I’m not kidding, he notes the sharp redistribution from labor to capital over the last four decades then tells readers;
“Although the stars are lined up in favor of the anti-corporate left, American business, when its back is to the wall, has historically proved to be extraordinarily resourceful.”
Seriously, it’s a thoughtful piece, but it’s difficult to see the rising anti-business tide that Edsall discerns. From where I sit it looks like the country is controlled by two parties dominated by business interests. They both push policies that are likely to continue the upward redistribution of income, the main difference is that the Democrats think that the wealthy should pay their taxes.
I’m not kidding, he notes the sharp redistribution from labor to capital over the last four decades then tells readers;
“Although the stars are lined up in favor of the anti-corporate left, American business, when its back is to the wall, has historically proved to be extraordinarily resourceful.”
Seriously, it’s a thoughtful piece, but it’s difficult to see the rising anti-business tide that Edsall discerns. From where I sit it looks like the country is controlled by two parties dominated by business interests. They both push policies that are likely to continue the upward redistribution of income, the main difference is that the Democrats think that the wealthy should pay their taxes.
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It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:
“Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.
“In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into ‘a permanent disconnect’ between government outlays and revenue.
“‘We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,’ Dr. Cowen wrote. ‘As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'”
This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, “we are all Keynesians now.”
The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan’s agenda became “ascendant.” In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble.
In short, if Buchanan’s argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.
It is customary not to say bad things about people when they die, but that is not a reason to construct an alternative reality, as the NYT appears to have done in its obituary for James Buchanan. The obituary tells readers:
“Dr. Buchanan partly blamed Keynesian economics for what he considered a decline in America’s fiscal discipline. John Maynard Keynes argued that budget deficits were not only unavoidable but in fiscal emergencies were even desirable as a means to increase spending, create jobs and cut unemployment. But that reasoning allowed politicians to rationalize deficits under many circumstances and over long periods, Dr. Buchanan contended.
“In a commentary in The New York Times in March 2011, Tyler Cowen, an economics professor at George Mason, said his colleague Dr. Buchanan had accurately forecast that deficit spending for short-term gains would evolve into ‘a permanent disconnect’ between government outlays and revenue.
“‘We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society,’ Dr. Cowen wrote. ‘As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic.'”
This discussion turns the reality of U.S. budget deficits on its head. As can be seen, the debt to GDP ratio was consistently falling in the 35 years following World War II. This was the period when we seeing the indiscipline of Keynesian economics at its fullest bloom. As Richard Nixon famously remarked during his presidency, “we are all Keynesians now.”
The debt to GDP ratio began to rise again in the Reagan era as a result of his tax cuts and military buildup. Ironically the piece tells us that the Reagan era was when Buchanan’s agenda became “ascendant.” In the post-Reagan era the debt to GDP ratio again began to decline under President Clinton. It rose slightly under President Bush, who is not generally viewed as a Keynesian, and then exploded after the economic downturn caused by the collapse of the housing bubble.
In short, if Buchanan’s argument was that liberal demands for an ever expanding welfare state would lead to chronic deficits, history has shown him to be wrong. If the argument is that the desire for tax cuts and increased military spending, coupled with macroeconomic mismanagement, could lead to large deficits, there is a strong case.
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David Brooks is very upset about the possibility that the cost of Medicare will prevent the United States from being as large a military force in the world in the future as it has been in the past. He tells readers:
“Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years. …
“So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both.”
Of course fans of arithmetic everywhere know that the basis for these projections is the assumption that per person health care costs, which are already more than twice the average for other wealthy countries, will increase to three or four times the cost in other countries. This means that our health care system will become ever more dysfunctional.
While that is of course possible, the problem is not the American people getting what they want, as Brooks asserts, it is the health care industry using its political power to extort incredible sums from the rest of us. If our health care costs were in line with costs in other countries, we would be looking at budget surpluses, not deficits.
In principle we should be able to reform our health care system to get its costs in line with those in other countries. However Brooks never even considers this possibility. (Actually, health care costs in recent years have come in way below projections, suggesting that we may already be on a slower growth path.) Alternatively, if our political system is too corrupt to allow reform we could allow Medicare beneficiaries to buy into the more efficient health care systems in other countries and split the savings with the government. However, Brooks is not interested in this option either.
Brooks would rather see people denied care under the argument that it is necessary to preserve the country’s military standing in the world. In reality, we should make sure that we are not wasting trillions of dollars paying more than necessary for our health care. We should also decide what sort of military involvement we want the United States to have in the world. It may not be desirable to be intervening widely and fighting wars on different continents even if we can in fact afford the cost.
