Apparently the answer is “no.” Steven Rattner used his NYT column to make the important complaint that we are starving large areas of the federal government, leading to a deteriorating infrastructure and poor quality public service. All of this is fine. It has been said a few hundred thousand times, but it can’t hurt to say it a few hundred thousand more.
But then Rattner tells us:
“Yes, we needed to bring the deficit down. And yes, we still face terrifyingly large obligations in years to come as baby boomers retire and expect to receive Social Security and Medicare benefits.”
And how did he know we needed to bring the deficits down? Is this something he got from his parents? He sure didn’t get it from any reasonable assessment of the state of the economy. The problem with overly large deficits is high interest rates and then high inflation rates if we accommodate the high interest rates with easy money. When since the downturn have interest rates been high? When has the inflation rate been too high? It’s cute that Mr. Rattner remembers what his parents told him, but it would be nice when giving advise on economic policy if he relied on economics instead.
As far as the “terrifying large obligations”: really? We raised Social Security and Medicare taxes in the 1980s. If we raised them by the same amount somewhere in the next three decades these programs would be fully funded for the rest of the century. It’s too bad that Mr. Rattner finds this “terrifying.”
There is one last point on which I am going to seriously beat up the budget whiners from now on. When we give patent and copyright monopolies to private companies and individuals the government is just as much imposing a tax on future generations as when we hand them government debt. If any budget “expert” ignores these commitments, which run into many trillions of dollars over the next decade, they are either incompetent or dishonest. Either way, anyone who tries to talk about the government deficit without factoring in the size of these obligations does not deserve to be taken seriously.
Apparently the answer is “no.” Steven Rattner used his NYT column to make the important complaint that we are starving large areas of the federal government, leading to a deteriorating infrastructure and poor quality public service. All of this is fine. It has been said a few hundred thousand times, but it can’t hurt to say it a few hundred thousand more.
But then Rattner tells us:
“Yes, we needed to bring the deficit down. And yes, we still face terrifyingly large obligations in years to come as baby boomers retire and expect to receive Social Security and Medicare benefits.”
And how did he know we needed to bring the deficits down? Is this something he got from his parents? He sure didn’t get it from any reasonable assessment of the state of the economy. The problem with overly large deficits is high interest rates and then high inflation rates if we accommodate the high interest rates with easy money. When since the downturn have interest rates been high? When has the inflation rate been too high? It’s cute that Mr. Rattner remembers what his parents told him, but it would be nice when giving advise on economic policy if he relied on economics instead.
As far as the “terrifying large obligations”: really? We raised Social Security and Medicare taxes in the 1980s. If we raised them by the same amount somewhere in the next three decades these programs would be fully funded for the rest of the century. It’s too bad that Mr. Rattner finds this “terrifying.”
There is one last point on which I am going to seriously beat up the budget whiners from now on. When we give patent and copyright monopolies to private companies and individuals the government is just as much imposing a tax on future generations as when we hand them government debt. If any budget “expert” ignores these commitments, which run into many trillions of dollars over the next decade, they are either incompetent or dishonest. Either way, anyone who tries to talk about the government deficit without factoring in the size of these obligations does not deserve to be taken seriously.
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In his Washington Post column this morning, E.J. Dionne warns of liberals who suffer from nostalgia in believing that we can just bring back and expand the New Deal agenda from the 1930s. He also complains about the amnesia of conservatives who forget all the ways in which government investments in infrastructure, education, and research and development paved the way for economic growth.
Although these points are well-taken, the piece suffers from myopia in failing to acknowledge how the elites have stacked the deck in ways that both redistribute income upward and slow growth. To take some of the most obvious examples, while trade deals like NAFTA have been quite explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, with the predictable impact on wages, we have maintained protections for doctors, lawyers, and other highly paid professions.
No serious person can believe that the only way someone can become a competent doctor is to complete a residency program in the United States. Yet, this is the law. It costs us close to $100 billion a year in higher health care payments and allows U.S. doctors to have average earnings of more than $250,000 a year.
We also continually make patent and copyright protections longer and stronger redistributing a massive amount of income upward. We will spend close to $430 billion in 2016 on prescription drugs that would likely cost around one-tenth of this amount in a free market. (Drug patents are equivalent in their distortionary effects as tariffs in the range of 1,000 to 10,000 percent.)
