Bruce Bartlett has an interesting blog post in the NYT talking about changes in patterns of wealth distribution in recent years. Bartlett points out that the recent rise in the stock market is likely to provide little benefit to most middle income families since they have little, if any, wealth in the stock market. By contrast, the value of the housing stock is still far below its pre-recession level, at $17.7 trillion at the end of 2012 compared to a peak of $22.7 trillion in 2006. Bartlett notes that this is likely to have a large impact on consumption and the economy, citing recent work by Karl Case, John Quigley, and Robert Shiller showing that a $1 decline in housing wealth is associated with a 10 cent drop in annual consumption.
It is worth noting that the drop in the nominal value of the housing stock understates the impact of the housing crash on consumption. Potential GDP was almost 30 percent higher in 2012 than in 2006. This means that to provide the same spark to the economy as it did in 2006, the value of the housing stock in 2012 would have to be almost $30 trillion in 2012.
Bruce Bartlett has an interesting blog post in the NYT talking about changes in patterns of wealth distribution in recent years. Bartlett points out that the recent rise in the stock market is likely to provide little benefit to most middle income families since they have little, if any, wealth in the stock market. By contrast, the value of the housing stock is still far below its pre-recession level, at $17.7 trillion at the end of 2012 compared to a peak of $22.7 trillion in 2006. Bartlett notes that this is likely to have a large impact on consumption and the economy, citing recent work by Karl Case, John Quigley, and Robert Shiller showing that a $1 decline in housing wealth is associated with a 10 cent drop in annual consumption.
It is worth noting that the drop in the nominal value of the housing stock understates the impact of the housing crash on consumption. Potential GDP was almost 30 percent higher in 2012 than in 2006. This means that to provide the same spark to the economy as it did in 2006, the value of the housing stock in 2012 would have to be almost $30 trillion in 2012.
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Glenn Kessler has been doing a good job scrutinizing the claims of horrors of sequester in his job as the Washington Post fact checker. For example, in this piece on the Obama administration’s claim of the number of children who would be denied vaccines because of the sequester, he questions how many otherwise would have gotten vaccines and whether there were sources of flexibility in the program’s funding that would allow vaccines to continue to be offered to eligible children.
These are reasonable points to raise. They imply that steps can be taken to prevent the sequester from being as harmful as simple across the board cuts may first appear.
In fact, this is a reasonable way to assess any claim about budgets. Unfortunately this critical approach does not get applied to standard framework in which Washington budget debates are taking place.
This framework holds that we must commit the country now to achieving some debt target (e.g. 73 percent of GDP) as of 2023, with the country then on a stable path of a debt to GDP ratio, or something really bad will happen. The implicit counter-factual in this framework is that even as the budget situation deteriorates later in this decade and early in the next decade, and financial markets get ever more antsy demanding ever higher interest rates, Congress does nothing.
This has never happened in U.S. history. There has never been a prolonged stretch in which the budget situation has deteriorated without a response from Congress. Nor have the financial markets ever panicked to the point where the government had any difficulty selling its debt.
In other words, the horror stories of exploding deficits and debt and resulting financial market panic have no historical precedent. They assume that future congresses will be far more irresponsible that any we have seen in the past.
This is of course possible, but it is a very strong assumption. It certainly would be worth pointing out to readers. Many Post readers have probably been led to believe that if the country does not do something about its deficit now there will be a problem as opposed to a situation where the deficit begins to pose major problems over the next decade and Congress still doesn’t do anything. This confusion is far more important to current policy debates than the exact number of vaccines that will not be given due to the sequester.
Glenn Kessler has been doing a good job scrutinizing the claims of horrors of sequester in his job as the Washington Post fact checker. For example, in this piece on the Obama administration’s claim of the number of children who would be denied vaccines because of the sequester, he questions how many otherwise would have gotten vaccines and whether there were sources of flexibility in the program’s funding that would allow vaccines to continue to be offered to eligible children.
These are reasonable points to raise. They imply that steps can be taken to prevent the sequester from being as harmful as simple across the board cuts may first appear.
In fact, this is a reasonable way to assess any claim about budgets. Unfortunately this critical approach does not get applied to standard framework in which Washington budget debates are taking place.
This framework holds that we must commit the country now to achieving some debt target (e.g. 73 percent of GDP) as of 2023, with the country then on a stable path of a debt to GDP ratio, or something really bad will happen. The implicit counter-factual in this framework is that even as the budget situation deteriorates later in this decade and early in the next decade, and financial markets get ever more antsy demanding ever higher interest rates, Congress does nothing.
