spend considerably more money on disability benefits than the United States.
The most obvious way to increase employment for prime-age workers is to deal with the demand side of the story. For example, it might be a good idea if the Fed stopped trying to slow the economy by raising interest rates. It would also be good if the pay of ordinary workers were increased by measures that reduce the pay of those at the top. Free trade in prescription drugs and free trade for doctors are near the top of my list. (Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer gives more of the story. [It’s free].) We can also follow the path of other countries and have more work supports, like access to low cost quality child care.
But in Donald Trump’s America, the priority is to take away as much as possible from those at the middle and bottom so the rich can have more. And the Washington Post is determined to do its part.
Addendum: Where are the Robots?
I forgot to ask this important question. Just last week the Post ran a column that had us terrified that the robots were going to take all the jobs. Now they want us to worry that we don’t have enough workers because they are all living on their $1170 a month disability benefit. In economics this is known as the “which way is up problem?” Ostensibly intelligent people don’t have the slightest clue what they are talking about when it comes to the economy.
Correction: An earlier version put the monthly benefit at one hour of pay for Secretary of State Rex Tillerson. That would imply annual pay in the range of $2 million a year. In fact, his pay came to more than $20 million a year.
At a time of unprecedented inequality, the Washington Post is quick to seize on the country’s real problems: a Social Security disability program that is too generous. The editorial was good enough not to get bogged down in phony arguments. It tells readers explicitly that rampant fraud is not a problem:
“Nor is the program’s growth the result of rampant fraud, as sometimes alleged; structural factors such as population aging explain much recent growth. Nevertheless, at a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform.”
So the problem is that the program is too generous for people who might still be able to work in spite of a disability.
Just to get some orientation, the benefit that the Post considers to be too generous averages $1,170 a month. This was roughly six minutes of pay for our current Secretary of State, in his former job as the head of Exxon-Mobil.
The concern about the low employment rates (EPOP) in the United States is reasonable, but it bears no obvious relationship to the Social Security disability insurance program. The EPOP for prime-age workers (ages 25–54) has fallen by almost four percentage points since 2000, with no increase in the generosity of the disability program. In fact, if we combine the number of workers receiving disability and workers compensation, there has been little change in the share of the working-age population receiving benefits over this period.
In fact, the United States ranks near the bottom of OECD countries in the generosity of its benefits, yet it also ranks near the bottom in the employment rate for prime-age workers. In its most recent data, the OECD put the EPOP for prime-age workers in the United States at 78.2 percent. This compares 83.3 percent for the Netherlands, 84.2 percent for Germany, and 86.0 percent for Sweden, all countries that spend considerably more money on disability benefits than the United States.
The most obvious way to increase employment for prime-age workers is to deal with the demand side of the story. For example, it might be a good idea if the Fed stopped trying to slow the economy by raising interest rates. It would also be good if the pay of ordinary workers were increased by measures that reduce the pay of those at the top. Free trade in prescription drugs and free trade for doctors are near the top of my list. (Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer gives more of the story. [It’s free].) We can also follow the path of other countries and have more work supports, like access to low cost quality child care.
But in Donald Trump’s America, the priority is to take away as much as possible from those at the middle and bottom so the rich can have more. And the Washington Post is determined to do its part.
Addendum: Where are the Robots?
I forgot to ask this important question. Just last week the Post ran a column that had us terrified that the robots were going to take all the jobs. Now they want us to worry that we don’t have enough workers because they are all living on their $1170 a month disability benefit. In economics this is known as the “which way is up problem?” Ostensibly intelligent people don’t have the slightest clue what they are talking about when it comes to the economy.
Correction: An earlier version put the monthly benefit at one hour of pay for Secretary of State Rex Tillerson. That would imply annual pay in the range of $2 million a year. In fact, his pay came to more than $20 million a year.
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