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The Washington Post again went after Senator Bernie Sanders in its lead editorial, telling readers that the Senator’s proposals were “facile.” It might be advisable for a paper that described President Bush’s case for weapons of mass destruction in Iraq as “irrefutable” to be cautious about going ad hominem, but this is the Washington Post.
Getting to the substance, the Post is unhappy with Sanders proposal for single payer health insurance which it argues will cost far more or deliver much less than promised. While the Post is correct that Sanders has put forward a campaign proposal rather than a fully worked out health reform bill, it is not unreasonable to think that we can get considerably more coverage at a lower cost than we pay now. After all, there is nothing in our national psyche that should condemn us to forever pay twice as much per person for our health care as people in other wealthy countries. (I have written more about this issue here.)
On financial reform the Post seems to want everyone to think that after Dodd-Frank things are just fine on Wall Street. It apparently has not noticed that the big banks are even bigger than ever and that the financial sector continues to grow as a share of the economy, imposing an ever larger drag on growth. For these reasons, Sanders proposal to break up the big banks makes good sense, as does his plan for a financial transactions tax. The latter would both raise a huge amount of money and downsize the industry. (I have some more comments here.)
Finally, it is worth applying some Econ 101 to the Post’s never-ending complaints about Sanders and other politicians not having a plan to deal with its imagined long-term budget crisis. First, much of the projected shortfall stems from the projected growth in health care costs. (The rate of projected health care cost growth has plummeted in the last five years, but this has not affected the Post’s complaints.)
First if Sanders succeeds in reining in health care then most of the projected budget gap disappears. However there is still the issue of rising costs due to an aging population. Of course this is not new. We have had a rising ratio of retirees to workers for the last half century. For some reason the Post seems to view it as an end of the world scenario if somewhere in the next two decades we were to raise payroll taxes to cover the costs of longer retirements, just like we did in the decades of the fifties, sixties, seventies and eighties.
Fans of basic economics know that it matters hugely more to workers if their before-tax wages keep pace with productivity growth, implying wage gains of 15–20 percent over the course of a decade, than if their payroll taxes are increased by 1–2 percentage points. However, the paper endlessly obsesses on the latter, while almost completely ignoring the former.
The Post almost never discusses the negative impact that unnecessarily restrictive Fed policy has had on wage growth. It also does its best to ignore the impact on the typical workers’ pay of the policy of selective protectionism that we apply in trade (protected doctors and lawyers, exposed manufacturing workers).
The Post gets very upset when political figures like Bernie Sanders raise issues about before tax wage. Instead, it wants workers to fixate on the possibility that they may at some point face a tax increase. And when politicians diverge from the Post’s chosen path, it calls them names.
The Washington Post again went after Senator Bernie Sanders in its lead editorial, telling readers that the Senator’s proposals were “facile.” It might be advisable for a paper that described President Bush’s case for weapons of mass destruction in Iraq as “irrefutable” to be cautious about going ad hominem, but this is the Washington Post.
Getting to the substance, the Post is unhappy with Sanders proposal for single payer health insurance which it argues will cost far more or deliver much less than promised. While the Post is correct that Sanders has put forward a campaign proposal rather than a fully worked out health reform bill, it is not unreasonable to think that we can get considerably more coverage at a lower cost than we pay now. After all, there is nothing in our national psyche that should condemn us to forever pay twice as much per person for our health care as people in other wealthy countries. (I have written more about this issue here.)
On financial reform the Post seems to want everyone to think that after Dodd-Frank things are just fine on Wall Street. It apparently has not noticed that the big banks are even bigger than ever and that the financial sector continues to grow as a share of the economy, imposing an ever larger drag on growth. For these reasons, Sanders proposal to break up the big banks makes good sense, as does his plan for a financial transactions tax. The latter would both raise a huge amount of money and downsize the industry. (I have some more comments here.)
Finally, it is worth applying some Econ 101 to the Post’s never-ending complaints about Sanders and other politicians not having a plan to deal with its imagined long-term budget crisis. First, much of the projected shortfall stems from the projected growth in health care costs. (The rate of projected health care cost growth has plummeted in the last five years, but this has not affected the Post’s complaints.)
