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As I’ve often noticed in the past, the WaPo apparently has difficulty getting access to government data at its location in downtown Washington, DC. If it did, it probably would not have run a Wonkblog piece by Steven Mufson touting the expansion of oil supply as the reason that oil prices have fallen sharply this year.
As I pointed out last week, the 2007 World Energy Outlook (the last projections from the Energy Information Agency before the economic collapse) projected output in 2015 of 98.5 million barrels per day (Table 1.3). The most recent projections put production at 92.7 million barrels per day, 5.8 million fewer barrels than had been projected before the slump. This means production has actually grown less rapidly than projected.
It may well be the case that potential production has grown due to large new investments, as Mufson claims, but the key story here is that demand is well below projected levels. This is due both to weaker than expected economic growth and to a lesser extent conservation measures. This drop in demand would be holding prices down even if there had not been any great breakthroughs on the supply side.
As I’ve often noticed in the past, the WaPo apparently has difficulty getting access to government data at its location in downtown Washington, DC. If it did, it probably would not have run a Wonkblog piece by Steven Mufson touting the expansion of oil supply as the reason that oil prices have fallen sharply this year.
As I pointed out last week, the 2007 World Energy Outlook (the last projections from the Energy Information Agency before the economic collapse) projected output in 2015 of 98.5 million barrels per day (Table 1.3). The most recent projections put production at 92.7 million barrels per day, 5.8 million fewer barrels than had been projected before the slump. This means production has actually grown less rapidly than projected.
It may well be the case that potential production has grown due to large new investments, as Mufson claims, but the key story here is that demand is well below projected levels. This is due both to weaker than expected economic growth and to a lesser extent conservation measures. This drop in demand would be holding prices down even if there had not been any great breakthroughs on the supply side.
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The Washington Post repeats the silly myth that we were in danger of a second Great Depression without heroic measures to save Wall Street. A piece on the path of quantitative easing (which was a good idea) told readers:
“But while economists generally agreed that effort [the Fed’s purchase of $500 billion in mortgage backed securities in 2008-2009] helped the country avert another depression, the swift recovery that has historically accompanied downturns remained elusive.”
It is quite fashionable among Washington elite types to insist that we would have had another depression if we didn’t save the Wall Street banks, but do any of them have any idea what they mean by this?
The first Great Depression was the result of not having enough demand in the economy. We got out of it finally in 1941 by spending lots of money. The motivation for spending lots of money was fighting World War II, but the key point was spending the money. It might have been difficult politically to justify the spending necessary to restore the economy to full employment without the war, but that is a political problem not an economic problem. We do know how to spend money.
In effect, the pundits who say that we would have had a depression if we did not bail out the banks are saying that our economic policy is so dominated by flat-earth types that we would have to endure a decade or more of double-digit unemployment, with the incredible amount of suffering it would cause, because the flat-earthers would not allow the spending necessary to restore full employment.
That characterization of our political process could be accurate, but it is important to be clear what is being said. The claim is not that anything about the financial crisis itself would have caused a depression. The claim is rather that Washington economic policy is totally controlled by people without a clue about economics. Apparently, the Post and others adhere to this view.
The Washington Post repeats the silly myth that we were in danger of a second Great Depression without heroic measures to save Wall Street. A piece on the path of quantitative easing (which was a good idea) told readers:
“But while economists generally agreed that effort [the Fed’s purchase of $500 billion in mortgage backed securities in 2008-2009] helped the country avert another depression, the swift recovery that has historically accompanied downturns remained elusive.”
It is quite fashionable among Washington elite types to insist that we would have had another depression if we didn’t save the Wall Street banks, but do any of them have any idea what they mean by this?
The first Great Depression was the result of not having enough demand in the economy. We got out of it finally in 1941 by spending lots of money. The motivation for spending lots of money was fighting World War II, but the key point was spending the money. It might have been difficult politically to justify the spending necessary to restore the economy to full employment without the war, but that is a political problem not an economic problem. We do know how to spend money.
In effect, the pundits who say that we would have had a depression if we did not bail out the banks are saying that our economic policy is so dominated by flat-earth types that we would have to endure a decade or more of double-digit unemployment, with the incredible amount of suffering it would cause, because the flat-earthers would not allow the spending necessary to restore full employment.
That characterization of our political process could be accurate, but it is important to be clear what is being said. The claim is not that anything about the financial crisis itself would have caused a depression. The claim is rather that Washington economic policy is totally controlled by people without a clue about economics. Apparently, the Post and others adhere to this view.