And, we have an incredibly bloated financial sector that pulls away five times as much resources from the productive economy as it did forty years ago. If the sector were subject to the same sort of sales tax as the rest of us pay when we buy items in stores, it would likely shrink by more than 50 percent, saving the country over $100 billion a year in fees on useless trading.
Unfortunately, Dionne omits mentions of these and other items which are responsible for the massive upward redistribution of the last four decades. I suppose these are things that you are not allowed to say in the Washington Post.
In his Washington Post column this morning, E.J. Dionne warns of liberals who suffer from nostalgia in believing that we can just bring back and expand the New Deal agenda from the 1930s. He also complains about the amnesia of conservatives who forget all the ways in which government investments in infrastructure, education, and research and development paved the way for economic growth.
Although these points are well-taken, the piece suffers from myopia in failing to acknowledge how the elites have stacked the deck in ways that both redistribute income upward and slow growth. To take some of the most obvious examples, while trade deals like NAFTA have been quite explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, with the predictable impact on wages, we have maintained protections for doctors, lawyers, and other highly paid professions.
No serious person can believe that the only way someone can become a competent doctor is to complete a residency program in the United States. Yet, this is the law. It costs us close to $100 billion a year in higher health care payments and allows U.S. doctors to have average earnings of more than $250,000 a year.
We also continually make patent and copyright protections longer and stronger redistributing a massive amount of income upward. We will spend close to $430 billion in 2016 on prescription drugs that would likely cost around one-tenth of this amount in a free market. (Drug patents are equivalent in their distortionary effects as tariffs in the range of 1,000 to 10,000 percent.)
And, we have an incredibly bloated financial sector that pulls away five times as much resources from the productive economy as it did forty years ago. If the sector were subject to the same sort of sales tax as the rest of us pay when we buy items in stores, it would likely shrink by more than 50 percent, saving the country over $100 billion a year in fees on useless trading.
Unfortunately, Dionne omits mentions of these and other items which are responsible for the massive upward redistribution of the last four decades. I suppose these are things that you are not allowed to say in the Washington Post.
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There are serious arguments to be made against raising the minimum wage to $15. At this point we really don’t have enough data to say with much certainty what the employment impact will be. But we do know that the story that Peter Salins tried to sell readers in his NYT column is wrong.
Salins, a professor of political science at Stony Brook University and a senior fellow at the Manhattan Institute, is a big advocate of an expanded earned income tax credit as an alternative to a higher minimum wage. He tells readers of his estimate that a $15 minimum wage would cost 3 million jobs and then adds:
“Regardless of the magnitude of job cuts caused by a minimum-wage increase, all the workers who lost jobs as a result would be ineligible for the earned-income tax credit. In most states they would receive unemployment insurance for up 26 weeks at a level well below their former earnings; after that, their income would fall to zero.”
The problem with this story is that it completely misrepresents the nature of the low-wage labor market. The jobs that pay near the minimum wage tend to be high turnover jobs. According to the Bureau of Labor Statistics’ Job Opening and Labor Turnover Survey, over 6.0 percent of the workers in the hotel and restaurant sector leave their job every month. That comes to more than 72 percent annually. In the strong labor market at the start of the century the turnover rate was over 8.0 percent monthly.
Given this rate of turnover, the story of job loss due to the minimum wage is not a story of people losing their jobs and going without work for the rest of the year. It’s a story of people taking longer to find jobs when they lose or leave their job. This means that there will be few workers who go without work for a whole year and see their income falling to zero, as described by Salins.
It is possible that a higher minimum wage will lead to enough job loss that the net effect will be to reduce the annual pay of a large portion of low-wage workers. This is a reasonable concern, which we will be better able to answer as we experiment with higher minimum wages, but it will not be a story of millions of losers going without employment altogether, as Salins implies.
It is striking how plans to raise the minimum wage invariably brings out calls for an expanded Earned Income Tax credit (EITC) from conservatives. This is a good policy, hopefully it will be part of the mix of measures that will raise the income of low-wage earners. (A full employment policy from the Federal Reserve Board is also a big part of this picture.) It is worth noting that in standard economic models, the EITC will also lead to lower employment, since it requires more taxes and/or more borrowing, which leads to economic distortions, slower growth, and fewer jobs.
There are serious arguments to be made against raising the minimum wage to $15. At this point we really don’t have enough data to say with much certainty what the employment impact will be. But we do know that the story that Peter Salins tried to sell readers in his NYT column is wrong.