First if Sanders succeeds in reining in health care then most of the projected budget gap disappears. However there is still the issue of rising costs due to an aging population. Of course this is not new. We have had a rising ratio of retirees to workers for the last half century. For some reason the Post seems to view it as an end of the world scenario if somewhere in the next two decades we were to raise payroll taxes to cover the costs of longer retirements, just like we did in the decades of the fifties, sixties, seventies and eighties.
Fans of basic economics know that it matters hugely more to workers if their before-tax wages keep pace with productivity growth, implying wage gains of 15–20 percent over the course of a decade, than if their payroll taxes are increased by 1–2 percentage points. However, the paper endlessly obsesses on the latter, while almost completely ignoring the former.
The Post almost never discusses the negative impact that unnecessarily restrictive Fed policy has had on wage growth. It also does its best to ignore the impact on the typical workers’ pay of the policy of selective protectionism that we apply in trade (protected doctors and lawyers, exposed manufacturing workers).
The Post gets very upset when political figures like Bernie Sanders raise issues about before tax wage. Instead, it wants workers to fixate on the possibility that they may at some point face a tax increase. And when politicians diverge from the Post’s chosen path, it calls them names.
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The Washington Post is unhappy that support of the TARP appears to be a liability on the campaign trail. After all, it tells readers:
“Then-Federal Reserve Chair Ben S. Bernanke and Treasury Secretary Henry M. Paulson declared it indispensable to prevent another Great Depression.”
Yep, that would be Henry M. Paulson, who was CEO at Goldman Sachs before taking the job as Treasury Secretary. As far as Chair Bernanke’s assessment, it would be interesting to hear why he didn’t explain that the Fed single-handedly had the ability to keep the commercial paper market operating, until the weekend after TARP passed.
While the initial downturn almost certainly would have been steeper had Congress not passed the TARP and we allowed the magic of the market to sink Goldman Sachs and the other Wall Street banks, it is absurd to claim that this would have led to another Great Depression. We know the trick to get out of a Great Depression: it’s called “spending money.”
It took the massive spending associated with World War II to finally lift the U.S. economy out of the last Great Depression, but if we had massive spending on infrastructure, education, health care and other domestic needs in 1931 rather than 1941, we would not have had a decade of double-digit unemployment. Without the TARP and the Fed’s bailouts, we could have instantly reformed Wall Street and recreated a new banking system out of the wreckage which would be focused on serving the real economy.
It is also worth pointing out the absurdity of the claim that “we made money on the TARP.” We lent the banks money at way below the interest rate they would have been forced to pay in the market at the time. Since the rate was higher than the interest rate on government debt, supporters can say we made money, but it’s not clear why anyone should care. It was nonetheless an enormous subsidy to the Wall Street banks.
We could have also lent money at the same interest rate to Dean Baker’s Excellent Hedge Fund, which would have invested in the S&P 500. Dean Baker’s Excellent Hedge Fund would then have made an enormous amount of money at the taxpayer’s expense, but the editorial board at the Washington Post would undoubtedly tell critics to shut up, since the government made money on the deal. Makes good sense, right?
There is one final irony worth noting. This editorial appears right under the one denouncing Bernie Sanders’ “facile” proposals. The original TARP proposal was 3 pages, with most of the ink devoted to saying that no one could sue Treasury over how it spent the money. The package that was eventually approved was more than 700 pages. Furthermore, the initial proposal was for buying devalued mortgage backed securities (MBS) (“troubled assets”) from banks.
In fact, Treasury never bought any of these MBS from the banks. It instead gave relief in the form of purchases of preferred shares of stock. Given how far removed the original proposal was from what actually happened, it seems that Mr. Paulsen’s initial plan certainly would merit the Post’s “facile” award. For some reason that term was never used on the Post’s opinion page.
The Washington Post is unhappy that support of the TARP appears to be a liability on the campaign trail. After all, it tells readers:
“Then-Federal Reserve Chair Ben S. Bernanke and Treasury Secretary Henry M. Paulson declared it indispensable to prevent another Great Depression.”
