Thomas Friedman Says It's All So Complicated

October 22, 2015

22 Octubre 2015

Yes folks, back in the good old days we just had the Soviet Union and the U.S.: "I was born into the Cold War era. It was a dangerous time with two nuclear-armed superpowers each holding a gun to the other’s head, and the doctrine of “mutually assured destruction” kept both in check. But we now know that the dictators that both America and Russia propped up in the Middle East and Africa suppressed volcanic sectarian conflicts." But now we have ISIS and Al Qaeda and so many other small radical groups. It is all so complicated. And when we get to the economy: "Robots are milking cows and IBM’s Watson computer can beat you at 'Jeopardy!' and your doctor at radiology, so every decent job requires more technical and social skills — and continuous learning. In the West, a smaller number of young people, with billions in college tuition debts, will have to pay the Medicare and Social Security for the baby boomers now retiring, who will be living longer. 'Suddenly,' argues Dobbs, [Richard Dobbs, a director of the McKinsey Global Institute] 'the number of people who don’t believe they will be better off than their parents goes from zero to 25 percent or more.'"'When you are advancing, you buy the system; you don’t care who’s a billionaire, because your life is improving. But when you stop advancing, added Dobbs, you can 'lose faith in the system — whether that be globalization, free trade, offshoring, immigration, traditional Republicans or traditional Democrats. Because in one way or another they can be perceived as not working for you.'" Okay, we get it, Thomas Friedman is very confused. But that's not new. Let's try to look at the substance.

Paul Ryan Wants to Shut Down the Government, Permanently

By Dean BakerDean Baker

October 21, 2015

21 Octubre 2015

Everyone has seen the news stories about how Representative Paul Ryan, the leading candidate to be the next Speaker of the House, is a budget wonk. That should make everyone feel good, since we would all like to think a person in this position understands the ins and outs of the federal budget. But instead of telling us about how much Ryan knows about the budget (an issue on which reporters actually don’t have insight), how about telling us what Ryan says about the budget?

It is possible to say things about what Ryan says, since he has said a lot on this topic and some of it is very clear. In addition to wanting to privatize both Social Security and Medicare, Ryan has indicated that he essentially wants to shut down the federal government in the sense of taking away all of the money for the non-military portion of the budget.

This fact is one that is easy to find if a reporter is willing to do five minutes of research. Ryan directed the Congressional Budget Office to score his budget plans back in 2012. The score of his plan showed the non-Social Security, non-Medicare portion of the federal budget shrinking to 3.5 percent of GDP by 2050 (page 16).

This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan’s plan, in 35 years we would have nothing left over after paying for the military.

Just to be clear, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn’t write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.

So what percent of people in this country know that the next Speaker of the House would like to permanently shut down most of the government? What percent even of elite educated policy types even know this fact? My guess is almost no one, we just know he is a policy wonk.

Everyone has seen the news stories about how Representative Paul Ryan, the leading candidate to be the next Speaker of the House, is a budget wonk. That should make everyone feel good, since we would all like to think a person in this position understands the ins and outs of the federal budget. But instead of telling us about how much Ryan knows about the budget (an issue on which reporters actually don’t have insight), how about telling us what Ryan says about the budget?

It is possible to say things about what Ryan says, since he has said a lot on this topic and some of it is very clear. In addition to wanting to privatize both Social Security and Medicare, Ryan has indicated that he essentially wants to shut down the federal government in the sense of taking away all of the money for the non-military portion of the budget.

This fact is one that is easy to find if a reporter is willing to do five minutes of research. Ryan directed the Congressional Budget Office to score his budget plans back in 2012. The score of his plan showed the non-Social Security, non-Medicare portion of the federal budget shrinking to 3.5 percent of GDP by 2050 (page 16).

This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan’s plan, in 35 years we would have nothing left over after paying for the military.

Just to be clear, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn’t write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.

So what percent of people in this country know that the next Speaker of the House would like to permanently shut down most of the government? What percent even of elite educated policy types even know this fact? My guess is almost no one, we just know he is a policy wonk.

Deficit Hawks Take Over NYT: Warn of China's "Ballooning" Government Debt

By Dean BakerDean Baker

October 20, 2015

20 Octubre 2015

Yep, it seems that China now has a gross debt equal to 43.2 percent of its GDP, according to the I.M.F. By comparison, the gross debt of the United States is over 104 percent. But, the NYT apparently thinks China has a big problem here.

This does matter, because insofar as the main problem with China’s economy is a lack of demand, it can be easily countered with additional government spending. Of course if the government were up against some sort of borrowing constraint due to an excessive debt burden, and inflationary concerns precluded the printing of money, then the route of deficit spending would not be available. However such constraints only appear to exist in the pages of the NYT, not in the real world.

Yep, it seems that China now has a gross debt equal to 43.2 percent of its GDP, according to the I.M.F. By comparison, the gross debt of the United States is over 104 percent. But, the NYT apparently thinks China has a big problem here.

