That is the essence of his column today warning liberals of sharp cuts to domestic discretionary spending (e.g. Head Start, education, infrastructure etc.) unless there are cuts to Medicare and Social Security. Hiatt uses the term “entitlements” since it is less popular than the programs to which it refers.
The basic argument is that Hiatt has decided how large the deficit can be, he has decided that there can be no additional cuts to the military, and that there can be no new taxes ever. Therefore if liberals don’t want to see the domestic discretionary portion of the budget contract, then they better accept cuts to Social Security and Medicare.
It’s not clear why anyone should accept Hiatt’s assessment on any of these points. (He is batting close to 100 percent in the being wrong department. Remember when his gang was warning about budget deficits back in 2006-2007 as the collapse of the housing bubble was about to sink the economy?)
Of course the size of the deficit is not fixed and in the near term larger deficits will foster growth and create jobs. Why should liberals accept that cavemen, who have trouble with math and logic, will forever keep us from getting the economy back to full employment?
As far as the military budget, we were spending 3.0 percent of GDP on the military back in 2000, is there some obvious reason that we can’t get back to that level again? Our economy will be more than 50 percent larger in 2020, so 3 percent of 2020 GDP would be 50 percent more spending in real dollars than it was in 2000.
As far as taxes, liberals would obviously prefer progressive tax increases to regressive ones, but polling data consistently show that people across the political spectrum would prefer tax increases to cuts in Social Security and Medicare. In other words, if the budget situation requires that we either make cuts to these programs or raise the taxes needed to pay for them, Democrats, Independents and even Republicans prefer to raise taxes. It is only Washington elite types like Fred Hiatt who want to rule out this option.
Finally, most liberals would be happy to have cuts to Medicare that involve cutting excess payments to providers. We pay more than twice as much per person for our health care as the average for people in other wealthy countries. If we got our costs more in line by cutting payments to drug companies and medical equipment companies, most liberals would be fully on board.
We could also go the route of promoting free trade: allowing Medicare beneficiaries to buy into the more efficient health care systems in other countries and splitting the savings. Unfortunately Hiatt and other Washington elite types become ardent protectionists when the discussion is about trade that could reduce the income of their rich friends.
So we can see the problem is not inevitable cuts in domestic discretionary spending. The problem is that people like Fred Hiatt want to rule out any other options in order to try to force cuts to Social Security and Medicare.
One final point, there is no guarantee that even if liberals agreed to cut the benefits received by people on Social Security and Medicare that the money would go to domestic discretionary spending. In the past surplus funds have been used for tax cuts targeted to the rich. In the current political environment in Washington it would be absurd to assume that this could not happen again.
That is the essence of his column today warning liberals of sharp cuts to domestic discretionary spending (e.g. Head Start, education, infrastructure etc.) unless there are cuts to Medicare and Social Security. Hiatt uses the term “entitlements” since it is less popular than the programs to which it refers.
The basic argument is that Hiatt has decided how large the deficit can be, he has decided that there can be no additional cuts to the military, and that there can be no new taxes ever. Therefore if liberals don’t want to see the domestic discretionary portion of the budget contract, then they better accept cuts to Social Security and Medicare.
It’s not clear why anyone should accept Hiatt’s assessment on any of these points. (He is batting close to 100 percent in the being wrong department. Remember when his gang was warning about budget deficits back in 2006-2007 as the collapse of the housing bubble was about to sink the economy?)
Of course the size of the deficit is not fixed and in the near term larger deficits will foster growth and create jobs. Why should liberals accept that cavemen, who have trouble with math and logic, will forever keep us from getting the economy back to full employment?
As far as the military budget, we were spending 3.0 percent of GDP on the military back in 2000, is there some obvious reason that we can’t get back to that level again? Our economy will be more than 50 percent larger in 2020, so 3 percent of 2020 GDP would be 50 percent more spending in real dollars than it was in 2000.
