Like the rest of the Washington media, the New York Times respects Representative Paul Ryan, the current chair of the House Ways and Means Committee and possibly next speaker of the House. An article headlined “devotion to fiscal policy may keep Ryan from taking House speaker’s job” begins by telling readers about Ryan’s “sweeping budget proposals.” It then goes on:
“Republicans, on the other hand, passionately embraced them [Ryan’s budget proposals], and Mr. Ryan came to be seen as one of his party’s most influential thinkers on fiscal issues. His budget proposals showcase the thinking and philosophy of a lawmaker who many Republicans believe is now their best choice for speaker of the House, perhaps the only man who can dress and heal the deep gash in the House Republican Conference.”
It would be helpful if the paper could devote more time to the content rather than praise. Ryan essentially proposed eliminating virtually all of the federal government by 2050 according to the Congressional Budget Office (CBO) analysis of his plan that was done under his direction. According to CBO’s analysis (page 16), under his plan in 2050 government spending on the military, infrastructure, law enforcement, research, and all non-health forms of income support, would be 3.5 percent of GDP. This is roughly equal to current levels of military spending, a level that Ryan and other Republicans have indicated they want to maintain. The implication is that Ryan would shut down just about all other parts of the federal government.
It would be more informative to readers if the NYT told them what Ryan’s “thinking and philosophy” is rather than devoting an article to praising him for having one.
Like the rest of the Washington media, the New York Times respects Representative Paul Ryan, the current chair of the House Ways and Means Committee and possibly next speaker of the House. An article headlined “devotion to fiscal policy may keep Ryan from taking House speaker’s job” begins by telling readers about Ryan’s “sweeping budget proposals.” It then goes on:
“Republicans, on the other hand, passionately embraced them [Ryan’s budget proposals], and Mr. Ryan came to be seen as one of his party’s most influential thinkers on fiscal issues. His budget proposals showcase the thinking and philosophy of a lawmaker who many Republicans believe is now their best choice for speaker of the House, perhaps the only man who can dress and heal the deep gash in the House Republican Conference.”
It would be helpful if the paper could devote more time to the content rather than praise. Ryan essentially proposed eliminating virtually all of the federal government by 2050 according to the Congressional Budget Office (CBO) analysis of his plan that was done under his direction. According to CBO’s analysis (page 16), under his plan in 2050 government spending on the military, infrastructure, law enforcement, research, and all non-health forms of income support, would be 3.5 percent of GDP. This is roughly equal to current levels of military spending, a level that Ryan and other Republicans have indicated they want to maintain. The implication is that Ryan would shut down just about all other parts of the federal government.
It would be more informative to readers if the NYT told them what Ryan’s “thinking and philosophy” is rather than devoting an article to praising him for having one.
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Paul Krugman used his column today to tell us that any Democrat in the White House will take a tough line on regulating Wall Street. I hope that he is right, but am a bit more skeptical given past associations. But beyond the speculation, there is one factual matter where I would differ his assessment.
At one point he argues that the implicit “too big to fail” (TBTF) subsidy for large banks has mostly disappeared due to the Dodd-Frank reforms. He cites a blog post by Mike Konczal, which in turn relies on a study by the Government Accountability Office (GAO). The GAO study does seem to suggest that the TBTF subsidy has largely disappeared.
It uses 42 different models to estimate the size of the subsidy year by year. While its models get highly significant results showing a large subsidy at the peak of the crisis, most find no subsidy in 2013. This can be seen as a victory. But if we look at the results more closely, we find that the study also finds little evidence of a TBTF subsidy in 2006. While 28 of the 42 studies did get significant results indicating a subsidy, compared to just 8 in 2013, the average size of the subsidy looks to be very small. From the chart it appears to be less than 10 basis points (a tenth of a percentage point).
Obviously, the big banks did enjoy too big to fail protection in 2006, since only Lehman was allowed to fail in the crisis, yet the GAO analysis implies that this held very little value. The problem here is that interest rates spreads, between more and less risky assets, tend to collapse in normal times. The basic story is that fire insurance is not worth much if no one thinks there can be a fire.