Salins, a professor of political science at Stony Brook University and a senior fellow at the Manhattan Institute, is a big advocate of an expanded earned income tax credit as an alternative to a higher minimum wage. He tells readers of his estimate that a $15 minimum wage would cost 3 million jobs and then adds:
“Regardless of the magnitude of job cuts caused by a minimum-wage increase, all the workers who lost jobs as a result would be ineligible for the earned-income tax credit. In most states they would receive unemployment insurance for up 26 weeks at a level well below their former earnings; after that, their income would fall to zero.”
The problem with this story is that it completely misrepresents the nature of the low-wage labor market. The jobs that pay near the minimum wage tend to be high turnover jobs. According to the Bureau of Labor Statistics’ Job Opening and Labor Turnover Survey, over 6.0 percent of the workers in the hotel and restaurant sector leave their job every month. That comes to more than 72 percent annually. In the strong labor market at the start of the century the turnover rate was over 8.0 percent monthly.
Given this rate of turnover, the story of job loss due to the minimum wage is not a story of people losing their jobs and going without work for the rest of the year. It’s a story of people taking longer to find jobs when they lose or leave their job. This means that there will be few workers who go without work for a whole year and see their income falling to zero, as described by Salins.
It is possible that a higher minimum wage will lead to enough job loss that the net effect will be to reduce the annual pay of a large portion of low-wage workers. This is a reasonable concern, which we will be better able to answer as we experiment with higher minimum wages, but it will not be a story of millions of losers going without employment altogether, as Salins implies.
It is striking how plans to raise the minimum wage invariably brings out calls for an expanded Earned Income Tax credit (EITC) from conservatives. This is a good policy, hopefully it will be part of the mix of measures that will raise the income of low-wage earners. (A full employment policy from the Federal Reserve Board is also a big part of this picture.) It is worth noting that in standard economic models, the EITC will also lead to lower employment, since it requires more taxes and/or more borrowing, which leads to economic distortions, slower growth, and fewer jobs.
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It would have been worth reminding people of this fact in an article on a proposal in California to lower drug prices. The piece might have led readers to believe that the proposal was interfering with a free market. Actually, it is limiting the ability of companies to take advantage of a government granted monopoly.
It would have been worth reminding people of this fact in an article on a proposal in California to lower drug prices. The piece might have led readers to believe that the proposal was interfering with a free market. Actually, it is limiting the ability of companies to take advantage of a government granted monopoly.
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The Washington Post is at it again, using a front page piece to repeatedly tell readers that the protectionist pacts crafted by recent administrations are “free trade.” The phrase appears in each of the first two paragraphs.
Of course, the deals are not about free trade. They do deliberately place U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of lowering their wages. However, the deals leave in place the protections for highly paid professionals like doctors and lawyers.
It is still illegal to practice medicine in the United States unless you go through a U.S. residency program here. As a result of protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries. This costs us roughly $100 billion a year in higher health care bills. “Free traders” would be upset about this.
The trade deals also put in place longer and stronger patent and copyright protections. As a result of these protections, we will spend over $430 billion this year on prescription drugs that would cost around one-tenth of this amount in a free market. Of course, protectionism like this is not free trade.
Educated types think they have to support free trade, so labeling these trade deals as “free trade” pacts undoubtedly wins them support among a substantial segment of the population. However, it is not accurate.
The Washington Post is at it again, using a front page piece to repeatedly tell readers that the protectionist pacts crafted by recent administrations are “free trade.” The phrase appears in each of the first two paragraphs.
Of course, the deals are not about free trade. They do deliberately place U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of lowering their wages. However, the deals leave in place the protections for highly paid professionals like doctors and lawyers.
It is still illegal to practice medicine in the United States unless you go through a U.S. residency program here. As a result of protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries. This costs us roughly $100 billion a year in higher health care bills. “Free traders” would be upset about this.
The trade deals also put in place longer and stronger patent and copyright protections. As a result of these protections, we will spend over $430 billion this year on prescription drugs that would cost around one-tenth of this amount in a free market. Of course, protectionism like this is not free trade.
Educated types think they have to support free trade, so labeling these trade deals as “free trade” pacts undoubtedly wins them support among a substantial segment of the population. However, it is not accurate.
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Mark Landler used his “White House Letter” column to tell readers that President Obama will “need his oratory powers to sell globalization.” This assertion is wrong. Landler is referring to the Trans-Pacific Partnership (TPP) which can more accurately be described as a protectionist agenda than globalization.