David Brooks is very upset about the possibility that the cost of Medicare will prevent the United States from being as large a military force in the world in the future as it has been in the past. He tells readers:
“Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years. …
“So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both.”
Of course fans of arithmetic everywhere know that the basis for these projections is the assumption that per person health care costs, which are already more than twice the average for other wealthy countries, will increase to three or four times the cost in other countries. This means that our health care system will become ever more dysfunctional.
While that is of course possible, the problem is not the American people getting what they want, as Brooks asserts, it is the health care industry using its political power to extort incredible sums from the rest of us. If our health care costs were in line with costs in other countries, we would be looking at budget surpluses, not deficits.
In principle we should be able to reform our health care system to get its costs in line with those in other countries. However Brooks never even considers this possibility. (Actually, health care costs in recent years have come in way below projections, suggesting that we may already be on a slower growth path.) Alternatively, if our political system is too corrupt to allow reform we could allow Medicare beneficiaries to buy into the more efficient health care systems in other countries and split the savings with the government. However, Brooks is not interested in this option either.
Brooks would rather see people denied care under the argument that it is necessary to preserve the country’s military standing in the world. In reality, we should make sure that we are not wasting trillions of dollars paying more than necessary for our health care. We should also decide what sort of military involvement we want the United States to have in the world. It may not be desirable to be intervening widely and fighting wars on different continents even if we can in fact afford the cost.
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That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
That’s what Gary King and Samir Soneji tell us in a NYT column this morning. The gist of the piece is that the authors have assessed trends in mortality rates from a variety of factors and concluded that the Social Security Administration is underestimating life expectancy. Therefore the program will cost more than is projected, meaning that the long-term funding gap is larger than projected.
Before dealing with the scary prospect of living longer let’s first address some trivia. The piece tells readers:
“For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall.”
That’s not exactly right. The program spent more than it received in payroll taxes, but Social Security also earned more than $117 billion in interest on the government bonds in the trust fund. This means that the program actually had an annual surplus and the trust fund grew in 2010.
But let’s get to the crisis of living longer. Based on their projections of life expectancy, King and Soneji calculate that in 2031 Social Security will cost about 0.65 percentage points more than the trustees currently project measured as a share of taxable payroll. This comes to 0.25 percentage points measured as a share of GDP.
Should we be scared by this? Well, the amount is certainly not trivial, but the increase in defense spending associated with the wars in Iraq and Afghanistan came to 1.7 percent of GDP. So, we have dealt with much bigger expenses without too much disruption to the economy. So if King and Soneji’s projections prove accurate, Social Security will not exactly be breaking the bank.
However there is a bit more to the story. They only dealt with the impact of improving health on life expectancy. There are other ways in which better health can be expected to affect the finances of the program. For example, the disability portion of the program currently accounts for almost 18 percent of the program’s cost. If better health reduced disability rates then this could go a substantial portion of the way toward offsetting the higher costs associated with a longer period of retirement.
The second way in which better health could affect Social Security projections is by allowing people to work later into their life. A substantial portion of retirees are forced to retire due to poor health. If these people were in better health, many workers might put in more years of work before retirement, thereby improving the finances of the program by increasing tax collections.
Better health might also mean slower growth in health care costs. One drain on the Social Security system is the money paid to workers in the form of employer provided health insurance. This money, which has been a rapidly growing share of compensation, is not subject to the Social Security tax. If better health reduces the rate of growth of health care costs, a larger portion of compensation may be subject to the payroll tax, which would also improve the program’s finances.
Finally, improved health would likely reduce the cost of other government programs like Medicare. This could means that we will be paying out more money in Social Security to retirees but paying less for their Medicare and Medicaid expenses.
All these effects may not be entirely a wash, meaning that our longer lives will mean more net expenditures from the government, but we would want to look at all these factors before we hit the panic button.
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The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.
However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.
Residential specialty trade contractors
Source: Bureau of Labor Statistics.
Residential building
Source: Bureau of Labor Statistics.
This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers’ payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.
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At a time where the most obvious conflict over resources has been the enormous upward redistribution to the top 1 percent, the Los Angeles Times is working to promote conflict based on age. A piece on the budget battle was centered around the claim that the Republicans base of support is disproportionately older people who depend on Social Security and Medicare whose interests are pitted against those of younger voters who support the Democrats:
“At its core, the debate over the size of government and how to pay for it pits the interests of the huge baby boom generation, now mostly in their 50s and 60s, against the needs of the even larger cohort in their teens and 20s. With limited government money to spend, how much should go to paying medical bills for retirees versus subsidizing college loans, job training and healthcare for young families with children?”
