Paul Krugman had a short blogpost in which he criticizes Hans-Werner Sinn, the head of a prominent German think tank, for insisting that the southern European countries have to go through deflation in order to restore competitiveness, rather than Germany having somewhat higher inflation. Sinn effectively says that these countries must do what Germany did in the last decade.
Krugman then links to a post which shows that Germany, along with Japan, were the only countries in the OECD to see declining labor costs in the last decade, meaning that this is not easily accomplished. However there is a further point at issue. Germany had falling labor costs not because wages actually fell, but because they did not rise as fast as productivity growth. Germany could sustain healthy rates of productivity growth because the euro zone economy was growing at a healthy pace, driven by the booms in the peripheral countries.
While this boom both raised relative prices in the rest of the euro zone, thereby increasing Germany’s competitiveness and creating a rapidly growing market, Germany is determined not to repeat the favor. The slow growth and high unemployment environment in which the peripheral countries find themselves is not conducive to investment and productivity growth. Productivity growth has been extremely weak across most of the OECD, in part due to weaker investment and in part due to the fact that many unemployed workers find themselves forced to take jobs in low productivity sectors (e.g. restaurants and retail).
With very low productivity growth, the only way the peripheral countries can gain competitiveness is to have actual wage declines, something that Germany did not do in the last decade. So Krugman is far too generous in implying that Sinn wants the peripheral countries to follow the example of a lone outlier. He is demanding they do something far more difficult and painful than what Germany did in the last decade.
Paul Krugman had a short blogpost in which he criticizes Hans-Werner Sinn, the head of a prominent German think tank, for insisting that the southern European countries have to go through deflation in order to restore competitiveness, rather than Germany having somewhat higher inflation. Sinn effectively says that these countries must do what Germany did in the last decade.
Krugman then links to a post which shows that Germany, along with Japan, were the only countries in the OECD to see declining labor costs in the last decade, meaning that this is not easily accomplished. However there is a further point at issue. Germany had falling labor costs not because wages actually fell, but because they did not rise as fast as productivity growth. Germany could sustain healthy rates of productivity growth because the euro zone economy was growing at a healthy pace, driven by the booms in the peripheral countries.
While this boom both raised relative prices in the rest of the euro zone, thereby increasing Germany’s competitiveness and creating a rapidly growing market, Germany is determined not to repeat the favor. The slow growth and high unemployment environment in which the peripheral countries find themselves is not conducive to investment and productivity growth. Productivity growth has been extremely weak across most of the OECD, in part due to weaker investment and in part due to the fact that many unemployed workers find themselves forced to take jobs in low productivity sectors (e.g. restaurants and retail).
With very low productivity growth, the only way the peripheral countries can gain competitiveness is to have actual wage declines, something that Germany did not do in the last decade. So Krugman is far too generous in implying that Sinn wants the peripheral countries to follow the example of a lone outlier. He is demanding they do something far more difficult and painful than what Germany did in the last decade.
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Eduardo Porter has a good piece discussing the increasing problem of the evasion of corporate income taxes. At one point he notes that some people have called for eliminating the corporate income tax altogether and making up the lost revenue with higher taxes on the wealthy.
Porter dismisses this idea by saying that it would be politically difficult to raise taxes on wealthy individuals by enough to make up the lost revenue. He then adds:
“Mr. Saint-Amans [the head of the OECD’s Center for Tax Policy and Administration] said he feared that without the corporate income tax, income taxation would fall apart entirely as the wealthy could avoid taxation by becoming companies, inserting several corporate layers between themselves and their money.”
This problem should be reasonably manageable. If there was some minimal annual fee that companies paid for tax exempt status (I had previously suggested $1 million but $250k might be sufficient), very few people would find it profitable to engage in such tax gaming. This should make it relatively easy for the I.R.S. to investigate the companies that file for this status and ensure that they are real companies and not just tax scams. The problem would not be qualitatively different than what the I.R.S. faces now with 501(c) tax exempt organizations.
This would also likely have minimal impact on real businesses. The small businesses that might not find this worthwhile likely would not be owned by people in top tax brackets anyhow, or alternatively have few profits to show in their first years. Many of these businesses are not now incorporated, so little would change in their situation. The point is that a real business of any size would have no problem paying this fee without impairing its operations.