As far as taxes, liberals would obviously prefer progressive tax increases to regressive ones, but polling data consistently show that people across the political spectrum would prefer tax increases to cuts in Social Security and Medicare. In other words, if the budget situation requires that we either make cuts to these programs or raise the taxes needed to pay for them, Democrats, Independents and even Republicans prefer to raise taxes. It is only Washington elite types like Fred Hiatt who want to rule out this option.
Finally, most liberals would be happy to have cuts to Medicare that involve cutting excess payments to providers. We pay more than twice as much per person for our health care as the average for people in other wealthy countries. If we got our costs more in line by cutting payments to drug companies and medical equipment companies, most liberals would be fully on board.
We could also go the route of promoting free trade: allowing Medicare beneficiaries to buy into the more efficient health care systems in other countries and splitting the savings. Unfortunately Hiatt and other Washington elite types become ardent protectionists when the discussion is about trade that could reduce the income of their rich friends.
So we can see the problem is not inevitable cuts in domestic discretionary spending. The problem is that people like Fred Hiatt want to rule out any other options in order to try to force cuts to Social Security and Medicare.
One final point, there is no guarantee that even if liberals agreed to cut the benefits received by people on Social Security and Medicare that the money would go to domestic discretionary spending. In the past surplus funds have been used for tax cuts targeted to the rich. In the current political environment in Washington it would be absurd to assume that this could not happen again.
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Neil Irwin wrote about a presentation that Alan Krueger gave at the Rock and Roll Hall of Fame that showed how the growing inequality of revenue in the music industry was characteristic of trends in inequality in the larger economy. Irwin quotes Krueger:
“We are increasingly becoming a ‘winner-take-all economy,’ a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up.”
The piece includes a chart that Krueger presented showing that the share of concert revenue going to the top 1 percent of performers went from 26 percent in 1982 to 56 percent in 2003. The next 4 percent saw their share squeezed somewhat from around 36 percent to 29 percent. This led to a fall in the share for everyone else from 38 percent to 15 percent.
While the share of the 1 percent was rising in this period, it is interesting to look what was happening to total revenue, most importantly in pre-recorded music. This rose rapidly as a share of GDP from less than 0.12 percent in 1980 to a peak of just under 0.2 percent in 1998. The obvious explanation for this rise was the growth of CDs. This new format meant that people were not only buying new music, but also many people were purchasing music they already had on tape or records in this new format. After 1998 the share of GDP spent on recorded music plummeted, falling to 0.11 percent in 2012.
It’s not clear what Krueger’s data would show over this period (his chart ends in 2003), but we might see a growing share for the top 1 percent of a sharply declining revenue stream. The logic is that it costs a great deal of money for the music industry to promote a new artist. In a context of sharply dwindling revenue due to technological innovation (the Internet has made a vast amount of material available at zero cost), it is much less likely that this money will be recouped in sales. As a result it makes more sense for the industry to market music that might have been made 30 or 40 years ago because there is very little risk involved.
However there are two important items in this picture that have nothing to do with technology. The first is efforts to restrict unauthorized copies. The industry has repeatedly gone to Congress to push for beefed up protection for copyright and stronger enforcement measures. The Digital Millennium Copyright Act was one piece of fruit from this effort. Another agenda item was SOPA and PIPA, which would impose much greater burdens on Internet intermediaries.
The other major item here is the extension of the length of copyright protection. The duration is now 95 years. This gives companies an incentive to promote old music that would not otherwise exist.
Anyhow, the point is that the concentration of earnings of the top 1 percent is not just technology, but rather the ability of the rich and powerful to control technology to ensure that it makes them richer and more powerful.
Btw, for those wondering, there was a substantial increase in the share of GDP going to live performances also. It went from 0.05 percent of GDP in 1980 to 0.12 percent in 2005. It had remained pretty stable at that level for several years, but fell back to 0.11 percent in 2011. Presumably the division of revenue from live performances loosely corresponds to the revenue from recorded music since it will be closely related to the extent to which various performers are promoted.
Neil Irwin wrote about a presentation that Alan Krueger gave at the Rock and Roll Hall of Fame that showed how the growing inequality of revenue in the music industry was characteristic of trends in inequality in the larger economy. Irwin quotes Krueger:
“We are increasingly becoming a ‘winner-take-all economy,’ a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up.”