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The NYT had a Room for Debate segment on whether the Fed should be concerned about inequality. While many good points were raised in the exchange, none of the participants made the point that lower rates of unemployment are associated with faster real wage growth for those at the middle and bottom of the wage distribution.
This is the main point of the classic book, Getting Back to Full Employment: A Better Bargain for Working People, that Jared Bernstein and I wrote last year. We showed that workers at the middle and bottom of the wage distribution only saw wage growth when the unemployment rate was at low levels. This is an essential condition for these workers to share in the gains of economic growth.
The Fed may not always be able to boost growth and reduce unemployment by as much as it might like, but it certainly can keep the unemployment rate from falling. This is the point of raising interest rates. The idea is that higher rates will slow the economy and the rate of job creation, thereby keeping the unemployment rate higher than it otherwise would be.
If the Fed keeps the unemployment rate higher than necessary, then it is preventing most workers from sharing in the gains of growth, thereby worsening income inequality. This was very much an issue back in the 1990s when most economists thought the Fed should have kept the unemployment rate from falling much below 6.0 percent.
Fortunately, Federal Reserve Board Chair Alan Greenspan did not share this view. He allowed the unemployment rate to fall far below this level, reaching 4.0 percent as a year-round average in 2000. As a result, there was strong wage growth for workers at the middle and bottom of the wage distribution. These workers also had the opportunity to work more hours, further increasing their income gains. And, because unemployment disproportionately hits those at the bottom of the income ladder, these people disproportionately benefited from the jobs created in these years.
These fundamental points should have been included in the debate on the Fed and inequality.
The NYT had a Room for Debate segment on whether the Fed should be concerned about inequality. While many good points were raised in the exchange, none of the participants made the point that lower rates of unemployment are associated with faster real wage growth for those at the middle and bottom of the wage distribution.
This is the main point of the classic book, Getting Back to Full Employment: A Better Bargain for Working People, that Jared Bernstein and I wrote last year. We showed that workers at the middle and bottom of the wage distribution only saw wage growth when the unemployment rate was at low levels. This is an essential condition for these workers to share in the gains of economic growth.
The Fed may not always be able to boost growth and reduce unemployment by as much as it might like, but it certainly can keep the unemployment rate from falling. This is the point of raising interest rates. The idea is that higher rates will slow the economy and the rate of job creation, thereby keeping the unemployment rate higher than it otherwise would be.
If the Fed keeps the unemployment rate higher than necessary, then it is preventing most workers from sharing in the gains of growth, thereby worsening income inequality. This was very much an issue back in the 1990s when most economists thought the Fed should have kept the unemployment rate from falling much below 6.0 percent.
Fortunately, Federal Reserve Board Chair Alan Greenspan did not share this view. He allowed the unemployment rate to fall far below this level, reaching 4.0 percent as a year-round average in 2000. As a result, there was strong wage growth for workers at the middle and bottom of the wage distribution. These workers also had the opportunity to work more hours, further increasing their income gains. And, because unemployment disproportionately hits those at the bottom of the income ladder, these people disproportionately benefited from the jobs created in these years.
These fundamental points should have been included in the debate on the Fed and inequality.
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The Washington Post seems to have jumped the shark by running a Wonkblog piece that demands readers, “stop pretending we can fix the environment by curbing population growth.” The gist of the argument is that plausible changes in population growth will not be sufficient to prevent environmental catastrophe without other changes.
If there were people who thought that slower population growth would be sufficient to prevent global warming, then this piece would be a useful corrective. However if the point of this piece is that slower population growth should not be an important part of a strategy to limit global warming, then it needs to read the research more closely.
The world population in 2100 in the high fertility scenario shown in the piece is more than twice as high as in the low fertility scenario. This implies that we would need to have less than half as much greenhouse gas emissions per person in the high fertility scenario to have the same impact on global warming as in the low fertility scenario. It would be quite expensive to reduce per person emissions by an additional 50 percent against the reductions that would be needed even in the low fertility scenario. For this reason, it would make a great deal of sense for population control (in the form of access to birth control and empowerment of women) to be an important part of an environmental agenda.
The Washington Post seems to have jumped the shark by running a Wonkblog piece that demands readers, “stop pretending we can fix the environment by curbing population growth.” The gist of the argument is that plausible changes in population growth will not be sufficient to prevent environmental catastrophe without other changes.