This has never happened in U.S. history. There has never been a prolonged stretch in which the budget situation has deteriorated without a response from Congress. Nor have the financial markets ever panicked to the point where the government had any difficulty selling its debt.
In other words, the horror stories of exploding deficits and debt and resulting financial market panic have no historical precedent. They assume that future congresses will be far more irresponsible that any we have seen in the past.
This is of course possible, but it is a very strong assumption. It certainly would be worth pointing out to readers. Many Post readers have probably been led to believe that if the country does not do something about its deficit now there will be a problem as opposed to a situation where the deficit begins to pose major problems over the next decade and Congress still doesn’t do anything. This confusion is far more important to current policy debates than the exact number of vaccines that will not be given due to the sequester.
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A NYT piece discussing the prospects of another budget deal would have benefited enormously by answering this question. The piece referred to a proposal to restructure Medicare under which the government, “could potentially charge the affluent elderly more.”
The definition of “affluent” matters enormously. When it came to raising taxes, President Obama and the Republican leadership agreed not to raise taxes for couples earning less than $450,000 a year. If this same definition of “affluent” is applied to elderly then it would only affect 0.1-0.2 percent of Medicare beneficiaries.
While the rich have a hugely disproportionate share of the country’s income, their per person Medicare expenses are roughly the same as everyone else’s. (Actually they would be somewhat less since the premiums for the program are already means tested.) This means that if President Obama and congressional leaders are planning to apply a cutoff for being affluent for Medicare that is comparable to what was used in the tax negotiations then the amount of money at stake is trivial and it is hardly worth the paper’s time to be reporting on the negotiations.
Alternatively, if the proposal is intended to raise a serious amount of revenue then it will likely mean that seniors with incomes around $50,000-$60,000 would be paying more for their Medicare. This is not a level of income that is generally regarded as “affluent.” If this is the sort of cutoff being considered in the negotiations then the NYT is badly misleading its readers by saying that they are discussing charging fees to the affluent elderly. In this case they are talking about charging higher fees to people who almost everyone would consider middle income.
A NYT piece discussing the prospects of another budget deal would have benefited enormously by answering this question. The piece referred to a proposal to restructure Medicare under which the government, “could potentially charge the affluent elderly more.”
The definition of “affluent” matters enormously. When it came to raising taxes, President Obama and the Republican leadership agreed not to raise taxes for couples earning less than $450,000 a year. If this same definition of “affluent” is applied to elderly then it would only affect 0.1-0.2 percent of Medicare beneficiaries.
While the rich have a hugely disproportionate share of the country’s income, their per person Medicare expenses are roughly the same as everyone else’s. (Actually they would be somewhat less since the premiums for the program are already means tested.) This means that if President Obama and congressional leaders are planning to apply a cutoff for being affluent for Medicare that is comparable to what was used in the tax negotiations then the amount of money at stake is trivial and it is hardly worth the paper’s time to be reporting on the negotiations.
Alternatively, if the proposal is intended to raise a serious amount of revenue then it will likely mean that seniors with incomes around $50,000-$60,000 would be paying more for their Medicare. This is not a level of income that is generally regarded as “affluent.” If this is the sort of cutoff being considered in the negotiations then the NYT is badly misleading its readers by saying that they are discussing charging fees to the affluent elderly. In this case they are talking about charging higher fees to people who almost everyone would consider middle income.
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The Washington Post once again left its readers stumped. It printed an op-ed column by David Goldhill, the president and CEO of the Game Show Network, the main point of which seems to be that Medicare must still confront rent-seeking by health care providers.
Goldhill apparently is arguing against the merits of expanding Medicare or adopting a single payer type system in the United States, telling readers:
“Single-payer advocates contend that other nations have managed to better control health-care spending — volumes and prices — by enforcing a true budget for cost. But any review of how our Medicare system actually works illustrates why a single-payer system would be so difficult here: Our government has a pervasive inability to say “no.” Only in the United States is public health care an unbudgeted entitlement: Our government promises to pay for any care seniors need and providers respond by relentlessly expanding the definition of need. It’s no coincidence.”
This statement implies that Medicare somehow does worse in containing costs and preventing unnecessary procedures than private insurers. The data does not support this claim. According to the Center for Medicare and Medicaid Services (Table 3), the per person cost of Medicare has consistently risen less rapidly than for private insurers. Over the whole period from 1969 to 2011, costs in Medicare rose by an average annual rate of 8.6 percent compared to 9.9 percent for private insurers. For common services the gap was even larger, 7.9 percent compared to 9.3 percent. (Medicare has expanded services, most notably the prescription drug benefit. This expansion reflected the fact that prescription drugs were a trivial expense when the program was created in 1966 and therefore were not covered.)
