The Wall Street Journal was good enough to give us “our entitlement problem for the next generation in one CBO chart.” The featured chart shows the projected discounted cost of Medicare benefits compared with the discounted value of the taxes paid in. It shows that the former is around three times the latter for the baby boom cohorts.
While this may look like the baby boomers are getting a real bonanza on their health care the real story is that the doctors and the drug companies are getting a real windfall at the expense of the rest of the country. Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. There is little evidence they provide anything in the form of better service for this money, they just get much richer.
The doctors and other providers are able to largely limit domestic competition through their control of licensing and the setting of health care standards. They also obstruct any efforts to open up health care to international competition for example by allowing Medicare beneficiaries to buy into the health care systems of other countries (yes, this would have to be negotiated — sort of like the TPP) or by increasing the number of foreign trained doctors who practice in the United States.
Anyhow, if we paid the same per person amount for health care as people in other wealthy countries, most of the gap between the cost of Medicare and Medicare taxes would disappear. Therefore we can more accurately say this is a picture of our health care cost problem in one graph. The power of the health care providers makes it very difficult politically to fix this problem, but it should at least be possible to talk about it.
The Wall Street Journal was good enough to give us “our entitlement problem for the next generation in one CBO chart.” The featured chart shows the projected discounted cost of Medicare benefits compared with the discounted value of the taxes paid in. It shows that the former is around three times the latter for the baby boom cohorts.
While this may look like the baby boomers are getting a real bonanza on their health care the real story is that the doctors and the drug companies are getting a real windfall at the expense of the rest of the country. Our health care providers earn roughly twice as much on average as their counterparts in other wealthy countries. There is little evidence they provide anything in the form of better service for this money, they just get much richer.
The doctors and other providers are able to largely limit domestic competition through their control of licensing and the setting of health care standards. They also obstruct any efforts to open up health care to international competition for example by allowing Medicare beneficiaries to buy into the health care systems of other countries (yes, this would have to be negotiated — sort of like the TPP) or by increasing the number of foreign trained doctors who practice in the United States.
Anyhow, if we paid the same per person amount for health care as people in other wealthy countries, most of the gap between the cost of Medicare and Medicare taxes would disappear. Therefore we can more accurately say this is a picture of our health care cost problem in one graph. The power of the health care providers makes it very difficult politically to fix this problem, but it should at least be possible to talk about it.
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Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.
If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.
On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.
In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.
Robert Samuelson used his column today to note the sharp rise in CEO pay. He ends up leaving it an open question as to whether the increase in the pay gap between CEOs and average workers, from an average of 20 to 1 in the 1960s to 300 to 1 at present, reflects the fundamentals of the market. In assessing this question, it is worth considering the incentives for the boards of directors that set CEO pay.
If a CEO wants another $1 million, a director is likely to make herself unpopular among her peers, many of whom are likely to be personal friends of the CEO, if she refuses to go along. Furthermore, if the CEO were to leave because they did not get the pay raise, and the company performed poorly (possibly because of random events having nothing to do with the CEO), the director who opposed the pay increase would be likely to see their position threatened.
On the other hand, directors almost never have their positions threatened as a result of overpaying their CEO. It is very difficult for disgruntled shareholders to organize to remove a director.
In this context, it would not be surprising if CEO pay continued to rise. With such asymmetric incentives, there is not the same sort of downward pressure on CEO pay as there is for auto workers or retail workers. Therefore, it should not be surprising that if gap in pay continues to increase.
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The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.
He then asks the obvious question as to why employers don’t raise wages if they aren’t getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.
This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.
For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.
We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don’t realize they can attract more skilled workers by offering higher wages.
It’s got to be pretty much one or the other; take your pick.
The usually insightful Matt Yglesias takes a big swing and a miss in his effort to explain why it appears that so many vacancies are going unfilled. He notes the rise in vacancies and also the increased period of time that employers are taking to fill vacant positions.
He then asks the obvious question as to why employers don’t raise wages if they aren’t getting qualified applicants. Remarkably, he accepts the argument that there may be no point in offering hiring wages since workers with the necessary skills do not exist.
This is nonsense. There are people in the country who have almost any conceivable skill needed by an employer. These people may not currently be unemployed, but that just means an employer needs to offer more money to pull the people with the necessary skills away from their competitors.
For example, if the Washington football team wants a top-notch quarterback then Dan Snyder will have to put tens of millions of dollars on the table to get someone like Peyton Manning or Tom Brady to move over from their current team. That is the way labor markets work. This means that if a software designer in Silicon Valley needs top quality engineers then he or she will have to pay enough money to get them to leave Google, Facebook, or wherever else people with the necessary skills might be working.