If there were people who thought that slower population growth would be sufficient to prevent global warming, then this piece would be a useful corrective. However if the point of this piece is that slower population growth should not be an important part of a strategy to limit global warming, then it needs to read the research more closely.
The world population in 2100 in the high fertility scenario shown in the piece is more than twice as high as in the low fertility scenario. This implies that we would need to have less than half as much greenhouse gas emissions per person in the high fertility scenario to have the same impact on global warming as in the low fertility scenario. It would be quite expensive to reduce per person emissions by an additional 50 percent against the reductions that would be needed even in the low fertility scenario. For this reason, it would make a great deal of sense for population control (in the form of access to birth control and empowerment of women) to be an important part of an environmental agenda.
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We can finally declare the budget deficit crisis over; Robert Samuelson has moved on to the talking about the “family deficit.” Actually, many of the points he makes are reasonable, the question is the policy implications.
People in committed relationships, generally involving marriage, do much better on average than do single adults on a variety of social and economic indicators. Perhaps more importantly, their children do much better as well. The data show that marriage is increasingly a middle class and upper class story, with those in the bottom half, and especially bottom quintile of the income distribution much less likely to be married and their children much less likely to be raised by a married couple. And in the United States, children raised by single parents generally don’t do well in life.
It would be nice if the government could so something to ensure that all these single people, and especially single parents, were in happy committed relationships. But governments tend not to be good as matchmakers. Many relationships are seriously abusive. Someone married to a spouse who has serious problems with drugs or alcohol, or who can’t control their temper, is not necessarily doing themselves or their children a favor by remaining in the marriage. And the government would not be doing anyone a service in this situation by preventing a divorce or separation.
Pro-marriage policy (e.g. tax incentives) may sound nice, but only until we give them a bit of thought. A marriage subsidy implicitly penalizes single adults. Recognizing the benefits that marriage offers, do we want to further penalize those not in a happy marriage and their children?
We can pursue policies that will make peoples’ lives more secure and in that way likely increase the frequency of happy marriages. Legalizing marijuana and decriminalizing drug use in general would likely be a big step in the right direction. Men in jail generally are not good husbands and fathers.
Greater employment security and higher wages would also be a big step forward. Frequent job changes and moves are a disruption in anyone’s lives. And the stress of constantly struggling to find the money for the rent or mortgage could make any relationship difficult. And safe and affordable child care would benefit both children and parents, whether they are single or married.
These items are all part of a general economic agenda for full-employment and greater economic security. It would be great if the advocates of marriage would join in for this effort.
Note: Typos corrected, thanks to Robert Salzberg.
We can finally declare the budget deficit crisis over; Robert Samuelson has moved on to the talking about the “family deficit.” Actually, many of the points he makes are reasonable, the question is the policy implications.
People in committed relationships, generally involving marriage, do much better on average than do single adults on a variety of social and economic indicators. Perhaps more importantly, their children do much better as well. The data show that marriage is increasingly a middle class and upper class story, with those in the bottom half, and especially bottom quintile of the income distribution much less likely to be married and their children much less likely to be raised by a married couple. And in the United States, children raised by single parents generally don’t do well in life.
It would be nice if the government could so something to ensure that all these single people, and especially single parents, were in happy committed relationships. But governments tend not to be good as matchmakers. Many relationships are seriously abusive. Someone married to a spouse who has serious problems with drugs or alcohol, or who can’t control their temper, is not necessarily doing themselves or their children a favor by remaining in the marriage. And the government would not be doing anyone a service in this situation by preventing a divorce or separation.
Pro-marriage policy (e.g. tax incentives) may sound nice, but only until we give them a bit of thought. A marriage subsidy implicitly penalizes single adults. Recognizing the benefits that marriage offers, do we want to further penalize those not in a happy marriage and their children?
We can pursue policies that will make peoples’ lives more secure and in that way likely increase the frequency of happy marriages. Legalizing marijuana and decriminalizing drug use in general would likely be a big step in the right direction. Men in jail generally are not good husbands and fathers.
Greater employment security and higher wages would also be a big step forward. Frequent job changes and moves are a disruption in anyone’s lives. And the stress of constantly struggling to find the money for the rent or mortgage could make any relationship difficult. And safe and affordable child care would benefit both children and parents, whether they are single or married.
These items are all part of a general economic agenda for full-employment and greater economic security. It would be great if the advocates of marriage would join in for this effort.