The piece includes a chart that Krueger presented showing that the share of concert revenue going to the top 1 percent of performers went from 26 percent in 1982 to 56 percent in 2003. The next 4 percent saw their share squeezed somewhat from around 36 percent to 29 percent. This led to a fall in the share for everyone else from 38 percent to 15 percent.
While the share of the 1 percent was rising in this period, it is interesting to look what was happening to total revenue, most importantly in pre-recorded music. This rose rapidly as a share of GDP from less than 0.12 percent in 1980 to a peak of just under 0.2 percent in 1998. The obvious explanation for this rise was the growth of CDs. This new format meant that people were not only buying new music, but also many people were purchasing music they already had on tape or records in this new format. After 1998 the share of GDP spent on recorded music plummeted, falling to 0.11 percent in 2012.
It’s not clear what Krueger’s data would show over this period (his chart ends in 2003), but we might see a growing share for the top 1 percent of a sharply declining revenue stream. The logic is that it costs a great deal of money for the music industry to promote a new artist. In a context of sharply dwindling revenue due to technological innovation (the Internet has made a vast amount of material available at zero cost), it is much less likely that this money will be recouped in sales. As a result it makes more sense for the industry to market music that might have been made 30 or 40 years ago because there is very little risk involved.
However there are two important items in this picture that have nothing to do with technology. The first is efforts to restrict unauthorized copies. The industry has repeatedly gone to Congress to push for beefed up protection for copyright and stronger enforcement measures. The Digital Millennium Copyright Act was one piece of fruit from this effort. Another agenda item was SOPA and PIPA, which would impose much greater burdens on Internet intermediaries.
The other major item here is the extension of the length of copyright protection. The duration is now 95 years. This gives companies an incentive to promote old music that would not otherwise exist.
Anyhow, the point is that the concentration of earnings of the top 1 percent is not just technology, but rather the ability of the rich and powerful to control technology to ensure that it makes them richer and more powerful.
Btw, for those wondering, there was a substantial increase in the share of GDP going to live performances also. It went from 0.05 percent of GDP in 1980 to 0.12 percent in 2005. It had remained pretty stable at that level for several years, but fell back to 0.11 percent in 2011. Presumably the division of revenue from live performances loosely corresponds to the revenue from recorded music since it will be closely related to the extent to which various performers are promoted.
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The NYT ran a piece telling readers “even pessimists feel optimistic about the American economy.” What is striking is the nature of the optimism reported in the article. At one point the article gives as one example of this optimism:
“Mr. Behravesh (the chief economist at IHS Global Insight) now expects the annual growth rate to rise to 2.9 percent in 2014 and 3.5 percent in 2015.”
The trend rate of GDP growth is between 2.2-2.5 percent according to the Congressional Budget Office (CBO) and other forecasters. CBO puts the economy now at roughly 6.0 percent below its trend level of output. If we take the average of Behravesh’s forecast for the next two years and assume that the economy sustains this rate going forward, then the economy will be growing at a rate of 3.2 percent.
At that pace it will be closing the output gap at a rate of between 0.7-1.0 percentage point a year. If we take the higher number (1.0 percentage point) then we will get back to potential output in 2019, making this downturn as long as the Great Depression. If we take the lower number then we won’t get back to potential GDP sometime in 2021, making this a 14-year downturn.
It would be interesting to know what the real pessimists say.
The NYT ran a piece telling readers “even pessimists feel optimistic about the American economy.” What is striking is the nature of the optimism reported in the article. At one point the article gives as one example of this optimism:
“Mr. Behravesh (the chief economist at IHS Global Insight) now expects the annual growth rate to rise to 2.9 percent in 2014 and 3.5 percent in 2015.”
The trend rate of GDP growth is between 2.2-2.5 percent according to the Congressional Budget Office (CBO) and other forecasters. CBO puts the economy now at roughly 6.0 percent below its trend level of output. If we take the average of Behravesh’s forecast for the next two years and assume that the economy sustains this rate going forward, then the economy will be growing at a rate of 3.2 percent.