Yep, that would be Henry M. Paulson, who was CEO at Goldman Sachs before taking the job as Treasury Secretary. As far as Chair Bernanke’s assessment, it would be interesting to hear why he didn’t explain that the Fed single-handedly had the ability to keep the commercial paper market operating, until the weekend after TARP passed.
While the initial downturn almost certainly would have been steeper had Congress not passed the TARP and we allowed the magic of the market to sink Goldman Sachs and the other Wall Street banks, it is absurd to claim that this would have led to another Great Depression. We know the trick to get out of a Great Depression: it’s called “spending money.”
It took the massive spending associated with World War II to finally lift the U.S. economy out of the last Great Depression, but if we had massive spending on infrastructure, education, health care and other domestic needs in 1931 rather than 1941, we would not have had a decade of double-digit unemployment. Without the TARP and the Fed’s bailouts, we could have instantly reformed Wall Street and recreated a new banking system out of the wreckage which would be focused on serving the real economy.
It is also worth pointing out the absurdity of the claim that “we made money on the TARP.” We lent the banks money at way below the interest rate they would have been forced to pay in the market at the time. Since the rate was higher than the interest rate on government debt, supporters can say we made money, but it’s not clear why anyone should care. It was nonetheless an enormous subsidy to the Wall Street banks.
We could have also lent money at the same interest rate to Dean Baker’s Excellent Hedge Fund, which would have invested in the S&P 500. Dean Baker’s Excellent Hedge Fund would then have made an enormous amount of money at the taxpayer’s expense, but the editorial board at the Washington Post would undoubtedly tell critics to shut up, since the government made money on the deal. Makes good sense, right?
There is one final irony worth noting. This editorial appears right under the one denouncing Bernie Sanders’ “facile” proposals. The original TARP proposal was 3 pages, with most of the ink devoted to saying that no one could sue Treasury over how it spent the money. The package that was eventually approved was more than 700 pages. Furthermore, the initial proposal was for buying devalued mortgage backed securities (MBS) (“troubled assets”) from banks.
In fact, Treasury never bought any of these MBS from the banks. It instead gave relief in the form of purchases of preferred shares of stock. Given how far removed the original proposal was from what actually happened, it seems that Mr. Paulsen’s initial plan certainly would merit the Post’s “facile” award. For some reason that term was never used on the Post’s opinion page.
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It looks like the race between Bernie Sanders and Hillary Clinton is really heating up. Yesterday, Paul Krugman told readers:
“As far as I can tell, every serious progressive policy expert on either health care or financial reform who has weighed in on the primary seems to lean Hillary.”
Oh well, so much for those of us backing or leaning towards Sanders. I guess we just have to turn to that old Washington saying, “better right than expert.” In other words, it’s better to rely on people who have a track record of being right than the people who have the best credentials.
It looks like the race between Bernie Sanders and Hillary Clinton is really heating up. Yesterday, Paul Krugman told readers:
“As far as I can tell, every serious progressive policy expert on either health care or financial reform who has weighed in on the primary seems to lean Hillary.”
Oh well, so much for those of us backing or leaning towards Sanders. I guess we just have to turn to that old Washington saying, “better right than expert.” In other words, it’s better to rely on people who have a track record of being right than the people who have the best credentials.
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You probably knew that, but it told readers the story once again in an editorial in which the first paragraph told readers that if the Postal Service were a private company “it would undoubtedly be viewed as insolvent.”
Yes, the Postal Service is losing money, but there are two items that need to be mentioned in this story. First, the Postal Service losses in recent years are primarily the result of a unique accounting method under which the Postal Service is being required to 100 percent prefund its retiree health benefits. There is no private sector company that has such a prefunding level.
It makes a difference. If we look at the Postal Service’s finances from the first 9 months of 2015, we see that it lost $2.8 billion. But a more careful look shows that it paid $6.6 billion to for its retiree health benefits, $4.3 billion of which is to prefund future benefits. Without this payment, it would have shown a profit of almost $1.5 billion.