Note: Typos corrected, thanks to Robert Salzberg.
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Matt O’Brien gave readers a thoughtful discussion on how the euro zone’s stagnation is likely to persist for the indefinite future, primarily because Germany is acting to obstruct any serious efforts at stimulus. However at one point the logic gets a bit weak.
In laying out the various options for promoting stronger growth O’Brien suggests that Mario Draghi, the head of the European Central Bank could try to push ahead with quantitative easing even without the support of Germany. He says this could prompt Germany to take legal action and it “might even threaten to leave the euro zone over it.”
If Germany left the euro zone, the problems of the other countries would be largely over. The euro would presumably fall in value against the new deutschemark, allowing the countries of southern Europe to quickly regain their competitiveness against Germany. The resulting reduction in their trade deficit would be a major boost to growth and employment. And this could be done without the financial disruptions that would be caused by the southern European countries leaving the euro.
So the question is, if Germany threatened to leave the euro zone, why wouldn’t the other countries just say “please do?”
Matt O’Brien gave readers a thoughtful discussion on how the euro zone’s stagnation is likely to persist for the indefinite future, primarily because Germany is acting to obstruct any serious efforts at stimulus. However at one point the logic gets a bit weak.
In laying out the various options for promoting stronger growth O’Brien suggests that Mario Draghi, the head of the European Central Bank could try to push ahead with quantitative easing even without the support of Germany. He says this could prompt Germany to take legal action and it “might even threaten to leave the euro zone over it.”
If Germany left the euro zone, the problems of the other countries would be largely over. The euro would presumably fall in value against the new deutschemark, allowing the countries of southern Europe to quickly regain their competitiveness against Germany. The resulting reduction in their trade deficit would be a major boost to growth and employment. And this could be done without the financial disruptions that would be caused by the southern European countries leaving the euro.
So the question is, if Germany threatened to leave the euro zone, why wouldn’t the other countries just say “please do?”
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Okay, there are a few hundred people who believe that the tens and hundreds of millions of dollars pocketed by CEOs reflect their worth in the market. (And most of those people write for newspapers or teach in business schools.) The rest understand that CEOs get incredibly rich by being able to rip off the companies that they supposedly work for. This is because the rules are rigged to give them effective control over the company.
Gretchen Morgenson has a good piece explaining one way in which CEOs and other top management rig the deck. Her column today talks about a Delaware court ruling that allows companies to write by-laws that make shareholders pay the company’s legal cost if they lose a case filed against the company. For example, this could mean that if shareholders sued a company because it rewrote the strike price on options given to an incompetent CEO, and then lost the case, then the shareholders would have to pay the company’s legal expenses.(Most U.S. companies are chartered in Delaware, so this ruling makes a big difference.)
Since companies that overpay incompetent CEOs tend to have hugely overpaid lawyers, this is likely to be a very serious expense. This would be a major disincentive to shareholder suits, making it easier for CEOs to rip off the companies for which they work.
It is worth noting that courts always had the authority to require losers to pay the winners’ legal fees in frivolous cases. The Delaware ruling means that losers would always be required to pay the company’s legal fees, even if the loss was due to a technical issue, such as a missed filing deadline.
Okay, there are a few hundred people who believe that the tens and hundreds of millions of dollars pocketed by CEOs reflect their worth in the market. (And most of those people write for newspapers or teach in business schools.) The rest understand that CEOs get incredibly rich by being able to rip off the companies that they supposedly work for. This is because the rules are rigged to give them effective control over the company.
Gretchen Morgenson has a good piece explaining one way in which CEOs and other top management rig the deck. Her column today talks about a Delaware court ruling that allows companies to write by-laws that make shareholders pay the company’s legal cost if they lose a case filed against the company. For example, this could mean that if shareholders sued a company because it rewrote the strike price on options given to an incompetent CEO, and then lost the case, then the shareholders would have to pay the company’s legal expenses.(Most U.S. companies are chartered in Delaware, so this ruling makes a big difference.)
Since companies that overpay incompetent CEOs tend to have hugely overpaid lawyers, this is likely to be a very serious expense. This would be a major disincentive to shareholder suits, making it easier for CEOs to rip off the companies for which they work.
It is worth noting that courts always had the authority to require losers to pay the winners’ legal fees in frivolous cases. The Delaware ruling means that losers would always be required to pay the company’s legal fees, even if the loss was due to a technical issue, such as a missed filing deadline.