At that pace it will be closing the output gap at a rate of between 0.7-1.0 percentage point a year. If we take the higher number (1.0 percentage point) then we will get back to potential output in 2019, making this downturn as long as the Great Depression. If we take the lower number then we won’t get back to potential GDP sometime in 2021, making this a 14-year downturn.
It would be interesting to know what the real pessimists say.
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The Washington Post shows as little regard for standards of journalistic objectivity in its coverage of trade deals as in its coverage of Social Security. Therefore it was not surprising to see this line in an article reporting on the European Union’s decision to restrict areas to be covered in a new trade pact with the United States:
“The Transatlantic Trade and Investment Partnership is a centerpiece of the Obama administration’s accelerating push on trade and international economic relations to boost U.S. growth and jobs.”
Really? The Post knows that boosting growth and jobs is the main purpose of the Obama administration’s trade agenda? That could be the case, but given the central role that corporate lobbyists are playing in designing the agenda it might be reasonable to believe that boosting corporate profits is a high priority. This does not necessarily mean boosting growth and creating jobs and in fact may mean the exact opposite.
For example, when trade agreements increase patent or other barriers on the sale of prescription drugs it will raise the price of these drugs in other countries, pulling money out of consumers pockets and leaving them with less money to spend on other items produced in the United States. This will boost corporate profits but will lower growth and hurt employment. The same is true of many other items on the agenda of U.S. trade negotiators.
The Post need not pass judgment on the motives of the Obama administration in these negotiations. It just should follow normal journalistic standards and report the administration’s claims about its agenda (along with the claims of critics) and let readers make up their own minds. It is irresponsible to simply assert that the motives claimed by the administration are its true motives, especially when so much evidence points in the opposite direction.
The Washington Post shows as little regard for standards of journalistic objectivity in its coverage of trade deals as in its coverage of Social Security. Therefore it was not surprising to see this line in an article reporting on the European Union’s decision to restrict areas to be covered in a new trade pact with the United States:
“The Transatlantic Trade and Investment Partnership is a centerpiece of the Obama administration’s accelerating push on trade and international economic relations to boost U.S. growth and jobs.”
Really? The Post knows that boosting growth and jobs is the main purpose of the Obama administration’s trade agenda? That could be the case, but given the central role that corporate lobbyists are playing in designing the agenda it might be reasonable to believe that boosting corporate profits is a high priority. This does not necessarily mean boosting growth and creating jobs and in fact may mean the exact opposite.
For example, when trade agreements increase patent or other barriers on the sale of prescription drugs it will raise the price of these drugs in other countries, pulling money out of consumers pockets and leaving them with less money to spend on other items produced in the United States. This will boost corporate profits but will lower growth and hurt employment. The same is true of many other items on the agenda of U.S. trade negotiators.
The Post need not pass judgment on the motives of the Obama administration in these negotiations. It just should follow normal journalistic standards and report the administration’s claims about its agenda (along with the claims of critics) and let readers make up their own minds. It is irresponsible to simply assert that the motives claimed by the administration are its true motives, especially when so much evidence points in the opposite direction.
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Neil Irwin has an interesting discussion of a new practice by which some private data gathering outfits sell early access to the releases of their data at a premium. The idea is that a small number of people will have access to the new information ahead of the market.
Irwin raises several issues about this practice, but misses an important one: economic efficiency. From an economic standpoint we would like as few resources as possible to be devoted to the process of collecting and disseminating information.
This means for example, that if we can have 2000 people involved in the process of collecting data on employment, wages, prices and output and disseminating this information to the rest of us, we are much richer collectively than if we have 2 million people involved in this process (including the running of financial markets). In the former case, the other 1,998,000 people would be able to spend their time providing the rest of us with health care, housing, education, or other goods and services of value.
However if we deliberately create a situation where there are large amounts of money to be made by getting early access to data then we will almost certainly be pulling more people into this process of collecting and disseminating information. To be concrete, if people think that they can make millions or billions of dollars by beating the crowd to information then many people will devote great effort to beating the crowd to information.