The reality is that the trade barriers between the United States and the other countries in the TPP are already very low. The U.S. already has trade deals with six of the other eleven countries in the TPP and even in the case of the other five most of the barriers are already at or near zero. This is why the International Trade Commission (ITC) projected that in 2032, when the gains from the deal will be mostly realized, it will have increased national income by just 0.23 percent, a bit more than one month’s growth.
While the deal does little to reduce traditional trade barriers, the TPP increases protectionism in the form of stronger and longer copyright and patent protection. The provisions in the TPP will cause people to pay more for everything from prescription drugs and computer software to recorded music and old books. The impact of the protectionist measures in the TPP are likely to be much more important in slowing growth than the tariff reducing measures are in enhancing growth. (The ITC did not include the impact of stronger protections in its analysis.)
New Zealand’s government estimated that the copyright extension required by the TPP, from 50 years to 70 years, would cost the country 0.023 percent of its GDP annually. This assessment implies that this one narrow provision, in a country that already has strong copyright protection, will cost the country one-tenth as much as what the ITC projected the United States will gain from the deal. The impact of the stronger protections for drugs and other products will almost certainly be many times larger than the impact of this copyright provision.
It is also worth noting that stronger patent and copyright protection shifts income upward. Not many low-income people own patents and copyrights. By making these protections stronger, under standard economic assumptions, the United States trade deficit in manufactured goods and other items will increase. (It is worth noting that the TPP does nothing to weaken the protections for highly paid professionals like doctors and dentists. These protections add over $100 billion a year to the country’s health care bill.)
The TPP would also make the far-right legal doctrine of compensation for regulatory takings part of U.S. law. Under current law, if Congress or a state legislature determine that a company’s pollution imposes a health or environmental hazard, they can simply prohibit the company from polluting. However, under the TPP governments would have to compensate foreign investors for the profits they would lose if they are not able to pollute.
NAFTA already has a similar provision, but TPP would greatly expand the number of companies in a position to sue for regulatory takings. It could also create a situation in which U.S. companies pressure Congress to grant them the same treatment as foreign companies in getting compensation for regulatory takings. (U.S. companies could also transfer divisions to a foreign based subsidiary or sell them to a foreign company if they thought it was likely that they could face a reduction in profits due to regulatory measures.)
It is very generous of Mr. Landler to call the push for greater protectionism and the advancement of a right-wing legal doctrine “globalization,” however these actions do not fit the normal meaning of the term.
Note: this was altered slightly from an earlier version to clarify the issue on regulatory takings. Thanks to Robert Salzberg.
Mark Landler used his “White House Letter” column to tell readers that President Obama will “need his oratory powers to sell globalization.” This assertion is wrong. Landler is referring to the Trans-Pacific Partnership (TPP) which can more accurately be described as a protectionist agenda than globalization.
The reality is that the trade barriers between the United States and the other countries in the TPP are already very low. The U.S. already has trade deals with six of the other eleven countries in the TPP and even in the case of the other five most of the barriers are already at or near zero. This is why the International Trade Commission (ITC) projected that in 2032, when the gains from the deal will be mostly realized, it will have increased national income by just 0.23 percent, a bit more than one month’s growth.
While the deal does little to reduce traditional trade barriers, the TPP increases protectionism in the form of stronger and longer copyright and patent protection. The provisions in the TPP will cause people to pay more for everything from prescription drugs and computer software to recorded music and old books. The impact of the protectionist measures in the TPP are likely to be much more important in slowing growth than the tariff reducing measures are in enhancing growth. (The ITC did not include the impact of stronger protections in its analysis.)
New Zealand’s government estimated that the copyright extension required by the TPP, from 50 years to 70 years, would cost the country 0.023 percent of its GDP annually. This assessment implies that this one narrow provision, in a country that already has strong copyright protection, will cost the country one-tenth as much as what the ITC projected the United States will gain from the deal. The impact of the stronger protections for drugs and other products will almost certainly be many times larger than the impact of this copyright provision.
It is also worth noting that stronger patent and copyright protection shifts income upward. Not many low-income people own patents and copyrights. By making these protections stronger, under standard economic assumptions, the United States trade deficit in manufactured goods and other items will increase. (It is worth noting that the TPP does nothing to weaken the protections for highly paid professionals like doctors and dentists. These protections add over $100 billion a year to the country’s health care bill.)
The TPP would also make the far-right legal doctrine of compensation for regulatory takings part of U.S. law. Under current law, if Congress or a state legislature determine that a company’s pollution imposes a health or environmental hazard, they can simply prohibit the company from polluting. However, under the TPP governments would have to compensate foreign investors for the profits they would lose if they are not able to pollute.