In the GAO analysis it is difficult to distinguish between a situation in which big banks don’t pay much less interest than anyone else because people no longer believe the government will bail them out in a crisis and a situation in which the big banks don’t pay much less interest than anyone else because no one thinks that anyone is about to go out of business. In the latter case, TBTF insurance may still exist, it would just be difficult to measure by these techniques.
It is worth noting that Mike’s blogpost also referred to a study by the I.M.F. which found a TBTF subsidy of 25 basis points. That may not sound like a very big deal, but 25 basis points on $10 trillion in big bank assets comes to $25 billion a year. That’s about 0.6 percent of the federal budget, more than we are spending on TANF.
I wouldn’t say the I.M.F. methodology is necessarily better, but I would say that I am not convinced the TBTF insurance is history. If Goldman sinks itself, I would not bet that the Treasury and the Fed would be prepared to let the market work its magic.
Paul Krugman used his column today to tell us that any Democrat in the White House will take a tough line on regulating Wall Street. I hope that he is right, but am a bit more skeptical given past associations. But beyond the speculation, there is one factual matter where I would differ his assessment.
At one point he argues that the implicit “too big to fail” (TBTF) subsidy for large banks has mostly disappeared due to the Dodd-Frank reforms. He cites a blog post by Mike Konczal, which in turn relies on a study by the Government Accountability Office (GAO). The GAO study does seem to suggest that the TBTF subsidy has largely disappeared.
It uses 42 different models to estimate the size of the subsidy year by year. While its models get highly significant results showing a large subsidy at the peak of the crisis, most find no subsidy in 2013. This can be seen as a victory. But if we look at the results more closely, we find that the study also finds little evidence of a TBTF subsidy in 2006. While 28 of the 42 studies did get significant results indicating a subsidy, compared to just 8 in 2013, the average size of the subsidy looks to be very small. From the chart it appears to be less than 10 basis points (a tenth of a percentage point).
Obviously, the big banks did enjoy too big to fail protection in 2006, since only Lehman was allowed to fail in the crisis, yet the GAO analysis implies that this held very little value. The problem here is that interest rates spreads, between more and less risky assets, tend to collapse in normal times. The basic story is that fire insurance is not worth much if no one thinks there can be a fire.
In the GAO analysis it is difficult to distinguish between a situation in which big banks don’t pay much less interest than anyone else because people no longer believe the government will bail them out in a crisis and a situation in which the big banks don’t pay much less interest than anyone else because no one thinks that anyone is about to go out of business. In the latter case, TBTF insurance may still exist, it would just be difficult to measure by these techniques.
It is worth noting that Mike’s blogpost also referred to a study by the I.M.F. which found a TBTF subsidy of 25 basis points. That may not sound like a very big deal, but 25 basis points on $10 trillion in big bank assets comes to $25 billion a year. That’s about 0.6 percent of the federal budget, more than we are spending on TANF.
I wouldn’t say the I.M.F. methodology is necessarily better, but I would say that I am not convinced the TBTF insurance is history. If Goldman sinks itself, I would not bet that the Treasury and the Fed would be prepared to let the market work its magic.
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The NYT was unfair in its fact check of the Democratic presidential candidates’ claim that spending on the environment can be an engine for economic growth. The piece quotes Keith Hall, the former commissioner of the Bureau of Labor Statistics:
“The goal should be to secure the largest possible environmental benefit at the lowest economic cost. Counting green jobs equates to counting part of the economic cost of achieving this environmental impact. We want this to be small, not large.”
This is true in the context of an economy at full employment, just as we should want as few people as possible to be employed in Silicon Valley designing our software or Wall Street managing finance. If the economy is at full employment then jobs in any sector are coming at the expense of meeting other needs. If we can get our energy with fewer workers, this would be mean we would have more people who could meet our health care or education needs. There would be a similar story if the Fed thought we were at full employment, even if it were wrong, and it was raising interest rates to slow the economy and prevent more job creation.