In the most recent period, 2007-2011, the gap was even larger with annual costs rising 3.6 percent in Medicare and 5.3 percent for private insurers. For common benefits the numbers are 2.8 percent and 5.6 percent.
While lobbyists of providers will certainly try to push for higher payments for their clients, the evidence is that Medicare is still more effective in containing costs than the private sector. To bring costs in line with those in other wealthy countries it will be necessary to impose more market discipline on doctors, drug companies, medical equipment suppliers and other providers, but it seems clear that Medicare is better equipped to do this than private insurers.
The Washington Post once again left its readers stumped. It printed an op-ed column by David Goldhill, the president and CEO of the Game Show Network, the main point of which seems to be that Medicare must still confront rent-seeking by health care providers.
Goldhill apparently is arguing against the merits of expanding Medicare or adopting a single payer type system in the United States, telling readers:
“Single-payer advocates contend that other nations have managed to better control health-care spending — volumes and prices — by enforcing a true budget for cost. But any review of how our Medicare system actually works illustrates why a single-payer system would be so difficult here: Our government has a pervasive inability to say “no.” Only in the United States is public health care an unbudgeted entitlement: Our government promises to pay for any care seniors need and providers respond by relentlessly expanding the definition of need. It’s no coincidence.”
This statement implies that Medicare somehow does worse in containing costs and preventing unnecessary procedures than private insurers. The data does not support this claim. According to the Center for Medicare and Medicaid Services (Table 3), the per person cost of Medicare has consistently risen less rapidly than for private insurers. Over the whole period from 1969 to 2011, costs in Medicare rose by an average annual rate of 8.6 percent compared to 9.9 percent for private insurers. For common services the gap was even larger, 7.9 percent compared to 9.3 percent. (Medicare has expanded services, most notably the prescription drug benefit. This expansion reflected the fact that prescription drugs were a trivial expense when the program was created in 1966 and therefore were not covered.)
In the most recent period, 2007-2011, the gap was even larger with annual costs rising 3.6 percent in Medicare and 5.3 percent for private insurers. For common benefits the numbers are 2.8 percent and 5.6 percent.
While lobbyists of providers will certainly try to push for higher payments for their clients, the evidence is that Medicare is still more effective in containing costs than the private sector. To bring costs in line with those in other wealthy countries it will be necessary to impose more market discipline on doctors, drug companies, medical equipment suppliers and other providers, but it seems clear that Medicare is better equipped to do this than private insurers.
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Zero holds a bizarre place in policy debates. In the United States we have many policy types who seem to worship a balanced budget. At the start of the last decade there was a modest clamoring on the right for a monetary policy targeting zero inflation. In the same vein we continue to see assertions that deflation would pose some inordinate problem, as though something awful happens when the change in the aggregate price level turns negative.
The culprit today is the NYT, which has an article on the European Central Bank’s decision to leave its short-term interest rate unchanged. At one point it told readers that deflation is:
“a broad decline in prices that, by discouraging consumer spending and business investment, can be more economically destructive than runaway inflation.”
Actually, a moderate rate of deflation (e.g. less in absolute value than -1.0 percent) would have only a very modest impact in depressing demand. The inflation rate is an aggregate of hundreds of thousands of price changes. When the rate is near zero, many of these price changes are in fact negative. (Some are negative because of imputations of quality improvements by government statistical agencies, as has often occurred with new cars and computers. Actual prices in the market may be increasing.)
The shift from a low positive inflation rate to a low rate of deflation simply means that the price change is negative for a larger share of these items. It is not remotely plausible that this shift can have disastrous economic consequences.
There is a story where falling prices lead to more rapidly falling prices, which would have a devastating impact on the economy, but this acceleration downward is no more likely (and probably less likely) than a sudden acceleration upward. As a practical matter, the economy would benefit from a higher rate of inflation, since that would reduce real interest rates and thereby spur growth. In this sense, a 0.5 percent rate of deflation is worse than a 0.5 percent rate of inflation in the same way that a 0.5 percent rate of inflation is worse than a 1.5 percent rate of inflation. There is no magic to crossing the zero line.