The issue about the politics of raising individual tax rates is real, but it should be possible to design a system that would minimize the opportunities for gaming of the sort described here.
Eduardo Porter has a good piece discussing the increasing problem of the evasion of corporate income taxes. At one point he notes that some people have called for eliminating the corporate income tax altogether and making up the lost revenue with higher taxes on the wealthy.
Porter dismisses this idea by saying that it would be politically difficult to raise taxes on wealthy individuals by enough to make up the lost revenue. He then adds:
“Mr. Saint-Amans [the head of the OECD’s Center for Tax Policy and Administration] said he feared that without the corporate income tax, income taxation would fall apart entirely as the wealthy could avoid taxation by becoming companies, inserting several corporate layers between themselves and their money.”
This problem should be reasonably manageable. If there was some minimal annual fee that companies paid for tax exempt status (I had previously suggested $1 million but $250k might be sufficient), very few people would find it profitable to engage in such tax gaming. This should make it relatively easy for the I.R.S. to investigate the companies that file for this status and ensure that they are real companies and not just tax scams. The problem would not be qualitatively different than what the I.R.S. faces now with 501(c) tax exempt organizations.
This would also likely have minimal impact on real businesses. The small businesses that might not find this worthwhile likely would not be owned by people in top tax brackets anyhow, or alternatively have few profits to show in their first years. Many of these businesses are not now incorporated, so little would change in their situation. The point is that a real business of any size would have no problem paying this fee without impairing its operations.
The issue about the politics of raising individual tax rates is real, but it should be possible to design a system that would minimize the opportunities for gaming of the sort described here.
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If the government imposed a tariff on imports so that companies could sell their products at prices far above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold. If the government imposes patent monopolies so that drug companies can sell their drugs at prices that are several thousand percent above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold.
Okay, maybe economists would not be that consistent, since they seem to be fond of drug companies. But the NYT tells us about $3.5 billion in payments that drug companies made over 5 months last year to 500,000 health care professionals. That comes to an average of $7,000 per person or $16,800 on annual basis. Do you still think you’re getting the best drugs for your health?
If the government imposed a tariff on imports so that companies could sell their products at prices far above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold. If the government imposes patent monopolies so that drug companies can sell their drugs at prices that are several thousand percent above the cost of production, economists would predict there would be corruption as companies sought to maximize the amount of the product they sold.
Okay, maybe economists would not be that consistent, since they seem to be fond of drug companies. But the NYT tells us about $3.5 billion in payments that drug companies made over 5 months last year to 500,000 health care professionals. That comes to an average of $7,000 per person or $16,800 on annual basis. Do you still think you’re getting the best drugs for your health?
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Regular readers of BTP know that expressing budget numbers without context is a pet peeve of mine. The practice is infuriating since almost no readers have any knowledge of the size of the total budget, so they have no clue what it means to cut food stamps by $40 billion over a decade or to spend $180 billion on transportation over the next six years. This problem can be easily remedied expressing budget numbers as a percent of the total budget or as per person expenditures. This would make these numbers instantly understandable to most readers.
I have raised this with numerous reporters and the NYT public editor, Margaret Sullivan. No one has ever tried to claim that these context-less numbers are meaningful to more than a tiny minority of readers. Ms. Sullivan actually embraced the cause and even got then Washington editor David Leonhardt to agree. But nothing seems to have changed.
Today the NYT ran an Associated Press piece that begins:
“France’s Socialist government has detailed a 21 billion-euro ($26.5 billion) cost-cutting plan, the deepest-ever spending cuts in the country’s modern history.”
It later tells us the plan calls for cutting 3.2 billion euros from health spending and 700 million euros from family benefits. So everyone know how important these cuts will be to the French people and economy?
The article is not clear that these are one year cuts, but assuming they are, the 21 billion euro cut would be 1.7 percent of projected spending in 2015. The cut to the health budget would be a bit less that 0.3 percent of spending and the cut to family benefits would be roughly 0.06 percent of total spending. It might be nice to know how large these cuts are relative to total spending in these areas, but that would involve more work than I am prepared to do at this hour.