We are still not seeing rapid wage increases in any major sector of the economy. This implies that either there are not real shortages, just whiny employers, or alternatively we have employers that are so ignorant of the workings of the labor market that they don’t realize they can attract more skilled workers by offering higher wages.
It’s got to be pretty much one or the other; take your pick.
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Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece’s leftist government for what Will considers its lack of realism and ineptitude. Then he points out:
“Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ….
“It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.”
But the problem with Will’s logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.
It is therefore difficult to understand how this is a “socialist smashup.” All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.
The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a “crony capitalism smashup.” It only fits the bill of a “socialist smashup” in Will’s imagination.
Those are the two takeaways for most readers from his column today. Most of the piece is a condemnation of Greece’s leftist government for what Will considers its lack of realism and ineptitude. Then he points out:
“Since joining the euro zone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP. It is a mendicant reduced to hoping to “extend and pretend” forever. But extending the bailout and pretending that creditors will someday be paid encourages other European socialists to contemplate shedding debts — other people’s money that is no longer fun. ….
“It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.”
But the problem with Will’s logic is that the borrowing was almost all done by much more centrist Greek governments, not the leftist government office that took office in Janauary. Similarly, the economic collapse happened under these centrist governments which were following a program designed by the I.M.F., the European Central Bank, and the European Commission.
It is therefore difficult to understand how this is a “socialist smashup.” All the big steps toward disaster were taken by governments that were very much capitalist. Furthermore, the borrowing came from capitalists who lent money expecting a profit. While the ability of these capitalist bankers to assess the creditworthiness of borrowers may not have been very good, they have proved quite effective in using their political power. As was the case in the United States, they were protected from the worst fallout from their bad lending decisions through government bailouts.
The story of Greece, like the Wall Street bailout in the United States, can certainly be described as a “crony capitalism smashup.” It only fits the bill of a “socialist smashup” in Will’s imagination.
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The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.
This table compares the I.M.F.’s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.
|
Gap from 2007 Level |
|||
|
|
Per capita GDP |
Employment |
U.S. equivalent |
|
Ireland |
-4.40% |
-8.90% |
-13.35M |
|
Italy |
-11.50% |
-3.10% |
-4.65M |
|
Portugal |
-4.60% |
-11.50% |
-16.7M |
|
Spain |
-5.10% |
-14% |
-21.0M |
Source: I.M.F.
This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.
The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.
Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.
The NYT decided to survey what people in the other crisis countries think about the situation in Greece. The general theme appears to be that we toughed it out, now Greece should too. It would have been useful to include a bit of data on where these countries stand now. Per capita income and employment are all well below their pre-crisis level in all four countries mentioned.
This table compares the I.M.F.’s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries. The last column shows the equivalent employment loss in the United States. For example, the employment loss in Ireland since the start of the crisis would be equivalent to losing 13.35 million jobs in the United States. The loss in Spain would be equivalent to losing 21.0 million jobs.
|
Gap from 2007 Level |
|||
|
|
Per capita GDP |
Employment |
U.S. equivalent |
|
Ireland |
-4.40% |
-8.90% |
-13.35M |
|
Italy |
-11.50% |
-3.10% |
-4.65M |
|
Portugal |
-4.60% |
-11.50% |
-16.7M |
|
Spain |
-5.10% |
-14% |
-21.0M |
Source: I.M.F.
This should give readers a better sense of the success to date of the austerity policies being promoted by the European Union and I.M.F.
The piece also wrongly asserts that Italy did not have austerity. This is not true. It went from having a structural budget deficit of 4.2 percent of GDP in 2009 to 0.3 percent in 2015. This would be equivalent to a reduction in the size of the annual deficit of roughly $700 billion in the U.S. economy. That is less of a reduction than in the other countries, but still a substantial amount of deficit reduction in a country experiencing a recession.
Note: The U.S. equivalent for the number of jobs lost in Ireland has been corrected in the text.
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In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:
“President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis.”
It’s interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don’t say what they actually think.
For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.
Lane continues:
“Labor is waging this counter-majoritarian battle [against fast-track] in the name of ‘working people,’ who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous ‘bad’ trade deals.
“Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force.”
The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It’s an interesting position, but understandable from someone who can read the president’s mind.
In a piece that attacks the AFL-CIO for opposing fast-track trade authority, Washington Post columnist Charles Lane told readers:
“President Obama, elected and reelected with significant majorities of the popular vote, believes that the American people would benefit if he gets authority from Congress to negotiate international trade agreements and then submit them to both houses for approval on an expedited basis.”