Zero holds a bizarre place in policy debates. In the United States we have many policy types who seem to worship a balanced budget. At the start of the last decade there was a modest clamoring on the right for a monetary policy targeting zero inflation. In the same vein we continue to see assertions that deflation would pose some inordinate problem, as though something awful happens when the change in the aggregate price level turns negative.
The culprit today is the NYT, which has an article on the European Central Bank’s decision to leave its short-term interest rate unchanged. At one point it told readers that deflation is:
“a broad decline in prices that, by discouraging consumer spending and business investment, can be more economically destructive than runaway inflation.”
Actually, a moderate rate of deflation (e.g. less in absolute value than -1.0 percent) would have only a very modest impact in depressing demand. The inflation rate is an aggregate of hundreds of thousands of price changes. When the rate is near zero, many of these price changes are in fact negative. (Some are negative because of imputations of quality improvements by government statistical agencies, as has often occurred with new cars and computers. Actual prices in the market may be increasing.)
The shift from a low positive inflation rate to a low rate of deflation simply means that the price change is negative for a larger share of these items. It is not remotely plausible that this shift can have disastrous economic consequences.
There is a story where falling prices lead to more rapidly falling prices, which would have a devastating impact on the economy, but this acceleration downward is no more likely (and probably less likely) than a sudden acceleration upward. As a practical matter, the economy would benefit from a higher rate of inflation, since that would reduce real interest rates and thereby spur growth. In this sense, a 0.5 percent rate of deflation is worse than a 0.5 percent rate of inflation in the same way that a 0.5 percent rate of inflation is worse than a 1.5 percent rate of inflation. There is no magic to crossing the zero line.
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The Post has a nice piece pointing out the disparities in life expectancy by income. As a result of these differences, proposals to raise the age of Social Security eligibility would disproportionately hit lower income workers.
At one point the piece tells readers:
“Advocates of raising the retirement age say only a relative handful of older workers would be harmed and that the vulnerable could be protected by enacting hardship exemptions.”
It would have been worth noting that this practice of creating “hardship exemptions” was one of the policies that won Greece much ridicule in recent years. Its social security system allowed workers in many occupations to retire at younger ages. For example hairdressers were allowed to start collecting benefits at age 50, ostensibly because they worked with hazardous chemicals.
Most countries have been moving away from policies that vary retirement ages by occupation in favor of uniform retirement age. It is striking that we have people in policy positions in the United States that are advocating the old Greek model.
The Post has a nice piece pointing out the disparities in life expectancy by income. As a result of these differences, proposals to raise the age of Social Security eligibility would disproportionately hit lower income workers.
At one point the piece tells readers:
“Advocates of raising the retirement age say only a relative handful of older workers would be harmed and that the vulnerable could be protected by enacting hardship exemptions.”
It would have been worth noting that this practice of creating “hardship exemptions” was one of the policies that won Greece much ridicule in recent years. Its social security system allowed workers in many occupations to retire at younger ages. For example hairdressers were allowed to start collecting benefits at age 50, ostensibly because they worked with hazardous chemicals.
Most countries have been moving away from policies that vary retirement ages by occupation in favor of uniform retirement age. It is striking that we have people in policy positions in the United States that are advocating the old Greek model.
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I hate to spoil the party over the big February jobs numbers, but I guess I’ve always been more of a data geek than a party guy. Yes, 236,000 is better than expected and not a bad number in the scheme of things. But folks with a little bit of memory would be slower to bring out the champagne bottles. We created 271,000 jobs last February and 196,000 jobs in February of 2011. That makes the average for the prior two years 234,000, almost exactly the same as yesterday’s job number.
Last year the story, as I said at the time, was that unusually good winter weather gave a boost to the February numbers. We didn’t see snowstorms shutting down major cities across the Northeast and Midwest as we would in a typical winter. That story probably applies to some extent this year as well, even if Boston did take a hit over a mid-February weekend.
The 48,000 new jobs in construction would certainly be consistent with this story. You can believe that construction employment is growing at a 10 percent annual rate or that we saw a weather driven fluke in February. I vote for the latter, but we will have more information in another month.
Btw, if we take the 191,000 average rate of job growth over the last 3 months, we would not make up our 9 million jobs deficit until well into 2020. Things certainly could be worse, but that is not a terribly bright picture.
I hate to spoil the party over the big February jobs numbers, but I guess I’ve always been more of a data geek than a party guy. Yes, 236,000 is better than expected and not a bad number in the scheme of things. But folks with a little bit of memory would be slower to bring out the champagne bottles. We created 271,000 jobs last February and 196,000 jobs in February of 2011. That makes the average for the prior two years 234,000, almost exactly the same as yesterday’s job number.