Regular readers of BTP know that expressing budget numbers without context is a pet peeve of mine. The practice is infuriating since almost no readers have any knowledge of the size of the total budget, so they have no clue what it means to cut food stamps by $40 billion over a decade or to spend $180 billion on transportation over the next six years. This problem can be easily remedied expressing budget numbers as a percent of the total budget or as per person expenditures. This would make these numbers instantly understandable to most readers.
I have raised this with numerous reporters and the NYT public editor, Margaret Sullivan. No one has ever tried to claim that these context-less numbers are meaningful to more than a tiny minority of readers. Ms. Sullivan actually embraced the cause and even got then Washington editor David Leonhardt to agree. But nothing seems to have changed.
Today the NYT ran an Associated Press piece that begins:
“France’s Socialist government has detailed a 21 billion-euro ($26.5 billion) cost-cutting plan, the deepest-ever spending cuts in the country’s modern history.”
It later tells us the plan calls for cutting 3.2 billion euros from health spending and 700 million euros from family benefits. So everyone know how important these cuts will be to the French people and economy?
The article is not clear that these are one year cuts, but assuming they are, the 21 billion euro cut would be 1.7 percent of projected spending in 2015. The cut to the health budget would be a bit less that 0.3 percent of spending and the cut to family benefits would be roughly 0.06 percent of total spending. It might be nice to know how large these cuts are relative to total spending in these areas, but that would involve more work than I am prepared to do at this hour.
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Justin Wolfers tells us that economists are unanimous in supporting Uber and Lyft in a NYT piece this morning. He notes a survey of prominent economists which found that 100 percent either agreed or strongly agreed with the proposition:
“Letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.”
This seems like a proposition that it would be difficult to disagree with, albeit with a few caveats. First, I suspect that many economists would want to see some guarantees about handicap access including in the “equal footing” standard. Most cities require that taxi companies have some number of cabs that are handicap accessible. Uber and Lyft make no commitment to serve the handicapped.
Some economists might also like to see some rules on labor conditions applied to Uber and Lyft. For example, should their drivers be able to organize unions like employees? Also, should there be a guarantee that drivers earn at least the minimum wage after covering expenses? It seems rather foolish to have minimum wage laws if companies can just evade them by setting up their employees as independent contractors. (Some folks may claim that Uber and Lyft can’t control what their drivers actually earn, but with modern technology this is not really a difficult calculation. If these companies have problems, then perhaps they can be replaced with more computer literate competitors.)
Finally, it is important to realize that at this point Uber and Lyft are largely not subject to the same safety and insurance restrictions as traditional taxis. The latter may be too stringent, but I really doubt that any of these economists would oppose uniform standards.
One last point on the wisdom of economists: how many of these people saw the economic crash coming in 2008?
Note: Typos corrected, thanks Robert Salzberg.
Justin Wolfers tells us that economists are unanimous in supporting Uber and Lyft in a NYT piece this morning. He notes a survey of prominent economists which found that 100 percent either agreed or strongly agreed with the proposition:
“Letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.”
This seems like a proposition that it would be difficult to disagree with, albeit with a few caveats. First, I suspect that many economists would want to see some guarantees about handicap access including in the “equal footing” standard. Most cities require that taxi companies have some number of cabs that are handicap accessible. Uber and Lyft make no commitment to serve the handicapped.
Some economists might also like to see some rules on labor conditions applied to Uber and Lyft. For example, should their drivers be able to organize unions like employees? Also, should there be a guarantee that drivers earn at least the minimum wage after covering expenses? It seems rather foolish to have minimum wage laws if companies can just evade them by setting up their employees as independent contractors. (Some folks may claim that Uber and Lyft can’t control what their drivers actually earn, but with modern technology this is not really a difficult calculation. If these companies have problems, then perhaps they can be replaced with more computer literate competitors.)
Finally, it is important to realize that at this point Uber and Lyft are largely not subject to the same safety and insurance restrictions as traditional taxis. The latter may be too stringent, but I really doubt that any of these economists would oppose uniform standards.
One last point on the wisdom of economists: how many of these people saw the economic crash coming in 2008?
Note: Typos corrected, thanks Robert Salzberg.