However, during the recession and for any period where the economy is below full employment, spending on the environment is a job creator. This means that additional support for environmental spending over the last eight years would have created jobs. And, this would quite possibly be the case for years into the future, depending on the strength of the economy.
The NYT was unfair in its fact check of the Democratic presidential candidates’ claim that spending on the environment can be an engine for economic growth. The piece quotes Keith Hall, the former commissioner of the Bureau of Labor Statistics:
“The goal should be to secure the largest possible environmental benefit at the lowest economic cost. Counting green jobs equates to counting part of the economic cost of achieving this environmental impact. We want this to be small, not large.”
This is true in the context of an economy at full employment, just as we should want as few people as possible to be employed in Silicon Valley designing our software or Wall Street managing finance. If the economy is at full employment then jobs in any sector are coming at the expense of meeting other needs. If we can get our energy with fewer workers, this would be mean we would have more people who could meet our health care or education needs. There would be a similar story if the Fed thought we were at full employment, even if it were wrong, and it was raising interest rates to slow the economy and prevent more job creation.
However, during the recession and for any period where the economy is below full employment, spending on the environment is a job creator. This means that additional support for environmental spending over the last eight years would have created jobs. And, this would quite possibly be the case for years into the future, depending on the strength of the economy.
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Yep, it’s hard to find out about the path of health care costs. You would probably have to go to one of the government websites, or read a newspaper, or maybe even listen to National Public Radio. In a piece discussing Republican presidential candidate Jeb Bush’s health care plan, which repeals the Affordable Care Act (ACA), NPR told listeners that health care costs have been growing rapidly.
This is in fact not true. Since 2008, health care costs have barely outpaced the overall growth of the economy. While the exact causes of this slowdown are not clear, including how much credit the ACA should get, the slowdown itself is not in dispute.
Yep, it’s hard to find out about the path of health care costs. You would probably have to go to one of the government websites, or read a newspaper, or maybe even listen to National Public Radio. In a piece discussing Republican presidential candidate Jeb Bush’s health care plan, which repeals the Affordable Care Act (ACA), NPR told listeners that health care costs have been growing rapidly.
This is in fact not true. Since 2008, health care costs have barely outpaced the overall growth of the economy. While the exact causes of this slowdown are not clear, including how much credit the ACA should get, the slowdown itself is not in dispute.
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It seems some establishment types are getting worried about the support that Senator Bernie Sanders is drawing in his presidential race. Breakingviews, the syndicated financial news service that promotes its “agenda setting insight,” went full scare tactics in a piece warning about “Bernienomics.”
The punchline is in the first sentence:
“A Bernie Sanders White House would be $8 trillion in the hole over a decade.”
Wow! $8 trillion in the hole, who would vote for that guy?
Okay, let’s first get out of the children’s section and put this in terms that at least some of Breakingviews’ readers would understand. An $8 trillion shortfall is a really big number, but expressed as a share of projected GDP in the ten years after President Sanders takes office it comes to about 3.4 percent. That is hardly a trivial figure, but probably a bit less scary than $8 trillion. After all, at their peak, the wars in Afghanistan and Iraq cost more than half of this sum.
But this is the less important point. Somehow it escaped the attention of the Breakingviews crowd that if everyone has Medicare through the government, then they no longer have to pay health insurance premiums. According to the Centers for Medicare and Medicaid Services (Table 1) this will save us roughly $15 trillion (@6.3 percent of GDP) over the first decade following the election of President Sanders.
There is a problem of how we get the money that we are now paying to private health insurers, mostly through our employers, to the government to pay for universal Medicare, but this is a political issue, not a problem of inadequate resources. In other words, most of us would not feel terribly aggrieved if the money that our employers are currently sending to private health insurance companies for our insurance were instead sent to the government to pay for universal Medicare.
This is what Senator Sanders is proposing. It would have been nice if Breakingviews could have been honest enough to explain this simple fact to its readers instead of trying sleazy scare tactics. But, that is what folks do when they don’t think they have a very good argument.