It’s interesting that Lane thinks he knows what President Obama believes. Most people only know what President Obama says. And sometimes politicians don’t say what they actually think.
For example, it is possible that President Obama thinks that the Trans-Pacific Partnership (TPP) will be beneficial to the corporations who helped to negotiate the pact. He may also be expecting that these corporations will reward the Democrats with campaign contributions in 2016 if the TPP is approved. If this explained his actual motivations, it is unlikely that he would say so publicly, since it would not help to get fast-track or the TPP approved by Congress.
Lane continues:
“Labor is waging this counter-majoritarian battle [against fast-track] in the name of ‘working people,’ who, it says, would otherwise face another wave of low-wage foreign competition like the ones purportedly unleashed by previous ‘bad’ trade deals.
“Labor leaders consider their moral authority axiomatic in this matter, even though they represent just 11.1 percent of the labor force.”
The implication is that labor leaders should turn to people like Charles Lane to determine their stand on major issues since he believes they lack the moral authority to take a different position. It’s an interesting position, but understandable from someone who can read the president’s mind.
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The NYT apparently is doing its part to try to push the Trans-Pacific Partnership (TPP). Today it ran a piece warning people in its headline “failure of Obama’s Trans-Pacific trade deal could hurt U.S. influence in Asia.” The piece presented the views of a variety of individuals who said the failure of the TPP would damage the standing of the United States in the region.
Remarkably the piece did not include the views of anyone who had a different opinion. This is remarkable because we know from the leaked chapters that there have been important objections to at least parts of the TPP from most of the countries in the deal. For example, all the countries disagreed with much of what the United States was pressing in the form of stronger and longer patent protection for prescription drugs. Australia objected so strongly to the investor state dispute settlement mechanism that they indicated that this provision would not apply to the country. (It’s not clear that this is final.)
Surely the NYT could have found someone in these countries who thinks that negatives, like higher drug prices and an extra-judicial legal system that can over-ride laws passed at the national and sub-national level, over-ride any gains from the modest tariff reductions in the TPP. For some reason the NYT opted not to present the views of any opponents of the TPP, wrongly implying to its readers that everyone believes that the failure of the TPP would be a serious negative.
The piece also included the wonderful line:
“The White House and its Republican free-trade allies in Congress are searching for ways to revive a bill that would extend aid to workers displaced by global trade agreements.”
The phrase “free-trade” is not accurate and does not belong in this piece.
The NYT apparently is doing its part to try to push the Trans-Pacific Partnership (TPP). Today it ran a piece warning people in its headline “failure of Obama’s Trans-Pacific trade deal could hurt U.S. influence in Asia.” The piece presented the views of a variety of individuals who said the failure of the TPP would damage the standing of the United States in the region.
Remarkably the piece did not include the views of anyone who had a different opinion. This is remarkable because we know from the leaked chapters that there have been important objections to at least parts of the TPP from most of the countries in the deal. For example, all the countries disagreed with much of what the United States was pressing in the form of stronger and longer patent protection for prescription drugs. Australia objected so strongly to the investor state dispute settlement mechanism that they indicated that this provision would not apply to the country. (It’s not clear that this is final.)
Surely the NYT could have found someone in these countries who thinks that negatives, like higher drug prices and an extra-judicial legal system that can over-ride laws passed at the national and sub-national level, over-ride any gains from the modest tariff reductions in the TPP. For some reason the NYT opted not to present the views of any opponents of the TPP, wrongly implying to its readers that everyone believes that the failure of the TPP would be a serious negative.
The piece also included the wonderful line:
“The White House and its Republican free-trade allies in Congress are searching for ways to revive a bill that would extend aid to workers displaced by global trade agreements.”
The phrase “free-trade” is not accurate and does not belong in this piece.
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Matt O’Brien treated us to a classic case of bad reasoning by economists. A survey of elite economists (you know, the type of people that couldn’t see an $8 trillion housing bubble) found that the vast majority said that the official income data understated the increase in the standard of living for the middle class over the last 35 years.
The explanation for this view is that new goods like cell phones and the Internet have vastly improved our standard of living in ways that are not picked up in the data. O’Brien suggests a thought experiment that has been put forward by this elite group. Would you be willing to trade an income of $50,000 in 2015 for an inflation adjusted $100,000 income in 1980, knowing that you can only buy the goods and services available in 1980?