This does matter, because insofar as the main problem with China’s economy is a lack of demand, it can be easily countered with additional government spending. Of course if the government were up against some sort of borrowing constraint due to an excessive debt burden, and inflationary concerns precluded the printing of money, then the route of deficit spending would not be available. However such constraints only appear to exist in the pages of the NYT, not in the real world.

Manufacturing is So Uncool Now, Serious People Don't Even Talk About It

By Dean BakerDean Baker

October 20, 2015

20 Octubre 2015

That seems to be the case these days. Last week the Federal Reserve Board reported that manufacturing output fell by 0.1 percent, the second consecutive monthly decline. The sector has been virtually flat since April, presumably reflecting the rise in the trade deficit.

manufacturing fredgraph

This report seemed to go virtually unnoticed in places like the NYT and the Washington Post. Since the sector is still an important part of the economy, it might have been worth at least a small story.

That seems to be the case these days. Last week the Federal Reserve Board reported that manufacturing output fell by 0.1 percent, the second consecutive monthly decline. The sector has been virtually flat since April, presumably reflecting the rise in the trade deficit.

manufacturing fredgraph

This report seemed to go virtually unnoticed in places like the NYT and the Washington Post. Since the sector is still an important part of the economy, it might have been worth at least a small story.

• Globalization and TradeGlobalización y comercio

The TPP and Nonsense on Trade

By Dean BakerDean Baker

October 20, 2015

20 Octubre 2015

The early signals from the Obama administration are that the nonsense will be flowing fast and thick in its effort to push the Trans-Pacific Partnership (TPP). We got an indication of the level of the nonsense factor in a CNN article reporting on the administration's efforts to promote the still secret agreement. CNN cites a column that President Obama had in a New Hampshire newspaper that told readers: "...trade is a substantial driver of New Hampshire's economy. Over 20,000 American jobs are currently supported by goods exports from New Hampshire, with 32 percent of Made in New Hampshire goods exports shipped to TPP partners." What exactly does it mean for over 20,000 New Hampshire jobs to be supported by exports? Suppose the exports are car parts that are sent to Mexico to be assembled into a car that is shipped back to the United States. Are the workers in New Hampshire suppose to celebrate because their parts are being exported to Mexico (a TPP partner) rather than being shipped to be assembled in Ohio? This is obviously a ridiculous thing to say and certainly President Obama knows it. He repeats the line because it has been focus group tested and he can apparently count on reporters not pointing out its absurdity.

• Affordable Care Act

It's Monday, and Yes, Robert Samuelson Wants to Cut Social Security and Medicare

By Dean BakerDean Baker

October 19, 2015

19 Octubre 2015

I know this is getting old, but let's go over the latest version. Robert Samuelson is unhappy about the presidential candidates' "flight from reality," which to him means they don't want to cut Social Security and Medicare, restrict immigration of less-educated workers (he means Democrats here), and promote more rapid economic growth. I will focus on the Social Security and Medicare story. Samuelson tells us: "Inevitably, the costs of Social Security, Medicare (federal health insurance for the elderly) and nursing home care under Medicaid (a federal-state insurance program for the poor) will grow dramatically. From 1965 to 2014, spending on Social Security and the major federal health care programs averaged 6.5 percent of the economy (gross domestic product). By 2040, the CBO projects this spending to exceed 14 percent of GDP. "If we do not trim Social Security and Medicare spending — by slowly raising eligibility ages, cutting benefits and increasing premiums for wealthier recipients — we face savage cuts in other government programs, much higher taxes, bigger deficits or all three." There are several points worth mentioning here. First, giving us the average spending from 1965–2014 on these programs as a baseline is the columnist's version of three-card monte. Spending in 1970 is not relevant to the increase going forward. What matters is what we are spending in 2015. The answer to that question is 10.1 percent of GDP. This means that the 14.2 percent of GDP projected for 2040 is an increase of 4.1 percentage points of GDP, a bit more than half of the increase implied by Samuelson. It is also worth mentioning that the increase in spending on these programs in the years since 1965 was much larger than what we expect to see going forward. So what's the problem?

Serious Confusion About Fannie, Freddie, and Homeownership at the Washington Post

By Dean BakerDean Baker

October 18, 2015

18 Octubre 2015

No one reads the Post's opinion pages for serious economic analysis, and Bethany McLean's Outlook piece on Fannie Mae and Freddie Mac reminds us why. While the basic point is fine (we should keep Fannie and Freddie), the argument is more than a bit confused. The problem starts near the beginning when McLean tells us that GSE stands for "government-supported entities." In fact the acronym is for "government sponsored enterprises." The government created Fannie and Freddie and then turned them into largely private companies. (I apologize if the "government-supported entities" was meant to be ironic, but it went over my head if that's the case.) Getting to more substantive matters, McLean tells us: "Since 2008, while Fannie and Freddie have sat in limbo, homeownership has plunged. This summer, the Census Bureau reported that the homeownership rate had fallen to 63.4 percent, the lowest level in 48 years. (It had peaked at 69 percent, in 2004.) 'Renter nation,' one blog called the United States. The decline is particularly pronounced in minority communities. At the Congressional Black Caucus Foundation’s annual legislative conference this year, housing advocates pointed out that the homeownership rate for the black population has decreased from nearly 50 percent in 2004 to about 43 percent, its lowest level in 20 years. It’s projected to continue to drop." The story on homeownership rates is of course true, but it is not clear what it has to do with Fannie and Freddie being in "limbo." The GSEs continue to buy up the vast majority of newly issue mortgages in spite of their "limbo" status. Mortgage interest rates are at the lowest levels the country has seen in more than half a century. It's hard to see how the situation would be better for potential homebuyers if Fannie and Freddie were not in limbo.