It seems some establishment types are getting worried about the support that Senator Bernie Sanders is drawing in his presidential race. Breakingviews, the syndicated financial news service that promotes its “agenda setting insight,” went full scare tactics in a piece warning about “Bernienomics.”
The punchline is in the first sentence:
“A Bernie Sanders White House would be $8 trillion in the hole over a decade.”
Wow! $8 trillion in the hole, who would vote for that guy?
Okay, let’s first get out of the children’s section and put this in terms that at least some of Breakingviews’ readers would understand. An $8 trillion shortfall is a really big number, but expressed as a share of projected GDP in the ten years after President Sanders takes office it comes to about 3.4 percent. That is hardly a trivial figure, but probably a bit less scary than $8 trillion. After all, at their peak, the wars in Afghanistan and Iraq cost more than half of this sum.
But this is the less important point. Somehow it escaped the attention of the Breakingviews crowd that if everyone has Medicare through the government, then they no longer have to pay health insurance premiums. According to the Centers for Medicare and Medicaid Services (Table 1) this will save us roughly $15 trillion (@6.3 percent of GDP) over the first decade following the election of President Sanders.
There is a problem of how we get the money that we are now paying to private health insurers, mostly through our employers, to the government to pay for universal Medicare, but this is a political issue, not a problem of inadequate resources. In other words, most of us would not feel terribly aggrieved if the money that our employers are currently sending to private health insurance companies for our insurance were instead sent to the government to pay for universal Medicare.
This is what Senator Sanders is proposing. It would have been nice if Breakingviews could have been honest enough to explain this simple fact to its readers instead of trying sleazy scare tactics. But, that is what folks do when they don’t think they have a very good argument.
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FactCheck has decided to revive its campaign on Social Security contributing to the budget deficit in the context of claiming that Senator Bernie Sanders is wrong on this issue. The basic point that Sanders and other targets of FactCheck have made is that Social Security was explicitly set up to be funded separately from the rest of the budget. It is legally prohibited from spending any money other than what it receives through its designated taxes and from the interest on the bonds bought with these funds.
I have a fuller criticism of the FactCheck argument here, but Sanders is really just referring to the law on this one. FactCheck’s problem is with the law, not Sanders.
FactCheck has decided to revive its campaign on Social Security contributing to the budget deficit in the context of claiming that Senator Bernie Sanders is wrong on this issue. The basic point that Sanders and other targets of FactCheck have made is that Social Security was explicitly set up to be funded separately from the rest of the budget. It is legally prohibited from spending any money other than what it receives through its designated taxes and from the interest on the bonds bought with these funds.
I have a fuller criticism of the FactCheck argument here, but Sanders is really just referring to the law on this one. FactCheck’s problem is with the law, not Sanders.
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Actually, the NYT did not say that Bush wanted to raise taxes on small businesses and it would not say this because it is not true. If for some reason one of its reporters mistaken drafted a story saying that it was true, an editor undoubtedly would have insisted that they double-check their source to make sure they got it right. That would be good journalism.
On the other hand, the NYT apparently does not exercise the same care when it comes to reporting on tax proposals for Wall Street. This is why we got the Upshot article titled “solution without a problem.” The piece begins:
“If there’s one thing that the Democratic presidential candidates can agree on, it’s that high-frequency traders are a problem. Hillary Rodham Clinton has now followed Bernie Sanders and Martin O’Malley in calling for a tax on the traders who, they complain, use their high-speed computers and expensive data lines to pick the pockets of ordinary investors.
“The odd thing about all this concern is that most of the investors who are actually facing off against the high-frequency traders — often on behalf of retirement savers — don’t see this as anything like the most costly problem they are facing, even in the arcane realm of trading mechanics.”
While Clinton and O’Malley have talked about taxing high-speed trading, Sanders has been very clear that his intention is to tax trading in general. His argument is that the financial sector as a whole wastes too many resources in trading that has little or no economic value. He expects his tax to raise enough money to finance free college tuition at public universities, something that would clearly be impossible if he was just looking to impose the tax on high-speed trading.