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I guess this is one of those unsupported assertions that reporters think they just have to repeat to show someone they know economics. In fact they show the opposite. When inflation is near zero, many prices are already falling. Crossing zero, just means more prices are falling. So what?
Again, inflation is too low in the euro zone now. If it crosses zero, then it will be too low by a larger amount: end of story.
I guess this is one of those unsupported assertions that reporters think they just have to repeat to show someone they know economics. In fact they show the opposite. When inflation is near zero, many prices are already falling. Crossing zero, just means more prices are falling. So what?
Again, inflation is too low in the euro zone now. If it crosses zero, then it will be too low by a larger amount: end of story.
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We continue to be treated to stories of how everything about the housing bubble and the economic crisis caused by its collapse was simply unpreventable. None of the people responsible for this immense policy failure has been held accountable in any way. With few exceptions, all are now incredibly rich.
One of the items on the failure list that deserves immense ridicule is that the Fed did not rescue Lehman because it lacked the legal authority. (There is another question as to whether it should have allowed the whole cabal of Wall Street banks to crash in their own greed. No, it would not have condemned us to a second Great Depression — save that fairy tale for the kids shows.) The NYT has a piece with the Fed Chair Ben Bernanke and Treasury Secretary Henry Paulson reasserting their position that the Fed lacked legal authority to bail out Lehman.
The question that is never asked in this piece is, who would have stopped them? If Bernanke and Paulson had taken steps to rescue Lehman, did they think someone would file a suit in court to undo the rescue? If so, who would it be and what would the legal case look like?
That question makes the claim that they didn’t save Lehman because of lack of legal authority look absurd on its face. Many of the actions taken by the Fed and Treasury during the bailout had questionably legal authority, yet no court case ever interfered with their actions in any important way. No one would have had standing to prevent a rescue of Lehman.
If Bernanke and Paulson had wanted to go the route of rescuing Lehman they undoubtedly could have done so. They chose not to rescue the bank and were obviously unprepared for the consequences. The story about lacking legal authority was clearly made up after the fact in the great Washington tradition of CYA. And in the great Washington media tradition of protecting the powerful, this story has been treated as credible for the last six years.
Addendum:
Dax makes a very good point in his comment. We do know what a legal action against a Fed bailout of Lehman would like look, it would look like the suit now coming to trial over the bailout of AIG. In other words, Bernanke, Paulson, and Geithner want us to believe that they didn’t rescue Lehman, even though they knew it was essential to the stability of the financial system, because they were worried they might face long shot legal suit six years later. That might sell at NYT and WaPo, but not among actually serious people.
We continue to be treated to stories of how everything about the housing bubble and the economic crisis caused by its collapse was simply unpreventable. None of the people responsible for this immense policy failure has been held accountable in any way. With few exceptions, all are now incredibly rich.
One of the items on the failure list that deserves immense ridicule is that the Fed did not rescue Lehman because it lacked the legal authority. (There is another question as to whether it should have allowed the whole cabal of Wall Street banks to crash in their own greed. No, it would not have condemned us to a second Great Depression — save that fairy tale for the kids shows.) The NYT has a piece with the Fed Chair Ben Bernanke and Treasury Secretary Henry Paulson reasserting their position that the Fed lacked legal authority to bail out Lehman.
The question that is never asked in this piece is, who would have stopped them? If Bernanke and Paulson had taken steps to rescue Lehman, did they think someone would file a suit in court to undo the rescue? If so, who would it be and what would the legal case look like?
That question makes the claim that they didn’t save Lehman because of lack of legal authority look absurd on its face. Many of the actions taken by the Fed and Treasury during the bailout had questionably legal authority, yet no court case ever interfered with their actions in any important way. No one would have had standing to prevent a rescue of Lehman.
If Bernanke and Paulson had wanted to go the route of rescuing Lehman they undoubtedly could have done so. They chose not to rescue the bank and were obviously unprepared for the consequences. The story about lacking legal authority was clearly made up after the fact in the great Washington tradition of CYA. And in the great Washington media tradition of protecting the powerful, this story has been treated as credible for the last six years.