In fact, the government is not up against any resource limits as the markets keep trying to tell people by lending the government vast amounts of money at extremely low interest rates. If the economy were near full employment, then the deficit would be less than 2.0 percent of GDP, a level that can be sustained forever.
Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.
Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.
At a time where the most obvious conflict over resources has been the enormous upward redistribution to the top 1 percent, the Los Angeles Times is working to promote conflict based on age. A piece on the budget battle was centered around the claim that the Republicans base of support is disproportionately older people who depend on Social Security and Medicare whose interests are pitted against those of younger voters who support the Democrats:
“At its core, the debate over the size of government and how to pay for it pits the interests of the huge baby boom generation, now mostly in their 50s and 60s, against the needs of the even larger cohort in their teens and 20s. With limited government money to spend, how much should go to paying medical bills for retirees versus subsidizing college loans, job training and healthcare for young families with children?”
In fact, the government is not up against any resource limits as the markets keep trying to tell people by lending the government vast amounts of money at extremely low interest rates. If the economy were near full employment, then the deficit would be less than 2.0 percent of GDP, a level that can be sustained forever.
Over the longer term deficits are projected to be a problem, but this is because of the projected explosion in health care costs, not the aging of the population. If U.S. per person health care costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits. This suggests that there is a conflict between the interests of the public at large and the health care providers (e.g. the drug, insurance and medical supply companies and high paid medical specialists), but not between generations.
Finally, it is important to note that the cuts that have been proposed for Social Security and Medicare, such as raising the normal retirement age or the age of eligibility for Medicare would primarily hit the young, not people currently receiving benefits from these programs. Polls have shown that seniors often support these programs because they want to ensure that their children and grandchildren get the same benefits that they enjoy, not out of a selfish impulse to protect what they have.
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For some reason no one appears to be asking this obvious question in the context of Al Jazeera’s purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV’s programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.
For some reason no one appears to be asking this obvious question in the context of Al Jazeera’s purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV’s programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.
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What the hell is wrong with the NYT, are they working for the Campaign to Fix the Debt? The plan for Social Security and Medicare is for cuts, as in reduce spending, as in pay out fewer dollars, not random “changes” that could lead to either more or less spending. How does the term “changes” appear in this paragraph:
“That opening bid [in further budget negotiations] should restart talks with Congress on an overarching agreement that would lock in deficit reduction through additional revenue, changes to entitlement programs and more spending cuts, to be worked out by the relevant committees in Congress.”
Newspapers are supposed to be informing their readers, not trying to make their friends’ agenda more palatable. There is no excuse for the word “changes” to appear in this article.
What the hell is wrong with the NYT, are they working for the Campaign to Fix the Debt? The plan for Social Security and Medicare is for cuts, as in reduce spending, as in pay out fewer dollars, not random “changes” that could lead to either more or less spending. How does the term “changes” appear in this paragraph:
“That opening bid [in further budget negotiations] should restart talks with Congress on an overarching agreement that would lock in deficit reduction through additional revenue, changes to entitlement programs and more spending cuts, to be worked out by the relevant committees in Congress.”
Newspapers are supposed to be informing their readers, not trying to make their friends’ agenda more palatable. There is no excuse for the word “changes” to appear in this article.
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The Washington Post is continuing its drumbeat for deficit reduction devoting an entire article to the views of the business lobby without ever presenting the possibility that their claims may not be accurate. In fact the piece explicitly endorsed the business perspective wrongly warning readers in the first sentence that the deficit deal “won’t unlock investment.”
This assertion can easily be shown to be wrong since fans of Commerce Department data know that investment is not “locked.” In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity.
Source: Bureau of Economic Analysis.
The relatively strong pace of investment suggests that there is nothing to be “unlocked” by the sort of budget agreement the Post would like to see. It is of course advantageous to proponents of such a deal to have the public believe that there would be a flood of investment if Congress pushed the spending cuts they wanted.
The Washington Post is continuing its drumbeat for deficit reduction devoting an entire article to the views of the business lobby without ever presenting the possibility that their claims may not be accurate. In fact the piece explicitly endorsed the business perspective wrongly warning readers in the first sentence that the deficit deal “won’t unlock investment.”
This assertion can easily be shown to be wrong since fans of Commerce Department data know that investment is not “locked.” In fact, equipment and software investment is almost back to its pre-recession share of GDP. This is quite impressive since many sectors of the economy still have large amounts of excess capacity.
Source: Bureau of Economic Analysis.
The relatively strong pace of investment suggests that there is nothing to be “unlocked” by the sort of budget agreement the Post would like to see. It is of course advantageous to proponents of such a deal to have the public believe that there would be a flood of investment if Congress pushed the spending cuts they wanted.
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