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Paul Krugman is on the mark in his comments on quantitative easing and inequality. The policy has helped boost the economy and create jobs, it is almost certainly a net gainer from the standpoint of distribution. I would make three additional points, all going in the same direction.
First, when comparing the real value of the stock market to prior levels which we should expect an upward trend. The economy grows through time, as do profits, just assuming that profit share remains constant. The profit share has of course grown in recent years. This means that if the price to earnings ratio remains constant, then the value of the market should grow at roughly the same rate as the economy.
If we assume a 2.4 percent trend growth rate between 2007 and the present, the market should be roughly 17 percent higher in real terms today than in 2007, assuming no increase in trend profit shares. In other words, the market is pretty much in line with where we would expect it to be if there were no extraordinary monetary policy in place and the economy had followed it trend path. Crediting or blaming the Fed for the market’s bounceback from the 2008-2009 lows is just silly.
The second point is that the impoverished masses with large interest incomes (that’s a joke) also would benefit from the increase in asset prices, if they held any longer term bonds. When the interest rates on 10-year and 30-year bonds plummeted, the price of these bonds soared. This would have increased the wealth of middle income people who held these bonds. It’s possible that they don’t want to sell the bonds (after all, they can’t get a high interest rate if they re-invest the money elsewhere), but this the same story for rich people who hold lots of stock. The high stock price doesn’t do them any good unless they sell some stock.
Anyhow, the point is that in order for our middle income people to be hurt on net by the fall in interest rates, not only would it be necessary that all their money was in interest bearing assets (as opposed to stock), but it would have to be in short-term assets like savings accounts or certificates of deposits. This is a very small group of people. (I know everyone has an aunt who has $50k in a savings account — sorry, someone is lying in that story.)
Finally, normal middle income people tend to be big net payers of interest because of something called a “mortgage.” They may also have student loan debt. Lower interest rates have allowed tens of millions of people to have substantially lower mortgage and student loan payments. This is a huge plus on the distributional side. That doesn’t mean that mortgage and student loan payments are not a major burden in many cases, but they would be a much bigger burden if the interest payments were 1-2 percentage points higher.
In short, the distributional effects of QE were almost certainly a net positive, in spite of the fact that everyone’s aunt got hurt.
Paul Krugman is on the mark in his comments on quantitative easing and inequality. The policy has helped boost the economy and create jobs, it is almost certainly a net gainer from the standpoint of distribution. I would make three additional points, all going in the same direction.
First, when comparing the real value of the stock market to prior levels which we should expect an upward trend. The economy grows through time, as do profits, just assuming that profit share remains constant. The profit share has of course grown in recent years. This means that if the price to earnings ratio remains constant, then the value of the market should grow at roughly the same rate as the economy.
If we assume a 2.4 percent trend growth rate between 2007 and the present, the market should be roughly 17 percent higher in real terms today than in 2007, assuming no increase in trend profit shares. In other words, the market is pretty much in line with where we would expect it to be if there were no extraordinary monetary policy in place and the economy had followed it trend path. Crediting or blaming the Fed for the market’s bounceback from the 2008-2009 lows is just silly.
The second point is that the impoverished masses with large interest incomes (that’s a joke) also would benefit from the increase in asset prices, if they held any longer term bonds. When the interest rates on 10-year and 30-year bonds plummeted, the price of these bonds soared. This would have increased the wealth of middle income people who held these bonds. It’s possible that they don’t want to sell the bonds (after all, they can’t get a high interest rate if they re-invest the money elsewhere), but this the same story for rich people who hold lots of stock. The high stock price doesn’t do them any good unless they sell some stock.
Anyhow, the point is that in order for our middle income people to be hurt on net by the fall in interest rates, not only would it be necessary that all their money was in interest bearing assets (as opposed to stock), but it would have to be in short-term assets like savings accounts or certificates of deposits. This is a very small group of people. (I know everyone has an aunt who has $50k in a savings account — sorry, someone is lying in that story.)
Finally, normal middle income people tend to be big net payers of interest because of something called a “mortgage.” They may also have student loan debt. Lower interest rates have allowed tens of millions of people to have substantially lower mortgage and student loan payments. This is a huge plus on the distributional side. That doesn’t mean that mortgage and student loan payments are not a major burden in many cases, but they would be a much bigger burden if the interest payments were 1-2 percentage points higher.
In short, the distributional effects of QE were almost certainly a net positive, in spite of the fact that everyone’s aunt got hurt.