The other more important point is the absurd restriction under which the Postal Service operates. On the one hand, it is told that it has to be run at a profit, like a private company. On the other hand, it is prohibited from taking advantage of its resources to move into new potentially profitable lines of business.
One obvious line would be postal banking, a service that it used to provide and which other postal services still do provide. With an unbanked population in the tens of millions, the opportunity to have low cost checking accounts and other basic banking services would likely be welcomed especially in low and moderate income communities.
People like Senators Elizabeth Warren and Bernie Sanders have promoted postal banking, as has the Postal Service’s inspector general. This certainly would be a reform worth considering, but of course the competition would not make the financial industry happy.
Note: An earlier version had incorrectly treated the whole sum for retirement health care spending as prefunding, instead of just $4.3 billion.
You probably knew that, but it told readers the story once again in an editorial in which the first paragraph told readers that if the Postal Service were a private company “it would undoubtedly be viewed as insolvent.”
Yes, the Postal Service is losing money, but there are two items that need to be mentioned in this story. First, the Postal Service losses in recent years are primarily the result of a unique accounting method under which the Postal Service is being required to 100 percent prefund its retiree health benefits. There is no private sector company that has such a prefunding level.
It makes a difference. If we look at the Postal Service’s finances from the first 9 months of 2015, we see that it lost $2.8 billion. But a more careful look shows that it paid $6.6 billion to for its retiree health benefits, $4.3 billion of which is to prefund future benefits. Without this payment, it would have shown a profit of almost $1.5 billion.
The other more important point is the absurd restriction under which the Postal Service operates. On the one hand, it is told that it has to be run at a profit, like a private company. On the other hand, it is prohibited from taking advantage of its resources to move into new potentially profitable lines of business.
One obvious line would be postal banking, a service that it used to provide and which other postal services still do provide. With an unbanked population in the tens of millions, the opportunity to have low cost checking accounts and other basic banking services would likely be welcomed especially in low and moderate income communities.
People like Senators Elizabeth Warren and Bernie Sanders have promoted postal banking, as has the Postal Service’s inspector general. This certainly would be a reform worth considering, but of course the competition would not make the financial industry happy.
Note: An earlier version had incorrectly treated the whole sum for retirement health care spending as prefunding, instead of just $4.3 billion.
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According to a piece [sorry, no link] in Politico this morning, former New York City mayor and multi-billionaire Michael Bloomberg is considering running for president. The piece said that he would probably only enter the race if Bernie Sanders wins the Democratic nomination or if Hillary Clinton hangs on to win the nomination, but “is significantly weakened by Sanders and lurches hard to the left.”
This is the sort of story that people might think was a whacky conspiracy theory dreamed up by someone who had spent too much time listening to Senator Sanders’ tirades about the millionaires and billionaires who run the country. After all, Politico is telling us that one of the richest people in the country is holding out the possibility of entering the race, and possibly throwing the presidency to the Republicans, if the voters nominate the wrong candidate for president or push the right candidate too far to the left.
And, Bloomberg can make this a meaningful threat solely because he is a billionaire. (He does have some standing as a moderately successful 3-term mayor of New York City, but no one thinks that if Bill de Blasio serves two more terms as New York’s mayor, he will be in a position to threaten to run as an independent if he doesn’t like the 2028 Democratic nominee.)
This is certainly getting to be an interesting race now that we have a billionaire threatening the Democrats not to nominate anyone who is too progressive. It is worth noting in this context the origins of Bloomberg’s billions. Unlike a Steve Jobs or Jeff Bezos, who can point to innovations that improved people’s lives as the basis of their billions, Bloomberg made his money by making business information available to traders faster than anyone else.
Bloomberg’s terminals allow traders to be the first ones to get news on the state of Florida’s orange crop or the state of cacao harvest in West Africa. This might not matter much to the world (it’s hard to see a big difference to the economy if the markets take ten minutes rather than one minute to adjust to the news of frost damage to Florida’s orange trees), but it makes a huge difference if you’re trading tens or hundreds of millions of dollars daily in these markets.