The author of the piece, Nathanial Popper, surely could have discovered Sanders plan with a call to his campaign staff or a quick trip to the website (here and here). That would have been the responsible thing to do, but it might have made it more difficult to write an article telling us about a solution that lacked a problem.
Actually, the NYT did not say that Bush wanted to raise taxes on small businesses and it would not say this because it is not true. If for some reason one of its reporters mistaken drafted a story saying that it was true, an editor undoubtedly would have insisted that they double-check their source to make sure they got it right. That would be good journalism.
On the other hand, the NYT apparently does not exercise the same care when it comes to reporting on tax proposals for Wall Street. This is why we got the Upshot article titled “solution without a problem.” The piece begins:
“If there’s one thing that the Democratic presidential candidates can agree on, it’s that high-frequency traders are a problem. Hillary Rodham Clinton has now followed Bernie Sanders and Martin O’Malley in calling for a tax on the traders who, they complain, use their high-speed computers and expensive data lines to pick the pockets of ordinary investors.
“The odd thing about all this concern is that most of the investors who are actually facing off against the high-frequency traders — often on behalf of retirement savers — don’t see this as anything like the most costly problem they are facing, even in the arcane realm of trading mechanics.”
While Clinton and O’Malley have talked about taxing high-speed trading, Sanders has been very clear that his intention is to tax trading in general. His argument is that the financial sector as a whole wastes too many resources in trading that has little or no economic value. He expects his tax to raise enough money to finance free college tuition at public universities, something that would clearly be impossible if he was just looking to impose the tax on high-speed trading.
The author of the piece, Nathanial Popper, surely could have discovered Sanders plan with a call to his campaign staff or a quick trip to the website (here and here). That would have been the responsible thing to do, but it might have made it more difficult to write an article telling us about a solution that lacked a problem.
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Hey, we should all be thankful that Ben Bernanke saved us from a Second Great Depression and a Martian invasion. Yes, the Second Great Depression theory is being touted yet again, this time by Robert Samuelson. He tells us that unemployment would have soared to 25 percent without the bailout of the banks.
As I’ve written any number of times, neither Bernanke, Samuelson, or anyone else has said a word as to why a big stimulus package from the government would not have quickly gotten the economy going again and unemployment falling. This is what finally got us out of the first Great Depression; the government spent a ton of money to fight World War II. There is no magic or mystery to spending on wars, any spending in the economy has the same effect.
If someone wants to make a political argument, that we could not have gotten political support for a serious stimulus, that’s fine, they should put that argument on the table. But that is a political argument, not an economic one. Furthermore, we have never seen our political leaders refuse to take steps to boost the economy out of a severe recession in the post-World War II era. George W. Bush signed the first stimulus when the unemployment rate was 4.7 percent. So it would be an interesting political argument, but one that lacks any evidence to support it.
After going through the account of how Bernanke saved us from the Martians (sorry, the Second Great Depression), Samuelson genuflects about the cause of the prolonged downturn. He notes that Bernanke blames the financial crisis, while he attributes the prolonged downturn to the loss of confidence. Fans of data everywhere attribute the weakness to the loss of $8 trillion in housing wealth.
With the plunge in house prices, we saw the end of the boom in residential construction, costing us roughly 4 percentage points of GDP (@$720 billion annually in today’s economy). The loss of wealth also led to a drop in consumption, in accordance with the housing wealth effect that economists have been writing about for around 60 years. The drop in consumption was around 2–3 percentage points of GDP ($360 billion to $540 billion annually in today’s economy).
There was nothing that would obviously rise up to fill this massive gap in demand. We did get the stimulus in 2009–2010, which helped a great deal. But it wasn’t large enough or long enough to get us back to full employment. It’s hard to imagine what anyone thought would fill the gap in the absence of a larger stimulus.