This is pure rent-seeking in that their behavior offers no benefit to the economy. It will not make the economy more efficient if the price of a specific stock or other financial assets adjust 1 second more quickly to new information, however it can make particular individuals very rich.
In principle we want to set rules for the market so that people have incentive to engage in behavior that increases the wealth of society for example by inventing more efficient cars or developing better drugs. We don’t want the incentives to drive them toward rent-seeking behavior that offers no social benefit. Opportunities to get market moving data ahead of others will undoubtedly encourage more rent-seeking behavior. This is a loss to the economy and society.
Neil Irwin has an interesting discussion of a new practice by which some private data gathering outfits sell early access to the releases of their data at a premium. The idea is that a small number of people will have access to the new information ahead of the market.
Irwin raises several issues about this practice, but misses an important one: economic efficiency. From an economic standpoint we would like as few resources as possible to be devoted to the process of collecting and disseminating information.
This means for example, that if we can have 2000 people involved in the process of collecting data on employment, wages, prices and output and disseminating this information to the rest of us, we are much richer collectively than if we have 2 million people involved in this process (including the running of financial markets). In the former case, the other 1,998,000 people would be able to spend their time providing the rest of us with health care, housing, education, or other goods and services of value.
However if we deliberately create a situation where there are large amounts of money to be made by getting early access to data then we will almost certainly be pulling more people into this process of collecting and disseminating information. To be concrete, if people think that they can make millions or billions of dollars by beating the crowd to information then many people will devote great effort to beating the crowd to information.
This is pure rent-seeking in that their behavior offers no benefit to the economy. It will not make the economy more efficient if the price of a specific stock or other financial assets adjust 1 second more quickly to new information, however it can make particular individuals very rich.
In principle we want to set rules for the market so that people have incentive to engage in behavior that increases the wealth of society for example by inventing more efficient cars or developing better drugs. We don’t want the incentives to drive them toward rent-seeking behavior that offers no social benefit. Opportunities to get market moving data ahead of others will undoubtedly encourage more rent-seeking behavior. This is a loss to the economy and society.
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The Post ran an article highlighting new data from the Census Bureau showing that the number of white people who died last year exceeded the number who were born. It concludes the piece by citing William Frey, a demographer at Brookings:
“the natural decrease in whites suggests that aging whites will increasingly come to rely on the younger, mainly minority population to underwrite social programs that will sustain them.”
While this is true of social programs like Social Security and Medicare, this statement would also be true of stockholders who are even more disproportionately white than the elderly population, especially when ownership is measured in dollar terms. If the implication of Frey’s statement is that changing demographics could be the basis for future social conflict the more obvious locus would be the portion of national income siphoned off by stockholders than the benefits going to retirees.
While minorities can anticipate benefiting in their old age from Social Security and Medicare, and from the insurance they provide against disability and early death throughout their working lifetimes, most will not ever benefit to any significant extent from stock ownership. This would suggest that if there is an increasing basis for conflict between whites and minorities the more obvious area of contention would be the rules that have increased corporate profits at the expense of wages (e.g. fiscal and monetary policies that foster high unemployment, too big to fail banks, increased patent and copyright protection) rather than government social programs.
The Post ran an article highlighting new data from the Census Bureau showing that the number of white people who died last year exceeded the number who were born. It concludes the piece by citing William Frey, a demographer at Brookings:
“the natural decrease in whites suggests that aging whites will increasingly come to rely on the younger, mainly minority population to underwrite social programs that will sustain them.”
While this is true of social programs like Social Security and Medicare, this statement would also be true of stockholders who are even more disproportionately white than the elderly population, especially when ownership is measured in dollar terms. If the implication of Frey’s statement is that changing demographics could be the basis for future social conflict the more obvious locus would be the portion of national income siphoned off by stockholders than the benefits going to retirees.