For this reason, traders are willing to pay thousands of dollars a month to get access to the Bloomberg terminals, thereby making Mr. Bloomberg one of the richest people in the country. (Senator Sanders’ proposal for a financial transactions tax, which would make short-term trading far less profitable, would be bad news for Bloomberg’s main line of business.)
So there we have it. Put one more item in the corner of the millionaires and the billionaires to add to all the other advantages they have in the political system. If the Democrats move too far left, they will jump in to try to throw the race to the Republicans.
According to a piece [sorry, no link] in Politico this morning, former New York City mayor and multi-billionaire Michael Bloomberg is considering running for president. The piece said that he would probably only enter the race if Bernie Sanders wins the Democratic nomination or if Hillary Clinton hangs on to win the nomination, but “is significantly weakened by Sanders and lurches hard to the left.”
This is the sort of story that people might think was a whacky conspiracy theory dreamed up by someone who had spent too much time listening to Senator Sanders’ tirades about the millionaires and billionaires who run the country. After all, Politico is telling us that one of the richest people in the country is holding out the possibility of entering the race, and possibly throwing the presidency to the Republicans, if the voters nominate the wrong candidate for president or push the right candidate too far to the left.
And, Bloomberg can make this a meaningful threat solely because he is a billionaire. (He does have some standing as a moderately successful 3-term mayor of New York City, but no one thinks that if Bill de Blasio serves two more terms as New York’s mayor, he will be in a position to threaten to run as an independent if he doesn’t like the 2028 Democratic nominee.)
This is certainly getting to be an interesting race now that we have a billionaire threatening the Democrats not to nominate anyone who is too progressive. It is worth noting in this context the origins of Bloomberg’s billions. Unlike a Steve Jobs or Jeff Bezos, who can point to innovations that improved people’s lives as the basis of their billions, Bloomberg made his money by making business information available to traders faster than anyone else.
Bloomberg’s terminals allow traders to be the first ones to get news on the state of Florida’s orange crop or the state of cacao harvest in West Africa. This might not matter much to the world (it’s hard to see a big difference to the economy if the markets take ten minutes rather than one minute to adjust to the news of frost damage to Florida’s orange trees), but it makes a huge difference if you’re trading tens or hundreds of millions of dollars daily in these markets.
For this reason, traders are willing to pay thousands of dollars a month to get access to the Bloomberg terminals, thereby making Mr. Bloomberg one of the richest people in the country. (Senator Sanders’ proposal for a financial transactions tax, which would make short-term trading far less profitable, would be bad news for Bloomberg’s main line of business.)
So there we have it. Put one more item in the corner of the millionaires and the billionaires to add to all the other advantages they have in the political system. If the Democrats move too far left, they will jump in to try to throw the race to the Republicans.
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I was struck to see a news article reporting the estimate from Ireland’s central bank that the economy grew by 6.6 percent in 2015. The article reported that the economy is projected to grow 4.8 percent in 2016 and 4.4 percent in 2017. This is good news for the Irish economy since the country still has a long way to go to recover from its recession.
However what is even more striking is that this growth hugely exceeds what folks like the I.M.F. said was possible in Ireland. If we go back to the I.M.F.’s projections from 2013, they thought the country was 1.6 percent below the country’s potential GDP in 2012. It projected the economy would shrink by 0.3 percent in 2013, leaving the 2.6 percent below its potential GDP. This implies a potential growth rate of 0.7 percent annually.
As it turns out, Ireland’s economy grew by 1.4 percent in 2013 and 5.2 percent in 2014. If we add in the 6.6 percent growth in 2015, Ireland’s economy would now be almost 10 percent above the potential GDP that the I.M.F. projected for 2016. That would be the equivalent of the U.S. economy being $1.7 trillion above its potential level of output in 2016. Furthermore, Ireland’s growth is projected to exceed the potential projected back in 2013 by close to 4.0 percentage points in each of the next two years.