I know this is all distressingly simple, and folks really want to believe the downturn was very complicated and mysterious (who could have known?), but it wasn’t. The basic story was pretty much as clear as day for anyone who could look at the economy with open eyes. Unfortunately, we didn’t have anyone like that in a position of responsibility in the last decade.
Hey, we should all be thankful that Ben Bernanke saved us from a Second Great Depression and a Martian invasion. Yes, the Second Great Depression theory is being touted yet again, this time by Robert Samuelson. He tells us that unemployment would have soared to 25 percent without the bailout of the banks.
As I’ve written any number of times, neither Bernanke, Samuelson, or anyone else has said a word as to why a big stimulus package from the government would not have quickly gotten the economy going again and unemployment falling. This is what finally got us out of the first Great Depression; the government spent a ton of money to fight World War II. There is no magic or mystery to spending on wars, any spending in the economy has the same effect.
If someone wants to make a political argument, that we could not have gotten political support for a serious stimulus, that’s fine, they should put that argument on the table. But that is a political argument, not an economic one. Furthermore, we have never seen our political leaders refuse to take steps to boost the economy out of a severe recession in the post-World War II era. George W. Bush signed the first stimulus when the unemployment rate was 4.7 percent. So it would be an interesting political argument, but one that lacks any evidence to support it.
After going through the account of how Bernanke saved us from the Martians (sorry, the Second Great Depression), Samuelson genuflects about the cause of the prolonged downturn. He notes that Bernanke blames the financial crisis, while he attributes the prolonged downturn to the loss of confidence. Fans of data everywhere attribute the weakness to the loss of $8 trillion in housing wealth.
With the plunge in house prices, we saw the end of the boom in residential construction, costing us roughly 4 percentage points of GDP (@$720 billion annually in today’s economy). The loss of wealth also led to a drop in consumption, in accordance with the housing wealth effect that economists have been writing about for around 60 years. The drop in consumption was around 2–3 percentage points of GDP ($360 billion to $540 billion annually in today’s economy).
There was nothing that would obviously rise up to fill this massive gap in demand. We did get the stimulus in 2009–2010, which helped a great deal. But it wasn’t large enough or long enough to get us back to full employment. It’s hard to imagine what anyone thought would fill the gap in the absence of a larger stimulus.
I know this is all distressingly simple, and folks really want to believe the downturn was very complicated and mysterious (who could have known?), but it wasn’t. The basic story was pretty much as clear as day for anyone who could look at the economy with open eyes. Unfortunately, we didn’t have anyone like that in a position of responsibility in the last decade.
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Nope, that isn’t the complaint of leftist agitators in Greece or Latin America, that is a comment from Axel A. Weber, who is identified in the NYT as “a former senior official at the European Central Bank who is now chairman of the investment bank UBS.” This comment appears along with several other complaints from bankers about the I.M.F.’s support for low interest rates by the Fed, the European Central Bank, and other rich country central banks. Of course the I.M.F. comments on monetary policy all the time and has done so since it was created 70 years ago.
The piece also has this gem:
“‘When I travel around the world, I find hardly anyone supporting the Fed’s policy on interest rates,’ said a senior European official, who did not want to be publicly identified criticizing the I.M.F. ‘The fund has become very short-term-oriented.'”
This tells us a great deal about who this senior European officials speaks with.
Nope, that isn’t the complaint of leftist agitators in Greece or Latin America, that is a comment from Axel A. Weber, who is identified in the NYT as “a former senior official at the European Central Bank who is now chairman of the investment bank UBS.” This comment appears along with several other complaints from bankers about the I.M.F.’s support for low interest rates by the Fed, the European Central Bank, and other rich country central banks. Of course the I.M.F. comments on monetary policy all the time and has done so since it was created 70 years ago.
The piece also has this gem:
“‘When I travel around the world, I find hardly anyone supporting the Fed’s policy on interest rates,’ said a senior European official, who did not want to be publicly identified criticizing the I.M.F. ‘The fund has become very short-term-oriented.'”
This tells us a great deal about who this senior European officials speaks with.
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