While minorities can anticipate benefiting in their old age from Social Security and Medicare, and from the insurance they provide against disability and early death throughout their working lifetimes, most will not ever benefit to any significant extent from stock ownership. This would suggest that if there is an increasing basis for conflict between whites and minorities the more obvious area of contention would be the rules that have increased corporate profits at the expense of wages (e.g. fiscal and monetary policies that foster high unemployment, too big to fail banks, increased patent and copyright protection) rather than government social programs.
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A NYT piece on the growth in the percentage of young people getting college degrees included the assertion from Jamie P. Merisotis, the chief executive of the Lumina Foundation:
“There are worrisome signs that the demand for high-skilled talent is increasing more rapidly than we’re actually educating people … We can’t expect our citizens to meet the demands of the 21st-century economy and society without a 21st-century education.”
It is not clear what this evidence would be. The unemployment rate for college graduates, although down from its peak in 2010, is still close to twice its pre-recession level. In addition, wages for college graduates without advance degrees were stagnant even before the recession. These facts suggest that the economy is not suffering from a shortage of highly educated worker, although there may be some narrow occupations and locations in which shortages appear.
A NYT piece on the growth in the percentage of young people getting college degrees included the assertion from Jamie P. Merisotis, the chief executive of the Lumina Foundation:
“There are worrisome signs that the demand for high-skilled talent is increasing more rapidly than we’re actually educating people … We can’t expect our citizens to meet the demands of the 21st-century economy and society without a 21st-century education.”
It is not clear what this evidence would be. The unemployment rate for college graduates, although down from its peak in 2010, is still close to twice its pre-recession level. In addition, wages for college graduates without advance degrees were stagnant even before the recession. These facts suggest that the economy is not suffering from a shortage of highly educated worker, although there may be some narrow occupations and locations in which shortages appear.
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The government gives direct student loans. This saves money by eliminating the financial intermediaries. Is there some reason that it can’t do the same with mortgages, that is a reason other than banks need to rip off the public with the government’s assistance?
Jesse Eisinger has a good piece pointing out that the most politically likely paths for reforming Fannie Mae and Freddie Mac are likely to mean big profits for banks and incorporate few of the lessons from the housing bubble.
The government gives direct student loans. This saves money by eliminating the financial intermediaries. Is there some reason that it can’t do the same with mortgages, that is a reason other than banks need to rip off the public with the government’s assistance?
Jesse Eisinger has a good piece pointing out that the most politically likely paths for reforming Fannie Mae and Freddie Mac are likely to mean big profits for banks and incorporate few of the lessons from the housing bubble.
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The NYT implied that politicians in the United States and Europe are pushing a trade deal because they want to boost growth in a prolonged period of stagnation. This is not plausible.
Even optimistic projections of the impact of a trade deal show that it would only increase GDP by around 1.0 percent. This increase would only be felt after the changes in the agreement are fully phased in which will almost certainly be more than a decade. The implication is that the impact on annual growth will almost certainly be less than 0.1 percentage point, and even this would be an optimistic scenario.
The more obvious explanation is that powerful corporate interests could benefit from a trade agreement that would over-ride national or local health, safety, and environmental regulations. The most obvious news in this piece is that political leaders are misrepresenting their motives, trying to claim that a trade deal is about economic growth, which could provide benefits to most of the population, as opposed to special interest rules that are intended to benefit a narrow group of corporations.
The NYT implied that politicians in the United States and Europe are pushing a trade deal because they want to boost growth in a prolonged period of stagnation. This is not plausible.
Even optimistic projections of the impact of a trade deal show that it would only increase GDP by around 1.0 percent. This increase would only be felt after the changes in the agreement are fully phased in which will almost certainly be more than a decade. The implication is that the impact on annual growth will almost certainly be less than 0.1 percentage point, and even this would be an optimistic scenario.
The more obvious explanation is that powerful corporate interests could benefit from a trade agreement that would over-ride national or local health, safety, and environmental regulations. The most obvious news in this piece is that political leaders are misrepresenting their motives, trying to claim that a trade deal is about economic growth, which could provide benefits to most of the population, as opposed to special interest rules that are intended to benefit a narrow group of corporations.
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