Addendum:
Dax makes a very good point in his comment. We do know what a legal action against a Fed bailout of Lehman would like look, it would look like the suit now coming to trial over the bailout of AIG. In other words, Bernanke, Paulson, and Geithner want us to believe that they didn’t rescue Lehman, even though they knew it was essential to the stability of the financial system, because they were worried they might face long shot legal suit six years later. That might sell at NYT and WaPo, but not among actually serious people.
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Bob Kuttner has a good column in the Huffington Post comparing the progress made in improving the living standards of ordinary people in the forty years following the New Deal with the deterioration of the last three decades. However the piece doesn’t go far enough in contrasting the former period with the latter period.
After noting the lack of progress in recent years he comments:
“You wonder why people are turning away from the Democrats’ proposition that affirmative government can buffer people from the vicissitudes of the marketplace? You wonder why millennials are attracted to the libertarian proposition that we’re all on our own anyway?”
Of course the problem of the last three decades is not the “vicissitudes of the marketplace,” but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy.
For example an explicit goal of our trade policy is to put our manufacturing workers in direct competition with low paid workers in the developing world. This has the predicted actual result of driving down the wages of manufacturing workers and less-educated workers more generally. At the same time we deliberately depress their wages we largely protect the most highly paid professionals (e.g. doctors, lawyers, and dentists) from the same sort of international competition.
The government has strengthened and lengthened patent and copyright monopolies. This allows for absurdities like a treatment with the hepatitis C drug Sovaldi costing $84,000 when the drug would sell on the free market for less than $1,000. There would be no hand-wringing moral dilemmas about treating people with hepatitis C at less than $1,000 per person. If we just had a free market the government would not be putting people behind bars for 16 months for allowing people to download recorded material.
The vicissitudes of the market would also not have bailed out the Wall Street banks, ensuring that many of the top 0.1 percent or 0.01 percent did not lose their fortunes due to their own greed and ineptitude. It also wouldn’t exempt the financial sector from the same sort of taxes imposed on all other industries. And the vicissitudes of the market would not have a Federal Reserve Board that is prepared to raise interest rates in order to keep people from getting jobs and keep workers from having enough bargaining power to get wage increases.
In these and other areas the government is actively working to redistribute income from the rest of us to those on top. Under such circumstances, a libertarian view that reduces the power of the government likely looks pretty good to many people. Certainly in these areas, less government would be a very big victory for most of the population.
Bob Kuttner has a good column in the Huffington Post comparing the progress made in improving the living standards of ordinary people in the forty years following the New Deal with the deterioration of the last three decades. However the piece doesn’t go far enough in contrasting the former period with the latter period.
After noting the lack of progress in recent years he comments:
“You wonder why people are turning away from the Democrats’ proposition that affirmative government can buffer people from the vicissitudes of the marketplace? You wonder why millennials are attracted to the libertarian proposition that we’re all on our own anyway?”
Of course the problem of the last three decades is not the “vicissitudes of the marketplace,” but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy.
For example an explicit goal of our trade policy is to put our manufacturing workers in direct competition with low paid workers in the developing world. This has the predicted actual result of driving down the wages of manufacturing workers and less-educated workers more generally. At the same time we deliberately depress their wages we largely protect the most highly paid professionals (e.g. doctors, lawyers, and dentists) from the same sort of international competition.
The government has strengthened and lengthened patent and copyright monopolies. This allows for absurdities like a treatment with the hepatitis C drug Sovaldi costing $84,000 when the drug would sell on the free market for less than $1,000. There would be no hand-wringing moral dilemmas about treating people with hepatitis C at less than $1,000 per person. If we just had a free market the government would not be putting people behind bars for 16 months for allowing people to download recorded material.
The vicissitudes of the market would also not have bailed out the Wall Street banks, ensuring that many of the top 0.1 percent or 0.01 percent did not lose their fortunes due to their own greed and ineptitude. It also wouldn’t exempt the financial sector from the same sort of taxes imposed on all other industries. And the vicissitudes of the market would not have a Federal Reserve Board that is prepared to raise interest rates in order to keep people from getting jobs and keep workers from having enough bargaining power to get wage increases.
In these and other areas the government is actively working to redistribute income from the rest of us to those on top. Under such circumstances, a libertarian view that reduces the power of the government likely looks pretty good to many people. Certainly in these areas, less government would be a very big victory for most of the population.