Last year the story, as I said at the time, was that unusually good winter weather gave a boost to the February numbers. We didn’t see snowstorms shutting down major cities across the Northeast and Midwest as we would in a typical winter. That story probably applies to some extent this year as well, even if Boston did take a hit over a mid-February weekend.
The 48,000 new jobs in construction would certainly be consistent with this story. You can believe that construction employment is growing at a 10 percent annual rate or that we saw a weather driven fluke in February. I vote for the latter, but we will have more information in another month.
Btw, if we take the 191,000 average rate of job growth over the last 3 months, we would not make up our 9 million jobs deficit until well into 2020. Things certainly could be worse, but that is not a terribly bright picture.
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The Washington Post just loves the trade agreements that recent administrations have been pursuing. It is willing to abandon all journalistic standards to help promote them. Post fans may remember back in 2007 when a lead editorial claimed that Mexico’s GDP had quadrupled over the prior two decades in an editorial touting the benefits of NAFTA. (Mexico’s actual growth over this period was 83 percent.)
Anyhow, it’s back in the trade agreement promotion business with a front page article that touts the trade agreements being pursued by the Obama administration as a way to create jobs. The hard sell begins in the very first sentence where it tells readers that these are “free-trade” agreements.
This is of course not true. Formal trade barriers are already very low between the United States and most of the countries with whom we are negotiating trade pacts. These deals are in fact about imposing a set of standardized commercial rules, some of which, like increased patent and copyright protection, are the direct opposite of free trade. It undoubtedly sounds better to call a deal a “free-trade” pact, since most Serious People then think they have to support it, but it does not reflect reality.
It is also absurd to describe these deals as part of a job creation strategy in a period where the economy is operating way below full employment. Incredibly, the article holds up the prospect of opening up Vietnam’s economy to trade — in the same way that China’s economy was opened up in the 90s — as a goal of current negotiations. Needless to say, trade with China has not been a net creator of jobs in recent years.
However the whole idea of trade agreements as a way to create jobs is ridiculous on its face. There is an argument for reducing trade barriers to increase economic efficiency (increased patent and copyright protection go in the opposite direction), however this will have minimal impact on job creation.
This would be comparable to selling electricity deregulation as a job creation strategy. If it worked, electricity deregulation would lead to lower electricity prices which would provide clear economic benefits, but the impact on employment would be trivial.
The same is true with trade agreements as every intro textbook shows. It is understandable that the Obama administration would want to mislead the public to better promote its trade agenda. But real newspapers are not supposed to assist in this effort.
The Washington Post just loves the trade agreements that recent administrations have been pursuing. It is willing to abandon all journalistic standards to help promote them. Post fans may remember back in 2007 when a lead editorial claimed that Mexico’s GDP had quadrupled over the prior two decades in an editorial touting the benefits of NAFTA. (Mexico’s actual growth over this period was 83 percent.)
Anyhow, it’s back in the trade agreement promotion business with a front page article that touts the trade agreements being pursued by the Obama administration as a way to create jobs. The hard sell begins in the very first sentence where it tells readers that these are “free-trade” agreements.
This is of course not true. Formal trade barriers are already very low between the United States and most of the countries with whom we are negotiating trade pacts. These deals are in fact about imposing a set of standardized commercial rules, some of which, like increased patent and copyright protection, are the direct opposite of free trade. It undoubtedly sounds better to call a deal a “free-trade” pact, since most Serious People then think they have to support it, but it does not reflect reality.
It is also absurd to describe these deals as part of a job creation strategy in a period where the economy is operating way below full employment. Incredibly, the article holds up the prospect of opening up Vietnam’s economy to trade — in the same way that China’s economy was opened up in the 90s — as a goal of current negotiations. Needless to say, trade with China has not been a net creator of jobs in recent years.
However the whole idea of trade agreements as a way to create jobs is ridiculous on its face. There is an argument for reducing trade barriers to increase economic efficiency (increased patent and copyright protection go in the opposite direction), however this will have minimal impact on job creation.
This would be comparable to selling electricity deregulation as a job creation strategy. If it worked, electricity deregulation would lead to lower electricity prices which would provide clear economic benefits, but the impact on employment would be trivial.
The same is true with trade agreements as every intro textbook shows. It is understandable that the Obama administration would want to mislead the public to better promote its trade agenda. But real newspapers are not supposed to assist in this effort.
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