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That distinction would have improved the accuracy of a NYT article on the Republicans’ economic plans. The piece noted that Senate Republicans have limited their economic agenda. It told readers that they no longer call for the repeal of the Affordable Care Act and have abandoned the “so-called Ryan Plan, a long-term budget to revamp Medicare and Medicaid and significantly reduce other domestic and military spending enough to balance the budget in 10 years, while sharply cutting taxes.”
Actually the Ryan plan was not really a plan to balance the budget while sharply cutting taxes. Ryan instructed the Congressional Budget Office (CBO) to assume enough budget cuts from non-Social Security and non-Medicare spending to bring the budget into balance. He never proposed any specific cuts that would come anywhere close to meeting this target. In fact, he recently has been pushing for increases in spending in one of the areas that he previously had slated for cuts, the Earned Income Tax Credit.
There is a similar story on the tax side. Ryan instructed CBO to assume in its scoring that enough deductions would be eliminated to offset the revenue lost from his tax cuts, however he has never actively supported the elimination of any major tax break (e.g. the mortgage interest deduction or the deduction for employer-provided health insurance). In short, he had nothing resembling a real plan.
The piece also told readers:
“While most economists and business executives do not look to Congress for much, they do want a rewriting of the corporate tax code and a revamping of fast-growing entitlement benefit programs, even as they acknowledge that is virtually unachievable.”
It is not clear how it determined the views of most economists and business executives. While there probably is little disagreement that the corporate tax code is a mess, it is not clear that most economists and business executives see an urgency to “revamping fast-growing entitlement programs.” The real news here is that the sharp slowdown in health care cost growth in recent years has caused projected growth of Medicare and Medicaid spending to fall sharply. In fact, the projections have fallen more as a result of the slower pace of health care cost growth than would have been accomplished by many austerity plans, like the one put forward by Erskine Bowles and Alan Simpson, the co-chairs of President Obama’s deficit commission.
This slowdown in health care cost growth has removed the urgency for doing anything to change Medicare and Medicaid. Given the very limited assets of most workers near retirement age, there are few economists who view it as realistic to have any substantial cuts for Social Security any time soon. So it is simply not true that there is some widespread consensus around overhauling these programs.
That distinction would have improved the accuracy of a NYT article on the Republicans’ economic plans. The piece noted that Senate Republicans have limited their economic agenda. It told readers that they no longer call for the repeal of the Affordable Care Act and have abandoned the “so-called Ryan Plan, a long-term budget to revamp Medicare and Medicaid and significantly reduce other domestic and military spending enough to balance the budget in 10 years, while sharply cutting taxes.”
Actually the Ryan plan was not really a plan to balance the budget while sharply cutting taxes. Ryan instructed the Congressional Budget Office (CBO) to assume enough budget cuts from non-Social Security and non-Medicare spending to bring the budget into balance. He never proposed any specific cuts that would come anywhere close to meeting this target. In fact, he recently has been pushing for increases in spending in one of the areas that he previously had slated for cuts, the Earned Income Tax Credit.
There is a similar story on the tax side. Ryan instructed CBO to assume in its scoring that enough deductions would be eliminated to offset the revenue lost from his tax cuts, however he has never actively supported the elimination of any major tax break (e.g. the mortgage interest deduction or the deduction for employer-provided health insurance). In short, he had nothing resembling a real plan.
The piece also told readers:
“While most economists and business executives do not look to Congress for much, they do want a rewriting of the corporate tax code and a revamping of fast-growing entitlement benefit programs, even as they acknowledge that is virtually unachievable.”
It is not clear how it determined the views of most economists and business executives. While there probably is little disagreement that the corporate tax code is a mess, it is not clear that most economists and business executives see an urgency to “revamping fast-growing entitlement programs.” The real news here is that the sharp slowdown in health care cost growth in recent years has caused projected growth of Medicare and Medicaid spending to fall sharply. In fact, the projections have fallen more as a result of the slower pace of health care cost growth than would have been accomplished by many austerity plans, like the one put forward by Erskine Bowles and Alan Simpson, the co-chairs of President Obama’s deficit commission.
This slowdown in health care cost growth has removed the urgency for doing anything to change Medicare and Medicaid. Given the very limited assets of most workers near retirement age, there are few economists who view it as realistic to have any substantial cuts for Social Security any time soon. So it is simply not true that there is some widespread consensus around overhauling these programs.
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