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The Washington Post brought its campaign against Social Security into the name-calling phase with a full page article headlined, “Social Security Is a Mess. How to Fix It.” (That is the print edition headline, the web version is slightly different.) The piece includes a standard list of revenue and spending items that could close the shortfall that is first projected to arise in 19 years.
There are a few points worth making about this piece. The first is the obvious. Name-calling doesn’t belong in a serious newspaper. The Social Security system faces problems, but so does the Justice Department and the Defense Department, or for that matter Amazon, the company controlled by Washington Post owner Jeff Bezos. It is unlikely we will ever see an article headlined “Amazon is a Mess.” The Post should try at least a little bit to separate the views of the editors/publisher from the way it presents the news. That is what serious newspapers do.
The second point is that in the scheme of things Social Security is an incredibly effective program. It has kept tens of millions of people out of poverty. It is the main source of retirement income for current retirees and will grow as a share of most workers’ retirement income in the years ahead. It has very little fraud and abuse. In fact, fraud is so rare that the Washington Post thought it was worth a front-page story to report that 0.006 percent of Social Security benefits over the prior three years had been paid out to dead people. And its administrative costs are less than one-tenth as large as those of private sector firms providing retirement accounts. If Social Security is a “mess,” then the adjectives appropriate for other large institutions could not be printed in a family paper.
The piece also wrongly asserts that the shortfall would be easier to solve if it were done sooner. That might be true if we envision that the gap would be closed entirely or in part on the benefit side. However if the gap is closed on the revenue side it doesn’t follow that there is an special advantage to having a fix implemented sooner. For example, if we raise the cap on taxable wages and raise the payroll tax beginning in 2025, it is not clear that there is any big advantage to writing that into law in 2014 as opposed to 2024. (There may be some small advantage that people can adjust their behavior, but this is a very minor issue.)
It would also have been useful to put the projected shortfall in some context. Much of the shortfall stems from the upward redistribution of income over the last three decades. This is in turn is attributable to policies like special too big to fail insurance for Wall Street banks, trade policy that was designed to put downward pressure on the wages of ordinary workers, and Federal Reserve Board policy that has deliberately kept unemployment high in order to undermine workers’ bargaining power.
This upward redistribution is important to Social Security for two reasons. First, it has shifted a large amount of wage income to workers earning above the cap. The share of wage income that has escaped taxation in this way rose from 10 percent in 1983 to 18 percent in recent years. Similarly, the shift from wage income to profits in the last 14 years has also deprived the system of revenue.
The other reason this shift is important is that it has kept wages from growing in step with productivity. If the typical worker’s wages had risen in step with productivity since 1980 they would be more than 30 percent higher today. In this context, a 2-3 percentage point rise in the payroll tax (like we saw in both the decade of the 1970s and the 1980s) would probably not seem like that big a deal. Workers care first and foremost about their after-tax wage, not the tax rate. While politicians and newspapers might focus on the latter, workers would be far better off with 30 percent more going into their paychecks, even if 2-3 percent more was coming out in taxes.
The Washington Post brought its campaign against Social Security into the name-calling phase with a full page article headlined, “Social Security Is a Mess. How to Fix It.” (That is the print edition headline, the web version is slightly different.) The piece includes a standard list of revenue and spending items that could close the shortfall that is first projected to arise in 19 years.
There are a few points worth making about this piece. The first is the obvious. Name-calling doesn’t belong in a serious newspaper. The Social Security system faces problems, but so does the Justice Department and the Defense Department, or for that matter Amazon, the company controlled by Washington Post owner Jeff Bezos. It is unlikely we will ever see an article headlined “Amazon is a Mess.” The Post should try at least a little bit to separate the views of the editors/publisher from the way it presents the news. That is what serious newspapers do.
The second point is that in the scheme of things Social Security is an incredibly effective program. It has kept tens of millions of people out of poverty. It is the main source of retirement income for current retirees and will grow as a share of most workers’ retirement income in the years ahead. It has very little fraud and abuse. In fact, fraud is so rare that the Washington Post thought it was worth a front-page story to report that 0.006 percent of Social Security benefits over the prior three years had been paid out to dead people. And its administrative costs are less than one-tenth as large as those of private sector firms providing retirement accounts. If Social Security is a “mess,” then the adjectives appropriate for other large institutions could not be printed in a family paper.