The implication is that most of us would say no, since it would mean giving up our cell phones, Ipads and Ipods, smartphone cameras, wifi, and all sorts of other neat things. This may well be true, but there are two reasons why the economists raising this point flunk cost of living 101.
The first point is a narrow one. These folks are upset that our price indexes don’t have a way of picking up the benefits of new goods like television, refrigerators, and the polio vaccine. (Sorry, guess those are pretty old now. But the point is that important new goods are not new.) But good economists know that price indexes also don’t pick up the cost of these new goods. To be specific, we can complain that the consumer price index doesn’t pick up the gain from the wonders of a cell phone. That’s true. But it also doesn’t pick up the cost of buying the phone and paying for monthly service. (It picks up the change in these costs once they are included in the price basket, but not the initial cost.) With an important qualification that we will get to momentarily, we can assume the benefits are greater than the cost since people opt to buy cell phones, but that gap is much less than just counting the benefits alone, which it seems is how our elite economists view the issue.
The second point is that we adjust our society and living patterns around the technology we have. Ask someone who lived in the suburbs in the 1960s how they would feel living without a car. It would be pretty awful, but just 30 years earlier most middle class families did not have a car or think they needed one. To take a slightly more recent example, imagine living without air conditioning in the summer. Most middle class families did fifty years ago.
We have constructed a society that is built around cell phones and the Internet. Asking people to go without these items would be a real hardship because they have become integrated into their lives. Does this mean that we are better off in a society with these things than without? It probably does, but asking how our Internet/cell phone addict would do in a world without the Internet or cell phones is a silly question.
There is one more point worth mentioning. Our elite economist friends presumably don’t want to believe that well-being is relative. This could be important because there is a much sharper gap between the living standards of the rich and famous in 2015 than in 1980. Some people may take this into account in their assessment of their well-being. In other words they may feel deprived to some extent because their living standards are so much lower relative to the rich than was the case in 1980. We know the elite economists don’t want people to think like this, but some of the ignorant masses might anyhow. Maybe if they just took more economics…
Matt O’Brien treated us to a classic case of bad reasoning by economists. A survey of elite economists (you know, the type of people that couldn’t see an $8 trillion housing bubble) found that the vast majority said that the official income data understated the increase in the standard of living for the middle class over the last 35 years.
The explanation for this view is that new goods like cell phones and the Internet have vastly improved our standard of living in ways that are not picked up in the data. O’Brien suggests a thought experiment that has been put forward by this elite group. Would you be willing to trade an income of $50,000 in 2015 for an inflation adjusted $100,000 income in 1980, knowing that you can only buy the goods and services available in 1980?
The implication is that most of us would say no, since it would mean giving up our cell phones, Ipads and Ipods, smartphone cameras, wifi, and all sorts of other neat things. This may well be true, but there are two reasons why the economists raising this point flunk cost of living 101.
The first point is a narrow one. These folks are upset that our price indexes don’t have a way of picking up the benefits of new goods like television, refrigerators, and the polio vaccine. (Sorry, guess those are pretty old now. But the point is that important new goods are not new.) But good economists know that price indexes also don’t pick up the cost of these new goods. To be specific, we can complain that the consumer price index doesn’t pick up the gain from the wonders of a cell phone. That’s true. But it also doesn’t pick up the cost of buying the phone and paying for monthly service. (It picks up the change in these costs once they are included in the price basket, but not the initial cost.) With an important qualification that we will get to momentarily, we can assume the benefits are greater than the cost since people opt to buy cell phones, but that gap is much less than just counting the benefits alone, which it seems is how our elite economists view the issue.
The second point is that we adjust our society and living patterns around the technology we have. Ask someone who lived in the suburbs in the 1960s how they would feel living without a car. It would be pretty awful, but just 30 years earlier most middle class families did not have a car or think they needed one. To take a slightly more recent example, imagine living without air conditioning in the summer. Most middle class families did fifty years ago.
We have constructed a society that is built around cell phones and the Internet. Asking people to go without these items would be a real hardship because they have become integrated into their lives. Does this mean that we are better off in a society with these things than without? It probably does, but asking how our Internet/cell phone addict would do in a world without the Internet or cell phones is a silly question.
There is one more point worth mentioning. Our elite economist friends presumably don’t want to believe that well-being is relative. This could be important because there is a much sharper gap between the living standards of the rich and famous in 2015 than in 1980. Some people may take this into account in their assessment of their well-being. In other words they may feel deprived to some extent because their living standards are so much lower relative to the rich than was the case in 1980. We know the elite economists don’t want people to think like this, but some of the ignorant masses might anyhow. Maybe if they just took more economics…
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