Naturally, we would expect a level of GDP far above potential and a growth rate that is also well above potential growth to lead to soaring inflation. That must explain why Ireland’s inflation rate has been 0.1 percent over the last year. (I know, it’s accelerating, the inflation rate had been negative.)
The reason for this Guinness-free trip to Ireland is to make a point about the widely used measures of potential GDP. They are worthless. They are generated mechanically based on current levels of output and the rate of inflation. If the inflation rate is not falling rapidly then we are close to potential GDP, end of story.
In this case, the I.M.F. appears to have been off by more than 15 percentage points, if we take the current growth estimates and assume hyper-inflation does not break out in Ireland in 2017. This should be a lesson for folks in the United States and elsewhere who are being told that our economy is now at or near its potential level of output. If we accept this view and it is wrong, we are throwing an incredible amount of potential output in the toilet.
And just to be clear, this is not a question of loving growth as an end in itself. This is about millions more people getting jobs. It’s about people in bad jobs who have the opportunity to get good jobs, or at least to get paid better wages in their bad jobs as the labor market improves. And, it is about governments having the resources they need to provide decent education, health care, and drinking water to their people.
This is a huge, huge deal. If the estimates of potential GDP are worthless, then we have reason to believe that we can expand the economy way beyond its current level of output. That should be a license to run very large budget deficits, but given the power of the deficit cult in Washington, that may not be politically feasible at the moment. But at the very least, we should be telling the Fed not to needlessly throw people out of work by raising interest rates.
I was struck to see a news article reporting the estimate from Ireland’s central bank that the economy grew by 6.6 percent in 2015. The article reported that the economy is projected to grow 4.8 percent in 2016 and 4.4 percent in 2017. This is good news for the Irish economy since the country still has a long way to go to recover from its recession.
However what is even more striking is that this growth hugely exceeds what folks like the I.M.F. said was possible in Ireland. If we go back to the I.M.F.’s projections from 2013, they thought the country was 1.6 percent below the country’s potential GDP in 2012. It projected the economy would shrink by 0.3 percent in 2013, leaving the 2.6 percent below its potential GDP. This implies a potential growth rate of 0.7 percent annually.
As it turns out, Ireland’s economy grew by 1.4 percent in 2013 and 5.2 percent in 2014. If we add in the 6.6 percent growth in 2015, Ireland’s economy would now be almost 10 percent above the potential GDP that the I.M.F. projected for 2016. That would be the equivalent of the U.S. economy being $1.7 trillion above its potential level of output in 2016. Furthermore, Ireland’s growth is projected to exceed the potential projected back in 2013 by close to 4.0 percentage points in each of the next two years.
Naturally, we would expect a level of GDP far above potential and a growth rate that is also well above potential growth to lead to soaring inflation. That must explain why Ireland’s inflation rate has been 0.1 percent over the last year. (I know, it’s accelerating, the inflation rate had been negative.)
The reason for this Guinness-free trip to Ireland is to make a point about the widely used measures of potential GDP. They are worthless. They are generated mechanically based on current levels of output and the rate of inflation. If the inflation rate is not falling rapidly then we are close to potential GDP, end of story.
In this case, the I.M.F. appears to have been off by more than 15 percentage points, if we take the current growth estimates and assume hyper-inflation does not break out in Ireland in 2017. This should be a lesson for folks in the United States and elsewhere who are being told that our economy is now at or near its potential level of output. If we accept this view and it is wrong, we are throwing an incredible amount of potential output in the toilet.
And just to be clear, this is not a question of loving growth as an end in itself. This is about millions more people getting jobs. It’s about people in bad jobs who have the opportunity to get good jobs, or at least to get paid better wages in their bad jobs as the labor market improves. And, it is about governments having the resources they need to provide decent education, health care, and drinking water to their people.
This is a huge, huge deal. If the estimates of potential GDP are worthless, then we have reason to believe that we can expand the economy way beyond its current level of output. That should be a license to run very large budget deficits, but given the power of the deficit cult in Washington, that may not be politically feasible at the moment. But at the very least, we should be telling the Fed not to needlessly throw people out of work by raising interest rates.
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