The piece also wrongly asserts that the shortfall would be easier to solve if it were done sooner. That might be true if we envision that the gap would be closed entirely or in part on the benefit side. However if the gap is closed on the revenue side it doesn’t follow that there is an special advantage to having a fix implemented sooner. For example, if we raise the cap on taxable wages and raise the payroll tax beginning in 2025, it is not clear that there is any big advantage to writing that into law in 2014 as opposed to 2024. (There may be some small advantage that people can adjust their behavior, but this is a very minor issue.)
It would also have been useful to put the projected shortfall in some context. Much of the shortfall stems from the upward redistribution of income over the last three decades. This is in turn is attributable to policies like special too big to fail insurance for Wall Street banks, trade policy that was designed to put downward pressure on the wages of ordinary workers, and Federal Reserve Board policy that has deliberately kept unemployment high in order to undermine workers’ bargaining power.
This upward redistribution is important to Social Security for two reasons. First, it has shifted a large amount of wage income to workers earning above the cap. The share of wage income that has escaped taxation in this way rose from 10 percent in 1983 to 18 percent in recent years. Similarly, the shift from wage income to profits in the last 14 years has also deprived the system of revenue.
The other reason this shift is important is that it has kept wages from growing in step with productivity. If the typical worker’s wages had risen in step with productivity since 1980 they would be more than 30 percent higher today. In this context, a 2-3 percentage point rise in the payroll tax (like we saw in both the decade of the 1970s and the 1980s) would probably not seem like that big a deal. Workers care first and foremost about their after-tax wage, not the tax rate. While politicians and newspapers might focus on the latter, workers would be far better off with 30 percent more going into their paychecks, even if 2-3 percent more was coming out in taxes.
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The Washington Post treated us to “five myths about billionaires” this morning. Incredibly, they missed the most obvious one: that billionaires know anything special about what is good for the country and the world.
Most billionaires (at least those who didn’t inherit the money) are probably smart and hard-working, but so are millions of other people. What most distinguishes someone like Bill Gates from the hundreds of thousands of other software entrepreneurs is luck and sharp elbows. Suppose IBM had refused to allow Gates to keep control of the Dos operating system? Gates might still be very rich, but certainly not the richest man in the world. Alternatively, if the government still enforced anti-trust laws Microsoft might have faced serious penalties for engaging in textbook anti-competitive practices to get and keep a near monopoly in operating systems, Gates also would not have the fortune he has today.
Anyhow, there is no reason to think that Gates’ luck and ruthlessness make him particularly competent to pass judgment on world poverty, education, or any of the other issues for which he is now viewed as an authority. The same applies to the other billionaire policy types cited in the piece. While these people obviously have the money to ensure that their views carry force in the world, there is no more reason to think that these billionaires’ judgments on public policy carry particular value than the judgments of people who win the lottery.
The Washington Post treated us to “five myths about billionaires” this morning. Incredibly, they missed the most obvious one: that billionaires know anything special about what is good for the country and the world.
Most billionaires (at least those who didn’t inherit the money) are probably smart and hard-working, but so are millions of other people. What most distinguishes someone like Bill Gates from the hundreds of thousands of other software entrepreneurs is luck and sharp elbows. Suppose IBM had refused to allow Gates to keep control of the Dos operating system? Gates might still be very rich, but certainly not the richest man in the world. Alternatively, if the government still enforced anti-trust laws Microsoft might have faced serious penalties for engaging in textbook anti-competitive practices to get and keep a near monopoly in operating systems, Gates also would not have the fortune he has today.
Anyhow, there is no reason to think that Gates’ luck and ruthlessness make him particularly competent to pass judgment on world poverty, education, or any of the other issues for which he is now viewed as an authority. The same applies to the other billionaire policy types cited in the piece. While these people obviously have the money to ensure that their views carry force in the world, there is no more reason to think that these billionaires’ judgments on public policy carry particular value than the judgments of people who win the lottery.
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