George Will, Bernie Sanders, Freedom and Income Inequality

By Dean BakerDean Baker

October 18, 2015

18 Octubre 2015

George Will really takes it to Bernie Sanders in his column this morning. "The fundamental producer of income inequality is freedom. Individuals have different aptitudes and attitudes. Not even universal free public education, even were it well done, could equalize the ability of individuals to add value to the economy." Got that? Bill Gates is incredible rich because of his aptitude and attitude; the government's willingness to arrest anyone who infringes on the patent and copyright monopolies it gave him has nothing to do with his wealth. We're supposed to also ignore all the other millionaires and billionaires whose wealth depends on these government granted monopolies. And we should ignore the Wall Street boys who depend on their banks' too big to fail insurance or on the fact that the financial sector largely escapes the sort of taxation applied to the rest of the economy. And we shouldn't be bothered by the fact that Jeff Bezos got very rich in large part from avoiding the requirement to collect sales taxes which was imposed on his brick and mortar competitors. And, we need not pay attention to the tax scams that allow for much of the wealth of the private equity crew. Nor should we pay attention to Federal Reserve Board policies that deliberately slow the economy and reduce the rate of job creation any time workers are about to get substantial bargaining power. Nor should we pay attention to trade policies that put our manufacturing workers in direct competition with low-paid workers in Mexico and China, but protect our doctors, lawyers, and other professionals. It's all about freedom. George Will has spoken.

Was Poverty Reduction in the Developing World Worth the Hit to U.S. Workers?

By Dean BakerDean Baker

October 17, 2015

17 Octubre 2015

That's the question that has been raging across the Internet following a piece in the NYT by Paul Theroux. Theroux decried the poverty in the South in the United States and bemoaned the fact that it was partly attributable to the outsourcing of jobs to the developing world. This prompted commentary by Annie Lowrey and Branko Milanovic and others, asking whether the gains for the poor in the developing world were worth whatever losses might have been incurred by the working class and poor in the United States. That might be an interesting philosophical question, but it has nothing to do with the reality at hand. It assumes, without any obvious justification, that job loss and wage stagnation was a necessary price for the improvement of living standards in the developing world. Clearly, there has been an association between the two, as the manufacturing jobs lost in rich countries meant hundreds of millions of relatively good paying jobs for people in poor countries, but that doesn't mean this was the only path to growth for the developing countries. There are fundamental questions of both the size and composition of trade flows that this assumption ignores. On the size front, there is no obvious reason that developing country growth had to be associated with the massive trade surpluses they ran in the last decade. In the 1990s, many developing countries had extremely rapid growth accompanied by large trade deficits. For example, from 1990 to 1997 GDP annual growth averaged 7.1 percent in Indonesia, its trade deficit averaged 2.1 percent of GDP. In Malaysia growth averaged 9.2 percent, while its trade deficit averaged 5.6 percent of GDP. In Thailand growth averaged 7.4 percent, while the trade deficit averaged 6.4 percent of GDP.

More on TBTF: Quick Rejoinder to Mike Konczal

By Dean BakerDean Baker

October 17, 2015

17 Octubre 2015

Mike Konczal has picked up on my post responding to his piece on too big to fail. Just to give folks a quick orientation, the point of entry here was a Paul Krugman post saying that Dodd-Frank had largely ended too big to fail (TBTF), which linked to Mike's piece. Before getting to any of the nitty-gritty, I am not sure that we are actually arguing over anything. Mike's intro says: "My point isn’t to say that the subsidy is completely over. Nor, as I’ll explain in a bit, is it to say that TBTF is over. Instead, understanding this decline lets us know we should push forward with what we are doing. It debunks conservative narratives about Dodd-Frank being fundamentally a protective permanent bailout for the largest firms that we should scrap, and provides evidence against repealing it. And ideally it gets us to understand this subsidy as just one part of the more general TBTF problem that needs to be solved." I'm actually pretty comfortable with that statement. I certainly don't want to repeal Dodd-Frank, nor do I in any way buy the right-wing line that Dodd-Frank institutionalized bailouts. So I'm not sure we're really in a very different position on this one. Perhaps I have more of a difference with Krugman than Mike here. I don't believe that Dodd-Frank ended TBTF as Krugman seems to imply in his post. In terms of the studies, I was pointing out that the GAO study found limited evidence of only a very small TBTF subsidy in 2006. I believe that the markets saw the big banks as very much TBTF in 2006. I'm not sure if Mike is arguing that TBTF only came about during the crisis. That certainly is not my view.