NAFTA already has a similar provision, but TPP would greatly expand the number of companies in a position to sue for regulatory takings. It could also create a situation in which U.S. companies pressure Congress to grant them the same treatment as foreign companies in getting compensation for regulatory takings. (U.S. companies could also transfer divisions to a foreign based subsidiary or sell them to a foreign company if they thought it was likely that they could face a reduction in profits due to regulatory measures.)
It is very generous of Mr. Landler to call the push for greater protectionism and the advancement of a right-wing legal doctrine “globalization,” however these actions do not fit the normal meaning of the term.
Note: this was altered slightly from an earlier version to clarify the issue on regulatory takings. Thanks to Robert Salzberg.
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The Washington Post had a piece assessing the power relationships in the European Union after the departure of the United Kingdom. The piece discusses whether Germany will play an even more important role. When it turns to potential rivals the piece tells readers:
“France is mired in economic woes and a war on terrorism. Spain and Italy face massive unemployment and political instability.”
It would have been worth pointing out that the reason France is mired in economic woes and that Spain and Italy face massive unemployment and political instability is the austerity policies demanded by the Germans. As a result of these policies, countries are being forced to constrain their budget deficits even as long-term interest rates are near or below zero and inflation is under 1.0 percent.
According to a new study from the European Central Bank, the euro zone’s economy is 6.0 percent below its potential level of output. With Germany near or at its potential level of output this means that the output gap in other countries is considerably larger. In discussion of the roles of various countries in the EU it would have been appropriate to point out how the economic policies demanded by Germany have undermined its rivals.
The Washington Post had a piece assessing the power relationships in the European Union after the departure of the United Kingdom. The piece discusses whether Germany will play an even more important role. When it turns to potential rivals the piece tells readers:
“France is mired in economic woes and a war on terrorism. Spain and Italy face massive unemployment and political instability.”
It would have been worth pointing out that the reason France is mired in economic woes and that Spain and Italy face massive unemployment and political instability is the austerity policies demanded by the Germans. As a result of these policies, countries are being forced to constrain their budget deficits even as long-term interest rates are near or below zero and inflation is under 1.0 percent.
According to a new study from the European Central Bank, the euro zone’s economy is 6.0 percent below its potential level of output. With Germany near or at its potential level of output this means that the output gap in other countries is considerably larger. In discussion of the roles of various countries in the EU it would have been appropriate to point out how the economic policies demanded by Germany have undermined its rivals.
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The folks at National Public Radio assume you all know the answer to that question. Why else would they tell listeners in a piece on migrant workers in the UK after the Brexit vote that:
“Analysts estimate that Lithuanian workers abroad send home more than $300 million a year.”
Hmmm, is that a big deal for Lithuania’s economy? If you had to look up Lithuania’s GDP to answer that question, you probably weren’t alone among NPR listeners. The IMF tells us that Lithuania’s GDP will be around $43 billion for 2016, which means that the $300 million in annual wages being repatriated is equal to roughly 0.7 percent of the country’s GDP.
If harsher immigration rules caused this sum to be cut back by a third or even half, that would be bad news for Lithuania’s economy, but not the sort of thing that is likely to send it into a recession. Anyhow, it would not have taken NPR’s reporters too much time to look up Lithuania’s GDP so that they could have presented a meaningful number to their listeners. As it is, they could have just saved some time by leaving this number out altogether. They were not providing information with it.
The folks at National Public Radio assume you all know the answer to that question. Why else would they tell listeners in a piece on migrant workers in the UK after the Brexit vote that:
“Analysts estimate that Lithuanian workers abroad send home more than $300 million a year.”
Hmmm, is that a big deal for Lithuania’s economy? If you had to look up Lithuania’s GDP to answer that question, you probably weren’t alone among NPR listeners. The IMF tells us that Lithuania’s GDP will be around $43 billion for 2016, which means that the $300 million in annual wages being repatriated is equal to roughly 0.7 percent of the country’s GDP.
If harsher immigration rules caused this sum to be cut back by a third or even half, that would be bad news for Lithuania’s economy, but not the sort of thing that is likely to send it into a recession. Anyhow, it would not have taken NPR’s reporters too much time to look up Lithuania’s GDP so that they could have presented a meaningful number to their listeners. As it is, they could have just saved some time by leaving this number out altogether. They were not providing information with it.
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